MorphoSys AG (MOR) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today's second quarter report 2006 conference call of MorphoSys AG. For your information, this conference is being recorded. At this time, I would like to hand the call over to your host today, Mr. Lemus. Go ahead, sir.

Good morning, and welcome. This is Dave Lemus, CFO of MorphoSys. With me is Simon Moroney, our CEO. We're calling you today from our headquarters in Munich, Germany. First, we'd like to welcome you to this conference call and thank you for participating. During the call, we would like to begin to talk about the Company's financial results for the first half of 2006. Simon will begin by giving you an overview of the second quarter; then I will review the financial results for the first six months of 2006. Afterwards, we will open the call to your questions.

Before I start, I want to remind you that during this conference, we will present and discuss certain forward-looking statements concerning the development of MorphoSys' core technologies, the progress of its current research programs, and the initiation of additional programs. Should actual conditions differ from the Company's assumptions, actual results and actions may differ from those anticipated. You are therefore cautioned not to place undue reliance on such forward-looking statements, which speak only as of the day hereof.

Now, I would like to hand over to Simon Moroney.

Also from me, a warm welcome to our Q2 2006 conference call. We've had a very good quarter. This good performance, together with great clarity on expenses, has enabled us to increase our financial guidance for the year as a whole. The headline figures were released yesterday, and Dave will speak to the details shortly. It goes without saying that this is excellent news which underscores how well the business is performing.

In the second quarter, we entered three new contracts with partners in the pharmaceutical and biotech industries. The most significant of these was the expansion and extension of our alliance with Novartis. We have already talked about the Novartis deal in a conference call on June 26, but I'll provide a reminder of the salient features now for completeness.

You'll recall that we originally entered an agreement with Novartis in May 2004. The deal was intended to run for three years, with Novartis having an option to extend for a further two years, making a maximum of five. We've now been working together for two years, and the collaboration has been so productive that Novartis requested that we increase the number of active programs that we jointly pursue. We were happy to acquiesce to this request under certain terms and conditions.

The key features are expansion, meaning more therapeutic antibody programs will be pursued, and extension. The agreement now runs for seven years in the first instance, with Novartis having an option on a further one year. More therapeutic antibody programs mean a larger team at MorphoSys, supported by Novartis. We are now recruiting for this purpose. More programs mean, of course, not only additional R&D funding for MorphoSys but also more license payments and the potential for more milestones and royalties on end product sales. We also insisted on higher annual technology access fees, which, effective immediately, are increased significantly over the original level. As usual in these cases, financial details were not disclosed, and we ask for your understanding that these must remain confidential.

During the quarter, we also entered an alliance with a completely new partner, namely Schering-Plough. This deal was our twelfth partnership with a top-20 pharmaceutical company. Under the terms of the deal, Schering-Plough may use our HuCAL GOLD library in its in-house research and development for up to five years. The technology will be used for discovery purposes, and Schering-Plough has options on up to ten therapeutic antibody licenses under predefined terms. As usual, MorphoSys got an up-front payment and will receive annual license payments. Under any therapeutic antibody programs that Schering-Plough may pursue, MorphoSys stands to receive target-related license fees, milestones and royalties, along the lines of our standard deal terms. In the meantime, a team of Schering-Plough scientists was here in Munich for training in the use of the HuCAL technology, and a copy of the library has been installed at Schering-Plough's premises. Again, as with Novartis, this deal is important not only for the near term revenue it brings us but for the potential of an expanded therapeutic antibody pipeline.

The third deal closed this quarter was with OncoMed, a much less well known name than the others but a company that is based on some fascinating science. OncoMed is a California-based company, a spinout of Genentech, with an approach to cancer therapy based on so-called cancer stem cells, which are believed to be uniquely responsible for the growth and proliferation of tumors. OncoMed has taken a license to use HuCAL GOLD for two years in its in-house R&D. MorphoSys received an up-front payment and will also be paid annual technology access fees. Again, as with Schering-Plough, OncoMed has options on several therapeutic antibody programs, and if one or more of these options is triggered, it will make target-related license payments to MorphoSys and potentially pay developmental milestones and royalties on end products.

All of these deals contribute to near term revenues but, more importantly, have the potential to significantly increase the breadth of our partnered therapeutic antibody pipeline. Without any of these three new deals yet contributing, the pilot pipeline has developed well during this quarter. As expected, following Roche's IND filing on our HuCAL antibodies for Alzheimer's disease in Q1, administration of drug to the first subject of the phase 1 trial commenced during Q2. We now count 2 compounds in clinical trials, 10 in preclinical development-- that's up from 8 at the end of Q1-- and 23 in research, for a total of 35 active programs. On the back of the Novartis deal, we communicated that the total number of active partnered programs would reach 38 by year end, and we're on track to reaching this target.

With respect to our proprietary, in-house therapeutic antibody programs, MOR103 and MOR202 both remain on track, MOR103 towards an IND in the second half of 2007 and MOR202 towards the selection of one fully profiled development candidate by the end of this year.

Turning to the research side of the business, integration of Serotec into our AbD unit continues to progress well. Sales are on target, and we have seen tangible signs of some of the synergies we have planned, such as securing new customers for our HuCAL custom antibody business from the efforts of the Serotec sales organization. In addition, as you will hear shortly from Dave, we now have a better understanding of all of the expenses associated with the acquisition and conclude that we remain on track to meet our financial expectations for the unit for this year, both top and bottom lines.

Before I hand back to Dave for his review of the financial results, I would like to mention a remarkable quarter in terms of pharmaceutical company acquisitions of biotech firms focusing on antibodies. In the order in which they were announced, we saw Pfizer buy Rinat, AstraZeneca bid for CAT, and Novartis buy NeuTec. This is yet more evidence, as if we need it, of the ever-increasing interest of pharmaceutical companies in antibodies as a class of drugs.

With that, I conclude my review of the quarter. I would now like to hand over to Dave for his presentation of the financial results.

To begin the financial analysis, I'll start with revenues. Group revenues grew by 72% in the first six months of 2006 to EUR26.5 million compared to EUR15.4 million in the same period of last year. Total Company organic growth amounted to 33% compared to the prior year in the Company. Revenues arising from the Therapeutic Antibody segment accounted for 66%, or EUR17.5 million total revenues, while the AbD segment generated 34%, or EUR9 million of the total.

On the Therapeutics side of our business, organic revenue growth amounted to 29% compared to the same period in 2005. The reasons for the increase were mainly due to success-based payments from existing collaborations, which represented EUR5 million revenues in the first half year, or roughly 29% of total segment revenues.

On the Research side of our business, the AbD segment achieved a very strong 67% organic growth over the prior year and represented the former brands Biogenesis in the UK and AbD in Munich. Inclusion of the Serotec Group revenues contributed EUR6 million of total revenues to the segment.

Moving to expenses for the first six months of 2006, total operating expenses increased by 58% to EUR21 million. The increase in operating expenses of EUR7.7 million was mainly due to higher personnel-related costs and other operating costs associated with the acquisition of Serotec, as well as increased personnel expenses at MorphoSys' headquarters in Munich. The acquisition of Serotec Ltd., including its affiliates, had the effect of increasing operating expenses by EUR5.6 million. Stock-based compensation expenses are presently embedded in COGS, SG&A and R&D expense amounts. Stock-based compensation for the first six months of 2006 amounted to EUR600,000 and changed little over the previous year, remaining as a non-cash charge. The purchase price allocation, or also known as PPA, was carried out for the Serotec acquisition in the second quarter. The resulting preliminary values were retroactively recognized to the purchase date, and amortization as well as half-year depreciation of assets identified were included in total operating expenses during the second quarter. The total PPA effects from the Serotec acquisition on operating profit amounted to EUR600,000 compared to Biogenesis' EUR300,000 in the same period of last year. Total PPA effects on operating expenses amounted to EUR800,000.

Moving on to cost of goods sold, COGS rose significantly to EUR4 million in second quarter of 2006 compared to EUR1.1 million in the same period of the prior year. The main reason for the increase was the inclusion of Serotec Group's company's COGS - amounted to EUR2.4 million in 2006. Also driving COGS higher were increased levels of revenues, stemming from Biogenesis in particular. Finally, COGS was affected by depreciation of the step up in inventories, identified under the Serotec and Biogenesis PPA exercises, in the amount of EUR400,000.

As a result of higher expenses for product and technology development in the amount of EUR900,000, costs for research and development increased to EUR7.9 million. Amortization of intangibles associated with the Serotec PPA amounted to EUR300,000 and were also accounted for as research and development expenses.

Sales, general and administrative expenses amounted to EUR9.1 million compared to EUR5.2 million in the same period of the previous year. This resulted mainly from higher personnel and other operating expenses arising out of the Serotec Group of EUR3.2 million, as well as increased personnel expenses at MorphoSys' headquarter on the SG&A side.

MorphoSys' investment in plant, property and equipment amounted to EUR200,000 for the first three months of 2006 compared to EUR100,000 for the same period the prior year. Depreciation of PP&E for the first quarter of 2006 accounted for EUR300,000 compared to EUR200,000 in the same period of the previous year. Amortization of intangibles amounted to EUR500,000 and remain unchanged compared to the same period the prior year.

Non-operating expenses increased by EUR800,000 to EUR1 million, mainly due to the recognition of tax accruals in order to reflect revised financial expectations for the year 2006. This effect was partly offset by gains in securities sold in the first quarter in connection with the financing of the Serotec Group and by the amortization of deferred tax liabilities recognized as a result of the Serotec purchase price allocation.

For the first six months of 2006, the Company presented an operating profit in the amount of EUR5.6 million compared to an operating profit of EUR2 million for the first half of 2005. For the first half year, profit before taxes amounted to EUR5.4 million compared to EUR1.7 million in the same period of the previous year. A net profit of EUR4.5 million was achieved in the first half of 2006 compared to a net profit of EUR1.8 million in the same period of 2005.

Looking at the second quarter in isolation, the net loss of EUR200,000 resulted for the second quarter of 2006 compared to a net profit of EUR1.3 million during the same period of 2005. The main reason for the loss is because of a cumulative catch up for the first year under the PPA exercise, as well as the recognition of tax accruals on higher than expected income for the full year.

The profit per share for the first half year more than doubled compared to the previous year and amounted to EUR0.71 per share in 2006. On June 30, 2006, the total number of shares issued amounted to 6.6 million shares.

On June 30, 2006, the Company held EUR64.9 million in cash, equivalents and securities compared to a year end 2005 balance of EUR53.6 million. Cash flow from operations amounted to a healthy EUR14.6 million in the first half year of 2006 and was driven by strong operating cash flows and increases in the levels of deferred revenues.

That concludes the financial analysis. As is typical during our conference calls, we'd like to take the opportunity to update our financial guidance. As you may have seen from the press release yesterday, we increased our financial guidance for the full year 2006. To reiterate, we expect for the full year 2006 revenues in the amount of EUR52 million. This increase arises from the Therapeutic Antibody segment, where we expect revenues of up to EUR34 million compared to EUR32 million guidance at the beginning of the year. The reason for the increase is the extension of the Novartis collaboration as well as the strong deal flow in the first half of 2006. Revenue guidance for the AbD segment remains unchanged at EUR18 million. In our revised guidance of today, we also lowered our expense guidance by up to EUR3 million from EUR49 million, potentially down to EUR46 million. An overall review of the budget, which was triggered by the signature of the Novartis extension, led us to believe that expenses could be lower than originally anticipated, and now also includes new estimates of total PPA expense, which are now lower than originally estimated. On the back of these changes, we expect an EBIT of up to EUR6 million for the full year 2006.

On that note, I want to make the point that as MorphoSys continues to be profitable, and increasingly so, we feel that EBIT represents the best way for us to gauge our operational performance. Non-operational items, including tax, amortization of deferred tax liabilities, foreign exchange gains and losses are very difficult to predict accurately, so we will in the future change our financial forecasts to reflect EBIT and not bottom line net income. That being said, our best estimate of the non-operating expenses for the full year in 2006 we estimate at EUR1 million, which includes income tax accruals on behalf of the Group Company, gains on sales of securities, foreign exchange losses, interest expense and amortization of deferred tax liabilities. For those who would like to calculate tax in your models, we have assumed a Group tax rate of approximately 20% in our calculations.

That concludes our financial analysis for the first six months of 2006. We'd now like to open the call up to your questions.

Thank you, sir. [OPERATOR INSTRUCTIONS]. We'll take our first question from [Rudolf Bezoff] from Societe Generale. Please go ahead.

The first question on the guidance increase. On the EUR2 million increase on top line, which part is associated to the expansion of the deal with Novartis? It's 50% of this EUR2 million? 75% or more? Also, on the increase in guidance in EBIT, could you elaborate a little bit on the reduction in operating costs that you expect for the year? So, one question on the agreement with ImmunoGen. I saw in your Q2 reports that it has been concluded. Can you elaborate a little bit on that? And, a third question on the EBIT for the Research Antibody division. When do you expect this division to be positive? In other words, do you think that the current structure would make possible a positive EBIT in the short or mid range? Thanks.

Okay. I'll take the first question, which related to what percentage of the guidance increase related to the Novartis deal. I'm afraid Novartis requested that we not disclose the financial details of this. I think it's fair to say that it represents a significant part of the increase; the exact percentage I don't want to give right now. I think there was also a question regarding EBIT guidance for the Research Antibody segment. We would like to see the EBIT be positive in 2007.

And, Rudolf, regarding ImmunoGen, that deal was scheduled to come to an end in June of this year, after a couple of expansions from the original deal, which was signed back in 2000. The deal simply concluded on schedule and was not extended further.

So, what's going on now with that? I mean they continue with candidates?

There is-- If you recall, there was one therapeutic antibody program that we worked on, but the bulk of the deal was a research license to the HuCAL technology. So, they were using the HuCAL library in house for research purposes. The therapeutic antibody program is still in tact. But, as far as the research program is concerned, so using the library for research purposes, that is what has come to an end.

Okay. Thank you.

Thank you. Our next question is coming from Martin Possienke from Equinet. Please go ahead.

A couple of financial questions, maybe firstly on the AbD segment. This minus EUR1 million in EBIT - are there any one-offs included? Maybe you can remind me there. Then, secondly, on the depreciation and amortization figure in Q2, can we take that as a run rate for the full year? And, then, thirdly, again my favorite question on tax assets, can you maybe quantify your loss of carry forward? And is there need to capitalize them in the course of the year? Have you discussed that with your auditors already?

Okay; I'll handle all those questions. Regarding the development in the AbD segment - why did it go from positive to negative in the quarter? Were there any one-off items? I think there's a combination of things going on here. In Q1, we had an extraordinary - a white-hot - quarter for the AbD segment. We had in the second quarter a good performance on the top line, not quite as good as in the first quarter. I think what pulled it into loss was in part a cumulative catch-up entry on the PP&A. We didn't reflect any PPA expenses in the first quarter, and we had to do a cumulative one in the second quarter. So, there is kind of a one-off effect in the second quarter.

That summed up to EUR800,000?

The combination of lower sales plus the PPA effect accounts for the difference.

I mean the PPA effect you booked in Q2 was EUR800,000? I think you mentioned a figure before.

In total, yes. In total for the Company, of which Serotec, I believe, was roughly EUR500,000.

EUR500,000. So you could adjust for EUR250,000, if you want?

Yes. There was another question - did the PPA expenses in the first half represent--? In other words, can you extrapolate the expenses for the full year? Currently, yes; we believe that's the case. The question regarding tax loss carry forwards - we have approximately EUR21 million worth of tax loss carry forwards. We have discussed the idea of making those deferred tax assets. That will in part be determined during the year when we start to take a look at multiyear projections for future years and the likelihood-- and the strength of the profitability of the business going forward. So, at this point, yes, we have discussed it with our auditors. We are conscious of the topic. We don't feel the Company's at the stage where we can definitely do that, certainly today. Perhaps later in the year, that might change.

Okay. Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. We'll take our next question from Thomas Schiessle from Equities. Please go ahead.

A question on the AbD business, please, on the top line. Could you please elaborate a little bit on the top line development after a very good start in the first quarter of the year? Now we do see a little bit of reluctance [inaudible] in the top line. Is this a structural or a seasonal or a customer-wise reason behind this? And, what might be the run rate or the expansion rate for the quarters to come? This is one question. The other is concerning the Group accounting. Could you rule out another loss-making quarter in the second half of the year? And, the third one is-- The third question is on the Serotec cost base. You mentioned that there is approximately EUR2.5 million cost base on operating costs. Is this the run rate so far, or shall we take another--? Shall we increase it, let's say, for 10% or 15% in the quarters to come. Thank you so far.

Okay, Thomas; let me start with the first one about the Q2 top line for AbD, and then Dave will take the two subsequent questions. We've said repeatedly - don't look at individual quarters too closely. The AbD business comprises some catalog business, which is pretty reproducible; but there are also some lumpy features which relate to larger industrial supply contracts, for example. Therefore, it's really, I think, over analyzing things to look quarter by quarter and to look at tiny differences between the two quarters. I think this just leads to over interpretation of things that are actually not meaningful. The key thing is that revenues for the half year were EUR9 million and were absolutely bang on track to reach the target for the full year, which is EUR18 million. We do see some variation quarter to quarter, but it's really not relevant. Therefore, I would caution you from over interpreting that.

Okay. The other question - do we rule out losses in future quarters? Here, I would emphasize that, actually, on an operating level, so prior to income tax, MorphoSys was actually profitable to the tune of about EUR530,000. So, what swung us into loss was on a net income level-- was in fact the accrual for a full year's worth of income in that quarter. Do we rule out the possibility of having further loss-making quarters? You've heard the guidance that we may have an EBIT of potentially up to EUR6 million this year. That implies that some future quarters need to be positive, but it also could imply that the odd quarter could also be negative. I think as Simon pointed out, and I can only support what he says and what we've been saying now for several calls, is that these quarters are very volatile and that you can't always take one quarter and extrapolate the results for the full year.

There was a final question regarding Serotec - the run rate. On the expense side, we think that the run rate might increase a bit in the second half of the year. But we would expect that to be matched on the revenue side. So, from a gross profit perspective, we don't-- we see that kind of being constant for the full year.

Okay. An additional question on the AbD sales structure. Simon, you mentioned that there is, roughly speaking, a two-prong business - catalog-based business and industry business. Could you give us an idea; what is the impact of the catalog business? Is it already one-third of the overall business?

It's more than that. To explain it in completeness, there are actually three components. There's the catalog business, which is the bulk of what we got when we acquired Serotec and what we got when we acquired Biogenesis. Then there is an industrial supply business, where we supply larger quantities of antibodies to a few customers for specific applications in, for example, diagnostic kits or development into diagnostic kits. And then there's a custom business, which was the original Antibodies by Design unit that we started off here in Munich. I think in thinking about the way the revenues are split between these three units, you should think roughly in terms of kind of 60/20/20 as the split between those [two], in the order in which I mentioned them. So, catalog, industrial supply and A-by-D.

And this structure will hold on for the foreseeable future, or is there any--? Will one of these three [expanding] very rapidly, and the other one is going slowly or not that rapidly than the other two?

What we expect is that, in time, the structure or the distribution should start to reflect the Research Antibody market as a whole. If you look at that market, it's split roughly 80/20 between catalog antibodies, that is the preexisting antibodies, and custom antibodies. So, in other words, there should be a shift over time towards a higher preponderance of catalog antibodies.

Okay. An additional question on that. Do you feel quite comfortable in market share and in penetrating the market from the geographic perspective?

Of course we aspire to higher market penetration. I think we're pretty happy that our market share-- the sales are split roughly 50% in the U.S. and 50% in the rest of the world. That's already a good sign that we have such a high penetration in the U.S., which, in fact, represents 50% of the total market worldwide. But, of course, we're always striving for better market penetration and looking for continued growth. So, we're on a good track. I think the awareness of HuCAL, and this is really the key thing here-- the awareness of HuCAL as a future-generation technology in this industry is increasing all the time. That's something that we're very happy about around the Serotec acquisition. Our Serotec colleagues have embraced HuCAL and are really helping us promote it in this industry. That's something that I think is actually happening extremely effectively.

Okay; wonderful. Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. We'll take our next question from Patrick Fuchs from DZ Bank. Please go ahead.

I have some questions. The first question is-- you had an increase in the margin of the Therapeutic Antibody business. Is this or was this influenced positively by milestone, first question, or by, let's say, up-front payments or deal closes that you had in second quarter 2006 compared to 2005? This then comes to the next question. Your upped guidance - does this now, I assume, not include potential milestones that could arise from your partners' therapeutic antibody development projects running to the clinics? And the last question is, again, a little bit more detail on the EUR3 million that you saved in operating costs. If I'm right, you communicated that you would have EUR2.5 million restructure and PPA costs of the Serotec deal. Is there a new figure on that, and does this EUR3 million also maybe come from another source relating to your internal R&D projects? That's all. Thanks. I then I have another question, but, first, [inaudible].

Let me perhaps start, Patrick, with the guidance in terms of what is included and what is not included there. When we do this, we sit down, and we try and estimate as best we can what kind of milestones could be hit before the end of the year, which are, of course, booked in full - these milestones when they're hit. We saw the effect of that in Q1 when Roche filed the IND on the Alzheimer's antibody. At this stage, and we've said this in the recent past, what we're not doing is we're not trying to predict and announce when we think antibodies will go into the clinic because this only leads to disappointment when the partner says, well, for whatever reason, we've had a delay there. So, therefore, what I can't say is when we expect compounds to go into the clinic. But, what the guidance does include is our best estimate of what additional milestones can be hit until the end of the year. I'm afraid we have to be a little bit vague on that. But what we can't do is we can't communicate expectations of when compounds go into the clinic.

Yes. So, in Q2, there were actually no milestones booked.

There were, actually, but at a lower rate than in Q1.

Q1 was extraordinary good in that respect. I'm assuming a much lower rate.

Yes; it was. It was running at about one-third the rate that it was in the first quarter.

And do you expect for the full year milestone payments higher than last year or at the same level, from your [plannings] right now?

Yes. And maybe I can also handle the other question that you had compared to the prior year at the same time. I think we-- In terms of percentage of sales for the Therapeutic unit, we roughly expect a similar level to what it was last year. I think this year we predicted a number of EUR7 million in total milestones, which would have represented on the old guidance roughly about 20% of milestones income. If you take a look at the first half of the year, in fact, we were running at a level of about 30%. So, I would say that we-- As a percentage, we are going to be running roughly at the same percentage what we did last year. In absolute terms, however, we're running at higher levels than we were last year. Given that in the first half of the year we've hit many of the EUR7 million milestones that we were supposed to hit for the full year-- we've already hit EUR5 million of them-- that answers your other question. Is, in fact, the profitability attributable-- the higher profitability attributable to milestones in 2006 versus 2005? The answer is yes. Again, if you take a look at the half-year numbers for 2006, we have a Therapeutic revenues milestones component of roughly about 30%. If you take a look at the same number last year, you're looking at something like 7%. So, the increase in profitability is largely attributable to the milestones.

Okay. Then, again, maybe I didn't get it right with what is booked in income taxes. This was the deferred taxes that you booked in one quarter then?

Yes. I mean, as a result of-- Remember, at the beginning of the year, we had guidance of EUR1 million for the Group. We've now upgraded guidance to include higher profitability of up to EUR6 million. On the back of higher guidance, we therefore have to make a tax accrual for that higher income, which was then fully impacted in the second quarter, which is why the effect of income tax in the second quarter is probably not comparable as if you had booked it pro rata each quarter.

Yes. And for the rest of the year-- for year-end guidance, it's 20% that you're assuming on tax rate?

For a Group level, yes.

For a Group level. Okay. Then I have a question on Serotec. When I looked at the balance sheet, it was somehow-- I was somehow surprised about the low cash that they had-- cash [inaudible] that they had on January 11 of just some EUR300,000. This doesn't look terribly liquid. Was this one of the reasons why you could acquire MorphoSys-- sorry; Serotec-- at a quite fair face amount, or was it of no relevance?

I think that-- So, first of all, we haven't disclosed that information. But I'm assuming you picked it off of the company's house accounts in the UK. I think that if you take a look at the business of Serotec, it tends to be somewhat cyclical. I think it has a lot to do with the payment of bonuses in year end. At year end, the cash balances tend to be low compared to the rest of the year. But, I would not say that they were in a cash crisis, and hence we were able to acquire them cheaply.

Not cheap, but at a fair price.

By no means; I think the cash position really didn't play a factor in it.

Okay. So, this was it, then, from my side. Thank you.

Thank you. There are no further questions at this time. I would like to turn the call back over to you, gentlemen, for any additional or closing remarks.

Thank you. If there are no further questions, I'd like to close by reminding you of the main message to take away from this conference call, and that is that a solid quarter of deal flow capped by the expansion of our Novartis deal is driving good financial performance, which in turn has enabled us to upgrade our estimates for revenue and profit for the year as a whole.

That concludes the call. Should any of you wish to follow up with us directly, Dave and I are both here in the office in Munich. Thanks again for participating, and good-bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.