MorphoSys AG (MOR) 2007 Q2 法說會逐字稿

Please stand by. This is Premier Global Services, we're about to begin.

Good morning ladies and gentlemen, and welcome to today's MorphoSys AG Q2 report 2007 conference call. For your information, the conference is being recorded.

At this time I would like to hand the call over to your host today, Dave Lemus. Please go ahead sir.

Thank you. Good morning and welcome. This is Dave Lemus, CFO of MorphoSys. With me is our CEO, Simon Moroney. First, we'd like to welcome you to this conference call, and thank you for participating. During the call we'd like to talk about the Company's financial results for the first six months of 2007. 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 2007. Afterwards, we'll 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 date hereof.

I would now like to hand over to Simon Moroney.

Thanks Dave, and also from me a very warm welcome to our Q2 2007 conference call.

Q2 2007 has been another good quarter for us. Overall, the business has continued to perform well. As usual, I'll go through the highlights of the quarter, but will take the opportunity to dwell a little more than usual on the research antibody segment, to give you some background to the financial results there, and its prospects for the future.

I want to start, however, with a review of our therapeutic antibody segment. The highlight of the quarter was the progression of a further HuCal antibody into human clinical trials. The antibody concerned was generated using our HuCal Gold technology, and is directed against the target implicated in certain cancers.

This program becomes the third HuCal antibody to enter the clinic, with a third distinct partner. Furthermore, it illustrates again one of the strengths of our business model, namely that of reducing risk by pursuing multiple programs with multiple partners in multiple indications.

As anyone who follows this industry knows, drug development is unpredictable. The latest illustration of this unfortunately came to light in the Germany biotech landscape last week, affecting sentiment towards all biotech companies in this country.

I want to take this opportunity to clearly differentiate our business model. We place a strong emphasis on maximizing the breadth of our pipeline. This model has taken the Company to profitability and, at the same time, maximizes the probability that products based on our technology will reach the market. By following this strategy, MorphoSys has created for itself one of the lowest risk profiles in the industry.

During Q2, our portfolio of partnered therapeutic programs increased by two over the previous quarter to 45. We now have three programs in phase one clinical trials, 17 in pre-clinical development, and 25 in the discovery stage.

The HuCal programs in phase one are the cancer antibody I mentioned earlier, the Antibody R1450 being developed by Hoffman-La Roche for Alzheimer's Disease, and the Antibody 1D09C3 being developed by GPC Biotech for lymphoma.

In response to many enquiries we've had, I want to take this opportunity to emphasize that MorphoSys has absolutely no involvement in GPC's satraplatin program.

We remain on track to increase our partnered pipeline to our goal at 50 programs by year end, and we have visibility on at least one further partnered antibody entering clinical development this year.

Regarding our proprietary program, MOR 103 and MOR 202, both of these continue to progress as expected. Specifically, MOR 103 is on track for an IND filing before year end, and we have now produced the necessary clinical material. We continue to be encouraged by the pre-clinical data we are gathering regarding MOR 103's therapeutic potential and its physico-chemical properties.

Regarding MOR 202, preclinical development of this compound for Multiple Myeloma is ongoing. Preliminary results of an in vivo study were presented at this year's ASCO meeting in Chicago in June. This data confirmed MOR 202's ability to reduce substantially the volume of tumors in a SKID mouse model.

Particularly encouraging, was the level of tumor reduction in a side-by-side comparison with Velcade, one of the current standard treatments for Multiple Myeloma. The data shows that MOR 202 was superior to Velcade in reducing tumor burden in this model.

I'd like now to turn to AbD, the research antibody segment of our business. In the first half of this year, revenue in this segment lagged about 10% behind expectations. The main reason was a delay in the rollout of two of our most important sales and marketing tools, namely our new antibody catalogue and our new website. These two items are key sales drivers in the catalogue business of AbD which accounts for the lion's share of revenue in that segment.

The challenge of consolidating 10,000 products from the previous Serotec and Biogenesis catalogues into a single coherent offering, proved greater than we had expected, resulting in a four month delay in the release of the catalogue and the website. However, both are now available, and their impact can be seen the month of June, which witnessed a jump in catalogue sales to a level higher than we had budgeted. We're confident that sales in the unit are now on track.

Combined with weaker than expected revenues, expenses in the first half were also above plan for the segment.

Here, two main factors should be mentioned. First, in the process of consolidating the product offering for Serotec and Biogenesis, as just mentioned, we applied the highest possible standards to evaluating stock. As a result of this, we have incurred write-downs of stock that we felt could no longer be fully valued if we were to maintain our excellent reputation for quality. This resulted in a charge that was higher than planned.

Second, we're still in the process of transforming the unit towards more modern ways of selling, including web-based methods. This transformation will lead to a leaner organization, and is proceeding rapidly. The result will be reduced SG&A expenses.

Overall, we anticipate that expenses will be reduced still further by year end. Nevertheless, the effects on revenue of the delay in catalogue and website introduction that impacted the first half of the year will not be entirely overcome by year end. We fully expect the AbD unit to make the all important transition from a loss making unit to a profitable one in this year, as we predicted.

I want to take this opportunity to emphasize that prospects are good, and that revenues continue to grow well in excess of the market.

With that, I conclude my review of the quarter, and I'd now like to hand back to Dave for his presentation of the financial results.

Thank you Simon. To begin the financial analysis, I'll start with revenues. In the first six months of 2007, Group revenues slightly increased by 8% to EUR28.6 million compared to EUR26.5 million in the same period of last year.

Revenues deriving from the therapeutic antibody segment amounted to EUR18.7 million, or 65% of total revenues, which included success-based payments in the amount of EUR4 million.

Moving on to the AbD segment, compared to the same period in the previous year, revenues of the AbD segment increased by 10% to EUR9.9 million, or 35% of total revenues in the first six months of 2007. The largest part of revenues in the amount of EUR8.4 million, or 85%, were generated with catalogue and industrial customers, while custom manufacture antibodies contributed 11%, or EUR1.1 million.

For the first half of 2007, total operating expenses, which included stock-based compensation, increased by 20% to EUR25.1 million. The rise in operating expenses of EUR4.1 million was impacted by R&D expenses increasing by 33%, or EUR2.6 million; SG&A expenses increasing by 15% or EUR1.4 million; and cost of goods sold increasing by 5%, or approximately EUR200,000.

Stock-based compensation, which is included in operating expenses, amounted to EUR700,000 in 2007 compared to EUR600,000 in the same period the previous year.

Cost of goods sold is composed of the AbD segment cost of goods sold. COGS rose to EUR4.2 million during the first two quarters of 2007 compared to EUR4 million in the same period of the prior year. The rise in COGS resulted mainly from higher sales in the segment.

Costs for research and development increased by EUR2.6 million to EUR10.5 million, mainly due to higher expenses for technology and product development of MOR 103 and MOR 202, as well as higher personnel costs.

SG&A expenses amounted to EUR10.5 million compared to EUR9.1 million in the same period the previous year. This change was mainly impacted by increased expenses for infrastructure.

MorphoSys' investment in plant, property and equipment amounted to EUR700,000 for the six month period end of June 30, 2007, and increased by EUR400,000 compared to the same period the prior year. Depreciation of plant, property and equipment for the first six months of 2007 accounted for EUR700,000, and amortization of intangibles amounted to EUR1.4 million. Both amounts are little changed compared to the previous year.

Expenses for current and deferred taxes in the amount of EUR1.7 million were recognized for the first six months of 2007 compared to EUR900,000 in the same period the previous year. Deferred tax assets on tax loss carried forwards establish in 2006 was partially utilized in the first two quarters of 2007, resulting in both current and deferred tax expenses in the first half of 2007.

Group operating profit amounted to EUR3.5 million in the first six months of 2007 compared to an operating profit of EUR5.6 million for the same period 2006.

On June 30, 2007, the total number of shares issued was approximately 7.3 million shares compared to 6.7 million shares on December 31, 2006. The increase of shares outstanding by approximately 663,000 shares arose mainly from the capital increase against cash successfully placed in May 2007, resulting in diluted net profit per share for the six months ending June 30, 2007, amounted to EUR0.29 per share compared to a net profit per share of EUR0.70 in the same period the previous year.

As we're on the topic of the number of shares, we'd like to take the opportunity to update you on the topic of our share split. More specifically, recall that during our last shareholder meeting in May of this year, shareholders voted with an overwhelming 99.8% approval rate to accept management's proposal to split our shares in a ratio of 3:1. It appears that a judge in the Commercial Register in Munich has thus far refused to legally register our proposal, even though it represents the clear wish of our shareholders. Both our legal counsel and notary believe that our proposal at the last shareholder meeting was correctly submitted, and further to this point, our notary has submitted an official complaint regarding the actions of this particular judge in the matter. Until the complaint and appeal run their course, it is neither clear when, and in fact if, we are able to do our share split this year.

Moving on to the balance sheet on June 30, 2007, MorphoSys' liquid funds comprised EUR102 million compared EUR66 million on December 31 2006, which arose mainly from the successful issue of some 652,000 shares, stemming from the capital increase in May 2007 and from operating cash flow, amounting to EUR4.2 million in the first six months of 2007.

That concludes the financial analysis.

As is typical during our conference calls, we'd like to take the opportunity to update our financial guidance.

First, I'd like to confirm the full year guidance. We continue to believe we are on track to achieve revenue targets of between EUR60 million to EUR65 million for the fully year.

Recall that operating profit guidance was EUR7 million to EUR10 million. As things stand presently, it appears most likely that we will be at the lower end of that range rather than at the upper end of guidance for the full year numbers.

On the operating segment level, our goals for the AbD segment have been slightly altered. More specifically, original estimates of an operating profit in this segment of approximately 5% to 10% of revenues have been altered to a profitability range of up to 5%.

Although sales growth in the last quarter remains somewhat below our expectations, there is progress, which can be evidenced in the unit's Q2 numbers in 2007. More specifically, gross profit for the AbD unit has increased from 49% in Q1 to a year-to-date 58% gross profit.

Additionally, one can also see that the result of the unit also improved, namely we cut our operating losses by 50% in the second quarter. Based on the forecast we presently have, we still believe profitability is attainable for this year. That being said, hitting our sales target for the unit for the full year is an important component in achieving that goal.

That concludes the financial analysis for the first six months of 2007. We'd now like to open up the call to your questions.

Thank you. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). We will pause for just a moment to give everybody an opportunity to signal for questions.

We have our first question now from Martin Possienke from Equinet. Please go ahead.

Yes, hello. Good morning everybody. Actually I've got three financial questions. Firstly, on the COGS in the second quarter, they amounted to some 32% of AbD sales, which is an extremely low figure. Maybe you can comment briefly on that and give an outlook for the remainder of the year.

And secondly, on other expenses. You have costs of EUR0.2 million in the second quarter; maybe a brief comment on that one.

And then lastly, to the tax rate, which amounted to 45% in the first six months. Why is that so high, and is your guidance for the full year of 20% still valid?

Okay. Regarding your three questions. First the COGS question. I think the improvement in COGS is attributable to two reasons. The first main reason, we believe is due to the fact that the COGS ratio in Q1 was unusually high, due to the mixture of sales, which we talked about before. Recall back in Q1 we mentioned that the COGS ratio was very high because we had an unusually high mix of bulk sales as a proportion of total AbD sales, and we said that in Q2 and following quarters that should revert back to more of a leaning towards catalogue sales. That, in fact, did happen in Q2 and that is the main reason COGS has come down as a percentage.

There is also an adjustment in COGS relating to stock revisions in Q2, which also again helped the result. Those are the main two reasons.

Okay.

Regarding your next question on other income. That other income is actually an expense, and you'll see that that expense has existed both in 2006 and 2007. I would say the vast majority of that other expense are foreign exchange losses which we, in some contracts, have to share with our partner, and due to the weak dollar, that's the reason why they continue to exist in 2007.

Okay.

The third point, your question was about tax rates; comparing the tax rates of 2006/2007. The reason that the tax rates for 2007 are different from the tax rates of 2006 is that in 2005, we did not build up a deferred tax asset for the year 2006. We did, however, build up a deferred tax asset in 2006 for 2007. So comparing apples with apples, the tax rates that you see in 2007 are a mixture of both current taxes and deferred taxes, whereas 2006 there were only current taxes.

Okay, but it's still quite a high figure with 45%, and compares not that favorably to your guidance of 20% for 2007.

Okay, I'm not sure if I actually gave guidance on -- oh, okay. I think the guidance that you're referring to is what we actually end up paying as current taxes. Again, what we end up paying as a current tax is different than the mixture of deferred tax plus current tax. So in 2007, what you're seeing is the mixture of current plus deferred tax, asset amortization which occurred during the year from the deferred tax asset, which we built up in 2006. Now that's not actually the amount we'll end up paying for the full year.

And I think I didn't give official guidance on what the tax rate would be in 2007. I think I recall that in the answer to a question during the [BUN] press conference that I mentioned, I felt that a Group tax rate of 20% wouldn't be radically wrong. I still believe that's the case, because the vast majority of that tax amount that you're seeing is deferred taxes, as opposed to current taxes, and it's current taxes what represents what we actually pay for the year.

And what should we expect, maybe you can help us there, as a reported tax rate for 2007?

Well, the combination of deferred plus current taxes to [the line] tax expense. So roughly, that will depend in large part on what type of deferred tax asset we capitalize for 2008 which hasn't yet been determined. To the extent that we don't build one up, then it would be roughly the rate that it currently is. We will build one up once we have a little bit more visibility on 2008 profit levels.

Okay, thank you.

Thank you. We've got a question now from Daniel Wendorff from WestLB. Please go ahead.

Yes. Good morning everybody. Maybe one follow-up question regarding the other non-operating expense line. I recall in the past that you did not book interest income on a regular basis each quarter, but also rather in this line, so maybe I would be grateful for an explanation about that.

And one question regarding the development of MOR 103 and MOR 202. You said that MOR 103, an IND would be filed by the end of this year. How then will the development plan look like? Will that be a phase one, phase two trial, or just a phase one trial? And what will happen to MOR 202?

Thank you.

Let me start with, Daniel, with your second question, and then Dave will pick up the first question.

So indeed, we're on track to file an IND for MOR 103 before year end, as we'd always said. And that trial will be, most likely in patients, which means that we may be able to already glean information as to efficacy in that trial. So insofar as the trial is being conducted on patients and will be conducted in a way that may give us an indication of efficacy, it could be regarded as a phase one/two.

Okay, yes.

With regard to MOR 202, the preclinical development of that compound is ongoing. We're taking great care to make sure that we have all of our ducks lined up there, so to speak, which is that the properties of that compound allow us to conduct meaningful preclinical studies before we go into the clinic.

Of particular importance in a molecule that is toxic like this, is that we have a toxicity species, in other words that the cross [ref] activity profile of the antibody is such that we're able to conduct a meaningful toxicity study in a relevant species. And that's one of the elements, for example, that we're looking at most closely at the moment to make sure that the properties of the molecule allow us to do a predictive preclinical study which can be the basis for the clinical studies. And for that reason, because we're taking great care over that, we haven't yet given any guidance as to when that molecule may enter the clinic.

Okay. So you haven't made a decision yet whether it will go into the clinic at all? (Inaudible).

Well, obviously we hope it will, otherwise we wouldn't be doing it. But as I said, that will depend on how the preclinical data pans out and that work is still ongoing. But we remain confident. We like the molecule; we've got some great preclinical data. But as I said, there's a number of other investigations that need to be done with that molecule before a clinical trial on human beings can start.

Okay.

Okay, regarding the question of other income/expenses. We have looked at the reports here for both 2006 and 2007. I think consistently we've always reported interest expenses as a separate line from other income expenses. But other income expenses in the past have been, again, a combination of foreign exchange losses and things like gains on sales of marketable securities.

Okay.

But again, in 2007, it represents predominantly losses that we share on foreign exchange and various contracts that we have with some of our partners.

Yes, maybe I was misled in that line, okay. Thank you.

Thank you. We have our next question from Thomas Schiessle from EQUI.TS, please go ahead.

Thank you for taking my question. This is Thomas Schiessle from EQUI.TS in Frankfurt. A question on Dave if I may. Dave, you indicated that the SG&A costs increased 15% in the interim report, and you indicated that this is predominantly the reason by infrastructure. Could you please elaborate a little bit more on that? Because, on the other hand, the increase in personnel is only 5%, or if you take the average, it's a 13% increase in headcount. And if it comes to headcount, are you planning to increase the personnel, the staff even more in the course of the year?

Second or third question, if I may, is the reason for the problems with the website and with the catalogue. If I understand right, all the problems are solved so far, so you could go on with the business at full steam. Would this mean that you will increase sales quite rapidly in the second half of the year if it comes to the catalogue business and the very specified business for specified antibodies will go on the expansion rate we have seen?

Thank you.

Yes, maybe I can start Thomas with your question three, and then Dave will come back in respect of the financial question.

The problem, or the challenge, as I mentioned during the presentation, was simply that we had 4,000 Biogenesis products, and 6,000 Serotec products, which all had to be consolidated into a single consistent offering. And what that means is that customers need to be able to understand what products are available, what the difference between those products is, what the catalogue numbers are, how they order them, and so on and so forth. And all of that had to be bundled together into a single paper catalogue, and also into a single website offering which would actually be usable and useful and meaningful for the customers. And we made an estimate last year of how long it would take us to do that, and we underestimated that. It turned out that the complexity of all of that work in dealing with those thousands and thousands of products was actually much greater than we had planned for, and as a result of that the production of the catalogue was delayed, and the production of the website was delayed, and the overall impact was about four months.

Now in this business, things like those two tools, the catalogue and the website, have an amazing impact on sales. And I said during the speech, once the catalogue and the website were finally online, sales have picked up quite significantly. So, for example, for the month of June, catalogue sales were above our expectations for that month; above our budget for that month. So indeed, they are having the impact that we had hoped, but of course, we've lost four or five months of their impact from the first part of this year.

We think that we're back on track now and that the second half year will be better. Whether it will be better enough to fill the hole, if you like, that was generated in the first half of the year, we doubt, and for that reason, we've decreased somewhat our revenue expectations for the year.

But the most important thing I think is they're now online, and they seem to be having the desired effect.

Simon, so to be absolutely correct, to understand it correctly, all your explanations are concerning the catalogue business; so the industrial and -- let's say the industrial business. It's not concerning the business you are doing with specific research antibodies.

No, it's concerning the catalogue business, and it relates specifically to the selling of those 10,000 antibodies that already exist and are sitting in a fridge in our premises.

Okay, thank you.

Okay, and to answer your question briefly Thomas regarding the SG&A cost increase. When we look at where that arises from, it arises from a variety of different areas, not solely from personnel costs, as you pointed out.

One thing that I think that is special comparing 2007 to 2006 is the fact that we are now paying an increased amount of rent for the new building that we moved into in December of 2006, so what you're seeing in 2007 is the effects of additional rent being paid for the building in Oxford amongst other things. But that's one of the kind of unusual items in SG&A expenses occurring in 2007 versus 2006.

And you have no flooding problem in Oxford by the way?

Not to my knowledge, but maybe Simon, perhaps your knowledge is more profound than mine.

No, I'm not aware of any flooding problems in our premises at least, but I am going there tomorrow and can give a first hand report after that.

Okay.

Thank you. We've got a question now from Patrick Fuchs from DZ Bank. Please go ahead.

Hello everybody. I have a question regarding again the guidance; so for the AbD segment. 20% revenue growth will not be met. You mentioned above market growth. Is that towards 15%? 10% I would believe is market growth. Will we see at AbD a growth of 15%? That's a question again which I might get wrong.

You have operating costs after COGS in the AbD segment of Q2 of around EUR3.6 million, if I did a right calculation. And the question is, which part of that is our charges or can be assumed as one-off costs, as you did a fantastic cross-margin in that area? So this is a question for AbD.

And then maybe a question of the Multiple Myeloma; on MOR202. You mentioned you did a SKID mouse model. First of all, was this model done with primary human tumor cells, or was it done with a cell line?

Second question, if you did the comparison against Velcade, Velcade being not -- being a Multiple Myeloma drug but, on the other hand, more or newer generations of drugs on the market, namely Revlimid. Did you do a comparison there as well?

Thank you.

Okay, let me start off actually with the question about the guidance on revenue growth and AbD.

Yes.

So, first of all regarding the market. The best estimates we can currently get off of market growth are in the high single-digit, so somewhere between 7% and 9%. Our current estimate for growth in that segment is certainly well in excess of that, in the mid to high teens. It probably won't be the 20% because of that effect on the first half. But we do expect to grow substantially faster than the market, and potentially up to twice the market rate.

Okay.

Regarding the operating costs, I'll hand that off to Dave. But let me, while I'm still on the line here, why don't I take this question about MOR202.

So the comparison -- the comparative data that we have at the moment and that we have published at ASCO was only conducted with Velcade, and you're quite right, that Revlimid is now also an approved drug in that indication. We haven't published any data in comparison with Revlimid.

You did some trials on that [country] clinical data, maybe published sooner or what?

Sorry I didn't understand that.

Did you check it, or did you just not publish it, the data on Revlimid?

We haven't conducted that comparison. The only comparison we've conducted to date is with Velcade.

With regard to the model itself, it was indeed a SKID mouse model in which an established human Multiple Myeloma cell line was injected to establish the tumor. So it wasn't primary human Myeloma cells it was an established human myeloma, Multiple Myeloma cell line that was administered.

This is a well established model and is indeed the same model on which Velcade was developed and was approved.

Okay, with regard to the financial questions; the special effects as it relates to the AbD unit expenses in the COGS. I recall that the number is approximately EUR200,000 for special effects, and maybe --.

That's a positive effect or a negative effect?

Positive. And I also perhaps want to use the moment now to just perhaps make sure that we understand why the guidance was changed for AbD. We didn't change any revenue target guidance for AbD, but rather the only thing that we've changed in terms of guidance is defined that the operating profit for that segment will land somewhere between up to 5% as opposed to landing between 5% to 10%. But that's the only change that we've made in guidance today.

But 20% was written in the analysts' presentation for the full year, and now it's mid to high teens. A slight change just to that.

But the question on any special operating costs in AbD that might not occur in the second half. Or if I calculate right, EUR3.6 million of operating costs after COGS, is this the run rate for the rest of the year?

I think the run rate will be slightly reduced. There will be some reduced costs for plans which we've made for the restructuring which will still impact the rest of the year, so that the run rate will be slightly less.

But not typically one-off charges or something like that there in Q2?

Not currently that I'm expecting, no.

Okay, and then maybe a last question on your acquisition strategy. Your most favorable acquisition target would be in the field of AbD, like it is communicated, or are you thinking also of other maybe technology targets in the area? And from the timing, I mean sure you cannot tell that when exactly, but is it planned for 2007 still?

Yes, as was said, we can confirm what we've always said which is that we are interested in building the AbD segment through acquisitions as we've done very effectively with the Biogenesis and Serotec acquisitions. And we continue to monitor the landscape.

More than that we can't say, and of course, as you rightly pointed out Patrick, we can't comment as to the potential timing of the transaction.

Okay, thank you.

Thank you. (OPERATOR INSTRUCTIONS). We take our next question from Christian Peter from Sal. Oppenheim. Please go ahead.

Good morning everybody. Question regarding the catalogues business. I understand the delay in the catalogue rollout had a serious impact on your AbD segment. Now looking ahead and seeing that you plan to do further acquisitions, or further grow in this segment, how do you make sure you won't experience further delays in coming years, as obviously, the complex will grow even more, and become more complex in the future?

Yes, obviously we can't comment about the complexity of integrating the next company that we may acquire, because we don't know yet what it looks like. But I think this experience has been a very good lesson for us in terms of our planning for completion of items such as the catalogue.

It was a level of complexity, as I said, that we hadn't anticipated. And having gone through it now, we've learned a lot from it. And I think we'll be better placed to plan and anticipate those kinds of issues in the future. And I think to comment on how we will do things differently in the future is talking about things that are at this stage hypothetical. But I do think that we're much better experienced now, and well armed to address issues like this in the future.

Okay, thank you.

Thank you. We've got a question from Thomas Schiessle from EQUI.TS. Please go ahead.

Question on the segment AbD. You informed that the Chemicon cooperation had been seized. What has been the reason for it? And is there any -- what will be the impact on the sales on the revenue line on AbD?

And this is the one question. The other, are you still intending to increase the headcount for the year?

Thank you.

Yes, the Chemicon agreement as you pointed out has been ended. If you recall, that agreement was signed shortly before the Serotec acquisition, and at the time, the thinking had been that this would be a strong way to increase the uptake of HuCal antibodies.

What we found is we actually don't need a formal agreement with the company such as Chemicon in order for them to access HuCal antibodies. So the understanding that we have with them now is that they have the opportunity to come back to us and source HuCal antibodies on an ad-hoc basis, which means that as and when the contract ran out, it simply wasn't necessary to renew it.

We also -- with the (technical difficulty) Serotec of course, had our own much more significant catalogue business then, which we could use to underpin the spread of the HuCal technology. And our focus has been to a greater extent on that. But as I said, the ability to continue to work with Chemicon exists, but simply not under a formal contractual arrangement.

Regarding the head count. Presumably, Thomas, that question related specifically to the AbD segment? There are no current plans to increase the head count in that segment.

A further question on your cooperation with GPC Biotech. Are you -- is there a new situation concerning the antibody you designed for GPC Biotech? Or is this ongoing business and you're standing on the sidelines and waiting what the outcome at GPC might be?

We have no indication from GPC, or no information from GPC that there are any changes to the plans for that compound.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS). It appears there are no questions at this time. Dr. Moroney, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you very much. That concludes the call. Before ending I'd like to remind you of the main messages. First the Therapeutic segment is performing extremely well. We're on track to achieving all our goals for the year in this segment, and a particular highlight of the quarter was the entry of a third HuCal antibody into clinical trials.

Secondly, while the research antibodies segment AbD has a first half that was weaker than expected, a number of steps have already been taken that will result in us achieving the breakthrough to profitability for the full year.

And finally, MorphoSys' business strategy, based as it is on a broadly partnered therapeutic pipeline, has taken the Company's profitability, and represents a substantially lower risk strategy, than some others in our industry.

Should any of you wish to follow up with us directly, I'm in the office and available for your calls. Thanks again for participating and good bye.

That will conclude today's conference. Ladies and gentlemen thank you for your participation and have a good day. You may now disconnect.