MorphoSys AG (MOR) 2012 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys quarterly call on the financial results of Q3 2012. Please note that for the duration of the presentation all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

Now I would like to turn the conference over to Dr. Claudia Gutjahr-Loser. Please go ahead.

Good afternoon, and also good morning, and welcome. This is Claudia Gutjahr-Loser, Head of Corporate Communications and Investor Relations of MorphoSys.

Before we start, I have to remind you that during the conference call 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.

With me today are Simon Moroney, our Chief Executive Officer; Jens Holstein, our Chief Financial Officer; and Arndt Schottelius, our Chief Development Officer.

We had quite some news over the last couple of days and we would like to use this call today to discuss those announcements. Simon will start by giving you an operational overview over the third quarter and the recent news. Before we open the call for your questions, Jens will review the financial results of the first nine months of 2012. Afterwards, Simon, Jens, and Arndt will be answering questions on these topics.

I would now like to hand over to Simon Moroney.

Thank you, Claudia, and also from me, a warm welcome to the call. Q3 2012 has been a breakthrough quarter for MorphoSys. There have been a number of very important developments, which we'll talk about today, with the most important, as always, relating to our drug pipeline. I'll start with two of the most exciting programs we're involved in.

Referring to slide 5 of the presentation, in September we announced the results of the Phase Ib/IIa study of MOR103 in rheumatoid arthritis. On a conference call the next day, we presented the headline results in some detail, so we won't repeat that here.

I do want to emphasize, however, the importance of the results for MorphoSys. The excellent efficacy, fast onset of action, and clean safety profile that we observed provides strong support for the further development of MOR103 in rheumatoid arthritis.

Our results are generating a lot of interest. One indicator of this is the fact that our late-breaking abstract submission to ACR, the world's premier rheumatology conference, has been accepted. The full results from the clinical study will be presented there by the lead investigator, Professor Harald Burkhardt, Head of the Division of Rheumatology at the University of Frankfurt, on November 13.

The opportunity for MOR103 is enormous; way beyond what we can exploit on our own. Therefore, as always intended, we will partner the program for further development. To this end, we are now in discussions with a number of potential partners.

I'm sure that you'll understand that while these discussions proceed, we cannot provide any further information on the scope or timing of a potential deal. I will say, however, that we are confident of finding an excellent partner to be able to make the most of MOR103. In the meantime, our Phase Ib safety study in patients with multiple sclerosis continues.

Turning to slide 6, I want to move away from our proprietary portfolio for a moment to highlight a development elsewhere in our pipeline that we believe is of major significance for our Company's value proposition. This relates to Gantenerumab; the HuCAL derived, anti-amyloid antibody being developed by Roche for Alzheimer's disease.

We've mentioned previously the expansion of the current study to a potential pivotal Phase II/III trial. The key feature of this trial is that it is being conducted in a prodromal Alzheimer's disease setting; that is in subjects who are pre-symptomatic, but are high risk of developing the disease based on cognitive and biomarker testing.

At their Investor Day in early September, Roche highlighted this program and said that initial data from the trial could be expected in 2015.

During Q3, developments for the competing program have been increased the level of excitement around Gantenerumab. I'm referring to Lily's data for Solanezumab; another anti-amyloid antibody for Alzheimer's disease.

Although Solanezumab failed in a Phase III trial in mild to moderate Alzheimer's disease patients, a pre-specified analysis of the mild sub-group showed a clear effect on cognition and function. For the first time, clinical evidence shows that an anti-amyloid approach can have an impact on the course of Alzheimer's disease.

We interpret the Lilly data as strong support for the Roche approach of going into an even earlier stage sufferers.

We also believe that Gantenerumab has better properties than Solanezumab and that our antibody was deliberately made to bind and breakdown amyloid oligomers and plaque.

This program is a wonderful showcase for the power of our proprietary HuCAL technology. Using HuCAL, we were able to tailor the antibody to a precise set of specifications which correspond to ideal drug properties.

As a reminder, MorphoSys stands to benefit through royalties on future sales of Gantenerumab. All in all, this is a very exciting program, with huge value potential for MorphoSys. We look forward to keeping you informed of further developments.

Referring now to slide 7, I'd like to turn to our second most advanced proprietary program, MOR208. As we announced earlier this week, the results of the Phase I/IIa clinical trial of this compound in CLL patients have been accepted for presentation at ASH, the American Society for Hematology's, annual conference in December.

The study was a multi-center, open-label, single-arm dose escalation study in 27 relapsed or refractory CLL or SLL patients. The primary end point of the trial was safety, which was clearly met.

Preliminary efficacy was also observed, with three partial responses observed, and 22 of the 27 patients showing stable disease. This represents an overall response rate of 11%, or 42% when using the 1996 International Working Group for CLL definition.

The trial protocol includes a period of extended dosing of the highest dose level, which is now ongoing. We expect to report the results of this extension in the first quarter of next year.

It is important to point out that the study was conducted in very heavily pre-treated patients, who had failed a medium of four prior therapies. Seeing any efficacy at all in these patients is encouraging, and fully supports MOR208's further development. We intend to commence Phase II studies in selected b-cell malignancies, namely, ALL and NHL, shortly.

As we also announced on Monday, we will present pre-clinical data for MOR208, as well as our second cancer program, MOR202, at the ASH conference. Meanwhile, the Phase I study of MOR202 in relapsed or refractory multiple myeloma patients continues.

As always, the programs we're talking about are just the tip of the iceberg when looking at our entire pipeline. To mention just one other recent development, during Q3 our partner, OncoMed, announced that the HuCAL antibody OMP-59R5 entered a Phase Ib/II trial in advanced pancreatic patients.

Referring to slide 8, altogether, our pipeline comprises 76 programs, which is an increase of three compared to the status at the end of Q2 this year. Most important is the increasing maturity of the pipeline. Roughly half of our clinical programs are now in Phase II or later phase development.

Turning now to slide 9, and today's second announcement; namely, our new agreement with Novartis. This is a very significant landmark for MorphoSys as it signals the start of commercialization of our newest antibody platform, Ylanthia.

We believe that this technology, coupled with the use of Slonomics for antibody optimization, will lead to better antibody-drug candidates faster than with the existing HuCAL platform. We, therefore, plan to phase out the use of HuCAL as all of our new programs, both proprietary and partnered, switch to Ylanthia.

It was always our intention to bring this powerful new technology platform to bear on our partnership with our most important partner, Novartis, as soon as possible. To quote from the press release, Novartis sees MorphoSys as a key part of their commitment to bringing new antibody based therapeutics to market.

This alliance is already amongst the most successful antibody discovery partnerships in the industry, with six HuCAL antibodies currently in clinical development at Novartis. And there are, of course, more to come. We believe that access to Ylanthia will make this already successful collaboration even more productive.

In addition to the ongoing committed technology access, and FTE payments we receive from Novartis, greater productivity should of course translate into more milestone and royalty payments received sooner. We will keep you informed of progress with the programs within this groundbreaking alliance.

We intend to make Ylanthia widely available. Our vision for the future of this technology is that it can become the premier source of therapeutic antibodies in the pharmaceutical industry. With this goal in mind, we are currently in discussions with potential licensees, who will in-license the platform and apply it themselves.

We are also considering deals in which we generate antibody candidates on others' behalf, in much the same way as we did with HuCAL. We expect Ylanthia to be an important value driver for us in future.

Turning to slide 10, I'll conclude my operational review with AbD Serotec. During Q3, we announced a new diagnostic customer in DiaSorin, who have taken a license for two recombinant HuCAL antibodies. These antibodies act as recombinant controls for two marketed infectious disease assays. We stand to benefit through licensees and royalties on sales of kits comprising the antibodies.

Diagnostics represent the main growth opportunities for AbD Serotec. Meanwhile, the market for research reagents continues to be challenging. Pressure on government research funding is limiting top line growth in the segment, particularly in our home European market.

That completes my operational review of the quarter. I'll now hand over to Jens for the financial review.

Thank you, Simon. Ladies and gentlemen, I would like to now guide you through the most important financial figures of the first nine months of 2012.

Starting with slide 11, total Group revenues amounted to EUR48.9 million in the first nine months of 2012, compared to EUR83.7 million in the same period of the previous year. This decrease mainly resulted from higher levels of success-based fees in the first quarter of 2011; namely, a non-recurring technology milestone payment from Novartis which we received in the first quarter of 2011.

Total operating expenses decreased by 20% to EUR51.3 million, compared to the first nine months of 2011. The main reason for this development was a 28% decrease in R&D expenses to EUR30.3 million due to lower costs for external services, materials, and personnel. R&D expenses for proprietary products and technology development decreased to EUR17.2 million.

Our SG&A expenses also decreased by around 4% to EUR16.2 million.

In the first nine months of 2012, the EBIT amounted to minus EUR2.3 million, compared to EUR18 million for the first nine months of last year.

The net loss after tax of EUR1.2 million corresponded to a diluted loss of EUR0.05.

Turning to slide 12, let's now have a closer look at our segment reporting. The Partnered Discovery segment generated revenues in the amount of EUR34 million in the first nine months of 2012, compared to EUR67.9 million in the previous year; while revenue in the Proprietary Development segment amounted to EUR1.2 million. Those revenues have been generated by our (inaudible) for Novartis in connection with the two co-developed programs.

Looking at AbD Serotec, you can see that the revenue slightly decreased to EUR13.7 million for the first 9 months of 2012, compared to EUR14.1 million for the first 9 months of 2011.

Looking at the balance sheet, slide 13, cash, cash equivalents, and marketable securities amounted to EUR127.5 million at the end of the first 9 months of 2012. In addition, the Company granted an interest-bearing assignable loan in the amount of EUR10 million [which is] reported [as other current assets].

This total of EUR137.5 million shows the [flexibility] of our (inaudible) and is the number used to compare with [the cash position] at year end of last year of EUR134.4 million.

Turning to slide 14, before we open the call for your questions, we would like to update our financial guidance for 2012.

As stated in the past, our revenues are increasingly dependent on success-based milestones in existing therapeutic antibody programs, new alliances, or the expansion of the existing alliances involving new technology platforms, such as Slonomics and Ylanthia. Today, we announced the first deal based on our technology platform investments; namely, [with Novartis].

We see a good potential for additional commercial agreements based on our technologies, however, negotiations took longer than originally anticipated. In addition, the uncertainties of governmental fiscal deficits led to a reduction of funding for the research market, leading to lower sales in the AbD Serotec segment. Therefore, we update our financial guidance for the Group.

We expect Group revenues to be in the range of EUR70 million to EUR75 million, thus being slightly below the original guidance of EUR75 million to EUR80 million.

In terms of EBIT for the Group, it is expected to be around the lower end of the original guidance of EUR1 million to EUR5 million.

As of today, certain income-generating events are expected to materialize before the end of the year. The timely completion of these events is important for reaching our 2012 financial guidance.

As previously stated, this guidance [security] does not include a successful out-licensing of any of our proprietary development programs. The scope and the timing of such events is difficult to predict and, therefore, not included in the financial projection.

Investment in proprietary research and development in 2012 remains unchanged. It will be approximately EUR20 million to EUR25 million.

Ladies and gentlemen, that concludes my review for the first 9 months of 2012, and I will now hand back to Claudia for the Q&A session.

Thank you. We will now open the call for your questions.

(Operator Instructions) Daniel Wendorff, Commerzbank.

Thanks for taking my questions. I have a few of them. Starting off with MOR208, can you potentially comment on your strategy for out-licensing the compound, which means how many drugs and how many indications you still plan to do in order to consider an out-licensing deal here, if at all?

Then, on Ylanthia, is it likely that there will be more deals coming through in Q4, or would that be a too optimistic assumption?

A quick one on AbD Serotec. The development there in Q3 on all lines was quite encouraging, I thought. Can you potentially comment on why that was the case?

And lastly, does the new guidance contain any new IND findings at partners? Maybe you said that, Jens, but I could hardly understand you during the presentation. Sorry for that then.

Okay, many thanks, Daniel. Let me, perhaps, start with the first two questions, and then I would hand over to Jens for the AbD Serotec question and the guidance question.

In terms of the out-licensing of MOR208, we definitely see potential for this in B-cell malignancy, and we're trying to take it forward as broadly as possible to maximize the chance that we can identify, perhaps, the best indication, or indications, for subsequent development.

Our strategy, as always, is to go to clinical proof of concept, so through Phase II, and we feel that we can maximize our chance of achieving that, obviously, by developing it in multiple different indications. But the underlying strategy of taking it to the completion of Phase II testing and clinical proof of concept before partnering remains the same.

Regarding Ylanthia, as I mentioned during the talk, we're in discussions at the moment. As always, and sorry to frustrate you on this, we really don't like to give predictions about when negotiations will be completed and when deals could be closed. We see good interest. Discussions are proceeding, but I really don't want to give any guidance on when deals may be signed.

No worries.

Then, thank you, Simon. Daniel, on your -- the other two questions, I'm not quite sure if I really fully understand those two questions but I'll try to answer them as far as I understood them.

So in terms of AbD, third quarter was, indeed, much stronger than the second quarter, but the second quarter was relatively weak in comparison to previous year, and also our expectation. Third quarter developed quite nicely in terms of the diagnostic business. But in terms of our catalog business, the R&D activities, which already were mentioned by Simon in the speech, they have been pretty weak.

In terms of INDs and what we expect towards the year end, as usual, it's -- we have a couple of sources which are potentially creating revenue for us. And that remains the same for Q4 here. So we still expect some events to come, as I pointed out in my speech.

There are a couple of issues where we believe we can generate some income here, and we are positive that we're able to achieve our guidance, but there is a certain risk. As I always pointed out in the last couple of calls, quarterly calls, there is a volatility on the top line for us. It's also happening on the profit line.

And it is extremely difficult to predict when a milestone will come in and, therefore, we are little bit bound to [follow] the plans of our partners here and, therefore, it's really awfully difficult, meanwhile, to give a clear and very detailed guidance here.

Okay, thanks. And maybe a follow-up question to AbD Serotec. Can you comment on the contribution of the diagnostics business towards the overall revenue line?

To be honest, I don't have the details here in front of me. I know that the catalog business was negative, so the diagnostic business developed positively.

Okay, thank you.

Sachin Soni, Kempen & Co.

My question is regarding the Novartis deal. You mentioned in the deal that you have given up the right to co-develop. Does that apply to all the candidates in future and in the past, whether it comes from Ylanthia or HuCAL, independent of that? And secondly, what was the rationale of letting that go at that first place?

And how exclusive is this deal with Novartis on Ylanthia? And does the exclusivity of HuCAL still stand? Thank you.

Okay, Sachin, many thanks. Let me take that. First of all, regarding the rights to co-develop, you'll remember that the arrangement was that we could choose to opt in to a few programs. There were a few -- handful of co-development options within the agreement under which we could opt to join in.

It turns out that we feel now, given the potential value in our proprietary portfolio, and given that we've really got our hands full with what we think are actually three extremely exciting programs already in the clinic in MOR103, MOR202, and MOR208, that we -- it's easier simply, and we feel better, for us to focus all of our attentions on those programs, and the programs to come, rather than try and co-develop programs with a very big partner, a very good partner, of course, but a very big partner, who maybe operates in a slightly different way when it comes to development.

So that's, I think, probably never the easiest relationship between a very large company and a very small company, co-development. And, therefore, we felt that it was in our interest to focus and make sure we do the best possible for our proprietary programs, rather than try and do two different sets of activities at once.

In terms of your question about how exclusive this Ylanthia deal is, as we mentioned, we will partner the Ylanthia technology with others. Since we haven't done any of those other deals yet, obviously, we can't tell you exactly what those deals will look like.

But, clearly, we have the freedom to partner the Ylanthia technology elsewhere. That was a key consideration for us going into the discussions with Novartis. We wanted -- it was very, very important for us, given how important Novartis is for us as a partner, it was very important for us that we come to an arrangement that is satisfactory for them; gives them access to the best possible technology, that's also in our interests and we've now achieved that. But also, we wanted the ability to apply the technology elsewhere, to partner the technology elsewhere, and, importantly, we've secured that ability as well.

So we're delighted with the outcome. We think it's in the best interests of our partnership with Novartis, and we also think it's in the best interests of MorphoSys to be able to partner the technology elsewhere.

Sounds good. Thank you.

(Operator Instructions). [Andreas Spishal], Allianz Global Investors.

I have a question that might be a bit technical. There's Molecular Partners developing their technology, called DARPins, the designed ankyrin repeat proteins, which might evolve into a new class of biologic agents. I would be interested, although I'm aware of the structural differences of -- between these two classes of biologics, be interested in your assessment of these; on how these two technologies compare one to each other.

Where are the competitive advantages? And do you see this as a competitive technology, or as a complementing technology? Or what's your overall assessment of this upcoming class of biologics?

Many thanks, Andreas. Let me have a stab at that one. In answering that question, I won't refer specifically to Molecular Partners, who we know very well. We share a co-founder, actually, the two companies, and we know the DARPin technology extremely well. But let me try and answer the question in the context of what we call scaffolds, in general.

And DARPins are one of the class of protein scaffolds, of which there are many different types of scaffold. And I think the issue today is, really, none of these alternative scaffold structures have been established to be a general source of drugs. Antibodies, of course, have.

We know that we can make antibodies in a general sense, so that as we can attack many different targets, many different indications. And antibodies have been incredibly successful drugs. For no single class of scaffolds is that the case, yet. That may change, of course. In time, we may discover that one or the other class of scaffold is a successful class of drugs, and a general class of drugs. But, as of today, that's not the case.

Usually, the two key questions for scaffolds as a drug type are immunogenicity, so that is if you put them into a human patient do you create an immunogenic reaction? And the other challenge is usually half-life; how quickly are they cleared from circulation, and do they have the chance to have a drug effect within that time period?

And certainly for chronic applications, for example, like our MOR103 program for rheumatoid arthritis, one of the advantages of an antibody is long half-life and low immunogenicity.

So this is an emerging area, this scaffold protein field. But I think before it becomes clear which of these scaffold types will, indeed, become successful drugs, some time has to pass.

Okay, thank you.

Mick Cooper, Edison Investment Research.

I've got three questions, which kind of follow on from other questions. Firstly, with regard to the Novartis deal and exclusivity, can you just clarify that there are no disease indications that you cannot form alliances with other companies?

With MOR208, at the moment, you're looking at ALL and non-Hodgkin's lymphoma; both open label studies. Firstly, with those, is it going to be in treatment analysis? But they are open label, so could you look to out-license them partway through those studies or, say, after the ALL study, rather than waiting for both studies, as, in effect, you've done with MOR103?

And finally, with regard to developing your proprietary portfolio more, my understanding, from what you've said, is that the reason to not to opt in and to move away from that is the complications of the co-development structure with Novartis. So does that mean that you are still looking at potentially in-licensing products to help develop your proprietary pipeline?

Okay, thanks, Mick. Let me, perhaps, start on that; and, perhaps, I'll ask Arndt to talk about the MOR208 question, and the possibility for an interim analysis.

First of all, regarding your question on Novartis, I can confirm that there are no disease indication exclusions, so that there is no restriction on Ylanthia from a disease area point of view.

Perhaps, let me jump to the third question, before I hand back to Arndt for the second question. Regarding in-licensing, yes, we continue to be interested in adding to our portfolio. As I've said, right now we've got our hands very full, but we definitely foresee that we can add. Of course, as we partner a program, like MOR103, that creates room, if you like, for new programs to be added. So we continue to be interested in looking at in-licensing.

My reference, my comment about the Novartis co-development was more about, perhaps, the challenges of two totally different types of development organizations working together efficiently and effectively on co-development programs.

We continue, for example, our co-development agreement with Galapagos. And we're hopeful and optimistic that programs will emerge from that, that we can jointly, MorphoSys and Galapagos, take forward through clinical development.

Mick, thanks for the question, 208. This is Arndt. As you correctly say, the ALL and NHL studies are open label studies and, as such, as Simon said before, of course, we try to maximize the packages for out-licensing deals, if possible.

But the way that the studies are constructed, they provide opportunity that we have earlier [looks]. And we're basically always open to see what data comes in, and what data we have together for a good out-licensing time point. That depends a little bit also what the partner is looking at, what data we get.

So the answer is, yes, we would be open to check opportunities also starting after the ALL study, which is the smaller study and we'll have the data earlier; and then also see the NHL study will last a little longer. And we'll have ability to have a peak and decide on different out-licensing time points.

Thank you very much.

Thomas Schiessle, EQUI. TS GmbH.

A question on AbD, and a question on the Novartis Ylanthia deal. It comes to the AbD, to my knowledge the perspective of the catalog business is quite gloomy, so what is your perspective for the whole entity? Will you focus even more on the diagnostic activities? And is there anything to do, if it comes to impairment?

Second, on the Novartis deal, Simon, you excluded that there is no disease indication excluded so are you intending to out-license this technology, so to speak, indication wise? Or is there another pattern to foresee?

And my third and last question is on Slonomics. We haven't heard anything of the Slonomics technology, and you are still active in this field. Is there any licensing agreement in the future to see? Thank you.

Okay, thanks, Thomas. Maybe let me start with the first part of the AbD part, just in terms of the focus; and maybe I'll then ask Jens to comment on your question regarding impairment.

So, indeed, the research market, which relies heavily on government grant funding, is challenging at the moment; no surprises there given the economic situation, especially in Europe, but also in the US. We, in any case, remain committed to both sides of the business, both the research business, which right now happens to be growing slowly, and the diagnostic business, which we think is growing faster, so we don't intend to give up on either one of those.

But we are excited and optimistic that the diagnostics segment, or sub-segment, of AbD is the segment that will provide more growth, and more opportunities.

Jens, do you want to comment on that impairment question? And then I'll come back to the other two questions from Thomas.

Yes, sure. And I hope, Thomas, you understand me now better because I've heard that the line is really bad and, therefore, it probably has been a challenge so far to understand me. So I'm really having the speaker, basically, in front of me now.

To come to your impairment question, there is no reason why we should take an impairment at this point in time. The business hasn't been developed as nicely in Q2, as I said. And throughout the year, it's not as good as we would like to see it.

But as pointed out before, and also highlighted by Simon, I think the diagnostic business has really developed nicely. And that's securing also that we don't face an impairment risk. We don't really see anything (technical difficulty).

Thanks, Jens. Let me, perhaps, carry on with the other two questions regarding Novartis. I mentioned, as you said, of course, Thomas, that we haven't excluded any particular indication. You asked are we looking to do deals by indication? No, we're not. The answer that I gave to that question was simply a response to a question from Mick Cooper.

So we're not changing the way we do deals. We're not looking to do two indication area deals, for example. I imagine that the type of deals we do will either be technology licensing deals, where partners can use the technology themselves against targets of their choosing, or where we may use the technology on their behalf against targets that they give to us. So similar, in many respects, to the type of deals we did with HuCAL.

And then regarding Slonomics, we always saw the biggest value of Slonomics as being its application in the antibody field. It's a key tool to optimize Ylanthia antibodies, and we see it being commercialized predominantly in a bundle, if you like, with Ylanthia. Because in order to optimize Ylanthia antibodies you need a technology like Slonomics, and we see Slonomics as being part of that package.

So I think you should expect to see, or to hear, more news about Slonomics in that context in the months to come.

A further question, if I may? If it comes to new antibodies to your own portfolio, you still keep away from acquiring companies. You're heading for a licensing in technologies, or even projects.

No, I wouldn't rule out an acquisition of a company. As we look around for interesting programs, obviously we look at programs and we look at companies, so I wouldn't rule that out. We haven't said that it'll just be in-licensing. We see the potential sources as in-licensing and/or, perhaps, acquisition. It just all depends on the quality of the opportunity.

Okay, thank you.

Michael Faul, Discover Capital.

I didn't real understand the financial rationale to give up this option right to co-develop with Novartis. So this is an option, has a value at no cost, so why did you give up this? Did you get any compensation, maybe, on your yearly licensing fees for that?

Thanks for the question. Let me take that. What we haven't done is we haven't announced the financials on the deal. And it's always important to remember in all of these types of deals that everything is a package, everything sits together. And this was one component of the agreement that we reached.

We believe that it's in our operational interest not be in -- not to have these co-development options, which we may not have chosen to exercise anyway because of the operational challenges.

As I said, one should see this as a package deal which had multiple components; not all of which are visible to the outside world, including certain financial considerations which are not visible but which are commonly not disclosed in transactions of this type. And one should understand it in that context, that it's part of the package.

Okay, thanks.

(Operator Instructions). Olav Zilian, Helvea.

Thank you for taking my question. I would have one on MOR208. So there are several novel antibodies in development, be it also Fc-engineered ones or antibody-drug conjugates for B-cell malignancies. So what is your current view how your antibody differentiates from those others, the competing ones, and how the field will develop going forward, just in view of the [candidates] in this indication?

Arndt, do you want to take that?

Yes, okay, I'll be glad. Thanks for the question. Good question. Obviously, there are a couple of antibodies out there in B-cell malignancies, you're absolutely right. You're already referring Fc-engineered; there is ADC conjugates.

So the way we feel about 208, what makes this molecule we believe very competitive and compelling, it's basically a normal format antibody with, as you know, this Fc-engineered enhancement which really drives up ADCC 10 to 100-fold. That has been clearly shown in pre-clinical models.

However, the format has not changed in the way like a BiTE format, you were not naming that but I assume you include that; or an ADC, which of course is chemically difficult, not only from an engineering perspective, also from a safety perspective.

We like the format and think it's competitive. It can be dosed well. It has a good half life. So far, we have seen a good safety profile, as we have reported in the CLL study. It looks very well suited to be combined with other combination partners. We've already shown that, the group of John Byrd has shown that. We have shown it in pre-clinical studies, which opens lots of opportunities in B-cell malignancies.

So taken together, when you look at the whole field, we have seen different reactions, also some safety signals with some of the other formats that we don't see and don't expect to see. And believe also, in terms of convenience of dosing, this will be dosed like any other antibody, provides actually multiple possibilities for a good differentiation.

Olaf, does that answer your question?

Sure, thank you. I would have a follow-up to this, which is obviously the set of data so far on MOR208 is limited, but what is your view on its safety profile as compared to the others currently in development, so like ADCs or BiTE?

Yes, I think I was alluding to that a little bit. We believe this is really a good safety profile in this population. Please recall these are very heavily pre-treated patients to see the effect, and such a safety profile is very encouraging.

You might have seen in the press release we only encountered the one DLT at the highest dose. That was expanded. No further DLT is seen; a good, only modest infusion reactions. All very normal data for an antibody, so a very good basis to move forward.

Okay, thank you.

Gunnar Romer, Deutsche Bank.

My question would be on the Novartis deal again. I appreciate that you wouldn't share financial details. Could you comment, though, on the timeline? Is this unchanged? I think the old agreement was calling for 10 years, so until end of 2017, plus two years of potential extension? Thank you.

Gunnar, yes, I can confirm that. Nothing has changed in that regard. The timeline, end of 2017, with that two year extension, is still the same.

Okay, thanks. And maybe on the three pillars that are typically involved in such deals, i.e., the funding and license fees you receive annually, then the milestones, and thirdly the royalties, have you seen or can you comment on whether you have managed to improve any of those three pillars significantly with the extension?

That's a very good question, but it constitutes, or it would involve, me having to provide the kind of financial details that we have agreed not to provide so, unfortunately, I can't give you a clear answer on that.

Okay. And then maybe on your financial guidance, the corridor, the EUR70 million to EUR75 million, does this already include a potential payment from Novartis with regard to the extended deal?

Jens?

Simon, I'll take it. As I pointed out before, the revenues come from various sources, and here again I want to just refer to what Simon said before. I don't want to just open up another hole where you get some financial figures and agreement out of discussion with Novartis so, please, I can't say any -- I cannot comment on details there, neither.

Okay, thanks.

Daniel Wendorff, Commerzbank.

Thanks for taking my follow-up question. It's actually related on the subcutaneous version of MOR103. Can you comment on how this has worked out in Phase I trials? I haven't seen much info on that one yet. Thank you.

Yes, thanks, I'll take that. Daniel, we will indeed announce that shortly. So if you can be a little bit patient, we will report on it very shortly.

Okay. So will it already be part of the presentation next week?

Kind of, yes.

Okay. Thank you.

Thank you. We have no further questions coming through, so I will now hand back over to Dr. Moroney to wrap up today's conference call. Please go ahead.

Thank you. Before concluding the call, I'd just like to remind you of the key messages to take away. First, the success of the Phase Ib/IIa trial of MOR103 in rheumatoid arthritis has created a major new opportunity for value creation.

Second, the picture that is emerging for anti-amyloid approaches to Alzheimer's disease bodes very well for Gantenerumab. This could be another highly lucrative value driver for MorphoSys.

Third, the rest of the pipeline continues to make good progress.

And finally, today's announcement of an expansion of our alliance with Novartis marks the start of a new chapter in our successful history of technology commercialization.

That concludes the call. If any of you would like to follow up with us, we are in the office for the remainder of the day. Thanks for your participation on the call, and goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.