MorphoSys AG (MOR) 2012 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys analyst presentation year-end results 2012 conference call. 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 Loser. Please go ahead.

Good afternoon, and good morning, and welcome to our 2012 year-end results conference call and webcast. I am Claudia Gutjahr-Loser, Head of Corporate Communications and Investor Relations of MorphoSys.

With me on the call today is our complete Management Board -- Simon Moroney, our CEO, Jens Holstein, our CFO, Arndt Schottelius, our CDO, and Marlies Sproll, our CSO. Simon and Jens will present you a review of the year 2012 and provide an outlook for 2013. After the presentation, all four Management Board members will be available for your questions.

We would like to thank you for participating. For the participants of the conference call, you will find a slide deck of this presentation on our corporate Web.

Before we start, I want to remind you that during this conference call, we will present and discuss certain forward-looking statements concerning the development of MorphoSys' core technology, the progress of its current research and development 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.

Let's start by taking a look how the presentation will run, on slide number 4. We have two parts. First, we will review 2012, discussing our pipeline, technology and financials. And second, we will provide an outlook on the year, covering the same topics. The presentation will last about 45 minutes.

I would now like to hand over to Simon Moroney.

Thank you, Claudia, and also from me, a warm welcome to our 2012 year-end results conference and webcast.

We're delighted to be able to report on one of the most successful years in the history of MorphoSys. Major advances and the development of several programs in our clinical pipeline were the decisive events of the year. Our long-term strategy of using innovative technology to engineer the medicines of tomorrow is paying off, and momentum is building in the pipeline.

I'd like to start the review with the overall direction of the Company. The single most visible illustration of the Company's progress was the increase in our share price in the last few months of last year. The rally was triggered by the positive clinical data we announced for MOR103 in September. But there's more to it than that.

What we've seen is a fundamental re-rating of the Company as investors start to attribute real value to our pipeline. Underscoring this point is the fact that financially, 2012 was not a particularly noteworthy year for MorphoSys. This illustrates the reality that for us, as for other biopharmaceutical companies at a similar stage, value is much more closely linked to pipeline progress than to financial results.

This is also why we took the decision to divest AbD Serotec. The reason behind this move, which was announced in December, was our desire to increase our focus on therapeutics and on technologies to engineer the medicines of tomorrow. This is where we see the greatest opportunity to create substantial value.

An additional benefit of the sale, which closed in January of this year, is that it has added roughly EUR50 million to our cash balance, which now stands at around EUR180 million. Maintaining our financial strength is a priority, since it gives us the ability to invest to secure new technologies and product candidates, as we've shown in the past, but also to invest as necessary to drive our proprietary programs.

I'll now turn to look in a little more detail at the main operational highlights of the year. I'll start with our proprietary portfolio, where we made major progress during 2012. The biggest news was the outcome of the Phase 1b/2a trial of MOR103, our HuCAL anti-GM-CSF antibody for the treatment of rheumatoid arthritis. Since announcing the headline data in September, we've presented the results of this study in detail at the American College of Rheumatology conference in Washington in November, so we won't go through them again here.

The level of interest in this program in the rheumatology community is evidenced by the fact that our presentation was accepted as a late-breaking abstract at the ACR conference. The three features of the study which we believe are most significant for the future prospects of MOR103 in RA are, first, the compound showed excellent efficacy. Second, the onset of action was extremely fast. And third, the safety profile was very clean.

In a separate clinical study, we demonstrated that our subcutaneous formulation of MOR103 has the necessary properties to be used in a long-term chronic setting.

Turning to MOR208, the FC-optimized antibody against CD19, we presented positive clinical data from the Phase 1 study in CLL and SLL patients at the ASH conference in December. The data showed that MOR208 is generally safe and well-tolerated, and we saw the first encouraging signs of efficacy in what was a very heavily pre-treated patient population. The trial is continuing with an extended dosing arm, which I'll come back to later.

At ASH, we also published some pre-clinical data, showing the effectiveness of MOR208 against patient derived ALL cells, which supports future developments of the compound in this indication.

We're very excited about this program. There are a number of companies pursuing antibody-based drugs against CD19. What's unique about MOR208 is that it is essentially an unmodified antibody, with only a very minor change to the FC part of the molecule, leading to significantly increased cytotoxicity. This should translate into major advantages in terms of manufacture and also administration of the final drug.

The third of the proprietary antibodies I'll talk about is our HuCAL anti-CD38 antibody, MOR202, currently in Phase 1/2 testing in multiple myeloma. This program had previously not attracted much attention, either from the industry or the investment community, but that has changed dramatically over the last few months. Preliminary data presented at ASCO from the Phase 1 trial of Daratumumab, another anti-CD38 antibody, showed promising signs of activity in multiple myeloma.

Multiple myeloma is one of the forms of cancer for which there are very clear biomarker readouts, and this makes very -- this makes early clinical data more meaningful than perhaps in some other malignancies.

The significance for us is that CD38 is now a validated target for multiple myeloma. This is an important development which increases still further our confidence in MOR202. It's worth noting that this is now the only anti-CD38 antibody in clinical development outside of big pharma. MOR202 has therefore become a very attractive asset in our proprietary portfolio.

I'd now like to turn to our partnered pipeline. In this area, too, excellent progress was made during 2012. One of the great strengths of MorphoSys is the sheer number of programs based on our technology that are in development. Since we stand to participate financially in all of these programs via milestone and royalty payments, the potential upside is large.

There are simply too many programs to cover here, so I'll pick out just three where particularly significant program was made in 2012.

First and foremost is Gantenerumab, the HuCAL anti-amyloid beta antibody being developed by Roche for Alzheimer's disease. At the beginning of 2012, Gantenerumab was in a Phase 2 trial in pre-symptomatic, so-called prodromal Alzheimer's patients, that was scheduled to last for a number of years. Early in the year, Roche transformed this study to a much larger, potentially pivotal trial in the same patient population. They also brought forward the anticipated completion date of the trial, and mentioned at their R&D day that they may conduct an interim analysis of the clinical data this year.

Although negative outcomes in Phase 3 studies of two other anti-amyloid antibodies, Bapineuzumab and Solanezumab, may have been expected to harm the chances of Gantenerumab, the opposite is actually the case. In particular, the Solanezumab study showed clear signs of efficacy in the mild Alzheimer's disease patients in the trial, actually supporting the approach of Roche to develop our antibody in even earlier stage patients.

Independent confirmation of this came from the Dominantly Inherited Alzheimer's Network, an American organization that chose Gantenerumab as one of three drugs to test in a large scale clinical study in individuals who are at risk of early onset Alzheimer's through certain genetic mutations. This study is independent of the ongoing clinical trials of Gantenerumab, and will report in 2016.

Roche is making a large commitment to the program. Their ongoing clinical trials include the main pivotal trial I mentioned, which aims to recruit some 770 patients, as well as one Phase 1 trial comparing different formulations, and a second Phase 1 trial in Japan. Gantenerumab is now the most advanced antibody in development for Alzheimer's disease, and we believe, one of the most exciting drug development programs in the entire industry, given the scale of the unmet medical need it addresses.

The second part of the program I would like to mention is BYM338, a HuCAL antibody against the myostatin receptor ActRIIB, which is being developed by our partner Novartis in musculoskeletal diseases. Novartis highlighted this program at their recent R&D day. They showed data from the first of several Phase 2 clinical studies, which clearly illustrate that antibody stimulates muscle growth in inclusion (inaudible) patients.

Novartis is conducting Phase 2 studies in additional indications, including COPD related to cachexia, and weight loss in cancer patients in elderly people. Novartis has communicated 2016 as their target date for regulatory filing of this program.

The third program I'll highlight is CNTO1959, the HuCAL antibody targeting the P19 subunit of IL-23, which is in Phase 2 development by Janssen for the treatment of psoriasis. In 2012, Janssen commenced the second Phase 2 trial of this antibody in rheumatoid arthritis, a study which compares CNTO1959 head to head with an approved drug, Stelara.

CNTO1959 thus replaces CNTO888, which development in cancer and idiopathic pulmonary fibrosis has been stopped. It's the most advanced HuCAL program in Janssen's portfolio.

To wrap up our partnered pipeline progress in 2012, we started the year with 68 partnered programs in total, and finished the year with 70. Although this net increase of two programs doesn't seem like a lot, it actually obscures a lot of activity. Eight new programs were started during the year, eight stopped, and the two Novartis pre-development programs have transitioned to become partner programs.

New programs were added at about the rate we expect, while the level of attrition was a little higher than in previous years. We shouldn't over-interpret this. These will inevitably vary from year to year.

During 2012, we were able to disclose three new HuCAL programs by name, and communicate the target molecules for five programs. This increasing disclosure is important, as it helps the investment community better understand the true potential of our pipeline.

Looking just at those programs in the clinic, we progressed from seven partner programs in Phase 2 and nine in Phase 1 at the beginning of 2012, to one in Phase 3, seven in Phase 2, and eight in Phase 1 at year-end.

Let's now turn to technology. In 2012, we entered the first commercial agreement around our new Ylanthia technology. This is our restated agreement with Novartis, and in executing this deal, we fulfilled our intention of reaching an agreement with our most important partner, 1st. This agreement also established an understanding on how we would partner the technology with others. I'll return to this point in the outlook part of the presentation.

In 2012, we also took our first step beyond antibodies as a class of drugs. I'm referring to our equity-based option deal with a Dutch startup, Lanthio Pharma. We were interested in the lantipeptide technology that they are developing, and immediately recognized that it has great potential to complement our antibody approach.

So-called constrained peptides, of which lantipeptides are one type, comprise an area of intense interest in the pharmaceutical industry, as deals between Aileron and Roche or Ensemble and Genentech illustrate.

We believe that our deal with Lanthio Pharma is a great arrangement for both companies. We benefit via an exclusive option on lantipeptide libraries. Lanthio Pharma gets investment from us, and both firms will benefit from the collaborative R&D part of the deal.

This is the [first] deal done within our innovation capital initiative, providing equity investment as a means of accessing new technologies.

With that, I'll conclude the operational review of 2012, and now hand over to Jens for the financial review and outlook for 2013, before I come back with the strategic outlook.

Thank you, Simon. And also from me, a warm welcome to all to hear our 2012 results presentation.

2012 was another solid year, and also from a financial point of view. Group revenues reached an amount of EUR51.9 million, excluding the revenues of the sold research and diagnostic business. EBIT reached EUR2.5 million. Including the divested business activities, Group revenues would have reached EUR69.6 million. The correspondent EBIT would have amounted to EUR1.9 million.

Having mentioned the impact on the profit and loss statement of the AbD business, it is fair to say that the sale of the unit to Bio-Rad was financially the major event in 2012.

As mentioned in previous calls, our review in respect of different strategic options for our research and diagnostic business concluded that a disposable -- a disposal of that segment would be beneficial to MorphoSys and its shareholders, and would allow us to focus on our core activities, namely, the development of therapeutics and technologies.

We believe that this assessment was further supported by the positive share price development after the publication of positive news on various clinical programs during 2012, especially on our own ones, most importantly, the announcement of the clinical data on MOR103. The sale of substantially all of AbD itself was, in our view, mostly taken positively by capital markets.

Total proceeds of the transaction sum up to approximately EUR53 million, including a transfer of cash within the AbD segment in the amount of EUR5.3 million, and a non-exclusive HuCAL license for diagnostic applications (technical difficulty). The deal was closed in January of 2013, and we expect an extraordinary income from the sale between EUR4 million and EUR6 million that will be reported as part of Q1 2013 results.

Overall, we continued our path of financial prudence and discipline, which is and will remain a top priority for MorphoSys.

Turning to slide 16, after the decision in December 2012 to sell the research and diagnostic business to Bio-Rad, we had to apply the international accounting standard, IFRS 5, for our year-end 2012 results. The sale included substantially all of the AbD Serotec unit, with the exception of our subsidiary in Poole, the former Biogenesis side, and the Slonomics technology and its respective collaboration agreements on this technology.

We have stated our financial results reflecting the sold AbD Serotech business according to the requirements of IFRS 5. At the same time, we also had restated our 2011 results accordingly.

For the purpose of clarification, our year-end 2012 cash position does not include the proceeds of the AbD transaction. At the end of 2012, cash and cash equivalents, an interest-bearing transferable loan, as well as the liquid funds from AbD being included in assets of the disposal group, amount to EUR135.7 million. As of January 31st, 2013, our total cash position increased, due to the proceeds from the sale, to EUR180.8 million. This cash position is very important to MorphoSys, allowing us to increase our development activities as needed to support the progress of our proprietary portfolio, as well as for further strategic investments.

On slide 17, you see the P&L for 2012 and 2011, again, applying IFRS 5 as accounting-wise required. As mentioned before, revenues from continuing operations came in at EUR51.9 million, compared to EUR82.1 million in 2011. Please keep in mind that we had a large technology milestone from Novartis in 2011, which makes the comparison of 2011 and 2012 unfavorable.

After the disposal of AbD Serotec, cost of goods sold do not occur anymore. R&D expenses decreased, as previously guided, by 33% to EUR37.7 million. Sales, general and administrative expenses decreased by 19% to EUR12.1 million, mainly due to lower expenses for external services.

Other operating income expenses comprised funding from public authorities and foreign exchange gains and losses. Earnings before interest and taxes of continued operations amounted to EUR2.5 million, compared to EUR9.8 million in 2011. As for the revenues, the technology milestone achieved in 2011 is the dominating reason for the difference.

In 2012, the net profit after tax of EUR2.4 million was achieved for continued operations, compared to EUR8.2 million in the previous year. After deduction of transaction costs directly attributable to the sale of AbD Serotec, the discontinued operations reported a net loss of EUR0.4 million.

The consolidated net loss amount EUR1.9 million, compared to -- sorry. The consolidated net profit amounted to EUR1.9 million, compared to EUR8.2 million in 2011. Diluted earnings per share amounted to EUR0.08.

Turning to slide 18, revenues from the Partnered Discovery segment included EUR42.7 million of funded research and licensing fees, compared to EUR46.6 million in the previous year. Milestone payments summed to EUR1.9 million, compared to EUR32.7 million in 2011. Funded research and licensing fees decreased, due to the fact that most of MorphoSys' collaborations were concluded as planned and contractually agreed.

The majority of the revenues are coming from our large collaboration with Novartis. The main reason for the high revenues from success-based payments achieved in 2011 was, again, this one-time technology milestone payment from Novartis for the installation of the HuCAL technology.

The operating expense of EUR21.8 million comprised costs for technology development in the amount of EUR3.6 million versus EUR2.9 million invested in 2011. However, the EBIT margin for the Partnered Discovery segment was 51%, allowing us to push funding of our proprietary development activities.

Turning to slide 19, revenues of the Proprietary Development segment included EUR7 million of funded research, versus EUR2.4 million in 2011. Revenues of the Proprietary Development segment contained the one-off payment from Novartis.

Total investments in proprietary antibody development amounted to, in 2012, to EUR18.1 million, down by 48% from EUR35 million. Compared to the same period of 2011, segment revenues from AbD Serotec decreased in 2012 by 7%, to EUR18 million, from EUR19.3 million in 2011.

Revenues in the amount of EUR17.7 million arose from discontinued operations, and were not included in the Group revenues, due to the application of IFRS 5. In 2011, revenues from discontinued operations amounted to EUR18.7 million.

The AbD Serotec segment reported an EBIT of EUR0.3 million in comparison to EUR0.9 million in 2011. After deductions of transaction costs directly attributable to the sale of the AbD Serotec business, the discontinued operations generated an EBIT of minus EUR0.6 million in 2012.

Turning to slide 21 now, as you can see, we have some variance in our investments in proprietary product and technology development. We invest in our programs as they proceed in our -- and as investments are necessary. The total amount will always vary, as you can see on the slide, for the years 2010 to 2012.

As in 2011, when we received the one-off milestone payment from Novartis in Q1, we invested significantly more than in 2010, driving our Phase 1b/2a trial in rheumatoid arthritis forward. In 2012, with the trial being finished, we did not need to invest as much to move our programs forward. Depending on the program status, investments will fluctuate.

Slide 22, total assets amounted to EUR224.3 million as of December 31st, 2012. At year-end, the Company held EUR120.4 million in cash, cash equivalents and available for sale financial assets, compared to year-end 2011 balance of EUR134.4 million. This decrease in liquidity was impacted by the allocation of an interest-bearing transferable loan amounting to EUR10 million, that is reported in the line item, Other Receivables. Furthermore, cash in the amount of EUR5.3 million was attributed to the Disposal Group Classified as Held for Sale in 2012.

On a like to like basis, an amount of EUR135.7 million needs to be compared with the previous year figure of EUR134.4 million.

Non-current assets decreased by EUR33.1 million, mainly as a result of the reclassification of non-current assets in the amount of EUR30 million, to the line item, Assets of Disposal Group Classified as Held for Sale, as well as due to the depreciation of proprietary plant and equipment and the amortization of licenses and patents.

As of December 31st, 2012, the Company reported Assets of Disposal Group Classified as Held for Sale in the amount of EUR40.9 million. This line item mainly included goodwill in the amount of EUR26.8 million, property, plant and equipment, as well as know-how and customization were reclassified to this position. Furthermore, cash in the amount of EUR5.3 million, inventories, as well as accounts receivable, were part of this line item.

The decrease in current liabilities to EUR11.9 million mainly arose from a decrease in accounts payable, include expenses as well as tax liabilities. As of December 31st, 2012, current liabilities in the amount of EUR3.3 million from discontinued operations of the AbD Serotec segment were reclassified to the line item, Liabilities of Disposal Group. The decrease in non-current liabilities in 2012 to EUR6.6 million resulted mainly from decrease deferred tax liabilities.

The line item Liabilities of Disposal Group Classified as Held of Sale reported as of December 31st, 2012, in the amount of EUR3.7 million, consists primarily of accounts payables, accrued expenses, and accrued deferred revenues, as well as deferred tax liabilities.

Total Group equity amounted to EUR202 million as of December 31st, 2012, compared to EUR197.1 million as of December 31st, 2011. The equity ratio of the Company amounted to 90%, compared to an equity ratio of 86% as of December 31st, 2011.

This brings me now to the financial outlook of 2013, on slide 23. Before explaining the actual guidance, please allow me a short statement of our intentions behind these figures.

For 2013, we plan again to increase our proprietary R&D spending after a reduction in 2012. The main reasons for the increase are the start of two additional Phase 2 trials for MOR208, production costs for clinical material, and increased technology development expenses.

As presented by Simon before, MorphoSys is proud to have an interesting portfolio of proprietary programs, and we believe it's worth investing into these programs. The year 2012 clearly showed that successful clinical development is a real value driver for a company like MorphoSys. We believe it is in the interest of all stakeholders, and that this is the right way to proceed.

In addition, the Company has shown, over many years, that it acts prudent and financially disciplined, and this remains a key priority for us going forward.

Let me now come to the financial reflection of our plans for 2013. We expect revenues in 2013 between EUR48 million and EUR52 million. Total operating expenses will increase to EUR70 million to EUR74 million, including investments in proprietary development of EUR32 million to EUR37 million.

In terms of earnings before interest and taxes, we expect an amount that ranges between minus EUR18 million and minus EUR22 million. Please keep in mind that this does not include any out-licensing revenues from a proprietary compound. Such a deal could lead to a substantial outperformance of our guidance.

In 2013, we expect a profit contribution from the sale of AbD Serotec between EUR4 million and EUR6 million.

With that, I would like to finish my presentation now, and hand back to Simon for the operational outlook.

Thanks, Jens. To complete the presentation, I'd like to provide the operational outlook for 2013. We're looking forward to a lot of progress this year. Our pipeline of therapeutic antibody candidates is more advanced than ever. Our financial position has never been stronger. Overall, we feel very positive about the Company's prospects.

Once again, our pipeline will be the main driver of news. We expect the progress that we have seen over the last year towards a more mature, mid- to late-stage clinical pipeline, to continue.

As Jens has already mentioned, investment in proprietary R&D will increase this year, as we drive programs forward. We've made the decision to increase R&D investment, in anticipation that revenues could potentially flow from partnering MOR103, and because we have several great opportunities to drive value by pushing our programs.

Starting with our proprietary portfolio, we intend to partner MOR103 for further development, and are currently in negotiations to do so. As we've said previously, we'll not comment on this process while negotiations are in process. I can, however, state that we are quietly confident of securing an excellent partner for the further development and commercialization of MOR103.

We're aiming for a transaction that maximizes the overall value to MorphoSys by optimizing all the components of the deal. An upfront payment is important, and would have a significant influence on our financial results this year, but it is not the only component we're looking to optimize. Milestones and royalties also play an important role.

As partnership negotiations progress, the Phase 1b trial of MOR103 in multiple sclerosis continues. We expect to complete enrollment of all 30 MS patients before the end of this year, with data available next year. We don't expect this ongoing clinical trial to affect the timeline for partnering MOR103.

Looking at MOR208, here we are progressing from the successful Phase 1 study completed last year, to two Phase 2 studies, one on ALL and one in NHL. We'll provide more details on these Phase 2 trials when each study starts. For now, let me just say that ALL is the much leaner trial, with 30 patients, being conducted in the US only. We expect clinical data from this trial in 2014. The NHL trial is a larger study, which will recruit up to 120 patients, and is to be conducted at sites across both Europe and the US.

Regarding CLL, we expect to have data around midyear from the extension arm of the Phase 1/2a trial. We are also considering conducting another study on CLL, but if so, this is more likely to be a combination study combining the antibody with a small molecule drug. We'll provide more information on this as and when decisions are made.

The ongoing Phase 1/2 trial with MOR202 in relapsed or refractory multiple myeloma patients will continue in 2013. Recall that this is an open label study, which means that we may report first clinical data from this program in the second half of the year.

Turning to the partnered pipeline, we expect up to two new programs to enter the clinic, and three programs currently in Phase 1 development to progress to Phase 2. This year, for the entire pipeline, we see potential for news flow from around 14 clinical data events, based on information that is available on the website Clinicaltrials.gov.

Most prominent amongst these is the possibility that Roche will conduct an interim analysis of the ongoing pivotal trial of Gantenerumab. In addition, to highlight just a few programs, we may see data from Novartis on LGF316 in age-related macular degeneration, BYM338 in unintentional weight loss in cancer patients, and BHQ880 in multiple myeloma.

As always, I need to remind you that we have no control over what our partners choose to say or not to say about ongoing programs. Nonetheless, as programs progress through the clinic, results are more likely to become publicly available, and details of unidentified programs are more likely to be disclosed.

Regarding the outlook for technology, we've already entered a second Ylanthia-based agreement, following our agreement with Novartis last year. I'm referring to the deal with Heptares, announced three weeks ago, which was driven by our interest in their unique GPCR platform.

The ability to make antibodies against GPCRs consistently is one of the great unsolved challenges for an antibody technology. This is where the most successful class of biotherapeutics meets the single biggest target class. If we can crack this problem, there is a massive opportunity for new drugs.

We're excited about our collaboration with Heptares, and are optimistic that combining our antibody expertise with their StaR technology for making stabilized GPCRs will help drive new pharma deals for us.

We're in discussions with a number of companies who are interested in Ylanthia, and look forward to updating you on progress on the commercialization of this technology platform during the year.

In closing, I'd like to say that we are looking forward with great confidence to this year. We're extremely well positioned to continue executing our strategy of building a broad pipeline of innovative therapeutics that is built on a foundation of proprietary technology.

Thank you. We are at the end of our presentation. We open the call now for your questions.

(Operator instructions) The first question comes from the line of Gary Waanders from Nomura CodeSec. Please go ahead.

Hi, there. Good afternoon. Just a couple of questions, if I may. The first one on the proprietary R&D spending expectations for 2013. Could you give us, in approximate terms at least, the proportions of that spending which will go on clinical trials relative to manufacturing and then technology development?

The second question is, I'm not quite sure whether I got it correctly, but the MOR208 B-ALL trial, you said was going to be in the US only, I believe, or Europe only. Why only one, and not US and Europe?

And finally, just a point of clarification on the AbD profit contribution of EUR4 million to EUR6 million. Is that included in your EBIT of minus EUR18 million to EUR22 million guidance? Thanks.

Yes, thank you, Gary, for your questions. Let me take maybe two here. Your first question, regarding the split of the costs for our R&D spending, we have never done and never gave any indication on the split of those costs, and we would like to stay with that policy.

So, in terms of the EUR4 million to EUR6 million extraordinary profit, which will come out of the AbD sale, this EUR4 million to EUR6 million is not part of the EBIT guidance of minus EUR18 million to minus 22 million, so that will improve the pretax profit.

Okay.

Gary, this is Arndt. Let me answer the question about the ALL trial. This is a relatively small trial, 30 patients. The reason we chose two US sites, because the number of sites, two, is appropriate. And importantly, we have very strong, established relationships with those centers. One will be Ohio State University, where the chief is John [Birch], and you might recall, this was the principal investigator for the CLL trial. He has then voiced great interest, also, be participating in the ALL trial.

And the other site is with Susan O'Brien at MD Anderson, one of the leading cancer centers actually globally. And we really chose those two sites in the US because they're the leading centers for these diseases, and two sites, basically, is appropriate.

Okay, thank you.

The next question comes from the line of Gunnar Romer from Deutsche Bank. Please go ahead.

Yes, good afternoon, everyone. Thanks for taking my question. The first one would be, again, related to the EUR4 million to EUR6 million extraordinary income. Is that cash relevant? And also, could you, by -- provide a guidance on where you see your year-end cash position, for example, based on the midpoint of your current guidance? Specifically, I was interested also on the potential tax implications in 2013.

Then my second question would be with regard to proprietary R&D. Looking at your P&L, this is actually the first year in many years where you guide for negative EBIT, obviously excluding any potential income from out-licensing of MOR103. I was wondering, on the one hand, I fully appreciate your commitment to driving pipeline value, and this also relates to your higher guidance for 2013. But would you be able to comment on the proprietary R&D levels beyond 2013? Or maybe, the key -- yes, metrics you are looking at when making your decisions upon the R&D budget. Thank you.

Yes, thanks, Gunnar, for your questions. Let me start with the EUR4 million to EUR6 million, extraordinary income which we receive out of the sale of AbD. As mentioned to -- on Gary's questions before, that's a special item, a profit out of discontinued operations, where we report it separately. And certainly, as you indicated, has a cash implication, because we received the cash already back in January. So, it has a positive impact and had a positive impact already on our cash position, which we have reported for end of January.

In terms of an indication on where the cash position could be by year-end, if you look into our operating cash flow, at our operating cash flow for 2012, you see that basically, the operating cash flow and the EBIT are very much in line. 2011, the EBIT was lower. The cash flow effect was much higher, due to the fact that our working capital activities to improve our cash position and to reduce working capital being needed for the business have paid off, but this is a one time effect.

So I think the assumption to undertake that somehow, operating results and operating cash flow stands line in line, is a good one for 2013, which means that if you look at our guidance for minus 18 million to minus 22 million, that sort of number will hurt the current cash position of EUR180 million. On the other hand, you have this positive EUR4 million to EUR6 million impact, so to make a long story short, it will be around -- estimated around EUR160 million, maybe slightly south of it.

Yes, and then coming to R&D, costs and guidance for the years beyond 2013, we've never done -- we've never given any guidance on any of our numbers beyond the current year. And please accept that also, in this case, we don't want to do this.

But Gunnar, maybe if I can just add to that last point, our proprietary R&D budget is formulated based on the need, and on where we see the opportunities to drive value. We're in the happy position of having three proprietary programs, one of which has already generated positive Phase 2 data, MOR103, which we're intending to partner, as we said, and two others, MOR202 and MOR208, which look fantastically promising. And we want to drive those things as fast and hard as we can, and that's a large component of the R&D investment, of course.

Okay, thank you. Maybe one follow up, if I may. The partnered R&D, I was actually surprised to see it at just EUR16 million in 2012. Were there any special effects? Usually I would assume a run rate of around, rather, EUR20 million?

It has been -- yes, pretty low in 2012. The normal run rate is rather in the range of EUR20 million. It has been a bit lower due to the fact that we also had reduced personnel in 2012, and therefore, overall, the average number here in that segment of personnel was rather a bit lower. But we had a couple of smaller impacts here.

Overall, for the future, it's rather in that ballpark, EUR20 million plus, than in the EUR16 million range.

Okay. And I would assume this holds true also for 2013, then?

Yes.

Okay, and that would mean SG&A, which should amount to around EUR16 million plus, is that a level which we should look at being stable over the coming years, or roughly stable, growing with inflation, maybe? I don't know.

I mean, if you see 2012, we had some -- we haven't spent that much money in certain areas, especially in the partnered segment. In 2011, we had some EUR19 million spend, so you see that certainly, the EUR20 million plus for 2013 is a good assumption. On -- in terms of SG&A expenses, we also had rather a lower value in 2012 than we had in 2011. So, there are no super extraordinary items planned for the year 2013 here, but certainly, we want to take some money to invest in some of our systems and structures, and therefore, we have planned for that, for 2013.

Okay. But you would regard the step up relative to 2012 rather as a back to normal than an exceptional step up?

Yes. I don't want to -- I don't want that you read in this EUR12.1 million, that this number is something which has been polished or so, yes?

Yes.

In fact, that's not the case. But we certainly have been very careful in the way how we spend in the SG&A area. But we are intending to set up the Company for future growth, which means that we want to take some money in our hands to invest in our IT landscape, for example, and the same occurs to -- is relevant for the partnered business. So therefore, that is ramping up a little bit the cost side in these two areas.

Okay, very helpful. Thank you a lot.

The next question comes from the line of Daniel Wendorff from Commerzbank. Please go ahead.

Daniel Wendorff from Commerzbank. Thanks for taking my questions. And one is also related to -- a follow up question to the last one, and your operating expense guidance. If I adjust for the increase in proprietary R&D spending, what's basically mean a year on year increase of EUR10 million. I mean, you mentioned already that you would likely spend a bit more on SG&A, but the EUR10 million increase year on year, I was wondering whether you could still give a bit more color on that?

And the second question, also, on your guidance, and can you potentially comment on how many new technology deals your top line guidance includes for 2013?

And lastly, on the possible interim analysis of Roche's Gantenerumab, and when would you project that to happen, and what are actually the data we are going to see there? And that would be helpful, if we could get some color there. Thank you.

Yes, maybe I'll take the first question, and Simon takes over the other questions, Daniel. Thanks very much. Just to maybe reiterate, it's not -- I wouldn't see EUR10 million increase here, which you have mentioned. I come to a different calculation, which is significantly lower. But in terms of putting more color to it, I think I tried to explain at least that we are intending to invest in our systems and our structures, both in the partnered segment, as well as in the systems which are relevant for the whole Company, and that will eat up some costs, and that is what we have planned for.

Simon, you want to --

Yes, let me take the question about new technology deals. We have an assumption in the -- in our financial plans for this year of milestone revenue and revenue from new commercial activities. It's not a large position, but we have assumed a limited amount of revenue from those two sources for this year.

Regarding Gantenerumab, all we know is what Roche communicated at their R&D day in September of last year, which is that they are considering conducting an interim analysis this year. More than that, we don't know. When it could take place, what it could comprise exactly, we know no more than that, at this stage.

Okay. Okay, thank you.

The next question comes from the line of Robin Davison from Edison Investment Research. Please go ahead.

Thank you, yes. I'm just really sort of thinking about the proprietary pipeline. I mean, there is a sort of -- rather a gap at the -- in terms of late preclinical, early clinical stage. And I'm wondering, really, whether your -- or you might be in a position to sort of accelerate your own expenditure. I mean, you've given guidance, obviously, this year. But if you were to complete a licensing deal -- I mean, you're sort of bound by various timelines, or are you in a position to consider developments of projects if you get -- somebody comes in?

Thanks, Robin. We continue to look for opportunities to bring new programs in, along the lines of what we did a couple of years ago with MOR208, which, remember, we in-licensed from SIMCOR. And are, at this stage, evaluating potential opportunities to do just that.

Of course, it's always difficult to predict whether something will indeed materialize from that activity, but we're certainly interested in strengthening the pipeline by adding new compounds in that area, as you pointed out, which is currently a little bit there, which is the late pre-clinical and perhaps early clinical stage.

So we've done it before, and I could imagine that we could potentially do it again.

Right, okay. I think that was one part of the question. I was also wondering whether the MOR208 study could be brought into 2013 if you felt that it didn't -- it wasn't so limited by financing, for example, or your financial guidance.

Let me just be clear that we're driving the programs as hard and fast as we can. Nothing is being held back here. So MOR208, for example, as we mentioned, we'll commence two Phase 2 studies this year, and possibly a third, a combination study on CLL. So nothing is being held back here, just to be clear on that.

Okay, right. Thanks. Those were my questions.

Okay.

The next question comes from the line of Sachin Soni from Kempen & Co. Please go ahead.

Good afternoon, everyone. This is Sachin from Kempen. My question is regarding the kind of discussions which are happening around MOR103. Can you please mention which stage you are in when it comes to discussion with partner, with potential partners? And is there any major pushback you have seen on that front?

Sachin, thanks for the question. And I'd just like to refer back to what we said in the presentation, that we'd really like -- not like to comment on ongoing negotiations at this stage. We're in negotiations. We are optimistic about finding a partner for this program. But more than that, I would not like to say, because of course, we don't want to do anything or say anything that may have a bearing or negatively impact or jeopardize in any way those discussions.

Which is fair enough. Thank you.

Okay.

The next question comes from the line of Victoria English from MedNous. Please go ahead.

Yes, Simon, I'd like to go back to the question of your proprietary pipeline, which Robin mentioned a few minutes ago. Can you tell us, in the first instance, how you plan to develop your relationship with Lanthio? And secondly, would you consider Alzheimer's an indication for yourself at some point in the future? Obviously, depending on the outcome of the Roche trial.

The reason I'm asking is that the FDA has recently issued draft guidance in which they're trying to encourage developers to look into early treatment, which would seem to be an invitation to companies like yourself to have a closer look.

Yes, let me comment on the Alzheimer's question, and perhaps Marlies would like to say something regarding Lanthio Pharma and that collaboration.

At this stage, we don't have any current plans to get active ourselves in Alzheimer's disease, for the reason that there needs to be a degree of focus, and we've chosen to focus on cancer and inflammatory disorders, as you know. And for a company of our size, it's not reasonable to expect that we can be really strongly competitive in multiple different disease areas.

We have a great potential upside via Gantenerumab. If that drug should work, and we're all of course hopeful, that if it should work, it would be massive for us, for our royalty participation. And for the moment, at least, we plan to leave our involvement in Alzheimer's at that.

Okay.

Okay. Victoria, thank you for your question. So I would like to respond to Lanthio Pharma. So the reason why we became interested in this Dutch company is that we think there is a very good synergy towards the expertises and platforms our two companies bring to the table.

So Lanthio Pharma is developing molecules, peptides, constrained peptides, which is a different class than monoclonal antibodies, and where we are quite confident that this could open up the target space and the applications for new drug molecules.

So the aim here is to combine our strengths and our expertises, and come up with possibilities to generate, in a more efficient way, drugs derived from that new compound class, and then of course try to commercialize, and/or also use for our own pipelines.

Thank you.

We currently have no questions coming through. (Operator instructions) We have a follow up question from Gunnar Romer from Deutsche Bank. Please go ahead.

Yes, thanks for taking the follow up. Coming back to MOR202 and the deal we have seen for [Janssen's] compound late last year, it happened at a fairly early stage, and I was just wondering whether you would be considering out-licensing your compound earlier than you would normally do, or what your general policy is, i.e., after a proof of concept?

Yes, that's a good question, and as I mentioned, multiple myeloma is one of those diseases where -- perhaps in contrast to many forms of cancer, you do get a pretty good idea, even in Phase 1, whether your compound is working or not. And that was probably one of the reasons behind the Janssen deal that you mentioned.

Perhaps at this stage, all I would say is that I wouldn't absolutely rule that out. Obviously, it would depend on the precise opportunity. But it would be kind of consistent with our priority. Our priority has always been to say, on the back of clinical proof of concept data, we would consider partnering our compounds. If that clinical proof of concept data happens to come in a Phase 1 trial, that's the relevant point here.

So in short answer to your question, if a suitable opportunity presents itself, we wouldn't necessarily rule that out.

Okay, makes sense. Thank you.

The next question comes from the line of Thomas Schiessle from EQUI. TS. Please go ahead.

Yes, thank you for taking my question. Hi there to Munich. A question, a strategic question on the focused R&D efforts. Simon, you just mentioned that you and MorphoSys will focus on cancer and inflammatory indications. To my knowledge, there had been some collaborations with some Asian partners in infectious disease and so on and so forth. If -- shall we see it in another light? Is -- are those activities not pursued anymore?

And the second question is specific on collaboration with Galapagos. Will there be any inflection point in the current year to be reached? And third one, a more financials, do you share with us the proposed number of employees in the whole Group for the current year? Thanks.

Yes, thanks, Thomas, for your questions. You're quite right that we, beyond the cancer and inflammation, we have had and we do actually continue to have some activities in the infectious disease space. My answer to Victoria was more kind of thinking about clinical development.

Ah.

So, we have -- we actually have some programs that we're very excited about in infectious disease, but they're still early stage -- discovery, perhaps approaching pre-clinic. And a little bit too early still to think about clinical development of those candidates, but for that reason, I really mentioned that cancer and inflammation were our two main areas of focus.

But just to be clear, we haven't dropped, or we haven't lost those programs in the infectious disease are as well.

Regarding Galapagos, I hope that we'll be able to give an update with our friends at Galapagos on progress this year. We continue to work together with them, and we're looking forward to be able to give you an interim update perhaps later in the year, together with Galapagos.

A number of -- sorry, do you want to ask a supplemental question?

No, no, no -- that's okay.

The number of employees, we can give you for the year --

Thomas, it's relatively -- it will be relatively stable, maybe a very slight increase, but relatively stable.

Okay. An additional question, if I may, on the collaboration with Heptares. Do you feel complete if it comes to technology, so that the bundle of the technologies of your partners and yourselves is enough to drive the technology development to its point to see whether this new class of peptides might be of interest, and fruitful for further development, yes or no?

You know, I think -- I would never say that we have enough technology, and that's the end of technology development or acquisition. We continue to look, and we continue to be open for new technologies that we think fit or complement what we have at the moment. I think Heptares is a particularly exciting opportunity in the GPCR space. If we come across something else that really fits or really makes sense, we're able to execute on that, particularly given our cash position.

So technology is continually developing, of course, continually changing, and we're very aware and, I think, have our eyes open as to what's going on out there.

Okay. Thank you (inaudible).

The next question is coming from Gary Waanders from Nomura. Please go ahead.

Hi, there. It's just a quick follow up. On the subject of development programs in inflammation, your proprietary pipeline -- I don't know how long ago, you actually showed MOR104 and MOR105 as candidates in early stage development. I just wonder what's happened with those. Perhaps you've told us that they've been stopped in the meantime, but I've just forgotten that, but if they're still in development, are you going to target those programs with Ylanthia as well, or what's the status there? Thanks.

Yes, so indeed, we do have additional inflammation activities going on. We kind of stopped talking about very early stage stuff, because -- simply for the reason that it's too early stage to be able to give meaningful communication about it.

So there is some early stage activity, but we prefer to keep it kind of low profile at this stage, until such time as we've generated data, but which we think is worthwhile sharing with you.

Okay.

The next question comes from Daniel Wendorff from Commerzbank. Please go ahead.

Thanks for taking my follow up questions. Two, if I may. One, still relating to your operating expense guidance for 2013, and in light of what you just said (inaudible). Do I assume correctly that if you hit the high end of your proprietary R&D guidance, meaning EUR37 million, it does not necessarily mean that you will spend EUR74 million for -- that you have EUR74 million operating expenses for 2013?

And second question, and would be, just to clarify, did you mention that you expect 14, 1-4, events from the partnered or proprietary pipeline to come in 2013? Thank you.

Let me start with that one, while Jens thinks about the first question. (laughter)

So, indeed, we did say -- and this is based on information that's available to everyone off the Internet, Clinicaltrials.gov. If you simply go through all the programs on Clinicaltrials.gov, there are 14 partnered programs -- we are not talking about proprietary here, but 14 partnered programs, for the schedule to complete trials during the course of this year, and which, therefore, could provide data.

Again, you know, we're not the people who decide whether that data is released or not, but it is the potential for substantial news. And I think that just really speaks to the breadth and the depth of our pipeline, which we think is very exciting.

Okay.

Coming back to your first question, Daniel, I mean, despite the fact that you are readdressing the question again, please accept that -- I mean, we'll have a guidance for our spending, because we need some movement here as well. It's not everything can be predicted 100%, and therefore, we have EUR70 million to EUR74 million, and proprietary development guidance for its costs of EUR32 million to EUR37 million.

So therefore, please accept that I can't be more precise on that one. Otherwise, I can give you right away a number, and that would (inaudible). So therefore -- yes. The world is like -- unfortunately, not that predictable, and therefore, we use that guidance and we would like to stick to it.

(inaudible), I just wanted to get a sort of sense about the moving parts there. Thank you.

The next question comes from the line of Olav Zilian from Helvea. Please go ahead.

Yes, thank you. Thank you for taking the questions. It's about potential pivotal trial programs that could be initiated by one of your partners. So there is [Spirea] that has an antibody in the mesothelioma indication, and (inaudible) indication pursued by Novartis. And so it's that possibility that a following trial could then be a potential (inaudible) trial in one of these programs?

Yes. I think to answer that question, we need to look at the programs that are currently in Phase 2. It could potentially transition to Phase 3 this year, and for that, one needs to refer to the page 10 of the presentation, if you have access to the Web presentation.

There are several programs in Phase 2 right now from partners, which could potentially, potentially move into Phase 3 pivotal trials. The timing on those, of course, depends on when the Phase 2 trial is completed, and then how much time elapses between that and the start of a Phase 3 trial.

We're not guiding to any starts of Phase 3 trials this year of partnered programs. But, you know, we can always be surprised by that.

Thank you. So about the mesothelioma indication, for instance, and coming back on the point mentioned before by another analyst, about the so-called (inaudible) FDA. So, could there be a possibility that (inaudible) Phase 2 study (inaudible) to (inaudible) and what's sufficient (inaudible) in mesothelioma that we could be recognized as pivotal trial?

To our information, and again, this comes from Clinicaltrials.gov. That particular trial you're referring to, which is in Phase 1 at the moment, remember, is due to complete Phase 1 actually next year. And you can see this, in fact, on page 26 of the presentation.

So, again, just going off the public information on Clinicaltrials.gov, that's the information that we have. If you want more than that, you'd have to go to Bayer, I think, if you wanted to ask them about their plans for that program.

Okay, thank you very much.

The next question is a follow up from Gunnar Romer. Please go ahead.

Yes, thanks. Coming back to your top line guidance again -- sorry for that. But in the past, you've typically indicated a number of partner R&Ds which you would expect for the upcoming year. Can you give us a guidance for the current year, and also, remind us of the partner R&Ds last year? Thank you.

Yes. We mentioned that during the presentation, Gunnar. Just as a reminder, we're expecting two partner R&Ds this year, and there was one last year.

Okay, thank you. I missed that. Thank you.

No problem.

We currently have no questions coming through. (Operator instructions) Thank you. We have no further questions, so I will now hand you back over to Dr. Moroney to wrap up today's call.

Thank you. And to conclude the call, we'd like to remind you of the key take home messages.

We're excited about the prospects for progress this year. The out-licensing of MOR103 is top of our list of priorities. If we are successful, a partnering deal would have a significant impact on the financial guidance we have issued today.

Advancing the clinical development of MOR208 and at least two Phase 2 trials, and MOR202 through the ongoing Phase 1 study, are also very important objectives for 2013.

Regarding the partnered pipeline, there is substantial scope for meaningful clinical data to emerge this year. Gantenerumab is just the tip of a very large iceberg.

Regarding new programs, we are well positioned with Ylanthia, now up and running and available for partnering.

Finally, and most importantly, we expect 2013 to be a year of substantial progress in executing our strategy of building a valuable pipeline based on proprietary technology, and we look forward to keeping you updated on our progress.

That completes the presentation. Thank you all very much for your attention.

Should any of you wish to follow up with us directly, we are in the office for the remainder of the day. Thank you again for joining 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.