MorphoSys AG (MOR) 2013 Q3 法說會逐字稿

Ladies and gentlemen, welcome to MorphoSys' Quarterly Call on the Financial Results of Q3 2013. Please note that for the duration of the presentation, all participants will be in listen-only mode, and the conference is being recorded.

(Operator Instructions)

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

Good afternoon and also good morning and welcome to our Q3 1013 conference call. I'm Claudia Gutjahr-Loser, Head of Corporate Communications and Investor Relations of MorphoSys.

Before we start the presentation, I have to remind you that during this 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 to date here.

With me today are Simon Moroney, our Chief Executive Officer and Jens Holstein, our Chief Financial Officer. Simon will start by giving an operational overview of the third quarter.

Before we then open the call for your questions, Jens will review the financial result of the first nine months of 2013. Afterwards, Simon and Jens 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. This has been an outstanding quarter for MorphoSys. The progress we've seen, and the number of clinical programs in our pipeline bodes well for the future. The more individual programs advance, the more confident we become in their potential as marketed drugs.

The fact that there are so many programs now in clinical development, is the outcome of the successful execution of our business strategy. Increasingly, there is value being created from both [partnered] and propriety sides of business.

I'll open my review of the quarter with the look of our MOR programs, those that we have driven forward ourselves. Starting with MOR202, as expected in August, we received anti-trust clearance for our deal with Celgene. The deal closure triggered the purchase of a pre-agreed euro amount of our equity by Celgene. Confirmation of the deal also led to us increasing our financial guidance for the year which Jens will cover in his part of the presentation.

It also meant that we could officially start the collaboration and we've been working closely with Celgene since then. The ongoing Phase I/IIa trial of MOR202 in relapsed and refractory multiple myeloma patients continues according to plan. But working with Celgene on finalizing our plans for completing this trial and subsequent studies, and hope to give you some insight into these plans at our annual results press conference in February 2014.

Turning to MOR208, during the quarter, we reported final headline data from the Phase I/IIa trial in CLL and SLL patients. You will recall that we presented initial data from the first stage of this trial at ASH in December 2012. The data showed 4 out of the 27 patients or 15% had partial responses. And 20 or 74% have stable disease.

We then ran an extension under which 8 patients at the higher stage continued treatment and receive up to 4 additional treatment cycles with MOR208. The full dataset now shows that the partial response rate is twice as high as originally observed, [mainly], 8 out of the 27 patients or 30%.

This constitute encouraging signs of activity in this very heavily pretreated patient population. Full details of the trial would be published in due course and appear in review journal. With completing the Phase I/IIa trial, full responsibility for the program now switches from our partner, Xencor, to MorphoSys. We are therefore running the ongoing Phase II trials in B-ALL and NHL. We see a lot of interest at the participating sites to recruit patients and both trials are well on track for completion as planned in 2014 and 2015 respectively.

Plans for Phase II study in CLL in combination with an appropriate small molecule continues to take shape and we hope to see such trial initiated before yearend.

The third of the MOR programs that I'll mention is MOR103. Remember that this program has been out-licensed to GSK. And currently, our sole remaining responsibility is to complete the Phase I-B safety study and multiple sclerosis patients. Here, we're on track to complete recruitment this year and we'll have final data from the trial in the first half of next year.

I'd like to turn up to our partnered pipeline. The main news of the quarter was Novartis' commencement of a physical trial of a HuCAL antibody, Bimagrumab, also known as BYM338 in sporadic inclusion body myositis. The trial will recruit 240 patients and a scheduled completion date of November 2015.

Novartis has announced that the program is planned for regulatory filing in 2016. Sporadic inclusion body myositis is a rare condition, but it's the most common to generative muscle disease and people over the age of 50. The incidence in the general population is about 15 per 1 million people which will rise to over 50 per million in the over 50 age group.

Based on the results of the Phase II trial and the fact that there is currently no treatment for this condition, Novartis announced in August that it has received breakthrough therapy designations for the program from the FDA. Bimagrumab is the first antibody in our pipeline to receive such designation, and the second to enter a pivotal clinical trial.

The Phase II data on which to breakthrough therapy designation was granted has been presented at the American Neurological Association meeting on October 14. The presentation was restricted to a medical audience but we expect the results to be published in a major medical journal later this year.

This is an exciting program, but it's also being developed in other muscle wasting conditions, including sarcopenia, COPD and cancer-related cachexia and in patients who are on mechanical ventilation. This program certainly has blockbuster potential, JPMorgan analysts have estimated peak sales at $2 billion.

During this quarter, the [three partnered] programs progressed from Phase I to Phase II clinical testing. Novartis advanced the anti-inflammatory program, VAY736 into a Phase II trial in patients with Pemphigus Vulgaris, autoimmune disease that causes painful blistering on the skin and the mucous membranes.

In addition, our partner, Janssen, advanced 2 HuCAL antibody programs into Phase II during the quarter, triggering milestone [payments] to MorphoSys in each case. The Phase II study in rheumatoid arthritis was started with the antibody, CNTO6785. This study aims to recruit 250 patients and completion is scheduled for May 2015. The second Janssen program to advance is CNTO3157 which is being developed in asthma.

In conclusion, quarter three of this year was probably the strongest in our history in terms of pipeline progress. We now have more programs in late stage development than ever before. Overall, the pipeline now comprises 21 clinical programs, with two in Phase III or Phase II/III pivotal trials. 11 in Phase II, and eight in Phase I.

Looking ahead, we expect the next couple of years to be a very exiting time as more data emerges from the pipeline. And as we near the first -- the stage of [first] market approvals.

Summary of the quarter would not be complete without mention of our successful capital increase. Jens will talk about the transaction but I'd liked to address the question of why we did it. Our pipeline clearly shows our ability to use our proprietary technologies to make and develop antibodies that have the requisite properties to be developed as drugs.

Now is the time for us to scale up in our drug discovery and development activities to build value in the pipeline, and that was the reason for the capital increase. We have a ambitious plan for our proprietary product portfolio. We want to push forward in our most advanced for proprietary programs, MOR202 and 208 as broadly and rapidly as possible.

MOR202, of course, in conjunction with our co-development partners, Celgene and MOR208 on our own. In addition, we are evaluating several candidate programs for in licensing. Remember that MOR208 was in license at the [I&B] stage from Xencor. We're aiming to execute one or more similar transactions as a means of adding new and attractive programs to our portfolio.

We also want to drive our earliest stage R&D both drug discovery, as well technology development and application. We want to do all of this and maintain the financial strength to be able to move quickly on opportunities and to transact in whatever way make sense, whether it'd be by licensing, co-development, or acquisition. That was the rationale behind the capital increase.

Obviously our plans imply an increase in our level R&D investment. We'll provide details in due course. But you should expect the current level of investment to go up significantly.

That concludes my summary of the operational highlights of the quarter. I'll now hand over to Jens for his presentation of the financial results.

Thank you, Simon. Ladies and gentlemen, also from my side, a warm welcome to our Q3 2013 Conference Call.

The first nine months of 2013 have lifted Morphosys to a new level and its development which is also reflected in all 9 month results. So let's start with an overview about the most important financial figures

Total [growth] revenues in continuing operations rose about 80% to EUR63.6 million for the first nine months, compared to EUR35.4 million in the same period of the previous year. This increase compared to 2012 has 3 main reasons. The licensing agreement with GalxoSmithKline from a [full] business clinical antibody program, MOR103, the co-development agreement with Celgene for the further development of MOR202. And finally, the licensing fee relating to the sale of the AbD Serotec business to Bio-Rad.

And as you may recall the disposal of AbD Serotec included in the sale of a non-exclusive license for the use of our HuCAL technology in the market for research reagents and diagnostics.

Total operating expenses of our continuing operations for the first nine months increased by 31% to EUR49.1 million.

Research and development expenses rose during that time by EUR6.9 million to EUR35.9 million. This was mainly due to higher cost for personnel and external lab services. Sales in General and Administrative expenses increased to EUR13.2 million driven by high expenses for personnel and for external services.

In the first nine months 2013, the EBIT from continued operations amounted to EUR14.6 million compared to a negative EBIT of EUR1.9 million for the same period of the previous year.

Morphosys generated a net profit off of taxes from continuing operations of EUR10.9 million compared to a net loss of EUR0.9 million in the first nine months of 2012.

With the sale of AbD, MorphoSys has been able to book an additional EUR6 million of profit after tax from discontinued operation.

As a consequence, the total net profit for the first nine months of 2013 amounted to EUR16.9 million. The fully diluted group earnings per share amounted to [EUR0.68].

Let's now have a closer look at our two business segments. The Partnered Discovery segment generated revenues in the amount of EUR40.5 million in the first nine months of 2013 compared to EUR34 million in 2012. The revenues in our Partnered Discovery segment comprised EUR37.5 million from funded research and licensing fees up from EUR32.1 million in 2012.

Success based payments amounts to EUR3 million in the first nine months of 2013 compared to EUR1.9 million the same period of the previous year. Operating expenses increase by EUR2.1 million versus the first nine months of 2012 to EUR18.2 million. The segment EBIT amounted to EUR22.4 million compared to EUR17.9 million in the same period of the previous year.

The first nine months of 2013, the Proprietary Development segment achieved revenues of EUR23 million compared with EUR1.2 million in the first nine months of 2012. And that's outperformed our original expectations at the beginning of the year.

The main reason for the significant increase really are from payment received from GSK in connection with the license agreement with MOR103, as well as the pro-rat recognition of the up-front payments with Celgene for the co-development of MOR202.

Operating expenses amounted to EUR20.8 million compared to EUR14.5 million in the first nine months of 2012. The segment EBIT amounted to EUR2.3 million compared to a loss of EUR13.1 million during the first nine months of 2012.

On September 30th, 2013, the company had EUR401.9 million in cash, cash equivalents, marketable securities as well as other financial assets compared to EUR135.7 million as of December 31st, 2012. The increase compared to the yearend figure of 2012 resulted again from the licensing agreement with GSK and Celgene. The sale of the AbD Serotec segments [bio-rat] and the capital increase into a successfully concluded September 2013.

The Celgene alliance and the subsequent capital increased have an impact on our shareholder structure. And the [closure] of our strategic alliance for MOR202 on August of 10th, 2013, Celgene invested roughly EUR46 million to subscribe for of about 800,000 new shares of MorphoSys. The shares were acquired at EUR57.90 per share, representing a premium of 5% compared to the share's closing price before the clearance by the transaction by the authorities.

Compared to the shared-price prior to announcing the deal, the premium was roughly 53%. Celgene now holds about 3% of our actual registered share capital.

Roughly, 1 month later, MorphoSys issued around 1.5 million new shares from authorized capital, international institutional investors. The offering represented approximately 6.3% of the registered peak transaction share capital.

The private placement was sufficient was positioned at market price and with multiple times over subscribed. About two-third of the shares issued went to U.S.-based investors, one-third went to European investors. As Simon explained we intend to use the net proceeds form this transaction to fund the further clinical development of all proprietary programs, MOR208 and MOR202 and initiate, advance and accelerate our other proprietary programs to fund the in licensing of compounds and technologies or the acquisitions of businesses.

Before we open up the call for questions, we would like to reconfirm our guidance for 2013 which was updated on October 21st.

The change of the EBIT range was mainly driven by the public revenue development and lower than originally anticipated cost in 2013 for development of the cancer program, MOR202 under the co-development and cost sharing agreement with Celgene. For 2013, MorphoSys expects total growth revenues to come in at the upper end of our [clearing] guidance range EUR74 million to EUR78 million and an EBIT of EUR7 million to EUR10 million.

The partnership deals with GSK and Celgene were the decisive events which led to this clear outperformance of our original 2013 financial guidance. We believe in MorphoSys is well-positioned and well-funded to broaden and advance its proprietary development activities and to continue to build significant value.

Ladies and gentlemen, that concludes my review for the first nine months of 2013. I'll hand now back to Claudia for the Q&A session.

Thank you, Jens. We now open the call for your questions.

(Operator Instructions). The first question comes from the line of Gunnar Romer from Deutsche Bank. Please go ahead.

Yes, hello. Gunnar Romer, Deutsche Bank. Thanks for taking my questions.

The first one would be with regard to Ylanthia. We haven't called an update for quite some time now I believe and I was just wondering whether you can provide an update here as to where you are in with regard to your commercialization plans for Ylanthia.

Then secondly on MOR202, I was wondering when we should be expecting an update regarding further development [sense]. And also the data from the ongoing Phase I/IIa trial, if there's something we should expect potentially at [ESCO] or later, that would be quite helpful.

And then, lastly, on 208, can you give us an update on how recruiting is going for the trial B-ALL and NHL and also -- I'm not sure whether you commented on whether you still expect to start an additional trial in CLL by yearend or where you are in terms of your plans here. Thank you.

Thanks, Gunnar. Let me take those. So first of all, starting with Ylanthia, there are discussions and negotiations ongoing. Several, obviously as always, we don't come into where those (inaudible) or with whom they are, but we feel good that there's good interest in the technology.

Our intention, and I think we've talked about this before -- the intention is really now more and more to take advantage of a Ylanthia as a currency, if you like, for getting access to interesting programs. So, in the structure whereby we bring the technology to the table in exchange for targets, perhaps, or the ability to participate in the targets of partners.

And there's a number of those types of negotiations ongoing right now and I'm confident that one or more of those negotiations will culminate in deals.

Again, we don't give guidance on timing or with whom or in what scope. But, we're happy with the progress and we're confident that Ylanthia will be commercialized in a form that we want to commercialize it in.

Regarding MOR202, the plans -- the update on the plans, we hope to be able to give that our (inaudible) press conference, our yearend results conference which will take place in February of next year. Obviously, we're now working together with Celgene, we have to agree with them what to say and when to say it. So, we haven't really discussed with them precisely when we'll give information about this. We'd like to be able to give you, guys, information but it needs an agreement with Celgene, of course.

Data, potentially ASCO, potentially, again, not sure yet. Also depends on our agreement with Celgene to release that data, but I would certainly hope that we could have something around mid-next year potentially for ASCO.

And then regarding MOR208, we're actually very happy with the way the ALL and NHL trials are recruiting. There's quite some enthusiasm from the investigators in both of those trials. And at this stage, recruiting is on track. And so we're confident that we can keep it to the timelines that we've planned for those two indications.

We're also confident that a CLL trial will start before the end of the year. The work that is being put on here has been finding an appropriate or finalizing the plans for the co-development partner molecule. We have never intended to go ahead as [monotherapy] with (inaudible) [CLL] but wanted to do or want to do a combination study with a small molecule. Those plans are now complete and I'm quite confident that we should be able to start the trial before the end of this year.

Perfect. That's very helpful. One additional question if I may, also regarding 208. Can you remind us on when you expect to release data on the ongoing files? I think both are open label studies. Would you update us on the way along these trials or if that's rather a topic we should be looking at closer towards end of 2014, maybe?

So the difference here compared to MOR202 is that this is fully under our own control of course, so we can make the decision when we release data. And as you rightly, say this are open-label trials. So I wouldn't rule out but we may release data along the way. Potentially, ASCO there maybe something available by that time, middle of next year.

But certainly, we would anticipate that both trials will be completed on schedule, which means the ALL in the second half of next year, and we would then release a data from trial thereafter, and the NHL trial in '15. I think in the NHL case, we were looking for [4] subgroups. The good change that we could release data sooner based on signals that we see in individual subgroups.

And then perhaps communicate our plans for which of those subgroups to expand into. So I can't give you any clarity yet, it depends on how that data pans out. But I think there is a chance for data prior to completion of both of those studies.

All right, perfect, thank you.

We currently have no questions coming through. (Operator Instructions). The next question comes from the line of Mick Copper from Edison. Please go ahead.

Good afternoon. A couple questions, first of all, with regard to developing your proprietary pipeline, you spoke about in licensing 1 or 2, possibly on products that are on the [I&D] level. What are you doing about increasing significantly your investment in developing new antibodies using Ylanthia at the earlier stage to help from that stage? And can you give some indication of how much you're actually investing in early drug discovery?

And secondly, can you give some indication of where you see -- you hope to see the pipeline in 6 months time, years time? How many product do you think could be on Phase III at that stage?

Thanks Mick, let me have a stab at that. So regarding the proprietary portfolio, there're two lines of activities that are important, 1 is the -- in licensing of I&D or I&D near programs as I mentioned and we're currently evaluating several potential opportunities there.

In addition, we also are investing in earlier stage programs essentially making -- using a land Ylanthia to make antibodies against new targets. And then that (inaudible) -- let me just say as few more words about that. The targets come from 2 sources, 1 source is internal ideas. In much the same way as for example our scientist identified [CD38] as an interesting target which became the MOR202 program or [GMCSF], which became MOR103 program.

We have a few ideas that we'd like and which are the basis for new internal programs. But we can't do everything on our own, of course and so there is also an effort to work with outside parties with academic institutions and biotech companies where they bring the target and we bring antibody capability.

And those are programs that may evolve into co-development programs or they may be programs in which we carry the bulk of the development responsibility ourselves. But through those essentially 3 lines, in licensing, you're looking programs close to IND. Starting programs against targets that are own ideas and stating antibody programs against targets that are to be accessed through collaborations.

We think we can construct a very innovative portfolio to build on what we've already achieved. So we feel good about that and that's a big part of our commitments in terms of our R&D investment over the years to come.

In terms of where the pipeline can look in sort of 6 to 12 months time, we don't give projections directly for that because it depends of course on success of our activities and also of our partner's activities. But I think what's been really gratifying over the last couple of years is how well the pipeline has matured.

And frankly how well our partners have performed in bringing programs for the -- show the benefit I think of having partners such as Novartis, such as Janssen, such as Roche. Companies that really know antibodies and know how to develop them, but that's going to benefit us enormously I think in the longer term.

So we feel very confident about the programs that are in the clinic at the moment and about some of the ones that are in pre-clinic. But we wouldn't like at this stage to give sort of concrete guidance on how many will be at what stage in the next 6 to 12 months.

Just to get back on the - with Ylanthia. What you say -- am I right in thinking that any deal with Ylanthia or deals with Ylanthia are probably going to be quite different in structure to the HuCAL deals that you've done historically with basically a lot more upside than using Ylanthia much more to develop your own pipeline.

Yes, absolutely, absolutely. So we feel that we simply don't need to be pursuing -- let's call it a fee for service type of model which is what we did with HuCAL. Essentially, making antibodies on demand and looking to gain them at single digit royalty. We don't feel we need to do that kind of business anymore. And we're much more interested in strengthening proprietary portfolio and using Ylanthia for that purpose.

So your point is a good one. And you should indeed expect that the type -- the nature of the deals we sign around Ylanthia will be different, but we believe of ultimately even greater value than the HuCAL deals that we've done in the past.

Thank you.

The next questions comes from the line of Sachin Soni from Kempen & Co, please go ahead.

Good afternoon everyone, my question is regarding in licensing of new compounds. Would it still be human monoclonal antibody or humanized or what you'll be looking at antibody that conjugates our -- the technologies that are related to antibody as well?

Thanks, Sachin. All of the above. So we don't want to limit ourselves to just antibodies but we want to kind of stay in the antibody life space, let's put that way so with the survey that we're conducting or the screening that we're conducting covers antibodies and antibody-like molecules, let me put it that way.

That's fair. So going forward, your positioning as a company would be -- is it going to be similar to what GenLab is just trying to do with different technologies or is it going to deviate from that materially.

You know we think that we have great expertise in antibodies as a class of molecule. And that expertise can also be applied beyond the strict definition of an antibody as an immunoglobulin, and therefore we feel that in order not to restrict ourselves to just that class of module, we need to prepared and are prepared to work with different molecular types.

And a you know, there are increasing number of compounds out there and in development which have antibody-like, let me call it that in a most general sense, whether it's bio-specific or [ADCs] or maybe some other kind of construct.

So we are indeed prepared to go a beyond the pure antibody molecular type and we've perhaps shown that at the much earlier early stage of course with our deal with Lantio Pharma. I'm recalling that this a deal with did with a Dutch start up, Lantio Pharma which focused on developing lantipeptides, constrains cyclic peptide which are obviously smaller than antibodies but bigger than small molecules.

So we've shown willingness to move out of the pure antibody space for the in-licensing activities. We've broadened the net accordingly but our preferences for compounds that are antibody [like] from a broader sense.

And last question from my side. If we were to shortlist from [OSI] (inaudible), I'm trying to see what could add value going forward? Is there any hint you could give us that we should be thinking in that space or in that region where you are analyzing most of the opportunities? I know you cannot say much but if you guide us in the direction

I'd be reluctant to guide you on a direction beyond whatever I've already said quite frankly, because obviously we're in discussions and customer negotiations. And we just want to avoid drawing attentions to companies or areas so as not to jeopardize those discussion and negotiations. So, unfortunately I'm reluctant to give you more precision than what I've already about the type of molecule we're looking for.

That's okay. Thank you

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

I would like to know a little bit more about MOR208 and the plans tied in CLL. So what would be the nature of a small molecule and would that be a compound that develops in the market?

Yes, we had a discussion with that with our principal investigator on this program as to what makes a sensible partner molecule. And as I said, we hope to start that trial before the end of the end of the year and we will release the plans and the details of that trial then.

So -- I don't want to say now what that molecule is until we can present the plans as whole. Because I think it only make sense that you see the see complete picture there. But this is a small molecule. The compound is being identified as a small molecule which -- I don't want to say whether it's on the market or not but we think, it makes particular sense as a combination partner in this indication for MOR208.

I will say, if we can ask you to bear with us for some weeks, we hope to be able to present the full picture and the full plans for that before the end of the year.

I fully see your point but still, so such a compound should it be not [yet] approved could mean that potentially, you would enter into some sort of a strategic alliance for a pre-approval co-development, something that has been proposed by (inaudible) and the authorities in the United States.

If it wasn't an approved compounds -- your suggestion is correct. But again, as I said, I don't want at this stage to give detail about what that compound is. It's really only a matter of weeks before we can give the complete picture on what our plans of for that particular new Phase II study.

Okay, I look very much forward to this news. Thank you.

Yes. But maybe just for further clarification, let me add one point to that more to relate as we've said in the speech. It's really -- given the promise of MOR202, we feel in a very strong position to take more to MOR208 forward ourselves. And that's our intension. Our intension is to keep the full rights in MOR208 for MrophoSys for the foreseeable future. It's not our intention, it's not our plan at this stage to [pharma] that compound.

Yes, sure. But then, allow me please a follow up question, would there be a possibility that's your compound could be filed for a potential breakthrough therapy designation?

That will be based on the data. If we get data that justifies a breakthrough therapy designation in an indication for which the current therapies are unsatisfactory, then we would certainly file for that but it's going to be purely data-driven.

Sure. Thank you.

(Operator Instructions). Thank you. We have no further questions coming through. So we'll now hands back over to Dr. Simon Moroney to wrap up today's call.

Thank you. To complete the call, I want to remind you of the key messages to takeaway.

First and most importantly, the quarter was one of major pipeline progress. Encouraging data for MOR208 age and the closure of our deal with Celgene bode well for our proprietary portfolio. The news around Bimagrumab and the three other partnered programs that advanced to Phase II illustrate how well the partnered pipeline is developing.

And finally, a very successful capital increase puts us in a great position to continue to build success and to keep growing the company through increase investment and value generating programs.

That's concludes our call. If any of you would like to follow up, we are in the office for the reminder of the day. Thank you for your participations on the call and good bye.

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