MorphoSys AG (MOR) 2013 Q4 法說會逐字稿

Good afternoon and also good morning and welcome to our 2013 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 CTO; and Marlies Sproll, our CSO. Simon and Jens will present our revenue of the year 2013 and provide an outlook for 2014. 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 our conference call, you will find a slide deck of this presentation on our corporate website.

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 technologies, 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 at how the presentation will run. We have two parts. First, we will review 2013, focusing on pipeline, technology and financials, and second we will provide an outlook on this year. The presentation will last about 45 minutes. I would now like to hand over to Simon Moroney.

Thank you Claudia. It's a real pleasure for me to present this review of 2013, one of the best years in the company's history. It's no exaggeration to say that the progress we made last year was transformational for MorphoSys. We have now successfully completed the transition from a technology provider to a true biopharmaceutical company with capabilities and assets spanning technology and product development. Not only did we achieve a lot last year, most importantly, we positioned the company ideally for further growth, about which we are all very excited. Today, we will review 2013 and talk about our plans and expectations for the future. I'll start with a review of 2013.

As we've always said, value is created in this industry by developing innovative therapeutic agents for major markets. This is our focus at MorphoSys, to discover and develop truly differentiated antibody-based biopharmaceuticals for unmet medical needs. The value that can be created through therapeutic development was well illustrated in 2013 as, for the second year in a row, progress in our pipeline led to a fundamental re-rating of the company's value.

Turning to Page 8 of the presentation, progress with our proprietary programs, MOR103 and MOR202 in particular, vindicated the decision we made several years ago to broaden our R&D investment from technology to include proprietary product development. In June of last year, we signed highly attractive deals around these two programs. First, we entered a deal for GSK for the further development of MOR103, our HuCAL antibody against GM-CSF.

Based on clinical Phase Ib/IIa data in rheumatoid arthritis patients, we engaged in discussions with a number of interested companies. This process culminated in our selection of GSK as the best partner for the program. GSK assumed worldwide rights for the further development of MOR103 in all indications with rheumatoid arthritis being the lead. We received an upfront payment of EUR22.5 million, stand to receive milestone payments of up to EUR423 million, plus tiered double-digit royalties on sales.

Just a few weeks later, we signed an alliance with Celgene covering the codevelopment of MOR202. In this case, there were no clinical data available at the time the deal was done, but a combination of compelling preclinical results and increasing interest in the target drove enormous demand for the program. We secured EUR117 million in upfront cash and equity, stand to receive milestone payments of up to EUR511 million, have a 50-50 profit share within an European copromotion arrangement, and will receive tiered double-digit royalties on sales in the rest of the world.

Our third proprietary clinical asset is MOR208, which is in development for B-cell malignancies. In 2013, we completed a Phase I/IIa trial in CLL and were able to concern the promising signs of efficacy that had already been observed in the first part of the study. This was the trigger for us to move ahead with Phase II, and when we initiated trials in B-cell ALL and NHL during the course of the year.

Given the competitive nature of the CLL space, further clinical development in this indication will require investigation of drug combinations. We were therefore delighted to support our collaborator John Byrd who shortly for year-end commenced an investigative sponsored trial which looks at a combination of MOR208 plus lenalidomide in refractory and treatment naive CLL patients. This is an efficient way for us to explore the potential of MOR208 in this setting since our responsibility is to provide material and otherwise the costs of the trial are carried by the investigator.

Turning to the partner program -- partnered pipeline on Slide 9, here too outstanding progress was made in 2013. There are too many programs to discuss here and therefore I will cover just a few.

Two of our antibodies are now in pivotal clinical trials. The first is the Novartis program Bimagrumab, a HuCAL antibody that we made against ACT R2B, a receptor on muscle cells. Last year, Novartis released data from a Phase II trial in the indication sporadic conclusion body myositis, a muscle wasting disease for which there is no effective treatment. The data showed that a single dose of Bimagrumab brought about a statistically significant increase in muscle mass within eight weeks. Further, a positive trend in the six-minute walking distance endpoint was observed. On the strength of these data, together with the fact that there is no current treatment for the disease, Novartis secured breakthrough therapy designation from the FDA. This program is now in a Phase III study in inclusion body myositis. Novartis has stated that they aim to make the first regulatory filing for approval of Bimagrumab in 2016 with other indications to follow thereafter.

The second partnered program in pivotal clinical development is Gantenerumab, the HuCAL anti-amyloid beta antibody that's being developed by Roche for Alzheimer's disease. The most advanced clinical study is a pivotal trial named SCarlet RoAD in prodromal or presymptomatic Alzheimer's sufferers. Recruitment into the trial was recently completed and Roche has confirmed that they expect data from the trial in 2016.

Recently, Roche announced the start of a new Phase III trial called Marguerite Road which will recruit 1000 mild Alzheimer's disease patients. Marguerite Road becomes the third Phase III trial of Gantenerumab with the dominantly inherited Alzheimer network, or DIAN, conducting the other one in genetically predisposed patients.

The common theme across all of these trials is early intervention and reflects the prevailing view of experts in the field that, to be effective, treatment needs to be as early as possible before neuronal damage is done.

A number of other partnered clinical programs advanced during 2013. Guselkumab is a HuCAL anti-IL 23 antibody that is being developed by Janssen for psoriasis and rheumatoid arthritis. Phase II trials in each of those indications continued during 2013. In addition, Janssen added a Phase II study in a new indication, namely palmoplantar pustulosisis, which is a form of psoriasis affecting the palms of the hand and the soles of the feet.

During 2013, Janssen's holding company Johnson & Johnson communicated that Guselkumab is among the products they plan to have on the market by 2017.

Our partner OncoMed reported clinical progress with two HuCAL antibodies, namely Vantictumab and OMP-59R5. These antibodies are directed against the cancer stem cell targets Fzd 7 and 023 respectively. In 2013, OncoMed and their partner Bayer commenced three new Phase Ib trials of Vantictumab. Together with their partner GSK, OncoMed reported first clinical data from the Alpine Phase Ib/II trial of OMP-59R5 which showed early signs of efficacy in pancreatic cancer.

As you can see on Slide 10, visibility into the pipeline has increased as two of the targets against which partner programs are directed are now identified. We can confirm that Boehringer Ingelheim's BI-836845, which is in Phase I development for cancer, is a HuCAL antibody against a target insulin-like Growth Factor 1 or IGF-I.

Very recently, a clinical program from our collaboration with Pfizer has been in the news. This is the program PS-05082566, which is a HuCAL antibody against the target 4-1BB, a so-called checkpoint target expressed on T cells. This antibody is being evaluated by Pfizer in a Phase I trial in patients with solid tumors or B-cell lymphomas, and in combination with rituximab in patients with CD20 positive non-Hodgkin's lymphoma.

Earlier this month, Pfizer and Merck announced plans to evaluate jointly a combination of PF-2566 with Merck's cancer immunotherapy MK3475, a PD1 inhibitor, in Phase I/II clinical studies. This collaboration is generating a lot of interest in the industry as it looks to explore the potential of combinations of immunooncology treatments.

To complete the review of progress in the partnered pipeline during 2013, Novartis took another HuCAL antibody into Phase I. This is an ophthalmology program and became the then seventh program from our alliance with Novartis to enter clinical development.

Overall, at year-end 2013, our partnered pipeline comprised 75 unique therapeutic antibodies, an increase of six over the previous year. During the year, seven new programs were started and one was stopped. One new antibody entered the clinic, three antibodies moved from Phase I to Phase II, and one moved from Phase II to Phase III.

Another indicator of the great progress being made in our partnered pipeline is that 18 new clinical trials with HuCAL antibodies were initiated in 2013.

To complete my review of the year, I'd like to turn now to technology. At the beginning last year, we signed a deal with Heptares aimed at enabling the generation of antibodies against an important target class, namely GPCRs and IM channels. During the year, the first milestone was reached when Heptares delivered a stabilized form of a very difficult and novel GPCR target chosen by MorphoSys. In the meantime, we've used our Ylanthia technology to make a number of antibodies against targets in this challenging but important target class.

We now believe that we have a general solution to reliably develop antibodies against these targets. This capability makes accessible a large number of potentially interesting targets to a therapeutic antibody approach and we aim to take advantage of our strength here, both within partnerships and for our own account.

That concludes the operational review of 2013. I'll now hand over to Jens for the financial review and guidance for 2014 before I come back with a strategic and operational outlook.

Thank you Simon. Ladies and gentlemen, also from my side a warm welcome to our year-end 2013 conference call.

The year 2013 lifted MorphoSys to a new level in its corporate development. The progress of our proprietary programs was the result of our investments in R&D over the past years, and we are very pleased that the investments in our portfolio paid off.

The year 2013 was operationally and financially strongly influenced by our newly formed alliances with GSK and Celgene and by the sale of AbD Serotec to Bio-Rad. The progress in our proprietary and partnered pipeline is reflected in our financial results. In terms of revenues and profits, we clearly exceeded our original guidance from February of last year and ended the year at the upper end of our updated financial guidance from October last year.

Besides signing two partnership deals and selling AbD Serotec, we were able to significantly strengthen our cash position by two capital increases. The first transaction took place in connection with the Celgene agreement. Celgene purchased as part of the codevelopment and copromotion agreement and equity stake of MorphoSys of approximately 3.4%, buying roughly 779,000 new MorphoSys shares for a total consideration of EUR46.2 million. This represents a 53% premium to the last closing price before the transaction was announced, and equates to a 5% premium to the share price at the effective closing date of the transaction. A month later, we raised an approximately EUR84 million through a private placement with international investors. In accelerated book-building, we placed roughly 1.5 million new shares or around 6.3% of our share capital at the closing price before the transaction was announced. Those capital raises, the sale of AbD Serotec, and the upfront payments for MOR103 and MOR202 led to an increase in our total cash position at the end of 2013 to approximately EUR390 million.

On Slide 16, you can find the profit and loss statement for 2013 in comparison to 2012. Revenues from continuing operations increased by roughly 50% to EUR78 million. This increase was primarily due to the out-licensing of MOR103 to GlaxoSmithKline, the agreement with Celgene for the codevelopment of our MOR202 cancer program and its copromotion in Europe, as well as the sale of AbD Serotec to Bio-Rad as part of the sale and nonexclusive license for the use of our HuCAL technology for research and diagnostic applications was also transferred to Bio-Rad. R&D expenses increased, as previously guided, by 30% to EUR49.2 million. Selling general and administrative expenses increased by 55% to EUR18.8 million, mainly as a result of higher personnel expenses, expenses for third-party services and an impairment of licenses.

The other operating income mainly consisted of service income from the support of Bio-Rad in the integration of the AbD Serotec business as well as government grants. Other expenses were primarily composed of currency losses, the impairment of receivables and research grants that had to be repaid.

Earnings before interest and taxes from continuing operations amounted to EUR9.9 million compared to EUR2.5 million in 2012. As for the revenues, the licensing agreements with GSK and Celgene and the sale of AbD Serotec to Bio-Rad were the dominating reasons for the improvement.

In 2013, a net profit after taxes of EUR7.4 million was achieved for continued operations compared to EUR2.4 million in the previous year.

The sale of AbD Serotec was completed on January 10, 2013. Upon deconsolidation, a disposable gain of EUR8 million was achieved. Profit after tax from discontinued operations amounted to EUR6 million. The consolidated net profit for the group amounted to EUR13.3 million which resulted in the diluted net profit per share of EUR0.54.

Looking at our second reporting, revenues from the partner discovery segment included EUR48 million of pilot research and licensing fees compared to EUR42.7 million in the previous year. Milestone payments added up to EUR3 million compared to EUR1.9 million in 2012. Pilot, research, and licensing fees increased due to the transfer of a nonexclusive license for the use of our HuCAL technology in the market for research reagents and diagnostics in connection with the sale of AbD Serotec to Bio-Rad.

The operating expenses amounted to EUR25.5 million, an increase of EUR3.7 million. The segment EBIT increased to EUR24.4 million. The EBIT margin for the partner discovery segment was therefore roughly 50%.

Revenues from the proprietary development segment increased to EUR26.9 million versus EUR7 million in 2012. This increase was mainly affected, as already mentioned, by the recognition of the upfront payment as part of the out-licensing of MOR103 to GSK and by the pro rata recognition of the upfront payment for the codevelopment agreement of MOR202 with Celgene.

Revenues from funded research in this segment declined to EUR0.5 million as the codevelopment activities with Novartis were terminated. The operating expenses amounted to EUR27.5 million, an increase of EUR9.4 million. The segment EBIT amounted to minus EUR0.5 million.

As you can see on Slide 19, our investments in proprietary product and technology development increased to EUR31.7 million, an increase of 46% in comparison to 2012. Our progress in 2013 has shown that investing in proprietary programs can create value. We plan to continue to invest in proprietary programs and technology in the years to come. This drives our spending in the future and is therefore reflected in our 2014 financial guidance.

Let's now move to the balance sheet on Page 20. Total assets amounted to EUR447.7 million as of December 31, 2013. On December 31, 2013, the company had liquid assets and marketable securities as well as other financial assets in the amount of EUR390.7 million compared to EUR135.7 million on December 31, 2012. This amount includes cash and cash equivalents of EUR71.9 million, marketable securities and bonds amounting to EUR199.5 million, as well as other financial assets of EUR119.3 million, which are reported in other receivables.

As mentioned in the past, please note that our cash balance is shown in four different line items in the balance sheet. The existing funds available for investments are therefore significant we higher than the PO cash and cash equivalents position indicates.

Non-current assets amounted to EUR41.1 million, up from EUR40.6 million, only a small increase of EUR0.5 million.

Current liabilities increased from EUR11.9 million to EUR35.4 million. The increase resulted from a higher current portion of deferred revenues reflecting the accounting treatment of the upfront payment from Celgene. Accounts Payable and accrued expenses rose by EUR6.5 million mainly driven by higher accrued expenses for external laboratory services. Additionally, tax liabilities increased by EUR2.1 million following the higher profitability of the company.

Noncurrent liabilities changed significant compared to 2012 an increased by EUR53.5 million, primarily again due to the deferred revenues in connection with the upfront payment coming from Celgene. Total group equity amounted to EUR352.1 million compared to EUR202 million on December 31, 2012. This brings me to the financial outlook for 2014.

Our main goal for 2014 is the expansion and advancement of our proprietary job portfolio and the further development and exploitation of our technology platforms. Consequently, MorphoSys intends to invest larger amounts of its funds in those activities.

In 2013, revenue was impacted by one-time payments for MOR103 and MOR202 and the license to Bio-Rad in connection with the sale of AbD. For 2014, MorphoSys anticipates total group revenues of EUR58 million to EUR63 million. Investments in proprietary R&D will increase to EUR36 million to EUR41 million with the results that we expect to record negative EBIT of minus EUR11 million to minus EUR16 million.

Development expenses for newly in-licensed compounds will most likely create additional expenses that are not reflected in the guidance. As mentioned in previous calls, volatility increases in revenues with the more mature pipeline of compounds and in respect of R&D expenses with programs moving forward in their clinical development. As such, our R&D investments can create as has been shown in 2013.

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

Thanks Jens. Turning to Slide 22, the outlook, we are looking forward with great anticipation to this year. I would now like to tell you about the progress we expect to make, how we think about our position, and how we aim to grow in the years ahead.

MorphoSys is ideally placed to build from a position of strength. That position comprises three components -- first, financial. We have approximately EUR390 million in cash plus ongoing revenue streams from our partnerships. Second, our partnered pipeline comprising 17 different antibodies in clinical trials, including the Novartis antibody which recently started clinical development, plus EUR58 million in preclinical development and discovery. This forms an extremely solid foundation for our future. Product approvals are coming nearer and with them royalty flows.

Third, we have demonstrated we have a demonstrated capability to make truly differentiated biopharmaceuticals and bring them through early clinical development. We believe that now is the ideal time to accelerate and to increase our investment in R&D significantly. Our goal is to build a proprietary portfolio of differentiated drugs, biopharmaceuticals that can really make a difference in areas of unmet medical need, focusing mainly but not exclusively on oncology. We will do this through a combination of internally sourced programs, collaborations in which we apply our proprietary technology to the targets of others, and in-licensing and/or M&A transactions. Within a few years, our overall product pipeline will be not only more mature than it is today, but it will include a larger proprietary portfolio of programs in which we have a substantial stake.

I'd now like to summarize the progress that you should expect in our pipeline during 2014. We expect a lot of clinical data this year, both from proprietary and partnered programs. Starting with MOR103, recruitment into the Phase Ib trial in multiple sclerosis patients is now complete. Data from this study will be available in the first half of this year. Meanwhile, we expect clinical developments in rheumatoid arthritis to continue in 2014.

For the ongoing MOR202 Phase I/IIa study, we plan to present first results of the ongoing trial before year end, possibly at the American Society of Hematology Conference in the fourth quarter. Meanwhile, together with our partner Celgene, we have finalized plans for additional studies of MOR202 which are designed to explore thoroughly the potential of the compound both as monotherapy and in combination studies. We will communicate the details of these studies in due course.

Turning to MOR208, we expect to complete recruitment in the ongoing Phase II trial in ALL and to report data from this study in the second half of this year. The NHL trial, which is looking at four subtypes, continues to enroll patients according to plan. Completion of enrollment for the trial is expected next year, but we do expect to provide first preliminary results before the end of this year.

In CLL, the investigator sponsored trial being run by our collaborator John Byrd, already saw its first patients dosed and is expected to complete recruitment in the second half of 2015. We are not planning to partner MOR208 at this stage, our objective here being to complete the ongoing Phase II studies before considering a partnership or further development of this promising program on our own account.

From our partnered pipeline, we expect a number of clinical trials to be concluded. As always, I need to remind you that we have no control over what our partners choose to say about ongoing programs. Nevertheless, as programs progress through the clinic, results are more likely to become publicly available.

Clinical data could be released from Phase II readouts of three trials with Bimagrumab in cancer and COPD related cachexia and in mechanically ventilated patients. We could also see data from Phase II trials of Guselkumab in RA, psoriasis and palmoplantar pustulosis.

The third program which could produce Phase II data this year is the undisclosed Novartis program that we refer to as NOV-3. Among the Phase I trials that are scheduled to complete this year are, first, a trial evaluating Gantenerumab in Japanese patients with mild to moderate Alzheimer's disease. This trial is being managed by Chugai. Second, two trials of Janssen's CNT03157, one in healthy volunteers to evaluate safety of pharmacokinetics and another in asthma patients. Third, a trial of Bayer's antibody drug conjugate BAY94-9343 in solid tumors. And fourth, two Phase I trials of Novartis' HER3 antibody LJM716, one in combination with Herceptin in HER2 overexpressing metastatic breast gastric cancer, and a monotherapy trial in various solid tumor types.

In terms of the pipeline events that you should expect to see, we anticipate up to five clinical transitions comprising Phase I starts as well as progressions into Phase II and potentially Phase III studies. The first clinical milestone and IND with our Novartis collaboration was reported earlier this month.

Looking at earlier stage programs, this year, we will see further progress with our partnership with Galapagos where there is one program now moving towards formal preclinical development and potentially one additional program start. We also plan to add new discovery programs, some which we will pursue on our own, some of which will be co-developments with partners. In all of the new discovery programs, our Ylanthia technology will play an important role.

Ylanthia is an invaluable new platform which we plan to use as currency in joint discovery and development programs and in which MorphoSys plays a greater role than being simply a service provider. This is consistent with our aims to strengthen the portfolio of drug candidates in which we have a significant share.

In total, our partner and own activities should result in around 10 new program starts in 2014.

To put all of this in context, the proprietary R&D investment of EUR36 million to EUR41 million that Jens mentioned will be invested in the following programs and activities -- first, completion of the MOR103 study in multiple sclerosis; second, our share of costs associated with the further development of MOR202; third, the ongoing Phase II trials of MOR208 in ALL and NHL and partly in CLL; fourth, our share of costs associated with the joint program with Galapagos; fifth, further de novo discovery work, some in conjunction with new partners; and sixth, additional development of our own proprietary technology platform.

Although we are aiming at acquiring one or more additional programs at or near the clinic via in-licensing, we have not yet assumed any related expenses. Should such transactions materialize, we would of course update you on the financial impact.

We are delighted to be in a position to increase our investment in proprietary R&D. Although this is no guarantee of success, not investing enough in R&D is a surefire way not to succeed.

That completes the presentation. In closing, I'd like to say that we are looking forward with great excitement to this year. MorphoSys is ideally well positioned to continue executing our strategy of building a broad pipeline of truly differentiated therapeutics with an increasing emphasis on programs for our own account.

With that, we will open the call for your questions.

(Operator Instructions). James Gordon, JPMorgan.

Hello, thanks for taking my questions. James Gordon from J.P. Morgan.

A couple of questions on MOR202 and on MOR208, please. On MOR202, I think previously we thought we might see some data at the ASCO conference this year, but now it sounds like it's ASH. So, is there a reason why there's been a slight delay was one question.

Also in 202, what will we actually see in terms of how many patients and what sort of treatment duration? I think the study is still shown as enrolling, so where actually are we on enrollment and how many patients might you be able to share data on?

And then on MOR208, you said ALL data could be in H2. Are you able to give any indication whether it's more likely to be earlier or later in H2 or could it come out at any time?

And also on the NHL study, in terms of the preliminary results that we are going to see, what sort of information would we get and how preliminary might be in terms of the data we get this year? Could that be just a small number of patients and what sort of metrics would that be?

This is Arndt. I'd be glad to answer those questions. So your first was 202, when we will see the data. In the past, we haven't been exactly pinpointing the conference. You can imagine everything is well on track. Of course, we agree with our partner Celgene, so most likely is ASH at the end of the year. Of course, we're going to have the substantial package together and agree, went to show this with Celgene. I think you'll understand that.

In terms of the number of patients, when you look at the Phase I/IIa data, you can imagine there's different overlapping parts. We are coming to close of one of that part. That's what we're going to show at the end of the year. I think we haven't exactly disclosed the numbers, but you can see there is around the eight cohorts which is the usual 3 plus 3 design, gives you an indication of the number of patients one could expect there.

With 208, the ALL study indeed we expect to be completed by the end of the year. So as we have reported before also at beginning of the year, so ASH is the most likely.

The NHL, as Simon mentioned, will run into next year. We have disclosed this is as a Simon two-stage design, so there is a first part of patients and then, if there is a signal in one subform, we will recruit to the second part. So we are right in that first part opening the second part. It's a little bit difficult to say what data we will show at the end of the year. Obviously, we will show you the data that we have until then. But we are quite confident that we will be able to show preliminary data by the end of the year also towards ASH and NHL. Hope that answers your questions.

Thank you.

Jason Kantor, Credit Suisse.

Oh great, thanks for taking my question and congratulations on all the progress in 2013. I'm just wondering what -- on the CD19 program, given the competitive space, what kind of internal hurdles are you setting and what would you like to see? And I guess longer-term in a best case scenario, how do you see that fitting in with all of the new different approaches that are being developed in NHL and CLL?

Thanks, excellent question. Let me try to take a stab at that. You're right, so you mentioned the competition. We have already mentioned our speech Simon, yes, CLL certainly also Imbruvica approval in CLL, it is getting more competitive. However, also there, with the robust single agent activity we have reported, we see a clear path with combination therapies. So I think that is in your question as well. There could be different combination partners, certainly some of the targeted small molecules that are out there, the also other non-chemotherapy ones. We are assessing that preclinically, have certain plans already on file.

For CLL for example, you know we have just -- John Byrd has just started that investigator sponsored trial with lenalidomide, which is also of course one possible accommodation partner. So, it's data-driven. We are awaiting the outcome of that IST that could lead the way in CLL.

Now, with the other indications, I think you realize we have the monotherapy studies right now. Also there is a number of combination partners. And as the field is still evolving, we have some good combination partners in mind. Of course, John Byrd now as I said is assessing lenalidomide. And again also here we have preclinical data ready, that experience we have done. We are trying others and think that through that very actively. The first step is looking at the monotherapy data, the combination therapy studies already planned. Does that answer your question, Jason?

Yes, thank you.

Igor Kim, Close Brothers Seydler.

Hello everyone. You expect quite high R&D expenses for proprietary products for 2014. So just an overall statement, what would you expect from 2014 onwards? Should it be on a similarly high level? And the second question is your pipeline has considerably majored in 2013. But what was the attrition rate in the partnered pipeline?

Thanks Igor for your question. I'll start with the first one. While our R&D expenses which we have planned for this year EUR36 million to EUR41 million, and indeed that's a significant increase towards 2013. For the future, we haven't given any guidance here that we are reluctant to do that. But at the end of the day, certainly we will be very much data-driven. If the data is good, we will take the money which is needed to push the programs forward as broadly as possible and as quickly as possible and sensible both ways. So that is really what we're trying to do. That's why we have a cash position available. We don't want to waste money but we want to invest it well and in the way and the amount which is needed.

On the second question, Simon, do want to answer?

Yes, let me take that. So talking about the partnered pipeline, Igor, seven new programs were started and one was stopped.

Yes.

So that gives you an idea of the attrition. Let me just say that that obviously fluctuates from year to year. 2013 was a relatively good year in terms of a low rate of attrition. That can always vary of course, especially with earlier stage programs.

Okay, great. Thank you.

Gunnar Romer, Deutsche Bank.

Good afternoon everyone. Thanks for taking my question. The first one would be with regard to in-licensing. Can you update us on the progress you have potentially made over the last couple of months, and also could you just quickly remind us of your focus when it comes to in-licensing? What areas are you most interested in?

Then secondly, on MOR103, next to the data we should see in MS, what do you think would be the next update on your lead indication, RA? Do you expect to hear any -- or should we expect to hear anything over the course of this year, or would it be more reasonable to assume that it's going to be fairly quiet around that program potentially until next year?

And then lastly, a question on your potential cash burn. I don't know, maybe, Jens, if you could give us some guidance on the cash burn in 2014 that is implied by your guidance. Thank you.

Thanks Gunnar. Let's take those one by one. So regarding in-licensing, there are discussions ongoing. Obviously, we can't comment on where those are at or how they are progressing, but there are a number of discussions ongoing. What we are looking for is compounds that are in late preclinical or early clinical development. Remember MOR208 when we in-licensed that, that was at a similar stage close to IND. We're looking for antibody or antibody-like or antibody-based molecules ideally in oncology but we wouldn't rule out other indications as well. So that's kind of the stage of development, the type of molecule and the indication focus that we are interested in.

You also have a question on 103 -- this is Arndt -- MS and the news of the lead indication. So maybe just briefly, MS, again, we are just closing that study. You can expect we will report data the first half of this year. In terms of the lead indication, RA, GSK has indicated to start a next trial, RA, this year. However I think you alluded to already I think I would caution expectations. This is really up to them to communicate, so difficult to say when we will hear more updates. Of course, we are in direct contact with them, being updated, and there is certainly progress, very distinct plans. But again it is more up to GSK to communicate that in more detail.

And on the cash burn, you should please be reminded that the upfront payment of Celgene is spread over several years in terms of our revenue recognition, and around the cash burn which we would expect is around somewhere EUR40 million. So cash position should be around EUR350 million plus/minus. That doesn't take into account any investments we might take in terms of in-licensing or an acquisition case or something that this -- so that would come on top.

Okay, Very helpful. Thank you.

Olav Zilian, Helvea Baader Bank.

I have a couple of questions to Arndt please. To start with maybe the more difficult one. On your cooperation with Novartis on a monoclonal antibody in testing, Phase II for a series of eye indications among others, that's the eye form of age-related macular degeneration. So by mid-this year, June, there is planned completion of the data. What's the state-of-the-art and what can we expect in terms of (inaudible).

This is Marlies, and I think I will take that question because it's a partner program. So as you mentioned, this is a Novartis program being developed in the field of ophthalmology. I think I need to say that, unfortunately, I won't be able to comment on the status and the details of those projects because this is totally in the hands of Novartis. I hope for your understanding here.

Okay. So in other words, this program is absent on this chart, (inaudible) expected for this year, it does not mean that this has been discontinued.

Absolutely not. It is still listed and still active.

Perfect. So then maybe a couple of questions regarding the more preclinical evaluation of MOR208. So, looking at this, the larger distance, I assume you have evaluated this antibody and its release of different combinations and different tumor models. Could you elaborate a bit on this?

Yes, thanks for the question. Preclinical, we have shared that in previous conferences. It's on file. We had for example combinations with [Fluterabin] that we have looked at. So what we see is highly synergistic effects that leads in different tumor models. Of course, these are going to be xenograft models are being used to longer survival and are very encouraging. I think it also goes together with the trend to use antibodies with these targeted compounds, be it chemotherapy or other targeted, and so it puts us in a good position should we in other indications not see sufficient monotherapy, which of course is an open question and we're working on that, as I said before, wanting to show preliminary data at the end of the year that we already would have some ideas of these well-suited and synergistically working combinations. Does that answer your question?

Partly, it was just the start. So going into more details, would you expect to have higher efficacy if you combine the antibody with a targeted small molecule doc, or would you expect that more is a biologic by going for a CD20 target?

That is not -- we can't really answer that straight away. First of all, we don't have the direct comparison. I think it's certainly a very interesting question. Yours versus targeted combining with biologics, that is a possible concept. Indeed that's also being discussed in the community, so a very good question. We simply haven't done that. We are considering the different combinations. It's probably not the most intuitive choice with another biologic, but certainly not excluded and being absolutely considered by us.

So, in terms of specific data, have you tried rituximab in combination with MOR208?

So, are you talking about clinical trials or preclinical?

Preclinical, I would be happy, thanks.

We haven't yet, also haven't shared that outside.

I think maybe just to sort of build on that, intuitively you may expect a lot of overlap of course between the CD19 and the CD20 approach, whereas perhaps a CD19 in a small molecule, you may expect to be more synergistic. So I think, purely intuitively, we may lean more towards a small molecule anti-CD19 combination than we would a CD19/CD20 combination.

So some of these advanced small molecule targeted (inaudible) are still proprietary and not yet approved for certain indications. Would you consider strategic collaborations to evaluate a combination like B cell tumor inhibitor with your MOR208 or then (inaudible) compound?

Yes. We would certainly consider such collaborations. I think specifically since you mentioned abrutanib, I understand that there is preclinical data which suggests that abrutanimb specifically may not be a good combination partner because it essentially down regulates the natural killer cells which is what MOR208 relies on for its mechanism of action. So that particular one may not be the greatest partner, but there may be other small molecule combinations which may make more sense. And those are things we're looking into at the moment.

So then maybe a follow-up to the previous question which is as this feat of B-cell malignancy could fall into major let's say segments with these markets (inaudible) like, are they more for biologics or then for small molecule drugs, and then what is leading into dominating the market, this anti-CD20 backbone as part of the combination therapy. How would you like to position yourself in this environment?

I think it's going to come down to the efficacy and safety profile of MOR208. As we have seen, Rituxan has been the backbone of therapies in B-cell malignancies for a long time, very successful. Bivatuzumab is now looking as though it could take the place of Rituxan in certain settings.

We believe that MOR208 could be a terrific drug. It's certainly a very convenient molecule to handle from a manufacturing and administration point of view, being a very -- an antibody with a very, very minor modification. And as the efficacy and safety stacks up as we hope it could do, then we feel this could be a very effective and competitive drug. Precisely what settings it will be used in and precisely in what combinations remains to be seen, but we are very hopeful and very confident of that compound.

Okay. That's enough. Thank you very much.

Sachin Soni, Kempen & Co.

Good afternoon everyone. I was worried I wouldn't get a chance to ask. My question is regarding MOR202. If I look at the competitive drug profile first regarding mechanism of action, the competition works while CDC plus ADCC. ADCP and PCB. Do you think that might be contributing towards the dosing that drug becomes effective at a lower dose because it works well on multiple mechanisms of action? That's one.

And the second question is regarding the response rate and number of patients. If I understand correctly, the number of patients you would report by the end of the year would be somewhere between let's say 25 and 35. Do you expect response to drop in the number as we increase the number of patients, or it should be basically independent even if you report less than 45?

This is Arndt. Thanks very much for the question. So your first one refers to the different mechanism of actions that are reported. So one can of course have wild theories what are the major mechanisms. I think certainly each of them contribute differently in different patient populations.

I think we have reported with very strong ADCC ADCP activity, and I don't want to speculate at this point how the different molecular actions might contribute or not. I think we are very much on track on our data. Look as this goes forward we are well looking forward to report when we have substantial data together towards the end of the year.

Let me see. You had a question in terms of the number of patients, if we expect, if I got this right, if the response rate would drop if we treated more patients that (multiple speakers)

Yes, so normally what happens in a trial, as you increase the size of the trial, you don't expect stellar numbers, and it comes down a little bit than what you would originally expect. I'll give you an example. Sanofi drug has 34 patients with 31% ORR. Astellas had 12 with 42%. Is it correlated or it's just more or less (multiple speakers)

I would say here there is no correlation. Again, I would say it can go either way. And of course I think the main point here is then the data will of course get more robust as you have more patients naturally. So, it's a natural phenomenon. You have a small patient population at the beginning. You see some signals. They might be confirmed or not so well confirmed later.

And lastly on the dose, so a dose is -- you do expect a higher or lower dose or are you already knowing that what level it has become effective because it's an open-label and you are happy with that level?

Yes. I think we are happy as it progresses, and we rather would like to comment on that when we share the data, everything is fine and just -- not going to comment midstream before we haven't shown any data to you. Of course, then we would comment that and then have answers in that direction.

Perfect. That's helpful. Thank you.

We have no other questions coming via the webcast, and I'll just repeat the question here. Is there a conflict between your proprietary goals and the partnering efforts and how do you handle them?

Let me answer that. So we don't see a conflict there, and the reason is one of the beauties of the platform that we have is it can be applied in many, many different indications and many different targets. And that's the reason why we have so many programs ongoing. Of course, it would be impossible to pursue all on our own. There's no way in the world we can be active in all of these indications and against all of these targets if we were working solely on our own. So we see the combination of partnered programs and proprietary actually as an ideal combination. And there's more than enough space for us to build a very valuable proprietary pipeline on top of that broad base of partnered programs. And that will continue to be our strategy as we go forward.

Okay.

Mick Cooper, Edison.

Good afternoon. Just one question. How do you decide how to allocate your R&D? What's a priority and how do you decide on how much and what is the decision involved with allocating R&D spend?

That's a really good question. Let me try and help you understand how we go about that. It's really driven by the attractiveness of the opportunities we see. So, as you might expect, if you have a good, smart R&D department, there are always more ideas than you can possibly pursue. I think that's healthy. And it's really a question for us then as management to look at all those ideas which span everything from technology development through new discovery against new targets, through expensive clinical trials. It's our job to try and balance that and assess where we think we can create value while at the same time maintaining activities across the whole spectrum.

So, what we don't want to do is we don't want to spend all our money in the clinic and have nothing early going on, and conversely we don't want to have all the money spent on technology development and having no clinical development going on. So we try and strike a balance across all of that spectrum, recognizing that early stuff tends to be cheaper. Technology development tends to be really quite cheap, whereas clinical development tends to be very expensive. So we spread our resources across that spectrum bearing in mind where we think we can create the most value. That's really the overriding consideration not just in the short-term but also in the longer term for the company.

Okay, thanks.

We currently have no questions coming through. (Operator Instructions). We have no further questions coming through, so we will hand now back to Dr. Moroney to wrap up today's conference call. Please go ahead.

Thank you very much. To conclude the call, we would just like to remind you of the key take-home messages. First, the year just completed was transformational for MorphoSys. We brought the company to a new level as we continue our growth as a biopharmaceutical company focused on discovery and development. Second, our focus in 2014 will be on executing our strategy of building out our proprietary portfolio. And third, during this year, we will see clinical data from a number of promising programs, including MOR103, MOR202, MOR208, Bimagrumab, Guselkumab and others. any or all of which could be important value drivers for the company. We look forward to keeping you updated on our progress.

Thank you very much for your interest. That concludes today's presentation. Should any of you wish to follow up with us directly, we are all in the office for the remainder of the day. Thank you again for joining the call and goodbye.