MorphoSys AG (MOR) 2014 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Morphosys quarterly call on the financial results of Q1 2014. Please note that for the duration of the presentations, 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 Claudia Gutjahr-Loser. Please go ahead.

Good afternoon and good morning, and welcome to our Q1 2014 conference call. I'm Claudia Gutjahr-Loser, Head of Corporate Communications and Investor Relations with 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 the date hereof.

With me today are Simon Moroney, our Chief Executive Officer, and Jens Holstein, our Chief Financial Officer. Simon will start by giving you an operational overview of the first quarter. And we'll also address our second press release of today, the antibody discovery alliance with Temple University. Before we open the call for your questions, Jens will review the financial results of the first three months of 2014. 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 another strong quarter of progress for Morphosys. As usual, I'll go through the highlights, starting with our proprietary portfolio.

Overall, development of our proprietary MOR product is on track. First, MOR103, we've now completed the Phase IB safety trial of MOR103 in multiple sclerosis patients. Analysis of the results is completed, and the data will be published in a peer-reviewed journal.

Turning to MOR202, the monotherapy part of the Phase I/IIA trial in relapsed refractory multiple myeloma is almost complete. We expect to publish the results of this study in the second half of the year and are aiming for the HAS conference in December to do so.

Together with our partner, Celgene, we are planning a number of new studies that will build on this first study. We are, of course, particularly interested in exploring combination studies. We hope to be able to say more about this in the third quarter.

Regarding MOR208, the Phase II trials in ALL, NHL, and CLL are proceeding according to plan. In ALL, we expect to report first data from the study in the second half of this year. For the NHL trial, although completion is not scheduled for this year, we do expect to provide first data from this open label trial before the end of the year.

In CLL, the investigator-sponsored trial being run by our collaborator, [John Bird], is expected to complete recruitment in the second half of 2015.

Turning to our partners' clinical programs, there were several important developments during the first quarter. I'll start with guselkumab, a HuCAL antibody being developed by Janssen in inflammatory indications. At the 2014 annual meeting of the American Academy of Dermatology, Janssen reported clinical data from a Phase IIB trial of guselkumab in moderate to severe psoriasis. The study was placebo-controlled and also compared guselkumab with the market-leading drug for psoriasis, AbbVie's anti-TNF antibody Humira.

Guselkumab showed very good efficacy, significantly better than Humira. Safety also appeared comparable, if not better than Humira. An important difference compared to Humira is frequency of administration. While both drugs are administered subcutaneously, superior results were achieved with guselkumab once every two or three months compared to Humira, which is administered biweekly.

On the back of these positive data, Janssen announced its intention to commence a Phase III trial of guselkumab. As a reminder, there were a further two Phase II trials of guselkumab that are scheduled to be completed this year in rheumatoid arthritis and in palmoplantar pustulosis. Guselkumab is a very nice example of the power of HuCAL, the antibody having been engineered to be specific for IL-23, in contrast to another Janssen drug, Stelara, which binds to both IL-12 and IL-23.

The absolute specificity of guselkumab for IL-23 is expected to translate into both efficacy and safety advantages. Encouraging progress was also made with the HuCAL antibody gantenerumab, being developed by Roche for Alzheimer's disease. The ongoing SCarlet RoAD trial in prodromal patients is now fully recruited, and we expect data from the trial in 2016.

Roche has commenced a new Phase III study named Marguerite Road, which aims now to recruit 1,200 patients with mild Alzheimer's disease and will be completed in 2019.

To round out the update on our partners' clinical activities, another HuCAL antibody from our Novartis collaboration entered clinical development in the area of inflammation. This brings to eight the number of HuCAL antibodies made within the collaboration that have entered the clinic.

In summary, at the end of Q1 2014, our pipeline comprised a total of 83 antibodies, of which 20 are in clinical development, 24 are in preclinical development, and 39 are in the discovery phase. This represents an increase of 2 in comparison to the end of last year.

For the remainder of the year, we anticipate up to five milestone-relevant clinical transitions comprising Phase I starts, as well as progressions into Phase II and potentially Phase III studies.

Turning to technology, I'd like to use this opportunity to say a few words on today's agreement with Temple University. As we announced this morning, we've entered into an agreement under which we will install our Ylanthia antibody platform at Temple's Moulder Center for Drug Discovery Research, where it will be used for the discovery of new therapeutic antibodies. Morphosys receives an exclusive option to develop therapeutic antibodies which emerge from this work.

One of the biggest opportunities in our industry is to find new means of treating disease based on making drugs against novel targets. The current excitement in oncology associated with the so-called immune checkpoints is a nice example. We see this deal with Temple as a means for us to leverage our Ylanthia technology to tap into this type of opportunity. It also offers a means of expanding our discovery bandwidth and is potentially the first of a number of such relationships we will enter.

I'll complete this review -- this overview with a preview of the Phase II clinical data we expect for the remainder of the year. As usual, I need to remind you that we have no control over what our partners choose to communicate about the programs that they're developing.

Based on scheduled completion of clinical trials, we expect the following during the rest of the year -- MOR103 Phase IB multiple sclerosis data; MOR202, Phase I/IIA data in relapsed or refractory multiple myeloma; MOR208 data in ALL and first data in NHL; guselkumab data from the Phase II studies in rheumatoid arthritis and palmoplantar pustulosis; [gantenerumab] Phase II data from cancer-related cachexia and from mechanically ventilated patients; and data from the undisclosed Novartis program that we call NOV-3.

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, I also would like to welcome you to our Q1 2014 conference call. I will start with an overview about the most important financial figures of the first three months of 2014.

Total growth revenues from continuing operations amounted to EUR15.9 million for the first quarter of 2014, compared to EUR16.9 million in the same period of the previous year. Total operating expenses from continuing operations were at virtually the same level as in the first quarter of 2013 and amounted to EUR14.5 million.

Also, the research and development expenses remained stable compared to the previous year and amounted to EUR11.2 million, with personnel expenses, expenses for external laboratory services, and expenses were related to intangible assets were the biggest cost blocks.

Investments and proprietary of product and technology development during Q1 amounted to EUR7.3 million, as compared to EUR7 million in the previous year. In line with our current guidance, we expect investments of proprietary R&D to increase over the course of the year. Sales, general and administrative expenses amounted to EUR3.3 million in the first quarter of 2014, compared to EUR3.6 million in Q1 2013.

In the first three months of 2014, the EBIT from continuing operations decreased to EUR1.4 million in comparison to EUR2.5 million for the same period of the previous year. And net profit after taxes of EUR1.1 million was generated by our continuing operations in the first three months of 2014, compared to net profit of EUR1.9 million in the first quarter of 2013.

Let's now have a closer look at our two business segments. The partner discovery segment generated revenues in the amount of EUR11.8 million in the first three months of 2014 compared to EUR16.9 million in the previous year.

The (inaudible) revenues from funded research and license fees decreased by 34% to EUR10.9 million as a result of the one-off effect of EUR6 million in connection with the sale of AbD Serotec in the first quarter of 2013.

Revenues from [success-based] payments increased to EUR0.9 million in Q1 2014 compared to EUR0.4 million in the previous year. Operating expenses in this segment decreased versus Q1 2013 by EUR1.3 million to EUR4.8 million. While in the first quarter of 2013 new revenues were generated in the proprietary development segment, the segment achieved revenues of EUR4.1 million in the first three months of this year.

Those revenues derived from Morphosys' co-development activities with Celgene in connection with our MOR202 program. Operating expenses in this segment increased from EUR5.6 million to EUR6.7 million.

Turning to the balance sheet, on March 31, 2014, Morphosys held cash and cash equivalents, marketable securities, and other financial assets in the amount of EUR380.4 million, compared to EUR390.7 million on December 31, 2013. This decrease was to a great extent a result of the use of cash and cash equivalents for the repurchase of shares in connection with the company's LTI program.

Please also keep in mind that the company's revenues with Celgene in connection with MOR202, or more precisely the (inaudible) recognition of the [Asan] payment and the revised share premium and [received] share premium are not cash effective. Those amounts have been collected already in 2013.

A few words on the share buyback we did in the first quarter of 2014. At the beginning of the quarter, Morphosys acquired 111,000 Morphosys shares from the stock market. The value of the share buyback program amounted to EUR7.8 million. The shares will, as mentioned, mainly be used for the company's long-term incentive program.

Before I open the call for your questions, we would like to reconfirm our financial guidance for 2014. For 2014, Morphosys' anticipates total growth revenues between EUR58 million and EUR63 million and a negative EBIT of between minus EUR11 million and minus EUR16 million. Investments in proprietary product and technology development should be in the range of EUR36 million to EUR41 million. This guidance does not include the cost for any additional development programs that may be in license during the course of the year.

Ladies and gentlemen, that concludes my review for the first three months of 2014, and I'll now hand back to Claudia for the Q&A session.

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

(Operator Instructions) We currently have no questions coming through.

(Operator Instructions)

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

Yes, Simon, thank you for taking the question. I was wondering if you could expand a little bit on the discovery agreement that you've announced today with Temple University. How is it different from other agreements of its kind? That's the first question.

And, secondly, you talk about -- you use the term expanding the discovery bandwidth. I'm not quite certain what you mean by that.

Okay, thanks, Victoria, for the question. Maybe just a couple of things. Temple University, obviously, as the name suggests, is a university. What we're dealing with here is the Moulder Center, which is really an interdisciplinary applied research institute, and in that sense, I think this relationship is not directly to be compared with, perhaps, a classical relationship with the university.

This is a unit that is really focused on drug discovery. And we feel, therefore, that it is the idea kind of relationship that we want to enter with the Ylanthia platform as a means of putting this technology in the hands of people who really can discover new approaches to treating disease, new targets, and new therapeutic antibodies, obviously.

So from that regard, we're very excited about this relationship. As I mentioned in the presentation, we foresee other similar types of relationships with other institutions. And the point about the bandwidth is really that, like all companies, we're limited in what we can do internally here. We have a discovery group working on new targets and making therapeutic antibodies against new targets, but there's a limit to how much we can do.

So to the extent that we can expand that activity by working with outside institutions, such as Temple, that's something that's very attractive for us, getting access to the discoveries of others, the ingenuity of others as a means of ultimately expanding our product portfolio, that's something that's very attractive, and that's what this agreement is aimed at doing.

Thank you.

The next question comes from the line of Igor Kim from Close Brothers. Please go ahead.

Hello, everyone. I have just -- I just have a short question regarding guselkumab. Maybe you mentioned that. Could you say when your partner, Johnson & Johnson, plans to start a Phase III trial in psoriasis? Thank you.

So they announced concurrently with the data that they intended to take guselkumab into Phase III for psoriasis. They haven't said when, and therefore, that's not something that we can currently say when. I think there is a possibility that it could be this year. We're not sure. And we can't give any guidance on that, because it's not really up to Janssen as to when they do that. But I would expect sometime in the coming months for that Phase III trial to start.

Okay, thank you.

The next question comes from the line of Mick Cooper from Edison. Please go ahead.

Good afternoon. I'm going to follow up on the questions about the discovery side with the bandwidth. From what I understand you are not limited -- you're looking at targets across all therapeutic areas.

So I'm assuming there will be for you kind of better weighting possibly towards (inaudible) targets, which you -- with a view to take them all the way through development, but you're also looking at other targets, which you might -- which you'll be looking to develop, maybe take two proof of concepts, and then add licensing, such as with MOR103.

Yes, yes. And, you know, we do have a focus on oncology and, to a lesser extent, inflammation, through the MOR103 activities. But we have an open view of indications, and if, for example, Temple was to discover a therapeutic antibody against, let's say, a target outside of those areas, and the data looked compelling and highly attractive, then we would certainly be interested in taking that thing forward.

So, you know, we're not constrained at all to one particular indication. The common unifying element in everything that we do is that it's antibody-based, obviously. And decisions about whether to take individual compounds forward will be data-driven at the end of the day.

Okay.

The next question comes from the line of George Zavoico from H.C. Wainwright. Please go ahead.

Thank you. And good afternoon over there. Two questions, one about the Temple University collaboration. What has been their track record in the past of discovery and development in antibodies and perhaps even small molecule drugs?

Yeah, George, thanks for the question. I don't think we can give you any color on that. The unit there, the Moulder Center is relatively new. And I'm not sure -- or we're not aware of any statistics or any numbers that point to, you know, how productive that unit has been.

So I think it's just -- it's really too new of a unit and too young of an activity to be able to draw any conclusions as to how productive it is or otherwise. What's encouraging to us is that the person that we'll be working with the primarily, Jon Condra, has worked with us previously from a position within Merck.

So he's familiar with the HuCAL technology, the progenitor of Ylanthia or the precursor of Ylanthia, I should say. And we've worked successfully with him in the past. He was very keen to get his hands on Morphosys technology, due to his experience with it in the past, and that gives us added confidence that this will be a productive collaboration.

And as a follow-on, you mentioned immune checkpoints. Is this going to be perhaps one of the key targets?

No, I mentioned that just as an illustration of how, you know, approaches to treating disease can really change significantly, if you get the right target. So it was just intended to illustrate the point that -- of how important a target is. It wasn't meant necessarily to say that immune checkpoints are going to be a focus of this collaboration, although oncology is certainly one of their main interests.

Okay, thanks. And then sort of a general question. In -- sort of want to get your view of the overall landscape, because most of your pipeline -- pretty much all of your pipeline, except for a couple of exceptions, are pretty much standard antibodies.

And, you know, as -- as you know, recently, there's been a tremendous amount of development of antibody drug conjugates, peptide drug conjugates, engineered antibodies, bifunctional antibodies, that sort of thing, that's generating a considerable amount of interest among investigators and physicians. What's your view of expanding beyond the more traditional type antibodies?

Yeah, so just for completeness, there is an antibody drug conjugate based on a HuCAL antibody in the clinic, through our collaboration with Bayer. You'll see that on our pipeline chart. And there are actually other antibody drug conjugate programs ongoing at an earlier stage which are not yet visible.

Beyond that, we have some activities going on in here with other formats, other antibody formats, at an earlier stage. And, you know, our thinking about this is very much kind of horses for courses. So depending on the particular disease setting, it may be desirable to attack that target with some form of modified antibody, whether it be an ADC or a bispecific or something else. And, you know, if and when such targets are identified that need an alternative approach, you know, then those alternative approaches can be pursued.

So there's kind of an increasingly, I think, a toolkit view of this world, which is that you look at the particular therapeutic approach, the particular target that you want to go after, and then you decide on what construct to hit it with. And we see that, I think, very similar to how a lot of other companies see it. And more of those kinds of programs will become visible beyond the one that's already in the clinic at the moment, as time goes by.

Great. Good luck with that. Thank you very much.

Thanks, George.

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

Hello, thank you for taking my questions. Thank you so far for answering the questions on your Ylanthia Temple deal. Another question, a strategic question, if I may. If I may, quickly share with us your view on the current changes of landscape in this biotech and pharmaceutical landscape, so M&A activities are very frequently. Is there any -- anything we should be aware of that comes to Morphosys? Thanks.

Thanks for the question, Thomas. I assume that you're referring to some of the deal activity we've seen recently in Novartis, GSK, maybe the speculation around Pfizer, AstraZeneca, and so on. I mean, if we're talking specifically about Novartis-GSK, we are not aware of, nor are we anticipating any direct impact on Morphosys. Obviously, we have relationships with each of those companies, Novartis the longstanding discovery collaboration, strategic alliance, really, and with GSK around MOR103.

But I think that the announcements, as you've seen them, don't have any bearing on either of those collaborations. I think, if anything, it's -- we're encouraged by the fact that Novartis is increasing its focus on oncology, since a number of the programs that we have going on with them are in that area, so I think that's actually good news.

But (inaudible) I mean, I think -- in general terms, from a landscape point of view, what you're seeing is an increasing concentration around areas of strength in the industry, and I think that's an interesting development, and we'll watch and see how that will continue to develop in the months and years ahead.

Would this give you more room of maneuver and give you more opportunities to make the business and collaborations in the future?

You know, I think it hasn't changed the fact that there is -- as always -- a great need in this industry for differentiated drugs, you know, molecules that, you know, really have an impact on a particular disease through hitting a certain target. And, you know, we touched on this whole checkpoint area a few minutes ago. You know, a whole new field has been opened up through the discoveries of others over the last couple of years, literally.

And that's, I think, the exciting thing about this industry, that there's enormous scope for companies to make a difference through discovery new entities, new molecules against new targets. And that opportunity doesn't change no matter what kind of, you know, deals and maneuvers are done within the industry. The industry will have a fundamental and ongoing demand for great molecules that make a difference in a disease setting. And that's the opportunity for Morphosys.

Still in the future.

Absolutely, yep.

Okay, thank you for your view. And good luck.

Thanks, Thomas.

(Operator Instructions) Thank you.

We have no further questions coming through, so we'll hand make to Dr. Simon Moroney to wrap up today's call. Please go ahead.

Thank you. And to complete the call, I'd like to remind you of the key messages to take away. The MOR103 study in multiple sclerosis is complete. And MOR202 and MOR208 are both progressing according to plan. In Q1, we've seen good progress on some of the big partner programs in our pipeline, particularly guselkumab and gantenerumab. A further partner program has also entered the clinic.

Our deal today with Temple University further strengthens our in-house discovery efforts. And, finally, there's a lot more clinical data still to come this year, and we look forward to keeping you updated on progress.

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

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