MorphoSys AG (MOR) 2015 Q1 法說會逐字稿

Ladies and gentlemen, welcome to MorphoSys's quarterly call. Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

(Operator Instructions).

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

Good afternoon and also good morning and welcome to our Q1 2015 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's 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 made may differ from those anticipated. You are therefore cautioned not to place undue reliance on such forward-looking statements that 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. Before we open the calls for your questions, Jens will review the financial results of the first three months of 2015.

Afterwards, Simon and Jens will answer 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. The first quarter of this year has been dominated by developments in our proprietary portfolio which have also had an impact on our financial results.

Jens will explain the effect on top and bottom lines which should not distract us from the fact that our most important value driver, the pipeline, continues to make very good progress. As usual, I'll start the overview with our proprietary portfolio.

Our most advanced program is MOR208. Development of this program is on track and we're gearing up for a number of additional clinical studies in three types of B cell malignancy mainly NHL, CLL and ALL.

The initial focus in NHL is on the subtype diffuse large B cell lymphoma for which we have orphan drug status in both EU and US and fast track designation in the US. We have seen very encouraging single agent activity with MOR208 and relaxed or refractory DLBCL patients as reported at ASH last December.

Based on preclinical studies and what's seen with other antibodies, we expect that combining MOR208 with another agent should lead to a significant increase in response rates. For this reason, we're now finalizing plans for two new trials which will look at MOR208 in combination with Lenalidomide and with Bendamustin in relaxed or refractory DLBCL.

The Lenalidomide combo trial will start first within the next six months. Details are posted on the website clinicaltrials.gov. This trial will be open labeled and up to 80 patients with relapsed or refractory DLBCL who will receive infusions of MOR208 until disease progression.

We expect to report first stage from this study in 2017. The Bendamustin trial will be larger and will therefore start and produce results later.

In CLL, we also have orphan drug status in both the EU and the US. We're encouraged by the level of activity MOR208 shows in CLL with a response rate in our Phase 1/2 trial was higher than with any other CD19 or CD20 antibody. The ongoing investigative responsive trial combining MOR208 with Lenalidomide continues and we hope that first clinical data will be reported later this year.

Meanwhile, we're planning additional combo trials, the first of which we expect to start around yearend. While we expect the newer agents such as ibrutinib to dominate CLL regimens in the years ahead, we do believe there will opportunities for effective antibodies such as MOR208 in certain settings.

In ALL, we decided during the first quarter to discontinue the ongoing Phase 1/2 trial. Despite some encouraging responses early in the trial, the overall response rate was not sufficient to justify continuing with monotherapy.

Development will continue initially in the form of an investigative response to trial and relapsed or refractory pediatric ALL patients. These children, whose immune systems are severely compromised by the prior regimens they have received, will receive Natural Killer Cell transfusions to supplement the activity of MOR208. We expect the study to start later this year and we'll update you on the progress.

Moving on to MOR202, we explained the news of the termination of our collaboration with Celgene in a conference call on March 27th so we won't go over that again here. However, I do want to reiterate three points that we made on that call. First, development continues as planned with the start of the first IMiD combination study set to start in the middle of this year.

Second, also our publication strategy remains unchanged. First clinical data from the ongoing Phase I2A trial will be presented at the ASCO conference later this month with an updated ASH in December.

At ASCO, we expect to have data on approximately 30 to 40 patients including safety, pharmacokinetics and preliminary efficacy. And third, our agreement with Celgene means that our net level of investment in the program this year is unaffected by the termination.

Moving on to MOR103, this is in the hands of GSK and we don't expect to be publishing any additional information until the Phase 2B clinical trial and rheumatoid arthritis is completed. MOR209, our prostate cancer program with the emergent bio solutions is now in an open label Phase 1 clinical trial at sites in the U.S. and Australia.

In this trial, up to 130 patients with metastatic castration resistant prostate cancer will be enrolled. MOR209 was being administered intravenously, once weekly for three months and biweekly thereafter until disease progression.

First clinical data from the trial is expected in 2016. The initiation of the clinical trial in March triggered a milestone payment by MorphoSys to emergent. Looking at the early portfolio, our clinical stage programs MOR208, 202, 103 and 209 are supplemented by a growing number of earlier stage programs.

This part of the portfolio is also developing as expected. I'll turn now to our partnered pipeline where there's also been good progress during Q1. Starting with guselkumab, the HuCAL IL23 antibody being development by Jensen.

During the quarter the fourth clinical milestone payment was triggered in this program. The event was the start of a Phase 2 clinical trial in psoriatic arthritis. Guselkumab is now in five Phase 3 trials and three Phase 2 trials which underlines Jensen's commitment to the program.

This milestone marked the first of up to six clinical transitions that we expect to see with partners this year including new INDs and progressions from one clinical phase of development to another.

Regarding other partnered clinical candidates, there was promising data from several programs at the recent AACR conference in Philadelphia. Our partner, OncoMed reported preclinical data from the HuCAL antibody programs, tarextumab and vantictumab.

And Novartis reported preclinical data on two programs from our collaboration; namely, the anti-HER3 program LJM716 and a novel antibody drug conjugate that targets both FGFR2 and FGFR4.

I'll complete the overview by updating the status on the pipeline as a whole. Overall, we now count 95 programs in our pipeline, an increase of one over the end of last year. Of these, 23 are in clinical development with three in Phase 3, 10 in Phase 2 and 10 in Phase 1.

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

Thank you, Simon. Ladies and gentlemen, good morning and good afternoon and thanks for participating in the call.

Let me start the financial section with an overview of the most important financial figures for the first three months of 2015. The first quarter of 2015 has been an exceptional quarter. The presented figures are predominantly impacted by the termination agreement with Celgene influencing our revenues and operational results significantly.

Let me explain to you the financial implications of the agreement on our Profit and Loss Statement. Total group revenues amounting to EUR70.4 million for the first quarter of 2015 compared to EUR15.9 million in the same period of the previous year.

The strong increase was mainly the result of the release of deferred revenues and the final one-time payment that we agreed with Celgene when we signed the termination agreement. With the signing of the original agreement of MOR202 back in 2013, MorphoSys received an upfront payment of EUR70.8 million together with a EUR46.2 million capital injection for roughly 3% of MorphoSys.

The upfront payment and the premium on the shares were originally planned to be spread over roughly 5.5 years. With the termination of the agreement, the remaining deferred revenues on our balance sheet as related to the Celgene Corporation have now been fully recognized in Q1 of 2015.

In addition, we booked the agreed final one-time payment in connection with the termination. Total operating expenses increased to EUR17.7 million compared to EUR14.5 million in Q1 2014.

The expenses thereof for research and development amounted to EUR14.7 million as compared to EUR11.2 million in the previous year, while general and administrative expenses decreased from EUR3.3 million to EUR3 million.

Expenses in proprietary product technology development during Q1 amounted to EUR10.4 million as compared to EUR7.3 million in the previous year. In line with our current guidance, we expect investments in proprietary R&D to further increase over the course of the year.

In the first three months of 2015 the EBIT amounted to EUR52.8 million in comparison to EUR1.4 million in the previous year. The group generated a net profit of the taxes of EUR40.9 million in the first three months of 2015 compared to a net profit of EUR1.1 million in the first quarter of 2014.

Let's now have a closer look at our two business segments. In the proprietary development segment, as a result of the terminated cooperation with Celgene, the segment achieved revenues of EUR59.4 million in the first three months of this year compared to EUR4.1 million in the previous year.

Operating expenses in this segment increased from EUR6.7 million to EUR9.7 million. The segment EBIT amounted to EUR49.7 million compared to a loss of EUR2.6 million in the same period of the previous year.

The partnered discovery segment generated revenues in the amount of EUR11 million in the first three months of 2015 compared to EUR11.8 million in the previous year. The segment's revenues included funded research and licensing fees in the amount of EUR10.5 million and success based payments of EUR0.5 million.

Operating expenses in this segment increased versus Q1 2014 by EUR0.4 million to EUR5.2 million. The segment EBIT amounted to EUR5.8 million compared to EUR6.9 million in Q1 2014.

On March 31, 2015 MorphoSys held cash and cash equivalents, marketable securities and other financial assets in the amount of EUR349.7 million compared to EUR352.8 million on December 31, 2014.

This decrease was mainly the result of the use of cash and cash equivalents for operating activities during the first three months of this year.

A few words on the share buyback program that we executed at the beginning of the second quarter of 2015. In April, MorphoSys acquired 88,670 MorphoSys shares from the stock market. The value of the share buyback program amounted to EUR5.4 million. The shares will mainly be used for the company's long-term incentive program.

Before we open the call for your questions, we would like to reconfirm our financial guidance for 2015 which was updated at the end of the first quarter in connection with the termination of our agreement with Celgene.

For 2015, MorphoSys anticipates total growth revenues between EUR101 million and EUR106 million and an EBIT of between EUR9 million and EUR16 million. Investments in proprietary product and technology development should be in the range of EUR56 million to EUR63 million. This guidance does not include the cost for any additional development program that may be in license during the course of the year.

Ladies and gentlemen, that concludes my review for the first three months of 2015.

I'll hand now back to Claudia for the Q&A session.

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

Thank you.

(Operator Instructions).

The first question comes from the line of James Gordon from JPMorgan. Please go ahead.

Hello, thanks for taking my questions; a couple of questions, please. One was about MOR202. The question was since ending the partnership, Celgene signed a collaboration agreement with AstraZeneca for PDL1 for blood cancer.

I'm just curious what you think about that approach? Do you think PD1 or PDL1 is likely to be the future backbone for blood cancer and is that a threat to the approaches that you're pursing? The other question was just on MOR208. The Q1 results Sanofi announced they're discontinuing their CD19 or returning their CD19.

Should we see any read-through to your program or are the reasons that that doesn't read through to your program because there's significant differences?

Yes, thanks, James. So, first of all, regarding MOR202, indeed we saw the announcement between Celgene and AstraZeneca of course and you know based on our understanding of the space, I think it's just too early to say how much of a role these checkpoint programs will play in multiple myeloma for example.

Having recently attended a conference at which a number of key opinion leaders in the multiple myeloma space spoke, the consensus there was that CD38 antibodies are likely to be the main players for the foreseeable future based on the clinical data that's been seen so far of course.

And that was clearly the unanimous view of the people at the conference there and I think that would remain our view as well based simply on you know what's been seen in clinical studies so far.

You know, how these checkpoint programs play out remains to be seen. So I think at this stage, it's a little bit too early to say what kind of a role they're going to play. We're very happy that we have one of the three CD38 antibodies in clinical development for multiple myeloma and we look forward to publishing data at ASCO, first data and continuing the development.

Regarding MOR208 of course we also saw that news that Sanofi had returned rights to their CD19 ADC as an antibody drug conjugate that got returned to ImmunoGen of course. Same target, different mechanism.

And therefore, I wouldn't say there was too much read through to our program from that. We're very happy with the quality of the data that we've generated so far in a monotherapy setting; so just antibody, nothing else.

And we believe that we have a good basis to take that program forward. So again, here, you know I wouldn't really read too much across from that announcement from Sanofi.

Thank you.

The next question comes from the line of George Zavoico from JonesTrading. Please go ahead.

Hi, good morning and good afternoon everyone. Thanks for taking my question. First one, maybe to Jens. I don't fully understand how by terminating the Celgene agreement, you went from -- your guidance went from -- improved so dramatically from a loss to a rather substantial revenue.

Could you go through how -- a little bit more detail how that impacted your guidance?

Yes, so George, happy to do that. I mean in general, as I mentioned in my speech, we had received that upfront payment and also a premium and we have agreed at that point in time to spread those amounts over the course of the expected development time.

And therefore, if you do this you then can only allocate certain amounts as revenues out of this total amount of EUR70.8 million plus the premium I mentioned. And with the termination of this agreement, there is you know the opportunity now for us or actually even it is a must that we book everything which is related to that contract in one go.

And that increases the revenue figure and certainly also increases the profit which then otherwise would have been spent over a couple of years. And that guides our revenue figure up to this EUR70.4 million figure as well as our EBIT figure to EUR52.8 million.

So that increase -- obviously, that increase follows through for the whole year?

Yes, exactly. In addition, to not forget that we got this one-time payment as well. We have further development costs for MOR202 and you know we got a one-time payment from Celgene.

Unfortunately, I'm not able to give you a detailed figure here because we agreed to not disclose this but this goes then also on top of that. And if you look into our quarterly report, you will see a change in the deferred revenues, a significant one in the short term as well as the long term and then you can do the math and you'll come to that sort of figure which I was mentioning.

So you've -- and you did mention that you were planning to have sort of your expenses for the 202 program this year were relatively unchanged and then you expect maybe towards the end of this year in 2016 that you'll, assuming it goes forward, you'll see the expenses start to increase for the 202 program that would have otherwise been expensed to Celgene, is that correct?

Yes, indeed. You know the figure would increase in case that we do not find or look for another partner. I mean, as you know, we haven't decided yet on how we want to move forward in terms of MOR202.

What we have decided is that we want to see more data. We just -- as we announced when we terminated the deal together with Celgene, we feel is not sufficient data to make a call on this compound.

We're optimistic that we'll see something very interesting going forward and we want to wait until we have seen that data and when we have seen that data, we make a decision and then we can give also more clear guidance in terms of the R&D spend that will occur in the years to come.

Thanks, Jens and a follow-on question regarding some of the indications. At AACR in Philadelphia, it was dominated a lot by obviously the immuno-oncology space, and I think one of the messages, take home messages, was that the checkpoint inhibitors need some combinations to really fully develop their efficacy beyond the relatively low 20% to 40% durable responses that they get.

And this I guess relates a little bit to the prior question with your CD38s. Is there any plans afoot to look at combinations with checkpoint inhibitors not only with CD38 but perhaps some of your other antibodies as well?

Yes, George, let me take that. So indeed there's all sorts of thoughts about different combination partners and checkpoints of course being very much the rage at the moment have figured in some of that thinking as well.

There are, you know, there are perhaps one or two other combinations that are more immediately compelling. As was announced, we're about to start combination studies with two IMiDs, namely Revlimid and pomalidomide generously supported by Celgene to do that.

You know, those are if you like relatively obviously combo partners but there are others that are perhaps less obvious and checkpoints are on that list as well. So these are things that we are considering as to how best to take the MOR202 program forward.

But as I said earlier, you know, we're delighted that we're the owner, now the outright owner of one of only three CD38 antibodies in the clinic and you know, we're looking forward to doing the best we possibly can to take this program forward.

Thanks and finally you mentioned there were some very early stage programs incubating. Perhaps it's probably too early to comment on that. You'll probably comment on that as they come along. Is that what we can expect?

Yes, I mean, we've got programs in discovery; one in preclinical development formally that we like a lot but I mean, they're early stage; let's face it. So we feel at this stage there's nothing to be gained you know from your point of view and also frankly, from a competitive point of view for us in disclosing the targets that those programs are directed against.

OK, very well. Thank you very much and have a good rest of the day and quarter.

Thanks, George.

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

Thank you and to complete the presentation, I'd just like to remind you of some main points to take away. First, our in-house development activities on MOR208, MOR202, MOR209 continue as planned.

The partnered pipeline continues to grow and mature, highlighted by the start of another Phase 2 trial of guselkumab. And finally, the higher than usual top and bottom line should not distract us from the fact that overall, the programs in our product pipeline continue to make very good 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.