MorphoSys AG (MOR) 2015 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys Quarterly Results conference call. (Operator Instructions) Now I would like to turn the conference over to Dr. Gutjahr-Loser. Please go ahead.

Good afternoon and good morning, and welcome to our Q3 2015 conference call and webcast. I'm Claudia Gutjahr-Loser, Head of Corporate Communications and Investor Relations at MorphoSys.

Before we start, some opening remarks. The telephone conference will be broadcast via web. The access to the webcast is via our Investor Relations website. The webcast is where we display the PowerPoint presentation charts related to this call, some charts and our replay for download.

After the presentation, you may ask questions. For technical reasons, we cannot take any questions via e-mail during the conference call. Dial-in numbers are published on our website. The call and the webcast will be recorded and available for replay later today.

Before we start, I have to remind you that durable the 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.

For the actual conditions, [MorphoSys], the company or function, actual results and actions may differ [from those] anticipated. You are therefore cautioned not to take undo reliance on such forward-looking statements, which speak only [as of the date hereof].

With us 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 third quarter.

Before we open the call for your questions, Jens will review the financial results of the first nine months of 2015. Afterwards, Simon and Jens will answer questions on these topics. Thank you for your patience.

Let's get started now. Here's Simon Moroney.

Thank you, Claudia. Also from me, a warm welcome to the call. In Q3, we have continued to advance our pipeline with good progress being made in our proprietary program, as well as those being developed by our partners. In September, we published a press release, which set out the current status of our proprietary portfolio as well as plans for its further development.

This announcement showed how much progress we've made in a short time based on the number programs we've added and advanced in the last few years. In this Q3 review, we'll update where these programs now stand and what news to expect in the coming months.

There's quite a lot to talk about. I'll focus only on the most advanced programs and those for which there was news during the quarter. The most advanced proprietary program is MOR208, currently in development for NHL, CLL, and ALL. Based on all of the clinical data we've generated so far, we're very optimistic about the prospects for this program.

MOR208 clearly has very encouraging [anti B-cell activity], which bodes well for its development in a number of indications. Our main focus at the moment is on relapsed or refractory DLBCL for which there is a large unmet medical need.

Patients who fail first-line treatment, which is typically rituximab based regimen have a very poor prognosis, particularly those who are ineligible for autologous stem cell transplantation and high dose chemotherapy. This is the setting that we'll pursue in two clinical trials that we'll start with in the next several months.

The first of these, which will start shortly is a phase II, trial which will investigate MOR208 in combination with lenalidomide in relapsed or refractory DLBCL patients. The second trial in the same setting, which is designed to investigate MOR208 in combination with bendamustine is on track to start in mid-2016.

This trial is designed to start with a phase to evaluate the safety of the combination. Then transition to a potentially pivotal international trial comparing MOR208 with bendamustine; and with rituximab with bendamustine.

The initial feedback from regulatory authorities supports our plan to assess the safety of the combination in this way and then transition seamlessly into the physical part. The physical part of the trial could commence in 2017.

We believe that this development plan gives us the best opportunity to get MOR208 to market as quickly as possible. We see MOR208 as an ideal product [from our focus] to commercialize at least into length of territories. We're starting to plan for this, which will involve building a commercial operation within the organization over the coming months and years.

Turning to CLL, recall that in the [phase 1, 2] monotherapy trial in this indication, MOR208 showed the highest level of single agent activity of any antibody in relapsed or refractory patients. Clearly therefore, MOR208 has great potential in CLLs.

However, as we look at the competitive landscape, we see a rapid evolution of treatment alternatives. To make a difference for patients, we need to identify an appropriate setting for MOR208.

Our approach is two-fold. First in collaboration with [John Bird] of Ohio State University, we're supporting an investigator sponsored trial, which looks at MOR208 in combination with lenalidomide in relapse or refractory patient; and older patients ineligible for more toxic treatments.

Second, we see a growing need in patients who failed the [new class] of Btk Inhibitor therapy. Several or recent papers have shown that these patients have an extremely poor prognosis. This is likely to become an increasing medical need as the use of these drugs expands. Therefore, we plan to start a study of MOR208 in combination with idelalisib in CLL patients who have failed prior Btk Inhibitor therapy in the first quarter of 2016.

In ALL, the planned investigator sponsored trial in which MOR208 is combined with NK cell transplantation in pediatric patients is also on track to start in the first half of next year. Moving on to MOR202. In September, we presented updated data from the ongoing Phase 1 and 2 trial at the 15th International Myeloma Workshop in Rome.

The data confirmed the very good overall safety profile and provided further evidence of efficacy both as monotherapy and in combination with lenalidomide and pomalidomide. Looking at the higher dose monotherapy cohorts, we are already seeing objective response rates in the 30% range without having completed the study.

We regard this as a very encouraging level of efficacy especially since we know that full target saturation has probably not yet been reached. The final monotherapy cohort 16 weeks (inaudible) is now being dosed as well as additional patients in the lenalidomide and pomalidomide combo cohorts. We'll provide an update on data from this trial at ASH in December.

I'll move on now to programs being developed by our alliance partners, including some news that came after the end of the quarter. Yesterday at an R&D day, GSK presented a brief update on MOR103, also now known as GSK3196165. This program is currently in a Phase IIb study in rheumatoid arthritis called BAROQUE.

We have shown in our [Phase 1b and 2a] trial in rheumatoid arthritis patients that more MOR103 has encouraging level of efficacy with a fast onset of action and a long duration of effects post-treatment. GSK's Phase 2b study builds on this. It aims to evaluate the most appropriate dose of MOR103 for [Phase 3] studies and investigate the ability of MOR103 to induce remission. Initial clinical readout is expected in 2016.

Additionally, GSK reported yesterday its intention to initiate a second [Phase 2] trial in osteoarthritis in 2016. GSK plans a clinical development path for disease modification and analgesic activity in hand osteoarthritis. We're very pleased that GSK is broadening the development plan for MOR103 into a second inflammatory disease.

Last Friday, we announced that Bayer had started clinical development of a HuCAL antibody in hemophilia. The active part of the collaboration with Bayer was ended in 2007. But this example illustrates that antibodies discovered jointly continue in development also after the active part of the collaboration ends.

The license agreements [remained] (technical difficulty) in place. We stand to receive milestones and royalties [for the] products that are successfully and come to market. On October the 22nd during its Q3 investor conference, our partner Roche gave an update on Gantenerumab. Both Phase 3 studies of Gantenerumab, SCarlet RoAD and Prodromal Alzheimer's disease patients; and Marguerite RoAD, and patients with a mild form of the disease will continue as open labeled studies.

The goal of both is to explore higher doses of the antibody. We understand that this is linked to the view that gantenerumab appears to be very similar in its properties to aducanumab; which has shown signs of efficacy at higher doses. We think that this is very encouraging news for the program.

Regarding [our -- the latest stages] activities, two deals that were closed during this quarter are aimed at strengthening our discovery portfolio. G7 Therapeutics is a small biotech company with a very innovative technology for producing G protein-coupled receptors.

These important therapeutic targets have always been challenging when it comes to making antibodies against them. It's an area where we have made great progress. Our lives with G7 adds to our strength [here].

Our deal with Immatics Biotechnologies opens up a new class of intracellular targets that are presented as peptides on the cell's surface in the context of the Human Leukocyte Antigen, or HLA.

In a feasibility study, it was shown that we can generate antibodies against this HLA peptide complex. This is a setting in which our Ylanthia technology has particular advantages over other methods of generating antibodies.

We expect this collaboration to lead to very interesting new therapeutic antibody approaches to treating cancer. In summary, at the end of the third quarter of 2015, MorphoSys's overall product pipeline comprised the total of 104 therapeutic antibody programs of which 25 are now in clinical development; 26 in preclinic; and 43 in discovery. Of the 25 clinical programs, three are in Phase 3, 11 are in Phase 2, and 11 are in Phase 1.

Looking ahead to the very near future, tomorrow the abstracts for the ASH conference in December will be published. We're looking forward to presenting updated preclinical and clinical for MOR202 and 208 and five [posters] of the conference. We also hope to see some updates from our partners.

Beyond that, you should expect to see increased development activities, more studies, and preparations for our first Phase 3 study with MOR208. In 2016, we expect Phase 3 readouts and potential DLAs for two our partner programs, namely [demagumab and gizelcumab].

With that, I'd like to hand it over to Jens for his financial review.

Thank you Simon. Ladies and gentlemen, good afternoon for everyone in Europe. Good morning, for those joining from the U.S. Now that Simon gave you some insight in the operational development of our business, I would like to focus on the financial aspects.

Now on slide 10, I would like to begin with an overview of our financial performance over the first nine months of 2015. As explained in previous quarters, the financial results in 2015 have been predominately impacted by the termination agreement with Celgene influencing our revenues and operational results significantly.

In terms of group revenues, it doubled from EUR 93.9 million. The strong increase was mainly the result of a release of deferred revenues and the final one-time impairment that we [agreed] with Celgene when we signed the termination agreement. Total operating expenses increased by 24% to EUR 63.6 million.

Expenses for research and development increased by 30% to EUR 53.1 million mainly driven by higher costs for the companies for proprietary development activities. General and administrative expenses increased only slightly from EUR 10.3 million to EUR 10.6 million.

As you can see, we have included the [spread] of R&D expenses in this slide. The expenses for proprietary product and technology development amounted to EUR 39.9 million, an increase of 53% in comparison to previous years.

This is in line with our guidance for 2015. We expect a further ramp up in the last quarter of the year.

Moving down the income statement, the EBIT for the first nine months of 2015 amounted to EUR 34.7 million in comparison to minus EUR 3.7 million by the end of September 2014. The growth generated enough profit after tax of [EUR 28.2] million in the first nine months.

That translates into a diluted earnings per share of EUR 1.07 [cents]. Let's now have a closer look at our (inaudible) [earnings]. The effect of the termination of the Celgene agreement are [mostly to deliver for] proprietary development segments. The segment [chief] revenues are EUR 59.9 million.

Operating expenses in this segment increased to EUR 38 million. The segment EBIT amounted to EUR 26.5 million. The partner discovery segment generated revenues in the amount of EUR 34 million in the first nine months of 2015.

The segments revenues included funded research and licensing fees in the amount of EUR 31.5 million and a [success] based payment of EUR 2.5 million. Not reflected in these numbers is the recent R&D milestone for Bayer that was announced last week.

Operating expenses in this segment decreased versus the first nine months of 2014 to EUR 15.9 million. This segment EBIT amounted to EUR 18.1 million, an EBIT margin of 53%, roughly the same as in 2014.

Moving to slide 12; here you have an update on our balance sheet for the first nine months of the year. On September 30, 2015, MorphoSys held cash and cash equivalents, market securities, and other financial assets in the amount of EUR 317.7 million compared to EUR 352.8 million as of December 31, 2014.

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 2015, MorphoSys anticipates total growth revenues between EUR 101 and EUR 106 million; and an EBIT of between EUR 9 million and EUR 16 million. Expenses in proprietary product and technology development are expected to be in the range of EUR 56 million to EUR 63 million.

Ladies and gentlemen, that concludes my review for the first nine months of 2015. Before I hand it back to Claudia for the Q&A session, let me shortly comment on today's share price development. As announced today, our Q3 results are fully in line with our expectation for the full year.

We reconfirmed our guidance for 2015. As Simon pointed out, the [partner] is making good progress. We think we are on track to achieve our goals we have ourselves for the full year. With that, I would like to hand it back to Claudia for the Q&A session.

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

Thank you. (Operator Instructions) We currently have no questions coming through. (Operator Instructions) The first question comes from the line of James Quigley from J.P. Morgan. Please go ahead.

Hello, and just a couple of questions from me. The first one, and could you give us an update on MOR202 and the partnering there? Secondly, with the positive [offering in that] data that [Roche] showed an [MS at accurate]. Would you consider MOR202 in the [most gross specific in assets and] given the same target or a different target, but [the B-cell action]? Thank you.

Thanks James. Let me start with the first question. As we mentioned during the presentation, we tend to present updated clinical data on MOR202 at ASH this year.

As we've also mentioned in the past, there's certainly a lot of interest in the program. It's one of only three anti-CD38 antibodies in the clinic for multiple myeloma. We know that there is a lot of interest from interested parties out there, biotech and pharma companies.

We continue to talk to people about MOR202. But for us in the meantime at least the focus is very much on completing the ongoing Phase 1,2 trial, which means completing the monotherapy cohorts and the two combo cohorts, lenalidomide and pomalidomide. We'll continue to do that.

We expect to have mature data sometime next year. In the meantime, we'll of course engage in discussions with potential partners about how to take the program forward beyond that.

As usual, we don't comment at all regarding the status of any current discussions or make any predictions about what might result from those discussions. That's standard company policy.

Regarding other potential uses for MOR202, and other indications. There are some ideas associated with the mechanism as you can imagine. You highlighted one. There are actually a number of others beyond that we're looking at and looking at generating some preclinical data initially.

But I think it's premature at this stage to identify which of those indications could be of sufficient interest that we would want to just proceed clinically with them. But it definitely, through its mode of action, that definitely have potential in other indications beyond multiple myeloma.

Thank you.

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

Yes, good afternoon everyone, Gunnar Romer, Deutsche Bank. Thanks for taking my question. The first one would be with regard to MOR208.

Also here, I would appreciate whether you could comment just generally on your thinking around potential partnering and how it relates to the ongoing trials? When if at all, you would be willing to partner the compounds? That would be much appreciated.

Then secondly, I noticed cash [burn] was relatively low in the third quarter. Any reasons behind that? Also, Jens, maybe if you can shed some light on where you would expect the cash at the year-end?

Then finally, I appreciate that you will guide on 2016 when we're in February of next year. But nonetheless could you just broadly frame your thinking around the potential uptake in R&D spending for next year? Thank you.

Thanks Gunnar, and let me start with the first question and then hand it over to Jens for the financial ones. As I mentioned during the presentation, MOR208 we see as an ideal program to be our first own commercial product.

That doesn't mean that we will do everything worldwide on our own. But we could certainly envisage commercializing MOR208 in a territory, Europe, for example. From our perspective, there's no hurry to partner this program.

As is well known, of course, the more data and the more compelling package that can be produced, the value that can be generated for the Company. We're intent on generating that valuable data package before we would partner it.

I think ultimately to make the most out of the program, we will need a partner for worldwide commercialization. But from our perspective, there's no hurry. We're intent on maximizing the value before we would secure a partner for joint commercialization.

Yes, Gunnar, thanks for your question. I'll take the next two. On the cash burn indeed, the cash burner has been rather limited in the third quarter. I think working capital management had some support at that sort of cash flow position towards the end of September.

Overall, we have guided the cash position being EUR 280 to EUR 290 million by the year-end after we have acquired [Lanthio Pharma]. To give you a little bit of an update, our expectation now is rather that the amount will be at the upper end of the guidance, around EUR 290 million I would assume the cash position, it should be in case we're not [in] licensing anything by year-end.

But it's sort of EUR 290 million, I think is a fair sort of number you can assume for your model.

Going and jumping to your question regarding R&D spend for 2016; you know that we are pretty restrictive in that respect to give guidance already now for next year. We generally do that in our February and March calls.

But I mean, to highlight the situation, it's certainly, we expect to increase our spending beyond the current level of 2015. As you've heard, we are really upbeat on the compounds that we have in our proprietary portfolio.

We think 208 and 202 specifically are great compounds. We plan to kick off [and expand out] further trials [for Simon to go -- and further] trials this year. Then to a greater extent, we will see the financial impact next year.

We are convinced that we have great compounds here. We want to support them and bring them closer to the market; and bring in partners at the right point and time. That's all in our plans. We're willing to proceed [with] that. I think it's in the interest of every shareholder that we do this.

It's not [only] in the interest we believe to keep the money in the bank, if you have the compounds. We believe we have the compounds. We are planning to proceed with our strategy to invest. We will see that then in 2016 again in terms of R&D spend.

Thank you very much. Maybe just one followup regarding MOR202. I appreciate your comments, Simon earlier. I was wondering whether you would be wiling to invest in further clinical trials beyond just the ones currently ongoing without having a partner? Or, would that be a prerequisite for you continuing investing let's say once you have the data from the ongoing trials, and the middle of next year or end of next year?

Yes, the answer to that really depends on the quality of data we can generate. We have identified a path to market for 202. Whether it is justified for us to follow that path on our own or best with a partner. It really depends on the quality of the data that comes out of the ongoing studies.

We're prepared to take a look at that data as it emerges and make that call based on the quality of that data. Whether it's sensible to proceed on our own or whether it makes more sense to do that together with a partner .

I think ultimately as with 208, we could imagine commercializing 202 in a territory, but not on our own in a worldwide setting. For that reason, ultimately, we would need a partner. But again and much like 208, it's not something that we need in the very near-term.

Thank you very much.

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

Hi good afternoon and good morning. Thank you for the update. Just a pretty quick question regarding your deal flow or the deals that you made with the G protein-coupled receptor company and the [peptide HLA] company. I'm presuming, the first part of the question; I'm presuming this is mainly for target discovery that will feed into your antibody Ylanthia and HuCAL programs, number one.

Number two, in light of the new target discovery that might come out of this, are you also considering potential antibody [drug conjugate] for some of these targets? Would that be with your Emergent partner? Or is the Emergent partnership really just to that one prostate cancer compound?

Thanks George. You're indeed right those deals with G7 and Immatics are designed to give us access to new targets, against which we can direct primarily antibodies. We have as you recall, in-house access to [bispecific] formats, for example.

Our preference at this stage is not to pursue [ADCs], but it's a format that we've decided is something that we don't want to follow up on. But we have access to formats that we like very much, a couple of bispecific formats.

If we need effective functions, we would prefer the bispecific format as the way to go. The Emergent deal currently relates solely to MOR209, the program which is in Phase 1 for the prostate cancer, and not to any other modules based on that same format. But as I mentioned, we have formats that we think can work for us against those new targets that we would discover.

OK, great. Thank you very much.

(Operator Instructions) We have no further questions coming through. I will now hand it back over to Simon Moroney to wrap up today's call.

Thank you. To conclude the call, I would just like to remind you of the main points to take away. Good progress is being made in our pipeline. Plans for several trials at our most advanced proprietary program, MOR208 are on track.

MOR202 continues to produce encouraging clinical data; which will be updated at ASH. We have seen some positive developments from selected partner programs. With 25 programs in which we have a financial interest now in clinical development, our product pipeline is stronger than it has ever been.

That concludes our call. If anyone of you want to follow up with us, please feel free to contact us directly. We are in the office for the remainder of the day. Thank you very much and good-bye.

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

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