MorphoSys AG (MOR) 2016 Q2 法說會逐字稿

Welcome to the MorphoSys half-year report conference call Q2 2016. (Operator Instructions)

Now I would like to turn the conference over to Dr. Gutjahr-Loser.

Good afternoon and good morning and welcome to our Q2 2016 conference call. I am Claudia Gutjahr-Loeser, Head of Corporate Communications and Investor Relations of MorphoSys. 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 second quarter. Before we open the call for your questions, Jens will review the financial results of the first six months of 2016. Afterwards, Simon and Jens will answer questions on these topics. But also on the conference call you will find a slide deck for this presentation on our corporate website.

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 (inaudible) programs, and 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.

I would now like to hand over to Simon Moroney.

Thanks, Claudia. Also from me, a warm welcome to the call.

As always, Q2 was dominated by ASCO and the data that was presented there. I will talk a little bit about that, but also highlight some of the other developments in our pipeline, of which there were a number during the quarter.

At ASCO, we presented updated clinical data from our most advanced program, MOR208. One of the features that is emerging is the long duration of response shown by some patients. In both DLBCL and indolent NHL patients we have seen cases of long-lasting responses of up to 26 months and a PFS rate of more than 40% at 12 months. This is very encouraging considering the trial population comprises patients who are refractory 2 or have relapsed after previous lines of therapy.

We initiated our so-called L-MIND Phase 2 clinical trial with MOR208 in April. This open-label study is evaluating MOR208 at the recommended dose of 12 mg per kg in combination with lenalidomide in 80 patients suffering from relapsed or refractory DLBCL.

A second Phase 2 study of MOR208 in DLBCL will start soon. This trial, called B-MIND, will evaluate MOR208 plus bendamustine in approximately 330 patients with relapsed or refractory disease. We will start with a safety run in as agreed with the regulatory authorities. First sites have been opened already and we expect to enroll the first patients shortly.

Assuming that this part of the study is completed successfully, we will transition into the pivotal part of the study in 2017, comparing MOR208 plus bendamustine to rituximab plus bendamustine.

A third Phase 2 combination trial for MOR208 was named COSMOS. That study will investigate MOR208 together with a combination partner in chronic lymphocytic leukemia, in particular [abrujanib] refractory CLL.

Our original plan to use idelalisib as the combo partner for MOR208 was impacted by the temporary discontinuation of several idelalisib combo studies and the imposition of clinical holds by the regulatory authorities in Europe. EMA has very recently lifted the hold. We expect to finalize our preparations for the intended study quickly and hope to be kicking off the trial during the second half of 2016.

At ASCO, we also presented updated data from the ongoing Phase 1/2a study of MOR202 in multiple myeloma. Of most significance here were the two complete responses we saw in the four patients who were treated per protocol who received 8 mg per kg of MOR202, plus pomalidomide and dexamethasone. In this setting complete response rates for pomalidomide and dexamethasone alone are typically in the low single-digit percent range. We are, therefore, very encouraged by the apparent extra activity being contributed by MOR202.

Also, the 75% ORR in patients who received 8 mg per kg of MOR202 plus lenalidomide and dexamethasone provides more evidence of the power of combining MOR202 with an IMID. Safety and convenience continue to look best in class. We have a short infusion time of two hours with very moderate infusion-related reactions of grades 1 and 2 in only 14% of the patients treated. In the meantime, we've initiated the final treatment cohorts of 16 mg per kg MOR202, for which we expect to have data later this year.

Beyond these two most advanced programs in our proprietary portfolio, we took another program into the clinic during the quarter. MOR106 has emerged from our 50/50 discovery and collaboration with Galapagos. This program, an antibody from our Ylanthia platform, directed against the target implicated in inflammatory diseases entered Phase 1 development in healthy volunteers in April. We expect to be able to announce first safety results from this part of the study in the second half of this year and transition to the Phase 1b part, which will study MOR106 in patients.

MOR103, out-licensed to GSK and now known as GSK3196165, rounds out the news on clinical programs from our proprietary development segment. In addition to the Phase 2b study that GSK is conducting in rheumatoid arthritis, they recently initiated a Phase 2 study in patients with inflammatory hand osteoarthritis. Furthermore, a second clinical study in RA will start soon.

In May, we announced a strategic alliance with the University of Texas M.D. Anderson Cancer Center which is focused on the discovery and developed of therapeutic antibodies against cancer. M.D. Anderson would use our Ylanthia platform to discover therapeutic antibody candidates against potential cancer targets. MorphoSys will have options on resulting programs.

In summary, our proprietary development segment comprises 14 therapeutic programs, one of which, MOR103, is outlicensed. Of these 14, five are in clinical development, one is in preclinical development, and eight are in the discovery stage.

Turning to our partnered discovery segment, we very recently announced receipt of a milestone payment from Novartis. This payment was triggered by their initiation of a Phase 1 clinical study of a novel HuCAL antibody for the prevention of thrombosis. The program became the 12th from our collaboration to enter clinical development. The most advanced program from this collaboration is bimagrumab, a HuCAL antibody for various muscle-wasting diseases.

In April, Novartis confirmed that a Phase 2b/3 study examining bimagrumab in sporadic inclusion body myositis failed to meet its primary endpoint. Following this finding, all Phase 3 studies in this indication were concluded. Novartis is currently reviewing the data in further detail.

Nevertheless, clinical studies with the antibody, including three Phase 2 studies in sarcopenia and a Phase 2 study in muscular atrophy after hip operations continue as planned.

Our partner, Pfizer, is developing a HuCAL antibody against the checkpoint target 4-1BB. This antibody, called utomilumab, which is already in five clinical trials, was recently taken into a Phase 1/2 study called JAVELIN Medley looking at a triple antibody combination.

The goal of this new study is to evaluate safety and preliminary antitumor activity of utomilumab income patient with PD-1 antibody avelumab and an OX40 antibody in patients with locally advanced or metastatic solid tumors. The primary purpose is to assist the safety and early signs of efficacy of various combinations of immunotherapies. All together, the pipeline emerging from our partner discovery activities now comprises 90 programs, 22 in the clinic, of which two are in Phase 3, 11 are in Phase 2, and nine are in Phase 1 clinical development.

At the end of the quarter, our overall product pipeline comprised a total of 104 therapeutics, 27 of which are in clinical development. Looking ahead to the rest of the year, we are on track to meet our development goals for all of our programs. In terms of potential news flow in the months ahead, we anticipate, among other news, data from Janssen's Phase 3 studies of guselkumab and a potential regulatory filing, as well as updated clinical data from MOR202.

That completes my review of the quarter and with that I will hand over to Jens for the financial overview.

Thanks very much, Simon. Also from my end, good morning and good afternoon and thank you for participating in the call. Let me start the review of the first six months of 2016 with an overview of the most important financial figures.

Turning to slide 10 now, the income statement, you can see here that total group revenues amounted to EUR24.3 million for the first six months of 2016. Revenues in the comparable period of 2015 contained a one-off effect in the amount of approximately EUR59 million from the termination of the partnership with Celgene to co-develop and co-promote MOR202. In relation to our published guidance for March 2, our revenues are fully in line with our revenue guidance of EUR47 million to EUR52 million.

Total operating expenses increased, as anticipated, to EUR43.5 million. The expenses thereof for research and development increased to EUR36.7 million, as compared to EUR33.9 million for the first half of 2015. General and administrative expenses decreased slightly compared to the same period of the previous years and amounted to EUR6.9 million.

In line with our guidance, expenses and proprietary products and technology development increased to EUR28.3 million. So for the first six months of 2016 the EBIT amounted to minus EUR19.2 million in comparison to a profit of EUR46.1 million for the first six months of 2015.

The group presents a net loss after taxes of EUR18.8 million in the first half of 2016, compared to a net profit of EUR36.5 million in the previous year. The decline in EBIT and net profit is mainly caused by the positive one-off effect in 2015 as explained before.

Let's turn to slide 11, the segment reporting. The proprietary development segment achieved revenues of EUR0.3 million compared to EUR59.6 million for January to June 2015, again reflecting the terminated cooperation agreement with Celgene. Operating expenses in this segment increased to EUR28.3 million. The segment EBIT amounted to minus EUR27.8 million compared to a positive EUR40.2 million for the same period of 2015.

The partnered discovery segment generated revenues in the amount of EUR23.9 million in the first six months of 2016. Operating expenses in this segment declined versus January to June 2015 to EUR8.8 million. The segment EBIT amounted to EUR15.1 million compared to EUR12.5 million in the first half of the previous year.

Turning to the balance sheet on slide 12, on June 30, 2016, the group held liquid funds and marketable securities, as well as other financial assets, in the amount of EUR297.7 million compared to EUR289.4 million on December 31, 2015. The decrease is mainly the result of the use of cash for operating activities during the first six months of this year and for the repurchase of shares for the group's long-term incentive plans.

Turning to the guidance, before we open the call for your questions we would like to reconfirm our financial guidance for 2016, which was published in connection with the presentation of our 2015 annual report. For 2016, MorphoSys anticipates total group revenues in the range of EUR47 million to EUR52 million and an EBIT in the range of minus EUR58 million to minus EUR68 million. Proprietary R&D expenses are expected to rise to between EUR76 million and EUR83 million.

Ladies and gentlemen, that concludes my review of the first six months of 2016 and I will now hand back to Claudia for the Q&A session. Thank you.

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

(Operator Instructions) James Gordon, JPMorgan.

Thanks for taking my questions. One pipeline and one financial question, please.

On the pipeline, mechanistic MOR202 differentiation. I understood before partly it could be about NK cell sparing. In the release today there was a reference to preserving CD38 expression, so just which of those do think is more important, or could they both be important? And which one do you think would have more of an impact in the clinic?

And the financial question is just on the tax charge. That was a bit higher than I and consensus had expected for this quarter and I think it's because of how you are now going to account for tax credits; that you are going to stop accruing them. So what should we assume for the tax rate for the rest of the year and beyond and why has there been the change in how tax credits are booked?

Thanks, James. Let me start with the first one and then Jens will take the second one.

I think it's a bit early to say which of those two mechanisms are important. We think that they could both be significant. We think that both features, the fact that MOR202 spares NK cells and that CD38 expression seems to be maintained, they're both distinct, those features, from other CD38 antibodies, which we think makes MOR202 particularly interesting.

But we always have to be cautious, of course, in extrapolating what we see preclinically to what actually happens in the clinic and, therefore, I think it's, at this stage, probably premature to say which is the most important effect. But we feel the both of them could be significant for MOR202.

Thanks.

Then coming to the financial question, to the tax question. Well, James, as opposed to Q1, we have decided to not account for deferred tax assets on any tax losses incurred year-to-date in 2016. Our expectation is that we will remain with this until at least year-end 2016. There is some freedom in how you can deal at this under IFRS 12 and we decided to really go forward here on the conservative approach.

In terms of the sort of long-term view here, I think that might change again. It's a bit tough to give clear guidance here for 2017 and 2018. It might be that basically the tax rate will be zero going forward for 2017, but we might also change that. That depends a little bit on our further view.

We just wanted to make sure that we don't have very high tax assets on the books, on the balance sheet. We felt it's more prudent maybe to just do not defer -- do not account for any deferred tax assets here. That's the reason for the change.

Thank you.

Gunnar Romer, Deutsche Bank.

Thanks for taking my questions. A couple of questions, please.

Firstly, on the Novartis deal, I was wondering whether there's any update here or when you would expect to share some additional details about the future of that contract. I think it's expiring at the end of 2017 and was just wondering when you think you would be in a position to update the market on a potential extension or on the end of the contract.

Then, secondly, on the patent litigation with Genmab, same question here. Any idea as to when you would expect to share an update with us in that regard? And then on bimagrumab, again similar question here, whether there's any communication you can share with us as to when Novartis may publish the detailed data and make a decision on the future of the program.

Then last, but not least, on MOR202 I was wondering whether at ASH you are then expecting to share with us the full data package, including the 16 mg per kg cohort. And whether then, upon those data, assuming they are in line with your expectations, you would go for a larger confirmation trial on your own or whether you would already be looking for a partner for this. Thank you.

Thanks, Gunnar. I think I'm going to have to disappoint you on at least three of those four questions, unfortunately.

So starting with Novartis, just to get the facts out there as a reminder, it's scheduled to run out at the beginning of December next year and they have an option to extend for a further two years. At this stage it's premature to say what's going to happen at that time and so, unfortunately, I can't give you any update on that one.

The same goes for the patent litigation. We are in the phase of kind of legal interchange, let's call it that, at the moment. This is a very formalistic part of the process and, again, there's really no news that we can share with you at this stage of any significance on that process. It's simply going through its normal course that is expected for processes of this time.

Bimagrumab, that's the third one I have to let you down; I'm sorry. No news at this stage. As far as we are aware, Novartis is reviewing the data from the inclusion body myositis trial and I believe that they intend to publish their data at some stage at a conference, but we are not sure when that will be. So, unfortunately, no update there.

Regarding 202, maybe a little bit more color on this one. Indeed, we hope to present some of the 16 mg per kg data at ASH. I would add the caveat here, though, that what we've seen in the other cohorts is that responses really deepen over time. So it can be that if you take a snapshot at a particular time and see a certain level of response, you may look again a month or two later and the response will have deepen significantly.

We saw that with the complete responses as we saw in the 8 mg per kg plus POM cohort, but it really took some time for those two complete responses to appear. So whatever we show at ASH -- and we certainly will show some 16 mg data -- you should not take that necessarily as being the final status of those responses.

Again, a decision about whether we would continue to a Phase 2b or Phase 2/3 study on our own really depends on how strong the data is and, of course, the level of interest in particular of potential partners in the program. So at this stage, it's premature to say anything, but of course, we're looking forward to that 16 mg data, which we think will be significant for the future of 202.

Great, thanks. And then maybe one follow-up regarding guselkumab. I was just wondering whether, as far as you know, the timelines provided by J&J earlier still hold, i.e., potential filing still in the current year, which would mean -- I think should mean readout or some presentation of data is in the next few months.

Exactly. To the best of our knowledge, that is still the case. We would expect to see data in the second half of the year and we understand that there is an intention on their part to file also this year.

Great. Thank you very much, guys.

Anastasia Karpova, Kempen.

Good afternoon and thank you for taking my question. I have three. First, regarding MOR202 and the possible data presentation at ASH.

Given the start of the recruitment in 16 mg per kg arm, what is average treatment period you expect to present at ASH? So how long patients will be on treatment approximately on the -- by December 12?

Then what is your partnering strategy for MOR208 and would you progress to pivotal study without a partner? Lastly, have you heard any updates on gantenerumab program from Roche?

Okay, thanks. Let me take those three. First of all, 202, remember that there are three arms in this study: what we call 202 on its own, which is 202 plus dexamethasone; 202 plus lenalidomide plus dexamethasone; and 202 plus pomalidomide plus dexamethasone. And the maturity of the data will vary in each case because those arms are starting at different points in time, so I can't give you a single number there.

The most recent data will be from the two IMID combo arms and that data will be, I think, a couple to a few months of maturity by the time you see it at ASH. And I just want to add what I said earlier, which is we really see responses deepening over time, so whatever we see at ASH may not be the final story on how the response rates are from that 16 mg cohort.

In terms of 208 partnering strategy, we are always interested in looking at ways to maximize value from all of our programs actually and 208 as well. And so if we see an opportunity to partner the program in a way that would create value and allow us to fulfill our goals around that program, then we would certainly entertain those discussions. We are not in a position where we absolutely need to partner anytime soon, but if we see a great opportunity, then we would certainly consider that.

Regarding gantenerumab, I think there's not a lot of new news. I think the latest information that Roche has announced publicly is that they are currently looking to increase the dose. They believe that the earlier trial was simply dosed too low and they're, therefore, working their way up to a higher dose with a view, we understand, to then conducting a new study at the established higher dose, should it turn out to be safe.

So we feel very optimistic that gantenerumab is alive and well. There seems to be renewed interest in this mechanism based on some data seen with some of the other antibodies and we look forward to seeing data when at such time as Roche would choose to announce it.

Maybe a follow-up on MOR202 question. When would be the final cutoff for the trial? Where would you expect to present the final data?

From this particular study, it's probably going to be closer to ASCO next year I guess until such time as the -- well, let me take a step back. To the extent that we would keep patients in the trial in an extension study, it may take even longer than that until those extension cohorts are really completed. But I think, as I was referring to before, responses deepen over time from the 3+3 dose escalation stage of the study. I think that data will be mature by ASCO of next year, but the expansion cohorts probably will take a little bit longer than that.

I think by ASH this year we should have a much better picture than we have right now. By ASCO next year we will have a pretty complete picture on the dose escalation phase of the trial and then probably later next year the trial in its entirety will be completed.

Thank you for taking my questions.

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

Gunnar Romer.

Thanks for taking my follow-up. It's just a question on your proprietary R&D budget. I think this allows for significantly higher spend in the second half. I was just wondering whether you can run us through the potential phasing of this spending, what are the main drivers, and into which programs are these dollars flowing basically. Thank you.

Thanks, Gunnar. Happy to give some more light to this. The lion's share of our spend will go into 208 and we have kicked off the L-MIND study. We are about to also expand our activities around B-MIND study, so the lion's share really of our investment will go into 208 and then 202 and the other programs.

Towards the spending amounts for Q3 and Q4, the lion's share again of the amount that we so far have spent towards what our guidance has been on R&D spend for proprietary activities will be probably rather in Q4 than Q3. But we will stick to the guidance in terms of our spend and, therefore, also to our EBIT guidance here, so there's no reasoning for any change.

All right. Thank you, Jens.

Thank you, Gunnar, and thank you all. We have no further questions coming through, so I will now hand you back over to Simon Moroney to wrap up today's call.

Thank you. To complete the call, I would like to remind you of the key take-home messages. First, we are very encouraged by the clinical data that we are seeing for both MOR208 and MOR202. In addition, other programs are advancing nicely and we are on track to meet both our development and financial goals for the year.

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

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