MorphoSys AG (MOR) 2016 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-Loeser.

Good afternoon, and good morning, and welcome to our Q3 2016 conference call. I'm 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 third quarter. Before we open the call for your questions, Jens will review the financial results of the first nine months of 2016; afterwards, we will -- Simon and Jens will answer questions on these topics.

For those on the conference call, you will find the slide deck for this presentation on our corporate website.

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

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 that speak only as of the date hereof.

I would now like to hand over to Simon Moroney.

Thanks, Claudia. And also from me, a warm welcome to the call. We've seen a lot of progress in our pipeline recently and, as usual, we'll review the highlights.

Altogether, our pipeline now comprises 110 programs, 28 of which are in clinical development. At the end of the third quarter, the pipeline emerging from our partnered discovery activities comprised a total of 96 antibodies, 23 of which were in clinical development. 14 programs are ongoing with our proprietary development segment, of which five are in the clinic.

Given that some of the most recent news has come from our partnered discovery segment, we'll start the review there. The biggest highlight came on the day after the quarter ended when Janssen announced positive Phase III data for guselkumab.

In our view, the efficacy and safety data looked very compelling, as good as any we've seen in psoriasis. Combined with the dosing schedule that is the most convenient of any biologic in this indication, the entire package makes guselkumab look like a very attractive drug, in our opinion.

We hope for regulatory filing to take place soon, and for the product to be on the market in 2017.

Last week we announced a new deal with LEO Pharma, focused on therapeutic antibodies for dermatology. This deal has some features in common with our partnered discovery partnerships, where we applied our proprietary technologies to make new therapeutic antibodies against targets selected by the partners.

This deal is a more grown up version of those earlier ones. There are a couple of important differences. The first is that we will manage all the work up to the start of clinical trials. This reflects not only our technological excellence, but also our expertise in all of the early stages of developing therapeutic antibodies.

The second feature is the options that we have in our main focus area, oncology. We will have options to co-development and, in Europe, co-promote any programs developed for skin cancer. In addition, we will have certain options to develop and commercialize programs that may find application in other cancer indications.

We see this deal as yet another source of future revenues through R&D funding, milestones and royalties, and also as a potential source of new programs for our proprietary portfolio.

Elsewhere in our partnered discovery segment, we've seen very encouraging progress. Novartis recently took another antibody from our collaboration into clinical development. This became the 13th program out of this alliance to enter the clinic, and the second this year, illustrating just how productive the collaboration has been.

During Q3, Bayer highlighted one of the programs that has emerged from our partnerships with them, namely, anetumab ravtansine. This is an antibody drug conjugate comprising a HuCAL antibody against the target mesothelin that is currently being evaluated in a number of ongoing clinical trials.

The lead indication is mesothelioma, where Bayer is conducting a trial that could support registration. In this indication, they've reported in early trials an objective response rate of 31%, and have some patients on treatment for up to three years, impressive numbers in an area of un-met medical need.

The compound is also being investigated in other solid tumors.

Bayer projected first approval in 2019 and peak sales in excess of EUR2 billion, which indicates their confidence in the program.

As you can see on slide 7, I'll turn now to our proprietary portfolio, starting with our most advanced program, MOR208 in relapsed or refractory DLBCL.

We are currently running two Phase II clinical trials: the first is L-MIND, which is looking at a combination of lenalidomide, and MOR208. Here, we successfully completed the safety run-in during the quarter.

The second study is called B-MIND, which is evaluating a combination of bendamustine and MOR208 compared head-to-head with a combination of bendamustine and Rituximab. During Q3, the first patient was dosed in this trial. Assuming a clean safety profile, we aim to transition this study into a pivotal Phase III trial in 2017.

Turning to MOR202, we provided updated clinical data from the ongoing study of the Germany Society for Hematology and Medical Oncology Conference last month. The data was consistent with earlier results from the ongoing trial and showed further improved responses with more patients being evaluable for efficacy and safety assessment.

We're particularly interested in the efficacy results in patients treated with MOR202 plus pomalidomide and dexamethasone who had a median of four prior therapies.

Combining MOR202 with pomalidomide and dexamethasone led to complete responses in two of the four patients enrolled per protocol. The combination of pomalidomide and dexamethasone in this setting typically shows complete response rates of 1% to 2%.

It's important to remember that our results are from only four patients, and more investigation is needed. But we're very encouraged by the level and depth of responses we've seen in this setting.

During Q3, together with our partner Galapagos, we announced encouraging progress with our joint program, MOR106. We disclosed the target for this program, which is IL-17c; and the initial indication, namely, atopic dermatitis.

The first stage of the Phase I trial is completed, in which we observed that MOR106 was generally safe and well tolerated in healthy volunteers. The second stage, which is a multiple ascending dose study in patients with atopic dermatitis, has now commenced.

Before I close, we very recently announced the publication of abstracts of papers that will be presented at the forthcoming ASH meeting. These include oral presentations on MOR202 and MOR208, and a poster presentation from our collaborators at Ohio State University.

On MOR202, you should expect to see updated clinical data from the ongoing Phase I/IIa trial in relapsed or refractory multiple myeloma.

In particular, we expect to see five additional evaluable patients compared to the most recent data presented at the conference last month, including two patients treated with 16 mgs per kg of MOR202.

The trial is nearing completion, and we expect a fairly complete data set at ASCO 2017.

On MOR208, we'll provide a further update on the ongoing Phase II trial in NHL; and we'll see data from Ohio State University on their studies of MOR208 in CLL.

That completes my review of the quarter. With that, I'll hand over to Jens for the financial overview.

Thank you, Simon. Also from end, ladies and gentlemen, good morning, and good afternoon, and thanks for participating in the call. As usual, let me start my section with a financial review of the first nine months.

Starting on slide 8, you see that MorphoSys reached Group revenues in the amount of EUR36.7 million for the first nine months of 2016. Success-based payments amounted to 10%, or EUR3.5 million, of total revenues.

Please be reminded that revenues in the comparable period of 2015 contained a one-off effect in the amount of roughly EUR59 million from the termination of the partnership with Celgene to co-develop and co-promote MOR202.

Total operating expenses increased, as anticipated, to EUR69.1 million.

The expenses thereof for research and development increased to EUR58.8 million, as compared to EUR53.1 million for the first nine months of 2015.

General and administrative expenses decreased slightly compared to the same period of the previous year and amounted to EUR10.3 million.

In line with our guidance, expenses in proprietary, product, and technology development increased to EUR46.2 million.

For the first nine months of 2016, the EBIT amounted to minus EUR32.3 million, in comparison to a profit of EUR34.7 million for the first nine months of 2015.

The Group presents a net loss after taxes of EUR31.6 million after the first three quarters, compared to a net profit of EUR28.2 million in the previous year. The decline in EBIT and net profit is, again, mainly caused by the one-off effect in 2015.

Let me now move on to the two operating segments that you can find on slide 9. The proprietary development segment achieved revenues of EUR0.5 million, compared to EUR59.9 million for January to September 2015; again, reflecting the terminated corporation agreement with Celgene.

Operating expenses in this segment increased to EUR46.2 million.

Segment EBIT amounted to minus EUR45.5 million, compared to a positive EUR26.5 million for the same period of 2015.

The partnered discovery segment generated revenues in the amount of EUR36.2 million in the first nine months of 2016.

Operating expenses in this segment declined versus the first nine months of 2015 to EUR13.5 million.

Segment EBIT amounted to EUR22.8 million, compared to EUR18.1 million in the first three quarters of the previous year.

That brings me to slide 10, and the balance sheet. And here, on September 30, 2016, the Group's liquidity position amounted to EUR267.2 million, compared to EUR289.4 million (sic - see slide 10, "EUR298.4 million") on December 31, 2015.

Liquidity is reflected in the balance sheet items cash and cash equivalents; available-for-sale financial assets; bonds available-for-sale; and current and non-current financial assets classified as loans and receivables.

The decline in liquidity was mainly the result of the use of cash for operations in the first nine months of 2016, and the repurchase of shares for the Group's long-term incentive.

Let me turn your attention to slide 11, and the guidance of 2016. Before we now 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.

Before I now conclude my section, I would like to take the opportunity to thank our dear colleague, Claudia Gutjahr-Loeser, for her great contribution in the last, roughly, Claudia, 15 years.

And for those of you that haven't heard the news yet, Claudia decided to leave MorphoSys and to go on a sabbatical to travel. We wish her, wholeheartedly, all the very best for her new endeavors, and her future path. We'll stay in touch with her, and I am sure she will, in many ways, stay close to the Company in the years to come.

Having said this, we are delighted to welcome [Anke Ehlert] to our team, who's also on the call with us today. Anke. Anke joins us from Gerresheimer AG, an MDAX company, of which Anke headed the investor relations department for the last eight years. Anke, welcome, and have a good start here at MorphoSys. We are convinced that you will be a great addition to our team.

Well, ladies and gentlemen, that concludes my review of the first nine months of 2016. I will now hand back to Claudia for the Q&A session.

Thank you. And thank you, all, for a great time here at MorphoSys. I am very happy that Anke's already here to ensure a seamless handover.

We will now open the call for your questions.

(Operator Instructions). Jean-Paul Mannie, Kempen.

Thank you for taking my questions. Two, actually. Could you maybe share a bit more color on the LEO partnership that was recently announced? Specifically, is there anything you can help us with in terms of targets or types of targets that you will be chasing for LEO in the collaboration?

Secondly, Jens, could you maybe give a bit of color on the increase in R&D compared to last year in the proprietary development part, now up to EUR46 million? Is that mainly developmental clinical trials for MOR208? Or is there anything else I should think about? Thank you.

Let me start with the LEO one. Obviously, LEO is a dermatology company, as we all know. You will have seen recently that they have made quite a major leap into the antibody space through deals that they've done to secure clinical assets, antibodies in dermatology.

I think you can reasonably expect, as we expect, that the targets will he skin disease-related targets. Those targets, as with all of our early stage targets, are unlikely to be disclosed until the programs get a little bit further down the track. But I think you can reasonably assume that it will be skin disease-related targets, for which we'll be making antibodies against.

Then, referring to your second question, Jean-Paul, indeed, your perception is the right one. The increase of the costs to EUR46.2 million versus last year is coming from MOR208. 208 is really the biggest -- the compound that requires the biggest spend for this year; and also, certainly, for next year. That's the compound that we support most with our financial resources, at this stage.

Understood. Thank you very much.

James Quigley, JPMorgan.

Again, just on the R&D guidance, you had EUR46 million in the first nine months, and that's going to jump to EUR76 million, as per the guidance. With MOR202 in the B-MIND trial with an extra 20 patients, does the guidance now look conservative on the R&D spend, given that that's an extra EUR30 million in the quarter?

Then, just on MOR202 data, we're going to have, more or less, a full data package at ASCO. When do you think you could start a Phase III trial?

Again on MOR202, given that Genmab have filed for DARZALEX plus pomalidomide, does that change your perception of the commercial opportunity of the combination with pomalidomide?

And for MOR208, again, can you give us some details on when we can expect data for the B-MIND and the L-MIND studies? Thank you.

James, I start regarding your first question, the relation between EUR46 million for the first nine months and the anticipated spend in the range of EUR76 million to EUR83 million, indeed, I think the current spend for the first nine months is actually relatively low.

But we still would expect that there is a high likelihood that we need the money, so that we end up in that range of EUR76 million to EUR83 million. That will be driven mainly by the upfront costs in connection with the COSMOS trial. We might, nonetheless, be maybe at the lower end of that guidance that could end up.

The final costs for 2016 will be, at the end of the day, as I said, really driven by the upfront costs in connection with COSMOS, and that will drive then the final figure for year end.

Let me take the questions on the program. Starting with 202, as we mentioned in the talk, we expect to have data on about five additional patients in comparison to the data that we presented in Leipzig last month.

One thing you should bear in mind is that responses certainly deepen over time. And we don't expect that all the patients will have been on treatment sufficiently long yet to have seen -- for the deepest possible response to have developed by the time at ASH. That's definitely something worth keeping in mind when you look at the results there. That's why we also added in the talk that we'll have really the more complete picture next year; certainly in time for ASCO, we expect.

In terms of your comment about DARZALEX being filed in combination with pomalidomide, and where we see the differentiation, I think it's still premature.

We're certainly encouraged by the data that we're seeing in the lenalidomide combination, and also in the pomalidomide combination. The picture that we have so far is that the efficacy is looking at least as good, based on very few patients. Needs to be confirmed, obviously, and that's what we're doing as we expand into the confirmation cohort. What we're also seeing is that we are maintaining the advantage that we seem to have in terms of safety and convenience.

So, really, the picture is still emerging. But all of the data that we've seen so far encourages us to think that in a space like this, which is large, there will be space for more than one CD38 antibody. And we're very happy to have one of the three most advanced CD38 antibodies in development in multiple myeloma.

Regarding your question about L-MIND and B-MIND, remember that L-MIND is an open-label study, the lenalidomide/MOR208 combination in DLBCL. We will provide data updates on that as and when they're available. I imagine that the first one would be at ASCO next year.

B-MIND, remember, is intended to a pivotal study, so that will be blinded, and that we're in a safety run-in at the moment. I think the next tangible transition will be when we emerge out of the safety run and into the pivotal part of the trial, which will be some time next year. But because the study is blinded, of course, we won't then be providing the data updates that we will in the case of L-MIND.

Gunnar Romer, Deutsche Bank.

Thanks for taking my questions. The first one would be, again, on LEO Pharma and the deal here. I was wondering whether you can share something in terms of the targets, whether these have been selected already. If not, how should we be thinking about the respective timelines and the overall number of programs potentially coming out of that partnership?

Then, also for Jens, in terms of financials of that deal, can you give us a sense of the magnitude of research funding? Is that by any means significant for next year?

Then, on guselkumab, if you can just remind us of the magnitude and timing here of potential milestones outstanding for that program; and also, when you would be in a position to potentially share with us the exact royalty rate for that program. Thank you.

Thanks, Gunnar. Let me start with LEO. The targets, I believe, are identified so that we should be in a position to get going with antibody generation shortly.

As I said earlier, I think you shouldn't expect the targets to get named publicly any time soon. This is typical of all of our collaborations of this sort, early-stage discovery programs. But I think it's pretty clear that we'll be able to get going with the work very shortly.

Let me just take the guselkumab question, while I'm at it; and then, I'll hand over to Jens for the R&D funding part of LEO.

The next events with guselkumab are, we expect, of course, filing, regulatory filing for approval, and then we hope actual approval. Those events, at least one of those events, from memory, is associated with the milestone payment. There's a little bit of variation between our contracts. I don't, honestly, have in mind specifically what we have in this case, but it's either filing and approval. One or both of those is associated with the milestone payment so that's going to happen in the next several months, we hope.

And then, in terms of the royalty rate, we've said previously that we expect these kind of deals to be in the mid single-digit royalty range. At this stage, we can't provide any more precision around that. I would anticipate that at or around the time when the product is approved that we would agree with Janssen that we would be able to disclose that royalty rate would be my guess.

I'm just being informed here that the milestones that we're talking about are actually two: one is for submission of the application, and the second is for approval.

Yes, I would have taken that over, Simon. But the open question is the one on the research funding.

Indeed, Gunnar, we have a little bit of limitation what we can talk about in terms of this deal, as Simon pointed out. Certainly, over time there will be a higher number of people working on those deals, and on those projects, together with LEO Pharma.

And specifically, due to the fact that our activities are expanded, and so they're going above the pure development of an antibody, but we also are responsible for doing the work up to R&D stages, more and more people will be involved over time. So I think it has some financial implications, going forward.

On the so-called R&D funding part, over time it has financially, certainly, much more implications going forward on the milestones that we envisage to generate over time.

And then, finally, certainly, the royalty rate will also -- we shouldn't forget that one, but that's certainly far out.

But at the beginning, I wouldn't estimate that -- you talk about huge million numbers here with the start of this corporation, but over time it will increase.

Perfect. Thank you. Maybe, just two quick follow ups. Firstly, on the royalty rate, any sort of indication you could provide us here? Is that mid single-digits, like in the case of the Novartis partnership, or should we think about a higher royalty rate here?

And then secondly, not sure, Simon, whether you missed the question on the potential number of programs coming out of the LEO partnership; any color on that would be great.

Yes, we have agreed with LEO that at this stage we don't disclose the number of programs that we're going to work on, so, unfortunately, I can't give you any more color on that.

Regarding the royalty rate, at this stage, there's nothing more that we can say in the interest of, or under the obligations of, confidentiality that we have to all of our partners, other than that those royalties are, in general, in the mid single-digit range.

You will recall that we disclosed, actually, one royalty rate, in agreement with Roche, which is the gantenerumab one, which is, if I recall correctly, between 5.5% and 7%, tiered. But that's been the only one that we've disclosed so far.

But we'll certainly be pushing with Janssen to disclose the guselkumab royalty rate as we get closer to, we hope, approval and market introduction.

Okay. Thanks.

Mike Cooper, Trinity Delta.

Most of my questions have already been answered. So, just quickly on MOR107, can you just confirm that that is due to enter clinic this year still, and give us an update on the status of other lanthipeptides that are in the development pipeline?

Yes, thanks, Mick. Regarding 107, we're there or thereabouts, meaning that, probably if not the end of this year, then certainly early next year. The program's proceeding on track, and we're not far away from the start of clinical trials with that one.

The second part of the question was, please, again?

Other lanthipeptides in development in your discovery pipeline.

There are. At Lanthio Pharma there, they're working on a couple of other programs, which are a bit further back, of course, but lanthipeptides against two other targets.

Okay. Thank you.

(Operator Instructions). Igor Kim, Oddo Seydler.

I have just one question with respect to your program anetumab with Bayer. You said you expect around -- not you, but Bayer, expects around EUR2 billion of peak sales, plus approval in 2019. Does that refer to mesothelin indication only or to all the potential indications in solid tumors? Thank you.

Igor, we anticipate, given the size of mesothelin as an indication, that, that probably assumes a couple of other indications as well.

As you know, mesothelin is also expressed on ovarian cancer and one or two other solid tumor types, so we assume that, that EUR2 billion number comes from an assumption that it will be approved in more than just mesothelioma.

Okay. Thanks.

We have no further question, so I would like to hand over to Dr. Simon Moroney to wrap up today's conference call.

Thank you. To complete the call, I'd like to remind you of the key take-home messages.

We continue to see excellent progress in our pipeline. First and foremost, the very encouraging Phase III data for guselkumab gives us confidence about potential approval and market introduction of this compound next year.

We're also encouraged by progress elsewhere in our partnered pipeline with Bayer's anetumab ravtansine now a more realistic prospect than it has been previously.

And our proprietary programs continue to make good progress. For MOR202 and MOR208, we will provide comprehensive updates at ASH, next month.

And, as you've just heard, this is Claudia's last quarterly call and I'd like to add my acknowledgement and thanks to her to those of Jens'.

As most of you know, I've worked very closely with Claudia for a long, long time. Over countless conference calls, roadshows, quarterly and annual calls, annual general meetings, investor events, the list goes on and on, Claudia has been a tower of strength, both for me and for the Company.

Claudia, we'll miss you, and I'm sure everyone joins with me in wishing you all the very best for the future.

Thank you. I will miss you, too.

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, and goodbye.

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