MorphoSys AG (MOR) 2017 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys Half-Year Results Conference Call. (Operator Instructions) Now, I would like to turn the conference over to Anke Linnartz. Please go ahead.

Good afternoon and good morning, and welcome to our Q2 2017 Conference Call and Webcast. My name is Anke Linnartz, Head of Corporate Communications and Investor Relations at MorphoSys. With me on the call today are Simon Moroney, our Chief Executive Officer; and Jens Holstein, our Chief Financial Officer.

Before we start, I would like to remind you that during this conference call, we will present and discuss certain forward-looking statements concerning the development of MorphoSys' core technology, the progress of its current research and development programs, and the initiation of additional programs. Should actual conditions differ from the company's assumptions, actual results and actions may differ from those anticipated. You are therefore cautioned not to place undue reliance on such forward looking statements which speak only as of the date hereof.

In the presentation, Simon will start by giving you an operational overview of the second quarter, as well as an outlook for the rest of the year. After that, Jens will review the financial results of the second quarter and the first six months of 2017, before we will open the call for your questions. You will find a slide deck for this presentation on our corporate website.

I would now like to hand over to Simon Moroney.

Thank you, Anke, and also from me, a warm welcome to our Q2 call. The second quarter of 2017 and the few weeks following the end of the reporting period have been eventful and exciting for all of us at MorphoSys. A highlight came in just after the end of the reporting period, with the U.S. FDA approval of Janssen's Tremfya (guselkumab) in psoriasis. The first antibody made using our proprietary antibody technology is now available to patients in the U.S. This is a landmark in the history of MorphoSys. It marks an inflection point on our way to becoming a commercial product-based biopharmaceutical company.

Aside from guselkumab, we have seen significant progress both with our own and our partners' drug candidates during the quarter. In particular for our two most advanced proprietary programs, MOR208 and MOR202, we made significant progress and presented data at ASCO which reconfirmed their potential.

Overall, at the end of Q2 2017, our pipeline comprised a total of 114 investigational programs, 29 of which were in clinical development. Six out of these 29 clinical programs, so around 20%, are from our proprietary development segment. Across our pipeline, we see a number of programs which have the potential to transform the treatment of the diseases that they address.

I'll start the review with a look into our proprietary development segment. Our two most advanced programs, MOR208 and MOR202, are progressing well, and we reported clinical data on both programs at ASCO. I'll talk first about MOR208, our investigational Fc-enhanced CD19 antibody, the most advanced of our in-house programs.

As a reminder, we are currently investing MOR208 in three trials across two indications, namely relapsed or refractory DLBCL, and BTK-inhibitor refractory, or intolerant CLL and SLL.

The main focus of the development program is currently on relapsed or refractory DLBCL, where we're seeing particularly encouraging results. Two studies are being conducted in this indication, namely the L-MIND and B-MIND trials. Both are focusing on relapsed or refractory DLBCL patients who are not eligible for high-dose chemotherapy with subsequent autologous stem cell transplantation. For this group of patients, the available therapy options are currently very limited and there's nothing approved, meaning that there is a high unmet medical need for new treatment options.

In our open-label Phase II L-MIND trial with MOR208 plus lenalidomide, we presented very promising results from the first 44 patients at three conferences during Q2: at ASCO; the International Lymphoma Meeting ICML; and the European Hematology meeting, EHA. The data presented showed an objective response rate of 56% and a complete remission rate of 32%. Although preliminary, these response rates are highly encouraging, especially when the dismal prognosis for these patients is considered. Allowing for the early time point of the analysis, the durability of response is also very encouraging. There were no effusion-related reactions reported, and no unexpected safety signals have been observed to date. We're very pleased with the data presented, and particularly optimistic about the level of the response rates observed to date, especially the complete remissions. We look forward to driving the study forward with full speed, and to presenting further data at an appropriate medical conference later this year.

In June, we commenced the Phase III part of our B-MIND trial. MOR208 is the first antibody from our proprietary portfolio to enter a pivotal clinical study. B-MIND compares MOR208 in combination with the chemotherapeutic agent bendamustine, with rituximab plus bendamustine in relapsed or refractory DLBCL. Prior to the start of the Phase III part, the study passed the judgment of an independent data monitoring committee, which confirmed the safety of the combination treatment investigated in the Phase II part.

B-MIND will enroll around 330 patients in roughly 180 centers across Europe, the Asia-Pacific region, and the United States. The dosing of the first patient in the Phase III trial triggered a milestone payment to Xencor that was paid in July 2017. We currently expect an interim analysis of the trial in late 2018, and the primary endpoint readout in the first half of 2020.

In addition to the two combination trials in relapsed or refractory DLBCL, we are evaluating MOR208 in the Phase II COSMOS trial. The trial is looking at MOR208 in combination with idelalisib or venetoclax in relapsed or refractory CLL or SLL patients after discontinuation of a BTK inhibitor therapy. We dosed the first patient in the venetoclax arm in early July, and both study arms are progressing well in the safety part.

Now turning to MOR202, our investigational anti-CD38 antibody for multiple myeloma. At ASCO in June, we presented updated safety and efficacy data from our ongoing study in relapsed or refractory multiple myeloma. The data presented highlighted the therapeutic and differentiation potential that we would expect for an antibody against this target. Looking at the data, we strongly believe that we've assembled a package that underscores the potential for efficacy comparable to other drugs in this class, plus potentially best-in-class safety and convenience.

We have pre-clinical data that suggests one of the key characteristics of MOR202 may be duration of response. Encouragingly, we now have hints from the clinical data that may bear this hypothesis out. Right now, we're wrapping the study up with final dosing of patients in the expansion arm of the of the POM/DEX cohort taking place. We are particularly excited to see the data in this arm further mature, where deepening of responses is often detected after longer treatment time. We will of course keep you updated on the results of the study.

As we have said on a number of occasions, we believe that we can make the most of this program by partnering it. Interest amongst potential partners is very good, and we're working to secure a deal that is in the very best interest of the program and MorphoSys.

In January of this year, MOR107 became the sixth program from our proprietary development segment to enter clinical trials. MOR107 is a lanthipeptide based on our subsidiary Lanthio Pharma's proprietary technology platform, and is the first lanthipeptide in our clinical pipeline. This investigational compound is a selective agonist of the angiotensin 2 receptor type 2, which has shown promising pre-clinical data in a number of disease models.

In May of this year, earlier than expected, we were able to report data from our ongoing Phase I trial in healthy volunteers. Based on an initial analysis of the blind data from the patients enrolled to date, in all doses tested there were no clinically-relevant safety events seen, and all adverse events observed thus far were temporary and mild. We are currently defining the best setting for further development of this compound.

The investigational bispecific antibody MOR209, also known as ES414, is currently being investigated in a Phase I clinical study in patients suffering from metastatic castration-resistant prostate cancer. Our partner, Aptevo, continued the study during the reporting quarter in accordance with the study protocol which had been amended towards the end of last year. We expect further clinical data from the study in the second half of the year, which will form the basis for evaluating the drug's further development.

Turning to MOR106, our investigational fully-human [Ylanthia] antibody against IL-17C, which we're co-developing with our partner, Galapagos. This antibody is currently in a Phase I trial in patients with atopic dermatitis. The trial has been proceeding very well, and we're actually a little ahead of schedule to the extent that we may even be able to report headline data in this quarter, but in any case before the end of the year.

Turning to MOR103, or as it's called now GSK3196165, our partner GSK is currently evaluating this investigational anti-GM-CSF antibody in three clinical trials: a Phase IIb study in patients with rheumatoid arthritis; a Phase IIa biomarker study in rheumatoid arthritis; and a Phase IIa study in patients suffering from inflammatory hand osteoarthritis. All three trials are scheduled for data readout in the course of the year. We are also very pleased to note that GSK listed the antibody as a prioritized asset in their Q2 call last week.

All together, our proprietary development segment comprises 14 therapeutic programs, of which 6 are in the clinic, one of which, MOR103, is out-licensed to GSK.

I'll turn now to our partnered discovery segment, and we'll briefly summarize the most significant news flow from the second quarter.

Center stage is of course guselkumab, trade name now Tremfya. It's our most advanced partnered discovery program, and on July 13, received FDA approval for use in adult patients with moderate to severe plaque psoriasis. Last week, we were informed by Janssen that Tremfya has been made available to patients in the U.S. The approval came in around 5 months earlier than originally expected, as our partner Janssen used a priority review voucher to apply for an accelerated FDA approval.

In May, Janssen announced plans for three new Phase III clinical studies to further strengthen and potentially expand the positioning of guselkumab. These include a Phase III trial already started, to evaluate guselkumab head-to-head versus Cosentyx in moderate to severe plaque psoriasis; a Phase III study in psoriatic arthritis scheduled to begin in Q3 of this year; and a planned Phase III program to develop guselkumab in Crohn's disease.

We view Janssen's decision to run a head-to-head study versus the IL-17 antibody Cosentyx as being particularly interesting. We very much look forward to the results of the study.

Another event that came in after the end of the reporting period reminded us of the intrinsic risks in our industry. On July 21, our partner Bayer reported that a Phase II clinical study examining anetumab ravtansine as monotherapy in second-line patients with recurrent malignant pleural mesothelioma did not meet the primary endpoint of progression-free survival. The outcome of this Phase II study is of course disappointing, in particular for the patients suffering from this serious and extremely difficult-to-treat disease. Nevertheless, Bayer remains committed to continuing the evaluation of anetumab ravtansine across multiple tumor types with significant unmet medical need, in particular in the ongoing Phase Ib trials, in ovarian, pancreatic, and a number of other advanced solid tumor types.

Overall, with a total of 100 programs as of today, 23 of which are in clinical development, our partnered discovery pipeline continues to progress well. There's a lot of potential news flow from the segment this year. For the remaining few months, results from around 25 different clinical trials are due, in addition to the 7 expected data readouts in the proprietary development segment, which I outlined earlier. As always, we have no control over what our partners communicate, but we aim to inform you of progress as soon as we learn about it.

With that, I'll hand over to Jens for his wrap-up of the financials.

Thank you, Simon. Ladies and gentlemen, also from my side a warm welcome to all of you and thanks for your interest in the company. Let me kick off the financial section with an overview of the most important financial figures for the second quarter and the first six months of 2017.

Starting with our P&L statement on page 11, you can see that in Q2 2017, group revenues have amounted to EUR 11.7 million, roughly in line with last year's Q2 revenues of EUR 12.2 million. Total operating expenses increased by 27% to EUR 27.5 million in Q2 of 2017. The expenses there are for research and development amounted to EUR 23 million, as compared to EUR 18 million in 2016. As planned, we have spent more on clinical development for our proprietary track candidates than last year. Three Phase II studies started with our lead program MOR208 in selected blood cancer indications during 2016, one of which transitioned into a Phase III clinical trial in Q2 of 2017. In addition, general and administrative experiences increased to EUR 4.4 million from EUR 3.7 million. As a result, earnings before interest and taxes, EBIT, came in at a minus EUR 15.4 million for Q2 2017 in comparison to minus EUR 9.5 million in Q2 2016.

Our consolidated result after taxes in Q2 2017 amounted to minus EUR 16.1 million compared to minus EUR 11.6 million in Q2 of 2016. The diluted net result per share for Q2 2016 (sic) [2017] was minus EUR 0.55, after minus EUR 0.44 for Q2 of 2016.

Let's now move to our segment reporting on page 12 of the presentation. In our proprietary development segment, we focus on the research and clinical development of our own drug candidates in the fields of cancer and inflammation. So, you can see for Q2 2017, this segment recorded revenues of EUR 0.3 million, after EUR 0.2 million in the corresponding quarter of last year. Compared to the previous year, we increased expenses for our proprietary R&D activities in the reporting quarter by 35% to EUR 18.6 million, thereby we report an EBIT of minus EUR 18.3 million, after minus EUR 13.5 million for Q2 2016, all this in line with our expectations.

In the partnered discovery segment, we apply our proprietary technology to discover new antibodies for third parties. For Q2 2017, revenues in this segment reached EUR 11.5 million after EUR 12 million in Q2 of 2016. Correspondingly, the EBIT came in at EUR 6.8 million for Q2 2017, compared to EUR 7.4 million for Q2 2016.

Let's move on to the balance sheet, on slide 13. As of June 30, 2017 we recorded total assets of EUR 451 million, after EUR 463.6 million at year end 2016. At the end of Q2, we had a cash position of EUR 334.8 million compared to EUR 359.5 million on December 31, 2016. As a reminder for those of you who do not know us that well, on the balance sheet this cash position is reported under the following 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 number of shares issued total 29,326,110 at the end of Q2 2017 compared to 29,159,770 at the year end 2016.

To briefly sum up the key figures for the first half, please turn to slide 14. Group revenues amounted to EUR 23.6 million for the first half of 2017, in line with EUR 24.3 million for the first half 2016. As planned, total R&D expenses rose from EUR 36.7 million for the first half of 2016 to EUR 46.3 million for the first half of 2017. [Thereof], R&D expense for proprietary drug development, including technology development, increased to EUR 37.9 million for the first half of 2017 after EUR 28.3 million for the first half of 2016. This increase is a consequence of our intensified activities in the clinical development of our proprietary drug candidates that are transitioning into advanced development stages. Those activities require larger clinical studies, hence the EBIT in the first half of 2017 came in at minus EUR 30.3 million compared to minus EUR 19.2 million for the first half of 2016.

Before we now open the call for your questions, we would like to reconfirm our financial guidance for 2017, which was first published in March in connection with the presentation of our 2016 annual report. For the financial year 2017, we continue to expect group revenues in the range of EUR 46 million to EUR 51 million. R&D expenses for proprietary drug development and technology development are confirmed to be in the corridor of EUR 85 million to EUR 95 million. Guidance for earnings before interest and taxes continues to be in the range of minus EUR 75 million to minus EUR 85 million. This guidance does not include any additional revenue from potential future collaboration and/or licensing partnerships, nor effects from potential in-licensing or co-development deals for new development candidates.

Our guidance includes a milestone payment for the Tremfya approval. Since royalties for Tremfya cannot be accurately projected so shortly after approval, we will review our guidance as soon as the revenue uptake allows for more reliable projections for the financial year 2017.

As previously communicated, and as reflected in our guidance for 2017, collaboration with Novartis will conclude at the end of November 2017, in accordance with the contract.

Before I hand back to my colleagues, I would like to reiterate that our portfolio is growing nicely, and most importantly, maturing year-over-year. At the same time, our very solid financial resources of more than EUR 330 million at the end of the second quarter 2017 enable us to invest in the development of our own drug candidates going forward, to grow the company's value without losing sight of our prudent and efficient use of those resources. In particular, we will focus on the Phase III development of our blood cancer candidate MOR208, the approval of Tremfya which came in a few months earlier than expected, marks our transition to a company whose revenue will be increasingly based on recurring income from product sales. This will contribute to the funding of our proprietary development activities going forward.

We believe we have a very promising time in front of us, and are looking forward to report more news on the development of our compounds in 2017 and beyond.

Ladies and gentlemen, that concludes my review of the second quarter of 2017, and I will now hand back to Anke for the Q&A session. Thank you.

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

(Operator Instructions) The first question is from the line of Anasta [Capovla] from [Kenbun].

Good afternoon, two questions from my side. Regarding potential partnering discussions on MOR202, do you get a feeling that some of the partners are delaying making a decision to see the confirmation of efficacy in the solid tumors, or some confirmation of immuno-oncology potential of CD38? And the second question regarding MOR206, how quickly will you be able to advance the development of the candidate if the data is positive, and who will be responsible for the next stage? Would that be you, or Galapagos?

Thanks, Anastasia, let me take those two. So, first of all regarding 202, I think your point highlights the opportunity that 202 represents, which is that this is something that has potential well beyond the lead indication which is obviously multiple myeloma, and is actually, as you indicated, a lot of excitement as to how it may be used in a solid tumor setting as well. That is of course part of the consideration, part of the discussions that are taking place, but I wouldn't say that that is in any sense rate-limiting in how those discussions proceed or how decisions will be made as to how to take MOR202 forward. So, it's a bonus, if you'd like. It's an add-on, but it's not a limiting factor in the discussions. And then, you mentioned 106, which is the IL-17C antibody that we are co-developing with Galapagos. As I mentioned in the speech, we're a little bit ahead of schedule in terms of the Phase I study. We're looking forward to presenting headline data from that study, we hope soon. And we have a plan, we have a clinical development plan of how to proceed in atopic dermatitis together with Galapagos. The precise roles of who is going to do exactly what, have not yet been finalized, but I'm sure that we will be able to define that and finalize those plans so as to move the program forward as quickly as possible. Obviously, both us and Galapagos share a common interest here, which is to have this thing progress as quickly as possible given its potential.

The next question comes from the line of James Quigley from JPMorgan.

On MOR208, I know it's early days for the B-MIND trial, but how is recruitment progressing? And what has the initial feedback been from the trial centers where the trial is taking place? On anetumab, missed the primary endpoint in the Phase II mesothelioma trial. You mentioned some trials have been ongoing. What makes you think that they could be successful, given that in those tumors or in the other tumors, the mesothelium expression is lower than in mesothelioma? And finally, could you remind us of any other potential developments, regulatory and sales milestones for Tremfya? Thanks.

So, let's start with 208, the B-MIND trial is going well. There's real interest, which I think is being only increased by the data that we published in the summer from the L-MIND trial. Recruitment is actually a little bit ahead of schedule at this stage on B-MIND, but it's early days of course, and we've got a ways to go there. But, we're very excited about this program, given the really very impressive data that we're seeing in the L-MIND study, and we're equally excited about this B-MIND trial. Regarding anetumab, yes, of course we were disappointed about this mesothelioma study. Mesothelium, as you indicated, is also expressed on a number of other tumor types, ovarian, pancreatic, one or two others. Indeed you're right, that the level of expression is highest in mesothelioma, however, the flip side of that is that mesothelioma is a particularly difficult, or particularly contractable disease, particularly in patients who have progressed after first-line treatment. So, I don't think you can really extrapolate from that. These are really different diseases, pancreatic, ovarian, and mesothelioma. So, I think we just have to await the data that comes from those other cancer types to draw any conclusions. And regarding Tremfya, Jens will address that one.

As I pointed out in my speech, we have planned a milestone payment for Tremfya for the approval. There are further trials ongoing, or planned as announced by Janssen. So, psoriatic arthritis will start a Phase III trial as well as a potential trial in Crohn's. So, connected with whatever they are planning, there's certainly potentially additional milestone payments coming in if they expand the areas of indication they're currently attributing Tremfya for.

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

Thank you, and just to conclude the call, I'd like to remind you of the main points to take away. First, clinical development of our proprietary programs is progressing very well. Very excited about the L-MIND data we've seen so far and delighted that the pivotal part of B-MIND is now ongoing. We're also happy with progress on MOR202, both clinically and in terms of the work we're doing to secure the program's future. We look forward to providing updates on MOR106 and MOR209, and anticipate seeing data from GSK on MOR103.

Our partnered pipeline continues to progress well. Keep an eye, in particular, on the market uptake of Tremfya in psoriasis, and on gantenerumab where our partner Roche will start pivotal Phase III studies in Alzheimer's disease later this year.

That's the tip of an iceberg of clinical progress that we expect before year-end. And one last piece of information before handing back to Anke, we will hold a capital markets day on September 5th in London and September 6th in New York this year. We'll use this to present our proprietary clinical programs and selected highlights from our partnered programs in more depth, as well as introducing some very innovative research programs to you. We hope to see many of you there. In the meantime, enjoy the summer.

Thank you. This concludes the call for today. If any of you would like to follow up, we are in the office for the remainder of the day, so thank you for your participation, for your support, and goodbye.

Ladies and gentlemen, you may now disconnect your handsets. Thank you for joining, and have a pleasant day. Goodbye.