MorphoSys AG (MOR) 2018 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys Year-End Results 2018 Conference Call. (Operator Instructions) the conference is being recorded. (Operator Instructions).

Now I would like to turn the conference over to Verena Kupas. Please go ahead.

Good afternoon, good morning, and welcome to our full year results conference call and webcast. My name is Verena Kupas, Manager of Corporate Communications and Investor Relations at MorphoSys. With me on the call today is Simon Moroney, our CEO; Jens Holstein, our CFO; Malte Peters, our CDO; and Markus Enzelberger, our CSO.

Before we start, I would like to remind you that during this conference call, we may present and discuss certain forward-looking statements concerning the development of MorphoSys' core technology, the progress of its current research and development program 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.

Simon will start with a brief review of the highlights of 2018 and will then hand over to Malte, who will present the progress we have made with MOR208 as well as the other proprietary programs during the reporting year.

Simon will then comment on the progress in our Partnered Discovery segment. After that, Jens will review the financial results for 2018 and present the financial guidance for 2019 before handing back to Simon for the operational outlook for 2019. The presentation will last about 30 minutes.

After the presentation, we will all be available for your questions. You will find the slide deck on our corporate website.

I would now like to hand over to Simon Moroney.

Thanks, Verena. And also welcome from me a warm welcome to our financial results call for 2018. It's a real pleasure to wrap up what was an outstanding year for MorphoSys.

The year 2018 was marked by a number of events that highlight our maturing product pipeline and progress towards our goal of becoming a fully integrated biopharmaceutical company.

In addition to the pipeline progress, we made important advances in business development, and our revenue, EBIT and cash, all comfortably exceeded the financial guidance we had issued at the beginning of the year.

During the call, we'll recap the main highlights of 2018, focusing on a selection of our pipeline programs. The primary focus of our activity is in investment in our proprietary drug portfolio, first and foremost, MOR208. Although this program is our top priority, this shouldn't overshadow some of the other programs in our Proprietary Development segment that we're excited about. And the potential in our Partnered Discovery segment was highlighted by the commercial success of Janssen's drug, Tremfya, which reached over USD 0.5 billion in sales in its first full year on the market.

I'll start with a quick overview of our Proprietary Development segment before handing over to Malte for more detail.

Our highest priority is MOR208 and we've made great progress with this investigational program during 2018. By year-end, MOR208 had emerged as one of the most interesting new cancer drug candidates in our industry. Our initial goal is to bring MOR208 to market as fast as possible, to offer a treatment alternative to patients suffering from a particularly aggressive form of blood cancer, namely, diffuse large B cell lymphoma, or DLBCL.

With maturing clinical data, breakthrough therapy designation from the FDA and a clear view of the aftermarket, we're planning to commercialize MOR208 in the U.S. and are building our organization there for this purpose.

The goal for the U.S. organization is very clear, to ensure that the market launch of MOR208, subject, of course, to regulatory approval, will be a success. If all goes according to plan, this could happen as early as mid-2020.

Four other programs from our Proprietary Development segment are also worthy of mention, due to the progress made in 2018. In the middle of last year, together with our partner, Galapagos, we entered a lucrative partnership with Novartis on our investigational anti-IL-17 C antibody, MOR106. We believe that this deal gives us the best possible chance to maximize the opportunity that this promising program represents, not only in its lead indication of atopic dermatitis but also in others.

Second, our investigational CD38 antibody, MOR202, advanced in the hands of our partner I-MAB Biopharma, who continue preparations for pivotal study in multiple myeloma in the greater China.

We built on our successful relationship with I-MAB to partner a second compound with them, namely MOR210, our preclinical antibody, targeting the C5a receptor, which we see as a potentially interesting immuno-oncology target.

Last, but not least, the investigational anti-GM-CSF antibody, MOR103, also known as GSK 3196165, delivered results for our partner GSK, who subsequently committed to take it into a Phase III clinical study in rheumatoid arthritis.

With this introduction, I'll hand over to Malte, who will provide you with some more details.

Thank you, Simon. And also a warm welcome from my side. We are, indeed, excited about our MOR208 program and this is where I would like to start.

MOR208 is an investigational antibody directed against CD19 that we are currently exploring in 3 clinical trials. The Phase II L-MIND and the Phase III B-MIND trials in relapsed/refractory DLBCL and the Phase II COSMOS trial in relapsed/refractory CLL and SLL. Our main focus is on relapsed/refractory DLBCL. We have made remarkable progress with MOR208 during 2018.

I'll start with L-MIND, our most important and advanced trial in terms of market proximity. L-MIND is a Phase II, open-label, single-arm trial, evaluating MOR208 plus lenalidomide in patients with relapsed/refractory DLBCL, who are ineligible for high-dose chemotherapy and autologous stem cell transplantations.

Patients were eligible for enrollment if they had 1 to 3 prior lines of therapy, with at least one prior line, including an anti-CD20 targeting antibody, such as rituximab.

In November 2018, the last of the 81 patients enrolled in the study reached the 12 months of follow up. Databased lock took place thereafter, and we are currently cleaning the data.

In December 2018, we presented interim data from all 81 patients enrolled in the study at the American Society of Hematology Annual Meeting, short ASH.

This data presented on a June 2018 cutoff were even better than the results that we have published from earlier data cuts.

A total of 58% of patients showed an objective response to treatment, with 33% showing complete regression of the tumors. A significant proportion of patients, 46%, were still on study treatment at data cutoff.

The most significant metric observed is progression-free survival. Median PFS was reported at 16.2 months, suggesting very durable responses under the treatment of MOR208 plus lenalidomide. Median duration of response was not reached, and 70% of responding patients were without progression at 12 months.

Data observed to date showed that no unexpected toxicities were observed for the treatment combination of MOR208 plus lenalidomide and no infusion-related reactions were reported for MOR208.

Treatment-related serious adverse events, or SAEs, only occurred in 20% of the patients. Just over half of the patients required dose reduction of lenalidomide, and 72% could stay on a daily dose of lenalidomide of 20 milligram or higher.

We believe that the data we have seen so far from L-MIND trial suggests that MOR208 plus lenalidomide could be a potential new treatment alternative for this area of unmet medical need.

If approved, the combination could provide a new chemotherapy-free regimen to patients who are in urgent need of more therapeutic options.

As a reminder, the trial is in patients with relapsed or refractory disease, who are ineligible to receive aggressive or toxic treatment such as high-dose chemotherapy and autologous stem cell transplantation, and who are, therefore, also unlikely to be eligible for more complicated and more toxic therapies. For these patients, there's currently no approved treatment. We have continued our dialogue with the FDA under the current breakthrough therapy designation and are planning to seek approval for MOR208 as fast as possible, based on the L-MIND data.

We are assembling the data packages for BLA submission to the FDA that we plan to complete by year-end.

In parallel, we have started discussions with the national European regulatory authorities to explore the possibility of using the L-MIND study as a basis for an approval in Europe. We had envisaged seeking European approval based on our B-MIND study, which I'll come to shortly, but given our L-MIND data and our interactions with the FDA, we decided to seek interactions also with European agencies regarding L-MIND.

We are very early in the process but have been encouraged by our initial interactions. If the EMA, E-M-A, were to agree to accept a potential marketing authorization application based on L-MIND, submission of such an MAA could occur earlier than originally anticipated based on the B-MIND trial.

We are seeking scientific advice from EMA and look forward to learning more about this potential alternative in the coming months.

This brings me to our other ongoing trial of MOR208 in relapsed/refractory DLBCL, namely B-MIND. This head-to-head Phase III study is investigating the efficacy of MOR208 plus bendamustine versus rituximab plus bendamustine in adult DLBCL patients worldwide.

B-MIND is important for us as it may serve, in addition to being potentially pivotal on its own, as a confirmatory study, if conditional approval is granted based on L-MIND.

To that end, we are very happy to announce last week that during the first quarter of 2019, we implemented an amendment of B-MIND in agreement with the FDA. The scientific rationale for the amendment is based on published literature as well as our own preclinical data, which indicated MOR208 may be particularly active in DLBCL patients who can be characterized by the presence of a certain biomarker. Discussions with the FDA regarding the biomarker assay are currently being planned and are expected to take place in the middle of this year.

The preplanned event-driven interim analysis of B-MIND remains projected to take place in the second half of 2019.

Depending on the outcome of this interim analysis and the increase from 330 to 450 patients may be required, in which case, an event-driven primary analysis of the study is expected in the first half of 2021.

Beyond DLBCL, we published results from our COSMOS trial of MOR208 in CLL at EHA in June and at ASH in December. COSMOS is a small trial of MOR208 plus idelalisib or venetoclax in patients with chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, SLL, after discontinuation of prior ibrutinib therapy.

Incrimination with idelalisib and objective response rate was observed in 9 of 11 patients, including 1 complete response.

Two patients showed stable disease, 1 patient with a very good partial response according to response criteria, was taken off the study to receive stem cell transplantation.

In the combination with venetoclax, an objective response was shown in 10 out of 13 patients, including 3 complete responses.

Three patients discontinued study participation in the first cycle without undergoing a response assessment. No patient had progressive disease.

Five patients showed minimal residual disease negativity, which means that no tumor cells were detected in the -- detectable in the peripheral blood.

The data highlighted the potential of MOR208 in additional B-cell malignancies beyond DLBCL and confirmed that MOR208 may be combined with other cancer drugs currently used in hematological malignancies including PI 3-kinase or BCL-2 inhibitors. To sum up, we believe that MOR208 based therapies has the potential to become the treatment alternative in a variety of B-cell malignancies and our goal is to make this available to as many patients as possible. To that end, we announced plans at the end of last year to bring MOR208 into frontline DLBCL and preparations are ongoing for a Phase Ib trial, which will start later this year.

Pending analysis of the Phase Ib data, the next step to may be a pivotal Phase II/III trial with roughly 800 to 900 patients commencing in mid-2020.

In addition, we are currently evaluating further development options and are setting -- and searching to broaden the therapeutic scope of MOR208, which we will outline to the market in due course.

During 2018, we also made very good progress elsewhere in our Proprietary Development segment, and I would now like to focus on the highlights of 2 of these programs, namely MOR206 -- MOR106 and MOR202.

A very interesting drug candidate from our Proprietary Development segment is MOR106, our potentially first-in-class, anti-IL-17 C antibody for atopic dermatitis, discovered and codeveloped together with Galapagos.

In early 2018, we presented data from a Phase I study at the American Association of Dermatology Conference. In the study, MOR106 showed first signs of activity and durable responses and was generally well tolerated in atopic dermatitis patients.

We started 2 additional clinical studies in atopic dermatitis later in 2018, the Phase II IGUANA trial and a bridging study to evaluate a subcutaneous formulation of MOR106.

In July 2018, together with Galapagos, we signed an exclusive global license agreement with Novartis for MOR106. Financial terms of the deal were very favorable, comprising an upfront payment of EUR 95 million plus milestone potential of up to EUR 850 million and double-digit royalties on product sales.

Atopic dermatitis is a debilitating skin disease affecting over 80 million people across the world's 7 largest markets. We are excited about the deal with the Novartis as we believe this will enable us to advance MOR106 as quickly and broadly as possible while allowing us to allocate more resources elsewhere, in particular, to the development of MOR208.

I now move on to MOR202, our proprietary anti-CD38 antibody for multiple myeloma and potentially other indications. We completed our Phase I/II study of MOR202 in multiple myeloma, either as a single-agent or in combination with pomalidomide or lenalidomide and presented data based on the primary analysis in an oral presentation at ASH in December of last year.

Data were consistent with earlier cutoffs from the trial showing long durations of response in the IMiD combinations of up to 19 months.

Only 6% of patients showed infusion-related reactions, all of which were Grades 1 and 2. Encouraged by the safety profile, we have shown that infusion time could be reduced from the initial 2 hours to just 30 minutes.

We are supporting our partner I-MAB Biopharma in its preparations for late-stage clinical development in multiple myeloma in the Chinese region.

I-MAB submitted an IND application to the Chinese and Taiwanese authorities for MOR202, and we expect that they will start the first pivotal study of MOR202 soon. We also continue to evaluate our own development options for MOR202 in other indications, and we expect to start a clinical trial in an autoimmune disease later this year.

That completes my review of the -- of our Proprietary Development segment. And with this, I will now hand back to Simon.

Thank you, Malte. Before I make -- before I review the highlights of our Partnered Discovery segment, allow me to make one general remark. Our business model has evolved to one that is now very heavily focused on proprietary drug development. The Partnered Discovery segment, which was the company's initial focus, is no longer being actively pursued. Nevertheless, it is a substantial part of our value proposition and our financial participation in so many potential drugs, we'll continue to serve MorphoSys well long into the future.

The partnerships in this segment provide value on several fronts. We expect them to provide a growing revenue stream in the years ahead, they allow us to enter territories that will be difficult for us to reach on our own and they enable us to exploit the full potential of products discovered using our technology.

A great example is Janssen's Tremfya, the first therapeutic agent based on our technology to reach the market. After approvals in the U.S., Canada and Europe in 2017 for the treatment of plaque psoriasis, many other countries followed during 2018 including Japan, South Korea, Australia and Brazil.

In 2018, its first full year on the market, total sales were USD 544 million, giving us confidence that Tremfya is on its way to becoming a blockbuster.

In its core indication of psoriasis, Janssen reported new clinical data in 2018, demonstrating superiority over competitor Cosentyx in a head-to-head clinical study, based on the primary endpoint of the ECLIPSE trial, namely PASI 90 at week 48.

Janssen is conducting more than 10 advanced-stage clinical trials of Tremfya in a variety of settings and indications. These include psoriatic arthritis, pediatric psoriasis, Crohn's disease, ulcerative colitis and hidradenitis suppurativa, illustrating the advantage for us of working with a committed partner.

We expect sales of Tremfya to continue to grow strongly in the years to come, from which MorphoSys will benefit through our royalty participation.

In June of 2018, we were able to announce good news for the anti-amyloid beta antibody, gantenerumab, when our partner Roche initiated a new Phase III programs in patients with early Alzheimer's disease. The program, consisting of 2 Phase III trials GRADUATE-1 and GRADUATE-2, will enroll approximately 1,520 patients in 31 countries worldwide. Patients will receive a significantly high dose of gantenerumab than in Roche's previous trials as a subcutaneous injection with titration up to the target dose.

We're pleased to see Roche's commitment and their sustained belief in the program. This was further cemented by Roche's announcement a few weeks ago that they will continue gantenerumab development despite having had to stop another beta amyloid antibody program in Alzheimer's disease.

Overall, we've seen a number of advancements throughout the entire clinical pipeline last year, too many to mention here. Just 2 examples to make the point. In June 2018, our partner, Bayer, brought a novel compound into the clinic based on our technology, the thorium-227 radiolabel antibody conjugate, BAY2287411.

Almost recently, Blackstone Life Science committed to USD 250 million to create a cardiovascular startup together with Novartis. The biotech, Anthos Therapeutics, begins like with MAA868, a Factor XI antibody made by MorphoSys.

Slide 13 (sic) [Slide 15] gives you an up-to-date snapshot of the clinical pipeline. As a reminder, the dark blue bars on the chart refer to our Partnered Discovery segment, the golden ones refer to programs that originated in our Proprietary Development segment.

As you can see, Tremfya is just the tip of the iceberg. One of our strengths, as an organization, is the breadth and depth of that pipeline. We see a number of programs that we believe have the potential to transform the treatment of the diseases they address. The entire R&D pipeline comprised the record high of 115 programs at year-end 2018, 29 of which were in clinical development with the first product launched. Five of the 29 clinical programs, so around 17%, are from our Proprietary Development segment.

That concludes the operational review. I'll now hand over to Jens, to 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.

2018 was a very successful year for MorphoSys. Just to remind you, we introduced our guidance in March last year and increased our financial goals in September 2018 following antitrust clearance for our MOR106 license agreement with Novartis.

Group revenues in 2018 amounted to EUR 76.4 million and that's above the updated guidance, which ranged from EUR 67 million to EUR 72 million.

Our proprietary R&D amounted to EUR 98.3 million, it was just slightly above our guidance from EUR 87 million to EUR 97 million.

EBIT reached minus EUR 59.1 million, fully in line with our updated guidance of minus EUR 55 million to minus EUR 65 million.

Please move on with me now to Slide 18 that illustrates our P&L statement.

As stated before, group revenues amounted to EUR 76.4 million and, thus, 14% above the previous year. The increase is mainly driven by the upfront payment of EUR 47.5 million received from Novartis in conjunction with the license agreement for MOR106.

Revenues include royalties on net sales of Tremfya, amounting to EUR 15.4 million in its first full commercial year 2018, after EUR 1.9 million for 2017.

Due to a contractually-triggered currency conversion, the Tremfya royalty revenue was lowered by euro -- by EUR 1.7 million.

Total operating expenses increased slightly from EUR 133.8 million in 2017 to EUR 136.5 million in 2018, mainly due to higher selling and administrative expenses.

In 2018, research and development expenses decreased by 6% to EUR 106.4 million, primarily due to the contractual ending of Novartis collaboration in November of 2017.

To reflect the buildup of commercial structures for MOR208 in the U.S. initiated in July 2018, MorphoSys started presenting selling expenses as a separate line item on January 1, 2018.

In 2018, selling expenses amounted to EUR 6.4 million after EUR 4.8 million in 2017. Splitting out selling expenses would have reduced our research and development expenses as well as our general and administrative expenses for 2017 by EUR 3.5 million and EUR 1.3 million, respectively.

General and administrative expenses increased by 39% from EUR 15.7 million in 2017 to EUR 21.9 million in 2018, mainly due to higher personnel expenses as well as costs for external services, primarily related to the NASDAQ listing that took place in April of 2018.

Earnings before interest and taxes amounted to minus EUR 59.1 million compared to EBIT of minus EUR 67.6 million in 2017.

In 2018, the consolidated net loss amounted to EUR 56.2 million after minus EUR 69.8 million in the previous year. This translate into a loss per share of minus EUR 1.79 in 2018 compared to minus EUR 2.41 in 2017.

Let's move to the segment reporting of Slide 19 of the presentation. In our Proprietary Development segment, we focused on the research and clinical development of our own proprietary drug candidates. In 2018, the segment recorded revenues of EUR 53.6 million after EUR 17.6 million in 2017, mainly due to the EUR 47.5 million upfront payment from Novartis for MOR106 that has been fully recognized in our revenue figures.

Expenses for our Proprietary R&D, including technology development, increased by 2% from EUR 96.3 million in 2017 to EUR 98.3 million in 2018.

Proprietary Development segment reported an EBIT of minus EUR 53.2 million after minus EUR 81.3 million in 2017.

In the Partnered Discovery segment, we apply our proprietary technology to the discovery of new drug candidates for pharmaceutical companies benefiting from our partners' development advancements through R&D funding, license fees, success-based milestone payments and royalties.

Revenue in the Partnered Discovery segment decreased from EUR 49.2 million in 2017 to EUR 22.8 million in 2018. The decrease was primarily driven by the contractual ending of the active collaboration with Novartis at the end of November 2017.

The segment revenue for 2018 included EUR 3.5 million for funded research and license fees, compared to EUR 41.9 million in 2017, and EUR 19.3 million for success-based payments received primarily from Janssen after EUR 7.3 million in 2017.

The EBIT in the Partnered Discovery segment was EUR 13.3 million compared to EUR 30.3 million in the year before.

Let's move on to the balance sheet on Slide 20. As of December 31, 2018, we recorded total assets of EUR 538.8 million compared to EUR 415.4 million at year-end 2017.

At year-end 2018, we had EUR 454.7 million in cash. Due to the adoption of IFRS 9 financial instrument, this position is now reported on the balance sheet under the line items cash and cash equivalents, financial assets at fair value through profit and loss and current and noncurrent other financial assets at amortized costs.

At the end of the previous year, this position amounted to EUR 312.2 million and had comprised the line items cash and cash equivalents available for sale financial assets, interim financial asset classified as loans and receivables.

The number of shares issued totaled 31,839,572 at year-end 2018 after 29,420,785 at year-end 2017. The main reason for the increase was the capital increase to support our NASDAQ listing completed in April of last year.

I'm now coming to the financial guidance for 2019 before I will pass back to Simon for the strategic and operational outlook.

For the financial year 2019, MorphoSys will continue to invest strongly in the development of its proprietary candidates, with primarily -- with primary goal of driving MOR208 to market and also significantly into preparations for commercialization of that asset -- for commercializing that asset, I'm sorry.

We're fortunate to be in a position to make these investments based on the strength of our balance sheet. Our expectation that revenues will grow significantly in the years ahead and the fact that our partners carry most of the development costs in our pipeline.

For 2019, we expect to generate group revenues in the range of EUR 43 billion to EUR 50 million. A reduction compared to 2018 is mainly due to the positive onetime payment of EUR 47.5 million in 2018 in connection with the Novartis fee for MOR106, partly offset by increased royalties.

Revenues are expected to include royalty income from Tremfya, ranging from EUR 23 million to EUR 30 million at constant exchange rate to the U.S. dollar. This means that Tremfya royalties in the second full year are expected to completely replace the free cash flow of our former Novartis collaboration that ended in 2017.

Expenses for Proprietary R&D are anticipated in the corridor of EUR 95 million to EUR 105 million. We further expect earnings before interest and taxes, EBIT, of minus EUR 127 million to EUR 137 million for 2019.

Please note expenses in 2019 will include R&D expenses for our Partnered Business and increase in SG&A over 2018 in connection with the buildup of our commercial structures as well as costs for the production of commercial materials for MOR208 that will be reflected in the cost of sale line.

It is important to mention that this guidance does not include a potential larger milestone, payment for the start of a Phase III clinical trial for MOR103/GSK3196165 that could occur in the course of 2019.

This guidance also does not include revenues from potential future partnerships or licensing agreements for MOR208 or any other compound that is now into proprietary development. Effects of potential in-licensing or codevelopment deals for new development candidates are also not included in the guidance.

Ladies and gentlemen, MorphoSys is financially and operationally in excellent shape, and we're excited about the prospects of MorphoSys for 2019.

Based on our solid financial position, which we've successfully strengthened in 2018 through our NASDAQ IPO, and an attractive partnership with Novartis for MOR106 and an increasing royalty stream from Tremfya product sales, we are well positioned to continue the advancement of our pipeline products. In particular, we aim to drive our lead program, MOR208, towards the market and build our commercial capabilities in the United States in preparation for potential commercialization of MOR208 subject to FDA approval.

With this, I would like to end my part and hand back to Simon

Thank you, Jens.

To conclude, we look forward with great confidence. We believe that MorphoSys is nearing an inflection point in its development as a company. We stand shortly before a very significant milestone for us, namely to transition to a commercial biopharmaceutical company. That transition hinges on a compound that we're justifiably excited about, MOR208, which will, therefore, come as no surprise that this will be our top priority in 2019.

Primary analysis of the data from all 81 patients enrolled in the L-MIND study is ongoing, and we expect to present the final results to the scientific conference around midyear.

We plan to complete the BLA submission, comprising preclinical, clinical and CMC data to the FDA by year-end. According to these plans, the filing will comprise data from the L-MIND study, supplemented by real-world data from patients comparable to those in the L-MIND study, that have received lenalidomide single-agent treatment.

We aim to publish the final data from the L-MIND study in midyear and the real-world lenalidomide-only data, compared with the L-MIND results at a medical conference towards the end of the year.

We'll also continue our recently initiated talks with the European (technical difficulty) the European Medicines Agency, which we accept to potential marketing authorization application based on L-MIND. Submission of such an MAA could occur significantly earlier than was originally anticipated based on the B-MIND trial. We will seek EMA advice within the next several months.

We're proceeding with the buildup of commercial capabilities in the U.S. to prepare for the expected commercialization of MOR208, subject, of course, to FDA approval.

We continue to work under the assumption that we will need to be ready to launch MOR208 by mid-2020. We currently expect the U.S. organization at launch to comprise around 80 to 100 people.

For B-MIND, as outlined by Malte, we are now proceeding with an amended version of the trial, which includes a biomarker as a co-primary endpoint. We're very pleased with this amendment as it will enable us to test the hypothesis that MOR208 shows enhanced activity in patients who can be identified using the biomarker while, in addition, allowing us to test the efficacy in the unselected patient population as originally planned.

For 2019, we expect discussions with the FDA regarding the biomarker assay around midyear.

The preplanned interim analysis is projected to take place in the second half of the year.

As Malte mentioned, for frontline DLBCL development, the first step will be a Phase Ib study, which will commence later this year.

We'll also continue our exploratory COSMOS trial of MOR208 plus idelalisib or venetoclax in relapsed/refractory CLL, SLL and we expect to present results later in 2019.

Finally, for MOR208, we are working on plans to develop the antibody in indications beyond DLBCL and hope to be able to provide details around the middle of this year.

In terms of MOR202, as already outlined by Malte, we plan to start an exploratory clinical trial in an autoimmune indication in the third quarter of this year, at which time, we'll disclose the indication.

We also expect our partner, I-Mab, to initiate a pivotal development program of MOR202 in multiple myeloma in the Chinese region this year, possibly within the next few months.

Further, I-Mab recently stated that they want to start clinical development in lupus in 2019, and we expect them to file for an IND later in the year.

For MOR106, our joint antibody program with Galapagos, under a global licensing agreement with Novartis, will bring, together with Galapagos, our Phase II IGUANA study and the Phase I bridging study toward primary completion in the second half of this year.

In addition, we plan to start further clinical studies in atopic dermatitis, together with Galapagos, in the course of the year.

For MOR103/GSK3196165, based on announcements made by GSK earlier this year, we expect them to initiate Phase III developments in rheumatoid arthritis in the second half of 2019. The dosing of the first patient in the pivotal study will trigger a milestone payment from GSK, which would be immaterial to our financial results, although, as stated by Jens, it is not in our current guidance.

For LMP peptide, MOR107, we'll continue preclinical investigations with a focus on oncology.

Turning to our Partnered Discovery segment, by the end of 2019, primary completion may be reached in up to 15 clinical trials in Phases II and III for partners evaluating antibodies made using MorphoSys' technology. Of particular note are Phase III trials of Tremfya, conducted Janssen in psoriasis and psoriatic arthritis, a potentially pivotal Phase IIb study by Mereo BioPharma in osteogenesis imperfecta, or brittle bone syndrome, of the HuCAL antibody Setrusumab directed against Sclerostin and several Phase II/III studies of Novartis' BAFF-R antibody VAY736, or ianalumab, and indications including Idiopathic pulmonary fibrosis, severe primary Sjögren's syndrome and autoimmune hepatitis that might reach primary analysis for their Phase II perhaps in 2019.

As always, we have no control over what our partners communicate, but there is, obviously, the potential for a lot of data relevant to our pipeline.

In inclusion, MorphoSys is at a pivotal position in its development. With the approval of Tremfya we started the transformation of our income statement of that of a product company. The next key step anticipated to happen, if MOR208 reaches the market, will be the addition of our own product revenue on top of those royalties.

Transformation to a truly commercial company, active on both sides of the Atlantic is a key goal for the company. As Jens just pointed out, we'll continue to invest strongly to make this vision become a reality. But also looking at the depth of our pipeline in both our Proprietary and Partnered businesses, we see a number of programs with the potential to reach the market in the foreseeable future. We're very optimistic about the company's prospects.

To conclude, as few words on my own behalf. On February 19, this year, I informed the Supervisory Board of MorphoSys that I will not renew my contract as a member of the company's Management Board. As a result of this decision, I'll step down as the CEO on expiry of my current contract on June 30, 2020, or when a successor is appointed, whichever comes sooner.

MorphoSys today is stronger than it has ever been, and I'm immensely proud of everything we've achieved over the past 27 years since MorphoSys was founded. There is only one reason for my decision, after dedicating such a long time to MorphoSys, I'm looking forward to having a bit more time for other interests and to exploring new opportunities. In the meantime, it's business as usual, and there's plenty of stuff ahead of us here. We look forward to another exciting year.

Thank you, Simon. We'd now like to open the call for questions.

(Operator Instructions) The first question we received is from Geoffrey Porges of SVB Leerink.

This is Brad Canino on for Geoff. You've provided a lot of information about the expected R&D plans in 2019. But we wanted to ask about when we should expect to hear about expended plans for MOR208 beyond the frontline DLBCL trial highlighted? Or if not, why those opportunities will not be initiated this year?

Yes, I'll take the question. Thank you for asking. I mean, we are in the process of defining the next activities that we will communicate probably during the early summertime. We will get out with our updated L-MIND's data probably in the month of June or so. And in the same time, we will update the external world on our additional activities.

We are getting a lot of incoming interest from many different sources, corporative groups and investigators all over the world in Europe, U.S., Asia, regarding possible investigator-initialed trials. And we are currently in the process of deciding which of these additional opportunities should be conducted at MorphoSys-sponsored trials and which of these activities may be continued on an investigator-initiated trial basis. So that takes a little bit more time, but we will be ready to speak about this in the early summertime.

Great. And then, to follow-up on the regulatory comments in Europe. When you say that you will hear from the EMA in the coming months, does that mean you will know definitively if the L-MIND trial will be accepted as pivotal around midyear? Or does this just mean discussions will continue to progress?

That's a bit difficult to anticipate. So as I said in my statements, we had 2 encouraging discussions with national European Health authority agencies earlier this year. We will continue -- we will follow-up with a formal discussion at EMA in the summertime. And we, of course, cannot predict what response may be. It may be definitive, it may be a statement or recommendation by the agency to go either way, that L-MIND may be sufficient or not. It may be less definitive on -- based on the EMA's assessment. So that's a bit difficult for me to anticipate. But, again, we were encouraged by the initial national feedback we've received and are looking forward to receive now the formal EMA feedback in the middle of this year.

The next question is from Danielle Brill of Piper Jaffray.

Simon, last quarter, I believe that interim analysis for B-MIND was expected to occur around May, and then when I last saw you, I think you had said it was anticipated around this summer. I'm just curious to know when the original analysis was expected? What's driving the delays? And are you expecting the timing to be pushed back further into the second half from the last update?

Yes, thanks, Danielle. I'll hand that one over to Malte, actually to answer.

Yes, thank you, Danielle. So we have maybe 1 or 2 months of delay. We are seeing that patients stay on B-MIND for longer periods of time than we originally anticipated, which, in our mind, contributes mostly to the slight shift in our time lines. We are now anticipating to be ready for the interim analysis probably in the third quarter, and we generally think it's a good sign. And as you know, we spoke about this. It's an event-driven analysis, so we can't really influence this because it's driven by the time the events, which is progression or death are coming in. So being a doctor, I'm always happy that patients stay on our treatments for longer than we originally thought. But, of course, it may lead to slight shift in our communicated time line.

Okay. Great. And then, I'm just curious how we should think about the importance of B-MIND in the U.S.? You mentioned that it could potentially serve as a confirmatory trial. Should we be thinking of it this way? And could it be gating to full U.S. approval?

Yes. So currently in the United States, we do not think that we need a confirmatory study. We had, as you know, multiple interactions with FDA. And we -- the nature of a potential approval has not yet been discussed in great detail with the agency. We have -- FDA is aware of the fact that we have both L-MIND and B-MIND. They know both protocols. They have reviewed and commented on both protocols. So currently, our assumption is that L-MIND, in United States, may be sufficient for an approval. However, as some of you may have realized in the latest ODAK for Karyopharm, Dr. (inaudible) clearly pointed out that it is not unusual for FDA to consider trials with -- in different patient populations and with different combination partners as confirmatory study. So -- but I'm coming back to my initial remark that so far, we have no indication that a confirmatory study is needed as of today. That's our current assumption. But if one is needed, we may -- B-MIND may serve that purpose.

Next question is from Anastasia Karpova from Kempen & Co.

Three questions if I may, but brief one. In regards to your synthetic control arm, have you prespecified the analysis and the way the data is going to be collected with the FDA? Second, you've previously never explicitly guided for MOR208 licensing in your guidance, whether excluded or not. I was wondering what has changed for you to reflect this possibility? And is that a, let's say, reflection of increased likelihood of such events occurring or just a reply to market's pressures? And finally can you provide a little bit more color on the biomarker that you plan to include in the B-MIND study? And what percent of the DLBCL population generally have this biomarker?

Thanks, Anastasia. Malte will start with the synthetic control arm question.

Maybe I take the first and the third, and then I'll give it back to you for the second. For the real-world data control arm, we had a very intense and accurate and detailed discussion with FDA on all of the statistic assumptions and details. So we have written a protocol, a statistical analysis plan, in basically collaboration with FDA and based on their assumptions. So we are, I would say, in full agreement and alignment with FDA regarding that control arm, and we're very happy about having reached such a status. For the biomarker.

Sorry, do you want to comment on the prespecified.

It's prespecified. All of the details that are in the protocol or in the statistical analysis plan, all these details are prespecified. Thank you, Simon, for pointing that out. So for the biomarker, unfortunately, we can't disclose the nature of the biomarker due to the IP issue. We will do so as soon as we can from an intellectual property perspective.

And then, Anastasia, regarding the MOR208 licensing, we simply wanted to be clear with you and to help you and your understanding of what's in our guidance, just to be clear what sort of things we include and what sort of things we exclude. So that was our general statement, not to be interpreted as any particular belief or otherwise regarding MOR208 licensing.

Next question is from Gunnar Romer from Deutsche Bank.

Gunnar Romer, Deutsche Bank. The first one would be on MOR208, again, I was wondering whether you can provide an update on your current thinking about partnering, be it for commercial purpose outside the U.S, or potential development partnerships globally. Then second question would be regarding your Tremfya royalty assumption. Just curious whether you can give us any hint to whether this is consistent with current market expectations in terms of Tremfya sales for 2019? And then last question, would be on the implied cost ramp, especially on the SG&A line, and I was wondering whether you can square that with the EUR 90 million of commercial investments in the U.S. Or maybe if phrased differently, if you can help us on the cost of sales for 2019 maybe that explains the gap? So any comments in that regard will also be very helpful.

Yes, Gunnar. So let me start with MOR208 partnering question and then I'll hand over to Jens for the other 2. We've had a lot of inbound interest, which doesn't surprise us, given the strength of the data. We've made it clear that our goal that we're working towards very actively is to commercialize MOR208 in the U.S. ourselves. And we're building to that end, as you know. We've indicated that we are prepared to, and actually interested in partnering 208 in the rest of the world outside of the U.S, and we will entertain discussions with those goals in mind. It's too early for us to say anything about what kind of deal we could entertain or enter and with whom. But I anticipate that those discussions will continue and will mature in the coming months. And obviously, as soon as we have something to say, we will keep you informed about it. But at this stage, we're looking to pursue partnerships along those lines, keeping the U.S. for ourselves and looking for a partner elsewhere.

Maybe if I can just step in here, Simon. Would that mean also that you're committed to fully develop via the frontline indication on your own in the U.S. or would partnering considerations include for example a share of cost on that front?

Yes, I think one of the attractions of having a partner is to share the burden, so to speak, to share the cost of development. And we would anticipate that any such deal would include some sort of shared costs against shared rights, as I said preferably, ex-U. S. But exactly how such a deal could be structured remains to be seen.

I will be happy to take the next 2 question. The first one on the royalties, you know that our hands are a bit bound in terms of what we can say about our contractual agreement with Janssen. We try to be a bit more precise with the messaging on the currency implication that you have seen in our press release and the underlying net, so to say, royalties that we have been able to book under revenues. That gives you some sort of hint. Unfortunately, we can't be more precise on this. Going forward, we are struggling a little bit with sort of the assumption on how fast the ramp up will be. We only can say, we're actually super happy with what we have seen on Tremfya so far. And we might be actually a bit conservative with the royalty range that we have given but I think we feel comfortable overall with that sort of range, without giving you sort of clear guidance of what our underlying number is that we have used for that range. I think you should take into account when you look at these numbers 2 aspects. There is a very significant sort of currency implication for us, and there is certainly, in many other contracts that we have with partners, also staggered structures for royalty development. So if you look beyond that guidance here for '19, I think you should take that into account that something like this will kick in, in the years to come. On SG&A, indeed, I think it's -- you have seen relatively stable R&D spend for our proprietary activities versus 2018, but an increase in terms of the loss that we've reported for interest and taxes. And that is indeed partially, I have to say, triggered by SG&A expenses. If you look at 2018, we talk about something like EUR 28 million, EUR 29 million that we had reported for both cost lines with the anticipated roundabout $90 million, $100 million for the years '18 to '20 for the setup of the commercial organization. We're actually with the planning for '19 fully in line with this. The big difference comes between sort of -- and you're probably not totally off if you double that EUR 28 million, EUR 29 million for selling expenses in '19 versus '18. You have to take into account an addition cost of sales that we have reported first time this year that will have a significant impact 2019 as these cost line will reflect the first cost for commercial supply, the production of market supply of products that we have to produce and have to be checked by the FDA for preparation of the commercialization. And the supply got to be booked, as long as the product is not under market, it's not a marketed product, as costs, basically. So normally, you will book it as inventory. In our case, as this product is not on the market yet, it's cost, and that's increasing the cost position. And then finally, we have certainly also still, a couple of million for partnered -- for our partner business still in there. And if you then take all these parts into account, you can follow we're coming to that range of minus EUR 127 million to minus EUR 137 million for EBIT.

Jens, just a quick follow-up for good order in terms of cash, would you provide any guidance? I guess probably still north of EUR 300 million based on your current planning for year-end 2019 but...?

I think if you take the -- it remains sort of standard practice. If you look at the EBIT line that we have, in that sort of ballpark we also have a cash flow in so we would estimate somewhere in the range of EUR 320 million to EUR 330 million of cash at year-end 2019.

Next question is from Jason Butler from JMP Securities.

I have 2. The first on MOR202, obviously, you're holding off on disclosing the indication. But can you give us any comments on the goals of this study? You mentioned this in the [sponsor] study. Are you focused on biomarkers or for example clinical end points? Anything else you can speak to that give us some insights into the size or time lines for the trial? And then -- for the first trial. For gantenerumab can you speak to any preclinical or clinical data that supports potential for increased efficacy at the higher doses, for example, in terms of beta amyloid clearance?

So let me take the first question for the autoimmune study. Let me make the following comments there. There are a couple of diseases in which there is a direct correlation between the presence of autoantibodies and disease. And I give you just one example, pemphigus vulgaris, for example, is a very significant and severe skin disorder, which is related to the presence of autoantibodies. There are diseases in other indications, for example, in renal diseases, much neurological diseases are also other examples. So we have picked one of these diseases to test the efficacy of MOR202 in reducing the biomarker or this mark that the autoantibody as a direct correlation to the readouts regarding the disease. So that's the goal. So the goal is really to see a treatment effects for the clinical disease and also an effect on the presence or absence of the autoantibody. And the study will start in the second half of this year, at which case, we will disclose what the indication is.

And then, Jason, for your question about gantenerumab, our colleague Markus will handle that.

Yes, so, of course, it is always difficult to exactly explain the ratio of partners in the clinical trial design. But for gantenerumab it was seen with aducanumab. So one of the anti -- a better antibody still in clinical trials and which has also very similar profile, so a biochemical profile to our gantenerumab antibody or to us gantenerumab antibody, it was seen with aducanumab that at a higher dose relevant effect, or first effect we're seeing -- clinical effects were seen and this is also what, we believe, trial - the trail was to increase the dose from the original 105 to 225 milligrams gantenerumab in the (inaudible) trial to now to 1,200 mgs per dose in the ongoing trials. So this increased dosage might show similar effects as we're seeing with aducanumab due to the very similar profile of the 2 antibodies.

Next question is from Graig Suvannavejh from Goldman Sachs.

I've got 3 quick questions, please. My first is just around your 2019 financial guidance. So you are expecting GSK to start Phase III for the 103 product in the second half. But I'm curious as to why you're not including a milestone associated with that? So that's my first question. My second question just has to do with the L-MIND commercial opportunity as it relates to Europe. Obviously, the original plan was to go after a more B-MIND-oriented population. So maybe, Malte, if you can help us frame if your plan is successful with European regulators to initially perhaps get an approval for 208 based on L-MIND what that looks like? And then my third question maybe is for Simon. Simon, certainly it's a loss for MorphoSys to see you leave the company and congrats on all the achievements you've had with the company in building it up, but as we think about the next CEO, what are the qualities that you're looking for or do you think the company will need as it goes through, in your own words, this pivotal position in the timing of the evolution of the company?

Maybe I'll take the first one, Graig, on the guidance of 2019. Yes, indeed, we have not included GSK -- the months of the GSK in our guidance given that we are not exactly clear when it will take place and there is always -- although maybe slim, but there is always a risk that this might, for whatever sort of reason, shift. And as we do not control it and it is a significant milestone payment for us. If we would include this, and therefore, whatever reason GSK have a shift into 2020, we have to adapt our guidance and that is something we just wanted to avoid. We wanted to make clear to everyone that, of course, there is a milestone payment of some significance at the horizon, but we don't want to adapt our guidance because someone else's is messing up, to make it clear. So we just didn't want to run that risk.

Yes, Graig, let me take the other 2 questions. First of all regarding the opportunities for L-MIND and/or B-MIND in Europe, if you look at the patient population that we are addressing, it's the same in both trials. So it's relapsed/refractory DLBCL patients who are ineligible for high-dose chemotherapy and autologous stem cell transplantation, so these tend to be older more frail patients. And we've looked extremely closely at the U.S. because that's our primary market of course where we estimate there are somewhere in the order of 8,000 patients per year of that type, and we estimate that the European size of the opportunity is similar, perhaps a touch smaller. But that applies to both L-MIND and B-MIND. That's essentially the addressable patient population in each market. Yes, regarding the CEO, my successor, I mean, the process has just started. I wanted to make sure that the company had enough time to run an orderly succession process. I'm sure the company will be interested to find someone that has an understanding of R&D as well as commercialization. And we'll see what kind of candidates the process turns up in the coming months. But obviously, the objective is to find someone who's best qualified and experienced to take over and to lead the company on the trajectory that we see ahead for it. I think as we said, the company is in a really good place at the moment. And we're confident that the opportunity is attractive enough to be able to build a good pool of candidates to choose from.

If I could have 1 quick follow-up question is actually on a different topic altogether, but so your partner in China, I-Mab Biopharma recently said that they are planning to launch a phase or initial study in lupus in 2019. I'm wondering if lupus is one of the indications you will consider on your own?

I think, and Malte, please comment here. I mean lupus falls into that bucket of autoimmune diseases, which we believe a CD38 antibody could be active in. We're looking at something else, actually. I can say that we're not looking at lupus. But we're intrigued to see what I-Mab -- what data I-Mab produces in lupus, of course. But we're choosing to go a slightly different direction. But I think in principle, there is no reason to think that [MOR202] is (technical difficulty).

(technical difficulty)

[Products] that we included in the mix of indication that I referred to earlier.

The next question is from Victoria English, Evernow Publishing.

First is about MOR208 and your approach to the EMA. Has -- is this change in strategy in any way related to a different view by the EMA towards single-arm trials, because I understand they've been less enthusiastic about these types of trials than the FDA has been? The second question concerns MOR202. And whether the recent litigation -- patent litigation with Genmab, in any way, affects the ongoing development of this product?

Thanks, Victoria. Let me take the first question in respect to the EMA possible opinion here. I think you are correct in stating that EMA is traditionally considered to be more conservative with respect to accepting single-arm, uncontrolled trials. However, as you know, there are recent examples of where EMA has made exceptions, right? So they approved 2 CAR T-cell products based on single-arm, uncontrolled studies. And I'm seeing -- I would say some willingness at EMA to consider modern-style drug developments and to consider modern therapeutic options for patients in case the clinical data is really outstanding, right. I think that's probably the prerequisite that has to be present in order to lead towards that type of thinking at EMA. So I don't think I'm ready to say that EMA has made a shift in their thinking but I think it is a matter of fact that there are recent examples where Europe has approved new innovative drugs based on single-arm trials, and we hope that we may be able to have fruitful discussions with EMA regarding L-MIND, which, in our mind, from an efficacy perspective, is extremely effective for patients. And then I hand back to Simon.

Yes, thanks, Victoria. So on 202 the litigation, just remember that the litigation concerns 3 granted U.S. patents covering antibodies against CD38. We have separate patent protection for the MOR202 composition of matter that is unrelated to those 3 patents. So that -- those patents covering MOR202, composition of matter, for example, continue to be intact and unaffected by whatever went on with the litigation.

The next question is from Gary Waanders from Bryan Garnier.

Just a couple of questions if I may. Firstly, could you remind me of the timeline for Tremfya royalties and when they might run out into? And what sort of extensions through indication expansion might be available on that basis? And also, just an idea around MOR208. Obviously, you are focusing on oncology, but as an anti B-cell reagent, or agent, this might have opportunities for use outside of oncology and I'm wondering if you've look at any of those possibilities?

Yes, thanks, Gary. Regarding the royalty term for Tremfya, I think, we haven't disclosed this precisely. I think it may be subject to the confidentiality provisions of the agreement. Let me just say that in general terms, in general terms, our agreements provide for royalty payments for 10 to 12 years from product launch or the lifetime of the patent covering the product, whichever is the longer. Okay? That's the general way we treat that topic. You mentioned expansion. I assume you mean into other indications, is that right?

Yes.

Yes, so whatever other indications would come to market would carry the same royalty burden and royalty payments to us, of course.

And with respect to your nononcology indications, I can say that we are currently exploring these as well as part of the process I outlined earlier. But we have not yet made any decisions as to whether we consider selected indications worth pursuing. We will include it in our communication in the middle of this year.

And the next question is from Mick Cooper from Trinity Delta.

Just a quick question from me. Should we expect any new assets to come to the clinic this year? And do you have a target, looking further ahead, for new antibodies to enter the clinic?

Thanks, Mick. I assume that question refers to anything at all within the pipeline. So proprietary and/or partnered programs?

More focused on the proprietary, but yes.

Yes, I can confirm that we are not expecting any new proprietary programs going into the clinic this year. The next most advanced one is a little bit further away than that. Regarding the partner discovery programs, those are always a little bit less under our control, of course. So we could be surprised. But I think, at this stage, we're not assuming that anything is going to go into the clinic from our partners, new assets.

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

Thanks very much and to conclude the call I'd just like to remind you of the main points to take away. First, we are very bullish about our prospects, headed by MOR208. Based on the dialogue with the FDA, we aim to bring MOR208 plus lenalidomide relapsed/refractory DLBCL to approval as fast as possible and are doing everything to make an anticipated launch of MOR208 in the U.S. a success. We're targeting an area of major unmet need and hope to be able to offer patients a new treatment option. MOR106, based the data observed so far and an intensifying development program with Novartis, we look forward to speeding up and broadening development of this exciting and potentially first-in-class asset. MOR202, we'll continue to partner -- support our partner I-Mab to bring this compound to pivotal development in multiple myeloma in China, while driving forward our development program in a selected autoimmune indication. Tremfya, based on Janssen's tremendous success in development and commercialization of this antibody in plaque psoriasis, we are optimistic it could become a very large and successful drug. And finally, this is the tip of an iceberg of programs that can contribute significantly to value creation for MorphoSys in the future. We look forward to keeping you informed of the progress.

That concludes the call. And if any of you like to follow up, we are in the office for the remainder of the day. Thank you for your participation during our call and goodbye.

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