MorphoSys AG (MOR) 2020 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the MorphoSys Year-End 2020 Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

Now I would like to turn the conference over to you, Dr. Julia Neugebauer. Please go ahead.

Ladies and gentlemen, good afternoon, and good morning. My name is Julia Neugebauer, Senior Director, Investor Relations at MorphoSys, and it's my pleasure to welcome you to our fourth quarter and full year 2020 financial results conference call.

Joining me on the call today are Jean-Paul Kress, Chief Executive Officer; Sung Lee, Chief Financial Officer; Roland Wandeler, Chief Operating Officer; and Malte Peters, Chief Research and Development Officer.

A press release was issued yesterday with our full year 2020 financial results and business update. This can be found on our website along with the presentation for today's webcast.

Before we begin, I'd like to remind you on Slide 2 that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the commercialization of our products and our development plans, the impact of COVID-19 on our business and expectations for the compounds in our pipeline as well as the development plans of our collaboration partners. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in MorphoSys' 20-F and annual report, all for the year ended December 31, 2020, and from time to time in other SEC documents of MorphoSys. It is important to keep in mind that our statements on this webcast speak as of today.

On Slide 3, you will find the agenda for today's call. Jean-Paul will begin with an overview of corporate highlights from 2020 and give an outlook on 2021. Roland will then provide a commercial update. Malte will discuss our R&D activities before turning the call to Sung for a summary of our fourth quarter and full year financial results as well as our guidance for 2021. Following these prepared remarks, we will open the call for your questions.

And with that, I'll now hand the call over to Jean-Paul.

Thank you, Julia. Good morning, and good afternoon, and thank you for joining us today. In 2020, we delivered one of the most successful years in the company's history. It was truly a transformational year with the accelerated approval of Monjuvi as the first and only second-line treatment for patients with relapsed/refractory diffuse large B-cell lymphoma who are not eligible for stem cell transplant.

We are incredibly proud of this achievement, as this is just the beginning and we are looking forward to building momentum over time. We believe tafasitamab has the potential to transform the standard of care in DLBCL and will lead to a paradigm shift in how patients with B-cell malignancies are treated. We are looking to rapidly expand the tafasitamab opportunity through label expansion and exploring tafasitamab in combination with other approved or emerging compounds. The execution in bringing this important breakthrough therapy to the market for patients has created a strong foundation for MorphoSys as an integrated commercial biopharmaceutical company.

Throughout the year, we continued to progress and expand our pipeline in the areas of hematologic oncology and autoimmune diseases. We presented very encouraging preliminary Phase 1B data from our firstMIND study in first line DLBCL that paves the way to initiate our pivotal frontMIND study in the coming months.

Turning to business development activities, at the start of 2020, we entered into an important global commercial and development partnership with Incyte for tafasitamab. We are excited that we entered into a development collaboration with Xencor to evaluate the combination of tafasitamab with Xencor's bispecific CD20xCD3 antibody, plamotamab aiming to help more patients with certain non-Hodgkin's lymphoma.

And shifting gears to our financials for the year, we reported very solid results with revenue of roughly [EUR 328 million](corrected by company after the call) and EBIT of EUR 27 million. Revenue in part included EUR 18.5 million from the product sales of Monjuvi. We also significantly strengthened our balance sheet, and we accomplished all of this in the middle of a global pandemic.

Moving to Slide 6. Our business model currently represents 3 pillars guiding future value creation. The first pillar will drive value from our own commercialization efforts. We were excited to start booking U.S. sales for Monjuvi in the third quarter of 2020. We see great potential to expand its use by becoming a standard of care and a backbone in NHL which will drive increased commercial opportunities.

Another asset I would like to highlight in this pillar is felzartamab. It could become an attractive opportunity as a treatment for select autoimmune diseases where the unmet medical need is high starting with autoimmune membranous nephropathy.

Our second value driver are royalties and milestones from our partnered and out-licensed programs. Our program with Janssen, Tremfya is approved for psoriasis and psoriatic arthritis in the U.S., EU and other countries. We are very pleased with the commercial success of Tremfya, and look forward to Janssen developing Tremfya for use in additional indications.

Other late stage partnered programs include GSK's otilimab for rheumatoid arthritis and COVID-related severe respiratory distress syndrome, as well as Roche's gantenerumab for Alzheimer's Disease.

And the third value driver is our research platform that has been the foundation for MorphoSys' success with cutting-edge antibody technology. We are continually enriching it with next-generation platforms to drive further groundbreaking innovation. In November, we signed a license agreement with Cherry BioLabs for a potentially exciting next-generation Hemibody technology. We believe these 3 pillars will drive shareholder value.

Moving to Slide 7. Our top priority is the continued execution of the Monjuvi launch where we are very encouraged by the early progress. We continue to get positive feedback from physicians and have maintained leading share of voice of approximately 50%. We anticipate the potential for variability for the first full year of launch during a global pandemic, but we are confident in the long-term trajectory for Monjuvi.

And beyond our current second-line indication, we are rapidly expanding tafasitamab in additional hematologic oncology indications and are planning the initiation of two pivotal trials in the first half of this year, including the initiation of a pivotal trial in first-line DLBCL called frontMIND in the coming months.

The second pivotal trial called inMIND for follicular lymphoma and marginal zone lymphoma is set to start soon. The follicular lymphoma indication received orphan designation in January of this year. With tafasitamab's differentiated profile, it has the potential to be a partner of choice.

As I mentioned earlier, we are also advancing other pipeline assets, including felzartamab, where we expect to get proof-of-concept data in the coming months. And finally, our disciplined capital allocation strategy is an important component as we focus on balancing investments in our internal pipeline along with potential external opportunities that are a strategic fit.

2020 was a year marked by many important accomplishments anchored by the approval of Monjuvi. We look forward to keeping you updated on our key initiatives during the year.

With that, I would now like to turn the call over to Roland for a commercial update.

Thank you, Jean-Paul, and hello, everyone.

Moving to Slide 9. 2020 was indeed an exciting year for us - and one of our defining moments was the accelerated approval of Monjuvi in late July. From FDA approval through the end of December, we delivered on a rapid speed to market - achieving major launch milestones within days of approval. In fact, the first Monjuvi order, shipment, patient dosed, and inclusion in NCCN Guidelines, all happened within the first 13 days following approval. We ensured rapid and robust payer access and coverage for Monjuvi through commercial and government channels is well established.

Now taking a closer look at Q4 - the first full quarter for Monjuvi in the marketplace - we reported USD 17 million in sales for the quarter and USD 22 million for the year. Q4 Monjuvi sales were primarily driven by demand and also benefited from a third-party clinical trial supply order and some select end-user inventory buy-in at the close of the year. The latter two factors contributed about $1 million in Monjuvi sales in Q4.

Moving to Slide 10. We were very encouraged by the continued traction we saw in the number of accounts ordering Monjuvi. During our last call, we shared that more than 250 sites-of-care had ordered by the end of October - with 80% reordering. By the end of December, we saw a significant increase with cumulative orders from more than 400 sites since launch. Key academic centers continue to be strongly interested in Monjuvi and we are seeing increased momentum in community care - indicating the broad accessibility of Monjuvi for patients in both academic and community settings.

Given that we are already quite advanced in the first quarter, we want to share some reflections on the start of the year. After strong momentum in 2020, and while uptake in second-line continues to increase, we saw the first months of 2021, impacted by 2twofactors: First, the unprecedented surge in the COVID pandemic after the holidays impacted sites of care across the U.S. and limited our ability to see physicians. While we continue to maintain a leading share of voice of about 50% - and see continued interest in our messages - the COVID surge slowed down our engagement of key physicians. Second, as a result of the winter storms across the U.S. in February, we expect some patients in their early cycles had their treatments temporarily interrupted.

These factors may impact our Q1 results. However, we are seeing treatment levels in the last few weeks return to the momentum we built at the end of 2020. In fact, we are very encouraged by the feedback we are receiving from prescribers. Especially the physicians who saw our 2-year data for second line patients at ASH are intrigued by the long duration of response. The appropriate education of prescribers with this data is a priority for our team.

Our focus in 2021 is to lay the foundation for long-term growth. We expect a gradual build for Monjuvi as we drive increased uptake in second line - and as patients who respond continue treatment to progression over time. Monjuvi´s safety and tolerability profile - together with its duration of response support the paradigm shift in the treatment relapsed/refractory DLBCL. Our treatment regimen - to treat patients with Monjuvi to progression - makes the 2-year long-term data relevant not only for patient benefit, but also from a business perspective. And we are looking forward to sharing Monjuvi's 3-year long-term data in an upcoming Congress.

As we continue to establish Monjuvi as the standard of care for appropriate patients with relapsed/refractory DLBCL, who are progressing from first-line and are not eligible for autologous stem cell transplant - we never lose sight that nearly 10,000 DLBCL patients in the U.S. could benefit from the promise of Monjuvi each year. It is our mission to bring this important new treatment to them.

Thank you, and I will now turn the call over to my colleague, Malte.

Thank you, Roland. As Jean-Paul and Roland have mentioned, we are very proud of our accomplishments in 2020, highlighted by the U.S. approval of Monjuvi. We have achieved FDA approval with an innovative approach in record time with a second-line label, which is the foundation of making Monjuvi available for many patients suffering from relapsed or refractory DLBCL.

I would now like to concentrate on the outlook for this year, 2021. And let me start with tafasitamab. The key areas of focus for 2021 are rapidly extending the tafasitamab opportunity by label expansion and exploring tafasitamab in combination with other approved or emerging compounds. Regarding the L-MIND data, the durability of responses is an important differentiator for patients with relapsed or refractory DLBCL, treated with Monjuvi in combination with lenalidomide. Data from the 2-year cut-off showed a median duration of response of close to 3 years, along with a median overall survival of 31.6 months.

Patients in this study who achieved a complete response have a greater than 85% chance to remain in complete remission after two years and a greater than 90% chance to be alive after two years. This benefit was especially pronounced for patients who were treated with Monjuvi and lenalidomide as a second-line treatment. In these patients, we could observe an overall response rate of 67.5% as well as a 24-month overall survival rate of 67.9%.

These data, combined with Monjuvi´s safety and tolerability profile, supports a paradigm shift for traditionally difficult to treat patients, potentially offering long-term disease control. We are looking forward to the next 3 year cut-off, and we are confident that we will be able to provide further evidence supporting Monjuvi's duration of response. This data will be presented at one of the upcoming medical conferences.

Beyond relapsed/refractory DLBCL, our focus is on the rapid expansion of the clinical development of tafasitamab into earlier lines of treatment as well as into additional indications. It is our aim to develop tafasitamab as the backbone treatment for patients with DLBCL and other B-cell hematological malignancies.

We have started to investigate tafasitamab and lenalidomide in first-line DLBCL with the aim to improve cure rates and to create a new standard of care regimen. There is a high unmet need for DLBCL patients in the first-line setting, especially those at high-risk with an IPI score of 3 to 5. For these patients, the chances of cure with R-CHOP alone are less than 50%.

We presented initial results of our firstMIND Phase 1b study at ASH at the end of last year, and we are very encouraged that the study showed an initial response rate of 91.1% in a patient population that overall had a poor prognosis. The results also showed that the combination of tafasitamab, lenalidomide and R-CHOP did not show unexpected toxicity, which is very encouraging. We completed enrollment in the firstMIND study one month ahead of schedule which shows the great interest in this potential treatment option. We will provide a more detailed update of this data including CR and PR rates at a medical conference in the near future.

The firstMIND data are the basis for our pivotal Phase III study frontMIND, and we are on track to start this study soon. FrontMIND will enroll up to 900 patients and will evaluate the tafasitamab-lenalidomide combination in addition to R-CHOP compared to R-CHOP alone. We believe we can make a difference by adding this potent synergistic combination, starting treatment promptly within 28 days and focusing on high-risk patients. Our ambition is to improve cure rates in DLBCL in all treatment lines.

Beyond DLBCL, we will expand the use of tafasitamab into other indications and plan to start a pivotal study in indolent lymphomas, another area with high unmet needs, particularly for high-risk patients. We are planning to start our inMIND study of the tafasitamab-lenalidomide combination in patients with follicular lymphoma and marginal zone lymphoma in the first half of 2021.

Tafasitamab is uniquely suited as a combination partner and a backbone of choice, given its safety profile. Therefore, we are excited to evaluate the combination of tafasitamab with Xencor's bispecific CD20xCD3 antibody, plamotamab, in patients with relapsed refractory DLBCL, front-line DLBCL and relapsed/refractory follicular lymphoma aiming to help more patients in this area of high unmet medical needs.

Incyte is leading development efforts evaluating the combination of tafasitamab with their PI3 kinase delta inhibitor parsaclisib in a proof-of-concept study. In addition, there is increasing interest from other companies to assess tafasitamab in combination with their compounds. As an example, Karyopharm is testing tafasitamab in combination with Selinexor in DLBCL patients.

To conclude on tafasitamab, we are excited about the progress we have made regarding our comprehensive development program. We are also very proud of how we have transformed our R&D organization during the submission and approval process of Monjuvi. We can now say that we are in full swing of launching large pivotal trials with labeling expansion intent, which will be the foundation for bringing Monjuvi to as many patients as possible.

Now on Slide 13, turning to felzartamab. Our anti-CD38 antibody that we believe has the potential to have an impact for patients with autoimmune diseases. With this anti-CD38 antibody, we specifically target plasma cells, the source of autoantibodies and therefore, potentially provide a targeted treatment for patients. Felzartamab is currently being evaluated in the M-PLACE study in patients with autoimmune membranous nephropathy, or aMN, a disease that impacts 10,000 patients per year in the United States alone. The fact that 30% to 40% of patients progress to end-stage renal disease within 5 to 15 years underscores the high unmet need in this indication. We have made progress with our M-PLACE study despite a brief pause during -- due to COVID, and we anticipate having data in the first half of this year.

We are prepared to move forward with a comprehensive development strategy and have, therefore, already started a scheduled finding study New-PLACE to define the optimal regimen. In addition, we will expand the program in other autoimmune diseases. And lastly, our partner I-Mab is developing felzartamab for the treatment of multiple myeloma and is currently running two pivotal trials.

Before I hand over to Sung, I want to briefly comment on the preliminary results from the OSCAR study that our licensing partner GSK announced recently. The data suggests an important clinical benefit of otilimab in a predefined subgroup of high-risk patients, namely patients that are 70 years or older. Given the urgent public health need, GSK has amended the OSCAR study to expand this cohort to confirm these potentially significant findings. We are happy that GSK with otilimab is a part of the efforts to find treatments for patients suffering from severe forms of COVID-19.

And with that, I would like to hand over the call to Sung.

Thank you, Malte. We're pleased to share our financial results for the fourth quarter and full year 2020. 2020 was a transformative year where we began recording net product sales for the first time and significantly strengthened our balance sheet.

Moving to Slide 15. Group revenues for the fourth quarter were EUR 36 million and EUR 327.7 million for the full year. The fourth quarter marked the first full quarter of Monjuvi sales which came in at EUR 14.1 million and EUR 18.5 million for the full year. Royalties from net sales of Tremfya in the fourth quarter were EUR 12.1 million and EUR 42.5 million for the full year.

Turning to expenses. Cost of sales were EUR 9.4 million in the fourth quarter and EUR 9.2 million for the full year. For the full year, cost of sales benefited EUR 9.9 million from the reversal of inventory impairments taken in the prior year. R&D expenses in the fourth quarter were EUR 54.8 million and EUR 141.4 million for the full year. Growth over 2019 reflects primarily the increased investment to support the advancement of our proprietary programs and impairment charges taken against legacy deals.

SG&A expenses in the fourth quarter were EUR 47 million and EUR 159.1 million for the full year. The full year growth was anticipated and driven by the build-out of the commercial infrastructure to prepare for and launch Monjuvi and investment to support the overall growth of the business.

For 2020, we reported a consolidated net profit of EUR 97.9 million compared to a net loss of EUR 103 million in 2019. Profitability in 2020 was driven primarily by the recognition of EUR 236.1 million as part of the upfront consideration from our partner Incyte.

We ended the year with a liquidity position of more than EUR 1.2 billion compared to EUR 357.4 million at the end of 2019. With our strong balance sheet and cash position, we are well capitalized to execute on our growth strategy.

Turning to our guidance for 2021 on Slide 16. We anticipate Group revenues to be in the range of EUR 150 million to EUR 200 million. This forecast includes the recently announced EUR 16 million milestone payments from GSK. The range also captures the potential for variability from the first full year of the Monjuvi product launch and the impact from the pandemic which we believe will be greater in the first half of this year. Operating expenses, inclusive of Incyte's share of Monjuvi selling costs, are anticipated to be in the range of EUR 355 million to EUR 385 million with R&D expenses expected to comprise 45% to 50% of this range.

R&D investments will be focused on the continued development of tafasitamab and felzartamab, early-stage development programs, and further development of our technologies. As our income statement evolves due to the growth and prominence of certain categories, we will adapt accordingly and provide guidance on the measures we believe are helpful to the investment community. This could include net product sales in the future.

Back to you, Jean-Paul.

Thank you, Sung. Before we go to the Q&A session, I wanted to take a moment to thank all of our colleagues and partners for their commitment and dedication during what has been an unprecedented time during the COVID-19 pandemic over the past year. I am incredibly proud of what we were able to achieve and the momentum we were able to build for the benefit of patients in the context. Thank you.

We look forward to building upon the important milestones we accomplished in 2020 and executing on our strategic road map. We will now take your questions. Operator?

(Operator Instructions) We currently have no questions -- sorry. We do have questions. The first question is by Geoffrey Porges.

Appreciate the questions and the clarity. So a couple for Sung, if we could, on the guidance. So first, dumb question, but is your operating expense guidance, including cost of goods? Secondly, is your gross margin profile for Q4 likely to be where you will be going forward? And then just in terms of your SG&A, it implies that your SG&A is roughly going to be flat at the fourth quarter level, I believe. So I just want to clarify that. And then lastly, if you do secure approval in the EU for Monjuvi, would you expect there to be a milestone payment?

Great. Geoff, thanks for all those questions. And please remind me if I skip one. But your first question about COGS, that is not part of our operating expense. So just to be clear, operating expenses, R&D and SG&A expenses.

In terms of gross margin -- okay. In terms of gross margin percent, I think this will be relatively stable as we're exiting last year. We don't see that much variability this year. And I can even provide some additional color on that. For this year, you can expect it to be in the mid- to high 70s, okay? And that's product gross margin.

In terms of sales expenses or SG&A, you had mentioned that Q4 -- could we expect it to be basically the run rate of Q4. I think you're thinking about it the right way. And basically, the increase in SG&A is largely driven by the full year impact of the Monjuvi selling expenses and these were not all built at the same time in 2020. So there's a staggering effect in 2020, and we just expect to see the full year impact of that.

And then in terms of milestones, for the potential approval of Monjuvi in the EU. I think this is a very important question, and I'd like to make this very clear, that event of potential approval of Monjuvi in the EU, does not trigger any milestone payments to MorphoSys. Further to that, the initiation of the frontMIND study for first-line DLBCL, that also would not trigger a milestone to MorphoSys.

And just to wrap up the response. I think the last 2 points, the milestones, as I've come into my seat and taken a fresh look at the various estimates out there in the investor community, that seemed to be the biggest area of disconnect. So hopefully, by this communication today, it demystifies the milestone story for this year.

The next question is by James Gordon from JPMorgan.

James Gordon, JPMorgan. The first one just on Monjuvi and the '21 implied U.S. revenue outlook. So the guidance, if I understand it right, seems to imply that Monjuvi is going to do something like EUR 65 million to EUR 115 million for the year. And the bottom end of that seems to be only about 15% above annualizing what you're already did in Q4. So there's 2 questions. One is, I heard the comments on Q1 headwind, do you actually think Q1 is going to see any growth from Q4? Or could Q1 even be flat or down based on what you're seeing? I heard comments on COVID and winter storm. And for the full year, what are you assuming about how long COVID headwinds persist for? Do you think things are going to get a lot better in the second half? Or is the guidance assuming things will restart after COVID as Q1 for the whole year?

More longer-term on Monjuvi. So I know there was the guidance before the Monjuvi was going to hit a peak in the U.S. in refractory patients of $500 million to $750 million. I didn't see that tag on the slide. So is that being reiterated today? Or are you being a bit more cautious there for various reasons and clearly made the competition from CD3, CD20s or anything else? And then just the second question would be Polivy in the POLARIX first-line data coming up from Roche. So in the event that we do get positive data there over the next few months in front-line DLBCL. What do you think that means to Monjuvi? Does that reduce the opportunity in refractory patients at all? Any thoughts about what that could mean, please?

So James, thanks for your question. This is Jean-Paul. I'll address 2 and 3, and Roland will come back to the Monjuvi 2021 sales. Relating to peak sales, the $500 million to $750 million mentioning is still our assumption, of course, putting some caveats on potential market share and market evolution. This is what we have in mind now. And also, bear in mind, it is for the current indication in the United States. So if you compound potential other territories, we should be north of $1 billion for this indication. And obviously, this doesn't include potential line extensions, other indications and potential combinations because as we stated a couple of times, really important to keep in mind that part of the great potential of Monjuvi, as we see it, is the backbone strategy when we will combine with other modalities, starting with Len obviously, but also with Xencor bispecific and potentially other modalities and compounds.

In terms of your question on another event for first-line, we don't really comment on competition. That being said, obviously, we watch the space very closely. And we are extremely confident in our approach for first-line based on the strength of our regimen, probably the efficacy and durability combined with our safety and convenience make us very confident that we can be a key player in first-line regardless of other events. And again, this is good news for the patients that there will be a couple of regimen in this indication.

And last but not least, it sticks to the size of the opportunity in first-line. Bear in mind that there is 30,000 new U.S. patients every year in first-line. So no wonder why there are a couple of companies trying to crack the code here. But again, we remain very, very confident in our approach. And Malte could you elaborate on why so in the future? But I'd like to address your first question on Monjuvi for the year and Roland will address that.

Yes. Thank you, James. Speaking about Q1, our quarter, of course, is still ongoing, and we look forward to sharing the results for Q1 shortly. We just thought that given that we are quite far into the quarter already, it was worth to give a heads up regarding COVID impact and winter storm, and also to share the continued positive feedback that we're hearing from prescribers around the profile from Monjuvi and especially those prescribers that have seen our long-term data at ASH for second-line patients, how intrigued they are with the duration of response.

Looking at the rest of this year and that COVID, with vaccinations, hopefully gaining more traction as we move forward, our team is prepared to engage health care professionals increasingly in-person from the middle of this year, which will be important, especially with the new data that we look forward to sharing at medical conferences in summer.

And as you think about the uptake of Monjuvi, as we said before, expect a gradual build. We spoke about the 10,000 patients in the U.S. Therefore, 5,000 in second-line, where we're the only ones that are approved. We are looking at an increasing uptake in those second-line patients. And also, as we continue to have traction in second-line, we expect that the average duration of response, which, of course, is shorter in late-line patients, will continue to build over time. So all of this ladders up to what Jean-Paul just shared regarding our outlook and potential that we see for Monjuvi and how we are looking at this year.

Okay. Next question, operator.

The next question is by Graig Suvannavejh from Goldman Sachs.

I've got 3. My first is on Monjuvi. I believe current consensus for 2021 is about EUR 125 million for Monjuvi. I just wanted to know if you would comment on whether the company is comfortable with that current consensus number? So that's my first question. My second question just is on the OpEx guidance for the year. And I just want to make sure that I'm not missing anything. I believe that the fourth quarter OpEx was about EUR 111 million in total OpEx and -- but the guidance for the year is EUR 355 million to EUR 385 million. So I'm just wondering if you can reconcile -- if you annualize fourth quarter, you're over EUR 400 million. And so I just wanted to maybe get some more clarity as to how we should be thinking about modeling SG&A and R&D? So that's my second question.

And then my third question just has to do with felzartamab and the data that we're expecting. Are you comfortable at this time sharing? Like if you do get positive data, what the potential of that asset is in other autoimmune indications? Whether you've got already internally a list of 5 or 10 indications that you think felzartamab would be potentially appropriate for?

Thanks, Graig, this is Jean-Paul. Sung will take the 2 first questions, and I and Malte will take the other.

Okay. Great. Thanks, Jean-Paul, and I appreciate the question. With regard to your question on the consensus, Monjuvi estimates out there, obviously, we come out with guidance, and obviously, there has been a reaction, and I've seen many follow-up -- notes written with new ranges. I'll just simply refer you to Slide 16 because I think we've laid out the revenue guidance there pretty well where you can back into a reasonable range. For instance, the low end of our range, EUR 150 million; the high-end, EUR 200 million, we have stated that this is inclusive of the $16 million milestone that was triggered for otilimab from GSK.

We have also said that we expect moderate year-over-year growth for Tremfya and of course, last year, the royalties were EUR 42.5 million. So we expect, again, moderate growth. The range does not include any other significant milestones. And as I mentioned in my first response to Geoff's question, we are not expecting any outside milestones for an EU approval or the initiation of the frontMIND study.

Now with all those components given, I think you can reasonably get to a range. And I would say this range we're very comfortable with. Given -- in the backdrop of COVID, we have to make sure that we accounted for a situation that persists into the second half. And also, you have the first year launch of Monjuvi, which comes with its own variability. So this is a range we're comfortable with.

With regard to your question on OpEx and the reconciliation of the Q4 as a proxy, Q4 operating expense was just shy of EUR 102 million. There are some one-timers in there. So if you back those out, that's basically how you get to a lower operating expense vis-à-vis a run rate from Q4. So I hope that gives you some additional color.

Great. Thank you, Sung. Regarding your question on felzartamab, Graig, basically, we are -- as you know, we have started to pioneer on our B-cell indication, autoimmune membranous nephropathy, and we are close to proof-of-concept here. We are actually ready to roll out pending proof-of-concept in this first indication to roll out other indications in a disciplined way based on development feasibility, unmet need, competitive intensity and obviously, commercial potential.

Again, this artificial-associated modality in autoimmune diseases make a lot of sense because we act on the plasma cells, which produce the pathogenic autoantibody. And we're very encouraged with what we've seen already in our proof-of-concept study, and we hope we can communicate on that in the next couple of months.

The next question is by James Quigley from Morgan Stanley.

I've got 3, please. So on the frontMIND, you've mentioned the study starts within the next couple of months, but we've known the study design for quite a while since back in the last year at your Monjuvi expert day. So when could we expect to start -- the trial to start? Is any delay purely down to COVID? And the POLARIX trial is going to be reading out in the next couple of months as well. So are you potentially looking for or waiting to look at what could happen there? Could the design of frontMIND change with the results of POLARIX? That's number one.

Number two, on the milestones for Monjuvi, could you give us an idea of what could trigger the milestone? So it sounds like there's not a lot coming in 2021, and are the milestones -- or the regulatory milestones, are they pretty much attached to approvals in front-line DLBCL, follicular lymphoma and other indications? And then thirdly, on your backbone strategy for Monjuvi, since obviously, the Incyte deal and the Xencor deal, there hasn't been any activity in terms of combinations. You mentioned Karyopharm. But is it going to be on you to start a trial, sort of a basket trial of potential combinations with the other CD3xCD20 assets with the other ADCs to sort of kick start that process? Or could we be hearing something later on in the year with other combinations?

Thank you, James. Malte will take question 1 on frontMIND and question 3 on the backbone, and Sung will come back for your milestone question for Monjuvi.

Yes. Thanks, Jean-Paul. Just reiterating, we are quite excited about the upcoming start of frontMIND. We are on track. And remember, last time we spoke publicly, we highlighted that we would start frontMIND in the first half of this year, and we are fully on track to accomplish this.

In terms of our excitement about frontMIND, we believe we have really found an optimal design of the study, combining R-CHOP with actually 2 targeted immunomodulatory agents, tafasitamab and lenalidomide. We are very closely watching the time it requires to start treatment. We used a good lenalidomide dose. We are concentrating on patients who are in most need of an approved treatment, namely the IPI 3 to 5 patients. And we are really encouraged by our preliminary data of firstMIND, which we have shared at ASH with an overall response rate of over 90%.

And lastly, currently, we are the only meaningful Phase III study in front-line DLBCL. So we expect actually a very high degree of excitement regarding our frontMIND program. So with this, maybe I turn back to Jean-Paul for the second question.

Well, Malte, the second question -- the third question from James was on the backbone and our activity.

Okay. Good. So let me take that as well. Again, we are really proud and also excited about the interactions we have made with Xencor and also with other companies regarding new and exciting combination programs, including CD20xCD3 assets. The reason we started actually with Xencor was that we know Xencor very well. We have a very good and long-standing and trustworthy relationship. And we are now in the process of evaluating other potential combination partners. And we take this one step at a time. A basket trial would be probably difficult because the other agents that you have mentioned are not yet approved. That's why we will probably look at collaboration agreements with other companies if the opportunities arise.

Thanks, Malte.

Okay. And with regard to your question on milestones for tafa. Recall, when we did this deal, it included a large upfront, along with the eligibility of $1.1 billion for regulatory and commercial milestones. And I've just called out 2 that are not included of that $1.1 billion. To the extent that we enter a year and a milestone is significant for that year, we could talk about these because, obviously, it would be material to our company in that year. But just wanting to respect the confidentiality of our agreement with our partner, I'm going to have to leave the details for the appropriate time. But I'd hope by clarifying the position on the potential 2 catalysts this year, it kind of helps you with your modeling.

Next question, please.

The next question is by Vineet Agrawal from Citibank.

Three, please. So first is the clarification on OpEx. So I think on Slide 16, we can see that the OpEx of EUR 309.7 million for 2020 includes COGS of about $9 million, but you are saying that it's excluded from 2021 guidance. So just wanted to confirm if you're changing the way you define OpEx? And then second, on R&D, Incyte has disclosed $88 million cost related to Monjuvi development for 2020. Now obviously, that's the 55% share, but is it for full year or it's from the date the deal got completed, that is sometime in March? And the last question is on your last slide. You didn't include the Xencor royalty payaways. So if you could just clarify where it sits within the Monjuvi P&L?

Sure. So this is Sung. Yes, that's a very astute observation on OpEx. So the classical definition that I'll just define OpEx with is it's R&D expense and SG&A expense. And I provided separate color on cost of goods sold or gross margin, I should say, with regard to Monjuvi. So it is separated. So I can confirm that. OpEx, again, does not include any elements of cost of goods sold or cost of sales, okay?

With regard to your question on the tafa R&D, I think you were talking about the reimbursement, the 55-45 split where we pick up 45% of the development expenses and Incyte, the balance. I'll have to double check this, but I believe this formula applies retroactively to a time that's before the effective date of the agreement. But I'd like to be able to verify that and follow-up with you.

And then your last question with regard to the Xencor royalties, and please correct me if I got the incorrect understanding. But basically, there are royalties due to the Xencor on worldwide sales. However, with regard to U.S. Monjuvi sales, the Xencor royalty is factored into the profit share, okay? Ex U.S., MorphoSys is responsible for paying the royalty to Xencor, from the royalties that we receive from Incyte.

The next question is by Etzer Darout from Guggenheim Securities.

This is Paul on for Etzer. On felzartamab, I wanted to ask about the rationale for the dosing schedule which you're investigating in the New-PLACE trial and sort of how you anticipate the results of the study and M-PLACE trial together informing -- thinking about next development steps in membranous nephropathy? And also just a clarifying question. Will the M-PLACE data most likely be at a medical meeting or more of a company release?

Thanks, Paul. Malte will take your question.

Yes. So the development strategy of conducting, scheduling, finding or defining studies in parallel to the sort of proof-of-concept study is actually quite normal in the autoimmune development world. So we are on purpose doing this in parallel, so that we not only get confidence on the activity of this program in a significant autoimmune indication. But at the same time, develop the best schedule going forward. And as you know, it's public information. It's -- you can see it in clinical trials.gov, we're comparing 2 different schedules, differing by the amount of different doses over time. And that will help guide us to provide actually the best and most convenient treatment schedule for patients.

With respect to your second question of when and how we will communicate the data? We haven't really made up our mind. I think it depends a bit on how fast we progress on looking at the data, cleaning them, as you know. So we will do this as quickly as we can. We expect to have data in the first half of this year. But again, then it depends a little bit on what the sequence and cadences of meetings, but we will share this as soon as we can.

The next question is Zhiqiang Shu from Berenberg.

I have 3, if you can help. The first one is on tafa. I guess, can you comment on tafa's overall real-world take-up? And how physicians use it in the second-line or later? And also, have you seen any physicians using the tafa post CAR-T failures? That's what we've heard people are trying using that. Any color would be helpful there. Secondly, a quick follow-up on felzartamab. I guess autoimmune is a big indication class. Are you -- would you be interested in finding a partnership there? And third is the clarification on the financials. I recall there are a significant portion of upfront payment from Incyte has not been recognized. I guess, how would that be recognized in the income statement? Would it be recognized in 2021?

This is Jean-Paul. I'll answer the question on felzartamab and the potential partnership and then transition to Roland and Malte for your question on Monjuvi. And then Sung will close on the financial question.

So for felzartamab, we have the opportunity now to really strengthen and build our own portfolio coming out of this long years of licensing or partner business. And the intent is to obviously retain the economics with felzartamab. We have the whole economics of the asset. But I mean we might establish the commercial partnership in the future depending on the indications. Imagine we need to tackle a nephrology target or universe with this first indication. We might decide to partner with a company with a presence in nephrology. Nothing is decided, but we have the optionality, and we have the complete control on the asset.

Roland, please, for the question on second-line or later use on CAR-T.

Yes. On Monjuvi real-world usage, as you would expect in any launch in hematology, there are physicians that are having an initial trial of the medicine for later-line or last-line patients that have run out of options. We've seen this happening. Having said that, over these last months, we are very encouraged, pleased with the uptake that we see in second-line, where we are the only approved regimen for patients and especially in the community setting, that offers a very attractive opportunity for patients and for health care professional. So we're very pleased with what we're seeing in terms of the condition going into second-line, where we also expect treatment durations to be longer in-line with the long-term data that we are sharing.

As for usage before and after CAR-T, I think that Malte, perhaps you can give us a bit more color and share a bit more color there.

Yes. Thanks, Roland. So we actually see both. We actually see Monjuvi used before and after CAR-T cell treatment, which also makes sense from a scientific and clinical data perspective. We have -- we are in the process of also sharing data regarding the CD19 expression, so that we can gain confidence inside and also outside that the CD19 target actually remains intact upon longer-term treatment with Monjuvi. So that's a very important information. But in the real-world setting, as you asked, we are actually quite content and also excited that doctors use Monjuvi before and also after CAR-T cell treatment.

Okay. And I think you had a question on the recognition of milestones from inside the accounting treatment. Generally, these milestones are recognized when they're earned. And they're paid in the lump sum, generally speaking. So I don't see anything unique about these milestones. So hopefully, that answers your question.

I think we have -- okay. Next question, please.

The next question is by Daniel Wendorff from Commerzbank.

It's Daniel Wendorff from Commerzbank. One further clarification question on the guidance. So would there any Monjuvi revenue coming out of Europe also in form as a royalty included in this guidance at all? That would be my first question. And the second question is on also Monjuvi market launch in the U.S., is it fair to assume that I interpret your comments with regards to the impact of corona as well as the winter storms in the U.S. that March, April, maybe also May might also be more complicated quarters in terms of the launch? And that's my second question. And my last question on Tremfya royalty, the moderate year-on-year growth you have included in your guidance for 2021. The product was also approved in Europe for psoriatic arthritis. Is that now a more normal growth rate for the status of that product? Or why is that not stronger?

Thank you, Daniel. I'll take question 2 on Monjuvi launch. Look, as we said several times during the call, these are early days, and we launch in the middle of the pandemic. So we're focusing on execution of the launch. But I mean, bear in mind that we are so focused also on unlocking the potential, the long-term potential of Monjuvi. And you had a couple of examples this morning with the initiative in driving. We have so many opportunities with the pipeline, Monjuvi as a backbone, Monjuvi as a pipeline in a product, felzartamab, earlier R&D and obviously, potential external opportunities. So I'll encourage you to stay tuned and hang with us as we're navigating the context, but it doesn't affect the long-term prospect of Monjuvi in our opinion.

Now I'll pass to Sung for the question on the guidance.

Great. So I think your first question was have we baked in any royalty revenue from potential EU sales at Monjuvi? And the answer simply is no. Obviously, when that event happens, we'll have greater certainty.

Your other question was with regard to Tremfya growth. And I just referenced Slide 16 where we've characterized it as we expect moderate growth. And I think your question is why not more? Well, simply, I think definitions of moderate vary, but certainly, this is not something we want to be aggressive on because we receive as much information as you do with regard to Tremfya sales out there. And obviously, in 2020, it did USD 1.3 billion. So it's blockbuster status. A year before $1 billion. And it seems like with the amount of studies our partner is conducting and the footprint expansion for Tremfya, this continues to have a runway, but it's certainly not something we have tremendous visibility into. And again, we do not receive any detailed forecast from our partner, and we're working with as much information that is available to the public. And this is not something that the company needs to be super aggressive on.

The next question is by Jason Butler from JMP Securities.

Just on the M-PLACE study. In first data readout we get, will we get proteinuria data as well as immunological response. And just if we do, can you help us benchmark the kind of response that we look for? Is there anything that's relevant from studies with, for example, Rituxan or steroids that you'd point us to as a benchmark or proteinuria response? And then a follow-up, Jean-Paul, just at the beginning of your prepared comments, you talked about bispecifics as important to the long-term strategy. Obviously, you have the partnership with Xencor. But can you maybe just talk about your internal plans for bispecific development?

Thank you, Jason. Actually, I'll let Malte answer the 2 parts of the question -- the 2 questions.

So let me start with the first question on M-PLACE. Yes, we are, of course, monitoring the autoantibody titers in conjunction with the proteinuria data. And as you may know, the proteinuria data come roughly 6 to 9 months after you see the first drop in autoantibody titers. That's just by the normal process of how the kidney reacts to the disappearance of the pathogenic autoantibodies. So that's why we hope to have as many data for proteinuria as possible, but we certainly have immunological data. And for a proportion of patients, for sure, supported by proteinuria data.

With respect to the comparison or benchmarking to rituximab, that's actually quite difficult to make sort of a cross-product comparison because recall that in our trial, in the M-PLACE trial, a significant focus is on patients who would have almost 0 probability to respond to rituximab because they have such high autoantibody titer. So that's a difficult situation to give a good benchmarking comparison. But I think with respect to the anecdotal information we receive from other anti-CD38 antibodies in similar diseases and with respect to what we have seen in our multiple myeloma studies, regarding autoantibody production, antibody production, we are really confident and optimistic that we actually score extremely high and have a very competitive product.

And Jason, just for your third question on bispecifics. We have a series of candidates actually in our research pipeline, bispecifics -- novel generation of bispecifics, the Hemibody technology based on the CyCAT platform. So yes, we are obviously looking at what makes sense here, trying to overcome the current challenges of bispecifics, especially in terms of safety and tolerability.

We have no further questions coming through. So I will now hand back over to Dr. Julia Neugebauer to wrap up today's call.

Ladies and gentlemen, this concludes today's conference call. If any of you would like to follow up, the Investor Relations team of MorphoSys is available for the remainder of the day. Once again, thank you for joining our call. Have a good day, and goodbye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.