MorphoSys AG (MOR) 2022 Q3 法說會逐字稿

Ladies and gentlemen, good afternoon and good morning. My name is Julia Neugebauer, Head of Investor Relations at MorphoSys. And it is my pleasure to welcome you to our third quarter 2022 financial results conference call. Joining me on the call today are Jean-Paul Kress, Chief Executive Officer; Sung Lee, Chief Financial Officer; Tim Demuth, Chief Research and Development Officer; and Joe Horvat, U.S. General Manager.

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 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, 2021, and from time to time in other SEC documents of MorphoSys. It is important to keep in mind our statements in this webcast speak as of today.

On Slide 3, you'll find the agenda for today's call. Jean-Paul will begin with an overview and we'll give an outlook. Joe will provide a commercial update, and Tim will provide an update on our development pipeline before turning the call to Sung for a summary of our third quarter 2020 financial results. Following these prepared remarks, we will open the call for your questions.

With that, I now hand the call over to Jean-Paul.

Welcome, everyone, and thank you for joining us today. This was a busy quarter for MorphoSys with a lot of activity on various fronts. Before I come to an update on our own programs, I wanted to acknowledge the recent news from Roche on gantenerumab. We are disappointed by these results as there are millions of people impacted every day by Alzheimer's disease. We are grateful to the study participants for their contributions to this research and thank our long-standing partner, Roche for their work on the graduate program and their commitments to the Alzheimer's community. While the results of the gantenerumab and otilimab trials were disappointing, it validates our strategy to invest in and develop our own pipeline. We have made significant progress executing on our own programs and priorities over the last month.

Before we dive deeper into the progress of our pivotal studies and an update on the commercial execution, I would like to call out 2 highlights. First, tulmimetostat, our mid-stage assets that we acquired from constellation and was previously known as CPI-0209. In late October, we published preliminary results from the ongoing Phase I/II study that supports the potential application in a broad range of advanced tumors. Tim will share more shortly.

And second, we strengthened our balance sheet with $300 million from Royalty Pharma, which gives us additional flexibility. Our pivotal Phase III studies with pelabresib and tafasitamab are enrolling well, and we continue to be encouraged by this progress. We are highly committed to enhance the standard of care for patients with difficult-to-treat blood cancers, and we are laser focused on delivering results for these important programs as soon as possible. Collaborative is being studied in first-line myelofibrosis in combination with ruxolitinib in the MANIFEST-2 pivotal study, and we expect pivotal data in the first half of 2024. If approved, this regimen could have the potential to change the standard of care for patients and generate more than $1 billion in peak sales. We are excited about pelabresib potential disease-modifying attributes where the data continues to mature. For Monjuvi, the latest opportunity is in the first-line DLBCL setting. The medical need is still high, and there is significant interest from the medical community in the Front-MIND study, which has a positive effect on enrollment.

The study focuses on high-risk patients with an IPI score of 3 to 5, which we believe distinguishes this study from others. I'm very proud that we'll have a strong presence at ASH this year with a total of 14 abstracts accepted and 4 oral presentations. The comprehensive set of data we will present reaffirms our confidence in our pipeline and our late-stage clinical programs. Tim will speak in more detail about what to expect at ASH.

Turning to commercial; last quarter, we experienced headwinds from increased competitive activity for Monjuvi. As indicated in the previous quarter, additional treatment options now available for patients with relapsed or refractory DLBCL led to a sequential decline of Monjuvi sales in the third quarter and an updated financial guidance for the full year. With that, I will hand over to Joe who will provide more details.

Thank you, Jean-Paul. Turning now to our Monjuvi commercial results. Our Monjuvi net sales in the second quarter were $22.2 million, which represented a 1% year-over-year growth and a 5% decline on a sequential basis. Underlying demand, however, grew 8% year-over-year. Despite the competitive challenges, we continue to maintain leading market share in second-line new patient starts, and we expanded our reach to approximately 1,350 sites of care ordering Monjuvi since launch. Approximately 80% of sites are repeating their orders with 70% of orders coming from the community.

Our field engagement continues to remain strong with approximately 90% in-person interactions, where the teams are reinforcing Monjuvi's value proposition as the only in-practice outpatient immunotherapy in second-line DLBCL. Our efforts continue to focus on ensuring consistent positioning and clear differentiated messaging on the strength of the Monjuvi data, particularly in second line. In addition, after strong efforts throughout 2022, we have continued to see gradual progress in median patient persistence this year. We continue to work with physicians, so that appropriate patients have the best and most durable outcomes possible.

To date, we have seen a number of patients continue on treatment for more than a year with some patients actually on therapy for more than 2 years. With that, I'll turn the call over to our new Chief Research and Development Officer, Tim, for an R&D update.

Thank you, Jean. I am very excited to be here and work with this accomplished team of experts to drive our pipeline forward. I'm a physician by training and a direct developer by heart. I have dedicated my career to bringing innovative medicines to cancer patients. I never lose sight of how urgent and important network is. Because on the other side of each discovery we make, our cancer patients and their families waiting for hope. (inaudible) MorphoSys was the company's history and its promising pipeline. We do have the potential to change the trajectory for patients living with some of the most devastating and difficult-to-treat cancers.

Starting with pelabresib, our late-stage BET inhibitor that is being investigated as a potential first-line treatment for patients with myelofibrosis. Today, the standard of care for myelofibrosis is JAK inhibition, but only 50% of myelofibrosis patients are being adequately treated with this approach. And currently, myelofibrosis treatment focuses on symptom relief rather than the true disease modification. The body of data we have presented thus far suggests pelabresib may enhance the current standard of care in the first-line treatment of myelofibrosis. This includes findings that pelabresib may affect cellular defects seen in myelofibrosis, thereby addressing the root cause of the disease. As a result, there's a great deal of enthusiasm and excitement about pelabresib within the physician community. Our Phase III trial MANIFEST-2 is on track and progressing well.

We will continue to drive patient recruitment across geographies, and we are committed to reporting top line data in the first half of 2024. Moving on to tafasitamab, our CD19 targeting immunotherapy in September, we presented results from the ongoing L-MIND study, showing that tafasitamab plus lenalidomide followed by tafasitamab monotherapy provided long-term efficacy in patients with relapsed or refractory DLBCL who were treated for at least 2 years. This also included 6 patients who were on treatment for 5 years or more. Additionally, the results showed that the frequency of adverse events declined after patients transition from combination therapy to monotherapy. We hear from oncologists that this durability of response provides some of the confidence when discussing therapies with their patients.

Beyond the currently approved indication, we are exploring tafasitamab in first-line DLBCL as well as additional types of lymphoma. R-CHOP is the current standard of care for patients with previously untreated DLBCL. But this treatment does not work for about 40% of patients, especially for those patients with high intermediate and high-risk disease. By adding tafasitamab and lenalidomide to R-CHOP, we believe we do have the potential to make a difference for these patients. Our Phase III tafasitamab studies, front minds and in mind are on track and progressing well. At the American Society of Hematology 2022 Annual Meeting in early December, we will build on the data we have presented this year. Our new data will be featured in 14 presentations, including 4 oral sessions, supporting the potential benefit of first-line therapy for pelabresib in myelofibrosis and tafasitamab and DLBCL.

I am proud to say that this is the most data MorphoSys have presented at a medical congress to date. For pelabresib, we will present new data from our ongoing Phase II MANIFEST study. We will share results highlighting durability of response as well as safety results beyond 24 weeks for pelabresib in combination with ruxolitinib in JAK-inhibitor-naive patients. We will also release results evaluating clinical benefit and biomarker changes, indicating potential disease modification following treatment for the pelabresib monotherapy or in combination with ruxolitinib. For tafasitamab, we will release final 18-month data from the firstMIND study assessing the safety of tafasitamab or tafasitamab plus lenalidomide and R-CHOP in patients with newly diagnosed DLBCL. This update includes data on overall response rates, duration of response and progression-free survival rates in minimal residual disease and short MRD-negative patients. We will also have presentations on MRD negativity, serve as a potential surrogate endpoints and predictor of outcomes after frontline therapy with tafasitamab plus lenalidomide and R-CHOP in DLBCL. We are committed to helping patients who need better options for first-line treatment and beyond. These latest presentations showcase the quality of science and potential solutions coming out of more focused research and development efforts.

Now let's turn our attention to CPI-0209, now also known as tulmimetostat, our mid-stage investigational next-generation EZH2 inhibitor. Tulmimetostat was designed to improve upon first-generation EZH2 inhibitors to increased potency, longer residence time on target and a longer half-life. Last month, we presented results from our ongoing Phase I/II study at the 2022 ENA Symposium also referred to as ASH meeting.

Tulmimetostat monotherapy was found to be generally well tolerated and resulted in objective responses in biomarker selected patients with ovarian and endometrial cancer as well as patients with mesothelioma and in unselected patients with peripheral T-cell lymphoma. Slide 12 provides more details on the encouraging early clinical data. These results are an important step towards demonstrating proof-of-concept for tulmimetostat. We are very excited about our pipeline's potential, and we expect to deliver new clinical data over the next several years. With that, I will now turn the call over to Sung for a review of the financials.

Thank you, Tim. We're pleased to share our financial results for the third quarter of 2022. Moving to Slide 15. As Joe stated earlier, Monjuvi sales were $22.2 million in the third quarter, declining 5% sequentially. On a year-over-year basis, we saw 1% growth as the third quarter of 2021, benefited from $900,000 in clinical trial sales. In the third quarter, we recorded EUR 0.9 million in royalty revenue from Monjuvi sales outside of the U.S. from our partner Insight. As our partner, Insight has recently stated, sales thus far have been mostly from Germany. We expect royalties to grow further as Monjuvi achieves pricing and reimbursement in other countries in Europe.

Moving to Slide 16. Total revenues in the third quarter were EUR 95.8 million compared to EUR 41.2 million in the same period a year ago. This increase resulted mainly from higher revenues from licenses due to the out-licensing agreements with HI-Bio. Total cost of sales was EUR 8.1 million in the third quarter compared to EUR 7.5 million a year ago. Cost of sales specific to Monjuvi U.S. product sales was EUR 4.5 million in the third quarter of 2022.

Turning to operating expenses. R&D expenses in the third quarter of 2022 were EUR 77.8 million compared to EUR 64.4 million for the third quarter of 2021. The year-over-year growth was driven primarily by the achievement of our clinical programs. Selling expenses decreased to EUR 23.5 million in the third quarter compared to EUR 32.4 million for the same period in 2021. Recall that we made additional investments in 2021 to support the first full year of the Monjuvi launch. Going forward, we will continue to carefully monitor our Monjuvi co-commercialization investment to ensure that it is commensurate with revenue expectations. G&A expenses in the third quarter were EUR 15.6 million compared to EUR 19.4 million in the third quarter of 2021. The year-over-year decrease is due to the transaction costs for the Constellation acquisition, which was completed in the third quarter of 2021. For the third quarter of 2022, we reported a consolidated net loss of EUR 122.9 million compared to a net loss of EUR 112.8 million for the same period a year ago.

Turning to our balance sheet. We ended the third quarter of 2022 with cash and investments of EUR 1.04 billion compared to EUR 977 million at the end of 2021. The cash balance includes $300 million in proceeds from the development funding bond from Royalty Pharma. Our strong cash position will enable us to get through multiple clinical milestones, including the pivotal data readout for MANIFEST-2.

Turning to our guidance for 2022 on Slide 17. Recall that we issued our updated guidance on October 21, which I'll summarize for you. Monjuvi U.S. net product sales are expected to be approximately $90 million. Gross margin for Monjuvi U.S. net product sales are anticipated to be in the range of 75% to 80%. We expect R&D expenses to be in the range of $275 million to EUR 300 million. SG&A expenses are expected to be in the range of $150 million to EUR 165 million. With that, I would like to hand the call back to Jean-Paul.

Before we go into Q&A, I would like to conclude with a few words. To summarize, we remain focused on driving our pivotal studies and are very encouraged with the pace of enrollment. They represent potential large value-creating opportunities over the mid-to-long term. Our teams are highly engaged on executing commercially driving Monjuvi awareness and education, and we have a strong balance sheet and cash runway. Thank you and with that, we will open the call for Q&A.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions) One moment for the first question, please. The first question comes from the line of James Quigley with Morgan Stanley.

First one on tulmimetostat. Interesting early data, (inaudible) But from what you've presented so far, do you have any idea which cancers you're going to be leaning towards, whether the biomarker strategy will be moving the optimal strategy? And what are the next sort of milestones and data points here when we think about the development program going forward? And then also with tulmimetostat, I am thinking about your cash runway. What is always in the plan? You mentioned before you are cash results at the first half of 2014. And was this always in the plan and encompassed within that commentary? And then second question on Monjuvi competitive dynamics. You mentioned that about 70% of the interest or the sales coming from the community setting, but to what extent is the CAR-T products having an impact in the community? Or should we think that the sales from the academic setting are going to be most at risk here?

James, this is Tim. Regarding tulmimetostat, as I mentioned in my prepared remarks, we have some early, very encouraging data presented at the triple meeting. And the cancers where we saw responses, and that's also shown on the Slide #12 in a little bit more detail, are some gynecological indications, clear cell ovarian cancer and endometrial cancer, those are ARID1A selected patients as well as mesotelioma patient's. These are BAP1 selected patients. And we also saw quite nice response rate in patients with PTCL. Those were unselected patients. In terms of next milestones for the program, we are really still relatively early in the program, encouraging data. And the team is running the study, moving enrollment, and we're looking to disclosing more data as the data matures.

And James, this is Sung. I think you asked a question about cash runway with respect to tulmimetostat. So obviously, with over EUR 1 billion at the end of Q3, we're well capitalized to fund the ongoing pivotal studies, and we get comfortably past the window for pelabresib pivotal data. With regard to tulmimetostat, the current plan is we have more than enough cash to fund this study through the current Phase II study. And obviously, we're encouraged by the early results we've seen and we'll take this one step at a time. And if this progresses beyond Phase II, then we'll provide an update at that point.

James, as it relates to the competitive dynamics you outlined between the academics and the community with the new approvals, we are seeing some referral pattern shifts as one would expect when a new treatment is available in the academia. Physicians are trying and understanding how these new options will fit into their treatment algorithm. So our teams continue to build awareness and understanding as the only in-practice outpatient immunotherapy for second-line DLBCL patient's.

The next question comes from the line of Jason Butler with JMP Securities.

I was going to ask if there was anything you could do ahead of the clinical data that maybe inflect the sales for Monjuvi, but it sounds like you're actually maybe thinking about pulling back more than anything else. I guess should we just expect steady growth and more focus on the upcoming clinical readouts. How you think about the sales trajectory? And then for Tim, you said on the R&D number of weeks now, I guess, any planned changes to the company's approach or focus for the research and development efforts.

Thanks for your question. This is Jean-Paul. On Monjuvi, the market is evolving, as we've mentioned a couple of times. And we see the largest opportunity for the product in the frontline DLBCL indication. That's why we are so keen on our Phase III trial at frontline and the data that Tim alluded to on the Phase II trial in this indication are also very important and interesting. And I encourage you to look at what we communicated at ASH there. So that being said, we continue to engage and communicate on the current second-line indication, which is very important for this. We think we have a place here. But it's fair to say that we've been communicating that it's becoming more competitive. So again, I think the way to look at it is it's a process we are well on for the next opportunity in first-line DLBCL, and we continue to drive our efforts both in clinical and commercial.

Now on R&D, I think I can let Tim address this question. We're very pleased with the first weeks with Tim. He is a great leader and super experience in oncology. Tim, do you want to comment on that?

Sure. Thanks for your question. Clearly, our mission is to become a leader in the Hem-Onc space with multiple commercial products. The R&D priorities are very clear. Pelabresib has the potential to be a best-in-class molecule and the trial in MF, myelofibrosis is going very well, and we are really laser-focused on that enrollment of the MANIFEST-2 study. In tafasitamab, we have a number of opportunities. I mentioned in my prepared remarks, the first-line DLBCL study. There are other lymphoma indications, the MCL and the follicular lymphoma. And we just touched already a little bit on the very intriguing early data on our EZH2 inhibitor tulmimetostat. So all in all, what I find here is a very, very dedicated group, great experience and a great pipeline. So super happy to be here.

The next question comes from the line of James Gordon with JPMorgan.

I have two, please. First one was just on Monjuvi's single-digit growth in Q3 if you adjusted for the prior trial demand and the guidance implies single-digit growth in Q4. But then as we rolled into 2023, are you confident we will see growth in the product. So what is the there? Is there a growth outlook for the product in terms of U.S. sales? And the second question (inaudible) still going to call it that is easier to say. If we continue to look promising, would you consider partnering the asset to fund further development and potently get some milestone income? Or would the plan be that you'd want to do it for yourself?

James, this is Sung. I'll take your first question. You asked about the implied growth in Q4 and the outlook for 2023. I'll just say with respect to Q4, there are some special dynamics we've seen in past Q4, obviously it's very typical in our industry to see some inventory built in quarter 4 and then a destocking of that in quarter 1. So I think with regard to those dynamics, nothing has changed. Moving on to 2023, this is something that we're evaluating. Obviously, with the introduction of additional competition this year that we've spoken about, we'll get to 2023 at the appropriate time, but this is an ongoing evaluation for us.

And pertaining to EZH2, James, we definitely are very pleased with the way the data are unfolding, but we released is exciting. We think we have the best-in-class asset here and definitely leaps away from what was the first generation product on the market showing. Excitement is growing from the community. We hear that from the (inaudible) zthe several indications we're pursuing in this Phase II. The good thing, as Tim stressed out is that we have a couple of options here in terms of indications.

We have this basket trial, which are tackling these ARID1A mutation smaller segments, but which allows a lot of possibilities to address unmet need. And there are also possibilities for larger market segments and solid tumors like prostate, it's a bit early days, but we're looking at that. And again, this would probably imply that we could look at some partnerships in the future. But it would be early to say here. We want to keep the optionality open and remember, we have the rights for all territories or indications. We are really free for doing anything we want with this asset depending on how the data unfolds; so far, very exciting. And honestly, when we acquired Constellation, our focus was so much on pelabresib, for good reasons that this is a good surprise. We like the asset at the time, but it's going even better than what we thought.

(Operator Instructions) The next question comes from the line of Victor Floch with Stifel.

I have one on CPI-0209. I was wondering if you could comment a bit on safety. It's a very candid question. Should we be worried about the level of dose reduction and dose interruption that was reported in the ongoing trial? Or do you think it's kind of market practice.

Hey Victor, this is Tim. So as you heard already, there's a lot of excitement for the molecule, the best-in-class potential. It's a Phase I study in heavily pretreated patients, a Phase I/II study. So patients have seen many, many prior therapies, including chemotherapy. It's a highly heterogeneous patient population, and we're quite pleased with the fact that despite the degree of prior therapies, patients are responding to the therapy, making comparisons regarding safety between this agent and other agents, I think, is a bit premature, very premature, and we continue to investigate the agent and find the optimal setting for its potential use in clinical trials and clinical practice later on.

Victor, I would add that there is obviously an interesting data that could happen with the other assets that have been acquired by another company. So the field is evolving. I think this is what we're trying to say here pretty quickly on this class. It's been undermined for a long time, and I think that is potentially a new era. We don't want to raise expectations too much here, but it's exciting and we are engaging on this in a very meaningful way.

And I have a follow-up, if it's possible. Just a few words on the ongoing trial with plamotamab. Any comment on enrollment because there is a lot of ongoing trials in this indication with this kind of drug. So I don't know if you can make any comments on enrolments. And when should we expect first results or data from this trial.

So Victor, this is a study that's driven by Xencor as you know, so we cannot comment on the progress of the study.

The next question comes from the line of Suzanne van Voorthuizen with Kempen.

A couple from my side. Firstly, you previously guided for peak sales of $500 million to $750 million in U.S. for the current label from Monjuvi. in the light of we're still continuing to hover around EUR 20 million per quarter, how do you look at the sales potential going forward? What do you believe is needed for us to grow from here? And what gives you confidence that the growth will materialize in the future? And then I have a follow-up.

Thanks for the question. This is Sung. So obviously, we have 8 full quarters behind us now. We're in a more competitive landscape. So I think it's fair to say that the peak sales, it's quite aspirational and obviously, we evaluate this on an ongoing basis. So we constantly revisit this. This is something we could talk about in the future. But right now, I would say it's more aspirational.

You provide cash runway guidance. But given the accounting for the 50-50 with Insight Monjuvi and Tremfya passed on to Royalty Pharma, P&L has become somewhat more complex. So can you help us understand what is the current cash grown on an annual basis? What is your run rate there?

Yes. Maybe I can answer the question this way. I mean, with over EUR 1 billion at the end of Q3, we have more than sufficient cash to get to our most important inflection point, and that's MANIFEST-2. And I did mention in my prepared comments or an answer to an earlier question, we will get comfortably past that window. Now with the additional funds we received from Royalty Pharma recently, $300 million draw on the development funding bonds that gives us additional flexibility. But we're driving the organization right now towards our most important value creation opportunity. And again, that's the readout for MANIFEST-2. So as you know, how this industry works, there's multiple opportunities to recapitalize the business based on significant positive pivotal data.

I would add, we should not lose sight on the giant catalyst that we have ahead of us with elaborative readouts in the midterm and potentially news on the enrollment of our trial in the near term.

Maybe one clarification because with the moderate Monjuvi sales now and other income from (inaudible), how you looking at the obligations extending from your debt position, most importantly, the convertible bond, which is due in 2025, seems quite near after the potential Phase III readout for pelabresib. Put some colors on how and when you plan to cover your financing situation?

I appreciate that question. So on the convert, yes, you correctly say due in October 2025. We have some time to obviously think about this, but we're keeping all options open. We take our obligations very seriously. And again, we have the wherewithal here with over EUR 1 billion at the end of Q3 to consider multiple options. So I think I'd like to leave it at that, and we haven't ruled anything out. With regard to the development funding bond, the repayment of that doesn't start until Q3 of 2024.

The next question comes from the line of Vineet Agrawal with Citi.

Maybe first on SG&A, your selling costs are down about 20% year-to-date with the quarterly run rate at about EUR 24 million now. I mean, how should we think about this line into '23? Is there any more room for cost rationalization? Or this could be flat from here until the pelabresib promotion starts? Or we should expect some increases given the inflation? And similarly, for the general and admin overheads, do you think this kind of stabilizes from here or there is more room to drive cost out? And then just quickly on your in-mine trial, I could see that as per the clinical trials, the primary completion has moved to Feb 24 versus June 23 earlier. I just wanted to check if it's still likely to read out the second half of next year or it is more of a 2024 event now. And maybe if I can squeeze in one clarification. Did you say there were some clinical trial purchases in 3Q?

Hey Vineet, this is Sung. The answer to your last question, there were no clinical trial purchases in Q3. What I mentioned in my opening statement is a year ago, in Q3 2021, there were $900,000 of clinical trial sales. So that impacts your year-over-year comparison.

Okay. And then I'll just take your first question about selling expenses behind Monjuvi. So you're right to point out you have seen some significant declines year-over-year. And obviously, even on a sequential basis, this is being titrated downward. Listen, both us and Insight want to make this profitable. And that's important to both companies. And in the first full year, both of us put additional investments behind the first year, as you would expect in a launch. But as we're well removed from that first year, we'll continue to monitor this. And I want to emphasize again something I mentioned in my prepared remarks, we will continue to examine our cost structure for this collaboration to make sure it's commensurate with revenue expectations.

And then on the G&A front, we're constantly looking at ways to optimize our cost structure, and we've taken a lot of steps towards the end of last year and even at the beginning of this year across all functions. With regard to G&A, we are not looking for any outsized movements upward in the future. In fact, we look at this very carefully. And we'll get to the 2023 guidance at the appropriate time. But I wouldn't expect any outsized movements on G&A.

Vineet, this is Tim. On the primary completion date for in mind, we are looking at end of 2023.

Ladies and gentlemen, I would now hand the conference over to Julia Neugebauer.

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.