MorphoSys AG (MOR) 2015 Q2 法說會逐字稿

Ladies and gentlemen, welcome to MorphoSys quarterly call. Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

Now I would like to attend the conference over to Dr. Gutjahr-Loser. Please go ahead.

Good afternoon and good morning, and welcome to our Q2 2015 conference call. I am Claudia Gutjahr-Loser, head of Corporate Communications and Investor Relations of MorphoSys.

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

With me today are Simon Moroney, our Chief Executive Officer, and Jens Holstein, our Chief Financial Officer.

Finally, we will start by giving you an operational overview of the second quarter. Before we open the call for your questions, Jens will review the financial results of the first six months of 2015. Afterwards Simon and Jens will answer questions on this topic. I would now like to hand over to Simon Moroney.

Thank you, Claudia, and also for me a warm welcome to the call.

Q2 2015 was dominated by event in connection with our proprietary drug portfolio. For each of our most advanced oncology programs, MOR208 and MOR202, we presented promising data at ASCO. With the acquisition of Lanthio Pharma, we added several innovative therapeutic peptide programs to our portfolio, including preclinical candidate MOR107.

Overall, our pipeline is at record levels. For the first time, our total pipeline comprising both proprietary and private programs exceeds 100, of which 24 are in clinical development. This points to the successful execution of our strategy to build sustainable value by our combination of hardware and proprietary R&D.

I will start the detailed operational review with our proprietary portfolio. Our most advanced proprietary program is MOR208. For this program, we presented updated data from the phase 2 trial in diffuse large B cell lymphoma and follicular lymphoma at both the ASCO and EHA conferences.

Without going into these data again, the key messages were that MOR208 shows very promising activity, including a number of complete responses, and led to long-lasting antitumor responses. This is encouraging, particularly for single essentially unmodified antibody, especially considering that the trial was in patients who were refractory to or had relapsed on standard Rituxan containing regimens. The findings are consistent with the view that in these patients, where expression of CD20 is often lost or reduced, targeting CD19 may be a superior approach.

MOR208 is being moved forwards on a broad front. We are preparing further trials, the first of which will be in DLBCL. Here, we plan to investigate combinations of MOR208 and lenalidomide, and MOR208 and bendamustine in relapsed or refractory patients. These trials are planned to start in the second half of the year.

Behind these studies, we are working on plans for further trials in CLL and follicular lymphoma, details of which we will communicate in due course. In addition, the trial of MOR208 in pediatric patients in combination with NK cells, is being set up as an investigative-sponsored trial to be run at St. Jude's Children's Research Hospital in Memphis.

Turning to MOR202, the ongoing phase 1/2a trial in relapsed or refractory multiple myeloma is continuing as planned. There's clinical data from this trial were published at ASCO. The data provided evidence that MOR202 is safe and tolerable, when dosed either weekly or biweekly with potentially best in class infusion tolerability and administration. Very importantly, we saw early signs of clinical activity increases of long-lasting tumor control.

Altogether, what we have seen point towards a balanced and potentially best in class safety and efficacy profile.

The current status is that we are dosing the last cohort of the monotherapy arm of the study at 16 milligrams per kilogram, and have started the two combination arms combining MOR202 with lenalidomide and pomalidomide. We aim to give a further update on the program with first data from these new cohorts at ASH in December.

MOR209 is our codevelopment program with Emergent BioSolutions, a bispecific antibody for prostate cancer. This program is currently in a phase 1 study being run by Emergent in the US and Australia. The program is proceeding according to plan and first clinical data are expected to be released next year.

Turning to MOR103, just a few days ago our partner, Glaxo Smith Kline, published the design of the phase 2b trial of MOR103, which is now called [GSK3196165] on the website clinicaltrials.gov. Without going into detail, the phase 2b trial is substantially larger than the phase 1b/2a we have conducted with the drug. It uses a subcutaneous formulation of MOR103 and features a much longer treatment period than that used in the previous trial. We are extremely pleased to see progress with this compound at GSK, and are looking forward to seeing results from this comprehensive study.

Moving on to our early-stage portfolio, the most significant news in Q2 was our acquisition of Lanthio Pharma. This transaction brings four anti-peptide programs into our proprietary portfolio, including lead compound LP2, renamed MOR107, a novel agonist of the angiotensin type II receptor which is being developed for diabetic nephropathy and fibrotic diseases.

The acquisition also secured for us all remaining technology and know-how related to Lanthio Pharma's lanthipeptide capabilities. This new class of constrained peptides offers high target selectivity in improved drug like properties and complements very nicely our existing antibody platform.

MOR107 is currently in late preclinical development and should enter clinical trials in 2016.

Moving on to the partner pipeline, we've seen a number of positive developments. Most recently just after the quarter closed, we announced that our partner Novartis had taken another antibody from our collaboration into clinical development. This program, which addresses certain blood disorders, becomes the 11th clinical program from our collaboration with Novartis. This speaks to the productivity of the alliance and provides further diversification of our pipeline from an indication perspective. This IND marks the second of up to six clinical milestones -- milestone events we expect to see with partners this year.

Also, after the end of the quarter, there was significant news around Alzheimer's disease emerging from the AAIC conference in Washington. Announcements on antibody programs targeting amyloid beta add to growing confidence in the industry that this approach could lead to disease-modifying drugs. Our partner Roche has expressed renewed confidence in their Alzheimer's programs, including our HuCAL anti-amyloid antibody gantenerumab.

Data presented by Roche at AAIC showed that gantenerumab treatment was associated with dose-dependent reductions in brain amyloid, consistent with amyloid clearance and an effect on downstream markers of neurodegeneration. Roche has stated that they are evaluating -- proceeding with clinical trials against [neuromab] at a higher dose than is being used so far. We look forward to further news from this important program.

That concludes my summary of the operational highlights of the quarter. I will now hand it over to Jens for his presentation of the financial results.

Thank you, Simon. Ladies and gentlemen, also from my side good morning and good afternoon and thanks for joining us in today's call.

I would like to kick off the financial sections confirming that our six months' results are fully in line with our expectations for the full-year 2015 guidance. We are very pleased with the financial performance for the first half of this year and the development of our compounds that dominated in our R&D expenses.

Let me start the financial review with the income statement. The financial results for the first six months of 2015 have been predominantly impacted by the termination agreement with Celgene, influencing our revenues and our operational results significantly.

Total group revenues amounted to EUR82.6 million for the first six months of 2015, compared to EUR30.5 million in the same period of the previous year. The strong increase was mainly the result of the release of deferred revenues and a final one-time payment that we agreed with Celgene when we signed the termination agreement.

In the same period, total operating expenses increased to EUR40.9 million compared to EUR30.1 million. The expenses there are for research and development, amounted to EUR33.9 million as compared to EUR23.4 million in the previous year, while general and administrative expenses increased EUR6.7 million -- from EUR6.7 million to EUR7 million.

Expenses in proprietary products and technology development during H1 amounted to EUR25.3 million as compared to EUR14.9 million in the previous year. In line with our current guidance, we expect expenses in proprietary R&D to further increase over the course of the year.

The EBIT of the first six months of 2015 amounted to EUR56.1 million in comparison to EUR0.4 million in the previous year. The Group generated a net profit after taxes of EUR36.5 million in the first six months of 2015 compared to a net profit of EUR0.6 million in the first half of 2014.

Let's now have a closer look at our two business segments. In the proprietary development segment, as a result of the terminated collaboration with Celgene, the segment achieved revenues of EUR59.6 million compared to EUR7.7 million in the first half of the previous year. Operating expenses in the segment increased from EUR30.6 million to EUR24 million. The segment EBIT amounted to EUR40.2 million compared to minus EUR5.9 million in the same period of the previous year.

In partner discovery segment, generated revenues in the amount of EUR22 million in the first six months of 2015 compared to EUR22.8 million in the previous year. The segment's revenues included funding research and license fees in the amount of EUR21 million and success-based payment of EUR2 million, including the phase 1 milestone payment from Novartis, which we announced last week.

Operating expenses in this segment increased versus the first half of 2014 to EUR10.6 million. The segment EBIT amounted to EUR12.5 million, unchanged to the previous year.

Turning to the balance sheet, on June 30, 2015, MorphoSys held cash and cash equivalents, marketable securities and other financial assets in the amount of EUR324.9 million compared to EUR352.8 million on December 31, 2014.

In May of this year, we acquired the Dutch biopharmaceutical company Lanthio Pharma. Simon has already explained the acquisition. Let me shortly discuss the financial implications.

Prior to the acquisition, MorphoSys held already 19.98% of Lanthio Pharma. The purchase price for the remaining outstanding shares of Lanthio Pharma amounted to EUR20 million. As of May 7, 2015 Lanthio Pharma is included in the MorphoSys group scope of consolidation for the first time, and therefore had already an effect on these interim financial statements. All income and expenses were included in the proprietary development segment, and the payment of EUR20 million reflected in our cash position of EUR324.9 million.

Before we open the call for all your questions we would like to reconfirm our financial guidance for 2015, which was updated at the end of the first quarter with the termination of our agreement with Celgene. The recent acquisition of Lanthio Pharma is not expected to have a material impact on our guidance.

For 2015, MorphoSys anticipates total group revenues between EUR101 million and EUR106 million, and an EBIT of between EUR9 million and EUR16 million. Expenses in the proprietary product and technology development should be in the range of EUR56 million to EUR63 million. This guidance certainly does not include the cost for any additional development program that may be in licensed during the course of the year.

Ladies and gentlemen, that concludes my review for the first six months of 2015 and I will now hand back the call to Claudia for the Q&A session.

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

(Operator Instructions) Olav Zilian, Helvea.

This is Olav Zilian from Helvea Bank. I would like to pose just one question which is about MOR202. So do you have any plans to test the antibody also with some estimates from Amgen?

Thanks, Olaf. I'll take that one. Of course there are all sorts of thoughts and ideas about potential future trials that we may want to run.

At this stage, the focus is on completing the monotherapy, which means MOR202 plus dex of course, and also these initial [imid arms] with pomalidomide and lenalidomide. But in the background, we are thinking about all sorts of different combinations partners, [guselkumab] being just one potential that one can think about. But step-by-step, we really want to get to the completion of the ongoing trials first before we embark on anything like that.

With respect to this trial, where are you for decreasing the dose of the antibody?

Sorry, could you just repeat that? I missed that.

Concerning the dose increase, so to get to a maximum tolerated dose, where are you there [in the trial]?

We anticipate that the 16 milligrams per kilogram dose, which is now ongoing, will be the effective dose that we go forward with.

And that enrollment for this dose will be completed by then?

It's ongoing at the moment. We hope that that cohort will be complete before the end of this year and we hope to have data, if not final data but certainly an update at ASH in December of this year.

So then, for combining the antibodies with the other individual drugs you have mentioned before on the call, when would you start that?

That has started already, so both the lenalidomide and pomalidomide combos with 202 have started.

Very good. So then, if you consider combining the antibody with another small molecule drug or maybe whatever biologic, would this require a new trial? Or could you simply add another arm to the existing trial?

That's something that we are looking at at the moment as to how that would be done exactly and it's premature to say exactly how they could look in terms of what the partner or partners could be, and how the trial design would look. But it's something that we are analyzing as we speak.

Before stepping back into the hole, what are your feedbacks from potential partners on this antibody?

I think, as we've mentioned previously, there's interest out there which is encouraging. This is only one of three anti-CD38 antibodies in the clinic right now. And as usual, we don't comment on any ongoing discussions or timelines or potential deal scenarios. Suffice it to say that there is interest and I think people are following closely the progress of the clinical development of MOR202.

Excellent, thank you very much.

George Zavoico, JonesTrading.

The first question is regard to Lanthio. Your pipeline had been heavily weighed in favor of oncology targets. And the Lanthio seems to be moving away from that focus. Is that an emerging trend that we are going to see going forward?

Thanks, George. Let me take that one. I think it's -- you shouldn't read too much into this, other than that we would really very much like to have a second leg beyond oncology and we see our focus as being primarily in oncology, which has a lot of attraction, of course, particularly these days given all the progress that is being made here. But we are also keen to have a second area of focus and Lanthio does that, not only from an indication perspective but also, if you like, a molecular point of view, given that this is a different class of drug compared to the antibodies and potentially opens up new target opportunities for us, whether it be intracellular targets, for example, or perhaps targets in general that are not well hit by antibodies.

So it's a second leg that we see is very much complementary to the capability we already have in place with the antibody platform.

You mentioned four proprietary candidates that came in, only one of which you identified. The other three you won't disclose now or are some of them oncology targets as well, if you can say that?

They are earlier stage at this point, and therefore a little bit premature to talk about them. So the main focus is certainly on the most advanced of the four, which is LP2 or MOR107 as we now call it, which is in the area of fibrotic diseases. And we are happy to talk about the others when they are sufficiently far down the track. (multiple speakers)

Sure, sure.

And with regards to Lanthio, you intend to maintain operations in The Netherlands or what kind of integration, if any more, are you going to do to fold in to the MorphoSys structure?

It's a small operation, which means that integration is relatively straightforward. But we are also, at this stage, leaving them relatively alone. We don't want to suffocate them.

So it's a small, creative, innovative unit there. And for the moment at least, we want to leave them to be as creative and productive as they can be without too much dominance from headquarters here in Munich.

And speaking of small creative units, you didn't mention anything in the call today about the new G protein program that you partnered with the UK Company. Can you highlight anything about that in the last quarter that may have happened?

You are talking about Heptares, I assume, the Heptares collaboration?

Yes, yes.

Yes, this is a collaboration that has been going on for a couple of years now in which we access their star technology in order to make antibodies against G protein-coupled receptors. Our experience so far has been very positive, I have to say, although again, the programs are at an early stage and nothing is sufficiently far down the track that we feel it's ready to talk about it in public.

But the experience -- certainly the experience in terms of combining their way of making and presenting GPCRs with our ability to make antibodies, the experience so far has been very good.

Okay, that's all for me. Thank you very much.

We currently have no questions coming through, so as a reminder (Operator Instructions) Gunnar Romer, Deutsche Bank.

Gunnar Romer, Deutsche Bank. Thanks for taking my question. The first one would be with regard to MOR103. I was wondering whether you can share anything on top of what is publicly released in terms of the timelines of the program, when we can expect update or how we should think about updates on that program going forward.

Secondly, on the revaluation again you booked in connection with the Lanthio acquisition, and maybe this question goes to Jens. I was just wondering how that corresponds with your guidance and whether you have thought about adjusting your guidance or what has held you back in that regard.

And then, last but not least, on bimagrumab as well as on guselkumab, I was wondering when you would be in a position to potentially share more details around the royalties of those programs. Thank you.

Thanks, Gunnar. Let me start with the 103 question. At this stage, as you know, the program is fully in GSK's hands.

And so I'm afraid you will have to direct any questions on timing or future y to them. All we can do at the moment is direct you to the entry on clinicaltrials.gov where there is a certain amount of information on the program, the trial design and so on. But we are unable to comment beyond that at this point.

Yes, on the second question regarding the revaluation gain, indeed as you have seen and pointed out, we made a profit on that transaction which sounds a little bit strange, but is following the IFRS accounting rules. Some of this profit you should be aware of comes from the fact that we had preferred terms in terms of our investment beforehand, so due to the fact that we have negotiated something for the Company, some of this is reflected in a profit.

Overall, in connection with the guidance, I think it's fair to say that certainly that had a positive implications on our profitability towards the full year. On the other hand, you should also keep in mind that we will invest further money into specifically MOR107, formally to LP2. So there is some sort of neutralization between the two parts and therefore we didn't expect any implication for the guidance.

I'm going to finish off the question about bimagrumab and guselkumab royalty rates. At this stage we don't have an agreement with the two parties, Novartis and Janssen, to disclose what those royalty rates are. We would like to be able to do so in advance of them coming to market to give you guys some more details in order to really to work with creating models and so on.

We would aim to do that, but at this stage we don't have that clearance and therefore, we can't do so. However, we appreciate and like the question because, like you, we are also anticipating these two products coming to market.

All right, thank you very much.

Mark Pospisilik, Kempen & Co.

Just two on the earlier stage proprietary candidates, on the 107 is there anything else you can tell us about it in terms of what sort of fibrotic diseases might be the focus or what you would like to target? Essentially, out of the I guess four-odd preclinical candidates that were at Lanthio, why you like this one the most or forward first? And then on 208, just if any comment or color you can provide on positioning versus the CAR-T therapies in related indications there? Thanks.

Thanks, Mark. 107, of the four programs from Lanthia, it's simply the furthest along. And as I said during the speech, we expect it to be ready to start clinical testing probably next year. In terms of the science, we are happy to get you more information off the call. As I said, it's an agonist, so angiotensin type II receptor. We like the approach. We like the target.

And the fact that it's an agonist also points a little bit to the advantage of having a second platform besides antibodies. It's not that easy to make agonistic antibodies, as you know. So it's a little bit of a different flavor, if you like, for us in terms of mechanism of action and also indication.

It looks to be -- to have brought potential based on the preclinical data we've seen so far in fibrotic diseases. The initial indication that we are looking at is diabetic nephropathy. But it could also broaden out into other -- perhaps even lung fibrosis and beyond that initial focus.

So these are the -- spectrum of diseases where it could be developed is something we are studying at the moment, but the initial focus is probably in diabetic nephropathy.

Regarding 208, remember 208 is essentially, to all intents and purposes, an unmodified antibody. It has a small modification in the SC portion to amino acid chains, which dramatically increases recruitment of the sector cells and therefore killing its targeted B cells. I think if you look at any other therapeutics out there that are targeting CD19, they are all more complicated in some regards. Either they are antibody derivatives of some sort, so bispecifics for example, or ADCs or kind of all the way to the most complicated [CD-19] variant, if you like, which is the CAR-T approach.

So, we think that MOR208 has a very manageable safety profile. The efficacy data that we've seen so far looks very encouraging and we haven't really seen yet its full potential, which we think will emerge some of the combination studies that we are now starting. So the picture that we would like to imagine MOR208 is a very -- a drug that is very easy to use, that is very manageable from a safety perspective, that has very, very competitive efficacy and ultimately perhaps not the efficacy that we've seen in 102 settings with CAR-T, particularly ALL, where CAR-T seems to have done extremely well.

But, we feel ultimately could be a much more widely used and usable drug, just given its convenience and ease of use. So that's the perspective and the potential we see for MOR208 and why we really, really very much like this product.

Great, thank you. That is helpful.

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

Thank you. And to conclude the call, I would just like to remind you of the main take-home messages. First, development of our proprietary portfolio is proceeding according to plan with important clinical trials of MOR208, MOR202, and MOR209 ongoing.

Second, our partners continue to make good progress with all of the most advanced programs in the pipeline.

And finally, overall, our drug pipeline is bigger and more advanced than ever before, with over 100 programs altogether and 24 in the clinic. We are excited about many of these programs and look forward to seeing and sharing with you an increasing stream of clinical data in the months ahead.

This concludes our call. If any of you would like to follow up with us, we are in the office for the remainder of the day. Thank you for your participation on the 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.