MorphoSys AG
Q2 2021 Earnings Call Transcript

Published: 31 Jul 2021

[Julia Neugebauer:]

Ladies and gentlemen, good afternoon or good morning. My name is Julia Neugebauer, Senior Director, Investor Relations at MorphoSys and it is my pleasure to welcome you to our Second Quarter 2021 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. Before we begin, I would 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 or for the year ended December 31, 2020 and from time-to-time in other SEC documents at MorphoSys. It is important to keep in mind that our statements on this webcast speak as of today.

[Jean-Paul Kress:]

Welcome, everyone and thank you for joining us today for our second quarter financial results and business update. I am particularly excited about the addition of Constellation Pharmaceuticals to MorphoSys and want to express a very warm welcome to our new team members. Together with Constellation, we have the great opportunity to bring new breakthrough therapies to patients. This is an exciting new chapter for our company as we significantly expand our pipeline and bolster our position in hematology/oncology. Constellation’s mid to late-stage candidates fit well with our proven clinical development, regulatory and commercial capabilities and allow us to potentially expand into solid tumors. In short, we are uniquely positioned to unlock their value. Over the last several weeks, I have had the opportunity to spend time in Cambridge with the Constellation team and their tremendous excitement amongst both organizations. Integration is well underway and we are focused on what we can do together to bring Constellation’s mid and late-stage candidates to market to meet the needs of patients. Key opinion leaders and physicians have also expressed their enthusiasm as we will enhance our presence in hematology/oncology and increase our efforts to improve the lives of patients living with cancer. Moving to Monjuvi, we achieved $18 million in sales and grew 16% quarter-over-quarter. With the vaccination rollout well underway in the U.S., we saw the positive impact to Monjuvi sales as we exited the second quarter and are encouraged to see that we gain momentum continuing in July. While we anticipate increased Monjuvi uptake in the second half, we ended the first half with a lower number of patients on therapy than we had anticipated due to the challenging environment brought on by COVID for the majority of the first half. For that reason, we are narrowing our group revenue runs guidance, which Sung will elaborate further on. Nevertheless, we are encouraged by Monjuvi’s leading market share position and remain optimistic about the future trajectory, especially given the recent positive momentum. We are seeing a shift to more second line patients, which will naturally lead to a longer duration of treatment.

[Roland Wandeler:]

Thank you, Jean-Paul and hello everyone. We reported second quarter Monjuvi sales of $18 million. This represents a 16% sequential increase over first quarter Monjuvi sales of $15.5 million. Importantly, the results were driven primarily by demand. The quarter also benefited from clinical trial orders of approximately $1 million. We are encouraged with the results, our leading market share, and especially the momentum we saw build throughout the quarter. After anticipated headwinds from COVID in April and May, we exited June with a positive uptick in demand, and we have seen this trend continue into the third quarter. We see incremental momentum in Monjuvi’s growth in the community setting, with growth in academic centers holding steady, 70% of Monjuvi sales coming from the community setting. The relative ease of administration, safety profile, efficacy, and duration of response in second-line treatment for relapsed/refractory DLBCL are key drivers for adoption as we increase awareness and differentiation in this market with a large unmet patient need.

[Malte Peters:]

Thanks, Roland. We have made tremendous progress across our pipeline throughout the first half of 2021. With the acquisition of Constellation, we now have a robust pipeline of four advanced clinical programs, which we believe could change the way cancer is treated. For Monjuvi or tafacitamab, we dosed the first patients in two pivotal trials, extending the clinical development to frontline diffuse large B-cell lymphoma and relapsed/refractory indolent lymphoma. Later this year or early next year, we plan to start an additional pivotal trial, assessing tafacitamab in combination with Insight’s PR 3 kinase data inhibitor, parsaclisib, for CLL patients. We will also initiate MINDway, a study that will investigate an optimized treatment schedule with a reduced number of Monjuvi administrations for patients with NHL. Optimizing the treatment schedule is particularly important for patients with follicular lymphoma and relapsed/refractory DLBCL.

[Sung Lee:]

Thank you, Malte. We’re pleased to share our financial results for the second quarter and first half of 2021. Moving to Slide 16, total revenues for the second quarter of 2021 were €38.2 million, compared to €18.4 million for the comparable period in 2020. Monjuvi sales in Q2 were €14.9 million, reflecting 16% growth quarter-over-quarter. Royalties from net sales of Tremfya in the second quarter were €13.7 million, an increase of 18% quarter-over-quarter. Cost of sales were €10.1 million in the second quarter, compared to a credit of €7.2 million from the second quarter of 2020, due to a reversal of impairment charges.

[Operator:]

Thank you. We’ve received the first question. It is from James Quigley, Morgan Stanley. Your line is now open. Please go ahead.

[James Quigley:]

Thanks for taking my questions. So a couple – first one on Monjuvi, can you give us a bit more details on how the key launch metrics you’re tracking are going since you’ve had a bit more of a reopening in the U.S. in terms of number of accounts that you’ve managed to have face-to-face interactions with, as well as some physician feedback in the last quarter? And then also, we’re speaking to some KOLs, there seems to be, I suppose, some reticence to maybe using Monjuvi, given the lack of efficacy or perceived lack of efficacy in double-hit patients or in primary refractory patients. So, what are the key sort of pushbacks or reasons to not prescribe Monjuvi that you’re hearing from out in the field? That’s question number one. And question number two, for Pelabresib and the MANIFEST-2 trial, so clinicaltrials.gov had a September 2022 readout for the primary completion with the trial starting in November 2020, so just under 2 years from start of the trial to primary readout, adding 90 more patients and 18 more months in terms of potential readout. So, is the original enrollment slower than anticipated, or are you looking for a longer follow up? And what was the key decision to increase number of patients? Was it for more power for the primary endpoint on spend volume reduction or was it to power the secondary endpoints, particularly total symptom score? And do you need to show a benefit on receiving benefit on total symptom score for either approval or uptake? Thank you.

[Jean-Paul Kress:]

Thanks, James, for the question. Roland will answer the Monjuvi commercial questions. Malte will go for the Monjuvi KOL question, and obviously, the Pelabresib question.

[Roland Wandeler:]

Thank you, Jean-Paul and hi, James. Regarding your questions on Monjuvi metrics, we of course track a range of metrics, some of which we outlined on Slide 8 that you have in the presentation that we provided. Where you see, just as one example, the number of accounts that are adopting Monjuvi – and there, we are since launch now at a number of 700 accounts, 70% of which are in community with increasing traction there. And we also just shared that we had close to 500 accounts ordering just in Q2, which we find very exciting. Your question to our ability to engage physicians in person, we had a tough first half of the year due to the pandemic, as everyone. But we saw increasing possibilities for us to engage physicians in person as we exit Q2, and in fact, are now at about 70% of our own engagements with physicians being in person. And importantly, we see that whenever we are able to engage with healthcare professionals in person, that we see our 3-year data and our message truly resonate and translate into adoption. When it comes to physician feedback, we are especially encouraged with what we hear with the 3-year long-term data that we shared at ASCO and especially the duration of therapy there, and as Malte explained, the potential that this could mean for patients to actually have durable remissions. In terms of what we hear from KOLs, it is actually that excitement around the 3-year data and what this could mean for patients, also knowing that the study is still going on and patients are still continuing. And we hear that, as we look across subgroups, that KOLs actually appreciate that Monjuvi offers an option for many patients, but Malte, you can just expand on that on some of the details.

[Malte Peters:]

Yes. And I think you had some questions on the double-hit and triple-hit patients. We published the L-MIND data several times, and we are aware that we had only a few patients with double-and triple-hits considerations in the study. But the ones that we had enrolled did extremely well. So we had one partial response, one complete response to a fairly long degree, so I think the few data points that we have actually point to a fairly high activity of the regimen in this setting. So maybe with that, I move to your second complex of Pelabresib. You wanted to have some information on the trial execution. Let me just say when we performed our due diligence with the Constellation company, we did a really very thorough analysis of the situation, so we knew what the situation was with the trial. Yes, the study was planned to be opened in November, and we knew it took until April until actually the first patient became enrolled. So we were, from day 1, certain that we could pay more attention on optimizing the clinical execution. And as I said in my prepared remarks, we have already a full fleshed-out plan in place to do exactly that. With respect to the increase of the number of trial participants, we have increased – we will increase the number because we feel that we need to be – we want to give the trial the highest probability of success. We want to be successful on both endpoints, on the primary endpoints, spleen volume reduction 35, and also on the key secondary endpoint, TSS 50. To accomplish that, and also to understand – and also understanding a bit the current healthcare – health authority feedback, we decided that it’s the best decision to increase the sample size.

[James Quigley:]

Okay, thank you very much.

[Malte Peters:]

Thank you.

[Operator:]

Thank you. The next question is from Zhiqiang Shu of Berenberg. Your line is open. Please go ahead.

[Zhiqiang Shu:]

Hi. Thanks for taking my questions. So the first question is around Monjuvi. Particularly, I want to understand your decision to run a trial to modify – to optimize the dosing, the regimen schedule. I wonder, is that something based on the feedback you received from physicians, or something else? And the second question related to Monjuvi is around the peak sales guidance. I recall you mentioned about 500 to 750 million peak sales in the U.S. Are you confirming this guidance? The third question is related to felzartamab. In the Q4 data release, what should we expect to see in this initial data release and what’s your plan in terms going forward for this drug? Thanks very much.

[Jean-Paul Kress:]

Okay. Thank you for the question. I’ll start by your second question on the peak sales. Yes, we still think it’s possible to achieve this range of peak sales and it’s our goal to achieve it in the U.S. setting. Given the start we had, it may take us longer to get there. But as we just mentioned, we are very encouraged with the Q2 exit trends that are continuing so far in Q3. So again, for instance, we have a leading share in second line. So what I’d like also to emphasize here is that keep in mind, it’s just the beginning of the tafasitamab opportunity. The tafasitamab opportunity is bigger than r/r DLBCL. We just detailed the number of trials Phase 3 is included to broaden the development plan and improve our label with new indications, with multiple studies underway to move, for instance, in this first-line DLBCL and other indications. So, that also goes back to the backbone strategies we are pursuing. So yes, we still think it’s achievable, but I would put that in the context of the much larger opportunity we have, for instance, with first line. You probably saw some numbers that some other company have thrown out there recently on the first-line opportunity. It’s significant. There is a high unmet need, and we have high confidence in our clinical development and our trial to compete very effectively in this space. On that, I would like to turn to the other questions for Malte.

[Malte Peters:]

I think the first question was on the IV optimization study. This study is called MINDway. It is aiming at reducing the number of intravenous administrations of Monjuvi by 50%, which will increase significantly the comfort for the patients, particularly those undergoing longer treatment durations. And we had already very successful feedback from health authorities on the study design, so you can expect, once you see the details in clinicaltrials.gov, which will appear shortly that, this trial design has already been vetted and agreed upon with the health authorities. Felzartamab, remind me, what was the question again?

[Jean-Paul Kress:]

The question was why – I mean, we said we would publish some results and the case study.

[Malte Peters:]

Okay. Yes, sorry for forgetting it. So, we have already submitted an abstract to a conference which will happen in November this year. And we will be excited to share some data from the ongoing study in autoimmune membranous nephropathy at that conference, including data with respect to the autoantibody changes, but also Proteinuria changes.

[Zhiqiang Shu:]

Great. And just for Felzart, what’s the plan in terms of going to other autoimmune indications?

[Jean-Paul Kress:]

Yes. Remember, we just spoke about the second indication that we are going to start probably any week now. The second indication is IgA nephritis, which is an autoimmune kidney disease with a significant unmet need. So, we are basically developing two indications in parallel. And based on these results, we will take further decisions regarding future development plans.

[Zhiqiang Shu:]

Great. Thanks very much.

[Jean-Paul Kress:]

You’re welcome.

[Operator:]

Thank you. The next question is from Jason Butler of JMP Securities. Your line is now open. Please go ahead.

[Roy Buchanan:]

Hi, it’s Roy for Jason. Thanks for taking the questions. I guess the first one, with the imminent approval in Europe for Monjuvi, how do you guys see the competitive landscape there as being different from the U.S. and how does the peak opportunity compare to that $500 million to $750 million you have mentioned for the U.S.?

[Jean-Paul Kress:]

Yes. Roy thanks for the question. It’s – we would like to be able to elaborate on this question. But as you know well, Insight is handling the ex-U.S. operations and commercial market access. So we defer to them to comment on the uptake, the plans for market access, and obviously, the forecast question. Malte, do you want to...

[Malte Peters:]

Yes, I was just going to say, first of all, maybe just two quick remarks. First of all, the approval came really much earlier than we anticipated and showed us a high interest at the level of EMA. The second important remark is that we succeeded to maintain the orphan status for Monjuvi. And in the orphan designation, there is a statement by the authorities that Monjuvi, in combination with lenalidomide, provides significant additional benefits over existing therapies, which is, in this case, Polivy. So, I think these are two remarks that will help you maybe to put our product into perspective.

[Roy Buchanan:]

Okay, great. And then, just on the upfront from royalty, where are you guys recognizing that presumably all in the third quarter? And also, that €36 million one-time expense for the Constellation acquisition, where is that going to be recognized? Thanks.

[Sung Lee:]

Yes. So, on your last part, we did recognize part of the transaction-related costs already, about €18.8 million in Q2. There will be subsequent amounts in Q3, as well as Q4, all totaling €36 million for this year. In terms of revenue recognition in Q3, the transaction closed in Q3 with Royalty Pharma, so we would expect, for IFRS purposes that would be recognized in Q3.

[Roy Buchanan:]

Okay, great. Thank you.

[Operator:]

Thank you. The next question is from Etzer Darout of Guggenheim Securities. Please go ahead. Your line is now open.

[Etzer Darout:]

Great. Thanks for taking the question. First one just wanted to know if you had any updates on the design of the IgA nephropathy study. You have mentioned multiple dose schedules, a placebo-controlled study. I guess any additional color based on any read-throughs from the M-PLACE POC study that you will be announcing data on in the fourth quarter? And then I have a second question.

[Jean-Paul Kress:]

Yes. So, for the design of the IgA nephritis study, we have not disclosed the design, and I would like to ask you for a little bit of patience until that information is publicly available. With respect to the preliminary data that we will show at the conference later this year, I can only say that we took a very informed decision to submit an abstract with exciting data, both on the autoantibody level and on proteinuria. And we are hoping that the field and medical community will agree with us that this data is clinically meaningful.

[Etzer Darout:]

Got it. Thank you. And I guess, given sort of the news around the Alzheimer’s case, just wondered if you had any recent communication with Roche on gantenerumab, given sort of all the news around Alzheimer’s?

[Jean-Paul Kress:]

We typically don’t have contacts with the – our royalty partners. And we have not heard much versus what you have seen publicly. We remain obviously very interested by progress that Roche is making as we retain 40% of the royalties on gantenerumab.

[Etzer Darout:]

Got it. Alright. Thank you.

[Jean-Paul Kress:]

Thank you.

[Operator:]

Thank you. The next question is from Graig Suvannavejh of Goldman Sachs. Your line is now open. Please go ahead.

[Graig Suvannavejh:]

Yes. Good afternoon or good morning and thanks for taking my questions. I have got several. My first is just on pelabresib. Thanks for sharing the update on the clinical trial timelines there. Could you just maybe remind us of your current powering assumptions on the Phase 3 trial relative to the data that you saw in Phase 2? And a follow-up on pelabresib is, I believe that when you first announced the acquisition of Constellation, you had guided to a significant revenue contribution from Constellation assets, beginning in the period of about 2026. So, given today’s update on the clinical trial time lines, is there a revision to that prior statement that you made? And then I have got another question separately just on current cash, and I am wondering if you could comment on your anticipated cash runway. In other words, given current cash, how long does that take you out to? And then secondly, given that, and given that you just announced the Constellation – or completed the Constellation deal, does your current cash give you the optionality of considering additional business development transactions? Thanks.

[Jean-Paul Kress:]

Thanks, Graig, for your questions. Let’s start by the financial questions, and I might stop by the BD strategic question, and Sung will comment on the cash runway. I mean, we have our hands very full now with lots of programs going on – the two mid to late-stage assets from Constellation, in addition to our very comprehensive development plan with tafasitamab and felzartamab. So, we have to focus the organization on execution. We grow excited, day-after-day on pelabresib, with our discussions with the KOLs, and Malte will elaborate on that in his answers to your power assumption question. But I would like to say that, you know, never say never, our cash position will allow us initiatives to trigger more financing will allow us to make potential moves, if it makes sense. But it’s not the same focus than it was a couple of months ago, when we had our discussions pre-Constellation. Sung?

[Sung Lee:]

Great. And Graig, you had a few questions on – well, I will start with the significant revenue in 2026. So, that factored in the timeline and design plans we have for MANIFEST-2. As Malte said, this was well known to us during our due diligence process. And when we made that comment about significant revenue contribution in 2026 at the time of the deal announcement, that would not be the first year of revenues potentially for pelabresib. That would be the first full year of revenues in 2026, and you would expect a partial revenue contribution from pelabresib in 2025. Okay. In terms of cash runway, obviously, we are sitting on a very comfortable balance here, but recognizing our operating expense run rate has increased with the acquisition of Constellation. But as I mentioned, on a pro forma basis, we have €1.17 billion. We believe this would take us for multiple years into the future, the ability to invest not only in tafasitamab pivotal studies, but MANIFEST as well. We are going to go through a portfolio review this fall, and pending the outcome of that, this would impact the cash runway. But from the current vantage point, it would be multiple years. And I know your follow-up question may be, how do you define multiple years? The way I look at it right here, it’s at least 2.5 years, potentially longer. And we have some options in terms of credit facilities, etcetera. So, I will leave it at that.

[Jean-Paul Kress:]

Malte?

[Malte Peters:]

Yes. And maybe just a couple of comments on how we see pelabresib and so, we have a very good report with leading KOLs. I had two calls with some of the leaders in the field yesterday. I think we are hearing that the medical community is really excited about pelabresib. They may see it as the most exciting compound, compared to other investigational agents. And we have not changed a bit our assessment regarding probability or success of the product. I think in the past, we have done a very good job in finding the right middle ground between being aggressive and achieving a high probability of success. And we want to do the same thing with pelabresib again. So, that was the reason why we adapted the trial design to make – to give it the highest probability of success. But our assessment of pelabresib as a future drug in myelofibrosis remains completely unchanged and is super bullish.

[Jean-Paul Kress:]

And the 2026 revenue assumption. No.

[Graig Suvannavejh:]

Okay. Thank you. Sorry.

[Jean-Paul Kress:]

Alright , next question.

[Operator:]

The next question is from James Gordon, JPMorgan. Your line is now open. Please go ahead.

[James Gordon:]

Hello. James Gordon, JPMorgan. Thanks for taking the questions and apologies if I am repeating the questions. Unfortunately, I missed the very beginning because of too many overlapping calls. I just wanted to confirm two points. So, on the Phase 3 data, is it definitive that we couldn’t see anything before 2024 or is there any possibility that you could do some sort of interim analysis? So, that would be the first question, please. And the second one was just confirming there was previously the $500 million to $750 million peak potential for Monjuvi in the U.S. in relapsed refractory DLBCL, so has that come down by 20% in the same way that the Insight liability has come down? And if not, why is it not moved by the same amount? Thank you.

[Jean-Paul Kress:]

James, thanks for the questions. Let me start by the second one. It’s a bit echoing the previous question on the peak sales range being still achievable. So, we see it as a long-term opportunity that we still very much believe in and are very much focusing on. We see all the endeavors in the studies that – and capital we are allocating to the development of the product. So, I think I would encourage everyone to keep in mind the large, long-term opportunity beyond r/r DLBCL. I think the space is also starting to recognize that there are other indications, like first-line, which are very much into play here. And that’s why the short-term, I would say, adjustments we are making now are not really a reflection of the long-term, I would say. I will turn the question on the pela study.

[Malte Peters:]

On the pela study, yes, I think, of course, there are always opportunities to accelerate. I think with the plans I alluded to earlier, we are really confident that we can execute on the trial as quickly and as aggressively as we can. I think I would prefer to have maybe six months or nine months of time and see how our measures are taking off. And then we can give maybe a bit of more updates on how we think we end up in our time lines. With respect to interim analysis, I really prefer not to touch on this because we want to keep the integrity of the trial design intact, and commenting on interim analysis is possibly introducing a bias, so I would like to leave it at that.

[James Gordon:]

Thank you.

[Operator:]

Thank you. We have no further questions coming through, so I would like to hand back to Dr. Julia Neugebauer to wrap up today’s call.

[Julia Neugebauer:]

Ladies and gentlemen, this concludes today’s conference call. If any of you would like to follow-up with 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.