MorphoSys AG
Q3 2021 Earnings Call Transcript

Published: 11 Nov 2021

[Operator:]

Ladies and gentlemen, welcome to the MorphoSys Third Quarter 2021 Financial Results Conference Call. Please note that through the duration of the presentation, all participants will be in a listen-only mode and the conference is being recorded. After presentations, there will be an opportunity to ask questions. . I would like to turn the conference over to Julia Neugebauer. Please go ahead.

[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 third quarter 2021 financial results conference call. Joining me on the call today are Jean-Paul Kress, Chief Executive Officer; Sung Lee, Chief Financial Officer; and Malte Peters, Chief Research and Development Officer. Joe Horvat, US General Manager, will be available for the Q&A session. 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 the third quarter and will give an outlook. Malte will then provide an update on our development pipeline before turning the call to Sung for a summary of our third quarter 2021 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.

[Jean-Paul Kress:]

Thanks, Julia. Welcome everyone and thank you for joining us today. Before I start, I would like to welcome Joe Horvat to this call. Joe is our US General Manager and has been instrumental in leading our commercialization efforts and building momentum since joining the company mid-year. I would also like to thank Roland Wandeler, whom we announced earlier this week will be departing, for his efforts in strengthening the foundation of our commercial operations. Moving to slide 5. With the ongoing launch of Monjuvi, important confirming data for pelabresib and the execution of multiple pivotal studies, we are making significant progress on our vision to become a leader in hematology/oncology. On slide 6 now. Monjuvi net sales of $22 million for the third quarter increased by 22% compared to the previous quarter. The growth was driven primarily by demand. A greater proportion of second line patients are now treated with Monjuvi, which over time will increasingly result in a longer duration of therapy. We also saw a broadening of the prescriber base and a high penetration in the community setting. Roughly 70% of orders are coming from the community setting, while still maintaining a consistent foothold in the academic setting. Looking more closely at demand, more than 850 accounts have ordered Monjuvi since launch. During the cluster, we received orders from 500 accounts. Over 70% of these accounts were repeat orders, which is an increase from the previous quarter. Enthusiasm for Monjuvi by physicians continue to build. This is supported by our three-year data from our L-MIND trial, which demonstrated the median overall survival of 33.5 months, which means at four years 42% of patients were still live. Prescriber enthusiasm is also supported by real world evidence data for the tafasitamab- lenalidomide combination, showing comparable or even longer overall survival compared to other systemic therapies, which we look forward to sharing at ASH. As we approach the end of the first full year on the US market, we are encouraged with the future growth potential of Monjuvi as we gain more traction from second-line patients. Importantly, we remain confident that Monjuvi can become a backbone therapy and partner of choice in B cell malignancies. We are also excited for Monjuvi to expand its geographic footprint and provide broader access for patients. Last quarter, we received conditional approvals in the EU and Canada with our partner, Incyte, and we are happy to have started to receive the first royalty payments from ex-US markets. Moving to slide 7. We are also making great progress advancing our clinical programs. We are very excited about pelabresib, which is currently being studied in myelofibrosis in a pivotal study MANIFEST-2. If approved, we believe this product has the potential to generate more than $1 billion in sales. We are excited for the upcoming ASH Annual Meeting, where we will share a new data with additional patients from the MANIFEST Phase II trial. The data confirm earlier data cut-offs and increase our confidence in pelabresib and the probability of success. For felzartamab, our anti-CD38, we recently announced encouraging early proof-of-concept data in autoimmune membranous nephropathy. And we dosed the first patient in a new Phase II trial for felzartamab in IgA nephropathy. We believe our next generation EZH2 inhibitor, CPI-0209, has exciting potential and optionality in certain solid and hematologic/oncology indications. In summary, we are focused on executing our strategic priorities, and we continue to make significant progress. With that, I will turn the call over to Malte for an R&D update. Malte, please.

[Malte Peters:]

Thank you, Jean-Paul. We have made great progress across our pipeline in recent months. Last week, we highlighted our presence at ASH Conference in December. We are proud to be able to share data from our two late stage assets, Monjuvi and pelabresib, in two oral presentations, as well as multiple posters. For pelabresib, we will share the latest data from the MANIFEST Phase II trial, including updated data for the primary endpoints spleen volume reduction 35 at week 24 for the combination arm 3 with ruxolitinib in frontline myelofibrosis. Importantly, this data confirms the previous data presented at ASH 2020, giving us further confidence in pelabresib and specifically in the probability of success for our Phase III MANIFEST-2 study. We are also excited about some new and previously unpublished data on the disease modification potential of pelabresib and specifically how pelabresib differentiates from ruxolitinib. For tafasitamab, we will present data for the retrospective real world data study RE-MIND2. Data presented at the SOHO Conference earlier this year showed that the tafasitamab and lenalidomide cohort was associated with longer overall survival versus a pooled data set of other systemic therapies, . Our oral presentation at ASH will now show all comparator groups and include pola-BR, R2 and CAR-T cell treatments and we look forward to sharing the data with you. We are excited about pelabresib for the treatment of patients with myelofibrosis and we believe it has first-in-class and best-in-class potential. Pelabresib impacts the four major hallmarks of myelofibrosis, and we believe it has the potential to become the standard of care. Pelabresib has shown a strong response rate in combination with ruxolitinib, achieving a spleen volume reduction in 67% of first line myelofibrosis patients. We intensified our personal interactions with key opinion leaders in the field and received very positive feedback on data and the compound. We are making great progress to ensure operational excellence for the execution of the ongoing Phase III study and we are seeing the results of the measures we have implemented. We added additional CROs, improved the interaction with investigators and expanded the number of countries and sites. With all activities in place, we expect to report top line data from this study in the first half of 2024. Now moving to Monjuvi. We have two pivotal Phase III studies ongoing, expanding the clinical development to patients with frontline DLBCL in patients with relapsed refractory indolent lymphoma. For frontMIND, we are doing very well in terms of enrollment. Investigators are excited about this study, and we are well underway adding additional sites in the United States to satisfy investigator and patient interests. In late August, Minjuvi, the brand name of tafasitamab outside of the US, was granted conditional marketing authorization by the European Commission for the treatment of adult patients with relapsed or refractory diffuse large B cell lymphoma who are not eligible for stem cell transplant. Two days earlier, Minjuvi received condition conditional approval in Canada. In both jurisdictions, our partner Incyte is responsible for the commercialization. We are very excited that the European Commission followed the FDA in approving tafasitamab in combination with lenalidomide based on compelling data from the L-MIND study, supported by our real world data package. We also made considerable progress with felzartamab in autoimmune membranous. Nephropathy, or AMN, a disease with significant unmet medical needs. The M-PLACE study evaluating felzartamab in patients with AMN is fully enrolled and the antibody has shown proof of concept for this indication. The data that we shared at Kidney Week recently demonstrated that felzartamab can rapidly and significantly reduce anti-PLA2R antibody titers in difficult-to-treat patients with anti-PLA2R positive membranous nephropathy. While it's still early to appreciate the full effect on proteinuria, we are encouraged to see the first patients with a drop in proteinuria already as early as six months after the initiation of treatment. Last month, we also dosed the first patient in the Phase II IGNAZ trial in patients with IgA nephropathy, another autoimmune disease affecting the kidney. Dosing of the first patients with IgA nephritis is an exciting milestone for MorphoSys, physicians and also patients, as we are broadening our development program for felzartamab. We believe felzartamab could have great potential as a targeted therapy for patients with autoimmune renal diseases with limited treatment options. As you can see, we expect to deliver a steady flow of late stage clinical data over the next several years, which have the potential to change treatment paradigms in several oncology and autoimmune indications. We are very excited about this progress and the potential of our pipeline. With that, I now turn the call over to Sung for a review of the financials.

[Sung Lee:]

Thank you, Walter. We're pleased to share our financial results for the third quarter of 2021. Moving to slide 15, Monjuvi sales in Q3 2021 were €18.6 million, reflecting 22% growth quarter-over-quarter excluding the impact of FX. As Jean-Paul mentioned earlier, we received additional regulatory approvals of Minjuvi outside of the US and recorded at €82,000 in royalty revenue from our partner Incyte. With Minjuvi royalty revenue becoming a regular item in our P&L going forward, it's important to note that MorphoSys provides the commercial and clinical supply for ex-US utilization at an agreed upon rate. The revenue from this supply is recorded in the licenses, milestones and other category in our top line and the exact same amount is subsequently recorded in cost of sales, yielding a zero gross margin on Minjuvi supply sales. Moving to slide 16. Total revenues for the third quarter of 2021 were €41.2 million compared to €22 million for the same period in 2020. Total cost of sales was €7.5 million in the third quarter of 2021 compared to €3.7 million for the third quarter of 2020. Cost of sales specific to Monjuvi US product sales was €3.6 million in the third quarter of 2021. Turning to operating expenses. R&D expenses in the third quarter were €64.4 million compared to €34.2 million in the same period of 2020. The growth primarily reflects the inclusion of R&D expenses from constellation since July 15, 2021, and increased investment to support the advancement of our clinical stage programs. Selling expenses were slightly down at €32.4 million in the third quarter compared to €32.9 million in the third quarter of last year. G&A expenses in the third quarter were €19.4 million compared to €13.3 million for the third quarter of 2020. The increase was driven by the inclusion of Constellation's G&A expenses, as well as transaction related costs. For the third quarter of 2021, we reported a consolidated net loss of €112.8 million compared to a net loss of €65.3 million in the third quarter of 2020. Turning to the balance sheet. We ended the third quarter of 2021 with cash and investments of €1.13 billion compared to €1.24 billion as of the end of 2020. In the third quarter of 2021, we recorded significant amounts in our balance sheet related to the constellation and Royalty Pharma transactions. A high level overview of the accounting for these transactions is provided on slide 18. Specific to the Royalty Pharma transaction, we recorded a financial liability in the amount of €1.2 billion for the future royalty and milestone payments owed to Royalty Pharma. The measurement of the financial liability is initially at fair value and subsequently based on the effective interest method. Tremfya royalties and any potential royalties from gantenerumab and otilimab, milestones for otilimab and future net sales of pelabresib and CPI-0209 will be recorded as revenue on the MorphoSys income statement. It's important to note that there will be no cost of sales amount recorded in the MorphoSys income statement for the revenue share that is passed on to Royalty Pharma. As we have completed some financially complex transactions with Royalty Pharma and Incyte in the previous year, we have included slides 23 and 24 to help the investment community better understand the ongoing impact of these transactions to our income statement. This view excludes the Tremfya royalties since that is being passed on to Royalty Pharma, and excludes the effects of the 50/50 US profit share with our partner Incyte. The result is a P&L that connects net profit or loss more closely with cash generation or utilization. Turning to our guidance for 2021 on slide 19. We are reiterating our guidance that was updated in July this year following the close of the Constellation and Royalty Pharma transactions. We expect group revenues in the range of €155 million to €180 million. As mentioned previously, we will continue to record Tremfya revenues, and this is reflected in the guidance range. Moving to operating expenses, we expect 2021 operating expenses to be in the range of €435 million to €465 million, which include expenses for Constellation as of July 15, 2021. The range also includes one-time transaction-related cost of €36 million. We anticipate R&D expenses to comprise between 52% to 57% of operating expenses, excluding the one-time transaction related costs. With that, we would like to open the call up for questions. Operator?

[Operator:]

. The first question has come from Geoffrey Porges at SVB Leerink.

[Geoffrey Porges:]

Congratulations on the progress with the integration. One for Malte, one for Jean-Paul and maybe one for Sung. Malte, on MANIFEST-2, do you plan to have an interim look at that study and when might that occur? And then, Jean-Paul, now you've batted in your combined company, could you give us a sense of what assets are potentially partnerable and what assets or geographies are pretty much off limits that you're committed to retaining? And then, Sung, lastly, do expect consensus to track to what I'll for the time being call your ABC income statement or to IFRS. Just wondering how you see the various agencies and consolidators guiding, at least setting things up in consensus?

[Malte Peters:]

So, Geoff, let me start with the first question. What I would like to say is that we are seeing good progress with where we are with MANIFEST-2 in terms of enrollment. I refer to the measures we are putting in place to accelerate operational excellence and improve on the operational excellence of the trial. I would prefer not to make comments on specific statistical details as it can have the potential to impact the integrity of the trial, and FDA typically does not encourage sponsors to publicly comment on that. So, I would prefer not to give any details on what we're doing in terms of interim analysis.

[Jean-Paul Kress:]

Regarding the potential of partnering of our assets, we've been very clear on our focus on our late stage assets. Monjuvi, we have to deal with Incyte. For pelabresib, you might recall that we have the whole rights worldwide. So, we have a lot of optionality. Right now, we really believe we should retain all the geographies and all the rights. We're not contemplating partnership, yet. We think we have enough with the pivotal trials going on and the MANIFEST-1 to bring and raise and create value until we decide later. But so far, we're not working on any partnership for this major asset for us, major opportunity. For the mid-stage assets, which are respectively felzartamab and CPI-0209, we think that following the data and the progress we are making, we could potentially partner those assets, and make sure that that would help us to keep the focus on the later stage assets and also generate some funding, which will obviously help us keep our balance sheet in a great shape. So, we're working on that. But at the same time, we stay very determined on the progress on the data, as Malte mentioned, for those mid-stage assets. But we have a lot of optionality. I should end by saying that there is interest on those assets by some strategics and we'll keep you posted.

[Sung Lee:]

Geoff, on your third question on the consensus, it's my hope and desire that the sell side will model us as demonstrated in the orange highlighted column, the A minus B minus C column because this is more reflective of how MorphoSys will generate cash and utilize cash with respect to net income. There are some complications that happen below the line. And that is with two specific line items on the income statement. It's finance expense and finance income. And I think it would be very difficult for the sell side to try to predict how FX movements impact the liabilities on our balance sheet with regard to ii and Royalty Pharma. Also, there's interest rate charges to those liabilities. And then, of course, there's items that are booked there as a real result of a deviation from our LRP. So, that is something the sell side would not have any great visibility into. So, for all those reasons, I hope people would start modeling to the orange highlighted column.

[Operator:]

The next question is coming from Jason Butler at JMP Securities.

[Jason Butler:]

First one on MANIFEST-2. Malte, can you just expand on your comments around improving the interactions with investigator and the operational excellence of the trial conduct? I guess now that you're running the trial, are there aspects of the design that you're considering amending or trial conduct in general? And then second question on felzartamab. Clearly, there's a lot of opportunities for the candidate. Can you just walk through in addition to following the biology how you're thinking about prioritizing indications, and I guess, broadly just therapeutic areas.

[Malte Peters:]

I will answer question one first. So, for MANIFEST-2, we have made significant changes in the conduct, as in the operational excellence of the trial. And I think I spoke about this at the last quarterly calls and highlighted that already, during the due diligence, that we performed – for the Constellation assets, we were aware of several areas that would benefit from our expertise at MorphoSys and certain improvements. So, we have really intensified our interaction with key opinion leaders. We have expanded the number of countries. We have significantly expanded the number of sites. And we are already seeing turnarounds in terms of how quickly enrollment functions. We have also significantly improved our interaction enjoyed with clinical research organization, CRO, because there was clearly room for improvement and we have made some very, I would say, smart changes that also already shows benefit. With respect to the design changes, I've spoken last time about increasing the sample size to 400. That was a measure of caution, increasing the probability of success to get a positive trial on both endpoints on the primary and the key secondary endpoint. But beyond that, we do not plan to conduct any further changes with respect to the design of the trial.

[Jean-Paul Kress:]

I think there was a question on felzar as well. I'll start and you can add on the science, Malte. For felzartamab, in theory, because of the mode of action of an anti-CD38 in autoimmune diseases, which is targeting the long living plasma cells, which should in theory give an advantage versus rituximab which targets earlier B cell stages, we have the potential to address many autoimmune diseases. The criteria for selection, and that's what we applied for, our current two investigational trials in nephrology are a mix of unmet need, market size and competitive stage. So, if you take for instance, if you would ask us, why don't you do a study in ? Well, we could, in theory. We think it would work. But this is a busy space and there are already a couple of agents being investigated, but we don't exclude it. So, we started with our nephrology indications because there are few agents being explored, especially in AMN, and it's a very high unmet need. These patients end up with end stage renal disease and sometimes transplants, which we think we can really help the unmet need here. Malte, do you want to add anything on that.

[Malte Peters:]

No, I think you summarized it very well. Maybe one slight addition here on the AMN patients, as Jean-Paul said, we really focus on patients who have very limited treatment options. And that means patients who have high auto antibody titers or patients who have progressed on previous immunosuppressive treatment. So, these patients are notoriously difficult to treat and we are seeing, as you have seen in the poster, maybe we are seeing very encouraging results both on the level of auto antibody titers, as well as on proteinuria level. So, we consider this very positive and encouraging data. And we are super happy that we could start a second trial in IgA nephritis. And then, Jean-Paul summarized it really well, there are multiple other options in other autoimmune diseases where auto antibodies play a role. But I think we have focused really on – towards the most pressing and best proof-of-concept indications.

[Jean-Paul Kress:]

I would add on the pela comment, to remind you that all eyes will be on us at ASH with a very important abstract. We've three abstracts on pela there, especially including one on the combination arms number 3, increasing our confidence for the Phase III trial, which is very important. So, more to come pretty soon at ASH.

[Operator:]

The next question is coming from Rosie Turner at Barclays.

[Rosie Turner:]

Firstly, sorry, another follow-up regarding arm 3 and data at ASH. It's probably just me, but I'm slightly confused as to kind of what data we'll get that's going to kind of help with the read across to MANIFEST-2 just because I think the primary and secondary endpoints for MANIFEST-2 are 24-week data. We've obviously already seen admittedly very strong data from pelabresib in the MANIFEST original trial, as you show in your slides, the 24 weeks. So, presumably, this is going to be kind of duration of response data, which is going to be kind of much longer term, but maybe you can kind of help me understand that a bit better. And then just secondly, regarding selling expenses, why were they down year-on-year? And is this going to be a kind of sustained decrease? Or is this something that you expect to kind of come back in 2022?

[Malte Peters:]

Rosie, what we are going to show at ASH is a new data cut-off, which comes precisely one year after the last data cut-off. So that means a couple of things. First of all, we have roughly 23 or 24 more patients included in our analysis. For the primary endpoints, spleen volume reduction, every single patient of the 80 something patients have reached the 24 week time points. So, this is a fairly mature data set, which is likely not going to change much. So, it can be considered a fairly final data set. And that's why it's so important. And we spoke about this. And what's so encouraging for us is that this dataset confirms the earlier data cut-off, which was less mature. So, in summary, we really have gained more confidence and we are more confident in terms of how MANIFEST-2 would pan out in terms of probability of success. So, you see more patients, all patients in arm 3 having reached the 24-week milestone, and you see longer duration of response data. So, that's going to be the best of the ASH presentations.

[Sung Lee:]

Rosie, on your question on the selling expenses year-over-year, they're just down slightly. They're almost flat. But we did go up sequentially. And that's just a phasing phenomena that's happening. But I would say, outside of that, there's nothing extraordinary happening with the Q3 selling expenses.

[Operator:]

Next questions come from James Gordon at J.P. Morgan.

[James Gordon:]

A couple of questions, please. One was on Monjuvi uptake. So encouraging comments on repeat orders and second line patient news. Can you quantify at all? Can you give a split of what percentage are you seeing that coming from second line? And do you have any sense of what percentage of patients who started getting the therapy commercially are still on therapy? Second question was Monjuvi competition. So, we recently had some ASH abstracts come out and the CD3, CD20s are still looking pretty good in relapsed refractory DLBCL and they're going to be filed next year. So, any thoughts about how sort of the patient population, those will be used in versus Monjuvi? Are they going to be try to competing? Or is it different? The IGNAZ study that you started, that was encouraging. But what's the path to market there? So, when is the earliest that might actually be able to come to market? And would that be the same sort of patients as CD38 or different? And then final one was, it was really helpful, at the back of the presentation, if we call it, ABC reporting? But are you now going to put that in the release every time when you report? So will we get that at the time of your report or that will only come out in the presentation going forward?

[Jean-Paul Kress:]

First things first, I'll give a high note on your Monjuvi commercial questions at the beginning and Joe will elaborate. First of all, we like the momentum we are building. We continue to engage and educate HCPs on our long-term data. As I mentioned in my prepared remarks, there is growing enthusiasm on those data and we expect continuous growth. In terms of the second line share, we are actually leading the second line space. And we are increasing numbers of patients in second line, which is so important that we discuss several times for duration of treatment. We have some patients actually over a year of treatment. And that's great to see that we are really filling an unmet need. Again, we are the only approved second line compound and we lead the space here. And as I said several times, there is a disconnect between real life and clinical trials. We have shown in our L-MIND trial that we have data beyond three years, four years. But in real life, we are talking more in months because it's not a clinical trial. The good news here is that we are working towards engaging and educating on those data and we see progress being made. So, we think that time will really play a big role here. But Joe has been spending a significant amount of time in the field. And he will add some comments here.

[Joe Horvat:]

And as Jean-Paul mentioned, I've been spending quite a bit of time in the field, whether it's large academic settings, smaller community settings, large community accounts right across the US. And the physicians continue to respond very favorably to that three-year data that was presented at ASCO and other conferences. And your question as it relates to repeat orders, as we reported on slide 6, through Q3, we've had more than 850 accounts that have ordered since launch. That continues to grow. When we look at repeat orders, in Q3, we had greater than 500 accounts ordered with approximately 78% of those accounts representing repeat orders. So, we continue to make good progress. And this is reflected by the enthusiasm of the HCPs and the increasing accounts and reorders. And as Jean-Paul mentioned, as it relates to the percentage of second line, as Jean-Paul did allude to the fact that we do have leading share in second line as we continue to penetrate more. And again, this is based on the robustness of the data and our ability to get out and see physicians.

[Jean-Paul Kress:]

Your other question was on IGNAZ trial. Malte, do you want to take that?

[Malte Peters:]

I think it's a little early to speak about details on the path to market. I think at this moment, we are super happy about where we are. We are seeing good traction for both indications. We want to take a moment really in the middle of the year to evaluate the data in both indications, and then make a good decision of how we can move forward in terms of registration activities. We have some thoughts already. But we want to really look at the entirety of the data in both indications and then make an informed decision that's data driven of how we will get this approved. So, I think stay tuned a little bit, we will update you, of course, as soon as we know more. But at this point, we are really focusing on corroborating the proof of concept data and also executing on our IgA nephritis data.

[Sung Lee:]

James, with regard to your question on the continuation of this alternative income statement view, yes, the answer is, we will absolutely continue to provide going forward. I think it's essential to look at the business this way, given the two collaborations or arrangements we have with Incyte and Royalty Pharma. I think the yellow column would be much more meaningful to anyone looking at MorphoSys. In terms of timing of this, given it's the first time we're sharing information like this, I think that's still in discussion as to the timing and other areas or disclosures this might appear in. But we thought initially, this was a good venue, putting it in the earning slide deck. But let us get back to you in terms of timing and whether this would appear in other disclosures.

[Jean-Paul Kress:]

James, I realized you had a question of Monjuvi future competition and I don't want to skip that. We're really, as I said, focusing on growing the momentum on our compound in our regimen, Monjuvi-len. And again, we're the only ones in second line. Of course, it's a competitive space. But in some ways also, we could leverage the fact that there will be more and more combinations based on Monjuvi in the future. We are, as you know, exploring a bispecific combination with Xencor. We're not excluding any other combinations. it's part of our backbone strategy. It's a matter of fact that we are talking to other companies or potential combinations with why not another bispecific, but other modalities as well. And that's going to be very important because if we are at the core, as a backbone, that will mean in the future, more prescriptions, more sales. So we know it's a competitive space, but we know the strength of our regimen and our assets could be the base for more competition in the future – for more backbone combinations in the future.

[Operator:]

Next question is coming from Vineet Agrawal at Citi.

[Vineet Agrawal:]

Most of them have been asked, but just quickly, first on pelabresib, the question is more from a reimbursement perspective. Now, given the proposed Medicare reforms, particularly regarding the redesigning of the Part D program where manufacturers will be on the hook for 20% of the costs in the catastrophic coverage phase and the plan sponsor is now 60% versus 15% earlier. Now, assuming this is implemented, can you comment on any potential impacts on the combination drug, pelabresib plus Jakafi? I know this is all early stage, but would love to know how do you think about this? Is the 82,000 royalty revenue on Monjuvi, is that a gross number or a net number? Is it after factoring your pay-aways to Xencor? And then, if I can follow-up on the selling expenses, how should we think about this line going forward, at least until – before you get ready for pelabresib launch? And so, I just want to clarify on your phasing comment, does that relate more to the general and administration expenses or even for the selling expenses?

[Jean-Paul Kress:]

I'll start by your pelabresib question. First and foremost, the more we speak to KOLs, and we've been speaking to most, if not all, relevant KOLs and investigators in myelofibrosis over the last couple of months. There is a very high unmet need in this disease. Remember that there is almost one standard of care only out there. And only 50% of the patients are being addressed by the standard of care for several reasons, one being toxicity or high anemic, which compounds on the anemic status of the patients to start with. So, there is a high unmet need. And when we presented our data, the MANIFEST-1 Phase II data that are going to be disclosed at ASH, two group of KOLs, they all were very, very impressed. So, the feedback is very strong. And they are telling us that we are leading the space in terms of a potential new standard of care in combination. I'm saying all that because that's going to determine the value proposition of the regimen and the compound, in combination potentially in monotherapy as well later. So, long story short, we have the basis, with the strength of our data, to establish a very strong proposition to have the new standard of care and, obviously, a value-based proposition which is the base for any reimbursement or pricing discussion with the future. And we have time to do that. Remember that we have a couple of years to prepare for shaping the market and making sure that we address any potential concerns with the payers. But, again, the unmet need is so high that there is room for us to play in this market in a very competitive way. And then, Sung will address your finance questions.

[Sung Lee:]

You had a question on the royalty revenue from ex-US sales of Minjuvi. We booked those in our top line at gross. And then, the amount that we have to pay to Xencor, our partner, is recorded in cost of sales. I think you also had a question on phasing. When I was addressing Rosie's question, it was specific to selling expenses. And, Vineet, I don't know – you broke up in the middle of…

[Vineet Agrawal:]

No, that's fine. I just wanted to just follow-up on the selling expenses, how should we think about this line going forward before you get ready for pelabresib launch?

[Sung Lee:]

We've spoken before, there's some synergies here. We have a field team here and there could be an 80% overlap in terms of myelofibrosis and DLBCL. So, of course, we're going to realize synergies from our infrastructure today. Could something incremental be added in the future? We're going to keep all options open at this point.

[Operator:]

We have no more further questions coming in. So, I will turn back over to 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, investor relations team from MorphoSys is available for the remainder of the day. Once again, thank you for joining our call. Have a good day. And goodbye.