MorphoSys AG (NASDAQ:MOR) Q3 2022 Earnings Call Transcript

MorphoSys AG (NASDAQ:MOR) Q3 2022 Earnings Call Transcript November 17, 2022

Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Third Quarter 2022 Financial Results Conference Call of MorphoSys. Throughout today’s recorded call, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. I would now like to turn the conference over to Julia Neugebauer.

Julia Neugebauer: Ladies and gentlemen, good afternoon and good morning. My name is Julia Neugebauer, Head of Investor Relations at MorphoSys, and its 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, US General Manager. Before we begin, I’d like to remind you on Slide 2 that some of our 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 that 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 will 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 2022 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.

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Jean-Paul Kress: 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 projects of our pivotal studies and an update on the commercial execution, I would like to call out two 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 1/2 study that support 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. Pelabresib 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’s 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 frontMIND study, which has a positive effect on enrollment.

The study focuses on high-risk patients with an IPI score of three to five, 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 four 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. Monjuvi, please?

Joe Horvat: 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 two years. With that, I’ll turn the call over to our new Chief Research and Development Officer, Tim, for an R&D update.

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Tim Demuth: 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. What drew me to 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 3 trial MANIFEST II is on track and progressing well. We will continue to drive patient recruitment across geographies and we are committed to reporting topline 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 two years. This also included six patients who were on treatment for five 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 them with 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 our shop, we believe we do have the potential to make a difference for these patients. Our Phase 3 tafasitamab studies, frontMIND and inMIND 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 four 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 2 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 benefits and biomarker changes, indicating potential disease modification, following treatment with pelabresib monotherapy or in combination with ruxolitinib. For tafasitamab, we will release final 18-month data from the first-line 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 in short MRD-negative patients. We will also have presentations on MRD negativity serve as a potential surrogate endpoint and predictor of outcomes after frontMIND therapy with tafasitamab plus lenalidomide and R-CHOP in DLBCL. We are committed to helping patients only better options for first-line treatment and beyond. These latest presentations showcase the quality of science and potential solutions coming out of more focus 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 increase potency, longer residence time on target and a longer half life.

Last month, we presented results from our ongoing Phase 1/2 study at the 2022 ENA Symposium also referred to 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 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.

Sung Lee: 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 €0.9 million in royalty revenue for Monjuvi sales outside of the US from our partner Incyte. As our partner Incyte 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 €95.8 million compared to €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 €8.1 million in the third quarter compared to €7.5 million a year ago. Cost of sales specific to Monjuvi US product sales was €4.5 million in the third quarter of 2022. Turning to operating expenses. R&D expenses in the third quarter of 2022 were €77.8 million, compared to €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 €23.5 million in the third quarter, compared to €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 €15.6 million, compared to €19.4 million in the third quarter of 2021. The year-over-year decrease is due to the transaction cost 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 €122.9 million, compared to a net loss of €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 €1.04 billion, compared to €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 US net product sales are expected to be approximately $90 million. Gross margin for Monjuvi US 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 €300 million. SG&A expenses are expected to be in the range of $150 million to €165 million. With that, I would like to hand the call back to Jean-Paul.

Jean-Paul Kress: 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. Operator, please?

Q&A Session

Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. The first question comes from the line of James Quigley with Morgan Stanley. Please go ahead.

James Quigley: Hi. Thanks for taking my questions. So, first one on tulmimetostat. Interesting early data, although small patient cohorts, 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 when we move 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, thinking about your cash runway, was this always in the plan? You mentioned before your cash results out the first half of 2024. And was this always in the plan and encompass within that commentary? And then second question on Monjuvi competitive dynamics.

So you mentioned that about 70% of the interest of the sales coming from the community setting. But to what extent is the CAR-T product 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? Thank you.

Tim Demuth: James, this is Tim. Hi. Regarding tulmi, 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 number 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 mesothelioma patients. 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.

Sung Lee: And James, this is Sung. I think you asked a question about cash runway with respect to tulmimetostat. So obviously, with over €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 collaborative 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.

Jean-Paul Kress: Hi, 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 patients.

James Quigley: Got it. Thank you very much.

Operator: The next question comes from the line of Jason Butler with JMP Securities. Please, go ahead.

Roy Buchanan: Hi. It’s Roy in for Jason. Thanks for taking our questions. I was going to ask if there was anything you could do ahead of the clinical data, but 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. So just, how you think about the sales trajectory? And then, for Tim, you said on the R&D, you see, I remember, a week now, I guess, any planned changes to the company’s approach or focus for the research and development efforts. Thanks.

Jean-Paul Kress: Thanks for your question. This is Jean-Paul. On Monjuvi, look, 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 of 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 will disclose at ASH or communicate at ASH there. So, that being said, we continue to engage and communicate on the current second-line indication, which is very important for us, 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’s a great leader and superior experience in oncology. But, Tim, do you want to comment on that?