MorphoSys AG

XETRA:MOR

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the MorphoSys Quarterly Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] Now I would like to turn the conference over to Sarah Fakih. Please go ahead.

[Sarah Fakih]

Good afternoon, good morning, and welcome to our Q1 2019 conference call and webcast. My name is Sarah Fakih, and I'm the Head of Corporate Communications and Investor Relations at MorphoSys. With me on the call today are Simon Moroney, our Chief Executive Officer; and Jens Holstein, our Chief Financial Officer. Before we start, I would like to remind you that during this conference call, we will present and discuss certain forward-looking statements concerning the development of MorphoSys' core technology, the progress of its current research and development program and the initiation of additional programs. Should actual results differ from the company's assumptions, ensuing actions may differ from those anticipated. You are therefore cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. In the presentation, Simon will start by giving you an operational review of the first quarter as well as an outlook for the rest of this year. After that, Jens will review the financial result of the first quarter of 2019. The presentation will last about 20 minutes. After the presentations, we will all be available for your questions. You will find the slide deck for this presentation on our corporate website. I would now like to hand over to Simon Maroney.

[Simon E. Moroney, Chairman of Management Board & CEO]

Thank you, Sarah, and also from me, a warm welcome to our Q1 call. We've made a very good start to the year in 2019 with significant achievements in our proprietary as well as our partner programs. I'll go through the highlights in both areas, starting with the clinical programs from our proprietary development segment. Our most advanced program is MOR208, the Fc-enhanced CD19 antibody in clinical development for B-cell malignancies. I'll start with L-MIND, our most important and advanced trial in terms of market proximity. L-MIND is an open-label single-arm Phase II trial evaluating MOR208 plus lenalidomide in 81 patients with relapsed or refractory DLBCL who are ineligible for high-dose chemotherapy and autologous stem cell transplantation. In December 2018, the last of the 81 patients enrolled in the study reached the 12th and last month of follow-up according to the protocol. We expect to have final results from the trial shortly, and will present the data at the upcoming international conference on malignant lymphoma in Lugano next month. We may publish headline data in advance as soon as it's available. In the meantime, we are on track with our plans to seek U.S. regulatory approval on the basis of the L-MIND study. Our submission to the FDA should be complete by year-end, which could, subject to review, allow for an approval in mid-2020. In Europe, we're encouraged by discussions we've had with regulatory authorities on a potential path to approval in this region also based on L-MIND. We've had positive discussions with 2 European national authorities to assist the general level of acceptance of L-MIND and are currently seeking advice from the European Medicines Agency, EMA, on whether L-MIND can be used for a European submission. A successful outcome here could result in MOR208 being on the market in Europe earlier than previously assumed. On the basis of our current EMA interaction, we expect to have a clearer picture of the way forward later in 2019, and will provide an update on this important topic as soon as we have clarity.Independently of L-MIND, the Phase III B-MIND trial of MOR208 is also ongoing. This study looks at MOR208 plus bendamustine versus rituximab plus bendamustine in patients with relapsed/refractory DLBCL who are ineligible for high-dose chemotherapy and autologous stem cell transplantation. In early March, we announced an amendment to B-MIND that had been agreed with the FDA, namely the introduction of a biomarker-based co-primary endpoint. The scientific rationale for the amendment is based on our own preclinical data as well as published literature, which indicate that MOR208 might be particularly active in DLBCL patients who can be characterized by the presence of a certain biomarker that is present at roughly half of the patient population addressed in this trial. We're filing patent applications on the biomarker and will disclose information about it when it's completed.The preplanned event-driven interim analysis of B-MIND should take place in the second half of 2019. This interim analysis will inform our decision whether to continue with the original all-comers trial of 330 patients or whether to add a further 120 patients and focus on the biomarker-based co-primary endpoint. In the first case, the study should be completed in first quarter of 2020; in the second case, in the first quarter of 2021.Discussions with the FDA regarding the assay validation procedures are expected to take place in the middle of this year. The B-MIND biomarker amendment gives us an additional chance for the successful outcome to B-MIND without compromising the trial's original design. Given that the interim analysis could lead to the paths forward I've just outlined, we will announce outcome and continuation of B-MIND as soon as the interim analysis has been done.The third ongoing MOR208 trial is COSMOS. This exploratory study is looking at the safety of MOR208 in combination of idelalisib or venetoclax in patients with CLL or SLL who have failed or become intolerant to prior treatment with ibrutinib. The treatment and observation of patients continued during Q1 2019. We plan to present updated data at a medical conference towards the end of the year.We've had a lot of inbound interest in our planned front line DLBCL study, MOR208, and preparations are currently ongoing for the announced Phase Ib trial, which will start later this year. Depending on the Phase Ib data, the next step would be a pivotal Phase II/III trial with roughly 800 to 900 patients commencing in mid-2020.As we move forward with our regulatory submissions with the FDA of MOR208, we continue to build our commercial organization in the U.S. We've recruited all the main senior positions in support of our President, David Trexler, and are delighted with the excellent quality of management and high level of experience we've been able to attract. A key part of the U.S. organization is the Medical Affairs Department. This currently comprises 10 people, many of whom have been engaging for several months with oncologists across the U.S. Overall, we are well on track to having the commercial team fully operational for an anticipated launch in mid-2020.Lastly, I'm very pleased to announce that MOR208 now has an international non-proprietary name, so called INN. The name is tafasitamab, and we will transition our usage away from MOR208 to this name. Having an INN name is an important step in our current commercialization preparations.I'll continue with MOR106, the antibody directed against IL-17C that is currently in clinical development for atopic dermatitis. Just to remind you, we jointly discovered and developed the antibody with Galapagos before signing an exclusive license agreement with Novartis in July of last year. Since the effective date of the agreement, all research, development, manufacturing and commercialization costs of MOR106 were assumed by Novartis. There are currently 3 studies ongoing for MOR106. I'd like to briefly update you on their status. First, our ongoing Phase II IGUANA trial in atopic dermatitis patients, which we started together with Galapagos in May 2018, is continuing patient enrollment, and we expect completion of enrollment around the end of this year.Second, we started a Phase I bridging study in the third quarter of last year to evaluate the safety and efficacy of a subcutaneous formulation of MOR106 in healthy volunteers and atopic dermatitis patients and expect primary completion of this trial also by the end of this year.Third, in April, we announced the start of the Phase II GECKO trial, which will enroll patients in the U.S. and Canada to evaluate the combination of MOR106 with topical corticosteroids. This IND-opening study extends the development program for MOR106 to the U.S. and Canada, complementing the ongoing clinical trials in Europe. Further, the start of a Japanese ethno-bridging study together with Galapagos is planned for the second half of this year. We see great potential for MOR106, which is to the best of our knowledge the first program against IL-17C in clinical development. While our initial focus is on atopic dermatitis, which is an area of enormous unmet medical need, under the terms of the agreement, Novartis will explore the potential of MOR106 in additional indications other than atopic dermatitis. Let me turn now to MOR202, our proprietary anti-CD38 antibody with opportunities up in oncology and autoimmune diseases. In the first quarter of 2019, our partner, I-Mab Biopharma, initiated 2 pivotal clinical trials of MOR202 in second and third line multiple myeloma in the Chinese region. Each of these trials, one of Phase II and one of Phase III, could lead a successful -- to a biologics license application in China. In the meantime, we continue preparations for a trial of MOR202 in a selected but as yet non-disclosed autoimmune disease. We're on track to start this trial in Q3 of this year, at which time we will disclose the indication.I'll turn now to our Partnered Discovery segment. Even though we're no longer actively seeking deals in this segment, it is still a substantial part of our overall value proposition. The segment comprises more than 100 programs currently in R&D, 24 of which are in clinical development. Our royalty participation in these promising drug programs will continue to serve MorphoSys well long into the future. The most advanced product in this segment is Janssen's Tremfya, which in July 2017 became the first drug based on our antibody technology to reach the market. Sales of Tremfya in the first quarter of 2019 reached USD 217 million, confirming that our royalty guidance of EUR 23 million to EUR 30 million is well within reach. Tremfya is clearly an important asset for Janssen and has been given the appropriate attention both in commercialization and in further development. Janssen started clinical development in 2 additional indications in Q1 of 2019, namely a Phase IIa proof-of-concept study in ulcerative colitis and a Phase I trial in familial adenomatous polyposis, a genetically determined disease of the gut with a high prevalence to development into colon cancer.These new indications add to the ongoing ones, which include several forms of psoriasis, psoriatic arthritis, Crohn's disease and hidradenitis suppurativa. We're delighted to see such a broad clinical development program and are optimistic that Tremfya can become a widely used drug, further supported by the recent FDA approval of the Tremfya One-Press device in February of this year. This device allows a self-administration at home, thereby offering a much more convenient administration for patients.To conclude, at the end of the first quarter of 2019, the MorphoSys pipeline comprised overall 115 programs from discovery to the market. These include 1 program already on the market, namely Tremfya and 29 programs in various stages of clinical development. We expect a substantial amount of additional clinical data from several programs between now and year-end. As always, we have no control over what our pharma partners communicate, but we're confident that there are quite a few positive results to come. We believe many of these programs have the potential to be major value drivers for MorphoSys, and we look forward to updating you on many of them in the future.that concludes my operational review. I'll now hand over to Jens for his wrap up of the financials.

[Jens H. Holstein, CFO & Member of Management Board]

Yes, thank you, Simon. Ladies and gentlemen, also from my side, a warm welcome to all of you. As Simon already pointed out, we're very pleased with the development in our performance in the first quarter of the year. Let's now take a closer look at the most important financial figures of MorphoSys for the first quarter of 2019. And I would like to start with our P&L statement on Slide 12.Group revenues totaled EUR 13.5 million compared to revenues of EUR 2.8 million in the first quarter of 2018. This increase was driven by an increase in Tremfya royalties as well as a milestone payment of USD 5 million for MOR202 from I-Mab Biopharma following the start of the Phase II clinical trial in March. As in previous quarters, the contractual royalty reported from Janssen on Tremfya has not been received yet. The Tremfya royalties booked for Q1 2019 were estimated based on public announcement made by Janssen, J&J. Final numbers can still vary slightly on the basis of foreign exchange effect. Looking at expenses, total operating expenses reached EUR 37.3 million. The expenses for research and development amounted to EUR 24.7 million. There are also expenses for proprietary R&D and technology developments amounted to EUR 22.6 million compared to EUR 15.5 million in the previous year. Selling expenses rose to EUR 1.7 million as compared to EUR 0.8 million the year before. General and administrative expenses increased to EUR 5.9 million versus EUR 3.9 million in Q1 2018. Cost of sales for the first 3 months of 2019 amounted to EUR 5 million. This item consists of expenses related to services provided through partners such as Novartis or I-Mab. Those costs also include manufacturing costs for the expected market supply of MOR208 or tafasitamab as the antibody is called from now on.In case of an approval, this material shall be partly used as drug product in 2020. In the first quarter of 2018, this cost item has not been used. Earnings before interest and taxes amounted to minus EUR 23.6 million in Q1 2019 in comparison to minus EUR 19 million in the first quarter of 2018. Our consolidated net loss after taxes amounted to EUR 22.7 million in Q1 2019 compared to a net loss after taxes of EUR 19.5 million in Q1 of the previous year. The earnings per share for Q1 2019 reached minus EUR 0.72 after minus EUR 0.67 in Q1 of the previous year. I'm now on Slide 13 to give you an overview of our segment reporting for Q1 2019.As you know, in our Proprietary Development segment, in which we focus on the research and clinical development of our own drug candidate, we recorded revenues of EUR 5.8 million in the first quarter of 2019 as compared to EUR 0.2 million in Q1 2018. And as mentioned earlier, this increase was mainly driven by a milestone payment of USD 5 million from I-Mab for the start of the clinical trial of MOR202. Operating expenses amounted to EUR 30.8 million as compared to EUR 16.1 million in Q1 2018. The main reason for this increase is our increasing investment for the development of our proprietary programs. Consequently, the EBIT of our Proprietary Development segment came in at minus EUR 25 million compared to minus EUR 15.9 million in the previous year. Now our Partnered Discovery segment, we carried out proprietary technology to discover new antibodies for third parties, and benefit from our partnered development advancements into R&D funding, license fees, success-based milestone payments and royalties. In the first quarter of 2019, the revenues amounted to EUR 7.8 million as compared to EUR 2.6 million in Q1 2018. Consequently, the EBIT in our Partnered Discovery segment increased and amounted to EUR 5.5 million as compared to EUR 0.6 million in Q1 2018. Moving onto the balance sheet on Slide 14. As of March 31, 2019, we recorded total assets of EUR 556.3 million. This represents an increase of EUR 17.5 million compared to year-end 2018. The increase is a result of the application of the new IFRS 16 standard with respect to leases offset by the use of cash and cash equivalents for operations in the first quarter of 2019. At the end of Q1, we had a cash position of EUR 431.2 million compared to EUR 454.7 million as of December 31, 2018. On the balance sheet, this position is reported on the following items: cash and cash equivalents, financial assets at fair value through profit and loss and current and noncurrent other financial assets at amortized costs. The number of shares issued totaled 31,839,572 at the end of Q1 2019, which is the same number as of year-end in 2018. Before I conclude my section, I would like to reaffirm our financial guidance for the full year 2019, which was first communicated in March in connection with presentation of our 2018 annual report. For 2019, we anticipate global total group revenues in the range of EUR 43 million to EUR 50 million, thereof we estimated Tremfya royalties to be the range of EUR 23 million to EUR 30 million at constant currency. We expect an EBIT in the range of minus EUR 127 million to minus EUR 137 million. Proprietary R&D expenses including technology development in 2019 are anticipated in the corridor of EUR 95 million to EUR 105 million. Of note, the guidance does not include the potential larger milestone payment for the start of the Phase III clinical trial for MOR103/GSK3196165 that could occur in the course of 2019 and could, therefore, improve. The guidance also does not include revenues from potential future partnerships for licensing agreements for MOR208 or any other compound that is from our proprietary development. Effects from potential in-licensing or co-development deals for new development candidates are also not included in this guidance. Ladies and gentlemen, this concludes my review for the first quarter 2019. I'll now hand back to Sarah for the Q&A session.

[Sarah Fakih]

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

[Operator]

[Operator Instructions] The first question is from James Gordon, JPMorgan.

[James Daniel Gordon, Senior Analyst]

Couple of questions, please. One was on MOR208 and where we are in the EU. So I noted your comments about encouraging discussions for a potential EU filing in L-MIND, but since you last provided an update in March, could you just clarify what further discussions have taken place? Have you actually had discussions with the central EU regulator or just discussions with individual countries about whether you can file an L-MIND? And when do you actually expect to then get clarity on whether you can file potentially in Europe of L-MIND? That's the first question. Second question, MOR208 and frontline study plans. The frontline opportunity seems like the biggest indication in the pipeline, and in terms of framing the opportunity, should we assume that the Phase Ib and the subsequent Phase II and Phase III studies are going to be stratified by this biomarker that you're looking at? Or might they just involve biomarker [ plus the ] patients and when do you decide that? And the other question for frontline. When you're developing a product, do we think about this as being a essentially multiyear maintenance therapy or a shorter treatment duration therapy like rituximab in frontline DLBCL? So how should we build that?

[Simon E. Moroney, Chairman of Management Board & CEO]

Okay. Thanks, James. Let me take those questions. So first of all, regarding the regulatory interaction with the EU, what has happened is that earlier this year, we had discussions with 2 national bodies to get a feeling for how they viewed the possibility of a submission based on L-MIND. Those discussions were, I would say better than we had hoped for. So hence the use of the word encouraging. They're by no means decisive, of course, as you know, but they certainly encouraged us to continue those discussions. And so what we're now doing is we're seeking scientific advice from EMA, from the Central European regulator. We expect that interaction to take place in the summer. And as soon as we have meaningful feedback, feedback that we think can be relied upon as to whether we could file on the basis of L-MIND or not, then we would, of course, share that with you. So we can't give you a precise date on when that will be, but I would estimate sometime in the second half of the summer probably. Then regarding the frontline study of MOR208 and the potential for using a biomarker, we're not at this stage planning to do that. We do note that there's a couple of studies -- frontline studies that will produce data shortly. One is the ROBUST study of Celgene, which included lenalidomide on top of R-CHOP. We believe that that will be reported at one of the June conferences. And there's also a second Phase II study in a similar setting. One of those studies use the biomarker cell of origin, and one of them didn't. So we'll certainly be looking closely at those results. But at this stage, we don't plan to stratify by any biomarker either cell of origin or the one that we're using. And then your last question, if I understood it correctly, in terms of the sort of strategy behind that frontline study, it's simply an attempt to see whether adding MOR208 on top of R-CHOP makes a difference for patients. So since R-CHOP is a very, very firmly established gold standard right now, what we're looking to do is to see whether we can improve outcomes by adding MOR208 to that and/or in the presence of lenalidomide. So that's something that we hope that the Phase Ib study will guide us on whether we need to add lenalidomide or not, but the intention is essentially to see if we can improve outcomes by adding MOR208 to that established frontline therapy.

[Operator]

The next question is from Danielle Brill, Piper Jaffray.

[Danielle Catherine Brill, VP & Senior Research Analyst]

Simon, you previously said the B-MIND wasn't really a topic of discussion during interactions with the FDA. I'm just curious if that has changed at all, that part of your thinking on the importance of B-MIND in the U.S. has evolved. And then I have a couple of follow-ups on the protocol modification.

[Simon E. Moroney, Chairman of Management Board & CEO]

Okay. Thanks, Danielle. Yes, so it is, as we had previously said, that these are really 2 different independent trials. And all of the interactions we're having with the FDA on L-MIND are concentrated on L-MIND. So there's no overlap from that perspective between the 2 trials. We anticipate submitting the L-MIND data. Nothing's changed there. And we don't anticipate that the B-MIND trial has any bearing on how the FDA is looking at that, and will look at L-MIND data package. So hope that's clear.

[Danielle Catherine Brill, VP & Senior Research Analyst]

Yes, that's helpful. And then for the modification to the protocol, just curious what the genesis was for including the biomarker and was there something in the blinded data set that caused you to hedge?

[Simon E. Moroney, Chairman of Management Board & CEO]

No. It's -- this was a kind of an idea of our scientists. There is some stuff in the literature, which is relevant to this. I don't want to go into that without giving too much away. But it was an idea that our scientists that they tested preclinically, did a number of experiments here, that supported the hypothesis. We took that data set, that preclinical data set to the FDA and said, look, we have a hypothesis here that this biomarker may have a bearing on outcomes without having any clinical data to support that. This was purely preclinical data. And the FDA said, "Yes, that preclinical argument makes sense to us. If you want to go ahead and amend the trial, feel free to do so." So this is not based on any clinical data, it's based purely on preclinical data and it gives us essentially a backup, if you like, or an insurance policy for the B-MIND trial all-comers, okay. If it should turn out, which we don't expect and certainly don't hope, but the all-comers trial should not be successful, we now have a second crack, if you like, with this co-primary biomarker endpoint.

[Operator]

The next question is from Shanshan Xu of Berenberg Capital Partners.

[Shanshan Xu, Analyst]

I have 2 questions, if I may. So the first one is, I understand that you'll conduct a preplanned interim analysis of B-MIND in the second half of 2019. Based on the results, you will consider whether to extend the study in biomarker-only population. So in that sense, during the interim analysis of B-MIND, you'll probably take a look at the PFS in the all-comer population and the PFS in the population with this mysterious biomarker. So can you please tell us how much of spending you will allocate during this interim analysis? And are you going to allocate alpha to both the all-comer and the biomarker specific population? I know conventionally the biomarker driven subgroup analysis will be exploratory and will not spend alpha.

[Simon E. Moroney, Chairman of Management Board & CEO]

So Shanshan, many thanks. So let me explain how it works. The interim analysis will look at all-comers based on the initial design of the trial and will look at outcomes based on the presence of the biomarker. So essentially, we have 3 potential outcomes: Either the study is futile, or the study could succeed under the original all-comers design or the study could succeed based on the biomarker. In the latter case, we would add a further 120 patients, which takes the total to 450 and that adds essentially 1 year to the total duration of the trial. The way that those 120 patients would be added is non-selectively. In other words, the recruitment criteria for those additional 120 patients will be exactly the same as for the all-comers under the original design. So therefore, there's no jeopardizing of alpha in the amended trial and we're simply going to look at the biomarker carriers in the bigger pool of patients, all of them being recruited according to the same criteria. I hope that answers that question.

[Shanshan Xu, Analyst]

Yes. That's very helpful. And my second question will be without disclosing the nature of the biomarker, can you at least let us know whether or not the patients that are already enrolled in B-MIND prior to your biomarker announcement have been tested with this biomarker? Is this something that pathologists or physicians routinely test? And also if -- since you're in discussion with the regulators regarding the validation of this biomarker assay, can you at least let us know whether or not patients in the preexisting enrollment and patients in the future enrollment will be evaluated with the same biomarker assay?

[Simon E. Moroney, Chairman of Management Board & CEO]

So the answer to whether they have been recruited based on the presence or absence of the biomarker is no, they haven't. So we didn't look at the presence or absence of that in the recruitment process and it's certainly not a criteria for recruitment. As to how we may choose to use it in future studies, that's really a different question, and we haven't decided on that yet. And as I said, the B-MIND trial, however it continues, will be completed non-selectively for the biomarker, if that's clear.

[Operator]

The next question is from Gunnar Romer of Deutsche Bank.

[Gunnar Romer, Research Analyst]

Maybe 2 for Simon, 2 for Jens. Simon, just a quick one on whether you have an update on partnering discussions around MOR208, specifically I would be interested if you had taken a decision internally to maintain all U.S. rights or whether this is still debated also internally? Because my understanding was that you're primarily looking at partnering ex U.S. rights. So any comments around that would be helpful. And then secondly, on the buildup of the commercial organization in the U.S. Very pleased to hear about the progress that you are making. Just curious whether you can share a bit more in terms of next steps and what has gone better or worse so far. And then for Jens, regarding the COGS line, there was, I think a EUR 5 million number now in the first quarter. How should we think about the development from here for the remainder of the year? And then secondly, Tremfya royalties came in nicely, and I think pretty consistently also with what J&J reported in terms of sequential increase here. You've recorded EUR 6.6 million based on your estimate, but I would guess the final number is probably not too different. That would already bring you well in line with your guidance for the year. Just curious whether at some point, you would be prepared to also upgrade that guidance corridor for us?

[Simon E. Moroney, Chairman of Management Board & CEO]

Thanks, Gunnar. Let me start with the first 2. So regarding the partnering discussions for MOR208, we're really reluctant to give you an update on where things stand with that. We're happy with the way they're proceeding. But as always, we don't want to give guidance on with whom and by when and this kind of stuff. The answer to the question about are we looking to retain all U.S. rights, it's kind of related to your second question, I guess. The reason we're building up a commercial organization in the U.S. is that we intend to retain U.S. rights and commercialize ourselves there. Does that mean that we absolutely categorically rule out some kind of deal which would share some kind of U.S. rights? I wouldn't categorically rule that out. But we have a clear preference that we would retain sole U.S. rights. In terms of the commercial organization in the U.S., whose job it will be to do that selling in the U.S., we're really happy with the way it's going. You recall that we had a bit of a hiccup last year and getting started there, but since then, it's gone extremely well. I think it's fair to say that the quality of the people we've been able to attract has really exceeded our expectations and honestly, I think that's driven by the quality of the asset. This is a really attractive proposition for people to have the chance to launch and commercialize an asset like MOR208 in the U.S. market. So I think that's helping us in recruiting a great team over there. So, so far so good and absolutely well on track.

[Jens H. Holstein, CFO & Member of Management Board]

Okay. Then Gunnar, I'll take the next 2 questions. So as you mentioned correctly, we have cost of sales reported in the amount of EUR 5 million for the first quarter. You should expect that we have some additional money that we spend because that amount consists of some costs that are related to our relationship with Novartis for the MOR106 program and also with I-Mab for the MOR202 program where there will be some costs. But to a great extent, these are costs that are for the market supply of MOR208 going forward. I wouldn't assume that you have to take this number times 4 to have a total number in terms of COGS, but it will certainly be double-digit number, so will be between EUR 10 million and EUR 20 million that you should definitely expect for the full year of 2019. In terms of the other question, the Tremfya royalties. Yes, we're very excited about the EUR 6.6 million that we could record, and I think it's a fair assumption that somehow that figure shouldn't be too far off of the final figure that we expect to receive from Janssen in the near future. Going forward, looking at the guidance, we just felt a little bit -- we don't feel that after first quarter report, we should adapt our guidance on the Tremfya royalties. That may be a touch too early. But then looking at the second quarter and later, so the third quarter, we certainly would adapt in case that the figures should run in the direction that we currently hope for, and we have very good indication for the first quarter, as you know, that this could actually come out better than we anticipated. You should also take into account that -- I mean we just gave out our guidance in March. We also have the potential milestone payment that could come in in the course of the year for MOR103. So there is -- beside the Tremfya royalty, there is another item that could influence our guidance significantly and that is something to not lose sight of as well.

[Operator]

The next question is from Graig Suvannavejh of Goldman Sachs.

[Graig Suvannavejh]

I do have 4 as well, maybe 2 for Simon and 2 for Jens. With respect to the decision to announce the final results of L-MIND, I believe that there's a placeholder on the Lugano conference for you to present -- for the data to be presented on June 22 at 8:30 in the morning and I'm just trying to figure out how -- what will determine whether you decide to press your top line -- press release this or just have it presented at the conference? That's my first question. My second question just has to do with, as you've given us a more background on your new head of U.S. commercial or the head of the U.S. subsidiary, David Trexler, it would be helpful to know what he's involved with in the past. And for Jens, 2 things. One, as we think about your buildup of our commercial organization, is there a way that you can ballpark for us kind of the magnitude of spend you're thinking in terms of having that fully burdened commercial organization? And then lastly, just from a housekeeping perspective, can you remind me what, if anything, you've said around the magnitude of the potential milestone associated with the Phase III start for the GSK program?

[Simon E. Moroney, Chairman of Management Board & CEO]

Yes, thanks, Graig. Let me start with the first 2 of those. We fully intend to present the L-MIND data, the final L-MIND data at Lugano. I think the slot that you mentioned is probably the slot we've been assigned. We haven't yet reached a final decision whether we should announce the headline data in advance. I think it's fair to say that given the interest in this topic, we're leaning towards publishing that as soon as we have the headline data, but a final decision hasn't been made yet. Regarding the U.S., our president over there is David Trexler. He joined us at the beginning of this year. He comes with a great pedigree in commercialization of oncology products in the U.S. He was previously at Merck, so German Merck over there, Merck Serono and was involved in building up their U.S. oncology commercial activities. He joined Merck a few years ago from Eisai where he worked in the similar capacity in oncology drug commercialization in the U.S. So he brings many years of experience of the U.S. oncology market and we think he's a great addition to the team and that's been borne out by his ability to hire his senior management team, which as I said before, has gone extremely well so far. So really happy with the way that's panning out.

[Jens H. Holstein, CFO & Member of Management Board]

And then in terms of the costs, the guidance that we've given out in terms of spend for the commercial organization for the years '18, '19 and '20, we mentioned in the S-1 document that we filed with the listing, NASDAQ in April of last year, we reiterated that amount of overall in the range of $90 million to $100 million for those 3 years. In total, you got to expect that the spend is somehow split between selling, expenses and G&A because you have seen G&A increase for Q1 that will increase further. So I think the biggest chunk of the spend will take place in '20. But with the buildup of the people now in the further quarters of this year, you certainly also will see an increase. So that's sort of ballpark $90 million to $100 million for the 3 years in total is the amount of money that you should expect that we spend. And then in terms of the magnitude of the milestone payment that we expect for the Phase III start, which is for the 103 combo with GSK, we're unfortunately not allowed to say that. And our friends from GSK are not so happy that we tell details on those terms, but it has certainly a magnitude that is definitely relevant for [ direction ] of the guidance. So but unfortunately, I can't be very precise here following the contractual agreement that we have with GSK.

[Operator]

The next question is from Gary Waanders for Bryan Garnier & Co.

[Gary Anthony Waanders, Managing Director]

Just on the commercialization ex U.S. and the regulatory discussions that you're having in Europe, would the potential partners that you're talking to you at moment be able to act quickly enough if you got the sort of more optimistic route through the regulatory pathways in Europe? That's the first one. Secondly, do you have any intentions to expand the product offering so that the U.S. commercial force might be able to sell once 208 is on the market, assuming that's the case? And then finally, with the mature L-MIND data coming in June, is there any additional follow-up that you expect on those patients and might that be important for the NDA completion?

[Simon E. Moroney, Chairman of Management Board & CEO]

Yes, thanks, Gary. Let me take those questions. Regarding the commercialization outside of the U.S. and timing, assuming -- let's assume that we do get the green light to submit the L-MIND, the L-MIND data packaging in Europe, we would, in any case, still be later with the launch in Europe than that's mid next year anticipated launch the U.S., okay? So we would -- from a timing point of view, we have more time to prepare both ourselves and a partner for a launch in Europe than we have in the U.S. So from that perspective, we don't see that as being a limiting factor at this point. Regarding expanding the U.S. product offering, you're referring, of course, to the fact that we're going to have 1 product in the bag initially. We're well aware of that. And we are, as always actually, looking for additional products or product candidates to bring in. That's something that's an ongoing activity here internally, and of course, we can't give any guidance as to what that might be or when we might be able to add something. But it is certainly a priority to be able to strengthen our proprietary product portfolio overall through some kind of transaction. And then regarding the further follow-up, so for the submission for the FDA, the data that you'll see at Lugano in June will be it. So we don't require any additional follow-up data for that submission. But of course, we will continue to follow up patients, and we'll keep updating the data as new data comes in. But at least for the submission, we don't need additional follow-up data.

[Operator]

The next question is from Zoe Karamanoli of RBC.

[Zoe Karamanoli, Analyst]

On the topic of the biomarker, as I understand, current acceptance of the biomarker by the FDA is based on preclinical data. I'm wondering if you're planning to test retrospectively the biomarker hypothesis in patients from the L-MIND study that have responded well?

[Simon E. Moroney, Chairman of Management Board & CEO]

That's not something that's contemplated in the protocol. And I'm not sure if a decision has been made whether we would analyze samples from L-MIND patients for the biomarker or not. So I can't have -- I have to say I can't give you a clear answer on that at this stage, but it's certainly not -- it was not contemplated in the protocol for L-MIND.

[Zoe Karamanoli, Analyst]

Yes. No, I understand. It was more whether you would want to support the FDA filing with that data. And my second question is, can you perhaps help us understand a little bit better how you think a potential label for MOR208? From previous comments, I understand that the event interim analysis of the B-MIND study, so the benefit with the biomarker, that would be relevant with the filing for L-MIND study. Is that correct?

[Simon E. Moroney, Chairman of Management Board & CEO]

Sorry, I missed the part of that question. Could you repeat it, please?

[Zoe Karamanoli, Analyst]

Yes, sure. I'm wondering if you can help us understand how we should think the label for the MOR208 with the filing based on the L-MIND data, and in particular, in the event the interim analysis off the B-MIND study shows a benefit with the selected biomarker only?

[Simon E. Moroney, Chairman of Management Board & CEO]

Yes, I think the default assumption is that the likely label for L-MIND is based on the L-MIND study, okay? So the patient population on which the study has been done, no -- nothing to do with biomarkers at all, it was not part of the L-MIND study. So there's kind of the default assumption. We -- as I just mentioned in answer to another question, the biomarker is not the topic at all with the FDA in relation to the L-MIND study. It's something completely separate at this point. So at the least, we're looking for a label for 208, which is based purely and simply on the patients that are being treated in that particular study.

[Zoe Karamanoli, Analyst]

Okay. So you don't expect the B-MIND to have any impact on the labels and the filings?

[Simon E. Moroney, Chairman of Management Board & CEO]

No. No. Not of L-MIND. Not of the L-MIND.

[Operator]

The next question is from Victoria English from Evernow Publishing.

[Victoria English]

Simon, there have been a couple of stunning reports from AstraZeneca and GSK about early results in antibody drug conjugates. And I'm wondering whether any of this has had any impact on your thinking about the development of your proprietary portfolio?

[Simon E. Moroney, Chairman of Management Board & CEO]

Thanks, Victoria. Of course, we follow everything that's going on in this field, antibody drug conjugates, bispecifics, CAR-Ts, you name it, we track that very closely. We haven't seen anything, certainly nothing that's as close to market as we are that has produced as compelling a data set as the data that we have seen from the most recent cut of the L-MIND study, which was June of last year. So we feel that we -- from a competitive perspective, if that's your question, we feel actually in really a good place because we have a product that's close to market, just over a year away from market if all goes well, with really a great data set with what we've seen so far in our opinion, and we feel a very manageable safety profile, again based on what we've seen. So we think we have something very competitive for a patient population that is currently not at all well served. So we will continue to monitor those competing programs, competing technologies and so on, but we really feel that we've got something a bit special here with MOR208.

[Operator]

We currently have no further questions coming through. [Operator Instructions] The next question is from Steve McGarry of HSBC.

[Stephen McGarry, Analyst]

A couple of questions. Firstly, on MOR208, I don't think you've disclosed it, but could you tell us who your contract manufacturer is so that -- with the manufacturing capacity they have available for the product? And also whether they're going to need regulatory inspections specifically for 208 ahead of the approval, hopefully next year? And then secondly, on the B-MIND study, although you're not going to need any additional alpha spend for interim analysis depending on which route you decide to take, can you let us know what the alpha hurdle rate is for basically filing that product?

[Simon E. Moroney, Chairman of Management Board & CEO]

Yes, thanks, Steve. So regarding MOR208 manufacturing, we haven't indeed disclosed who the manufacturer is. We're working with a very big, very reputable, well-established contract manufacturer who's doing that. We're working at commercial scale, have been for some time. We have a robust stable process that we're very happy with. There will be inspections, of course, pre-approval inspections by the FDA likely in the first -- sort of end of first quarter of next year. We're expecting that. So far over multiple runs that we've done at scale, it's all gone well. So we feel we're in very good hands there and don't have any concerns from a manufacturing perspective. I mean certainly -- they certainly have capacity to be able to make material that we need. Regarding B-MIND, we haven't actually talked about the statistical analysis plan at all for B-MIND and we're prepared to keep it that way for the moment at least.

[Operator]

And the next question is from Jason Butler for JMP Securities.

[Douglas Royal Buchanan, Associate]

It's [ Roy ] for Jason. Sorry if it's already been answered and I missed it. Had a few. So for the biomarker for 208, when do you expect to release more details on the nature of the biomarker, possibly with the interim in the second half? Will there be anything on that at the Lugano meeting? And then for MOR202 in multiple myeloma in the Chinese region, has I-Mab said anything? Or can you guys say about the time lines for those trials? And then lastly, how do think about bispecifics and how does your platform technology align to potential in bispecifics?

[Simon E. Moroney, Chairman of Management Board & CEO]

[ Jay ], thanks very much. Let me take those. So when are we going to disclose the biomarker? Relatively soon is all I can say. I think we mentioned that we want to make sure that we've got IP filing done and secured before we disclose it and that should be done soon. So I would hope that within the next couple of months, we could talk about it, probably not at Lugano but not too far off. Regarding 202, the communication on the timing for that in China, we haven't agreed with our friends at I-Mab to talk about when those trials could be completed or when approvals could be expected. So in the absence of such an agreement with them to disclose that, all we can tell you at this stage that -- is what you know, which is that we've just started these 2 pivotal trials over there, or at least I-Mab has. So sorry that I can't help you with that, but we just don't have an agreement with I-Mab to disclose that. And then regarding bispecifics, yes, we have some bispecific activities in here that we're very excited about. One of our more advanced preclinical programs is a bispecific antibody that we like a lot. We have some proprietary formats that we're developing as well. So this is an area that we have activities in, that we have significant investments in, and we're hopeful that bispecifics will play a significant part of our future product portfolio.

[Operator]

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

[Simon E. Moroney, Chairman of Management Board & CEO]

Thank you. And to wrap up, we're well on track to achieving or exceeding our goals for this year. With 208 or tafasitamab as it's now called or tafa as I call it, based on all the data we've seen so far, we strongly believe we have a remarkable drug candidate. We'll report final data from the L-MIND trial within the next several weeks and are well on track to complete our regulatory filing activities in the U.S. by year-end as planned. Buildup of the U.S. commercial organization also progresses according to our plan to be ready and fully operational for launch in 2020. We look forward to keeping you apprised of our progress with this important expansion. Our other proprietary programs including MOR106 and MOR202 are also making good progress. With our solid financial position, MorphoSys is well equipped to execute its plan as outlined during the remainder of the year and beyond.

[Sarah Fakih]

That concludes the call. If any of you would like to follow up, we're in the office for the remainder of the day. Thank you for your participation on the call, and goodbye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.