MorphoSys AG

XETRA:MOR

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the First Quarter Interim Statement 2023 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. [Operator Instructions]

I would now like to turn the conference over to Julia Neugebauer. Please go ahead.

[Julia Neugebauer, Vice President, Head of Investor Relations]

Ladies and gentlemen, good afternoon or good morning. My name is Julia Neugebauer, Head of Investor Relations at MorphoSys and it is my pleasure to welcome you to our first quarter 2023 financial results conference call.

Joining me on the call today are Jean-Paul Kress, Chief Executive Officer; Tim Demuth, Chief Research and Development Officer; and Joe Horvat, U.S. General Manager, who will join for the Q&A.

Before we begin, I'd like to remind you on slide two 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, 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 31st, 2022, 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 three, you will find the agenda for today's call. Jean-Paul will begin with an overview and the outlook. After that, Tim will share an update on our clinical development work and then we will provide a summary of our first quarter 2023 financial results. Following our prepared remarks, we will open the call for your questions.

With that, I now hand the call over to Jean-Paul.

[Jean-Paul Kress, Chief Executive Officer]

Good morning, and good afternoon, everyone. Thanks for joining us today. We had a strong first quarter marked by numerous achievements. We are more focused than ever on the opportunities ahead of us this year and I'm confident that we will deliver.

Pelabresib, our investigational BET inhibitor is a potential best and first-in-class foundational first-line treatment of patients with myelofibrosis. It represents our largest and most immediate opportunity. This quarter, we announced that we completed enrollment of our Phase III MANIFEST-2 study of pelabresib in myofibrosis ahead of schedule. As a result, the top line data from the trial are now expected by the end of 2023, months earlier than previously anticipated.

This advancement of the trial time line also provides us with the opportunity to bring pelabresib to patients much earlier. The MANIFEST-2 study enrolling ahead of schedule underscores that there is a significant need for better treatment options for patients with myelofibrosis. Further, it shows the enthusiasm of investigators and treating physicians for pelabresib. In speaking with physicians who treat myelofibrosis patients, we constantly hear that depth and durability of responses to treatment are limited with current first-line therapy.

Results from our Phase II MANIFEST study of pelabresib in myelofibrosis suggest that pelabresib in combination with a JAK inhibitor may offer prolonged improvements in both screen size and symptom severity at and beyond 24 weeks. Further to this, in the MANIFEST study, changes in biomarkers correlated with improvements in clinical measures of treatment success suggesting a potential disease-modifying effect of pelabresib.

The body of data presented on pelabresib to-date, reiterates its potential to address the critical needs of myelofibrosis patients. We are laser-focused on delivering the top line data from the Phase III MANIFEST-2 study by the end of this year.

We also see great potential for pelabresib beyond myelofibrosis, and we will continue to explore it in treating patients with other myeloid diseases. Monjuvi continues to address critical needs of patients living with relapsed or refractory diffuse large B-cell lymphoma, also known as DLBCL.

In the first quarter, Monjuvi net sales were US$20.8 million, representing an 11% year-over-year growth and on track with our 2023 guidance. At the 2023 AACR Annual Meeting, we presented final five-year follow-up data from the Phase II L-MIND study. These data show that Monjuvi plus lenalidomide offers prolonged and durable responses in adults with relapsed or refractory DLBCL with 40% of patients who received the regimen still alive after five years.

The durable responses and consistent safety profile observed in the five-year analysis further support the Monjuvi regimen as a potential curative option for appropriate patients. We believe the largest opportunity for Monjuvi is in the first-line DLBCL safety. Last month, we announced that enrollment of the Phase III frontMIND study is also complete with more than 880 patients enrolled in the trial. The study is exploring tafasitamab plus lenalidomide in addition to R-CHOP, the current standard of care for this patient population versus R-CHOP alone are the first-line treatment for patients with high intermediate and high-risk DLBCL.

We look forward to sharing data from the trial in the second half of 2025. We have a rich set of pivotal catalysts over the next two years, starting with the pelabresib Phase III data in first-line myofibrosis later this year. To ensure we are set up for success, we continue to take steps to optimize our cost structure and further strengthen our financial position.

For example, we recently purchased part of our convertible bonds that are due in 2025 to reduce our debt. We did this to take advantage of the market dynamics as the bond is trading with significant discount. As a result, we were able to buy back approximately 19% of our outstanding principal amount at a lower cost. We continue to concentrate our investments on our most advanced clinical programs that will create near-term value.

I would now like to turn the call over to Tim to provide the development update. Tim, over to you.

[Tim Demuth, Chief Research and Development Officer]

Thank you, Jean-Paul. We continue to advance our ongoing mid to late-stage clinical programs and make exceptional progress. We'll start with pelabresib. The Phase III MANIFEST-2 study is our number one priority. MANIFEST-2 is a global multicenter double-blind study of more than 400 patients who were naive to JAK inhibitors.

Patients were randomized 1:1 to pelabresib in combination with ruxolitinib or placebo plus ruxolitinib. The primary endpoint of the study is the proportion of patients who achieve a 35% or greater reduction in spleen volume at week 24, known as SVR35. The key secondary influence is the proportion of patients achieving a 50% or greater improvement in total symptom score at week 24.

This is known as TSS50 and is measured by the Myelofibrosis Symptom Assessment Form version 4.0. The MANIFEST-2 study is supported by findings from the Phase II MANIFEST trial of pelabresib in combination with ruxolitinib in patients with myelofibrosis, including those who were JAK inhibitor naive.

Updated results from MANIFEST were presented at the ASH meeting in December 2022 and were recently published in the Journal of Clinical Oncology. These results suggest that pelabresib in combination with ruxolitinib provides prolonged improvement in both spleen size and symptom severity at and beyond 24 weeks. In the MANIFEST study, changes in biomarkers correlated with improvements in clinical measures of treatment success.

This included SVR35, TSS50 and hemoglobin increases indicative of improved anemia, suggesting a disease-modifying effect of pelabresib. Examined biomarkers included bone marrow scarring known as fibrosis and the frequency of the JAK2 allele that is known to drive disease activity.

All patients who had clinical responses plus reduced allele frequency and improvement in bone marrow fibrosis were naive to JAK inhibitors. Based on the body of data we have presented thus far, our confidence in pelabresib and the Phase III MANIFEST-2 study is high, and we look forward to releasing the top line data from the trial data this year.

Moving onto tafasitamab. As Jean-Paul mentioned, at the 2023 AACR annual meeting, final data from our Phase II L-MIND study were presented during a late-breaking oral presentation spotlighting five-year efficacy and safety results in patients with relapsed or refractory DLBCL. That's the data cutoff.

The overall response rate of patients enrolled in the study was 58%, and complete response was observed in 41% of patients. The median overall survival was 34 months with 40% of patients alive at five years. The regimen was well tolerated and no new safety signals were identified. The prolonged and durable responses seen at five years among patients in this study are very meaningful and show that the Monjuvi treatment regimen has curative potential.

Beyond the currently approved indication, we're also exploring tafasitamab in two Phase III studies, frontMIND in first-line DLBCL and inMIND in relapsed or refractory follicular or marginal zone lymphoma, which is being driven by our partner Incyte. For about 50% of patients with high intermediate and high-risk DLBCL, the standard of care first-line therapy, R-CHOP is ineffective.

And the prognosis for patients with relapsed or refractory disease is very poor. We are investigating the potential of adding tafasitamab and lenalidomide to R-CHOP to increase the DLBCL cure rates in the first line and help more patients avoid relapse. At the ASCO 2023 Annual Meeting in early June we will present data that reinforces the strong potential of our pipeline.

Our presentations feature proof-of-concept data on pelabresib in essential thrombocythemia and tulmimetostat, our investigational next-generation dual inhibitor of EZH2 and EZH1 in a broad array of advanced tumors. In our Phase II MANIFEST study, pelabresib is also being investigated in patients with essential thrombocythemia in addition to myelofibrosis.

These indications are both myeloproliferative neoplasms, which are types of blood cancers that begin with a genetic change in bone marrow stem cells. One ARM of the MANIFEST study is exploring pelabresib as monotherapy in patients with high-risk essential thrombocythemia who are refractory or intolerant to hydroxyurea. The chemotherapeutic agents most used to treat this disease.

Proof-of-concept data from this ARM of the Phase II study will be presented during a poster discussion session. Tulmimetostat is being evaluated in a Phase I/II trial in patients with advanced solid tumors or lymphomas, including ARID1A mutated ovarian carcinoma and endometrial carcinoma, BAP1-mutated mesothelioma, and peripheral T-cell lymphoma.

Tulmimetostat was designed to improve on first generation EZH2 inhibitors through increased potency, longer residence time on target and a longer half-life offering the potential for enhanced antitumor activity. Preliminary results from the Phase II portion of the study, evaluating tulmimetostat across multiple tumor types will be presented during a poster session.

In summary, the data we are presenting at ASCO 2023 showcases the wealth of potential opportunities that our pipeline offers to address the critical needs of people living with blood cancers, including myeloid malignancies and those patients with solid tumors.

With that, I now turn the call over to Julia to review our financials.

[Julia Neugebauer, Vice President, Head of Investor Relations]

Thank you, Tim. We're pleased to share our financial results for the first quarter of 2023. Monjuvi sales were $20.8 million in the first quarter of 2023, reflecting a year-over-year growth of 11%, driven by higher demand. On a sequential basis, sales declined by 18%, largely due to the inventory dynamics and demand seasonality. We continued to be excited for the Minjuvi opportunity outside of the U.S., which our partner Incyte is responsible for. In the first quarter of 2023, we recorded EUR0.7 million or $0.8 million in royalty revenues for Minjuvi.

Total revenues in the first quarter of 2023 were EUR62.3 million compared to EUR41.5 million in the same period a year ago. This increase resulted mainly from higher revenues from the sale of clinical vials. Total cost of sales were EUR21 million in the first quarter of 2023 compared to EUR7.9 million a year ago. The year-over-year increase resulted primarily from expenses related to vial sales to our partner Incyte. Cost of sales specific to Monjuvi U.S. product sales were EUR3.1 million in the first quarter of 2023.

Turning to operating expenses. R&D expenses in the first quarter of 2023 were EUR83.1 million compared to EUR65 million for the first quarter of 2022. The growth primarily reflects the additional costs incurred due to the positive development of the patient recruitment in the major ongoing clinical studies, and a onetime effect resulting from severance payments in connection with the restructuring of the research area.

Selling expenses decreased to EUR16.9 million in the first quarter of 2023 compared to EUR21.9 million for the same period in 2022. The year-over-year decline was driven by streamlining and focusing on selling efforts. G&A expenses in the first quarter of 2023 were EUR10.9 million compared to EUR14.6 million in the first quarter of 2022.

For the first quarter of 2023, we reported a consolidated net loss of EUR44.4 million compared to a net loss of EUR122.7 million in the first quarter of 2022. The lower consolidated net loss in 2023 was driven mainly by the recognition of finance income in relation to the financial liabilities from future payments to Royalty Pharma and by additional finance income derived from the repurchase of a portion of outstanding convertible bonds.

Turning to our balance sheet. We ended the first quarter of 2023 with cash and investments of EUR791.5 million compared to EUR907.2 million at the end of 2022. Our solid cash position enables us not only to reach the pivotal data milestone for the Phase III study of pelabresib now expected by the end of 2023, but to also provide a cash runway of at least 12 months beyond the pivotal data readout.

Turning to our guidance for 2023. We are reiterating our guidance that was provided at the beginning of January this year. All aspects of our guidance remain the same.

With that, I now turn the call back to Jean-Paul.

[Jean-Paul Kress, Chief Executive Officer]

Before we go into Q&A, I want to conclude a few words. We made exceptional progress this quarter, and we are more focused than ever to build on this great momentum and drive our strong mid to late-stage pipeline forward.

With pelabresib, we have the opportunity to bring a foundational first-line treatment to patients living with myelofibrosis with the potential to improve the standard of care. Now that our Phase III MANIFEST-2 study has completed enrollment earlier than anticipated, we will release top line data later this year.

On Wednesday, June 21st, we will host the virtual event that provides an in-depth overview of pelabresib and its potential. Dr. John Mascarenhas, Professor of Medicine and Director of the Adult Leukemia Program at The Tisch Cancer Institute at Mount Sinai, New York, will speak and be available for questions.

Further details about this session will be provided closer to the date. We are well financed to deliver on our priorities and we will continue to focus our resources on our most advanced clinical programs that will create near-term value.

With that, I would like to open the call for questions. Operator, please open the line.

[Operator]

Ladies and gentlemen. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Jason Butler from JMP Securities. Please go ahead.

[Jason Butler, JMP Securities]

Hi, thanks for taking the questions and congrats on all the progress. Just one on MANIFEST-2. Can you -- now you've completed enrollment. Can you comment on the comparability of the patient population in MANIFEST-2 to ARM 3 of the MANIFEST-1 trial? And then wondering if you could just walk us through a little bit more detail of your commercial preps for pelabresib and what you're doing to build awareness ahead of data? Thanks.

[Jean-Paul Kress, Chief Executive Officer]

Thanks, Jason. Tim will take the first part of the question and Joe will answer the second part.

[Tim Demuth, Chief Research and Development Officer]

Yes. Jason, this is Tim. In terms of comparability between the population of MANIFEST-2 and ARM 3 in the MANIFEST, generally, the populations are very comparable. That was intentional. So we can really use MANIFEST as a very good benchmark for what to expect in MANIFEST-2. So highly comparable patient populations there.

[Joseph Horvat]

And Jason, on the commercial readiness, a couple of thoughts here. First and foremost, we have our organization, commercial organization already interacting, as you know, with space for Monjuvi and there is a very high level of overlap in the target, so we don't have to start from scratch.

Obviously, we make adjustments with time. We have time for that. What is really important now is to continue to engage with the key opinion leaders, and we've been doing that through our development program, and we've basically interacted with the most relevant sites worldwide, including very much so in the US for that.

But at the same time, now we are having our medical affairs organization work with the field on engaging on the beta and raising excitement. So it's going very well. And we constantly hear a very strong endorsement of our regimen and the desire to continue these interactions and engagement. And again, the fact that we have enrolled that swiftly and ahead of time is a really, really strong indicator of the interest for this time.

[Jason Butler, JMP Securities]

Great. Thank you. Thank you for taking the questions.

[Operator]

And the question comes from James Quigley from Morgan Stanley. Please go ahead.

[James Quigley, Morgan Stanley]

Hello. Thank you for taking my questions. I've got three, please. So on pelabresib and thinking about other endpoints beyond SVR35 and TSS50, so in terms of additional data on bone marrow fibrosis and survival data. At what point can we expect this data to come through? And it's not listed as a second endpoint on clinicaltrials.gov, but how important could these additional data be in terms of driving uptake or from your conversations, does that not matter, it's more of a nice to have for the future? Secondly, on Monjuvi curative potential, in the L-MIND- five-year update, are there any patients that have stop therapy and not rebounded. So are there any patients that have gone into a complete response manage to stop therapy or come off therapy and not see the accounts of return. I'm just thinking about that in terms of demonstrating curative potential. And finally, on R&D, there's a bit of a step up in Q1 due to the Phase III trials. If you can give us a sense of what portion of your current R&D is late stage or is related to late-stage assets. Obviously, you stopped the early-stage research, but how should we think about how R&D develops over time? You gave a little hint with the essential thrombocytopenia, but should this step down over time as those trials run off? Thank you.

[Jean-Paul Kress, Chief Executive Officer]

Thanks, James. I'll start by the last question and Tim will address the pela and the Monjuvi questions. Regarding the evolution of our focus and capital allocation towards the R&D spectrum, you're correct, we are obviously now very much focusing on our late-stage opportunities, and there will be a phasing with that. Right now, you can probably assume that we are at the peak in terms of our Phase III results. But we've got the pela MANIFEST-2 study. We've got the frontMIND study. And together with inMIND -- with Incyte, we have the inMIND study for follicular lymphoma.

But that will kind of decrease in the future. So -- but we're not saying that we must start new things, but if you take the ISO picture that we're probably peaking now. And so we will actually see an OpEx reduction towards R&D and development in the future. So yes so that's the answer to that. And indeed, we have greatly reduced our expenses in preclinical to make sure that we could skew the opportunities that we mentioned. Tim, on the two other questions?

[Tim Demuth, Chief Research and Development Officer]

Yes. Thank you. So hey, James, on the first question, pela, other endpoints beyond SVR and TSS. So yes, there are other endpoints in the study, as you mentioned, just to come back to the primary endpoint and the key secondary.

Obviously, health authorities are expecting, and we know that from interactions with them, are expecting us to demonstrate winning on SVR35 and TSS50, both at week 24. Those are the accepted and expected regulatory endpoints. And we feel very good about meeting those endpoints. If you remember, we particularly increased the sample size from 330 to 400 patients to be particularly well powered for that key secondary endpoint, the TSS50.

As regards bone marrow fibrosis, that's clearly an important translational endpoint and endpoints that very much speaks to potentially altering the natural history of the disease when we're talking at the disease that is carrying the bone marrow and being able to demonstrate reversal of that fibrosis, I think, helps a lot understanding further trajectory.

And there is a lot of reason to believe that improvement in bone marrow fibrosis will translate to long-term cycle. And those are, of course, endpoints that we're assessing in the study. You mentioned they are not listed on clinicaltrials.gov, yet, they are definitely part of the protocol. And we will analyze this data as soon as we're done with analysis of the top line data and then have this ready for presentation at an available scientific conference in the near future.

As it comes to tafasitamab and the curative potential. You asked about are there patients who stopped treatment with CR and continue to show that survival benefit. Absolutely, yes. If I can just refer you back to that AACR presentation that Professor [indiscernible] was giving just a few weeks ago.

In Florida, there are a number of patients who actually complete and discontinued treatment and who remain in complete response despite discontinuing or completing treatment. Again, really supporting the potential for cure in these patients treated with [indiscernible]. And we're very excited about these findings and so some of the investigators who we're speaking with about this data.

[James Quigley, Morgan Stanley]

That's great. Thank you very much.

[Operator]

And the next question comes from Zain Ebrahim from JPMorgan. Please go ahead.

[Zain Ebrahim, JPMorgan]

Thank you for taking my questions. Just two for me, please. So my first question would be on MANIFEST-2. You brought forward the timing for the study a few times now, and that's because of completing enrollment, but is there any chance of that readout being brought forward even further? Or with this, we can now expect the data in 2023? And my second question would be on the myelofibrosis competitive landscape. So one of a potential competitor for pela, momelotinib that's due for approval in June, possibly in second line, but I think there's some discussion at the moment as to whether that could receive a line agnostic approval. How are you thinking about positioning of pela and Jakafi combination relative to momelotinib and also other potential competitors that we've seen.

[Jean-Paul Kress, Chief Executive Officer]

Zain, thanks for your question. This is Jean-Paul. From MANIFEST-2, the timing is already greatly, greatly improved compared to what we had in mind over 1 year ago or 1.5 years ago or two years ago when we acquired Constellation. I mean, there not many companies or studies, Phase III studies in oncology, especially who have been beating time line. So I think we've done extraordinarily well here, and we don't want to signal not any potential upside. It's a couple of more months. I think now it's about making sure that we deliver the right quality together within this time line.

So that's for the time line. Regarding the positioning of pelabresib in the landscape. First of all, the landscape is evolving very much and there has been a decade of basically same standard of care with monotherapy, JAK inhibition, building up a very big deal of unmet need. And if unmet need is really, really giving us the opportunity to make a big change here, and this is what we hear constantly from this space.

There is awful lot of expectations for a first-line combination in myelofibrosis and pelabresib from what we know from the data and what we hear as feedback is the longer wait of the opportunity to establish this topline change for helping patients in first line because the very important point here is that as much as you hear about many other important products coming up, mostly in the JAK inhibition segment, actually, the real unmet need is topline change in first-line in combination, which should increase and improve the quality of life of the patient and intimate survival of the patients. They need to live longer and better lives and we can provide that with our regimen.

The other agents are probably going to see some segments of the market. And I would end my comments by saying that you can't exclude that we will not partner with some of them.

We're exploring some combination. So we started by the beginning, which is establishing a strong registration with pelabresib plus ruxolitinib, but there are other possibilities which would put us at a cornerstone in the treatment of Myelofibrosis.

[Zain Ebrahim, JPMorgan]

Perfect. That's really helpful. Thank you.

[Jean-Paul Kress, Chief Executive Officer]

Thank you.

[Operator]

[Operator Instructions] And the next question comes from Vineet Agrawal from Citi. Please go ahead.

[Vineet Agrawal, Citi]

Hi. Vineet here from Citi. Thanks for taking my question. I just want to check if you have shared any data on the weight of the patients on the pelabresib combo. I am just trying to understand how important is the weight gain for these myelofibrosis patients. And just on biomarker analysis, I think Navitoclax showed 50% of patients reaching more than 20% reduction in JAK2 allele frequency. I'm wondering if you could comment on your positioning there from the biomarker analysis perspective. Thank you.

[Jean-Paul Kress, Chief Executive Officer]

Vineet, thanks for the questions. Tim, go ahead.

[Tim Demuth, Chief Research and Development Officer]

Yes. On the first question, have we shown data regarding weight gain in MANIFEST? The answer is, no, we haven't done that. It's something the team is looking into. As far as it goes in terms of the JAK allele burden, we have a presentation on translational data from the ARM 2 and ARM 3 of the MANIFEST study showing that pelabresib very clearly reduces that JAK2 allele burden in our study. I don't think that we can do reasonably across trial comparison.

But the overall reduction in the JAK2 allele burden is certainly very impressive and something that, again, fits together in to that picture of modifying disease activity, particularly when you put this together with some of the cytokine data that was presented also at EHA last year, together with the megakaryocytes de-clustering and the fibrosis improvement, I think a pattern is emerging that suggests very strongly that pela, ruxolitinib have a very positive effect on modifying the disease.

[Vineet Agrawal, Citi]

Got it. Thank you.

[Operator]

So there are no further questions at this time, and I hand back to you, Julia Neugebauer for closing comments.

[Julia Neugebauer, Vice President, Head of Investor Relations]

Ladies and gentlemen, this concludes today's conference call. If any of you would like to follow up, MorphoSys Investor Relations team is available for the remainder of the day. Once again, thank you for joining our call. Have a good day, and goodbye.

[Operator]

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