MorphoSys AG

XETRA:MOR

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the MorphoSys Half Year Results 2018 Conference Call. Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded. [Operator Instructions] Now I would like to turn over the conference over to Alexandra Goller. Please go ahead.

[Alexandra Goller, Associate Director Corporate Communications & IR]

Good afternoon, good morning, and welcome to our Q2 2018 conference call and webcast. My name is Alexandra Goller, Associate Director, 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 the conference call, we will present and discuss certain forward-looking statements concerning the development of MorphoSys' core technologies, the progress of its current research and development programs and the initiation of additional programs. Should actual conditions differ from the company's assumptions, actual results and 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 second quarter as well as an outlook of the rest of this year. After that, Jens will review the financial results of the second quarter and the first 6 months of 2018. The presentation will last about 20 minutes. After the presentation, we will be available for your questions. You will find the slide deck for the presentation on our corporate website.I would now like to hand over to Simon Moroney.

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

Thank you, Alex, and also from me, a warm welcome to our Q2 call. We're really thrilled with the progress that we've made as an organization in the second quarter of 2018 and the few weeks after the end of the reporting period. Our very successful NASDAQ listing was obviously a major highlight, together with very encouraging progress across our therapeutic pipeline. In the next few minutes, I'll go through some of these events, focusing on individual programs and starting with our Proprietary Development segment.I'll begin with our most advanced compound MOR208. As a brief reminder, we're currently investigating MOR208 in 2 types of B-cell malignancies. In our L-MIND and B-MIND trials, we focus on patients with relapsed/refractory DLBCL, whereas our COSMOS trial enrolled patients with BTK inhibitor refractory or intolerant CLL and SLL.For L-MIND, our open-label Phase II trial of MOR208 in combination with lenalidomide in patients with relapsed/refractory DLBCL who are ineligible for high-dose chemotherapy and autologous stem cell transplantation, we are well on track. The trial is fully recruited, and treatment and follow-up with patients is ongoing as planned. We will submit an abstract to this year's ASH conference in December to present updated clinical data from all 81 patients enrolled and expect to have final data from the study available to present at an appropriate medical conference in the middle of next year.Armed with breakthrough therapy designation for MOR208 plus lenalidomide, we are in ongoing discussions with the FDA regarding a potential filing based on the L-MIND study. If everything goes well with our preparations and our alignment with the FDA and of course, if the data are positive, we expect to be able to start with our rolling submission in the second half of 2019, which would allow for a potential approval in the first half of 2020.B-MIND is our Phase III study evaluating MOR208 plus bendamustine, this is rituximab plus bendamustine, in patients with relapsed/refractory DLBCL who are ineligible for high-dose chemotherapy and autologous stem cell transplantation and who have failed prior rituximab-containing therapy. The study continues to enroll patients, and we are currently anticipating completion of this trial late next year.In June, we presented first data from our Phase II COSMOS trial of MOR208 in CLL at the European Hematology Association conference. COSMOS is a small exploratory trial evaluating predominately the safety of MOR208 with either idelalisib, cohort A, or venetoclax, cohort B, in patients with CLL or SLL who have failed or become intolerant to prior treatment with ibrutinib.The data presented at EHA included preliminary safety and efficacy data for 11 patients enrolled in cohort A. The patients were heavily pretreated with a median of 5 previous treatment lines. 9 out of 11 patients or 81% enrolled showed an objective response and 2 patients showed stable disease. At the last cutoff date, 6 patients continued treatment due to ongoing clinical benefits. We look forward to the results from COSMOS cohort B of MOR208 plus venetoclax, which we expect to present at a conference later this year.Overall, we believe that MOR208 could become a possible treatment alternative for patients with B-cell malignancies. Based on what we've seen so far, one of the key features of MOR208 is that it seems to contribute to long-term responses with a generally manageable safety profile. We're currently evaluating additional development options, including earlier lines of DLBCL treatment and other indications. Our goal is to make a MOR208-based therapy available to as many patients as possible. We expect to be able to communicate more about that later this year.Let me now switch to MOR202, our proprietary anti-CD38 antibody currently in development for the treatment of multiple myeloma. We're in the final stages of our ongoing fully recruited Phase I/IIa study of MOR208 in MM either alone or in combination with pomalidomide or lenalidomide. In June, we presented updated positive data from the study at EHA that were consistent with prior data from the trial. We expect to report final results from the trial by the end of this year.In our Q2 report and press release published last night, we announced that we've decided not to continue development of MOR202 in multiple myeloma beyond completion of the current study. We have already said on prior occasions, including our 2017 results call in March, that in light of intense competition, we would not continue to develop MOR202 in multiple myeloma without having a suitable partner. We've now concluded that it is in the best interest of the company not to continue to invest in MOR202 in MM.I want to emphasize that this decision has no impact on our Chinese partner I-Mab Biopharma. I-Mab is continuing preparations with clinical developments in multiple myeloma, and we expect that they will start the pivotal study of MOR202 in that indication in China in the first quarter of next year.With respect to potential development in other indications, recently Genmab and Janssen stopped the clinical study of their anti-CD38 antibody daratumumab in combination with a checkpoint inhibitor for the treatment of non-small cell lung cancer based on an analysis of interim clinical data. After due consideration, we've decided to stop our planned clinical development activities at MOR202 in NSCLC for the time being. Nevertheless, we are continuing to investigate development options and other indications, and we expect to be able to give you an update on our plans here in the near future.I'll continue with MOR106, a potentially first-in-class IL-17C antibody jointly discovered and developed with Galapagos. We signed an exclusive global license agreement with Novartis for the future development of MOR106 2 weeks ago. We're thrilled about this deal, which is designed to ensure that MOR106 is developed as quickly and broadly as possible.We agree that all future research developments, manufacturing and commercialization costs for MOR106 would be borne by Novartis. This includes the ongoing Phase II IGUANA trial in atopic dermatitis patients, which started in May, as well as a planned Phase I study to evaluate the safety and efficacy of a subcutaneous formulation of MOR106 in healthy volunteers and atopic dermatitis patients.Also included are 2 additional trials to support development of MOR106 in atopic dermatitis. Importantly, Novartis has committed to conduct proof-of-concept clinical trials to explore the potential of MOR106 in at least 2 additional indications other than atopic dermatitis.The agreement has highly attractive economics for us. As is usually the case with deals of this volume, U.S. antitrust clearance is required before the agreement takes effect. So what follows is, of course, subject to that happening.In addition to the funding of the program by Novartis, we and Galapagos will jointly receive an upfront payment of EUR 95 million as well as success-based milestone payments of up to approximately EUR 850 million. It's important to point out that the deal is rather front-loaded with more than half of the total milestone potential being precommercial. In addition, MorphoSys and Galapagos are eligible to jointly receive tiered royalties on net sales in the low teens to low 20s percent.Securing a strong and committed partner for MOR106 helps the program. And it will allow us to allocate more resources elsewhere, in particular to the planned expansion of our lead program, MOR208. Overall, we're very pleased to have found such a great partner, and we look forward to working with Galapagos and Novartis on this exciting program.I'll turn now to the highlights in our Partnered Discovery segment. This segment comprises more than 100 programs currently in R&D, 24 of which are in clinical development. As always, far too many to talk about here, so I'll highlight just 3 programs, namely Janssen's Tremfya, Roche's gantenerumab and a new Bayer program.You'll recall the first approval for Tremfya last year for the treatment of moderate to severe plaque psoriasis in the U.S., Europe and Canada. We were very pleased to report additional Tremfya approvals in April this year, namely in Brazil, Australia and South Korea, for plaque psoriasis and in Japan for the treatment of 3 forms of psoriasis and for psoriatic arthritis.Sales of Tremfya are developing nicely. Tremfya seems to be an important asset for Janssen and is being given the appropriate attention both in development and commercialization. Janssen is continuing trials of Tremfya in psoriasis and psoriatic arthritis, and they announced the start of a pivotal development program called GALAXI in Crohn's disease in July. If successful, this could significantly broaden the therapeutic use of Tremfya.Several Phase III trials in psoriasis are ongoing and scheduled for primary completion in 2018, including a head-to-head study comparing Tremfya and Cosentyx in plaque psoriasis. We're delighted to see such a broad clinical development program and are optimistic that Tremfya could become a widely used drug.In June, we were able to announce good news for gantenerumab, the antibody directed against amyloid-beta when our licensee Roche indicated -- initiated a new Phase III development program in patients with Alzheimer's disease. The program consists of 2 Phase III trials, GRADUATE-1 and GRADUATE-2, which are expected to enroll approximately 1,520 patients in up to 350 study centers in 31 countries worldwide. Patients will receive a significantly higher dose of gantenerumab than Roche's previous trials as a subcutaneous injection with titration up to the target dose. We're pleased to see Roche's commitment and their sustained belief in the program.Last but not least, we added a new compound for our clinical pipeline. In June, our partner Bayer brought a new compound to the clinical development. BAY2287411 is a new thorium-227 radio-labeled antibody conjugate, which incorporates the same [ indiscernible ] anti-mesothelin antibody that comprises anetumab ravtansine.In the Phase I clinical trial, the compound will be tested in patients with solid tumors known to express mesothelin. It's an exciting new scientific approach, and we're looking forward to results for this first-in-human clinical trial.To conclude, at the end of the first half of 2018, the MorphoSys pipeline comprised 115 programs spanning discovery to the market. These include one program on the market, Tremfya, and 29 programs in clinical development. We expect additional clinical data and potential milestones from a number of programs up to year-end.As always, we have no control in what our partners communicate, but there is obviously the potential for a lot of results to come. A number of these programs have the potential to be major value drivers for MorphoSys. We look forward to updating you on all of these programs in the future.Last, but by no means least, we've taken a big step forward in the setup of commercial capabilities in the U.S. for MOR208. Just last week, we announced the appointment of Jennifer Herron as President of our newly established U.S. subsidiary, MorphoSys U.S. Inc. and Executive Vice President of Global Commercial. Jennifer brings an impressive range of marketing and commercial expertise across multiple therapeutic areas, particularly in oncology. This experience, along with her strong record of accomplishments in big pharma and midsized biotechnology companies in the U.S., makes her the ideal person to lead our newly founded U.S. operations and to spearhead the growth of our commercial capabilities. We're delighted to welcome Jennifer, and we look forward to working closely with her towards our ambitious goals.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 and thanks for your interest in the company. As Simon already pointed out, we're very pleased that we can look back to another highly exciting quarter.Let me start with a reminder that at the beginning of the quarter, in April, we successfully completed our IPO at NASDAQ and raised gross proceeds of USD 239 million from the sale of 2,368,250 new ordinary shares in the form of 9.545 million American depositary shares at a price of USD 25.04 per ADS. This IPO has strengthened our financial position and provides us more flexibility to allocate our financial resources. We're very happy to have gained new investors, and we look forward to work with all investors and with all the shareholders in the years to come.Now I'll give you an overview of the most important financial figures for the first 6 months of 2018. Let's start with our P&L statement on Page 12. Group revenues totaled EUR 8.1 million compared to revenues of EUR 11.7 million in the second quarter of 2017. The decline was expected and is driven by the completion of the active partnership with Novartis that ended in accordance with contract in November of 2017.As the royalty reported from Janssen, as agreed in the contract, for Q2 2018 has not been received yet, Tremfya royalties booked for Q2 2018 were estimates based on public announcement by Janssen/J&J on Tremfya sales in Q2 2018 and are part of the reported revenue figure.Total operating expenses rose by 19% to EUR 32.7 million. The expenses thereof for research and development were EUR 25.8 million as compared to EUR 22.5 million in the previous year. General and administrative expenses increased to EUR 5.5 million from EUR 4.2 million.Starting in the first quarter of 2018, we introduced a new line item in the profit and loss statement for selling expenses due to the expected rising importance of those expenses in the connection with the planned preparation for the commercialization of MOR208 in the U.S. These expenses amounted to EUR 1.5 million in the second quarter of 2018.Earnings before interest and taxes, EBIT, came in at minus EUR 24.1 million in comparison to minus EUR 15.4 million in the second quarter 2017. The operational loss reflects the expected revenue decrease as well as the ongoing spend for clinical development of the company's proprietary drug candidates. Our consolidated net loss after taxes in Q2 2018 amounted to EUR 23.5 million compared to a net loss after tax of EUR 16.1 million in Q2 2017. The earnings per share for Q2 2018 were minus EUR 0.67 after minus EUR 0.65 in Q2 of the previous year.Let's move to the segment reporting on Page 13 of the presentation. In our Proprietary Development segment, we focused on the research and clinical development of our own drug candidate, mainly in the fields of cancer and inflammation. In the second quarter of 2018, the segment recorded revenues of EUR 0.1 million compared to EUR 0.3 million in Q2 2017. Expenses for proprietary R&D, including technology development, amounted to EUR 23.7 million as compared to EUR 18.3 million in Q2 2017. The increase over the previous year's quarter is mainly due to the cost to advance development of MOR208. Consequently, the segment EBIT of Proprietary Development came in at minus EUR 24.6 million compared to minus EUR 18.3 million in the previous year.In the Partnered Discovery segment, we applied our proprietary technology to discover new antibodies for third parties. We benefit from our partners' development and advancement through R&D funding, license fees, success-based milestone payments and royalties. In the second quarter of 2018, revenues were EUR 8.1 million as compared to EUR 11.5 million in Q2 2017. Consequently, the EBIT in the Partnered Discovery segment reached EUR 5.5 million as compared to EUR 6.8 million in Q2 2017.Let's move on to the balance sheet on Slide 14. As of June 30, 2018, we recorded total assets of EUR 547.8 million. This represents an increase of EUR 132.4 million compared to year-end 2017. At the end of Q2, we had a cash position of EUR 450.5 million compared to EUR 312.2 million on December 31, 2017.Please be aware that we have started to apply IFRS 9 on January 1, 2018. You'll now find the liquidity items on the balance sheet under the following line items: cash and cash equivalents, financial assets at fair value through profit and loss and current and noncurrent other financial assets at amortized cost.The increase in funds resulted mainly from the capital increase together with the successful NASDAQ listing completed in April with gross proceeds of USD 239 million. This was partially offset by the use of cash for operating activities in the second quarter of 2018. The number of shares issued totaled 31,808,035 at the end of Q2 2018. The main reason for the increase in the number of shares was the capital increase in connection with the NASDAQ filing in April 2018, as I mentioned before.To briefly sum up the key figures for the first half, please turn to Slide 15. Group revenues amounted to EUR 10.9 million for the first half of 2018. In the first 6 months of 2017, group revenues reached EUR 23.6 million. Of the revenue in the first 6 months of 2018, EUR 8.8 million were for success-based payments. The main chunk of the sum was made up by the Tremfya royalty income and additional milestones for Tremfya.R&D expenses for proprietary drug development and technology development amounted to EUR 39.2 million in the first 6 months after EUR 37.3 million for the first 6 months -- first half of 2017. Hence, the EBIT in the first half of 2018 came in at minus EUR 43.2 million compared to minus EUR 30.3 million for the first half of 2017.I will conclude my section with our guidance for 2018. As you will have noticed, we have increased our financial guidance for 2018 following the recent signature of a deal with Novartis on MOR106 and subject to U.S. antitrust clearance. Subject to this U.S. antitrust clearance for 106, MorphoSys expects group revenues in the range of EUR 67 million to EUR 72 million, up from previously EUR 20 million to EUR 25 million; and earnings before interest and taxes, or EBIT, of minus EUR 55 million to minus EUR 65 million, up from previously minus EUR 110 million to minus EUR 120 million.Expenses for proprietary development and technology of development are expected to be in the corridor of EUR 87 million to EUR 97 million, previously EUR 95 million to EUR 105 million. This guidance does not include additional revenues from potential future collaborations and/or licensing partnerships, effects of potentially licensing development partnerships for new drug candidates.Ladies and gentlemen, this brings me to the end of my part. MorphoSys is at a truly exciting stage of its corporate development. With the recent foundation of our U.S. subsidiary, MorphoSys U.S. Inc., and the appointment of Jennifer Herron as its President, we'll now continue with full speed the buildup of commercial capabilities in the U.S. in order to prepare for potential commercialization of MOR208.With this, we follow our plan to transform MorphoSys into a fully integrated biopharmaceutical company. Through our recent deals for MOR106 together with Galapagos and Novartis, we gave a promising program the best possible chance of becoming a successful drug to the benefit of all stakeholders.Also, financial position -- our solid financial position provides us with the flexibility to allocate the necessary resources to our lead program MOR208, continue the advancements of our other pipeline programs and build out our U.S. commercial capabilities.That concludes my review of the second quarter of 2018, and I'll now hand back to Alexandra for the Q&A session. Thank you very much.

[Alexandra Goller, Associate Director Corporate Communications & IR]

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

[Operator]

[Operator Instructions] First question is from Anastasia Karpova of Kempen.

[Anastasia Karpova, Research Analyst]

Three questions, if I may. You highlighted more intense investments in U.S. commercialization. Can you elaborate a little bit more on your European plans and if you see the approval in Europe for MOR208 within similar time frame? And then 2 smaller questions. Do you see milestones for MOR103 with GSK on the start of the Phase III trials in rheumatoid arthritis? And you mentioned in your H1 statement that's one of the programs that was planned to move to the clinic didn't move to the clinic. Can you specify which program that was and if that was one of the programs highlighted in your Capital Markets Day last year?

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

Thanks, Anastasia. Let me start with that. We're scratching our heads a little bit on your third question, but we'll try and find the answer while we're dealing with the first 2. Let me start with the commercialization question. With -- considering our plans for the rest of the world ex the U.S., including, of course, Europe, we haven't come to any conclusions there. We're actually not currently absolutely sure which of the 2 trials, either L-MIND or B-MIND, could be the first to give us approval in Europe. Typically, you would expect it to be a controlled classical Phase III study, which, of course, in this case, is B-MIND and not L-MIND. But there may be certain circumstances under which we could get approval potentially in some European countries based on the L-MIND trial. So that's something that we're looking at currently and planning currently, but it's a little bit early to be able to comment on that.

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

And then, Anastasia, maybe I'll take the second question on MOR103. You were referring to statements from GSK on data that they intend to report on the medical conference in greater detail in rheumatoid arthritis. And indeed, I mean, we have been very, very happy about this type of statement that GSK made just recently. And indeed, I mean, in case that GSK starts a Phase III trial, most likely, I would expect this rather in 2019. There is a milestone payment that we should be seeing. But we do not expect anything happening in that respect this year.

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

And then, Anastasia, regarding your third question, we think that refers to a program out of our Lanthio Pharma subsidiary, which we made the decision not to continue into clinical trials with it.

[Operator]

The next question is from Gunnar Romer of Deutsche Bank.

[Gunnar Romer, Research Analyst]

Gunnar Romer, Deutsche Bank. The first one would be on MOR208. And I was wondering whether you had updated thoughts around front-line development in DLBCL for us. Second question would be on MOR202. And I've noticed that you're further deemphasizing that product and your investments here. You've also removed, I think, the statement that you're considering or pursuing exploring partnering options in multiple myeloma. Is that an indication for that there's no incoming interest anymore? And are you writing that off? And then last question would be on the Novartis deal. I was wondering whether you can comment on the split of the milestones into regulatory development milestones and commercial milestones and also whether you have a comment for us, what share of the milestones, what potentially relate to other indications outside of atopic dermatitis.

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

[Audio Gap] in the U.S. sites is possible, which we feel is a good way of increasing the exposure of U.S. doctors to this drug, leading up to the launch, we hope, of course, based on the L-MIND study. So we're not yet ready to disclose all the details around this, but we're actively working on it. And we hope to be able to disclose details a little bit later in the year. Regarding 202, indeed, we've concluded that primarily really given the competitive situation in the Western world -- and this doesn't refer to China. I should emphasize that. We think that our colleagues at I-Mab Biopharma have a great opportunity in China for MOR202. But the competition in the Western world is intense, of course, not just on the target, where there are a couple of other programs that are ahead of ours, including, of course, daratumumab, which is well established in the market, but also now increasingly other mechanisms and other approaches. Our experience in talking to potential partners about this program is that it's really tough to be able to position 202 against that very competitive backdrop. And given that, we feel that given the opportunities we have elsewhere in the pipeline, of course, particularly 208, it really doesn't make sense for us to continue to invest in multiple myeloma for 202. That said, we have clinical data on 202 that hints at activity in other indications, for example, non-oncology indications. And we're in the process of looking at the possibility of starting a Phase II trial in another indication. We're not ready to say yet what it will be, but we do see opportunities there.

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

And then finally, Gunnar, your question regarding the Novartis deal on MOR106. Indeed, I think -- and Simon made a statement in his speech. This time, this deal is actually very much a front-loaded one, a change to many, many other deals that take place at this stage of development for a compound that have been in Phase I at this stage. So in terms of regulatory development milestone payments that this deal comprises of around about 60% of the so-called EUR 850 million or around about $1 billion for these areas of regulatory development milestones. I'm not able to give you more details in terms of how much is related to atopic dermatitis and how much is related to maybe a second or a third other indication. But nonetheless, I think it points out to this financially attractive deal that we have been able to sign together with Galapagos, with Novartis given the sort of percentage of front-loading that we see in this transaction.

[Gunnar Romer, Research Analyst]

Just a quick follow-up, housekeeping question for you, Jens. Can you give us your updated cash guidance for the year after the Novartis deal?

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

Yes. The upfront payment, the EUR 47 million around about that we would receive, euros, are not included certainly in the figure of EUR 450.5 million that we have reported for the first 6 months. So that will come given that we await then the U.S. antitrust clearance. And with this, our expectation at this stage towards year-end is in the range of EUR 435 million to EUR 445 million.

[Operator]

The next question is from James Gordon of JP Morgan.

[James Daniel Gordon, Senior Analyst]

One question was just on MOR103. In terms of the Phase III go and no go decision from GSK for RA, is your understanding that, that the Phase III go decision has now definitively been made and the trial will definitely start in 2019? Or is there any uncertainty there? And assuming the decision has been started, when do you think you could have GSK report Phase III data for this asset? And then the other question was just on MOR208 and commercial. So noting the comments about building out in the U.S. and you're still clarifying the time lines for Europe, what is the plan in Europe? Are you considering potentially launching the product yourself in Europe or partnering it? Or would it definitely be fully partnered out?

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

Thanks, James. Regarding 103, we believe that there is a regulatory interaction to be had between GSK and the regulatory authorities before a decision is made as to whether they will go straight to a Phase III now or whether some other interim study needs to be done. So we're not sure that the next study would definitively be a Phase III one. It depends on the regulatory interactions. And correspondingly, as to when Phase III data will be available, it's very hard for us to estimate at this stage. 208 for Europe, honestly, if you ask me, I would like to be able to commercialize it at least in some European countries ourselves. We think we can. But we really haven't taken that decision at this stage. There are various possibilities, either that we do it in selected European countries and partner elsewhere or we would partner for all of Europe. As I said, my preference right now is that we are involved to some extent and perhaps use a partner in territories that for us are non-core, but that decision hasn't been taken.

[Operator]

The next question is from Konstantinos Aprilakis of JMP Securities.

[Konstantinos Nikolaos Aprilakis, Senior Analyst]

So the first regards MOR208 in DLBCL. You reiterated that we should expect full data from L-MIND in the first half of '19 followed by a rolling submission for approval in the U.S. in the second half '19 assuming positive data. So I was wondering if you might provide color on the feedback you received from the FDA regarding what you need to show in the first half '19 readout to support approval. And I just wanted to confirm that you're pursuing an accelerated approval pathway with full approval contingent on a larger confirmatory trial. And then a second question, your thoughts on the recent readout from BAN2401, the Biogen Alzheimer's data, and anything that makes you feel more or less optimistic about your partnered program with Roche.

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

Sure. Thanks, Konstantinos. Yes, starting with 208, DLBCL, I mean, from our perspective, nothing has changed. We continue to have good dialogue with the FDA on the path forward. We should remind everyone that this is an unusual situation because this is a single-arm study, uncontrolled, comprising 2 unapproved drugs in this setting, MOR208 and lenalidomide. So if the FDA was to approve it based on that trial, they would be a setting a precedent. And so we assume that they need to be comfortable that we can really show what the contribution of MOR208 is in the combination. And we need to provide some sort of comparative data enable to make that contribution clear. So that's something we're working on to figure out how best we can do that. We believe it's possible for us to show, based on an analysis of data that we secure elsewhere, what the contribution of 208 is. But of course, the FDA is going to have to get comfortable with that, and the data is going to have to be compelling enough to justify an approval. Whether the approval would be accelerated and require complementary trial or not, at this stage, we're not sure which -- whether we get full approval or an accelerated approval. We're not sure which of those 2 will apply in that case. Your second question, BAN2401, we regard that as encouraging. I know there's been a lot of debate about interpretation of what's been seen in that study. But it seems to us that at least at the highest dose, there has been a clear impact on amyloid in those patients, in other words, the presence of amyloid and on cognition in those patients. And we saw this -- we've seen this before with aducanumab that there seems to be, for the first time now with aducanumab and now again with BAN2401, an effect of clearance of plaque on improvement in cognition in Alzheimer's patients. And we take it as encouraging and certainly for gantenerumab, which is in many respects similar to both gantenerumab and BAN2401.

[Operator]

Next question is from Gary Waanders, Bryan Garnier & Co.

[Gary Anthony Waanders, Managing Director]

Just a couple of questions, mostly on MOR106, if I may. And it's really just to get a bit more color on the deal. To what extent is this a straight handoff to Novartis? Or do you retain any input on the directions and -- of development, the way that the product will be developed? And specifically, how will the product be positioned during development with respect to dupilumab, Dupixent, from Sanofi Genzyme?

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

It's not a straight handoff to Novartis. Thanks, Gary, for your question. As we pointed out, there are 4 trials which are going to take place in the coming year or so in which we and Galapagos will be in the lead. So those trials will be sponsored and run by us, which is a nice seal of approval, if you like, by Novartis in our abilities together with Galapagos to run those trials. When it gets to the really heavy lifting, which is the late-stage development, of course, Novartis will take the lead. And of course, we're relying on their expertise in dermatology, which is something that neither us nor Galapagos has, to guide the direction, the positioning of this product versus the competing product. We actually see that as being an advantage of having chosen Novartis as the partner for this program because, of course, they have a very, very successful track record with Cosentyx in psoriasis. So they have great dermatology franchise already. So we don't presume to be the experts in this field, and this is one of the advantages of having Novartis as a partner.

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

And maybe, Gary, to just add, I mean, to clarify it, we are not covering any of the costs that are connected with those 4 trials. Novartis will cover those costs.

[Gary Anthony Waanders, Managing Director]

Okay. And if I could just follow up, there is a mention of 2 other indications, which haven't been specified. But is there any guidance you might give to what you'll be looking at there?

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

We can't say yet. We have done preclinical studies in a number of inflammatory settings and shown promising data. And so we think that as with a number of these other anti-cytokine -- anti-inflammatory anti-cytokine approaches, this thing probably has potential in other indications. And we wanted to ensure that it was given the maximum possible chance to be developed as broadly as possible. And therefore, we made that a condition of the deal that it get explored beyond atopic dermatitis. And Novartis was happy to agree to that. So it's too early to say what those indications will be, but we're confident that there is potential elsewhere.

[Operator]

We currently have no questions coming through. [Operator Instructions] We'll proceed with a question from Mick Cooper of Trinity Delta.

[Michael Thomas Dudley Cooper, Research Analyst]

Three questions, please. Firstly, I was wondering if you had filed for PRIME designation in the EU for MOR202. Secondly, on the back of your licensing of MOR106, you mentioned you're going to invest more in 208. I was wondering if you had any plans to accelerate or broaden any other programs. And finally, MOR103, featured promptly in GSK's R&D update. And I was wondering what other indications might they develop MOR103 in other than RA. It's just that GSK emphasized the importance of life cycle management at the same time.

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

Thanks, Mick. PRIME status with EMA for 202, no, we have not filed for PRIME status for 202. Your second question regarding 106 and whether we intend to use the proceeds to invest beyond 208, we do, of course, have other programs ongoing, earlier-stage programs. I highlighted that we're looking at another indication for 202, for example, and we have programs in earlier stages of development than that. Those programs will get pushed as well. But 208 clearly is currently our main focus and certainly clearly taking the lion's share of our investment simply because we see it as the biggest opportunity in front of us right now. 103, GSK, I think on their call, they mentioned the possibility of taking it up into other indications. I don't think they stated what those could be. But what encouraged us is it seems that the new R&D management they have there is very keen on immunological approaches in general, which this classifies as, of course. There seems to be renewed or refreshed enthusiasm for the program at GSK, which we think is a great sign. So we're looking forward to learning more about how they intend to take the program forward.

[Operator]

The next question is from Keyur Parekh, Goldman Sachs.

[Keyur Parekh, Equity Analyst]

Two questions on 208, please. The first one, when should we expect the next update? Should we be expecting this at ASH? Or is there a meeting pre-ASH where we might see an updated data set? Secondly, just qualitatively, as you look at incremental patients kind of maturing, do you see any changes in the responses or the depth of responses you are seeing for these patients? And then lastly, as we think about you building the commercialization in the U.S., how should we think about the number of sales reps you might need, number of people you might need from the U.S. in 2019?

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

Thanks, Keyur. Regarding 208, we anticipate the next update would be at ASH at the end of this year. We've submitted an abstract, and that's, in all likelihood, the next time we would update the data on 208. And consequently, relating to your second question, I can't comment on what we may be seeing there. We simply want to not jeopardize, of course, the presentation at ASH by talking about any data prior to both the release of the abstract, which I understand is beginning of November, and then the conference itself in December. Regarding your third question, commercialization in the U.S., one of the attractive things about an indication like this, which, of course, is not a huge, huge indication, is that we feel we can cover the country with a relatively small team. We're currently looking at something between 80 and 110 people total, team over there, total commercial team, including sales force, MSLs, medical affairs, back office and so on and so forth. So it's something that would need to be in place by, remember, Q2 2020, which is when we currently anticipate launch. So we have 2 years basically from now to build that team up from the one that we currently have to that 80 to 110 that we anticipate.

[Operator]

And we have a follow-up question from Gunnar Romer of Deutsche Bank.

[Gunnar Romer, Research Analyst]

It's also regarding the bid of the U.S. commercial presence. It was a modest step-up now in selling expense quarter-over-quarter. Just curious whether you can comment on how you would expect that line to develop over the next couple of quarters.

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

Yes, Gunnar. Thanks for the question. That certainly will be driven by the sort of speed of how quickly we can build up that organization and tend to build up that organization towards year-end. I think you said quarter-by-quarter, we'll see an increase in terms of costs because, I mean, at the end of the day, we just appointed the president in the U.S. So what you're seeing so far are only costs that really occurred in our head office here in Munich. So the costs will increase significantly, and in terms of our S-1 filing document that we have submitted for our NASDAQ filing, we have anticipated overall costs for the commercialization to be somewhere -- for the next 3 years, to be somewhere in the range of $90 million. So there will be a significant cost increase that you will see, certainly, to a much, much smaller extent this year and probably also '19. But going into beginning of '20, when you need to have the sales people on the ground given the sort of time frame that Simon mentioned before, you will see an increase of launch costs, specifically in 2020.

[Operator]

We have no further questions coming through. So I will 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 feel that the company is very well positioned to take advantage of the positive developments we've witnessed in the recent past. With MOR208, based on all of the data we've seen so far, we believe we have a very promising drug candidate. Setup of our U.S. commercial capabilities is on track. Assuming smooth progress on both developments and regulatory fronts, we hope to be on the market in 2 years from now, subject, of course, to regulatory approval.And MOR208 is just the tip of an iceberg of programs in our pipeline. Thanks to the recent deal with Novartis for MOR106, this program will gain increased momentum. Our product pipeline, led by Tremfya, is progressing well, and we expect news from other partner programs during the remainder of the year.And finally, our highly successful NASDAQ listing has substantially strengthened both our balance sheet and our investor base and will assist us as we continue to build the company. We look forward to keeping you informed of the progress.

[Alexandra Goller, Associate Director Corporate Communications & IR]

That concludes the call. If anyone of you would like to follow up, we are 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 is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.