MorphoSys AG

XETRA:MOR

Earnings Call Transcript 2020-Q3

[Operator]

So ladies and gentlemen, welcome to the MorphoSys Third quarter Interim Statement 2020 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] Now I would like to turn the conference over to Dr. Julia Neugebauer. Please go ahead.

[Julia Neugebauer]

Ladies and gentlemen, good morning -- good afternoon or good morning. My name is Julia Neugebauer, Director, Investor Relations of MorphoSys, and it's my pleasure to welcome you to our third quarter 2020 financial results and operational update conference call. Joining me on the call today are Jean-Paul Kress, CEO; Jens Holstein, CFO; Malte Peters, Chief Research and Development Officer; and Roland Wandeler, Chief Operating Officer. Our press release was issued yesterday with our third quarter 2020 financial results and business update. This can be found on our website along with the presentation for today's webcast. Before we begin, I'd like to remind you on Slide 2 that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the commercialization of our products and our development plans, the impact of COVID-19 on our business and expectations for the compounds in our pipeline as well as the development plans of our collaboration partners. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in MorphoSys 20-F and annual report all for the year ended December 31, 2019, and from time to time in other SEC documents of MorphoSys. It is important to keep in mind that our statements on this webcast speak as of today. On Slide 3, you'll find the agenda for today's call. Jean-Paul will begin with an overview of corporate highlights from the third quarter, followed by Roland, who will provide a commercial update. Then Malte will discuss our R&D activities before turning the call to Jens for a summary of our third quarter and 9 months financial results. Following these prepared remarks, we will open the call for your questions. With that, I'll now hand the call over to Jean-Paul.

[Jean-Paul Kress]

Thank you, Julia. Good day, everyone, and thank you for joining us to discuss the considerable progress we have made over the past months as we transition to a commercial company with a sizable clinical development pipeline and multiple partnerships worldwide. In the third quarter of 2020, we achieved great progress in all operational areas, ranging from commercial to clinical development to research. The approval of Monjuvi marked MorphoSys' transformation into a fully integrated biopharma company aiming to master every step of the value chain. I am also very excited about 2 deals that will enhance our clinical development and our research capabilities. Our agreement with Xencor adds to our tafacitamab backbone strategy, while the in-licensing of an innovative technology from Cherry Biolabs complements our research portfolio. Moving to Slide 6. The third quarter of 2020 was highlighted by the FDA accelerated approval of Monjuvi as a treatment for non-transplant-eligible relapsed/refractory diffused large B-cell lymphoma, or DLBCL, which represents the FDA's first approval for a second-line treatment in this indication. Since approval, our teams have been laser-focused to bring Monjuvi to patients suffering with this deadly cancer who have limited treatment options. We are very pleased by Monjuvi's early strong momentum and initial uptake despite the challenge we faced with a market introduction during the COVID-19 pandemic. Our launch is fully on track and has generated revenue of USD 5 million or EUR 4.4 million in the first 7 weeks of launch. During our KOL event in September, we provided an initial guidance range, estimating the peak potential of Monjuvi in relapsed/refractory DLBCL in the U.S. to be between USD 500 million and USD 750 million, given the patient population and the duration of therapy. Roland will provide more color on the launch and the accelerated momentum we have seen since Monjuvi's approval. We believe Monjuvi has the potential to transform the standard of care in DLBCL, given its approved indication, combinability and accessibility. Ultimately, our aim is to improve cure rates in first-line DLBCL, knowing that each year, approximately 30,000 patients are diagnosed in the U.S. alone. This is just the beginning for tafacitamab as a backbone in DLBCL, and we believe it offers significant opportunities as a pipeline in a product and for growth into additional indications. Speaking to other recent news, yesterday, we announced that we signed an agreement with Xencor to develop tafasitamab in combination with Xencor's bispecific CD20xCD3 antibody, plamotamab. Executing on our backbone strategy, this agreement supports our ongoing efforts to expand the use of tafacitamab into new treatment lines and indications, including frontline DLBCL as well as follicular lymphoma. Our aim is to establish tafasitamab as the combination partner of choice in hemato-oncology, and we have further interest from other companies who wants to combine tafacitamab with their assets. Moving now to Slide 7 on the progress we have made with our broader pipeline. We continue to advance the development of felzartamab, our anti-CD38 antibody in an autoimmune indication called autoimmune membranous nephropathy. Patients with this diagnosis have a high unmet medical need, could develop end-stage renal disease and ultimately require dialysis or kidney transplant. With an anti-CD38 antibody, we specifically target plasma cells, the source of the autoantibodies and therefore, potentially provide a targeted treatment for patients. Malte will provide additional details on this program later in the call. Moving now to Tremfya, which continues to provide an increasing royalty stream. Tremfya was approved for the treatment of adult patients with active psoriatic arthritis in the U.S. and Canada. Earlier this year, and in October, our partner, Janssen announced a positive opinion from the CHMP, recommending the expanded use of Tremfya for the treatment of adult patients with active psoriatic attrites in the European Union. We are very encouraged by Janssen's commitment to broadly develop Tremfya beyond rheumatoid arthritis, or RA, into other indications. Just recently, Janssen presented interim data from the GALAXI 1 study, which showed encouraging results in patients with Crohn's disease. Turning now to Otilimab. GSK has resumed the enrollment of patients into the ContRAst program after it had also been posed due to the COVID-19 pandemic. As a reminder, ContRAst is a Phase III program evaluating Otilimab in patients with moderate to severe RA in 3 pivotal studies. GSK is also conducting a clinical trial called OSCAR to evaluate the efficacy and safety of Otilimab in patients with severe pulmonary COVID-19-associated disease. Up to 800 patients are expected to be enrolled in study, with data anticipated in the first half of 2021. I am also very excited about building on our research strength and adding a new innovative technology to our portfolio. Yesterday as well, we announced a licensing agreement with Cherry Biolabs, which gives us access to the Hemibody technology for the development of next-generation T-cell engager molecules, building upon our SICA platform. We are excited to build one of our new next success stories on the basis of this pioneering technology. Again, Malte will provide more details later in the call. Our agreement with Cherry Biolabs strengthens our innovative technology portfolio, and our new collaboration with Xencor underscores our confidence in tafacitamab as the backbone for new combinations and the potential new standard of care in DLBCL. With these advances and more to come, we are at the beginning of a new phase, investing in new technologies, adding to our portfolio and establishing tafacitamab as the combination partner of choice. And finally, we reported strong financial results in the third quarter, with group revenue increasing 76% to EUR 22 million. This solid performance was a result of growing revenues, primarily from property development and supported by the revenues from the initial 7 weeks of the Monjuvi launch along with royalty income from our partnered programs such as Tremfya. Importantly, we have a strong balance sheet from which to invest into the broad development of tafacitamab and our diversified pipeline in order to enhance shareholder value. With that, I will now turn the call over to Roland for a commercial update on Monjuvi. Roland, please.

[Roland Wandeler, COO & Member of Management Board]

Thank you, Jean-Paul, and hello, everyone. It's good to be speaking with you today. This is the first time we're sharing Monjuvi earnings with you, and I'll be talking about the strong momentum we've built in the market with our Monjuvi launch. Together with our partner Incyte, we have delivered on a rapid speed to market. Our teams have been laser-focused with a single mission to bring Monjuvi to patients, and we are pleased with what we are seeing. Moving to Page 9 to take a look at the indication. Monjuvi, in combination with lenalidomide, was approved for the treatment of adult patients with relapsed/refractory diffuse large B-cell lymphoma, not otherwise specified, including DLBCL arising from low-grade lymphoma, and who are not eligible for autologous stem cell transplant. Speaking to efficacy, Monjuvi produces a meaningful and durable response to treatment. FDA approval was based on data from our L-MIND study, showing a best overall response rate of 55%, a complete response rate of 37% and a median duration of response of 21.7 months. Note that this duration of response is based on the November 2018 L-MIND data. And as Malte will highlight in his part, this duration of response is further extended with our longer-term data. As we have shared before with you, our Monjuvi label translates into a set of important takeaways in our conversations with physicians. Monjuvi is the first and only second-line therapy resulting in a high number of complete and durable responses across subgroups. The combined safety and tolerability profile supports a paradigm shift towards treating patients to progression, potentially allowing for long-term disease control. And Monjuvi is accessible to patients in both community care and academic settings as an off-the-shelf product administered by a standard IV infusion that is easy to administer and does not require hospitalization or heavy monitoring. We are hearing consistently from physicians that Monjuvi's accessibility is a strong advantage, especially in community care settings. Moving to Slide #10. As Jean-Paul shared, Monjuvi net sales were $5 million and fully in line with our launch expectations. As you know, Monjuvi received accelerated FDA approval on July 31, and the first patient was infused on August 13. The $5 million in net sales reflect orders from 140 sites of care from that time through the end of September, confirming the early momentum in the marketplace. As you look at the sales figure, please keep in mind that our treatment approach is different from other treatments in this space. Patients who are being infused with Monjuvi will be treated through progression, compared to other DLBCL treatments that are front loaded. Our L-MIND data indicates how many of the patients starting treatment in Q3 will be able to potentially continue to benefit from Monjuvi into the coming quarters and years. Moving to Slide 11 and looking beyond September, we have seen momentum and account uptake further accelerate in October. By the end of October, more than 250 sites of care have ordered, and 80% of these accounts have already reordered. Looking at account dynamics in more detail, we saw strong early uptake in leading academic centers right from launch. As a matter of fact, more than 90% of NCCN institutions have now approved Monjuvi for use and placed an order. Momentum is now shifting more to community care as we gain breadth in key networks, with approximately 65% of accounts in October coming from community care, in line with our expectations. This speaks to the broad accessibility of Monjuvi in both academic and community settings. Overall, as we look at our account dynamics, we are on track and feel encouraged by the early adoption and continued interest in the market. Moving to Slide #12. We've also had good momentum on the payer and reimbursement front. Payer coverage has been rapid and robust. Our team's early efforts set us up to receive the first payer confirmation for coverage to label within 2 weeks from launch. Since then, we have seen universal coverage from Monjuvi within both commercial and government channels and have not heard of any cases where coverage from Monjuvi has been denied for clinical reasons. In fact, we expect the vast majority of lives to be covered in the first year of launch. Looking at key prescriber accounts, which include larger health systems and community oncology groups, we've made significant progress, achieving nearly 90% formulary approvals so far in our top 30 accounts. This reflects the high unmet need and was aided by the early inclusion of Monjuvi in the NCCN guidelines. Also, more than 70% of EMR order sets were added in top 30 accounts supporting pull-through to enable broader uptake across networks. In addition to payer and account coverage, we understand how important it is to help remove barriers to patient care. At MorphoSys, we are committed to supporting appropriate patients throughout their access and treatment journeys. And together with our colleagues at Incyte, we launched a robust patient support program called My Mission Support. This program offers numerous services and resources to eligible patients who are prescribed Monjuvi and their caregivers. During these unprecedented COVID times, we know patients may need extra support. For this reason, our My Mission Support patient support program has launched a new initiative that supplies protective equipment of Monjuvi patients in need and provides them with helpful resources to receive the treatments without interruption during the pandemic. This program is one small part of our commitment to patients, who are always at the center of what we do. Since launch, we've had close to 200 patients, and caregivers reach out to us to benefit from the valuable support resources offered through My Mission Support. Moving to Slide 13. Because of COVID-19, we all now operate in a different reality. And during these unprecedented times, the Incyte and MorphoSys teams continue to successfully adapt and overcome COVID hurdles using digital technologies to meet health care professionals where they are and drive individual and peer-to-peer engagement. While COVID impacts the absolute number of health care professional engagements our teams have, we are extremely pleased to see the traction we have built across all channels to create strong awareness and interest from physicians at levels that exceeded our expectations during the pandemic. As we look at these last weeks, we see that our efforts to continue to engage with HCPs are effective and result in sustained leadership in share of voice with greater than 50% from Monjuvi, well ahead of other treatment options in this space. This shows that physicians want to hear about Monjuvi and is a testament to the team's ability to get to physicians and get our message across. And moving to Slide 14. During the interactions that we have with health care professionals, we continue to hear that they are excited about this important new treatment option on behalf of patients. Specifically, they are telling us that they are appreciating the overall response rate and the duration of response. They value the tolerability and safety profile that Monjuvi provides to patients, and they appreciate the accessibility and ease of use of Monjuvi in community and academic settings, especially during the COVID pandemic. We are certainly still early in the launch and recent COVID dynamics add a degree of uncertainty for the winter months for all of us. But our teams remain laser-focused to continue driving awareness of Monjuvi with health care professionals, and we continue to be encouraged by the strong uptake and increasing momentum we are seeing after our first month in the market. It shows to us just how strong the unmet need for Monjuvi is and the promise it brings to patients. And with that, I'll turn the call over to Malte.

[Malte Peters]

Thank you, Roland. In addition to the successful launch of Monjuvi, we continue to expand the clinical development of tafasitamab. Our ambition is to improve cure rates in DLBCL in all treatment lines and bring this medicine to as many patients as we can and as soon as we can. As Jean-Paul noted, Monjuvi is the only FDA-approved second-line treatment for patients with relapsed/refractory DLBCL, who are not eligible for stem cell transplantation. We believe that based on the clinical data, complemented by its safety profile and accessibility, Monjuvi is well positioned to become a preferred treatment option for second-line patients with DLBCL. Long-term data from the L-MIND study were presented earlier this year at the annual meeting of the European Hematological Association or EHA. This data demonstrated an unprecedented durability with a median duration of response of 34.6 months, which equals to almost 3 years and a median overall survival of 31.6 months. These data are part of the MAA, the European dossier, which was validated earlier this year. To complement this data, we initiated a new real-world data study called Re-MIND 2. This study is collecting data not only from DLBCL patients treated with lenalidomide alone, but also from DLBCL patients being treated with other regimens. We are also developing tafacitamab as a first-line treatment for DLBCL, and we have completed enrollment of our Phase Ib/II study 1 month ahead of schedule, which shows the great interest of the community in this potential treatment option. We will present initial data from this firstMIND study at the upcoming ASH conference later this year. Data from this study is the basis for our pivotal Phase III study, frontMIND. There is a high unmet need for DLBCL patients in the first-line setting, especially for high-risk patients. Newly diagnosed DLBCL patients with an IPI score of 3 to 5 are considered high risk. For these patients, the chances of cure with R-CHOP alone are less than 50%. FrontMIND will enroll up to 900 patients and will evaluate the tafacitamab-lenalidomide combination in addition to R-CHOP compared to R-CHOP alone. We are on track to start this study early next year. Beyond DLBCL, the next indication we are exploring in a pivotal trial is relapsed/refractory follicular lymphoma. We expect to enroll approximately 500 patients into this randomized Phase III study and expect to initiate the study in the early part of next year. We are confident to achieve our goal of developing tafacitamab as the backbone for the treatment of DLBCL across all therapeutic lines. Our agreement with Xencor is another step towards establishing tafasitamab as the combination partner of choice for DLBCL and beyond. We are excited to evaluate the combination of tafasitamab with Xencor's bispecific CD20xCD3 antibody, plamotamab, in patients with relapsed/refractory DLBCL, but also in patients with frontline DLBCL and relapsed/refractory follicular lymphoma. As Jean-Paul mentioned earlier, we are in discussions to evaluate further opportunities for combination treatments of tafasitamab. Our goal is to bring tafacitamab to more hematological cancer indications where CD19 is associated with the mode of action of the disease. This year's ASH meeting will feature several abstracts providing insights into our scientific and clinical activities to evaluate the efficacy and safety of tafasitamab in B-cell lymphoma. I already mentioned the publication of initial data from our firstMIND study in frontline DLBCL. We will also present additional data from the L-MIND study that support the remarkable durability of responses. And for the first time, we will report on CD19 expression analyzed in tumor biopsies of DLBCL patients before and after treatment with tafasitamab. Now moving on to our other pipeline assets, where we are very pleased with the progress we have made to date in 2020. Felzartamab, our anti-CD38 antibody, previously known as MOR202, is currently being evaluated in the M-PLACE study in patients with autoimmune membranous nephropathy. We have resumed the enrollment of patients into the study after a pause due to the COVID-19 pandemic and are about to complete the safety run-in phase. After completion of the safety run-in phase, we expect that enrollment speed will significantly increase. We will share data from this study at one of the upcoming medical conferences. Also, our partner, I-Mab, is developing felzartamab for the treatment of multiple myeloma and is currently running 2 pivotal trials.As Jean-Paul touched upon, this week, we announced a licensing agreement with Cherry Biolabs. This agreement gives MorphoSys access to Cherry Biolab's innovative Hemibody technology. This technology could strongly increase specificity and selectivity of tumor targeting and enable a substantially enlarged therapeutic window. The core of this technology is a T-cell engaging molecule that is split into 2 complementary fragments. We use CD3, a clinically well-established target for the engagement of T-cells. This is combined with the concept of dual tumor targeting. One fragment of the split T-cell engager is fused to one tumor antigen targeting antibody, the other fragment to a different tumor antigen targeting antibody. These 2 molecules called hemibodies circulate freely in the blood stream and activate T-cells only once they bind to the antigen combination expressed on cancer cells. Both antigens have to be present on the tumor cell surface for the T-cell engager to become functional and to activate the T-cell. This licensing agreement is part of our strategy to enhance our research efforts and to focus on next-generation modalities for the treatment of cancer and autoimmune disorders. With that, I now hand the call over to Jens for a review of our financial results.

[Jens Holstein]

Thank you, Malte. The third quarter was yet another very successful quarter for MorphoSys as we posted strong revenue growth and maintained a strong balance sheet while supporting a robust clinical development pipeline.Let's turn now to Slide 21. Group revenues in the third quarter of 2020 amounted to EUR 22 million, containing for the first time revenues of USD 5 million or EUR 4.4 million from the sale of Monjuvi. Revenues also include success-based payments of EUR 10.2 million, primarily from Janssen. As in previous quarters, the contractual royalty reporting from Janssen for Tremfya has not been received yet. Tremfya royalties booked in Q3 2020 were estimated based on a public announcement by Janssen, J&J. Final numbers can still slightly vary due to the foreign exchange rate effect. In addition to Monjuvi revenues, the companies have been able to generate revenues from different collaborations such as Incyte as well as I-MAB and lymphoma. Looking at expenses. Our total operating expenses in the third quarter of 2020 increased to EUR 84 million. The strong increase reflects our investments in the expansion of MorphoSys U.S. Inc, the launch of Monjuvi as well as the expanded clinical development for tafasitamab and felzartamab. The expenses for research and development rose to EUR 34.2 million, largely driven by expenses for external laboratory services and personnel. Selling expenses increased to EUR 32.9 million and general and administrative expenses to EUR 13.3 million, both driven by higher personnel expenses and expenses for external services in association with the Monjuvi launch. Selling expenses also comprised the expenses for services rendered by Incyte, in connection with the joint U.S. activities as we report all commercial costs for the sale of Monjuvi in our P&L. Earnings before interest and taxes amounted to minus EUR 61.7 million as a result of the higher expenses across all categories. Our consolidated net loss after taxes amounted to minus EUR 65.3 million in the third quarter of 2020. Earnings per share were at minus EUR 2. Slide 22, now presents a summary of our segment reporting for Q3 2020. As you can see, in our Proprietary Development segment, MorphoSys reaches and researches and develops its own drug candidates focusing on cancer inflammation. In Q3 2020, this segment recorded revenues of EUR 10.5 million versus EUR 1.4 million for the previous year. The increase primarily reflects product sales from Monjuvi as well as further revenues related to the Incyte collaboration. Operating expenses in the Proprietary Development segment amounted to EUR 72.3 million as compared to EUR 32 million in Q3 of last year. The elevated expenses reflect our higher investments for the development of our proprietary programs. Hence, the EBIT of our Proprietary Development segment amounts to minus EUR 61.7 million. In the Partnered Discovery segment, MorphoSys supplies its proprietary technology to discover new drug candidates for pharmaceutical companies and thus participate in its partners' development advancements through research and development funding, licensing fees, success-based milestone payments and royalties. Revenues in the Partnered Discovery segment amounted to EUR 11.5 million in Q3 2020. The EBIT in our Partnered Discovery segment rose to EUR 9.3 million. Please now move to Slide 23 for the key financials for the first 9 months of 2020. Group revenues grew fourfold to EUR 291.7 million from EUR 60.7 million in the first 9 months of 2019. The increase was mainly driven by the collaboration and licensing agreement with Incyte in the first quarter of this year to further develop and commercialize tafacitamab globally. Part of the USD 750 million upfront payment and of the USD 58 million premium was accounted for as revenues in Q1 2020, representing its share for the non-U.S. part of the transaction. Research and development expenses amounted to EUR 86.6 million versus EUR 75.3 million for the same time period of last year. Selling expenses for the first 9 months increased from EUR 9.3 million in 2019 to EUR 75 million in 2020, and general and administrative expenses from EUR 22.4 million to EUR 37.2 million. The EBIT strongly increased to EUR 101.8 million compared to minus EUR 56.3 million in the first 9 months of 2019. Moving on to the balance sheet on Slide 24. You see that as of September 30, 2020, we recorded total assets of approximately EUR 1.38 billion versus EUR 496.4 million at the end of 2019. Our liquidity position amounted to EUR 987.2 million compared to EUR 357.4 million as of December 31, 2019. This liquidity position is reported on the balance sheet under the items, cash and cash equivalents, financial assets at fair value through profit or loss and current and noncurrent other financial assets at amortized costs. Not included on our Q3 reporting are the proceeds from the convertible bond issued shortly after the end of the third quarter, as you can see on Slide 25. On October 13, 2020, we successfully placed unsubordinated unsecured convertible bonds due in 2025 in an aggregate principal amount of EUR 325 million. The bond will be convertible into new and/or existing no power ordinary bearer shares of MorphoSys. The convertible bond will be issued at 100% of their principal amount. Unless previously converted, redeemed or repurchased and canceled, the convertible bonds will be redeemed at the principal amount on October 16, 2025. The convertible bonds were priced with a coupon of 0.625% per annum. The conversion price was set at EUR 131.29, representing a conversion premium of 40% above the reference share price. With this multiple times oversubscribed transaction, we have secured a financing at very attractive conditions. More than 130 new and existing MorphoSys investors participated underpinning the high level of trust in and the continued appeal of the MorphoSys story. The proceeds further strengthened our cash position, which allows us to execute our ambitious growth strategy. For the financial guidance for the full year 2020, please move to Slide 26. On October 27, we increased our financial guidance for 2020 and are now expecting revenues in the range of EUR 317 million to EUR 327 million, and an EBIT in the range of plus EUR 10 million to plus EUR 20 million. Our guidance for R&D expenses remains unchanged in the range of EUR 130 million to EUR 140 million. The updated guidance reflects higher revenues from participations and collaborations, and Tremfya royalties are expected to be at the upper end of the guidance. In addition, it now also includes revenues from product sales of Monjuvi following its approval and subsequent launch in the U.S. in the first half of August. This guidance is based on constant currency exchange rate and does not include any effects from potential in-licensing or co-development deals for new development candidates. The operational and financial guidance might potentially be impacted by ongoing -- the ongoing global COVID-19 crisis on MorphoSys' operations, including, but not limited to, the company's supply chain clinical trial conduct as well as time lines for regulatory and commercial execution. Ladies and gentlemen, at the end of my section, let me finish with a short personal statement. After close to 10 years with MorphoSys, this is my last conference call as CFO of the company. Before I hand over to Jean-Paul, I want to thank you all for the collaborations, the trust, the good dialogues we had throughout those years. MorphoSys has undergone a tremendous journey since I joined. When I now depart with Monjuvi and Tremfya on the market, a number of further development candidates in Phase II and III as well as innovative research platforms, I leave the company in very good conditions. MorphoSys is known to have a large portfolio of proprietary and partner compounds and is financially stronger than ever, allowing the company to grow and create further value in the years to come. Thanks to all of you. And with this, I will now turn the call over back to Jean-Paul. Thank you.

[Jean-Paul Kress]

Thank you, Jens. I would like to take the opportunity to thank Jens for his dedication to MorphoSys over the last years and the great collaboration. Jens, it has been a true pleasure to work with you, and I wish you all the best for your future endeavors. Moving to Slide 28 for wrap-up. The third quarter was a period of significant milestones and achievements for MorphoSys. We are successfully making strong progress across all dimensions of our business, from commercial to late-stage development to research and innovative new collaborations. We executed on the strong launch of Monjuvi in the U.S., fully in line with our launch targets, generated strong early momentum in the market, and we continue to be encouraged by the accelerated momentum and enhanced adoption we are creating, which will further grow Monjuvi revenues and broaden our impact to patients in need of new therapies. At the same time, we continue to leverage and boost the current and potential future royalty stream from our collaborations from the success of our partners with their respective products, such as Tremfya or Otilimab. And we are on track with our goal to reach increased financial guidance for 2020. Ultimately, we are driven to transform the standard of care and improve cure rates in DLBCL by leveraging and unlocking tafacitamab's full potential. We have a bold vision to establish tafasitamab as a backbone therapeutic in other indication and the combination partner of choice in hem/oncology. Our Xencor collaboration is our first step, and we will continue to share our progress with you in the months ahead. In addition, we are progressing felzartamab in autoimmune indications and are expanding our strong R&D portfolio to create long-term success of the company and shareholder value. With that, we will now open up the line for your questions. Thank you. Operator?

[Operator]

[Operator Instructions] The first question is from Geoffrey Porges of SVB Leerink.

[Geoffrey Craig Porges]

Congratulations on all the progress. First, on the CD20 collaboration. Could you talk about whether you're free to partner with other CD20 antibodies or bispecifics? Since there do seem to be a lot of development. And secondly, do you anticipate that in order to administer the combination, patients will have to be hospitalized. And then Jens, I just want to congratulate you on bring MorphoSys to its current very favorable position. And you've guided to profitability this year. Are you confident that MorphoSys can maintain profitability going forward?

[Jean-Paul Kress]

Geoff, thanks. for your question. I'll answer the first one. Malte will answer the second one, and Jens will answer the third one. Yes, we are free to partner with any other companies having a bispecific. It was very important for us. Beyond the fact that we actually see a lot of value in this partnership with Xencor, we have a long-term relationship with them. This is obviously guaranteeing great effectiveness in our collaboration for this. We have promising early-stage data on their assets and the combination rationale is very strong between Monjuvi and any CD20xCD3, which would add another layer of effectiveness with their T-cell engagement capabilities. So yes, we are free to operate with any other ones, but we thought this one is actually very, very meaningful for us. On that, Malte, can you answer the question on hospitalization or not?

[Malte Peters]

Yes, sure. Yes. Geoff, it's Malte. So the initial clinical studies will certainly occur in -- under hospitalization conditions, as you would normally do this in a Phase Ib setting. Remember, the 2 compounds have never been combined. So in the initial stages, of course, patients would come to the hospitals under Phase Ib conditions. And then depending on the safety signals we would observe, you can then determine of how the continuous treatments will occur and if this combination treatment would be appropriate to be administered in an outpatient or in a community hospital setting.

[Jens Holstein]

And then, Geoff, first of all, thanks very much for the nice words. Regarding profitability, indeed, we turned profitable this year. You might remember many, many years back, we have been profitable for quite a long time, actually, and then decided to invest in the assets that we have in our portfolio.Given that we have Monjuvi now in various clinical trials ongoing to make that compound really a big one, not only in relapsed/refractory DLBCL, but other settings as well as in other indications. Short term, I would not expect, despite the fact that there are increasing revenues, of course, that we expect coming in that we will turn profitable in the short-term frame. So we also sit, as you know, on quite some cash with the intention to broaden our portfolio. And therefore, I think that reminds another sort of reason why you should not expect short-term a profitable company.

[Operator]

The next question is from James Gordon of JPMorgan.

[James Daniel Gordon, Senior Analyst]

This is James Gordon here from JPMorgan. One question on the convertible, please, to start with. So could you just talk about your intended use of funds? Is M&A or business development is likely to feature? What's the focus or wish list in terms of targets? And I noted the comment just now also about maybe broadening the portfolio. So that's the first question, please. And the second question is about Q3 revenues and the full year 2020 revenue guidance. So you upgraded full year '20 guidance by EUR 37 million in terms of revenues. So how much of the upgrade was Monjuvi sales related versus other factors for 2020? And what are the other contributors? And also, could you help us by breaking down the EUR 10.5 million of proprietary revenues that you had this quarter. So I think 4.4 million was Monjuvi sales. I think you said the majority of the rest was coming from Incyte. If you could clarify exactly what are Incyte paying you for? And how do you think this is going to evolve, say, in Q4? And also, just finally, Monjuvi, can you tell us how many patients have now had the product commercially, please?

[Jean-Paul Kress]

James, thank you for your question. I'll handle the first one, then Jens will answer the next ones. And Roland might pipe in for the Monjuvi, last question. Regarding the convert and aim for the convert, we wanted to be in a position to have the capital and means to invest when -- first of all, on our internal portfolio, you probably understand that we have a lot of opportunities ahead of us together with Incyte, will also be on Incyte. And we are actively looking at PT opportunities. We just executed on 2 that we announced today. But at the same time, we are looking at other possibilities to continue to diversify our pipeline. And we thought it was the right time to do this move to be ready to act on potential opportunities. Jens, on the guidance?

[Jens Holstein]

Yes. So James, first of all, thanks very much for the questions. So maybe in terms of a little bit of support here, as you've seen, we came in at EUR 292 million, give or take. Guidance is EUR 317 million to EUR 327 million. So you talk about EUR 25 million to EUR 35 million that we would expect for Q4. If you take into account that Tremfya has a certain contribution. We booked a bit more than EUR 30 million for the first 3 quarters. Q4, we would expect given further approval in psoriatic arthritis and so on that this number is -- of EUR 10 million on average is the minimum, but rather a lower one. We came to the conclusion that we think that overall, the Tremfya guidance ends at the upper end of the range that we have given EUR 37 million to EUR 42 million. So you have to take this number into account and deduct it from the EUR 25 million to EUR 35 million. So the rest is all kinds of other stuff. And of course, first and foremost, Monjuvi contribution from the sales of the product in the U.S. The other parts are the usual couple of million milestone payments that you know from partners that move compounds into Phase I, II or III, like we've seen it now with Novartis, as we announced and there are -- there is FTE funding from collaborations that we have. And first and foremost, there is some revenue contribution from the Incyte collaboration, in that respect, that contributes a few million. And similarly, you have a little bit from our other collaborations as well. So that's why -- and that explains more or less the third question about the EUR 10.5 million question because, as you've seen, EUR 4.4 million, you made the math is for the revenues from Monjuvi, but the remainder is from milestone payments/FTE -- from FTE funding out of the collaboration. I hope that helped. And then, Roland, I think...

[Roland Wandeler, COO & Member of Management Board]

Yes, James, this is Roland. Regarding new patients for Monjuvi. This, of course, is a number that our teams are closely looking at. It's also a number, however, that requires triangulation at this moment in the launch given our weight-based dosing and different timing of initiation, so that we do not provide a precise number at this moment in time. Having said that, the number of sites of care that we disclosed in the call gives you, I think, a good reference point of the kind of interest and of the kind of magnitude that we see in terms of new patient initiation.

[Operator]

The next question is from Jason Butler of JMP Securities.

[Douglas Royal Buchanan, VP & Equity Research Analyst]

It's Roy in for Jason. Just a couple of quick ones. So you -- you're at over 250 treatment sites at the end of October. Can you remind us the number of target sites that you have for the U.S.? And are you ahead of your initial expectations to achieve a given number of orders at those sites?And then one on felzartamab, MOR202, for membranous nephropathy, how many patients are in the U.S. and the EU? And how many progress to ESRD?

[Jean-Paul Kress]

Thanks, Roy, and Roland will take the first part of your question and probably Malte the second part.

[Roland Wandeler, COO & Member of Management Board]

Yes. Thank you, Jean-Paul, Roy. As we disclosed earlier, we are looking at about 11,000 health care professionals that we have in our target. And these are distributed over thousands of sites of care that we have in the states. Our main focus is, of course, on those top 30, top 100, top 300 accounts where we have the highest number of patients. And we are very pleased with the uptake that we saw and the orders we've received from these top accounts. We've also seen more from the periphery in the tail from smaller accounts to order come in as physicians have a patient in front of them where they consider Monjuvi, and they've heard just through the channels that Monjuvi is available. And so also, there, we see that we are on a good track to actually get both the demand that we want from our most important top accounts as well as have the bottom-up demand in the periphery that we expected to see.

[Jean-Paul Kress]

Malte on felzar?

[Malte Peters]

Yes, thanks. I think we are thinking or we are envisaging around 10,000 patients with autoimmune membranous nephropathy in the United States. And Roland, please chime in or correct me if my memory is incorrect, but I think this is what we have as an assumption for the U.S. population.

[Douglas Royal Buchanan, VP & Equity Research Analyst]

Okay. Great. Do you most progress to ESRD?

[Malte Peters]

Yes.

[Jean-Paul Kress]

Ryan (sis) [ Roy ], just to complement on that, these patients are mostly treated by older therapies, old immunosuppressant, very toxic drugs, some with rituximab. And many actually end up in ESRD or even transplant. So there is a very high unmet need.

[Operator]

The next question is from of Etzer Darout, Guggenheim Securities.

[Etzer Darout, Senior Analyst]

Great. And congrats on the progress. I guess, just want to know if we could see any initial efficacy data at ASH, particularly in the patients that were sort of in IPI 3 and 4 in the cohort that you'll be presenting? And then secondly, just wondered if you had any -- or any of your partners sort of ran any preclinical studies on the Monjuvi-plamotamab combination and just wondered to what extent you or your partners have tested the CD20xCD19 co-expression rationale with your combinations?

[Jean-Paul Kress]

Thank you, Etzer. Malte will handle your question.

[Malte Peters]

So the data that we presented at ASH regarding firstMIND were primarily focused on the safety profile of the 2 arms, combining R-CHOP with tafasitamab alone as opposed to R-CHOP with tafasitamab and lenalidomide. And we are in the sort of final stages of evaluating the data. And depending on how far we get, we may present some very high-level efficacy data. But remember, it's quite early in the conduct of the study, and patients have not been observed long enough to give a reliable estimate on the CR and PR rates. So we are looking at this right now. And depending on what we can say, we will say, but the main focus is really going to be safety for this ASH conference.

[Jean-Paul Kress]

And Malte on the on the CD3xCD20xCD19 rationale.

[Malte Peters]

Okay. Sorry, I didn't catch the question. Can you repeat, please, the question?

[Etzer Darout, Senior Analyst]

Yes. Just wondered if you or partners have at all tested sort of the CD20xCD19 core expression rationale with your own sort of the combination of Monjuvi and plamotamab? Or you sort of just -- you kind of look at the literature, there is some precedence, right, for combining those 2 molecules. I just wondered if you had any sort of preclinical experience yourselves.

[Malte Peters]

We have some experience regarding CD19 and CD20. And in fact, at ASH, we will present some data showing synergistic activity combining tafacitamab and rituximab, looking at these 2 targets. But we have not, of course, looked at CD20, CD3 biospecific in combination with CD19, CD3. But on the synergistic potential of naked anti-CD19 and CD20 antibodies, we have generated some data in the laboratory, and we will show some details also at ASH this year.

[Jean-Paul Kress]

The very important thing in -- yes it's the addition to digital purchase that the ADCC and ADCP pathway of Monjuvi plus the T-cell engagement potential of CD20xCD3 are extremely compelling.

[Operator]

The next question is from Graig Suvannavejh of Goldman Sachs.

[Graig Suvannavejh]

Okay. Great. And Jens, just want to thank you for your efforts and good -- best wishes on your next endeavors as well. A couple of questions just on CD3xCD20. So when looking at the Xencor asset, could you just maybe describe kind of your initial thoughts around what you're seeing on the efficacy and safety of that agent as a stand alone? We've looked at some of the data and how it compares with the other CD3, CD20s, and the efficacy seems a little bit modest. And maybe there's some CRS as the big issue for all of these compounds. Could you just give us your high-level view on how you think this asset compares to the others in the setting of combining with Monjuvi? Is it really more -- do you think the ability to differentiate will be more on the tolerability side or really more on the efficacy side? And then a follow-up just around the questions on the Xencor asset, 2 questions. One, just on Monjuvi, are there any thoughts on perhaps pursuing a subcutaneous formulation of Monjuvi, especially in the context of the Genmab-AbbVie asset that is going into a Phase III trial in relapsed and refractory DLBCL, their anti-CD3, anti-CD20 subcu. So just any thoughts on subcu.

[Jean-Paul Kress]

Thank you. Malte will address the first one and potentially the second one.

[Malte Peters]

Yes. So we have, of course, studied the existing CD20xCD3 biospecific molecules to pretty good detail. I think there are -- my personal take is that the differences in efficacy at this moment are probably not very high. I think there are nuances between the various modalities. We are quite encouraged of what we see regarding the Xencor activity also with respect to the efficacy and safety profile of the molecule. We will see a little bit more data at upcoming conferences. So I think overall, we think that the Xencor molecule is on par with the other molecules that are currently being developed. With respect to your...

[Jean-Paul Kress]

Maybe, one comment, Malte, sorry.

[Malte Peters]

Yes.

[Jean-Paul Kress]

One comment on that, Graig. I mean, beyond the asset itself and the comparison with potential other assets, that, by the way, we could still partner with, as we said earlier, because we have a nonexclusive agreement with Xencor. It's important to remember that one of the drivers of partnering with Xencor is our long-term relationship with them. We know them well. They know as well. There is a trust/effectiveness factor here, which will make things much easier in the implementation of the development plan. I mean, partnering with another company for development is always a challenge. And with Xencor, we are in known territory. And as you know very well, Monjuvi comes from the Xencor bench. So there is kind of a familiarity here, which is a big factor in addition to the strength of the asset. Malte, sorry, you can go on.

[Malte Peters]

No, no. Thanks, Jean-Paul, for the addition. With respect to the subcutaneous development, I would say we are considering various options regarding different schedules and mode of application of Monjuvi going forward. And at this moment, it's probably a little early to say what we will do as a long-term strategy, but it's on our radar screen. It's part of our life cycle management strategy, and we will probably be able to speak to this in the next coming months. But it's clear that we are thinking about life cycle management strategies for Monjuvi. This includes subcutaneous formulation, but potentially also other options to facilitate the administration of Monjuvi.

[Operator]

The last question is from Zhiqiang Shu of Berenberg.

[Zhiqiang Shu, Analyst]

Two questions, please. First is on an early stage asset, MOR210. I think your partner released some quite exciting preclinical data SSC. If I recall correctly, you retained the rights in the U.S. Just wondering if you have any plans to further develop that asset in the oncology setting.And then also secondly, on the -- one of the ASH presentation, you presented some preclinical data combining tafa and CD47 antibody. Wondering if that's something you are looking at, given your partner, I-Mab has a CD47 antibody, just want to get your thoughts there.

[Jean-Paul Kress]

Thank you for the question. I'll give a short answer, and Malte will elaborate, obviously. Yes, 210, we're very excited by 210, and obviously, we progress with the partner here. And for 47, as I mentioned earlier in calls, there are -- we've been looking at 47 as well in addition to CD20xCD3. So this is something we have in the radar. But obviously, we have to see if it makes sense in terms of capital allocation versus the biospecifics. But yes, we have it in the radar. Malte, do you want to speak about 210?

[Malte Peters]

Yes. Very quickly, we have a good relationship and partnership with I-Mab to whom our 210 molecule is licensed at the moment. We are looking at the data on a continuous basis. And then the contractual situation enables us to periodically assess the data and to decide whether we want to opt back in and participate in the future stages of development. So that's a good situation. We are really pleased with how I-Mab is pursuing this, and we will stay tuned and update you, of course, of any progress. And on the tafacitamab CD47 combination, I think Jean-Paul answered it well. It's part of our backbone strategy to evaluate tafasitamab as a potential combination partner with multiple modalities being used in lymphoma treatment. And that, of course, includes anti-CD47 molecules. And as Jean-Paul said, we -- it's at the back of our mind, and we will continue to evaluate opportunities here.

[Jean-Paul Kress]

Operator, back to you. I think we can close the call.

[Operator]

Yes. So I will just turn back to Julia Neugebauer to wrap up today's call.

[Julia Neugebauer]

Ladies and gentlemen, this concludes today's conference call. If any of you would like to follow-up, the Investor Relations team of MorphoSys 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 gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.