MorphoSys Q4 2023 Earnings Call Transcript

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March 14, 2024

Key Takeaways

  • MorphoSys entered a business combination agreement with Novartis on February 5, 2024, at €68 per share (a ~94–142% premium) and expects the deal to close in H1 2024 pending customary antitrust approvals.
  • Results from the Phase III MANIFEST II study showed the pelabrasib + ruxolitinib combo nearly doubled the rate of ≥35% spleen volume reduction versus placebo at 24 weeks, with improvements in symptoms, anemia and bone marrow fibrosis and a favorable safety profile.
  • MorphoSys is on track to file regulatory submissions for pelabrasib + ruxolitinib with the FDA and EMA by mid-2024, aiming to establish the combination as a new first-line myelofibrosis therapy.
  • The investigational next-generation dual EZH2/EZH1 inhibitor tulmimetostat has shown deep responses in heavily pretreated patients with advanced solid tumors and lymphomas in a Phase 2 study.
  • Full-year 2023 revenues were €238.3 million (down from €278.3 million in 2022) with a net loss of €189.7 million, and year-end cash and investments of €680.5 million provide a runway into early 2026.
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Earnings Conference Call
MorphoSys Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to the welcome and thank you for joining MorphoSys Full Year 2023 Results and Business Update Conference Call. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may do so by pressing star and 1.

Operator

Press the star key followed by 0 for operator assistance. It's been my pleasure to turn the conference over to Julia Noigebawa. Please go ahead ma'am.

Speaker 1

Ladies and gentlemen, good afternoon and good morning. My name is Julia Neugebauer, Head of Investor Relations at MorphoSys, and it is my pleasure to welcome you to our Q4 and full year 2023 financial results conference call. Joining me on the call today are Jean Paul Kress, our Chief Executive Officer Tim DiMutt, our Chief Research and Development Officer and Lucie Crabtree, our Chief Financial Officer. Additional information regarding the proposed acquisition of MorphoSys by Novartis will be filed with the United States Securities and Exchange Commission over the coming weeks, and we encourage investors to review this information when it becomes available. I'd also like to remind you that some of the statements made during the call today are forward looking statements, including statements regarding our development plans and expectations for our compounds in our pipeline as well as the development plans of our collaboration partners and statements about the proposed acquisition of MorphoSys by Novartis.

Speaker 1

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 Form 20 F and Annual Report all for the year ended December 31, 2023, and from time to time in other SEC documents of MorphoSys. It is important to keep in mind that our statements in this webcast speak as of today. This is the agenda for today's call. Jean Paul will begin with an overview of 2023 and an outlook for 2024. Tim will then share an update on our clinical development work with a focus on palaprasib and Ussi will follow this with a summary of our financial results.

Speaker 1

After our prepared remarks, we will open the call for your questions. I now hand the call over to Jean Paul.

Speaker 2

Good morning and good afternoon, everyone. Thanks for joining us today. 2023 was a critical and exciting year for MorphoSys. We over delivered on our key priorities, advanced our potential best and first in class oncology pipeline and further strengthened our financial position, resulting in the company entering into a business combination agreement on February 5, 2024, to be acquired by Novartis. Elabresib, our investigational BET inhibitor, is at the forefront of our promising pipeline.

Speaker 2

In 2023, we demonstrated the potential for pelabrasib to shift the myelofibrosis treatment paradigm as results from our Phase III MANIFEST II study showed that all 4 disease hallmarks were improved with the pelabrasib and ruxolitinib combination therapy over standard of care at 24 weeks. Patients with myelofibrosis urgently need new options to treat this disease. And pursuing approval of pelagresib in first line myelofibrosis remains our top priority. We also see great opportunity to expand pelabrasib into other myeloid disease indications beyond myelofibrosis. We are very pleased with the progress of Tulmimetostat, our investigational next generation dual inhibitor of EZH2 and EZH1, which has shown deep responses in heavily pretreated patients across a broad array of advanced solid tumors and lymphomas in a Phase 2 study.

Speaker 2

We are continuing investigations of this promising agent and look forward to further elucidating its therapeutic potential. Because of this exceptional progress, we recently announced Novartis' offer to acquire MorphoSys. After a thorough review of all strategic options, we firmly believe that this decision is in the best interest of MorphoSys, our shareholders and cancer patients. Novartis offer provides attractive, immediate and fair paying cash value to MorphoSys shareholders. Novartis intends to offer MorphoSys shareholders EUR 68 per share in cash for a total equity value of EUR 2,700,000,000 The offer price corresponds to a premium of 94% 142% on the volume weighted average price during the last months 3 months as of the unaffected January 25, 2024 close, respectively.

Speaker 2

Additionally, Novartis ample resources, additional scientific expertise and global footprint can help accelerate Pelabresip's potential worldwide. Until the proposed transaction closes, MorphoSys and Novartis are acting as 2 separate companies. As such, MorphoSys has very clear priorities for the first half of this year. First, we are focused on closing the Novartis acquisition, which we expect will occur in the first half of twenty twenty four. The closing process is progressing steadily, and we do not expect any issues.

Speaker 2

We received antitrust clearances in Germany and Austria, and have also made antitrust filings in the U. S. Under the HSR Act. The next step in the takeover process is for Novartis to publish their offer document, which is expected next month. Both companies are fully committed to making the acquisition a reality.

Speaker 2

Next, we are continuing to prepare regulatory filings for the pelabrasib and ruxolitinib combination in first line myelofibrosis with the intention of submitting applications to the U. S. FDA and the European Medicines Agency in the middle of 2024. We are also working to complete transfer of tafacitamab to Incyte, our long standing collaborator, following the announcement of its sale on February 5, 2024. Lastly, we are diligently managing our cash runway and maintaining business continuity during this exciting inflection point for our company.

Speaker 2

I would now like to turn the call over to Tim, who will provide a development update. Tim, please.

Speaker 3

Thank you, Jean Paul. Good morning and good afternoon, everyone. Since our Phase III MANIFEST II results were presented at the ASH Annual Meeting in December 2023, the myelofibrosis physician community has consistently stated that the pelabasib and ruxolitinib combination has the potential to shift the treatment paradigm of this debilitating and deadly disease. Notably, in the MANIFEST 2 study, pelabrasib and ruxolitinib nearly doubled the proportion of patients achieving at least a 35% reduction in spleen volume over placebo plus ruxolitinib at 24 weeks, meeting the primary endpoint of the study. This was a meaningful result given the known association between spleen volume reduction and patient survival.

Speaker 3

Additionally, compared with placebo plus raxolitinib, the combination of pelabrasib and ruxolitinib showed a strong positive trend in reducing symptom burden and improvements across measures of anemia and bone marrow fibrosis at 24 weeks. Very importantly, the pelabrasib and ruxolitinib combination demonstrated safety results in line with assessments from prior clinical trials. Further, pelabrasib and ruxolitinib was associated with fewer Grade 3 or higher adverse events compared with placebo plus ruxolitinib. These findings point to the potential for pelabrasib and ruxolitinib to become the new standard of care for patients with myelofibrosis. With these strong results in hand, our key objective is to bring pelabrasib to patients as quickly as possible.

Speaker 3

This is why our number one priority is preparing and filing our regulatory submissions in the U. S. And Europe by the middle of 2024. We are on track with this process and are confident that our comprehensive, collaborative data package will provide impactful evidence to the respective regulatory agencies. We are also continuing to prioritize scientific communications and medical education work for pelabasib across the U.

Speaker 3

S. And Europe through our experienced medical affairs team. We continue to collect safety and efficacy data, including duration of treatment data from the MANIFEST II Phase III study. Durability of response is key for physicians treating myelofibrosis, especially as the benefits of currently approved therapies tend to fade over time. We have seen deep and storable responses in patients with myelofibrosis with the pelabrasib and ruxolitinib combination at and beyond 60 weeks in the Phase 2 MANIFEST study.

Speaker 3

We plan to share new data from MANIFEST 2 at the Scientific Congress in the first half of this year. I would now like to turn the call over to Lucy for an update on our financials.

Speaker 4

Thank you, Tim. Good morning and good afternoon, everyone. Despite an increasingly competitive environment, net U. S. Sales for Mond JUV grew to $92,000,000 for the full year of 2023, reaching the higher end of our 2023 financial guidance.

Speaker 4

Total revenues in 2023 were €238,300,000 compared with €278,300,000 in 2022. Recall that in 2022, we benefited from the execution of out licensing agreements. Total cost of sales in 2023 were €58,400,000 compared with €48,600,000 in 2022. This increase is largely due to one off effects from write downs on inventories recognized in 2023. Next, we will turn to operating expenses.

Speaker 4

R and D expenses in 2023 were €283,600,000 compared with €297,800,000 in 2022. The decrease in R and D expenses reflects our current clinical study progress and the prioritization of activities across our pipeline. Selling expenses also decreased to €81,400,000 in 2023 compared with €92,400,000 in 2022. The year over year decline is mainly due to active measures to streamline and focus our previous Monjuvie sales efforts. G and A expenses amounted to €65,800,000 for 2023 compared with €60,100,000 in 2022.

Speaker 4

This increase was driven by a rise in share based payment expenses. This is due to the increase in MorphoSys' share price, which is the valuation basis for our share based payment programs.

Speaker 1

For the

Speaker 4

full year 2023, consolidated net loss was €189,700,000 compared to a net loss of €151,100,000 in 2022. Because of the sale and transfer of tafasitamab to Incyte on February 5, 2024, MorphoSys' 2024 financial guidance published on January 30, 2024 cannot be maintained and therefore was revoked. In 2024, we now expect R and D expenses of €170,000,000 to €185,000,000 reflecting our investments in the development of collaborative and tolimetastat. SG and A expenses are expected to be between €90,000,000 €105,000,000 Following the announcement of the tafasitamab sale, we started the transition process immediately and subsequently ceased all field sales activity as tafasitamab was our only commercial product. As our agreement with Incyte did not include the transfer of MorphoSys employees, we made the extremely difficult decision to terminate employment of all customer facing field sales colleagues.

Speaker 4

The significant reduction of our forecasted 2024 R and D and SG and A expenses compared with 2023 can be attributed to both the sale of tafasitamab and the previously announced implementation of broad measures to diligently manage all our available cash. Please note, any effects from the implementation of the Novartis takeover offer are not included in this forecast. We ended 2023 with cash and investments of €680,500,000 which includes the proceeds from our successful raise of €102,700,000 in gross funding. Our cash runway now extends until early 2026 inclusive of our convertible debt repayment. I'll now turn the call back over to Jean Paul.

Speaker 2

Before we open the line for questions, I'd like to conclude with a few words. 2023 has been marked by exceptional progress at MorphoSys, resulting in our proposed acquisition by Novartis. We are confident that Novartis global footprint and leadership in oncology innovation will accelerate the speed and scale at which the significant needs of cancer patients are addressed, with pelabrasib at the forefront. We and Novartis are fully committed to making this proposed transaction a reality. With that, I would like to open the call for questions.

Speaker 2

Operator, please open the line.

Operator

Thank you very much. Ladies and gentlemen, at this time, we will begin the question and answer Our first question today is from Derek Ashila from Wells Fargo. Please go ahead with your question.

Speaker 5

Hey, good morning. Thanks for taking the questions. Just to, I guess, how long after Novartis publishes the offer doc next month? Should we expect the deal to close? I don't know if there's any analogs you could point to similar situations.

Speaker 5

And then I just wanted to confirm whether it would be you at MorphoSys or Novartis that would actually submit the NDA for pelibresib? Thank you.

Speaker 2

Thanks, Derek. Lucie will take the first part of the question.

Speaker 4

Yes, Derek. Consistent with our guidance, we expect the deal to close in H1 2024.

Speaker 2

Tim, second part of the question please.

Speaker 3

Sure. Hey, Derek. This is Tim. On the question who will submit the NDA, we said in the business combination agreements that we are operating as independent companies until the deal is closed. And so with that, the guidance will be we will submit the NDA unless the deal is closed before and then we'll have to see.

Speaker 5

Got it. Understood. Thank you so much.

Speaker 2

Thanks.

Operator

Our next question comes from Xiang Deng from UBS. Please go ahead.

Speaker 6

Thank you so much. Thank you for taking my questions. 2, please. The first one is, you mentioned you've got anti trust clearance already from Germany and Austria, and you've also made anti trust filing in the U. S.

Speaker 6

I was just wondering if there are any other major ones that you're still waiting to clear and any update that you could share on that please? And the second one should be quite straightforward, just so to try my luck. Just wondering if there's anything you could actually disclose on where are you in terms of pre NDA meeting, please? Thank you.

Speaker 2

Hi, Sian. This is Jean Paul. I'll take the first part and Tim will comment on the FDA question. Yes, you're correct. We got the antitrust clearance from Germany and Austria.

Speaker 2

We filed for the U. S. No other jurisdictions are expected to be needed here. And good progress have been made and have been making. Tim, on the FDA question?

Speaker 3

Sure. Hey, Sjoerd, this is Tim. So we said in the prepared remarks, Robal as well as myself, that we are intending to file midyear this year to U. S. FDA as well as EMA.

Speaker 3

In terms of pre NDA meeting, we have the practice here at MorphoSys that we do not publicly discuss details of our interactions with regulatory agencies. We previously said and we stick with that, that having a pre NDA meeting is a formality that many companies typically do following positive Phase III data. And I can just reiterate that we remain confident that the comprehensive data package will provide impactful evidence to the respective regulatory agencies. So everything is on track.

Speaker 6

Thank you very much.

Operator

There are no further questions at this time, and I will hand back to Julia Neugebauer for closing comments.

Speaker 1

Ladies and gentlemen, this concludes today's conference call. Mufosi's Investor Relations team is available to answer any follow-up questions for the remainder of the day. Once again, thank you for joining. Have a great day and goodbye.

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