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Edited Transcript of MOR.DE earnings conference call or presentation 19-Mar-20 1:00pm GMT

Full Year 2019 MorphoSys AG Earnings Call

MARTINSRIED/PLANEGG Mar 20, 2020 (Thomson StreetEvents) — Edited Transcript of Morphosys AG earnings conference call or presentation Thursday, March 19, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jean-Paul Kress

MorphoSys AG – CEO & Management Board Member

* Jens H. Holstein

MorphoSys AG – CFO & Member of the Management Board

* Julia Neugebauer

* Malte Peters

MorphoSys AG – Chief Development Officer & Member of the Management Board

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Conference Call Participants

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* Danielle Catherine Brill

Piper Sandler & Co., Research Division – VP & Senior Research Analyst

* Etzer Darout

Guggenheim Securities, LLC, Research Division – Senior Analyst

* Holger Blum

Patinex Management AG – Analyst

* Jameel Bakhsh

Barclays Bank PLC, Research Division – Research Analyst

* Konstantinos Nikolaos Aprilakis

Deutsche Bank AG, Research Division – Research Analyst

* Shanshan Xu

Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst

* Zoe Karamanoli

RBC Capital Markets, Research Division – Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the MorphoSys Year-End Results 2019. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

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

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Julia Neugebauer, [2]

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Good afternoon, good morning, and welcome to our 2019 full year results conference call and webcast. My name is Julia Neugebauer, Director of Corporate Communication and Investor Relations at MorphoSys. With me on the call today are Jean-Paul Kress, our Chief Executive Officer; Jens Holstein, our Chief Financial Officer; and Malte Peters, our Chief Research and Development Officer.

Please note that due to the COVID-19 pandemic, we’re dialing in from different locations so I would like to apologize for any disruptions this might cause, and we just learned that there seem to be technical issues with the U.S. dial-in. So please, if this does not work, use the U.K. or German dial-in.

Before we start, I would like to remind you that during this conference call, we will present and discuss certain forward-looking statements concerning the development of MorphoSys’ core technologies, the progress of its current research and development programs, our transition to a fully integrated commercial pharmaceutic company, 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.

You can find the agenda for today’s call on Page 3. Jean-Paul will start with his opening remarks and an update on our commercial capabilities. He will then hand over to Malte, who’ll discuss the R&D progress we have made in 2019, especially for tafasitamab. Jens will review the financial results for 2019 and present the financial guidance for 2020. Jean-Paul then will close with the outlook for 2020.

After the presentation, we will all be available for your questions. You will find a slide deck for this call on our corporate website.

I would now like to hand over to Jean-Paul.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [3]

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Thank you, Julia. First, I would like to thank you all for joining our call in these challenging circumstances. We are all facing difficult and stressing times with this pandemic crisis, a major threat to public health, business continuity and to our economy. Been to (inaudible) some times, I am convinced that we, all together, will beat the virus.

We, at MorphoSys, are staying laser-focused on delivering on our strategic goals and on our mission to bring outstanding medicines to patients suffering from severe diseases. We are in a favorable position as we have already filed our BLA for tafasitamab and many of the relapsing refractory DLBCL patients have a very poor prognosis and the primary goal continues to be achieving a complete response despite the risks.

Now let me now — let me move to our 2019 highlights. 2019 was a very successful year for MorphoSys. We delivered on many fronts, and we made great strides towards bringing tafasitamab to the market. We reported positive data from our L-MIND and Re-MIND studies. Both met their primary endpoints, and the data from the basis for the submission of our BLA for tafasitamab to be used in combination with lenalidomide.

The BLA was granted Priority Review by the FDA and has a PDUFA date of August 30th this year. According to the FDA, currently, no Advisory Committee meeting is planned. Our main priority is to unlock the full potential of tafasitamab, therefore, we are very pleased that our partnership discussions ended up successfully with the selection of Incyte to develop and commercialize tafasitamab globally.

Our recently established U.S. commercial organization is now up and running. We are well prepared for the anticipated launch of tafasitamab and we will join forces with Incyte to significantly raise our share of voice. In addition to tafasitamab, we also reported great progress with other programs, such as our proprietary development candidates, MOR202 and Otilimab, formerly MOR103.

Leading assets in our partner pipeline is Tremfya, developed in markets inside Janssen, which achieved blockbuster status in 2019 with more than $1 billion of sales. And our amyloid beta antibody, gantenerumab, developed by Roche, is currently in 2 Phase III studies in patients with early Alzheimer’s disease. We are pleased to see Roche’s commitment to move this program forward.

We’re very pleased with the completion of the partnership deal with Incyte. Incyte is a strong and dedicated partner for our most important asset. The agreement received antitrust clearance at the beginning of March, and we are now fully working together to ensure a flawless launch. We are also working on a joint development plan for tafasitamab, and we will keep you posted on our progress here.

In addition to getting a strong partner, this deal provides us with a very strong financial position. It enables us to pursue our comprehensive development plans and also put us in a great position for insourcing innovation and inlicensing opportunities.

Moving to Slide 7, on our launch preparation update. As you know, since joining MorphoSys as CEO mid-last year, have consistently focused the organization on preparing for a successful launch of tafasitamab, and we’ve been making great progress here. Let me give you a short overview.

In the U.S., around 30,000 patients are newly diagnosed with DLBCL every year. Around 40 either did not respond to the current standard of care, R-CHOP, or the relapsed after initial response. RR patients, who were not eligible for high-dose chemotherapy and transplant are the poor prognosis. There is high unmet need for new treatment options, and we are working hard to make tafasitamab available for those patients soon.

Slide 9 on the key imperatives for a successful launch. During the past month, we’ve built a strong U.S. team across all key functions, and we have been able to attract great talents. Our med affairs, market access and sales marketing teams have actively been engaging with all the important stakeholders, including KOLs, payers and providers.

And together with Incyte, we will significantly increase our share of voice and leverage synergy. Through a multi-stakeholder engagement plan, our medical affairs team has been raising awareness on our data and the potential value proposition of tafasitamab.

In order to further advance our life cycle management, we are conducting an integrated evidence generation program with the implementation of [IITs], Phase IV, Real-world evidence and HEOR studies. We’ve also started an expanded asset program to make tafasitamab available for seriously ill patients in the U.S., who are not eligible for any clinical trials and do not have other treatment options.

Moving to market access. Our team has been interacting with payers, HCPs and other important stakeholders. Our goal is to ensure that access decision makers have the right information upon approval to make coverage and reimbursement decisions swiftly.

We have conducted comprehensive research to define our pricing strategy, and we have a deep understanding of the reimbursement environment. We’ve also incorporated feedback from significant patients and provider advocacy groups into our planned patient support approach. And we have developed a launch network and a distribution approach that will provide seamless and rapid product availability to providers in the community and the academic center settings.

Moving to Slide 12 on sales and marketing. We’re pleased that we’ve already hired more than 85% of our sales force, with great talents bringing excellent track record in the oncology space. This is a testimony of the value of our product. In addition, Incyte has a great knowledge of the tafasitamab targets, as there is an overlap of more than 90% between the Jakafi and the tafa targets in the community setting. And we are fully aligned on regions and territories.

We’ve also developed strong product positioning and messaging based on the target product label. Basically, tafasitamab has the potential to change the lives of patients by unleashing a durable response in r/r DLBCL.

All in all, we have the right strategy, the right team and the right partner to execute on a strong launch.

Malte will now discuss our ’19 R&D progress and 2020 outlook. Malte, please.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [4]

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Thank you, Jean-Paul. Let’s look at Slide 14. We are indeed excited about our key asset, tafasitamab, and the important achievements we made for this program. 2019 was a very successful year for MorphoSys and for the development organization. I’m really proud that we delivered all key milestones on time as planned and as communicated. Let me quickly summarize. L-MIND is our Phase II open-label single-arm trial evaluating tafasitamab plus lenalidomide in patients with relapsed or refractory DLBCL, who are ineligible for high-dose chemotherapy and autologous stem cell transplantation.

In June 2019, we showed that a total of 60% of patients had an objective response to the treatment, with 43% having a complete regression of their tumors. The median progression-free survival was 12.1 months and the median overall survival was not reached, suggesting very durable responses. Complete responders showed an over 90% probability to be still responding after 22 months.

The L-MIND data are complemented by the data from Re-MIND, our Real-world data matched control cohort, looking at the effectiveness of lenalidomide monotherapy. The primary endpoint of Re-MIND has been met and shows a statistically significant superior best objective response rate of the tafasitamab-lenalidomide combination compared to lenalidomide’s monotherapy.

The objective response rate was 67% for the combination compared to 34% for the monotherapy. The complete response rate was 40% for the combination versus 12% for the monotherapy. In addition, there was significant difference observed in overall survival, which was not reached in the combination as compared to 9.3 months in the monotherapy. L-MIND, together with Re-MIND, served as the basis for the BLA submission, which is currently undergoing review for the hope for first approval in the United States.

B-MIND, our ongoing Phase III study in relapsed/refractory DLBCL, is evaluating tafasitamab in combination with bendamustine compared to rituximab in combination with bendamustine. The trial passed the futility analysis at the end of 2019. And based on the recommendation of an independent data monitoring committee, we decided to increase the sample size to 450 patients. Importantly, this study could serve as a confirmatory study if we are granted accelerated or conditional approvals based on L-MIND.

As the FDA is currently reviewing our BLA, we wanted to provide access to tafasitamab to those patients who have no other treatment options. We are happy to have started an Expanded Access Program in February of this year. This early access program allows us, under exceptional and very specific circumstances, to make tafasitamab available to selected seriously ill patients in the United States, who are not eligible for any clinical trials and do not have other treatment options. We also started the Phase Ib part of our planned frontline study First-MIND in BCL patients.

On MOR202, our proprietary anti-CD38 antibody, we have opened our Phase I/II study in autoimmune membranous glomerulonephritis, which is an inflammatory kidney disease characterized by the presence of autoantibodies directed against certain structures in the kidney.

Since MOR202 is a plasma cell-depleting agent and possibly immunosuppressive, we are currently in close contact with investigators, local health authorities and Institutional Ethics Committees to decide how patients’ safety can be protected in this trial. It is possible that the coronavirus crisis could lead to a temporary halt in enrollment of the M-PLACE trial, which could cause the delay of the study.

Finally, let me also use the opportunity to thank our colleague, Dr. Markus Enzelberger, who has decided to step down as Chief Scientific Officer, and a member of the company’s Management Board to explore new opportunities. The research organization was integrated into the development segment under my leadership. To strengthen the team, I am very happy to announce that we have hired a very experienced new Head of Research, Dr. Martin Steegmaier. Martin brings to MorphoSys 20 years of experience in the pharmaceutical industry, focusing on oncology. Before joining MorphoSys, he had positions with increasing responsibilities within the Roche Group.

Let’s move to Slide 15. Let me now focus on the most recent update of our clinical development plan for tafasitamab. I’ve already described the ongoing studies in patients with relapsed/refractory DLBCL, and now I want to focus on the new opportunities, which we will pursue.

First of all, we have decided to investigate tafasitamab in frontline DLBCL. We will start a Phase III pivotal study at the beginning of next year. In this study, we plan to compare tafasitamab, lenalidomide and R-CHOP with R-CHOP alone. Study startup activities has begun. As a preparation for this pivotal study, we initiated our Phase Ib trial, First-MIND, in newly diagnosed DLBCL patients to evaluate the safety and preliminary efficacy of tafasitamab with or without lenalidomide in combination with R-CHOP as a first-line treatment.

In patients with frontline DLBCL and a high-risk score, the unmet medical need is high to improve the efficacy of R-CHOP, as Jean-Paul has mentioned already. Remember that still 40% of the patients are not cured and will progress at some point in time.

In COSMOS, we investigate tafasitamab in combination with the PI3-kinase inhibitor, idelalisib or the BCL-2 inhibitor, venetoclax in patients with relapsed or refractory CLL. While this study is primarily a safety study, there was encouraging efficacy data from the primary analysis in the study with heavily pretreated patients. Together with Incyte, we plan to assess the combination of tafasitamab and Incyte’s PR3-kinase delta inhibitor, parsaclisib, in patients with relapsed/refractory NHL and CLL.

We have also made great progress in the design of a pivotal Phase III study in patients with relapsed/refractory follicular lymphoma and marginal zone lymphoma. These indolent lymphomas, despite being called indolent, have a high unmet medical need and need better treatment options because relapsed or refractory patients still ultimately die from this disease.

Together with Incyte, we are currently in the final stages of discussing the proposed design strategy, and we have agreed that Incyte will lead this study. Our plan is that this study will start at the beginning of next year. We are very happy to work with Incyte to explore the full potential of tafasitamab. We are extremely pleased about the alignment we have already established between the 2 companies and are looking forward to share more details, joint development plan later this year, as mentioned by Jean-Paul.

In addition to our key asset, tafasitamab, we also made very good progress with other development programs during 2019. I would like to briefly mention a few highlights. Our partner, I-Mab, who holds the right for MOR202, our anti-CD38 antibody for Greater China, has also made significant progress in 2019. I-Mab initiated 2 pivotal trials in patients with relapsed or refractory multiple myeloma.

In July 2019, we announced good news for the anti-GM-CSF antibody, Otilimab, when our partner, GSK, initiated a new Phase III program called ContRast in patients with rheumatoid arthritis. The program consisting of 3 Phase III trials will enroll up to 4,100 patients in total. These studies will compare Otilimab against approved drugs such as JAK inhibitors and anti-IL6 antibodies. We are very pleased to see GSK’s continuing commitment to the development of otilimab.

Also in 2019, we signed an option agreement with Vivoryon Therapeutics on small molecule inhibitors of the CD47- SIRP alpha Signaling pathway in immuno-oncology. Preclinical studies to assess the activity of the lead candidates from this group, PQ912 are currently ongoing. We will give an update as soon as data are available.

Turning now to our Partnered Discovery segment. It is a substantial part of our pipeline, and we expect this segment to also provide a growing revenue stream in the future. These partnerships leverage the full potential of some products discovered through our technology. A great example is Janssen’s Tremfya, the first therapeutic agent based on our technology to reach the market in psoriasis.

Janssen is currently conducting a series of clinical studies with Tremfya in a variety of indications, such as psoriatic arthritis and ulcerative colitis as well as Crohn’s disease which, in part, is expected to generate data in the course of 2020.

In 2019, Janssen submitted marketing authorization applications to the U.S. FDA and to the EMA for Tremfya for the treatment of psoriatic arthritis. The decision on these applications could potentially be made in 2020.

In summary, overall, we are very happy with the significant progress we have made in our Proprietary Development and Partnered Discovery segments in 2019.

With this, I will hand over to Jens, who will provide you with an update on the 2019 full year results as well as in our financial outlook for 2020.

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [5]

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Thank you, Malte. 2019 was indeed a very successful year for MorphoSys. Operationally and financially, we are in a very strong position to pursue our ambitious goals to become a fully integrated biopharmaceutical company, and the collaboration agreement with Incyte on January 13 of this year has massively strengthened our financial ability to support this strategy. In July 2019, we received a milestone payment of EUR 22 million in GSK due to the start of the 3 Phase III clinical trials with Otilimab, formerly 103, in rheumatoid arthritis.

This led us to increase our financial goal for the full year of 2019. Increasing sales of Tremfya are marketed by our partner, Janssen, contributed positively to last year’s revenues as well. Tremfya gained blockbuster status by reaching the $1 million mark in 2019.

Taking the outstanding USD 750 million from Incyte into account that we expect to have on our bank accounts by end of March, our pro forma cash position as of March 13 would have been approximately EUR 1.1 billion. To have such a strong financial position in the lease sale (inaudible), and an excellent starting point for us to pursue our ambitious development plan.

Overall, we have met our financial goals for 2019. Group revenues in the reporting year amounted to EUR 71.8 million and with this, we ended the year at the upper end of our updated and improved guidance to range from EUR 65 million to EUR 72 million. Our proprietary R&D expenses amounted to EUR 98.6 million and we are fully in line with our guidance from EUR 95 million to EUR 105 million. EBIT reached minus EUR 107.9 million, also fully in line with our updated guidance of minus EUR 105 million to minus EUR 150 million.

Please move on with me to Slide 20 that illustrates our P&L statement. As stated before, group revenues amounted to EUR 71.8 million and thus, slightly less than in 2018. In 2018, we have booked EUR 47.5 million upfront for the out-licensing of MOR106 to Novartis. Revenues include royalties on net sales of Tremfya amounting to EUR 31.8 million in the second full commercial year 2019 and doubling after EUR 15.4 million in 2018.

Total operating expenses increased from EUR 136.5 million in 2018 to EUR 179.9 million in 2019 based on the ramp-up of preparations for our anticipated tafasitamab U.S. launch. 2019 — sorry, cost of sales increased to EUR 12.1 million compared to EUR 1.8 million in 2018, mainly driven by material produced for the launch of tafasitamab. In 2019, research and development expenses amounted to EUR 108.4 million as compared to EUR 106.4 million in 2018.

Selling expenses increased in 2019 to EUR 22.7 million. This increase primarily resulted from higher expenses for external services and personal expenses, both in connection with the preparation of our intended tafasitamab launch.

General and administrative expenses increased by 68% from EUR 21.9 million to 2018 to EUR 36.7 million in 2019. Again, mainly due to a higher personnel expenses as well as costs for external services. Earnings before interest and taxes amounted to minus EUR 107.9 million compared to an EBIT of minus EUR 59.1 million in 2018. In 2019, the consolidated net loss amounted to minus EUR 103 million after minus EUR 56.2 million in the previous year. This translates into a loss per share of minus EUR 3.26 in 2018 compared to minus EUR 1.79 in 2018.

Let’s move on to the balance sheet on Slide 21. As of December 31, 2019, we recorded total assets of EUR 496.4 million compared to EUR 538.8 million at year-end 2018. At year-end 2019, our cash position, including our investment in current and noncurrent financial assets amounted to EUR 357.4 million. At the end of the previous year, disposition amounted to EUR 454.7 million. Number of shares issued totaled 31,957,958 at year-end 2019, after 31,839,572 at year-end 2018.

Let me now come to the financial and accounting implications of our Incyte collaboration. We received antitrust clearance beginning of March, which triggers a USD 750 million upfront payments of Incyte. In addition, Incyte has to pay us additional USD 150 million as a capital investment, including a 20% premium on a 30-day volume-weighted average price prior to signature. Price per ADS has been $41.32. From that, every 1 for ADS’ reflect 1 MorphoSys share.

Thus, the equity investment has been already transferred to our accounts, we expect the payment of the outstanding USD 750 million by end of March, following the contractual terms of the agreement. The agreement includes co-commercialization rights for the U.S. market for tafasitamab, while we receive royalties from the mid-teens to the mid-20 percentage points for the rest of the world.

MorphoSys will lead the commercialization strategy in the U.S., and we will also record all revenues in the U.S. market for tafasitamab. Profits and losses in the U.S. will be shared on a 50-50 basis between the companies. Outside the U.S., Incyte will have exclusive commercialization rights, will record all revenues for tafasitamab and will pay royalties on ex-U. S. net sales to MorphoSys. The companies will share development costs associated with global and U.S.-specific trials at a rate of 55% by Incyte and 45% by us, while Incyte will cover 100% of the future development costs per trial that are specific to ex-U. S. countries.

Let me quickly summarize the main aspect of the accounting treatment for the contract. The upfront cash by Incyte is treated as a consideration for the co-commercialization right in the U.S. as well as for the exclusive distribution license of tafasitamab for all territories outside the U.S.

Only the portion of the upfront patient upfront cash are allocated to the exclusive distribution license for the rest of the world territory is recognized as revenues in 2020. The remainder of the upfront cash represents on the balance sheet as financial liability of MorphoSys towards Incyte, reflecting the U.S. profit participation of Incyte in the years to come. So the profit for relapsed/refractory DLBCL in the coming years generated in the U.S. will trigger a payment of MorphoSys to Incyte with their 50% profit right and will, therefore, reduce the financial liability.

These payments have no EBIT impact. The financial ability needs to be initially measured at sales value and then reassessed quarterly, and this might have impact on the financial results in the years to come. Once the co-commercialization relapsed/refractory DLBCL in the U.S. has started, MorphoSys will account for 100% of revenues and cost of sales, independent of which organization has sold the product, and both companies, MorphoSys and Incyte, will account for their other related costs.

All P&L items in connection with the co-commercialization in the U.S. will be included in the share P&L, and the resulting pretax profit or loss will be shared quarterly between the parties on a 50-50 basis in settling cash.

Let me now come to our financial guidance for 2020. For the financial year 2020, MorphoSys will continue to invest strongly in the development of its proprietary candidates, with a primary goal of driving tafasitamab to the market and preparing the company for its commercialization.

For 2020, MorphoSys expects to generate group revenues in the range of EUR 280 million to EUR 290 million. This guidance does not include revenues generated from tafasitamab and revenues from future collaborations and/or licensing agreements. Revenues are expected to include royalty income from Tremfya of EUR 37 million to EUR 42 million. Expenses for proprietary R&D — expenses for R&D expenses are anticipated in a corridor of EUR 130 million to EUR 140 million.

Due to the buildup of our commercial infrastructure, selling and general expenses will increase, including start-up costs in connection with the planned launch of tafasitamab. If approved by the FDA, the company expects earnings before interest and taxes of minus EUR 15 million to plus EUR 5 million. The guidance is based on constant currency exchange rates and does not include any contributions from tafasitamab revenues and any effects from potential in-licensing or co-development deals, up for a new drug development candidates.

At this point of time, we can’t judge the magnitude of the ongoing corona crisis on MorphoSys. Everybody right now is somewhat effective, and there are daily changes taking place that we all need to deal with. The operational and financial guidance, therefore, does not include a potential long-lasting or even increasing impact on the ongoing global COVID-19 crises on our business operations, including, but not limited to, our supply chain, clinical trials conduct, as well as some time lines for regulatory and commercial execution.

We also have no insight in the consequences on royalty payments from our partner, Janssen for Tremfya. Despite corona, they’re very positive about the prospect of MorphoSys, and especially with our strong cash position in hand, we see opportunities to grow going forward.

With this, I would like to end my part. I would like to turn the call back to Jean-Paul for his closing remarks.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [6]

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Thank you, Jens.

MorphoSys’ great science and outstanding antibody technology expertise has resulted in a broad and diversified clinical pipeline. Combining this with our production and supply chain capabilities, and now our commercial infrastructures in the U.S., we are optimally deployed to execute along the entire value chain to achieve our goals, providing patients with improved treatment options.

We have a rich set of milestones ahead of us this year. Very excited about the expected U.S. launch of tafasitamab, as you’ve seen, which would be our first product candidate to be approved that we will also commercialize. We anticipate the submission of a European MAA in mid-’20, with a potential launch in Europe in mid-’21. We also expect a readout from the First-MIND Phase Ib study by the end of the year, a key milestone towards first line. This will inform the design of a pivotal study in frontline.

While we focus on executing on our strategies, we do not know how the current pandemic crisis might impact our business. However, as I mentioned earlier, we’re on track to build upon our successes of last year. And we are in the very fortunate situation of a strong financial position and a de-risked compound with the data for the BLA completed and the BLA accepted by the FDA. We’ll keep you updated on our progress and our potential deviation from our communicated plans, if any.

Now moving to the key priorities 2020. I’ll go fast. Basically, our first and, by far, most important goal is the flawless U.S. launch of tafasitamab, pending FDA approval. We’re actively preparing for the launch, and we’ve built the commercial organization in charge of it. The partnership, obviously, will add on to that. The development of tafa in r/r DLBCL is just the beginning. And together with a partner, we’re committed to develop the product broadly and to unlock its full potential. And we continue to advance our other programs and in-licensing opportunities to complement our proprietary pipeline.

In conclusion, I am very pleased with our progress. We are building a very strong organization poised for success, and I look forward to keep you updated in the upcoming weeks and months.

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Julia Neugebauer, [7]

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Thank you, Jean-Paul. We’d now like to open the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Konstantinos Aprilakis from Deutsche Bank.

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Konstantinos Nikolaos Aprilakis, Deutsche Bank AG, Research Division – Research Analyst [2]

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I hope everyone in the MorphoSys team is doing well. First, given the COVID-19 pandemic, do you expect any disruption to your ongoing and future clinical trials for either tafasitamab or any of your other pipeline assets? I know you touched on this in your prepared remarks. Just looking for a more comprehensive overview, if that’s possible.

And likewise, is there any indication that the August PDUFA date for tafa and DLBCL might be delayed?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [3]

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Konstantinos, thanks for the question. It’s Jean-Paul. I’ll answer, and Malte will also comment on the program. We don’t foresee any change to the program, the tafa, around filing. The good news is that we filed the BLA, obviously. And the other thing I’d like to comment on is that we’re dealing with — the feedback we get from the — we’re dealing with a severe disease here, patients basically having a life-threatening prognosis. And they are kind of used to deal with flu or other infections, so in some ways, the treatment prevailed. We also have put in place an EAP, which should help the uptake at launch. And as I mentioned, we’ve completed our team, which is also very good. We have now 90% of the reps hired, and we should be done by the end of the month. So that’s also very good.

Now for another point that I’d like to make on this issue here is that convenience of [I-Mab] and of tafa is also to put in perspective with potential downturn of [CAR-Ts] with the logistics. So in the context, it might help.

I’ll let now Malte comment on the clinical trials and registration.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [4]

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Yes. Thank you, Jean-Paul. So I confirm what Jean-Paul said, we do not expect a delay in the review of the BLA. As you know, we have received the acceptance letter. So far, all activities that have been preagreed with FDA are considered to take place as planned. So we don’t expect a delay there. For the ongoing study, Jean-Paul has commented. For the studies that are starting, we can’t really say at this moment. We may have a little bit more difficulties to initiate sites. We don’t know this at this point. We are monitoring the situation in all countries. And as you know, the situation is different from country to country. So at this moment, it’s a bit early to comment. But the most important message is really that for the BLA, we don’t expect a delay. And for the studies that are conducted in cancer patients, we have to always understand that these patients have a life-threatening disease and they need treatment for their life-threatening disease. So in our opinion, this will be a very important consideration for the hospitals when they have to make potential decisions of how to deal with this crisis.

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Konstantinos Nikolaos Aprilakis, Deutsche Bank AG, Research Division – Research Analyst [5]

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Okay. That’s very helpful color. And then maybe a somewhat related follow-up. I understand it’s an uncertain time and capital preservation is key, but would you guys — are you considering, perhaps, given the recent pullback in shares of MorphoSys, along with the broader markets, a stock buyback program or something to that effect?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [6]

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Jens will answer this question.

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [7]

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Yes. Konstantinos, yes, thanks for the question. I think at this point in time, I doubt that this is a lot. I mean the situation is — the market is very insecure, and I think something like this, at this point in time, is not really what we were following. I mean we have the money for other purposes. We have the money to invest in our clinical programs and to invest in new potential candidates being — coming then from the inside, so from our own early activities or via M&A or in-licensing activities. Instead, we believe we should use that money to just expand our portfolio going forward. And as bad as the corporate crisis is, with the financial position that we have, we feel good about prospects after this crisis is over.

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Operator [8]

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The next question is from Danielle Brill, Piper Sandler.

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Danielle Catherine Brill, Piper Sandler & Co., Research Division – VP & Senior Research Analyst [9]

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I guess as a — first, as a follow-up to the prior question regarding the status of the BLA. Have you had your manufacturing site inspection yet?

And then regarding the expanded access program, have you enrolled any patients there? Do you have any anecdotes that you could share, if so?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [10]

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Malte, can you take the question?

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [11]

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Sorry, Jean-Paul, what?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [12]

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[Go on] for the question, the manufacturing EAP.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [13]

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Okay, okay. Sorry.

Yes, so for the manufacturing, all the dates have been set. And we typically don’t comment on when certain activities will take place between FDA and MorphoSys or our partners. But I can tell you, Danielle, that all the necessary procedures that FDA typically takes during the review period of a BLA have been scheduled and are on track.

For the early access program (sic) [expanded access program], we have — we are getting requests, as we speak. We have between 5 or 10 requests from patients. Currently, we have not yet treated patients, and we’re teaming up with Incyte to join forces on the early access program.

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Danielle Catherine Brill, Piper Sandler & Co., Research Division – VP & Senior Research Analyst [14]

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Got it. And then, I guess…

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [15]

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Sorry, on the manufacturing. We partner with [BI] on tafasitamab. It’s a very solid partner. Very reliable. We are on a daily touch with them, and they have robust continuity plans, and they currently do not see personal issues or supply issues. So we have — we should have products for the launch.

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Danielle Catherine Brill, Piper Sandler & Co., Research Division – VP & Senior Research Analyst [16]

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Got it. Understood. And I guess one more follow-up, if I may. I think last quarter, you said you had already engaged with over 700 KOLs and you were targeting 2,000. Do you have any update there on how many of the targets you’ve now engaged with?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [17]

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Yes, we’ve been doing very well in our engagement so far, and we actually will continue with more virtual access and webinars and stuff like that. But we’ve been basically engaging with 1,400 KOLs out of the 2,000 target by launch. So we’re well on our way for accomplishing this goal.

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Operator [18]

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The next question is from Shanshan Xu, Berenberg.

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Shanshan Xu, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [19]

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I hope everyone from MorphoSys team is well and healthy. I have a couple. So we just heard on the call that you’re committed to a pivotal Phase III trial for tafasitamab in the frontline DLBCL starting in 2021. Is this decision triggered by something you saw in your Phase I study? And for your pivotal study, that’s the Phase III study, next year, are you thinking about stratifying patients based on the risk scores or any biomarkers? And I have 2 follow-ups.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [20]

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Thanks, Shanshan. Malte will take the question.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [21]

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Yes. Thank you, Shanshan. Thank you, Jean-Paul. So the decision of launching the pivotal study in frontline patients is not triggered by the Phase Ib study. The Phase Ib is basically the safety study requirement that we needed to complete before launching a larger study. And we, at this point, would like to not comment on the details of the protocol. We are still discussing this with the regulatory authorities and with Incyte, but we will come with more details once we had our discussions with authorities possibly after the summer.

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Shanshan Xu, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [22]

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Fantastic. And could you please update with us where are we regarding the potential combination trials between tafasitamab and the CD47 inhibitor you licensed in from Vivoryon. I think this mechanism of action should not really pick interest from physicians and investors, following the acquisition of 47 by Gilead.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [23]

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So — yes. Thank you. So we — as you know, we — the option there included a diligence period, in which MorphoSys was planning to conduct certain preclinical experiments to test the activity of the small molecule, CD47, inhibitor PQ9112 (sic) [PQ912] in certain cancer models, and we are just about to complete these experiments in the next couple of weeks. So at this moment, we prefer not to give you any details here, but we would do so in due time as soon as we have really reviewed all the experiments and have understood what the value is potentially of PQ9112 in an oncology setting.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [24]

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Shanshan, I think it’s also important to mention that we’re looking at every possible future combinations with new pipelines, and the field is evolving fast. We are thinking of other possibilities beyond the tafa in combination. So that’s something we really have in mind, and not only for CD47.

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Shanshan Xu, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [25]

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Got it. Last one for me. As we are approaching your EMA submission, can you update with us regarding interactions with EMA. Any updated thoughts in terms of how receptive they are to single-study results in relapsed/refractory DLBCL, i.e., L-MIND results?

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [26]

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Yes. So I think I spoke about this before in earnings calls, we were quite happy about the positive response that we received from European authorities, both on the local scale and also on the EMA scale. We had very positive discussions with EMA. And we are planning to submit the L-MIND study, supplemented by Re-MIND, and also by our single-arm NHL study for tafasitamab as the basis for the MAA. And based on what we have heard, I’m confident that EMA is really excited about the data and that they will be excited to review our package.

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Operator [27]

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The next question is from Etzer Darout, Guggenheim Securities.

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Etzer Darout, Guggenheim Securities, LLC, Research Division – Senior Analyst [28]

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Just maybe if you could touch a little bit on the potential synergies with Incyte’s commercial platform. I know you briefly talked about it at the introductory part of the call, but wondered if you could speak to the level of investment in the community oncology setting versus the academic setting for tafasitamab combination since DLBCL is treated in both community and academic settings.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [29]

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Yes. Thanks, Etzer, for the question. I’d like to highlight, again, that Incyte is the perfect commercial partner. You know they’re in track record with Jakafi in the U.S. They really turned this product in a blockbuster. They have — we have a very high overlap of targets with them, over 90% in the community setting. So that’s extremely synergistic. They obviously know the space. They are intimate with the space. It’s almost a plug and play for them. Although, they will still hire new personnel and field teams for that, we need more resources. And we will, together, cover the academic and the community setting. More than 70% of our business will be in the community setting, that’s very important that we will cover that. That’s also why we decide share of voice and this high footprint with our common or our synergistic sales teams and field teams. So we’re currently aligning since we got the antitrust authorities to align, we’re currently aligning with them. And the teams already met last week, the U.S. teams, to align and do come on launch plans. So it’s doing very well.

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Etzer Darout, Guggenheim Securities, LLC, Research Division – Senior Analyst [30]

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Great. And just one other point, and I joined the call a little bit late, so I don’t know if this was commented on, so I apologize. But I wondered if you could speak to sort of the makeup of the revenue balance in 2020, sort of ex Tremfya, and even sort of guidance on sort of the leading first half to second half. Just trying to get a sense of when these revenues could hit in 2020 and how that flows through throughout the year.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [31]

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Jens will take the question.

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [32]

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Yes, yes, happy to take the question. So — I mean we have given the total guidance on the revenues with — given the Tremfya guidance that we anticipate for 2020, and that’s — of course, the latter part will be spread over the year. So that’s a sort of normal with a growing speed is my expectations, given that they will improve. Also, as they apply Tremfya in psoriatic arthritis, most likely in 2020 in various countries, so not only Japan, but also in the U.S. and Europe. So we will see a growing revenue path. That’s our hope for Tremfya.

In terms of the big amount, which reflects the part of the upfront payment, that will be booked in Q1, most likely. So you will see that in the beginning of this year already. And that’s the major part of this whole thing, yes. So…

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Operator [33]

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The next question we received is from Jameel Bakhsh from Barclays.

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Jameel Bakhsh, Barclays Bank PLC, Research Division – Research Analyst [34]

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This is Jameel Bakhsh from Barclays. I’ve got 3, if that’s possible. So the first one, you mentioned that the fairly healthy cash and capital investment you receive from Incyte can strengthen your hand with future in-licensing opportunities. I was wondering if you could give us just your perspective about what type of M&A or in-licensing activity you’d consider, both in terms of size and also in terms of therapeutic area.

Secondly, on the level of rebates and pricing only seen in DLBCL. I was wondering just on your thoughts about what we could learn from polatuzumab’s example about reading into the level of gross to net adjustments in DLBCL.

And finally, if you could give us a few more details about the motivation for increasing the patients’ numbers in B-MIND based on the futility analysis, they would all be much appreciated. And I’ll break the trend about having follow-up questions. I don’t have any.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [35]

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Okay. Thanks, Jameel. I’ll take the first one on M&A, and Jens and Malte will take the 2 — the next 2. So on M&A now, we have more space of mind, I would say, to devote to that. Now we are [5] of tafasitamab. We’ve done the Incyte deal. We’ve got cash. I mean this question, 6 months ago, would have been more tricky. But now, I mean, we can do, we can look, we can execute on that. We have to stay very disciplined. So we are currently forming our strategy based on our strengths and our expertise. I think it’s basically being, at the same time, focused on what our strengths are, hem/onco and around tafasitamab. We mentioned some combination with tafasitamab possible in the space, but we will also extend on other possibilities, like bispecifics or other new technologies we bring to try to serve on new trends and new technology. So it’s this balance between focus and extension that we have to execute. We have proceeds. I mean we have sources and leverage now, and we have the expertise. And also, we have new teams. We have, as mentioned, Malte, new head of research [for diligent — being] very, very helpful. And we also strengthened our PD team who has proven that it can execute at the highest level in the Incyte deal. So very excited about that, and we’ll keep you posted.

Now on the Pollack question, gross to net — on the gross to net question, I’ll pass to Jens.

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [36]

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Thanks, Jean-Paul. Well, you got to bear with us a little bit, Jameel. That’s a topic that we have, of course, discussed in great detail with Incyte. We have done a very thorough analysis of what sort of gross to net figure we got to look at. And we’ll give you, of course, more — we will give more clarity to what you can assume when we — with the launch and when the pricing is fixed. So I would like to ask you to bear with us before we are more precise on that specific question. But it’s not something that is unknown. I think you should live with and expect what you see with other innovative products that reach the market like now, in our case, tafasitamab.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [37]

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Thanks, Jens. And on the B-MIND question, Malte?

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [38]

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Yes, Jameel, could I ask you to repeat the B-MIND question. There was a bit of a static on the line, and I was not sure I captured your question correctly. Could you please repeat it?

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Jameel Bakhsh, Barclays Bank PLC, Research Division – Research Analyst [39]

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Yes, sure thing. Sorry about that. We’re all working from home now, so the phone signal is a bit worse. So just a few further reasons behind the increase in the patient numbers in B-MIND. I think this is based on the futility analysis that you did at the end of last year.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [40]

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Yes, okay. So the very precise answer is we don’t know because the decision was made by an independent data review committee. They looked at the data. We, at MorphoSys, were completely blinded with respect to any efficacy, PK or safety information that was collected in the trial. But the recommendation of the independent revenue committee was very clear, to expand the patient population to 450. And as we said in our press communication and media communication around that moment, we were very pleased with this decision because we consider this as a step forward into a potentially positive outcome of B-MIND, which is, of course, very important when you consider that it could serve as a confirmatory study in both the U.S. and European geographies.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [41]

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I would add on that, that — yes, in the upside. I mean see B-MIND as an upside now because it could end up to be a new data for potentially the label in the future to difficult-to-treat patients, the low NK-cell patients. But at the same time, it’s possible, not excluded that we are approved nonconditional leads that would not require a confirmatory trial. But in case we would, B-MIND would serve as a confirmatory trial.

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [42]

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Yes, that’s correct.

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Operator [43]

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The next question is from Zoe Karamanoli from RBC.

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Zoe Karamanoli, RBC Capital Markets, Research Division – Analyst [44]

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I’d like first, to — I have 2 questions. So the first one, I’d like to touch back again a little bit on the COVID-19 impact and in relation to the launch preparation activities. So we’ve seen — we know that a lot of people now are working from home, and I’m wondering whether there — you’ve seen or you expect to see any potential impact, specifically with the MSLs visiting the physician? And also, in case the lockdown that we’ve seen in Europe is something that will be repeated in the U.S., I’m wondering if you can comment on that. Do you have any thoughts? Any backup plan to mitigate any of that potential risk?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [45]

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Yes, Zoe, and thanks for the question. And I think I briefly alluded to it, but it’s very important. In the U.S. especially, we’ve instructed people to also make the right decision to work from home or not, and some centers really don’t accept external visitors. So that you probably hear that some of the companies already — with already launched products. We’ve been working already at alternative plans, including virtual calls, digital engagements. We will plan for more digital marketing and multichannel engagements in the future. The MSLs, for instance, or the webcast, all those kind of things. So the world doesn’t stop. So it can seem more difficult but the world doesn’t stop. The good news, as I said earlier, that we’ve hired our teams. We are 90% complete for the reps, which is great, more than 50 reps already onboarded. We actually trained and onboarded. And we have our MSLs. So we’re not struggling to find people, which is probably another part of the challenge for some companies. And we have the [EAP] in place. We have things in place. Now will there be an impact? It also dependent on time line. If things resume by the summer, we should be fine because our time line for the launch is the summer, but who knows. But again, I mean, I think we’re really putting things in place, and we have the teams, so that’s important.

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Zoe Karamanoli, RBC Capital Markets, Research Division – Analyst [46]

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Great. And then my second question, there has been a step-up in R&D [numbering], if you actually can give us the split between how much of that is allocated to tafa versus rest of the pipeline?

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [47]

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Well, maybe for expenses, Jens?

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [48]

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Yes, I’m happy to take that question away. Unfortunately, I can’t give you a split here. I mean we never did this in the past, and we, of course, don’t want to create an issue for our partner inside here as well. So we’re unable to deliver and offer here a split of the R&D cost.

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Zoe Karamanoli, RBC Capital Markets, Research Division – Analyst [49]

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Okay. Can — and then just a follow-up, last question. How many patients do you currently have recruited for the frontline DLBCL Phase I studies?

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Malte Peters, MorphoSys AG – Chief Development Officer & Member of the Management Board [50]

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We have — I think the current count is 10 or 12, which is right on the mark where we projected to be on the enrollment curve. So enrollment is going well under the really adverse circumstances at the moment.

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Operator [51]

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The next question is from Holger Blum, Patinex Management.

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Holger Blum, Patinex Management AG – Analyst [52]

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Just 2 questions. Could you give us a guidance about the cash consumption you expect in 2020?

And secondly, a question regarding the regulatory milestones. Could you give us a rough hint, how much of the regulatory milestones will be related to the first approval for the first indications? Is it a third, half of the regulatory milestones? Or any kind of color would be helpful.

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [53]

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Yes, happy to take those questions. So in terms of cash consumption, I mean, we don’t have an official cash guidance that we give out. But I would — I think if you think of something like a year-end cash position in the range of EUR 860 million to EUR 900 million, you’re probably not too badly placed for your model.

And then in terms of milestone payments, there are milestone payments that we got to pay. One, we actually paid already for the acceptance of the BLA, and there is an approval milestone payment that we got to pay to Xencor in the amount of $25 million, and that’s included in our cash guidance.

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Holger Blum, Patinex Management AG – Analyst [54]

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Okay. And I was also interested in the receiving — in your receiving and what are the…

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Jens H. Holstein, MorphoSys AG – CFO & Member of the Management Board [55]

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Yes. I mean we have — in terms of our receiving milestone payments, we never — we always have a number of problems that we expect to move into further clinical trial settings and that’s always a little bit of basket because some stuff moves on and some stuff is not moving on. And as we have a number of programs, we normally use a mixture. Given that we have not split the revenue figure, other than for Tremfya, I would like to just keep that out here as well. But it’s — we are not expecting in this figure that you — that we have given out that there is a major milestone payment of the like of EUR 22 million as we have booked for 2019 and there, so that’s not reflected.

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Jean-Paul Kress, MorphoSys AG – CEO & Management Board Member [56]

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Okay. Julia, maybe time to close the call?

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Julia Neugebauer, [57]

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That concludes our call today. If any of you would like to follow-up, we are available for the remainder of the day. We want to thank you for your participation in the call and ongoing support. We look forward to an exciting year and updating you on our progress.

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Operator [58]

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

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