MPSYF - MorphoSys: Morphing Prospects Q1 2023 Rising From The Ashes
2023-05-22 11:17:03 ET
Summary
- Sales beat: Despite Monjuvi's setbacks, MorphoSys exceeds Q1 2023 sales expectations with €62.3m and robust 11% YoY US growth.
- Pelabresib Potential: Accelerated MANIFEST-2 Pelabresib data readout could be a key catalyst, promising MF candidate with potentially substantial disease-modifying efficacy.
- M&A Momentum: Sobi's CTI BioPharma acquisition hints at MorphoSys's potential M&A attractiveness, backed by its reasonable valuation.
- M&A Momentum: Sobi's CTI BioPharma acquisition hints at MorphoSys's potential M&A attractiveness, backed by its reasonable valuation.
Q1 2023 update: we reiterate the non-consensus buy rating
The Q1 2023 earnings report showed a sales beat (€62.3m vs. €41.5 in Q1 2022) and reiterated FY23 guidance, despite an underwhelming Monjuvi quarter. We believe the company's reiteration of Monjuvi's guidance ($80-95m) is a net positive, considering consecutive guidance downgrades over recent quarters, continuously disappointing investors. Despite a subdued Monjuvi quarter, Q1 US sales showed 11% YoY growth, aligning with the guidance and providing renewed confidence in the product's financial performance should give some sense of comfort as one of the biggest overhangs around the stock remained another "disappointing" Monjuvi sales.
MorphoSys Q1 2023 result summary in a table format :
in € million* Q1 2023 Q4 2022 Q1 2022 Q-Q ? Y-Y ? Total revenues 62.3 81.6 41.5 (24) % 50 % Monjuvi product sales 19.4 24.7 16.6 (21) % 17 % Royalties 21.6 29.1 19.0 (26) % 14 % Licenses, milestones and other 21.3 27.9 5.8 (24) % > 100% * Differences due to rounding.
The key driver of the stock price is in the MANIFEST-2 Pelabresib data readout
We believe the standout news is the acceleration of clinical timelines for MANIFEST-2, with results now expected in H2 2023, earlier than anticipated, which should provide some degree of meaningful catalyst that investors can chase after as one of the biggest reasons for our previous hold rating was due to lack of meaningful catalyst in 2023. We believe this explains the recent positive stock price movement.
The MANIFEST-2 Phase 3 study of pelabresib in 1L myelofibrosis has completed enrollment, and the management noted that the results point to the drug's disease-modifying potential. While the pelabresib portfolio holds promise, there remains a risk associated with its performance against Jakafi in the MANIFEST-2 study, which we anticipate could exceed its performance in the original COMFORT study. MorphoSys has highlighted the data from the single-arm ARM3 (pelabresib + ruxolitinib in Jakafi naive myelofibrosis patients, first-line setting) in the MANIFEST-1 study , wherein pelabresib demonstrated a substantially higher SVR35 improvement compared to Jakafi, standing at 68% versus 41.90%. It also revealed a 1.34 improvement (56% versus 45.9%) in the TSS50 score against Jakafi. However, the main risk, we believe, revolves around the TSS50 score as patient baseline characteristics have evolved since the initial COMFORT trial, with patients now being identified earlier and receiving better treatment. We believe this could set a tougher bar for pelabresib to meet, and the inclusion of fatigue in the TSS50 score may raise this bar even further, increasing Jakafi's TSS50 score. Furthermore, we believe the shifting landscape with competitors such as AbbVie's navitoclax and GSK's momelotinib necessitates a careful watch on the forthcoming key news flows in 2023.
Selected myelofibrosis trials featuring momelotinib (CYT387)
Sponsor Trial Design Result Cytopia/YM Core Single-cohort ph1/2 study 31% spleen response; ?12wk transfusion independence achieved by 54% of dependent patients Gilead Simplify-1 Jak-naive, head-to-head vs Jakafi 24wk ?35% spleen response (primary) failed to show superiority (27% vs 29%, p=0.011 for non-inferiority) Gilead Simplify-2 Post Jakafi (no washout), vs best available therapy 24wk ?35% spleen response (primary) failed (7% vs 6%, p=0.90) Sierra Momentum Post Jakafi (with washout), vs danazol 24wk TSS ?50% response (primary) superior (p=0.0095); 24wk transfusion independence (secondary) non-inferior (p=0.0064) Source: company statements, Evaluate Pharma
Sprinkle of M&A fantasy
On a positive note, the recent acquisition ($1.7bn deal value) of CTI BioPharma ( CTIC ) (maker of pacritinib that generated >$ 54m in the first year of launch) by Sobi ( BIOVF ) should have a positive read through to MorphoSys, considering that MorphoSys also is developing a candidate for Myelofibrosis. We believe the potential late-stage asset for big pharma to acquire in Myelofibrosis is thinning, and MorphoSys's current valuation, $270m enterprise value, and upcoming late-stage data readout positions MorphoSys well for a potential M&A target.
Financials and Monjuvi sales guidance
The cash runway is not great due to enormous Opex burn (OPEX burn expected ~€430-470m for FY 2023). Based on the current burn rate, we believe MorphoSys has a cash runway of approximately two years, with €791.5m in cash as of the end of Q1 2023.
Full Year 2023 Financial Guidance :
Amounts in million 2023 Financial Guidance 2023 Guidance Insights Monjuvi U.S. net product sales US$ 80m to 95m 100% of Monjuvi U.S. net product sales are recorded on MorphoSys' income statement and related profit/loss is split 50/50 between MorphoSys and Incyte. Gross margin for Monjuvi U.S. net product sales 75% to 80% 100% of Monjuvi U.S. product cost of sales are recorded on MorphoSys' income statement and related profit/loss is split 50/50 between MorphoSys and Incyte. R&D expenses € 290m to 315m 2023 anticipated to be incrementally higher than 2022 due to the expansion of the pelabresib development program. SG&A expenses € 140m to 155m 45% to 50% of mid-point of SG&A expenses represent Monjuvi U.S. selling costs of which 100% are recorded in MorphoSys' income statement. Incyte reimburses MorphoSys for half of these selling expenses.
Risks
The ongoing rate of operational expenditure (OPEX burn expected ~€430-470m for FY 2023) and uncertainties over a pipeline, particularly MANIFEST-2 and FRONTMIND (catalysts expected in 2025) and payment obligations to Royalty Pharma (RPRX), still demand caution.
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Pipeline Uncertainty : With many products still in clinical trial stages, there is always a risk associated with drug development, including unsuccessful trial outcomes, regulatory hurdles, or unforeseen side effects, which could impact MorphoSys's future profitability.
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Competitive Landscape : MorphoSys operates in a highly competitive industry. New or improved products by competitors, like Jakafi, or the emergence of innovative treatments, such as gene or cell therapies, may diminish the market share of MorphoSys's offerings, affecting revenue generation.
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Regulatory Risks : The pharmaceutical industry is heavily regulated. Changes in healthcare laws or policies, unexpected regulatory scrutiny, or difficulties in getting marketing approval for new products could affect the company's operations and profitability.
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Financial Sustainability : Although MorphoSys has a decent cash runway as of now, the high costs of research, development, and bringing a drug to market could strain the company's financial resources over time. Changes in their burn rate or failure to generate anticipated revenue can pose significant financial risks.
Conclusion
We are maintaining our non-consensus 'buy' rating on MorphoSys; we are buoyed by the better-than-expected Q1 2023 performance, delivering €62.3m in sales, a decent 50% YoY growth. This, alongside the reiteration of Monjuvi's FY23 guidance, despite recent downgrades, reflects positive momentum, with Q1 US sales showing an 11% YoY growth. Encouragingly, the advancement of the MANIFEST-2 Pelabresib study adds potential for future gains, as results could demonstrate a substantial SVR35 improvement, notwithstanding the elevated bar set by shifting baseline characteristics and the addition of fatigue in the TSS50 score. Of note, the competitive landscape necessitates vigilance, with rivals like AbbVie's navitoclax and GSK's momelotinib on the horizon. Furthermore, a possible M&A scenario could add some positive momentum to MorphoSys following Sobi's acquisition of CTI Biopharma, maker of pacritinib (MF drug), suggesting a similar (potential) positive outcome for MorphoSys. Finally, while the hefty operational expenditure and pipeline uncertainties require prudence, pelabresib data readout should help drive the stock higher moving into 2H 2023; we believe the worst has been priced in at this point.
For further details see:
MorphoSys: Morphing Prospects, Q1 2023, Rising From The Ashes