Morphosys: Biotech pioneer in the crisis of confidence

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Morphosys share price still fails to recover.

(Photo: IMAGO/Westend61)

Frankfurt After failures at research partners and disappointing sales figures for its first own drug, the Munich biotech company Morphosys is in a crisis of confidence on the capital market. The figures for the third quarter presented on Thursday and the confident statements made by company boss Jean-Paul Kress did little to change that.

Thanks to higher license income, the Munich company made more than twice as much sales as in the same quarter of the previous year at 96 million euros and reduced the operating loss from 82 to 29 million euros. The bottom line was a net loss increased by ten million to 123 million euros. In the first nine months, the company even tripled the deficit compared to the previous year to 480 million euros.

The failure of the Swiss Roche group with its Alzheimer’s drug gantenerumab, which originally came from Morphosys research, caused disappointment among Morphosys investors. A few weeks earlier, the British pharmaceutical company and Morphosys partner GSK gave up work on a potential rheumatism drug that was also based on Morphosys technology.

For the blood cancer drug Monjuvi, which it developed itself and has been approved for a good two years, the company has repeatedly had to adjust its sales forecasts downwards: For 2022, Morphosys only expects revenues of 90 million dollars, the lower end of the previously forecast range of 90 to 110 million dollars .

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Despite this, company boss Kress sees Morphosys on course to expand its product range in the coming years. In the quarterly call with analysts on Thursday, he referred, among other things, to the first positive data for an active ingredient called tulmimetostat, which is being tested in an early test phase against various types of cancer.

There is hope for new developments

Greatest hopes continue to rest on the active ingredient Pelabresib, which Morphosys acquired in 2021 together with the US company Constellation Pharmaceuticals and is testing in a phase 3 study against myelofibrosis. This is a rather rare cancer-like disease in which blood-forming cells in the bone marrow are overgrown by connective tissue. “If approved, pelabresib has the potential to change the standard of care in this disease and generate more than $1 billion in peak sales,” Kress said Thursday. Morphosys expects decisive data for a possible approval for the first half of 2024.

>> Read about this: Morphosys lowers sales forecast for cancer drugs in the United States

Morphosys also has high hopes for the blood cancer drug Monjuvi. The active substance has so far been approved as so-called second- and third-line therapy for the treatment of B-cell lymphoma in patients in whom established drugs are no longer effective. However, there is now a lot of competition in this area from new developments such as Roche’s drug Polivy and novel cell therapies from the US companies Bristol-Myers Squibb and Gilead. Morphosys therefore expects greater potential for Monjuvi, especially in the first-line treatment of lymphomas. However, the clinical study is still ongoing.

Morphosys share: 85 percent price loss since the end of 2020

So far, investors have shown little confidence in these future prospects. Although the Morphosys share rose by around four percent on Thursday, it was by no means able to compensate for the price losses of the past few months. Since the beginning of the year, the share has lost around 55 percent on the stock exchange, and even around 85 percent since the end of 2020.

With a market capitalization of only around 500 million euros, Morphosys’ stock market value is currently only half as high as its own cash and cash equivalents. Theoretically, a buyer could take over the company, pay the purchase price from Morphosys’ cash holdings, and use the remaining financial reserves to continue the Munich-based company’s extensive research for about a year and a half.

>> Read about this: Morphosys plans to bring more cancer drugs to market by 2025

However, the cash reserves are offset by a relatively complex balance sheet structure and negative equity of minus EUR 86 million. A key factor here is not least the Constellation takeover, which Morphosys refinanced by selling a large part of its potential license income to the American finance company Royalty Pharma. Since then, the company has accounted for the potential payment obligations to Royalty Pharma arising from this deal as a multi-billion dollar liability. These increase as expectations for royalties improve.

This in turn led to almost 300 million financial expenses in the first nine months of 2022 due to higher estimates for the license income to be passed on and was thus largely responsible for the high deficit.

In the fourth quarter, on the other hand, the effect will probably be reversed again. Because with the failure of the Alzheimer’s drug Gantenerumab, the estimated license income and payment obligations should be reduced again. After all, Royalty Pharma would have granted 60 percent of the potential gantenerumab license income. Paradoxically, this flop should have a positive impact on Morphosys’ balance sheet.

More: Roche’s Alzheimer’s drug fails in studies – shares react clearly

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