MorphoSys: Broad Pipeline, But Some Setbacks

MorphoSys (MOR.DE) is approaching an important stage in the development of its proprietary pipeline. Proof-of-concept data on its lead product MOR103 in rheumatoid arthritis (RA) should be reported in Q312, which could result in it being out-licensed. More broadly, the pipeline is generally progressing well with 19 antibodies now in clinical trials, including one in Phase III development, Roche’s (RO.SW) gantenerumab for Alzheimer’s disease. Our valuation has been increased from €629m to €659m.


Data in Q312 and potential licensing deal

Data from the Phase Ib/II study in RA with MOR103 are due in H212. A related product, mavrilimumab (AstraZeneca), has already demonstrated a promising level of efficacy. MorphoSys hopes to out-license MOR103 after the results. This could be challenging because of the competitive nature of the RA market, but partners could be attracted by MOR103’s potential in multiple sclerosis.

Broad pipeline progressing, but with some setbacks

Since the start of 2011, Roche has expanded the Phase II trial with gantenerumab into a pivotal Phase II/III study, three products have advanced into Phase II and two
others have entered Phase I studies. However, carlumab (CNTO888) is no longer being developed for castration resistant prostate cancer (although development is continuing for idiopathic pulmonary fibrosis) and a Phase I product has returned to preclinical development. Additional partnered products could enter Phase III in 2013.

Prospect of new antibody alliances

MorphoSys launched its new antibody platform Ylanthia in December 2011, which could enable the formation of major new alliances. Currently, MorphoSys earns c €40m pa from the 10-year HuCAL alliance with Novartis, but is unable to form new alliances in most therapeutic fields. We believe the Ylanthia platform should enable MorphoSys to form new alliances without being restricted by the Novartis alliance.

Valuation: €659m based on DCF

We have raised our valuation of MorphoSys by €30m to €659m because of the general progress of its pipeline, including gantenerumab. The key catalyst for MorphoSys in 2012 is the results of the Phase Ib/II study with MOR103 in RA in Q312. Our analysis suggests the value of this product is largely excluded from the current share price.

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