F-1/A 1 d519754df1a.htm F-1/A F-1/A
Table of Contents

As filed with the United States Securities and Exchange Commission on April 4, 2018

Registration Statement No. 333-223843

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MorphoSys AG

(Exact name of registrant as specified in its charter)

 

 

 

Federal Republic of Germany   2834   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification No.)

 

 

Semmelweisstrasse 7

82152 Planegg

Germany

Telephone: +49 89-89927-0

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

CT Corporation System

111 Eighth Avenue

New York, NY 10011

Tel: +1 (212) 664-1666

(Name and address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Stephan Hutter

David J. Goldschmidt

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Tel: +1 (212) 735-3000

 

Rüdiger Malaun

David C. Boles

Latham & Watkins LLP

99 Bishopsgate

London EC2M 3XF

United Kingdom

Tel: +44 (20) 7710-1000

 

Brian J. Cuneo

Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

Tel: +1 (650) 328-4600

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  ☑

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act .  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed maximum
aggregate

offering price(1)(2)

 

Amount of

registration fee(4)

Ordinary shares, no par value(3)

  $ 150,000,000   $ 18,675

 

 

(1) Includes              ordinary shares represented by              American depositary shares, or ADSs that may be sold upon exercise of an option to purchase additional ordinary shares to be granted to the underwriters.
(2) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3) ADSs issuable upon deposit of ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents 0.25 of an ordinary share.
(4) The issuer previously paid $18,675 in connection with the original filing of this Registration Statement.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS    SUBJECT TO COMPLETION, DATED APRIL 4, 2018

                                         American Depositary Shares

 

LOGO

 

Representing    Ordinary Shares

This is the initial public offering of American Depositary Shares, or the ADSs, representing ordinary shares of MorphoSys AG, a German stock corporation. We are offering             ADSs, assuming a public offering price of $             per ADS based on the last reported sales price of our ordinary shares on the Frankfurt Stock Exchange on             , 2018, of              and assuming an exchange rate of $             per euro.

Each ADS represents 0.25 of an ordinary share. Our ordinary shares are bearer shares with no par value.

We intend to apply to list the ADSs on the Nasdaq Global Market, or the Nasdaq, under the symbol “MOR” Our shares are listed on the Frankfurt Stock Exchange under the symbol “MOR”.

 

 

We are an “emerging growth company” as defined under Section 2(a) of the Securities Act of 1933, and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to comply with reduced public company reporting requirements for future filings.

 

 

Investing in our ADSs involves risks. See “Risk Factors” beginning on page 15.

 

 

 

      Per ADS      Total  

Price to public

   $                           $                       

Underwriting discounts and commissions(1)

   $      $  

Proceeds, before estimated expenses, to us

   $      $  

 

(1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

We have granted the underwriters the right to purchase up to an additional              ADSs. If the underwriters exercise their option in full, the total underwriting discounts and commissions payable by us will be $            , and the total proceeds to us, before expenses will be $            .

The underwriters expect to deliver the ADSs to purchasers on or about             , 2018.

Neither the U.S. Securities and Exchange Commission, or SEC, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

Goldman Sachs & Co. LLC   J.P. Morgan   Leerink Partners
Berenberg Capital Markets, LLC     JMP Securities

Prospectus dated                     , 2018


Table of Contents

TABLE OF CONTENTS

 

     Page  

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     iii  

INDUSTRY AND MARKET DATA

     iv  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     10  

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

     13  

RISK FACTORS

     15  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     66  

EXCHANGE RATES

     68  

MARKET INFORMATION

     69  

USE OF PROCEEDS

     70  

DIVIDEND POLICY

     72  

CAPITALIZATION

     73  

DILUTION

     74  

SELECTED CONSOLIDATED FINANCIAL DATA

     76  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     78  

BUSINESS

     94  

MANAGEMENT

     168  

RELATED PARTY TRANSACTIONS

     190  

PRINCIPAL SHAREHOLDERS

     191  

DESCRIPTION OF SHARE CAPITAL

     194  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     217  

SHARES ELIGIBLE FOR FUTURE SALE

     227  

EXCHANGE CONTROLS AND LIMITATIONS AFFECTING SHAREHOLDERS

     229  

TAXATION

     230  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     245  

UNDERWRITING

     246  

EXPENSES RELATED TO THIS OFFERING

     258  

LEGAL MATTERS

     259  

EXPERTS

     260  

WHERE YOU CAN FIND MORE INFORMATION

     261  

INDEX TO FINANCIAL STATEMENTS

     F-1  

PART II INFORMATION NOT REQUIRED IN PROSPECTUS.

     II-1  

You should rely only on the information contained in this prospectus or contained in any free writing prospectus we file with the SEC. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the SEC. We are offering to sell, and seeking offers to buy, our ADSs only in jurisdictions where offers and sales of these securities are legally permitted. The information contained in this prospectus or in any free writing prospectus we file is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our ADSs. Our business, financial condition, results of operation and prospects may have changed since that date.

 

i


Table of Contents

Through and including            , 2018 (the 25th day after the date of this prospectus), federal securities laws may require all dealers that buy, sell or trade the ADSs, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

ii


Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

All references in this prospectus to “U.S. dollars” or “$” are to the legal currency of the United States, all references to “” or “euro” are to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

Unless otherwise indicated, the consolidated financial statements and related notes included in this prospectus have been prepared in accordance with International Accounting Standards and also comply with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board, or IASB, which differ in certain significant respects from U.S. generally accepted accounting principles, or U.S. GAAP.

Financial information in thousands or millions, and percentage figures in this prospectus have been rounded. Rounded total and sub-total figures in tables in this prospectus may differ marginally from unrounded figures indicated elsewhere in this prospectus or in the consolidated financial statements. Moreover, rounded individual figures and percentages may not produce the exact arithmetic totals and sub-totals indicated elsewhere in this prospectus.

 

iii


Table of Contents

INDUSTRY AND MARKET DATA

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties some of which may not be publicly available. These data involve a number of assumptions and limitations and contain projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.

 

iv


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. Before investing in our ADSs, you should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and MorphoSys AG’s consolidated financial statements and related notes appearing elsewhere in this prospectus, for a more complete understanding of our business and this offering. Except as otherwise required by the context, references to “MorphoSys”, “Company”, “we”, “us” and “our” are to MorphoSys AG and its subsidiaries on a consolidated basis.

Overview

We are a late-stage biopharmaceutical company devoted to the development of innovative and differentiated therapies for patients suffering from serious diseases. Based on our proprietary technology platforms and leadership in the field of therapeutic antibody discovery, generation and engineering, we, together with our partners, have participated in the development of more than 100 therapeutic product candidates. Our broad pipeline spans two business segments: Proprietary Development, in which we invest in and develop product candidates, and Partnered Discovery, in which we generate product candidates for our partners in the pharmaceutical and biotechnology industries against targets identified by our partners. We currently have 28 product candidates in clinical development, including our most advanced proprietary product candidate, MOR208, for the treatment of relapsed or refractory diffuse large B cell lymphoma, or r/r DLBCL. We believe our pipeline of novel and differentiated product candidates has the potential to treat serious diseases and improve the lives of patients.

Our late-stage and most advanced proprietary product candidate, MOR208, received breakthrough therapy designation, or BTD, from the U.S. Food and Drug Administration, or the FDA, in 2017 in combination with lenalidomide for the treatment of patients with r/r DLBCL, who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. We hold worldwide rights to develop and market MOR208. Also in 2017, Tremfya®, developed by our partner Janssen, became the first therapeutic antibody based on our proprietary technology to reach the market. Tremfya®, which is approved to treat moderate-to-severe plaque psoriasis, was launched in the United States in July 2017 and received approval for marketing in the European Union and Canada in November 2017.

Based on our heritage as an antibody discovery and development company, we have a large and diverse pipeline, composed of both proprietary and partnered programs, in multiple therapeutic areas and across all development phases. The combination of our technology platforms and antibody expertise has allowed us to generate promising product candidates and enter into multiple strategic collaborations with leading global pharmaceutical and biotechnology companies. These collaborations provide us with an additional funding source and allow us to leverage our collaborators’ expertise to advance the development of our proprietary product candidates.



 

1


Table of Contents

The following table summarizes our product candidates and programs:

 

LOGO

Our most advanced Proprietary Development programs include:

 

·   

MOR208—an investigational, humanized Fc-engineered monoclonal antibody directed against CD19. CD19 is a target for the treatment of B cell malignancies, including DLBCL, follicular lymphoma, or FL, chronic lymphocytic leukemia, or CLL, and others. On October 23, 2017, the FDA granted BTD for the use of MOR208 in combination with lenalidomide to treat patients with r/r DLBCL who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. The granting of BTD was based on the interim results as of June 13, 2017 from our single arm Phase 2 L-MIND study, which showed a response in 23 out of 44 patients (Overall Response Rate, or ORR, 52%) and progression-free survival estimate based on a Kaplan Meier curve of 11.3 months based on investigator response assessment. Interim data from our most recent cut-off date, December 12, 2017, were consistent with our prior interim results, with a response in 33 out of 68 patients (ORR: 49%) and a progression-free survival, or PFS, rate at 12 months of 50.4% based on investigator response assessment, with the preliminary median progression-free survival, or mPFS, not yet reached. We are also investigating MOR208 in combination with bendamustine, in our pivotal Phase 2/3 B-MIND study targeting a comparable DLBCL patient population as the L-MIND study. B-MIND started as a randomized safety run-in with 10 patients in each treatment arm (the Phase 2 stage of the trial assessing safety of the combination with bendamustine) and continued then comparing MOR208 plus bendamustine with a standard of care rituximab plus bendamustine control arm (the Phase 3 stage of the trial comparing to standard of care). A third clinical trial, known as COSMOS, is an exploratory Phase 2 study in CLL patients who have progressed on or who do not tolerate treatment with Bruton tyrosine kinase inhibitors. Pursuant to our BTD, we are working closely with the FDA regarding further clinical development of MOR208. We



 

2


Table of Contents
 

hold worldwide rights to develop and market MOR208 and intend to commercialize it either alone or together with a partner.

 

·   

MOR202—an investigational, human monoclonal HuCAL antibody directed against CD38. MOR202 is currently under clinical investigation in a Phase 1/2a trial in patients with relapsed or refractory multiple myeloma, or r/r MM. The study is evaluating the safety and preliminary efficacy of MOR202 alone and in combination with the immunomodulatory drugs pomalidomide or lenalidomide, plus dexamethasone, respectively. We believe MOR202 offers a potentially differentiated safety and administration profile relative to infusion site reaction and infusion time of other agents targeting CD38. Scientific research suggests that an anti-CD38 antibody such as MOR202 may have therapeutic activity in solid tumors including non-small cell lung cancer, or NSCLC. We plan to explore this potential activity in NSCLC in combination with nivolumab (an anti-PD-1 antibody) or more oncology indications either alone or together with a partner.

 

·   

MOR106—a human monoclonal antibody targeting IL-17C, currently under clinical development for the treatment of atopic dermatitis, or AD. We believe MOR106 is the first antibody directed against IL-17C in clinical development worldwide. MOR106 is also the first antibody from our Ylanthia platform to enter clinical development. Based on findings from pre-clinical models, we believe IL-17C plays an important role in inflammatory skin disorders. We are developing MOR106 in collaboration with our partner, Galapagos, and share equally the research and development costs as well as all future economics. In September 2017, we reported results from a randomized placebo-controlled Phase 1 study, testing MOR106 in single ascending doses in healthy volunteers and in multiple ascending doses in patients suffering from AD. In the trial, MOR106 was generally well-tolerated and showed first signs of clinical activity in five of six patients with moderate-to-severe AD. We plan to initiate a Phase 2 study with our partner Galapagos in the first half of 2018.

Our most advanced Partnered Discovery products and product candidates include:

 

·   

Tremfya®—a HuCAL antibody directed against IL-23 marketed by our partner Janssen to treat moderate-to-severe plaque psoriasis was launched in the United States and received marketing approval in the EU and Canada in 2017. We are entitled to royalty payments on net sales of Tremfya®. Janssen is currently investigating Tremfya® in additional Phase 3 trials in psoriasis and in psoriatic arthritis and plans to develop the product in Crohn’s disease.

 

·   

Gantenerumab—a HuCAL antibody directed against amyloid beta that is being developed by Roche for the treatment of Alzheimer’s disease. In Phase 1 trials, gantenerumab has been shown to reduce brain amyloid in mild-to-moderate Alzheimer’s disease patients. Roche is currently planning to test a higher dose of gantenerumab in two Phase 3 trials, called GRADUATE 1 & 2, for patients with prodromal and mild Alzheimer’s disease.

The majority of our Proprietary Development product candidates and all product candidates in our Partnered Discovery programs have been discovered and engineered using our advanced antibody technology platforms. Our core platforms include:

 

·   

HuCAL (Human Combinatorial Antibody Library)—HuCAL is our original technology platform, which constitutes a collection or “library” of several billion distinct fully human antibodies.



 

3


Table of Contents
 

This platform enables rapid selection of antibodies having high affinity and specificity as well as systematic optimization of antibodies to precisely-defined specifications to increase the probability of successful clinical development.

 

·   

Ylanthia—Ylanthia is our newest antibody library, which comprises over 100 billion fully human antibodies. Ylanthia enables the generation of fully human antibody candidates with optimized biophysical properties, which we believe offer a number of important advantages over competing platforms. This platform builds on our experience in generating more than 100 therapeutic product candidates using our original HuCAL platform. We believe Ylanthia will be the source of the next generation of therapeutic antibody candidates in our and our partners’ future pipelines.

 

·   

Lanthipeptides—Our lanthipeptide platform opens up new possibilities for discovering product candidates based on highly specific and stable peptides, which are intended to bind and activate only one target receptor subtype.

We are committed to investing in our platforms, generating new therapeutics and developing them into products that address significant unmet medical needs.

We have an internationally-trained, multi-cultural team of more than 300 employees and consultants, including a research and development team of approximately 260 scientists, clinicians and support staff. Our management team and senior experts have deep experience and capabilities in biology, chemistry, product discovery and clinical development.

Our Strengths

We believe our core strengths include:

 

·   

Our lead product candidate MOR208, which has been granted BTD in r/r DLBCL by the FDA and has further potential in additional hematological malignancies.

 

·   

Additional differentiated proprietary product candidates, such as MOR202 and MOR106, in clinical trials for the treatment of cancer and inflammatory diseases.

 

·   

Tremfya®, the first approved product based on our technology which offers a royalty opportunity.

 

·   

Our antibody pipeline, which we believe is one of the broadest and deepest in the biotech industry and which provides us with multiple opportunities for value creation.

 

·   

Our long-term technology leadership in antibody discovery, generation and engineering, as demonstrated by multiple collaborations with leading pharmaceutical and biotechnology companies as well as by the breadth and depth of our technology platforms.

 

·   

Our diversified business model with both proprietary and partnered development programs, which provides us with a strong financial base and strategic flexibility.

 

·   

A broad intellectual property portfolio protecting product candidates as well as our technology platforms.

 

·   

Our experienced management team, comprising industry leaders in antibody discovery and development.



 

4


Table of Contents

Our Strategy

Our goal is to make differentiated, innovative biopharmaceuticals to improve the lives of patients suffering from serious diseases. Our strategy to achieve this goal is:

 

·   

Continue to advance the development of our lead product candidate MOR208 towards regulatory approval—The MOR208 program is currently in an advanced clinical development stage following receipt of BTD by the FDA in October 2017 based on interim data from our L-MIND study. We believe that with BTD, we can establish a path to approval of MOR208 in r/r DLBCL. In addition, we are evaluating opportunities to develop MOR208 in other treatment lines and hematological malignancies.

 

·   

Build our commercial capabilities in connection with the potential future approval of MOR208—We are finalizing different commercialization strategies for MOR208. If we receive marketing approval for MOR208, our preferred option at this stage is to retain either sole or co-promotion rights in the United States and seek partners for commercialization elsewhere. We are currently commencing our commercialization preparation efforts with the goal of being ready to promote MOR208 as early as the first half of 2020.

 

·   

Continue the development of MOR202—In order to maximize the value of MOR202, we are exploring opportunities for its further development, either alone or together with a partner, in one or more oncology indications, including in solid tumors, with an initial focus on NSCLC.

 

·   

Advance our earlier stage product candidates—We continue to advance the development of our early-stage product candidates, in particular MOR106, for which we and our partner Galapagos intend to initiate a Phase 2 program in AD in 2018.

 

·   

Realize the value of our technology platforms by using them to discover and develop additional early-stage proprietary programs—We continue to capitalize on the advantages of our antibody technologies and our internal expertise and know-how to discover and develop novel product candidates.

Corporate Information

MorphoSys AG was founded in 1992 as a German limited liability company (Gesellschaft mit beschränkter Haftung). In June 1998, MorphoSys became a German stock corporation (Aktiengesellschaft) and is registered in the commercial register (Handelsregister) of the local court (Amtsgericht) of Munich under number HRB 121023. In March 1999, we listed on the Frankfurt Stock Exchange, and our shares currently trade under the symbol “MOR”.

Our registered address is Semmelweisstrasse 7, 82152 Planegg, Germany. Our telephone number is +49 89-89927-0. Our principal website is www.morphosys.com. The information contained on our website is not a part of this prospectus.

Our agent for service of process in the United States is CT Corporation System, 111 Eighth Avenue, New York, NY 10011.



 

5


Table of Contents

Organizational Chart

The following chart shows our organizational structure. All of the subsidiaries listed below are, directly or indirectly, wholly-owned by MorphoSys AG.

 

LOGO

Our Risks and Challenges

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors”. You should read these risks before you invest in the ADSs. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include, but are not limited to, the following:

 

·   

we cannot assure you of the adequacy of our capital resources, including the proceeds from this offering, to successfully complete the development and commercialization of our product candidates, and a failure to obtain additional capital, if needed, could force us to delay, limit, reduce or terminate one or more of our product development programs or commercialization efforts;

 

·   

we have incurred significant losses since inception and anticipate that we will continue to incur losses in the future;

 

·   

all of our proprietary product candidates are still in pre-clinical or clinical development, and only one of our partnered products has been approved for marketing and sale. We cannot give any assurance that any of our product candidates will receive regulatory approval, and if we are unable to obtain regulatory approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed;

 

·   

clinical trials are very expensive, time consuming and difficult to design and implement and involve uncertain outcomes. If clinical trials of our product candidates are prolonged, delayed or terminated, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all, which may materially adversely affect our business, financial condition, results of operations and prospects;

 

·   

the FDA may rescind the breakthrough designation for MOR208 in combination with lenalidomide for the treatment of patients with r/r DLBCL who are not eligible for high-dose



 

6


Table of Contents
 

chemotherapy and autologous stem cell transplantation and we may be unable to obtain breakthrough therapy designation for other indications. In addition, breakthrough therapy designation by the FDA may not lead to a faster development, regulatory review or approval process, and it may not increase the likelihood that MOR208 will receive marketing approval in the United States;

 

·   

we currently do not have a sales and marketing organization and we have no history of commercializing our proprietary products;

 

·   

we face significant competition in seeking new partnerships, including for MOR202;

 

·   

if we are unable to obtain and maintain sufficient intellectual property protection for our products or product candidates, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products or product candidates successfully and to compete effectively may be materially adversely affected;

 

·   

we currently rely on third-party suppliers and single source third-party CMOs for the manufacturing of our product candidates and our dependence on these third parties may impair the development of our product candidates;

 

·   

we are currently, and may in the future, be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful;

 

·   

we face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving approval for or commercializing products before or more successfully than us;

 

·   

we do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs; and

 

·   

the dual listing of our shares and the ADSs following this offering may adversely affect the liquidity and value of the ADSs.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and is exempt from other burdens that are otherwise applicable generally to public companies. These provisions include:

 

·   

the ability to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

·   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;

 

·   

to the extent that we no longer qualify as a foreign private issuer (1) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,



 

7


Table of Contents
 

and (2) exemptions from the requirements of holding a non-binding advisory vote on executive compensation, including golden parachute compensation; and

 

·   

an exemption from compliance with the requirement that the Public Company Accounting Oversight Board, or the PCAOB, has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements.

We may take advantage of these provisions for up to five years following the completion of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. For example, Section 107 of the JOBS Act provides that an emerging growth company that uses U.S. GAAP for financial reporting can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under International Financial Reporting Standards as issued by the IASB, or IFRS, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being a Foreign Private Issuer

Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

·   

the rules under the Exchange Act requiring domestic filers to issue financial statements prepared under U.S. GAAP;

 

·   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

·   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

·   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q, containing unaudited financial and other specified information, and current reports on Form 8-K, upon the occurrence of specified significant events.

Notwithstanding these exemptions, we will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.



 

8


Table of Contents

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: the majority of our executive officers or directors are U.S. citizens or residents, more than 50% of our assets are located in the United States or our business is administered principally in the United States.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosure requirements for companies that are not emerging growth companies and will continue to be permitted to follow our home country practice on such matters.



 

9


Table of Contents

THE OFFERING

 

ADSs offered by us

                                         ADSs

 

ADSs to be outstanding immediately after this offering

                                         ADSs

 

 

 

 

 

Ordinary shares to be outstanding immediately after this offering

                                         ordinary shares

 

 

 

 

 

Offering price

$            , based on the last reported sale price of our ordinary shares on the Frankfurt Stock Exchange on             , 2018, an exchange rate of $            per euro and an ordinary share to ADS ratio of 4 to 1.

 

Option to purchase additional ADSs

We intend to grant the underwriters an option to purchase up to an additional            ADSs from us.

 

The ADSs

Each ADS represents 0.25 of an ordinary share.

 

  The depositary, the custodian or any of their respective nominees will hold the ordinary shares and any other rights or property underlying your ADSs. As an ADS holder, we will not treat you as one of our shareholders. The depositary, The Bank of New York Mellon, will be the holder of the ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement. You may surrender your ADSs and withdraw the underlying ordinary shares as provided, and pursuant to, the limitations set forth in, the deposit agreement. The depositary will charge you fees for, among other acts, any such surrender for the purpose of withdrawal. In certain limited instances described in the deposit agreement, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the terms of the deposit agreement then in effect.

 

  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is an exhibit to the Registration Statement of which this prospectus forms a part.

 

Depositary

The Bank of New York Mellon

 

Custodian

The Bank of New York Mellon SA/NV

 

Use of proceeds

We estimate that we will receive total net proceeds of approximately $             million, assuming that the number of ADSs



 

10


Table of Contents
 

offered by us, price per ADS, exchange rate and ratio of shares to ADSs, each as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional ADSs, we estimate that the net proceeds of the offering will be approximately $             million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering, together with a portion of our cash and cash equivalents, available-for-sale financial assets, bonds available-for-sale, and financial assets classified as loans and receivables to continue the development of our proprietary clinical pipeline, initiate pre-commercial and commercial activities and to advance earlier stage product candidates in particular as follows: (i) further development of MOR208, our wholly-owned anti-CD19 antibody currently being evaluated in r/r DLBCL (a) in combination with lenalidomide for patients ineligible for high-dose chemotherapy, or HDCT, and autologous stem cell transplantation, or ASCT, (b) in combination with bendamustine for patients ineligible for HDCT and ASCT, and (c) in additional treatment lines and additional indications; (ii) build our commercial capabilities in connection with the potential future approval of MOR208; (iii) to fund clinical development of MOR202 in MM and NSCLC and MOR106 in atopic dermatitis; and (iv) for general corporate purposes, including the addition of further compounds to our pipeline via own research, in-licensing or acquisition, if promising compounds are available, and potential addition of technologies to expand our existing technology base. See the “Use of Proceeds” section of this prospectus beginning on page 70 for a more complete description of the intended use of proceeds from this offering.

 

Dividend policy

We have not paid any dividends on our ordinary shares since our inception, and we currently intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not anticipate that we will declare or pay any cash dividends in the foreseeable future. Except as required by law, any future determination to pay cash dividends will be at the discretion of our management board and supervisory board and will be dependent upon our financial condition, results of operations, capital requirements, and other factors our management board and supervisory board deem relevant. See “Dividend Policy”.


 

11


Table of Contents

Lock-up agreements

We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any of our share capital or securities convertible into or exchangeable or exercisable for any of our share capital during the 90-day period following the date of this prospectus. Members of our management board have agreed to substantially similar 90-day lock-up provisions, subject to certain exceptions.

 

Risk factors

You should carefully read the information set forth in the “Risk Factors” section of this prospectus beginning on page 15 and the other information set forth in this prospectus before deciding to invest in the ADSs.

 

Proposed Nasdaq Global Market Symbol

“MOR”


 

12


Table of Contents

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

We present below summary historical consolidated financial data of MorphoSys AG. The financial data as of and for the years ended December 31, 2016 and 2017, have been derived from our audited consolidated financial statements and the related notes, which are included elsewhere in this prospectus and which have been prepared in accordance with IFRS.

The summary historical consolidated financial data presented below are not necessarily indicative of the financial results expected for any future periods. The summary historical consolidated financial data below do not contain all the information included in our financial statements. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Selected Consolidated Financial Data” and our consolidated financial statements and related notes, each included elsewhere in this prospectus.

The following tables also contain translations of euro amounts into U.S. dollars for amounts presented as of and for the year ended December 31, 2017. These translations are solely for convenience of the reader and were calculated at the rate of 1.00 per $1.2022, which equals the noon buying rate of the Federal Reserve Bank of New York on December 29, 2017. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this exchange rate.

Consolidated Statement of Income Data:

 

      Year ended December 31,  
     2016     2017  
     (in €)     (in €)      (in $)  
      (in thousands except per share data)  

Revenues

     49,744       66,791        80,296  

Operating Expenses

       

Research and Development

     (95,723     (116,809      (140,428

General and Administrative

     (14,116     (17,039      (20,484

Total Operating Expenses

     (109,839     (133,848      (160,912

Other Income

     709       1,120        1,346  

Other Expenses

     (554     (1,671      (2,009

Earnings before Interest and Taxes (EBIT)

     (59,941     (67,608      (81,278

Finance Income

     1,385       712        856  

Finance Expenses

     (1,308     (1,895      (2,278

Income Tax Expenses

     (519     (1,036      (1,245

Consolidated Net Profit/(Loss)

     (60,383     (69,827      (83,946

Earnings per Share, basic and diluted(1)

     (2.28     (2.41      (2.90

Shares Used In Computing Earnings per Share (in units), basic and diluted(1)

     26,443,415       28,947,566        n/a  

Dividends Declared per Share

                   
(1) Basic and diluted Earnings per Share are the same in each of the years ended December 31, 2016 and 2017, because the assumed exercise of outstanding stock options and convertible bonds would be anti-dilutive due to our consolidated net loss in the respective period.


 

13


Table of Contents

Consolidated Balance Sheet Data:

 

      As of December 31,  
     2016      2017  
     (in €)      (in €)      (in $)  
      (in thousands)  

Cash and Cash Equivalents

     73,929        76,589        92,075  

Available-for-sale Financial Assets

     63,362        86,538        104,036  

Bonds, Available-for-sale

     6,532                

Financial Assets classified as Loans and Receivables (current and non-current)

     215,630        149,059        179,199  

Total Current Assets

     308,056        340,681        409,567  

Total Assets

     463,600        415,398        499,391  

Total Liabilities

     48,140        56,727        68,197  

Total Stockholders’ Equity

     415,460        358,671        431,194  


 

14


Table of Contents

RISK FACTORS

Investing in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below, which we believe are the material risks of our business, our industry, our intellectual property, the ADSs and this offering, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and operating results could be harmed. In that case, the trading price of the ADSs could decline and you might lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this prospectus, including MorphoSys AG’s consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

Risks Related to Our Financial Condition

We cannot assure you of the adequacy of our capital resources, including the proceeds from this offering, to successfully complete the development and commercialization of our product candidates, and a failure to obtain additional capital, if needed, could force us to delay, limit, reduce or terminate one or more of our product development programs or commercialization efforts.

As of December 31, 2017, we had cash and cash equivalents, available-for-sale financial assets and current financial assets classified as loans and receivables amounting to 312.2 million. We believe that we will continue to expend substantial resources for the foreseeable future developing our proprietary product candidates and in particular MOR208. These expenditures will include costs associated with research and development, conducting pre-clinical studies and clinical trials, seeking regulatory approvals, as well as launching and commercializing products approved for sale, if any, and potentially acquiring new products. In addition, other unanticipated costs may arise. Because the outcome of our anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our proprietary product candidates.

Our future funding requirements will depend on many factors, including but not limited to:

 

·   

the numerous risks and uncertainties associated with developing therapeutic product candidates;

 

·   

the number and characteristics of product candidates that we pursue;

 

·   

the rate of enrollment, progress, cost and outcomes of our clinical trials, which may or may not meet their primary end-points;

 

·   

the timing of, and cost involved in, conducting non-clinical studies that are regulatory prerequisites to conducting clinical trials of sufficient duration for successful product registration;

 

·   

the cost of manufacturing clinical supply and establishing commercial supply of our product candidates;

 

·   

the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates if clinical trials are successful;

 

·   

the timing of, and costs involved in, conducting post-approval studies that may be required by regulatory authorities;

 

15


Table of Contents
·   

the cost of commercialization activities for our product candidates, if any of our product candidates are approved for sale;

 

·   

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder and any non-dilutive funding that we may receive;

 

·   

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs, if any, and the outcome of any such litigation;

 

·   

the timing, receipt, and amount of sales of, or royalties or milestones on, our future products, if any; and

 

·   

the costs to recruit and build the organization including key executives needed to transform to a commercial organization.

In addition, our operating plan may change as a result of many factors currently unknown to us. As a result of these factors, we may need additional funds sooner than planned. We expect to finance future cash needs primarily through a combination of public or private equity offerings, strategic collaborations and non-dilutive funding. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, limit, reduce or terminate one or more of our product development programs or commercialization efforts.

We have incurred significant losses since inception and anticipate that we will continue to incur losses in the future.

We are a late-stage biopharmaceutical company. We have incurred significant losses since our inception. Our consolidated net loss for the year ended December 31, 2017 was 69.8 million. As of December 31, 2017, our accumulated deficit was approximately 97.4 million. We expect to continue to incur losses in the future as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin to commercialize any approved product candidates and add infrastructure and personnel to support our product development efforts and operations as a public company in the United States. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our shareholders’ deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. For example, our expenses could increase if we are required by the FDA or EMA to perform trials in addition to those that we currently expect to perform, or if there are any delays in completing our currently planned clinical trials, the partnering process for our proprietary product candidates or in the development of any of our proprietary product candidates.

Our revenue to date has been primarily revenue from the license of our proprietary technology platforms and from milestone payments for the development of product candidates against targets provided by our collaborators. Our ability to generate revenue and achieve profitability in the future depends in large part on our ability, alone or with our collaborators, to achieve milestones and to successfully complete the development of, obtain the necessary regulatory

 

16


Table of Contents

approvals for, and commercialize, product candidates. This will require us to be successful in a range of challenging activities, including developing product candidates, obtaining regulatory approval for such product candidates, and manufacturing, marketing and selling those product candidates for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

Our operating results may fluctuate significantly in the future.

Our results of operations may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. The revenues we generate, if any, and our operating results will be affected by numerous factors, including, but not limited to:

 

·   

the development status of our product candidates and, particularly, the timing of any milestone payments to be paid or received by us under our collaboration agreements;

 

·   

the incurrence of clinical expenses that could fluctuate significantly from period to period;

 

·   

the commercial success of the products marketed by our partners, in particular Tremfya®, and the amount of royalties to us associated therewith;

 

·   

the unpredictable effects of collaborations during these periods;

 

·   

the timing of our satisfaction of applicable regulatory requirements;

 

·   

the rate of expansion of our clinical development and other development efforts;

 

·   

the effect of competing technologies and products and market developments; and

 

·   

general and industry-specific economic conditions.

For example, we expect our revenues in 2018 to be significantly less than we generated in 2017 as a result of the conclusion of our collaboration with Novartis and the corresponding reduction in revenues from funded research and license fee payments. If our operating results fall below the expectations of investors or securities analysts, the price of our ordinary shares could decline substantially. Furthermore, any fluctuations in our operating results and cash flows may, in turn, cause the price of our ADSs to fluctuate substantially.

Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Identifying and acquiring rights to develop potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that may take years to complete. We may never generate the necessary data or results required to obtain regulatory approval and achieve product sales, and even if one or more of our product candidates is approved, they may not achieve commercial success. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

We may seek additional funding through a combination of equity offerings, debt financings, including convertible bond offerings, collaborations, licensing arrangements, strategic alliances

 

17


Table of Contents

and marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of our ADSs. The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause the market price of our ADSs to decline. In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.

A substantial portion of our historical revenues are from a limited number of strategic collaborations and partnerships, and the termination of these collaborations could have a material adverse effect on our business, financial condition and results of operations.

Historically, we derived a substantial portion of our revenues from a limited number of collaborations, under which we generated revenues through licensing arrangements such as research and development payments, up-front payments, milestone payments, and, once a product is commercialized, royalty payments based on a portion of the revenue of product sold. For the year ended December 31, 2017, 90.4% of our revenues were derived from our collaboration partners Novartis, I-Mab Biopharma and Janssen. We do not have further research and development collaborations with Janssen and Novartis at this time and, as a result, we expect our revenues from funded research and license fee payments to be significantly lower in 2018. We expect royalties from Janssen on sales of Tremfya® to account for a substantial portion of our revenues for the next several years. The loss of any significant collaborator or any significant reduction in payments by a collaborator may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to the Development, Clinical Testing and Commercialization of Our Product Candidates

All of our proprietary product candidates are still in pre-clinical or clinical development, and only one of our partnered products has been approved for marketing and sale. We cannot give any assurance that any of our product candidates will receive regulatory approval, and if we are unable to obtain regulatory approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.

All of our proprietary product candidates are still in pre-clinical or clinical development, and only one of our partnered products, Tremfya®, has received regulatory approval. Although we may receive certain payments from our collaboration partners, including upfront payments, payments for achieving certain development, regulatory or commercial milestones and royalties, our ability to generate revenue from our product candidates’ sales is dependent on receipt of regulatory approval for, and successful commercialization of, such product candidates, which

 

18


Table of Contents

may never occur. Our business and future success is in particular dependent on our ability to develop, either alone or in partnership, successfully, receive regulatory approval for, and then successfully commercialize our proprietary product candidates, in particular MOR208. Each of our product candidates will require additional pre-clinical and/or clinical development, regulatory approval in multiple jurisdictions, manufacturing supply, substantial investment and significant marketing efforts before we generate any revenue from product sales or royalties. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from applicable regulatory authorities. The success of our product candidates will depend on several factors, including the following:

 

·   

successful completion of pre-clinical and/or clinical studies;

 

·   

successful enrollment of patients in, and completion of, clinical trials;

 

·   

strategic commitment to particular product candidates and indications by us and our collaborators;

 

·   

receipt of regulatory authorizations from applicable regulatory authorities for future clinical trials;

 

·   

receipt of product approvals, including marketing approvals, from applicable regulatory authorities;

 

·   

successful completion of all safety studies required to obtain regulatory approval in the United States, the European Union and other jurisdictions for our product candidates;

 

·   

obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

 

·   

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

 

·   

acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors;

 

·   

effectively competing with other therapies;

 

·   

obtaining and maintaining coverage and adequate reimbursement from third-party payors;

 

·   

enforcing and defending intellectual property rights and claims;

 

·   

maintaining a continued acceptable safety and quality profile of the product candidates following approval; and

 

·   

maintaining a continued, sufficient supply of drug substance in acceptable quality.

If we do not achieve one or more of these factors in a complete and timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially adversely affect our business, financial condition, results of operations and prospects and, in case of product candidates, technologies and licenses we have acquired, may result in a significant impairment of assets.

We have not previously submitted a biologics license application, or BLA, to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory

 

19


Table of Contents

approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We plan to seek regulatory approval to commercialize our product candidates both in the United States and the EU, and potentially in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions.

Clinical trials are very expensive, time consuming and difficult to design and implement and involve uncertain outcomes. If clinical trials of our product candidates are prolonged, delayed or terminated, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all, which may materially adversely affect our business, financial condition, results of operations and prospects.

We are currently conducting clinical trials for MOR208, MOR202, and MOR106. Each of our clinical trials requires the investment of substantial expense and time and the timing of the commencement, continuation and completion of these clinical trials may be subject to significant delays or termination relating to various causes, including, among other things:

 

·   

scheduling conflicts with participating clinicians and clinical institutions;

 

·   

difficulties in identifying and enrolling patients who meet trial eligibility criteria;

 

·   

failure of patients to complete the clinical trials or return for post-treatment follow-up;

 

·   

delays in accumulating the required number of clinical events for data analyses;

 

·   

clinical investigators or sites deviating from trial protocol or failing to comply with regulatory requirements or meet their contractual obligations;

 

·   

delay or failure to obtain required approvals;

 

·   

delays in or failure to reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

·   

delays in or failure to obtain institutional review board, or IRB, approval at each site;

 

·   

failure of third-party contractors used in our clinical trials or contract manufacturing organizations, or CMOs, to comply with regulatory requirements or meet their contractual obligations in a timely manner, or not at all;

 

·   

changes in regulatory requirements;

 

·   

the development and approval of competitive products, in particular with respect to MOR202 for the treatment of MM;

 

20


Table of Contents
·   

results from clinical trials of competing compounds, which may give rise to concerns about the target, the envisioned mode of action, the compound class or the commercial potential of the product candidate we are evaluating — in particular, in respect of MOR208, data being produced from other product candidates in CLL may make our ability to get an approval for MOR208 in this indication more difficult;

 

·   

higher-than-expected costs of clinical trials of our product candidates; and

 

·   

insufficient, inadequate or prohibitively expensive supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidate.

We do not know whether any of our clinical trials will begin as planned, will need to be redesigned or amended or will be completed on schedule, or at all. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a data review committee or data safety monitoring board for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates, and may harm our business and results of operations. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Clinical trials must be conducted with supplies of our product candidates produced under current good manufacturing practice, or cGMP, requirements and other regulations. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with Good Clinical Practice, or GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time or fail in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business.

If we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or are only modestly favorable, if

 

21


Table of Contents

there are safety concerns associated with our product candidates we may decide to develop in the future, or if we are required to conduct additional clinical trials or other testing of our product candidates that we may develop in future beyond the trials and testing that we contemplate, we may:

 

·   

be delayed in obtaining marketing approval for our product candidates;

 

·   

not obtain marketing approval at all;

 

·   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

·   

obtain approval with product labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

 

·   

be subject to additional post-marketing testing or other requirements; or

 

·   

remove the product from the market after obtaining marketing approval.

The occurrence of any such events may materially adversely affect our business, financial condition, results of operations and prospects.

The incidence and prevalence for target patient populations of our product candidates are based on estimates and third-party sources. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our business, financial condition, results of operations and prospects may be materially adversely affected.

Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our product development strategy, including determining indications on which to focus in pre-clinical or clinical trials.

These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend on, among other things, the acceptance of such data by the medical community and patient access, product pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which could materially adversely affect our business, financial condition, results of operations and prospects.

The speed at which we complete our pre-clinical studies and clinical trials depend on many factors, including, but not limited to, patient enrollment. If we are unable to enroll patients in our clinical trials, our research and development efforts and business, financial condition, results of operations and prospects could be materially adversely affected.

Patient enrollment, a significant factor in the timing and successful completion of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating. Because there is a relatively limited number of patients worldwide, patient enrollment may be challenging. Trials

 

22


Table of Contents

may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and delay or potentially jeopardize our ability to receive regulatory approval, commence product sales and generate revenue. Any of these occurrences may harm our clinical trials, which could materially adversely affect our business, financial condition, results of operations and prospects.

Results of previous pre-clinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA, the EMA or comparable foreign regulatory authorities.

Positive or timely results from pre-clinical or early-stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA, European Medicines Agency, or the EMA, or comparable foreign regulatory authorities. This includes the interim data presented from the L-MIND study as of June 13, 2017, which will evolve over time and may not be as positive as interim data that were the basis on which the FDA awarded breakthrough therapy designation. We will generally be required to demonstrate with substantial evidence through well-conducted, possibly controlled clinical trials that our product candidates are safe and effective for use in a well-defined patient population before we can seek regulatory approvals for their commercial sale. Our planned clinical trials may produce negative or inconclusive results, and we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or pre-clinical testing. Success in pre-clinical studies or early-stage clinical trials does not mean that future clinical trials or registration clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy to the satisfaction of the FDA, EMA and comparable foreign regulatory authorities, despite having progressed through pre-clinical studies and initial clinical trials. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials. For example, a number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. Similarly, interim results of a clinical trial do not necessarily predict final results.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable and if we fail to obtain regulatory approval in any jurisdiction, we will not be able to commercialize our products in that jurisdiction and our business, results of operations, financial condition and prospects, may be materially adversely affected.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval laws, regulations, policies or the type and amount of clinical data or other information necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

 

23


Table of Contents

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

·   

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

·   

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

·   

the designs of clinical trials might not be considered adequate, or the results of clinical trials may not meet the level of statistical significance required, by the FDA or comparable foreign regulatory authorities for approval;

 

·   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

·   

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials;

 

·   

the data collected may not be sufficient to support the submission of a BLA or other submission, or to obtain regulatory approval in the United States, the EU or elsewhere;

 

·   

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

·   

the laws, regulations or policies of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data or other regulatory submissions insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects. The FDA, the EMA and other regulatory authorities have substantial discretion in the approval process and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

In order to commercialize our products in more than one jurisdiction, we will require separate regulatory approval in each market and compliance with numerous and varying regulatory requirements. The approval procedures vary from country to country and may require additional testing or other steps. Satisfying these and other regulatory requirements is costly, time

 

24


Table of Contents

consuming, uncertain and subject to unanticipated delays. In addition, in many countries outside the United States and in particular in many of the Member States of the European Union, a product must undergo health economic assessments to agree on pricing and/or be approved for reimbursement before it can be approved for sale in that country, or before it becomes commercially viable. The FDA and the EMA may come to different conclusions regarding approval of a marketing application. Approval by the FDA or EMA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. We may not obtain regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market. We may be required to conduct additional pre-clinical studies or clinical trials, which would be costly and time consuming. If we or any future partner are unable to obtain regulatory approval for our product candidates in one or more significant jurisdictions, then the commercial opportunity for our product candidates, and our business, results of operations, financial condition and prospects, may be materially adversely affected.

The FDA may rescind the breakthrough designation for MOR208 in combination with lenalidomide for the treatment of patients with r/r DLBCL who are not eligible for high-dose chemotherapy and autologous stem cell transplantation and we may be unable to obtain breakthrough therapy designation for other indications. In addition, breakthrough therapy designation by the FDA may not lead to a faster development, regulatory review or approval process, and it may not increase the likelihood that MOR208 will receive marketing approval in the United States.

Under the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA is authorized to give certain products “breakthrough therapy designation”. Breakthrough therapy product candidate is defined as a product candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that such product candidate may demonstrate substantial improvement on one or more clinically significant endpoints over existing therapies. The FDA will seek to ensure the sponsor of a breakthrough therapy product candidate receives intensive guidance on an efficient drug development program, intensive involvement of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary review and a rolling review process whereby the FDA may consider reviewing portions of a marketing application before the sponsor submits the complete application. Product candidates designated as breakthrough therapies by the FDA may be eligible for other expedited programs, such as priority review, if supported by clinical data.

The receipt of breakthrough therapy designation for a product candidate, or acceptance for one or more of the FDA’s other expedited programs, may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and does not guarantee ultimate approval by the FDA. For example, we are evaluating MOR208 in combination with lenalidomide for the treatment of r/r DLBCL; however, lenalidomide (being marketed by Celgene) is currently not approved for the treatment of r/r

 

25


Table of Contents

DLBCL. There are a number of reasons why the FDA may not grant an approval of a registration package for a product candidate. Among these reasons, a pivotal study of the combination of two unapproved product candidates in a particular indication may not alone be acceptable to support approval. Additionally, the FDA may later decide that the product candidate no longer meets the conditions for designation and may withdraw designation at any time or decide that the time period for FDA review or approval will not be shortened.

Fast track designation for one or more of our product candidates may not actually lead to a faster development or regulatory review or approval process.

In 2014, we received fast track designation for MOR208 for the treatment of r/r DLBCL. If a product candidate is intended for the treatment of a serious condition, and pre-clinical or clinical data demonstrate the potential to address unmet medical need for this condition, a product sponsor may apply for FDA fast track designation. Even though we have received fast track designation for MOR208 for the treatment of r/r DLBCL, fast track designation does not ensure that we will receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development or regulatory review or approval process with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any.

Undesirable side effects that may be caused by our product candidates could cause us, our collaboration partners or the regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or comparable foreign regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA, EMA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

Clinical trials assess a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive regulatory approval and we or others identify undesirable side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:

 

·   

regulatory authorities may withdraw or limit their approval of such product candidates and require us to take our approved product(s) off the market;

 

·   

regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contra-indication, or field alerts to physicians and pharmacies;

 

26


Table of Contents
·   

we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

 

·   

we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;

 

·   

regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;

 

·   

we may be subject to regulatory investigations and government enforcement actions;

 

·   

we may decide or be required to remove such product candidates from the marketplace;

 

·   

we could be sued and potentially held liable for injury caused to individuals exposed to or taking our product candidates;

 

·   

sales of the product(s) may decrease substantially; and

 

·   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and could substantially increase the costs of commercializing our product candidates, if approved, and therefore could have a material adverse effect on our business, financial condition, results of operations and prospects.

We and our collaboration partners have conducted and intend to conduct additional clinical trials for selected product candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or may require additional U.S.-based trials.

We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical trials outside the United States, particularly in the European Union where we are headquartered.

Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted by qualified investigators in accordance with GCPs, including review and approval by an independent ethics committee and receipt of informed consent from trial patients. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trial conducted outside of the United States must be representative of the population for which we intend to seek approval in the United States. In addition, while these clinical trials are subject to applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also comply with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any clinical trials that we or our collaboration partners conduct outside the United States, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay or permanently halt our ability to develop and market these or other product candidates in the United States. In

 

27


Table of Contents

other jurisdictions, for instance, in Japan, there is a similar risk regarding the acceptability of clinical trial data conducted outside of that jurisdiction.

In addition, there are risks inherent in conducting clinical trials in multiple jurisdictions, inside and outside of the United States, such as:

 

·   

regulatory and administrative requirements of the jurisdiction where the trial is conducted that could burden or limit our ability to conduct our clinical trials;

 

·   

foreign exchange fluctuations;

 

·   

manufacturing, customs, shipment and storage requirements;

 

·   

cultural differences in medical practice and clinical research; and

 

·   

the risk that the patient populations in such trials are not considered representative as compared to the patient population in the target markets where approval is being sought.

The design or our execution of clinical trials may not support regulatory approval.

The design or execution of a clinical trial can determine whether its results will support regulatory approval and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our strategic partners may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates or whether the regulatory authorities will agree that the design of our or our partners’ studies is adequate to support approval.

Further, the FDA, EMA or other regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in future Phase 3 clinical trials or registration trials. The FDA, EMA or other regulatory authorities may disagree with our trial design and our interpretation of data from pre-clinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in FDA, EMA or other agencies’ approval. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA, EMA or other regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our product candidates.

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may materially adversely affect our business, prospects, financial condition and results of operations.

If the FDA, EMA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event

 

28


Table of Contents

reporting, storage, advertising, marketing, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product.

In addition, regulatory policies may change or additional government regulations or legislation may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we fail to comply with existing requirements, are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained or face regulatory or enforcement actions, which may materially adversely affect our business, prospects, financial condition and results of operations.

We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any of our products that receive regulatory approval, which may materially adversely affect our business, prospects, financial condition and results of operations.

Once a product is approved by the FDA, EMA or a comparable foreign regulatory authority for marketing, it is possible that previously unknown problems may occur with the product, including problems with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs with respect to our products, it may result in, among other things:

 

·   

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

·   

fines, warning letters or holds on clinical trials;

 

·   

refusal by the FDA, EMA or comparable foreign regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

 

·   

requirements to conduct additional clinical trials, change our product labeling or submit additional applications or application supplements;

 

·   

product seizure or detention, or refusal to permit the import or export of products; and

 

·   

injunctions or the imposition of civil or criminal penalties.

The occurrence of any of these events, or any government investigation of alleged violations of law could require us to expend significant time and resources and could generate negative publicity, and our ability to sell such product may be impaired. If we or our collaborators are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost and we may not achieve or sustain profitability, which may materially adversely affect our business, prospects, financial condition and results of operations.

 

29


Table of Contents

We may allocate our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may later prove to be more profitable or for which there is a greater likelihood of success, which may materially adversely affect our business, financial condition, and results of operations.

Because we have limited financial and managerial resources, we must limit our licensing, research and development programs to specific product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial product candidates or profitable market opportunities, and our decisions concerning the allocation of research, collaboration, management and financial resources towards particular product candidates may not lead to the development of viable commercial products. In addition, if we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for our late stage product candidates, our business, financial condition, and results of operations could be materially adversely affected.

We currently do not have a sales and marketing organization and we have no history of commercializing our proprietary products.

The development of our proprietary product candidates has been limited to developing and screening our technology and undertaking pre-clinical studies and clinical trials thereof, either independently or with strategic partners. We have not yet demonstrated the ability to successfully complete the development of our proprietary product candidates, obtain marketing approvals, manufacture them at a commercial scale with our CMOs, or conduct sales and regulatory activities necessary for successful product commercialization of our proprietary product candidates. Any predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing our proprietary pharmaceutical products.

Factors that may affect our ability to commercialize our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our product candidates and other unforeseen costs associated with creating an independent sales and marketing organization. In addition, we may seek to acquire a commercialization platform. There is no guarantee that any such acquisition targets will be available.

We do not currently have a sales and marketing organization, and developing or acquiring a sales and marketing organization will be expensive and time consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may not be able to generate revenues from them or to reach or sustain profitability.

 

30


Table of Contents

If any of our product candidates receive regulatory approval, the approved products may not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, in which case revenue generated from their sales would be limited.

The commercial success of our product candidates will depend upon their acceptance among physicians, patients and the medical community. The degree of market acceptance of our product candidates will depend on a number of factors, including:

 

·   

limitations or warnings contained in the approved labeling for a product candidate;

 

·   

changes in the standard of care for the targeted indications for any of our product candidates;

 

·   

limitations in the approved clinical indications for our product candidates;

 

·   

demonstrated clinical safety and efficacy compared to other products;

 

·   

lack of significant adverse side effects;

 

·   

sales, marketing and distribution support;

 

·   

availability of coverage and extent of reimbursement from managed care plans and other third-party payors;

 

·   

timing of market introduction and perceived effectiveness of competitive products;

 

·   

the degree of cost-effectiveness of our product candidates;

 

·   

availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;

 

·   

whether the product is designated under physician treatment guidelines as a first-line therapy or as a second or third-line therapy for particular diseases;

 

·   

whether the product can be used effectively with other therapies to achieve higher response rates;

 

·   

adverse publicity about our product candidates or favorable publicity about competitive products;

 

·   

convenience and ease of administration of our products; and

 

·   

potential product liability claims.

If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medical community, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

 

31


Table of Contents

Risks Related to Our Reliance on Collaborators and Other Third Parties

Collaborations on products and product candidates are important to our business, and future collaborations may also be important to us. If we are unable to maintain any of these collaborations or if these collaborations are not successful, our business could be materially adversely affected.

We have in the past entered into, and intend to continue to enter into, collaborations with other companies that we believe provide us with valuable funding and other benefits. However, we cannot ensure that any such collaboration will continue or be successful. For example, in March 2015, we and Celgene Corporation agreed to end the existing co-development and co-promotion agreement for MOR202, following which we regained the rights to MOR202. Although we have subsequently partnered Chinese regional rights to MOR202, we are currently investigating the possibility of further developing MOR202 outside of China with a partner. We cannot ensure that any such partner will be found or that such collaboration will be successful. Our inability to find a partner for any of our product candidates, may result in our termination of that specific product candidate program or evaluation of a product candidate in a particular indication. Due to the competition in MM and the size and the duration of a potential pivotal study in this indication, we intend to develop MOR202 in MM only with a strong and committed partner. In addition, we have entered into various other collaboration and license arrangements with third parties. We cannot ensure that any such collaboration or license agreement will be successful.

In the future, we may enter into additional collaborations to fund our development programs or to gain access to sales, marketing or distribution capabilities. Under our collaboration agreements, we typically grant our partners an exclusive license to certain therapeutic antibodies for specific targets and receive license fees, research and development funding, milestone payments and/or, if a product is approved for marketing, sales royalties in return. Following the discovery and pre-clinical testing phase, our partners are typically solely responsible for the further development of the product candidate and therefore exercise full control over its further development and potential commercialization. Our existing collaborations, and any future collaborations we enter into, therefore may pose a number of risks, including the following:

 

·   

collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

·   

collaborators may not perform their obligations as expected by us or by health authorities, such as the FDA, the EMA or comparable foreign regulatory authorities;

 

·   

collaborators may dissolve, merge, be bought, or may otherwise become unwilling to fulfill the initial terms of the collaboration with us;

 

·   

collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities or the actual or perceived competitive situation in a specific indication;

 

32


Table of Contents
·   

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or may require a new formulation of a product candidate for clinical testing;

 

·   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

·   

product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

·   

a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;

 

·   

disagreements with collaborators or licensors, including disagreements over proprietary rights, contract interpretation and breach of contract claims, payment obligations or the preferred course of development, might cause delays or termination of the research, development or commercialization of products or product candidates, might lead to additional responsibilities, including financial obligations for us with respect to products or product candidates, or delays or withholding of any payments due or might result in litigation or arbitration, any of which would be time consuming and expensive;

 

·   

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

·   

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

·   

collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

If our collaborations on research and development candidates do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our proprietary product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of our program collaborators.

Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination, the collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators in a timely manner.

 

33


Table of Contents

We face significant competition in seeking new partnerships, including for MOR202.

We are considering entering into a partnership or collaboration agreement for the further development of MOR202 and may in the future determine to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of certain other of our product candidates for various territories in the world. We face significant competition in seeking appropriate collaborators or partners. Our ability to reach a definitive agreement for a partnership will depend, among other things, upon our assessment of the partner’s resources and expertise, the terms and conditions of the proposed partnership and the proposed partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign regulatory authorities, the potential market for the subject product candidate, market access and pricing considerations in the respective territory, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, incidence and prevalence of the respective disease, and industry and market conditions generally. The partner may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidate. For example, MOR202, if approved for multiple myeloma, would compete with Janssen’s daratumumab and potentially isatuximab, and, as a result, it may be difficult to find a suitable partner with adequate resources. Due to the competition in MM and the size and the duration of a potential pivotal study in this indication, we intend to develop MOR202 in MM only with a strong and committed partner.

Collaborations and commercialization partnerships are complex and time consuming to negotiate and document. If we are unable to reach agreements with suitable partners on a timely basis, on acceptable terms, or at all, we may have to curtail or even stop the development of a product candidate, in one or all indications, in one or all territories in the world, reduce or delay one or more of our other discovery and development programs, delay its potential commercialization, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own — for instance, as we have done so far for MOR208 — we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and other partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates in any or all indications or bring them to market in any or all territories in the world and our business may be materially and adversely affected.

We rely, and expect to continue to rely, on third parties, including independent clinical investigators, and CROs, to conduct our pre-clinical studies and clinical trials and perform data collection and analysis, which may result in costs and delays in the development of our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be materially adversely affected.

We currently, and expect to continue to, selectively rely on public and private research institutions, medical institutions, clinical investigators, CROs, contract laboratories and collaboration partners to conduct some of our early-stage product development activities,

 

34


Table of Contents

perform data collection and analysis and carry out our clinical trials. Our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended or terminated, including for the following reasons:

 

·   

the third parties do not devote a sufficient amount of time or effort to our activities or otherwise fail to successfully carry out their contractual duties or to meet regulatory obligations or expected deadlines;

 

·   

we replace a third party; or

 

·   

the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements or for other reasons.

While we have performance monitoring and metrics in place, we do not have the ability to control every action of third parties in their conduct of development activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, the competent authorities of the member states of the European Economic Area, or EEA, and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.

Third-party performance failures may increase our development costs, delay our ability to obtain regulatory approval and delay or prevent the commercialization of our product candidates. While we believe that there are alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.

We currently rely on third-party suppliers and single source third-party CMOs for the manufacturing of our product candidates and our dependence on these third parties may impair the development of our product candidates. Moreover, we intend to rely on third parties to produce commercial supplies of any approved product candidate and our commercialization of any of our product candidates could be stopped, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices or fail to otherwise complete their duties in compliance with their obligations to us or in compliance with applicable laws. Service or supply failures, or other failures, business interruptions, or other disasters affecting the manufacturing

 

35


Table of Contents

facilities of any party participating in the supply chain, would adversely affect our ability to supply our product candidates and products.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our pre-clinical (with the exclusion of non-GLP testing) and clinical product supplies and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We therefore rely on and expect to continue to rely on third-party contract manufacturing organizations, or CMOs, for the supply of cGMP-grade, clinical trial materials and commercial quantities of our product candidates and products, if approved. The facilities used by our CMOs or other third-party manufacturers to manufacture our product candidates are subject to the FDA’s, the EMA’s and other comparable regulatory authorities’ preapproval inspections that will be conducted after we submit our BLA to the FDA or the required approval documents to any other relevant regulatory authority. Except for our legally required qualification audit prior to contracting a CMO and subsequent regular audits of such facilities and GMP procedures, we do not control the implementation of the manufacturing process of, and are completely dependent on, our contract manufacturers or other third-party manufacturers for compliance with the regulatory requirements, known as current good manufacturing practices, or cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers or other third-party manufacturers cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA, the EMA or another comparable regulatory authority, we may not be able to secure and/or maintain regulatory approvals for our products manufactured at these facilities. In addition (except for our audit obligations described above), we have no control over the ability of our contract manufacturers or other third-party manufacturers to maintain adequate quality control and quality assurance procedures and qualified personnel. If the FDA, the EMA or another comparable regulatory authority finds deficiencies at these facilities for the manufacture of our product candidates or if it withdraws any approval because of deficiencies at these facilities in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. If, for any reason, we were to experience an unexpected loss of supply of our product candidates, combination drug, or placebo or comparator product used in certain of our clinical trials, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials.

We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. For certain items, there are a limited number of suppliers for raw materials that we use to manufacture our products and appropriate lead times for ordering such materials are factored into the manufacturing plans. However, there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if approved, for commercial sale. Moreover, we currently do not have any agreements in place for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have access to a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to implement corrective actions at the supplier, or to replace a contract manufacturer or other third-party manufacturer could considerably delay completion of our clinical trials, product

 

36


Table of Contents

testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenue from the sale of our product candidates. Additionally, if we receive regulatory approval for our product candidates, we may experience unforeseen difficulties or challenges in the manufacture of our product candidates on a commercial scale compared to the manufacture for clinical purposes. We currently rely on single source CMOs for the manufacturing of each of our proprietary product candidates, including Boehringer Ingelheim, or BI, in respect of MOR208. Thus any regulatory action, service failure, business interruptions, or other disasters affecting BI’s facilities or the facilities of our other CMOs for our other proprietary product candidates could materially and adversely impact the supply of our product candidate.

The manufacture of our product candidates is complex. Our third-party manufacturers may encounter difficulties in production. If we encounter any such difficulties, our ability to supply our product candidates for clinical trials or, if approved, for commercial sale could be delayed or halted entirely.

The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. The process of manufacturing biopharmaceuticals, including our product candidates, is susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, contamination and inconsistency in yields, variability in product characteristics and difficulties in scaling the production process or product loss during fill and finishing. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.

Risks Related To Our Intellectual Property Rights

If we are unable to obtain and maintain sufficient intellectual property protection for our products or product candidates, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products or product candidates successfully and to compete effectively may be materially adversely affected.

Our success depends in large part on our ability to obtain and maintain protection with respect to our intellectual property and proprietary technology. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our products and product candidates. The patent position of pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and foreign

 

37


Table of Contents

patent offices in granting patents are not always applied uniformly or predictably, and can change. The patent applications that we own or in-license may fail to result in issued patents, and if they do, such patents may not cover our products or product candidates in the United States or in other countries. Accordingly, we cannot predict whether additional patents protecting our technology or our product candidates will issue in the United States or in non-U.S. jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide us with a competitive advantage. Additionally, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our licensed and owned patents, the reproduction of our manufacturing or other know-how or marketing of competing products in violation of our proprietary rights generally. Any of these outcomes could impair our ability to prevent competition from third parties, which may have a material adverse effect on our business.

Competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States and Europe. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our patent rights, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we or our licensors, may only pursue, obtain or maintain patent protection in a limited number of countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. Even if patents do successfully issue and even if such patents cover our products or product candidates, third parties (including our licensees) may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Further, the existence of issued patents does not guarantee our right to practice the patented technology or commercialize the patented product. Third parties may have or obtain rights to patents which they may use to prevent or attempt to prevent us from commercializing any of our patented product candidates. If these other parties are successful in obtaining valid and enforceable

 

38


Table of Contents

patents, and establishing our infringement of those patents, we could be prevented from selling our products unless we were able to obtain a license under such third-party patents. In addition, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency of competent jurisdiction may find our patents invalid and/or unenforceable.

Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our products or product candidates, prevent others from designing around our claims or otherwise provide us with a competitive advantage. Additionally, our confidentiality agreements and other contractual protections may not be adequate to protect our intellectual property from unauthorized disclosure, third-party infringement or misappropriation. We may not have adequate remedies in the case of a breach of any such agreements, and our trade secrets and other proprietary information could be disclosed to our competitors or others may independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies. In addition, the research resulting in certain of our licensed patent rights and technology has been, and may in the future be, funded by the government or other institutional organizations that may have certain rights, including march-in rights, to such patent rights and technology.

If the patent applications we own or have in-licensed with respect to our product candidates fail to issue as patents, if their breadth or strength of protection is narrowed or threatened, or if they fail to provide meaningful exclusivity, it could dissuade companies from collaborating with us and adversely affect our competitive position. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid or unenforceable or will be threatened by third parties. Any successful challenge to any patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product or product candidate that we may develop and could impair or eliminate our ability to collect future revenues and royalties with respect to such products or product candidates. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to a product or product candidate. In addition, patents have a limited lifespan. In the United States and most foreign jurisdictions, the natural expiration of a patent is generally 20 years after its effective filing date. Various extensions may be available; however, the life of a patent and the protection it affords is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. Even if patents covering our product candidates are obtained, once such patents expire, we may be vulnerable to competition from similar or biosimilar products. The launch of a biosimilar version of one of our products in particular would be likely to result in an immediate and substantial reduction in the demand for our product, which could have a material adverse effect on our business, financial condition, results of operations or prospects.

 

39


Table of Contents

Obtaining and maintaining our patent protection, including patents licensed from third parties, depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial loss, complete loss or unenforceability of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

If we or our licensors fail to maintain the patents and patent applications covering or otherwise protecting our product candidates, it could materially harm our business. In addition, to the extent that we have responsibility for taking any action related to the prosecution or maintenance of patents or patent applications in-licensed from a third party, any failure on our part to maintain the in-licensed intellectual property could jeopardize our rights under the relevant license and may expose us to liability.

We currently are, and may in the future, be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.

Even if the patent applications we own or license are issued, competitors may infringe these patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. For instance, we are currently involved in a patent litigation lawsuit as a plaintiff against Janssen Biotech Inc., Genmab A/S and Genmab US, Inc. at the District Court of Delaware seeking redress for infringement in connection with the manufacture, use and sale of Janssen’s and Genmab’s daratumumab, an antibody targeting CD38, approved for the treatment of certain patients with MM and the same target against which MOR202 is directed. Defendants have filed counterclaims asserting that our patents are not infringed, invalid and have recently asked the court to add further counterclaims of unenforceability. In addition, Janssen, Genmab, Sanofi and Takeda opposed a European counterpart of the litigated U.S. patents, EP2511297. The patent was revoked in opposition proceedings. We appealed and the proceedings are currently pending.

In an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put our patents or our licensors’ patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings, or other similar enforcement and revocation proceedings, provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

 

40


Table of Contents

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.

Even if resolved in our favor, litigation or other legal proceedings relating to our, our licensor’s or other third parties’ intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. If not resolved in our favor, litigation may require us to pay any portion of our opponents’ legal fees. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Developments in patent law could have a negative impact on our business.

From time to time, authorities in the United States, the European Union and other government authorities may change the standards of patentability, and any such changes could have a negative impact on our business.

For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. As a result of these changes, patent law in the United States may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed new and untested regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and if obtained, to enforce or defend them.

Developments of patent law in other jurisdictions may impact our business. For example, it is currently not clear what impact the planned introduction of the Unified Patent Court in the European Union will have. Patents that are valid and enforceable under the current system may be considered invalid and/or unenforceable under the new system. Also patents may be invalidated not just in one single jurisdiction, but across all countries of the European Union in one single trial.

 

41


Table of Contents

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our products and future approved products or impair our competitive position.

Patents could be issued to third parties that we may ultimately be found to infringe. Third parties may have or may obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to identify or misinterpret third-party patents, to obtain or maintain a license to any technology that we require may materially harm our business, financial condition, results of operations or prospects. Furthermore, we could be exposed to a threat of litigation.

In the pharmaceutical and biotechnology industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:

 

·   

we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;

 

·   

if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation, inter partes review or opposition proceedings to determine the priority of invention, inventorship or validity of the applicable patent rights which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;

 

·   

if third parties initiate litigation claiming that our processes, products or uses thereof infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and

 

·   

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

Any such lawsuit would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court may order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business, financial condition, results of operations or prospects.

 

42


Table of Contents

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use.

The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products, methods or uses thereof either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on our business. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity or enforceability of the patents in court. We may not have sufficient resources to bring these actions to a successful conclusion and there is no assurance that such a license would be available or that a court would find in our favor. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.

The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations or prospects.

We are dependent on third parties for the prosecution, protection, and enforcement of intellectual property rights relating to some of our products and product candidates.

While we normally seek to obtain the right to control the prosecution, maintenance, enforcement and defense of intellectual property rights related to our products and product candidates, there may be times when our licensors or collaborators control, or have a first right to control, the filing, prosecution, enforcement and defense of such rights. For instance, pursuant to the 2nd amended and restated collaboration and license agreement, Novartis has a first right to file, prosecute and enforce all patent rights related to products generated under this agreement. Also, pursuant to the development and license agreement with GlaxoSmithKline, or GSK, GSK has a first right to file, prosecute and enforce all patent rights related to MOR103 and pursuant to the development and license agreement with Xencor, Xencor has a first right to file, prosecute and enforce patent rights which are in-licensed by us and relate to MOR208. We cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or the payment of all applicable prosecution and maintenance fees related to our technologies or any of our product candidates. We also cannot be certain that the drafting or prosecution of the licensed patents by our licensors have been conducted accurately and in compliance with applicable laws and regulations, and will result in

 

43


Table of Contents

valid and enforceable patents and other intellectual property rights. If they fail to do so, we could lose our rights to the intellectual property, our ability to develop and commercialize those products or product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

If trademarks and trade names related to our products or product candidates are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be materially adversely affected.

Our registered or unregistered trademarks or trade names, as well as the registered or unregistered trademarks or trade names used by our licensees or distributors in relation with our products or product candidates, may be challenged, infringed, circumvented or declared generic or determined to be infringing on other trademarks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be materially adversely affected.

If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be materially adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators, CMOs, CROs and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees as well as our personnel policies also generally provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property or that we may obtain full rights to such inventions at our election. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. We also face the risk that present or former employees could continue to hold rights to intellectual property used by us, may demand the registration of intellectual property rights in their name and demand damages pursuant to the German Employee Invention Act. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations.

 

44


Table of Contents

Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

We may not be successful in obtaining necessary intellectual property rights to product candidates for our development pipeline through acquisitions and in-licenses.

Although we intend to develop product candidates through our own internal research, we may also seek to acquire or in-license product candidates to grow our product candidate pipeline. However, we may be unable to acquire or in-license intellectual property rights relating to, or necessary for, any such product candidates from third parties on commercially reasonable terms or at all. In that event, we may be unable to develop or commercialize such product candidates. We may also be unable to identify product candidates that we believe are an appropriate strategic fit for our company and intellectual property relating to, or necessary for, such product candidates.

The in-licensing and acquisition of third-party intellectual property rights for product candidates is a competitive area, and a number of more established companies are also pursuing strategies to in-license or acquire third-party intellectual property rights for product candidates that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Furthermore, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. If we are unable to successfully obtain rights to suitable product candidates, our business, financial condition, results of operations and prospects for growth could suffer.

In addition, we expect that competition for the in-licensing or acquisition of third-party intellectual property rights for product candidates that are attractive to us may increase in the future, which may mean fewer suitable opportunities for us as well as higher acquisition or licensing costs. We may be unable to in-license or acquire the third-party intellectual property rights for product candidates on terms that would allow us to make an appropriate return on our investment.

 

45


Table of Contents

We may not be able to adequately protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, furthermore, may export otherwise infringing products to territories in which we have patent protection that may not be sufficient to terminate infringing activities.

We do not have patent rights in certain foreign countries in which a market may exist. Moreover, in foreign jurisdictions where we do have patent rights, proceedings to enforce such rights could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing. Additionally, such proceedings could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Thus, we may not be able to stop a competitor from marketing and selling in foreign countries products that are the same as or similar to our products, and our competitive position in the international market would be harmed.

Our intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.

Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

Risks Related to Our Business and Industry

Our relationships with health care professionals, institutional providers, principal investigators, consultants, customers (actual and potential) and third-party payors are, and will continue to be, subject, directly and indirectly, to health care fraud and abuse, false claims, marketing expenditure tracking and disclosure, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such

 

46


Table of Contents

laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, fines, exclusion from government-funded health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.

Our business operations and activities may be directly or indirectly subject to various fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. If we obtain FDA approval for any of our proprietary product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by the federal government and state governments in which we conduct our business. The laws that may affect our ability to operate include, but are not limited to:

 

·   

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as Medicare and Medicaid. A person or entity need not have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; in addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

·   

the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent; knowingly making a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government;

 

·   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

·   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing regulations, which impose requirements on certain covered health care providers, health plans, and health care clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

47


Table of Contents
·   

the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA will require manufacturers of products, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests;

 

·   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

 

·   

federal government price reporting laws, changed by the ACA to, among other things, increase the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and offer such rebates to additional populations, that may require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed products (participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, and potentially limit our ability to offer certain marketplace discounts);

 

·   

the Foreign Corrupt Practices Act, a U.S. law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals); and

 

·   

analogous state laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers.

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and pricing information. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

In addition, the regulatory approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the health care laws mentioned above, among other foreign laws.

In the European Union, the Data Protection Directive, or DPD, which will be superseded by the General Data Protection Regulation, or GDPR, effective from May 2018, imposes strict regulations and establishes a series of requirements regarding the storage of personally identifiable information on computers or recorded on other electronic media. This has been implemented by all European Union member states through national laws. The DPD and GDPR provide for specific regulations requiring all non-European Union countries doing business with European Union member states to provide adequate data privacy protection when receiving personal data from persons in any of the European Union member states. In addition, the use and disclosure of personal health and other private information is subject to regulation in other jurisdictions in which we do business or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangements

 

48


Table of Contents

with European governmental entities. We cannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information.

Efforts to ensure that our business arrangements will comply with applicable health care laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, fines, individual imprisonment, exclusion from government funded health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Additionally, if our collaborators’ operations or relationships with healthcare providers, customers and third-party payors are found to be non-compliant with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which could also have a negative impact on us. Even if successful, defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage; and our product liability insurance may not cover all damages from such claims.

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products.

The use of our investigational medicinal products in clinical trials and the sale of any approved products in the future may expose us to liability claims. These claims might be made by patients who use the product, health care providers, pharmaceutical companies or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates.

Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a product, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates.

To cover such liability claims, we purchase clinical trial insurances in the conduct of each of our clinical trials. It is possible that our liabilities could exceed our insurance coverage or that our insurance will not cover all situations in which a claim against us could be made. We also intend to expand our insurance coverage to include the sale of commercial products if we receive marketing approval for any of our proprietary products. However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.

 

49


Table of Contents

Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations, including, but not limited to:

 

·   

decreased demand for our future product candidates;

 

·   

adverse publicity and injury to our reputation;

 

·   

withdrawal of clinical trial participants;

 

·   

initiation of investigations by regulators;

 

·   

costs to defend the related litigation;

 

·   

a diversion of management’s time and our resources;

 

·   

compensation in response to a liability claim;

 

·   

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

·   

loss of revenue;

 

·   

exhaustion of any available insurance and our capital resources; and

 

·   

the inability to commercialize our products or product candidates.

We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our business, financial condition, results of operations or prospects.

Even if we, or any future collaborators, are able to commercialize any product candidate that we, or they, develop, the product may become subject to unfavorable pricing regulations or third-party payor coverage and reimbursement policies, any of which could materially harm our business.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Therefore, our ability, and the ability of any future collaborators to commercialize any of our product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors including government health administration authorities and private health coverage insurers. Third-party payors decide which medications they will cover and establish reimbursement levels. We cannot be certain that coverage will be available and reimbursement will be adequate for any of our product candidates. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products.

Obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. A decision by a third-party payor not to cover our products could reduce physician utilization of our products once approved. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or any future collaborators, to establish or maintain pricing sufficient to realize a sufficient return on our or their investment.

 

50


Table of Contents

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging prices. We cannot be sure that coverage will be available for any product candidate that we, or any future collaborator, commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from one country to another. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we, or any future collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Price controls may be imposed in certain markets, which may adversely affect our future profitability.

In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various countries and parallel distribution, or arbitrage between low-priced and high-priced countries, can further reduce prices. In some countries, in particular in many member states of the European Union, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be materially adversely affected.

Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.

In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other

 

51


Table of Contents

healthcare funding, more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we, or any collaborators, may receive for any approved products.

In March 2010, President Obama signed the ACA into law. Among the provisions of the ACA of potential importance to our business and our product candidates are the following:

 

·   

an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biologic products;

 

·   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

·   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that are inhaled, infused, instilled, implanted or injected;

 

·   

extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;

 

·   

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

·   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

 

·   

a new Independent Payment Advisory Board, or IPAB, which has authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription products; and

 

·   

established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models.

Since its enactment, there have been judicial and Congressional challenges to numerous aspects of the ACA. With the current Presidential administration and U.S. Congress, there will likely be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of, the ACA.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and members of Congress and the Administration have stated that they will address such costs through new legislative and administrative measures. There have been several U.S. Congressional inquiries and proposed bills designed to,

 

52


Table of Contents

among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

In addition, individual states have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and to encourage importation from other countries and bulk purchasing.

The policies of the FDA or similar regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation, but it has not yet been implemented and its ultimate implementation is unclear. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

We cannot predict whether future healthcare legislative or policy changes will be implemented at the federal or state level or in countries outside of the United States in which we may do business, or the effect any future legislation or regulation will have on us.

We and our contract manufacturers and our suppliers could be subject to liabilities, fines, penalties or other sanctions under environmental, health and safety laws and regulations if we or they fail to comply with such laws or regulations or otherwise incur costs that could have a material adverse effect on our business.

We currently rely on and expect to continue to rely on third parties for the manufacturing and supply of active pharmaceutical ingredients, or API, and drug products of our product candidates. These third parties are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, transportation, use, storage, treatment and disposal of hazardous materials and wastes. Although we have auditing rights and obligations (according to cGMP regulations for sponsors of clinical trials) with all our CMOs for production of API and drug products, we do not have control over a manufacturer’s or supplier’s compliance with environmental, health and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or in certain circumstances, an interruption in operations, any of which could

 

53


Table of Contents

adversely affect our business and financial condition if delayed manufacturing activities impact our clinical development activities.

With respect to any hazardous materials or waste which we are currently, or in the future will be, handling, using, storing or disposing of, we cannot eliminate the risk of contamination or injury from these materials or waste, including at third-party disposal sites. In the event of such contamination or injury, we could be held liable for any resulting damages and liability. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with applicable environmental, health and safety laws. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations may also result in substantial fines, penalties or other sanctions.

We may not be successful in our efforts to use and expand our lanthipeptide technology platform.

We are using our proprietary lanthipeptide technology platform to generate peptide product candidates that exhibit enhanced stability and selectivity. Our lanthipeptide technology platform has led to one clinical stage product candidate MOR107. We are at a very early stage of development and the lanthipeptide technology platform has not yet, and may never lead to, approved or marketable peptide products, including with respect to MOR107. Even if we are successful in continuing to build our lanthipeptide pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of harmful side effects, limited efficacy or other characteristics that indicate that such products are unlikely to receive marketing approval and achieve market acceptance. If we are not able to successfully develop and commercialize peptide product candidates based upon our lanthipeptide platform, our business, prospects, financial condition and results of operations may be materially adversely affected.

Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Our computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from cyber-attacks, computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such computer system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.

 

54


Table of Contents

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

The ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

One or more of our product candidates approved as a biological product under a BLA may qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

We face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving approval for or commercializing products before or more successfully than us.

The pharmaceutical and biotechnology industries are characterized by intense competition and significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Any product candidates that we successfully develop and commercialize will compete with existing products and new products that may become available in the future. We have competitors in each of the disease fields in which we research and develop our product candidates, many of which have substantially greater name recognition, commercial infrastructure and financial, technical and personnel resources than we have. Smaller or early-stage companies may also prove to be significant competitors, particularly through partnerships with larger and established companies. Significant competitive factors in our industry include product efficacy and safety, quality and breadth of an organization’s technology, skill of an organization’s employees and its ability to recruit and retain key employees, timing and scope of regulatory approvals, government reimbursement rates for, and the average selling price of, products, the availability of raw materials and qualified manufacturing capacity, manufacturing costs, intellectual property and patent rights and their protection and sales and marketing capabilities. While we believe that our product candidate

 

55


Table of Contents

platform, antibody discovery and development expertise and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. In particular for MOR208, we compete with all companies that have products on the market or are developing product candidates for r/r DLBCL. With regard to our other proprietary or partnered product candidates, we are, alone or in partnerships, for example, developing products to combat diseases such as multiple myeloma, other cancers, atopic dermatitis, psoriasis, Alzheimer’s, where our competitors primarily are comprised of large pharmaceutical companies, including Roche, Celgene, Novartis, Janssen, Gilead, Abbvie and many others. This competition includes a number of alternative therapies to combat such diseases that are being researched and are in various stages of development. Should these therapies prove effective, it could reduce the potential size of the market for our products. Given the intense competition in our industry, we cannot assure you that any of the products that we develop will be clinically superior or scientifically or commercially preferable to products developed or introduced by our competitors.

In addition, significant delays in the development of our product candidates could allow our competitors to succeed in obtaining the FDA, the EMA or other regulatory approvals for their product candidates more rapidly than us, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights.

Competitors may develop novel products or other technologies that could make our product candidates obsolete or uneconomical. Any of our product candidates that competes with an approved product may need to demonstrate compelling advantages, such as increased efficacy, convenience, pricing, tolerability and/or safety in order to be commercially successful. Any of our product candidates that are approved could also face other competitive factors in the future, including biosimilar competition, which could force us to lower prices or could result in reduced sales. If we fail to respond to this environment by improving our products, by licensing new third-party products or by developing new product candidates in a timely fashion, or if such new or improved products do not achieve adequate market acceptance, our business, financial condition, results of operations and prospects could be materially and adversely effected.

In addition, many of our competitors have significantly greater financial resources and expertise in R&D, including manufacturing, conducting pre-clinical studies and clinical trials, as well as in obtaining regulatory and reimbursement approvals and marketing and selling products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of competitors, particularly through partnership arrangements with large established companies. These companies also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient recruitment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the expertise of the members of our research and development team, as well as the other principal members of our management, including Simon Moroney, our Chief Executive Officer, Jens Holstein, our Chief Financial Officer, Malte Peters, our Chief

 

56


Table of Contents

Development Officer, and Markus Enzelberger, our Chief Scientific Officer. Our management board members have fixed-term contracts typically of three years.

Recruiting and retaining qualified management, scientific, clinical, manufacturing and sales and marketing personnel is also critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising products or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction. If we are unsuccessful in realizing any of the benefits following an acquisition, we may incur impairment charges in respect of the assets acquired, which could adversely affect our results of operations.

We may be subject to tax audits or disputes or changes in tax laws.

Pending and future tax audits within our group, disputes with tax authorities and changes in tax law or fiscal regulations could lead to additional tax liabilities. We are subject to routine tax audits by the respective local tax authorities. Any additional tax liability could have an adverse effect on our business, financial condition, results of operations or prospects.

We are subject to currency exchange rate fluctuations.

Due to the international scope of our operations, our assets, earnings and cash flows are influenced by movements in exchange rates of several currencies, particularly the U.S. dollar and the euro. Our functional currency is the euro and the majority of our operating expenses are paid in euro, but we also receive payments from our collaboration partners in U.S. dollars and we regularly acquire services, consumables and materials in U.S. dollars. Further, future revenue will be derived from abroad, particularly from the United States. As a result, our business may be affected by fluctuations in foreign exchange rates between the euro and the U.S. dollar, which may also have a significant impact on our reported results of operations and cash flows from period to period.

 

57


Table of Contents

Risks Related to the American Depositary Shares and this Offering

There has been no prior market for the ADSs on a U.S. national securities exchange and an active and liquid market for our securities may fail to develop, which could harm the market price of the ADSs.

Prior to this offering, while our shares have been traded on Frankfurt Stock Exchange since 1999, there has been no public market on a U.S. national securities exchange for the ADSs or our shares.

Although we intend to apply to list the ADSs on The Nasdaq Global Market, or Nasdaq, an active trading market for the ADSs may never develop or be sustained following this offering. The offering price of the ADSs will be based on the market price for our shares on Frankfurt Stock Exchange at the time of this offering. This offering price may not be indicative of the market price of the ADSs or shares after this offering. In the absence of an active trading market for the ADSs or shares, investors may not be able to sell their ADSs at or above the offering price or at the time that they would like to sell.

The price of our ADSs may be volatile and fluctuate due to factors beyond our control.

The price of the securities of publicly traded biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our ADSs may fluctuate significantly due to a variety of factors, including the following:

 

·   

positive or negative results of testing and clinical trials by us, our partners or competitors;

 

·   

delay in entering into partnerships with respect to the development or commercialization of proprietary product candidates or entry into partnerships on terms that are not deemed favorable to us;

 

·   

technological innovations or commercial product introductions by us or competitors;

 

·   

changes in government regulation;

 

·   

developments concerning proprietary rights, including patents and litigation matters;

 

·   

public concerns relating to the commercial value or safety of our product candidates;

 

·   

financing or other corporate transactions;

 

·   

publication of research reports or comments by securities or industry analysts;

 

·   

general market conditions in the pharmaceutical industry or in the economy as a whole;

 

·   

foreign exchange rate fluctuations; and

 

·   

other events and factors, many of which are beyond our control.

These and other industry and market factors may cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of the ADSs. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.

 

58


Table of Contents

You will incur immediate and substantial dilution as a result of this offering.

If you purchase ADSs in this offering, you will incur immediate and substantial dilution of                  ($                ) per ADS, after giving effect to the sale by us of the                 ADSs (representing                 ordinary shares) offered by us in the offering, based on an offering price of $                per ADS, with an ordinary share to ADS ratio of 1 to 4 and an exchange rate of $                 per euro, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Dilution for this purpose represents the difference between the price per ADS paid by new investors and net tangible book value per ADS immediately after the completion of the offering. As a result of the dilution to investors purchasing ADSs in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation.

We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.

Although we engage from time to time in share repurchases, we have never declared or paid any dividends on our ordinary shares and do not intend to do so in the foreseeable future, and any share repurchases will likely occur on the Frankfurt Stock Exchange. You are not likely to receive any dividends on your ADSs, and the success of an investment in ADSs will depend upon any future appreciation in its value. Investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs.

You may not receive distributions on the ordinary shares underlying our ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions, if any, it or the custodian receives on our ordinary shares after deducting any withholding taxes or other governmental expenses that must be paid and its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impracticable to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution to ADS holders. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical for us to make them available for you. These restrictions may have a material adverse effect on the value of your ADSs.

The dual listing of our shares and the ADSs following this offering may adversely affect the liquidity and value of the ADSs.

Following this offering and after the ADSs are traded on the Nasdaq, our shares will continue to be listed on the Frankfurt Stock Exchange. Trading of the ADSs or shares in these markets will take place in different currencies (U.S. dollars on the Nasdaq and euros on the Frankfurt Stock Exchange), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Germany). The trading prices of our shares on these two markets may differ due to these and other factors. Any decrease in the price of our shares on the Frankfurt Stock Exchange could cause a decrease in the trading price of the ADSs on the Nasdaq. Investors could seek to sell or buy our shares to take advantage of

 

59


Table of Contents

any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the shares available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs. We cannot predict the effect of this dual listing on the value of our ordinary shares and the ADSs. However, the dual listing of our shares and the ADSs may reduce the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the ADSs in the United States. Furthermore, in connection with any distributions of payments under the deposit agreement, the depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under the deposit agreement.

Future sales, or the perception of future sales, of a substantial number of our shares or ADSs could adversely affect the price of the ADSs, and actual sales of our equity will dilute shareholders and ADS holders.

Future sales of a substantial number of our shares or ADSs, or the perception that such sales will occur, could cause a decline in the market price of the ADSs. Following the completion of this offering, based on the number of shares outstanding as of December 31, 2017, we will have                 ordinary shares outstanding (assuming no exercise of the underwriters’ option to purchase additional ADSs). This includes the shares underlying the ADSs offered in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. If, after the period during which such lock-up agreements restrict sales of the ADSs and shares, these shareholders sell substantial amounts of shares or ADSs in the public market, or the market perceives that such sales may occur, the market price of the ADSs and our ability to raise capital through an issue of equity securities in the future could be adversely affected.

After the completion of the offering, we may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Holders of the ADSs are not treated as shareholders of our company.

By participating in this offering you will become a holder of ADSs with underlying shares in a German public company. Holders of the ADSs are not treated as our shareholders, unless they withdraw the shares underlying the ADSs from the depositary. The depositary is the holder of the shares underlying the ADSs. Holders of ADSs therefore do not have any rights as

 

60


Table of Contents

shareholders of our company, other than the rights that they have pursuant to the deposit agreement.

You may not be able to exercise your right to vote the shares underlying your ADSs.

Holders of ADSs may exercise voting rights with respect to the shares represented by the ADSs only in accordance with the provisions of the deposit agreement. You may instruct the depositary to vote the number of whole deposited shares your ADSs represent. The depositary will notify you of shareholders’ meetings or other solicitations of consents and arrange to deliver our voting materials to you if we ask it to. Those materials will describe the matters to be voted on and explain how you may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.

You may instruct the depositary to vote the shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the shares underlying the ADSs you hold. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions provided that any such failure is in good faith. This means that you may not be able to exercise your right to vote and there may be no remedies available to you if the shares underlying your ADSs are not voted as you requested. If we do not instruct the depositary to obtain your voting instructions, you can still instruct the depositary how to vote, and the depositary may vote as you instruct, but it is not required to do so.

Your right as a holder of ADSs to participate in any future preemptive subscription rights issues or to elect to receive dividends in shares may be limited, which may cause dilution to your holdings.

Under German law, the existing shareholders have a preemptive right to subscribe for shares offered in proportion to the amount of shares they hold in connection with any offering of shares. However, a shareholders’ meeting may vote, by a majority, which represents at least three quarters of the share capital represented at the meeting, to waive this preemptive right provided that, from the company’s perspective, there exists good and objective cause for such waiver.

Certain non-German shareholders may not be able to exercise their preemptive subscription rights in our future offerings due to the legislation and regulations of their home country. For example, ADS holders in the United States will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary need not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

 

61


Table of Contents

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

We are a “foreign private issuer”, as defined in the SEC’s rules and regulations. The Nasdaq Listing Rules include certain accommodations in the corporate governance requirements that allow foreign private issuers to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of Nasdaq. The application of such exceptions requires that we disclose the Nasdaq Listing Rules that we do not follow and describe the German corporate governance practices we do follow in lieu of the relevant Nasdaq corporate governance standard. If and when the ADSs are listed on Nasdaq, we intend to continue to follow German corporate governance practices in lieu of the corporate governance requirements of Nasdaq in certain respects. In particular, we intend to follow German corporate governance practices in connection with the distribution of annual and interim reports to shareholders, the application of our code of conduct to our supervisory board, proxy solicitation in connection with shareholders’ meetings, and obtaining shareholder approval in connection with the issuance of shares in connection with an acquisition, change of control transactions, the establishment or material amendment to any equity-based compensation plans and the issuance of shares in a private placement in excess of 20% of the outstanding share capital at less than the greater of book or market value. To this extent, our practice varies from the requirements of Nasdaq.

U.S. holders of ADSs may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

A non-U.S. corporation will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. In addition, a non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock.

Based on certain estimates of our gross income and gross assets, the latter determined by reference to the expected value of the ADSs and shares, we believe that we will not be classified as a PFIC for the taxable year ending December 31, 2018 and we do not expect to be treated as a PFIC in any future taxable year. However, because PFIC status is based on our income, assets and activities for the entire taxable year, which we expect may vary substantially over time, it is not possible to determine whether we will be characterized as a PFIC for any taxable year until after the close of the taxable year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in future years will depend on our income, assets and activities in each of those years. There can be no assurance that we will not be considered a PFIC for any taxable year.

 

62


Table of Contents

If we were to be or become a PFIC for any taxable year during which a U.S. holder (defined below in “Taxation—U.S. Taxation”) holds ADSs, certain adverse U.S. federal income tax consequences could apply to such U.S. holder. See “Taxation—U.S. Taxation—PFIC Rules”.

The interpretation of the treatment of ADSs by the German tax authorities is subject to change

The specific treatment of ADSs under German tax law is based on administrative provisions by the fiscal authorities, which are not codified law and are subject to change. Tax authorities may modify their interpretation and the current treatment of ADSs may change, as the circular issued by the German Federal Ministry of Finance (BMF-Schreiben), dated November 8, 2017, reference number IV C 1 – S 1980-1/16/10010 :10, shows. According to this new circular, ADSs are not treated as capital participation (Kapitalbeteiligung) within the meaning of Section 2 Para. 8 of the Investment Tax Code (Investmentsteuergesetz). Such changes in the interpretation by the fiscal authorities may have adverse effects on the taxation of investors.

We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter.

In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. Our foreign private issuer status will be tested on June 30 of each year. We expect that we will maintain our status on June 30, 2018, but in the future we may lose that status. This could occur if, for instance, a majority of our shareholders of record were U.S. citizens or residents and a majority of the executive officers or directors were U.S. citizens or residents or if a majority of our assets were located in the U.S.

The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP rather than IFRS. Such conversion of our financial statements to U.S. GAAP would involve significant time and cost, and we would still be required to prepare financial statements in accordance with IFRS under the rules of the Frankfurt Stock Exchange. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on United States stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

We are eligible to be treated as an “emerging growth company”, as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth

 

63


Table of Contents

companies, including (1) the ability to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; (2) an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; (3) to the extent that we no longer qualify as a foreign private issuer, (a) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and (b) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, including golden parachute compensation; and (4) an exemption from compliance with the requirement that the PCAOB has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our shares held by non-affiliates, or issue more than $1.0 billion of nonconvertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. For example, Section 107 of the JOBS Act provides that an emerging growth company that uses U.S. GAAP for financial reporting can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under IFRS we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

U.S. investors may have difficulty enforcing civil liabilities against our company and members of our supervisory board and management board and the experts named in this prospectus.

We are incorporated under the laws of Germany. The majority of our assets are located outside the United States and all of the members of our management board, five out of six supervisory board members and all members of our management board reside outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them or us in U.S. courts’ judgments predicated upon the civil liability provisions of the federal securities laws of the United States. Foreign courts may refuse to hear a United States securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim.

Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. We have been advised by Skadden, Arps, Slate, Meagher & Flom LLP, our German counsel, that there is currently no treaty between the United States and Germany providing for reciprocal recognition and enforceability of judgments rendered in connection with civil and commercial disputes and, accordingly, a final judgment rendered by a U.S. court based on civil liability would not be enforceable in Germany as such. However, a U.S. court’s judgment may carry evidentiary value in any proceedings for civil liability brought in the German courts.

 

64


Table of Contents

The rights of shareholders in a stock corporation subject to German law differ in material respects from the rights of shareholders of corporations incorporated in the United States.

We are a German stock corporation with our registered office in Germany. Our corporate affairs are governed by the laws governing stock corporations incorporated in Germany and our articles of association. The rights of shareholders and the responsibilities of members of our management board (Vorstand) and supervisory board (Aufsichtsrat) may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our management board and supervisory board may take into account a broad range of considerations, including our interests, the interests of our shareholders, employees, creditors and, to a limited extent, the general public. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a holder of ADSs. See “Description of Share Capital—Differences in Corporate Law”.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our shares.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements, or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.

For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

You may be subject to limitations on transfers of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

65


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements that are not of historical facts may be deemed to be forward-looking statements. You can identify these forward-looking statements by words such as “believes”, “estimates”, “anticipates”, “expects”, “plans”, “intends”, “may”, “could”, “might”, “will”, “should”, “aims” or other similar expressions that convey uncertainty of future events or outcomes. Forward-looking statements appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, our intellectual property position, results of operations, cash needs, spending of the proceeds from this offering, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from our expectations. These forward-looking statements include, without limitation, statements about the following:

 

·   

the timing, progress and results of pre-clinical studies and clinical trials for our product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

·   

the timing of and our ability to obtain and maintain regulatory approval for our product candidates;

 

·   

the proposed clinical development pathway for MOR208 and our other product candidates, and the acceptability of the results of such trials for regulatory approval of such product candidates by the FDA or comparable foreign regulatory authorities;

 

·   

our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use;

 

·   

our expectations regarding timing for meetings with regulatory agencies;

 

·   

our intent regarding the commercialization of MOR208;

 

·   

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

 

·   

our ability to identify and develop new product candidates;

 

66


Table of Contents
·   

our ability to identify new collaboration partners and successfully enter into new collaboration arrangements;

 

·   

our ability to identify, recruit and retain key personnel;

 

·   

our and our collaborators’ ability to protect and enforce our intellectual property protection for our proprietary and partnered product candidates, and the scope of such protection;

 

·   

our expectations with regard to our future revenues;

 

·   

our expectations regarding the future development of MOR202 in MM;

 

·   

the development of and projections relating to our competitors or our industry; and

 

·   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and a foreign private issuer.

Actual results could differ materially from our forward-looking statements due to a number of factors, including, the risks set forth under the section “Risk Factors” of this prospectus and elsewhere in this prospectus.

Any forward-looking statements that we make in this prospectus speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

 

67


Table of Contents

EXCHANGE RATES

The table below shows the period end, average, high and low exchange rates of U.S. dollars per euro for the periods shown. Average rates are computed by using the noon buying rate of the Federal Reserve Bank of New York for the euro on the last business day of each month during the relevant year indicated and for each business day during the relevant month indicated. The rates set forth below are provided solely for your convenience and may differ from the actual rates used in the preparation of our consolidated financial statements and other financial data included in this prospectus. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this exchange rate.

Fluctuations in the exchange rates between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of our ADSs on conversion of dividends, if any, paid in euro on our ordinary shares. The following table presents the information on the exchange rates between the euro and the U.S. dollar for the periods indicated:

 

Year Ended December 31,    High      Low      Average      Period end  

2013

     1.3816        1.2774        1.3281        1.3779  

2014

     1.3927        1.2101        1.3297        1.2101  

2015

     1.2015        1.0524        1.1096        1.0895  

2016

     1.1516        1.0375        1.1072        1.0552  

2017

     1.2041        1.0416        1.1301        1.2022  

 

Month Ended    High      Low      Average      Period end  

September 2017

     1.2041        1.1747        1.1913        1.1813  

October 2017

     1.1847        1.1580        1.1755        1.1648  

November 2017

     1.1936        1.1577        1.1743        1.1898  

December 2017

     1.2022        1.1725        1.1836        1.2022  

January 2018

     1.2488        1.1922        1.2197        1.2428  

February 2018

     1.2482        1.2211        1.2340        1.2211  

March 2018

     1.2440        1.2216        1.2334        1.2320  

 

68


Table of Contents

MARKET INFORMATION

Our shares have been trading on the Frankfurt Stock Exchange under the symbol “MOR” since 1999.

The following table sets forth for the periods indicated the reported high and low closing sale prices per ordinary share in Xetra trading in euros on the Frankfurt Stock Exchange.

 

(in €)    High      Low  

Annual

     

2013

     61.35        29.29  

2014

     86.72        55.45  

2015

     78.65        52.52  

2016

     56.07        33.25  

2017

     82.95        47.60  

Quarterly

     

First Quarter 2016

     56.07        35.00  

Second Quarter 2016

     51.31        33.25  

Third Quarter 2016

     40.50        35.90  

Fourth Quarter 2016

     48.75        38.77  

First Quarter 2017

     60.38        47.60  

Second Quarter 2017

     66.67        51.00  

Third Quarter 2017

     71.71        56.14  

Fourth Quarter 2017

     82.95        71.86  

Monthly

     

October 2017

     79.04        71.86  

November 2017

     82.95        76.50  

December 2017

     81.26        74.77  

January 2018

     87.05        77.50  

February 2018

     82.15        72.05  

March 2018

     87.25        77.60  

 

69


Table of Contents

USE OF PROCEEDS

We estimate that we will receive total net proceeds of approximately $                 million, assuming that the number of ADSs offered by us, price per ADS, exchange rate and ratio of shares to ADSs, each as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional ADSs, we estimate that the net proceeds of the offering will be approximately $                million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering, together with a portion of our cash and cash equivalents, available-for-sale financial assets, and current financial assets classified as loans and receivables (in aggregate of 312.2 million as of December 31, 2017) to continue the development of our proprietary clinical pipeline, initiate pre-commercial and commercial activities and to advance earlier stage product candidates in particular, in order of priority, as follows:

 

·   

Approximately $225 million for the continuation and further development of MOR208, our wholly-owned anti-CD19 antibody currently being evaluated in r/r DLBCL (a) in combination with lenalidomide for patients ineligible for HDCT and ASCT, (b) in combination with bendamustine for patients ineligible for HDCT and ASCT, and (c) in CLL in combination with either idelalisib or venetoclax in patients who have relapsed after prior therapy with a Bruton’s tyrosine kinase inhibitor;

 

·   

Approximately $90 million to build our commercial capabilities in connection with the potential future approval of MOR208;

 

·   

Approximately $20 million for the financing of clinical development of MOR202 (in MM and in NSCLC in combination with a checkpoint inhibitor) and approximately $30 million for the clinical development of MOR106 (in atopic dermatitis); and

 

·   

Approximately $45 million for discovery programs and the development of our technology platforms.

We expect to use the remainder of any net proceeds from the offering as well as existing cash and cash equivalents for general corporate purposes. We may also use a portion of the net proceeds to in-license, acquire or invest in complementary technologies, products, businesses or assets, either alone or together with a collaboration partner. However, we have no current plans, commitments or obligations to do so.

With the net proceeds from this offering as well as our other available sources of liquidity, we expect (a) in respect of MOR208, to be able to complete BLA submissions for our L-MIND and B-MIND trials and to reach primary completion in our L-MIND study, (b) in respect of MOR202, to conduct a Phase 1/2 trial in NSCLC and to complete the current Phase 1/2a in MM, and (c) in respect of MOR106, to conduct a Phase 2 trial in AD. Our expected use of the net proceeds from this offering represents our current expectations of our funding needs in respect of those uses through 2020, based upon our present plans, business conditions and expectations for further clinical development, each of which could change in the future as our plans and business conditions evolve. After 2020, we expect that there will be continued clinical trial costs associated with MOR202 and our earlier

 

70


Table of Contents

stage product candidates, in particular MOR106, as well as costs associated with the commercialization of MOR208, though we cannot estimate these costs with certainty. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will specifically spend on the uses set forth above. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status of and results from our clinical trials and pre-clinical studies, our ability to obtain regulatory approvals in respect of our product candidates, changes in the competitive landscape, management decisions to work together with collaboration partners, the level and timing of milestones and royalty payments received, and any unforeseen cash needs. Please see also “Risk Factors” and “Special Note Regarding Forward-Looking Statements”. As a result, our management will have broad discretion in applying the net proceeds of this offering and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue other clinical trials or pre-clinical activities if the net proceeds from this offering and our other sources of cash are less than expected.

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per ADS (based on the last reported sales price of our ordinary shares on the Frankfurt Stock Exchange on                , 2018 of                 , an ordinary share to ADS ratio of 1 to 4, and an exchange rate of $                 per euro) would increase or decrease our net proceeds from this offering by $                , assuming that the other assumptions set forth on the cover of this prospectus remain the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ADSs we are offering. Each increase or decrease of 100,000 ADSs in the number of ADSs offered by us would increase or decrease the net proceeds to us from the sale of the ADSs we are offering by $                , assuming that the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions. The information on net proceeds payable to us discussed above is illustrative only and will adjust based on the actual initial public offering price, the actual number of ADSs offered by us, and other terms of the offering determined at pricing.

Pending their use, we intend to invest the net proceeds from this offering in a variety of capital preservation investments, including money market deposits and investment funds that will be designated as financial assets at fair value through profit and loss in our consolidated statement of financial position.

 

71


Table of Contents

DIVIDEND POLICY

We have not paid any dividends on our ordinary shares since our inception, and we currently intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not anticipate that we will declare or pay any cash dividends in the foreseeable future. Except as required by law, any future determination to pay cash dividends will be at the discretion of our management board and supervisory board and will be dependent upon our financial condition, results of operations, capital requirements, and other factors our management board and supervisory board deem relevant.

All of the shares represented by the ADSs offered by this prospectus will generally have the same dividend rights as all of our other outstanding shares. However, the depositary may limit distributions based on practical considerations and legal limitations. See “Description of American Depositary Shares—Dividends and Other Distributions”. Any distribution of dividends proposed by our management and supervisory boards requires the approval of our shareholders in a shareholders’ meeting. See “Description of Share Capital—Dividend Rights”, which explains in more detail the procedures we must follow and the German law provisions that determine whether we are entitled to declare a dividend.

For information regarding the German withholding tax applicable to dividends and related United States refund procedures, see “Taxation—German Taxation—German Taxation of Holders of ADSs”.

 

72


Table of Contents

CAPITALIZATION

The following table sets forth our cash, cash equivalents and other financial assets and capitalization on a consolidated basis as of December 31, 2017:

 

·   

on an actual basis, and

 

·   

on an as adjusted basis to give effect to the issuance and sale of                 ADSs representing                ordinary shares in this offering by us assuming an initial public offering price of $                 per ADS, based on the last reported sales price of our ordinary shares on the Frankfurt Stock Exchange on                , 2018, of                 , per ordinary share, an ordinary share to ADS ratio of 1 to 4, and an exchange rate of $                 per euro, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds” and excluding the underwriters’ option to purchase additional ADSs.

Investors should read this table together with our consolidated financial statements, including the notes thereto, included in this prospectus, as well as “Use of Proceeds”, “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

      As of December 31, 2017  
(in € thousands)    Actual      As adjusted(1)(2)  

Cash, cash equivalents and other financial assets(3)

     312,187     
  

 

 

 

Borrowings (long and short term)

         

Stockholders’ Equity

     

Common Stock

     29,421     

Treasury Stock, at Cost

     (11,827   

Additional Paid-in Capital

     438,558     

Revaluation Reserve

     (105   

Accumulated Income/(Deficit)

     (97,375   
  

 

 

 

Total Stockholders’ Equity

     358,671     
  

 

 

 

Total Capitalization

     358,671           

 

(1) The as adjusted information is presented for informational purposes only and is not necessarily indicative of what our financial position and results would have been had these transactions actually occurred at such date nor is it indicative of our future financial position or performance.

 

(2) Each $1.00 increase or decrease in the assumed initial public offering price of $                per ADS would increase or decrease, as applicable, the amount of cash, cash equivalents and other financial assets, total stockholders’ equity and total capitalization by $                million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ADSs we are offering. An increase or decrease of 100,000 in the number of ADSs we are offering would increase or decrease, as applicable, the amount of cash, cash equivalents and other financial assets, total stockholders’ equity and total capitalization by approximately $                million, assuming the assumed initial public offering price per ADS remains the same. The as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

 

(3) Includes cash and cash equivalents (76,589 thousand as of December 31, 2017), available-for-sale financial assets (86,538 thousand as of December 31, 2017), and current financial assets classified as loans and receivables (149,059 thousand as of December 31, 2017).

 

73


Table of Contents

DILUTION

If you invest in the ADSs, your ownership interest will be diluted to the extent of the difference between the initial public offering price per ADS paid by purchasers of the ADSs and the pro forma as adjusted net tangible book value per ADS immediately after the completion of this offering. As of December 31, 2017, we had a net tangible book value of                  million, corresponding to a net tangible book value of                  per ordinary share or                  per ADS based on an ordinary share to ADS ratio of 1 to 4. Historical net tangible book value per ordinary share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our ordinary shares outstanding at December 31, 2017. Historical net tangible book value per ADS represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our ordinary shares outstanding at December 31, 2017 converted to ADS at a ratio of 1 to 4.

After giving effect to the issuance and sale of                 ADSs (representing an aggregate of                      ordinary shares) at an assumed offering price of $                 per ADS, based on the last reported sales price of our shares on the Frankfurt Stock Exchange on                , 2018 of                 , an ordinary share to ADS ratio of 1 to 4, and an exchange rate of $                 per euro, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2017 would have been approximately                , representing                 per ordinary share or                 per ADS. This represents an immediate increase in pro forma as adjusted net tangible book value of                 per ordinary share or                 per ADS to existing shareholders and an immediate dilution in net tangible book value of                per ordinary share or                 per ADS to new investors purchasing ADSs in this offering. Dilution for this purpose represents the difference between the price per ADS paid by these purchasers and the net tangible book value per ADS immediately after the completion of this offering.

The following table illustrates this dilution to new investors purchasing ADSs in the offering, assuming either no exercise or full exercise of the underwriters’ option to purchase additional ADSs:

 

      No exercise      Full exercise  
      (in €)      (in $)      (in €)      (in $)  

Assumed initial public offering price per ADS

           

Historical net tangible book value as of December 31, 2017 per ADS

           

Increase in net tangible book value attributable to investors purchasing ADSs in this offering

           

Pro forma as adjusted net tangible book value as of December 31, 2017 per ADS

           

Dilution to new investors per ADS

           

Dilution to new investors per ordinary share (on ADS basis)

                                   

A $1.00 increase (decrease) in the assumed initial public offering price of $                 per ADS would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $             per ADS, and the dilution in pro forma as adjusted net tangible book value to new

 

74


Table of Contents

investors by $            per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 100,000 ADSs in the number of ADSs offered by us would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $             per ADS and decrease (increase) the dilution to investors participating in this offering by approximately $             per ADS, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes on a pro forma as adjusted basis, as of December 31, 2017, the differences between the shareholders as of December 31, 2017, and the new investors with respect to the number of ordinary shares and ADSs purchased from us (using an ordinary share to ADS ratio of 1 to 4), the total consideration paid (for existing shareholders, translated into US dollars at $                per euro) and the average price per ordinary share paid by existing shareholders (translated into US dollars at $                per euro) and by investors participating in this offering at an assumed initial public offering price of $                 per ADS after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the underwriters’ option to purchase additional ADSs:

 

     ADS Purchased     Ordinary Shares
Purchased
    Total Consideration                
     Number     Percent     Number     Percent     Amount     Percent     Average
Price per
Share
    Average
Price per
ADS
 

Existing shareholders

      %         %     $       %     $     $  

New investors

      %         %     $       %     $     $  
 

 

 

     

Total

            100%               100%     $       100%                  

A $1.00 increase (decrease) in the assumed initial public offering price of $                 per ADS would increase (decrease) total consideration paid by new investors by                , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional ADSs in full, our existing shareholders would own                ordinary shares, or                %, in the aggregate, and our new investors would own                 ordinary shares, or                %, in the aggregate.

The number of our ordinary shares to be outstanding after this offering is based on the number of ordinary shares outstanding as of December 31, 2017, and excludes any ordinary shares that may be reserved for future issuance under our convertible bonds and performance share and stock option plans. See “Management—Management Board—Share-Based Incentive Plans”.

To the extent we grant options or other equity awards to our employees or members of our management board in the future, and those options or other equity awards are exercised in the future or other issuances of our ordinary shares are made, there will be further dilution to new investors.

 

75


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

The financial data as of and for the years ended December 31, 2016 and 2017, have been derived from our audited consolidated financial statements and the related notes, which are included elsewhere in this prospectus and which have been prepared in accordance with IFRS.

The financial data presented below are not necessarily indicative of the financial results to be expected for any future periods. The financial data below do not contain all the information included in our financial statements. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and related notes, each included elsewhere in this prospectus.

The following tables also contain translations of euro amounts into U.S. dollars for amounts presented as of and for the year ended December 31, 2017. These translations are solely for convenience of the reader and were calculated at the rate of 1.00 per $1.2022, which equals the noon buying rate of the Federal Reserve Bank of New York on December 29, 2017. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this exchange rate.

Consolidated Statement of Income Data:

 

      Year ended December 31,  
     2016     2017  
     (in €)     (in €)     (in $)  
      (in thousands except per share data)  

Revenues

     49,744       66,791       80,296  

Operating Expenses

      

Research and Development

     (95,723     (116,809     (140,428

General and Administrative

     (14,116     (17,039     (20,484

Total Operating Expenses

     (109,839     (133,848     (160,912

Other Income

     709       1,120       1,346  

Other Expenses

     (554     (1,671     (2,009

Earnings before Interest and Taxes (EBIT)

     (59,941     (67,608     (81,278

Finance Income

     1,385       712       856  

Finance Expenses

     (1,308     (1,895     (2,278

Income Tax Expenses

     (519     (1,036     (1,245

Consolidated Net Profit/(Loss)

     (60,383     (69,827     (83,946

Earnings per Share, basic and diluted(1)

     (2.28     (2.41     (2.90

Shares Used In Computing Earnings per Share (in units), basic and diluted(1)

     26,443,415       28,947,566       n/a  

Dividends Declared per Share

                  

 

(1) Basic and diluted Earnings per Share are the same in each of the years ended December 31, 2016 and 2017, because the assumed exercise of outstanding stock options and convertible bonds would be anti-dilutive due to our consolidated net loss in the respective period.

 

76


Table of Contents

Consolidated Balance Sheet Data:

 

     As of December 31,  
    2016     2017  
    (in €)     (in €)     (in $)  
     (in thousands)  

Cash and Cash Equivalents

    73,929       76,589       92,075  

Available-for-sale Financial Assets

    63,362       86,538       104,036  

Bonds, Available-for-sale

    6,532              

Financial Assets classified as Loans and Receivables (current and non-current)

    215,630       149,059       179,199  

Total Current Assets

    308,056       340,681       409,567  

Total Assets

    463,600       415,398       499,391  

Total Liabilities

    48,140       56,727       68,197  

Total Stockholders’ Equity

    415,460       358,671       431,194  

 

77


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of the financial condition and results of operations of the Company in conjunction with the section entitled “Selected Consolidated Financial Data” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and opinions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences or cause our actual results or the timing of selected events to differ materially from those anticipated in these forward-looking statements include those set forth under “Risk Factors”, “Special Note Regarding Forward-Looking Statements” and elsewhere in this prospectus.

Overview

We are a late-stage biopharmaceutical company devoted to the development of innovative and differentiated therapies for patients suffering from serious diseases. Based on our proprietary technology platforms and leadership in the field of therapeutic antibody discovery, generation and engineering, we, together with our partners, have participated in the development of more than 100 therapeutic product candidates. Our broad pipeline spans two business segments: Proprietary Development, in which we invest in and develop product candidates, and Partnered Discovery, in which we generate product candidates for our partners in the pharmaceutical and biotechnology industries against targets identified by our partners. We currently have 28 product candidates in clinical development, including our most advanced proprietary product candidate, MOR208, for the treatment of relapsed or refractory diffuse large B cell lymphoma, or r/r DLBCL. We believe our pipeline of novel and differentiated product candidates has the potential to treat serious diseases and improve the lives of patients.

Our late-stage and most advanced proprietary product candidate, MOR208, received breakthrough therapy designation, or BTD, from the U.S. Food and Drug Administration, or the FDA, in 2017 in combination with lenalidomide for the treatment of patients with r/r DLBCL, who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. We hold worldwide rights to develop and market MOR208. Also in 2017, Tremfya®, developed by our partner Janssen, became the first therapeutic antibody based on our proprietary technology to reach the market. Tremfya®, which is approved to treat moderate-to-severe plaque psoriasis, was launched in the United States in July 2017 and received approval for marketing in the European Union and Canada in November 2017.

Based on our heritage as an antibody discovery and development company, we have a large and diverse pipeline, composed of both proprietary and partnered programs, in multiple therapeutic areas and across all development phases. The combination of our technology platforms and antibody expertise has allowed us to generate promising product candidates and enter into multiple strategic collaborations with leading global pharmaceutical and biotechnology companies. These collaborations provide us with an additional funding source and allow us to leverage our collaborators’ expertise to advance the development of our proprietary product candidates.

 

78


Table of Contents

Financially, our goal is to maximize our portfolio’s full value by investing in proprietary product candidates while maintaining financial discipline and strict cost controls to increase enterprise value. Our business performance is influenced by factors such as license and milestone payments, research and development expenses, other operating cash flows, existing liquidity resources, expected cash inflows and working capital. As of December 31, 2017, we had cash and cash equivalents, available-for-sale financial assets, and current financial assets classified as loans and receivables of 312.2 million.

In recent years, we have incurred significant operating losses due to substantial research and development expenses incurred for the development of our proprietary product candidates. None of our proprietary product candidates have been approved. We have only generated revenues from collaboration agreements and have never generated any revenue from proprietary product sales. Our ability to generate revenue sufficient to achieve profitability depends significantly upon the successful development and eventual commercialization of one or more of our proprietary or partnered product candidates, which may never occur. In 2017, we incurred earnings before finance income, finance expenses, and income taxes of negative 67.6 million, and as of December 31, 2017, we had an accumulated deficit of 97.4 million.

We expect our expenses to increase substantially in connection with our continuing development activities related to our pre-clinical and clinical programs. We anticipate that our costs will increase substantially if and as we:

 

·   

continue to fund the B-MIND, L-MIND and COSMOS studies for our lead product candidate MOR208;

 

·   

build our commercial capabilities in connection with the potential future approval of MOR208;

 

·   

continue to develop MOR202, potentially in one or more oncology indications either alone or together with a partner;

 

·   

develop our earlier stage product candidates, in particular MOR106;

 

·   

seek to invest in and enhance our technology platform;

 

·   

seek to discover and develop additional product candidates;

 

·   

seek regulatory approval for any product candidates that successfully complete clinical trials;

 

·   

obtain, maintain, expand and protect our intellectual property portfolio, including litigation costs associated with the assertion of our intellectual property rights and the defense against alleged patent or other intellectual property infringement claims;

 

·   

add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts;

 

·   

experience any delays or encounter any issues with respect to any of the above, including failed studies, ambiguous trial results, safety issues or other regulatory challenges; and

 

·   

operate as a publicly listed company in the United States.

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from own product sales, if ever, we expect to

 

79


Table of Contents

finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties as well as royalties and milestones from partnered programs. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Segments

We operate two reportable segments:

 

·   

Proprietary Development—The Proprietary Development segment focuses on developing therapeutic antibodies and peptides developed using our proprietary technology platforms and candidates in-licensed from other companies. During clinical development, we determine whether and at which point we may pursue a partnership for later development and commercialization. The product candidate can then be either completely out-licensed or developed further in cooperation with a pharmaceutical or biotechnology company (co-development). Projects may be developed on a proprietary basis until they are ready for commercialization. In selected cases, we intend to retain certain geographic rights and commercialize products in these areas on our own while seeking partners for commercialization elsewhere.

 

·   

Partnered Discovery—In the Partnered Discovery segment, we generate antibody candidates for partners in the pharmaceutical and biotechnology industries. We receive contractual payments including license fees for technologies and funded research, as well as success-based milestone payments and royalties on product sales. The funds generated from these partnerships support our long-term business model and help fund our proprietary development activities.

Key Factors Affecting Results of Operations

 

·   

Research and development expenses—Our ability to successfully develop innovative product candidates will be the primary factor affecting our future growth and development. Developing novel product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. We currently have five Proprietary Development product candidates under clinical investigation. For more information on these product candidates, see “Business—Proprietary Development”.

All of the product candidates in our Proprietary Development segment are still in development, and we have incurred and will continue to incur significant research and development costs for pre-clinical studies and clinical trials. We expect that our research and development expenses will continue to constitute the substantial majority of our expenses in future periods in line with the advance and expansion of the development of our product candidates.

We have historically been able to fund the research and development expenses from a variety of sources, including cash flows generated from our Partnered Discovery segment, milestone payments from our partnerships in our Proprietary Development segment and proceeds received from capital increases.

 

80


Table of Contents

If completed, the net proceeds to us from this offering will also be an important source of funds for our research and development. For more information on the nature of the intended uses for the proceeds from this offering, see “Use of Proceeds”.

 

·   

Our and our collaborators’ ability to commercialize our product candidates—Our ability to generate revenue from our product candidates depends on our and our collaborators’ ability to successfully complete clinical trials for our product candidates and receive regulatory approval, particularly in the United States, Europe, and other major markets.

We believe that our broad portfolio of product candidates with both novel and validated targets enhances the likelihood that our research and development efforts will yield successful product candidates. Nonetheless, we cannot be certain if any of our product candidates will receive regulatory approvals. Even if such approvals are granted, we will thereafter need to establish manufacturing and supply arrangements and engage in extensive marketing prior to generating any revenue from such products, and the ultimate commercial success of our products will depend on their acceptance by patients, the medical community and third-party payors and their ability to compete effectively with other therapies on the market.

The competitive environment is also an important factor with the commercial success of our product candidates, and our ability to successfully commercialize a product candidate will depend on whether there are competing product candidates being developed or already marketed by other companies.

 

·   

Our collaborations—Our results of operations have been, and we expect them to continue to be, affected by our collaborations with third parties for the development and commercialization of certain of our product candidates. In 2016 and 2017, our results of operations were significantly affected by our collaboration agreements with Janssen, Novartis, I-Mab Biopharma and Pfizer. Our collaboration partners have historically covered all or a significant portion of our research and development costs for product candidates developed in collaboration with them. In many of our collaboration arrangements, our research and development obligations have ceased, including in respect of our former collaboration with Novartis and our obligations under our agreement with Janssen. Generally, we receive upfront payments upon our entry into a collaboration agreement and milestone payments upon the achievement of certain development, regulatory or commercial milestones for the relevant product candidate. Nearly all of our revenue in 2016 and 2017 was derived from licensing fees, service fees and milestone payments. We are also eligible to receive royalty payments (generally a mid single-digit to low-teens percentage rate) upon commercial sale of products.

Following the conclusion of our partnership with Novartis, we expect our future revenues to depend mainly on product sales and royalty payments to us on such product sales. Revenues from funded research and license fee payments are expected to be significantly negatively affected in 2018 by the conclusion of this collaboration, which will in turn have a significant negative impact on our future revenues.

Key Components of Results of Operations

Revenues

Our revenue currently consists of license fees, including royalties, milestone payments, and service fees.

 

81


Table of Contents

License fees consist of non-refundable fees for providing access to technologies and fees for the use of technologies as well as upfront payments made to us in connection with collaboration and license agreements and royalties paid on net sales of licensed products.

We receive milestone payments under our collaboration agreements, upon the occurrence of meeting certain milestones as set forth in the respective collaboration agreement. Generally, milestone payments are achieved upon meeting certain clinical trial phases and on obtaining final approval of a specified therapeutic.

We receive service fees for the performance of research and development activities.

Research and Development Expenses

Research and development expenses consist of expenses incurred in performing research and development activities. These expenses include conducting research experiments, pre-clinical and clinical studies, and other indirect expenses in support of advancing our product candidates. The following items are included in research and development expenses:

 

·   

employee-related expenses such as salaries and benefits (including share-based payment expense);

 

·   

amounts paid to vendors and suppliers for laboratory supplies;

 

·   

research and development-related maintenance and travel expenses;

 

·   

amortization, depreciation and other costs of tangible and intangible assets (such as impairment charges for intangible assets as well as patent and license costs);

 

·   

costs to file and protect intellectual property;

 

·   

fees paid to consultants, subcontractors, CROs, CMOs and other third-party vendors for work performed under our clinical trials and pre-clinical studies; and

 

·   

depreciation and other costs for infrastructure (such as depreciation of office and laboratory equipment and furniture and fixtures as well as rent and utilities).

Our research and development expenses may vary from period to period based on the timing of our research and development activities, including the timing of initiation of clinical trials and enrolment of patients in clinical trials. Research and development expenses are expected to continue to constitute the substantial majority of our expenses as we advance the clinical development of our current product candidates.

General and Administrative Expenses

General and administrative expenses consist of personnel expenses (including share-based payment expenses), consumable supplies, general and administrative related maintenance and travel expenses, amortization of intangible assets (such as software), expenses for external services, depreciation and other costs for infrastructure.

Income Tax Expense

MorphoSys AG and our German subsidiary Sloning BioTechnology GmbH are subject to German corporate taxes, the solidarity surcharge and trade taxes. In 2017, the overall tax rate of the German entities comprises corporate income tax of 15%, a solidarity surcharge of 5.5% on the corporate tax and an average trade tax of 10.85%.

 

82


Table of Contents

The Dutch entities Lanthio Pharma B.V. and LanthioPep B.V. are subject to an income tax rate of 25% on annual income exceeding 200,000, and annual income below 200,000 is subject to a tax rate of 20%. Subject to certain conditions, a tax rate of 5% may be applicable under what is known as the “Innovation Box”.

Critical Accounting Policies and Significant Judgments and Estimates

Revenue Recognition

Under IAS 18.9, revenues are measured at the fair value of the consideration received or receivable. In accordance with IAS 18.20b, revenues are recognized only to the extent that it is sufficiently probable that we will receive the economic benefits associated with the transaction.

Discounts that are likely to be granted and whose amount can be reliably determined are recognized as a reduction in revenue at the time of revenue recognition. The timing of the transfer of risks and rewards varies depending on the terms of the sales contract. In accordance with IAS 18.21 and 18.25, revenue from multiple-component contracts is recognized by allocating the total consideration to the separately identifiable components based on their respective fair values and by applying IAS 18.20. The applicable revenue recognition criteria are assessed separately for each component.

License fees and milestone payments

Revenues related to non-refundable fees for providing access to technologies, fees for the use of technologies and license fees are recognized on a straight-line basis over the period of the agreement unless a more appropriate method of revenue recognition is available. The period of the agreement usually corresponds to the contractually agreed term of the research project or, in the case of contracts without an agreed project term, management’s expected term of the collaboration. If all IAS 18.14 criteria are met, revenue is recognized immediately and in full. Revenues from milestone payments are recognized upon achievement of certain contractual criteria.

Service fees

Service fees from research and development collaborations are recognized in the period the services are provided.

Share-Based Payments

We apply the provisions under IFRS 2 “Share-based Payment”, which require us to spread compensation expenses from the estimated fair values of share-based payments on the reporting date over the period in which the beneficiaries provide the services which triggered the granting of the share-based payments.

IFRS 2 “Share-based Payment” requires the consideration of the effects of share-based payments if we acquire goods or services in exchange for shares or stock options (“settlement in equity instruments”) or other assets that represent the value of a specific number of shares or stock options (“cash settlement”). The key impact of IFRS 2 on us is the expense resulting from the use of an option pricing model in relation to share-based incentives for employees and the management board.

 

83


Table of Contents

Impairments

Non-derivative financial instruments

A financial instrument not carried at fair value through profit or loss is assessed at each reporting date to determine if there is objective evidence for impairment. A financial instrument is impaired if objective evidence indicates that an event has occurred after the initial recognition of the asset that could result in a loss and whether that event could have a negative effect on the asset’s estimated future cash flows, which can be assessed reliably.

Objective evidence that financial instruments are impaired can include the default or delinquency of a debtor, indications that a debtor or issuer will enter insolvency, adverse changes in the payment status of borrowers or issuers in our group as well as economic conditions that correlate with defaults or the disappearance of an active market for a marketable security. A significant or prolonged decline in a financial instrument’s fair value below its acquisition cost is objective evidence of impairment.

Receivables

We consider evidence of the impairment of receivables on an individual level. All individually significant receivables are tested specifically for impairment.

For a financial instrument measured at amortized cost less impairment, impairment is calculated as the difference between its carrying amount and the present value of the estimated future cash flows. Cash flows are discounted at the asset’s initial effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When a subsequent event (e.g., repayment by a debtor) causes the amount of impairment to decrease, the impairment is reversed through profit and loss.

Available-for-sale financial assets

In case of objective indications, impairment of available-for-sale financial assets is recognized by reclassifying the accumulated losses from the revaluation reserve in equity to profit and loss. The amount of the accumulated loss to be reclassified from equity to profit and loss is the difference between the acquisition cost less amortization and any principal repayment and the current fair value less any impairment previously recognized in profit or loss. Impairment losses recognized in profit and loss for an investment in a financial instrument classified as available-for-sale are not reversed through profit and loss. If in a subsequent period the fair value of an impaired available-for-sale debt instrument increases and this increase can be objectively linked to an event occurring after the impairment was recognized in profit or loss, then the impairment loss is reversed, and the amount of the reversal is recognized in profit or loss.

Non-financial assets

The carrying amounts of our non-financial assets and inventories are reviewed at each reporting date for any indication of impairment. The non-financial asset’s recoverable amount and inventories’ net realizable value is estimated if such indication exists. For goodwill and intangible assets that have indefinite useful lives or are not yet available for use, the recoverable amount is estimated at the same time each year, or on an interim basis, if required. Impairment is recognized if the carrying amount of an asset or the cash-generating unit, or CGU, exceeds its estimated recoverable amount.

 

84


Table of Contents

The recoverable amount of an asset or CGU is the greater of its value-in-use or its fair value less costs of disposal. In assessing value-in-use, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purposes of impairment testing, assets that cannot be tested individually are grouped into the smallest group of assets that generates cash flows from ongoing use that are largely independent of the cash flows of other assets or CGUs. A ceiling test for the operating segment must be carried out for goodwill impairment testing. CGUs that have been allocated goodwill are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination may be allocated to groups of CGUs that are expected to benefit from the combination’s synergies.

Our corporate assets do not generate separate cash flows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and are tested for impairment as part of the impairment testing of the CGU that was allocated the corporate asset.

Impairment losses are recognized in profit and loss. Goodwill impairment cannot be reversed. For all other assets, impairment recognized in prior periods is assessed on each reporting date for any indications that the losses decreased or no longer exist. Impairment is reversed when there has been a change in the estimates used to determine the recoverable amount. Impairment losses can only be reversed to the extent that the asset’s carrying amount does not exceed the carrying amount net of depreciation or amortization that would have been determined if an impairment had not been recognized.

Fair Value Measurements

Fair value is measured in accordance with IFRS 13 “Fair Value Measurement” by using the same assumptions and taking into account the same characteristics of the asset or liability as would an independent market participant. Fair value is a market-based, not an entity-specific measurement. The fair value of non-financial assets is based on the best use of the asset by a market participant. For financial instruments, the use of bid prices for assets and ask prices for liabilities is permitted but not required if those prices best reflect the fair value in the respective circumstances. For simplification, mean rates are also permitted. Thus, IFRS 13 not only applies to financial assets but all assets and liabilities.

We use the following hierarchy for determining and disclosing the fair value of financial instruments:

 

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities to which the Company has access.

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

 

Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

 

85


Table of Contents

Deferred Taxes

The calculation of deferred taxes is based on the balance sheet liability method that refers to the temporary differences between the carrying amounts of assets and liabilities and the amounts used for taxation purposes. The method of calculating deferred taxes depends on how the asset’s carrying amount is expected to be realized and how the liabilities will be repaid. The calculation is based on the prevailing tax rates or those adopted on the reporting date.

Deferred tax assets are offset against deferred tax liabilities if the taxes are levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.

Deferred tax assets are recognized only to the extent that it is likely that there will be future taxable income to offset. Deferred tax assets are reduced by the amount that the related tax benefit is no longer expected to be realized.

Changes in accounting policies and disclosures

For a discussion of new accounting standards and interpretations not yet adopted by us, please see note 2.1.2 “Changes in accounting policies and disclosures” in the notes to our consolidated financial statements included in this prospectus.

Results of Operations

Revenues

In 2017, revenues increased by 34.4%, or 17.1 million, from 49.7 million in 2016 to 66.8 million in 2017. The increase in revenues was primarily a result of a $20.0 million (equal to 16.8 million at the then-prevailing exchange rate) upfront payment received and fully recognized in 2017 following the signing of an exclusive regional license agreement with I-Mab Biopharma for the development and commercialization of MOR202 in China, Taiwan, Hong Kong and Macao. In 2016 and 2017, revenues were significantly and positively affected by funded research and license fees from a collaboration agreement with Novartis that concluded at the end of 2017. On a regional basis, revenues with biotechnology and pharmaceutical companies in the United States and Canada increased by 70.6%, or 3.6 million, from 5.1 million in 2016 to 8.7 million in 2017 primarily due to higher success-based payments received mainly from Janssen. Revenues with customers in Europe or Asia increased by 30.0%, or 13.4 million, from 44.7 million in 2016 to 58.1 million in 2017 primarily due to the upfront payment received from I-Mab Biopharma in 2017 and was partially offset by lower revenues received from Novartis in 2017.

In 2017, 90.4% of our revenues were attributable to activities with our partners Novartis, I-Mab Biopharma and Janssen, whereas 94.8% of our revenues in 2016 were attributable to activities with our partners Novartis, Pfizer and Janssen. This change is due to entry into the agreement with I-Mab Biopharma in 2017 and receipt of the related upfront payment.

Proprietary Development

In 2017, revenue in our Proprietary Development segment increased by 17.0 million, from 0.6 million in 2016 to 17.6 million in 2017. This increase was due to the revenue recognized from the upfront payment received under our 2017 agreement with I-Mab Biopharma.

 

86


Table of Contents

Partnered Discovery

In 2017, revenue in our Partnered Discovery segment increased by 0.1 million, from 49.1 million in 2016 to 49.2 million in 2017. These amounts include 43.6 million in 2016 and 41.9 million in 2017 in funded research and license fees, received primarily in connection with the collaboration with Novartis as well as 5.6 million in 2016 and 7.3 million in 2017 in success-based payments received primarily from Janssen and Novartis. Revenue in our Partnered Discovery segment included 1.9 million of royalties on net sales of Tremfya® in 2017. As a result of the conclusion of our collaboration arrangement with Novartis, we no longer expect to receive significant recurring research and license fees from Novartis, and further revenue received from Novartis, if any, will consist of milestone payments and royalties from sales of approved products.

Operating Expenses

In 2017, operating expenses increased by 21.9%, or 24.0 million, from 109.8 million in 2016 to 133.8 million in 2017. This increase was driven by higher research and development as well as general and administrative expenses. Research and development expenses increased by 22.0%, or 21.1 million, from 95.7 million in 2016 to 116.8 million in 2017 mainly as a result of increased expenses for external services related to development in our Proprietary Development segment. General and administrative expenses increased by 20.6%, or 2.9 million, from 14.1 million in 2016 to 17.0 million in 2017 mainly due to higher personnel expenses and external services.

In 2017, operating expenses in our Proprietary Development segment increased by 26.2%, or 20.6 million, from 78.5 million in 2016 to 99.1 million in 2017, primarily due to an increase in research and development expenses. Research and development expenses in our Proprietary Development segment, including technology development, increased by 26.2%, or 20.6 million, from 78.5 million in 2016 to 99.1 million in 2017 due to increases mainly in research and development expenses for our Proprietary Development segment, in particular MOR208, MOR106 and MOR202.

In 2017, operating expenses in our Partnered Discovery segment increased by 4.4%, or 0.8 million, from 18.1 million in 2016 to 18.9 million in 2017, primarily due to an increase in research and development expenses. Research and development expenses in our Partnered Discovery segment increased by 2.9%, or 0.5 million, from 17.2 million in 2016 to 17.7 million in 2017. Research and development expenses in our Partnered Discovery segment related primarily to the Novartis collaboration, which is now concluded.

Research and Development

In 2017, research and development expenses increased by 22.0%, or 21.1 million, from 95.7 million in 2016 to 116.8 million in 2017, primarily due to higher expenses for external laboratory services and personnel. External laboratory services and other expenses (including legal and scientific consulting services) increased from 44.4 million in 2016 to 63.1 million in 2017, primarily due to increased expenses related to our Proprietary Development segment. Personnel expenses increased from 26.5 million in 2016 to 29.7 million in 2017, primarily due to higher share-based compensation and severance expense (in the aggregate by 2.5 million) in connection with the conclusion of the Novartis collaboration, which were only partially offset by a decrease in the number of employees active in research and development.

 

87


Table of Contents

Expenses for intangible assets remained almost unchanged and decreased slightly from 13.7 million in 2016 to 13.5 million in 2017. Expenses for intangible assets mainly represent impairment charges of 9.8 million in 2017 related to the termination of the cooperation with Aptevo Therapeutics for the development of MOR209 and 10.1 million in 2016. In 2017, the reason for the impairment was the termination of the cooperation with Aptevo Therapeutics due to the expectation of a delay in the development plan, a delayed market entry and a delay in the occurrence of future cash flows compared to previous assumptions. In 2016, the reason for the partial impairment was the expectation of a lower inflow of benefits and of a delay in the occurrence of future cash flows. Depreciation and other costs for infrastructure expenses decreased from 5.9 million in 2016 to 4.9 million in 2017, primarily due to one-time costs related to our move to a new building in 2016. Other expenses increased from 2.9 million in 2016 to 3.1 million in 2017 primarily due to higher maintenance expenses for laboratory equipment. Expenses for consumable supplies increased from 2.3 million in 2016 to 2.6 million in 2017 in line with the increase in our research and development operations.

General and Administrative

In 2017, general and administrative expenses increased by 20.6%, or 2.9 million, from 14.1 million in 2016 to 17.0 million in 2017, primarily due to higher personnel expenses and external services. Personnel expenses increased from 9.5 million in 2016 to 12.3 million in 2017, primarily due to higher deferred compensation for share-based incentive plans and bonus payments. Expenses for external services increased from 2.5 million in 2016 to 2.9 million in 2017, primarily due to increased project costs for commercialization. Other expenses decreased from 1.0 million in 2016 to 0.8 million in 2017, primarily due to one-time costs related to our move in 2016 to a new building.

Other Income

In 2017, other income increased by 57.1%, or 0.4 million, from 0.7 million in 2016 to 1.1 million in 2017 and mainly consisted of grant income in an amount of 0.2 million in 2017 and 0.3 million in 2016, currency gains in an amount of 0.5 million in 2017 and 0.2 million in 2016 and miscellaneous income of 0.5 million in 2017 and 0.2 million in 2016.

Other Expenses

In 2017, other expenses increased by 1.1 million, from 0.6 million in 2016 to 1.7 million in 2017. Other expenses mainly consisted of currency losses in an amount of 0.8 million in 2017 and 0.4 million in 2016 and miscellaneous expenses of 0.8 million in 2017 and 0.2 million in 2016.

Finance Income

In 2017, finance income decreased by 50.0%, or 0.7 million, from 1.4 million in 2016 to 0.7 million in 2017 reflecting lower returns from investments. Finance income mainly consisted of interest income of 1.0 million in 2016 and 0.2 million in 2017 received from investments in term deposits with fixed or variable interest rates, 0.3 million in 2016 and less than 0.1 million in 2017 in realized gains from the divestment of available-for-sale financial assets and bonds and 0.1 million in 2016 and 0.4 million in 2017 in realized gains from derivatives.

 

88


Table of Contents

Finance Expenses

In 2017, finance expenses increased by 46.2%, or 0.6 million, from 1.3 million in 2016 to 1.9 million in 2017 and consisted primarily of losses on derivatives of 1.4 million and interest expenses of 0.4 million in 2017. In 2016, finance expenses mainly consisted of 1.2 million in realized losses from the sale of available-for-sale financial assets and bonds.

Income Tax Expenses

In 2017, income tax expenses increased by 100.0%, or 0.5 million, from 0.5 million in 2016 to 1.0 million in 2017, due in large part to an income tax benefit in 2016 related to certain losses that were carried back to offset 2015 taxable income. In 2017, no such tax loss carry back was possible. The effective income tax rate changed from negative 0.9% in 2016 to negative 1.5% in 2017. The difference between the expected tax rate of 26.7% (which would have resulted in an expected income tax benefit of 18.3 million in 2017 and 16.0 million in 2016) is primarily the result of the non-recognition of deferred tax assets on current year tax losses of 22.0 million in 2017 and 13.4 million in 2016 and the non-recognition of deferred tax assets on temporary differences of negative 3.3 million in 2017 and 3.8 million in 2016.

Liquidity and Capital Resources

Sources of Funding

We have funded our operations primarily through the issuance of ordinary shares and through cash received in the ongoing operations of our business, including upfront fees, milestone payments, license fees, and support fees from our strategic partners and government grants.

As of December 31, 2017, we had 76.6 million in cash and cash equivalents, 86.5 million in available-for-sale financial assets, and 149.1 million in current other financial assets categorized as “loans and receivables”. Cash in excess of immediate working capital requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments are primarily made in money market funds, corporate bonds, and term deposits with fixed or variable interest.

We do not have any financial indebtedness, and we are not subject to any operating covenants or capital requirements.

Uses of Funding

Our primary use of cash is to fund research and development costs related to the development of our product candidates. Our primary future funding requirements include the development of our proprietary clinical pipeline (primarily, MOR208, MOR202 and MOR106) and the advancement of our earlier stage wholly-owned or co-developed product candidates.

We believe that our existing cash and cash equivalents and other financial instruments (including cash invested in various financial instruments as described above) will be sufficient to fund our anticipated operating expenses for at least the next twelve months.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress in these trials is uncertain.

 

89


Table of Contents

Because our product candidates are in various stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability.

We will likely require additional capital for the further development of our existing product candidates, regulatory approval processes, the potential buildout of a commercial organization and for our operation as a public company in the U.S. and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates. Until we can generate a sufficient amount of revenue, we expect to finance future cash needs primarily through public or private equity or debt offerings, including convertible bonds. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations or the securities may have rights senior to those of our ordinary shares or the ADSs. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

Cash Flows

The following table sets forth our cash flows for the years ended December 31, 2016 and 2017.

 

      For the year ended
December 31,
 
(in € thousands)    2016     2017  

Net Cash Provided by/(Used in) Operating Activities

     (46,616     (38,446

Net Cash Provided by/(Used in) Investing Activities

     (80,786     32,933  

Net Cash Provided by/(Used in) Financing Activities

     110,403       8,174  
  

 

 

 

Increase/(Decrease) in Cash and Cash Equivalents

     (16,999     2,660  

Cash and Cash Equivalents at the Beginning of the Period

     90,928       73,929  
  

 

 

 

Cash and Cash Equivalents at the End of the Period

     73,929       76,589  
  

 

 

 
             

Cash flows provided by / used in operating activities

In 2017, net cash used in operating activities was 38.4 million, primarily driven by the consolidated net loss of 69.8 million, partially offset by non-cash charges of positive 0.7 million, and changes in operating assets and liabilities and taxes paid of 30.6 million. Consolidated net loss of 69.8 million was primarily driven by expenses incurred to fund our ongoing operations, in particular research and development expenses and general and administrative expenses. Changes in operating assets and liabilities for 2017 consisted primarily of 18.4 million in deferred revenue received during the year, a 7.8 million increase in accounts payable and accrued expenses and a 3.1 million increase in other liabilities. The deferred revenue received during the year mainly related to annual license fees. The increase in accounts

 

90


Table of Contents

payable and accrued expenses was mainly due to an increase in external laboratory services primarily related to the MOR208 program that were outstanding at year end. The increase in other liabilities was mainly due to the deferral of the rent-free period for the rental agreement for our headquarters.

In 2016, net cash used in operating activities was 46.6 million, primarily driven by the consolidated net loss of 60.4 million, after consideration of the net non-cash charges of negative 0.7 million, and changes in operating assets and liabilities as well as taxes paid of 14.4 million. Consolidated net loss of 60.4 million, after consideration of the net non-cash charges of negative 0.7 million, was primarily driven by expenses incurred to fund our ongoing operations, in particular research and development expenses and general and administrative expenses. Net cash provided by changes in operating assets and liabilities for 2016, consisted primarily of 17.4 million in deferred revenue prepayments received during the year and a 13.0 million increase in accounts payable and accrued expenses, partially offset by a 13.9 million increase in prepaid expenses and other assets. The prepayments for deferred revenue received during the year mainly related to annual license fees. The increase in accounts payable and accrued expenses was mainly due to an increase in external laboratory services. The increase in prepaid expenses and other assets was mainly due to an increase in the purchase of combination compounds and prepaid fees for external laboratory services, in each case primarily related to our MOR208 program.

Cash flows provided by / used in investing activities

In 2017, net cash provided by investing activities was 32.9 million, primarily driven by proceeds from financial assets of 210.2 million, partially offset by the purchase of financial assets of 164.4 million, of which 108 million are classified as loans and receivables. Cash provided by investing activities primarily related to a shift in the composition in our investment portfolio as financial assets matured and were sold and new, similar financial assets were purchased.

In 2016, net cash used in investing activities was 80.8 million, primarily driven by purchase of financial assets of 423.4 million, partially offset by sales of financial assets and bonds of 343.5 million. Use of cash in investing activities during the period primarily related to a shift in the composition in our investment portfolio.

Cash flows provided by / used in financing activities

In 2017, net cash provided by financing activities was 8.2 million and mainly related to exercises of convertible bonds by members of the management board and the senior management.

In 2016, net cash provided by financing activities was 110.4 million. Cash provided by financing activities during the period primarily related to our capital increase in November 2016, resulting in gross proceeds of 115.4 million.

 

91


Table of Contents

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2017.

 

      Payments due by period  
(in € thousands)    Total      Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
 

Operating Lease Obligations

     25,317        2,918        5,727        5,482        11,190  

Operating Lease Obligations

We lease facilities and equipment under long-term operating leases. In 2017, leasing expenses amounted to 2.8 million. Leasing expenses also include leasing of company cars and machinery. The majority of these leasing contracts can be renewed on a yearly or quarterly basis, and some agreements may be terminated prematurely.

In 2016, we signed a rental agreement for our headquarters at Semmelweisstrasse 7, 82152 Planegg, Germany. The contract includes a minimum rental period of approximately ten years.

Other Commitments

Other commitments may become due for future payments for outsourced studies. As of December 31, 2017, we expected to incur approximately 122.2 million of fees for outsourced studies, of which approximately 56.1 million will be paid in the next twelve months. Additionally, if certain milestones are achieved in the Proprietary Development segment, for example, filing an application for an investigational new drug, or IND, for specific target molecules, this may trigger regulatory and sales milestone payments to licensors of up to an aggregate of $287 million. The next milestone payment in the amount of $12.5 million could occur in approximately 18 to 24 months. No accrued expenses have been recorded in our consolidated balance sheet for these amounts.

Off-Balance Sheet Arrangements

We did not have, during 2017 and 2016, and we do not currently have, any off-balance sheet arrangements.

Quantitative and Qualitative Disclosure About Market Risk

Market Risk

We are exposed to currency and interest rate risks.

Currency Risk

Our financial statements are prepared in euros. While our expenses are predominately incurred in euros, a portion of our revenue is dependent on the prevailing exchange rate of the U.S. dollar. Throughout the year, we monitor the need to hedge foreign exchange rates to minimize currency risk and address this risk by using a variety of derivative financial instruments.

A 10% increase in the euro versus the U.S. dollar as of December 31, 2017, would have reduced our income by 0.2 million. A 10% decline in the euro versus the U.S. dollar would have increased our income by 0.2 million.

 

92


Table of Contents

Interest Rate Risk

Our risk exposure to changes in interest rates mainly relates to our fixed term deposits and available-for-sale bonds. Changes in the general level of interest rates may lead to an increase or decrease in the value of these securities. Our investment focus places the safety of an investment ahead of its return. Interest rate risk is limited because all securities can be liquidated within a maximum of two years.

We are not subject to significant interest rate risks from liabilities reported in our balance sheet.

Credit and Liquidity Risk

Financial instruments that could subject us to a concentration of credit and liquidity risk include primarily cash and cash equivalents, available-for-sale financial assets, fixed term deposits and bonds, financial assets classified as loans and receivables, derivative financial instruments and receivables. Our cash and cash equivalents are principally denominated in euros. Available-for-sale financial assets, fixed term deposits, bonds and financial assets classified as loans and receivables represent investments in high quality securities, meaning the majority of securities having a rating of A3/A- (long-term) with any of the three primary rating agencies and/or being guaranteed by a financial institution having a minimum rating of A3/A- (long-term) with any of the three primary rating agencies. In case the investment or the financial institution is downgraded by one or more rating agencies, a review of the investment(s) is initiated and a sell / hold recommendation is made. Cash, cash equivalents, available-for-sale financial assets and bonds, and financial assets classified as loans and receivables are held at several reputable financial institutions in Germany. We limit our exposure as far as possible to any given financial institution through diversification and/or low-risk investments. We continuously monitor our positions with financial institutions that are counterparts to our financial instruments and these institutions’ credit ratings.

One of our policies requires all customers who wish to transact business on credit terms to undergo a credit assessment based on external ratings. Nevertheless, our revenue and accounts receivable are still subject to credit risk from customer concentration. Our most significant single customer accounted for 5.1 million, or 45.5%, of accounts receivable as of December 31, 2017 (as of December 31, 2016: 8.4 million). Three individual customers accounted for 55.2%, 25.1% and 10.0%, respectively, of the total revenue in 2017. In 2016, our top three customers had individually accounted for 85%, 5% and 5% of our revenues. Based on our management board’s assessment, no allowances were required in 2017.

As of December 31, 2017, we were not subject to credit risk from derivative financial instruments. As of December 31, 2017, we had rent deposits of 1.1 million outstanding, which represented the maximum credit risk of financial guarantees.

 

93


Table of Contents

BUSINESS

Overview

We are a late-stage biopharmaceutical company devoted to the development of innovative and differentiated therapies for patients suffering from serious diseases. Based on our proprietary technology platforms and leadership in the field of therapeutic antibody discovery, generation and engineering, we, together with our partners, have participated in the development of more than 100 therapeutic product candidates. Our broad pipeline spans two business segments: Proprietary Development, in which we invest in and develop product candidates, and Partnered Discovery, in which we generate product candidates for our partners in the pharmaceutical and biotechnology industries against targets identified by our partners. We currently have 28 product candidates in clinical development, including our most advanced proprietary product candidate, MOR208, for the treatment of relapsed or refractory diffuse large B cell lymphoma, or r/r DLBCL. We believe our pipeline of novel and differentiated product candidates has the potential to treat serious diseases and improve the lives of patients.

Our late-stage and most advanced proprietary product candidate, MOR208, received breakthrough therapy designation, or BTD, from the U.S. Food and Drug Administration, or the FDA, in 2017 in combination with lenalidomide for the treatment of patients with r/r DLBCL, who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. We hold worldwide rights to develop and market MOR208. Also in 2017, Tremfya®, developed by our partner Janssen, became the first therapeutic antibody based on our proprietary technology to reach the market. Tremfya®, which is approved to treat moderate-to-severe plaque psoriasis, was launched in the United States in July 2017 and received approval for marketing in the European Union and Canada in November 2017.

Based on our heritage as an antibody discovery and development company, we have a large and diverse pipeline, composed of both proprietary and partnered programs, in multiple therapeutic areas and across all development phases. The combination of our technology platforms and antibody expertise has allowed us to generate promising product candidates and enter into multiple strategic collaborations with leading global pharmaceutical and biotechnology companies. These collaborations provide us with an additional funding source and allow us to leverage our collaborators’ expertise to advance the development of our proprietary product candidates.

 

94


Table of Contents

The following table summarizes our product candidates and programs:

 

LOGO

Our most advanced Proprietary Development programs include:

 

·   

MOR208—an investigational, humanized Fc-engineered monoclonal antibody directed against CD19. CD19 is a target for the treatment of B cell malignancies, including DLBCL, follicular lymphoma, or FL, chronic lymphocytic leukemia, or CLL, and others. On October 23, 2017, the FDA granted BTD for the use of MOR208 in combination with lenalidomide to treat patients with r/r DLBCL who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. The granting of BTD was based on the interim results as of June 13, 2017 from our single arm Phase 2 L-MIND study, which showed a response in 23 out of 44 patients (Overall Response Rate, or ORR, 52%) and progression-free survival estimate based on a Kaplan Meier curve of 11.3 months based on investigator response assessment. Interim data from our most recent cut-off date December 12, 2017 were consistent with our prior interim results, with a response in 33 out of 68 patients (ORR: 49%) and a progression-free survival, or PFS, rate at 12 months of 50.4% based on investigator response assessment, with the preliminary median progression-free survival, or mPFS, not yet reached. We are also investigating MOR208 in combination with bendamustine, in our pivotal Phase 2/3 B-MIND study targeting a comparable DLBCL patient population as the L-MIND study. B-MIND started as a randomized safety run-in with ten patients in each treatment arm (the Phase 2 stage of the trial assessing safety of the combination with bendamustine) and continued then comparing MOR208 plus bendamustine with a standard of care Rituximab plus bendamustine control arm (the Phase 3 stage of the trial comparing to standard of care). A third clinical trial, known as COSMOS, is an exploratory Phase 2 study in CLL patients who have progressed on or who do not tolerate treatment with Bruton tyrosine kinase inhibitors. Pursuant to our BTD, we are working closely with the FDA regarding further clinical development of MOR208. We

 

95


Table of Contents
 

hold worldwide rights to develop and market MOR208 and intend to commercialize it either alone or together with a partner.

 

·   

MOR202—an investigational, human monoclonal HuCAL antibody directed against CD38. MOR202 is currently under clinical investigation in a Phase 1/2a trial in patients with relapsed or refractory multiple myeloma, or r/r MM. The study is evaluating the safety and preliminary efficacy of MOR202 alone and in combination with the immunomodulatory drugs pomalidomide or lenalidomide, plus dexamethasone, respectively. We believe MOR202 offers a potentially differentiated safety and administration profile relative to infusion site reaction and infusion time of other agents targeting CD38. Scientific research suggests that an anti-CD38 antibody such as MOR202 may have therapeutic activity in solid tumors including non-small cell lung cancer, or NSCLC. We plan to explore this potential activity in NSCLC in combination with nivolumab (an anti-PD-1 antibody) or more oncology indications either alone or together with a partner.

 

·   

MOR106—a human monoclonal antibody targeting IL-17C, currently under clinical development for the treatment of atopic dermatitis, or AD. We believe MOR106 is the first antibody directed against IL-17C in clinical development worldwide. MOR106 is also the first antibody from our Ylanthia platform to enter clinical development. Based on findings from pre-clinical models, we believe IL-17C plays an important role in inflammatory skin disorders. We are developing MOR106 in collaboration with our partner, Galapagos, and share equally the research and development costs as well as all future economics. In September 2017, we reported results from a randomized placebo-controlled Phase 1 study, testing MOR106 in single ascending doses in healthy volunteers and in multiple ascending doses in patients suffering from AD. In the trial, MOR106 was generally well-tolerated and showed first signs of clinical activity in five of six patients with moderate-to-severe AD. We plan to initiate a Phase 2 study with our partner Galapagos in the first half of 2018.

Our most advanced Partnered Discovery products and product candidates include:

 

·   

Tremfya®—a HuCAL antibody directed against IL-23 marketed by our partner Janssen to treat moderate-to-severe plaque psoriasis was launched in the United States and received marketing approval in the EU and Canada in 2017. We are entitled to royalty payments on net sales of Tremfya®. Janssen is currently investigating Tremfya® in additional Phase 3 trials in psoriasis and in psoriatic arthritis and plans to develop the product in Crohn’s disease.

 

·   

Gantenerumab—a HuCAL antibody directed against amyloid beta that is being developed by Roche for the treatment of Alzheimer’s disease. In Phase 1 trials, gantenerumab has been shown to reduce brain amyloid in mild-to-moderate Alzheimer’s disease patients. Roche is currently planning to test a higher dose of gantenerumab in two Phase 3 trials, called GRADUATE 1 & 2, for patients with prodromal and mild Alzheimer’s disease.

The majority of our Proprietary Development product candidates and all product candidates in our Partnered Discovery programs have been discovered and engineered using our advanced antibody technology platforms. Our core platforms include:

 

·   

HuCAL (Human Combinatorial Antibody Library)—HuCAL is our original technology platform, which constitutes a collection or “library” of several billion distinct fully human antibodies. This platform enables rapid selection of antibodies having high affinity and specificity as well as systematic optimization of antibodies to precisely-defined specifications to increase the probability of successful clinical development.

 

96


Table of Contents
·   

Ylanthia—Ylanthia is our newest antibody library, which comprises over 100 billion fully human antibodies. Ylanthia enables the generation of fully human antibody candidates with optimized biophysical properties, which we believe offer a number of important advantages over competing platforms. This platform builds on our experience in generating more than 100 therapeutic product candidates using our original HuCAL platform. We believe Ylanthia will be the source of the next generation of therapeutic antibody candidates in our and our partners’ future pipelines.

 

·   

Lanthipeptides—Our lanthipeptide platform opens up new possibilities for discovering product candidates based on highly specific and stable peptides, which are intended to bind and activate only one target receptor subtype.

We are committed to investing in our platforms, generating new therapeutics and developing them into products that address significant unmet medical needs.

We have an internationally-trained, multi-cultural team of more than 300 employees and consultants, including a research and development team of approximately 260 scientists, clinicians and support staff. Our management team and senior experts have deep experience and capabilities in biology, chemistry, product discovery and clinical development.

Our Strengths

We believe our core strengths include:

 

·   

Our lead product candidate MOR208, which has been granted BTD in r/r DLBCL by the FDA and has further potential in additional hematological malignancies.

 

·   

Additional differentiated proprietary product candidates, such as MOR202 and MOR106, in clinical trials for the treatment of cancer and inflammatory diseases.

 

·   

Tremfya®, the first approved product based on our technology which offers a royalty opportunity.

 

·   

Our antibody pipeline, which we believe is one of the broadest and deepest in the biotech industry and which provides us with multiple opportunities for value creation.

 

·   

Our long-term technology leadership in antibody discovery, generation and engineering, as demonstrated by multiple collaborations with leading pharmaceutical and biotechnology companies as well as by the breadth and depth of our technology platforms.

 

·   

Our diversified business model with both proprietary and partnered development programs, which provides us with a strong financial base and strategic flexibility.

 

·   

A broad intellectual property portfolio protecting product candidates as well as our technology platforms.

 

·   

Our experienced management team, comprising industry leaders in antibody discovery and development.

Our Strategy

Our goal is to make differentiated, innovative biopharmaceuticals to improve the lives of patients suffering from serious diseases. Our strategy to achieve this goal is:

 

·   

Continue to advance the development of our lead product candidate MOR208 towards regulatory approval—The MOR208 program is currently in an advanced clinical development

 

97


Table of Contents
 

stage following receipt of BTD by the FDA in October 2017 based on interim data from our L-MIND study. We believe that with BTD, we can establish a path to approval of MOR208 in r/r DLBCL. In addition, we are evaluating opportunities to develop MOR208 in other treatment lines and hematological malignancies.

 

·   

Build our commercial capabilities in connection with the potential future approval of MOR208—We are finalizing different commercialization strategies for MOR208. If we receive marketing approval for MOR208, our preferred option at this stage is to retain either sole or co-promotion rights in the United States and seek partners for commercialization elsewhere. We are currently commencing our commercialization preparation efforts with the goal of being ready to promote MOR208 as early as the first half of 2020.

 

·   

Continue the development of MOR202—In order to maximize the value of MOR202, we are exploring opportunities for its further development, either alone or together with a partner, in one or more oncology indications, including in solid tumors, with an initial focus on NSCLC.

 

·   

Advance our earlier stage product candidates—We continue to advance the development of our early-stage product candidates, in particular MOR106, for which we and our partner Galapagos intend to initiate a Phase 2 program in AD in 2018.

 

·   

Realize the value of our technology platforms by using them to discover and develop additional early-stage proprietary programs—We continue to capitalize on the advantages of our antibody technologies and our internal expertise and know-how to discover and develop novel product candidates.

Background on Antibodies as Therapeutic Agents

Antibodies, also known as immunoglobulins (Ig) are large, Y-shaped complex proteins that the immune system uses to neutralize pathogens. Antibodies recognize and bind to foreign entities, such as bacteria and viruses, and remove them from the bloodstream. Antibodies are essential to human life and between one and two billion antibodies are continuously flowing throughout our bloodstream, fighting infections and diseases.

 

98


Table of Contents

The antibody molecule itself has two separable functions: First, antibodies have the ability to recognize and attach themselves to pathogenic, or disease-causing, foreign molecules; and second, in recognizing and attaching themselves to these pathogenic molecules, antibodies act as markers, signaling to other parts of the bodies’ own immune system to attack and eliminate the pathogen.

 

LOGO

As illustrated above, an IgG antibody, for example, consists of four polypeptide chains, two identical heavy chains and two identical light chains, joined by chemical linkages known as disulfide bridges. The antigen-binding fragment, or Fab, is a region on an antibody that binds to antigens. It is composed of one constant and one variable region of each of the heavy and the light chain. The variable region acts as the “business” end of the antibody for recognizing pathogens. The specific structure recognized by the variable region of an antibody, whether a portion of a protein, another biological molecule or a unique molecule of a pathogen, is known as an antigen. An antibody and the antigen that it recognizes fit together like a lock and key.

The Fc region, which resides at the other end of the antibody, interacts with the effector cells of the immune system, and provides the signal that activates these cells to attack the pathogen. When an antigen is detected, several types of immune system cells work together to recognize and respond to it. These responses include the stimulation of B cells to produce additional antibodies and the stimulation of effector cells, including T cells and natural killer, or NK, cells that act to eliminate the pathogen or foreign molecule.

The first methods for producing specific single defined antibodies that recognize a single antigen, or monoclonal antibodies, in order to use them as therapeutics were developed approximately 40 years ago. While cancer and inflammatory conditions have been the two largest disease areas for therapeutic antibody discovery, the broad applicability of antibodies has led to a rapid expansion of their use in other indications, including infectious diseases, metabolic conditions and neurodegenerative diseases. As a result, more than 50 antibodies are currently approved for marketing in various clinical applications. Amongst these are therapeutic antibodies which label and/or block the activity of cell surface receptors or signaling molecules,

 

99


Table of Contents

stimulate the activity of cells or lead to their elimination by effector cells, and bind toxic substances from the bloodstream to accelerate their elimination.

Initially, monoclonal antibodies were derived from mice. However, antibodies derived from mice are of limited use as therapeutic agents since the human immune system recognizes such antibodies as foreign molecules and may trigger a defense reaction against them. Technological advances over the last three decades have allowed the modification of antibody structures to make them more “human-like”, culminating in the creation of fully human antibodies. Currently, it is possible to generate fully human antibodies from transgenic mice. With our Human Combinatorial Antibody Library, we have developed a technology for the in vitro generation of highly specific and fully human antibodies. Ylanthia, which is our most recent antibody technology platform, comprises more than 100 billion distinct, different, fully human antibodies.

With our acquisition of Lanthio Pharma B.V. in 2015, we gained full access to Lanthio Pharma’s proprietary LanthioPep technology, which is focused on the generation and development of lanthipeptides. Our lanthipeptide platform opens up new possibilities for discovering product candidates based on highly specific and stable peptides, which are intended to bind and activate only one target receptor subtype.

Please see “—Our Technology Platforms” for a further description of our antibody technologies.

Proprietary Development

Within our Proprietary Development segment we focus on the development of therapeutic antibody candidates in the area of oncology and inflammatory diseases. Below is an overview of our Proprietary Development product candidates. In addition, we have seven proprietary or co-developed product candidates that are in the discovery phase and one in pre-clinical phase.

 

LOGO

MOR208

Overview

MOR208 (formerly known as XmAb5574) is an investigational, humanized Fc-engineered monoclonal antibody directed against the antigen CD19, which is broadly expressed on the surface of B cells, a type of white blood cell. It is a target for the treatment of B cell malignancies, including DLBCL, FL, CLL and others. Fc-modification of the parental anti-CD19 IgG1 antibody is intended to lead to a potentiation, or increase, of antibody-dependent cell-

 

100


Table of Contents

mediated cytotoxicity, or ADCC, and antibody-dependent cellular phagocytosis, or ADCP, two key mechanisms involved in tumor cell killing. Furthermore, MOR208 induces direct apoptosis by binding to CD19, which is a crucial component for B cell receptor signaling. We are currently investigating MOR208 as an immunotherapeutic option in B cell malignancies.

We are developing MOR208 pursuant to a collaboration and license agreement that we entered into in June 2010 with Xencor, Inc., or Xencor. Under this agreement, Xencor granted us an exclusive worldwide license to MOR208 for all indications. Pursuant to this agreement, except for the Phase 1 clinical trial of MOR208 in CLL, which was completed in January 2013, we are and have been, responsible for all development and commercialization activities in connection with MOR208.

In 2014, we were granted fast track designation for MOR208 by the FDA for the treatment of r/r DLBCL. The FDA’s fast track program is designed to facilitate the development and expedite the review of product candidates intended, alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and that demonstrates the potential to meet unmet medical need for such diseases or conditions. Also in 2014 and 2015, respectively, the FDA as well as the European Commission granted orphan drug designation and orphan medicinal product status respectively for MOR208 for the indications of DLBCL and CLL/small lymphocytic lymphoma, or SLL.

The main focus of the current MOR208 development program is on r/r DLBCL. Our L-MIND (Phase 2) and B-MIND (Phase 2/3) trials are being conducted in r/r DLBCL in patients who are not eligible for high-dose chemotherapy and subsequent autologous stem cell transplantation. Interim data from the L-MIND study showed, at the data cut-off of June 13, 2017, when 51 patients had been enrolled in the study, a response in 23 out of the 44 patients who were evaluable for efficacy assessments by the investigators (ORR: 52%), 19 (83%) of whom showed ongoing responses. Complete responses were seen in 14 out of 44 patients (CR: 32%). At the time of data cut-off, recruitment was still ongoing and seven patients in L-MIND were not yet evaluable for efficacy since a radiological post-baseline response assessment had not yet been performed. The median time to response was 1.8 months and the median time to complete response was 2.3 months. The preliminary median progression-free survival based on Kaplan Meier estimate was 11.3 months (95% confidence interval: 5.4 months—not reached).

On October 23, 2017, based on interim data from the ongoing L-MIND study as of June 13, 2017, the FDA granted breakthrough therapy designation for MOR208 in combination with lenalidomide, or len, for the treatment of patients with r/r DLBCL who are not eligible for high-dose chemotherapy and autologous stem cell transplantation. The FDA grants this designation to a product candidate intended alone or in combination with one or more other drugs to treat a serious or life-threatening disease or condition when preliminary data indicate that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically-significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA’s grant of breakthrough therapy designation is intended to expedite the development and review of product candidates.

Latest interim data with a cut-off date of December 12, 2017 (median follow-up 8.3 months) based on 81 patients enrolled, of whom 68 had reached at least the first post-baseline time point of tumor assessment and therefore were available for efficacy assessment by the investigators, showed an ORR of 49% (n=33) and a CR rate of 31% (n=21). At the time of

 

101


Table of Contents

data cut-off, the PFS rate at 12 months was 50.4% (95% confidence interval 40 – 67%) and the preliminary median PFS had not been reached (95% confidence interval: 4.3 months—not reached). 29 out of 33 responses (88%) were ongoing at the time of data-cut off; median time to response was 1.8 months, median time to complete response was 3.6 months.

Pursuant to our BTD, we are working closely with the FDA regarding further clinical development of MOR208 in combination with lenalidomide based on the current L-MIND study.

Description of B cell malignancies and DLBCL and Current Treatments

B cell malignancies include lymphomas such as non-Hodgkin lymphomas, or NHL, and leukemias such as CLL, and acute lymphoblastic leukemia, or ALL. Collectively, lymphomas represent approximately five percent of all cancers diagnosed in the United States. NHL is the most prevalent of all lymphoproliferative diseases, with the National Cancer Institute estimating that 72,240 new cases occurred in the United States in 2017. Worldwide, 385,741 new cases per year were estimated in 2012. DLBCL is the most frequent type of malignant lymphoma worldwide and accounts for approximately one third of all NHLs worldwide. As of today first line treatment of B cell malignancies most commonly consists of a combination chemotherapy regimen including Rituxan®, also referred to commonly as R-CHOP (R, rituximab; CHOP, cyclophosphamide, doxorubicin, vincristine and prednisone, each a chemotherapy agent), in DLBCL. The addition of Rituxan®, an anti-CD20 antibody, has led to major therapeutic improvements in response rates and progression-free survival. Yet, in DLBCL, despite the therapeutic success of first line R-CHOP, up to 40% of patients are refractory or relapse after initial treatment with fast progression of disease.

Currently, standard of care treatments across almost all B cell lymphomas consist of a combination of a CD20 monoclonal antibody, or mAb, (rituximab (Rituxan®) or rituximab biosimilars, obinutuzumab (Gazyva®) and ofatumumab (Arzerra®)), with either chemotherapy or targeted agents. There is a scientific rationale for the replacement of the CD20 with a CD19 targeting antibody. First, CD19 has been shown to be expressed earlier and more broadly during B cell development than CD20. Second, in clinical practice an anti-CD20 approach is often applied by physicians in the relapsed or refractory, or r/r, setting, even though patients have already shown a relapse to a prior therapy containing an anti-CD20 antibody. With blinatumomab (Blincyto®), Yescarta® and tisagenlecleucel (CTL-019) there are three CD19-targeting therapeutic approaches approved, with only Yescarta® for the treatment of r/r DLBCL and the other two for treatment of ALL. Other clinical programs directed against the same target molecule use alternative approaches to increase the antibody’s efficacy, for example by coupling with toxic substances or changing the antibody’s glycosylation pattern. Alternative approaches using small molecules are also being developed in the field of B cell malignancies.

DLBCL patients who are refractory or relapse after R-CHOP have a poor prognosis and few therapeutic options. Treatment options for r/r DLBCL are currently curative HDCT followed by ASCT, if the patients are relatively fit. For those DLBCL patients who are not eligible for HDCT and ASCT, current treatments options are limited. In late 2017, a first chimeric antigen receptor-T cell (CAR-T) therapy (Yescarta®) was approved for the treatment of r/r DLBCL. It remains to be seen what proportion of r/r patients will be considered to be eligible for such therapies, and how broadly such therapies will be available for the foreseeable future.

In r/r DLBCL, approximately half of patients are eligible for HDCT followed by ASCT. Of those r/r DLBCL patients who can be transplanted, about 50% suffer a further relapse. Therefore, the vast

 

102


Table of Contents

majority of DLBCL patients relapsing after first-line treatment will ultimately be treated in a palliative setting, utilizing such regimens as rituximab plus bendamustine. There remains a high unmet need for novel therapies in r/r patients, especially in those not able to undergo HDCT and ASCT.

MOR208 for Treatment of B cell malignancies, including DLBCL

MOR208 binds to the CD19 antigen, which is broadly and homogeneously expressed across different B cell-derived blood cancers including DLBCL, CLL and SLL. According to pre-clinical findings, CD19 is able to enhance B cell receptor signaling, which is important for B cell survival and is considered an important therapeutic target for the treatment of B cell-related lymphomas and leukemias.

The suggested mechanism of action of MOR208 is as follows: The Fc-engineered antibody MOR208 binds to the CD19 antigen on the surface of blood cancer cells. This attracts the immune system’s natural killer cells, and/or macrophages. Natural killer cells and macrophages attach themselves to the cancer cells by way of the MOR208 antibody and kill them through the processes of ADCC and ADCP. MOR208’s engineered Fc region is designed to produce potentiation of the body’s immune reaction to cancer cells. In addition to its immune-mediated functions, the binding of MOR208 to CD19 may also lead to the direct killing of the tumor cells, or direct cytotoxicity. The below figure depicts the suggested mechanisms of action of MOR208:

 

LOGO

We believe that, if approved by the authorities, MOR208 may offer a differentiated therapeutic approach in DLBCL. In particular for r/r DLBCL patients who are ineligible for or not willing to undergo HDCT and ASCT, available treatment options are limited. It is our goal to further clinically investigate MOR208 in this patient segment who are in need of more treatment options.

 

103


Table of Contents

Development of MOR208

MOR208 has been or is being investigated in seven clinical trials in the following indications: NHL, CLL/SLL and B cell acute lymphoblastic leukemia, or B-ALL. A Phase 1 trial in CLL/SLL and a Phase 2 trial in B-ALL were completed in 2013 and 2015, respectively. A Phase 2a trial in NHL (including r/r DLBCL, mantle cell lymphoma, or MCL, FL, and other indolent NHL) and an investigator sponsored Phase 2 trial in CLL/SLL are currently ongoing. Three additional trials (two in DLBCL and one in CLL) are currently ongoing.

The main focus of the current MOR208 development program is on r/r DLBCL. Our L-MIND and B-MIND trials are being conducted in this indication. Both trials are focusing on r/r DLBCL patients who are not eligible for high-dose chemotherapy and subsequent autologous stem cell transplantation. Following its review of data from the L-MIND study, in October 2017 the FDA awarded breakthrough therapy designation for MOR208, in combination with lenalidomide, for the treatment of non-transplant eligible patients with r/r DLBCL.

Active Clinical Combination Trials

Currently three clinical combination studies with MOR208 are ongoing:

 

·   

L-MIND: The L-MIND study is a Phase 2 trial initiated in April 2016 to evaluate MOR208 in combination with lenalidomide in patients suffering from r/r DLBCL. The trial is designed as an open-label, single-arm study with the primary endpoint being overall response rate, or ORR by independent review committee, with multiple secondary endpoints, including progression-free survival, overall survival and time to progression. We completed the safety run-in phase of the L-MIND trial in August 2016. No unexpected safety signals have been detected and the trial was continued as planned. The trial is enrolling patients with r/r DLBCL after up to three prior lines of therapy, with at least one prior therapy including an anti-CD20 targeting therapy (such as Rituxan®). Patients enrolled cannot be candidates for HDCT and ASCT.

At the interim data cut-off of June 13, 2017, 51 patients had been enrolled in the study, of whom 44 were evaluated for efficacy assessments. Preliminary data per investigator assessment showed an objective response in 23 out of 44 patients (ORR: 52%), 19 (83%) of whom showed ongoing responses. Complete responses were seen in 14 out of 44 patients (CR: 32%). The median time to response was 1.8 months, the median time to complete response was 2.3 months. The preliminary median progression-free survival based on Kaplan Meier estimate was 11.3 months (95% confidence interval: 5.4 months—not reached).

No unexpected toxicities were observed for the treatment combination and no infusion-related reactions were reported for MOR208. The most frequent adverse events with a grade of 3 or higher were neutropenia in 36% (18/51), thrombocytopenia in 10% (5/51), and pneumonia in 10% (5/51), observed in 35% (18/51), 10% (5/51), and 10% (5/51) of patients, respectively. Leukopenia and hypokalemia of grade 3 or higher were reported for 8% (4/51) of the patients. At the data cut-off, 45% (23/51) of patients required a reduction of their lenalidomide dose, from a starting dose of 25mg daily. These data were presented at the ASH 2017 Annual Meeting on December 11, 2017.

Adverse events in this study were assessed and classified according to the Common Terminology Criteria for Adverse Events (CTCAE). Grade refers to the severity of the adverse event, with grade 1 adverse events generally including mild or asymptomatic conditions or

 

104


Table of Contents

clinical or diagnostic observations only, grade 2 adverse events generally including moderate events or minimal, local or noninvasive intervention events, grade 3 adverse events generally including severe or medically significant events that are not immediately life-threatening, events requiring hospitalization or prolongation of hospitalization or disabling events and grade 4 adverse events generally including life-threatening consequences or urgent intervention events.

In November 2017, the trial completed patient enrollment with 81 patients. Patients enrolled had a median age of 72 years, 40/81 (49%) were in advanced Ann Arbor stage III/IV, a median of two prior lines, 32/81 (40%) were refractory to the previous therapy line and 30/81 (37%) were rituximab-refractory in any line.

The latest interim data with a cut-off date of December 12, 2017 based on 81 patients enrolled, of whom 68 were available for efficacy assessment as per investigator, show an overall response rate (ORR) of 49% (n=33) and a CR rate of 31% (n=21). At the time of data cut-off, the PFS rate at 12 months was 50.4% (95% confidence interval 40–67%) and the preliminary median PFS had not been reached (95% confidence interval: 4.3 months—not reached). 29 out of 33 responses (88%) were ongoing at the time of data cut-off; median time to response was 1.8 months, median time to complete response was 3.6 months. No unexpected toxicities were observed for the treatment combination and no infusion-related reactions were reported for MOR208. The most frequent adverse events with a toxicity grade 3 or higher were neutropenia, thrombocytopenia, febrile neutropenia and pneumonia, observed in 36% (29/81), 12% (10/81), 7% (6/81) and 7% (6/81) of patients, respectively. 41% (33/81) of patients required a reduction of their lenalidomide dose, from a starting dose of 25mg daily.

The figures below present the ORR and mPFS in the L-MIND study at the cut-off date of December 12, 2017:

 

ORR    mPFS

LOGO

   LOGO

The primary analysis for the study is anticipated to be published in the fourth quarter of 2019. For a description of other studies with r/r-DLBCL patients, please see “—Competition—MOR208”.

 

·   

B-MIND: The B-MIND trial is a Phase 2/3 randomized multicenter study in which patients are randomized in a one-to-one fashion to receive either MOR208 in combination with bendamustine or rituximab in combination with bendamustine. The study was initiated in

 

105


Table of Contents
 

September 2016 at 180 centers across Europe, the Asia/Pacific region and the United States and will aim to enroll approximately 330 adult patients suffering from r/r DLBCL. Patients must have been treated previously with at least one but not more than three prior lines of therapy, including one anti-CD20 targeted therapy (such as rituximab). Patients must not be candidates for HDCT and ASCT. In June 2017, the Phase 3 part of B-MIND commenced. Prior to that, the Independent Data Monitoring Committee of the trial had supported its continuation as per protocol and the transition of the study into its Phase 3 part based on the available data from the Phase 2 safety evaluation. We expect to obtain the primary analysis of the study in the fourth quarter of 2019.

 

·   

COSMOS: In addition to the two trials in r/r DLBCL described above, we are currently evaluating MOR208 in a Phase 2 trial in CLL and SLL. The trial, named COSMOS, is designed to evaluate MOR208 in combination with either idelalisib or venetoclax in patients who have relapsed after prior therapy with a Bruton’s tyrosine kinase, or BTK, inhibitor such as ibrutinib. Currently these patients have very limited therapy options. 24 patients are enrolled in the study. The study is primarily investigating the clinical safety of the treatment combinations. We plan on presenting the initial results of the first cohort at an appropriate medical conference in 2018.

Phase 2a Clinical Trial with MOR208 as a single agent in r/r NHL including DLBCL

We have conducted an open-label, Phase 2a, multicenter study to assess the activity and safety of weekly doses of 12 mg/kg MOR208 as a single agent in 92 pre-treated patients with various subtypes of r/r NHL including DLBCL, mantle cell lymphoma, or MCL, and other indolent NHL, or iNHL, including follicular lymphoma, or FL. 76 of the 92 patients were evaluable for post-baseline response assessment (with 16 patients discontinuing or being withdrawn from the study prior to any post-baseline radiological assessment). The ORR of MOR208 reached 36% in the DLBCL subgroup and 30% in iNHL patients (both based on evaluable patients). Based on all patients with DLBCL and iNHL in the study, the ORR was 26% and 29%, respectively. In addition to patients achieving a partial or complete response (PR, CR), a clinical benefit was also observed in other patients treated with MOR208. The majority of patients (5/6 DLBCL and 12/16 iNHL) with stable disease also had a reduction in the size of the target lesions. This resulted in a disease control rate of 40% in DLBCL and 73% in iNHL patients. Moreover, progression-free survival with MOR208 therapy was observed to be comparable in rituximab refractory and non-refractory NHL patients. The median progression-free survival, or PFS, was 2.7 months (95% CI 2.1–15.4) in patients with DLBCL, 8.8 months (95% CI 5.3–27.1) in patients with FL and not reached (95% CI 2.0–NA) in patients with other iNHL. Nine patients treated with MOR208 were still in remission, the longest responses were ongoing for 26 months at data cut-off.

According to data reported at the American Society of Hematology (ASH) 2016 conference, the most common adverse events were infusion-related reactions occurring in 12% (11/92) of the patients and neutropenia occurring in 12% (11/92) of patients. The incidence of MOR208 treatment-related serious adverse events was 6% (2/35) in DLBCL and 4% (2/45) in iNHL patients. No treatment-related deaths were reported.

A total of 28 patients (30%) experienced an aggregate of 35 serious adverse events, or SAEs, during the course of the study as set forth below. SAEs were experienced in System Organ Classes of general disorders and administration site conditions (eleven patients (12%) experienced twelve SAEs), infections and infestations (seven patients (8%) experienced seven SAEs), blood and lymphatic system disorders (three patients (3%) experienced five SAEs), gastrointestinal disorders (three patients (3%) experienced three SAEs), renal disorders (two

 

106


Table of Contents

patients (2%) experienced two SAEs), respiratory disorders (two patients (2%) experienced two SAEs), cardiac disorders (one patient (1%) experienced one SAE), injury and infestations (one patient (1%) experienced one SAE), hepatobiliary disorders (one patient (1%) experienced one SAE), and neoplasms (one patient (1%) experienced one SAE).

A causal relationship to the administration of MOR208 was suspected in four patients (4%). All of these SAEs occurred in patients with an FL subtype (two patients (6%) experienced two SAEs) and a DLBCL subtype (two patients (6%) experienced two SAEs). These four SAEs included myelodysplastic syndrome, genital herpes, dyspnoea, and febrile neutropenia. An SAE of myelodysplastic syndrome was reported for one patient approximately a year after the start of therapy with MOR208. According to the investigator, the event was attributed to previous anti-lymphoma treatment (eight cycles of R-CHOP administered during 2008), in addition to the MOR208 therapy. The sponsor’s assessment of the SAE also revealed a family history of cancer and prior exposure to chemotherapeutic agents which are a commonly reported cause of therapy-induced myelodysplastic syndrome, and the chromosomal abnormalities in this patient were consistent with those reported after exposure to alkylating agents with or without rituximab.

Phase 2 Investigator-Sponsored Trial (IST) with MOR208 in CLL (OSU-13031)

In an investigator-sponsored trial presented in December 2016, investigators evaluated MOR208 in combination with lenalidomide in three cohorts of patients with CLL: previously untreated CLL patients, r/r CLL patients, and patients with Richter’s Transformation. The trial also included a fourth cohort of ibrutinib-treated CLL patients with identified resistance mutations to ibrutinib in the tumors (molecular relapse) but no confirmed clinical relapse, where MOR208 was added to ibrutinib therapy. Historical data had generally shown poor clinical outcomes in patients who relapse after a therapy with the BTK inhibitor ibrutinib and whose leukemia cells carry a mutation in the BTK gene prior to relapse.

According to the data presented by investigators, 34 patients had been enrolled in the study so far, 27 receiving MOR208 in combination with lenalidomide (eleven of whom were in the previously untreated cohort, eleven in the r/r cohort, five in the Richter’s Transformation cohort) and seven receiving MOR208 plus ibrutinib, with patient accrual still ongoing.

A total of ten out of 34 patients (safety cut-off May 31, 2016) (29%) experienced an aggregate of 19 SAEs across all cohorts. SAEs were most frequently reported in the System Organ Classes of metabolism and nutrition disorders (three patients (9%) experienced five SAEs), infections and infestations (three patients (9%) experienced four SAEs), respiratory, thoracic and mediastinal disorders (two patients (6%) experienced two SAEs), general disorders and administration site conditions (two patients (6%) experienced two SAEs) and investigations (two patients (6%) experienced two SAEs). By Preferred Term, the most frequently reported SAEs were dyspnoea (two patients (6%) experienced two SAEs) and hypercalcaemia (one patient (3%) experienced two SAEs). All other reported SAEs were single occurrences including clostridium difficile colitis, metapneumovirus infection, pneumocystis jirovecii pneumonia, sepsis, dehydration, fluid retention, hyponatraemia, confusional state, cholelithiasis, renal failure, death (related to progression of underlying disease), systemic inflammatory response syndrome, blood lactate dehydrogenase increased, weight decreased and infusion related reaction.

A causal relationship to the administration of MOR208 was suspected in two patients (6%). These two SAEs included an infusion related reaction with symptoms of feeling warm, facial flushing, nausea, vomiting and dizziness, and one dyspnoea.

 

107


Table of Contents

The most frequent hematological adverse events over all cohorts was thrombocytopenia in 47% of patients (6% grade 3 or higher) and neutropenia in 35% (21% grade 3 or higher). There were no unexpected SAEs reported, and no patient had developed progressive disease at the time of the abstract date cut-off. All enrolled patients were evaluable as per the protocol. In the cohorts of patients with treatment-naive or relapsed disease, six out of ten evaluable patients reached partial response as best response. Importantly, responses generally deepened over time in both cohorts. In addition, preliminary evidence of activity against CLL cells with BTK C481S has been observed in the cohort of patients with molecular progression on ibrutinib. BTK C481S variant allele frequency decreased or at least stabilized in six patients out of seven. The trial has been suspended for enrollment of new patients, while treatment of enrolled patients is still ongoing.

Phase 2 Trial with MOR208 as single agent in ALL

In 2013, we commenced a Phase 2 clinical trial of MOR208 in B cell acute lymphoblastic leukemia, or B-ALL. The U.S.-based open-label, multicenter, single-arm clinical trial was designed to assess the efficacy of MOR208 in patients suffering from r/r B-ALL. Secondary outcome measures included response duration, safety and pharmacokinetics of MOR208. Out of the 22 patients treated in this study, responses to MOR208 therapy were observed in two patients (one complete remission, or CR, and one complete remission with incomplete hematologic recovery), yielding an ORR of 9.1%. Recruitment was stopped after 22 patients had entered the treatment period.

CLL Phase 1 and Pre-clinical Development

In pre-clinical studies conducted by Xencor, MOR208 demonstrated FcgR-dependent anti-tumor activity against multiple human B cell lymphomas in vitro and anti-tumor effects in mouse lymphoma models. Xencor also demonstrated favorable half-life and B cell depletion in monkey models. Xencor submitted the IND for MOR208 to the FDA in February 2010.

In January 2013, Xencor completed a Phase 1 clinical trial of MOR208 in patients with high-risk, heavily-pretreated CLL. 27 patients were enrolled and were evaluable for response. Dose levels from 0.3 to 12 mg/kg were tested. The trial protocol was amended to include a period of extended dosing for a total of eight patients at the 12 mg/kg dose to study the effect of longer duration of exposure on safety and response rate. The primary endpoints for this clinical trial were safety, pharmacokinetics and immunogenicity. The secondary endpoints for this clinical trial included clinical responses assessed according to International Working Group on CLL, or IWCLL, 2008 and 1996 Guidelines. ORR by IWCLL 2008 criteria was 29.6% (eight partial responses in 27 evaluable patients). Using IWCLL 1996 response criteria resulted in a response rate of 66.7% (18 partial responses).

MOR202

Overview

MOR202 is a recombinant human IgG1 HuCAL monoclonal antibody, or mAb, directed against the CD38 cell surface antigen, a therapeutic target for the treatment of multiple myeloma, or MM, and certain leukemias. Multiple myeloma is seldom curable and a majority of patients experience a relapse after initial responses. This has led to a particularly high demand for alternative treatments, such as those that target the CD38 surface antigen. CD38 is one of the most strongly and uniformly expressed antigens on the surface of malignant plasma cells, and is

 

108


Table of Contents

an established diagnostic marker for multiple myeloma. Scientific research suggest that an anti-CD38 antibody may have therapeutic activity in solid tumors including non-small cell lung cancer, or NSCLC, or autoimmune and other diseases driven by autoantibodies such as light chain amyloidosis or systemic lupus erythematosus.

We are currently investigating MOR202 alone and in combination with immunomodulatory drugs in a Phase 1/2a clinical trial program in patients with r/r multiple myeloma. We expect to present results from this trial in 2018. In addition, we plan to initiate a Phase 1/2 clinical trial evaluating MOR202 in NSCLC in 2018.

In November 2017, we and I-Mab entered into an exclusive regional licensing agreement to develop and commercialize MOR202 in Greater China (China, Taiwan, Hong Kong and Macao). Under the terms of the agreement, I-Mab Biopharma, Shanghai/China, will assume exclusive responsibility for all subsequent development and commercialization of MOR202 in the agreed territory. We received an immediate upfront payment of $20.0 million (equal to 16.8 million at the then-prevailing exchange rate). We will be entitled to receive additional success-based clinical and commercial milestone payments from I-Mab of up to approximately $100.0 million, as well as tiered double-digit royalties on net sales of MOR202 in the territory. I-Mab Biopharma intends to start clinical development of MOR202 in patients with multiple myeloma in China by the end of 2018.

We are currently investigating the possibility of further developing MOR202 outside China with a partner. We cannot ensure that any such partner will be found or that such collaboration will be successful. Due to the competition in MM and the size and the duration of a potential study in this indication, we intend to develop MOR202 in MM only with a strong and committed partner.

Description of Multiple Myeloma and Current Treatment

According to the National Cancer Institute SEER database, MM has an estimated annual U.S. incidence of 30,280. Multiple myeloma causes cancer cells to accumulate in the bone marrow, where they displace and suppress healthy blood progenitor cell populations. Multiple myeloma is also characterized by destructive lytic bone lesions (rounded, punched-out areas of bone), diffuse osteoporosis, bone pain, and the production of abnormal proteins, which accumulate in the urine. Anemia is also present in most multiple myeloma patients at the time of diagnosis and during follow-up. Anemia in multiple myeloma is multifactorial, and is secondary to bone marrow replacement by malignant plasma cells, chronic inflammation, relative erythropoietin deficiency, and vitamin deficiency.

There is currently no standard multiple myeloma treatment. A patient’s individual treatment plan is based on such factors as age and general health, results of laboratory and cytogenetic (genomic) tests, symptoms and disease complications, prior myeloma treatment, patient’s lifestyle, goals, views on quality of life, and personal preferences. In addition, many cancer centers have developed their own guidelines for treating myeloma.

Multiple myeloma drug therapies consist of two categories. The primary treatment regimens are cytoreductive chemotherapies, in combination with stem cell transplantation, aimed at achieving a cure, if possible. In addition, myeloma patients require substantial supportive therapy aimed at managing the complications of the disease (such as bone damage) and ameliorating the side effects of treatment. There are a number of drug classes for the treatment

 

109


Table of Contents

of multiple myeloma: monoclonal antibodies, immunomodulatory drugs (IMiDs®), proteasome inhibitors, chemotherapy, histone deacetylase inhibitor, and steroids.

Among monoclonal antibodies, Empliciti® (elotumumab) is a monoclonal antibody developed by Bristol-Myers Squibb and AbbVie against an antigen called SLAM7 and was the first monoclonal antibody approved for use in multiple myeloma. The anti-CD38 antibody Darzalex® (daratumumab), developed by Janssen and Genmab, was first approved for use in multiple myeloma in 2015. Among IMiDs® are Revlimid® (lenalidomide), an oral medication that is effective across the spectrum of myeloma disease and Pomalyst® (pomalidomide), both developed by Celgene. Proteasome inhibitors include Ninlaro® (ixazomib) or Velcade® (bortezomib) and Kyprolis® (carfilzomib). Steroids (corticosteroids) such as dexamethasone and prednisone have been used for decades to treat myeloma throughout the spectrum of disease. They are currently used in combination with other myeloma drugs.

The introduction of CD38 monoclonal antibodies to the treatment landscape of multiple myeloma, highlighted by the approval of daratumumab, might be transformative. Based on their distinct mechanisms of action, generally favorable toxicity profile, and single agent activity, CD38 antibodies are considered attractive partners in combination regimens. Deep responses and prolonged progression-free survival have been achieved in r/r MM patients when CD38 antibodies are combined with immunomodulatory agents or proteasome inhibitors.

MOR202 for Treatment of MM

MOR202 is our anti-CD38 antibody candidate, which is currently being developed in multiple myeloma. This antibody recognizes a unique epitope on CD38. Its key activities are ADCC and ADCP. It does not involve complement dependent cytotoxicity, or CDC, an additional mechanism involved in tumor cell killing. In addition, pre-clinical data point to a low NK-cell depletion.

The figure below depicts the suggested mechanism of action of MOR202:

 

LOGO

One of the key features of MOR202 is a low frequency of infusion-related reactions leading to a short infusion time of two hours or less. We believe the favorable safety and tolerability observed for MOR202 (trial code MOR202C101) may support further clinical development of MOR202 as a treatment option for subjects with MM, though we anticipate only advancing MOR202 with a partner.

We are also exploring on our own the use of MOR202 in the solid tumor setting in combination with an immune checkpoint inhibitor with an initial focus on NSCLC. Pre-clinical experiments in

 

110


Table of Contents

mouse NSCLC models demonstrated highly synergistic anti-tumor activity of immune checkpoint inhibitor (for example anti-PD-L1) and anti-CD38 combination therapy.

Development of MOR202

We are currently investigating MOR202 alone and in combination with immunomodulatory drugs in a Phase 1/2a clinical trial program in patients with r/r MM. We filed an IND-equivalent in Germany and Austria to evaluate MOR202 in 2011.

Active Clinical Trials

MOR202 is undergoing a Phase 1/2a trial in patients with r/r MM. The study is evaluating the safety and preliminary efficacy of MOR202 alone and in combination with the immunomodulatory drugs pomalidomide, or pom, and lenalidomide in patients with r/r MM. These regimens include the addition of dexamethasone, or dex, in each cohort. The primary endpoints of the trial are the safety, tolerability and recommended dose of MOR202 alone and in combination with immunomodulatory drugs. Secondary outcome measures are pharmacokinetics and preliminary efficacy based on ORR, duration of response, time-to-progression, and progression-free survival.

In the trial, MOR202 was administered as a two-hour or shorter infusion up to the highest planned dose of 16 mg/kg. The latest publication of clinical data at the American Society of Clinical Oncology Annual Meeting 2017 (with a data cut-off from April 19, 2017) reported on 48 patients receiving at least one dose of study drug of the clinically relevant cohorts, i.e. patients exposed to doses and combination therapies potentially further explored in clinical development of MOR202. The cohort of patients treated with MOR202 in combination with len/dex had a median of two prior lines of therapy and an ORR of 71%, based on the “intent to treat” population, with the treatment of nine patients still ongoing at the data cut-off. The median PFS of this patient group was not yet reached.

The cohort of patients treated with MOR202 in combination with pom/dex had a median of three prior lines of therapy and have thus far shown an ORR of 46% with treatment of eight patients still ongoing at the data cut-off. It is important to note that the data of this combination treatment were still relatively immature and that responses in this patient group are often detected after a longer treatment time. The current median PFS of this combination is 17.5 months with a median follow-up period of 8.5 months.

The cohort of patients treated with MOR202 plus dex had a median of three prior lines of treatment before study entry. Median PFS of this cohort was 4.7 months, with a median follow-up of 22.1 months. Five out of 18 patients had a response (ORR of 28%, based on the intention-to-treat population).

Infusion-related reactions occurred in only 6% of patients in the clinically relevant dose cohorts of MOR202 (4 mg/kg, 8 mg/kg, 16 mg/kg) plus dex, len/dex or pom/dex and were limited to grades 1 and 2. No unexpected safety signals have been observed: based on published literature, observed safety findings for MOR202 were qualitatively and quantitatively (i.e., regarding nature and incidence) comparable to daratumumab, another antibody directed against CD38. Expected safety events included low cell counts of various types of blood cells (for example, white blood cells, platelets, and thrombocytes). Two patients discontinued due to a MOR202-related adverse event (one grade 4 thrombocytopenia, meaning occurrence of a low platelet

 

111


Table of Contents

count of below 25,000 per microliter (platelets are a type of blood cell involved in the stopping of bleeding); one grade 3 acute kidney failure). 41 (85%) patients experienced any frequent adverse events of grade 3 or higher, defined as an adverse event of grade 3 or higher occurring in at least 10% of patients of any cohort. The most frequent treatment emergent adverse events of grade 3 or higher were lymphopenia, neutropenia and leukopenia. The numbers were 19 (40%), 20 (42%) and 16 (33%) patients, respectively. No MOR202 treatment-related deaths were reported. Adverse events in this study were assessed and classified according to the CTCAE.

In August 2017, enrollment for the study completed.

Pre-clinical Development

In vitro binding studies showed that the binding affinity of MOR202 to CD38 is in the low nanomolar range. The in vivo efficacy of MOR202 was demonstrated in MM and lymphoma xenograft models in severe combined immunodeficient, or SCID, mice. MOR202 reduced tumor growth, increased survival and decreased bone lysis induced by MM cells inoculated into the tibiae of SCID mice. In vitro combination studies of MOR202 with lenalidomide enhanced cytotoxicity on MM cell lines. In vivo, the combination of MOR202 with lenalidomide showed synergistic effects on survival and inhibition of MM cell-induced bone lysis.

MOR106

Overview

MOR106 is an investigational human monoclonal anti-IL-17C antibody derived from our Ylanthia library, currently in development for the treatment of atopic dermatitis, or AD. In our pre-clinical studies, MOR106 has been shown to inhibit the binding of IL-17C to its receptor thus abolishing its biological activity. Results from rodent inflammatory skin models of atopic dermatitis and psoriasis support clinical development of MOR106.

We are developing MOR106 in collaboration with Galapagos. We share research and development costs equally with Galapagos, as well as all future economics.

In September 2017, we announced results of a Phase 1 clinical study with MOR106 in healthy volunteers and patients with atopic dermatitis. In the study, MOR106 was generally well-tolerated and showed first signs of clinical activity in five of six patients with moderate-to-severe AD, supporting progression to Phase 2 clinical studies. We plan to initiate a Phase 2 study with our partner Galapagos in the first half of 2018.

Description of Atopic Dermatitis and Current Treatments

AD, the most severe and common type of eczema, is a chronic relapsing inflammatory skin disease that causes severe itch, dry skin and rashes, predominantly on the face, inner side of the elbows and knees, and on hands and feet. Scratching of the afflicted skin leads to a vicious cycle causing redness, swelling, cracking, scaling of the skin and an increased risk of bacterial infections. Lichenification, thickening of the skin, is characteristic in older children and adults. The National Eczema Association estimates that atopic dermatitis affects over 30 million Americans or up to 25% of children and 2-3% of adults. 60% of AD-patients are diagnosed in the first year of life, and 90% of patients have a disease onset before age five. Symptoms commonly fade during childhood, however, approximately 10-30% of the patients will suffer from atopic dermatitis for life. A smaller percentage first develop symptoms as adults.

An array of treatment options is used to moisturize skin, reduce inflammation, clear eczema, alleviate itch, and maximize restful sleep in AD patients. AD management begins with

 

112


Table of Contents

over-the-counter emollients. Pharmacotherapy or, in some cases, UV phototherapy is prescribed as needed to better control disease manifestations. Topical pharmacotherapies like topical corticosteroids, topical calcineurin-inhibitors or topical PDE4-inhibitors are mainly used to treat mild-to-moderate cases of AD. In moderate-to-severe cases of AD, which cannot be controlled by topical agents alone, oral or parenteral systemic therapies are employed. Current systemic therapies for moderate-to-severe, topical treatment-refractory patients comprise conventional orally administered immunosuppressants such as systemic corticosteroids, cyclosporine A, mycophenolate, methotrexate, azathioprine, phototherapy, and a targeted biologic agent applied as subcutaneous injection—Sanofi/Regeneron’s anti-IL-4 receptor alpha antibody Dupixent®, which was launched in 2017.

MOR106 for Treatment of Atopic Dermatitis

We believe MOR106 is the first antibody in clinical development worldwide targeting the IL-17C antigen. MOR106 binds to the cytokine IL-17C, a novel target, which is up-regulated in inflammatory skin disorders such as psoriasis and atopic dermatitis. Based on findings from pre-clinical models, IL-17C plays an important and pro-inflammatory role in such skin disorders. Importantly, IL-17C has been shown to be distinct from other members of the IL-17 cytokine family in its biological function, as it is produced by different cell types, predominantly epithelial cells, and signals via a different, specific receptor.

In inflammatory skin disorders, IL-17C has been identified as an important pro-inflammatory mediator. IL-17C is a cytokine expressed by epithelial cells, such as skin keratinocytes, and binds to its receptor consisting of the subunits IL-17-RA and IL-17-RE. Binding of IL-17C to its receptor is assumed to trigger an inflammatory cascade that plays a promoting role in skin diseases. By specifically binding to IL-17C, MOR106 is designed to block the binding of the cytokine to its receptor, thus neutralizing the cytokine’s biological activity. The figure below depicts the suggested mechanism of action of MOR106:

 

LOGO

Development of MOR106

We filed clinical trial applications in various European countries in 2016 to evaluate MOR106 in clinical studies. We have investigated MOR106 in a Phase 1 clinical trial in healthy volunteers and patients with AD and are preparing initiation of a Phase 2 trial, with our co-development partner Galapagos, in 2018.

 

113


Table of Contents

Active Clinical Trials

We have reported results from a Phase 1 study in September 2017 and in February 2018 investigating the safety, tolerability and pharmacokinetic profile of MOR106 when administered intravenously, or IV, in single ascending doses in healthy volunteers as well as in multiple ascending doses in patients suffering from atopic dermatitis. The primary objective of the Phase 1 study was to evaluate the safety and tolerability of MOR106. The study’s secondary objective was to characterize the pharmacokinetic profile of MOR106 in patients. Exploratory objectives included the measurement of early signs of efficacy. In the single ascending dose part of the study, 56 healthy volunteers received an infusion (MOR106 (n=42); placebo (n=14)), followed by a 7-week follow up period. In the multiple ascending dose part of the study, 25 patients diagnosed with moderate-to-severe atopic dermatitis (MOR106 (n=18); placebo (n=7)), received four infusions, once a week for four weeks, followed by a 10-week follow-up period. Patients received either placebo or MOR106 in a one-to-three ratio of placebo and three different dose levels of MOR106, 1, 4, and 10 mg/kg body weight.

In the study, MOR106 was generally well tolerated. Any adverse drug reactions observed in relation to MOR106 were mild-to-moderate and transient in nature. No serious adverse events or infusion-related reactions were recorded. MOR106 reported a favorable pharmacokinetic profile with dose-dependent exposure and a half-life in patients in line with what was observed in healthy volunteers. Even though the study was not designed to show statistical differences in efficacy between treatment groups, an improvement of at least 50% measured by the eczema area and severity index (or EASI-50) at week four occurred in 83% of patients (five out of six) at the highest dose level of MOR106 compared to 17% of patients (one out of six) with an EASI-50 improvement at week four who were receiving placebo. Pooled data across all dose cohorts showed that patients treated with MOR106 achieved an EASI improvement compared to baseline of 58%, 62%, 72%, and 64% at week 4, 8, 12, and 14, respectively. For patients receiving placebo, the EASI improvement was 32%, 40%, 38%, and 50%, respectively, (as depicted in the figure below).

 

LOGO

Figure: Effect of MOR106 on the EASI compared to placebo as seen in the Phase 1 study in atopic dermatitis. Changes in the EASI (in %) compared to baseline in patients receiving either MOR106 or placebo. Pooled data over all cohorts are shown for patients who received MOR106 or placebo, respectively.

These first signs of MOR106’s clinical activity, coupled with the observations that the compound was generally well tolerated in the Phase 1 study, support the plan to progress development to a Phase 2 clinical study.

 

114


Table of Contents

In consideration of the chronic treatment envisaged and the importance of patient convenience, implementation of a subcutaneous application for MOR106 is under preparation.

Pre-clinical Development

In vitro, MOR106 inhibits the binding of human IL-17C to its specific receptor subunit IL-17-RE and inhibits the biological activity of IL-17C as determined in a NF-kB reporter gene assay in mouse NIH3T3 cells and in a more physiological assay using primary human keratinocytes endogenously expressing IL-17-RE/RA. In these functional assays, MOR106 inhibits the activity of cynomolgus monkey and mouse IL-17C with similar potencies as human IL-17C.

MOR106 prevented the occurrence of an atopic dermatitis-like skin inflammation in the MC903 (calcipotriol-induced) mouse model, with a significant impact on epidermal and dermal thickening, inflammation and type 2 T helper cell (Th2)-like gene expression. A therapeutic effect of MOR106 administration was also shown in the flaky tail mutant mouse, which exhibits a defective skin barrier function and spontaneously develops atopy evolving into a progressive overt AD-like dermatitis, reproducing cardinal features of AD in man. Beyond models of AD, MOR106 also displayed a protective effect in the IL-23-induced psoriasis-like skin inflammation mouse model with a significant impact on ear thickness, epidermal thickening and IL-23-induced gene expression.

For the non-clinical safety assessment of MOR106, mouse and cynomolgus monkey were identified as pharmacologically relevant animal species. The results of the in vivo toxicity studies demonstrated that MOR106 was well-tolerated in mouse and cynomolgus monkey.

MOR103/GSK3196165

Overview

MOR103/GSK3196165 is a fully human HuCAL antibody directed against the granulocyte-macrophage colony-stimulating factor, or GM-CSF. We discovered and advanced MOR103/GSK3196165 into clinical development and our partner GSK is now developing the antibody in the area of inflammatory diseases. Due to its diverse functions in the immune system, GM-CSF can be considered a target for a broad spectrum of anti-inflammatory therapies. GSK acquired the rights to MOR103/GSK3196165 pursuant to an exclusive worldwide development and license agreement that was entered into in June 2013.

We were responsible for completing a Phase 1b/2a clinical trial of MOR103/GSK3196165 in rheumatoid arthritis, or RA, which was completed in September 2012, and in multiple sclerosis, or MS, which was completed in September 2014. GSK is solely responsible, at its own cost, for all other development and commercialization activities. GSK is currently evaluating this antibody in several Phase 2 studies in patients with RA as well as in a Phase 2a trial in patients suffering from inflammatory hand osteoarthritis. GSK has reached primary completion of a Phase 2b study in RA as well as a Phase 2a study in hand OA, and we expect GSK will publish results from these studies in 2018.

Description of GM-CSF and Current Treatments

GM-CSF

GM-CSF stimulates stem cells to produce granulocytes and macrophages and can subsequently activate these differentiated immune cells. GM-CSF is part of the natural immune and inflammatory cascade but has also been identified as an inflammatory mediator in autoimmune

 

115


Table of Contents

disorders like RA leading to an increased production of pro-inflammatory cytokines, chemokines and proteases and thereby ultimately to articular destruction.

GM-CSF can act as a pro-inflammatory cytokine mainly by inducing the activation, maturation and differentiation of macrophages and dendritic cells, which are essential for the initiation and propagation of cell-mediated immune responses.

Rheumatoid arthritis

Rheumatoid arthritis, or RA, is a disabling and painful inflammatory condition, which can lead to substantial loss of mobility. The disease affects approximately four to six million people worldwide. In patients suffering from RA, white blood cells move from the bloodstream into the synovium, where they cause inflammation.

Disease-modifying anti-rheumatic drugs, or DMARDs, are routinely prescribed as first-line therapies for RA and have become the cornerstone of treatment, often prescribed to patients at all levels of disease severity. The conventional DMARDs most commonly used are methotrexate (Rheumatrex, Otrexup, Rasuvo, generics), leflunomide (Arava, generics), sulfasalazine (Azulfidine/Salazopyrin, generics), and hydroxychloroquine (Plaquenil, generics). For patients not responding to conventional DMARD treatment, TNF-a inhibitors are universally accepted as first-line biologic agents owing to their efficacy and to physician familiarity and comfort with these agents’ long-term post-marketing experience. At least five TNF-a agents are approved to treat moderately to severely active RA, under which are Enbrel (etanercept), a TNF-a receptor fusion protein, Remicade (infliximab), Humira (adalimumab), Simponi/Simponi Aria (golimumab), and Cimzia (certolizumab pegol), which are monoclonal antibodies against TNF-a. Multiple treatment options with different mechanisms of action are available for patients for whom TNF-a antibodies are contraindicated or who are not responding to TNF-a inhibitor treatment. The selective co-stimulation modulator Orencia® (abatacept) and IL-6 inhibitors Actemra®/RoActemra® (tocilizumab) and Kevzara® (sarilumab) have been approved for biologic-naive RA patients, and the B cell modulator Rituxan®/MabThera® (rituximab) is approved for patients who have failed at least one TNF-a inhibitor. Another biologic, Kineret® (anakinra), is marketed but rarely used for RA because of its lower efficacy.

Biosimilar versions of four molecules (infliximab, etanercept, rituximab, adalimumab) have been approved in the United States and Europe, though not all are available due to pending patent and exclusivity litigation. The availability of Jak inhibitors (Xeljanz®, Olumiant®), an oral class of agents with efficacy comparable to that of established biologic agents, is also expanding. A RANKL inhibitor, Prolia® (denosumab), has been approved for RA in Japan in July 2017, though this agent is specifically approved for inhibiting the structural damage (bone erosion) associated with RA and does not alleviate disease progression.

Osteoarthritis

Osteoarthritis, or OA, is a condition that causes damage to the surface of joints in the body leading to joint pain and stiffness. In some patients, it can adversely affect work and normal daily activities.

Currently available OA therapies focus on symptom relief, as there are no disease-modifying drugs approved for OA. Conventional pharmacological treatments include topical and oral nonsteroidal anti-inflammatory drugs, or NSAIDs, opioid analgesics, and intra-articular corticosteroid and hyaluronic acid injections. At present, a stepped-care approach is broadly

 

116


Table of Contents

used in the management of OA. First-line therapy generally involves non-pharmacologic interventions, followed by topical treatments and oral NSAIDs. For patients who do not achieve adequate pain relief with these first-line therapies, opioid analgesics may be prescribed. Both NSAIDs and opioids are associated with multiple adverse events, and it is recommended that they are prescribed in low doses for the shortest time possible. Acetaminophen was once widely used as a first-line therapy for mild OA. However, it has been associated with hepatic toxicity and multi-organ failure, and recent studies have indicated greater risk of adverse events associated with acetaminophen use than previously thought. More invasive modes of therapy involve corticosteroid injections, which provide effective but brief pain relief and are offered to patients who failed conventional oral therapies. A maximum of four steroid injections are recommended per year, making them a short-term solution. Patients with severe OA who do not respond sufficiently to any available pharmacological treatments are referred for joint replacement surgery, which represents the only curative medical intervention for OA.

MOR103/GSK3196165 for Treatment of Anti-Inflammatory Diseases

MOR103/GSK3196165 a fully human HuCAL antibody directed against GM-CSF (granulocyte-macrophage colony-stimulating factor). GM-CSF levels are significantly elevated in several inflammatory disorders and in the joints of rheumatoid arthritis patients. By neutralizing GM-CSF, the HuCAL antibody MOR103 has demonstrated its ability to reduce GM-CSF induced proliferation and activation of inflammatory cells and to intervene in several pathophysiological pathways in pre-clinical models of RA. The figure below depicts the suggested mechanism of action of MOR103/GSK3196165:

 

LOGO

Development of MOR103/GSK3196165

MOR103/GSK3196165 has been investigated in various clinical trials addressing the indications RA, OA and MS. Phase 1/2 trials conducted by MorphoSys in RA and MS were completed in 2012 and 2014, respectively. GSK is currently investigating MOR103/GSK3196165 in several Phase 2 clinical studies in RA and hand OA.

Active Clinical GSK Trials

In the third quarter of 2015, GSK announced the start of Phase 2b clinical study to investigate MOR103/GSK3196165 in RA. The primary objective of the randomized, dose-adaptive, multicenter, double-blind, parallel group, placebo-controlled study is to assess the efficacy of MOR103/GSK3196165, in combination with methotrexate in 210 patients with active moderate-severe RA despite treatment with methotrexate.

 

117


Table of Contents

In April 2016, GSK initiated a Phase 2a clinical study to investigate the effectiveness and safety of MOR103/GSK3196165 in patients with inflammatory hand OA. The goal of the European multi-center double-blind, placebo-controlled study is to investigate the efficacy and safety of subcutaneous injections of MOR103/GSK3196165 in adult subjects with inflammatory hand OA.

The main objective of the study is to assess the efficacy potential of MOR103/GSK3196165 on pain in inflammatory hand OA. Secondary objectives include the assessment of safety and pharmacokinetics of MOR103/GSK3196165.

GSK is currently investigating MOR103/GSK3196165 in combination with methotrexate in other Phase 2 clinical studies in RA.

Phase 1b Clinical Trial in RA

In a randomized, double-blind, placebo-controlled Phase 1b/2a trial in 96 mild-to-moderate RA patients, MOR103/GSK3196165 was administered in four weekly doses of 0.3 mg/kg, 1.0 mg/kg or 1.5 mg/kg. The primary aim of the trial was to determine the safety and tolerability of multiple doses of MOR103/GSK3196165 in patients with active RA. Secondary outcome measures were pharmacokinetics, immunogenicity, and the product’s potential to improve clinical signs and symptoms of RA as measured by Disease Activity Score in 28 joints, or DAS28, American College of Rheumatology score measuring 20% / 50% / 70% improvement, or ACR20/50/70, and other criteria.

The best response was achieved in the 1.0 mg/kg dose cohort with an ACR20 score of 68% at week four, which was significantly higher than in the control arm. Of particular importance was the fast onset of action observed: within two weeks, up to 40% of patients achieved an ACR20 score. Improvement of DAS28 scores was rapid and significant over the treatment period of the study. ACR20/50 scores at week four are depicted in the table below.

 

Results at week four

(Majority of patients were on stable regimen of DMARDS)

   Placebo      MOR103
[0.3 mg/
kg]
     MOR103
[1.0 mg/
kg]
     MOR103
[1.5 mg/
kg]
 

Number of patients

     27        24        22        23  

Proportion of patients achieving ACR20

     7%        25%        68%        30%  

Proportion of patients achieving ACR50

     4%        4%        23%        9%  

A total of 144 treatment-emergent adverse effects were reported in 54 (56.3%) subjects (42 subjects (60.9%) in the MOR103/GSK3196165 groups and 12 (44.4%) in the pooled placebo group). The most common treatment-emergent adverse event by preferred term in the active and placebo groups was nasopharyngitis. The incidences of fatigue, cough and adverse events related to RA (worsening or flares) in the MOR103/GSK3196165 group were more than four percentage points higher than in the placebo group. None of the adverse events were considered to be probably or definitely related to treatment. Adverse events possibly related to treatment were reported in seven placebo (14 adverse events) and ten MOR103/GSK3196165 subjects (19 adverse events). Only three adverse events (fatigue, scalingia and decreased diffusion capacity of the lung for carbon monoxide) were considered possibly related to treatment in more than one subject. All adverse events were judged to be of mild or moderate intensity except for one severe adverse event of hospitalization due to paronychia in the placebo group.

 

118


Table of Contents

Phase 1b Clinical Trial in MS

In September 2014, we concluded a Phase 1b clinical trial of MOR103/GSK3196165 in patients with relapsing-remitting MS or secondary progressive MS with relapses. In this 20-week, double-blind, placebo-controlled, Phase 1b dose escalation study, patients received an intravenous infusion of placebo or 0.5 mg/kg, 1 mg/kg or 2 mg/kg MOR103/GSK3196165 every two weeks for ten weeks. 31 patients received treatment. The primary endpoint was safety assessed by adverse events, physical examinations, vital signs, clinical laboratory data, electrocardiograms, pulmonary function tests, and MS relapses.

A total of 184 treatment-associated adverse events were reported in 31 (96.8%) patients, with no overall indication of increased adverse event frequencies in the MOR103/GSK3196165 groups compared with placebo. The most common adverse events in all groups were nasopharyngitis, headache, and MS exacerbation. No cases of infusion-related reaction were reported.

Eleven MS exacerbation events occurred in nine patients. MS exacerbation occurred in three (50.0%), five (62.5%), one (12.5%), and zero (0%) patients in the placebo, MOR103/GSK3196165 0.5, 1.0, and 2.0 mg/kg groups, respectively. Events occurred in both the treatment and follow-up periods in the placebo and MOR103/GSK3196165 0.5 mg/kg groups and during follow-up in the MOR 1.0 mg/kg group. All events either resolved/recovered or were resolving/recovering at the end of the follow-up period; recovery with sequelae was reported for three exacerbations.

A total of 71 adverse events considered to be possibly, probably, or definitely related to treatment, were reported in 18 (58.1%) patients. Adverse events were generally of mild or moderate intensity. There were two severe adverse events (urinary tract infection, placebo group; decreased vibratory sense in right lower limb, MOR103/GSK3196165 2.0 mg/kg group) both of which were considered unlikely to be related to treatment. No adverse events led to death or trial discontinuation.

MOR107

Overview

MOR107 is a lanthipeptide based on our proprietary technology platform and a selective agonist of the angiotensin II receptor type 2, or AT2R. Lanthipeptides are a novel class of therapeutics with potential high target molecule selectivity and high in vivo stability. Lanthipeptides can be designed to combine agonistic or antagonistic activity.

Development of MOR107

Clinical Trials

On February 16, 2017, we initiated a first-in-human Phase 1 study of MOR107 in healthy male volunteers. 24 participants were dosed. The study was conducted by Quotient Clinical (now Quotient Sciences) at their phase 1 unit in Nottingham, United Kingdom. The primary endpoint of the single-center randomized, double-blind, placebo-controlled study was to assess safety and tolerability of subcutaneously administered single ascending doses of MOR107 in healthy male volunteers. The secondary endpoint of the study was to assess the pharmacokinetics and pharmacodynamics of subcutaneously administered single ascending doses of MOR107.

MOR107 is formulated as a solution that is administered by subcutaneous injection. In May 2017, the first part of the clinical study in healthy volunteers was completed. The trial included three

 

119


Table of Contents

dose cohorts of MOR107. MOR107 was well tolerated following single doses of 0.001, 0.01 and 0.1 mg. Following single subcutaneous administration MOR107 demonstrated a rapid absorption from the subcutaneous injection site and exposure increased in an apparent dose-proportional manner. There were no deaths or SAEs, and no subject was withdrawn from the safety follow up as a result of an AE. The incidence of AEs was low. For each MOR107 dose group, one AE was reported by one participant (16.7%). All AEs were classed as mild in severity. No laboratory test result, vital sign measurement, ECG measurement, physical examination or injection site assessment was considered clinically significant.

Pre-clinical Development

In pre-clinical in vivo studies, MOR107 has demonstrated AT2R-dependent activity.

Three in vivo and one in vitro safety pharmacology studies that investigated potential physiological effects of MOR107 on the central nervous system, respiratory and cardiovascular systems did not reveal any detrimental effects over the dose range tested. Dose ranging toxicology studies using both the intravenous and subcutaneous routes in rat and dog were carried out but no maximum tolerated dose has yet been identified. Based on initial anti-tumor data, MOR107 is currently in pre-clinical investigation with a focus on oncology indications.

Partnered Discovery Programs

In our Partnered Discovery programs, we apply technologies for the research, development and optimization of therapeutic antibodies as product candidates in partnership with pharmaceutical and biotechnology companies.

The table below sets forth the clinical pipeline for our Partnered Discovery programs. In addition, we have 54 partnered product candidates that are in the discovery phase and 24 partnered product candidates that are in pre-clinical development.

 

LOGO

Tremfya®

Overview

Tremfya® is a fully human anti-interleukin (IL)-23 monoclonal antibody developed by Janssen. The HuCAL antibody library technology was used to generate the Tremfya® antibody under a license from us. IL-23 is a pro-inflammatory protein which has been identified as a cytokine in

 

120


Table of Contents

autoimmune diseases. IL-23 is found in the skin of patients with psoriasis and in other inflammatory diseases. It is therefore considered as a potential treatment target for inflammatory diseases. The antibody binds to the so-called p19 subunit unique to IL-23. Antibodies that bind to IL-23’s p40 subunit will also neutralize IL-12 and are therefore less specific. Tremfya® is the first approved antibody binding the p19 subunit of IL-23.

In July 2017, Janssen announced it had received U.S. market approval from the FDA for Tremfya® for the treatment of adult patients suffering from moderate-to-severe plaque psoriasis. We received a milestone payment from Janssen related to the approval. In mid-September 2017, the Committee for Medicinal Products for Human Use, or CHMP, of the EMA recommended approval in Europe of Tremfya® for the treatment of patients with moderate-to-severe plaque psoriasis. The EU Commission granted European approval in November 2017. Also in November 2017, Janssen announced that it had received Health Canada approval in Canada for Tremfya® for the treatment of adult patients suffering from moderate-to-severe plaque psoriasis.

Tremfya® is also being developed by Janssen for the treatment of patients with psoriatic arthritis, or PsA. Janssen has also announced plans for a Phase 3 program to investigate Tremfya® in patients with Crohn’s disease. It is also pursuing additional marketing-based studies in plaque psoriasis.

Description of Psoriasis and Current Treatments

Psoriasis is an inflammatory autoimmune disease of the skin. The associated inflamed skin patches may vary in severity from small and localized to complete body coverage. There are five main types of psoriasis: plaque, guttate, inverse, pustular, and erythrodermic. Plaque psoriasis, also known as psoriasis vulgaris, makes up about 90% of cases. It typically presents with red, itchy and scaly patches with white scales on top (plaques). Psoriasis is usually chronic and has a high morbidity and negative impact on patients’ quality of life. It is estimated that more than 7.5 million Americans live with the disease. Approximately 80% of those affected with psoriasis have mild-to-moderate disease, while 20% have moderate-to-severe plaque psoriasis.

Psoriatic arthritis is a chronic immune-mediated inflammatory disease characterized by both joint inflammation and the skin lesions associated with psoriasis. It is estimated that one third of the 125 million people living with psoriasis worldwide will also develop psoriatic arthritis. The disease causes pain, stiffness and swelling in and around the joints and commonly appears between the ages of 30 and 50 but can develop at any time. Though the exact cause of psoriatic arthritis is unknown, genes, the immune system and environmental factors are all believed to play a role in the onset of the disease.

 

121


Table of Contents

Tremfya® mechanism of action

Tremfya® is a fully human monoclonal antibody directed against the p19 subunit of interleukin (IL)-23. IL-23 is a pro-inflammatory protein which has been identified as a cytokine in autoimmune diseases and IL-23 levels are elevated in the skin of patients with psoriasis and in other inflammatory diseases. By binding to IL-23, the antibody prevents the cytokine from binding to its receptor, thereby silencing ongoing autoimmune responses. The figure below illustrates the suggested mechanism of action of Tremfya®:

 

LOGO

Clinical Development of Tremfya®

To date Tremfya® has been investigated in 16 clinical trials led by Janssen. These addressed the indications moderate-to-severe plaque-type psoriasis, pustular psoriasis, palmoplantar pustulosis and psoriatic arthritis and included two Phase 1 studies conducted and completed in healthy volunteers to assess the safety and pharmacokinetics of the antibody.

The majority of studies (nine in total) were initiated in patients with moderate-to-severe plaque-type psoriasis (plaque psoriasis), of which three have already been completed and the remaining trials are ongoing. In this indication, two Phase 1 trials had been completed analyzing either Tremfya® alone or Tremfya® in combination with P450 enzyme inhibitors. The remaining Phase 3 studies were either studies with Tremfya® versus a placebo and/or an active comparator drug: the Phase 3 VOYAGE-1 and VOYAGE-2 compared Tremfya® to adalimumab (Humira®), while NAVIGATE compared Tremfya® to ustekinumab (Stelara®).

Another Phase 3 study, POLARIS, is still ongoing and compares Tremfya® to fumaric acid esters. The Phase 3 ECLIPSE trial is a head-to-head comparison trial to secukinumab (Cosentyx