MorphoSys suffers sharp stock drop following late-phase miss

MorphoSys

MorphoSys (ETR:MOR) has been hit by one of the sharpest stock drops it has faced in its 17 years as a public company. The drop was triggered by news that a Phase IIb/III trial of bimagrumab has missed its primary endpoint, raising doubts about the likelihood of MorphoSys gaining access to a revenue stream that was expected to help support its dialled-up R&D budget.

Novartis ($NVS), a long-standing partner of MorphoSys, was testing bimagrumab in a late-phase trial in patients with sporadic inclusion body myositis, an acquired progressive muscle disorder. Full data are yet to emerge from the placebo-controlled trial but what is known is negative. The study missed its primary endpoint of change in baseline on the six minute walking distance test after 52 weeks of treatment. MorphoSys is yet to release details of whether the trial hit any of its secondary endpoints or whether readouts from any of the three different doses used are hiding reasons for optimism.

While it is still possible that bimagrumab will bounce back from the setback, the result is potentially a significant blow for MorphoSys. Having identified the monoclonal antibody using its HuCAL library, MorphoSys is in line to profit if the drug ever lives up to its blockbuster billing, a status the company has done its bit to talk up over the past few years. Management went as far as to tip bimagrumab to generate peak sales of $4 billion (€3.5 billion) back in 2014, an outcome that looks far less likely than it did this time last week.

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How much less likely will depend on the full details of the Phase IIb/III clinical trial and what, if any, implications they have for the other indications in which bimagrumab is being tested. For now, the partners are continuing to push ahead with clinical trials that are investigating the use of the drug as a treatment for sarcopenia and hip fracture. With the sarcopenia and hip fracture programs still in Phase II, neither of the indications is likely to provide MorphoSys with near-term revenues to top up its €300 million cash reserves as it embarks on a period of heavier R&D spending.

MorphoSys expects to spend up to €83 million on proprietary R&D this year, a sum that is notably more than in previous years. In September, MorphoSys CEO Simon Moroney said it is “an ideal time for us to be investing more in that proprietary portfolio,” a position that he backed up by pointing to anticipated royalty streams from the first approvals of partnered products. Bimagrumab was one of two drugs tipped to provide such a royalty stream. A regulatory filing for the other, a Johnson & Johnson ($JNJ)-partnered psoriasis drug, is pencilled in for before the end of the year.

Fears that MorphoSys will now miss out on one of these revenue streams have spooked investors. The 17% drop comes just over one year after MorphoSys suffered what Bloomberg called the company’s biggest fall since 2002. That fall, which was sparked by Celgene’s ($CELG) decision to walk away from an $818 million multiple myeloma co-development pact with MorphoSys, wiped 20% off the value of the German antibody specialist.

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