Bryan Garnier & Co Morphosys (Buy) PT € 140
Fair Value EUR140
(14th January 2020)
Incyte is a great partner, but is it the best?
Given the market’s reaction following yesterday’s announcement ($MOR: -9% at EU
closing), we acknowledge that investors think Incyte is not the best possible partner
(while some had expected a buyout). Although we were also hoping for a bigger name,
some kind of price needed to be paid to keep half of the US rights and leverage them
to build up MorphoSys’ US commercial franchise. While Incyte is not AstraZeneca, it
nevertheless has strong expertise in haematology as well as an extended commercial
footprint in the US and in Europe. On top of that, while big pharmas can deprioritise
projects on the go, we are expecting Incyte to stay fully committed in view of the
investment made. Can it help deliver the USD3.5bn in sales that we forecast at peak?
We think so. Especially since Incyte already covers most of the physicians treating
DLBCL in the US and Europe. Bottom line, Incyte is the best partner MorphoSys could get without losing all control oover its most important drug and biggest value-driver.
Incyte aims to open new horizons, but this comes at a cost
Although we also believe that Tafasitamab has a strong potential beyond DLBCL, it is
worth bearing in mind that all these new developments will also be supported by
MorphoSys at a rate of 45%. While no timing has been disclosed for now, Incyte is
planning to start a combination study with its proprietary PI3K-delta inhibitor
parsaclisib in R/R B-cell malignancies, a phase III in follicular lymphoma/marginal
zone lymphoma as well as potential registration-enabling studies in CLL. Beyond the
financing perspective, this raises some questions regarding the recent collaboration
initiated with Vivoryon Therapeutics. Signed before Jean-Paul Kress' arrival, it was
looking to combine Tafa with PQ912, a CD47-SIRP. Will parsaclisib kill PQ912? Time
Financial terms are attractive, although only partially disclosed
We are indeed lacking precision regarding the type of tiered royalty system or the
way the USD1.1bn in milestones will be split between the regulatory, development
and commercial steps. The only certainty is the USD750m upfront payment that will
strengthen the company’s cash position for sure. In all, we believe the deal is rich for
MorphoSys and that it should start paying off with the potential FDA approval around
mid-2020. After incorporating those new elements into our scenario, we come up with
an identical FV of EUR140 as before.
An acquisition is off the table now, but was it ever on?
In view of yesterday’s stock performance, we acknowledge that investors were
expecting a deal with a big pharma that could have opened the door to a later buyout.
But in all fairness, with MorphoSys’ management this scenario has never been on the
table. With an FDA approval in sight, several milestones on the way, an extended
development programme planned, a fully committed partner and a discounted
valuation, we are reiterating our Buy rating with a FV of EUR140.