Here’s Why The Chinese Rights Deal Is Important For Morphosys Ag (ADR) (OTCMKTS:MPSYY)

Morphosys Ag (ADR) (OTCMKTS:MPSYY) is a multibillion-dollar German biotechnology giant headquartered in Planegg, however, it’s one of those companies that is off the radar of a large number of biotech and healthcare investors purely because of the fact that it doesn’t really have too much of a presence in the US and only trades over-the-counter by way of an ADR.

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This doesn’t negate its potential as a long-term reward stock, however, and a bit of fresh news by the company just underlined this statement.

On Thursday this week, Morphosys announced that it had found a buyer for the Chinese rights to one of its lead development candidates.

Specifically, the candidate in question is an oncology asset called MOR202, it’s one that Morphosys is trying to get approved as a targeted therapy for multiple myeloma, and the company to which Morphosys has sold the Chinese rights to MOR202 is called I-Mab Biopharma.

In return for these Chinese rights, Morphosys will pick up $120 million in upfront and milestone payments, with the first $20 million due for delivery right away and the remaining $100 million and tiered double-digit royalties to follow if MOR202 clears clinical and commercial milestones.

So what are the chances of this one picking up a regulatory green light in its target global regions?

Well, in order to answer this question, it might do some good to throw in a bit of background on the asset. Some reading may remember it as being one of Celgene Corporation (NASDAQ:CELG)’s development drugs (well, a drug that formed the basis of a collaboration between Celgene and Morphosys) back in 2013.

For those that don’t, the program didn’t end up going anywhere because the asset is what’s called a CD38 antibody and, while Celgene and Morphosys were trying to bring it to market, Genmab and Johnson & Johnson were trying to do the same with a practically identical drug called daratumumab.

The latter, now sold as Darzalex, hit markets ahead of MOR202 and, as a result, Celgene dropped the collaboration leaving Morphosys to go on and develop the drug on its own.

At the time, the market saw this as something of a nail in the coffin for MOR202, given that it really was a race to shelves for this new treatment type and that Darzalex had won this race and – by proxy – was able to start attracting market share close to half a decade ahead of MOR202.

Morphosys had different ideas, however, and continued to push the drug towards commercialization.

The company completed a phase 1/2 trial on its own, picked up some relatively strong data and then told wider markets that it wanted to find a partner that would be able to fund and help push it through to a pivotal investigation.

While Morphosys is yet to find a partner in the US, the latest Chinese development serves to inject some much-needed enthusiasm into the program and, of course, gives the company plenty of wiggle room with the upfront payment set to hit its balance sheet near term.

So what’s next?

Moving forward, this one’s all about partnerships.

We know that there is real potential for this drug to generate substantial revenues in the US for Morphosys but the company isn’t going to be able to take it to market on its own and, over the last couple of months, management has repeatedly highlighted the fact that it wants to find a third party to help it advance.

Exactly who this third-party will be, nobody really knows, but there is a good chance a big-name biotech would be willing to take on the challenge, given how successful the above-discussed Darzalex has been in this indication and, at the same time, how much the patients that make up this target population (multiple myeloma) need a fresh alternative therapy made available to them.

So, in terms of near-term catalysts, then, we are looking for anything that points towards advance on the partnership front as a real upside driver for Morphosys. It’s unlikely that Celgene will get involved again but, if we see a company of similar stature come on board and commit to some upfront spending, shareholders have plenty to get excited about.

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