MorphoSys Annual Report 2010

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FY2010 Annual Report · MorphoSys

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Financial Calendar

February 24, 2011 Publication of 2010 Year End Results

April 29, 2011

Publication of 2011 Three Months’ Report

May 19, 2011

2011 Annual Shareholders’ Meeting in Munich

July 29, 2011

Publication of 2011 Six Months’ Report

October 28, 2011

Publication of 2011 Nine Months’ Report

Annual Report 2010

Antibodies for Life

MorphoSys AG

Lena-Christ-Str. 48

82152 Martinsried / Planegg

Germany

Phone: +49-89-899-270

Fax:

+49-89-8992-7222

www.morphosys.com

Key Figures (IFRS)

Product Pipeline

M O R P H O S Y S G R O U P (in € million, if not stated otherwise)

M O R P H O S Y S’ S P R O D U C T P I P E L I N E A S O F D E C E M B E R 31, 2010

12 /31/2010

12 /31/2009

12 /31/2008

12 /31/2007

12 /31/2006

Discovery

Preclinic

Phase 1

Phase 2

Phase 3

Market

RESULTS

Revenues

Cost of Goods Sold

R&D Expenses

S, G&A Expenses

Personnel Expenses (Excluding
Stock-based Compensation)

Capital Expenditure

Depreciation

Amortization of Intangible Assets

Proﬁ t from Operations

EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization)

EBIT (Earnings Before Interest and Taxes)

Net Proﬁ t

BAL ANCE SHEE T

Total Assets

Cash, Cash Equivalents and
Available-for-sale Financial Assets

Intangible Assets

Total Liabilities

Stockholders’ Equity

Equity Ratio (in %)

THE MORPHOSYS SHARE

Number of Shares Issued

Earnings per Share, Diluted (in €)

Dividend (in €)

Share Price (in €)

PERSONNEL DATA

Total Group Employees (Number)

Germany (Number)

Other Countries (Number)

87.0

7.3

46.9

23.2

29.6

13.8

2.1

4.0

9.8

19.2

13.1

9.2

81.0

6.7

39.0

23.9

26.1

3.8

1.6

3.8

11.4

18.1

12.8

9.0

71.6

7.1

27.6

20.5

21.5

3.8

1.5

4.8

16.4

21.9

16.5

13.2

212.6

206.1

203.3

108.4

69.2

26.6

185.9

87 %

135.1

17.4

32.2

173.9

84 %

137.9

19.7

41.3

162.0

80 %

62.0

7.9

22.2

24.8

18.8

12.0

1.5

3.7

7.0

13.3

8.3

11.5

184.7

106.9

22.3

39.2

145.5

79 %

53.0

8.0

17.5

21.4

18.1

4.0

1.5

3.4

6.2

10.3

5.4

6.0

127.8

66.0

14.8

27.8

100.1

78 %

22,890,252

22,660,557

22,478,787

22,160,259

20,145,966

0.40

–

18.53

464

370

0.40

–

17.04

404

301

103

0.59

–

18.75

334

236

0.53

–

16.10

295

192

103

0.31

–

18.12

279

183

BHQ880, Novartis

Novartis

CNTO 888, Centocor Ortho Biotech

Gantenerumab, Roche

CNTO 1959, Centocor Ortho Biotech

CNTO 3157, Centocor Ortho Biotech

Centocor Ortho Biotech

BAY79-4620, Bayer Schering

Boehringer Ingelheim

OMP-59R5, OncoMed

20 Partnered Programs

30 Partnered Programs

Novartis

Pﬁ zer

MOR103

MOR208

MOR202

Early-stage Cancer Programs

Early-stage Anti-inﬂ ammatory Programs

65 Partnered Programs

8 Own Programs

MorphoSys/Novartis

2 Pre-development Programs

Antibodies for Life

Human antibodies patrol the human body searching specifically for
pathogens tagging these for a “natural therapy” through the immune
system. Human evolution has constantly optimized antibodies over
millions of years to serve one key purpose: to protect life. MorphoSys
is committed to tapping the potential of antibodies and to further ex-
panding the spectrum of possible applications for the sake of patients.
With currently some 80 distinct drugs in research and development,
MorphoSys has one of the broadest antibody pipelines in the biotech-
nology industry. Seventeen compounds are already being evaluated
in clinical development and being tested as options for treatment of
severe and, in many cases, life-threatening diseases.

Modern diagnostics offer additional fields of application for MorphoSys’s technologies and products. Beyond
the conventional disease diagnosis, diagnostic tools also play an increasingly important role in the devel-
opment of new drugs and in many therapy decisions. MorphoSys’s technologies are ideally positioned at the
nexus of these areas and the Company expects a number of new opportunities for collaboration with the
diagnostics industry. The medical and commercial potential of antibodies in modern research, diagnostics and
medicine continues to be enormous. MorphoSys has developed industry-leading technological solutions for
the generation of antibodies and continues to refine these methods in order to bring the best-possible anti-
body products into clinical application. Therapeutic antibodies developed by MorphoSys promise to consider-
ably improve the quality of patients’ lives in the years ahead.

The Company Group Management Report Financial Statements

Contents

t h e c o m pa n y

04 m a n a g e m e n t b o a r d o f m o r p h o s y s a g

05 l e t t e r t o t h e s h a r e h o l d e r s

08 t h e m o r p h o s y s s h a r e

G r o u p m a n a G e m e n t r e p o r t

12 b u s i n e s s e n v i r o n m e n t a n d a c t i v i t i e s

15 s t r at e g y a n d p e r f o r m a n c e m a n a g e m e n t

17 h u m a n r e s o u r c e s

19 r e s e a r c h a n d d e v e l o p m e n t

i n t e l l e c t u a l p r o p e r t y

c o m m e r c i a l d e v e l o p m e n t

s u s ta i n a b i l i t y a n d c o r p o r at e s o c i a l r e s p o n s i b i l i t y

r e s u lt s o f o p e r at i o n s , f i n a n c i a l s i t u at i o n ,

a s s e t s a n d l i a b i l i t i e s

c o m pa r i s o n o f t h e a c t u a l b u s i n e s s r e s u lt s

w i t h f o r e c a s t s

t h e m a n a g e m e n t ’s g e n e r a l a s s e s s m e n t o f

b u s i n e s s p e r f o r m a n c e

28 c o r p o r at e g o v e r n a n c e r e p o r t

36 r i s k s a n d o p p o r t u n i t i e s

41 s u b s e q u e n t e v e n t s

41 o u t l o o k a n d f o r e c a s t

F i n a n c i a l S tat e m e n t S

45 c o n t e n t s c o n s o l i d at e d f i n a n c i a l s tat e m e n t s

46 c o n s o l i d at e d s tat e m e n t o f o p e r at i o n s (i f r s)

47 c o n s o l i d at e d s tat e m e n t o f c o m p r e h e n s i v e i n c o m e (i f r s)

48 c o n s o l i d at e d b a l a n c e s h e e t (i f r s)

c o n s o l i d at e d s tat e m e n t o f c h a n g e s i n

s t o c k h o l d e r s ’ e q u i t y (i f r s)

52 c o n s o l i d at e d s tat e m e n t o f c a s h f l o w s (i f r s)

54 n o t e s t o t h e c o n s o l i d at e d f i n a n c i a l s tat e m e n t s

88 r e s p o n s i b i l i t y s tat e m e n t

90 a u d i t o r ’s r e p o r t

Contents

a d d i t i o n a l i n F o r m at i o n

91 s u p e r v i s o r y b o a r d r e p o r t

94 s u p e r v i s o r y b o a r d o f m o r p h o s y s a g

96 s e n i o r m a n a g e m e n t g r o u p o f m o r p h o s y s a g

98 g l o s s a r y

100

i n d e x

102 m a s t h e a d

Killer T-Lymphocyte Attacking a Cancer Cell

The human immune system uses various strategies to fight diseases. This year’s cover of our annual report depicts
a killer t-lymphocyte (lower left) attacking a larger cancer cell, which as a consequence triggers the programmed
cell death of the target cell. Initiating, directing and controlling this and many other processes is the goal of many
biotechnology companies. MorphoSys’s approach in this regard is to identify the right disease-relevant target
molecules and specific antibodies for a therapeutic intervention.

l e G e n d

s e e g l o s s a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

a d d i t i o n a l i n f o r m at i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c r o s s - r e f e r e n c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Se e
Glo S Sary p. 98

more inFormation at
w w w.morpho SyS .c om

Se e
paGe 80

The Company Group Management Report Financial Statements

Management Board of MorphoSys AG

Dr. Simon E. Moroney – Chief Executive Officer

Dave Lemus – Chief Financial Officer

Dr. Marlies Sproll – Chief Scientific Officer

Dr. Arndt Schottelius – Chief Development Officer

Letter to the Shareholders

The year 2010 was one of great achievement for MorphoSys. We made extraordinary progress in our pipe-
line, expanded our technology platform and, in addition to these strategic advances, the Company delivered
very good financial results from operations. Our success clearly illustrates the attractiveness of our busi-
ness model.

Nowhere was the Company’s progress more evident than in our pipeline of therapeutic antibodies. The num-
ber of compounds in clinical development more than doubled during 2010, from eight at the beginning of
the year to 17 by the end. Well over 1,000 patients and volunteers will have been administered HuCAL anti-
bodies by the time the ongoing trials are completed. This is not only a compelling indicator of the success
of our strategy in commercializing our technology, but a reminder of the contribution we will make to human
healthcare. Among these programs are a number of potential blockbusters in indications as diverse as cancer,
asthma and Alzheimer’s disease, to name just a few.

In our Proprietary Development segment, we now have two programs in the clinic. The first patient was
dosed in the phase 1b/2a rheumatoid arthritis trial of our lead compound MOR103 in January 2010. We’re
very excited about this program, and look forward to completion of the trial in 2011. MOR103’s commercial
potential was boosted during the year when we achieved encouraging preclinical data in multiple sclerosis,
which will become the second indication for clinical development of MOR103 when we start a phase 1b
safety study in the second half of 2011.

In June 2010, we added a second clinical candidate to our proprietary portfolio by in-licensing the antibody
MOR208 from Xencor. This program is now in clinical development in the United States, the initial focus
being on chronic lymphocytic leukemia. This highly promising addition to our portfolio of drugs incorporates
a proprietary Xencor modification that makes it an exciting potential new treatment for cancer.

The Company Group Management Report Financial Statements

We expect MOR202 to become our third fully-owned antibody in the clinic during 2011, following the filing
of a clinical trial application in December 2010. Rounding off the Proprietary Development segment are
several discovery-stage programs, our co-development alliance with Galapagos and two active co-develop-
ment programs with Novartis.

We also had a year of substantial achievement within the Partnered Discovery segment. No fewer than
eight INDs were filed, by five different partners, during 2010. In addition, two partnered programs pro-
gressed from phase 1 to phase 2, bringing the number of partnered programs in phase 2 clinical trials to
five. We eagerly look forward to clinical data from these programs, which we hope should provide the
clearest evidence that HuCAL antibodies are destined to become successful drugs. Altogether, 15 partner
programs are in clinical trials, a number that we expect to grow given the abundance of preclinical and
discovery programs currently ongoing.

MorphoSys’s success has a lot to do with our unique antibody technology platform, at the heart of which is
HuCAL. Our commitment to maintaining our technological leadership was illustrated during 2010 by our
acquisition of Sloning BioTechnology GmbH. Sloning’s world-leading technology for building protein libraries
was quickly turned into a new antibody optimization platform called arYla. We expect arYla to transform
the way antibodies are optimized, increasing both speed and success rates. The Sloning acquisition promises
to open up a new world of partnering opportunities, as was evidenced by the agreement we entered into
with Pfizer just weeks after the Sloning transaction.

The AbD Serotec unit felt the effects of the financial slowdown, especially in its European home market.
Although revenues did not grow as originally expected, the structural improvements that we have imple-
mented were reflected in an improved operating profit margin of 6 %. The AbD Serotec segment is well posi-
tioned for an attractive future in the diagnostic segment where our antibody platform has the potential to
deliver clearly differentiated diagnostic products. Collaborations are ongoing with over 20 diagnostic com-
panies, and the first diagnostic kit based on a HuCAL antibody should reach the market in 2011.

Our Group operating profit of € 10 million exceeded expectations. The result is impressive, especially
considering that it includes a 37 % increase in proprietary R&D investment to approximately € 27 million.
In 2011, we expect revenue growth above 20 % and will remain profitable while continuing to invest
strongly in proprietary R&D. Our ability to continue to expand our partnered product pipeline, develop

Letter to the Shareholders

“Nowhere was the Company’s progress more evi-
dent than in our pipeline of therapeutic antibodies.
The number of compounds in clinical development
more than doubled during 2010, from eight at the
beginning of the year to 17 by the end.”

an exciting portfolio of proprietary products and still achieve consistently good financial results makes
MorphoSys almost unique in our industry. Cash is also an important strategic strength of MorphoSys. As
illustrated by both the Xencor in-licensing agreement and the Sloning acquisition, our strong balance sheet
enabled us to move quickly to acquire valuable assets.

MorphoSys enters 2011 stronger than ever before. I look forward to continued progress in our pipeline of
proprietary and partnered antibody drugs, and to a year where our revenues will exceed € 100 million for
the first time in the Company’s history. Our progress would not be possible without the hard work, dedica-
tion and creativity of our employees, to whom I am extremely grateful.

Thanks also to you, our shareholders, for your continued support. I am sure you will join me in wishing
the Company a successful 2011.

Dr. Simon E. Moroney
Chief Executive Officer

The Company Group Management Report Financial Statements

The MorphoSys Share

During the 2010 fiscal year, MorphoSys’s stock price increased by 9 %, outperforming
the TecDAX index, which showed only a moderate annual growth of 4 %. The NASDAQ
biotechnology index rose by 14 % in 2010.

K E Y D ATA F O R T H E M O R P H O S Y S S H A R E

(as of December 31 of each year)

Total Stockholders’ Equity

In € million

2010

185.9

2009

2008

2007

2006

173.9

162.0

145.5

100.1

Number of Shares Issued (Total)

22,890,252

22,660,557

22,478,787

22,160,259

20,145,996

Market Capitalization

Closing Price (Xetra)

Average Daily Trading Volume

In € million

€

In € million

424

18.53

1.1

386

17.04

1.3

421

18.75

1.9

357

16.10

2.5

365

18.12

1.9

The stock’s performance benefited in particular from the acquisition
of Sloning, the agreement with Pfizer and the multiple milestones that
were reached in the final month of the year. Overall, the MorphoSys
share price is beginning to reflect the Company’s solid progress in
building one of the most extensive antibody pipelines in the industry,
together with a profitable and convincing business model.

liQuidit y and inde X memBerShip
The average daily trading volume of MorphoSys’s stock was € 1.1 mil-
lion per day, compared to an average trading volume of € 1.3 million
per day in the previous year. MorphoSys consolidated its strong
position in the TecDAX* index, which includes the 30 largest tech-

nology stocks on the Frankfurt Stock Exchange. At the end of 2010,
the Company was able to improve its position based on market capi-
talization* to place 16 (year-end 2009: 17th place) and occupied 23rd
position based on trading volume (year-end 2009: 19th position).

StocKholder BaSe
The free float according to Deutsche Börse AG, which is generally
taken into account in the weighting of MorphoSys’s stock in stock
indices, was 88 % of the share capital at year-end 2010.

Please visit our website* for the most recent information on investor
relations.

Se e
Glo S Sary p. 98

more inFormation at
w w w.morpho SyS .c om

The MorphoSys Share

T H E M O R P H O S Y S S H A R E

(January 4, 2010 = 100 %)

120

110

100

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

m o r p h o s y s

n a s d a q b i o t e c h n o l o g y i n d e x

t e c d a x

S H A R E H O L D E R S T R U C T U R E

Shareholdings by Investor Type

Geographic Split of Institutional Holdings

(in %)

Institutional Investors

Retail Investors

Novartis

Management & Supervisory Boards

Treasury Stock

Unidentified Investors

27.9

6.4

1.9

0.4

17.1

(in %)

46.3

USA

Germany

Switzerland

Belgium

Other European Countries

Armed Antibodies to Treat Cancer
Chemotherapy and radiation therapy are standard treat-
ments in the battle against cancer. However, substances
that help to destroy proliferating tumor cells can also dam-
age healthy tissue. Immunoconjugates, antibodies carry-
ing a highly effective toxic or radioactive payload, are in-
tended to transport the cytotoxin directly to the cancer
cell.

MorphoSys’s partner Bayer HealthCare Pharmaceuticals
is currently evaluating the HuCAL-derived cancer anti-
body as a conjugate BAY 79-4620 (CA9-ADC) in a phase 1
clinical trial against various solid tumors such as lung
cancer.

Antibodies linked to a cytotoxin bind to the tumor marker carbonic anhydrase 9 (CA9) on the surface of
the cancer cell. The cell membrane invaginates, transporting both antibody and cytotoxin into the cell,
where specific enzymes should cleave the link between antibody and cytotoxin and release the active
ingredient. The cytotoxin attaches itself to the tubulins and blocks them, thus preventing cell division.
This should trigger the self-destruction of the cancer cell.

The Company Group Management Report Financial Statements

Group Management Report

In 2010, MorphoSys showed solid financial performance and was able to increase the value
of its proprietary product portfolio through significant R&D investments. MorphoSys’s
Partnered Discovery segment continued to perform very well with eight clinical milestones
met during the course of the year. As a result, total Group revenues were up by 7 % from
the prior year to € 87 million. Because of the significant increase in proprietary R&D invest-
ment, operating profit decreased as expected by 14 % to € 9.8 million. Regarding the re-
search and diagnostic antibodies segment AbD Serotec, the segment’s performance im-
proved compared to the previous year in a challenging market environment.

Business Environment and Activities

ec onomic de velopme nt
In 2010, global recovery following the downturn from the financial
crisis continued. The US economy grew by 2.4 % in 2010. However,
the lack of employment growth was seen as the “weakest link” of
the economic recovery.

In the euro zone, several countries faced significant debt difficulties,
most notably Greece and Ireland. In total, the economy of the nations
sharing the euro grew only slightly by 1.7 % in 2010, according to
OECD estimates. The German economy grew by approximately 3.7 %
in 2010.

According to current estimates, global GDP grew by 3.6 % in 2010,
compared with a decrease of 1.4 % in the prior year.

de velopment within the pharmaceutical and

Biotechnolo Gy Sec tor
The global pharma growth rate in 2010 amounted to approximately
4 % to 6 %, according to IMS Health. Emerging markets like China
and India showed substantially higher growth rates of approximately
14 % to 17 %.

Se e
Glo S Sary p. 98

Antibody-related transactions remained high on the agenda of phar-
maceutical companies. Significant technology licensing deals included
two agreements struck by MacroGenics with Boehringer Ingelheim
and Pfizer respectively, covering bispecific antibodies and Immuno-
Gen’s collaboration with Novartis covering immunoconjugates.

Noteworthy product licensing deals included two alliances in the
area of inflammatory diseases between Eli Lilly and Incyte Corpo-
ration and AstraZeneca and Rigel Pharmaceuticals respectively.
Both deals covered mid-stage clinical compounds to treat inflamma-
tory conditions such as rheumatoid arthritis (RA) and featured sig-
nificant upfront payments of over € 10 million to the respective bio-
tech partner.

With regard to antibodies in clinical development, Roche and Biogen
Idec’s decision to suspend development of Ocrelizumab® for use in
arthritis stood out. The decision came after an independent monitor-
ing board evaluated safety risks as outweighing benefits observed in
patients. Danish antibody company Genmab published its results with
Zalutumumab®, an antibody targeting an epidermal growth factor
receptor, which failed to reach the primary endpoint in a phase 3 trial
in head and neck cancer.

At the end of 2010, the number of therapeutic antibodies on the mar-
ket increased to 27. During the course of the year, the FDA* approved
Actemra®, an IL-6 receptor-blocking rheumatoid arthritis treatment,
in the USA and Amgen’s Prolia™ (Denosumab), a monoclonal antibody

Business Environment and Activities

to treat osteoporosis. Mylotarg®, a monoclonal anti-CD33 antibody
used to treat acute myeloid leukemia (AML), was withdrawn from the
market in 2010. Total revenues generated by monoclonal antibody
sales in 2010 amounted to approximately US$ 37 billion.

development process, for example, to what extent clinical studies
are required or what kind of post-marketing analysis should be con-
ducted. The entry barriers for biosimilar monoclonal antibodies in
Europe are therefore likely to remain quite high.

With regard to mergers and acquisitions and consolidation, 2010 was
another very active year for the pharmaceutical and biotechnology
sector. Most noteworthily, Johnson & Johnson acquired Crucell and
Sanofi-Aventis announced its plans to acquire Genzyme during
2010. Other transactions such as Abbott’s acquisition of Facet Biotech
or Cephalon’s move to acquire Ception Therapeutics were in part
motivated by mid-stage therapeutic antibody candidates developed
by the target companies. In the research antibody market, German
Merck KGaA acquired Millipore, one of the largest providers of re-
search tools including antibody-based reagents, for about € 5 billion.

During 2010, the pharmaceutical sector underperformed the overall
stock market. The FTSE Global Pharma index was up by 7.6 %, while
the FTSE All World was up by 10.4 %. The DAXsubsector biotechnology
index, currently comprising 14 publicly listed German biotechnol-
ogy companies, fell by 5.2 %, while the NASDAQ biotechnology index
increased by 14 %. Against that backdrop, MorphoSys’s stock showed
solid performance. The MorphoSys share price gained 9 % during the
year, while the TecDAX gained only 4 %.

reGul atory environment
The healthcare sector in which MorphoSys is operating is highly
regulated. Both therapeutic and diagnostic products require com-
plex approval from regulatory authorities such as Europe’s EMA*
(European Medicines Agency) or the US FDA (Food and Drug Ad-
ministration) before being able to enter the market. The number
of approved drugs decreased in 2010 compared to the year before.
While MorphoSys’s partners are solely responsible for regulatory
affairs within the partnered development programs, MorphoSys is
in charge of all regulatory requirements related to its proprietary
development programs.

Increasingly, generic competition is challenging the biotechnology
landscape since several drug patents are going to expire in the com-
ing years. In 2010, the EMA published draft guidance on biosimilar
antibody drugs*, while regulatory preparations in the USA are still
ongoing. These guidelines, which will be formally adopted after
May 2011, generally demand regulatory control for biosimilar mono-
clonal antibodies in the development process. They propose that
regulatory authorities make case-by-case decisions relating to the

orGaniz ational Struc ture and BuSineS S ac tivitieS

orGaniz ation and GloBal preSence oF the morphoSyS Group
MorphoSys’s business is split into three operating segments. The
Partnered Discovery segment develops drug candidates for commer-
cial partners. This segment is the foundation of the Company’s suc-
cess and manages partnerships with several renowned biotechnology
and pharmaceutical companies involving 65 distinct therapeutic
programs. The Proprietary Development segment is focused on devel-
oping proprietary therapeutic antibody candidates, mainly targeting
cancer and inflammation. The goal of this segment is to take innova-
tive antibody drugs to clinical proof of concept before partnering,
thereby creating additional value for the Company. MorphoSys’s third
operating segment, AbD Serotec, delivers high-quality antibodies to
the research and diagnostic markets.

BuSineS S ac tivitieS oF the morphoSyS Group
MorphoSys’s headquarters are located in Martinsried near Munich,
Germany. The Group’s corporate functions are centralized at this
facility. In addition to that, the Company has a facility in Puchheim
near Munich and a sales office in Düsseldorf, Germany, as well as
offices in Oxford, England, and Raleigh, North Carolina, USA.

leGal Struc ture oF the morphoSyS Group

Group manaGement and SuperviSion
MorphoSys AG is a German stock corporation listed on the Frank-
furt Stock Exchange in the Prime Standard segment and heads the
MorphoSys Group.

MorphoSys AG has a dual-board structure in accordance with the
German Stock Corporation Act. The Company is managed by a four-
member Management Board. The Management Board members are
appointed and directed by the Supervisory Board. For more informa-
tion regarding management and supervision as well as corporate
governance in general, please see the Corporate Governance Report*
on page 28.

The Senior Management group, composed of 14 people, represents
the different MorphoSys departments and completes the MorphoSys
management team.

Se e
Glo S Sary p. 98

Se e
paGe 28 e t SeQ .

The Company Group Management Report Financial Statements

B U S i n E S S A C T i v i T i E S O F T H E M O R P H O S Y S g R O U P

MorphoSys AG

Segments

Partnered Discovery

Proprietary Development

AbD Serotec

Fields of use

Therapeutic Antibodies

Research and Diagnostics

BuSineS S ac tivitieS and marKe tS By SeGment

par tnered diSc overy
The partnered business is a key driver of MorphoSys’s commercial
success and contributes significantly to the Company’s product pipe-
line, which is one of the broadest pipelines in the industry. Morpho-
Sys’s series of industry-leading technologies for the research and op-
timization of therapeutic antibody drug candidates forms the basis
of the Company’s Partnered Discovery segment. The healthcare mar-
ket is constantly looking for innovative products and MorphoSys
successfully applies its technologies in extensive partnerships with
pharmaceutical and biotechnology companies. Each development
program is fully financed by the respective partner; MorphoSys prof-
its from successful development in the form of milestone payments
and stands to earn royalties on product sales. The Company’s alliance
with Novartis dating from 2007 is one of the largest agreements in
the industry, securing revenues for MorphoSys through funded re-
search and license fees in the amount of approximately € 40 million

per year until 2017, plus potential milestone payments and royalties
on marketed products deriving from this alliance.

There are only a small number of established providers in the sector
for therapeutic antibody technologies. MorphoSys remains one of the
most renowned providers of highly validated antibody technologies
and, in 2010, further strengthened its technological leadership in the
industry by acquiring Sloning BioTechnology GmbH, a German bio-
technology company developing new methods of synthetic biology.
Just a few weeks after this acquisition, MorphoSys demonstrated
its partnering abilities when the Company’s new subsidiary signed
a non-exclusive license and technology transfer agreement with
Pfizer relating to Sloning’s Slonomics® technology platform for the
fabrication of highly diverse gene and protein libraries.

This successful development is reflected by the revenue increase of
the Partnered Discovery segment over the last three years:

S T R O n g R E v E n U E g R O w T H F R O M T H E P A R T n E R E D D i S C O v E R Y S E g M E n T

in € million

2010

66.3

2009

61.7

2008

54.3

Strategy and Performance Management

proprie tary de velopme nt
Over the last two years, MorphoSys has built a highly competitive
development team with the aim of developing innovative antibody
products. With these capabilities and this experience in-house,
the Company is able to generate even more value, adding to the stan-
dard fee-for-service business of the Partnered Discovery segment.
The focuses of internal know-how and expertise and thus key target
areas for MorphoSys’s researchers and developers are inflammatory
and autoimmune diseases as well as oncology.

inFl ammatory and autoimmune diSe aSeS
Chronic inflammatory disorders such as rheumatoid arthritis (RA),
multiple sclerosis (MS) or psoriasis* are a substantial burden in social
and economic terms. However, despite the significance of these dis-
eases and intensive global research, there have been relatively few
innovative breakthroughs in their cause, treatment or cure thus far.

A promising therapeutic target for the treatment of various inflamma-
tory disorders is GM-CSF*. MorphoSys’s lead compound MOR103 is
a fully human HuCAL-derived antibody directed against this target.
The program is currently undergoing a clinical phase 1b/2a trial in
rheumatoid arthritis, the largest single market in the area of inflam-
matory diseases. Additionally, MorphoSys expects to start a phase
1b trial in a second indication, namely multiple sclerosis, in the sec-
ond half of 2011.

onc oloGy
The oncology market includes a large number of heterogeneous indi-
cations demonstrating a wide range of unmet medical needs and
incidence rates. Today, there are more products in the oncology devel-
opment pipeline than in any other, with a huge number of new on-
cology products set to launch within the next few years. While new
players are entering the market, established pharmaceutical compa-
nies are re-engineering their organizations in order to tap emerging
opportunities.

MorphoSys is currently developing two proprietary compounds
against cancer. One is MOR202, a fully human HuCAL-based antibody
against CD38*, a therapeutic target for the treatment of multiple my-
eloma and potentially certain leukemias. MorphoSys expects to start
a phase 1/2a trial with MOR202 in patients with relapsed/refractory
myeloma in the first half of 2011.

The second proprietary development program MorphoSys is pursuing
in this area is MOR208 (XmAb®5574), which MorphoSys in-licensed
from Xencor in June 2010. The program is currently in a phase 1 trial
in chronic lymphocytic leukemia (CLL).

aBd Serotec – reSe arch and diaGnoStic antiBodieS
MorphoSys’s third operating segment is AbD Serotec, providing anti-
bodies for scientific research and modern clinical diagnostics. AbD
Serotec is one of the top 20 antibody providers in the field of research
and diagnostics, allowing the immediate online purchase of more
than 14,000 products via its catalog business. The HuCAL*-based
generation of new antibodies made to order is significantly faster
than the current market standard, even when producing antibodies
in larger quantities on behalf of diagnostic customers. AbD Sero-
tec’s custom services facility is able to serve customers with specific
antibody development challenges. The business unit currently has
relationships with more than 20 diagnostic companies and its anti-
bodies are trusted by many thousands of researchers.

According to a study by BCC Research, the worldwide diagnostic
market for monoclonal antibodies has a compound annual growth
rate of 7 % and is expected to be worth US$ 9 billion by the end of
2012.

Strategy and Performance
Management

Str ateGy
The Company’s unique HuCAL (Human Combinatorial Antibody
Library) technology comprises several billion different fully human
antibodies. Through the successful commercialization of this and
other proprietary technologies, MorphoSys has become a leader in
the field of antibodies. Technology development remains a central
part of the Company’s strategy, as illustrated by the acquisition of
Sloning BioTechnology GmbH in October 2010.

Increasingly, the Company’s comprehensive pipeline is taking cen-
ter stage. By maximizing the number of programs based on its tech-
nologies, MorphoSys increases its future upside potential and re-
duces the risk which always accompanies the development of new
medicines. End of 2010, the list of product candidates developed by
the Company’s partners comprised 65 programs, forming one of the
broadest antibody pipelines in the industry.

Se e
Glo S Sary p. 98

The Company Group Management Report Financial Statements

D E v E L O P M E n T O F F i n A n C i A L P E R F O R M A n C E i n D i C AT O R S

in € million

2010

2009

2008

2007

2006

MoRphoSyS G Roup

Group revenues

Group profit from operations

paRTneRed diSC oveRy*

Segment revenues

Segment result

pRopRie TaRy de velopMenT*

Segment revenues

Segment result

abd SeRoTeC

Segment revenues

Segment result

87.0

9.8

66.3

42.7

1.8

(24.5)

20.2

1.2

81.0

11.4

61.7

39.6

1.0

(18.3)

19.3

1.0

71.6

16.4

54.3

34.4

(8.9)

18.2

0.4

62.0

7.0

–

19.6

(0.6)

53.0

6.2

–

18.3

(3.4)

* The Partnered Discovery and Proprietary Development segments were introduced in 2009

n U M B E R O F P A R T n E R E D A n D P R O P R i E TA R Y C L i n i C A L P R O g R A M S AT Y E A R - E n D

2006
2007
2008
2009
2010

p h a s e ₁

p h a s e 2

MorphoSys receives secured payments from its partners in the form
of technology license fees, R&D funding, success-based milestones
and, dependent on product sales after product approval, royalties*.
The cash flows generated by the Partnered Discovery segment are
predominantly reinvested in proprietary drug development activities,
which have a much greater financial upside than programs initiated
by partners. The goal of the Proprietary Development segment is to

take proprietary compounds to clinical proof of concept before out-
licensing to a pharmaceutical company for late-stage development
and marketing. Although proprietary development requires in-
creased investments, MorphoSys adheres to its intention of remain-
ing profitable and thus independent from the capital markets as a
source of financing.

Se e
Glo S Sary p. 98

Human Resources

AbD Serotec’s growing penetration of the diagnostics market puts
MorphoSys in a strong position to benefit from the growing impor-
tance of diagnostics during the development of drugs and in conjunc-
tion with their use in the market. An array of alliances with pharma
and diagnostic companies is of strategic importance for MorphoSys,
with its technologies at the nexus of these two industries.

partment and two trainees as future biology laboratory techni-
cians. Three technical assistants were submitted for and success-
fully passed trainer qualification examinations run by the German
Chamber of Commerce and Industry (IHK) as part of MorphoSys’s
commitment to ensuring that trainees consistently receive the level
of support and motivation they need.

perFormance manaGe ment
Financial and non-financial performance indicators and appropriate
measures to enhance sustainable value are the key elements of
MorphoSys’s management system.

Moreover, MorphoSys invests in its employees through demand-
oriented and tailor-made internal and external advanced training
and development programs. The Company especially offers devel-
opment opportunities to employees in the research and product de-
velopment areas as well as those in various management positions.

Financial perFormance indicatorS
MorphoSys measures its operational business performance mainly
on the basis of two financial indicators, namely revenues and profit
from operations. For all segments, the performance is measured on
a monthly basis; budget planning for the current fiscal year is re-
viewed and updated quarterly. Once a year, a long-term plan cover-
ing the next five years is prepared.

c ompenSation
For MorphoSys, an appropriate compensation of its workforce is
essential, in order to attract and retain the best employees and
executives. The Company seeks to offer highly competitive salaries;
therefore, all salaries are benchmarked within the biotechnology
sector and with other industries on a yearly basis.

mid -term and lonG -term perFormance SchemeS
Each employee has the chance to contribute to and at the same time
to participate in the success of MorphoSys. The Company’s employees
share in the operational and financial development of the Company
through a performance-based bonus system which is based on the
achievement of personal, departmental and Company goals. In
addition to this performance-related compensation, the employees
share in the Company’s success through equity-based and profit
participation programs.

non - Financial perFormance indicatorS
The non-financial performance indicators such as progress in re-
search and development and human resources are described in de-
tail in the following chapters. The most obvious benchmark for the
successful development of MorphoSys is its expanding and matur-
ing clinical pipeline.

Human Resources

The people working at MorphoSys are the Company’s most important
asset. In 2010, MorphoSys expanded its scientific workforce. Follow-
ing the acquisition of Sloning BioTechnology GmbH, MorphoSys de-
cided to keep the skills and know-how of 25 Sloning employees and
to integrate them into the Company’s workforce.

numBer oF employeeS
The number of employees increased by 15 % in 2010. On December 31,
2010, the MorphoSys Group employed 464 people worldwide (De-
cember 31, 2009: 404), of which 148 held a PhD (December 31, 2009:
121). On average, the MorphoSys Group employed 435 people in
2010 (2009: 375).

QualiFication , tr aininG and education
MorphoSys attaches great importance to the training and personal
development of its employees. Therefore, the Company contributes
to the education of interested young people by offering vocational
training in-house. In 2010, MorphoSys hired a trainee for the IT de-

The Company Group Management Report Financial Statements

g R O U P H E A D C O U n T D E v E L O P M E n T

2006
2007
2008
2009
2010

279

295

334

404

464

100

150

200

250

300

350

400

450

500

E M P L O Y E E S B Y R E g i O n

USA (Previous Year: 20)

United Kingdom (Previous Year: 83)

Germany (Previous Year: 301)

370

E M P L O Y E E S B Y S E g M E n T * A n D F U n C T i O n

ToTal eMployeeS

Proprietary Development segment

Partnered Discovery segment

AbD Serotec segment

Employees in R&D

Employees in S, G&A

* Remainder of total headcount is not allocated to a specific operating segment.

2010

2009

464

100

183

142

309

155

404

144

148

248

156

Research and Development

proprie tary de velopme nt – thre e proGr amS in clinical

trial S in 2011
In 2010, MorphoSys substantially broadened and advanced its pro-
prietary product portfolio in cancer and inflammatory diseases.
With MOR103, MOR208 and MOR202, three proprietary compounds
will be evaluated in clinical trials in 2011. In total, the Company
had eight internally developed drug candidates at the end of 2010,
supplemented by two co-development programs with Novartis.
Additionally, as part of the alliances with Galapagos and Absynth
Biologics, several novel disease-related target molecules in bone
and joint diseases and infectious diseases are currently in validation
studies and could result in additional therapeutic programs in 2011.

MorphoSys’s lead development program, MOR103, a fully human
HuCAL antibody targeting GM-CSF, is currently being tested in a
phase 1b/2a clinical study in patients with active rheumatoid ar-
thritis (RA). Enrollment of patients in the phase 1b/2a clinical trial
started in January 2010. The randomized, double-blind, placebo-
controlled, dose-escalation trial is being conducted at multiple clini-
cal centers in four European countries, namely Germany, the
Netherlands, Bulgaria and Poland. Patients with active RA, despite
having undergone previous therapy, will each receive four infu-
sions of either the HuCAL-derived antibody MOR103 or a placebo in
three ascending-dose cohorts. The primary endpoint of the trial
is to determine the safety and tolerability of multiple doses of up to
1.5 mg/kg of MOR103 in these patients. Secondary outcome mea-
sures will evaluate pharmacokinetics, immunogenicity and the drug’s
potential to improve clinical signs and symptoms of RA as mea-
sured by the reduction of synovitis and bone edema as well as Ameri-
can College of Rheumatology (ACR) and European League Against
Rheumatism (EULAR28) response criteria and patient-reported out-
comes. MorphoSys expects to have final data from this trial in the
first half of 2012.

In November 2010, MorphoSys disclosed multiple sclerosis as the
second indication for MOR103. The decision is based on a compelling
scientific rationale and promising preclinical data. MorphoSys ex-
pects to start a phase 1b trial in multiple sclerosis with MOR103 in
the second half of 2011.

In line with the strategy of expanding its proprietary drug devel-
opment activities, MorphoSys in-licensed a therapeutic antibody
program from Xencor, Inc., a California-based biotechnology com-
pany focused on high antibody-dependent cellular cytotoxicity
(ADCC*) cancer therapies using antibodies with a proprietary modi-
fication to the Fc portion of the antibody. MorphoSys has secured a

worldwide, exclusive license for the anti-CD19* therapeutic antibody
XmAb®5574, which now carries the internal code MOR208. The
compound is currently being evaluated in a phase 1 clinical trial in
the USA. The trial is designed to assess the drug’s safety, tolera-
bility, pharmacokinetic profile and preliminary anti-tumor activity
in chronic lymphocytic leukemia (CLL) patients. The open-label,
multi-dose, single-arm, dose-escalation study is expected to enroll
30 patients suffering from relapsed or refractory CLL*.

With regard to the MOR202 cancer program, MorphoSys contin-
ued preclinical evaluation and toxicology studies to prepare the
clinical development of this anti-CD38* antibody. In November 2010,
MorphoSys filed a clinical trial application (CTA) to initiate a phase
1/2a trial with MOR202 in patients with relapsed/refractory myeloma
in Europe and the Company expects to dose the first patient in the
first half of 2011.

Additionally, MorphoSys formed a research collaboration with Klini-
kum rechts der Isar, the university hospital of Munich Technical Uni-
versity. The collaboration receives public funding of approximately
€ 1 million from the German Federal Ministry of Education and Re-
search (BMBF). As part of the program, the Company plans to ex-
plore relevant biomarkers for the anti-CD38 approach. The program
is part of Munich’s “m4 - Personalized Medicine and Targeted Thera-
pies - a New Dimension in Drug Development in the Munich Region”
biotechnology initiative, which received high-tech cluster status in a
German government funding competition in 2010.

par tnered diSc overy – FiF teen clinical proGr amS
MorphoSys’s partnered pipeline significantly matured during 2010,
with several programs moving into and advancing through clinical
development. In 2010, eight new partnered programs within the alli-
ances with Novartis (three programs), Centocor Ortho Biotech (two
programs), Boehringer Ingelheim, OncoMed Pharmaceuticals and
Pfizer advanced into phase 1 clinical trials*. Additionally, Novartis
achieved clinical proof of concept with an undisclosed HuCAL-based
antibody in a phase 1/2 study. Patients treated with the antibody
showed clear improvement of disease parameters. At the end of 2010,
Roche started a phase 2 clinical trial with Gantenerumab, a HuCAL
antibody against amyloid-beta* for the treatment of Alzheimer’s
disease.

At year-end 2010, MorphoSys’s partnered therapeutic antibody pipe-
line consisted of 65 active antibody development programs (un-
changed from 65 at the beginning of the year), of which five were in
phase 2 clinical trials, ten in phase 1, 20 in preclinical development
and 30 in discovery stage.

Se e
Glo S Sary p. 98

The Company Group Management Report Financial Statements

par tnered diSc overy – technoloGy de velopment
In 2010, MorphoSys made significant progress in strengthening
its proprietary technology platform. In October 2010, MorphoSys an-
nounced the acquisition of Sloning BioTechnology GmbH, a German
biotechnology company developing new methods of synthetic biology.
The transaction made MorphoSys the sole source of Sloning’s state-
of-the-art Slonomics® technology, which dramatically improves the
assembly and quality of protein libraries. The acquisition directly
resulted in a new technology platform called arYla, which was un-
veiled in November. The Company plans to use arYla to accelerate
antibody optimization, with the goal of generating superior thera-
peutic and diagnostic candidates faster and more cost-effectively
than is currently possible. arYla will be used to optimize a range of
properties critical to the successful development of a therapeutic or
diagnostic antibody. MorphoSys thereby expects to improve the gen-
eration of drug candidates such that one in every two projects
started will reach clinical development.

aBd Serotec
In 2010, AbD Serotec demonstrated significant progress using the
HuCAL-based technology platform to generate custom-made mono-
clonal antibodies for research and diagnostic use. Over the course of
the last four years, AbD Serotec has gradually improved technical
success rates year-on-year, from 80 % in 2006 to 98 % in 2009. This
was mainly achieved through a high degree of automation in many
aspects of the antibody generation process, by optimizing protocols
and finally through the implementation of HuCAL PLATINUM, the
latest and most powerful version of MorphoSys’s antibody libraries.
The success rates achieved by AbD Serotec are significantly higher
than the average success rate usually seen in the industry with ani-
mal-based methods of around 75 %.

Intellectual Property

In 2010, the Company continuously consolidated and extended the
patent position for its development programs, including the lead pro-
gram MOR103 and the in-licensed antibody MOR208 (XmAb5574)
from Xencor, and its expanding technology portfolio, representing
essential value-drivers for MorphoSys.

The strong intellectual property portfolio around HuCAL and other
technologies in key pharmaceutical markets around the world has
been complemented by a growing patent estate in Asia and the USA.
Several antibody-technology-related patent applications covering
various aspects of MorphoSys’s core technologies were filed and
granted throughout the world. To be more precise, in 2010, ex-

tended HuCAL-related patent protection has been granted in Japan,
and the US Patent and Trademark Office approved a new patent pro-
viding extended protection for the Company’s CysDisplay technology.

In October 2010, MorphoSys acquired German biotechnology com-
pany Sloning BioTechnology GmbH and became the sole supplier
of their technologies. These technologies as well are covered by sev-
eral patent families. The key patents do not expire before late 2023.

Currently, the Company is prosecuting more than 40 different pro-
prietary patent families worldwide, in addition to numerous patent
families the Company is pursuing in cooperation with its partners.

Commercial Development

par tnered diSc overy – ne w technoloGy pl atForm FormS

BaSiS For additional par tnerShip S
In October 2010, MorphoSys announced the acquisition of Sloning
BioTechnology GmbH, a private German biotechnology company
developing new methods of synthetic biology. Sloning’s shareholders
received a onetime € 19 million cash payment upon signing.

Based on the Sloning platform, MorphoSys was able to secure a
long-term alliance with Pfizer in December 2010. The non-exclusive
license and technology transfer agreement covers the installation
and use of Sloning’s technology platform Slonomics at Pfizer’s sub-
sidiary Rinat in South San Francisco as well as technical support.
In return, the MorphoSys subsidiary receives an upfront payment
and stands to receive annual license fees over the patent lifetime
of the Slonomics technology platform. The new collaboration with
Pfizer brought an immediate return on investment from the acqui-
sition of Sloning for MorphoSys’s shareholders.

As another direct result of the transaction, MorphoSys launched a
novel antibody optimization platform called arYla in November 2010.
MorphoSys intends to apply the technology in its own programs as
well as within existing and new partnerships.

proprie tary de velopment – ne w proGr am aGainSt

druG - reSiStant mrSa inFec tionS
MorphoSys’s proprietary drug development remains focused on the
indications cancer and inflammatory diseases. However, in Sep-
tember 2010, MorphoSys announced an additional proprietary devel-
opment program against novel infectious disease targets. As part
of this initiative, MorphoSys has signed a license and collaboration
agreement with UK-based Absynth Biologics, providing access to

Intellectual Property / Commercial Development / Sustainability and Corporate Social Responsibility

novel target molecules associated with Staphylococcus aureus infec-
tions including MRSA* (methicillin-resistant S. aureus). MorphoSys
will generate antibodies which Absynth will test in relevant disease
models. MorphoSys is solely responsible for the development and
partnering of the resulting compounds. Absynth has received an up-
front payment and is eligible for development-dependent milestone
payments and royalties.

Absynth’s genomics-based approach allows identification of previ-
ously overlooked targets, such as bacterial components which are cru-
cial to the organism, conserved across different bacterial strains
and accessible for antibodies. Absynth has demonstrated that mono-
clonal antibodies against the targets in-licensed by MorphoSys in-
hibit the growth of S. aureus and recruit the human immune system
to eliminate bacteria. Absynth has filed patent applications on all
targets involved in the collaboration.

MorphoSys’s goal is to create a valuable package of proprietary tar-
gets together with high-affinity antibodies, supported by compelling
data, which will allow the Company to partner the program for
subsequent development. The targets identified by Absynth provide
a unique opportunity to generate value rather quickly and create
out-licensing opportunities much earlier than in the areas of cancer
and inflammation.

aBd Serotec – e XcluSive produc tS in Ke y are aS
In 2010, AbD Serotec continued to expand its customer relationships
in key focus areas and signed a number of exclusive license agree-
ments covering key products in their offering. In the diagnostics mar-
ket, AbD Serotec secured an exclusive worldwide license to a key
diagnostic antibody from University College London. The antibody,
targeting the parathyroid hormone (PTH), forms the basis of an
existing relationship between AbD Serotec and a leading diagnostic
company which markets clinical parathyroid hormone assays. PTH
is the most important regulator of calcium levels in the human body.
Measurement of PTH is important in determining the cause of ex-
cessively high or low calcium levels and is a valuable diagnostic tool
during parathyroid surgery.

On the research side of the business, in September 2010, AbD Serotec
secured an exclusive worldwide manufacturing license to key re-
search antibodies from VU University Medical Center, Amsterdam.
The deal strengthened AbD Serotec’s position as the primary source
of reagents for studying the innate immune system. In November
2010, AbD Serotec secured a similar license agreement with the In-
stitute of Cancer Research, London, strengthening its position as
source of core reagents to study cell proliferation and cell kinetics.

Se e
Glo S Sary p. 98

Sustainability and Corporate Social
Responsibility

Besides their financial merits, the business activities at MorphoSys
are measured by their impact on the environment and society.
While the Company is always acting towards maximising its share-
holders’ value, it also keeps in mind the principles of a sustainable
corporate development.

MorphoSys aims at improving the treatment of life-threatening
diseases with the aid of its proprietary technologies as well as own
and partnered development activities. The demand for innovative
therapeutics to improve patients’ quality of life is constantly increas-
ing and this in turn allows the Company to expand its business.
Although novel drugs such as therapeutic antibodies are still expen-
sive medical products today, they have the potential to lower total
healthcare costs in the long run, an important factor in meeting the
healthcare needs of an aging population.

With regard to the development process of antibodies, MorphoSys’s
fully in-vitro-based technologies represent a genuine, fast and cost-
effective alternative to animal-based methods.

Each year, the Company’s staff supports local charitable nonprofit
organizations with private donations. In 2010, MorphoSys’s employees
donated € 1,065 to the Mukoviszidose e.V.

Qualit y manaGement
All pharmaceutical products, including clinical trial materials, must
be manufactured in compliance with established quality standards
to ensure the safety of patients. MorphoSys has a continuously im-
proving quality management system in place, not only in order to
comply with regulatory requirements but also to guarantee a con-
stantly high quality of investigational medicinal products used
within MorphoSys’s own development programs. MorphoSys is a
sponsor of clinical trials in humans and holds a manufacturing
license for the release of clinical trial material, which requires ad-
herence to international and national regulatory standards such
as cGMP* (current Good Manufacturing Practice) and GCP* (Good
Clinical Practice).

AbD Serotec’s manufacturing site in the UK, MorphoSys UK Ltd.,
Oxford, is accredited to the quality management standard ISO
(International Organization for Standardization) 9001:2008 and
ISO 13485:2003. The US site of AbD Serotec in Raleigh is also
accredited to ISO 9000:2008.

The Company Group Management Report Financial Statements

procurement
MorphoSys’s research activities and antibody material production
require raw materials, mostly standard laboratory material, and
equipment from external suppliers. Adequate stock prevents delivery
bottlenecks and eliminates the Company’s dependence on certain
suppliers. The procurement department at MorphoSys continuously
monitors the international markets with regard to safe, high-qual-
ity materials at favorable conditions and pools its supplies wherever
applicable. Preferred contracts for strategic materials are medium
and long-term in order to avoid a wide price spread. Thanks to this
precaution, MorphoSys has not experienced any difficulties to date
regarding the procurement process.

environmental protec tion
Environmental protection, high quality and safety standards are
key values for MorphoSys. The Company is continuously striving to
improve its operational efficiency in this regard, by implementing
energy-saving measures, reviewing the waste disposal system and
reducing the volume of raw materials used in the production pro-
cess, for example.

MorphoSys is not subject to direct rules other than regulation gener-
ally applicable to businesses of its kind, including laws and guide-
lines applicable to environmental matters, such as the handling and
disposal of hazardous waste. The Company’s research and develop-
ment activities involve only small amounts of hazardous materials
and chemicals, and their application and disposal is continuously
monitored and evaluated.

Furthermore, MorphoSys is exploiting measures to reduce its green-
house gas emissions in the interest of the environment, although
the biotechnology industry per se is not a carbon-intensive sector.
MorphoSys’s business unit AbD Serotec has agreed on a carbon-
offsetting scheme regarding its product shipments with its courier
services partner. For each product shipment, the carbon footprint
is calculated and corresponding carbon offsets are purchased from
ClimateCare on AbD Serotec’s behalf. Those carbon offsets are rein-
vested by ClimateCare in projects related to reforestation, renewable
energy and energy efficiency projects.

In 2010, MorphoSys again participated in the Carbon Disclosure
Project to inform investors of its greenhouse gas emissions and cli-
mate change strategies.

he alth and SaFe t y ac tivitieS
Quality at MorphoSys also includes safety and health aspects of the
Company’s working environment, which is particularly essential
for the research and development department. All R&D employees
receive an initial medical checkup, which is repeated every three
years. In addition, they have the opportunity to be vaccinated against
hepatitis A and B. All employees are offered regular eye examina-
tions.

Results of Operations, Financial
Situation, Assets and Liabilities

re venueS
Compared to the same period in the previous year, Group revenues
increased by 7 % to € 87.0 million (2009: € 81.0 million). This in-
crease is due to a combination of higher levels of funded research
and licensing fees in the Partnered Discovery segment as well as
revenues from funded research in the Proprietary Development seg-
ment. A further increase in revenues derived from stronger sales in
the AbD Serotec segment. Revenues arising from the Partnered Dis-
covery and Proprietary Development segments accounted for 78 %
or € 68.0 million (2009: 77 % or € 62.7 million) of total segment reve-
nues, while the AbD Serotec segment generated 23 % or € 20.2 mil-
lion of the total segment revenues (2009: 24 % or € 19.3 million).

Geographically, 19 % or € 16.5 million of MorphoSys’s commercial
revenues were generated with biotechnology and pharmaceutical
companies and non-profit organizations located in North America
and 81 % or € 70.5 million with companies located in Europe and
Asia. This compares to 18 % and 82 %, respectively, in the same period
of the prior year.

par tnered diSc overy and proprie tary de velopment SeGmentS
Segment revenues arising from the Partnered Discovery segment
comprised € 57.2 million in funded research and licensing fees (2009:
€ 48.6 million) plus € 9.1 million in success-based payments (2009:
€ 13.1 million), representing 13 % of total Partnered Discovery and
Proprietary Development revenues. Segment revenues arising
from the Proprietary Development segment included € 1.8 million in
funded research (2009: € 1.0 million). Approximately 87 % of Part-
nered Discovery and Proprietary Development revenues and 68 % of
total revenues arose from the Company’s three largest alliances
with Novartis, Daiichi Sankyo and Pfizer (2009: Novartis, Daiichi
Sankyo and Merck & Co., 84 % and 65 %, respectively).

Results of Operations, Financial Situation, Assets and Liabilities

Assuming constant foreign exchange rates at the average rate of
2009, segment revenues in the Partnered Discovery and Proprietary
Development segments would have remained unchanged.

aBd Serotec SeGment
Compared to the same period of the previous year, AbD Serotec seg-
ment’s revenues increased by 5 %, or € 0.9 million, to € 20.2 million
in 2010 (2009: € 19.3 million). Assuming constant foreign exchange
rates at the average rate of 2009, revenues in the AbD Serotec seg-
ment would have amounted to € 19.6 million.

As of December 31, 2010, orders in the amount of € 0.7 million were
classified as back orders in the segment (2009: € 0.5 million).

oper atinG e XpenSeS
Total operating expenses in 2010 increased by approximately 11 %
over the previous year to € 77.4 million (2009: € 69.6 million). The
change in operating expenses of € 7.8 million was due to research
and development (R&D) expenses increasing by 20 % or € 7.9 million
and COGS increasing from € 6.7 million to € 7.3 million while sales,
general and administrative (S, G&A) expenses decreased by 3 % to
€ 23.2 million. Total purchase price allocation (PPA) effects on oper-
ating profit amounted to € 0.8 million (2009: € 0.5 million).

Operating expenses increased by 7 % to € 23.6 million (2009: € 22.1
million) in the Partnered Discovery segment and by 37 % to € 26.5 mil-
lion (2009: € 19.3 million) in the Proprietary Development segment.
In the AbD Serotec segment, operating expenses increased by 3 % to
€ 18.9 million (2009: € 18.4 million) and would have amounted to
€ 18.4 million under the assumption of constant foreign exchange
rates at the average rate of 2009.

Stock-based compensation expenses are embedded in COGS, S, G&A
and R&D expense amounts. Stock-based compensation in 2010
amounted to € 2.1 million (2009: € 1.7 million) and is a non-cash
charge.

c oSt oF GoodS Sold
COGS is composed of the AbD Serotec segment’s cost of goods sold
in 2010 and, compared to the same period of the prior year, increased
by 9 % from € 6.7 million to € 7.3 million, which was due to an in-
crease in personnel-related costs and material costs as well as foreign
exchange effects.

reSe arch and de ve lopment e Xpe nSeS
In 2010, expenses for research and development increased by € 7.9
million to € 46.9 million (2009: € 39.0 million). This was mainly due
to higher personnel costs (2010: € 17.9 million; 2009: € 14.8 million),

increased costs for external lab funding (2010: € 13.3 million; 2009:
€ 10.5 million), as well as higher material costs (2010: € 4.0 million;
2009: € 2.3 million). In 2010, the Company incurred costs for propri-
etary product development (including allocations for segment pur-
poses) in the amount of € 26.5 million (2009: € 19.3 million). Costs for
technology development amounted to € 2.1 million (2009: € 0.7 mil-
lion) and were partly allocated to proprietary product development,
but mainly accounted for in the Partnered Discovery segment.

SaleS , Gener al and adminiStr ative e XpenSeS
Compared to the same period of the previous year, sales, general
and administrative expenses slightly decreased by 3 % or € 0.7 mil-
lion to € 23.2 million (2009: € 23.9 million).

other oper atinG inc ome
Other operating income increased by € 0.1 million to € 0.2 million in
2010 and comprised grant income from governmental agencies.

non - oper atinG itemS
In 2010, non-operating items included mainly finance income of € 4.1
million (2009: € 2.0 million), other expense of € 1.2 million (2009:
€ 0.7 million) and other income of € 0.5 million (2009: € 0.4 million).
Finance income mainly comprised realized gains from marketable
securities.

ta XeS
In 2010, the Company reported income tax expense in the amount
of € 4.0 million. This line item mainly included current tax expense
from Group entities.

oper atinG proFit/ne t proFit
Group operating profit in 2010 amounted to € 9.8 million (2009:
€ 11.4 million). Earnings before interest and taxes (EBIT) amounted
to € 13.1 million, compared to an EBIT of € 12.8 million in the pre-
vious year. The Partnered Discovery and Proprietary Development
segments showed an operating profit of € 42.7 million (2009: € 39.6
million) and an operating loss of € 24.5 million (2009: operating loss
of € 18.3 million), respectively. In the AbD Serotec segment, operat-
ing profit increased to € 1.2 million (2009: € 1.0 million) and would
have remained unchanged under the assumption of constant foreign
exchange rates using foreign exchange rates of the previous year.

A net profit after taxes of € 9.2 million was achieved in 2010, com-
pared to a net profit after taxes of € 9.0 million in the same period
of the prior year. The resulting basic net profit per share for 2010
amounted to € 0.41 (2009: € 0.40).

Antibodies with Enhanced Effector Function
Therapeutic antibodies can be optimized in order to elicit
an increased immune response through antibody-depen-
dent cell-mediated cytotoxicity, or ADCC for short. This
process represents a key mechanism in the destruction
of cancer cells. Small modifications to the antibody’s Fc
region can result in a much higher tumor cell-killing po-
tency as compared to standard cancer antibodies.

In June 2010, MorphoSys AG and US-based biopharmaceu-
tical company Xencor signed a worldwide exclusive license
and collaboration agreement for the antibody MOR208.
The antibody is currently being evaluated in a phase 1 trial
in patients with chronic lymphocytic leukemia in the USA.

B-cell malignancies afflict more than 150,000 patients in the seven major markets each year. MOR208
has been engineered to possess significantly enhanced antibody-dependent cell-mediated cytotoxicity.
Its target molecule CD19 is expressed more broadly and earlier in B-cell development than CD20, the
target of the blockbuster cancer drug Rituxan.

The Company Group Management Report Financial Statements

liQuidit y/caSh FlowS
Net cash inflow from operations in 2010 amounted to € 2.5 million
(2009: cash outflow of € 1.0 million). Investing activities resulted in
a cash outflow of € 2.0 million (2009: cash inflow of € 0.6 million),
whereas financing activities resulted in a cash inflow of € 2.3 million
(2009: cash inflow of € 1.4 million).

As of December 31, 2010, the Company held € 108.4 million in cash,
cash equivalents and available-for-sale financial assets, compared to
a year-end 2009 balance of € 135.1 million.

aS Se tS
Total assets increased by € 6.5 million to € 212.6 million as of De-
cember 31, 2010, compared to € 206.1 million as of December 31,
2009. Current assets decreased by € 23.1 million, mainly as a result
of a decrease in marketable securities in the amount of € 29.6 mil-
lion which were sold for the financing of the acquisition of Sloning
BioTechnology GmbH in the fourth quarter of 2010 and the in-
licensing of a compound from Xencor in the second quarter of 2010.
The decrease in marketable securities was partly offset by an in-
crease in accounts receivable by € 3.9 million and an increase in
cash and cash equivalents by € 2.9 million.

Compared to December 31, 2009, non-current assets increased by
€ 29.5 million, mainly as a consequence of the acquisition of Sloning
and the in-licensing of a compound from Xencor (intangible assets
under development). The increase in patents by € 9.5 million is mainly
impacted by technology capitalized in connection with the purchase
price allocation according to IFRS 3 for the Sloning acquisition. The
purchase price allocation for Sloning also resulted in additional
goodwill in the amount of € 7.4 million. The capitalization of a de-
ferred tax asset on tax loss carry-forwards of Sloning increased
this line item by € 2.7 million.

liaBilitieS
In 2010, current liabilities decreased from € 24.3 million as of De-
cember 31, 2009, to € 21.4 million as of December 31, 2010, arising
mainly from a decrease in current deferred revenue in the amount
of € 5.4 million. This decrease was partly offset by an increase in ac-
counts payable by € 1.5 million and an increase in provisions by
€ 1.0 million mainly due to tax liabilities.

Non-current liabilities decreased by € 2.6 million to € 5.3 million in
2010, mainly impacted by a decrease in non-current deferred reve-
nue of € 4.9 million resulting from the reclassification of long-term
deferred revenue to short-term deferred revenue in 2010. This effect

was partly offset by an increase in deferred tax liabilities by € 2.2
million, mainly a consequence of assets identified in the purchase
price allocation for Sloning.

eQuit y
Total stockholders’ equity amounted to € 185.9 million as of Decem-
ber 31, 2010, compared to € 173.9 million as of December 31, 2009
and mainly increased due to the net profit in the amount of € 9.2 mil-
lion generated in 2010, stock-based compensation of € 2.2 million
and the exercise of options and convertible bonds amounting to € 2.6
million. These effects were partly offset by movements in reserves
of € 2.2 million.

As of December 31, 2010, the total number of shares issued amounted
to 22,890,252 of which 22,810,356 were outstanding, compared to
22,660,557 and 22,580,661 as of December 31, 2009, respectively.

The increase of 229,695 shares outstanding arose from exercised
options and convertible bonds issued to both the Management Board
and employees.

capital e Xpenditure
MorphoSys’s investment in property, plant and equipment focused
mainly on lab equipment and amounted to € 2.3 million in 2010, com-
pared to € 2.6 million in the same period of the prior year. Deprecia-
tion of property, plant and equipment in 2010 accounted for € 2.1 mil-
lion compared to € 1.6 million in 2009.

In 2010, the Company invested € 11.5 million in intangible assets
(2009: € 1.2 million). This investment mainly included the in-licensing
of a compound from Xencor. Amortization of intangibles amounted
to € 4.0 million in 2010 and slightly increased in comparison to the
prior year (2009: € 3.8 million).

credit r atinG
MorphoSys is currently not rated by any rating agencies.

Comparison of the Actual Business
Results with Forecasts

2010 again has been a very successful business year for MorphoSys.
Although the business environment remained challenging, the Com-
pany managed to continue along its promising path of becoming one
of the world’s leading antibody developers.

Comparison of the Actual Business Results with Forecasts / The Management’s General Assessment of Business Performance

2010 goals

2010 Achievements

Financials

Group revenues of € 91– 94 million
(increased in December from initially € 89 – 93 million)

Operating profit of € 13 –16 million
(increased in December from initially € 5 – 9 million)

Group revenues of € 87.0 million*

Operating profit of € 9.8 million*

Proprietary R&D

Complement current team

Ongoing recruitment of RA patients for
phase 1b/2a study with MOR103

Expand pipeline to up to 10 proprietary programs,
including co-development opportunities

Partnered Pipeline

4 – 6 partnered INDs

Clinical data from ongoing phase 2 trials

Clinical Pipeline

Further expansion of clinical pipeline

AbD Serotec

Further penetration of diagnostics market

Team fully recruited. Results of proprietary R&D activities become
increasingly evident

Recruitment of RA patients ongoing – Final data expected
in H1 2012

Pipeline now comprises 10 proprietary programs, including
2 co-development programs with Novartis

8 partnered INDs, each triggering milestone payments,
have been achieved

Number of partnered clinical programs in phase 2 increased to
5 programs, up from 3 at the end of 2009; no clinical phase 2
data were reported thus far

The number of programs in clinical studies has more than doubled,
from 8 programs in 2009 to 17 programs in 2010

AbD Serotec has collaborations with more than 20 diagnostic
companies ongoing

Segment revenues of € 21– 22 million

Segment revenues of € 20.2 million

Profit margin of 5 – 8 %

Profit margin of 6 %

* The deviation from guidance issued by the Company on December 10, 2010 (revenues of € 91– 94 million and operating profit of € 13 –16 million) is related to the final accounting treatment

of the Pfizer deal signed in December 2010. This accounting treatment has no impact on the overall economics of the agreement with Pfizer, or on any cash flows arising from the deal.

The Management’s General
Assessment of Business Performance

The Management Board again sees a solid performance of MorphoSys
in 2010. The majority of the Company goals have been met, with all
business segments contributing to this positive development. Group
revenues remained slightly under initial expectations, as a result
of new commercial agreements having a lower impact on revenues
than had been expected.

The highest value was generated by the Company’s Partnered Dis-
covery segment. Based on the positive financial performance of this
business segment, MorphoSys continued to invest in its proprietary
drug development activities, with an increase of R&D spend of 37 %

over 2009. The efforts of the two therapeutic segments resulted in
a doubling number of active clinical programs, significantly enhanc-
ing the Company’s value. Nevertheless, despite increased invest-
ments in proprietary development, the Company showed solid oper-
ating profits, above initial expectations.

MorphoSys’s product pipeline continued to grow and mature. With
eight partnered INDs, even the Company’s initial expectations of four
to six programs for 2010 have been exceeded and the proprietary
programs, including two programs in clinical trials, evolve success-
fully. Especially the in-licensing of the anti-CD19 antibody from
Xencor, now MOR208, further strengthened MorphoSys’s proprietary
clinical pipeline. For MOR202, a clinical trial application was filed
in Q4 of 2010, and clinical trials are expected to commence during
the first half of 2011.

The Company Group Management Report Financial Statements

AbD Serotec did not fully meet its growth expectations due to a chal-
lenging market environment. Especially in Europe, the economic
crisis influenced customer demand. The segment continued its ex-
pansion into the diagnostic sector, with several feasibility studies
ongoing. In 2011, the first diagnostic kit with a HuCAL antibody is
expected to enter the market.

In total, the MorphoSys Group continued to show top-line growth of
7 % and remained profitable with an operating profit of € 9.8 million,
despite significantly increased investment into proprietary R&D.

Corporate Governance Report

To the MorphoSys Group, corporate governance builds the frame-
work for the management and supervision of a company, including
its organization, commercial principles and regulatory and moni-
toring measures. The internal guidelines at MorphoSys are aligned
with the German Corporate Governance Code, which contains inter-
nationally recognized standards for good and responsible governance.
The aim of such transparent and coherent management principles
is to strengthen the confidence of the financial markets, business
partners, employees and the public in the Company.

In order to guarantee good corporate governance, open and com-
prehensive communication on a regular basis is a guiding principle
for the Management and Supervisory Boards of MorphoSys AG.
The underlying two-tier system required by the German Stock Cor-
poration Act explicitly differentiates between management and
supervision. The responsibilities of both boards are clearly defined
by law, by the Articles of Association and the rules of procedure.
MorphoSys AG’s boards work together closely and act and decide in
the best interest of the Company; their dedicated goal is to sustain-
ably increase the Company’s value.

internal c ontrol S

introduc tion
MorphoSys updated its documentation regarding the internal con-
trol system that was established and used over the years for main-
taining adequate internal control over financial reporting. In accor-
dance with sec. 289 (5) and sec. 315 (2), para. 5 of the HGB (German
Commercial Code), MorphoSys described the key characteristics of
its accounting-related internal control system that ensures that all
controls are in place to be able to report the financial figures as
precisely as possible. These internal controls over financial reporting
are documented and structured based on the most commonly used
COSO framework (“Internal Control – Integrated Framework”) as de-
fined by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

Due to its inherent limitations, internal control over financial report-
ing may not prevent or detect misstatements and can only provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes,
in accordance with IFRS* (International Financial Reporting Stan-
dards) as adopted by the European Union.

Also, projections relating to future periods are not part of the inter-
nal control system.

deScrip tion oF the internal c ontrol SyStem at morphoSyS
Internal control over financial reporting, i.e. control activities per-
formed in the financial statement close process, is part of the
Company-wide internal control system. The control environment
comprises the following elements:
General policies and guidelines applicable to all employees
as well as
Processes that include controls for reporting adequate figures in
the financial statements.

decl ar ation aBout c orp or ate manaGe ment in ac c ordance

with Sec. 289a hGB For the 2010 BuSineS S ye ar
A description of the principles of corporate management and the Dec-
laration of Conformity pursuant to sec. 161 of the German Stock
Corporation Act (Aktiengesetz – AktG) can be found on MorphoSys’s
corporate website*.

riSK aS SeS Sment
MorphoSys regards risk management as an activity directed towards
identifying, evaluating and mitigating risks (to an acceptable level)
as well as monitoring identified risks. Risk management entails or-
ganized activity to manage uncertainty and threats and involves
people following procedures and using tools in order to ensure con-
formance with the risk management policy.

more inFormation at
w w w.morpho SyS .c om

Se e
Glo S Sary p. 98

MorphoSys has a risk identification and evaluation process in place
encompassing all business risks, in particular those which may put
the existence of the Company at risk.

inFormation and c ommunication
MorphoSys uses ERP (enterprise resource planning) software to
make information available for processes and internal control pro-
cedures and for reporting purposes. Furthermore, regular commu-
nication takes place between the finance teams, local entities and
finance headquarters.

Considering the relevance of its information systems, MorphoSys has
IT policies in place, governing the use of information technology
and communication media in order to reduce any outside risk. Fur-
thermore, a communication policy is in place which defines classifi-
cation for the distribution of internal documents to make sure that
any information is distributed to an adequate audience. Wherever
applicable, parameters of applications and systems are set in such a
way that the security of information is enhanced.

c ontrol ac tivitieS
MorphoSys has implemented control activities in all of its processes,
wherever there is an unmitigated risk of (unwarranted or intentional)
errors and misstatements. The head of each functional department
is responsible for the application of the respective controls in her/his
area of responsibility.

Control activities at MorphoSys – including the internal control over
financial reporting in the narrower sense – are based on the following
general principles:
Control activities are based on policies and procedures, including
a general “presentation and signature policy” which is applicable
to all processes and governs authorization and approval levels.
Documentation of transactions is required, where applicable.
Segregation of duties (four eyes principle) is implemented where
applicable, e.g. between the purchasing and finance departments.
Information systems are secured by access controls at various
levels.

Control activities include both controls before the fact, which are
designed to avoid errors and misstatements, as well as controls being
performed after the fact, which are designed to detect errors.

Corporate Governance Report

monitorinG
MorphoSys tested the compliance with its internal controls with the
assistance of an external consultant in 2010. The results have been
discussed within the Management Board and will be presented to the
Supervisory Board.

direc torS’ holdinGS
The members of the Management Board and the Supervisory Board
own more than 1 % of the shares issued by the Company. For the
disclosure of Company stocks held or financial instruments relating
to them, please refer to section 28* (Related Parties) of the Notes
to the Consolidated Financial Statements. This list details all stocks,
stock options and convertible bonds held by each member of the
Management Board and the Supervisory Board.

direc torS’ de alinGS
Under the German Securities Trading Act (Wertpapierhandelsgesetz
– WpHG), the members of MorphoSys AG’s Management Board and
Supervisory Board and persons who have a “close relationship” with
such members are obligated to disclose any trading in MorphoSys
stock.

In the reporting year, we received the following notifications pursu-
ant to sec. 15a of the WpHG. Each sale of shares listed below was
preceded directly by the exercise of stock options to purchase an
identical number of shares.

Se e
paGe 83 e t SeQ .

The Company Group Management Report Financial Statements

Sales of the stock options were in conjunction with the scheduled
expiration of these bonds in 2010 and 2011.

Member of the
Management Board

Function

Date of Trans-
action in 2010

Type of

Transaction

number of
Stocks/
Derivatives

Average Share
Price in €

Transaction
volume in €*

Dr. Arndt Schottelius

Dr. Simon E. Moroney

Dave Lemus

Dr. Marlies Sproll

* Differences due to rounding
** Strike price of stock options

CDO

CEO

CFO

CSO

January 26

March 26

July 08

July 09

December 13

December 14

Purchase

Sale

Purchase

Sale

500

108,000

7,305

3,000

58,569

13,431

17.00

16.375

14.30

15.19

14.71**

17.81

17.26

8,500.00

8,187.50

1,544,400.00

110,962.95

44,130.00

1,043,113.89

231,819.06

pre ventinG c onFlic tS oF intereSt
Members of both boards are obliged to avoid any actions that could
cause conflicts of interest with their functions at MorphoSys AG. Such
transactions or ancillary activities of the Management Board have to
be immediately reported to and approved by the Supervisory Board.
The Supervisory Board in turn shall inform the Annual Shareholders’
Meeting of any conflicts of interest which have occurred along with
their solutions. In 2010, Dr. Gerald Möller disclosed his conflict of
interest in connection with the negotiations with Sloning BioTech-
nology GmbH. Dr. Möller is investment advisor at HBM Partners, one
of the major investors in Sloning BioTechnology GmbH. Dr. Möller
did not participate in any of the Supervisory Board’s discussions re-
garding the acquisition.

annual Gener al mee tinG
The Annual General Meeting took place in Munich on May 21, 2010.
Approximately 35 % of total voting stock was represented at the
meeting, a decrease compared to the attendance in 2009 (approxi-
mately 46 %). MorphoSys assisted the shareholders in the use of
proxies and arranged the appointment of a representative to exercise
shareholders’ voting rights in accordance with instructions. This
representative was also available until the end of the general debate
of the Annual General Meeting. MorphoSys’s shareholders approved
all management proposals put to vote at the meeting. MorphoSys pro-
vided an online webcast of the Management Board’s presentation
and published all documents in a timely manner on the Company’s
website*.

riSK manaGement
The Management Board ensures responsible risk handling at all
times and keeps the Supervisory Board informed about existing risks
and their development. This part of corporate governance includes
an appropriate risk management and risk control system in the Com-
pany. Detailed information about the opportunities and risks* at
MorphoSys can be found on page 36 et seqq. of this report. The sys-
tematic risk management activities, performed as part of the Com-
pany’s value-based management approach, identify and assess risks
at an early stage and minimize risk exposure. As conditions change,
the Company’s risk management system is developed further.

c orp or ate c ommunicationS and inveStor rel ationS
Transparency and an open dialog are important principles for
MorphoSys’s communication policy. The Company strictly adheres
to the concept that no shareholder receives preferential informa-
tion. Therefore, all communication activities are aimed at providing
shareholders with the same level of information at the same time.

A decisive part of MorphoSys’s relations with its investors are fre-
quent meetings with analysts and institutional investors at road
shows and in one-on-one discussions. Conference calls accompany
the publication of the quarterly figures to enable immediate que-
ries on the development of the Company for analysts and investors.
In 2010, MorphoSys hosted for the first time a R&D day in London
and New York to provide an extensive update on its partnered pipe-
line, proprietary portfolio and recent technology developments.

more inFormation at
w w w.morpho SyS .c om

Se e
paGe 36 e t SeQ .

Corporate Governance Report

remune r ation rep or t
The Remuneration Report reflects the applicable provisions of the
laws relating to the disclosure of the remuneration of the Manage-
ment Board members and the respective principles of the German
Corporate Governance Code.

remune r ation oF the manaGement Board

Gener al
The aggregate annual compensation paid to Management Board mem-
bers consists of several components. These include a fixed compen-
sation, a yearly cash bonus based on the achievement of company and
individual goals, a medium- and long-term incentive component
and additional benefits. Each year, the structure and appropriateness
of the aggregate annual compensation packages are reviewed by
the Remuneration & Nomination Committee. The amount of compen-
sation payable to the Management Board members is dependent in
particular on the achievement of the duties and goals of the individual
Management Board member, and on the business situation, success
and prospects of the Company relative to its competitive environment.
The aggregate annual compensation packages are compared to the
outcome of a comparative international industry study carried out
in 2010 by an internationally acclaimed consultancy firm on the
specific instructions of the Supervisory Board. Other available inter-
national benchmark sources are also taken into consideration.
The adjustments to the aggregate annual compensation packages
are adopted by the plenum of the Supervisory Board. The last occa-
sion on which the salaries of the Management Board members were
adjusted was in July 2010.

The Company’s presentations at on-site events are accessible for any
interested party on the corporate website. Video and audio recordings
of key events can be replayed on the website at any time and tran-
scripts of the conference calls are provided in English and German.

MorphoSys’s financial calendar lists the dates of all regular financial
publications and the next Annual General Meeting well in advance.
MorphoSys’s boards attach great importance to transparent and
timely information for all shareholders. Hence, MorphoSys even ex-
ceeds the requirements of the German Corporate Governance Code
by reporting its year-end results within 60 days and the quarterly
results within 30 days of the end of the respective reporting periods.

diverSit y
Diversity and its conscious promotion with the aim of enhancing a
company’s success is becoming more and more critical in today’s
global business environment. The stakeholders’s individuality is a
valuable asset for MorphoSys. To limit opportunity based on gender,
race, age, lifestyle or political affiliation would limit MorphoSys’s
potential achievements as a company. Having a broad mix of people
helps to understand different perspectives, to be open to others’
ideas and promotes a high level of mutual respect within the Company.

In 2010, the German Corporate Governance Code recommended that
the Supervisory Board should specify concrete objectives regarding
its composition which also take into account diversity aspects, in par-
ticular according adequate importance to the inclusion of women.
Since there were no elections to MorphoSys’s Supervisory Board at
the time of the introduction of this recommendation, the Supervi-
sory Board will address this issue in 2011 (see the Declaration of
Compliance on our corporate website*)

Financial Statement audit By KpmG
MorphoSys prepares its consolidated financial statements and quar-
terly financial statements in accordance with International Financial
Reporting Standards (IFRS). MorphoSys AG’s financial statements
are prepared in accordance with the German Commercial Code (HGB).
The Audit Committee of the Supervisory Board proposes the selec-
tion of the Company’s external auditor. At the Annual General Meet-
ing, KPMG AG Wirtschaftsprüfungsgesellschaft was appointed as
auditor for the 2010 fiscal year. In order to ensure the auditor’s auton-
omy, the Audit Committee obtained a declaration of independence
from the auditor.

more inFormation at
w w w.morpho SyS .c om

The Company Group Management Report Financial Statements

overvie w
In the 2010 fiscal year, the total cash remuneration paid to the mem-
bers of the Management Board amounted to € 2,216,976 (previous
year: € 2,081,756). The table below shows a detailed breakdown of
the compensation paid to the members of the Management Board:

in €

2010

2009

2010

2009

2010

2009

2010

2009

Fixed Compensation

variable Compensation Other Compensatory Benefits

Total Compensation

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

368,498

259,157

231,000

249,623

356,011

250,375

220,000

241,164

208,570

152,902

132,594

146,778

192,246

135,203

118,800

130,229

130,1781

156,6392

90,1583

90,8794

124,198

141,055

84,513

87,963

707,246

568,698

453,752

487,280

672,455

526,633

423,313

459,356

ToTal

1,108,278

1,067,550

640,844

576,478

467,854

437,728

2,216,976

2,081,756

1 Includes € 103,844 annual contributions to private pension fund and allowances for insurances (prior year: € 101,555)
2 Includes € 74,605 annual contributions to private pension fund and allowances for insurances (prior year: € 72,743)
3 Includes € 68,837 annual contributions to private pension fund and allowances for insurances (prior year: € 66,753)
4 Includes € 72,371 annual contributions to private pension fund and allowances for insurances (prior year: € 70,695)

non - perFormance - rel ated c ompe nSation
The non-performance-related compensation consists of the fixed com-
pensation and additional benefits which primarily encompass the
use of company cars, allowances for health, social care and invalidity
insurances as well as special allowances and benefits received for
working outside of the home country. Furthermore, all members of
the Management Board participate in private pension funds or an-
other form of pension schemes (“Altersversorgung”). MorphoSys pays
the monthly contribution to these funds or other kind of pension
scheme. These payments amount to a maximum of 10 % of the annual
fixed salary of each Management Board member plus tax contribu-
tion and are included in the non-performance-related compensation.
In addition, all Management Board members participate in a pen-
sion scheme which was established in cooperation with Allianz Pen-
sions-Management e.V. Allianz Pensions-Management e.V. serves
as a so-called “Unterstützungskasse”, which means pension commit-
ments have to be fulfilled by Allianz Pensions-Management e.V.

perFormance - rel ate d c ompenSation
Each Management Board member is eligible to receive performance-
related compensation in the form of an annual cash bonus payment.
Such bonus payments are dependent on the achievement of Company-
related and individual goals, which are determined by the Supervi-
sory Board at the beginning of each fiscal year. The Company-related
goals account for up to two thirds of the payment and are based on
the operating performance of the Company as measured by revenues

and net income, progress in the proprietary pipeline and other mea-
sures including performance of the Company’s stock, or the comple-
tion and/or extension of important collaborations. Individual goals
account for up to one third of the payment and comprise operational
objectives which the Management Board member is responsible for
fulfilling. At the end of the year, the Supervisory Board evaluates the
level of attainment of the Company and the individual goals and sets
the bonus payment accordingly. The bonus for the 2010 fiscal year will
be paid out in March 2011.

lonG -term incentivizinG c ompenSation
The long-term performance-related remuneration consists of con-
vertible bonds and stock options pursuant to the respective incen-
tive plans as resolved by the Annual General Meeting.

The current employee convertible bond programs provide for the issu-
ance of non-interest-bearing convertible bonds with a par/nominal
value of € 0.33 each to employees and to the Management Board mem-
bers. The beneficiaries may only exercise the conversion rights fol-
lowing the expiration of a waiting period of four years after the grant
date. Each convertible bond with a nominal value of € 0.33 can be
exchanged for one share of ordinary no-par value common stock of
the Company against payment of the exchange price. Furthermore,
exercising of the convertible bonds is subject to the performance tar-
get that the value of the underlying stock should have exceeded
the stock price at the time of the grant by at least 10 % on any one
trading day before the exercise.

Corporate Governance Report

In 2011, MorphoSys plans to switch to a long-term incentive pro-
gram based on the issuance of performance shares. The respective
underlying shares will be bought back by the Company from the
stock market, based on the resolution of the 2010 Annual Share-
holders’ Meeting. Under the new long-term incentive plan each
member of the Management Board will be allocated a certain num-
ber of stocks on an annual basis. Such stocks are subject to a four-
year lock-up period. After the lapse of the lock-up period, the allocated
stocks will finally be granted to the relevant member of the Manage-
ment Board subject to his/her achievement of predefined success cri-
teria and therewith become exercisable.

For a more detailed description of the various stock option and con-
vertible bond programs currently in operation, see sections 17 and
18* of the Notes to the Consolidated Financial Statements.

The Supervisory Board decides each year on the number of stock
options or convertible bonds to be allocated to the Management Board
members. According to Company policy covering equity-based com-
pensation programs, stock options or convertible bonds may only be
issued on two preset dates each year. In 2010, 157,800 convertible
bonds were granted to members of the Management Board. The value
of convertible bonds granted to members of the Management Board
attributable to the 2010 fiscal year totaled € 1,050,948 (2009: granting
of 244,200 stock options and 90,000 convertible bonds with a total
value of € 1,420,109). For further details see also Employee Convert-
ible Bond Program in section 17* of the Notes to the Consolidated
Financial Statements.

In 2010, members of the Management Board purchased MorphoSys
shares and exercised stock options, which were subsequently partly
sold. All transactions were reported in accordance with legal require-
ments and published on the Company’s website*.

varia
No credit, loan or similar benefits were granted to members of the
Management Board. In the year under review, the Management
Board members received no benefits from third parties that were
either promised or granted in view of their position as a member
of the Management Board.

ac t on the appropriateneS S oF manaGement Board

remuner ation
In order to ensure the conformity of Management Board compensa-
tion with the Act on the Appropriateness of Management Board Re-
muneration (“Gesetz zur Angemessenheit der Vorstandsvergütung”
– VorstAG), the Supervisory Board conducted a detailed review of the
compensation system for the Management Board members in 2009
and 2010. This review included the commissioning of a comparative
study by an independent recognized consultant as well as discus-
sions with external consultants and was completed in 2010. Follow-
ing the review some amendments to the service agreements of the
Management Board members were implemented prior to the lapse of
the transition period of the Act on the Appropriateness of Manage-
ment Board Remuneration.

C O n v E R T i B L E B O n D S g R A n T E D T O T H E M A n A g E M E n T B O A R D i n 2010

Member of the
Management Board

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

number of
Convertible
Bonds

Strike Price

in €

grant Date

Expiry Date

Fair value of
One Convertible
Bond in €

Fair value at
The Time of
the grant in €

58,800

33,000

16.79

Apr 1, 2010

Dec 31, 2015

6.66

391,608

6.66

219,780

6.66

219,780

6.66

219,780

Se e
paGe 74 e t SeQ .

more inFormation at
w w w.morpho SyS .c om

The Company Group Management Report Financial Statements

non - re app ointment/non - prolonGation
The service agreements of the Management Board members provide
that in the event of a non-reappointment and non-prolongation of the
service agreement, each member of the Management Board is entitled
to receive a severance payment in the amount of one year’s fixed
salary. Such severance payment shall be offset against any salary pay-
ments received in the event of a leave of absence of a Management
Board member. If the Management Board member’s service contract is
terminated by death, his/her spouse or life partner is entitled to the
monthly fixed salary for the month of death and the following twelve
months. In the event that (i) MorphoSys transfers its assets or mate-
rial parts of its assets to a non-affiliated third party, (ii) MorphoSys is
merged into a non-affiliated third party or (iii) a shareholder holds
more than 30 % of the voting rights of MorphoSys, each member of the
Management Board is allowed to extraordinarily terminate his/her
service contract and may demand the outstanding fixed salary for the
remaining contractually provided term of contract or for two years,
whichever is greater. Furthermore, in such a case, all granted stock
options and convertible bonds shall be treated as immediately vested.

chanGe in manaGeme nt Board c omp oSition
In September 2010, the Company concluded mutual agreements
with its Chief Financial Officer, Mr. Dave Lemus, regarding the end-
ing of his more than 13 years of serving as MorphoSys CFO, and
subsequent seamless transfer of his functions to a successor. Pursu-
ant to these agreements Mr. Lemus is entitled to the contractually
agreed compensation under his service agreement until 30 June 2011.

Further, Mr. Lemus shall receive a contractually agreed further
payment equal to his fixed gross annual salary in the amount of
€ 264,238 plus a bonus calculated as the average bonus in the
years 2009 and 2010 in the amount of € 144,053. Additionally, Mr.
Lemus’s unvested portion of outstanding stock options granted for
the years 2008 and 2009 has been vested prematurely.

remune r ation oF the SuperviSory Board
The compensation of the members of the Supervisory Board is
based on the provisions of the Articles of Association, the current
version of which was adopted by the stockholders at the Annual
General Meeting on May 21, 2010 and the respective resolutions of
the stockholders at the Annual General Meetings regarding the
remuneration of the members of the Supervisory Board. In 2010, the
members of the Supervisory Board received a fixed compensation
and an attendance fee per board and committee meeting attended.
The overall compensation takes into account the responsibilities
and range of tasks of the Supervisory Board members as well as the
economic situation and performance of the Company.

In the 2010 fiscal year, the members of the Supervisory Board re-
ceived a total of € 382,750 (2009: € 374,333), excluding reimburse-
ment of travel expenses. This amount consists of fixed remuneration
and variable compensation (attendance fees).

The table below shows a detailed breakdown of the compensation
paid to the Supervisory Board:

in €

2010

2009

2010

2009

2010

2009

Fixed Compensation

variable Compensation

Total Compensation

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoffrey N. Vernon

ToTal

70,000

57,750

39,500

36,500

39,500

57,000

43,278

29,556

28,500

30,000

22,000

15,000

18,000

19,000

10,000

19,000

40,722

27,778

11,000

28,333

21,333

28,333

92,000

72,750

57,500

55,500

46,500

58,500

97,722

71,056

40,556

56,833

49,833

58,333

279,750

216,834

103,000

157,499

382,750

374,333

Corporate Governance Report

ii.

in the case of a capital increase in cash to the extent that such
exclusion is necessary to avoid fractional shares; or
in the case of a capital increase in kind to the extent that the
young shares are used for the acquisition of companies, share-
holdings in companies, patents, licenses or other industrial
property rights, or of assets which constitute a business in
their entirety; or

iii. in the case of a capital increase in cash to the extent that

young shares are placed on a stock exchange in context with
a listing.

b. Pursuant to sec. 5 para. 6 of the Articles of Association and with
the approval of the Supervisory Board, the Management Board is
authorized to increase the Company’s share capital during the time
period up to April 30, 2013, by the amount of up to € 2,216,025.00
and by issuing 2,216,025 young bearer shares with no-par value
for contribution in cash (Authorized Capital 2008-II). The Man-
agement Board may, with the approval of the Supervisory Board,
exclude the preemptive rights of the shareholders under the fol-
lowing conditions:
i.

to the extent that such exclusion is necessary to avoid frac-
tional shares; or
the issuance price for the new shares is not substantially
below the stock exchange price quoted for existing shares at
the time of the issuance.

c. Pursuant to sec. 5 para. 6b of the Articles of Association, the

Company’s share capital shall be conditionally increased by an
amount of up to € 5,488,686.00, divided into up to 5,488,686
bearer shares with no-par value (Conditional Capital 2006-I). The
conditional capital increase shall only be accomplished (i) to the
extent that owners of options and/or convertible bonds make use
of their option and/or conversion rights issued by the Company
by April 30, 2011, in accordance with the resolution of the Annual
General Meeting or (ii) to the extent that owners fulfill their du-
ties to convert. The same shall apply to owners of options and/or
convertible bonds issued by domestic or foreign affiliates which
are wholly owned by the Company.

d. Furthermore, there exist Conditional Capital 1999-I in the amount
of up to € 90,729.00 (sec. 5 para. 6a of the Articles of Association),
Conditional Capital 2003-II in the amount of up to € 820,464.00
(sec. 5 para. 6c of the Articles of Association), Conditional Capital
2008-II in the amount of up to € 1,115,691.00 (sec. 5 para. 6d of
the Articles of Association), and Conditional Capital 2008-III in the
amount of up to € 450,000.00 (sec. 5 para. 6e of the Articles of
Association). These conditional capitals may be used for the issu-
ance of option and conversion rights to members of the Manage-
ment Board and to employees of the Company or of its affiliates.

app ointment and diSmiS Sal oF manaGement Board memBerS ,

ii.

inFormation reQuired unde r taKeover l aw
The following information is presented in accordance with sec. 315
para. 4 of the German Commercial Code (HGB).

c omp oSition oF capital StocK
As of December 31, 2010, the Company’s share capital amounted to
€ 22,890,252.00 and is divided into 22,890,252 no-par value bearer
shares. With the exception of 79,896 Company-held shares, all issued
shares are exclusively common shares with voting rights. The Man-
agement Board is not aware of any restrictions on the voting rights
or the right to transfer. This also applies to restrictions which may
result from shareholders’ agreements. The Company has not been
notified of direct or indirect shareholdings in its share capital ex-
ceeding 10 % of the voting rights pursuant to sec. 21 of the German
Securities Trading Act (WpHG). There are no owners of shares with
privileged rights or other rights resulting in a right to control votes.

ShareholdinGS e XceedinG 10 % oF the votinG riGhtS
There is no direct or indirect shareholding in the Company which
exceeds 10 % of the voting rights.

amendmentS to the ar ticleS oF aS Sociation
Pursuant to sec. 6 of the Company’s Articles of Association, the
Management Board shall consist of at least two members, with the
Supervisory Board defining the number of Management Board
members. The Supervisory Board may appoint a Chief Executive
Officer and one or several representatives of the CEO. Pursuant
to sec. 20 of the Articles of Association, amendments to the Articles
are subject to a majority of more than 50 % of the share capital
represented in a shareholders’ meeting unless the law mandatorily
requires a different majority.

authoriz ation oF the manaGe ment Board to iS Sue ShareS
The shareholders have provided the Management Board with the
following authorizations to issue new shares or conversion rights or
to purchase Company-held shares:
a. Pursuant to sec. 5 para. 5 of the Articles of Association and

with the approval of the Supervisory Board, the Management
Board is authorized to increase the Company’s share capital
during the time period up to April 30, 2013, by the amount of up
to € 8,864,103.00 and by issuing 8,864,103 young bearer shares
with no-par value for contribution in cash and/or in kind on one
or several occasions (Authorized Capital 2008-I). The Manage-
ment Board may, with the approval of the Supervisory Board, ex-
clude the preemptive rights of the shareholders under the follow-
ing conditions:

The Company Group Management Report Financial Statements

authoriz ation oF the manaGe ment Board to

repurchaSe StocK
The authorization to repurchase treasury stock as provided by the
resolution of the 2008 ordinary Annual General Meeting had expired
on October 31, 2009. It was replaced by a resolution of the 2010 ordi-
nary Annual General Meeting authorizing the Company to buy back
up to 10 % of its existing share capital (i. e. up to 2,289,025 shares)
by April 30, 2015.

chanGe oF c ontrol proviSionS

Ke y aGreementS SuBjec t to c onditionS
In 2007, the Company and Novartis Pharma AG extended their origi-
nal 2004 collaboration agreement in the field of pharmaceutical re-
search. According to this agreement, should certain changes in con-
trol occur involving certain types of companies, Novartis Pharma AG
is permitted, but not obligated, to take several measures, including
the partial or complete termination of the collaboration agreement.

A change in control is considered to be the acquisition of 30 % or
more of the voting rights in the Company in accordance with sec. 29
and sec. 30 of the German Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz – WpÜG). Such termination of the collaboration
agreement by Novartis Pharma AG could significantly affect future
cash flows of the Company.

chanGe oF c ontrol proviSionS For manaGement Board

memBerS
After a change of control transaction, each member of the Manage-
ment Board is allowed to terminate his/her service contract and may
demand the outstanding fixed salary for the remaining contractu-
ally provided term of contract or for two years, whichever is greater.

Furthermore, in such a case, all granted stock options and convertible
bonds shall be treated as immediately vested. The same applies to
some of the directors of the Company to whom options or conversion
rights have been granted.

Risks and Opportunities

riSK manaGement and c ontrollinG
MorphoSys has established a comprehensive and effective system to
identify, assess, communicate and manage risks across its business
units, legal entities, functions and operations. Risk management has
the goal of identifying risks as early as possible, limiting business
losses by means of suitable measures and avoiding risks that pose a
threat to the Company’s existence. Risk evaluations are carried out
twice a year using a systematic process to ensure all major risks are
taken into account for MorphoSys’s different business units as well
as on corporate level. All risks have been clearly assigned to respon-
sible managers that are (depending on the significance of the risk)
often members of MorphoSys’s Senior Management group. Risks are
evaluated considering their quantifiable impact on the MorphoSys
Group without having any control measures in place compared to hav-
ing the mitigation processes established. MorphoSys differentiates
between rather short-term risks that would hit the Group within the
next twelve months and more long-term, strategic risks that are
especially important for MorphoSys’s proprietary development pro-
grams with development timelines between 10 and 15 years. The
risk management report is discussed among the Management Board
and in the Supervisory Board. To ensure that the risk management
process is always state of the art, it is also challenged on a regular
basis with external consultants and discussed with the auditor. In
addition to the regular risk management process, ad hoc occurring
risks are discussed and countermeasures taken on a short-term
notice basis.

riSKS
MorphoSys operates on a global basis and, even more importantly,
its customers and the end markets of its antibodies are affected by
developments all around the world. Due to the nature of its industry,
it is impossible to completely avoid any risks. MorphoSys carefully
chooses the industries it operates in and takes risks that are in line
with its corporate strategy. The business, financial conditions, oper-
ating results and future prospects of MorphoSys may be materially
adversely affected by each of these risks.

Shor t-term riSKS
MorphoSys is subject to the typical industry and market risks inher-
ent in the development of fully human antibodies for use in research,
diagnostics and therapy. MorphoSys’s top short-term risks include
mostly risks resulting from not reaching revenues as expected, de-
rived from existing business with partners or from new product
offerings that are constantly developed. MorphoSys considers its
biggest short-term risks to be not reaching its projected revenues
and profitability levels as a result of missing development milestones

Risks and Opportunities

Gener al Statement aBout morphoSyS’S Group riSKS
According to our current assessment of the MorphoSys Group’s risks,
we do not see any negative deviations from the statements given
in other chapters of the annual report. We consider the risks to be
manageable and the survival of the MorphoSys Group not to be en-
dangered at the time of the current report. That statement is true for
all relevant single entities and for the MorphoSys Group. Assuming
no further deterioration of the global business as well as the financial
and regulatory environment, MorphoSys considers itself well pre-
pared to meet all future challenges.

opp or tunitieS
Thanks to its internationally-oriented strategic positioning,
MorphoSys has many growth opportunities for the coming years.
By expanding its expertise in the generation, characterization,
production and clinical development of therapeutic antibodies,
MorphoSys can systematically raise its profile in the healthcare
sector. Additionally, the AbD Serotec segment strives to increase
its market share for research and diagnostic antibodies.

MorphoSys’s antibody technologies offer key advantages for the de-
velopment and optimization of therapeutic antibodies, which should
lead in the long-term to higher success probabilities and lower attri-
tion rates in the drug development process. In the research and diag-
nostics fields, the technologies also offer significant advantages for
the development of antibodies for use as reagents in research and
diagnostics.

in partnered projects, preventing milestone payments. While it is not
in MorphoSys’s power to reach these milestone events, the Company
uses a standard process of regularly monitoring the progress of each
developed compound at a partner company and regularly reports the
status. Therefore, deviations from projections can be taken into
account early on and included in the regular quarterly updates of
MorphoSys’s financial projections. Furthermore, when fewer deals
are executed than planned (or on lower terms than projected) is con-
sidered a risk for the future of MorphoSys. To minimize these risks,
MorphoSys maintains strong relationships with its partners and dis-
cusses market developments and typical terms through all relevant
means, e.g. market intelligence, customers and experts. This is done
on a constant basis and forms the basic element of the projections
of revenues for the therapeutic segments.

IP risks are also considered to be highly relevant for products that are
developed using MorphoSys’s proprietary technologies. To mitigate
risks such as potential lawsuits filed by third parties concerning the
Company’s technology platform or requiring additional third-party
licenses to practice the technology platform, MorphoSys continuously
searches and analyzes published patents and patent applications,
monitoring relevant hits and developing design-around strategies for
potentially relevant patents before they are issued. Thus, the free-
dom to operate its proprietary technology platform is secured and the
Company prides itself on the success the strategy has generated over
the years.

lonG -term riSKS
The major long-term risks for MorphoSys are considered to be in the
Company’s proprietary development pipeline. MorphoSys increased
its investment into its clinical and preclinical programs over the last
years, but failure of these programs prior to partnering as a result
of data not showing convincing effects on clinical activities is consid-
ered to be an inherent risk of these activities. While MorphoSys can-
not ensure that data shown by its programs will always demonstrate
positive results with respect to the indications and treatments tested,
the greatest care is used in the design of clinical development plans.
These are to be state of the art, ensuring the best chance of display-
ing data with results that are significant and sufficient to convince the
regulatory bodies and potential partners of the likely success of the
program in question. While these risks might not necessarily need
to be taken into account on a short-term basis and are not likely to
endanger the survival of MorphoSys as a Group, they would hurt its
long-term prospects of becoming a leading drug developer and part-
nering valuable products at advanced clinical stages with its pharma
partners, thereby generating value for its shareholders and other
stakeholders.

Antibodies to Treat Multiple Myeloma
Multiple myeloma is a cancer of plasma cells, a type of
white blood cells responsible for the production of anti-
bodies. Collections of abnormal cells accumulate in bones,
where they cause bone lesions, and in the bone marrow,
where they interfere with the production of normal blood
cells. Multiple myeloma is considered the second most
common hematological malignancy.

MorphoSys expects to run a phase 1 clinical trial with
MOR202 in 2011. Additionally, MorphoSys joined forces with
Klinikum rechts der Isar, the university hospital of Munich
Technical University, to explore biomarkers relevant to the
anti-CD38 approach.

MOR202 is directed against CD38, a membrane-bound protein that is a promising therapeutic target for
the treatment of multiple myeloma. The antibody binds to its target and signals the immune system to
attack the cancer cells. In preclinical studies, MOR202 effectively killed multiple myeloma cells from pri-
mary patient tumor material.

The Company Group Management Report Financial Statements

Gener al Statement on opp or tunitieS
Due to increased life expectancy for people living in industrialized
nations and the growing understanding of diseases, the need for
innovative therapeutics and enabling technologies remains very high.
The growing demand for new treatment options will be met not
only by using existing therapies, but also by new ones originating
from advances in the understanding of the biology of disease and
the application of new technologies. Innovative new products such as
fully human antibodies have been launched in recent years, which
are changing therapeutic approaches and improving the quality of
life for patients. In addition, due to strong competition from gener-
ics, almost all pharmaceutical companies are increasing their com-
mitment to biologics such as human antibodies. Therapeutics based
on biologicals are not as exposed to generics competition as small
molecules, mainly because the manufacturing of the compounds is
much more complex. To fill development pipelines, all major pharma-
ceutical players have made major commitments to biological thera-
pies. Therefore, the demand for antibodies and the interest of the in-
dustry in this class of drugs have sharply increased over the last 12
to 36 months, clearly underpinned by several acquisitions and large
licensing agreements in this field. The use of antibodies as thera-
peutics as well as for research purposes and diagnostic applications
represents sustainable growth opportunities for MorphoSys.

marKe t opp or tunitieS
MorphoSys believes that its HuCAL and arYla antibody platforms can
be applied to make products that address significant unmet medical
needs and provide new research and diagnostic tools cheaper and
faster.

ther apeutic antiBodieS – par tne red diSc overy
By participating in drug development with multiple partners,
MorphoSys has effectively improved its risk profile. With 65 thera-
peutic antibody development programs currently ongoing with its
partners, the chance that MorphoSys will participate financially in
one or more marketed drugs is becoming more and more likely.

MorphoSys will continue to expand its partnered antibody pipeline.
In addition, MorphoSys may sign additional fee-for-service partner-
ships in the area of infectious diseases and partnerships on novel
technology platforms such as Slonomics and arYla.

ther apeutic antiBodieS – proprie tary de velopment
With its partners, especially Novartis, providing a secure cash flow
over the coming years, MorphoSys is able to additionally strengthen
its proprietary pipeline. The Company will continue to expand its pro-
prietary pipeline with de novo starts and additional co-development
programs. Furthermore, the Company is looking for in-licensing op-
portunities for interesting targets and potential drug candidates.

While MorphoSys is taking on more risk when developing proprie-
tary compounds, the reward for promising drug candidates is higher
than in the partnered segment. The pharmaceutical industry is
likely to further increase its in-licensing activities in order to refill
their pipelines and replace key drugs losing patent protection.

aBd Serotec
Antibodies are important components of scientific research and mod-
ern diagnostic practice. According to a BioCompare study carried
out in 2009, around 20 % of the overall diagnostics market is repre-
sented by antibody-based products today, generating global reve-
nues in the amount of approximately US$ 8 billion. In 2010, AbD Se-
rotec significantly advanced into this promising sector by signing
several new supply agreements with diagnostic companies. There is
an increasing demand for diagnostics, which are used to identify
patient sub-populations that would benefit from treatment with a
particular drug or to monitor the success of a treatment.

technoloGy de velopment
MorphoSys continues to invest in its existing and in new technolo-
gies to remain at the forefront of technological leadership. This tech-
nological progress may enable the Company to further expand its
roster of partners and to increase the speed and success rates of its
partnered and proprietary drug development programs.

ac QuiSition opp or tunitieS
MorphoSys has demonstrated its ability to complete acquisitions and
to use such transactions to accelerate its growth. In 2010, MorphoSys
proved this point by acquiring Sloning BioTechnology GmbH and
signing a significant license agreement for the thereby acquired Slo-
nomics technology a few weeks later. MorphoSys may again use an
acquisition strategy to increase its market share and to access pat-
ents and licenses for proprietary technology and drug development,
thereby augmenting strong organic growth.

Subsequent Events / Outlook and Forecast

The pharmaceutical industry continues to look for in-licensing
opportunities to gain access to promising product candidates. If
clinical proof of concept of a proprietary drug candidate is reached,
lucrative deal terms could be achieved.
The AbD Serotec segment is now increasingly focusing on diagnos-
tic applications using MorphoSys’s technologies. New technology
for antibody generation has had very little impact on the market for
diagnostic antibodies to date. The ability to make superior anti-
bodies for diagnostic applications makes AbD Serotec increasingly
attractive for this market segment. AbD Serotec’s management is
confident about future growth prospects based on existing research
collaborations with a number of leading diagnostics companies.

Str ateGic outlooK
MorphoSys’s business model is built on its proprietary technologies
including HuCAL and recently launched arYla.

The development of therapeutic antibodies within partnerships will
continue to be a significant part of MorphoSys’s strategy. The Com-
pany’s therapeutic pipeline is expected to expand and mature over
the coming years. The extraordinary breadth of this pipeline prom-
ises to yield a significant number of marketed therapeutic antibodies
in the years ahead.

Within its Proprietary Development segment, the Company is com-
mitted to developing therapeutic antibodies in the areas of inflam-
mation and oncology for its own account. In the near term, the plan
is to take proprietary drug candidates to clinical proof of concept
before seeking a commercial partner. The proprietary portfolio will
be enlarged by starting de novo programs, and also by securing
access to interesting targets and product candidates through addi-
tional in-licensing activities. The addition of MOR208 to the Com-
pany’s portfolio was a good example of this. To diversify its proprie-
tary pipeline, MorphoSys will pursue additional co-development
projects within its alliances with Novartis and Galapagos, and poten-
tially with other biotechnology or pharmaceutical companies.

Subsequent Events

There were no events requiring disclosure.

Outlook and Forecast

The MorphoSys Group develops novel antibodies for therapeutic, diag-
nostic and research applications.

The Group’s main focus is on applying its technologies in rapidly
growing, innovation-driven sectors of the healthcare market. The
Company’s management intends to continue to expand MorphoSys’s
proprietary drug development activities by taking advantage of op-
portunities in the therapeutics area. Moreover, MorphoSys seeks to
enlarge its market share within the research and diagnostics fields,
the latter of which in particular represents a largely untapped market
for the Company’s technologies.

over all Statement on the e Xpec te d de velopment
The Company owns established and validated technologies. In the
therapeutics area, commercialization of these technologies contrib-
utes secure cash flows from long-term partnerships with large phar-
maceutical companies. The Company’s strategic focus is to apply its
technologies to build a broad and sustainable pipeline of innovative
antibody drug candidates within these collaborations and from its
own development activities. Through its AbD Serotec segment, the
Company has a wide customer network. The AbD Serotec segment
is well positioned in the diagnostics market, providing innovative
antibodies to open up new diagnostic applications.

Its stable cash flows and the strong cash position allow the Company
to build up its business through investments in proprietary drug
and technology development.

The Management Board expects the following developments for
MorphoSys in the relevant markets:
MorphoSys continues to invest in technology development to re-
main at the forefront of the antibody field. The Company expects
to sign additional commercial collaborations based on its pro-
prietary technologies in combination with those recently secured
in the acquisition of Sloning BioTechnology GmbH.
The demand for antibodies as new treatment modality remains
high, allowing the Company to expand its pipeline of therapeutic
antibodies within its partnerships and on its own account.

The Company Group Management Report Financial Statements

The Partnered Discovery segment generates secured cash flows
from MorphoSys’s long-term alliances. For the foreseeable future,
MorphoSys will continue to invest the majority of these cash flows
in broadening and strengthening its Proprietary Development seg-
ment. Growth in this area is expected as existing drug programs
progress, through new fee-for-service partnerships in the area of
infectious diseases and by commercialization of new technologies,
including those secured via acquisitions such as Sloning.

Within the biotechnology industry, the access to capital will remain
one of the main issues. While in 2010 the stock market climate for
biotechnology companies improved overall in the USA, the window
for IPOs in Europe is still closed. In general, the expectations for
2011 are again more positive. The need to add innovative therapies to
the pipelines of the larger pharmaceutical companies could further
increase M&A activities, partnering deals and licensing, a develop-
ment that has already gained speed in 2009 and 2010.

The AbD Serotec segment is striving to increase its market share
within the research and diagnostics fields. AbD Serotec’s manage-
ment intends to concentrate on high-value applications of the HuCAL
technology, especially in the area of diagnostics.

e Xpec ted ec onomic de velopment
The global economic upturn is expected to continue in 2011. In a
preview of its economic report for 2011 early in December, the
United Nations said it expects the world economy to grow by 3.1 % in
2011 and 3.5 % in 2012. However, due to the ending of numerous
stimulus programs and the need to consolidate government budgets,
global economic growth in 2011 will be weaker than in 2010. Risks
to economic growth lie in a possible sharper slowdown of the US econ-
omy, exchange rate developments, the debt crisis in many countries,
the continuing pressing need for write-downs in the banking sector
and the price situation regarding raw materials.

The pharmaceutical and healthcare industries have historically been
relatively immune to economic downturns, due to a continuously
increasing demand for innovative treatments. Nevertheless, pharma-
ceutical companies are facing challenges such as low R&D produc-
tivity, government-imposed price erosions and patent expiries.

e Xpec ted de velopment oF the liFe ScienceS Sec tor
The pharmaceutical industry is facing unprecedented challenges.
Expiring patents, lack of new product supply and cost pressure from
healthcare reforms in Europe and the USA all combine to place the
industry under increasing pressure. According to IMS Health, drugs
generating sales of around US$ 135 billion will lose their patent pro-
tection by 2013. This is the largest decrease in the industry’s history.
The world pharmaceutical market in total has a size of about US$
800 billion.

e Xpec ted c ommercial de velopment
With the Novartis deal ensuring a steady cash flow stream over
the coming years and new commercial opportunities arising from
the Sloning acquisition, MorphoSys will continue to concentrate
on broadening its partnered and proprietary development pipelines.
Within the Partnered Discovery segment, the number of programs
is expected to continue to grow. The Company anticipates starting,
on average, approximately ten new partnered programs per annum
for the next several years.

The Company’s management sees many opportunities to expand
its proprietary development activities: de novo program starts, in-
licensing of existing product candidates as well as co-development
opportunities with Novartis, Galapagos and/or additional partners
all offer attractive opportunities.

With regard to MOR103, the most advanced development program
in MorphoSys’s proprietary pipeline, the Company expects final data
from the ongoing phase 1b/2a trial in the first half of 2012. Assum-
ing the clinical trial proceeds as planned and proof of concept can be
demonstrated, a partnership deal could be struck in the same year.
In 2011, MorphoSys plans to start a safety study for MOR103 in a sec-
ond indication, namely multiple sclerosis. In parallel, preparations
for a pharmacokinetic study of a subcutaneous formulation are ongo-
ing. Out-licensing of the other proprietary compounds is not planned
before 2013.

The AbD Serotec segment strives to continously outgrow the mar-
ket. Despite the global economic downturn, the management of AbD
Serotec predicts growth rates for the coming years of approxi-
mately 10 % at constant exchange rates. In 2011, profit margins will
decrease in comparison to 2010 due to an increase in personnel-
related costs and investments in infrastructure, nevertheless it is
expected that segment profit margins will continue to increase in
the following years.

Outlook and Forecast

e Xpec ted perSonnel de velopment
MorphoSys will continue to expand its proprietary and partnered
development capabilities by adding additional expertise and person-
nel. The rate of growth will, however, be less than in 2010.

e Xpec ted reSe arch and de velopment
The Company’s R&D budget for proprietary drug development will
continue to rise, roughly in line with the increase in revenues. In 2011,
MorphoSys plans to invest between € 40 million and € 45 million
in proprietary product and technology development. The majority of
this investment will be channeled into the clinical and preclinical
development activities for the most advanced drug candidates. The
trend of increasing investments is expected to continue in 2012 and
the years thereafter, although the size of such increases will depend
on the status of the Company’s drug pipeline and revenue develop-
ment. Notwithstanding this, the Company is committed to remaining
profitable.

The Company’s proprietary pipeline activities in 2011 are projected
to comprise:
Completion of recruitment of rheumatoid arthritis patients for the
phase 1b/2a study for its lead compound MOR103
Filing of CTA for a phase 1b safety study in multiple sclerosis as
second indication for MOR103
Start of enrollment of multiple myeloma patients in a phase 1b/2
study for MOR202
Ongoing enrollment of CLL/SLL patients in the phase 1b/2 trial for
MOR208, sponsored by Xencor, Inc.

For 2011, no further expansion of the proprietary pipeline is planned.
At the end of 2011, the Company expects up to ten proprietary com-
pounds in total.

Regarding AbD Serotec, profitable growth based on innovative prod-
ucts and services is the central objective for the unit. The diagnostic
industry offers the most attractive opportunities for growth and will
therefore increasingly be the focus of the unit’s activities. In 2010,
several feasibility studies were conducted which could lead to con-
clusion of larger collaborations in 2011 and 2012.

e Xpec ted Financial and liQuidit y de velopment
MorphoSys’s management strives to achieve average annual revenue
growth in excess of 10 % in 2011 and 2012. For 2011, management
anticipates total Group revenue growth in excess of 20 %, namely at
least € 105 million. In the future, revenue growth will become
more dependent on the out-licensing of proprietary products such as
MOR103, MOR208 and MOR202, as well as on increasing milestone
payments and royalties as partnered HuCAL antibodies are developed
further and will enter the market. The revenue split between the
Company’s therapeutic antibodies segments and the AbD Serotec seg-
ment is anticipated to shift slightly towards the therapeutic side of
the business in 2011 compared to the prior year.

The Partnered Discovery segment represents a highly profitable
business unit. Long-term alliances will provide the Company with
secured cash flows for at least the next six years.

On the basis of the Management Board’s current planning, total
Group operating expenses are expected to increase in 2011 and 2012,
subject to corresponding revenue increases. S, G&A expenses are
expected to increase only slightly. MorphoSys plans to increase its
investments in its proprietary antibody pipeline, particularly in
MOR103, MOR208 and MOR202, additional de novo discovery pro-
grams and co-development alliances.

On the basis of current planning, MorphoSys expects to remain profit-
able on an operating level in 2011 and 2012. For 2011, the Company
anticipates an operating profit of at least € 10 million and to maintain
profitability in 2012.

AbD Serotec showed revenue growth in 2009 and 2010, with a profit
margin of around 5 % and 6 %, respectively. For 2011, management
anticipates revenues of approximately € 22 million, while the profit
margin will experience a one-off decrease due to an increase in
personnel-related costs and investments in infrastructure. COGS is
anticipated to increase in line with sales of the AbD Serotec segment,
whereas segmental operating expenses are expected to increase only
slightly. For 2012, at constant foreign currency rates, management
expects the segment to show annual revenue growth rates of at least
10 % with increasing margins.

At the end of the 2010 fiscal year, MorphoSys’s cash position
amounted to € 108.4 million. Despite the more difficult conditions
resulting from the global financial crisis, MorphoSys’s financing
is solid. MorphoSys sees its strong cash position as an asset which
can be used to accelerate future growth through strategic trans-
actions. The in-licensing of MOR208 and the acquisition of Sloning
BioTechnology GmbH are good examples of this.

The Company Group Management Report Financial Statements

dividendS
For the first time, MorphoSys’s German statutory accounts showed ac-
cumulated earnings available for distribution. Nevertheless, in com-
mon with standard practice in the biotechnology industry, MorphoSys
does not anticipate paying a dividend for the foreseeable future. Any
profit generated by the business shall be substantially reinvested in
the operation of its business, mainly in the area of proprietary drug
development, in order to create further shareholder value and growth
opportunities. Nonetheless, the Company does plan to purchase
shares from the market to support a new long-term incentive pro-
gram for management.

This outlook takes into account all factors known at the time of the
preparation of the financial statements which could affect our
business in 2011 and beyond and is based on Management Board
assumptions. Future results may deviate from the expectations
described in the outlook section. Major risks are discussed in the
risk report*.

Se e
paGe 36 e t SeQ .

Contents Consolidated Financial Statements

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

p e r s o n n e l e x p e n s e s

46 c o n s o l i d at e d s tat e m e n t o f o p e r at i o n s (i f r s)

78 n o n - o p e r at i n g i n c o m e a n d e x p e n s e s

47 c o n s o l i d at e d s tat e m e n t o f c o m p r e h e n s i v e i n c o m e (i f r s)

48 c o n s o l i d at e d b a l a n c e s h e e t (i f r s)

c o n s o l i d at e d s tat e m e n t o f c h a n g e s i n

s t o c k h o l d e r s ’ e q u i t y (i f r s)

52 c o n s o l i d at e d s tat e m e n t o f c a s h f l o w s (i f r s)

i n c o m e ta x e s

e a r n i n g s p e r s h a r e

81 o p e r at i n g l e a s e s

c o n t i n g e n c i e s

b u s i n e s s c o m b i n at i o n s

r e l at e d pa r t i e s

85 c o r p o r at e g o v e r n a n c e

r e s e a r c h a n d d e v e l o p m e n t

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

a g r e e m e n t s

o r g a n i z at i o n a n d s u m m a r y o f s i g n i f i c a n t

c h a r t o f t h e c o n s o l i d at e d

e n t i t y

r e s p o n s i b i l i t y s tat e m e n t

s
t
n
e
m
e
t
a
t
S

c
n
a
n

a c c o u n t i n g p o l i c i e s

s e g m e n t r e p o r t i n g

64 c a s h a n d c a s h e q u i va l e n t s

f i n a n c i a l a s s e t s

a c c o u n t s r e c e i va b l e

65 o t h e r r e c e i va b l e s

p r e pa i d e x p e n s e s , ta x r e c e i va b l e s , o t h e r c u r r e n t a s s e t s

a n d i n v e n t o r i e s

p r o p e r t y, p l a n t a n d e q u i p m e n t

i n ta n g i b l e a s s e t s

69 o t h e r a s s e t s

a s s e t s c l a s s i f i e d a s h e l d f o r s a l e

69 g o o d w i l l

a c c o u n t s paya b l e

p r o v i s i o n s a n d ta x l i a b i l i t i e s

f i n a n c i a l i n s t r u m e n t s a n d f i n a n c i a l r i s k m a n a g e m e n t

s t o c k h o l d e r s ’ e q u i t y

c o n v e r t i b l e b o n d s

s t o c k o p t i o n s

s t o c k a p p r e c i at i o n r i g h t s (s a r s)

r e v e n u e s

The Company Group Management Report Financial Statements

Consolidated Statement of Operations (IFRS)

in €

Revenues

Operating Expenses

Cost of Goods Sold

Research and Development

Sales, General and Administrative

Total Operating Expenses

Other Operating Income

Profit from Operations

Finance Income

Finance Expenses

Other Income

Other Expenses

Profit before Taxes

Income Tax Expenses

Net Profit

Basic Net Profit per Share

Diluted Net Profit per Share

Shares Used in Computing
Basic Net Profit per Share

Shares Used in Computing
Diluted Net Profit per Share

See accompanying Notes to the Consolidated Financial Statements

Note

2010

2009

1T, 20

87,036,308

80,968,414

7,284,211

46,899,723

23,226,029

77,409,963

222,418

6,743,836

38,967,305

23,910,845

69,621,986

55,667

9,848,763

11,402,095

4,123,286

2,001,573

33,881

469,547

1,236,159

9,538

372,372

732,762

13,171,556

13,033,740

3,975,256

9,196,300

4,069,645

8,964,095

0.41

0.40

22,656,233

22,464,757

22,786,536

22,559,164

Consolidated Statement of Operations (IFRS) / Consolidated Statement of Comprehensive Income (IFRS)

Consolidated
Statement of Comprehensive Income (IFRS)

in €

Net Profit

Change in Unrealized Gains and Losses on Available-for-sale Securities

(Thereof Reclassifications of Unrealized Gains and Losses to Profit or Loss)

Deferred Taxes

Change in Unrealized Gains and Losses on Available-for-sale Securities, Net of Deferred Taxes

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Comprehensive Income

See accompanying Notes to the Consolidated Financial Statements

2010

2009

9,196,300

(3,580,703)

(3,854,337)

942,799

(2,637,904)

(5,622)

448,445

8,964,095

(1,066,905)

(1,668,056)

280,916

(785,989)

(6,788)

486,184

7,001,219

8,657,502

The Company Group Management Report Financial Statements

Consolidated Balance Sheet (IFRS)

in €

AS SE TS

Current Assets

Cash and Cash Equivalents

Available-for-sale Financial Assets

Accounts Receivable

Tax Receivables

Other Receivables

Inventories, Net

Prepaid Expenses and Other Current Assets

Assets Classified as Held-for-Sale

Total Current Assets

Non-current Assets

Property, Plant and Equipment, Net

Patents, Net

Licenses, Net

Intangible Assets under Development

Software, Net

Know-how and Customer Lists, Net

Goodwill

Deferred Tax Asset

Prepaid Expenses and Other Assets, Net of Current Portion

Total Non-current Assets

ToTAl AS SE TS

See accompanying Notes to the Consolidated Financial Statements

Note

2010

2009

3, 15

4, 15

5, 15

9, 12

7, 10

44,118,451

64,304,041

15,009,326

499,323

522,520

4,135,446

3,104,340

813,011

41,255,316

93,883,571

11,156,559

794,855

257,550

3,990,238

3,481,709

771,798

132,506,458

155,591,596

6,189,865

10,285,264

12,118,924

4,996,804

789,798

13,780,534

10,513,100

505,328

1,685,978

712,482

2,083,633

34,099,485

26,742,173

2,991,391

1,658,040

221,534

1,172,041

80,047,375

50,498,999

212,553,833

206,090,595

Consolidated Balance Sheet (IFRS)

in €

Note

2010

2009

lIAB IlITIES AND STo CKHolDERS' EQUIT Y

Current Liabilities

Accounts Payable

Licenses Payable

Tax Liabilities

Provisions

Current Portion of Deferred Revenue

Total Current Liabilities

Non-current Liabilities

Provisions, Net of Current Portion

Deferred Revenue, Net of Current Portion

Convertible Bonds Due to Related Parties

Deferred Tax Liability

Total Non-current Liabilities

Stockholders’ Equity

Common Stock

Ordinary Shares Authorized (41,935,950 and 42,400,635 for 2010 and 2009, respectively)

Ordinary Shares Issued (22,890,252 and 22,660,557 for 2010 and 2009, respectively)

Ordinary Shares Outstanding (22,810,356 and 22,580,661 for 2010 and 2009, respectively)

Treasury Stock (79,896 and 79,896 shares for 2010 and 2009, respectively), at Cost

Additional Paid-in Capital

Reserves

Accumulated Deficit

Total Stockholders' Equity

ToTAl lIAB IlITIES AND STo CKHolDERS’ EQUIT Y

See accompanying Notes to the Consolidated Financial Statements

13, 15

14, 23

16, 17, 18

15,614,905

14,106,352

134,617

2,144,674

275,000

3,181,605

21,350,801

43,344

690,756

127,593

4,419,245

5,280,938

100,746

1,426,760

8,618,250

24,252,108

43,344

5,579,610

32,670

2,248,498

7,904,122

22,880,478

166,388,083

(811,963)

22,650,783

161,631,268

1,383,118

(2,534,504)

(11,730,804)

185,922,094

173,934,365

212,553,833

206,090,595

The Company Group Management Report Financial Statements

Consolidated Statement of Changes in
Stockholders’ Equity (IFRS)

BAl ANCE AS oF JANUARY 1, 20 09

Compensation Related to the Grant of Stock Options and Convertible Bonds

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 0

Reserves:

Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Net Profit for the Period

Comprehensive Income

BAl ANCE AS oF DECEmBER 31, 20 09

BAl ANCE AS oF JANUARY 1, 2010

Compensation Related to the Grant of Stock Options and Convertible Bonds

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 15,500

Reserves:

Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Net Profit for the Period

Comprehensive Income

BAl ANCE AS oF DECEmBER 31, 2010

See accompanying Notes to the Consolidated Financial Statements

Common Stock

Treasury Stock

Additional

Revaluation

Translation

Accumulated

Total Stock-

Paid-in Capital

Reserve

Deficit

holders’ Equity

€

22,478,787

181,770

22,660,557

229,695

22,660,557

229,695

22,890,252

79,896

(9,774)

166,388,083

727,669

(1,539,632)

(2,534,504)

185,922,094

79,896

(9,774)

158,523,363

4,163,972

(2,474,261)

(20,694,899)

161,987,188

79,896

(9,774)

(1,988,077)

(11,730,804)

173,934,365

(1,988,077)

(11,730,804)

173,934,365

486,184

8,964,095

€

1,743,344

1,364,561

161,631,268

2,150,655

2,606,160

€

(785,989)

(6,788)

(792,777)

3,371,195

(2,637,904)

(5,622)

€

448,445

(2,643,526)

448,445

9,196,300

€

1,743,344

1,546,331

(785,989)

(6,788)

486,184

8,964,095

8,657,502

2,150,655

2,835,855

(2,637,904)

(5,622)

448,445

9,196,300

7,001,219

Consolidated Statement of Changes in Stockholders’ Equity (IFRS)

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 0

181,770

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 15,500

229,695

BAl ANCE AS oF JANUARY 1, 20 09

Compensation Related to the Grant of Stock Options and Convertible Bonds

Reserves:

Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Net Profit for the Period

Comprehensive Income

BAl ANCE AS oF DECEmBER 31, 20 09

BAl ANCE AS oF JANUARY 1, 2010

Compensation Related to the Grant of Stock Options and Convertible Bonds

Reserves:

Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Net Profit for the Period

Comprehensive Income

BAl ANCE AS oF DECEmBER 31, 2010

See accompanying Notes to the Consolidated Financial Statements

Common Stock

Treasury Stock

Additional

Revaluation

Paid-in Capital

Reserve

Translation
Reserve

Accumulated
Deficit

Total Stock-
holders’ Equity

€

22,478,787

79,896

(9,774)

158,523,363

4,163,972

(2,474,261)

(20,694,899)

161,987,188

22,660,557

79,896

(9,774)

1,743,344

1,364,561

161,631,268

2,150,655

2,606,160

(785,989)

(6,788)

(792,777)

3,371,195

(2,637,904)

(5,622)

(2,643,526)

486,184

8,964,095

1,743,344

1,546,331

(785,989)

(6,788)

486,184

8,964,095

8,657,502

(1,988,077)

(11,730,804)

173,934,365

(1,988,077)

(11,730,804)

173,934,365

448,445

9,196,300

2,150,655

2,835,855

(2,637,904)

(5,622)

448,445

9,196,300

7,001,219

€

22,890,252

79,896

(9,774)

166,388,083

727,669

(1,539,632)

(2,534,504)

185,922,094

The Company Group Management Report Financial Statements

Consolidated Statement of Cash Flows (IFRS)

in €

opER ATINg AC TIvITIES:

Net Profit

Adjustments to Reconcile Net Profit to Net Cash Provided by/(Used In) Operating Activities:

Non-cash Charges from PPA

Impairment of Assets

Depreciation and Amortization of Tangible and Intangible Assets

Net Gain on Sales of Financial Assets

Unrealized Net Loss on Derivative Financial Instruments

Loss/(Gain) on Sale of Property, Plant and Equipment/Intangible Assets

Recognition of Deferred Revenue

Stock-based Compensation

Income Tax Expense

Changes in Operating Assets and Liabilities:

Accounts Receivable

Prepaid Expenses, Other Assets and Tax Receivables

Accounts Payable and Provisions

Licenses Payable

Other Liabilities

Deferred Revenue

Cash Generated from Operations

Interest Paid

Interest Received

Income Taxes Paid

NE T CASH pRovIDED BY/(USED IN) opER ATINg AC TIvITIES

See accompanying Notes to the Consolidated Financial Statements

Note

2010

2009

9,196,300

8,964,095

44,000

6,120,325

(3,979,920)

496,181

254,744

31,277

5,348,950

(1,717,095)

126,304

(2,493)

(37,598,056)

(31,967,141)

2,123,296

3,974,358

1,736,472

4,061,569

(3,618,508)

(1,055,955)

(554,604)

33,871

1,862,884

27,272,556

4,571,472

(27,143)

148,117

(2,160,368)

2,532,078

(6,916,122)

(1,232,465)

(2,442,953)

(350,223)

3,817,865

20,517,900

(24,060)

(3,537)

284,535

(1,235,969)

(979,031)

Consolidated Statement of Cash Flows (IFRS)

in €

Note

2010

2009

INvESTINg AC TIvITIES:

Purchases of Financial Assets

Proceeds from Sales of Financial Assets

Purchases of Property, Plant and Equipment

Proceeds from Disposals of Property, Plant and Equipment

Purchases of Intangible Assets

Acquisitions, Net of Cash Acquired

NE T CASH (USED IN)/pRovIDED BY INvESTINg AC TIvITIES

FINANCINg AC TIvITIES:

Proceeds from the Exercise of Options and Convertible Bonds
Granted to Related Parties

Net of Proceeds and Payments from the Issuance of Convertible Bonds
Granted to Related Parties

Purchases of Derivative Financial Instruments

Proceeds from the Disposal of Derivative Financial Instruments

Net Cost of Share Issuance

NE T CASH pRovIDED BY FINANCINg AC TIvITIES

Effect of Exchange Rate Differences on Cash

Increase in Cash and Cash Equivalents

CASH AND CASH EQUIvAlENTS AT THE BEg INNINg oF THE pERIoD

CASH AND CASH EQUIvAlENTS AT THE END oF THE pERIoD

See accompanying Notes to the Consolidated Financial Statements

(20,783,313)

(11,787,200)

50,692,950

(2,323,416)

(11,486,644)

(18,095,650)

(1,996,073)

16,223,311

(2,586,142)

7,335

(1,231,572)

625,732

2,851,597

1,546,332

80,586

(649,650)

9,176

(15,500)

2,276,209

50,921

2,863,135

41,255,316

44,118,451

(16,000)

(173,304)

47,000

1,404,028

90,860

1,141,589

40,113,727

41,255,316

The Company Group Management Report Financial Statements

Notes to the Consolidated Financial Statements

1 Organization and Summary of Significant

Accounting Policies

BuSINES S AND OrGANIz ATION
MorphoSys AG (the “Company” or “MorphoSys”) is a biotechnology company
using combinatorial biology for drug discovery with the principal objective
of developing and commercially exploiting new enabling technologies across
a broad scientific spectrum. The Company was founded in July 1992 as a
German limited liability company. In June 1998, MorphoSys became a German
stock corporation. In March 1999, the Company went public on Germany’s
“Neuer Markt”, the stock exchange designated for high-growth enterprises.
On January 15, 2003, MorphoSys AG was admitted to the Prime Standard
segment of the Frankfurt Stock Exchange.

C ONSOLIDATE D C OMpANIES
The Company has five wholly owned subsidiaries (together referred to as the
“MorphoSys Group”):

In January 2005, MorphoSys acquired Biogenesis Ltd., Poole, UK, and
Biogenesis, Inc., New Hampshire, USA, for a total consideration of £ 5.25 mil-
lion less net debt of approximately £ 0.7 million. Biogenesis UK was first
renamed MorphoSys UK Ltd. and in 2007 again renamed Poole Real Estate
Ltd. Biogenesis, Inc., was renamed MorphoSys US, Inc., and merged into
Serotec, Inc. The merged entity resumed the name MorphoSys US, Inc.

On October 7, 2010, MorphoSys acquired 100 % of the shares in Sloning
BioTechnology GmbH, a private company located in Puchheim near Munich,
Germany. The purchase price of approximately € 19 million was paid in
cash. Sloning, founded in 2001, is a biotechnology company developing new
methods of synthetic biology. The transaction makes MorphoSys the sole
source of Sloning’s state-of-the-art Slonomics® technology, which dramatically
improves the assembly and quality of protein libraries. By integrating Slon-
ing into its existing Partnered Discovery segment, MorphoSys expects to im-
prove the generation of drug candidates such that one in every two projects
started reaches clinical development.

MorphoSys USA, Inc., was incorporated in the United States on February 16,
2000. The subsidiary’s purpose was to assist the Company in the sale and
licensing of MorphoSys AG products. MorphoSys USA, Inc., substantially
ceased its operations in November 2002.

In 2010, the Company applied sec. 264 para. 3 of the German Commercial
Code (HGB). For this reason, no separate financial statements for 2009 were
published in the Bundesanzeiger for MorphoSys IP GmbH.

MorphoSys IP GmbH was incorporated in Munich, Germany, on November 6,
2002. The subsidiary’s purpose is to purchase, maintain and administer cer-
tain intangible assets of the MorphoSys Group. The Company’s operations are
physically located on the premises of MorphoSys AG, and operations com-
menced on December 31, 2002.

Serotec Ltd. with its subsidiaries Serotec, Inc., Serotec GmbH and Oxford
Biotechnology Ltd. (together referred to as the “Serotec Group”), was ac-
quired by MorphoSys in January 2006 and became a wholly owned subsidiary
of MorphoSys AG. The Serotec Group has been integrated into MorphoSys’s
existing AbD Serotec segment. The purchase price of approximately £ 20 mil-
lion (approx. € 29.3 million) was paid in cash (£ 14 million or € 20.5 million)
and the remainder in 208,560 new MorphoSys shares from a capital increase
against contribution in kind. Oxford Biotechnology Ltd. was dissolved in the
financial year 2009.

GE NE r AL INFOrMATION
The consolidated financial statements for the year ended December 31, 2010,
were authorized for issuance in accordance with a resolution of the Manage-
ment Board on February 7, 2011. The Management Board is represented by
Dr. Simon E. Moroney (Chief Executive Officer), Dave Lemus (Executive Vice
President and Chief Financial Officer), Dr. Marlies Sproll (Chief Scientific
Officer) and Dr. Arndt Schottelius (Chief Development Officer).

The Supervisory Board is represented by Dr. Gerald Möller (Chairman, Chair-
man of the Remuneration & Nomination Committee), Prof. Dr. Jürgen Drews
(Deputy Chairman, Remuneration & Nomination Committee, Science & Tech-
nology Committee), Dr. Daniel Camus (Audit Committee), Dr. Metin Colpan
(Remuneration & Nomination Committee), Dr. Walter Blättler (Chairman of the
Science & Technology Committee) and Dr. Geoffrey N. Vernon (Chairman
of the Audit Committee). The Supervisory Board is empowered to amend the
financial statements after the resolution of the Management Board.

Serotec Ltd. and Serotec, Inc., were renamed MorphoSys UK Ltd. and
MorphoSys US, Inc., as of January 2007. Serotec GmbH was renamed
MorphoSys AbD GmbH as of March 2007.

The registered offices of the MorphoSys AG headquarters are located at
Lena-Christ-Str. 48, 82152 Martinsried/Planegg, Germany.

Notes to the Consolidated Financial Statements

L E g A L S T R u C T u R E o f T h E M o R P h o S y S g R o u P

MorphoSys AG

MorphoSys USA, Inc.
(Charlotte, NC, USA)

Poole Real Estate Ltd.
(Poole, UK)

MorphoSys IP GmbH
(Martinsried, Germany)

MorphoSys UK Ltd.
(Oxford, UK)

Sloning BioTechnology GmbH
(Puchheim, Germany)

MorphoSys US, Inc.
(Raleigh, NC, USA)

MorphoSys AbD GmbH
(Düsseldorf, Germany)

SIGNIFICANT AC C OuNTING p OLICIES

IFRS 3 “ BUSINES S C omB INATI oNS ”, IAS 36 “ ImpAIRmENT oF AS SE TS ” AND

A) BASIS OF AD Op TION
The preparation of the consolidated financial statements in conformity with
the International Financial Reporting Standards (IFRS*) requires management
to make certain estimates and assumptions that affect the amounts reported
in the consolidated financial statements and the accompanying notes. Actual
results could differ from those estimates. Estimates and underlying assump-
tions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any fu-
ture periods affected.

The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements.

IFRS 2 “ SHARE - BASED pAY mENT ”
IFRS 2 “Share-based Payment” requires an expense to be recognized where
the Group buys goods or services in exchange for shares or rights over shares
(“equity-settled transactions”) or in exchange for other assets equivalent in
value to a given number of shares or rights over shares (“cash-settled transac-
tions”). The main impact of IFRS 2 on the Group refers to the expense associ-
ated with employees’ as well as management boards’ and supervisory boards’
share options and other share-based incentives by using an option pricing
model. In accordance with IFRS 2.54, the Group has applied IFRS 2 to equity-
settled awards granted on or after January 1, 1999. In accordance with IFRS
2.56, options granted prior to January 1, 1999, are therefore not expensed. All
information is nonetheless disclosed in line with IFRS 2.44 and 2.45. Fur-
ther details are given in the Notes to the Consolidated Financial Statements
– sections 17, 18 and 19*.

IAS 38 “ INTAN g IBlE AS SE TS ”
IFRS 3 applies to accounting for business combinations for which the agree-
ment date is on or after March 31, 2004. IFRS 3 requires that all business
combinations are accounted for using the acquisition method.

For acquisitions between January 1, 2004, and January 1, 2010, goodwill
represented the excess of the cost of the acquisition over the Group’s interest
in the recognized amount (generally fair value) of the identifiable assets,
liabilities and contingent liabilities of the acquiree. Transaction costs, other
than those associated with the issue of debt or equity securities, that the
Group incurred in connection with business combinations were capitalized
as part of the cost of the acquisition.

For acquisitions on or after January 1, 2010, the Group measured goodwill at
the acquisition date as the fair value of the consideration transferred plus
the recognized amount of any non-controlling interests in the acquiree plus if
the business combination is achieved in stages, the fair value of the existing
equity interest in the acquiree less the net recognized amount (generally fair
value) of the identifiable assets acquired and liabilities assumed. Costs re-
lated to the acquisition, other than those associated with the issue of debt or
equity securities, that the Group incurs in connection with a business com-
bination are expensed as incurred.

The useful economic life of an intangible asset is generally assessed at the
level of individual assets as having either a finite or an indefinite life. The
Company has not identified any asset with an indefinite life. Intangible as-
sets with finite lives are being amortized over their useful lives to the extent
that they are available-for-use. Amortization periods and methods for intan-
gible assets with finite useful economic lives are reviewed annually or earlier
where an indicator of impairment exists.

Receivables, liabilities, provisions, income and expenses, and profits be-
tween consolidated companies are eliminated on consolidation.

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The Company Group Management Report Financial Statements

NE W STANDARDS EFFEC TI vE IN 2010
IFRS 3 “Business Combinations” (effective from July 1, 2009) and conse-

quential amendments to IAS 27 “Consolidated and Separate Financial State-
ments”, IAS 28 “Investments in Associates” and IAS 31 “Interests in Joint
Ventures” are effective prospectively for business combinations for which
the acquisition date is on or after the beginning of the first annual report-
ing period beginning on or after July 1, 2009. The revised standard contin-
ues to apply the acquisition method to business combinations but with
some significant changes compared to the previous version of IFRS 3. For
example, all payments to purchase a business are recorded at fair value
at the acquisition date, with contingent payments classified as debt subse-
quently remeasured through the statement of operations. There is a choice
on an acquisition-by-acquisition basis, to measure the non-controlling inter-
est in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. All acquisition-related costs
are expensed. IFRS 3 has been applied to the acquisition of Sloning Bio-
Technology GmbH.

IAS 27 (Revised) “Consolidated and Separate Financial Statements” re-
quires the effects of all transactions with non-controlling interests to
be recorded in equity if there is no change in control and these transac-
tions will no longer result in goodwill or gains and losses. The standard
also specifies the accounting when control is lost. Any remaining interest
in the entity is remeasured to fair value, and a gain or loss is recognized
in profit or loss. IAS 27 (revised) has had no impact on the current period,
because there have been no transactions with non-controlling interests.
IFRS 5 (Amendment) “Non-current Assets Held-for-Sale and Discontinued
Operations” in which the amendment clarifies that IFRS 5 specifies the
disclosures required in respect of non-current assets (or disposal groups)
classified as held-for-sale or discontinued operations. It also clarifies that
the general requirements of IAS 1 still apply, in particular paragraph 15 (to
achieve a fair presentation) and paragraph 125 (sources of estimation un-
certainty) of IAS 1.

IAS 36 (Amendment) “Impairment of Assets”, effective January 1, 2010,

which clarifies that the largest cash-generating unit (or group of units) to
which goodwill should be allocated for the purposes of impairment test-
ing is an operating segment, as defined by paragraph 5 of IFRS 8 “Operat-
ing Segments” (that is, before the aggregation of segments with similar
economic characteristics).

Several changes were made to various IFRS and IFRIC in the context of

the annual improvements project in order to clarify and amend existing
standards, namely IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36,
IAS 38, IAS 39, IFRIC 9 and IFRIC 16.

IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
IAS 1 (Amendment) “Presentation of Financial Statements”
IFRS 2 (Amendments) “Group Cash-settled Share-based Payment Trans-

actions”

IFRS 5 (Improvements to IFRS 2008; Amendments to IFRS 5 Non-current

Assets Held-for-Sale and Discontinued Operations)

IFRIC 12 “Service Concession Arrangements”
IFRIC 15 “Agreements for the Construction of Real Estate”

NE W STANDARDS , AmENDmENTS AND INTERpRE TATI oNS IS SUED BU T NoT

EFFEC TIvE FoR THE FINANC IAl Y E AR BEg INNIN g JANUARY 1, 2010, AND

NoT AD op TED E ARlY
The following standards, amendments and interpretations to existing stan-
dards have been published but are not effective for the financial year begin-
ning January 1, 2010, and have not been adopted early by the Group:
IFRS 9 “Financial Instruments” which is the first step in the process of

replacing IAS 39 “Financial Instruments: Recognition and Measurement”.
The standard is not applicable until January 1, 2013, but is available for
early adoption. However, it has not yet been endorsed by the European
Commission.

IAS 24 (Revised) “Related Party Disclosures” which is mandatory for peri-
ods beginning on or after January 1, 2011, while early adoption is per-
mitted. The standard has been endorsed by the European Commission on
January 5, 2011.

“Classification of Rights Issues” (Amendment to IAS 32) which is manda-

tory for periods beginning on or after February 1, 2010. The standard has
been endorsed by the European Commission on January 5, 2011.

IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”

which is mandatory for periods beginning on or after July 1, 2010. The stan-
dard has been endorsed by the European Commission on January 5, 2011.

“Prepayments of a Minimum Funding Requirement” (Amendments to

IFRIC 14) which is mandatory for periods beginning on or after January 1,
2011. The standard has been endorsed by the European Commission on
January 5, 2011.

B) CHANGE IN ESTIMATES
As of June 1, 2010, the Company estimates that certain success criteria for
a cooperation will be met earlier than planned. This change in accounting
estimate is applied prospectively and had a financial impact of € 2.2 million
(additional revenues) in 2010. Revenue in 2011 is adversely affected in the
amount of € 1.1 million, which has been reflected in preparing the budget
for 2011.

NE W AND AmENDED STANDARDS AND INTERpRE TATIoNS mANDAToRY FoR

THE FIRST TImE FoR THE FINANC IAl Y E AR BEg INNIN g JANUARY 1, 2010,

BU T CURRENTlY NoT RElE vANT FoR THE g RoUp
The following standards, amendments to existing standards and interpreta-
tions have been published and are mandatory for the Company’s accounting
periods beginning on January 1, 2010, but they are currently not relevant for
the Company:
IFRIC 17 “Distribution of Non-cash Assets to Owners”
IFRIC 18 “Transfers of Assets from Customers”
IFRIC 9 “Reassessment of Embedded Derivatives and IAS 39 Financial

Instruments: Recognition and Measurement”

C) STATE ME NT OF C OMpLIANCE
The accompanying consolidated financial statements have been prepared
in accordance with the International Financial Reporting Standards (IFRS)
adopted by the International Accounting Standards Board (IASB), London,
in consideration of interpretations of the Standing Interpretations Committee
(SIC) and the International Financial Reporting Interpretations Committee
(IFRIC) as adopted by the European Commission.

The consolidated financial statements of the Company for the year ended
December 31, 2010, comprise the Company and its subsidiaries (together re-
ferred to as the “MorphoSys Group”).

Notes to the Consolidated Financial Statements

D) BASIS OF prESE NTATION AND CHANGE IN prESE NTATION
The consolidated financial statements are presented in euros, which is the
functional currency for the MorphoSys Group. They are prepared on the his-
torical cost basis except for the following assets and liabilities, which are
stated at their fair value: derivative financial instruments and available-for-
sale financial assets. All figures in this report are rounded either to the
nearest euro, thousand euros or million euros.

In 2010, the presentation of grant income from governmental agencies and
thus presentation within the statement of operations has been changed as the
Company expects such income to become material in the next years. Previ-
ously, grant income had been presented within operating revenue due to mate-
riality reasons. Starting in the fourth quarter of 2010, grant income is pre-
sented as “Other Operating Income” and amounted to € 222,418 for the year
2010. To show comparative information for 2009 as requested by IAS 1.41,
grant income accounted for in the AbD segment in the amount of € 55,667 has
been reclassified from operating revenue to other operating income. For fur-
ther details, please see note 1U*.

In 2010, presentation of statement of cash flows from operations has been
adjusted. “Interest Paid” and “Taxes Paid” are now shown with a negative
prefix, wheras “Interest Received” is shown with a positive prefix. Also, the
new item “Income Tax Expense” in “Adjustements to Reconcile Net Profit to
Net Cash Provided by/(Used In) Operating Activities” has replaced the former
“Income Tax Benefit” to reconcile the tax amounts shown in the statement
of operations to cash flow. Finally, withholding tax on capital gains is now in-
cluded in “Taxes Paid”. These changes lead to an adjustment in “Changes
in Operating Assets and Liabilities” in the lines “Prepaid Expenses, Other
Assets and Tax Receivables”, “Accounts Payable and Provisions” and “Other
Liabilities”. To show comparative information, these adjustments have been
applied to the 2009 figures respectively.

E ) BASIS OF C ONSOLIDATION
Intercompany balances and transactions and any unrealized gains arising
from intercompany transactions are eliminated in preparing the consolidated
financial statements in accordance with IAS 27.20. Unrealized losses are
eliminated in the same way as unrealized gains but considered an impair-
ment indicator of the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies
adopted by the Group.

F ) BuSINES S C OMBINATIONS
The Group applies IFRS 3 (revised) “Business combinations” (effective from
July 1, 2009). The revised standard continues to apply the acquisition method
to business combinations, with some significant changes. For example, all
payments to purchase a business are to be recorded at fair value at the acqui-
sition date, with contingent payments classified as debt subsequently re-
measured through the statement of operations. All acquisition-related costs
are expensed.

G) FOrE IGN CurrE NCy Tr ANSL ATION
IAS 21 “The Effects of Changes in Foreign Exchange Rates” defines the ac-
counting for transactions and balances in foreign currencies. Transactions
in foreign currencies are translated at the foreign exchange rate as of the
date of the transaction. Foreign exchange rate differences arising on these
translations are recognized in the statement of operations. On the balance
sheet date, assets and liabilities are translated at the closing rate, and income
and expenses are translated at the average exchange rate for the period.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and trans-
lated at the closing rate. Any foreign exchange rate differences deriving from
these translations are recorded in the statement of operations. Any further
foreign exchange rate differences on a Group level are recognized in the trans-
lation reserve (equity).

H) INTE rEST
MorphoSys uses interest rates to calculate fair values. For stock-based com-
pensation calculation, MorphoSys uses for convertible bonds the interest
rate of a German government bond with a duration of five years at grant date
and for stock options the interest rate of a German government bond with a
duration of three years at grant date.

I) DE rIVATIVE FINANCIAL INSTruME NTS
The Group uses derivative financial instruments to hedge its exposure to
foreign exchange rate risks. In accordance with IAS 39.9, all derivative finan-
cial instruments are held for trading and recognized initially at fair value.
Subsequent to initial recognition, derivative financial instruments are stated
at fair value, which is their quoted market price as of the balance sheet date.
Since the derivatives were not designated for hedge accounting, any resulting
gain or loss is recognized in the statement of operations. According to the
Group’s foreign currency hedging policy, future cash flows with a high prob-
ability and receivables which are definite and collectible within a twelve-
month period will be hedged.

J) CASH AND CASH EquIVALE NTS
The Company considers all cash at bank and in hand as well as short-term de-
posits with an original maturity of three months or less to be cash or cash
equivalents. The Company invests its cash and cash equivalents in deposits
with three major German financial institutions, namely Commerzbank (for-
mer Dresdner Bank), HypoVereinsbank and Deutsche Bank.

Guarantees granted for rent deposits and commitments for convertible bonds
issued to employees have been classified in other assets as restricted cash as
they are not available-for-use in the Company’s operations.

K ) NON - DE rIVATIVE FINANCIAL INSTruME NTS
All non-derivative financial instruments are initially recognized at fair
value, being the fair value of the consideration given and including acqui-
sition charges associated with the investment for instruments not at fair
value through profit or loss.

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The Company Group Management Report Financial Statements

The Company accounts for its investments in debt and equity securities in
accordance with IAS 39. The management determines the proper classifica-
tions of financial assets at the time of purchase and re-evaluates such desig-
nations as of each balance sheet date. As of December 31, 2010, and as of
December 31, 2009, some financial assets held by the Group have also been
classified as available-for-sale. These financial assets are recognized or de-
recognized by the Group on the date it commits itself to purchase or sell the
financial assets. After initial recognition, available-for-sale financial assets
are measured at fair value, with any resulting gain or loss reported directly
in the revaluation reserve within equity until the financial assets are sold,
collected or otherwise disposed of, or until the financial assets are determined
to be impaired, at which time the cumulative loss is reported in the state-
ment of operations (please see section P* for further details).

Guarantees granted for rent deposits have been collateralized with available-
for-sale financial assets and have been classified in other assets as restricted
cash as they are not available-for-use in the Company’s operations.

zation commences when the patent is issued. The Company’s patents cover-
ing its proprietary HuCAL technology were granted in Australia in October
2000, in the United States of America in October 2001 and in Europe in June
2002. Technology as identified in the purchase price allocation for the acqui-
sition of Sloning BioTechnology GmbH is stated at acquisition-date fair value
less accumulated amortization (useful life of ten years).

o C) lICENSE RIg HTS
The Company acquired license rights by making upfront license payments,
paying annual maintenance fees and making sublicense payments to third
parties. The Company amortizes up-front license payments on a straight-line
basis over the estimated useful life of the acquired license (ten years). The
amortization period and the amortization method are reviewed at each bal-
ance sheet date (IAS 38.104). Annual maintenance fees are amortized over
the term of each annual agreement. Sublicense payments are amortized on a
straight-line basis over the life of the contract or the estimated useful life of
the collaboration for those contracts without a stipulated term.

L) AC C OuNTS rECE IVABLE
Accounts receivable are measured at amortized cost less any impairment
(e. g. allowance for doubtful accounts (see accounting policy P*).

Other non-derivative financial instruments are measured at amortized cost
using the effective interest method, less any impairment losses.

oD) SoF T WARE
Software is stated at cost less accumulated amortization (see below) and
impairment losses (see accounting policy P*). Amortization is charged to the
statement of operations on a straight-line basis over the estimated useful
life of three to five years. Software is amortized from the date it is available-
for-use.

M) INVE NTOry
Inventories are stated on a FIFO basis at the lower of manufacturing/acqui-
sition costs and net realizable value. Manufacturing costs of self-produced
inventories comprise all costs which are directly attributable and an appro-
priate portion of overheads. Inventories can be classified into raw material/
consumables, work in progress and finished goods.

N) prOpE r T y, pL ANT AND EquIpME NT
Property, plant and equipment is stated at cost less accumulated depreciation
(see also the Notes to the Consolidated Financial Statements – section 8*)
and impairment losses (see accounting policy P*). Replacements and improve-
ments are capitalized while general repairs and maintenance are charged to
expenses as incurred. Assets are depreciated over their expected useful lives
using the straight-line method. Leasehold improvements are depreciated
over the estimated useful lives of the assets using the straight-line method.

O) INTANGIBLE AS SE TS

oA) RESE ARCH AND DE vElopmENT
Research costs are expensed as incurred. In general, development costs are
expensed as incurred (IAS 38.5 and IAS 38.11–38.23). Development costs are
recognized as an intangible asset when the criteria of IAS 38.21 (probability
of expected future economic benefits, reliability of cost measurement) are met
and if the entity can demonstrate the requirements of IAS 38.57.

oB) pATENT C oSTS
Patents obtained by the Group are stated at cost less accumulated amortiza-
tion (see below) and impairment losses (see accounting policy P*). Patent
costs are amortized on a straight-line basis over the lower of the estimated
useful life of the patent (ten years) and the remaining patent term. Amorti-

oE ) K NoW - HoW AND CUSTomER lIST S
MorphoSys established a purchase price allocation (PPA) as required by
IFRS 3 “Business Combinations”. Intangible assets identified consist of tech-
nology (useful life of 15 years), customer lists (useful life of 17 years), know-
how (useful life of eight years) and customer relationships (useful life of ten
years) and distributors (useful life of 16 years) and are stated at acquisition
date fair value less accumulated amortization.

oF ) INTAN g IBlE AS SE TS UNDER DE vElopmENT
This item contains an upfront payment from the in-licensing of a compound
for the Proprietary Development segment. The asset is stated at cost and
is not yet available-for-use, therefore not subject to amortization. As of the
balance sheet date, the asset has been tested for impairment as required
by IAS 36.

o g) g o oDWIll
The goodwill recognized is partly attributable to expected synergies to be
achieved and to the skills of the acquired workforce. Goodwill is regularly
tested for impairment as required by IAS 36 (please see note 12* for further
details).

oH) SUB SEQUENT E XpENDIT URE
Subsequent expenditure on capitalized intangible assets is only capitalized
when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is expensed as incurred.

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Notes to the Consolidated Financial Statements

p) IMpAIrME NT

pA) NoN - DERIvATIvE FINANC IAl AS SE TS
A financial asset not carried at fair value through profit or loss is assessed at
each reporting date to determine whether there is objective evidence that it
is impaired. A financial asset is impaired if objective evidence indicates that
a loss event has occurred after the initial recognition of the asset, and that
the loss event had a negative effect on the estimated future cash flows of that
asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are
impaired can include default or delinquency by a debtor, restructuring of
an amount due to the Group on terms that the Group would not consider
otherwise, indications that a debtor or issuer will enter bankruptcy, adverse
changes in the payment status of borrowers or issuers in the Group, eco-
nomic conditions that correlate with defaults or the disappearance of an ac-
tive market for a security. In addition, for an investment in an equity secu-
rity, a significant or prolonged decline in its fair value below its cost is
objective evidence of impairment.

RECEIvABlES:
The Group considers evidence of impairment for receivables at both a spe-
cific asset and collective level. All individually significant receivables are
assessed for specific impairment. All individually significant receivables
found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Receivables that
are not individually significant are collectively assessed for impairment by
grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the
probability of default, the timing of recoveries and the amount of loss in-
curred, adjusted for management’s judgment as to whether current economic
and credit conditions are such that the actual losses are likely to be greater
or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized
cost is calculated as the difference between its carrying amount and the pres-
ent value of the estimated future cash flows discounted at the asset’s origi-
nal effective interest rate. Losses are recognized in profit or loss and reflected
in an allowance account against receivables. Interest on the impaired asset
continues to be recognized. When a subsequent event (e.g. repayment by a
debtor) causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.

AvAIl ABlE - FoR - SAlE FINANC IAl AS SE TS:
Impairment losses on available-for-sale financial assets are recognized by
reclassifying the losses accumulated in the fair value reserve in equity, to
profit or loss. The cumulative loss that is reclassified from equity to profit or
loss is the difference between the acquisition cost, net of any principal re-
payment and amortization, and the current fair value, less any impairment
loss recognized previously in profit or loss. If, in a subsequent period, the
fair value of an impaired available-for-sale debt security increases and the in-
crease can be related objectively to an event occurring after the impairment

loss was recognized in profit or loss, then the impairment loss is reversed,
with the amount of the reversal recognized in profit or loss. However, any
subsequent recovery in the fair value of an impaired available-for-sale equity
security is recognized in other comprehensive income.

pB) NoN - FINAN C IAl AS SE TS
The carrying amounts of the Group’s non-financial assets, inventories and
deferred tax assets, are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. For goodwill, and intangible assets
that have indefinite useful lives or that are not yet available-for-use, the
recoverable amount is estimated each year at the same time. An impairment
loss is recognized if the carrying amount of an asset or its related cash-gen-
erating unit (CGU) exceeds its estimated recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated
future post-tax cash flows are discounted to their present value using a post-
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 purpose of impair-
ment testing, assets that cannot be tested individually are grouped together
into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or CGU.
Subject to an operating segment ceiling test, for the purposes of goodwill
impairment testing, CGUs to which goodwill has been allocated are aggre-
gated 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 is allocated to groups of CGUs
that are expected to benefit from the synergies of the combination.

The Group’s corporate assets do not generate separate cash inflows and are
utilized by more than one CGU. Corporate assets are allocated to CGUs on a
reasonable and consistent basis and tested for impairment as part of the test-
ing of the CGU to which the corporate asset is allocated.

Impairment losses are recognized in profit or loss. Impairment losses recog-
nized in respect of CGUs are allocated first to reduce the carrying amount of
any goodwill allocated to the CGU (group of CGUs), and then to reduce the
carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata
basis. An impairment loss in respect of goodwill is not reversed. In respect
of other assets, impairment losses recognized in prior periods are assessed
at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depre-
ciation or amortization, if no impairment loss had been recognized.

The Company Group Management Report Financial Statements

q ) SHArE CApITAL
Ordinary shares are classified as equity. Incremental costs directly attribut-
able to the issue of ordinary shares and share options are recognized as a
deduction from equity, net of any tax effects. When share capital recognized
as equity is repurchased, the amount of consideration paid, which includes
directly attributable costs, is net of any tax effects, and is recognized as a
deduction from equity classified as treasury shares. When treasury shares
are sold or reissued subsequently, the amount received is recognized as an
increase in equity, and the resulting surplus or deficit on the transaction is
transferred to/from retained earnings.

r) Tr ADE AND OTHE r pAyABLES , prOVISIONS
Trade and other payables are stated at amortized cost. Payables with repay-
ment dates exceeding one year are discounted to their net present values.

and possible return of goods can be estimated reliably, there is no continu-
ing management involvement with the goods, and the amount of revenue
can be measured reliably. If it is probable that discounts will be granted and
the amount can be measured reliably, then the discount is recognised as a
reduction of revenue as the sales are recognised. The timing of the transfer
of risks and rewards varies depending on the individual terms of the sales
agreement.

In accordance with IAS 18.21, 18.25 and IAS 20.18, the total consideration
in revenue arrangements with multiple deliverables will be allocated among
the separately identifiable components based on their respective fair values
under application of IAS 18.20, and the applicable revenue recognition crite-
ria will be considered separately for each of the separate components.

Payables of uncertain timing or amount are shown as provisions.

Deferred revenues represent revenues received but not yet earned as per the
terms of the contracts.

S) C ONVE r TIBLE BONDS
The Company issued convertible bonds to the Management Board and to em-
ployees of the Group under application of IAS 32 and IAS 39. In accordance
with IAS 32.28, the equity portion of a bond has to be separated and presented
as additional paid-in capital. The equity component is deducted from the fair
value of the bond. The remaining value is recognized as stock-based compen-
sation. The Company applies the provisions of IFRS 2 “Share-based Payment”
for all convertible bonds granted to the Management Board and the employees
of the Group.

T ) rE VE NuE rEC O GNITION
The Company’s revenues include license and milestone fees, service fees
and revenue for the sale of goods.

lICENSE AND mIlESToNE FEES
Revenues related to non-refundable technology access fees, subscription fees
and license fees are deferred and recognized on a straight-line basis over the
relevant periods of the agreement, generally the research term or the esti-
mated useful life of the collaboration for those contracts without a stipulated
term unless a more accurate means of recognizing revenue is available. If
all of the criteria of IAS 18.14 are met, revenue is recognized in full. Milestone
fees are recognized upon achievement of certain criteria.

SERvICE FEES
Research and development collaboration service fees are recognized in the
period when the services are provided.

SAlE oF g o oDS
Revenue from the sale of goods in the AbD Serotec segment is measured at
the fair value of the consideration received or receivable, net of returns,
trade discounts and volume rebates. Revenue is recognised when persuasive
evidence exists, usually in the form of an executed sales agreement, that
the significant risks and rewards of ownership have been transferred to the
customer, recovery of the consideration is probable, the associated costs

u) G OVE rNME NT Gr ANTS
Grants from governmental agencies for the support of specific research and
development projects for which cash has been received are recorded as a
separate item - “Other Operating Income” - in profit or loss on a systematic
basis to the extent the related expenses have been incurred. Under the
terms of the grants, the governmental agencies generally have the right to
audit the use of the payments received by the Company.

V ) E XpE NSE S

vA) C oST oF g o oDS SolD
Cost of goods sold comprises the cost of manufactured products and the
acquisition cost of purchased goods which have been sold.

vB) STo CK- BASED C ompENSATIoN
The Company applies the provisions of IFRS 2 “Share-based Payment” which
obligates the Company to record the estimated fair value for stock options
and other awards at the measurement date as a compensation expense over
the period in which the employees render the services associated with the
award.

vC) opER ATIN g lE ASE pAY mENTS
Payments made under operating leases are recognized in the statement of
operations on a straight-line basis over the term of the lease. According to
SIC-15, all incentives for the agreement of an operating lease are recognized
as an integral part of the net consideration agreed for the use of the leased
asset. The aggregate benefit of incentives is recognized as a reduction of
rental expense over the lease term on a straight-line basis.

W ) INTE rEST INC OME
Interest income is recognized in the statement of operations as it occurs,
taking into account the effective yield on the asset.

X ) INTE rEST E XpE NSE
Borrowing costs are expensed when incurred.

y ) INC OME TA XES
Income tax on the profit or loss for the year comprises current and deferred
tax. Income tax is recognized in the statement of operations except to the
extent that it relates to items recognized directly in equity, in which case it
is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the balance sheet date,
and any adjustment to tax payable with respect to previous years.

Deferred tax is calculated using the balance sheet liability method, provid-
ing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxa-
tion purposes. The amount of deferred tax provided is based on the expected
manner of realization or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantially enacted at the balance
sheet date.

Deferred tax assets and liabilities are offset if there is a legally enforceable
right to offset current tax liabilities and assets, and if they relate to income
taxes levied by the same tax authority on the same taxable entity or on differ-
ent tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized only to the extent that it is probable that
future taxable profits will be available against which the asset can be utilized.
Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.

z ) E ArNINGS pE r SHArE
The Group presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss attrib-
utable to ordinary shareholders of the Company by the weighted-average
number of ordinary shares outstanding during the period. Diluted EPS is
determined by adjusting the profit or loss attributable to ordinary share-
holders and the weighted-average number of ordinary shares outstanding
for the effects of all dilutive potential ordinary shares, which comprise con-
vertible notes and share options granted to management and employees.

Notes to the Consolidated Financial Statements

2 Segment Reporting

The Group applies IFRS 8 “Operating Segments” (effective from January 1,
2009). IFRS 8 requires a “management approach”, under which segment infor-
mation is presented on the same basis as that used for internal reporting
purposes. As of June 30, 2009, the Group implemented a third operating seg-
ment, Therapeutic Antibodies – Proprietary Development. The correspond-
ing items of segment information for prior periods have been restated on a
reasonable basis of allocations.

An operating segment is a component of an entity that engages in business
activities from which it may earn revenues and incur expenses, whose oper-
ating results are regularly reviewed by the entity’s chief operating decision
maker and for which discrete financial information is available.

Segment information is presented in respect of the Group’s operating seg-
ments. The operating segments are based on the Group’s management and
internal reporting structure. Segment results and assets include items
directly attributable to a segment and those that can be allocated on a rea-
sonable basis. Intersegment pricing is determined on an arm’s length basis
according to the Group transfer pricing policy.

The Group consists of the following three operating segments:

pAr TNE rE D DISC OVE ry
MorphoSys possesses one of the leading technologies for the generation
of human antibody therapeutics. The Company commercially exploits this
technology via partnerships with multiple pharmaceutical and biotechnol-
ogy companies. All activities related to these collaborations and the major
part of technology development are reflected in this segment.

prOprIE TAry DE VE LOpME NT
This segment involves all activities relating to proprietary therapeutic anti-
body development. Presently, this includes the Company’s three lead com-
pounds in its proprietary product portfolio, MOR103, MOR202 and MOR208,
as well as five programs in the discovery phase and two pre-development
programs with Novartis. In June 2010, MorphoSys in-licensed an anti-CD19
program from Xencor. The program was renamed MOR208. The Company
currently plans to out-license proprietary compounds after proof of concept.

ABD SE rOTEC
The AbD Serotec segment leverages MorphoSys’s core technological capa-
bilities in the design and manufacture of antibodies for research and diag-
nostic purposes. It commercializes the HuCAL technology, focusing on the
generation of bespoke research antibodies for its customers. The segment
also generates sales from catalog antibodies and bulk/industrial production
of antibodies.

E NTIT y- WIDE DISCLO SurE
In presenting entity-wide disclosures, segment revenues are based on the
geographical location of the customers and segment assets on the geographi-
cal location of the assets.

The Company Group Management Report Financial Statements

for the Twelve-month Period
Ended December 31

(in 000’s €)

RE vENUES , ToTAl

External Revenues

Intersegment Revenues

ToTAl opER ATIN g E XpENSES

Cost of Goods Sold

Other Operating Expenses

Intersegment Costs

oTHER opER ATIN g INC omE

SEg mENT RESUlT

Finance Income

Finance Expenses

Other Income

Other Expenses

pRoFIT BEFoRE TA XES

Income Tax Expenses

NE T pRoFIT

Current Assets

Non-current Assets

ToTAl SEg mENT AS SE T S

Current Liabilities

Non-current Liabilities

Stockholders’ Equity

ToTAl SEg mENT lIAB IlITIES AND EQUIT Y

Capital Expenditure

Depreciation and Amortization

Partnered Discovery

Proprietary Development

AbD Serotec

unallocated

Elimination

group

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

66,267

23,559

22,688

871

42,721

13,192

29,072

42,264

6,611

3,450

10,061

1,197

2,691

61,669

22,094

21,170

924

1,771

26,510

26,219

291

191

1,012

19,297

19,178

119

39,575

(24,548)

(18,285)

(9,557)

(10,903)

9,499

10,320

19,819

12,210

5,579

17,789

1,525

2,470

1,719

16,847

18,566

4,617

11,580

1,199

1,160

5,450

6,610

3,008

841

823

9,557

10,903

(1,162)

(1,043)

(1,162)

(1,043)

(1,162)

(1,043)

20,160

18,998

1,162

18,945

7,284

11,661

1,233

10,725

31,287

42,012

3,777

665

4,442

482

1,261

19,330

18,287

1,043

18,371

6,744

11,627

1,015

9,024

31,814

40,838

3,818

905

4,723

783

1,128

106,870

2,842

109,712

6,346

1,166

185,922

193,434

553

1,015

135,909

2,915

138,824

5,216

1,420

173,935

180,571

682

922

87,036

77,409

7,284

70,125

222

9,849

4,123

470

1,237

13,171

3,975

9,196

132,506

80,048

212,554

21,351

5,281

185,922

212,554

13,812

6,166

80,968

69,622

6,744

62,878

11,402

2,002

372

733

13,034

4,070

8,964

155,592

50,499

206,091

24,252

7,904

173,935

206,091

3,831

5,343

Notes to the Consolidated Financial Statements

Partnered Discovery

Proprietary Development

AbD Serotec

unallocated

Elimination

group

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

20,160

18,998

1,162

18,945

7,284

11,661

1,233

10,725

31,287

42,012

3,777

665

4,442

482

1,261

19,330

18,287

1,043

18,371

6,744

11,627

1,015

9,024

31,814

40,838

3,818

905

4,723

783

1,128

9,557

10,903

(1,162)

(1,043)

(1,162)

(1,043)

(9,557)

(10,903)

106,870

2,842

109,712

6,346

1,166

185,922

193,434

553

1,015

135,909

2,915

138,824

5,216

1,420

173,935

180,571

682

922

87,036

77,409

7,284

70,125

222

9,849

4,123

470

1,237

13,171

3,975

9,196

132,506

80,048

212,554

21,351

5,281

185,922

212,554

13,812

6,166

80,968

69,622

6,744

62,878

11,402

2,002

372

733

13,034

4,070

8,964

155,592

50,499

206,091

24,252

7,904

173,935

206,091

3,831

5,343

for the Twelve-month Period

Ended December 31

(in 000’s €)

RE vENUES , ToTAl

External Revenues

Intersegment Revenues

ToTAl opER ATIN g E XpENSES

Cost of Goods Sold

Other Operating Expenses

Intersegment Costs

oTHER opER ATIN g IN C omE

SEg mENT RESUlT

Finance Income

Finance Expenses

Other Income

Other Expenses

pRoFIT BEFoRE TA XES

Income Tax Expenses

NE T pRoFIT

Current Assets

Non-current Assets

ToTAl SEg mENT AS SE T S

Current Liabilities

Non-current Liabilities

Stockholders’ Equity

ToTAl SEg mENT lIAB IlITIES AND EQUIT Y

Capital Expenditure

Depreciation and Amortization

23,559

22,094

26,510

19,297

39,575

(24,548)

(18,285)

66,267

22,688

871

42,721

13,192

29,072

42,264

6,611

3,450

10,061

1,197

2,691

61,669

21,170

924

9,499

10,320

19,819

12,210

5,579

17,789

1,525

2,470

2010

1,771

26,219

291

191

1,719

16,847

18,566

4,617

11,580

1,199

2009

1,012

19,178

119

1,160

5,450

6,610

3,008

841

823

The Company Group Management Report Financial Statements

The following table shows the split of the Company’s capital expenditure by
geographical segment:

in 000’s €

Germany

USA

ToTAl

2010

13,508

280

13,812

2009

3,520

290

3,831

3 Cash and Cash Equivalents

in 000’s €

2010

2009

Bank Balances and Cash in Hand

Term Deposits

Restricted Cash

CASH AND CASH EQUIvAlENTS

44,118

959

(959)

44,118

41,255

883

(883)

41,255

The € 1.0 million (2009: € 0.9 million) of restricted cash paid for the head-
quarters buildings in Munich, Puchheim and Oxford is a rent deposit.

A segment result is defined as segment revenues less operating segment ex-
penses. As a compensation for Partnered Discovery revenues generated from
contracts that had originally been initiated by the AbD Serotec segment,
the Partnered Discovery segment granted a compensatory fee of € 0.9 million
(prior year: € 0.9 million) to the AbD Serotec segment for 2010 as a result
of the revenue-sharing agreement established between the two segments in
2007. In 2010, revenues in the AbD Serotec segment comprised interseg-
ment revenues with the Proprietary Development segment in the amount of
€ 0.3 million (2009: € 0.1 million) which resulted from the sale of antibodies.
In 2009, a minor impairment loss was recognized in the AbD Serotec segment.

The Groups’s major customers are all related to the Partnered Discovery
segment. The most significant customer accounts for € 9.4 million of the
trade receivables carrying amount at December 31, 2010 (2009: € 9.0 million).
Three customers individually accounted for € 47.2 million, € 8.9 million, and
€ 3.3 million of the revenues in the year 2010 and were mainly attributed to
the Partnered Discovery segment. In 2009, three customers individually
accounted for € 41.8 million, € 8.3 million, and € 2.8 million of the revenues
and were mainly attributed to the Partnered Discovery segment.

In 2010, other operating expenses in “unallocated” mainly included person-
nel-related costs (2010: € 4.7 million; 2009: € 5.7 million), costs for external
services (2010: € 2.1 million; 2009: € 2.5 million) and infrastructure costs
(2010: € 1.1 million; 2009: € 0.9 million). Current assets in “unallocated”
mainly consisted of cash, cash equivalents and available-for-sale financial
assets (2010: € 104.9 million; 2009: € 133.0 million). Current liabilities in
“unallocated” mainly comprised accounts payable (2010: € 4.6 million; 2009:
€ 4.1 million) as well as provisions (2010: € 1.7 million; 2009: € 1.1 million).

The following table shows the split of the Company’s consolidated revenues
by geographical market:

in 000’s €

Germany

Europe and Asia

USA and Canada

Other

ToTAl

2010

2009

4,702

64,889

16,504

941

87,036

6,865

58,043

14,807

1,253

80,968

The following table shows the split of the Company’s assets by geographical
segment:

in 000’s €

Germany

USA

ToTAl

2010

2009

202,111

8,748

1,695

212,554

197,405

7,329

1,357

206,091

Notes to the Consolidated Financial Statements

4 Financial Assets

Financial assets classified as available-for-sale consist of the following as of
December 31, 2010 and 2009:

in 000’s €

Maturity

Cost

gains

Losses

holding gains

Market Value

gross unrealized holding

Realized

DECEmBER 31, 2010

DB Money Cash

Restricted Cash

ToTAl

DECEmBER 31, 20 09

DB Money Cash

Restricted Cash

ToTAl

daily

63,424

1,138

daily

89,354

4,719

64,562

(258)

64,304

94,073

(189)

93,884

The gross unrealized holding gains of € 1,138,281 for the year ended Decem-
ber 31, 2010, and € 4,718,984 for the year ended December 31, 2009, were re-
corded as a separate component of stockholders’ equity (revaluation reserve).
In 2010, the Group recorded gains of € 3,979,920 in the statement of opera-
tions on the sale of financial assets, which had previously been recognized in
equity (2009: € 1,717,095). The € 0.3 million (2009: € 0.2 million) of restricted
cash is a rent deposit.

As of December 31, 2010, two option contracts in the nominal amounts of
each $ 10 million (2009: € 0) are outstanding, for which an unrealized loss of
€ 0.3 million has been recognized in profit and loss. At the beginning of the
year, the Company entered into eleven option contracts that were due during
the financial year 2010 with a realized loss of € 0.2 million (2009: loss of
€ 0.1 million). Realized losses were recognized as other expenses.

For further details on accounting for financial assets, see also the Notes to
the Consolidated Financial Statements – section 1J*.

7 Prepaid Expenses, Tax Receivables,

Other Current Assets and Inventories

5 Accounts Receivable

All accounts receivable are non-interest-bearing and are generally due on a
30- to 45-day term. On December 31, 2010 and 2009, accounts receivable
included unbilled amounts of € 2,104,854 and € 1,757,338, respectively. The
Company does require collateral from customers for accounts receivable in
the AbD Serotec segment. The amount of collaterals held as of December 31,
2010, was not material.

Based on the management’s assessment, in 2010 a net gain from the rever-
sal of impairment losses in the amount of € 4,400 was recognized in the
statement of operations for allowances for doubtful accounts (2009: net gain
of € 53,344).

6 Other Receivables

According to the Company’s hedging policy, expected future cash flows with
a high probability and definite foreign currency receivables which are collect-
ible within a twelve-month period are reviewed for hedging. These deriva-
tives are shown as other receivables with their fair values. Starting in 2003,
MorphoSys entered into foreign currency options and forward contracts to
hedge foreign exchange exposure related to US dollar accounts receivable.

Prepaid expenses, both the current and the non-current portion, mainly
include prepaid sublicense fees of € 0.2 million as of December 31, 2010
(2009: € 0.3 million), and other prepayments in the amount of € 2.2 million
as of December 31, 2010 (2009: € 2.2 million).

Tax receivables amounted to € 0.5 million as of December 31, 2010 (2009:
€ 0.8 million) and mainly comprised receivables in connection with with-
holding tax on capital gains.

Inventories of € 4.1 million (2009: € 4.0 million) are located in Oxford, UK, in
Raleigh, USA, in Martinsried, Germany, and in Puchheim, Germany. As of
December 31, 2010, inventories comprised raw materials, merchandise, con-
sumables and supplies in the amount of € 0.9 million (prior year: € 2.0 mil-
lion), work in progress of € 0.3 million (prior year: € 0.1 million) and finished
goods of € 2.9 million (prior year: € 1.9 million). As of December 31, 2010,
the inventory reserve amounted to € 2.8 million (prior year: € 2.2 million) and
the movement to prior year’s inventory reserve is included in COGS. Inven-
tories carried at fair value less cost to sell amount to € 0 (prior year: € 0). In
2010, raw materials, consumables and changes in finished goods and work
in progress recognized as COGS amounted to € 5.6 million (prior year: € 5.2
million).

SE E
pAGE 57

The Company Group Management Report Financial Statements

8 Property, Plant and Equipment

in 000’s €

Cost

JANUARY 1, 2010

Additions

Additions from Business Combination

Disposals

Foreign Exchange Variance

DECEmBER 31, 2010

Accumulated Depreciation

JANUARY 1, 2010

Depreciation Charge for the Year

Write-offs for the Year

Disposals

Foreign Exchange Variance

DECEmBER 31, 2010

Carrying Amount

JANUARY 1, 2010

DECEmBER 31, 2010

Cost

JANUARY 1, 20 09

Additions

Disposals

Foreign Exchange Variance

DECEmBER 31, 20 09

Accumulated Depreciation

JANUARY 1, 20 09

Depreciation Charge for the Year

Write-offs for the Year

Disposals

Foreign Exchange Variance

DECEmBER 31, 20 09

Carrying Amount

JANUARY 1, 20 09

DECEmBER 31, 20 09

Land and
Buildings

office and
Laboratory
Equipment

furniture and
fixtures

869

916

226

294

643

622

813

869

161

226

652

643

11,542

2,266

1,164

(614)

14,404

7,793

1,921

(362)

9,382

3,749

5,022

9,096

2,418

(9)

11,542

6,427

1,356

(11)

7,793

2,669

3,749

2,339

(1)

2,460

1,734

162

1,914

605

546

2,184

168

(32)

2,339

1,538

207

(26)

1,734

646

605

Totals

14,750

2,324

1,200

(615)

121

17,780

9,753

2,140

(362)

11,590

4,997

6,190

12,093

2,586

(41)

112

14,750

8,126

1,617

(37)

9,753

3,967

4,997

Notes to the Consolidated Financial Statements

As of December 31, 2010, land and buildings located in Poole, UK, in the
amount of € 813,011 (prior year: € 771,798) is classified as held-for-sale. No
borrowing costs have been capitalized during the period. No restrictions
on title, and property, plant and equipment were pledged as security for liabil-
ities. The Company recognized expenditure in property, plant and equip-
ment in the amount of € 0.5 million in the course of construction. No signfi-
cant contractual commitments for the acquisition of property, plant and
equipment have been entered into as of the reporting date.

The depreciation charge is included in the following line items of the state-
ment of operations:

in 000’s €

2010

2009

Research and Development

1,354

1,013

Sales, General and Administrative
(Depreciation)

Sales, General and Administrative
(Write-off)

Cost of Goods Sold

ToTAl

687

526

100

2,141

1,629

As of December 31, 2010, minor foreign exchange effects were recognized
for the assets acquired and were accounted as translation reserve in equity.

The Company Group Management Report Financial Statements

9 Intangible Assets

in 000’s €

Patents

Licenses

Intangible
Assets under
Development

Software

Know-how and
Customer List

goodwill

Total

Cost

JANUARY 1, 2010

Additions

Additions from Business Combination

Disposals

Foreign Exchange Variance

DECEmBER 31, 2010

Accumulated Amortization

JANUARY 1, 2010

Amortization Charge for the Year

Write-offs for the Year

Disposals

Foreign Exchange Variance

DECEmBER 31, 2010

Carrying Amount

JANUARY 1, 2010

DECEmBER 31, 2010

Cost

JANUARY 1, 20 09

Additions

Disposals

Foreign Exchange Variance

DECEmBER 31, 20 09

Accumulated Amortization

JANUARY 1, 20 09

Amortization Charge for the Year

Write-offs for the Year

Disposals

Foreign Exchange Variance

DECEmBER 31, 20 09

Carrying Amount

JANUARY 1, 20 09

DECEmBER 31, 20 09

4,148

221

10,080

24,781

612

10,513

2,955

140

(3)

14,449

25,425

10,513

3,126

26,742

7,352

63,733

11,486

17,454

(3)

361

34,099

93,031

5,107

312

5,419

3,022

516

195

3,733

2,085

1,686

202

5,107

2,412

497

4,905

26,672

26,742

34,099

26,742

19,624

3,985

214

23,823

44,109

69,208

62,539

1,245

(367)

316

63,733

16,133

3,711

(350)

19,624

46,406

44,109

2,243

3,022

664

712

2,493

2,085

26,672

26,742

3,358

806

11,001

2,295

4,164

13,306

790

10,285

3,986

162

13,780

12,119

24,381

736

(367)

4,148

24,781

2,787

571

9,003

2,341

(350)

3,358

11,001

1,199

790

15,378

13,780

10,513

2,243

368

2,620

712

506

2,595

347

2,955

1,931

302

As of December 31, 2010, intangible assets under development were tested
as required by IAS 36. No impairment was deemed necessary.

Notes to the Consolidated Financial Statements

The amortization charge is included in the following line items of the state-
ment of operations:

in 000’s €

Research and Development

Research and Development (Write-off)

Sales, General and Administrative

Cost of Goods Sold

ToTAl

2010

3,097

666

218

3,981

2009

2,914

648

159

3,752

As of December 31, 2009, a minor impairment loss was recognized for intan-
gible assets in the AbD Serotec segment.

As of December 31, 2010, minor foreign exchange effects were recognized for
the assets acquired and were accounted for as translation reserve in equity.

10 Other Assets

The Company has classified certain items in other assets that are not avail-
able-for-use in its operations as restricted cash (see Notes to the Consoli-
dated Financial Statements – section 3 and 4*). As of December 31, 2010 and
2009, the Company had commitments of € 1.3 million and € 1.1 million for
guarantees issued as well as € 113,256 and € 32,670 respectively for convert-
ible bonds issued to employees.

11 Assets Classified as Held for Sale

As of December 31, 2010, assets classified as held for sale comprise the com-
mercial properties of the subsidiary Poole Real Estate Ltd., Poole, UK (AbD
Serotec segment) with a net book value of € 813,011 (prior year: € 771,798). In
2010, intense efforts to sell the property did not succeed. However, efforts
for a commercialisation will be intensified in 2011 by searching for a poten-
tial buyer in a wider area and a sale is expected within one year. An exter-
nal, independent real estate company, having appropriate recognized profes-
sional qualifications and recent experience in the location and category of
property being valued, has valued the property in the fourth quarter of 2010.
No impairment was deemed necessary in the 2010 financial year.

rate of 2 % of the perpetual annuity. The cash flow projections assume aver-
age yearly increases in revenues of approximately 10 % in the next years. The
major underlying key assumption for the cash flow projections is the expan-
sion of the current customer base. AbD Serotec’s management intends to con-
centrate on high-value applications of the HuCAL technology, especially in
the area of diagnostics. The values of the underlying key assumption have
been determined by using both internal sources (past experience) and ex-
ternal sources of information (market intelligence, financial reports). The sen-
sitivity analysis was performed with different assumptions and variables.
An impairment loss of approximately € 1 million would occur if the perpetual
growth rate should decrease from 2 % to 0 % or if the WACC is increased to
9.5 %. An impairment loss of approximately € 2 million would occur if future
cash flows should be reduced by 15 %. The values assigned to the assump-
tions represent management’s estimates of future trends and are based on
internal planning scenarios as well as external sources.

The goodwill (as determined in the purchase price allocation) resulting from
the acquisition of Sloning BioTechnology GmbH was attributed to the Part-
nered Discovery segment. As of December 31, 2010, this goodwill was tested
as required by IAS 36. On the basis of the cash-generating unit, the technol-
ogy development team within the Partnered Discovery segment, the value in
use was determined to be higher than the carrying amount. In addition, a
detailed sensitivity analysis was done. The cash flow projections are mainly
based on the key assumption that the technology presently developed is
highly beneficial for current and new customers and will result in a number
of new deals. The values of the underlying key assumption have been deter-
mined by using both internal sources (past experience) and external sources
of information (market intelligence). The sensitivity analysis was performed
with different assumptions and variables. No impairment loss was deemed
necessary if the perpetual growth rate should decrease from 2 % to 0 %, if
future cash flows should be reduced by 20 % or if the WACC is increased from
8.22 % to 12 %. The values assigned to the assumptions represent manage-
ment’s estimates of future trends and are based on internal planning scenar-
ios as well as external sources.

13 Accounts Payable

Accounts payable are non-interest-bearing and are normally settled within
30 days.

Accounts payable are listed in the table below:

12 Goodwill

in 000’s €

2010

2009

As of October 31, 2010, the goodwill attributed to the AbD Serotec segment
was tested as required by IAS 36. On the basis of the cash-generating unit,
the AbD Serotec segment, the value in use was determined to be higher than
the carrying amount by approximately € 5.0 million. In addition, a detailed
sensitivity analysis was done. Based on the updated outlook to cash flows for
the upcoming five years, the value in use was calculated as follows: beta fac-
tor of 1.18, income tax rate of 31 %, WACC of 8.50 % (2009: 8.92 %) and a growth

SE E
pAGE 64 E T SEq .

Accounts Payable

Accrued Expenses

Other Liabilities

ToTAl

2,148

12,800

667

15,615

831

12,725

550

14,106

Accrued expenses include mainly accruals for payments to employees and
management of € 4.1 million (2009: € 3.9 million), amounts for outstanding
invoices in the amount of € 2.4 million (2009: € 2.9 million), external lab fund-

The Company Group Management Report Financial Statements

ing of € 3.6 million (2009: € 2.3 million), € 2.2 million for license compensation
(2009: € 3.3 million), € 0.1 million for Supervisory Board members’ compen-
sation (2009: € 0.1 million), € 0.2 million for audit fees and costs related thereto
(2009: € 0.2 million) and € 0.2 million for legal services (2009: € 0.1 million).

At the Company’s Annual General Meeting in May 2010, the Supervisory
Board was authorized to appoint KPMG AG Wirtschaftsprüfungsgesellschaft
as its auditor. In 2010 and 2009, the auditing company and its partner compa-
nies within the international KPMG network were remunerated by MorphoSys
in the amount of € 307,162 and € 249,667, including audit fees of € 241,072
(2009: € 239,898), audit-related fees of € 59,943 (2009: € 9,000), fees for tax
consultancy of € 0 (2009: € 0) and fees for other services of € 6,147 (2009:
€ 768). Accrued expenses for audit fees in the amount of € 172,068 (2009:
€ 141,807) are included in these figures.

In 2010, the auditing company and its partner companies included in KPMG
Europe LLP were remunerated by MorphoSys in the amount of € 268,179
(2009: € 211,785), including audit fees of € 202,088 (2009: € 202,017), audit-
related fees of € 59,943 (2009: € 9,000), fees for tax consultancy of € 0 (2009:
€ 0) and fees for other services of € 6,147 (2009: € 768).

14 Provisions and Tax Liabilities

As of December 31, 2010 and 2009, the Company recorded provisions and
tax liabilities of € 2.5 million and € 1.5 million, respectively.

Tax liabilities mainly comprise expenses for income tax. Provisions and tax
liabilities remain uncertain with respect to their amounts as of December
31, 2010, and are expected to be settled in 2011.

Provisions and tax liabilities changed during the 2010 financial year as fol-
lows:

in 000’s €

Taxes

Other Obligations

ToTAl

01/01/2010

Additions

utilized

Released

12/31/2010

1,427

1,470

1,396

283

1,679

677

2,145

318

2,463

15 Financial Instruments and Financial Risk

Management

In addition to the risks highlighted in the Management Report, the Company
has identified the following risks:

high-quality securities. Cash, cash equivalents and marketable securities
are maintained principally with three high-quality financial institutions
in Germany. The Company continually monitors its positions with, and the
credit quality of, the financial institutions, which are counterparties to its
financial instruments, and does not anticipate non-performance.

CrE DIT AND LIquIDIT y rISK
Financial instruments that potentially subject the Company to concentra-
tions of credit and liquidity risk consist primarily of cash, cash equivalents,
marketable securities, derivative financial asets and accounts receivable.
The Company’s cash and cash equivalents are principally denominated in
euros, US dollars and pounds sterling. Marketable securities are placed in

It is the Group’s policy that all customers who wish to trade on credit terms
are subject to credit verification procedures, which are based on external
ratings. However, the Company’s revenues and accounts receivable are sub-
ject to credit risk as a result of customer concentration. The Group’s most
significant customer accounted for € 9.4 million of the trade receivables car-
rying amount as of December 31, 2010 (2009: € 9.0 million). This customer

Notes to the Consolidated Financial Statements

individually accounted for approximately 62 % of the Group’s 2010 accounts
receivable balance. In addition, three customers individually accounted for
54 %, 10 %, and 4 % of the Company’s total revenues in the year 2010. On De-
cember 31, 2009, one customer had accounted for 80 % of the prior year’s
accounts receivable balance and three customers individually had accounted
for 52 %, 10 %, and 3 % of the Company’s revenues in 2009. Based on the man-
agement’s assessment, allowances of € 15,835 and € 20,235 in relation to the
AbD Serotec business segment were necessary as of December 31, 2010
and 2009. The carrying amount of financial assets represents the maximum
credit exposure.

The maximum exposure for credit risk for trade receivables at the reporting
date by geographic region was:

in €

Europe and Asia

USA and Canada

Other

ToTAl

2010

2009

12,186,914

2,822,412

10,439,419

721,779

(4,639)

15,009,326

11,156,559

The aging of trade receivables at the reporting date was as follows:

in €; A/R are due in

Accounts Receivable

Allowance for Impairment

AC C oUNTS RECEIvABlE , NE T oF AlloWANCE FoR ImpAIRmENT

2010
0 – 30 days

2010
30 – 60 days

2010
60 + days

2010
Total

14,013,200

434,349

577,612

(15,835)

561,777

15,025,161

(15,835)

15,009,326

in €; A/R are due in

Accounts Receivable

Allowance for Impairment

AC C oUNTS RECEIvABlE , NE T oF AlloWANCE FoR ImpAIRmENT

2009
0 – 30 days

2009
30 – 60 days

2009
60 + days

2009
Total

10,770,919

336,553

69,322

(20,235)

49,087

11,176,794

(20,235)

11,156,559

The maximum exposure for credit risk of derivative financial assets at the
reporting date amounted to € 0.1 million (prior year: € 0). The maximum ex-
posure for credit risk of financial guarantees (rent deposits) at the reporting
date amounted to € 1.3 million (prior year: € 1.1million).

The contractual maturities and the related contractual cash flows of financial
liabilities are within one year and five years, respectively. The convertible
bonds due to related parties have a term until December 31, 2011 (€ 0.03 mil-
lion), and December 31, 2015 (prior year: € 0.1 million).

MArKE T rISK
Market risk is the risk that changes in market prices, such as foreign ex-
change rates, interest rates and equity prices, will affect the Group’s income
or the value of its holdings in financial instruments. The Group is exposed
to currency and interest rate risks.

CurrE NCy rISK
The Group accounts are administered in euros. While the expenses of
MorphoSys are predominantly paid in euros, a significant part of the reve-
nues depends on the current exchange rates of the US dollar and the pound
sterling. The Company examines the necessity of hedging foreign exchange
transactions to minimize currency risk during the year and addresses this
risk by using derivative financial instruments.

The Company Group Management Report Financial Statements

The Group’s exposure to foreign currency risk based on carrying amounts
was as follows:

as of December 31, 2010; in €

EuR

uSD

gBP

other

Total

Cash and Cash Equivalents

Available-for-sale Assets

Trade Receivables

Trade and License Payables

ToTAl

41,209,349

64,304,041

12,354,868

(1,650,593)

116,217,665

1,302,992

1,606,110

2,116,494

(89,465)

3,330,021

502,878

(543,343)

1,565,645

35,086

692

35,778

44,118,451

64,304,041

15,009,326

(2,282,709)

121,149,109

as of December 31, 2009; in €

EuR

uSD

gBP

other

Total

Cash and Cash Equivalents

Available-for-sale Assets

Trade Receivables

Trade and License Payables

ToTAl

40,413,546

93,883,571

8,987,085

(319,985)

142,964,217

182,287

1,660,995

(267,072)

1,576,210

659,483

386,262

(330,213)

715,532

122,217

(13,981)

108,236

41,255,316

93,883,571

11,156,559

(931,251)

145,364,195

Different foreign exchange rates and their impact on assets and liabilities
have been simulated in a detailed sensitivity analysis in order to deter-
mine resulting effects in the statement of operations. A ten percent increase
of the euro against the US dollar as of December 31, 2010, would have de-
creased earnings by € 0.3 million (assuming that interest rates remain con-
stant) (prior year: decrease of € 0.1 million). A ten percent weakening of the
euro against the US dollar would have increased earnings by € 0.3 million
(prior year: increase of € 0.2 million). A ten percent increase of the euro
against the British pound as of December 31, 2010, would have decreased
earnings by € 0.1 million (assuming that interest rates remain constant)
(prior year: decrease of € 0.1 million). A ten percent weakening of the euro
against the British pound would have increased earnings by € 0.2 million
(prior year: increase of € 0.1 million).

If the foreign exchange rates for US dollar against the euro and the British
pound against the euro had remained constant at the average rate of 2009,
total Group revenues would have been lower in the amount of € 0.6 million
(prior year: lower by € 0.4 million).

INTE rEST r ATE rISK
The exposure of the Group to changes in interest rates relates mainly to in-
vestments in available-for-sale securities. Changes in the general level of
interest rates may lead to an increase or decrease in the fair value of these
investments. The risk of a decrease in fair value is limited due to fair value
guarantees given by the issuing financial institutions in addition to the fact
that all financial instruments in these respective money market funds have
short maturity durations. The guarantees are renewed every six months. With
regard to the liabilities shown in the balance sheet, the Group is currently
not subject to significant interest rate risks.

FAIr VALuE HIE r ArCHy AND VALuATION ME THODS
The carrying value of financial assets and liabilities such as cash and cash
equivalents, marketable securities, accounts receivable and accounts pay-
able approximates their fair value due to the short-term maturities of these
instruments. The fair value of marketable securities is based upon quoted
market prices (Hierarchy Level 1, quoted prices in active markets; see Notes
to the Consolidated Financial Statements - section 4*). None of the financial
assets and liabilities are categorized in Level 2 or 3. The fair value of licenses
payable is determined by the effective interest method. Convertible bonds
are recorded at their accreted values, which approximate the cash outlay that
is due upon the note settlements. There were no transfers from one fair value
hierarchy level to another in 2010 and 2009.

SE E
pAGE 65

Notes to the Consolidated Financial Statements

The fair values of financial assets and liabilities, together with the carrying
amounts shown in the Consolidated Balance Sheet, are as follows:

December 31, 2010 (in 000’s €)

Note

Instruments

Receivables

fair Value –
hedging

Available-
for-Sale

other
financial
Liabilities

Total
Carrying
Amount

fair value

Cash and Cash Equivalents

Receivables

Forward Exchange Contracts
Used for Hedging

Available-for-sale Financial Assets

Convertible Bonds – Liability Component

Trade and License Payables

144

fair Value –
hedging

44,118

15,009

59,127

64,304

44,118

15,009

144

64,304

123,575

(128)

(2,283)

(2,411)

44,118

15,009

144

64,304

123,575

(128)

(2,283)

(2,411)

(128)

(2,283)

(2,411)

December 31, 2009 (in 000’s €)

Note

Instruments

Receivables

Available-
for-Sale

other
financial
Liabilities

Total
Carrying
Amount

fair value

Cash and Cash Equivalents

Receivables

Forward Exchange Contracts
Used for Hedging

Available-for-sale Financial Assets

Convertible Bonds – Liability Component

Trade and License Payables

41,255

11,157

52,412

93,884

41,255

11,157

93,884

146,296

(33)

(931)

(964)

41,255

11,157

93,884

146,296

(33)

(931)

(964)

(33)

(931)

(964)

16 Stockholders’ Equity

Concerning capital management, the Management Board’s policy is to
maintain a strong capital base so as to maintain investor, creditor and mar-
ket confidence and to sustain future development of the business. At pres-
ent, management and employees can participate in the Company’s returns
by way of long-term performance-related remuneration which consists of
convertible bonds and stock options pursuant to the respective incentive plans
as resolved by the Annual General Meeting. In 2011, MorphoSys plans to
switch to a long-term incentive program based on the issuance of performance
shares which are finally granted in the event that certain predefined success
criteria are achieved. The respective underlying shares will be bought back
by the Company from the stock market, based on the resolution of the An-
nual Shareholders’ Meeting 2010.

There were no changes in the Company’s approach to capital management
during the year.

C OMMON STO CK
On December 31, 2010, the common stock of the Company including treasury
shares amounted to € 22,890,252. This represented an increase of € 229,695
compared to December 31, 2009 (€ 22,660,557). Each share of common stock
is entitled to one vote. The increase arose as a result of the conversion and
exercise of 229,695 convertible bonds and options issued to the Management
Board and to employees.

On December 31, 2009, the common stock of the Company had amounted to
€ 22,660,557. An increase of € 181,770, or 181,770 shares, was the result of
the conversion and exercise of options in 2009.

On December 31, 2010, treasury shares amounted to € 9,774 (79,896 shares)
and remained unchanged compared to December 31, 2009.

AuTHOrIzE D CApITAL
Unused Authorized Capital I remained unchanged on December 31, 2010,
compared to December 31, 2009, to create a maximum of 8,864,103 new
shares.

The Company Group Management Report Financial Statements

Unused Authorized Capital II remained unchanged on December 31, 2010,
compared to December 31, 2009, to create a maximum of 2,216,025 new
shares.

C ONDITIONAL CApITAL
In 2010, a total of 3,441 shares were raised from Conditional Capital II
through the exercise of options by employees, increasing the subscribed
capital by € 3,441. Furthermore, 3,600 shares were raised from Condi-
tional Capital IV through the exercise of convertible bonds by employees,
increasing the subscribed capital by € 3,600 and 222,654 shares were
raised from Conditional Capital V through the exercise of options by em-
ployees and Management Board members, increasing the subscribed
capital by € 222,654.

ing the issuance of the convertible bonds. Each convertible bond with a nom-
inal value of € 0.33 can be exchanged for one share of ordinary no-par value
common stock of the Company against payment of the exercise price. The ben-
eficiaries may exercise the conversion rights only after the expiration of a
waiting period of four years from grant date. The exercise of the conversion
rights is only possible if on one trading day during the lifetime of the con-
vertible bond the stock exchange price of one share has amounted to at least
110 % of the exercise price at grant date. The convertible bonds cannot be
exercised beyond December 31, 2015. In the event of non-exercise of the con-
version rights, beneficiaries are refunded the amount paid to acquire the
convertible bonds (€ 0.33 per bond/share). The Convertible bonds are recorded
at their accreted values, which approximate the cash outlay that is due upon
the note settlements.

In 2009, a total of 80,700 and 101,070 shares had been raised from Condi-
tional Capital II and V respectively with subscribed capital increasing by
€ 80,700 and € 101,070 from respective Conditional Capitals.

A summary of the activity under the Company’s employee incentive con-
vertible bonds plan for the years ended December 31, 2010 and 2009, is rep-
resented as follows:

oU TSTANDIN g oN
JANUARY 1, 20 09

Granted

Exercised

Forfeited

Expired

oU TSTANDIN g oN
DECEmBER 31, 20 09

oU TSTANDIN g oN
JANUARY 1, 2010

Granted

Exercised

Forfeited

Expired

oU TSTANDIN g oN
DECEmBER 31, 2010

Convertible
Bonds

Weighted-
average
Price (€)

140,460

101,000

(2,000)

(140,460)

18.37

12.81

18.37

99,000

12.81

99,000

352,800

(3,600)

12.81

16.79

12.81

448,200

15.94

Convertible bonds exercisable on December 31, 2010 and 2009, amounted
to 95,400 and 0 shares, respectively. The weighted-average exercise price of
exercisable convertible bonds was € 12.81 on December 31, 2010.

DIVIDE NDS
Dividends may only be declared and paid from the accumulated retained
earnings (after deduction of certain reserves) shown in the Company’s annual
German statutory accounts. Such amounts differ from the total of additional
paid-in capital and accumulated deficit as shown in the accompanying consoli-
dated financial statements as a result of the adjustments made to present
the consolidated financial statements in accordance with IFRS. The Com-
pany’s German statutory accounts showed taxable income in 2010; how-
ever, as of December 31, 2009, they reflected no accumulated earnings avail-
able for distribution.

ADDITIONAL pAID - IN CApITAL
On December 31, 2010, additional paid-in capital amounted to € 166,388,083
(December 31, 2009: € 161,631,268). The total increase of € 4,756,815 is due
to stock-based compensation in the amount of € 2,150,655, including the in-
trinsic value of convertible bonds. A further increase of € 2,606,160 arose
from the exercise and conversion of options and convertible bonds in the
year 2010.

In 2009, the additional paid-in capital had increased by € 3,107,905, result-
ing from stock-based compensation of € 1,743,344 and € 1,364,561 from the
exercise and conversion of options in the year 2009.

17 Convertible Bonds

In the year 2010, 3,600 convertible bonds were exercised and converted into
shares.

On April 1, 2010, 352,800 convertible bonds were granted to Management
Board members and employees of MorphoSys AG. The exercise price for
the convertible bonds is € 16.79, representing the market price in the final
Xetra auction at the Frankfurt Stock Exchange on the trading day preced-

Notes to the Consolidated Financial Statements

The following table presents the weighted-average price and information
about the contractual life for significant convertible bond groups outstand-
ing on December 31, 2010:

Range of Exercise Prices

€ 10.00 – € 12.99

€ 13.00 – € 17.00

Number

outstanding

Remaining
Contractual
Life (in years)

Weighted-
average

Number

Weighted-
average

Exercise Price

Exercisable

Exercise Price

95,400

352,800

448,200

1.00

5.00

4.15

€ 12.81

€ 16.79

€15.94

95,400

€ 12.81

€ 0.00

€ 12.81

The following table presents the weighted-average price and information
about the contractual life for significant convertible bond groups outstand-
ing on December 31, 2009:

Range of Exercise Prices

€ 3.33 – € 9.99

€ 10.00 – € 12.81

Number

outstanding

Remaining
Contractual
Life (in years)

Weighted-
average

Number

Weighted-
average

Exercise Price

Exercisable

Exercise Price

99,000

2.00

€ 0.00

€ 12.81

€12.81

€ 0.00

The Company accounts for stock-based compensation in accordance with the
provisions of IFRS 2 and IAS 32.28. The equity portion of the bonds has to
be separated and presented as additional paid-in capital. The equity compo-
nent is deducted from the fair value of the bonds. The remaining value is
recognized as stock-based compensation. The compensation expense recorded
in 2010 and 2009 in connection with convertible bonds was € 989,416 and
€ 263,938, respectively.

The fair value of convertible bonds issued in 2010 was calculated using the
Black-Scholes option pricing model based on the following assumptions:
risk-free interest rate of 2.19 %; dividend yield of 0 %; 42.0 % expected volatil-
ity based on historic data; and an expected life of five years. The weighted-
average fair value of bonds granted during 2010 is estimated to be € 6.66 ac-
cordingly.

The Company Group Management Report Financial Statements

18 Stock Options

The general terms and conditions of stock option plans that existed at any
time during the period are presented in the following table; all options are to
be settled by physical delivery of shares:

Grant Date/Employees Entitled

July 1, 2007 to employees

January 25, 2008 to Management Board and employees

January 25, 2008 to employees

October 1, 2008 to employees

granted

Stock options

Vesting Period

Vesting Condi-
tions (Share Price
in Comparison to
Strike Price)

Contractual Life

of options

180,000

283,335

29,070

92,664

2 years 50 %,
3 years 75 %,
4 years 100 %

Increase of 20 % on at
least one trading day
during the lifetime

2 years 50 %,
3 years 75 %,
4 years 100 %

Increase of 20 % on at
least one trading day
during the lifetime

2 years 50 %,
3 years 75 %,
4 years 100 %

Cumulative increase
of more than 10 % per
annum

2 years 50 %,
3 years 75 %,
4 years 100 %

Increase of 20 % on at
least one trading day
during the lifetime

2 years 50 %,
3 years 75 %,
4 years 100 %

Increase of 20 % on at
least one trading day
during the lifetime

5 years

April 1, 2009 to Management Board and employees

422,200

For the years 2010 and 2009, 3,441 and 80,700 options from the 1999 Plan
were exercised respectively. For the years 2010 and 2009, 222,654 and
101,070 options from the 2002 Plan were exercised respectively. Of these,
190,305 options were exercised by members of the Management Board.
Further details are given in the Notes to the Consolidated Financial State-
ments – section 28*.

SE E
pAGE 83 E T SEq .

A summary of activity under the Company’s employee incentive stock op-
tion plans for the years ended December 31, 2010, and 2009, is represented
as follows:

oU TSTANDIN g oN
JANUARY 1, 20 09

Granted

Exercised

Forfeited

Expired

oU TSTANDIN g oN
DECEmBER 31, 20 09

oU TSTANDIN g oN
JANUARY 1, 2010

Granted

Exercised

Forfeited

Expired

oU TSTANDIN g oN
DECEmBER 31, 2010

Weighted-
average
Price (€)

958,554

12.66

422,200

(181,770)

(46,997)

12.81

8.51

13.69

0.00

1,151,987

13.33

1,151,987

13.33

(226,095)

(1,875)

0.00

12.41

10.45

0.00

924,017

13.56

Notes to the Consolidated Financial Statements

Stock options exercisable on December 31, 2010 and 2009, amounted to
294,953 and 269,055 shares, respectively. The weighted-average exercise
prices of exercisable stock options were € 14.41 and € 13.22 on December 31,
2010 and 2009, respectively.

The following table presents the weighted-average price and information
about the contractual life for significant option groups outstanding on De-
cember 31, 2010:

Range of Exercise Prices

€ 10.00 – € 12.99

€ 13.00 – € 13.99

€ 14.00 – € 17.00

Number

outstanding

Remaining
Contractual
Life (in years)

Weighted-
average

Number

Weighted-
average

Exercise Price

Exercisable

Exercise Price

422,603

271,299

230,115

924,017

3.20

2.07

1.90

2.54

€ 12.81

€ 13.03

€ 15.57

€ 13.56

9,183

134,234

151,536

294,953

€ 12.80

€ 13.03

€ 15.73

€ 14.41

The following table presents the weighted-average price and information
about the contractual life for significant option groups outstanding on De-
cember 31, 2009:

Range of Exercise Prices

€ 3.63 – € 9.99

€ 10.00 – € 12.99

€ 13.00 – € 16.10

Number

outstanding

Remaining
Contractual
Life (in years)

Weighted-
average

Number

Weighted-
average

Exercise Price

Exercisable

Exercise Price

543,224

608,763

1,151,987

0.00

3.39

2.72

3.04

€ 0.00

€ 12.30

€ 14.24

€ 13.33

117,180

151,875

269,055

€ 0.00

€ 10.45

€ 15.35

€ 13.22

The Company accounts for stock-based compensation in accordance with the
provisions of IFRS 2 “Share-based Payment”. Compensation expense re-
corded in 2010 and 2009 in connection with stock options was € 1,119,543
and € 1,472,534, respectively.

€ 7.34 and has to be re-measured on a quarterly basis. The compensation
expense recorded in 2010 was € 14,337 and a non-current liability in the
amount of € 14,337 was accounted for accordingly. The SARs cannot be
exercised beyond June 30, 2016.

19 Stock Appreciation Rights (SARs)

20 Revenues

On October 1, 2010, 15,000 stock appreciation rights (SARs) were granted to
employees of MorphoSys AG with terms and conditions identical to the con-
vertible bond grant from April 1, 2010. Convertible bonds are to be settled by
physical delivery of shares, while SARs are settled in cash. The exercise
price for the SARs on December 31, 2010, was € 18.53. The fair value was cal-
culated using the Black-Scholes option pricing model based on the follow-
ing assumptions: risk-free interest rate of 2.16 %; dividend yield of 0 %; 42.0 %
expected volatility based on historic data; and an expected life of five years.
The weighted-average fair value of SARs granted in 2010 is estimated to be

In 2010, the Company’s revenues included revenues from license and mile-
stones fees in the amount of € 41.8 million (2009: € 42.3 million), revenues
from services fees in the amount of € 28.0 million (2009: € 22.3 million) and
revenues from the sale of goods in the amount of € 16.5 million (2009: € 15.7
million).

The Company Group Management Report Financial Statements

21 Personnel Expenses

23 Income Taxes

in 000’s €

2010

2009

Wages and Salaries

Social Security Contributions

Stock-based Compensation Expense

Temporary Staff (External)

Other

ToTAl

25,117

4,011

2,123

353

31,693

21,339

3,297

1,736

112

1,364

27,848

The average number of employees during the year ended December 31,
2010, was 435 (2009: 375). Of the 464 employees as of December 31, 2010,
309 worked in research and development and 155 in sales, general and ad-
ministration (December 31, 2009: 248 employees in R&D and 156 employees
in S, G&A). As of December 31, 2010, 183 employees worked in the Part-
nered Discovery segment, 100 in the Proprietary Development segment,
142 employees in the AbD Serotec segment and 39 were unallocated (De-
cember 31, 2009: 144 employees in the Partnered Discovery segment, 71 in
the Proprietary Development segment 148 in the AbD Serotec segment and
41 employees were unallocated). The expenses for defined contribution plans
amounted to € 0.3 million in 2010 (prior year: € 0.3 million).

22 Non-operating Income and Expenses

Non-operating income and expenses includes the following items:

in 000’s €

Interest Income

Gain On Marketable Securities

Finance Income

Interest Expenses

Finance Expenses

Gain On Exchange

Miscellaneous Income

Other Income

Loss on Exchange

Loss on Derivatives

Miscellaneous Expenses

Other Expenses

ToTAl

2010

143

3,980

4,123

(34)

440

470

(499)

(496)

(241)

(1,236)

3,323

2009

285

1,717

2,002

(10)

274

373

(468)

(126)

(138)

(732)

1,633

The Company and its German subsidiaries MorphoSys IP GmbH, MorphoSys
AbD GmbH and Sloning BioTechnology GmbH are subject to corporate tax,
solidarity surcharge and trade tax. The Company’s corporation tax rate re-
mained constant at 15 %, the same applies to the solidarity surcharge of
5.5 % and the effective trade tax rate of 10.5 %. With regard to affiliated com-
panies in foreign countries, income tax rates of 28 % and 37 % apply to the
UK and the USA, respectively.

The income tax for the current fiscal year is comprised as follows:

in 000’s €

2010

2009

Current Tax Expense (Thereof Regarding
Prior Years: k€ (16); 2009: k€ 51)

Deferred Tax Income/
Deferred Tax (Expense)

Total Income Tax

Total Amount of Deferred Taxes
Resulting from Entries Directly
Recognized in Equity

(4,094)

119

(3,975)

(2,572)

(1,498)

(4,070)

(411)

(1,348)

The following table reconciles the expected income tax expense to the ac-
tual income tax expense presented in the consolidated financial statements.
To calculate the statutory income tax expense in fiscal year 2010, the com-
bined income tax rate of 26.33 % (2009: 26.33 %) was applied to income before
taxes. The tax rate applied in the reconciliation statement includes corpo-
rate tax and solidarity surcharge, and amounts to 15.83 % plus the effective
trade tax rate based on the multiplier rate (“Hebesatz”) of 300 % for munici-
pal trade tax, which amounts to 10.50 %.

in 000’s €

2010

2009

Profit Before Income Taxes

Expected Tax Rate

Expected Income Tax

Tax Effects Resulting from:

Stock-based Compensation

Non-tax-deductible Items

Tax Rate Differences

Prior Year Taxes

Other Effects

Actual Income Tax

13,172

26.33 %

(3,468)

(555)

(114)

(21)

113

13,034

26.33 %

(3,432)

(464)

(116)

(75)

(3,975)

(4,070)

Notes to the Consolidated Financial Statements

Deferred taxes are recognized only to the extent that it is more likely than not
that the related tax benefits will be realized. As of December 31, 2008, the
Company had recognized deferred tax assets in the net amount of € 1.6 mil-
lion due to business expectations for the financial years 2009 to 2013. In
2009, these deferred tax assets were fully released in the remaining amount
of € 1.0 million due to utilized tax losses and in the amount of € 0.6 million
resulting from the change in temporary differences between IFRS and the
tax balance sheet. As of December 31, 2009, the tax loss carry-forwards for
corporation tax and for MorphoSys AG’s trade tax have been fully utilized.
MorphoSys AG has been subject to tax audits for the financial years 2004
to 2007 and tax loss carry-forwards have been confirmed in their recognized
amount.

As of December 31, 2010, deferred tax assets on tax loss carry-forwards in
the amount of € 2.7 million have been recognized due to positive business
expectations at Sloning BioTechnology GmbH for the financial years 2011 to
2015. No deferred tax assets were reported for part of the corporate tax
loss carry-forwards in the amount of € 5.4 million and trade tax loss carry-
forwards in the amount of € 5.1 million as the usability of these tax loss
carry-forwards is deemed uncertain due to the regulations described herein-
after. The tax loss carry-forwards may be carried forward indefinitely and

in unlimited amounts. From 2004 onwards, German tax law restricts the off-
set of taxable income against existing tax loss carry-forwards to an amount
of € 1.0 million plus 60 % of taxable income above € 1.0 million. According to
the German Corporation Tax Act (Körperschaftsteuergesetz, KStG), taxes may
be carried forward indefinitely. The deduction of tax losses carried forward
is excluded if the Company loses its tax identity. A company is deemed to have
lost its tax identity if both of the following criteria are met cumulatively: (a)
more than 50 % of the shares in the company have been transferred and (b)
the company continues or re-launches its operations with predominantly
new assets (section 8 para. 4 KStG, applicable until December 31, 2007). With
effect on equity transfers, this provision has been replaced in application
of the Act on Corporate Tax Reform by section 8c, of the German Corporation
Tax Act. Any transfer of between 25 % and 50 % of the subscribed capital
triggers the partial elimination of tax losses carried forward, while any trans-
fer of more than 50 % triggers the total elimination. The continuation of op-
erations with predominantly new assets is no longer relevant. The regulation
on tax loss carry-forwards (both section 8 para. 4 KStG and section 8c KStG)
is generally regarded as uncertain for companies taxable in Germany.

Significant components of the deferred tax assets and liabilities are as
follows:

in 000’s €

Intangible Assets

Non-recognition of DTA on Intangible Assets

Property, Plant and Equipment

Land

Building

Other Equipment, Furnitures, Fixtures

Inventory

Advanced Payments

Receivables and Other Assets

Treasury Stock

Prepaid Expenses and Deferred Charges

Short-term Securities Investments

Other Accrual/Provisions

Trade Accounts Payable

Bonds, thereof Convertible

Other Liabilities

Tax Losses

* Deferred Tax Asset
** Deferred Tax Liability

DTA* 2010

DTA* 2009

DTL** 2010

DTL** 2009

230

2,701

2,996

689

220

941

4,043

1,677

300

1,243

4,428

2,967

The Company Group Management Report Financial Statements

Due to the fiscal unity of MorphoSys AG and MorphoSys IP GmbH, deferred
tax assets and deferred tax liabilities have been netted in the amount of € 0
in the balance sheet (prior year: € 0.7 million). Deferred tax liabilities in the
amount of € 0.4 million (prior year: € 1.3 million) have been recognized di-
rectly in equity. The amount relates to the revaluation of available-for-sale
financial assets.

At December 31, 2010, a deferred tax liability for temporary differences related
to an investment in a subsidiary was not recognized because the Company
controls whether the liability will be incurred and it is satisfied that it will
not be incurred in the foreseeable future.

24 Earnings Per Share

The calculation of basic profit per share is based on the net profit for the
year of € 9,196,300 (2009: € 8,964,095) and the weighted-average number
of shares of common stock outstanding for the respective years (2010:
22,656,233; 2009: 22,464,757).

The weighted-average number of shares of common stock was calculated as
follows:

SHARES IS SUED oN JANUARY, 1

Effect of Treasury Shares Held

Effect of Shares Issued in January

Effect of Shares Issued in February

Effect of Shares Issued in March

Effect of Shares Issued in April

Effect of Shares Issued in May

Effect of Shares Issued in June

Effect of Shares Issued in July

Effect of Shares Issued in August

Effect of Shares Issued in September

Effect of Shares Issued in October

Effect of Shares Issued in November

Effect of Shares Issued in December

2010

2009

22,660,557

22,478,787

(79,896)

14,167

1,162

52,848

703

2,702

3,990

(79,896)

12,938

12,295

24,843

5,569

4,400

5,821

WEIg HTED - AvER Ag E NUmBER oF SHARES oF C ommoN STo CK

22,656,233

22,464,757

The diluted profit per share is calculated by taking into account the Com-
pany’s potential common shares from outstanding stock options and convert-
ible bonds.

Notes to the Consolidated Financial Statements

The table below illustrates the reconciliation from basic to diluted earnings
per share (amounts in euros, except per share data):

Numerator

Net Profit for the Year

Denominator

Weighted-average Shares Used for Basic EPS

Dilutive Shares Arising from Stock Options

Dilutive Shares Arising from Convertible Bonds

ToTAl DENomINAToR

Earnings per Share (in €)

Basic

Diluted

2010

2009

9,196,300

8,964,095

22,656,233

22,464,757

110,569

19,734

81,535

12,872

22,786,536

22,559,164

0.41

0.40

25 Operating Leases

The Company leases facilities and equipment on long-term operating leases.
Total rent expense amounted to € 2,342,528 and € 2,238,004 for the years
ended December 31, 2010 and 2009, respectively. Significant leasing contracts
mainly related to the buildings rented in Martinsried (Germany), Oxford
(UK), Düsseldorf (Germany), Raleigh (USA) and Puchheim (Germany). The
main part of these contracts can be renewed on an annual or quarterly basis.
Some agreements can be terminated early.

may be triggered. However, given the uncertainty regarding the timing and
achievement of such milestones, no further details are disclosed.

In the event that certain milestones in the Partnered Discovery segment will
be achieved by the respective partner, e.g. the filing of an application for an
investigational new drug (IND) with regard to specific targets or the transfer
of technology, milestone payments to the Company may be triggered. How-
ever, given the uncertainty regarding the timing and achievement of such
milestones, no further details are disclosed.

Future minimum payments under non-cancellable operating leases, insur-
ances and other services are as follows:

In the first quarter of 2011, the achievement of a milestone for the transfer of
technology to one of the Company’s partners is expected, and the Company
anticipates to receiving a double-digit million euro payment for this milestone.

in 000’s €

2010

2009

27 Business Combinations

Up to One Year

Between One and Five Years

More than Five Years

ToTAl

4,031

4,958

1,672

10,661

3,743

4,360

2,732

10,835

On October 7, 2010, the Company acquired 100 % of the share capital of the
private German company Sloning BioTechnology GmbH, Puchheim, Germany,
for a one-off € 19 million cash payment.

The Company’s total expenses due to operating leases, insurances and other
services in the years ended December 31, 2010 and 2009, totaled € 3,518,477
and € 3,575,262 respectively.

26 Contingencies

Sloning BioTechnology GmbH is a company developing new methods of syn-
thetic biology and will make MorphoSys the sole source of Sloning’s state-
of-the-art Slonomics technology, which improves the assembly and quality
of protein libraries. By integrating Slonomics into its existing antibody
technology platform, MorphoSys expects to improve the generation of drug
candidates such that one in every two projects started reaches clinical de-
velopment.

The management is not aware of any matters that could give rise to any
material liability to the Company that would have a material adverse effect
on the Company’s financial condition or results of operations.

The acquired business contributed revenues of € 0.3 million and a net loss
of € 0.8 million to the Group for the period from October 7, 2010 to Decem-
ber 31, 2010.

In the event that certain milestones in the Proprietary Development segment
will be achieved, e.g. the filing of an application for an investigational new
drug (IND) with regard to specific targets, milestone payments to licensors

If the acquisition had occurred on January 1, 2010, management estimates
that consolidated revenue of the Group would have been € 88.4 million and
consolidated net profit would have been € 7.5 million.

The Company Group Management Report Financial Statements

These amounts have been calculated using the Group’s accounting policies
and by adjusting the results of the subsidiary to reflect the additional depre-
ciation and amortization that would have been charged assuming the fair
value adjustments to intangible assets and inventories had applied from Jan-
uary 1, 2010, together with the consequential tax effects.

The consideration transferred includes cash in the amount of € 18,765,811
plus a post-acquisition purchase price adjustment in the amount of € 51,325
which was paid in cash shortly after the balance sheet date. No contingent
consideration was agreed upon.

The identifiable assets and liabilities as of October 7, 2010, arising from the
acquisition are as follows:

Cash and Cash Equivalents

Trade and Other Receivables

Prepaid Expenses an Other current assets

Inventories

Property, Plant and Equipment

Patents and Technology

Software

Deferred Tax Asset

Other Non-current Assets

Trade and Other Payables

Borrowings

Deferred Tax Liabilities

FAIR vAlUE oF NE T AS SE TS

Goodwill on Acquisition

C oNSIDER ATIoN pAID

Cash (acquired)

NE T CASH oU TFloW

Carrying
amount

fair value

adjustment

fair value

721

155

746

1,200

2,496

(357)

(799)

(96)

10,080

(2,843)

721

155

790

1,200

10,080

2,496

(357)

(799)

(2,939)

11,465

7,352

18,817

721

18,096

Goodwill was recognized as a result of the acquisition as follows:

There were no acquisitions in the year ended December 31, 2009.

in 000’s €

ToTAl C oNSIDER ATIoN TR ANSFERRED

Fair Value of Identifiable Net Assets

Goodwill

fair value

18,817

(11,465)

7,352

The Group incurred acquisition-related costs of € 0.2 million, relating mainly
to external legal advisory fees and due diligence fees. All acquisition-related
costs have been included in administrative expenses in the Group’s profit
and loss statement.

The goodwill is attributable mainly to the synergies expected to be achieved
from integrating the Company into the Group’s existing Partnered Discovery
segment and partly to the skills of the acquired workforce. None of the good-
will is expected to be deductible for income tax purposes.

Notes to the Consolidated Financial Statements

28 Related Parties

The Group has related party transactions with its Management Board mem-
bers and with members of the Supervisory Board. In addition to the cash
remuneration, the Company has issued stock options and convertible bonds
to the Management Board. The tables below show the shares, stock options
and convertible bonds as well as the changes of ownership of the same, which
were held by members of the Management Board and the Supervisory Board
during the year 2010:

S h A R E S

mANAg EmENT B oARD

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

ToTAl

SUpERvISoRY B oARD

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoffrey N. Vernon

ToTAl

S T o C K o P T I o N S

mANAg EmENT B oARD

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

ToTAl

SUpERvISoRY B oARD

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoffrey N. Vernon

ToTAl

01/01/2010

Additions

forfeitures

Sales

12/31/2010

416,385

5,400

500

105

422,390

7,500

7,290

2,019

16,809

1,000

3,000

4,000

416,385

5,400

1,500

3,105

426,390

7,500

7,290

2,019

16,809

01/01/2010

Additions

forfeitures

Exercises

12/31/2010

299,445

110,172

90,000

177,867

677,484

108,000

7,305

75,000

190,305

191,445

102,867

90,000

102,867

487,179

The Company Group Management Report Financial Statements

C o N V E R T I B L E B o N D S

mANAg EmENT B oARD

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

ToTAl

SUpERvISoRY B oARD

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoffrey N. Vernon

ToTAl

01/01/2010

Additions

forfeitures

Exercises

12/31/2010

30,000

90,000

58,800

33,000

157,800

88,800

63,000

33,000

63,000

247,800

Convertible bonds granted to the Management Board in 2010:

Member of the Management Board

Number of
Convertible
Bonds

Strike Price
in €

grant Date

Expiry Date

fair Value of
one Convert-
ible Bond in €

fair Value at
The Time of
the grant in €

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

58,800

33,000

16.79

Apr 1, 2010

Dec 31, 2015

6.66

391,608

219,780

Compensation for both the Management Board and the Supervisory Board
consisted of fixed and variable components as well as other compensatory
benefits. In the event of a non-reappointment and non-prolongation of the
service agreement, each member of the Management Board is entitled to re-
ceive a severance payment in the amount of one annual fixed salary. Total
compensation for the Supervisory Board excluding reimbursements of travel
expenses amounted to € 382,750 in 2010 (2009: € 374,333). The tables below
show the detailed compensation for the Management Board and the Supervi-
sory Board:

M A N A g E M E N T B o A R D

fixed Compensation

Variable Compensation*

other Compensatory Benefits

Total Compensation

in €

2010

2009

2010

2009

2010

2009

2010

2009

Dr. Simon E. Moroney

Dave Lemus

Dr. Arndt Schottelius

Dr. Marlies Sproll

368,498

259,157

231,000

249,623

356,011

250,375

220,000

241,164

ToTAl

1,108,278

1,067,550

208,570

152,902

132,594

146,778

640,844

192,246

135,203

118,800

130,229

576,478

130,178

156,639

90,158

90,879

467,854

124,198

141,055

84,513

87,963

707,246

568,698

453,752

487,280

672,455

526,633

423,313

459,356

437,728

2,216,976

2,081,756

* The total remuneration figures shown for 2010 and 2009 include the corresponding bonus accruals for 2010 and 2009. The 2010 bonus will be paid out in March 2011.

Notes to the Consolidated Financial Statements

S u P E R V I S o R y B o A R D

in €

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoffrey N. Vernon

ToTAl

fixed Compensation

Variable Compensation

Total Compensation

2010

2009

2010

2009

2010

2009

70,000

57,750

39,500

36,500

39,500

57,000

43,278

29,556

28,500

30,000

22,000

15,000

18,000

19,000

10,000

19,000

40,722

27,778

11,000

28,333

21,333

28,333

92,000

72,750

57,500

55,500

46,500

58,500

97,722

71,056

40,556

56,833

49,833

58,333

279,750

216,834

103,000

157,499

382,750

374,333

At the Annual General Meeting on May 17, 2006, phantom stocks had been
granted to all members of the Supervisory Board. The Chairman of the
Supervisory Board had received 2,500 stock appreciation rights, the Deputy
Chairman 2,000 stock appreciation rights and the members of the Super-
visory Board 1,500 stock appreciation rights each. The phantom stocks were
exercised in 2009; an amount of € 80,000 is included in variable compensa-
tion for 2009.

tant S. aureus). MorphoSys will generate antibodies using its proprietary
HuCAL PLATINUM antibody library which Absynth will test in relevant dis-
ease models. MorphoSys will be solely responsible for the development and
partnering of the resulting compounds. Absynth has received an upfront pay-
ment and is eligible for development-dependent milestone payments and
royalties.

No other agreements with current or former members of the Supervisory
Board are currently in place.

29 Corporate Governance

The Company issued its statement according to section 161 of the German
Stock Corporation Act (Aktiengesetz). This declaration was published and
made accessible to stockholders accordingly on the Company’s website* on
December 22, 2010.

30 Research and Development Agreements

The Company has a significant number of research and development agree-
ments relating to its discovery and development strategy. In the majority of
cases upfront payments at signature, annual license payments in exchange
for access to MorphoSys’s technologies, development-dependent milestone
payments and royalties on product sales are standard terms of these agree-
ments. The following is a brief description of these agreements, which have
had, or may have, a significant financial impact in future years (in alphabeti-
cal order).

AB SyNTH BIOLO GIC S
In September 2010, MorphoSys announced a new proprietary development
program against novel infectious disease targets. As part of this initiative,
MorphoSys has signed a license and collaboration agreement with UK-based
Absynth Biologics, providing access to novel target molecules associated
with Staphylococcus aureus infections including MRSA* (methicillin-resis-

MOrE INFOrMATION AT
W W W.MOrpHO SyS .C OM

SE E
GLO S SAry p. 98

Absynth’s genomics-based approach allows identification of previously over-
looked targets, such as bacterial components which are crucial to the organ-
ism, conserved across different bacterial strains and accessible for antibodies.
Absynth has demonstrated that monoclonal antibodies against the targets
in-licensed by MorphoSys inhibit the growth of S. aureus and recruit the hu-
man immune system to eliminate bacteria via phagocytosis. Absynth has
filed patent applications on all targets involved in the collaboration.

ASTE LL AS pHArMA , INC .
MorphoSys and Astellas Pharma entered into a license agreement for the use
of MorphoSys’s HuCAL technology in March 2007. In February 2008, Astel-
las decided to extend the current collaboration between the two companies
for four more years until 2012.

In July 2008, Astellas exercised a preexisting option to use MorphoSys’s pro-
prietary RapMAT technology for faster antibody optimization as part of the
existing technology transfer agreements between the two companies. As a
result, MorphoSys receives annual user fees for the RapMAT technology in
addition to user fees for the HuCAL platform.

BAyE r SCHE rING pHArMA AG
The active collaboration with Bayer Schering Pharma AG was concluded by
the end of 2007. Several therapeutic antibody programs are currently in
development and could result in future development-dependent milestone
payments and royalties on product sales. Bayer Schering Pharma is cur-
rently evaluating one HuCAL-based program in clinical trials, namely the
HuCAL-derived antibody-drug conjugate BAY79-4620 in the therapeutic
area of oncology.

The Company Group Management Report Financial Statements

BOE HrINGE r INGE LHE IM pHArMA GMBH & C O. KG
The active collaboration with Boehringer Ingelheim was concluded in 2010
but therapeutic programs initiated during the course of the active collabora-
tion can continue development and result in future milestone payments
and royalties on product sales. In December 2010, Boehringer Ingelheim has
filed all necessary documentation to initiate a phase 1 clinical trial with a
HuCAL-based antibody. This achievement triggered a clinical milestone pay-
ment to MorphoSys.

CE NTO C Or Or THO BIOTECH , INC .
The active collaboration with Centocor Ortho Biotech, Inc. (formerly known
as: Centocor, Inc.), a wholly owned subsidiary of US pharmaceutical company
Johnson & Johnson, was concluded by the end of 2007. Several therapeutic
antibody programs are currently in development and could result in future
development-dependent milestone payments and royalties on product sales.
The most advanced compound within this collaboration, namely CNTO888,
is currently in a phase 2 clinical trial in an immunology indication and a
second phase 2 clinical trial in oncology patients. In 2010, MorphoSys an-
nounced that it has received two milestone payments from Centocor Ortho
Biotech in connection with the initiation of two phase 1 clinical trials using
HuCAL-derived antibodies, namely CNTO3157, in the therapeutic area of
asthma and a second undisclosed program. In total, Centocor Ortho Biotech
is currently evaluating five HuCAL-based programs in clinical trials.

DAIICHI SANK yO C OMpANy LTD.
In March 2006, MorphoSys and Sankyo Company Limited (part of the joint
holding company, Daiichi Sankyo Company, Limited) entered into a license
agreement and therapeutic antibody collaboration for an initial two-year term
with the option of an extension of up to three more years. In March 2008,
the collaboration was extended until March 2011. The extension triggered
an additional up-front payment.

In October 2009, MorphoSys announced the formation of a new alliance with
Daiichi Sankyo in the discovery and development of therapeutic antibodies
for hospital-acquired infections. Daiichi Sankyo became MorphoSys’s first
collaborator for HuCAL PLATINUM-based drug discovery in the field of in-
fectious diseases. Daiichi Sankyo agreed also to fund the development of cer-
tain infectious disease specific technology at MorphoSys, which will be used
to identify the most effective antibody-based drugs.

F. HOFFMANN - L A rO CHE
MorphoSys and F. Hoffmann-La Roche announced the signing of an agree-
ment in September 2000 under which the companies collaborate on the
development of human therapeutic antibodies for a Roche biological target
associated with Alzheimer’s disease. In the context of the collaboration,
MorphoSys is eligible to receive development-related milestone payments
and royalties on any marketed products emerging from the collaboration.
A phase 1 clinical trial program to evaluate safety and tolerability of the
HuCAL-derived antibody program R1450/Gantenerumab in Alzheimer’s
disease patients was operationally concluded by Roche in 2009. In 2010,
Roche advanced this compound into phase 2 clinical trials.

Expanding on the relationship in Alzheimer’s disease, MorphoSys and
Roche announced a new collaboration to develop new therapeutic antibodies
in oncology in March 2006.

GAL ApAGO S NV
In November 2008, MorphoSys and Galapagos NV announced the launch of
a long-term codevelopment alliance aimed at discovering and developing
antibody therapies based on novel modes of action in bone and joint disease,
including rheumatoid arthritis, osteoporosis and osteoarthritis.

The alliance spans all activities from target discovery through to comple-
tion of proof of concept clinical trials of novel therapeutic antibodies. Follow-
ing proof of concept in human clinical trials, programs will be partnered
for subsequent development, approval and marketing. Both companies will
contribute their core technologies and expertise to the alliance. Galapagos
will provide antibody targets implicated in bone and joint disease in addition
to its adenoviral target discovery platform to discover further targets for
antibody development. MorphoSys will contribute its HuCAL antibody tech-
nologies to generate fully human antibodies directed against these targets.
Under the terms of the agreement, Galapagos and MorphoSys will share the
research and development costs and all future revenues equally.

GE NE FrONTIE r C Orp Or ATION/K ANE K A
Under the terms of a therapeutic target sourcing collaboration signed in
2007, GeneFrontier may utilize MorphoSys’s HuCAL GOLD antibody library
to generate novel HuCAL antibodies against targets provided by leading
Japanese research institutes and universities. For this purpose, the HuCAL
antibody technology was installed at GeneFrontier’s research laboratories
within a research facility in Tokyo. GeneFrontier pays compensation for ac-
cess to HuCAL GOLD.

ME rCK & C O. , INC .
In December 2005, MorphoSys signed a five-year license agreement with
US pharmaceutical company Merck & Co., Inc. for the use of MorphoSys’s
HuCAL GOLD and AutoCAL technologies in research and development of hu-
man therapeutic antibodies. The agreement enables Merck to develop up
to ten HuCAL-derived therapeutic antibodies in a range of indications. The
active collaboration was concluded, as planned, at the end of 2010.

NOVAr TIS AG
MorphoSys and Novartis AG started working together in 2004 in a collabo-
ration that has so far resulted in multiple active therapeutic antibody pro-
grams across various diseases and the first IND filing in September 2007 —
just three years after initiation. In December 2007, MorphoSys and Novartis
substantially expanded their previous relationship and forged one of the most
comprehensive strategic alliances in the discovery and development of bio-
pharmaceuticals. Based on a ten-year term, committed annual payments total
more than US$ 600 million in technology access, internalization fees and
R&D funding, excluding reimbursement of R&D costs related to early-stage
development activities. Total payments under the agreement, including
committed payments and probability-weighted success-based milestones,
contingent upon successful clinical development and market approval of

Notes to the Consolidated Financial Statements

multiple products, could potentially exceed US$ 1 billion, assuming the col-
laboration successfully runs its maximum term. In addition to these pay-
ments, MorphoSys would also be entitled to royalty payments and/or profit
sharing on any future product sales. Additionally, MorphoSys also has op-
tions to participate in certain development activities in various programs,
with part of the early-stage costs being funded by Novartis. Under the
codevelopment options, MorphoSys may elect to participate in these projects
through cost and profit-sharing with financial participation reflecting its
level of investment in the respective programs.

prO CHON BIOTECH LTD.
The active collaboration with ProChon Biotech Ltd. was concluded but thera-
peutic programs initiated during the course of the active collaboration can
continue development and result in future milestone payments and royalties
on product sales. Under the original agreement, MorphoSys applied its in-
novative HuCAL antibody library to generate human antibodies against a
human growth factor receptor associated with various skeletal disorders
including achondroplasia, the most common form of human dwarfism, and
certain cancers.

In 2009, Novartis has committed to a ten-year term of the strategic alliance.
The decision was based on the successful achievement by MorphoSys of cer-
tain predefined improvements in its proprietary technologies. The collabo-
ration will run until 2017 and may be extended by Novartis for an additional
two years beyond that time under the same financial terms and conditions.
The most advanced compound within this collaboration, BHQ880, is currently
in a phase 2 clinical trial in oncology. During the course of 2010, Novartis
advanced three HuCAL-based programs into clinical trials bringing up the
total number of HuCAL-derived antibodies in clinical development with
Novartis to five.

ONC OME D pHArMACEuTICAL S , INC .
The active collaboration with US-based biopharmaceutical company OncoMed
Pharmaceuticals Inc. was concluded in 2010 but therapeutic programs initi-
ated during the course of the active collaboration can continue development
and result in future milestone payments and royalties on product sales. In
December 2010, OncoMed has filed all necessary documentation to initiate a
phase 1 clinical trial with a HuCAL-based antibody, namely OMP-59R5. This
achievement triggered a clinical milestone payment to MorphoSys.

pFIzE r , INC .
The active collaboration with Pfizer based on the HuCAL technology plat-
form was concluded in 2010 but therapeutic programs initiated during
the course of the active collaboration can continue development and result
in future milestone payments and royalties on product sales. In December
2010, Pfizer has filed all necessary documentation to initiate a phase 1 clini-
cal trial with a HuCAL-based antibody. This achievement triggered a clinical
milestone to MorphoSys.

Additionally, MorphoSys and Pfizer signed a non-exclusive license and
technology transfer agreement based on a new technology platform in 2010.
The agreement covers the installation, training and use of the technology
platform Slonomics for fabrication of highly-diverse gene and protein librar-
ies at Pfizer’s subsidiary Rinat Neuroscience Corp. in South San Francisco.
MorphoSys’s subsidiary Sloning BioTechnology GmbH received an upfront pay-
ment and stands to receive annual license fees over the patent lifetime of the
Slonomics technology platform. MorphoSys acquired Sloning BioTechnology
GmbH and its technology portfolio including Slonomics in October 2010.

SCHE rING - pLOuGH C Orp Or ATION
In May 2006, MorphoSys and Schering-Plough Corporation signed a license
agreement for the use of MorphoSys’s HuCAL GOLD technology in the re-
search and development of human therapeutic antibodies. The collaboration
will run its full term until mid 2011. Schering Plough was acquired by
Merck & Co., Inc. during the course of 2009.

SHIONO GI & C O. LTD.
MorphoSys AG and Japanese pharmaceutical company Shionogi & Co., Ltd.
signed a three-year license agreement on the use of MorphoSys’s HuCAL
technology in September 2005. In September 2008, the partnership was ex-
tended for three additional years allowing Shionogi the use of the MorphoSys
HuCAL GOLD library for research purposes at one of its research sites. In
April 2009, MorphoSys and Shionogi entered into an agreement under which
Shionogi was allowed to test HuCAL PLATINUM, the latest and most power-
ful MorphoSys antibody library. Shionogi found the new library to be consid-
erably better and now has the right to use HuCAL PLATINUM for research
purposes at one of its sites. In return, MorphoSys receives a higher annual
user fee during the remaining life span of the agreement.

XE NC Or , INC .
In June 2010, MorphoSys AG and US-based biopharmaceutical company
Xencor, Inc. signed a worldwide exclusive license and collaboration agreement.
The agreement provided MorphoSys with an exclusive worldwide license to
XmAb5574/MOR208 for the treatment of cancer and other indications. As part
of the agreement, the companies will collaborate on the phase 1 trial in pa-
tients with chronic lymphocytic leukemia in the US. MorphoSys will be solely
responsible for further clinical development after successful completion
of the phase 1 clinical trial. Xencor has received an upfront payment of
US$ 13 million (approx. € 10.5 million), and will be eligible to receive de-
velopment-, regulatory- and commercialization-related milestone payments
and tiered royalties based on product sales.

The Company Group Management Report Financial Statements

Appendix 1: Chart of the Consolidated Entity as of December 31, 2010

Name and Corporate Seat of the Company

Local Currency

Currency

Exchange Rate
on Dec. 31, 2010,
one unit of Euro
in Local

C ompAN Y C oNSolIDATED (ApART FRom pARENT C ompAN Y )

MorphoSys USA, Inc., Charlotte, North Carolina, USA

MorphoSys IP GmbH, Munich, Germany

MorphoSys UK Ltd., Oxford, UK

MorphoSys US, Inc., Raleigh, North Carolina, USA

MorphoSys AbD GmbH, Düsseldorf, Germany

Poole Real Estate Ltd., Poole, UK

Sloning BioTechnology GmbH, Puchheim, Germany

US $

€

US $

€

1.31944

–

0.85485

1.31944

–

0.85485

–

Share Capital

Total Assets

Total Liabilities

Total Revenue

Profit/Loss

Share of

Capital %

in Local

Currency

in Local

Currency

in Local

Currency

in Local

Currency

in Local

Currency

100

2,000

25,000

100

50,000

25,000

200

951,660

3,948

197,485

7,570,937

2,651,265

1,660,408

922,043

5,082,415

161,984

2,523,075

1,082,255

471,971

2,559

1,477,830

3,343,800

10,773,699

8,760,805

4,310,313

300,793

(1,155)

353,952

1,162,195

337,627

(281,309)

(47,941)

(578,904)

31 Responsibility Statement

To the best of our knowledge, and in accordance with the applicable report-
ing principles, the Consolidated Financial Statements give a true and fair
view of the assets, liabilities, financial position and profit or loss of the Group,
and the Group Management Report includes a fair review of the development
and performance of the business and the position of the Group, together with
a description of the principal opportunities and risks associated with the
expected development of the Group.

Martinsried/Planegg, February 7, 2011

Dr. Simon E. Moroney
Chief Executive Officer

Mr. Dave Lemus
Chief Financial Officer

Dr. Arndt Schottelius
Chief Development Officer

Dr. Marlies Sproll
Chief Scientific Officer

Notes to the Consolidated Financial Statements

Appendix 1: Chart of the Consolidated Entity as of December 31, 2010

Name and Corporate Seat of the Company

Local Currency

C ompAN Y C oNSolIDATED (ApAR T FRom pARENT C ompAN Y )

MorphoSys USA, Inc., Charlotte, North Carolina, USA

MorphoSys IP GmbH, Munich, Germany

MorphoSys UK Ltd., Oxford, UK

MorphoSys US, Inc., Raleigh, North Carolina, USA

MorphoSys AbD GmbH, Düsseldorf, Germany

Poole Real Estate Ltd., Poole, UK

Sloning BioTechnology GmbH, Puchheim, Germany

Exchange Rate

on Dec. 31, 2010,

one unit of Euro

in Local

Currency

US $

1.31944

US $

€

0.85485

1.31944

0.85485

–

Share of

Capital %

Share Capital
in Local

Currency

Total Assets
in Local

Total Liabilities
in Local

Total Revenue
in Local

Currency

Profit/Loss
in Local

Currency

100

2,000

25,000

100

50,000

25,000

200

951,660

3,948

197,485

7,570,937

2,651,265

1,660,408

922,043

5,082,415

161,984

2,523,075

1,082,255

471,971

2,559

1,477,830

3,343,800

10,773,699

8,760,805

4,310,313

300,793

(1,155)

353,952

1,162,195

337,627

(281,309)

(47,941)

(578,904)

The Company Group Management Report Financial Statements

In our opinion, based on the findings of our audit, the consolidated
financial statements comply with IFRS, as adopted by the EU, the
additional requirements of German commercial law pursuant to
sec. 315a (1) of the HGB and give a true and fair view of the net assets,
financial position and results of operations of the Group in accor-
dance with these requirements. The Group Management Report is
consistent with the consolidated financial statements and as a
whole provides a suitable view of the Group’s position and suitably
presents the opportunities and risks of future development.

Munich, February 21, 2011

KPMG AG
Wirtschaftsprüfungsgesellschaft
[Original German version signed by:]

Pastor
Wirtschaftsprüferin
[German Public Auditor]

Rahn
Wirtschaftsprüfer
[German Public Auditor]

Auditor’s Report

We have audited the consolidated financial statements prepared by
MorphoSys AG, Martinsried, comprising the balance sheet, the state-
ment of operations, the statement of comprehensive income, the
statement of cash flows, the statement of changes in stockholders’
equity and the notes to the consolidated financial statements, to-
gether with the Group Management Report for the business year
from January 1 to December 31, 2010. The preparation of the con-
solidated financial statements and the Group Management Report in
accordance with IFRS, as adopted by the EU, and the additional re-
quirements of German commercial law pursuant to sec. 315a (1) of
the HGB are the responsibility of the parent company’s manage-
ment. Our responsibility is to express an opinion on the consolidated
financial statements and on the Group Management Report based
on our audit.

We conducted our audit of the consolidated financial statements in
accordance with sec. 317 of the HGB (Handelsgesetzbuch; “German
Commercial Code”) and generally accepted German standards for
the audit of financial statements promulgated by the Institut der
Wirtschafts prüfer (IDW). Those standards require that we plan and
perform the audit such that misstatements materially affecting the
presentation of the net assets, financial position and results of opera-
tions in the consolidated financial statements in accordance with the
applicable financial reporting framework and in the Group Manage-
ment Report are detected with reasonable assurance. Knowledge
of the business activities and the economic and legal environment of
the Group and expectations as to possible misstatements are taken
into account in the determination of audit procedures. The effective-
ness of the accounting-related internal control system and the evi-
dence supporting the disclosures in the consolidated financial state-
ments and the Group Management Report are examined primarily
on a test basis within the framework of the audit. The audit includes
assessing the annual financial statements of those entities included
in consolidation, the determination of entities to be included in con-
solidation, the accounting and consolidation principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements
and Group Management Report. We believe that our audit provides
a reasonable basis for our opinion.

Our audit has not led to any reservations.

Supervisory Board Report

The most important topics in 2010 were the development and strengthening of MorphoSys’s
portfolio of drug candidates and the acquisition of Sloning BioTechnology GmbH. With the
in-licensing of Xencor’s CD19 antibody, the Company was able to double the number of pro-
prietary clinical programs, and with MOR202 a third program will start clinical development
in the first half of 2011. With the acquisition of the private company Sloning BioTechnology
GmbH, MorphoSys added a very innovative technology for gene synthesis, a move which
supports our ongoing technology advancements and will help to add additional partners to
the existing roster of leading pharmaceutical and biotechnology companies. The partnered
pipeline showed strong progress with eight new programs entering clinical development –
a record for the Company. At the end of 2010, 17 antibody programs were in clinical testing.

c ontinuouS dialog with the manage ment Board
During 2010, the Supervisory Board continued to perform with great
care the monitoring and advisory functions for which it is respon-
sible under the law and the Articles of Association. We regularly ad-
vised the Management Board on the management of the Company
and continuously observed and supervised its conduct of business.
The Supervisory Board was intensively involved from an early
stage in all decisions of significance for the Company. Together with
the Management Board, we determined the Company’s strategic
approach. In 2010, the majority of our discussions focused on the
Company’s proprietary therapeutic antibody drug development
plans as well as on in-licensing and acquisition opportunities to ac-
celerate the growth and increase the value of MorphoSys.

In the periods between meetings of the full Supervisory Board and
the committees, as the Chairman of the Board, I personally main-
tained regular contact with the Management Board and especially
with the Chief Executive Officer, Dr. Simon Moroney, and was kept
informed about the current business situation and key business trans-
actions. I also took the opportunity to talk directly to members of the
senior management group.

SuperviSory Board mee tingS and c ommit teeS
Eight Supervisory Board meetings were held in the 2010 fiscal year.
Between meetings, the Management Board kept us constantly in-
formed about all projects and plans of particular importance to the
Company. All events of importance to the Company were discussed
in detail by the committees and the Supervisory Board plenum on the
basis of reports by the Management Board. Thus, the Supervisory
Board was kept continuously informed about the Company’s intended
business strategy, corporate planning (including financial, invest-
ment and human resources planning), the earnings performance as
well as the state of the business and the situation of the Company
and the Group as a whole.

When we had questions about strategic topics impacting the Com-
pany, the Management Board provided sufficiently detailed answers
on the basis of the documents presented. The Managing Board regu-
larly provided us with timely and comprehensive information on Com-
pany planning and business operations as well as on the strategic
development and current state of the Company. Deviations from busi-
ness plans were explained to us in detail.

The Management Board provided us with extensive written reports
well in advance of each meeting, which were prepared by the Man-
agement Board with the input of the respective departments. These
reports contained detailed information on the state of the Company

The Company Group Management Report Financial Statements

and the development of its business, its financial situation, the person-
nel situation, development projects and fundamental issues of cor-
porate planning and strategy. They were sufficiently comprehensive
to explain the challenges and progress of MorphoSys. These reports
were the basis for the analysis of the relevant topics at the Supervi-
sory Board meetings and for passing the required resolutions.

The Supervisory Board dealt at length with the overall commercial
situation of MorphoSys, the development of revenues, earnings, in-
vestments and employment in the Group and its three business seg-
ments. All major investment projects were the subject of regular
deliberations at the meetings. The Management Board reported reg-
ularly on the progress of the existing partnerships, proprietary
antibody development, ongoing technology development efforts and
the progress of the AbD Serotec segment.

c orp or ate governance and management Board

c ompenSation
The Supervisory Board dealt with the ongoing development of cor-
porate governance at MorphoSys, taking into account amendments
made to the German Corporate Governance Code in May 2010. De-
tailed information on Corporate Governance* and the remuneration
system* can be found on pages 28 – 36 of the Management Report.

On December 22, 2010, the Management and Supervisory Boards
issued a new Declaration of Conformity, which is included in the
Corporate Governance chapter of this annual report and is also per-
manently available to shareholders on MorphoSys’s website. As
stated in the Declaration of Conformity approved by the Supervisory
Board, MorphoSys complies with all but four of the Code’s recom-
mendations.

Three committees deliberated on various aspects of the Company’s
business in 2010: the Audit Committee, the Remuneration & Nomi-
nation Committee, and the Science & Technology Committee. The
composition of these committees can be found in the Declaration
about Corporate Management on MorphoSys’s website*. The Audit
Committee met seven times, dealing mainly with accounting issues,
the quarterly financial statements and the annual financial state-
ments. The auditor attended three meetings of the Audit Committee
and informed its members of the audit results. The Remuneration &
Nomination Committee met formally once and concerned itself with
topics relating to the remuneration system and the level of compensa-
tion for the Management Board. The committee members also liaised
in the search for a successor to Mr. Dave Lemus as Chief Financial
Officer and took part in interviews with candidates. The Science &
Technology Committee met six times, focusing on the Company’s
technology and drug development plans, target selection and start of
new development programs, interim results from ongoing studies,
and the design of the planned and current clinical trials. Reports on
the meetings of the Committees were presented at the plenary ses-
sions of the Supervisory Board.

In 2010, one conflict of interest occurred. In my function as invest-
ment advisor at HBM Partners, one of the major investors in Sloning
BioTechnology GmbH, I reported a conflict of interest regarding the
planned acquisition of Sloning. I did not participate in any discussions
regarding the planned acquisition, nor receive any reports or min-
utes during the due diligence and offer period.

No Supervisory Board member was absent from more than two
meetings. With one exception, the committee meetings were fully
attended.

JenS holStein to Suc ceed dave lemuS aS chief

financial officer
In September 2010, the Company concluded mutual agreements with
its Chief Financial Officer, Mr. Dave Lemus, regarding the ending of
his more than 13 years of serving as MorphoSys’s CFO, and the sub-
sequent seamless transfer of his functions to a successor. On behalf
of both the Supervisory Board and the Management Board, I would
like to express my heartfelt thanks to Mr. Dave Lemus for his com-
mitment to helping build MorphoSys over the past thirteen years. His
contributions have been central in making the company as success-
ful as it is today. We wish him all the very best for the future.

We are very pleased to welcome Mr. Jens Holstein as new Chief Finan-
cial Officer, who will be a key member of the Management Board of
MorphoSys. Mr. Holstein has an outstanding track record and brings
international business experience, which will be important for the
Company as it continues its growth as one of Europe’s leading bio-
pharmaceutical companies.

audit of the annual financial Statement S
The financial statements and the management report of MorphoSys
AG are in accordance with the HGB (German GAAP) and the consoli-
dated financial statements and the Group Management Report of the
MorphoSys Group (MorphoSys AG including its affiliates) on the
basis of IFRS in accordance with sec. 315a of the HGB for the period
of January 1, 2010, to December 31, 2010, prepared by the Manage-
ment Board, were audited by KPMG AG, Wirtschaftsprüfungsgesell-
schaft, Munich. The audit contract had been awarded by the Audit
Committee of the Supervisory Board in accordance with the resolu-
tion of the Annual General Meeting on May 21, 2010. The auditor
issued an unqualified audit opinion.

more information at
w w w.morpho SyS .c om

Se e
page 28 e t Seq .

Se e
page 31 e t Seq .

Supervisory Board Report

“We are very pleased to welcome Mr. Jens Holstein
as new Chief Financial Officer. Mr. Holstein’s inter-
national business experience will be important for
the Company as it continues its growth as one
of Europe’s leading biopharmaceu tical companies.”

The auditor has audited the MorphoSys Group’s consolidated financial
statements and the annual financial statements of MorphoSys AG as
well as the management reports for the Group and the MorphoSys AG
according to the HGB and German auditing standards. The auditor
confirmed that the consolidated annual financial statements are an
accurate and fair reflection of the financial situation, the result of
business activity, and the Group’s cash flow, in accordance with the
accounting principles as defined by IFRS.

The focus of the 2010 audit of the consolidated financial statements
and the Group Management Report of the MorphoSys Group was the
process of preparing the consolidated financial statement, the accu-
racy of the annual financial statements included in the consolidated
financial statements, capital consolidation, especially the accounting
treatment of the acquisition of Sloning BioTechnology GmbH includ-
ing the related purchase price allocation, methods of foreign currency
translation, determination and impairment test of goodwill, deter-
mination of current and deferred taxes, the accuracy of segment re-
porting as well as the reasonableness of the disclosures regarding
future development of the Group in the Group Management Report.

The focus of this year’s audit of the financial statements and the
management report of MorphoSys AG was the process of preparing
the financial statements, the design, implementation and effective-
ness of internal controls in the procurement process as well as the
design, implementation and effectiveness of internal controls relat-
ing to Counsel Licensing & Intellectual Property, the completeness
of trade accounts payable and accruals for outstanding invoices,
the accurate recognition of the operating revenues, impairment of
financial assets and the reasonableness of the disclosures regard-
ing future development of the Company in the management report.

The audit reports and the financial statement documentation were
sent to all Supervisory Board members with a sufficient amount of
lead time for review. The audit report as well as the consolidated
financial statements and the MorphoSys Group Management Report
were intensively discussed at the Audit Committee meeting on Feb-
ruary 22, 2011, and at the Supervisory Board meeting on the same
day. The audit report as well as the financial statements and the
management report of MorphoSys AG were the subject of detailed
discussion at the Audit Committee meeting on March 10, 2011,
and at the subsequent Supervisory Board meeting on the same day.
At the respective meetings, the auditor took part in the discussion
of the financial statements. He reported on the main results of his
audits and was available to the Supervisory Board to answer ques-
tions and provide supplementary information. After our final review,
the Supervisory Board approved the financial statements without
objection or amendment and thus adopted them. The Supervisory
Board has also reviewed the proposal of the Management Board
for the use of the 2010 earnings; the Supervisory Board is in accor-
dance with this recommendation.

The Supervisory Board would like to thank the members of the Man-
agement Board and the employees of all MorphoSys companies for
their great commitment and outstanding achievements over the past
fiscal year.

Martinsried/Planegg, March 10, 2011

Dr. Gerald Möller
Chairman of the Supervisory Board

The Company Group Management Report Financial Statements

Supervisory Board of MorphoSys AG

Dr. Gerald Möller
Chairman

Prof. Dr. Jürgen Drews
Deputy Chairman

Dr. Walter Blättler
Member

Heidelberg, Germany

Cureggia, Switzerland, and Feldafing,
Germany

Brookline, MA, USA

Member of the Supervisory
Board of:

– Agennix AG, Germany
– Human Genome Sciences, Inc.,* USA

No other Supervisory Board
memberships

– BioAgency AG, Germany (Chairman)
– febit holding AG, Germany (Director)
– Illumina, Inc., USA (Director)
– Invendo Medical GmbH*, Germany

(Chairman)

– MTM AG, Germany (Chairman)
– 4sigma,* Bermuda (Chairman)
– Bionostics, Inc.,* USA (Director)
– Find Foundation,* Switzerland

(Chairman)

– Pelikan Technologies, Inc.,* USA

(Chairman)

– VIVACTA Ltd.,* UK (Director)

* Membership in comparable domestic and foreign supervisory boards of commercial enterprises

Supervisory Board of MorphoSys AG

Dr. Daniel Camus
Member

Dr. Metin Colpan
Member

Dr. Geoffrey N. Vernon
Member

Paris, France

Essen, Germany

Sampford Barton, UK

Member of the Supervisory
Board of:

– SGL Carbon, Germany
– Valéo,* France
– Vivendi SA, France

Member of the Supervisory
Board of:

– Qalovis GmbH,* Germany
– Qiagen NV,* the Netherlands

Member of the Supervisory
Board of:

– Advanced Medical Solutions,* UK

(Chairman)

– Apitope International NV,* UK

(Chairman)

– Genable Ltd.,* Ireland (Chairman)
– Veryan Medical Ltd., UK
– XL TechGroup, Inc,* USA (Chairman)
– Ziggus Holdings Ltd.,* UK (Chairman)

The Company Group Management Report Financial Statements

Senior Management Group of MorphoSys AG

Sascha Alilovic
Head of Corporate Development,
Legal Affairs, Compliance & Treasury

Silvia Dermietzel
Head of Global Human Resources

Dieter Feger
Head of AbD Serotec

Dr. Barbara Krebs-Pohl
Head of Business Development

Klaus de Wall
Head of Finance &
Accounting

Dr. Markus Enzelberger
Head of Discovery Alliances &
Technologies

Dr. Claudia Gutjahr-Löser
Head of Corporate Communica-
tions & Investor Relations

Dr. Ulrich Moebius
Head of Preclinical Develop-
ment & Project Management

Senior Management Group of MorphoSys AG

Dr. Ralf Ostendorp
Head of Protein Sciences

Dr. Margit Urban
Head of Target and Antibody
Discovery

Dr. Armin Weidmann
Head of Quality Assurance &
Regulatory Affairs

Dr. Lisa Rojkjaer
Head of Clinical Development

Dr. Harald Watzka
Head of Alliance Management

Dr. Günter Wellnhofer
Head of Technical Operations

The Company Group Management Report Financial Statements

Glossary

Amyloid-beta – Target molecule
in Alzheimer’s disease therapy; main
constituent of amyloid plaques in the
brains of Alzheimer’s disease patients

Antigen – Foreign substance stimulat-
ing antibody production; binding partner
of antibody

ADCC – Antibody-dependent cell-
mediated cytotoxicity; a mechanism
of cell-mediated immunity whereby
an effector cell of the immune system
actively destroys a target cell that
has been bound by specific antibodies

Antibody – Proteins of the immune
system that recognize antigens, thereby
triggering an immune response

Antibody library – A collection of
genes that encode corresponding hu-
man antibodies

Autoimmune disease – Disease
caused by an immune response by the
body against one of its own tissues,
cells or molecules

Biosimilars – Term used to describe
officially approved new versions of in-
novator biopharmaceutical products,
following patent expiry

Cash flow – Key performance indicator
in the cash flow statement used to as-
sess the financial and earning capacity

FDA – Food and Drug Administration;
US federal agency for the supervision of
food and drugs

IFRS – International Financial Report-
ing Standards; future EU-wide standards
produced by the IASB

CD20 – Therapeutic target for the
treatment of B-cell lymphomas and
leukemias

CD38 – Therapeutic target for the
treatment of multiple myeloma and
certain leukemias

Clinical trial – Clinical trials allow
safety and efficacy data to be collected
for new drugs or devices. Depending
on the type of product and the stage of
its development, investigators enroll
healthy volunteers and/or patients into
small pilot studies initially, followed by
larger-scale studies in patients

CLL – Chronic lymphocytic leukemia;
most common type of cancer of the
blood and bone marrow, affecting the
B-cells

COGS – Cost of goods sold; costs for
antibody material produced by the AbD
segment

GCP – Good clinical practice; an inter-
national ethical and scientific quality
standard for designing, conducting, re-
cording and reporting trials that involve
the participation of human subjects

GM-CSF – Granulocyte-macrophage
colony-stimulating factor; underlying
target molecule of MOR103 program

GMP – Good management practice;
term for the control and management
of manufacturing and quality control
testing of pharmaceutical products and
medical devices

Goodwill – An intangible asset that
reflects the value of a company’s name
and reputation, its customer relations
and other factors influencing its stand-
ing and competitiveness

EMA – European Medicines Agency

HGB – German accounting standards

HuCAL – Human Combinatorial Anti-
body Library. Proprietary antibody
library enabling rapid generation of
specific human antibodies for all
applications (explanation of GOLD/
PLATINUM)

Human – Of human origin

Immunization – Generation of anti-
bodies by administering antigen

In-vitro – In a test tube

In-vivo – In a living organism

Life sciences – All branches of
science that study all organisms, es-
pecially living ones

Macrophage – White blood cell that
ingests foreign material. Macrophages
are key players in the immune response
to foreign invaders such as infectious
microorganisms

Market capitalization – Value of a
company’s outstanding shares, as mea-
sured by shares times current price

M&A – Mergers and acquisitions

Milestone – Predefined events relating
to the development of the substance
into a drug

Glossary

Monoclonal antibody – Homogeneous
antibody originating from a single clone,
produced by hybridoma cell

MRSA – Methicillin-resistant Staphylo-
coccus aureus; type of bacteria that
is resistant to certain antibiotics and
causes severe infections; occurs most
frequently among patients in healthcare
settings

Phage-display technology – Screen-
ing technology; presentation of pep-
tides/proteins on surface of phages

Pharmacokinetics – Determination
of the fate of substances administered
externally to a living organism

S, G&A – Sales, general and adminis-
trative

Specificity – Property of antibodies,
for example, to discriminate between
different, but similar, antigens

Target – Target molecule for thera-
peutic intervention, e. g. on surface of
diseased cell

TecDAX – Index of the 30 largest
technology companies listed on the
Frankfurt Stock Exchange

Multiple myeloma – Type of cancer
that develops in a subset of white blood
cells called plasma cells formed in the
bone marrow

Plaque psoriasis – Most common
form of psoriasis, a chronic, non-conta-
gious autoimmune disease which affects
the skin and joints

Multiple sclerosis – Disease of the
central nervous system characterized
by the destruction of nerve fibers

Preclinic – Preclinical stage of drug
development; tests in animal models as
well as in laboratory assays

NIH – National Institutes of Health;
part of the US Department of Health
and Human Services, the primary
federal agency for conducting and sup-
porting medical research

Osteolysis – Dissolution or degenera-
tion of bone tissue through disease

Protein – Polymer consisting of amino
acids, e. g. antibodies and enzymes

RapMAT – Maturation process; propri-
etary technology of MorphoSys

R&D – Research and development

Reagent – A substance used in re-
search and diagnostic applications

Rheumatoid arthritis – Inflammatory
disease of the joints; abbreviation: RA

Royalties – Percentage share of owner-
ship of the revenue generated by drug
products

100

The Company Group Management Report Financial Statements

Index

Annual General Meeting

Apprenticeship position
Assets
Auditor’s report

30 et seq.,
70 et seq., 85
18
26, 48
90

Balance sheet
BHQ880

48, 57 et seq., 90
87

26, 36 et seq.
52
26
15 et seq.
36 et seq.

Cash flows
Cash flow statement
Capital expenditure
CD38
Change of control
Committees of the
91
Supervisory Board
13, 40
Competition
60, 74 et seq.
Convertible bonds
Corporate communications
30
Corporate Governance Report 13, 28
21
Corporate social responsibility
23
Cost of goods sold
26
Credit rating
71
Currency risk

28, 92

Declaration of Conformity
Declarations pursuant to sec. 315,
para. 4, of the German Commercial
Code (HGB)
Directors’ dealings
Dividend

35 et seq., 90
29
44, 74

Gantenerumab
Glossary
GM-CSF
Goodwill

86
98
15, 19
58, 69

Management Board
Management of the Group
Management report
Manufacturing license
Market capitalization
Milestone payments

Human resources

17 et seq.

MOR202

4, 13, 26 et seq.
13
12 et seq.
21
8
14, 21 et seq.,
37, 43, 85 et seq.
5, 15, 19 et seq.,
27, 42 et seq., 61
6, 15, 19 et seq.,
27, 43, 61, 91
5, 15, 19 et seq., 27,
41 et seq., 61, 87

Earnings per share
EBIT
Employees
Environmental protection
Equity

78, 80 et seq.
23
17 et seq.
22
26, 50 et seq.

Income taxes
Information required under
takeover law
Intellectual property
ISO certificates

61, 78

35 et seq.
20 et seq.
21

MOR103

MOR208

Net income
Non-operating items

32
23

Financial analysis
2011 Financial calendar
Forecast

22 et seq.
Back cover
26 , 41 et seq.

Key figures

Front cover

Operating expenses
Operating leases
Operating profit
Opportunities

23, 43
60, 81
6, 12, 23 et seq.
6, 15 et seq.,
30 et seq., 36 et seq.
41 et seq.

Letter to the shareholders
Liabilities
Liquidity

5 et seq.
26
8, 26, 43, 70

Outlook

Index

101

Patents
Pensions
Personnel costs
Procurement
Production
Proprietary pipeline
Provisions

20 et seq.
32
23, 78
22
22, 37, 61
32, 40 et seq.
36 et seq., 70

Quality assurance
Quality management

18, 21
21 et seq.

34 et seq.

86
31 et seq.

R1450
Remuneration report
Remuneration,
Supervisory Board
Remuneration,
31 et seq.
Management Board
Supervisory Board Report
91 et seq.
Research and development 19 et seq.
Research and development
expenses
Research Antibodies
Responsibility statement
Revenues
Revenue recognition
Risks
Risk management

23
15, 61
88
22 et seq.
60
28 et seq., 36 et seq.
30, 36

Sales, general and
23
administrative expenses
61 et seq.
Segment reporting
Segment Research Antibodies 14, 15
Segment Therapeutic Antibodies 15, 61
Shareholder structure
9
Shareholdings, Management
and Supervisory Boards
Share price development
Share, repurchase
Social responsibility
Statement of operations
Statements of changes in
shareholders’ equity
Stock-based compensation
Stock options
Subsequent events
Subsidiaries
Supervisory Board
Sustainability

50
23, 60
29 et seq., 76 et seq.
41
54 et seq.
91 et seq.
21

83 et seq.
9 et seq.
36
21 et seq.
46

Taxes
Trading volumes
Training

23 et seq.
9
17

VorstAG

WACC
WpHG

69
29, 35

102

Masthead

MorphoSys AG
Lena-Christ-Str. 48
82152 Martinsried/Planegg
Germany
Phone: +49-89-899-270
Fax: +49-89-8992-7222
www.morphosys.com

Corporate Communications and
Investor Relations
Phone: +49-89-8992-7404
Fax: +49-89-899-275-404
Email: investors@morphosys.com

Concept and Design
3st kommunikation GmbH, Mainz

Photos
Andreas Pohlmann, Munich
Julia Teine, Mainz

Translation and Editorial Support
FinKom Gesellschaft für
Finanzkommunikation mbH, Usingen
Friedrichs & Friends, Lübeck

Typesetting and Lithography
Knecht GmbH, Ockenheim

Printer
Westdeutsche Verlags- und Druckerei
GmbH, Mörfelden-Walldorf

Copy Deadline
March 10, 2011
(except financial statements)

This financial report is also pub-
lished in German and is available
for download from our website.

HuCAL®, HuCAL GOLD®,
HuCAL PLATINUM®, CysDisplay®
and RapMAT® are registered
trademarks of MorphoSys;
arYla™ is a trademark of MorphoSys.

Key Figures (IFRS)

Product Pipeline

M O R P H O S Y S G R O U P (in € million, if not stated otherwise)

M O R P H O S Y S’ S P R O D U C T P I P E L I N E A S O F D E C E M B E R 31, 2010

12 /31/2010

12 /31/2009

12 /31/2008

12 /31/2007

12 /31/2006

Discovery

Preclinic

Phase 1

Phase 2

Phase 3

Market

RESULTS

Revenues

Cost of Goods Sold

R&D Expenses

S, G&A Expenses

Personnel Expenses (Excluding

Stock-based Compensation)

Capital Expenditure

Depreciation

Amortization of Intangible Assets

Proﬁ t from Operations

EBITDA (Earnings Before Interest,

Taxes, Depreciation and Amortization)

EBIT (Earnings Before Interest and Taxes)

Net Proﬁ t

BAL ANCE SHEE T

Total Assets

Cash, Cash Equivalents and

Available-for-sale Financial Assets

Intangible Assets

Total Liabilities

Stockholders’ Equity

Equity Ratio (in %)

THE MORPHOSYS SHARE

Number of Shares Issued

Earnings per Share, Diluted (in €)

Dividend (in €)

Share Price (in €)

PERSONNEL DATA

Total Group Employees (Number)

Germany (Number)

Other Countries (Number)

87.0

7.3

46.9

23.2

29.6

13.8

2.1

4.0

9.8

19.2

13.1

9.2

108.4

69.2

26.6

185.9

87 %

0.40

–

18.53

464

370

81.0

6.7

39.0

23.9

26.1

3.8

1.6

3.8

11.4

18.1

12.8

9.0

135.1

17.4

32.2

173.9

84 %

0.40

–

17.04

404

301

103

71.6

7.1

27.6

20.5

21.5

3.8

1.5

4.8

16.4

21.9

16.5

13.2

137.9

19.7

41.3

162.0

80 %

0.59

–

18.75

334

236

62.0

7.9

22.2

24.8

18.8

12.0

1.5

3.7

7.0

13.3

8.3

11.5

184.7

106.9

22.3

39.2

145.5

79 %

0.53

–

16.10

295

192

103

212.6

206.1

203.3

53.0

8.0

17.5

21.4

18.1

4.0

1.5

3.4

6.2

10.3

5.4

6.0

127.8

66.0

14.8

27.8

100.1

78 %

0.31

–

18.12

279

183

22,890,252

22,660,557

22,478,787

22,160,259

20,145,966

BHQ880, Novartis

Novartis

CNTO 888, Centocor Ortho Biotech

Gantenerumab, Roche

CNTO 1959, Centocor Ortho Biotech

CNTO 3157, Centocor Ortho Biotech

Centocor Ortho Biotech

BAY79-4620, Bayer Schering

Novartis

Boehringer Ingelheim

Pﬁ zer

OMP-59R5, OncoMed

20 Partnered Programs

30 Partnered Programs

MOR103

MOR208

MOR202

Early-stage Cancer Programs

Early-stage Anti-inﬂ ammatory Programs

65 Partnered Programs

8 Own Programs

MorphoSys/Novartis

2 Pre-development Programs

Financial Calendar

February 24, 2011 Publication of 2010 Year End Results

April 29, 2011

Publication of 2011 Three Months’ Report

May 19, 2011

2011 Annual Shareholders’ Meeting in Munich

July 29, 2011

Publication of 2011 Six Months’ Report

October 28, 2011

Publication of 2011 Nine Months’ Report

Annual Report 2010

Antibodies for Life

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MorphoSys AG
Lena-Christ-Str. 48
82152 Martinsried / Planegg
Germany
Phone: +49-89-899-270
Fax:
www.morphosys.com

+49-89-8992-7222