MorphoSys Annual Report 2012

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FY2012 Annual Report · MorphoSys

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A N N U A L R E P O R T 2012

ANTI
BODIES
CON
NECT

Product Pipeline

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 31 D E C E M B E R 2012

Program / Partner

Indication

Discovery

Preclinic

Phase 1

Phase 2

Phase 3

Market

MOR208

MOR103

MOR202

Early-stage Programs

Gantenerumab/Roche

CNTO1959/Janssen Biotech

Novartis

BHQ880/Novartis

BYM338/Novartis

LFG316/Novartis

Cancer

Rheumatoid arthritis

Multiple sclerosis

Multiple myeloma

Inﬂ ammation

Infectious diseases

Alzheimer’s disease

Psoriasis

Rheumatoid arthritis

not. discl.

Cancer

Musculoskeletal

Ophthalmology

OMP-59R5/Oncomed/GSK

BAY94-9343/Bayer

Boehringer Ingelheim

Cancer

not. discl.

CNTO3157/Janssen Biotech

Asthma

Janssen Biotech

LJM716/Novartis

VAY736/Novartis

Vantictumab/Oncomed

Pﬁ zer

20 Partnered Programs

34 Partnered Programs

Inﬂ ammation

Cancer

Inﬂ ammation

Cancer

6 Proprietary Programs

70 Partnered Programs

ANTI
BODIES
CON
NECT

Therapeutic antibodies can bind disease relevant target molecules or attach themselves
to pathogens. Modern life science aims to exploit this basic function of antibodies
to improve patients’ lives. Therapeutic antibodies likewise can link different stories
together, different people, their professions, sometimes their entire lives: patients,
doctors, scientists, investors and many more.

In the context of our Annual Report 2012 antibodies ﬁ guratively build bridges between
print and online media. You will ﬁ nd several references and links to additional back-
ground information online.

we encour age you, dear reader, to e xplore these connections.

Antibodies connect

CONNECT

A N T I B O D I E S – B A S I C S
w h at a r e a n t i b o d i e s? h o w d o t h e s e m o l e c u l e s
lo o k l i k e ? w h at d o t h e y d o?

Antibodies can accurately bind and detect almost any molecule.
They are an essential component of the human immune system.
Using antibodies to ﬁ ght diseases is a logical extension of their
natural role.

/ / / L E A R N M O R E A B O U T A N T I B O D I E S I N O U R O N L I N E M A G A Z I N E

Antibodies connect

O U R P I P E L I N E
t h e c o m pa n y ’s p i p e l i n e c o n s i s t s o f pa r t n e r e d
p r o g r a m s a n d a p r o p r i e ta ry p o r t f o l i o o f d r u g
c a n d i dat e s .

More than 70 therapeutic antibody programs based on the Com-
pany’s technologies are currently in development, of which 20 are
in clinical trials. The list of product candidates includes exciting
programs to treat rheumatoid arthritis, multiple sclerosis, cancer,
muscle wasting, Alzheimer’s disease and many more.

/ / / L E A R N M O R E A B O U T O U R P I P E L I N E I N O U R O N L I N E M A G A Z I N E

O U R T E C H N O L O G Y P L AT F O RM S
m o r p h o sys i s c o m m i t t e d to n e w t e c h n o lo gy a n d
d r u g d e v e lo p m e n t to e n g i n e e r t h e m e d i c i n e s o f
to m o r r o w.

MorphoSys has developed new technologies relating to the gen-
eration of recombinant antibodies, which set the standard for how
antibodies will be made in the future.

/ / / L E A R N M O R E A B O U T O U R T E C H N O L O G I E S I N O U R O N L I N E M A G A Z I N E

Contents ﬁ nancial report

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A N N U A L R E P O R T 2012

CON
TENTS

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A D D I T I O N A L I N F O R M AT I O N
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T H E C O M P A N Y / / / Management Board of MorphoSys AG

Management Board of MorphoSys AG

DR. SIMON E. MORONEY /// C HIEF EXECU T IVE OF F IC ER

JENS HOL S T EIN /// C HIEF F INANC IAL OF F IC ER

DR. ARND T S C HO T T EL IUS /// C HIEF DEVEL OPMEN T OF F IC ER

DR. MARL IE S SPROL L /// C HIEF S C IEN T IF IC OF F IC ER

T H E C O M P A N Y / / / Letter to the Shareholders

Letter to the Shareholders

The year 2012 was one of the most successful in the history of MorphoSys. Major advances in the develop-
ment of several programs in our clinical pipeline were the decisive events of the year. The positive reaction
of our share price illustrates the importance of these programs for the Company’s value proposition. Our
long-term strategy of using innovative technology to engineer the medicines of tomorrow is paying oﬀ as
momentum builds in the pipeline. For this reason we decided to divest AbD Serotec, the diagnostic and re-
search antibody unit, in order to focus MorphoSys on the huge opportunities we have in the therapeutic seg-
ment of our business.

We have made remarkable progress with our proprietary drug portfolio. The positive outcome of the phase
1b/2a trial of MOR103 in rheumatoid arthritis provides a solid foundation for out-licensing the product, while
the quality of the clinical data is a testament to our research and development capabilities. We are continu-
ing to develop our other proprietary clinical candidates MOR208 and MOR202 at full speed and also aim to
expand our proprietary portfolio.

Recent progress in the partnered portion of our pipeline has also been very encouraging. In particular,
interest in the HuCAL antibody gantenerumab, being developed by Roche for Alzheimer’s disease, increased
signiﬁ cantly in 2012. Alzheimer’s is one of the greatest medical challenges faced by society today, so an
eﬀ ective treatment would have blockbuster potential. Clinical data from other programs suggest that Roche’s
strategy of intervening early in the clinical progression of Alzheimer’s is one of the most promising thera-
peutic approaches to the disease. While gantenerumab is the ﬁ rst HuCAL antibody to progress to a potentially
pivotal phase 2/3 study, there are a further nine partner programs currently in phase 2 development.

T H E C O M P A N Y / / / Letter to the Shareholders

Regarding technology, we aim to enhance our position as an originator of the most advanced platforms for
the development of therapeutic antibodies. The latest advance in this area is our antibody library Ylanthia,
which we began commercializing in the fourth quarter of 2012. It was in our interest to begin this next
phase of growth with our biggest partner, Novartis. This collaboration, which will continue at least until 2017,
has generated six clinical candidates so far and will continue to contribute to our pipeline of therapeutic
antibodies. We are convinced that we can make the collaboration even more productive using the latest tech-
nologies. It was equally important that we should have the ﬂ exibility to partner Ylanthia further and we
have also ensured this.

Our ability to construct high quality protein libraries and use these in drug development creates opportuni-
ties with molecules other than antibodies. This is behind our partnership with the start-up company Lanthio
Pharma, our ﬁ rst venture beyond antibodies into a new molecular class. Lanthio Pharma’s lantipeptides
comprise an exciting class of compounds whose applications could complement those of antibodies, thereby
expanding our therapeutic reach. The cooperation with Lanthio Pharma is also associated with another
new aspect for MorphoSys, namely the minority equity stake we have taken in the company.

The AbD Serotec segment was established to complement our therapeutics activities by commercializing
antibodies in the research and diagnostics markets. As our drug pipeline advanced, it became clear that
opportunities to generate value for our shareholders through enhanced eﬀ orts in the therapeutic ﬁ eld sub-
stantially exceed the potential in research and diagnostics. The time was therefore right to separate the
two business areas. The sale of AbD Serotec to Bio-Rad for a total consideration of EUR 53 million, which we
announced at the end of 2012, provided a ﬁ nancially attractive opportunity for us to adopt a pure focus
on therapeutics. At the same time, our former colleagues at AbD Serotec become part of an international
research and diagnostics group which will beneﬁ t from their experience and know-how.

T H E C O M P A N Y / / / Letter to the Shareholders

“Major advances in the development of several programs
were the decisive events of the year. Our strategy of
using innovative technology to engineer the medicines
of tomorrow is paying off as momentum builds in the
pipeline.”

In the past year, MorphoSys was again able to invest signiﬁ cantly in proprietary research and development
while remaining proﬁ table. Financial stability, based on cash and cash equivalents of currently more than
EUR 180 million together with a cash-generating partner business continues to be one of the greatest strengths
of our company. Cash provides us with great strategic ﬂ exibility as we consider further transactions such
as acquisition, equity participation and other deals as a means of accessing new drug candidates and tech-
nologies. We will also invest, as necessary, to generate the maximum possible value from our portfolio of
drug candidates.

Overall, 2012 was a landmark year for MorphoSys and 2013 could be even more exciting. The out-licensing
of proprietary drug candidates such as MOR103 will be an important factor that will drive the company’s
ﬁ nancial performance in the years to come. Now, more than ever, we are committed to building a company
that is focused on drug development and built on a foundation of innovative technology.

Our success is only possible thanks to the hard work, loyalty and creativity of our employees, to whom
I would like to express my sincerest thanks. I would also like to thank you, our shareholders, for your con-
tinued support. Together with you, I wish our company a successful 2013.

Dr. Simon E. Moroney
Chief Executive Oﬃ cer

C O N T E N T S

GROUP
MANAGE
MENT
REPORT

1 3

o p e r at i o n s a n d b u s i n e s s e n v i r o n m e n t

3 4

4 2

4 9

5 5

5 9

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 uat i o n

a n d b a l a n c e s h e e t

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

r i s ks a n d o p p o r t u n i t i e s r e p o r t

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

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

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

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

FOCUS
ON
PIPE
LINE

MorphoSys sharpened its focus on therapeutic
applications in 2012 and made clear progress
in respect of its future technologies and prod-
ucts. The market launch of the new technol-
ogy platform Ylanthia enabled the start of the
ﬁ rst revenue-generating partnership in 2012.
The foundations for future out-licensing agree-
ments were further improved through positive
clinical data on its proprietary drug programs
MOR103 and MOR208. The sale of substan-
tially all of the business segment AbD Serotec
also increased MorphoSys’s ﬁ nancial ﬂ exibil-
ity to further extend the therapeutics business
through strategic transactions and invest-
ments in proprietary R&D activities.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

Operations and Business
Environment

Organizational Structure

ORGANIZAT ION AND GL OBAL PRESENCE OF T HE

MORPHOSY S GROUP
The MorphoSys Group, made up of MorphoSys AG and its sub-
sidiaries, develops and commercializes high-quality antibodies*
for therapeutic as well as research and diagnostic applications.
Industry-leading proprietary technologies form the basis of busi-
ness activity for the three business segments. The Partnered
Discovery segment operates therapeutic development programs
for drug candidates in cooperation with renowned biotechnol-
ogy and pharmaceutical companies. Together with partners, this
segment works on solutions to the most urgent health issues
of our time. The second segment, Proprietary Development, also
operates in the therapeutic market. The goal of this segment
is to develop proprietary drug candidates based on innovative
therapeutic antibodies made using the Company’s technology.
These are to be out-licensed to partners after successful proof
of clinical eﬃ cacy. The third operating segment, AbD Serotec,
supplies public and industrial research institutions as well as
diagnostics groups with premium antibodies. The sale of sub-
stantially all1 of MorphoSys’s research and diagnostics division,
AbD Serotec, to Bio-Rad2 was agreed on 16 December 2012 in

order for MorphoSys to focus on the development of proprietary
drugs and technologies. The transaction was concluded in Janu-
ary 2013, which has numerous eﬀ ects on the 2012 reporting year
as stated later in this report.

In 2012, MorphoSys had ﬁ ve sites in Germany, Great Britain
and the USA. MorphoSys AG, as the parent company of the
MorphoSys Group, is located in Martinsried, Germany, and car-
ries out central group functions including accounting, con-
trolling, human resources, legal, intellectual property, corporate
communications and investor relations. The two segments Part-
nered Discovery and Proprietary Development are located here,
also. The R&D* activities of the AbD Serotec unit are located in
Puchheim near Munich, Germany, and Kidlington near Oxford,
United Kingdom. MorphoSys’s international sales are handled
by the national oﬃ ces in Germany, the United Kingdom and in
the United States of America. With the sale of substantially all
of the AbD Serotec business unit to Bio-Rad, agreed at the end
of 2012, the four sites in Puchheim, Düsseldorf, Kidlington and
Raleigh will be transferred to Bio-Rad during 2013.

MorphoSys continues to carefully consider locational advantages
such as good infrastructure, a qualiﬁ ed workforce, an appro-
priate supplier base, plus political support for biotechnology and
life sciences* as well as synergies resulting from coop eration
with regional research institutes in order to support its future
growth objectives.
*S E E G L O S S A R Y /// pa g e 1 3 4

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F IG . 1 /// ORGANI ZAT IONAL S T RUC T URE OF T HE MORPHO S Y S GROUP

MorphoSys AG

S E G M ENTS

E L D S OF USE

Sale of research and diagnostic segment
AbD Serotec announced in December 2012

AbD Serotec

Research and Diagnostics

Partnered Discovery
Proprietary Development
Therapeutic Antibodies

1 Bio-Rad acquired the AbD Serotec segment, not including the subsidiary Poole Real Estate Ltd. and the Slonomics technology
2 Bio-Rad Inc. and subsidiaries of Bio-Rad Inc., including MorphoSys AbD GmbH, will subsequently be named “purchaser” respectively “Bio-Rad”

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

L EGAL S T RUC T URE OF T HE MORPHOSY S GROUP

GROUP MANAGE MENT AND SUPE RVISION
MorphoSys AG, a German stock corporation listed in the Prime
Standard segment on the Frankfurt Stock Exchange, heads the
MorphoSys Group. In accordance with the German Stock Corpo-
ration Act, MorphoSys AG has a dual management structure,
with the Management Board as the leading body. Its four mem-
bers are appointed and supervised by the Supervisory Board.
For more information regarding Group management, supervision
and corporate governance in general, please see the Corporate
Governance Report on page 59. The Senior Management Group,
which completes the MorphoSys AG management team, com-
prises 14 people from the diﬀ erent MorphoSys departments. In
this reporting year, there have been no changes to the legal
structure of the MorphoSys Group or its entities compared to
the year before. However, the sale of substantially all of the
AbD Serotec segment to Bio-Rad completed in January 2013, has
laid the foundation for a wide-reaching simpliﬁ cation of the
Group-structure and a focus on the therapeutic markets.

BUSINESS AC T IVI T IES

MORPHOSYS’S TECHNOLO GIES
MorphoSys’s technology development forms the foundation of
its success. For more than ten years the Company has been
working with its HuCAL* antibody library, a collection of bil-
lions of fully human antibodies. With 76 therapeutic HuCAL
programs currently in development, the most advanced of which
is a phase 3 trial in Alzheimer’s disease, the Company has one
of the broadest product pipelines in the industry.

In order to successfully drive research work in the future, the
next generation of antibody technologies was launched under
the name of Ylanthia*. The Ylanthia technology was specially
conceived to eliminate current obstacles in the development
of therapeutic antibodies, such as the limitations of biophysical
properties or a lack of structural diversity. If necessary, anti-
bodies from the Ylanthia library can be precisely optimized
with the help of the Slonomics* technology. In this respect
Ylanthia diﬀ ers from the HuCAL platform, which builds on the
modular design of antibody genes using predeﬁ ned gene
cassettes for the optimization of antibodies. In November 2012,
MorphoSys successfully began marketing this innovative plat-
form with an extension to its existing commercial agreement
with Novartis.

In addition to therapeutic antibodies, MorphoSys strives to com-
plement its technology platform by securing access to new mar-
kets and molecule classes. The technology alliance and equity
investment in the Dutch start-up Lanthio Pharma, a pioneer in
the ﬁ eld of modern peptide compounds, which was signed in
2012, is an example of this endeavor.

MORPHOSYS IN THE THER APEUTIC MARKE T
MorphoSys is a leading provider of superior antibody technolo-
gies in the therapeutic market. With HuCAL and the novel
Ylanthia library, the Company oﬀ ers established and highly in-
novative technologies for the pharmaceutical and biotech-
nology markets. In addition to these services MorphoSys also
undertakes proprietary drug development and participates in
the successful development of therapeutic antibody candidates.
The Company relies on partnerships with pharmaceutical and
biotechnology companies to earn revenues that are reinvested
in proprietary R&D activities. Alongside signiﬁ cant invest-
ments in proprietary development programs, MorphoSys has
solid operating results – a unique characteristic in the bio-
technology industry.

Smaller biopharmaceutical companies in particular faced great
ﬁ nancial challenges in the reporting year, not least because of
the global economic situation. This has led to restrictive ﬁ nanc-
ing opportunities for many companies that are focused on capi-
tal-intensive and long-standing research activities, which require
hefty ﬁ nancial resources. In this market environment, MorphoSys
can assert itself best as a progressive product and technology
provider with extensive capital resources.

C OMPE TITIVE L ANDSCAPE
The market for therapeutic antibodies is one of the fastest grow-
ing in human healthcare. In 2012, the human monoclonal anti-
body* adalimumab (Humira®) led the list of top-selling drugs
worldwide for the ﬁ rst time.

According to Datamonitor, there are more than 300 mono-
clonal antibody candidates currently in clinical development.
MorphoSys currently has twenty antibody candidates in the
clinical pipeline. Oncology accounts for the highest number of
programs in clinical development, with around half of all pro-
grams in the various development phases. After oncology, the
second-largest therapy area includes autoimmune and inﬂ am-
matory diseases. The third-most represented therapy area is in-
fectious diseases. These research ﬁ elds continue expanding
with the introduction of new indications such as osteoporosis,
muscular atrophy and cholesterol control. Additionally, newly
created technologies such as antibody drug conjugates (ADCs*),
bispeciﬁ c* and trifunctional* antibodies, domain antibodies,
nanobodies and Fc-antibodies illustrate the diversity of the anti-
bodies market.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

TAB . 1 /// T OP 5 MONO CL ONAL AN T IBOD Y DRUGS

Generic Name

Brand®

Company

Indications
(FDA*/EMA* approved)

Revenues esti-
mate for 2012
in US$ billion

Adalimumab

Humira

Abbott

Inﬂ iximab

Remicade

J&J, Merck,
Mitsubishi Tanabe

Rituximab

Rituxan

Roche

Trastuzumab

Herceptin

Bevacizumab

Avastin

Roche

Rheumatoid Arthritis*, Juvenile Idiopathic Arthritis,
Psoriatic Arthritis, Ankylosing Spondylitis, Crohn’s
Disease, Plaque Psoriasis

Crohn’s Disease, Pediatric Crohn’s Disease,
Ulcerative Colitis, Pediatric Ulcerative Colitis,
Rheumatoid Arthritis, Ankylosing Spondylitis,
Psoriatic Arthritis, Plaque Psoriasis*

Non–Hodgkin’s Lymphoma (NHL), Chronic Lym-
phocytic Leukemia (CLL) Rheumatoid Arthritis
(RA), Granulomatosis with Polyangiitis (GPA) and
Microscopic Polyangiitis (MPA)

Adjuvant Breast Cancer, Metastatic Breast
Cancer, Metastatic Gastric Cancer

Metastatic Colorectal Cancer (mCRC), Non-
Squamous Non-Small Cell Lung Cancer (NSCLC),
Glioblastoma, Metastatic Renal Cell Carcinoma
(mRCC)

9.48

7.67

6.94

6.08

5.98

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Source: www.ﬁ ercepharma.com, article as of 9 October 2012

In the commercialization of its antibody technologies, MorphoSys
competes with other providers of antibody technologies that
can be divided into two categories:
• Antibody and antibody fragment technologies as oﬀ ered

by companies such as Ablynx, Adimab, Bioinvent, Dyax and
Genmab.

• Antibody-mimicking structures (scaﬀ olds), such as those

from Molecular Partners (Switzerland) or Pieris (Germany).

There are no market data available that comprehensively capture
the marketing of technologies in the area of antibody develop-
ment. MorphoSys currently has 20 antibody programs in clinical
development. Measured by this number, MorphoSys occupies a
leading position in this ﬁ eld with its HuCAL technology platform.

MorphoSys competes in the area of therapeutic antibody develop-
ment and the out-licensing of clinical development candidates
with a range of companies. Examples of MorphoSys’s competi-
tion are: Biotest, Genmab, Macrogenics and Symphogen.

MorphoSys has not yet out-licensed any proprietary develop-
ment programs to date, therefore no information on the market
share can be given.

PAR TNE RED DISC OVERY
MorphoSys’s Partnered Discovery segment business applies the
Company’s proprietary technologies to the research, develop-
ment and optimization of therapeutic antibody drug candidates
in partnerships with pharmaceutical and biotechnology com-
panies. While the development costs are borne by the respective
partner, MorphoSys proﬁ ts further from successful programs
in the form of milestone payments and potential royalties* on
product sales.
*S E E G L O S S A R Y /// pa g e 1 3 4

The Company’s largest alliance is the 2007 agreement signed
with Novartis, a pharmaceutical partner with a growing biologics
pipeline. This collaboration was expanded through an additional
agreement in November 2012. Within the framework of the agree-
ment, both companies implemented MorphoSys’s next genera-
tion antibody platform Ylanthia to generate therapeutic antibod-
ies. MorphoSys plans to broadly license the technology with
new partnerships in the future.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

F IG . 2 /// P AR T NERED DI S CO VER Y SEGMEN T ’S SHARE OF T O TAL REVENUE S ( IN MIL L ION € )

Total Revenue*: 69.6 »

Segment: 44.7

Total Revenue: 71.6 »

Segment: 54.3

Total Revenue*: 100.8 »

Segment: 79.3

64 %

2 0 1

1
1

2010

76 %

2
0
0

76 %

79 %

Total Revenue: 81.0 »

Segment: 61.7

Total Revenue: 87.0 »

Segment: 66.3

* Thereof revenue of discontinued operations 2012: 17.7 (2011: 18.7)

Partnered drug development allows MorphoSys to be active in
a broad range of indications that the Company normally would
not pursue due to a lack of expertise, for instance:

more, the solid patent position around our development programs
greatly improves the Company’s standing.

CENTR AL NERVO US SYSTEM DISE ASES – AL ZHEIMER ’S DISE ASE
With the antibody compound gantenerumab, developed together
with its partner Roche, MorphoSys’s portfolio contains a promis-
ing treatment option for Alzheimer’s disease (AD). There are
currently no drugs that can fundamentally inﬂ uence the course
of AD. In the reporting year 2012, the competitive situation in
the Alzheimer’s therapy ﬁ eld changed signiﬁ cantly in terms of
the development of existing antibody compounds. Negative
trial results with the two therapeutic antibodies bapineuzumab
(Pﬁ zer) and solanezumab (Eli Lilly) from patients in the mild
to moderate stages of the disease have shifted the focus to earlier
intervention. Roche is already carrying out its current pivotal
phase 2/3 trial in patients in the early stages of the disease. The
HuCAL antibody gantenerumab is now recognized as one of the
most advanced compounds in development.

PROPRIE TARY DE VELOPME NT
An important goal for MorphoSys is generating value above and
beyond its Partnered Discovery segment by developing inno-
vative proprietary antibody products. MorphoSys’s scientists
concentrate on indications such as inﬂ ammatory and auto-
immune diseases*, as well as cancer and infectious diseases.
The ﬁ rst clinical trial data, published in 2012, support the
great potential value of MorphoSys’s proprietary drugs. Further-

INFL AMMATORY AND AU TO IMMUNE DISE ASES
Chronic inﬂ ammatory and autoimmune disorders are a substan-
tial social and economic burden, aﬀ ecting millions of patients
worldwide. The IMS Institute for Healthcare Informatics forecasts
a world market for the treatment of autoimmune diseases of be-
tween US$ 33 billion and US$ 36 billion by 2016.

MorphoSys’s most advanced program, MOR103, targets the GM-
CSF target molecule*, an important factor in the pathophysiol-
ogy of inﬂ ammatory diseases. The clinical phase 1b/2a trial for
the treatment of rheumatoid arthritis* (RA) was concluded in
September 2012 with outstanding data on safety and eﬃ cacy. A
phase 1b trial for multiple sclerosis* (MS) continued in 2012.
Furthermore, MOR103 was safe and well tolerated and demon-
strated a favorable and competitive pharmacokinetic proﬁ le in
a clinical phase 1 study in healthy volunteers.
*S E E G L O S S A R Y /// pa g e 1 3 4

The RA market bears great commercial opportunities; more than
80 % of total turnover already consists of biological therapies.
The overall market is constantly growing, with a total estimated
value of around US$ 18 billion in 2020. Several transactions in
the RA area in recent years underline the interest of pharmaceu-
tical companies in novel biological treatment methods.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

Biotechnology drugs already make up the majority of disease-
modifying treatment processes in the MS market, both in
terms of turnover and the number of approved therapies. The
current most-sold MS drugs reach a joint annual turnover of
around US$ 11 billion and the market is predicted to grow fur-
ther. Diﬀ erences in relation to the course and severity of MS
lead to market segmentation into subtypes of the disease, for
example relapsing-remitting MS or primary and secondary
progressive forms of MS. This segmentation opens up various
market approval pathways for new therapeutic compounds.

MOR103 has potential to be the ﬁ rst in class anti-GM-CSF anti-
body. Other advanced programs in development are mavrilim-
umab (CAM-3001) from Medimmune, part of the AstraZeneca

Group, which is currently being evaluated in a phase 2 clinical
trial, MT203 from Amgen and Takeda, and KB003 from Kalobios
Pharmaceuticals. MorphoSys is one of the few independent pro-
viders to possess a clinically validated GM-CSF antibody, which
is available to commercial partners for licensing.

MorphoSys has a collaboration with Galapagos for the discov-
ery and development of antibody therapies based on novel
modes of action in bone and joint diseases, including rheuma-
toid arthritis, osteoporosis and osteoarthritis. Both companies
contribute their core technologies and expertise to the alliance.
Under the terms of the agreement, Galapagos and MorphoSys
will equally share the research and development costs and all
future revenues.

TAB . 2 /// MARK E T DATA ON SEL EC T ED P AR T NERED PRO GRAMS IN C L INIC AL PHA SE 2

Program Name

MorphoSys Partner

Indication

Market Potential

Gantenerumab

Roche

Alzheimer’s Disease (AD)

• High unmet medical need due to lack of disease-modifying

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BYM338

Novartis

Inclusion Body Myositis*
Cachexia

drugs

• High potential market growth rate due to aging population,

earlier and improved diagnosis and the emergence of
accompanying immunotherapies that will be prescribed in
addition to existing treatments

• Expected CAGR*: 10.7 %, with a total market size of around

US$ 11.8 billion in 2018

Inclusion Body Myositis:
• Slowly progressive degenerative inﬂ ammatory disorder of
skeletal muscles with very low prevalence of 1–9/100.000
(orphan disease)

• No Curative treatment exists so far

Cachexia:
• Emaciation by waste of muscles and fat
• 55 % of all cancer patients are aﬀ ected in the course of their
disease. This makes about 1.9 million of 3.5 million cancer
patients in the seven major markets*

CNTO1959

Janssen Biotech

Psoriasis,
Rheumatoid Arthritis

Psoriasis:
• Life-long disease with high morbidity and severe impact on

patients’ quality of life

• New biologic therapies as market value driver; sales growth

to US$ 5.5 billion in 2020; CAGR: 2.2 % (2011 through
2020)*

Rheumatoid Arthritis:
• Inﬂ ammatory autoimmune disease that leads to reduced

mobility

• In 2010 there have been about 4.6 million people* with RA
• Expected CAGR: 2.9 %*, with a market potential of US$ 18

billion in 2020

Sources: www.orpha.net, Datamonitor
* Seven major markets: USA, Japan, France, Germany, Italy, Spain and Great Britain

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

O N C O LO GY
The ability of monoclonal antibodies to bind to speciﬁ c antigens*
has led to their dominant position in the area of targeted cancer
therapies. The global market for innovative biological therapies
in cancer treatment is constantly growing. More precisely, the
biologicals segment in oncology is forecast to almost double in
size by 2014, eventually exceeding US$ 50 billion in the next ﬁ ve
to ten years, according to BCC Research. MorphoSys has ad-
vanced two proprietary cancer programs, namely MOR202 and
MOR208, into clinical development* in the past two years.

MorphoSys’s antibody MOR208 targets the molecule CD19*,
which is of particular interest for many B-cell-derived cancers.
The therapeutic market for B-cell malignancies is about US$
4 – 5 billion according to market research ﬁ rm Decision Re-
sources. Existing biological therapies against B-cell malig-
nancies, including the blockbuster product Rituxan®, target the
cell marker CD20*. Due to the target molecule being expressed
on a broader range of B-cells – compared to CD20 – anti-CD19
antibodies are considered to be an alternative approach. In ad-
dition, MOR208 is improved by the modiﬁ cation of the constant
Fc part* of the antibody, leading to increased antibody-depen-
dent cellular cytotoxicity (ADCC*) and antibody-dependent cel-
lular phagocytosis (ADCP*).

MOR208 successfully concluded a phase 1/2a trial in chronic
lymphocytic leukemia (CLL*) patients in 2012, with initial clini-
cal data presented in December 2012 at the American Society
of Hematology’s annual meeting. MorphoSys is planning to start
further MOR208 phase 2 trials in non-Hodgkin’s lymphoma
(NHL*) and in acute lymphoblastic leukemia (ALL*).

The most advanced competitive anti-CD19 antibody is Amgen’s
antibody blinatumomab (MT103), which is currently being eval-
uated in phase 2 trials for the treatment of acute lymphoblastic
leukemia (ALL). Other clinical programs against the same target
are pursued by companies including AstraZeneca/MedImmune
and Sanoﬁ /Immunogen. MorphoSys is one of the few independent
providers to possess a clinically proven CD19 antibody that is
still available to commercial partners for licensing.

In the area of B-cell diseases, various so-called small mole-
cules* are also being developed, for example ibrutinib from
Johnson&Johnson/Pharmacyclics and idelalisib from Gilead
Sciences, which demonstrated very high eﬃ cacy in phase 2 tri-
als during 2012.

MorphoSys’s antibody MOR202 is being developed for the treat-
ment of multiple myeloma* (MM), and targets CD38*. At the
end of 2012, the patent protection for MOR202 was further rein-
forced when the US Patent and Trademark Oﬃ ce (USPTO)
granted an additional patent for the antibody’s functional prop-
erties against CD38.

Despite being a relatively small oncology indication in terms of
incidence, the MM market has logged impressive turnover ﬁ g-
ures in recent years, with a potential market size of US$ 9 billion.
Signiﬁ cant achievements in clinical practice and the launch of
several eﬃ cacious premium-priced drugs have driven market
expansion. However, untapped market potential remains for
treatments that can improve the survival rate and reduce side
eﬀ ects compared to currently available compounds. Despite
major improvements in terms of survival, the disease is only
rarely curable and the majority of patients relapse. As a re-
sult, alternative treatments like those targeting surface antigen
CD38 are especially sought-after. Besides MOR202, there are
other development programs targeting CD38: Genmab’s daratu-
mumab, a human monoclonal antibody, is currently involved
in a phase 1/2 trial. In August 2012, Genmab signed a partner-
ship with Johnson & Johnson for the further development of
daratumumab. Another antibody targeting CD38 is SAR650984
from Sanoﬁ /Immunogen, a humanized antibody in a phase 1
clinical trial. The partnering of daratumumab in the 2012 re-
porting year in particular demonstrated the pharmaceutical
industry’s growing interest in CD38 as a target molecule for the
treatment of MM. MorphoSys is one of the few independent
providers to possess a CD38 antibody, which is still available to
commercial partners for licensing.

INFLUENCING FAC TORS
The healthcare sector in general is faced with serious cost-cut-
ting measures worldwide due to the economic crisis. Even if
good medical care for its population is the stated goal of all
states and the demand for new forms of treatment is constantly
growing as a result of demographic change, ﬁ nancial cuts can
slow the progress of the industry. As a result of funding cuts,
governments throughout Europe, the USA and Asia are tight-
ening healthcare provision, and reviewing the general reim-
bursement of drugs.

As is already the case with small-molecule drugs, generic drug
competition due to expiring drug patents is now also increas-
ingly challenging the biopharmaceutical industry. The techno-
logical barriers to copying biological drugs, however, remain
high. Still, many drug developers, mainly from Europe and Asia,
are entering this market now, thereby increasing the pressure

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

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on traditional biotechnology companies. According to a market
analysis from IMS Institute for Healthcare Informatics, the
worldwide market for biosimilars* will grow from US$ 693 mil-
lion in 2011 to between US$ 4 billion and US$ 6 billion by 2016.

INFECTIO US DISE ASES
MorphoSys pursues an early disease program targeted against
infections with MRSA* (methicillin-resistant Staphylococcus au-
reus). As part of this initiative, MorphoSys signed a licensing
and commercial agreement with UK-based Absynth Biologics,
providing access to novel target molecules associated with
Staphylococcus aureus infections, including MRSA. MorphoSys
developed these antibodies, which are currently undergoing
further early stage tests, using its proprietary HuCAL PLATINUM
antibody library. MorphoSys will be solely responsible for the
development and out-licensing of any resulting compounds.

MORPHOSYS IN THE ANTIBODY RESE ARCH AND DIAGNOSTIC S

MARKE T
In its third operating segment, MorphoSys provided antibodies
under the AbD Serotec brand to customers in the life science
research and modern clinical diagnostics sectors. AbD Serotec’s
sales model is based on a comprehensive catalog business with
currently more than 15,000 immediately available products and
is complemented by the production of antibodies in larger quan-
tities on behalf of diagnostic customers.

C OMPE TITIVE L ANDSCAPE
Driven by technological advances, the market for in vitro* diag-
nostics (IVD) in particular has experienced signiﬁ cant growth
in recent years. The demand for biomarker-based tests accounts
for a large part of this development, and molecular diagnostics
are seen as the fastest-growing segment. The total IVD market,
mainly dominated by North America, Europe and Japan, was
worth US$ 44 billion in 2011 and is estimated to grow by around
45 % until 2016.

AbD Serotec currently has relations with more than 20 diagnos-
tic companies. The ﬁ rst diagnostic test kits using HuCAL anti-
bodies as a key component entered the market in 2011.

INFLUENCING FAC TORS
The sector for research and diagnostic antibodies also faces
challenges in the form of legislative decisions on healthcare
infrastructure in general, and depends to a large extent on pub-
lic research funding through grants. As a result, the highest
growth potential for IVD products is currently being seen in the
BRIC states of Brazil, Russia, India and China, where public
health is being driven by demographic change.

Due to the continued debt crisis, there is heavy pressure on
the research budgets of public institutions in the established
markets of industrialized nations, e.g. research facilities and
universities. This has negative eﬀ ects on market growth and
the development of turnover for the companies in this market
segment.

MORPHOSY S’S SIGNIF IC AN T DEVEL OPMEN T AC T IVI T IES

IN 2012
In 2012, several events had a major impact on the Company’s
performance:
• MorphoSys generated excellent data on safety and eﬃ cacy
in its trial with proprietary drug candidate MOR103 in RA.
Additionally, a phase 1 trial on the subcutaneous delivery of
the compound was successfully concluded. These most re-
cent successes underscore the potential value of MOR103 in
chronic inﬂ ammatory diseases.

• At the end of 2012, the Company announced the extension

of the antibody alliance with its partner Novartis. Novartis
will transition from HuCAL to Ylanthia. At the same time,
MorphoSys secured the maneuvering space to partner Ylanthia
on a broader scale.

• MorphoSys’s product portfolio also moved ahead in the re-

porting period and remains one of the broadest antibody pipe-
lines in the industry. At the end of 2012, it included a total of
76 programs, of which 20 are in clinical development. In the
Proprietary Development segment in particular, signiﬁ cant
advances were recorded for both MOR208 in CLL; MOR202 in
MM; and MOR103 in inﬂ ammatory diseases. The promising
preclinical* data for MOR202 and MOR208 were presented in
June 2012 at the American Society of Oncology (ASCO) meet-
ing and in December 2012 at the American Society of Hema-
tology (ASH) annual meeting.

• With its partner programs, MorphoSys achieved an impor-

tant milestone in the cooperation with Roche when the clini-
cal trial for the evaluation of gantenerumab in Alzheimer’s
patients was extended to a pivotal phase 2/3 trial.

• MorphoSys initiated a technology partnership with Lanthio
Pharma for a new class of therapeutic peptides. Within the
framework of the agreement, the companies will jointly imple-
ment their technologies to produce high-quality and diverse
lantipeptide libraries. Furthermore, MorphoSys participated
in the Series A ﬁ nancing round for Lanthio Pharma with an
equity investment and now holds a minority stake in Lanthio
Pharma.

• The sale of substantially all of MorphoSys’s research and

diagnostics division, AbD Serotec, to Bio-Rad was agreed in
December 2012. The sale was completed on 10 January 2013.

*S E E G L O S S A R Y /// pa g e 1 3 4

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

For detailed information about the progress of MorphoSys’s
business activities in the reporting year, see the Research &
Development section from page 26 as well as Commercial
Development from page 29.

Strategy and Performance
Management

S T RAT EGY
MorphoSys aims to develop innovative technologies and drug
candidates with a focus on antibody-based compounds. Partner-
ships with pharmaceutical and biotechnology companies that
generate turnover create the ﬁ nancial clearance for additional
value generation through the development of proprietary drug
candidates. This business model allows for the constant expan-
sion of the product pipeline and thus long-term value for the
Company’s shareholders without relying on the capital markets
as a source of ﬁ nancing. In 2012, € 18.1 million or about 35 % of
revenue from continued operations was invested in proprietary
R&D. Proprietary R&D investment was therefore roughly on
the same level as 2011.

The Partnered Discovery segment, as the ﬁ rst pillar of the cor-
porate strategy, develops optimized therapeutic antibodies for
partners in the pharmaceutical industry. With 70 partnered pro-
grams at the end of the 2012 ﬁ nancial year, MorphoSys pos-
sesses one of the broadest antibody pipelines in the industry.
The contractually guaranteed payments incorporate license
fees for technologies and research funding, as well as success-
based milestone payments and royalties on product sales. The
cash ﬂ ows* generated in this manner can be invested in the sec-
ond pillar, the Proprietary Development segment. Proprietary
and partnered antibody programs share the same technology
platform for development purposes. In this segment, the com-
pounds are developed independently (or in a co-development set-
ting) to proof of clinical eﬃ cacy before being out-licensed to
pharmaceutical or biotechnology companies for late stage devel-
opment and marketing. Under certain conditions, individual
projects could be developed even further, perhaps even to mar-
ket approval.

Technology development remains at the heart of the corporate
strategy. In November 2012, the next generation of antibody
platform, Ylanthia was successfully launched with a ﬁ rst com-
mercial agreement. MorphoSys also launched a new initiative
in 2012 through which the Company invests in promising start-
up companies with technologies and products that ﬁ t with
MorphoSys’s interests. MorphoSys’s ﬁ rst activity in this area
was a commercial agreement with the biopharmaceutical com-
pany Lanthio Pharma announced in November 2012. The Dutch

company specializes in the research and development of lanti-
peptides*, a novel class of therapeutics with high target molecule
selectivity and improved drug properties. Due to their size,
lantipeptides are signiﬁ cantly smaller than antibodies, other
classes of target molecule can be addressed that are unsuit-
able for antibodies. Within the framework of their commercial
agreement, MorphoSys and Lanthio Pharma will combine their
technologies to develop high-quality and diverse lantipeptide
libraries.
*S E E G L O S S A R Y /// pa g e 1 3 4

With regard to future commercial development, MorphoSys mon-
itors the pharmaceutical and biotechnology industries very
closely in order to secure sustainable growth through acquisi-
tions and out-licensing. Liquidity reserves of around € 135.7
million (including an interest-bearing transferable loan amount-
ing to € 10.0 million and liquid funds in the amount of € 5.3
million from the discontinued operations of AbD Serotec) are re-
served for strategic transactions and investments in proprietary
research and development that could improve MorphoSys’s tech-
nology base and therapeutic pipeline. The stated goal is to in-
crease the Company’s value via signiﬁ cant investments in its
proprietary development activities with consistently high
ﬁ nancial discipline and rigorous cost controls.

At the end of 2012, MorphoSys announced the sale of substan-
tially all of its research and diagnostic segment, AbD Serotec.
This transaction will strengthen MorphoSys’s focus on the Com-
pany’s core competence in the therapeutic ﬁ eld, which presents
the greatest potential growth driver. Consequently, the organiza-
tion will be completely focused on technologies and drug devel-
opment which enable the targeted use of ﬁ nancial resources on
the crucial value drivers.

PERF ORMANCE MANAGEMEN T
To achieve sustainable corporate growth and thereby generate a
value increase for its shareholders, MorphoSys uses ﬁ nancial as
well as non-ﬁ nancial indicators. These help to monitor the suc-
cess of strategic decisions in day-to-day operations and if neces-
sary, to take appropriate countermeasures in a timely manner.

FINANCIAL PERFORMANCE INDICATORS
The ﬁ nancial indicators used to evaluate the operational business
performance are mainly parameters such as revenues and re-
sults from normal business activity. Performance is tracked on
a monthly basis for every segment; budget planning for the cur-
rent ﬁ nancial year is reviewed and updated quarterly. Further-
more, a medium-term plan covering the next three years is
prepared each year. A thorough cost analysis measuring the Com-
pany’s performance in line with its ﬁ nancial targets and in com-
parison to prior periods is carried out on an ongoing basis. Ex-
penses for S, G&A and R&D are evaluated particularly carefully.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

MorphoSys’s ﬁ nancial performance is impacted by factors such
as milestone and license payments, research and development
expenses, operational cash ﬂ ow, liquidity and working capital.
These indicators are also regularly evaluated and compared,
with a focus on cash management, exposure to foreign exchange
eﬀ ects and investment opportunities. The net present value of
investments is calculated with the use of discounted cash ﬂ ow
models.

NON - FINANCIAL PERFORMANCE INDICATORS
In addition to ﬁ nance-related performance indicators, a sustain-
ably successful corporate management must also use non-ﬁ nan-
cial performance indicators as equal components in order to be
able to map the whole value creation chain.

MorphoSys’s goal is to develop ﬁ rst-class antibody technologies
and maintain its leading position in the therapeutics market by
means of its wide product pipeline. In order to achieve this goal,
the corporate strategy is aimed at the steady development of

the product pipeline in particular, both in respect of the number
of therapeutic antibodies as well as their quality and maturity.
As successful products are based on ﬁ rst-class technologies, ad-
vances in technology development are a further central perfor-
mance indicator. More information on research and development
activities of the MorphoSys Group can be found on pages 26
through 29.

In addition to the quality of the research and development work,
professional alliance management is at the heart of the Com-
pany’s success. This encompasses new contracts as well the
strategic further development of existing partnerships, as
demonstrated by the successful launch of the Ylanthia platform
in November 2012. More information on our partner projects
can be found under “Research and Development” on page 27.

Furthermore, the monitoring of further non-ﬁ nancial indicators
is crucial for business success.

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TAB . 3 /// DEVEL OPMEN T OF F INANC IAL PERF ORMANCE INDIC AT ORS

in million €

2012

2011

2010

2009

2008

MORPHOSYS GROUP

Revenues from continuing operations*

EBIT (Earnings before interest and taxes)
from continuing operations**

PARTNERED DISC OVERY

Segment revenues

Segment result

PROPRIE TARY DE VELOPMENT

Segment revenues

Segment result

ABD SEROTEC

Segment revenues

Segment result

51.9

2.4

44.7

23.0

7.0

(11.0)

18.0

0.3

82.1

9.8

79.3

55.7

2.4

(32.2)

19.3

0.9

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

* Revenues of discontinued operations 2012: € 17.7 million (2011: € 18.7 million); 2008 through 2010 total Group revenues
** 2008 through 2010: proﬁ t from operations

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

TAB . 4 /// SUS TAINABL E DEVEL OPMEN T OF K E Y PERF ORMANC E INDIC AT ORS ( SD -K P I S ) AT MORPHO S Y S

PERFORMANCE IN PROPRIE TARY
RESE ARCH & DE VELOPMENT (NUMBER)

Programs in Discovery

Programs in Preclinic

Programs in Phase I

Programs in Phase II

PERFORMANCE IN
PARTNERED PRO G R AMS (NUMBER)

Programs in Discovery

Programs in Preclinic

Programs in Phase I

Programs in Phase II

Programs in Phase III

R&D E XPENSES AC C ORDING
TO SEG MENT (IN MILLION € )

Partnered Discovery

Proprietary Development

Technology Development

F IG . 3 /// C L INIC AL P IP EL INE AT Y EAR- END

2008

2009

2010

2011

2012

2011

2010

2009

2008

2007

2006

16.0

18.1

3.6

19.1

33.9

2.9

18.9

25.9

2.1

19.2

19.1

0.7

27.1

0.0

0.5

21.0

0.0

1.2

14.5

0.0

p h a s e 1

p h a s e 2

p h a s e 3

4 / 1 / 0
4 / 4 / 0
11 / 6 / 0
12 / 8 / 0
10 / 9 / 1

Committed and well-trained employees are a requirement for
long-term success in an R&D-based industry such as biotechnol-
ogy. The Company’s competitiveness can only be ensured and
further expanded via a performance-oriented and forward-look-
ing human resources strategy. This is why human resources
management plays a key strategic role; it must entice promising
talented individuals, keep high performers at the Company
and provide employees with continuous and tailored training
opportunities. A clear example of the success of human re-
sources management in past years is the highly qualiﬁ ed and
experienced workforce. Information on MorphoSys’s human
resources management can be found on pages 32 through 34
and in the Sustainability Report on pages 47 through 48.

Responsible behavior is a hallmark of MorphoSys’s corporate
management. It’s crucial to always observe the strict ecological
and social principles governing our work. For this reason, all
processes and products are assessed with regard to their impact
on environmental protection and work safety. Strict quality as-
surance is equally central to a forward-looking business strategy
that will help MorphoSys to meet its own high quality require-
ments as well as the demands of its partners and clients. Details
can be found in the Sustainability Report on pages 45 through 46.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

F IG . 4 /// OVERVIEW OF MORPHO S Y S’S L AT E S T T ECHNOL O GIE S

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HuCAL

Slonomics

arYla

Ylanthia

MorphoSys’s HuCAL (Human Combi-
natorial Antibody Library) technology
is a collection of several billion dis-
tinct fully human antibodies allowing
the rapid selection of antibodies
with high aﬃ nity and speciﬁ city. The
recombinant antibody technology
of HuCAL enables the generation of
therapeutic and diagnostic anti-
bodies, including those binding to
diﬃ cult antigens.

Slonomics is a proprietary, fully auto-
mated genetic engineering platform
that utilizes sets of double stranded
DNA triplets in the controlled fabrica-
tion of highly diverse combinatorial
gene libraries. Slonomics enables re-
searchers to increase the success
rate of their screening for new and
optimized therapeutic antibodies,
proteins or industrial enzymes.

arYla is Slonomics applied to anti-
bodies. arYla oﬀ ers an individualized
maturation solution for antibodies.
With the arYla technology, MorphoSys
combines more than 15 years of
experience in design and selection
of therapeutic antibodies with the
unique library synthesis capabilities
of Slonomics.

Ylanthia is MorphoSys’s next-genera-
tion antibody technology and was
presented in December 2011. Ylanthia
delivers antibodies with attractive
medical capabilities against previously
inaccessible target molecules and epi-
topes. Antibodies based on Ylanthia
can meet the strict regulatory require-
ments and patient-driven needs for
the foreseeable future without any ad-
ditional optimization rounds needed.
MorphoSys expects its novel antibody
library to set new standards for thera-
peutic antibody generation in the
pharmaceutical industry over the next
decade and beyond.

The Company has established relevant guidelines in order to
take into account the growing importance of value creation in
the procurement process. These ensure compliance with best
practice solutions in purchasing processes and regulate the pur-
chase of goods, consultancy and other services. More details on
purchasing and procurement management can also be found in
the Sustainability Report on page 44.

The eﬃ ciency improvement project “Gepard” was established in
early 2012. The aim of this initiative is to use suggestions from
all employees to identify and implement improvements that
could increase the eﬃ ciency and quality of work processes. The
project expresses a belief in continuous improvement which is
part of the MorphoSys company culture – a culture that helps
MorphoSys to remain competitive in the long-term. As part of
this project, the Company’s employees were able to submit sug-

gestions on various topics within a deﬁ ned time period start-
ing in June 2012. In this period, 168 suggestions were submitted,
and these were dealt with by nine working groups. Around half
of these suggestions had already been successfully implemented
by the end of 2012. Topics ranged from IT/software to HR top-
ics and improvements in laboratory processes. Suggestions on
further internal processes and in the area of ﬁ nances and con-
tracts were also represented.

For example, the MOR2WORK online car sharing tool for em-
ployees was set up to organize carpools for traveling to work.
On the one hand, advantages are a sustainable driving experi-
ence with reduced CO2 emissions, on the other hand, employees
also proﬁ t tangibly from savings in fuel consumption. Addi-
tionally, this platform promotes communication and company
spirit among employees.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

TAB . 5 /// K E Y PERF ORMANC E INDIC AT ORS 2012 REL AT ED T O EMPL O Y EE S OF T HE MORPHO S Y S GROUP

Employee Trainings on the Code of Conduct

Employees in R&D

Women in Workforce

Trainees

Occupational Accidents

Absence Rates

(%)

(Number)

(%)

(Number)

(%)

100

278

3.01

E ARLY INDICATORS
MorphoSys monitors early indicators relating to the macroeco-
nomic environment, the industry and the Company itself on a
monthly basis. At Company level, this means scientiﬁ c and eco-
nomic data relating to the progress of each program for the
therapeutic segments, and sales volume statistics for AbD Sero-
tec. Regarding early macroeconomic indicators, MorphoSys
examines general market data derived from external economic
and ﬁ nancial studies with a particular focus on industry trans-
actions, changes of regulatory parameters and the availability
of research grants.

For existing active partnerships, joint steering committees reg-
ularly hold meetings. The committees’ objectives are to provide
updates and monitor program advances and potential resultant
milestone payments. This continuous monitoring within the
framework of alliance management allows both the early steer-
ing of possible failed developments and produces information
on expected milestone revenues at an early stage. In the case of
concluded collaborations, regular reports help the Company to
track the status of the ongoing therapeutic programs.

Market screenings in the area of commercial development help
to determine the demand for new technologies. Constant ob-
servation of relevant market data enables MorphoSys to react to
trends and demands early, and to pursue partnerships.

Prior to the initiation of a therapeutic development program, a
Target Product Proﬁ le (TPP)* is created. This process provides in-
formation at an early stage on the requirements needed to be
successful in the given market. Key questions are also addressed
within this process, for example on the level of eﬃ cacy that
should be achieved, whether an improved safety proﬁ le should
be at the heart of the development plan or whether the focus
should be on an alternative administration route. A detailed sce-
nario for a positioning in the market, as well as the relevant
patient population is part of the TPP, too. Frequent monitoring
of these criteria and their fulﬁ llment ensures that the most
important inﬂ uencing factors in the course of a product develop-
ment program are covered and that changes can be responded
to in a timely manner.

In the AbD Serotec segment, both monetary and non-monetary
early indicators were utilized. The creation of sales projections
as well as the monitoring of new developments in the market
played a crucial role. The monitoring of the distribution of funds
to scientiﬁ c facilities and institutes produces information at
an early stage about the ﬁ nancial funds to be expected for this
customer segment. The observation of legal parameters in the
area of research and diagnostics is equally important for a for-
ward-looking management.

Development of the Business
Environment

The European sovereign debt crisis remained a pervasive topic
in 2012. A range of countermeasures to lift the debt crisis were
implemented at national and international level. The European
Stability Mechanism (ESM), aimed at supporting members of the
Eurozone in ﬁ nancial diﬃ culties, was set up at the end of Sep-
tember 2012. It should serve the Eurozone with a maximum credit
extension capacity of € 700 billion as a permanent safety net.
According to estimates by the OECD, the gross domestic product
(GDP) of the Eurozone states shrank by around 0.4 % in 2012.

The USA also had to battle a growing national deﬁ cit in 2012.
Automatic spending cuts and massive tax increases are possi-
ble consequences of the growing deﬁ cit, also known as “ﬁ scal
cliﬀ ”. In its annual statement on the USA, the International
Monetary Fund highlighted this ﬁ scal cliﬀ as the greatest do-
mestic risk because recession with an accompanying rise in
unemployment was expected. The occurrence of this ﬁ scal cliﬀ
was avoided at the turn of the year 2012/2013 through an
agreement between the political parties. According to estimates
by the US central bank, the Federal Reserve, GDP increased in
the USA from 1.7 % to 1.8 % in 2012.

With regard to the Asian markets, the Chinese growth engine
stagnated somewhat in 2012. GDP grew by 7.7 % according to
estimates. According to OECD estimates, Japan recorded GDP
growth of 1.6 % in 2012.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

CURRENC Y RAT E F LUC T UAT IONS
In 2012, MorphoSys’s revenues were generated mostly in euros,
US dollars and British pounds, while the Company’s costs were
mainly incurred in euros and British pounds. The turbulence
in Europe led to a signiﬁ cant weakening of the euro mid-year.
Signals from the political arena, in particular a clear commit-
ment from ECB President Draghi to the euro, served to stabilize
the single currency, which closed at the end of 2012 slightly
stronger than the US dollar. Over the year, the euro suﬀ ered a
loss of around 3 % compared to the British pound. In 2012,
MorphoSys’s revenues and costs were inﬂ uenced by these cur-
rency variations. A detailed description of this inﬂ uence can
be found in the Financial Analysis.

PHARMACEU T IC AL AND BIO T ECHNOL OGY SEC T OR

DEVEL OPMEN T
According to estimates from the US market research institute,
IMS Institute for Healthcare Informatics, the pharmaceutical
sector grew world-wide by 5 % to 7 % in 2012 and generated total
revenues of over one trillion US$ in total for the ﬁ rst time. The
US market, which is currently the largest single pharmaceuti-
cal market, grew moderately as the positive eﬀ ect of the legal
changes brought in by the Obama administration can only be
expected in 2014. The main cause for the successful cumula-
tive growth despite this was the development of the emerging
pharmaceutical markets, which includes 17 countries. These
are expected to have grown in 2012 by 12 % to 15 %. The Indian
pharmaceutical market, for example, grew again by approxi-
mately 12 % in 2012 after an increase of 16 % in 2011.

The pharmaceutical industry continues to face signiﬁ cant chal-
lenges due to top-selling products losing patent protection
and facing generic competition – copies of original drugs with
the same active ingredients. The term “patent cliﬀ ” describes
the cumulative patent expirations of blockbuster pharmaceuti-
cal drugs between 2009 and 2015 and the eﬀ ect of this on the
pharmaceutical industry.

In the Indian market, the competitive situation for innovative
drug developers worsened signiﬁ cantly in the 2012 ﬁ nancial
year. At the beginning of April, the Indian patent oﬃ ce approved
a request from domestic generics manufacturer Natco to be
able to copy Bayerʼs cancer drug, Nexavar, before the expiry
of the patent protection. Natcoʼs competitor Cipla had already
launched a copy of the cancer drug on the Indian market. For
the ﬁ rst time since 2005, when Indian patent law was re-
formed, India issued a compulsory license. In November 2012,
the Indian Intellectual Property Appellate Board (IPAB) ap-
pealed a patent issued in 2006 to Swiss pharmaceutical group

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Roche for the drug Pegasys, used for the treatment of Hepa-
titis C, and based the complaint on several aspects including
the high price of the drug.

Historically, generic competition mainly aﬀ ected chemically
derived drugs, but generic versions of biopharmaceuticals,
so-called biosimilars, are also set to advance. Due to the com-
plexity of biopharmaceuticals – including antibodies – the
market entry barriers are considered much higher than those
for generic versions of chemically produced compounds, on
account of the regulatory requirements in particular. This is
reﬂ ected in the pricing of biosimilars, with much lower price
reductions in comparison to conventional generics. While the
requirements for biosimilars are already regulated in Europe,
the American admissions authority, the US Food and Drug Ad-
ministration (FDA) ﬁ rst put forward a policy draft in Febru-
ary, which has not yet been adopted. In the 2012 ﬁ nancial year,
a monoclonal antibody drug received biogeneric commercial
approval for the ﬁ rst time when Remsima in South Korea was
approved as a biogeneric version of Remicade (Inﬂ iximab) de-
veloped by Celltrion Inc.

As a central source of capital for privately led companies and
start-ups, venture capital investments in the US life sciences
sector decreased to around US$ 4.1 billion according to data
from the National Venture Capital Association and Pricewater-
houseCoopers. Europe also followed this trend. According to
data from Dow Jones VentureSource, corresponding investments
in Europe decreased to € 772 million. For MorphoSys, this capi-
tal shortage also resulted in opportunities. Via the investment in
Lanthio Pharma, for example, MorphoSys was able to obtain
access to a potentially powerful new drug discovery platform
within the framework of the “Innovation Capital”* initiative.
*S E E G L O S S A R Y /// pa g e 1 3 4

The academic research sector, which is dependent on state re-
search funding, was also put under pressure in the 2012 ﬁ nan-
cial year. Following the ﬁ nancial crisis in Europe, providers
experienced delays on purchase orders and payments from cus-
tomers in the academic sector in individual states. Following
the sale of substantially all of the AbD Serotec business unit,
MorphoSys’s proﬁ t results will be less dependent on these ﬂ uc-
tuations in public research budgets in future.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

DEVEL OPMEN T WI T HIN T HE AN T IBODIES SEC T OR
The number of therapeutic antibodies approved in the most im-
portant markets increased to 31 by the end of 2012. In June,
the FDA approved Rocheʼs antibody drug Perjeta® (pertuzumab)
for the treatment of late-stage breast cancer. The antibody tar-
gets HER2-positive cancer cells. The top-selling therapeutic anti-
body, the anti-inﬂ ammatory Humira® (adalimumab), achieved
around US$ 9 billion in revenues world-wide in the 2012 ﬁ nan-
cial year. A monoclonal antibody was thus the top-selling prod-
uct for the ﬁ rst time in the history of the pharmaceutical indus-
try. According to research from Datamonitor, the revenues gen-
erated from all approved therapeutic antibodies in 2012 came in
at around US$ 50 billion.

Deals comprising antibody technologies and products remained
high on the agenda of the pharmaceutical industry owing to
the ongoing attractiveness of the antibody sector with regard
to technologies and products. MorphoSys was able to update
its long-standing partnership with Novartis with the latest tech-
nology platforms. Transactions observed in the industry with
direct relevance for MorphoSys included the world-wide licens-
ing and development agreement for the monoclonal antibody
daratumumab signed between Genmab and Janssen Biotech
group. According to the press release, the potential deal vol-
ume amounts to up to US$ 1 billion in the form of development,
approval and sales milestones, in addition to tiered double-digit
royalties. As with the current phase 1/2 MOR202 program from
MorphoSys, daratumumab is also aimed at the CD38 target
molecule, which is found on the surface of many myeloma cells.

Regarding M&A* activities, GlaxoSmithKline acquired Human
Genome Sciences (HGS) for around US$ 3.6 billion. The HGS lead
product Benlysta (belimumab) is a human monoclonal antibody
for the treatment of systemic lupus erythematosus. Also worth
mentioning was the takeover of the German-American com-
pany Micromet by Amgen for around US$ 1.2 billion. Micromet
owns the BiTE* technology platform, which delivers bispeciﬁ c
antibody drug candidates. Furthermore, with blinatumomab,
Micrometʼs portfolio contained a therapeutic bispeciﬁ c anti-
body against the CD3 and CD19 target molecules.
*S E E G L O S S A R Y /// pa g e 1 3 4

REGUL AT ORY ENVIRONMEN T
The healthcare sector is highly regulated in terms of market ac-
cess, pricing and reimbursement. The pressure on the pharma-
ceutical industry from healthcare systems and payers to deliver
drugs with veriﬁ able patient beneﬁ t increased in 2012. Seen in
a positive light, these challenges to pharmaceutical groups pro-
mote greater risk-taking and innovation preparedness.

The USA’s supervisory and approval body, the FDA, approved
39 new drugs in the 2012 ﬁ nancial year, once again an increase
on the previous year. A law which came into force in 2012,
the Food and Drug Administration Safety and Innovation Act
(FDASIA), enables the FDA to conduct a faster review process.
In concrete terms, this means the time from the submission of the
new drug application to the FDA’s decision will be shortened.

In Germany, the German Act on the Reform of the Market for
Medicinal Products (Gesetz zur Neuordnung des Arzneimittel-
marktes – AMNOG), a new law introduced in 2011 regulating
reimbursement and the pricing of prescription drugs in health-
care, was put into practice. The manufacturer will now set
the price for a new and innovative drug for one year after it is
approved. Following an assessment on whether the product
oﬀ ers an additional beneﬁ t or not, the price of the new medicine
will be negotiated by the German National Association of Statu-
tory Health Insurance Funds and the company. In the event that
no additional beneﬁ t can be determined, the new medicine will
be part of the lower ﬁ xed-price system (Festbetragssystem). Ac-
cording to the German National Association of Statutory Health
Insurance Funds (GKV-Spitzenverband), the central representa-
tive of the interests of the statutory health insurance and care
funds, AMNOG has so far led to a refund being awarded in twelve
cases.

Research and Development

As a specialist in innovative technologies and products in the
ﬁ eld of drug development, MorphoSys’s sustainable economic
success is largely based on successful R&D. MorphoSys’s tech-
nology platforms are continuously being improved and ex-
panded with further modules. Additionally, MorphoSys carries
out research – principally in the areas of cancer and inﬂ am-
matory diseases – on proprietary drug candidates, which have
to undergo thorough clinical trials often taking many years.

As a research-intensive company, MorphoSys is committed to
protecting resources through optimized processes in laboratory
work and therefore enabling sustainable economic activity. You
can ﬁ nd detailed information on this in the Sustainability Report
on pages 42 ﬀ .

MorphoSys continually invests in the improvement of its labora-
tory equipment in order to preserve its competitiveness in the
long-term. The largest investments in 2012 can be found in the
following table:

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

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TAB . 6 /// C AP I TAL EXPENDI T URE ON TANGIBL E A SSE T S IN 2012

( SEL EC T ION OF MA JOR INVE S T MEN T S )

in 000’s €

Protein Analysis System I (Lab Equipment)

Analytical Software

Electronic Document Management System (Lab Software)

Protein Analysis System II (Lab Equipment)

Flow Cytometer (Lab Equipment)

Gradient Pump (Lab Equipment)

2012

215

167

151

140

115

RESEARCH AND DEVEL OPMEN T WI T H PAR T NERS
In this business segment, MorphoSys generates and character-
izes high-quality antibody drug candidates for its partners,
based on its technology platforms. The pipeline with drug candi-
dates developed in collaboration with partners made great ad-
vances in 2012 and spanned 70 therapeutic antibody programs
by the end of year. 16 of these are in clinical development, 20 in
preclinical development and 34 in the research phase (see table
4 for changes on the previous year). In the 2012 business year
ten programs were added and eight were terminated, leading to
an increase by two programs. Altogether the project advances
in 2012 fell within MorphoSys’s expectations.

Contractually determined research advances, such as the
start of clinical trials for a drug, trigger milestone payments to
MorphoSys. In March 2012, Novartis conﬁ rmed the start of a
phase 1 clinical trial with a HuCAL-based antibody against can-
cer, which triggered a milestone payment.

A clinical milestone payment followed in May from the pharma-
ceutical group Roche, which extended a clinical trial of the
Alz heimer compound gantenerumab in pivotal phase 2/3 trial.
The trial is evaluating the eﬀ ects of gantenerumab on cognitive
abilities as well as the compound’s safety and pharmacokinetic
properties in Alzheimer patients in the prodromal or early
stage. At this stage of the disease patients only suﬀ er mild cog-
nitive impairment and have not yet been diagnosed with Alz-
heimer’s. A prognostic test can determine whether the patient
is likely to progress to full-blown Alzheimer’s.

In addition to these two clinical milestone payments, MorphoSys
also received milestone payments on various preclinical pro-
grams.

Other advances in 2012 brought projects closer to market, for
instance the partnerships with Novartis, OncoMed and Janssen
Biotech. In the course of the ﬁ rst quarter of 2012, Novartis ad-
vanced LFG316, a HuCAL antibody in the ﬁ eld of ophthalmology,
to a phase 2 clinical trial. In October 2012, OncoMed began a
phase 1b/2 trial in the USA for OMP-59R5 for the primary treat-
ment of patients with advanced pancreatic cancer. OMP-59R5
is the most advanced HuCAL antibody program to address a vali-
dated signaling pathway in the area of cancer stem cells.

MorphoSys’s partner Janssen Biotech began a new phase 2 trial
for the HuCAL antibody CNTO1959. The goal of the new trial is
to evaluate the safety and eﬃ cacy of CNTO1959 in direct com-
parison to ustekinumab (trade name: Stelara), with regard to
the reduction of symptoms in active RA despite co-therapy
with methotrexate. CNTO1959 is thus now being developed for
the two signiﬁ cantly diﬀ erent indications psoriasis and RA.
MorphoSys is taking this into account by counting CNTO1959
as two separate phase 2 programs.

The termination of programs is unavoidable in drug develop-
ment, for example because research results no longer justify
the continuation of a project or because partners opt to termi-
nate projects on strategic grounds. In 2012, Janssen Biotech
discontinued the development of the antibody CNTO888 in the
areas of cancer and idiopathic lung ﬁ brosis.

PROPRIE TARY R&D AC T IVI T IES – PRODUC T DEVEL OPMEN T
In this business segment, MorphoSys evaluates and develops
antibody compounds as proprietary products from the early re-
search phase to partnering deals with a pharmaceutical com-
pany based on clinical results. The increased research eﬀ ort in
this segment provides the opportunity for signiﬁ cantly higher
milestone payments and royalties on product sales for MorphoSys.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

MorphoSys is currently pursuing four proprietary clinical pro-
grams, which are based on three compounds:
• MOR103 – a fully human, monoclonal HuCAL antibody in the

areas of rheumatoid arthritis and multiple sclerosis,

• MOR202 – a fully human, monoclonal HuCAL antibody in the

area of multiple myeloma,

• MOR208 – a humanized, Fc-optimized, monoclonal antibody

in the areas of lymphomas and leukemias.

Rheumatology (ACR), the most important symposium in rheu-
matology.

An additional phase 1 trial carried out in 2012 on the subcuta-
neous administration of MOR103 also produced positive results.
The compound proved to be safe and well tolerated in this con-
venient method of administration and demonstrated an advan-
tageous and competitive pharmacokinetic proﬁ le.

In September 2012, MorphoSys released data on the clinical
phase 1b/2a trial to evaluate its proprietary MOR103 HuCAL
antibody in patients with RA. The results underscore the com-
pound’s potential to become an important drug in a ﬁ eld with
a high therapeutic need.

During the randomized, double-blind, placebo-controlled phase
1b/2a trial in 96 patients with mild to moderate pronounced
rheumatoid arthritis, the patients were given MOR103 in four,
once-weekly doses of 0.3 mg/kg, 1.0 mg/kg or 1.5 mg/kg.
The trial was designed to investigate in particular how soon the
therapeutic eﬀ ect occurs, and was carried out at 26 clinical
trial centers in Germany, the Netherlands, Poland, Bulgaria and
Ukraine. The majority of trial participants were treated in
parallel with disease-modifying anti-inﬂ ammatories (DMARDs).
The primary end-point of the trial was the evaluation of the
safety and tolerability of MOR103 in multiple doses in patients
with active RA. Secondary endpoint included the assessment
of the compound’s pharmacokinetic properties and immunoge-
nicity as well as its potential to improve clinical signs and
symptoms in RA patients. Therapeutic success was measured
by the DAS28, ACR20/50/70 and EULAR assessment criteria.
Additionally, the development of synovitis and bone edema was
captured by magnetic resonance imaging (MRI) and patient
feedback was evaluated.

MOR103 was safe and well-tolerated at all doses administered.
There were no drug-related serious adverse events. No obvious
diﬀ erences in the adverse event rate between the MOR103 and
placebo groups were observed.

The best response was achieved in the 1.0 mg/kg dose cohort
with an ACR20 score of 68 % at week 4, which was signiﬁ cantly
higher than in the control arm. The ACR20 value is one of the
highest ever seen in a biological RA compound after four weeks
of treatment. Of particular importance was the fast onset of
action observed: within 2 weeks, up to 40 % of patients achieved
an ACR20 score. Improvement of DAS28 scores was rapid and
signiﬁ cant over the treatment period of the study. MRI scans
revealed a reduction of synovitis according to the RAMRIS
system at week 4. The detailed trial results were presented in
November at the annual meeting of the American College for

These clinical data were expanded by the publication of two
research reports that underscore the signiﬁ cant therapeutic
potential of the MOR103 program. The reports stem from a
commercial agreement with a research department at the Uni-
versity of Melbourne and prove that GM-CSF, the underlying
target molecule of the MOR103 program, is an important neuro-
transmitter for inﬂ ammatory, arthritic and osteoarthritic pain.

The current clinical phase 1/2a trial in patients with recurrent/
refractory MM as part of the MOR202 program was continued
in 2012. The program’s preclinical database was also further
strengthened in 2012. Once antibody-dependent cell-mediated
cytotoxicity (ADCC) had been identiﬁ ed as an eﬀ ect mechanism
for MOR202 in earlier trials, the compound’s ability to induce
the elimination of MM cells in patients via antibody-dependent
cellular phagocytosis (ADCP) was also veriﬁ ed. Corresponding
data were presented at the annual conference of the American
Society of Hematology (ASH) in December 2012.

MOR208, an Fc-optimized anti-CD19 antibody successfully com-
pleted a phase 1/2a clinical trial. MOR208 demonstrated en-
couraging ﬁ rst signs of anti-tumor eﬃ cacy and an acceptable
safety and tolerability proﬁ le in intensively treated high risk
patients with chronic lymphocytic leukemia (CLL) or small lym-
phatic lymphoma (SLL). The data support the compound’s fur-
ther development. MorphoSys will now advance the program to
phase 2 clinical development in non-Hodgkinʼs lymphoma (NHL)
and acute lymphoblastic leukemia (ALL).

Furthermore, the possibility of combining MOR208 with other
approved therapeutic drugs was investigated in preclinical tri-
als. These investigations demonstrated that the small-molecules
Bendamustine (Ribomustin®) and Fludarabine (Fludara®), as
well as the anti-CD20 antibody Rituximab (Rituxan®) and Ofatu-
mumab (Arzerra®), could increase the cytotoxicity of MOR208.
The in vitro and in vivo activities of MOR208 were increased in
an aggressive lymphoma model of all administered drugs, inde-
pendent of their diﬀ erent mechanisms.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

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All research results generated in 2012 underpin the potential
value of the Company’s proprietary compounds in the corre-
sponding areas of disease.

PROPRIE TARY R&D AC T IVI T IES – T ECHNOL OGY

DEVEL OPMEN T
The R&D activities in the ﬁ eld of technology development are
intended to secure the Company’s competitive position in its
core business and open up new business opportunities. A dedi-
cated research team works continuously on the further devel-
opment of antibody technologies and on the evaluation of new
technology platforms.

The beta version of the Ylanthia antibody library – presented
in December 2011 at a symposium – was completed in 2012 and
put into commercial application. The goal of the Ylanthia devel-
opment is to be able to develop antibodies with enhanced prop-
erties even faster. Ylanthia, the next-generation antibody plat-
form, is intended to replace the HuCAL technology that has so
far formed the basis of therapeutic antibody research and de-
velopment at MorphoSys. MorphoSys integrated the technology
into its research processes in 2012 and began the ﬁ rst thera-
peutic programs based on Ylanthia. Additionally, the extension
of the strategic commercial agreement with Novartis sets the
course for the Ylanthia platform to also facilitate drug develop-
ment on behalf of partners.

In addition to its eﬀ orts in the antibody sector, MorphoSys
started an initiative in 2012 to gain access to technologies from
other companies that match its core competencies. MorphoSys
announced a commercial agreement in November 2012 with
the privately owned biopharmaceutical company Lanthio
Pharma, a Dutch company specialized in the research and de-
velopment of lantipeptides. Lantipeptides are a new class of
therapeutic agents. The LanthioPep technology from Lanthio
Pharma is used in the identiﬁ cation of peptides for speciﬁ c
target molecules and stabilizes them in the conformation that
is optimal for binding. Within the framework of the commer-
cial agreement, MorphoSys and Lanthio Pharma began to jointly
implement their technologies to produce high-quality and
diverse lantipeptide libraries. MorphoSys receives preferred
access to the exclusive in-licensing of the LanthioPep tech-
nology for compound research.

led to the expansion of the product catalogue in the area of
research reagents*, in particular the introduction of a com-
pletely new product category for the analysis of existing anti-
body drugs. Several antibodies developed by AbD Serotec
were used by partners in commercial contexts in 2012.
*S E E G L O S S A R Y /// pa g e 1 3 4

The sale of substantially all of the AbD Serotec segment, agreed
at the end of 2012, had only minor eﬀ ects on the research of
MorphoSys as the research activities of the various business
ﬁ elds were already established as independent from each other
prior to the sale of the division.

Commercial Development

MorphoSys was able to further strengthen its pipeline in
both business segments – Partnered Discovery and Proprietary
Development – in the past ﬁ nancial year. At the end of 2012,
MorphoSys announced the sale of substantially all of the third
business unit, AbD Serotec, to Bio-Rad. The sale of substan-
tially all of the AbD Serotec segment enables MorphoSys to con-
centrate on its core business, the development of therapeutic
antibodies and technologies for drug development.

PROPRIE TARY DEVEL OPMEN T
Through the development advances achieved in its own pro-
grams in 2012, MorphoSys created the basis for future outlicens-
ing contracts with pharmaceutical partners.

In September 2012 MorphoSys published positive results with
respect to the safety and eﬃ cacy of its own antibody MOR103
from a phase 1b/2a study on patients with rheumatoid arthritis.
The results underscore the compound’s potential to become an
important drug in a ﬁ eld with a high therapeutic need.

In November 2012, the Company’s own most advanced com-
pound against cancer, MOR208, also met the primary and sec-
ondary goals of a phase 1/2a study in patients with chronic
lymphocytic leukemia or small lymphatic lymphoma. MOR208
was in-licensed from US ﬁ rm Xencor in 2010. After the phase
1/2a study, MorphoSys will assume sole responsibility and bear
the costs for further clinical development.

RESEARCH AND DEVEL OPMEN T IN T HE ABD SERO T EC

SEGMEN T
The research activities at MorphoSys’s AbD Serotec business
unit in the 2012 ﬁ nancial year were aimed at gaining access to
new products in diagnostics as well as in selected research dis-
ciplines, such as veterinary research, innate immunity, neuro-
science and stem cell antibodies. Among other things, these

In 2012, the activities in the Proprietary Development segment
contributed to Group turnover in the form of payments from
Novartis for both pre-development programs and compensatory
payments for relinquishing options on jointly pursued develop-
ment programs. A signiﬁ cant increase in turnover can only be
expected with the conclusion of the ﬁ rst out-licensing contracts
for the Company’s proprietary projects.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

PAR T NERED DISCOVERY
The new contractual agreements reached in 2012 meant the
partnership business was strengthened and rendered more
ﬂ exible for the purposes of expanding activities.

The strategic cooperation with Novartis was decisively extended
at the end of 2012. The long-standing collaboration will also
proﬁ t from MorphoSys’s new technology platform Ylanthia,
which should accelerate the development of new therapeutic
antibodies and further improve the alliance’s productivity. At
the same time, MorphoSys secured the opportunity to con-
clude further licensing agreements with commercial partners
based on Ylanthia technology. The contract period was re-
tained up to 2017, with an option for Novartis to extend it by
another two years.

In February 2012, MorphoSys announced the start of an alliance
in the ﬁ eld of protein optimization. In the process, the Company
is delivering multiple gene libraries based on the Slonomics
platform to an undisclosed biopharmaceutical group. Over the
three-year duration of the contract, MorphoSys will receive
guaranteed annual research services for the preparation of the
libraries as well as additional development-dependent mile-
stone payments and royalties for products resulting from the
collaboration. This agreement was the third deal based on
the Slonomics platform and thus increased the return on in-
vestment for the technology acquired in the Sloning takeover
in 2010.

In 2012, the Partnered Discovery division was again a mainstay
of revenue for the Group.

ABD SERO T EC
MorphoSys was able to further strengthen the diagnostics busi-
ness of its AbD Serotec division in the reporting year. Among
other things, a new product line of anti-drug antibodies was
introduced that is specially aimed at the needs of contract
research organizations and pharmaceutical groups. Further,
MorphoSys was able to sign a licensing agreement with the
diagnostics group DiaSorin S.p.A. for two HuCAL antibodies,
which will be implemented as recombinant controls for two
tests in the ﬁ eld of infectious diseases that are already on the
market.

MorphoSys agreed to sell substantially all of its segment for re-
search-related and diagnostic antibodies AbD Serotec to Bio-Rad
for strategic reasons.

MorphoSys AG and a subsidiary of Bio-Rad Laboratories Inc.,
Hercules/California, USA (Bio-Rad Inc.) agreed upon the acqui-
sition of all shares of MorphoSys UK Ltd., Oxford, Great Britain
(MorphoSys UK) on 16 December 2012 with the notarial authen-
tication of 17 December 2012. The agreement comprised all
shares in both of MorphoSys UK’s subsidiaries. On 16 Decem-
ber 2012, at the time of signing, MorphoSys UK held all of
the shares in MorphoSys AbD GmbH, Düsseldorf, Germany and
MorphoSys US Inc., Raleigh, USA (MorphoSys US). Additionally,
MorphoSys AG and a further subsidiary of Bio-Rad Laboratories
Inc. agreed on 16 December 2012 upon the takeover of individ-
ual assets (trademarks) of the segment AbD Serotec and a non-
exclusive license regarding the use of the HuCAL-Technology
for research reagents and diagnostic purposes. On 16 December
2012, after the agreed takeover of the shares in MorphoSys UK
by the subsidiary of Bio-Rad Inc., all assets and liabilities attrib-
uted to the segment AbD-Serotec of MorphoSys AG were trans-
ferred to MorphoSys AbD GmbH. Bio-Rad Inc., Bio-Rad Inc.’s sub-
sidiaries including MorphoSys AbD GmbH are hereinafter
referred to as „acquirer“ or „Bio-Rad“. The shares in Poole Real
Estate Ltd., Poole, GB, were not sold by MorphoSys AG. The
completion of the transaction was conditional on the fulﬁ llment
of certain obligations. Substantially all of the segment AbD
Serotec was transferred at the closing date (10 January 2013) due
to the fulﬁ llment of the previously deﬁ ned obligations. Hence, at
31 December 2012 substantially all of the segment AbD Serotec
was classiﬁ ed as discontinued operation in accordance to IFRS 5,
hereinafter referred to as “discontinued operation”. Assets, liabili-
ties, ﬁ nancial position and proﬁ t or loss are shown in accor-
dance with IFRS 5 as well. The remaining part of AbD Serotec,
which was not subject to the transaction, was classiﬁ ed as “con-
tinued operation”, along with the segments Partnered Discovery
and Proprietary Development at the balance sheet date. The
presentation of the net assets, ﬁ nancial position and results of
operations of the MorphoSys Group follows the basic concept
of IFRS 5 in this respect.

Bio-Rad, as an international producer and provider of life sci-
ence research tools and diagnostic products acquired substan-
tially all of MorphoSys’s discontinued operation AbD Serotec
for € 53 million in total. The amount comprises the purchase
price, a compensation for cash reserves accounting for € 5.3
million as well as a license fee. Due to the sale of the non-ex-
clusive license, MorphoSys will generate additional sales in
2013 and expects impact also in the following years. Further
information about the ﬁ nancial results of the transaction is
described in the ﬁ nancial report.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

The MorphoSys Share

The 2012 ﬁ nancial year was extraordinarily successful for
MorphoSys. Based on excellent corporate development,
MorphoSys was the second-best performer in the TecDAX*,
with a share price increase of 67 %. In the reporting year,
the share price reacted particularly well to positive news on
proprietary drug development programs such as MOR103.
The TecDAX increased by 18 % in the same period and the
NASDAQ Biotechnology Index rose by 30 %.

trading volume of € 1.8 million in the previous year. On the
TecDAX, the average number of shares traded sank by almost
50 %. However, MorphoSys further strengthened its position
in the TecDAX index, which includes the 30 largest technology
stocks on the Frankfurt Stock Exchange. At the end of 2012,
the Company was able to improve its position based on market
capitalization* to 12th place (year-end 2011: rank 14) and its
position based on trading volume to 14th place (year-end 2011:
rank 20).
*S E E G L O S S A R Y /// pa g e 1 3 4

In the USA capital market, sentiment towards biotechnology
companies was especially positive, where biotechnology shares
have been among the best investments over the last 18 months.
The reason for this lies in rich development pipelines and various
approvals – ﬁ ve out of ten of the top-selling drugs are now of
biotechnology origin. MorphoSys therefore further expanded its
investor relations activities in the US market during 2012.

L IQUIDI T Y AND INDEX MEMBERSHIP
In 2012, the average daily trading volume of MorphoSys’s stock
slightly decreased to € 1.6 million, compared to an average daily

SHARE C API TAL
The share capital increased to 23,358,228 shares resulting
from the exercise of 246,061 stock options and convertible
bonds. Up to 2010, MorphoSys issued stock options and non-
interest-bearing convertible bonds as part of its employee
participation program. In 2011, this was switched to a perfor-
mance share plan. The Company repurchases shares for this
on an annual basis. The program is described in detail from
page 67 of this annual report. During 2012, no new stock
options or convertible bonds were issued to employees or man-
agement.

T
N
E
M
N
O
R
I
V
N
E

S
S
E
N
I
S
U
B

D
N
A

S
N
O
I
T
A
R
E
P
O

F IG . 5 /// T HE MORPHO S Y S SHARE (1 JANUAR Y 2012 = 10 0 %)

200

180

160

140

120

100

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

HIGHES T LEVEL /// +72.8 %
12/19/2012

+ 27.6 %
09/21/2012

L OWES T LEVEL /// -7.8 %
06/04/2012

PUBL ICAT ION of clinical results
from MOR103 /// +10.9 %
09/20/2012

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

TAB . 7 /// K E Y DATA F OR T HE MORPHO S Y S SHARE (AS OF 31 DEC EMBER OF E A C H Y E AR )

in € million (if not stated otherwise)

Total Stockholdersʼ Equity

Number of Shares Issued (Total)

Market Capitalization

Closing Price in € (Xetra)

Average Daily Trading Volume (in € million)

Average Daily Trading Volume
(in % of Share Capital)

2012

202.0

2011

197.1

2010

185.9

2009

173.9

2008

162.0

23,358,228

23,112,167

22,890,252

22,660,557

22,478,787

685

29.30

1.6

0.28

405

17.53

1.8

0.38

424

18.53

1.1

0.26

386

17.04

1.3

0.34

421

18.75

1.9

0.57

Human Resources

GROUP HEADCOUN T DEVEL OPMEN T
Motivated, creative and excellently trained employees form the
basis of MorphoSys’s business success. On 31 December 2012,
421 people were working for MorphoSys world-wide (31 Decem-
ber 2011: 446), of which 142 held a PhD (31 December 2011:
147). On average, the MorphoSys Group employed 422 people in
2012 (2011: 461).

In the competition for the best employees MorphoSys wants to
present itself as an attractive employer with competitive remu-
neration. For this reason, a yearly benchmarking process relat-
ing to remuneration paid in the biotechnology sector and other
industries is carried out, and the salary structure is adjusted
to match, if necessary. Additional remuneration in the form of a
performance-related bonus system adds to the basic salary. The
bonus is linked to the achievement of both individual and Com-
pany goals. Equity-based and proﬁ t-participation programs
involve the employees in the operational and ﬁ nancial develop-
ment of the Company. The Sustainability Report on pages 47
through 48 provides a detailed overview of workforce develop-
ment and MorphoSys’s activities with regard to the long-term
success of the human resources policy.

GROWING IN T ERNAT IONAL INVES T OR BASE
In the reporting year, MorphoSys received various notiﬁ cations
pursuant to sec. 21, sec. 25 and sec. 26 of the German Securi-
ties Trading Act (Wertpapierhandelsgesetz – WpHG). These were
published on our website at www.morphosys.com > Media & In-
vestors > Stock Information > Shareholder Structure.

The number of international investors has once again increased.
Massachusetts Mutual Life Insurance (Oppenheimer Funds) is
currently the largest single investor with a 7.3 % share. In the
course of the year, the Biotech Value Fund (BVF) also acquired
a share of 6.1 %.

A current overview of the shareholder structure can be re-
quested on the Company’s website at www.morphosys.com >
Media & Investors > Stock Information > Shareholder Structure.

INVES T OR REL AT IONS AC T IVI T IES
In the 2012 ﬁ nancial year, MorphoSys intensiﬁ ed its dialog with
the capital market. MorphoSys presented itself at 14 interna-
tional investor conferences and a large number of roadshows
and one-on-ones in Europe and the USA. The greatest interest
came from US-based investors, where a large number of special-
ized healthcare investors are located. Topics such as the ad-
vancement and success probability of drug programs as well
as the further development of new technology platforms reso-
nated most with investors.

At the end of the year, ten analysts covered MorphoSys (2011:
eleven analysts). In the 2012 ﬁ nancial year, WestLB terminated
its business activities and thus also its reporting on MorphoSys.

G R O U P M A N A G E M E N T R E P O R T / / / Operations and Business Environment

F IG . 6 /// T O TAL HEAD COUN T OF T HE MORPHO S Y S GROUP ( 31 DEC EMBER )

2008

2009

2010

2011

2012

100

150

200

250

300

350

400

450

500

* Thereof headcount of discontinued operations: 135

F IG . 7 /// EMPL O Y EE S* BY REGION ( 31 DEC EMBER )

t o ta l h e a d c o u n t 2 0 1 2 : 4 2 1

t o ta l h e a d c o u n t 2 0 1 1 : 4 4 6

334
404
464
446
421*

T
N
E
M
N
O
R
I
V
N
E

S
S
E
N
I
S
U
B

D
N
A

S
N
O
I
T
A
R
E
P
O

328 352

75 74

18 20

2012

2011

2012

2011

2012

2011

Germany

United Kingdom

USA

* Sale of research and diagnostic segment AbD Serotec not considered

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

F IG . 8 /// EMPL O Y EE S* BY SEGMEN T AND F UNC T ION ( 31 DEC EMBER )

By Segment

Proprietary Development

Partnered Discovery

Abd Serotec

Unallocated

t o ta l h e a d c o u n t

421

446

184

135

199

140

446

421

143

278

145

301

By Function

Employees in S, G&A

Employees in R&D

2012

2011

2012 2011

* Sale of research and diagnostic segment AbD Serotec not considered

Results of Operations,
Financial Situation and
Balance Sheet

At the end of 2012 MorphoSys announced the sale of substan-
tially all of the AbD Serotec segment to Bio-Rad. A description
of the transaction can be found on page 30 of this report. On
31 December 2012, substantially all of the AbD Serotec segment
represents a discontinued operation in the context of IFRS 5.
The segments Partnered Discovery, Proprietary Development and
the continued operation of the AbD Serotec segment therefore
qualiﬁ ed as continued operations as of the balance sheet date.

Revenues

Compared to the previous year, Group revenues from continu-
ing operations decreased by 37 % to € 51.9 million (2011: € 82.1
million). This decrease resulted primarily from lower success-
based payments received in the ﬁ nancial year 2012. In 2011,
MorphoSys received a one-time technology milestone payment
from Novartis in relation to the successful installation of
the HuCAL antibody platform in the Novartis Institutes for
BioMedical Research. Overall, the revenues from funded
research and licensing fees decreased in the continued opera-
tions Partnered Discovery and Proprietary Development com-
pared to the previous year.

The continuing operations of the segments Partnered Discovery
and Proprietary Development contributed (prior to the elimi-
nation of inter-segment eﬀ ects) € 44.7 million and € 7.0 million
(2011: € 79.3 million and € 2.4 million) respectively to Group
turnover. The discontinued operations of AbD Serotec generated
revenues of € 17.7 million in 2012 (2011: € 18.7 million). The
continued operations of the AbD Serotec segment contributed

T
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E
H
S

E
C
N
A
L
A
B

D
N
A

N
O
I
T
A
U
T
I
S

L
A
I
C
N
A
N
I
F

S
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A
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P
O

F
O

S
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S
E
R

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

€ 0.3 million (2011: € 0.6 million) to Group turnover. In 2012,
inter-segment revenues in the amount of € 0.04 million were
eliminated between the segments AbD Serotec and Partnered
Discovery (2011: € 0.3 million).

Group revenues due to the application of IFRS 5, and are pre-
sented as revenue from discontinued operations (2011: € 18.7
million).

As of 31 December 2012, orders in the amount of € 0.7 million
were classiﬁ ed as back orders in the segment (2011: € 0.8 million).

Operating Expenses

Total operating expenses decreased in 2012 by 30 % to € 49.8
million (2011: € 70.8 million). This reduction of € 21.0 million
was due to research and development (R&D) expenses decreas-
ing by 33 % or € 18.2 million as well as the reduction of sales,
general and administrative (S, G&A) expenses by 19 % or € 2.8
million to € 12.1 million. The discontinued operations of AbD
Serotec incurred operating expenses of € 18.1 million in 2012
(2011: € 18.3 million). € 6.2 million of this amount arose from
cost of goods sold (2011: € 7.0 million). Operating expenses in
the Partnered Discovery segment decreased to € 21.8 million
(2011: € 23.7 million) and in the Proprietary Development seg-
ment they decreased by 48 % to € 18.1 million (2011: € 35.0
million). In the AbD Serotec segment, operating expenses de-
creased by 4 % to € 17.6 million (2011: € 18.4 million). Assum-
ing constant foreign exchange rates at the average rate of 2011,
operating expenses in AbD Serotec would have amounted to
€ 16.7 million.

Stock-based compensation expenses are embedded in cost of
goods sold (COGS), S, G&A and R&D expense amounts. Stock-
based compensation in 2012 amounted to € 1.3 million (2011:
€ 1.5 million) and is a non-cash charge.

COS T OF GOODS S OL D
COGS is composed of the discontinued operations of AbD
Serotec’s cost of goods sold in 2012 and – compared to the same
period of the previous year – decreased by 11 % from € 7.0 mil-
lion to € 6.2 million. The gross margin for the AbD Serotec seg-
ment increased slightly to 65 % (2011: 64 %).

Geographically, MorphoSys generated 5 % or € 2.7 million of its
commercial revenues with biotechnology and pharmaceutical
companies and non-proﬁ t organizations located in North Amer-
ica, and 95 % or € 49.2 million with customers mainly located in
Europe and Asia. In the same period of the previous year, these
percentages amounted to 6 % and 94 %, respectively. The rela-
tively higher contribution of European revenues to Group rev-
enues mainly reﬂ ects the contribution from MorphoSys’s larg-
est customer Novartis.

PAR T NERED DIS COVERY AND PROPRIE TARY DEVEL OPMEN T

SEGMEN T S
Revenues from the Partnered Discovery segment included
€ 42.7 million of funded research and licensing fees (2011:
€ 46.6 million) as well as € 1.9 million (2011: € 32.7 million) in
success-based payments. The success-based payments con-
tributed 4 % (2011: 40 %) of the total revenues from the segments
Partnered Discovery and Proprietary Development. Funded
research and licensing fees decreased due to the fact that most
of MorphoSys’s collaborations were concluded as planned and
contractually agreed. The main reason for the high revenues
from success-based payments achieved in 2011 was a unique
technology milestone from Novartis for the installation of the
HuCAL technology.

Revenues of the Proprietary Development segment included
€ 7.0 million (2011: € 2.4 million) of funded research. The
revenues of the Proprietary Development segment contained
a one-oﬀ payment from Novartis.

Around 97 % of Group revenues arose from the Company’s three
largest alliances with Novartis, Pﬁ zer and Roche (2011: 94 % with
Novartis, Daiichi Sankyo and Pﬁ zer).

Assuming constant foreign exchange rates at the average rate
of 2011, revenues in the Partnered Discovery and Proprietary
Development segments would have amounted to € 51.3 million.

ABD SERO T EC SEGMEN T
Compared to the same period in the previous year, segment
revenues from AbD Serotec decreased in 2012 by 7 % or € 1.3 mil-
lion to € 18.0 million (2011: € 19.3 million). Assuming constant
foreign exchange rates at the average rate of 2011, revenues in
the AbD Serotec segment would have amounted to € 17.0 mil-
lion. Revenues in the amount of € 17.7 million from the discon-
tinued operations of AbD Serotec were not included in the

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

F IG . 9 /// DIS T RIBU T ION OF R&D EXPENSES ( IN MIL L ION € )

t e c h n o l o g y d e v e l o p m e n t e x p e n s e s

r & d e x p e n s e s o n b e h a l f o f pa r t n e r s

p r o p r i e ta r y d e v e l o p m e n t e x p e n s e s

Total R&D: 37.7

3.6

16.0

33.9

19.1

2.9

Total R&D: 55.9

0.5

27.1

2
0
0

19.1

19.2

0.7

18.1
2 0 1

1
1

2010

25.9

18.9

2.1

Total R&D: 27.6

Total R&D: 39.0

Total R&D: 46.9

RESEARCH AND DEVEL OPMEN T EXPENSES
In 2012, expenses for research and development decreased by
€ 18.2 million to € 37.7 million (2011: € 55.9 million). This was
mainly due to the reduction of costs for external laboratory
funding (2012: € 7.2 million; 2011: € 18.3 million), for personnel
(2012: € 17.9 million; 2011: € 20.7 million), and for consumables
(2012: € 1.5 million; 2011: € 3.3 million). In 2012, external studies
in connection with the proprietary antibody program MOR103
were ﬁ nished, while in 2011 this proprietary program triggered
additional costs due to the advanced status of the project. The
discontinued operations of AbD Serotec incurred research and de-
velopment expenses of € 1.8 million in 2012 (2011: € 1.6 million).

In 2012, the Company incurred costs for proprietary product de-
velopment of € 18.1 million (2011: € 35.0 million). In 2011, this
amount contained segment allocations for technology develop-
ment in the amount of € 1.1 million. Total costs for technology
development amounted to € 3.6 million (2011: € 2.9 million).

SAL ES, GENERAL AND ADMINIS T RAT IVE EXPENSES
Compared to the same period of the previous year, sales, gen-
eral and administrative expenses decreased by 19 % or € 2.8 mil-
lion to € 12.1 million (2011: € 14.9 million) mainly due to lower
personnel costs of € 0.6 million and lower expenses for external
services of € 1.7 million. The discontinued operations of AbD
Serotec incurred sales, general and administrative expenses of
€ 10.0 million in 2012 (2011: € 9.7 million).

Other Income/Expenses

Other income amounted to € 0.4 million (2011: € 0.5 million)
and predominantly comprised funding from public authorities
and currency gains, whilst other expenses of € 0.1 million
(2011: € 2.0 million) primarily resulted from foreign-exchange
losses. The discontinued operations of AbD Serotec incurred
other expenses of € 0.2 million in 2012 (2011: € 0.1 million).

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

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L
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F
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S
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S
E
R

EBIT

Earnings before interest and taxes (EBIT) of continued opera-
tions amounted to € 2.5 million; in 2011, EBIT amounted to
€ 9.8 million. EBIT of the continued operations of the segments
Partnered Discovery and Proprietary Development amounted
to € 23.0 million (2011: € 55.7 million) and € -11.0 million (2011:
€ –32.2 million), respectively. The AbD Serotec segment re-
ported EBIT of € 0.3 million (2011: € 0.9 million); assuming con-
stant foreign exchange rates at the average rate of the twelve
months of 2011, this proﬁ t would have amounted to € 0.2 mil-
lion. After deduction of transaction costs directly attributable
to the sale of the AbD Serotec business, the discontinued opera-
tions generated an EBIT of € -0.6 million in 2012 (2011: € 0.3
million).

resulting from banking fees and losses on foreign-exchange
derivatives. The discontinued operations of AbD Serotec incurred
ﬁ nance expenses of € 0.1 million in 2012 (2011: € 0.1 million).

Taxes

In 2012, the continued operations reported income tax expenses
in the amount of € 0.7 million (2011: € 3.0 million). This line
item mainly comprised current tax expenses in the amount of
€ 1.1 million (2011: € 3.3 million) as well as deferred tax income
in the amount of € 0.4 million (2011: € 0.3 million). The discontin-
ued operations incurred income tax income of € 0.2 million in
2012 (2011: income tax expense of € 0.2 million).

Finance Income/Expenses

Net Proﬁ t

Finance income amounted to € 0.7 million (2011: € 1.5 million)
and primarily included realized gains on marketable securities
sold in the reporting period as well as interest income. Finance
expenses amounted to € 0.1 million (2011: € 0.1 million) mainly

In the ﬁ scal year 2012, a net proﬁ t after taxes of € 2.4 million
was achieved for continued operations (2011: € 8.2 million). After
deduction of transaction costs directly attributable to the sale
of the AbD Serotec business, the discontinued operations reported
a net loss of € 0.4 million (2011: net proﬁ t of € 0.01 million).

Multiple-Year Overview – Results of Operations

TAB . 8 /// MULT IPL E-Y EAR O VERVIEW – RE SULT S OF OPERAT IONS

in million €

Revenues

Cost of Goods Sold

Gross Proﬁ t

Research & Development Expenses

Sales, General and Administrative Expenses

Other Operating Income2

EBIT2, 3

Non-operating Income/Expenses2

Income Tax Expenses

Proﬁ t for the Year from Continuing Operations

(Loss)/Proﬁ t for the Year from
Discontinued Operations1

Consolidated Net Proﬁ t

20121

20111

2010

2009

2008

51.9

0.0

51.9

37.7

12.1

0.3

2.5

0.6

(0.7)

2.4

(0.4)

1.9

82.1

0.0

82.1

55.9

14.9

(1.5)

9.8

1.4

(3.0)

8.2

0.0

8.2

87.0

7.3

79.7

46.9

23.2

0.2

9.8

3.4

(4.0)

9.2

0.0

9.2

81.0

6.7

74.3

39.0

23.9

0.1

11.4

1.6

(4.1)

9.0

0.0

9.0

71.6

7.1

64.5

27.6

20.5

–

16.4

1.6

(4.8)

13.2

0.0

13.2

1 Due to the in December 2012 agreed divestment of substantially all of the AbD Serotec segment, all transaction-related items of 2012 and 2011 will be presented in the position

“Proﬁ t/loss from discontinued operations”. All other items contain the values of continued operations. See also the Notes to the Financial Statements No. 17.

2 To increase the comparability with its peer group, MorphoSys has changed the structure of its proﬁ t- and loss statement in 2012, showing now EBIT instead of proﬁ t from operations.

For further details please refer to section 2.1. of the Notes to the Financial Statements.

3 2008 – 2010: Proﬁ t from Operations

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

Financial Situation

F INANC IAL MANAGEMEN T PRINC IPL ES
The most important objective of ﬁ nancial management at
MorphoSys is to provide suﬃ cient liquidity reserves for indus-
try-speciﬁ c ﬂ uctuations and for the Group’s continued growth
at all times. The most important sources of liquidity are the oper-
ating business activities of the individual Group segments and
the resulting cash inﬂ ows. Scenarios and cash-ﬂ ow planning are
used to determine the liquidity requirements.

C A SH F L OWS
Net cash inﬂ ow from operations in 2012 amounted to € 1.8 mil-
lion (2011: € 27.1 million). Of this amount, a net cash inﬂ ow of
€ 1.0 million resulted from the discontinued operations in 2012
(2011: € 1.6 million), while the continued operations generated
a cash inﬂ ow from operations of € 0.7 million in 2012 and € 25.4
million in 2011.

Investment activities resulted in a cash outﬂ ow in the amount
of € 12.1 million (2011: € 18.1 million), of which a cash outﬂ ow
of € 0.3 million (2011: € 0.6 million) occurred from the discon-
tinued operations and € 11.8 million (2011: € 17.5 million) from
continued operations.

Financing activities generated a cash inﬂ ow of € 1.6 million in
2012 (2011: € 1.3 million), which was fully attributable to contin-
ued operations.

INVES T MEN T S
MorphoSys’s investment in property, plant and equipment mainly
focused on laboratory equipment (see table No. 6) and amounted
to € 1.0 million in ﬁ scal year 2012 (2011: € 2.3 million). Deprecia-
tion of property, plant and equipment in 2012 amounted to € 2.3
million compared to € 2.4 million in 2011. In 2012, an impairment
in the amount of € 0.2 million was recognized for property,
plant and equipment of the Proprietary Development segment.
Investments in the amount of € 0.3 million (2011: € 0.6 million)
as well as depreciation in the amount of € 0.5 million (2011: € 0.6
million) were attributable to discontinued operations.

In 2012, the Company invested € 1.3 million in intangible as-
sets (2011: € 1.3 million). Amortization of intangible assets in
2012 amounted to € 4.0 million, and was below the level of the
previous year (2011: € 4.3 million). In 2011, an impairment of
€ 0.2 million for intangible assets of the Proprietary Development
segment was recognized. Investments in the amount of € 0.2
million (2011: € 0.1 million) as well as amortization in the amount
of € 0.5 million (2011: € 0.5 million) were attributable to discon-
tinued operations.

L IQUIDI T Y
As of 31 December 2012, the Company held € 120.4 million in
cash, cash equivalents and available-for-sale ﬁ nancial assets,
compared to a year-end 2011 balance of € 134.4 million. This
decrease in liquidity was mainly impacted by the allocation of
an interest-bearing transferable loan amounting to € 10.0 mil-
lion. Furthermore, cash in the amount of € 5.3 million was attrib-
uted to the disposal group classiﬁ ed as held for sale in 2012.

Multiple-Year Overview – Financial Situation

TAB . 9 /// MULT IPL E-Y EAR O VERVIEW – F INANC IAL SI T UAT ION

in million €

2012

2011

2010

2009

2008

Net Cash Provided by/(Used In)
Operating Activities1

Net Cash Provided by/(Used in)
Investing Activities

Net Cash Provided by/(Used in)
Financing Activities1

Cash and Cash Equivalents (as of 31 December)2

Available-for-sale Financial Assets

1.8

(12.1)

1.6

40.7

79.7

27.1

(18.1)

1.3

54.6

79.8

1.9

(2.0)

2.3

44.1

64.3

(1.0)

0.6

1.4

41.3

93.9

28.6

(39.3)

2.5

40.1

97.8

1 In 2011, purchases of derivative ﬁ nancial instruments and proceeds from disposal of derivative ﬁ nancial instruments have been reclassiﬁ ed within the cash ﬂ ow statement

from ﬁ nancing activities to operating activities. To provide comparative information for the prior year, the ﬁ gures for the year 2010 have been adjusted accordingly.

2 In 2012, cash in the amount of € 5.3 million was attributed to the disposal group classiﬁ ed as held for sale.

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

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Balance Sheet

ASSE T S
Total assets amounted to € 224.3 million as of 31 December
2012, and were € 4.1 million below the value as of 31 Decem-
ber 2011 (€ 228.4 million). The decrease in current assets by
€ 11.0 million was mainly a result of a decrease in accounts re-
ceivable from continued operations in the amount of € 1.6 mil-
lion and the reclassiﬁ cation of current assets in the amount of
€ 10.9 million to the line item “assets of disposal group classi-
ﬁ ed as held for sale”. The decrease in cash and marketable secu-
rities by € 8.7 million and the decrease in prepaid expenses
and other current assets from continued operations by € 0.6 mil-
lion were mainly oﬀ set by the allocation of an interest-bearing
transferable loan amounting to € 10.0 million, which is presented
under other receivables. Compared to 31 December 2011, non-
current assets decreased by € 33.1 million, mainly as a result
of the depreciation of property, plant, and equipment in the
amount of € 1.7 million, the amortization of licenses and pat-
ents in the amount of € 2.0 million and € 1.0 million, respec-
tively, as well as the reclassiﬁ cation of non-current assets in the
amount of € 30.0 million to the line item “assets of disposal
group classiﬁ ed as held for sale”. As of 31 December 2012, the
investment in Lanthio Pharma B.V., a privately led company
located in Groningen in the Netherlands, in the amount of € 0.9
million was accounted for as “available-for-sale ﬁ nancial as-
set”. As of the balance sheet date 31 December 2012, the Group
holds a percentage of 19.98 % in the share capital of Lanthio
Pharma B.V.

As of 31 December 2012, the Company reported “assets of dis-
posal group classiﬁ ed as held for sale” in the amount of € 40.9
million. This line item mainly included cash in the amount of
€ 5.3 million, inventories in the amount of € 2.8 million as well
as accounts receivable in the amount of € 1.7 million from dis-
continued operations of the AbD Serotec segment. Furthermore,
goodwill in the amount of € 26.8 million, property, plant, and
equipment amounting to € 1.5 million as well as know-how and
customer lists amounting to € 1.0 million were reclassiﬁ ed to
this line item.

As of 31 December 2011, the “assets of disposal group classiﬁ ed
as held for sale” also comprised the property held by the aﬃ liate
Poole Real Estate Ltd., Poole, UK, with a carrying amount of
€ 0.8 million. In March 2012, MorphoSys accomplished the sale
of the property for € 0.8 million.

penses as well as tax liabilities by € 6.0 million and € 2.2 mil-
lion, respectively. Compared to 31 December 2011, accrued
expenses for external laboratory funding decreased by € 3.7
million to € 2.9 million, while accrued expenses for personnel-
related costs decreased by € 1.3 million to € 3.8 million. As
of 31 December 2012, current liabilities in the amount of € 3.3
million from the discontinued operations of the AbD Serotec
segment were reclassiﬁ ed to the line item “liabilities of disposal
group classiﬁ ed as held for sale”.

The decrease in non-current liabilities in 2012 by € 0.9 million
to € 6.6 million resulted mainly from deferred tax liabilities
which decreased by € 0.4 million. In addition, non-current lia-
bilities in the amount of € 0.4 million from the discontinued
operations of the AbD Serotec segment were reclassiﬁ ed to the
line item “liabilities of disposal group classiﬁ ed as held for
sale”.

The line item “liabilities of disposal group classiﬁ ed as held for
sale” reported as of 31 December 2012, in the amount of € 3.7
million is primarily composed of accounts payable, accrued ex-
penses and accruals amounting to € 2.4 million, deferred reve-
nues amounting to € 0.4 million as well as deferred tax liabilities
amounting to € 0.4 million.

EQUI T Y
Total Group equity amounted to € 202.0 million as of 31 Decem-
ber 2012, compared to € 197.1 million as of 31 December 2011.

As of 31 December 2012, the total number of shares issued
amounted to 23,358,228, of which 23,102,813 were outstanding
(31 December 2011: 23,112,167 and 22,948,252 shares).

The increase of shares outstanding by 154,561 arose from the
net eﬀ ect of exercised stock options and convertible bonds issued
to members of the Management Board and employees (246,061
shares) and a repurchase of the Company’s own shares (91,500
shares).

In April 2012, the Company repurchased 91,500 MorphoSys
shares on the stock market and increased the amount of trea-
sury shares accordingly. The shares will be used to implement
the Company’s long-term incentive plan for management.

Financing

L IABIL I T IES
The decrease in current liabilities from € 23.8 million as of
31 December 2011, to € 11.9 million as of 31 December 2012,
mainly arose from a decrease in accounts payable, accrued ex-

As of 31 December 2012, the equity ratio of the Company
amounted to 90 %, compared to an equity ratio of 86 % as of
31 December 2011. The Company is currently not ﬁ nanced
via ﬁ nancial debt.

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

Multiple-Year Overview – Balance Sheet Structure

TAB . 10 /// MULT IPL E-Y EAR O VERVIEW – BAL ANC E SHEE T S T RUC T URE

in million €

12/31/2012

12/31/2011

12/31/2010

12/31/2009

12/31/2008

Assets

Current Assets

Non-current Assets

Assets of Disposal Group Classiﬁ ed
as Held for Sale

Total

Equity and Liabilities

Current Liabilities

Total Non-current Liabilities

Liabilities of Disposal Group Classiﬁ ed
as Held for Sale

Equity

Total

142.9

40.6

40.9

224.3

11.9

6.6

3.7

202.0

224.3

153.9

73.7

0.8

228.4

23.8

7.5

197.1

228.4

132.5

77.3

209.8

21.4

2.5

185.9

209.8

155.6

50.5

206.1

24.3

7.9

173.9

206.1

150.1

53.2

203.3

27.4

13.9

162.0

203.3

Off-Balance Sheet Financing

MorphoSys is not involved in any oﬀ -balance sheet ﬁ nancing
instruments such as the sale of receivables, asset-backed bonds,
sale-and-lease-back transactions or contingent liabilities in
relation to special purpose entities not consolidated.

Credit Rating

MorphoSys is not currently being assessed on its credit-wor-
thiness.

Comparison of the Actual Business
Results with Forecasts

MorphoSys demonstrated a solid ﬁ nancial performance in the
2012 reporting year. In the fourth quarter, the Company slightly
reduced the turnover goal it published at the beginning of 2012.
This was in part due to the ﬁ rst commercial agreement for the
Ylanthia platform being concluded later than expected. The
reported Group turnover of € 51.9 million does not include the
turnover of the discontinued operation amounting to € 17.7 mil-
lion, which is disclosed separately as discontinued operations in
accordance with the IFRS 5 accounting standard.

The Management’s General Assess-
ment of Business Performance

The Management Board can once again look back on a very
solid performance of the MorphoSys Group in the 2012 ﬁ nan-
cial year. The majority of the goals it set at the start of 2012
have been met. Marketing of the Ylanthia platform began very
late in the reporting year and some milestone payments were
delayed. Excluding the turnover from the AbD Serotec segment,
which is disclosed separately as discontinued operations in the
Group Consolidated Financial Statements owing to the sale of the
segment to Bio-Rad, the turnover of the MorphoSys Group for
2012 amounts to € 51.9 million, 37 % below the likewise adjusted
comparison value in the previous year. The unfavorable com-
parison to the 2011 annual turnover derives from the one-time
milestone payment from Novartis in the ﬁ rst quarter of 2011
related to the installation of the HuCAL antibody platform at the
Novartis Institutes for BioMedical Research in Basel, Switzer-
land. As targeted for 2012, the Company remained proﬁ table
with operating proﬁ ts of € 2.5 million. The equity quota of
90 %, a liquidity position of € 130.4 million (including an inter-
est bearing and assignable loan in the amount of € 10.0 mil-
lion, excluding € 5.3 million in the discontinued operation) as
well as no ﬁ nancial debt whatsoever testify to the Company’s
thoroughly solid ﬁ nancial situation.

G R O U P M A N A G E M E N T R E P O R T / / / Results of Operations, Financial Situation and Balance Sheet

TAB . 11 /// COMP ARI S ON OF AC T UAL BUSINE SS RE SULT S WI T H F OREC A S T S

2012 Goals

2012 Achievements

Financials

Group revenues of € 70 – 75 million (originally € 75 – 80 mil-
lion, adjusted in November 2012)

Group revenues of continuing operations € 51.9 million
(AbD Serotec segment revenues are disclosed separately as
discontinued operation at € 17.7 million)

Investments in proprietary R&D amounting to € 20 – 25 million

Investments in proprietary R&D amounting to € 21.7 million

AbD Serotec proﬁ t margin of approx. 6 – 8 %

EBIT of € 1 – 5 million

AbD Serotec proﬁ t margin of 2 %. The agreed sale of AbD Serotec
caused additional transaction costs, which reduced the proﬁ t
margin.

EBIT of continuing operations of € 2.5 million
(EBIT of AbD Serotec segment is disclosed separately as
discontinued operation at € – 0.4 million)

Proprietary R&D

MOR103:
• Conclusion of phase 1b/2a trial on patients with rheuma-

MOR103:
• Publication of positive data from phase 1b/2a trial and

toid arthritis and presentation of clinical results

• Continuation of phase 1b safety trial for multiple sclerosis

as a second indication

presentation of clinical results at the annual meeting of the
American College for Rheumatology (ACR)

• Continuation of phase 1b trial with increasing dosage for

• Evaluation of subcutaneous formulation

multiple sclerosis

MOR202:
Continuation of phase 1/2a trial in multiple myeloma

MOR208:
• Conclusion of Xencor-sponsored phase 1 trial on CLL/SLL

patients

• Positive results from phase 1 trial of subcutaneous delivery

MOR202:
Continuation of phase 1/2a trial in multiple myeloma.
It could be veriﬁ ed that MOR202 is able to induce the elimination
of MM cells in patients also via antibody-dependent cellular
phagocytosis (ADCP) in vitro; presentation of corresponding data
at the American Society of Hematologyʼs 2012 annual confer-
ence (ASH)

MOR208
• Successful conclusion of phase 1/2a trial with encouraging
ﬁ rst signs of anti-tumor eﬃ cacy and an acceptable safety
and compatibility proﬁ le; further clinical development under
sole responsibility of MorphoSys

• Start of MorphoSys-sponsored trials in NHL and ALL

• Trials in NHL and ALL in preparation; approvals for start of

Partnered Pipeline

Continuation of development programs with partners

1 – 3 IND ﬁ lings in 2012

phase 2 studies received in 2012/planned start in April 2013

• Net increase of 2 partner programs
• Roche phase 3 milestone
• Further project advances in the collaborations with Novartis,
OncoMed and Janssen Biotech, partly with preclinical and
clinical milestone payments

One partner program from Novartis started clinical development

AbD Serotec

Proﬁ table growth and focus on diagnostics market

• Decrease in revenues and proﬁ t – a diﬃ cult market environ-

ment and the sale in the fourth quarter of 2012 had impact on
the annual result

• Increase in number of HuCAL-based tests in clinical diagnos-
tics, e.g. in the ﬁ eld of infectious diseases and pregnancy-
related diagnostics

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G R O U P M A N A G E M E N T R E P O R T / / / Sustainability Report

The greatest contribution to business success was once again
generated by the Company’s Partnered Discovery segment.
Based on the positive ﬁ nancial performance of this business
segment, MorphoSys could continue to invest in its proprie-
tary product and technology development. Despite the further
investment increases, the Company showed solid operating
proﬁ ts.

Investments in research and development are also reﬂ ected in a
more mature product pipeline. In particular, MorphoSys’s pro-
prietary compounds demonstrated pleasing progress, with ini-
tial clinical eﬃ cacy data on MOR103 and the advancement of
a further drug candidate, MOR208, to phase 2 clinical develop-
ment. With gantenerumab, a HuCAL program reached a phase
3 trial for the ﬁ rst time in 2012. There are currently 20 programs
in clinical evaluation, four of which are proprietary.

The AbD Serotec business segment did not meet its growth
expectations due to a challenging market environment in 2012.
The demand in the research and diagnostics markets was par-
ticularly negatively inﬂ uenced in Europe and the USA. However,
the segment made pleasing gains in market coverage with an
increasing number of HuCAL-based tests in clinical diagnostics.

Accounting Judgments

No accounting policies were applied or related options exercised
in the Consolidated Financial Statements 2012 that diﬀ er from
those in prior years and that, if applied or exercised diﬀ erently,
would have had a material eﬀ ect on the results of operations,
ﬁ nancial situation, and balance sheet structure. Information on
the eﬀ ects of the use of estimates, assumptions, and judgments
by the management can be found in the Notes to the Consolidated
Financial Statements.

Sustainability Report

For MorphoSys, sustainability means being economically suc-
cessful as a company and satisfying the highest environmental
and social standards in the process. This conviction under-
pins all business processes and helps to ensure MorphoSys’s
long-term commercial success. This Sustainability Report out-
lines MorphoSys’s ecological and social responsibility to current
and future generations as well as the measures taken to fulﬁ ll
these responsibilities. Information on MorphoSys’s management
structure and corporate governance practices can be found in
the Corporate Governance Report.

Sustainable Corporate Management
at MorphoSys

Sustainable and responsible behavior is a hallmark of
MorphoSysʼs corporate management. The goal as a biopharma-
ceutical company is to continuously develop more eﬀ ective
and safer drugs and diagnostics. The eﬀ ort to create meaning-
ful added value for society is reﬂ ected in the Companyʼs core
objectives. In daily operations, value is placed on always work-
ing in harmony with strict ecological and social principles. For
this reason, MorphoSys follows a business model aimed at sus-
tainable growth, which protects the interests of its sharehold-
ers, creates long-term value and evaluates processes with regard
to their eﬀ ects on the environment, society, patients and em-
ployees. An HR policy that takes the concerns of employees seri-
ously reﬂ ects this business model internally.

Additionally, MorphoSysʼs innovative, focused and forward-look-
ing R&D activities ensure long-term business success. Along-
side the supply of food and water, as well as climate protection,
the provision of healthcare to a growing and aging population
represents a signiﬁ cant cornerstone of well-being and social jus-
tice. With its new biotechnologically produced drugs, MorphoSys
can make a valuable contribution to comprehensive healthcare
provision in the long term. In the view of the Company’s man-
agement, the MorphoSys business model does not contain any
aspects contradictory to the interests of shareholders focusing
on sustainable investments.

A comprehensive risk management system ensures that factors
potentially endangering the sustainable performance of the Com-
pany are recognized at an early stage and that, if necessary,
adequate countermeasures are taken. MorphoSys generally only
takes risks which oﬀ er opportunities to increase the Companyʼs
sustainable value (more details on risks and opportunities can be
found from page 49).

G R O U P M A N A G E M E N T R E P O R T / / / Sustainability Report

The Group-wide adherence to this strategy is the responsibility
of the whole Management Board led by the CEO. The way this
strategy translates into the daily business of every employee at
MorphoSys is written down in the Company’s Credo as part of
its Code of Conduct, which applies to all sites. Regular employee
training courses on the Code of Conduct itself as well as on spe-
ciﬁ c risk areas ensure that these regulations are understood and
implemented. The Head of Human Resources (chairperson) and
three further members comprise the Code of Conduct Committee,
which is a point of contact available to every employee. Every
employee can – anonymously if desired – seek advice in legal and
compliance-related matters, and report suspicions or breaches.
Compliance violations are consequently pursued and appropriate
countermeasures taken. No breach has been reported so far,
however, and the Company also regards serious violations, which
could have a signiﬁ cant impact on the Groupʼs net assets, ﬁ nan-
cial position and results of operations, as unlikely in the future.

In its reporting on sustainability, MorphoSys uses so-called
SD KPIs (Sustainable Development Key Performance Indicators),
which are also recommended in the SD-KPI standard. These
include “Performance in Research & Development” (SD-KPI 1)
and “Performance in Partner Programs” as a benchmark for
commercialization rates (SD-KPI 2) (see Strategy and Perfor-
mance Management from page 20). During the last ﬁ ve years,
no products were recalled and there were neither ﬁ nes nor settle-
ment payments caused by litigation (SD-KPI 3). The following
report on the implementation of MorphoSysʼs corporate strategy
and the sustainable company development is additionally ori-
ented to the recommendations of the German Sustainability Code,
which was proposed by the Council for Sustainable Develop-
ment in October 2011.

Sustainable Performance at
MorphoSys

E T HIC AL S TANDARDS AND S TAKEHOL DER DIAL OG
The Company adheres to the highest scientiﬁ c and ethical prin-
ciples when conducting human clinical trials or animal testing;
these principles are also anchored in the Companyʼs Code of
Conduct, most notably the World Medical Associationʼs (WMA)
Declaration of Helsinki. Strict compliance with existing na-
tionally and internationally applicable regulatory requirements
is obligatory for every employee at MorphoSys as well as for
third-party contractors.

The biotechnology industry cannot avoid carrying out animal
trials at the present time, as European legislation requires
this in order to determine a drug candidateʼs toxicity*, pharma-
cokinetics* and pharmacodynamics*.
*S E E G L O S S A R Y /// pa g e 1 3 4

Not having its own laboratories for this kind of research, the
Company sources out all tests involving animals to contract
research organizations (CROs). In the course of its product de-
velopment activities, MorphoSys commissions animal trials
according to the principles of good animal welfare and humane
treatment of animals as laid down in national and European
regulations. MorphoSys has implemented a quality assurance
and quality control system with written Standard Operating
Procedures (SOPs). This system is maintained and continuously
improved to ensure that animal trials are contracted to CROs
who respect local, national and international regulations. Trials
will generally only be conducted after approval by the respec-
tive ethics committee and are carried out under continuous vet-
erinary surveillance.

MorphoSys demonstrates its commitment to responsible ani-
mal care and use by working with institutions which, in addi-
tion to complying with the laws regulating animal research,
have earned Good Laboratory Practice (GLP) and/or AAALAC
(Association for Assessment and Accreditation of Laboratory
Animal Care) accreditation. Furthermore, the appropriateness
of the CROʼs testing facilities, the level of training and compe-
tence of the personnel involved and the conditions for the ani-
mals are looked at during an evaluation process prior to the
contracting of any trial.

Regarding the treatment of healthy volunteers and patients in
clinical trials which are sponsored by MorphoSys, the Com-
pany strictly adheres to the ethical principles that have their
origin in the Declaration of Helsinki mentioned above. In addi-
tion, trials are conducted in compliance with applicable privacy
and conﬁ dentiality rules. Safeguarding the rights, safety and
well-being of all participants in clinical trials is a high priority
for MorphoSys. Clinical trials will only commence after ap-
proval by the applicable independent ethics committee and/or
institutional review board. Prior to taking part in a clinical
trial, every participant has to hand in a voluntary informed con-
sent form.

The aspiration behind MorphoSysʼs business is to improve
patientsʼ lives through its scientiﬁ c work. The Company is only
able to reach this goal if its corporate actions are also socially
accepted. This requires a continuous and open stakeholder dia-
logue in order to understand possible concerns regarding bio-
technological approaches and to explain MorphoSysʼs operations
and their advantages. To this end, MorphoSys engages in vari-

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G R O U P M A N A G E M E N T R E P O R T / / / Sustainability Report

ous activities; for example, it participates in public information
events and actively supports the Communication and Public
Relations working group of BIO Deutschland e.V.

PROCUREMEN T
The Central Purchasing & Logistics department was established
at the beginning of 2012. The department is responsible for pro-
curement for the Group and ensures a seamless supply of exter-
nal goods as well as services and logistics in order to support
business operations in the best possible manner. The department
ensures continuity of support by selecting quality goods and
services that meet the required standards. It focuses on contract
management as well as on streamlining the procurement pro-
cess in areas where this seems sensible by, among other things,
concentrating on fewer suppliers with more advantageous con-
tract terms. By initiating Master Service Agreements, some part-
ners were established as “preferred suppliers” in the reporting

year. In future, these long-term partnerships should save time
and costs in the procurement process. All of MorphoSysʼs se-
lected suppliers are in compliance with human rights and inter-
nationally recognized working standards. The savings realized
in 2012 through the activities of the central procurement depart-
ment amount to approx. € 1.4 million over the cumulative con-
tract periods.

ENVIRONMEN TAL PRO T EC T ION AND OCCUPAT IONAL SAF E T Y
Biotechnology is a strictly regulated sector with a set framework
for environmental protection and occupational safety activities.
The Occupational Safety and Environmental Protection depart-
ment centrally monitors the MorphoSys Groupʼs sites with re-
gard to compliance with all relevant guidelines. In addition to
strictly complying with all statutory regulations, MorphoSys
undertakes a range of eﬀ orts to ensure sustainable environmen-
tal management and reliably protect its employees.

F IG . 10 /// O CCUPAT IONAL SAF E T Y AT MORPHO S Y S

U S E O F L O W E S T P O S S I B L E
A M O U N T O F H A Z A R D O U S S U B -
S TA N C E S

O N LY S P E C I A L LY T R A I N E D A N D
S E N I O R E M P L O Y E E S A R E A L-
L O W E D T O W O R K W I T H T O X I C
S U B S TA N C E S

P AT H O G E N I C O R G A N I S M S A R E
P R O C E S S E D I N L A B O R AT O R I E S
W I T H P A R T I C U L A R S A F E T Y
S TA N D A R D S

O N LY C E R T I F I E D C O M P A N I E S
A R E A U T H O R I Z E D B Y
M O R P H O S Y S T O D I S P O S E
C H E M I C A L W A S T E

I N T R O D U C T I O N O F H A Z A R D O U S
M AT E R I A L S F O R R & D P U R P O S E S :

• Dedicated Biosafety Team accord-

ing to GenTSV (“Gentechnik-
Sicherheitsverordnung”) and safety
professionals perform internal
audit to assess the risk involved

• Speciﬁ c safety and evacuation

trainings for the employees work-
ing with the substances

• Assurance that all safety measures
are implemented before actual
work commences

G R O U P M A N A G E M E N T R E P O R T / / / Sustainability Report

MorphoSys continuously elaborates measures in a bid to protect
resources. Savings in energy consumption and production of
waste reduced costs and had a positive eﬀ ect on the environment
in the reporting year. For the fourth year in a row, the Com-
pany participated in the Carbon Disclosure Project (CDP) survey
on the monitoring of internal resource consumption. This inde-
pendent non-proﬁ t organization works towards the reduction
of greenhouse gases and towards sustainable water usage.
Its continuous participation in the study enables MorphoSys to
monitor its consumption in a structured way and puts the Com-
pany in a position to counter excessive consumption or high costs
in a prompt manner. As in the previous years, no need for ac-
tion resulted from the study results in the reporting year, but
MorphoSys nonetheless established various measures for the
protection of resources. For example, the introduction of energy-
saving computer screens saved energy and costs, as did the
energy-eﬃ cient equipping of a laboratory and corresponding
lighting systems. All printers were reset to print double-sides
in black and white as standard in order to reduce toner and paper
consumption. The sales staﬀ in the AbD Serotec division largely
travel in fuel-saving BlueMotion vehicles, which have been opti-
mized for better environmental compatibility with regard to
their pollutant emissions.

Furthermore, MorphoSys supported two campaigns to raise
awareness among employees in terms of resource-saving be-
havior: in the reporting year, the Company once again encour-
aged its German employees to take part in the initiative of a
German health insurance company and the German Cyclists
Club (ADFC) and cycle to work. The outcome of this saw the
Company deemed bicycle-friendly. Additionally, the Companyʼs
own MOR2Work platform was founded. This intranet-based
application enables employees to organize carpools for the route
to work and thus contributes to saving costs and reducing CO2
emissions.

Within the framework of its laboratory activities, MorphoSys
aims to minimize the amount of harmful substances used.
Only a specially trained group of people is allowed to handle
toxic substances, while work with infectious pathogens may
only be carried out in secured laboratories. For the disposal of
chemical waste materials, MorphoSys exclusively contracts
companies that are certiﬁ ed for the task. MorphoSys does not
use radioactive substances to label antibodies.

QUAL I T Y ASSURANCE
Biopharmaceutical companies have a special responsibility with
regard to safety and quality standards. In order to avoid safety
risks in drug development that could present a serious threat not
only to patients, but also to its economic situation, MorphoSys
follows deﬁ ned processes and strict guidelines. In this way, the
Company guarantees the quality of test preparations, keeps
the risk to clinical trial participants as low as possible and guar-
antees that the data can be collected reliably and processed
correctly.

In order to be able to control and regulate these processes,
MorphoSys has set up an integrated quality management sys-
tem for its Proprietary Development department based on the
principles of Good Manufacturing Practice (GMP*), Good Clini-
cal Practice (GCP*) and Good Laboratory Practice (GLP*). An
independent Quality Assurance department makes sure that
all development measures comply with applicable national
and international laws, regulations and guidelines. The Head
of Quality Assurance directly reports all measures to and coor-
dinates them with the Management Board. In this manner, the
high quality standards are achieved that are necessary to
guarantee product quality as well as data integrity, and to guar-
antee the safety of trial participants.
*S E E G L O S S A R Y /// pa g e 1 3 4

The Quality Assurance department compiles audit plans for the
execution of clinical testing. Contract research organizations
(CROs), external providers and investigator sites participating
in the clinical trials are audited by the Quality Assurance de-
partment using a risk-based approach.

For its proprietary development activities, MorphoSys holds a
manufacturing license for the release of clinical trial material
and has been certiﬁ ed by the relevant German authorities (Gov-
ernment of Upper Bavaria) as being in compliance with the
standards and guidelines of Good Manufacturing Practice (GMP).

For its research and diagnostics businesses, AbD Serotecʼs
manufacturing site is MorphoSys UK Ltd., Oxford. This site
is accredited in accordance with the quality management stand-
ards ISO (International Organization for Standardization)
9001:2008 and ISO 13485:2003. The US site of AbD Serotec in
Raleigh, North Carolina, is also accredited in accordance with
ISO 9001:2008, as is the Puchheim site near Munich.

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F IG . 11 /// QUAL I T Y MANAGEMEN T S Y S T EMS AT MORPHO S Y S

C O R P O R AT E R E Q U I R E M E N T S /

D E P A R T M E N T R E Q U I R E M E N T S

M A N A G E M E N T

Q U A L I T Y M A N A G E M E N T S Y S T E M S

R E G U L AT O R Y R E Q U I R E M E N T S

Training and Qualiﬁ cation

Self Inspection / Internal Audits

Documentation System

Handling of Deviations, Change
Control, Complaints, Out of
Speciﬁ cation (OOS) and Recalls

External Audits
(CMO*, CTO*, CRO*,
clinical trial sites)

SOP-System*

Batch Record Review

The Quality Assurance department takes a central role within the Quality Management System at MorphoSys and reports directly to the Management Board of MorphoSys AG. It takes
into account all regulatory requirements as well as the department and corporate speciﬁ c requirements and guides and supervises all departments governed by the quality system.

*S E E G L O S S A R Y /// pa g e 1 3 4

IN T EL L EC T UAL PROPER T Y
The Company’s proprietary technologies and products derived
therefrom are its most valuable assets. It is therefore crucial
for the Companyʼs success to further secure strong patent pro-
tection for its technology portfolio as well as for the MOR103,
MOR202 and MOR208 development programs. For partnered
programs, MorphoSysʼs partners ﬁ le patent applications for
individual drugs in cooperation with MorphoSysʼs IP department.
Such drug development programs possess additional patent
protection, the duration of which signiﬁ cantly exceeds that of
the underlying HuCAL technology.

In 2012, the Company again systematically expanded its patent
portfolio. On the technology side, further important steps were
taken to eﬃ ciently protect the new antibody platform Ylanthia.
Furthermore, MorphoSys possesses a range of further technol-
ogy patents that serve as a basis for the Company’s growth and

its drug development programs. The patent protection for the
Ylanthia platform is expected to expire in 2031.

The Company’s proprietary development programs are followed
through the patent system very closely. The most advanced pro-
gram, MOR103, is now protected by more than half a dozen dif-
ferent patent applications that cover the most varied aspects of
this compound providing very eﬀ ective protection. The various
patents and associated protection certiﬁ cates are expected to pro-
tect the MOR103 program until 2031.

Currently, the Companyʼs patent attorneys prosecute more
than 40 diﬀ erent proprietary patent families worldwide, in ad-
dition to numerous patent families the Company is pursuing
in cooperation with its partners. The patent portfolio is analyzed
regularly and the Companyʼs business strategy adjusted ac-
cordingly.

G R O U P M A N A G E M E N T R E P O R T / / / Sustainability Report

F IG . 12 /// P AT EN T L IF E T IME ON K E Y PL AT F ORM T EC HNOL O GIE S

HuCAL

Slonomics
Ylanthia*

* First patent granted in the USA in January 2013

HUMAN RES OURCES
A forward-looking personnel policy is essential for a company to
compete in the market. Only in this way can employees with
diﬀ erent specialist focuses be attracted in international compe-
tition and attracted to the Company long-term. At the end of
the reporting year, MorphoSysʼs employees came from 16 diﬀ er-
ent nations.

The Companyʼs comprehensive further training program rep-
resents an important component in this context. Employees in
the areas of research and product development as well as in
various management positions are encouraged to partake in a
range of internal and external training programs. Special fur-
ther training and development programs provide professional
and personal development for employees and, in individual
cases, are also supported by customized coaching. A quarterly
managersʼ workshop was introduced in 2012 in order to pro-
vide concrete support to all managers in carrying out their duties.
Standard speciﬁ cations provide guidance for sustainable per-
sonnel management.

Furthermore, in 2012, MorphoSys established a specialist career
path in the science ﬁ eld that oﬀ ers career progression analo-
gous to the management career path. Given the Company’s ﬂ at
hierarchies, this creates real prospects for scientists with out-
standing expert knowledge.

MorphoSys is aware of its social responsibility to young people
in particular and so actively contributes by oﬀ ering vocational
training in-house. As far as equal qualiﬁ cation is given, not only
students with a high school diploma (Abitur) are employed, but
those with other school-leaving qualiﬁ cations are also considered
for occupations that require training, with great success. As of
31 December 2012, the Company had three trainees in the IT de-

2016

2023 +

2031

partment, six trainees as biology laboratory technicians and
one trainee as a human resources services consultant (31 De-
cember 2011: four IT trainees, four biology laboratory trainees).

As stated in MorphoSysʼs Credo, transparent and open commu-
nication among the workforce is a core element of the Company
culture. In its fortnightly General Meetings, the Management
Board gives information on recent Company developments. Em-
ployees present selected projects and questions are answered.
Questions can be asked by employees either at the meeting itself
or submitted in writing beforehand, anonymously if so desired.
Additionally, the Company intranet with its integrated document
management systems provides relevant information for all em-
ployees in an up-to-date and structured manner.

The e-recruiting tool introduced in 2011 proved itself during
the previous ﬁ nancial year. Already, 95 % of job applications
are now submitted online via the MorphoSys website, which sig-
niﬁ cantly reduces administration time for the Company and
therefore shortens response times. As all applications are man-
aged solely within this secure system, absolute conﬁ dentiality
and discretion are guaranteed.

All new employees are familiarized with the Group in two-day
introductory meetings and can ﬁ nd comprehensive informa-
tion on the Company’s processes at individual lectures on all
specialist departments. Free sports and relaxation opportuni-
ties, such as Pilates sessions or courses on autogenic training,
help to promote employee health and social exchange beyond
their department.

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F IG . 13 /// WORK F ORCE* BY GENDER IN 2012 ( 2011)

60 %

Previous year

67 %

33 %

40 %

Female

* Sale of research and diagnostic segment

AbD Serotec not considered

Male

TAB . 12 /// ABSENC E RAT E S AT MORPHO S Y S

in %

Germany

USA

2012

2011

2010

2009

2008

3.0

1.9

1.1

2.7

1.7

1.2

1.7

2.0

1.7

1.1

1.3

1.5

1.2

The compatibility of professional development with personal
life planning is becoming increasingly important to employees.
In particular, companies whose business success is based on
creative and committed employees must accept the challenge
and develop suitable concepts. MorphoSys realized this trend
many years ago and oﬀ ers its employees a variety of opportuni-
ties in this regard, for example ﬂ exible working time models
and special part-time employment arrangements. Modern IT
equipment also enables trouble-free work during business
trips or at home. For employees with young families, MorphoSys
eases the return to working life and the coordination of profes-
sional and family life with special solutions. MorphoSys is the
co-founder and a supporter of the BioKids day care center in
Martinsried and has special agreements with a German service
provider oﬀ ering additional services for working family members.

MorphoSys rates the protection of its employees against work-
related dangers and the preservation of their health by means
of preventive measures very highly. The success of the strict
monitoring of all occupational safety and security measures is
demonstrated in the very low number of workplace accidents:
Three workplace accidents requiring a report occurred in the
reporting year (2011: 8), of which two were categorized as
commuting accidents. With guidelines and training courses
run by the Health & Safety department, but also by oﬀ ering
regular medical checks, the Company strives to keep the num-
ber of accidents low and to ensure the safety and well-being
of all employees at MorphoSys as much as possible. The success-
ful implementation of these measures is illustrated by the con-
sistently low absence rate at all of MorphoSysʼs sites.

G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

Risks and Opportunities
Report

Principles of Risk and Opportunity
Management

MorphoSys is part of an industry that is characterized by con-
stant change and progress. The challenges and opportunities
in the healthcare industry are inﬂ uenced by many diﬀ erent fac-
tors. Global demographic changes, medical advances and the
desire for a better quality of life in emerging nations form a solid
growth perspective for the pharmaceutical and biotechnology
industry. Growing regulatory requirements in the area of drug
development and the cost pressures on healthcare systems in
particular must, however, also be considered.

MorphoSys seeks to recognize and utilize new opportunities
for business success in order to increase the value of the Com-
pany in the long term. Corporate success cannot, however, be
achieved without conscious risk-taking. As a result of its global
activities, MorphoSys is exposed to a variety of risks which
could aﬀ ect the Companyʼs business performance. MorphoSysʼs
risk management system helps to evaluate the risks associ-
ated with the Companyʼs strategic objectives. Regular strategy
reviews ensure a reasonable balance between opportunities
and risks. MorphoSys will only take a certain risk if it is accom-
panied by the opportunity to increase the Companyʼs value.

Revision of the Risk and Opportu-
nity Management System

In the past ﬁ nancial year, the risk and opportunity manage-
ment system was fundamentally revised and a Group-wide IT
solution for the systematic analysis and monitoring of risks
and opportunities was introduced. This IT solution supports all
responsible risk managers in the monitoring and assessment
of risks and opportunities and enables these to be continuously
documented. All risks and opportunities are evaluated very
closely for a period of one year. Many risks and opportunities,
primarily in the area of product development, have more long-
term eﬀ ects, which is also why a three-year period is considered.

MorphoSys is continually confronted with risks and opportuni-
ties. Material eﬀ ects on assets and the ﬁ nancial situation, as well
as a direct impact on intangible assets, such as the Companyʼs
image in the industry or the Companyʼs brand, are possible in
this regard.

MorphoSys deﬁ nes risks as internal or external events that have
a direct inﬂ uence on the Company. The potential ﬁ nancial im-
pact on the Companyʼs goals is evaluated here. Opportunities are
directly linked with risks. The occurrence of opportunities has
a positive inﬂ uence on the Companyʼs goals, while risks have a
negative inﬂ uence.

Responsibilities in the Risk and
Opportunity Management System

The Management Board of MorphoSys AG is responsible for the
risk and opportunity management system. It ensures that all
opportunities and risks are presented, assessed and monitored
in a comprehensive manner. The Corporate Finance & Corpo-
rate Development department coordinates their implementation
and regularly reports to the Management Board. The Super-
visory Board has tasked the Audit Committee with monitoring
the eﬀ ectiveness of the Group’s risk management system. The
Audit Committee regularly reports on the results to the whole
Supervisory Board.

Accounting-Related Internal Control
System

MorphoSys uses extensive internal controls, Group-wide report-
ing guidelines and additional measures, including employee
training and continuous education, with the intention of ensur-
ing accurate bookkeeping and accounting as well as reliable
ﬁ nancial reporting in the Consolidated Financial Statements and
the Group Management Report. This integral element of the con-
solidated accounting process comprises preventive, monitoring
and detective measures designed to ensure safety and control
in accounting and operational functions. For more detailed infor-
mation about the internal control system regarding ﬁ nancial
reporting, please see the Corporate Governance Report from
page 59.

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G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

F IG . 14 /// MORPHO S Y S’S RI SK MANAGEMEN T S Y S T EM

Corporate
Governance

Supervisory
Board

Management
Board

Compliance
Management

Risk
Management

Internal
Control
System

Deﬁ ne
Objectives

Assess
Risk

Implement
Measures

Monitor
System

Internal
Audit

Risks

RISK MANAGEMEN T SY S T EM
The risk management system is a key element of MorphoSysʼs
activities in terms of complying with legal requirements and
good corporate governance practice.

MorphoSys has established a comprehensive system to identify,
assess, communicate and manage risks across all parts of the
organization. The risk management system at MorphoSys identi-
ﬁ es risks early on and enables appropriate measures in order
to limit losses and avoid risks that would threaten the Companyʼs
existence. All mitigation measures have been clearly assigned
to responsible risk managers, predominantly to members of
MorphoSysʼs Senior Management Group.

All major risks for MorphoSysʼs diﬀ erent business units, as well
as in terms of the Company as a whole, are assessed within the
framework of a systematic risk evaluation process. These risk
evaluations are carried out twice a year. Risks are evaluated by
comparing their quantiﬁ able impact on the MorphoSys Group
and their probability of occurring with and without having estab-
lished any mitigation processes. The methodology is applied
over an assessment period of twelve months and a mid-term view
of three years in order to include the long timelines in propri-
etary development. An overview of the current risk evaluation
by MorphoSys is shown in Fig. 15. The risk management sys-
tem is continuously discussed in and among the Management
Board and the Supervisory Board. It is also reviewed on a regu-
lar basis by external consultants in order to ensure continuous
development so as to react to possible changes at all times.

G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

F IG . 15 /// DE S C RIP T ION OF MA JOR RI SK S AT MORPHO S Y S ( IN P OIN T S )

Risk Description

FINANCIAL RISKS

Risks resulting from not reaching revenues as expected, derived from existing business
with partners or from new product oﬀ erings

Risks resulting from bank insolvencies

OPER ATIONAL RISKS

Risks inherent to proprietary drug discovery and development

Risks resulting from purchasing and logistics-related issues

STR ATEG IC RISKS

Risks resulting from missed opportunities

Risks resulting from a lack of access to attractive target molecules and compounds

E X TERNAL RISKS

Risks resulting from IP-related issues

Risks related to quality issues with regard to regulatory framework changes

ORGANIZ ATIONAL RISKS

Risks resulting from increased amount and complexity of programs

Risks resulting from technical operations issues

C OMPLIANCE RISKS

Risks resulting from quality-related issues due to legal requirements

Risks resulting from legal issues

1-Year
Estimate

3-Year
Estimate

L I K E L IHOOD

v e r y unlikely
u n likely
m o d erate
l i kely
l m o s t certain

a
trophic

s
a
t
a
c

I M PACT l

high v

m
e

dium

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Legend

Scoring system in points:

1–2 points
3–4 points
5–9 points
10–12 points
15–25 points

Risks valued at 1 to 4 points
represent a low risk (low
probability, minor eﬀ ects);

risks valued at 5 to 12 points
represent acceptable risks
(medium probability, moder-
ately severe eﬀ ects);

for risks valued at 15 to 25
points, risk minimization mea-
sures must be implemented
(high probability, severe
eﬀ ects).

G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

RISK C AT EGORIES
MorphoSys has grouped its most important risks in the follow-
ing six categories:
• Financial risks (e.g. those resulting from insolvencies, pay-

ments not received, lower-than-expected and budgeted license
fees, research funding and milestone payments as well as
risks associated with any form of ﬁ nancing and ﬁ nancial in-
struments, e.g. ﬁ nancial investment, currency, interest rates,
taxes and receivables collection)

• Operational risks (e.g. procurement/production, distribution/
logistics, customers, human resources or, especially for
MorphoSys, risks resulting from preclinical or clinical studies)

• Strategic risks (e.g. mergers & acquisitions, shareholdings,

research & development, corporate image, superior competi-
tor products)

• External risks (risks beyond the Companyʼs control, e.g. eco-
nomic, political, legal risks, especially for companies in bio-
technology and pharmaceutical industry also risks regarding
intellectual property or regulatory environment risks when
new drugs are approved)

• Organizational risks (e.g. IT, facility management, succession
planning, interruption of business, delay in processes due to
high complexity or high number of projects)

• Compliance risks (e.g. non-compliance with the US Food and
Drug Administration (FDA) or European Medicines Agency
(EMA), guidelines for quality management, accounting rules,
corporate governance, abidance of the German Stock Corpo-
ration Act)

FINANCIAL RISKS
The Companyʼs ﬁ nancial risk management strategy aims at
limiting ﬁ nancial risks and aligning those risks with the re-
quirements of MorphoSysʼs business activities.

Financial risks can arise within the framework of licensing
agreements, for example, if projects (products or technologies)
are out-licensed late, not at all or for an amount less than
planned. A corresponding risk also arises if revenues do not
reach the expected amount or increased resource require-
ments push up costs by more than the sum set out in the bud-
get plan. Detailed project preparation, for example via an
intensive exchange with internal and external partners and
consultants, guarantees optimal positioning in the run-up
and thus also provides an important tool for minimizing risk.

Potential insolvencies of banks are still a ﬁ nancial risk owing to
the continued uncertain economic situation. The Company
only invests in funds and products considered to be as secure
as possible – to the extent that this is possible and assessable –

with banks that have consistently high ratings and/or are
backed by a very strong partner.

OPER ATIONAL RISKS
Operational risks encompass risks with regard to the research
and development of proprietary drug candidates, as well as
risks in the Central Purchasing and Logistics department, and
risks in the recruitment of qualiﬁ ed employees.

A breakdown of a clinical trial – whereby the breakdown of a
trial does not necessarily mean the breakdown of an entire
program – before out-licensing to partners can arise if clinical
data do not demonstrate the expected results or demonstrate
unexpected and unwanted side eﬀ ects. The design of clinical
trials and the creation of development plans are always car-
ried out with the greatest care in order to have the best chances
of showing results that are signiﬁ cant and convincing to regu-
latory bodies and potential partners. Besides internal knowledge,
external experts are also consulted. Special committees have
been created to monitor the progress of clinical programs.

With respect to purchasing and logistics, a partnership is estab-
lished with suppliers in order to avoid delivery delays, bottle-
necks and the accompanying costs. This is supported by regular
supplier evaluation, which identiﬁ es possible problems, deter-
mines solutions and is communicated to the relevant managers,
internally as well as externally. Human Resources risks are
mostly related to recruitment processes, e.g. diﬃ culties in re-
cruiting candidates with the skills required for the speciﬁ c
position, or diﬃ culties in keeping employees permanently. In
order to counter these risks, MorphoSys’s HR department
uses all opportunities to optimize the recruitment process, by
means of cooperation with external organizations, among
other things. Hiring processes start as early as possible and the
Human Resources department develops measures to present
MorphoSys as an attractive employer with an open and creative
culture.

STR ATEGIC RISKS
Risks resulting from missed opportunities may arise due to a
lack of access to attractive targets, compounds or innovative
technologies. These risks in turn are related to missing or un-
successful M&A transactions. In order to counter these risks,
a comprehensive assessment process for investment opportuni-
ties has been established. Another strategic risk may result
from not ﬁ nding any attractive disease-related target molecules
and compounds. Improved identiﬁ cation activities and strate-
gic alliances can facilitate an eﬀ ective search for suitable build-
ing blocks.

G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

E X TERNAL RISKS
External risks for MorphoSys are mainly related to the Com-
panyʼs intellectual property. Patent protection for MorphoSysʼs
proprietary technologies is highly important. In order to miti-
gate risks in this area, MorphoSys continuously searches for and
analyzes published patents and patent applications, monitors
relevant hits and develops design-around strategies for poten-
tially relevant patents before they are issued.

MorphoSys achieved growing success during the years with
this strategy and was able to secure commercial freedom with
regard to its proprietary technology platforms in the long term.

Another area in which external risks can arise is changes to
regulatory frameworks, which could require MorphoSys to adjust
its development plans and activities. To be able to proactively
pick up on possible changes in plans that can span several years,
MorphoSys has installed industry-standard monitoring systems
that introduce measures in a timely fashion and adapt strategies
to the changed framework conditions, if appropriate.

ORGANIZ ATIONAL RISKS
Organizational risks exist in the Partnered Discovery, Techni-
cal Operations and IT areas. In the Partnered Discovery de-
partment, quality issues or time delays can arise within the
organization if the number of programs increases or the pro-
grams become increasingly complex. To reduce complexity and
thus risks, standard processes have been introduced, the ad-
herence to which is evaluated by means of regular audits.

Risks in the Technical Operations department relate to pro-
cesses that could lead to adverse eﬀ ects on, or disruption of,
operations as well as incidents with hazardous or environmen-
tally damaging pollutants. To avoid incidents of this kind,
tailored measures have been implemented; these include the
routine checking and maintenance of equipment and installa-
tions as well as education and training sessions for aﬀ ected
employees. Furthermore, tailored electronic monitoring sys-
tems minimize such risks. Financial risks aﬀ ecting this area
are largely insured. For further information regarding the
operational environment of MorphoSys, please see the Sustain-
ability Report from page 42.

In IT, business operations might be at risk due to failures of the
IT infrastructure or the IT security system. These risks are
countered by multiple daily data backups as well as the imple-
mentation of highly secure ﬁ rewall and virus scan systems
to enhance the safety and reliability of the data. Furthermore,
MorphoSys minimizes risks relating to the availability, reli-

ability, and eﬃ ciency of its IT systems through continuous check-
ups (e.g. simulated staggered hacker attacks) and updates of
its software and hardware systems. Regular reviews and adap-
tations of the IT strategy are also conducted on a yearly basis.

C OMPLIANCE RISKS
Compliance risks can arise if quality standards are not adhered
to or are ineﬃ ciently handled from a legal viewpoint. As stated
in the Sustainability Report that begins on page 42, MorphoSys
is committed to fulﬁ lling the highest quality standards regard-
ing its business operations. In order to minimize these risks,
the system is regularly reviewed by experts, and recurrent audits
are performed by an internal Quality Assurance department.

Concrete risks can arise if the internal quality management
systems do not comply with legal standards or the implementa-
tion of systems for the disclosure of quality defects is neglected.
If internal controls were not in a position to disclose breaches of
the guidelines on Good Manufacturing Practice (GMP), Good
Clinical Practice (GCP) or the Good Laboratory Practice (GLP),
this would equally represent a compliance risk.

Incorrectly executed Annual General Meetings can lead to legal
disputes with shareholders. The consequences would be signiﬁ -
cant costs, either in order to avoid the annulment of the Annual
General Meeting or, where this is not possible, to hold the An-
nual General Meeting a second time. Additionally, possible capi-
tal measures to be determined (e.g. a capital increase) would
also be endangered.

In order to minimize this risk, the preparation and realization
of the Annual General Meeting, as well as all relevant docu-
ments and processes, are monitored and inspected in detail by
the relevant internal departments in addition to external law-
yers and auditors.

T HE MANAGEMEN T BOARD’S EVALUAT ION OF T HE OVERAL L

RISK SI T UAT ION AT T HE MORPHOSY S GROUP
The Management Board considers the risks to be manageable
and the survival of the MorphoSys Group not to be endangered
at the time of the current report. This statement is true for all
relevant single entities and for the MorphoSys Group as a whole.
As already described, MorphoSys regularly monitors its risks
via an eﬀ ective risk management system which is subject to con-
tinuous improvements.

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G R O U P M A N A G E M E N T R E P O R T / / / Risks and Opportunities Report

Opportunities

MorphoSys possesses leading antibody technologies and a port-
folio of promising clinical development candidates. A substan-
tial number of pharmaceutical and biotechnology companies are
active in the antibody area and could become future custom-
ers and partners for MorphoSysʼs products and technologies. To-
gether with extensive expertise in the area of technology and
product development, MorphoSys has identiﬁ ed a range of growth
opportunities for the coming years.

T HERAPEU T IC AN T IBODIES – PAR T NERED DIS COVERY
By pursuing drug development with a variety of partners,
MorphoSys has been able to spread the inevitable risks linked
to the development of individual drugs. With over 70 thera-
peutic antibody development programs currently operated with
partners, it is increasingly likely that MorphoSys will partici-
pate ﬁ nancially in several marketed drugs. In 2012, the ﬁ rst
drug candidate – the antibody gantenerumab, which is being
developed by the pharmaceutical group Roche in the area of
Alzheimerʼs disease – reached the approval-linked third phase
of clinical development.

MorphoSysʼs antibody technologies oﬀ er key advantages for the
development and optimization of therapeutic antibody candi-
dates, which could translate into higher success rates in the drug
development process.

MorphoSys will continue to expand its partnered antibody pipe-
line. In addition, the company could enter new revenue-generat-
ing partnerships.

Opportunities can also arise outside of the antibody segment,
in other classes of compound, and through the transfer and
application of MorphoSysʼs core competencies in the area of
technology. In the 2012 ﬁ nancial year, MorphoSys launched an
initiative to seize these opportunities by means of commercial
agreements with young companies together with an invest-
ment in the same.

T HERAPEU T IC AN T IBODIES – PROPRIE TARY DEVEL OPMEN T
The pharmaceutical industry is likely to further intensify its in-
licensing of new compounds in order to reﬁ ll pipelines and re-
place former key products and turnover generators that have lost
patent protection. With its most advanced compounds MOR103,
MOR202 and MOR208, MorphoSys is in a good starting position
to proﬁ t from the needs of pharmaceutical groups.

GENERAL S TAT EMEN T ON OPP OR T UNI T IES
Increased life expectancy in industrialized countries as well
as the changing economic situation and lifestyle in emerging
nations are expected to drive demand for additional and innova-
tive treatment options and enabling technologies. Scientiﬁ c
and medical progress has resulted in a better understanding of
the biology of several diseases, which in turn paves the way
for new therapeutic approaches. Innovative therapies such as
fully human antibodies have been launched in recent years
and have resulted in the development of commercially success-
ful medical products. In addition, therapeutic compounds
based on proteins*, also known as biological compounds or bio-
logics, are considered to be less exposed to competition from
generics than traditional, small molecules, mainly because the
manufacturing of biologics is much more complex. Therefore,
the demand for antibodies and the interest in this class of drugs
have increased sharply over the last twelve to 36 months, as
shown by several acquisitions and signiﬁ cant licensing agree-
ments in this ﬁ eld.
*S E E G L O S S A R Y /// pa g e 1 3 4

MARKE T OPP OR T UNI T IES
MorphoSys believes that its technology platforms HuCAL and
Ylanthia as well as Slonomics can be applied to make products
that address signiﬁ cant and so far unmet medical needs.

With the Partnered Discovery segment providing a secure
cash ﬂ ow over the coming years, MorphoSys is in a good posi-
tion to continue to strengthen its proprietary product portfolio.
MorphoSys will start additional clinical trials for its key drug
candidates, for example by investigating new areas of disease.
MorphoSys plans to add programs to its portfolio and could use
existing and future co-development opportunities to achieve
this. Furthermore, the Company is looking to in-license inter-
esting drug candidates.

T ECHNOL OGY DEVEL OPMEN T
MorphoSys continues to invest in its existing and new technolo-
gies to maintain its pole position as a technological leader.
With Ylanthia, MorphoSys has established a new technology
platform, which – unlike its predecessor HuCAL – is available
for broader licensing to partners. In 2012, MorphoSys began the
commercialization of the Ylanthia antibody library.

Technological advances of this kind may enable the Company
to further expand its list of partners and to increase the speed
and success rates of its partnered and proprietary drug devel-
opment programs. New technology modules could also open up
new areas of disease in which antibody-based treatments are
underrepresented today by allowing the generation of antibodies
against novel classes of target molecules.

G R O U P M A N A G E M E N T R E P O R T / / / Subsequent Events / Outlook and Forecast

Technology development is driven by a team of scientists who
concentrate on the development of MorphoSysʼs technologies.
In addition to internal technology development, MorphoSys also
relies on external sources in order to strengthen its technologi-
cal capacities. Cooperation with and a shareholding in Lanthio
Pharma, a Dutch company that deals with the development of
lantipeptides, is a good example of such activities.

ACQUISI T ION OPP OR T UNI T IES
MorphoSys has demonstrated its ability to make acquisitions
and use these to accelerate its growth. MorphoSys did not make
any acquisitions in the past ﬁ nancial year, but did successfully
sell substantially all of its business division AbD Serotec in order
to focus on drug development. The AbD Serotec segment was
strengthened by two acquisitions in 2005 and 2006, and was
successfully sold for more than its carrying value to Bio-Rad
in December 2012.

MorphoSys continues to consider its acquisition strategy as an
attractive means of increasing its market share, supplement-
ing its existing pipeline and technology platform and securing
access to patents and licenses for the development of novel pro-
prietary technologies and products.

F INANC IAL OPP OR T UNI T IES
Favorable exchange rates and interest rate developments can
have a positive eﬀ ect on the Groupʼs ﬁ nancial results. The de-
velopments in the interest and ﬁ nancial markets are continu-
ously monitored in order to identify and utilize opportunities
promptly.

In 2012, AbD Serotec contributed sales amounting to € 18.0 mil-
lion to Group revenues and a segment result of € 0.3 million.

The transaction means that the Group workforce will decrease
by 135 employees in 2013.

The subsidiaries MorphoSys AbD GmbH, MorphoSys UK Ltd.
and MorphoSys US Inc. were taken over by Bio-Rad and will be
separated from the Group.

No further signiﬁ cant changes took place after the conclusion of
the 2012 ﬁ nancial year. Other events with a signiﬁ cant eﬀ ect
on the net assets, ﬁ nancial position and results of operations also
did not occur after the conclusion of the ﬁ nancial year.

Outlook and Forecast

The MorphoSys Group develops novel antibody technologies and
products for therapeutic applications. MorphoSys has strength-
ened its focus on the development of therapeutic compounds with
the sale of the AbD Serotec research antibody division, com-
pleted at the start of 2013.

The Company’s management intends to further expand
MorphoSys’s portfolio of proprietary drug candidates. MorphoSys
continues to apply its technologies in rapidly growing, innova-
tion-driven sectors of the healthcare market.

Subsequent Events

Overall Statement on Expected
Development

The sale of MorphoSys’s Research and Diagnostics division,
AbD Serotec, to Bio-Rad was agreed on 16 December 2012.
Bio-Rad purchased substantially all of AbD Serotec for approxi-
mately € 53 million. This sum includes the purchase price, an
indemniﬁ cation for cash reserves in the AbD Serotec subsidiar-
ies amounting to € 5.3 million, and a license payment for the
use of the HuCAL technology in the market for research reagents
and diagnostics. The transaction was concluded in January 2013.

Through the implementation of IFRS 5, substantially all of the
contribution to results from AbD Serotec was already disclosed
separately as discontinued operations in the 2012 ﬁ nancial year.

MorphoSys owns established and validated technologies and
continuously invests in their further development – with an in-
ternal team but also through additional purchases. The Com-
pany’s strategy builds on these technologies to develop a broad
and sustainable pipeline of innovative drug candidates – with
partners and for its own account. In the therapeutics area, com-
mercialization of these technologies provides secure cash
ﬂ ows from long-term partnerships with large pharmaceutical
companies. Furthermore, MorphoSys proﬁ ts from the success-
ful further development of drug candidates by way of milestone
payments as well as through royalties when a drug reaches
the market.

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G R O U P M A N A G E M E N T R E P O R T / / / Outlook and Forecast

The Group’s stable cash ﬂ ows and strong cash position enable
it to further strengthen its business through investments in pro-
prietary drug and technology development. The Management
Board expects the following developments for 2013:
• MorphoSys will continue to invest in technology development
to maintain its leading position in the antibody sector and
related technologies. The Company intends to sign new com-
mercial agreements based on its proprietary technologies,
Slonomics and Ylanthia.

• The demand for antibodies as a new treatment modality re-

mains high, allowing the Company to expand its pipeline of
therapeutic antibodies within its partnerships.

• The pharmaceutical industry continues to use the in-licens-
ing of compounds as a means of gaining access to promising
product candidates. Successful out-licensing of proprietary
drug candidates could lead to lucrative cash ﬂ ows.

Strategic Outlook

MorphoSys’s business model is built on its proprietary technol-
ogies, including the HuCAL and the more recently announced
Ylanthia antibody libraries, as well as the Slonomics platform.

The development of therapeutic antibodies within partnerships
will continue to be the mainstay of MorphoSys’s strategy. The
Company’s therapeutic pipeline is expected to grow and mature
over the coming years, resulting in additional milestone pay-
ments. Thanks to the breadth of the pipeline, a signiﬁ cant num-
ber of marketed therapeutic antibody products could emerge in
the years ahead and, as a result, ﬁ nancial participation through
product royalties will be secured.

The Partnered Discovery segment generates secured cash ﬂ ows
from MorphoSys’s long-term collaborations. The conclusion of
additional alliances based on proprietary technologies – includ-
ing acquired technologies as in the case of Slonomics – would
provide further opportunities for future revenues. In the case
of the successful development of drug candidates, MorphoSys
would beneﬁ t through milestone payments and, following mar-
ket approval, through royalties on the product sales of approved
drugs.

In its Proprietary Development segment, MorphoSys is develop-
ing therapeutic antibodies in-house in the areas of inﬂ amma-
tory diseases and oncology. MorphoSys intends to develop pro-
prietary drug candidates up to proof of clinical eﬃ cacy before
a partner is sought for the commercialization. Subject to certain
conditions, individual projects could also be further developed
in-house, possibly even to market approval. At the end of 2012,

three clinical programs – MOR103, MOR202 and MOR208 –
formed the main assets of MorphoSys’s development portfolio.
Currently, a partner is being sought for the further clinical
development and later commercialization of MOR103, the devel-
opment of MOR202 and MOR208 is being expedited at the Com-
pany’s own expense.

For the foreseeable future, MorphoSys will invest the majority of
its cash ﬂ ow in proprietary R&D in order to further expand its
own portfolio of proprietary drug candidates and to strengthen
its technology platforms.

Expected Economic Development

The sovereign debt crisis will continue to dominate the econ-
omy and the performance of the ﬁ nancial markets in 2013.
The economy in the Eurozone has been in recession since the
spring of 2012. After the stabilization of the currency union
by the ECB, only gradual recovery is expected. In the autumn
of 2012, the European Commission reduced the growth pros-
pects for the Eurozone in 2013 to 0.1 %; some experts also expect
a decline in 2013. Germany is expected to grow in 2013, how-
ever the OECD expects economic growth of 0.5 %.

In the USA, the imminent ﬁ scal cliﬀ was narrowly avoided. Eco-
nomic recovery is expected, resulting in growth of up to 2 %.

Japan will also experience an economic upswing. The Interna-
tional Monetary Fund predicts economic growth of 1.2 %.

The OECD reduced the outlook for its 34 member states and
warns of a global recession in 2013.

Expected Development of the Life
Sciences Sector

Historically, the pharmaceutical and life sciences sector is rela-
tively immune to economic downturns. An aging population
requires new and innovative treatment methods. The necessity
of drastic savings measures in national budgets, however,
leads to slumps in international healthcare systems, which in
turn directly aﬀ ects reimbursement policies and therefore
pharmaceutical companies. The expiry of patents on top-selling
drugs continues to concern the pharmaceutical industry, al-
though the lion’s share of patent expiries has been overcome.
However, pharmaceutical companies still suﬀ er from a lack
of innovation and product supply.

G R O U P M A N A G E M E N T R E P O R T / / / Outlook and Forecast

Expected Personnel Development

The Group’s workforce is reduced by 135 positions due to the
sale of substantially all of AbD Serotec to Bio-Rad. The Group’s
workforce in both remaining segments is, however, expected to
remain roughly at the same level as in 2012. Additional human
resource requirements could arise depending on requirements,
e.g. through the conclusion of new commercial development
agreements or through the in-licensing of new technologies or
development candidates.

Expected Research and
Development

In 2013, the Company’s R&D budget for proprietary drug devel-
opment will increase compared with the previous year. In 2013,
MorphoSys plans to invest approx. € 32 million to € 37 million
in proprietary product and technology development. The majority
of this investment will be channeled into the clinical develop-
ment of the most advanced drug candidates and into the devel-
opment of new technologies.

The steps planned for the Company’s proprietary pipeline in
2013 include the following:
• Secure partner for the MOR103 development program with a

view to continuing clinical development

• Continuation of phase 1b safety trial for MOR103 in MS as a

second indication

• Continuation of phase 1/2a trial for MOR202 in MM
• Start of two phase 2 trials for MOR208 in NHL and ALL
• Continuation of the joint development program with Galapagos
• In-licensing of new target molecules or compounds to rein-

force the development portfolio

• Collaboration with Lanthio Pharma to establish high-quality

and diverse lantipeptide libraries

For the Partnered Discovery segment, the marketing of the
proprietary technology platforms Ylanthia and Slonomics is
paramount.

The prospects for the biotechnology sector nevertheless remain
very favorable. There are currently approx. 7,400 drug candi-
dates in the development pipeline, with an increasing number in
phase 3. Pharmaceutical companies remain prepared to invest
large sums in developing innovative and promising product can-
didates as well as to in-license such programs from biotechnol-
ogy companies.

Financial resources play an important role for many companies.
The access to new sources of ﬁ nance is still limited as before
but is of central importance for the further development of the
biotechnology industry.

In the USA, President Barack Obama described the biotechnology
sector as an important sector for growth. The funding of start-
ups should create new jobs. The American approval authority, the
FDA, has additionally been instructed to shorten approval pro-
cesses – which should further reinforce the positive trend of more
approvals.

Expected Commercial Development

MorphoSys’s collaboration with Novartis ensures steady cash
ﬂ ows over the coming years until at least the end of 2017.
Additional commercial opportunities will arise from its propri-
etary technology platforms such as Slonomics and Ylanthia.
MorphoSys will continue to concentrate on broadening its part-
nered pipeline and increasing the value of its proprietary
portfolio.

Within the Partnered Discovery segment, the Company antici-
pates starting, on average, approximately ten new partnered pro-
grams per annum for the next several years. MorphoSys plans
to partner its Ylanthia technology with additional pharmaceuti-
cal and biotechnology companies.

The Company’s most advanced proprietary development pro-
gram, MOR103, completed a phase 1b/2a trial in RA patients
with very promising results. MorphoSys is currently in partner-
ing discussions for further development and marketing of this
drug candidate. MorphoSys plans no further clinical trials with
MOR103 at the current time. The ongoing phase 1b trial in pa-
tients with multiple sclerosis will be continued in 2013.

The approval of a therapeutic antibody based on the Company’s
proprietary technologies is not expected before 2015/2016. As
one of the ﬁ rst partners, Novartis publicly announced that the
therapeutic antibody BYM338 could be submitted for approval
in 2016.

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G R O U P M A N A G E M E N T R E P O R T / / / Outlook and Forecast

Expected Financial and Liquidity
Development

MorphoSys has a solid ﬁ nancial foundation and generates sig-
niﬁ cant recurring revenues, mainly from its collaboration with
Novartis. Following the sale of AbD Serotec, the Management
Board anticipates total Group turnover for 2013 of € 48 million
to € 52 million.

The Partnered Discovery segment is a highly proﬁ table busi-
ness unit. Long-term commercial agreements will provide the
Company with secured cash ﬂ ows for at least the next ﬁ ve
years. In addition, MorphoSys’s management anticipates sign-
ing additional agreements based on proprietary technologies
such as Slonomics and Ylanthia.

Pending the successful out-licensing of drug candidates, the
Proprietary Development segment will continue to show losses
due to ongoing investment in the preclinical and clinical devel-
opment of the various programs. Successful out-licensing of one
or more proprietary programs would result in signiﬁ cant proﬁ ts
being achieved in this unit. If one of MorphoSys’s proprietary de-
velopment programs shows convincing eﬃ cacy data in clinical
trials, double-digit-million upfront payments, plus additional
development- and sales-based milestone payments, as well as
double-digit royalties could be achieved.

On the basis of the Management Board’s current planning, total
Group operating expenses are expected to increase to between
€ 70 million and € 74 million in 2013. Investments in proprietary
research and development will be heavily inﬂ uenced by the
start of additional clinical trials, and are expected to increase
to between € 32 million and € 37 million. In addition to the
continuation of the trials of MOR103 in multiple sclerosis and
MOR202 in multiple myeloma, MorphoSys is planning to start
two phase 2 trials of MOR208. The EBIT for continuing operations
is expected to be between € –18 million and € –22 million.

There is, however, the possibility of these expectations being
signiﬁ cantly outperformed if a proprietary development pro-
gram such as MOR103 can be out-licensed. Such a contract is
not currently included in the projections. One-oﬀ events such
as the out-licensing of proprietary products, generating substan-
tial up-front and milestone payments, together with royalties
from partnered HuCAL antibodies reaching the market, will be-
come more important factors for the Group’s ﬁ scal performance
in the years to come. Such results could lead to a signiﬁ cant

outperformance of the Company’s ﬁ nancial goals. Failures of
drug development programs could have a negative impact on
the MorphoSys Group. In the near term, top-line growth is
dependent on the Company’s ability to sign additional partner-
ships and/or to out-license proprietary product candidates. In
the mid-term, royalties from marketed products will add to top-
line growth.

In 2013, a proﬁ t contribution before taxes in the amount of
€ 4 million to € 6 million from the discontinued segment AbD
Serotec is expected, comprising mainly a deconsolidation gain
and transaction costs.

At the end of the 2012 ﬁ nancial year, MorphoSys’s cash position
amounted to € 135.7 million (31 December 2011: € 134.4 mil-
lion), including an interest-bearing transferable loan amounting
to € 10.0 million as well as liquid funds from the AbD Serotec
segment in the amount of € 5.3 million. The successful comple-
tion of the sale of AbD Serotec to Bio-Rad leads to a further in-
crease of the company’s cash balance of approximately € 48 mil-
lion in the ﬁ rst quarter of 2013. MorphoSys sees its strong
cash position as an asset which can be used to accelerate future
growth through strategic transactions and/or increased invest-
ment in the Company’s proprietary portfolio of therapeutic anti-
bodies. The ﬁ nancial participation in Lanthio Pharma in the
past ﬁ nancial year is a good example of a strategic transaction.

DIVIDENDS
MorphoSys AG’s German statutory accounts showed accumu-
lated proﬁ ts which could be available for distribution. Never-
theless, in line with standard practice in the biotechnology in-
dustry, MorphoSys does not anticipate paying a dividend for
the foreseeable future. Any proﬁ t generated by the business
will be substantially reinvested in the operation of its busi-
ness, mainly in the area of proprietary drug development, and
in strategically interesting acquisitions in order to create fur-
ther shareholder value and growth opportunities. As was the
case in 2012, the Company plans to purchase its own shares
from the market in 2013 for issuance to management under the
Company’s annual long-term incentive program.

This outlook takes into account all factors known at the time of
the preparation of the ﬁ nancial statements which could aﬀ ect
our business in 2013 and beyond, and is based on Management
Board assumptions. Future results may deviate from the ex-
pectations described in the Outlook and Forecast section. Major
risks are discussed in the Risk Report.

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

• With regard to Code section 5.4.1, in its meeting on 10 March

2011 the Supervisory Board decided to aim for an adequate
representation of women on the Supervisory Board, propos-
ing female candidates for election by the shareholders and
appropriately considering qualiﬁ ed women in the appoint-
ment procedure. A concrete quota for female members of
the Supervisory Board has not been deﬁ ned since the indi-
vidual qualiﬁ cation and not the gender of candidates for
election to the Supervisory Board shall be the decisive cri-
teria for the composition of the Supervisory Board. With
regard to the last election to the Supervisory Board that took
place in the Annual General Meeting (AGM) 2012, Mrs.
Eastham was elected as new Supervisory Board member
next to the election of the male Supervisory Board mem-
bers Dr. Möller, Dr. Camus, Dr. Vernon and Dr. Cluzel. Fur-
thermore, Prof. Drews was Vice Chairman of the Super-
visory Board until the end of the AGM 2012 and at his elec-
tion in the AGM 2011 he exceeded the age limit of 75 years
deﬁ ned by the Supervisory Board in its rules of procedure.
Insofar, the possibility as foreseen in the rules of proce-
dure to exceptionally propose an elder candidate for elec-
tion was used. The proposal to re-elect Prof. Drews to the
Supervisory Board for a further year was at that time in the
interest of the Supervisory Board to procure the continu-
ity of its performance. Prof. Drews resigned from the Super-
visory Board with eﬀ ect as of the end of the AGM 2012.
Currently, no Supervisory Board member exceeds the stip-
ulated age limit of 75 years.

• The remuneration for the Supervisory Board as resolved

in the Annual General Meeting 2012 only provides for
ﬁ xed remuneration components and no longer for perfor-
mance-related remuneration within the meaning of the
Code Section 5.4.6. dated 26 May 2010. This Company’s
decision reﬂ ects the opinion of a growing number of ex-
perts on the subject of supervisory board compensation.
In their view, the success-related remuneration of super-
visory board members poses the threat of giving rise to a
potential conﬂ ict of interests in a body whose duties in-
clude setting and evaluating objectives for the Company’s
long-term development.

Corporate Governance
Report

The Corporate Governance Report was published on the corpo-
rate website, together with the Declaration of Compliance with
regard to the Corporate Governance Code and the Declaration
about Corporate Management, under Media & Investors > Cor-
porate Governance.

MorphoSys makes responsible, sustainable and value-oriented
corporate management its highest priority. Eﬀ ective corporate
governance is a central part of MorphoSys’s corporate manage-
ment and builds the framework for the management and super-
vision of the Group, including its organization, commercial prin-
ciples and regulatory and monitoring measures.

On 7 December 2012, both the Management Board and the Super-
visory Board updated their Declaration of Compliance with the
German Corporate Governance Code. The Management Board
and the Supervisory Board of MorphoSys AG state pursuant to
Section 161 of the German Stock Corporation Act (AktG):

1. From 8 December 2011, the date of its most recent Declara-

tion of Compliance, MorphoSys AG has complied – with the
exceptions described below under item no. 4. – with the
recommendations of the “Government Commission on the
German Corporate Governance Code” in the Code version
dated 26 May 2010.

2. On 15 May 2012, the “Government Commission on the German
Corporate Governance Code” submitted a new version of the
Code. MorphoSys AG has also complied – with the exceptions
described below under item no. 4. – with the recommenda-
tions of this new Code version.

3. As of today, MorphoSys AG complies – with the exceptions

described below under item no. 4. – with the recommendations
of the “Government Commission on the German Corporate
Governance Code” in the Code version dated 15 May 2012.

4. Exceptions:
• The stock option program for the Executive Board launched
prior to 2011 does not provide a cap for unforeseen devel-
opments within the meaning of Code section 4.2.3, since
the reasonableness of the amount of stock options for the
Executive Board was already considered at the time of the
grant. However, the long-term incentive programs for the
year 2011 and thereafter incorporate the concept of a cap
compliant with the Code.

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G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

Declaration about Corporate Manage-
ment in Accordance with sec. 289a
of the German Commercial Code
(HGB*) for the 2012 Financial Year

The principles of corporate management, the composition and
collaboration of the Management Board, Supervisory Board
and committees as well as the Declaration of Compliance pursu-
ant to section 161 of the German Stock Corporation Act (Ak-
tiengesetz – AktG) can be found on the MorphoSys corporate
website under Media & Investors > Corporate Governance >
Declaration about Corporate Management.
*S E E G L O S S A R Y /// pa g e 1 3 4

Shareholders and the Annual
General Meeting

One of the most important foundations of our Company com-
munication policy is to comprehensively inform institutional in-
vestors, private shareholders, ﬁ nancial analysts, employees as
well as all other interested parties about the Company’s situation
through regular, open and up-to-date communications. All im-
portant information has been published on the Internet. The Com-
pany strictly adheres to the concept of fair disclosure.

A central part of MorphoSys’s relations with its investors is
frequent meetings with analysts and investors at road shows
and one-on-one discussions. Conference calls accompany the
publication of the quarterly ﬁ gures to enable immediate queries
on the development of the Company for analysts and investors.
The Company’s presentations at on-site events are accessible to
any interested party on the corporate website. Video and audio
recordings of key events can be replayed on the website at any
time. Transcripts of the quarterly conference calls are also pro-
vided in a timely manner.

MorphoSys uses its corporate website as a central platform to
provide up-to-date information about the Company and its
progress. MorphoSys’s ﬁ nancial calendar lists the dates of all
regular ﬁ nancial publications and the next Annual General
Meeting well in advance.

ANNUAL GENERAL MEE T ING
The Annual General Meeting took place in Munich on 31 May
2012. Approximately 40 % of total voting stock was represented
at the meeting, an increase compared to the attendance ﬁ gure in
2011 (approximately 31 %). MorphoSys assisted its shareholders

in the use of proxies and arranged the appointment of a represen-
tative 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 the vote at the meeting with one exception:
• The 2011 net proﬁ t was forwarded to a new account.
• The members of both boards were released.
• PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft,
Munich, was elected the statutory auditor and auditor for the
Consolidated Financial Statements for the 2012 ﬁ nancial year,
as well as the auditor for the interim report on 30 June 2012.

• Election/reelection of members of the Supervisory Board:
– Dr. Gerald Möller was reelected as a member of the Super-

visory Board.

– Dr. Geoﬀ rey Vernon was reelected as a member of the Super-

visory Board.

– Dr. Daniel Camus was reelected as a member of the Super-

visory Board.

– Dr. Marc Cluzel was newly elected to the Supervisory Board.
– Mrs. Karin Eastham was newly elected to the Supervisory

Board.

• The proposal for the creation of a new Authorized Capital

2012-I was rejected.

• The proposal for the creation of a new Authorized Capital

2012-II was accepted.

• The remuneration of the Supervisory Board was redeﬁ ned.

MorphoSys provided an online webcast of the Management
Board’s presentation and published all documents in a timely
manner on the Company’s website under Media & Investors >
Annual General Meeting.

Cooperation between the Manage-
ment Board and the Supervisory
Board

In order to guarantee good corporate governance, open and
comprehensive communication on a regular basis is a guiding
principle for the Management Board and the Supervisory
Board of MorphoSys AG. The underlying two-tier system required
by the German Stock Corporation Act (AktG) explicitly diﬀ eren-
tiates between management and supervision. The responsibilities
of both boards are clearly deﬁ ned by law as well as by the Ar-
ticles of Association and the Rules of Procedure of the boards.
MorphoSys AG’s boards work together closely and act and de-
cide in the best interest of the Company. Their dedicated goal is
to sustainably increase the Company’s value.

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

The most recent version of the German Corporate Governance
Code recommends that the Management Board and the Super-
visory Board should observe the principle of diversity and
strive to increase the number of women in management posi-
tions. Women at MorphoSys occupy positions on the Manage-
ment Board as well as the Supervisory Board. This diversity is
also reﬂ ected at other management levels.

MANAGEMEN T BOARD
The Management Board of MorphoSys AG consists of one chair-
man and three additional members. The Schedule of Responsi-
bilities deﬁ nes the diﬀ erent areas of responsibility and coopera-
tion within the Management Board.
• Dr. Simon Moroney, Chief Executive Oﬃ cer, is responsible

for Strategy and Planning, Corporate Communications and
Investor Relations, Internal Audit, Human Resources, the
AbD Serotec business segment (up to the date of the divest-
ment), Business Development and Legal, as well as the coor-
dination of the single areas of responsibility of the individual
board members and the representation of the Management
Board vis-à-vis the Supervisory Board.

Initial appointment: 1998 (co-founder)
End of current period of oﬃ ce: 30 June 2014
• Jens Holstein, Chief Financial Oﬃ cer, is responsible for Ac-
counting and Controlling, Corporate Finance and Corporate
Development, Technical Operations including IT and Central
Purchasing and Logistics.
Initial appointment: 2011
End of current period of oﬃ ce: 30 June 2014
• Dr. Arndt Schottelius, Chief Development Oﬃ cer, is responsi-

ble for the preclinical and clinical development of MorphoSysʼs
proprietary development programs, Project and Portfolio
Management, Quality Assurance and Regulatory Aﬀ airs as
well as Drug Safety and Pharmacovigilance.

Initial appointment: 2008
End of current period of oﬃ ce: 30 June 2014
• Dr. Marlies Sproll, Chief Scientiﬁ c Oﬃ cer, is responsible for
Discovery Alliances and Technologies, Target and Antibody
Discovery, Protein Sciences , Alliance Management and Intel-
lectual Property,.

Initial appointment: 2005
End of current period of oﬃ ce: 30 June 2014

SUPERVISORY BOARD
As of 31 December 2012, MorphoSysʼs Supervisory Board con-
sisted of six independent members. The members of the Super-
visory Board are appointed by the Annual General Meeting.

Dr. Gerald Möller was conﬁ rmed as Chairman of the Supervi-
sory Board after his re-election at the 2012 Annual General
Meeting. After Prof. Drews stepped down, Dr. Geoﬀ rey Vernon
took over as Deputy Chairman of the Supervisory Board. The
composition of the committees can be found in table 14.

Dr. Walter Blättler could not participate in two Supervisory Board
sessions; Dr. Metin Colpan and Dr. Geoﬀ rey Vernon were each
absent on one occasion. All participants, however, received all
information on the respective sessions. All participants were
present at the committee meetings at all times.

The Supervisory Board has drawn up its own Rules of Proce-
dure.

The Supervisory Board examines the eﬃ ciency of its activities
on a regular basis, as recommended in the German Corporate
Governance Code. To date, all audits have led to the conclusion
that the Supervisory Board is organized eﬃ ciently and that
the Management Board and the Supervisory Board cooperate
very well.

DIREC T ORS’ HOL DINGS
The members of the Management Board and the Supervisory
Board own more than 1 % of the shares issued by the Company.
Regarding the disclosure of Company stocks held or ﬁ nancial
instruments relating to them, please refer to section 29 (Related
Parties) of the Notes to the Consolidated Financial Statements.
This list details all shares, performance shares, stock options and
convertible bonds held by each member of the Management
Board and the Supervisory Board.

DIREC T ORS’ DEAL INGS
Under the German Securities Trading Act (Wertpapierhandels-
gesetz – WpHG), the members of MorphoSys AGʼs 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, MorphoSys received the following notiﬁ -
cations pursuant to sec. 15a of the WpHG, which can be found
in table 15.

PREVEN T ING CONF L IC T S OF IN T ERES T
Members of both boards are obliged to avoid any actions
that could cause conﬂ icts of interest with their functions at
MorphoSys AG. Such transactions or ancillary activities of
the Management Board have to be reported immediately to and
approved by the Supervisory Board. The Supervisory Board
must in turn inform the Annual General Meeting of any con-
ﬂ icts of interest which have occurred along with their solu-
tions. In the 2012 ﬁ nancial year, no conﬂ icts of interest occurred.

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TAB . 13 /// COMP O SI T ION OF T HE SUPERVI S OR Y B OARD

T HROUGH ANNUAL GENERAL MEE T ING ON 31 MAY 2012

Dr. Gerald Möller

Prof. Dr. Jürgen Drews

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Metin Colpan

Dr. Geoﬀ rey Vernon

Position

Chairman
Deputy
Chairman

Member

Initial Ap-
pointment

End of
Period*

Audit
Committee

Remunera-
tion and
Nomination
Committee

Science and
Technology
Committee

1999

1998

2007

2002

2004

1999

2012

2014

2012

i n d e p e n d e n t f i n a n c i a l e x p e r t

c h a i r m a n

m e m b e r

* Period ends with termination of Annual General Meeting

TAB . 14 /// COMP O SI T ION OF T HE SUPERVI S OR Y B OARD F ROM 31 MAY 2012

Dr. Gerald Möller

Dr. Geoﬀ rey Vernon

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Marc Cluzel

Karin Eastham

Position

Chairman
Deputy
Chairman

Member

Initial Ap-
pointment

End of
Current
Period*

Audit
Committee

Remunera-
tion and
Nomination
Committee

Science and
Technology
Committee

1999

2007

2002

2012

2015

2014

2015

i n d e p e n d e n t f i n a n c i a l e x p e r t

c h a i r m a n

m e m b e r

* Period ends with termination of Annual General Meeting

TAB . 15 /// DIREC T ORS’ DEAL ING S IN 2012

Member of the
Management
Board

Jens Holstein

Function

CFO

Date of
Transaction
in 2012

Type of
Transaction

Number of
Stocks/
Derivatives

Average
Share Price
in €

Transaction
Volume
in €

13 June

Purchase

1,000

500

17.00

17.10

17,000.00

8,550.00

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

SHAREHOL DER APPROVAL OF EQUI T Y COMPENSAT ION

PL ANS, S T OCK REPURCHASES
By resolution of the Annual General Meeting on 19 May 2011,
MorphoSys is authorized to acquire treasury stock totaling up
to 10 % of the capital stock in accordance with sec. 71 para. 1
No. 8 of the German Stock Corporation Act. The authorization
may be exercised in whole or in part, once or several times,
in pursuit of the purposes determined in the authorization reso-
lution by the Company or by third parties for the account of
the Company. At the discretion of the Management Board, the
buyback may be eﬀ ected on the stock market or by means of a
public oﬀ er or a public invitation to tender.

In April 2012, MorphoSys repurchased 91,500 treasury shares
based on this authorization. The treasury shares will be used
to implement the Companyʼs long-term incentive program for
the Management Board and the Senior Management Group.

ACCOUN T ING AND S TAT U T ORY AUDI T
MorphoSys AG prepares its Consolidated Financial Statements
and quarterly ﬁ nancial statements in accordance with the Inter-
national Financial Reporting Standards (IFRS). The Consoli-
dated Financial Statements are prepared in accordance with the
International Financial Reporting Standards (IFRS), as these
must be applied in the European Union.

At the Annual General Meeting, PricewaterhouseCoopers AG
Wirtschaftsprüfungsgesellschaft was appointed auditor for the
2012 ﬁ nancial statements and Consolidated Financial State-
ments. The Supervisory Board had conﬁ rmed the auditorʼs inde-
pendence in advance.

Information and Communication

In the 2012 reporting year, MorphoSys initiated a project to up-
date and expand the existing ERP (enterprise resource planning)
software via which information for operational processes and
internal control as well as for reporting purposes is made avail-
able. Additionally, a corporate performance management sys-
tem (CPM) was newly introduced for the support of corporate
planning and Group reporting.

Considering the relevance of its information systems, MorphoSys
has IT policies in place governing the use of information tech-
nology and communication media in order to reduce any risk to
conﬁ dential and proprietary information. The update and ex-
pansion of these policies in 2012 ensured that further techno-
logical development and new legal provisions are considered.
Organizational principles on the provision of information secu-

rity at MorphoSys are deﬁ ned in a corresponding policy. Addi-
tionally, a communications policy regulates the distribution of
all written and verbal information aimed at the public. An
audit undertaken in the reporting year conﬁ rmed the security
of the IT processes and systems with respect to data availability,
security and integrity.

Compliance System

IN T ERNAL CON T ROL SY S T EM
In the 2012 reporting year, MorphoSys once again updated
its documentation regarding the existing internal control sys-
tem used for maintaining adequate internal control over
ﬁ nancial reporting. In accordance with sec. 289 para. 5 and
sec. 315 para. 2 No. 5 of the German Commercial Code (HGB),
MorphoSys described the key characteristics of its accounting-
related internal control system. This ensures that all controls
are in place to be able to report the ﬁ nancial ﬁ gures as precisely
as possible. The Committee of Sponsoring Organizations of the
Treadway Commission (COSO) deﬁ nes the corresponding COSO
framework (“Internal Control – Integrated Framework”). These
internal controls form the most commonly used basis for internal
control over ﬁ nancial reporting and are also used by MorphoSys
for the structuring and documentation of internal controls.

Due to its inherent limitations, it cannot be ruled out that inter-
nal control over ﬁ nancial reporting may not detect or prevent
misstatements. The internal controls can only provide reasonable
assurance regarding the reliability of ﬁ nancial reporting and
the preparation of ﬁ nancial statements for external purposes, in
accordance with IFRS (International Financial Reporting Stan-
dards) as adopted by the European Union.

In order to ensure the correctness of the registered ﬁ nancial key
ﬁ gures as well as the underlying execution of all bookkeeping
processes, MorphoSys has implemented a strict ‘four eyes’ prin-
ciple. Additionally, the eﬀ ectiveness and eﬃ ciency of these
processes is regularly checked and monitored by external service
providers. The consolidated ﬁ nancial statements pass through
a large number of preparation, inspection and monitoring pro-
cesses in order to report these to the market and shareholders
in a timely manner. This takes place according to a plan agreed
with the Company’s management for which both the corre-
sponding internal and external resources are made available.

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F IG . 16 /// T HE M O RP H O S Y S C O MPL IANC E S Y S T EM

Corporate Governance
regulations

1 Declaration of compliance with

German Corporate Governance Code
(sec. 161 AktG)

2 Changes in management reporting

(sec. 289 HGB)
• Statement on Corporate Governance
• Report on accounting-related Internal
Control System + on risk management

3 Supervisory Board and Audit Committee
• Establishment of an audit committee
• Occupation with independent financial experts
• Specification of the monitoring tasks
• Cooperation with the external auditor

• Primary tasks of the Supervisory Board

― Monitoring of financial reporting
― Monitoring the effectiveness
- of Internal Control System
- of Risk Management System
- of Internal Audit

Speciﬁ cation of monitoring tasks

― Monitoring the external audit, especially

- Independence of external auditor
- Additional services provided by external

auditor

• Tasks, that the Supervisory Board may
delegate (some or all) to the Audit
Committee (sec. 107 (3) para. 2 AktG)

• Supervisory Board remains responsible

for these tasks

Furthermore, a range of provisions and guidelines guarantee
the strict separation of planning, booking and implementation
of ﬁ nancial transactions. Adherence to and implementation of
these guidelines are audited on a regular basis. This separation
of functions is ensured for all implemented IT systems via the
corresponding assignment of permissions.

Projections relating to future periods are not part of the inter-
nal control system.

IN T ERNAL AUDI T F UNC T ION
The internal audit function was implemented at MorphoSys in
2010. Its aim is to assist the MorphoSys Group in accomplishing
its objectives with a systematic and disciplined approach to
evaluating and improving the eﬀ ectiveness of the organizationʼs
risk management, as well as control and governance processes
in the fulﬁ llment of the set targets. Auditing and consulting com-
pany KPMG was appointed co-sourcing partner in 2012 to sup-
port the internal audit function and the performance of the audit.

The internal audit function is founded on a risk-based internal
audit plan which is mainly derived from the last risk manage-

ment results. In addition, audit requirements and suggestions
from the Management Board and the Supervisory Boardʼs
Audit Committee are considered in the risk-oriented internal
audit plan.

The internal audit function regularly reports to the Management
Board. The Head of the Internal Audit Function reports together
with the CEO to the Supervisory Boardʼs Audit Committee twice
a year or immediately if the need arises.

During 2012, four audits were successfully conducted. Sev-
eral areas for improvement were identiﬁ ed and appropriate cor-
rective measures were implemented; deﬁ ciencies in processes
were cured by appropriate countermeasures. The internal audit
functionʼs audit plan for 2013 includes a similar number of
audits to 2012.

RISK MANAGEMEN T
MorphoSys works with a risk management system that en-
sures the early identiﬁ cation and evaluation of business-speciﬁ c
risks. Using appropriate countermeasures, the identiﬁ ed risks
are mitigated or at least reduced to an acceptable level. Special

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

attention is paid to those risks which may put the existence of
the Company in jeopardy.

The Management Board ensures responsible risk handling at
all times and keeps the Supervisory Board informed about ex-
isting risks and their development. Detailed information about
the opportunities and risks at MorphoSys can be found in the
“Risks and Opportunities Report” (from page 49).

S TAT U T ORY AUDI T BY PRICEWAT ERHOUSECOOPERS AG
MorphoSys prepares its Consolidated Financial Statements
and quarterly ﬁ nancial statements in accordance with the In-
ternational Financial Reporting Standards (IFRS). MorphoSys
AGʼs ﬁ nancial statements are prepared in accordance with the
German Commercial Code (HGB). The Audit Committee of the
Supervisory Board proposes the selection of the Companyʼs ex-
ternal auditor. At the 2012 Annual General Meeting, Pricewa-
terhouseCoopers AG Wirtschaftsprüfungsgesellschaft was ap-
pointed auditor for the 2012 ﬁ nancial year. In order to ensure
the auditorʼs autonomy, the Audit Committee obtained a decla-
ration of independence from the auditor.

Remuneration Report

The Remuneration Report outlines the principles, structure and
amount of compensation paid to the Management Board and
Supervisory Board. The Remuneration Report reﬂ ects the legal

provisions and the respective principles of the German Cor-
porate Governance Code. The Remuneration Report is part of
the Management Report as well as the Corporate Governance
Report.

REMUNERAT ION OF T HE MANAGEMEN T BOARD
The remuneration system for the Management Board is in-
tended to provide an incentive for successful and sustainable
corporate management. The aggregate annual compensation
paid to Management Board members consists of several compo-
nents such as ﬁ xed components, a yearly cash bonus based on
the achievement of Company and individual goals (short-term
incentive – STI), a long-term incentivizing component in the
form of a share performance plan (long-term incentive – LTI)
and additional beneﬁ ts. Each year, the structure and appropri-
ateness of the aggregate annual compensation packages are re-
viewed by the Remuneration and Nomination Committee. The
amount of compensation payable to the Management Board mem-
bers 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 compen-
sation packages are compared with the results of an annual
Management Board compensation analysis. All resolutions on
adjustments to the aggregate annual compensation packages
are adopted by the plenum of the Supervisory Board. The last
occasion on which the salaries of the Management Board mem-
bers were adjusted was in July 2012.

F IG . 17 /// RI SK-BA SED IN T ERNAL AUDI T PL AN

MORPHOSY S
based
on audit plan

S UP P O R T B Y AUDI T O RS ( K P M G )

III

VII

VIII

Risk analysis
and planning
of the annual
audit plan

Risk analysis
with audit area

Deﬁ nition of
audit objective
(process
analysis)

Risk analysis and
evaluation for
audit objective

Evaluation of the
Internal Control
System

Deﬁ ning and
carrying out the
necessary audit
steps

Documentation
and communi-
cation of results

Follow-up

QUAL I T Y MANA GEMEN T

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OVERVIE W
In the 2012 ﬁ nancial year, the total compensation of the Man-
agement Board amounted to € 3,534,475 (2011: € 3,917,373).

Of this total amount, € 2,419,475 was attributable to cash com-
pensation, and € 1,115,000 or 32 % to share-based compensation
(long-term incentivizing compensation – LTI).

The table below shows a detailed breakdown of the compensa-
tion paid to the members of the Management Board:

TAB . 16A /// COMPENS AT ION OF T HE MANAGEMEN T B OARD IN 2012

Fixed Compensation

Short-term
Incentive
Compensation

Long-term Incentive
Compensation
(Target Attainment Depends
on Company Goals)

Total
Compensation

Base Salary
in €

Other
Compensatory
Beneﬁ ts
in €

Variable
Compensation
in €

No. of
Performance
Shares
Granted

Fair Value at
The Time of
the Grant
in €

Dr. Simon E. Moroney

Jens Holstein

Dr. Arndt Schottelius

Dr. Marlies Sproll

TOTAL

401,980

271,867

272,700

1,219,247

139,5551

129,8362

103,8413

96,6094

469,841

226,689

176,890

164,155

162,653

730,387

18,976

12,997

57,967

1 Includes € 109,882 in annual contributions to a private pension fund and allowances for insurances
2 Includes € 72,999 in annual contributions to a private pension fund and allowances for insurances
3 Includes € 76,898 in annual contributions to a private pension fund and allowances for insurances
4 Includes € 76,789 in annual contributions to a private pension fund and allowances for insurances

TAB . 16B /// COMPENS AT ION OF T HE MANAGEMEN T B OARD IN 2011

in €

1,133,224

828,593

790,696

781,962

365,000

250,000

1,115,000

3,534,475

Fixed Compensation

Short-term
Incentive
Compensation

Long-term Incentive
Compensation
(Target Attainment Depends
on Company Goals)

Total
Compensation

Base Salary
in €

Other
Compensatory
Beneﬁ ts
in €

Variable
Compensation
in €

No. of
Performance
Shares
Granted

Fair Value at
The Time of
the Grant
in €

in €

Dr. Simon E. Moroney

Dave Lemus*

Jens Holstein**

Dr. Arndt Schottelius

Dr. Marlies Sproll

TOTAL

386,862

132,119

167,500

256,000

262,259

1,204,740

135,1311

479,0092

181,5843

99,0464

94,5635

989,333

181,825

72,026

83,750

107,520

125,884

571,005

17,676

–

12,107

53,997

377,206

1,081,024

–

258,363

683,154

691,197

720,929

741,069

1,152,295

3,917,373

* Left the Management Board of MorphoSys AG on 10 March 2011
** Joined the Management Board of MorphoSys AG on 1 May 2011
1
2
3
4
5

Includes € 107,233 in annual contributions to a private pension fund and allowances for insurances
Includes € 35,629 in annual contributions to a private pension fund and allowances for insurances
Includes € 53,001 in annual contributions to a private pension fund and allowances for insurances
Includes € 73,613 in annual contributions to a private pension fund and allowances for insurances
Includes € 74,868 in annual contributions to a private pension fund and allowances for insurances

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

During 2012, members of the Management Board did not exer-
cise convertible bonds or share options. As required by law,
all transactions involving MorphoSysʼs shares were reported
and published in the Corporate Governance Report and on the
Companyʼs website.

FIXED C OMPENSATION
The Management Board’s ﬁ xed compensation consists of the
base salary as well as other compensatory beneﬁ ts which pri-
marily encompass the use of company cars, allowances for
health, social care and invalidity insurances. In the 2012 ﬁ nan-
cial year, Management Board member Jens Holstein was com-
pensated an amount of € 16,117 for costs incurred in moving to
Munich. Furthermore, all members of the Management Board
participate in private pension funds or another type of pension
scheme (Altersversorgung). MorphoSys pays monthly contribu-
tions into these funds or other pension schemes. These payments
amount to a maximum of 10 % of the annual ﬁ xed salary of
each Management Board member plus tax contributions, and are
included in the other compensatory beneﬁ ts. In addition, all
Management Board members participate in a pension scheme
which was established in cooperation with Allianz Pensions-
Management e.V. Pension commitments from this ”Unterstüt-
zungskasse” are fulﬁ lled by Allianz Pensions-Management e.V.

SHOR T-TERM INCENTIVIZING C OMPE NSATION (STI)
Each Management Board member is eligible for performance-re-
lated compensation in the form of an annual cash bonus payment
of up to 70 % of his or her annual base salary at 100 % target at-
tainment as of July 2012. Such bonus payments are dependent on
the achievement of Company and individual goals, which are
set by the Supervisory Board at the beginning of each ﬁ nancial
year. The Company goals account for two thirds of the bonus
payment and are based on the operating performance of the Com-
pany, as measured by revenues, operating proﬁ t and progress
in the partnered and proprietary pipeline. The individual goals
account for one third of the payment and comprise operational
objectives for which each Management Board member is respon-
sible. At the end of the year, the Supervisory Board evaluates
the level of attainment of the Company and individual goals and
sets the bonus payment accordingly. The bonus is subject to a
cap of 125 % of the target amount. If goals are missed, the vari-
able component may not be paid at all. The bonus for the 2012
ﬁ nancial year will be paid out in February 2013.

LONG -TERM INCENTIVIZING C OMPENSATION (LTI)
In 2011, MorphoSys introduced a new long-term incentive (LTI)
program for its Management Board and Senior Management
Group. The LTI program is based on the issuance of performance

shares, linked to the achievement of certain pre-deﬁ ned objec-
tives over a four-year period. The following description of the
2012 LTI program is illustrative of each year’s program.

Each year, the Supervisory Board decides on the number of per-
formance shares to be allocated to the members of the Manage-
ment Board and the Management Board decides on the alloca-
tion for the Senior Management Group. On 1 April 2012, 57,967
performance shares were allocated to members of the Manage-
ment Board, and 33,533 were allocated to members of the Senior
Management Group, with each member receiving a deﬁ ned al-
location of shares (for further details, see Section 29 of the Notes
to the Consolidated Financial Statements). Another 2,292 per-
formance shares were allocated to members of the Senior Man-
agement Group on 1 October 2012. During the month of April,
the Company purchased 91,500 MorphoSys shares in the mar-
ket in order to service the 2012 LTI program.

Concurrent with the allocation of shares in a given year, certain
long-term performance targets are deﬁ ned by the Supervisory
Board. For the 2012 LTI program, the target is the performance of
the MorphoSys share in comparison to an artiﬁ cial index com-
prising the NASDAQ Biotechnology Index and the TecDax Index,
equally weighted. Performance shares are earned annually,
based on a daily comparison of the MorphoSys share vs. the ar-
tiﬁ cial index. Performance in a given year is subject to a thresh-
old of 50 % and a cap of 200 %, meaning that under-performance
of the MorphoSys share vs. the artiﬁ cial index by at least 50 %
will result in no shares being earned, while an out-performance
of at least 200 % results in no additional shares being earned.

The number of performance shares to be released to the pro-
gram’s beneﬁ ciaries is ﬁ nally determined at the conclusion of a
program, i.e. after four years. The calculation considers the num-
ber of shares originally allocated, adjusted by the performance
of the company’s share against the artiﬁ cial index, and the dis-
cretion of the Supervisory Board using a so-called “company
factor”. The company factor is a number between 0 and 2 which
can be applied by the Supervisory Board based on the compa-
ny’s circumstances at the time. The default value of the Company
factor is 1. The LTI program therefore contains a cap, as per the
requirements of the German Corporate Governance Codex.

VARIA
No credits, loans or similar beneﬁ ts were granted to members
of the Management Board. In the year under review, the Manage-
ment Board members received no beneﬁ ts from third parties
that were either promised or granted in view of their position as
members of the Management Board.

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NON - RE APP OINTMENT/NON - PROLONGATION
The service agreements of the Management Board members stip-
ulate that in the event of a non-reappointment or non-prolonga-
tion of the service agreement, each member of the Management
Board is entitled to receive a severance payment in the amount
of one yearʼs ﬁ xed salary. Such a severance payment will be oﬀ -
set against any salary payments received in the event of a leave
of absence of a Management Board member. If the Management
Board memberʼs service agreement is terminated by death, his/
her spouse or life partner is entitled to the monthly ﬁ xed salary
for the month of death and the following twelve months. In the
event that (i) MorphoSys transfers its assets or material parts
of its assets to a non-aﬃ liated third party, (ii) MorphoSys is
merged into a non-aﬃ liated company 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 agreement and may demand the outstanding
ﬁ xed 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, convertible bonds and
performance shares will be treated as immediately vested.

REMUNERAT ION OF T HE SUPERVIS ORY BOARD
Compensation of the members of the Supervisory Board is
based on the provisions of the Articles of Association and the
respective resolutions of the shareholders at the Annual Gen-
eral Meetings regarding the remuneration of the members of the
Supervisory Board. In 2012, the members of the Supervisory
Board received ﬁ xed compensation and an attendance fee for

attending board and committee meetings. According to the
resolution of the Annual General Meeting on 31 May 2012, each
Supervisory Board member receives an annual board member-
ship ﬂ at fee (€ 85,400 for the Chairman, € 51,240 for the Deputy
Chairman and € 34,160 for the other Supervisory Board mem-
bers). The Chairman receives € 3,000 per board meeting chaired
and the other members receive € 1,500 per board meeting at-
tended. For the work in the committees, the Chairman of a com-
mittee receives € 9,000, the other committee members € 6,000
each. In addition, committee members receive € 1,000 per com-
mittee meeting attended. Compensation is paid out proportion-
ally on a quarterly basis.

In addition, the Supervisory Board members are reimbursed for
travel costs and for any value-added tax to be paid on their remu-
neration. The overall compensation package takes into account
the responsibilities and range of tasks of the Supervisory Board
members.

In the 2012 ﬁ nancial year, the members of the Supervisory
Board received a total of € 478,197 (2011: € 384,750) excluding
reimbursement of travel expenses. This amount consists of
ﬁ xed remuneration and the attendance fee.

The Company did not provide loans to members of the Super-
visory Board.

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

TAB . 17 /// COMPENSAT ION OF T HE SUPERVIS ORY BOARD

Fixed Compensation

Attendance Fees

Total Compensation

in €

2012

2011

2012

2011

2012

2011

Dr. Gerald Möller

Prof. Dr. Jürgen Drews*

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Marc Cluzel**

Dr. Metin Colpan*

Karin Eastham**

Dr. Geoﬀ rey N. Vernon

TOTAL

94,400

26,264

43,160

41,939

27,116

16,678

23,591

51,549

324,697

70,000

57,750

39,500

36,500

–

36,500

–

39,500

279,750

37,000

9,500

21,500

23,500

19,000

6,000

15,000

22,000

153,500

26,000

17,500

13,500

19,000

–

8,500

–

20,500

105,000

131,400

35,764

64,660

65,439

46,116

22,678

38,591

73,549

478,197

96,000

75,250

53,000

55,500

–

45,000

–

60,000

384,750

left the Supervisory Board of MorphoSys AG on 31 May 2012

*
** Member of the Supervisory Board of MorphoSys AG since 31 May 2012

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

Information in accordance with sec.
315 para. 4 of the German Commer-
cial Code (HGB) as well as the Clarify-
ing Report of the Management Board

COMP OSI T ION OF COMMON S T OCK
As of 31 December 2012, the Companyʼs share capital amounted
to € 23,358,228.00, divided into 23,358,228 no-par bearer shares.
With the exception of 255,415 Company treasury shares, this
total represents subscriber shares with voting rights, whereby
each share grants one vote in the Annual General Meeting.

RES T RIC T IONS AF F EC T ING VO T ING RIGH T S OR

T HE T RANSF ER OF SHARES
The Management Board is not aware of any restrictions which
aﬀ ect voting rights or the transfer of shares. This also relates to
restrictions which could result from agreements between share-
holders.

Restrictions on voting rights can further arise from provisions
in the German Stock Corporation Act (AktG), such as according
to sec. 136 of the German Stock Corporation Act or for treasury
shares pursuant to sec. 71b of the German Stock Corporation Act.

SHAREHOL DINGS IN T HE SHARE C API TAL EXCEEDING 10 %

OF T HE VO T ING RIGH T S
Direct or indirect shareholdings in the Companyʼs share capital
that exceed 10 % of the voting rights have not been shared with
us and are also unknown in any other way.

Board may be appointed for a maximum period of up to ﬁ ve
years. A reappointment or extension of the period of oﬃ ce are
permissible up to a maximum of ﬁ ve years in each case. The
Supervisory Board can repeal the appointment of a Management
Board member and the nomination of a Chief Executive Oﬃ cer
if an important reason exists in the context of sec. 84 para. 3 of
the German Stock Corporation Act. If an essential member of
the Management Board is not present, then in urgent cases this
is judicially appointed according to sec. 85 of the German Stock
Corporation Act.

The Companyʼs Articles of Association can only be amended by
a resolution by the Annual General Meeting, in accordance with
sec. 179 para. 1 line 1 of the German Stock Corporation Act.
In accordance with sec. 179 para. 2 line 2 of the German Stock
Corporation Act, in conjunction with sec. 20 of the Articles of
Association, the Annual General Meeting can rule on amend-
ments to the MorphoSys Articles of Association with a simple
majority of the votes submitted and a simple majority of the share
capital represented in the passing of the resolution. To the ex-
tent that the law stipulates a mandatory greater vote or capital
majority, this shall be applied. Amendments to the Articles of
Association, which solely concern their formulation, can however
be decided by the Supervisory Board pursuant to sec. 179 para. 1
line 2 of the German Stock Corporation Act in conjunction with
sec. 12 para 3 of the Articles of Association.

P OWERS OF T HE MANAGEMEN T BOARD IN T HE ISSUING OF

SHARES
The powers of the Management Board in the issuance of shares
arise from sec. 5 para. 5 to para. 6e of the Articles of Association
and the legal provisions:

SHARES WI T H SPEC IAL RIGH T S CONF ERRING P OWERS

OF CON T ROL
No shares exist with special rights conferring powers of control.

a. Authorized capital
aa. Pursuant to sec. 5 para. 5 of the Articles of Association

RIGH T T O CON T ROL VO T ES WI T H REGARD T O SHAREHOL D -

INGS IN T HE C API TAL HEL D BY EMPL O YEES
Employees who hold shares in the Company exercise their voting
rights in the same manner as other shareholders in direct ac-
cordance with legal regulations and the Articles of Association.

APP OIN T MEN T AND DISMISSAL OF MEMBERS OF T HE

MANAGEMEN T BOARD AS WEL L AS AMENDMEN T S T O T HE

AR T ICLES OF ASSOC IAT ION
The determination of the number of Management Board mem-
bers, their appointment and dismissal, as well as the nomina-
tion of the Chief Executive Oﬃ cer are carried out according to
sec. 6 of the Articles of Association and sec. 84 of the German
Stock Corporation Act by the Supervisory Board. The Companyʼs
Management Board is currently made up of the Chief Executive
Oﬃ cer and three further members. Members of the Management

in the case of a capital increase for cash contributions,
to the extent that this is necessary to avoid fractional
shares; or

ii. in the case of a capital increase in kind to the extent
that the capital increase is used for the acquisition
of companies, shareholdings in companies, patents,
licenses or other industrial property rights, license
rights or of assets which constitute a business in their
entirety; or

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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.

bb. Pursuant to sec. 5 para. 6 of the Articles of Association

and with the approval of the Supervisory Board, the Man-
agement Board is authorized to increase the Companyʼs
share capital for cash contributions and/or in kind on one
or several occasions, but to no more than a maximum
total of € 2,311,216, by issuing up to 2,311,216 new bearer
shares (authorized capital 2012-II) up to the 30 April
2017. Shareholders are fundamentally entitled to preemp-
tive rights. The shares can also be taken over by one or
several credit institutes with the obligation to oﬀ er them
to shareholders for subscription. The Management Board
is, however, authorized with the approval of the Supervi-
sory Board to exclude the preemptive rights of share-
holders in the following cases:
i.

to the extent that this is necessary to avoid fractional
amounts; or

ii. if the issuing amount of the young shares does not

fall signiﬁ cantly below the stock exchange rate of the
currently listed shares of the same class at the time
of the conclusive determination of the issuing amount,
and the shares issued pursuant to, or following a cor-
responding application of, sec. 186 para. 3 line 4 of the
German Stock Corporation Act under exclusion of the
preemptive rights during the period of this authoriza-
tion do not exceed a total 10 % of the share capital, and
further, neither at the time of the authorization taking
eﬀ ect nor at the time of the authorization being exer-
cised. The Management Board is empowered with the
approval of the Supervisory Board to determine the
further speciﬁ cs of the capital increase and its imple-
mentation.
b. Conditional capital
aa. Pursuant to sec. 5 para. 6a of the Articles of Association,

the Companyʼs share capital is increased conditionally
by € 70,329.00, divided into up to 70,329 no-par bearer
shares (Conditional capital 1999-I). The conditional capi-
tal increase shall only be accomplished by an amount of
€ 3,255.00 (Conditional capital II aa) to the extent that
the holders of option rights, conferred by MorphoSys from
21 July 1999 to 20 July 2004 on the basis of the authoriza-
tion by the Annual General Meeting, exercise said rights,
and regarding an amount of € 5,299.00 (Conditional capi-
tal II bb) only implemented in so far as the holders of op-
tion rights, conferred by MorphoSys in the period from
21 July 2004 to 30 April 2009 on the basis of the authori-
zation by the Annual General Meeting on 11 May 2004,
exercise said rights. The conditional capital increase shall
only be accomplished by an amount of € 61,845.00 (Con-
ditional capital II b) in so far as the holders of option rights,

conferred by MorphoSys from 5 July 2001 to 4 June 2006
on the basis of the authorization by the Annual General
Meeting, exercise said rights. The young shares – to
the extent that they are formed through the exercising of
rights up to the start of the Companyʼs ordinary Annual
General Meeting – participate in proﬁ ts from the start of
the coming ﬁ nancial year, otherwise individually from
the start of the ﬁ nancial year, by being formed through
the exercising of preemptive rights.

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

the Companyʼs share capital is conditionally increased
(Conditional capital 2011-I) by up to € 6,600,000.00, divided
into up to 6,600,000 bearer shares. The conditional capi-
tal increase shall only be accomplished to the extent that
the holders of warrants or conversion rights from option
or convertible bonds from up to 30 April 2016, conferred by
the Company pursuant to the resolution by the Annual
General Meeting on 19 May 2011, exercise said rights, or
the holders of the convertible bonds to be issued or their
direct or indirect domestic or foreign 100 % holding compa-
nies fulﬁ ll the obligation to convert these before 30 April
2016. The young shares participate in proﬁ ts from the start
of the ﬁ nancial year by being formed through the exercis-
ing of conversion rights or the fulﬁ llment of conversion
obligations.

cc. Pursuant to sec. 5 para. 6c of the Articles of Association,
the Companyʼs share capital is conditionally increased by
up to € 725,064.00 through the issuing of up to 725,064
new Company no-par ordinary shares (Conditional capital
2003-II). The conditional capital increase shall only be
accomplished to the extent that the holders of the issued
convertible bonds exercise their conversion rights for con-
version into ordinary Company shares. The young shares
carry full dividend rights for the ﬁ nancial year for the
ﬁ rst time, for which no Annual General Meeting resolu-
tion on the use of net proﬁ t has been passed. The Man-
agement Board is empowered with the approval of the
Supervisory Board to determine the further speciﬁ cs
of the conditional capital increase and its implementation.
dd. Pursuant to sec. 5 para. 6d of the Articles of Association,
the Company’s share capital is conditionally increased by
€ 763,515.00, divided into up to 763,515 no-par bearer
shares (Conditional capital 2008-II). The conditional capi-
tal increase shall only be accomplished to the extent that
the holders of option rights, conferred by the Company on
the basis of the authorization by the Annual General Meet-
ing up to 30 April 2013, exercise said rights. The young
shares participate in proﬁ ts from the start of the ﬁ nancial
year by being formed through the exercising of conver-
sion rights or the fulﬁ llment of conversion obligations.

ee. Pursuant to sec. 5 para. 6e of the Articles of Association,

the Company’s share capital is conditionally increased

G R O U P M A N A G E M E N T R E P O R T / / / Corporate Governance Report

by up to € 450,000.00 through the issuing of up to 450,000
new Company no-par ordinary shares (Conditional capi-
tal 2008-III). The conditional capital increase shall only
be accomplished to the extent that the holders of the is-
sued convertible bonds exercise their conversion rights for
conversion into ordinary Company shares. The young
shares participate in proﬁ ts from the start of the ﬁ nancial
year for the ﬁ rst time by being formed through the exercis-
ing of conversion rights. The Management Board is em-
powered with the approval of the Supervisory Board to
determine the further speciﬁ cs of the conditional capital
increase and its implementation.

for the fulﬁ llment of conﬁ rmations of the acquisition or
obligations to acquire Company shares, granted to Company
employees and aﬃ liated companies, as well as members of
the executive board.

In the case of shares being used for the purposes mentioned
above, with exception of the withdrawal of shares, the share-
holdersʼ preemptive rights are excluded.

The Supervisory Board can specify that measures taken by the
Management Board on the basis of this authorization may only
be implemented with its approval.

P OWERS OF T HE MANAGEMEN T BOARD IN T HE REPURCHASE

SIGNIF IC AN T AGREEMEN T S BY T HE COMPANY T HAT

OF SHARES
The powers of the Management Board in the repurchase of trea-
sury shares result from sec. 71 ﬀ . of the German Stock Cor-
poration Act as well as the authorization by the Annual General
Meeting on 19 May 2011:

The Management Board is authorized up to 30 April 2016 to
acquire Company treasury shares in the amount of up to 10 %
of the existing share capital up to the point at which the reso-
lution was passed (or if necessary, the lower amount at the time
the authorization comes into eﬀ ect) for any permissible pur-
pose within the framework of the legal restrictions. Acquisitions
are made according to a vote by the Management Board on the
stock exchange or by means of a public purchase bid or by means
of a public invitation to enter such a bid. The authorization may
not be used for the purpose of trading in treasury shares. The
uses of treasury shares acquired on the basis of this authoriza-
tion can be extracted from point 7 on the agenda Annual General
Meeting on 19 May 2011. In particular, the shares can be used
as follows:

a. The shares can be withdrawn without the withdrawal or its

implementation requiring a further resolution by the Annual
General Meeting.

b. The shares can be sold in ways other than via the stock ex-

change or via an oﬀ er to shareholders if the shares are oﬀ ered
for cash payment at a price that does not fall signiﬁ cantly be-
low the stock exchange rate of Company shares of the same
class at the time of the sale.

c. The shares can be sold for payment in kind, especially also
in conjunction with the acquisition of companies, parts of
companies or company shareholdings as well as mergers of
companies.

d. The shares can be used for the fulﬁ llment of conversion rights
from convertible bonds conferred by the Company or group
entities of the Company.

e. The shares can be sold to Company employees and aﬃ liated

companies, as well as members of the executive board and/or

FAL L UNDER T HE CONDI T ION OF A CHANGE OF CON T ROL

AS A RESULT OF A TAKEOVER BID
In 2012, MorphoSys and Novartis Pharma AG expanded their
original cooperation agreement from 2004, ﬁ rst amended in
2006, and subsequently in 2007. According to this agreement,
Novartis Pharma AG is permitted, but not obligated, in spe-
ciﬁ c cases of a change of control to take appropriate measures,
including the partial or complete cancellation of the coopera-
tion agreement.

A change of control includes in particular the acquisition of 30 %
or more of the voting rights of a company in the context of Secs.
29 and 30 of the German Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz – WpÜG).

COMPANY COMPENSAT ION AGREEMEN T S REACHED

WI T H T HE MEMBERS OF T HE MANAGEMEN T BOARD OR

SUPER VIS ORY BOARD OR EMPL O YEES F OR T HE EVEN T

OF A TAKEOVER BID
After a change of control transaction, each member of the Man-
agement Board is allowed to terminate his/her service agree-
ment and may demand the outstanding salary for the remain-
ing contractually provided term of contract. Furthermore, in
such a case, all granted (i) stock options and convertible bonds
will be treated as immediately vested and (ii) performance
shares are deemed to be non-forfeitable with immediate eﬀ ect.

After a change of control, all performance shares granted to the
directors are non-forfeitable with immediate eﬀ ect. Furthermore,
a number of directors hold options or conversion rights which
will be treated as immediately vested after a change of control.

The following cases in particular count as a change of control:
(i) MorphoSys transfers all or a signiﬁ cant portion of Company
assets to a business not linked to the Company, (ii) MorphoSys
is merged with an unaﬃ liated company or (iii) a shareholder
directly or indirectly holds more than 30 % of the MorphoSys
voting rights.

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C O N T E N T S

FINAN
CIAL
STATE
MENTS 74

7 5

7 6

c o n s o l i dat e d i n c o m e s tat e m e n t (i f r s)

c o n s o l i dat 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)

c o n s o l i dat e d ba l a n c e s h e e t (i frs)

7 8

c o n s o l i dat 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 ’ equ i t y (i f r s)

8 0

c o n s o l i dat e d s tat e m e n t o f cas h flows (i frs)

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

g e n e r a l i n f o r m at i o n

s u m m a r y o f s i g n i f i c a n t ac 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

r e v e n u e s

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

o t h e r i n c o m e a n d e x p e n s e s , f i n a n c e i n c o m e

a n d e x p e n s e 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

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

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

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

8 2

8 3

9 1

9 4

9 5

9 7

9 9

1 0 0

1 0 1

1 0 3

1 0 4

1 0 5

1 0 6

1 0 7

1 1 1

1 1 2

1 1 3

o t h e r a s s e t s

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

g o o d w i l l

ac c o u n t s paya b l e a n d ac c r u e d e x p e n d i t u r 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 ag 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

1 1 4

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

1 1 5

1 1 6

1 1 7

1 2 0

1 2 2

1 2 4

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

o p e r at i n g l e a s e s a n d o t h e r c o m m i t m e n t s

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

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

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 ag r e e m e n t s

e n t i t i e s i n c l u d e d i n c o n s o l i dat i o n (a p p e n d i x 1)

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

F I N A N C I A L S T A T E M E N T S / / / Consolidated Income Statement (IFRS)

Consolidated Income Statement (IFRS)*

in €

Continuing Operations

Revenues

Operating Expenses

Cost of Goods Sold

Research and Development

Sales, General and Administrative

Total Operating Expenses

Other Income

Other Expenses

Earnings before Interest and Taxes (EBIT)

Finance Income

Finance Expenses

Income Tax Expenses

Proﬁ t for the Year from Continuing Operations

(Loss) / Proﬁ t for the Year from Discontinued Operations

Consolidated Net Proﬁ t

Basic Net Proﬁ t per Share

thereof from Continuing Operations

thereof from Discontinued Operations

Diluted Net Proﬁ t per Share

thereof from Continuing Operations

thereof from Discontinued Operations

Shares Used in Computing Basic Net Proﬁ t per Share

Shares Used in Computing Diluted Net Proﬁ t per Share

See accompanying Notes

Note

2012

2011

2.7, 4

51,916,986

82,077,245

2.8, 3

37,673,345

12,081,649

49,754,994

415,477

85,454

2,492,015

658,991

98,931

(685,812)

2,366,263

(424,118)

1,942,145

0.08

0.10

(0.02)

0.08

0.10

(0.02)

55,878,828

14,930,403

70,809,231

533,502

2,007,934

9,793,582

1,453,616

54,197

(2,990,914)

8,202,087

14,310

8,216,397

0.36

0.00

0.36

0.35

0.00

23,004,894

23,260,360

22,887,723

23,126,158

* Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the years 2012 and 2011, revenue,
income and expenses in connection with the transaction are shown in the line item ‘Proﬁ t for the Year from Discontinued Operations’. All other line items above ‘Net Proﬁ t’ consist
of amounts from continuing operations. See also note 17 of these Notes.

F I N A N C I A L S T A T E M E N T S / / / Consolidated Statement of Comprehensive Income (IFRS)

Consolidated Statement of
Comprehensive Income (IFRS)

in €

Consolidated Net Proﬁ t

Change in Unrealized Gains and Losses on Available-for-sale Financial Assets

(Thereof Reclassiﬁ cations of Unrealized Gains and Losses to Proﬁ t and Loss)

Deferred Taxes

Change in Unrealized Gains and Losses on Available-for-sale Financial Assets, Net of Deferred Tax

Eﬀ ects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Comprehensive Income

thereof from Continuing Operations

thereof from Discontinued Operations

See accompanying Notes

2012

2011

1,942,145

(178,483)

420,546

46,995

(131,488)

6,005

182,460

1,999,122

2,234,775

(235,653)

8,216,397

(260,949)

(886,717)

68,708

(192,241)

76,798

247,307

8,348,261

8,009,846

338,415

F I N A N C I A L S T A T E M E N T S / / / Consolidated Balance Sheet (IFRS)

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

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

Shares available for Sale, net of Current Portion

Deferred Tax Asset

Prepaid Expenses and Other Assets, Net of Current Portion

Total Non-current Assets

Assets of Disposal Group Classiﬁ ed as Held for Sale

TOTAL AS SE TS

See accompanying Notes

Note

12/31/2012*

12/31/2011**

9, 21

10, 21

11, 21

15, 18

13, 16

40,689,865

79,722,222

8,924,197

109,789

10,297,901

757,386

2,357,163

54,596,099

79,768,563

12,203,237

215,620

375,360

3,281,240

3,467,402

142,858,523

153,907,521

3,191,837

8,666,367

7,128,425

10,513,100

1,351,932

7,352,467

881,633

1,489,063

40,574,825

40,855,433

6,106,318

9,459,580

9,551,394

10,513,100

1,055,405

1,341,159

34,107,455

164,949

1,418,542

73,717,902

785,027

224,288,780

228,410,450

* Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the year 2012, current and
non-current assets in connection with the transaction are shown in the line item ‘Assets of Disposal Group Classiﬁ ed as Held for Sale’. See also note 17 of these Notes.

** No reclassiﬁ cation of assets for the disposal group was necessary for the year 2011.

F I N A N C I A L S T A T E M E N T S / / / Consolidated Balance Sheet (IFRS)

in €

Note

12/31/2012*

12/31/2011**

LIABILITIES AND STO CKHOLDERS' EQUIT Y

Current Liabilities

Accounts Payable and Accrued Expenses

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

Liabilities of Disposal Group Classiﬁ ed as Held for Sale

Total Liabilities

Stockholders' Equity

Common Stock

Ordinary Shares Authorized (43,142,455 and 43,047,264 for 2012 and 2011, respectively)

Ordinary Shares Issued (23,358,228 and 23,112,167 for 2012 and 2011, respectively)

Ordinary Shares Outstanding (23,102,813 and 22,948,252 for 2012 and 2011, respectively)

Treasury Stock (255,415 and 163,915 shares for 2011 and 2011, respectively), at Cost

Additional Paid-in Capital

Revaluation Reserve

Translation Reserve

Accumulated Income

Total Stockholders' Equity

TOTAL LIABILITIES AND STO CK HOLDERS ’ EQUIT Y

See accompanying Notes

19, 21

7, 20

2.7

10,660,090

629,686

628,167

11,917,943

187,521

5,915,102

73,607

452,074

6,628,304

3,732,516

22,278,763

19,110,798

3,026,597

275,000

1,338,282

23,750,677

108,145

6,047,253

73,607

1,295,174

7,524,179

31,274,856

22, 23, 24, 26

23,358,228

23,112,167

(3,594,393)

175,245,266

486,743

(1,109,865)

7,624,038

202,010,017

224,288,780

(1,756,841)

170,778,474

612,227

(1,292,326)

5,681,893

197,135,594

228,410,450

* Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the year 2012, current and

non-current liabilities in connection with the transaction are shown in the line item ‘Liabilities of Disposal Group Classiﬁ ed as Held for Sale’. See also note 17 of these Notes.

** No reclassiﬁ cation of liabilities for the disposal group was necessary for the year 2011.

F I N A N C I A L S T A T E M E N T S / / / Consolidated Statement of Changes in Stockholders’ Equity (IFRS)

Consolidated Statement of Changes in
Stockholders’ Equity (IFRS)

BAL ANCE AS OF 1 JANUARY 2011

Compensation Related to the Grant of Stock Options and Convertible Bonds

Exercise of Options and Convertible Bonds Issued to Related Parties

Repurchase of Treasury Stock

Reserves:

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

Eﬀ ects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Proﬁ t for the Period

Comprehensive Income

BAL ANCE AS OF 31 DECEMBER 2011

BAL ANCE AS OF 1 JANUARY 2012

Compensation Related to the Grant of Stock Options and Convertible Bonds

Exercise of Options and Convertible Bonds Issued to Related Parties

Repurchase of Treasury Stock

Reserves:

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

Eﬀ ects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Proﬁ t for the Period

Comprehensive Income

BAL ANCE AS OF 31 DECEMBER 2012

See accompanying Notes

Common Stock

€

22,890,252

221,915

23,112,167

246,061

23,112,167

246,061

23,358,228

F I N A N C I A L S T A T E M E N T S / / / Consolidated Statement of Changes in Stockholders’ Equity (IFRS)

Treasury Stock

Additional
Paid-in Capital

Revaluation
Reserve

Translation
Reserve

Accumulated
Income

Total
Stockholders’
Equity

€

79,896

(9,774)

166,388,083

727,669

(1,539,632)

(2,534,504)

185,922,094

1,488,342

2,902,049

84,019

(1,747,067)

163,915

(1,756,841)

91,500

(1,837,552)

170,778,474

1,268,792

3,198,000

255,415

(3,594,393)

175,245,266

(192,241)

76,798

(115,443)

612,226

(131,488)

6,005

(125,483)

486,743

247,307

(1,292,325)

182,460

(1,109,865)

8,216,397

5,681,893

1,942,145

7,624,038

1,488,342

3,123,964

(1,747,067)

(192,241)

76,798

247,307

8,216,397

8,348,261

197,135,594

1,268,792

3,444,061

(1,837,552)

(131,488)

6,005

182,460

1,942,145

1,999,122

202,010,017

F I N A N C I A L S T A T E M E N T S / / / Consolidated Statement of Cash Flows (IFRS)

Consolidated Statement of Cash Flows (IFRS)*

in €

OPER ATING AC TIVITIES:

Consolidated Net Proﬁ t

Adjustments to Reconcile Net Proﬁ t to Net Cash
Provided by Operating Activities:

Impairment of Assets

Depreciation and Amortization of Tangible and Intangible Assets

Net Gain on Sales of Financial Assets

Purchases of Derivative Financial Instruments

Proceeds from the Disposal of Derivative Financial Instruments

Unrealized Net (Gain) / Loss on Derivative Financial Instruments

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

Net Gain on Sale of Assets Classiﬁ ed as Available for Sale

Recognition of Deferred Revenue

Stock-based Compensation

Income Tax Expenses

Changes in Operating Assets and Liabilities:

Accounts Receivable

Prepaid Expenses, Other Assets and Tax Receivables

Accounts Payable and Accrued Expenses and Provisions

Other Liabilities

Deferred Revenue

Interest Paid

Interest Received

Income Taxes Paid

Net Cash Provided by Operating Activities

thereof from Continuing Operations

thereof from Discontinued Operations

See accompanying Notes

Note

2012

2011

1,942,145

8,216,397

180,237

6,310,535

(480,912)

(40,870)

40,870

4,319

(5,547)

236,362

6,628,779

(1,085,911)

(220,921)

386,208

(20,993)

(44,216)

(20,088,086)

(19,980,232)

1,348,167

467,199

1,575,045

(495,812)

(8,461,445)

101,112

19,680,503

(744)

179,588

(466,290)

1,790,014

740,608

1,049,406

1,538,807

3,190,278

2,839,264

(34,967)

3,501,662

(80,312)

23,493,407

(3,459)

361,916

(1,851,609)

27,070,459

25,436,061

1,634,398

14, 15

2.7

23, 24, 25, 26

19, 20

2.7

* Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the years 2012 and 2011, items in

connection with the transaction are shown in the respective ‘thereof from Discontinued Operations’ line item. The main line items show the amounts for the Group. See also note 17
of these Notes.

F I N A N C I A L S T A T E M E N T S / / / Consolidated Statement of Cash Flows (IFRS)

in €

Note

2012

2011

INVESTING AC TIVITIES:

Purchases of Financial Assets

Proceeds from Sales of Financial Assets

Purchase of Assets Classiﬁ ed as Loans and Receivables

Purchase of Shares Classiﬁ ed as Available for Sale

Purchases of Property, Plant and Equipment

Proceeds from Disposals of Property, Plant and Equipment

Purchases of Intangible Assets

Proceeds from Disposal of Assets Classiﬁ ed as Available for Sale

Net Cash Used in Investing Activities

thereof from Continuing Operations

thereof from Discontinued Operations

FINANCING AC TIVITIES:

Repurchase Treasury Stock

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

Net Cost of Share Issuance

Net Cash Provided by Financing Activities

thereof from Continuing Operations

thereof from Discontinued Operations

Eﬀ ect of Exchange Rate Diﬀ erences on Cash

Increase in Cash and Cash Equivalents

Cash and Cash Equivalents at the Beginning of the Period

Cash and Cash Equivalents at the End of the Period

thereof included in Cash and Cash Equivalents

therof included in Assets of Disposal Group Classiﬁ ed as Held for Sale

See accompanying Notes

2.16

(30,768,599)

31,053,715

(10,000,000)

(881,633)

(1,016,539)

(1,294,661)

816,591

(12,091,126)

(11,824,020)

(267,106)

(50,686,269)

36,046,710

(2,320,353)

152,081

(1,284,629)

(18,092,460)

(17,512,260)

(580,200)

(1,837,552)

(1,747,066)

22, 23, 24

3,444,061

3,139,488

1,606,509

69,344

(8,625,259)

54,596,099

45,970,840

40,689,865

5,280,975

(53,986)

(15,500)

1,322,936

176,713

10,477,648

44,118,451

54,596,099

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Notes

1 General Information

1.1 BUSINE SS AND ORGANI ZAT ION
MorphoSys AG (“the Company” or “MorphoSys”) is one of the leading
antibody companies focusing on the generation of fully human anti-
bodies. MorphoSys’s proprietary state-of-the-art technologies, together
with over 15 years of focused antibody discovery and optimization
know-how, are successfully applied to the development of research re-
agents, diagnostics and therapeutics for both its commercial partners
and itself. 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 enter-
prises. On 15 January 2003, MorphoSys AG was admitted to the Prime
Standard segment of the Frankfurt Stock Exchange.

CONS OL IDAT ED COMP ANIE S

1.2
MorphoSys AG has ﬁ ve wholly owned subsidiaries (together referred
to as the “MorphoSys Group” or “Group”):

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

MorphoSys IP GmbH, Martinsried, Germany, was incorporated in
Munich, Germany on 6 November 2002. The subsidiary’s purpose is to
purchase, maintain and administer certain intangible assets of the
MorphoSys Group. The Company’s operations are physically located on
the premises of MorphoSys AG, and operations commenced on 31 De-
cember 2002.

In January 2005, MorphoSys acquired Biogenesis Ltd., Poole, UK, and
Biogenesis, Inc., New Hampshire, USA. Biogenesis UK was ﬁ rst renamed
MorphoSys UK Ltd. and in 2007 again renamed Poole Real Estate Ltd.
Biogenesis, Inc. was renamed MorphoSys US, Inc. and merged into Sero-
tec, Inc. The merged entity resumed the name MorphoSys US, Inc.
located in Raleigh, North Carolina, USA.

Serotec Ltd., Oxford, UK, with its subsidiaries Serotec, Inc., Raleigh,
USA, Serotec GmbH, Düsseldorf, Germany, and Oxford Biotechnology
Ltd. (together referred to as the “Serotec Group”) was acquired 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 segment. Oxford Biotechnology Ltd. was
dissolved in the ﬁ nancial year 2009.

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.

In October 2010, MorphoSys acquired 100 % of the shares in Sloning
BioTechnology GmbH, a private company located in Puchheim near
Munich, Germany.

F IG . 18 /// L EG AL S T RUC T URE OF T HE MORPHO S Y S GROUP

MorphoSys AG

S U B S I DIARIES

MorphoSys USA, Inc.
Poole Real Estate Ltd.
MorphoSys IP GmbH
Sloning BioTechnology
GmbH

100 %
100 %
100 %

100 %

a s s e t d e a l

s c o p e o f t r a n s a c t i o n

s h a r e d e a l

100 % MorphoSys UK Ltd.

100 % MorphoSys US, Inc.
100 % MorphoSys AbD GmbH

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

MorphoSys AG and a subsidiary of Bio-Rad Laboratories Inc., Hercules/
California, USA (Bio-Rad Inc.) agreed to acquire all shares of MorphoSys
UK Ltd., Oxford, UK (MorphoSys UK) on 16 December 2012 with the
notarial authentication of 17 December 2012. The takeover also com-
prised all of the shares in MorphoSys UK’s subsidiaries. At the time
of signing on 16 December 2012, MorphoSys UK held all of the shares
of MorphoSys AbD GmbH, Düsseldorf, Germany and MorphoSys US
Inc., Raleigh, USA (MorphoSys US). Additionally, MorphoSys AG and a
further subsidiary of Bio-Rad Laboratories Inc. agreed at 16 December
2012 upon the takeover of individual assets (trademarks) of the AbD
Serotec segment and the purchase of a non-exclusive license for the
use of the HuCAL technology in the market for research reagents and
diagnostics. After the takeover of the shares in MorphoSys UK by the
subsidiary of Bio-Rad Inc., it was agreed on 16 December 2012, that all
assets and liabilities attributed to the AbD-Serotec segment of
MorphoSys AG shall be transferred to MorphoSys AbD GmbH. Bio-Rad
Inc., Bio-Rad Inc.’s subsidiaries including MorphoSys AbD GmbH
are hereinafter referred to as „acquirer“ or „Bio-Rad“, respectively. The
shares of MorphoSys AG in Poole Real Estate Ltd., Poole, GB, were not
sold. The completion of the transaction depended on the fulﬁ llment of
certain conditions. Substantially all of the AbD Serotec segment was
transferred at the closing date (10 January 2013) due to the fulﬁ llment
of the previously deﬁ ned obligations. Hence, at 31 December 2012,
substantially all of the AbD Serotec segment was classiﬁ ed as discon-
tinued operation in accordance with IFRS 5, hereinafter referred to as
“discontinued operation”. The operating segments Partnered Discovery
and Proprietary Development as well as the non-discontinued opera-
tions of the AbD Serotec segment qualiﬁ ed as “continued operations”
as of the balance sheet date. The presentation of the net assets, the
ﬁ nancial position and the results of operations of MorphoSys Group
follows the basic concept of IFRS 5 in this respect.

MorphoSys IP GmbH applied sec. 264 para. 3 of the German Commercial
Code (HGB). For this reason, no separate ﬁ nancial statements for the
year 2012 are published in the Federal Gazette for MorphoSys IP GmbH.

The consolidated ﬁ nancial statements for the year ended 31 December
2012 were authorized for issuance in accordance with a resolution of
the Management Board on 18 February 2013. The Management Board
is represented by Dr. Simon E. Moroney (Chief Executive Oﬃ cer), Jens
Holstein (Chief Financial Oﬃ cer), Dr. Marlies Sproll (Chief Scientiﬁ c Of-
ﬁ cer) and Dr. Arndt Schottelius (Chief Development Oﬃ cer). The Super-
visory Board is empowered to amend the ﬁ nancial statements after the
resolution of the Management Board. The registered oﬃ ces of the
MorphoSys Group’s headquarters are located at Lena-Christ-Straße 48,
82152 Martinsried, Germany.

Summary of Signiﬁ cant Accounting
Policies

2.1 BASIS OF PREPARATION AND CHANGE IN PRESENTATION
The accompanying consolidated ﬁ nancial statements have been pre-
pared in accordance with the International Financial Reporting Stan-
dards (IFRS) adopted by the International Accounting Standards Board
(IASB), London, in consideration of interpretations of the Standing
Interpretations Committee (SIC) and the International Financial Report-
ing Interpretations Committee (IFRIC) as adopted by the European
Commission.

The consolidated ﬁ nancial statements of the Company for the year
ended 31 December 2012 comprise MorphoSys AG and its subsidiaries
(together referred to as the “MorphoSys Group” or the “Group”).

The preparation of the consolidated ﬁ nancial statements in conformity
with IFRS requires management to make certain estimates and as-
sumptions that aﬀ ect the amounts reported in the consolidated ﬁ nancial
statements and the accompanying notes. Actual results could diﬀ er
from those estimates. Estimates and underlying assumptions are re-
viewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any
future periods aﬀ ected.

The consolidated ﬁ nancial statements are presented in euro, which is
the functional currency for the MorphoSys Group. They are prepared
on the historical cost convention, except for the following assets and
liabilities, which are stated at their fair value: derivative ﬁ nancial in-
struments and available-for-sale ﬁ nancial assets. All ﬁ gures in this re-
port are rounded either to the nearest euro, thousand euros or million
euros.

In 2012, MorphoSys changed the structuring of its income statement,
now presenting EBIT rather than operating proﬁ t to increase compara-
bility with its peer companies. From Q1 2012 onwards, EBIT does no
longer include gains/losses on marketable securities, gains/losses on
derivatives and bank fees. These items are now presented together
with interest income/expenses as “Finance Income” and “Finance Ex-
penses”, respectively. “Other Income” and “Other Expenses” mainly
comprise gains and losses resulting from foreign exchange eﬀ ects as
well as income from governmental grants. To provide comparative
information, prior year’s ﬁ gures were adjusted accordingly.

In 2011, the Group reported ‘Assets Classiﬁ ed as Held for Sale’ within
Current Assets in the balance sheet. In 2012, this item is reported in
the new line item ‘Assets of Disposal Group Classiﬁ ed as Held for Sale’
together with the assets belonging to the discontinued operations
– substantially all of the segment AbD Serotec. To provide better trans-
parency, prior year’s ﬁ gures were adjusted accordingly. As of 31 De-
cember 2011, the ‘Assets of Disposal Group Classiﬁ ed as Held for Sale’
comprised the commercial real estate owned by the subsidiary, Poole
Real Estate Ltd., Poole, UK, with a net book value of € 0.8 million (31 De-
cember 2012: 0 €). In March 2012, MorphoSys sold this real estate
for € 0.8 million.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

To provide better transparency, the presentation of reserves within the
balance sheet was divided into ‘Revaluation Reserve’ and ‘Translation
Reserve’. To provide comparative information, prior year’s ﬁ gures were
adjusted accordingly.

The accounting policies set out below have been applied consistently to
all periods presented in these consolidated ﬁ nancial statements, unless
stated otherwise.

2.2

CHANGE S IN ACCOUN T ING P OL IC IE S AND DI S CL O SURE S

NE W AND AME NDE D STANDARDS THAT ARE E XPEC TE D TO HAVE NO

IMPAC T ON THE GROUP
• The amendments to IFRS 7 “Financial instruments: Disclosures” to

additional disclosure obligations relating to the transfer of ﬁ nancial
assets have no impact on the Group.

NE W STANDARDS , AME NDME NTS AND INTE RPRE TATIONS IS SUE D BUT

NOT E FFEC TIVE FOR THE FINANCIAL YE AR BEGINNING 1 JANUARY 2012

AND NOT E ARLY AD OP TE D
• IFRS 1 “First-time Adoption”: The aim of the amendment is the intro-
duction of a new exemption clause for the scope of IFRS 1: Entities
which have been subject to hyperinﬂ ation, are allowed to present in
the IFRS opening balance the fair values of their assets and liabili-
ties instead of their amortized costs. A further amendment related to
the formerly used reference to the date 1 January 2004 as ﬁ xed
transition date; this formulation was replaced through the general
formulation “date of transition to IFRS”. The Group is yet to assess
the full impact of IFRS 1 and intends to adopt IFRS 1 no later than
the accounting period beginning on or after 1 January 2013.

• Amendments to IFRS 7 “Financial instruments: Disclosures”: IFRS 7
regulates disclosures on ﬁ nancial instruments. The amendment
relates to the netting of ﬁ nancial assets and ﬁ nancial liabilities. This
relates especially to all recognized assets, which are netted in accor-
dance with IAS 32.42. In accordance with the new disclosure obliga-
tions of IFRS 7, the gross amounts before settlement as well as the
net amounts after settlement shall be disclosed in accordance with
IAS 32.42. Furthermore, the entity shall made disclosures on ﬁ nan-
cial instruments, whose liquidation is subject to claimable global oﬀ -
set conditions or similar liabilities to provide a better traceability of
netting activities. The Group is yet to assess the full impact of IFRS 7
and intends to adopt IFRS 7 no later than the accounting period be-
ginning on or after 1 January 2013.

• IFRS 10 „Consolidated Financial Statements“: This standard replaces
the consolidation guidance in IAS 27 and SIC-12 by introducing one
single consolidation model for all companies, which is based on the
concept of control, regardless of the type of invested company (re-
gardless of the type, how the invested company is controlled, either
by voting rights from the investor or contractual obligations, as it is
standard in case of special purpose entities). The standard replaces

the provisions of IAS 27 “Separate Financial Statements” as well as
the provisions of SIC-12 “Consolidation – special purpose entities”.
Therefore, IAS 27 will treat regulations concerning individual ﬁ nan-
cial statements prospectively and is referred to as “Separate Finan-
cial Statements”. Main focus of IFRS 10 is the introduction of a stan-
dard consolidation model for all entities, which is focused on the
control of the subsidiary. The new concept of a single deﬁ nition for the
term “control” determines in the future, whether an entity must
be consolidated. The deﬁ nition provides guidelines about how the re-
porting company (investor) controls another company (associate com-
pany) and therefore a consolidation should take place. The Group is yet
to assess the full impact of IFRS 10 and intends to adopt IFRS 10 no
later than the accounting period beginning on or after 1 January 2014.

• IFRS 11 „Joint Arrangements ”: IFRS 11 introduces new guidelines
for handling joint arrangements, and replaces IAS 31 “Interests in
Joint Ventures” and SIC-13 Jointly Controlled Entities – Non-Monetary
Contributions by Partner Companies. The standard introduces new
requirements on the identiﬁ cation, classiﬁ cation and accounting for
jointly controlled operations. The proportional consolidation method
handling the accounting of jointly controlled entities was cancelled.
In addition to that, IFRS 11 comprises guidelines for joint operations
and joint ventures, as jointly controlled assets were abolished. Focus-
ing on the economic dimension, the classiﬁ cation is done in accor-
dance with the type of rights and obligations arising from agreements.
The Group is yet to assess the full impact of IFRS 11 and intends to
adopt IFRS 11 no later than the accounting period beginning on or
after 1 January 2014.

• IFRS 12 “Disclosure of Interests in Other Entities”: IFRS 12 merges
the revised disclosure requirements for all forms of participation in-
cluding joint arrangements, associated companies, special purpose
entities and other non-consolidated participations. IFRS 12 improves
disclosures for consolidated as well as for non-consolidated compa-
nies, in which the Company is invested. The standard requires more
extensive as well as more meaningful notes than IAS 27. For exam-
ple, notes regarding the type, size and importance of the relationship
to other companies, including consolidated and non-consolidated
companies (special purpose entities), are mandatory. The Group is yet
to assess the full impact of IFRS 12 and intends to adopt IFRS 12 no
later than the accounting period beginning on or after 1 January 2014.

• IFRS 13 “Fair Value Measurement”: IFRS 13 aims to improve consis-

tency and reduce complexity by providing a precise deﬁ nition of fair
value and a single source of fair value measurement and disclosure
requirements for the application of all International Financial Report-
ing Standards. The amendment aims to clarify how a fair value mea-
surement shall be performed. Various IFRSs contain guidance on the
valuation of speciﬁ c accounting issues or items. The Group is yet to
assess the full impact of IFRS 13 and intends to adopt IFRS 13 no later
than the accounting period beginning on or after 1 January 2013.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

• IAS 1 “Presentation of Financial Statements”: The main impact result-
ing from the amendments of IAS 1 is the requirement for the entities
to classify the items presented in “other comprehensive income” (OCI)
on the basis of whether they are potentially re-classiﬁ able to proﬁ t or
loss at a later point in time (reclassiﬁ cation adjustments). The amend-
ments do not address which items are presented in OCI. The presen-
tation of components of OCI, which are re-classiﬁ ed to proﬁ t and loss
in later periods, and components of OCI, which are not re-classiﬁ ed,
shall be done separately from now on. Income taxes in case of a pre-
tax presentation shall be treated accordingly. Income taxes shall be
presented separately as re-classiﬁ able and non re-classiﬁ able items.
The option to present OCI items before or after tax will remain. The
amendments of IAS 1 have to be implemented for accounting periods
beginning on or after 1 July 2012. The Group is yet to assess the full
impact of these amendments and intends to adopt IAS 1 no later than
the accounting period beginning on or after 1 July 2012.

• IAS 12 „Income Tax“: A company is obliged (with few exceptions) to

account for deferred tax liabilities/assets to the extent that the recov-
ery of the carrying amount of the asset or the liability would result
in higher/lower tax payments in the future. The amendment oﬀ ers a
practical solution for the question whether the carrying amount of
an asset is recovered by way of usage or disposal. It is a rebuttable
presumption that the recovery of the carrying amount usually hap-
pens by way of disposal. The Group is yet to assess the full impact of
IAS 12 and intends to adopt IAS 12 no later than the accounting pe-
riod beginning on or after 1 January 2013.

• IAS 19 “Employee Beneﬁ ts”: The most signiﬁ cant amendment of IAS 19
is the direct recognition of unexpected future changes of pension
obligations as well as eventual changes in plan assets, so-called actu-
arial gains or losses, in other comprehensive income (OCI). The pre-
vious choice between a direct recognition in proﬁ t and loss, in other
comprehensive income (OCI), or the time-delayed recognition in
accordance with the so-called corridor method, are abolished. The
Group is yet to assess the full impact of IAS 19 and intends to adopt
IAS 19 no later than the accounting period beginning on or after 1 Jan-
uary 2013.

• IAS 27 „Separate Financial Statements“: IAS 27 (revised 2011) com-
prises all guidelines applying to separate ﬁ nancial statements,
which remained after having included the consolidation guidance in
IFRS 10 “Consolidated Financial Statements” which was previously
contained in IAS 27. Amendments to IFRS 12 also have an impact on
IAS 27. The Group is yet to assess the full impact of IAS 27 and in-
tends to adopt IAS 27 no later than the accounting period beginning
on or after 1 January 2014.

• IAS 28 “Investments in Associates”: IAS 28 (revised 2011) includes
the guidance for the share in joint ventures as well as associates,
which are measured by using the equity method in accordance with
IFRS 11. In future periods, joint ventures have to be accounted for
by using the equity method in accordance with IAS 28, because the

proportionate consolidation of jointly operated companies in IFRS 11
was abandoned. Additional amendments to IAS 28 ensure that - in
case of planned partial sales of an associate or a joint venture - the
respective disposal group has to be presented in accordance with
IFRS 5 “Non-current Assets held for Sale and Discontinued Opera-
tions”, provided that the classiﬁ cation requirements of IFRS 5 are
met. The Group is yet to assess the full impact of IAS 28 and intends
to adopt IAS 28 no later than the accounting period beginning on or
after 1 January 2014.

• IAS 32 “Financial Instruments – Presentation”: IAS 32 deals with the
presentation and disclosure of all types of ﬁ nancial instruments.
Additional disclosure requirements implemented in IFRS 7will come
into eﬀ ect in order to facilitate a comparison with US standards.
The established netting model will remain in place. The amendment
aﬀ ects the two requirements of IAS 32.42 regarding a netting:
– For netting a ﬁ nancial asset and a ﬁ nancial liability, the right to
oﬀ set shall not depend on future events and shall remain in place
even in the event of insolvency and bankruptcy of the business
partner.

– In the event that transactions with ﬁ nancial instruments are han-
dled via settlement systems (e. g. a clearing house), the netting of
ﬁ nancial assets and ﬁ nancial liabilities requires that the transac-
tion takes place without the occurrence of any credit and liquidity
risks and within the same settlement process or settlement cycle.
The amendments to IAS 32 have to be applied retrospectively, that is
by adjusting the comparative ﬁ gures for ﬁ nancial years beginning
on or after 1 January 2014. The Group is yet to assess the full impact
of these amendments and intends to adopt IAS 32 no later than the
accounting period beginning on or after 1 January 2014.

• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”:
It is expected that the amendments have to be applied to ﬁ nancial
years beginning on or after 1 January 2013. The interpretation deals
with the recognition and valuation of stripping costs incurred during
the production phase of a surface mine. After examination of IFRIC 20,
the Group does not expect that the amendments will have any im-
pact on the Group.

NE W AND AME NDE D STANDARDS DISCLOSE D BUT NOT YE T E ND ORSE D

BY THE EUROPE AN UNION (“ E ND ORSE ME NT ”)
• Amendments to IFRS 1 “First-time Adoption” - government grants:
It is expected that the amendments have to be applied to ﬁ nancial
years beginning on or after 1 January 2013. The Group is yet to as-
sess the full impact of IFRS 1.

• IFRS 9 “Financial Instruments”, amendments to IFRS 9 “Financial
Instruments” and IFRS 7 “Financial Instruments: Disclosures” -
mandatory eﬀ ective date and transition disclosures: It is expected
that the amendments have to be applied to ﬁ nancial years begin-
ning on or after 1 January 2015. The Group is yet to assess the full
impact of IFRS 9 and the impact of the amendments.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

• Amendments to transitional provisions relating to IFRS 10 “Consoli-
dated Financial Statements”, IFRS 11 “Joint Arrangements”, and
IFRS 12 “Disclosure of Interests in Other Entities”: It is expected that
the amendments have to be applied to ﬁ nancial years beginning on
or after 1 January 2013. The Group is yet to assess the full impact of
the amendments.

IN T ERE S T

2.6
The Group uses interest rates to calculate fair values. For stock-based
compensation calculation, MorphoSys uses for convertible bonds the
interest rate of a German government bond with a duration of ﬁ ve
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.

• Amendments to transitional provisions relating to IFRS 10 “Consoli-
dated Financial Statements”, IFRS 12 “Disclosure of Interests in
Other Entities” and IAS 27 “Consolidated and Separate Financial
Statements” – investment entities: It is expected that the amend-
ments have to be applied to ﬁ nancial years beginning on or after
1 January 2014. The Group is yet to assess the full impact of the
amendments.

• Annual improvements of the International Financial Accounting
Standards (May 2012): It is expected that the amendments have to
be applied to ﬁ nancial years beginning on or after 1 January 2013.
The Group is yet to assess the full impact of the amendments.

2.3 BASI S OF CONS OL IDAT ION
Intercompany balances and transactions and any realized gains aris-
ing from intercompany transactions are eliminated for preparing the
consolidated ﬁ nancial statements in accordance with IAS 27.20. Unre-
alized losses are eliminated in the same way as unrealized gains, but
are considered to be an impairment indicator of the assets transferred.
Accounting policies have been applied consistently for all subsidiaries.

2.4 BUSINE SS COMBINAT IONS
The Group applies IFRS 3 (revised) “Business Combinations” (eﬀ ective
from 1 July 2009). The revised standard continues to apply the acquisi-
tion method to business combinations, with some signiﬁ cant changes.
For example, all payments in connection with purchasing a business are
to be recorded at fair value at the acquisition date, with contingent
payments classiﬁ ed as debt subsequently re-measured through the
income statement. All acquisition-related costs are expensed.

F OREIGN CURRENC Y T RANSL AT ION

2.5
IAS 21 “The Eﬀ ects of Changes in Foreign Exchange Rates” deﬁ nes the
accounting for transactions and balances in foreign currencies. Trans-
actions in foreign currencies are translated at the foreign exchange rate
as of the date of the transaction. Foreign exchange rate diﬀ erences
arising on these translations are recognized in the income statement.
On the balance sheet date, assets and liabilities are translated at the
closing rate, and income and expenses are translated at the average ex-
change 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 translated at the closing rate. Any foreign
exchange rate diﬀ erences deriving from these translations are recorded
in proﬁ t and loss. All foreign exchange rate diﬀ erences deriving from
these translations are recorded in the Consolidated Income Statement.
Any further foreign exchange rate diﬀ erences on Group level are recog-
nized in the translation reserve (equity).

2.7 REVENUE RECO GNI T ION
The Group’s revenues include license and milestone fees, service fees
and revenue for the sale of goods.

LICE NSE AND MILESTONE FE ES
Revenues related to non-refundable technology access fees, subscrip-
tion fees and license fees are deferred and recognized on a straight-
line basis over the relevant periods of the agreement, generally the re-
search term or the estimated useful life of the collaborations for those
contracts without a stimulated 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 contractual criteria.

SE RVICE FE ES
Research and development collaboration service fees are recognized in
the period when the services are provided.

SALE OF GO ODS
Revenue from the sale of goods in the AbD Serotec segment is mea-
sured at the fair value of the consideration received or receivable, net of
returns, trade discounts and volume rebates. Revenue is recognized
when persuasive evidence exists, usually in the form of an executed
sales agreement, that the signiﬁ cant risks and rewards of ownership
have been transferred to the customer, recovery of the consideration is
probable, the associated costs and possible return of goods can be esti-
mated reliably, there is no continuing managerial involvement with the
goods, and the amount of revenue can be measured reliably.

If it is probable the discounts will be granted and the amount can be
reliably determined, then the discount is recognized as a reduction
of revenue as the sales are recognized. 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 and 18.25, the total consideration in multi-
ple-element transactions will be allocated among the separately identi-
ﬁ able components based on their respective fair values and application
of IAS 18.20, and the applicable revenue recognition criteria will be
considered separately for each of the separate components in order to
reﬂ ect the transaction’s substance.

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

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

2.8

EXPENSE S

C OST OF GO ODS SOLD
Cost of goods sold comprises the cost of manufactured products and
the acquisition cost of purchased goods which have been sold. Cost of
goods sold are derived from the discontinued operations of the segment
AbD Serotec.

Deferred tax is calculated using the balance sheet liability method,
resulting in temporary diﬀ erences between the carrying amounts of
assets and liabilities and the amounts used for taxation purposes. The
amount of deferred tax 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.

S TO C K- BASE D C OMPE NSATION
The Group applies the provisions of IFRS 2 “Share-based Payment”
which obligates the Group 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.

Deferred tax assets and liabilities are oﬀ set if there is a legally enforce-
able right to oﬀ set current tax liabilities and assets and if they relate
to income taxes imposed by the same tax authority on the same taxable
entity or on diﬀ erent tax entities that intend to settle current tax liabil-
ities and assets on a net basis or their tax assets and liabilities will be
realized simultaneously.

OPE R ATING LE ASE PAYME NTS
Payments made under operating leases are recognized in the income
statement 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 beneﬁ t of incentives is recog-
nized as a reduction of rental expense over the lease term on a straight-
line basis.

2.9 G OVERNMEN T GRAN T S
Grants from governmental agencies for the support of speciﬁ c research
and development projects for which cash has been received are re-
corded within the item line “Other Income” in proﬁ t or loss on a sys-
tematic 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 Group.

2.10 IN T ERE S T INCOME
Interest income is recognized in ‘Finance Income’ in the income state-
ment as it occurs, taking into account the eﬀ ective yield of the asset.

2.11 IN T ERE S T EXPENSE
Borrowing costs are expensed when incurred and are included in
‘Finance Expenses’ in the income statement.

2.12 INCOME TAXE S
Income tax comprises current and deferred tax. Income tax is recog-
nized in the income statement unless it relates to items recognized
directly 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.

A deferred tax asset is recognized only to the extent it is likely that
future taxable proﬁ ts 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 beneﬁ t will be realized.

2.13 EARNINGS PER SHARE
The Group presents basic and diluted earnings per share (EPS) data
for its ordinary shares. Basic EPS is calculated by dividing the proﬁ t or
loss attributable 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 proﬁ t or loss at-
tributable to ordinary shareholders and the weighted average number
of ordinary shares outstanding for the eﬀ ects of all dilutive potential
ordinary shares, which comprise convertible notes and share options
granted to management and employees.

2.14 C A SH AND C A SH EQUIVAL EN T S
The Group considers all cash at bank and on hand as well as short-term
deposits with an original maturity of three months or less to be cash
or cash equivalents. The Group invests most of its cash in deposits with
three major German ﬁ nancial institutions, namely, Commerzbank,
Hypo Vereinsbank and Deutsche Bank.

Guarantees granted for rent deposits and commitments for convertible
bonds issued to employees have been classiﬁ ed in other assets as re-
stricted cash as they are not available for use in the Group’s operations.

2.15 DERIVAT IVE F INANC IAL INS T RUMEN T S
The Group uses derivative ﬁ nancial instruments to hedge its exposure
to foreign exchange rate risks. In accordance with IAS 39.9, all derivative
ﬁ nancial instruments are held for trading and are recognized initially
at fair value. Subsequent to initial recognition, derivative ﬁ nancial in-
struments 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
income statement. According to the Group’s foreign currency hedging
policy, future cash ﬂ ows with a high probability and receivables which
are deﬁ nite and collectible within a twelve-month period will be hedged.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

2.16 NON-DERIVAT IVE F INANC IAL INS T RUMEN T S
All non-derivative ﬁ nancial instruments are initially recognized at
fair value, being the fair value of the consideration given and including
acquisition charges.

The Group accounts for its investment in debt and equity securities in
accordance with IAS 39. Management determines the proper classiﬁ -
cation of ﬁ nancial assets at the time of purchase and re-evaluates such
designations as of each balance sheet date. The classiﬁ cation depends
on the purpose for which the ﬁ nancial assets were acquired. As of
31 December 2012, and as of 31 December 2011, some ﬁ nancial assets
held by the Group have been classiﬁ ed as available-for-sale. These ﬁ -
nancial assets are recognized or de-recognized by the Group on the
date it commits itself to purchase or sell the ﬁ nancial assets. After
initial recognition, available-for-sale ﬁ nancial assets are measured at
fair value, with any resulting gain or loss reported directly in the re-
valuation reserve within equity until the ﬁ nancial assets are sold, col-
lected or otherwise disposed of, or until the ﬁ nancial assets are deter-
mined to be impaired, at which time the cumulative loss is reported in
the income statement.

Guarantees granted for rent deposits have been collateralized with
available-for-sale ﬁ nancial assets and have been classiﬁ ed in other
assets as restricted cash as they are not available for use in the Group’s
operations.

MorphoSys acquired a share in the privately held, Dutch company,
Lanthio Pharma B.V., the Netherlands, located in Groningen in Novem-
ber 2012. The Group holds an interest of 19.98 % in the company’s
share capital as of the balance sheet date 31 December 2012. The inter-
est is measured at amortized cost and the ﬁ nancial instrument is
shown in the “available for sale” category.

ACCOUN T S RECEIVABL E AND O T HER RECEIVABL E S

2.17
Accounts receivable are measured at amortized cost less provision
for impairment, e.g. allowance for doubtful accounts (see accounting
policy 2.21*).
*C R O S S - R E F E R E N C E /// s e e pa g e 8 9

Other non-derivative ﬁ nancial instruments are measured at amortized
cost using the eﬀ ective interest method, less provision for impairment.
An interest-bearing bonded loan was granted in the ﬁ nancial year
2012. This ﬁ nancial instrument was assigned to the “loans and receiv-
ables” category.

2.18 INVEN T ORY
Inventories are stated on a ﬁ rst-in, ﬁ rst-out (FIFO) basis at the lower
value of manufacturing or acquisition costs and net realizable value.
Manufacturing costs of self-produced inventories comprise all costs
which are directly attributable and an appropriate portion of overheads.
Inventories can be classiﬁ ed into raw material/consumables, work in
progress and ﬁ nished goods.

2.19 PROPER T Y, PL AN T AND EQUIPMEN T
Property, plant and equipment is stated at historical cost less accumu-
lated depreciation (see also the Notes to the Consolidated Financial
Statements – section 14*) and impairment losses (see accounting policy
2.21*). Historical cost includes expenditure directly attributable to the
acquisition of the items. Replacements and improvements 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 (see table below). Leasehold improvements
are depreciated over the estimated useful lives of an asset using the
straight-line method.
*C R O S S - R E F E R E N C E /// s e e pa g e 1 0 1 a n d pa g e 8 9

Asset Class

Computer Hardware

Low-value Laboratory and Oﬃ ce Equipment
below € 150

Low-value Laboratory and Oﬃ ce Equipment
between € 150 and € 1,000
Permanent Improvements to Property/Buildings
Oﬃ ce Equipment
Laboratory Equipment

Useful Life

3 years

Immediately

5 years
10 years
8 years
4 years

The asset’s residual values and useful lives are reviewed, and adjusted
if appropriate, at the end of each reporting period.

2.20 IN TANGIBL E ASSE T S

RESE ARCH AND DE VE LOPME NT
Research costs are expensed as incurred. In general, development costs
are expensed as incurred (IAS 38.5 and IAS 38.11 – 38.23). Develop-
ment costs are recognized as an intangible asset when the criteria of
IAS 38.21 (probability of expected future economic beneﬁ ts, reliability
of cost measurement) are met and if the entity can demonstrate the re-
quirements of IAS 38.57.

PATE NT C OSTS
Patents obtained by the Group stated at cost less accumulated amortiza-
tion (see below) and impairment losses (see accounting policy 2.21*).
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. Amortization commences when the patent is issued. Technology as
identiﬁ ed in the purchase price allocation for the acquisition of Sloning
BioTechnology GmbH is stated at the acquisition-date’s fair value less
accumulated amortization (useful life ten years).
*C R O S S - R E F E R E N C E /// s e e pa g e 8 9

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

LICE NSE RIGHTS
The Group acquired license rights by making upfront license payments,
paying annual maintenance fees and making sublicense payments
to third parties. The Group amortizes upfront license payments on a
straight-line basis over the estimated useful life of the acquired li-
cense (ten years). The amortization period and the amortization method
are reviewed at each balance sheet date (IAS 38.104). Annual mainte-
nance fees are amortized over the term of each annual agreement. Sub-
license 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.

SOF T WARE
Software is stated at cost less accumulated amortization (see below)
and impairment losses (see accounting policy 2.21*). Amortization is
charged to the income statement on a straight-line basis over the esti-
mated useful life of three to ﬁ ve years. Software is amortized from the
date it is ready to operate.
*C R O S S - R E F E R E N C E /// s e e pa g e 8 9

WE B SITE
Costs related to website development completed during the year 2012
are stated at cost less accumulated amortization and are shown within
discontinued operations. Amortization is recognized on a straight-line
basis over the estimated useful life of four years and is accounted for
as expense in the income statement. Amortization begins at the date
when the intangible asset is ready to operate.

KNOW - HOW AND CUSTOME R LISTS
MorphoSys established purchase price allocations (PPA) as required
by IFRS 3 “Business Combinations”. Intangible assets identiﬁ ed consist
of technology (useful life ten years), customer lists (useful life six to
ten years), know-how (useful life eight to ten years), customer relation-
ships (useful life ten years) as well as distributor networks (useful life
ten years) and are stated at acquisition-date fair value less accumulated
amortization.

INTANGIBLE AS SE TS UNDE R DE VE LOPME NT
This item contains an upfront payment from the in-licensing of a com-
pound for the segment Proprietary Development. The asset is stated at
cost and not yet available for use and therefore not subject to amortiza-
tion. As of 31 December 2012, the asset has been tested for impairment
as required by IAS 36.

GOODWILL
The goodwill recognized is partly attributable to expected synergies to
be achieved and to the skills of the acquired workforce. Goodwill is
tested annually for impairment as required by IAS 36 (see also the Notes
to the Consolidated Financial Statements – section 18*).
*C R O S S - R E F E R E N C E /// s e e pa g e 1 0 5

SUB SEQUE NT E XPE NDITURE
Subsequent expenditure on capitalized intangible assets is only capi-
talized when it substantially increases the future economic beneﬁ ts
embodied in the speciﬁ c asset to which it relates. All other expenditure
is expensed as incurred.

2.21 IMP AIRMEN T

NON - DE RIVATIVE FINANCIAL AS SE TS
A ﬁ nancial asset not carried at fair value through proﬁ t or loss is as-
sessed at each reporting date to determine whether there is objective
evidence that it is impaired. A ﬁ nancial asset is impaired if objective
evidence indicates that a loss event has occurred after the initial recog-
nition of the asset, and that the loss event had a negative eﬀ ect on the
estimated future cash ﬂ ows of that asset that can be estimated reliably.

Objective evidence that ﬁ nancial assets (including equity securities)
are impaired can include default or delinquency by a debtor, indica-
tions that a debtor or issuer will enter bankruptcy, adverse changes in
the payment status of borrowers or issuers in the Group, economic
conditions that correlate with defaults or the disappearance of an active
market for a security. In addition a signiﬁ cant or prolonged decline
in an equity security’s fair value below its cost is objective evidence of
impairment.

RECE IVABLES
The Group considers evidence of impairment for receivables for both
individual and collective assets. All individually signiﬁ cant receiv-
ables are assessed for speciﬁ c impairment. All individually signiﬁ cant
receivables found not to be speciﬁ cally impaired are then collectively
assessed for any impairment that has been incurred but not yet identi-
ﬁ ed. Receivables that are not individually signiﬁ cant 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 in the amount of
loss incurred, adjusted for management’s judgment as to whether cur-
rent economic and credit conditions are such that the actual losses are
likely to be greater or less than suggested by historical trends.

For a ﬁ nancial asset measured at amortized cost an impairment loss is
calculated as the diﬀ erence between its carrying amount and the pres-
ent value of the estimated future cash ﬂ ows discounted at the asset’s
original eﬀ ective interest rate. Losses are recognized in proﬁ t or loss
and reﬂ ected 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
proﬁ t or loss.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

AVAIL ABLE - FOR - SALE FINANCIAL AS SE TS
Impairment losses on available-for-sale ﬁ nancial assets are recognized
by reclassifying the losses accumulated in the fair value reserve in
equity, to proﬁ t or loss. The cumulative loss that is reclassiﬁ ed from
equity to proﬁ t or loss is the diﬀ erence between the acquisition cost,
net of amortization and any principal repayment, and the current fair
value, less any impairment loss recognized previously in proﬁ t or loss.
If, in a subsequent period, the fair value of an impaired available-for-sale
debt security increases and the increase can be related objectively to
an event occurring after the impairment loss was recognized in proﬁ t
or loss, then the impairment loss is reversed, with the amount of the
reversal recognized in proﬁ t or loss. However, any subsequent recovery
in the fair value of an impaired available-for-sale ﬁ nancial asset is
recognized in other comprehensive income.

NON - FINANCIAL AS SE TS
The carrying amounts of the Group’s non-ﬁ nancial 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 indeﬁ nite 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 generating 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 ﬂ ows are discounted to their present
value using a post-tax discount rate that reﬂ ects current market assess-
ments of the time value of money and the risks speciﬁ c to the asset or
CGU. For the purpose of impairment testing, assets that cannot be tested
individually are grouped into the smallest group of assets that gener-
ates cash inﬂ ows from continuing use that are largely independent of
the cash inﬂ ows of other assets or CGUs. Subject to an operating seg-
ment ceiling test, for the purposes of goodwill impairment testing, CGUs
to which goodwill has been allocated are aggregated so that the level
at which impairment testing is performed reﬂ ects 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 beneﬁ t from the synergies of the combination.

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

Impairment losses are recognized in proﬁ t or loss. A goodwill’s impair-
ment loss is not reversible. 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 impair-
ment 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 depreciation
or amortization, if no impairment loss had been recognized.

2.22 SHARE C API TAL
Ordinary shares are classiﬁ ed as equity. Incremental costs directly at-
tributable to the issue of ordinary shares and share options are recog-
nized as a deduction from equity, net of any tax eﬀ ects. When share cap-
ital recognized as equity is repurchased, the amount of consideration
paid, which includes directly attributable costs, is net of any tax eﬀ ects
and is recognized as a deduction from equity classiﬁ ed as treasury
shares. When treasury shares are subsequently sold or reissued, the
amount received is recognized as an increase in equity, and the result-
ing surplus or deﬁ cit on the transaction is transferred to/from retained
earnings.

2.23 T RADE AND O T HER P AYABL E S, PROVI SIONS
Trade and other payables are stated at amortized cost. Payables with re-
payment dates exceeding one year are discounted to their net present
values. Payables of uncertain timing or amount are shown as provisions.

2.24 CONVER T IBL E B OND S
The Group issued convertible bonds to the Management Board and to
employees of the Group. In accordance with IAS 32.28, the equity por-
tion of a bond has to be separated and presented as additional paid-in
capital. The equity component is assigned the residual amount after
deducting the amount separately determined for the liability component
from the fair value of the bond as a whole. The income-statement im-
pact of the equity component is accounted for as stock-based compensa-
tion whereas the income-statement impact of the liability component
is presented as interest expense. The Group applies the provisions of
IFRS 2 “Share-based Payment” for all convertible bonds granted to the
Management Board and the employees of the Group.

2.25 ASSE T S AND L IABIL I T IE S HEL D F OR SAL E
Disposal groups are classiﬁ ed as held for sale when it is expected that
the carrying amount of the disposal group will be recovered through
a sales transaction and a sale is regarded as highly probable. The dis-
posal group is measured at the lower of its carrying amount and the fair
value less costs to sell.

2.26 ACCOUN T ING E S T IMAT E S AND JUD GMEN T S
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by deﬁ nition, seldom equal the
related actual results. The estimates and assumptions that have a sig-
niﬁ cant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next ﬁ nancial year are addressed
below.

GOODWILL
The Group tests annually whether goodwill is subject to any impair-
ment, in accordance with the accounting policy stated in section 2.21.
The recoverable amounts of cash-generating units have been determined
based on value-in use calculations. These calculations require the use
of estimates (see also the Notes to the Consolidated Financial Statements
– section 18*).
*C R O S S - R E F E R E N C E /// s e e pa g e 1 0 5

The AbD Serotec segment was not tested for goodwill impairment in
the year ended 31 December 2012. During the year 2012, the segment
was classiﬁ ed as a “discontinued operation” due to an agreed upon
transaction between Bio-Rad and MorphoSys (see also the Notes to the
Consolidated Financial Statements – section 17*). In the previous year,
a sensitivity analysis was performed for the AbD Serotec segment with
diﬀ erent estimates and judgments.
*C R O S S - R E F E R E N C E /// s e e pa g e 1 0 4

A further sensitivity analysis was performed for the technology develop-
ment activities within the Partnered Discovery segment, which repre-
sent the cash-generating unit that also comprises the goodwill from the
acquisition of Sloning BioTechnology GmbH. An increase in the WACC
by 30 % or a decrease in future cash ﬂ ows by 30 % would not result in an
impairment of the cash-generating unit.

INC OME TA XES
The Group is subject to income taxes in numerous jurisdictions. Signiﬁ -
cant judgment is required in determining the worldwide provision for
income taxes. There are many transactions and calculations for which
the ultimate tax determination is uncertain.

As of 31 December 2012, deferred tax assets on tax loss carry-forwards
in the amount of € 2.0 million were recognized due to positive business
expectations at Sloning BioTechnology GmbH for the ﬁ nancial years
2013 to 2017. No deferred tax assets were reported for a portion of the
corporate tax loss carry-forwards in the amount of € 2.4 million and
trade tax loss carry-forwards in the amount of € 2.3 million as the us-
ability of these tax loss carry-forwards is deemed uncertain due to the
tax regulation in Germany (both section 8 para. 4 KStG and section
8c KStG). In the event that a portion of the total tax loss carry-forwards
may not be utilized as a result of a tax audit, the company will have to
pay more income taxes at an earlier point in time in future periods
because the total tax loss carry-forwards will be consumed earlier than
expected.

2.27 C API TAL MANAGEMEN T
Concerning capital management, the Management Board’s policy is to
maintain a strong and sustainable capital base in order to maintain
investor, creditor and market conﬁ dence and to support future devel-
opment of the business. Compared to the previous year, the equity
ratio increased slightly from 86.3 % to 90.1 % (see also table below). The
Group is currently not ﬁ nanced via ﬁ nancial debt.

At present, management and employees can participate in the Group’s
returns by way of long-term performance-related remuneration which
consists of convertible bonds and stock options pursuant to the respec-
tive incentive plans as resolved by the Annual General Meeting. In ad-
dition, MorphoSys established a long-term incentive program in June
2011. This program is based on the performance related issuance of
shares, so called ‘performance shares’, which are granted, when certain
predeﬁ ned success criteria are achieved (see also the Notes to the Con-
solidated Financial Statements – section 26*). A second long-term incen-
tive plan (LTI plan) was established in April 2012. This plan is a perfor-
mance related share plan and is paid in common shares of MorphoSys
AG, subject to achieving certain predeﬁ ned performance criteria that
must be approved annually by the Supervisory Board. There were no
changes in the Group’s approach to capital management during the year.
*C R O S S - R E F E R E N C E /// s e e pa g e 11 5

in 000’s €

31/12/2012

31/12/2011

Equity
In % of Total Capital
Debt
In % of Total Capital

TOTAL CAPITAL

202,010
90.1 %
22,279
9.9 %
224,289

197,136
86.3 %
31,275
13.7 %
228,410

3 Segment Reporting

The Group applies IFRS 8 “Operating Segments” (eﬀ ective from 1 Janu-
ary 2009). An operating segment is a component of an entity that en-
gages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the en-
tity’s chief operating decision maker and for which discrete ﬁ nancial
information is available.

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

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The Group consists of the following operating segments:

PAR TNE RE D DISC OVE RY
MorphoSys possesses one of the leading technologies for the generation
of human antibody therapeutics. The Group commercially exploits this
technology via partnerships with pharmaceutical and biotechnology
companies. All business activities related to these collaborations and
the major part of technology development are reﬂ ected in this segment.

PROPRIE TARY DE VE LOPME NT
This segment involves all activities relating to proprietary therapeutic
antibody development. Presently, this includes the Group’s three lead
compounds in its proprietary product portfolio, MOR103, MOR202 and
MOR208 as well as two further programs in the discovery phase. The
Group currently plans to out-license proprietary compounds after clini-
cal proof of concept.

ABD SE ROTEC
The AbD Serotec segment leverages MorphoSys’s core technological ca-
pabilities in the design and manufacture of antibodies for research and
diagnostic purposes. It commercializes the HuCAL technology, focusing
on the generation of bespoke research antibodies for its customers.
The AbD Serotec segment also generates sales from catalogue antibodies
and bulk/industrial production of antibodies.

For the Twelve-month Period Ended 31 December
(in 000’s €)

Partnered Discovery

2012

2011

Proprietary Development
2011

2012

AbD Serotec
2012

2011

External Revenues
Inter-segment Revenues

RE VENUES , TOTAL
Cost of Goods Sold
Other Operating Expenses
Inter-segment Costs

TOTAL OPER ATING E XPENSES
Other Income
Other Expenses

SEG MENT EBIT
Finance Income
Finance Expenses
Income Tax Income/(Expenses)

NE T PROFIT/(LOS S)
Current Assets
Non-current Assets

TOTAL SEG MENT AS SE TS*
Current Liabilities
Non-current Liabilities
Stockholders' Equity

TOTAL SEG MENT LIAB ILITIES AND EQUIT Y
Capital Expenditure
Depreciation and Amortization

44,667
0
44,667
0
21,738
43
21,781
131
0
23,017
0
0
0
23,017
20,707
21,621
42,328
3,554
5,915
0
9,469
794
3,534

79,319
0
79,319
0
23,427
256
23,683
59
0
55,695
0
0
0
55,695
18,054
23,061
41,115
4,937
6,047
0
10,984
1,202
3,197

6,988
0
6,988
0
18,127
0
18,127
187
0
(10,952)
0
0
0
(10,952)
704
14,519
15,223
3,779
0
0
3,779
614
1,106

2,398
0
2,398
0
34,975
25
35,000
407
0
(32,195)
0
0
0
(32,195)
1,460
16,672
18,132
8,100
0
0
8,100
1,009
1,750

17,952
43
17,995
6,238
11,333
0
17,571
4
157
271
0
0
0
271
11,908
31,029
42,937
3,380
407
0
3,787
542
1,183

19,060
281
19,341
7,024
11,356
0
18,380
(57)
39
865
0
0
0
865
11,747
30,841
42,588
3,896
543
0
4,439
787
1,247

* The variance in the amount of € 40.9 million between total assets of the reported segments and the balance sheet’s total is due to the ‘Assets of Disposal Group Classiﬁ ed as

Held for Sale’. See also note 17 of these Notes.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

further subsidiary of Bio-Rad Laboratories Inc. agreed at 16 December
2012 upon the takeover of individual assets (trademarks) of the AbD
Serotec segment and the purchase of a non-exclusive license for the
use of the HuCAL technology in the market for research reagents and
diagnostics. After the takeover of the shares in MorphoSys UK by the
subsidiary of Bio-Rad Inc., it was agreed on 16 December 2012, that
all assets and liabilities attributed to the AbD-Serotec segment of
MorphoSys AG shall be transferred to MorphoSys AbD GmbH. Bio-Rad
Inc., Bio-Rad Inc.’s subsidiaries including MorphoSys AbD GmbH are
hereinafter referred to as „acquirer“ or „Bio-Rad“, respectively. The
shares of MorphoSys AG in Poole Real Estate Ltd., Poole, GB, were not
sold. The completion of the transaction depended on the fulﬁ llment of
certain conditions. Substantially all of the AbD Serotec segment was
transferred at the closing date (10 January 2013) due to the fulﬁ llment
of the previously deﬁ ned obligations. Hence, at 31 December 2012, sub-
stantially all of the AbD Serotec segment was classiﬁ ed as discontinued

operation in accordance with IFRS 5, hereinafter referred to as “discon-
tinued operation”. The operating segments Partnered Discovery and
Proprietary Development as well as the non-discontinued operations of
the AbD Serotec segment qualiﬁ ed as “continued operations” as of
the balance sheet date. The presentation of the net assets, the ﬁ nancial
position and the results of operations of MorphoSys Group follows the
basic concept of IFRS 5 in this respect.

E NTIT Y- WIDE DISCLOSURE
In presenting entity-wide disclosures, segment revenues are based
on the geographical location of the customers and segment assets on
the geographical location of the assets.

Unallocated
2012

2011

2012

Elimination

Group

0
0
0
0
10,412
0
10,412
98
85
(10,399)
670
196
(469)
(10,394)
120,394
3,406
123,800
4,530
713
202,010
207,253
357
487

0
0
0
0
12,303
0
12,303
67
2,007
(14,243)
1,460
151
(3,214)
(16,148)
123,431
3,144
126,575
6,818
934
197,135
204,887
646
483

0
(43)
(43)
0
0
(43)
(43)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

2011

0
(281)
(281)
0
0
(281)
(281)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

2012

2011

69,607
0
69,607
6,238
61,610
0
67,848
420
242
1,937
670
196
(469)
1,942
153,713
70,575
224,288
15,243
7,035
202,010
224,288
2,307
6,310

100,777
0
100,777
7,024
82,061
0
89,085
476
2,046
10,122
1,460
151
(3,214)
8,217
154,692
73,718
228,410
23,751
7,524
197,135
228,410
3,644
6,677

thereof from
Discontinued Operations**
2011

2012

thereof from
Continuing Operations

2012

2011

17,690
0
17,690
6,238
11,855
0
18,093
4
157
(556)
11
97
217
(424)
10,855
30,001
40,855
3,325
407
0
3,733
542
1,060

18,700
0
18,700
7,024
11,252
0
18,276
(57)
39
327
7
97
(223)
14
0
0
0
0
0
0
0
787
1,127

51,917
0
51,917
0
49,755
0
49,755
416
85
2,493
659
99
(686)
2,366
142,858
40,574
183,433
11,918
6,628
202,010
220,556
1,765
5,250

82,077
0
82,077
0
70,809
0
70,809
533
2,007
9,795
1,453
54
(2,991)
8,203
154,692
73,718
228,410
23,751
7,524
197,135
228,410
2,857
5,550

** Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, items in connection with the transaction
are shown in the column ‘thereof from Discontinued Operations’ for the years 2012 and 2011. The columns Partnered Discovery, Proprietary Development, AbD Serotec, Unallocated,
Elimination and Group comprise the ﬁ gures for the entire segment or the Group totals. See also note 17 of these Notes.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

A segment result is deﬁ ned as segment revenues less operating seg-
ment expenses. As a compensation for therapeutic revenues generated
from contracts that had originally been initiated by the AbD Serotec
segment, the Partnered Discovery segment granted a compensatory fee
of € 0.04 million (2011: € 0.3 million) to the AbD Serotec segment for
2012 as a result of the revenue-sharing agreement established between
the two segments € 0.3 million). In 2011, revenues in the AbD Serotec
segment also comprised minor intersegment revenues with the Propri-
etary Development segment from the sale of antibodies. In 2012, an
impairment loss of € 0.2 million was recognized in the segment Propri-
etary Development (2011: impairment loss of € 0.2 million).

The Group’s major customers are all related to the Partnered Discovery
segment. The most signiﬁ cant customer accounts for € 8.3 million of
the trade receivables’ carrying amount at 31 December 2012 (31 De-
cember 2011: € 8.9 million). Three of the Group’s customers individu-
ally accounted for € 47.3 million, € 1.7 million, and € 1.5 million of the
total revenues in the year 2012 and were mainly attributed to the Part-
nered Discovery segment. In 2011, three of the Group’s customers indi-
vidually accounted for € 72.8 million, € 2.2 million, and € 2.1 million
of the total revenues and were mainly attributed to the Partnered Dis-
covery segment.

In 2012, other operating expenses in “unallocated” mainly included
personnel-related costs (2012: € 6.1 million, 2011: € 6.9 million ), costs
for external services (2012: € 2.2 million, 2011: € 3,1 million) and in-
frastructure costs (2012: € 1.2 million, 2011: € 1.2 million). Current as-
sets in “unallocated” mainly consisted of cash, cash equivalents and
available-for-sale ﬁ nancial assets (31 December 2012: € 107.9 million,
31 December 2011: € 121.0 million). Current liabilities in “unallocated”
mainly comprised accounts payable and accrued expenses (31 Decem-
ber 2012: € 4.3 million, 31 December 2011: € 4.5 million) as well
as provisions (31 December 2012: € 0.2 million, 31 December 2011:
€ 2.3 million).

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

in 000’s €

Germany
Europe and Asia
USA and Canada
Other

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

2012

0
49,203
2,714
0

51,917

17,690
69,607

2011

1,000
76,442
4,635
0

82,077

18,700
100,777

In 2012, total revenue included approx. 1 % revenue derived from Asia
(2011: approx. 3 %).

The following table shows the split of the Group’s non-current assets,
excluding deferred tax assets, by geographical segment:

in 000’s €

Germany
UK
USA

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

31/12/2012

31/12/2011

40,574
0
0

40,574

29,884
70,458

71,904
127
1,522

73,553

0
73,553

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

in 000’s €

Germany
UK
USA

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

4 Revenues

2012

1,765
0
0

1,765

542
2,307

2011

2,857
0
0

2,857

787
3,644

In 2012, the revenues from continuing operations included revenues
from license and milestones fees in the amount of € 25.0 million
(2011: € 59.0 million), to which the Partnered Discovery segment and
the continuing operations of the AbD Serotec segment contributed
€ 24.8 million (2011: € 58.7 million) and € 0.3 million (2011: € 0.6 mil-
lion) respectively.

Revenues from continuing operations from service fees in the amount
of € 26.9 million (2011: € 23.0 million) included € 19.9 million from the
Partnered Discovery segment (2011: € 20.6 million) and € 7.0 million
from the Proprietary Development segment (2011: € 2.4 million). The rev-
enues of the Proprietary Development segment contain a one-oﬀ pay-
ment from Novartis.

Revenue relating to the discontinued operations within the AbD Serotec
segment amounted to € 17.7 million (2011: € 18.7 million).

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

5 Personnel Expenses

Other Income and Expenses,
Finance Income and Expenses

in 000’s €

Wages and Salaries
Social Security Contributions

Stock-based Compensation
Expense
Temporary Staﬀ (External)
Other

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

2012

20,159
3,226

1,291
424
284

2011

22,214
3,384

1,464
228
1,830

25,384

29,119

7,902
33,286

7,695
36,814

In 2012, other personnel expenses included mostly costs for recruit-
ment. In 2011, other personnel expenses included mostly costs for
recruitment and severance charges.

The average number of employees during the year ended 31 December
2012 was 422 (31 December 2011: 461). Of the 421 employees as of
31 December 2012, 278 worked in research and development (31 De-
cember 2011: 301) and 143 (31 December 2011: 145) in sales, general
and administration. As of 31 December 2012, 184 employees worked
in the Partnered Discovery segment, 54 in the Proprietary Develop-
ment segment and 135 in the AbD Serotec segment; 48 were unallo-
cated (31 December 2011: 207 in the Partnered Discovery segment,
67 in the Proprietary Development segment and 140 in the AbD Sero-
tec segment; 40 were unallocated). The expenses for deﬁ ned contribu-
tion plans amounted to € 0.3 million in 2012 (31 December 2011:
€ 0.3 million).

Other income and expenses and ﬁ nance income and expenses include
the following items:

in 000’s €

2012

Grant Income
Gain on Exchange
Miscellaneous Income
Other Income
Loss on Exchange*
Miscellaneous Expenses
Other Expenses
Gain on Marketable Securities
Interest Income
Gain on Derivatives
Finance Income
Interest Expenses
Loss on Derivatives
Bank Fees
Finance Expenses

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

277
94
45
416
(66)
(19)
(85)
481
178
0
659
(8)
(41)
(50)
(99)

891

(239)
652

2011

466
59
9
534
(2,010)
2
(2,008)
1,086
347
21
1,454
(27)
0
(27)
(54)

(74)

(187)
(261)

* The decrease in losses on exchange in 2012 from € 2.0 million to € 0.1 million is mainly
a result of the foreign exchange rate ﬂ uctuation between invoice date and the date a
one-time technology milestone payment by Novartis has been received in the ﬁ rst quar-
ter of 2011.

Due to the agreement between Bio-Rad and MorphoSys to acquire
substantially all of the segment AbD Serotec, the Group’s workforce
will be reduced by 135 employees in 2013.

7 Income Taxes

MorphoSys AG 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 corpo-
ration tax rate remained constant at 15 %; the same applies to the solidar-
ity surcharge of 5.5 % and the eﬀ ective trade tax rate of 10.5 %. With
regard to aﬃ liated companies in foreign countries, income tax rates of
24 % in the UK (2011: 26.5 %) and 37 % (2011: 36.9 %) in the USA.

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The income tax for the continuing operations for the past ﬁ scal year is
composed as follows:

MorphoSys AG has been subject to tax audits for the ﬁ nancial years
2004 to 2007 and tax loss carry-forwards have been conﬁ rmed in their
recognized amount.

As of 31 December 2012, a deferred tax asset on tax loss carry-forwards
in the amount of € 2.0 million was recognized due to positive business
expectations at Sloning BioTechnology GmbH for the ﬁ nancial years
2013 to 2017. No deferred tax asset was reported for a portion of the
corporate tax loss carry-forwards in the amount of € 2.4 million and
trade tax loss carry-forwards in the amount of € 2.3 million as the
usability of these tax loss carry-forwards is deemed uncertain due to
the tax regulation in Germany (both sec. 8 para. 4 KStG and sec. 8c
KStG; see also Notes to the Consolidated Financial Statements – section
2.25*). The tax loss carry-forwards may be carried forward indeﬁ nitely
and in unlimited amounts. From 2004 onwards, German tax law re-
stricts the oﬀ setting 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 (Körper-
schaftsteuergesetz, KStG), taxes may be carried forward indeﬁ nitely.
*C R O S S - R E F E R E N C E /// s e e pa g e 9 0

in 000’s €

2012

2011

Current Tax Expense (Thereof
Regarding Prior Years:
Tax Income of k€ 12; 2011: k€ 0)
Deferred Tax Income

TOTAL INC OME TA X

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

(1,064)
378
(686)

(3,292)
301
(2,991)

(212)

(265)

Additionally, the discontinued operations recognized an income tax
income in the amount of € 0.2 million for the year 2012 and an income
tax expense of € 0.2 million for the year 2011.

The following table reconciles the expected income tax expense to the
actual income tax expense presented in the consolidated ﬁ nancial
statements. To calculate the statutory income tax expense in ﬁ scal year
2012, the combined income tax rate of 26.33 % (2011: 26.33 %) was ap-
plied to income before taxes. The tax rate applied in the reconciliation
statement includes corporate tax and solidarity surcharge, and amounts
to 15.83 % plus the eﬀ ective trade tax rate based on the multiplier rate
(“Hebesatz”) of 300 % for municipal trade tax, which amounts to 10.50 %.

in 000’s €

2012*

2011*

Proﬁ t Before Income Taxes
Expected Tax Rate
Expected Income Tax
Tax Eﬀ ects Resulting from:
Deferred Income Tax Arising from the Recognition of DTA on Previously Unrecognized DTA on Tax Loss Carry-forwards
Stock-based Compensation
Non-tax-deductible Items
Permanent diﬀ erences due to tax-exempts
Tax Rate Diﬀ erences
Release of DTL Arising from Temporary Diﬀ erences
Prior Year Taxes
Other Eﬀ ects
Actual Income Tax

3,051
26.33 %
(803)

317
(110)
(125)
0
(19)
49
12
(7)
(686)

11,195
26.33 %
(2,948)

389
(339)
(124)
125
(54)
0
0
(40)
(2,991)

* Tax rate reconciliation for the continuing operations

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

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

in 000's €, as of 31 December

DTA1 20123

DTA1 20114

DTL2 20123

DTL2 20114

Intangible Assets
Property, Plant and Equipment
Other Equipment, Furnitures, Fixtures
Inventory
Prepaid Expenses and Deferred Charges
Short-term Securities Investments
Other Accrual/Provisions
Trade Accounts Payable
Other Liabilities
Tax Losses

0
0
127
0
0
0
0
0
0
2,015
2,142

0
0
51
161
0
0
0
5
0
2,273
2,490

2,373
0
0
0
3
184
0
0
0
0
2,560

3,287
42
0
0
5
231
30
0
22
3
3,620

1 Deferred Tax Asset
2 Deferred Tax Liability
3 Composition of Deferred Tax Assets and Liabilities from Continuing Operations
4 Composition of Deferred Tax Assets and Liabilities for the Group

Deferred tax liabilities of € 0.2 million (previous year: € 0.3 million)
were recorded directly in stockholders’ equity. This amount relates
mainly to the revaluation of ﬁ nancial assets available-for-sale.

In 2012, deferred tax assets of € 2.1 million were oﬀ set against de-
ferred tax liabilities. Both deferred tax asset and deferred tax liability
relate to income taxes imposed by the same tax authority on the same
taxable entity.

As of 31 December 2012 and as of 31 December 2011, no deferred tax
liabilities were recognized on temporary diﬀ erences relating to an in-
vestment in a subsidiary, since the Group may determine whether the
liability will arise and is convinced that the liability will not arise in
the foreseeable future.

Earnings per Share

The calculation of basic earnings per share is based on the consoli-
dated net proﬁ t of € 1,942,145 for 2012 (2011: € 8,216,397) and on the
weighted-average number of ordinary shares outstanding for the rele-
vant years (2012: 23,004,894; 2011: 22.887.723).

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

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

SHARES IS SUED ON 1 JANUARY
Eﬀ ect of Treasury Shares Held
Repurchase of Treasury Stock
Eﬀ ect of Shares Issued in January
Eﬀ ect of Shares Issued in February
Eﬀ ect of Shares Issued in March
Eﬀ ect of Shares Issued in April
Eﬀ ect of Shares Issued in May
Eﬀ ect of Shares Issued in June
Eﬀ ect of Shares Issued in July
Eﬀ ect of Shares Issued in August
Eﬀ ect of Shares Issued in September
Eﬀ ect of Shares Issued in October
Eﬀ ect of Shares Issued in November
Eﬀ ect of Shares Issued in December

WEIGHTED - AVER AGE NUMBER OF SHARES OF COMMON STOCK

The diluted earnings per share are calculated by taking into account
the Group’s potential ordinary shares from stock options and convertible
bonds granted.

The following table shows the reconciliation of basic and diluted earn-
ings per share (in €, except for per share data):

Numerator
Proﬁ t for the Year from Continuing Operations
(Loss) / Proﬁ t for the Year from Discontinued Operations
Consolidated Net Proﬁ t
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
thereof from Continuing Operations
thereof from Discontinued Operations
Diluted
thereof from Continuing Operations
thereof from Discontinued Operations

2012

2011

23,112,167
(163,915)
(64,813)
15,731
19,313
3,579
45,087
0
16,860
447
336
14,495
3,341
620
1,645
23,004,894

22,890,252
(79,896)
(45,744)
32,510
10,266
2,408
20,741
40,639
2,286
6,194
0
0
470
7,461
136
22,887,723

2012

2011

2,366,263
(424,118)
1,942,145

23,004,894
204,132
51,334
23,260,360

0.08
0.10
(0.02)
0.08
0.10
(0.02)

8,202,087
14,310
8,216,397

22,887,723
229,907
8,528
23,126,158

0.36
0.36
0.00
0.36
0.35
0.00

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

9 Cash and Cash Equivalents

in 000’s €

31/12/2012

31/12/2011

Bank Balances and Cash in Hand
Term Deposits
Restricted Cash

Total from Continuing
Operations

Total from Discontinued
Operations
Cash and Cash Equivalents

40,690
984
(984)

40,690

5,281
45,971

54,596
980
(980)

54,596

0
54,596

The decline in cash and cash equivalents was mainly caused by grant-
ing an interest-bearing, transferable loan of € 10.0 million. A decrease of
€ 5.3 million in the cash balance resulted from the initial classiﬁ cation
of the discontinued operation under IFRS 5 in the AbD Serotec segment.

The restricted cash of € 1.0 million represents rent deposits and is un-
changed compared with the previous year.

10 Financial Assets

The ﬁ nancial assets available-for-sale composed as follows as of
31 December 2012 and 2011:

in 000's €

31 DECEMBER 2012
DB Money Cash
Restricted Cash

TOTAL
31 DECEMBER 2011
DB Money Cash
Restricted Cash

TOTAL

Maturity

Cost

Gross Unrealized Holding
Losses
Gains

Market Value

daily

79,345

daily

79,150

699

877

80,044
(322)
79,722

80,027
(258)
79,769

The Group’s gross unrealized holding gains of € 698,848 on 31 De-
cember 2012 and € 877,332 on 31 December 2011 respectively were
recorded as a separate entry in stockholders’ equity (revaluation re-
serve). In 2012 the Group recorded a proﬁ t in the income statement,
which had previously been reported in stockholders’ equity, of € 480,912
resulting from the disposal of ﬁ nancial assets (2011: € 1,085,911).

The restricted cash of € 0.3 million (2011: € 0.3 million) is related to
rent deposits paid.

For further details on accounting for ﬁ nancial assets, see the Notes
to the Consolidated Financial Statements – section 2.16.*
*C R O S S - R E F E R E N C E /// s e e pa g e 8 8

100

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Accounts Receivable

All accounts receivable are non-interest-bearing and generally have pay-
ment terms of 30 to 45 days. On 31 December 2012 and 2011, accounts
receivable included unbilled amounts of € 1,592,679 and € 1,856,827,
respectively. In some cases, the Group requires collateral from custom-
ers in the discontinued operations of the AbD Serotec segment in order
to avoid uncollectable accounts receivable. As of 31 December 2012, these
were not signiﬁ cant in terms of their amount.

Based on management’s estimate, a net loss of € 60,119 was recognized
in the income statement for doubtful receivables in 2012 (2011: Net loss
of € 3,243). This loss was attributed to the discontinued operations.

12 Other Receivables

In accordance with the Group’s hedging policy, expected cash ﬂ ows with
a high probability and deﬁ nite foreign-currency receivables, which
are collectable within a twelve-month period, are reviewed for the need
of a hedging. In 2003, MorphoSys started entering into foreign cur-
rency options and futures in order to hedge its foreign exchange risk
against U.S. dollar receivables. These derivatives are recorded as other
receivables with their fair values.

In the ﬁ rst quarter of 2012, MorphoSys AG granted a transferable, inter-
est-bearing and assignable loan with a nominal value of € 10.0 million.
Interest income of € 82,534 is recorded in the ﬁ nancial result. In accor-
dance with IAS 39, this ﬁ nancial instrument was attributed to the cat-
egory “Loans and Receivables”. The risks associated with the ﬁ nancial
instrument mainly arise from unfavorable trends for the reference
interest rate used for the interest calculation as well as from credit risks
associated with the borrower. In the business year 2012, there were
no indications for impairment.

As of 31 December 2012 and 2011, no option contracts were outstand-
ing. Therefore, no unrealized gains or losses were recognized in the
income statement in 2012 and in 2011. At the beginning of the year,
the Group entered into two option contracts reaching maturity during
the business year 2012. A realized loss of € 0.04 million (2011: loss of
€ 0.3 million) was recorded in ﬁ nance expenses.

Prepaid Expenses, Tax Receivables,
Other Current Assets and Inventories

Prepaid expenses essentially consisted of prepaid fees for sublicenses
amounting to € 0.1 million (31.12.2011: € 0.2 million) and other prepay-
ments amounting to € 1.3 million (31.12.2011: € 1.6 million) as of 31 De-
cember 2012. The discontinued operations comprised prepayments in
the amount of € 0.3 million as of 31 December 2012.

As of 31 December 2012, tax receivables amounted to € 0.1 million
(31.12.2011: € 0.2 million), and comprised mainly receivables in con-
nection with withholding tax on capital gains. Further tax receivables
in the amount of € 0.3 million were presented in discontinued opera-
tions as of 31 December 2012.

Inventories of the continuing operations amounted to € 0.8 million as
of 31 December 2012 and were stored at the German location in Mar-
tinsried. As of 31 December 2012, inventories consisted of raw materials,
merchandise, consumables and supplies in the amount of € 0.6 million
and unﬁ nished goods in the amount of € 0.2 million. As in the previous
year, there were no inventories carried at fair value less costs to sell.
Inventories of the discontinued operations amounted to € 2.8 million as
of 31 December 2012. An inventory reserve of € 3.2million was recorded
for the discontinued operations as of 31 December 2012. In 2012, raw
materials, merchandise, consumables and supplies as well as changes
in stock of unﬁ nished and ﬁ nished goods, that were recorded in cost of
goods sold of the discontinued operations, amounted to € 4.5 million
(31 December 2011: € 5.1 million).

As of 31 December 2011, inventories in the amount of € 3.3 million were
stored at the Group locations in Oxford, UK, and Raleigh, USA, as well
as at the German locations in Martinsried and Puchheim. As of 31 De-
cember 2011, inventories consisted of raw materials, merchandise,
consumables and supplies in the amount of € 1.9 million, unﬁ nished
goods in the amount of € 0.1 million and ﬁ nished goods in the amount
of € 1.3 million. The inventory reserve amounted to € 3.0 million as of
31 December 2011, and the movement to prior year’s inventory reserve
was included in cost of goods sold.

101

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

14 Property, Plant and Equipment

in 000’s €

Cost
1 JANUARY 2012
Additions
Disposals
Foreign Exchange Variance
Reclassiﬁ cation to Assets of Disposal Group Classiﬁ ed as Held for Sale
31 DECEMBER 2012

Accumulated Depreciation
1 JANUARY 2012
Depreciation Charge for the Year
Write-oﬀ s for the Year
Disposals
Foreign Exchange Variance
Reclassiﬁ cation to Assets of Disposal Group Classiﬁ ed as Held for Sale
31 DECEMBER 2012

Carrying Amount
1 JANUARY 2012
31 DECEMBER 2012

Cost
1 JANUARY 2011
Additions
Disposals
Foreign Exchange Variance
31 DECEMBER 2011

Accumulated Depreciation
1 JANUARY 2011
Depreciation Charge for the Year
Disposals
Foreign Exchange Variance
31 DECEMBER 2011

Carrying Amount
1 JANUARY 2011
31 DECEMBER 2011

Land and
Buildings

Ofﬁ ce and
Laboratory
Equipment

Furniture
and Fixtures

1,191
15
0
25
(1,231)
0

452
83
0
0
10
(545)
0

739
0

916
257
0
18
1,191

294
152
0
6
452

622
739

15,071
980
(420)
18
(3,213)
12,436

10,273
2,027
178
(418)
14
(2,589)
9,485

4,798
2,951

14,404
1,882
(1,235)
20
15,071

9,382
2,010
(1,122)
3
10,273

5,022
4,798

2,650
21
(51)
5
(733)
1,892

2,081
139
0
(51)
7
(525)
1,651

569
241

2,460
208
(28)
10
2,650

1,914
182
(21)
6
2,081

546
569

Totals

18,912
1,016
(471)
48
(5,177)
14,328

12,806
2,249
178
(469)
31
(3,659)
11,136

6,106
3,192

17,780
2,347
(1,263)
48
18,912

11,590
2,344
(1,143)
15
12,806

6,190
6,106

102

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

As of 31 December 2011, property in the amount € 785,027 in Poole,
UK, was classiﬁ ed as “held for sale” and, due to the revaluation of the
expected sales price, an impairment with insigniﬁ cant amount was
recorded. In March 2012, MorphoSys concluded the sale of its property
in Poole, UK, for € 0.8 million.

No borrowing costs were capitalized during the reporting period. No
restrictions on title and property, plant and equipment were pledged as
security for liabilities. The Group capitalized expenditure of an insig-
niﬁ cant amount for assets under construction. No signiﬁ cant contractual
commitments for the acquisition of the purchase 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
income statement:

in 000’s €

Research and Development

Research and Development
(Write-oﬀ )
Sales, General and
Administrative

Cost of Goods Sold

Total from Continuing
Operations

(Loss)/Proﬁ t for the Year from
Discontinued Operations

TOTAL

2012

1,344

178

385
0

1,907

530
2,437

2011

1,602

134
0

1,736

640
2,376

In 2012, an impairment of € 0.2 million was accounted for, mainly for
laboratory equipment that was no longer usable in the context of the
ﬁ nalization of clinical trial studies for the proprietary HuCAL antibody
program MOR103.

103

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

15 Intangible Assets

in 000's €

Patents

Licenses

Intangible
Assets under
Development

Know-How
and Customer
List

Software

Goodwill

Total

Cost
1 JANUARY 2012
Additions
Disposals
Foreign Exchange Variance

Reclassiﬁ cation to Assets of
Disposal Group Classiﬁ ed as
Held for Sale
31 DECEMBER 2012

Accumulated Amortization
1 JANUARY 2012

Amortization Charge for
the Year
Disposals
Foreign Exchange Variance

Reclassiﬁ cation to Assets of
Disposal Group Classiﬁ ed as
Held for Sale
31 DECEMBER 2012

Carrying Amount
1 JANUARY 2012
31 DECEMBER 2012

Cost
1 JANUARY 2011
Additions
Disposals
Foreign Exchange Variance
31 DECEMBER 2011

Accumulated Amortization
1 JANUARY 2011

Amortization Charge for
the Year
Write-oﬀ s for the Year
Disposals
Foreign Exchange Variance
31 DECEMBER 2011

Carrying Amount
1 JANUARY 2011
31 DECEMBER 2011

14,659
245
(2)
0

0
14,902

25,207
91
(3)
19

(904)
24,410

5,200

15,655

1,036
0
0

0
6,236

9,459
8,666

14,449
218
(8)
0
14,659

2,146
(1)
9

(528)
17,281

9,552
7,129

25,425
138
(371)
15
25,207

4,164

13,306

1,036
8
(8)
0
5,200

10,285
9,459

2,528
186
(371)
6
15,655

12,119
9,552

10,513
0
0
0

0
10,513

0
0
0

0
0

10,513
10,513

10,513
0
0
0
10,513

0
0
0
0
0

10,513
10,513

2,884
956
(17)
5

(478)
3,350

5,525
0
0
49

34,107
0
0
34

92,895
1,292
(22)
107

(5,574)
0

(26,788)
7,353

(33,744)
60,528

1,828

4,184

486
(16)
5

(304)
1,999

1,056
1,351

3,126
942
(1,189)
5
2,884

382
0
30

(4,596)
0

1,341
0

5,419
0
0
106
5,525

2,620

3,733

392
0
(1,188)
4
1,828

506
1,056

377
0
0
74
4,184

1,686
1,341

0
0
0

0
0

34,107
7,353

34,099
0
0
8
34,107

0
0
0
0
0

34,099
34,107

26,867

4,050
(17)
44

(5,428)
25,516

66,028
35,012

93,031
1,298
(1,568)
134
92,895

23,823

4,333
194
(1,567)
84
26,867

69,208
66,028

104

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

As of 31 December 2012, intangible assets under development, as
required by IAS 36, were subject to an impairment test. This test did
not result in any impairment.

Assets Held for Sale and Discontinued
Operations

The depreciation charge is included in the following line items of the
income statement:

in 000’s €

Research and Development

Research and Development
(Write-oﬀ )

Sales, General and
Administrative
Cost of Goods Sold

Total from Continuing
Operations

(Loss)/Proﬁ t for the Year from
Discontinued Operations

TOTAL

2012

3,262

141
115

3,518

530
4,048

2011

3,669

194

24
120

4,007

487
4,494

As of 31 December 2011, an impairment amounting to € 0.2 million
was recorded in the Proprietary Development segment for intangible
assets. The impairment in 2011 was connected to a program, which
was discontinued due to strategic reasons.

16 Other Assets

The Group classiﬁ ed speciﬁ c line items within other assets as restricted
cash, which is not available for operating purposes (see Notes to the
Consolidated Financial Statements – sections 9 and 10*). As of 31 De-
cember 2012 and 2011, the Group had at its disposal restricted cash
of € 1.3 million and € 1.2 million, respectively, for guarantees granted,
and € 73,607 and € 73,607, respectively, for convertible bonds issued
to employees.
*C R O S S - R E F E R E N C E /// s e e pa g e 9 9

As of 31 December 2011, the “Assets of Disposal Group Classiﬁ ed as
Held for Sale” comprised the commercial real estate owned by the sub-
sidiary Poole Real Estate Ltd., Poole, UK, with a carrying amount of
€ 785,027. In March 2012, MorphoSys completed the sale of this prop-
erty for € 0.8 million.

On 16 December 2012, an agreement was signed by MorphoSys and
Bio-Rad for a takeover of substantially all of the AbD Serotec segment
for research-related and diagnostic antibodies. The result from operat-
ing activities of the AbD Serotec segment is presented in the result from
discontinued operations in accordance with IFRS 5. The previous year’s
ﬁ gures in the income statement and in the segment report were adjusted
accordingly. As of the balance sheet date 31 December 2012, assets and
liabilities of the discontinued operation AbD Serotec were presented as
“Assets/Liabilities of Disposal Group Classiﬁ ed as Held for Sale”. The
sale of the AbD Serotec segment to an American acquirer was approved
by resolutions of the Management Board and the Supervisory Board
on 16 December 2012. The closing of the transaction took place on
10 Ja nuary 2013.

The following assets were reclassiﬁ ed within the balance sheet to
“Assets of Disposal Group Classiﬁ ed as Held for Sale” for the year 2012:

in 000’s €

31/12/2012

31/12/2011

Cash and Cash Equivalents
Accounts Receivable
Inventories, Net
Other Current Assets
Total Current Assets

Property, Plant and Equipment,
Net
Licenses, Net
Software, Net

Know-how and Customer Lists,
Net
Goodwill
Other Non-current Assets
Total Non-current Assets

Assets of Disposal Group
Classiﬁ ed as Held for Sale

5,281
1,703
2,769
1,101
10,855

1,519
376
174

978
26,788
166
30,001

40,855

0
0
0
0
0

785
0
0

0
0
0
785

785

105

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The following liabilities were reclassiﬁ ed within the balance sheet
to “Liabilities of Disposal Group Classiﬁ ed as Held for Sale” for the
year 2012:

in 000’s €

31/12/2012

31/12/2011

Accounts Payable and Accrued
Expenses

Current Portion of Deferred
Revenue
Other Current Liabilities
Total Current Liabilities
Deferred Tax Liability
Total Non-current Liabilities

Liabilities of Disposal Group
Classiﬁ ed as Held for Sale

2,424

435
466
3,325
407
407

3,733

The result of discontinued operations comprises the following:

in 000’s €

Revenues
Cost of Goods Sold
Research and Development

Sales, General and
Administrative
Total Operating Expenses
Other (Expenses)/Income

Earnings before Interest and
Taxes (EBIT)
Finance Income/(Expenses)
Proﬁ t before Taxes
Income Tax Income/(Expenses)

(Loss)/Proﬁ t for the Year from
Discontinued Operations

2012

17,690
6,238
1,845

10,010
18,093
(153)

(556)
(85)
(641)
217

(424)

0
0
0
0
0

2011

18,700
7,024
1,598

9,654
18,276
(96)

327
(90)
237
(223)

18 Goodwill

On 31 October 2012, goodwill in the amount of € 7.4 million resulting
from the acquisition of Sloning BioTechnology GmbH in 2010 was
tested for impairment as required by IAS 36. The recoverable amount
of the cash-generating unit (CGU), the technology development team
in the Partnered Discovery segment, was determined on the basis of
value-in-use calculations, whereby the calculated value in use ex-
ceeded the carrying amount of the cash-generating unit. In addition, a
detailed sensitivity analysis was carried out (see Notes to the Consoli-
dated Financial Statements – section 2.26*). The cash ﬂ ow forecasts
refer to a ten-year period since management assumes that commercial-
ization by means of licensing agreements, which include upfront pay-
ments, milestone payments, funded research and royalties, will pay oﬀ
fully over the medium to long term. For this reason, a planning period
of ten years is deemed appropriate for calculating the value in use. The
cash ﬂ ow forecasts are predominantly based on the key assumption
that the technology presently developed is very beneﬁ cial to existing
and to new clients, and will lead to a number of new agreements. The
values of the underlying key assumptions were determined by means
of both internal (past experience) and external (market intelligence)
sources of information. Based on the updated cash-ﬂ ow forecast for the
next ten years, the value in use was determined as follows: Beta factor
of 1.1, income tax rate of 26.33 %, a WACC of 8.26 % (2011: 8.89 %) and a
growth rate of 1 % of the perpetual annuity. The values assigned to
these assumptions correspond to the management’s estimate with re-
gard to future developments, and they are based on internal planning
scenarios and on external sources.
*C R O S S - R E F E R E N C E /// s e e pa g e 9 0

For the goodwill of the segment AbD Serotec, no impairment test was
performed by the end of the business year 2012. Substantially all of
the segment was classiﬁ ed as “discontinued operation” in the course of
the business year 2012 (see Notes to the Consolidated Financial State-
ments – section 17*) due to an agreed takeover between Bio-Rad and
MorphoSys. The agreed purchase price did not lead to any impairment.
In 2012, the goodwill of the discontinued operation is presented in the
balance sheet line item “Assets of Disposal Group Classiﬁ ed as Held
for Sale”.
*C R O S S - R E F E R E N C E /// s e e pa g e 1 0 4

In the previous year, an impairment test with a sensitivity analysis were
performed for the AbD Serotec segment by using several assumptions
and variables.

106

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Accounts Payable and Accrued
Expenditure

The trade accounts payable are non-interest-bearing and, under normal
circumstances, have payment terms of no more than 30 days.

The trade accounts payable are listed in the following table:

in 000’s €

31/12/2012

31/12/2011

Trade Accounts Payable
Licenses Payable
Accrued Expenses
Other Liabilities

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

738
170
9,232
520

10,660

2,425
13,085

1,057
397
17,069
588

19,111

0
19,111

laboratory services of € 2.9 million (31 December 2011: € 6.6 million),
royalties of € 1.1 million (31 December 2011: € 2.4 million), audit
fees and other audit-related costs of € 0.1 million (31 December 2011:
€ 0.1 million) and € 0.4 million for legal advice (31 December 2011:
€≈0.2 million). The discontinued operations comprised accrued ex-
penses in the amount of € 1.6 million for the year 2012.

At the Annual General Meeting of the Company in May 2012, the Su-
pervisory Board was authorized to appoint PricewaterhouseCoopers
AG Wirtschaftsprüfungsgesellschaft (PwC AG), Munich, as auditor.

PwC AG and its partner corporations within the global network received
compensation from MorphoSys in the business year 2012 of € 341,677
(thereof PwC AG: € 268,214), including audit fees of € 256,949 (thereof
PwC AG: € 205,171), audit-related fees of € 47,848 (thereof PwC AG:
€ 26,163) as well as fees for other services of € 36,880 (thereof PwC AG:
€ 36,880).

Provisions and Tax Liabilities

As of 31 December 2012, the Group recorded provisions and tax liabili-
ties of € 0.8 million for the continuing operations (2011: € 3.4 million
for the Group).

Accrued expenses of the continuing operations mainly include accruals
for payments to employees and management amounting to € 3.7 mil-
lion (31 December 2011: € 5.1 million), accrued expenses for outstanding
invoices of € 1.2 million (31 December 2011: € 2.6 million), external

Tax liabilities mainly comprise expenses for income tax. As of 31 De-
cember 2012, provisions and tax liabilities are uncertain in terms of
their amount and are expected to be settled in 2013.

107

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Provisions and tax liabilities changed during the ﬁ nancial year 2012
as follows:

in 000's €

01/01/2012

Additions

Utilized

Released

31/12/2012

thereof from
Discontinued
Operations

thereof from
Continuing
Operations

Taxes
Other Obligations

TOTAL

3,027
383
3,410

46
365
411

2,241
0
2,241

13
284
297

819
464
1,283

189
277
466

630
187
817

Financial Instruments and Financial
Risk Management

CRE DIT AND LIQUIDIT Y RISK
Financial instruments that potentially subject the Group to concentra-
tions of credit and liquidity risk consist primarily of cash, cash equiva-
lents, marketable securities, derivative ﬁ nancial assets and accounts
receivable. The Group’s cash and cash equivalents are principally de-
nominated in euros, US dollars and pounds sterling. Marketable securi-
ties are placed in high-quality securities. Cash, cash equivalents and
marketable securities are maintained principally with three high-qual-
ity ﬁ nancial institutions in Germany. The Group continually monitors
its positions with, and the credit quality of, the ﬁ nancial institutions,
which are counterparties to its ﬁ nancial instruments, and does not an-
ticipate non-performance.

31 December 2012. Three customers individually accounted for 91 %,
3 %, and 3 % of the total revenues of the continuing operations in 2012.
On 31 December 2011, one customer had accounted for 73 % of the
Group’s accounts receivables and three customers individually had ac-
counted for 72 %, 2 %, and 2 % of the Group’s revenues in 2011. Based
on the management’s assessment, allowances of € 79,196 and € 19,078
in relation to the discontinued operations of the AbD Serotec segment
were necessary as of 31 December 2012 and 2011. The carrying amounts
of ﬁ nancial assets represent the maximum credit exposure.

The maximum exposure for credit risk of trade receivables at the bal-
ance sheet date by geographic region was composed as follows:

in €

31/12/2012

31/12/2011

It is the Group’s policy that all customers who wish to trade on credit
terms are subject to credit veriﬁ cation procedures, which are based on
external ratings. However, the Group’s revenues and accounts receiv-
able are subject to credit risk as a result of customer concentration. The
Group’s most signiﬁ cant customer accounted for € 8.3 million of trade
receivables as of 31 December 2012 (31 December 2011: € 8.9 million).
This customer individually accounted for approximately 92 % of
the accounts receivables of the Group’s continuing operations as of

Europe and Asia
USA and Canada
Other

Total from Continuing
Operations

Total from Discontinued
Operations

TOTAL

8,683,001
241,197
0

10,981,860
1,221,377
0

8,924,198

12,203,237

1,703,450
10,627,647

0
12,203,237

108

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The aging of trade receivables at the balance sheet date was structured
as follows:

in €; A/R are due in

Accounts Receivable
Allowance for Impairment
Total from Continuing Operations
Total from Discontinued Operations
Accounts Receivable, Net of Allowance for Impairment

31/12/2012
0 (30) days

31/12/2012
30 (60) days

31/12/2012
60 + days

31/12/2012
Total

5,141,303
0
5,141,303
1,438,486
6,579,789

2,147,236
0
2,147,236
183,536
2,330,772

1,635,658
0
1,635,658
81,428
1,717,086

8,924,197
0
8,924,197
1,703,450
10,627,646

in €; A/R are due in

31/12/2011
0 (30) days

31/12/2011
30 (60) days

31/12/2011
60 + days

31/12/2011
Total

Accounts Receivable
Allowance for Impairment
Accounts Receivable, Net of Allowance for Impairment

9,519,422
(19,078)
9,500,344

851,283
0
851,283

1,851,610
0
1,851,610

12,222,315
(19,078)
12,203,237

As of 31 December 2012, accounts receivable of the Group included
overdue items, mainly from discontinued operations, in the amount of
€ 0.1 million, for which impairment was not deemed necessary as the
receivables were not overdue by more than 60 days.

As of 31 December 2012 and 31 December 2011, the Group was not
exposed to a credit risk from derivative ﬁ nancial instruments. The maxi-
mum exposure for credit risk of ﬁ nancial guarantees (rent deposits)
at the balance sheet date amounted to € 1.3 million (31 December 2011:
€ 1.2 million).

The contractual maturities and the related contractual cash ﬂ ows of
ﬁ nancial liabilities are within one year and ﬁ ve years, respectively.
The convertible bonds due to related parties have a term until 31 De-
cember 2015 (maximum credit risk: € 0.1 million).

MARKE T RISK
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices, will aﬀ ect the Group’s
income or the value of its holdings in ﬁ nancial 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 signiﬁ cant part of the
revenues depends on the current exchange rates of the US dollar and
the pound sterling. The Group examines the necessity of hedging for-
eign exchange transactions to minimize currency risk during the year
and addresses this risk by using derivative ﬁ nancial instruments.

109

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

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

as of 31 December 2012; in €

EUR

USD

GBP

Other

Total

Cash and Cash Equivalents
Available-for-sale Assets
Accounts Receivable
Accounts Payable and Accrued Expenses

TOTAL

38,460,777
79,722,222
8,697,667
10,594,593
137,475,259

1,233,596
0
226,530
57,576
1,517,702

995,492
0
0
7,921
1,003,413

0
0
0
0
0

40,689,865
79,722,222
8,924,197
10,660,090
139,996,374

as of 31 December 2011; in €

EUR

USD

GBP

Cash and Cash Equivalents
Available-for-sale Assets
Accounts Receivable
Accounts Payable and Accrued Expenses

TOTAL

51,076,181
79,768,563
10,478,522
(16,707,898)
124,615,368

723,518
0
1,248,021
(384,779)
1,586,760

2,796,400
0
394,116
(2,018,121)
1,172,395

Other

0
0
82,578
0
82,578

Total

54,596,099
79,768,563
12,203,237
(19,110,798)
127,457,101

Diﬀ erent foreign exchange rates and their impact on assets and liabili-
ties have been simulated in a detailed sensitivity analysis in order to
determine resulting eﬀ ects on the income statement. A ten percent in-
crease of the euro against the US dollar as of 31 December 2012 would
have decreased the proﬁ t for the continuing operations of the Group by
€ 0.1 million (assuming that interest rates remain constant). A ten per-
cent weakening of the euro against the US dollar would have increased
the proﬁ t for the continuing operations of the Group by € 0.2 million.
A ten percent increase of the euro against the British pound as of 31 De-
cember 2012 would have decreased the proﬁ t for the Group by € 0.1 mil-
lion (assuming that interest rates remain constant). A ten percent weak-
ening of the euro against the British pound would have increased the
proﬁ t for the Group by € 0.1 million.

A ten percent increase of the euro against the US dollar as of 31 De-
cember 2011 would have decreased the Group’s proﬁ t by € 0.1 million
(assuming that interest rates remain constant). A ten percent weaken-
ing of the euro against the US dollar would have increased the Group’s
proﬁ t by € 0.2 million. A ten percent increase of the euro against the
British pound as of 31 December 2011 would have decreased the Group’s
proﬁ t by € 0.1 million (assuming that interest rates remain constant).
A ten percent weakening of the euro against the British pound would
have increased the Group’s proﬁ t by € 0.1 million.

If the foreign exchange rates for US dollar against the euro and the Brit-
ish pound against the euro had remained constant at the average rate
of 2011, revenues of the continuing operations of the Group would have
been lower by € 0.4 million (2011: Group revenues would have been
higher by € 1.1 million).

INTE REST R ATE RISK
The exposure of the Group to changes in interest rates relates mainly
to investments 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 ﬁ nancial institutions
in addition to the fact, that all ﬁ nancial instruments in these respective
money market funds have short maturity durations. The guarantees are
renewed every six months. With regard to the liabilities as well as the
interest bearing and assignable loan shown in the balance sheet, the
Group is currently not subject to signiﬁ cant interest rate risks.

FAIR VALUE HIE R ARCHY AND VALUATION ME THODS
MorphoSys uses the following hierarchy for determining and disclosing
the fair value of ﬁ nancial instruments:
Level 1:

Quoted (unadjusted) prices in active markets for identical
assets or liabilities.
Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices).
Inputs for the asset or liability that are not based on ob-
servable market data (that is, unobservable inputs).

Level 2:

Level 3:

110

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The carrying value of ﬁ nancial assets and liabilities such as cash and
cash equivalents, marketable securities, accounts receivable and ac-
counts payable approximates their fair value due to the short-term ma-
turities 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 10*). None of the ﬁ nancial assets and liabilities are categorized
in Level 2 or 3. The fair value of licenses payable is determined by the
eﬀ ective interest method. Convertible bonds are recorded at their ac-
creted 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 2012 and 2011.
*C R O S S - R E F E R E N C E /// s e e pa g e 9 9

The fair values of ﬁ nancial assets and liabilities, together with the
carrying amounts presented in the consolidated balance sheet, were
composed as follows:

31 December 2012
(in 000’s €)

Cash and Cash
Equivalents
Accounts Receivable

Forward Exchange Con-
tracts Used for Hedging
Other Receivables

Shares available for Sale,
net of Current Portion

Available-for-sale
Financial Assets

Assets of Disposal Group
Classiﬁ ed as Held for Sale

Convertible Bonds –
Liability Component

Accounts Payable and
Accrued Expenses

Liabilities of Disposal Group
Classiﬁ ed as Held for Sale

Fair Value –
Hedging
Instruments

Note

Receivables

Available
for Sale

Other
Financial
Liabilities

Total
Carrying
Amount

Fair Value

9
11

0
0

40,690
8,924

0
10,298

0
59,912

0
0

882

79,722

40,855
121,459

0
0

40,690
8,924

0
10,298

40,690
8,924

0
10,298

882

79,722

40,855
181,371

(74)

(10,660)

(3,733)
(3,733)

0
(10,734)

(3,733)
(14,467)

111

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

31 December 2011
(in 000’s €)

Cash and Cash
Equivalents
Accounts Receivable

Forward Exchange Con-
tracts Used for Hedging

Available-for-sale
Financial Assets

Assets of Disposal Group
Classiﬁ ed as Held for Sale

Convertible Bonds –
Liability Component

Accounts Payable and
Accrued Expenses

Liabilities of Disposal Group
Classiﬁ ed as Held for Sale

Fair Value –
Hedging
Instruments

Note

Receivables

Available
for Sale

Other
Financial
Liabilities

Total
Carrying
Amount

Fair Value

9
11

0
0

54,596
12,203

0
66,799

0
0

79,769

785
80,554

0
0

54,596
12,203

79,769

785
147,353

(74)

(19,111)

0
(19,185)

22 Stockholders’ Equity

C OMMON STO CK
On 31 December 2012, the common stock of the Company including
treasury shares amounted to € 23,358,228. This represented an in-
crease of € 246,061 compared to 31 December 2011 (€ 23,112,167). Each
share of common stock is entitled to one vote. The increase arose as a
result of the exercise of 246,061 options issued to the Management Board
and to employees.

On 31 December 2011, the common stock of the Company had amounted
to € 23,112,167. The increase of € 221,915, or 221,915 shares, compared
to 31 December 2010, was the result of the conversion and exercise of
convertible bonds and options in 2011.

On 31 December 2012, treasury shares amounted to € 3,594,393
(255,415 shares) and increased by € 1,837,552 compared to 31 Decem-
ber 2011 (163,915 shares, € 1,756,841), due to the repurchase of
91,500 MorphoSys shares on the stock market in connection with the
long-term incentive plan for MorphoSys AG’s management.

AUTHORIZE D CAPITAL
As of 31 December 2012, unused Authorized Capital 2008-I remained
unchanged compared to 31 December 2011, to create a maximum of
8,864,103 new shares.

Authorized Capital 2012-II, agreed upon by the Annual General Meet-
ing 2012, can be used to create up to 2,311,216 new shares and has not
yet been claimed. As of 31 December 2011, the authorized capital 2008-
II could be used to create a maximum of 2,216,025 new shares and has
not been claimed before its cancellation at the Annual General Meeting
2012.

C ONDITIONAL CAPITAL
In 2012, a total of 16,704 shares were raised from Conditional Capital II
through the exercise of options by employees, increasing the subscribed
capital by € 16,704. Furthermore, 229,357 shares were raised from Con-
ditional Capital V through the exercise of options by employees, increas-
ing the subscribed capital by € 229,357.

112

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

In 2011, a total of 3,696, 95,400 and 122,819 shares had been raised
from Conditional Capital II, IV and V respectively with subscribed
capital increasing by € 3,696, € 95,400 and € 122,819 from respective
Conditional Capitals.

ADDITIONAL PAID - IN CAPITAL
On 31 December 2012, additional paid-in capital amounted to
€ 175,245,266 (31 December 2011: € 170,778,474). The total increase
of € 4,466,792 is due to stock-based compensation in the amount of
€ 1,268,792, including the intrinsic value of convertible bonds. A fur-
ther increase of € 3,198,000 arose from the exercise and conversion
of options and convertible bonds in the year 2012.

In 2011, the additional paid-in capital had increased by € 4,390,391, re-
sulting from stock-based compensation of € 1,488,342 and € 2,902,049
from the exercise and conversion of options and convertible bonds.

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 transactions”). The main impact of IFRS 2 on the
Group refers to the expense associated with employees’ as well as Man-
agement Boards’ share options and other share-based incentives by us-
ing an option pricing model. In accordance with IFRS 2.54, the Group has
applied IFRS 2 to equity-settled awards granted on or after 1 January
1999. In accordance with IFRS 2.56, options granted prior to 1 January
1999, are therefore not expensed. All information is nonetheless dis-
closed in line with IFRS 2.44 and 2.45. Further details are given in the
Notes to the Consolidated Financial Statements – sections 23, 24, 25
and 26.*
*C R O S S - R E F E R E N C E /// s e e pa g e 11 2 – 11 4 a n d 11 5

RE VALUATION RESE RVE
As of 31 December 2012, the revaluation reserve amounted to € 486,743
(31 December 2011: € 612,227). The decrease by € 125,484 was caused
by the change in unrealized gains on available-for-sale ﬁ nancial assets,
net of deferred taxes, in the amount of € 131,488 and the eﬀ ects from
equity-related recognition of deferred taxes in the amount of € 6,005.

TR ANSL ATION RESE RVE
The translation reserve changed from € – 1,292,325 as of 31 December
2011 by € 182,460 to € 1,109,865 as of 31 December 2012. The line item
comprises foreign exchange rate diﬀ erences from the currency transla-
tion of assets and liabilities as of 31 December 2011 as well as diﬀ er-
ences from foreign exchange rates as used in the balance sheet and
the income statement. The diﬀ erences mainly arise from entities of the
discontinued operation AbD Serotec, which are led in their local for-
eign currencies.

23 Convertible Bonds

On 1 April 2010, 352,800 convertible bonds were granted to Manage-
ment Board members and employees of MorphoSys AG. The exercise
price for the convertible bonds was € 16.79, representing the market
price in the ﬁ nal Xetra auction at the Frankfurt Stock Exchange on the
day of trading prior to the convertible bonds being issued. Each con-
vertible bond with a nominal value of € 0.33 can be exchanged for one
no-par value ordinary share of the Group against payment of the exer-
cise price. The beneﬁ ciaries may exercise the conversion rights only
after the expiration of a four-year vesting period from grant date. The
exercise of the conversion rights is only possible if on one trading day
during the lifetime of the convertible bonds the stock exchange price
of one share has amounted to at least 110 % of the exercise price at grant
date. The convertible bonds can no longer be exercised after 31 Decem-
ber 2015. In the event of non-exercise of the conversion rights, beneﬁ -
ciaries are refunded the amount paid to acquire the convertible bonds
(€ 0.33 per bond/share). The convertible bonds are recorded at their at-
tributive values, which approximate the amount of capital due on the
day of maturity.

The table below summarizes the progression of the Group’s employee
incentive convertible bonds plan for the ﬁ nancial years 2012 and 2011:

OUTSTANDIN G ON
1 JANUARY 2011
Granted
Exercised
Forfeited
Expired

OUTSTANDIN G ON
31 DECEMBER 2011

OUTSTANDIN G ON
1 JANUARY 2012
Granted
Exercised
Forfeited
Expired

OUTSTANDIN G ON
31 DECEMBER 2012

Convertible
Bonds

Weighted-
average Price (€)

448,200
0
(95,400)
(24,750)
0

328,050

328,050
0
0
(7,500)
0

320,550

15.94
0
12.81
16.79
0

16.79

16.79
0
0
16.79
0

16.79

Convertible bonds exercisable on 31 December 2012 and 2011
amounted in each case to 0 shares.

113

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The following table presents the weighted-average exercise price and
information about the contractual life for signiﬁ cant convertible bond
groups outstanding on 31 December 2012:

Range of Exercise Prices

€ 10.00 – € 17.00

Number
Outstanding

320,550
320,550

Remaining
Contractual
Life (in Years)

Weighted-
average
Exercise Price (€)

Number
Exercisable

Weighted-
average
Exercise Price (€)

3.00
3.00

16.79
16.79

0
0

0.00
0.00

The Group accounts for stock-based compensation in accordance with
IFRS 2 and IAS 32.28. The equity portion of the bonds is presented
separately in the capital reserve and is deducted from the fair value of
the bonds. The remaining value is recognized as stock-based compen-
sation. The compensation expense recorded in 2012 and 2011 in con-
nection with convertible bonds amounted to € 331,079 and € 666,920,
respectively.

24 Stock Options

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

Grant Date/Employees Entitled

Granted Stock
Options

Vesting Period

1 July 2007 to employees

180,000

25 January 2008 to Management Board and employees

283,335

25 January 2008 to employees

1 October 2008 to employees

29,070

92,664

1 April 2010 to Management Board and employees

422,200

For the years 2012 and 2011, 246,061 and 126,515 options were exer-
cised, respectively.

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

Vesting Conditions
(Share Price in
Comparison to
Strike Price)

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

Cumulative increase
of more than 10 %
per annum

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

Contractual Life
of Options

5 years

114

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The following table summarizes the progression of the Group’s em-
ployee incentive stock option plans for the years 2012 and 2011:

Stock Appreciation Rights

On 1 October 2010, 15,000 stock appreciation rights were granted to
employees of MorphoSys AG with terms and conditions identical to the
convertible bond grant from 1 April 2010. Convertible bonds are to be
settled by physical delivery of shares, while stock appreciation rights are
settled in cash. The exercise price for the stock appreciation rights
amounted to € 29.30 on 31 December 2012. The compensation expense
amounted to € 79,375 in 2012, while the corresponding ﬁ xed liability
on 31 December 2012 amounted to € 144,176. The stock appreciation
rights can no longer be exercised after 30 June 2016.

OUTSTANDING ON
1 JANUARY 2011
Granted
Exercised
Forfeited
Expired

OUTSTANDING ON
31 DECEMBER 2011

OUTSTANDING ON
1 JANUARY 2012
Granted
Exercised
Forfeited
Expired

OUTSTANDING ON
31 DECEMBER 2012

Weighted-
average Price (€)

924,017
0
(126,515)
0
0

797,502

797,502
0
(246,061)
0
0

551,441

13.56
0
15.16
0
0

13.31

13.31
0
14.00
0
0

13.00

Stock options exercisable on 31 December 2012 and 2011 amounted
to 451,391 and 503,657 shares, respectively. The weighted-average
exercise price of exercisable stock options amounted to € 13.04 on
31 December 2012.

The following table presents the weighted-average price and informa-
tion about the contractual life for signiﬁ cant option groups outstanding
on 31 December 2012.

Range of Exercise Prices

€ 10.00 – € 12.99
€ 13.00 – € 15.00

Number
Outstanding

Remaining
Contractual
Life (in Years)

Weighted-
average
Exercise Price (€)

Number
Exercisable

Weighted-
average Price (€)

330,203
221,238
551,441

1.25
0.19
0.83

12.81
13.29
13.00

230.153
221.238
451.391

12.81
13.29
13.04

The Group accounts for stock-based compensation in accordance with
IFRS 2, ‘Share-based Payment’. Compensation expense recorded in
connection with stock options in 2012 and 2011 amounted to € 168,044
and € 528,477, respectively.

115

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Long-term Incentive Plan

On 1 April 2012, MorphoSys established a second long-term incentive
plan (LTI plan) for the Management Board and the Senior Management
Group. The plan qualiﬁ es as an equity-settled share-based payment
transaction according to IFRS 2 and is accounted for accordingly. The LTI
plan is a performance share plan and will be paid out in ordinary shares
of MorphoSys AG, provided that predeﬁ ned key performance indicators
as annually approved by the Supervisory Board are achieved. The grant
date was 1 April 2012 and the vesting period is four years. Within each
year of the 4-year vesting period, a quarter of the performance shares
are vested, provided that the key predetermined performance indicators
are fully achieved for the respective period. The number of vested shares
in each single year will be reduced if the key performance indicators
of that period are achieved by 50 % to 99 %, or increased if the key per-
formance indicators are achieved by more than 100 % (200 % as a maxi-
mum). An achievement of key performance indicators below 50 % in any
year will lead to a vesting of zero shares for this year. In any case, the
maximum payout at the end of the 4-year period is capped by a Group
factor which normally amounts to “1”. However, the Supervisory Board
may set this factor freely between “0” and “2” in justiﬁ able cases, e. g.
in the case that the payout level is deemed inadequate in comparison
to the overall development of the Company. The right to receive a speci-
ﬁ ed share allocation from the LTI plan exists only at the end of the
4-year term.

In the event that the repurchased shares do not suﬃ ce to serve the LTI
plan, MorphoSys reserves the right to pay out a speciﬁ c amount of cash
from the LTI plan equivalent to the value of the performance shares at
the end of the vesting period, provided that such cash amount shall not
exceed 200 % of the fair value of the performance shares at grant date.

If a member of the Management Board ceases to hold an oﬃ ce within
the MorphoSys Group through reason of termination, resignation,
death, injury, disability or retirement (receipt of a normal retirement
pension as long as the requirements for the disability pension entitle-
ment are met) or – subject to the Supervisory Board’s discretion – under
other circumstances, the member of the Management Board (or his/her
inheritor) will be entitled to a daily pro-rated number of performance
shares. If a member of the Management Board ceases to hold an oﬃ ce
within the MorphoSys Group for good reason in the meaning of sec. 626
para. 2 of the German Civil Code and/or within the meaning of sec. 84
para. 3 German Stock Corporation Act or if notice to cease to hold oﬃ ce
is given by the member of the Management Board, the beneﬁ ciary shall
not be entitled to any performance share allocation.

In the event of a change of control during the 4-year period, all perfor-
mance shares shall become fully vested. However, also in this event,
the right to receive a speciﬁ c share allocation from the LTI plan arises
only at the end of the 4-year term.

In April 2012, MorphoSys repurchased 91,500 of its own shares for
the LTI plan on the stock market with an average share price of € 20.08
per share. These 91,500 shares were granted to the beneﬁ ciaries as
of 1 April 2012, thereof 57,967 shares to the Management Board (for
details, see the table “Performance Shares”* in section 29, “Related
Parties”) and 33,533 shares to the Senior Management Group. The
fair value of the performance shares as of the grant date (1 April 2012)
amounted to € 19.24 per share. No dividends were incorporated in the
measurement of the fair value of the repurchased shares, because the
Group does not anticipate paying a dividend in the foreseeable future.
*C R O S S - R E F E R E N C E /// s e e pa g e 11 8

On 1 October 2012, MorphoSys established a third long-term incentive
plan (LTI plan) for members of the Senior Management Group under
identical terms and conditions to the program as of 1 April 2012. 2,292
shares were granted. The fair value amounted to € 24.00 per share as
at the grant date.

The long-term incentive plan established on 1 June 2011 still applies
unchanged.

2,663 performance shares were forfeited in 2012, because a beneﬁ ciary
of the LTI plan established in 2011 left MorphoSys.

On 31 December 2012, stock-based compensation from the Group’s LTI
plans amounted to € 769,670 (December 2011: € 292,945).

Operating Leases and Other
Commitments

The Group leases facilities and equipment on long-term operating
leases. Total rent expense for the continuing operations amounted to
€ 1,713,477 and € 1,738,810 in the ﬁ scal years 2012 and 2011, respec-
tively. Signiﬁ cant leasing contracts mainly related to the buildings
rented. The majority of these contracts can be renewed on an annual
or quarterly basis. Some contracts can be terminated early.

116

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

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

in 000’s €

Up to One Year
Between One and Five Years
More than Five Years

TOTAL

Rent and Leasing
2012

Rent and Leasing
2011

1,562
2,114
0
3,676

3,129
5,519
3,726
12,374

Other
2012

1,245
24
0
1,269

Other
2011

681
15
0
696

The total expenses for the continuing operations due to operating
leases, insurances and other services in the ﬁ scal years 2012 and 2011
amounted to € 3,311,122 and € 3,566,436, respectively.

Furthermore, the following future payments for cancelable external
studies can become due as a result of currently active contracts. In case
of early termination, these amounts can, however, be reduced substan-
tially in line with the respective contractual early-termination clauses.

in 000’s €

Up to One Year
Between One and Five Years
More than Five Years

TOTAL

Total
2012

8,540
11,989
0
20,529

28 Contingencies

Management is not aware of any matters that could give rise to any
material liability of the Group that would have a material adverse eﬀ ect
on the Group’s ﬁ nancial position or results from operations.

In the event that certain milestones in the Proprietary Development
segment are achieved, for example the ﬁ ling of an application for an in-
vestigational new drug (IND) with regard to speciﬁ c targets, milestone
payments to licensors may be triggered. However, given the uncertainty
regarding the timing and achievement of such milestones, no further
details will be disclosed.

In the event that certain milestones in the Partnered Discovery segment
are achieved by the respective partners, for example the ﬁ ling of an
application for an investigational new drug (IND) with regard to speciﬁ c
targets or the transfer of technology, milestone payments to MorphoSys
may be triggered. However, given the uncertainty regarding the timing
and achievement of such milestones, no further details will be disclosed.

117

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Total
2012 –
Continuing
Operations

Total
2012 –
Discontinued
Operations

Rent and Leasing
2012 –
Discontinued
Operations

Rent and Leasing
2011 –
Discontinued
Operations

2,807
2,138
0
4,945

3,810
5,534
3,726
13,070

1,036
2,587
0
3,623

0
0
0
0

Total
2012

3,843
4,725
0
8,568

Total
2011

3,810
5,534
3,726
13,070

Related Parties

The Group has related-party transactions with its Management Board
members and with members of the Supervisory Board. In addition to
the cash remuneration, the Group has issued stock options, convertible
bonds and performance shares to the Management Board. The tables
below show the shares, stock options, convertible bonds and performance
shares as well as the changes of ownership in the same held by mem-
bers of the Management Board and the Supervisory Board during the
year 2012:

MANAGEMENT BOARD
Dr. Simon E. Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

SUPERVISORY B OARD
Dr. Gerald Möller
Prof. Dr. Jürgen Drews*
Dr. Walter Blättler
Dr. Daniel Camus
Dr. Marc Cluzel**
Dr. Metin Colpan*
Karin Eastham**
Dr. Geoﬀ rey N. Vernon

TOTAL

* Left the Supervisory Board of MorphoSys AG on 31 May 2012
** Joined the Supervisory Board of MorphoSys AG on 31 May 2012

01/01/2012

Additions

Forfeitures

Sales

31/12/2012

419,885
5,000
2,000
7,105
433,990

7,500
7,290
2,019
0
–
0
–
0
16,809

0
1,500
0
0
1,500

0
0
0
0
0
0
0
0
0

0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0

0
0
0
0
0
0
0
0
0

419,885
6,500
2,000
7,105
435,490

7,500
–
2,019
0
0
–
0
0
9,519

118

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

S T O C K OP T IONS

MANAGEMENT BOARD
Dr. Simon E. Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

CONVER T IBL E BOND S

MANAGEMENT BOARD
Dr. Simon E. Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

PERF ORMANCE SHARES

MANAGEMENT BOARD
Dr. Simon E. Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

01/01/2012

Additions

Forfeitures

Exercises

31/12/2012

191,445
0
90,000
102,867
384,312

0
0
0
0
0

191,445
0
90,000
102,867
384,312

01/01/2012

Additions

Forfeitures

Exercises

31/12/2012

58,800
0
33,000
33,000
124,800

0
0
0
0
0

58,800
0
33,000
33,000
124,800

01/01/2012

Additions

Forfeitures

Exercises

31/12/2012

17,676
12,107
12,107
12,107
53,997

18,976
12,997
12,997
12,997
57,967

0
0
0
0
0

36,652
25,104
25,104
25,104
111,964

No stock options, convertible bonds or performance shares are held by
the Supervisory Board.

The salaries of the Management Board and the Supervisory Board con-
sisted of ﬁ xed and variable components as well as other compensatory
beneﬁ ts. In the event of 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 annual ﬁ xed salary.
Total compensation for the Supervisory Board excluding reimburse-
ments of travel expenses amounted to € 478,197 in 2012 (2011:
€ 384,750).

119

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The tables below show the detailed compensation for the Management
Board and the Supervisory Board:

MANAGE ME NT BOARD C OMPE NSATION 2012:

Fixed Compensation

Short-term
Incentive
Compensation

Long-term Incentive Compensation
(Target Attainment Depends
on Company Goals)

Total
Compensation

Base Salary
in €

401,980
271,867
272,700
272,700
1,219,247

Other
Compensatory
Beneﬁ ts in €

Variable
Compensation
in €*

No. of
Performance
Shares Granted

Fair Value at
The Time of the
Grantin €

139,555
129,836
103,841
96,609
469,841

226,689
176,890
164,155
162,653
730,387

18,976
12,997
12,997
12,997
57,967

365,000
250,000
250,000
250,000
1,115,000

in €

1,133,224
828,593
790,696
781,962
3,534,475

Dr. Simon E. Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

* The total remuneration ﬁ gures shown for 2012 include the corresponding bonus

accruals for 2012, which will be paid out in February 2013.

MANAGE ME NT BOARD C OMPE NSATION 2011:

Fixed Compensation

Short-term
Incentive
Compensation

Long-term Incentive Compensation
(Target Attainment Depends
on Company Goals)

Total
Compensation

Base Salary
in €

386,862
132,119
167,500
256,000
262,259
1,204,740

Other
Compensatory
Beneﬁ ts in €

Variable
Compensation
in €***

No. of
Performance
Shares Granted

Fair Value at
The Time of the
Grantin €

135,131
479,009
181,584
99,046
94,563
989,333

181,825
72,026
83,750
107,520
125,884
571,005

17,676
–
12,107
12,107
12,107
53,997

377,206
–
258,363
258,363
258,363
1,152,295

in €

1,081,024
683,154
691,197
720,929
741,069
3,917,373

Dr. Simon E. Moroney
Dave Lemus*
Jens Holstein**
Dr. Arndt Schottelius
Dr. Marlies Sproll

TOTAL

* Mr. Lemus left the Management Board of MorphoSys AG on 10 March 2011.
** Mr. Holstein joined the Management Board of MorphoSys on 1 May 2011.
*** The total remuneration ﬁ gures shown for 2011 include the corresponding bonus

accruals for 2011, which were paid out in February 2012.

120

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

SUPERVI S OR Y B OARD COMPENS AT ION 2012 AND 2011:

in €

Dr. Gerald Möller
Prof. Dr. Jürgen Drews*
Dr. Walter Blättler
Dr. Daniel Camus
Dr. Marc Cluzel**
Dr. Metin Colpan*
Karin Eastham**
Dr. Geoﬀ rey N. Vernon

GESAMT

Fixed Compensation
2011

2012

Attendance Fees
2011

2012

Total Compensation
2011

2012

94,400
26,264
43,160
41,939
27,116
16,678
23,591
51,549
324,697

70,000
57,750
39,500
36,500
–
36,500
–
39,500
279,750

37,000
9,500
21,500
23,500
19,000
6,000
15,000
22,000
153,500

26,000
17,500
13,500
19,000
–
8,500
–
20,500
105,000

131,400
35,764
64,660
65,439
46,116
22,678
38,591
73,549
478,197

96,000
75,250
53,000
55,500
-
45,000
-
60,000
384,750

* Left the Supervisory Board of MorphoSys AG on 31 May 2012
** Joined the Supervisory Board of MorphoSys AG on 31 May 2012

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

Research and Development
Agreements

The Senior Management Group held 150,026 stock options on 31 De-
cember 2012 (31 December 2011: 310,320 shares), 180,000 convertible
bonds (31 December 2011: 195,000 shares), 15,000 stock appreciation
rights (SARs) (31 December 2011: 15,000 shares) and 63,184 perfor-
mance shares (31 December 2011: 30,022 shares) that were granted
to it by the Company. No further share options, convertible bonds or
stock appreciation rights were issued to the Senior Management Group
in 2012. However, 35,825 Performance Shares were granted in 2012
under the second long-term incentive plan. 160,294 share options
were exercised in 2012, while no convertible bonds or stock appreciation
rights were exercised in the same period. 2,663 performance shares
and 7,500 convertible bonds forfeited in 2012 as a beneﬁ ciary left
MorphoSys. This beneﬁ ciary continues to hold 7,500 convertible bonds.

30 Corporate Governance

The Group issued its declaration of compliance with the recommenda-
tions of the Government Commission on the German Corporate Gover-
nance Code for ﬁ scal year 2012 according to sec. 161 of the German
Stock Corporation Act (Aktiengesetz). This declaration was published
and made permanently accessible to stockholders accordingly on the
Group’s website (www.morphosys.de) on 7 December 2012.

The Group has a signiﬁ cant number of research and development
relationships in conjunction with its partnered discovery strategy, its
proprietary research and development activities and to a smaller degree
in the research reagent and diagnostic space, operated by the Group’s
AbD Serotec segment.

PAR TNE RE D DISC OVE RY SEGME NT
In its commercial agreements within the Partnered Discovery segment
MorphoSys receives diﬀ erent types of payments, which are booked as
revenues spread over the lifetime of the agreement or booked in full in
connection with the achievement of deﬁ ned tasks and milestones.
These payments include upfront payments at signature, annual license
payments in exchange for access to MorphoSys’s technologies, and
research funding for work carried out at MorphoSys on behalf of the
partner company. Additionally, MorphoSys is eligible to receive devel-
opment-dependent milestone payments and royalties on product sales
for individual antibody drug programs.

121

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

The active collaboration with several partners was already concluded
prior to the ﬁ scal year 2012 as the original term of the agreements
came to an end. Drug development programs initiated during the active
phase are designed in such way that they can be continued by the
partner and thus, could result in future success-based payments upon
meeting deﬁ ned milestones. More details on individual drug candidates
within the various alliances, restricted to public information, can be
found in the Research & Development section* and in the overview of
the Group’s drug pipeline in this report. More details on the individual
research alliances can be found on the Group’s website.
*C R O S S - R E F E R E N C E /// s e e pa g e 2 6

Partnerships, that were already concluded prior to the start of 2012,
but had active drug development programs ongoing, include (in alpha-
betic order): Bayer Healthcare Pharmaceuticals, Boehringer Ingelheim,
Daiichi-Sankyo, F. Hoﬀ mann-La Roche, Janssen Biotech (formerly Cen-
tocor Ortho Biotech), Merck & Co., OncoMed Pharmaceuticals, Pﬁ zer,
Prochon Biotech Ltd. and Schering-Plough (a subsidiary of Merck & Co.).

Partnerships, that were still active during 2012, included (in alphabetic
order), Astellas, ContraFect, GeneFrontier Corporation /Kaneka and
Novartis. Of those partnerships, the active collaboration with Astellas
was concluded in 2012.

The Group’s largest alliance today is with Novartis AG. The two compa-
nies started working together in 2004 in a collaboration that has so far
resulted in multiple active therapeutic antibody programs in various
diseases. In December 2007, MorphoSys and Novartis substantially ex-
panded their previous relationship and forged one of the most compre-
hensive strategic alliances in the discovery and development of biophar-
maceuticals. Based on a ten-year term, committed annual payments
total more than € 400 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 multiple products, could potentially exceed
€ 650 mil lion, assuming the collaboration successfully runs its maxi-
mum term. In addition to these payments, MorphoSys would also be
entitled to royalty payments and/or proﬁ t sharing on any future prod-
uct sales.

In November 2012 MorphoSys and Novartis formed an alliance for the
use of the new technology platform Ylanthia. This expansion of the ex-
isting strategic alliance represented the marketing launch of Ylanthia
and should result in even better antibody technologies that can be de-
veloped faster than ever before.

PROPRIE TARY DE VE LOPME NT SEGME NT
In the Proprietary Development segment partnerships are aligned
along the Group’s goals for own drug development activities in its key
indications – cancer, inﬂ ammatory diseases and infections. These
partnerships include (in alphabetic order): Absynth Biologics, Galapa-
gos and Xencor.

In September 2010, MorphoSys announced a new proprietary develop-
ment 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 mol-
ecules associated with Staphylococcus aureus infections including
MRSA (methicillin-resistant S. aureus). MorphoSys will generate anti-
bodies using its proprietary HuCAL PLATINUM antibody library which
Absynth will test in relevant disease models. MorphoSys will be solely
responsible for the development and partnering of the resulting com-
pounds. Absynth has received an upfront payment and is eligible for
development-dependent milestone payments and royalties.

In November 2008, MorphoSys and Galapagos announced the launch
of a long-term co-development alliance aimed at discovering and devel-
oping antibody therapies based on novel modes of action in bone and
joint disease, including rheumatoid arthritis, osteoporosis and osteoar-
thritis. The alliance spans all activities from target discovery through
to completion of proof of concept clinical trials of novel therapeutic an-
tibodies. Following proof of concept in human clinical trials, programs
will be partnered for subsequent development, approval and marketing.
Both companies contributed their core technologies and expertise to
the alliance. Galapagos provided antibody targets implicated in bone
and joint disease in addition to its adenoviral target discovery platform
to discover further targets for antibody development. MorphoSys con-
tributed its HuCAL antibody technologies to generate fully human anti-
bodies directed against these targets. Under the terms of the agree-
ment, Galapagos and MorphoSys shared the research and development
costs equally.

122

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

In June 2010, MorphoSys AG and US-based biopharmaceutical com-
pany Xencor 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 patients 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. MorphoSys paid to Xencor an upfront payment of US$ 13 million
(approx. € 10.5 million), which was capitalized as an intangible asset
under development. Xencor will be eligible to receive development-,
regulatory- and commercialization-related milestone payments and
tiered royalties based on product sales.

In November 2012, MorphoSys announced a collaboration with pri-
vately held Lanthio Pharma B.V, a Dutch biopharmaceutical company
focused on discovering and developing lantipeptides. MorphoSys also
made an equity investment in Lanthio Pharma as part of the compa-
ny’s Series A ﬁ nancing round. Lantipeptides comprise a novel class
of therapeutics with high target selectivity and improved drug-like
properties. Lanthio Pharma’s technology LanthioPep can be used to
identify peptides which are selective for a speciﬁ c disease target and to
stabilize them in their optimal structural conformation for receptor
binding. MorphoSys and Lanthio Pharma will jointly apply their re-
spective technologies to establish high quality and diverse lantipeptide-
based libraries. MorphoSys receives preferred rights to exclusively
license the LanthioPep technology for drug discovery.

Xencor completed the phase 1 trial in the ﬁ scal year 2012 and pre-
sented clinical data. MorphoSys intends to continue the clinical devel-
opment in phase 2 trials in 2013.

ABD SE ROTEC SEGME NT
MorphoSys’s research and development segment AbD Serotec has rela-
tionships with a growing number of diagnostic companies, industrial
customers and research organizations including (in alphabetic order):
Diasorin, FIND, Merck & Co., Novozymes, Phadia, Proteomika, Shionogi
and Spinreact.

Entities included in Consolidation (Appendix 1)

APPENDIX 1: CONS OL IDAT ED COMP ANIE S ON 31 DEC EMBER 2012

Name and Corporate Seat of the Company

C OMPAN Y C ONSOLIDATED (APAR T FROM PARENT C OMPAN Y ) – C ONTINUED OPER ATIONS
MorphoSys USA, Inc., Charlotte, North Carolina, USA
MorphoSys IP GmbH, Munich, Germany
Poole Real Estate Ltd., Poole, UK
Sloning BioTechnology GmbH, Puchheim, Germany

C OMPAN Y C ONSOLIDATED (APAR T FROM PARENT C OMPAN Y ) – DISC ONTINUED OPER ATIONS
MorphoSys UK Ltd., Oxford, UK
MorphoSys US, Inc., Raleigh, North Carolina, USA
MorphoSys AbD GmbH, Düsseldorf, Germany

Exchange Rate
on Dec 31, 2012
one Unit of Euro
in Local Currency

Local Currency

US $
€
£
€

£
US $
€

1.32433
–
0.82061
–

0.82061
1.32433
–

123

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Share of
Capital %

Share Capital in
Local Currency

Total
Assets in
Local Currency

Total
Liabilities in
Local Currency

Total
Revenue in
Local Currency

Proﬁ t/Loss in
Local Currency

100
100
100
100

100
100
100

2,000
25,000
200
951,660

100
50,000
25,000

11,425
3,281,354
815,307
12,676,488

7,627,474
3,068,992
1,437,727

0
3,252,873
6,500
4,066,295

2,128,061
788,969
99,849

0
3,343,800
0
3,226,156

8,685,213
8,600,826
2,660,086

(1,353)
(4,597)
(19,557)
2,515,969

367,416
201,565
77,193

124

F I N A N C I A L S T A T E M E N T S / / / Notes to the Consolidated Financial Statements

Responsibility Statement

To the best of our knowledge, and in accordance with the applicable
reporting principles, the Consolidated Financial Statements give a true
and fair view of the assets, liabilities, ﬁ nancial position and proﬁ t 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 op-
portunities and risks associated with the expected development of
the Group.

Martinsried, 18 February 2013

Dr. Simon E. Moroney
Dr. Simon E. Moroney
Chief Executive Oﬃ cer

Jens Holstein
Jens Holstein
Chief Financial Oﬃ cer

Dr. Arndt Schottelius
Chief Development Oﬃ cer

Dr. Marlies Sproll
Dr. Marlies Sproll
Chief Scientiﬁ c Oﬃ cer

125

Auditor’s Report

We have audited the consolidated ﬁ nancial statements prepared
by MorphoSys AG, Martinsried, comprising the consolidated
income statement, consolidated statement of comprehensive in-
come, consolidated balance sheet, consolidated statement of
changes in stockholders’ equity, consolidated statement of cash
ﬂ ows and notes, together with the group management report
for the business year from 1 January 2012 to 31 December 2012.
The preparation of the consolidated ﬁ nancial statements and the
group management report in accordance with IFRS, as adopted
by the EU, the additional requirements of German commercial
law pursuant to Article 315a Section 1 German Commercial Code
and supplementary provisions of the articles of incorporation
are the responsibility of the Parent Company’s Board of Manag-
ing Directors. Our responsibility is to express an opinion on
the consolidated ﬁ nancial statements and on the group manage-
ment report based on our audit.

We conducted our audit of the consolidated ﬁ nancial statements
in accordance with Article 317 German Commercial Code and
German generally accepted standards for the audit of ﬁ nancial
statements promulgated by the Institute of Public Auditors in
Germany. Those standards require that we plan and perform
the audit such that misstatements materially aﬀ ecting the
presentation of the net assets, ﬁ nancial position and results of
operations in the consolidated ﬁ nancial statements in accor-
dance with the applicable ﬁ nancial reporting framework and in
the group management report are detected with reasonable
assurance. Knowledge of the business activities and the eco-
nomic and legal environment of the Group and expectations
as to possible misstatements are taken into account in the deter-
mination of audit procedures. The eﬀ ectiveness of the account-
ing-related internal control system and the evidence support-
ing the disclosures in the consolidated ﬁ nancial statements
and the group management report are examined primarily on
a test basis within the framework of the audit. The audit in-
cludes assessing the annual ﬁ nancial statements of those enti-
ties included in consolidation, the determination of the entities

to be included in consolidation, the accounting and consolida-
tion principles used and signiﬁ cant estimates made by the
Company´s Board of Managing Directors, as well as evaluating
the overall presentation of the consolidated ﬁ nancial state-
ments and the group management report. We believe that our
audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the ﬁ ndings of our audit the consoli-
dated ﬁ nancial statements comply with IFRS as adopted by the
EU, the additional requirements of German commercial law
pursuant to Article 315a Section 1 German Commercial Code
and supplementary provisions of the articles of incorporation
and give a true and fair view of the net assets, ﬁ nancial position
and results of operations of the Group in accordance with these
requirements. The group management report is consistent with
the consolidated ﬁ nancial 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, 19 February 2013

PricewaterhouseCoopers
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

Stefano Mulas
Wirtschaftsprüfer
(German Public Auditor)

Dietmar Eglauer
Wirtschaftsprüfer
(German Public Auditor)

126

Supervisory Board Report

In this report, the Supervisory Board describes the performance of its functions and its work
during the 2012 ﬁ nancial year. Its discussions focused on the ﬁ nancial situation of the Group,
the progress made in development projects, investments in the proprietary portfolio, and the
technologies of the Company and strategic perspectives for the Group.

CON T INUOUS DIAL OG WI T H T HE MANAGEMEN T BOARD
During 2012, the Supervisory Board thoroughly performed the
duties assigned to it by law, the Articles of Association and its
internal Rules of Procedure. We regularly advised the Manage-
ment Board on the management of the Company and continu-
ously observed and supervised its conduct of business. The Man-
agement Board fulﬁ lled its duty to inform and furnished us
with regular written and verbal reports containing up-to-date
and comprehensive information on all matters and activities
of signiﬁ cant relevance to the Company. These were prepared
by the Management Board with the input of the respective
departments. In our committees and in full Supervisory Board
meetings, we always had the opportunity to critically discuss
the reports and resolution proposals of the Management Board
and to contribute suggestions. The Management Board pro-
vided suﬃ ciently detailed answers to our questions about stra-
tegic topics impacting the Company, and did so on the basis
of the documents presented. Deviations from business plans were
explained to us in detail. In urgent cases, resolutions were
passed outside of scheduled meetings by written procedure or
by telephone.

In the periods between meetings of the full Supervisory Board
and the committees, the Chairman of the Supervisory Board
regularly exchanged information and thoughts with the Man-
agement Board, and especially with its Chairman, Dr. Simon
Moroney, and was kept informed about the current business situ-
ation as well as key business transactions. The Chairman of
the Supervisory Board also took the opportunity to talk directly
to members of the Senior Management Group.

MAIN T OPIC S AND MEE T INGS OF T HE SUPERVIS ORY BOARD

IN T HE 2012 F INANC IAL YEAR
Ten meetings of the Supervisory Board took place in the 2012
ﬁ nancial year, four of which were conducted by telephone.
A further meeting lasting one and a half days took place in
September 2012 between the Management Board and the
Supervisory Board, dealing exclusively with the future strate-
gic direction of the Company. No Supervisory Board member
was absent from more than two meetings.

From an early stage, the Supervisory Board was closely involved
in all decisions of signiﬁ cance for the Company. Decisions
were based on the Company’s agreed strategy. The discussions
held and decisions taken by the Supervisory Board were
based on comprehensive documentation provided by the Man-
agement Board in advance of each meeting.

In the 2012 ﬁ nancial year, the Supervisory Board dealt in par-
ticular with the following topics requiring approval, and
approved each of these after close examination and discussion
within the Supervisory Board plenum:
• Agenda of the 2012 Annual General Meeting;
• Evaluation and update of the Management Board’s Rules

of Procedure and allocation of duties;

• Extension of the strategic cooperation with Novartis;
• The conclusion of a technology partnership with Lanthio
Pharma for a new class of therapeutic peptides, as well
as a MorphoSys shareholding in Lanthio Pharma’s series
A ﬁ nancing round;

• Sale of MorphoSysʼs Research and Diagnostics division,

AbD Serotec, to Bio-Rad;

• Budget for the 2013 ﬁ nancial year

127

Supervisory Board Report

Additionally, we passed a resolution in the Supervisory Board
plenum on the remuneration of Management Board members
for the period from July 1, 2012, to June 30, 2013, on the basis of
external benchmarking, and evaluated the achievement of
performance-related targets agreed with the members. We also
discussed and agreed the most important performance ﬁ gures
for the Management Board and Senior Management Group’s
long-term incentive program, as well as the Management Boardʼs
individual bonus goals for 2012. The appropriateness of the
Management Board’s compensation is regularly conﬁ rmed by
an independent remuneration consultant.

Furthermore, we approved the Group Management Report and
consolidated ﬁ nancial statements for the MorphoSys Group,
prepared in accordance with IFRS and dated December 31, 2011,
and also approved and adopted the Management Report and
ﬁ nancial statements for MorphoSys AG, prepared in accordance
with the German Commercial Code (HGB) and dated Decem-
ber 31, 2011. In addition, we also approved the Management
Board’s recommendation for the use of proﬁ ts for 2011. In this
context we also dealt with the 2011 annual report, in particular
with the Corporate Governance Report contained therein.

The topics of our regular discussions at the Supervisory Board’s
plenary meetings were MorphoSys’s revenue and proﬁ t develop-
ment as well as ﬁ nancial reports, the progress made in the three
business segments, the results and status of the clinical pro-
grams for the development of proprietary drugs and continued
development strategy, as well as the development of new tech-
nologies. Additionally, we discussed the results of the eﬃ ciency
audit conducted in 2012 on the Supervisory Board’s work and
evaluated opportunities for improvement. Finally, we regularly
kept ourselves informed on risk management and the results
of internal audits.

CONF L IC T S OF IN T ERES T IN T HE SUPERVIS ORY BOARD
In 2012, no conﬂ ict of interest occurred.

AC T IVI T IES AND MEE T INGS OF SUPERVIS ORY BOARD

COMMI T T EES
The Supervisory Board has established a total of three commit-
tees, the Audit Committee, the Remuneration & Nomination
Committee, and the Science & Technology Committee, for the
eﬃ cient performance of its functions. These committees pre-
pare the topics that fall within their respective competencies

for the Supervisory Board plenum. At every Supervisory Board
meeting, the committee chairpersons report to the Supervisory
Board on the work of the committees, and the minutes of the
committee meetings are also made available to all Supervisory
Board members. The composition of these committees can be
found in the “Declaration about Corporate Management” on the
Company’s website Media & Investors > Corporate Governance
> Declaration about Corporate Management. All committee meet-
ings were fully attended.

The Audit Committee met seven times in the 2012 ﬁ nancial year
(including twice by telephone). This committee dealt mainly
with accounting issues, the quarterly ﬁ nancial statements, and
the annual ﬁ nancial statements. The auditor attended three
meetings of the Audit Committee and informed its members of
the audit results. In addition, the Audit Committee made a
recommendation to the Supervisory Board for the Supervisory
Board’s proposal to the Annual General Meeting concerning
the election of the independent auditor. The Audit Committee also
discussed the award of the audit contract for the 2012 ﬁ nancial
year to the auditor. Furthermore, the committee deliberated on
investment recommendations from the Management Board,
dealt with the Company’s risk management system and dis-
cussed the results of the risk management audits and the inter-
nal audits carried out in the 2012 ﬁ nancial year. Finally, the
committee dealt with the sale of MorphoSys’s Research and Di-
agnostics division, AbD Serotec.

For reasons of eﬃ ciency, there is a joint Remuneration & Nomi-
nation Committee, which covers both areas in its meetings.
This committee met four times in the 2012 ﬁ nancial year (in-
cluding once by telephone), and concerned itself in particular
with the remuneration system and the level of remuneration for
the Management Board, as well as with the individual bonus
goals for the Management Board members. It also discussed the
key performance indicators for the Management Board and
Senior Management Group’s long-term incentive program. The
Committee also deliberated on the composition and remunera-
tion of the Supervisory Board in preparation for the requisite
new election/reelection of Supervisory Board members, as
well as the adjustment of the reimbursement to the Supervisory
Board in the 2012 Annual General Meeting. Based on these
discussions, the future composition and remuneration of the
Supervisory Board was also discussed in the Supervisory
Board plenum.

128

Supervisory Board Report

The Science & Technology Committee met eight times in the 2012
ﬁ nancial year (including three times by telephone). This com-
mittee dealt primarily with the Company’s technology and drug
development plans, the selection of target molecules, the start
of new development programs, results from ongoing studies (in
particular the MOR103 trial) and the design as well as develop-
ment plans for future and existing clinical trials. In addition, this
committee dealt with the technology partnership with Lanthio
Pharma for a new class of therapeutic peptides.

The Supervisory Board did not establish any other committees.

CORP ORAT E GOVERNANCE AND MANAGEMEN T BOARD/SU-

PERVISORY BOARD REMUNERAT ION
The Supervisory Board dealt with the evolution of corporate
governance at MorphoSys, taking into account amendments
made to the German Corporate Governance Code in May 2012
by the Government Commission on the German Corporate
Governance Code (hereinafter “Code”). The comprehensive Cor-
porate Governance Report can be viewed on the Company’s
website under Media & Investors > Corporate Governance. A
detailed Remuneration Report for the members of the Super-
visory Board and Management Board is part of the approved
Management Report and can be found in the annual report on
pages 65 to 68.

Together with the Management Board, we discussed the Com-
pany’s compliance with the Code’s recommendations and agreed
to a few deviations based on well-founded arguments. Based
on these deliberations, the Management Board and Supervisory
Board submitted the annual Declaration of Compliance on
December 7, 2012. As stated in the Declaration of Compliance,
and with few exceptions, MorphoSys complies with the Code’s
recommendations. The latest version of the Declaration of Com-
pliance can be found in this annual report and is also perma-
nently available to shareholders on MorphoSys’s website via
Media & Investors > Corporate Governance > Declaration
of Compliance.

CHANGES T O T HE SUPERVIS ORY BOARD
The Deputy Chairman of the Supervisory Board, Prof. Dr. Jürgen
Drews, and Supervisory Board member Dr. Metin Colpan,
stepped down from the Supervisory Board at the conclusion of
the 2012 Annual General Meeting. In their place Mrs. Karin

Eastham and Dr. Marc Cluzel were newly elected to the Super-
visory Board. In its constitutive meeting after the 2012 Annual
General Meeting, the Supervisory Board re-elected Dr. Gerald
Möller as Chairman of the Supervisory Board, and Dr. Geoﬀ rey
Vernon was elected as Deputy Chairman of the Supervisory Board.

AUDI T OF T HE ANNUAL F INANC IAL S TAT EMEN T S
In 2012, the Company commissioned PricewaterhouseCoopers AG
Wirtschaftsprüfungsgesellschaft, Munich (hereinafter “PwC”)
as its auditor. The audit contract was awarded by the Supervisory
Board in accordance with the resolution of the Annual General
Meeting on May 31, 2012. In accordance with Section 7.2.1 of
the German Corporate Governance Code, the Supervisory Board
obtained a declaration of independence from the auditor.

The ﬁ nancial statements and Management Report of MorphoSys
AG for the ﬁ nancial year from January 1 to December 31, 2012,
prepared by the Management Board in accordance with the pro-
visions of the German Commercial Code (HGB), were audited
by PwC and issued with an unqualiﬁ ed audit opinion. The 2012
audit of the ﬁ nancial statements and the Management Report
of MorphoSys AG focused on the recoverability of intangible
assets, the completeness and valuation of other provisions,
the accounting and disclosure of the long-term incentive share-
based payment program as well as revenue recognition and
the matching of expenses and income.

The auditors also conﬁ rmed that the Management Board has
installed an appropriate reporting and monitoring system which
is suitable in its design and handling to identify at an early
stage developments which could place the continued existence
of the Company at risk.

In accordance with Section 315a HGB, the consolidated ﬁ nan-
cial statements of MorphoSys Group and the Group Management
Report for the ﬁ nancial year from January 1 to December 31,
2012 were prepared by the Management Board on the basis of
the International Financial Reporting Standards (IFRS), as ap-
plicable in the European Union. PwC also audited the consoli-
dated ﬁ nancial statements and the Group Management Report
and issued an unqualiﬁ ed audit opinion.

129

Supervisory Board Report

T HANK S F OR DEDIC AT ED SERVICES
On behalf of the entire Supervisory Board, I would like to thank
the members of the Management Board and the employees of
MorphoSys for their hard work, great commitment and the mo-
tivating culture over the past ﬁ nancial year. Thanks to their
eﬀ ort, MorphoSys’s portfolio has further matured and important
milestones have been reached.

The Supervisory Board would also like to thank its long-serving
Supervisory Board members, Prof. Dr. Jürgen Drews and
Dr. Metin Colpan, for their dedication and constructive input.

Martinsried/Planegg, 12 March 2013

Dr. Gerald Möller
Chairman of the Supervisory Board

The main emphasis for the 2012 audit of MorphoSysʼs consoli-
dated ﬁ nancial statements and Group Management Report com-
prised the accuracy of the accounting treatment of the new
long-term incentive program, the audit of the impairment test
on goodwill and intangible assets without an underlying deﬁ -
nite useful life according to IAS 36, the application of IFRS 5 to
the sale of the AbD Serotec business segment, the accounting
treatment of the strategic cooperation with Novartis, the audit
of calculated current and deferred taxes, the accuracy of the
Group’s segment reporting, the completeness and accuracy of
the information in the Group’s notes, and the plausibility check
on all prognostic information in the Group Management Report.

The audit reports and the annual ﬁ nancial statement documen-
tation were sent to all Supervisory Board members with a suf-
ﬁ cient amount of lead time for review. The audit report, as well
as the MorphoSys Group’s consolidated ﬁ nancial statements
and the Group Management Report were discussed in detail at
the Audit Committee meeting on February 26, 2013, and at the
Supervisory Board meeting held on the same day. The audit re-
port, as well as the ﬁ nancial statements, and the Management
Report of MorphoSys AG were the subject of detailed discussion
at the Audit Committee meeting on March 21, 2013, and at the
subsequent Supervisory Board meeting held on the same day.
The auditor took part in all discussions of the ﬁ nancial state-
ments and reported on the main results of their audit. The audi-
tor also explained the scope, focal points and costs of the audit
and was available to answer any questions from, and provide
supplementary information to, the Supervisory Board.

The Audit Committee discussed the audit results in detail
and recommended to the Supervisory Board that the ﬁ nancial
statements prepared by the Management Board be approved
and adopted. The Supervisory Board also took note of the audit
results and examined the ﬁ nancial reports and Management
Reports in accordance with legal provisions. After the ﬁ nal re-
sults of the review by the Supervisory Board were available,
the Supervisory Board agreed to the results of the audit without
exception, and approved and thus adopted the annual ﬁ nancial
statements prepared by the Management Board. It also approved
the consolidated ﬁ nancial statements prepared by the Manage-
ment Board. The Supervisory Board also reviewed the proposal
of the Management Board for the use of the 2012 proﬁ ts and
agreed with this recommendation.

130

Supervisory Board of MorphoSys AG

DR. GERAL D MÖL L ER /// C HAIRMAN
Heidelberg, Germany

MEMBER OF T HE SUPERVI S OR Y B OARD OF:
4sigma Ltd.*, Bermuda (Chairman)
Adrenomed GmbH*, Germany (Director)
Bionostics, Inc.*, USA (Director)
Deﬁ niens AG, Germany (Chairman)
Illumina, Inc.*, USA (Director)
Invendo Medical GmbH*, Germany (Chairman)

DR. GEOF F RE Y N . VERNON /// DEP U T Y C HAIRMAN
Devon, UK

MEMBER OF T HE SUPERVI S OR Y B OARD OF:
Cornwall Farmers Ltd.*, UK (Non-Executive Director)
Medpharm Ltd.*, UK (Non-Executive Chairman)
Veryan Medical Ltd.*, UK (Non-Executive Chairman)
XL TechGroup, Inc.*, USA (Non-Executive Chairman)
Ziggus Holdings Ltd.*, UK (Executive Chairman)

DR. WALT ER A . BL ÄT T L ER /// MEMBER
Brookline, MA, USA

NO O T HER SUPERVI S OR Y B OARD MEMBERSHIP S

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

131

Supervisory Board of MorphoSys AG

DR. DANIEL C AMUS /// MEMBER
Geneva, Switzerland

MEMBER OF T HE SUPERVI S OR Y B OARD OF:
Cameco Corp.*, Canada (Director)
SGL Group SE, Germany (Member)
Valéo SA*, France (Member)
Vivendi SA*, France (Member)

DR. MARC C L UZEL /// MEMBER
Paris, France

NO O T HER SUPERVI S OR Y B OARD MEMBERSHIP S

K ARIN EA S T HAM /// MEMBER
Rancho Santa Fe, CA, USA

MEMBER OF T HE SUPERVI S OR Y B OARD OF:
Geron Inc.*, USA (Director)
Illumina Inc.*, USA (Director)
Trius Therapeutics Inc.*, USA (Director)
Veracyte Inc.*, USA (Member)

132

Senior Management Group of MorphoSys AG

SASCHA AL IL OVIC ///
Head of Corporate Finance &
Corporate Development

MAR T IN C L ARK ///
Head of Purchasing & Logistics

K L AUS DE WAL L ///
Head of Accounting & Controlling

SILVIA DERMIE T ZEL ///
Head of Human Resources

DR. MARKUS ENZEL BERGER ///
Head of Discovery Alliances & Technologies

DR. C L AUDIA GU T JAHR-L Ö SER ///
Head of Corporate Communications &
Investor Relations

133

Senior Management Group of MorphoSys AG

DR. BERND HU T T ER ///
Head of Intellectual Property

DR. BARBARA K REBS -P OHL ///
Head of Business Development

DR. L UD GER L ANGER ///
Head of Clinical Operations

C HARL O T T E L OHMANN ///
General Counsel

DR. RAL F O S T END ORP ///
Head of Protein Sciences & CMC

DR. HARAL D WAT ZK A ///
Head of Alliance Management

DR. ARMIN WEIDMANN ///
Head of Quality Assurance & Regulatory Aﬀ airs

DR. GÜN T ER WEL L NHOF ER ///
Head of Technical Operations

134

Glossary

A Antigen – Foreign substance stimulating

CAGR – Compound annual growth rate

antibody production; binding partner of
antibody

ADCC – Antibody-dependent cell-mediated
cytotoxicity; a mechanism of cell-mediated
immunity whereby an eﬀ ector cell of the im-
mune system actively destroys a target cell
that has been bound by speciﬁ c antibodies

ADCP – Antibody dependent cellular phago-
cytosis

Cash ﬂ ow – Key performance indicator
in the cash ﬂ ow statement used to assess
the ﬁ nancial and earning capacity

CD19 – Therapeutic target for the treat-
ment of B-cell lymphomas and leukemias

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

ALL – Acute lymphoblastic leukemia;
a form of cancer of the white blood cells
characterized by excess lymphoblasts

CD38 – Therapeutic target for the treat-
ment of multiple myeloma and certain
leukemias

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

Antibody library – A collection of
genes that encode corresponding human
antibodies

Clinical trial – Clinical trials allow safety
and eﬃ cacy 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

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

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

CMO – Contract Manufacturing Organization

B Biosimilars – Term used to describe

CRO – Contract Research Organization

oﬃ cially approved new versions of innova-
tor biopharmaceutical products, following
patent expiry

CTO – Contract Testing Organization

Fc-engineered – Modiﬁ cation within the
Fc part of an antibody to improve eﬀ ector
function

Fc-part – Constant part of an antibody
known as the Fc (Fragment, crystallizable)
region

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

G GCP – Good clinical practice; an inter-

national ethical and scientiﬁ c quality stan-
dard for designing, conducting, recording
and reporting trials that involve the partici-
pation of human subjects

GLP – Good laboratory practice; a formal
framework for the implementation of safety
tests on chemical products

GM -CSF – Granulozyte-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

Bispeciﬁ c – Antibody consisting of parts
from two diﬀ erent antibodies

EMA – European Medicines Agency

H HGB – German accounting standards

BiTE – A class of artiﬁ cial bispeciﬁ c mono-
clonal antibodies that are investigated for
the use as anti-cancer drugs by directing
the T cells’ cytotoxic activity against cancer
cells. BiTE® is a registered trademark of
Micromet AG

HuCAL – Human Combinatorial Antibody
Library. Proprietary antibody library en-
abling rapid generation of speciﬁ c human
antibodies for all applications (explanation
of GOLD/Platinum)

Human – Of human origin

135

Glossary

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

Inclusion Body Myositis – Inﬂ ammatory
myopathy

Inﬂ ammatory diseases – Inﬂ ammatory
tissue modiﬁ cation, often caused by auto-
immune reactions

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

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

Innovation capital – Investments in
start-ups with technologies and product
candidates being close to MorphoSys’s
areas of interest

N NHL – Non-Hodgkin lymphomas;

diverse group of blood cancers that
include any kind of lymphoma except
Hodgkin’s lymphomas

in vitro – In a test tube

in vivo – In a living organism

P Pharmacodynamics – Study of the

eﬀ ects of drugs on the body

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

Plaque psoriasis – Most common form
of psoriasis, a chronic, non-contagious
autoimmune disease which aﬀ ects the
skin and joints

Lantipeptides – Novel class of
therapeutics with high target selectivity
and improved drug-like properties

Life sciences – All branches of
science that study all organisms,
especially living ones

M Market capitalization – Value of a

company’s outstanding shares, as
measured by shares times current price

M&A – Mergers & Acquisitions

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

MRSA – Methicillin-resistant Staphylococ-
cus aureus; type of bacteria that is resis-
tant to certain antibiotics and causing
severe infections; occurs most frequently
among patients in healthcare settings

R R & D – Research and Development

Research Reagents – A substance
used in research applications

Rheumatoid arthritis – Inﬂ ammatory
disease of the joints; abbreviation: RA

Royalties – Percentage share of
ownership of the revenue generated
by drug products

S Scaffolds – Proteins with antibody -

like capabilities

Slonomics – DNA engineering and
protein library generation platform
acquired by MorphoSys in 2010

Small molecules – Low molecular
compounds

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

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

Target Product Profule (TPP)
– Summary of speciﬁ cations on a
planned therapeutic product

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

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

Toxicity – Poisonousness

Trifunctional antibodies – Modiﬁ ed
antibody binding three target structures

Y Ylanthia – Novel next-generation antibody

platform of MorphoSys

136

Index

Annual General Meeting
Assets
Auditor’s report

60, 106
39, 76
125

Earnings per share
EBIT
Employees
Environmental protection
Equity

87, 97
37
47et seq.
44
39, 78

Balance sheet
Bio-Rad

39, 76, 106
8, 13, 14, 19, 29 et seq., 40,
55 et seq., 74 et seq., 80, 83,
91 et seq., 104, 105, 126
17, 57

BYM338

C Cash ﬂ ows

Cash ﬂ ow statement
Capital expenditure
CD38
Change of control
CNTO1959
Committees of the
Supervisory Board
Competition
Convertible bonds
Corporate Governance Report
Cost of goods sold
Credit rating
Currency risk

61
25, 54
90, 112 et seq.
14, 59
35
40
108

D Declaration of Conformity

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

69 et seq.
61
58

Financial analysis
2013 Financial calendar
Forecast

34 et seq.
Back cover
40, 55

G Gantenerumab
Glossary
GM-CSF
Goodwill

27
134
17, 28
89, 91, 105

38
80
38
18 et seq.
71 et seq.
17

H Human resources

32, 47

Income taxes
Information required under
takeover law
Intellectual property
ISO certiﬁ cates

87, 91, 95

69
47
45

Key ﬁ gures

Front cover

Letter to the shareholders
Liabilities
Liquidity

7 et seq.
39, 106
31, 38, 58, 106

M Management Board

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

6, 53, 61,
65, 69 et seq.
13
12 et seq.
45
31 et seq.
15, 20, 24, 27, 30,
34, 40, 41, 52, 55,
56, 58, 105, 116, 120ﬀ
7, 9, 12, 16, 17, 19, 28,
29, 31, 36, 41, 42, 46,
54 et seq., 92, 102, 128
7, 18, 19, 26, 27, 40,
41, 46, 54 et seq., 92
7, 12, 18, 19, 29, 41,
42, 46, 54 et seq., 92, 122

MOR103

MOR202

MOR208

N Net Proﬁ t

O Operating expenses

Operating leases
Operating proﬁ t
Opportunities
Outlook

35, 58
87, 115
9, 35
14, 49 et seq.
55 et seq.

Patents
Pensions
Personnel costs
Pipeline
Procurement
Production
Proprietary pipeline
Provisions

25, 45, 53 et seq., 88
67
36, 95
Front cover, 22
44
44, 50, 90
57, 67
106

137

Index

Sales, general and
administrative expenses
Segment reporting
Segment Research Antibodies
Segment Therapeutic Antibodies

36
91 et seq.
92
8, 13
14, 20, 27, 29, 54, 56, 58

117
31
63, 115
42

Shareholdings, Management
and Supervisory Boards
Share price development
Share, repurchase
Social responsibility
Statements of changes in
shareholders’ equity
Stock-based compensation
Stock options
Subsequent events
Subsidiaries
Supervisory Board
Sustainability

78
35, 87
62 et seq., 113 et seq.
55
82 et seq.
126 et seq.
42

Q Quality assurance

Quality management

45
45, 46, 63

Remuneration report
Remuneration,
Supervisory Board
Remuneration,
Management Board
Supervisory Board Report
Research and
development
Research and
development expenses
Research Antibodies
Responsibility statement
Revenues
Revenue recognition
Risks
Risk management

65 et seq.

65 et seq.
126 et seq.

36
92
124
34
86
50 et seq.
50, 64

26, 88, 120 et seq.

Taxes
Trading volumes
Trainee position
Training

W WACC
WpHG

37
31
47
43 et seq.

91, 105
61

138

List of Figures and Tables

List of Figures

Fig

Organizational Structure of the MorphoSys Group
Partnered Discovery Segment’s Share of Total Revenues
Clinical Pipeline at Year-End
Overview of MorphoSys’s Latest Technologies
The MorphoSys Share
Total Headcount of the MorphoSys Group
Employees by Region
Employees by Segment and Function
Distribution of R&D Expenses

Fig. 1:
Fig. 2:
Fig. 3:
Fig. 4:
Fig. 5:
Fig. 6:
Fig. 7:
Fig. 8:
Fig. 9:
Fig. 10: Occupational Safety at MorphoSys
Fig. 11: Quality Management Systems at MorphoSys
Fig. 12: Patent Lifetime on Key Platform Technologies
Fig. 13: Workforce by Gender
Fig. 14: MorphoSys’s Risk Management System
Fig. 15: Description of Major Risks at MorphoSys
Fig. 16: The MorphoSys Compliance System
Fig. 17: Risk-Based Internal Audit Plan
Fig. 18: Legal Structure of the MorphoSys Group

13
16
22
23
31
33
33
34
36
44
46
47
48
50
51
64
65
82

139

List of Figures and Tables

List of Tables

Tab

Top 5 Monoclonal Antibody Drugs

Tab. 1:
Tab. 2: Market Data on Selected Partnered Programs in Clinical Phase 2
Development of Financial Performance Indicators
Tab. 3:
Sustainable Development of Key Performance Indicators (SD-KPIs) at MorphoSys
Tab. 4:
Key Performance Indicators 2012 related to Employees of the MorphoSys Group
Tab. 5:
Capital Expenditure on Tangible Assets in 2012
Tab. 6:
Tab. 7:
Key Data for the MorphoSys Share
Tab. 8: Multiple-Year Overview – Results of Operations
Tab. 9: Multiple-Year Overview – Financial Situation
Tab. 10: Multiple-Year Overview – Balance Sheet Structure
Tab. 11: Comparison of Actual Business Results with Forecasts
Tab. 12: Absence Rates at MorphoSys
Tab. 13:

Composition of the Supervisory Board
through Annual General Meeting on 31 May 2012

Tab. 14: Composition of the Supervisory Board from 31 May 2012
Tab. 15: Directors’ Dealings in 2012
Tab. 16A: Compensation of the Management Board in 2012
Tab. 16B: Compensation of the Management Board in 2011
Tab. 17: Compensation of the Supervisory Board

15
17
21
22
24
27
32
37
38
40
41
48

62
62
62
66
66
68

Imprint

MorphoSys AG
Lena-Christ-Str. 48
82152 Martinsried/Planegg
Germany
Phone: +49-89-89927-0
Fax: +49-89-89927-222
www.morphosys.com

Corporate Communications and
Investor Relations
Phone: +49-89-89927-404
Fax: +49-89-89927-5404
Email: investors@morphosys.com

140

Imprint

Concept and Design
3st kommunikation GmbH, Mainz

Photos
Andreas Pohlmann, Munich

Translation
Translate Plus Limited, London, UK

Editorial Ofﬁ ce
Friedrichs & Friends, Hamburg

Typesetting and Lithography
Knecht GmbH, Ockenheim

Printer
Westdeutsche Verlags- und
Druckerei GmbH, Mörfelden-Walldorf

Copy Deadline
19 March 2013
(except ﬁ nancial statements)

This ﬁ nancial report is also published
in German and is available for download
from our website (PDF, HTML).

HuCAL®, HuCAL GOLD®, HuCAL PLATINUM®,
CysDisplay®, RapMAT®, arYla®, Ylanthia®
and 100 billion high potentials® are registered
trademarks of MorphoSys AG.
Slonomics® is a registered trademark of
Sloning BioTechnology GmbH, a subsidiary
of MorphoSys AG.

Key Figures (IFRS)

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

RESULTS1)

Revenues

Cost of Goods Sold

R&D Expenses

S, G&A Expenses

Personnel Expenses
(Excluding Stock-based Compensation)

Capital Expenditure

Depreciation and Amortization
of Tangible Assets

Depreciation and Amortization
of Intangible Assets

EBITDA

EBIT

Net Profit/(Loss)

Net Proﬁ t/(Loss) from
Discontinued Operations
BAL ANCE SHEE T 2)

Total Assets

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

Intangible Assets

Total Liabilities

Stockholders' Equity

Equity Ratio (in %)

MORPHOSYS SHARE

12/31/12

12/31/11

12/31/10

12/31/09

12/31/08

12/31/07

12/31/06

12/31/05

12/31/04

51.9

0.0

37.7

12.1

24.1

1.8

1.7

3.5

7.9

2.5

1.9

82.1

0.0

55.9

14.9

27.7

2.9

87.0

7.3

46.9

23.2

29.6

13.8

81.0

6.7

39.0

23.9

26.1

3.8

71.6

7.1

27.6

20.5

21.5

3.8

62.0

7.9

22.2

24.8

18.8

12.0

53.0

8.0

17.5

21.4

18.1

4.0

1.7

2.1

1.6

1.5

3.8

15.5

9.8

8.2

4.0

19.2

13.1

9.2

3.8

18.1

12.8

9.0

4.8

21.9

16.5

13.2

3.7

13.3

8.3

11.5

3.4

10.3

5.4

6.0

- 0.4

0.0

–

33.5

2.5

14.0

10.8

0.7

0.9

2.7

8.6

5.3

4.7

–

22.0

0.97)

11.47)

7.57)

9,1

1,7

0,7

2,0

3,2

0,5

0,3

–

224.3

228.44)

209.84)

206.1

203.3

184.7

127.8

80.1

55.8

135.75)

35.0

22.3

202.2

90%

134.4

66.0

31.34)

197.1

86%

108.4

69.2

23.94)

185.9

89%

135.1

17.4

32.2

173.9

84%

137.9

19.7

41.3

162.0

80%

106.9

22.3

39.2

145.5

79%

66.0

14.8

27.8

100.1

78%

53.6

12.4

16.1

64.0

80%

37.2

12.8

16.4

39.4

71%

Number of Shares Issued

23,358,228

23,112,167 22,890,252 22,660,557 22,478,787 22,160,259 20,145,966 18,077,589 16,316,556

Earnings/(Loss) per Share, Diluted (in €)

0.086)

0.366)

Dividend (in €)

Share Price (in €)

PERSONNEL DATA 3)

Total Group Employees (Number)

Germany (Number)

Other Countries (Number)

29.30

17.53

421

328

446

352

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

0.28

13.77

172

145

0.02

12.70

132

1) Due to the Agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the years 2012 and 2011, revenue,

income and expenses in connection with the transaction are shown in the line item ‘Proﬁ t/(Loss) from Discontinued Operations’. All other line items consist of amounts from
continuing operations.

2) Due to the agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all of the segment AbD Serotec, for the year 2012, the line item

‘Total Assets’ includes current and non-current assets in connection with the transaction in the amount of € 40.9 million. The line item ‘Total Liabilities’ includes for the year 2012
current and non-current liabilities in connection with the transaction in the amount of € 3.7 million.

3) The total amount 2012 includes 135 employees from discontinued operations of AbD Serotec.

4) In 2011, a deferred tax asset in the amount of € 2.3 million has been oﬀ set with a deferred tax liability for better transparency. Both deferred tax asset and deferred tax liability
relate to income taxes levied by the same tax authority on the same taxable entity. To provide comparative information, prior year’s deferred tax asset and deferred tax liability
(€ 2.8 million) – and thus total assets as well as total liabilities and stockholders’ equity – have been adjusted accordingly.

5) Including an interest-bearing assignable loan in the amount of € 10.0 million and including cash reserves of the discontinued AbD Serotec segment in the amount of € 5.3 million
6) Consolidated net proﬁ t per share (diluted) including discontinued operations from the AbD Serotec segment
7) Excluding stock-based compensation

F I N A N C I A L C A L E N D A R

2013
03
05
06
07
11

5 March 2013
Publication of 2012 Year End Result

3 May 2013
Publication of 2013 Three Months’ Report

4 June 2013
2013 Annual General Meeting in Munich

31 July 2013
Publication of 2013 Six Months’ Report

7 November 2013
Publication of 2013 Nine Months’ Report

MorphoSys AG
Lena-Christ-Str. 48
82152 Martinsried / Planegg
Germany
Phone: +49-89-89927- 0
Fax:
www.morphosys.com

+49-89-89927-222