MorphoSys Annual Report 2013

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FY2013 Annual Report · MorphoSys

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A N N U A L R E P O R T 2013

the

Product Pipeline

MorphoSys’s Product Pipeline, as of 31 December 2013

Pro gram

P ar t ner

IndIc at Ion

Phase 1

Phase 2

Phase 3

marke t

MOR103

GSK

Rheumatoid arthritis

Multiple sclerosis

MOR208

Unpartnered

Chronic lymphocytic leukemia

MOR202

Bimagrumab

Celgene

Novartis

Acute lymphoblastic leukemia

Non-Hodgkin’s lymphoma

Multiple myeloma

Sporadic inclusion body myositis

Cachexia (cancer)

Sarcopenia

Mechanically ventilated patients

Cachexia (chronic obstructive pulmonary disease)

Gantenerumab

Roche

Prodromal Alzheimer’s disease

Genetically predisposed for Alzheimer’s disease

Japanese Alzheimer’s disease patients

CNTO3157

Janssen

Asthma

Safety/pharmacokinetic

CNTO6785

Janssen

Chronic obstructive pulmonary disease

Guselkumab

Janssen

Psoriasis

Rheumatoid arthritis

Palmoplantar pustulosis

BHQ880

Novartis

Multiple myeloma (with renal insufficiency)

LFG316

Novartis

Wet age-related macular degeneration

Smoldering multiple myeloma

LJM716

Novartis

Esophageal squamous cell carcinoma

Age-related macular degeneration

Multifocal choroiditis and panuveitis

HER2+ Cancer

HER2+ Cancer (combination with trastuzumab)

NOV-3

VAY736

Novartis

Solid tumors

n.d.

Pemphigus vulgaris

OMP-59R5

Oncomed

Pancreatic cancer

Small cell lung cancer

BAY94-9343

Bayer

BI-836845

NOV-7

Novartis

Vantictumab

Oncomed

Solid tumors

Cancer

Eye disease

Solid tumors

Breast cancer

PF-05082566

Pfizer

Cancer

Non-small cell lung cancer

l e g e n d :

o u t - l i c e n s e d t o pa r t n e r
p r o p r i e ta r y p r o g r a m
c o - d e v e l o p m e n t/
c o - p r o m o t i o n
pa r t n e r e d p r o g r a m s

Additionally, MorphoSys currently
has various proprietary and part-
nered programs in the discovery
or preclinical phase
(31 Dec. 2013: 40 programs in dis-
covery, 22 programs in preclinic).

EnginEEring the m EdicinEs
of tomorrow

morphosys has built a reputation in the pharmaceutical industry as the partner
of choice in the search for new antibody drugs. A number of very successful
research alliances and proprietary development activities have led to more
than 20 therapeutic antibodies in clinical trials. we will build on this success
and continue to develop and expand our proprietary portfolio.

we believe that successful drug development is not a matter of chance, but
based on a profound understanding of disease biology, extensive experience
in the selection, characterization, and development of compound candidates,
and also on excellent technologies.

we have applied our skills and knowledge to build a proprietary portfolio
of drug candidates and will concentrate even more on proprietary product
development in the future. in 2013, we gained two prestigious partners,
celgene and glaxosmithKline, for the further development of two candidates
from our portfolio.

l E Arn morE in our onl inE mA g A z inE
reports.morphosys.com/2013/

O N L I N E - M A G A Z I N E
Engineering the Medicines of Tomorrow

ENGINEERING

The foundation for the success or failure of a therapeutic project is, in
many cases, set at the very start. Correctly interpreting the biology
of the disease and selecting the best approach for treatment, form the
scientiﬁ c prerequisites. But even with the right treatment approach,
it’s the quality of the compound that is often decisive for the success
or failure of the project.

D I S C O V E R H O W W E S E L E C T C O M P O U N D S I N O U R O N L I N E M A G A Z I N E

MEDICINES

Due to their unique properties, therapeutic antibodies are still one of
the fastest growing drug classes in human medicine. Until a com-
pound is approved as a medication on the market, it must withstand
a highly critical examination in clinical trials and fulﬁ ll numerous
requirements and governmental requests. MorphoSys has acquired
extensive knowledge in order to plan and perform the clinical trials
of its proprietary programs internationally.

D I S C O V E R H O W W E D E V E L O P D R U G S I N O U R O N L I N E M A G A Z I N E

O N L I N E - M A G A Z I N E
Engineering the Medicines of Tomorrow

TOMORROW

In many ways, future drugs must be better than the prepara-
tions that are currently available. Clearly diﬀ erentiated
compounds that stand out from the mass of approaches and
break new ground will form the key value drivers in the
pharmaceutical industry. MorphoSys’s technologies and the
expertise of its people support the search for drug candidates
with unique properties.

F I N D O U T W H AT T H E D R U G S O F T O M O R R O W A R E E X P E C T E D T O A C H I E V E
I N O U R O N L I N E M A G A Z I N E

C o n t e n t s
Annual Report

contEnts
AnnuAl rEport

t h e C o m p An y
m a n ag e m e n t b oa r d o f m o r p h o sy s ag
l e t t e r to t h e s h a r e h o l d e rs
t h e m o r p h o sys s h a r e

0 6
1 1
3 2

G r o u p m AnA G e m e n t re p o r t
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
a n a ly s i s o f n e t a s s e t s , f i n a n c i a l p o s i t i o n ,
a n d r e s u lt s o f o p e r at i o n s
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 y 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 lo o k a n d f o r e c a s t
s tat e m e n t o n c o r p o r at e g ov e r n a n c e
a n d c o r p o r at e g ov e r n a n c e r e p o r t

1 4
3 8

5 0
5 8
6 8
6 9
74

r E f E r E n c E t o f i g u r E s

r E f E r E n c E t o tA b l E s

C o n t e n t s
Annual Report

f i nAn C i Al s tAt e m e n t s
c o n s o l i dat e d s tat e m e n t o f i n c o m e (i f rs)
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 b a l a n c e s h e e 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 h a n g e s i n
s to c k h o l d e rs ’ e q u i t y (i f rs)
c o n s o l i dat e d s tat e m e n t o f c a s h f lo w s (i f rs)
n ot e s
r e s p o n s i b i l i t y s tat e m e n t
au d i to r ’s r e p o r t

9 4
9 5

9 6
9 8

1 0 0
1 0 2
1 4 8
1 4 9

Ad d i t i o nAl i n f o rmAt i o n

1 5 0
1 5 4
1 5 6
1 5 8
1 6 0
1 6 2
1 6 4

r e p o r t o f t h e s u p e r v i s o ry b oa r d
s u p e r v i s o ry b oa r d o f m o r p h o sys ag
s e n i o r m a n ag e m e n t g ro u p o f m o r p h o sys ag
g lo s s a ry
i n d e x
l i s t o f f i g u r e s a n d ta b l e s
i m p r i n t

t h e C o m p A n y
Management Board of MorphoSys AG

Management Board
of MorphoSys AG

dr. simon morone y
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
Management Board of MorphoSys AG

DR. SIMON MORONE Y CHIEF EXECU T IVE OF F ICER

“MorphoSys has successfully completed the transition from a technology
provider to a true biopharmaceutical company with capabilities and assets
spanning technology and product development. We are investing in R&D
to build a proprietary portfolio of differentiated drugs – biopharmaceuti-
cals that can really make a difference in areas of unmet medical need.”

T H E C O M P A N Y
Management Board of MorphoSys AG

JENS HOL S T EIN CHIEF F INANC IAL OF F ICER

“The progress in our product pipeline was also reflected in a very success-
ful year financially. We intend to use our financial resources in order
to seize any opportunities which may arise, whether in-licensing of com-
pounds, joint development projects, or company acquisitions.”

T H E C O M P A N Y
Management Board of MorphoSys AG

DR. ARND T S C HO T T EL IUS CHIEF DEVEL OP MEN T OF F ICER

“The alliances with Celgene and GlaxoSmithKline for the further advance-
ment of MOR202 and MOR103 have clearly demonstrated our development
capabilities and have secured the next stages of development for these pro-
grams. We made great progress in developing MOR208, with three phase 2
studies being commenced, adding to the breadth of our portfolio.”

T H E C O M P A N Y
Management Board of MorphoSys AG

DR. MARL IE S SPROL L CHIEF S C IEN T IF IC OF F ICER

“With its diversity and breadth, the MorphoSys pipeline is one of the
strongest in the biopharmaceutical industry. The next stage of the
pipeline’s maturity – regulatory approval of ﬁ rst HuCAL antibodies –
is approaching. We are therefore well on track to make the medicines
of tomorrow a reality.”

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

Letter to the Shareholders

The eﬀ ort and investment that have gone into our proprietary research and development over the past several
years paid oﬀ handsomely in 2013. Through licensing agreements with Celgene and GlaxoSmithKline,
we demonstrated our ability to develop drug candidates from target molecule to lucrative partnership. These
advances in our proprietary portfolio were the main drivers of the Company’s value in 2013. The remarkable
progress we’ve made in product development is a gratifying reward for the decision to increase our focus in this
area. We are committed to building a rich pipeline of drug candidates and to maximizing our participation
in the value these products generate.

The alliances with Celgene and GlaxoSmithKline for the further advancement of MOR202 and MOR103 have
secured the next stages of development for these two programs. MorphoSys has beneﬁ ted already from
up-front payments and investments totaling approximately € 140 million. In the longer term, given success in
developing each compound, we can look forward to potentially lucrative milestone and royalty payments.
The alliance with Celgene brings the added beneﬁ t of a co-promotion option for MOR202 with a 50 % proﬁ t
share in the European market. This gives MorphoSys the opportunity to mature into a commercial organiza-
tion in a foreseeable time frame.

During 2013, we also made great progress in developing MOR208, with three new phase 2 studies being com-
menced. This is currently the most advanced compound in our portfolio that has yet to be partnered. The
clinical results we have seen thus far give us conﬁ dence that MOR208 has the potential to become a valuable
treatment option for a number of B-cell malignancies.

T H E C O M P A N Y
Management Board of MorphoSys AG

The progress in our Partnered Discovery pipeline was also remarkable in 2013. The HuCAL antibody gan-
tenerumab, which is being developed by Roche for the treatment of Alzheimer’s disease, continues to attract
attention. Needless to say, any therapy that improves outcomes for Alzheimer’s disease patients would be a
major advance. Beyond gantenerumab, other drug candidates in our partnered pipeline that address pressing
medical problems have also advanced. Bimagrumab, for example, is an antibody that was developed in our
alliance with Novartis to treat various diseases and conditions associated with loss of muscle function. In 2013,
bimagrumab became the ﬁ rst HuCAL antibody to receive breakthrough-therapy designation from the U.S.
Food and Drug Administration. Programs with this status enjoy a number of advantages from the regulatory
agency as they move through development. A few weeks after receiving the breakthrough-therapy desig-
nation, Novartis brought bimagrumab into a pivotal phase 2/3 study in sporadic inclusion body myositis.

Currently, our partnered pipeline comprises 16 antibodies in clinical trials. These are being developed 37 dif-
ferent clinical studies. In addition to the pivotal studies being conducted on gantenerumab and bimagrumab,
9 antibodies are in phase 2 studies and 5 antibodies are in phase 1. With its diversity and breadth, the
MorphoSys pipeline is one of the strongest in the biopharmaceutical industry. The next stage of the pipeline’s
maturity – regulatory approval of the ﬁ rst HuCAL antibody and receipt of the ﬁ rst royalties – is approaching.

The progress in our product pipeline was also reﬂ ected in a very successful year ﬁ nancially. The direct pro-
ceeds from our alliances with GSK and Celgene, those from the sale of AbD Serotec, and a capital increase
all contributed to a rise in our liquidity to approximately € 400 million. This strong cash position supports the
ambitious plans we have for our proprietary portfolio. We will develop our advanced projects MOR202 and
MOR208 as broadly and as quickly as possible, in the case of MOR202, in cooperation with our partner Celgene.
We also want to intensify our early-stage research activities, with the objective of developing and applying our
technologies to the generation of new drug candidates. Additionally, we aim to in-license more mature projects
as we have already done successfully in the case of MOR208. We intend to pursue all of these activities while
retaining our ﬁ nancial ﬂ exibility in order to seize any opportunities that may arise, whether in-licensing, joint
development, or company acquisitions.

t h e C o m p A n y
Letter to the Shareholders

Letter to the Shareholders

After several years during which the Company’s share price only partially reflected its progress, the MorphoSys
share increased in value by 87 % in 2013. On top of the strong performance in 2012, this substantial revalua-
tion of the Company reflects the progress we’ve made, particularly with our proprietary portfolio. We consider
this further confirmation that our shareholders attribute much more value to innovative, proprietary drug
candidates than to short-term optimization of financial results.

On the whole, 2013 was an outstandingly successful year for MorphoSys, and we look forward to an equally
exciting 2014. Clinical data from the ongoing MOR202 and MOR208 trials, as well as from numerous partnered
programs, plus activities which will strengthen our proprietary portfolio even further, will be the key events
to watch for in the year to come. We will continue to intensify our focus on proprietary drug development, with
innovative technology as a foundation.

Our success is only possible thanks to the commitment, loyalty, and creativity of our employees, to whom
I would like to extend my heartfelt appreciation. I would also like to thank you, our shareholders, for your
continued support. I am sure you will join me in wishing our Company a successful 2014.

Dr. Simon Moroney
Chief Executive Officer

C o n t e n t s

group
mAnAgEmEnt
rEport

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
a n a ly s i s o f n e t a s s e t s , f i n a n c i a l

p o s i t i o n , a n d r e s u lt s o f o p e r at i o n s
s u s ta i n a b i l i t y r e p o r t
r i s k a n d o p p o r t u n i t y 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
s tat e m e n t o n c o r p o r at e g o v e r n a n c e a n d

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

1 4

3 8

5 0

5 8

6 8

6 9

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

In the year 2013, MorphoSys concluded two landmark agreements within the
Proprietary Development business segment. The alliances with Celgene and
GlaxoSmithKline improve the Company’s prospects of forging ahead with the
development of MOR202 and MOR103 as well as expanding and advancing
additional clinical development candidates.

Operations and
Business Environment

organizational structure

orGAniZAt ion of t he morphosy s Group
The MorphoSys Group, consisting of MorphoSys AG and its subsid-
iaries, develops and commercializes high-quality antibodies* for
therapeutic applications. Leading proprietary technologies form
the basis of the business segments’ operating activities. The Part-
nered Discovery segment operates therapeutic development pro-
grams for drug candidates in cooperation with renowned biotech-
nology and pharmaceutical companies. In this segment, MorphoSys
works together with its partners on solutions for the most urgent
health issues. Proprietary, innovative therapeutic antibodies are
currently being developed in the second segment Proprietary De-
velopment. At a certain point in their clinical development, these
antibodies could be out-licensed to partners or co-developed in fu-
ture cooperations.

s e e f i G u r e

1, organiz ational structure of the morphosys group page 2 2

At the end of 2012, MorphoSys announced the sale of substantially
all of the AbD Serotec operating segment1 to Bio-Rad Laboratories,
Inc. (Bio-Rad). The closing of the transaction was dependent upon
the fulfillment of certain conditions which were complied with on
10 January 2013 (closing date). Substantially all of the AbD Serotec
segment was sold as of this date. Thus, in the first ten days of the
reporting year, the complete AbD Serotec operating segment was
still part of the MorphoSys Group. This third operating segment,
which had specialized in the production and sale of diagnostic an-
tibodies and research applications*, was sold upon the completion
of this transaction. All of the following information in this report
refers exclusively to the continuing operations of the Partnered
Discovery and Proprietary Development segments.

The completion of the transaction with Bio-Rad included the trans-
fer of the four locations in Puchheim, Germany, Düsseldorf, Ger-
many, Kidlington, Great Britain, and Raleigh, USA, to Bio-Rad.
Thus, for the remainder of the 2013 financial year, MorphoSys only
operated MorphoSys AG’s parent company location in Martinsried
near Munich, Germany. The Partnered Discovery and Proprietary

1 Bio-Rad acquired the AbD Serotec segment excluding the Poole Real Estate Ltd.

subsidiary, and without the Slonomics technology.

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

Development segments are located at this site, as are the central
Group functions of accounting, controlling, personnel, legal, pat-
ents, corporate communications and investor relations.

l eGAl s t ruC t ure of t he morphosy s Group

GROUP MANAGEMENT AND SUPERVISION
MorphoSys AG is the parent company of the MorphoSys Group, a
German stock corporation listed in the Prime Standard segment
of the Frankfurt Stock Exchange. In accordance with the German
Stock Corporation Act, the Company has a dual management
structure with the Management Board as the leading body and its
four members appointed and monitored by the Supervisory Board.
More detailed information concerning the Group’s management
and control as well as corporate governance in general may be
found in the Corporate Governance Report. The Senior Manage-
ment Group supports the management of MorphoSys AG and con-
sists of 19 managers from various departments.

The completion of the transaction with Bio-Rad on 10 January
2013 greatly simplified the Group’s structure in comparison to
the previous year. Along with the AbD Serotec operating segment,
three subsidiaries – MorphoSys UK Ltd., MorphoSys US, Inc., and
MorphoSys AbD GmbH – left the Group. As a result, four subsid-
iaries, in addition to the parent company MorphoSys AG, remained
part of the MorphoSys Group (MorphoSys USA, Inc., Poole Real
Estate Ltd., MorphoSys IP GmbH, Sloning Biotechnology GmbH).
The remaining two operating segments are concentrating exclu-
sively on therapeutic antibody research and development. The an-
tibody business for the diagnostic range was discontinued with
the sale of substantially all of the AbD Serotec research and diag-
nostic segment.

Business AC t ivi t ies

DRUG DE VELOPMENT
MorphoSys develops drugs together with its partners in the phar-
maceutical and biotechnology industries and through its proprie-
tary development activities. In the 2013 financial year, the Com-
pany was able to start three new partnerships in these areas with
Celgene, GlaxoSmithKline and Heptares. The revenues from these
partnerships provide MorphoSys with substantial cash flow which
is invested in the Company’s own research and development.
MorphoSys commands one of the broadest pipelines in the indus-
try and currently has a total of 81 individual therapeutic antibody
candidates and 43 clinical trials, of which the most advanced trials
are in phase 3.

s e e f i G u r e

3 , c l i n i c a l s t u d i e s w i t h m o r p h o s y s a n t i b o d i e s pa g e 2 3

TECHNOLOGIES
MorphoSys has developed a number of technologies that offer di-
rect access to fully human antibodies for the treatment of diseases.
MorphoSys’s most widely-known technologies include HuCAL*,
which is a collection of billions of fully human antibodies. Ylanthia*,
the next generation of antibody technologies from MorphoSys, is
currently the largest known antibody library* in Fab format* and
is based on an innovative concept for the generation of highly spe-
cific and fully human antibodies. MorphoSys believes Ylanthia
will shape a new standard in the pharmaceutical industry’s de-
velopment of therapeutic antibodies in this decade and beyond.
Slonomics* supplies MorphoSys with a patented, fully-automated
technology for gene synthesis and modification for the generation
of highly diverse gene libraries in a controlled process.

INNOVATION CAPITAL*
MorphoSys invests in promising start-ups and their technologies
and products when they coincide with the interests of MorphoSys.
MorphoSys combines cooperative elements with a classic approach
to investing and acting as an industry partner. Currently, the port-
folio consists of one investment: privately-owned Lanthio Pharma.
Lanthio Pharma specializes in the research and development of
lantipeptides*. Lantipeptides are an innovative class of therapeu-
tic substances demonstrating a high level of target molecule selec-
tivity* and improved compound properties.

The market for therapeutic antibodies continues to be one of the
fastest growing markets in human medicine and also one of the
most competitive. In 2013, the fully human* monoclonal antibody*,
adalimumab (Humira®), led the list of top-selling drugs worldwide
for the second consecutive time. In total, more than 15 of the 40
approved antibody-based drugs achieved annual revenues of more
than US$ 1 billion and reached blockbuster status as a result.

s e e f i G u r e

4 , t o ta l m a r k e t f o r a n t i b o d i e s pa g e 2 3

According to the pharmaceutical database Citeline, there are cur-
rently close to 420 monoclonal antibody candidates in clinical de-
velopment. This makes antibodies the largest category of biologi-
cally generated drug candidates. Traditionally, the most important
fields of application of antibodies – oncology and autoimmune, in-
flammatory and infectious diseases – are increasingly augmented
by new indications such as Alzheimer’s disease, osteoporosis, mus-
cular atrophy, or elevated cholesterol levels. In addition, emerging
technologies such as antibody drug conjugates (ADCs*), bispecific*
and trifunctional* antibodies, antibodies with modified Fc parts*,
as well as other antibody formats, will shape the diversity of the
antibody market.
*s e e G l o s s A r y pa g e 1 5 8

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

t op 5 mono C l onAl An t iB od y druGs

Generic name

Brand®

Company

Adalimumab

Humira

Abbott

Rituximab

Mabthera/Rituxan

Infliximab

Remicade

Roche, Biogen
Idec/Genentech

J&J, Merck,
Mitsubishi Tanabe

Trastuzumab

Herceptin

Bevacizumab

Avastin

Roche

Source: Datamonitor

indications
(fdA*/emA* approved)

revenues
estimate for 2013
in us$ billion

Rheumatoid arthritis*, juvenile idiopathic arthritis,
psoriatic arthritis, Bekhterev’s disease (also referred
to as ankylosing spondylitis), Crohn’s disease, plaque
psoriasis*

Non-Hodgkin’s lymphoma, chronic lymphocytic
leukemia, rheumatoid arthritis, Wegener’s
granulomatosis and microscopic polyangiitis

Crohn’s disease, pediatric Crohn’s disease, ulcerative
colitis, pediatric ulcerative colitis, rheumatoid arthritis,
Bekhterev’s disease (also referred to as ankylosing
spondylitis), psoriatic arthritis, plaque psoriasis

Adjuvant breast cancer, metastatic breast cancer,
metastatic gastric cancer

Metastatic colorectal cancer, non-small cell lung
cancer, glioblastoma, metastatic renal cell carcinoma

10.34

7.35

6.53

6.45

6.31

In commercializing its antibody technologies, MorphoSys is com-
peting with various providers which can be divided into two cate-
gories:
• antibody and antibody fragment technologies,
• technologies based on antibody-like structures (scaffolds*).

Market data which thoroughly describes the promotion of tech-
nologies within the field of antibody development is not available.
MorphoSys had 18 antibody candidates in the clinical pipeline at
the end of 2013 that are based on the HuCAL technology giving it
the lead in the field of antibody technologies.

MorphoSys competes with a number of companies in the field of
therapeutic antibody development and in the out-licensing of clini-
cal development candidates. In the 2013 financial year, MorphoSys
was able to conclude lucrative licensing agreements for two of its
proprietary development candidates, MOR103 and MOR202. The
direct payments received by the Company in the 2013 financial
year from these agreements amounted to more than € 130 million.
Both agreements provide further performance-related milestones
totaling more than € 1 billion, as well as tiered, double-digit royal-
ties* and, in the case of MOR202, a 50 % share in the profits gener-
ated in Europe.

PAR TNERED DISC OVERY
The Partnered Discovery segment uses MorphoSys’s technologies
for the research, development, and optimization of therapeutic anti-
bodies as drug candidates in extensive partnerships with pharma-
ceutical and biotechnology companies. While the development costs
are borne by the respective partners, MorphoSys is rewarded in
the form of research financing, milestone payments, and potential
royalties from the product sales of successful programs.

The Company’s largest alliance to date is the strategic alliance
with Novartis – a pharmaceutical partner with a steady growing
pipeline of biotechnologically developed drugs – which was closed
in 2007. This collaboration was extended in November 2012 by an
additional cooperation agreement. As part of the agreement, both
companies will use MorphoSys’s next generation antibody plat-
form, Ylanthia, to create therapeutic antibodies. In the future,
MorphoSys plans to leverage the technology to gain access to new
innovative target molecules for possible in-licensing and co-devel-
opment.

Drug development carried out with partners allows MorphoSys to
be also involved in indications where it would normally not pursue
a program itself due to Company’s lack of proprietary expertise in
that area. In the following, examples will be provided by discuss-
ing a number of areas.

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

DISE ASES OF THE CE NTR AL NERVOUS SYSTEM –AL ZHEIMER ’S

DISE ASE
With the antibody compound gantenerumab, developed by its part-
ner Roche, MorphoSys has a promising treatment for Alzheimer’s
disease in its pipeline. The HuCAL-based antibody is recognized
as one of the most advanced compounds today. Currently, there are
no other drugs available which can fundamentally slow the pro-
gression of Alzheimer’s disease. In the 2013 reporting year, Roche
finished the recruitment of patients for its ongoing pivotal phase
2/3 trial in up to 770 patients who are in the early stages of this
disease. Data release is expected for 2016. Additionally, the Roche
compound is being tested in an independent clinical trial by the
“Dominantly Inherited Alzheimer Network” (DIAN), which is test-
ing up to 210 patients for the competing antibody compound
solanezumab. Early 2014, Roche announced that a second phase 3
study in up to 1,000 patients with mild Alzheimer’s disease will be
initiated.

MUSCULOSKELE TAL DISORDE RS – SP OR ADIC INCLUSION BODY

MYOSITIS
With the antibody compound bimagrumab, developed by its part-
ner Novartis, MorphoSys has a promising treatment in its pipeline
for sporadic inclusion body myositis* and other diseases of muscle
weakness. During the 2013 reporting year, Novartis announced
the achievement of a regulatory milestone as it received break-
through-therapy designation from the US Food and Drug Adminis-
tration (FDA). Meanwhile, pivotal phase 2/3 trials have already
started. In addition, the antibody received “orphan drug designa-
tion” for the indication of sporadic inclusion body myositis in Europe
and the USA.

PROPRIE TARY DE VELOPME NT
An important goal of the Company is to generate additional
value by developing innovative proprietary antibody products.
MorphoSys’s scientists concentrate on indications such as in-
flammatory and auto-immune disorders*, as well as on cancer and
infectious diseases. The signing of the contracts in the 2013 finan-
cial year is evidence of this strategy’s potential.

s e e f i G u r e

5 , s a l e s p o t e n t i a l o f p r o p r i e ta r y p r o g r a m s pa g e 2 3

ONC OLOGY
The ability of monoclonal antibodies to bind specific antigens* has
led to their dominant position in the field of targeted cancer thera-
pies. The global market for innovative biological therapies for
cancer treatment is growing rapidly and steadily. Specifically, BCC
Research expects that the size of the biotherapeutic segment of
oncology will reach the level of US$ 50 billion in 2014. With
MOR202 and MOR208, MorphoSys has brought two proprietary
cancer programs into clinical trials* in the last two years and part-
nered with Celgene for the further development of MOR202 in the
2013 financial year.

MorphoSys’s antibody MOR208 is directed against the CD19* tar-
get molecule*, which is of particular interest with regard to many
B-cell tumors. According to the market research firm Decision
Resources, the therapeutic market for B-cell malignancies has a
size of approximately US$ 4 to 5 billion. Current biological thera-
pies for the treatment of B-cell malignancies, including the block-
buster Rituxan® (rituximab) and the antibody Gazyva® (obinutu-
zumab), approved in 2013, are directed against the CD20* target
molecule. Since the CD19 target molecule is expressed by a larger
number of B-cell subtypes in comparison to CD20, the CD19 anti-
bodies are considered an alternative approach. In addition, MOR208
was further improved by changing the constant Fc part of the an-
tibody. This modification leads to both a higher antibody-depen-
dent cell-mediated cytotoxicity (ADCC*), as well as improved anti-
body-dependent cellular phagocytosis (ADCP*).

MOR208 successfully completed a clinical phase 1/2a trial in
chronic lymphocytic leukemia (CLL*) in 2012. The first clinical
data was presented in December 2012 at the annual meeting of the
American Society of Hematology. In 2013, further data from this
trial was presented that confirmed the positive impression given
by the first set of data. MorphoSys initiated further clinical phase
2 trials for MOR208 in non-Hodgkin’s lymphoma (NHL*) and in
acute lymphoblastic leukemia (ALL*). In addition, MorphoSys an-
nounced the start of a so-called investigator-sponsored trial (IST*),
a phase 2 trial for the treatment of chronic lymphocytic leukemia
in which MOR208 is being tested in combination with the com-
pound lenalidomide. It is a clinical trial initiated by doctors of a US
research center, in which the entire responsibility (sponsor func-
tion) is carried by the clinical center and not by a pharmaceutical
company, MorphoSys in this case.

The most advanced therapeutic approach targeting CD19 is a bi-
specific antibody which is currently in phase 2 testing for the
treatment of ALL. Other clinical programs directed against the
same target molecule use different approaches to enhance the an-
tibody’s efficacy, e.g. using an antibody drug conjugate or chang-
ing the glycosylation pattern of the antibody molecule. As one of
the few independent providers, MorphoSys has a clinically tested
CD19 antibody that is still available to commercial partners for li-
censing on the market.

Another recent approach is the so-called CAR-T technologies*. In
this immunotherapy, immune cells (T cells) are obtained from the
patient’s blood. Subsequently, the T cells are modified outside the
body, so that they are better able to identify and target the tumor
cells of the patient. When these T cells are then re-introduced to
the patient’s blood by infusion, they bind to the targeted cancer
cells and destroy them.
*s e e G l o s s A r y pa g e 1 5 8

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

mArk e t dAtA on sel eC t ed p Ar t nered pro GrAms

in C l iniC Al phA se s 2 And 3

program
name

morphosys-
partner

indication

market potential

Gantenerumab

Roche

Alzheimer’s Disease

• High medical need due to lack of disease-modifying drugs
• High market growth potential due to aging population, earlier and improved
diagnosis, and the advent of accompanying immune therapies that are
prescribed in addition to existing therapies

• Expected CAGR* of 10.7 % with a total market volume of approximately

US$ 9.8 billion in 2021

Bimagrumab/BYM338

Novartis

Inclusion Body
Myositis, Cachexia

Inclusion Body Myositis:
• Slowly progressive degenerative inflammatory disease of the skeletal muscles

with very low prevalence of 1-9/100,000 (orphan disease)

• No curative therapy available thus far

Cachexia:
• Emaciation through degradation of muscle and fatty tissue
• 80 % of patients with advanced cancer are affected; responsible for at least 20 %

of deaths in cancer patients

Guselkumab/
CNTO1959

Janssen/J&J

Psoriasis*,
Rheumatoid Arthritis

Psoriasis:
• Lifelong disease with high morbidity; has a negative influence on the quality

BHQ880

Novartis

Multiple Myeloma

LFG316

Novartis

Age-related Macular
Degeneration (AMD),
Uveitis

OMP-59R5

OncoMed/GSK

Pancreatic Cancer

CNTO3157

Janssen/J&J

Asthma

CNTO6785

Janssen/J&J

Rheumatoid
Arthritis

of life

• Expected revenue growth from US$ 3.9 billion in 2010 to over US$ 7.4 billion

in 20201)

Rheumatoid Arthritis:
• Inflammatory autoimmune disease which leads to restricted mobility
• In the year 2010, there were nearly 4.6 million people1) with rheumatoid arthritis
• Expected annual growth rate of 4.3 %1) and a potential market of US$ 18 billion

in the year 2020

• Malignant tumor of the bone marrow (also called: plasmacytoma)
• A potential market of close to US$ 10 billion is expected in 2015
• Incidence: 102,000 patients worldwide, prevalence: 210,000 patients worldwide

AMD:
• Main cause of severe, irreversible visual impairment in the industrial nations
• 7.5 million AMD patients1
• In 2011, wet AMD accounted for 32 % of the global market for ophthalmology

(total market of approx. US$ 10 billion); by 2018 it is expected to reach a share
of 37 %

Uveitis (inflammation of the iris):
• Inflammation of the uvea, which can be caused by autoimmune diseases

(also through rheumatoid arthritis)

• Affects approx. 1 out of 4,500 people and appears more often in people

between 20 and 60 years of age; affects men and women equally

• High mortality rate (relative five-year survival rate is 5 %)
• Limited therapeutic treatment possibilities
• Incidence: Approx. 280,000 worldwide (2008)
• Expected market potential in 2022: US$ 1.3 million

• Worldwide, the daily lives of 300 million people are severely affected by asthma
• 2011: there are 62.9 million diagnosed cases of asthma1, estimate for 2021:

64.8 million

• Market potential in 2012: US$ 15 million; 2021: US$ 17 million (CAGR: 1.5 %)

• Inflammatory autoimmune disease that leads to restricted mobility
• In the year 2010, there were nearly 4.6 million people1) with rheumatoid arthritis
• Expected annual growth rate of 4.3 %1) and a potential market of US$ 18 billion

in the year 2020

Sources: Datamonitor, Decision Resources, www.pharmatimes.com, Visiongain, Globocan, GBI Research, www.bioportfolio.net, Decision Resources
1 Seven key markets: USA, Japan, France, Germany, Italy, Spain, and Great Britain

*s e e G l o s s A r y pa g e 1 5 8

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

In the area of B-cell disorders, various approaches are developed
using so-called small molecules*.

MorphoSys’s antibody, MOR202, is currently being developed for
the treatment of multiple myeloma* (MM) and is directed against
the CD38* target molecule. This project was successfully brought
into a partnership with Celgene in the 2013 financial year. Here,
MorphoSys was able to use the pharmaceutical industry’s growing
interest in CD38 as a target molecule for the treatment of MM and
thus had a better negotiating position as one of the few indepen-
dent providers of a CD38 antibody.

Measured in terms of the frequency of occurrence, MM is a rela-
tively small area of oncology. Nevertheless, the MM market has
shown impressive revenue figures in recent years and represents
a potential market of up to US$ 9 billion. Significant achievements
in clinical practice and the introduction of effective and high-
priced pharmaceutical products have led to an expansion of the
market. However, compared with the compounds currently avail-
able, there is still untapped market potential in terms of forms of
therapy for improving the chances of survival and reducing side
effects. Despite significantly higher survival rates, the disease is
seldom curable, and the majority of patients experience a relapse.
Therefore, alternative treatments, such as those that target the
CD38 surface antigen, are particularly in high demand. Next to
MOR202, there are two other clinical development programs tar-
geting CD38 in the industry.

INFL AMMATORY AND AUTOIMMUNE DISE ASES
Chronic inflammatory and autoimmune diseases affecting mil-
lions of patients worldwide, pose considerable social and economic
burdens. The IMS Institute for Healthcare Informatics is forecast-
ing a world market for the treatment of autoimmune diseases of
US$ 33 to US$ 36 billion in the year 2016.

MorphoSys’s antibody program, MOR103, is targeted against the
GM-CSF* (granulocyte macrophage colony-stimulating factor) tar-
get molecule, a central factor in the emergence of inflammatory
disease, such as rheumatoid arthritis and multiple sclerosis* (MS).
In 2013, MorphoSys brought this project into a lucrative partner-
ship with GlaxoSmithKline (GSK). MorphoSys will complete the
ongoing phase 1b trial in MS in the first half of 2014. GSK will take
over further development of MOR103.

The RA market offers significant commercial opportunities; bio-
technologically-produced drugs already account for more than
80 % of total revenues. The overall market is growing steadily and
Datamonitor expects the market to reach US$ 18 billion by the
year 2020.

On the MS market, biotechnologically-produced drugs today al-
ready represent a majority of the disease-modified treatment
methods – both in terms of revenues and according to the number
of approved therapies. Differences in relation to the development
and severity of multiple sclerosis lead to the disease being largely
segmented into several subtypes, including the relapsing-remit-
ting form of MS as well as primary and secondary progressive
forms. This segmentation opens up a variety of access routes to
markets for new therapeutic compounds. Currently, the best-sell-
ing MS drugs have combined annual revenue of approximately
US$ 11 billion and the market is expected to continue to grow.

MOR103 has the potential to become the first member of the anti-
GM-CSF antibody class of drugs. Comparable drugs currently in
development also target the GM-CSF molecule or its receptor.

New mechanisms of action for treating inflammatory diseases
such as rheumatoid arthritis, osteoporosis, and osteoarthritis are
being examined in cooperation with the Belgian Galapagos NV.
The aim is to develop new antibody therapies against these dis-
eases. As part of the alliance, both partners will contribute their
core technologies and expertise. Under the terms of the agree-
ment, Galapagos and MorphoSys equally share the research and
development costs as well as all future revenues.

INFLUENCING FAC TORS
Proper medical care for the public is the stated objective of many
states and the need continues to grow for new forms of therapy in
the face of demographic change. However, cost cutting could slow
down the development of the industry. As part of their austerity
measures, governments in Europe, in the United States, and in
Asia have stepped up their controls in health care and the reim-
bursement of drugs is examined very carefully.

As already seen in the field of small molecule drugs, generic com-
petition is now becoming an increasing challenge in the biotech-
nology industry due to the expiry of patent protection for drugs.
Nevertheless, the technical barriers to copying bioengineered
drugs remain high. However, many drug manufacturers, particu-
larly those from Europe and Asia, are now penetrating this market
and increasing the competitive pressure on established biotech-
nology companies. According to a study by the IMS Institute for
Healthcare Informatics, the global market for biogenerics* will
grow from US$ 693 million in 2011 to a range of US$ 4 billion to
US$ 6 billion by the year 2016.
*s e e G l o s s A r y pa g e 1 5 8

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

imp or tAn t AdvAnCes mAde By morphosy s in 2013
The following events had a decisive influence on the Company’s
business development in 2013:

In January 2013, MorphoSys completed the sale of AbD Serotec to
Bio-Rad for a total consideration of close to € 53 million. The total
amount includes the purchase price, compensation of € 5.3 million
for the cash reserves of the AbD Serotec companies, and a license
payment for the use of MorphoSys’s HuCAL technology in the
market for research reagents and diagnostics. Transaction costs of
€ 1.8 million were incurred in the reporting year in connection
with the sale of the AbD Serotec segment. As part of the divest-
ment, a disposal profit after deduction of transactional costs of
€ 6.2 million was realized in 2013. Through this transaction,
MorphoSys sharpened its focus on the therapeutic core business.

In February 2013, MorphoSys and Heptares agreed to cooperate in
the development of therapeutic antibodies against G-protein-cou-
pled receptors (GPCRs). This cooperation will provide access to
new target molecules for therapeutic antibodies based on the
Ylanthia library.

The phase 1/2a trial of the CD19 antibody MOR208 was finalized
for the treatment of chronic lymphocytic leukemia (CLL). The final
trial results showed an acceptable safety profile with an overall
response rate of approximately 30 %. In the spring of 2013,
MorphoSys began two phase 2 trials with the CD19 antibody
MOR208 in the area of non-Hodgkin’s lymphoma (NHL) and in
acute lymphoblastic B-cell leukemia (B-ALL).

In June 2013, MorphoSys signed a global licensing agreement with
GlaxoSmithKline for the compound MOR103. This contract pro-
vides for secured and performance-related payments of up to
€ 445 million as well as tiered double-digit royalties on net sales.
The program had completed a clinical phase 1b/2a trial in patients
with mild-to-severe rheumatoid arthritis in the 2012 financial
year. MorphoSys is committed to completing the ongoing phase 1b
safety trial in multiple sclerosis with increasing dosages. There-
after, GlaxoSmithKline will solely be responsible for the drug’s
further development.

Also in June 2013, MorphoSys signed a global development alli-
ance with Celgene for the MOR202 compound. This agreement
gives MorphoSys the opportunity to participate in the future value
of the MOR202 program via co-development and promotion in Eu-
rope. On 10 August 2013, the development cooperation with Cel-
gene for MOR202 came into effect after receiving antitrust clear-
ance. With the signing of the contract, Celgene acquired 797,150
new MorphoSys shares at a price of € 57.90 per share. By the end
of 2013, Celgene held approximately 3 % of MorphoSys’s registered
share capital.

Additionally, in September 2013 a capital increase from authorized
capital was carried out bringing gross proceeds of approximately
€ 84 million. Nearly 1.5 million new shares were issued to interna-
tional institutional investors at a price of € 55.76 per share, which
was the closing price of the day prior to the announcement. The
proceeds shall be used to fund the clinical development of MOR208
and MOR202. It is also planned to use the funds to advance the
development of other proprietary programs and to make potential
acquisitions of businesses, technologies, or products that would
meaningfully complement the business model and expand the
portfolio.

In October 2013, MorphoSys’s partner, Novartis, began a phase
2/3 clinical trial with the HuCAL-based antibody compound
bimagrumab (BYM338) in the area of sporadic inclusion body myo-
sitis. As a result, there are two partner programs in the final stage
of clinical development that are based on MorphoSys’s core tech-
nology.

Detailed information on MorphoSys’s business development dur-
ing the reporting year can be found in the sections titled “Re-
search and Development” and “Business Development”.

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

proprie tAr y C l iniC Al produC t C AndidAt e s

Compound

mor103

HuCAL antibody directed against the
cytokine GM-CSF (granulocyte-macro-
phage colony-stimulating factor),
a target molecule for a broad spectrum
of anti-inflammatory therapies

Characteristics

• Aimed at both monocytes and

macrophages

• Extremely high binding affinity
• Rapid onset of therapeutic effect

Financing

Worldwide licensing agreement with GSK
• GSK is responsible for all further

development and commercialization
of MOR103 in all indications

• Up-front payment to MorphoSys in the

mor202

HuCAL antibody directed against CD38,
a target molecule for the treatment of
multiple myeloma and certain types of
leukemia

• Binds to a unique epitope
• Causes death of the cancer cells

through cytotoxic effects

• Preclinical* trials show synergistic

effects with bortezomib and
lenalidomide

• Administered by two-hour infusion

Co-development and co-promotion with
Celgene
• Both companies co-develop MOR202
worldwide, cost-sharing 2/3 Celgene,
1/3 MorphoSys

amount of € 22.5 million in 2013

• Up-front payment in the amount of

• Eligible to receive additional milestone
payments from GSK amounting to up
to € 423 million as well as tiered
double-digit royalties on net sales

€ 70.8 million, plus equity investment of
€ 46.2 million

• Milestone-related payments of up to

€ 511 million

• Marketing in Europe results in 50:50
division of earnings, outside of this
market, MorphoSys receives tiered
double-digit royalties on net sales

Current Status

• Successfully completed phase 1b/2a

• Ongoing phase 1/2a trial in patients

mor208

Humanized, Fc-optimized anti-CD19
anti body for the treatment of malignant
diseases of B cells, in-licensed in 2010

• Fc optimization triggers a significantly
increased immune response using anti-
body-dependent cellular cytotoxicity
(ADCC)

• Favorable schedule of administration
• Uncomplicated production

Completely under MorphoSys’s control
• Funding currently entirely through

MorphoSys

Start of 3 new phase 2 clinical trials in
2013:
• ALL trials in 30 patients, data

in RA patients

• Phase 1b trial in multiple sclerosis is
ongoing, data expected for H1/2014

*s e e G l o s s A r y pa g e 1 5 8

with multiple myeloma, data expected in
H2/2014

• Further studies, including combination

expected in H2/2014

studies, being planned

• NHL trial with four subtypes
• Combination study of lenalidomide in
CLL, performed independently of
MorphoSys (IST)

compAny
ovErviEw

orgAnizAt ionAl struc turE of thE morphosys group

p h a s e 1

p h a s e 2

p h a s e 3

Abbildung 1

m o r p hosys Ag

s E g m Ents

i E l d s of usE

Sale of substantially all of the
AbD Serotec operating segment with
a closing date of 10 Jan. 2013

s e g m e n t :

a b d s e r o t e c

f i e l d o f u s e :

r e s e a r c h a n d d i a g n o s t i c s

s e g m e n t s :

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

f i e l d s o f u s e :

t h e r a p e u t i c a n t i b o d i e s

rEvEnuEs of thE morphosys group by sEgmEnt (in million €)

t o ta l r e v e n u e
a b d s e r o t e c

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

Abbildung 2

81.0

87.0

82.1*

51.9*

78.0*

61.7

19.3

1.0

2009

66.3

20.2

1.8

2010

* Group revenues from continuing operations

79.3

2.4

2011

44.7

7.0

2012

51.0

26.9

2013

cl inicAl studiEs wi th morphosys Ant ibodiEs (31 December)

2009

2010

2011

2012

2013

totAl mArKE t for Ant ibodiEs

of propriE tAry progrAms*

sAlEs potEnt iAl

g l o b a l s a l e s o f

m o n o c l o n a l a n t i b o d i e s

a p p r o v e d t h e r a p e u t i c

a n t i b o d i e s o n t h e m a r k e t

3.2

billion us$

(in billion US$)

number

53.9

67.2

61.7

49.7

45.2

120

100

2.1

billion us$

1.4

billion us$

790

million us$ 350

million us$

250

million us$

2009

2010

2011

2012

2013*

Rheumatoid

Arthritis

Multiple

Myeloma

NHL

CLL

ALL

mor103

mor202

mor208

Source: Datamonitor

* Estimate

Source: Defi ned Health

* Information is based on an external study commissioned by MorphoSys, using

publicly available information; the numbers given do not represent company guidance.

orgAnizAt ionAl struc turE of thE morphosys group

p h a s e 1
p h a s e 2
p h a s e 3

cl inicAl studiEs wi th morphosys Ant ibodiEs (31 December)

2009

2010

2011

2012

2013

Abbildung 3

totAl mArKE t for Ant ibodiEs

sAlEs potEnt iAl
of propriE tAry progrAms*

g l o b a l s a l e s o f
m o n o c l o n a l a n t i b o d i e s

a p p r o v e d t h e r a p e u t i c
a n t i b o d i e s o n t h e m a r k e t

3.2

billion us$

(in billion US$)

number

120

100

67.2

61.7

53.9

49.7

45.2

2.1

billion us$

1.4

billion us$

790
million us$ 350

million us$

250

million us$

Abbildung 4

Abbildung 5

2009

2010

2011

2012

2013*

Rheumatoid
Arthritis

Multiple
Myeloma

NHL

CLL

ALL

mor103

mor202

mor208

Source: Datamonitor
* Estimate

Source: Defi ned Health
* Information is based on an external study commissioned by MorphoSys, using

publicly available information; the numbers given do not represent company guidance.

compAny

ovErviEw

m o r p hosys Ag

s E g m Ents

i E l d s of usE

Sale of substantially all of the

AbD Serotec operating segment with

a closing date of 10 Jan. 2013

s e g m e n t :

a b d s e r o t e c

f i e l d o f u s e :

r e s e a r c h a n d d i a g n o s t i c s

s e g m e n t s :

pa r t n e r e d d i s c o v e r y

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

f i e l d s o f u s e :

t h e r a p e u t i c a n t i b o d i e s

t o ta l r e v e n u e

a b d s e r o t e c

pa r t n e r e d d i s c o v e r y

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

61.7

19.3

1.0

2009

66.3

20.2

1.8

2010

* Group revenues from continuing operations

rEvEnuEs of thE morphosys group by sEgmEnt (in million €)

81.0

87.0

82.1*

51.9*

78.0*

79.3

2.4

2011

44.7

7.0

2012

51.0

26.9

2013

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

strategy and performance
management

s t rAt eGy
Based on its high-performance technologies, MorphoSys develops
innovative drug candidates, whereby its focus is on antibody-
based compounds. Revenues are generated in partnerships with
pharmaceutical and biotechnology companies to create a stable
financial base and to develop proprietary drug candidates. This
business model promotes the steady expansion of the product pipe-
line and provides long-term value growth to the Company’s share-
holders.

The Partnered Discovery segment develops optimized therapeutic
antibodies for partners in the pharmaceutical industry. With 75
individual antibodies in partnered programs at the end of the 2013
financial year, MorphoSys has one of the broadest antibody pipe-
lines in the industry. The contractually agreed payments that re-
sult include licenses for technologies and funded research services
as well as performance-based milestone payments and royalties
on product sales. Cash flows that are generated in this manner can
be reinvested in the Proprietary Development segment. The devel-
opment of proprietary antibody programs is based on the same
technology platform. The compounds in this segment, however,
are initially developed in-house. Only in the course of the clinical
phase are these compounds either out-licensed to a pharmaceuti-
cal or biotech company for further development and commercial-
ization, or brought into a cooperation with a partner (co-develop-
ment). Under certain conditions, individual projects can also be
developed in-house for an extended period of time; possibly even
up to the point where they are marketable.

MorphoSys’s corporate strategy is largely dependent on the Com-
pany’s innovative technologies. The antibody platforms serve both
as a generator of collaborations with pharmaceutical and biotech-
nology companies, as well as the basis for successful proprietary
developments. The growth drivers are mainly HuCAL – the most
successful antibody library in the pharmaceutical industry to
date – and the follow-up platform Ylanthia, which is currently the
largest known antibody library in Fab format.

With regard to future business development, MorphoSys monitors
the international biotechnology industry very closely to ensure
sustainable growth via attractive acquisitions and in-licensing.
Cash reserves available at the end of 2013 are allocated for invest-
ments in proprietary research and development, as well as for stra-
tegic transactions that may strengthen MorphoSys’s technology
base and its therapeutic pipeline. The stated objective is to further

increase the enterprise value while maintaining financial disci-
pline and stringent cost control through significant investments in
the Company’s proprietary development activities.

perf ormAnCe mAnAGemen t
MorphoSys uses both financial and non-financial indicators to
achieve sustainable business growth and enhance value for its
shareholders. These indicators help monitor the success of strate-
gic decisions in daily operations and to take appropriate counter-
measures in a timely manner when necessary.

FINANCIAL PERFORMANCE INDICATORS
The financial indicators used to evaluate the Company’s operating
performance are mainly key ratios such as revenue and profit from
operations. Performance is measured on a monthly basis and bud-
get planning for the current financial year is reviewed and up-
dated quarterly for all segments. Additionally, a medium-term
budget is prepared annually that covers the subsequent three
years. Detailed cost analyses are carried out on an ongoing basis.
This is the basis used by the Company to monitor its adherence to
financial targets and conduct comparisons to previous periods.
Selling, general, and administrative expenses (S, G&A) as well as
research and development (R&D) expenses are monitored partic-
ularly closely.

MorphoSys’s business performance is influenced by factors such
as milestone and license payments, research and development ex-
penses, operating cash flows, liquidity, and working capital. These
indicators are also evaluated and compared on a regular basis,
whereby the main focus is on cash management, the impact of cur-
rency effects, and the attractive investment opportunities that
present themselves. The net present values of investments are de-
termined using discounted cash flow models*.
*s e e G l o s s A r y pa g e 1 5 8

NON - FINANCIAL PERFORMANCE INDICATORS
In order to illustrate the full scope of the Company’s value chain,
non-financial performance indicators and financial-related consid-
erations are treated as equal components; for example the prog-
ress of the product pipeline, the management of partnerships, or
employee-related key ratios (staff turnover rate, length of service,
workforce absence rates, etc.).

s e e f i G u r e s

8 –12 , e m p l o y e e f i g u r e s at a g l a n c e pa g e s 3 6 t o 3 7

The following presentation of non-financial performance indica-
tors is enhanced and elaborated by the explanations found in the
Sustainability Report (pp. 50 to 55) with the appropriate refer-
ences made to the related sections.

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 of f inAnC iAl perf ormAnC e indiC At ors

in million €

2013

2012

2011

2010

2009

MorphoSyS G roup

Revenues from continuing operations1

EBIT (Earnings before interest and taxes)
from continuing operations 2

partnered diSc overy

Segment revenues

Segment result

proprie tary de velopMent

Segment revenues

Segment result

abd Serotec

Segment revenues

Segment result

78.0

9.9

51.0

25.4

26.9

(0.5)

0.6

0.1

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

1 Revenues of discontinued operations 2013: € 0.6 million (2012: € 17.7 million; 2011: € 18.7 million); 2009 through 2010: total Group revenues
2 2009 through 2010: profit from operations

MorphoSys’s ambition is to develop world-class antibody technolo-
gies and maintain its leading position in the market for therapeu-
tics by virtue of its broad product pipeline. To achieve this goal, the
Company’s strategy is directed at the steady development of its
product pipeline, both in terms of the number of therapeutic anti-
bodies as well as in terms of their quality and maturity. Since suc-
cessful products are based on world-class technologies, the prog-
ress of the technological development is also a key performance
indicator. For more information on R&D at the MorphoSys Group,
please refer to the section titled “Research and Development” (pp.
29 to 31).

In addition to the quality of the research and development work,
the professional management of the partnerships also stands at
the center of our success. Next to new contracts, this includes the
strategic development of existing alliances. For more information
on our partnered projects, please refer to the section titled “Re-
search and Development with Partners” (p. 30).

Non-financial performance indicators that are also crucial for sus-
tainable corporate success:

Well-trained and dedicated employees are the prerequisites for
long-term success in an R&D driven industry such as biotech-
nology. The Company can only secure and expand its competitive

edge by employing a performance-oriented and forward-looking
human resources strategy. Therefore, human resources manage-
ment plays a key strategic role. The aim is to create enthusiasm for
MorphoSys among promising talents and bind key performers to
the Company in addition to continuously and systematically train-
ing the employees. A sign of the personnel management’s success
in recent years is MorphoSys’s highly-qualified and experienced
workforce. Information on personnel management at MorphoSys,
may be found under the section titled “Human Resources” (pp. 35
to 37) and in our Sustainability Report (pp. 54 to 55).

Responsible behavior is a hallmark of MorphoSys’s corporate gov-
ernance. It is crucial to always observe strict ecological and social
principles. For this reason, all processes and products are tested in
terms of their impact on environmental protection and occupa-
tional safety. Equally essential to a progressive business strategy
is rigorous quality assurance. This ensures that both our own high
quality standards are met as well as those of our partners and
customers. Particular attention is paid to the quality requirements
in clinical trials. Having the highest quality and safety standards
ensures that MorphoSys always meets these requirements in a
flawless manner – a critical success factor for sustainable business
success. Further details may be found in the Sustainability Report
(p. 50 to 55).

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

sustAinABle development of key performAnCe indiCAtors (sd-kpis)

At morphosys (3 1 dEcEmbEr)

perforMance in proprie tary
reSe arch & de velopMent1
(nuMber of individual antibodieS)

Programs in Discovery

Programs in Preclinic

Programs in Phase I

Programs in Phase II

total

perforMance in partnered pro G r aMS1
(nuMber of individual antibodieS)

Programs in Discovery

Programs in Preclinic

Programs in Phase I

Programs in Phase II

Programs in Phase III

total

r&d e xpenSeS ac c ordinG to SeG Ment
(in Million € )

Partnered Discovery

Proprietary Development

Technology Development

total

2013

2012

2011

2010

2009

17.5

27.5

4.2

49.2

16.0

18.1

3.6

37.7

19.1

33.9

2.9

55.9

18.9

25.9

2.1

46.9

19.2

19.1

0.7

1 The method of counting proprietary and partnered programs has been adapted compared to the 2012 Annual Report:

Individual antibodies are counted, regardless of the number of indications for which they are developed.

Professional procurement and supply management ensures a con-
sistent level of high quality of goods, consultancy, and other
services at the best price/performance ratio for the Company.
Established bidding contests and rating processes facilitate the
evaluation of products and services. Suitable guidelines ensure
that best-practice solutions are taken into account in procurement
processes group-wide. For more information on purchasing and
procurement management, please refer to our Sustainability Re-
port (p. 52).

LE ADING INDICATORS
MorphoSys monitors leading indicators relating to the macroeco-
nomic environment, the industry, and the Company itself on a
monthly basis. On a company level, economic data on the progress
of individual programs is gathered for the therapeutic segments.

For macroeconomic leading indicators, MorphoSys relies on gen-
eral market data from external financial studies, which is reviewed
for industry transactions, changes in the legal environment, and
the availability of research funds.

For each active collaboration, a joint steering committee meets
regularly to update and monitor the programs’ progress and the
emergence of any potential milestone payments. As part of the al-
liance management, this continual review allows early interven-
tion in cases of potential failures, and provides information on ex-
pected milestone payments at a very early stage. In the case of
inactive collaborations, a report is provided by the partner which
helps MorphoSys track the status of the ongoing therapeutic pro-
grams.

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

In the area of business development, market analyses serve as
early indicators and help determine the market’s demand for
new technologies. Permanent monitoring of the market allows
MorphoSys to react to trends and demands at an early stage and
initiate its own new activities and partnerships.

Prior to the development of a therapeutic product, a Target Product
Profile (TPP)* is created. This procedure provides an early indica-
tion of the properties a product must attain in order to be success-
fully placed on the market. Key questions are also clarified within
this process, such as the level of efficacy to be achieved, whether
an improvement in the safety profile is at the heart of development,
and if the focus should be on a modified administration of the drug
candidate. A detailed description of the possible positioning in the
market and the relevant patient groups is also part of the TPP.
Permanent monitoring of the criteria and their fulfillment ensures
that, in the course of product development, the most important fac-
tors are always considered and that changes can be responded to
in a timely manner.

developments in the business
Environment

The effects of the debt crisis began to ease gradually in the euro-
zone. To avoid stifling the economic recovery from the start, the
European Central Bank (ECB) maintained its low interest rate
strategy. The key interest rate remained at a record low of 0.25 %.
Nevertheless, the economy in the euro area has only seen a slow
recovery since the recession ended in the spring of 2013. The
unemployment rate continued to rise and was recently near 12 %.
The Organisation for Economic Co-operation and Development
(OECD) estimates that in 2013, gross domestic product (GDP*) in
the eurozone contracted again by around 0.4 %. One negative eco-
nomic factor came from Cyprus, where the extensively discussed
austerity plan envisaged making even small savers liable. The fear
of other EU states adopting similar measures led to increased un-
certainty and put pressure on the stock markets. In April, Portu-
gal’s Constitutional Court also declared key parts of the austerity
budget as unconstitutional. The German economy, however, was
able to again record a slight year-on-year rise in GDP growth of
about 0.5 %. This growth was due to robust private consumption in
Germany. Additionally, positive signals came from strong German
export data. In October, the sale of goods abroad worth € 99.1 bil-
lion even set a new record.
*s e e G l o s s A r y pa g e 1 5 8

In 2013, the US experienced restrained economic growth and,
according to OECD estimates, GDP grew 1.7 %. Federal budget con-
solidation and a sluggish business and consumer climate stag-
nated growth and the budget crisis intensified even further over
the course of the 2013 financial year. The temporary compromise
found among Democrats and Republicans in late 2012 did not
result in a final agreement and the automatic budget cuts, the so-
called fiscal cliff, occurred in March 2013. The situation escalated
during the year and resulted in a day-long shutdown of the public
administration (government shutdown) in early October, which
brought public life to a standstill. However, towards year’s end, the
parties could at least temporarily avoid the next looming budget
crisis by agreeing to a minimum compromise.

News from Asia elicited expectations of a further ease in monetary
policy. However, a sharp rise in interest rates on the Chinese inter-
banking market sparked temporary worries among market par-
ticipants that the recovering economy may be seeing renewed
weakness and thus impact the momentum of the global economy
in the months to come. Some observers saw this as a sign of trou-
ble in the Chinese financial sector. Consequently, the stability of
some of the banks was critically questioned. The OECD expects
Japan to report GDP growth of 1.8 % in 2013 and expects strong
GDP growth in China of 7.7 %.

The development of the global economy does not usually have an
immediate effect on the business development of MorphoSys. Dur-
ing the period under review, had the US budget crisis and the
forced leave of absence of the US Federal Administration escalated
further, it may have had a limited impact on MorphoSys’s business
development. Such events could cause delays in the work of the US
Food and Drug Administration (FDA) as well as delays at the re-
search centers of the National Institutes of Health (NIH), which
would also ultimately affect the processes of drug development
projects. However, there was no evidence that the above caused a
noticeable change in MorphoSys’s business performance in 2013.

CurrenC y devel opmen t s
Despite weak economic data from the eurozone, the common cur-
rency demonstrated excellent performance in 2013. The euro expe-
rienced strong growth – particularly in the second half of the
year – and not only against the US dollar. At only € 0.72 per dollar
in October 2013, the US currency traded at its lowest level in over
two years. At year’s end, trading activity on international financial
markets was marked by solidifying hopes of leading central banks
continuing to provide ample liquidity.

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 interest rate decision by the ECB and positive economic data
from the United Kingdom in 2013 were responsible for ensuring
that the British pound could gain some ground against the euro.

Changes in these three currencies affect the costs and revenues of
MorphoSys although to a lesser extent than in previous years fol-
lowing the disposal of AbD Serotec. In 2013, MorphoSys predomi-
nantly accounts in euro. A detailed description of the currency
impact in the course of 2013 may be found in the financial analysis
on page 38.

devel opmen t s in t he phArmACeu t iC Al And

Bio t eChnol oGy indus t ry
According to estimates by the US market research institute, IMS
Institute for Healthcare Informatics, the pharmaceutical sector
achieved revenues of approximately US$ 830 billion worldwide
last year and is expected to grow to over US$ 1 trillion in 2017.
More than two-thirds of this amount are derived from the pharma-
ceutical industry in the eight largest markets: the US, Germany,
France, Italy, the UK, Spain, Japan, and China. The US market re-
mained the largest single pharmaceutical market in 2013.

The emerging countries are considered to be the decisive growth
drivers. Although per capita expenditure on drugs is still rela-
tively low, incomes are growing and health insurance systems
were or are expected to be implemented. The so-called pharmerg-
ing markets, which include China, India, Brazil, and Turkey, are
expected to comprise about two thirds of total revenue growth by
2017 and represent approximately 35 % of the global pharmaceu-
tical market. According to IMS, the Chinese market alone is ex-
pected to double to a range of US$ 160 – 190 billion by the year
2017.

The pharmaceutical industry continues to see significant chal-
lenges due to the expiry of patent protection for blockbuster prod-
ucts and from the competition presented by generics – compound
copies of the original drugs. The term “patent cliff” describes the
closely spaced patent expiration dates for pharmaceutical block-
busters in the years 2009 to 2015 and their impact on the pharma-
ceutical industry. Whereas in the past, competition from generics
mainly concerned chemically-produced drugs, generic versions of
biopharmaceuticals – so-called biosimilars – are also finding their
way into the future markets. Due to the complexity of biopharma-
ceuticals, including antibodies, their barriers to market entry con-
tinue to be substantially higher than those for generic versions of
chemically-produced drugs, due in large part to regulatory ap-
proval requirements. This is reflected in the pricing of biosimilars,
which have significantly lower price discounts.

According to the National Venture Capital Association and Price-
waterhouseCoopers, venture capital investments – the key source
of capital for privately owned companies and start-ups – grew 8 %
in the US life sciences sector* and amounted to US$ 4.5 billion.
Europe was not able to join this trend according to Dow Jones Ven-
tureSource.
*s e e G l o s s A r y pa g e 1 5 8

devel opmen t s in t he An t iBod y indus t ry
In the USA, the compound Kadcyla® (trastuzumab emtansine) was
approved in the first quarter of 2013 as a new antibody drug con-
jugate for the treatment of HER2-positive metastatic breast cancer.
In the fourth quarter of 2013, the FDA approved Gazyva® (obinutu-
zumab), which is an antibody developed for the treatment of pa-
tients with previously untreated chronic lymphocytic leukemia
(CLL). Both drugs are marketed by the Roche pharmaceutical com-
pany.

The compound Inflectra®, a generic drug of the compound Remi-
cade® (infliximab), became the first biogenerically produced mono-
clonal antibody to receive regulatory approval in Europe. Inflectra
was approved for the treatment of inflammatory diseases such as
rheumatoid arthritis and psoriasis.

In terms of research results, therapeutic antibodies were amongst
the approaches highlighted at ASCO 2013, the most important con-
ference in the field of cancer research. The antibodies nivolumab
and lambrolizumab, both directed against the target molecule
PD-1, which regulates the immune system’s ability to fight cancer,
attracted particular attention due to positive clinical data.

In terms of licensing agreements, the contracts concluded by
MorphoSys with GlaxoSmithKline and Celgene counted among the
most extensive collaborations across the entire industry in the
2013 business year. Furthermore, the pharmaceutical companies
Bayer, Pfizer, and Astellas also signed large collaboration agree-
ments, geared more toward immunoconjugates, with the biotech
companies Seattle Genetics, Cytomyx, and Ambryx. In the first
quarter of 2013, the biotechnology company Biogen Idec had an-
nounced it was purchasing all of the rights to the multiple sclerosis
antibody Tysabri from its development partner Elan Corp. Biogen
paid Elan US$ 3.25 billion for these rights.

In terms of acquisitions, the purchase of Onyx Pharmaceuticals
Inc. for approximately US$ 10 billion by biotechnology giant Amgen,
was the most relevant transaction in the industry during the re-
porting year. Onyx specializes in the development of anticancer
drugs and is involved in the treatment of multiple myeloma with

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 compound Kyprolis® (carfilzomib). Through its subsidiary
Medimmune, the British pharmaceutical company AstraZeneca
acquired the biotech company Spirogen for an initial US$ 200 mil-
lion and further performance-related payments of up to US$
240 million. Spirogen specializes in cancer antibodies.

In August 2013, the FDA granted breakthrough-therapy designa-
tion to the HuCAL antibody developed by Novartis, bimagrumab
(formerly: BYM338). This may result in MorphoSys receiving roy-
alties from product sales earlier than expected.

reGul At ory environmen t
The healthcare sector is highly regulated in terms of pricing, reim-
bursement, and regulatory approval. In 2013, pressure from health
care systems and reimbursers on the pharmaceutical industry re-
mained high to sumbit drugs for regulatory approval that show
evidence of providing significant additional benefits. From a posi-
tive point of view, these challenges the pharmaceutical companies
are facing can be considered beneficial in terms of the willingness
to innovate and take on more risk.

In the 2013 financial year, the US supervisory and regulatory au-
thority (FDA) granted approval for 27 new drugs, which was far
less than in the previous year. In 2013, the FDA introduced a new
and greatly accelerated approval process, the so-called break-
through-therapy designation. This status allows compounds with
significant medical potential a quicker pathway to regulatory ap-
proval and allows closer cooperation with the authorities, which
holds out the prospect for faster approval. By the end of 2013, the
FDA had awarded this status to 37 preparations. Among them
were five therapeutic antibodies, one of which was based on anti-
body technology from MorphoSys.

research and development

MorphoSys is a specialist in innovative products and technologies
in the field of drug development. Therefore, its long-term economic
success is largely based on the successful work carried out in re-
search and development. MorphoSys’s technology platforms are
continually being improved and expanded with additional mod-
ules. Additionally, MorphoSys conducts research primarily in the
areas of cancer and inflammatory diseases for proprietary drug
candidates, whose properties must be studied in very elaborate,
and in some cases, multi-year clinical trials.

As a research-driven company, MorphoSys is committed to con-
serving resources and ensuring a sustainable business through
optimized processes in laboratory operation. More information on
this subject may be found in the Sustainability Report starting on
page 50.

MorphoSys continuously invests in the improvement of laboratory
equipment to maintain its long-term competitiveness. The largest
investments in 2013 may be found in the following table:

CApi tAl expendi ture on fixed Asset s in 2013

( sEl Ec t ion of mA j or invE s t mEn t s )

in 000’s €

Enterprise Resource Planning (ERP) Software1

Corporate Performance Management (CPM) Software1

Flow cytometer (lab equipment)

Autosampler (lab equipment)

Micro plate reader (lab equipment)

Light scattering detector (lab equipment)

1 Software solutions for improving corporate management and consolidation:
ERP: Detailed control of business processes,
CPM: Financial consolidation, budgeting, controlling

2013

359

230

160

136

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
In the course of the 2013 financial year, the number of distinct
therapeutic antibodies1 based on MorphoSys technology, being
developed by partners, rose to 75 (31 December 2012: 69 indi-
vidual antibodies). Of those, currently 16 antibodies are in clinical
development, 22 in pre-clinical development, and 37 are in the
discovery phase.

In view of the progress of the projects, a new phase 1 investiga-
tional drug, three projects that were progressing from phase 1 to
phase 2 clinical development, and another program in a pivotal
phase 2/3 trial, the year 2013 marks one of the most successful
business years in the Company’s history. In May 2013, MorphoSys
announced the start of a clinical trial with a new antibody com-
pound as part of the cooperation with Novartis. The relevant fully
human HuCAL antibody is being developed for therapeutic use in
the field of ophthalmology. MorphoSys’s partner, Janssen, began
with two new phase 2 clinical trials for HuCAL antibodies in the
third quarter of 2013. A trial with the HuCAL antibody CNTO3157
was started with asthma patients, and a second trial began with
the HuCAL antibody CNTO6785 in patients with active rheumatoid
arthritis.

In the fourth quarter of 2013, Novartis began phase 2/3 clinical
trials with the HuCAL-based antibody compound bimagrumab
(BYM338) against sporadic inclusion body myositis. In August
2013, Novartis received the FDA’s so-called breakthrough-therapy
designation for this indication for bimagrumab. Using this status,
the FDA internally prioritizes the most innovative and promising
compounds. In addition, a Novartis project in phase 2 took a step
forward; VAY736 is a HuCAL antibody against a skin disease
caused by an autoimmune reaction.

In addition to the sheer number of programs, the partners also
expanded the clinical trial programs of existing active compounds.
About 20 new clinical trials were initiated in the 2013 financial
year.

On 23 May 2013, Johnson & Johnson (J&J) organized a Pharmaceu-
ticals Business Review. During the event, the first promising data
was presented on guselkumab (CNTO1959), a HuCAL antibody
specific to IL-23. The antibody was developed in collaboration with
Janssen Biotechnology and is in phase 2 clinical trials for psoriasis
and rheumatoid arthritis. The trials will be completed in 2014.

On 30 January 2014, Roche announced the initiation of an addi-
tional phase 3 trial for gantenerumab. The clinical trial is expected
to start with patient recruitment in the second quarter of 2014, and
will treat approximately 1,000 patients with a mild expression of
Alzheimer’s disease with gantenerumab (compared to placebo)
over a period of 100 weeks. This trial will run until March 2019.

proprie tAry devel opmen t
In the 2013 financial year, MorphoSys pursued three proprietary
antibody compounds in clinical trials:
• The MOR103 antibody in the areas of rheumatoid arthritis (RA)
and multiple sclerosis (MS), directed against the GM-CSF target
molecule;

• the HuCAL antibody MOR202 in the field of multiple myeloma

(MM), directed against the target molecule CD38;

• MOR208, an Fc-engineered, humanized antibody in the field of
malignant B-cell diseases and directed against the CD19 target
molecule.

MOR103 and MOR202 are already part of larger partnerships,
while MOR208 is still developed entirely in-house. In the 2013
financial year, the ongoing clinical trials continued as planned
for the preparations of MOR103 for the treatment of MS and
MOR202 in the area of multiple myeloma. MorphoSys continues to
be responsible for these trials as part of the partnerships with
GlaxoSmithKline and Celgene.

Final data for MOR208 was announced after completion of the
clinical phase 1/2a trial in patients with relapsed or refractory
chronic lymphocytic leukemia (CLL/SLL). First data on the safety
and objective response, according to the original eight-week treat-
ment plan, was presented at the annual meeting of the American
Society of Hematology in December 2012. Due to the first signs of
efficacy in this difficult to treat patient group, the study protocol
was expanded to treat patients, who benefited from treatment, in
the highest dosage group for a longer duration. Eight patients
qualified for longer treatment and were given up to four additional
cycles of treatment with MOR208, including an extended follow-up
on the response to the treatment. The final study results, including
the extended treatment arm, showed an overall response rate of
29.6 % (according to the criteria of the IWCLL* 2008) based on the
total number of treated participants in the study (n = 27) – a dou-
bling of the previously published response rate of 14.8 %. A de-
tailed analysis of the trial results will be published in a scientific
publication.
*s e e G l o s s A r y pa g e 1 5 8

1 The method of counting proprietary and partnered programs has been adapted compared
to the 2012 Annual Report: Individual antibodies are counted, regardless of the number of
indications for which they are developed.

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 patient dosage of MOR208 began in two new phase 2 clinical
trials, in order to verify the compound’s potential for indications of
non-Hodgkin’s lymphoma (NHL) and acute lymphoblastic leuke-
mia (ALL). In addition, a so-called investigator-sponsored trial
(IST) was started. This is a phase 2 clinical trial for the treatment
of chronic lymphocytic leukemia, in which MOR208 is being tested
in combination with the compound lenalidomide. ISTs are clinical
trials, initiated by physicians of a research institute, in which the
total responsibility (sponsor function) rests with the clinical cen-
ter and not with a pharmaceutical company, MorphoSys in this
case.

With regard to projects at the preclinical development stage,
MorphoSys decided to discontinue an early research program in
the area of infectious diseases. The program launched in Septem-
ber 2010 in conjunction with the British biopharmaceutical com-
pany, Absynth Biologics, examined various antibodies to combat
Staphylococcus aureus type pathogens.

In February 2013, MorphoSys and British Heptares Therapeutics
Ltd, a leader in the field of compound discovery against G-protein-
coupled receptors (GPCRs), agreed to a collaboration for the devel-
opment of novel therapeutic antibodies against membrane-bound
GPCR proteins. GPCRs are crucial for a variety of biological pro-
cesses and diseases. Under the terms of the agreement, Heptares
will develop stabilized receptors as antigens for a set of GPCR tar-
get molecules selected by MorphoSys. MorphoSys will then apply
its Ylanthia antibody library to develop therapeutic compound
candidates against these target molecules. MorphoSys has the
right to sublicense partners’ access to these target molecules in
combination with therapeutic antibody programs. Heptares will
receive upfront payments and further research funding payments
and participate in MorphoSys’s future revenues from related li-
cense agreements. Heptares also chose to develop a therapeutic
antibody against a GPCR target molecule based on MorphoSys’s
Ylanthia library. In this context, MorphoSys is eligible to receive
license fees, milestone payments, and royalties.

Currently, MorphoSys is pursuing various programs which are in
the early discovery phase. Included in these programs is the co-
development program with Galapagos NV, as well as two programs
which are in part being carried out in cooperation with external
research institutions.

business development

During the past financial year, MorphoSys significantly strength-
ened its pipeline in its two business segments Partnered Discov-
ery and Proprietary Development. The contracts with GlaxoSmith-
Kline and Celgene strengthened the Proprietary Development
segment. The partnered pipeline matured further and now in-
cludes numerous projects in advanced stages of clinical develop-
ment.

pAr t nered disCovery
In 2013, MorphoSys’s partnered pipeline has matured signifi-
cantly. Four of the five clinical advances achieved with partners in
the 2013 financial year, were directly recognized in revenues as a
result of linked milestone payments. The progress of the projects
bimagrumab/BYM338 and NOV-7 (both of Novartis: start of a
phase 2/3 trial for BYM338 and the start of a phase 1 trial for
NOV-7) as well as CNTO 3157 and CNTO 6785 (both of Janssen,
both start of phase 2 trials) triggered clinical milestone payments.
The sum of the performance-based payments achieved during the
fiscal year 2013 amounted to € 3.0 million and exceeded the previ-
ous year’s level. The phase 2 start of the VAY736 project was not
linked to milestone payments.

proprie tAry devel opmen t
MorphoSys significantly strengthened its proprietary develop-
ment portfolio during the 2013 financial year and won two part-
nerships for the further development of its clinical portfolio.

On 3 June 2013, MorphoSys announced a global agreement with
GlaxoSmithKline (GSK) for the development and commercializa-
tion of MOR103. MOR103 is a proprietary HuCAL antibody directed
against the GM-CSF target molecule which completed a clinical
phase 1b/2a trial in patients with mild to moderate rheumatoid
arthritis. Under the terms of the agreement, GSK assumes respon-
sibility for the entire development and commercialization of
MOR103. Also under the agreement, MorphoSys received an im-
mediate upfront payment of € 22.5 million. Depending on the
achievement of certain developmental stages, as well as regula-
tory, commercial, and revenue-related milestones, MorphoSys is
eligible to receive additional payments from GSK in the amount of
up to € 423 million, as well as tiered double-digit royalties on net
sales.

The alliance with the US biotechnology company Celgene Corpora-
tion for the MOR202 program announced in the second quarter of
2013 became effective on 10 August 2013 following the approval
of the US antitrust agencies under the Hart-Scott-Rodino Act.
MorphoSys received an upfront payment of € 70.8 million. Celgene
also acquired 797,150 new MorphoSys shares at € 57.90 per share.
This represents a premium of 5.0 % to the closing share price on
9 August 2013. Compared to the share price prior to the coopera-
tion announcement on 26 June 2013, this is a premium of approxi-
mately 53 %. Currently, Celgene holds about 3 % of MorphoSys’s
registered share capital.

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 and Celgene will jointly drive the further development
of MOR202 for the treatment of multiple myeloma and other indica-
tions and share development costs in a ratio of 1/3 (MorphoSys) to
2/3 (Celgene). MorphoSys may receive additional development-
related as well as regulatory and sales-related milestones as part
of the cooperation. The Company has a 50 : 50 co-promote in Europe
and gets tiered, double-digit royalties on net sales outside of Eu-
rope. The total volume of the contract could reach up to € 628 mil-
lion if all development-dependent, regulatory, and revenue-related
milestones be achieved.

The phase 1/2a trial in CLL for the MOR208 program was com-
pleted in the 2013 financial year. MorphoSys’s partner Xencor was
sponsor of this program. MorphoSys is now solely responsible for
this program’s further development and commercialization. The
phase 2 trials in acute lymphoblastic B-cell leukemia (B-ALL) and
non-Hodgkin’s lymphoma (NHL) began in the second quarter of
2013 with patient recruitment, with MorphoSys as sponsor. The
beginning of recruitment for the B-ALL indication triggered a
milestone payment to Xencor.

the morphosys share

The extremely successful 2013 financial year for MorphoSys was
also reflected in the development of the share price. In early Octo-
ber 2013, the share penetrated the 60 euro level, reaching a twelve-
year high. The shares received a particular boost from the an-
nouncement of two collaborations for proprietary drug candidates:
The signing of a global licensing agreement with GlaxoSmithKline
for MOR103 in early June, and especially the strategic alliance
with Celgene for MOR202, which was announced at the end of
June, resulted in significant increases in the share price. By year
end 2013, MorphoSys shares closed with a gain of 87 %. During the
same period, the TecDAX rose 38 % and the NASDAQ Biotech Index
rose 60 %.

s t oCk mArke t devel opmen t
Historically low interest rates boosted stock markets worldwide in
2013. Particularly in the US, the sentiment on the capital markets
with regard to biotechnology companies was still very positive.
During the year, 46 initial public offerings of biotech companies on
the NASDAQ alone raised funds of approximately US$ 3.5 billion.
This value has only been exceeded in the year 2000 when there
was a total of 63 IPOs for almost US$ 6 billion. In addition to the
US markets, the European stock market environment also bene-
fited from well-filled development pipelines and various successful
approvals in the industry. However, since the greatest interest in
investing in biotechnology companies still resides in the US,
MorphoSys significantly expanded its investor relations activities
in the US market in 2013.

l iQuidi t y And index memBership
In 2013, the average daily trading volume of the MorphoSys share
on all trading platforms more than tripled compared to the previ-
ous year, increasing 354 % to € 6.9 million. This development can
be attributed to an increase in both the share price and the num-
ber of shares traded. In the TecDAX, the index of the 30 largest
technology stocks on the Frankfurt Stock Exchange, the trading
volume of the shares traded on average also increased by over
40 %. MorphoSys was able to continue to consolidate its position in
the TecDAX* and improve its position at the end of 2013: Measured
by market capitalization* MorphoSys took 7th place (year-end 2012:
12th place); based on trading volume, it held 11th place (year-end
2012: 14th place).
*s e e G l o s s A r y pa g e 1 5 8

Common s t oCk
The Company’s share capital increased in 2013 to 26,220,882
shares, € 26,220,882.00 respectively. The reason for this increase
was the exercise of 551,438 stock options and convertible bonds as
well as two capital increases from authorized capital:

As part of the alliance for MOR202, Celgene acquired 797,150 new
shares at a price of € 57.90 per share, which corresponded to a
premium of 5.0 % to the closing share price on 9 August 2013.

In September 2013, MorphoSys issued 1,514,066 new shares from
authorized capital to international institutional investors at a price
of € 55.76 per share. This share price corresponded to the closing
price of the previous trading day, 18 September 2013.

33
17

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
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

perf ormAnC e of t he morpho s y s shAre in 2013

(1 jAnuAr y 2013 = 10 0 %)

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

Abbildung 6

hiGhes t level +105.0 %
10/02/2013

puBl iCAt ion of license agreement
with gsK for mor103 +26.6 %
06/03/2013

+45.2 %
06/27/2013

l oWes t level – 2.1 %
03/04/2013

puBl iCAt ion of strategic alliance
with celgene for mor202 +24.2 %
06/26/2013

240

220

200

180

160

140

120

100

jAn

feB

mAr

Apr

mAy

jun

jul

AuG

sep

oCt

nov

deC

Comp Ari s on of t he morpho s y s shAre priC e devel opmen t

Wi t h BenC hmArk indiC e s Be t Ween 2009 And 2013

(1 jAnuAr y 20 0 9 = 10 0 %)

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

Abbildung 7

400

350

300

250

200

150

100

2009

2010

2011

2012

2013

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

k e y dAtA f or t he morpho s y s shAre

(A s of 31 dEc EmbEr of E A c h y E Ar )

Total Stockholders’ Equity (in million €)

Number of Shares Issued (number)

Market Capitalization (in million €)

Closing Price in € (Xetra)

Average Daily Trading Volume (in million €)1

Average Daily Trading Volume
(in % of Share Capital)1

2013

352.1

2012

202.0

2011

197.1

2010

185.9

2009

173.9

26,220,882

23,358,228

23,112,167

22,890,252

22,660,557

1,464

55.85

6.9

0.59

685

29.30

1.9

0.38

405

17.53

1.8

0.38

424

18.53

1.1

0.26

386

17.04

1.3

0.34

1 Figures from 2009 to 2011 only include trading on Xetra and German regional exchanges.

MorphoSys issued stock options and non-interest bearing convert-
ible bonds under its employee participation program until 2010.
In 2011, this was changed to a performance share plan. The com-
pany repurchases shares for this share plan. A detailed descrip-
tion of this program can be found in the Corporate Governance
Report included in this Annual Report (pp. 78 to 86). In April 2013,
449,999 convertible bonds and 61,600 performance shares were
granted to the Management Board and the Senior Management
Group under the third long-term incentive program (LTI plan). De-
tailed information on this issue may be found in the Notes (see
section 7). No further stock options were issued to the Manage-
ment Board, members of the Senior Management Group, or the
workforce during the reporting year.

GroWinG Amoun t of in t ernAt ionAl inves t ors
During the year, various voting right notifications were issued ac-
cording to Sections 21, 25, or 26 of the German Securities Trading
Act (WpHG). These were published on the MorphoSys website un-
der the heading Media & Investors > Stock Information > Share-
holder Structure.

According to the definition given by the Deutsche Börse, 92.7 % of
the shares of MorphoSys AG were in free float at the end of the re-
porting year. The share of international investors has continued to
increase. According to the latest voting rights announcement,
Massachusetts Mutual Life Insurance (Oppenheimer Funds) is
currently our largest single investor with a stake of about 7 %. Dur-
ing the reporting year, Celgene Corporation acquired a sharehold-
ing of approximately 3 % as part of the alliance for MOR202 (status

as of 31 December 2013). MorphoSys was also able to increase the
amount of international institutional investors through the issue of
1,514,066 new shares from authorized capital in September 2013.

An overview over the current shareholder structure is also acces-
sible on the Company’s website (Media & Investors > Stock Infor-
mation > Shareholder Structure).

AnnuAl GenerAl mee t inG
On 4 June 2013, the Management and Supervisory Boards of
MorphoSys AG welcomed shareholders to the Company’s 15th
Annual General Meeting in Munich. The shareholders and prox-
ies attending represented nearly 42 % of the common stock of
MorphoSys AG. All six agenda items submitted for resolution were
adopted by a clear majority. This year, the Annual General Meeting
is scheduled for 23 May 2014 and will take place once again in
Munich.

inves t or rel At ions AC t ivi t ies
In the 2013 financial year, MorphoSys further intensified its com-
munication with the capital markets. The company presented at
26 international investor conferences and at a number of road-
shows and individual meetings in Europe and the US. The greatest
interest was registered in the US, where a large number of special-
ized healthcare investors have their headquarters. At the publica-
tion of annual, half-yearly, and quarterly results, telephone confer-
ences were also held in which the Management Board reported on
past and future business developments and answered questions
from analysts and investors.

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

AnAly s t reCommendAt ions ( As of 31 dEc EmbEr 2013)

Buy/overweight

Buy/Overweight; Hold; Sell; n/a = not available (no rating)

hold

sell

n/a

The main topics at the investor meetings, aside from the progress
of the drug pipeline, were the recent partnerships for the proprie-
tary programs and their development possibilities.

At the end of the year, eleven analysts observed and evaluated
MorphoSys’s share development (2012: ten analysts).

More detailed information on the MorphoSys share, financial ra-
tios, the Company’s strategic direction, as well as the latest devel-
opments in the Group may be found on the Company’s website
(“Media & Investors”).

the Managing Board. The annual bonus is then linked exclusively
to the achievement of corporate goals. Additionally, a newly intro-
duced spot bonus promptly rewards (on the spot) the outstanding
achievements of employees. The new compensation system took
effect on 1 January 2014.

In the Sustainability Report on page 50, you will find a detailed
overview of the development of the workforce and MorphoSys’s
activities with regard to long-term successful work in human re-
sources.

human resources

Group heAdCoun t devel opmen t
MorphoSys’s corporate success is based on its highly-trained staff
and their creativity and motivation. As of 31 December 2013, there
were 299 people employed at MorphoSys (31 December 20121: 421
employees), of which 118 hold a PhD degree (31 December 20121:
142). During 2013, the MorphoSys Group employed 290 people on
average (20121: 422).

s e e f i G u r e

8 , h e a d c o u n t o f t h e m o r p h o s y s g r o u p pa g e 3 6

A competitive and attractive remuneration system is a crucial fac-
tor when competing for the best employees. In order to compete
successfully as an employer, MorphoSys conducts an annual com-
parison of its remuneration versus remuneration paid in the bio-
technology industry and other comparable sectors. If necessary,
the salary structure is adapted accordingly. In order to meet the
requirements of a state-of-the-art compensation system in the fu-
ture, MorphoSys decided to make an adjustment to its existing re-
muneration system during the reporting year. This adjustment
defers part of the variable remuneration in favor of fixed remu-
neration which is valid for all employees except for the members of

1 Including employees of the AbD Serotec research and diagnostic segment. The sale of

AbD Serotec was completed on 10 January 2013.

Abbildung 8

EmployEE figurEs
At A glAncE

hEAdcount of thE morphosys group (31 December)*

EmployEEs by gEndEr

2013

totAl

36%

Previous year:* 40 %

mAl E (number)

trainees

f EmAl E (number)

trainees

464 446 421*

404

299

2009

2010

2011

2012

2013

* 2009 to 2012 includes employees of research

and diagnostic segment AbD Serotec,
which was sold as of 10 Jan. 2013 (closing date);
2012: 135 AbD Serotec employees

Executives

Previous year:* 5

Previous year:* 22

64%

Previous year:* 60 %

Previous year:* 5

Previous year:* 47

Empl o yEEs by
sEgmEn t**

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

184

193

135

278

253

Empl o yEEs by
f unc t ion**

143

e m p l o y e e s i n
s , g & a

e m p l o y e e s i n

r & d

30 0

250

20 0

150

10 0

2012

2013

2012

2013

** 2012 includes employees of research and diagnostic segment AbD Serotec, which was sold as of 10 Jan. 2013 (closing date)

Abbildung 9

EmployEE AbsEncE rAtEs

4 d Ay s

3 d Ay s

2 d Ay s

1 d Ay

2.0

1.7

2.7

3.0

2009

2010

2011

2012

2013

Numbers refer only to sites located in Germany only.

occupAt ionAl AccidEn ts

In the reporting year the number
of occupational accidents declined
from 3 (2012) to

2 occupAt ionAl

AccidEn ts

* Including AbD Serotec

t rAining of Empl o yEEs

on codE of conduc t

100%

of all employees

have been trained on the Code of Conduct in

2012; additional training sessions in 2013 for

all new employees.

lAbor turnovEr rAtE (in %)

(average duration in years)

sEniorit y

6.98

5.81

5.07

5.39

2012

2013

2012

2013

EmployEE figurEs

At A glAncE

hEAdcount of thE morphosys group (31 December)*

30 0

250

20 0

150

10 0

464 446 421*

404

299

2009

2010

2011

2012

2013

* 2009 to 2012 includes employees of research

and diagnostic segment AbD Serotec,

which was sold as of 10 Jan. 2013 (closing date);

2012: 135 AbD Serotec employees

278

253

Empl o yEEs by

f unc t ion**

184

193

135

143

e m p l o y e e s i n

s , g & a

e m p l o y e e s i n

r & d

2012

2013

2012

2013

** 2012 includes employees of research and diagnostic segment AbD Serotec, which was sold as of 10 Jan. 2013 (closing date)

Empl o yEEs by

sEgmEn t**

pa r t n e r e d

d i s c o v e r y

p r o p r i e ta r y

d e v e l o p m e n t

a b d s e r o t e c

u n a l l o c at e d

EmployEE AbsEncE rAtEs

4 d Ay s

3 d Ay s

2 d Ay s

1 d Ay

2.0

1.7

2.7

3.0

2009

2010

2011

2012

2013

Numbers refer only to sites located in Germany only.

occupAt ionAl AccidEn ts

In the reporting year the number

of occupational accidents declined

from 3 (2012) to

2 occupAt ionAl

AccidEn ts

EmployEEs by gEndEr

2013
totAl

36%

Previous year:* 40 %

mAl E (number)

trainees

f EmAl E (number)

trainees

Previous year:* 5

Executives

Previous year:* 22

64%

Previous year:* 60 %

Abbildung 10

Previous year:* 5

Previous year:* 47

* Including AbD Serotec

t rAining of Empl o yEEs
on codE of conduc t

100%

of all employees

have been trained on the Code of Conduct in
2012; additional training sessions in 2013 for
all new employees.

lAbor turnovEr rAtE (in %)

sEniorit y
(average duration in years)

Abbildung 11

Abbildung 12

6.98

5.81

5.07

5.39

2012

2013

2012

2013

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

Analysis of Net Assets, Financial
Position, and Results of Operations

At the end of 2012, MorphoSys announced the sale of substantially
all of the AbD Serotec business to Bio-Rad Laboratories, Inc. (Bio-
Rad). As of 31 December 2012, substantially all of the AbD Serotec
operating segment represented a discontinued operation within
the meaning of IFRS 5. The Partnered Discovery and Proprietary
Development operating segments, along with the continuing op-
erations of the AbD Serotec segment, were classified as continuing
operations as of the balance sheet date of 31 December 2012. The
closing of the transaction was dependent upon the fulfillment of
certain conditions that were met on 10 January 2013 (closing date).
Hence, substantially all of the AbD Serotec segment was sold as of
this date. Therefore, the financial implications of the discontinued
operations of AbD Serotec, owned by the MorphoSys Group until
10 January 2013, are explained below.

As of 31 December 2013, the companies MorphoSys UK Ltd.,
Oxford, Great Britain, MorphoSys US, Inc., Raleigh, USA, and
MorphoSys AbD GmbH, Düsseldorf, were no longer included in the
MorphoSys Group’s scope of consolidation.

revenues

Compared to the previous year, Group revenues from continuing
operations rose 50 % to € 78.0 million (2012: € 51.9 million). This
increase was primarily attributed to the out-licensing of the
MOR103 antibody program to GlaxoSmithKline, as well as to li-
cense income in connection with the sale of the AbD Serotec seg-
ment to Bio-Rad. As part of this sale, a non-exclusive license for
the use of the HuCAL technology in the market for research re-
agents and diagnostics was also transferred to Bio-Rad. The in-
crease also resulted from the global agreement with Celgene Cor-
poration in the co-development of the MOR202 cancer program
and its joint commercialization (co-promotion) in Europe.

From a geographical viewpoint, MorphoSys achieved 11 % or
€ 8.8 million of its commercial revenues with biotechnology and
pharmaceutical companies and non-profit organizations head-
quartered in North America, and 89 % or € 69.2 million with cus-
tomers primarily located in Europe and Asia. In the comparable
period of the previous year, these shares were 5 % and 95 %, re-
spectively.

s e e f i G u r e

13 , r e v e n u e o f t h e m o r p h o s y s g r o u p b y r e g i o n pa g e 4 8

pAr t nered disCovery And proprie tAry devel opmen t

seGmen t s
Revenues from the Partnered Discovery segment included
€ 48.0 million in funded research and licensing fees (2012:
€ 42.7 million) and € 3.0 million (2012: € 1.9 million) in success-
based payments. Success-based payments amounted to 4 % (2012:
4 %) of the total revenues of the Partnered Discovery and Proprie-
tary Development segments. Funded research and licensing fees
grew overall due to the transfer of a non-exclusive license for the
use of the HuCAL technology in the market for research reagents
and diagnostics in the context of the sale of substantially all of the
AbD Serotec segment to Bio-Rad.

s e e f i G u r e
d e v e l o p m e n t pa g e 4 8

14 , r e v e n u e s pa r t n e r e d d i s c o v e r y a n d p r o p r i e ta r y

In 2013, the Proprietary Development segment achieved revenues
of € 26.9 million (2012: € 7.0 million). In comparison to last year,
this increase was mainly affected by the recognition of an upfront
payment as part of the out-licensing of the MOR103 antibody pro-
gram to GlaxoSmithKline, and by the pro-rated recognition of an
upfront payment under the contract for the co-development of the
MOR202 antibody program with Celgene. Revenues from funded
research in this segment declined to € 0.5 million (2012: € 7.0 mil-
lion), as the co-development activities with Novartis were termi-
nated.

Approximately 88 % of Group revenues were attributable to our
customers Novartis, GlaxoSmithKline, and Bio-Rad (2012: 97 %
with Novartis, Pfizer, and Roche).

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

Assuming the average foreign exchange rates of 2012, revenues of
the Partnered Discovery and Proprietary Development segments
would have amounted to € 78.1 million.

operating Expenses

In 2013, operating expenses increased 36 % to € 67.9 million (2012:
€ 49.8 million). The € 18.1 million increase is attributable to a rise
in research and development expenses of 31 %, or € 11.5 million, to
€ 49.2 million, and the increase in selling, general, and adminis-
trative expenses of 55 %, or € 6.7 million, to a total of € 18.8 million.

Operating expenses rose not only in the Partnered Discovery seg-
ment (2013: € 25.5 million; 2012: € 21.8 million) but also in the
Proprietary Development segment (2013: € 27.5 million; 2012:
€ 18.1 million).

Personnel expenses resulting from share-based payments are
included in selling, general, and administrative expenses, as well
as in research and development expenses. These amounted to
€ 5.1 million (2012: € 1.3 million) and represent a non-cash expen-
diture. The rise is primarily due to an adjustment of the LTI pro-
grams for the years 2011 and 2012, and to the new LTI and con-
vertible bond programs which were both granted in Q2 2013.

reseArCh And devel opmen t expenses
In 2013, research and development expenses rose by € 11.5 mil-
lion to € 49.2 million (2012: € 37.7 million). Higher costs for exter-
nal laboratory services (2013: € 13.0 million; 2012: € 7.2 million)
and higher personnel expenses (2013: € 21.2 million; 2012:
€ 17.9 million) were the main reasons. Research and development
expenses also included impairment of licenses in the amount of
€ 0.7 million and impairment of property, plant, and equipment in
the amount of € 0.5 million.

s e e f i G u r e

16 , s e l e c t e d r & d e x p e n s e s pa g e 4 9

In 2013, the Company incurred expenses for proprietary product
development of € 27.5 million (2012: € 18.1 million) and expenses
for technology development of € 4.2 million (2012: € 3.6 million)
(see the following Table 9).

s e e f i G u r e

15 , d i s t r i b u t i o n o f r & d e x p e n s e s pa g e 4 9

di s t riBu t ion of r&d expense s

in million €

2013

2012

2011

2010

2009

R&D Expenses on behalf of Partners

Proprietary Development Expenses

Technology Development Expenses

r&d total

17.5

27.5

4.2

49.2

16.0

18.1

3.6

37.7

19.1

33.9

2.9

55.9

18.9

25.9

2.1

46.9

19.2

19.1

0.7

39.0

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

sel l inG, GenerAl , And Admins t rAt ive expenses
In comparison to the same period in the prior year, sales, general,
and administrative expenses rose 55 %, or € 6.7 million, and
amounted to € 18.8 million (2012: € 12.1 million), mainly as a re-
sult of higher personnel expenses (2013: € 11.3 million; 2012:
€ 7.4 million), and expenses for third-party services (2013:
€ 4.1 million; 2012: € 2.2 million). Selling, general, and adminis-
trative expenses also comprised an impairment of patents amount-
ing to € 0.3 million.

other income and Expenses

Other income amounted to € 0.8 million (2012: € 0.4 million) and
mainly consisted of service income from the support of Bio-Rad in
the integration of the AbD Serotec business, as well as government
grants. Other expenses of € 0.9 million (2012: € 0.1 million) were
primarily composed of currency losses, impairments of receiv-
ables and research grants which have to be repaid.

taxes

In 2013, continuing operations reported an income tax expense of
€ 3.3 million (2012: € 0.7 million) which is composed of current tax
expenses of € 3.7 million and deferred tax income of € 0.4 million.

profit for the year from continuing
operations

In 2013, continuing operations achieved a net profit for the period
of € 7.4 million (2012: € 2.4 million). The resulting basic net profit
per share in 2013 amounted to € 0.30 (2012: € 0.10).

results from discontinued
operations

Ebit

Earnings before interest and taxes (EBIT) from continuing opera-
tions amounted to € 9.9 million compared to an EBIT of € 2.5 mil-
lion in the previous year. By segment, EBIT from continuing opera-
tions of the Partnered Discovery and Proprietary Development
segments amounted to € 25.4 million (2012: € 23.0 million) and
€ -0.5 million (2012: € –11.0 million), respectively.

The sale of substantially all of the AbD Serotec business to Bio-Rad
was completed on 10 January 2013. Upon deconsolidation, a dis-
posal gain of € 8.0 million was achieved. After deduction of trans-
action costs, the disposal gain amounted to € 6.2 million.

Net profit for the period from discontinued operations amounted to
€ 6.0 million (2012: € –0.4 million).

The result from discontinued operations is comprised as follows.

finance income and Expenses

In the first ten days of 2013, discontinued operations generated
revenues of € 0.6 million (2012: € 17.7 million).

Finance income amounted to € 0.9 million (2012: € 0.7 million) and
largely included realized gains from securities that were sold dur-
ing the reporting period, as well as interest income. Finance ex-
penses of € 0.1 million (2012: € 0.1 million) mainly resulted from
bank fees, losses from currency hedging transactions, and inter-
est expenses.

Operating expenses totaled € 2.3 million (2012: € 18.1 million),
including cost of goods sold in the amount of € 0.2 million (2012:
€ 6.2 million). Selling, general, and administrative expenses of
€ 2.1 million (2012: € 10.0 million) included transaction costs of
€ 1.8 million (2012: € 0.5 million) related to the sale of the AbD
Serotec business.

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

re sult of di s Con t inued operAt ions

in 000’s €

Revenues

Cost of Goods Sold

Research and Development

Selling, General and Administrative

Total Operating Expenses

Other Income/(Expenses)

Earnings before Interest and Taxes (EBIT)

Finance Income/(Expenses)

Other Income from Sale of Assets and Liabilities of Disposal Group Classified as Held for Sale

Profit before Taxes

Income Tax (Expenses)/Income from Discontinued Operations

Income Tax Expenses in connection with the Sale of Assets and Liabilities of the Disposal Group
Classified as Held for Sale

Profit/(Loss) for the Year from Discontinued Operations

1 Comprises the period from 1 January to 10 January 2013

20131

2012

603

158

2,101

2,265

(1,652)

(5)

8,001

6,344

(35)

(358)

5,951

17,690

6,238

1,845

10,010

18,093

(153)

(556)

(85)

(641)

217

(424)

The significant decrease in revenues and operating expenses in
comparison to the previous year was caused by the MorphoSys
Group’s disposal of substantially all of the AbD Serotec segment on
10 January 2013.

consolidated net profit/loss for the
period

The discontinued operations of the AbD Serotec segment gener-
ated EBIT of € –1.7 million in 2013 (2012: € –0.6 million).

In 2013, continuing operations achieved a net profit for the period
of € 13.3 million (2012: € 1.9 million). The resulting basic net profit
per share in 2013 amounted to € 0.54 (2012: € 0.08).

Profit before taxes amounted to € 6.3 million (2012: € –0.6 mil-
lion). In 2013, income tax expenses amounted to € 0.4 million
(2102: income of € 0.2 million). This amount included income tax
expenses of € 0.4 million related to the disposal gain from the dis-
continued operations.

financial position

prinC ipl es of f inAnC iAl mAnAGemen t
At MorphoSys, the primary objective of financial management is to
provide sufficient liquidity reserves for industry-specific fluctua-
tions and for the continued growth of the Company at all times.
The main sources for this are the operational business activities of
the various parts of the Company and the resulting cash flows.
Scenario projections and cash flow projections are used to deter-
mine the liquidity requirement.

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

multiple-year overview – income statement

in million €

Revenues

Cost of Goods Sold

Gross Profit

Research and Development Expenses

Selling, General and Administrative Expenses

Other Income/Expenses2

EBIT2,3

Finance Income/Expenses2

Income Tax Expenses

Profit for the Year from Continuing Operations

Profit/(Loss) for the Year from
Discontinued Operations1

Consolidated Net Profits

20131

20121

20111

2010

2009

78.0

49.2

18.8

(0.1)

9.9

0.8

(3.3)

7.4

6.0

13.3

51.9

37.7

12.1

0.3

2.5

0.6

(0.7)

2.4

(0.4)

1.9

82.1

55.9

14.9

(1.5)

9.8

1.4

(3.0)

8.2

0.01

8.2

87.0

7.3

79.7

46.9

23.2

0.2

9.8

3.4

(4.0)

9.2

81.0

6.7

74.3

39.0

23.9

0.1

11.4

1.6

(4.1)

9.0

1 Due to the sale of substantially all of the AbD Serotec business agreed in December 2012, line items in the income statement related to this transaction are recorded in a single line titled

“Results from discontinued operations” from the year 2011 onwards. Other line items contain the results of the continuing operations. See also section 4.5 of the Notes.

2 To improve comparability with the peer group, MorphoSys changed the structure of its income statement in 2012 and now reports EBIT instead of the results from normal business

activities.

3 2009 – 2010: Result from operating activities

multiple-year overview – financial situation

in million €

Net Cash Provided by/Used in Operating Activities1

Net Cash Provided by/Used in Investing Activities

Net Cash Provided by Financing Activities1

Cash and Cash Equivalents (as of 31 December)2

Available-for-sale Financial Assets

Bonds, Available-for-sale

Financial Assets Categorized as
“Loans and Receivables”

2013

89.1

(193.9)

130.6

71.9

188.4

11.1

119.3

2012

1.8

(12.1)

1.6

40.7

79.7

10.0

2011

27.1

(18.1)

1.3

54.6

79.8

2010

2009

1.9

(2.0)

2.3

44.1

64.3

(1.0)

0.6

1.4

41.3

93.9

1 In 2011, purchases of derivative financial instruments and proceeds from the sale of derivative financial instruments were reclassified from financing activities to operating activities in

the statement of cash flows. In order to provide comparative information for the previous year, the figures for 2010 have been adjusted accordingly.

2 In 2012, € 5.3 million in cash and cash equivalents was recorded under assets of disposal group classified 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
Analysis of Net Assets, Financial Position, and Results of Operations

C Ash fl oWs
The net cash inflow from operating activities totaled € 89.1 million
in 2013 (2012: cash inflow of € 1.8 million). Of this amount, a net
cash outflow of € 1.9 million in 2013 was attributable to discontin-
ued operations (2012: cash inflow of € 1.0 million), while continu-
ing operations achieved a cash inflow from operating activities of
€ 91.1 million (2012: cash inflow of € 0.7 million).

In 2013, the Company invested in various financial assets such as
available for sale securities and bonds, short-term commercial pa-
per, and fixed-term deposits. These investments resulted in a cash
outflow of € 193.9 million (2012: cash outflow of € 12.1 million)
which included a cash inflow of € 36.6 million from discontinued
operations (2012: cash outflow of € 0.3 million) and a cash outflow
of € 230.5 million from continuing operations (2012: cash outflow
of € 11.8 million).

In 2013, cash flow from financing activities amounted to a cash
inflow of € 130.6 million (2012: cash inflow of € 1.6 million) which
was entirely attributable to continuing operations.

inves t men t s
In 2013, MorphoSys carried out investments in property, plant,
and equipment of € 1.0 million (2012: € 1.0 million) for continu-
ing operations. Depreciation of property, plant, and equipment
amounted to € 1.5 million in 2013 compared with € 2.3 million in
2012. In the fourth quarter of 2013, impairment of € 0.5 million
was carried out on laboratory equipment.

In 2013, the Company invested € 4.5 million in intangible assets
for continuing operations (2012: € 1.3 million). Amortization of
intangible assets amounted to € 3.3 million in 2013 and was thus
below the level of the prior year (2012: € 4.0 million). In the third
quarter of 2013, impairment of patents and licenses amounting to
€ 1.1 million was recognized.

l iQuidi t y
On 31 December 2013, the Company held liquid funds and market-
able securities, as well as other financial assets, in the amount of
€ 390.7 million, compared to € 135.7 million on 31 December 2012.

This amount included cash and cash equivalents of € 71.9 million
(31 December 2012: € 40.7 million), marketable securities and
bonds amounting to € 199.5 million (31 December 2012: € 79.7 mil-
lion), as well as other financial assets of € 119.3 million (31 Decem-
ber 2012: € 10.0 million) which were reported in other receivables
under the category “loans and receivables”. As of 31 December
2012: additional liquid funds of € 5.3 million were presented in
assets of a disposal group classified as held for sale.

The rise in liquidity compared to the previous year primarily re-
sulted from the contract with Celgene (one-off upfront payment of
€ 70,8 million and the purchase of MorphoSys shares in the
amount of € 46,2 million), from the capital increase carried out in
September (€ 84,4 million), from the proceeds from the purchase
price of the divested AbD Serotec business (€ 53,2 million, includ-
ing the amount accrued on an escrow account), as well as from
the contract with GlaxoSmithKline (one-off upfront payment of
€ 22,5 million).

net Assets

Asse t s
As of 31 December 2013, total assets amounted to € 447.7 million,
or € 223.4 million higher than on 31 December 2012 (€ 224.3 mil-
lion). The € 263.7 million increase in current assets mainly re-
sulted from the cash proceeds in connection with the Celgene con-
tract, the capital increase carried out in September, the proceeds
from the purchase price of the divested AbD Serotec business, as
well as the contract with GlaxoSmithKline.

The majority of the cash proceeds was invested in various securi-
ties. As of 31 December 2013, a sum of € 188.4 million (31 Decem-
ber 2012: € 79.7 million) was invested in various money market
funds which were recorded under the line item “securities, avail-
able for sale”. The line item “bonds, available for sale” contained
bonds amounting to a total of € 11.1 million (31 December 2012:
€ 0 million).

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

Other receivables grew from € 10.3 million as of 31 December
2012 to € 119.5 million. This line item is primarily composed of
various investments, which were allocated to the category “loans
and receivables” (€ 114.6 million), as well as a partial amount of
€ 4.7 million of the purchase price for the divested AbD Serotec
business held in an escrow account.

Compared to 31 December 2012, non-current assets slightly in-
creased by € 0.5 million. The increase in the line item “in-licensed
research programs” resulting from the capitalization of milestone
payments in the amount of € 2.3 million and the € 0.8 million con-
tribution to Lanthio Pharma B.V. were partially offset by a decrease
in licenses and patents of € 1.7 million and € 0.8 million, respec-
tively, due to amortization and impairment.

l iABil i t ies
The increase in current liabilities from € 11.9 million as of 31 De-
cember 2012 to € 35.4 million on 31 December 2013 essentially
resulted from a higher current portion of deferred revenues
(€ +14.7 million) as a result of the deferred upfront payment from
Celgene. Accounts payable and accrued expenses rose by € 6.5 mil-
lion in comparison to 31 December 2012, mainly driven by higher
accrued expenses for external laboratory services. Additionally, tax
liabilities increased by € 2.1 million due to the earnings situation.

Non-current liabilities changed significantly compared to the re-
porting date of 31 December 2012 and increased by € 53.5 million,
primarily due to deferred revenues in connection with the upfront
payment from Celgene.

s t oCkhol ders’ eQui t y
As of 31 December 2013, Group equity totaled € 352.1 million com-
pared to € 202.0 million on 31 December 2012.

As of 31 December 2013, the number of shares issued totaled
26,220,882, of which 25,880,992 shares were outstanding (31 De-
cember 2012: 23,358,228 and 23,102,813 shares, respectively). In
connection with the capital increase in September 2013 and the
purchase of MorphoSys shares by Celgene, a total of 2,311,216 new
shares were issued.

Compared to 31 December 2012, the number of authorized ordinary
shares fell from 43,142,455 to 36,614,174 since the Authorized
Capital 2008-I from the 2008 Annual General Meeting expired on
30 April 2013 and had not been used.

As part of a cash capital increase in connection with the Celgene
Transaction, 797,150 shares were issued on 27 August 2013 from
“Authorized Capital 2012-II”. As part of another cash capital in-
crease, 1,514,066 additional shares were issued on 23 September
2013 from “Authorized Capital 2012-II”. Accordingly, “Authorized
Capital 2012-II” was fully utilized.

In the course of the second quarter of 2013, the Company repur-
chased 84,475 own shares on the stock exchange and increased its
holding in treasure shares accordingly. The shares are used to
serve the Company’s long-term incentive plan for members of the
management.

financing

As of 31 December 2013, the Company’s equity ratio amounted to
79 % compared to 90 % on 31 December 2012. Despite the capital
measures mentioned, the lower equity ratio in comparison to the
previous year resulted from the significant increase in current
and non-current deferred revenues since upfront payments re-
ceived in the Celgene transaction are deferred over several periods
(see Notes, p. 113 – Capital Management).

Presently, the Group is not carrying financial liabilities.

off-balance sheet financing

MorphoSys does not use any off-balance sheet financing instru-
ments such as the sale of receivables, asset-backed securities,
sale-and-leaseback transactions, or contingent liabilities in combi-
nation with non-consolidated special purpose entities.

credit rating

Currently, MorphoSys is not being assessed for its creditworthi-
ness by any agency.

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

multiple-year overview – balance sheet structure

in million €

12/31/2013

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
Classified as Held for Sale

Total

Equity and Liabilities

Current Liabilities

Non-current Liabilities

Liabilities of Disposal Group
Classified as Held for Sale

Stockholders’ Equity

Total

406.6

41.1

447.7

35.4

60.1

352.1

447.7

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

comparison of Actual business
results to forecasts

In the 2013 reporting year, MorphoSys demonstrated very solid
financial performance. The revenue and earnings targets pub-
lished at the beginning of 2013 was raised repeatedly by the Com-
pany, on the occasion of the licensing contract for MOR103 with
GlaxoSmithKline, the cooperation agreement with Celgene, and
lower-than-expected costs for the development of MOR202 in 2013.

A detailed comparison of our forecast targets with the actual re-
sults may be found in table 14.

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

Comp Ari s on of projeC t ed And

AC t uAl Busine ss perf ormAnC e

2013 targets

2013 results

Financial Targets

Group revenues at the upper end of the range of € 74 million to
€ 78 million (initial guidance was € 48 million to € 52 million;
guidance raised to € 68 million to € 72 million after licensing
agreement with GSK in June and again in August to € 74 million to
€ 78 million after the transaction with Celgene; final adjustment
was made at the end of October)

Group revenues of € 78.0 million

Investment in proprietary R&D of € 32 million to € 37 million

Investment in proprietary R&D of € 31.7 million

EBIT of € 7 million to € 10 million (initial guidance was € (18) million
to € (22) million; guidance raised to € (2) million to € 2 million after
licensing agreement with GSK in June and again in August to
€ 2 million to € 6 million after the transaction with Celgene; final
adjustment was made at the end of October)

EBIT of € 9.9 million

Proprietary R&D

MOR103
• Selection of a partner for the continuation of clinical

MOR103
• Signing of a global licensing agreement with GlaxoSmithKline

development

for inflammatory diseases

• Continuation of recently initiated phase 1b trials in MS

• Continuation of the phase 1b trial. Data is expected in the first

as a second indication

half of 2014

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

MOR208
Initiation of two phase 2 trials in NHL and ALL

Partner Pipeline

Continuation of partnered development programs

Up to five clinical milestones

MOR202
Signing of a strategic alliance with Celgene for the continued
development and co-promotion of the CD38 cancer program

MOR208
• Initiation of a phase 2 trial in patients with relapsed/refractory

B-cell leukemia (B-ALL)

• Initiation of a phase 2 trial in patients with relapsed/refractory

non-Hodgkin’s lymphoma (NHL)

• Initiation of a phase 2 trial with MOR208 in combination with
the medication lenalidomide (Revlimid®) in patients with CLL.
The investigator-sponsored trial is being conducted by the
Ohio State University (OSU)

• Announcement of promising data following successful

completion of expanded phase 1/2a trials in CLL/SLL financed
by Xencor

• Net increase of six partnered programs
• Pipeline continued to mature and added one further phase 1
program, three phase 2 programs, and one phase 3 program

Four clinical milestones were achieved in 2013:
• Initiation of a phase 1 trial of a HuCAL antibody by our partner,

Novartis, for the indication of ophthalmology

• Janssen Biotech begins phase 2 clinical trial in asthma patients

with the HuCAL antibody CNTO 3157

• Initiation of a phase 1 trial with the HuCAL antibody CNTO

6785 in patients with active rheumatoid arthritis by our partner,
Janssen

• Phase 2/3 milestones by Novartis with the start of a clinical
trial of bimagrumab (BYM338) in the disease area of sporadic
inclusion body myositis

G r o u p m A n A G e m e n t r e p o r t
Analysis of Net Assets, Financial Position, and Results of Operations

Accounting judgments

In the 2013 consolidated financial statements, no accounting poli-
cies were applied or related options exercised that differed from
those in prior years and that, if applied or exercised differently,
would have had a material effect on net assets, the financial posi-
tion, or on the balance sheet structure. Information on the effects
of the Management Board’s use of estimates, assumptions, and
judgments, can be found in the Notes to the Consolidated Financial
Statements.

the management board’s general
Assessment of business performance

Once again the Management Board can look back on a very suc-
cessful business development of the MorphoSys Group in the 2013
financial year. The targets set at the beginning of 2013 have been
met to a great extent and, in some cases, have even been ex-
ceeded. As intended, a strong financial partner was won with
GlaxoSmithKline for the further development of the MOR103 com-
pound. In terms of MOR202, MorphoSys was able to enter into a
financially and strategically attractive alliance with Celgene, in
the absence of any available clinical data, by using the favorable
market situation and increased interest in MOR202’s approach to
therapy.

In the 2013 financial year, revenues from continuing operations of
the MorphoSys Group amounted to € 78.0 million or 50 % above the
adjusted comparable value of the previous year. With an EBIT of
€ 9.9 million, the Company remained profitable once again. An
equity ratio of 79 %, liquidity of € 390.7 million, and the absence of
financial debt, underscore the very solid financial situation of the
Company.

The Partnered Discovery segment made the largest contribution to
the operation’s success again in this reporting year. For the first
time, the Proprietary Development segment generated notable rev-
enues due to the conclusion of contracts with GlaxoSmithKline
and Celgene. As a result of the positive business performance of
both segments, MorphoSys was able to continue to invest signifi-
cantly in proprietary products and technology development. De-
spite the continued high level of investment, the Company was
still able to report solid operating profits.

Investments in research and development are reflected in our
ever-maturing product pipeline. MorphoSys’s proprietary com-
pounds are showing excellent progress, including further clinical
efficacy data on MOR208 and the advancements made by this drug
candidate in three phase 2 trials. In 2013, with bimagrumab, the
second HuCAL program progressed to a phase 3 trial.

The sale of the AbD Serotec segment to Bio-Rad was executed
swiftly and smoothly and the closing of the transaction was an-
nounced shortly after the start of 2013.

Abbildung 13

Abbildung 14

KEy finAnciAl rAtios
At A glAncE

rEvEnuE of thE morphosys group by rEgion (in %)

n o r t h a m e r i c a

2009

2010

2011

2012

2013

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

18.1

t o tAl r& d

37.7

3.6

25.9

2.1

t o tAl r& d

46.9

rEvEnuEs pArtnErEd discovEry And propriE tAry dEvElopmEnt
(in million €)

t o tAl

81.0*

t o tAl

87.0*

t o tAl

82.1**

t o tAl

78.0**

57.2

48.6

t o tAl

51.9**

42.7

48.0

46.6

32.7

partne re d discove ry

segme nt :
f u n d e d r e s e a r c h
a n d l i c e n s i n g f e e s

partne re d discove ry

segme nt :
s u c c e s s - b a s e d
pay m e n t s

proprie tary de ve l-
opme nt segme nt

26.9

13.1

1.0

9.1

1.8

2.4

7.0

1.9

3.0

* thereof AbD Serotec:
2009: 19.3; 2010: 20.1
** Group revenues from
continuing operations

sElEc tEd r&d EXpEnsEs (in million €)*

t o tAl

39.0

t o tAl

46.9

t o tAl

55.9

20.7

18.3

14.8

17.9

13.3

10.5

11.4

11.7

13.6

7.2

13.0

12.8

11.1

2.3

4.0

3.3

1.6

2.2

* Due to the sale of substantially all

of the AbD Serotec operating

segment with of closing date of

10 Jan. 2013, the fi gures for

the years 2011 to 2013 refer only

to continuing operations.

t o tAl

49.2

21.2

e x t e r n a l l a b o r at o r y

f u n d i n g

p e r s o n n e l

c o n s u m a b l e s

o t h e r

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

distribut ion of r&d EXpEnsEs (in million €)

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

t o tAl r& d

49.2

4.2

t o tAl r& d

39.0

0.7

27.5

19.1

17.5

19.2

2 0 1

16.0

18.9

2011

19.1

33.9

2.9

t o tAl r& d

55.9

t o tAl

37.7

17.8

KEy finAnciAl rAtios

At A glAncE

rEvEnuE of thE morphosys group by rEgion (in %)

(in million €)

n o r t h a m e r i c a

2009

2010

2011

2012

2013

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

rEvEnuEs pArtnErEd discovEry And propriE tAry dEvElopmEnt

distribut ion of r&d EXpEnsEs (in million €)

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

t o tAl r& d

49.2

4.2

t o tAl r& d

39.0

0.7

27.5

19.1

17.5
2 0 1

19.2

Abbildung 15

t o tAl

81.0*

t o tAl

87.0*

t o tAl

82.1**

57.2

48.6

t o tAl

51.9**

42.7

48.0

46.6

32.7

t o tAl

78.0**

partne re d disc ove ry

segme nt :

f u n d e d r e s e a r c h

a n d l i c e n s i n g f e e s

partne re d disc ove ry

segme nt :

s u c c e s s - b a s e d

pay m e n t s

proprie tary de ve l-

opme nt segme nt

26.9

13.1

1.0

9.1

1.8

2.4

7.0

1.9

3.0

* thereof AbD Serotec:

2009: 19.3; 2010: 20.1

** Group revenues from

continuing operations

2
1

16.0

18.1

t o tAl r& d

37.7

3.6

2
0
1
0

18.9

25.9

2.1

t o tAl r& d

46.9

2011

19.1

33.9

2.9

t o tAl r& d

55.9

sElEc tEd r&d EXpEnsEs (in million €)*

t o tAl

37.7

17.8

t o tAl

49.2

21.2

e x t e r n a l l a b o r at o r y
f u n d i n g
p e r s o n n e l
c o n s u m a b l e s
o t h e r

Abbildung 16

t o tAl

39.0

t o tAl

46.9

t o tAl

55.9

20.7

18.3

14.8

17.9

13.3

10.5

11.4

11.7

13.6

7.2

13.0

12.8

11.1

2.3

4.0

3.3

1.6

2.2

* Due to the sale of substantially all

of the AbD Serotec operating
segment with of closing date of
10 Jan. 2013, the fi gures for
the years 2011 to 2013 refer only
to continuing operations.

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

Sustainability Report

For MorphoSys, sustainability means ecological and social respon-
sibility for the benefit of today’s and future generations. As a re-
search-driven Company in the field of biotechnology, compliance
with the highest ecological, social, and ethical standards goes
hand in hand with long-term economical success. The Sustainabil-
ity Report details the measures taken during the reporting year in
order to meet these standards. Information of the management
structure and corporate governance practices of MorphoSys can
be found in the Corporate Governance Report.

sustainable corporate management
at morphosys

A hallmark of MorphoSys’s corporate management is sustainable
and responsible behavior to generate essential added value to the
society. This is true at all levels of management for both the short
and long-term. This endeavor has already been reflected in the
core activity of the Company to develop even more effective and
safer drugs. In daily operations, a high value is always placed on
working in harmony with strict ecological and social principles.
Therefore, MorphoSys pursues a business model aimed at sustain-
able growth, which protects the interests of its shareholders, cre-
ates long-term value, and evaluates processes with regard to their
effects on the environment, society, patients, and employees. A
forward-looking human resources policy, which takes the needs of
the employees seriously, reflects this business model internally.

MorphoSys bases its long-term and sustainable business success
on targeted and innovative research and development. Biotechnol-
ogically-produced drugs have an increasing share in the health
care of a growing and aging population. Comprehensive health
care is one of the main challenges of the future. MorphoSys can
make a valuable contribution through its drug candidates. In man-

agement’s opinion, MorphoSys’s present business model does not
contain any components which are contrary to the sustainable in-
vestment interests of the shareholders.

A comprehensive risk management system ensures that factors
which could threaten sustainable corporate performance are iden-
tified at an early stage, and appropriate countermeasures are
taken, if necessary. MorphoSys only assumes a risk if simulta-
neously an opportunity is offered to increase the company’s value.
At the same time, tremendous effort is being made to systemati-
cally identify new opportunities and to leverage our business
success (for more information on risks and opportunities please
refer to page 58).

The entire Management Board, chaired by the Chief Executive Of-
ficer, monitors Group-wide compliance with the sustainability
strategy. The Credo as part of the Code of Conduct regulates the
implementation of the strategy by employees in daily operations. It
is valid for all employees of the Group and is available in both the
German and English languages. Routine employee training on the
Code of Conduct in general, and on specific sections, ensure that
the guidelines are understood and implemented. The Code of Con-
duct Committee consists of four members (Chairperson and three
other members), and is at the disposal of and may be contacted by
all employees. In addition, a Compliance Officer coordinates the
Compliance Management System of MorphoSys since the end of
2013. If preferred, each employee can receive advice on an anony-
mous basis on all matters relating to legal compliance and corpo-
rate responsibility, and report suspected cases or violations.
Breaches of compliance are consistently pursued and the appropri-
ate countermeasures are taken. However, no such violation has
been reported to date, and the Company believes serious offenses
that could materially affect the Group’s net assets, financial posi-
tion, and results of operations are unlikely in the future.

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

When reporting on sustainability, MorphoSys uses the so-called
Sustainable Development Key Performance Indicators (SD-KPIs),
which are also recommended by the SD-KPI standard. These in-
clude performance in proprietary R&D (SD-KPI 1) and performance
in partnered programs as benchmarks for the commercialization
rate (SD-KPI 2) (see “Strategy and Performance Management”). In
the last five years, no products have been recalled and there were
no fines or settlements imposed that were caused by disputes (SD-
KPI 3). The following report on the implementation of MorphoSys’s
corporate strategy and sustainable corporate development is based
on the recommendations of the German Sustainability Code, which
was proposed by the German Council for Sustainable Development
in October 2011.

sustainable performance
at morphosys

e t hiC Al s tAndArds And CommuniC At ion Wi t h

s tAkehol ders
The highest scientific and ethical principles when conducting hu-
man clinical trials or animal testing are anchored in MorphoSys’s
Code of Conduct. The Company adheres, in particular, to the Dec-
laration of Helsinki of the World Medical Association (WMA).
Strict compliance with national and internationally applied regula-
tions is mandatory for all MorphoSys employees as well as for sub-
contractors.

Since European legislation requires the use of animal testing in
order to determine the toxicity*, pharmacokinetics*, and pharma-
codynamics* of a compound candidate, the biotechnology industry
cannot currently forgo such testing. MorphoSys does not have its
own suitable research laboratories for these types of trials, there-
fore the Company passes these animal studies on to contract re-
search organizations (CROs). In the course of its product develop-
ment activities, MorphoSys contracts out animal trials, according
to the principles of good animal welfare and respectful treatment
of animals as set out in national and European regulations.
MorphoSys has launched a quality assurance and control system
with written standard operating procedures (SOPs*). This system
is maintained and continually improved to ensure that only those
contract research organizations that follow the local, national, and

international regulations are contracted for animal studies. Princi-
pally, trials are carried out only after the approval of the relevant
ethics committee concerned and only under the constant supervi-
sion of a veterinarian.
*s e e G l o s s A r y pa g e 1 5 8

Institutes cooperating with MorphoSys, must comply with the le-
gal requirements for research involving animals, and also possess
the quality assurance verification of Good Laboratory Practice
(GLP) and/or an accreditation of the AAALAC (Association for As-
sessment and Accreditation of Laboratory Animal Care). This is
how MorphoSys ensures it fulfills its moral obligation for the re-
spectful treatment of animals. In addition, as part of auditing, the
trial sites, contract research institutes, the training and compe-
tency of relevant staff, as well as animal welfare are verified on
location and conducted before the final award of the contract.

The Declaration of Helsinki mentioned above, also defines the eth-
ical principles followed by MorphoSys in dealing with healthy vol-
unteers and with patients during clinical trials. These trials are
also carried out in compliance with the relevant provisions on pri-
vacy and confidentiality. Respect for the rights, safety, and welfare
of all participants involved in clinical trials have highest priority
at MorphoSys. Clinical trials are initiated only after approval by
the independent ethics committee concerned and/or the institu-
tional review panel. Before participating in a clinical trial, each
participant must submit an informed consent on a voluntary basis.

The aim of the business activities of MorphoSys is to improve the
health of patients through its scientific work. However, the com-
pany can only achieve this objective if its activities also find social
acceptance. This requires a continuous and open dialogue with
stakeholders in order for MorphoSys to understand the potential
concerns regarding biotechnological approaches, and so that it
may explain its activities and their benefits. Consequently,
MorphoSys is active in a variety of ways, for example by participat-
ing in public information events, and by actively supporting the
Communication and Public Relations task force of BIO Deutsch-
land e.V.

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

proCuremen t
The Central Purchasing & Logistics department was created in
2012 to support the business and is responsible for Group procure-
ment and ensuring the uninterrupted supply of external goods,
services, consulting, and logistics services. The department man-
ages relationships with suppliers to ensure a consistent high qual-
ity of goods and services that meet the required standards. The
department is constantly striving to improve the efficiency and
effectiveness of procurement processes. In the course of the re-
porting year, partnerships with suppliers have been strengthened
by the introduction of special framework agreements. All suppli-
ers selected by MorphoSys are committed to the observance of
human rights and internationally recognized labor standards. The
activities of the central purchasing department secured savings in
the reporting year of approximately 9 % of the corresponding ex-
penditures in 2013.

environmen tAl pro t eC t ion And oCCupAt ionAl sAfe t y
In a strictly regulated industry such as the biotechnology industry,
the environmental protection and occupational safety department
plays a material role in the Company. The department centrally
monitors compliance with all relevant provisions within the
MorphoSys Group. Beyond the Company’s strict compliance with
all legal requirements, MorphoSys undertakes a variety of efforts
throughout the Group for sustainable environmental management
and the reliable protection of its employees.

s e e f i G u r e

17, o c c u pat i o n a l s a f e t y at m o r p h o s y s pa g e 5 6

The conservation of resources is a key task. Thus, as the renova-
tion of office space was initiated in 2013, special attention was paid
to the use of sustainable materials. The textile floor coverings, for
example, were purchased from a European manufacturer who was
one of the first to receive an independent Environmental Product
Declaration (EPD). Local workshops were commissioned for the
necessary renovations. In addition, MorphoSys led various mea-
sures for energy savings and waste reduction. These measures not
only had a positive impact on the environment, but also reduced
costs in the reporting year. In 2013, as in prior years, MorphoSys
participated in the survey conducted by the Carbon Disclosure
Project (CDP) for monitoring internal resource consumption. For
the fifth consecutive year, the Company took part in the study of

this independent non-profit organization which aims to reduce
greenhouse gases and promote sustainable water usage. As in pre-
vious years, the study’s results showed that there was no need for
action on the part of the Company. Nevertheless, MorphoSys uses
the annual results for the routine and structured monitoring of
its consumption, and thus would be in a position to promptly take
action in the case of any excessive consumption. Successful re-
source-saving measures established in the past were pursued con-
sistently; for example, energy and cost-saving monitor screens,
energy-efficient laboratory equipment, and measures for the eco-
nomical use of paper and printer toner.

In 2013, MorphoSys supported the joint initiative Bike to Work
sponsored by a German health insurance company and the Ger-
man Bicycle Club (ADFC). Because of this commitment, MorphoSys
has been certified as a bicycle-friendly operation for the third con-
secutive time. In addition to this initiative, there were extensive
offers for all employees on preventative health care and the promo-
tion of health. These included offers such as autogenic training,
Pilates, ball sports, participation in running events, etc. In Sep-
tember 2013, MorphoSys organized a Health Day under the slogan:
“It’s about your health!”, and encouraged the Group’s workforce to
participate voluntarily. Approximately 60 % of employees partici-
pated in the lectures and campaigns. The employees were also
made aware of the subjects of pressure and stress in psychologi-
cally accompanied seminars.

With only two reportable accidents in the reporting year, the num-
ber of accidents fell below the level of the previous year (three re-
portable accidents). Thus, the rate at MorphoSys of approximately
three accidents per 1,000 employees is well below the average rate
in Germany (about 26 accidents per 1,000 employees according to
the latest survey in 2011).

MorphoSys attempts to minimize the amount of contaminants
used in laboratory work. Only a specially trained group of people
are permitted to deal with toxins, and work with infectious patho-
gens may only be carried out in secured laboratories. MorphoSys
only commissions companies certified for the disposal of chemical
waste. MorphoSys avoids using radioactive substances for labeling
antibodies.

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

QuAl i t y AssurAnCe
The adherence to the highest safety and quality standards is a
special responsibility of biopharmaceutical companies. MorphoSys
pursues detailed procedures and strict rules in order to avoid secu-
rity risks in drug development that may pose a serious threat to
patients and the economic situation of the company. In this man-
ner, the Company guarantees the quality of the investigational
medicinal products, keeps the risks to subjects of clinical trials as
low as possible, and ensures that the data can be collected reliably
and correctly processed.

In order to control and regulate these processes, MorphoSys estab-
lished an integrated quality management system for its Proprie-
tary Development department, which complies with the principles
of Good Manufacturing Practice (GMP*), as well as those of Good
Clinical Practice (GCP*) and Good Laboratory Practice (GLP*). An
independent quality assurance department ensures that all devel-
opment activities comply with national and international laws,
rules, and guidelines. The head of quality assurance reports and
coordinates all activities directly with the Management Board. In
this manner, MorphoSys achieves high quality standards, ensures
product quality and data integrity, and guarantees the safety of
the test subjects.

s e e f i G u r e
*s e e G l o s s A r y pa g e 1 5 8

18 , q u a l i t y m a n a g e m e n t s y s t e m at m o r p h o s y s pa g e 5 7

The quality assurance department creates a verification plan using
a risk-based approach. On the basis of this plan, an audit is con-
ducted on the selection of the contract research institutes, suppli-
ers, and research sites participating in the clinical trials.

For its Proprietary Development activities, MorphoSys possesses a
manufacturing license for the release of investigational medicinal
products and was awarded a certificate for compliance with the
standards and guidelines of Good Manufacturing Practice (GMP)
by the government of Upper Bavaria which is the responsible Ger-
man authority.

technologies and

in t el l eC t uAl proper t y
Proprietary
the resulting products are
MorphoSys’s most valuable capital. Therefore, it is critical to the
success of the Company to secure a strong patent position for
its technology portfolio and its MOR103, MOR202, and MOR208
development programs. In the case of partnered programs, the
partner companies file patent applications for individual drugs in
cooperation with MorphoSys’s patent department. Such drug de-
velopment programs possess additional patent protection, the du-
ration of which far exceeds that of the underlying technologies,
such as HuCAL or Ylanthia.

In 2013, the Company systematically expanded and focused its
patent portfolio. In terms of technology, decisive steps were taken
to efficiently protect the new Ylanthia antibody platform. The first
patents have already been granted. Additionally, MorphoSys pos-
sesses a variety of other technology patents, which serve as the
basis for the Company’s growth and aid the drug development pro-
grams. Patent protection for the Ylanthia platform will run at least
until the year 2031.

s e e f i G u r e

19 , pat e n t l i f e t i m e f o r k e y p l at f o r m t e c h n o l o g i e s pag e 5 7

The Company’s proprietary development programs are closely
monitored under patent law. For example, the most advanced pro-
grams, MOR103 and MOR202, which have been brought into part-
nerships, are each protected by more than a half dozen different
patent applications that cover the most varied aspects of these
compounds and thus provide effective protection. The various pat-
ents and associated protection certificates are not expected to ex-
pire until 2031. The program MOR208 is also protected by various
patents. In the fourth quarter, MorphoSys for example announced
the receipt of a new US patent and a European patent to protect the
cancer compound MOR208. The new patents granted include the
protein and gene sequences of the antibody, as well as the pharma-
ceutical preparations comprising these. They have a scheduled
expiry date of 2029 for the US patent, and 2027 in the case of the
European patent excluding any possible patent office or regulatory
extensions.

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

Presently, MorphoSys patent attorneys attend to approximately
40 different patent families globally, in addition to the numerous
patent families pursued by the Company together with its part-
ners. The patent portfolio is routinely analyzed and adapted to the
corporate strategy of the Company.

personnel
The Company relies on a forward-looking human resources policy
in order to promote Company loyalty among its professionally and
personally suitable employees in various disciplines. In an indus-
try such as biotechnology, in which success is highly dependent
upon the creativity and commitment of the workforce, employee
retention and satisfaction are key factors of success. At the end of
the reporting year, MorphoSys’s workforce comprised employees
of 18 different nationalities (2012: 16), who have been with the
Company for 5.4 years on average (2012: 5.1 years).

s e e f i G u r e s

8 –12 , e m p l o y e e f i g u r e s at a g l a n c e pa g e s 3 6 t o 3 7

A comprehensive range of further training, internal and external
training programs, and special training and development pro-
grams are available for the employees of the different depart-
ments. Along with professional development, MorphoSys enhances
the personal development of its employees and in some individual
cases, supports them through individualized coaching. The quar-
terly management workshops, initiated in 2012, also continued
with great success in 2013. These workshops offer all executives
concrete support in addressing management tasks. Uniform regu-
lations serve as guidance within the context of sustainable human
resources management. In July 2013, managers at all levels met
for a workshop which had four main topics:
• promoting an understanding of the actions of the different areas

of the Group;

• creating awareness of leadership issues;
• emphasizing the importance of responsible interdisciplinary co-

operation;

• advising on ways to optimize the current compensation system.

The resulting proposals served the Management Board as an aid
in decision making during the conversion of the remuneration sys-
tem as of 1 January 2014.

MorphoSys offers the opportunity for in-house vocational training
in order to provide young people with promising future career
prospects. As of 31 December 2013, MorphoSys employed three
trainees in the IT department, six biology laboratory technician
apprentices, and one human resources services trainee (31 De-
cember 2012: three IT apprentices and six biology laboratory tech-
nician trainees, one human resources service trainee).

Transparent communication within the workforce is a fundamen-
tal component of MorphoSys’s corporate culture, as described in
the ethical principles (The Credo) of the Company. Every two
weeks, “General Meetings” are held, in which the Management
Board describes all of the Company’s recent developments to the
employees. Employees also present selected projects and open-
ended questions are answered. Questions or feedback from the
workforce can be made either directly in the meeting or in ad-
vance and submitted in written form. If preferred, this may also be
done anonymously. In addition, the Company intranet and its inte-
grated document management system provide updated and rele-
vant information in a structured manner for all employees.

New employees take part in a two-day introductory course to fa-
miliarize themselves with the Group. Hereby, employees can ob-
tain extensive information on business processes on the basis of
individual lectures held by all departments. Sports and relaxation
options, such as Pilates lessons and courses in autogenic training,
are free of charge and encourage health and the social exchange of
employees across all departments.

G r o u p m A n A G e m e n t r e p o r t
Sustainability Report

Effective concepts for reconciling professional development with
personal life planning is a strategic success factor for future-ori-
ented companies. Therefore, for many years, MorphoSys has of-
fered its employees various options in this regard, such as flexible
working hours and special part-time options. Modern IT equip-
ment also facilitates trouble-free working during business trips or
on home office days. MorphoSys offers assistance to employees
with families through special options for reentering their profes-
sional life and supports them in the coordination of work and fam-
ily. MorphoSys is cofounder and sponsor of BioKids daycare in
Martinsried, and there are special agreements with a German ser-
vice provider offering additional services for employed family
members.

MorphoSys is making every effort to protect employees from work-
place hazards and to maintain their health through preventive
measures. The extremely low number of accidents in the workplace
proves the success of our strict monitoring of all occupational
health and safety measures. In the reporting year, MorphoSys was
able to reduce that number once again: only two occupational ac-
cidents (2012: three occupational accidents) occurred. Using poli-
cies and training courses from the Department of Health & Occu-
pational Safety, and also by offering regular medical examinations,
MorphoSys tries to keep the number of accidents at this low level,
and the safety and wellbeing of all employees at the highest level
possible. The low level of absenteeism of MorphoSys’s workforce
underscores the success of the Company’s efforts: During the year,
absenteeism fell to 2.7 % (2012: 3.0 %). The employee turnover rate
also declined in 2013 to 5.8 % (2012: 7.0 %). This is a further sign of
the high level of employee identification with the Company.

Abbildung 17

sustAinAbility
At morphosys

occupAt ionAl sAfE t y At morphosys

o n ly s p e C i A l ly t r A i n e d
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

l o W e s t p o s s i B l e
A m o u n t s o f
h A Z A r d o u s
s u B s tA n C e s u s e d

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 :

• A dedicated biosafety team as defi ned by the
“Gentechnik Sicherheitsverordung” (German
Genetic Engineering Safety Directive) and other
safety professionals perform an internal audit
to assess the risk involved

• Specifi c safety and evacuation training for the

employees working with the substances

• Assurance that all safety measures are imple-

mented before actual work commences

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 o f
C h e m i C A l W A s t e

huCAl

slonomics

ylanthia*

* First patent granted in the USA in January 2013

2023+

2031

QuAl i t y mAnAgEmEnt systEm At morphosys

m A n A G e m e n t B o A r d

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 tA l r e Q u i r e m e n t 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

Q u A l i t y

m A n A G e m e n t

s y s t e m s

Self Inspection/Internal Audits

SOP System*

External Audits

(CMO,* CTO,* CRO,*

clinical trial sites)

Documentation System

Batch Record Review/Batch Release

pAtEnt l ifE t imE for KEy pl Atform tEchnologiEs

Handling of Deviations, Change

Control, Complaints, Out of

Specifi cation (OOS) and Recalls

2016

sustAinAbility

At morphosys

occupAt ionAl sAfE t y At morphosys

o n ly s p e C i A l ly t r A i n e d

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

l o W e s t p o s s i B l e

A m o u n t s o f

h A Z A r d o u s

s u B s tA n C e s u s e d

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 :

• A dedicated biosafety team as defi ned by the

“Gentechnik Sicherheitsverordung” (German

Genetic Engineering Safety Directive) and other

safety professionals perform an internal audit

to assess the risk involved

• Specifi c safety and evacuation training for the

employees working with the substances

• Assurance that all safety measures are imple-

mented before actual work commences

QuAl i t y mAnAgEmEnt systEm At morphosys

m A n A G e m e n t B o A r d

Abbildung 18

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 tA l r e Q u i r e m e n t 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

Q u A l i t y
m A n A G e m e n t
s y s t e m s

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

Self Inspection/Internal Audits

SOP System*

Documentation System

Batch Record Review/Batch Release

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

*s e e G l o s s A r y pa g e 1 5 8

pAtEnt l ifE t imE for KEy pl Atform tEchnologiEs

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 o f

C h e m i C A l W A s t e

huCAl

slonomics

ylanthia*

* First patent granted in the USA in January 2013

2016

2023+

2031

Abbildung 19

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

Risk and Opportunity Report

MorphoSys is part of an industry that is characterized by constant
change and progress. The challenges and opportunities in the
healthcare industry are influenced by very different factors. Global
demographic changes, medical advances, and the desire for an in-
creasing quality of life provide solid growth prospects for the
pharmaceutical and biotechnology industries. However, increases
in regulatory requirements in the areas of drug development and,
in particular, the cost pressures on health systems must also be
considered.

MorphoSys is making major efforts to systematically identify new
opportunities and use them for its business success to increase the
Company’s long-term value. However, entrepreneurial success is
not possible without consciously taking risks. Through its world-
wide operations, MorphoSys is subject to a number of risks that
can affect the course of business. The Company’s risk manage-
ment system identifies these risks, evaluates them, and takes the
appropriate measures to prevent risks and to achieve the corpo-
rate goals. A regular review of the strategy ensures that opportu-
nities and risks are well balanced. MorphoSys only assumes a risk
if, simultaneously, an opportunity is offered to increase the com-
pany’s value.

risk management system

The risk management system is a central component of MorphoSys’s
corporate management and serves to ensure the principles of good
corporate governance and regulatory compliance.

MorphoSys has established a comprehensive system to identify,
assess, communicate, and cope with risks in all areas of the Com-
pany. MorphoSys’s risk management identifies risks at an early
stage, allowing the appropriate action to limit operating losses and
avoid risks that could jeopardize the Company’s existence. All mea-
sures to mitigate a risk are assigned to individual risk managers
who chiefly belong to the Senior Management Group of MorphoSys.

As part of a systematic risk assessment process, all significant
risks are evaluated with regard to MorphoSys’s various business
units and with respect to the Company as a whole. Such risk as-
sessments are carried out biannually. Risks are assessed by com-
paring their quantifiable impact on the MorphoSys Group with

their probability of occurrence both with and without employing a
damage mitigation process. This methodology is applied for an
evaluation period of twelve months and a medium term of three
years in order to include obligations under proprietary develop-
ment having longer maturities. In addition, the expanded strategic
risk assessment is based on a long-term period of more than three
years. The strategic risk assessment process is described in the
section titled “Expansion of the Risk and Opportunity Manage-
ment System”. An overview of the current risk assessment con-
ducted by MorphoSys is presented in diagram 21.

In addition, in the past financial year the IT-based risks and
opportunity management system introduced in the prior year was
fully operational. This allowed risk officers to enter their risks on
the Group-wide IT platform, which made monitoring, analysis, and
documentation much easier. This risk management system differ-
entiates between risk owners and risk managers. The risk owner
is typically the responsible head of department. The respective
employees of the department may be risk managers if the risks
captured by the risk management system fall within their area of
responsibility. The risk owners and risk managers are asked to
update their risks and the corresponding ratings in six month
intervals. The accompanying process is coordinated and managed
by the Corporate Finance & Corporate Development department,
which also oversees the assessment process, summarizes the es-
sential contents, and routinely reports it to the Management and
Supervisory Boards. The entire assessment process is based on
standardized forms and charts used for evaluation. Risk manage-
ment and the monitoring of operations are carried out by the re-
spective managers. Changes in the risk profile resulting from the
measures are recorded in a regular cycle. A routine audit by exter-
nal consultants ensures that the risk management system is con-
tinually evolving, so that it always complies with any changes.

Expansion of the risk and
opportunity management system

In the 2013 financial year, the existing risk and opportunity man-
agement system was enhanced in the field of strategic risks and
opportunities by introducing a top-down approach. In addition to
risk identification using the bottom-up method, which should iden-

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

tify short and medium-term risks, global strategic risks and op-
portunities will now be systematically identified in order to com-
plete the picture of opportunities and risks. Examples of this were
environmental and industry risks, personnel risks, and risks that
may result from the public perception of the Company. For this
occasion, a workshop has been introduced that involves select
members of the Senior Management Group and in which strategic
risks and opportunities across the various corporate divisions are
recognized and discussed, even for a period of more than three
years. The assessment is carried out qualitatively. Therefore these
risks are not included in the Figures on page 66. The workshop
takes place twice a year at the same time as other risk gathering
activities.

principles of risk and opportunity
management

MorphoSys is always confronted with both risks and opportuni-
ties. This may cause a tangible impact on net assets and financial
position as well as a direct influence on intangible assets, such as
the Company’s image within the industry or the Company’s trade-
mark.

MorphoSys defines risk as internal or external events having an
immediate impact on the Company. Hereby, the potential financial
impact on the Company’s targets is assessed. Opportunities are in
direct relation to risk. Seizing opportunities has a positive influ-
ence on the Company’s targets and the occurrence of risks has a
negative influence.

responsibilities in the risk and
opportunity management system

The Management Board of MorphoSys AG is responsible for the
risk and opportunity management system. The Management
Board ensures that all opportunities and risks are presented, eval-
uated, and monitored in a comprehensive manner. The Depart-
ment of Corporate Finance & Corporate Development coordinates
the implementation of the measures and routinely reports to the
Management Board. The Supervisory Board has appointed the
Audit Committee to monitor the effectiveness of the Group’s risk
management system. The Audit Committee routinely reports the
results to the entire Supervisory Board, which is informed addi-
tionally by the Management Board twice a year.

s e e f i G u r e
m o r p h o s y s pa g e 6 5

2 0 , t h e r i s k a n d o p p o r t u n i t y m a n a g e m e n t s y s t e m at

Accounting-related internal
control system

MorphoSys uses extensive internal controls, Group-wide reporting
guidelines, and other measures, including employee training and
continuing education, with the aim of ensuring accurate book-
keeping and accounting as well as reliable financial reporting in
the consolidated financial statements and the Group Management
Report. This integral component of the Group’s accounting com-
prises preventive, surveillance, and detection measures, which
are intended to ensure the safety and control in accounting and in
the operational functions. For more information on the internal
control system in relation to financial reporting, please refer to the
Corporate Governance Report.

risks

risk C At eGories
MorphoSys assigns the most important risks to the following six
categories:

s e e f i G u r e

21, d e s c r i p t i o n o f m a j o r r i s ks at m o r p h o s y s pa g e 6 6

• Financial risks (for example, those resulting from bankruptcies
and payment defaults, lower-than-anticipated and planned li-
cense fees, research funding and milestone payments as well as
risks associated with any form of financing and financial instru-
ments, such as cash investments, bank failures, currencies, in-
terest rates, taxes, and debt collection).

• Operational risks (for example, procurement/production, distri-
bution/logistics, customers, personnel and, with respect to the
biotechnology industry, risks from the results of pre-clinical or
clinical trials).

• Strategic risks (for example, M&A*, interests in entities, R&D,
corporate image, superior competing products, portfolio develop-
ment).

• External risks (risks beyond the Company’s control, such as eco-
nomic, political, and legal risks as well as risks associated with
companies in the biotechnology and pharmaceutical industry
such as the protection of intellectual property and the regulatory
environment when seeking the approval of new drugs).

• Organizational risks (such as IT risk, facilities management,
succession planning, business interruption, process delays as a
result of exaggerated complexity and an excessive number of
projects).

• Compliance risks (for example, breach of US FDA and European
EMA regulations, quality management policies, accounting
standards, corporate governance, and breach of the German
Stock Corporation Act).

*s e e G l o s s A r y pa g e 1 5 8

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

FINANCIAL RISKS
Financial risk management at MorphoSys aims to limit financial
risks and reconcile these risks with the requirements of our busi-
ness activities.

Financial risks may arise within the context of licensing agree-
ments, for example, when projects (products or technologies) are
delayed or do not materialize, or are out-licensed to a different ex-
tent than planned. A corresponding risk also arises when revenue
does not reach the level forecast or when costs are higher than
budgeted due to higher resource requirements. Detailed project
preparation, for example, through an intensive exchange with in-
ternal and external partners and consultants, ensures optimal po-
sitioning early in the process and thus represents an important
measure for minimizing risk. Financial risks associated with the
Company’s proprietary programs were lowered considerably, in
the course of the reporting year, through the successful introduc-
tion of MOR103 and MOR202 into partnerships. However, financial
risks relating to the MOR208 program are retained by MorphoSys.
In some cases, MorphoSys retains risks that relate to the clinical
development of programs introduced into partnerships.

Due to the continually difficult European economic situation, the
potential for bank insolvencies continues to present a financial
risk. Therefore, as far as possible, MorphoSys continues to invest
only in funds and products from banks, that are considered safe
and have a consistently high rating, and/or are backed by a strong
partner. Furthermore, the Company simulated different scenarios
and then decided upon the appropriate contingency plans.

Due to the sale of the AbD Serotec segment the foreign exchange
risk could be reduced slightly.

OPER ATIONAL RISKS
Operational risks include risks related to the exploration and de-
velopment of proprietary drug candidates, as well as those risks
affiliated with the central Procurement and Logistics department.
Personnel risks, such as the recruitment of suitable employees, or
the loss of highly qualified and experienced employees, are also
included in this category.

The failure of clinical trials – whereby the failure of a trial does
not necessarily mean the failure of an entire program – prior to
out-licensing to partners may arise if the trial data does not show
the expected results or demonstrates unexpected adverse side
effects. The design of clinical trials and development plans are
always undertaken with the utmost care. This gives trials in the
course of clinical testing the greatest chance to present clinically
relevant data, and thus to convince regulatory agencies and poten-
tial partners. Next to the existing internal knowledge, external
specialists are also involved. Special committees have been formed
for monitoring the progress of clinical programs.

In terms of procurement and logistics, close cooperation with sup-
pliers is maintained in order to avoid delivery delays, bottlenecks,
and the resulting increase in costs. This is supported by a routine
supplier assessment that identifies potential problems and deter-
mines solutions. These are then communicated both internally
and externally to the respective managers responsible.

Personnel risks occur in the area of recruitment and in the event
of the loss of so-called top performers. When recruiting, this is
particularly evident in terms of the difficulty in finding candidates
with appropriate qualifications. The loss of top performers occurs
when experienced and highly-qualified employees resign. To
counter such risks, the Company’s human resources department
seizes every opportunity – including collaborations with external
organizations – to optimize the recruitment process. MorphoSys
begins to search for suitable employees as early as possible. In ad-
dition, the Company’s attractiveness as an employer with an open
and innovative corporate culture is portrayed publicly through
advertisements and at trade shows. Along with recruitment, staff
retention represents one of the key elements of human resources
management. Through continuous comparisons with industry-
standard compensation systems, MorphoSys ensures that its em-
ployees are paid fairly and competitively. Moreover, appropriate
salary components and employee interviews cater to a performance-
based incentive system and support the long-term aim of binding
the employee to the Company. Corporate celebrations, team build-
ing activities, as well as sports and social events, also contribute to
a positive work environment.

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

STR ATEGIC RISKS
In the reporting year, MorphoSys took an expanded approach to
compiling strategic risks for the first time. A detailed explanation
may be found in the section titled “Expansion of the Risk and Op-
portunity Management System” (page 58).

Strategic risks arise in the area of therapeutic molecules within
the proprietary portfolio. The enhancement of the portfolio has be-
come the key focus, once again, after MorphoSys was able to suc-
cessfully bring two of the three existing proprietary programs
into partnerships in the reporting year. In this context, risks can
arise when there is a lack of access to attractive target molecules
and compounds or to innovative technologies. These risks also ap-
ply to missed or failed M&A transactions that could create access
to strategically important assets. To counter such risks, a multidis-
ciplinary team was established whose task is to expand the Com-
pany’s portfolio and identify suitable therapeutic molecules that
can be in-licensed. A New Discovery team was also created. This
team searches for suitable target molecules in order to develop
new therapeutic molecules for proprietary or external technologi-
cal platforms. In order to obtain long-term options to new technolo-
gies or therapeutic molecules, MorphoSys has additionally estab-
lished the Innovation Capital program which invests venture
capital in innovative start-up companies.

Another strategic risk is that in the distant future, therapeutic an-
tibodies will no longer be competitive because of the existence of
potentially better molecules or more favorable therapeutic ap-
proaches. This risk can also be classified as an industry risk. Again,
through Innovation Capital, MorphoSys has created a suitable tool
for identifying new trends at an early stage, so it can invest in
these innovations, and thereby participate in their development.
The Company’s own scouting team is searching worldwide for new
and innovative technologies and also analyzes MorphoSys’s com-
petitors at regular intervals.

E X TERNAL RISKS
For MorphoSys, external risks arise predominantly in relation to
its intellectual property. Patent protection of MorphoSys’s propri-
etary technologies is especially important. To mitigate the risks in
this area, MorphoSys is continuously on the lookout for published
patents and patent applications, the Company analyzes and moni-
tors appropriate findings, and develops circumvention strategies
for patents, that may potentially become relevant before they are
issued.

By following this strategy, MorphoSys has achieved increasing
success over the years and has been able to secure sufficient lee-
way over the long term for its proprietary technology platforms.

Another area in which external risks may occur, is the collabora-
tion with service providers in pre-clinical and clinical develop-
ment. A minor or bad performance in this area could lead to delays
in the development process and thus to financial losses.

As a global biotechnology company with numerous partnerships
and a proprietary research and development department for the
development of drug candidates, the MorphoSys Group is exposed
to numerous legal risks, particularly in the areas of patent law, li-
ability claims arising from existing collaborations, competition
and antitrust law, tax assessments and environmental matters.
Future proceedings are conceivable but cannot be predicted at the
moment. It is therefore possible that legal or regulatory judgments
or future settlements could give rise to expenses that are not cov-
ered, or not fully covered, by insurers’ compensation payments
and could significantly affect our revenues and earnings.

ORGANIZ ATIONAL RISKS
Organizational risks occur in the areas of Partnered Discovery,
Technical Operations, and IT. In the Partnered Discovery area, loss
of quality or delays may occur within the organization due to an
increase in the number of programs or the complexity of pro-
grams. To reduce the complexity and thus the risks, uniform pro-
cesses were introduced and their compliance is checked by regu-
lar audits.

Risks in Technical Operations affect operations and may lead to
sustained damages and business interruptions, as well as acci-
dents involving hazardous substances or pollutants. To avoid such
disruptions, appropriate measures are taken, such as the routine
inspection and maintenance of equipment and facilities, as well
as training and tutorials for the employees concerned. Suitable
electronic monitoring systems decrease such risks even further.
Financial risks affecting this area are generally covered by insur-
ance. Further information on MorphoSys’s operating environment
may be found in the Sustainability Report.

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

Business activities can be exposed to risks that result from fail-
ures of the IT infrastructure or IT security. These risks are man-
aged using security copies created several times daily, as well as
through the use of highly reliable firewall and antivirus scanning
systems to ensure the safety and stability of the data. Additionally,
MorphoSys minimizes the risks associated with the availability,
reliability, and efficiency of its IT systems through continuous test-
ing (for example, simulated, gradual hacker attacks), and updates
of the software and hardware systems. The IT strategy is also re-
viewed and adjusted on an annual basis.

C OMPLIANCE RISKS
Compliance risks may arise when quality standards are not met or
business processes, from a legal standpoint, are not handled prop-
erly. To counter these risks, MorphoSys is committed to meeting
the highest quality standards in its business operations, as set out
in the Sustainability Report. To minimize risk, the system is also
routinely reviewed by external experts and subjected to routine
inspections by an internal, independent quality assurance depart-
ment.

Specific risks could arise, for example, when the internal quality
management system does not meet the legal requirements, or
when there is a failure to implement internal systems for detecting
quality defects. If internal controls are not able to detect guideline
violations of the Good Manufacturing Practice (GMP), Good Clini-
cal Practice (GCP), or Good Laboratory Practice (GLP), this would
also constitute a compliance risk.

Annual General Meetings performed incorrectly could lead to le-
gal disputes with shareholders. The consequences of this would
cause significant costs by attempting to either avert a challenge of
the Annual General Meeting or, if this is not possible, to repeat the
Annual General Meeting. In addition, capital measures up for reso-
lution (for example, a capital increase) could possibly be at risk.

To minimize this risk, the preparation and execution of the Annual
General Meeting as well as all relevant documents and processes
are closely monitored and examined both by the internal depart-
ments responsible, and by external lawyers 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 of the MorphoSys Group considers the risk
to be appropriate overall and trusts the effectiveness of the risk
management system with regard to the changes in the environ-
ment and the needs of the current business. It is the Management
Board’s view that the continued existence of the MorphoSys Group
is not jeopardized. This assessment applies to each individual
Group company as well as to the MorphoSys Group as a whole.
This assessment is based on a variety of factors which are sum-
marized below:
• the MorphoSys Group has an exceptionally high equity ratio and
has successfully confirmed its corporate objectives, as it has in
the past;

• the Management Board of the Group is confident that MorphoSys
is well positioned to cope with any adverse events which may
occur;

• the Group has a broad portfolio of preclinical and clinical pro-
grams in partnerships with a number of large pharmaceutical
companies, as well as a strong technological base for the further
expansion of the proprietary portfolio.

opportunities

Leading antibody technologies, excellent know-how, and a broad
portfolio of validated clinical programs, have made MorphoSys one
of the world’s leading biotechnology companies in the field of
therapeutic antibodies. Because this therapeutic class of molecules
is now one of the most successful and best-selling drugs in cancer
therapy, a significant number of pharmaceutical and biotechnol-
ogy companies are active in the field of antibodies who could be-
come future customers and partners for MorphoSys’s products and
technologies. Due to this fact, and because of its long-standing
expertise in the field of technology and product development,
MorphoSys has identified a number of growth opportunities for the
years to come.

For the development and optimization of therapeutic antibody can-
didates, MorphoSys’s antibody technologies offer crucial advan-
tages that can lead to higher success rates and shorter develop-
ment times in the drug development process. The transfer and the
application of MorphoSys’s core areas of expertise, also outside of
the antibody segment, present the Group with new opportunities
because many classes of compounds are similar in their molecular
structure. The Innovation Capital initiative can seize opportuni-
ties which were previously unavailable, whereby MorphoSys can
act as a strategic investor in young, innovative companies and
thus effectively use synergies.

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

opp or t uni t y mAnAGemen t sy s t em
The opportunity management system is an important part of cor-
porate governance at MorphoSys. It serves to identify opportuni-
ties at an early stage and to generate added value for the Company.

mArke t opp or t uni t ies
MorphoSys believes that its HuCAL, Ylanthia, and Slonomics anti-
body platforms can be used to develop products that address con-
siderable, unmet medical needs.

Opportunity management relies on four pillars:
• a routine discussion forum of the Management Board and se-

lected members of the Senior Management Group;
• the business development activities of the Company;
• a Technology Scouting team; and
• the Innovation Capital initiative.

During the discussion forums, selected opportunities are dis-
cussed and, where applicable, actions are agreed upon for seizing
these opportunities. The meetings and their results are recorded
in detail and further actions are examined and monitored. The
Group’s Business Development team has participated in numerous
conferences and identified various opportunities that can contrib-
ute to the Company’s growth. These are presented in the discus-
sion forum and assessed through evaluation processes. The Tech-
nology Scouting team seeks to identify innovative technologies
that can generate synergies with the technological infrastructure
of MorphoSys and that are suitable for the identification of new
therapeutic molecules. These results are also discussed and evalu-
ated by internal committees existing across all departments. The
Innovation Capital initiative, which has already been described,
also allows MorphoSys to participate in early innovations and uti-
lize these for the benefit of the Company in the future. An estab-
lished opportunity evaluation process ensures a qualitative and
reproducible assessment of opportunities.

GenerAl s tAt emen t on opp or t uni t ies
Increased life expectancy in industrialized countries and the
changing income situation and lifestyle in emerging countries are
expected to drive demand for additional and innovative treatment
options and advanced technologies. Scientific and medical prog-
ress have led to a better understanding of the biological processes
of disease, which in turn leads to new therapeutic approaches.
Innovative therapies, such as fully human antibodies, have
reached market maturity in recent years and have led to the devel-
opment of commercially successful medical products. In addition,
therapeutic compounds based on proteins* – also known as bio-
logical compounds or biologics – are threatened less by competi-
tion from generics than chemically produced molecules because
the production of biological compounds is far more complex.
Therefore, the demand for antibodies and the interest in this cate-
gory of drugs have risen sharply over the past 36 months as dem-
onstrated by the various acquisitions and significant licensing
agreements in this field.
*s e e G l o s s A r y pa g e 1 5 8

t herApeu t iC An t iBodies – pAr t nered disCovery
By cooperating with numerous partner companies in drug devel-
opment, MorphoSys has been able to more widely diversify the
risk that is inextricably linked to the development of individual
drugs. With more than 70 unique therapeutic antibodies currently
in development programs with partners, the chances are ever
higher for MorphoSys to participate financially in the marketing of
drugs. In 2013, already two antibodies are in clinical phase 3. In
the case of positive clinical trial results, regulatory approval could
be conceivable in the near future. Partner Novartis has announced
that an application for the regulatory approval of the bimagrumab
antibody may be submitted in 2016.

MorphoSys will continue to expand its partnered antibody pipe-
line. In addition, MorphoSys may enter into further partnerships
on a fee-for-service basis.

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 refuel its pipelines and
replace previous key products and revenue generators that have
lost their patent protection. With its most advanced compounds
MOR103, MOR202, and MOR208, MorphoSys is in a good position
to capitalize on the needs of the pharmaceutical groups. The alli-
ances for MOR103 and MOR202, which have been started success-
fully in 2013, underline this position.

The proceeds secured over the coming years from the Partnered
Discovery segment place MorphoSys in a position to continually
strengthen its proprietary portfolio. MorphoSys is expanding its
proprietary portfolio through additional clinical trials with its key
drug candidates, with which, for example, new areas of disease
can be investigated. MorphoSys plans to add programs to its port-
folio and may take advantage of existing and future co-develop-
ment opportunities to do this. Furthermore, the Company is seek-
ing opportunities to in-license interesting drug candidates.

The co-operation with Celgene for MOR202 could, for the first
time, open the chance for MorphoSys to bring a drug to market.

G r o u p m A n A G e m e n t r e p o r t
Risk and Opportunity Report

t eChnol oGy devel opmen t
MorphoSys continues to invest in its existing and new technolo-
gies in order to maintain its top position as a technological leader.
Through Ylanthia, MorphoSys has established a new technology
platform, which, unlike its predecessor HuCAL, is available for
broader licensing to different partners. In 2012, MorphoSys began
with the commercialization of the Ylanthia antibody library.

Technological advances of this kind put the Company in a position
to expand its list of partners and not only increase the speed, but
also the success rate of partnered and proprietary drug develop-
ment programs. New technology modules could also open up new
areas of disease, where antibody-based treatments are still under-
represented, by allowing the production of antibodies for new
classes of target molecules.

The development of technologies is driven by a team of scientists
who concentrate on the further development of MorphoSys technol-
ogies. In addition to in-house technology development, MorphoSys
also relies on external sources to strengthen its technological ca-
pacities. The cooperation and equity investment in Lanthio Pharma,
a Dutch company dealing with the development of lantipeptides, is
a good example of such activities.

ACQuisi t ion opp or t uni t ies
In the past, MorphoSys has proven its ability to make acquisitions
and use these to accelerate its growth. Potential acquisition candi-
dates are systematically presented, discussed, and evaluated
within the scope of the routine meetings of the Management Board
and members of the Senior Management Group already described.
Subsequent to these meetings, promising candidates are exam-
ined for strategic synergies and evaluated by an internal specialist
committee. Protocols are completed on all candidates and assess-
ments, and are then systematically archived for observation and
follow-up. A proprietary database helps in administering this in-
formation and keeping it available.

MorphoSys plans to continue to drive its strategy forward in the
new year to expand its market share, complement its existing port-
folio and technology platform, and to secure access to patents and
licenses for the development of new proprietary technologies and
products.

f inAnC iAl opp or t uni t ies
Favorable exchange rate and interest rate developments can have
a positive effect on the Group’s financial results. The developments
in the interest rate and financial markets are continuously moni-
tored in order to immediately identify and utilize any opportunities.

risK And opportunity mAnAgEmEnt

At A glAncE

thE risK And opportuni t y mAnAgEmEnt systEm At morphosys

Corporate

Governance

supervisory

Board

management

Board

Compliance

management

risk

management

opportunity

management

internal

Control

system

defi ne

objectives

Assess

risk

discussion

forum

Business

development

monitor

system

implement

measures

technology

scouting

innovation

Capital

internal

Audit

risK And opportunity mAnAgEmEnt
At A glAncE

thE risK And opportuni t y mAnAgEmEnt systEm At morphosys

Abbildung 20

Corporate
Governance

supervisory
Board

management
Board

Compliance
management

risk
management

opportunity
management

internal
Control
system

defi ne
objectives

Assess
risk

discussion
forum

Business
development

monitor
system

implement
measures

technology
scouting

innovation
Capital

internal
Audit

DESCRIP T ION OF MAJOR RISKS AT MORPHOSYS
(Quantiﬁ cation in points, deﬁ nition of color code on page 67: “scoring system in points”)

F INANCIAL RISKS

OPERAT IONAL RISKS

ST RAT EGIC RISKS

Risks resulting from not reaching revenues
as expected, derived from existing business
with partners in proprietary programs

Risks inherent to proprietary antibody
discovery and development as well as
development with partners

Risks resulting from a lack of possibilities
to in-license therapeutic molecules

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

Risks resulting from bank insolvencies

Risks resulting from purchasing and
logistics-related issues

Risks resulting from missed opportunities
for acquisitions

EX T ERNAL RISKS

ORGANIZAT IONAL RISKS

COMPL IANCE RISKS

Risks resulting from IP-related issues

Risks resulting from increased amount and
complexity of programs

Risks resulting from quality-related issues
due to legal requirements

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

1 -Y E A R

E S T I M AT E

3 -Y E A R

E S T I M AT E

Risks resulting from external service
providers

Risks resulting from technical operations
issues

Risks resulting from legal issues

SCORING SYST EM IN P OIN TS

IMPACT

LOW

MEDIUM

HIGH

VERY HIGH

CATASTROPHIC

LIKELIHOOD

VER Y UNL IK ELY

UNL IK ELY

M O D E R AT E

L IK E LY

AL M O S T C E R TAIN

C AL C UL AT IO N
O F P OI N T S
Impact x Likelihood = Points

S C O R IN G

low risk

acceptable
risk

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

high risk

Risks valued at 1 to 4 points
represent a low risk (low probabil-
ity, minor eﬀ ects).

Risks valued at 5 to 12 points
represent acceptable risks
(medium probability, moderately
severe eﬀ ects).

For risks valued at 15 to 25 points,
risk minimization measures 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
Subsequent Events

Subsequent Events

On 22 January 2014 an updated statutory share capital was entered
in the Commercial Register (Handelsregister B München). The new
share capital at 22 January 2014 amounts to € 26,220,882.00, di-
vided into 26,220,882 no-par value bearer shares.

No further significant changes took place after the conclusion of
the 2013 financial year. Other events with a significant effect on
the net assets, financial position and results of operations also did
not occur after the conclusion of the financial year.

G r o u p m A n A G e m e n t r e p o r t
Outlook and Forecast

Outlook and Forecast

The MorphoSys Group develops new antibody drugs and tech-
nologies. Through the sale of the research antibody segment, AbD
Serotec, in early 2013, MorphoSys has strengthened its focus on
the development of therapeutic compounds. The out-licensing of
MOR103 and the alliance for MOR202 in 2013 affirm the potential
for the appreciation in value this strategic direction can bring.

The management of MorphoSys intends to further expand its port-
folio of proprietary drug candidates and will invest in this area
accordingly. In addition, MorphoSys will continue to focus on the
use and expansion of its technologies in fast-growing areas of the
healthcare sector driven by innovation.

overall statement on Expected
development

The strategic focus of MorphoSys lies in the development of a
broad and sustainable pipeline of innovative drug candidates, both
on a proprietary basis and with partners. This foundation is formed
by established and proven technologies, and the Company contin-
ues to invest in their development. In the therapeutic area, the
commercialization of these technologies provides cash flows se-
cured by contracts from long-term partnerships with large phar-
maceutical companies. Additionally, MorphoSys profits from the
successful development of drug candidates, not only through mile-
stone payments, but also through royalties from product sales as
soon as the drugs reach the market.

The Group’s stable cash flows* and strong liquidity make it possible
to expand business activities through investment in the proprie-
tary development of drugs and technologies. In the year 2014, the
Management Board expects the following developments:
• MorphoSys will expand its proprietary portfolio through in-li-
censing, company acquisitions and/or development collabora-
tions, as well as through new developments;

• MorphoSys will continue to invest in technology development in
order to maintain its top position in the field of antibodies and
related technologies. The Company expects to sign new strategic
agreements on the basis of the Slonomics and Ylanthia proprie-
tary technologies, in order to, for example, obtain access to in-
novative target molecules and compounds;

• the demand for antibodies for use in new methods of treatment
continues to remain high and allows the Company to continue to
expand its pipeline of therapeutic antibodies within its partner-
ships;

• the pharmaceutical industry continues to use the in-licensing of
compounds to gain access to promising product candidates. Suc-
cessful out-licensing of proprietary drug candidates could result
in lucrative cash flows.

*s e e G l o s s A r y pa g e 1 5 8

strategic outlook

MorphoSys’s business model is based on its proprietary technolo-
gies, including the HuCAL antibody library, the Slonomics plat-
form, the Ylanthia antibody library, as well as the Company’s abil-
ity to develop innovative drug candidates.

The Partnered Discovery segment generates cash flows secured by
contracts based on long-term collaborations. The development of
therapeutic antibodies within partnerships will remain a central
pillar of MorphoSys’s strategy. The therapeutic pipeline should
continue to grow and mature in the years to come and lead to fur-
ther milestone payments. The broad pipeline promises an impres-
sive number of market-ready, therapeutic antibodies in the coming
years and consequently financial participation in the form of roy-
alty payments from product sales.

In the Proprietary Development segment, MorphoSys is develop-
ing therapeutic antibodies in the area of inflammatory disease and
oncology on a proprietary basis. MorphoSys will consider entering
into alliances for the further development of its proprietary candi-
dates on a case-by-case basis. Under certain conditions, individual
projects could also be developed in-house for an extended period of
time, possibly even up to the point where they are marketable. At
the end of 2013, the MOR103, MOR202, and MOR208 clinical pro-
grams were the main assets in MorphoSys’s proprietary develop-
ment portfolio. Agreements were announced in the 2013 financial
year for MOR202 and MOR103. Currently, the Company is not
seeking a partner for MOR208 but prefers to continue with the
further clinical development on a proprietary basis.

G r o u p m A n A G e m e n t r e p o r t
Outlook and Forecast

In the foreseeable future, MorphoSys will invest the majority of its
financial resources in its own research and development in order
to expand its portfolio of proprietary compound candidates and
strengthen its technology platform.

Fairly rapid growth for the world economy as a whole is expected
in 2014. However, the OECD has lowered their forecasts in re-
sponse to the braking effect of emerging economies, which pro-
vided additional tensions in the markets as well as capital out-
flows. The OECD now expects global GDP growth of 3.6 %.

Expected Economic development

The global economy is expected to experience subdued growth in
the year 2014. The crisis countries in the eurozone, such as Spain,
which have already undergone far-reaching reforms, should see
the benefits of their efforts. Other countries, however, threaten to
fall further behind, causing the euro area as a whole to see only a
slow recovery from the severe recession. According to the esti-
mates of financial analysts, the ECB may possibly ease monetary
policy even further.

Under a new federal government in Germany, with the large coali-
tion comprising the CSU/CDU and SPD, the labor market reforms
of the Agenda 2010 are likely to be scaled back, which could have
a negative impact on the country’s long-term economic growth.
Nonetheless, the German economy will stand out as the top growth
gainer of the eurozone since the low ECB interest rate of currently
0.25 % is likely to fan the domestic economy. According to esti-
mates, companies will increase their investments again and ex-
ports will benefit from the somewhat stronger demand from other
eurozone countries. For 2014, analysts expect growth of 1.7 %.

The US was able to strengthen its economic equilibrium in the
past year. The real estate bubble lost its steam, continuous im-
provement in the labor market is set to strengthen private con-
sumption, and the government budget deficit could be vastly re-
duced despite precarious discussions. This should lead to economic
growth of about 2.8 % in 2014, according to estimates by financial
experts of Commerzbank.

Asia is also expected to have strong growth in 2014. Despite a
planned increase in sales tax, Japan is expected to have stable
growth and a continued loose monetary policy of the central bank.
The Chinese economy is expected to grow 7.5 % in 2014 – similar
to the rate in 2013. Owing to a far-reaching reform program ap-
proved at the end of the year, experts expect China’s growth to
prove to be very stable.

Expected development of the life
sciences sector

Historically, the pharmaceutical and healthcare industries have
been relatively immune to economic downturns. An aging popula-
tion in the developed nations and rising living standards in the
former developing countries call for new and innovative treat-
ments. However, the government budgets’ need for drastic cost-
cutting measures have led to upheavals in the international health
system. These have a direct impact on reimbursement policies
and, accordingly, on pharmaceutical companies. The patent expiry
of high-revenues drugs continues to pose a problem for the phar-
maceutical industry, whereby the lion’s share of patent expirations
has probably been overcome. However, pharmaceutical companies
still suffer from a lack of innovation and a lack of new products.

The outlook for the biotechnology industry is still very favorable.
Pharmaceutical companies are still willing to invest large sums in
the development of innovative and promising product candidates
by in-licensing of such programs from biotechnology companies.

The impact of the enacted Patient Protection and Affordable Care
Act on the US healthcare industry is not yet quantifiable. As of
1 January 2014, every American must obtain health insurance. Ac-
cording to media reports, approximately three million new health
insurance contracts were concluded in the first weeks following
the healthcare reform. A study by IMS Health predicts that this
broad access to health services in combination with lower patent
expirations in 2014 will lead to higher spending on US healthcare.

Expected business development

With the contractually guaranteed proceeds from the Novartis
agreement until at least the end of 2017, the financial impact of the
contract with Celgene, and new commercial opportunities through
proprietary technology platforms such as Slonomics and Ylanthia,
MorphoSys will continue to focus on expanding its partnered pipe-
line and increasing the value of its proprietary portfolio.

G r o u p m A n A G e m e n t r e p o r t
Outlook and Forecast

In the Partnered Discovery segment, for the next few years, the
Company expects to be able to start close to ten new partner pro-
grams annually on average. However, due to the attrition rates in
drug development, the net growth of the overall pipeline will be
somewhat lower. Additional partnerships with pharmaceutical and
biotechnology companies based on the Ylanthia technology are
expected to occur. These partnerships are intended to provide the
additional benefit of access to new target molecules and therapeu-
tic programs.

In June 2013, MOR103 was out-licensed to GlaxoSmithKline (GSK).
The phase 1b trial in patients with multiple sclerosis, which has
already started, will be completed by MorphoSys and the results
will be presented in the first half of 2014. Thereafter, GSK will as-
sume further development of the compound.

In June 2013, a strategic alliance was concluded with Celgene for
MOR202. Currently, a joint development plan for the compound is
being completed. MorphoSys and Celgene share the global devel-
opment costs at a ratio of one third to two thirds. Upon successful
development of MOR202, MorphoSys has secured the option to
commercialize the drug together with Celgene in Europe.

For the time being, MorphoSys will continue to develop MOR208
in-house. Decisions on a possible partnering or out-licensing of the
compound will be based on the clinical results as well as on the
developments in the market for this class of blood cancer drugs.

The approval of a therapeutic antibody on the basis of proprietary
technology is not expected before 2016/2017. As one of the first
partners, Novartis has announced publicly that the therapeutic
antibody bimagrumab (BYM338) could be submitted for approval
in 2016. Guselkumab (CNTO1959), an antibody compound being
developed by Janssen, may also enter the market in 2016/2017.

Expected personnel development

The Group’s workforce in the two segments Partnered Discovery
and Proprietary Development should remain at approximately the
same level as in the 2013 financial year. The need for additional
personnel could arise through entering into new development
collaborations or from the in-licensing of new technologies or de-
velopment candidates.

future research and development

The Company’s R&D budget for proprietary drug development
will rise significantly in 2014 compared to the previous year. The
majority of these investments will flow to the clinical develop-
ment of the most advanced drug candidates. Further investments
are planned in the areas of target validation and antibody develop-
ment as well as in the area of technology development.

The steps planned for the Company’s proprietary portfolio in 2014
steps are expected to include:
• completion of the phase 1b safety study in multiple sclerosis for

MOR103 as the second indication;

• completion of the ongoing phase 1/2a trial for MOR202 in mul-

tiple myeloma;

• initiation of new trials within the partnership with Celgene for

MOR202;

• continuation of two phase 2 clinical trials for MOR208 in NHL

and B–ALL;

• continuation of the joint development programs with Galapagos;
• in-licensing of one or more target molecules or compounds for

strengthening the proprietary development portfolio;

• cooperation with Lanthio Pharma for creating high-quality and

highly diverse lantipeptide libraries;
• initiation of de novo discovery programs.

Expected development of the
financial position and liquidity

MorphoSys has a solid financial base and predictable revenues,
mainly due to its collaboration with Novartis. In the 2013 financial
year, two compound candidates were brought into partnerships
leading to revenues, and licensing fees were recognized in relation
to the sale of the AbD Serotec business. After this operationally
very positive year, the Management Board expects Group revenues
of € 58 million to € 63 million in 2014.

The Partnered Discovery segment is a highly profitable business
unit. Until the end of 2017, the Company will receive contractually
secured cash flows, particularly from the agreement with Novartis.

The Proprietary Development segment is expected to incur a loss
in 2014 following the successful, revenue-generating contracts for
two proprietary programs. This will occur as a result of intensive
investment in the development of the proprietary drug candidate

G r o u p m A n A G e m e n t r e p o r t
Outlook and Forecast

MOR208, as well as from pro-rated investments in MOR202’s de-
velopment in collaboration with Celgene. Furthermore, MorphoSys
is planning to use its financial resources to strengthen the propri-
etary portfolio, through the identification and development of fur-
ther product candidates and also through potential in-licensing
and acquisition of interesting product candidates.

Based on the management’s current forecasts, the R&D expenses
for proprietary programs and technology development are expected
to be in the range of € 36 million to € 41 million. MorphoSys in-
tends to conclude the MOR103 trial in multiple sclerosis (MS), as
well as continue the MOR202 trial with Celgene in multiple my-
eloma. The Company will also continue the phase 2 clinical trials
of MOR208 in acute B-cell lymphocytic leukemia (B-ALL) and non-
Hodgkin’s lymphoma (NHL). In addition, the Company plans to in-
license one or more drug candidates in the years that follow. The
financial guidance for 2014 does not include additional develop-
ment expenses for any newly in-licensed program.

The Company expects an EBIT in the range of approximately
€ – 11 million to € – 16 million in 2014.

In the coming years, non-recurring events will have an increasing
impact on the net assets and financial position, as was clearly seen
in the year 2013. Such non-recurring events may include the out-
licensing of proprietary products and larger milestone payments
and royalties related to the achievement of market maturity of
partnered HuCAL antibodies. Such events could again lead to
substantially surpassing our financial targets. Similarly, failures
in drug development can have negative consequences for the
MorphoSys Group. In the near future, revenue growth will depend
on the Company’s ability to enter into new partnerships, and/or
out-license proprietary programs. Medium term, royalties on mar-
keted products could contribute to revenue growth.

At the end of the 2013 financial year, the liquidity position of
MorphoSys amounted to € 390.7 million (31 December 2012:
€ 135.7 million). The significant strengthening of the liquidity
position is a result of the sale of MorphoSys’s business unit AbD
Serotec, the license agreements with GSK and Celgene, and a suc-
cessful capital increase in September 2013. MorphoSys sees its
strong liquidity position as an advantage that can be used for stra-
tegic measures such as the in-licensing of compounds and partici-
pation in promising companies to accelerate its future growth.
Furthermore, the liquid funds could be used for more investment
in the Company’s proprietary portfolio of therapeutic antibodies.

dividends
In its financial statements according to German accounting prin-
ciples, MorphoSys AG reports an accumulated profit, which could
be used for distribution. Nevertheless, in line with the current
practice in the biotechnology industry, MorphoSys does not antici-
pate paying a dividend in the foreseeable future. To continue to
create shareholder value and provide new growth opportunities
for the Company, our profits are reinvested to a large extent in op-
erating activities – primarily in the development of proprietary
drugs. As in 2013, the Company intends to repurchase treasury
shares on the market. The treasury shares can be used for the
long-term incentive programs for the Management Board and the
Senior Management Group and for all other legally permitted
purposes.

This outlook is based on the assumptions of the Management
Board and takes into account all factors that were known at the
date when this annual report was prepared and that could affect
our business in 2014 and the years that follow. Future results may
differ materially from expectations, which are described in the
section “Outlook and Forecast”. The most important risks are dis-
cussed in the risk report.

Signifi cant

rise

of r&d budget

for proprietary drug development in 2014

Completion of the phase 1b safety study

in multiple sclerosis for MOR103

as the second indication

Initiation of new trials within the

partnership with Celgene for MOR202

Continuation of the joint development

programs with Galapagos

Cooperation with Lanthio Pharma for

creating high-quality and highly diverse

lantipeptide libraries

Initiation of de novo discovery

programs

Completion of the ongoing phase 1/2a

trial for MOR202 in multiple myeloma

Continuation of two phase 2 clinical

trials for MOR208 in NHL and B–ALL

In-licensing of one or more target

molecules or compounds for strengthening

the proprietary development portfolio

Signifi cant

rise

of r&d budget
for proprietary drug development in 2014

Abbildung 22

Initiation of de novo discovery
programs

Completion of the ongoing phase 1/2a
trial for MOR202 in multiple myeloma

Continuation of two phase 2 clinical
trials for MOR208 in NHL and B–ALL

In-licensing of one or more target
molecules or compounds for strengthening
the proprietary development portfolio

Completion of the phase 1b safety study
in multiple sclerosis for MOR103
as the second indication

Initiation of new trials within the
partnership with Celgene for MOR202

Continuation of the joint development
programs with Galapagos

Cooperation with Lanthio Pharma for
creating high-quality and highly diverse
lantipeptide libraries

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

Statement on Corporate Governance
and Corporate Governance Report

The Statement on Corporate Governance and the Corporate Gover-
nance Report are also published on the Company’s website under
Media & Investors > Corporate Governance.

3. MorphoSys AG will continue to comply with the recommenda-
tions of the “Government Commission on the German Corporate
Governance Code” in the Code version dated 13 May 2013 – with
the exceptions described below under item no. 4.

statement on corporate governance
pursuant to sec. 289a of the german
commercial code (hgb) for the 2013
financial year

In the Declaration on Corporate Governance pursuant to Sec. 289a
of the German Commercial Code (HGB), the Management Board
and Supervisory Board report on corporate governance. In addi-
tion to the annual Declaration of Conformity in accordance with
Sec. 161 of the German Stock Corporation Act (AktG), it also in-
cludes relevant information on corporate governance practices and
other aspects of corporate governance, particularly a description
of the working practices of the Management Board and Supervi-
sory Board.

deCl ArAt ion of Conf ormi t y of t he mAnAGemen t BoArd

And the supervisory BoArd of morphosys AG reGArdinG

the GermAn CorporAte GovernAnCe Code ( the “Code” )
The Management Board and
the Supervisory Board of
MorphoSys AG declare pursuant to Sec. 161 of the German Stock
Corporation Act:

1. Since the last Declaration of Conformity on 7 December 2012,
MorphoSys AG has complied with the recommendations of
the “Government Commission on the German Corporate Gover-
nance Code” – with the exceptions described below under item
no. 4. – in the Code version dated 15 May 2012.

2. On 13 May 2013, the “Government Commission on the German
Corporate Governance Code” submitted a new version of the
Code. MorphoSys AG has also complied with the recommenda-
tions of this new version of the Code – with the exceptions de-
scribed below under item no. 4.

4. Exceptions:
• Remuneration of Management Board members does not pro-
vide for a cap, neither overall nor for individual compensation
components (see item 4.2.3 Para. 2 Sentence 6 of the Code). In
view of existing limitation possibilities of the Supervisory
Board concerning the variable components of the Manage-
ment Board and of its annual allocation, the Supervisory
Board does not believe that an additional cap is required.
• The Supervisory Board has refrained from full application of
the recommendations of item 5.4.1 Para. 2 and Para. 3 Sen-
tence 1 of the Code. Pursuant to item 5.4.1 Para. 2, the Super-
visory Board shall specify concrete objectives regarding its
composition, which in particular shall stipulate an appropri-
ate degree of female representation. According to item 5.4.1
Para. 3 Sentence 1, proposals by the Supervisory Board to the
competent election bodies shall take these objectives into ac-
count. The Supervisory Board has determined concrete objec-
tives regarding its composition and thereby has also decided
to strive for an adequate representation of women on the Su-
pervisory Board. A concrete quota for female members of the
Supervisory Board has not been provided. However, the quali-
fication and not the gender should be the decisive criteria in
the individual cases for appointment to the Supervisory Board.

Martinsried/Planegg, 6 December 2013

MorphoSys AG

For the Management Board:
Dr. Simon Moroney
Chief Executive Officer

For the Supervisory Board:
Dr. Gerald Möller
Chairman of the Supervisory Board

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

rel evAn t inf ormAt ion on Corp orAt e GovernAnCe

prAC t iCes
MorphoSys ensures compliance with the laws and rules of con-
duct, especially through the use of a Group-wide Code of Conduct,
as well as through supplementary internal guidelines. MorphoSys’s
“Code of Conduct” sets out the fundamental principles and key
policies and practices for behavior in business. The Code serves as
a valuable tool for employees and management staff particularly in
business, legal, and ethical situations of conflict.

In addition, the Code of Conduct strengthens transparency and
consistent management principles as well as the strengthening
the trust in the Company of the financial markets, business part-
ners, employees, and the public. Compliance with the Code of Con-
duct is carefully monitored. The Group-wide implementation of the
Code is accompanied by the Code of Conduct Committee. The Code
of Conduct can be downloaded from the internet at Media & Inves-
tors > Corporate Governance.

Comp osi t ion of t he mAnAGemen t BoArd And t he

supervisory BoArd

MANAGEMENT BOARD
The Management Board of MorphoSys AG consists of the Chief
Executive Officer and three other members. In the schedule of
responsibilities, the various areas of responsibility are defined as
follows:
• Dr. Simon Moroney, Chief Executive Officer, is responsible for
Strategy and Planning; Compliance and Quality Assurance; In-
ternal Audit; Human Resources; Business Development & Port-
folio Management; Legal; and the coordination of individual
areas of the Management Board; and representation of the Man-
agement Board to the Supervisory Board.

• Jens Holstein, Chief Financial Officer, is responsible for Account-
ing and Taxes; Controlling; Corporate Finance & Corporate De-
velopment; Risk Management; IT & Technical Operations; Pro-
curement and Logistics; Corporate Communications & Investor
Relations.

• Dr. Arndt Schottelius, Chief Development Officer, is responsible
for Preclinical Development; Clinical Research; Clinical Opera-
tions; Drug Safety & Pharmacovigilance; Regulatory Affairs; and
Project Management.

• Dr. Marlies Sproll, Chief Scientific Officer, is responsible for
Development Partnerships & Technology Development; Target
Molecule & Antibody Research; Protein Chemistry; Alliance
Management; and Intellectual Property.

SUPERVISORY BOARD
As of 31 December 2013, the Supervisory Board of MorphoSys AG
consisted of six members, who oversee and advise the Manage-
ment Board. The present Supervisory Board consists of profes-
sionally qualified members representing the shareholders of
MorphoSys AG. Dr. Gerald Möller, acting as Chairman of the
Supervisory Board, coordinates the Board’s work, chairs the Super-
visory Board meetings, and represents the concerns of the Super-
visory Board externally. All members of the Supervisory Board are
independent in the meaning of the Code and possess many years
of experience in the biotechnology and pharmaceutical industries.
They are duly elected by the shareholders in the course of the An-
nual General Meeting. The Chairman of the Supervisory Board is
not a former member of the Management Board of MorphoSys AG.
The precise composition of the Supervisory Board and its commit-
tees is contained in the following table.

Comp o si t ion of t he supervi s or y B oArd

position

initial
Appointment

end of
period1

Audit
Committee

remunera-
tion and
nomination
Committee

science and
technology
Committee

Dr. Gerald Möller

Dr. Geoffrey Vernon

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Marc Cluzel

Karin Eastham

Chairman
Deputy
Chairman

Member

1999

2015

1999

2007

2002

2012

2015

2014

2015

Independent Financial Expert Chairman

Member

1 Period ends with termination of Annual General Meeting 2 Since 30 July 2013.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

Management Board and the Supervisory Board is held annually, in
which the strategic orientation of MorphoSys is discussed in par-
ticular. The Management Board’s rules of procedure set out that
important business transactions are subject to the agreement of
the Supervisory Board. Further information on the collaboration
between the Management Board and the Supervisory Board and
on important topics discussed in the 2013 financial year may be
found in the Report of the Supervisory Board.

The Supervisory Board shall hold at least two meetings per calen-
dar half-year, and at least six per calendar year. In addition to the
provisions of the Articles of Association, the Supervisory Board
has added rules of procedure with regard to its duties: The Super-
visory Board Chairman coordinates the work of the Supervisory
Board, chairs its meetings, and represents the affairs of the Board
externally. The Supervisory Board usually makes its decisions in
meetings. However, decisions can also be made by telephone,
video conference, or outside of the meetings.

The Supervisory Board constitutes a quorum when at least two
thirds of its members (including either the Chairman or the Dep-
uty Chairman of the Supervisory Board) participate in the vote.
Generally, resolutions of the Supervisory Board shall be adopted
by a simple majority of the votes cast, unless the law prescribes a
different majority. In the event of a tied vote, the vote of the Super-
visory Board Chairman will decide.

Supervisory Board meetings are recorded. Resolutions which are
taken outside of the meetings are also recorded. A copy of the min-
utes and the resolutions adopted outside of meetings is provided to
all members of the Supervisory Board. In accordance with the rec-
ommendation in item no. 5.6 of the Code, the Supervisory Board
evaluates the efficiency of its work on a regular basis.

Comp osi t ion And Work inG prAC t iCes of t he mAnAGe-

men t BoArd’s And supervisory BoArd’s Commi t t ees
The Management Board has not established any committees.

The Supervisory Board has three committees: the Audit Commit-
tee, the Remuneration and Nomination Committee, and the Sci-
ence and Technology Committee. The three committees formed by
the Supervisory Board are occupied by professionally qualified
members.

Work inG prAC t iCes of t he mAnAGemen t BoArd And
supervisory BoArd
To ensure good corporate governance, open and complete informa-
tion on a routine basis is a guiding principle for the cooperation of
the Management Board and Supervisory Board of MorphoSys AG.
The dual management system required by the German Stock Cor-
poration Act, explicitly differentiates between the management
and the supervision of a company. The responsibilities of both
boards are clearly defined by the legislator and by the Boards’ by-
laws and the Articles of Association. MorphoSys AG’s Management
and Supervisory Boards work closely together and act and make
decisions for the benefit of the Company. Their stated objective is
the sustainable increase in the Company’s value.

Each Management Board member has their own area of responsi-
bility, which is defined in the schedule of responsibilities. Each
member reports regularly on their respective area of responsibil-
ity to their Management Board colleagues. The collaboration of
Management Board members is governed by the bylaws. Both, the
schedule of responsibilities and the bylaws were enacted by the
Supervisory Board. The meetings of the Management Board typi-
cally take place once a week and are chaired by the Chief Execu-
tive Officer. At the meetings, resolutions related to actions and
transactions are passed that, under the rules of procedure, require
the approval of the entire Management Board. In order to pass
resolutions, at least half of the members of the Management Board
must participate in the vote. Resolutions of the Management Board
are passed by a simple majority. In the event of a tied vote, the vote
of the Chief Executive Officer decides. In the case of significant
events, each member of the Management Board or the Supervisory
Board may convene an extraordinary meeting of the Management
Board as a whole. Resolutions of the Management Board may also
be passed outside of its meetings by voting verbally, by telephone,
or in writing (including email). A written record is made of each
meeting of the full Management Board. This protocol is then sub-
mitted for approval at the subsequent meeting of the full Manage-
ment Board and signed by the Chief Executive Officer.

In addition to the regular Management Board meetings, a Manage-
ment Board strategy workshop is held annually. In this workshop,
the Management Board prioritizes the strategic objectives across
the Group and develops the future strategy.

The Management Board informs the Supervisory Board with re-
spect to planning, business development, and the position of the
Group, including risk management and compliance issues, in a
timely and comprehensive manner in writing as well as at the Su-
pervisory Board meetings. An extraordinary meeting of the Super-
visory Board shall be convened if necessary in case of a material
event. The Management Board involves the Supervisory Board in
the strategy and planning, as well as in all decisions of fundamen-
tal importance for the Company. In addition to the regular Super-
visory Board meetings, a further strategy meeting between the

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

p Ar t iC ip At ion of supervi s or y B oArd memBers

supervi s or y B oArd mee t inGs

at t e n d e d i n p e r s o n

pa r t i c i pat e d b y p h o n e

by
phone

01/16
2013

by
phone

03/21
2013

02/26
2013

by
phone

offsite
meeting

06/03
2013

07/30
2013

08/10
2013

09/18-19
2013

10/14-15
2013

11/05
2013

12/18
2013

–

name

Dr. Gerald
Möller

Dr. Geoffrey
Vernon

Dr. Walter
Blättler

Dr. Daniel
Camus

Dr. Marc
Cluzel

Karin Eastham

mee t inGs of t he Audi t Commi t t ee

name

02/26/2013

03/21/2013

05/02/2013

07/30/2013

11/05/2013

12/18/2013

by phone

Dr. Daniel Camus

Karin Eastham

Dr. Geoffrey Vernon

mee t inGs of t he remunerAt ion And nominAt ion Commi t t ee

name

Dr. Gerald Möller

Dr. Marc Cluzel

Karin Eastham (Member since July 2013)

02/26/2013

06/03/2013

07/30/2013

11/05/2013

12/18/2013

mee t inG of t he s C ienC e And t eC hnol o G y Commi t t ee

name

Dr. Walter Blättler

Dr. Marc Cluzel

02/26/2013

06/03/2013

07/30/2013

11/05/2013

12/18/2013

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

AUDIT C OMMIT TEE
The central task of the Audit Committee is to assist the Super-
visory Board in carrying out its supervisory duties with respect to
the accuracy of the annual financial statements and the consoli-
dated financial statements, the activities of the external auditors,
the internal control functions, particularly risk management, com-
pliance, and internal audit. In addition, the Audit Committee pre-
pares the award of the audit mandate to the auditor. Members of
the Audit Committee are Dr. Daniel Camus (Chairman), Ms. Karin
Eastham, and Dr. Geoffrey Vernon. All three members are inde-
pendent financial experts.

REMUNER ATION AND NOMINATION C OMMIT TEE
The Remuneration and Nomination Committee is responsible for
the preparation and annual review of the Management Board’s
compensation system before its final approval. In addition, the
Committee monitors, when necessary, the search for suitable can-
didates for appointment as Management Board members or as
Supervisory Board members and submits proposals to the Super-
visory Board in this regard. The Committee also prepares contracts
with Management Board members. The members of the Remunera-
tion and Nomination Committee are Dr. Gerald Möller (Chairman),
Dr. Marc Cluzel, and Ms. Karin Eastham.

SCIENCE AND TECHNOLO GY C OMMIT TE E
The Science and Technology Committee advises the Supervisory
Board on matters concerning proprietary drugs and technology
development and also prepares the relevant Supervisory Board
resolutions. The members of the Science and Technology Commit-
tee are Dr. Walter A. Blättler (Chairman), and Dr. Marc Cluzel.

The biographies of the Supervisory Board members can be found
on MorphoSys’s website under Company > Management > Super-
visory Board.

corporate governance report

MorphoSys makes responsible, sustainable, and value-oriented
corporate governance its highest priority. Good corporate gover-
nance is a central component of the corporate management at
MorphoSys. It forms the framework for the management and
supervision of the Group, including its organization, commercial
principles, and guidance and control measures.

With the creation of the German Corporate Governance Code (the
“Code”), a standard was established for transparent monitoring
and control of enterprises, and which is particularly oriented to-
wards the interests of shareholders. Many of the principles con-
tained in the Code on Corporate Governance have been practiced
at MorphoSys for a long period of time. Individual issues relating
to corporate governance at MorphoSys AG are detailed in the Dec-
laration on Corporate Governance pursuant to Sec. 289a of the Ger-
man Commercial Code (HGB). This also includes the annual Decla-
ration of Conformity, relevant information on corporate governance
practices, and a description of the working practices of the Man-
agement Board and Supervisory Board. Additional information
may be found in this Corporate Governance Report.

CommuniC At ion Wi t h t he C Api tAl mArke t s
One of the most important foundations of MorphoSys’s corporate
communication is to inform institutional investors, private share-
holders, financial analysts, employees, and all other stakeholders
simultaneously and comprehensively regarding the situation of
the Company. This is accomplished through routine, transparent,
and timely communication. All essential information is published
on the internet. The company is strictly committed to the principle
of fair disclosure.

A central component of Investor Relations at MorphoSys is regular
meetings with analysts and investors in the course of roadshows
and individual meetings. Conference calls accompany the publi-
cation of the quarterly results and allow analysts and investors to
directly address their questions on the development of the Com-
pany. The Company presentations prepared for on-site events are
accessible to all interested parties on the Company website. Video
and audio recordings of key events can always be found on the
Company website. Transcripts of the conference calls are also
promptly made available.

MorphoSys uses its corporate website as a central platform for pro-
viding current information on the Company and its progress. The
MorphoSys financial calendar contains the publication dates of
periodic financial reports and the date of the next Annual General
Meeting well in advance.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

es tABl ishmen t of speC if iC tArGe t s f or t he Comp osi-

t ion of t he supervis ory BoArd
The Supervisory Board of MorphoSys AG has a total of six mem-
bers. In view of the Company’s international orientation and to
ensure a fair share of diversity, the Supervisory Board maintains
a ratio of at least two non-German Supervisory Board members or
at least two members having particular international experience.
This ratio is currently being met.

The Company also strives to have at least four independent mem-
bers represented on our Supervisory Board. This ratio is also cur-
rently being met. Substantial and not merely temporary conflicts
of interest should be avoided; particularly with tasks at important
competitors. This is currently the case.

Furthermore, it is intended that an adequate proportion of women
shall be represented on the Supervisory Board. The Supervisory
Board is aware that such an adequate proportion of women may
not be reached with immediate effect. Nevertheless, the Super-
visory Board intends that the assessment of potential candidates
for positions on the Supervisory Board to become vacant will in-

clude qualified women. A prerequisite for the proposal of election
of female candidates shall be their qualification and concrete suit-
ability for the Company. With regard to the last election to the
Supervisory Board that took place at the Annual General Meeting
2012, Ms. Karin Eastham was elected as new Supervisory Board
member.

The provision regarding the age limit of 75 years that is contained
in the rules of procedure of the Supervisory Board is currently
respected. However, the Supervisory Board may approve an excep-
tion therefrom in individual cases.

The Supervisory Board intends to consider the targets mentioned
above for future nominations.

direC t or’s hol dinG of mAnAGemen t And supervisory

BoArd
The members of the Management Board and the Supervisory
Board hold more than 1 % of the stocks issued by the Company. All
shares, performance shares, stock options, and convertible bonds
held by each member of the Management Board and the Super-
visory Board are listed below.

rel At ed p Ar t ie s

ManaG eMent board

Dr. Simon Moroney

Jens Holstein

Dr. Arndt Schottelius

Dr. Marlies Sproll

total

SuperviSory board

Dr. Gerald Möller

Dr. Geoffrey Vernon

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Marc Cluzel

Karin Eastham

total

01/01/2013

Additions

forfeitures

sales

12/31/2013

419,885

6,500

2,000

7,105

435,490

7,500

2,019

9,519

191,445

90,000

102,867

384,312

1,500

1,000

2,500

158,445

90,000

82,602

331,047

452,885

6,500

2,000

27,370

488,755

9,000

2,019

1,000

12,019

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

01/01/2013

Additions

forfeitures

exercises

12/31/2013

191,445

90,000

102,867

384,312

191,445

90,000

102,867

384,312

01/01/2013

Additions

forfeitures

exercises

12/31/2013

58,800

33,000

88,386

90,537

60,537

124,800

299,997

147,186

90,537

93,537

424,797

01/01/2013

Additions

forfeitures

exercises

12/31/2013

36,652

25,104

111,964

12,024

8,235

36,729

48,676

33,339

148,693

s t o C k op t ions

ManaG eMent board

Dr. Simon Moroney

Jens Holstein

Dr. Arndt Schottelius

Dr. Marlies Sproll

total

Conver t iBl e B ond s

ManaG eMent board

Dr. Simon Moroney

Jens Holstein

Dr. Arndt Schottelius

Dr. Marlies Sproll

total

perf ormAnC e shAre s

ManaG eMent board

Dr. Simon Moroney

Jens Holstein

Dr. Arndt Schottelius

Dr. Marlies Sproll

total

direC t ors’ deAl inGs
Members of the Management Board and Supervisory Board of
MorphoSys AG, as well as closely related persons to such mem-
bers, are obligated to disclose trading in MorphoSys in accordance
with the German Securities Trading Act (WpHG).

During the year, MorphoSys received the following notifications
pursuant to Sec. 15a of the German Securities Trading Act (WpHG),
which are listed in the following table.

preven t inG Conf l iC t s of in t eres t
Members of the Management Board and the Supervisory Board are
obliged to refrain from actions that could lead to conflicts of inter-
est with their functions performed at MorphoSys AG. Such trans-
actions or secondary employment of the Management Board must
be disclosed immediately to the Supervisory Board and are subject
to its approval. The Supervisory Board, in turn, must inform the
Annual General Meeting of any conflicts of interest and their treat-
ment. In the 2013 financial year, no conflicts of interest occurred.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

direC t ors’ deAl inGs in 2013

party subject to
the notification
requirement

function

date of
transaction

in 2013

Dr. Simon Moroney

CEO

11/21/2013

Dr. Simon Moroney

CEO

11/20/2013

Dr. Simon Moroney

CEO

11/19/2013

Dr. Simon Moroney

CEO

11/19/2013

Member of the

type of transaction

Sale; stock options
were converted into
MorphoSys AG shares
and subsequently sold

Purchase; stock options
were converted into
MorphoSys AG shares;
Dr. Moroney is holding
the shares received

Sale; stock options
were converted into
MorphoSys AG shares
and subsequently sold

number of
stocks/
derivatives

Average

share price

transaction
volume

18,840

54.39 €

1,024,707.60 €

860

55.00 €

47,300.00 €

33,000

12.81 €

422,730.00 €

28,300

55.85 €

1,580,555.00 €

Karin Eastham

Supervisory Board

09/20/2013

Purchase

1,000

76.68 US-$

76,680.00 US-$

Dr. Simon Moroney

CEO

07/16/2013

Dr. Arndt Schottelius

CDO

07/16/2013

Dr. Marlies Sproll

CSO

07/16/2013

Dr. Marlies Sproll

CSO

07/16/2013

Dr. Marlies Sproll

CSO

07/16/2013

Sale; stock options
were converted into
MorphoSys AG shares
and subsequently sold

Purchase; stock options
were converted into
MorphoSys AG shares;
Dr. Sproll is holding the
shares received

110,445

49.00 €

5,411,805.00 €

90,000

49.00 €

4,410,000.00 €

46,002

49.00 €

2,254,098.00 €

36,600

49.00 €

1,793,400.00 €

20,265

13.03 €

264,052.95 €

Dr. Gerald Möller

Chairman of the
Supervisory Board

07/10/2013

Purchase

1,500

50.65 €

75,975.00 €

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

shArehol der ApprovAl of eQui t y-BAsed CompensAt ion

pl Ans; s t oCk repurChAses
By resolution of the Annual General Meeting of 19 May 2011, and
in accordance with § 71 Para 1 no. 8 AktG, MorphoSys is autho-
rized to repurchase its own shares in an amount of up to 10 % of the
existing common stock. This authorization may be exercised in
whole or in part, once or on several occasions, by the Company or
a third party on behalf of the Company, for the purposes specified
in the authorizing resolution. It is at the discretion of the Manage-
ment Board, as to whether the repurchase is carried out on the
stock exchange, by a public offer, or a public call to tender.

In the period of April - May 2013, MorphoSys has repurchased
84,475 of its own shares on the basis of this authorization. The
Company plans to use these treasury shares for the Management
Board’s and Senior Management Group’s long-term incentive
plans. However, this authorization also allows the shares to be
used for all other lawful purposes.

inf ormAt ion And CommuniC At ion
During the 2013 financial year, the updating and expansion of the
ERP software (ERP = Enterprise Resource Planning) implemented
was carried out successfully within the planned project budget
and time frame. In addition, the Corporate Performance Manage-
ment System (CPM), introduced in 2012, was extended with new
features for supporting key business processes. The CPM system’s
consolidation features were successfully audited by external audi-
tors. By introducing a unified communication system, it was pos-
sible to reduce current IT costs and raise internal collaboration to
the latest state-of-the-art level. Based on advanced IT security
technologies, MorphoSys expanded its technical controls to ensure
the protection of its information. Organizational controls for ensur-
ing the protection of information at MorphoSys are defined in the
relevant guidelines.

Compl iAnCe sy s t em

INTERNAL C ONTROL AND RISK MANAGEMENT SYSTEM WITH

REGARD TO THE AC C OUNTING PROCES S
In the 2013 reporting year, MorphoSys routinely updated its docu-
mentation of the existing internal control and risk management
system to maintain adequate internal control over its financial re-
porting. MorphoSys has described the main features of its ac-
counting-related internal control and risk management system in
accordance with § 289 Para. 5 and § 315 Para. 2 no. 5 HGB, and
pursuant to § 107 Para. 3 AktG. This ensures the presence of all
inspections in order to report financial data as accurately and as

precisely as possible. The COSO (Committee of Sponsoring Organi-
zations of the Treadway Commission) defines the relevant COSO
framework (“Internal Control – Integrated Framework”). This is
the basis most commonly used for internal controlling of financial
reporting and is also used by MorphoSys.

In view of system-inherent limitations, there is no absolute guar-
antee that the internal controls will be able to prevent or fully un-
cover misrepresentations in the context of financial reporting at
all times. The internal controls can only give reasonable assurance
regarding the reliability of financial reporting and the preparation
of financial statements consistent with the IFRS* standards adopted
by the European Union for external purposes.
*s e e G l o s s A r y pa g e 1 5 8

To ensure the correctness of the key financial figures reported and
the underlying execution of all accounting processes, MorphoSys
has implemented a strict four-eye principle. In addition, the effec-
tiveness and efficiency of these processes are controlled and re-
viewed regularly by external service providers. The consolidated
financial statements undergo a high number of preparation, audit,
and control processes in order that they can be reported promptly
to the market and shareholders. This is carried out according to a
plan agreed upon by the management which also provides for the
corresponding internal and external resources.

Furthermore, a set of rules and guidelines ensure the strict sepa-
ration of planning, posting, and execution of financial transac-
tions. The adherence to and implementation of these policies is
reviewed regularly. For all IT systems used, this separation of
functions is ensured by the appropriate allocation of rights.

Predictions of future events are not part of the internal control and
risk management system. However, MorphoSys does employ a risk
management system that ensures the early identification and as-
sessment of business-specific risks. Appropriate countermeasures
are used to eliminate, or at least reduce the risks identified to an
acceptable level. Special attention is given to those risks that could
jeopardize the Company’s existence.

The Management Board ensures the permanent and responsible
dealing of risks and keeps the Supervisory Board informed of all
existing risks and their development. Detailed information on
MorphoSys’s opportunities and risks may be found in the “Risks
and Opportunities Report” (page 58).

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

INTERNAL AUDIT
The task of Internal Audit is to assist the MorphoSys Group with a
systematic and consistent approach to evaluating and improving
the effectiveness of risk management, and to support the manage-
ment and monitoring functions in their fulfillment of the set goals.
The accounting and consulting firm, KPMG, was appointed in 2013
for the internal audit and was appointed as co-sourcing partner for
the performance of the audit.

The internal audit is based on a risk-oriented internal audit plan
which is largely based on the results of the most recent risk stud-
ies. Audit requirements and recommendations of the Management
Board and the Audit Committee of the Supervisory Board also fil-
ter into this audit plan.

The Internal Audit Department reports to the Management Board
at regular intervals. The Head of Internal Audit and the Chief Ex-
ecutive Officer report to the Audit Committee of the Supervisory
Board twice annually, or immediately, if necessary.

In the course of 2013, six audits were successfully conducted.
Some areas requiring action were identified and appropriate cor-
rections were initiated and performed. In the case of complaints,
appropriate countermeasures were initiated during the reporting
year. The 2014 audit plan of the Internal Audit department pre-
scribes a number of tests similar to the number in 2013.

ACCoun t inG And ex t ernAl Audi t
MorphoSys AG prepares its financial statements in accordance
with the provisions of the German Commercial Code (HGB) and
the Stock Corporation Act (AktG). The consolidated financial state-
ments are prepared in accordance with the International Financial
Reporting Standards (IFRS), as applicable in the European Union.

For the election of the Company auditor, the Audit Committee of
the Supervisory Board submits a nomination proposal. At the 2013
Annual General Meeting, PricewaterhouseCoopers AG Wirtschafts-
prüfungsgesellschaft was appointed auditor for the 2013 financial
year. As evidence of its independence, the auditor submitted a Dec-
laration of Independence to the Supervisory Board.

remunerAt ion rep or t
The Remuneration Report presents the principles, structure, and
amount of compensation paid to the Management Board and
Supervisory Board. It reflects the legal provisions and gives con-
sideration to the recommendations of the Code.

REMUNER ATION OF THE MANAGEMENT BOARD
The remuneration system for the Management Board is intended to
provide an incentive for performance-oriented and sustainable
corporate management. Therefore, the aggregate compensation of
Management Board members is comprised of different compo-
nents such as fixed components, an annual cash bonus based on
the achievement of individual and corporate targets (short-term
incentive – STI), as well as a variable compensation component
with a long-term incentive (long-term incentive – LTI), and of other
compensation components. The variable remuneration component
with long-term incentive consists basically of a performance share
plan and, specifically in 2013, a convertible bond plan. The Man-
agement Board members also receive fringe benefits in the form of
non-cash benefits. These benefits essentially consist of a company
car, telephone, and insurance premiums. As a component of remu-
neration, the fringe benefits of each Management Board member
are taxable. All total remuneration packages are reviewed annu-
ally by the Remuneration and Nomination Committee for their
scope and appropriateness and compared to the results of an an-
nual management board compensation analysis. The amount of
compensation paid to Management Board members highly de-
pends on the areas of responsibility of the respective Management
Board member, his or her personal achievement of goals, business
performance, as well as success and the economic prospects of the
Company in relation to the competition. All decisions concerning
any adjustments to the total remuneration packages are taken by
the entire Supervisory Board. The salaries were last adjusted in
July 2013.

OVERVIE W
In the 2013 financial year, the total remuneration of the Manage-
ment Board amounted to € 5,842,393 (2012: € 3,157,068).

Of this total remuneration, € 2,837,809 was cash remuneration,
and € 3,004,584, or 51 %, resulted from stock-based compensation
for 2013 (performance share plan, stock option plan and convert-
ible bond plan) (remuneration with long-term incentive – LTI).

The following shows a detailed and individualized table of the
Management Board’s compensation.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

Compens At ion of t he mAnAGemen t B oArd in 2013

19a

fixed Compensation

short-term
incentive
Compensation

long-term incentive Compensation
(target Attainment depends on Company Goals)1

total

Compen-
sation2

Base salary
in €

412,049

279,531

1,250,642

Dr. Simon Moroney

Jens Holstein

Dr. Arndt
Schottelius

Dr. Marlies Sproll

total

other
Compen-

satory
Benefits
in €

179,3533

106,3154

107,4375

99,7496

492,854

variable
Compen-
sation
in €

no, of
performance
shares
Granted

no, of
Convertible
Bonds

Granted

360,543

244,590

1,094,313

12,024

8,235

36,729

88,386

90,537

60,537

personal
expenses
regarding
stock-Based
Compen-
sation 2013

953,834

750,964

651,773

648,013

299,997

3,004,584

in €

1,905,779

1,381,400

1,283,331

1,271,883

5,842,393

1 The remuneration with a long-term incentive effect is dependent upon the achievement of the company objectives. This remuneration is presented in accordance

with IAS 24.17e in an amount which corresponds to the past financial year.

2 The total remuneration shown for 2013 includes the respective bonus accruals for 2013 which will be paid out in February 2014.
3 Includes € 112,221 in contributions to individual pension plans and allowances for insurances
4 Includes € 78,177 in contributions to individual pension plans and allowances for insurances
5 Includes € 78,294 in contributions to individual pension plans and allowances for insurances
6 Includes € 78,170 in contributions to individual pension plans and allowances for insurances

Compens At ion of t he mAnAGemen t B oArd in 2012

19b

fixed Compensation

short-term
incentive
Compensation

long-term incentive Compensation
(target Attainment depends on Company Goals)1

total

Compen-
sation2

Base salary
in €

401,980

271,867

272,700

1,219,247

Dr. Simon Moroney

Jens Holstein

Dr. Arndt
Schottelius

Dr. Marlies Sproll

total

other
Compen-

satory
Benefits
in €

139,5553

129,8364

103,8415

96,6096

469,841

variable
Compen-
sation
in €

no, of
performance
shares
Granted

226,689

176,890

164,155

162,653

730,387

18,976

12,997

57,967

personal
expenses
regarding
stock-Based
Compen-
sation 2012

274,075

113,175

185,199

165,144

737,593

in €

1,042,299

691,768

725,895

697,106

3,157,068

1 The remuneration with a long-term incentive effect is dependent upon the achievement of the company objectives. This remuneration is presented in accordance

with IAS 24.17e in an amount which corresponds to the past financial year.

2 The total remuneration shown for 2012 includes the respective bonus accruals for 2012 which were paid out in February 2013.
3 Includes € 109,882 in contributions to individual pension plans and allowances for insurances
4 Includes € 72,999 in contributions to individual pension plans and allowances for insurances
5 Includes € 76,898 in contributions to individual pension plans and allowances for insurances
6 Includes € 76,789 in contributions to individual pension plans 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
Statement on Corporate Governance and Corporate Governance Report

Members of the Management Board have exercised convertible
bonds and stock options in the course of 2013. All transactions in
connection with trading in MorphoSys shares were reported as
required by law and published in the Corporate Governance Re-
port and on the Company’s website.

FIXED C OMPENSATION
The non-performance related remuneration of the Management
Board is composed of fixed remuneration and additional other ben-
efits which mainly include the use of company cars, and also sub-
sidies for health, welfare, and disability insurance. In the 2013
financial year, Management Board member Jens Holstein was
reimbursed € 1,961 for relocation costs for his move to Munich.
Furthermore, the Company provides payments to Management
Board members of up to 10 % of each Management Board member’s
fixed annual salary plus taxes to be paid. These payments are to be
used by the Management Board members for their individual
retirement plans. These payments are included in other compen-
sation. In addition, all Management Board members participate in
a pension plan in the form of a provident fund, which was intro-
duced in cooperation with Allianz Pensions-Management e.V. The
pension obligations of this provident fund are met by Allianz Pen-
sions-Management e.V.

PE RFORMANCE - BASE D C OMPENSATION

(SHOR T-TERM INCENTIVE – STI)
As performance-based remuneration, each Management Board
member receives an annual cash bonus amounting to up to 70 % of
the gross base salary upon the 100 % achievement of objectives.
These bonus payments are dependent upon the achievement of cor-
porate and personal objectives which are determined by the Super-
visory Board at the beginning of each financial year. Corporate
targets comprise two-thirds of performance-based remuneration
and are based on the business development in terms of revenue,
operating results, progress of the partnered pipeline, and on the
Company’s proprietary portfolio. Personal targets comprise one-
third of performance-based remuneration and include the fulfill-
ment of operational targets for which the respective Management
Board member is responsible. At the start of the year, the Super-
visory Board assesses as to what degree the corporate and per-
sonal objectives were achieved in the prior year, and determines
the corresponding bonus accordingly. The bonus is subject to a
ceiling of 125 % of the target amount (corresponding to 87.5 % of
gross basic salary). If targets are not achieved, the performance-
based remuneration may be completely omitted. The bonus for the
2013 financial year will be paid in February 2014.

LONG -TERM INCENTIVE C OMPE NSATION (LTI)
MorphoSys has already introduced a new, long-term incentive plan
(Performance Share Plan) for the Management Board and mem-
bers of the Senior Management Group in 2011. The LTI program is

based on the allocation of shares which are linked to the achieve-
ment of certain pre-defined performance targets over a four-year
period.

The Supervisory Board decides annually on the number of perfor-
mance shares to be allocated to the Management Board, which in
turn determines the allocation of shares to the members of the
Senior Management Group. On 1 April 2013, 36,729 performance
shares were awarded to the Management Board and 24,872 perfor-
mance shares were granted to members of the Senior Management
Group. On 1 October 2013, an additional 549 shares were allocated
to the members of the Senior Management Group; hereby each
member received an entitlement to a certain number of shares. For
more details, please refer to item 7.4.3 of the Notes to the consoli-
dated financial statement and the explanations on share repur-
chases found in the Corporate Governance Report.

The Supervisory Board has also set long-term performance targets
through the allotment of shares in specific years. For the 2013 LTI
program, the target was defined as the share price performance of
the MorphoSys share, compared to a benchmark index that was
comprised equally of the NASDAQ Biotech Index and the TecDAX
index. Performance shares are awarded annually on the basis of a
daily comparison of the MorphoSys share with the benchmark in-
dex. For the price performance of a specific year, there is a hurdle
of 50 % and an upper limit of 200 %. This means that shares may
not be exercised when MorphoSys’s share performance is less
than 50 % of the performance of the benchmark index. In contrast,
when the share’s performance exceeds that of the index by more
than 200 %, no additional shares are issued.

The final number of performance shares allocated to the beneficia-
ries of the LTI program is determined after completion of the pro-
gram, specifically, after a period of four years. This calculation in-
corporates the number of shares initially allocated, after adjusting
the Company’s share price performance, versus the benchmark
index and the discretion of the Supervisory Board with regards to
a so-called “company factor”. The company factor is a number be-
tween zero and two and is determined by the Supervisory Board
depending on the Company’s situation. The predefined default
value of the company factor is one.

In addition to the performance share program as a regular variable
remuneration component with long-term incentive effects, the
Management Board also participated in a convertible bond plan of
the Company on 1 April 2013. The circumstances of this additional
remuneration under the Company’s convertible bond plan the
MorphoSys’s positive operating development.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

MISCELL ANEOUS
In the reporting year, no credits, loans or similar benefits were
granted to members of the Management Board. In the year under
review, the Management Board members received no benefits
from third parties that were either promised or granted in view of
their position as members of the Management Board.

TERMINATION OF MANAGE ME NT BOARD E MPLOYMENT

C ONTR AC TS/CHANGE OF C ONTROL
If a Management Board member’s service contract terminates as a
result of the death, his/her spouse or his/her life partner are enti-
tled to the fixed monthly salary for the month of death and the
following twelve months thereafter. In the event of a change in
control, each Management Board member is entitled to exercise
the extraordinary termination of his/her employment contract, in-
cluding an entitlement to outstanding fixed salary for the remain-
der of the agreed contract period. Moreover, in such a case, all
stock options, convertible bonds, and performance shares granted
will become vested immediately and are exercisable after the expi-
ration of the statutory vesting period or blackout periods. A change
in control occurs particularly when: (i) MorphoSys transfers assets
or a substantial part of its assets to unaffiliated third parties, (ii)
MorphoSys merges with a non-affiliated company, or (iii) a share-
holder or third party holds 30 % or more of the voting rights in
MorphoSys.

REMUNER ATION OF THE SUPERVISORY BOARD
The remuneration of the members of the Supervisory Board is gov-
erned by the Company’s Articles of Association or by a correspond-
ing resolution on Supervisory Board remuneration of the Annual

General Meeting. The members of the Supervisory Board received
a fixed remuneration in the 2013 financial year and attendance
fees for their participation in Supervisory Board and Committee
meetings. According to the resolution of the Annual General Meet-
ing of 31 May 2012, each Supervisory Board member receives an
annual flat compensation (€ 85,400 for the Chairman, € 51,240 for
the Vice Chairman, and € 34,160 for all other members) for their
membership in the Supervisory Board. The Chairman receives
€ 3,000 for each Supervisory Board meeting he chairs, and the
remaining members receive € 1,500 each time they attend a
Supervisory Board meeting. For Committee work, the Committee
Chairman receives € 9,000 and the remaining committee mem-
bers each receive € 6,000. In addition, Committee members re-
ceive € 1,000 for each Committee meeting they participate in. The
compensation is paid quarterly on a pro-rated basis.

Supervisory Board members are also reimbursed for travel costs
and the value-added taxes (VAT) due on their remuneration. Over-
all compensation takes into account the responsibilities and scope
of the tasks of the Supervisory Board members.

In the 2013 financial year, Supervisory Board members received a
total of € 458,280 (2012: € 478,197), excluding the reimbursement
of travel expenses. This amount is comprised of the fixed remu-
neration and attendance fees.

No loans were granted to Supervisory Board members.
The following table shows the remuneration of the Supervisory
Board in detail:

Compens At ion of t he supervi s or y B oArd

in €

2013

2012

2013

2012

2013

2012

fixed Compensation

Attendance fees

total Compensation

Dr. Gerald Möller

Dr. Geoffrey Vernon

Dr. Walter Blättler

Dr. Daniel Camus

Dr. Marc Cluzel

Karin Eastham

Prof. Dr. Jürgen Drews1

Dr. Metin Colpan1

G eSaMt

94,400

57,240

43,160

46,160

40,160

94,400

51,549

43,160

41,939

27,116

23,591

26,264

16,678

32,000

19,500

17,000

19,500

23,500

22,500

37,000

22,000

21,500

23,500

19,000

15,000

9,500

6,000

126,400

131,400

76,740

60,160

62,660

69,660

62,660

73,549

64,660

65,439

46,116

38,591

35,764

22,678

324,280

324,697

134,000

153,500

458,280

478,197

1 retired from the Supervisory Board of MorphoSys AG on 31 May 2012

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

disclosures pursuant to §§ 289
para. 4, 315 para. 4 hgb and Explana-
tory report of the management
board pursuant to § 176 para. 1
sentence 1 Aktg

Comp osi t ion of Common s t oCk
As of 31 December 2013, the statutory common stock amounted
to € 25,669,444.00 and was divided into 25,669,444 no-par value
bearer shares. With the exception of 339,890 treasury shares
held by the Company, this concerns bearer shares with voting
rights, whereby each share carries one vote at the Annual General
Meeting.

res t riC t ions AffeC t inG vo t inG riGh t s or t he

t rAnsfer of shAres
The Management Board is not aware of any restrictions which affect
voting rights or the transfer of shares. This also relates to restric-
tions which might arise from agreements between shareholders.

reappointment or extension of the term of office is permitted up to
a maximum of five years in each case. The Supervisory Board may
revoke the appointment of a Management Board member or the
nomination to Chief Executive Officer, for good cause within the
meaning of § 84 Para 3 AktG. If a required member of the Manage-
ment Board is absent, one will be appointed by the court in cases
of urgency pursuant to § 85 AktG.

In principle, the Articles of Association may only be amended by a
resolution of the Annual General Meeting in accordance with
§ 179 Para. 1 Sentence 1 AktG. Pursuant to § 179 Para. 2 Sentence
2 AktG in conjunction with § 20 of the Articles of Association. The
Annual General Meeting of MorphoSys resolves amendments to
the Articles of Association generally through a simple majority of
the votes cast and a simple majority of the common capital repre-
sented. To the extent that the law stipulates a mandatory greater
majority of votes or capital, this shall be applied. Amendments to
the Articles of Association which solely concern their wording,
may be resolved by the Supervisory Board pursuant to § 179 Para.
1 Sentence 2 AktG in conjunction with § 12 Para. 3 of the Articles
of Association.

Furthermore, restrictions on voting rights could also arise from
the provisions of the German Stock Corporation Act (AktG), such
as according to § 136 AktG or for treasury shares pursuant to
§ 71b AktG.

p oWers of t he mAnAGemen t BoArd t o issue shAres
The Management Board’s power to issue shares arises from § 5
Para. 5 to Para. 6e of the Articles of the Association of the Company
as of 31 December 2013 and the statutory provisions:

shArehol dinGs in t he Common s t oCk exCeedinG 10 %

1. Authorized Capital

of t he vo t inG riGh t s
MorphoSys has not been notified of or is aware of any direct or in-
direct interests in the common stock of the Company which exceed
10 % of the voting rights.

shAres Wi t h speC iAl riGh t s ConferrinG p oWers of

Con t rol
Shares with special rights conferring powers of control do not exist.

Con t rol over vo t inG riGh t s Wi t h reGArds t o

empl o yee oWnership in t he C Api tAl
Employees who hold shares in the Company, like other sharehold-
ers, exercise their voting rights directly in accordance with the
statutory provisions 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 iCl es of AssoC iAt ion
The determination of the number of Management Board members,
their appointment and dismissal, and the nomination of the Chief
Executive Officer, are carried out by the Supervisory Board in ac-
cordance with § 6 of the Articles of Association and § 84 AktG. The
Management Board of the Company currently consists of the Chief
Executive Officer and three other members. Management Board
members may be appointed for a maximum period of five years. A

According to § 5 Para. 5 of the Articles of Association, the Man-
agement Board is authorized, with the consent of the Super-
visory Board, to increase the Company’s common stock on one
or more occasions by up to € 2,335,822.00 for cash contribution/
or contributions in kind by issuing up to 2,335,822 new, no-par
value bearer shares until and including 30 April 2018 (Autho-
rized Capital 2013-I).

If there is a capital increase, the shareholders are generally en-
titled to subscription rights. The shares may also be subscribed
for by one or several credit institutions with the obligation to
offer the shares to shareholders for subscription. However, the
Management Board is authorized to exclude preemptive rights
of shareholders with the consent of the Supervisory Board:

aa) in the case of a capital increase for cash contribution, to the
extent that this is necessary for avoiding fractional shares; or
bb) in the case of a capital increase against contribution in kind,
to the extent that the capital increase is used for the acquisi-
tion of companies, interests in companies, patents, or other
intellectual property rights or license rights; or of assets
which constitutes a business in its entirety; or

cc) in the case of a capital increase for cash contribution, to the
extent that the new shares are placed on a domestic and/or
foreign stock exchange in the context of a listing.

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

The Management Board is authorized, with the consent of the
Supervisory Board, to determine the further details of the capi-
tal increase and its implementation.

The previous Authorized Capital 2012- II in accordance with § 5
Para. 6 of the Articles of Association was utilized in its entirety
as part of the capital increase carried out in September 2013 and
thus cancelled.

2. Conditional Capital
a.

According to § 5 Para. 6a of the Articles of Association, the
Company’s common stock is conditionally increased by
€ 70,329.00, divided into up to 70,329 no par-value bearer
shares (Conditional Capital 1999 -I). The conditional capital
increase of € 3,255.00 (Conditional Capital II a) will only be
executed to the extent that the holders of option rights,
which were conferred by MorphoSys until 20 July 2004
under the authorization of the Annual General Meeting of
21 July 1999, make use of their right of exercise. Regarding
an amount of € 5,229.00 (Conditional Capital II bb), the con-
ditional capital increase will only be affected to the extent
that holders of option rights, which were conferred by
MorphoSys from 21 July 2004 until 30 April 2009 under the
authorization of the Annual General Meeting of 11 May
2004, make use of their right of exercise. The conditional
capital increase for an amount of € 61,845.00 (Conditional
Capital II b) will only be executed to the extent that the hold-
ers of option rights, which were conferred by MorphoSys
until 4 June 2006 under the authorization of the Annual
General Meeting of 5 July 2001, make use of their right to
exercise. The new shares, to the extent that they are created
through exercise by the beginning of the Annual General
Meeting, participate in the Company’s profits from the be-
ginning of the previous financial year, or otherwise from the
beginning of the financial year in which they are created
through the exercise of subscription rights.

b. According to § 5 Para. 6b of the Articles of Association, the
Company’s common stock is conditionally increased to a
maximum of € 6,600,000.00, divided into a maximum of
6,600,000 no par-value bearer shares (Conditional Capital
2011-I). The conditional capital increase will only be exe-
cuted to the extent that the holders of warrants or conver-
sion rights resulting from convertible bonds or bonds with
warrants, which were conferred by MorphoSys until 30 April
2016 under the authorization of the Annual General Meeting
of 19 May 2011, exercise their subscription rights or that the
holders of convertible bonds, issued by the Company or one
of its direct or indirect domestic or foreign wholly owned
subsidiaries until 30 April 2016, and who are subject to a
conversion obligation, meet their obligation to convert. The

new shares participate in the Company’s profits from the
beginning of the financial year in which they arise through
the exercise of conversion rights or the fulfillment of conver-
sion obligations.

c. According to § 5 Para. 6c of the Articles of Association, the
Company’s common stock is conditionally increased to a
maximum of € 725,064.00, divided into 725,064 new no par-
value bearer shares (Conditional Capital 2003-II). The condi-
tional capital increase will only be executed to the extent
that holders of convertible bonds issued, exercise their con-
version rights for conversion into ordinary shares of the
Company. The new shares are first entitled to dividends in
the financial year, for which there was no resolution of the
Annual General Meeting on the appropriation of accumu-
lated income at the time of issuance. The Management Board
is authorized, with the consent of the Supervisory Board, to
determine the further details of the capital increase and its
implementation.

d. According to § 5 Para. 6d of the Articles of Association, the
Company’s common stock is conditionally increased by
€ 763,515.00, divided into up to 763,515 no par-value bearer
shares (Conditional Capital 2008-II). The conditional capital
increase will only be executed to the extent that holders of
option rights, which were conferred by the Company until
30 April 2013 under the authorization of the Annual General
Meeting, make use of their right of exercise. The new shares
participate in the Company’s profits from the beginning of
the financial year in which they arise through the exercise
of conversion rights or the fulfillment of conversion obliga-
tions.

e. According to § 5 Para. 6e of the Articles of Association, the
Company’s common stock is conditionally increased by up
to € 450,000.00, divided into up to 450,000 new no par-
value bearer shares (Conditional Capital 2008-III). The con-
ditional capital increase will only be executed to the extent
that holders of convertible bonds issued exercise their con-
version rights for conversion into ordinary shares of the
Company. The new shares participate in the Company’s
profits from the beginning of the financial year, for which
there was no resolution on the appropriation of accumulated
income at the time of issuance. The Management Board is
authorized, with the consent of the Supervisory Board, to
determine the further details of the capital increase and its
implementation.

p oWer of t he mAnAGemen t BoArd t o repurChAse

shAres
The Management Board’s power to repurchase own shares arise
from §§ 71 AktG and the authorization by the Annual General
Meeting of 19 May 2011:

G r o u p m A n A G e m e n t r e p o r t
Statement on Corporate Governance and Corporate Governance Report

Until 30 April 2016, the Management Board is authorized to repur-
chase its own shares totaling up to 10 % of the common stock exist-
ing at the time of the resolution (or possibly the lower amount of
common stock at the time of use of the authorization) for any pur-
pose permitted under the statutory limits. The repurchase takes
place, at the discretion of the Management Board, either on the
stock exchange or through a public offer or a public invitation to
submit a bid. The authorization may not be used for the purpose of
trading in own shares. The intended use of treasury shares ac-
quired under this authorization may be found under agenda item 7
of the Annual General Meeting of 19 May 2011. In particular, the
shares may be used as follows:

a. The shares may be redeemed without the redemption or its im-
plementation requiring a further resolution of the Annual Gen-
eral Meeting.

b. The shares may be sold in ways other than via the stock ex-
change or via an offer to shareholders if the shares are sold for
cash payment at a price that is not significantly below the mar-
ket price of Company shares of the same class at the time of the
sale.

c. The shares may be sold for contribution in kind, particularly in
conjunction with the acquisition of companies, parts of compa-
nies, interests in companies, or mergers of companies.

d. The shares may be used for the fulfillment of conversion rights
of convertible bonds issued by the Company or its affiliated com-
panies.

e. The shares may be sold to employees of the Company and em-
ployees of affiliated companies as well as to members of the
Company’s management and/or for the fulfillment of commit-
ments concerning the purchase or the obligation to purchase
Company shares which were granted to employees of the Com-
pany and employees of affiliated companies as well as members
of the Company’s management.

If shares are used for the purposes mentioned above, the preemp-
tive rights of shareholders are excluded, with the exception of re-
demption of shares.

The Supervisory Board may specify that measures taken by the
Management Board on the basis of this authorization may only be
implemented with Supervisory Board’s consent.

mAt eriAl AGreemen t s mAde By t he CompAny t hAt fAl l

under t he Condi t ion of A ChAnGe of Con t rol result-

inG from A tAkeover Bid
In 2012, MorphoSys and Novartis Pharma AG expanded their orig-
inal collaboration agreement. Under this agreement, in specific
cases of a change of control, Novartis Pharma AG is entitled, but
not obliged, to take various measures, which include the partial or
complete termination of the collaboration agreement.

A change of control includes, in particular, the acquisition of 30 %
or more of the voting rights in the Company within the meaning of
§§ 29 and 30 of the German Securities Acquisition and Takeover
Act (WpÜG).

In June 2013, MorphoSys entered into an agreement with Celgene
to jointly develop the anti-cancer antibody MOR202 globally and to
co-promote MOR202 in Europe. Pursuant to this agreement, Cel-
gene may terminate the co-promotion rights of MorphoSys in the
event of a business combination of MorphoSys with a third party.
Such business combination is defined to be an acquisition of 50 %
or more of the voting shares of MorphoSys, a merger of the third
party with MorphoSys or a transfer of substantially all of the as-
sets of MorphoSys to the third party. Furthermore, in the event of
such a business combination with a third party that has a compet-
ing pharmaceutical program to MOR202 but is not a violation of
the non-compete clause, the research and development activities
required under the agreement with Celgene shall be conducted
separately from any research and development activities of the
competing pharmaceutical program.

CompensAt ion AGreemen t s ConCluded By t he CompAny

Wi t h memBers of t he mAnAGemen t BoArd or t he

empl o yees in t he even t of A tAkeover Bid
Following a change of control, each member of the Management
Board may terminate his/her employment contract and demand
the fixed salary still outstanding until the end of the contract pe-
riod. Moreover, in such a case, all stock options, convertible bonds,
and performance shares granted will become vested immediately
and are exercisable after the expiration of the statutory waiting
times or blackout periods.

Following a change of control, each member of the Senior Manage-
ment Group may also terminate his/her employment contract and
demand a severance payment equal to one annual gross fixed sal-
ary. Moreover, in such a case, any stock options, convertible bonds,
and performance shares granted will also become vested immedi-
ately and are exercisable after the expiration of the statutory wait-
ing times or blackout periods.

A change of control includes in particular the following cases: (i)
MorphoSys transfers the Company’s assets, in whole or in sub-
stantial part, to unaffiliated entity, (ii) MorphoSys merges with a
non-affiliated entity, or (iii) a shareholder or third party directly or
indirectly holds 30 % or more of the voting rights in MorphoSys.

Abbildung 23

corporAtE govErnAncE
At morphosys

thE morphosys compl iAncE systEm

risK-bAsEd intErnAl Audi t pl An

viii

Follow-up

vii

Documentation and communi cation
of results

iii

Defi ning and carrying out the
necessary audit steps

Evaluation of the Internal Control
System

Risk analysis and evaluation
of audit objective

Defi nition of audit objective
(process analysis)

Risk analysis within audit area

Risk analysis and planning
of the annual audit plan

QuAl i t y mAnA Gemen t

viii

vii

iii

morphosy s,
based on
audit plan

s up p o r t f ro m

indep enden t Audi t o rs ( k mp G )

corporate governance regulations

declaration of compliance with the

German Corporate Governance Code

(sec. 161 of the German stock

Corporation Act [AktG])

Changes in management reporting

supervisory Board and Audit

(sec. 289 of the German Commercial

Committee

Code [hGB])

• Statement on Corporate Governance

• Report on accounting-related Internal

Control System + on risk management

• Establishment of an Audit Committee

• Posts filled with independent financial

experts

• Specification of monitoring tasks

• Cooperation with the external auditor

specifi cation of monitoring tasks

tasks that the Supervisory board may

delegate (some or all) to the audit

committee (Sec. 107 [3], para. 2 of the

German Stock corporation act [aktG])

Supervisory board remains responsible

for these tasks

primary tasks of the Supervisory board

• Monitoring of financial reporting

• Monitoring the effectiveness

- of the Internal Control System

- of the Risk Management System

- of internal auditing

• Monitoring external audits, especially

- The independence of the external auditor

- Additional services provided by the

external auditor

corporAtE govErnAncE

At morphosys

risK-bAsEd intErnAl Audi t pl An

viii

Follow-up

vii

Documentation and communi cation

of results

Defi ning and carrying out the

necessary audit steps

Evaluation of the Internal Control

System

Risk analysis and evaluation

of audit objective

iii

Defi nition of audit objective

(process analysis)

Risk analysis within audit area

Risk analysis and planning

of the annual audit plan

QuAl i t y mAnA Gemen t

viii

vii

iii

morphosy s,

based on

audit plan

s up p o r t f ro m

indep end en t Audi t o rs ( k mp G )

thE morphosys compl iAncE systEm

Abbildung 24

corporate governance regulations

declaration of compliance with the
German Corporate Governance Code
(sec. 161 of the German stock
Corporation Act [AktG])

Changes in management reporting
(sec. 289 of the German Commercial
Code [hGB])

• Statement on Corporate Governance
• Report on accounting-related Internal
Control System + on risk management

supervisory Board and Audit
Committee

• Establishment of an Audit Committee
• Posts filled with independent financial

experts

• Specification of monitoring tasks

• Cooperation with the external auditor

specifi cation of monitoring tasks

tasks that the Supervisory board may
delegate (some or all) to the audit
committee (Sec. 107 [3], para. 2 of the
German Stock corporation act [aktG])

Supervisory board remains responsible
for these tasks

primary tasks of the Supervisory board

• Monitoring of financial reporting
• Monitoring the effectiveness
- of the Internal Control System
- of the Risk Management System
- of internal auditing
• Monitoring external audits, especially

- The independence of the external auditor
- Additional services provided by the

external auditor

c o n t e n t s

Financial
statements

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

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

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

9 4

9 5

9 6

9 8

1 0 0

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

n o t e s t o t h e c o n s o l i dat e d s tat e m e n t o f c a s h f l o w 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 a c c o u n t i n g p o l i c i e s
s e g m e n t r e p o r t i n g
n o t e s t o t h e i n c o m e s tat e m e n t
n o t e s t o t h e a s s e t s o f t h e b a l a n c e s h e e t
n o t e s t o e q u i t y a n d l i a b i l i t i e s o f t h e b a l a n c e s h e e t
r e m u n e r at i o n s y s t e m f o r t h e m a n a g e m e n t b o a r d

a n d e m p l oy e e s o f t h e g r o u p
a d d i t i o n a l n o t e s

1 0 1

1 0 2

1 1 8

1 2 0

1 2 6

1 3 3

1 3 6

1 4 5

f i n a n c i a l s t a t e m e n t s
Consolidated Statement of Income (IFRS)

Consolidated Statement of Income
(IFRS)

in €

Continuing Operations

Revenues

Operating Expenses

Research and Development

Selling, general and Administrative

Total Operating Expenses

Other Income

Other Expenses

Earnings before Interest and Taxes (EBIT)

Finance Income

Finance Expenses

Income Tax Expenses

Profit for the Year from Continuing Operations

(Loss)/Profit for the Year from Discontinued Operations

Consolidated Net Profit

Basic Net Profit per Share

thereof from Continuing Operations

thereof from Discontinued Operations

Diluted Net Profit per Share

thereof from Continuing Operations

thereof from Discontinued Operations

Shares Used in Computing Basic Net Profit per Share

Shares Used in Computing Diluted Net Profit per Share

note

2013

2012

2.7.1, 4.1

77,960,057

51,916,986

2.7.2, 4.2.2

2.7.2, 4.2.3

2.7.3, 4.3

2.7.4, 4.3

2.7.5, 4.3

2.7.6, 4.3

2.7.7, 4.4

4.5

2.7.9, 4.6

49,151,721

18,769,991

67,921,712

797,252

911,050

9,924,547

867,511

111,161

(3,310,077)

7,370,820

5,951,110

13,321,930

0.54

0.30

0.24

0.54

0.30

0.24

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)

24,504,031

24,763,094

23,004,894

23,260,360

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)1

in €

Consolidated Net Profit

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

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

Change of Current Tax Effect on Fiscal Balancing Item on Available-for-sale Financial Assets and Bonds

Deferred Taxes

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

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gain from Consolidation

Comprehensive Income

thereof from Continuing Operations

thereof from Discontinued Operations

2013

2012

13,321,930

(357,632)

482,018

259,878

(176,706)

(274,460)

28,098

1,302,421

14,377,989

13,001,310

1,376,679

1,942,145

(178,483)

420,546

46,995

(131,488)

6,005

182,460

1,999,122

2,234,775

(235,653)

1 In financial years 2013 and 2012, the statement of comprehensive income only comprised components, which will be reclassified in terms of IAS 1.82A(b) to profit or loss

in subsequent periods when specific conditions are met.

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

Bonds, Available-for-sale

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

In-licensed Research Program

Software, 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 Classified as Held for Sale

ToTAl AS SE TS

note

12/31/2013

12/31/2012

2.8.1, 5.1

2.8.1, 5.2

2.8.2, 5.3

2.8.2, 5.5

2.8.2, 5.4

2.8.3, 5.5

2.8.4, 5.5

2.8.5, 5.6

2.8.6, 5.7.1

2.8.6, 5.7.2

2.8.6, 5.7.3

2.8.6, 5.7.4

2.8.6, 5.7.5

2.8.7, 5.8

2.8.7, 4.4

2.8.8, 5.9

2.8.9

71,873,696

188,360,354

11,102,087

10,270,322

77,743

119,458,330

731,009

4,693,943

40,689,865

79,722,222

8,924,197

109,789

10,297,901

757,386

2,357,163

406,567,484

142,858,523

2,168,189

7,834,711

5,396,516

3,191,837

8,666,367

7,128,425

12,807,800

10,513,100

1,758,026

7,352,467

1,726,633

313,372

1,731,548

41,089,262

1,351,932

7,352,467

881,633

1,489,063

40,574,825

40,855,433

447,656,746

224,288,780

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

12/31/2013

12/31/2012

lIAB IlITIES AND STo CK HolDERS' 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 Liabilities

Total Non-current Liabilities

Liabilities of Disposal Group Classified as Held for Sale

Total Liabilities

Stockholders' Equity

Common Stock

Ordinary Shares Authorized (36,614,174 and 43,142,455 for 2013 and 2012, respectively)

Ordinary Shares Issued (26,220,882 and 23,358,228 for 2013 and 2012, respectively)

Ordinary Shares Outstanding (25,880,992 and 23,102,813 for 2013 and 2012, respectively)

Treasury Stock (339,890 and 255,415 shares for 2013 and 2012, respectively), at Cost

Additional Paid-in Capital

Revaluation Reserve

Translation Reserve

Accumulated Income

Total Stockholders' Equity

ToTAl lIAB IlITIES AND STo CKHolDER ’S EQUIT Y

2.9.1, 6.1

2.9.2, 6.2

2.9.1, 6.2

2.9.3, 6.3

2.9.4, 6.2

2.9.4, 6.3

2.9.5

2.9.6

2.9.7, 6.4

2.9.8, 6.5.1

2.9.8, 6.5.2

2.9.8, 6.5.4

2.9.8, 6.5.5

2.9.8, 6.5.6

2.9.8, 6.5.7

2.9.8, 6.5.8

17,190,021

2,690,282

260,000

15,266,877

35,407,180

636,941

59,168,599

298,606

60,104,146

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

95,511,326

22,278,763

26,220,882

23,358,228

(6,418,018)

310,963,651

240,381

192,556

20,945,968

(3,594,393)

175,245,266

486,743

(1,109,865)

7,624,038

352,145,420

202,010,017

447,656,746

224,288,780

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 2012

Compensation Related to the Grant of Stock Options, Convertible Bonds and Performance Shares

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 15,000
(Net of Tax Effects)

Repurchase of Treasury Stock

Reserves:

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

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Profit

Comprehensive Income

BAl ANCE AS of 31 DECEMBER 2012

BAl ANCE AS of 1 JANUARY 2013

Compensation Related to the Grant of Stock Options, Convertible Bonds and Performance Shares

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 11,419
(Net of Tax Effects)

Repurchase of Treasury Stock

Capital Increase, Net of Issuance Cost of € 1,698,232 (Net of Tax Effects)

Reserves:

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

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Profit

Comprehensive Income

BAl ANCE AS of 31 DECEMBER 2013

common stock

€

23,112,167

246,061

23,358,228

551,438

2,311,216

26,220,882

339,890

(6,418,018)

310,963,651

20,945,968

352,145,420

treasury stock

Paid-in capital

Reserve

income

additional

Revaluation

translation

accumulated

stockholders’

163,915

(1,756,841)

170,778,474

612,226

(1,292,325)

5,681,893

197,135,594

€

1,268,792

3,198,000

91,500

(1,837,552)

255,415

(3,594,393)

84,475

(2,823,625)

175,245,266

4,742,092

6,606,570

124,369,723

€

total

equity

€

1,268,792

3,444,061

(1,837,552)

(131,488)

6,005

182,460

1,942,145

1,999,122

202,010,017

4,742,092

7,158,008

(2,823,625)

126,680,939

(274,460)

28,098

1,302,421

13,321,930

14,377,989

€

182,460

(1,109,865)

1,942,145

7,624,038

1,302,421

192,556

13,321,930

€

(131,488)

6,005

(125,483)

486,743

(274,460)

28,098

(246,362)

240,381

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)

BAl ANCE AS of 1 JANUARY 2012

23,112,167

163,915

(1,756,841)

170,778,474

612,226

(1,292,325)

5,681,893

197,135,594

treasury stock

additional

Paid-in capital

Revaluation
Reserve

translation
Reserve

accumulated
income

total
stockholders’
equity

€

1,268,792

3,198,000

91,500

(1,837,552)

255,415

(3,594,393)

84,475

(2,823,625)

175,245,266

4,742,092

6,606,570

124,369,723

26,220,882

339,890

(6,418,018)

310,963,651

(131,488)

6,005

(125,483)

486,743

(274,460)

28,098

(246,362)

240,381

182,460

(1,109,865)

1,302,421

192,556

1,942,145

7,624,038

13,321,930

1,268,792

3,444,061

(1,837,552)

(131,488)

6,005

182,460

1,942,145

1,999,122

202,010,017

4,742,092

7,158,008

(2,823,625)

126,680,939

(274,460)

28,098

1,302,421

13,321,930

14,377,989

20,945,968

352,145,420

Compensation Related to the Grant of Stock Options, Convertible Bonds and Performance Shares

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 15,000

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

(Net of Tax Effects)

Repurchase of Treasury Stock

Reserves:

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Profit

Comprehensive Income

BAl ANCE AS of 31 DECEMBER 2012

BAl ANCE AS of 1 JANUARY 2013

(Net of Tax Effects)

Repurchase of Treasury Stock

Reserves:

Effects from Equity-related Recognition of Deferred Taxes

Foreign Currency Gains and Losses from Consolidation

Consolidated Net Profit

Comprehensive Income

BAl ANCE AS of 31 DECEMBER 2013

Compensation Related to the Grant of Stock Options, Convertible Bonds and Performance Shares

Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Costs of € 11,419

Capital Increase, Net of Issuance Cost of € 1,698,232 (Net of Tax Effects)

2,311,216

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

common stock

246,061

23,358,228

551,438

€

100

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 ATIN g AC TIvITIES:

Consolidated Net Profit

Adjustments to Reconcile Net Profit to Net Cash Provided by Operating Activities:

note

2013

2012

13,321,930

1,942,145

Impairment of Assets

Depreciation and Amortization of Tangible and Intangible Assets

Net Gain on Sales of Financial Assets

Purchases of Derivative Financial Instruments

Unrealized Net Loss on Derivative Financial Instruments

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

Net Gain on Sale of Assets Classified 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

INvESTINg AC TIvITIES:

Purchases of Financial Assets

Proceeds from Sales of Financial Assets

Purchase of Bonds, Available-for-sale

Purchase of Assets Classified as Loans and Receivables

Proceeds from Sale of Assets Classified as Loans and Receivables

Purchase of Shares Classified 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 Classified as Available for Sale

Net Cash Used in Investing Activities

thereof from Continuing Operations

thereof from Discontinued Operations

5.6, 5.7

5.2

5.4

4.5

6.3

4.2.4, 7

4.4

5.3

5.4, 5.5

6.1, 6.2

6.1

6.3

2.8.9, 5.2

2.8.2, 5.4

2.8.7, 5.8

5.6

5.7

4.5

1,624,255

4,834,447

(520,730)

(22,800)

22,800

6,791

(8,000,712)

(23,989,809)

5,145,455

3,699,337

(1,500,912)

(3,157,708)

6,524,350

526,350

91,860,930

(24,591)

167,797

(1,379,563)

89,137,617

91,005,448

(1,867,831)

180,237

6,310,535

(480,912)

(40,870)

40,870

4,319

(5,547)

(20,088,086)

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

(192,261,784)

83,823,406

(11,138,742)

(30,768,599)

31,053,715

(173,185,607)

(10,000,000)

68,729,122

(845,000)

(1,049,566)

5,950

(4,513,991)

36,579,511

(193,856,701)

(230,437,417)

36,580,716

(881,633)

(1,016,539)

(1,294,661)

816,591

(12,091,126)

(11,824,020)

(267,106)

101

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 €

fINANC IN g AC TIvITIES:

Repurchase of Treasury Stock

Proceeds of Share Issuance

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

Cost of Share Issuance

Net Cash Provided by Financing Activities

thereof from Continuing Operations

thereof from Discontinued Operations

Effect of Exchange Rate Differences on Cash

Increase/(Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at the Beginning of the Period

thereof included in Cash and Cash Equivalents

thereof included in Assets of Disposal Group Classified as Held for Sale

Cash and Cash Equivalents at the End of the Period

thereof included in Cash and Cash Equivalents

thereof included in Assets of Disposal Group Classified as Held for Sale

note

2013

2012

6.5.4

6.4

7.1

7.2.2

6.5.5

(2,823,625)

128,379,156

7,169,564

225,000

(2,323,688)

130,626,407

(4,467)

25,902,856

45,970,840

40,689,865

5,280,975

71,873,696

(1,837,552)

3,444,061

1,606,509

69,344

(8,625,259)

54,596,099

45,970,840

40,689,865

5,280,975

notes to the consolidated statement of
cash Flows

The Group’s cash and cash equivalents increased from € 40.7 million by
€ 31.2 million to € 71.9 million compared to prior year. This is due to
different effects in operating, investing, and financing activities which
are explained below.

The operating cash flow includes cash inflow and cash outflow from operat-
ing activities and represents the company’s ability to generate cash from
its operations during the financial year. The increase in cash inflows from
operating activities is affected mainly by changes in the balance sheet
item “Deferred Revenue”. The increase in this line item is driven by the
upfront payment received from Celgene, which is deferred over several
periods.

The cash flow from investing activities indicates growth or stagnation
of a company. The negative cash flow shows that investments exceed
divestments which can generally be interpreted as company growth. The
negative cash flow from investing activities is mainly influenced by the
increase in money market funds and the increase of investments classified
as loans and receivables. Proceeds arise primarily from the sale of finan-
cial assets, from the sale of investments classified as loans and receivables
and from the disposal of assets classified as available for sale.

The cash flow from financing activities provides information regarding
the external financing of a company. The cash inflow from financing ac-
tivities in the amount of € 131 million is mainly impacted by proceeds
from the issuance of equity.

102

Notes

1 General information

BUsine ss anD comPanY oVeRVieW
MorphoSys AG (“the Company” or “MorphoSys”) is one of the leading anti-
body companies focused on research and development of fully human an-
tibodies. MorphoSys’s proprietary state-of-the-art technologies, and its
over 16 years of focused antibody research and optimization expertise are
successfully applied to the development of therapeutics for its commercial
partners and proprietary use. The Group 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 completed its
initial public offering on Germany’s “Neuer Markt”, the segment of the
Deutsche Börse designated for high-growth companies. On 15 January
2003, MorphoSys AG was admitted to the Prime Standard segment of the
Frankfurt Stock Exchange.

summary of significant accounting
Policies

2.1 Basi s of anD cHanGe s in accoUn t inG s tanDaRD s

2 .1.1 BASIS OF APPLICATION
These consolidated financial statements were prepared in accordance with
the International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB), London, taking into
account the recommendations of the Standing Interpretations Committee
(SIC) and the International Financial Reporting Interpretations Committee
(IFRIC), as adopted by the European Commission. The commercial law pro-
visions of Sec. 315a para 1 of the German Commercial Law (HGB) have also
been applied.

These consolidated financial statements as of 31 December 2013 com-
prise MorphoSys AG and its subsidiaries (collectively referred to as the
“MorphoSys Group” or the “Group”).

In preparing the consolidated financial statements in accordance with
IFRS, the Management Board is required to make certain estimates and
assumptions which have an effect on the amounts recognized in the con-
solidated financial statements and the accompanying notes. The actual
results may differ from these estimates. The estimates and the underlying
assumptions are subject to continuous review. Any changes in estimates
are recognized in the period in which the changes are made and in all
relevant future periods.

The consolidated financial statements have been prepared in euro – the
MorphoSys Group’s functional currency. The statements are prepared on
the basis of historical cost, except for the following assets and liabilities
recognized at their respective fair value: derivative financial instruments
and available-for-sale financial assets. All figures in this report are
rounded to the nearest euro, thousand euros, or million euros.

To provide improved transparency, the presentation of reserves in the bal-
ance sheet is divided into “Revaluation Reserve” and “Translation Re-
serve”.

Unless stated otherwise, the accounting policies set out below have been
applied consistently to all periods presented in these consolidated finan-
cial statements.

2 .1.2 CHANGE S IN AC C OUNTING P OLICIES AND DISCLOSURE

P U B LIS HED NE W A N D A M ENDED STA N DA RDS A ND IN T ERPRE TAT I O NS

W HI C H W ERE N OT Y E T M A NDATO RY IN FIN A N C I A L Y E A R 2012 A ND W HI C H

W ERE A PPLIED F O R T HE FIN A N C I A L Y E A R STA R T IN G O N 1 JA N UA RY 2013
• IFRS 7 “Financial Instruments: Disclosures”: IFRS 7 governs disclosure
requirement regarding financial instruments. The amendment con-
cerns the offsetting of financial assets and financial liabilities and ap-
plies to all recognized financial instruments which are offset pursuant
to IAS 32.42. According to the new disclosure requirements of IFRS 7,
both the gross amount prior to offsetting and the net amount after offset-
ting pursuant to IAS 32.42 are to be disclosed. In addition, to ensure the
improved traceability of offsetting activities, financial instruments
must also be disclosed when their settlement is subject to actionable
global offsetting agreements or similar liabilities.

• IFRS 13 “Fair Value Measurement”: The objective of the endorsement
adopted by the EU is to increase consistency when determining fair
value and to reduce complexity by providing a uniform initial definition
of fair value for all IFRS requirements and by creating a single source
for the measurement and disclosure requirements of fair value. The
amendment addresses the question of how fair value measurement
should be performed. The individual IFRS requirements applicable for
the respective issue or balance sheet item provide regulations as to
which items are to be measured.

• IAS 1 “Presentation of Financial Statements”: The main impact of the
IAS 1 amendment is the requirement for entities to categorize the items
presented in other comprehensive income, dependent upon the possibil-
ity of whether they can be reclassified to profit and loss at a later point
in time (reclassification adjustments). The amendment does not address
which items are included in other comprehensive income. The presenta-
tion of OCI components to be reclassified to profit and loss in subsequent
periods shall be separated from the components which are not to be re-
classified. The same applies to income taxes incurred in cases of pre-tax
presentation. Thus, income taxes are also to be presented separately as
classifiable and non-classifiable items. The option to present OCI items
before or after taxes remains unchanged. The amendment to IAS 1 must
be applied to financial years beginning on or after 1 July 2012.

financial statementsNotes103

• IAS 12 “Income Taxes”: With few exceptions, an entity is required to
recognize deferred tax liabilities/deferred tax assets to the extent that
the recovery of the carrying amount of the asset or the liability would
result in higher/lower tax payments in the future. The amendment of-
fers a practical solution to the question whether the carrying amount is
recovered by way of usage or disposal. It is a rebuttable presumption
that the recovery of the carrying amount usually occurs by way of dis-
posal.

• IAS 19 “Employee Benefits”: The most important amendment to IAS 19
is the direct recognition of unexpected future fluctuations in pension
obligations as well as in any plan assets, so-called “actuarial gains and
losses”, in other comprehensive income (OCI). The previous option of
immediate recognition in profit and loss, in other comprehensive income
(OCI), or the deferred recognition according to the so-called corridor
method has been abolished.

• Improvements to International Financial Reporting Standards (May
2012): The amendments were published on 28 March 2013 and must be
applied to financial years beginning on or after 1 January 2013.

P U B LISHED NE W A ND A MENDED STA NDA RDS A ND IN T ERPRE TAT I O NS

W HI C H A RE N OT E X PEC T ED TO H AV E A N IMPAC T O N T HE G RO U P
• Amendment to IFRS 1 “First-Time Adoption”– Government Grants: The
amendment was published in the Official Journal on 5 March 2013 and
must be applied to financial years beginning on or after 1 January 2013.
The Group has evaluated the impacts of IFRS 1. The adoption of the pro-
visions has no effect on the Group.

• IFRS 1 “First-Time Adoption”: The objective of IFRS 1 is to introduce a
new exemption clause for the scope of IFRS 1: Entities which have been
subject to severe hyperinflation are allowed to recognize their assets
and liabilities at fair value in the IFRS opening balance sheet rather
than at acquisition or production cost. Additionally, the amendment re-
moved the previous reference to the fixed date of application (1 January
2004) and replaced it by the general wording “date of transition to IFRS”.
The Group has evaluated the impacts of IFRS 1. The adoption of the pro-
visions has no effect on the Group.

• Amendment to IFRS 7 “Financial Instruments: Disclosures”, with regard
to additional disclosure requirements concerning the offsetting of finan-
cial assets and financial liabilities, have no effect on the Group.

• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”:
The amendment must be applied to financial years beginning on or
after 1 January 2013. The interpretation deals with the recognition and
measurement of stripping costs incurred during the production phase of
a surface mine.

P U B LISHED NE W A ND A MENDED STA NDA RDS A ND IN T ERPRE TAT I O NS

W HI C H A RE P U B LISHED B U T N OT Y E T M A NDATO RILY A PPLI CA B LE IN T HE

FIN A N C I A L Y E A R B EG INNIN G O N 1 JA N UA RY 2013 A ND W HI C H A RE N OT

B EIN G A PPLIED IN A DVA N C E
• IFRS 10 “Consolidated Financial Statements”: This standard replaces
the consolidation guideline of IAS 27 and SIC-12 by introducing a single
consolidation model for all entities on the basis of control, regardless of
the type of investment recipient (i.e., regardless whether the entity is
controlled by the voting rights of the investors or through other contrac-
tual agreements as is customary in the case of special purpose entities).
The standard replaces the provisions of IAS 27 “Consolidated and Sepa-
rate Financial Statements” and SIC-12 “Consolidation – Special Purpose
Entities”. Therefore, IAS 27 only deals with the provisions for separate

financial statements and is referred to as “Separate Financial State-
ments”. IFRS 10 focuses on the introduction of a uniform consolidation
model for all entities that is based on the control of a subsidiary. Newly
introduced is the concept of having a uniform definition of the term
“control” to determine whether or not an entity must be consolidated in
the future. This definition includes provisions as to how a reporting
company (investor) can control another company (investment) and how
consolidation is to be performed. The Group is still assessing the full
impact of IFRS 10 and intends to adopt IFRS 10 no later than the report-
ing period beginning on or after 1 January 2014.

• IFRS 11 “Joint Arrangements”: IFRS 11 introduces new accounting pro-
visions for joint arrangements and replaces IAS 31 “Interests in Joint
Ventures” and SIC-13 “Jointly Controlled Entities – Non-Monetary Con-
tributions by Venturers”. The new standard stipulates new require-
ments for the identification, classification, and accounting of jointly con-
trolled operations. The option to apply the proportionate consolidation
method for jointly controlled entities has been cancelled. In addition,
IFRS 11 abolished the concept of jointly controlled assets. The concepts
of joint operations and joint ventures remained. The classification is now
based on an economic approach which focuses on the type of rights and
obligations arising from the agreement. The Group is still assessing the
full impact of IFRS 11 and intends to adopt IFRS 11 no later than the
reporting period beginning on or after 1 January 2014.

• IFRS 12 “Disclosure of Interest in Other Entities”: IFRS 12 combines the
revised disclosure requirement for all forms of interests in other enti-
ties, including joint arrangements, associated companies, special pur-
pose entities, and other non-consolidated interests. IFRS 12 requires
improved disclosures for consolidated and non-consolidated entities in
which the company holds an interest. IFRS 12 requires more extensive
as well as more informative disclosures in the notes than IAS 27. For
example, information regarding the type, size, and importance of the
existing relationships to other entities must be disclosed, including
those regarding consolidated and non-consolidated structured compa-
nies (special purpose entities). The Group is still assessing the full im-
pact of IFRS 12 and intends to adopt IFRS 12 no later than the reporting
period beginning on or after 1 January 2014.

• Amendments to IFRS 10 “Consolidated Financial Statements”, to IFRS
12 “Disclosure of Interest in Other Entities”, and IAS 27 “Separate Fi-
nancial Statements” – Investment Entities: The amendments were pub-
lished on 21 November 2013 and must be applied to financial years be-
ginning on or after 1 January 2014.

• Amendments to the transitional provisions of IFRS 10 “Consolidated Fi-
nancial Statements”, IFRS 11 “Joint Arrangements”, and IFRS 12 “Dis-
closure of Interest in Other Entities”: The amendments were published
on 5 April 2013 and are expected to be applied to financial years begin-
ning on or after 1 January 2014.

• IAS 27 “Separate Financial Statements”: IAS 27 (revised 2011) includes
the remaining provisions applying to the separate financial statements
following the inclusion in the new IFRS 10 “Consolidated Financial
Statements” of former IAS 27 provisions regarding consolidation. Addi-
tionally, changes to IFRS 12 also have an impact on IAS 27. The Group is
still assessing the full impact of IAS 27 and intends to adopt IAS 27 no
later than the reporting period beginning on or after 1 January 2014.

financial statementsNotes104

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

• IAS 28 “Investments in Associates”: IAS 28 (revised 2011) includes pro-
visions regarding interests in joint venture and associated companies
that are consolidated using the equity method pursuant to IFRS 11. In
the future, joint ventures are always accounted using the equity method
pursuant to IAS 28 as the proportionate consolidation of jointly operated
entities was abandoned in IFRS 11. For the fi rst time, additional amend-
ments to IAS 28 provide that in the case of a planned partial sale of as-
sociated companies or joint ventures, the interest held for sale must be
accounted for pursuant to IFRS 5 “Non-Current Assets Held for Sale and
Discontinued Operations” when the classifi cation requirements of IFRS
5 are met. The Group is still assessing the full impact of IAS 28 and in-
tends to adopt IAS 28 no later than the reporting period beginning on or
after 1 January 2014.

• IAS 32 “Financial Instruments – Presentation”: IAS 32 governs the pre-
sentation and disclosure of all types of fi nancial instruments. In order to
facilitate a comparison with US standards, additional disclosure re-
quirements come into eff ect that are included in IFRS 7. The established
model for off setting remains in place. The modifi cation concerns both of
the off setting requirements of IAS 32.42:

– The right to off set a fi nancial asset or a fi nancial liability should not
depend on future events and must be preserved even in the case of
default, insolvency, or bankruptcy of the business partner.

– If transactions involving fi nancial instruments are settled via settle-
ment systems (e.g. clearing houses), the off setting of fi nancial assets
and fi nancial liabilities requires that the transaction takes place with-
out the emergence of credit and liquidity risk and within a settlement
process or cycle.

The amendments of IAS 32 are to be applied retrospectively by adjust-
ing the comparative fi gures for fi nancial years beginning on or after 1
January 2014. The Group is still assessing the full impact of IAS 32 and
intends to adopt IAS 32 no later than the reporting period beginning on
or after 1 January 2014.

P U B LISHED NE W A ND A MENDED STA NDA RDS W HI C H H AV E N OT Y E T B EEN

A D O P T ED BY T HE EU RO PE A N U NI O N (“ END O RSEMEN T ” )
• IFRS 9 “Financial Instruments”, amendments to IFRS 9 “Financial In-
struments” and to IFRS 7 “Financial Instruments: Disclosures” – Man-
datory Eff ective Date and Transition Disclosures: The amendments are
expected to be applied to fi nancial years beginning on or after 1 January
2015. The Group is still assessing the full impact of IFRS 9 and its
amendments.

• IFRS 9 “Financial Instruments: Classifi cation and Measurement”: Fi-
nancial Assets (November 2009) and “Financial Instruments: Classifi ca-
tion and Measurement”: Financial Liabilities (October 2010): The amend-
ments to IFRS 9 include new provisions on hedge accounting in the form
of a new general model for the accounting of hedging relationships. The
amendment was included in IFRS 9 as Section 6 and replaces the cor-
responding provisions on hedge accounting in IAS 39. However, in ap-
plying the new hedge-accounting provisions, IFRS 9 provides the option
to continue applying the special regulations for portfolio fair value
hedges of interest rate risk found in IAS 39. The newly introduced IASB
model provides entities with more fl exibility in presenting their risk
management activities. The amendments to IFRS 9 also provide the op-
portunity of prior adoption of the recognition of fair value changes out-
side of profi t and loss resulting from credit risk related fair value
changes of liabilities which are measured at fair value, without applying
all the requirements of IFRS 9. The IASB has also removed the previous

1 January 2015 mandatory eff ective date of IFRS 9 for fi rst-time applica-
tions. A new mandatory eff ective date will only be determined once the
standard is completed. EU endorsement will also be sought upon com-
pletion.

• Amendments to IAS 36 “Recoverable Amount Disclosures for Non-Fi-
nancial Assets”: In the development of IFRS 13 “Measurement at Fair
Value”, the IASB decided to modify IFRS 36 to make it mandatory to
disclose information on impaired assets. It became clear, however, that
the amendments to IAS 36 resulted in the obligation to provide such
information for all cash-generating units when they contain a material
proportion of goodwill and regardless of whether or not they are im-
paired. The amendments also contain more specifi ed disclosures when
an asset is impaired and the recoverable amount was determined on the
basis of its fair value less costs to sell. For example, information should
be provided on the accounting policies applied and with regard to the
level of the fair value hierarchy pursuant to IFRS 13, upon which the
measurement of the fair value was based. The amendments must be ap-
plied to fi nancial years beginning on or after 1 January 2014. Early adop-
tion is permitted as long as IFRS 13 has already been adopted. The
Group is still assessing the full impact of IAS 36 and intends to adopt
IAS 36 no later than the reporting period beginning on or after 1 Janu-
ary 2014.

• Amendments to IAS 39 “Financial Instruments: Recognition and Mea-
surement”: On 27 June 2013, the IASB adopted “Novation of Derivatives
and Continuation of Hedge Accounting” whereby derivatives continue to
be designated as a hedging instrument in an existing hedging relation-
ship despite novation. Novation is defi ned as circumstances in which
the initial derivative counterparties agree that a central counterparty
(CCP) may stand as a substitute for the respective counterparties. A fun-
damental prerequisite for novation is that the involvement of a central
counterparty or central contracting party has occurred as a result of
legal or regulatory requirements. The amendments must be applied for
the fi rst time in fi nancial years beginning on or after 1 January 2014.
Early adoption is permitted. The Group is still assessing the full impact
of IAS 39 and intends to adopt IAS 39 no later than the reporting period
beginning on or after 1 January 2014.

• IFRIC 21 “Levies”: This interpretation provides guidance on how and
when to recognize levies pursuant to IAS 37 “Provisions, contingent li-
abilities and contingent assets”, that are imposed by a government and
are not within the scope of another IFRS. In German law, the so-called
“bank levy” is an example of such a levy. According to the current inter-
pretation, an obligation must be recognized in the fi nancial statements
once the obligating event has occurred that triggers the payment obliga-
tion of the levy in accordance with the relevant legislation. The interpre-
tation must be applied to fi nancial years beginning on or after 1 January
2014. The Group is still assessing the full impact of IFRIC 21 and in-
tends to adopt IFRIC 21 no later than the reporting period beginning on
or after 1 January 2014.

2.2 cons ol iDat ion PRinc iPl e s
Intercompany balances and transactions and any unrealized gains arising
from intercompany transactions are eliminated when preparing consoli-
dated fi nancial statements pursuant to IAS 27.20. Unrealized losses are
eliminated in the same manner as unrealized gains; however, they are
considered an indication of a possible impairment of the transferred asset.
Accounting policies have been applied consistently for all subsidiaries.

105

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

2 .2 .1 C ONSOLIDATE D C OMPANIES AND SC OPE OF C ONSOLIDATION
MorphoSys AG has four wholly owned subsidiaries (collectively referred
to as the “MorphoSys Group” or the “Group”).

In January 2007, Serotec Ltd. and Serotec, Inc. were renamed MorphoSys
UK Ltd. and MorphoSys US, Inc. In March 2007, Serotec GmbH was re-
named MorphoSys AbD GmbH.

MorphoSys USA Inc., Charlotte, North Carolina, USA, was incorporated in
the USA on 16 February 2000. The subsidiary’s business purpose was to
support MorphoSys AG in the sale and licensing of its products. In Novem-
ber 2002, MorphoSys USA Inc. ceased its operating activities.

In October 2010, MorphoSys acquired all of the shares in Sloning BioTech-
nology GmbH, a private company located in Puchheim near Munich, Ger-
many.

MorphoSys IP GmbH, Martinsried, Germany, was registered on 6 Novem-
ber 2002 in the commercial register in Munich and commenced its operat-
ing business on 31 December 2002. The company’s purpose is the pur-
chase, maintenance, and administration of certain intangible assets
belonging to MorphoSys Group. The company is located on the premises of
MorphoSys AG.

In January 2005, MorphoSys acquired Biogenesis Ltd., Poole, UK, and Bio-
genesis, Inc., New Hampshire, USA. Biogenesis Ltd. was initially renamed
MorphoSys UK Ltd. and in 2007 was again renamed Poole Real Estate Ltd.
Biogenesis, Inc. was renamed MorphoSys US, Inc. and merged into Sero-
tec, Inc. Subsequently, the absorbing entity resumed the name MorphoSys
US, Inc. and has its registered offi ce in Raleigh, North Carolina, USA.

In January 2006, MorphoSys AG acquired Serotec Ltd., Oxford, UK, with
its subsidiaries Serotec, Inc., Raleigh, North Carolina, USA, Serotec GmbH,
Düsseldorf, Germany, and Oxford Biotechnology Ltd., Oxford (together re-
ferred to as the “Serotec Group”). Hence, Serotec Ltd. became a wholly
owned subsidiary of MorphoSys AG. The Serotec Group has been inte-
grated into MorphoSys’s existing AbD segment. Oxford Biotechnology Ltd.
was dissolved in fi nancial year 2009.

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

On 16 December 2012, MorphoSys AG and a subsidiary of Bio-Rad Labora-
tories, Inc., Hercules, California, USA (Bio-Rad Inc.), agreed upon the ac-
quisition of all shares of MorphoSys UK Ltd., Oxford, UK (MorphoSys UK).
This agreement also comprised all shares of both MorphoSys UK’s subsid-
iaries, MorphoSys AbD GmbH, Düsseldorf, Germany and MorphoSys US,
Inc., Raleigh, USA. Additionally, on 16 December 2012, MorphoSys AG and
a further subsidiary of Bio-Rad agreed upon the acquisition of individual
assets (trademarks) of the AbD Serotec segment of MorphoSys AG and the
purchase of a non-exclusive license for the use of the HuCAL technology in
the market for research reagents and diagnostics. Furthermore, it was
agreed to transfer all remaining assets and liabilities of the AbD Serotec
segment of MorphoSys AG to MorphoSys AbD GmbH. MorphoSys AG’s
interest in Poole Real Estate Ltd., Poole, UK, was not sold. The closing of
the transaction was contingent upon certain conditions which were met on
10 January 2013 (closing date). Hence, substantially all of the AbD Serotec
segment was sold as of this date. Therefore, substantially all of
MorphoSys AG’s AbD Serotec operating segment represented a discontin-
ued operation within the meaning of IFRS 5. As of the reporting date, the
Partnered Discovery and Proprietary Development operating segments,
along with the non-discontinued operations of the AbD Serotec segment,
were classifi ed as continuing operations.

l eGal s t RUc t URe of t He moRPHo s Y s GRoUP

s u b s i d i a r i e s :

m o r p h o s y s u s a , i n c .
p o o l e r e a l e s tat e lt d .
m o r p h o s y s i p g m b h
s l o n i n g b i o t e c h n o l o g y g m b h

1 0 0 %
1 0 0 %
1 0 0 %
1 0 0 %

m o r phosys aG

s U B s i D iaRies

a b d s e r o t e c :

m o r p h o s y s u k lt d .
m o r p h o s y s u s , i n c .
m o r p h o s y s a b d g m b h

1 0 0 %
1 0 0 %
1 0 0 %

c
h

t
e
c

s h a r e d e a l

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

a s s e t d e a l

106

As of 31 December 2013, the entities MorphoSys UK Ltd., Oxford, UK,
MorphoSys US, Inc., Raleigh, USA, and MorphoSys AbD GmbH, Düssel-
dorf, are no longer included in the MorphoSys Group’s scope of consolida-
tion.

MorphoSys IP GmbH has made use of the option of exemption of Sec. 264
para 3 of the German Commercial Code (HGB). For this reason, no separate
financial statements were published in the Bundesanzeiger (German Fed-
eral Gazette) for MorphoSys IP GmbH for the year 2013.

The consolidated financial statements for the year ended 31 December
2013, were prepared by the Management Board by a resolution of the
Management Board on 20 February 2014. The Management Board is com-
posed of Dr. Simon Moroney (Chief Executive Officer), Jens Holstein
(Chief Financial Officer), Dr. Marlies Sproll (Chief Scientific Officer), and
Dr. Arndt Schottelius (Chief Development Officer). The Supervisory Board
is allowed to amend the financial statements approved by the Management
Board. The registered offices of the MorphoSys Group’s headquarters are
located at Lena-Christ-Straße 48, 82152 Martinsried, Germany.

2 .2 .2 C ONSOLIDATION ME THODS
The following Group’s subsidiaries are included in the scope of consolida-
tion as shown in the following table.

company

established in/
Purchase of
shares

included in

Basis of consoli-
dation since

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

February 2000
January 2005
November 2002
October 2010

01/01/2000
01/01/2005
01/01/2002
01/01/2010

As these subsidiaries are wholly owned, they are fully consolidated. There
are no entities which are consolidated proportionately or by using the eq-
uity method. There are also no entities upon which the Group exercises a
controlling influence in the meaning of IAS 27 “Separate and Consolidated
Financial Statements” – Influence on the Financial and Operating Policy
Decisions. Interests in such entities would be measured at fair value or at
historic cost in accordance with the regulations of IAS 39.

Assets and liabilities of domestic and international entities which are fully
consolidated are recognized using Group-wide uniform accounting and
valuation methods. The consolidation methods applied have not changed
compared to the previous year.

Consolidation is carried out using the purchase method as per the time of
the acquisition. Assets and liabilities of subsidiaries are recognized at fair
value.

In the consolidated financial statements, receivables and liabilities, as well
as expenses and income among consolidated entities, are eliminated. In-
tercompany deliveries and services are based on transfer prices that are
compared to third party conditions. Any resulting intercompany profits
are eliminated to the extent that inventories include assets from inter-
company deliveries.

2 .2 .3 BUSINES S C OMBINATIONS/AC QUISITIONS AND DISC ONTINUE D

OPE R ATIONS
The Group applies IFRS 3 (revised) “Business Combinations” (effective
from 1 July 2009). The revised standard continues to stipulate the applica-
tion of the purchase method for business combinations, with some signifi-
cant changes. For example, all payments in connection with the purchase
of a business are to be recorded at fair value on the acquisition date, while
contingent payments are classified as debt and are subsequently revalued
through profit and loss. All acquisition-related costs are expensed.

In January of the past financial year, the sale of substantially all of the AbD
Serotec segment was completed. Accordingly, as of 31 December 2013, the
entities MorphoSys UK Ltd., Oxford, UK, MorphoSys US, Inc., Raleigh,
USA, and MorphoSys AbD GmbH, Düsseldorf, Germany, are no longer in-
cluded in the MorphoSys Group’s scope of consolidation.

s coPe of cons ol iDat ion a s of 31 Dec emBeR 2013

name and corporate seat of the company

C oMpAN Y C oNSolIDATED (ApART fRoM pARENT C oMpAN Y )
MorphoSys USA, Inc., Charlotte, North Carolina, USA
MorphoSys IP GmbH, Munich, Germany
Poole Real Estate Ltd., Poole, UK
Sloning BioTechnology GmbH, Puchheim, Germany

exchange Rate
on Dec 31, 2012
one Unit of euro
in local currency

local currency

US $
€
£
€

1.37760
–
0.84481
–

share of

share capital in

total

assets in

total

liabilities in

total

Revenue in

Profit/loss in

capital %

local currency

100

2,000

25,000

200

951,660

10,286

3,305,140

801,699

13,880,384

3,280,357

5,000

3,307,435

3,343,800

3,180,726

(1,139)

(2,409)

(12,108)

1,958,510

financial statementsNotes

107

After initial purchase of shares in Dutch Lanthio Pharma B.V. in 2012, the
Group made an additional contribution in financial year 2013 and contin-
ues to hold an interest of 19.98 % in this company. At the time the share in
the company was acquired, the initial recognition was carried out at
acquisition costs including transaction costs. Short-term value changes
in the share are recognized directly in other comprehensive income. In
contrast, permanent impairment is recognized in profit and loss. The
shares in unquoted subsidiaries and stock corporations are classified as
“Available for Sale Financial Assets” and carried at acquisition cost since
their fair value cannot be determined due to the absence of a market.

2 .2 .4 BASIS OF FORE IGN CURRE NCY TR ANSL ATION
IAS 21 “The Effects of Changes in Foreign Exchange Rates” governs ac-
counting for transactions and balances denominated in foreign curren-
cies. Transactions denominated in foreign currencies are translated at the
exchange rate prevailing on the date of the transaction. Translation differ-
ences are recognized in profit and loss. On the reporting date, assets and
liabilities are translated at the closing rate and income and expenses are
translated at the average exchange rate for the financial year. Any good-
will arising from the acquisition of a foreign operation and any fair value
adjustments to the carrying amounts arising from the acquisition are
treated as assets and liabilities of the foreign operation and translated at
the closing rate. Any foreign exchange rate differences deriving from
these translations are recognized in profit and loss. Any further foreign
exchange rate differences at the Group level are recognized in the “Trans-
lation Reserve” (stockholders’ equity).

2.3

f inanc ial ins t RUmen t s anD f inanc ial Ri sK
manaGemen t

2 .3.1 CRE DIT RISK AND LIQUIDIT Y RISK
Financial instruments that may potentially subject the Group to concen-
trations of credit and liquidity risk consist primarily of cash, cash equiva-
lents, marketable securities, derivative financial instruments, and ac-
counts receivable. The Group’s cash and cash equivalents are principally
denominated in euros. Marketable securities are placed in high-quality
securities. Cash, cash equivalents, and marketable securities are main-
tained with several renowned financial institutions in Germany. The
Group continuously monitors its positions with, and the credit rating of,

the financial institutions which are counterparts to its financial instru-
ments and does not expect a risk of non-performance.

One of the Group’s policies requires that all customers who wish to trade
on credit terms are subject to a creditworthiness assessment, which is
based on external ratings. Nevertheless, the Group’s revenues and ac-
counts receivables are subject to a credit risk as a result of customer con-
centration. The Group’s most significant single customer accounted for
€ 8.2 million of trade receivables as of 31 December 2013 (31 December
2012: € 8.3 million). This customer accounted for approximately 80 % of the
Group’s accounts receivable from continuing operations at the end of 2013.
Three individual customers of the Group accounted for 53 %, 27 %, and 8 %
of the total revenues from continuing operations in 2013. On 31 December
2012, one customer had accounted for 92 % of the Group’s accounts receiv-
ables and three customers individually had accounted for 91 %, 3 %, and 3 %
of the Group’s revenues in 2012. Based on the Management Board’s assess-
ment, allowances in an amount of € 238,900 were required in financial
year 2013 which related to the Partnered Discovery segment. As of 31
December 2012 and based on the Management Board’s assessment, allow-
ances in the amount of € 79,196 were required in the discontinued AbD
Serotec segment. The carrying amounts of financial assets represent the
maximum credit risk.

The credit risk of trade receivables at the reporting date by geographic
region was composed as follows.

in €

12/31/2013

12/31/2012

Europe and Asia
USA and Canada
Total from Continuing Operations

8,538,478
1,731,844
10,270,322

8,683,001
241,197
8,924,198

Total from Discontinued
Operations

ToTAl

0
10,270,322

1,703,450
10,627,647

s coPe of cons ol i Dat ion a s of 31 Dec emBeR 2013

name and corporate seat of the company

C oMpAN Y C oNSol IDATED (Ap AR T fRoM pARENT C oMpAN Y )

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

MorphoSys IP GmbH, Munich, Germany

Poole Real Estate Ltd., Poole, UK

Sloning BioTechnology GmbH, Puchheim, Germany

exchange Rate

on Dec 31, 2012

one Unit of euro

local currency

in local currency

US $

1.37760

€

0.84481

–

share of

capital %

share capital in
local currency

total
assets in

local currency

total
liabilities in
local currency

total
Revenue in

local currency

Profit/loss in
local currency

100
100
100
100

2,000
25,000
200
951,660

10,286
3,305,140
801,699
13,880,384

0
3,280,357
5,000
3,307,435

0
3,343,800
0
3,180,726

(1,139)
(2,409)
(12,108)
1,958,510

financial statementsNotes

108

The term structure of trade receivables at the reporting date was com-
posed 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

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

As of 31 December 2013, the Group’s accounts receivable included overdue
receivables in the amount of € 0.2 million, for which an allowance for im-
pairment was required based on the Management Board’s assessment.
Additionally, accounts receivable comprised an insignificant amount, for
which impairment was not deemed necessary as the receivables were not
overdue by more than 60 days.

As of 31 December 2013 and 31 December 2012, the Group was not ex-
posed to a credit risk from derivative financial instruments. The maxi-
mum credit risk of financial guarantees (rent deposits) at the reporting
date amounted to € 1.3 million (31 December 2012: € 1.3 million).

The contractually agreed maturities and the corresponding cash flows of
financial liabilities are within one year and five years, respectively. The
convertible bonds due to related parties have a term until 31 December
2015 and 31 March 2020 (maximum credit risk: € 0.3 million).

12/31/2013
0 (30) days

12/31/2013
30 (60) days

12/31/2013
60 + days

12/31/2013
total

8,760,788
(238,900)
8,521,888
0
8,521,888

45,771
0
45,771
0
45,771

1,702,663
0
1,702,663
0
1,702,663

10,509,222
(238,900)
10,270,322
0
10,270,322

12/31/2012
0 (30) days

12/31/2012
30 (60) days

12/31/2012
60 + days

12/31/2012
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
10,627,647

2 .3.2 MARKE T RISK
Market risk is the risk that changes in market prices, such as foreign ex-
change rates, interest rates, and equity prices, will affect the Group’s re-
sults of operations or the value of the financial instruments held. The
Group is also exposed to currency and interest rate risks.

2 .3.3 CURRE NCY RISK
The consolidated financial statements are prepared in euros. While the
expenses of MorphoSys are predominantly incurred in euros, a part of the
revenues is dependent upon the current exchange rates of the US dollar
and the pound sterling. The Group examines the necessity of hedging for-
eign exchange rates to minimize currency risk during the year and ad-
dresses this risk by using derivative financial instruments.

financial statementsNotes109

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

as of 31 December 2013; in €

eUR

UsD

GBP

total

Cash and Cash Equivalents
Available-for-sale Financial Assets
Bonds, Available-for-sale
Accounts Receivable
Accounts Payable and Accrued Expenses

ToTAl

70,885,679
188,360,354
11,102,087
10,270,322
17,260,346
297,878,788

24,643
0
0
0
(60,316)
(35,673)

963,374
0
0
0
(10,009)
953,365

71,873,696
188,360,354
11,102,087
10,270,322
17,190,021
298,796,480

as of 31 December 2012; in €

eUR

UsD

GBP

total

Cash and Cash Equivalents
Available-for-sale Assets
Accounts Receivable
Accounts Payable and Accrued Expenses

ToTAl

Different foreign exchange rates and their impact on assets and liabilities
were simulated in a detailed sensitivity analysis in order to determine the
resulting effects on income. A 10 % increase of the euro against the US
dollar as of 31 December 2013 would have slightly increased the Group’s
profit from continuing operations (assuming stable interest rates). A 10 %
decline of the euro against the US dollar would have slightly decreased the
Group’s profit from continuing operations. A 10 % increase of the euro
against the British pound as of 31 December 2013 would have reduced the
Group’s profit from continuing operations by € 0.1 million (assuming sta-
ble interest rates). A 10 % decline of the euro against the British pound
would have increased the Group’s profit from continuing operations by
€ 0.1 million.

A 10 % increase of the euro against the US dollar as of 31 December 2012
would have reduced the Group’s profit from continuing operations by
€ 0.1 million (assuming stable interest rates). A 10 % reduction in the
euro against the US dollar would have increased the Group’s profit from
continuing operations by € 0.2 million. A 10 % increase of the euro against
the British pound as of 31 December 2012 would have reduced the Group’s
profit from continuing operations by € 0.1 million (assuming stable inter-
est rates). A 10 % decline of the euro against the British pound would have
increased the Group’s profit from continuing operations by € 0.1 million.

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

40,689,865
79,722,222
8,924,197
10,660,090
139,996,374

If the foreign exchange rates for the US dollar against the euro and the
British pound against the euro had remained unchanged at the average
rate of 2012, the Group’s revenues from continuing operations would
have been higher by € 0.1 million (2012: Group revenues would have been
€ 0.4 million lower).

2 .3.4 INTE REST R ATE RISK
The Group’s risk exposure to changes in interest rates relates mainly to
available for sale securities/investments. Changes in the general level of
interest rates may lead to an increase or decrease in the fair value of these
securities/investments. The Group’s investment focus places the security
of an investment ahead of its return. The interest rate risk is mitigated due
to the fact that all securities/investments can be liquidated within a max-
imum of two years and the vast majority even within three months. The
Group is currently not subject to significant interest rate risks from liabil-
ities recorded in the balance sheet.

financial statementsNotes110

HIER A RC H Y LE V EL 1
The fair value of financial instruments, which are traded in active mar-
kets, is based upon quoted market prices as of the reporting date. A mar-
ket is considered an active market if quoted prices are available from an
exchange, dealer, broker, industry group, pricing service, or a regulatory
body that is easily and regularly accessible and these prices reflect cur-
rent and regularly occurring market transactions at arm’s length condi-
tions. For assets held by the Group, the appropriate quoted market price is
the buyer’s bid price. These instruments are included in Level 1 (see also
item 5.2 of these Notes*).
*c R o s s - R e f e R e n c e t o pa g e 1 2 7

HIER A RC H Y LE V EL 2
The fair value of financial instruments, which are not traded in active
markets, can be determined using measurement procedures. In this case,
fair value is estimated on the basis of the results of a valuation method that
makes maximum use of market data, and relies as little as possible on
entity-specific inputs. If all inputs required for measuring fair value are
observable, the instrument is allocated to Level 2. If important inputs are
not based on observable market data, the instrument is allocated to Level 3.

None of the financial assets and liabilities were allocated to hierarchy levels
2 or 3. The fair value of licenses payable is determined by the effective
interest method. Convertible bonds are recorded at ascribed values, which
approximate the amount becoming due upon settlement. There were no
transfers from one fair value hierarchy level to another in 2013 and 2012.

The fair values of financial assets and liabilities and the carrying amounts
presented in the consolidated balance sheet were composed as follows.

2 .3.5 FAIR VALUE HIE R ARCHY AND ME ASURE ME NT PRO CE DURES
IFRS 13 “Fair Value Measurement” guidelines must always be applied
when another IAS/IFRS requires, respectively permits, measurement at
fair value, or when disclosures regarding measurement at fair value are
required. The fair value is the amount to be achieved on the valuation date
upon the sale of an asset in an arm’s length transaction between indepen-
dent market participants or the amount to be paid for the transfer of a lia-
bility (disposal or exit price). Accordingly, the fair value of a liability re-
flects the default risk (i.e., own credit risk). Measuring fair value requires
that the sale of the asset or the transfer of the liability takes place on the
principal market or, if such a principal market is not available, on the most
advantageous market. The principal market is the market with the highest
volume and the highest level of activity to which the company has access.

Fair value is measured by using the same assumptions and taking into
account the same characteristics of the asset or liability as would an inde-
pendent market participant. Fair value is a market-based, not an entity-
specific measurement. For non-financial assets, fair value is determined
based on the highest and best use of the asset as determined by a market
participant. For financial instruments, the use of bid prices for assets and
ask prices for liabilities is permitted, but not required if those prices most
suitably reflect fair value in the respective circumstances. For simplifica-
tion purposes, the use of mean rates is also permitted. Thus, IFRS 13 not
only applies to financial assets, but also to all assets and liabilities.

MorphoSys uses the following hierarchy for determining and disclosing
the fair value of financial instruments.
Level 1: Quoted (unadjusted) prices in active markets for identical assets

or liabilities to which the Company has access.

Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the assets or liabilities, either directly (i.e., as
prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable

market data (that is, unobservable inputs).

The carrying amounts of financial assets and liabilities, such as cash and
cash equivalents, marketable securities, accounts receivable, and accounts
payable approximate their fair value due to their short-term maturities.

financial statementsNotes111

31 December 2013
(in 000’s €)

Cash and Cash Equivalents
Accounts Receivable
Other Receivables

Shares available for Sale,
net of Current Portion

Available-for-sale
Financial Assets
Bonds, Available-for-sale

Convertible Bonds –
Liability Component

Accounts Payable and
Accrued Expenses

* Declaration waived in line with IFRS 7.29 (a)

31 December 2012
(in 000’s €)

Cash and Cash Equivalents
Accounts Receivable
Other Receivables

Shares available for Sale,
net of Current Portion

Available-for-sale
Financial Assets

Assets of Disposal Group
Classified as Held for Sale

Convertible Bonds –
Liability Component

Accounts Payable and
Accrued Expenses

Liabilities of Disposal Group
Classified as Held for Sale

note

loans and

Receivables

available
for sale

other financial
liabilities

total carrying
amount

fair value

5.1
5.3
5.4

5.8

5.2
5.2

7.2

6.1

71,874
10,270
119,458

0
0
0

1,727

0
0
201,602

188,360
11,102
201,189

0
0
0

71,874
10,270
119,458

1,727

188,360
11,102
402,791

71,874
*
119,458

188,360
11,102
390,794

0
0

(299)

(17,190)
(17,489)

note

loans and

Receivables

available
for sale

other financial
liabilities

total carrying
amount

fair value

5.1
5.3
5.4

5.8

5.2

5.10

7.2

6.1

6.4

40,690
8,924
10,298

0
59,912

0
0

0
0
0

882

79,722

40,855
121,459

0
0
0

0
0

40,690
8,924
10,298

882

40,690
8,924
10,298

882

79,722

40,855
181,371

(74)

(10,660)

(3,733)
(3,733)

0
(10,734)

(3,733)
(14,467)

2.4

imP aiRmen t

2 .4.1 NON - DE RIVATIVE FINANCIAL INSTRUME NT S
A financial instrument not carried at fair value through profit or loss is
assessed at each reporting date to determine whether there is objective
evidence to show that it is impaired. A financial instrument is impaired if
objective evidence indicates that an event has occurred after the initial
recognition of the asset that resulted in a loss and that the event could
have negative effect on the estimated future cash flows of that asset that
can be estimated reliably.

Objective evidence that financial instruments (including equity securi-
ties) are impaired can include default or delinquency of a debtor, indica-
tions that a debtor or issuer will enter insolvency, adverse changes in the
payment status of borrowers or issuers in the Group, and economic condi-
tions that correlate with defaults or the disappearance of an active market
for a security. In addition, a significant or prolonged decline in an equity
security’s fair value below its acquisition cost is objective evidence of im-
pairment.

financial statementsNotes

112

2 .4.2 RECE IVABLES
The Group considers evidence of impairment of receivables both at an in-
dividual and collective level. All individually significant receivables are
tested specifically for impairment. All individually significant receivables
found not to be specifically impaired are then collectively tested for any
impairment that occurred but was not yet identified. Individually non sig-
nificant receivables are collectively tested for impairment by grouping to-
gether receivables with similar risk characteristics.

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

For a financial instrument measured at amortized cost less impairment,
impairment is calculated as the difference between its carrying amount
and the present value of the estimated future cash flows. Cash flows are
discounted at the asset’s original effective interest rate. Losses are recog-
nized in profit or loss and reflected in an allowance account against receiv-
ables. Interest on the impaired asset continues to be recognized. When a
subsequent event (e.g. repayment by a debtor) causes the amount of im-
pairment to decrease, the impairment is reversed through profit and loss.

2 .4.3 FINANCIAL AS SE TS AVAIL ABLE FOR SALE
Impairment of financial assets available for sale is recognized by reclas-
sifying the accumulated losses from the revaluation reserve in equity to
profit and loss. The accumulated loss that is reclassified from equity to
profit and loss is the difference between the acquisition cost, less amorti-
zation and any principal repayment, and the current fair value, less any
impairment recognized previously in profit or loss. If, in a subsequent
period, the fair value of an impaired financial asset available for sale in-
creases and the increase can be related objectively to an event occurring
after the impairment was recognized in profit or loss, then the impairment
loss is reversed, with the amount of the reversal recognized in profit or
loss. However, any subsequent recovery in the fair value of an available for
sale financial instrument is recognized in equity in other comprehensive
income.

2 .4.4 NON - FINANCIAL AS SE TS
The carrying amounts of the Group’s non-financial assets, inventories and
deferred tax assets are reviewed at each reporting date for any indication
of impairment. The asset’s recoverable amount is estimated if such indica-
tion exists. For goodwill and intangible assets that have indefinite useful
lives or that are not yet available for use, the recoverable amount is esti-
mated at the same time each year. Impairment is recognized if the carry-
ing amount of an asset or the cash generating unit (CGU) exceeds its esti-
mated recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs of disposal. In assessing value in use, the esti-
mated future after-tax cash flows are discounted to their present value
using an after-tax discount rate that reflects current market assessments
with regard to the time value of money and the risks specific to the asset
or CGU. For the purposes of impairment testing, assets that cannot be
tested individually are grouped into the smallest group of assets that gen-
erates cash flows from continuing use that are largely independent of the
cash flows of other assets or CGUs. For the purposes of goodwill impair-
ment testing, a ceiling test for the operating segment must be carried out.

CGUs to which goodwill has been allocated are aggregated so that the level
at which impairment testing is performed reflects the lowest level at which
goodwill is monitored for internal reporting purposes. Goodwill acquired
in a business combination is allocated to groups of CGUs that are expected
to benefit from the synergies of the combination.

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

Impairment losses are recognized in profit and loss. Goodwill impairment
is not reversible. For all other assets, impairment recognized in prior peri-
ods is assessed at each reporting date for any indications that the losses
decreased or no longer exist. Impairment can be reversed when there has
been a change in the estimates used to determine the recoverable amount.
Impairment loss can only be reversed to the extent that the asset’s carry-
ing amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment had
been recognized.

2.5 aDDi t ional inf oRmat ion

2 .5.1 KE Y ESTIMATES AND AS SUMP TIONS
Estimates and judgments are continually evaluated and are based on his-
torical experience and other factors which include expectations of future
events that are believed to be realistic under the current circumstances.

The Group makes estimates and assumptions concerning the future. The
resulting accounting-related estimates will, by definition, seldom corre-
spond to the actual results. The estimates and assumptions bearing a sig-
nificant risk of causing material adjustments to the carrying amounts of
assets and liabilities in the next financial year are addressed below.

G O O DW ILL
On an annual basis, the Group tests whether goodwill is subject to impair-
ment, in accordance with the accounting policies discussed in item 2.4.4*.
The recoverable amounts of cash-generating units have been determined
on the basis of value-in-use calculations. These calculations require the
use of estimates (see also item 5.7.6 of the Notes*).
*c R o s s - R e f e R e n c e t o pa g e 1 1 2 a n d pa g e 1 3 2

For the AbD Serotec segment no further goodwill impairment testing was
necessary at the end of financial year 2013 since this segment was sold in
January 2013. Therefore, the corresponding goodwill was no longer part of
MorphoSys Group due to deconsolidation.

A sensitivity analysis was performed for the technology development ac-
tivities within the Partnered Discovery segment, which represent the
cash-generating unit also comprising the goodwill from the acquisition of
Sloning BioTechnology GmbH. A 30 % increase in the weighted average
cost of capital (WACC) or a 30 % decrease in future cash flows would not
result in impairment of the cash-generating unit.

IN C O ME TA X ES
The Group is subject to income taxes in numerous tax jurisdictions. Sig-
nificant judgment is required in determining the Group’s provision for
income taxes. There are many transactions and calculations which are
accompanied by uncertainty with respect to the calculation of taxes actu-
ally occurring.

financial statementsNotes113

As of 31 December 2013, deferred tax assets on tax loss carryforwards in
the amount of € 1.8 million were recognized as a result of positive busi-
ness expectations at Sloning BioTechnology GmbH for financial years 2014
to 2018. No deferred tax assets were reported for corporate tax loss car-
ryforwards in the amount of € 2.4 million of the and trade tax loss carry-
forwards in the amount of € 2.3 million since the application of these tax
loss carryforwards is deemed uncertain with regard to German tax regu-
lation (Sec. 8 para. 4, of the German Corporation Tax Act ( KStG -former
version) and Sec. 8c of the German Corporation Tax Act (KStG)). If a por-
tion of the total tax loss carryforwards may not be utilized as a result of a
tax audit, the Group would be required to pay higher income taxes for fu-
ture periods at an earlier point in time since the tax loss carryforwards
would be consumed sooner than expected.

2 .5.2 CAPITAL MANAGE ME NT
Concerning capital management, the Management Board’s policy is to pre-
serve a strong and sustainable capital base in order to maintain investor,
business partner, and market confidence and to support future business
development. The capital base was strengthened further in August 2013
through a capital increase having a volume of more than € 46 million as
part of the Celgene transaction. A further capital increase (private place-
ment) was carried out in September 2013 with a volume of approximately
€ 84 million which also strengthened the capital base. On 31 December
2013, the equity ratio amounted to 78.6 % (31 December 2012: 90.1 %; see
table below). Despite the capital measures mentioned, the lower equity
ratio in comparison to the previous year resulted from a marked increase
in current and non-current deferred revenues since the upfront payments
received from Celgene are deferred over several periods. Presently, the
Group is not carrying financial debt.

Pursuant to the respective incentive plans resolved by the Annual General
Meeting, the Management Board and employees may participate in the
Group’s performance through long-term performance-related remunera-
tion components consisting of convertible bonds and stock options. In ad-
dition, MorphoSys has established a long-term incentive program (LTI
plan) in the years 2011, 2012, and 2013. These programs are based on the
performance-related issuance of shares, so called “performance shares”,
which are granted when certain predefined success criteria have been
achieved (for more information, please refer to item 7.4 of the Notes*).
There were no changes in the Group’s approach to capital management in
the course of the year.
*c R o s s - R e f e R e n c e t o pa g e 1 3 9

in 000’s €

12/31/2013

12/31/2012

Stockholders’ Equity
In % of Total Capital
Debt
In % of Total Capital

ToTAl CApITAl

352,145
78.6 %
95,511
21.4 %
447,657

202,010
90.1 %
22,279
9.9 %
224,289

uses the interest rates of German government bonds having a term of
three years at grant date.

2.7

accoUn t inG P ol ic ie s aPPl ieD on t He l ine i t ems
of t He income s tat emen t

2 .7.1 RE VE NUE S AND RE VE NUE REC O GNITION
The Group’s revenues include license fees and milestone payments, ser-
vice fees and revenue from the sale of goods. Pursuant to IAS 18.9, reve-
nues are measured at the fair value of the consideration received or receiv-
able. In accordance with IAS 18.20b, revenues are only recognized to the
extent that it is sufficiently probable that the Company will receive the
economic benefits associated with the transaction.

LI C ENS E FEES A ND MILESTO NE PAY M EN TS
Revenues related to non-refundable fees for providing access to technolo-
gies, fees for the use of technologies, and license fees are recognized on a
straight line basis over the period of the agreement unless a more appro-
priate method of revenue recognition is available. The period of the agree-
ment usually corresponds to the contractually agreed term of the research
project, or in the case of contracts without an agreed term of the project, it
correlates to the expected term of the collaboration. If all IAS 18.14 criteria
are met, revenue is recognized immediately and in full. Revenues from
milestone payments are recognized upon achievement of certain contrac-
tual criteria.

SERV I C E FEES
Service in the context of research and development collaborations are rec-
ognized in the period in which the services are provided.

SA LE O F G O O DS
Revenue from the sale of goods in the AbD Serotec segment is measured at
the fair value of the consideration received or receivable, net of returns,
trade discounts, and volume rebates. Revenue is recognized when there is
persuasive evidence that the significant 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. This evidence
is usually in the form of a signed sales contract.

If it is probable that discounts will be granted and that their amount can
be reliably determined, then the discount is recognized as a reduction in
revenue at the time of the revenue recognition. The timing of the transfer
of risks and rewards varies depending upon the individual terms of the
sales contract. In accordance with IAS 18.21 and 18.25, revenue from
multiple-element transactions is recognized by allocating the total consid-
eration among the separately identifiable components based on their re-
spective fair values and by applying IAS 18.20; the applicable revenue
recognition criteria are assessed separately for each component.

Deferred revenues consist of payments received from customers which
may not yet be recognized as revenue since the related services specified
in the contract have not yet been rendered.

2.6 Use of in t eRe s t in t He Val Uat ion
The Group uses interest rates to measure fair values. When calculating
stock-based compensation, MorphoSys uses the interest rates of German
government bonds having a term of five or seven years at grant date for the
fair value of convertible bonds, whereas for stock options, the Company

2 .7.2 OPE R ATING E XPE NSES

C OST O F G O O DS SO LD
Cost of goods sold comprises the cost of goods to be manufactured and the
acquisition cost of purchased goods which have been sold and were only
incurred in the discontinued operations of the AbD Serotec segment.

financial statementsNotes114

PERSO NNEL E X PENSES RESU LT IN G FRO M STO C K O P T I O NS
The Group applies the provisions of IFRS 2 “Share-based Payment”. IFRS
2 requires the Group to recognize stock options and other share-based
payment at fair value as of the valuation date as a compensation expense
over the period in which the beneficiary renders the services associated
with the award.

RESE A RC H A ND DE V ELO PMEN T
Research costs are expensed in the period in which they occurred. Gener-
ally, development costs are expensed as incurred in accordance with IAS
38.5 and IAS 38.11 to 38.23. Development costs are recognized as an in-
tangible asset when the criteria of IAS 38.21 (probability of expected fu-
ture economic benefits, reliability of cost measurement) are met, and if the
Group can provide evidence pursuant to IAS 38.57.

SELLIN G , G ENER A L , A ND A DMINIST R AT I V E
This line item includes personnel expenses, consumables, operating costs,
amortization of intangible assets, expenses for external services, infra-
structure costs, and depreciation.

O PER AT IN G LE ASE PAY MEN TS
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 incentive agreements in the context of operating leases are rec-
ognized as an integral part of the net consideration agreed for the use of
the leased asset. The total amount of income resulting from incentives is
recognized as a reduction in lease expenses on a straight line basis over
the term of the rental.

All lease agreements in the Group are to be classified exclusively as oper-
ating leases. The Group did not engage in any finance lease arrangements
in which the Group, as lessee, capitalized the assets at the start of the
lease with the lower of fair value or the net present value of the minimum
lease payments and then depreciated the assets on a straight-line basis
over its economic life.

2 .7.3 OTHE R INC OME

G OV ERNMEN T G R A N TS
Grants received from governmental agencies for the support of specific
research and development projects are recognized in the income state-
ment in the separate line item “other income” to the extent that the related
expenses have already occurred. Under the terms of the grants, govern-
mental agencies generally have the right to audit the use of the funds
granted to the Group.

Basically, government grants are cost subsidies for which recognition
through profit and loss is limited to the corresponding costs. In financial
year 2013, there were no payments granted that were required to be clas-
sified as investment subsidies.

2 .7.6 FINANCE E XPE NSE S
Borrowing costs are expensed in the period they occur and are included in
finance expenses in the income statement.

2 .7.7 INC OME TA X E XPE NSES
Income taxes comprise current and deferred taxes. Income taxes are rec-
ognized in the income statement unless the income taxes relate to items
recognized directly in equity or other comprehensive income.

Current taxes are the expected taxes payable on the taxable income for the
year, using the prevailing tax rates or those adopted on the reporting date,
as well as any adjustments to taxes payable with respect to previous years.

The calculation of deferred taxes is based on the balance sheet liability
method and results in temporary differences between the carrying
amounts of assets and liabilities and the amounts used for taxation pur-
poses. Deferred taxes are calculated depending on the realization method
expected for the carrying amount of assets and the repayment of liabili-
ties. The calculation is also based on the prevailing tax rates or those
adopted on the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable
right to offset current tax liabilities and assets, and if they relate to income
taxes imposed by the same tax authority on the same taxable entity, or on
different tax entities that intend to settle current tax assets and liabilities
on a net basis, or when their tax assets and liabilities are to be realized
simultaneously.

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

2 .7.8 RESULT S FROM DISC ONTINUE D OPE R ATIONS
The result from discontinued operations relates to the substantial part of
the AbD Serotec segment. Financial statements reflecting the business
performance from the beginning of the year until 10 January 2013 were
prepared for these discontinued operations.

2 .7.9 E ARNINGS PE R SHARE
The Group reports basic and diluted earnings per share. Basic earnings
per share is computed by dividing the net profit or loss attributable to par-
ent company shareholders by the weighted average number of ordinary
shares outstanding during the reporting period. Diluted earnings per
share is calculated in the same manner however, the net profit or loss at-
tributable to parent company shareholders and the weighted average num-
ber of ordinary shares outstanding are adjusted for any dilutive effects
resulting from convertible bonds and stock options granted to the Manage-
ment Board and employees.

2 .7.4 OTHE R E XPE NSES
The line item “other expenses” comprises mainly currency losses from the
operating business.

2.8

accoUn t inG P ol ic ie s aPPl ieD t o asse t s of t He
Bal anc e sHee t

2 .8.1 CASH AND CASH EQUIVALE NT S

2 .7.5 FINANCE INC OME
Interest income is recognized in the income statement as it occurs and
takes into account the effective rate of interest for the asset.

LI Q U ID AS S E TS
The Group considers all cash at banks 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 and cash equiva-
lents in deposits at several major financial institutions: Commerzbank,
HypoVereinsbank, Bayern LB , LBBW, BNP Paribas and Deutsche Bank.

financial statementsNotes115

The Group recognizes cash and cash equivalents at nominal value. Securi-
ties are recognized and measured at fair value. Any fluctuations in the fair
value of securities, which are primarily composed of money market funds,
are directly recognized in equity. Permanent impairment, however, is rec-
ognized in profit and loss.

N O N - DERI VAT I V E FIN A N C I A L INST RU MEN TS
Depending upon their classification in the categories of “loans and receiv-
ables” or “available for sale financial assets”, existing financial instru-
ments are either measured at amortized cost (category “loans and receiv-
ables”) or at fair value (category “available for sale financial assets”). The
amortized cost of current receivables and current liabilities generally cor-
responds to either the nominal amount or the repayment amount.

flows and clearly identifiable receivables which can be collected within a
twelve-month period.

The use of derivative financial instruments is subject to a Group policy
approved by the Management Board representing a guideline set out in
writing for dealing with derivative financial instruments. Any changes in
the fair value of derivative financial instruments are documented.

2 .8.2 AC C OUNT S RECE IVABLE , INC OME TA X RECE IVABLES , AND OTHE R

RECE IVABLES

Accounts receivable are measured at amortized cost less any impairment,
for example, allowances for doubtful accounts (see items 5.3 and 2.4.2 of
the Notes*).
*c R o s s - R e f e R e n c e t o pa g e 1 2 8 a n d pa g e 1 1 2

All non-derivative financial instruments are initially recognized at fair
value, which is defined as the fair value of the consideration provided net
of transaction costs.

Income tax receivables mainly include receivables due from tax authori-
ties in the context of capital gain taxes withheld.

The Group applies IAS 39 for financial instruments in the form of debt and
equity instruments. At the time of purchase, the Management Board de-
termines the classification of the financial instrument and reviews the
classification at each reporting date. The classification depends on the pur-
pose for which the financial instruments were acquired. On 31 December
2013 and on 31 December 2012, some financial instruments held by the
Group were classified as “available for sale”. These financial instruments
are recognized or derecognized as of the date on which the Group commits
to the purchase or sale of the financial instruments. Following initial rec-
ognition, available for sale financial assets are measured at fair value and
any resulting gain or loss is reported directly in the revaluation reserve
within equity until the financial instruments are sold, redeemed, or other-
wise disposed of, or considered impaired, at which time the accumulated
loss is reported in profit and loss.

Guarantees granted for rent deposits, which have been collateralized with
available for sale securities and obligations from convertible bonds issued
to employees are recorded under other assets as restricted cash, as they
are not available for use in the Group’s operations. This also applies to the
portion of the sales price from the sale of AbD Serotec business unit, that
is currently deferred on an escrow account.

In November 2012, MorphoSys acquired an interest in Lanthio Pharma
B.V., a privately held company headquartered in Groningen, the Nether-
lands. Furthermore, a contribution was made to Lanthio Pharma B.V. in
September 2013. On 31 December 2013, the Group’s share in Lanthio
Pharma B.V.’s share capital amounted to 19.98 % and remained unchanged.
This share is measured at amortized cost and the financial instrument is
reported in the category “available for sale”.

DERI VAT I V E FIN A N C I A L INST RU MEN TS
The Group uses derivative financial instruments to hedge its exposure to
foreign exchange rate risk. In accordance with IAS 39.9, all derivative fi-
nancial instruments are held exclusively for trading and are initially rec-
ognized at fair value. Subsequent to their initial recognition, derivative
financial instruments are measured at fair value, which is defined as their
quoted market price on the reporting date. Any resulting gain or loss from
derivatives is recognized in profit and loss, because the Group does pres-
ently not apply hedge accounting. According to the Group’s foreign cur-
rency hedging policy, the Group only hedges highly probable future cash

Other non-derivative financial instruments are measured at amortized
cost using the effective interest method, less any impairment. In 2013,
investments were carried out in various financial assets which were allo-
cated to the category “loans and receivables” pursuant to IAS 39 “Finan-
cial Instruments”.

Significant non-interest bearing or low interest-bearing non-current loans
are recognized at their present value.

2 .8.3 INVE NTORIE S
Inventories are measured at the lower value of production or acquisition
costs and net realizable value pursuant to the FIFO method. The acquisi-
tion costs comprise all costs of purchase and all costs incurred in bringing
the inventories into operating condition, while taking into account reduc-
tions in the purchase price, such as bonuses and discounts. Net realizable
value is the estimated selling price less the estimated expenses necessary
for completion and sale.

The production costs of self-produced inventories comprise all costs that
are directly attributable and an appropriate portion of overheads. Produc-
tion costs comprise production-related full cost (direct costs) plus an ap-
propriate share of necessary material and manufacturing overheads as
well as production-induced depreciation and administration overheads
which can be allocated to the production process. Inventories may be clas-
sified as raw materials and supplies, work in progress, and finished goods.

2 .8.4 PRE PAID E XPE NSES AND OTHE R CURRE NT AS SE T S
Prepaid expenses include expenses that result in an outflow of cash prior to
the reporting date, but which are only recognized as expenses in the subse-
quent financial year. Such expenses mainly relate to maintenance contracts,
sublicenses, and prepayments for external laboratory services not yet per-
formed. Other current assets comprise receivables from the tax authorities
as a result of value-added taxes. This item is recognized at nominal value.

2 .8.5 PROPE R T Y, PL ANT, AND EQUIPME NT
Property, plant, and equipment is recorded at historical cost less accumu-
lated depreciation (see also item 5.6 of the Notes*) and any impairment
(see item 2.4.4 of the Notes*). Historical cost includes expenditure directly
related to the purchase at the time of the acquisition. Replacements, build-
ing alterations, and improvements are capitalized, while repair and main-

financial statementsNotes116

tenance expenses are charged to expenses as they are incurred. Property,
plant, and equipment is depreciated over its useful life on a straight-line
basis (see table below). Leasehold improvements are depreciated over the
estimated useful lives of the assets on a straight-line basis.
*c R o s s - R e f e R e n c e t o pa g e 1 2 9 a n d pa g e 1 1 2

nology identified in the purchase price allocation in the acquisition of
Sloning BioTechnology GmbH is recorded at fair value at the time of acqui-
sition, less accumulated amortization (useful life of ten years).
*c R o s s - R e f e R e n c e t o pa g e 1 1 2

asset class

Computer Hardware

Low-value Laboratory and
Office Equipment below € 150

Low-value Laboratory and
Office Equipment between € 150
and € 1,000

Permanent Improvements
to Property/Buildings
Office Equipment
Laboratory Equipment

Useful life

3 years

Immediately

5 years

10 years
8 years
4 years

Depreciation
Rates

33 %

100 %

20 %

10 %
13 %
25 %

An asset’s residual value and useful life are reviewed at the end of each
reporting period, and adjusted if appropriate.

Borrowing costs that can be directly attributed to the acquisition, con-
struction, or production of a qualifying asset, are not included in the ac-
quisition or production cost since the Group finances the entire operating
business through the use of equity.

2 .8.6 INTANGIBLE AS SE TS
Purchased, intangible assets are capitalized at acquisition cost and intan-
gible assets are exclusively amortized over their useful lives on a straight-
line basis. Internally generated intangible assets are recognized to the
extent that the recognition criteria set out in IAS 38 are met.

Development costs are capitalized as intangible assets provided that the
capitalization criteria described in IAS 38 have been met, namely, clear
specification of the product or procedure, technical feasibility, intention
of completion, use, commercialization, coverage of development costs
through future free cash flows, reliable determination of these free cash
flows, availability of sufficient resources for completion of development
and sale. Amortization is recorded in research and development expenses.

Expenses to be classified as research expenses are allocated to research
and development expenses within the meaning of IAS 38.

Subsequent expenditures for capitalized intangible assets are only capi-
talized when they substantially increase the future economic benefits em-
bodied in the specific asset to which they relate. All other expenditures
are expensed as incurred.

LI C ENS E RI G H TS
The Group has acquired license rights from third parties by making up-
front license payments, paying annual fees to maintain the license, and
paying fees for sub-licenses. The Group amortizes upfront license pay-
ments on a straight-line basis over the estimated useful life of the ac-
quired license (eight to ten years). The amortization period and the amor-
tization method are reviewed at the end of each financial year pursuant to
IAS 38.104. Annual fees to maintain the license are amortized over the
term of each annual agreement. Sub-license fees are amortized on a
straight-line basis over the term of the contract or the estimated useful life
of the collaboration for those contracts without a stipulated term.

IN - LI C ENSED RES E A RC H PRO G R A MS
This line item contains a capitalized upfront payment from the in-licens-
ing of a compound for the Proprietary Development segment as well as a
milestone payment for this compound which was paid at a later time. The
asset is recorded at acquisition cost and is not yet available for use and
therefore not subject to amortization. The asset was tested for impairment
on the reporting date as required by IAS 36.

SO F T WA RE
Software is recorded at acquisition cost less accumulated amortization
(see below) and any impairment (see item 2.4.4 of the Notes*). Amortiza-
tion is recognized in profit and loss on a straight-line basis over the esti-
mated useful life of three to five years. Software is amortized from the
date the software is operational.
*c R o s s - R e f e R e n c e t o pa g e 1 1 2

K N OW - H OW A ND C USTO MER LISTS
MorphoSys has carried out purchase price allocations as required by IFRS
3 “Business Combinations”. The identified intangible assets consist of
technologies (useful life of ten years), customer lists (useful life of six to
ten years), know-how (useful life of eight to ten years), customer relation-
ships (useful life of ten years), and distributor networks (useful life of ten
years). These assets are recorded at fair value at the time of acquisition,
less accumulated amortization.

G O O DW ILL
The goodwill recognized is 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 item 5.7.6 of the Notes*).
*c R o s s - R e f e R e n c e t o pa g e 1 3 2

intangible asset class

Useful life

PAT EN TS
Patents obtained by the Group are recorded at acquisition cost, less accu-
mulated amortization (see below), and any impairment (see item 2.4.4 of
the Notes*). Patent costs are amortized on a straight-line basis over the
lower of the estimated useful life of the patent (ten years) and the remain-
ing patent term. Amortization commences when the patent is issued. Tech-

Patents
License Rights
In-licensed Research Program
Software
Know-how and Customer List
Goodwill

10 years
8 (10) years
Not yet amortized
3 (5) years
6 (10) years
Impairment

amortization
Rates

10 %
10 % (13) %
–
20 % or 33 %
10 % (17) %
–

financial statementsNotes117

2 .8.7 SHARES AVAIL ABLE FOR SALE
The interest in Lanthio Pharma B.V. is recognized at amortized cost. The
financial instrument is recorded in the category “available for sale”.

(stock appreciation rights). All items are measured at the lower of fair
value or nominal value. Due to its low level of materiality, this line item is
not discounted to its present value in the financial year despite its long-
term maturity.

2 .8.8 PRE PAID E XPE NSES AND OTHE R NON - CURRE NT AS SE TS
The non-current portion of expenses occurring prior to the reporting date
but to be recognized in subsequent financial years, is also recorded under
prepaid expenses. This line item contains maintenance contracts and sub-
licenses.

In addition, this line item also includes other non-current assets which
are recognized at fair value. Other non-current assets comprise restricted
cash such as rent deposits.

2 .8.9 AS SE TS OF DISP OSAL GROUP CL AS SIFIE D AS HE LD FOR SALE
Disposal groups are classified 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 disposal
group is measured at the lower of its carrying amount and the fair value
less costs of disposal.

2.9

accoUn t inG P ol ic ie s aPPl ieD t o t He eQUi t Y anD
l iaBil i t Y i t ems of t He Bal ance sHee t

2 .9.1 AC C OUNTS PAYABLE , OTHE R LIABILITIES , AND PROVISIONS
Trade payables and other liabilities are recognized at amortized cost. Lia-
bilities with a term exceeding one year are discounted to their net present
value. Liabilities of uncertain timing or amount are recorded as provi-
sions.

IAS 37 requires the recognition of provisions for obligations to third par-
ties arising from past events. Provisions furthermore are recognized for
legal or factual obligations to third parties if the occurrence of the event is
more likely than not. Provisions are recognized at the amount required to
settle the respective obligation and discounted to the reporting date if the
interest effect is material. The amount required to settle the obligation
also includes expected price and cost increases. The interest portion of the
addition to provisions is recorded in the finance result. The measurement
of provisions is based on past experience and considers the circumstances
in existence at the reporting date.

2 .9.2 TA X LIABILITIES
Tax liabilities are recognized and measured at their nominal value. Ac-
crued income taxes contain obligations from current taxes, excluding de-
ferred taxes. Accruals for trade tax, corporate tax, and similar taxes on
income are determined based on the taxable income of the companies in-
cluded, less any prepayments made.

2 .9.3 CURRE NT P OR TION OF DE FE RRE D RE VE NUE
Upfront payments from customers for services to be rendered by the
Group are recognized as deferred revenue in accordance with IAS 18.13
and measured at the lower of fair value or nominal value. The correspond-
ing rendering of services and revenue recognition occurs within the
twelve month period following the reporting date.

2 .9.4 DE FE RRE D RE VE NUE AND PROVISIONS , NE T OF CURRE NT

P OR TION

This line item includes the non-current portion of deferred upfront pay-
ments from customers in accordance with IAS 18.13 and non-current pro-
visions for personnel expenses resulting from stock-based compensation

2 .9.5 C ONVE R TIBLE BONDS DUE TO RE L ATE D PAR TIES
The Group issued convertible bonds to the Management Board and to em-
ployees of the Group. In accordance with IAS 32.28, the equity component
of a convertible bond must be recorded separately under additional paid-in
capital. The equity component is determined by deducting the amount de-
termined for the liability component separately from the fair value of the
convertible bond. Any impact arising from the equity component is recog-
nized in profit and loss in personnel expenses resulting from share-based
payment, whereas any impact on profit and loss arising from the liability
component is recognized as interest expense. The Group applies the provi-
sions of IFRS 2 “Share-based Payment” for all convertible bonds granted
to the Management Board and the Group’s employees.

2 .9.6 DE FE RRE D TA X LIABILITIE S
The recognition and measurement of deferred taxes are based on the pro-
visions of IAS 12. Deferred tax assets and liabilities are calculated using
the liability method, which is common practice internationally. Under this
method, the taxes expected to be paid or recovered in subsequent finan-
cial years are based on the applicable tax rate at the time of recognition.

Deferred tax assets and liabilities are recorded separately in the balance
sheet. Deferred tax liabilities take into account the future tax effects of
temporary differences between the valuation of assets and liabilities in the
balance sheet and tax loss carryforwards.

Deferred tax assets are offset against deferred tax liabilities if the taxes
are levied by the same taxation authority and have matching terms. Pur-
suant to IAS 12, deferred tax assets and liabilities may not be discounted.

2 .9.7 LIABILITIES OF DISP OSAL GROUP CL AS SIFIE D AS HE LD FOR SALE
These liabilities are related to the sale of the AbD Serotec business seg-
ment. The agreement was signed on 16 December 2012 and the closing of
the transaction was on 10 January 2013. Although the sale of the business
segment is no longer subject to the 2013 financial statements, the item is
provided for information purposes. Liabilities are recognized at the lower
of fair value and redemption amount.

2 .9.8 STO CKHOLDE RS ’ EQUIT Y

C O M M O N STO C K
Ordinary shares are classified as stockholders’ equity. Incremental costs
directly attributable to the issuance of ordinary shares and stock options
are recognized as a deduction from equity, net of any tax effects. When
common stock which was recorded as stockholders’ equity is repurchased,
the amount of consideration paid, including directly attributable costs, is
recognized as a deduction from stockholders’ equity, net of taxes, and is
classified as treasury shares. When treasury shares are subsequently sold
or reissued, the proceeds are recognized as an increase in stockholders’
equity, and the profit or loss resulting from the transaction is offset
against accumulated income.

T RE ASU RY STO C K
The repurchase of own shares at the price quoted on an exchange or at
market value is recorded in this line item.

financial statementsNotes118

A D DIT I O N A L PA ID - IN CA PI TA L
Additional paid-in capital primarily includes personnel expenses result-
ing from the granting of stock options, convertible bonds, and perfor-
mance shares and the proceeds from newly created shares in excess of
their nominal value.

RE VA LUAT I O N RESERV E
The revaluation reserve mainly consists of unrealized gains and losses on
available for sale securities, which are measured directly in equity until
they are sold.

T R A NS L AT I O N RESERV E
The translation reserve comprises all foreign exchange differences which
are not recognized in profit and loss.

AC C U M U L AT ED IN C O ME
The “accumulated income” line item comprises the accumulated consoli-
dated net profits/losses. A separate measurement of this item is not con-
ducted.

segment Reporting

MorphoSys Group applies IFRS 8 “Segment Reporting” (in effect as of 1
January 2009). An operating segment is defined as a component of an en-
tity that engages in business activities from which it may earn revenues
and incur expenses and whose operating results are regularly reviewed
by the entity’s chief operating decision maker and for which discrete fi-
nancial information is available.

Segment information is presented with respect to the Group’s operating
segments. The operating segments are based on the Group’s management
and internal reporting structures. The segment results and segment as-
sets include items that can be either directly attributed to the individual
segment or can be allocated to the segments on a reasonable basis. Inter-
company pricing is determined on an arm’s length basis according to a
Group policy.

The Management Board determines the economic success of the segments
based on key figures which are chosen to include all income and expenses.
The EBIT, the operating earnings before interest and taxes, is the key
benchmark for measuring and evaluating the operating results. The EBIT
margin reflects the ratio of EBIT to revenues.

for the twelve-month Period ended 31 December

(in 000’s €)

External Revenues
Intersegment Revenues

RE vENUES , ToTAl
Cost of Goods Sold
Other Operating Expenses
Inter-segment Costs

ToTAl opER ATIN g E xpENSES
Other Income
Other Expenses

SEg MENT EB IT
Finance Income
Finance Expenses
Other Income from Sale of Assets and Liabilities of Disposal Group Classified as Held for Sale

pRofIT BEfoRE TA xES
Income Tax (Expenses)/Income

Income Tax Expenses in connection with the Sale of Assets and Liabilities
of the Disposal Group Classified as Held for Sale

NE T pRofIT/(loS S)
Current Assets
Non-current Assets
ToTAl SEg MENT AS SE T S 1
Current Liabilities
Non-current Liabilities
Stockholders’ Equity

ToTAl SEg MENT lIAB IlITIES AND EQUIT Y
Capital Expenditure
Depreciation and Amortization

Partnered Discovery

2013

2012

Proprietary Development
2012

2013

Unallocated

elimination

Group

Discontinued operations

continuing operations

2013

2012

2013

2012

2013

2012

2013

2012

thereof from

51,044
0
51,044
0
25,537
0
25,537
80
227
25,360
0
0
0
25,360
0

0
25,360
24,036
19,807
43,843
3,681
5,283
0
8,964
1,883
3,291

44,667
0
44,667
0
21,738
43
21,781
131
0
23,017
0
0
0
23,017
0

0
23,017
20,707
21,621
42,328
3,554
5,915
0
9,469
794
3,534

26,909
0
26,909
0
27,500
0
27,500
129
0
(462)
0
0
0
(462)
0

0
(462)
2,783
15,601
18,384
23,436
53,885
0
77,321
3,150
1,010

6,988
0
6,988
0
18,127
0
18,127
187
0
(10,952)
0
0
0
(10,952)
0

0
(10,952)
704
14,519
15,223
3,779
0
0
3,779
614
1,106

78,563

69,607

17,690

77,960

51,917

(16,626)

(10,128)

1,937

(1,652)

9,924

2,493

70,187

67,848

2,265

18,093

67,922

49,755

610

158

16,992

17,150

600

686

867

115

8,001

(7,873)

(3,345)

(358)

(11,576)

379,749

5,681

385,430

8,290

936

352,146

361,372

530

534

17,952

17,995

6,238

21,745

27,983

102

242

670

196

(9,654)

(469)

(10,123)

132,302

34,435

166,737

7,910

1,120

202,010

211,040

899

1,670

(43)

78,563

158

70,029

8,272

809

913

867

115

8,001

17,025

(3,345)

(358)

13,322

406,568

41,089

447,657

35,407

60,104

352,146

447,657

5,563

4,835

69,607

6,238

61,610

420

242

670

196

2,411

(469)

1,942

153,713

70,575

224,288

15,243

7,035

202,010

224,288

2,307

6,310

2013

603

158

2,107

8,001

6,344

(35)

(358)

5,951

17,690

6,238

11,855

157

(556)

(642)

217

(425)

10,855

30,001

40,856

3,325

407

3,732

542

1,060

77,960

51,917

67,922

49,755

797

911

867

110

10,681

(3,310)

7,371

406,568

41,089

447,657

35,407

60,104

352,146

447,657

5,557

4,813

416

659

3,053

(686)

2,366

142,858

40,574

183,433

11,918

6,628

202,010

220,556

1,765

5,250

1 The difference of € 40.9 million between the total assets of the reportable segments in 2012 and the total assets in the balance sheet originated from the assets held for sale

of discontinued operations (see also item 5.10 of the Notes).

financial statementsNotes

119

The Group consists of the following operating segments.

3.1 P aR t neReD Di s coVeRY
MorphoSys possesses one of the leading technologies for the generation of
therapeutics based on human antibodies. The Group markets this technol-
ogy commercially via partnerships with numerous pharmaceutical and
biotechnology companies. This segment encompasses all operational ac-
tivities relating to these commercial agreements, as well as the majority of
the technological development.

3.2 PRoPRie taRY DeVel oPmen t
This segment comprises all of the activities relating to the proprietary
development of therapeutic antibodies. Presently, the activities of this seg-
ment comprise the clinical development of the proprietary program
MOR208, the co-development of MOR202 with Celgene, as well as the com-
pleting clinical development of the program MOR103 within the coopera-
tion with GSK. In addition, MorphoSys is pursuing further programs in
earlier stages in proprietary development or as co-development.

3.3 aBD seRo t ec
Until the sale of substantially all of the AbD Serotec business on 10 Janu-
ary 2013 to Bio-Rad came into effect, the AbD Serotec segment utilized the
HuCAL technology for the tailored generation of research antibodies and
generated revenues with catalogue antibodies and the production of anti-
bodies in industrial quantities. With the disposal of substantially all of the
segment, the quantitative and qualitative criteria of IFRS 8.12 f. are no
longer fulfilled so that this segment is no longer a reportable segment
under IFRS 8.11. The results generated by the AbD Serotec segment until
10 January 2013 were reclassified to “Unallocated”. The previous year’s
figures were adjusted accordingly for comparative purposes.

3. 4 cRo ss -seGmen t Di s cl o sURe s
In case of cross-segment disclosures, segment revenues are based on the
customers’ geographical locations. The information on segment assets is
based on the relevant location of the assets.

for the twelve-month Period ended 31 December

Partnered Discovery

Proprietary Development

2013

2012

2013

Unallocated
2013

elimination

Group

2012

2013

2012

2013

2012

610
0
610
158
16,992
0
17,150
600
686
(16,626)
867
115
8,001
(7,873)
(3,345)

(358)
(11,576)
379,749
5,681
385,430
8,290
936
352,146
361,372
530
534

17,952
43
17,995
6,238
21,745
0
27,983
102
242
(10,128)
670
196
0
(9,654)
(469)

0
(10,123)
132,302
34,435
166,737
7,910
1,120
202,010
211,040
899
1,670

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
(43)
(43)
0
0
(43)
(43)
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0

78,563
0
78,563
158
70,029
0
70,187
809
913
8,272
867
115
8,001
17,025
(3,345)

(358)
13,322
406,568
41,089
447,657
35,407
60,104
352,146
447,657
5,563
4,835

69,607
0
69,607
6,238
61,610
0
67,848
420
242
1,937
670
196
0
2,411
(469)

0
1,942
153,713
70,575
224,288
15,243
7,035
202,010
224,288
2,307
6,310

(in 000’s €)

External Revenues

Intersegment Revenues

RE vENUES , ToTAl

Cost of Goods Sold

Other Operating Expenses

Inter-segment Costs

ToTAl o pER ATIN g E xpENSES

Other Income

Other Expenses

SE g MENT EB IT

Finance Income

Finance Expenses

pRofIT BE foRE TA xES

Income Tax (Expenses)/Income

NE T pRof IT/(loS S)

Current Assets

Non-current Assets

ToTAl SE g MENT AS SE T S 1

Current Liabilities

Non-current Liabilities

Stockholders’ Equity

ToTAl SEg MENT lIAB I lITIES AND EQUIT Y

Capital Expenditure

Depreciation and Amortization

51,044

44,667

26,909

51,044

44,667

26,909

6,988

21,738

21,781

131

27,500

18,127

27,500

129

18,127

187

25,360

23,017

(462)

(10,952)

23,017

20,707

21,621

42,328

3,554

5,915

9,469

794

3,534

(462)

2,783

15,601

18,384

23,436

53,885

77,321

3,150

1,010

(10,952)

704

14,519

15,223

3,779

614

1,106

25,537

227

25,360

24,036

19,807

43,843

3,681

5,283

8,964

1,883

3,291

2012

6,988

Other Income from Sale of Assets and Liabilities of Disposal Group Classified as Held for Sale

25,360

23,017

(462)

(10,952)

Income Tax Expenses in connection with the Sale of Assets and Liabilities

of the Disposal Group Classified as Held for Sale

1 The difference of € 40.9 million between the total assets of the reportable segments in 2012 and the total assets in the balance sheet originated from the assets held for sale

of discontinued operations (see also item 5.10 of the Notes).

thereof from
Discontinued operations
2012

2013

thereof from
continuing operations

2013

2012

603
0
603
158
2,107
0
2,265
12
2
(1,652)
0
5
8,001
6,344
(35)

(358)
5,951
0
0
0
0
0
0
0
6
22

17,690
0
17,690
6,238
11,855
0
18,093
4
157
(556)
11
97
0
(642)
217

0
(425)
10,855
30,001
40,856
3,325
407
0
3,732
542
1,060

77,960
0
77,960
0
67,922
0
67,922
797
911
9,924
867
110
0
10,681
(3,310)

0
7,371
406,568
41,089
447,657
35,407
60,104
352,146
447,657
5,557
4,813

51,917
0
51,917
0
49,755
0
49,755
416
85
2,493
659
99
0
3,053
(686)

0
2,366
142,858
40,574
183,433
11,918
6,628
202,010
220,556
1,765
5,250

financial statementsNotes

120

The segment result is defined as segment revenues less the segment’s op-
erating expenses. The Partnered Discovery segment provided a compen-
satory payment in 2012 in the amount of € 0.04 million to the AbD Serotec
segment as compensation for therapeutic revenues from contracts that
were originally initiated by the AbD Serotec segment. This payment was
based on a revenue sharing agreement concluded between the two seg-
ments in 2007. In the period ending on 10 January 2013, there was no such
compensatory payment. In financial year 2013, impairments totaling € 1.6
million were recognized. Of this amount, € 1.0 million was attributable to
the Proprietary Development segment and € 0.6 million to the Partnered
Discovery segment (2012: impairment of € 0.2 million in the Proprietary
Development segment).

The Group’s key customers are assigned to the Partnered Discovery seg-
ment as well as the Proprietary Development segment. As of 31 December
2013, the most important single customer accounted for a carrying amount
of € 8.2 million of total accounts receivables (31 December 2012: € 8.3 mil-
lion). Three individual customers of the Group who are predominantly as-
signed to the Proprietary Development segment, contributed € 41.6 mil-
lion, € 21.3 million, and € 6.0 million to total revenues in 2013. In 2012,
three customers mainly assigned to the Partnered Discovery segment ac-
counted for € 47.3 million, € 1.7 million, and € 1.5 million of the Group’s
total revenues.

In 2013, “unallocated” other operating expenses primarily included per-
sonnel expenses (2013: € 9.2 million; 2012: € 6.1 million), costs for
external services (2013: € 3.0 million; 2012: € 2.2 million), and costs for
infrastructure (2013: € 1.2 million; 2012: € 1.2 million). Current assets
categorized as “unallocated” mainly composed of cash and cash equiva-
lents, securities and bonds available for sale, as well as other receivables
(31 December 2013: € 377.5 million; 2012: € 107.9 million). Current liabili-
ties categorized as “unallocated” included mainly accounts payable and
accrued expenses (31 December 2013: € 5.4 million; 31 December 2012:
€ 4.3 million) as well as provisions (31 December 2013: € 2.9 million; 31
December 2012: € 0.2 million).

The following overview shows the regional distribution of the Group’s rev-
enues.

in 000’s €

Germany
Europe and Asia
USA and Canada
Other
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

2013

4
69,140
8,816
0
77,960

603
78,563

2012

0
49,203
2,714
0
51,917

17,690
69,607

There were no revenues from Asia in 2013 (2012: 1 %).

The following overview shows the regional distribution of the Group’s non-
current assets, excluding deferred tax assets.

in 000’s €

12/31/2013

12/31/2012

Germany
UK
USA
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

40,776
0
0
40,776

0
40,776

40,574
0
0
40,574

29,884
70,458

The following overview shows the regional distribution of the Group’s in-
vestments.

in 000’s €

Germany
UK
USA
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

2013

5,554
0
0
5,554

6
5,560

2012

1,765
0
0
1,765

542
2,307

notes to the income statement

4 .1 ReVenUe s
2013, revenues from continuing operations included license fees and mile-
stone payments totaling € 57.8 million (2012: € 25.0 million). The Part-
nered Discovery segment contributed revenues of € 31.4 million (2012:
€ 24.8 million), and the Proprietary Development segment contributed
revenues of € 26.4 million (2012: € 0.0 million). In 2012, an amount of € 0.3
million was attributable to the continuing operations of the AbD Serotec
segment.

Of the service fees totaling € 20.2 million (2012: € 26.9 million), an amount
of € 19.6 million (2012: € 19.9 million) was attributable to the Partnered
Discovery segment, whereas an amount of € 0.5 million (2012: € 7.0 mil-
lion) was attributable to the Proprietary Development segment. The 2012
revenues of the Proprietary Development segment had included a one-off
payment from Novartis.

Revenues of the discontinued operations of the AbD Serotec segment
amounted to € 0.6 million until 10 January 2013 (2012: € 17.7 million).

financial statementsNotes121

4 .2 oPeRat inG eXPense s

4.2 .1 C OST OF GO ODS SOLD
Cost of goods sold comprises the production costs of the manufactured
goods and the acquisition costs of purchased and sold goods. No costs have
been reported in the financial year since all of the cost of goods sold had
resulted from the discontinued operation of the AbD Serotec segment (see
items 2.7.2 and 4.5 of the Notes*).
*c R o s s - R e f e R e n c e t o pa g e 1 1 3 a n d pa g e 1 2 4

4.2 .2 RESE ARCH AND DE VE LOPME NT
Research and development expenses include the following items.

2013

21,218
2,157
2,312

5,070
14,137

4,258
49,152

6
49,158

in 000’s €

Personnel Expenses
Consumable Supplies
Other Operating Expenses

Amortization and Other Costs
of Intangible Assets
External Services

Depreciation and Other Costs
for Infrastructure
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

in million €

R&D Expenses on behalf of Partners
Proprietary Development Expenses
Technology Development Expenses

R&D ToTAl

2012

17,800
1,550
1,440

5,091
7,887

3,905
37,673

1,845
39,518

2013

17.5
27.5
4.2
49.2

2012

16.0
18.1
3.6
37.7

2011

19.1
33.9
2.9
55.9

2010

2009

18.9
25.9
2.1
46.9

19.2
19.1
0.7
39.0

financial statementsNotes4.2 .3 SE LLING , GE NE R AL , AND ADMINISTR ATIVE
Selling, general, and administrative expenses include the following items.

in 000’s €

Personnel Expenses
Consumable Supplies
Other Operating Expenses

Amortization and Other Costs
of Intangible Assets
External Services

Depreciation and Other Costs
for Infrastructure
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

2013

11,282
29
1,219

972
4,072

1,196
18,770

2,101
20,871

4.2 .4 PE RSONNE L E XPE NSE S
Personnel expenses include the following items:

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

2013

23,327
3,288
5,145
647
93
32,500

523
33,023

2012

7,410
70
846

416
2,153

1,187
12,082

10,010
22,092

2012

20,159
3,226
1,291
424
284
25,384

7,902
33,286

122

not allocated to any specific segment (31 December 2012: 184 employees
in the Partnered Discovery segment, 54 in the Proprietary Development
segment, 135 in the AbD Serotec segment; and 48 employees were not al-
located). Costs for the defined-contribution plans amounted to € 0.3 mil-
lion in 2013 (2012: € 0.3 million).

As a result of the agreement with Bio-Rad for the acquisition of the discon-
tinued operations, the number of Group employees decreased by 135 em-
ployees in 2013.

4 .3

o t HeR income anD eXPense s, f inance income anD
f inanc e eXPense s

The item “other income and expenses, finance income and finance ex-
penses” includes the following items.

in 000’s €

2013

2012

Grant Income
Gain on Exchange
Miscellaneous Income
Other Income
Loss on Exchange

Impairment of Accounts
Receivable
Repayment of Grant Income
Miscellaneous Expenses
Other Expenses
Gain on Marketable Securities
Interest Income
Finance Income
Interest Expenses
Loss on Derivatives
Bank Fees
Finance Expenses
Total from Continuing Operations

Total from Discontinued
Operations

209
130
458
797
(359)

(239)
(101)
(212)
(911)
521
347
868
(22)
(33)
(56)
(111)
643

5
648

277
94
45
416
(66)

0
0
(19)
(85)
481
178
659
(8)
(41)
(50)
(99)
891

(239)
652

In 2013 and 2012, other personnel expenses mainly included recruitment
costs.

ToTAl

The average number of employees during the financial year 2013 was 290
(2012: 422). Of the 299 employees engaged on 31 December 2013, 253
employees were active in research and development (31 December 2012:
278) and 46 employees were engaged in selling, general, and administra-
tive functions (31 December 2012: 143 employees). On 31 December 2013,
there were 193 employees in the Partnered Discovery segment and 60
employees in the Proprietary Development segment; 46 employees were

income taX eXPense s/ income

4 .4
MorphoSys AG and its German subsidiaries MorphoSys IP GmbH and
Sloning BioTechnology GmbH, are subject to corporate taxes, solidarity
surcharge, and trade taxes. The Company’s corporate tax rate of 15 %, soli-
darity surcharge of 5.5 %, and effective trade tax rate of 10.5 % have all re-
mained unchanged.

financial statementsNotes123

The income tax of the continuing operations for the past financial year is
comprised as follows.

in 000’s €1

in 000’s €

2013

2012

Current Tax Expense (Thereof
Regarding Prior Years: k€ 60;
2012: Tax Income of k€ 12)
Deferred Tax Income
Total Income Tax

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

Total Amount of Current Taxes
Resulting from Entries Directly
Recognized in Other Comprehen-
sive Income

Total Amount of Deferred Taxes
Resulting from Entries Directly
Recognized in Other Comprehen-
sive Income

Total Amount of Tax-Effects
Resulting from Entries Directly
Recognized in Equity or Other
Comprehensive Income

(3,753)
443
(3,310)

611

(260)

(1,064)
378
(686)

159

(212)

510

(212)

In 2013, a tax effect in the amount of € 0.6 million was directly recorded
in equity for costs in connection with the capital increases in an amount
of € 2.3 million which were, pursuant to IFRS, deducted from equity.

Deferred tax liabilities in the amount of € 0.1 million (2012: € 0.2 million)
were recorded in other comprehensive income. This amount is substan-
tially connected with the revaluation of available for sale financial instru-
ments. Furthermore, current taxes in the amount of € 0.3 million and de-
ferred tax assets in the amount of € 0.3 million were recorded in other
comprehensive income. These items relate to a tax adjustment item for
accumulating income from available for sale financial instruments.

The following table reconciles the expected income tax expense to the ac-
tual income tax expense as presented in the consolidated financial state-
ments. The combined income tax rate of 26.33 % in financial year 2013
(2012: 26.33 %) was applied to profit before taxes to calculate the statutory
income tax expense. This tax rate includes, in addition to 15.00 % corpo-
rate income tax, the solidarity surcharge of 5.50 % on the corporate tax,
and the average trade tax of 10.50 % applicable to the MorphoSys Group.

Profit Before Income Taxes
Expected Tax Rate
Expected Income Tax
Tax Effects Resulting from:

Deferred Tax Asset on Tax Loss
Carry-forwards
Stock-based Compensation
Non-tax-deductible Items

Permanent differences due to
tax-exempts
Tax Rate Differences

Release of DTL Arising from
Temporary Differences
Prior Year Taxes
Other Effects
Actual Income Tax

2013

10,681
26.33 %
(2,812)

200
(533)
(160)

1
0

0
(40)
34
(3,310)

2012

3,051
26.33 %
(803)

317
(110)
(125)

0
(19)

49
12
(7)
(686)

1 Reconciliation of the income tax rate for continuing operations

MorphoSys AG was subject to tax audits for financial years 2004 to 2007.
Tax loss carryforwards have been confirmed in their recognized amount.

As of 31 December 2013, deferred tax assets on tax loss carryforwards in
the amount of € 1.8 million were recognized as a result of positive busi-
ness expectations at Sloning BioTechnology GmbH for financial years 2014
to 2018. No deferred tax assets were reported for a portion of the corporate
tax loss carryforwards in the amount of € 2.4 million and trade tax loss
carryforwards in the amount of € 2.3 million as the usability of these tax
loss carryforwards is deemed uncertain with regard to German tax regu-
lation (Sec. 8 para. 4 of the German Corporation Tax Act (KStG-former
version) and Sec. 8c of the German Corporation Tax Act (KStG)) (see also
item 2.9.6 of the Notes*). The tax loss carryforwards may be carried for-
ward indefinitely and in unlimited amounts. As of 2004, German tax law
restricts the offsetting of taxable income against existing tax loss carry-
forwards to an amount of € 1.0 million plus 60 % of taxable income exceed-
ing € 1.0 million.
*c R o s s - R e f e R e n c e t o pa g e 1 1 7

financial statementsNotes

124

Deferred tax assets and liabilities for the continuing operations are com-
posed as follows.

in 000’s €, as of December 31

Dta 2013

Dta 2012

Dtl 2013

Dtl 2012

Intangible Assets
Non-recognition of DTA on Intangible Assets
Property, Plant and Equipment
Land
Building
Other Equipment, Furniture, Fixtures
Shares in Affiliated Companies
Inventories
Advanced Payments
Receivables and Other Assets
Treasury Stock
Prepaid Expenses and Deferred Charges
Short-term Securities Investments
Other Accrual/Provisions
Trade Accounts Payable
Bonds, thereof Convertible
Other Liabilities
Tax Losses

0
0
0
0
0
43
0
0
0
0
0
0
260
428
0
0
0
1,731
2,462

0
0
0
0
0
93
0
0
0
0
0
0
0
0
0
0
0
2,015
2,108

As of 31 December 2013, deferred tax liabilities of € 2.1 million were offset
against deferred tax assets. In 2012, deferred tax assets of € 2.1 million
were offset against deferred tax liabilities. The corresponding deferred tax
assets and deferred tax liabilities concerned the same taxable entity and
were imposed by the same tax authority.

As of 31 December 2013, there were no temporary differences in connec-
tion with investments in subsidiaries (so-called outside basis differences),
which could have resulted in deferred tax liabilities.

4 .5 PRof i t/ l o ss f Rom Di s con t inUeD oPeRat ions
As of 31 December 2013, there are no reportable matters with regard to
IFRS 5.

On 16 December 2012, MorphoSys AG and Bio-Rad agreed upon the acqui-
sition of substantially all of the research and diagnostic antibodies seg-
ment of AbD Serotec. In accordance with IFRS 5, the AbD Serotec seg-
ment’s result from operating activities was recorded in the results from
discontinued operations. The previous year’s figures of the income state-
ment and segment report have been adjusted accordingly. The closing of
this transaction took place on 10 January 2013.

The profit/loss from discontinued operations relates to the AbD Serotec
business and is composed as follows.

in 000’s €

Revenues
Cost of Goods Sold
Research and Development
Selling, general and Administrative
Total Operating Expenses
Other Income/(Expenses)

Earnings before Interest
and Taxes (EBIT)
Finance Income/(Expenses)

Other Income from Sale of Assets
and Liabilities of Disposal Group
Classified as Held for Sale
Profit/(Loss) before Taxes

Income Tax (Expenses)/Income
from Discontinued Operations

Income Tax Expenses in connec-
tion with the Sale of Assets and
Liabilities of the Disposal Group
Classified as Held for Sale

Profit/(Loss) for the Year from
Discontinued Operations

2,049
0
0
0
0
0
0
0
0
0
0
0
100
0
0
0
0
0
2,149

2013

603
158
6
2,101
2,265
10

(1,652)
(5)

8,001
6,344

(35)

(358)

5,951

2,373
0
0
0
0
0
0
0
0
0
0
3
184
0
0
0
0
0
2,560

2012

17,690
6,238
1,845
10,010
18,093
(153)

(556)
(85)

0
(641)

217

(424)

financial statementsNotes
125

The disposal profit less transaction costs is composed as follows.

The weighted average number of ordinary shares was calculated as follows.

in 000’s €

Cash and Cash Equivalents
Inventories, Net
Other Current Assets
Goodwill
Property, Plant and Equipment, Net
Intangible Assets, Net
Other Non-current Assets
Accounts Payable and Accrued Expenses
Other Current Liabilities
Deferred Tax Liabilities
Foreign Currency Effects Previously Recognized in Equity
Net Assets

Purchase Price in Cash (without License Payment)
Open Receivable (Escrow Account)
Transaction Costs
Purchase Price, Net of Transaction Costs

Purchase Price in Cash
Transferred Cash and Cash Equivalents
Net Cash-Inflow

Disposal Profit
Disposal Profit after Deduction of Transaction Costs

2013

5,560
2,763
2,920
26,788
1,519
1,528
168
(2,490)
(933)
(427)
1,427
38,823

42,141
4,682
(1,816)
45,007

42,141
(5,560)
36,581

8,001
6,184

2013

2012

SHARES IS SUED oN JANUARY, 1
Effect of Treasury Shares Held

23,358,228
(255,415)

23,112,167
(163,915)

Effect of Repurchase of
Treasury Stock
Effect of Share Issuance
Effect of Shares Issued in January
Effect of Shares Issued in February
Effect of Shares Issued in March
Effect of Shares Issued in April
Effect of Shares Issued in May
Effect of Shares Issued in June
Effect of Shares Issued in July
Effect of Shares Issued in August
Effect of Shares Issued in September
Effect of Shares Issued in October
Effect of Shares Issued in November
Effect of Shares Issued in December

WEIg HTED - AvER Ag E NUMBER
of SHARES of C oMMoN STo CK

(56,458)
1,242,621
0
0
0
0
0
21,567
170,075
9,502
1,492
1,884
9,662
873

(64,813)
0
15,731
19,313
3,579
45,087
0
16,860
447
336
14,495
3,341
620
1,645

24,504,031

23,004,894

Diluted earnings per share is calculated by taking into account the poten-
tial increase in the Group’s ordinary shares as the result of granted stock
options and convertible bonds.

4 .6 eaRninGs/cons ol iDat eD ne t PRof i t PeR sHaRe
Basic earnings per share is computed by dividing the consolidated net
profit of financial year 2013 in the amount of € 13,321,930 (2012:
€ 1,942,145) by the weighted average number of ordinary shares outstand-
ing during the year (2013: 24,504,031; 2012: 23,004,894).

financial statementsNotes

126

The following table shows the reconciliation of basic and diluted earnings
per share (in €, except for disclosure per share).

notes to the assets of the
Balance sheet

5.1. c asH anD c asH eQUiVal en t s

Numerator

Profit for the Year from Continuing
Operations

(Loss)/Profit for the Year from
Discontinued Operations
Consolidated Net Profit
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

2013

2012

7,370,820

2,366,263

5,951,110
13,321,930

(424,118)
1,942,145

24,504,031

23,004,894

204,132

259,063
24,763,094

51,334
23,260,360

0.54

0.30

0.24
0.54

0.30

0.24

0.08

0.10

(0.02)
0.08

0.10

(0.02)

in 000’s €

12/31/2013

12/31/2012

Bank Balances and Cash in Hand
Term Deposits
Restricted Cash
Total from Continuing Operations

Total from Discontinued
Operations
Cash and Cash Equivalents

71,874
964
(964)
71,874

0
71,874

40,690
984
(984)
40,690

5,281
45,971

The increase in cash and cash equivalents resulted mainly from the trans-
actions with GlaxoSmithKline and Celgene and the capital increase in
September 2013 as well as from the sale of substantially all of the AbD
Serotec segment.

Restricted cash in the amount of € 1.0 million consists of rent deposits
(2012: € 1.0 million).

financial statementsNotes

127

f inanc ial asse t s/secURi t ie s

5.2
As of 31 December 2013 and 2012, available for sale financial assets are
comprised as follows.

in 000’s €

31 DECEMBER 2013
Money Market Funds
Restricted Cash

ToTAl
31 DECEMBER 2012
DB Money Cash
Restricted Cash

ToTAl

maturity

cost

Gains

losses

market Value

Gross Unrealized Holding

daily

188,305

daily

79,345

378

699

188,683
(323)
188,360

80,044
(322)
79,722

The Group’s gross unrealized holding gains in the amount of € 377,872 as
of 31 December 2013 and € 698,848 as of 31 December 2012, respectively,
were recorded as a separate item within stockholders’ equity (revaluation
reserve). In 2013, the Group recorded a gain in the amount of € 520,730
from the disposal of financial assets in the income statement, which was
previously recognized in stockholders’ equity (2012: € 480,912). Re-
stricted cash in the amount of € 0.3 million consisted of rent deposits
(2012: € 0.3 million).

As of 31 December 2013 and 2012, bonds available for sale were comprised
as follows.

in 000’s €

31 DECEMBER 2013
Bonds

ToTAl
31 DECEMBER 2012
Bonds

ToTAl

maturity

cost

Gains

losses

market Value

Gross Unrealized Holding

daily

11,139

11,102
11,102

0
0

The Group’s gross unrealized holding losses of € 41,750 as of 31 December
2013 with regard to bonds available for sale and the unrealized holding
gross profit of € 5,095 were recorded as a separate item within stockhold-
ers’ equity (revaluation reserve). In 2013, the Group did not report any
gains or losses in the income statement from these financial assets since
no assets were sold.

Further information on the accounting of financial assets is provided in
item 2.8.1 of the Notes*.
*c R o s s - R e f e R e n c e t o pa g e 1 1 4

financial statementsNotes

128

5.3 accoUn t s ReceiVaBl e
All accounts receivable are non-interest bearing and generally have pay-
ment terms of between 30 and 45 days. As of 31 December 2013 and
2012, accounts receivable included unbilled receivables amounting to
€ 1,597,498 and € 1,592,679, respectively. In some cases, the Group agreed
with its customers on the collateral for the discontinued operations of the
AbD Serotec segment in order to avoid outstanding receivables. As of 10
January 2013, this amount was insignificant.

Based on the Management Board’s estimate, a net loss of € 238,900 for
allowances for doubtful receivables was recognized in profit and loss in
2013 (2012: net loss of € 60,119). In 2013, this loss was attributed to the
Partnered Discovery segment and in 2012 to discontinued operations.

5.4 o t HeR ReceiVaBl e s
In accordance with the Group’s hedging policy, highly probable cash flows
and definite foreign-currency receivables, which are collectable within a
twelve-month period, are tested as to whether they should be hedged. As
of 2003, MorphoSys started entering into foreign currency options and
forwards in order to hedge its foreign exchange risk against US dollar re-
ceivables. These derivatives are recorded as “other receivables” at their
fair values.

As of 31 December 2013, the Company held financial assets amounting to
€ 119.3 million (31 December 2012: € 10.0 million) which were allocated to
the category “loans and receivables” in accordance with IAS 39 “Financial
Instruments”. These include various investments (€ 114.6 million) and an
amount of € 4.7 million of the purchase price for the divested AbD Serotec
business held in an escrow account. Interest income of € 273,207 (2012:
€ 82,534) is recognized in the finance result. The risks associated with
these financial instruments mainly result from credit risks of banks.
There was no indication of impairment in financial year 2013.

As of 31 December 2013 and 2012, no unsettled option contracts were
outstanding. Therefore, there were no unrealized gains or losses recog-
nized in profit and loss in both 2013 and 2012. At the beginning of the
year, the Group entered into two option contracts reaching maturity dur-
ing financial year 2013. A realized loss of € 0.02 million (2012: loss of
€ 0.04 million) was recorded in finance expenses.

5.5

PReP aiD eXPense s, income taX ReceiVaBl e s, o t HeR
cURRen t asse t s, anD inVen t oRie s

As of 31 December 2013, prepaid expenses consisted of prepaid fees for
sublicenses amounting to € 0.1 million (31 December 2012: € 0.1 million)
and other prepayments amounting to € 3.2 million (31 December 2012:
€ 1.3 million).

As of 31 December 2013, tax receivables amounted to € 0.7 million (31
December 2012: € 0.1 million) and comprised mainly receivables in con-
nection with capital gains taxes withheld. Discontinued operations re-
corded tax receivables in the amount of € 0.3 million for the 2012 financial
year.

Inventories amounting to € 0.7 million as of 31 December 2013 were
stored at the Martinsried location. As of 31 December 2013, inventories
consisted of raw materials and supplies of € 0.6 million and work in prog-
ress of € 0.2 million. As in the previous year, there were no inventories
carried at fair value less selling costs at the reporting date.

Inventories amounting to € 0.8 million as of 31 December 2012 were
stored at the Martinsried location. As of 31 December 2012, inventories
consisted of raw materials and supplies of € 0.6 million and work in prog-
ress of € 0.2 million.

financial statementsNotes129

5.6 PRoPeR t Y, Pl an t, anD eQUiPmen t

in 000’s €

Cost
1 JANUARY 2013
Additions
Disposals
31 DECEMBER 2013

Accumulated Depreciation
1 JANUARY 2013
Depreciation Charge for the Year
Write-offs for the Year
Disposals
31 DECEMBER 2013

Carrying Amount
1 JANUARY 2013
31 DECEMBER 2013

Cost
1 JANUARY 2012
Additions
Disposals
Foreign Exchange Variance
Reclassification to Assets of Disposal Group Classified as Held for Sale
31 DECEMBER 2012

Accumulated Depreciation
1 JANUARY 2012
Depreciation Charge for the Year
Write-offs for the Year
Disposals
Foreign Exchange Variance
Reclassification to Assets of Disposal Group Classified as Held for Sale
31 DECEMBER 2012

Carrying Amount
1 JANUARY 2012
31 DECEMBER 2012

land and
Buildings

office and
laboratory
equipment

furniture

and fixtures

0
0
0
0

0
0
0
0
0

0
0

1,191
15
0
25
(1,231)
0

452
83
0
0
10
(545)
0

739
0

12,436
1,004
(1,279)
12,161

9,485
1,435
522
(1,269)
10,173

2,951
1,988

15,071
980
(420)
18
(3,213)
12,436

10,273
2,027
178
(418)
14
(2,589)
9,485

4,798
2,951

1,892
39
(64)
1,867

1,651
84
16
(64)
1,687

241
180

2,650
21
(51)
5
(733)
1,892

2,081
139
0
(51)
7
(525)
1,651

569
241

total

14,328
1,043
(1,343)
14,028

11,136
1,519
538
(1,333)
11,860

3,192
2,168

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

financial statementsNotes

130

In financial year 2013, impairment of property, plant, and equipment
amounted to € 0.5 million (2012: € 0.2 million) and related to laboratory
equipment in the Partnered Discovery segment. The impairment was
caused by the fact that there was no longer an economic benefit expected
from these assets. In financial year 2013, impairment in the amount of
€ 0.2 million was recognized, mainly for laboratory equipment which
could no longer be utilized as a result of the finalization of clinical trials
for the proprietary HuCAL antibody program MOR 103.

No borrowing costs were capitalized during the reporting period. There
were neither restrictions on retention of title nor property, plant and
equipment pledged as security for liabilities. The Group capitalized expen-
ditures for assets under construction in an insignificant amount. There
were no material contractual commitments for the purchase of property,
plant, and equipment as of the reporting date.

Depreciation is included in the following line items of the income state-
ment.

in 000’s €

Research and Development

Research and Development
(Write-off)
Selling, general and Administrative
Total from Continuing Operations

Profit/(Loss) for the Year from
Discontinued Operations

ToTAl

2013

1,155

538
364
2,057

13
2,070

2012

1,344

178
385
1,907

530
2,437

financial statementsNotes131

5.7

in tanGiBl e asse t s

in 000’s €

Patents

license
Rights

in-licensed
Research
Program

Know-how
and

software

customer list

Goodwill

total

Cost
1 JANUARY 2013
Additions
Disposals
31 DECEMBER 2013

Accumulated Depreciation
1 JANUARY 2013
Depreciation Charge for the Year
Write-offs for the Year
Disposals
31 DECEMBER 2013

Carrying Amount
1 JANUARY 2013
31 DECEMBER 2013

Cost
1 JANUARY 2012
Additions
Disposals
Foreign Exchange Variance

Reclassification to Assets
of Disposal Group Classified
as Held for Sale
31 DECEMBER 2012

Accumulated Depreciation
1 JANUARY 2012
Depreciation Charge for the Year
Disposals
Foreign Exchange Variance

Reclassification to Assets
of Disposal Group Classified
as Held for Sale
31 DECEMBER 2012

Carrying Amount
1 JANUARY 2012
31 DECEMBER 2012

14,902
568
0
15,470

6,236
1,075
324
0
7,635

8,666
7,835

14,659
245
(2)
0

0
14,902

5,200
1,036
0
0

0
6,236

9,459
8,666

24,410
591
0
25,001

17,281
1,576
747
0
19,604

7,129
5,397

25,207
91
(3)
19

(904)
24,410

15,655
2,146
(1)
9

(528)
17,281

9,552
7,129

10,513
2,295
0
12,808

0
0
0
0
0

10,513
12,808

10,513
0
0
0

0
10,513

0
0
0
0

0
0

10,513
10,513

3,350
1,061
(35)
4,376

1,999
640
15
(35)
2,619

1,351
1,757

2,884
956
(17)
5

(478)
3,350

1,828
486
(16)
5

(304)
1,999

1,056
1,351

0
0
0
0

0
0
0
0
0

0
0

5,525
0
0
49

7,352
0
0
7,352

0
0
0
0
0

7,352
7,352

34,107
0
0
34

60,528
4,515
(35)
65,008

25,516
3,291
1,086
(35)
29,858

35,012
35,150

92,895
1,292
(22)
107

(5,574)
0

(26,788)
7,353

(33,744)
60,528

4,184
382
0
30

(4,596)
0

1,341
0

0
0
0
0

0
0

34,107
7,353

26,867
4,050
(17)
44

(5,428)
25,516

66,028
35,012

financial statementsNotes

132

As of 31 December 2013, in-licensed research programs were subject to an
impairment test as required by IAS 36. This test did not reveal any impair-
ment.

5.7.5 KNOW - HOW AND CUSTOME R LIST S
Since the end of financial year 2012, no items were reported in the line
item know-how and customer lists.

Amortization is included in the following line items of the income state-
ment.

In the previous year, this line item’s residual carrying amount of € 1.0
million was allocated to assets of disposal group classified as held for sale
in the prior year.

5.7.6 G O ODWILL
On 30 September 2013, goodwill in the amount of € 7.4 million from the
acquisition of Sloning Bio Technology GmbH in the year 2010 was subject
to an impairment test as required by IAS 36. The recoverable amount of
the cash-generating unit, the team for technology development within the
Partnered Discovery segment, has been determined on the basis of value
in use calculations, whereby the value in use turned out to be higher than
the carrying amount of the cash-generating unit. In addition, a detailed
sensitivity analysis was performed (see item 2.4.4 of the Notes*). The cash
flow forecasts are based on a period of ten years, as the Management
Board believes that the commercialization by means of licensing agree-
ments, comprising upfront payments, milestone payments, funded re-
search, and royalties, will fully pay off in the medium to longer term. For
this reason, a planning horizon of ten years is considered appropriate for
the value in use calculation. Cash flow forecasts are mainly based on the
central assumption that the currently developed technology will prove to
be very beneficial for new and existing customers and will lead to a num-
ber of new agreements. The values of the underlying key assumptions
were determined using both internal (past experience) and external
sources of information (market information). On the basis of the updated
cash flow forecast for the next ten years, the value in use was determined
as follows: A beta factor of 1.3, a tax rate of 26.33 %, WACC of 9.8 % (2012:
8.26 %), as well as a perpetual growth rate of 1 %. The fair value assump-
tions correlate to the Management Board’s forecasts in term of future de-
velopment and are based on internal planning scenarios as well as exter-
nal sources of information.
*c R o s s - R e f e R e n c e t o pa g e 1 1 2

At the end of financial year 2013, an impairment test with respect to good-
will was not necessary with regard to the AbD Serotec segment since the
AbD Serotec business was sold in January 2013. The associated goodwill
was no longer part of MorphoSys Group as a result of the deconsolidation
in January 2013. The agreed purchase price had not led to any impairment
on 31 December 2012.

5.8 sHaRe s aVail aBl e f oR sal e
Shares available for sale comprise the 19.98 % share in Dutch Lanthio
Pharma B.V. The investment was increased in financial year 2013 by a
contribution in the amount of € 0.8 million to a total of € 1.7 million.

in 000’s €

Research and Development

Research and Development
(Write-off)
Selling, general and Administrative

Selling, general and Administrative
(Write-Off)
Cost of Goods Sold
Total from Continuing Operations

Profit/(Loss) for the Year from
Discontinued Operations

ToTAl

2013

3,068

760
223

326
0
4,377

12
4,389

2012

3,262

0
141

0
115
3,518

530
4,048

5.7.1 PATE NTS
In financial year 2013, the carrying amount of patents declined by € 0.9
million from € 8.7 million to € 7.8million. This was the result of additions
amounting to € 0.6 million for patent applications, particularly for propri-
etary programs such as MOR208, which were offset by straight-line amor-
tization of € 1.1 million, as well as by impairment of € 0.3 million.

5.7.2 LICE NSES
The carrying amount of licenses declined by € 1.7 million from € 7.1 mil-
lion to € 5.4 million in 2013. Additions during the financial year concerned
one-time payments for the access to target molecules which amounted to
€ 0.6 million. Amortization and impairment amounted to € 1.6 million and
€ 0.7 million, respectively.

In the prior year, licenses with a carrying amount of € 0.4 million were
allocated to assets of a disposal group classified as held for sale.

5.7.3 IN - LICE NSE D RESE ARCH PRO GR AMS
The carrying amount of in-licensed research programs amounted to € 12.8
million and increased in comparison to the prior year as a result of capital-
ized milestone payments (2012: € 10.5 million). The in-licensed compound,
which was reported at the acquisition cost, is currently not available for
use and therefore was not yet amortized.

5.7.4 SOF T WARE
In financial year 2013, additions to this line item totaled € 1.1 million. The
carrying amount increased by € 0.4 million from € 1.4 million in 2012 to
€ 1.8 million in 2013. Additions were offset by amortization in the amount
of € 0.6 million and minor software disposals.

Software with a carrying amount of € 0.2 million was allocated to assets
of disposal group classified as held for sale in the prior year.

financial statementsNotes133

5.9 PReP aiD eXPense s anD o t HeR a sse t s
This line item includes the non-current portion of prepaid expenses and
other assets. The Group has classified certain line items in other assets as
“restricted cash” which are not available for use in the Group’s operations
(see items 2.8.1, 5.1 and 5.2 of the Notes*). As of 31 December 2013 and
2012, the Group’s restricted cash amounted to € 1.3 million and € 1.3 mil-
lion, respectively, for guarantees granted and in the amount of € 298,606
and € 73,607, respectively, for convertible bonds granted to employees.
This line item is composed as follows.
*c R o s s - R e f e R e n c e t o pa g e 1 1 4 , pa g e 1 2 6 a n d pa g e 1 2 7

notes to equity and liabilities of the
Balance sheet

6.1 accoUn t s P aYaBl e anD accRUeD eXPense s
Accounts payable are non-interest-bearing and, under normal circum-
stances, have payment terms of no more than 30 days.

Accounts payable are listed in the following table.

in 000’s €

12/31/2013

12/31/2012

Prepaid Expenses,
Net of Current Portion
Other Current Assets

ToTAl

51
1,681
1,732

47
1,442
1,489

in 000’s €

12/31/2013

12/31/2012

Trade Accounts Payable
Licenses Payable
Accrued Expenses
Other Liabilities
Total from Continuing Operations

Total from Discontinued
Operations

ToTAl

1,078
120
15,076
916
17,190

0
17,190

738
170
9,232
520
10,660

2,424
13,084

5.10 asse t s of Di sP o sal GRoUP c l a ssif ieD a s Hel D

f oR sal e

As of 31 December 2013, there are no reportable matters with regard to
IFRS 5.

On 16 December 2012, MorphoSys AG and Bio-Rad agreed upon the acqui-
sition of substantially all of the research and diagnostic antibodies seg-
ment of AbD Serotec. In accordance with IFRS 5, the assets of the discon-
tinued AbD Serotec business were recorded as assets held for sale from
discontinued operations as of the reporting date 31 December 2012. The
closing of this transaction took place on 10 January 2013.

Accrued expenses of the continuing operations mainly include accrued
personnel expenses for payments to employees and the management
amounting to € 5.6 million (31 December 2012: € 3.7 million), provisions
for outstanding invoices in the amount of € 1.8 million (31 December 2012:
€ 1.2 million), external laboratory services in the amount of € 6.8 million
(31 December 2012: € 2.9 million), license payments in the amount of € 0.5
million (31 December 2012: € 1.1 million), audit fees and other audit-re-
lated costs in the amount of € 0.1 million (31 December 2012: € 0.1 mil-
lion), and € 0.3 million for legal advice (31 December 2012: € 0.4 million).

The following assets were recorded in the balance sheet as “assets of dis-
posal group classified as held for sale” as of 31 December 2012.

At the Company’s Annual General Meeting in June 2013, the Supervisory
Board was given authorization to appoint PricewaterhouseCoopers AG
Wirtschaftsprüfungsgesellschaft (PwC AG), Munich, as the auditor.

In the financial year 2013, PwC AG received compensation from MorphoSys
in the amount of € 372,277, including audit fees in the amount of € 319,123,
fees for other audit-related and valuation services of € 26,591, fees for tax
services in the amount of € 10,400 as well as fees for other services in the
amount of € 16,154.

in 000’s €

12/31/2012

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 Classified 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

financial statementsNotes134

6.2 PRoVi sions anD taX l iaBil i t ie s
As of 31 December 2013, the Group recorded provisions and tax liabilities
of € 3.6 million for continuing operations (2012: € 0.8 million for the entire
Group).

Tax provisions mainly comprise income tax expenses. As of 31 December
2013, provisions and tax liabilities were uncertain in terms of their
amount and are expected to be utilized in 2014.

Accrued expenses mainly comprise personal expenses regarding share-
based payments for stock appreciation rights which are settled in cash.

The provisions and tax liabilities for the continuing operations developed
as follows in financial year 2013.

in 000’s €

Taxes
Other Obligations

ToTAl

01/01/2013

additions

Utilized

Released

12/31/2013

630
187
817

2,595
719
3,314

505
0
505

30
9
39

2,690
897
3,587

6.3 Def eRReD ReVenUe s
Deferred revenues relate to payments received from customers for which
the services have not been rendered. For continuing operations, this line
item developed as follows.

6.4

l iaBil i t ie s of Di sP o sal GRoUP cl assif ieD as Hel D
f oR sal e

As of 31 December 2013, there are no reportable matters with regard to
IFRS 5.

in 000’s €

12/31/2013

12/31/2012

opENINg BAl ANCE
Prepayments Received in 2013

Revenue Recognized through
Release of Prepayments in line
with Services Performed in 2013

CloSIN g BAl ANCE
thereof short-term
thereof long-term

6,543
91,860

(23,968)
74,435
15,267
59,168

6,767
18,742

(18,966)
6,543
628
5,915

On 16 December 2012, MorphoSys AG and Bio-Rad agreed upon the acqui-
sition of substantially all of the research and diagnostic antibodies seg-
ment of AbD Serotec. In accordance with IFRS 5, the liabilities of the dis-
continued AbD Serotec business were recorded as liabilities held for sale
from discontinued operations as of the reporting date 31 December 2012.
The closing of this transaction took place on 10 January 2013.

The following liabilities were recorded in the balance sheet as “liabilities
of disposal group classified as held for sale” as of 31 December 2012.

in 000’s €

12/31/2012

Accounts Payable and Accrued Expenses
Current Portion of Deferred Revenue
Other Current Liabilities
Total Current Liabilities
Deferred Tax Liabilities
Total Non-current Liabilities
Liabilities of Disposal Group Classified as Held for Sale

2,424
435
466
3,325
407
407
3,733

financial statementsNotes135

6.5 s t o c KHol DeRs’ eQUi t Y

6.5.1 C OMMON STO CK
On 31 December 2013 the Company had common stock amounting to
€ 26,220,882, including treasury stock, which represents an increase of
€ 2,862,654 in comparison to the level of € 23,358,228 on 31 December
2012. Each no-par value share is entitled to one vote. Common stock in-
creased by € 2,311,216 or 2,311,216 shares as a result of the newly created
shares from the capital increase (1,514,066 shares) carried out in Septem-
ber 2013 and the purchase of MorphoSys shares by Celgene (797,150
shares). In addition, common stock increased by € 551,438 in 2013 through
the exercise of 551,438 stock options granted to the Management Board
and the Senior Management Group. The weighted average exercise price
per exercised stock option amounted to € 13.00.

As of 31 December 2013, the Company held 339,890 shares in treasury
stock in the amount of € 6,418,018, which corresponds to an increase of
€ 2,823,625 compared to 31 December 2012 (255,415 shares, € 3,594,393).
This increase was the result of the repurchase of 84,475 own stocks on the
stock exchange. The treasury stock may be used for all purposes named in
the authorization of the Annual General Meeting of 19 May 2011, and par-
ticularly for any existing or future employee participation schemes and/or
to finance acquisitions. The shares may also, however, be redeemed.

6.5.2 AUTHORIZE D CAPITAL
The “Authorized Capital 2008-I”, which was not yet utilized, expired on 30
April 2013. On 31 December 2012, this capital could have been served to
create up to 8,864,103 new shares.

At the 2013 Annual General Meeting, a new “Authorized Capital 2013-I”
was resolved, which will serve to issue up to 2,335,822 new shares. This
authorization has not yet been utilized.

As part of a cash capital increase in connection with the Celgene Transac-
tion, 797,150 shares were issued on 27 August 2013 from “Authorized
Capital 2012-II”. As part of another cash capital increase, 1,514,066 addi-
tional shares were issued on 23 September 2013 from “Authorized Capital
2012-II”. Accordingly, “Authorized Capital 2012-II” was fully utilized.

6.5.3 C ONDITIONAL CAPITAL
In 2013, a total of 551,438 shares were created from “Conditional Capital
V” (2008-II) through employees’ exercise of the same number of options.
Thus, common stock increased by a corresponding € 551,438.

In 2012, a total of 16,704 shares were created from “Conditional Capital II
bb” (1999-I) through employees’ exercise of the same number of options.
Thus, common stock increased by a corresponding € 16.704. In addition,
229,357 shares were created from “Conditional Capital V” (2008-II)
through employees’ exercise of the same number of options. Thus, com-
mon stock increased by a corresponding € 229,357.

6.5.4 TRE ASURY STO CK
In the years 2012 and 2013, the Group repurchased own shares. Composi-
tion and development of this line item can be found in the following table.

As of 12/31/2010
Purchase in 2011
As of 12/31/2011
Purchase in 2012
As of 12/31/2012
Purchase in 2013
As of 12/31/2013

number of
shares

79,896
84,019
163,915
91,500
255,415
84,475
339,890

Value

9,774
1,747,067
1,756,841
1,837,552
3,594,393
2,823,625
6,418,018

The average stock price at the time of the repurchases carried out in 2013,
amounted to € 33.42 per share (2012: € 20.08 per share). Treasury stocks
are recognized at acquisition cost.

6.5.5 ADDITIONAL PAID - IN CAPITAL
On 31 December 2013, additional paid-in capital amounted to € 310,963,651
(31 December 2012: € 175,245,266). The total increase of € 135,718,385
was primarily the result of the capital increase in September 2013 as well
as in the context of the agreement with Celgene (€ 124,369,723 net of issu-
ance costs and the respective taxes in the total amount of € 1,698,232). A
further increase of € 6,606,570 (net of issuance costs and the respective
taxes in the total amount of € 11,419) resulted from the exercise of stock
options granted. Furthermore, additional paid-in capital increased by
€ 4,742,092 from personnel expenses resulting from share-based pay-
ment.

In 2012, additional paid-in capital increased by € 4,466,792 due to person-
nel expenses resulting from stock options in the amount of € 1,268,792, as
well as the exercise of options in the amount of € 3,198,000.

IFRS 2 “Share-based Payment” requires the consideration of the effects of
share-based payments if the Group acquires goods or services in ex-
change for stocks or stock options (settlement in equity instruments) or
other assets that represent the value of a specific number of stocks or stock
options (cash settlement). The key impact of IFRS 2 on the Group arises
from the expense of using an option pricing model in connection with
stock options and other share-based incentives for employees and the
Management Board. In compliance with IFRS 2.54, the Group has applied
IFRS 2 to share-based payments settled in equity instruments for those
granted on or after 1 January 1999. Therefore, in accordance with IFRS
2.56, stock options granted before January 1, 1999 are not recognized as
an expense, but still furnish the information required by IFRS 2.44 and
2.45. Further information may be found under items 7.1, 7.2, 7.3 and 7.4 of
the Notes*.
*c R o s s - R e f e R e n c e t o pa g e 1 3 6 - 1 3 9

financial statementsNotes
136

6.5.6 RE VALUATION RESE RVE
On 31 December 2013, the revaluation reserve amounted to € 240,381
(31 December 2012: € 486,743). The reduction amounting to a total of
€ 246,362 arose from a change in the unrealized gains on available for
sale securities and bonds of € 274,460, net of deferred taxes of € 83,172,
and the disposal of the equity-related recognition of deferred taxes in the
amount of € 28,098 related to the discontinued operations of AbD Serotec.

6.5.7 TR ANSL ATION RESE RVE
The translation reserve increased by € 1,302,421 to € +192,556 on 31 De-
cember 2013 in comparison to minus € 1,109,865 on 31 December 2012.
This item includes exchange rate differences arising from the revaluation
of assets and liabilities denominated in foreign currencies as per 31 De-
cember 2013, as well as differences between the exchange rates used in
the balance sheet and the income statement. These differences resulted
primarily from the entities of the discontinued operations of AbD Serotec
which were led in foreign currencies. The change compared to the previ-
ous year is mainly a result of the disposal of currency translation differ-
ences in connection with the sale of substantially all of the AbD Serotec
business on 10 January 2013.

6.5.8 AC CUMUL ATE D INC OME
The consolidated net profit amounting to € 13,321,930 is reported in ac-
cumulated income. Thus, accumulated income rose from € 7,624,038 in
2012 to € 20,945,968 in 2013.

Remuneration system for the manage-
ment Board and employees of the Group

s t o cK oP t ions

7.1
The general conditions of the stock option plans that existed during the
reporting period are shown in the following table; all options must be
settled by the physical delivery of shares.

Grant Date/employees entitled

stock options

Vesting Period

Granted

25 January 2008 to Management Board and employees

283,335

25 January 2008 to employees

October 1, 2008 to employees

29,070

92,664

1 April 2010 to Management Board and employees

422,200

In 2013 and 2012, 551,438 and 246,061 options were exercised, respec-
tively.

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

financial statementsNotes137

The following table shows the development of the stock option plans for
employees of the Group in 2013 and 2012.

oU TSTANDIN g oN
1 JANUARY 2012
Granted
Exercised
Forfeited
Expired

oU TSTANDIN g oN
31 DECEMBER 2012

oU TSTANDIN g oN
1 JANUARY 2013
Granted
Exercised
Forfeited
Expired

oU TSTANDIN g oN
31 DECEMBER 2013

797,502
0
(246,061)
0
0

551,441

551,441
0
(551,438)
0
(3)

Weighted-
average
Price (€)

13.31
0.00
14.00
0.00
0.00

13.00

13.00
0.00
13.00
0.00
12.80

On 31 December 2013 and 2012, there were zero and 451,391 exercisable
stock options, respectively.

The Group recognizes personnel expenses resulting from stock options in
accordance with IFRS 2 “Share-based Payment”. In the years 2013 and
2012, compensation expense related to stock options amounted to € 28,181
and € 168,044, respectively.

7.2

conVeR t iBl e B onD s

7.2 .1 2010 PRO GR AM
On 1 April 2010, 352,800 convertible bonds were granted to members of
the Management Board and members of the Senior Management Group.
The exercise price of the convertible bonds was € 16.79 and equaled the
Company’s share price in the XETRA closing auction of the Frankfurt
Stock Exchange on the trading day preceding the issuance of the convert-
ible bonds. Each convertible bond having a par value of € 0.33 entitles the
conversion into one no-par value bearer share of the Group against pay-
ment of the exercise price. The beneficiaries may only exercise their con-
version rights following a vesting period of four years beginning after the
grant date. Exercise of the conversion rights is only possible if, on one
trading day during the lifetime of the convertible bond, the share price
reached at least 110 % of the exercise price as of the grant date. After 31
December 2015, these convertible bonds can no longer be exercised. If the
conversion rights are not exercised, the beneficiaries receive a reimburse-
ment of the amount paid to acquire the conversion rights (€ 0.33 per con-
vertible bond/share). Convertible bonds are recorded at their accreted
value, which closely approximates to the principal amount on their due
date.

7.2 .2 2013 PRO GR AM
On 1 April 2013, MorphoSys AG granted convertible bonds with equal
rights in a total nominal value of € 225,000 and divided into 449,999
bearer bonds from “Conditional Capital 2008-III” to the Management
Board and members of the Senior Management Group. The beneficiaries
have the right to convert the bonds granted to them into shares of the
Company. Each convertible bond may be exchanged for one of the Compa-
ny’s bearer shares equal to the proportional amount of common stock,
which currently stands at € 1. The exercise of the convertible bonds is
subject to several conditions; such as achieving performance targets, the
expiration of a vesting period, the exercisability of the conversion rights,
the existence of an employment or service contract which is not under
notice, and the commencement of the exercise period.

The conversion price amounted to € 31.88 and was derived from the Com-
pany’s share price in the XETRA closing auction of the Frankfurt Stock
Exchange on the trading day preceding the issuance of the convertible
bonds. The exercise of the conversion rights is admissible if, on at least one
trading day during the lifetime of the convertible bonds, the share price of
the Company has amounted to more than 120 % of the price in the XETRA
closing auction of the Frankfurt Stock Exchange on the trading day pre-
ceding the issuance of the convertible bonds.

The exercise of the conversion rights is only admissible after the expira-
tion of a four-year vesting period from the grant date. In the event of a
change of control, the vesting period will be shortened to two years from
the grant date. For every year without a notice of termination of the em-
ployment relationship with the Company or an affiliated company, 25 % of
the conversion rights will become vested. In the event of a change of con-
trol, all unvested conversion rights become vested.

If an employment or service contract of a beneficiary is terminated without
notice, no further conversion rights can be vested in line with the above
mentioned vesting scheme. Thus, upon rendition of the notice, all conver-
sion rights still unvested by this time will expire without substitution. In
the event of a contractual notice of termination of such employment or
service contract with the beneficiary, or a mutually agreed dissolution
contract, the previous sentence applies and is effective as of the date of
termination of the employment or service contract.

financial statementsNotes

138

The following table shows the development of the convertible bond plans
for employees of the Group in financial years 2013 and 2012.

oU TSTANDIN g oN
1 JANUARY 2012
Granted
Exercised
Forfeited
Expired

oU TSTANDIN g oN
31 DECEMBER 2012

oU TSTANDIN g oN
1 JANUARY 2013
Granted
Exercised
Forfeited
Expired

oU TSTANDIN g oN
31 DECEMBER 2013

convertible

Bonds

Weighted-
average
Price (€)

328,050
0
0
(7,500)
0

320,550

320,550
449,999
0
(3,750)
0

766,799

16.79
0.00
0.00
16.79
0.00

16.79

16.79
31.88
0.00
16.79
0.00

25.65

Exercisable convertible bonds on 31 December 2013 and 2012 amounted to
zero shares, respectively.

The following overview includes the weighted average exercise price as
well as information on the contract duration of significant groups of con-
vertible bonds as of 31 December 2013.

Range of exercise Prices

€ 10.00 – € 25.00
€ 25.01 – € 40.00

number

outstanding

Remaining
contractual life
(in Years)

Weighted-
average

number

Weighted-
average

exercise Price (€)

exercisable

exercise Price (€)

316,800
449,999
766,799

2.00
6.25
4.50

16.79
31.88
25.65

0
0
0

0.00
0.00
0.00

The Group recognizes personnel expenses resulting from convertible
bonds in accordance with IFRS 2 and IAS 32.28. The equity component of
the convertible bonds is separately presented in additional paid-in capital.
The corresponding amount is recognized as personnel expenses from con-
vertible bonds. In 2013 and 2012, compensation expenses related to con-
vertible bonds amounted to € 1,997,414 and € 331,079, respectively.

s t o cK aPPRec iat ion RiGH t s

7.3
On 1 October 2010, employees of MorphoSys AG were granted 15,000
stock appreciation rights at the same conditions as the convertible bonds
granted on 1 April 2010. Convertible bonds are settled via the physical
transfer of shares, whereas stock appreciation rights are settled in cash.
The closing price of the stock appreciation rights was € 55.85 on 31 De-
cember 2013. Compensation expenses amounted to € 449,420 in 2013,
while the related non-current provision amounted to € 593,597 on 31 De-
cember 2013. After 30 June 2016, the stock appreciation rights may no
longer be exercised.

financial statementsNotes

139

l onG -t eRm inc en t iVe PRo GRams

7.4
The total increase in recognized personnel expenses from share-based
payments compared to the prior year mainly resulted from a modification
of the LTI programs 2011 and 2012. For the LTI program 2011, vesting
periods were modified such that the beneficiaries’ claims become vested
by one quarter on a yearly basis. However, in the case of the LTI program
2012, claims become vested on a pro-rata basis. With this modification,
changes in the interpretation and development of labor law were taken
into account. As a result of the adaptation, personnel expenses are ac-
counted for comparatively earlier within the four-year period, resulting in
an increase of personnel expenses compared to the previous year.

7.4.1 2011 LONG -TE RM INCE NTIVE PRO GR AM
On 1 June 2011, MorphoSys established a long-term incentive plan (LTI
plan) for the Management Board and the Senior Management Group. Ac-
cording to IFRS, this program is considered a share-based payment pro-
gram with settlement in equity instruments and is accounted for accord-
ingly. The LTI plan is a performance-related share plan and will be paid
out in ordinary shares of MorphoSys AG if predefined key performance
criteria have been achieved. These criteria are assessed and approved an-
nually by the Supervisory Board. These key performance criteria pres-
ently consist of revenues, the EBIT, and the number of projects in the R&D
portfolio.

The grant date was 1 June 2011 and the vesting period is four years. 25 %
of the performance shares will become vested in each year of the four-year
vesting period, provided that the performance criteria set for the respec-
tive period were met by 100 %. The annual number of vested shares shall
be reduced to the extent that the performance criteria of the relevant year
have been fulfilled only between 50 % and 99 %, and increased to the ex-
tent that the performance criteria were met by more than 100 % (maximum
110 %). In consideration of these conditions, the ordinary shares of
MorphoSys AG will be delivered to the beneficiaries after the four-year
vesting period. In any case, the maximum pay-out at the end of the four-
year period is limited by a factor determined by the Group which generally
amounts to “1”. The Supervisory Board may depart from this factor, for
example, if the level of payments was considered to be inappropriate given
the general development of the Group.

If the number of repurchased shares is not sufficient for servicing the LTI
plan, MorphoSys reserves the right to pay a certain amount of the LTI plan
in cash in the amount of the performance shares at the end of the vesting
period, provided the cash amount does not exceed 200 % of the fair value
of the performance shares on the grant date.

If a member of the Management Board ceases to hold an office within
MorphoSys Group prematurely before expiration of the four year perfor-
mance period, the Management Board member (or his/her heirs) is enti-
tled to performance shares determined on a precise daily pro-rata basis. If
a member of the Management Board ceases to hold an office within
MorphoSys Group for good reason within the meaning of Sec. 626 para. 2
of the German Civil Code (BGB) prematurely before expiration of the four
year performance period, the beneficiary will not be entitled to an alloca-
tion of performance shares. If a change of control occurs during the course
of the four-year vesting period, all performance shares are considered
fully vested. In every above named case, the allocation of the performance
shares only occurs at the end of the four-year vesting period.

In June 2011, MorphoSys repurchased 84,019 of its own shares on the
stock exchange at an average price of € 20.79 per share for the LTI plan
2011. These 84,019 shares were granted to the beneficiaries retroactively
on 1 June 2011. These included 53,997 shares for the Management Board
(for further information please see item 7.5*) and 30,022 shares for the
Senior Management Group. The fair value of the performance shares was
€ 21.34 per share on the grant date (1 June 2011). In determining the fair
value of the shares repurchased, no dividends were considered as the
Group does not intend to distribute any dividends in the foreseeable fu-
ture. Since the grant date until 31 December 2013, three beneficiaries
have left MorphoSys and thus 5,326 performance shares forfeited.
*c R o s s - R e f e R e n c e t o pa g e 1 4 1

In 2013, personnel expenses resulting from stock options under the
Group’s 2011 LTI plan amounted to € 778,124 (2012: € 436,232).

7.4.2 2012 LONG -TE RM INCE NTIVE PRO GR AM
On 1 April 2012, MorphoSys established a second long-term incentive plan
(LTI plan) for the Management Board and the Senior Management Group.
According to IFRS 2, this program is considered a share-based payment
program with settlement in equity instruments and is accounted for ac-
cordingly. The LTI plan is a performance-related share plan and will be
paid out in ordinary shares of MorphoSys AG if predefined key perfor-
mance criteria have been achieved. These criteria are approved annually
by the Supervisory Board.

The grant date was 1 April 2012 and the vesting period is four years. One
fourth of the performance shares will become vested in each year of the
four-year vesting period, provided that the performance criteria set for the
respective period were met in full. The annual number of vested shares
shall be reduced to the extent that the performance criteria of the relevant
year have been fulfilled only between 50 % and 99 %, and increased to the
extent that the performance criteria were met by more than 100 % (maxi-
mum 200 %). If in one year the specified performance criteria are achieved
by less than 50 %, no shares will become vested in that year. In any case,
the maximum pay-out at the end of the four-year period is limited by a
factor determined by the Group which generally amounts to “1”. However,
in justified cases, the Supervisory Board may set this factor freely be-
tween “0” and “2”, for example, if the level of payment is regarded as un-
reasonable with regard to the general development of the Company. The
right to receive a certain allocation of shares under the LTI plan, however,
only occurs at the end of the four-year vesting period.

financial statementsNotes140

tion of performance shares. If a change of control occurs during the course
of the four-year vesting period, all performance shares are considered
fully vested. In every above named case, the right to receive a certain al-
location of shares under the LTI plan only occurs at the end of the four-year
vesting period.

In April 2012, MorphoSys repurchased 91,500 of its own shares on the
stock exchange at an average price of € 20.08 per share for the 2012 LTI
plan. These 91,500 shares were granted to the beneficiaries retroactively
on 1 April 2012. These included 57,967 shares for the Management Board
(for further information, please see the table titled “Performance Shares”*
in item 7.5 “Related Parties”) and 33,533 shares for the Senior Manage-
ment Group. The fair value of the performance shares was € 19.24 per
share on the grant date (1 April 2012). In determining the fair value of the
shares repurchased, no dividends were considered as the Group does not
intend to distribute any dividends in the foreseeable future. Since the
grant date until 31 December 2013, two beneficiaries have left MorphoSys
and thus 4,289 performance shares forfeited.
*c R o s s - R e f e R e n c e t o pa g e 1 4 2

On 1 October 2012, MorphoSys established a further long-term incentive
plan (LTI plan) for members of the Senior Management Group. The terms
of the plan were identical to the program of 1 April 2012. 2,292 shares
were granted. The fair value was € 24.00 per share on the grant date.

In 2013, personnel expenses resulting from stock options under the
Group’s 2012 LTI plan amounted to € 974,997 (2012: € 333,438).

7.4.3 2013 LONG -TE RM INCE NTIVE PRO GR AM
On 01 April 2013, MorphoSys established a further long-term incentive
plan (LTI plan) for the Management Board and the Senior Management
Group. According to IFRS 2, this program is considered a share-based pay-
ment program with settlement in equity instruments and is accounted for
accordingly. The LTI plan is a performance-related share plan and will be
paid out in ordinary shares of MorphoSys AG if predefined key perfor-
mance criteria have been achieved. These criteria are evaluated annually
by the Supervisory Board. The grant date was 1 April 2013 and the vest-
ing/performance period is four years. If the predefined key performance
criteria for the respective period are met by 100 %, 25 % of the performance
shares become vested in each year of the four-year vesting period. The
number of shares vested each year will be reduced or increased to the
extent that the performance criteria of the respective year have only been
achieved between 50 % and 99.9 % (<100 %) or that the achievement of the
performance criteria has exceeded 100 % (maximum 200 %). If in one year
the performance criteria are achieved by less than 50 %, “0” shares will
become vested in that year. In any case, the maximum pay-out at the end
of the four-year period is limited by a factor determined by the Group
which generally amounts to “1”. However, in justified cases, the Super-
visory Board may set this factor freely between “0” and “2”, for example, if
the level of payment is regarded as unreasonable in view of the general

development of the Company. The right to receive a certain allocation of
shares under the LTI plan, however, only occurs at the end of the four-year
vesting period.

If a member of the Management Board ceases to hold an office within
MorphoSys Group prematurely before expiration of the four year perfor-
mance period, the Management Board member (or his/her heirs) is enti-
tled to performance shares determined on a precise daily pro-rata basis. If
a member of the Management Board ceases to hold an office within
MorphoSys Group for good reason within the meaning of Sec. 626 para. 2
of the German Civil Code (BGB) prematurely before expiration of the four
year performance period, the beneficiary will not be entitled to an alloca-
tion of performance shares. If a change of control occurs during the course
of the four-year vesting period, all performance shares are considered
fully vested. In every above named case, the right to receive a certain al-
location of shares under the LTI plan only occurs at the end of the four-year
vesting period.

In April and May 2013, MorphoSys repurchased 84,475 of its own shares
on the stock exchange at an average price of € 33.43 per share. The repur-
chased shares may be used for all purposes named in the authorization of
the Annual General Meeting of 19 May 2011, and particularly for any ex-
isting or future employee participation schemes and/or to finance acquisi-
tions. The shares may also be redeemed. Of these shares, 61,600 were
granted to the beneficiaries retroactively effective 1 April 2013. This in-
cluded 36,729 shares for the Management Board (for further information,
please see the table titled “Performance Shares”* in item 7.5 “Related
Parties”) and 24,871 shares for the Senior Management Group. The fair
value of the performance shares was € 31.88 per share on the grant date
(1 April 2013). In determining the fair value of the shares repurchased no
dividends were considered as the Group does not intend to distribute any
dividends in the foreseeable future. Since the grant date until 31 Decem-
ber 2013, no beneficiary has left MorphoSys and no performance shares
have forfeited. For the calculation of the personnel expenses resulting
from share-based payments under the 2013 LTI plan, it was assumed that
one beneficiary will leave the Company during the four-year period.
*c R o s s - R e f e R e n c e t o pa g e 1 4 2

financial statementsNotes141

On 1 October 2013, MorphoSys established a further long-term incentive
plan (LTI plan) for members of the Senior Management Group. The terms
of the plan were identical to the program of 1 April 2013. A total of 549
shares were granted and the fair value on the grant date was € 57.39 per
share.

In 2013, personnel expenses resulting from stock options under the
Group’s 2013 LTI plan amounted to € 917,319.

7.5 Rel at eD PaR t ie s
The Group engages in commercial relationships with the members of the
Management Board and the members of the Supervisory Board as related
parties. In addition to cash compensation, the Group has granted the Man-
agement Board stock options, convertible bonds, and performance shares.
The tables below show the shares, stock options, convertible bonds and
performance shares held by the members of the Management Board and
Supervisory Board, as well as the changes in their ownership during fi-
nancial year 2013.

MANAg EMENT B oARD
Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

SUpERvISoRY B oARD
Dr. Gerald Möller
Dr. Geoffrey Vernon
Dr. Walter Blättler
Dr. Daniel Camus
Dr. Marc Cluzel
Karin Eastham

ToTAl

s t o c K oP t ions

MANAg EMENT B oARD
Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

01/01/2013

additions

forfeitures

sales

12/31/2013

419,885
6,500
2,000
7,105
435,490

7,500
0
2,019
0
0
0
9,519

191,445
0
90,000
102,867
384,312

1,500
0
0
0
0
1,000
2,500

0
0
0
0
0

0
0
0
0
0
0
0

158,445
0
90,000
82,602
331,047

0
0
0
0
0
0
0

452,885
6,500
2,000
27,370
488,755

9,000
0
2,019
0
0
1,000
12,019

01/01/2013

additions

forfeitures

exercises

12/31/2013

191,445
0
90,000
102,867
384,312

0
0
0
0
0

191,445
0
90,000
102,867
384,312

0
0
0
0
0

financial statementsNotes

142

conVeR t iBl e B onD s

MANAg EMENT B oARD
Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

PeRf oRmanc e sHaRe s

MANAg EMENT B oARD
Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

01/01/2013

additions

forfeitures

exercises

12/31/2013

58,800
0
33,000
33,000
124,800

88,386
90,537
60,537
60,537
299,997

0
0
0
0
0

147,186
90,537
93,537
93,537
424,797

01/01/2013

additions

forfeitures

exercises

12/31/2013

36,652
25,104
25,104
25,104
111,964

12,024
8,235
8,235
8,235
36,729

0
0
0
0
0

48,676
33,339
33,339
33,339
148,693

The Supervisory Board of MorphoSys AG does not hold any stock options,
convertible bonds, or performance shares.

The remuneration of the Management Board consists of fixed and variable
components, as well as other remuneration. For a six-months period after
the expiration of the contract term, the Management Board Member is
restrained by a non-competition clause. For this period, the Management
Board Member is entitled to a waiting allowance equaling 100 % of the pro
rata contractual fixed compensation. In 2013, the total remuneration of the
Supervisory Board, excluding reimbursement for travel costs, amounted
to € 458,280 (2012: € 478,197).

financial statementsNotes

143

The tables below show the remuneration of the Management Board and
Supervisory Board in detail.

manaGemen t B oaRD RemUneRat ion f oR t He Y eaR 2013:

fixed compensation

short-term
incentive
compensation

long-term incentive compensation
(target attainment Depends on company Goals)1

total
compensation2

Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

Base salary
in €

412,049
279,531
279,531
279,531
1,250,642

other
compensatory
Benefits
in €

Variable
compensation

in €

no. of
Performance
shares Granted

no. of
convertible
Bonds Granted

Personal
expenses
Regarding
stock-Based
compensation
2013

179,3533
106,3154
107,4375
99,7496
492,854

360,543
244,590
244,590
244,590
1,094,313

12,024
8,235
8,235
8,235
36,729

88,386
90,537
60,537
60,537
299,997

953,834
750,964
651,773
648,013
3,004,584

in €

1,905,779
1,381,400
1,283,331
1,271,883
5,842,393

1 The remuneration with a long-term incentive effect is dependent upon the achievement of the company objectives. This remuneration is presented in accordance

with IAS 24.17e in an amount which corresponds to the past financial year.

2 The total remuneration shown for 2013 includes the respective bonus accruals for 2013 which will be paid out in February 2014.
3 Includes 112,221 € in contributions to individual pension plans and allowances for insurances
4 Includes 78,177 € in contributions to individual pension plans and allowances for insurances
5 Includes 78,294 € in contributions to individual pension plans and allowances for insurances
6 Includes 78,170 € in contributions to individual pension plans and allowances for insurances

manaGemen t B oaRD RemUneRat ion f oR t He Y eaR 2012:

fixed compensation

short-term
incentive
compensation

long-term incentive compensation
(target attainment Depends on company Goals)1

total
compensation2

other
compensatory
Benefits
in €

Variable
compensation

in €

no. of
Performance
shares Granted

139,5553
129,8364
103,8415
96,6096
469,841

226,689
176,890
164,155
162,653
730,387

18,976
12,997
12,997
12,997
57,967

Base salary
in €

401,980
271,867
272,700
272,700
1,219,247

Dr. Simon Moroney
Jens Holstein
Dr. Arndt Schottelius
Dr. Marlies Sproll

ToTAl

Personal
expenses
Regarding
stock-Based
compensation
2012

274,075
113,175
185,199
165,144
737,593

in €

1,042,299
691,768
725,895
697,106
3,157,068

1 The remuneration with a long-term incentive effect is dependent upon the achievement of the company objectives. This remuneration is presented in accordance

with IAS 24.17e in an amount which corresponds to the past financial year.

2 The total remuneration shown for 2012 includes the respective bonus accruals for 2012 which were paid out in February 2013.
3 Includes 109.882 € in contributions to individual pension plans and allowances for insurances
4 Includes 72.999 € in contributions to individual pension plans and allowances for insurances
5 Includes 76.898 € in contributions to individual pension plans and allowances for insurances
6 Includes 76.789 € in contributions to individual pension plans and allowances for insurances

financial statementsNotes

144

sUPeRVi s oR Y B oaRD RemUneRat ion f oR t He Y eaRs 2013 anD 2012:

in €

2013

2012

2013

2012

2013

2012

fixed compensation

attendance fees

total compensation

Dr. Gerald Möller
Dr. Walter Blättler
Dr. Daniel Camus
Dr. Marc Cluzel
Karin Eastham
Dr. Geoffrey Vernon
Prof. Dr. Jürgen Drews1
Dr. Metin Colpan1

ToTAl

94,400
43,160
43,160
46,160
40,160
57,240
0
0
324,280

94,400
43,160
41,939
27,116
23,591
51,549
26,264
16,678
324,697

32,000
17,000
19,500
23,500
22,500
19,500
0
0
134,000

37,000
21,500
23,500
19,000
15,000
22,000
9,500
6,000
153,500

126,400
60,160
62,660
69,660
62,660
76,740
0
0
458,280

131,400
64,660
65,439
46,116
38,591
73,549
35,764
22,678
478,197

1 Departed the Supervisory Board of MorphoSys AG on 31 May 2012

There are presently no other agreements with current or former members
of the Supervisory Board.

On 31 December 2013, the Senior Management Group held no stock op-
tions (31 December 2012: 150,026 units), 300,002 convertible bonds (31
December 2012: 180,000 units), 15,000 stock appreciation rights (SARs)
(31 December 2012: 15,000) and 77,558 performance shares (31 December
2012: 63,184), which were granted by the Company. In 2013, an additional
long-term incentive program as well as an additional convertible bond pro-
gram were issued to the Senior Management Group. As part of these pro-
grams, the Senior Management Group was granted 25,420 performance
shares and 150,002 convertible bonds. 150,026 of the stock options were
exercised in 2013. During the same period, no convertible bonds or stock
appreciation rights exercised. In 2013, 11,045 performance shares and
3,750 convertible bonds forfeited because beneficiaries left MorphoSys.
These individuals continue to hold 26,250 convertible bonds.

financial statementsNotes145

additional notes

8.1

oBl iGat ions aRi sinG f Rom Ren tal , oPeRat inG l ease s,
anD o t HeR con t Rac t s

The Group leases facilities and equipment under long-term operating
leases. In financial years 2013 and 2012, leasing expenses amounted to
€ 1,795,316 and € 1,713,477. Key leasing agreements mainly concerned
leased buildings. The majority of these contracts can be renewed on a
yearly or quarterly basis. Some of these agreements may be terminated
prematurely.

Future minimum payments under non-terminable operating leases, insur-
ance contracts, as well as other services for continuing operations are
composed as follows.

in 000’s €

leasing 2013

leasing 2012

other 2013

other 2012

total 2013

total 2012

Rent and

Up to One Year
Between One and Five Years
More than Five Years

ToTAl

2,536
2,690
0
5,226

1,562
2,114
0
3,676

830
27

857

1,245
24
0
1,269

3,366
2,717
0
6,083

2,807
2,138
0
4,945

In financial years 2013 and 2012, total expenses for operating leases, in-
surance contracts, as well as other services amounted to a total of
€ 3,366,291 and € 3,311,122, respectively.

The Management Board is unaware of any proceedings that may result in
a significant obligation for the Group and may lead to a material adverse
effect on the Group’s net assets, financial position, and results of opera-
tions.

Furthermore, the following future payments may become due from cur-
rently active, terminable contracts for outsourced studies. However, these
amounts may be substantially lower due to the respective contractual
clauses in the event of the early termination of the study.

If certain milestones are achieved in the Proprietary Development seg-
ment, such as the application for an investigational new drug (IND) with
regard to specific target molecules, this may trigger milestone payments
to licensors. However, no further details can be published, since the
timing and the achievement of such milestones are uncertain.

in 000’s €

Up to One Year
Between One and Five Years
More than Five Years

ToTAl

total 2013

18,612
17,950
0
36,562

If a partner achieves certain milestones in the Partnered Discovery seg-
ment, such as the application for an investigational new drug (IND) with
regard to specific target molecules, or the transfer of a technology, this
may trigger milestone payments to MorphoSys. However, no further de-
tails can be published, since the timing and the achievement of such mile-
stones are uncertain.

8.2 con t inGen t a sse t s /con t inGen t l iaBil i t ie s
Contingent liabilities are potential obligations based on past events whose
existence is confirmed only when one or more uncertain future events oc-
cur which are beyond the control of the Company. Current obligations may
represent a contingent liability if there is not sufficient probability of an
outflow of resources to justify the recognition of a provision. Moreover, it
is not possible to make a sufficiently reliable estimate of the amount of the
obligations.

8.3 coRP oRat e G oVeRnance
The Group has submitted the Declaration of Conformity with the recom-
mendations of the Government Commission on the German Corporate
Governance Code for financial year 2013 pursuant to Sec. 161 of the Ger-
man Stock Corporation Act (AktG). This declaration was published on 6
December 2013 on the Group’s website (www.morphosys.com) and made
permanently available to the public.

financial statementsNotes
146

8.4 Re seaRcH anD DeVel oPmen t aGReemen t s
The Group has entered numerous research and development agreements
as part of its partnered research strategy and its proprietary research and
development activities.

8.4.1 PAR TNE RE D DISC OVE RY SEGME NT
In its commercial partnerships in the Partnered Discovery segment,
MorphoSys receives various types of payment which are spread over the
term of the agreements or recognized in full as revenue when reaching a
predefined target or milestone. These payments include upfront payments
upon signature, annual license fees in exchange for access to MorphoSys’s
technologies, and payments for funded research to be performed by
MorphoSys on behalf of the partner. In addition, MorphoSys is entitled to
development-related milestone payments and royalties on product sales
for specific antibody compound programs.

Prior to financial year 2013, active collaborations with a number of part-
ners were already concluded since as the original term of the agreements
had expired. However, drug development programs initiated in this active
phase are designed so that they may continue at the partner’s operations
and thus result in performance-based payments for the achievement of the
milestones defined. For more detailed information on individual drug can-
didates within the various alliances and limited to the information avail-
able to the public, please refer to the section of this annual report entitled
the “Research and Development” and to the overview of the Group’s drug
pipeline. More detailed information on the Group’s individual research al-
liances is available on the Group’s website.

Partnerships in the Partnered Discovery segment which were completed
before the beginning of 2013, but under which drug development pro-
grams were still being pursued, included ( in alphabetical order): Astellas,
Bayer HealthCare Pharmaceuticals, Boehringer Ingelheim, Daiichi San-
kyo, F. Hoffmann-La Roche, GPC Biotech, Immunogen, Janssen Biotech,
Merck & Co., OncoMed Pharmaceuticals, Pfizer, Fibron Ltd. (transfer of the
Prochon Biotech Ltd. agreement), and Schering-Plough (a subsidiary of
Merck & Co.).

Partnerships that were still active in 2013 included (in alphabetical order):
ContraFect, GeneFrontier Corporation/Kaneka, and Novartis. Of these
partnerships, none of the active collaborations were terminated in 2013.

MorphoSys currently is in an arbitral procedure with ContraFect Corp.
regarding the contract concluded in 2011. The procedure, which was initi-
ated by MorphoSys, is in a very early stage and the Company currently
does not assume that any major risks/impacts arise for the Group’s net
assets, financial position and results of operations.

An alliance with British Heptares Therapeutics Ltd. is a newly concluded
cooperation which took place in February 2013. This cooperation should
pave the way for novel therapeutic antibodies against membrane-constant
G protein coupled-receptors (GPCRs). GPCRs are crucial for a variety of
biological processes and diseases. Under the terms of the agreement,
Heptares will generate stabilized receptors (StaRs) as antigens for a set of
GPCR target molecules proposed by MorphoSys. MorphoSys will subse-
quently apply its Ylanthia antibody library to develop therapeutic anti-
body compounds against these target molecules. MorphoSys has the right
to sublicense third parties the access to these target molecules in conjunc-
tion with therapeutic antibody programs. Heptares will receive upfront
and research funding payments and will participate in MorphoSys’s
future revenues from related license agreements. Heptares also decided to
develop a therapeutic antibody against a proprietary GPCR target mole-
cule based on MorphoSys’s Ylanthia library. In this context, MorphoSys
can receive license fees, milestone payments, and royalties.

The Group’s currently most extensive alliance is with Novartis AG. Both
parties started working together in 2004, which has led to the creation of
several ongoing therapeutic antibody programs against a number of dis-
eases. In December 2007, MorphoSys and Novartis significantly expanded
their previous relationship and forged one of the most comprehensive stra-
tegic alliances in the discovery and development of biopharmaceuticals.
The contractually guaranteed annual payments for technology access, in-
ternalization charges and R&D services amount to more than € 400 mil-
lion over the contractual term of ten years. The total amount of guaranteed
payments and probability-weighted performance-based milestones, con-
tingent upon the successful clinical development and regulatory approval
of several products, could exceed the threshold of € 650 million at the full
contractual term of the successful collaboration. In addition to these pay-
ments, MorphoSys is also entitled to royalties and/or profit sharing on any
future product sales.

In November 2012, MorphoSys and Novartis entered into a cooperation
agreement on the use of the new Ylanthia technology platform. This exten-
sion of the existing strategic cooperation represents the start of the com-
mercialization of Ylanthia and should still produce improved antibody
candidates that can be developed faster than previously possible.

8.4.2 PROPRIE TARY DE VE LOPME NT SEGME NT
In the Proprietary Development segment, the partnerships are geared to-
wards the objectives of the Group’s proprietary drug development pro-
grams in its core areas of oncology, inflammatory diseases, and infectious
diseases. These partnerships include (in alphabetical order): Celgene,
Galapagos, GlaxoSmithKline, and Xencor. The cooperation with Absynth
Biologics was completed in financial year 2013. This cooperation was
started in September 2010 and had been designed to target molecules in
the field of infectious diseases.

financial statementsNotes147

In June 2013, MorphoSys and Celgene Corporation announced a global
agreement on the joint development of the MOR202 cancer program and
its co-promotion in Europe. MOR202 is a fully human monoclonal antibody
aimed at the CD38 target molecule for the treatment of multiple myeloma
and other blood cancers. The compound was in a phase 1/2a clinical trial
in 2013 in patients with relapsed/refractory multiple myeloma. MorphoSys
and Celgene are co-promoting the further development of MOR202 for the
treatment of multiple myeloma and other indications and share the devel-
opment costs in a ratio of 1/3 to 2/3. This agreement provided for a upfront
payment to MorphoSys in the amount of € 70.8 million, and Celgene ac-
quired additional shares in MorphoSys amounting to € 46.2 million. As
part of this cooperation, MorphoSys may receive additional development-
related and regulatory and revenue-related milestones as well as tiered,
double-digit royalties on net sales outside of the co-promotion activities
carried out in select European markets. MorphoSys will receive 50 % of the
revenues from the co-promotion activities carried out in select European
markets.

In June 2010, MorphoSys AG and the US-based biopharmaceutical com-
pany, Xencor, signed a exclusive global licensing and cooperation agree-
ment. As a result of this agreement, MorphoSys receives exclusive global
licensing rights to the antibody XmAb5574/MOR208 for the treatment of
cancer and other indications. Under the agreement, the companies will
jointly conduct a phase 1/2a trial in the US in patients with chronic lym-
phocytic leukemia (CLL). MorphoSys is now solely responsible for the fur-
ther clinical development after the successful completion of the phase 1
clinical trial. Xencor received an upfront payment of US$ 13 million
(€ 10.5 million) from MorphoSys, which was capitalized to the in-licensed
research programs. Xencor is entitled to development, regulatory and
commercially-related milestone payments as well as tiered royalties on
product sales.

In financial year 2013, Xencor presented the clinical data of the com-
pleted phase 1/2a study. In 2013, MorphoSys continued the clinical
phase 2 studies.

In November 2008, MorphoSys and Galapagos announced the beginning
of a long-term joint drug discovery and development cooperation. The goal
of the cooperation is to explore novel mechanisms for the treatment of
inflammatory diseases and to develop antibody therapies against these
diseases. The agreement covers all activities ranging from the probing of
target molecules to the completion of clinical trials for novel therapeutic
antibodies. Subsequent to the demonstration of clinical efficacy in humans,
the programs will be out-licensed to partners for further development,
approval, and commercialization. Both companies provided their core
technologies and expertise within the scope of the alliance. Along with
the use of its adenovirus-based platform for the exploration of new target
molecules for the development of antibodies, Galapagos provided access to
already identified target molecules that are associated with bone and joint
diseases. MorphoSys provided access to its HuCAL antibody technologies
used for generating fully human antibodies directed against these target
molecules. Under the terms of agreements, both Galapagos and MorphoSys
bear the costs of research and development.

In June 2013, MorphoSys announced that it had entered into a global
agreement with GlaxoSmithKline (GSK) to develop and commercialize
MOR103. MOR103 is a proprietary HuCAL antibody from MorphoSys
against the GM-CSF target molecule. Under the terms of the agreement,
GSK assumes responsibility for the entire development and commercial-
ization of MOR103. Under the agreement, MorphoSys received an immedi-
ate upfront payment of € 22.5 million. Depending on the achievement of
certain developmental stages, as well as regulatory, commercial, and rev-
enue-related milestones, MorphoSys is eligible to receive additional pay-
ments from GSK in the amount of up to € 423 million, as well as tiered
double-digit royalties on net sales.

As the first activity within the context of the Innovation Capital Initiative,
in November 2012, MorphoSys announced a partnership with the pri-
vately held biopharmaceutical company, Lanthio Pharma, a Dutch com-
pany that specializes in the research and development of lantipeptides.
Lantipeptides are an innovative class of therapeutic substances demon-
strating high target molecule selectivity and improved active substance
properties. The LanthioPep technology of Lanthio Pharma is used to iden-
tify peptides that act on the disease’s specific point of attack and stabilizes
it in the optimal conformation for binding it to this receptor. As part of
their collaboration, MorphoSys and Lanthio Pharma will use their tech-
nologies to work together to create high quality and diverse lantipeptide
libraries. MorphoSys will receive preferential rights to the exclusive in-li-
censing of the LanthioPep technology for compound discovery.

8.5 sUBseQUen t eVen t s
On 22 January 2014, an updated statutory nominal capital was registered
at commercial register B, Munich. The updated nominal capital on 22 Janu-
ary 2014 amounts to € 26,220,882, divided into 26,220,882 no-par value
bearer shares.

Subsequent to the end of financial year 2013, there have not been any
significant changes in the industry environment. Other events of material
impact on the net assets, financial position, and results of operations have
also not occurred since the end of the financial year.

financial statementsNotes148

8.6 Re sP onsiBil i t Y s tat emen t
We confirm to the best of our knowledge and in accordance with the ap-
plicable reporting principles, that the consolidated financial statements
give a true and fair view of the assets, liabilities, financial position, and
results of operations of the Group, and that the Group Management Report
includes a fair review of the development of the business including the
results and the position of the Group, together with a description of the
principal opportunities and risks associated with the expected develop-
ment of the Group.

Martinsried, 20 February 2014

Dr. Simon Moroney
Chief Executive Officer

Jens Holstein
Chief Financial Officer

Dr. Arndt Schottelius
Chief Development Officer

Dr. Marlies Sproll
Chief Scientific Officer

financial statementsNotes149

Auditor’s Report

We have audited the consolidated financial statements prepared by
MorphoSys AG, Martinsried, comprising the consolidated income
statement, consolidated statement of comprehensive income, con-
solidated balance sheet, consolidated statement of changes in stock-
holders’ equity, consolidated statement of cash flows and notes,
together with the group management report for the business year
from January 1, 2013 to December 31, 2013. The preparation of the
consolidated financial statements and the group management re-
port 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 Managing Directors. Our responsibility is to
express an opinion on the consolidated financial statements and
on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in
accordance with Article 317 German Commercial Code and Ger-
man generally accepted standards for the audit of financial state-
ments promulgated by the Institute of Public Auditors in Germany.
Those standards require that we plan and perform the audit such
that misstatements materially affecting the presentation of the net
assets, financial position and results of operations in the consoli-
dated financial statements in accordance with the applicable finan-
cial reporting framework and in the group management report are
detected with reasonable assurance. Knowledge of the business
activities and the economic and legal environment of the Group
and expectations as to possible misstatements are taken into ac-
count in the determination of audit procedures. The effectiveness
of the accounting-related internal control system and the evidence
supporting the disclosures in the consolidated financial state-
ments and the group management report are examined primarily
on a test basis within the framework of the audit. The audit in-
cludes assessing the annual financial statements of those entities
included in consolidation, the determination of the entities to be
included in consolidation, the accounting and consolidation prin-
ciples used and significant estimates made by the Company’s

Board of Managing Directors, as well as evaluating the overall pre-
sentation of the consolidated financial statements and the group
management report. We believe that our audit provides a reason-
able basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit the consolidated
financial statements comply with IFRS as adopted by the EU, the
additional requirements of German commercial law pursuant to
Article 315a Section 1 German Commercial Code and supplemen-
tary provisions of the articles of incorporation and give a true and
fair view of the net assets, financial position and results of opera-
tions 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, 20 February 2014

PricewaterhouseCoopers
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

Stefano Mulas
Wirtschaftsprüfer
(German Public Auditor)

Dietmar Eglauer
Wirtschaftsprüfer
(German Public Auditor)

150

Report of the Supervisory Board

In this report, the Supervisory Board describes the performance of its functions and its work during
the 2013 financial year. Its discussions focused on the financial situation of the Group,
the cooperation agreements for its proprietary programs MOR103 and MOR202, investments in the proprietary
portfolio and the technologies of the Company as well as strategic perspectives for the Group.

Cooperat ion of the ManageMent Board and

SuperviSory Board
During the 2013 financial year, the Supervisory Board thoroughly
performed the duties assigned to it by law, the Articles of Associa-
tion, and its own Rules of Procedure. With a few exceptions, the
Supervisory Board also took into account the recommendations of
the German Corporate Governance Code (hereinafter referred to
as “Code”). We regularly advised and continually observed the
Management Board in its management of the Company and dealt
extensively with the operational and strategic development of the
Group. The Management Board fulfilled its duty to inform and fur-
nish us with periodic written and verbal reports containing timely
and detailed information on all business transactions and events
of significant relevance to the Company. These reports were pre-
pared by the Management Board in collaboration with the respec-
tive departments. In our committee meetings and plenary ses-
sions, we had the opportunity to discuss the reports and the
proposed resolutions of the Management Board in detail. Our
questions on the strategic topics impacting the Company were an-
swered with a great level of detail by the Management Board. In
this context, the Management Board also submitted the relevant
documents in a timely manner. Any deviations from the business
plan were thoroughly explained to us. Thus, we were directly
involved at an early stage in all decisions which were of fundamen-
tal relevance to the Company.

A corresponding resolution was passed if the approval of the
Supervisory Board for individual actions was required by law, the
Articles of Association, or by the Rules of Procedure. The Supervi-
sory Board members routinely prepared resolutions for actions of
the Management Board requiring Supervisory Board approval on
the basis of documentation provided in advance by the Manage-
ment Board. If appropriate, the Supervisory Board was supported
by the relevant committees and discussed together with the Man-
agement Board any proposition up for decision. All matters requir-
ing approval were submitted for review to the Supervisory Board
on a timely basis.

In the time intervals between meetings of the Supervisory Board
plenum and the committees, the Chairman of the Supervisory
Board regularly exchanged information and ideas with the Man-
agement Board, and in particular with its Chief Executive Director,
Dr. Simon Moroney. The Supervisory Board Chairman was also
kept informed of the current business situation and of any signifi-
cant business transactions. In consultation with the Management
Board, discussions also took place between the Chairman of the
Supervisory Board and members of the Senior Management Group.

priMary t opiC S and SuperviSory Board Mee t ingS in

f inanC ial year 2013
Nine Supervisory Board meetings were held in financial year
2013, four of which were conducted by telephone. With one excep-
tion, all Supervisory Board meetings were fully attended. Outside
of the meetings and in urgent cases, the Supervisory Board passed
resolutions by written procedure.

In addition to the above, in October 2013, a meeting of one and a
half days took place between the Management Board and the
Supervisory Board which was primarily concerned with the fol-
lowing topics:
• the Company’s strategic focus;
• further development of the Company’s portfolio;
• the results of an efficiency review, conducted in 2013, regarding

the work of the Supervisory Board.

In financial year 2013, the Supervisory Board was particularly
focused on the following topics and after a detailed examination
and discussion passed resolutions on these topics in the Super-
visory Board plenum:
• evaluation of the Company’s objectives for financial year 2012
and determination of the Company’s objectives for financial year
2014;

• review and update of the Rules of Procedure of the Supervisory

Board and its committees;

151

Report of the Supervisory Board

• the agenda and recommended resolutions of the 2013 Annual

General Meeting;

• conclusion of a global license agreement with GlaxoSmithKline

for the anti-inflammatory program MOR103;

• conclusion of a strategic alliance with Celgene for the develop-
ment of the CD38 cancer program MOR202 for patients with
multiple myeloma including a resolution for a capital increase
from authorized capital via the issue of 797,151 new shares to
Celgene as part of the strategic alliance;

• execution of a capital increase from authorized capital through
the issue of 1,514,066 new shares to international institutional
shareholders as part of a private placement;

• liquidation of the non-operating subsidiaries Poole Real Estate

Ltd. in England and MorphoSys U.S.A., Inc. in the U.S.

• review and update of the Management Board’s Rules of Proce-

dure and its schedule of responsibilities;

• the budget for the 2014 financial year.

Additionally, we passed a resolution in the Supervisory Board ple-
num on the remuneration of Management Board members for the
period from July 1, 2013 to June 30, 2014 based on external bench-
marking. We also evaluated the achievement of the agreed-upon,
individual bonus targets of the members of the Management Board
for 2012 and set their respective individual bonus targets for 2014.
We had the appropriateness of the Management Board’s compensa-
tion confirmed by an independent remuneration consultant. We
also dealt with the conditions of a convertible bond program for
members of the Management Board and Senior Management
Group and resolved to issue the corresponding convertible bonds
to the Management Board members. Moreover, we have prepared
and adopted new service agreements for all members of the Man-
agement Board. The new service agreements have a term of three
years and will take effect July 1, 2014 immediately following the
end of the terms of the current contracts. We also discussed and
adopted the key performance indicators of the Long-term Incentive
Plan for both the Management Board and the Senior Management
Group.

Furthermore, relating to the 2012 financial year we approved the
financial statements and the Management Board’s proposal for
appropriation of profits and also dealt with the Corporate Gover-
nance Report.

The focus of our regular discussions in the Supervisory Board’s
plenary meetings were MorphoSys’s revenue and profit develop-
ment, financial reports, the progress of the two business segments
Partnered Discovery and Proprietary Development, the results
and progress of the clinical programs for the development of pro-
prietary drugs and the further development strategy as well as the
development of new technologies. Finally, we have also kept our-
selves regularly informed on the subjects of risk management, the
internal control system, and on the results of the internal audit.

Confl iC t S of in t ereS t in t he SuperviSory Board
In the 2013 financial year, no conflicts of interest in the Super-
visory Board occurred.

aC t ivi t ieS and Mee t ingS of SuperviSory Board

CoMMi t t eeS
In order to efficiently perform its duties, the Supervisory Board has
established a total of three committees that prepare subjects fall-
ing within their respective areas of competence for the Super-
visory Board plenum: the Audit Committee, the Remuneration and
Nomination Committee, and the Science and Technology Commit-
tee. In each Supervisor Board meeting, the committee chairmen
report to the Supervisory Board on the work of the committees and
the minutes of the committee meetings are made available to all
Supervisory Board members. The composition of these committees
may be found in the “Declaration on Corporate Management”,
which is available on the Company’s web site under the heading
Media & Investors > Corporate Governance > Declaration on Corpo-
rate Management and can also be found in the Annual Report on
pages 74 – 78. All committee meetings were fully attended.

The Audit Committee met six times in the 2013 financial year
(including twice by telephone). This Committee dealt mainly with
accounting issues, the quarterly reports, and the financial state-
ments and consolidated financial statements. The Committee
discussed these topics with the Management Board and recom-
mended their approval to the Supervisory Board. The auditor
attended three Audit Committee meetings and informed its mem-
bers of the audit results. In addition, the Audit Committee made a
recommendation to the Supervisory Board for its proposal at the
Annual General Meeting for the election of the independent audi-
tor. Furthermore, the Committee deliberated on the investment
recommendations of the Management Board, on the implementa-
tion of a new accounting, consolidation and financial planning sys-
tem, on the risk management system, and on the results of the in-
ternal audit carried out in financial year 2013. In addition, the
Committee deliberated on the strategy for financial investments of
the Company. The Committee also received a report on activities,
the potential savings identified and the results of the savings
achieved by the Procurement and Logistics department which was
established in early 2012. Finally, the Committee dealt with the
preparation and the results of the random examination of the con-
solidated financial statements for the 2012 financial year per-
formed by the German Financial Reporting Enforcement Panel and
which resulted in no objections.

For efficiency reasons, there is a common Remuneration and Nom-
ination Committee, which meets in its respective function. This
Committee met on five occasions in financial year 2013 and mainly
dealt with the Management Board’s remuneration system and the
level of the Management Board’s compensation. In this context,
the Committee also commissioned an independent remuneration

152

Report of the Supervisory Board

expert with the task of preparing a Management Board remunera-
tion report to verify the appropriateness of the Management
Board’s remuneration. On the basis of this report, the Committee
prepared a recommendation as to the future structure of the Man-
agement Board’s compensation and submitted this to the Super-
visory Board for approval. The Committee also reviewed the ratio
of compensation between the Management Board and the Senior
Management Group as well as the staff overall and asked the com-
missioned remuneration expert to verify the appropriateness of
the vertical compensation ratios, which was confirmed. The Com-
mittee also dealt with the individual bonus targets of the Manage-
ment Board members as well as with the Company’s objectives
and provided respective recommendations to the Supervisory
Board for approval. In addition, the Committee discussed the key
performance indicators of the Long-term Incentive Plan for the
Management Board and the Senior Management Group and pre-
pared the resolution on the issuance of convertible bonds to Man-
agement Board members. Finally, this Committee prepared the
re-appointment of Management Board members and proposed the
corresponding new Management Board service agreements and
submitted these to the Supervisory Board for approval.

The Science and Technology Committee met on five occasions in
the 2013 financial year. This Committee mainly attended to the
further progress and expansion of the Company’s portfolio, the
development of new technologies, and the Company’s drug devel-
opment plans including the budget resources necessary for this.
Discussed in particular were the start of new development pro-
grams, the results of on-going clinical studies for the development
of proprietary drug candidates, development plans of current and
planned clinical studies, as well as the development strategy. In
addition, the Committee also addressed the production of clinical
trial materials for the Company’s proprietary drug candidates, the
competitive and patent situations of the Company’s proprietary
product candidates, and discussed the Management Board’s rec-
ommendations on strengthening the portfolio.

Corp orat e governanCe
The Supervisory Board dealt with the further development of cor-
porate governance at MorphoSys while taking into account the
amendments made in the Code in May 2013 by the Government
Commission German Corporate Governance Code. The detailed
Corporate Government Report, including the Declaration on Cor-
porate Management according to Sec. 289a HGB (German Com-
mercial Code), may be found on the Company’s web site under the
heading “Media & Investors > Corporate Governance > Corporate
Governance Report” and can also be found in the Annual Report
on pages 74 – 91.

In addition, we discussed with the Management Board the compli-
ance with the Code’s recommendations by the Company and, in
justified cases, resolved a few exceptions to the Code’s recommen-
dations. On the basis of this consultation, the Management Board
and the Supervisory Board submitted the annual Declaration of
Conformity on December 6, 2013. The current version of the an-
nual Declaration of Conformity can be found in this Annual Report
and is permanently available to MorphoSys shareholders on the
Company’s web site under the heading Media & Investors > Corpo-
rate Governance > Declaration of Conformity.

ChangeS in t he CoMp oSi t ion of t he ManageMen t Board

and SuperviSory Board
There were no changes in the composition of the Management
Board or in the Supervisory Board in the reporting period.

audi t of t he f inanC ial S tat eMen t S
In 2013, 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 Sharehold-
er’s Meeting on June 4, 2013. In accordance with Item 7.2.1 of the
Code, the Supervisory Board obtained a declaration of indepen-
dence from the auditor in advance.

The financial statements and the consolidated financial statements
of MorphoSys AG as well as the Management Report and Group
Management Report for financial year 2013 were properly audited
by PwC and issued with an unqualified Auditor’s Report. The key
audit topics for the consolidated and separate financial statements
for the 2013 financial year were in particular the deconsolidation
of the AbD Serotec segment and the determination of the corre-
sponding disposal gain; revenue recognition in the context of com-
plex contracts; audit of the long-term share-based compensation
program and the convertible bonds granted; the audit of the capital
increases executed; the evaluation of the carrying amounts of in-
tangible assets; the calculation of current and deferred taxes; the
completeness of other provisions for outstanding invoices; and the
audit of the completeness and correctness of the Notes.

In addition, the auditor confirmed that the Management Board has
established an appropriate reporting and monitoring system
which is suitable in its design and administration for the early
detection of developments that could threaten the Company’s exis-
tence.

153

Report of the Supervisory Board

The audit reports and documents relating to the financial state-
ments and consolidated financial statements were provided on a
timely basis to all Supervisory Board members for review. The au-
dit report and the consolidated financial statements and the
MorphoSys Group’s Management Report were discussed in detail
in the Audit Committee meeting on February 27, 2014 and at the
Supervisory Board meeting on the same day. The audit report, the
financial statements, and the Management Report of MorphoSys AG
were discussed in detail in the Audit Committee meeting on March
24, 2014 and at the subsequent meeting of the Supervisory Board
on the same day. The auditor attended all meetings concerning the
financial statements and reported on the key results of his audit.
He also explained the scope and focus of the audit and was avail-
able to both the Audit Committee and the Supervisory Board to
answer questions and provide further information.

The Audit Committee discussed the audit results in detail and rec-
ommended to the Supervisory Board that it approve the financial
statements prepared by the Management Board. The Supervisory
Board also took note of the audit results and, in turn, reviewed the
financial statements and management reports in accordance with
the statutory provisions. Following its own examination, the Su-
pervisory Board has also determined that it sees no cause for ob-
jection. The financial statements and consolidated financial state-
ments prepared by the Management Board and reviewed by the
auditor as well as the Management Report and Group Management
Report were subsequently approved by the Supervisory Board.
Thus, the financial statements were adopted. In addition, the Su-
pervisory Board also reviewed the Management Board’s proposal
for the appropriation of profits and agreed with this proposal.

reCogni t ion f or dediC at ed ServiCe
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 achievements and their dedicated service, as
well as for the motivational culture experienced this past financial
year. Through their efforts, MorphoSys’s portfolio has continued to
mature and important milestones have been achieved.

Martinsried/Planegg, March 24, 2014

Dr. Gerald Möller
Chairman of the Supervisory Board

154

Supervisory Board of MorphoSys AG

DR. GERAL D MÖL L ER

C HAIRMAN
Heidelberg, Germany

DR. GEOF F RE Y VERNON

DEP U T Y C HAIRMAN
Devon, UK

DR. WALT ER BL ÄT T L ER

MEMBER
Brookline, MA, USA

MEMBER OF T HE SUPERVI S OR Y

NO O T HER SUPERVI S OR Y B OARD

B OARD OF:
• 4sigma, Inc.*, Bermuda (Chairman)
• Adrenomed AG, Germany (Member)
• Deﬁ niens AG, Germany (Chairman)
• Genticel SA*, France (Director)
• Illumina, Inc.*, USA (Director)
• Invendo Medical GmbH*, Germany

(Chairman)

B OARD OF:
• Cornwall Farmers Ltd.*, UK

(Deputy Chairman)

• Veryan Medical Ltd.*, UK
(Non-Executive Chairman)
• XL TechGroup, Inc.*, USA
(Non-Executive Chairman)
• Ziggus Holdings Ltd.*, UK
(Non-Executive Chairman)

MEMBERSHIP S

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

155

Supervisory Board of MorphoSys AG

DR. DANIEL C AMUS

MEMBER
Geneva, Switzerland

DR. MARC C L UZEL

MEMBER
Paris, France

K ARIN EA S T HAM

MEMBER
Rancho Santa Fe, CA, USA

MEMBER OF T HE SUPERVI S OR Y

NO O T HER SUPERVI S OR Y B OARD

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)

MEMBERSHIP S

B OARD OF:
• Geron Inc.*, USA (Director)
• Illumina, Inc.*, USA (Director)
• Veracyte, Inc.*, USA (Member)

156

Senior Management Group of MorphoSys AG

Senior Management Group of
MorphoSys AG

S A S C HA 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 & Tax

SILVIA DERMIE T ZEL
Head of Human Resources

DR. GABRIEL E EL BL
Head of Regulatory Aﬀ airs

DR. MARKUS ENZEL BERGER
Head of Discovery Alliances &
Technologies

DR. CLAUDIA GUTJAHR-LÖSER
Head of Corporate Communi-
cations & Investor Relations

DR. S T EF F EN HEEGER
Head of Clinical Research

DR. BERND HU T T ER
Head of Intellectual Property

DR. BARBARA K REBS -P OHL
Head of Business
Development

157

Senior Management Group of MorphoSys AG

DR. L UD GER L ANGER
Head of Clinical Operations &
Project Management

C HARL O T T E L OHMANN
General Counsel

DR. RAL F O S T END ORP
Head of Protein Sciences &
CMC

L ARA SMI T H-WEBER
Head of Controlling

DR. S T EFAN S T EIDL
Head of Preclinical
Development

DR. HARAL D WAT ZK A
Head of Alliance Management

DR. ARMIN WEIDMANN
Head of Compliance & Quality
Assurance

DR. D OMINIK A WEINELT
Head of Drug Safety &
Pharmacovigilance

DR. GÜN T ER WEL L NHOF ER
Head of Technical
Operations & IT

158

Glossary

C Cagr – Compound annual growth rate

fab format – The antigen binding fragment
of the antibody

A adC – Antibody drug conjugate; combination
of a therapeutic antibody with a second
molecule

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

Car-t technology – New therapeutic ap-
proach in which immune cells are repro-
grammed

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

adCp – Antibody-dependent cellular phago-
cytosis

Cd19 – Therapeutic target for the treatment
of B-cell lymphomas and leukemias

all – Acute lymphoblastic leukemia; a form
of cancer of the white blood cells character-
ized by excess lymphoblasts

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

antigen – Foreign substance stimulating
antibody production; binding partner of anti-
body

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

B Biosimilars – Term used to describe official-
ly approved new versions of innovator bio-
pharmaceutical products, following patent
expiration

Cd20 – Therapeutic target for the treatment
of B-cell lymphomas and leukemias

Cd38 – Therapeutic target for the treatment
of multiple myeloma and certain leukemias

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

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

CMo – Contract manufacturing organization

Cro – Contract research organization

Cto – Contract testing organization

Bispecific – Antibody consisting of parts
from two different antibodies

D discounted cash flow analysis – Method
of valuing assets, especially for due diligence

E eMa – European Medicines Agency

fc-engineered – Modification within the Fc
part of an antibody to improve effector func-
tion

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 scientific quality standard for
designing, conducting, recording and report-
ing trials that involve the participation of
human subjects

gdp – Gross domestic product; monetary
value of all finished goods and services pro-
duced within a country’s borders in one year

glp – Good laboratory practice; a formal
framework for the implementation of safety
tests on chemical products

gM-CSf – Granulocyte-macrophage colony-
stimulating factor; underlying target molecule
of MOR103 program

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

159

Glossary

H huCal – Human Combinatorial Antibody
Library; proprietary antibody library enabling
rapid generation of specific human antibodies
for all applications (explanation of GOLD/
PLATINUM)

human – Of human origin

M Market capitalization – Value of a com-
pany’s outstanding shares, as measured by
shares times current price

R research reagents – Substances used in

research applications

M&a – Mergers & Acquisitions

Monoclonal antibody – Homogeneous anti-
body originating from a single clone, pro-
duced by a hybridoma cell

rheumatoid arthritis – Inflammatory dis-
ease of the joints; abbreviation: RA

royalties – Percentage share of ownership
of the revenue generated by drug products

ifrS – International Financial Reporting
Standards; future EU-wide standards pro-
duced by the IASB

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

S Scaffolds – Proteins with antibody - like

capabilities

inclusion body myositis – Inflammatory
myopathy

inflammatory diseases – Inflammatory
tissue modification, often caused by autoim-
mune reactions

innovation capital – Investments in start-
ups with technologies and product candi-
dates being close to MorphoSys’s areas of in-
terest

iSt – Investigator-sponsored trial; clinical
study in which the entire responsibility
(sponsor function) is carried by the clinical
center and not by a pharmaceutical company

iWCll – International workshop on chronic
lymphocytic leukemia; selection of criteria
for diagnosing chronic lymphocytic leukemia
and analyzing clinical study results

L 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

Multiple sclerosis – Disease of the central
nervous system characterized by the destruc-
tion of nerve fibers

Slonomics – DNA engineering and protein
library generation platform acquired by
MorphoSys in 2010

N nhl – Non-Hodgkin lymphomas; diverse
group of blood cancers that include any kind
of lymphoma except Hodgkin’s lymphomas

P pharmacodynamics – Study of the effects

of drugs on the body

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

preclinic – Preclinical stage of drug develop-
ment; tests in animal models as well as in
laboratory essays

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

psoriasis – A chronic, non-contagious auto-
immune disease which affects the skin and
joints

Small molecules – Low molecular com-
pounds

target – Target molecule for thera peutic in-
tervention, e.g. on the surface of diseased
cells

target product profile (tpp) – Summary
of specifications on a planned therapeutic
product

target selectivity – Criteria to describe
to what degree an antibody binds to other
structures besides its target molecule

tecdaX – Index of the 30 largest technology
companies listed on the Frankfurt Stock Ex-
change

toxicity – Poisonousness

trifunctional antibodies – Modified anti-
body binding three target structures

Y ylanthia – The novel next-generation anti-

body platform of MorphoSys

160

Index

A Annual General Meeting

Assets
Auditor’s report

34
43, 96
149

E Earnings per share

EBIT
Employees

114, 126
40
35 et seq., 54 et seq.,
60, 71
52
44, 98, 113, 117, 133

Environmental protection
Equity

B Balance sheet
Bimagrumab

Bio-Rad

BYM338

45, 96 et seq., 126 et seq.
17 et seq., 20, 29 et seq.,
46 et seq., 71
14, 38, 40, 105, 119,
124, 133, 134
see bimagrumab

C Cash flows

Cash flow statement
Capital expenditure
CD38
Change of control
CNTO1959
Committees of the
Supervisory Board
Competition
Convertible bonds

76 et seq., 151 et seq.
27 et seq.
32, 79 et seq.,
83 et seq., 117
74 et seq.
40 et seq., 113, 121
44
108

Corporate Governance Report
Cost of goods sold
Credit rating
Currency risk

D Declaration of Conformity

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

87
80 et seq.
72

F Financial analysis

2014 Financial calendar
Forecast

38 et seq.
Back cover
69 et seq.

43
94
29, 43
19
86, 89, 137 et seq.
see guselkumab

G Gantenerumab
Glossary
GM-CSF
Goodwill
Guselkumab

17 et seq., 30
158
19, 21, 30 et seq.
112 et seq., 116
18, 30, 71

H Human resources

38, 54, 60, 71

Income taxes
Information required under
takeover law
Intellectual property

112, 114

87 et seq.
53, 61, 96, 116

K Key figures

Back cover

Letter to the shareholders
Liabilities
Liquidity

11 et seq.
41, 44, 97, 111
32, 43, 71 et seq.

M Management Board

6 et seq.
15
Management of the Group
13 et seq.
Management report
53
Manufacturing license
Market capitalization
32
Milestone payments 16 et seq., 21, 24, 26,
31, 44, 46, 59, 69, 72, 113,
120, 146 et seq.
16, 19, 20 et seq., 30 et seq.,
38, 45 et seq., 53, 63, 69,
71 et seq., 147, 150
16 et seq., 19 et seq., 30, 32,
38, 45 et seq., 53, 60, 63, 69,
71, 72, 89, 119, 147, 150 et seq.
17, 20 et seq., 30 et seq.,
46 et seq., 53, 69, 71, 119, 132

MOR208

MOR202

MOR103

N Net Profit

94 et seq., 98, 114, 118, 125

O Operating expenses 39 et seq., 113 et seq.
114, 145
62 et seq.
69 et seq.

Operating leases
Opportunities
Outlook

P Patents
Pipeline
Procurement
Provisions

53, 61, 96, 116
Front cover
52
97, 117, 134

Q Quality management

53, 90

161

Index

R Remuneration report

83
Remuneration, Supervisory Board 86, 144
Remuneration, Management Board 83, 143
Supervisory Board Report
74
29 et seq., 121
Research and development
148
Responsibility statement
38
Revenues
Revenue recognition
113
58 et seq.
Risks
Risk management
58

Taxes
Trading volumes
Training

W WACC
WpHG

40
32
54

112, 132
34, 80

S Sales, general and

Segment Proprietary Development

administrative expenses
Segment Partnered Discovery

40
14, 24, 39,
47, 69, 71 et seq., 119, 146
14, 31,
38, 69, 119, 146
118 et seq.
14, 38, 119

Segment reporting
Segment Research Antibodies
Shareholdings, Management and
Supervisory Boards 79 et seq., 141 et seq.
33
Share price development
Share, repurchase
82
50
Social responsibility
Statements of changes in
shareholders’ equity
Stock options

98
32, 79 et seq.,
83 et seq., 136 et seq.
68, 147
14 et seq., 105
74 et seq.
50 et seq.

Subsequent events
Subsidiaries
Supervisory Board
Sustainability

162

List of Figures

1:
2:
3:
4:
5:
6:
7:

Organizational Structure of the MorphoSys Group
Revenues of the MorphoSys Group by Segment
Clinical Studies with MorphoSys Antibodies
Total Market for Antibodies
Sales Potential of Proprietary Programs
Performance of the MorphoSys Share in 2013
Comparison of the MorphoSys Share Price Development with Benchmark Indices
between 2009 and 2013
Headcount of the MorphoSys Group
Employee Absence Rates
Employees by Gender
Labor Turnover Rate
Seniority

8:
9:
10:
11:
12:
13: Revenue of the MorphoSys Group by Region
14: Revenues Partnered Discovery and Proprietary Development
15: Distribution of R&D Expenses
16:
Selected R&D Expenses
17: Occupational Safety at MorphoSys
18: Quality Management System at MorphoSys
19:
20:
21: Description of Major Risks at MorphoSys
22: Rise of R&D Budget for Proprietary Drug Development in 2014
23: Risk-Based Internal Audit Plan
24:
25:

Patent Lifetime for Key Platform Technologies
The Risk and Opportunity Management System at MorphoSys

The MorphoSys Compliance System
Legal Structure of the MorphoSys Group

22
22
23
23
23
33

33
36
36
37
37
37
48
48
49
49
56
57
57
65
66
73
90
91
105

163

List of Tables

1:
Top 5 Monoclonal Antibody Drugs
2:
Market Data on Selected Partnered Programs in Clinical Phases 2 and 3
3:
Proprietary Clinical Product Candidates
4:
Development of Financial Performance Indicators
5:
Sustainable Development of Key Performance Indicators (SD-KPIs) at MorphoSys
6:
Capital Expenditure on Fixed Assets in 2013
7:
Key Data for the MorphoSys Share
8:
Analyst Recommendations
9:
Distribution of R&D Expenses
10: Result of Discontinued Operations
11: Multiple-Year Overview – Income Statement
12: Multiple-Year Overview – Financial Situation
13: Multiple-Year Overview – Balance Sheet Structure
14: Comparison of Projected and Actual Business Performance
15: Composition of the Supervisory Board
16:
17:
18: Directors’ Dealings in 2013
19a: Compensation of the Management Board in 2013
19B: Compensation of the Management Board in 2012
20: Compensation of the Supervisory Board

Participation of Supervisory Board Members
Related Parties

16
18
21
25
26
29
34
35
39
41
42
42
45
46
75
77
79
81
84
84
86

164

Imprint

Concept and design
3st kommunikation GmbH, Mainz

photos
Andreas Pohlmann, Munich

translation
Klusmann Communications, Niedernhausen

editorial office
Friedrichs & Friends, Hamburg

typesetting and lithography
Knecht GmbH, Ockenheim

printer
Westdeutsche Verlags- und
Druckerei GmbH, Mörfelden-Walldorf

Copy deadline
24 March 2014
(except financial statements)

MorphoSys ag
Lena-Christ-Str. 48
82152 Martinsried/Planegg
Germany
Phone: +49-89-89927-0
Fax:
Email: info@morphosys.com
www.morphosys.com

+49-89-89927-222

Corporate Communications and
investor relations
Phone: +49-89-89927-404
Fax:
Email:

+49-89-89927-5404
investors@morphosys.com

This financial 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)

MorphoSys Group (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 of Tangible Assets

Amortization of Intangible Assets

EBITDA

EBIT

Net Profit/(Loss)

Net Profit/(Loss) from
Discontinued Operations
Bal ance shee t 2

Total Assets

Cash, Marketable Securities and
Other Financial Assets

Intangible Assets

Total Liabilities

Stockholders’ Equity

Equity Ratio (in %)

MoRphosys shaRe

12/31/13

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

78.0

0.0

49.2

18.8

27.4

5.6

1.5

3.3

16.4

9.9

13.3

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

1.7

3.8

15.5

9.8

8.2

87.0

7.3

46.9

23.2

29.6

13.8

2.1

4.0

19.2

13.1

9.2

81.0

6.7

39.0

23.9

26.1

3.8

1.6

3.8

18.1

12.8

9.0

71.6

7.1

27.6

20.5

21.5

3.8

1.5

4.8

21.9

16.5

13.2

62.0

7.9

22.2

24.8

18.8

12.0

1.5

3.7

13.3

8.3

11.5

53.0

8.0

17.5

21.4

18.1

4.0

1.5

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

0.95

11.45

7.55

9.1

1.7

0.7

2.0

3.2

0.5

0.3

–

447.7

224.3

228.4

209.8

206.1

203.3

184.7

127.8

80.1

55.8

390.7

35.1

95.5

352.1

79 %

135.74

134.44

108.44

35.0

22.3

202.2

90 %

66.0

31.3

197.1

86 %

69.2

23.9

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

26,220,882 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

Group Earnings/(Loss) per Share,
Diluted (in €)

Dividend (in €)

Share Price (in €)

peRsonnel Data

0.54

55.85

0.08

29.30

0.36

17.53

0.40

18.53

0.40

17.04

0.59

18.75

0.53

16.10

0.31

18.12

0.28

13.77

0.02

12.70

Total Group Employees (Number)

299

4213

446

464

404

334

295

279

172

132

1 Due to the agreement between Bio-Rad and MorphoSys, signed in December 2012, to acquire substantially all
of the AbD Serotec segment, for the years 2013, 2012 and 2011, revenues, income and expenses in connec-
tion with the transaction are shown in the line item “Net Profit/(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. For the year 2012, the line item
“Total Liabilities” includes current and non-current liabilities in connection with the transaction in the amount
of € 3.7 million.

3 The total amount includes 135 employees from the discontinued operations of AbD Serotec.
4 Including cash reserves of the discontinued AbD Serotec segment in the amount of € 5.3 million.
5 Excludes stock-based compensation.

F I N A N C I A L C A L E N D A R

28 February 2014

p u b l i c at i o n o f 2 0 1 3 y e a r - e n d r e s u lt s

29 april 2014

p u b l i c at i o n o f 2 0 1 4 t h r e e m o n t h s’ r e p o r t

23 may 2014

2 0 1 4 a n n u a l g e n e r a l m e e t i n g i n m u n i c h

28 July 2014

p u b l i c at i o n o f 2 0 1 4 s i x m o n t h s’ r e p o r t

7 november 2014

p u b l i c at i o n o f 2 0 1 4 n i n e m o n t h s’ r e p o r t

morphosys ag
Lena-Christ-Str. 48
82152 Martinsried / Planegg
Germany
Phone: +49-89-89927- 0
Fax:
www.morphosys.com

+49-89-89927-222