MorphoSys Annual Report 2017

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FY2017 Annual Report · MorphoSys

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M O S T A D V A N C E D
D E V E L O P M E N T S TA G E

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Product Pipeline

MorphoSys’s Product Pipeline (March 8, 2018)

M O S T A D V A N C E D
D E V E L O P M E N T S TA G E

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P R O G R A M / P A R T N E R
I N D I C AT I O N

BAY1093884 / Bayer
Hemophilia

Elgemtumab (LJM716) / Novartis
Cancer

MOR106 / Galapagos
Inﬂ ammation

MOR107 3 (LP2-3) / not partnered
Not disclosed

NOV-7 (CLG561) / Novartis
Eye diseases

NOV-8 / Novartis
Inﬂ ammation

NOV-9 (LKA651) / Novartis
Diabetic eye diseases

NOV-10 (PCA062) / Novartis
Cancer

NOV-11 / Novartis
Blood disorders

NOV-13 (HKT288) / Novartis
Cancer

NOV-14 / Novartis
Asthma

PRV-300 (CNTO3157) / ProventionBio
Inﬂ ammation

Vantictumab (OMP-18R5) / OncoMed
Solid tumors

P R O G R A M / P A R T N E R
I N D I C AT I O N

Tremfya®1 (guselkumab) / Janssen/J&J
Psoriasis

Gantenerumab / Roche
Alzheimer’s disease

MOR208 / not partnered
Hematological malignancies

Anetumab ravtansine (BAY94-9343) / Bayer
Solid tumors

BHQ880 / Novartis
Multiple myeloma

Bimagrumab ( BYM338) / Novartis
Musculoskeletal diseases

CNTO6785 / Janssen/J&J
Inﬂ ammation

MOR103 (GSK3196165) / GlaxoSmithKline
Inﬂ ammation

MOR202 / I-Mab Biopharma 2
Multiple myeloma

NOV-12 (MAA868) / Novartis
Prevention of thrombosis

Setrusumab (BPS804) / Mereo/Novartis
Brittle bone syndrome

Tesidolumab (LFG316) / Novartis
Eye diseases

Utomilumab (PF-05082566) / Pﬁ zer
Cancer

VAY736 / Novartis
Inﬂ ammation

Xentuzumab (BI-836845) / BI
Solid tumors

1 We still consider Tremfya® a phase 3 compound due to ongoing studies in various indications.
2 For development in the Greater China market (China, Hong Kong, Taiwan, Macao).
3 A phase 1 study in healthy volunteers was completed. MOR107 is currently in preclinical

investigation with a focus on oncology indications.

l e g e n d :

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

114

Programs
in Total

proprie tary
progr ams

Clinical
Product Candidates*

in phase 2

out- licensed
progr am

in phase 1

101

partnered discovery
progr ams

in phase 3

*In addition, 7 proprietary programs and 54 partnered discovery
programs are in discovery stage, 1 proprietary and 24 partnered
discovery programs are in preclinic.

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ENG INEERING THE MEDICINES OF TOMORROW

Our mission is to make excep-
tional, innovative biopharma-
ceuticals to improve the lives of
patients suﬀ ering from serious
diseases. We are driven by a de -
sire to make the medicines of
tomorrow a reality.

MorphoSys at a glance

Figures, data, facts (December 31, 2017)

pro gr ams in
discovery

More than

active clinical studies with
MorphoSys antibodies

pro gr ams in
preclinic

pro gr ams in
phase 1

pro gr ams in
phase 2

pro gr ams in
phase 3

116.8

95.7

22.2

)
€

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s
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p
x
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d
&
r

2007

2016

2017

employees

326
34

nations

indi catio ns:

52 %

oncology

27 %

autoimmune and
inﬂ ammatory diseases

MOR Programs

11 %

musculoskeletal
diseases

6 %

eye
diseases

4 %

neurological
diseases

t
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g
u
r
d

Please find additional

information in our

online magazine.

https://reports.morphosys.com/2017/

ENG INEERING THE MEDICINES OF TOMORROW

Our mission is to make excep-

tional, innovative biopharma-

ceuticals to improve the lives of

patients suﬀ ering from serious

diseases. We are driven by a de -

sire to make the medicines of

tomorrow a reality.

Contents

g r o u p m a n ag e m e n t r e p o r t

23
41

49
53
57
57
57
64
73

Operations and Business Environment

Analysis of Net Assets, Financial Position and

Results of Operations

Outlook and Forecast

Shares and the Capital Market

Sustainable Business Development
Sustainable Business Development

Risk and Opportunity Report

Statement on Corporate Governance and

Corporate Governance Report

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

104
105
106
108

110
112
155

Consolidated Statement of Income (IFRS)

Consolidated Statement of Comprehensive Income (IFRS)

Consolidated Balance Sheet (IFRS)

Consolidated Statement of Changes in

Stockholders’ Equity (IFRS)

Consolidated Statement of Cash Flows (IFRS)

Notes

Responsibility Statement

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

156
161
166
168
170
173
174

Independent Auditor’s Report

Report of the Supervisory Board

Supervisory Board of MorphoSys AG

Senior Management Group of MorphoSys AG

Glossary

List of Figures and Tables

Imprint

the company,

Dr. Simon Moroney
its culture and our future
success are very dependent
on our employees – on their
inspiration, their motivation,
their hard work.

What was your motivation to found MorphoSys
25 years ago and what do you believe is a key
success factor?

Dr. Simon Moroney — We were motivated to found
Dr. Simon Moroney —
Dr. Simon Moroney — We were motivated to found
MorphoSys by the shared goal to build some-
thing – to build a company. We had speciﬁ c tech-
nical ideas about how we could make human anti-
bodies, substances for therapeutics. It was a shared
desire to move away from what we had done in the
past, be at some level independent, be responsible
for our own futures.

I think that cultural aspect is one of the things that
makes MorphoSys an attractive place for people to
work. We take care to look after our people, to give
people career opportunities.

o n li n e rep o rt
Watch the full interview with
Dr. Simon Moroney

https://reports.morphosys.com/2017/
#interview

Inter view with
Dr. Simon Moroney, CEO and
cofounder of MorphoSys

i am confident

Dr. Simon Moroney
that we continue to be
a source of innovation in
the pharmaceutical
industry – that we make a
difference for patients.

MorphoSys aims to intensify clinical develop-
ment of its own therapeutic compounds in
order to address the needs of patients suf-
fering from serious diseases. Why is this a
crucial objective for the company?

Dr. Simon Moroney — It’s also a moral aspect. If a
company controls technologies that can be used to
develop better therapeutic substances, I believe
there is almost a duty to apply those technologies
to the beneﬁ t of patients.

An example from our own portfolio is an antibody
that we’re developing for a form of lymphoma,
where we have shown in ﬁ rst clinical trials that we
can really make a diﬀ erence for patients suﬀ ering
from this very serious illness.

How will the headlines about MorphoSys read
in 25 years?

Dr. Simon Moroney — I’m conﬁ dent that MorphoSys
will be a signiﬁ cant player in our industry. I’m
conﬁ dent that we’ll continue to be a source of inno-
vation in the pharmaceutical industry, a source of
the next generation of products – that we make a
diﬀ er ence for patients.

Goals and Strategy

On our way to becoming a fully integrated biopharmaceutical company

MOR Programs

The Proprietary Development segment is becoming
increasingly important: in 2017, the ﬁ rst proprietary
program progressed into a pivotal clinical trial.
Additional four programs are in clinical development.

Partnered Programs

In the Partnered Discovery segment, we identify optimized
therapeutic antibodies on behalf of partners. In 2017,
Tremfya® was the ﬁ rst product derived from a partnership
to receive market approval.

Goals and Strategy

On our way to becoming a fully integrated biopharmaceutical company

Innovations

Innovative technologies and smart development
strategies are central to our approach. Success is
created by our employees, who collaborate
closely across all disciplines.

Strategy

MorphoSys’s goal is to develop exceptional biopharma-
ceuticals to improve the lives of pa tients suﬀ ering from
serious diseases. With the successful transformation
from a technology provider to a drug development com-
pany, we are well on the way to achieving this goal.

MOR106

MOR106 is the first
Ylanthia antibody in clinical
development, being investigated for
the treatment of atopic dermatitis.

In cooperation with our partner
Galapagos we are developing the antibody
against inﬂ ammatory skin diseases.
Find out more in our online magazine.

https://reports.morphosys.com/2017/#mor106

MOR208

Exploring new ways and

treatment options for blood
cancer patients.

MOR208 is being developed in a
pivotal clinical trial for the treatment
of malignant B cell diseases.
Find out more in our online magazine.

https://reports.morphosys.com/2017/#mor208

Tremf ya ®

Tremfya® is the first
is the first
is the first
is the first

HuCAL antibody with market approval
HuCAL antibody with market approval
HuCAL antibody with market approval
HuCAL antibody with market approval
in the United States, Europe and
in the United States, Europe and
in the United States, Europe and
in the United States, Europe and
Canada for the treatment of moderate-
Canada for the treatment of moderate-
Canada for the treatment of moderate-
Canada for the treatment of moderate-
to-severe psoriasis.
to-severe psoriasis.
to-severe psoriasis.
to-severe psoriasis.

The compound is marketed by
our partner Janssen and investigated
in additional indications.
Find out more in our online magazine.

https://reports.morphosys.com/2017/#tremfya

T h e C o m p a n y

Management Board of MorphoSys AG

D R . M A R K U S E N Z E L B E R G E R
Chief Scientiﬁ c Oﬃ cer

D R . S I M O N M O R O N E Y
Chief Executive Oﬃ cer

D R . M A LT E P E T E R S
Chief Development Oﬃ cer

J E N S H O L S T E I N
Chief Financial Oﬃ cer

Letter to the Shareholders

T h e C o m p a n y

In 2017, we took a
large step towards
our goal of becom-
ing an integrated
biopharmaceutical
company. The
major highlights
were the approval
of Tremfya® and
clinical data for
MOR208.

Letter to
the Shareholders

In 2017, MorphoSys took a large step towards our goal of becoming a fully integrated bio-
pharmaceutical company. We made substantial progress in both the Partnered Discovery
and Proprietary Development segments of our business. The major highlights were,
ﬁ rst, the approval of our partner Janssen’s Tremfya® and second, clinical data that,
we hope, hint at a bright future for our proprietary program MOR208. These and other
developments point to the successful execution of our strategy, which is focused on de-
veloping innovative biopharmaceuticals to help patients suﬀ ering from serious diseases.

Our heritage is that of a company that commands a technology for making therapeu-
tics belonging to an important class – human antibodies. It has always been our
ambition to make active substances that are optimized for their safety, therapeutic
activity and ideally, their convenience. We believe that by selecting and optimizing
the best possible molecule from our antibody library, we can have a positive impact
on a patient’s disease and on his or her quality of life. This is the motivation that
drives all of us at MorphoSys, from the lab scientist to the oﬃ ce worker.

In July 2017, we witnessed a wonderful illustration of how our technology can deliver
great drugs when our partner Janssen brought a new product, Tremfya®, to the mar-
ket. This drug, which comprises an antibody made using our proprietary HuCAL tech-
nology as the active substance, is for the treatment of moderate-to-severe psoriasis,
a terribly debilitating disease. The vision that underlies all of our therapeutic projects
looks like being realized in Tremfya®: data from clinical trials showed that it is
highly eﬀ ective in treating psoriasis, with a bi-monthly self-administration that is very
convenient for patients. Janssen is continuing the development of Tremfya® in pso-
riasis as well as in other indications. In the meantime, Tremfya® has been approved
by regulatory authorities in the United States, Europe and Canada and we are hopeful
that it will become a highly successful drug.

In October, a second major milestone was reached when we received breakthrough
therapy designation (BTD
FDA) for our
) for our
) from the US Food and Drug Administration (
) from the US Food and Drug Administration (
) from the US Food and Drug Administration (FDA
BTD) from the US Food and Drug Administration (
therapy designation (
therapy designation (BTD
FDA
FDA
BTD
proprietary product candidate MOR208. BTD is awarded for an investigational drug
to treat a serious condition when preliminary clinical evidence indicates that the drug
may demonstrate substantial improvement over available therapy on a clinically
signiﬁ cant endpoint. The evidence that led to this award came from our L-MIND
signiﬁ cant endpoint. The evidence that led to this award came from our L-
signiﬁ cant endpoint. The evidence that led to this award came from our L-MIND
which is investigating a combination of lenalidomide and MOR208 in older patients
suﬀ ering from a particularly aggressive form of lymphoma, for which there are no

trial,

T h e C o m p a n y

Letter to the Shareholders

We also entered our
ﬁ rst ever deal with
a Chinese company,
I-Mab Biopharma,
who will develop
MOR202 in the
Chinese region.

approved treatments. Preliminary data showed that over half the patients in the
trial experienced a response, with a third of them showing a complete response. The
data also revealed that the responses were long lasting and, in the vast majority
of responding patients, are still ongoing. Our goal now is to complete clinical testing
within the L-MIND
study. We will continue the ongoing discussion with the FDA on
within the L-
within the L-MIND
the potential path to market for MOR208, including the possibility of an expedited
regulatory submission primarily based on L-
regulatory submission primarily based on L-MIND
regulatory submission primarily based on L-MIND

We believe that if MOR208 approval is obtained, it oﬀ ers a great opportunity for us to
advance MorphoSys to a fully-integrated commercial biopharmaceutical company. It is
a product that could be used in a relatively limited number of hemato-oncology centers,
which can be targeted with a relatively modestly-sized sales force. We are convinced
that by pursuing our own commercialization strategy for MOR208, we can maximize
the value within this therapeutic program.

Tremfya® and MOR208 were the two most visible highlights of a strong year for our
pipeline of therapeutic agents. Two others worthy of mention are MOR202 and
MOR106. In November, we entered our ﬁ rst ever deal with a Chinese company, when
we signed a deal with I-Mab Biopharma, who will develop MOR202 in the Chinese
region. The Chinese market for pharmaceuticals is huge, is developing extremely rap-
idly and is becoming much more accessible to medicines from the west. In I-Mab,
we believe we have found an ideal partner for MOR202, and we look forward to sup-
porting them in their objective of developing MOR202 quickly. We expect I-Mab to
start clinical trials in China later this year. Meanwhile, we are exploring opportunities
for the further development of MOR202, either alone or with partners, in one or more
oncology indications, including non-small-cell lung cancer.

In October, we published ﬁ rst results from our phase 1 trial of MOR106. This anti-
body, which is being co-developed under a 50 : 50 cost- and rights-sharing agreement
with Galapagos, is being tested for the treatment of atopic dermatitis, a very wide-
spread and poorly treated skin disease. The phase 1 data showed that MOR106 was
generally well tolerated, and showed ﬁ rst signs of activity in reducing the signs and
symptoms of the disease. We also observed that the eﬀ ect was durable – although the
drug was only administered for four weeks, the positive impact on the disease was
observable for up to three months. The next step is phase 2 development, which is
planned to commence in 2018.

Letter to the Shareholders

T h e C o m p a n y

We are deliberately evolving away from our earlier business model in which we pro-
vided discovery services to pharmaceutical companies. This change gives us a greater
opportunity to create long-term value, as has been seen in the development of our
share price over the last couple of years. It is, however, not without short-term conse-
quences. For example the end of our collaboration with Novartis, which came, as
planned, in November 2017 has an immediate negative impact on our revenues. I am
convinced that this is the right step in the long run for several reasons – we have
more freedom over which projects we work on, more control over their development
and most importantly, retain more value for the company. The programs we have
worked on with our pharmaceutical partners will, nonetheless, serve us extremely well
in the years to come. Tremfya® is just one of 100 Partnered Discovery programs on
which we could earn milestones and royalties well into the future. This will form a solid
foundation for our plans and activities in the years to come.

MorphoSys is extremely fortunate in having a wonderful group of employees. Without
their dedication, inspiration and close collaboration, the achievements we made in
the last year would not have been possible. On behalf of the MorphoSys Management
Board, I would like to thank them for their continuing eﬀ orts and hard work.

The year 2018 will see the departure of Dr. Gerald Möller, who will retire as Chairman
of the Supervisory Board in May. With his retirement, MorphoSys will lose a very
special supporter, who has been instrumental in helping us build the company over
the last 19 years. We thank him for everything he has done for us, and wish him the
very best for his retirement.

MorphoSys is poised at an exciting time in its development, and I look forward to
a successful 2018. I trust that we can count on the continued engagement of you, our
shareholders, and thank you for your support over the last year.

dr. simon morone y
C H I E F E X E C U T I V E O F F I C E R

We are deliberately
evolving away from
our earlier, more
service-based, busi-
ness model. This
change gives us a
greater opportunity
to create long-term
value.

G r o u p M a n a g e m e n t R e p o r t

Contents

G r o u p M a n a g e m e n t R e p o r t

Group
Management
Report

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23
41

49
53
57
57
57
64
73

Operations and Business Environment

Analysis of Net Assets, Financial Position and

Results of Operations

Outlook and Forecast

Shares and the Capital Market

Sustainable Business Development
Sustainable Business Development

Risk and Opportunity Report

Statement on Corporate Governance and

Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

2017 was a successful year for MorphoSys. True to our mission of
developing exceptional biopharmaceuticals to improve the lives of
patients suﬀ ering from serious diseases, we advanced product
candidates in various stages of development. During the reporting
year, MOR208, our antibody for the treatment of hematological
malignancies, transitioned to a pivotal phase 3 trial for the treat-
ment of aggressive lymphoma. In October, we received break-
through therapy designation from the US Food and Drug Ad-
ministration (FDA) for MOR208 in an ongoing phase 2 trial in the
same indication. MOR202, our antibody against multiple myeloma,
also made good progress, culminating in an agreement with a
new development partner for MOR202 in China. Successes were
also reported by our partners. Tremfya®, developed by our part-
ner Janssen, became the ﬁ rst therapeutic antibody based on our
proprietary technology to reach the market. Tremfya®, which
is approved to treat moderate-to-severe plaque psoriasis, was
launched in the United States and received approval for mar-
keting in the European Union and Canada. For the ﬁ rst time in
the company’s history, we received product-based royalty reve-
nues. With royalty payments expected to grow in the future, we
plan to reinvest these revenues in the development of our pro-
prietary drug programs and continue on our path to becoming a
commercial biopharmaceutical company specializing in oncology.

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

Strategy and Group Management

S T RAT EGY AND OBJEC T IVES
MorphoSys’s goal is to make exceptional, innovative biopharma-
ceuticals to improve the lives of patients suﬀ ering from serious
diseases. With our successful transition from a technology pro-
vider to a drug development organization, we are well on our
way to reaching this goal. Our main value drivers are our pro-
prietary drug candidates, led by our investigational antibody*
MOR208, which is being developed for the treatment of blood
cancer. Based on our proprietary technology platforms for
generating therapeutic antibodies and leadership in the ﬁ eld
of therapeutic antibody discovery, generation and engineer-
ing, we, together with our partners, have created more than
100 therapeutic product candidates currently in development.
In 2017, Tremfya®, the ﬁ rst commercial product based on
MorphoSys’s proprietary technology, received market approval
in the United States, Europe and Canada. This antibody, like
the majority of our development programs, is the result of a
partnership with a company in the pharmaceutical industry.
MorphoSys uses the revenues generated from these partner-
ships to advance its proprietary development portfolio. The
Proprietary Development segment is gaining in importance
and currently comprises 13 programs, one of which is in
pivotal development.

The Proprietary Development segment focuses on developing
therapeutic agents based on the Company’s proprietary tech-
nology platforms, candidates in-licensed from other companies
or programs co-developed with a partner. During clinical devel-
opment, the Company determines whether and at which point it
will pursue a partnership for later development and commer-
cialization. The drug candidate can then be either completely
out-licensed or developed further in cooperation with a pharma-
ceutical or biotechnology company (co-development). In speciﬁ c
cases, individual projects may be developed on a proprietary
basis until they reach the market, with MorphoSys becoming
involved in their commercialization in selected regions.

In the Partnered Discovery segment, MorphoSys generates
antibody candidates for partners in the pharmaceutical and
biotechnology industries. MorphoSys receives contractual pay-
ments, which include license fees for technologies and funded
research, as well as success-based milestone payments and
royalties* on product sales. The funds generated from these
partnerships support the Company’s long-term business model
and help fund its proprietary development activities.

Both segments are founded on the Company’s innovative tech-
nologies. These are, in particular HuCAL*, the Company’s anti-
body library* which is the basis for more than 20 product
candidates currently in clinical development, and the follow-on
platform Ylanthia*, which is the largest known Fab-based anti-
body library. The acquisition of the biopharmaceutical com-
pany Lanthio Pharma B.V. in May 2015 secured MorphoSys’s
access to an innovative platform of stabilized therapeutic pep-
tides. We also apply our resources and expertise to expand and
deepen our technology in the area of peptides and antibodies.
*S E E G L O S S A R Y – page 170

The Company’s goal is to maximize the portfolio’s value by
investing in proprietary drug candidates while maintaining
ﬁ nancial discipline and strict cost control to ensure increasing
enterprise value.

GROUP MANAGEMEN T AND PERF ORMANCE INDIC AT ORS
MorphoSys pays equal attention to ﬁ nancial and non-ﬁ nancial
indicators to steer the Group. These indicators help to monitor
the success of strategic decisions and give the Company the
opportunity to take quick corrective action when necessary.
The Company’s management also follows and evaluates selected
early indicators so that it can thoroughly assess a project’s
progress and act promptly should a problem occur.

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

FINANCIAL PERFORMANCE INDICATORS
Our ﬁ nancial performance indicators are described in detail
in the section entitled “Analysis of Net Assets, Financial Posi-
tion and Results of Operations.” Earnings before interest and
taxes (EBIT), revenues, operating expenses, segment results
and liquidity are the key ﬁ nancial indicators we use to measure
our operating performance. Segment indicators are reviewed
monthly, and the budget for the current ﬁ nancial year is re-
vised and updated on a quarterly basis. Each year, the Com-
pany prepares a mid-term plan for the subsequent three years.
A thorough cost analysis is prepared regularly and used to
monitor the Company’s adherence to ﬁ nancial targets and
make comparisons to previous periods.

MorphoSys’s business performance is inﬂ uenced by factors
such as milestone and license payments, research and develop-
ment expenses, other operating cash ﬂ ows, existing liquidity
resources, expected cash inﬂ ows and working capital. These
indicators are also routinely analyzed and evaluated with
special attention given to the income statement, existing and
future liquidity and available investment opportunities. The
net present value of investments is calculated using discounted
cash ﬂ ow models*.
*S E E G L O S S A R Y – page 170

T A B L E 0 1
Development of Financial Performance Indicators1

in million €

2017

2016

2015

2014

2013

MORPHOSYS G ROUP

Revenues from continuing operations2

Operating expenses from continuing operations

EBIT (Earnings before interest and taxes) from continuing operations3

Liquidity

PROPRIE TARY DE VELOPMENT

Segment revenues

Segment EBIT

PARTNERED DISC OVERY

Segment revenues

Segment EBIT

66.8

133.8

(67.6)

312.2

17.6

(81.3)

49.2

30.2

49.7

109.8

(59.9)

359.5

0.6

(77.6)

49.1

31.0

106.2

93.7

17.2

298.4

59.9

10.7

46.3

20.4

64.0

70.1

(5.9)

352.8

15.0

(18.4)

49.0

25.9

78.0

67.9

9.9

390.7

26.9

(0.5)

51.0

25.4

1 Diﬀ erences may occur due to rounding.
2 Revenues from discontinued operations 2013: € 0.6 million.
3 Contains unallocated expenses (see also Item 3.3 of the Notes): 2017: € 16.5 million, 2016: € 13.4 million, 2015: € 13.9 million, 2014: € 13.4 million, 2013: € 15.0 million).

NON - FINANCIAL PERFORMANCE INDICATORS
For reporting purposes, MorphoSys uses the Sustainable De-
velopment Key Performance Indicators (SD KPIs) recommended
by the SD KPI standard. These indicators are used as bench-
marks for the commercialization rate (SD KPI 2) and include
the success of proprietary research and development (SD KPI 1)
as well as the achievements of partnered programs. In the past
ﬁ ve years, there have been no product recalls, ﬁ nes or settle-
ments as the result of product safety or product liability dis-
putes (SD KPI 3).

To secure and expand its position in the therapeutics market,
MorphoSys relies on the steady progress of its product pipeline,
not only in terms of the number of therapeutic product candi-
dates (114 at the end of the reporting year) but also based on the
progress of its development pipeline and prospective market
potential. Innovative technologies, when applied appropriately,
can be used to generate superior product candidates and there-
fore a further key performance indicator is the progress of the
Company’s technology development. In addition to the quality
of our research and development, our professional management

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

of partnerships is also a core element of our success, as demon-
strated by new contracts and the ongoing progress made within
existing alliances. Details on these performance indicators can
be found in the section entitled “Research and Development
and Business Performance” (page 31).

The non-ﬁ nancial performance indicators described in the sec-
tion “Sustainable Business Development” (page 57) are also
used to manage the MorphoSys Group successfully.

T A B L E 0 2
Sustainable Development Key Performance Indicators (SD KPIs) at MorphoSys (December 31)

PROPRIE TARY DE VELOPMENT (NUMBER OF INDIVIDUAL ANTIBODIES)

Programs in Discovery

Programs in Preclinic

Programs in Phase 1

Programs in Phase 21

Programs in Phase 3

TOTAL1

PARTNERED DISC OVERY (NUMBER OF INDIVIDUAL ANTIBODIES)

Programs in Discovery

Programs in Preclinic

Programs in Phase 1

Programs in Phase 2

Programs in Phase 32

Programs Launched2

TOTAL

R&D E XPENSES (IN MILLION € )

R&D Expenses on Behalf of Partners

Proprietary Development Expenses

Expenses for Technology Development

TOTAL

2017

2016

2015

2014

2013

101

100

17.7

97.7

1.4

116.8

17.2

77.1

1.4

95.7

22.1

54.1

2.5

78.7

19.6

33.5

2.9

56.0

17.5

27.5

4.2

49.2

1 Thereof one out-licensed program: MOR103/GSK3196165, out-licensed to GSK.
2 We still consider Tremfya® a phase 3 compound due to ongoing studies in various indications. Therefore the number of “Programs in Phase 3” as well as the

“Programs Launched” both include Tremfya®. Regarding the total number of programs in the pipeline, however, we only count it as one program.

LE ADING INDICATORS
MorphoSys follows a variety of leading indicators to monitor
the macroeconomic environment, the industry and the Com-
pany itself on a monthly basis. At the Company level, economic
data is gathered on the progress of the segments’ individual
programs. MorphoSys uses general market data and external
ﬁ nancial reports to acquire information on leading macroeco-
nomic indicators such as industry transactions, changes in the
legal environment and the availability of research funds and
reviews these data carefully.

For active collaborations, there are joint steering committees
that meet regularly to update and monitor the programs’ prog-
ress. These ongoing reviews give the Company a chance to
intervene at an early stage if there are any negative develop-
ments and provide it with information about expected mile-
stones and related payments well in advance. Partners in
non-active collaborations regularly provide MorphoSys with
written reports so that it can follow the progress of therapeutic
programs.

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 business development area uses market analyses to get an
early indication of the market’s demand for new technologies.
By continuously monitoring the market, MorphoSys can quickly
respond to trends and requirements and initiate its own activi-
ties or partnerships.

Organizational Structure

ORGANIZAT ION OF T HE MORPHOSY S GROUP
The MorphoSys Group, consisting of MorphoSys AG and its
subsidiaries, develops and commercializes antibodies* and
peptides for therapeutic applications. The activities of the
Group’s two business segments are based on its proprietary
technologies. The Proprietary Development segment combines
all of the Company’s proprietary research and development of
therapeutic compounds. MorphoSys, alone or with partners,
develops its proprietary and in-licensed compounds with the
option to bring them into partnerships, out-license them or
market them in speciﬁ c regions. The development of propri-
etary technologies is also conducted in this segment. The sec-
ond business segment, Partnered Discovery, uses MorphoSys’s
technologies to make human* antibody-based therapeutics on
behalf of partners in the pharmaceutical industry. All business
activities within the scope of these collaborations are reﬂ ected
in this segment.

In the 2017 ﬁ nancial year, the Group was located at
MorphoSys AG’s registered oﬃ ce in Planegg near Munich,
where MorphoSys’s subsidiary Sloning BioTechnology GmbH is
also located, and in Groningen, the Netherlands, which is the
location of its subsidiary Lanthio Pharma B.V. and its subsidi-
ary LanthioPep B.V. MorphoSys AG’s central corporate func-
tions such as accounting, controlling, human resources, legal,
patent, purchasing, corporate communications and investor re-
lations, as well as the two segments Proprietary Development
and Partnered Discovery, are all located in Planegg. The sub-
sidiary Lanthio Pharma B.V. and its subsidiary LanthioPep B.V.
in Groningen, the Netherlands, are largely autonomous and
independently managed. These subsidiaries have their own
research and development laboratories, general management
and administration, as well as human resources, accounting
and business development departments.

Additional information about the Group’s structure can be
found in the Notes (Item 2.2.1).

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

GROUP MANAGEMEN T AND SUPERVISION
MorphoSys AG, a German stock corporation listed in the Prime
Standard segment of the Frankfurt Stock Exchange, is the
parent company of the MorphoSys Group. In accordance with
the German Stock Corporation Act, the Company has a dual
management structure with the Management Board as the
governing body with its four members appointed and super-
vised by the Supervisory Board. The Supervisory Board is
elected by the Annual General Meeting and currently consists
of six members. Detailed information concerning the Group’s
management and control and its corporate governance princi-
ples can be found in the Corporate Governance Report. The
Senior Management Group supports the Management Board
of the Company. At the end of the reporting year, the Senior
Management Group consisted of 25 managers from various
departments.

Business Activities

DRUG DEVEL OPMEN T
MorphoSys develops drugs using its own research and develop-
ment (R&D) and by cooperating with pharmaceutical and bio-
technology partners. Our core business activity is developing
new treatments for patients suﬀ ering from serious diseases
with a focus on oncology and inﬂ ammatory diseases. The Com-
pany possesses a very broad pipeline, which comprised a total
of 114 therapeutic programs at the end of 2017, 28 of which are
in clinical development. In 2017 the ﬁ rst therapeutic agent
based on MorphoSys’s proprietary technology, which was de-
veloped by one of the Company’s licensees, received market
approval in the United States, Europe and Canada. Figure 1
shows the revenue development of the MorphoSys Group di-
vided into the business segments Proprietary Development and
Partnered Discovery.

T ECHNOL OGIES
MorphoSys has developed a number of technologies providing
direct access to fully human antibodies for treating diseases.
One of the most widely known MorphoSys technologies is
HuCAL, which is a collection of billions of fully human anti-
bodies and a system for their optimization. Another funda-
mental platform is Ylanthia, which represents the next genera-
tion of antibody technology and is currently the largest known
antibody library. Ylanthia is based on an innovative concept
for generating highly speciﬁ c and fully human antibodies.
MorphoSys expects Ylanthia to set a new standard for the phar-
maceutical industry’s development of therapeutic antibodies in
this decade and beyond. Slonomics* is the Company’s patented,

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

fully automated technology for gene synthesis and modiﬁ ca-
tion, which is used to generate highly diverse gene libraries in
a controlled process to be used e.g. for the improvement of anti-
body properties. The lanthipeptide* technology developed by
Lanthio Pharma B.V., a fully owned MorphoSys subsidiary, is a
valuable addition to our existing library of antibodies and
opens up new possibilities for discovering potential drugs
based on stabilized peptides.
›› S E E F I G U R E 01 – Revenues of the MoprhoSys Group by Segment (
›› S E E F I G U R E 0 2 – MorphoSys’s Product Pipeline (

Revenues of the MoprhoSys Group by Segment (page 28)
page 28
page 28)
page 30
MorphoSys’s Product Pipeline (page 30)
page 30)

PROPRIE TARY DEVEL OPMEN T
An important goal of MorphoSys is to increase enterprise value
through proprietary drug development. To achieve this goal,
the Company is focusing on cancer and selected programs in
inﬂ ammatory diseases.

ONC OLO GY
The ability of monoclonal antibodies* to bind to speciﬁ c anti-
gens* on tumors or activate the immune system against can-
cer to unleash a therapeutic eﬀ ect in patients has led to their
dominant role in targeted cancer therapies. According to a
study by the QuintilesIMS Institute, expenditures in oncology
reached approximately US$ 75 billion worldwide in early 2017.
Expenditures are projected to increase to US$ 120 – 135 billion
in the year 2021. MorphoSys is currently investing in the clini-
cal development of two cancer programs: MOR208 and MOR202.

MOR208 is directed against the target molecule CD19*, which
is implicated in many B cell malignancies. CD19 is broadly and
homogeneously expressed across tumor cells of diﬀ erent B cell
malignancies including DLBCL* (diﬀ use large B cell lymphoma)
and CLL* (chronic lymphocytic leukemia). CD19 enhances B cell
receptor signaling, which is selectively expressed on B cells and
an important factor in B cell survival, making CD19 a potential
target in B cell malignancies. The market research ﬁ rm Pharma-
ceutical Processing expects the therapeutic market for the B cell
malignancy non-Hodgkin’s lymphoma (NHL*) to reach approxi-
mately US$ 5.5 billion in 2024. Current biological therapies
for
mately
mately US$ 5.5 billion in 2024. Current biological therapies
the treatment of B cell malignancies, including rituximab
(trade name Rituxan® and MabThera®) and obinutuzumab (trade
name Gazyva®), are directed against the CD20* target mole-
cule which is also a surface marker of B cells*. MOR208 has
been modiﬁ ed in the Fc part* of the antibody with the goal of
enhancing its activity. This is intended to lead to higher anti-
body-dependent cell-mediated cytotoxicity (ADCC*), as well as
an improvement in antibody-dependent cellular phagocytosis
(ADCP*) and, thereby, more eﬀ ective tumor cell killing by the

body’s own immune system. The most advanced therapeutic
approach against CD19 is currently the bispeciﬁ c* antibody
blinatumomab (trade name Blincyto®) approved for acute lym-
phoblastic leukemia (ALL*). Other clinical programs directed
against the same target molecule use alternative approaches to
increase the antibody’s eﬃ cacy, for example by coupling with
toxic substances or changing the antibody’s glycosylation-pat-
tern (which also leads to increased ADCC and ADCP). Another
therapeutic approach against CD19 is the CAR-T technology*.
This therapy extracts a certain type of immune cells (T cells*)
from the patients’ blood and then engineers them outside of the
body so that they can recognize the patients’ tumor cells and
kill them. When these T cells are later re-administered into
the patients’ blood via infusion, they subsequently bind and
destroy targeted cancer cells. Alternative approaches using
small molecules* are also being developed in the ﬁ eld of B cell
malignancies. In 2017, two CAR-T approaches were approved in
blood cancer indications: axicabtagene ciloleucel (axi-cel) for
DLBCL and tisagenlecleucel (CTL019) for ALL.

MOR202 is directed against the target molecule CD38* and
is currently being developed for the treatment of multiple
myeloma* (MM), a form of bone marrow cancer. CD38 is a
highly expressed and validated target in multiple myeloma.
Preclinical* ﬁ ndings also support an anti-CD38 approach in
other therapeutic ﬁ elds beyond multiple myeloma including
solid tumors such as non-small-cell lung cancer (NSCLC). After
MorphoSys regained its rights to MOR202 from Celgene in
March 2015, the Company continued developing MOR202 inde-
pendently in an ongoing phase 1/2a study. Although MM is a
relatively small area of oncology in terms of frequency of occur-
rence, the MM market has shown strong growth in recent years.
However, there is still no standard treatment for MM available
and a medical need for treatment options with better survival
rates and lower side eﬀ ects. Despite signiﬁ cantly higher sur-
vival rates, this disease is seldom curable, and a majority of
patients experience a relapse. This has increased the attractive-
ness of alternative treatments, such as those targeting CD38.
The approval of the CD38 antibody daratumumab (trade name
Darzalex®) by the FDA* (Food and Drug Administration) in No-
vember 2015 validated this treatment approach. MorphoSys is
seeking a partner for the further development of MOR202 in
MM. The Company entered its ﬁ rst regional partnership in
China with I-Mab at the end of 2017.
*S E E G L O S S A R Y – page 170

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

Revenues of the
MorphoSys Group by
Segment (in million €)1

1 Diﬀ erences due to

rounding.

2 Group revenues from

continuing operations;
sale of AbD Serotec to
Bio-Rad was announced
in 2012, and therefore
respective revenues
were reclassiﬁ ed as dis-
continued operations in
accordance with IFRS 5.

78.02

64.0

106.2

49.7

66.8

51.0

49.0

59.9

46.3

49.1

49.4

26.9

15.0

17.6

0.6

2013

2014

2015

2016

2017

partnered disc ov ery

pro prie tary de v elo pment

MorphoSys and its partner Aptevo Therapeutics (formerly
Emergent BioSolutions) have been developing MOR209/ES414
in a phase 1 clinical study in patients suﬀ ering from metastatic
castration-resistant prostate cancer (mCRPC*) since 2015.
MOR209/ES414 is a bispeciﬁ c anti-PSMA/anti-CD3* antibody
based on Aptevo’s ADAPTIR™ platform. In 2017, in the context
of prioritizing its development programs, MorphoSys termi-
nated its cooperation with Aptevo.

INFL AMMATORY AND AUTOIMMUNE DISE ASES*
Chronic inﬂ ammatory and autoimmune diseases aﬀ ect millions
of patients worldwide and impose an enormous social and eco-
nomic burden. The QuintilesIMS Institute estimates the global
market for the treatment of autoimmune diseases will be in the
range of US$ 75 billion to US$ 90 billion in the year 2021.

MOR103/103/103 GSK3196165 is a HuCAL antibody, which MorphoSys
fully out-licensed to GlaxoSmithKline (GSK) in 2013. GSK is
developing the antibody independently and bears all of the
related costs. MorphoSys participates in the compound’s devel-
opment and commercialization through milestone payments up
to a total of € 423 million and through tiered, double-digit
royalties on net sales. In 2013, MorphoSys received an upfront
payment of € 22.5 million. MOR103/GSK3196165 is directed
against the target molecule GM-CSF* (granulocyte macrophage
colony-stimulating factor), a central player in the emergence of
inﬂ ammatory diseases such as rheumatoid arthritis* (RA). Bio-
technologically produced drugs already comprise the majority

of this market’s total revenue. The overall market for RA drugs
is growing steadily, and GBI Research expects it will reach
US$ 19 billion in the year 2020. MorphoSys estimates that
MOR103/GSK3196165 has the potential to be the ﬁ rst marketed
anti-GM-CSF antibody.

MOR106 is the ﬁ rst antibody candidate derived from a strate-
gic alliance with the Belgian company Galapagos NV for the
identiﬁ cation and development of new antibody candidates.
MOR106 has been in phase 1 clinical development for atopic
dermatitis since 2016. It is the ﬁ rst publicly disclosed monoclo-
nal antibody* targeting IL-17C in clinical development world-
wide. MOR106 selectively targets and inhibits IL-17C, which is
associated with inﬂ ammatory skin disorders. Atopic dermatitis,
also known as atopic eczema or neurodermatitis, is a chronic
pruritic (itching) inﬂ ammatory skin disease. The National
Eczema Association estimates that atopic dermatitis aﬀ ects
over 30 million Americans or up to 25 % of children and 2 – 3 %
of adults. 60 % of AD patients are diagnosed in the ﬁ rst year
of life, and 90 % of patients have a disease onset before age
ﬁ ve. Symptoms commonly fade during childhood, however,
approximately 10 – 30 % of the patients will suﬀ er from atopic
dermatitis for life. A smaller percentage ﬁ rst develop symptoms
as adults. It is planned to initiate a phase 2 study together with
Galapagos in the ﬁ rst half of 2018.

Revenues of the

MorphoSys Group by

Segment (in million €)1

78.02

64.0

106.2

49.7

66.8

51.0

49.0

49.1

49.4

59.9

46.3

26.9

15.0

17.6

0.6

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

The acquisition of the Dutch pharmaceutical company Lanthio
Pharma B.V. in 2015 enhanced MorphoSys’s proprietary port-
folio with the addition of MOR107 (formerly LP2). MOR107 is
a novel lanthipeptide that has demonstrated angiotensin II
type 2 (AT2) receptor-dependent activity in preclinical in vivo
studies, and may have the potential to treat a variety of dis-
eases. MorphoSys is currently evaluating the potential of
MOR107 in the ﬁ eld of oncology.

INFLUENCING FAC TORS
A political goal of many countries is to provide proper medical
care for the public as demographic change drives the need for
new forms of therapy. Cost-cutting could slow down the indus-
try’s development. As part of their austerity measures, govern-
ments in Europe, the United States and Asia have tightened
their healthcare restrictions and are closely monitoring drug
pricing and reimbursement.

Generic competition, which is already common in the ﬁ eld of
small molecule drugs, now poses an increasing challenge to
the biotechnology industry due to drug patent expiries. The
technological barriers for generic biopharmaceuticals, or bio-
similars*, will remain high. Nevertheless, many drug manufac-
turers, particularly those from Europe and Asia, are now enter-
ing this market and placing more competitive pressure on
established biotechnology companies. In the US, the approval of
biosimilars as an alternative form of treatment has been very
slow; they are, however, gaining more attention because of
increasing pressure in the healthcare sector to reduce costs.
Industry experts believe the global market for biosimilars will
reach US$ 28 billion in 2020.

PAR T NERED DIS COVERY
In the Partnered Discovery segment, MorphoSys applies tech-
nologies for the research, development and optimization of
therapeutic antibodies as drug candidates in partnership with
pharmaceutical and biotechnology companies. While the devel-
opment costs are borne by the respective partners, MorphoSys
proﬁ ts from research ﬁ nancing, milestone payments and poten-
tial royalties on the sales of products from successful programs.

The Company’s largest alliance to date is the strategic alliance
formed in 2007 with Novartis – a pharmaceutical partner with
a growing pipeline of biotechnologically developed drugs. This
alliance, which ended at the end of November 2017, was ex-
panded in 2012 through a supplementary cooperation agree-
ment under which the companies collaborated on creating
therapeutic antibodies using MorphoSys’s next-generation
antibody platform Ylanthia in addition to HuCAL. The active
partnership with Novartis ended at the end of November 2017
in accordance with the contract. Even after the end of the active
partnership, MorphoSys will continue to beneﬁ t from Novartis’s
products based on antibodies originating from the collabora-
tion by means of potential success-based milestone payments
and royalties. As Novartis in-licensed the HuCAL technology in
2014, it can be used to start new antibody programs in the
future. At the end of 2017, there were 14 antibodies in clinical
development resulting from this cooperation.

Partnered Discovery programs for drug development include
not only programs in MorphoSys’s core areas of oncology and
inﬂ ammatory diseases, but also those in indications where the
Company has not yet established proprietary expertise.

Examples of Partnered Discovery programs include the following:

Guselkumab, a HuCAL antibody targeting IL-23, is being de-
veloped by MorphoSys’s partner Janssen in plaque psoriasis*
and psoriatic arthritis* (PsA). In July 2017, Janssen received
FDA approval for guselkumab in the United States for the treat-
ment of moderate-to-severe plaque psoriasis. The ﬁ rst HuCAL
commercial product is now available to patients in the United
States under the brand name Tremfya® (guselkumab). The
European Medicines Agency (EMA*) also approved Tremfya®
(guselkumab) in Europe shortly after its approval in Canada in
mid-November. Psoriasis is a chronic, autoimmune inﬂ amma-
tory disorder of the skin characterized by abnormal itching and
physically painful skin areas. It is estimated that about 125 mil-
lion people worldwide have psoriasis with approximately 25 %
suﬀ ering from cases that are considered moderate-to-severe.
Independent market experts forecast the market for psoriasis to
grow from € 7.5 billion in 2014 to € 12 billion in the year 2024.
*S E E G L O S S A R Y – page 170

G r o u p M a n a g e m e n t R e p o r t

Operations and Business Environment

MorphoSys’s
Product Pipeline
(March 8, 2018)

* S E E G L O S S A R Y :

page 170

1 Market
2 We still consider Tremfya®
a phase 3 compound
due to ongoing studies
in various indications.
3 For development in the
Greater China market
(China, Hong Kong,
Taiwan, Macao).
4 A phase 1 study in
healthy volunteers was
completed. MOR107 is
currently in preclinical
investigation with a focus
on oncology indications.

P R O G R A M / P A R T N E R
I N D I C AT I O N

PH AS E

1 2 3 M 1

P R O G R A M / P A R T N E R
I N D I C AT I O N

PH AS E

1 2 3 M 1

Tremfya® 2 (guselkumab) / Janssen/J&J
Plaque psoriasis
Plaque psoriasis (VOYAGE 1)
Plaque psoriasis (VOYAGE 2)
Pustular/erythrodermic psoriasis*
Plaque psoriasis
Plaque psoriasis (POLARIS)
Plaque psoriasis (POLARIS)
Palmoplantar pustulosis*
Moderate-to-severe plaque psoriasis
(SelfDoseTM device)
Moderate-to-severe plaque psoriasis (ECLIPSE)
Psoriatic arthritis* (PsA) (Discover-1)
Psoriatic arthritis* (PsA)

Gantenerumab / Roche
Mild Alzheimer’s disease (Marguerite RoAD)
Prodromal Alzheimer’s disease
Genetically predisposed for Alzheimer’s disease (DIAN)
Safety, tolerability and pharmacokinetics* (sc)
Pain, tolerability, safety and pharmacokinetics (sc)

MOR208 / not partnered
Diﬀ use large B cell lymphoma (DLBCL*) (B-MIND*)
Chronic lymphocytic leukemia (CLL*) or small

lymphocytic lymphoma (SLL*) (COSMOS*)

Diﬀ use large B cell lymphoma (DLBCL*) (L-MIND*)

Anetumab ravtansine (BAY94-9343) / Bayer
Mesothelioma* (MPM)
Cancer multi-indications

BHQ880 / Novartis
Multiple myeloma* (MM) (renal insuﬃ ciency)
Smoldering multiple myeloma*

Bimagrumab (BYM338) / Novartis
Muscular atrophy hip fracture surgery
Sarcopenia (dose-ranging)
Sarcopenia (withdrawal extension study)
Type 2 diabetes

CNTO6785 / Janssen/J&J
Chronic obstructive pulmonary disease (COPD)
Rheumatoid arthritis* (RA)

MOR103 ( GSK3196165) / GlaxoSmithKline
Rheumatoid arthritis* (RA)
Rheumatoid arthritis* (RA) (mechanistic study)
Hand osteoarthritis

MOR202 / I-Mab Biopharma3
Multiple myeloma*

Nov-12 (MAA868) / Novartis
Prevention of thrombosis
Atrial ﬁ brillation

Setrusumab (BPS804) / Mereo/Novartis
Brittle bone disease (OI) (Type I, III, IV) (ASTEROID)

Tesidolumab (LFG316) / Novartis
Paroxysmal nocturnal hemoglobinuria

Utomilumab (PF-05082566) / Pﬁ zer
Breast cancer (AVIATOR)
Acute myeloid leukemia (AML)
Acute myeloid leukemia (AML)
Advanced malignancies
(combo with avelumab and PF-04518600)
Solid tumors (combo with ISA101b vaccination)

Solid tumors, NHL* (combo with rituximab)
Solid tumors (combo with mogamulizumab)
Solid tumors (combo with PF04518600)
Colorectal cancer
(combo with cetuximab & irinotecan)
Advanced ovarian cancer (T cell immunotherapy)
Breast cancer (combo with
trastuzumab emtansine or trastuzumab)
Diﬀ use large B cell lymphoma (Javelin DLBCL*)
(combo with avelumab)

VAY736 / Novartis
Pemphigus vulgaris
Idiopathic pulmonary ﬁ brosis
Primary Sjögren‘s syndrome
Rheumatoid arthritis* (RA)
ADCC* mediated B cell* depletion and BAFF-R
blockade (AMBER)
Primary Sjögren’s syndrome (eﬃ cacy & safety)
Chronic lymphocytic leukemia
(combo with ibrutinib)

Xentuzumab (BI-836845) / BI
Breast cancer
Castration-resistant prostate cancer (CRPC)
(combo with enzalutamide)
Solid tumors (Japan)
Solid tumors (combo with abemaciclib)
EGFR* mutant non-small-cell lung cancer (NSCLC)

BAY109388 4 / Bayer
Hemophilia

Elgemtumab ( L JM716) / Novartis
HER2+ cancer (combo with BYL719 & trastuzumab)

MOR106 / Galapagos
Atopic dermatitis

MOR107 4 ( L P2-3) / not partnered
Not disclosed

NOV-7 (CLG561) / Novartis
Eye diseases

NOV-8 / Novartis
Inﬂ ammation

NOV-9 (LKA651) / Novartis
Diabetic eye diseases

NOV-10 (PCA062) / Novartis
Cancer

NOV-11 / Novartis
Blood disorders

NOV-13 (HKT288) / Novartis
Cancer

NOV-14 / Novartis
Asthma

PRV-300 (CNTO3157) / ProventionBio
Colitis

Vantictumab (OMP-18R5) / OncoMed
Breast cancer (combo with paclitaxel)
Pancreatic cancer
(combo with nap-paclitaxel & gemcitabine)

m o r pro gr am

out- licensed mor pro gr am

partnered disc ov ery pro gr am

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

Gantenerumab is a HuCAL antibody targeting amyloid beta,
which is being developed by MorphoSys’s partner Roche as a
potential treatment for Alzheimer’s disease. This compound is
being investigated in several clinical studies to see if there is a
positive eﬀ ect from intervening at an early stage in the dis-
ease’s progression. In two of these studies, Roche is evaluating
the compound in around 1,000 patients with mild Alzheimer’s
disease and 800 patients with prodromal Alzheimer’s disease.
Roche has converted these trials into open-label studies to test
higher doses after the temporary discontinuation of earlier
studies at the end of 2014. The data from the open-label exten-
sion had been presented at the CTAD (Clinical Trials* on Alz-
heimer’s Disease) 2017, showing signiﬁ cantly greater amyloid
reduction with higher doses of gantenerumab compared to
lower doses. Roche announced to examine higher doses of gan-
tenerumab in two phase 3 trials. There are currently no drugs
available that fundamentally improve the course of Alzheimer’s
disease.
*S E E G L O S S A R Y – page 170

Research and Development and
Business Performance

2017 BUSINESS PERF ORMANCE
MorphoSys’s business is strongly focused on advancing its
therapeutic programs in research and development to beneﬁ t
patients suﬀ ering from serious diseases and to increase the
Company’s value. With the clinical development of proprietary
programs as the focal point of the Company, we strive to gain
access to novel disease-speciﬁ c target molecules, advanced
product candidates and innovative technology platforms, so as
to advance our proprietary development portfolio. MorphoSys
also participates in the success of its partners’ therapeutic pro-
grams. The ﬁ rst antibody based on MorphoSys’s technology has
been available in the US market since the middle of 2017.

The key measures of value and success of MorphoSys’s re-
search and development include:
• the initiation of projects and the progression of individual

development programs

• collaborations and partnerships with other companies to
broaden the Company’s technology base and pipeline of com-
pounds and commercialize its therapeutic programs

• clinical and preclinical research results
• regulatory guidance of health authorities to pursue commer-

cialization of individual therapeutic programs

• robust patent protection to secure MorphoSys’s market

position

COL L ABORAT IONS AND PAR T NERSHIP S

PROPRIE TARY DE VE LOPMENT
Since mid-2016, MorphoSys and the University of Texas MD
Anderson Cancer Center have been working together in a stra-
tegic alliance. The partners plan to jointly identify and validate
novel anti-cancer antibodies and to develop them further until
they reach the clinical proof-of-concept in the respective on-
cology indications. To accomplish this, MorphoSys is applying
its Ylanthia technology platform. The alliance continued in the
reporting year and is expected to encompass multiple target
molecules and programs. Current programs are focused on
HLA peptide complexes in the area of hematological diseases.

At the end of November 2017, MorphoSys and I-Mab Biopharma
announced that they had signed an exclusive regional licensing
agreement for MOR202. Under the terms of the agreement,
I-Mab has the exclusive rights to develop and commercialize
MOR202 in China, Taiwan, Hong Kong and Macao. MorphoSys
received an immediate upfront payment of US$ 20 million. The
Company is also entitled to receive additional success-based
clinical and commercial milestone payments from I-Mab of up
to US$ 100 million, as well as tiered double-digit royalties on
net sales of MOR202 in the agreed regions. I-Mab intends to
start clinical development of MOR202 to treat patients with
multiple myeloma in China in 2018.

PAR TNERED DISC OVERY
In November 2016, MorphoSys and LEO Pharma agreed to form
a strategic alliance for the discovery and development of thera-
peutic antibodies for the treatment of skin diseases. Under the
terms of the agreement, MorphoSys is applying its Ylanthia
technology platform to generate antibody candidates against
targets selected by LEO, and will conduct all development ac-
tivities up to the start of clinical testing. LEO Pharma will be
responsible for clinical development and commercialization of
resulting drugs in all indications outside of cancer. The col-
laboration continued in 2017 and is currently working on two
projects.

The active collaboration with Novartis ended at the end of
November 2017 in accordance with the contract. Novartis did
not exercise an option to extend the partnership that was pro-
vided in the contract. Although active collaboration has ended,
the development of product candidates derived from the use of
the Company’s technologies will continue and new programs
can be initiated under a license acquired by Novartis. The fur-
ther development of these programs by Novartis could lead to
additional milestone and royalty payments in the future.

G r o u p M a n a g e m e n t R e p o r t

Operations and Business Environment

Active Clinical Studies
with MorphoSys Anti-
bodies (December 31)

P H A S E

24 16

24 27

29 19

29 25

27 31 14

2013

2014

2015

2016

2017

PROJEC T INI T IAT IONS AND PROGRESS,

T RIAL EX T ENSIONS
At the end of the 2017 ﬁ nancial year, the number of therapeutic
programs in the MorphoSys pipeline remained unchanged at
114 (December 31, 2016: 114 programs), comprising Propri-
etary Development and Partnered Discovery projects. One
product from the Partnered Discovery segment received mar-
ket approval in 2017 in the United States, Europe and Canada.
At the end of 2017, MorphoSys had 13 projects (December 31,
2016: 14) in its proprietary development portfolio, ﬁ ve of them
in its clinical pipeline and eight in preclinical development or
in the discovery phase. The number of programs being pursued
by our partners in the Partnered Discovery segment totaled 101
(December 31, 2016: 100), 23 of which were in clinical develop-
ment, 24 in preclinical development and 54 in the discovery
phase. MorphoSys’s partnered and proprietary clinical pipeline
currently comprises 28 unique compounds that are being eval-
uated in more than 70 clinical trials.
›› S E E F I G U R E 0 3 – Active Clinical Studies with MorphoSys Antibodies (

page 32
Active Clinical Studies with MorphoSys Antibodies (page 32)
page 32)

PROPRIE TARY DE VELOPMENT
The clinical studies to investigate MOR208 in combination with
other cancer drugs for B cell malignancies were started in 2016
and continued in 2017.

The main focus of the current MOR208 development program
is on relapsed or refractory diﬀ use large B cell lymphoma
(r/r DLBCL*). Two of the three ongoing MOR208 studies, namely
the L-MIND* and B-MIND* trials, are being conducted in this
indication. Both trials are focusing on r/r DLBCL patients who
are not eligible for high-dose chemotherapy and subsequent

autologous stem cell transplantation. The available therapy
options for this group of patients are currently very limited,
which is why the Company sees a high unmet medical need for
new treatment alternatives. A strategic goal of MorphoSys is to
ﬁ nd the fastest path to market for MOR208 in this indication.
• The L-MIND (Lenalidomide-MOR208 IN DLBCL) study initi-
ated in April 2016 is evaluating MOR208 in combination with
the immunomodulatory drug lenalidomide in patients suﬀ er-
ing from relapsed or refractory diﬀ use large B cell lymphoma
(DLBCL). The trial is an open-label, single-arm study with the
primary endpoint being the overall response rate (ORR*) and
multiple secondary endpoints, including progression-free
survival (PFS*), overall survival (OS*) and time to progres-
sion (TTP*).

• The phase 2/3 clinical trial B-MIND* (Bendamustine-MOR208
IN DLBCL) is designed to evaluate the safety and eﬃ cacy of
MOR208 combined with the chemotherapeutic agent benda-
mustine in comparison to rituximab plus bendamustine. In
June 2017 this study transitioned into its pivotal phase 3 part.
The start of the phase 3 trial triggered a milestone payment
to Xencor, Inc. that was paid in July 2017. B-MIND will enroll
330 adult patients worldwide with relapsed or refractory
DLBCL who are not eligible for autologous stem cell trans-
plantation and high-dose chemotherapy. This is the ﬁ rst
pivotal study of an antibody from MorphoSys’s proprietary
pipeline.

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

• In addition to the two trials in r/r DLBCL, MorphoSys is cur-
rently evaluating MOR208 in a phase 2 trial in chronic lym-
phocytic leukemia (CLL*) and small lymphocytic lymphoma
(SLL*). The trial, named COSMOS* (CLL patients assessed for
ORR & Safety in MOR208 Study), is designed to evaluate
MOR208 in combination with the cancer drugs idelalisib
(since 2016) and venetoclax (since 2017). The study enrolls
patients for whom prior therapy with a BTK inhibitor* such as
ibrutinib was either unsuccessful or no longer successful.
Currently these patients have very limited therapy options
and therefore, this indication represents a high unmet medi-
cal need. The study is currently investigating the clinical
safety of the treatment combinations.

The HuCAL antibody MOR202 targeting CD38 is currently be-
ing evaluated in a phase 1/2a dose-escalation study alone and
in combination with the immunomodulatory cancer drugs
(IMiDs) lenalidomide and pomalidomide, in each case with
dexamethasone, in patients with relapsed/refractory multiple
myeloma (MM). Patient enrollment for the study has been com-
pleted. The subsequent observation of the patients will continue.

MOR106 is the third drug candidate from MorphoSys’s propri-
etary portfolio in clinical development. The antibody is being
developed by MorphoSys and its partner Galapagos NV, and a
phase 1 clinical trial has been completed. In addition to investi-
gating MOR106 in healthy volunteers, the trial was expanded
in 2017 to include patients suﬀ ering from atopic dermatitis. The
study was completed in August 2017, and the ﬁ rst results indi-
cating clinical activity were announced in September. MOR106
is the ﬁ rst antibody based on MorphoSys’s proprietary Ylanthia
technology to enter clinical development, and the ﬁ rst publicly
disclosed antibody targeting IL-17C in clinical development
worldwide. Galapagos and MorphoSys jointly discovered
MOR106 and are co-developing this compound in further clini-
cal development.

MOR107 is the ﬁ rst lanthipeptide in MorphoSys’s clinical
pipeline. The peptide is based on the proprietary technology
platform belonging to MorphoSys’s Dutch subsidiary Lanthio
Pharma B.V. This compound is a selective agonist of the angio-
tensin II receptor type 2 (AT2-R). Lanthipeptides* are a class of
modiﬁ ed peptides that have been engineered for improved sta-
bility and selectivity. In February 2017, we initiated a phase 1
study in healthy volunteers. In May 2017, the ﬁ rst part of the
clinical study was completed and the study was terminated.
MOR107 is currently in preclinical* investigation with a focus
on oncology indications.
*S E E G L O S S A R Y – page 170

MOR209/ES414 was co-developed with Aptevo Therapeutics, a
spin-oﬀ of Emergent BioSolutions, in a phase 1 study in patients
suﬀ ering from metastatic, castration-resistant prostate cancer.
In September 2017, following a review of its development port-
folio, MorphoSys ended the cooperation with Aptevo Therapeu-
tics Inc. for the program’s further development. The rights to
the drug candidate’s development and commercialization were
returned to Aptevo.

MOR103/GSK3196165 was out-licensed to GlaxoSmithKline
(GSK). GSK is currently evaluating this antibody in phase 2b
and phase 2a clinical studies in patients with rheumatoid
arthritis (RA) as well as in a phase 2a trial in patients suﬀ ering
from inﬂ ammatory hand osteoarthritis.

PAR TNERED DISC OVERY
In January 2017, MorphoSys announced that its partner Novartis
would initiate a phase 2 clinical trial with bimagrumab in an
additional indication. The trial is designed to assess the safety,
pharmacokinetics and eﬃ cacy of the HuCAL antibody versus
placebo in around 60 obese patients with type 2 diabetes.

In March 2017, MorphoSys disclosed that its partner Roche
planned to initiate a new pivotal phase 3 program with gan-
tenerumab in patients with prodromal or mild Alzheimer’s dis-
ease. Roche will initiate two phase 3 clinical trials under the
names GRADUATE-1 and GRADUATE-2. Gantenerumab is a
monoclonal antibody derived from MorphoSys’s HuCAL Tech-
nology, which is directed against amyloid beta.

In May, MorphoSys’s licensee Janssen announced plans for new
phase 3 clinical studies with guselkumab, which include a
study to evaluate the comparative eﬃ cacy of guselkumab
versus secukinumab for the treatment of moderate-to-severe
plaque psoriasis (ECLIPSE study). Janssen initiated the
ECLIPSE study in the ﬁ rst half of 2017. In September 2017,
Janssen initiated two phase 3 studies in psoriatic arthritis
evaluating the eﬃ cacy and safety of guselkumab in this in-
ﬂ ammatory disease, which aﬀ ects both the joints and the skin.
Janssen made a milestone payment to MorphoSys in connection
with the initiation of these new phase 3 studies. Janssen also
announced a phase 3 program to evaluate guselkumab in
Crohn’s disease. Guselkumab is a fully human anti-IL-23 p19
subunit monoclonal antibody developed by Janssen and was
generated by MorphoSys utilizing its proprietary HuCAL anti-
body library 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

CL INIC AL S T UD Y DATA F ROM CURREN T PROJEC T S

PROPRIE TARY DE VELOPMENT
In 2017, MorphoSys announced data from clinical studies of its
proprietary drug programs MOR202 and MOR208 at several
scientiﬁ c conferences.

The open-label, single-arm phase 2 study known as L-MIND
(Lenalidomide-MOR208 IN DLBCL) is designed to evaluate the
safety and eﬃ cacy of MOR208 in combination with lenalido-
mide in patients with relapsed or refractory diﬀ use large B cell
lymphoma (r/r DLBCL). DLBCL is the most common form of
non-Hodgkin’s lymphoma (NHL). In 2017, MorphoSys presented
preliminary data from L-MIND at scientiﬁ c conferences in-
cluding the Annual Meeting of the American Society of Clinical
Oncology (ASCO), the Congress of the European Hematology
Association (EHA), the Lymphoma Meeting in Lugano and the
Annual Meeting of the American Society of Hematology (ASH).
The data presented at the ASH conference in December 2017
also formed the basis for the breakthrough therapy designation
granted by the FDA in 2017. These data showed, based on
51 patients enrolled, 44 of whom were eligible for eﬃ cacy
evaluation by the investigators at the time of data-cut oﬀ
June 13, 2017, an objective response to the treatment in 52 %
( overall response rate, ORR) and a complete remission in 32 %
(CR rate) of the patients. The preliminary median progression-
free survival (mPFS) was 11.3 months. There was no unexpected
toxicity* observed with combination therapy. There were also no
infusion-related reactions (IRRs) reported due to the adminis-
tration of MOR208. The administered dose of lenalidomide
needed to be reduced in 45 % of patients.

In early December, the Company announced that patient re-
cruitment had been completed as required by the study proto-
col, 81 patients having been enrolled in the study.

Latest interim data (cut-oﬀ date December 12, 2017) based on
81 patients enrolled, 68 of whom were available for eﬃ cacy as-
sessment by the investigators, showed a overall response rate
(ORR) of 49 % and a CR rate of 31 %. At the time of data-cut oﬀ ,
the preliminary PFS rate at 12 months was 50.4 % and the pre-
liminary mPFS had not been reached. 29 out of 33 responses
(88 %) were ongoing at the time of data-cut oﬀ ; median time to
response was 1.8 months, median time to complete response
was 3.6 months. No unexpected toxicities were observed for the
treatment combination and no infusion-related reactions were
reported for MOR208. The most frequent adverse events with a
toxicity grading of 3 or higher were neutropenia, thrombocyto-
penia, febrile neutropenia and pneumonia, observed in 36 %,
12 %, 7 % and 7 % of patients, respectively. 40 % of patients re-
quired a reduction of their lenalidomide dose, from a starting
dose of 25 mg daily.

MorphoSys’s anti-CD38 antibody MOR202 is currently being
evaluated in a phase 1/2a clinical study in pretreated patients
suﬀ ering from relapsed/refractory multiple myeloma. In June
2017, the Company presented updated safety and eﬃ cacy data
from this ongoing study at the ASCO Annual Meeting. MOR202
was administered as a 2-hour infusion up to the highest dose of
16 mg/kg. Infusion-related reactions (IRRs) occurred in only
6 % of patients in the clinically relevant dose cohorts of MOR202
(4 mg/kg, 8 mg/kg, 16 mg/kg) and were limited to grades 1
and 2. No unexpected safety signals were observed. Patients
treated with MOR202 in combination with LEN/
LEN DEX and a me-
LEN/
dian of three prior treatment regimens showed a response rate
of 71 % based on the “intent-to-treat” (ITT) population with the
treatment of nine patients still ongoing at the data cut-oﬀ . The
median progression-free survival (mPFS) rate of this cohort
was not yet reached. Patients treated with MOR202 in combina-
tion with POM/DEX with a median of four prior treatment regi-
mens showed an objective response rate of 46 % with treatment
of eight patients still ongoing at the data cut-oﬀ . It is important
to note that the data from this cohort were still relatively imma-
ture and that responses in this patient group are often observed
after a longer treatment time. The current median PFS of this
combination is 17.5 months after a median follow-up period of
8.5 months.

MOR106, an antibody from the Company’s Ylanthia platform
directed against IL-17C and co-developed with Galapagos, was
evaluated in a phase 1 study initiated in 2016. The placebo-con-
trolled study investigated the safety, tolerability and pharma-
cokinetic proﬁ le of MOR106 when administered in single as-
cending doses in healthy volunteers as well as in multiple
ascending doses in patients suﬀ ering from atopic dermatitis. At
the end of September 2017, MorphoSys and Galapagos pub-
lished initial results from the study. No clinically relevant
safety signals were observed. Any adverse drug reactions ob-
served in relation to MOR106 were mild to moderate and tran-
sient in nature. No serious adverse events or infusion-related
reactions were recorded. Even though the study was not statis-
tically designed to show diﬀ erences in eﬃ cacy between treat-
ment groups, an improvement of at least 50 % measured by the
Eczema Area and Severity Index (EASI 50) at week 4 was ob-
served in 83 % of patients (5 out of 6) at the highest dose level of
MOR106 compared to only 17 % of patients (1 out of 6) who were
receiving a placebo. These ﬁ rst signs of MOR106’s clinical ac-
tivity, coupled with the fact that it is generally well-tolerated,
support its planned progression to a phase 2 clinical study. In
February 2018, results from this study were presented in the
late breaking abstracts session at the American Academy of
Dermatology (AAD) Annual Meeting in San Diego, USA.

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

In the ﬁ rst quarter of 2017, MOR107 became the ﬁ rst lanthi-
peptide in MorphoSys’s clinical pipeline to enter clinical devel-
opment. In May 2017, MorphoSys announced it had completed
the ﬁ rst part of a phase 1 clinical study in healthy volunteers
and terminated the study. Based on an initial analysis of the
blinded data from the volunteers enrolled to date, no clinically
relevant safety signals were observed in all tested doses and all
adverse events observed thus far were temporary and mild.

PAR TNERED DISC OVERY
During the reporting year, partners of MorphoSys continued to
develop HuCAL antibodies and presented data on the study re-
sults at scientiﬁ c conferences and in press releases.

In March 2017, MorphoSys announced that its licensee Janssen
presented positive results from two phase 3 studies evaluating
guselkumab, a fully human anti-IL-23 monoclonal antibody, in
patients with moderate-to-severe plaque psoriasis. Janssen pre-
sented data from the VOYAGE-2 and NAVIGATE studies at the
2017 annual meeting of the American Academy of Dermatology
(AAD) in Orlando, Florida. As previously announced in Novem-
ber 2016, the results of both studies were included in Janssen’s
application for guselkumab’s market approval in the United
States and Europe. In February 2018, Janssen reported data
from the phase 3 VOYAGE-2 study of guselkumab, which demon-
strated long-term skin clearance in patients with moderate-
to-severe plaque psoriasis. According to Janssen, the new data
showed that a vast majority of patients (or 86 %) with moderate-
to-severe plaque psoriasis receiving guselkumab who achieved
at least 90 percent improvement of the signs and symptoms of
their psoriasis measured by the Psoriasis Area and Severity
Index (PASI 90) at week 28, maintained a PASI 90 response
with continuous treatment through week 72.

At the end of July 2017, MorphoSys announced that its partner
Bayer reported the results of a phase 2 clinical study examin-
ing anetumab ravtansine in patients with malignant pleural
mesothelioma*. The study did not meet its primary endpoint of
progression-free survival in comparison to vinorelbine. Ane-
tumab ravtansine is an antibody-drug conjugate (ADC*) di-
rected against mesothelin, and is based on an antibody made
using MorphoSys’s HuCAL technology. Malignant pleural me-
sothelioma is a rare cancer and commonly caused by exposure
to asbestos. Bayer stated that it would continue to investigate
the compound in clinical studies in other cancer indications.

REGUL AT ORY EVEN T S

PROPRIE TARY DE VELOPMENT
On October 23, 2017, the US Food and Drug Administration
(FDA*) granted breakthrough therapy designation to MOR208
in combination with lenalidomide for the treatment of blood
cancer patients with relapsed or refractory (r/r) diﬀ use large B

cell lymphoma (DLBCL) who are not eligible for high-dose
chemotherapy and autologous stem cell transplantation. FDA’s
breakthrough therapy designation is based on preliminary
data from the ongoing phase 2 L-MIND study, which is evaluat-
ing the safety and eﬃ cacy of MOR208 in combination with
lenalidomide in this patient group. FDA breakthrough therapy
designation is intended to expedite the development and re-
view of drug candidates and their combination with other
drugs. The FDA grants this designation when preliminary data
indicate that the drug candidate demonstrates substantial im-
provement over existing therapies in the treatment of a serious
or life-threatening disease.

PAR TNERED DISC OVERY
In July 2017, MorphoSys’s licensee Janssen announced it had
received US market approval from the FDA for Tremfya® (gusel-
kumab) for the treatment of adult patients suﬀ ering from
moderate-to-severe plaque psoriasis. MorphoSys received a
milestone payment from Janssen related to the approval. In
mid-September 2017, the Committee for Medicinal Products for
Human Use (CHMP) of the European Medicines Agency (EMA*)
recommended approval in Europe of Tremfya® (guselkumab)
for the treatment of patients with moderate-to-severe plaque
psoriasis. The EU Commission granted European approval in
November 2017. Also in November, Janssen announced that it
had received Health Canada approval in Canada for Tremfya®
(guselkumab) for the treatment of adult patients suﬀ ering from
moderate-to-severe plaque psoriasis.
*S E E G L O S S A R Y – page 170

PAT EN T S
During the 2017 ﬁ nancial year, MorphoSys continued to con-
solidate and expand the patent protection of its development
programs and its growing technology portfolio, which are the
Company’s most important value drivers.

In February 2017, MorphoSys announced that it added a second
patent with US Patent Number 9,200,061 to its lawsuit against
Janssen Biotech and Genmab, A/S. Later in the year, MorphoSys
added a third US patent, US 9,758,590, to the lawsuit. In April
2016, MorphoSys ﬁ led a lawsuit in the United States at the Dis-
trict Court of Delaware against Janssen Biotech and Genmab
A/S for patent infringement of US Patent Number 8,263,746. In
ﬁ ling the lawsuit, MorphoSys seeks redress for infringement
by Janssen’s and Genmab’s daratumumab, a CD38-directed
monoclonal antibody indicated for the treatment of certain
patients with multiple myeloma.

At the end of the ﬁ nancial year, the Company maintained over
50 diﬀ erent proprietary patent families worldwide in addition
to the numerous patent families it pursues with its partners.

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

Group Development

In early January 2017, MorphoSys announced the appointment
of Dr. Malte Peters as the Company’s new Chief Development
Oﬃ cer. Dr. Peters assumed his new position on March 1, 2017,
succeeding Dr. Arndt Schottelius who was Chief Development
Oﬃ cer until February 28, 2017. Dr. Schottelius left the Com-
pany to pursue new opportunities. Dr. Peters was previously
employed as Global Head Clinical Development Biopharmaceu-
ticals at Novartis’s subsidiary Sandoz. For a period of one year
as of March 1, 2017, Dr. Peters was entitled to request the trans-
fer of a maximum of € 500,000 in Company treasury shares. A
request was made in March 2017 upon which a total of 9,505 of
the Company’s treasury shares was transferred to Dr. Peters.

At the Annual General Meeting of MorphoSys AG on May 17,
2017, shareholders approved all resolutions of the Company’s
management with the required majority of votes. Krisja
Vermeylen was newly elected to the Supervisory Board, replac-
ing Karin Eastham whose resignation took eﬀ ect at the end of
the Annual General Meeting on May 17, 2017. Ms. Vermeylen
holds the position of Senior Vice President Corporate People &
Organisation at Novo Nordisk A/S, Bagsvaerd, Denmark. Over
the past 20 years, Ms. Vermeylen has held a variety of manage-
ment positions at Novo Nordisk, including General Manager for
Belgium and Luxembourg (BeLux), France and, most recently,
Germany. In addition, Dr. Frank Morich, Klaus Kühn and
Wendy Johnson were reelected to the Supervisory Board follow-
ing the expiry of their terms of oﬃ ce.

At the Company’s Capital Markets Days held in London and
New York in early September 2017, MorphoSys presented its
growth and development strategy and provided an overview of
its current activities. It also provided an outlook on potential
upcoming events. One of the key strategic goals is to identify
and pursue the fastest possible path to market for MOR208 in
r/r DLBCL. MorphoSys also reemphasized its goal of becoming
a fully integrated biopharmaceutical company. The Company
presented not only proprietary and partnered clinical programs
but also several of the proprietary programs that are currently
in the early stages of research and development.

Dr. Markus Enzelberger was appointed MorphoSys’s Chief
Scientiﬁ c Oﬃ cer (CSO) as of November 1, 2017, after having
served as Interim CSO since April 15, 2017. He succeeds
Dr. Marlies Sproll, who resigned on October 31, 2017 due to
ongoing family matters. Prior to her resignation, Dr. Sproll had
taken temporary leave from her CSO position starting on April
15, 2017. As of November 1, 2017, Dr. Sproll assumed a new
part-time role at MorphoSys as Special Advisor to the CEO.
Dr. Enzelberger was previously Senior Vice President Discovery
Alliances and Technologies at MorphoSys and was responsible
for the Company’s entire drug discovery activities and tech-
nology development. Dr. Enzelberger is a chemist by training
and joined MorphoSys in 2002. For a period of one year as of
November 1, 2017, Dr. Enzelberger was entitled to request the
transfer of a maximum of € 400,000 in Company treasury
shares. A request was made in November 2017 upon which a
total of 4,956 of the Company’s treasury shares was transferred
to Dr. Enzelberger.

Group Headcount Development

On December 31, 2017, the MorphoSys Group had 326 employees
(December 31, 2016: 345), 132 of whom hold PhD degrees (De-
cember 31, 2016: 137). The MorphoSys Group employed an aver-
age of 344 employees in 2017 (2016: 354).
›› S E E F I G U R E 0 4 – Total Headcount of the MorphoSys Group (

page 37
Total Headcount of the MorphoSys Group (page 37)
page 37)

In order to successfully compete for the best employees,
MorphoSys conducts an annual comparison of the Company’s
compensation with that paid by other companies in the biotech
industry and similar sectors and makes adjustments when nec-
essary. The remuneration system at MorphoSys includes ﬁ xed
compensation and a variable annual bonus that is linked to the
achievement of corporate goals. Individual goals promote both
the employees’ personal development and the achievement of
key corporate goals.

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

T O TA L

299

329

365

345

326

Total Headcount of
the MorphoSys Group
(December 31)

2013

2014

2015

2016

2017

289

263

156

135

161

105

t
n
e
m
g
e
s

y
b

s
e
e
y
o
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e

n
o

i
t
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f

y
b

s
e
e
y
o
l
p
m
e

2016

2017

2016

2017

pro prie tary
de v elo pment

partnered
disc ov ery

unallo cated

employ ees in gener al
and adminis tr ati v e

employees
in r&d

In addition, a “spot bonus” (given “on the spot”) is promptly
awarded to employees for exceptional accomplishments. We
again made signiﬁ cant use of this instrument during the re-
porting year.

A detailed overview of headcount development and MorphoSys’s
activities to promote successful long-term human resource de-
velopment can be found in the section “Sustainable 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

Changes in the Business Environment

According to forecasts by the International Monetary Fund
(IMF), global economic growth saw a signiﬁ cant acceleration to
3.6 % in 2017 (2016: 3.1 %).

The IMF is currently seeing the strongest global upswing in a
decade. The Eurozone, Japan, China, the emerging economies of
Eastern Europe and Russia all trended higher. The IMF sees
risks for further economic development in the United Kingdom
in the wake of Brexit and political uncertainties in the United
States. The IMF cautioned the Eurozone to remain vigilant in
combating the ongoing risks in the banking sector. According
to the IMF, the US tax reform has improved the growth perspec-
tives for the US, Germany and the world economy.

The 2017 growth forecast for the advanced economies was
raised to 2.2 % (2016: 1.7 %). The emerging and developing
economies are expected to report slightly higher growth of
4.6 % (2016: 4.3 %). In its October 2017 report, the IMF believes
the economic recovery in the Eurozone will continue and ex-
pects growth of 2.1 % in 2017 (2016: 1.8 %). The 2017 forecast for
Germany is 2.0 % (2016: 1.9 %). Growth in the United States is
projected at 2.2 % in 2017 (2016: 1.5 %). China is expected to
grow 6.8 % (2016: 6.7 %). The economies in Russia and Brazil
climbed out of recession in 2017, growing 1.8 % (2016: – 0.2 %)
and 0.7 % (2016: – 3.6 %), respectively.

MorphoSys takes into account all potential macroeconomic
risks and opportunities when conducting business activities.
Political uncertainty in the global markets did not cause the
Company to refrain from or change any of its key activities in
the past ﬁ nancial year. MorphoSys’s operations were also not
aﬀ ected by any ﬂ uctuations within individual countries and,
therefore, in this respect were not directly impacted by global
economic developments.

CURRENC Y DEVEL OPMEN T S
Contrary to the forecasts of many analysts at the beginning of
the year, the euro strongly outperformed the US dollar in 2017.
After a weak year for the euro in 2016 and a slump in the ﬁ rst
few days of January 2017 to its lowest point since early 2003 of
US$ 1.03, many analysts had predicted that parity would be
reached in 2017. However, the currencies took an altogether dif-
ferent direction in 2017. In April, the euro had already reached
US$ 1.09 – the highest level since the dollar rally following the
US election in the fall of 2016. Later in the year, the euro con-
tinued to decouple from the dollar, trading at over US$ 1.17 in
mid-November amid strong economic data and optimistic
growth prospects for the Eurozone as a whole. Market observ-
ers believe this performance is related to successful structural
reforms implemented in numerous European countries follow-
ing the euro crisis.

Most of MorphoSys’s business is transacted in euros and US
dollars, therefore changes in these currencies could have an
eﬀ ect on the Company’s future costs and revenues. Any weak-
ness in the euro versus the US dollar would have a direct inﬂ u-
ence on the Company’s operating results because a growing
share of its costs stems from clinical studies conducted in the
United States. Moreover, a strong euro reduces the royalty
payments from Tremfya® sales incurred in US dollars that are
converted into euro. MorphoSys deals with this risk using the
appropriate hedge accounting measures.

REGUL AT ORY ENVIRONMEN T
The healthcare industry’s regulatory environment is domi-
nated by stringent product quality, safety and eﬃ cacy require-
ments, which place ever-higher demands on the companies in-
volved. Novel drugs are required to demonstrate a beneﬁ t over
existing therapies in order to be approved, gain the market’s
acceptance and be ﬁ nancially reimbursed.

The current trend in the United States is toward faster approval
by the FDA (Food and Drug Administration). The FDA’s actions
are partly due to legislation adopted in 2012 and the mecha-
nisms created to reduce review times, such as the breakthrough
therapy designation and the extension of accelerated approvals.
These mechanisms facilitate a faster review process for drug
candidates demonstrating a substantial improvement for pa-
tients in urgent need, such as oncology patients. This develop-
ment was evident in 2017. In 2017, the FDA had approved 46
new medications and therefore granted more than twice as
many registrations as in the previous year (2016: 22). Between
2006 and 2014, the FDA approved an average of 28 new drugs
per year.

Biopharmaceutical companies such as MorphoSys, who are
focused on the development of therapies for indications with
high medical need, could potentially beneﬁ t from the mecha-
nisms described above. MorphoSys received FDA breakthrough
therapy designation in 2017 for its drug candidate MOR208.

DEVEL OPMEN T OF T HE PHARMACEU T IC AL AND

BIO T ECHNOL OGY SEC T ORS
According to market researchers, the development of the global
pharmaceutical industry was sluggish in 2017. At the begin-
ning of the year, analysts expected the ten largest pharmaceu-
tical companies to grow just 2 % on average, based mainly on
fears of growing price pressure in the United States. Particu-
larly in the third quarter of 2017, a number of pharmaceutical
and major biotech companies, including Amgen, Merck & Co.
and Gilead, reported weakening organic growth.

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

In contrast to the expectations at the beginning of the year,
M&A in the healthcare sector was slightly weaker overall in
2017 than in the prior year. According to analysts at Merger-
market, a market intelligence provider, mergers and acquisi-
tions in the ﬁ rst nine months reached a level of around US$ 200
billion, or almost 10 % lower than in the prior year. The decline
was primarily the result of fewer M&A transactions in the
pharmaceutical industry. One of the reasons indicated was the
uncertainty surrounding the anticipated corporate tax reform
in the United States. The biotech industry, on the other hand,
had its strongest M&A year since the analysis began in 2001,
driven by multi-billion dollar acquisitions such as Gilead’s ac-
quisition of Kite Pharma.

Fundamentally, the pharmaceutical industry remains robust.
A report from the International Trade Administration of the US
Department of Commerce expects worldwide pharmaceutical
sales from 2015 to 2020 to grow at an annual rate of 4.9 %, from
roughly US$ 1 trillion to US$ 1.3 trillion. The demand for phar-
maceutical products is being driven by a variety of demographic
and economic trends including a rapidly aging world popula-
tion and the accompanying higher incidence of chronic disease,
increasing urbanization, greater disposable income, higher
public health spending and a growing demand for more eﬀ ec-
tive treatments.

The market for cancer drugs – the primary market for most of
MorphoSys’s proprietary compounds – is one of the most attrac-
tive and fastest-growing segments of the pharmaceutical indus-
try. According to the market research institute Research and
Markets, the volume of the worldwide oncology market in 2016
was US$ 119 billion. Driving the market is a growing shift
toward targeted therapies such as monoclonal antibodies and
cell-based therapies. The Research and Markets report esti-
mates that the global market for oncology products will grow by
an average of approximately 10 % per annum to US$ 241 billion
in 2023.

In 2017, pharmaceutical and biotechnology companies both in
the US and in Europe faced rising pricing pressure thus ﬁ nd-
ing it more diﬃ cult to charge high prices for their medications.
Beside rising political pressure one reason is a shift in the mar-
ket structure. The companies that negotiate with the pharma-
ceutical companies are getting bigger and fewer, thus gaining
negotiation power. Therefore it was observed that even though
list prices for medications are still rising, drugmakers were
forced to give large rebates to insurers and pharmacy beneﬁ t
companies.

Further information on the development of the stock market
environment can be found in the section “Shares and the Capi-
tal Market.”

DEVEL OPMEN T OF T HE AN T IBOD Y SEC T OR
The year 2017 was a very dynamic and successful year for the
clinical development of therapeutic antibodies. By mid-Novem-
ber 2017, the FDA had granted regulatory approval to ten new
antibodies. This number was already above the previous record
of nine antibody approvals by the FDA in 2015.

In a follow-up to the article “Antibodies to Watch in 2017,” pub-
lished in “mAbs Journal,” the Antibody Society disclosed in an
article published in the beginning of 2017 that by the end of
2016 a total of 52 antibodies were in phase 3 clinical trials
(year-end 2015: 53), 20 of which are being developed to treat
cancer (year-end 2015: 17).

In July 2017, the FDA granted approval to our development
partner Janssen for guselkumab for the treatment of plaque
psoriasis. Guselkumab is a compound derived with the help of
MorphoSys’s technology.

In 2017, the following antibodies received their ﬁ rst FDA regu-
latory approval:
• Brodalumab against plaque psoriasis
• Avelumab against Merkel cell carcinoma
• Dupilumab against atopic dermatitis
• Ocrelizumab against multiple sclerosis
• Durvalumab against urothelial carcinoma
• Sarilumab against rheumatoid arthritis
• Guselkumab against plaque psoriasis
• Inotuzumab ozogamicin against acute lymphoblastic leukemia
• Benralizumab against asthma
• Emicizumab against hemophilia

MorphoSys regards the successful development of the antibody
segment as a generally positive signal and a validation of the
Company’s focus on this drug class in its development activi-
ties. However, from this observation no conclusions can be
drawn regarding the development perspectives of individual
drug candidates.

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

Revenues by Region
(December 31) (in %)

2013

2014
2014

2015

2016
2016

2017

euro pe and asia

no rth ameri ca
no rth ameri ca

Revenues Proprietary
Development and
Partnered Discovery
(December 31)
(in million €)1

1 Diﬀ erences due to

rounding.

T O TA L

78.0

64.0

106.2

49.7

66.8

48.0

26.9

3.0

59.9

43.6

42.3

43.6

41.9

15.0

5.4

4.0

5.6

0.6

17.6

7.3

2013

2014

2015

2016

2017

segment partnered disc ov ery
funded research and licensing fees

segment partnered disc ov ery

segment pro prie tary

success-based payments

de v elo pment

Analysis of Net Assets, Financial Position and Results of Operations

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

The MorphoSys Group’s scope of consolidation as of Decem-
ber 31, 2017 was unchanged compared to December 31, 2016.
The consolidated ﬁ nancial statements as of December 31, 2017
include MorphoSys AG, Sloning BioTechnology GmbH, Lanthio
Pharma B.V. and its subsidiary LanthioPep B.V. Further infor-
mation on the Group’s organizational structure can be found on
page 26.

Revenues

Operating Expenses

In 2017, operating expenses increased by 22 % to € 133.8 mil-
lion (2016: € 109.8 million). Expenses consisted of research and
development expenses of € 116.8 million (2016: € 95.7 million)
and general and administrative expenses of € 17.0 million
(2016: € 14.1 million). Research and development expenses
were increased as a result of the higher number of projects in
development.

Group revenues in the 2017 ﬁ nancial year increased 34 % ver-
sus the previous year, reaching a total of € 66.8 million (2016:
€ 49.7 million).

Operating expenses in the Proprietary Development segment
increased from € 78.5 million to € 99.1 million. Expenses in the
Partnered Discovery segment increased to € 18.9 million (2016:
€ 18.1 million).

Success-based payments amounted to 11 % or € 7.3 million
(2016: 11 % or € 5.6 million) of total revenues. On a regional
basis, MorphoSys generated 13 %, or € 8.7 million, of its commer-
cial revenues with biotechnology and pharmaceutical companies
and non-proﬁ t organizations headquartered in North America
and 87 %, or € 58.1 million, with customers headquartered in
Europe and Asia. In the same period of the previous year, the
distribution was 10 % and 90 %, respectively (see Figure 5: Reve-
nues by Region). Roughly 90 % of Group revenues are attribut-
able to activities with our partners Novartis, I-Mab Biopharma
and Janssen (2016: 95 % with Novartis, Pﬁ zer and Janssen).
›› S E E F I G U R E 0 5 – Revenues by Region (

page 40
Revenues by Region (page 40)
page 40)

PROPRIE TARY DEVEL OPMEN T SEGMEN T
The Proprietary Development segment achieved revenues of
€ 17.6 million in 2017 (2016: € 0.6 million).

PAR T NERED DIS COVERY SEGMEN T
The revenues generated by the Partnered Discovery segment
amounted to € 49.2 million and consisted of € 41.9 million in
funded research and license fees (2016: € 43.6 million) and
€ 7.3 million in success-based payments (2016: € 5.6 million).
›› S E E F I G U R E 0 6 – Revenues Proprietary Development and Partnered Discovery

page 40
((page 40)
page 40)

Personnel expenses from share-based payments are included
in general and administrative expenses and research and de-
velopment expenses. These expenses amounted to € 5.0 mil-
lion in 2017 (2016: € 2.4 million).

RESEARCH AND DEVEL OPMEN T EXPENSES
Research and development expenses increased by € 21.1 mil-
lion in 2017 to a total of € 116.8 million (2016: € 95.7 million)
and consisted of expenses for external laboratory services
(2017: € 52.9 million; 2016: € 39.4 million), personnel expenses
(2017: € 29.7 million; 2016: € 26.5 million), expenses for intan-
gible assets (2017: € 13.5 million; 2016: € 13.7 million), expenses
for external services (2017: € 10.1 million; 2016: € 5.0 million);
technical infrastructure expenses (2017: € 4.9 million; 2016:
€ 5.9 million), other expenses (2017: € 3.1 million; 2016:
€ 2.9 million) and expenses for consumables (2017: € 2.6 mil-
lion; 2016: € 2.3 million). Expenses for intangible assets
primarily consisted of impairment of € 9.8 million (2016:
€ 10.1 million) on the in-process R&D program MOR209/ES414.
The reason for the impairment was the termination of the coop-
eration with Aptevo Therapeutics in 2017.
›› S E E F I G U R E 0 7 – Selected R&D Expenses (

page 42
Selected R&D Expenses (page 42)
page 42)

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

Selected R & D
Expenses
(December 31)
(in million €)

1 Due to the sale of

sub stantially all of the
AbD Serotec operating
segment with closing date
of January 10, 2013, the
ﬁ gures for the year 2013
refer only to continuing
operations.

T O TA L

49.21

56.0

78.7

95.7

116.8

52.9

39.4

26.5

27.5

29.7

31.6

29.2

25.6

21.0

21.2

13.0

12.8

15.0

21.0

17.8

2.2

2.3

3.0

2.3

2.6

2013

2014

2015

2016

2017

e x ternal l ab o r ato ry fundin g

perso nnel

c o nsumab les

other (includes expenses for

intangible assets, technical infra-
structure and external services)

In 2017, the Company incurred proprietary development ex-
penses of € 97.7 million (2016: € 77.1 million) and € 1.4 million
(2016: € 1.4 million) for technology development (see Figure 8:
Distribution of R&D Expenses).
›› S E E F I G U R E 0 8 – Distribution of R&D Expenses (

page 44
Distribution of R&D Expenses (page 44)
page 44)

GENERAL AND ADMINIS T RAT IVE EXPENSES
General and administrative expenses were above the previous
year’s level, amounting to € 17.0 million (2016: € 14.1 million).
They mainly consisted of personnel expenses (2017: € 12.3 mil-
lion; 2016: € 9.5 million), expenses for external services (2017:
€ 2.9 million; 2016: € 2.5 million), technical infrastructure
expenses (2017: € 0.8 million; 2016: € 0.9 million) and other
expenses (2017: € 0.9 million; 2016: € 1.2 million).

Other Income and Expenses

Other income totaled € 1.1 million (2016: € 0.7 million) and
included in both 2017 and 2016 income from grants and
currency gains. Other expenses totaled € 1.7 million (2016:
€ 0.6 million) and mainly resulted from currency losses and the
repayment of cost subsidies.

Earnings Before Interest and
Taxes (EBIT)

Following the investment made in proprietary product devel-
opment in 2017, earnings before interest and taxes (EBIT)
amounted to € – 67.6 million as expected. This compares to an
EBIT of € – 59.9 million in the prior year. The Proprietary De-
velopment segment reported EBIT of € – 81.3 million (2016:
€ – 77.6 million), while the Partnered Discovery segment
achieved EBIT of € 30.2 million (2016: € 31.0 million).

Finance Income and Expenses

Finance income amounted to € 0.7 million (2016: € 1.4 million)
and included mainly interest income as well as gains from cur-
rency hedges. Finance expenses amounted to € 1.9 million
(2016: € 1.3 million) and resulted mainly from losses from cur-
rency hedges.

Analysis of Net Assets, Financial Position and Results of Operations

G r o u p M a n a g e m e n t R e p o r t

Taxes

The Group reported a tax expense of € 1.0 million in 2017
(2016: tax expense of € 0.5 million) derived from a deferred
tax expense of € 0.5 million and a current tax expense of
€ 0.5 million.

Consolidated Net Proﬁ t/Loss for
the Period

In 2017, the net result for the period amounted to € – 69.8 mil-
lion (2016: € – 60.4 million). Earnings per share in 2017 was
€ – 2.41 (2016: € – 2.28).

Multi-Year Overview – Income Statement

T A B L E 0 3
Multi-Year Overview – Income Statement1
Multi-Year Overview – Income Statement1
Multi-Year Overview – Income Statement

in million €

Revenues

Research and Development Expenses

General and Administrative Expenses

Other Income/Expenses

EBIT

Finance Income/Expenses

Income Tax Income/Expenses

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

Proﬁ t/(Loss) for the Year from Discontinued Operations2

Consolidated Net Proﬁ t/(Loss)

Basic Net Proﬁ t/(Loss) per Share (in €)

2017

2016

2015

2014

20132

66.8

(116.8)

(17.0)

(0.6)

(67.6)

(1.2)

(1.0)

(69.8)

0.0

(69.8)

(2.41)

49.7

(95.7)

(14.1)

0.2

(59.9)

0.1

(0.5)

(60.4)

0.0

(60.4)

(2.28)

106.2

(78.7)

(15.1)

4.7

17.2

3.4

(5.7)

14.9

0.0

14.9

0.57

64.0

(56.0)

(14.1)

0.2

(5.9)

1.6

1.3

(3.0)

0.0

(3.0)

(0.12)

78.0

(49.2)

(18.8)

(0.1)

9.9

0.8

(3.3)

7.4

6.0

13.3

0.54

1 Diﬀ erences due to rounding.
2 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” for the year 2013. Other line items contain the results of the continuing operations.

Financial Position

PRINC IPL ES OF F INANC IAL MANAGEMEN T
At MorphoSys, the primary goal of ﬁ nancial management is to
ensure suﬃ cient liquidity reserves at all times for the Com-
pany’s continued growth. The most important source of this
liquidity is the operations of the individual business units and
the resulting cash inﬂ ow. Cash ﬂ ow projections and scenarios
are used to determine the level of liquidity needed.

C ASH F L OWS*
The net cash outﬂ ow from operating activities in 2017 totaled
€ 38.4 million (2016: cash outﬂ ow of € 46.6 million).
*S E E G L O S S A R Y – page 170

In 2017, the Company changed the composition of the ﬁ nancial
assets held in its portfolio through the purchase and sale of
various investment products. These shifts resulted in net cash
inﬂ ows of € 32.9 million (2016: cash outﬂ ow of € 80.8 million).

Financing activities resulted in cash inﬂ ows of € 8.2 million in
2017 (2016: cash inﬂ ow of € 110.4 million), mainly due to the
exercise of convertible bonds granted to the Management Board
and the Senior Management Group.

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

Distribution of
R & D Expenses
(December 31)
(in million €)

1 Due to the sale of

sub stantially all of the
AbD Serotec operating
segment with closing date
of January 10, 2013, the
ﬁ gures for the year 2013
refer only to continuing
operations.

T O TA L

49.21

56.0

78.7

95.7

116.8

97.7

77.1

27.5

17.5

33.5

19.6

54.1

22.1

17.2

17.7

4.2

2.9

2.5

1.4

2013

2014

2015

2016

2017

pro prie tary de v elo pment

e xpenses

r&d e xpenses o n

b ehalf o f partners

technolo gy

de v elo pment e xpenses

INVES T MEN T S
In 2017, MorphoSys invested € 1.3 million in property, plant
and equipment (2016: € 2.5 million), mainly laboratory equip-
ment (i.e. machinery), computer hardware and tenant ﬁ xtures.
Depreciation of property, plant and equipment in 2017 increased
to € 2.0 million (2016: € 1.8 million).

The Company invested € 11.8 million in intangible assets in
2017 (2016: € 0.4 million). Amortization of intangible assets
was above the prior year’s level and amounted to € 2.1 million
in 2017 (2016: € 2.0 million). In 2017, impairment of € 9.8 mil-
lion was recognized on the in-process MOR209/ES414 program
(2016: € 10.1 million).

L IQUIDI T Y
On December 31, 2017, the Company held cash and cash equiv-
alents, marketable securities and other ﬁ nancial assets of
€ 312.2 million compared to € 359.5 million on December 31,
2016.

This amount consisted of cash and cash equivalents of
€ 76.6 million (December 31, 2016: € 73.9 million), marketable
securities and bonds of € 86.5 million (December 31, 2016:
€ 69.9 million) and other ﬁ nancial assets in the amount of
€ 149.1 million (December 31, 2016: € 136.1 million) that are
categorized as “loans and receivables” under “current assets.”
On December 31, 2016, other investments in the category of
“loans and receivables” in the amount of € 79.5 million were
reported under non-current assets.

The decline in liquidity resulted primarily from the use of cash
and cash equivalents for operations in the year 2017.

Analysis of Net Assets, Financial Position and Results of Operations

G r o u p M a n a g e m e n t R e p o r t

T A B L E 0 4
Multi-Year Overview – Financial Situation1

in million €

2017

2016

2015

2014

2013

Net Cash Provided by/Used in Operating Activities2

Net Cash Provided by/Used in Investing Activities2

Net Cash Provided by/Used in Financing Activities2

Cash and Cash Equivalents (as of 31 December)

Available-for-sale Financial Assets

Bonds, Available-for-sale

Financial Assets Categorized as Loans and Receivables, Current Portion

Financial Assets Categorized as Loans and Receivables, Net of Current Portion

(38.4)

32.9

8.2

76.6

86.5

0.0

149.1

0.0

(46.6)

(80.8)

110.4

73.9

63.4

6.5

136.1

79.5

(23.5)

86.3

(4.1)

90.9

64.3

33.1

94.6

15.5

(14.2)

(21.5)

(3.9)

32.2

106.0

7.5

157.0

50.0

89.1

(193.9)

130.6

71.9

188.4

11.1

119.3

0.0

1 Diﬀ erences due to rounding.
2 In 2015, interest paid and interest received were reclassiﬁ ed from operating activities into investing activities and ﬁ nancing activities in the statement of cash ﬂ ows.

In order to provide comparative information for the previous year, the ﬁ gures for 2014 have been adjusted accordingly.

Net Assets

ASSE T S
As of December 31, 2017, total assets amounted to € 415.4 mil-
lion and were € 48.2 million below their level on December 31,
2016 (€ 463.6 million). Current assets increased by € 32.6 mil-
lion. The rise in cash and cash equivalents, available-for-sale
ﬁ nancial assets and ﬁ nancial assets classiﬁ ed as loans and re-
ceivables was oﬀ set by the decline in available-for-sale bonds
and accounts receivables.

As of December 31, 2017, an amount of € 86.5 million (Decem-
ber 31, 2016: € 63.4 million) was invested in various money
market funds and reported under “available-for-sale ﬁ nancial
assets.” The item “available-for-sale bonds” did not contain any
bonds on December 31, 2017 (December 31, 2016: € 6.5 mil-
lion). The category “loans and receivables” included ﬁ nancial
instruments totaling € 149.1 million (December 31, 2016:
€ 136.1 million). These instruments were mainly term deposits
with either ﬁ xed or variable interest rates.

Non-current assets declined by € 80.8 million to € 74.7 million
compared to their level on December 31, 2016. The main reason
for the decline was a reduction in non-current ﬁ nancial assets
in the category “loans and receivables.”

L IABIL I T IES
Current liabilities increased from € 38.3 million on December
31, 2016 to € 47.7 million on December 31, 2017. This eﬀ ect
mainly resulted from the rise in accounts payable and accrued
expenses.

Non-current liabilities (December 31, 2017: € 9.0 million;
December 31, 2016: € 9.8 million) decreased mainly due to
the decline in non-current deferred revenues compared to
the December 31, 2016 reporting date.

S T OCKHOL DERS’ EQUI T Y
As of December 31, 2017, Group equity totaled € 358.7 million
compared to € 415.5 million on December 31, 2016.

The number of shares issued totaled 29,420,785 as of December
31, 2017, of which 29,101,107 shares were outstanding (Decem-
ber 31, 2016: 29,159,770 shares issued and 28,763,760 shares
outstanding).

In comparison to December 31, 2016, the number of authorized
ordinary shares increased from 10,584,333 to 14,579,885. The
change was a result of the cancellation of Conditional Capital
2015-I of € 10,584,333 and the creation of Conditional Capital
2017-I of € 2,915,977 and Conditional Capital 2017-II in the
amount of € 11,663,908 by resolution of the Annual General
Meeting on May 17, 2017.

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

The number of ordinary shares of conditional capital was lower
compared to the level on December 31, 2016, declining from
6,752,698 to 6,491,683 due to the exercise of 261,015 conver-
sion rights in the year 2017.

On December 31, 2017, the Company held 319,678 shares of
treasury stock valued at € 11,826,981, representing a decline of
€ 2,821,231 compared to December 31, 2016 (396,010 shares,
€ 14,648,212). The cause of the decline was the transfer of
61,871 shares of treasury stock valued at € 2,286,752 to the
Management Board and Senior Management Group from the
performance-based 2013 long-term incentive program (LTI).
The vesting periods for this LTI program expired on April 1,
2017 and October 1, 2017. Beneﬁ ciaries were given the option to
receive a total of 61,871 shares within six months. In addition,
a total of 9,505 MorphoSys shares valued at € 351,305 were
transferred to the Chief Development Oﬃ cer, Dr. Peters, in
March 2017. In November 2017, a total of 4,956 shares valued
at € 183,174 were transferred to the Chief Scientiﬁ c Oﬃ cer,
Dr. Enzelberger.

Financing

As of December 31, 2017, the Company’s equity ratio amounted
to 86 % compared to 90 % on December 31, 2016. The Group
currently does not have any ﬁ nancial liabilities owed to ﬁ nan-
cial institutions.

Off-Balance-Sheet Financing

MorphoSys does not use any oﬀ -balance-sheet ﬁ nancing in-
struments such as the sale of receivables, asset-backed securi-
ties, sale-and-leaseback transactions or contingent liabilities in
combination with non-consolidated special-purpose entities.

Credit Rating

There is no agency currently assessing the creditworthiness of
MorphoSys.

Multi-Year Overview – Balance Sheet Structure

T A B L E 0 5
Multi-Year Overview – Balance Sheet Structure1

in million €

Assets

Current Assets

Non-current Assets

Total

Equity and Liabilities

Current Liabilities

Non-current Liabilities

Stockholders’ Equity

Total

1 Diﬀ erences due to rounding.

12/31/2017

12/31/2016

12/31/2015

12/31/2014

12/31/2013

340.7

74.7

415.4

47.7

9.0

358.7

415.4

308.1

155.5

463.6

38.3

9.8

415.5

463.6

300.1

100.0

400.1

27.5

9.9

362.7

400.1

322.4

104.1

426.5

32.7

45.0

348.8

426.5

406.6

41.1

447.7

35.4

60.1

352.1

447.7

Comparison of Actual Business
Results Versus Forecasts

MorphoSys demonstrated solid ﬁ nancial performance during
the 2017 reporting year. A detailed comparison of the Company’s
forecasts versus the actual results can be found in Table 6.

Analysis of Net Assets, Financial Position and Results of Operations

G r o u p M a n a g e m e n t R e p o r t

T A B L E 0 6
Comparison of Actual Business Results Versus Forecasts

2017 Targets

2017 Results

Financial
targets

Proprietary
Development

Partnered
Discovery

Group revenues between € 63 million and € 66 million
(initial forecast € 46 – 51 million; revised on November 30, 2017
upon announcement of regional licensing agreement with I-Mab
for MOR202)

Expenses for proprietary product and technology development
of € 96 million to € 100 million
(initial forecast: € 85 – 95 million; revised on November 30, 2017
upon announcement of regional licensing agreement with I-Mab
for MOR202)

EBIT of € – 66 million to € – 71 million
(initial forecast: € – 75 million to € – 85 million; revised on
November 30, 2017 upon announcement of regional licensing
agreement with I-Mab for MOR202)

Proprietary Development segment:
R&D expenses to continue to rise (2016: € 78.5 million)
EBIT sharply negative (2016: € – 77.6 million)

Partnered Discovery segment:
R&D expenses around prior-year level (2016: € 18.1 million)
EBIT sharply positive, slightly below segment EBIT in 2016
(2016: € 31.0 million)

Group revenues of € 66.8 million

Expenses for proprietary product and technology development
of € 99.1 million

EBIT of € – 67.6 million

Proprietary Development segment:
R&D expenses of € 99.1 million
EBIT of € – 81.3 million

Partnered Discovery segment:
R&D expenses of € 17.7 million
EBIT of € 30.2 million

MOR208
• Presentation of ﬁ rst preliminary data of the L-MIND study
(phase 2 combination study of lenalidomide in DLBCL)

• Completion of the phase 2 safety part of the B-MIND study

(combination study of bendamustine in DLBCL) and initiation
of the pivotal phase 3 part of the study (in comparison to
rituximab and bendamustine)

MOR208
• Presentation of preliminary data of the L-MIND study at the
2017 Annual Meeting of the American Society of Clinical
Oncology (ASCO) in June

• Transition of the B-MIND trial to a pivotal phase 3 part in June
• Expansion of the COSMOS trial through the combination arm

with venetoclax

• Initiation of another study arm of the COSMOS trial (another

• Breakthrough therapy designation based on L-MIND study

combination drug in addition to existing combination with ide-
lalisib in CLL)

granted by FDA

MOR202
• Completion of the phase 1/2a dose-escalation study in

MOR202
• Presentation of updated safety and eﬃ cacy data from the

multiple myeloma, including data from the highest dose of
16 mg/kg alone and in combination with pomalidomide and
lenalidomide

phase 1/2a study at the ASCO Annual Meeting in June; patient
enrollment for the study has been completed; subsequent
observation will continue

MOR209/ES414
• Continuation of the phase 1 trial with adjusted dosing regimen
in mCRPC under the cooperation with Aptevo Therapeutics

MOR209/ES414
• Termination of cooperation with Aptevo in September with
return of all development and commercialization rights to
Aptevo for MOR209/ES414

MOR106
• Completion of a phase 1 trial in atopic dermatitis as part of the

MOR106
• Completion of phase 1 trial in August and presentation of ﬁ rst

co-development program with Galapagos

data in September indicating clinical activity

MOR107
• Initiation of a phase 1 trial in healthy volunteers

MOR107
• Initiation of phase 1 trial in healthy volunteers in February
followed by completion of the ﬁ rst part of the trial in May

• Initiation and continuation of new development programs in the

• Initiation of preclinical development of an anti-C5aR antibody

area of antibody discovery and preclinical development

in the fourth quarter

Progress of partnered development programs

• Increasing number of partnered programs (101) as maturity

progresses

• First HuCAL antibody Tremfya® (guselkumab) for treating

plaque psoriasis receives marketing approval in the US, Europe
and Canada (partner is Janssen)

• Partner Novartis initiates phase 2 trial of HuCAL antibody

bimagrumab in obese patients with type 2 diabetes

• Partner Roche initiates new pivotal phase 3 trials of gantenerumab

in patients with prodromal to mild Alzheimer’s disease

• Partner Janssen initiates new phase 3 trials of HuCAL antibody

guselkumab in plaque psoriasis (comparative study with
secukinumab) and psoriatic arthritis; notiﬁ cation of a further
phase 3 study in Crohn’s disease

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

We also made very good progress in the Partnered Discovery
segment. A deciding factor was the marketing approval of the
HuCAL antibody Tremfya® (guselkumab) developed by Janssen.
Guselkumab is now the ﬁ rst approved antibody based on
MorphoSys technologies – a milestone for the Company. A pi v-
otal study of anetumab ravtansine, initiated by our partner
Bayer, did not meet its primary endpoint. Novartis announced
its intention to conduct a phase 2 clinical trial of the HuCAL
antibody bimagrumab in severely obese patients with type 2
diabetes. Roche announced plans for a new pivotal phase 3 trial
of gantenerumab in Alzheimer’s disease. The number of Part-
nered Discovery programs in the reporting year grew to a total
of 101 (end of 2016: 100).

Accounting Judgments

In preparing the 2017 consolidated ﬁ nancial statements, no ac-
counting policies or accounting options were used that diﬀ er
from those in prior years or that, if used or exercised diﬀ er-
ently, would have had a material eﬀ ect on the Company’s net
assets, ﬁ nancial position, results of operations or balance
sheet structure. Information on the eﬀ ects 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

The 2017 ﬁ nancial year was a very successful year for
MorphoSys. There were two events in particular that had a
positive impact on our business development. The ﬁ rst was in
July, with the ﬁ rst MorphoSys antibody to receive marketing
approval. Tremfya® (guselkumab), developed by our partner
Janssen for plaque psoriasis, received approval initially in the
US, followed by Europe and Canada. The second event came in
October, when we were granted breakthrough therapy designa-
tion by the US Food and Drug Administration (FDA) for our
proprietary antibody MOR208 in the blood cancer indication
relapsed or refractory DLBCL.

Revenues in the 2017 ﬁ nancial year increased to € 66.8 mil-
lion, and EBIT amounted to € – 67.6 million. The increase in
revenues and the improved operating result compared to the
previous year were largely the result of entering into a regional
partnership for our proprietary antibody MOR202. This agree-
ment resulted in a one-time payment of € 16.8 million, which
also prompted us to raise our ﬁ nancial forecast for the 2017
ﬁ nancial year. The net cash outﬂ ow from operating activities
amounted to € 38.4 million, which was the result of the planned
increase in expenses for proprietary research and develop-
ment. Our equity ratio of 86 % and liquid funds of € 312.2 mil-
lion are a conﬁ rmation of the strength of the Company’s ﬁ nan-
cial resources.

The proprietary portfolio advanced signiﬁ cantly, with 13 ac-
tive compounds at year-end (year-end 2016: 14). Data from a
phase 2 combination study of MOR208 in the blood cancer
indication DLBCL were presented at a large US oncology confer-
ence. Based on these data, the US Food and Drug Adminis-
tration (FDA) granted breakthrough therapy designation to
MOR208, in combination with lenalidomide, for the treatment
of adult patients with relapsed or refractory diﬀ use large B cell
lymphoma who are not eligible for high-dose chemotherapy and
autologous stem-cell transplantation. A further phase 2 combi-
nation study of MOR208 in DLBCL transitioned to a phase 3
study. The current dose-escalation study of MOR202 in multiple
myeloma is evaluating the drug at the highest doses reached in
the trial. Clinical data from the phase 1 study of MOR106 in
atopic dermatitis in cooperation with Galapagos were pub-
lished. The ﬁ rst part of a phase 1 clinical trial of MOR107, the
ﬁ rst lanthipeptide in MorphoSys’s clinical development pipe-
line, was completed. The compound MOR209/ES414 was re-
turned to the partner Aptevo as part of a portfolio optimization.

Outlook and Forecast

G r o u p M a n a g e m e n t R e p o r t

Outlook and Forecast

• New strategic agreements based on proprietary technologies
focused on gaining access to innovative target molecules and
compounds.

• Continued expansion of proprietary development activities
through potential in-licensing, company acquisitions, co-de-
velopment and new proprietary development activities.

• Investment in the development of proprietary technologies to
maintain and expand the Company’s position in therapeutic
antibodies and related technologies.

Strategic Outlook

MorphoSys’s business model is based on the development of
innovative drug candidates derived from the Company’s propri-
etary technologies, such as its HuCAL and Ylanthia antibody
libraries. Drug candidates are developed both on a proprietary
basis and together with partners to provide patients access to
better treatment alternatives. The focus of proprietary develop-
ment is oncology and inﬂ ammatory diseases. MorphoSys’s man-
agement intends to advance the Company’s portfolio of drug
candidates and develop individual candidates towards the mar-
ket. MorphoSys will also concentrate on applying and expanding
its technologies in fast-growing, innovation-driven areas of the
life sciences sector.

In the Proprietary Development segment, MorphoSys develops
proprietary therapeutic antibodies and peptides, primarily in
the areas of oncology and inﬂ ammatory diseases. Decisions to
enter into alliances to develop MorphoSys’s proprietary candi-
dates are made on a case-by-case basis. In some cases, projects
can remain in proprietary development for a longer period or
even until their commercialization. Our main focus is cur-
rently the continuation of the MOR208 development towards
a potential regulatory approval and the set-up of capabilities
to commercialize MOR208 in certain geographies.

MorphoSys’s business model is based on the development of
innovative drug candidates derived from its proprietary technol-
ogies, in particular the HuCAL and Ylanthia antibody libraries.
Drug candidates are developed both on a proprietary basis and
together with partners to give patients access to better treat-
ment alternatives. The focus of proprietary development is on-
cology and inﬂ ammatory diseases. Management’s goal is to
continue developing proprietary drug candidates towards mar-
ket approval, while at the same time concentrating on further
developing its technologies in fast-growing, innovation-driven
areas of the life sciences sector.

General Statement on Expected
Development

MorphoSys’s strategic focus is on the development of innova-
tive drugs to improve the lives of patients suﬀ ering from seri-
ous diseases. The development of MOR208, our most advanced
drug candidate, for the treatment of certain forms of blood can-
cer is currently our top priority. Our continued investment in
the development of validated and innovative technology plat-
forms is an important basis for our business. In the Partnered
Discovery segment, the commercialization of our technologies
provides contractually secured cash ﬂ ows from our partner-
ships with pharmaceutical companies. MorphoSys further par-
ticipates in the successful development of its partners’ drug
candidates through the receipt of revenues, such as milestone
payments and royalties on product sales, as soon as the drugs
are commercialized. Our main source of royalties is currently
generated from sales of the HuCAL antibody Tremfya® by our
partner Janssen, which was launched in 2017.

Revenues from R&D funding, royalties, license and milestone
payments and a strong liquidity position enable the Company
to continue expanding its development of proprietary drugs
and technologies. The Management Board expects, among oth-
ers, the following developments in 2018:
• Continue to advance the development of MOR208 towards a

potential regulatory approval.

• Evaluate potential set-up of commercialization capabilities in

order to market MOR208 in certain geographies.

• Continue the development of MOR202 and explore opportuni-
ties for its further development, either alone or together with
a partner, in one or more oncology indications, including in
solid tumors.

G r o u p M a n a g e m e n t R e p o r t

Outlook and Forecast

The Partnered Discovery segment generates contractually se-
cured cash ﬂ ows based on various partnerships with major
pharmaceutical companies. The majority of development candi-
dates in recent years stemmed from our partnership with
Novartis. As previously announced, this partnership ended in
accordance with the contract at the end of November 2017.
Although the partnership has ended, development candidates
under this partnership will continue to be developed and may
lead to additional milestone payments and royalties. Based on
its breadth and stage of development, the partnered pipeline is
expected to generate a number of marketable therapeutic anti-
bodies in the future. Should these be successful, the Company’s
ﬁ nancial participation in the form of royalties on product sales
would likely increase.

MorphoSys plans to invest a substantial portion of its ﬁ nancial
resources in proprietary R&D for the foreseeable future. The
Management Board believes this is the best route to increasing
the Company’s value for the long term. Our goal is to bring
MOR208, our most advanced proprietary drug candidate, to
the market. Due to the advanced maturity of the proprietary
MOR208 program, MorphoSys will increasingly engage in ac-
tivities, either alone or with potential partners, to prepare for
possible commercialization in the future. We also plan to ad-
vance our portfolio of proprietary development candidates and
further strengthen our technology platform.

Expected Economic Development

In its fall 2017 report, the International Monetary Fund (IMF)
is projecting global economic growth of 3.7 % in 2018, which is
slightly higher than in 2017 (forecast: 3.4 %). Advanced econo-
mies are anticipated to grow 2.0 % in 2018 compared to a fore-
cast of 1.8 % for 2017. The IMF also expects the development in
Europe to remain positive and is forecasting growth in the
Eurozone in 2018 of roughly 1.9 %, which is higher than in the
prior year (forecast: 1.5 %). Based on this forecast, Europe is ex-
pected to make a sizeable contribution to global economic
growth. The IMF expects economic growth in Germany to reach
1.8 % in 2018 (2017E 1.4 %). Record employment ﬁ gures, in-
creasing nominal and real wages and low energy costs are fuel-
ing private consumption. Nevertheless, challenges such as an
aging population and a return to a normal level of interest rates
still exist. The IMF is projecting a rise in US economic growth
in 2018 to 2.3 % compared to expected growth of 2.2 % in 2017.

According to the IMF, growth in the emerging and developing
countries in 2018 is expected to reach 4.9 % (2017E: 4.6 %).
Growth in China should reach 6.5 % in 2018 (2017E: 6.2 %) while
Russia is expected to grow 1.6 % compared to growth of 1.1 % in
2017. The trend in Brazil is also expected to turn around with
economic growth projected at 1.5 % for 2018 after positive
growth of 0.5 % in the prior year.

Expected Development of the
Life Sciences Sector

Following a temporary sharp decline in biotechnology stocks in
2016, the sector was again able to assert itself on the capital
markets in the 2017 reporting year. The leading global industry
index, the NASDAQ Biotechnology Index*, closed the year 2017
with an increase of 21 %. According to the auditing ﬁ rm Ernst &
Young in its 2018 M&A Report, M&A activity in the life sciences
sector, however, saw a decline in total volume of almost 20 % in
2017, ending the year at just over US$ 200 billion. In a survey
of leading industry managers, 60 % of respondents said they
expect M&A conditions in the sector to improve in 2018. On
the basis of this survey, Ernst & Young is projecting total
M&A volume to surpass US$ 200 billion again in 2018, mainly
driven by a continued increase in competition and price pres-
sure in the healthcare sector.

The sector continues to be in good shape overall. The number of
new FDA product approvals more than doubled in 2017 to 46
compared to 22 in 2016. A policy road map published by the
FDA in January 2018 suggests that the number of new registra-
tions in 2018 will remain high. Among others, the FDA plans to
implement measures to increase competition in the ﬁ eld of bio-
similars, which are generic versions of biopharmaceutical prod-
ucts. Patient access to promising new drugs is also expected to
be made easier.

A growing challenge for pharmaceutical and biotechnology
companies both in the US and Europe is expected to be the on-
going price pressures as drug makers are facing increasingly
stronger negotiating partners for drug prices and pressure
from policy makers.

Future Research and Development
and Expected Business Performance

PROPRIE TARY DEVEL OPMEN T
The Company’s R&D budget for proprietary drug development
in the 2018 ﬁ nancial year is expected to be in the corridor of
around € 95 million to € 105 million. The majority of invest-
ment will fund the clinical development of our proprietary drug
candidates MOR208, MOR202 and MOR106. Much of that fund-
ing will be dedicated to the clinical development of MOR208.
Further investment will be made in the areas of target molecule
validation as well as antibody and technology development. We
will also continue to seek collaborations with partners such as
academic institutions to gain access to new target molecules
and technologies.

Outlook and Forecast

G r o u p M a n a g e m e n t R e p o r t

The events and development activities planned in 2018 include
the following:
• Update on interactions with the FDA during the break-

through therapy designation process for MOR208.

• Completion of treatment of 81 patients under the current
study protocol of the fully recruited L-MIND* trial and the
start of data evaluation.

• Continuation of the pivotal phase 3 study evaluating MOR208
in combination with bendamustine in comparison to ritux-
imab and bendamustine in r/r DLBCL* (B-MIND* study).
• Continuation of the phase 2 COSMOS* trial of MOR208 with
idelalisib and venetoclax in CLL* and presentation of study
data at conferences.

According to information provided on the website clinicaltrials.
gov, in 2018 primary completion may be reached in a total of up
to 31 clinical trials in various study phases from partners
evaluating antibodies based on MorphoSys technology. This
includes a pivotal phase 2b study by Mereo in osteogenesis
imperfecta (brittle bone syndrome) of the HuCAL antibody
BSP804, directed against the target molecule sclerostin and
generated within the scope of the Novartis partnership. Sev-
eral Janssen phase 3 trials in psoriasis are also scheduled for
primary completion in 2018. These include a direct compara-
tive study between Janssen’s product Tremfya® and competing
product Cosentyx®.

• Continue to advance the development of MOR208 towards a
potential regulatory approval and begin to set up commercial
capabilities in order to commercialize MOR208 in certain
geographies.

Our partner Roche is also expected to initiate two new pivotal
phase 3 trials in the 2018 ﬁ nancial year (called GRADUATE-1
and GRADUATE-2) with the antibody gantenerumab in Alzhei-
mer’s disease.

• Evaluation of new potential partnerships for MOR202 for its

optimal development.

• Evaluate the start of an exploratory clinical trial of MOR202

in non-small-cell lung cancer (NSCLC).

• Presentation of study data after the completion of the still on-
going phase 1/2a dose-escalation trial of MOR202 in multiple
myeloma.

• Initiation of a phase 2 trial of MOR106 in atopic dermatitis

under our co-development program with Galapagos.

• Preclinical investigations of MOR107 with a focus on oncology

indications based on initial anti-tumor data.

• Initiation and continuation of development programs in the

area of antibody discovery and preclinical development.

Based on information provided on the clinicaltrials.gov web-
site, we anticipate the publication of data from a phase 2b study
of MOR103/GSK3196165 in rheumatoid arthritis and a phase 2a
study in hand osteoarthritis conducted by our partner GSK. Our
partner I-Mab has announced its intention to commence its ﬁ rst
clinical study of MOR202 in China in 2018.
*S E E G L O S S A R Y – page 170

PAR T NERED DIS COVERY
MorphoSys intends to continue to focus, above all, on the fur-
ther development of its proprietary development pipeline. In
the Partnered Discovery segment, MorphoSys will carefully
review its options to enter into additional antibody collabora-
tions based on the Ylanthia technology with pharmaceutical
and biotech companies, similar to the partnership it concluded
with LEO Pharma in 2016.

Whether, when and to what extent news will be published fol-
lowing the primary completion of trials in the Partnered Dis-
covery segment is at the full discretion of our partners.

Expected Personnel Development

While the number of employees in the Proprietary Develop-
ment segment is expected to increase slightly during the 2018
ﬁ nancial year, the number of employees in the Partnered Dis-
covery segment is expected to see a slight decline. Due to the
initiation of building up commercial capacities, the number of
employees in G&A is expected to increase slightly.

Expected Development of the
Financial Position and Liquidity

MorphoSys had ﬁ nancial resources of € 312.2 million at the end
of the 2017 ﬁ nancial year. Revenues in the 2018 ﬁ nancial year
are expected to be below those achieved in the prior year. The
reasons for this expected decline are primarily two items that
will not reoccur in the 2018 ﬁ nancial year, namely € 37 million
in revenues from the partnership with Novartis that ended in
accordance with the contract in November 2017 and the one-
time payment of € 16.8 million for partnering MOR202. Al-
though the partnership with Novartis has ended, MorphoSys
will continue to be eligible for success-based milestone pay-
ments and royalties in the event of the successful development
of product candidates by Novartis. The Management Board is
projecting Group revenues of € 20 million to € 25 million in the
2018 ﬁ nancial year. Revenues are expected to include royalty
income from Tremfya® ranging from € 12 million to € 17 mil-
lion on constant US$ currency. This forecast does not take into
account revenues from future collaborations and/or licensing
agreements.

G r o u p M a n a g e m e n t R e p o r t

Outlook and Forecast

R&D expenses for proprietary programs and technology de-
velopment are expected to reach € 95 million to € 105 million
in 2018. Most of these expenses in the Proprietary Develop-
ment segment will arise from the ongoing studies of MOR208,
MOR202 and MOR106 as well as from our early-stage develop-
ment programs. R&D expenses for the Partnered Discovery
segment are expected to be lower than in the prior year due to
the expiration of the partnership with Novartis.

Due to the advanced maturity of the proprietary MOR208 pro-
gram, MorphoSys will increasingly engage in activities, either
alone or with potential partners, to help prepare for possible
commercialization in the future.

The Company expects EBIT of approximately € – 110 million to
€ – 120 million in 2018. This guidance does not include reve-
nues from potential future partnerships or licensing agree-
ments nor milestones for MOR103 that could occur in the course
of 2018. Eﬀ ects from potential in-licensing or co-development
deals for new development candidates are not included in the
guidance either. The Partnered Discovery segment is expected
to generate a positive operating result in 2018. The Proprietary
Development segment is expected to report a sharply negative
EBIT due to planned R&D expenditures on proprietary programs.

In the years ahead, one-time events, such as the in-licensing
and out-licensing of development candidates and larger mile-
stone payments and royalties from the market maturity of
HuCAL and Ylanthia antibodies could have an increasing im-
pact on the Company’s net assets and ﬁ nancial position. Such
events could cause ﬁ nancial targets to change signiﬁ cantly.
Similarly, failures in drug development could have negative
consequences for the MorphoSys Group. Revenue growth in the
near future will depend on the Company’s ability to out-license
its proprietary programs and/or enter into new partnerships. In
addition, revenues should increasingly beneﬁ t from royalties
based on sales of Tremfya® (guselkumab).

At the end of the 2017 ﬁ nancial year, MorphoSys had liquidity
of € 312.2 million (December 31, 2016: € 359.5 million). The loss
projected for 2018 will cause a decline in liquidity. MorphoSys
sees its solid cash position as an advantage that can be used to
accelerate its future growth through strategic activities such as
the in-licensing of compounds and investments in promising
companies. Available liquidity can also be used to fund re-
search and development expenses for the Company’s propri-
etary portfolio of therapeutic antibodies.

DIVIDEND
In the separate ﬁ nancial statements of MorphoSys AG, pre-
pared in accordance with German Generally Accepted Ac-
counting Principles (German Commercial Code), the Company
is reporting an accumulated deﬁ cit, which prevents it from
distributing a dividend for the 2018 ﬁ nancial year. In view of
the anticipated losses in 2018, the Company expects to con-
tinue to report an accumulated loss for the 2018 ﬁ nancial year.
MorphoSys will invest further in the development of propri-
etary drugs and will pursue additional in-licensing and acqui-
sition transactions to open up new growth opportunities and
increase the Company’s value. Based on these plans, the Com-
pany does not expect to pay a dividend in the foreseeable future.

This outlook takes into account all known factors at the time of
preparing the Annual Report and is based on the Management
Board’s assumptions of events that could inﬂ uence the Com-
pany in 2018 and beyond. Future results may diﬀ er from the
expectations described in the section entitled “Outlook and
Forecast.” The most signiﬁ cant risks are described in the risk
report.

Shares and the Capital Market

G r o u p M a n a g e m e n t R e p o r t

Shares and the Capital Market

MorphoSys AG shares opened the reporting year at a share
price of € 48.75. After a volatile start in the ﬁ rst weeks of
2017, the shares marked their low for the year on February 6
at € 47.60. The shares then trended higher in line with the
TecDAX before breaking out in September with price perfor-
mance far outpacing the benchmark index. Positive news ﬂ ow,
such as the breakthrough therapy status for MOR208 from the
FDA and the approval of Tremfya® received by Janssen in new
regions, drove MorphoSys shares to a high of € 82.95 on No-
vember 21. The shares closed the ﬁ nancial year at € 76.58,
amounting to a signiﬁ cant share price increase of 57 % and
market capitalization* of € 2.3 billion.

In a record year for German and international stock indices,
the shares of MorphoSys AG still outperformed with a 57 % in-
crease in share price. The NASDAQ Biotechnology Index ended
the year 22 % higher, and the TecDAX* rose 40 % for the year.
›› S E E F I G U R E 0 9 – Performance of the MorphoSys Share in 2017 (
›› S E E F I G U R E 10 – Performance of the MorphoSys Share 2013–2017 (

Performance of the MorphoSys Share in 2017 (page 54)
page 54
page 54)
page 54
Performance of the MorphoSys Share 2013–2017 (page 54)
page 54)

Liquidity and Index Membership

The average daily trading volume in MorphoSys shares on all
regulated trading platforms increased by 61 % in 2017, reach-
ing a volume of € 15.6 million (2016: € 9.7 million). The aver-
age daily trading volume on the TecDAX, which contains the
30 largest technology stocks on the Frankfurt Stock Ex-
change, rose 46 % amid the overall positive stock market envi-
ronment. By the end of 2017, MorphoSys ranked 10th in the
TecDAX in terms of market capitalization (2016: 11th) and 12th
in terms of trading volume (2016: 11th).

The average daily trading volume in MorphoSys shares on alter-
native trading platforms (“dark pools”) in 2017 was approxi-
mately € 6.3 million, or 98,700 shares (2016: approx. 103,700
shares valued at € 4.4 million), representing a year-on-year
decline of 5 %.

*S E E G L O S S A R Y – page 170

Common Stock

Stock Market Development

The 2017 stock market year was marked by positive develop-
ments worldwide. The German DAX index reached a new high
in early November, and the US Dow Jones Index gained nearly
25 % for the year. The MSCI Emerging Markets stock index,
which tracks the stock markets in the emerging countries,
rose 37 %.

In this favorable environment, biotech stocks managed to regain
investor conﬁ dence. During the reporting year, MorphoSys con-
tinued to increase its investor relations activities focusing
again primarily on Europe and the United States.

The Company’s common stock increased to 29,420,785 shares,
or € 29,420,785.00, in the reporting year due to the exercise of
convertible bonds granted to the Management Board and the
Senior Management Group in 2013. A detailed description of the
convertible bond program can be found in the Notes (Item 7.2).

A long-term incentive plan (2013 LTI program), which was
granted to the Management Board and members of the Senior
Management Group in 2013, was allocated in the year under
review. As part of this 2013 LTI program, 61,871 treasury
shares were transferred from the Company to the Management
Board and Senior Management Group during the reporting
year. A detailed description of this program can be found in
the Corporate Governance Report and in the Notes (Item 7.3.1)
of this Annual Report. In addition, the two new Management
Board members, Dr. Malte Peters and Dr. Markus Enzelberger,
were granted a total of 14,461 MorphoSys shares held by the
Company as treasury stock. This reduced the holdings of
MorphoSys AG’s treasury stock to 319,678 shares.

G r o u p M a n a g e m e n t R e p o r t

Shares and the Capital Market

Performance of
the MorphoSys Share
in 2017 (January 1,
2017 = 100 %)

Performance of
the MorphoSys Share
2013–2017
(January 1,
2013 = 100 %)

170

160

150

140

130

120

110

100

350

300

250

200

150

100

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

morphosys ag

nasdaq b iotec hno lo gy inde x

tec da x

2013

2014

2015

2016

2017

morphosys ag

nasdaq b iotec hno lo gy inde x

tec da x

T A B L E 0 7
Key Data for the MorphoSys Share (December 31)

Total stockholders’ equity (in million €)

Number of shares issued (number)

Market capitalization (in million €)

Closing price in € (Xetra)

Average daily trading volume (in million €)

Average daily trading volume (in % of common stock)

2017

2016

2015

2014

2013

358.7

415.5

362.7

348.8

352.1

29,420,785

29,159,770

26,537,682

26,456,834

26,220,882

2,253

76.58

15.6

0.83

1,422

48.75

9.7

0.78

1,530

57.65

14.9

0.87

2,027

76.63

11.9

0.65

1,464

55.85

6.9

0.59

Shares and the Capital Market

G r o u p M a n a g e m e n t R e p o r t

International Investor Base

Various voting right notiﬁ cations were issued during the re-
porting year in accordance with Section 26 (1) of the German
Securities Trading Act (WpHG). These notiﬁ cations were pub-
lished on the MorphoSys website and can be found under
Media and Investors – Stock Information – Recent Voting
Rights Notiﬁ cations.

According to the deﬁ nition given by the Deutsche Börse, the
free ﬂ oat in MorphoSys AG’s shares was 98.91 % at the end of
the reporting year.
›› S E E F I G U R E 11 – Shareholders of MorphoSys AG by Region (

page 56
Shareholders of MorphoSys AG by Region (page 56)
page 56)

Annual General Meeting

MorphoSys also took part in around 20 international investor
conferences. As in prior years, the Company held an Investor’s
Day in Chicago, USA, in June on the occasion of the ASCO An-
nual Meeting, the world’s largest conference for cancer. Several
roadshows were held at various locations in both Europe and
the USA. The strongest interest continued to be in the United
States where a large number of specialized healthcare investors
are located. Meanwhile, approximately 45 % of MorphoSys AG
shares are held by US institutional investors.

The Management Board also held conference calls in conjunc-
tion with the publication of the annual, half-yearly and quar-
terly results to report past and expected business developments
and answer questions from analysts and investors.

The Management and Supervisory Boards of MorphoSys AG
welcomed shareholders to the Company’s 19th Annual General
Meeting in Munich on May 17, 2017. The shareholders and
proxies attending represented more than 54.0 % of the com-
mon stock of MorphoSys AG (2016: 54.1 % of the common stock
represented).

The key topics in investor discussions were the general prog-
ress of the drug pipeline and the development of the propri-
etary portfolio, which had a total of 13 active programs at the
end of the reporting year. Investors were particularly interested
in the clinical results of our partnered programs, especially the
data and plans for the pivotal studies.

All six agenda items submitted for resolution were adopted by a
clear majority, including the reelection of Supervisory Board
members Dr. Frank Morich, Klaus Kühn and Wendy Johnson.
Krisja Vermeylen was newly elected to the Supervisory Board
of MorphoSys AG.

Investor Relations Activities

During the 2017 ﬁ nancial year, MorphoSys maintained close
communication with the capital markets. On September 5 and 6,
the Company held Capital Markets Days in London and New
York. The Management Board gave a complete presentation of
MorphoSys’s strategy and detailed insight into the latest pipe-
line developments. Following the presentation, participants
were given an opportunity to address questions to the manage-
ment. Both events were also webcast, making them accessible
to interested parties worldwide. A total of more than 100 in-
vestors, analysts and shareholders watched the Management
Board’s presentations.

G r o u p M a n a g e m e n t R e p o r t

Shares and the Capital Market

Shareholders of
MorphoSys AG
by Region1
(December 31, 2017)

1 Source: Bloomberg

48 %

N O R T H A M E R I C A

M A N A G E M E N T
B O A R D A N D S U P E R -
V I S O R Y B O A R D

11%

15%

G R E AT B R I TA I N

G E R M A N Y

R E S T O F E U R O P E

R E S T O F W O R L D

T A B L E 0 8
Analyst Recommendations (December 31, 2017)

Buy/Overweight

Hold

Sell

n/a

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

There were a total of 11 analysts covering MorphoSys shares at
the end of 2017.

Detailed information on MorphoSys shares, ﬁ nancial ratios, the
Company’s strategic direction and the Group’s recent develop-
ments can be found on the Company’s website (Media and
Investors).

Sustainable Business Development

G r o u p M a n a g e m e n t R e p o r t

Sustainable Business Development

MorphoSys is aware of its responsibility to present and future
generations and sees sustainable behavior as a prerequisite for
long-term business success. As a biotechnology company con-
ducting both research and drug development, observing the
highest ecological, social and ethical standards is a top priority
and a key component of MorphoSys’s corporate culture. The fol-
lowing section describes the Company’s sustainability strategy
and the activities carried out during the reporting year that
represent non-ﬁ nancial performance indicators. The ﬁ nancial
performance indicators are presented in the section “Analysis
of Net Assets, Financial Position and Results of Operations.”
Information on MorphoSys’s management structure and corpo-
rate governance practices can be found in the Corporate Gover-
nance Report.

Sustainable Corporate Management

Sustainability is a hallmark of MorphoSys’s corporate manage-
ment and plays a major role in the pursuit of corporate goals
and in contributing value to society. This applies to the short-
and long-term objectives of all levels of management and is
reﬂ ected in the Company’s core task of developing even more
eﬀ ective and safer drugs. To ensure lasting business success,
the Company incorporates environmental and social responsi-
bility into its daily business and bases its business model on
sustainable growth that protects the interests of its sharehold-
ers, creates long-term value and weighs the Company’s actions
in terms of their impact on the environment, society, patients
and employees. Internally, this business model is reﬂ ected in a
progressive human resources policy that takes employees’
needs seriously.

A comprehensive risk management system ensures that factors
that could threaten sustainable corporate performance are
identiﬁ ed early and corrected if necessary. MorphoSys only as-
sumes risk when there is an opportunity to increase the Com-
pany’s enterprise value. At the same time, a great eﬀ ort is made
to systematically identify new opportunities and leverage its
business success (more information on risks and opportunities
can be found on page 64).

Group-wide compliance with the sustainability strategy is
monitored by the entire Management Board, with primary re-
sponsibility assigned to the Chief Financial Oﬃ cer. The sus-
tainability strategy is based on the Company’s Credo, which
contains the ethical principles forming the foundation of all
activities of MorphoSys and its employees. The Credo is devel-
oped further by MorphoSys’s Code of Conduct. Employee train-
ing on general and speciﬁ c sections of the Code of Conduct is
conducted regularly to ensure that the guidelines are under-
stood and implemented. The Compliance Committee consists of
ﬁ ve members and is available to employees at all times. The
Compliance Oﬃ cer, who is also a member of the committee,
coordinates the elements of MorphoSys’s Compliance Manage-
ment System. More information on this subject can be found on
page 97 of the Corporate Governance Report. Employees can
ask for advice on all matters concerning legal compliance and
corporate responsibility and report any suspected violations. If
preferred, this may be done on an anonymous basis. Violations
are systematically pursued, and appropriate remedial action is
taken. No such violations have been reported to date, and the
Company believes it is unlikely in the future that any serious
oﬀ enses would occur that could materially aﬀ ect the Group’s
net assets, ﬁ nancial position and results of operations.

The Company’s long-term and sustainable business success
rests on innovative research and development to meet the
major challenge of providing comprehensive healthcare in the
future. Due to a growing and aging population, biotechnology-
derived drugs represent a growing portion of the overall health-
care system. In the opinion of management, all aspects of the
current business model of MorphoSys support the sustainable
investment interests of its shareholders.

Detailed information on the KPIs for sustainable development
used by MorphoSys is provided in the section “Strategy and
Group Management” (page 23). The following report on the
implementation of MorphoSys’s corporate strategy and the
Company’s sustainable business development is based on the
recommendations of the German Sustainability Code originally
presented by the Council for Sustainable Development in Octo-
ber 2011 and last updated in 2017.

G r o u p M a n a g e m e n t R e p o r t

Sustainable Business Development

Non-Financial Performance Indicators

E T HIC AL S TANDARDS AND COMMUNIC AT ION WI T H

S TAKEHOL DERS
The highest scientiﬁ c and ethical principles for conducting
human clinical trials and animal testing are anchored in
MorphoSys’s Code of Conduct, which is modeled after the “Dec-
laration of Helsinki” of the World Medical Association (WMA).
Strict adherence to applicable national and international regu-
lations is mandatory for all MorphoSys employees and sub-con-
tractors.

Because European legislation prescribes the performance of
animal testing to determine the toxicity, pharmacokinetics*
and pharmacodynamics* of drug candidates, the biotechnology
industry cannot forgo this type of testing. Animal studies for
MorphoSys are given to contract research organizations
(CROs*) because the Company does not have laboratories suit-
able for this type of research. In the course of product develop-
ment, MorphoSys contracts out animal studies according to
the principles of good animal welfare and the respectful treat-
ment of animals as set out in national and European regula-
tions. MorphoSys introduced a quality assurance and control
system with written standard operating procedures (SOPs*)
that are continually updated to ensure that the Company only
deals with contract research organizations that adhere to local,
national and international regulations for animal studies.
Studies are carried out only after the approval of the relevant
ethics committee and under the constant supervision of a
veterinarian.

Institutes cooperating with MorphoSys must comply with ethi-
cal principles and legal regulations for research involving ani-
mals and, in certain cases, have the Good Laboratory Practice
(GLP*) quality assurance certiﬁ cation. This is how MorphoSys
ensures it fulﬁ lls its moral obligation for the respectful treat-
ment of animals. The Company also conducts on-site inspec-
tions of the research institute’s study centers that include a re-
view of the staﬀ ’s skills and training as well as animal welfare.
These inspections are carried out during the audits conducted
prior to contract awards.

The Declaration of Helsinki mentioned above also deﬁ nes the
ethical principles MorphoSys follows when dealing with healthy
volunteers and patients in clinical trials. MorphoSys carries out
clinical trials in accordance with Good Clinical Practice (GCP*),
and testing is conducted in compliance with the relevant pro-
visions on privacy and conﬁ dentiality. Protecting the rights,
safety and welfare of all clinical trial participants has the high-
est priority at MorphoSys. Clinical trials are initiated only after
the approval of the relevant independent ethics committee and/

or institutional review board. Before participating in a clinical
trial, each participant must voluntarily submit an informed
consent.

The goal of MorphoSys’s business activities is to improve
patients’ health through its scientiﬁ c work. The Company can
only achieve this goal if its activities are socially accepted.
Achieving this acceptance requires a continuous and open dia-
log with stakeholders so that MorphoSys can understand poten-
tial concerns with regard to biotechnological approaches and
explain the Company’s activities and their beneﬁ ts. To accom-
plish this, MorphoSys is active in a variety of ways that range
from participation in public information events to active sup-
port of the Communication and Public Relations task force of
BIO Deutschland e.V., Berlin.

PROCUREMEN T
The Central Purchasing and Logistics Department is responsi-
ble for negotiating and purchasing goods and services for
MorphoSys in speciﬁ ed areas. During the reporting year, the
department increased the eﬃ ciency of its procurement man-
agement systems and processes, which involved the introduc-
tion of an electronic approval process for orders in certain cost
categories. Preparations are currently being made to introduce
processes for other relevant cost categories. The department
also supported the creation of an improved clinical sourcing
strategy for selecting and categorizing clinical materials and
services and eﬃ ciently cooperating with suppliers within these
strategic partnerships.

ENVIRONMEN TAL PRO T EC T ION AND OCCUPAT IONAL

SAF E T Y
Because the biotechnology industry is subject to stringent regu-
latory requirements, environmental protection and occupational
safety are important tasks of Group management. The Technical
Operations Department and its subsections monitor Group-wide
compliance with all relevant requirements. In addition to strict
compliance with all legal requirements, MorphoSys makes a
tremendous eﬀ ort to maintain sustainable environmental man-
agement and the eﬀ ective protection of its employees.

Occupational Safety
at MorphoSys

Sustainable Business Development

G r o u p M a n a g e m e n t R e p o r t

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

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 Sicherheitsverordnung” (Ger-
man 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

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

ONLY SPECIALLY TRAINED
EMPLOYEES ARE ALLOWED TO
WORK WITH TOXIC
SUBSTANCES

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

MorphoSys oﬀ ers employees an extensive range of preventative
healthcare options. A sample of these options can be found in
the section entitled “Human Resources” (page 61).

With one reportable occupational accident in the reporting
year, the number of accidents was at the same very low level as
in the previous year, placing the ratio of reportable accidents at
MorphoSys signiﬁ cantly below the average ratio in Germany
(18.4 reportable occupational accidents as deﬁ ned by the em-
ployers’ liability insurance association BG RCI per 1,000 full-
time employees in the latest survey conducted in 2016).

MorphoSys tries to minimize the amount of harmful sub-
stances used in its laboratories. Only those who are specially
trained are allowed to work with toxins. Work involving con-
tagious pathogens can only be carried out in secure laborato-
ries. MorphoSys only uses certiﬁ ed companies to dispose of
chemical waste and also refrains from radioactive substances.
page 59
Occupational Safety at MorphoSys (page 59)
page 59)
›› S E E F I G U R E 12 – Occupational Safety at MorphoSys (

QUAL I T Y ASSURANCE
Biopharmaceutical companies bear a special responsibility
to comply with the highest quality and safety standards.
MorphoSys follows detailed procedures and stringent rules in
drug development to avoid safety risks that may pose a threat
to patients and, in turn, the Company’s ﬁ nancial situation. This
is how the Company ensures the quality of the investigational
medicinal products, keeps risks to volunteers and patients in
clinical studies as low as possible and ensures that data are
measured reliably and processed correctly.

To control and regulate these processes in its own development
department, MorphoSys created an integrated quality manage-
ment system that complies with the principles of Good Manu-
facturing Practice (GMP*), Good Clinical Practice (GCP*) and
Good Laboratory Practice (GLP*). An independent quality as-
surance department ensures that all development activities
comply with national and international laws, rules and guide-
lines. The Quality Assurance Manager reports to and coordi-
nates activities with the Chief Executive Oﬃ cer to meet the
stringent quality standards, ensure product quality and data
integrity as well as the safety of volunteers and patients in clin-
ical trials.
*S E E G L O S S A R Y – page 170

G r o u p M a n a g e m e n t R e p o r t

Sustainable Business Development

Quality Management
System at MorphoSys

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

M A N A G E M E N T
B O A R D

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

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

1 T R A I N I N G A N D Q U A L I F I C AT I O N

4 H A N D L I N G O F D E V I AT I O N S ,

5 B AT C H RECORD REV IE W/ B AT C H RE L E A SE

2 S E L F -I N S P E C T I O N / I N T E R N A L A U D I T S

3 D O C U M E N TAT I O N S Y S T E M

C H A N G E C O N T R O L , C O M P L A I N T S ,

O U T O F S P E C I F I C AT I O N ( O O S )

A N D R E C A L L S

6 S O P S Y S T E M *

7 E X T E R N A L A U D I T S ( C M O *, C T O *, C R O *,

C L I N I C A L T R I A L S I T E S )

The Quality Assurance Department prepares an annual review
plan using a risk-based approach that is used when auditing
the contract research institutes, suppliers and contract manu-
facturers selected for clinical studies as well as MorphoSys’s
own departments.

MorphoSys holds a manufacturing license for the approval of
tested compounds for its proprietary development activities,
as well as a certiﬁ cate from the German authorities of Upper
Bavaria conﬁ rming the Company’s compliance with Good
Manufacturing Practice (GMP*) standards and guidelines.
›› S E E F I G U R E 13 – Quality Management System at MorphoSys (
*S E E G L O S S A R Y – page 170

page 60
Quality Management System at MorphoSys (page 60)
page 60)

Sustainable Business Development

G r o u p M a n a g e m e n t R e p o r t

IN T EL L EC T UAL PROPER T Y
Proprietary technology and the drug candidates derived there-
from are MorphoSys’s most valuable assets. Therefore, it is crit-
ical to the Company’s success that these assets are protected by
appropriate measures such as patents and patent ﬁ lings. Only
through these means can MorphoSys ensure that these assets
are exclusively utilized. It is also the reason our Intellectual
Property (IP) Department seeks out the best strategy to protect
the Company’s products and technologies. The rights of third
parties are also actively monitored and respected.

MorphoSys’s core technologies, which include the Ylanthia anti-
body library and the Slonomics technology amongst others,
body
body library and the Slonomics technology amongst others,
form the Company’s basis for success. Each of these technolo-
gies is protected by a number of patent families. Meanwhile,
most of these patents have been granted in all of the key regions,
including the markets of Europe, the United States and Asia.

The same is true for our development programs. In addition to
the patents that protect the drug candidates themselves, other
patent applications were ﬁ led that cover other aspects of the
programs. The relevant patents and associated protection
certiﬁ cates for development candidates MOR103/GSK3196165
(out-licensed to GSK) and MOR202 are expected to expire in
2031. The MOR208 program is also protected by various pat-
ents scheduled to expire in 2029 (US patent) and 2027 (Euro-
pean patent), aside from any possible regulatory or patent oﬃ ce
extensions.

The programs developed in cooperation with or for partners are
also fully secured by patent protection. MorphoSys’s patent de-
partment works closely with the relevant partners. The patents
covering these drug development programs have durations that
signiﬁ cantly exceed those of the underlying technology patents.

MorphoSys also monitors the activities of its competitors and
initiates any necessary actions. In April 2016, MorphoSys ﬁ led
a patent infringement lawsuit against Janssen Biotech and
Genmab. This lawsuit is still in progress.

MorphoSys’s patent attorneys currently maintain over 50 dif-
ferent patent families worldwide in addition to the numerous
patent families the Company pursues with its partners. The
patent portfolio is routinely analyzed and adapted to the Com-
pany’s corporate strategy.

HUMAN RES OURCES
MorphoSys follows a progressive human resources policy for
the long-term retention of professionally and personally suit-
able employees from a variety of ﬁ elds. In an industry such as
ours, where success largely depends on the creativity and
commitment of staﬀ , factors such as employee retention and
employee satisfaction are crucial for success. At the end of the
reporting year, MorphoSys had employees representing 34 dif-
ferent nationalities (2016: 31) employed at the Company for an
average of 7.6 years (2016: 6.9 years).
Employees by Gender (page 62)
›› S E E F I G U R E 14 – Employees by Gender (
page 62
page 62)
page 62
page 62)
Seniority (page 62)
›› S E E F I G U R E 15 – Seniority (

Employees have access to a broad range of in-house and exter-
nal training programs, advanced education, specialized continu-
ing education and development programs and industry confer-
ences. MorphoSys promotes not only ongoing professional
education but also the personal development of its employees
and in some cases even oﬀ ers support through customized
coaching.

MorphoSys encourages all employees with management respon-
sibility to take part in management seminars created exclu-
sibility
sibility to take part in management seminars created exclu-
sively for the Company. The training is oﬀ ered in several mod-
ules with themes that build upon one another. The goal is not
only to provide theoretical knowledge but also to prepare par-
ticipants for the special demands placed on the Company’s ex-
ecutives.

MorphoSys actively promoted the professional career paths of
specialists and experts once again during the reporting year.
The intended goal of this type of career promotion, which is
also available to employees without personnel responsibilities,
is to continue to maintain ﬂ at hierarchies and place traditional
management and professional career paths on an equal footing,
also in terms of titles and compensation structures.

MorphoSys oﬀ ers in-house vocational training to open up
promising career prospects, particularly for young people. In
awarding apprenticeships, the Company has been very suc-
cessful in considering students who are equally suitable but do
not have a diploma. On December 31, 2017, MorphoSys had
two trainees in the IT department and six biology laboratory
trainees (December 31, 2016: one IT trainee; six biology labora-
tory trainees).

G r o u p M a n a g e m e n t R e p o r t

Sustainable Business Development

)
r
e
b
m
u
n
(

s
e
e
n

a
r
t

s
e
e
y
o
l
p
m
e

l
a
t
o
t

e
g
a
r
e
v
a

s
r
a
e
y

Employees
by Gender
(December 31)

Seniority

Workforce Turnover
Rate1 (in %)

1 The higher workforce turnover
rate in 2017 is mainly driven
by the end of the active part-
nership with Novartis. The col-
laboration was terminated in
accordance with the contract
at the end of November 2017.

)
r
e
b
m
u
n
(

s
e
v

i
t
u
c
e
x
e

2016

2017

2016

2017

2016

2017

2016

2017

< 5

5 -10

10 -15

15 - 2 0

>2 0

2016

2017

64 %

2016

2017

36 %

6.9

Y E ARS

7.6

YEARS

36 %

39 %
15 %

9 %
1 %

7.5

10.6

Sustainable Business Development

G r o u p M a n a g e m e n t R e p o r t

MorphoSys makes every eﬀ ort to protect employees from work-
place hazards and maintain their health through preventative
measures. The extremely low number of occupational accidents
illustrates the success of the Company’s strict monitoring of all
occupational protection and safety measures. During the re-
porting year, there was one reportable occupational accident.
MorphoSys tries to maintain the low number of accidents and
the highest level of employee safety and well-being through the
help of policies and training from the Department of Health
and Occupational Safety and by oﬀ ering routine medical
examinations.
›› S E E F I G U R E 16 – Workforce Turnover Rate (

page 62
Workforce Turnover Rate (page 62)
page 62)

As articulated in the Company’s credo, transparent communi-
cation between employees is a central aspect of MorphoSys’s
corporate culture. One example is the employees’ use of the
Company’s intranet to obtain target-group-speciﬁ c informa-
tion. MorphoSys also has a tri-weekly general meeting in which
the Management Board presents the Company’s latest develop-
ments to employees, answers questions and provides an oppor-
tunity for employees to present selected projects. Employees’
questions and feedback can be taken directly in the meeting or
submitted in advance in writing – anonymously if desired.

MorphoSys maintains a Facebook career page to promote em-
ployer branding. The target group is potential applicants who
want to learn more about the Company. The page presents em-
ployee proﬁ les and reports on a variety of activities extending
beyond the typical workday to give an authentic and modern
impression of the Company.

New employees are helped to become familiar with the Group
through extensive onboarding activities. Employees can learn
about the Company’s processes in two-day orientation semi-
nars with presentations from all operating departments and by
participating in laboratory tours. New executives are oﬀ ered an
additional seminar concerning their management duties.

Free athletic and relaxation options, such as back training, soc-
cer, volleyball and basketball, as well as autogenic training,
yoga and massage for a fee, all work to promote health and so-
cializing among employees of all departments.

Providing feasible concepts for reconciling a professional ca-
reer with personal life is a strategic success factor for progres-
sive companies. For many years, MorphoSys has been oﬀ ering
employees a diverse range of options, such as ﬂ exible working
hours and special part-time employment arrangements. Mod-
ern IT equipment also allows employees to work during busi-
ness trips or from their home oﬃ ce without interruption.
MorphoSys makes it easier for employees with families to reen-
ter the workforce and combine work and family life. The Com-
pany cooperates with an external provider oﬀ ering employees
additional services related to care and nursing.

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

MorphoSys operates in an industry characterized by constant
change and innovation. The challenges and opportunities in
the healthcare sector are inﬂ uenced by a wide variety of fac-
tors. Global demographic changes, medical advances and the
desire to increase quality of life provide excellent growth op-
portunities for the pharmaceutical and biotechnology indus-
tries; however, companies must also grapple with growing reg-
ulatory requirements in the ﬁ eld of drug development as well
as cost pressure on healthcare systems.

MorphoSys undertakes great eﬀ ort to identify new opportuni-
ties and to leverage its business success to generate a lasting
increase in enterprise value. Entrepreneurial success, however,
is not achievable without conscious risk-taking. Through its
worldwide operations, MorphoSys is confronted with a number
of risks that could aﬀ ect its business. MorphoSys’s risk man-
agement system identiﬁ es these risks, evaluates them and
takes suitable action to avert risk and reach its corporate objec-
tives. A periodic strategy review ensures that there is a balance
between risk and opportunity. MorphoSys only assumes risk
when there is an opportunity to increase the Company’s enter-
prise value.

Risk Management System

The risk management system is an essential element of
MorphoSys’s corporate governance and ensures the Company
adheres to good corporate governance principles and complies
with regulatory requirements.

MorphoSys has a comprehensive system in place to identify,
assess, communicate and deal with risks throughout the Com-
pany. The risk management system identiﬁ es risk as early as
possible and details possible actions to limit operating losses
and avoid risks that could jeopardize the Company. All actions
to minimize risk are assigned to risk oﬃ cers, who are also
members of MorphoSys’s Senior Management Group.

All material risks in the various business segments and the
Company as a whole are assessed using a systematic risk as-
sessment that is carried out twice a year. Risks are assessed by
comparing their quantiﬁ able ﬁ nancial impact on the MorphoSys
Group with their probability of occurrence with and without
initiating a risk mitigation process. This method is applied over
a 12-month assessment period as well as a period of three years
to include risks related to the Company’s proprietary develop-
ment that have longer durations. Additionally, there is long-term
strategic risk assessment that spans more than three years
(qualitative assessment). An overview of MorphoSys’s current
risk assessment activities can be found in Tables 9 and 10.

Risk managers enter their risks into an IT platform that makes
monitoring, analyzing and documenting risks much easier. The
risk management system distinguishes risk owners from risk
managers. For risks relating to clinical development, the risk
owner is the responsible business team head for the respective
clinical program. For non-clinical risks, the risk owner is the
responsible department head. Employees from the respective
area of the risk owner can be risk managers as long as the risks
included in the risk management system fall under their area
of responsibility. Risk owners and risk managers are required
to update their risks and assessments at half-yearly intervals.
The process for this is coordinated and led by the Corporate
Finance & Corporate Development Department, which is also
responsible for monitoring the evaluation process and summa-
rizing the key information. The information is regularly pre-
sented to the Management Board which, in turn, presents the
results to the Supervisory Board twice a year. The entire evalu-
ation process is based on standardized forms for the evalua-
tions. Risk management and monitoring activities are carried
out by the relevant managers. The changes in the risk proﬁ le
resulting from these activities are recorded at regular inter-
vals. It is also possible to report important risks on an ad hoc
basis when they occur outside of the regular intervals. A regu-
lar audit by external consultants ensures the ongoing develop-
ment of the risk management system and that any potential
changes in the Company’s risk areas are promptly incorpo-
rated. The risk and opportunity management system combines
a bottom-up approach for recognizing both short- and medi-
um-term risks with a top-down approach that systematically
identiﬁ es long-term global risks and opportunities. As part of

the top-down approach, workshops are held twice per year with
selected members of the Senior Management Group. These
workshops assess and discuss the long-term risks and opportu-
nities in diﬀ erent areas of the Company, including those ex-
ceeding a period of three years. The evaluation process is solely
qualitative. These risks are listed in Table 10.

Principles of Risk and Opportunity
Management

MorphoSys continually encounters both risks and opportuni-
ties. These could have a potential material impact on the Com-
pany’s net assets and ﬁ nancial position as well as a direct eﬀ ect
on intangible assets, such as the Company’s image in the sector
or the Company’s trademark.

MorphoSys deﬁ nes risk as an internal or external event that
has an immediate impact on the Company and includes an as-
sessment of the potential ﬁ nancial impact on the Company’s
targets. There is a direct relationship between opportunity and
risk. Seizing opportunities has a positive inﬂ uence on Com-
pany targets, whereas risk emergence has a negative inﬂ uence.

Responsibilities Under the Risk and
Opportunity Management System

The Management Board of MorphoSys AG is responsible for the
risk and opportunity management system and ensures that all
risks and opportunities are evaluated, monitored and presented
in their entirety. The Corporate Finance & Corporate Develop-
ment Department coordinates the risk management process
and reports regularly to the Management Board. The Super-
visory Board has appointed the Audit Committee to monitor
the eﬀ ectiveness of the Group’s risk management system. The
Audit Committee periodically reports its ﬁ ndings to the entire
Supervisory Board, which is also directly informed by the
Management Board twice a year.
›› S E E F I G U R E 17 – Risk and Opportunity Management System at MorphoSys (

page 66
Risk and Opportunity Management System at MorphoSys (page 66)
page 66)

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G r o u p M a n a g e m e n t R e p o r t

Accounting-Related Internal Control
System

MorphoSys employs extensive internal controls, Group-wide
reporting guidelines as well as other measures, such as em-
ployee training and ongoing professional education with the
goal of maintaining accurate bookkeeping and accounting and
ensuring reliable ﬁ nancial reporting in the consolidated ﬁ nan-
cial statements and group management report. This essential
component of Group accounting consists of preventative, moni-
toring and detection measures intended to ensure security and
control in accounting and operating functions. Detailed infor-
mation about the internal control system for ﬁ nancial reporting
can be found in the Corporate Governance Report.

Risks

RISK C AT EGORIES
As part of its risk assessment, MorphoSys assigns risks to the
six categories described below. The assessment of the relevance
of the risks is not distinguished according to categories but
according to impact and probability of occurrence. Therefore,
Tables 9 and 10, which list MorphoSys’s biggest risks, do not
necessarily include risks from all six categories.

FINANCIAL RISK
MorphoSys’s ﬁ nancial risk management seeks to limit ﬁ nan-
cial risk and reconciles this risk with the requirements of its
business.

Financial risk can arise in relation to licensing agreements, for
example when projects (products or technologies) do not mate-
rialize, are delayed or are out-licensed to a diﬀ erent degree
than originally planned. Risk also arises when revenues do not
reach their projected level or when costs are higher than
planned due to higher resource requirements. Detailed project
preparations, such as those made through in-depth exchanges
with internal and external partners and consultants, ensure
the optimal starting point early in the process and are import-
ant for minimizing risk. Financial risk related to the Compa-
ny’s proprietary programs was reduced in 2013 by successfully
partnering MOR103/GSK3196165. The ﬁ nancial risk relating to
the fully proprietary program MOR208 remains entirely with
MorphoSys. MorphoSys retains some risk with respect to the
clinical development of programs introduced into partnerships;
for example, MOR106. For the MOR202 program, a regional de-
velopment and commercialization agreement was signed for

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
Management System
at MorphoSys

C O R P O R AT E
G O V E R N A N C E

S U P E R V I S O R Y
B O A R D

M A N A G E M E N T
B O A R D

C O M P L I A N C E
M A N A G E M E N T

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

I N T E R N A L
C O N T R O L
S Y S T E M

I N T E R N A L
R E V I S I O N

D E F I N E
O B J E C T I V E S

D I S C U S S I O N
F O R U M

M O N I T O R
S Y S T E M

A S S E S S
R I S K

T E C H N O L O G Y
S C O U T I N G

B U S I N E S S
D E V E L O P M E N T

I M P L E M E N T
M E A S U R E S

I N N O V AT I O N
C A P I TA L

I N T E R N A L
A U D I T

Risk and Opportunity

Management System

at MorphoSys

C O R P O R AT E

G O V E R N A N C E

S U P E R V I S O R Y

B O A R D

M A N A G E M E N T

B O A R D

C O M P L I A N C E

M A N A G E M E N T

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

I N T E R N A L

C O N T R O L

S Y S T E M

I N T E R N A L

R E V I S I O N

D E F I N E

O B J E C T I V E S

D I S C U S S I O N

F O R U M

M O N I T O R

S Y S T E M

A S S E S S

R I S K

T E C H N O L O G Y

S C O U T I N G

B U S I N E S S

D E V E L O P M E N T

I M P L E M E N T

M E A S U R E S

I N N O V AT I O N

C A P I TA L

I N T E R N A L

A U D I T

Risk and Opportunity Report

G r o u p M a n a g e m e n t R e p o r t

China, Taiwan, Hong Kong and Macao in the reporting year,
leading to a partial reduction in MorphoSys’s ﬁ nancial risks.
The early termination of development partnerships may force
MorphoSys to bear future development costs alone and have a
major impact on the Company’s income statement and ﬁ nancial
planning.

Continuing economic diﬃ culties in Europe indicate that poten-
tial bank insolvencies still pose a ﬁ nancial risk. For this rea-
son, MorphoSys continues to invest only in funds and bank
instruments deemed safe – to the extent this is possible and
can be estimated – and that have a high rating and/or are
secured by a strong partner. MorphoSys limits its dependence
on individual ﬁ nancial institutions by diversifying and/or
investing in lower risk money market funds. However, a strat-
egy that eliminates all risks of bank insolvency would be too
costly and impractical. For example, German government
bonds are a very secure form of investment but currently trade
with negative interest rates. A further risk is the receipt of ade-
quate interest on ﬁ nancial investments, particularly in light of
today’s negative interest rates. It is currently very diﬃ cult for
MorphoSys to invest within the scope of company policies and
still avoid negative interest rates. MorphoSys invests when pos-
sible in instruments that yield positive interest rates. However,
there is no guarantee that positive, safe, interest-bearing in-
vestments will always be available.

In the Partnered Discovery segment, there is a ﬁ nancial risk
associated with royalties on Tremfya® product sales. Revenues
generated by MorphoSys’s partner Janssen from the drug,
which was approved in 2017, are diﬃ cult to predict and may
lead to deviations from the budgeted revenues.

MorphoSys plans to continue to invest a signiﬁ cant portion of
its funds in the development of its product candidates. This
includes identifying target molecules and drug candidates,
conducting preclinical and clinical studies, producing clinical
material, supporting partners and co-developing programs.
Current ﬁ nancial resources and expected revenues are ex-
pected to be suﬃ cient to meet the Company’s current and
short-term capital needs. This does not guarantee, however,
that suﬃ cient funds will be available over the long term at all
times.

OPER ATIONAL RISK
Operational risk includes risks related to the exploration and
development of proprietary drug candidates.

The termination of a clinical trial prior to out-licensing to part-
ners – which does not necessarily imply the failure of an entire
program – can occur when the trial data does not produce the
expected results, shows unexpected adverse side eﬀ ects or is
compiled incorrectly. Clinical trial design and drafts of develop-
ment plans are always completed with the utmost care. This
gives the trials the best opportunity to show clinically relevant
data in clinical testing and persuade regulatory agencies and
potential partners. External experts also contribute to the Com-
pany’s existing internal know-how. Special steering commit-
tees and panels are formed to monitor the progress of clinical
programs.

Any changes with respect to clinical trials such as the trial’s
design or the speed at which patients can be recruited may lead
to a delay in development and, as a result, have a negative im-
pact on the trial’s economic feasibility and potential. In the
course of prioritizing its development programs, for example,
MorphoSys decided during the reporting year to end its cooper-
ation with Aptevo Therapeutics Inc. for the development of
MOR209/ES414 in prostate cancer and to return the develop-
ment and commercialization rights to Aptevo.

There is also a risk associated with proprietary programs if
partnerships fail or are delayed.

STR ATEGIC RISK
Access to suﬃ cient ﬁ nancing options also poses a strategic risk
for the Company. Following MorphoSys’s decision to develop its
proprietary portfolio in-house, the ﬁ nancing of research and
development is now a key focus. Risks in this respect can arise
from a lack of access to capital. MorphoSys established an in-
depth budget process to mitigate these risks. The Company also
employs various departments and external consultants to en-
sure the smooth execution of capital market transactions.

A further strategic risk is the danger that a development pro-
gram introduced into a partnership may fail. Partnerships can
be terminated prematurely, forcing MorphoSys to search for
new development partners or bear the substantial cost of fur-
ther development alone. This may result in a delay or even the
termination of the development of individual candidates and
could lead to additional costs and a potential long-term loss of
revenues for MorphoSys due to delayed market entry.

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Risk and Opportunity Report

Another strategic risk is that preliminary data from clinical
trials may lead to the trial’s termination or a change in the
trial’s design.

E X TERNAL RISKS
MorphoSys faces external risk with respect to intellectual prop-
erty, among others. The patent protection of MorphoSys’s pro-
prietary technologies and compounds is especially important.
To minimize risks in this area, MorphoSys keeps a vigilant eye
on published patents and patent applications and analyzes the
corresponding results. The Company also develops strategies
to circumvent external patents that may one day be relevant
before they are issued or takes other appropriate action.
Through the years, MorphoSys has seen increasing success
with this strategy and has created ample leeway for its propri-
etary technology platforms and products for many years to
come. Risks can also arise through the enforcement of the Com-
pany’s intellectual property rights vis-à-vis third parties. Ex-
ternal risks may also arise as a result of changes in the legal
framework. This risk is minimized through continued training
of the relevant staﬀ and discussions with external experts. It is
also conceivable that competitors might challenge the Compa-
ny’s patents or infringe on MorphoSys patents or patent fami-
lies, which in turn could lead MorphoSys to take legal action
against its competitors. Such procedures, particularly when
they take place in the US, are costly and represent a signiﬁ cant
ﬁ nancial risk.

As an internationally operating biotechnology company with
numerous partnerships and an in-house research and devel-
opment department for developing drug candidates, the
MorphoSys Group is subject to a number of regulatory and legal
risks. These risks include those related to patent, competition,
tax and antitrust law, potential liability claims from existing
partnerships and environmental protection. The Regulatory
Aﬀ airs department is also aﬀ ected by this risk in terms of the
feedback it receives from regulators on study design. Future
legal proceedings are conceivable and cannot be anticipated.
Therefore, we cannot rule out that we may incur expenses for
legal or regulatory judgments or settlements that are not or
cannot be partially or fully covered by insurance and may have
a signiﬁ cant impact on our business and results.

ORGANIZ ATIONAL RISK
Organizational risks arise, for example, with respect to setting
up a marketing structure and the related costs. For MorphoSys,
this means that processes and procedures need to be adapted
accordingly. In September 2017, the Company established the
“Pre-Commercial” department, which works with external con-
sultants to set up marketing structures.

Risk also arises from missing or delayed information within
the organization on patent issues.

C OMPLIANCE RISK
Compliance risk can arise when quality standards are not met,
or business processes are not conducted properly from a legal
standpoint. To counter this risk, MorphoSys is committed to
having its business operations meet the highest quality stan-
dards as set out in the Sustainability Report. Carrying out a
compliance risk analysis is a central tool of the compliance
management system.

Speciﬁ c risk can arise, for example, when the internal quality
management system does not meet the legal requirements or
when there is no internal system for detecting quality prob-
lems. If the internal controls are not able to detect violations of
Good Manufacturing Practice (GMP), Good Clinical Practice
(GCP*) or Good Laboratory Practice (GLP) then this also would
represent a compliance risk. To minimize risk, the internal
quality management system is also regularly audited by exter-
nal experts and subjected to recurring audits by an internal,
independent quality assurance department.

Inadequate or late ﬁ nancial communication can lead to ﬁ nes or
even lawsuits. Annual General Meetings conducted incorrectly
may lead to legal disputes with shareholders resulting in sig-
niﬁ cant costs from attempts to prevent either a challenge to or
repeat of the Annual General Meeting. Pending decisions for
corporate actions, such as capital increases, could also be com-
promised. To minimize these risks, the preparation and execu-
tion of the Annual General Meeting and all related documents
and processes are carefully reviewed and monitored by the
relevant internal departments, as well as by external lawyers
and auditors when it comes to the annual ﬁ nancial statements.

None of the Top 10 Risks listed in Tables 9 and 10 belonged to
this risk category in the reporting period.

Risk and Opportunity Report

G r o u p M a n a g e m e n t R e p o r t

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

RISK SI T UAT ION IN T HE MORPHOSY S GROUP
MorphoSys Group’s Management Board considers the overall
risk to be manageable and trusts in the eﬀ ectiveness of the risk
management system in relation to changes in the environment
and the needs of the ongoing business. It is the Management
Board’s view that the MorphoSys Group’s continued existence
is not jeopardized. This assessment applies to the MorphoSys
Group as a whole as well as to each Group company. This con-
clusion is based on several factors that are summarized below:
• The MorphoSys Group has an exceptionally high equity ratio.
• The Management Board ﬁ rmly believes that the MorphoSys
Group is well positioned to cope with any adverse events that
may occur.

• The Group controls a comprehensive portfolio of preclinical
and clinical programs in partnerships with a number of
large pharmaceutical companies and has a strong foundation
of technologies for expanding the Company’s proprietary
portfolio.

Despite these factors, it is impossible to rule out, control or
inﬂ uence risk in its entirety.

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 ﬁ eld of therapeutic antibodies. This therapeutic class is
now one of the most successful in the industry, and there is an
impressive number of pharmaceutical and biotechnology com-
panies in the ﬁ eld of antibodies that could potentially become
customers or partners for MorphoSys’s products and technolo-
gies. Based on this fact and the Company’s extensive, long-term
technological and product development expertise, MorphoSys
has identiﬁ ed a number of future growth opportunities.

MorphoSys’s technologies for developing and optimizing thera-
peutic antibody candidates have distinct advantages that can
lead to higher success rates and shorter development times in
the drug development process. The transfer and application of
MorphoSys’s core capabilities – even those outside of the ﬁ eld
of antibodies – opens up new opportunities for the Group be-
cause many classes of compounds have similar molecular
structures.

OPP OR T UNI T Y MANAGEMEN T SY S T EM
The opportunity management system is an important compo-
nent of MorphoSys’s corporate management and is used to iden-
tify opportunities as early as possible and generate added value
for the Company.

Opportunity management is based on the following pillars:
• a routine discussion forum involving the Management Board

and selected members of the Senior Management Group;

• the Company’s business development activities;
• a technology scouting team; and
• an in-house suggestion scheme for new scientiﬁ c ideas with

appropriate incentive systems.

Committees discuss speciﬁ c opportunities and decide what
action should be taken to exploit these opportunities. The meet-
ings and their outcomes are recorded in detail, and any subse-
quent action is reviewed and monitored. The Group’s Business
Development Team takes part in numerous conferences and in
the process identiﬁ es diﬀ erent opportunities that can enhance
the Company’s growth. These opportunities are presented and
considered by the committee by means of an evaluation pro-
cess. The technology scouting team searches speciﬁ cally for
innovative technologies that can generate synergies with
MorphoSys’s existing technology platforms and could be used
to soruce new therapeutic molecules. These outcomes are also
discussed and evaluated in interdepartmental committees. A
proven process for evaluating opportunities gives MorphoSys a
qualitative and replicable evaluation.

MorphoSys’s key opportunities are described in Table 11 (quali-
tative evaluation).

GENERAL S TAT EMEN T ON OPP OR T UNI T IES
Increased life expectancy in industrialized countries and ris-
ing incomes and living standards in emerging countries are
expected to drive the demand for more innovative treatment
options and advanced technologies. Scientiﬁ c and medical prog-
ress has led to a better understanding of the biological process
of disease and paves the way for new therapeutic approaches.
Innovative therapies, such as fully human antibodies, have
reached market maturity in recent years and have led to the
development of commercially successful medical products.
Therapeutic compounds based on proteins* – also referred to
as “biologics” – are less subject to generic competition than
chemically produced molecules because the production of bio-
logical compounds is far more complex. The sharp rise in both
the demand for antibodies and the interest in this class of drug
candidates can be seen by the acquisitions and signiﬁ cant
licensing agreements made over the past two to three years.
*S E E G L O S S A R Y – page 170

This type of technological advance can help the Company ex-
pand its list of partners and increase not only the speed but
also the success rate of its partnered and proprietary drug de-
velopment programs. New technology modules that enable the
production of antibodies against novel classes of target mole-
cules can also provide access to new disease areas in which
antibody-based treatments are underrepresented.

Technology development is carried out by a team of scientists
whose focus is the further development of MorphoSys technolo-
gies. MorphoSys not only develops technology internally but
also uses external resources to enhance its own activities. A
good example of this is the Company’s acquisition of Lanthio
Pharma, a Dutch company developing lanthipeptides.

ACQUISI T ION OPP OR T UNI T IES
In the past, MorphoSys has proven its ability to acquire com-
pounds and technologies that accelerate its growth. Potential
acquisition candidates are also systematically presented, dis-
cussed and evaluated during the routine meetings described
above between the Management Board and selected members
of the Senior Management Group. After these meetings, prom-
ising candidates are reviewed in terms of their strategic syner-
gies and evaluated by internal specialist committees. Protocols
are completed on all candidates and evaluations are systemati-
cally archived for follow-up and monitoring. A proprietary data-
base helps administer this information and keep it available.

F INANC IAL OPP OR T UNI T IES
Exchange rate and interest rate developments can positively or
negatively aﬀ ect the Group’s ﬁ nancial results. Interest rate and
ﬁ nancial market developments are continuously monitored to
promptly identify and take advantage of opportunities.

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Risk and Opportunity Report

MARKE T OPP OR T UNI T IES
MorphoSys believes its antibody platforms HuCAL, Ylanthia,
Slonomics and the in-licensed lanthipeptide technology can all
be used to develop products addressing signiﬁ cant unmet med-
ical needs.

T HERAPEU T IC AN T IBODIES –

PROPRIE TARY DEVEL OPMEN T
It is reasonable to assume that the pharmaceutical industry
will continue or even increase its in-licensing of drugs to reﬁ ll
its pipelines and replace key products and blockbusters that
have lost patent protection. MorphoSys’s most advanced com-
pounds MOR103/GSK3196165, MOR202, MOR208 and MOR106
place the Company in an excellent position to capitalize on the
needs of pharmaceutical companies.

MorphoSys is continuously enhancing its proprietary portfolio,
and will continue to advance it by adding clinical trials with
the Company’s key drug candidates in new disease areas and
adding additional programs. In this way, the Company may
take advantage of existing and future opportunities for co-de-
velopment or partnerships. The Company is also looking for
more opportunities to in-license promising drug candidates.

The drug candidate MOR208 may provide MorphoSys with its
ﬁ rst opportunity to independently market a drug. After receiv-
ing breakthrough therapy designation in October 2017 for
MOR208 in combination with the cancer drug lenalidomide for
the treatment of blood cancer patients (indication r/r DLBCL),
the development of this antibody may now accelerate.

T HERAPEU T IC AN T IBODIES – PAR T NERED DEVEL OPMEN T
By developing drugs with a number of partners, MorphoSys
has been able to spread the risk that is inevitably linked with
drug development. With 101 individual therapeutic antibodies
currently in partnered development programs, it is becoming
more likely that MorphoSys will have an opportunity to partic-
ipate ﬁ nancially in marketed drugs. During the reporting year,
for example, our partner Janssen received regulatory approval
in the United States, Europe and Canada for Tremfya® to treat
patients suﬀ ering from moderate-to-severe plaque psoriasis.

T ECHNOL OGY DEVEL OPMEN T
MorphoSys continues to invest in its existing and new technol-
ogies to defend its technological leadership. MorphoSys estab-
lished a new technology platform with Ylanthia that, in con-
trast to its previous version HuCAL, is eligible for broader
licensing to partners. Commercialization of the Ylanthia anti-
body library began in 2012.

T A B L E 0 9
Summary of MorphoSys’s Key Short- and Medium-Term Risks

Proprietary Development segment

Risks related to building a marketing structure

Discontinuation of one or more proprietary clinical programs

Failure or delay of partnership for one or more proprietary clinical programs

Delay in the development of one or more proprietary clinical programs
and/or higher development costs

Outside of the Proprietary Development segment

Failure to reach revenue targets in Partnered Discovery programs

Proprietary Development segment

Discontinuation of one or more proprietary clinical programs

Unexpected increase in development costs

Delay in the development of one or more proprietary clinical programs
and/or higher development costs

Outside of the Proprietary Development segment

Lack of information ﬂ ow within the organization about patent-related issues

Risk from bank insolvencies

Risk and Opportunity Report

G r o u p M a n a g e m e n t R e p o r t

Risk category

3-year assessment

Organizational

Operating, strategic

Operating

•••
••
••

High

Moderate

Operating, strategic

••

Moderate

Financial

••

Moderate

Risk category

1-year assessment

Operating

Financial

•••
••

High

Moderate

Financial, operating

Organizational

Financial

•

•
•

Low

LEG END

•
••
•••
••••

LOW RISK :

MODER ATE RISK :

HIG H RISK :

CATASTROPHIC RISK :

low probability of occurrence, low impact

moderate probability of occurrence, moderate impact

moderate probability of occurrence, moderate to strong impact

high probability of occurrence, severe impact

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 A B L E 1 0
Summary of MorphoSys’s Key Long-Term Risks

Segment

Risk

Order of importance1

Proprietary Development

Lack of competitiveness of the MorphoSys pipeline

Partnered Discovery

Delay or discontinuation of partnered programs

Proprietary Development

Failure to build a marketing structure

Proprietary Development

Insuﬃ cient expansion of the MorphoSys pipeline

Proprietary Development

Inability to ﬁ nance the MorphoSys pipeline

1 Declining importance of risk from 1 to 5, whereby 1 represents the most important risk.

T A B L E 11
Summary of MorphoSys’s Key Opportunities

Segment

Opportunity

Order of importance2

Partnered Discovery

Rapid acceleration of Tremfya® sales with signiﬁ cant volume

Proprietary Development

Partnering a proprietary program

Proprietary Development

Rapid market entry of MOR208 due to breakthrough therapy designation
(L-MIND study in DLBCL)

2 Declining importance of opportunity from 1 to 3, whereby 1 represents the greatest opportunity.

Statement on Corporate Governance and Corporate Governance Report

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

There is no cap on the overall or individual variable remuner-
ation components of Management Board members’ remuner-
ation (see Item 4.2.3 (2) sentence 6 of the Code). Based on the
Supervisory Board’s existing limitations for the Manage-
ment Board’s variable remuneration components and their
annual allocation, the Supervisory Board does not believe
that an additional cap is required.

2. MorphoSys will continue to comply with the recommenda-
tions of the “Government Commission on the German Corpo-
rate Governance Code” in the version dated February 7, 2017
with the exception described under Item 1.

Planegg, December 1, 2017

MorphoSys AG

On behalf of the
Management Board:

On behalf of the
Supervisory Board:

Dr. Simon Moroney
Chief Executive Oﬃ cer

Dr. Gerald Möller
Chairman of the Supervisory Board

The Statement on Corporate Governance and the Corporate
Governance Report are available on the Company’s website
under Media and Investors – Corporate Governance.

Statement on Corporate Governance
Under Section 289f (HGB) for the 2017
Financial Year

In the Statement on Corporate Governance under Section 289f
HGB, the Management Board and the Supervisory Board report
on corporate governance. In addition to the annual Declaration
of Conformity in accordance with Section 161 of the Stock Cor-
poration Act (AktG), the Statement on Corporate Governance
also includes relevant information on corporate governance
practices and other aspects of corporate governance, including
a description of the working practices of the Management
Board and Supervisory Board.

DECL ARAT ION OF CONF ORMI T Y WI T H T HE GERMAN

CORP ORAT E GOVERNANCE CODE ( T HE “CODE” ) OF T HE

MANAGEMEN T BOARD AND SUPERVIS ORY BOARD OF

MORPHOSY S AG
The Management Board and Supervisory Board of MorphoSys AG
declare the following under Section 161 of the German Stock
Corporation Act:
1. Since the last Declaration of Conformity on December 2,
2016, MorphoSys AG has complied with the recommenda-
tions of the “Government Commission on the German Corpo-
rate Governance Code” in the versions from May 5, 2015 and
February 7, 2017 with the following exception:

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 G OVERNANCE

COMP OSI T ION OF T HE MANAGEMEN T BOARD AND

PRAC T ICES
MorphoSys ensures compliance with laws and rules of conduct
through the Group-wide application of the following documents:
the Code of Conduct, the Compliance Management Handbook
and supplementary internal guidelines.

MorphoSys’s Code of Conduct sets out the fundamental princi-
ples and key policies and practices for business behavior. The
Code is a valuable tool for employees and executives, particu-
larly in business, legal and ethical situations of conﬂ ict. It rein-
forces the principles of transparent and sound management
and fosters trust in the Company from the ﬁ nancial markets,
business partners, employees and the public. Compliance with
the Code of Conduct is carefully monitored. The Group-wide
application of the Code is overseen by the Compliance Com-
mittee, and the Code itself is routinely reviewed and updated
when necessary. The Code of Conduct can be downloaded from
the Company’s website under Media and Investors – Corporate
Governance.

The Compliance Handbook describes MorphoSys’s Compliance
Management System (CMS) and is intended to ensure compli-
ance with all legal regulations as well as set out high ethical
standards that apply to both the management and all employ-
ees. The Management Board has overall responsibility for the
compliance management system and is required to report regu-
larly to the Audit Committee and the Supervisory Board. In
larly
larly to the Audit Committee and the Supervisory Board. In
carrying out its compliance responsibility, the Management
Board has assigned the relevant tasks to various functions at
MorphoSys.

The Compliance Oﬃ cer arranges the exchange of information
between the internal compliance-relevant functions. The Com-
pliance Oﬃ cer monitors the Company’s existing CMS and im-
plements it based on appropriate measures and decisions taken
on an individual basis. The Compliance Oﬃ cer is the employee
contact person for all compliance-related issues and imple-
ments the compliance requirements deﬁ ned by the Compliance
Committee.

The Compliance Oﬃ cer is supported by a Compliance Commit-
tee that meets at regular intervals. The Compliance Committee
supports the Compliance Oﬃ cer in the implementation and
monitoring of the CMS. The Compliance Committee is particu-
larly responsible for the identiﬁ cation and discussion of all com-
pliance-relevant issues and thus makes it possible for the Com-
pliance Oﬃ cer as well as the other members of the Compliance
Committee to periodically verify MorphoSys’s compliance sta-
tus and, if necessary, update the CMS.

More information on MorphoSys’s Compliance Management
System can be found in the Corporate Governance Report.

SUPERVIS ORY BOARD

MANAGEME NT BOARD
The Management Board of the Company consists of a Chief
Executive Oﬃ cer and three other members. A schedule of re-
sponsibilities currently deﬁ nes the diﬀ erent areas of responsi-
bility as follows:
• Dr. Simon Moroney, Chief Executive Oﬃ cer: Strategy and
Planning, Compliance & Quality Assurance, Internal Audit,
Human Resources, Business Development & Portfolio Man-
agement, Legal, Commercial Planning, the coordination of
individual areas of the Management Board, representation of
the Management Board to the Supervisory Board

• Jens Holstein, Chief Financial Oﬃ cer: Accounting and Tax,
Controlling, Corporate Finance & Corporate Development,
Risk Management, IT, Technical Operations, Procurement &
Logistics, Corporate Communications & Investor Relations,
Environmental Social Governance (ESG)

• Dr. Marlies Sproll, Chief Scientiﬁ c Oﬃ cer (until October 31,
2017): Discovery Alliances & Technology Development, Pro-
tein Sciences, Alliance Management, Intellectual Property,
Lanthio Pharma

• Dr. Markus Enzelberger, Interim Chief Scientiﬁ c Oﬃ cer (from
April 15, 2017 to October 31, 2017 and Chief Scientiﬁ c Oﬃ cer
(since November 1, 2017): Discovery Alliances & Technology
Development, Protein Sciences, Alliance Management, Intel-
lectual Property, Lanthio Pharma

• Dr. Arndt Schottelius, Chief Development Oﬃ cer (until Febru-
ary 28, 2017): Preclinical Development, Clinical Research,
Clinical Operations, Drug Safety & Pharmacovigilance, Regu-
latory Aﬀ airs

• Dr. Malte Peters, Chief Development Oﬃ cer (since March 1,
2017): Preclinical Research, Clinical Development, Clinical
Operations, Drug Safety & Pharmacovigilance, Regulatory
Aﬀ airs

In the course of the year, personnel changes in the Manage-
ment Board resulted in temporary, minor changes in the re-
sponsibilities of the Management Board.

SUPERVISORY BOARD
As of December 31, 2017, the MorphoSys AG Supervisory Board
consisted of six members who oversee and advise the Manage-
ment Board. The current Supervisory Board consists of pro-
fessionally qualiﬁ ed members who represent MorphoSys AG
shareholders. Dr. Gerald Möller, the Chairman of the Super-
visory Board, coordinates the Board’s activities, chairs the
Supervisory Board meetings and represents the interests of
the Supervisory Board externally. All Supervisory Board mem-
bers are independent, as deﬁ ned in the German Corporate
Governance Code, and have many years of experience in the
biotechnology and pharmaceutical industries. The Chairman of
the Supervisory Board is not a former member of MorphoSys AG’s
Management Board. The members of the Supervisory Board
and its committees are listed in the table below.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

T A B L E 12
Composition of the Supervisory Board until Termination of the 2017 Annual General Meeting

Position

Initial
Appointment

End of Term

Audit
Committee

Remuneration
and Nomination
Committee

Science and
Technology
Committee

Dr. Gerald Möller

Chairman

1999

2018

Dr. Frank Morich

Deputy Chairman

Karin Eastham

Klaus Kühn

Dr. Marc Cluzel

Wendy Johnson

Member

2015

2012

2015

2012

2015

2017

2018

2017

2018

2017

Independent ﬁ nancial expert

Chairperson

Member

T A B L E 1 3
Composition of the Supervisory Board since Termination of the 2017 Annual General Meeting

Position

Initial
Appointment

End of Term

Audit
Committee

Remuneration
and Nomination
Committee

Science and
Technology
Committee

Dr. Gerald Möller

Chairman

1999

2018

Dr. Frank Morich

Deputy Chairman

Krisja Vermeylen

Klaus Kühn

Dr. Marc Cluzel

Wendy Johnson

Member

2015

2017

2015

2012

2015

2020

2019

2020

2018

2020

Independent ﬁ nancial expert

Chairperson

Member

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

WORK ING PRAC T ICES OF T HE MANAGEMEN T BOARD

AND SUPERVIS ORY BOARD
To ensure good corporate governance, a guiding principle of the
cooperation between the Management Board and Supervisory
Board at MorphoSys AG is the open, comprehensive and regular
communication of information. The dual board system pre-
scribed by the German Stock Corporation Act clearly diﬀ eren-
tiates between a company’s management and supervision. The
responsibility of both boards is clearly stipulated by law and by
the boards’ bylaws and Articles of Association. The boards
work closely together to make decisions and take actions for the
Company’s beneﬁ t. Their stated objective is to sustainably in-
crease the Company’s value.

Management Board members each have their own area of re-
sponsibility as deﬁ ned in the schedule of responsibilities. They
regularly report to their Management Board colleagues, their
cooperation being governed by the bylaws. The Supervisory
Board ratiﬁ es both the schedule of responsibilities and the
bylaws. Management Board meetings are typically held weekly
and are chaired by the Chief Executive Oﬃ cer. During these
meetings, resolutions are passed concerning dealings and
transactions that, under the bylaws, require the approval of the
entire Management Board. At least half of the Management
Board’s members must be present to pass a resolution. Manage-
ment Board resolutions are passed by a simple majority and, in
the event of a tied vote, the Chief Executive Oﬃ cer’s vote de-
cides. For material events, each Management Board or Super-
visory Board member can call an extraordinary meeting of the
entire Management Board. Management Board resolutions can
also be passed outside of meetings by an agreement made
orally, by telephone or in writing (also by email). Minutes are
taken of each meeting of the full Management Board, are sub-
mitted for approval to the full Management Board and for signa-
ture by the Chief Executive Oﬃ cer at the following meeting.

In addition to the regularly scheduled meetings, Management
Board strategy workshops are also held for developing and
prioritizing the Group-wide strategic objectives.

The Management Board promptly and comprehensively in-
forms the Supervisory Board in writing and at Supervisory
Board meetings about planning, business development, the
Group’s position, risk management and other compliance issues.
Extraordinary meetings of the Supervisory Board are also
called for material events. The Management Board involves the
Supervisory Board in the strategy, planning and all fundamen-
tal Company issues. In addition to routine Supervisory Board
meetings, a strategy meeting takes place between the Manage-
ment Board and Supervisory Board once annually to discuss
MorphoSys’s strategic direction. The Management Board’s

bylaws specify that material business transactions require
the approval of the Supervisory Board. Detailed information
on the cooperation of the Management Board and Supervisory
Board and important items of discussion during the 2017 ﬁ nan-
cial year can be found in the Report of the Supervisory Board.

The Supervisory Board holds a minimum of two meetings per
calendar half-year and at least six meetings per full calendar
year. The Supervisory Board has supplemented the Articles of
Association with bylaws that apply to its duties. In accordance
with these bylaws, the Chairperson of the Super visory Board
coordinates the activities of the Supervisory Board, chairs the
Supervisory Board meetings and represents the interests of the
Supervisory Board externally. The Super visory Board typically
passes its resolutions in meetings, but resolutions may also be
passed outside of meetings in writing (also by e-mail), by tele-
phone or video conference.

The Supervisory Board has a quorum when at least two-thirds
of its members (including either the Chairperson or Deputy
Chairperson of the Supervisory Board) take part in the vote.
Resolutions of the Supervisory Board are generally passed with
a simple majority unless the law prescribes otherwise. In the
event of a tied vote, the vote of the Chairperson of the Super-
visory Board is decisive.

Minutes are completed for Supervisory Board meetings and
resolutions passed outside of meetings. A copy of the Super-
visory Board’s minutes is made available to all Supervisory
Board members. The Supervisory Board conducts an eﬃ ciency
evaluation regularly in accordance with the recommendation in
Item 5.6 of the Code.

COMPOSIT ION AND WORKING PRAC T ICES OF THE MANAGE-

MENT BOARD AND SUPERVISORY BOARD COMMIT TEES
The Management Board has not formed any committees.

The Supervisory Board has three committees: the Audit Com-
mittee, the Remuneration and Nomination Committee and the
Science and Technology Committee. The members of the three
committees formed by the Supervisory Board are profession-
ally qualiﬁ ed.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

T A B L E 14
Participation of Supervisory Board Members

S U P E R V I S O R Y B O A R D M E E T I N G S

by phone

Name

Dr. Gerald
Möller

Dr. Marc
Cluzel

Karin
Eastham1

Wendy
Johnson

Klaus Kühn

Dr. Frank
Morich

Krisja
Vermeylen2

01/16
2017

03/07
2017

03/21
2017

05/16
2017

05/17
2017

07/26
2017

07/27
2017

10/10
2017

12/13
2017

–

1 Supervisory Board member until termination of the 2017 Annual General Meeting.
2 Supervisory Board member since termination of the 2017 Annual General Meeting.

M E E T I N G S O F T H E A U D I T C O M M I T T E E

Name

Karin Eastham1

Wendy Johnson

Klaus Kühn

Krisja Vermeylen2

by phone

03/06/2017

04/26/2017

07/26/2017

10/10/2017

11/03/2017

12/13/2017

–

1 Supervisory Board member until termination of the 2017 Annual General Meeting.
2 Supervisory Board member since termination of the 2017 Annual General Meeting.

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

M E E T I N G S O F T H E R E M U N E R A T I O N A N D N O M I N A T I O N C O M M I T T E E

Name

Dr. Gerald Möller

Dr. Marc Cluzel

Karin Eastham1

Krisja Vermeylen2

Dr. Frank Morich as guest

by phone

01/16/2017

03/07/2017

05/16/2017

10/10/2017

12/04/2017

–

1 Supervisory Board member until termination of the 2017 Annual General Meeting.
2 Supervisory Board member since termination of the 2017 Annual General Meeting.

M E E T I N G S O F T H E S C I E N C E A N D T E C H N O L O G Y C O M M I T T E E

03/07/2017

05/16/2017

07/26/2017

10/10/2017

12/13/2017

Name

Dr. Marc Cluzel

Wendy Johnson

Dr. Frank Morich

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

AUDIT C OMMIT TEE
The main task of the Audit Committee is to support the Super-
visory Board in fulﬁ lling its supervisory duties with respect to
the accuracy of the annual and consolidated ﬁ nancial state-
ments, the activities of the auditor and internal control func-
tions, such as risk management, compliance and internal audit-
ing. The Audit Committee submits a recommendation to the
Supervisory Board for the election at the Annual General Meet-
ing of an independent auditor. The members of the Audit Com-
mittee are Klaus Kühn (Chairperson), Wendy Johnson, Karin
Eastham (until May 17, 2017) and Krisja Vermeylen (since
May 17, 2017). Klaus Kühn currently fulﬁ lls the prerequisite of
an independent ﬁ nancial expert.

REMUNER ATION AND NOMINATION C OMMIT TEE
The Remuneration and Nomination Committee is responsible
for preparing and reviewing the Management Board’s compen-
sation system annually before its ﬁ nal approval. When neces-
sary, the Committee searches for suitable candidates to appoint
to the Management Board and Supervisory Board and submits
appointment proposals to the Supervisory Board. The Commit-
tee also prepares the contracts made with Management Board
members. The members of the Remuneration and Nomination
Committee are Karin Eastham (Chairperson until May 17,
2017), Dr. Gerald Möller (Chairperson since May 17, 2017),
Dr. Marc Cluzel and Krisja Vermeylen (since May 17, 2017).

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

Regular meetings with analysts and investors in the context of
road shows and individual meetings play a central role in inves-
tor relations at MorphoSys. Conference calls accompany publi-
cation of quarterly results and give analysts and investors an
immediate opportunity to ask questions about the Company’s
development. Company presentations for on-site events, visual
and audio recordings of other important events as well as con-
ference call transcripts are also available on the Company’s
website to all interested parties.

The Company’s website www.morphosys.com serves as a cen-
tral platform for current information on the Company and its
development. Financial reports, analyst meetings and confer-
ence presentations, as well as press releases and ad hoc state-
ments, are also available. The important regularly scheduled
publications and events (annual reports, interim reports, an-
nual general meetings and press and analyst conferences) are
published in the Company’s ﬁ nancial calendar well in advance.

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 shall be composed in such a way that (i)
the Supervisory Board in its entirety has the necessary knowl-
edge, skills and professional experience to properly perform its
duties, (ii) the Company’s international activities and potential
conﬂ icts of interest are taken into consideration, (iii) a suﬃ -
cient number of independent Supervisory Board members is
ensured, (iv) an age limit and a regular limit on the length of
service is speciﬁ ed for members of the Supervisory Board, and
(v) the aspect of diversity is taken into account.

SCIENCE AND TECHNOLO GY C OMMIT TEE
The Science and Technology Committee advises the Super-
visory Board on matters concerning proprietary drug and
technology development and prepares the relevant Super-
visory Board resolutions. The members of the Science and
Technology Committee are Dr. Marc Cluzel (Chairperson),
Dr. Frank Morich and Wendy Johnson.

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

Corporate Governance Report

At MorphoSys, responsible, sustainable and value-oriented
corporate governance is a high priority. Good corporate gover-
nance is an essential aspect of MorphoSys’s corporate manage-
ment and forms the framework for the Group’s management
and supervision, which includes the Group’s organization, com-
mercial principles and tools for its guidance and control.

The German Corporate Governance Code (“the Code”) provides
a standard for the transparent monitoring and management of
companies that strongly emphasizes shareholder interests.
Many of the corporate governance principles contained in the
Code have been practiced at MorphoSys for many years. Corpo-
rate governance issues at MorphoSys AG are detailed in the
Statement on Corporate Governance under Section 289f HGB.
The statement also contains the annual Declaration of Confor-
mity, relevant information on corporate governance practices
and a description of the Management Board and Supervisory
Board’s working practices. Additional information can be found
in this Corporate Governance Report.

COMMUNIC AT ION WI T H T HE C API TAL MARKE T S
At MorphoSys, a key principle of corporate communication is to
inform institutional investors, private shareholders, ﬁ nancial
analysts, employees and all other stakeholders, simultaneously
and fully of the Company’s situation through regular, transpar-
ent and timely communication. Shareholders have immediate
access to the information provided to ﬁ nancial analysts and
similar recipients and can obtain this information in both Ger-
man and English. The Company is ﬁ rmly committed to follow-
ing a fair information policy.

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

In view of these factors and in consideration of the Company’s
speciﬁ c circumstances (Section 5.4.1 of the German Corporate
Governance Code), the Supervisory Board ﬁ rst set targets for
its composition in July 2015 and reviewed and updated these
targets on July 26, 2017 as follows:

APPROPRIATE REPRESENTATION OF WOMEN AND DIVE RSIT Y
The Supervisory Board of MorphoSys has a total of six mem-
bers, two of whom are women. The Supervisory Board strongly
believes that, at 33.33 %, the current proportion of women on
the Company’s Supervisory Board is appropriate and intends to
maintain this proporation in the future. The Supervisory Board
currently fulﬁ lls this quota.

The Supervisory Board also believes a quota of at least two
non-German members or at least two members with extensive
international experience represents a fair share of diversity
given the Company’s international orientation. The Supervisory
Board currently meets this quota.

INDEPENDENCE
The Supervisory Board considers it appropriate that at least
four of its members are independent (Section 5.4.2 of the Ger-
man Corporate Governance Code). Members of the Supervisory
Board are considered independent when they have no personal
or business relationship with MorphoSys, its management, a
controlling shareholder or an aﬃ liate that may give rise to a
material and more than temporary conﬂ ict of interest. All six
current members of the Supervisory Board meet the criteria to
be classiﬁ ed as independent. Therefore, the Supervisory Board
currently meets the quota of four independent members.

Signiﬁ cant and more than temporary conﬂ icts of interest
should be avoided, especially when it involves work for major
competitors. It should be noted, however, that conﬂ icts of inter-
est in certain cases cannot be excluded. Any potential conﬂ icts
of interest must be disclosed to the Chairperson of the Super-
visory Board and remedied appropriately. There are currently
no conﬂ icts of interest.

AGE LIMIT
At the time of their appointment by the Annual General Meet-
ing, Supervisory Board members should not be older than
75 years. However, the Supervisory Board may decide to make
an exception in speciﬁ c cases. The age limit of 75 years is cur-
rently respected by the Supervisory Board members.

TERM OF APP OINTMENT
At the Annual General Meeting, the Supervisory Board intends
to propose an initial two-year period of oﬃ ce for Supervisory
Board members. The Supervisory Board intends to allow reap-
pointment twice, each for an additional term of three years,
but reserves the right to make exceptions in speciﬁ c cases
and permit members to be reappointed for a fourth term of
three years. Since the time of setting this target, the maximum
term of appointment for all elected Supervisory Board members
has been respected.

The Supervisory Board intends to adhere to the targets set for
its composition when making future election proposals to the
Annual General Meeting.

SK IL L AND EXPERIENCE PROF IL E F OR T HE SUPERVIS ORY

BOARD AS A WHOL E
In addition to deﬁ ning speciﬁ c targets, the Supervisory Board
should develop a proﬁ le of skills and experience for the entire
Supervisory Board (Section 5.4.1 of the German Corporate
Governance Code). On July 26, 2017, the Supervisory Board
deﬁ ned the following proﬁ le of skills and experience for the
entire Supervisory Board:

PROFES SIONAL E XPER TISE AND E XPERIE NCE
Supervisory Board members should possess the necessary
professional expertise and experience to fulﬁ ll their duties as
members of the Supervisory Board of MorphoSys as an interna-
tional biotechnology company. All current Supervisory Board
members have the relevant experience in management posi-
tions in the pharmaceutical and biotechnology industries and,
therefore, meet this requirement.

In order to promote further cooperation between members of
the Supervisory Board, care should be taken in the selection of
candidates to ensure that the aspect of diversity in terms of
professional background, expertise, experience and personality
is suﬃ ciently taken into account.

GENER AL KNOWLEDGE
All members of the Supervisory Board should have general
knowledge of the industry in which the Company operates in
order to make suﬃ cient and substantial contributions to Super-
visory Board meetings. All Supervisory Board members have
the necessary expertise in the pharmaceutical and biotechnol-
ogy industries based on their background and, therefore, meet
this requirement.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

In July 2015, the Supervisory Board adopted the following
quota for women on the Management Board for an initial period
of two years, which was reviewed and updated in July 2017 as
follows:

“The Management Board of MorphoSys AG has a total of ﬁ ve
members, including one female member. The current ratio of
women’s representation on the Management Board of the com-
pany is therefore below 30 % and amounts to 20 %. With refer-
ence to the decision on the quota of women on the Management
Board, which was taken in July 2015, the Supervisory Board
intends to achieve a ratio of 25 % in the future, namely by June
30, 2022”.

The Company does not currently meet this target. The reason
this target has not been met is the unplanned departure of
Dr. Marlies Sproll as Chief Scientiﬁ c Oﬃ cer as of October 31,
2017 for personal reasons and the appointment of Dr. Markus
Enzelberger initially as Interim Chief Scientiﬁ c Oﬃ cer from
April 15, 2017 to October 31, 2017, and then as Dr. Marlies
Sproll’s successor as Chief Scientiﬁ c Oﬃ cer beginning on
November 1, 2017. As a result, the Management Board cur-
rently consists of four male members, and there are currently
no women on the Management Board.

In July 2015, the Management Board adopted the following
quota for women in the ﬁ rst level of management below the
Management Board for an initial period of two years and re-
viewed and updated it in July 2017 as follows:

“At the time of the decision, the ﬁ rst management level below
the Management Board (the Senior Management Group) con-
sisted of 22 members, nine of whom were women, placing the
level of female representation at this management level at
40.9 %, which is above the 30 % target. The Management Board
conﬁ rms its July 2015 decision on the quota of women in the
ﬁ rst level of management below the Management Board and
intends to continue to maintain a minimum ratio of 30 % until
June 30, 2022.”

The Company continues to meet this target.

PROFES SIONAL E XPER TISE
• At least two members of the Supervisory Board must have

extensive experience in drug development

• At least one Supervisory Board member must have expertise
in the areas of accounting or auditing (Section 100 (5) AktG)
• At least one member of the Supervisory Board must have ex-
perience in human resource issues, particularly with regard
to Management Board matters

The Company currently meets the above targets.

SUFFICIENT AVAIL ABILIT Y OF TIME
All members of the Supervisory Board must ensure that they
have suﬃ cient time available to properly perform their Super-
visory Board duties. It must therefore be ensured that
• the Supervisory Board member is able to personally attend at
least four ordinary Supervisory Board meetings per year, as
well as the annual strategy meeting, for which a reasonable
amount of preparation time is required in each case;

• the Supervisory Board member is able to attend extraordi-
nary meetings of the Supervisory Board if necessary to deal
with speciﬁ c topics;

• the Supervisory Board member is able to attend the Annual

General Meeting;

• the Supervisory Board member has suﬃ cient time available
to review the annual and consolidated ﬁ nancial statements;
• the Supervisory Board member sets aside additional time to
prepare and participate in committee meetings, depending
on his/her possible membership in one or more of the current
three committees of the Supervisory Board.

The Supervisory Board intends to observe the skills and expe-
rience proﬁ le for the entire Supervisory Board when making
future election proposals to the Annual General Meeting.

WOMEN’S QUO TA F OR T HE SUPERVIS ORY BOARD,

MANAGEMEN T BOARD AND T HE T WO MANAGEMEN T

L EVEL S BEL OW T HE MANAGEMEN T BOARD
In July 2015, the Supervisory Board adopted a women’s quota
for the Supervisory Board for an initial period of two years. The
Supervisory Board reviewed this quota in July 2017 and up-
dated as follows: “MorphoSys AG’s Supervisory Board has a
total of six members. Two of those members are women, which
places the current quota of 33.33 % for female members on
the Company’s Supervisory Board above the 30 % target. The
Supervisory Board conﬁ rms its decision regarding the quota
for women on the Supervisory Board, which was passed in July
2015, and intends to maintain this ratio until June 30, 2022.”

The Company continues to meet this target.

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

In July 2015, the Management Board adopted a women’s quota
for the second level of management below the Management
Board initially for a period of two years and reviewed and up-
dated the quota in July 2017 as follows: “The second manage-
ment level below the Management Board (i.e. the Company’s
managers excluding the Senior Management Group) at the time
of the decision consisted of 40 members, 14 of whom were
women. This placed the quota of women in the second manage-
ment level below the Company’s Management Board at 35 %,
which is above the 30 % target at the time of the resolution. The
Management Board conﬁ rms its July 2012 decision on the
quota of women in the second level of management below the
Management Board and intends to maintain a quota of at least
30 % until June 30, 2022.”

The Company continues to meet this target.

DIVERSI T Y PL AN
Diversity is ﬁ rmly anchored in the corporate culture of
MorphoSys and its aﬃ liates. All dimensions of diversity are of
equal importance at MorphoSys, be it age, gender, educational
background, occupation, origin, religion, sexual orientation or
identity. The MorphoSys Management Board and Supervisory
Board see it as their responsibility to further increase and ef-
fectively utilize the various aspects of diversity beyond the
mere determination of targets for the proportion of women on
the Management Board, Supervisory Board and in executive
positions.

The Company has not yet developed its own diversity plan with
respect to the composition of the Management and Supervisory
Boards. Nevertheless, the internal organization and continued
development of an open and inclusive corporate culture play an
important role in the day-to-day work of the Management and
Supervisory Boards. The skills and experience proﬁ le for the
Supervisory Board as a whole also takes diversity into consid-
eration. The Management and Supervisory Boards intend to
develop a diversity plan for their composition in the future that
addresses key aspects of diversity, deﬁ nes speciﬁ c goals for
this purpose and contains guidelines on how these goals should
be achieved.

REMUNERAT ION REP OR T
The Remuneration Report presents the principles, structure
and amount of Management Board and Supervisory Board re-
muneration. The report complies with the legal provisions and
gives consideration to the recommendations of the German Cor-
porate Governance Code.

MANAGEME NT BOARD REMUNER ATION
The Management Board’s remuneration system is intended to
provide an incentive for performance-oriented and sustainable
corporate management. Therefore, the aggregate remuneration
of the Management Board members consists of diﬀ erent compo-
nents: ﬁ xed components, an annual cash bonus based on the
achievement of corporate targets (short-term incentive – STI), a
variable compensation component with a long-term incentive
(long-term incentive – LTI) and other remuneration compo-
nents. Variable remuneration components with long-term in-
centive consist of performance share plans from the current
and prior years, a convertible bond program from the year
2013, as well as a stock option plan from the current year. Man-
agement Board members also receive fringe beneﬁ ts in the
form of non-cash beneﬁ ts, mainly the use of a company car and
the payment of insurance premiums. All remuneration pack-
ages are reviewed annually for their scope and appropriateness
by the Remuneration and Nomination Committee and are com-
pared to the results of an annual Management Board remuner-
ation analysis. The amount of compensation paid to Manage-
ment Board members highly depends on their individual areas
of responsibility, the Company’s economic situation and suc-
cess and the Company’s business prospects versus its competi-
tion. All decisions concerning adjustments to remuneration
packages are made by the entire Supervisory Board. The Man-
agement Board’s remuneration and index-linked pension
scheme were last adjusted in July 2017. The remuneration of the
new Management Board member Dr. Markus Enzelberger was
adjusted as of November 1, 2017.

OV ERV I E W
In the 2017 ﬁ nancial year, total beneﬁ ts of € 6,453,649 (2016:
€ 4,383,658) were granted to the Management Board in accor-
dance with the provisions of the German Corporate Governance
Code. Of the total remuneration granted for the year 2017,
€ 3,387,433 was cash compensation and € 3,066,216, or 48 %,
resulted from personnel expenses for share-based compensa-
tion (remuneration with long-term incentive: performance
share plan, stock option plan and convertible bond plan). In
2017, share-based compensation included a one-time incentive
granted to Dr. Malte Peters and Dr. Markus Enzelberger for
joining the Management Board of MorphoSys AG, which con-
sisted of shares of treasury stock.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

The total amount of beneﬁ ts paid to the Management Board in
the 2017 ﬁ nancial year amounted to € 10,593,126 (2016:
€ 5,070,618). In addition to cash compensation payments of
€ 2,963,485 (2016: € 2,672,333), this amount includes primarily
the relevant value under German tax law of the transfer of
treasury stock from a performance-based share plan (share-
based compensation), which amounted to € 1,986,671 (2016:
€ 2,398,285). This ﬁ gure includes € 899,962 under German
tax law for treasury shares granted to Dr. Malte Peters and
Dr. Markus Enzelberger as a one-time incentive for joining
the Management Board of MorphoSys AG. Because convertible
bonds were exercised in 2017, the total amount for 2017 also
included proceeds from the exercise of convertible bonds in the
amount of € 4,743,008.

As of April 3, 2017, a total of 36,729 treasury shares from the
2013 performance-based share plan for the Management Board
vested because the vesting period for this LTI program had ex-
pired. The beneﬁ ciaries had the option to receive the shares at
a time of their choosing within a six-month period ending on
October 2, 2017. All transactions in MorphoSys shares exe-
cuted by members of the Management Board were reported as
required by law and published in the Corporate Governance
Report as well as on the Company’s website.

In accordance with the requirements of Section 4.2.5 (3) of the
German Corporate Governance Code, the tables that follow pro-
vide detailed mandatory information on the remuneration of
the individual Management Board members.

Please note that the tables that follow are provided in the con-
text of the Corporate Governance Report and diﬀ er from the
information about Management Board remuneration presented
in the Notes of this Annual Report (Item 7.4). These diﬀ erences
are due to the diﬀ ering presentation requirements under the
German Corporate Governance Code and IFRS*.
*S E E G L O S S A R Y – page 170

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

T A B L E 1 5
Compensation of the Management Board in 2017 and 2016 (Disclosure in Accordance with the German Corporate Governance Code)

B E N E F I T S G R A N T E D T O T H E M A N A G E M E N T B O A R D

in €

Fixed Compensation

Fringe Beneﬁ ts1

Total Fixed Compensation

One -Year Variable Compensation2

Multi-Year Variable Compensation:

2013 Convertible Bonds Program3 (Vesting Period 4 Years)

2016 Long-Term Incentive Program4 (Vesting Period 4 Years)

2017 Long-Term Incentive Program4 (Vesting Period 4 Years)

2017 Stock Option Plan4 (Vesting Period 4 Years)

Total Variable Compensation

Service Cost

Total Compensation

in €

Fixed Compensation

Fringe Beneﬁ ts1

Total Fixed Compensation

One -Year Variable Compensation2

Multi-Year Variable Compensation:

2013 Convertible Bonds Program3 (Vesting Period 4 Years)

2016 Long-Term Incentive Program4 (Vesting Period 4 Years)

2017 Long-Term Incentive Program4 (Vesting Period 4 Years)

2017 Stock Option Plan4 (Vesting Period 4 Years)

Total Variable Compensation

Service Cost

Total Compensation

Dr. Simon Moroney
Chief Executive Ofﬁ cer

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

463,457

500,876

372,652

34,270

497,727

210,873

33,964

563,820

35,912

536,788

368,144

35,912

536,788

35,912

536,788

438,266

58,224

343,009

267,861

1,372,036

1,071,444

808,657

1,037,238

58,224

2,939,970

142,096

149,567

1,448,480

1,723,593

744,579

3,626,325

Dr. Markus Enzelberger5
Chief Scientiﬁ c Ofﬁ cer
Appointment (Interim-CSO): April 15, 2017
Appointment: November 1, 2017

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

–

204,698

417,158

621,856

121,688

144,354

112,745

378,787

29,186

204,698

417,158

621,856

204,698

417,158

621,856

144,866

577,416

450,980

1,173,262

29,186

1,029,829

651,042

1,824,304

728,649

360,732

1,646,722

204,028

180,538

204,028

6,453,649

3,423,149

12,557,751

2017

(Mini-

mum)

2017

(Maxi-

mum)

42,905

415,557

42,905

415,557

326,071

898,988

701,992

59,641

1,986,692

99,949

2017

42,905

415,557

273,899

224,747

175,498

733,785

99,949

59,641

2017

(Mini-

mum)

2017

(Maxi-

mum)

281,500

568,644

850,144

281,500

568,644

850,144

242,083

898,988

701,992

1,843,063

60,967

2017

281,500

568,644

850,144

206,903

224,747

175,498

607,148

60,967

1,249,291

575,147

2,502,198

1,518,259

911,111

2,754,174

2017

(Mini-

mum)

2017

(Maxi-

mum)

2017

(Mini-

mum)

2017

(Maxi-

mum)

2017

(Mini-

mum)

2017

(Maxi-

mum)

2017

222,450

103,253

1,685,429

20,427

9,161

1,094,207

242,877

112,414

2,779,636

67,745

85,302

23,490

1,061,869

1,260,078

39,879

197,623

168,543

131,629

407,796

77,976

674,172

526,516

1,105,400

863,231

4,421,600

3,452,924

39,879

1,325,869

77,976

63,369

28,245

39,879

28,245

63,369

28,245

3,228,123

197,623

9,332,225

445,890

1 In 2017, the fringe beneﬁ ts of Dr. Malte Peters und Dr. Markus Enzelberger each included a one-time compensation in the form of MorphoSys shares

as an incentive to join the Management Board of MorphoSys AG.

2 The one-year compensation granted for the 2017 ﬁ nancial year represents the bonus accrual for 2017 that will be paid in February 2018.

The bonus granted for the 2016 ﬁ nancial year was paid in February 2017.

3 Stock-based compensation plans not issued on an annual basis. The fair value was determined pursuant to the regulations of IFRS 2 “Share-based Payment.”

For plans that are not issued annually, the pro rata share of personnel expenses resulting from share-based payments is presented for each ﬁ nancial year.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

Jens Holstein
Chief Financial Ofﬁ cer

Dr. Malte Peters
Chief Development Ofﬁ cer
Appointment: March 1, 2017

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

500,876

314,405

372,652

46,300

360,705

143,054

34,791

369,397

42,905

415,557

273,899

42,905

415,557

42,905

415,557

326,071

59,641

224,747

175,498

898,988

701,992

547,242

733,785

59,641

1,986,692

92,875

99,949

1,000,822

1,249,291

575,147

2,502,198

–

281,500

568,644

850,144

206,903

224,747

175,498

607,148

60,967

281,500

568,644

850,144

281,500

568,644

850,144

242,083

898,988

701,992

1,843,063

60,967

1,518,259

911,111

2,754,174

Dr. Marlies Sproll6
Chief Scientiﬁ c Ofﬁ cer
Temporary Leave:
April 15, 2017 – October 31, 2017
Resignation: October 31, 2017

Dr. Arndt Schottelius
Chief Development Ofﬁ cer
Resignation: February 28, 2017

Total

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

2016

2017

2017
(Mini-
mum)

2017
(Maxi-
mum)

314,405

222,450

309,759

103,253

1,402,026

1,685,429

24,141

338,546

143,054

23,263

369,397

20,427

242,877

67,745

85,302

28,388

338,147

140,940

9,161

133,099

1,094,207

112,414

1,535,125

2,779,636

23,490

637,921

1,061,869

1,260,078

39,879

23,263

39,879

115,281

197,623

168,543

131,629

369,397

674,172

526,516

1,672,011

1,105,400

863,231

4,421,600

3,452,924

535,714

407,796

39,879

1,325,869

533,600

92,876

77,976

95,473

63,369

28,245

39,879

28,245

63,369

2,425,213

3,228,123

197,623

9,332,225

28,245

423,320

445,890

967,136

728,649

360,732

1,646,722

967,220

204,028

180,538

204,028

4,383,658

6,453,649

3,423,149

12,557,751

4 Stock-based compensation plans issued annually. The fair value was determined pursuant to the regulations of IFRS 2 “Share-based Payment.”
For plans issued annually, the personnel expenses resulting from share-based payments are presented for the entire term at the time of issue.

5 The ﬁ gures presented for Dr. Markus Enzelberger do not include any compensation granted for his activities as a member of the Senior Management Group

as they do not relate to his appointment as a member of the Management Board.

6 Dr. Marlies Sproll left the Management Board of MorphoSys AG on October 31, 2017. Since November 1, 2017, she has taken on a new part-time role

at MorphoSys as Special Adviser to the CEO. Therefore, the ﬁ gures presented for Dr. Marlies Sproll do not include any remuneration granted for these activities.

2017

35,912

536,788

368,144

343,009

267,861

2017

(Mini-

mum)

2017

(Maxi-

mum)

35,912

536,788

35,912

536,788

438,266

58,224

1,372,036

1,071,444

1,037,238

58,224

2,939,970

149,567

1,723,593

744,579

3,626,325

2017

(Mini-

mum)

2017

(Maxi-

mum)

204,698

417,158

621,856

204,698

417,158

621,856

144,866

577,416

450,980

1,173,262

2017

204,698

417,158

621,856

121,688

144,354

112,745

378,787

29,186

1,029,829

651,042

1,824,304

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 A Y M E N T S D U R I N G T H E F I N A N C I A L Y E A R

Dr. Simon Moroney
Chief Executive Ofﬁ cer

Jens Holstein
Chief Financial Ofﬁ cer

Dr. Malte Peters
Chief Development Ofﬁ cer
Appointment: March 1, 2017

In €

2016

2017

2016

2017

2016

2017

Fixed Compensation

Fringe Beneﬁ ts1

Total Fixed Compensation

One -Year Variable Compensation2

Multi-Year Variable Compensation:

2013 Convertible Bonds Program3
(Vesting Period 4 Years)

2012 Long-Term Incentive Program3
(Vesting Period 4 Years)

2013 Long-Term Incentive Program3

(Vesting Period 4 Years)

Other4

Total Variable Compensation

Service Cost

Total Compensation

463,457

34,270

497,727

238,692

794,430

1,033,122

142,096

500,876

35,912

536,788

210,873

650,378

861,251

149,567

314,405

46,300

360,705

161,926

372,652

42,905

415,557

143,054

658,350

574,467

736,393

92,875

445,431

1,246,835

99,949

1,672,945

1,547,606

1,189,973

1,762,341

–

281,500

568,644

850,144

60,967

911,111

1 In 2017, the fringe beneﬁ ts of Dr. Malte Peters und Dr. Markus Enzelberger each included a one-time compensation in the form of MorphoSys shares as an incentive

to join the Management Board of MorphoSys AG.

2 The one-year variable compensation presented here represents the bonus paid in the respective ﬁ nancial year for the previous ﬁ nancial year.
3 The date and value of the payments is the date and value applicable under German tax law. Therefore, this table shows the non-cash beneﬁ ts arising in the respective
ﬁ nancial year from the diﬀ erence between the exercise or conversion price and the stock market price at the time of exercising the convertible bonds or at the time of
transfer of own shares from a performance share plan.

4 No compensation recovery claims against the Management Board existed in 2017 or 2016.

FI X ED REM U N ER AT I O N A N D FRI N G E B EN EFI TS
The non-performance-related remuneration of the Management
Board consists of ﬁ xed remuneration and additional beneﬁ ts,
which primarily include the use of company cars, as well as
subsidies for health, welfare and disability insurance. The
Chief Financial Oﬃ cer, Mr. Jens Holstein, receives an additional
expense allowance for maintaining two households.

PENS I O N E X PENSES
The Company also provides payments to Management Board
members equal to a maximum of 10 % of the member’s ﬁ xed
annual salary plus any taxes payable. This compensation is
intended for the members’ individual retirement plans. Addi-
tionally, all Management Board members participate in a pen-
sion plan in the form of a provident fund, which was introduced
in cooperation with Allianz Pensions-Management e.V. The
pension obligations of the provident fund will be met by Allianz
Pensions-Management e.V. These pension obligations are not
pension beneﬁ t plans.

2017

204,698

417,158

621,856

29,186

651,042

2017

222,450

20,427

242,877

143,054

445,431

3,388,866

77,976

3,709,719

2017

103,253

9,161

112,414

140,940

445,431

1,870,648

28,245

2,011,307

2017

1,685,429

1,094,207

2,779,636

637,921

1,986,671

7,367,600

445,890

10,593,126

2,800,381

1,284,277

4,743,008

2017

500,876

35,912

536,788

210,873

650,378

861,251

149,567

1,547,606

2017

372,652

42,905

415,557

143,054

658,350

445,431

1,246,835

99,949

1,762,341

2017

281,500

568,644

850,144

60,967

911,111

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

Dr. Markus Enzelberger5
Chief Scientiﬁ c Ofﬁ cer
Appointment (Interim-CSO):
April 15, 2017
Appointment: November 1, 2017

Dr. Marlies Sproll6
Chief Scientiﬁ c Ofﬁ cer
Temporary Leave:
April 15, 2017 – October 31, 2017
Resignation: October 31, 2017

Dr. Arndt Schottelius7
Chief Development Ofﬁ cer
Resignation: February 28, 2017

Total

2016

2017

2016

2017

2016

2017

2016

2017

–

204,698

417,158

621,856

29,186

651,042

314,405

24,141

338,546

156,635

222,450

20,427

242,877

143,054

309,759

28,388

338,147

156,635

103,253

9,161

112,414

140,940

1,402,026

133,099

1,535,125

713,888

1,685,429

1,094,207

2,779,636

637,921

2,800,381

1,284,277

4,743,008

540,155

489,233

2,398,285

696,790

92,876

445,431

3,388,866

77,976

645,868

95,473

445,431

1,870,648

28,245

3,112,173

423,320

1,986,671

7,367,600

445,890

1,128,212

3,709,719

1,079,488

2,011,307

5,070,618

10,593,126

5 The ﬁ gures presented for Dr. Markus Enzelberger do not include any payments for his activities as a member of the Senior Management Group as they do not relate

to his appointment as a member of the Management Board.

6 Dr. Marlies Sproll left the Management Board of MorphoSys AG on October 31, 2017. Since November 1, 2017, she has taken on a new part-time role at MorphoSys

as Special Adviser to the CEO. Therefore, the payments presented for Dr. Marlies Sproll do not include any remuneration for these activities.

7 The ﬁ gures presented for Dr. Arndt Schottelius do include remuneration from the exercise of convertible bonds and the transfer of treasury stock from a long-term
incentive program after his resignation as Chief Development Oﬃ cer. These were granted for his activities as a member of the Management Board in previous years.

PERFORMANCE-BASED COMPENSATION (SHORT-TERM INCENTIVE – STI)
Members of the Management Board each receive performance-
based compensation in the form of an annual bonus payment of
up to 70 % of the gross base salary when 100 % of the member’s
targets have been achieved. These bonus payments are depen-
dent on the achievement of corporate targets speciﬁ ed by the
Supervisory Board at the start of each ﬁ nancial year. Targets
are typically based on, amongst other objectives, the Compa-
ny’s performance and the progress of the partnered pipeline
and the Company’s proprietary pipeline. At the start of the
year, the Supervisory Board assesses the degree to which
corporate goals were achieved in the prior year and uses this
information to determine the bonus. The bonus may not exceed

125 % of the target amount (corresponding to 87.5 % of the gross
base salary). Performance-based compensation can be reduced
to zero if goals are not achieved. The bonus for the 2017 ﬁ nan-
cial year will be paid in February 2018. Contrary to the usual
bonus scheme for Management Board members, in the period
from April 15 to October 31, 2017, Dr. Markus Enzelberger, as
an interim Board member, agreed to an entitlement to a bonus
payment of up to 52 % of his gross base salary with 100 % target
achievement (maximum 65 % with 125 % target achievement).
During this period, Dr. Marlies Sproll (on leave) was not enti-
tled to a bonus payment.

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

LONG-TERM INCENTIVE COMPENSATION (LONG-TERM INCENTIVE – LTI)
In 2011, MorphoSys introduced a long-term incentive compen-
sation plan (Performance Share Plan) for the Management
Board and members of the Senior Management Group. The Per-
formance Share Plan is based on the allocation of shares linked
to the achievement of predeﬁ ned performance targets over a
four-year period.

Each year, the Supervisory Board determines the number of
shares to be allocated to the Management Board. On April 1,
2017, the Management Board members (including Dr. Markus
Enzelberger as an interim Management Board member from
April 15 to October 31) were granted a total of 15,675 shares.
Each Management Board member received an entitlement
beneﬁ t for a speciﬁ c number of shares. For more information,
please refer to Item 7.3.5 in the Notes to the Consolidated Finan-
cial Statements and the explanation on stock repurchases in the
Corporate Governance Report.

Long-term performance targets are set by the Supervisory
Board at the time the shares are allocated for a speciﬁ c year.
The deﬁ ned targets for the 2017 Performance Share Plan were
the absolute performance of MorphoSys shares, as well as the
relative performance of MorphoSys shares relative to a bench-
mark index comprising of equal parts of the NASDAQ Biotech-
nology Index and the TecDAX Index. The absolute and relative
performance of the share price for each of the four assessment
periods (one year each) is determined by comparing the aver-
age share price of the last 30 trading days prior to the begin-
ning of the relevant assessment period (April 1) with the aver-
age share price of the last 30 trading days prior to the end of the
evaluation period. The participants in the Performance Share
Plan receive an annual share entitlement, which will be evalu-
ated on the basis of the absolute and relative performance of the
share price, that is, a comparison of the performance of
MorphoSys shares versus the benchmark index. Depending on
the absolute and relative performance of the share price over
the course of an evaluation period, certain (absolute and rela-
tive) tiered target attainment levels between 10 % and 300 %
can be achieved. Exceeding the target attainment level of 300 %
does not grant entitlement to additional shares during the rele-
vant assessment period (cap). At the end of the four-year term,
a total level of target achievement based on the absolute and
relative target attainment levels has to be established. The
average absolute and relative attainment levels reached are
weighted at 50 %. The overall target achievement is capped
at 200 %.

The ultimate number of performance shares allocated to the
Performance Share Plan participants is determined at the com-
pletion of the program, which spans four years. This calculation
incorporates the number of shares initially granted (“grants”)
multiplied with the total level of target achievement, as well
as a “company factor” that is determined at the Supervisory
Board’s discretion. This company factor is a number between
zero and two that is set by the Supervisory Board based on the
Company’s situation. The company factor’s predeﬁ ned default
value is one (1).

In 2017, MorphoSys also introduced a stock option plan (SOP) as
another form of long-term incentive compensation based on the
resolution of the Annual General Meeting on June 2, 2016
(Agenda Item 9). As of April 1, 2017, a total of 40,319 stock
options were granted to the Management Board (including
Dr. Markus Enzelberger as interim Management Board mem-
ber from April 15 to October 31). Each member of the Manage-
ment Board received a speciﬁ c number of stock options that
entitle them to purchase up to two MorphoSys shares each. Fur-
ther details can be found in Item 7.1 in the Notes to the Consoli-
dated Financial Statements and the explanations on stock re-
purchases in the Corporate Governance Report.

In accordance with the resolution of the Annual General Meet-
ing on June 2, 2016 (Agenda Item 9), the SOP’s performance
targets include the absolute price performance of MorphoSys
shares and the relative price performance of MorphoSys shares
compared to a benchmark index. The benchmark index con-
sists of equal parts of the NASDAQ Biotechnology Index and the
TecDAX Index. Each performance target has a 50 % weighting
in the achievement of the overall target.

To determine the degree of target achievement for each perfor-
mance target, the four-year vesting period (until the ﬁ rst stock
options can be exercised) is subdivided into four equal periods
of one year each. An arithmetic mean is calculated based on the
degree of target achievement in each of the four years. This, in
turn, determines the ﬁ nal percentage of target achievement for
each performance target. The ﬁ nal percentage of target achieve-
ment for each of the two performance targets are then added
together and divided by two, the result being the overall level of
target achievement.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

For the performance target of absolute price performance, a
comparison is made between the stock market price of
MorphoSys shares at the beginning of each year in the four-
year period with the price at the end of each respective period.
If MorphoSys shares perform well, the degree of target achieve-
ment can reach up to 200 % on a straight-line basis for that par-
ticular year. Any further positive share price development of
MorphoSys shares will not lead to any further increase in the
performance target (cap).

For the performance target of relative price performance, the
development of MorphoSys’s share price is compared with the
development of the benchmark index during each annual pe-
riod and set in relation to each other. In forming the benchmark
index, the NASDAQ Biotech Index and the TecDAX Index are
each weighted at 50 % in such a way that the percentage price
movements of each index are added for the respective annual
period and divided by two. If MorphoSys shares outperform
the benchmark index, the degree of target achievement for the
relevant period can reach up to 200 % on a straight-line basis.
Any further positive share price development of MorphoSys
shares versus the benchmark index will not lead to any further
increase in the performance target (cap).

Stock options can only be exercised when the four-year (mini-
mum) vesting period prescribed by law has expired, and the
speciﬁ ed minimum value for the degree of target achievement
of a performance target has been exceeded. The ultimate num-
ber of exercisable stock options is calculated by multiplying the
number of initially granted stock options (“grants”) by the total
level of target achievement and rounding up to the nearest
whole number. The resulting ultimate number of stock options
is limited to 200 % of the initially granted number of stock op-
tions. The stock options are settled in the form of Company
shares, with each stock option entitling the holder to one share
for the ﬁ nal number of stock options.

When the stock options are exercised, the exercise price must
be paid for each underlying share. The exercise price corre-
sponds to the average closing auction price of MorphoSys
shares in the 30 trading days prior to the day on which the
stock options were issued.

The terms of the stock option plan provide further details on
the granting and settlement of stock options, the issue of Com-
pany shares from the Conditional Capital 2016-III and the ad-

ministration of the SOP. For more information, please refer to
the corresponding resolution of the Annual General Meeting on
June 2, 2016 (Agenda Item 9).

M ISC EL L A N EO US
None of the Management Board members were granted any
loans or similar beneﬁ ts in the reporting year nor have they
received any beneﬁ ts from third parties that were promised or
granted based on their positions as members of the Manage-
ment Board.

T ERM I N AT I O N O F M A N AG EM EN T B OA RD EM PLOY M EN T

C O N T R ACTS/C H A N G E O F C O N T RO L
If a Management Board member’s employment contract termi-
nates due to the member’s death, the member’s spouse or life
partner is entitled to the ﬁ xed monthly salary for the month of
death and the 12 months thereafter. In the event of a change of
control, Management Board members are entitled to exercise
their extraordinary right to terminate their employment con-
tracts and receive any outstanding ﬁ xed salary for the re-
mainder of the agreed contract period. Moreover, in such a
case, all stock options and performance shares granted will
become vested immediately and can be exercised after the ex-
piration of the statutory vesting periods. A change of control
has occurred when (i) MorphoSys transfers assets or a sub-
stantial portion of its assets to unaﬃ liated third parties, (ii)
MorphoSys merges with an unaﬃ liated company or (iii) a
shareholder or third party holds 30 % or more of MorphoSys’s
voting rights.

C H A N G E I N T H E C O M P OS I T I O N O F T H E M A N AG EM EN T B OA RD
On January 5, 2017, MorphoSys announced that Dr. Malte
Peters would succeed Dr. Arndt Schottelius as the Chief Devel-
opment Oﬃ cer and member of the Management Board of
MorphoSys AG. Dr. Schottelius resigned from his position as
Chief Development Oﬃ cer eﬀ ective February 28, 2017 to pur-
sue new challenges. For the period leading up to the end of his
employment contract on April 30, 2017, Dr. Schottelius and
MorphoSys entered into an exemption agreement. According to
the agreement, Dr. Schottelius was entitled to the remuneration
agreed in his employment contract until April 30, 2017. The
remuneration included a contractually agreed payment of a pro
rata amount of his annual gross base salary of € 103,252.96 and
a bonus of € 23,490.05. Dr. Schottelius also exercised the con-
vertible bonds granted to him in 2013. In addition, he received
shares that had vested after the four-year vesting period under

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 2013 Performance Share Plan. Dr. Schottelius still has a pro
rata entitlement based on the 2014, 2015 and 2016 Performance
Share Plans, which can be exercised after a total of four years
at the earliest. Dr. Schottelius did not participate in the 2017
Performance Share Plan. Eﬀ ective March 1, 2017, Dr. Malte Peters
was appointed Chief Development Oﬃ cer of MorphoSys AG.
His employment contract runs until June 30, 2019. As an addi-
tional incentive to join MorphoSys, Dr. Peters was granted a
one-time compensation payment for the lost compensation from
his former employment. This compensation was in the form of
treasury shares held by MorphoSys valued at € 500,000.

On October 30, 2017, MorphoSys announced that Dr. Markus
Enzelberger would succeed Dr. Marlies Sproll as Chief Scien-
tiﬁ c Oﬃ cer at MorphoSys AG. Dr. Sproll had been on a tempo-
rary leave of absence for family reasons since April 15, 2017
and eventually resigned from her post as Chief Scientiﬁ c Oﬃ -
cer eﬀ ective October 31, 2017 due to ongoing family matters.
She has been working as a Special Advisor to the CEO of
MorphoSys, Simon Moroney, on a part-time basis since Novem-
ber 1, 2017. She received remuneration until October 31, 2017
in accordance with her Management Board employment con-
tract. Dr. Sproll’s long-term compensation granted to her during
her time as a member of the Management Board will be settled
in accordance with the plans’ terms. Eﬀ ective November 1,
2017, Dr. Enzelberger was appointed Chief Scientiﬁ c Oﬃ cer of
MorphoSys AG after having served as the Interim Chief Scien-
tiﬁ c Oﬃ cer since April 15, 2017. Dr. Enzelberger has held
various management positions in research and development at
MorphoSys since 2002. His Management Board employment
contract runs until June 30, 2020. Upon joining the Manage-
ment Board of MorphoSys AG, Dr. Enzelberger was granted a
one-time incentive consisting of MorphoSys treasury shares to
the value of € 400,000.

SUPERVISORY BOARD REMUNER ATION
The remuneration of Supervisory Board members is governed
by the Company’s Articles of Association and a corresponding
Annual General Meeting resolution on Supervisory Board re-
muneration. In the 2017 ﬁ nancial year, Supervisory Board
members received ﬁ xed compensation, attendance fees and ex-
pense allowances for their participation in Supervisory Board
and committee meetings. Each Supervisory Board member has
received annual ﬁ xed compensation (€ 85,400 for Chairper-
sons, € 51,240 for Deputy Chairpersons and € 34,160 for all
other members) for their membership of the Supervisory Board.
The Chairperson receives € 4,000 for each Supervisory Board
meeting chaired and the other members receive € 2,000 for
each Supervisory Board meeting attended. For committee work,
the committee Chairperson receives € 12,000 and other com-
mittee members each receive € 6,000. Committee members
also receive € 1,200 for their participation in a committee meet-
ing. Participation in a Supervisory Board or committee meeting
by telephone or video conference results in a 50 % reduction in
compensation for meeting participation. Supervisory Board
members residing outside of Europe who personally take part
in a Supervisory Board or committee meeting are entitled to a
ﬁ xed expense allowance of € 2,000 (plus any sales tax due) for
additional travel time in addition to attendance fees and reim-
bursed expenses.

Supervisory Board members are also reimbursed for travel ex-
penses and value-added taxes (VAT) on their compensation.

In the 2017 ﬁ nancial year, Supervisory Board members re-
ceived a total of € 523,015 (2016: € 529,680) excluding the reim-
bursement of travel expenses. This amount consists of ﬁ xed
compensation and attendance fees for participating in Super-
visory Board and committee meetings.

No loans were granted to Supervisory Board members by the
Company.

The table below details the Supervisory Board’s remuneration.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

T A B L E 1 6
Compensation of the Supervisory Board in 2017 and 2016

in €

Dr. Gerald Möller

Dr. Frank Morich

Dr. Marc Cluzel

Krisja Vermeylen2

Wendy Johnson

Klaus Kühn

Karin Eastham3

TOTAL

Fixed Compensation

Attendance Fees1

Total Compensation

2017

2016

2017

2016

2017

2016

95,156

57,240

52,160

28,961

46,160

19,578

91,400

57,240

52,160

46,160

52,160

36,800

23,200

26,800

16,000

38,000

22,000

14,800

43,400

26,800

34,600

33,800

21,400

24,400

131,956

134,800

80,440

78,960

44,961

84,160

68,160

34,378

84,040

86,760

79,960

67,560

76,560

345,415

345,280

177,600

184,400

523,015

529,680

1 The attendance fee contains expense allowances for the attendance at the Supervisory Board and the Committee meetings.
2 Krisja Vermeylen joined the Supervisory Board of MorphoSys AG on May 17, 2017.
3 Karin Eastham has left the Supervisory Board of MorphoSys AG on May 17, 2017.

HOL DINGS OF MANAGEMEN T BOARD AND SUPERVIS ORY

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

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

T A B L E 17
Directors’ Holdings

S H A R E S

MANAG EMENT BOARD

Dr. Simon Moroney

Jens Holstein

Dr. Malte Peters1

Dr. Markus Enzelberger2

Dr. Arndt Schottelius3

Dr. Marlies Sproll4

TOTAL

SUPERVISORY BOARD

Dr. Gerald Möller

Dr. Frank Morich

Dr. Marc Cluzel

Krisja Vermeylen5

Wendy Johnson

Klaus Kühn

Karin Eastham6

TOTAL

S T O C K O P T I O N S

MANAG EMENT BOARD

Dr. Simon Moroney

Jens Holstein

Dr. Malte Peters1

Dr. Markus Enzelberger2

Dr. Marlies Sproll4

TOTAL

01/01/2017

Additions

Sales

12/31/2017

514,214

7,000

10,397

57,512

589,123

11,000

1,000

500

2,000

15,000

12,024

38,235

9,505

4,956

68,772

42,529

34,235

2,600

483,709

11,000

9,505

7,262

202,264

79,364

511,476

350

11,000

1,000

500

350

500

13,350

01/01/2017

Additions

Forfeitures

Exercises

12/31/2017

12,511

8,197

5,266

6,148

40,319

12,511

8,197

5,266

–

34,171

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

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

MANAG EMENT BOARD

Dr. Simon Moroney

Jens Holstein

Dr. Malte Peters1

Dr. Markus Enzelberger2

Dr. Arndt Schottelius3

Dr. Marlies Sproll4

TOTAL

P E R F O R M A N C E S H A R E S

MANAG EMENT BOARD

Dr. Simon Moroney

Jens Holstein

Dr. Malte Peters1

Dr. Markus Enzelberger2

Dr. Arndt Schottelius3

Dr. Marlies Sproll4

TOTAL

01/01/2017

Additions

Forfeitures

Exercises

12/31/2017

88,386

90,537

60,537

299,997

30,000

60,537

151,074

88,386

60,537

148,923

01/01/2017

Additions

Forfeitures

Allocations

12/31/2017

37,220

25,134

112,622

4,864

3,187

2,047

2,390

15,675

12,024

8,235

36,729

30,060

20,086

3,187

5,987

59,320

have been held by Dr. Markus Enzelberger. Under the Long-Term Incentive Programs 2014 to 2016, Dr. Markus Enzelberger was granted 3,940 performance shares as a member
of the Senior Management prior to his appointment as member of the Management Board.

3 Dr. Arndt Schottelius left the Management Board of MorphoSys AG on February 28, 2017. The exercises and allocations presented in the tables “Convertible Bonds” and

“Performance Shares” were made after resignation from the Management Board. The respective convertible bonds and performance shares were granted in previous years.
The table “Shares” shows no further changes in the number of shares after resignation from the Management Board of MorphoSys AG.

4 Dr. Marlies Sproll left the Management Board of MorphoSys AG on October 31, 2017. The exercises presented in the table “Convertible Bonds” were made after resignation
from the Management Board. The respective convertible bonds were granted in a previous year. The table “Shares” shows no further changes in the number of shares after
resignation from the Management Board of MorphoSys.

5 Krisja Vermeylen joined the Supervisory Board of MorphoSys AG on May 17, 2017.
6 Karin Eastham left the Supervisory Board of MorphoSys AG on May 17, 2017. Changes in the number of shares after resignation from the Supervisory Board of MorphoSys AG

are not presented in the tables.

The members of the MorphoSys Supervisory Board do not hold
stock options, convertible bonds or performance shares.

and persons related to such members are required to disclose
any trading in MorphoSys shares.

MANAGERS T RANSAC T IONS
In accordance with the relevant legal provisions of Article 19
(1a) of the Market Abuse Regulation (MAR), the members of
MorphoSys AG’s Management Board and Supervisory Board

During the reporting year, MorphoSys received the following
notiﬁ cations under Article 19 (1a) MAR listed in the table below.

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

T A B L E 1 8
Managers’ Transactions in 2017

Party Sub-
ject to the
Notiﬁ cation
Requirement

Function

Date of
Transaction
in 2017

Type of Transaction

Aggregated
Share Price

Aggregated
Volume

Place of
Transaction

Dr. Markus
Enzelberger

Chief Scientiﬁ c
Oﬃ cer

11/21/2017

Disposal

€ 81.62

€ 212,201.49

Xetra

11/20/2017

Purchase of 4,956 shares as part
of his remuneration as member of the
Managing Board (issuer’s own shares)

not numberable

09/29/2017

Disposal

€ 71.75

€ 1,361,556.78

09/28/2017

Disposal

€ 71.86

€ 1,692,519.75

outside a
trading venue

Dr. Markus
Enzelberger

Dr. Simon
Moroney

Krisja
Vermeylen

Chief Scientiﬁ c
Oﬃ cer

Chief Executive
Oﬃ cer

Member of the
Super visory
Board

06/26/2017

Jens Holstein

Chief Financial
Oﬃ cer

05/17/2017

Dr. Markus
Enzelberger

Chief Scientiﬁ c
Oﬃ cer (Interim)

05/17/2017

Dr. Malte
Peters

Chief Develop-
ment Oﬃ cer

05/17/2017

Dr. Marlies
Sproll

Chief Scientiﬁ c
Oﬃ cer

05/17/2017

Dr. Simon
Moroney

Chief Executive
Oﬃ cer

05/17/2017

Jens Holstein

Chief Financial
Oﬃ cer

04/05/2017

Purchase; the stock portfolio is held
jointly with a person closely associated
with Ms Vermeylen

Acceptance of 8,197 stock options to sub-
scribe for up to 2 shares each within the
compensation as a Management Board
Member (Stock-Option-Program 2017)

Acceptance of 5,266 stock options to sub-
scribe for up to 2 shares each within the
compensation as a Management Board
Member (Stock-Option-Program 2017)

Acceptance of 8,197 stock options to sub-
scribe for up to 2 shares each within the
compensation as a Management Board
Member (Stock-Option-Program 2017)

Acceptance of 6,148 stock options to sub-
scribe for up to 2 shares each within the
compensation as a Management Board
Member (Stock-Option-Program 2017)

Acceptance of 12,511 stock options to
subscribe for up to 2 shares each within
the compensation as a Management Board
Member (Stock-Option-Program 2017)

Purchase of shares based on conversion
of convertible bonds as part of his remu-
neration as member of the Managing
Board (Convertible Bonds Program 2013)

€ 64.57

€ 22,599.75

Xetra

not numberable

€ 31.88

€ 956,250.00

outside a
trading venue

04/05/2017

Disposal

€ 54.42

€ 714,711.86

Xetra

04/05/2017

Disposal

€ 54.30

€ 1,145,753.65

Jens Holstein

Chief Financial
Oﬃ cer

04/03/2017

Dr. Simon
Moroney

Chief Executive
Oﬃ cer

04/03/2017

Dr. Marlies
Sproll

Chief Scientiﬁ c
Oﬃ cer

04/03/2017

Dr. Malte
Peters

Chief Develop-
ment Oﬃ cer

03/27/2017

Allocation of 8,235 shares as part his
remuneration as member of the Managing
Board (Long-Term Incentive Program 2013)
(issuer’s own shares)

Allocation of 12,024 shares as part of his
remuneration as member of the Managing
Board (Long-Term Incentive Program 2013)
(issuer’s own shares)

Allocation of 8,235 shares as part of her
remuneration as member of the Managing
Board (Long-Term Incentive Program 2013)
(issuer’s own shares)

Purchase of 9,505 shares as part of
his reumuneration as member of the
Managing Board (issuer’s own shares)

not numberable

outside a
trading venue

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

AVOIDING CONF L IC T S OF IN T ERES T
Management Board and Supervisory Board members are re-
quired to refrain from any actions that could lead to a conﬂ ict
of interest with their duties at MorphoSys AG. Such transac-
tions or the secondary employment of Management Board
members must be disclosed immediately to the Supervisory
Board and are subject to the Board’s approval. The Supervisory
Board, in turn, must inform the Annual General Meeting of any
conﬂ icts of interest and their handling. In the 2017 ﬁ nancial
year, no conﬂ icts of interest arose in the Supervisory Board.

S T OCK REPURCHASES
By resolution of the Annual General Meeting on May 23, 2014,
MorphoSys is authorized in accordance with Section 71 (1) no.
8 AktG to repurchase its own shares in an amount of up to 10 %
of the existing common stock. This authorization can be exer-
cised in whole or in part, once or several times by the Company
or a third party on the Company’s behalf for the purposes
speciﬁ ed in the authorizing resolution. It is at the Management
Board’s discretion to decide whether to carry out a repurchase
on a stock exchange, via a public oﬀ er or through a public invi-
tation to submit a bid.

In 2017, MorphoSys did not repurchase any shares based on the
authorization from the year 2014.

INF ORMAT ION T ECHNOL OGY
In the reporting year 2017, IT security and compliance contin-
ued to be key topics in the area of information technology.
External security experts checked the network and the entire
IT infrastructure in the new oﬃ ce building. This happened,
inter alia, using simulated hacking attacks to detect potential
vulnerabilities.

Any safety-relevant system notiﬁ cations or user notiﬁ cations
that occurred were analyzed by the internal CERT (Computer
Emergency Response Team). In some cases, external IT secu-
rity experts were consulted for further analysis. As in the pre-
vious year, no serious security incidents had occurred.

Due to the move to the new oﬃ ce building, the business conti-
nuity plan and the IT contingency plans have been revised.
Additional emergency measures were introduced in the form
of a Cyber Security Incident Response Plan to counteract the
ever-increasing risk of cyber attacks. The IT Security Aware-
ness Campaign (ISAC) simulated an extensive phishing attack
to sensitize employees for their co-responsibility and essential
contribution to IT security in the enterprise. To optimize the
cyber defense measures, an artiﬁ cial intelligence-based Next-
Generation Endpoint Protection has been integrated.

In addition, an initiative on artiﬁ cial intelligence and machine
learning was launched to evaluate the potential applications of
these technologies in research and development.

INF ORMAT ION ON T HE IN T ERNAL CON T ROL AND RISK

MANAGEMEN T SYS T EM WI T H REGARD T O T HE ACCOUN T ING

PROCESS UNDER SEC TION 289 (4) AND SEC TION 315 (4) HGB
In the 2017 ﬁ nancial year, MorphoSys completed a routine up-
date of the documentation for its existing internal control and
risk management system. This update serves to maintain ade-
quate internal control over ﬁ nancial reporting and to ensure
the availability of key controls so that ﬁ nancial ﬁ gures can be
reported as precisely and accurately as possible. COSO (Com-
mittee of Sponsoring Organizations of the Treadway Commis-
sion) deﬁ nes the corresponding COSO framework (“Internal
Control – Integrated Framework”). This is the framework used
by MorphoSys and is the most commonly used for the internal
control of ﬁ nancial reporting.

System constraints make it impossible to give absolute assur-
ance that internal controls will always prevent or completely
detect all misrepresentations made in the context of ﬁ nancial
reporting. Internal controls can only provide reasonable assur-
ance that ﬁ nancial reporting is reliable and verify that the
ﬁ nancial statements were prepared in accordance with the
IFRS standards adopted by the European Union for external
purposes.

The consolidated ﬁ nancial statements are subjected to numer-
ous preparation, review and control processes so that they can
be reported promptly to the market and to shareholders. To
accomplish this, the Company’s executives have a coordinated
plan for which all internal and external resources are made
available. MorphoSys also uses a strict four-eyes principle to
ensure the accuracy of the key ﬁ nancial ratios reported and the
underlying execution of all accounting processes. Numerous
rules and guidelines are also followed to ensure the strict
separation of the planning, posting and execution of ﬁ nancial
transactions. This functional separation of processes is en-
sured by all of the Company’s operating IT systems through an
appropriate assignment of rights. External service providers
routinely review the implementation of and compliance with
these guidelines as well as the eﬃ ciency of the accounting pro-
cesses. The reporting year’s most recent review showed no
cause for action.

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

Compliance
Management System
(CMS)

Credo
Code of Conduct

reports,
if required, to

C O M P L I A N C E
O F F I C E R

reports to

C H A I R P E R S O N O F T H E
A U D I T C O M M I T T E E

C H I E F E X E C U T I V E
O F F I C E R

manages the interfaces between the
different compliance streams

C O M P L I A N C E
R I S K M A N A G E M E N T

S U P E R V I S I O N
+
I M P R O V E M E N T S

C O M P L I A N C E
C O M M I T T E E

CMS

T R A I N I N G S

C O M P L I A N C E
D O C U M E N T S

W H I S T L E B L O W E R
S Y S T E M

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

Predicting future events is not the job of MorphoSys’s internal
control and risk management system. The Company’s risk man-
agement system does, however, ensure that business risks are
detected and assessed early. The risks identiﬁ ed are eliminated
or at least brought to an acceptable level using appropriate cor-
rective measures. Special attention is given to risks that could
jeopardize the Company.

The Management Board ensures that risks are always dealt
with responsibly and keeps the Supervisory Board informed of
any risks and their development. Detailed information on the
risks and opportunities encountered by MorphoSys can be
found in the “Risk and Opportunity Report”.

ACCOUN T ING AND EX T ERNAL AUDI T
MorphoSys AG prepares its ﬁ nancial statements in accordance
with the provisions of the German Commercial Code (HGB) and
the Stock Corporation Act (AktG). The consolidated ﬁ nancial
statements are prepared in accordance with the International
Financial Reporting Standards (IFRS), as applicable in the Euro-
pean Union.

For the election of the Company auditor, the Audit Committee of
the Supervisory Board submits a nomination proposal to the
Supervisory Board. At the 2017 Annual General Meeting, Price-
waterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
was appointed auditor for the 2017 ﬁ nancial year. As proof of
its independence, the auditor submitted an Independence
Declaration to the Supervisory Board. The lead auditor of these
consolidated ﬁ nancial statements was Mr. Dietmar Eglauer,
who has audited the consolidated ﬁ nancial statements since
2014. PricewaterhouseCoopers GmbH has been the auditor for
MorphoSys AG since the 2011 ﬁ nancial year. Information on
other consulting, audit and valuation services provided by
PricewaterhouseCoopers GmbH to MorphoSys AG during the
2017 ﬁ nancial year can be found in the Notes under Item 6.1.

COMPL IANCE MANAGEMEN T SY S T EM
The basic mechanisms of the compliance management system
(CMS) at MorphoSys are presented in the section ”Relevant
Information on Corporate Governance Practices”. In addition to
this information, the responsibilities within the compliance or-
ganization are shown in Figure 18.

The identiﬁ cation and assessment of compliance risks are an
important part of the CMS. The main compliance-relevant risk
areas for the Company are evaluated using a systematic ap-
proach and take into account the Company’s strategic orienta-
tion. In the 2017 ﬁ nancial year, a compliance risk analysis
was carried out that was focused on corruption prevention.
Risk-minimizing measures were initiated for the areas identi-
ﬁ ed that required action.
›› S E E F I G U R E 18 – Compliance-Management-System (CMS) (

page 96
Compliance-Management-System (CMS) (page 96)
page 96)

INTERNAL AUDIT DEPAR TMENT
As an element of corporate governance, the Internal Audit De-
partment plays a key role in the Company’s compliance man-
agement system. The department’s main duty is to provide the
MorphoSys Group with a systematic and uniform approach for
evaluating and improving the eﬀ ectiveness of risk manage-
ment and supporting the management and monitoring activi-
ties when meeting set targets. The accounting and consulting
ﬁ rm KPMG was reappointed in 2017 as a co-sourcing partner
for the internal auditing process.

Internal auditing is based on a risk-oriented internal audit plan
that is based on the results of the most recent risk surveys and
the results of prior audits. The Management Board’s and Super-
visory Board Audit Committee’s audit requirements and recom-
mendations are included in the audit plan.

The Internal Audit Department reports regularly to the Man-
agement Board. The head of Internal Audit and the Chief Exec-
utive Oﬃ cer both report to the Supervisory Board’s Audit Com-
mittee twice annually or on an ad hoc basis when necessary.

Five audits were conducted successfully in the course of 2017.
Some areas requiring action were identiﬁ ed and corrections
were initiated or performed. Appropriate corrective action was
initiated during the reporting year for any complaints. The
Internal Audit Department is planning six audits in 2018.

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 Under Section 289a (1),
Section 315a (1) HGB and Explanatory
Report of the Management Board
Under Section 176 (1) Sentence 1 AktG

COMP OSI T ION OF COMMON S T OCK
As of December 31, 2017, the Company’s statutory common
stock amounted to € 29,159,770.00 and was divided into
29,159,770 no-par-value bearer shares. Excluding the 319,678
treasury shares held by the Company, the statutory common
stock concerns bearer shares with voting rights granting each
share one vote at the Annual General Meeting.

At its meeting on December 13, 2017, the Supervisory Board of
MorphoSys AG resolved to amend the amount of common stock
after the issuance of new shares resulting from the exercise of
convertible bonds in 2017. The amendment of the Company’s
common stock took eﬀ ect upon its entry in the commercial
register on January 4, 2018 and amounts to € 29,420,785.00,
divided into 29,420,785 no-par-value bearer shares.

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

T HE T RANSF ER OF SHARES
The Management Board is not aware of any restrictions that
may aﬀ ect voting rights, the transfer of shares or those that
may emerge from agreements between shareholders.

Voting right restrictions may also arise from the provisions of
the German Stock Corporation Act (AktG), such as those under
Section 136 AktG, or the provisions for treasury stock under
Section 71b AktG.

SHAREHOL DINGS IN COMMON S T OCK EXCEEDING 10 %

OF VO T ING RIGH T S
We are not aware of nor have we been notiﬁ ed of any direct or
indirect interests in the Company’s common stock that exceed
10 % of the voting rights.

APP OIN T MEN T AND DISMISSAL OF MANAGEMEN T

BOARD MEMBERS AND AMENDMEN T S T O T HE AR T ICL ES

OF ASS OC IAT ION
The number of Management Board members, their appointment
and dismissal and the nomination of the Chief Executive Oﬃ cer
are determined by the Supervisory Board in accordance with
Section 6 of the Articles of Association and Section 84 AktG.
The Company’s Management Board currently consists of the
Chief Executive Oﬃ cer and three other members. Management
Board members may be appointed for a maximum term of ﬁ ve
years. Reappointments or extensions in the term of oﬃ ce are
allowed for a maximum term of ﬁ ve years in each case. The
Supervisory Board may revoke the appointment of a Manage-
ment Board member or the nomination of a Chief Executive
Oﬃ cer for good cause within the meaning of Section 84 (3)
AktG. If a required member of the Management Board is ab-
sent, one will be appointed by the court in cases of urgency
under Section 85 AktG.

As a rule, the Articles of Association can only be amended by a
resolution of the Annual General Meeting in accordance with
Section 179 (1) sentence 1 AktG. Under Section 179 (2) sentence
2 AktG in conjunction with Section 20 of the Articles of Associ-
ation, the MorphoSys AG Annual General Meeting resolves
amendments to the Articles of Association generally through a
simple majority of the votes cast and a simple majority of the
common stock represented. If the law stipulates a higher man-
datory majority of votes or capital, this shall be applied. Amend-
ments to the Articles of Association that only aﬀ ect their word-
ing can be resolved by the Supervisory Board in accordance
with Section 179 (1) sentence 2 AktG in conjunction with Sec-
tion 12 (3) of the Articles of Association.

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

OF CON T ROL
Shares with special rights conferring powers of control do not
exist.

P OWER OF T HE MANAGEMEN T BOARD T O ISSUE SHARES
The Management Board’s power to issue shares is granted
under Section 5 (5) through (6e) of the Company’s Articles of
Association and the statutory provisions:

CON T ROL OVER VO T ING RIGH T S WI T H REGARD T O

EMPL O YEE OWNERSHIP OF C API TAL
Employees who hold shares in the Company exercise their vot-
ing rights directly in accordance with the statutory provisions
and the Articles of Association as do other shareholders.

1. Authorized Capital
a. According to Section 5 (5) of the Articles of Association,
with the Supervisory Board’s consent, the Management
Board is authorized to increase the Company’s common
stock on one or more occasions by up to € 11,663,908.00
for cash contributions and/or contributions in kind by
issuing up to 11,663,908 new, no-par-value bearer shares
until and including the date of April 30, 2022 (Authorized
Capital 2017-II).

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

Shareholders are principally entitled to subscription
rights in the case of a capital increase. One or more credit
institutions may also subscribe to the shares with the ob-
ligation to oﬀ er the shares to shareholders for subscrip-
tion. With the Supervisory Board’s consent, the Manage-
ment Board is, however, authorized to exclude shareholder
subscription rights:

aa) in the case of a capital increase for cash contribution,

to the extent necessary to avoid fractional shares; or

bb) in the case of a capital increase for contribution in

kind; or

cc) in the case of a capital increase for cash contribution
when the new shares are placed on a domestic and/or
foreign stock exchange in the context of a public oﬀ er-
ing.

The total shares to be issued via a capital increase against
contribution in cash and/or in kind, excluding preemptive
rights and based on the authorizations mentioned above,
shall not exceed 20 % of the common stock. The calculation
used is based on either the eﬀ ective date of the authoriza-
tions or the exercise of the authorizations, whichever
amount is lower. The 20 % limit mentioned above shall take
into account (i) treasury shares sold excluding preemptive
rights after the eﬀ ective date of these authorizations
(unless they service the entitlements of members of the
Management Board and/or employees under employee
participation programs), (ii) shares that are issued from
other authorized capital existing on the eﬀ ective date of
these authorizations and excluding preemptive rights
during the eﬀ ective period of these authorizations or re-
solved by the same Annual General Meeting that resolved
these authorizations, and (iii) shares to be issued during
the eﬀ ective period of these authorizations to service con-
vertible bonds and/or bonds with warrants whose basis
for authorization exists on the eﬀ ective date of these au-
thorizations provided that the convertible bonds and/or
bonds with warrants have been issued with the exclusion
of the preemptive rights of shareholders (unless they ser-
vice the entitlements of members of the Management
Board and/or employees under employee participation
programs).

With the Supervisory Board’s consent, the Management
Board is authorized to determine the further details of the
capital increase and its implementation.

b) Pursuant to Section 5 (6) of the Articles of Association,
with the Supervisory Board’s consent, the Management
Board is authorized to increase the common stock of the
Company against contribution in cash once or several
times by a total of up to € 2,915,977.00 until and including
April 30, 2022 by issuing up to 2,915,977 new no-par-
value bearer shares (Authorized Capital 2017-I).

aa) to the extent necessary to avoid fractional shares; or
bb) if the issue price of the new shares is not signiﬁ cantly
below the market price of shares of the same class
already listed and the total number of shares issued
against contribution in cash, excluding subscription
rights, during the term of this authorization does not
exceed 10 % of the common stock on the date this
authorization takes eﬀ ect or at the time it is exercised,
in accordance with or in the respective application of
Section 186 (3) sentence 4 AktG.

The total number of shares to be issued via capital in-
creases against contribution in cash, excluding subscrip-
tion rights and based on the authorizations mentioned
above, shall not exceed 20 % of the common stock when
calculated based on the authorizations’ eﬀ ective date or
exercise, whichever amount is lower. This 20 % limit shall
take into account (i) treasury shares sold with the exclu-
sion of subscription rights after the eﬀ ective date of these
authorizations (unless they service the entitlements of
members of the Management Board and/or employees
under employee participation programs); (ii) shares to be
issued with the exclusion of subscription rights during
the eﬀ ective period of these authorizations from other
authorized capital existing on the eﬀ ective date of these
authorizations or to be resolved by the same Annual
General Meeting resolving these authorizations; and (iii)
shares to be issued during the eﬀ ective period of these

100 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

authorizations to service bonds with conversion or warrant
rights, whose authorization basis exists on the eﬀ ective
date of these authorizations, to the extent the bonds with
conversion or warrant rights were issued with the exclu-
sion of shareholders’ subscription rights (unless they
service the entitlements of members of the Management
Board and/or employees under employee participation
programs).

With the Supervisory Board’s consent, the Management
Board is authorized to determine the further details of the
capital increase and its implementation.

2. Conditional Capital
a. According to Section 5 (6b) of the Articles of Association,
the Company’s common stock is conditionally increased
by up to € 5,307,536.00, divided into a maximum of
5,307,536 no-par-value bearer shares (Conditional Capital
2016-I). The conditional capital increase serves solely as a
means to grant new shares to the holders of conversion or
warrant rights, which will be issued by the company or
companies in which the Company has a direct or indirect
majority interest according to the authorizing resolution
of the Annual General Meeting on June 2, 2016, under
Agenda Item 7 letter a). The shares will be issued at the
respective conversion or exercise price to be determined
in accordance with the resolution above. The conditional
capital increase will only be carried out to the extent that
the holders of conversion or warrant rights exercise these
rights or fulﬁ ll conversion obligations under such bonds.
The shares will be entitled to dividends as of the begin-
ning of the previous ﬁ nancial year, provided they were
issued before the start of the Company’s Annual General
Meeting, or as of the beginning of the ﬁ nancial year in
which they were issued.

b. According to Section 5 (6e) of the Articles of Association,
the Company’s common stock is conditionally increased
by up to € 450,000.00 through the issue of up to 450,000
new no-par- value bearer shares of the Company (Condi-
tional Capital 2008-III). The conditional capital increase
will only be executed to the extent that holders of the con-
vertible bonds exercise their conversion rights for conver-
sion into ordinary shares of the Company. The new shares
participate in the Company’s proﬁ ts from the beginning of
the ﬁ nancial year, for which there has been no resolution
on the appropriation of accumulated income at the time of
issuance. With the Supervisory Board’s consent, the Man-
agement Board is authorized to determine the further de-
tails of the capital increase and its implementation.
At its meeting on December 13, 2017, the Supervisory
Board of MorphoSys AG resolved to amend the amount of
Conditional Capital 2008-III after the issuance of new
shares resulting from the exercise of convertible bonds

in 2017. The amendment of the Company’s Conditional
Capital 2008-III took eﬀ ect upon its entry in the commer-
cial register on January 4, 2018 and amounts to € 188,985,
divided into 188,985 no-par-value bearer shares.

c. According to Section 5 (6g) of the Articles of Association,
the Company’s common stock is conditionally increased
by up to € 995,162.00 through the issue of up to 995,162
new no-par- value bearer shares of the Company (Condi-
tional Capital 2016-III). The conditional capital serves to
meet the obligations of subscription rights that have been
issued and exercised based on the authorization resolved
by the Annual General Meeting of June 2, 2016 under
Agenda Item 9 letter a). The conditional capital increase
will only be executed to the extent that holders of sub-
scription rights exercise their right to subscribe to shares
of the Company. The shares will be issued at the exercise
price set in each case as the issue amount in accordance
with Agenda Item 9 letter a) subparagraph (8) of the
Annual General Meeting’s resolution dated June 2, 2016;
Section 9 (1) AktG remains unaﬀ ected. The new shares
are entitled to dividends for the ﬁ rst time for the ﬁ nancial
year for which there has been no resolution by the Annual
General Meeting on the appropriation of accumulated in-
come. The Management Board, and the Company’s Super-
visory Board where members of the Management Board
are concerned, is authorized to determine the additional
details of the conditional capital increase and its execution.

P OWER OF MANAGEMEN T BOARD T O REPURCHASE SHARES
The Management Board’s power to repurchase the Company’s
own shares is granted in Section 71 AktG and by the authoriza-
tion of the Annual General Meeting of May 23, 2014:

Until and including the date of April 30, 2019, the Company is
authorized to repurchase its own shares in an amount of up to
10 % of the common stock existing at the time of the resolution
(or possibly a lower amount of common stock at the time of
exercising this authorization) for any purpose permitted under
the statutory limits. The repurchase takes place at the Manage-
ment Board’s discretion on either the stock exchange, through
a public oﬀ er or public invitation to submit a bid. The authoriza-
tion may not be used for the purpose of trading in the Compa-
ny’s own shares. The intended use of treasury stock acquired
under this authorization may be found under Agenda Item 9 of
the Annual General Meeting of May 23, 2014. These shares may
be used as follows:
1. The shares may be redeemed without the redemption or its
execution requiring a further resolution of the Annual Gen-
eral Meeting.

2. The shares may be sold other than on the stock exchange or
shareholder oﬀ er if the shares are sold for cash at a price that
is not signiﬁ cantly below the market price of the Company’s
shares of the same class at the time of the sale.

Statement on Corporate Governance and Corporate Governance Report

G r o u p M a n a g e m e n t R e p o r t

101

Following a change of control, some Senior Management Group
members may also terminate their employment contract and
demand a severance payment equal to one annual gross ﬁ xed
salary. Moreover, in such a case, all stock options, convertible
bonds and performance shares granted will become vested
immediately and can be exercised after the expiration of the
statutory vesting or blackout periods.

The following cases constitute a change of control: (i) MorphoSys
transfers all or a material portion of the Company’s assets to an
unaﬃ liated entity, (ii) MorphoSys merges with an unaﬃ liated
entity or (iii) a shareholder or third party directly or indirectly
holds 30 % or more of MorphoSys’s voting rights.

3. The shares may be sold for contribution in kind, particularly
in conjunction with company mergers, acquisitions of com-
panies, parts of companies or interests in companies.

4. The shares may be used to fulﬁ ll subscription or conversion
rights resulting from the exercise of options and/or conver-
sion rights or conversion obligations for Company shares.
5. The shares may be oﬀ ered or transferred to employees of the
Company and those of aﬃ liated companies, members of the
Company’s management and those of aﬃ liated companies
and/or used to meet commitments or obligations to purchase
Company shares that were or will be granted to employees of
the Company or those of aﬃ liated companies, members of
the Company’s management or managers of aﬃ liated compa-
nies. The shares may also be used to fulﬁ ll obligations or
rights to purchase Company shares that will be agreed with
the Company’s employees, members of the senior manage-
ment and aﬃ liates in the context of employee participation
programs.

If shares are used for the purposes mentioned above, share-
holder subscription rights are excluded, with the exception of
share redemptions.

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

AF T ER A TAKEOVER BID
In 2012, MorphoSys and Novartis Pharma AG extended their
original cooperation agreement, which ended at the end of
November 2017. During the term of this agreement, in speciﬁ c
cases of a change of control, Novartis Pharma AG was entitled
but not obliged to take various measures that include the par-
tial or complete termination of the collaboration agreement.
Under Section 29 and 30 of the German Securities Acquisition
and Takeover Act (WpÜG), a change of control applies when
30 % or more of the Company’s voting rights are acquired.

COMPENSAT ION AGREEMEN T S CONCLUDED BY T HE

COMPANY WI T H MANAGEMEN T BOARD MEMBERS AND

EMPL O YEES IN T HE EVEN T OF A TAKEOVER BID
Following a change of control, Management Board members
may terminate their employment contract and demand the
ﬁ xed salary still outstanding until the end of the contract
period. Moreover, in such a case, all stock options, convertible
bonds and performance shares granted will become vested im-
mediately and can be exercised after the expiration of the stat-
utory vesting or blackout periods.

102

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

Contents

F i n a n c i a l S t a t e m e n t s 103

Financial
Statements

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

104
105
106
108
110

N o t e s

112
112
127
127
127
129
133
139
141

Consolidated Statement of Income (IFRS)

Consolidated Statement of Comprehensive Income (IFRS)

Consolidated Balance Sheet (IFRS)

Consolidated Statement of Changes in Stockholders’ Equity (IFRS)

Consolidated Statement of Cash Flows (IFRS)

General Information

Summary of Signiﬁ cant Accounting Policies

Segment Reporting
Segment Reporting

Notes to the Income Statement

Notes to the Assets of the Balance Sheet

Notes to Equity and Liabilities of the Balance Sheet

Remuneration System for the Management Board and Employees
Remuneration System for the Management Board and Employees

of the Group

152

Additional Notes

104 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 €

Revenues

Operating Expenses

Research and Development

General and Administrative

Total Operating Expenses

Other Income

Other Expenses

Earnings before Interest and Taxes (EBIT)

Finance Income

Finance Expenses

Income Tax Expenses

Consolidated Net Loss

Earnings per Share, basic and diluted

Shares Used in Computing Earnings per Share, basic and diluted

The notes are an integral part of these consolidated ﬁ nancial statements.

Note

2017

2016

2.7.1, 4.1

66,790,840

49,743,515

2.7.2, 4.2.1

(116,808,575)

(95,723,069)

2.7.2, 4.2.2

(17,038,720)

(14,116,085)

(133,847,295)

(109,839,154)

2.7.3, 4.3

2.7.4, 4.3

1,119,598

(1,670,792)

708,571

(553,925)

(67,607,649)

(59,940,993)

2.7.5, 4.3

2.7.6, 4.3

2.7.7, 4.4

2.7.8, 4.5

712,397

(1,894,852)

(1,036,365)

1,385,164

(1,308,322)

(518,625)

(69,826,469)

(60,382,776)

(2.41)

(2.28)

28,947,566

26,443,415

Consolidated Statement of Comprehensive Income (IFRS)

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

105

Consolidated Statement of
Comprehensive Income (IFRS)*

in €

Consolidated Net Loss

Change in Unrealized Gains and Losses on Available-for-sale Financial Assets and Bonds
(Thereof € 86,685 and € 251,455 for 2017 and 2016, respectively, Reclassiﬁ cations of realized
Gains and Losses to Proﬁ t and Loss)

Change of Tax Eﬀ ects presented in Other Comprehensive Income on Available-for-sale Financial Assets and Bonds

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

Change in Unrealized Gains and Losses on Cash Flow Hedges
(Thereof € 256,085 and € 0 for 2017 and 2016, respectively, Reclassiﬁ cations of realized Losses to Proﬁ t and Loss)

Change of Tax Eﬀ ects presented in Other Comprehensive Income on Cash Flow Hedges

Change in Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax Eﬀ ects

Other Comprehensive Income

Total Comprehensive Income

2017

2016

(69,826,469)

(60,382,776)

54,170

63,659

117,829

(490,164)

130,751

(359,413)

(241,584)

115,396

(136,550)

(21,154)

490,164

(130,751)

359,413

338,259

(70,068,053)

(60,044,517)

* In ﬁ nancial years 2017 and 2016, the statement of comprehensive income only comprised components which will be reclassiﬁ ed in terms of IAS 1.82A(b)

to proﬁ t and loss in subsequent periods when speciﬁ c conditions are met.

The notes are an integral part of these consolidated ﬁ nancial statements.

106 F i n a n c i a l S t a t e m e n t s

Consolidated Balance Sheet (IFRS)

in €

AS SE TS

Current Assets

Cash and Cash Equivalents

Available-for-sale Financial Assets

Bonds, Available-for-sale

Financial Assets classiﬁ ed as Loans and Receivables

Accounts Receivable

Income 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-process R&D Programs

Software, Net

Goodwill

Financial Assets classiﬁ ed as Loans and Receivables, Net of Current Portion

Prepaid Expenses and Other Assets, Net of Current Portion

Total Non-current Assets

TOTAL AS SE TS

The notes are an integral part of these consolidated ﬁ nancial statements.

Note

12/31/2017

12/31/2016

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

2.8.1, 5.2

2.8.7, 5.8

76,589,129

86,538,195

149,059,254

11,234,308

654,511

84,727

300,753

73,928,661

63,361,727

6,532,060

136,108,749

12,596,655

519,915

656,887

310,366

16,219,761

14,041,469

340,680,638

308,056,489

3,526,351

4,669,128

2,999,074

52,158,527

655,399

7,364,802

3,344,292

74,717,573

4,189,108

5,323,341

3,146,937

50,818,700

1,285,474

7,364,802

79,521,181

3,894,085

155,543,628

415,398,211

463,600,117

Consolidated Balance Sheet (IFRS)

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

107

in €

Note

12/31/2017

12/31/2016

LIABILITIES AND STO CK HOLDERS ’ EQUIT Y

Current Liabilities

Accounts Payable and Accrued Expenses

Tax Provisions

Provisions

Current Portion of Deferred Revenue

Total Current Liabilities

Non-current Liabilities

Provisions, Net of Current Portion

Deferred Revenue, Net of Current Portion

Convertible Bonds due to Related Parties

Deferred Tax Liability

Other Liabilities, Net of Current Portion

Total Non-current Liabilities

Total Liabilities

Stockholders’ Equity

Common Stock

Ordinary Shares Issued (29,420,785 and 29,159,770 for 2017 and 2016, respectively)

Ordinary Shares Outstanding (29,101,107 and 28,763,760 for 2017 and 2016,
respectively)

Treasury Stock (319,678 and 396,010 shares for 2017 and 2016, respectively), at Cost

Additional Paid-in Capital

Revaluation Reserve

Accumulated Deﬁ cit

Total Stockholders’ Equity

TOTAL LIABILITIES AND STO CK HOLDERS ’ EQUIT Y

The notes are an integral part of these consolidated ﬁ nancial statements.

2.9.1, 6.1

2.9.2, 6.2

2.9.1, 6.2

2.9.3, 6.3

2.9.1, 6.2

2.9.4, 6.3

2.9.5

2.9.6, 4.4

2.9.7, 6.4

44,811,718

32,222,616

314,944

1,185,741

1,388,638

1,652,006

3,195,252

1,232,072

47,701,041

38,301,946

23,166

306,385

87,785

7,811,258

797,537

9,026,131

56,727,172

23,166

1,672,872

218,293

7,421,835

501,840

9,838,006

48,139,952

2.9.8, 6.5.1

29,420,785

29,159,770

2.9.8, 6.5.4

2.9.8, 6.5.5

2.9.8, 6.5.6

2.9.8, 6.5.7

(11,826,981)

438,557,856

(105,483)

(97,375,138)

358,671,039

(14,648,212)

428,361,175

136,101

(27,548,669)

415,460,165

415,398,211

463,600,117

108 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 JANUARY 1, 2016

Capital Increase, Net of Issuance Cost of € 2,778,652

Compensation Related to the Grant of Convertible Bonds and Performance Shares

Repurchase of Treasury Stock, Net of Bank Fees

Transfer of Treasury Stock for Long-Term Incentive Program

Reserves:

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

Change in Unrealized Gains on Cash Flow Hedges, Net of Tax Eﬀ ects

Consolidated Net Loss

Total Comprehensive Income

BAL ANCE AS OF DECEMBER 31, 2016

BAL ANCE AS OF JANUARY 1, 2017

Compensation Related to the Grant of Stock Options, Convertible Bonds
and Performance Shares

Exercise of Convertible Bonds Issued to Related Parties

Transfer of Treasury Stock for Long-Term Incentive Program

Transfer of Treasury Stock to Members of the Management Board

Reserves:

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

Change in Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax Eﬀ ects

Consolidated Net Loss

Total Comprehensive Income

BAL ANCE AS OF DECEMBER 31, 2017

The notes are an integral part of these consolidated ﬁ nancial statements.

Common Stock

Note

€

26,537,682

2,622,088

26,537,682

2,622,088

6.5.4

7.1, 7.2, 7.3

7.2, 7.4

7.3.1, 7.4

6.5.1, 7.4

6.5.6

6.5.7

29,159,770

261,015

29,420,785

Total Stock-

holders’ Equity

362,736,007

112,593,220

2,357,418

(2,181,963)

(21,154)

359,413

(60,382,776)

(60,044,517)

415,460,165

4,974,599

8,304,328

€

117,829

(359,413)

(69,826,469)

(70,068,053)

358,671,039

Consolidated Statement of Changes in Stockholders’ Equity (IFRS)

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

109

Treasury Stock

Additional
Paid-in Capital

Revaluation
Reserve

Accumulated
Income/(Deﬁ cit)

Total Stock-
holders’ Equity

€

434,670

(15,827,946)

319,394,322

(202,158)

32,834,107

362,736,007

52,295

(90,955)

(2,181,963)

3,361,697

109,971,132

2,357,418

(3,361,697)

396,010

(14,648,212)

428,361,175

(61,871)

(14,461)

2,286,752

534,479

4,974,599

8,043,313

(2,286,752)

(534,479)

319,678

(11,826,981)

438,557,856

(21,154)

359,413

338,259

136,101

117,829

(359,413)

(241,584)

(105,483)

(60,382,776)

(27,548,669)

(69,826,469)

112,593,220

2,357,418

(2,181,963)

(21,154)

359,413

(60,382,776)

(60,044,517)

415,460,165

4,974,599

8,304,328

117,829

(359,413)

(69,826,469)

(70,068,053)

(97,375,138)

358,671,039

110 F i n a n c i a l S t a t e m e n t s

Consolidated Statement of Cash Flows (IFRS)

Consolidated Statement of
Cash Flows (IFRS)

in €

OPER ATING AC TIVITIES:

Consolidated Net Loss

Adjustments to Reconcile Net Loss to Net Cash
Provided by/(Used in) Operating Activities:

Impairment of Assets

Depreciation and Amortization of Tangible and Intangible Assets

Net (Gain)/Loss on Sales of Available-for-sale Financial Assets

Proceeds from Derivative Financial Instruments

Net (Gain)/Loss on Derivative Financial Instruments

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

Recognition of Deferred Revenue

Stock-based Compensation

Income Tax Expenses

Changes in Operating Assets and Liabilities:

Accounts Receivable

Prepaid Expenses and Other Assets, Tax Receivables and Other Receivables

Accounts Payable and Accrued Expenses, Tax Provisions and Provisions

Other Liabilities

Deferred Revenue

Income Taxes Paid

Note

2017

2016

(69,826,469)

(60,382,776)

9,863,582

4,028,948

84,841

(589,134)

919,042

11,314

10,141,187

3,763,813

915,201

725,157

(29,879)

(4,037)

(19,595,746)

(19,042,772)

4,974,599

1,036,365

1,362,347

1,807,670

7,819,386

3,133,558

18,385,824

(1,861,982)

2,357,418

518,625

(1,154,597)

(13,912,263)

13,010,160

(421,492)

17,440,930

(540,383)

5.6, 5.7

5.2

5.4

6.3

4.2.3, 7

4.4

5.3

5.4, 5.5

6.1, 6.2

6.1

6.3

Net Cash Provided by/(Used in) Operating Activities

(38,445,855)

(46,615,708)

The notes are an integral part of these consolidated ﬁ nancial statements.

Consolidated Statement of Cash Flows (IFRS)

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

111

in €

Note

2017

2016

INVESTING AC TIVITIES:

Purchase of Available-for-sale Financial Assets

Proceeds from Sales of Available-for-sale Financial Assets

Proceeds from Sales of Bonds, Available-for-sale

Purchase of Financial Assets Classiﬁ ed as Loans and Receivables

Proceeds from Sales of Financial Assets Classiﬁ ed as Loans and Receivables

Purchase of Property, Plant and Equipment

Proceeds from Disposals of Property, Plant and Equipment

Purchase of Intangible Assets

Interest Received

Net Cash Provided by/(Used in) Investing Activities

FINANCING AC TIVITIES:

Repurchase of Treasury Stock, Net of Bank Fees

Proceeds of Share Issuance

Cost of Share Issuance

Proceeds in Connection with Convertible Bonds Granted to Related Parties

Outﬂ ows in Connection with Convertible Bonds Granted to Related Parties

Interest Paid

Net Cash Provided by/(Used in) Financing Activities

Increase/(Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at the Beginning of the Period

Cash and Cash Equivalents at the End of the Period

The notes are an integral part of these consolidated ﬁ nancial statements.

5.2

5.6

5.7

6.5.4

6.5

(56,406,580)

(166,923,795)

33,231,500

6,500,000

167,873,152

25,770,000

(108,000,000)

(256,499,997)

170,498,593

(1,317,058)

(11,831,789)

257,752

149,894,769

(2,502,286)

5,000

(411,204)

2,008,325

32,932,502

(80,786,036)

(15,525)

8,189,345

8,173,820

2,660,467

73,928,661

76,589,129

(2,181,963)

115,371,872

(2,778,652)

(6,707)

(1,819)

110,402,731

(16,999,013)

90,927,673

73,928,661

112 F i n a n c i a l S t a t e m e n t s

Notes

1 General Information

BUSINE SS AC T IVI T IE S AND T HE COMP ANY
MorphoSys AG (“the Company” or “MorphoSys”) develops and applies
technologies for generating therapeutic antibodies. The Company has
a broad proprietary portfolio of compounds and a broad pipeline of
compounds developed with partners from the pharmaceutical and
biotechnology industry. The Group was founded as a German limited
liability company in July 1992. In June 1998, MorphoSys became a
German stock corporation. In March 1999, the Company completed its
initial public oﬀ ering on Germany’s “Neuer Markt”: the previous seg-
ment of the Deutsche Börse designated for high-growth companies. On
January 15, 2003, MorphoSys AG was admitted to the Prime Standard
segment of the Frankfurt Stock Exchange.

2 Summary of Signiﬁ cant 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 ﬁ nancial statements were prepared in accordance
with the International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB), (“IFRS”). The state-
ments take into account the recommendations of the International
Finan cial Reporting Standards Interpretations Committee (IFRS IC), as
applicable in the European Union (EU) and also give consideration to
the supplementary German commercial law provisions, applicable in
accordance with Sec. 315a Para. 1 of the German Commercial Code
(HGB).

These consolidated ﬁ nancial statements as of and for the ﬁ nancial
years ended December 31, 2017 and 2016, comprise MorphoSys AG
and its subsidiaries (collectively referred to as the “MorphoSys Group”
or the “Group”).

In preparing the consolidated ﬁ nancial statements in accordance with
IFRS, the Management Board is required to make certain estimates
and assumptions, which have an eﬀ ect on the amounts recognized in
the consolidated ﬁ nancial statements and the accompanying notes.
The actual results may diﬀ er 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 ﬁ nancial statements were prepared in Euro – the
functional currency of all entities in the MorphoSys Group. Statements
are prepared on the basis of historical cost, except for derivative ﬁ nan-
cial instruments and available-for-sale ﬁ nancial assets, which are rec-
ognized at their respective fair value. All ﬁ gures in this report are
rounded to the nearest euro, thousand euros or million euros.

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

2 .1.2 CHANGES IN AC C OUNTING P OLICIES AND DISCLOSURES
The accounting principles applied generally correspond to the policies
used in the prior year.

The following new and revised standards and interpretations were
applied for the ﬁ rst time in the ﬁ nancial year.

Notes

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

113

Standard/Interpretation

Mandatory
application for
ﬁ nancial years
starting on

Adopted by the
European Union

Impact on
MorphoSys

IAS 7 (A)
IAS 12 (A)

Disclosure Initiative
Recognition of Deferred Tax Assets for Unrealised Losses

01/01/2017
01/01/2017

Annual Improvements to IFRS Standards 2014 – 2016 Cycle

01/01/2017

yes
yes

yes

none
yes

none

(A) Amendments

The impact on the consolidated ﬁ nancial statements of the Amend-
ments to IAS 12 is not deemed to be material.

The following new and revised standards and interpretations, which
were not yet mandatory for the ﬁ nancial year or were not yet adopted
by the European Union, were not applied. Standards with the remark
“yes” are likely to have an impact on the consolidated ﬁ nancial state-
ments, and their impact is currently being assessed by the Group. Only
material impacts will be described in more detail. The impact on the
consolidated ﬁ nancial statements of the Amendments to IFRS 2 and
IFRIC 22 is not expected to be material and is therefore not individu-
ally described. Standards with the remark “none” are not likely to have
a material impact on the consolidated ﬁ nancial statements.

Standard/Interpretation

IFRS 9
IFRS 15 and IFRS 15 (A)
IFRS 16
IFRS 17

Financial Instruments
Revenue from Contracts with Customers
Leases
Insurance Contracts

Classiﬁ cation and Measurement of Share-based
Payment Transactions

Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
Prepayment Features with Negative Compensation
Revenue from Contracts with Customers
Plan Amendment, Curtailment or Settlement
Long-term Interests in Associates and Joint Ventures
Transfers of Investment Property
Foreign Currency Transactions and Advance Consideration
Uncertainty over Income Tax Treatments

Annual Improvements to IFRS Standards
2014 – 2016 Cycle

Annual Improvements to IFRS Standards
2015 – 2017 Cycle

IFRS 2 (A)

IFRS 4 (A)
IFRS 9 (A)
IFRS 15 (C)
IAS 19 (A)
IAS 28 (A)
IAS 40 (A)
IFRIC (I) 22
IFRIC (I) 23

(A) Amendments
(C) Clariﬁ cations
(I) Interpretation

Mandatory
application for
ﬁ nancial years
starting on

Adopted by the
European Union

Possible
Impact on
MorphoSys

01/01/2018
01/01/2018
01/01/2019
01/01/2021

01/01/2018

01/01/2018
01/01/2019
01/01/2018
01/01/2019
01/01/2019
01/01/2018
01/01/2018
01/01/2019

01/01/2018

01/01/2019

yes
yes
yes
no

yes
no
yes
no
no
no
no
no

yes

yes
yes
yes
none

yes

none
none
yes
none
none
none
yes
none

none

114 F i n a n c i a l S t a t e m e n t s

Notes

IFRS 9, the new standard governing ﬁ nancial instruments, may lead to
changes in the classiﬁ cation and measurement of ﬁ nancial assets and
ﬁ nancial liabilities. Upon ﬁ rst-time recognition, ﬁ nancial assets are
classiﬁ ed as assets to be measured “at fair value” or “at amortized
cost”, depending on the business model and the contractually agreed
cash ﬂ ows of the respective ﬁ nancial instruments. Depending on the
classiﬁ cation, the subsequent measurement of ﬁ nancial assets is carried
out either at amortized cost or at fair value. Changes in the fair value
are to be recognized in proﬁ t or loss or in other comprehensive income.
The requirements for the de-recognition of ﬁ nancial assets and liabili-
ties and the general accounting of ﬁ nancial liabilities have been adopted
to a large extent from IAS 39. Changes to the classiﬁ cation result in
changes to MorphoSys’s ﬁ nancial assets that are classiﬁ ed as “avail-
able-for-sale” or “loans and receivables” in accordance with IAS 39.
There are no material conversion eﬀ ects with regard to the measure-
ment of ﬁ nancial assets and ﬁ nancial liabilities. Hitherto, “available-
for-sale” ﬁ nancial instruments are measured already at fair value in
accordance with IAS 39 and thus no conversion eﬀ ects will arise.

The provisions in the new standard for the recognition of impairments
are based on the expected credit loss model and replace the model of
incurred losses applied under IAS 39. Unlike under IAS 39, ﬁ nancial
assets are to be divided into diﬀ erent risk classes according to historical
and future expected loss probabilities, and a risk provision must be
recognized before the occurrence of loss events. Past experience and
the Group’s expectations regarding the performance of existing assets
do only suggest minor future losses. Therefore no additional impair-
ment should be recognized at the time of initial application other than
the twelve-month expected credit loss in accordance with IFRS 9. For
“Accounts receivable” the simpliﬁ ed impairment model will be applied
with recognition of a loss allowance based on lifetime expected credit
losses.

IFRS 9 is not expected to have an impact on the recognition of hedging
relationships. As of December 31, 2017, there is neither a forward rate
agreement that is subject to hedge accounting in accordance with
IAS 39 nor any other hedging instrument that will be subject to hedge
accounting.

Qualitative and quantitative adjustments to the disclosures in accor-
dance with IFRS 7 are expected due to the implementation of IFRS 9,
however, only for the ﬁ scal year 2018.

The new IFRS 15 standard on revenue recognition was reviewed for its
potential impact on the revenue recognition of existing contracts and
future contracts with partners and/or licensees. IFRS 15 establishes
principles for reporting information about the nature, amount, timing
and uncertainty of revenue and cash ﬂ ows arising from contracts with
customers and replaces IAS 18 “Revenue”. This review revealed that,
compared to the regulations currently applied to the existing contrac-
tual arrangements, quantitative eﬀ ects on the consolidated ﬁ nancial
statements are to be expected since for some contracts, revenue under
IFRS 15 has to be recognized at a point in time rather than over time
as under IAS 18. The Group will implement the new standard on Janu-
ary 1, 2018 and will apply the modiﬁ ed retrospective method which
requires the recognition of the cumulative eﬀ ect of applying IFRS 15

as at January 1, 2018 to accumulated deﬁ cit, and not restate prior
years. Therefore, the Group estimates that deferred revenue will be
reduced by € 1.1 million and accumulated deﬁ cit will be reduced by
€ 1.1 million on January 1, 2018, accordingly. Qualitative adjustments
of the required disclosures in the Notes under IFRS 15 are expected,
however, not before the standard’s ﬁ rst-time application as of Janu-
ary 1, 2018.

The Group also reviewed the new IFRS 16 standard governing leases
for its potential impact on existing lease contracts. Currently, all leases
are accounted for as operating leases pursuant to IAS 17. As of Janu-
ary 1, 2019, right-of-use assets under existing lease contracts will be
capitalized and lease liabilities will be recognized. Rental costs cur-
rently recognized in the statement of income will be replaced by depre-
ciation on the respective assets and interest expenses, i.e. the related
costs will be presented in diﬀ erent line items in the statement of income
and may diﬀ er in their overall amount compared to the application of
IAS 17. From today’s perspective, the implementation of IFRS 16 will
have material quantitative eﬀ ects on the consolidated balance sheet
due to the rented premises at Semmelweisstraße 7, Planegg. The exact
amount of assets and lease liabilities and the transitional provisions to
be applied when switching from IAS 17 to IFRS 16 have not yet been
determined.

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
consolidated ﬁ nancial statements pursuant to IFRS 10.B86. Unrealized
losses are eliminated in the same manner as unrealized gains.
Account ing policies have been applied consistently for all subsidiaries.

For all contracts and business transactions between group entities, the
arm’s length principle was applied.

2 .2 .1 C ONSOLIDATE D C OMPANIES AND SC OPE OF C ONSOLIDATION
MorphoSys AG as ultimate parent company of the Group is located in
Planegg near Munich. MorphoSys AG has two wholly owned subsidiar-
ies (collectively referred to as the “MorphoSys Group” or the “Group”):
Sloning BioTechnology GmbH (Planegg) and Lanthio Pharma B.V.
(Groningen, The Netherlands). Additionally, MorphoSys AG’s invest-
ment in Lanthio Pharma B.V. indirectly gives it 100 % ownership in
LanthioPep B.V. (Groningen, The Netherlands).

The consolidated ﬁ nancial statements for the year ended December 31,
2017 were prepared and approved by the Management Board in its
meeting on March 8, 2018 by means of a resolution. The Management
Board members are Dr. Simon Moroney (Chief Executive Oﬃ cer), Jens
Holstein (Chief Financial Oﬃ cer), Dr. Markus Enzelberger (Chief
Scienti ﬁ c Oﬃ cer), and Dr. Malte Peters (Chief Development Oﬃ cer).

Dr. Arndt Schottelius was Chief Development Oﬃ cer until Febru-
ary 28, 2017. Dr. Malte Peters assumed the position on March 1, 2017.
Dr. Markus Enzelberger, who served as Interim CSO from April 15,
2017, was appointed Chief Scientiﬁ c Oﬃ cer (CSO) eﬀ ective Novem-
ber 1, 2017. He succeeded Dr. Marlies Sproll, who resigned from her
CSO position eﬀ ective end of October 31, 2017.

Notes

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

115

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 could subject the Group to a concentration
of credit and liquidity risk include primarily cash and cash equivalents,
marketable securities (consisting of available-for-sale ﬁ nancial assets
and bonds), ﬁ nancial assets of the loans and receivables category,
derivat ive ﬁ nancial instruments and receivables. The Group’s cash and
cash equivalents are principally denominated in euros. Marketable
securities and ﬁ nancial assets of the loans and receivables category
represent investments in high-quality securities. Cash, cash equiva-
lents, marketable securities and ﬁ nancial assets of the loans and
receiv ables category are held at several renowned ﬁ nancial institu-
tions in Germany. The Group continuously monitors its positions with
ﬁ nancial institutions that are counterparts to its ﬁ nancial instruments
and these institutions’ credit ratings and does not expect any risk of
non-performance.

One of the Group’s policies requires all customers who wish to transact
business on credit terms to undergo a credit assessment based on
exter nal ratings. Nevertheless, the Group’s revenues and accounts
receiv able are still subject to credit risk from customer concentration.
The Group’s most signiﬁ cant single customer accounted for € 5.1 mil-
lion of accounts receivables as of December 31, 2017 (December 31,
2016: € 8.4 million) or 45 % of the Group’s accounts receivable at the
end of 2017. The top three individual customers of the Group accounted
for of 55 %, 25 % and 10 %, respectively, of the total revenues in 2017. On
December 31, 2016, one customer had accounted for 66 % of the Group’s
accounts receivable, and the top three customers had individually
accoun t ed for 85 %, 5 % and 5 % of the Group’s revenues in 2016. Based
on the Management Board’s assessment, no allowances were required
in the ﬁ nancial years 2017 and 2016. The carrying amounts of ﬁ nan-
cial assets represent the maximum credit risk.

The table below shows the accounts receivables by region as of the
reporting date.

in €

12/31/2017

12/31/2016

Europe and Asia
USA and Canada
Other

TOTAL

8,838,884
2,395,424
0
11,234,308

9,852,273
2,744,382
0
12,596,655

The Supervisory Board is authorized to amend the ﬁ nancial statements
after their approval by the Management Board. MorphoSys Group’s
registered head oﬃ ce is located in Planegg (district of Munich), and the
registered business address is Semmelweisstraße 7, 82152 Planegg,
Germany. The company is registered in the Commercial Register, Sec-
tion B, of the District Court of Munich under the number HRB 121023.

2 .2 .2 C ONSOLIDATION ME THODS
The following Group subsidiaries are included in the scope of consoli-
dation as shown in the following table.

Company

Sloning BioTechnology GmbH
Lanthio Pharma B.V.
LanthioPep B.V.

Purchase of
Shares

October 2010
May 2015
May 2015

Included in
Basis of
Consolidation
since

10/07/2010
05/07/2015
05/07/2015

These subsidiaries are fully consolidated because they are either
directly or indirectly wholly owned. MorphoSys controls these subsid-
iaries because it possesses full power over the investees. Additionally,
MorphoSys is subject to risk exposure or has rights to variable returns
from its involvement with the investees. MorphoSys also has unlimited
capacity to exert power over the investees to inﬂ uence their returns.

The Group does not have any entities consolidated as joint ventures by
using the equity method as deﬁ ned by IFRS 11 “Joint Arrangements”
nor does it exercise a controlling inﬂ uence as deﬁ ned by IAS 28
“Invest ments in Associates and Joint Ventures”. Interests in such enti-
ties would be measured at fair value or historic cost in accordance with
IAS 39.

Assets and liabilities of fully consolidated domestic and international
entities are recognized using Group-wide uniform accounting and
valuat ion methods. The consolidation methods applied have not
changed from the previous year.

Receivables, liabilities, expenses and income among consolidated enti-
ties are eliminated in the consolidated ﬁ nancial statements.

2 .2 .3 BASIS OF FORE IGN CURRE NCY TR ANSL ATION
IAS 21 “The Eﬀ ects of Changes in Foreign Exchange Rates” governs
the accounting for transactions and balances denominated in foreign
currencies. Transactions denominated in foreign currencies are trans-
lated at the exchange rates prevailing on the date of the transaction.
Any resulting translation diﬀ erences are recognized in proﬁ t and loss.
On the reporting date, assets and liabilities are translated at the closing
rate for the ﬁ nancial year. Any foreign exchange rate diﬀ erences derived
from these translations are recognized in the consolidated statement
of income.

116 F i n a n c i a l S t a t e m e n t s

Notes

The following table shows the aging of trade receivables as of the
reporting date.

in €; Accounts Receivable are due since

Accounts Receivable
Write-oﬀ
Accounts Receivable, Net of Allowance for Impairment

in €; Accounts Receivable are due since

Accounts Receivable
Write-oﬀ
Accounts Receivable, Net of Allowance for Impairment

On December 31, 2017 and December 31, 2016, the Group was not ex-
posed to a credit risk from derivative ﬁ nancial instruments. The maxi-
mum credit risk of ﬁ nancial guarantees (rent deposits) on the reporting
date amounted to € 1.1 million (December 31, 2016: € 1.3 million).

The contractually agreed maturities and the corresponding cash out-
ﬂ ows of accounts payable are within one year. Convertible bonds issued
to related parties mature on March 31, 2020 (maximum cash outﬂ ow:
€ 0.1 million).

2 .3.2 MARKE T RISK
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will aﬀ ect the Group’s
results of operations or the value of the ﬁ nancial instruments held. The
Group is exposed to currency and interest rate risks.

C U R R EN CY R I S K
The consolidated ﬁ nancial statements are prepared in euros. Whereas
MorphoSys’s expenses are predominantly incurred in euros, a portion
of the revenue is dependent on the prevailing exchange rate of the
US dollar. Throughout the year, the Group monitors the need to hedge
foreign exchange rates to minimize currency risk and addresses this
risk by using derivative ﬁ nancial instruments.

Under the Group’s hedging policy, highly probable cash ﬂ ows and deﬁ -
nite foreign currency receivables collectable within a twelve-month
period are tested to determine if they should be hedged. MorphoSys
began using foreign currency options and forwards to hedge its foreign
exchange risk against US dollar receivables in 2003. These derivatives
are recorded at their fair values under provisions as of December 31,
2017, since the fair value is negative.

12/31/2017
0 – 30 days

12/31/2017
30 – 60 days

12/31/2017
60+ days

12/31/2017
Total

11,234,308
0
11,234,308

0
0
0

11,234,308
0
11,234,308

12/31/2016
0 – 30 days

12/31/2016
30 – 60 days

12/31/2016
60+ days

12/31/2016
Total

12,596,655
0
12,596,655

0
0
0

12,596,655
0
12,596,655

As of December 31, 2017, there were twelve unsettled forward rate
agreements with terms of one month to twelve months (December 31,
2016: ten unsettled forward rate agreements). The unrealized gross
loss from these agreements amounted to € 0.3 million as of December
31, 2017 and was reported in the ﬁ nance result (December 31, 2016:
less than € 0.1 million unrealized gross gain).

One forward rate agreement dating back to January 2016 with an
original maturity in early April 2017 was subject to hedge accounting
as a cash ﬂ ow hedge and at the original term’s expiry was extended
until the beginning of July 2017. In July 2017, a net loss of € 0.3 million
was recognized in the income statement for this hedging instrument,
which was previously recognized as gross gains and losses in other
comprehensive income.

Notes

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

117

The table below shows the Group’s exposure to foreign currency risk
based on the items’ carrying amounts.

as of December 31, 2017; in €

EUR

US$

Other

Total

Cash and Cash Equivalents
Available-for-sale Financial Assets
Financial Assets classiﬁ ed as Loans and Receivables
Accounts Receivable
Restricted Cash (included in Other Current Assets)
Accounts Payable and Accrued Expenses

TOTAL

74,289,250
86,538,195
149,059,254
11,199,652
1,132,782
(44,655,328)
277,563,805

2,299,879
0
0
34,656
0
(156,390)
2,178,145

0
0
0
0
0
0
0

76,589,129
86,538,195
149,059,254
11,234,308
1,132,782
(44,811,718)
279,741,950

as of December 31, 2016; in €

EUR

US$

Other

Total

Cash and Cash Equivalents
Available-for-sale Financial Assets
Bonds, Available-for-sale
Financial Assets classiﬁ ed as Loans and Receivables
Financial Assets classiﬁ ed as Loans and Receivables, Net of Current Portion
Accounts Receivable
Restricted Cash (included in Other Current Assets)
Accounts Payable and Accrued Expenses

TOTAL

73,456,907
63,361,727
6,532,060
136,108,749
79,521,181
12,215,814
1,252,405
(31,794,114)
340,654,729

471,754
0
0
0
0
380,841
0
(428,502)
424,093

0
0
0
0
0
0
0
0
0

73,928,661
63,361,727
6,532,060
136,108,749
79,521,181
12,596,655
1,252,405
(32,222,616)
341,078,822

2 .3.3 FAIR VALUE HIE R ARCHY AND ME ASURE ME NT PRO CE DURES
The IFRS 13 “Fair Value Measurement” guidelines must always be
appl ied when measurement at fair value is required or permitted or
disclosures regarding measurement at fair value are required based
on another IAS/IFRS guideline. The fair value is the price that would
be achieved for the sale of an asset in an arm’s length transaction
betw een independent market participants or the price to be paid for the
transfer of a liability (disposal or exit price). Accordingly, the fair value
of a liability reﬂ ects the default risk (i.e., own credit risk). Measure-
ment at fair value requires that the sale of the asset or the transfer of
the liability takes place on the principal market or, if no such principal
market is available, on the most advantageous market. The principal
market is the market a company has access to that has the highest
volume and level of activity.

Various foreign exchange rates and their impact on assets and liabili-
ties were simulated in an in-depth sensitivity analysis to determine
the eﬀ ects on income. A 10 % increase in the euro versus the US dollar
as of December 31, 2017 would have reduced the Group’s income by
€ 0.2 million. A 10 % decline in the euro versus the US dollar would
have increased the Group’s income by € 0.2 million.

A 10 % increase in the euro versus the US dollar as of December 31, 2016
would have reduced the Group’s income by less than € 0.1 million. A
10 % decline in the euro versus the US dollar would have increased the
Group’s income by less than € 0.1 million.

I N T ER EST R AT E R I S K
The Group’s risk exposure to changes in interest rates mainly relates
to ﬁ xed term deposits and bonds, available-for-sale. Changes in the
general level of interest rates may lead to an increase or decrease in
the fair value of these securi ties. The Group’s investment focus places
the safety of an investment ahead of its return. Interest rate risk is
limited because all securities can be liquidated within a maximum of
two years.

The Group is not subject to signiﬁ cant interest rate risks from the
liabili ties currently reported in the balance sheet.

118 F i n a n c i a l S t a t e m e n t s

Notes

Fair value is measured by using the same assumptions and taking into
account the same characteristics of the asset or liability as would an
independent market participant. Fair value is a market-based, not an
entity-speciﬁ c measurement. The fair value of non-ﬁ nancial assets is
based on the best use of the asset by a market participant. For ﬁ nancial
instruments, the use of bid prices for assets and ask prices for liabili-
ties is permitted but not required if those prices best reﬂ ect the fair
value in the respective circumstances. For simpliﬁ cation, mean rates
are also permitted. Thus, IFRS 13 not only applies to ﬁ nancial assets,
but all assets and liabilities.

MorphoSys uses the following hierarchy for determining and disclosing
the fair value of ﬁ nancial instruments:
Level 1:

Quoted (unadjusted) prices in active markets for identical
assets or liabilities to which the Company has access.
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).
Inputs for the asset or liability that are not based on observ-
able market data (that is, unobservable inputs).

Level 2:

Level 3:

The carrying amounts of ﬁ nancial assets and liabilities, such as ﬁ nan-
cial assets of the loans and receivables cate gory and accounts receiv-
able and accounts payable approximate their fair value because of their
short-term maturities.

H I ER A RC H Y L E V EL 1
The fair value of ﬁ nancial instruments traded in active markets is
based on the quoted market prices on the reporting date. A market is
considered active if quoted prices are available from an exchange,
dealer, broker, industry group, pricing service or regulatory body that
is easily and regularly accessible and prices reﬂ ect current and regu-
larly occurring market transactions at arm’s length conditions. For
assets held by the Group, the appropriate quoted market price is the
buyer’s bid price. These instruments fall under level 1 of the hierarchy
(see also Item 5.2* of these Notes).
*C R O S S - R E F E R E N C E to page 134

H I ER A RC H Y L E V EL 2 A N D 3
The fair value of ﬁ nancial instruments not traded in active markets
can be determined using valuation methods. In this case, fair value is
estimated using the results of a valuation method that makes maxi-
mum use of market data and relies as little as possible on entity-
speciﬁ c inputs. If all signiﬁ cant inputs required for measuring fair
value by using valuation methods are observable, the instrument is
allocated to level 2. If signiﬁ cant inputs are not based on observable
market data, the instrument is allocated to level 3.

Hierarchy level 2 contains the forward exchange contracts used for
currency hedging. Future cash ﬂ ows for these forward exchange con-
tracts are determined based on forward exchange rate curves. The fair
value of these instruments corresponds to their discounted cash ﬂ ows.

There were no ﬁ nancial assets or liabilities allocated to hierarchy level 3.

There were no transfers from one fair value hierarchy level to another
in 2017 or 2016.

Notes

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

119

The table below shows the fair values of ﬁ nancial assets and liabilities
and the carrying amounts presented in the consolidated balance sheet.

December 31, 2017 (in 000’ €)

Cash and Cash Equivalents

Financial Assets classiﬁ ed as Loans
and Receivables
Accounts Receivable

Restricted Cash (included in
Other Current Assets)
Other Receivables
Available-for-sale Financial Assets

TOTAL
Convertible Bonds – Liability Component
Accounts Payable and Accrued Expenses

Forward Exchange Contracts Used
for Hedging (included in Provisions)

TOTAL

Note

Hierarchy
Level

Loans and
Receivables

Available-
for-sale

Other
Financial
Liabilities

Total
Carrying
Amount

Fair value

5.1

5.2
5.3

5.4
5.4
5.2

7.2
6.1

6.2

2
1

76,589

149,059
11,234

1,133
85
0
238,100
0
0

0
0

0
0
86,538
86,538
0
0

0
0

0
0
0
0
(88)
(44,812)

0
0

(300)
(45,200)

76,589

149,059
11,234

1,133
85
86,538
324,638
(88)
(44,812)

(300)
(45,200)

86,538

(88)
1

(300)

1 Declaration waived in line with IFRS 7.29 (a). For these instruments carrying value is a reasonable approximation of fair value.

December 31, 2016 (in 000’ €)

Cash and Cash Equivalents

Financial Assets classiﬁ ed as Loans
and Receivables
Accounts Receivable

Forward Exchange Contracts Used for
Hedging (included in Other Receivables)

Restricted Cash (included in
Other Current Assets)
Other Receivables

Financial Assets classiﬁ ed as Loans
and Receivables, Net of Current Portion
Available-for-sale Financial Assets
Bonds, Available-for-sale

TOTAL
Convertible Bonds – Liability Component
Accounts Payable and Accrued Expenses

TOTAL

Note

Hierarchy
Level

Loans and
Receivables

Available-
for-sale

Other
Financial
Liabilities

Total
Carrying
Amount

Fair value

5.1

5.2
5.3

5.4

5.4
5.4

5.2
5.2
5.2

7.2
6.1

1
1

2
1

73,929

136,109
12,597

520

1,252
137

79,521
0
0
304,065
0
0
0

0
0

0
63,362
6,532
69,894
0
0
0

0
0
0
0
(218)
(32,223)
(32,441)

73,929

136,109
12,597

520

1,252
137

79,521
63,362
6,532
373,959
(218)
(32,223)
(32,441)

520

79,521
63,362
6,532

(218)
1

1 Declaration waived in line with IFRS 7.29 (a). For these instruments carrying value is a reasonable approximation of fair value.

120 F i n a n c i a l S t a t e m e n t s

Notes

2.4

IMP AIRMEN T S

2 .4.1 NON - DE RIVATIVE FINANCIAL INSTRUME NTS
A ﬁ nancial instrument not carried at fair value through proﬁ t or loss is
assessed at each reporting date to determine if there is objective evi-
dence for impairment. A ﬁ nancial instrument is impaired if objective
evidence indicates that an event has occurred after the initial recogni-
tion of the asset that could result in a loss and whether that event could
have a negative eﬀ ect on the asset’s estimated future cash ﬂ ows, which
can be assessed reliably.

Objective evidence that ﬁ nancial instruments are impaired can in-
clude the default or delinquency of a debtor, indications that a debtor or
issuer will enter insolvency, adverse changes in the payment status of
borrowers or issuers in the Group as well as economic conditions that
correlate with defaults or the disappearance of an active market for a
marketable security. A signiﬁ cant or prolonged decline in a ﬁ nancial
instrument’s fair value below its acquisition cost is objective evidence
of impairment.

2 .4.2 RECE IVABLES
The Group considers evidence of the impairment of receivables on an
individual level. All individually signiﬁ cant receivables are tested
speciﬁ cally for impairment.

For a ﬁ nancial instrument measured at amortized cost less impair-
ment, impairment is calculated as the diﬀ erence between its carrying
amount and the present value of the estimated future cash ﬂ ows. Cash
ﬂ ows are discounted at the asset’s initial eﬀ ective interest rate. Losses
are recognized in proﬁ t or loss and reﬂ ected in an allowance account
against receivables. When a subsequent event (e.g., repayment by a
debtor) causes the amount of impairment to decrease, the impairment
is reversed through proﬁ t and loss.

2 .4.3 AVAIL ABLE - FOR - SALE FINANCIAL AS SE TS
In case of objective indications, impairment of available-for-sale ﬁ nan-
cial assets is recognized by reclassifying the accumulated losses from
the revaluation reserve in equity to proﬁ t and loss. The amount of the
accumulated loss to be reclassiﬁ ed from equity to proﬁ t and loss is the
diﬀ erence between the acquisition cost less amortization and any
princi pal repayment and the current fair value less any impairment
previously recognized in proﬁ t or loss. Impairment losses recognized
in proﬁ t and loss for an investment in a ﬁ nancial instrument classiﬁ ed
as available-for-sale are not reversed through proﬁ t and loss. If in a
subsequent period the fair value of an impaired available-for-sale debt
instrument increases and this increase can be objectively linked to an
event occurring after the impairment was recognized in proﬁ t or loss,
then the impairment loss is reversed, and the amount of the reversal is
recognized in proﬁ t or loss.

2 .4.4 NON - FINANCIAL AS SE TS
The carrying amounts of the Group’s non-ﬁ nancial assets and invento-
ries are reviewed at each reporting date for any indication of impair-
ment. The non-ﬁ nancial asset’s recoverable amount and inventories’
net realizable value is estimated if such indication exists. For goodwill
and intangible assets that have indeﬁ nite useful lives or are not yet
available for use, the recoverable amount is estimated at the same time
each year, or on an interim basis, if required. Impairment is recog-
nized if the carrying amount of an asset or the cash-generating unit
(CGU) exceeds its estimated recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value-
in-use or its fair value less costs of disposal. In assessing value-in-use,
the estimated future pre-tax cash ﬂ ows are discounted to their present
value using a pre-tax discount rate that reﬂ ects current market assess-
ments of the time value of money and the risks speciﬁ c to the asset or
CGU. For the purposes of impairment testing, assets that cannot be
tested individually are grouped into the smallest group of assets that
generates cash ﬂ ows from ongoing use that are largely independent of
the cash ﬂ ows of other assets or CGUs. A ceiling test for the operating
segment must be carried out for goodwill impairment testing. CGUs
that have been allocated goodwill are aggregated so that the level at
which impairment testing is performed reﬂ ects the lowest level at
which goodwill is monitored for internal reporting purposes. Goodwill
acquired in a business combination may be allocated to groups of CGUs
that are expected to beneﬁ t from the combination’s synergies.

The Group’s corporate assets do not generate separate cash ﬂ ows and
are utilized by more than one CGU. Corporate assets are allocated to
CGUs on a reasonable and consistent basis and are tested for impair-
ment as part of the impairment testing of the CGU that was allocated
the corporate asset.

Impairment losses are recognized in proﬁ t and loss. Goodwill impair-
ment cannot be reversed. For all other assets, impairment recognized
in prior periods is assessed on each reporting date for any indications
that the losses decreased or no longer exist. Impairment is reversed
when there has been a change in the estimates used to determine the
recoverable amount. Impairment losses can only be reversed to the
extent that the asset’s carrying amount does not exceed the carrying
amount net of depreciation or amortization that would have been deter-
mined if an impairment had not been recognized.

Notes

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

121

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 based on his-
torical experience and other factors that include expectations of future
events that are believed to be realistic under the prevailing circum-
stances.

The Group makes estimates and assumptions concerning the future.
The resulting accounting-related estimates will, by deﬁ nition, seldom
correspond to the actual results. The estimates and assumptions that
carry a signiﬁ cant risk of causing material adjustments to the carrying
amounts of assets and liabilities in the next ﬁ nancial year are addressed
below.

Under 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 remu-
neration consisting of convertible bonds issued in 2013 and a stock
option plan (SOP) set up in 2017. MorphoSys also established long-term
incentive programs (LTI plan) in 2013, 2014, 2015, 2016 and 2017.
These programs are based on the performance-related issue of shares,
or “performance shares”, which are granted when certain predeﬁ ned
success criteria have been achieved and the vesting period has expired
(for more information, please refer to Item 7.3* in the Notes). There
were no changes in the Group’s approach to capital management
during the year.
*C R O S S - R E F E R E N C E to page 143

I N - P RO C ES S R&D P RO G R A M S A N D G O O DW I L L
The Group performs a yearly test to determine whether in-process R&D
programs or goodwill is subject to impairment in accordance with the
accounting policies discussed in Item 2.4.4*. The recoverable amounts
from in-process R&D programs and cash-generating units have been
determined using value-in-use calculations and are subjected to a sen-
sitivity analysis. These calculations require the use of estimates (see
also Items 5.7.3* and 5.7.5* in the Notes).
*C R O S S - R E F E R E N C E to page 120 and page 138

I N C O M E TA X ES
The Group is subject to income taxes in a number of tax jurisdictions.
Due to the increasing complexity of tax laws and the corresponding
uncertainty regarding the legal interpretation by the ﬁ scal authority, tax
calculations are generally subject to an elevated amount of uncertainty.
To the extent necessary, possible tax risks were taken into account in
the form of provisions.

Deferred tax assets on tax loss carryforwards are recognized based on
the expected business performance of the relevant Group entity. For
details on tax loss carryforwards and any recognized deferred tax
assets, please refer to Item 4.4* in the Notes.
*C R O S S - R E F E R E N C E to page 130

2 .5.2 CAPITAL MANAGE ME NT
The Management Board’s policy for capital management is to preserve
a strong and sustainable capital base in order to maintain the conﬁ dence
of investors, business partners, and the capital market and to support
future business development. As of December 31, 2017, the equity ratio
was 86.3 % (December 31, 2016: 89.6 %; see also the following over-
view). The Group does not currently have any ﬁ nancial debt.

in 000’ €

12/31/2017

12/31/2016

Stockholders’ Equity
In % of Total Capital
Total Liabilities
In % of Total Capital

TOTAL CAPITAL

358,671
86.3 %
56,727
13.7 %
415,398

415,460
89.6 %
48,140
10.4 %
463,600

2.6 USE OF IN T ERE S T RAT E S F OR VAL UAT ION
The Group uses interest rates to measure fair value. When calculating
stock-based compensation, MorphoSys uses interest rates of German
government bonds with maturities of ﬁ ve or seven years on the date
they were granted to determine the fair value of convertible bonds.

2.7 ACCOUN T ING P OL IC IE S APPL IED T O L INE I T EMS

OF T HE INCOME S TAT EMEN T

2 .7.1 RE VE NUES AND RE VE NUE REC O GNITION
The Group’s revenue includes license fees, milestone payments and
service fees. Under IAS 18.9, revenues are measured at the fair value
of the consideration received or receivable. In accordance with
IAS 18.20b, revenues are recognized only to the extent that it is suﬃ -
ciently probable that the Company will receive the economic beneﬁ ts
associated with the transaction.

L I C EN S E FEES A N D M I L ESTO N E PAY M EN TS
Revenues related to non-refundable fees for providing access to tech-
nologies, fees for the use of technologies and license fees are recog-
nized on a straight-line basis over the period of the agreement unless
a more appropriate method of revenue recognition is available. The
period of the agreement usually corresponds to the contractually
agreed term of the research project or, in the case of contracts without
an agreed project term, 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 achieve-
ment of certain contractual criteria.

122 F i n a n c i a l S t a t e m e n t s

Notes

S ERV I C E FEES
Service fees from research and development collaborations are recog-
nized in the period the services are provided.

Discounts that are likely to be granted and whose amount can be reli-
ably determined are recognized as a reduction in revenue at the time
of revenue recognition. The timing of the transfer of risks and rewards
varies depending on the terms of the sales contract. In accordance with
IAS 18.21 and 18.25, revenue from multiple-component contracts is
recognized by allocating the total consideration to the separately
identi ﬁ able components based on their respective fair values and by
applying IAS 18.20. The applicable revenue recognition criteria are
asses sed separately for each component.

Deferred revenue consists of customer payments that were not yet
recogni zed as revenue because the related services speciﬁ ed in the
contract were not yet rendered.

2 .7.2 OPE R ATING E XPE NSES

P ERSO N N EL E X P EN S ES R ES U LT I N G FRO M STO C K O P T I O N S
The Group applies the provisions under IFRS 2 “Share-based Payment”,
which require the Group to spread compensation expenses from the
estimated fair values of share-based payments on the reporting date
over the period in which the beneﬁ ciaries provide the services which
triggered the granting of the share-based payments.

IFRS 2 “Share-based Payment” requires the consideration of the eﬀ ects
of share-based payments if the Group acquires goods or services in
exchange for shares or stock options (“settlement in equity instru-
ments”) or other assets that represent the value of a speciﬁ c number of
shares or stock options (“cash settlement”). The key impact of IFRS 2
on the Group is the expense resulting from the use of an option pricing
model in relation to share-based incentives for employees and the
Manage ment Board. Additional information can be found under
Items 7.1, 7.2, 7.3* and 7.4* in the Notes.
*C R O S S - R E F E R E N C E to page 141–147

R ES E A RC H A N D D E V ELO P M EN T
Research costs are expensed in the period they occur. Development
costs are generally expensed as incurred in accordance with IAS 38.5
and IAS 38.11 to 38.23. Development costs are recognized as an intangi-
ble asset when the criteria of IAS 38.21 (probability of expected future
economic beneﬁ ts, reliability of cost measurement) are met and if the
Group can provide proof under IAS 38.57.

This line item contains personnel expenses, consumables supplies,
other operating expenses, impairment, amortization and other costs of
intangible assets (additional information can be found under Item 5.7*
in the Notes), external services and depreciation and other costs for
infrastructure.
*C R O S S - R E F E R E N C E to page 137

G EN ER A L A N D A D M I N I ST R AT I V E
This line item contains personnel expenses, consumable supplies,
other operating expenses, amortization of intangible assets (software;
additional information can be found under Item 5.7* in the Notes),
expen ses for external services, and depreciation and other costs for
infrastructure.
*C R O S S - R E F E R E N C E to page 137

O P ER AT I N G L E AS E PAY M EN 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 recognized as an integral part of the net consideration agreed for
the use of the leased asset. The total amount of income from incentives
is recognized as a reduction in lease expenses on a straight-line basis
over the term of the lease.

All of the Group’s lease agreements are classiﬁ ed exclusively as
operating leases. The Group did not engage in any ﬁ nance lease
arrangements.

2 .7.3 OTHE R INC OME

G OV ER N M EN T G R A N TS
Grants received from government agencies to fund speciﬁ c research
and development projects are recognized in the income statement in
the separate line item “other income” to the extent that the related
expen ses have already occurred. Under the terms of the grants,
govern ment agencies generally have the right to audit the use of the
funds granted to the Group.

Basically, government grants are cost subsidies, and their recognition
through proﬁ t and loss is limited to the corresponding costs.

When the repayment of cost subsidies depends on the success of the
development project, these cost subsidies are recognized as other lia-
bilities until success has been achieved. If the condition for repayment
is not met, then the grant is recognized under “other income”.

No payments were granted in the 2017 ﬁ nancial year that are required
to be classiﬁ ed as investment subsidies.

2 .7.4 OTHE R E XPE NSES
The line item “other expenses” consists mainly of currency losses from
the operating business and the repayment of cost subsidies.

2 .7.5 FINANCE INC OME
Interest income is recognized in the income statement as it occurs and
takes into account the asset’s eﬀ ective interest rate.

2 .7.6 FINANCE E XPE NSES
Finance expenses are expensed in the income statement in the period
they occur.

Notes

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

123

2 .7.7 INC OME TA X E XPE NSES/INC OME
Income taxes consist of current and deferred taxes and are recognized
in the income statement unless they relate to items recognized directly
in equity.

Current taxes are the taxes expected to be payable on the year’s tax-
able income based on prevailing tax rates on the reporting date and
any adjustments to taxes payable in previous years.

The calculation of deferred taxes is based on the balance sheet liability
method that refers to the temporary diﬀ erences between the carrying
amounts of assets and liabilities and the amounts used for taxation
purposes. The method of calculating deferred taxes depends on how
the asset’s carrying amount is expected to be realized and how the
liabili ties will be repaid. The calculation is based on the prevailing tax
rates or those adopted on the reporting date.

Deferred tax assets are oﬀ set against deferred tax liabilities if the
taxes are levied by the same taxation authority and the entity has a
legally enforceable right to set oﬀ current tax assets against current
tax liabilities.

2.8 ACCOUN T ING P OL IC IE S APPL IED T O T HE ASSE T S

OF T HE BAL ANCE SHEE T

2 .8.1 LIQUIDIT Y

CAS H A N D CAS H EQ U I VA L EN TS A N D M A R K E TA B L E S EC U R I T I ES
The Group regards all cash at banks and on hand and all short-term
deposits with a maturity of three months or less as cash and cash
equivalents. The Group invests most of its cash and cash equivalents
at several major ﬁ nancial institutions: Commerzbank, UniCredit,
BayernLB, LBBW, BNP Paribas, Deutsche Bank, Sparkasse and
Rabobank.

Cash and cash equivalents are recognized at nominal value. Marketable
securities are recognized and measured at fair value. Any ﬂ uctuations
in the fair value of marketable securities are directly recognized in
equity. Permanent impairment is recognized in proﬁ t and loss

N O N - D ER I VAT I V E FI N A N C I A L I N ST RU M EN TS
Depending on how they are classiﬁ ed, existing ﬁ nancial instruments
are either measured at amortized cost (category “loans and receivables”)
or fair value (category “available-for-sale ﬁ nancial assets”). The amor-
tized cost of current receivables and current liabilities generally corre-
sponds to either the nominal amount or repayment amount.

Deferred tax assets are recognized only to the extent that it is likely
that there will be future taxable income to oﬀ set. Deferred tax assets
are reduced by the amount that the related tax beneﬁ t is no longer
expec ted to be realized.

All non-derivative ﬁ nancial instruments are initially recognized at fair
value, which is deﬁ ned as the fair value of the consideration provided
net of transaction costs.

2 .7.8 E ARNING S PE R SHARE
The Group reports basic and diluted earnings per share under consid-
eration of IAS 33.41. Basic earnings per share is computed by dividing
the net proﬁ t or loss attributable to parent 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 with the exception that the net proﬁ t or loss attributable
to parent company shareholders and the weighted-average number
of ordinary shares outstanding are adjusted for any dilutive eﬀ ects
result ing from stock options and convertible bonds granted to the
Manage ment Board and employees.

In 2017 and 2016, diluted earnings per share equal basic earnings
per share. The eﬀ ect of 87,904 potentially dilutive shares in 2017
(2016: 99,764 dilutive shares) resulting from stock options and con-
vertible bonds granted to the Management Board, the Senior Manage-
ment Group and employees of the Company who are not members of
the Senior Management Group, has been excluded from the diluted
earnings per share because it would result in a decrease in the loss per
share and is therefore not to be treated as dilutive.

The 62,071 stock options not yet vested as of December 31, 2017, were
not included in the calculation of potentially dilutive shares, as they
are antidilutive for the 2017 ﬁ nancial year. These shares could poten-
tially have a dilutive eﬀ ect in the future.

The Group applies IAS 39 for ﬁ nancial instruments in the form of debt
and equity instruments. At the time of purchase, the Management
Board determines the ﬁ nancial instrument’s classiﬁ cation and reviews
this classiﬁ cation at each reporting date. The classiﬁ cation depends on
the purpose of acquiring the ﬁ nancial instrument. As of December 31,
2017 and December 31, 2016, some ﬁ nancial instruments held by the
Group were classiﬁ ed as “available-for-sale”. These ﬁ nancial instru-
ments are recognized or derecognized as of the date on which the
Group commits to the ﬁ nancial instrument’s purchase or sale. Following
their initial recognition, available-for-sale ﬁ nancial assets are measured
at fair value, and any resulting gain or loss is reported directly in the
revaluation reserve within equity until the ﬁ nancial instruments are
sold, redeemed, otherwise disposed of or considered impaired, at
which time the accumulated loss is reported in proﬁ t and loss.

Guarantees granted for rent deposits and obligations from convertible
bonds issued to employees are recorded under other assets as restricted
cash since they are not available for use in the Group’s operations.

124 F i n a n c i a l S t a t e m e n t s

Notes

D ER I VAT I V E FI N A N C I A L I N ST RU M EN TS
The Group uses derivative ﬁ nancial instruments to hedge its foreign
exchange rate risk and cash ﬂ ows. In accordance with IAS 39.9, stand-
alone derivative ﬁ nancial instruments are predominantly held for
trading and are initially recognized at fair value. After their initial
recognition, derivative ﬁ nancial instruments are measured at fair
value, which is deﬁ ned as their quoted market price on the reporting
date. Any resulting gain or loss from derivatives is recognized in proﬁ t
and loss unless the derivatives are eﬀ ective and designated as hedging
instruments under a hedging relationship (hedge accounting).
According to the Group’s foreign currency hedging policy, the Group
only hedges highly probable future cash ﬂ ows and clearly identiﬁ able
receivables that can be collected within a twelve-month period.

The use of derivative ﬁ nancial instruments is subject to a Group policy
that is a written guideline approved by the Management Board for
dealing with derivative ﬁ nancial instruments. Any changes in the fair
value of derivative ﬁ nancial instruments are documented.

The hedging relationship is no longer accounted for if the Group
dissolves the hedging relationship, the hedging instrument expires,
is sold, terminated or exercised or no longer is suitable for hedging
purposes. The full gain/loss recognized in other comprehensive income
and accrued within equity remains in equity when the hedge account-
ing ends and is only recognized in proﬁ t and loss once the expected
transaction is also recognized in proﬁ t and loss. If the transaction is no
longer expected to materialize, the full gain/loss recognized in equity
is immediately reclassiﬁ ed into the consolidated statement of income.

2 .8.2 AC C OUNTS RECE IVABLE , INC OME TA X RECE IVABLES

AND OTHE R RECE IVABLES

Accounts receivable are measured at amortized cost less any impair-
ment; for example, allowances for doubtful accounts (see Items 2.4.2*
and 5.3* in the Notes).
*C R O S S - R E F E R E N C E to page 120 and page 135

Income tax receivables mainly include receivables due from tax
author ities in the context of capital gain taxes withheld.

H ED G E AC C O U N T I N G
The Group has designated hedging instruments to hedge cash ﬂ ows
(cash ﬂ ow hedges) during the ﬁ scal years 2017 and 2016.

Other non-derivative ﬁ nancial instruments are measured at amortized
cost using the eﬀ ective interest method less any impairment.

At the beginning of the hedge accounting, the hedging relationship
between the underlying and the hedge transaction are documented,
including the risk management objectives and corporate strategy
under lying the hedging relationship. Additionally, when concluding
the hedge and also during the term of the hedge, the Group regularly
provides documentation if the hedging instrument designated for the
hedging relationship is highly eﬀ ective in terms of the hedged risk to
compensate for any changes of the underlying transaction’s cash ﬂ ows.

For information on the fair value of derivatives used for hedging,
please refer to Item 2.3.2* in the Notes.
*C R O S S - R E F E R E N C E to page 116

CAS H FLO W H ED G ES
The eﬀ ective portion of the change in fair value of derivatives that are
suitable for cash ﬂ ow hedges and designated as such is recognized
within other comprehensive income. The gain/loss attributable to the
ineﬀ ective portion is immediately recognized in proﬁ t and loss with
“other operating income/expenses”.

Amounts recognized within other comprehensive income are reclassi-
ﬁ ed to the consolidated statement of income in the period in which the
underlying transaction is recognized in proﬁ t and loss. The gain/loss
is recorded in the same line item of the consolidated statement of income
as the underlying transaction.

2 .8.3 INVE NTORIES
Inventories are measured at the lower value of production or acquisi-
tion cost and net realizable value under the ﬁ rst-in ﬁ rst-out method.
Acquisition costs comprise all costs of purchase and those incurred in
bringing the inventories into operating condition while taking into
account purchase price reductions, such as bonuses and discounts.
Net realizable value is the estimated selling price less the estimated
expenses necessary for completion and sale. Inventories are divided
into the categories of raw materials and supplies.

2 .8.4 PRE PAID E XPE NSES AND OTHE R CURRE NT AS SE TS
Prepaid expenses include expenses resulting from an outﬂ ow of liquid
assets prior to the reporting date that are only recognized as expenses
in the subsequent ﬁ nancial year. Such expenses usually involve main-
tenance contracts, sublicenses and prepayments for external labora-
tory services not yet performed. Other current assets primarily consist
of receivables from tax authorities resulting from value-added taxes
and restricted cash, such as rent deposits. This item is recognized at
nominal value.

Notes

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

125

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* in the Notes). Patent costs are amortized on a straight-line basis
over the lower of the estimated useful life of the patent (ten years) or
the remaining patent term. Amortization starts when the patent is
issued. Technology identiﬁ ed in the purchase price allocation for the
acquisition of Sloning BioTechnology GmbH is recorded at the fair
value at the time of acquisition, less accumulated amortization (useful
life of ten years).
*C R O S S - R E F E R E N C E to page 120

L I C EN S E R I G H TS
The Group has acquired license rights from third parties by making
upfront license payments, paying annual fees to maintain the license
and paying fees for sublicenses. The Group amortizes upfront license
payments on a straight-line basis over the estimated useful life of the
acquired license (eight to ten years). The amortization period and
method are reviewed at the end of each ﬁ nancial year under IAS 38.104.
Annual fees to maintain a license are amortized over the term of each
annual agreement. Sublicense fees are amortized on a straight-line
basis over the term of the contract or the estimated useful life of the
collaboration for contracts without a set duration.

I N - P RO C ES S R&D P RO G R A M S
This line item contains capitalized upfront payments from the in-licens-
ing of compounds for the Proprietary Development segment, as well as
milestone payments for these compounds subsequently paid as mile-
stones are achieved. Additionally, the line item also includes compounds
resulting from acquisitions. The assets are recorded at acquisition cost
and are not yet available for use and therefore not subject to sched-
uled amortization. The assets are tested for impairment annually or in
case of triggering events, as required by IAS 36.

SO F T WA R E
Software is recorded at acquisition cost less accumulated amortization
(see below) and any impairment (see Item 2.4.4* in the Notes). Amorti-
zation is recognized in proﬁ t and loss on a straight-line basis over the
estimated useful life of three to ﬁ ve 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 to page 120

2 .8.5 PROPE R T Y, PL ANT AND EQUIPME NT
Property, plant and equipment is recorded at historical cost less accu-
mulated depreciation (see also Item 5.6* in the Notes) and any impair-
ment (see Item 2.4.4* in the Notes). Historical cost includes expendi-
tures directly related to the purchase at the time of the acquisition.
Replacement purchases, building alterations and improvements are
capitalized while repair and maintenance expenses are charged as
expen ses as they are incurred. Property, plant and equipment is depre-
ciated on a straight-line basis over its useful life (see table below).
Leasehold improvements are depreciated on a straight-line basis over
the lesser of the asset’s estimated useful life or the remaining term of
the lease.
*C R O S S - R E F E R E N C E to page 136 and page 120

Asset Class

Computer Hardware

Low-value Laboratory and
Oﬃ ce Equipment below € 410

Permanent Improvements to
Property/Buildings
Oﬃ ce Equipment
Laboratory Equipment

Useful Life

3 years

Immediately

10 years
8 years
4 years

Depreciation
Rates

33 %

100 %

10 %
13 %
25 %

Asset’s residual values and useful lives 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
acquisition or production costs because the Group ﬁ nances the entire
operating business with equity.

2 .8.6 INTANGIBLE AS SE TS
Purchased intangible assets are capitalized at acquisition cost and
exclu sively amortized on a straight-line basis over their useful lives.
Internally generated intangible assets are recognized to the degree the
recognition criteria set out in IAS 38 are met.

Development costs are capitalized as intangible assets when the capi-
talization criteria described in IAS 38 have been met, namely, clear
speciﬁ cation of the product or procedure, technical feasibility, intention
of completion, use, commercialization, coverage of development costs
through future free cash ﬂ ows, reliable determination of these free
cash ﬂ ows and availability of suﬃ cient resources for completion of
develop ment and sale. Amortization is recorded in research and devel-
opment expenses.

Expenses to be classiﬁ ed as research expenses are allocated to research
and development expenses as deﬁ ned by IAS 38.

Subsequent expenditures for capitalized intangible assets are capital-
ized only when they substantially increase the future economic beneﬁ ts
of the speciﬁ c asset to which they relate. All other expenditures are
expensed as incurred.

126 F i n a n c i a l S t a t e m e n t s

Notes

G O O DW I L L
Goodwill is recognized for expected synergies from business combina-
tions and the skills of the acquired workforce. Goodwill is tested annu-
ally for impairment as required by IAS 36 (see also Item 5.7.5* in the
Notes).
*C R O S S - R E F E R E N C E to page 138

Intangible Asset Class

Useful Life

Patents
License Rights

In-process R&D Programs
Software
Goodwill

10 years
8 – 10 years

Not yet amortized,
Impairment Only
3 – 5 years
Impairment Only

Amortization
Rates

10 %
13 % – 10 %

–
33 % – 20 %
–

2 .8.7 PRE PAID E XPE NSES AND OTHE R AS SE TS ,

NE T OF CURRE NT P OR TION

The non-current portion of expenses that occurred prior to the reporting
date but to be recognized in subsequent ﬁ nancial years is also recorded
under prepaid expenses. This line item contains maintenance contracts
and sublicenses.

This line item also includes other non-current assets, which are recog-
nized at fair value. Other non-current assets consist mainly of restricted
cash, such as rent deposits.

2.9 ACCOUN T ING P OL IC IE S APPL IED T O 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.
Liabilities with a term of more than one year are discounted to their
net present value. Liabilities with uncertain timing or amount are
recorded as provisions.

IAS 37 requires the recognition of provisions for obligations to third
parties arising from past events. Furthermore, provisions are only
recogn ized for legal or factual obligations to third parties if the event’s
occurrence 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 eﬀ ect is material. The amount
required to meet the obligation also includes expected price and cost
increases. The interest portion of the added provisions is recorded in
the ﬁ nance result. The measurement of provisions is based on past
experience and considers the circumstances in existence on the
report ing date.

The Group has entered into various research and development con-
tracts with research institutions and other companies. These agree-
ments are generally cancelable, and related payments are recorded as
research and development expenses as incurred. The Group records
accruals for estimated ongoing research costs that have been incurred.
When evaluating the adequacy of the accrued expenses, the Group
analyzes progress of the studies, including the phase or completion of
events, invoices received and contracted costs. Signiﬁ cant judgments

and estimates are made in determining the accrued balances at the
end of any reporting period. Actual results could diﬀ er from the
Group’s estimates. The Group’s historical accrual estimates have not
been materially diﬀ erent from the actual costs.

2 .9.2 TA X PROVISIONS
Tax liabilities are recognized and measured at their nominal value. Tax
liabilities contain obligations from current taxes, excluding deferred
taxes. Provisions for trade taxes, corporate taxes and similar taxes on
income are determined based on the taxable income of the consoli-
dated entities 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 amount of cash
recei ved or receivable. The corresponding rendering of services and
revenue recognition is expected to occur within a twelve-month period
after the reporting date.

2 .9.4 DE FE RRE D RE VE NUE , NE T OF CURRE NT P OR TION
This line item includes the non-current portion of deferred upfront
payments from customers in accordance with IAS 18.13, which are
measured at the lower of fair value or nominal amount of cash received
or receivable.

2 .9.5 C ONVE R TIBLE BONDS DUE TO RE L ATE D PAR TIES
The Group issued convertible bonds to the Group’s Management Board
and employees. 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
separately determined amount of the liability component from the fair
value of the convertible bond. The eﬀ ect of the equity component is
recognized in proﬁ t and loss in personnel expenses from share-based
payments, whereas the eﬀ ect on proﬁ t and loss from the liability com-
ponent is recognized as interest expense. The Group applies the provi-
sions of IFRS 2 “Share-based Payments” for all convertible bonds
granted to the Management Board and the Group’s employees.

2 .9.6 DE FE RRE D TA XES
The recognition and measurement of deferred taxes are based on the
provisions of IAS 12. Deferred tax assets and liabilities are calculated
using the liability method, which is common practice internationally.
Under this method, taxes expected to be paid or recovered in subse-
quent ﬁ nancial 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 and take into account the future tax eﬀ ect resulting
from temporary diﬀ erences between values in the balance sheet for
assets, liabilities as well as for tax loss carryforwards.

Notes

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

127

2 .9.7 OTHE R LIABILITIES
Other liabilities are made up of rent-free periods. The corresponding
release over the minimum rent period are calculated based on the
eﬀ ec tive interest method. Other liabilities are discounted due to their
long-term maturities.

2 .9.8 STO CKHOLDE RS ’ EQUIT Y

C O M M O N STO C K
Ordinary shares are classiﬁ ed as stockholders’ equity. Incremental
costs directly attributable to the issue of ordinary shares and stock
options are recognized as a deduction from stockholders’ equity.

T R E AS U RY STO C K
Repurchases of the Company’s own shares at prices quoted on an ex-
change or at market value are recorded in this line item as a deduction
from common stock.

When common stock that was recorded as stockholders’ equity is
repur chased, the amount of consideration paid, including directly
attri butable costs, is recognized as a deduction from stockholders’
equity net of taxes and is classiﬁ ed as treasury shares. When treasury
shares are subsequently sold or reissued, the proceeds are recognized
as an increase in stockholders’ equity, and any diﬀ erence between the
proceeds from the transaction and the initial acquisition costs is
recog nized in additional paid-in capital.

The allocation of treasury shares to beneﬁ ciaries (in this case: perfor-
mance shares) under long-term incentive programs is reﬂ ected in this
line item based on the set number of shares to be allocated after the
expiration of the four-year vesting period (quantity structure) multi-
plied by the weighted-average purchase price of the treasury shares
(value structure). The adjustment is carried out directly in equity by
reducing the treasury stock line item, which is a deduction from com-
mon stock, while simultaneously reducing the amount of additional
paid-in capital. Further information can be found in Item 7.3.1* in the
Notes.
*C R O S S - R E F E R E N C E to page 143

A D D I T I O N A L PA I D - I N CA P I TA L
Additional paid-in capital mainly consists of personnel expenses
result ing from the grant of convertible bonds and performance shares
and the proceeds from newly created shares in excess of their nominal
value.

R E VA LUAT I O N R ES ERV E
The revaluation reserve mainly consists of unrealized gains and losses
on available-for-sale ﬁ nancial assets and bonds that are measured
direc tly in equity until they are sold as well as cash ﬂ ow hedges.

AC C U M U L AT ED I N C O M E/D EFI C I T
The “accumulated income/deﬁ cit” line item consists of the Group’s
accumu lated consolidated net proﬁ ts/losses. A separate measurement
of this item is not made.

3 Segment Reporting

MorphoSys Group applies IFRS 8 “Operating Segments”. An operating
segment is deﬁ ned as a unit of an entity that engages in business
activi ties from which it can earn revenues and incur expenses and
whose operating results are regularly reviewed by the entity’s chief
operating decision maker, the Management Board, and for which dis-
crete ﬁ nancial information is available.

Segment information is provided for the Group’s operating segments
based on the Group’s management and internal reporting structures.
The segment results and segment assets include items that can be either
directly attributed to the individual segment or allocated to the seg-
ments on a reasonable basis.

The Management Board evaluates a segment’s economic success using
selected key ﬁ gures so that all relevant income and expenses are
included. EBIT, which the Company deﬁ nes as earnings before ﬁ nance
income, ﬁ nance expenses and income taxes, is the key benchmark for
measuring and evaluating the operating results. Refer to the table in
Note 3.3 for a reconciliation of EBIT to Net income as well as to the table
in Note 4.3 for a breakdown of ﬁ nance income and expenses. Other key
internal reporting ﬁ gures include revenues, operating expenses, seg-
ment results and the liquidity position.

The Group consists of the following operating segments.

3.1 PROPRIE TARY DEVEL OPMEN T
The segment comprises all activities related to the proprietary develop-
ment of therapeutic antibodies and peptides. These activities currently
comprise a total of 13 antibodies and peptides, including the pro-
prietary clinical programs MOR208, MOR202, and MOR106, which is
co-developed with Galapagos. The proprietary program MOR103, also
included in this segment, was out-licensed to GlaxoSmithKline (GSK)
in 2013 and all activities since that time are conducted by GSK. This
program has been allocated to this segment since the beginning of its
development and will, therefore, continue to be reported under this
segment. MorphoSys is also pursuing other programs that are either at
an early stage of proprietary development or fall under co-development
agreements. One of these programs is the clinical program MOR107
(formerly LP2) resulting from the acquisition of Lanthio Pharma B.V.
A further eight programs are in the discovery phase. The development
of proprietary technologies is allocated to the Proprietary Development
segment.

3.2 P AR T NERED DI S COVERY
MorphoSys possesses one of the leading technologies for generating
therapeutics based on human antibodies. The Group markets this
techno logy commercially through its partnerships with numerous
pharmaceutical and biotechnology companies. The Partnered Discovery
segment encompasses all operating activities relating to these com-
mercial agreements.

128 F i n a n c i a l S t a t e m e n t s

Notes

3.3 CRO SS -SEGMEN T DI S CL O SURE
The information on segment assets is based on the assets’ respective
locations.

For the Twelve-month
Period Ended
31 December (in 000’ €)

External Revenues
Other Operating Expenses

SEG MENT RESULT
Other Income
Other Expenses

SEG MENT EB IT
Finance Income
Finance Expenses

PROFIT BEFORE TA XES
Income Tax Expenses

NE T LOS S
Current Assets
Non-current Assets

TOTAL SEG MENT AS SE TS
Current Liabilities
Non-current Liabilities
Stockholders’ Equity

TOTAL SEG MENT
LIAB ILITIES AND EQUIT Y
Capital Expenditure
Depreciation and Amortization

Proprietary Development

Partnered Discovery

Unallocated

Group

2017

2016

2017

2016

2017

2016

2017

2016

17,635
(99,106)
(81,471)
157
0
(81,314)

621
(78,515)
(77,894)
327
0
(77,567)

49,156
(18,906)
30,250
0
0
30,250

49,123
(18,113)
31,010
0
0
31,010

0
(15,835)
(15,835)
963
(1,671)
(16,543)

0
(13,212)
(13,212)
382
(554)
(13,384)

8,802
60,658
69,460
33,008
7,072
0

40,080
12,344
1,555

13,157
59,292
72,449
20,948
6,930
0

27,878
1,358
1,272

18,054
8,490
26,544
4,083
1,045
0

5,128
602
2,075

18,415
10,165
28,580
2,512
2,165
0

4,677
1,181
2,117

313,825
5,569
319,394
10,610
909
358,671

370,190
204
400

276,484
86,087
362,571
14,842
743
415,460

431,045
374
375

66,791
(133,847)
(67,056)
1,120
(1,671)
(67,607)
712
(1,895)
(68,790)
(1,036)
(69,826)
340,681
74,717
415,398
47,701
9,026
358,671

415,398
13,150
4,030

49,744
(109,840)
(60,096)
709
(554)
(59,941)
1,385
(1,308)
(59,864)
(519)
(60,383)
308,056
155,544
463,600
38,302
9,838
415,460

463,600
2,913
3,764

The segment result is deﬁ ned as a segment’s revenue less the seg-
ment’s operating expenses. The unallocated other operating expenses
of € 15.8 million (2016: € 13.2 million) included primarily expenses for
central administrative functions that are not allocated to one of the two
segments. Finance income, ﬁ nance expense and income tax are also
not allocated to the segments as they are managed on a group basis. In
the 2017 ﬁ nancial year, impairments totaling € 9.9 million were recog-
nized in the Proprietary Development segment (2016: impairments of
€ 10.1 million in the Proprietary Discovery segment).

The Group’s key customers are allocated to the Partnered Discovery
and Proprietary Development segments. As of December 31, 2017, the
single most important customer represented accounts receivable with
a carrying amount of € 5.1 million (December 31, 2016: € 8.4 million).
The largest customer accounted for revenues in 2017 of € 36.9 million,
the second largest for € 16.8 million and the third largest for € 6.7 mil-
lion. The largest and third largest customers were allocated to the Part-
nered Discovery segment and the second largest customer to the Pro-
prietary Development segment. The top three of the Group’s customers
that were all allocated to the Partnered Discovery segment accounted
for € 42.1 million, € 2.5 million and € 2.5 million, respectively, of the
total revenues in 2016.

The following overview shows the Group’s regional distribution of
revenue.

in 000’ €

Germany
Europe and Asia
USA and Canada

TOTAL

2017

2016

851
57,229
8,711
66,791

1,621
43,046
5,077
49,744

A total of € 42.2 million (December 31, 2016: € 123.7 million) and
€ 32.6 million (December 31, 2016: € 32.6 million) of the Group’s
non-current assets, excluding deferred tax assets, are located in Ger-
many and the Netherlands, respectively. The Group’s total investments
of € 13.1 million (December 31, 2016: € 2.8 million) were made in Ger-
many, except for € 0.1 million (December 31, 2016: € 0.1 million), which
were made in the Netherlands. In accordance with internal deﬁ nitions,
investments only included additions to property, plant and equipment
as well as intangible assets which are not related to business combi-
nations. MorphoSys deﬁ nes investments as additions to non-current
assets that are not related to acquisitions.

Notes

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

129

in 000’ €

2017

2016

4 Notes to the Income Statement

4 .1 REVENUE S
In 2017, revenues consisted of license fees and milestone payments
totaling € 44.8 million (2016: € 28.4 million). Of this total, € 16.8 mil-
lion was generated by the Proprietary Development segment and
€ 28.0 million was generated by the Partnered Discovery segment. In
2016, all such revenues of € 28.4 million were generated by the Part-
nered Discovery segment.

Of the service fee revenues totaling € 22.0 million (2016: € 21.4 mil-
lion), € 0.8 million (2016: € 0.6 million) were attributable to the Propri-
etary Development segment and € 21.2 million (2016: € 20.8 million) to
the Partnered Discovery segment.

Personnel Expenses
Consumable Supplies
Other Operating Expenses

Impairment, Amortization and
Other Costs of Intangible Assets
External Services

Depreciation and Other Costs
for Infrastructure

TOTAL

4 .2 OPERAT ING EXPENSE S

in million €

4.2 .1 RESE ARCH AND DE VE LOPME NT E XPE NSES
Research and development increased compared to the prior year due to
a high level of investment in our proprietary product pipeline (namely,
external services) and increased personnel expenses. Research and
development expenses consisted of the items below.

R&D Expenses on behalf of Partners
Proprietary Development Expenses
Technology Development Expenses

R&D TOTAL

29,735
2,588
3,065

13,503
63,053

4,865
116,809

2017

17.7
97.7
1.4
116.8

26,493
2,321
2,922

13,689
44,409

5,889
95,723

2016

17.2
77.1
1.4
95.7

130 F i n a n c i a l S t a t e m e n t s

Notes

4.2 .2 GE NE R AL AND ADMINISTR ATIVE E XPE NSES
General and administrative expenses included the items below.

4 .3 O T HER INCOME AND EXPENSE S, F INANCE INCOME

AND F INANCE EXPENSE S

The line items “other income and expenses” and “ﬁ nance income and
ﬁ nance expenses” include the following items.

in 000’ €

Personnel Expenses
Consumable Supplies
Other Operating Expenses
Amortization of Intangible Assets
External Services

Depreciation and Other Costs
for Infrastructure

TOTAL

2017

12,315
33
794
112
2,947

838
17,039

2016

9,521
97
978
111
2,484

925
14,116

4.2 .3 PE RSONNE L E XPE NSES
Personnel expenses included the items below.

in 000’ €

2017

2016

Wages and Salaries
Social Security Contributions

Stock-based Compensation
Expense
Temporary Staﬀ (External)
Other

TOTAL

28,196
4,542

4,975
881
3,456
42,050

27,146
4,570

2,357
1,061
880
36,014

in 000’ €

Grant Income
Gain on Foreign Exchange

Reversal of Impairment for
Accounts Receivable Previously
Deemed Impaired
Miscellaneous Income
Other Income

Loss on Foreign Exchange
Impairment of Other Receivables
Miscellaneous Expenses
Other Expenses

Gain on Available-for-sale
Financial Assets and Bonds
Interest Income
Gain on Derivatives
Finance Income

Interest Expenses
Loss on Derivatives
Bank Fees

2017

157
485

76
402
1,120

(844)
0
(827)
(1,671)

35
236
441
712

(374)
(1,360)
(41)

(120)
(1,895)

2016

327
192

15
175
709

(400)
(7)
(147)
(554)

294
1,017
74
1,385

(20)
(44)
(35)

(1,209)
(1,308)

In 2017, other personnel expenses consisted primarily of severance
payments, recruitment and development costs. In 2016, other personnel
expenses consisted mainly of recruitment costs.

Loss on Available-for-sale
Financial Assets and Bonds
Finance Expenses

The average number of employees in the 2017 ﬁ nancial year was 344
(2016: 354). Of the 326 employees on December 31, 2017 (December 31,
2016: 345), 263 were active in research and development (December
31, 2016: 289) and 63 were engaged in general and administrative
functions (December 31, 2016: 56 employees). As of December 31, 2017,
there were 161 employees in the Proprietary Development segment
and 105 employees in the Partnered Discovery segment; 60 employees
were not allocated to a segment (December 31, 2016: 135 in the Pro-
prietary Development segment, 156 employees in the Partnered
Discovery segment and 54 employees were unallocated). Costs for
deﬁ ned-contribution plans amounted to € 0.6 million in 2017 (2016:
€ 0.5 million).

INCOME TAX EXPENSE S/ INCOME

4 .4
MorphoSys AG and its German subsidiary Sloning BioTechnology
GmbH are subject to corporate taxes, the solidarity surcharge and
trade taxes. The Company’s corporate tax rate is 15.0 % and the solidar-
ity surcharge 5.5 %. The eﬀ ective trade tax rate is 10.85 % and remained
unchanged.

The Dutch entities Lanthio Pharma B.V. and LanthioPep B.V. are subject
to an income tax rate of 25 % on annual income exceeding € 200,000;
annual income below € 200,000 is subject to a tax rate of 20 %. Subject
to certain conditions, a tax rate of 5 % may be applicable under what is
known as the “Innovation Box.”

Notes

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

131

Income taxes consist of the items listed below.

in 000’ €

2017

2016

in 000’ €

2017

2016

Current Tax Income/(Expense)
(Thereof Regarding Prior Years:
k€ 171; 2016: k€ (60))
Deferred Tax Expenses
Total Income Tax Expense

Total Amount of Current Taxes
Resulting from Entries Directly
Recognized in Other
Comprehensive Income

Total Amount of Deferred Taxes
Resulting from Entries Directly
Recognized in Other
Comprehensive Income

Total Amount of Tax-Eﬀ ects
Resulting from Entries Directly
Recognized in Equity or Other
Comprehensive Income

(534)
(502)
(1,036)

Proﬁ t Before Income Taxes
Expected Tax Rate
Expected Income Tax
Tax Eﬀ ects Resulting from:
Stock-based Compensation
Non-Tax-Deductible Items

Diﬀ erences in Proﬁ t and
Loss Neutral Adjustments

Non-Recognition of Deferred Tax
Assets on Temporary Diﬀ erences

Non-Recognition of Deferred Tax
Assets on Current Year Tax Losses

Tax Rate Diﬀ erences to
Local Tax Rates
Prior Year Taxes
Other Eﬀ ects
Actual Income Tax

45
(564)
(519)

(82)

(112)

(194)

(68,790)
26.675 %
18,350

(290)
(134)

(59,864)
26.675 %
15,969

5
(135)

812

3,256

(3,766)

(22.007)

(13,354)

(71)
(171)
(6)
(1,036)

(46)
0
(4)
(519)

The following table reconciles the expected income tax expense with
the actual income tax expense as presented in the consolidated ﬁ nancial
statements. The combined income tax rate of 26.675 % in the 2017
ﬁ nan cial year (2016: 26.675 %) was applied to proﬁ t before taxes to
calcu late the statutory income tax expense. This rate consisted of a
corporate income tax of 15.0 %, a solidarity surcharge of 5.5 % on the
corporate tax and an average trade tax of 10.85 % applicable to the
Group.

As of December 31, 2017, neither deferred tax assets in the amount of
€ 33.6 million on tax loss carryforwards (December 31, 2016:
€ 12.8 million) nor deferred tax assets on temporary diﬀ erences in the
amount of € 0.5 million (December 31, 2016: € 3.8 million) were recog-
nized by MorphoSys AG due to continued substantial investments in
proprietary product development and related business development.

As of December 31, 2017, tax loss carryforwards of Sloning BioTech-
nology GmbH were fully exhausted. As of December 31, 2016, deferred
tax assets in the amount of € 0.5 million were recognized on tax loss
carryforwards.

As of December 31, 2017, deferred tax assets in the amount of € 3.8 mil-
lion on tax loss carryforwards (December 31, 2016: € 2.5 million) were
not recognized for the Lanthio Group due to continued substantial
invest ments in proprietary product development and related business
development.

132 F i n a n c i a l S t a t e m e n t s

Notes

Deferred tax assets and deferred tax liabilities are composed as follows.

in 000’s €, as of December 31

Intangible Assets
Receivables and Other Assets
Prepaid Expenses and Deferred Charges
Short-term Securities Investments
Provisions
Other Liabilities
Tax Losses

TOTAL

in 000’s €, as of December 31

Intangible Assets
Receivables and Other Assets
Short-term Securities Investments and cash ﬂ ow hedge
Provisions
Other Liabilities
Tax Losses

TOTAL

As of December 31, 2017, temporary diﬀ erences existed in connection
with investments in subsidiaries (known as outside basis diﬀ erences)
of € 0.2 million (December 31, 2016: € 0.3 million) for which no de-
ferred tax liabilities were recognized.

Deferred Tax
Asset 2017

Deferred Tax
Asset 2016

Deferred Tax
Liability 2017

Deferred Tax
Liability 2016

0
0
0
0
253
236
0
489

0
0
0
19
130
123
516
788

8,297
0
3
0
0
0
0
8,300

8,068
8
3
131
0
0
0
8,210

Changes in Deferred Taxes in 2017

Recognized in Proﬁ t and Loss
Income/(Expense)

Recognized in Other
Comprehensive Income

(229)
8
0
123
113
( 516)
(501)

0
0
112
0
0
0
112

Notes

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

133

4 .5 EARNINGS PER SHARE
Earnings per share is computed by dividing the 2017 consolidated net
loss of € 69,826,469 (2016: consolidated net loss of € 60,382,776) by the
weighted-average number of ordinary shares outstanding during the
respective year (2017: 28,947,566; 2016: 26,443,415).

5 Notes to the Assets of the

Balance Sheet

5.1

C ASH AND C ASH EQUIVAL EN T S

The table below shows the calculation of the weighted-average number
of ordinary shares.

in 000’ €

12/31/2017

12/31/2016

SHARES IS SUED ON JANUARY 1

29,159,770

26,537,682

2017

2016

Bank Balances and Cash in Hand
Term Deposits
Restricted Cash
Cash and Cash Equivalents

76,589
1,133
(1,133)
76,589

73,929
1,252
(1,252)
73,929

Restricted cash of € 1.1 million mainly consisted of rent deposits (2016:
€ 1.3 million).

Eﬀ ect of Treasury Shares Held on
January 1
Eﬀ ect of Repurchase of Treasury Stock
Eﬀ ect of Share Issuance

Eﬀ ect of Transfer of Treasury Stock to
Members of the Management Board

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in January

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in February

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in March

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in April

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in May

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in June

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in July

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in August

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in September

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in October

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in November

Eﬀ ect of Transfer of Treasury Stock /
Shares Issued in December

(396,010)
0
0

7,759

(434,670)
(34,812)
327,761

154,250

12,638

3,778

10,039

1,094

17,749

2,038

2,669

3,976

2,566

5,549

127

6,463

490

WEIG HTED - AVER AG E NUMBER OF
SHARES OF C OMMON STO CK

28,947,566

26,443,415

134 F i n a n c i a l S t a t e m e n t s

Notes

5.2

F INANC IAL ASSE T S AND B OND S, AVAIL ABL E-F OR-SAL E
AND F INANC IAL ASSE T S CL ASSIF IED AS L OANS AND
RECEIVABL E S

As of December 31, 2017 and December 31, 2016, available-for-sale
ﬁ nancial assets consisted of the items below.

in 000’ €

DECEMBER 31, 2017
Money Market Funds

TOTAL
DECEMBER 31, 2016
Money Market Funds

TOTAL

Maturity

Cost

Gains

Losses

Market Value

Gross Unrealized

daily

86,644

daily

63,433

106

86,538
86,538

63,362
63,362

In 2017, the Group recorded a net gain of less than € 0.1 million in the
income statement from the disposal of ﬁ nancial assets. This gain was
previously recognized in stockholders’ equity (2016: net gain of
€ 0.3 million).

As of December 31, 2017 and December 31, 2016, bonds, available-for-
sale consisted of the items below.

in 000’ €

DECEMBER 31, 2017
Bonds

TOTAL
DECEMBER 31, 2016
Bonds

TOTAL

Maturity

Cost

Gains

Losses

Market Value

Gross Unrealized

daily

6,620

0
0

6,532
6,532

Interest income from ﬁ nancial assets under “loans and receivables”
amounted to € 0.2 million (2016: € 0.9 million) and was recorded in the
ﬁ nance result. The risk associated with these ﬁ nancial instruments
primarily resulted from bank credit risks. There was no indication of
impairment in the ﬁ nancial year 2017.

Further information on the accounting for ﬁ nancial assets is provided
in Item 2.8.1* in the Notes.
*C R O S S - R E F E R E N C E to page 123

In 2017, the Group recorded a net loss of € 0.1 million from the disposal
of ﬁ nancial assets contained in the income statement that were previ-
ously recognized in stockholders’ equity (2016: net loss of € 1.2 mil-
lion). The bonds were purchased at a price above their nominal value.
The loss that resulted from the product-speciﬁ c price development is
more than oﬀ set by the bond’s interest income.

As of December 31, 2017, the Company held current ﬁ nancial assets of
€ 149.1 million (December 31, 2016: € 136.1 million) and no non-
current ﬁ nancial assets (December 31, 2016: € 79.5 million), which
were allocated to the “loans and receivables” category in accordance
with IAS 39 “Financial Instruments”. These ﬁ nancial assets consisted
mainly of term deposits with ﬁ xed or variable interest rates. The
decline in ﬁ nancial assets resulted from the expiry of their agreed
holding periods and the use of the related cash released for operating
activities. The carrying amounts included interest receivables of
€ 0.1 million (December 31, 2016: € 0.1 million).

Notes

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

135

5.3 ACCOUN T S RECEIVABL E
All accounts receivable are non-interest bearing, and generally have
payment terms of between 30 and 45 days. As of December 31, 2017 and
December 31, 2016, accounts receivable included unbilled receivables
amounting to € 5.3 million and € 3.3 million, respectively.

Based on the Management Board’s estimate, no net loss for allowances
for doubtful receivables was recognized in proﬁ t and loss in 2017 and
2016.

5.4 O T HER RECEIVABL E S
As of December 31, 2017, there were no impairments recognized for
other receivables. An immaterial amount of impairments had been
recogni zed as of December 31, 2016.

5.5

INCOME TAX RECEIVABL E S, INVEN T ORIE S,
PREP AID EXPENSE S AND O T HER CURREN T ASSE T S
As of December 31, 2017 income tax receivables amounted to € 0.7 mil-
lion (December 31, 2016: € 0.5 million) and consisted of receivables
from capital gain taxes withheld and income taxes for prior years.

Inventories amounting to € 0.3 million as of December 31, 2017 (De-
cember 31, 2016: € 0.3 million) were stored at the Planegg location and
consisted of raw materials and supplies. As in the previous year, no
inventories were carried at fair value less selling costs as of the report-
ing date.

As of December 31, 2017, prepaid expenses and other current assets
mainly consisted of combination compounds of € 11.2 million (Decem-
ber 31, 2016: € 7.3 million), receivables due from tax authorities for the
remaining surplus from prepayments for value-added taxes of
€ 2.4 million (December 31, 2016: € 2.8 million), prepaid fees for exter-
nal laboratory services of € 0.6 million (December 31, 2016: € 2.4 mil-
lion), prepaid fees for sublicenses of € 0.4 million (December 31, 2016:
€ 0.3 million), restricted cash for rent deposits of € 0.4 million (Decem-
ber 31, 2016: € 0.4 million) and other prepayments amounting to
€ 1.1 million (December 31, 2016: € 0.8 million).

136 F i n a n c i a l S t a t e m e n t s

Notes

5.6 PROPER T Y, PL AN T AND EQUIPMEN T

in 000’ €

Cost
JANUARY 1, 2017
Additions
Disposals
DECEMBER 31, 2017

Accumulated Depreciation and Impairment
JANUARY 1, 2017
Depreciation Charge for the Year
Impairment
Disposals
DECEMBER 31, 2017

Carrying Amount
JANUARY 1, 2017
DECEMBER 31, 2017

Cost
JANUARY 1, 2016
Additions
Disposals
DECEMBER 31, 2016

Accumulated Depreciation and Impairment
JANUARY 1, 2016
Depreciation Charge for the Year
Impairment
Disposals
DECEMBER 31, 2016

Carrying Amount
JANUARY 1, 2016
DECEMBER 31, 2016

Ofﬁ ce and
Laboratory
Equipment

Furniture and
Fixtures

16,658
1,205
(528)
17,335

13,120
1,887
0
(517)
14,490

3,538
2,845

15,040
1,890
(272)
16,658

11,691
1,700
0
(271)
13,120

3,349
3,538

2,389
112
0
2,501

1,738
82
0
0
1,820

651
681

1,780
612
(3)
2,389

1,655
86
0
(3)
1,738

125
651

Total

19,047
1,317
(528)
19,836

14,858
1,969
0
(517)
16,310

4,189
3,526

16,820
2,502
(275)
19,047

13,346
1,786
0
(274)
14,858

3,474
4,189

No impairment of property, plant and equipment was recognized in the
2017 and 2016 ﬁ nancial years.

Depreciation is included in the following line items of the income
statement.

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. There were no mate-
rial contractual commitments for the purchase of property, plant and
equipment as of the reporting date.

in 000’ €

Research and Development
General and Administrative

TOTAL

2017

1,672
297
1,969

2016

1,518
268
1,786

Notes

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

137

5.7

IN TANGIBL E ASSE T S

in 000’ €

Patents

License Rights

In-process
R&D Programs

Software

Goodwill

Total

Cost
JANUARY 1, 2017
Additions
Disposals
DECEMBER 31, 2017

Accumulated Amortization
and Impairment
JANUARY 1, 2017
Amortization Charge for the Year
Impairment
Disposals
DECEMBER 31, 2017

Carrying Amount
JANUARY 1, 2017
DECEMBER 31, 2017

Cost
JANUARY 1, 2016
Additions
DECEMBER 31, 2016

Accumulated Amortization
and Impairment
JANUARY 1, 2016
Amortization Charge for the Year
Impairment
DECEMBER 31, 2016

Carrying Amount
JANUARY 1, 2016
DECEMBER 31, 2016

16,419
640
(64)
16,995

11,096
1,230
64
(64)
12,326

5,323
4,669

16,064
355
16,419

9,923
1,173
0
11,096

6,141
5,323

23,896
0
0
23,896

20,749
148
0
0
20,897

3,147
2,999

23,896
0
23,896

20,651
98
0
20,749

3,245
3,147

60,960
11,140
(19,941)
52,159

10,141
0
9,800
(19,941)
0

50,819
52,159

60,960
0
60,960

0
0
10,141
10,141

60,960
50,819

5,800
53
0
5,853

4,515
683
0
0
5,198

1,285
655

5,744
56
5,800

3,808
707
0
4,515

1,936
1,285

11,041
0
0
11,041

3,676
0
0
0
3,676

7,365
7,365

11,041
0
11,041

3,676
0
0
3,676

7,365
7,365

118,116
11,833
(20,005)
109,944

50,177
2,061
9,864
(20,005)
42,097

67,939
67,847

117,705
411
118,116

38,058
1,978
10,141
50,177

79,647
67,939

In the 2017 ﬁ nancial year, impairment losses of € 0.1 million were
recogni zed on patents and licenses. No impairment of patents and
licen ses was recognized in the 2016 ﬁ nancial year.

Amortization is included in the following line items of the income
statement.

As of December 31, 2017, in-process research and development pro-
grams were subject to an impairment test as required by IAS 36. This
test indicated no need for impairment. Further details on the impair-
ment of in-process research and development programs can be found
in Item 5.7.3* in the Notes.
*C R O S S - R E F E R E N C E to page 138

The carrying amount of intangible assets pledged as security amounts
to € 26.5 million and relates to a government grant in the amount of
€ 1.5 million.

in 000’ €

Research and Development

Research and Development
(Write-oﬀ )
General and Administrative

TOTAL

2017

1,958

9,864
103
11,925

2016

1,872

10,141
106
12,119

5.7.1 PATE NTS
In the 2017 ﬁ nancial year, the carrying amount of patents declined by
€ 0.6 million from € 5.3 million to € 4.7 million. This was the result of
additions amounting to € 0.6 million for patent applications, particu-
larly for proprietary programs and technologies, which were oﬀ set by
straight-line amortization of € 1.2 million.

138 F i n a n c i a l S t a t e m e n t s

Notes

5.7.2 LICE NSES
In the 2017 ﬁ nancial year, the carrying amount of licenses declined by
€ 0.1 million from € 3.1 million to € 3.0 million.

5.7.5 G O ODWILL
The annual goodwill impairment test was performed on September 30,
2017.

5.7.3 IN - PRO CES S R&D PRO GR AMS
In the 2017 ﬁ nancial year, the carrying amount of in-process R&D
programs increased by € 1.3 million to € 52.2 million. The reason for
this increase was the capitalization of a milestone payment made in
the amount of € 11.1 million, which was oﬀ set by an impairment on
MOR209/ES414 of € 9.8 million. The reason for the impairment was the
termination of the cooperation with Aptevo Therapeutics in 2017 due to
the expectation of a delay in the development plan, a delayed market
entry and a delay in the occurrence of future cash ﬂ ows compared to
pre vious assumptions.

As of December 31, 2017, this balance sheet item contained capitalized
upfront payments from the in-licensing of one compound for the
Proprie tary Development segment as well as subsequent milestone
payments for this compound which were paid at a later point in time.
Additionally, the line item also included two compounds resulting from
an acquisition.

The annual impairment test was performed on September 30, 2017. At
that time, the compound MOR208, an intangible asset with indeﬁ nite
useful life and a carrying amount of € 23.9 million, was subject to an
impairment test as required by IAS 36. The recoverable amount of the
cash-generating unit MOR208, which is part of the Proprie tary Develop-
ment segment, was determined on the basis of value-in-use calcula-
tions. The calculation showed that the recoverable amount was higher
than the carrying amount of the cash-generating unit. The cash ﬂ ow
forecasts took into account expected cash inﬂ ows from the potential
commercialization of the compound and cash outﬂ ows from the ex-
pected research and development as well as commercialization costs.
The cash ﬂ ow forecasts are based on the term with patent protection
for MOR208. For this reason, a planning horizon of about 20 years is
considered appropriate for the value-in-use calculation. The values of
the underlying assumptions were determined using both internal
(past experience) and external sources of information (market infor-
mation). Based on the updated cash ﬂ ow forecast, the value-in-use was
determined as follows: A beta factor of 1.2 (2016: 1.2) and WACC before
taxes of 9.4 % (2016: 8.6 %). A detailed sensitivity analysis was per-
formed for the discount rate. A sensitivity analysis for changes in the
cash ﬂ ows has not been performed since the cash ﬂ ows from research
and development as well as commercialization of the compound have
already been probability-adjusted in the value-in-use calculations so
as to reﬂ ect the probabilities of success of phases in clinical trials. The
analysis did not reveal any need for impairment. The values ascribed
to the assumptions correspond to the Management Board’s forecasts
for future development and are based on internal planning scenarios
as well as external sources of information. No indicators for impair-
ments were identiﬁ ed at December 31, 2017.

5.7.4 SOF T WARE
In the 2017 ﬁ nancial year, additions to this line item totaled € 0.1 million.
The carrying amount decreased by € 0.6 million from € 1.3 million in
2016 to € 0.7 million in 2017. Additions were oﬀ set by amortization of
€ 0.7 million.

As of September 30, 2017, goodwill of € 3.7 million from the 2010
acquisi tion of Sloning BioTechnology GmbH was subject to an impair-
ment test as required by IAS 36. The recoverable amount of the cash-
generating unit Slonomics technology, which is part of the Partnered
Discovery segment, was determined on the basis of value-in-use calcu-
lations. The calculation showed that the recoverable amount was
higher than the carrying amount of the cash-generating unit. The cash
ﬂ ow forecasts took into account the payments expected under existing
contracts as well as the future free cash ﬂ ows from the contribution of
the Slonomics technology to partnered programs and was oﬀ set by
expec ted personnel and administrative expenses. Cash ﬂ ow forecasts
are based on a period of ten years because the Management Board
belie ves that commercialization through licensing agreements, up-
front payments, milestone payments, funded development services
and royalties is only feasible by means of medium- to long-term con-
tracts. For this reason, a planning horizon of ten years is considered
appropriate for the value-in-use calculation. The cash ﬂ ow forecasts
are largely based on the assumption that the Slonomics technology is
very beneﬁ cial for existing customers. The values of the underlying
assumptions were determined using both internal (past experience)
and external sources of information (market information). Based on the
updated ten-year cash ﬂ ow forecast, the value-in-use was determined
as follows: A beta factor of 1.2 (2016: 1.2), WACC before taxes of 10.6 %
(2016: 12.2 %) and a perpetual growth rate of 1 % (2016: 1 %). A detailed
sensitivity analysis was performed for the growth rate and the
discount rate for calculating value-in-use. The sensitivity analysis
took into account the change in one assumption, with the remaining
assumptions remaining unchanged from the original calculation. A
sensitivity analysis for changes in the cash ﬂ ows has not been per-
formed since the cash ﬂ ows have already been probability-adjusted in
the value-in-use calculations so as to reﬂ ect the probabilities of success
of phases in clinical trials. This analysis did not reveal any additional
need for impairment. The values ascribed to the assumptions corre-
spond to the Management Board’s forecasts for future development and
are based on internal planning scenarios as well as external sources of
information.

As of September 30, 2017, goodwill of € 3.7 million and related intangi-
ble assets with indeﬁ nite useful life of € 28.2 million from the Lanthio
Group acquisition was tested for impairment. The recoverable amount
of the cash-generating unit Lanthio Group, which is part of the Pro-
prietary Development segment, was determined on the basis of value-
in-use calculations. The value-in-use was higher than the carrying
amount of the cash-generating unit. The cash ﬂ ow forecasts included
planned cash inﬂ ows from the potential sale of compounds based on
lanthipeptides expected to achieve market approval. These cash inﬂ ows
were oﬀ set by expected operating expenses for compound develop-
ment and clinical trials as well as sales and administrative expenses.
The duration and likelihood of individual stages of the study were
taken into consideration. Cash ﬂ ow forecasts are based on a period of
30 years because the Management Board believes that after the suc-
cessful approval of compounds, the drugs that follow can generate free
cash ﬂ ows within that period of time. The values of the underlying as-
sumptions were determined using both internal (past experience) and
external sources of information (market information). On the basis of

Notes

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

139

the updated cash ﬂ ow forecast, the value-in-use was determined as
follows: A beta factor of 1.2 (2016: 1.2) and WACC before taxes of 12.1 %
(2016: 11.9 %). A detailed sensitivity analysis was performed with regard
to the discount rate. A sensitivity analysis for changes in the cash
ﬂ ows has not been performed since the cash ﬂ ows from research and
development as well as commercialization of the compounds have al-
ready been probability-adjusted in the value-in-use calculations so as
to reﬂ ect the probabilities of success of phases in clinical trials. This
analysis did not reveal any need for impairment. The values ascribed
to the assumptions correspond to the Management Board’s forecasts
for future development and are based on internal planning scenarios
as well as external sources of information.

No indicators for impairments were identiﬁ ed at December 31, 2017.

5.8 PREP AID EXPENSE S AND O T HER ASSE T S,

NE T OF CURREN T P OR T ION

This line item included the non-current portion of prepaid expenses
and other assets and mainly resulted from prepaid rent for the premises
in Semmelweisstraße 7 in Planegg. The Group classiﬁ ed certain line
items under other assets as “restricted cash” that are not available for
use in the Group’s operations (see Items 2.8.1* and 5.1* in the Notes).
As of December 31, 2017 and December 31, 2016, the Group held long-
term restricted cash in the amount of € 0.7 million and € 0.9 million,
respectively, for issued rent guarantees and of € 0.1 million for convert-
ible bonds granted to employees (December 31, 2016: € 0.2 million).
*C R O S S - R E F E R E N C E to page 123 and page 133

The table below shows the breakdown of this line item.

in 000’ €

12/31/2017

12/31/2016

Accrued expenses mainly included accrued personnel expenses for
payments to employees and management amounting to € 5.0 million
(December 31, 2016: € 2.8 million), provisions for outstanding invoices
in the amount of € 2.6 million (December 31, 2016: € 2.6 million), exter-
nal laboratory services in the amount of € 26.3 million (December 31,
2016: € 16.2 million), license payments in the amount of € 0.2 million
(December 31, 2016: € 0.1 million), audit fees and other audit-related
costs in the amount of € 0.2 million (December 31, 2016: € 0.1 million)
and expenses for legal advice in the amount of € 2.1 million (December
31, 2016: € 1.0 million).

At the Company’s Annual General Meeting in May 2017, the Super-
visory Board was authorized to appoint PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft (PwC GmbH), Munich, as the auditor.

In the 2017 ﬁ nancial year, PwC GmbH received compensation from
MorphoSys in the amount of € 351,044, including audit fees in the
amount of € 252,725 as well as fees for other services in the amount of
€ 98,319. PwC GmbH did neither provide other audit-related and valua-
tion services nor tax consultation services in 2017.

TAX PROVI SIONS AND PROVI SIONS

6.2
As of December 31, 2017, the Group recorded tax provisions and provi-
sions of € 1.5 million (2016: € 4.9 million).

Tax provisions mainly consisted of income tax expenses and provi-
sions included provisions for onerous contracts and lease obligations
for oﬃ ce premises, which will not be used anymore in the future, as
well as for potential losses resulting from unsettled forward rate
agreements. Furthermore provisions comprised obligations resulting
from an agreement with a contract manufacturing organization.

Prepaid Expenses,
Net of Current Portion
Other Current Assets

TOTAL

2,546
798
3,344

2,783
1,111
3,894

6 Notes to Equity and Liabilities of the

Balance Sheet

6.1 ACCOUN T S P AYABL E AND ACCRUED EXPENSE S
Accounts payable were non-interest-bearing and under normal circum-
stances had payment terms of no more than 30 days.

Accounts payable are listed in the table below.

in 000’ €

12/31/2017

12/31/2016

Trade Accounts Payable
Licenses Payable
Accrued Expenses
Other Liabilities

TOTAL

4,622
196
36,408
3,586
44,812

8,457
179
22,838
749
32,223

140 F i n a n c i a l S t a t e m e n t s

Notes

As of December 31, 2017, tax provisions and provisions are uncertain
in their amount and are expected to be utilized in 2018.

The table below shows the development of tax provisions and current
and non-current provisions in the 2017 ﬁ nancial year.

in 000’ €

Tax Provisions
Provisions

TOTAL

01/01/2017

Additions

Utilized

Released

12/31/2017

1,652
3,218
4,870

147
1,116
1,263

1,484
1,841
3,325

0
1,284
1,284

315
1,209
1,524

6.3 DEF ERRED REVENUE S
Deferred revenues are payments received from customers for which
the services have not been rendered. The table below shows the devel-
opment of this line item.

in 000’ €

OPENING BAL ANCE

Prepayments Received in the
Fiscal Year

Revenue Recognized through
Release of Prepayments in line
with Services Performed in the
Fiscal Year

CLOSING BAL ANCE
thereof short-term
thereof long-term

2017

2,905

2016

4,507

18,386

17,441

(19,596)
1,695
1,389
306

(19,043)
2,905
1,232
1,673

6.4 O T HER L IABIL I T IE S
Other liabilities exclusively consisted of the deferred amount of the
rent-free period for the building located at Semmelweisstraße 7,
Planegg, as agreed in the lease contract. This item is released over the
contractually agreed minimum rent period.

The current portion amounting to € 0.1 million of this liability was
inclu ded in the item accounts payable and accrued expenses.

6.5 S T O CKHOL DERS’ EQUI T Y

6.5.1 C OMMON STO CK
On December 31, 2017, the Company’s common stock, including trea-
sury stock, increased by € 261,015 to € 29,420,785 from its level of
€ 29,159,770 on December 31, 2016. Each no-par value share is entitled
to one vote. Common stock increased by € 261,015 as a result of the
exercise of 261,015 convertible bonds granted to the Management
Board and the Senior Management Group. The weighted-average exer-
cise price of the exercised convertible bonds was € 31.88.

On December 31, 2017, the Company held 319,678 shares of treasury
stock amounting to € 11,826,981 which represents a decrease of
€ 2,821,231 compared to December 31, 2016 (396,010 shares,
€ 14,648,212). This decrease was the result of the transfer of 61,871
shares of treasury stock to the Management Board and Senior Manage-
ment under the performance-based 2013 long-term incentive plan (LTI
plan) totaling € 2,286,752. The vesting period for this LTI program
expi red on April 1, 2017 and October 1, 2017 and provides or provided
beneﬁ ciaries a six-month option to receive a total of 61,871 shares. In
addition, in March 2017, Chief Development Oﬃ cer Dr. Peters received

9,505 treasury shares worth € 351,305. In November 2017, Chief
Scientiﬁ c Oﬃ cer Dr. Enzelberger received 4,956 treasury shares worth
€ 183,174. As a result, the number of MorphoSys shares held by the
Company as of December 31, 2017 amounted to 319,678 (December 31
2016: 396,010).

6.5.2 AUTHORIZE D CAPITAL
The number of authorized ordinary shares increased from 10,584,333
on December 31, 2016, to 14,579,885. This increase resulted from the
cancellation of Authorized Capital 2015-I amounting to € 10,584,333
and the creation of Authorized Capital 2017-I in the amount of
€ 2,915,977 and Authorized Capital 2017-II in the amount of
€ 11,663,908 at the Annual General Meeting on May 17, 2017. Within
the scope of Authorized Capital 2017-I and 2017-II, with the Super-
visory Board’s approval, the Management Board received authoriza-
tion to increase the Company’s common stock on one or more occa-
sions until and including April 30, 2022 by up to € 2,915,977 and
€ 11,663,908, respectively, by issuing up to 2,915,977 and 11,663,908
new, no-par-value bearer shares.

Pursuant to the Company’s articles of association, the shareholders
may authorize the Management Board to increase the share capital
with the consent of the Supervisory Board within a period of ﬁ ve years
by issuing shares for a certain total amount, which are referred to as
authorized capital (genehmigtes Kapital) and is a concept under German
law that enables the Company to issue shares without going through
the process of obtaining another shareholders’ resolution. The aggregate
nominal amount of the authorized capital created by the shareholders
may not exceed one-half of the share capital existing at the time of
registration of the authorized capital with the commercial register.

6.5.3 C ONDITIONAL CAPITAL
The number of ordinary shares of conditional capital compared to De-
cember 31, 2016 decreased from 6,752,698 to 6,491,683 shares due to
the exercise of 261,015 conversion rights in 2017. The reduction in or-
dinary shares of conditional capital through the exercise of 261,015
conversion rights was entered in the commercial register in December
2017.

The shareholders may resolve to amend or create conditional capital
(bedingtes Kapital). However, they may do so only to issue conversion
or subscription rights to holders of convertible bonds, in preparation
for a merger with another company or to issue subscription rights to
employees and members of the Management Board of the Company or
of an aﬃ liated company by way of a consent or authorization resolu-
tion. According to German law, the aggregate nominal amount of the
conditional capital created at the shareholders’ meeting may not exceed

Notes

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

141

one-half of the share capital existing at the time of the shareholders’
meeting adopting such resolution. The aggregate nominal amount of
the conditional capital created for the purpose of granting subscription
rights to employees and members of the management of our company
or of an aﬃ liated company may not exceed 10 % of the share capital
existing at the time of the shareholders’ meeting adopting such
resolution.

6.5.4 TRE ASURY STO CK
In contrast to the year 2016, the Group did not repurchase any of its
own shares in 2017. The composition and development of this line item
is listed 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
Purchase in 2014
As of 12/31/2014
Purchase in 2015
Transfer in 2015
As of 12/31/2015
Purchase in 2016
Transfer in 2016
As of 12/31/2016
Transfer in 2017
As of 12/31/2017

Number of
Shares

79,896
84,019
163,915
91,500
255,415
84,475
339,890
111,000
450,890
88,670
(104,890)
434,670
52,295
(90,955)
396,010
(76,332)
319,678

Value

9,774
1,747,067
1,756,841
1,837,552
3,594,393
2,823,625
6,418,018
7,833,944
14,251,962
5,392,931
(3,816,947)
15,827,946
2,181,963
(3,361,697)
14,648,212
(2,821,231)
11,826,981

6.5.5 ADDITIONAL PAID - IN CAPITAL
On December 31, 2017, additional paid-in capital amounted to
€ 438,557,857 (December 31, 2016: € 428,361,175). The total increase
of € 10,196,682 resulted mainly from the exercise of convertible bonds
in the amount of € 8,043,313 and the allocation of personnel expenses
resulting from share-based payments in the amount of € 4,974,599.
There was an oﬀ setting eﬀ ect from the decline in the reclassiﬁ cation of
treasury shares in the context of the allocation of shares under the
2013 performance-based share plan in the amount of € 2,286,752 and
the allocation of treasury shares to Dr. Peters and Dr. Enzelberger in
the amount of € 534,479.

6.5.6 RE VALUATION RESE RVE
As of December 31, 2017, the revaluation reserve amounted to
€ – 105,483 (December 31, 2016: € 136,101). The decline of € 241,584
resulted from the change in the unrealized gains and losses from
available-for-sale securities and bonds in the amount of € 117,829 and
the change in unrealized losses of € – 359,413 from cash ﬂ ow hedges.

6.5.7 AC CUMUL ATE D DE FICIT
The consolidated net loss of € – 69,826,469 is reported in accumulated
deﬁ cit. The accumulated deﬁ cit increased from € – 27,548,669 in the
year 2016 to € – 97,375,138 in 2017.

7 Remuneration System for the

Management Board and Employees
of the Group

2017 S T O CK OP T ION PL AN

7.1
On April 1, 2017, MorphoSys established a stock option plan (SOP) for
the Management Board, the Senior Management Group and employees
of the Company who are not members of the Senior Management
Group. In accordance with IFRS 2, the program is considered an
equity-settled share-based payment and is accounted for accordingly.
The grant date was April 1, 2017 and the vesting period/performance
period is four years. The stock options vest each year by 25 % within
the four-year vesting period, provided that the performance criteria
speciﬁ ed for the respective period have been 100 % fulﬁ lled. The
number of stock options vested per year is calculated based on the key
performance criteria of the absolute MorphoSys share price perfor-
mance and the relative MorphoSys share price performance compared
to the NASDAQ Biotechnology Index and the TecDAX Index. The perfor-
mance criteria can be met annually up to a maximum of 200 %. If the
speciﬁ ed performance criteria are met by less than 0 % in one year, no
shares will be earned for that year (entitlement). The right to exercise
a stock option, however, arises only at the end of the four-year vesting
period/performance period.

The exercise price, derived from the average market price of the
Company’s shares in the XETRA closing auction on the Frankfurt
Stock Exchange from the 30 trading days prior to the issue of the stock
options, is € 55.52.

MorphoSys reserves the right to settle the exercise of stock options
through newly created shares from Conditional Capital 2016-III,
through the issuance of treasury shares or in cash. The exercise period
is three years after the end of the four-year vesting period/perfor-
mance period, which is March 31, 2024.

If a member of the Management Board ceases to hold an oﬃ ce at the
MorphoSys Group through termination (or the Management Board
member terminates the employment contract), resignation, death, injury,
member terminates the employment contract), resignation, death, injury
member terminates the employment contract), resignation, death, injury,
disability or the attainment of retirement age (receipt of a standard
retirement pension, early-retirement pension or disability pension, as
long as the requirements for the disability pension entitlement are
met) or under other circumstances subject to the Supervisory Board’s
discretion, the Management Board member (or the member’s heirs) is
entitled to a precise daily pro rata number of stock options.

If a member of the Management Board ceases to hold an oﬃ ce at the
MorphoSys Group for good reason as deﬁ ned by Sec. 626 Para. 2 of the
German Civil Code (BGB), all unexercized stock options will be for-
feited without any entitlement to compensation.

If a change of control occurs during the four-year vesting period, the
stock options will become fully vested. In this case, however, the right
to exercise the stock options arises only at the end of the four-year
vesting period.

142 F i n a n c i a l S t a t e m e n t s

Notes

As of April 1, 2017, a total of 81,157 stock options had been granted to
the beneﬁ ciaries, of which 40,319 had been granted to the Manage-
ment Board (further details can be found in the “Stock Options” table
in Note 7.4* “Related Parties”), 37,660 to the Senior Management
Group and 3,178 to the Company employees who do not belong to
the Senior Management Group. The stated number of stock options
granted is based on 100 % target achievement. The fair value of the
stock options on the grant date (April 1, 2017) was € 21.41 per stock
option. In the period from the grant date to December 31, 2017, one
beneﬁ ciary had left MorphoSys, resulting in the forfeiture of 1,402
stock options. For the calculation of personnel expenses resulting from
share-based payments under the 2017 Stock Option Plan, the assump-
tion is that two beneﬁ ciaries would leave the company during the four-
year period.
*C R O S S - R E F E R E N C E to page 147

In 2017, personnel expenses from stock options under the Group’s 2017
SOP amounted to € 801,330.

The fair value of the stock options from the 2017 Stock Option Plan has
been determined with a Monte Carlo simulation. The expected volatility
is based on the development of the share volatility of the last four
years. Furthermore, the calculation of fair value equally considered
the performance criteria of the absolute and relative performance of
MorphoSys shares compared to the development of the NASDAQ Bio-
tech Index and the TecDAX Index. The parameters of each program are
listed in the table below.

Share Price on Grant Date in €
Strike Price in €
Expected Volatility of the MorphoSys share in %
Expected Volatility of the NASDAQ Biotech Index in %
Expected Volatility of the TecDAX Index in %
Performance Term of Program in Years
Dividend Yield in %

Risk-free Interest Rate in %

April 2017
Stock Option
Plan

55.07
55.52
37.49
25.07
16.94
4.0
n/a

between
0.03 and 0.23

CONVER T IBL E B OND S – 2013 PRO GRAM

7.2
On April 1, 2013, MorphoSys AG granted the Management Board and
members of the Senior Management Group convertible bonds with a
total nominal value of € 225,000 and divided into 449,999 bearer bonds
with equal rights from “Conditional Capital 2008-III”. The beneﬁ ciaries
have the right to convert the bonds into Company shares. Each convert-
ible bond can be exchanged for one of the Company’s bearer shares
equal to the proportional amount of common stock, which currently
stands at € 1. Exercise of the convertible bonds is subject to several
conditions, such as the achievement of performance targets, the expi-
ration of vesting periods, the exercisability of the conversion rights,
the existence of an employment or service contract that is not under
notice and the commencement of the exercise period.

The conversion price amounted to € 31.88 and was derived from the
Company’s share price in the XETRA closing auction of the Frankfurt
Stock Exchange on the trading day preceding the issue of the convert-
ible bonds. The exercise of the conversion rights is admissible since, on
at least one trading day during the lifetime of the convertible bonds,
the share price of the Company has risen to more than 120 % of the
price in the XETRA closing auction of the Frankfurt Stock Exchange on
the trading day preceding the issue of the convertible bonds.

The exercise of the conversion rights is only admissible since the expi-
ration of the four-year vesting period from the grant date. For every
year without a notice of termination of the employment relationship
with the Company or an aﬃ liated company, 25 % of the conversion
rights become vested.

The following table shows the development of the convertible bond
plans for Group employees in the 2017 and 2016 ﬁ nancial years.

OU TSTANDIN G ON
JANUARY 1, 2016
Granted
Exercised
Forfeited
Expired

OU TSTANDIN G ON
DECEMBER 31, 2016

OU TSTANDIN G ON
JANUARY 1, 2017
Granted
Exercised
Forfeited
Expired

OU TSTANDIN G ON
DECEMBER 31, 2017

Convertible
Bonds

Weighted-
average
Price (€)

449,999
0
0
(13,414)
0

436,585

436,585
0
(261,015)
0
0

175,570

31.88
0.00
0.00
31.88
0.00

31.88

31.88
0.00
31.88
0.00
0.00

31.88

From the grant date until December 31, 2017, one beneﬁ ciary left
MorphoSys and, therefore, 13,414 convertible bonds were forfeited. As
December 31, 2017, the number of vested convertible bonds totaled
175,570 shares (December 31, 2016: 327,439 shares).

The following overview includes the weighted-average exercise price
as well as information on the contract duration of signiﬁ cant groups of
convertible bonds as of December 31, 2017.

Notes

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

143

Range of Exercise Prices

€ 25.00 – € 40.00

Number
Outstanding

Remaining
Contractual
Life
(in Years)

Weighted-
average
Exercise
Price (€)

Number
Exercisable

Weighted-
average
Exercise
Price (€)

175,570
175,570

2.25
2.25

31.88
31.88

175,570
175,570

31.88
31.88

The Group recognizes personnel expenses resulting from convertible
bonds on a straight-line basis in accordance with IFRS 2 and IAS 32.28.
The equity component of the convertible bonds is presented separately
under additional paid-in capital. The corresponding amount is recog-
nized as personnel expenses from convertible bonds. In 2017 and
2016, compensation expenses related to convertible bonds amounted to
€ 287,601 and € 40,375, respectively.

7.3

L ONG -T ERM INCEN T IVE PRO GRAMS

7.3.1 2013 LONG -TE RM INCE NTIVE PRO GR AM
On April 1, 2013, MorphoSys established a long-term incentive plan
(LTI plan) for the Management Board and the Senior Management
Group. The vesting period of this plan expired on April 1, 2017. Accord-
ing to IFRS 2, this program is considered a share-based payment
program with settlement in equity instruments and is accounted for
accordingly. The LTI plan is a performance-related share plan and is
paid out in ordinary shares (performance shares) of MorphoSys AG if
predeﬁ ned key performance criteria are achieved. The key performance
criteria are based on the absolute MorphoSys share price performance
and the relative MorphoSys share price performance compared to the
NASDAQ Biotechnology Index and the TecDAX Index. These criteria
are approved annually by the Supervisory Board. The fulﬁ llment of
these criteria was set at 200 % for one year, 54 % for one year and 0 % for
two years. The Supervisory Board set the “company factor” at 1.57,
meaning the number of performance shares to be allocated was scaled
by a factor of 1.57. This factor resulted in an adjustment of previously
recognized personnel expenses of € 1.0 million in the 2017 ﬁ nancial
year. Previously, personnel expenses resulting from the 2013 LTI pro-
gram were recognized based on the assumption of a company factor of
1.0. Based on these terms and the company factor, a total of 61,323
performance shares of MorphoSys AG was transferred to beneﬁ ciaries
on October 2, 2017 after the expiration of the four-year vesting period.
The Management Board received 36,729 performance shares (for
further information, please see the tables titled “Shares” and “Perfor-
mance Shares” in Item 7.4* “Related Parties”), the Senior Management
Group received 21,248 performance shares and former members of the
Senior Management Group who have since left the Company received
3,346 performance shares.
*C R O S S - R E F E R E N C E to page 147

On October 1, 2013, MorphoSys established another long-term incen-
tive plan (LTI plan) for Senior Management Group members. The vest-
ing period of this plan expired on October 1, 2017. The terms of this
plan were identical to the April 1, 2013 plan. The fulﬁ llment of the
performance criteria was set at 200 % for one year, 54.8 % for one year
and 0 % for two years. The Supervisory Board set the “company factor”
at 1.57, meaning the number of performance shares to be allocated was
scaled by a factor of 1.57. This factor resulted in an adjustment of pre-
viously recognized personnel expenses of € 0.02 million in the 2017
ﬁ nancial year. Previously, personnel expenses resulting from the 2013
LTI program were recognized based on the assumption of a company
factor of 1.0. Based on these terms and the company factor, a total of
548 performance shares of MorphoSys AG was allocated to beneﬁ cia-
ries after the expiration of the four-year vesting period in December
2017. The Senior Management Group received all of the 548 perfor-
mance shares.

In 2017, personnel expenses from stock options under the Group’s 2013
LTI plan amounted to € 1,038,639 (2016: € – 23,571).

7.3.2 2014 LONG -TE RM INCE NTIVE PRO GR AM
On April 1, 2014, MorphoSys established a 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
accoun ted for accordingly. The LTI plan is a performance-related share
plan and will be paid out in ordinary shares (performance shares) of
MorphoSys AG if predeﬁ ned key performance criteria are achieved.
These criteria are evaluated annually by the Supervisory Board. The
grant date was April 1, 2014 and the vesting/performance period is
four years. If the predeﬁ ned key performance criteria for the respec-
tive period are fully met, 25 % of the performance shares become
vested in each year of the four-year vesting period. The number of
performance shares vested per year is calculated based on the key per-
formance criteria of the absolute MorphoSys share price performance
and the relative MorphoSys share price performance compared to the
NASDAQ Biotechnology Index and the TecDAX Index. The number of
performance shares vested each year will be reduced or increased to
the extent that the performance criteria of the respective year have
been achieved between only 50 % and 99.9 % (<100 %) or the achieve-
ment of the performance criteria has exceeded 100 % (maximum 200 %).
If in one year the performance criteria are met by less than 50 %, no
performance 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. How-
ever, in justiﬁ ed cases, the Supervisory 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 performance shares under the
LTI plan, however, occurs only at the end of the four-year vesting period.

144 F i n a n c i a l S t a t e m e n t s

Notes

At the end of the four-year vesting period, there is a six-month exercise
period during which the Company can transfer the shares to the bene-
ﬁ ciaries. Beneﬁ ciaries are free to choose the exercise date within this
exercise period.

If the number of repurchased shares is not suﬃ cient 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 oﬃ ce at the
MorphoSys Group because of termination (or if the Management Board
member terminates the employment contract), resignation, death,
injury, disability, by reaching retirement age (receipt of a normal re-
tirement pension, early-retirement pension or disability pension, as
long as the requirements for the disability pension entitlement are
met) or under other circumstances subject to the Supervisory Board’s
discretion, the Management Board member (or the member’s heirs) is
entitled to performance shares determined on a precise daily pro rata
basis.

If a member of the Management Board ceases to hold an oﬃ ce at the
MorphoSys Group for good reason as deﬁ ned by Sec. 626 Para. 2 of the
German Civil Code (BGB) and/or as deﬁ ned by Sec. 84 Para. 3 of the
German Stock Corporation Act (AktG), the beneﬁ ciary will not be
entitled to performance shares.

If a change of control occurs during the four-year vesting period, all
performance shares will become fully vested. In this case, the right to
receive a certain allocation of performance shares under the LTI plan
occurs only at the end of the four-year vesting period.

In March 2014, MorphoSys repurchased 111,000 of its own shares on
the stock exchange at an average price of € 70.53 per share. The repur-
chased shares may be used for all purposes named in the authoriza-
tions of the Annual General Meetings on May 19, 2011 and May 23,
2014 and particularly for any existing or future employee participation
schemes and/or to ﬁ nance acquisitions. The shares may also be
redeemed.

A total of 32,513 of these shares were allocated to beneﬁ ciaries on April
1, 2014 with 18,264 performance shares allocated to the Management
Board (further details may be found in the table titled “Performance
Shares” in Item 7.4* “Related parties”) and 14,249 performance shares
to the Senior Management Group. The number of performance shares
allocated is based on the full achievement of performance criteria and
a company factor of 1. The fair value of the performance shares on the
grant date (April 1, 2014) was € 62.17 per share. No dividends were
included in the determination of the fair value of the performance
shares because the Group does not intend to distribute any dividends
in the foreseeable future. From the grant date until December 31, 2017,
three beneﬁ ciaries left MorphoSys and, therefore, 1,829 performance
shares were forfeited. For the calculation of the personnel expenses
from share-based payments under the 2014 LTI plan, it was initially
assumed that one beneﬁ ciary would leave the Company during the
four-year period. This assumption was updated in 2017.
*C R O S S - R E F E R E N C E to page 147

In 2017, personnel expenses resulting from performance shares under
the Group’s 2014 LTI plan amounted to € 55,759 (2016: € 178,518).

7.3.3 2015 LONG -TE RM INCE NTIVE PRO GR AM
On April 1, 2015, MorphoSys established a 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 accordingly. The LTI plan is a performance-related share
plan and will be paid out in ordinary shares (performance shares) of
MorphoSys AG if predeﬁ ned key performance criteria are achieved.
These criteria are evaluated annually by the Supervisory Board. The
grant date was April 1, 2015 and the vesting/performance period is
four years. If the predeﬁ ned key performance criteria for the respec-
tive period are fully met, 25 % of the performance shares become
vested in each year of the four-year vesting period. The number of
performance shares vested per year is calculated based on the key per-
formance criteria of the absolute MorphoSys share price performance
and the relative MorphoSys share price performance compared to the
NASDAQ Biotechnology Index and the TecDAX Index. The number of
performance shares vested each year will be reduced or increased to
the extent that the performance criteria of the respective year have
been achieved between only 50 % and 99.9 % (<100 %) or the achieve-
ment of the performance criteria has exceeded 100 % (maximum 200 %).
If in one year the performance criteria are met by less than 50 %, no
performance 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. How-
ever, in justiﬁ ed cases, the Supervisory 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 performance shares under the
LTI plan, however, occurs only at the end of the four-year vesting period.

At the end of the four-year waiting period, there is a six-month exercise
period during which the Company can transfer the shares to the bene-
ﬁ ciaries. Beneﬁ ciaries are free to choose the exercise date within this
exercise period.

Notes

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

145

performance shares vested each year will be reduced or increased to
the extent that the performance criteria of the respective year have
been achieved between only 50 % and 99.9 % (<100 %) or the achieve-
ment of the performance criteria has exceeded 100 % (maximum 200 %).
If in one year the performance criteria are met by less than 50 %, no
performance 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. How-
ever, in justiﬁ ed cases, the Supervisory 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 performance shares under the
LTI plan, however, occurs only at the end of the four-year vesting/per-
formance period.

In April 2015, MorphoSys repurchased 88,670 of its own shares on the
stock exchange at an average price of € 60.79 per share. The repur-
chased shares may be used for all purposes named in the authorization
of the Annual General Meeting on May 23, 2014 and particularly for
any existing or future employee participation schemes and/or to ﬁ nance
acquisitions. The shares may also be redeemed.

A total of 40,425 of these shares were allocated to beneﬁ ciaries on
April 1, 2015 with 21,948 performance shares allocated to the
Management Board (further details may be found in the table titled
“Performance Shares” in Item 7.4* “Related parties”) and 18,477 per-
formance shares to the Senior Management Group. The number of
performance shares allocated is based on the full achievement of
the performance criteria and a company factor of 1. The fair value
of the performance shares on the grant date (April 1, 2015) was € 61.40
per share. No divide nds were included in the determination of the fair
value of the performance shares because the Group does not intend
to distribute any dividends in the foreseeable future. From the grant
date until December 31, 2017, two beneﬁ ciaries left MorphoSys, and
therefore 3,055 performance shares were forfeited. For the calculation
of the personnel expenses from share-based payments under the
2015 LTI plan, it was initially assumed that one beneﬁ ciary would
leave the Company during the four-year period. This assumption was
updated in 2017.
*C R O S S - R E F E R E N C E to page 147

In 2017, personnel expenses resulting from performance shares under
the Group’s 2015 LTI plan amounted to € 201,608 (2016: € 837,153).

7.3.4 2016 LONG -TE RM INCE NTIVE PRO GR AM
On April 1, 2016, MorphoSys established a 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 accordingly. The LTI plan is a performance-related share
plan and will be paid out in ordinary shares (performance shares) of
MorphoSys AG if predeﬁ ned key performance criteria are achieved.
These criteria are evaluated annually by the Supervisory Board. The
grant date was April 1, 2016 and the vesting/performance period is
four years. If the predeﬁ ned key performance criteria for the respec-
tive period are fully met, 25 % of the performance shares become
vested in each year of the four-year vesting period. The number of
performance shares vested per year is calculated based on the key per-
formance criteria of the absolute MorphoSys share price performance
and the relative MorphoSys share price performance compared to the
NASDAQ Biotechnology Index and the TecDAX Index. The number of

146 F i n a n c i a l S t a t e m e n t s

Notes

In March 2016, MorphoSys repurchased 52,295 of its own shares on
the stock exchange at an average price of € 41.69 per share. The repur-
chased shares may be used for all purposes named in the authorization
of the Annual General Meeting on May 23, 2014 and particularly for
any existing or future employee participation schemes and/or to ﬁ nance
acquisitions. The shares may also be redeemed.

A total of 68,143 of these shares were allocated to beneﬁ ciaries on
April 1, 2016 with 35,681 performance shares allocated to the
Management Board (further details may be found in the table titled
“Performance Shares” in Item 7.4* “Related parties”) and 32,462 per-
formance shares to the Senior Management Group. The number of
performance shares allocated is based on the full achievement of
the performance criteria and a company factor of 1. The fair value
of the performance shares on the grant date (April 1, 2016) was € 46.86
per share. No divide nds were included in the determination of the fair
value of the performance shares because the Group does not intend
to distribute any dividends in the foreseeable future. From the grant
date until December 31, 2017, four beneﬁ ciaries left MorphoSys, and
therefore 9,350 performance shares were forfeited. For the calculation
of the personnel expenses from share-based payments under the
2016 LTI plan, it was initially assumed that one beneﬁ ciary would
leave the Company during the four-year period. This assumption was
updated in 2017.
*C R O S S - R E F E R E N C E to page 147

In 2017, personnel expenses resulting from performance shares under
the Group’s 2016 LTI plan amounted to € 663,624 (2016: € 1,483,694).

7.3.5 2017 LONG -TE RM INCE NTIVE PL AN
On April 1, 2017, MorphoSys established another long-term incentive
plan (LTI plan) for the Management Board, the Senior Management
Group and employees of the Company who are not members of the
Senior Management Group. According to IFRS 2, this program is con-
sidered a share-based payment program with settlement in equity in-
struments and is accounted for accordingly. The LTI plan is a perfor-
mance-related share plan and will be paid out in ordinary shares
(performance shares) of MorphoSys AG if predeﬁ ned key performance
criteria are achieved. The grant date was April 1, 2017 and the vesting/
performance period is four years. If the predeﬁ ned performance crite-
ria for the respective period are fully met, 25 % of the performance
shares become vested in each year of the four-year vesting period. The
number of performance shares vested per year is calculated based on
the key performance criteria of the absolute MorphoSys share price
performance and the relative MorphoSys share price performance
compared to the NASDAQ Biotechnology Index and the TecDAX Index.
The performance criteria can be met annually up to a maximum of
300 % and up to 200 % for the entire four-year period. If the speciﬁ ed
performance criteria are met by less than 0 % in one year, no shares
will be earned for that year (entitlement). In any case, the maximum
pay-out at the end of the four-year period is limited by a factor deter-
mined by the Group, which generally amounts to 1. However, in justi-
ﬁ ed cases, the Supervisory 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 re-
ceive a certain allocation of performance shares under the LTI plan,
however, occurs only at the end of the four-year vesting/performance
period.

A total of 31,549 of these shares were allocated to beneﬁ ciaries on
April 1, 2017 with 15,675 performance shares allocated to the Manage-
ment Board (further details may be found in the table titled “Perfor-
mance Shares” in Item 7.4* “Related parties”), 14,640 performance
shares allocated to the Senior Management Group and 1,234 perfor-
mance shares allocated to employees of the Company who are not
members of the Senior Management Group. The number of perfor-
mance shares allocated is based on 100 % achievement of the perfor-
mance criteria and a company factor of 1. The fair value of the perfor-
mance shares on the grant date (April 1, 2017) was € 70.52 per share.
From the grant date until December 31, 2017, one beneﬁ ciary left
MorphoSys, and therefore 545 performance shares were forfeited. For
the calculation of the personnel expenses from share-based payments
under the 2017 LTI plan, the assumption is that two beneﬁ ciaries
would leave the company during the four-year period.
*C R O S S - R E F E R E N C E to page 147

Notes

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

147

April 2014
Long-Term
Incentive
Program

April 2015
Long-Term
Incentive
Program

April 2016
Long-Term
Incentive
Program

April 2017
Long-Term
Incentive
Program

68.08
n/a
30.87
20.28
20.18
4.0
n/a

0.44

57.18
n/a
33.09
20.70
20.10
4.0
n/a

0.07

43.28
n/a
34.64
23.39
17.01
4.0
n/a

0.05

55.07
n/a
37.49
25.07
16.94
4.0
n/a

between
0.03 and 0.23

In 2017, personnel expenses resulting from performance shares under
the Group’s 2017 LTI plan amounted to € 1,026,037.

The fair value of the performance shares from the long-term incentive
plans 2014 until 2017 has been determined with a Monte Carlo simula-
tion. The expected volatility is based on the development of the share
volatility of the last four years. Furthermore, the calculation of fair
value equally considered the performance criteria of the absolute
and relative performance of MorphoSys shares compared to the devel-
opment of the NASDAQ Biotech Index and the TecDAX Index. The para-
meters of each program are listed in the table below.

Risk-free Interest Rate in %

7.4 REL AT ED P AR T IE S
Related parties that can be inﬂ uenced by the Group or can have a sig-
niﬁ cant inﬂ uence on the Group can be divided into subsidiaries, mem-
bers of management in key positions and other related entities.

The Group engages in business relationships with members of the
Management Board and Supervisory Board as related parties responsi-
ble for the planning, management and monitoring of the Group. In ad-
dition to cash compensation, the Group has granted the Management
Board 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 Super-
visory Board, as well as the changes in their ownership during the
2017 ﬁ nancial year.

148 F i n a n c i a l S t a t e m e n t s

Notes

MANAG EMENT B OARD
Dr. Simon Moroney
Jens Holstein
Dr. Malte Peters1
Dr. Markus Enzelberger2
Dr. Arndt Schottelius3
Dr. Marlies Sproll4

TOTAL

SUPERVISORY B OARD
Dr. Gerald Möller
Dr. Frank Morich
Dr. Marc Cluzel
Krisja Vermeylen5
Wendy Johnson
Klaus Kühn
Karin Eastham6

TOTAL

S T O C K OP T IONS

MANAG EMENT B OARD
Dr. Simon Moroney
Jens Holstein
Dr. Malte Peters1
Dr. Markus Enzelberger2
Dr. Marlies Sproll4

TOTAL

CONVER T IBL E B OND S

MANAG EMENT B OARD
Dr. Simon Moroney
Jens Holstein
Dr. Malte Peters1
Dr. Markus Enzelberger2
Dr. Arndt Schottelius3
Dr. Marlies Sproll4

TOTAL

01/01/2017

Additions

Sales

12/31/2017

514,214
7,000
-
-
10,397
57,512
589,123

11,000
1,000
500
-
500
0
2,000
15,000

12,024
38,235
9,505
4,956
68,772
68,772
202,264

0
0
0
350
0
0
0
350

42,529
34,235
0
2,600
0
0
79,364

0
0
0
0
0
0
0
0

483,709
11,000
9,505
7,262
-
-
511,476

11,000
1,000
500
350
500
0
-
13,350

01/01/2017

Additions

Forfeitures

Exercises

12/31/2017

0
0
-
-
0
0

12,511
8,197
8,197
5,266
6,148
40,319

0
0
0
0
0
0

12,511
8,197
8,197
5,266
-
34,171

01/01/2017

Additions

Forfeitures

Exercises

12/31/2017

88,386
90,537
-
-
60,537
60,537
299,997

0
0
0
0
0
0
0

0
30,000
0
0
60,537
60,537
151,074

88,386
60,537
0
0
-
-
148,923

Notes

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

149

PERF ORMANC E SHARE S

MANAG EMENT B OARD
Dr. Simon Moroney
Jens Holstein
Dr. Malte Peters1
Dr. Markus Enzelberger2
Dr. Arndt Schottelius3
Dr. Marlies Sproll4

TOTAL

01/01/2017

Additions

Forfeitures

Allocations

12/31/2017

37,220
25,134
-
-
25,134
25,134
112,622

4,864
3,187
3,187
2,047
0
2,390
15,675

0
0
0
0
0
0
0

12,024
8,235
0
0
8,235
8,235
36,729

30,060
20,086
3,187
5,987
-
-
59,320

1 Dr. Malte Peters joined the Management Board of MorphoSys AG on March 1, 2017.
2 Dr. Markus Enzelberger joined the Management Board of MorphoSys AG on November 1, 2017. Prior to his appointment as member of the Management Board 4,906 shares have
been held by Dr. Markus Enzelberger. Under the Long-Term Incentive Programs 2014 to 2016, Dr. Markus Enzelberger was granted 3,940 performance shares as a member of the
Senior Management prior to his appointment as member of the Management Board.

3 Dr. Arndt Schottelius left the Management Board of MorphoSys AG on February 28, 2017. The exercises and allocations presented in the tables “Convertible Bonds” and

4 Dr. Marlies Sproll left the Management Board of MorphoSys AG on October 31, 2017. The exercises presented in the table “Convertible Bonds” were made after resignation from
the Management Board. The respective convertible bonds were granted in a previous year. The table “Shares” shows no further changes in the number of shares after resignation
from the Management Board of MorphoSys.

not presented in the tables.

If a Management Board member’s employment contract terminates due
to death, the member’s spouse or life partner is entitled to the ﬁ xed
monthly salary for the month of death and the 12 months thereafter. In
the event of a change of control, Management Board members are enti-
tled to exercise their extraordinary right to terminate their employ-
ment contracts and receive any outstanding ﬁ xed salary for the re-
mainder of the agreed contract period. Moreover, in such a case, all
stock options and performance shares granted will become vested im-
mediately and can be exercised after the expiration of the statutory
vesting periods. A change of control has occurred when (i) MorphoSys
transfers assets or a substantial portion of its assets to unaﬃ liated
third parties, (ii) MorphoSys merges with an unaﬃ liated company or
(iii) a shareholder or third party holds 30 % or more of MorphoSys’s
voting rights.

While in the management report the remuneration of the Management
Board and Supervisory Boards as members in key management posi-
tions is presented in accordance with the provisions of the German
Corporate Governance Code, the following tables show the expense-
based view in accordance with IAS 24.

The Supervisory Board of MorphoSys AG does not hold any stock
options, convertible bonds or performance shares.

The remuneration system for the Management Board is intended to
encourage sustainable, results-oriented corporate governance. The
Management Board’s total remuneration consists of several compo-
nents, including ﬁ xed compensation, an annual cash bonus that is
depen dent upon the achievement of corporate targets (short-term
incen tives – STI), variable compensation components with long-term
incentives (LTI) and other remuneration components. Variable remu-
neration components with long-term incentive consist of performance
share plans from previous years and the current year, a convertible
bond program from 2013 and a stock option plan from the current year.
The members of the Management Board additionally receive fringe
beneﬁ ts in the form of beneﬁ ts in kind, essentially consisting of a com-
pany car and insurance premiums. All total remuneration packages
are reviewed annually by the Remuneration and Nomination Com-
mittee and compared to an annual Management Board remuneration
analysis to check the scope and appropriateness of the remuneration
packages. The amount of remuneration paid to members of the Manage-
ment Board is based largely on the duties of the respective Manage-
ment Board member, the ﬁ nancial situation and the performance and
business outlook for the Company versus its competition. All resolu-
tions on adjustments to the overall remuneration packages are passed
by the plenum of the Supervisory Board. The remuneration of the
Manage ment Board and the index-linked pension scheme were last
adjus ted in July 2017. The remuneration of the new Management Board
member, Dr. Markus Enzelberger, was amended as of November 1, 2017.

150 F i n a n c i a l S t a t e m e n t s

Notes

MANAGEMEN T B OARD REMUNERAT ION F OR T HE Y EARS 2017 AND 2016 ( IA S 24) :

Dr. Simon Moroney
Chief Executive Ofﬁ cer

Jens Holstein
Chief Financial Ofﬁ cer

Dr. Malte Peters
Chief Development Ofﬁ cer
Appointment: March 1, 2017

2016

2017

2016

2017

2016

2017

Fixed Compensation
Fringe Beneﬁ ts1
One-Year Variable Compensation

Total Short-Term Employee
Beneﬁ ts (IAS 24.17 (a))
Service Cost

Total Beneﬁ t Expenses –
Post-Employment Beneﬁ ts
(IAS 24.17 (b))
Multi-Year Variable Compensation2:

2013 Convertible Bonds Program
(Vesting Period 4 Years)

2012 Long-Term Incentive Program
(Vesting Period 4 Years)

2013 Long-Term Incentive Program
(Vesting Period 4 Years)

2014 Long-Term Incentive Program
(Vesting Period 4 Years)

2015 Long-Term Incentive Program
(Vesting Period 4 Years)

2016 Long-Term Incentive Program
(Vesting Period 4 Years)

2017 Long-Term Incentive Program
(Vesting Period 4 Years)

2017 Stock Option Plan
(Vesting Period 4 Years)

Total Stock-Based Compensation
(IAS 24.17 (e))
Total Compensation

463,457
34,270
210,873

708,600
142,096

500,876
35,912
368,144

904,932
149,567

314,405
46,300
143,054

503,759
92,875

372,652
42,905
273,899

689,456
99,949

142,096

149,567

92,875

99,949

33,964

58,224

34,791

59,641

(42,350)

(29,007)

(10,303)

202,349

(7,075)

138,585

32,972

22,460

22,572

148,799

67,635

101,906

15,383

46,324

269,420

171,688

176,511

112,481

163,906

127,997

107,395

83,861

432,502
1,283,198

814,259
1,868,758

299,698
896,332

563,670
1,353,075

–
–
–

–
–

–

–
–

281,500
568,644
206,903

1,057,047
60,967

60,967

107,395

83,861

191,256
1,309,270

1 In 2017, the fringe beneﬁ ts of Dr. Malte Peters and Dr. Markus Enzelberger each included a one-time compensation in the form of MorphoSys shares as an incentive to join the

Management Board of MorphoSys AG.

2 The fair value was determined pursuant to the regulations of IFRS 2 “Share-based Payments”. This table shows the pro-rata share of personnel expenses resulting from stock-

based compensation for the respective ﬁ nancial year. Further details can be found in Sections 7.1*, 7.2* and 7.3*.

3 The ﬁ gures presented for Dr. Markus Enzelberger do not include any compensation granted for his activities as a member of the Senior Management Group as they do not relate

to his appointment as a member of the Management Board.

4 Dr. Marlies Sproll left the Management Board of MorphoSys AG on October 31, 2017. Since November 1, 2017, Dr. Marlies Sproll has taken on a new part-time role at MorphoSys

as Special Adviser to the CEO. Therefore, the ﬁ gures presented for Dr. Marlies Sproll do not include any remuneration granted for these activities.
*C R O S S - R E F E R E N C E to page 141–143

On January 5, 2017, MorphoSys announced that Dr. Malte Peters would
succeed Dr. Arndt Schottelius as the Chief Development Oﬃ cer and
member of the Management Board of MorphoSys AG. Dr. Schottelius
resigned from his position as Chief Development Oﬃ cer eﬀ ective Feb-
ruary 28, 2017 to pursue new challenges. For the period leading up to
the end of his employment contract on April 30, 2017, Dr. Schottelius
and MorphoSys entered into an exemption agreement. According to
the agreement, Dr. Schottelius was entitled to the remuneration agreed
in his employment contract until the date of April 30, 2017. The remu-
neration included a contractually agreed payment of a pro rata amount
of his annual gross base salary of € 103,252.96 and a bonus of
€ 23,490.05. Dr. Schottelius also exercised the convertible bonds
granted to him in 2013. In addition, he received shares that had vested
after the four-year vesting period under the 2013 Performance Share
Plan. Dr. Schottelius still has a pro rata entitlement based on the 2014,

2015 and 2016 Performance Share Plans, which can be exercised after
a total of four years at the earliest. Dr. Schottelius did not participate
in the 2017 Performance Share Plan. Eﬀ ective March 1, 2017, Dr. Malte
Peters was appointed Chief Development Oﬃ cer of MorphoSys AG. His
employment contract runs until June 30, 2019. As an additional incen-
tive to join MorphoSys, Dr. Peters was granted a one-time compensa-
tion payment for the lost compensation from his former employment.
This compensation was in the form of treasury shares held by
MorphoSys valued at € 500,000. In the 2017 ﬁ nancial year, the grant-
ing of these shares was recognized as personnel expenses from perfor-
mance shares as deﬁ ned by IFRS 2.

On October 30, 2017, MorphoSys announced that Dr. Markus Enzel-
berger would succeed Dr. Marlies Sproll as Chief Scientiﬁ c Oﬃ cer at
MorphoSys AG. Dr. Sproll had been on a temporary leave of absence

2017

204,698

417,158

121,688

743,544

29,186

68,979

53,875

122,854

895,584

2017

222,450

20,427

67,745

310,622

77,976

39,879

138,585

15,383

46,324

112,481

80,538

62,898

496,088

884,686

2017

103,253

9,161

23,490

135,904

28,245

39,879

138,585

(42,038)

(79,105)

(76,828)

–

(19,507)

144,642

2017

1,685,429

1,094,207

1,061,869

3,841,505

445,890

197,623

618,104

11,188

81,178

319,822

528,213

412,492

2,168,620

6,456,015

2017

500,876

35,912

368,144

904,932

149,567

58,224

202,349

22,460

67,635

171,688

163,906

127,997

2017

372,652

42,905

273,899

689,456

99,949

59,641

138,585

15,383

46,324

112,481

107,395

83,861

2017

281,500

568,644

206,903

1,057,047

60,967

107,395

83,861

191,256

1,309,270

814,259

1,868,758

563,670

1,353,075

7.1* 7.2*

7.3*

*C R O S S - R E F E R E N C E

Notes

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

151

Dr. Markus Enzelberger3
Chief Scientiﬁ c Ofﬁ cer
Appointment (Interim-CSO):
April 15, 2017
Appointment: November 1, 2017

Dr. Marlies Sproll4
Chief Scientiﬁ c Ofﬁ cer
Temporary Leave:
April 15, 2017 – October 31, 2017
Resignation: October 31, 2017

Dr. Arndt Schottelius
Chief Development Ofﬁ cer
Resignation: February 28, 2017

Total

2016

2017

2016

2017

2016

2017

2016

2017

–
–
–

–
–

–

–
–

204,698
417,158
121,688

743,544
29,186

314,405
24,141
143,054

481,600
92,876

222,450
20,427
67,745

310,622
77,976

309,759
28,388
140,940

479,087
95,473

103,253
9,161
23,490

135,904
28,245

1,402,026
133,099
637,921

2,173,046
423,320

1,685,429
1,094,207
1,061,869

3,841,505
445,890

29,186

92,876

77,976

95,473

28,245

423,320

445,890

23,263

39,879

23,263

39,879

115,281

197,623

(29,007)

(129,371)

(7,075)

138,585

(7,075)

138,585

(31,528)

618,104

22,572

15,383

22,572

(42,038)

100,688

101,906

46,324

101,906

(79,105)

454,517

11,188

81,178

176,511

112,481

176,511

(76,828)

798,953

319,822

68,979

53,875

122,854
895,584

288,170
862,646

80,538

62,898

496,088
884,686

–

528,213

412,492

288,170
862,730

(19,507)
144,642

1,308,540
3,904,906

2,168,620
6,456,015

since April 15, 2017 and eventually resigned from her post as Chief
Scientiﬁ c Oﬃ cer eﬀ ective October 31, 2017. She was working as a
Special Advisor to the CEO of MorphoSys, Simon Moroney, on a part-
time basis since November 1, 2017. She received remuneration until
October 31, 2017 in accordance with her employment contract. Dr.
Sproll’s long-term compensation granted to her during her time as a
member of the Management Board will be settled in accordance with
the plans’ terms. Eﬀ ective November 1, 2017, Dr. Enzelberger was ap-
pointed Chief Scientiﬁ c Oﬃ cer of MorphoSys AG after having served as
the Interim Chief Scientiﬁ c Oﬃ cer since April 15, 2017. Dr. Enzelberger
has held various management positions in research and development
at MorphoSys since 2002. His Management Board employment con-
tract runs until June 30, 2020. Upon joining the Management Board of
MorphoSys AG, Dr. Enzelberger was granted a one-time incentive con-
sisting of treasury shares held by MorphoSys valued at € 400,000. In

the 2017 ﬁ nancial year, the granting of these shares was recognized as
personnel expenses from performance shares as deﬁ ned by IFRS 2.

In the years 2017 and 2016, there were no other long-term beneﬁ ts in
accordance with IAS 24.17 (c) or beneﬁ ts upon termination of employ-
ment in accordance with IAS 24.17 (d) accruing to the Management
Board or Supervisory Board.

In 2017, the total remuneration for the Supervisory Board, excluding
reimbursed travel costs, amounted to € 523,015 (2016: € 529,680).

152 F i n a n c i a l S t a t e m e n t s

Notes

SUPERVI S OR Y B OARD REMUNERAT ION F OR T HE Y EARS 2017 AND 2016:

in €

Dr. Gerald Möller
Dr. Frank Morich
Dr. Marc Cluzel
Krisja Vermeylen2
Wendy Johnson
Klaus Kühn
Karin Eastham3

TOTAL

Fixed Compensation

Attendance Fees1

Total Compensation

2017

2016

2017

2016

2017

2016

95,156
57,240
52,160
28,961
46,160
46,160
19,578
345,415

91,400
57,240
52,160
-
46,160
46,160
52,160
345,280

36,800
23,200
26,800
16,000
38,000
22,000
14,800
177,600

43,400
26,800
34,600
-
33,800
21,400
24,400
184,400

131,956
80,440
78,960
44,961
84,160
68,160
34,378
523,015

134,800
84,040
86,760
-
79,960
67,560
76,560
529,680

No other agreements presently exist with current or former members
of the Supervisory Board.

The future minimum payments under non-terminable operating leases,
insurance contracts and other services as of December 31, 2017 are
shown in the following table.

On December 31, 2017, the Senior Management Group held 35,978
stock options (December 31, 2016: 0), 13,233 convertible bonds (De-
cember 31, 2016: 136,588) and 67,149 performance shares (December
31, 2016: 82,143) granted by the Company. In 2017, a new stock option
program and a new performance share program were granted to the
Senior Management Group (see Items 7.1* and 7.3.5*). On April 1, 2017,
the Senior Management Group was allocated 21,248 shares from the
2013 LTI program and 548 shares on October 1, 2017. In each case
there was the option to receive these shares within a six-month period.
As of December 2017, the Senior Management Group had exercised
options to receive 21,796 shares.
*C R O S S - R E F E R E N C E to page 141 and page 146

8 Additional Notes

in 000’ €

Up to One Year

Between One and
Five Years

More than
Five Years

TOTAL

Rent and
Leasing

2,918

11,209

11,190
25,317

Other

733

0
733

Total

3,651

11,209

11,190
26,050

Additionally, the future payments shown in the table below may
become due for outsourced studies after December 31, 2017. These
amounts could be shifted or substantially lower due to changes in the
study timeline or premature study termination.

8.1 OBL IGAT IONS ARI SING F ROM OPERAT ING L EASE S,

REN TAL AND O T HER CON T RAC T S

in million €

The Group leases facilities and equipment under long-term operating
leases. In ﬁ nancial years 2017 and 2016, leasing expenses amounted to
€ 2.6 million and € 3.1 million. The 2016 amount includes the recogni-
tion of a provision for onerous contracts from rent obligations for oﬃ ce
premises. Leasing expenses for 2017 and 2016 include expenses for
company cars and machinery totaling € 0.2 million and € 0.2 million,
respectively. The majority of these contracts can be renewed on a
yearly or quarterly basis. Some of these agreements may be termi-
nated prematurely.

In 2016 a rental agreement was signed for the premises at Semmel-
weisstraße 7, Planegg. The contract includes a minimum rental period
of ten years.

Up to One Year
Between One and Five Years
More than Five Years

TOTAL

Total 2017

56.1
66.1
0.0
122.2

8.2 CON T INGEN T ASSE T S/CON T INGEN T L IABIL I T IE S
Contingent liabilities are potential obligations from past events that
exist only when the occurrence of one or more uncertain future events
– beyond the Company’s control – is conﬁ rmed. Current obligations
can represent a contingent liability if it is not probable enough that an
outﬂ ow of resources justiﬁ es the recognition of a provision. Moreover,
it is not possible to make a suﬃ ciently reliable estimate of the amount
of the obligations.

The Management Board is unaware of any proceedings that may result
in a signiﬁ cant obligation for the Group and may lead to a material
adverse eﬀ ect on the Group’s net assets, ﬁ nancial position or results of
operations.

Notes

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

153

In August 2015, MorphoSys and Swiss-based G7 Therapeutics AG an-
nounced a new collaboration to develop novel antibody therapeutics
targeting G protein-coupled receptors (GPCRs) and other potentially
disease-related transmembrane proteins, such as ion channels. Under
this agreement, G7 Therapeutics will give MorphoSys a choice of various
receptors that can be linked to the emergence of a variety of diseases.
MorphoSys will use its proprietary Ylanthia antibody library to iden-
tify and develop antibody compounds directed against these receptors.
MorphoSys has the right to sublicense to partners access to these tar-
get molecules in conjunction with therapeutic antibody programs.

In November 2008, MorphoSys and Galapagos announced a long-term
drug discovery and co-development cooperation aimed at exploring
novel mechanisms for the treatment of inﬂ ammatory diseases and de-
veloping 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. After
demonstrating clinical eﬃ cacy in humans, the programs may be out-
licensed to partners for further development, approval, and commer-
cialization. Both companies contributed their core technologies and
expertise to the alliance. Along with the use of its adenovirus-based
platform for the exploration of new target molecules for the develop-
ment of antibodies, Galapagos provided access to target molecules
already identiﬁ ed that are associated with bone and joint diseases.
MorphoSys provided access to its antibody technologies used for
generat ing fully human antibodies directed against these target mole-
cules. Under the terms of the agreement, Galapagos and MorphoSys
will share the research and development costs. In July 2014, the collab-
oration advanced into the preclinical development of MOR106, an anti-
body from MorphoSys’s next-generation library Ylanthia directed
against a novel Galapagos target molecule. The antibody will be co-
developed in the area of inﬂ ammatory diseases.

In June 2013, MorphoSys announced it had entered into a global agree-
ment with GlaxoSmithKline (GSK) for the development and commer-
cialization of MOR103. MOR103/GSK3196165 is MorphoSys’s propri-
etary HuCAL antibody against the GM-CSF target molecule. Under the
agreement, GSK assumes responsibility for the compound’s entire
develop ment and commercialization. MorphoSys received an immedi-
ate upfront payment of € 22.5 million as part of this agreement. De-
pending on the achievement of certain developmental stages and regu-
latory, 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 drug is currently undergoing development in a phase 2b study in
patients with rheumatoid arthritis and a 2a study in patients with os-
teoarthritis of the hand. GSK also initiated a mechanistic phase 2a
study of MOR103/GSK3196165 in rheumatoid arthritis to further inves-
tigate the GM-CSF signaling pathway aﬀ ected by the HuCAL antibody.

If certain milestones are achieved in the Proprietary Development
segment, for example, ﬁ ling an application for an investigational new
drug (IND) for speciﬁ c target molecules, this may trigger regulatory
and sales milestone payments to licensors of up to an aggregate
of $ 287 million. The next milestone payment in the amount of
$ 12.5 million could occur in approximately 18 to 24 months.

If a partner achieves certain milestones in the Partnered Discovery
segment, for example, ﬁ ling an application for an investigational new
drug (IND) for speciﬁ c target molecules or the transfer of technology,
this may trigger milestone payments to MorphoSys. However, no further
details can be published since the timing, and the achievement of such
milestones are uncertain.

Obligations may arise from enforcing the Company’s patents against
third parties. It is also conceivable that competitors may challenge the
patents of the MorphoSys Group companies. MorphoSys may also come
to the conclusion that MorphoSys’s patents or patent families have
been infringed upon by competitors, which may prompt MorphoSys to
take legal action against competitors. At present, there are no speciﬁ c
indications that liabilities have occurred as described above.

8.3 CORP ORAT E G OVERNANCE
The Group has submitted the Declaration of Conformity with the rec-
ommendations of the Government Commission on the German Corpo-
rate Governance Code for the 2017 ﬁ nancial year under Sec. 161 of the
German Stock Corporation Act (AktG). This declaration was published
on the Group’s website (www.morphosys.com) on December 1, 2017
and made permanently available to the public.

8.4 RE SEARCH AND DEVEL OPMEN T AGREEMEN T S
The Group has entered numerous research and development agree-
ments as part of its proprietary research and development activities
and its partnered research strategy. The following information de-
scribes the agreements that have a material eﬀ ect on the Group and the
developments under the research and development agreements in the
2017 ﬁ nancial year.

8.4.1 PROPRIE TARY DE VE LOPME NT SEGME NT
In the Proprietary Development segment, partnerships are entered
into as part of the Group’s strategy to develop its own drugs in its core
areas of oncology and inﬂ ammatory diseases. Our partners include
(in alphabetical order): G7 Therapeutics, Galapagos, GlaxoSmithKline,
I-Mab Biopharma, Immatics Biotechnologies, Merck Serono, MD An-
derson Cancer Center and Xencor.

In August 2014, MorphoSys and Aptevo Therapeutics Inc., a spin-oﬀ of
Emergent BioSolutions, announced a co-development and co-promo-
tion agreement for MOR209/ES414. MOR209/ES414 is a bi-speciﬁ c
anti-PSMA/anti-CD3 antibody based on Aptevo’s (formerly Emergent)
proprietary ADAPTIR™ platform (modular protein technology). In the
process of prioritizing its development programs, MorphoSys ended
the cooperation with Aptevo Therapeutics Inc. at the end of 2017. The
rights to the drug’s development and commercialization were returned
to Aptevo. As a result of ending the cooperation, impairment for the
in-process research and development MOR209/ES414 program in the
amount of € 9.8 million was recognized in 2017.

154 F i n a n c i a l S t a t e m e n t s

Notes

In the reporting year, MorphoSys announced it had signed an exclu-
sive regional licensing agreement with I-Mab Biopharma to develop
and commercialize MOR202 in China, Taiwan, Hong Kong and Macao.
MOR202 is MorphoSys’s proprietary antibody targeting CD38. MOR202
is being evaluated in a phase 1/2a clinical trial in Europe in patients
with multiple myeloma. Under the terms of the agreement, I-Mab Bio-
pharma has the exclusive rights for the subsequent development and
commercialization of MOR202 in the agreed regions. MorphoSys re-
ceived an immediate upfront payment of US$ 20.0 million. MorphoSys
is also entitled to receive additional success-based clinical and com-
mercial milestone payments from I-Mab of up to approximately
US$ 100 million, as well as tiered double-digit, staggered royalties on
net sales of MOR202 in the agreed regions.

In August 2015, MorphoSys announced a strategic alliance in the ﬁ eld
of immuno-oncology* with the German company Immatics Biotechnol-
ogies GmbH. The alliance was formed to develop novel antibody-based
therapies against a variety of cancer antigens that are recognized by
T cells. The alliance agreement gives MorphoSys access to several of
Immatics’s proprietary tumor-associated peptides (TUMAPs). In re-
turn, Immatics receives the right to develop MorphoSys’s Ylanthia
anti bodies against several TUMAPs. The companies will pay each
other milestone payments and royalties on commercialized products
based on the companies’ development progress.
*S E E G L O S S A R Y – page 170

In June 2014, MorphoSys and Merck KGaA announced an agreement to
identify and develop therapeutic antibodies against target molecules
of the class of immune checkpoints. Under this agreement, both
MorphoSys and Merck Serono, the biopharmaceutical division of
Merck, will co-develop therapies intended to trigger the immune sys-
tem to attack tumors. MorphoSys will use its proprietary Ylanthia an-
tibody library and other technology platforms to generate antibodies
directed against the selected target molecules. Merck Serono is con-
tributing its expertise in the ﬁ eld of immuno-oncology and clinical
development and will assume full project responsibility starting with
phase 1 of clinical development.

In May 2016, MorphoSys and the University of Texas MD Anderson
Cancer Center announced a long-term strategic alliance. With
MorphoSys applying its Ylanthia technology platform, the partners
will work together to identify, validate and develop novel anti-cancer
antibodies through to clinical proof of concept by researching targets
in a variety of oncology indications. MorphoSys and MD Anderson will
conduct early clinical studies of therapeutic antibody candidates after
which MorphoSys has the option to continue developing selected anti-
bodies in later stages of clinical development for its own proprietary
pipeline.

In June 2010, MorphoSys AG and the US-based biopharmaceutical com-
pany Xencor signed an exclusive global licensing and cooperation
agreement under which MorphoSys receives exclusive global licensing
rights to the XmAb5574/MOR208 antibody for the treatment of cancer
and other indications. The companies jointly conducted a phase 1/2a
trial in the US in patients with chronic lymphocytic leukemia.
MorphoSys is solely responsible for further clinical development after

the successful completion of the phase 1 clinical trial. Xencor received
an upfront payment of US$ 13.0 million (approx. € 10.5 million) from
MorphoSys, which was capitalized under in-process R&D programs.
Xencor is entitled to development, regulatory, and commercially
related milestone payments as well as tiered royalties on product sales.

8.4.2 PAR TNE RE D DISC OVE RY SEGME NT
Commercial partnerships in the Partnered Discovery segment provide
MorphoSys with various types of payments that are spread over the
duration of the agreements or recognized in full as revenue when
reaching a predeﬁ ned target or milestone. These payments include up-
front 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 speciﬁ c antibody programs.

Prior to the 2017 ﬁ nancial year, active collaborations with a number of
partners had already ended because the agreements had expired. How-
ever, drug development programs initiated in the active phase are de-
signed so that they can be continued by the partner and, therefore, still
result in performance-based payments for the achievement of the
deﬁ ned milestones.

Partnerships in the Partnered Discovery segment that ended before
the beginning of 2017 but where drug development programs were
still being pursued, include (in alphabetical order): Astellas, Bayer AG,
Boehringer Ingelheim, Daiichi-Sankyo, Fibron Ltd. (continuation of
contract with Prochon Biotech Ltd.), Janssen Biotech, Merck & Co.,
OncoMed Pharmaceuticals, Pﬁ zer, Roche and Schering-Plough (a sub-
sidiary of Merck & Co.).

Partnerships that were still active in 2017 include (in alphabetical
order): GeneFrontier Corporation/Kaneka, Heptares, LEO Pharma and
Novartis.

The Group’s alliance with Novartis AG ended in November 2017. The
companies started working together in 2004, which has led to the
creation of several ongoing therapeutic antibody programs against a
number of diseases. In December 2007, MorphoSys and Novartis sig-
niﬁ cantly expanded their existing relationship and forged a strategic
alliance in the discovery and development of biopharmaceuticals. The
payments for technology access, internalization charges, and R&D ser-
vices amounted to € 450.5 million over the ten-year contract. Addition-
ally, MorphoSys receives performance-based milestones, contingent
upon the successful clinical development and regulatory approval of
several products. In addition to these payments, MorphoSys is also
entitled to royalties on any future product sales. The partnership with
Novartis ended at the end of November 2017 according to the contract.
Novartis did not exercise its option to extend the contract.

Notes

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

155

8.5 SUBSEQUEN T EVEN T S
No other events occurred after the balance sheet date of December 31,
2017 that require reporting.

8.6 RE SP ONSIBIL I T Y S TAT EMEN T
To the best of our knowledge, and in accordance with the applicable
reporting principles, the consolidated ﬁ nancial statements give a true
and fair view of the Group’s net assets, ﬁ nancial position and results of
operations, and the group management report provides a fair review of
the development and performance of the business and the position of
the Group together with a description of the principal opportunities
and risks associated with the Group’s expected development.

MorphoSys AG, Planegg, March 8, 2018

Dr. Simon Moroney
Dr. Simon Moroney
Dr. Simon Moroney
Chief Executive Oﬃ cer

Jens Holstein
Jens Holstein
Jens Holstein
Chief Financial Oﬃ cer

Dr. Malte Peters
Chief Development Oﬃ cer

Dr. Markus Enzelberger
Chief Scientiﬁ c Oﬃ cer

156 F i n a n c i a l S t a t e m e n t s

Independent Auditor’s Report

To MorphoSys AG, Planegg

Report on the Audit of the Consoli-
dated Financial Statements and of
the Group Management Report

AUDI T OPINIONS
We have audited the consolidated ﬁ nancial statements of
MorphoSys AG, Planegg, and its subsidiaries (the Group), which
comprise the consolidated balance sheet as of December 31,
2017, and the consolidated statement of income, consolidated
statement of comprehensive income, consolidated statement of
changes in equity and consolidated cash ﬂ ow statement for the
ﬁ nancial year from January 1, to December 31, 2017, and notes
to the consolidated ﬁ nancial statements including a summary
of signiﬁ cant accounting policies. In addition, we have audited
the group management report of MorphoSys AG for the ﬁ nan-
cial year from January 1, to December 31, 2017. We have not
audited the content of those parts of the group management
report listed in the “Other Information” section of our auditor’s
report in accordance with the German legal requirements.

In our opinion, on the basis of the knowledge obtained in the
audit,
• the accompanying consolidated ﬁ nancial statements comply,
in all material respects, with the IFRSs as adopted by the EU,
and the additional requirements of German commercial law
pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handels-
gesetzbuch: German Commercial Code] and, in compliance
with these requirements, give a true and fair view of the
assets, liabilities, and ﬁ nancial position of the Group as at
December 31, 2017, and of its ﬁ nancial performance for the
ﬁ nancial year from January 1, to December 31, 2017, and

• the accompanying group management report as a whole
provides an appropriate view of the Group’s position. In all
material respects, this group management report is consis-
tent with the consolidated ﬁ nancial statements, complies
with German legal requirements and appropriately presents
the opportunities and risks of future development. Our audit
opinion on the group management report does not cover the
content of those parts of the group management report listed
in the “Other Information” section of our auditor’s report.

Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that
our audit has not led to any reservations relating to the legal
compliance of the consolidated ﬁ nancial statements and of the
group management report.

BASIS F OR T HE AUDI T OPINIONS
We conducted our audit of the consolidated ﬁ nancial statements
and of the group management report in accordance with § 317
HGB and the EU Audit Regulation (No. 537/2014, referred to
subsequently as “EU Audit Regulation”) and in compliance
with German Generally Accepted Standards for Financial
Statement Audits promulgated by the Institut der Wirtschafts-
prüfer [Institute of Public Auditors in Germany] (IDW). Our
responsibilities under those requirements and principles are
further described in the “Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements and of the
Group Management Report” section of our auditor’s report. We
are independent of the group entities in accordance with the
requirements of European law and German commercial and
professional law, and we have fulﬁ lled our other German pro-
fessional responsibilities in accordance with these require-
ments. In addition, in accordance with Article 10 (2) point (f) of
the EU Audit Regulation, we declare that we have not provided
non-audit services prohibited under Article 5 (1) of the EU Audit
Regulation. We believe that the audit evidence we have ob-
tained is suﬃ cient and appropriate to provide a basis for our
audit opinions on the consolidated ﬁ nancial statements and on
the group management report.

KEY AUDI T MAT T ERS IN T HE AUDI T OF T HE CONSOL IDAT ED

F INANC IAL S TAT EMEN T S
Key audit matters are those matters that, in our professional
judgment, were of most signiﬁ cance in our audit of the consoli-
dated ﬁ nancial statements for the ﬁ nancial year from January 1,
to December 31, 2017. These matters were addressed in the
context of our audit of the consolidated ﬁ nancial statements as
a whole, and in forming our audit opinion thereon; we do not
provide a separate audit opinion on these matters.

In our view, the matters of most signiﬁ cance in our audit were
as follows:
1. Recoverability of goodwill and intangible assets with indeﬁ -

nite useful lives

2. Revenue recognition in connection with the out-licensing of

the antibody “MOR202”

Our presentation of these key audit matters has been struc-
tured in each case as follows:
1) Matter and issue
2) Audit approach and ﬁ ndings
3) Reference to further information

Hereinafter we present the key audit matters:

Independent Auditor’s Report

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

157

1. Recoverability of goodwill and intangible assets with

indeﬁ nite useful lives

1) In the Company’s consolidated ﬁ nancial statements an
amount of EUR 7.4 million is reported under the “Good-
will” balance sheet item. Furthermore, intangible assets
with indeﬁ nite useful lives totaling EUR 52.2 million are
reported under the “In-process R&D programs” balance
sheet item. This balance sheet item includes capitalized
upfront payments from the in-licensing of compounds as
well as compounds from acquisitions. The assets are not
yet available for use and therefore not subject to amorti-
zation. Goodwill and intangible assets with indeﬁ nite
useful lives are tested for impairment by the Company
once a year or when there are indications of impairment to
determine any possible need for write-downs. The impair-
ment test is performed at the level of the cash-generating
units. In an impairment test, the carrying amounts of the
respective goodwill and the intangible assets with indeﬁ -
nite useful lives are compared with the corresponding
recoverable amounts. This is the higher of the value in
use and fair value less costs of disposal. The present value
of the future cash inﬂ ows and outﬂ ows from the respec-
tive group of cash-generating units normally serves as
the basis of valuation of goodwill. The present values of
the future cash inﬂ ows and outﬂ ows of the cash-generat-
ing unit serve as the valuation basis for the in-process
R&D programs. The present values are calculated using
discounted cash ﬂ ow models. For this purpose, the
Company’s cash ﬂ ow forecast forms the starting point
for future projections based on assumptions about long-
term rates of growth. Expectations relating to future
market developments and assumptions about the develop-
ment of macroeconomic factors are also taken into ac-
count. The discount rate used is the weighted average
cost of capital. The impairment test determined that no
impairment losses had to be recognized with respect to
goodwill. Due to the write-downs with respect to the anti-
body “MOR209/ES414” and the decrease in expected
future cash inﬂ ows, impairment losses amounting to
EUR 9.8 million were recognized with respect to the intan-
gible assets of the in-process R&D programs. The result of
this measurement depends to a large extent on the execu-
tive directors’ estimation of future cash inﬂ ows as well as
the discount rate used, and is therefore subject to material
uncertainty. Against this background and due to the
underlying complexity of the measurement models used,
this matter was of particular signiﬁ cance for our audit.

2) As part of our audit, we revaluated, among other things,
the methodology used to perform impairment tests and
assessed the calculation of the weighted cost of capital. We
evaluated the appropriateness of the future cash inﬂ ows
used in the measurement by, inter alia, comparing this
data with the current budget in the Group’s cash ﬂ ow fore-
cast prepared by the executive directors and acknowl-

edged by the supervisory board, and by reconciling them
against general and sector-speciﬁ c market expectations.
With the knowledge that even relatively small changes in
the discount rate applied can have a material impact on
the recoverable amounts calculated in this way, we also
focused our testing in particular on the parameters used
to determine the discount rate applied, and evaluated the
measurement model. Furthermore, due to the materiality
of goodwill and the capitalized R&D programs, we also
performed our own sensitivity analyses for the cash-
generating units (comparison of carrying and recover-
able amounts) and determined that the respective carry-
ing amounts were suﬃ ciently covered by the discounted
future cash ﬂ ows. To assess the write-down on the
in-process R&D program with respect to the antibody
“MOR209/ES414”, we examined the contractual docu-
ments and evaluated the resulting event that trigged the
write-down. Furthermore, on the basis of the ﬁ ndings
from the contractual documents, we assessed the calcula-
tion of the expenses and write-downs as well as their
recognition in the correct period. Overall, the measure-
ment parameters and assumptions used by the executive
directors are in line with our expectations.

3) The Company’s disclosures pertaining to goodwill and
intangible assets with indeﬁ nite useful lives are con-
tained in sections 2.5.1, 2.8.6, 5.7.3 and 5.7.5 of the notes
to the consolidated ﬁ nancial statements.

2. Revenue recognition in connection with the out-licensing

of antibody “MOR202”

1) In MorphoSys AG’s consolidated ﬁ nancial statements
revenue amounting to EUR 16.8 million is reported in
the consolidated statement of income , which results from
the out-licensing of the antibody “MOR202” within the
ﬁ nancial year 2017 in the form of a technology transfer to
further develop this antibody under an agreement dated
November 30, 2017. Revenue is reported and recognized
in accordance with IAS 18 and is subject to certain highly
discretionary criteria. Accordingly, it is necessary that the
payment is contractually ﬁ xed and is not contingent on
future events with regard to the amount and that no reim-
bursement of the payments made is provided for. The con-
tractual agreement regarding the out-licensing must be
non-terminable. Furthermore, the licensee must be able
to exercise the rights associated with the license freely
and at its own discretion. The licensor may not retain any
material outstanding obligations for the licensee after the
transfer of the license. In light of the extensive and com-
plex contractual agreement, recognizing revenue in con-
nection with the out-licensing of the antibody “MOR202”
is subject to a signiﬁ cant risk and to a certain extent is
based on estimates made by the executive directors.
Against this background, this matter was of particular
signiﬁ cance for our audit.

158 F i n a n c i a l S t a t e m e n t s

Independent Auditor’s Report

2) Our audit included the evaluation of the appropriateness
and eﬀ ectiveness of the established internal control sys-
tem of the Group with regard to the complete and correct
recognition of revenue in connection with the out-licens-
ing, including the IT systems used. Furthermore, we ob-
tained an understanding of the underlying contractual
agreement and assessed it with regard to the timing of
revenue recognition in accordance with the requirements
of IAS 18. In a further step, we evaluated the basis for
recognizing revenue in connection with the technology
transfer and the amounts thereof. We used and evaluated
the corresponding contractual documents to assess the
recognition of revenue. We also inspected and evaluated
payment records. As part of our evaluation of the tech-
nology transfer we also examined the data transfer to the
contractual partner. Overall, we were able to satisfy our-
selves that the established systems and processes as well
as controls in place are appropriate and that the esti-
mates and assumptions made by the executive directors
are suﬃ ciently documented and substantiated to ensure
that revenue in connection with this out-licensing is
appropriately recognized.

3) The Company’s disclosures on revenue are contained in
sections 2.7.1 and 4.1 of the notes to the consolidated ﬁ nan-
cial statements.

O T HER INF ORMAT ION
The executive directors are responsible for the other informa-
tion. The other information comprises the following non-au-
dited parts of the group management report, which we obtained
prior of the date of our auditor’s report:
• the group statement on corporate governance pursuant to

§ 315d HGB included in the group management report

• the corporate governance report pursuant to No. 3.10 of the
German Corporate Governance Code (except for the remu-
neration report)

The annual report is expected to be made available to us after
the date of the auditor’s report.

Our audit opinions on the consolidated ﬁ nancial statements and
on the group management report do not cover the other infor-
mation, and consequently we do not express an audit opinion or
any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the
other information and, in so doing, to consider whether the
other information
• is materially inconsistent with the consolidated ﬁ nancial
statements, with the group management report or our knowl-
edge obtained in the audit, or

• otherwise appears to be materially misstated.

RESPONSIBILITIES OF THE EXECUTIVE DIREC TORS AND THE

SUPERVISORY BOARD FOR THE CONSOLIDATED FINANCIAL

STATEMENT S AND THE GROUP MANAGEMENT REPORT
The executive directors are responsible for the preparation of
the consolidated ﬁ nancial statements that comply, in all mate-
rial respects, with IFRSs as adopted by the EU and the addi-
tional requirements of German commercial law pursuant to
§ 315e Abs. 1 HGB and that the consolidated ﬁ nancial state-
ments, in compliance with these requirements, give a true and
fair view of the assets, liabilities, ﬁ nancial position, and
ﬁ nancial performance of the Group. In addition the executive
directors are responsible for such internal control as they have
determined necessary to enable the preparation of consolidated
ﬁ nancial statements that are free from material misstatement,
whether due to fraud or error.

In preparing the consolidated ﬁ nancial statements, the execu-
tive directors are responsible for assessing the Group’s ability
to continue as a going concern. They also have the responsi-
bility for disclosing, as applicable, matters related to going
concern. In addition, they are responsible for ﬁ nancial report-
ing based on the going concern basis of accounting unless
there is an intention to liquidate the Group or to cease opera-
tions, or there is no realistic alternative but to do so.

Furthermore, the executive directors are responsible for the
preparation of the group management report that, as a whole,
provides an appropriate view of the Group’s position and is, in
all material respects, consistent with the consolidated ﬁ nan-
cial statements, complies with German legal requirements, and
appropriately presents the opportunities and risks of future
development. In addition, the executive directors are respon-
sible for such arrangements and measures (systems) as they
have considered necessary to enable the preparation of a group
management report that is in accordance with the applicable
German legal requirements, and to be able to provide suﬃ cient
appropriate evidence for the assertions in the group manage-
ment report.

The supervisory board is responsible for overseeing the Group’s
ﬁ nancial reporting process for the preparation of the consoli-
dated ﬁ nancial statements and of the group management report.

Independent Auditor’s Report

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

159

AUDI T OR’S RESP ONSIBIL I T IES F OR T HE AUDI T OF T HE

CONS OL IDAT ED F INANC IAL S TAT EMEN T S AND OF T HE

GROUP MANAGEMEN T REP OR T
Our objectives are to obtain reasonable assurance about
whether the consolidated ﬁ nancial statements as a whole are
free from material misstatement, whether due to fraud or error,
and whether the group management report as a whole provides
an appropriate view of the Group’s position and, in all material
respects, is consistent with the consolidated ﬁ nancial state-
ments and the knowledge obtained in the audit, complies with
the German legal requirements and appropriately presents the
opportunities and risks of future development, as well as to
issue an auditor’s report that includes our audit opinions on the
consolidated ﬁ nancial statements and on the group manage-
ment report.

Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with § 317
HGB and the EU Audit Regulation and in compliance with
German Generally Accepted Standards for Financial Statement
Audits promulgated by the Institut der Wirtschaftsprüfer (IDW)
will always detect a material misstatement. Misstatements can
arise from fraud or error and are considered material if, indi-
vidually or in the aggregate, they could reasonably be expected
to inﬂ uence the economic decisions of users taken on the basis
of these consolidated ﬁ nancial statements and this group man-
agement report.

We exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the
consolidated ﬁ nancial statements and of the group manage-
ment report, whether due to fraud or error, design and per-
form audit procedures responsive to those risks, and obtain
audit evidence that is suﬃ cient and appropriate to provide a
basis for our audit opinions. The risk of not detecting a mate-
rial misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal control.

• Obtain an understanding of internal control relevant to the
audit of the consolidated ﬁ nancial statements and of arrange-
ments and measures (systems) relevant to the audit of the
group management report in order to design audit procedures
that are appropriate in the circumstances, but not for the pur-
pose of expressing an audit opinion on the eﬀ ectiveness of
these systems.

• Evaluate the appropriateness of accounting policies used by
the executive directors and the reasonableness of estimates
made by the executive directors and related disclosures.

• Conclude on the appropriateness of the executive directors’
use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast signiﬁ cant
doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are re-
quired to draw attention in the auditor’s report to the related

disclosures in the consolidated ﬁ nancial statements and in
the group management report or, if such disclosures are in-
adequate, to modify our respective audit opinions. Our con-
clusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or condi-
tions may cause the Group to cease to be able to continue as a
going concern.

• Evaluate the overall presentation, structure and content of
the consolidated ﬁ nancial statements, including the disclo-
sures, and whether the consolidated ﬁ nancial statements
present the underlying transactions and events in a manner
that the consolidated ﬁ nancial statements give a true and
fair view of the assets, liabilities, ﬁ nancial position and
ﬁ nancial performance of the Group in compliance with
IFRSs as adopted by the EU and the additional requirements
of German commercial law pursuant to § 315e Abs. 1 HGB.
• Obtain suﬃ cient appropriate audit evidence regarding the
ﬁ nancial information of the entities or business activities
within the Group to express audit opinions on the consoli-
dated ﬁ nancial statements and on the group management
report. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible
for our audit opinions.

• Evaluate the consistency of the group management report
with the consolidated ﬁ nancial statements, its conformity
with German law, and the view of the Group’s position it
provides.

• Perform audit procedures on the prospective information
presented by the executive directors in the group manage-
ment report. On the basis of suﬃ cient appropriate audit evi-
dence we evaluate, in particular, the signiﬁ cant assumptions
used by the executive directors as a basis for the prospective
information, and evaluate the proper derivation of the pro-
spective information from these assumptions. We do not ex-
press a separate audit opinion on the prospective information
and on the assumptions used as a basis. There is a substantial
unavoidable risk that future events will diﬀ er materially from
the prospective information.

We communicate with those charged with governance regard-
ing, among other matters, the planned scope and timing of the
audit and signiﬁ cant audit ﬁ ndings, including any signiﬁ cant
deﬁ ciencies in internal control that we identify during our audit.

We also provide those charged with governance with a state-
ment that we have complied with the relevant independence
requirements, and communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with gover-
nance, we determine those matters that were of most signiﬁ -
cance in the audit of the consolidated ﬁ nancial statements of
the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter.

160 F i n a n c i a l S t a t e m e n t s

Independent Auditor’s Report

Other Legal and Regulatory
Requirements

F UR T HER INF ORMAT ION PURSUAN T T O AR T ICL E 10

OF T HE EU AUDI T REGUL AT ION
We were elected as group auditor by the annual general meet-
ing on May 17, 2017. We were engaged by the supervisory
board on October 10, 2017. We have been the group auditor of
the MorphoSys AG, Planegg, without interruption since the
ﬁ nancial year 2011.

We declare that the audit opinions expressed in this auditor’s
report are consistent with the additional report to the audit
committee pursuant to Article 11 of the EU Audit Regulation
(long-form audit report).

German Public Auditor Responsible
for the Engagement

The German Public Auditor responsible for the engagement is
Dietmar Eglauer.

Report of the Supervisory Board

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

161

Report of the Supervisory Board

COOPERAT ION OF T HE MANAGEMEN T BOARD AND

KEY I T EMS OF DIS CUSSION AT T HE SUPERVIS ORY BOARD

SUPERVIS ORY BOARD
During the 2017 ﬁ nancial year, the Supervisory Board compre-
hensively performed the duties assigned to it by law, the Articles
of Association, Rules of Procedure and – with one exception –
the recommendations of the German Corporate Governance
Code (hereinafter referred to as the “Code”). We regularly ad-
vised and continually oversaw the Management Board in its
management of the Company and dealt extensively with the
operational and strategic development of the Group. The
Manage ment Board fulﬁ lled its duty to inform and furnish us
with periodic written and verbal reports containing timely and
detailed information on all business transactions and events of
signiﬁ cant relevance to the Company. The Management Board
prepared these reports in collaboration with the respective de-
partments. In our Committee meetings and plenary sessions,
we had the opportunity to fully discuss the Management
Board’s reports and the proposed resolutions. The Management
Board answered our questions on strategic topics aﬀ ecting the
Company with a great level of detail and submitted the relevant
documents in a timely manner. Any deviations from the busi-
ness plan were thoroughly explained to us, and we were di-
rectly involved at an early stage in all decisions relevant to the
Company.

A corresponding resolution was passed when the Supervisory
Board’s approval for individual actions was required by law, the
Articles of Association or the Rules of Procedure. The Super-
visory Board members routinely prepared resolutions for
Manage ment Board actions requiring Supervisory Board ap-
proval based on the documentation provided in advance by the
Management Board. When necessary, the Supervisory Board
received the support of the relevant committees and, together
with the Management Board, discussed any projects pending
decision. All matters requiring approval were submitted for re-
view to the Supervisory Board on a timely basis.

Outside of the meetings of the Supervisory Board plenum and
the Committees, the chairperson of the Supervisory Board reg-
ularly exchanged information and ideas with the Management
Board and especially the Chief Executive Oﬃ cer, Dr. Simon
Moroney. The Supervisory Board chairperson was always kept
promptly informed of the current business situation and any
signiﬁ cant business transactions. The other Supervisory Board
members also had regular contact with the individual Manage-
ment Board members.

MEE T INGS IN T HE 2017 F INANC IAL YEAR
A total of eight Supervisory Board meetings were held in the
2017 ﬁ nancial year, whereby two meetings were conducted by
telephone. All Supervisory Board members were present at all
Supervisory Board meetings. In urgent cases occurring outside
of meetings, the Supervisory Board passed resolutions by writ-
ten procedure.

In addition to the above, a one-day strategy meeting took place
between the Management Board and the Supervisory Board in
July 2017 that primarily addressed
• the Company’s strategic focus; and
• the further development of the Company’s product portfolio
and its impact on the net assets, ﬁ nancial position and results
of operations.

During the 2017 ﬁ nancial year, the Supervisory Board paid
particular attention to the following topics and passed resolu-
tions on these topics after a thorough review and discussion:
• the evaluation of the Company’s achievement of the 2016 ﬁ -
nancial year corporate targets, an interim review and minor
adjustment to the corporate targets deﬁ ned by the Super-
visory Board at the end of 2016 for the 2017 ﬁ nancial year
and deﬁ ning the corporate targets for the 2018 ﬁ nancial year;
• modiﬁ cation of the rules of procedure and schedule of respon-

sibilities for the Management Board;

• the agenda and proposed resolutions for the 2017 Annual
General Meeting, particularly the nominations of Dr. Frank
Morich, Klaus Kühn, Wendy Johnson and Krisja Vermeylen as
Supervisory Board candidates for election and re-election at
the 2017 Annual General Meeting;

• re-election of the chair and deputy chair of the Supervisory
Board and establishment and staﬃ ng of the Committees in
the Board’s constituent meeting following the 2017 Annual
General Meeting;

• deﬁ nition of the targets relating to the proportion of women
on the Supervisory and Management Boards for the coming
ﬁ ve years;

• updating the objectives for the composition of the Super-
visory Board and establishing a skills proﬁ le for the entire
Supervisory Board;

• termination of the licensing and co-development agreement
with Aptevo Research & Development LLC for MOR209, an
immunotherapeutic for the treatment of metastatic, castra-
tion-resistant prostate cancer, as part of the prioritization of
programs within the portfolio;

162 F i n a n c i a l S t a t e m e n t s

Report of the Supervisory Board

• establishment of a list of permitted and pre-approved non-
audit services of the auditor, including the maximum amounts
and the corresponding amendment of the rules of procedure
for the Supervisory Board and the statutes of the Audit Com-
mittee;

• award of the audit contract to the auditor for the 2017 ﬁ nan-

cial year;

• evaluation of partnership opportunities for MOR202 and con-
clusion of the regional license agreement with I-Mab for ex-
clusive development and commercialization rights to MOR202
in China, Taiwan, Hong Kong and Macao;

• the budget for the 2018 ﬁ nancial year.

We also passed a resolution in the Supervisory Board plenum
on the remuneration of Management Board members for the
period July 1, 2017 to June 30, 2018 taking external bench-
marking into consideration. We evaluated the achievement of
the 2016 corporate targets that were agreed with the Manage-
ment Board and discussed the corporate targets for 2017. We
commissioned an independent remuneration consultant to con-
ﬁ rm the appropriateness of the Management Board’s compen-
sation and its comparison to the remuneration of various levels
of employees. We discussed and adopted the key performance
indicators for the long-term incentive plans for both the
Manage ment Board and the Senior Management Group. We
also addressed the temporary leave as of April 15, 2017 for
family reasons and later resignation as of October 31, 2017 of
Dr. Marlies Sproll as Chief Scientiﬁ c Oﬃ cer for ongoing family
reasons. To ﬁ ll this gap, we appointed Dr. Markus Enzelberger
as Interim Chief Scientiﬁ c Oﬃ cer as of April 15, 2017 followed
by Chief Scientiﬁ c Oﬃ cer as of November 1, 2017 as Dr. Sproll’s
successor. The management board agreement of Dr. Sproll was
adjusted for her period of absence and then rescinded with ef-
fect from the date of her departure. We drew up and approved a
new management board agreement for Dr. Markus Enzelberger
as Interim Chief Scientiﬁ c Oﬃ cer and later as Chief Scientiﬁ c
Oﬃ cer. Dr. Enzelberger’s initial term will end on June 30, 2020.

Furthermore, we approved the ﬁ nancial statements for the 2016
ﬁ nancial year and dealt with the Corporate Governance Report
and the Statement on Corporate Governance.

The focus of our regular discussions in the Supervisory Board’s
plenary meetings were MorphoSys’s revenue and earnings
develop ment, the ﬁ nancial reports, the progress of the two busi-
ness segments Partnered Discovery and Proprietary Develop-
ment, the results and progress of the clinical programs for the
development of proprietary drugs, the future development
strategy and the development of new technologies. Further-
more, we discussed the ﬁ nancial outlook for the 2019/2020
ﬁ nan cial years and MorphoSys’s associated future potential
ﬁ nan cing needs as well as the eﬀ ects of the expiry of the con-
tract with Novartis. In addition, we carried out an eﬃ ciency
review of the Supervisory Board’s work. And lastly, we kept

ourselves regularly informed with respect to the Company’s
cash investment policy, risk management, internal audit results,
internal control system and compliance management system.

CONF L IC T S OF IN T ERES T WI T HIN T HE

SUPERVIS ORY BOARD
No conﬂ icts of interest arose within the Supervisory Board in
the 2017 ﬁ nancial year.

AC T IVI T IES AND MEE T INGS OF SUPERVIS ORY BOARD

COMMI T T EES
To ensure that its duties are performed eﬃ ciently, the Super-
visory Board has established three committees – the Audit
Committee, the Remuneration and Nomination Committee and
the Science and Technology Committee – to prepare the issues
that fall within the Supervisory Board’s respective areas of re-
sponsibility for the Supervisory Board plenum. In each Super-
visory Board meeting, the chairs of the Committees report to
the Supervisory Board on the Committees’ work. The minutes
of the Committee meetings are made available to all Supervisory
Board members. The composition of these committees can be
found in the “Statement on Corporate Governance,” which is
available on the Company’s website under the heading “Media
& Investors > Corporate Governance > Statement on Corporate
Governance,” and in the Annual Report on pages 73 to 79.

The Audit Committee met on six occasions in the 2017 ﬁ nan-
cial year, two of those meetings were held by telephone. All
Committee members were present at all Audit Committee meet-
ings. The Committee dealt mainly with accounting issues,
quarterly reports, ﬁ nancial statements and consolidated ﬁ nan-
cial statements. The Committee discussed these topics with the
Management Board and recommended the approval of the
statements to the Supervisory Board. The auditor took part in
four Audit Committee meetings and informed its members of
the audit results. The Audit Committee also made a recommen-
dation to the Supervisory Board with respect to the Super-
visory Board’s proposal at the Annual General Meeting for the
election of the independent auditor. The Audit Committee also
discussed the appointment of the auditor for the 2017 ﬁ nancial
year and the new requirements for the external and internal
rotation of the auditor and the related requirement to carry out
a public tender for the audit in accordance with the Auditors
Reform Act. In this context, the Audit Committee decided to
carry out the public invitation to tender for the 2018 annual
audit on a voluntary basis, accompanied the relevant process
and, as a result, made a recommendation to the Supervisory
Board. In addition, the Audit Committee dealt with the prepara-
tion of a list of permitted and pre-approved non-audit services
of the auditor, including maximum amounts, and made a pro-
posal to the Supervisory Board to amend the rules of procedure
for the Supervisory Board and the statutes of the Audit Commit-
tee. The Committee also discussed the risk management sys-
tem, the compliance management system and the results of the

Report of the Supervisory Board

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

163

internal audit conducted in the 2017 ﬁ nancial year, as well as
speciﬁ c accounting issues under International Accounting
Standards (IFRS) relevant to the Company. In addition, the
Committee regularly discussed the Company’s cash invest-
ment policy and the investment recommendations made by the
Management Board. The Committee also discussed in depth
the 2018 budget and the ﬁ nancial outlook for the 2019/2020
ﬁ nan cial years, as well as any future ﬁ nancing measures that
may be derived from this in the coming years, along with a
potential commercialization strategy for the Company’s pro-
prietary drug candidates. Finally, the Committee dealt with the
preparation, accomplishment and results of the unobjected
sampling of the consolidated ﬁ nancial statements, group
manage ment report, annual ﬁ nancial statements and the
manage ment report for the 2016 ﬁ nancial year by the German
Financial Reporting Enforcement Panel (Deutsche Prüfstelle für
Rechnungslegung e.V. – DPR).

To increase eﬃ ciency, there is a common Remuneration and
Nomination Committee, in which the Committees fulﬁ ll their
respective roles. The Committee met on ﬁ ve occasions in the
2017 ﬁ nancial year, with two of those meetings held by tele-
phone. All Committee members were present at all Committee
meetings. In its function as a remuneration committee, the
Remunera tion and Nomination Committee mainly dealt with
the Management Board’s remuneration system and level of
compensation. In this context, the Committee also commis-
sioned an independent remuneration expert with the task of
preparing a Management Board remuneration report to verify
the appropriateness of the Management Board’s remuneration.
Based on this report, the Committee prepared a recommenda-
tion as to the future structure of the Management Board’s com-
pensation and submitted this to the Supervisory Board for
appro val. In doing so, the Committee also dealt with the ratio of
compensation between the Management Board and the Senior
Management Group and the staﬀ overall and had this ratio
revie wed by the commissioned remuneration expert. This expert
conﬁ rmed the appropriateness of the “vertical” compensation
ratios. In addition, the Committee gave careful consideration to
the corporate targets as a basis for the Management Board’s
short-term variable remuneration and oﬀ ered appropriate rec-
ommendations to the Supervisory Board for resolution. The
Committee discussed the key performance indicators of the
long-term incentive plans for the Management Board, Senior
Management Group and other employees in key positions. In its
function as the Nomination Committee, the Committee dealt
with the appointment of Dr. Markus Enzelberger as Interim
Chief Scientiﬁ c Oﬃ cer for the duration of Dr. Marlies Sproll’s
absence, the preparation of a corresponding management
board agreement for Dr. Enzelberger, a modiﬁ cation of the
manage ment board agreement with Dr. Sproll for the duration
of her absence and the appointment of Dr. Markus Enzelberger
as Dr. Sproll’s successor as Chief Scientiﬁ c Oﬃ cer due to Dr.
Sproll’s resignation. The Committee also prepared the corre-
sponding management board agreement for Dr. Enzelberger

and the termination agreement for Dr. Sproll, which were then
submitted to the Supervisory Board for resolution. In addition,
the Nomination Committee handled the preparations for the
election of two new members of the Supervisory Board at the
2018 Annual General Meeting. This was necessary due to the
approaching end of the term of oﬃ ce of Dr. Gerald Möller, who
served 19 years as chairman of the Supervisory Board, as of the
end of the 2018 Annual General Meeting and the early resigna-
tion of Klaus Kühn for personal reasons also as of the end of
the Annual General Meeting 2018. In light of Dr. Möller’s and
Mr. Kühn’s upcoming departure from the Supervisory Board,
the Nomination Committee commissioned a recruitment agency
to oﬀ er professional support in the search for suitable new Super-
visory Board candidates. The Nomination Committee in consul-
visory
visory Board candidates. The Nomination Committee in consul-
tation with the Supervisory Board developed a list of require-
ments that candidates should possess in order to be nominated
to the Supervisory Board. The Nomination Committee also con-
ducted interviews with Supervisory Board candidates and sub-
mitted two recommendations for Supervisory Board nomina-
tions to be proposed at the Annual General Meeting, which
were in turn approved by the Supervisory Board. Supervisory
Board member Dr. Marc Cluzel, whose term will also end at the
end of the 2018 Annual General Meeting, will stand for reap-
pointment for another term.

The Science and Technology Committee met on ﬁ ve occa-
sions during the 2017 ﬁ nancial year. All Committee members
were present at all Committee meetings. This Committee dealt
mainly with the progress and expansion of the Company’s port-
folio, the development of new technologies and the Company’s
drug development plans including the required budget re-
sources. The discussions focused on the initiation of new devel-
opment programs, development plans for current and planned
clinical studies, the development of proprietary drug candi-
dates, the results of the related clinical trials, as well as the
future development strategy and positioning versus competi-
tive products. The Committee addressed the production of clin-
ical trial materials for the Company’s proprietary drug candi-
dates, the competitive and patent situations of the Company’s
proprietary product candidates and the identiﬁ cation of suit-
able drug candidates for in-licensing based on the Company’s
activities.

CORP ORAT E GOVERNANCE
The Supervisory Board devoted its attention to the further de-
velopment of MorphoSys’s corporate governance taking into
consideration the Code’s amendments made by the Government
Commission German Corporate Governance Code in February
2017. The detailed Corporate Government Report, including the
Corporate Governance Statement according to Section 289f
HGB (German Commercial Code), can be found on the Compa-
ny’s website under the heading “Media & Investors > Corporate
Governance > Corporate Governance Report” and in the An-
nual Report on pages 73 to 101.

164 F i n a n c i a l S t a t e m e n t s

Report of the Supervisory Board

We also discussed with the Management Board the Company’s
compliance with the Code’s recommendations and in one justi-
ﬁ ed case approved an exception to the Code’s recommenda-
tions. Based on this consultation, the Management Board and
the Supervisory Board submitted the annual Declaration of
Conformity on December 1, 2017. The current version of the
Declaration of Conformity can be found in this Annual Report
and is permanently available to MorphoSys’s shareholders on
the Company’s website under the heading “Media & Investors >
Corporate Governance > Declaration of Conformity.”

CHANGES IN T HE COMP OSI T ION OF T HE MANAGEMEN T

BOARD AND SUPERVIS ORY BOARD
The following changes in the composition of the Management
Board took place during the reporting period. With eﬀ ect from
March 1, 2017, Dr. Malte Peters was newly appointed as a mem-
ber of the Management Board and Chief Development Oﬃ cer.
The former Chief Development Oﬃ cer, Dr. Arndt Schottelius,
resigned from his position on the Company’s Management
Board eﬀ ective February 28, 2017. Eﬀ ective April 15, 2017,
Dr. Markus Enzelberger was appointed Interim Chief Scientiﬁ c
Oﬃ cer for the duration of the absence of Dr. Marlies Sproll.
Dr. Sproll resigned from her position on the Management Board
eﬀ ective October 31, 2017, and Dr. Markus Enzelberger was
appointed as Chief Scientiﬁ c Oﬃ cer eﬀ ective November 1, 2017
as the successor of Dr. Sproll.

The following changes in the composition of the Supervisory
Board took place during the reporting period. Karin Eastham
resigned from her oﬃ ce as a member of the Supervisory Board
for personal reasons as of the conclusion of the 2017 Annual
General Meeting, and Krisja Vermeylen was newly elected to
the Supervisory Board by the 2017 Annual General Meeting.
Dr. Frank Morich, Klaus Kühn and Wendy Johnson were all re-
elected to the Supervisory Board by the 2017 Annual General
Meeting, whereby Klaus Kühn has resigned from his oﬃ ce as
member of the Supervisory Board for personal reasons as of the
end of the 2018 Annual General Meeting.

AUDI T OF T HE ANNUAL F INANC IAL S TAT EMEN T S

AND CONS OL IDAT ED F INANC IAL S TAT EMEN T S
For the 2017 ﬁ nancial year, the Company commissioned Price-
waterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft,
Munich (“PwC”) as its auditor. The audit contract was awarded
by the Supervisory Board in accordance with the resolution of
the Annual General Meeting on May 17, 2017. In accordance
with Item 7.2.1 of the Code, the Supervisory Board obtained a
declaration of independence from the auditor in advance.

The annual ﬁ nancial statements and the consolidated ﬁ nancial
statements of MorphoSys AG, as well as the Management Re-
port and Group Management Report for the 2017 ﬁ nancial year,
were properly audited by PwC and issued with an unqualiﬁ ed
Auditor’s Report. The key topics of the audit for the consolidated
and annual ﬁ nancial statements for the 2017 ﬁ nancial year
were the presentation and measurement of cash investments,
the accounting for in-process research and development pro-
grams, preparation of the Group Management Report in light of
the new Auditor’s Opinion, the eﬀ ects of the expiry of the con-
tract with Novartis, the measurement of the carrying amounts
of goodwill and intangible assets with indeﬁ nite useful lives,
the recognition and measurement of the 2017 long-term incen-
tive program, the eﬀ ectiveness of internal controls, as well as
the recognition of revenue from the out-licensing of MOR202 to
I-Mab.

In addition, the auditor conﬁ rmed that the Management Board
had established an appropriate reporting and monitoring system
that is suitable in its design and administration for the early
detection of developments that could threaten the Company’s
existence.

The audit reports and documents relating to the annual ﬁ nan-
cial statements and consolidated ﬁ nancial statements were pro-
vided on a timely basis to all Supervisory Board members for
review. The audit report, the consolidated ﬁ nancial statements,
the Group Management Report of the MorphoSys Group and the
audit report, the annual ﬁ nancial statements and the Manage-
ment Report of MorphoSys AG were discussed in detail at the
Audit Committee meeting on March 8, 2018, and the meeting of
the Supervisory Board on March 9, 2018. The auditor attended
all meetings concerning the ﬁ nancial statements and quarterly
statements and reported on the key results of his audit. The
auditor also explained the scope and focus of the audit and was
available to the Audit Committee and the Supervisory Board to
answer questions and provide further information.

The Audit Committee discussed the audit results in detail and
recommended to the Supervisory Board that it approve the
ﬁ nan cial statements prepared by the Management Board. The
Supervisory Board also took note of the audit results and, in
turn, reviewed the ﬁ nancial statements and management re-
ports in accordance with the statutory provisions. Following its
own examination, the Supervisory Board also determined that
it sees no cause for objection. The annual ﬁ nancial statements
and consolidated ﬁ nancial statements prepared by the Manage-
ment Board and reviewed by the auditor, as well as the Manage-
ment Report and Group Management Report, were subsequently
approved by the Supervisory Board. Thus, the annual ﬁ nancial
statements were adopted.

Report of the Supervisory Board

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

165

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, their dedicated service and
the inspirational work environment witnessed during this past
ﬁ nancial year. Through their eﬀ orts, MorphoSys’s portfolio has
continued to mature and expand, and important milestones
have been achieved.

At this point, the Supervisory Board would also like to thank
our departed Management Board member Dr. Marlies Sproll for
her excellent work and great dedication. The Supervisory Board
also thanks Supervisory Board member Klaus Kühn, who will
terminate his oﬃ ce at the conclusion of the 2018 Annual General
Meeting, for his commitment and constructive cooperation.

Planegg, March 9, 2018

Dr. Gerald Möller
Chairman of the Supervisory Board

166 A d d i t i o n a l I n f o r m a t i o n

Supervisory Board of MorphoSys AG

Supervisory Board
of MorphoSys AG

DR. GERAL D MÖL L ER
Chairman, Heidelberg, Germany

member of the supervisory board of:
4sigma, Inc.*, Bermuda (Chairman of the Board of Directors)
4sigma, Inc.*, Bermuda (Chairman of the Board of Directors)
Ayoxxa Biosystems GmbH*, Germany (Chairman of the Advisory Board)
Ayoxxa Biosystems GmbH*, Germany (Chairman of the Advisory Board)

DR. F RANK MORICH
Deputy Chairman, Berlin, Germany

no other supervisory board memberships
no other supervisory board memberships

DR. MARC CL UZEL
Board Member, Montpellier, France

member of the supervisory board of:
Moleac Pte. Ltd.*, Singapore (Member of the Board of Directors)
Moleac Pte. Ltd.*, Singapore (Member of the Board of Directors)

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

Supervisory Board of MorphoSys AG

A d d i t i o n a l I n f o r m a t i o n

167

KRI SJA VERME YL EN
Board Member, Hellerup, Denmark

no other supervisory board memberships

WEND Y JOHNS ON
Board Member, San Diego, CA, USA

member of the supervisory board of:
AmpliPhi Biosciences Corp.*, USA (Member of the Board of Directors)

KL AUS KÜHN
Board Member Grevenbroich, Germany
Board Member,
Board Member,

member of the supervisory board of:
Flossbach von Storch AG, Germany (Chairman of the Supervisory Board)
Hella KGaA Hueck & Co.*, Germany (Member of the Supervisory Board,
Member of the Shareholders’ Committe)

168 A d d i t i o n a l I n f o r m a t i o n

Senior Management Group of MorphoSys AG

Senior Management Group
of MorphoSys AG

YEN CHING CHUA
Head of Clinical Operations

MARTIN CLARK
Head of Central Purchasing & Logistics

KLAUS DE WALL
Head of Accounting & Tax

SILVIA DERMIETZEL
Head of Human Resources

DR. GABRIELE ELBL
Head of Regulatory Aﬀ airs

DR. GÜNTER FINGERLE-ROWSON
Business Team Head

DR. BERND HUT TER
Head of Intellectual Property

DR. TIANTOM JARUTAT
Business Team Head

DR. BARBARA KREBS-POHL
Head of Business Development &
Portfolio Management

Senior Management Group of MorphoSys AG

A d d i t i o n a l I n f o r m a t i o n

169

ANKE LINNARTZ
Head of Corporate Communications &
Investor Relations

CHARLOT TE LOHMANN
General Counsel

DR. BODO MARR
Director Corporate Finance &
Corporate Development

DR. RALF OSTENDORP
Head of Protein Sciences & CMC

STEFFEN POHLENZ
Head of IT

LARA SMITH WEBER
Head of Controlling,
Interim Head of Corporate Finance

DR. MARLIES SPROLL
Special Advisor to the CEO

DR. STEFAN STEIDL
Head of Preclinical Development

DR. KATHRIN TISSOT
Business Team Head

DR. MARGIT URBAN
Head of Discovery Alliances &
Technologies

DR. ANNET TE VELTMAR
Head of Commercial

DR. HARALD WATZKA
Head of Alliance Management

DR. ARMIN WEIDMANN
Head of Compliance &
Quality Assurance

DR. DOMINIKA WEINELT
Head of Drug Safety &
Pharmacovigilance

DR. GÜNTER WELLNHOFER
Head of Technical Operations

DR. GUIDO WÜRTH
Head of Clinical Development &
Medical Aﬀ airs, Business Team Head

170 A d d i t i o n a l I n f o r m a t i o n

Glossary

ADC – Antibody drug conjugate; a tumor growth-
inhibit ing substance (cytostatic) that is coupled to an
antibody to attack tumors in an even more targeted
manner

ADCC – Antibody-dependent cell-mediated cyto-
toxicity; a mechanism of cell-mediated immunity
whereby an eﬀ ector cell of the immune system
actively destroys a target cell that has been bound
by speciﬁ c antibodies

ADCP – Antibody-dependent cellular phagocytosis

Bispeciﬁ c – Antibody consisting of parts from two
diﬀ erent antibodies, thereby being able to bind two
diﬀ erent antigens

Discounted cash ﬂ ow model – Method of valu-
ing assets, especially for due diligence

BTK inhibitor – Bruton’s tyrosine kinase, a key
kinase of the B cell receptor signaling pathway that
plays a signiﬁ cant role in the proliferation, diﬀ eren-
tiation and survival of B cells

DLBCL – Diﬀ use large B cell lymphoma, a subform
of ›› NHL

DoR – duration of response

EGFR – Epidermal growth factor receptor; cell-
surface receptor for members of the epidermal
growth factor family (EGF
-family) of extracellular
growth factor family (
growth factor family (EGF
protein ligands; the epidermal growth factor recep-
tor is a receptor tyrosine kinase

EMA – European Medicines Agency

Fab format – The antigen binding fragment of the
antibody

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

ALL – Acute lymphoblastic leukemia; a form of
cancer of the white blood cells characterized by
excess lymphoblasts

CAR-T technology – New therapeutic approach in
which immune cells are reprogrammed

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 antibody

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

B cells – White blood cells, part of the immune
system, capable of generation antibodies

B-MIND – Study to evaluate Bendamustine-MOR208
IN DLBCL

Cash ﬂ ow – Key performance indicator in the cash
ﬂ ow statement used to assess the ﬁ nancial and
earning
earning capacity
earning capacity

CD19 – Therapeutic target for the treatment of B cell
lymphomas and leukemias

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

CD38 – Therapeutic target for the treatment of mul-
tiple myeloma, certain leukemias and solid tumors

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

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

CMO – Contract manufacturing organization

Biosimilars – Term used to describe oﬃ cially
approved new versions of innovator biopharmaceu-
tical products, following patent expiration

COSMOS – CLLCLLC patients assessed for ORR / Safety in
MOR208 Study

CR – Complete response

CRO – Contract research organization

CTO – Contract testing organization

Glossary

A d d i t i o n a l I n f o r m a t i o n

171

GCP – Good clinical practice; an inter national ethi-
cal and scientiﬁ c quality standard for designing,
conduct ing, recording and reporting trials that in-
volve the par ticipation of human subjects

GLP – Good laboratory practice; a formal framework
for the implementation of safety tests on chemical
products

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

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

HuCAL – Human Combinatorial Antibody Library;
pro prietary antibody library enabling rapid genera-
tion of speciﬁ c human antibodies for all applications

Human – Of human origin

IFRS – International Financial Reporting Stan-
dards; accounting standards issued by the IASB and
adopted by the EU

Immuno-oncology – New class of compounds
that stimulate the immune system to attack tumors

Lanthipeptides – Novel class of therapeutics
with high target selectivity and improved drug-like
properties

ORR – Overall response rate

OS – Overall survival

L-MIND – Study to evaluate Lanalidomide-MOR208
IN DLBCL

Market capitalization – Value of a com pany’s
outstanding shares, as measured by shares times
current price

mCRPC – Metastatic castration-resistant prostate
cancer

Mesothelioma – Diﬀ usely growing tissue tumor
aﬀ ecting for example the pleura

Monoclonal antibody – Homogeneous antibody
origin ating from a single clone, produced by a
hybrid oma cell

Palmoplantar pustulosis – Psoriasis on hands
and feet

PFS – Progression-free survival

Pharmacodynamics – Study of the eﬀ ects of
drugs on the body

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

PR – Partial response

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

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

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

Nasdaq Biotech Index – Stock market index
made up of biotechnological or pharmaceutical
companies list ed at the US stock exchange NASDAQ

NHL – Non-Hodgkin’s lymphoma; diverse group of
blood cancers that include any kind of lymphoma
except Hodgkin’s lymphoma

Psoriasis – A chronic, non-contagious autoimmune
disease which aﬀ ects the skin and joints

Psoriatic arthritis (PsA) – Chronic joint inﬂ am-
mation that occures in connection with psoriasis

Rheumatoid arthritis – Inﬂ ammatory disease of
the joints; abbreviation: RA

Royalties – Percentage share of ownership of the
rev enue generated by drug products

172 A d d i t i o n a l I n f o r m a t i o n

Glossary

SLL – Small lymphocytic lymphoma

Target – Target molecule for therapeutic interven-
tion, e.g. on the surface of diseased cells

Ylanthia – The novel next-generation antibody
platform of MorphoSys

Slonomics – DNA engineering and protein library
gene ration platform acquired by MorphoSys in 2010

Small molecules – Low molecular compounds

SOP system – SOP = standard operating procedure
SOP = standard operating procedure
SOP

T cells – An abbreviation for T-lymphocytes; a
sub type of white blood cells that together with
B-lympho cytes are responsible for the body’s im-
mune defense

TecDAX – Index of the 30 largest technology compa-
nies listed on the Frankfurt Stock Exchange

TTP – Time to progression

Toxicity – Poisonousness

List of Figures and Tables

A d d i t i o n a l I n f o r m a t i o n

173

List of Figures and Tables

Figures

01 Revenues of the MorphoSys Group by Segment
28
02 MorphoSys’s Product Pipeline
30
03 Active Clinical Studies with MorphoSys Antibodies
32
04 Total Headcount of the MorphoSys Group
37
05 Revenues by Region
40
06 Revenues Proprietary Development and Partnered Discovery 40
07 Selected R&D Expenses
42
08 Distribution of R&D Expenses
44
09 Performance of the MorphoSys Share in 2017
54

10 Performance of the MorphoSys Share 2013 – 2017
11 Shareholders of MorphoSys AG by Region
12 Occupational Safety at MorphoSys
13 Quality Management System at MorphoSys
14 Employees by Gender
15 Seniority
16 Workforce Turnover Rate
17 Risk and Opportunity Management System at MorphoSys
18 Compliance Management System (CMS)

54
56
59
60
62
62
62
66
96

Tables

01 Development of Financial Performance Indicators
02 Sustainable Development Key Performance Indicators

(SD KPIs) at MorphoSys

03 Multi-Year Overview – Income Statement
04 Multi-Year Overview – Financial Situation
05 Multi-Year Overview – Balance Sheet Structure
06 Comparison of Actual Business Results Versus Forecasts
07 Key Data for the MorphoSys Share
08 Analyst Recommendations
09 Summary of MorphoSys’s Key Short- and

Medium-Term Risks

25
43
45
46
47
54
56

10 Summary of MorphoSys’s Key Long-Term Risks
11 Summary of MorphoSys’s Key Opportunities
12 Composition of the Supervisory Board until Termination

of the 2017 Annual General Meeting

72
72

13 Composition of the Supervisory Board since Termination

of the 2017 Annual General Meeting

75
14 Participation of Supervisory Board Members
77
15 Compensation of the Management Board in 2017 and 2016 84
16 Compensation of the Supervisory Board in 2017 and 2016
91
17 Directors’ Holdings
92
18 Managers’ Transactions in 2017
94

174 A d d i t i o n a l I n f o r m a t i o n

Imprint

MorphoSys AG
Semmelweisstrasse 7
82152 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 ﬁ nancial report is also published
in German and is available for download
on our website.

HuCAL®, HuCAL GOLD®, HuCAL PLATINUM®,
CysDisplay®, RapMAT®, arYla®, Ylanthia®, 100 billion
high potentials®, Slonomics®, Lanthio Pharma® and
LanthioPep® are registered trademarks of the
MorphoSys Group.
Tremfya® is a registered trademark of
Janssen Biotech, Inc.
Rituxan® is a registered trademark of
Biogen MA Inc.
MabThera® is a registered trademark of
F. Hoﬀ mann-La Roche AG.
Gazyva® is a registered trademark of
F. Hoﬀ mann-La Roche AG and Genentech, Inc.
Blincyto® is a registered trademark of Amgen Inc.
Darzalex® is a registered trademark of
Johnson & Johnson.
Cosentyx® is a registered trademark of Novartis AG.

Concept and Design
3st kommunikation GmbH, Mainz

Photography/Picture Credits
Andreas Pohlmann, Munich
Matthias Haslauer, Hamburg
Getty Images

Translation
Klusmann Communications, Niedernhausen

Editorial Ofﬁ ce
Götz Translations and Proofreading GmbH,
Hamburg

Typesetting and Lithography
Knecht GmbH, Ockenheim

Printer
Woeste Druck + Verlag GmbH & Co. KG,
Essen-Kettwig

Copy Deadline
March 8, 2018
(except ﬁ nancial statements)

Key Figures (IFRS)

MorphoSys Group (in million €, if not stated otherwise)

12/31/17

12/31/16

12/31/15

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

12/31/09

12/31/08

RESULTS1

Revenues

Cost of Goods Sold

R&D Expenses

SG&A Expenses

Personnel Expenses (Excluding
Stock-Based Compensation)

Capital Expenditure

Depreciation of Tangible Assets

Amortization of Intangible Assets

EBIT

Net Proﬁ t/(Loss)

Net Proﬁ t/(Loss) from
Discontinued Operations

BAL ANCE SHEE T

Total Assets

Cash, Marketable Securities and
Other Financial Assets

Intangible Assets

Total Liabilities

Stockholders’ Equity

Equity Ratio (in %)

MORPHOSYS SHARE

66.8

0.0

116.8

17.0

37.1

13.1

2.0

2.1

(67.6)

(69.8)

49.7

0.0

95.7

14.1

33.7

2.9

1.8

2.0

(59.9)

(60.4)

106.2

0.0

78.7

15.1

32.4

8.8

1.5

1.9

17.2

14.9

64.0

0.0

56.0

14.1

26.7

20.5

1.4

2.7

(5.9)

(3.0)

78.0

0.0

49.2

18.8

51.9

0.0

37.7

12.1

82.1

0.0

55.9

14.9

27.4

24.1

27.7

5.6

1.5

3.3

9.9

13.3

1.8

1.7

3.5

2.5

1.9

2.9

1.7

3.8

9.8

8.2

0.0

87.0

7.3

46.9

23.2

29.6

13.8

2.1

4.0

13.1

9.2

81.0

6.7

39.0

23.9

26.1

3.8

1.6

3.8

12.8

9.0

71.6

7.1

27.6

20.5

21.5

3.8

1.5

4.8

16.5

13.2

–

6.0

(0.4)

415.4

463.6

400.1

426.5

447.7

224.3

228.4

209.8

206.1

203.3

312.2

67.8

56.7

359.0

86 %

359.5

67.9

48.1

415.5

90 %

298.4

79.6

37.3

362.7

91 %

352.8

46.0

77.7

348.8

82 %

390.7

35.1

95.5

352.1

79 %

135.7

35.0

22.3

202.0

90 %

134.4

66.0

31.3

197.1

86 %

108.4

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 %

Number of Shares Issued

29,420,785

29,159,770 26,537,682 26,456,834 26,220,882 23,358,228 23,112,167 22,890,252 22,660,557 22,478,787

Group Earnings/(Loss) per Share,
Basic and Diluted (in €)

Dividend (in €)

Share Price (in €)

PERSONNEL DATA

(2.41)

(2.28)

–

0.57

–

(0.12)

–

76.58

48.75

57.65

76.63

0.54

–

55.85

0.08

–

29.30

0.36

–

17.53

0.40

–

18.53

0.40

–

17.04

0.59

–

18.75

Total Group Employees (Number2)

326

345

365

329

299

421

446

464

404

334

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
connection with the transaction are shown in the line item “Net Proﬁ t/(Loss) from Discontinued Operations.”
All other line items consist of amounts from continuing operations.

2 2007 to 2012 including employees from the discontinued operations of AbD Serotec.

Financial Calendar 2018

March 13
p u b l i c at i o n o f 2 0 1 7
y e a r - e n d r e s u lt s

May 17
2 0 1 8 a n n ua l g e n e r a l
m e e t i n g i n m u n i c h

November 6
publication of third quarter
interim statement 2 0 1 8

May 3
publication of first quarter
interim statement 2 0 1 8

August 2
p u b l i c at i o n o f 2 0 1 8
h a l f - y e a r r e p o r t

MorphoSys AG
Semmelweisstrasse 7
82152 Planegg
Germany
Phone: +49-89-89927-0
Fax: +49-89-89927-222
www.morphosys.com