MorphoSys AG — Interim / Quarterly Report 2004

Nov 22, 2005

Financial Report for the Quarterly Period Ended September 30, 2004

Contents

MorphoSys Group: Nine Months' Financial Report 2004

• 3 Letter to the Shareholders
• 4 Group Management Report
• 11 Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2004 and 2003 (unaudited)
• 12 Condensed Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003
• 13 Condensed Consolidated Statements of Changes in Stockholders' Equity as of September 30, 2004 (unaudited) and December 31, 2003
• 14 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 (unaudited)
• 16 Notes to the Condensed Consolidated Financial Statements (unaudited)

Dear Shareholders,

During the third quarter of this year, MorphoSys announced several noteworthy achievements relating to its operational and financial development.

Mirroring positive operational developments, the financial performance of MorphoSys significantly improved during the third quarter, continuing the upwards trend established in previous quarters. More specifically, MorphoSys turned net income profitable in the third quarter – its second bottom-line profitable quarter in 2004 – generating a net income of EUR 1.3 million. Also during the quarter, the Company increased its annual revenue forecast for 2004 from EUR 19 million to EUR 21 million – representing revenue growth of nearly 40% over the previous year. The Company's cash guidance was also uplifted, which at year's-end, is expected to be its highest-ever year-end cash balance.

Operationally, significant progress was also made. In August, MorphoSys announced the start of a new antibody program with Boehringer Ingelheim – the second of its kind with MorphoSys. Additionally, Centocor exercised an option to retain a commercial license for HuCAL® antibodies directed against a Centocor target molecule. Including these projects, the number of active, partnered therapeutic projects, among all partners, totals now 28 – our largest number ever – and is up from 17 at the beginning of the year.

MorphoSys also expanded its business reach geographically and application-wise during the third quarter. In July, the Company exploited the non-therapeutic potential inherent in its HuCAL® antibody library by signing a cooperation with Novoplant. Novoplant will use the technology in wholly new veterinary medicine applications. Moreover, in September MorphoSys concluded a strategic marketing agreement with GeneFrontier Corporation, aimed at tapping into the Japanese life science market – presently the world's second largest market.

As a result of these and other achievements, Company shareholder value and liquidity in the Company's stock were substantially increased. Consequently, MorphoSys was pleased to announce inclusion into Deutsche Börse's TecDAX Index in September. The TecDAX index represents Germany's largest and most liquid 30 technology-based company stocks listed on the Frankfurt Stock Exchange Prime Standard segment.

After two consecutive years of being cash-positive, MorphoSys expects to achieve a positive net income result in 2005, making the turn into profitability and growth therewith.

Thank you for your continued interest and confidence in our Company.

Dave Lemus Chief Financial Officer MorphoSys AG

Group Management Report Q3 2004

Industry Overview

After a strong first half-year, pharma and biotech news was mixed in the third quarter of 2004. Biotech IPOs continued, with ten biotech companies floated on the stock market during the quarter. Of these, two IPOs occured in Europe, one in Japan and seven in the USA. However, the recall of Merck's blockbuster drug Vioxx had a significant negative impact on capital market sentiment as it related to the pharmaceutical sector.

The MorphoSys share continued its positive development in the third quarter. For the quarter, the MorphoSys share gained a total of 9% from the end of Q2. As a comparison, the TecDAX index lost 14%, and the NASDAQ Biotechnology Index lost 6% in the same period.

Financial Analysis

Operating Revenues

Compared to the same period in the previous year, revenues increased by 42% to EUR 15.5 million in the first nine months of 2004 (September 30, 2003: EUR 10.9 million). Reasons for the increase include the impact of recently-signed larger collaborations and various milestone achievements attained, in the first nine months of 2004. Revenues arising from therapeutic antibody collaborations accounted for 87% of total revenues while target research collaborations generated 10%. The Antibody by Design business unit generated 3% of total revenues. Geographically, 82% of MorphoSys' commercial (non-grant) revenues in the amount of EUR 12.6 million were generated with biotechnology and pharmaceutical companies located in the United States of America and 18% in Europe. These percentages are comparable to the same period of the previous year, corresponding to 80% and 20%, respectively.

Operating Expenses

For the first nine months of 2004, total operating expenses including stock-based compensation expense decreased by 9% to EUR 14.9 million (September 30, 2003: EUR 16.3 million), leading to an operating profit of EUR 0.6 million (September 30, 2003: loss of EUR 5.4 million). The reduction in operating expenses of EUR 1.4 million was mainly due to lower external consultancy costs, including external lab funding costs, and lower stock-based compensation expense.

Research and Development Expenses

Costs for research and development increased by EUR 0.4 million to EUR 8.9 million (September 30, 2003: EUR 8.5 million). This increase resulted mainly from higher personnel and materials cost, corresponding to increased operational activity from new deals, as well as higher amortization expense resulting from the revaluation of the CAT license acquisition in 2003.

Sales, General and Administrative Expenses

Sales, general and administrative expenses amounted to EUR 5.3 million compared to EUR 6.2 million in the same period of the previous year. The decrease in expense resulted mainly from lower patent litigation expense as well as reduced legal and advisory fees primarily stemming from capital increases executed in the prior year.

Stock-Based Compensation

Stock-based compensation in the amount of EUR 0.8 million for the first nine months of 2004 was recorded as a non-cash charge (September 30, 2003: EUR 1.6 million), resulting from application of SFAS No. 123 "Accounting for Stock-Based Compensation" under U.S. GAAP accounting. The decrease in stock-based compensation was mainly due to declining amortization expenses from options and convertible bonds granted in prior periods as well as lower numbers of options and convertible bonds granted in the first nine months of 2004.

Cost by Expenditure Type

For the first nine months of 2004, personnel costs (excluding expenses arising from stockbased compensation) amounted to EUR 5.9 million (September 30, 2003: EUR 5.7 million) or 40% of total operating expenses, thus representing the largest cost block within operating expenses in the first nine months of 2004.

Intangible costs, which include patent litigation costs and amortization of licenses and patents, amounted to EUR 2.4 million (September 30, 2003: EUR 2.0 million) or 16% of the total in the first nine months of 2004. External consultancy costs amounted to EUR 2.0 million (September 30, 2003: EUR 3.7 million) or 13% of total operating expenses.

Non-Operating Items

Non-operating income amounted to EUR 0.7 million compared to a non-operating loss of EUR 1.3 million in the same period of the prior year, an improvement of EUR 2.0 million. The better performance in the current year stems from the absence of extraordinary interest charges in 2003 relating to the beneficial conversion of XOMA 's share issuance transaction, as well as gains on MorphoSys' sale of marketable securities in the first nine months of 2004, which resulted in a realized gain of EUR 0.7 million. Higher interest income as a result of higher cash balances also served to improve the result in the first three quarters of 2004.

Net Profit / (Loss)

Following the positive trend established in 2003, the Company achieved net profitability for the first nine months of 2004 in the amount of EUR 1.3 million (September 30, 2003: loss of EUR 6.7 million). EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization and Stock-Based Compensation) was positive in 2004, and amounted to EUR 4.3 million for the first three quarters of 2004 compared to a loss of EUR 2.6 million in the same period of 2003.

The resulting earnings per share for the nine months ended September 30, 2004 amounted to EUR 0.24 per share (nine months ended September 30, 2003: loss of EUR 1.60).

Liquidity / Cash Flows

On September 30, 2004, the Company held EUR 31.8 million in cash, cash equivalents and marketable securities compared to a EUR 23.2 million cash balance at December 31, 2003. The increased cash position results from the issuance of a convertible bond to Novartis for

EUR 9.0 million in connection with the strategic antibody collaboration signed in May 2004 as well as the achievement of a positive operating cash-inflow in the first nine months of 2004.

In the first nine months of 2004, the Company's current assets increased by EUR 10.3 million to EUR 36.5 million compared to EUR 26.2 million at December 31, 2003.

Assets

As a result of the increased cash position, total assets increased by EUR 9.1 million to EUR 54.9 million in the first nine months of 2004 compared to EUR 45.8 million at December 31, 2003.

Liabilities

During the first nine months of 2004, total non-current liabilities decreased by EUR 2.2 million to EUR 5.7 million, principally due to a downturn in long-term deferred revenues. Total current liabilities increased by EUR 0.6 million mainly resulting from increased payables to licensors at the end of the year as well as slightly higher accrued expenses at September 30, 2004.

Equity

At September 30, 2004, the total number of shares issued was 5,411,315 of which 5,351,553 were outstanding, compared to 4,901,332 and 4,841,570 at December 31, 2003, respectively. The increase arose from the conversion of a convertible bond issued to Novartis in connection with the collaboration agreement signed in May 2004. These mandatory convertible debentures were converted into 490,133 common MorphoSys shares on June 15, 2004. Additionally 19,850 shares were issued as a result of the conversion of convertible bonds granted to employees.

Capital Expenditure

Investment in property and equipment amounted to EUR 1.3 million for the nine-month period ended September 30, 2004, compared to EUR 0.5 million for the same period of the prior year. The increase resulted from investments in automation for the Antibodies by Design unit, as well as maintenance of capitalized assets used in other areas of the Company's business. Accordingly, depreciation increased for the first nine months of 2004 and accounted for EUR 0.7 million compared to EUR 0.6 million for the same period last year.

Amortization of existing capitalized intangibles in the first three quarters of 2004 was EUR 1.6 million compared to EUR 1.1 million in the same period of the previous year. The increase of EUR 0.5 million resulted in part from revaluation of the CAT license in 2003.

Human Resources

Number and Qualification of Employees

On September 30, 2004, the MorphoSys Group employed 127 people (December 31, 2003: 95). On average, the MorphoSys Group employed 112 people for the first nine months of 2004 (Q3 2003: 93). The increase was related to recently-signed collaborations.

Of the 127 employees, 103 worked in research and development and 24 in sales, general and administration. On September 30, 2004, 43 of MorphoSys' employees had a Ph.D. degree (December 31, 2003: 35) and 2 apprenticeship positions were maintained in the Company (December 31, 2003: 2).

On September 3, 2004, MorphoSys announced the departure of Dr. Thomas von Rüden, former Chief Scientific Officer and Executive Group member, from the Company. A search for a suitable replacement is currently afoot, and until a successor is appointed, the Company will continue to be managed by the other two members of the Management Board, Dr. Simon Moroney, Chief Executive Officer, and Dave Lemus, Chief Financial Officer. Dr. Moroney will add Research and Development to his responsibilities, while Dave Lemus will add Technical Operations to his responsibilities.

Simultaneously, MorphoSys announced two promotions within the Company at the Vice President and Director levels. Dr. Marlies Sproll, presently Vice President of Research and Development, was promoted to Senior Vice President in the same capacity. Dr. Barbara Krebs, presently Director of Business Development, was promoted to Senior Director.

Research & Development / Partnered Research

Proprietary Product Development

MOR102

MorphoSys is currently performing a comparison study with MOR102 and other already approved psoriasis drugs. Results of this study are expected by the end of Q1 2005.

MOR202

In October 2004, MorphoSys presented first promising animal data from pre-clinical studies of the anti-cancer antibody program MOR202, at the 11th Human Antibodies & Hybridomas Conference in Dublin, Ireland.

The antibodies were initially characterized in detail in different in vitro assays. Using cell lines of specific hematologic cancer types and in primary patient tumor material, it was demonstrated that the antibodies were able to kill cancer cells efficiently. A MOR202 antibody also proved to be highly effective in an in vivo animal model for investigating multiple myeloma. The HuCAL® IgG antibody was administered regularly to tumor-bearing mice over a period of between three and five weeks. In various experimental settings, different antibody constructs, dosages and treatment regimens were examined. In all cases, treatment with MOR202 antibody led to a significant slowdown of tumor growth, in some cases no tumor could be detected at the end of the observation period. MorphoSys has submitted several U.S. patent applications. These patents relate to specific anti-CD38 antibodies and their use.

Partnered Product Development

Biogen Idec, Inc.

The research cooperation with Biogen Idec, which was signed in December 2000 and extended in January 2002, was successfully concluded at the end of September 2004. Biogen Idec used MorphoSys' HuCAL® GOLD antibody library in genome research programs. MorphoSys generated antibodies against expressed sequence tags (ESTs) for Biogen Idec in order to support the identification and assessment of drug candidates within Biogen Idec's genome research activities. Biogen Idec retains limited rights in certain HuCAL®-derived antibodies.

Boehringer Ingelheim GmbH & Co. KG

In August 2004, MorphoSys and Boehringer Ingelheim announced the start of a new program for the development of a therapeutic antibody against an undisclosed target molecule involved in cardiovascular diseases. MorphoSys will generate this antibody using its proprietary HuCAL GOLD® technology. Boehringer Ingelheim will carry out the pre-clinical and clinical development as well as subsequent marketing of all resulting products. MorphoSys will participate in the successful progress of the project, receiving milestone payments and royalties.

The initiation of the new antibody program between Boehringer Ingelheim and MorphoSys was made in the context of the mutual cooperation and license agreement signed in February 2003 and represents the exercise of Boehringer Ingelheim's second option for the development of a therapeutic antibody using the HuCAL® technology of MorphoSys. Under this agreement, MorphoSys received the exclusive, global license for certain patents owned by Boehringer Ingelheim. These patent rights related to the development, production and sale of therapeutic and diagnostic antibodies against a target molecule, ICAM-1. ICAM-1 is the basis for MorphoSys' proprietary product programs MOR101 and MOR102, which are intended for the treatment of dermal burns and inflammatory diseases such as psoriasis. In return for this consideration, Boehringer Ingelheim was granted the option to develop two therapeutic antibodies using MorphoSys' HuCAL® technology and exercised its first therapeutic antibody program option in November 2003.

Centocor, Inc.

In August 2004, MorphoSys announced that Centocor Inc., a Johnson & Johnson company, exercised an option to retain a commercial license for HuCAL® antibodies directed against an undisclosed Centocor target molecule involved in inflammatory diseases. In exchange, MorphoSys received a license payment from Centocor.

The cooperation between MorphoSys and Centocor, initiated in December 2000, is aimed at the development of human therapeutic antibodies in a range of indications. It includes an option for Centocor on the development of antibodies against up to 30 different target molecules using MorphoSys' proprietary technologies. In March 2002, the existing partnership was expanded when Centocor ordered AutoCAL™, the MorphoSys-developed system for automated screening of the HuCAL® antibody library. In March 2004, both companies commenced a new antibody program in which MorphoSys would generate therapeutic antibodies against a Centocor target molecule involved in autoimmune diseases. In the collaboration with Centocor, MorphoSys has achieved four performance-related milestones to date.

Crucell N.V.

In September 2004, MorphoSys announced a non-exclusive license agreement with Dutch biotechnology company Crucell N.V. and allied contract manufacturer DSM Biologics. Under the terms of the agreement, MorphoSys received the rights to Crucell's PER.C6® fully human cell line technology for use in its own and partnered antibody research programs conducted at MorphoSys. Furthermore, MorphoSys and its partners have an option to obtain a license for the clinical and commercial production of antibodies isolated from the MorphoSys HuCAL® library. The human cell line has been shown to be suited to the development and large-scale manufacturing of a wide range of biologics including antibodies. Financial details were not disclosed.

Crucell's fully human PER.C6® cell line is an established technology for the production of antibodies. Thus, through the collaboration, MorphoSys is broadening its technology base and diversifies its offering for existing and new partners. The advantages of PER.C6® include highyield production of antibodies, fast production cycles and the provision of human glycosylation patterns.

GeneFrontier Corp.

Also in September 2004, MorphoSys announced that it has formed a strategic marketing cooperation with the Tokyo-based company GeneFrontier Corporation in order to access the Japanese life science market. The objective of the cooperation is to drive new business opportunities by establishing the HuCAL® technology of MorphoSys as the premium brand for both research and therapeutic antibody generation in Japan. As part of an ongoing pre-marketing agreement between the two companies, several research projects conducted with Japanese partners have been so far successfully completed. Under the multi-year collaboration, both parties will invest in customer development and marketing in Japan as part of a wider MorphoSys effort to expand geographically into new markets.

Novoplant GmbH

MorphoSys and Novoplant GmbH (Gatersleben, Germany) announced the signing of a collaboration for the development of therapeutic antibodies in animal health applications in July 2004. Under the three-year agreement Novoplant received a license from MorphoSys for the development and commercialization of therapeutic antibodies as feed components for use in veterinary medicine. As consideration, Novoplant payed a technology access fee to Morpho-Sys for the utilization of the HuCAL GOLD® technology in addition to future annual licensing fees. Additionally, MorphoSys will receive milestone fees and royalties for the subsequent development and marketing of any resulting products.

In the context of the cooperation, Novoplant will use MorphoSys' HuCAL GOLD® technology to generate antibodies against viruses, parasites and pathogenic microorganisms such as E. coli or salmonella. The addition of such MorphoSys antibodies to animal feed stock intended for poultry, pigs or cattle may offer protection against infectious diseases in the respective animal's gastro-intestinal tract. MorphoSys retains all rights in any human therapeutics or diagnostics emerging from the collaboration.

Intellectual Property

On September 30, 2004, the District Judge presiding over the MorphoSys / Applied Molecular Evolution ("AME") case issued a "Memorandum and Order" wherein he denied the summary judgment motions and declined to adopt the recommendation of the Magistrate Judge from January 2003 for the time being. As reported on January 8, 2003, the Magistrate Judge had recommended that MorphoSys' motion for summary judgment of non-infringement be allowed and that AME's motion for partial summary judgment of infringement be denied.

Instead the judge ordered that a Markman hearing for claim construction should be held, in order that clarity around certain issues be reached prior to any judgment. A scheduling conference has been set at the beginning of November 2004.

On June 25, 2001, AME filed a complaint against MorphoSys AG and its wholly owned subsidiary MorphoSys USA, Inc., in the United States District Court for the District of Massachusetts seeking injunctive relief and damages on behalf of AME. The complaint alleges that MorphoSys AG and MorphoSys USA, Inc., are willfully infringing the Kauffman patent family under which AME holds an exclusive license. MorphoSys counterclaimed that the patents are not infringed, and that the patents are invalid and/or unenforceable. In summer 2002, both parties filed several motions for summary judgment, resulting in the "Report and Recommendation" from the Magistrate Judge to the District Judge from January 6, 2003. Since litigation has commenced, the original plaintiff, AME, has been wholly acquired by Eli Lilly and Company.

Outlook

In July, MorphoSys increased its revenue forecast by almost 40% to EUR 21 million.

Additionally, cash guidance was increased to at least EUR 28 million at year´s end, based on the issuance and subsequent conversion of a convertible bond in June 2004.

Looking ahead into the next fiscal year on the basis of current planning, MorphoSys expects to be able to achieve bottom-line profitability in 2005.

Condensed Consolidated Statement of Operations (U.S. GAAP) – unaudited

	Three Months	Three Months	Nine Months	Nine Months
	Ended	Ended	Ended	Ended
	Sep. 30, 2004	Sep. 30, 2003	Sep. 30, 2004	Sep. 30,2003
	EURO	EURO	EURO	EURO
Revenues	6,694,528	3,641,356	15,477,951	10,884,738
Operating Expenses
Research and Development	3,211,871	2,774,010	8,857,554	8,482,957
Sales, General and Administrative	1,606,605	2,092,519	5,258,637	6,164,499
Stock-Based Compensation	179,190	542,257	764,863	1,599,499
Total Operating Expenses	4,997,666	5,408,786	14,881,054	16,246,955
Profit / (Loss) from Operations	1,696,862	(1,767,430)	596,897	(5,362,217)
Interest Income	123,374	12,860	236,649	198,420
Interest Expense	83,907	47,495	241,917	959,026
Impairment of Marketable Securities	–	–	–	(753,768)
Other Income / (Expense), Net	327,453	37,201	694,360	226,451
Loss before Taxes	2,063,782	(1,764,864)	1,285,989	(6,650,140)
Foreign Income Tax Expense	–	–	–	1
Net Profit / (Loss)	2,063,782	(1,764,864)	1,285,989	(6,650,141)
Earnings / (Loss) per Share
Basic	0.40	(0.39)	0.24	(1.60)
Diluted	0.39	(0.39)	0.24	(1.60)
Shares Used in Computing Net Profit / (Loss) per Share
Basic	5,183,686	4,547,490	5,349,795	4,162,728
Diluted	5,230,653	4,547,490	5,387,516	4,162,728

Condensed Consolidated Balance Sheets (U.S. GAAP)

EURO (unaudited) 9,185,507 22,620,228 4,134,855 538,737 36,479,327 2,481,328 5,503,540 9,974,641 432,892 18,392,401 54,871,728	EURO 6,652,456 16,508,575 2,111,710 948,575 26,221,316 1,907,895 6,103,675 10,898,904 627,130 19,537,604 45,758,920
	258,732
956,710	677,060
4,201,859	4,272,249
1,016,231	949,122
	1,524,439
8,253,125	7,681,602
	1,651,360
	6,086,205
	–
	157,200
	7,894,765
	14,703,996
	(21,934)
	68,623,807
	912,755
	(54,036,071)
	30,182,553
	290,997 1,787,328 1,589,392 3,938,710 – 130,250 5,658,352 16,233,945 (21,934) 76,945,683 552,639 (52,750,082) 40,960,251

Condensed Consolidated Statement of Changes in Stockholders' Equity (U.S. GAAP)

	Accumulated						Total
					Additonal		Other Com- Accumulated	Stockholders'
		Common Stock	Treasury Stock		Paid-in prehensive		Deficit	Equity
					Capital	Gain/(Loss)
	Shares	EURO	Shares	EURO	EURO	EURO	EURO	EURO
Balance at January 1, 2003	3,949,706	11,849,118	59,762	(21,934)	59,193,912	(517,591)	(49,888,039)	20,615,466
Compensation Related to the Grant of Stock Options	–	–	–	–	2,175,430	–	–	2,175,430
Capital Increase against Contribution in Kind (XOMA), Net of Issuance Cost of EUR 23,314	363,466	1,090,398	–	–	3,110,896	–	–	4,201,294
Capital Increase against Contribution in Kind (CAT), Net of Issuance Cost of EUR 150,000	588,160	1,764,480	–	–	4,143,569	–	–	5,908,049
Other Comprehensive Loss: Change in Unrealized Gain on Available-for-Sale Securities	–	–	–	–	–	1,418,156	–	1,418,156
Foreign Currency Gain from Consolidation	–	–	–	–	–	12,190	–	12,190
Net Loss	–	–	–	–	–	–	(4,148,032)	(4,148,032)
Comprehensive Loss	–	–	–	–	–	–	–	(2,717,686)
Balance at December 31, 2003	4,901,332	14,703,996	59,762	(21,934)	68,623,807	912,755	(54,036,071)	30,182,553
Conversion of Convertible Bonds Issued to Related Parties	19,850	59,550	–	–	172,497	–	–	232,047
Compensation Related to the Grant of Stock Options and Convertible Bonds (unaudited)	–	–	–	–	764,863	–	–	764,863
Conversion of Convertible Bonds, Net of Issuance Cost of EUR 124,083 and Change in Fair Value of EUR 24,268	490,133	1,470,399	–	–	7,384,516	–	–	8,854,915
Other Comprehensive Loss: Change in Unrealized Gain on Available-for-Sale Securities (unaudited)	–	–	–	–	–	(360,673)	–	(360,673)
Foreign Currency Gain from Consolidation (unaudited)	–	–	–	–	–	557	–	557
Net Profit (unaudited)	–	–	–	–	–	–	1,285,989	1,285,989
Comprehensive Income (unaudited)	–	–	–	–	–	–	–	925,873
Balance at September 30, 2004 (unaudited)	5,411,315	16,233,945	59,762	(21,934)	76,945,683		552,639 (52,750,082)	40,960,251

Condensed Consolidated Statement of Cash Flows (U.S. GAAP) – unaudited

	2004	2003
For the Periods ended September 30,	EURO	EURO
Operating Activities
Net Profit / (Loss)	1,285,989	(6,650,141)
Adjustments to Reconcile Net Income / (Loss) to Net Cash Provided by / (Used in) Operating Activities
Depreciation	692,879	647,396
Amortization of Intangible Assets	1,568,699	1,077,342
Net Gain on Sale of Marketable Securities	(726,747)	(266,928)
Impairment of Marketable Securities	–	753,768
Unrealized Net (Gain) / Loss on Derivative Financial Instruments	70,590	(72,276)
Gain on Sale of Property and Equipment	–	(2,650)
Recognition of Deferred Revenue	(9,027,910)	(5,713,677)
Stock-Based Compensation	764,863	1,599,499
Changes in Operating Assets and Liabilities
Accounts Receivable	(2,023,145)	4,863,688
Prepaid Expenses and Other Assets	65,562	1,000,680
Accounts Payable	32,265	(857,690)
Licenses Payable	217,682	(702,404)
Deferred Revenue	6,810,025	3,378,900
Accrued Employee Benefits	67,109	(68,610)
Other Accrued Expenses and Liabilities	262,889	(440,205)
Other Non-Current Liabilities	–	240,159
Net Cash Provided by / (Used in) Operating Activities	60,750	(1,213,149)

	2004	2003
For the Periods ended September 30,	EURO	EURO
Investing Activities
Purchases of Marketable Securities	(14,682,499)	(10,625,589)
Proceeds from Sale of Marketable Securities	9,055,420	12,175,326
Purchases of Property and Equipment	(1,285,720)	(499,447)
Proceeds from Disposal of Property and Equipment	19,408	22,887
Additions to Patents	(44,301)	(33,219)
Net Cash Provided by / (Used in) Investing Activities	(6,937,692)	1,039,958
Financing Activities
Proceeds from the Issuance of Convertible Bonds	8,978,998	–
Conversion of Convertible Bonds Granted to Related Parties	232,047	–
Repayments from Conversion and Forfeitures of
Convertible Bonds Issued to Related Parties	(26,950)	(10,100)
Proceeds from the Issuance of Convertible Bonds to Related Parties	–	93,200
Purchases of Derivative Financial Instruments	(158,576)	(175,200)
Proceeds from Disposal/Exercise of Derivative Financial Instruments	508,000	11,200
Costs of Share Issuance	(124,083)	(173,314)
Net Cash Provided by / (Used in) Financing Activities	9,409,436	(254,214)
Effect of Exchange Rate Differences on Cash	557	12,885
Increase / (Decrease) in Cash and Cash Equivalents	2,533,051	(414,520)
Cash and Cash Equivalents at the Beginning of the Period	6,652,456	842,082
Cash and Cash Equivalents at the End of the Period	9,185,507	427,562
Supplemental Disclosures of Cash Flow Information:
Change in Unrealized Gains on Marketable Securities	(360,673)	553,901
Non-Cash Change in Fair Value of Bonds Issued	24,268	–
Reduction of Restricted Cash	118,500	–
Non-Cash Settlement of License Payable (XOMA)	–	4,224,608
License Settled in Equity	–	6,058,048

Notes to the Condensed Consolidated Financial Statements – unaudited

Organization and Summary of Significant Accounting Policies 1

Business and Organization

MorphoSys AG ("the Company") is a biotechnology company using combinatorial biology in drug discovery with the principal objective of developing and commercially exploiting new enabling technologies across a broad scientific spectrum. The Company was founded in July 1992 as a German limited liability company. In June 1998, MorphoSys was transformed into a German stock corporation. In March 1999, the Company went public on Germany's Neuer Markt, the stock exchange designated for high-growth enterprises. On January 15, 2003, MorphoSys AG was admitted to the Prime Standard segment of the Frankfurt Stock Exchange. Since September 20,2004, MorphoSys has been included in the Deutsche Börse TecDAX index.

Substantially all operations are located in Germany. The Company has two wholly-owned subsidiaries:

• MorphoSys U.S.A., Inc., which was incorporated in the United States on February 16, 2000. The subsidiary's purpose was to assist the Company in the sale and licensing of MorphoSys AG products. MorphoSys U.S.A., Inc. substantially ceased its operations in November 2002.
• MorphoSys IP GmbH, which was incorporated in Munich, Germany, on November 6, 2002 and commenced operations on December 31, 2002. The subsidiary's purpose is to purchase, maintain and administer certain intangible assets of the MorphoSys Group. The Company's operations are physically located at the premises of MorphoSys AG in Martinsried/Planegg, Germany.

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in these notes and elsewhere in the accompanying consolidated financial statements.

Basis of Financial Statement Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

Use of Estimates

Preparation of consolidated financial statements in conformity with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. The Company invests its cash in deposits with two major German financial institutions.

Consolidation

The accompanying financial statements consolidate the financial positions, results of operations, and cash flows of MorphoSys AG and its subsidiaries. All intercompany transactions and balances have been eliminated.

Marketable Securities

The Company accounts for its marketable securities using Statement of Financial Accounting Standards SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". Management determines the proper classification of securities at the time of purchase and reevaluates such designations as of each balance sheet date. At September 30, 2004 and December 31, 2003, such securities that are classified as available-for-sale are carried at market value with unrealized gains and losses reported in accumulated other comprehensive income, which is a separate component of stockholders' equity. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the statements of operations when the investment is sold or matures. On a regular basis, the Company tests for impairment. If a decline in the fair value of available-for-sale securities is judged to be other than temporary, the cost basis for the security is written down to fair value as new cost basis. The write-down amount is included in earnings as an impairment charge. The Company considers a decline in the market value of a marketable security, which is longer than six months in duration, to be deemed other than temporary unless specific facts and circumstances indicate otherwise. For further information, please see note 2.

Derivative Financial Instruments

The Company accounts for its derivative instruments using SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and its corresponding amendments under SFAS No. 138. SFAS No. 133 requires the Company to measure every derivative instrument at fair value and record them as either an asset or a liability. Changes in fair value are recorded in other income. According to the Company's foreign currency hedging policy, only receivables which are definite and collectable within a twelve-month period will be hedged. Embedded derivative instruments are separated from the host contract and accounted for separately as a derivative instrument using SFAS No. 133. At September 30, 2004 and December 31, 2003, the Company did not identify embedded derivatives in its current contracts. For further information, please see note 4.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and amortization. Major replacements and improvements are capitalized while general repairs and maintenance are charged to expense as incurred. Assets are depreciated over three to ten years using the straight-line method. Leasehold improvements are amortized over the estimated useful lives of the assets or the related lease terms, whichever is shorter.

Revenue Recognition

The Company's revenues include technology access fees, fees earned from research and development collaboration agreements predominately with companies based in the United States and fees earned from the sale of HuCAL® antibodies in non-therapeutic applications. Revenues related to non-refundable technology access fees, subscription fees and license fees are deferred and recognized on a straight-line basis over the relevant periods of the agreement, generally the research term or the estimated useful life of the collaboration for those contracts without a stipulated term unless a more accurate means of recognizing revenue is available. Research and development collaboration service fees are recognized in the period the services are provided in. Milestone revenues are recognized upon achievement of

certain criteria. Revenues from sales of non-therapeutic applications are recognized upon shipment.

Investment grants from governmental agencies for the support of specific research and development projects are recorded as revenues to the extent the related expenses have been incurred: Under the terms of the investment grants, the governmental agencies generally have the right to audit the use of the payments received by the Company.

For revenue arrangements with multiple deliverables the Company tests for separate units of accounting based on the criteria stated in Emerging Issues Task Force EITF 00-21. If certain criteria are met, the consideration will be allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria will be considered separately for each of the separate units.

Deferred revenue represents revenues received but not yet earned per the terms of the contracts. At September 30, 2004 and December 31, 2003, EUR 6,000 and EUR 0 unreceived cash was included in gross deferred revenue, respectively.

Segment Reporting

The Company operates primarily in one business segment related to the development of antibody therapeutics within the biotechnology industries. Accordingly, the Company does not disclose significant additional segment information under the definition of segment reporting, defined by the standards of SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information".

Research and Development

Research and development costs are expensed as incurred.

Stock-Based Compensation

The Company applies the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation", which requires the Company to record the estimated fair value of stock options and other awards at the grant date as compensation expense over the period in which the employees render the services associated with the award.

Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated into Euro in accordance with SFAS No. 52 "Foreign Currency Translation". All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. All amounts in the statement of operations have been translated using the average exchange rate for the year. The gains and losses resulting from the year-on-year changes in exchange rates have been reported in accumulated other comprehensive income. For further details, please see note 5.

Net Earnings/Loss per Share

Basic and diluted earnings/loss per share is calculated in accordance with SFAS No. 128 "Earnings per Share". Basic earnings/loss per share is based upon the number of weightedaverage shares of common stock outstanding for the respective years. Diluted earnings per share at September 30, 2004 include the number of weighted-average shares of common stock outstanding and the number of weighted-average shares from stock options and convertible bonds exercisable.

Impairment of Long-Lived and Identifiable Intangible Assets

The Company evaluates the carrying value of long-lived assets and identifiable intangible assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability is determined by comparing projected undiscounted cash flows associated with such assets to the related carrying value. An impairment loss is recognized when the estimated undiscounted future cash flows are less than the carrying amount of the asset. An impairment loss would be measured as the amount by which the carrying value of the assets exceeds their fair value.

Patent Costs

The Company capitalizes costs related to obtaining patents and protecting granted patents from infringement. Capitalized costs principally relate to the costs of legal counsel. Patent costs are amortized on a straight-line basis over the lesser of their estimated economic life or remaining patent term (10 years). Amortization commences at the time the patent is issued. The Company's patents covering its proprietary HuCAL® technology were granted in Australia in October 2000, in the United States of America in October 2001 and in Europe in June 2002. Further patent applications are pending in Canada and Japan.

Accounting for Acquired License Rights

The Company acquired license rights by making upfront licensing payments, annual maintenance fees and sublicensing payments to third parties. The Company amortizes up-front licensing payments on a straight-line basis over the estimated useful life of the acquired license (10 years). Annual maintenance fees are amortized over the term of each annual agreement. Sublicensing payments are amortized on a straight-line basis over the life of the contract or the estimated useful life of the collaboration for those contracts without a stipulated term.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risks consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company's cash and cash equivalents are principally denominated in Euro and U.S. Dollars. Marketable securities are placed in high-quality securities. Cash, cash equivalents and marketable securities are maintained principally with two high-quality financial institutions in Germany. The Company continually monitors its positions with, and the credit quality of, the financial institutions, which are counter-parties to its financial instruments, and does not anticipate non-performance. The Company's revenues and accounts receivable are subject to credit risk as a result of customer concentration. At September 30, 2004, three customers individually accounted for approximately 47%, 29% and 15% of the Company's accounts receivable balance. In addition, three customers individually accounted for 31%, 20% and 17% of the Company's total revenues for the first nine months of 2004. On September 30, 2003, three customers individually had accounted for 43%, 26% and 16% of the Company's revenues. On December 31, 2003, one customer individually had accounted for approximately 88% of the accounts receivable balance.

Accounts Receivable

For accounts receivable, the allowance for doubtful accounts is based on the management's assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the historical experience, management's estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management's assessment, allowances of EUR 5,955 and EUR 0 in relation to the newly formed reagent business unit were necessary on September 30, 2004 and December 31, 2003, respectively. The Company does not require collateral from customers for accounts receivable. On September 30, 2004 and December 31, 2003, accounts receivable included unbilled amounts of approximately EUR 3,749,540 and EUR 119,360, respectively.

Fair Value of Financial Instruments

The carrying value of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their fair value based upon the short-term maturities of these instruments. The fair value of marketable securities is based upon quoted market prices (see note 2). The fair value of license payables is determined by the effective interest method. Convertible bonds are recorded at their accreted values, which approximate the cash outlay that is due upon the note settlements.

Reclassifications

Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation.

Effects of New Accounting Standards and Regulations

For the effects of new accounting standards we refer to our published consolidated financial statements as of December 31, 2003.

Marketable Securities 2

Marketable securities consist of the following as of September 30, 2004 and December 31, 2003:

			Gross	Gross
	Maturity	Cost	Unrealized Holding	Unrealized Holding	Market
in 000's EUR			Gains	Losses	Value
December 31, 2003
HVB Euro Bond	June 7,2011	3,268	456	0	3,724
HVB Debentures	Dec. 6, 2009	2,562	161	0	2,723
DB Money Market Funds	daily	10,181	245	0	10,426
		16,011	862	0	16,873
Restricted Cash					364
					16,509
September 30, 2004
DB Money Market Funds	daily	22,365	501	0	22,866
		22,365	501	0	22,866
Restricted Cash					246
					22,620

Net unrealized holding gains of EUR 501,257 for the first nine months of 2004 and EUR 861,929 for the year ended December 31, 2003 were recorded as a separate component of stockholders' equity.

In prior years, the Company invested for an aggregate amount of EUR 3.8 million in a silent partnership of HypoVereinsbank Luxembourg and EUR 2.8 million in securities of the HypoVereinsbank AG. Under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities", both investments are designated as available-for-sale and are reported at fair value on the Company's balance sheet. Under the Company's accounting policy, marketable securities are presumed to be impaired, if their fair value is less than their cost basis for more than six months, unless specific facts and circumstances indicate otherwise. If the

Company deems these investments further impaired at the end of any other period, an additional impairment may occur. During 2002/2003 MorphoSys' HypoVereinsbank investments had traded below their original cost basis for more than six months and therefore the Company deemed that an impairment of these investments had occurred. Accordingly, impairment charges for January 2003 to June 2003 of EUR 753,768 had been recognized in June 2003. In January and February 2004, MorphoSys sold both investments - the silent partnership of HypoVereinsbank Luxembourg as well as held securities of the HypoVereinsbank AG. Realized gains amounted to EUR 646,100.

For further details of restricted cash items see note 3.

Restricted Assets 3

The Company has classified as restricted cash certain cash, cash equivalents and marketable securities in other assets that are not available for use in its operations. At September 30, 2004 the Company had commitments of EUR 245,500 for guarantees issued compared to EUR 364,000 at year-end 2003. The reduction resulted from guarantees returned in connection with discontinued operations of MorphoSys U.S.A., Inc.

EUR 130,250 and EUR 157,200, respectively, were committed for convertible bonds issued to employees, the Management Board and the Supervisory Board at September 30, 2004 and December 31, 2003. The decrease is a result of bonds exercised in the nominal amount of EUR 19,850 and bonds forfeited in the nominal amount of EUR 7,100 during the first nine months of 2004.

Derivative Financial Instruments 4

In May 2003, MorphoSys had entered into foreign currency option contracts to hedge foreign exchange exposure related to U.S. Dollar accounts receivable. At September 30, 2003, forward contracts in the notional amount of EUR 5.2 million or USD 5.8 million were outstanding. During the first nine months of 2004, the remaining contracts were sold or exercised for EUR 508,000.

In February 2004, the Company entered into foreign currency option contracts in the notional amount of EUR 3.8 million or USD 5.0 million. At September 30, 2004, these option contracts remained unsold and were presented as other current assets. For the first nine months of 2004, amortization of the option premiums amounted to EUR 113,090.

In May 2004, the Company entered into foreign U.S. Dollar forward contracts in the notional amount of USD 3.8 million maturing from July 2004 to July 2005. At September 30, 2004, these forward contracts are accounted for in other current assets at EUR 35,005.

The changes in fair value were included in non-operating losses on foreign exchange of EUR 31,761 (September 30, 2003: EUR 60,610).

The Company accounts for embedded derivative instruments using SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". MorphoSys initially identified a possible embedded derivative instrument in one of its agreements in the second quarter of 2004, and made a related charge of EUR 0.3 million in non-operating items in the second quarter financial statements. However, further analysis and review revealed that said items were not qualified as embedded derivatives as defined by SFAS No. 133. All related entries were reversed in the third quarter financial statements of 2004.

Accumulated Other Comprehensive Income 5

Accumulated other comprehensive income consists of unrealized gains on marketable securities and translation adjustments from consolidation. For September 30, 2004 and December 31, 2003, the components of accumulated other comprehensive income were as follows :

in 000's EUR	09/30/2004	12/31/2003
Net Unrealized Gain on Available-for-Sale Securities	501	862
Foreign Currency Translation Adjustment	52	51
Accumulated Other Comprehensive Income	553	913

Intangible Assets 6

The following sets forth the intangible asset classes as of September 30, 2004 and December 31, 2003:

in 000's EUR	09/30/2004	12/31/2003
Amortized Intangibles
Patents	8,600	8,569
Accumulated Amortization Patents	(3,215)	(2,571)
Unamortized Intangible Assets
Patents	119	106
Net Patents	5,504	6,104
Amortized License Rights
License Rights	12,140	12,140
Accumulated Amortization Licenses	(2,165)	(1,241)
Net License Rights	9,975	10,899

The changes in the carrying amount of unamortized patents for the period ended September 30, 2004 is as follows:

in 000's EUR EURO
Unamortized Intangibles
Balance on December 31, 2003	106
Additions for the First Nine Months 2004	13
Balance on September 30, 2004	119

Amortization is expected to commence on unamortized patents once the related patents are granted. Amortization expense on intangible assets totaled EUR 1,568,699 for the nine-month period ended September 30, 2004 (September 30, 2003: EUR 1,077,342). Patents are amortized over 10 years starting from the date of the first patent grant. Licenses are amortized over 10 years from the date of the acquisition. The increase of amortization expense is mainly due to the acquisition of the CAT license in July 2003.

Property and Equipment 7

Property and equipment consist of the following at September 30, 2004 and December 31, 2003:

in 000's EUR	09/30/2004	12/31/2003
Office and Laboratory Equipment	4,690	3,605
Furniture and Fixtures	1,340	1,267
Purchased Software	1,286	1,186
Total	7,316	6,058
Less Accumulated Depreciation	(4,835)	(4,150)
Property and Equipment, Net	2,481	1,908

Contingent Liabilities 8

In June 2001, a lawsuit was filed against the Company by Applied Molecular Evolution, Inc., ("AME") San Diego/U.S.A., at the United States District Court of Massachusetts in Boston/U.S.A., alleging that the Company infringes the Kauffman-Ballivet patent family. These patents cover the stochastic production of proteins and were granted in the late 1990s. In January 2003 MorphoSys confirmed that it had received a positive "Report and Recommendation" from the Magistrate Judge to the District Judge for the District Court in Boston, Massachusetts/U.S.A., in the legal action filed by Applied Molecular Evolution. The Magistrate Judge recommended that MorphoSys' motion for summary judgment of non-infringement be allowed and that AME's motion for partial summary judgment of infringement be denied. On September 30, 2004, the District Judge issued a "Memorandum and Order" wherein he declined to adopt the recommendation and denied the summary judgment motions for the time being. Instead, he ordered that a Markman hearing for claim construction should be held. Thereafter, based on the facts at issue, it will be determined whether the case can be decided by way of summary judgment or has to go to trial. As a result, no provisions for contingent liabilities have been made in the Company's financial statements.

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

Stockholders' Equity 9

Common Stock

On September 30, 2004, the Common Stock of the Company was EUR 16,233,945. An increase of EUR 1,470,399 arose as a result of the conversion of bonds issued to Novartis on May 19, 2004 in connection with the strategic antibody alliance signed earlier this year. The bond was converted into 490,133 MorphoSys shares on June 15, 2004. Through conversion of 19,850 convertible bonds issued to employees, common stock increased by an additional EUR 59,550 in the first nine months of 2004. In the year 2003, common stock had increased by EUR 2,854,878. The increase arose as a result of the issuance of 363,466 shares to XOMA for a capital increase against contribution in kind, which was registered in the commercial register on May 6, 2003. The issuance of 588,160 shares to CAT for a capital increase against contribution in kind was registered in the commercial register on August 26, 2003.

Authorized Capital

On May 11, 2004, the Annual Shareholders Assembly authorized the Company to increase Authorized Capital I by 823,424 shares to create a maximum of 1,960,533 new shares of Authorized Capital I (December 31, 2003: 1,137,109 shares). Also approved was an increase to Authorized Capital II of 58,816 shares to create a maximum of 490,133 new shares of Authorized Capital II (December 31, 2003: 431,317 shares).

Conditional Capital

In the first nine months of 2004, 19,850 shares were raised from Conditional Capital IV through exercise of the same number of convertible bonds by employees, increasing the subscribed capital by EUR 59,550.

On May 11, 2004, the Annual Shareholders' Assembly authorized the Company to create an additional 58,816 shares for Conditional Capital V to create a maximum amount of EUR 510,789 (170,263 shares).

On May 19, 2004, MorphoSys issued a convertible bond split into seven partial debentures to Novartis, convertible into a total of 490,133 shares. On June 15, 2004, Novartis converted all debentures into 490,133 common shares from the Company's Conditional Capital III.

Additional Paid-In Capital

On September 30, 2004, Additional Paid-in Capital amounted to EUR 76,945,683 (December 31, 2003: EUR 68,623,807). The increase of EUR 8,321,876 is primarily due to stock-based compensation provisions in the amount of EUR 764,863, and EUR 7,384,516 as a result of the Novartis share issuance including the direct cost of EUR 124,083. Also increasing common stock was from conversion of convertible debenture issued to employees in the amount of EUR 172,497.

Treasury Stock

Treasury Shares totaling EUR 21,934 (59,762 shares) at September 30, 2004 remained unchanged compared to December 31, 2003.

Stock Options and Convertible Bonds 10

Effective June 6, 2002, the Company had amended the Incentive Stock Option Plan ("2002 Plan") authorizing the grant of options to employees for up to 74,556 shares, arising from Conditional Capital, and deliverable upon exercise of non-warrant option rights. On January 15, 2004, a grant of 35,000 shares under the 2002 Plan was made to Company employees. The option rights are non-transferable and have a maximum life of five years. Additionally, a two-year holding period is required after the date of grant, after which the holder can exercise up to the amount of vested option rights. The exercise of the option rights is only possible if the stock exchange price on at least one day during the lifetime of the options has amounted to 120% of the strike price.

At the Company's Annual Shareholders' Assemblies in July 2002 and May 2003, the Company was authorized until June 30, 2006 to issue up to 450,269 non-interest-bearing convertible bonds with a par/nominal value of EUR 1.00 each to employees, members of the Management Board and Supervisory Board of the Company and its affiliates (2002 Plan). The pre-emptive rights of the stockholders were excluded.

On April 1, 2003, pursuant to a Management Board decision, the Company issued 70,700 convertible bonds to the Management Board and employees of the Company under the 2002 Plan. The beneficiaries may exercise the conversion rights only after the expiration of a waiting period of one year after the grant date. Each convertible bond with a nominal value of

EUR 1.00 allows the exchange into one share of ordinary no-par value common stock of the Company against payment of the exchange price. The convertible bonds can be exercised until December 31, 2005 under the condition that the stock exchange price on at least one day during the lifetime of the convertible bonds has amounted to 110% of the exchange price. From July to September 2004, 19,850 conversion rights granted April 1, 2003 were exercised and converted into common stock.

On October 31, 1999, 98,100 options were granted under the 1999 Options plan to employees, supervisory board members and management board members. The originally anticipated options term was five years. On October 14th 2004 the Management and Supervisory Board decided to extend the exercise period of 55,900 options granted to employees and the Management Board, respectively, until October 31st, 2009.

In the first nine months of 2004, no convertible bonds were granted.

Directors' Dealings 11

The table below shows the shares, stock options and convertible bonds as well as the changes of ownership of the same, which were held by the Management Board and the Supervisory Board during the first nine months of 2004:

Shares
	01/01/2004	Additions	Forfeitures	Sales	09/30/2004
Management Board
Dr. Simon E. Moroney (held through a
controlled entity)	113,461	–	–	–	113,461
Dave Lemus	–	–	–	–	–
Dr. Thomas von Rüden***	–	–	–	–	–
Total	113,461	–	–	–	113,461
Supervisory Board
Dr. Gerald Möller	–	2,500	–	–	2,500
Prof. Dr. Jürgen Drews	–	–	–	–	–
Dr. Daniel Camus	–	–	–	–	–
Dr. Metin Colpan**	–	–	–	–	–
Prof. Dr. Andreas Plückthun	59,300	–	–	–	59,300
Dr. Jörg Reinhardt*	–	–	–	–	–
Dr. Geoffrey N. Vernon	–	–	–	–	–
Total	59,300	2,500	–	–	61,800

* retired: 05/11/2004

** entered: 05/11/2004

*** no longer in Company: 09/03/2004

Stock Options

	01/01/2004	Additions	Forfeitures	Sales	09/30/2004
Management Board
Dr. Simon E. Moroney	47,000	–	–	–	47,000
Dave Lemus	21,000	–	–	–	21,000
Dr. Thomas von Rüden***	64,700	–	10,500	–	54,200
Total	132,700	–	10,500	–	122,200
Supervisory Board
Dr. Gerald Möller	6,100	–	–	–	6,100
Prof. Dr. Jürgen Drews	5,930	–	–	–	5,930
Dr. Daniel Camus	–	–	–	–	–
Dr. Metin Colpan**	–	–	–	–	–
Prof. Dr. Andreas Plückthun	3,500	–	–	–	3,500
Dr. Jörg Reinhardt*	3,500	–	1,750	–	1,750
Dr. Geoffrey N. Vernon	3,500	–	–	–	3,500
Total	22,530	–	1,750	–	20,780

Convertible Bonds

	01/01/2004	Additions	Forfeitures	Sales	09/30/2004
Management Board
Dr. Simon E. Moroney	24,000	–	–	–	24,000
Dave Lemus	34,000	–	–	–	34,000
Dr. Thomas von Rüden***	20,000	–	20,000	–	–
Total	78,000	–	20,000	–	58,000
Supervisory Board
Dr. Gerald Möller	2,500	–	–	–	2,500
Prof. Dr. Jürgen Drews	–	–	–	–	–
Dr. Daniel Camus	1,500	–	–	–	1,500
Dr. Metin Colpan**	–	–	–	–	–
Prof. Dr. Andreas Plückthun	1,500	–	–	–	1,500
Dr. Jörg Reinhardt*	1,500	–	1,500	–	–
Dr. Geoffrey N. Vernon	1,500	–	–	–	1,500
Total	8,500	–	1,500	–	7,000

* retired: 05/11/2004

** entered: 05/11/2004

*** no longer in Company: 09/03/2004

27

Earnings / (Loss) Per Share 12

Basic and diluted earnings/loss per share (EPS) are calculated in accordance with SFAS No. 128, "Earnings per Share". The table below illustrates the reconciliation from basic to diluted earnings per share (in thousands EUR, except per share data):

	Three Months	Three Months	Nine Months	Nine Months
	Ended	Ended	Ended	Ended
	Sep. 30, 2004	Sep. 30, 2003	Sep. 30, 2004	Sep. 30,2003
	EURO	EURO	EURO	EURO
Numerator
Net Profit / (Loss)	2,064	(1,765)	1,286	(6,650)
Denominator
Weighted Average Shares Used for Basic EPS	5,183,686	4,547,490	5,349,795	4,162,728
Dilutive Shares arising from Stock Options	12,267	–	7,417	–
Dilutive Shares arising from Convertible Bonds	34,700	–	30,304	–
Total Denominator	5,230,653	4,547,490	5,387,516	4,162,728
Earnings / (Loss) per Share (in EUR)
Basic	0.40	(0.39)	0.24	(1.60)
Diluted	0.39	(0.39)	0.24	(1.60)

Subsequent Events 13

On 3 September 2004, MorphoSys announced the departure of Dr. Thomas von Rüden from the Company's management board, with immediate effect, as his Service Agreement was terminated for good cause. Since this time, Dr. Thomas von Rüden has announced disagreement with the termination of the Service Agreement, and a preliminary action at the Landgericht München ("Urkundenprozess") has been launched, in order to claim partial reimbursement for lost remuneration. A first Court Hearing is scheduled on 4 November 2004. The Company's legal counsel believes it has meritorious arguments in the matter, and given that it is not possible to predict the outcome of these proceedings, nor is it possible to estimate probable loss, no provisions have been made in the Company's books.

Imprint

Contact

Corporate Communications

Dave Lemus Chief Financial Officer Tel.: +49 89 899 27-439 Fax: +49 89 899 27-5439

Dr. Claudia Gutjahr-Löser Director Corporate Communications Tel.: +49 89 899 27-122 Fax: +49 89 899 27-5122

Mario Brkulj PR Specialist Tel.: +49 89 899-454 Fax: +49 89 899 27-5454

MorphoSys AG Lena-Christ-Str. 48 82152 Martinsried / Planegg Germany

E-mail: investors@morphosys.com Internet: www.morphosys.com