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MorphoSys AG — Interim / Quarterly Report 2007
Jul 30, 2007
291_10-q_2007-07-30_b5e2a557-e3be-4012-b7be-608d43756587.pdf
Interim / Quarterly Report
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2nd Interim Report January – June 2007
Contents
MorphoSys Group: 2nd Interim Report January – June 2007
3 Letter to the Shareholders
4 Interim Group Management Report
- 11 Consolidated Statements of Operations (IFRS) for the Period Ended June 30, 2007 and 2006
- 12 Consolidated Balance Sheets (IFRS) as of June 30, 2007 and December 31, 2006
- 14 Consolidated Statements of Changes in Stockholders' Equity (IFRS) as of June 30, 2007 and June 30, 2006
- 16 Consolidated Statements of Cash Flows (IFRS) for the Periods Ended June 30, 2007 and 2006
- 18 Notes to the Interim Consolidated Financial Statements
Dear Shareholders,
During the first six months of 2007, MorphoSys´s business continued to perform positively. Group revenues increased by approximately 8%, from last year's € 26.5 million to € 28.6 million whereas Company operating profit decreased by 38% to € 3.5 million due to increased R&D spending.
A signficant event occurring in the second quarter was the filing of an IND (investigational new drug application) for a third HuCAL-based therapeutic antibody. More specifically, an undisclosed pharma partner filed all necessary documentation to initiate a Phase 1 clinical trial in the therapeutic area of oncology, which triggered a clinical milestone payment to MorphoSys.
Another significant highlight of the second quarter occurred at the ASCO meeting in Chicago, USA, where MorphoSys presented preliminary preclinical data for MOR202, its proprietary therapeutic antibody of Morphosys, designed to treat Multiple Myeloma. At the conference, MorphoSys showed that in an in vivo animal model, MOR202 demonstrated superior efficacy in comparison to Velcade, one of the better therapeutic options for Multiple Myeloma patients currently on the market.
In May 2007, MorphoSys successfully placed 652,188 shares or 10% of the share capital to international institutional investors in Europe and North America, at a price of € 50.00 per share. The issue raised gross proceeds of approximately € 32.6 million raising the Company's cash balance to over € 100 million, and is intended in part to further expand the research antibody business.
In corporate related matters, the Annual Shareholders' Meeting took place in Munich in May. The shareholders confirmed the appointment of Dr. Walter Blättler, formerly Executive Vice President Science and Technology of ImmunoGen, Inc., to the MorphoSys Supervisory Board. Dr. Blättler replaces Prof. Dr. Andreas Plückthun, Professor of Biochemistry, University of Zurich, Switzerland, and co-founder of MorphoSys AG. Additionally, a three-for-one split of the Company's common stock was approved.
Thank you for your continued interest and support of MorphoSys.
Sincerely yours,
Dave Lemus Chief Financial Officer MorphoSys AG
Interim Group Management Report: January 1 – June 30, 2007
Industry Overview
The demand for human antibodies as a class of therapeutics continues to be strong, as described recently in MorphoSys's Annual Report 2006. This demand and the continued demand of pharma companies for innovative drugs and technologies were further illustrated by several acquisitions, such as Eisai's acquisition of Morphotek or Roche's takeover of Therapeutic Human Polyclonals (THP). Additionally, AstraZeneca acquired MedImmune in order to increase the portion of biological drugs in its pipeline. Within the research and diagnostic market, Beckman Coulter announced the acquisition of Biosite and Roche acquired BioVeris, both diagnostics companies.
The MorphoSys Share
During the second quarter, several biotech IPOs and secondary offerings competed for investors. To-date, overall biotechnology indices have underperformed the broader markets in 2007. The NASDAQ Biotechnology Index in the first half of 2007 showed a slight plus of 0.5%, while in the same period, the German Prime Biotechnology Index increased in the same period by 5%. After six months, the German TecDAX was up by 25%, mainly driven by the positive development of the stocks of solar-energy companies. The MorphoSys share finished the second quarter of 2007 down 11% from year-end 2006. By comparison, a basket of international antibody companies (Source: BioCentury), also declined by 3%.
Financial Analysis
Revenues
Compared to the same period in the previous year, revenues increased by 8% to € 28.6 million in the first six months of 2007 (June 30, 2006: € 26.5 million). The increase is due to higher levels of funded research and licensing fees and stronger sales in the AbD segment. Revenues arising from the Therapeutic Antibodies segment accounted for 65% or € 18.7 million of total revenues while the AbD segment generated 35% (€ 9.9 million) of the total.
Geographically, 42%, or € 11.9 million, of MorphoSys's commercial revenues were generated with biotechnology and pharmaceutical companies or non-profit organizations located in North America and 58%, or € 16.7 million, with companies located in Europe and Asia. This compares to 36% and 64%, respectively, in the same period of the prior year.
Therapeutic Antibodies Segment
Revenues arising from the Therapeutic Antibodies segment comprised € 14.7 million in funded research and licensing fees (2006: € 12.5 million) as well as € 4.0 million success-based payments (2006: € 5.0 million), representing 21% of total therapeutic revenues. Approximately 66% of therapeutic antibodies revenues and 43% of total revenues arose from the Company's three largest alliances with Novartis, Centocor and Pfizer (June 30, 2006: Novartis, Centocor and Roche, 69% and 45%, respectively).
Antibodies Direct – AbD Segment
Compared to the same period in the previous year, AbD segment's revenues increased by 10%, or € 0.9 million, to € 9.9 million in the first six months of 2007. The largest part of revenues (approx. 85%), or € 8.4 million, was generated with catalogue and industrial customers, while custom manufacture antibodies contributed 11% or € 1.1 million.
As of June 30, 2007, orders in the amount of € 1.0 million were classified as backorders in the segment.
Operating Expenses
For the first six months of 2007, total operating expenses increased by 20% to € 25.1 million. The rise in operating expenses of € 4.1 million was impacted by R&D expenses increasing by 33% or € 2.6 million, S, G&A expenses increasing by 15% or € 1.4 million and cost of goods sold increasing by 5% or € 0.2 million. Total PPA effects on operating profit amounted to € 0.7 million compared to € 0.8 million in the same period of the prior year.
Stock-based compensation expenses are embedded in COGS, S, G&A and R&D expense amounts. Stock-based compensation for the first six months of 2007 amounted to € 0.7 million (June 30, 2006: € 0.6 million), and is a non-cash charge.
Cost of Goods Sold
Cost of goods sold (COGS) is composed of the AbD segment's cost of goods sold during the first two quarters. COGS rose to € 4.2 million in H1 2007, compared to € 4.0 million in the same period of the prior year. This rise in COGS mainly resulted from higher sales levels during the current year.
Research and Development Expenses
Costs for research and development increased by € 2.6 million to € 10.5 million (June 30, 2006: € 7.9 million) mainly due to higher expenses for product and technology development and personnel costs. The two proprietary products currently being internally developed by MorphoSys are MOR 103 and MOR 202.
Sales, General and Administrative Expenses
Sales, general and administrative expenses amounted to € 10.5 million compared to € 9.1 million in the same period of the previous year. This change was mainly impacted by higher personnel costs due to increased accruals for variable compensation as well as by increased expenses for infrastructure.
Cost by Expenditure Type
For the first six months of 2007, personnel costs amounted to € 9.4 million (June 30, 2006: € 8.2 million) or 37% of total operating expenses, thus representing the largest cost block within operating expenses in the first half of 2007.
Expenses for external services, representing the second-largest block by cost type, mainly included external lab funding, consulting fees and marketing expenses and amounted to € 4.0 million (June 30, 2006: € 2.2 million) or 16% of total operating expenses.
Material costs mainly consisted of consumables, materials and goods employed and accounted for € 3.6 million (June 30, 2006: € 3.0 million) or 14% of total operating expenses.
Non-operating Items
Non-operating income amounted to € 0.2 million (June 30, 2006: expenses of € 0.1 million) and changed as a result of lower interest expenses and increased interest income compared to the same period in 2006. Profit before taxes amounted to € 3.7 million (June 30, 2006: profit before taxes of € 5.4 million).
Taxes
Expenses for current and deferred taxes in the amount of € 1.7 million (June 30, 2006: € 0.9 million) were recognized for the first six months of 2007. The deferred tax asset on tax loss carry-forwards established in 2006 was partially utilized in the first two quarters of 2007, resulting in both current and deferred tax expenses in the first half of 2007.
Operating Profit / Net Profit
Group operating profit amounted to € 3.5 million in the first six months of 2007 (June 30, 2006: € 5.6 million). Earnings before interest and taxes (EBIT) amounted to € 3.5 million, compared to an EBIT of € 5.5 million in the same period of the previous year.
A net profit after taxes of € 2.0 million was achieved for the first six months of 2007, compared to a net profit after taxes of € 4.5 million in the same period of 2006. The resulting basic net profit per share for the six months ended June 30, 2007, amounted to € 0.30 (six months ended June 30, 2006: net profit per share of € 0.71).
Liquidity / Cash Flows
Cash flow from operations amounted to € 4.2 million in the first six months of 2007 (June 30, 2006: € 14.6 million). Investing activities resulted in a cash outflow of € 6.7 million whereas the cash inflow from financing activities amounted to € 32.0 million.
As of June 30, 2007, the Company held € 102.1 million in cash, cash equivalents and availablefor-sale financial assets, compared to a year-end 2006 balance of € 66.0 million. Funds were held in two high quality financial institutions, in predominately short-term maturity money funds.
Assets
Total assets rose by € 37.7 million to € 165.5 million as of June 30, 2007, compared to € 127.8 million as of December 31, 2006, mainly as a result of cash generated from the capital increase in May 2007 and cash generated from operations.
Liabilities
In the first six months of 2007, current liabilities decreased from € 18.3 million as of December 31, 2006, to € 17.6 million. This change primarily arose from a decrease in accounts payable which was partly offset by an increase in current deferred revenues. Deferred revenues rose due to payments deriving from contracts signed in the current and previous years.
During the first six months of 2007, an increase of total non-current liabilities by € 3.0 million to € 12.5 million was mainly impacted by non-current deferred revenues, resulting from contracts signed in current and previous years.
Equity
Total stockholders' equity amounted to € 135.4 million as of June 30, 2007, compared to € 100.1 million as of December 31, 2006.
As of June 30, 2007, the total number of shares issued amounted to 7,376,890, of which 7,350,158 were outstanding, compared to 6,715,322 and 6,686,160 as of December 31, 2006, respectively.
The increase of shares outstanding by 663,998 shares arose from the capital increase against cash successfully placed in May 2007 and from the conversion of bonds issued to employees as well as from exercised options. In the first half of 2007, 2,430 of the exercised options related to shares provided by treasury stock. Treasury shares were reduced, accordingly, amounting to 26,732 shares as of June 30, 2007.
Capital Expenditure
MorphoSys's investment in property, plant and equipment amounted to € 0.7 million for the first half of 2007, and increased by € 0.4 million compared to the same period of the prior year. Depreciation of property, plant and equipment for the first six months of 2007 accounted for € 0.7 million, compared to € 0.9 million for the first half of 2006.
During the first six months of 2007, the Company invested € 0.6 million in intangible assets (June 30, 2006: € 0.2 million). Amortization of intangibles amounted to € 1.4 million and increased by € 0.1 million in comparison to the first six months of 2006.
Human Resources
Number and Qualification of Employees
On June 30, 2007 the MorphoSys Group employed 292 people (December 31, 2006: 279). On average, the MorphoSys Group employed 287 people for the first six months of 2007 (H1 2006: 254).
Of the 292 employees, 160 worked in research and development and 132 in sales, general and administration. On June 30, 2007, 69 of MorphoSys's employees had a Ph.D. degree (December 31, 2006: 59).
Of the 292 employees, 162 worked for the Therapeutic Antibodies segment and 130 for the AbD segment.
On June 30, 2007, MorphoSys had one apprenticeship position (December 31, 2006: 1).
Changes in the Supervisory Board
During the Annual Shareholders' Meeting on May 16, 2007, the shareholders confirmed the appointment of Dr. Walter Blättler, formerly Executive Vice President Science and Technology of ImmunoGen, to the MorphoSys Supervisory Board. Dr. Blättler replaces Prof. Dr. Andreas Plückthun, Professor of Biochemistry, University of Zurich, Switzerland, and co-founder of MorphoSys AG.
Legal Structure / Organization
As already communicated in the Q1 2007 Financial Report, MorphoSys has streamlined its corporate structure in order to increase administrative efficiency. The acquired Serotec companies were renamed MorphoSys UK Ltd. (Oxford, UK), MorphoSys US, Inc. (Raleigh, USA), and MorphoSys AbD GmbH (Dusseldorf, Germany). Furthermore, MorphoSys UK Ltd. (former Biogenesis Ltd.) was renamed Poole Real Estate Ltd.
The former Biogenesis, Inc. was merged into the former Serotec, Inc., and subsequently renamed MorphoSys US, Inc. (as per above).
Oxford Biotechnology Ltd. (Oxford, UK) is currently in liquidation.
Research & Development / Alliance Management
The following represents the progress made in proprietary antibody development and existing collaborations throughout the second quarter of 2007:
Therapeutic Antibodies Development
MOR103 – Development on Track
The development of MOR103 remains on track. MorphoSys intends to file all necessary documentation for a phase 1 trial in the second half of 2007.
MOR202 – Positive Interim Data Presented at ASCO
During the ASCO (American Society of Clinical Oncology) meeting in Chicago in June 2007, MorphoSys presented preliminary preclinical data for MOR202. MOR202 is one of MorphoSys's internal development programs targeting the cell surface antigen CD38. CD38 expressed on various cancer types, including certain leukaemia, lymphoma and myeloma. Especially in Multiple Myeloma (MM), which remains an incurable malignancy with a median survival time of 3-4 years, a strong expression has been reported in the majority of patients' tumor samples. By the end of 2006, a lead candidate (MOR202) was selected from several antibodies recognizing different epitopes on CD38 and subjected to in vitro and in vivo characterization. MOR202 exhibits a favorable binding activity, recognizes CD38 on many cell lines of different cancer origin and most importantly on all primary MM-patient samples tested so far. The MOR202 antibody has demonstrated that it is able to kill CD38-expressing cell lines and primary MM cells from patients efficiently in vitro. Finally, in an in vivo animal model, excellent efficacy could be
shown, resulting in significantly reduced tumour growth and overall survival, which was even superior to Velcade – a marketed drug for MM therapy – tested in the same model.
Clinical Milestone in Partnered Therapeutic Antibody Program
In June 2007, MorphoSys announced that an undisclosed partner has filed all necessary documentation to initiate a Phase 1 clinical trial with a HuCAL-derived fully human antibody in the therapeutic area of oncology. This achievement marks the third fully human antibody developed with MorphoSys's core technology within its partnerships to enter human clinical trials and triggers a clinical milestone payment to MorphoSys.
Bristol-Myers Squibb (USA)
The research collaboration with Bristol-Myers Squibb, which was originally signed with DuPont Pharmaceuticals in August 1998, was successfully concluded at the end of June 2007.
In July 2000, the two companies announced an expansion of the existing agreement. Under the new agreement, Bristol-Myers Squibb extended its research license to MorphoSys's proprietary HuCAL antibody libraries and the two companies agreed to collaborate in developing a system for fully automated high-throughput antibody generation, called AutoCAL.
In January 2005, the existing license agreement was again expanded. Under the amended agreement, MorphoSys granted Bristol-Myers Squibb access to its HuCAL GOLD library for use in Bristol-Myers Squibb's pharmaceutical discovery programs for target characterization and validation, as well as for therapeutic and diagnostic antibody product development.
AbD Segment
Chemicon International, Inc.
In May 2007, the distribution agreement with Chemicon International, Inc., was early terminated in order to allow for modifications upon the acquisition of the Serotec Group.
Risk Report
In the normal course of business, MorphoSys is subject to a number of risks which are directly linked to the nature of its business. Apart from those risks as described below, all other risks have not changed materially, compared to the situation described in the Annual Report 2006.
Currency Risks
The Group accounts are administered in euros. Due to the nature of its international businesses, a significant portion of revenues and expenses are earned and incurred in currencies other than the euro. Although the euro is the most predominant currency, others, especially the US dollar, and the British pound, and to lesser degrees the Swiss franc and the Japanese yen may experience fluctuations in the exchange rate to the reporting currency of euro, thus impacting Group revenues. The Company examines the necessity of hedging foreign exchange transactions to minimize the currency risk during the year and attempts to address these risks by regularly employing derivative financial instruments. Nevertheless, gains and losses from hedging transactions impact the non-operating result.
Opportunities
The opportunities for the MorphoSys Group have not changed materially compared to the description in the Annual Report 2006.
Outlook
MorphoSys's financial guidance was confirmed in April 2007 on the occassion of the Q1 2007 results. Group guidance for the Company, which estimated full-year 2007 Group revenues between € 60 million and € 65 million, and an operating profit of € 7 million to € 10 million remain unchanged. Goals for the AbD segment have been slightly altered, more specifically, original estimates of an operating profit in this segment of approx. 5 to 10% of revenues have been altered to a range which includes profitability of up to 5% of operating profit.
Consolidated Statements of Operations (IFRS)
| Three Months | Three Months | Six Months | Six Months | |
|---|---|---|---|---|
| Ended | Ended | Ended | Ended | |
| 06/30/2007 | 06/30/2006 | 06/30/2007 | 06/30/2006 | |
| Note | € | € | € | € |
| Revenues | 14,486,969 | 11,681,492 | 28,606,728 | 26,523,348 |
| Operating Expenses | ||||
| Cost of Goods Sold 2 |
1,449,224 | 1,892,614 | 4,170,244 | 3,991,538 |
| Research and Development | 5,626,921 | 4,052,172 | 10,489,464 | 7,883,564 |
| Sales, General and Administrative | 5,288,466 | 4,851,878 | 10,477,212 | 9,088,820 |
| Total Operating Expenses | 12,364,611 | 10,796,664 | 25,136,920 | 20,963,922 |
| Profit from Operations | 2,122,358 | 884,828 | 3,469,808 | 5,559,426 |
| Interest Income | 193,200 | 18,953 | 211,511 | 36,055 |
| Interest Expense | 2,293 | 43,417 | 5,259 | 76,143 |
| Other Income / (Expenses), Net | (158,004) | (329,941) | 25,461 | (89,754) |
| Profit before Taxes | 2,155,261 | 530,423 | 3,701,521 | 5,429,584 |
| Income Tax Expense | 759,584 | 886,610 | 1,665,770 | 886,610 |
| Net Profit/(Loss) | 1,395,677 | (356,187) | 2,035,751 | 4,542,974 |
| Basic Net Profit/(Loss) per Share | 0.20 | (0.05) | 0.30 | 0.71 |
| Diluted Net Profit/(Loss) per Share | 0.20 | - | 0.29 | 0.70 |
| Shares Used in Computing Basic Net Profit/(Loss) per Share |
7,023,836 | 6,624,548 | 6,880,800 | 6,434,788 |
| Shares Used in Computing Diluted Net Profit/(Loss) per Share |
7,128,545 | - | 6,991,914 | 6,528,446 |
Consolidated Balance Sheets (IFRS)
| June 30, | December 31, | |
|---|---|---|
| 2007 | 2006 | |
| Note | € | € |
| ASSETS | ||
| Current Assets | ||
| Cash and Cash Equivalents | 33,302,059 | 3,765,320 |
| Available-for-sale Financial Assets | 68,806,196 | 62,260,552 |
| Accounts Receivable | 6,790,745 | 3,699,386 |
| Other Receivables | 151,911 | 110,734 |
| Inventories, Net | 3,528,416 | 3,511,405 |
| Prepaid Expenses and Other Current Assets | 2,191,590 | 2,096,991 |
| Assets Classified as Held for Sale | 958,999 | 664,108 |
| Total Current Assets | 115,729,916 | 76,108,496 |
| Non-current Assets | ||
| Property, Plant and Equipment, Net | 6,485,005 | 6,894,112 |
| Patents, Net | 1,739,089 | 1,950,154 |
| Licenses, Net | 7,227,514 | 7,776,374 |
| Software, Net | 585,168 | 243,813 |
| Know-how and Customer Lists, Net | 4,384,533 | 4,834,289 |
| Goodwill | 27,010,382 | 27,002,591 |
| Deferred Tax Asset | 661,017 | 1,455,723 |
| Other Assets | 1,662,250 | 1,577,570 |
| Total Non-current Assets | 49,754,958 | 51,734,626 |
| Total Assets | 165,484,874 | 127,843,122 |
| June 30, | December 31, | |
|---|---|---|
| 2007 | 2006 | |
| Note | € | € |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current Liabilities | ||
| Accounts Payable | 7,550,902 | 10,455,799 |
| Current Portion of Licenses Payable | 111,856 | 126,382 |
| Provisions and Tax Liabilities | 1,122,888 | 1,082,042 |
| Current Portion of Deferred Revenue | 8,845,565 | 6,648,107 |
| Total Current Liabilities | 17,631,211 | 18,312,330 |
| Non-current Liabilities | ||
| Provisions, Net of Current Portion | 62,763 | 62,763 |
| Deferred Revenue, Net of Current Portion | 9,037,519 | 6,216,007 |
| Convertible Bonds Due to Related Parties | 83,638 | 38,371 |
| Deferred Tax Liability | 3,298,479 | 3,162,332 |
| Total Non-current Liabilities | 12,482,399 | 9,479,473 |
| Stockholders' Equity | ||
| Common Stock, € 3.00 Par Value; | 3 22,120,859 |
20,135,263 |
| Ordinary Shares Authorized (13,411,300 and 12,729,785 for 2007 and 2006, respectively) |
||
| Ordinary Shares Issued (7,376,890 and 6,715,322 for 2007 and 2006, respectively) |
||
| Ordinary Shares Outstanding (7,350,158 and 6,686,160 for 2007 and 2006, respectively) |
||
| Treasury Stock (26,732 and 29,162 shares for 2007 and 2006, respectively), at Cost |
||
| Additional Paid-in Capital | 3 154,558,332 |
123,878,001 |
| Accumulated Other Comprehensive Income | 1,979,604 | 1,359,948 |
| Accumulated Deficit | (43,287,531) | (45,321,893) |
| Total Stockholders' Equity | 135,371,264 | 100,051,319 |
| Total Liabilities and Stockholders' Equity | 165,484,874 | 127,843,122 |
Consolidated Statements of Changes in Stockholders' Equity (IFRS)
| Common Stock | |||
|---|---|---|---|
| Shares | € | ||
| Balance as of January 1, 2006 | 6,025,863 | 18,077,589 | |
| Compensation Related to the Grant of Stock Options and Convertible Bonds | - | - | |
| Exercise of Options and Convertible Bonds Issued to Related Parties | 35,418 | 106,254 | |
| Capital Increase against Contribution in Kind, Net of Issuance Cost of € 27,060 | 208,560 | 625,680 | |
| Capital Increase, Net of Issuance Cost of € 470,595 (Net of Deferred Tax) | 384,338 | 1,153,014 | |
| Other Comprehensive Income: | |||
| Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax | - | - | |
| Foreign Currency Loss from Consolidation | - | - | |
| Net Profit for the Period | - | - | |
| Comprehensive Income | - | - | |
| Balance as of June 30, 2006 | 6,654,179 | 19,962,537 | |
| Balance as of January 1, 2007 | 6,715,322 | 20,145,966 | |
| Result Incurred Through Restructuring of Affiliates | - | - | |
| Compensation Related to the Grant of Stock Options and Convertible Bonds | - | - | |
| Exercise of Options and Convertible Bonds Issued to Related Parties, Net of Issuance Cost of € 9,350 (Net of Deferred Tax) |
9,380 | 28,140 | |
| Exercise of Options from Treasury Stock Issued to Related Parties | - | - | |
| Capital Increase against Contribution in Kind, Net of Issuance Cost of € 1,054,860 (Net of Deferred Tax) |
652,188 | 1,956,564 | |
| Other Comprehensive Income: | |||
| Change in Unrealized Gain on Available-for-sale Securities, Net of Deferred Tax | - | - | |
| Effect from Equity-related Recognition of Deferred Taxes | - | - | - |
| Foreign Currency Loss from Consolidation | - | - | |
| Net Profit for the Period | - | - | |
| Comprehensive Income | - | - | |
| Balance as of June 30, 2007 | 7,376,890 | 22,130,670 |
| Additional | Revaluation | Translation | Accumulated | holders' | |||
|---|---|---|---|---|---|---|---|
| Treasury Stock | Paid-inCapital | Reserve | Reserve | Deficit | Equity | ||
| Shares | € | € | € | € | € | € | |
| 29,162 | (10,703) | 96,412,849 | 584,679 | 293,184 | (51,349,827) | 64,007,771 | |
| - | - | 656,463 | - | - | - | 656,463 | |
| - | - | 874,601 | - | - | - | 980,855 | |
| - | - | 8,002,500 | - | - | - | 8,628,180 | |
| 15,479,432 | 16,632,446 | ||||||
| - | - | - | 94,346 | - | - | 94,346 | |
| - | - | - | - | (171) | - | (171) | |
| - | - | - | - | - | 4,542,974 | 4,542,974 | |
| - | - | - | 94,346 | (171) | 4,542,974 | 4,637,149 | |
| 29,162 | (10,703) | 121,425,845 | 679,025 | 293,013 | (46,806,853) | 95,542,864 | |
| 29,162 | (10,703) | 123,878,001 | 1,066,790 | 293,158 | (45,321,893) | 100,051,319 | |
| - | - | - | - | - | (1,389) | (1,389) | |
| - | - | 733,420 | - | - | - | 733,420 | |
| - | - | 348,935 | - | - | - | 377,075 | |
| (2,430) | 892 | - | - | - | - | 892 | |
| 29,597,976 | 31,554,540 | ||||||
| - | - | - | 816,577 | - | - | 816,577 | |
| - | - | - | - | (140,742) | - | - | (140,742) |
| - | - | - | - | (56,179) | (56,179) | ||
| - | - | - | - | 2,035,751 | 2,035,751 | ||
| - | - | - | 675,835 | (56,179) | 2,035,751 | 2,655,407 | |
| 26,732 | (9,811) | 154,558,332 | 1,742,625 | 236,979 | (43,287,531) | 135,371,264 |
Total Stock-
Consolidated Statements of Cash Flows (IFRS)
| 2007 | 2006 | |
|---|---|---|
| For the Period Ended June 30, Note |
€ | € |
| Operating Activities | ||
| Net Profit | 2,035,751 | 4,542,974 |
| Adjustments to Reconcile Net Profit to Net Cash Provided by Operating Activities: |
||
| Non-cash Charges from PPA | 276,029 | 355,809 |
| Depreciation and Amortization of Tangible and Intangible Assets | 2,125,025 | 1,898,687 |
| Income Tax Benefit | (234,483) | (263,377) |
| Net Gain on Sales of Financial Assets | (31,396) | (485,029) |
| Unrealized Net Gain on Derivative Financial Instruments | (68,473) | (10,781) |
| Loss / (Gain) on Sale of Property, Plant and Equipment | 22,435 | (1,423) |
| Recognition of Deferred Revenue | (14,498,123) | (7,599,876) |
| Stock-based Compensation | 722,531 | 648,542 |
| Changes in Operating Assets and Liabilities: | ||
| Accounts Receivable | (3,109,050) | 592,314 |
| Prepaid Expenses and Other Assets | 307,571 | (152,609) |
| Accounts Payable and Provisions | (1,606,075) | 2,077,838 |
| Licenses Payable | (14,526) | 50,391 |
| Other Liabilities | (1,236,064) | (1,202,351) |
| Deferred Revenue | 19,517,093 | 14,189,355 |
| Cash Generated from Operations | 4,208,245 | 14,640,464 |
| Interest Paid | (2,265) | (9,611) |
| Net Cash Provided by Operating Activities | 4,205,980 | 14,630,853 |
| 2007 | 2006 | |
|---|---|---|
| For the Period Ended June 30, Note |
€ | € |
| Investing Activities: | ||
| Purchases of Financial Assets | (10,205,658) | (31,458,784) |
| Proceeds from Sales of Financial Assets | 4,746,517 | 18,304,909 |
| Purchases of Property, Plant and Equipment | (703,734) | (354,019) |
| Proceeds from Disposals of Property, Plant and Equipment | 24,804 | 8,666 |
| Additions to Intangibles | (551,943) | (155,068) |
| Acquisition of Serotec, Net of Cash Acquired | - | (21,172,502) |
| Net Cash Used in Investing Activities | (6,690,014) | (34,826,798) |
| Financing Activities: Proceeds from the Issuance of Equity |
32,609,400 | 17,103,041 |
| Proceeds from the Exercise of Options and Convertible Bonds Granted to Related Parties |
387,317 | 980,855 |
| Net of Proceeds and Payments from the Issuance of Convertible Bonds Granted to Related Parties |
45,267 | 28,155 |
| Purchases of Derivative Financial Instruments | (91,500) | (93,650) |
| Proceeds from the Disposal of Derivative Financial Instruments | 121,993 | - |
| Net Cost of Share Issuance | (1,064,210) | (497,655) |
| Net Cash Provided by Financing Activities | 32,008,267 | 17,520,746 |
| Effect of Exchange Rate Differences on Cash | 12,506 | 221,857 |
| Increase / (Decrease) in Cash and Cash Equivalents | 29,536,739 | (2,453,342) |
| Cash and Cash Equivalents at the Beginning of the Period | 3,765,320 | 4,017,029 |
| Cash and Cash Equivalents at the End of the Period | 33,302,059 | 1,563,687 |
Notes to the Interim Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), IAS 34 "Interim Financial Reporting" adopted by the International Accounting Standards Board (IASB), London in consideration of the interpretations of the Standing Interpretations Committee (SIC), the International Financial Reporting Interpretations Committee (IFRIC) and the IFRS adopted by the European Commission.
The consolidated financial statements for the period ended June 30, 2007, include MorphoSys AG, MorphoSys IP GmbH, MorphoSys USA, Inc., MorphoSys UK Ltd. (former Serotec Ltd.), MorphoSys US, Inc. (former Serotec, Inc.), MorphoSys AbD GmbH (former Serotec GmbH), Oxford Biotechnology Ltd., and Poole Real Estate Ltd. (former Biogenesis UK Ltd.), together referred to as the "Group".
1 Changes in Accounting Policies
The accounting policies applied for the financial statements as of December 31, 2006 have been used throughout the first six months of 2007, except for the following changes:
Basis of Consolidation
All business combinations are accounted for using the purchase method according to IFRS 3 "Business Combinations", whereby identifiable assets and liabilities assumed are measured initially at their fair value. Any excess of the purchase price over the amounts allocated is recognized as goodwill. The goodwill is subject to a regular review for possible impairment. In January 2007, the accounting for the purchase price allocation in connection with the Serotec acquisition – hitherto only provisional – had been completed according to IFRS 3.62.
Corporation Tax Reform
The German "Bundesrat" decided on July 6, 2007 in his sitting about the corporation tax reform 2008. As part of the regulations being effective as of January 1, 2008 the corporation tax rate will be reduced from 25% to 15% with a moderate rise in the effective trade income tax rate. One of the refinancing measures is a limit with regard to the deductibility of business expenses. These new regulations will have effects on the Group, but are not recognized within this interim financial report.
2 Segment Reporting
A segment is a distinguishable component of the Group that is engaged in providing products or services and is subject to risks and returns that are different from those of other segments. Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the Group's management and internal reporting structure. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
The Group consists of the following main business segments:
Therapeutic Antibodies
MorphoSys possesses one of the leading technologies in the generation of human antibody therapeutics and bespoke antibody research projects. The Company makes use of its technology in collaborations with internationally renowned pharmaceutical and biotech companies.
AbD – Antibodies Direct
The research antibodies business leverages MorphoSys's core technological capabilities in the design and manufacture of antibodies for research purposes. It commercializes HuCAL technology focusing on the custom generation of research antibodies for partners on an individual basis.
Geographical Segments
In presenting information on the basis of geographical segments, segment revenues are based on the geographical location of the customers.
| For the Six Months | Therapeutic Antibodies |
AbD | Unallocated | Consolidated | ||||
|---|---|---|---|---|---|---|---|---|
| Period Ended June 30, | ||||||||
| (in 000's €) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Revenues | 18,708 | 17,546 | 9,899 | 8,977 | - | - | 28,607 | 26,523 |
| Cost of Goods Sold | - | - | 4,170 | 3,991 | - | - | 4,170 | 3,991 |
| Segment Result | 8,113 | 9,427 | (714) | (634) | (3,929) | (3,234) | 3,470 | 5,559 |
| Interest Income | - | - | - | - | - | - | 212 | 36 |
| Interest Expense | - | - | - | - | - | - | 5 | 76 |
| Other Income / (Expense), Net |
- | - | - | - | - | - | 25 | (89) |
| Profit before Taxes | - | - | - | - | - | - | 3,702 | 5,430 |
| Income Tax Expense | - | - | - | - | - | - | 1,666 | 887 |
| Net Profit | - | - | - | - | - | - | 2,036 | 4,543 |
| For the Three Months | Therapeutic Antibodies |
AbD | Unallocated | Consolidated | ||||
|---|---|---|---|---|---|---|---|---|
| Period Ended June 30, | ||||||||
| (in 000's €) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Revenues | 9,939 | 7,585 | 4,548 | 4,096 | - | - | 14,487 | 11,681 |
| Cost of Goods Sold | - | - | 1,449 | 1,892 | - | - | 1,449 | 1,892 |
| Segment Result | 4,387 | 3,673 | (248) | (1,033) | (2,017) | (1,755) | 2,122 | 885 |
| Interest Income | - | - | - | - | - | - | 193 | 19 |
| Interest Expense | - | - | - | - | - | - | 2 | 43 |
| Other Income / (Expense), Net |
- | - | - | - | - | - | (158) | (330) |
| Profit before Taxes | - | - | - | - | - | - | 2,155 | 531 |
| Income Tax Expense | - | - | - | - | - | - | 759 | 887 |
| Net Profit / (Loss) | - | - | - | - | - | - | 1,396 | (356) |
The following table shows the split of the Company's consolidated revenues by geographical markets:
| For the Period ended June 30, (in 000's €) | 2007 | 2006 |
|---|---|---|
| Europe and Asia | 16,097 | 16,908 |
| U.S.A. and Canada | 11,871 | 9,505 |
| Other | 639 | 110 |
| Total | 28,607 | 26,523 |
3 Changes in Stockholders' Equity
Common Stock
On June 30, 2007, the common stock of the Company was € 22,130,670 (December 31, 2006: € 20,145,966). An increase of € 1,956,564 arose as a result of a capital increase executed in May 2007. Through the conversion and exercise of 9,380 convertible bonds and options issued to management and employees, common stock increased by € 28,140 in the first six months of 2007.
Additional Paid-in Capital
On June 30, 2007, Additional Paid-in Capital amounted to € 154,558,332 (December 31, 2006: € 123,878,001). The total increase of € 30,680,331 is due to stock-based compensation provisions in the amount of € 733,420 including the equity portion of convertible bonds granted as well as € 29,597,976 from a capital increase in May 2007. A further increase of € 348,935 arose from the exercise and conversion of convertible bonds and stock options issued to related parties.
4 Changes in Convertible Bonds
In the first half of 2007, convertible bonds were granted under the 2002 Plan with terms identical to the 2002 convertible bonds grants. On January 15, 2007, 13,873 convertible bonds were granted to Management Board members and 38,945 convertible bonds were granted to employees of MorphoSys AG.
5 Directors' Dealings
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 six months of 2007:
| 01/01/07 | Additions | Forfeitures | Sales | 30/06/07 | |
|---|---|---|---|---|---|
| Management Board | |||||
| Dr. Simon E. Moroney | 113,461 | - | - | - | 113,461 |
| Dave Lemus | - | - | - | - | - |
| Dr. Marlies Sproll | 35 | - | - | - | 35 |
| Total | 113,496 | - | - | - | 113,496 |
| Supervisory Board | |||||
| Dr. Gerald Möller | 2,500 | - | - | - | 2,500 |
| Prof. Dr. Jürgen Drews 1 | - | 2,430 | - | - | 2,430 |
| Dr. Walter Blättler 2 | - | - | - | - | 673 |
| Dr. Daniel Camus | - | - | - | - | - |
| Dr. Metin Colpan | - | - | - | - | - |
| Prof. Dr. Andreas Plückthun 3 | 59,300 | - | - | - | 59,300 |
| Dr. Geoffrey N. Vernon | - | - | - | - | - |
| Total | 61,800 | 2,430 | - | - | 64,903 |
1) Prof. Dr. Drews exercised his options and held the shares received
2) Entered as per May 16, 2007; shares were bought by Dr. Blättler prior to election to the Supervisory Board
3) Retired as per May 16, 2007
Stock Options
Shares
| 01/01/07 | Additions | Forfeitures | Exercises | 30/06/07 |
|---|---|---|---|---|
| 83,000 | - | - | - | 83,000 |
| 48,000 | - | - | - | 48,000 |
| 26,250 | - | - | - | 26,250 |
| 157,250 | - | - | - | 157,250 |
| - | - | - | - | - |
| 2,430 | - | - | 2,430 | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| 2,430 | - | - | 2,430 | - |
1) Prof. Dr. Drews exercised his options and held the shares received
2) Entered as per May 16, 2007
3) Retired as per May 16, 2007
Convertible Bonds
| 01/01/07 | Additions | Forfeitures | Exercises | 30/06/07 |
|---|---|---|---|---|
| 5,699 | 5,549 | - | - | 11,248 |
| 4,749 | 4,624 | - | - | 9,373 |
| 3,800 | 3,700 | - | - | 7,500 |
| 14,248 | 13,873 | - | - | 28,121 |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
| - | - | - | - | - |
2) Entered as per May 16, 2007
3) Retired as per May 16, 2007
6 Transactions with Related Parties
In July 2006, the Company entered into consulting agreements with the member of the Supervisory Board Prof. Dr. Andreas Plückthun and a further scientist of the University of Zurich, Switzerland. According to the agreements, the consultants shall provide consulting services in the antibody and scaffold field.
7 Review
The consolidated financial statements and this report as of June 30, 2007 have been subject to a review by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, München.
8 Responsibilty Statement
"To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year."
Martinsried/Planegg, July 25, 2007
Dr. Simon E. Moroney Mr. Dave Lemus Dr. Marlies Sproll Chief Executive Officer Chief Fiancial Officer Chief Scientific Officer
Review Report
To MorphoSys Aktiengesellschaft, Martinsried/Planegg
We have reviewed the interim consolidated financial statements - comprising the balance sheet, income statement, cash flow statement, statement of changes in equity and selected explanatory notes - and the interim group management report of MorphoSys Aktiengesellschaft, Martinsried/Planegg for the period from January 1 to June 30, 2007 which are part of the half year financial reports according to § 37 w Abs. 3 WpHG ["Wertpapierhandelsgesetz": "German Securities Trading Act"]. The preparation of the interim consolidated financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, and of the interim group management report which has been prepared in accordance with the regulations of the German Securities Trading Act applicable to interim group management reports is the responsibility of the Company's management. Our responsibility is to issue a review report on these interim consolidated financial statements and on the interim group management report based on our review.
We performed our review of the interim consolidated financial statements and the group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and conduct the review so that we can preclude through critical evaluation, with a certain level of assurance, that the interim consolidated financial statements have not been prepared, in material aspects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, and that the interim group management report has not been prepared, in material aspects, in accordance with the regulations of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor's report.
Based on our review, no matters have come to our attention that cause us to presume that the interim consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the regulations of the German Securities Trading Act applicable to interim group management reports.
Munich, July 25, 2007
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Maurer Rahn Wirtschaftsprüfer Wirtschaftsprüfer
Imprint
Financial Calendar
25 October 2007: Nine Months' Report
Contact
Corporate Communications
Dave Lemus Chief Financial Officer Tel.: +49 89 899 27-439 Fax: +49 89 899 27-5439
Dr. Claudia Gutjahr-Löser Head of Corporate Communications Tel.: +49 89 899 27-122 Fax: +49 89 899 27-5122
Mario Brkulj Manager Public Relations Tel.: +49 89 899-454 Fax: +49 89 899 27-5454
MorphoSys AG Lena-Christ-Str. 48 82152 Martinsried / Planegg Germany
E-mail: [email protected] Internet: www.morphosys.com
This interim report is also published in German and is available for download from our website.