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MorphoSys AG Reports Results for the First Six Months of 2013

Published: Monday, August 05, 2013
Last Updated: Monday, August 05, 2013
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Results strongly impacted by MOR103 licensing agreement with GSK.

MorphoSys AG has announced its financial results for the six months ending 30 June 2013. Group revenues from continuing operations nearly doubled to EUR 48.2 million (H1 2012: EUR 24.4 million).

The increase was a result of the license agreement with GlaxoSmithKline (GSK) for MorphoSys's clinical antibody program MOR103, as well as a fully paid-up license payment from Bio-Rad for a non-exclusive license to use HuCAL in research and diagnostic applications in connection with their acquisition of the Company's AbD Serotec segment. Earnings before interest and taxes (EBIT) from continued operations amounted to EUR 17.3 million (H1 2012: EUR -1.3 million).

On 30 June 2013, MorphoSys's cash, cash equivalents and marketable securities, including an interest-bearing assignable loan in the amount of EUR 15.0 million and other financial investments of EUR 10 million, amounted to EUR 166.3 million (31 December 2012: EUR 135.7 million). The upfront payment from GSK is not yet included, as the payment was received after the end of the quarter.

Highlights of the Second Quarter 2013
• MorphoSys signs a global development alliance agreement for MOR202 with Celgene. MOR202 is a HuCAL antibody targeting CD38 which is being developed for the treatment of multiple myeloma and other forms of leukemia. The agreement offers MorphoSys the opportunity to participate more fully in the future value of the MOR202 program through joint development activities and co-promotion in Europe. The licensing agreement with Celgene for MOR202 is subject to clearance by the US antitrust authorities under the Hart-Scott-Rodino Act, and will become effective as soon as this condition has been met. Therefore, potential financial implications are not yet reflected in the current guidance.
• MorphoSys signs a global licensing agreement for MOR103 with GlaxoSmithKline. MOR103 is a HuCAL antibody targeting GM-CSF which has completed Phase 1b/2a clinical development in patients with mild to moderate rheumatoid arthritis. This agreement provides for secured and performance-related payments of up to EUR 445 million as well as tiered double-digit royalties on net sales.
• MorphoSys initiates two phase 2 studies with the CD19 antibody MOR208, in the area of non-Hodgkin's lymphoma (NHL) and in B-cell acute lymphoblastic leukemia (B-ALL).
• The first scientific publication on the new antibody platform, Ylanthia, is published in the scientific journal "mAbs".
• MorphoSys reaches a clinical milestone in its ophthalmology program with Novartis.
• MorphoSys purchases 84,475 of its own shares as part of a share repurchase program. The shares are primarily intended for use in its long-term incentive program for MorphoSys's management.
• The Annual General Meeting of MorphoSys AG approves all management proposals.
• MorphoSys's product pipeline comprises 21 clinical programs as of the end of the second quarter of 2013.

"The first six months of 2013 were very successful for MorphoSys, and the two alliances with GSK and Celgene mark an inflection point in MorphoSys's development as a biopharmaceutical company," stated Dr. Simon Moroney, Chief Executive Officer of MorphoSys AG. "We are focusing on value generation through proprietary development, and we have joined forces with two leading pharmaceutical companies to accelerate the development of our proprietary compounds MOR103 and MOR202."

"Our investments in our proprietary pipeline over the last several years have clearly paid off. The collaboration with Celgene for MOR202 allows us to move up the value chain, as we retain more value and stay involved in the development of the compound all the way to the market," commented Jens Holstein, Chief Financial Officer of MorphoSys AG.

Financial Review for the First Half of 2013 (IFRS)
On 10 January 2013, MorphoSys completed the sale of its research and diagnostic antibody segment AbD Serotec to Bio-Rad Laboratories, Inc. As a consequence, substantially all of the AbD Serotec segment was classified as discontinued operations. The operating segments Partnered Discovery and Proprietary Development as well as the part of AbD Serotec which remained with MorphoSys are presented as continuing operations.

Results from Continuing Operations
Group revenues from continuing operations for the first six months of 2013 amounted to EUR 48.2 million (H1 2012: EUR 24.4 million), an increase of 98 % over the prior year. The strong increase resulted predominantly from a license agreement with GlaxoSmithKline (GSK) for MOR103 as well as from a license payment from Bio-Rad. The license agreement for MOR103, a HuCAL-derived antibody against GM-CSF, includes an immediate upfront payment for MorphoSys. The license payment from Bio-Rad derived from a non-exclusive license to use HuCAL in research and diagnostic applications in connection with their acquisition of MorphoSys's AbD Serotec segment. Revenues in the Partnered Discovery segment comprised EUR 27.0 million in funded research and licensing fees (H1 2012: EUR 21.5 million) and EUR 0.9 million in success-based payments (Q2 2012: EUR 1.9 million). The Proprietary Development segment recorded revenues of EUR 20.3 million (H1 2012: EUR 0.8 million). The reason for the increase over the prior year was the upfront payment received from GSK in connection with the license agreement for MOR103.

Total operating expenses from continuing operations for the first six months of 2013 increased by 21 % to EUR 31.2 million (H1 2012: EUR 25.8 million). Total research and development expenses increased by 12 % to EUR 22.7 million (H1 2012: EUR 20.2 million). The increase in R&D expenses mainly resulted from higher personnel costs and costs for external lab services as well as higher material costs. Investment in proprietary product and technology development amounted to EUR 14.6 million (H1 2012: EUR 12.3 million). Sales, general and administrative expenses increased by 50 % to EUR 8.4 million (H1 2012: EUR 5.6 million) driven by higher expenses for personnel and for external services.

Earnings before interest and taxes (EBIT) from continuing operations amounted to EUR 17.3 million (H1 2012: EUR -1.3 million). Partnered Discovery showed a segment EBIT of EUR 15.6 million (H1 2012: EUR 12.6 million), while the Proprietary Development segment reported a segment EBIT of EUR 8.2 million (H1 2012: EUR -9.6 million).

For the first half of 2013, MorphoSys realized a net profit from continuing operations of EUR 13.0 million compared to a net loss of EUR 0.3 million in the same period of the previous year. The resulting diluted earnings per share from continuing operations for the six months ending 30 June 2013 amounted to EUR 0.55 (H1 2012: EUR -0.01).

Results from Discontinued Operations
The sale of the research and diagnostic antibody segment AbD Serotec to Bio-Rad Laboratories, Inc. was completed on 10 January 2013. Results from discontinued operations reflect only the first ten days of the quarter. Revenues from discontinued operations were EUR 0.6 million (H1 2012: EUR 8.6 million).

Total operating costs from discontinued operations amounted to EUR 2.3 million (H1 2012: EUR 9.2 million), including cost of goods sold (COGS) in the amount of EUR 0.1 million (H1 2012: EUR 3.2 million) as well as transaction-related costs in the amount of EUR 1.8 million.

During the six months ending 30 June 2013, EBIT of discontinued operations after deduction of all attributable transaction costs amounted to EUR -1.6 million (H1 2012: EUR -0.6 million). In connection with the deconsolidation, a disposal gain of EUR 8.0 million was accounted for, resulting in a profit before taxes of EUR 6.4 million (H1 2012: EUR -0.7 million). The net profit from discontinued operations amounted to EUR 6.0 million (H1 2012: net loss of EUR 0.7 million).

Results for the Group
Group net profit amounted to EUR 19.0 million (H1 2012: EUR -1.0 million). The resulting fully diluted Group earnings per share amounted to EUR 0.81 (H1 2012: EUR -0.04).

On 30 June 2013, the Company had EUR 166.3 million in cash, cash equivalents and marketable securities, including an interest-bearing assignable loan in the amount of EUR 15.0 million and other financial investments of EUR 10 million, compared to EUR 135.7 million as of 31 December 2012. Net cash inflow from operations in H1 2013 amounted to EUR 0.2 million (H1 2012: net cash outflow of EUR 1.2 million). The number of shares issued at 30 June 2013 was 23,400,632 compared to 23,358,228 on 31 December 2012. The increase of 42,404 shares resulted from the exercise of stock options.

Second Quarter of 2013 (IFRS)

Results from Continuing Operations
In the second quarter of 2013, the Company generated revenues from continuing operations in the amount of EUR 31.3 million, compared to EUR 12.7 million in the same quarter of 2012. Total operating expenses amounted to EUR 16.6 million in Q2, compared to EUR 13.4 million in the same quarter of 2012. The increase of operating expenses was mainly due to increased personnel expenses and costs for external services. EBIT amounted to EUR 14.8 million (Q2 2012: EUR -0.6 million). Net profit for the second quarter 2013 was EUR 11.1 million, compared to a net profit of EUR 0.1 million in the second quarter of 2012.

Results from Discontinued Operations
During the second quarter of 2013, no revenues or expenses occurred within the AbD Serotec segment, which was sold to Bio-Rad in January of 2013.

Results for the Group
For the second quarter of 2013, Group net profit amounted to EUR 11.1 million (Q2 2012: net loss of EUR 0.5 million). The resulting fully diluted Group earnings per share amounted to EUR 0.47 (Q2 2012: EUR -0.02).

Outlook for 2013
MorphoSys re-confirmed its guidance for 2013, which was updated on 3 June 2013 to reflect the impact of the license agreement with GSK for the future development of MOR103. The licensing agreement with Celgene for MOR202 is subject to clearance by the US antitrust authorities under the Hart-Scott-Rodino Act, and will become effective as soon as this condition has been met. Therefore, potential financial implications are not yet reflected in the current guidance.

The Company's management expects revenues of approximately EUR 68 million to EUR 72 million and an EBIT of EUR -2 million to EUR +2 million.


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