Financial Analysis
Revenues
Compared to the same period in the previous year, Group revenues increased by 17% to € 19.1 million in the first three months of 2009 (Q1 2008: € 16.3 million). This increase is due to both higher levels of funded research, licensing fees and success-based revenues in the therapeutic segment as well as stronger revenues in the AbD segment. Revenues arising from the Therapeutic Antibodies segment accounted for 75% or € 14.3 million (Q1 2008: € 12.0 million) of total revenues while the AbD segment generated 25% (€ 4.9 million) of the total (Q1 2008: € 4.3 million).
Geographically, 20%, or € 3.9 million of MorphoSys’s commercial revenues were generated with biotechnology and pharmaceutical companies or non-profit organizations located in North America and 80%, or € 15.2 million, with companies located mainly in Europe and Asia. In the same period of the prior year, the geographical split of revenues was approximately equivalent.
Therapeutic Antibodies Segment
Revenues arising from the Therapeutic Antibodies segment (TAB) comprised € 11.5 million in funded research and licensing fees (Q1 2008: € 10.7 million) as well as € 2.8 million success-based payments (Q1 2008: € 1.3 million), representing 20% of total Therapeutic Antibodies revenues. Approximately 87% of Therapeutic Antibodies revenues and 65% of total revenues arose from the Company’s three largest alliances with Novartis, Daiichi Sankyo and Merck (Q1 2008: Novartis, Daiichi Sankyo and Pfizer, 87% and 64%, respectively).
Assuming constant foreign exchange rates at the average rate of 2008, revenues in the Therapeutic Antibodies segment would have totaled € 14.2 million.
Revenue Development by Segment (in € million)
* Differences due to rounding
Antibodies Direct – AbD Segment
Compared to the same period in the previous year, AbD segment’s revenues increased by 14%, or € 0.6 million, to € 4.9 million in 2009 (Q1 2008: € 4.3 million). Assuming constant foreign exchange rates at the average rate for 2008, revenues in the AbD segment would have remained unchanged.
The largest part of revenues (approx. 82% or € 4.0 million), was generated with catalog and industrial customers (Q1 2008: approx. 84% or € 3.6 million), while custom manufacture antibodies contributed 18% or € 0.9 million (Q1 2008: 16% or € 0.7 million).
As of March 31, 2009, orders in the amount of € 2.0 million were classified as backorders in the segment (March 31, 2008: € 0.8 million).
Operating Expenses
Compared to the first three months of 2008, total operating expenses increased by approximately 22% to € 14.9 million in 2009 (Q1 2008: € 12.2 million). The change in operating expenses of € 2.7 million was mainly impacted by research and development (R&D) expenses increasing by 60% or € 3.2 million which was partly offset by sales, general and administrative (S, G&A) expenses decreasing from € 5.2 million to € 4.8 million. Cost of goods sold (COGS) remained unchanged at € 1.7 million. Total purchase price allocation (PPA) effects on operating profit amounted to € 0.1 million (Q1 2008: € 0.2 million).
Stock-based compensation expenses are embedded in COGS, S, G&A and R&D expense amounts. Stock-based compensation for the first three months of 2009 amounted to € 0.3 million (Q1 2008: € 0.3 million) and is a non-cash charge.
Cost of Goods Sold
COGS is composed of the AbD segment’s cost of goods sold in the first three months of 2009 and – compared to the same period of the prior year – remained unchanged at € 1.7 million.
Research and Development Expenses
In the first three months of 2009, expenses for research and development increased by € 3.2 million to € 8.5 million (Q1 2008: € 5.3 million). This was mainly due to higher costs for external lab funding (Q1 2009: € 2.3 million; Q1 2008: € 0.2 million), as well as increased personnel costs associated with proprietary drug development (Q1 2009: € 3.3 million; Q1 2008: € 2.4 million).
In the first three months of 2009, the Company incurred costs for proprietary product development and technology development in the amount of € 3.7 million and € 0.1 million, respectively (Q1 2008: € 0.8 million and € 0.3 million, respectively).
Sales, General and Administrative Expenses
Compared to the same period of the previous year, sales, general and administrative expenses decreased by € 0.4 million to € 4.8 million (Q1 2008: € 5.2 million).
Development of Operating Expenses (in € million)
* Differences due to rounding
In the first three months of 2009, personnel costs (excluding stock-based compensation) amounted to € 5.8 million (Q1 2008: € 5.1 million) or 39% of total operating expenses, thus representing the largest cost block within operating expenses.
Expenses for external services, representing the second-largest block by cost type, amounted to € 3.4 million (Q1 2008: € 1.6 million) or 23% of total operating expenses and mainly included external lab funding (Q1 2009: € 2.3 million; Q1 2008: € 0.2 million) and consulting fees (Q1 2009: € 0.5 million; Q1 2008: € 0.7 million).
Costs for intangibles accounted for € 2.0 million (Q1 2008: € 2.0 million) or 13% of total operating expenses and mainly consisted of expenses for licenses (Q1 2009: € 1.0 million; Q1 2008: € 0.9 million) as well as amortization of licenses capitalized (Q1 2009: € 0.6 million; Q1 2008: € 0.6 million).
Non-operating Items
For the first three months of 2009, non-operating income amounted to € 0.9 million (Q1 2008: € 0.6 million) and mainly changed as a result of increased gains from marketable securities, decreased losses from foreign exchange effects, partly offset by lower interest income.
Taxes
For the first three months of 2009, the Company reported income tax expenses in the amount of € 1.6 million. This line item mainly included deferred tax expenses (€ 0.5 million) from the release of deferred tax assets capitalized in 2007, and current tax expenses (€ 1.1 million).
Operating Profit / Net Profit
Group operating profit for the first three months of 2009 amounted to € 4.2 million (Q1 2008: € 4.1 million). Earnings before interest and taxes (EBIT) amounted to € 5.0 million, compared to an EBIT of € 4.3 million in the first three months of the previous year. The Therapeutic Antibodies segment resulted in an operating profit of € 5.5 million (Q1 2008: € 6.1 million) whereas the operating profit for the AbD segment amounted to € 0.6 million (Q1 2008: € 0.04 million).
A net profit after taxes of € 3.5 million was achieved in the first three months of 2009, compared to a net profit after taxes of € 3.3 million in the same period of the prior year. The resulting basic net profit per share for the first three months of 2009 amounted to € 0.16 (Q1 2008: € 0.15).
Liquidity / Cash Flows
Net cash outflow from operations in the first three months of 2009 amounted to € 1.7 million (Q1 2008: cash inflow of € 4.0 million). Investing activities resulted in a cash inflow of € 7.1 million (Q1 2008: cash outflow of € 17.9 million) whereas the cash outflow from financing activities amounted to € 0.1 million (Q1 2008: cash inflow of € 0.4 million).
As of March 31, 2009, the Company held € 136.1 million in cash, cash equivalents and available-for-sale financial assets, compared to a year end 2008 balance of € 137.9 million.
Assets
Total assets decreased by € 2.0 million to € 201.3 million as of March 31, 2009, compared to € 203.3 million as of December 31, 2008. Current assets decreased by € 0.6 million mainly as a result of the sale of available-for-sale financial assets (€ 7.1 million) and the decrease in tax receivables (€ 0.8 million) which were partly offset by an increase in both cash and cash equivalents (€ 5.3 million) and accounts receivable (€ 1.6 million).
Compared to December 31, 2008, non-current assets decreased by € 1.4 million mainly as a consequence of the amortization of deferred tax assets capitalized in 2007 (€ 0.5 million) as well as of the amortization of licenses (€ 0.5 million).
Liabilities
In the first three months of 2009, current liabilities decreased from € 27.4 million as of December 31, 2008, to € 22.7 million as of March 31, 2009. This change primarily arose from a decrease in both current deferred revenue (€ 6.0 million) and accounts payable (€ 1.1 million) which were partly offset by an increase in licenses payable (€ 2.1 million).
Non-current liabilities decreased by € 1.0 million to € 12.9 million in the first three months of 2009 which was mainly impacted by a decrease in non-current deferred revenue by € 0.9 million resulting from contracts signed in the current year and in previous years.
Equity
Total stockholders’ equity amounted to € 165.7 million as of March 31, 2009, compared to € 162.0 million as of December 31, 2008.
As of March 31, 2009, the total number of shares issued amounted to 22,492,287 of which 22,412,391 were outstanding, compared to 22,478,787 and 22,398,891 as of December 31, 2008, respectively.
The increase of shares outstanding by 13,500 shares arose from exercised options issued to employees.
Capital Expenditure
MorphoSys’s investment in property, plant and equipment amounted to € 0.2 million for the three-month period ended March 31, 2009, and remained unchanged compared to the same period of the prior year. Depreciation of property, plant and equipment for the first three months of 2009 accounted for € 0.4 million and remained unchanged compared to the first three months of 2008.
During the first three months of 2009, the Company invested € 0.1 million in intangible assets (Q1 2008: € 0.1 million). Amortization of intangibles amounted to € 0.9 million and remained unchanged in comparison to the first three months of 2008.