Financial Analysis
Revenues
Compared to the same period of the previous year, Group revenues increased by 15% to € 43.5 million in the first half of 2010 (H1 2009: € 37.9 million). This increase mainly resulted from higher levels of licensing fees and funded research in the Partnered Discovery segment as well as from stronger sales in the AbD Serotec segment. Revenues arising from the Partnered Discovery and Proprietary Development segments accounted for 77% or € 33.4 million (H1 2009: € 28.6 million) of total segment revenues while the AbD Serotec segment generated 24% (€ 10.6 million) of the total segment revenues (H1 2009: € 9.7 million).
Geographically, 20% or € 8.8 million of MorphoSys’s commercial revenues were generated with biotechnology and pharmaceutical companies or non-profit organizations located in North America and 80% or € 34.7 million with companies located mainly in Europe and Asia. This compares to 22% and 78%, respectively, in the same period of the prior year.
Partnered Discovery and Proprietary Development Segments
Segment revenues arising from Partnered Discovery comprised € 29.2 million in funded research and licensing fees (H1 2009: € 22.7 million) as well as € 3.6 million success-based payments (H1 2009: € 5.4 million), representing 11% of total Partnered Discovery and Proprietary Development revenues. Segment revenues arising from Proprietary Development included € 0.6 million in funded research (H1 2009: € 0.5 million). Approximately 89% of Partnered Discovery and Proprietary Development revenues and 68% of total revenues arose from the Company’s three largest alliances with Novartis, Daiichi Sankyo and Pfizer (H1 2009: Novartis, Daiichi Sankyo and Pfizer, 85% and 63%, respectively).
Assuming constant foreign exchange rates at the average rate of H1 2009, segment revenues in the Partnered Discovery and Proprietary Development segments would have remained unchanged.
Revenue Development by Segment (in € million)*
* Differences due to rounding
AbD Serotec Segment
Compared to the same period of the previous year, AbD Serotec revenues increased by 9%, or € 0.9 million, to € 10.6 million in 2010 (H1 2009: € 9.7 million). Assuming constant foreign exchange rates at the average rate for H1 2009, revenues in the AbD Serotec segment would have totaled € 10.4 million.
As of June 30, 2010, orders in the amount of € 1.3 million were classified as backorders in the segment (June 30, 2009: € 1.9 million).
Operating Expenses
Compared to the first six months of 2009, total operating expenses increased by approximately 12% to € 35.2 million in H1 2010 (H1 2009: € 31.3 million). The change in operating expenses of € 3.9 million was mainly impacted by research and development (R&D) expenses increasing by 14% or € 2.5 million and sales, general and administrative (S, G&A) expenses increasing by 9% from € 10.0 million to € 10.9 million.
Operating expenses increased by 5% to € 10.6 million (H1 2009: € 10.1 million) in the Partnered Discovery segment and by 31% to € 11.1 million (H1 2009: € 8.5 million) in the Proprietary Development segment. In the AbD Serotec segment, operating expenses increased by 11% to € 9.7 million (H1 2009: € 8.7 million) and would have amounted to € 9.5 million under the assumption of constant foreign exchange rates at the average rate of H1 2009.
Stock-based compensation expenses are embedded in COGS as well as S, G&A and R&D expenses. Stock-based compensation for the first six months of 2010 amounted to € 1.0 million (H1 2009: € 0.8 million) and is a non-cash charge.
Cost of Goods Sold
COGS is composed of the AbD Serotec segment’s cost of goods sold in the first six months of 2010 and – compared to the same period of the prior year – increased by 15% from € 3.3 million to € 3.8 million.
Research and Development Expenses
In the first six months of 2010, expenses for research and development increased by € 2.5 million to € 20.5 million (H1 2009: € 18.0 million). This was mainly due to higher personnel costs (H1 2010: € 8.6 million; H1 2009: € 7.1 million) as well as increased material costs (H1 2010: € 1.6 million; H1 2009: € 0.9 million). In the first six months of 2010, the Company incurred costs for proprietary product development (excluding allocations for segment purposes) in the amount of € 9.8 million (H1 2009: € 7.8 million) as well as costs for technology development in the amount of € 1.0 million (H1 2009: € 0.2 million) which is accounted for in the Partnered Discovery segment.
Sales, General and Administrative Expenses
Compared to the same period of the previous year, sales, general and administrative expenses increased by € 0.9 million to € 10.9 million (H1 2009: € 10.0 million).
Development of Operating Expenses (in € million)
Non-operating Items
For the first six months of 2010, non-operating items mainly included finance income of € 0.8 million (H1 2009: € 1.1 million) and other expenses of € 0.5 million (H1 2009: € 0.2 million).
Taxes
For the first six months of 2010, the Company reported income tax expenses in the amount of € 2.9 million (H1 2009: € 2.7 million), which mainly consisted of current taxes.
Operating Profit / Net Profit
Group operating profit for the first six months of 2010 amounted to € 8.3 million (H1 2009: € 6.6 million). Earnings before interest and taxes (EBIT) amounted to € 8.7 million, compared to an EBIT of € 7.5 million in the first six months of the previous year. The Partnered Discovery and Proprietary Development segments showed an operating profit of € 22.2 million (H1 2009: € 18.0 million) and an operating loss of € 10.5 million (H1 2009: operating loss of € 8.0 million), respectively. In the AbD Serotec segment, operating profit decreased to € 0.9 million (H1 2009: € 1.1 million) and would have amounted to € 0.9 million under the assumption of constant foreign exchange rates using the H1 2009 average rates.
A net profit after taxes of € 5.9 million was achieved in the first six months of 2010, compared to a net profit after taxes of € 5.0 million in the same period of the prior year. The resulting basic net profit per share for the first six months of 2010 amounted to € 0.26 (H1 2009: € 0.23).
Liquidity / Cash Flows
Net cash inflow from operations in the first six months of 2010 amounted to € 28.5 million (H1 2009: € 6.6 million). Investing activities resulted in a cash outflow of € 26.5 million (H1 2009: € 3.1 million) whereas financing activities resulted in a cash inflow of € 0.05 million (H1 2009: cash outflow of € 0.03 million).
As of June 30, 2010, the Company held € 152.1 million in cash, cash equivalents and available-for-sale financial assets, compared to a year-end 2009 balance of € 135.1 million.
Assets
Total assets increased by € 20.4 million to € 226.5 million as of June 30, 2010, compared to € 206.1 million as of December 31, 2009. Current assets increased by € 10.9 million mainly as a result of an increase in marketable securities (€ 14.7 million), partly offset by a decrease in accounts receivable by € 5.4 million.
Compared to December 31, 2009, non-current assets increased by € 9.6 million, mainly as a consequence of the capitalization of an upfront payment in connection with the in-licensing of a compound from Xencor.
Liabilities
In the first six months of 2010, current liabilities increased from € 24.3 million as of December 31, 2009, to € 42.1 million as of June 30, 2010, arising mainly from an increase in licenses payable as a result of the upfront payment due in connection with the in-licensing of a compound from Xencor. In addition, current deferred revenue increased by € 8.3 million.
Non-current liabilities decreased by € 4.9 million to € 3.0 million in the first six months of 2010, which was mainly impacted by a decrease in non-current deferred revenue.
Equity
Total stockholders’ equity amounted to € 181.4 million as of June 30, 2010, compared to € 173.9 million as of December 31, 2009.
As of June 30, 2010, the total number of shares issued amounted to 22,677,078 of which 22,597,182 were outstanding, compared to 22,660,557 and 22,580,661 as of December 31, 2009, respectively.
The increase of shares outstanding by 16,521 arose from exercised options issued to employees.
Capital Expenditure
MorphoSys’s investment in property, plant and equipment amounted to € 0.9 million for the six-month period ended June 30, 2010, compared to € 0.6 million in the same period of the prior year. Depreciation of property, plant and equipment for H1 2010 accounted for € 1.0 million compared to € 0.7 million in the first six months of 2009.
During the first six months of 2010, the Company invested € 11.0 million in intangible assets (H1 2009: € 0.4 million). Amortization of intangibles amounted to € 1.9 million and remained unchanged in comparison to the first six months of 2009.