Results of Operations, Financial Situation, Assets and Liabilities
Revenues
Compared to the same period in the previous year Group revenues increased by 7 % to € 87.0 million (2009: € 81.0 million). This increase is due to a combination of higher levels of funded research and licensing fees in the Partnered Discovery segment as well as revenues from funded research in the Proprietary Development segment. A further increase in revenues derived from stronger sales in the AbD Serotec segment. Revenues arising from the Partnered Discovery and Proprietary Development segments accounted for 78 % or € 68.0 million (2009: 77 % or € 62.7 million) of total segment revenues, while the AbD Serotec segment generated 23 % or € 20.2 million of the total segment revenues (2009: 24 % or € 19.3 million).
Geographically, 19 % or € 16.5 million of MorphoSys’s commercial revenues were generated with biotechnology and pharmaceutical companies and non-profit organizations located in North America and 81 % or € 70.5 million with companies located in Europe and Asia. This compares to 18 % and 82 %, respectively, in the same period of the prior year.
Partnered Discovery and Proprietary Development Segments
Segment revenues arising from the Partnered Discovery segment comprised € 57.2 million in funded research and licensing fees (2009: € 48.6 million) plus € 9.1 million in success-based payments (2009: € 13.1 million), representing 13 % of total Partnered Discovery and Proprietary Development revenues. Segment revenues arising from the Proprietary Development segment included € 1.8 million in funded research (2009: € 1.0 million). Approximately 87 % 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 (2009: Novartis, Daiichi Sankyo and Merck & Co., 84 % and 65 %, respectively).
Assuming constant foreign exchange rates at the average rate of 2009, segment revenues in the Partnered Discovery and Proprietary Development segments would have remained unchanged.
AbD Serotec Segment
Compared to the same period of the previous year, AbD Serotec segment’s revenues increased by 5 %, or € 0.9 million, to € 20.2 million in 2010 (2009: € 19.3 million). Assuming constant foreign exchange rates at the average rate of 2009, revenues in the AbD Serotec segment would have amounted to € 19.6 million.
As of December 31, 2010, orders in the amount of € 0.7 million were classified as back orders in the segment (2009: € 0.5 million).
Operating Expenses
Total operating expenses in 2010 increased by approximately 11 % over the previous year, to € 77.4 million (2009: € 69.6 million). The change in operating expenses of € 7.8 million was due to research and development (R&D) expenses increasing by 20 % or € 7.9 million and COGS increasing from € 6.7 million to € 7.3 million while sales, general and administrative (S, G&A) expenses decreased by 3 % to € 23.2 million. Total purchase price allocation (PPA) effects on operating profit amounted to € 0.8 million (2009: € 0.5 million).
Operating expenses increased by 7 % to € 23.6 million (2009: € 22.1 million) in the Partnered Discovery segment and by 37 % to € 26.5 million (2009: € 19.3 million) in the Proprietary Development segment. In the AbD Serotec segment, operating expenses increased by 3 % to € 18.9 million (2009: € 18.4 million) and would have amounted to € 18.4 million under the assumption of constant foreign exchange rates at the average rate of 2009.
Stock-based compensation expenses are embedded in COGS, S, G&A and R&D expense amounts. Stock-based compensation in 2010 amounted to € 2.1 million (2009: € 1.7 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 2010 and – compared to the same period of the prior year – increased by 9 % from € 6.7 million to € 7.3 million, which was due to an increase in personnel-related costs and material costs as well as foreign exchange effects.
Research and Development Expenses
In 2010, expenses for research and development increased by € 7.9 million to € 46.9 million (2009: € 39.0 million). This was mainly due to higher personnel costs (2010: € 17.9 million; 2009: € 14.8 million), increased costs for external lab funding (2010: € 13.3 million; 2009: € 10.5 million), as well as higher material costs (2010: € 4.0 million; 2009: € 2.3 million). In 2010, the Company incurred costs for proprietary product development (including allocations for segment purposes) in the amount of € 26.5 million (2009: € 19.3 million). Costs for technology development amounted to € 2.1 million (2009: € 0.7 million) and were partly allocated to proprietary product development, but mainly 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 slightly decreased by 3 % or € 0.7 million to € 23.2 million (2009: € 23.9 million).
Other Operating Income
Other operating income increased by € 0.1 million to € 0.2 million in 2010 and comprised grant income from governmental agencies.
Non-operating Items
In 2010, non-operating items included mainly finance income of € 4.1 million (2009: € 2.0 million), other expense of € 1.2 million (2009: € 0.7 million) and other income of € 0.5 million (2009: € 0.4 million). Finance income mainly comprised realized gains from marketable securities.
Taxes
In 2010, the Company reported income tax expense in the amount of € 4.0 million. This line item mainly included current tax expense from Group entities.
Operating Profit/Net Profit
Group operating profit in 2010 amounted to € 9.8 million (2009: € 11.4 million). Earnings before interest and taxes (EBIT) amounted to € 13.1 million, compared to an EBIT of € 12.8 million in the previous year. The Partnered Discovery and Proprietary Development segments showed an operating profit of € 42.7 million (2009: € 39.6 million) and an operating loss of € 24.5 million (2009: operating loss of € 18.3 million), respectively. In the AbD Serotec segment, operating profit increased to € 1.2 million (2009: € 1.0 million) and would have remained unchanged under the assumption of constant foreign exchange rates using foreign exchange rates of the previous year.
A net profit after taxes of € 9.2 million was achieved in 2010, compared to a net profit after taxes of € 9.0 million in the same period of the prior year. The resulting basic net profit per share for 2010 amounted to € 0.41 (2009: € 0.40).
Liquidity/Cash Flows
Net cash inflow from operations in 2010 amounted to € 2.5 million (2009: cash outflow of € 1.0 million). Investing activities resulted in a cash outflow of € 2.0 million (2009: cash inflow of € 0.6 million), whereas financing activities resulted in a cash inflow of € 2.3 million (2009: cash inflow of € 1.4 million).
As of December 31, 2010, the Company held € 108.4 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 € 6.5 million to € 212.6 million as of December 31, 2010, compared to € 206.1 million as of December 31, 2009. Current assets decreased by € 23.1 million, mainly as a result of a decrease in marketable securities in the amount of € 29.6 million which were sold for the financing of the acquisition of Sloning BioTechnology GmbH in the fourth quarter of 2010 and the in-licensing of a compound from Xencor in the second quarter of 2010. The decrease in marketable securities was partly offset by an increase in accounts receivable by € 3.9 million and an increase in cash and cash equivalents by € 2.9 million.
Compared to December 31, 2009, non-current assets increased by € 29.5 million, mainly as a consequence of the acquisition of Sloning and the in-licensing of a compound from Xencor (intangible assets under development). The increase in patents by € 9.5 million is mainly impacted by technology capitalized in connection with the purchase price allocation according to IFRS 3 for the Sloning acquisition. The purchase price allocation for Sloning also resulted in additional goodwill in the amount of € 7.4 million. The capitalization of a deferred tax asset on tax loss carry-forwards of Sloning increased this line item by € 2.7 million.
Liabilities
In 2010, current liabilities decreased from € 24.3 million as of December 31, 2009, to € 21.4 million as of December 31, 2010, arising mainly from a decrease in current deferred revenue in the amount of € 5.4 million. This decrease was partly offset by an increase in accounts payable by € 1.5 million and an increase in provisions by € 1.0 million mainly due to tax liabilities.
Non-current liabilities decreased by € 2.6 million to € 5.3 million in 2010, mainly impacted by a decrease in non-current deferred revenue of € 4.9 million resulting from the reclassification of long-term deferred revenue to short-term deferred revenue in 2010. This effect was partly offset by an increase in deferred tax liabilities by € 2.2 million, mainly a consequence of assets identified in the purchase price allocation for Sloning.
Equity
Total stockholders’ equity amounted to € 185.9 million as of December 31, 2010, compared to € 173.9 million as of December 31, 2009 and mainly increased due to the net profit in the amount of € 9.2 million generated in 2010, stock-based compensation of € 2.2 million and the exercise of options and convertible bonds amounting to € 2.6 million. These effects were partly offset by movements in reserves of € 2.2 million.
As of December 31, 2010, the total number of shares issued amounted to 22,890,252 of which 22,810,356 were outstanding, compared to 22,660,557 and 22,580,661 as of December 31, 2009, respectively.
The increase of 229,695 shares outstanding arose from exercised options and convertible bonds issued to both the Management Board and employees.
Capital Expenditure
MorphoSys’s investment in property, plant and equipment focused mainly on lab equipment and amounted to € 2.3 million in 2010, compared to € 2.6 million in the same period of the prior year. Depreciation of property, plant and equipment in 2010 accounted for € 2.1 million compared to € 1.6 million in 2009.
In 2010, the Company invested € 11.5 million in intangible assets (2009: € 1.2 million). This investment mainly included the in-licensing of a compound from Xencor. Amortization of intangibles amounted to € 4.0 million in 2010 and slightly increased in comparison to the prior year (2009: € 3.8 million).
Credit Rating
MorphoSys is currently not rated by any rating agencies.