Sustainability Report

For MorphoSys, sustainability means being economically successful as a company and satisfying the highest environmental and social standards in the process. This conviction underpins all business processes and helps to ensure MorphoSys’s long-term commercial success. This Sustainability Report outlines MorphoSys’s ecological and social responsibility to current and future generations as well as the measures taken to fulfill these responsibilities. Information on MorphoSys’s management structure and corporate governance practices can be found in the Corporate Governance Report.

Sustainable Corporate Management at MorphoSys

Sustainable and responsible behavior is a hallmark of MorphoSysʼs corporate management. The goal as a biopharmaceutical company is to continuously develop more effective and safer drugs and diagnostics. The effort to create meaningful added value for society is reflected in the Companyʼs core objectives. In daily operations, value is placed on always working in harmony with strict ecological and social principles. For this reason, MorphoSys follows a business model aimed at sustainable growth, which protects the interests of its shareholders, creates long-term value and evaluates processes with regard to their effects on the environment, society, patients and employees. An HR policy that takes the concerns of employees seriously reflects this business model internally.

Additionally, MorphoSysʼs innovative, focused and forward-looking R&D  activities ensure long-term business success. Alongside the supply of food and water, as well as climate protection, the provision of healthcare to a growing and aging population represents a significant cornerstone of well-being and social justice. With its new biotechnologically produced drugs, MorphoSys can make a valuable contribution to comprehensive healthcare provision in the long term. In the view of the Company’s management, the MorphoSys business model does not contain any aspects contradictory to the interests of shareholders focusing on sustainable investments.

A comprehensive risk management system ensures that factors potentially endangering the sustainable performance of the Company are recognized at an early stage and that, if necessary, adequate countermeasures are taken. MorphoSys generally only takes risks which offer opportunities to increase the Companyʼs sustainable value (more details under risks-and-opportunities.

The Group-wide adherence to this strategy is the responsibility of the whole Management Board led by the CEO. The way this strategy translates into the daily business of every employee at MorphoSys is written down in the Company’s Credo as part of its Code of Conduct, which applies to all sites. Regular employee training courses on the Code of Conduct itself as well as on specific risk areas ensure that these regulations are understood and implemented. The Head of Human Resources (chairperson) and three further members comprise the Code of Conduct Committee, which is a point of contact available to every employee. Every employee can – anonymously if desired – seek advice in legal and compliance-related matters, and report suspicions or breaches. Compliance violations are consequently pursued and appropriate countermeasures taken. No breach has been reported so far, however, and the Company also regards serious violations, which could have a significant impact on the Groupʼs net assets, financial position and results of operations, as unlikely in the future.

In its reporting on sustainability, MorphoSys uses so-called SD KPIs (Sustainable Development Key Performance Indicators), which are also recommended in the SD-KPI standard. These include Performance in Research & Development (SD-KPI 1) and “Performance in Partner Programs” as a benchmark for commercialization rates (SD-KPI 2). During the last five years, no products were recalled and there were neither fines nor settlement payments caused by litigation (SD-KPI 3). The following report on the implementation of MorphoSysʼs corporate strategy and the sustainable company development is additionally oriented to the recommendations of the German Sustainability Code, which was proposed by the Council for Sustainable Development in October 2011.

Sustainable Performance at MorphoSys

ETHICAL STANDARDS AND STAKEHOLDER DIALOG

The Company adheres to the highest scientific and ethical principles when conducting human clinical trials or animal testing; these principles are also anchored in the Companyʼs Code of Conduct, most notably the World Medical Associationʼs (WMA) Declaration of Helsinki. Strict compliance with existing nationally and internationally applicable regulatory requirements is obligatory for every employee at MorphoSys as well as for third-party contractors.

The biotechnology industry cannot avoid carrying out animal trials at the present time, as European legislation requires this in order to determine a drug candidateʼs toxicity  , pharmacokinetics and pharmacodynamics  .

Not having its own laboratories for this kind of research, the Company sources out all tests involving animals to contract research organizations (CROs). In the course of its product development activities, MorphoSys commissions animal trials according to the principles of good animal welfare and humane treatment of animals as laid down in national and European regulations. MorphoSys has implemented a quality assurance and quality control system with written Standard Operating Procedures (SOPs). This system is maintained and continuously improved to ensure that animal trials are contracted to CROs who respect local, national and international regulations. Trials will generally only be conducted after approval by the respective ethics committee and are carried out under continuous veterinary surveillance.

MorphoSys demonstrates its commitment to responsible animal care and use by working with institutions which, in addition to complying with the laws regulating animal research, have earned Good Laboratory Practice ( GLP  ) and/or AAALAC (Association for Assessment and Accreditation of Laboratory Animal Care) accreditation. Furthermore, the appropriateness of the CROʼs testing facilities, the level of training and competence of the personnel involved and the conditions for the animals are looked at during an evaluation process prior to the contracting of any trial.

Regarding the treatment of healthy volunteers and patients in clinical trials which are sponsored by MorphoSys, the Company strictly adheres to the ethical principles that have their origin in the Declaration of Helsinki mentioned above. In addition, trials are conducted in compliance with applicable privacy and confidentiality rules. Safeguarding the rights, safety and well-being of all participants in clinical trials is a high priority for MorphoSys. Clinical trials will only commence after approval by the applicable independent ethics committee and/or institutional review board. Prior to taking part in a clinical trial, every participant has to hand in a voluntary informed consent form.

The aspiration behind MorphoSysʼs business is to improve patientsʼ lives through its scientific work. The Company is only able to reach this goal if its corporate actions are also socially accepted. This requires a continuous and open stakeholder dialogue in order to understand possible concerns regarding biotechnological approaches and to explain MorphoSysʼs operations and their advantages. To this end, MorphoSys engages in various activities; for example, it participates in public information events and actively supports the Communication and Public Relations working group of BIO Deutschland e.V.

PROCUREMENT

The Central Purchasing & Logistics department was established at the beginning of 2012. The department is responsible for procurement for the Group and ensures a seamless supply of external goods as well as services and logistics in order to support business operations in the best possible manner. The department ensures continuity of support by selecting quality goods and services that meet the required standards. It focuses on contract management as well as on streamlining the procurement process in areas where this seems sensible by, among other things, concentrating on fewer suppliers with more advantageous contract terms. By initiating Master Service Agreements, some partners were established as “preferred suppliers” in the reporting year. In future, these long-term partnerships should save time and costs in the procurement process. All of MorphoSysʼs selected suppliers are in compliance with human rights and internationally recognized working standards. The savings realized in 2012 through the activities of the central procurement department amount to approx. € 1.4 million over the cumulative contract periods.

ENVIRONMENTAL PROTECTION AND OCCUPATIONAL SAFETY

Biotechnology is a strictly regulated sector with a set framework for environmental protection and occupational safety activities. The Occupational Safety and Environmental Protection department centrally monitors the MorphoSys Groupʼs sites with regard to compliance with all relevant guidelines. In addition to strictly complying with all statutory regulations, MorphoSys undertakes a range of efforts to ensure sustainable environmental management and reliably protect its employees.

fig. 10 /// OCCUPATIONAL SAFETY AT MORPHOSYS

MorphoSys continuously elaborates measures in a bid to protect resources. Savings in energy consumption and production of waste reduced costs and had a positive effect on the environment in the reporting year. For the fourth year in a row, the Company participated in the Carbon Disclosure Project (CDP) survey on the monitoring of internal resource consumption. This independent non-profit organization works towards the reduction of greenhouse gases and towards sustainable water usage. Its continuous participation in the study enables MorphoSys to monitor its consumption in a structured way and puts the Company in a position to counter excessive consumption or high costs in a prompt manner. As in the previous years, no need for action resulted from the study results in the reporting year, but MorphoSys nonetheless established various measures for the protection of resources. For example, the introduction of energysaving computer screens saved energy and costs, as did the energy-efficient equipping of a laboratory and corresponding lighting systems. All printers were reset to print double-sides in black and white as standard in order to reduce toner and paper consumption. The sales staff in the AbD Serotec division largely travel in fuel-saving BlueMotion vehicles, which have been optimized for better environmental compatibility with regard to their pollutant emissions.

Furthermore, MorphoSys supported two campaigns to raise awareness among employees in terms of resource-saving behavior: in the reporting year, the Company once again encouraged its German employees to take part in the initiative of a German health insurance company and the German Cyclists Club (ADFC) and cycle to work. The outcome of this saw the Company deemed bicycle-friendly. Additionally, the Companyʼs own MOR2Work platform was founded. This intranet-based application enables employees to organize carpools for the route to work and thus contributes to saving costs and reducing CO2 emissions.

Within the framework of its laboratory activities, MorphoSys aims to minimize the amount of harmful substances used. Only a specially trained group of people is allowed to handle toxic substances, while work with infectious pathogens may only be carried out in secured laboratories. For the disposal of chemical waste materials, MorphoSys exclusively contracts companies that are certified for the task. MorphoSys does not use radioactive substances to label antibodies.

QUALITY ASSURANCE

Biopharmaceutical companies have a special responsibility with regard to safety and quality standards. In order to avoid safety risks in drug development that could present a serious threat not only to patients, but also to its economic situation, MorphoSys follows defined processes and strict guidelines. In this way, the Company guarantees the quality of test preparations, keeps the risk to clinical trial participants as low as possible and guarantees that the data can be collected reliably and processed correctly.

In order to be able to control and regulate these processes, MorphoSys has set up an integrated quality management system for its Proprietary Development department based on the principles of Good Manufacturing Practice ( GMP  ), Good Clinical Practice ( GCP  ) and Good Laboratory Practice (GLP). An independent Quality Assurance department makes sure that all development measures comply with applicable national and international laws, regulations and guidelines. The Head of Quality Assurance directly reports all measures to and coordinates them with the Management Board. In this manner, the high quality standards are achieved that are necessary to guarantee product quality as well as data integrity, and to guarantee the safety of trial participants.

The Quality Assurance department compiles audit plans for the execution of clinical testing. Contract research organizations (CROs), external providers and investigator sites participating in the clinical trials are audited by the Quality Assurance department using a risk-based approach.

For its proprietary development activities, MorphoSys holds a manufacturing license for the release of clinical trial material and has been certified by the relevant German authorities (Government of Upper Bavaria) as being in compliance with the standards and guidelines of Good Manufacturing Practice (GMP).

For its research and diagnostics businesses, AbD Serotecʼs manufacturing site is MorphoSys UK Ltd., Oxford. This site is accredited in accordance with the quality management standards ISO (International Organization for Standardization) 9001:2008 and ISO 13485:2003. The US site of AbD Serotec in Raleigh, North Carolina, is also accredited in accordance with ISO 9001:2008, as is the Puchheim site near Munich.

fig. 11 /// QUALITY MANAGEMENT SYSTEMS AT MORPHOSYS

INTELLECTUAL PROPERTY

The Company’s proprietary technologies and products derived therefrom are its most valuable assets. It is therefore crucial for the Companyʼs success to further secure strong patent protection for its technology portfolio as well as for the MOR103, MOR202 and MOR208 development programs. For partnered programs, MorphoSysʼs partners file patent applications for individual drugs in cooperation with MorphoSysʼs IP department. Such drug development programs possess additional patent protection, the duration of which significantly exceeds that of the underlying HuCAL  technology.

In 2012, the Company again systematically expanded its patent portfolio. On the technology side, further important steps were taken to efficiently protect the new antibody platform Ylanthia. Furthermore, MorphoSys possesses a range of further technology patents that serve as a basis for the Company’s growth and its drug development programs. The patent protection for the Ylanthia  platform is expected to expire in 2031.

The Company’s proprietary development programs are followed through the patent system very closely. The most advanced program, MOR103, is now protected by more than half a dozen different patent applications that cover the most varied aspects of this compound providing very effective protection. The various patents and associated protection certificates are expected to protect the MOR103 program until 2031.

Currently, the Companyʼs patent attorneys prosecute more than 40 different proprietary patent families worldwide, in addition to numerous patent families the Company is pursuing in cooperation with its partners. The patent portfolio is analyzed regularly and the Companyʼs business strategy adjusted accordingly.

fig. 12 /// PATENT LIFETIME ON KEY PLATFORM TECHNOLOGIES

HUMAN RESOURCES

A forward-looking personnel policy is essential for a company to compete in the market. Only in this way can employees with different specialist focuses be attracted in international competition and attracted to the Company long-term. At the end of the reporting year, MorphoSysʼs employees came from 16 different nations.

The Companyʼs comprehensive further training program represents an important component in this context. Employees in the areas of research and product development as well as in various management positions are encouraged to partake in a range of internal and external training programs. Special further training and development programs provide professional and personal development for employees and, in individual cases, are also supported by customized coaching. A quarterly managersʼ workshop was introduced in 2012 in order to provide concrete support to all managers in carrying out their duties. Standard specifications provide guidance for sustainable personnel management.

Furthermore, in 2012, MorphoSys established a specialist career path in the science field that offers career progression analogous to the management career path. Given the Company’s flat hierarchies, this creates real prospects for scientists with outstanding expert knowledge.

MorphoSys is aware of its social responsibility to young people in particular and so actively contributes by offering vocational training in-house. As far as equal qualification is given, not only students with a high school diploma (Abitur) are employed, but those with other school-leaving qualifications are also considered for occupations that require training, with great success. As of 31 December 2012, the Company had three trainees in the IT department, six trainees as biology laboratory technicians and one trainee as a human resources services consultant (31 December 2011: four IT trainees, four biology laboratory trainees).

As stated in MorphoSysʼs Credo, transparent and open communication among the workforce is a core element of the Company culture. In its fortnightly General Meetings, the Management Board gives information on recent Company developments. Employees present selected projects and questions are answered. Questions can be asked by employees either at the meeting itself or submitted in writing beforehand, anonymously if so desired. Additionally, the Company intranet with its integrated document management systems provides relevant information for all employees in an up-to-date and structured manner.

The e-recruiting tool introduced in 2011 proved itself during the previous financial year. Already, 95 % of job applications are now submitted online via the MorphoSys website, which signifi cantly reduces administration time for the Company and therefore shortens response times. As all applications are managed solely within this secure system, absolute confidentiality and discretion are guaranteed.

All new employees are familiarized with the Group in two-day introductory meetings and can find comprehensive information on the Company’s processes at individual lectures on all specialist departments. Free sports and relaxation opportunities, such as Pilates sessions or courses on autogenic training, help to promote employee health and social exchange beyond their department.

fig. 13 /// WORKFORCE* BY GENDER IN 2012 (2011)

TAB. 12 /// ABSENCE RATES AT MORPHOSYS

in %   2012  2011   2010   2009   2008  
Germany 3.0 2.7 1.7 2.0 1.3
UK 1.9 1.7 1.7 1.7 1.5
USA 1.1 1.2 1.7 1.1 1.2

The compatibility of professional development with personal life planning is becoming increasingly important to employees. In particular, companies whose business success is based on creative and committed employees must accept the challenge and develop suitable concepts. MorphoSys realized this trend many years ago and offers its employees a variety of opportunities in this regard, for example flexible working time models and special part-time employment arrangements. Modern IT equipment also enables trouble-free work during business trips or at home. For employees with young families, MorphoSys eases the return to working life and the coordination of professional and family life with special solutions. MorphoSys is the co-founder and a supporter of the BioKids day care center in Martinsried and has special agreements with a German service provider offering additional services for working family members.

MorphoSys rates the protection of its employees against workrelated dangers and the preservation of their health by means of preventive measures very highly. The success of the strict monitoring of all occupational safety and security measures is demonstrated in the very low number of workplace accidents: Three workplace accidents requiring a report occurred in the reporting year (2011: 8), of which two were categorized as commuting accidents. With guidelines and training courses run by the Health & Safety department, but also by offering regular medical checks, the Company strives to keep the number of accidents low and to ensure the safety and well-being of all employees at MorphoSys as much as possible. The successful implementation of these measures is illustrated by the consistently low absence rate at all of MorphoSysʼs sites.