3 Segment Reporting

MorphoSys Group applies IFRSIFRS: International Financial Reporting Standards; future EU-wide standards produced by the IASB 8 “Segment Reporting”. An operating segment is defined as a division of an entity that engages in business activities from which it can earn revenues and incur expenses and whose operating results are regularly reviewed by the entity’s chief operating decision maker and for which discrete financial information is available.

Segment information is provided for the Group’s operating segments based on the Group’s management and internal reporting structures. The segment results and segment assets include items that can be either directly attributed to the individual segment or allocated to the segments on a reasonable basis.

The Management Board evaluates a segment’s economic success using selected key figures so that all income and expenses are included. Operating earnings before interest and taxes, or EBIT, is the key benchmark for measuring and evaluating the operating results. The EBIT margin reflects the ratio of EBIT to revenues.

The Group consists of the following operating segments.

3.1 PROPRIETARY DEVELOPMENT

This segment comprises all activities related to the proprietary development of therapeutic antibodies and peptides. The activities of this segment currently comprise 14 antibodies and peptides in total, including the clinical development of the proprietary programs MOR208, MOR209/ES414 and MOR202. The MOR202 cooperation with Celgene was terminated as of March 26, 2015. MOR202 is continued by MorphoSys. The proprietary program MOR103, which is also included in this segment, was out-licensed to GSK with all activities now conducted by GSK. MorphoSys is also pursuing other programs that are either at an early stage of proprietary development or fall under co-development agreements. This includes since May 2015 the MOR107 preclinical program (formerly LP2) resulting from the acquisition of Lanthio Pharma B.V. The program MOR106, a cooperation with the partner Galapagos, is also in pre-clinical development. A further eight programs are in the pre-clinical search.

3.2 PARTNERED DISCOVERY

MorphoSys possesses one of the leading technologies for generating therapeutics based on human antibodies. The Group markets this technology commercially through its partnerships with numerous pharmaceutical and biotechnology companies. The Partnered Discovery segment encompasses all operating activities relating to these commercial agreements and most of the Company’s technological development.

3.3 CROSS-SEGMENT DISCLOSURE

The information on segment assets is based on the assets’ respective locations.

Proprietary Development Partnered Discovery Unallocated Group
For the 12-month
Period Ended
31 December (in 000’s €)
2015 2014 2015 2014 2015 2014
2015
2014
External Revenues 59,939 15,041 46,284 48,937 0 0 106,223 63,978
Other Operating Expenses 54,057 33,535 25,918 23,041 13,753 13,533 93,728 70,109
Other Income 4,849 105 5 22 644 655 5,498 782
Other Expenses 8 0 2 0 749 550 759 550
Segment EBIT 10,723 (18,389) 20,369 25,918 (13,858) (13,428) 17,234 (5,899)
Finance Income 0 0 0 0 3,827 1,810 3,827 1,810
Finance Expenses 0 0 0 0 436 220 436 220
Profit before Taxes 10,723 (18,389) 20,369 25,918 (10,467) (11,838) 20,625 (4,309)
Income Tax
(Expenses)/Income
0 0 0 0 (5,725) 1,296 (5,725) 1,296
Net Profit/(Loss) 10,723 (18,389) 20,369 25,918 (16,191) (10,542) 14,901 (3,013)
Current Assets 6,789 6,200 17,840 25,887 275,487 290,308 300,116 322,395
Non-current Assets 69,353 30,079 11,269 17,347 19,341 56,657 99,963 104,083
Total Segment Assets 76,142 36,279 29,109 43,234 294,828 346,965 400,079 426,478
Current Liabilities 16,975 25,343 3,382 2,558 7,113 4,802 27,470 32,703
Non-current Liabilities 7,037 40,414 2,568 4,263 268 295 9,873 44,972
Stockholders’ Equity 0 0 0 0 362,736 348,803 362,736 348,803
Total Segment Liabilities and Equity 24,012 65,757 5,950 6,821 370,117 353,900 400,079 426,478
Capital Expenditure 7,487 17,335 995 2,512 284 631 8,766 20,478
Depreciation and Amortization 858 1,149 2,243 2,621 354 364 3,455 4,134

The segment result is defined as a segment’s revenue less the segment’s operating expenses. In the 2015 financial year, impairments totaling € 3.7 million were recognized in the Partnered Discovery segment (2014: impairments of € 2.1 million were attributable to the Proprietary Development segment and € 2.0 million to the Partnered Discovery segment).

The Group’s key customers are allocated to the Partnered Discovery segment and Proprietary Development segment. As of December 31, 2015, the single most important customer represented accounts receivables of a carrying amount of € 8.3 million (December 31, 2014: € 9.3 million). Three of the Group’s individual customers contributed € 59.3 million, € 41.5 million and € 1.9 million to total revenues in 2015, respectively. The largest customer was allocated to the Proprietary Development segment and the other two customers to the Partnered Discovery segment. In 2014, three customers mainly assigned to the Partnered Discovery segment accounted for € 43.2 million, € 13.5 million and € 2.0 million of the Group’s total revenues.

The following overview shows the Group’s regional distribution of revenue.

in 000’ € 2015 2014
Germany 2,183 733
Europe and Asia 41,800 44,628
USA and Canada 62,240 18,617
Total 106,223 63,978

A total of € 67.5 million (December 31, 2014: € 102.3 million) and € 32.1 million (December 31, 2014: € 0) of the Group’s non-current assets, excluding deferred tax assets, are located in Germany and the Netherlands, respectively. The Group’s total investments of € 8.7 million (December 31, 2014: € 20.5 million) were made in Germany, except for € 0.1 million (December 31, 2014: € 0), which were made in the Netherlands. In accordance with internal definitions, investments only include additions to property, plant and equipment as well as intangible assets which are not related to business combinations.

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