During the 2015 financial year, MorphoSys vigorously pursued its strategy of building a broad and advanced pipeline of valuable biopharmaceutical compounds. The Company’s emphasis is increasingly shifting towards the development of proprietary drug candidates. During the financial year we presented promising results from our antibody programs MOR208 and MOR202 in several hematological indications. Our partnered discovery programs also delivered positive performance and generated solid success-based revenues. Two of these compounds are expected to deliver decisive clinical data in 2016, which could lead to the first regulatory approvals of antibodies based on MorphoSys’s technology. After the end of the partnership with Celgene in March 2015 MorphoSys continued the clinical development of MOR202 independently and went on to publish compelling clinical data by year-end. We have initiated an ambitious investment program for 2016 so that we can further accelerate the clinical development of our proprietary candidates MOR208, MOR202 and MOR209/ES414 and begin clinical development of MOR106 and MOR107. This will mark another step forward on our path to becoming a fully integrated, commercial biopharmaceutical company with our own products on the market.

Operations and Business Environment

Strategy and Group Management

STRATEGY AND OBJECTIVES

MorphoSys’s goal is to build the most valuable biopharmaceutical pipeline in the biotech industry. In line with this goal, the Company is successfully transitioning from a technology provider to a drug development organization. The Company’s powerful technology platform for generation of therapeutic antibodies has led to more than 100 drug candidates in development, three of which are in phase 3 studies. The majority of development programs are conducted in partnership with pharmaceutical and biotechnology companies. The revenues generated from these partnerships are used to expand MorphoSys’s proprietary development portfolio. This segment, which currently comprises 14 programs, is gaining in importance and builds on top of an even bigger pipeline of programs generated on behalf of partners. With so many development programs ongoing, any potential setbacks that may arise during the lengthy drug development process can be compensated and the value of our technology can be maximized.

The Proprietary Development segment is focused on developing therapeutic agents based on the Company’s proprietary technology platforms as well as candidates in-licensed from other companies. During clinical development, the Company decides whether and at which point it will pursue a partnership for later development and commercialization. The drug candidate can then be either completely out-licensed or developed further in cooperation with a pharmaceutical or biotechnology company (co-development). In selected cases, individual projects may be developed on a proprietary basis until they are ready for commercialization.

In the Partnered Discovery segment, MorphoSys’s role is limited to generating antibody candidates for partners in the pharmaceutical and biotechnology industries. MorphoSys receives contractual payments including license fees for technologies and funded research as well as success-based milestone payments and royalties on product sales. The funds generated from these partnerships support the Company’s long-term business model and help fund its proprietary development activities.

Both segments are based on the Company’s innovative technologies. The foremost growth drivers are HuCALHuCAL: Human Combinatorial Antibody ­Library; proprietary antibody ­library enabling rapid generation of ­specific human antibodies for all ­applications, the industry’s most successful antibody libraryantibody library: A collection of genes that encode corresponding human antibodies measured by the number of clinical development candidates it has produced and the follow-on platform YlanthiaYlanthia: The novel next-generation antibody platform of MorphoSys, which is today’s largest known antibody library based on antibody Fab fragments. Through the acquisition of the biopharmaceutical company Lanthio Pharma B.V. in the reporting year, MorphoSys added an innovative and complementary platform of therapeutic peptides. Additionally, the Company uses its financial resources to expand and deepen its technological base, for example through in-licensing.

Along with investing in proprietary development and new technologies, MorphoSys supplements its long-term growth by in-licensing. The in-licensed programs MOR208 and MOR209/ES414 and the acquisition of Lanthio Pharma are good examples of how we are successfully implementing this strategy.

The Company’s goal is to maximize the portfolio’s full value by investing in proprietary drug candidates while maintaining financial discipline and strict cost control to ensure enterprise value growth.

GROUP MANAGEMENT AND PERFORMANCE INDICATORS

MorphoSys uses both financial as well as non-financial indicators to steer the Group, monitor the success of strategic decisions and give the Company the opportunity to take corrective action promptly when necessary. Additionally, management monitors and evaluates selected early indicators to thoroughly assess a project’s progress and act quickly if there are any undesirable developments.

FINANCIAL PERFORMANCE INDICATORS

Our financial performance indicators are described in detail in the section “Analysis of Net Assets, Financial Position and Results of Operations.” Revenues and earnings before interest and taxes (EBIT) are the key financial indicators used to measure operational business performance. The performance of the segments is reviewed monthly and the current financial year’s budget is revised and updated on a quarterly basis. The Company prepares a midterm plan once a year that encompasses the following three years. A thorough cost analysis is made regularly and is used to monitor the Company’s adherence to financial targets and make comparisons with previous periods.

MorphoSys’s business performance is influenced by factors such as milestone and license payments, research and development expenses, other operating cash flows, existing liquidity resources, expected cash inflows and working capital. These indicators are also routinely analyzed and evaluated with special attention being given to the statement of income, existing and future liquidity and available investment opportunities. The net present value of investments is calculated using discounted cash flow models.

01 TABLE Development of Financial Performance Indicators1

in million € 2015 2014 2013 2012 2011
MorphoSys Group
Revenues from continuing operations2 106.2 64.0 78.0 51.9 82.1
EBIT (Earnings before interest and taxes) from continuing operations3 17.2 (5.9) 9.9 2.4 9.8
Proprietary Development
Segment revenues 59.9 15.0 26.9 7.0 2.4
Segment result 10.7 (18.4) (0.5) (11.0) (32.2)
Partnered Discovery
Segment revenues 46.3 49.0 51.0 44.7 79.3
Segment result 20.4 25.9 25.4 23.0 55.7

1 Differences due to rounding
2 Revenues from discontinued operations 2013 – 2011: 2013: € 0.6 million, 2012: € 17.7 million, 2011: € 18.7 million
3 Contains unallocated expenses (see also item 3.3 of the Notes): 2015: € 13.9 million, 2014: € 13.4 million, 2013: € 15.0 million, 2012: € 9.6 million, 2011: € 13.7 million

NON-FINANCIAL PERFORMANCE INDICATORS

Non-financial performance indicators are equally important for managing the Company. For reporting purposes, MorphoSys uses the Sustainable Development Key Performance Indicators (SD KPIs) recommended by the SD KPI standard that include success in proprietary research and development (SD KPI 1) and achievements in partnered programs as benchmarks for the commercialization rate (SD KPI 2). In the past five years, there have been no product recalls, fines or settlements as the result of product safety or product liability disputes (SD KPI 3).

To secure its lead in the market for therapeutics, MorphoSys relies on the steady progress of its product pipeline, not only in terms of the number of therapeutic antibody candidates – 103 at the end of the reporting year – but also based on the progress of its development pipeline and prospective market potential. Since successful products are based on superior technologies, another key performance indicator is the progress of the Company’s technology development. In addition to the quality of our research and development, our professional management of partnerships is also at the heart of our success. This refers to new contracts as well as the continued strategic development of existing alliances. Details on these performance indicators can be found in the section “Research and Development and Business Development”.

The non-financial performance indicators described in the section “Sustainable Business Development” are also used to manage the MorphoSys Group successfully.

02 TABLE Sustainable Development of Key Performance Indicators (SD KPIs) at MorphoSys (December 31)

2015 2014 2013 2012 2011
Proprietary Development (number of individual antibodies)
Programs in Discovery 8 5 3 2 2
Programs in Preclinic 2 2 0 0 0
Programs in Phase I 1 1 1 1 2
Programs in Phase II1 3 2 2 2 1
Total1 14 10 6 5 5
Partnered Discovery (number of individual antibodies)
Programs in Discovery 43 40 37 34 30
Programs in Preclinic 25 25 22 20 24
Programs in Phase I 9 8 6 8 9
Programs in Phase II 9 8 8 6 6
Programs in Phase III 3 3 2 1 0
Total 89 84 75 69 69
R&D Expenses (in million €)
R&D Expenses on behalf of Partners 22.1 19.6 17.5 16.0 19.1
Proprietary Development Expenses 54.1 33.5 27.5 18.1 33.9
Expenses for Technology Development 2.5 2.9 4.2 3.6 2.9
Total 78.7 56.0 49.2 37.7 55.9

1 Thereof one out-licensed program: MOR103, out-licensed to GSK

LEADING INDICATORS

MorphoSys monitors a variety of leading indicators for the macroeconomic environment, the industry and the Company itself on a monthly basis. At the Company level, economic data is gathered on the progress of the segments’ individual programs. MorphoSys uses general market data from external financial reports as macroeconomic leading indicators. The Company carefully reviews these reports and looks for information on industry transactions, changes in the legal environment and the availability of research funds.

For active collaborations, there are joint steering committees that meet regularly to update and monitor the programs’ progress. These ongoing reviews give the Company a chance to intervene early when there are any negative developments and provide it with information on expected milestones and related payments well in advance. Partners in non-active collaborations report to MorphoSys regularly in writing so that we can follow the progress of ongoing therapeutic programs.

The business development area uses market analyses to get an indication of the market’s demand for new technologies. By continuously monitoring the market, MorphoSys can quickly respond to trends and requirements and initiate its own activities or partnerships.

Before a therapeutic product is developed, a target product profile (TPP) is created and continually updated during the development process. This approach gives an early indication of the properties the product needs to be successful in the market and answers important questions, such as the level of efficacy to be achieved and whether development should be focused on improving the safety profile or changing the drug candidate’s dosage form. The TPP also includes a detailed description of how the product could be positioned in the market and the relevant patient groups. By continuously monitoring the criteria and their fulfillment, the Company can always take the key factors into account during product development and respond promptly to any changes.

Business Activities

DRUG DEVELOPMENT

MorphoSys develops drugs using its own research and development (R&D) and in cooperation with pharmaceutical and biotechnology partners. Our core business activity is developing new treatments for patients suffering from serious diseases. The Company possesses one of the broadest pipelines in the biotechnology industry and had a total of 103 individual therapeutic antibody programs at the end of 2015, three of which are in phase 3 trials.

TECHNOLOGIES

MorphoSys has developed a number of technologies that provide direct access to fully human antibodies for treating diseases. One of the most widely known MorphoSys technologies is HuCAL, which is a collection of billions of fully human antibodies and a system for their optimization. Another is Ylanthia, which represents the next generation of antibody technology and is currently the largest known antibody library in Fab formatFab format: The antigen binding fragment of the antibody based on an innovative concept for generating highly specific and fully human antibodies. MorphoSys expects Ylanthia to influence the pharmaceutical industry’s development of therapeutic antibodies in this decade and beyond. SlonomicsSlonomics: DNA engineering and protein library generation platform acquired by MorphoSys in 2010 gives MorphoSys a patented, fully automated technology for gene synthesis and modification for generating highly diverse gene libraries in a controlled process. The lanthipeptide technology developed by Lanthio Pharma B.V., and fully acquired in the reporting year, is a valuable addition to our existing library of antibodies and opens up new possibilities for discovering potential drugs based on stabilized peptides.

01 Figure Revenues of the MorphoSys Group by Segment (in million €)

02 Figure MorphoSys’s Product Pipeline (as of December 31, 2015)

PROPRIETARY DEVELOPMENT

An important goal of MorphoSys is to increase enterprise value through the proprietary development of innovative antibodies, focusing on cancer and inflammatory diseases.

ONCOLOGY

The ability of monoclonal antibodies to bind specific antigens has led to their dominant role in targeted cancer therapies. Referring to a study by IMS Institute for Healthcare Informatics expenditure in oncology is expected to amount up to US$ 83 – 88 billion worldwide in 2016 and thus represent the largest therapy class in the healthcare sector. Within this sector innovative biological therapies show an important option for cancer treatment. The Company is currently investing in the clinical development of three cancer programs: MOR208, MOR202 and MOR209/ES414.

MOR208 is directed against the target molecule CD19CD19: Therapeutic target for the treatment of B cell lymphomas and leukemias, which is of particular interest for many B cell malignancies. The market research firm Decision Resources expects the therapeutic market for the B cell malignancy non-Hodgkin’s lymphoma (NHLNHL: Non-Hodgkin lymphomas; diverse group of blood cancers that include any kind of lymphoma ­except Hodgkin’s lymphomas) to reach approximately US$ 10 billion in 2022. Current biological therapies for the treatment of B cell malignancies, including the blockbuster rituximab (trade name Rituxan®), obinutuzumab (trade name Gazyva®), and ofatumumab (trade name Arzerra®) are directed against the CD20CD20: Therapeutic target for the ­treatment of B cell lymphomas and ­leukemias target molecule. Because the target molecule CD19 is expressed on a larger number of B cell subtypes in comparison to CD20, the CD19 antibodies may offer a better therapeutic approach. The activity of MOR208 is enhanced by a change in the constant Fc partFc part: Constant part of an antibody known as the Fc (fragment, crystallizable) region of the antibody, which leads to higher antibody-dependent cell-mediated cytotoxicity (ADCCADCC: Antibody-dependent cell-mediated cytotoxicity; a mechanism of cell-mediated immunity whereby an effector cell of the ­immune system actively destroys a target cell that has been bound by specific antibodies) and an improvement in antibody-dependent cellular phagocytosis (ADCPADCP: Antibody-dependent cellular phagocytosis). The most advanced therapeutic approach against CD19 is the bispecific antibody blinatumomab (trade name Blincyto®), which is approved for acute lymphoblastic leukemia (ALLALL: Acute lymphoblastic leukemia; a form of cancer of the white blood cells characterized by excess lymphoblasts). Other clinical programs directed against the same target molecule use alternative approaches to increase the antibody’s efficacy, for example, by coupling with toxic substances or changing the antibody’s glycosylation pattern. Another therapeutic approach against CD19 is the CAR-T technologyCAR-T technology: New therapeutic approach in which immune cells are reprogrammed. This therapy extracts a certain type of immune cells (T cellsT cells: An abbreviation for T-lymphocytes; a subtype of white blood cells that together with B-lymphocytes are responsible for the body’s immune defense) from the patients’ blood that are then altered outside of the body so that they can be better directed to the patients’ tumor cells and kill them. When these T cells are later re-administered into the patients’ blood via infusion, they subsequently bind and destroy targeted cancer cells. Alternative approaches using small molecules are also being developed in the field of B cell malignancies.

MOR202 is currently being developed for the treatment of multiple myeloma (MMMM: Multiple myeloma, type of cancer that develops in a subset of white blood cells called plasma cells formed in the bone marrow) and is directed against the CD38CD38: Therapeutic target for the treatment of multiple myeloma and certain leukemias target molecule. After MorphoSys regained its rights to MOR202 from Celgene in March 2015, the Company continued developing MOR202 independently. Although MM is a relatively small area of oncology in terms of frequency of occurrence, the MM market has shown impressive growth. Significant achievements in clinical practice and the introduction of effective new treatments have helped the market expand. However, there is still untapped market potential in terms of therapy forms that have better survival rates and lower side effects compared to the compounds currently available. Despite significantly higher survival rates, the disease is seldom curable and a majority of patients experience a relapse. This has increased the attractiveness of alternative treatments, such as those targeting CD38. The approval by the FDAFDA: Food and Drug Administration; US ­federal agency for the supervision of food and drugs (Food and Drug Administration) in November 2015 of the CD38 antibody daratumumab (trade name Darzalex®) validated this treatment approach.

In March 2015, MorphoSys and Emergent BioSolutions announced the commencement of a phase 1 clinical study to investigate the safety, tolerability and clinical activity of MOR209/ES414 in patients suffering from metastatic castration-resistant prostate cancer (mCRPC). MOR209/ES414 is a bispecific anti-PSMA/anti-CD3CD3: surface antigen on T cells antibody based on Emergent’s ADAPTIR™ platform (modular protein technology). The immunotherapeutic protein activates the body’s T cell immune response against prostate cancer cells bearing prostate specific membrane antigen (PSMA), an antigen commonly over-expressed in this tumor. The anti-CD3 binding domains of the molecule selectively bind to the T cell receptor on cytotoxic T cells, which become activated when the anti-PSMA binding domains crosslink them to the cancer cells. Prostate cancer is the most commonly occurring cancer in men with approximately 900,000 new cases annually worldwide. As preclinical in vitro and in vivo studies have shown, MOR209/ES414 redirects T cell cytotoxicity towards prostate cancer cells expressing PSMA.

INFLAMMATORY AND AUTOIMMUNE DISEASES

Chronic inflammatory and autoimmune diseases affect millions of patients worldwide and impose an enormous social and economic burden. The IMS Institute for Healthcare Informatics (IMS Health) expects the global market for the treatment of autoimmune diseases to reach US$ 33 – 36 billion in the year 2016.

MOR103, the antibody fully out-licensed by MorphoSys to GlaxoSmithKline (GSK) in 2013, targets GM-CSFGM-CSF: Granulocyte-macrophage colony-stimulating factor; underlying target molecule of MOR103 program (granulocyte macrophage colony-stimulating factor) – a central factor in the emergence of inflammatory diseases, such as rheumatoid arthritis (RA). The market for drugs treating rheumatoid arthritis has tremendous commercial potential and biotechnologically produced drugs already comprise the majority of this market’s total revenue. The overall RA market is growing steadily and Datamonitor expects that it will reach US$ 18 billion in the year 2020. MOR103 has the potential to become the first antibody in the anti-GM-CSF antibody class of drugs. Comparable drugs currently in development are targeted against the GM-CSF target molecule or the GMCSF receptor.

New mechanisms for treating inflammatory diseases are being examined in cooperation with the Belgian company Galapagos NV with the goal of developing new antibody therapies to treat these diseases. MOR106 is the first drug candidate from this cooperation to enter preclinical development and is scheduled to enter clinical development in 2016. Under this alliance both partners contribute their core technologies and expertise and have an equal share in research and development costs and all future revenues.

The acquisition of the Dutch pharmaceutical company Lanthio Pharma B.V. in May 2015 enhanced MorphoSys’s proprietary portfolio with the addition of MOR107 (formerly LP2), a novel lanthipeptide in development for diabetic nephropathy and fibrotic diseases. MOR107 has demonstrated potent angiotensin II type 2 (AT2) receptor-dependent activity in preclinical in vivo studies.

INFLUENCING FACTORS

Many countries strive to provide proper medical care for the public as the need for new forms of therapy continues to grow in the face of demographic change. Cost-cutting could slow down the industry’s development. As part of their austerity measures, governments in Europe, the United States and Asia have stepped up their healthcare restrictions and are closely monitoring drug reimbursement.

Generic competition, which is already common in the field of small molecule drugs, now poses an increasing challenge to the biotechnology industry because of drug patent expiries. The technical barriers for generic biopharmaceuticals, so-called biosimilars, will remain high. Nevertheless, many drug manufacturers, particularly those from Europe and Asia, are now penetrating this market and placing more competitive pressure on established biotechnology companies. In the US, the approval of biosimilars as an alternative form of treatment has been very slow; however, they are gaining more attention because of increasing pressure in the healthcare sector to reduce costs. According to industry experts, the global market for biosimilars is expected to reach US$ 20 billion in 2025.

PARTNERED DISCOVERY

In the Partnered Discovery segment, MorphoSys applies technologies for the research, development and optimization of therapeutic antibodies as drug candidates in partnership with pharmaceutical and biotechnology companies. While the development costs are borne by the respective partners, MorphoSys profits from research financing, milestone payments and potential royalties on the sales of products from successful programs.

The Company’s largest alliance to date is the strategic alliance formed in 2007 with Novartis – a pharmaceutical partner with a growing pipeline of biotechnologically developed drugs. This alliance was expanded in 2012 through a supplementary cooperation agreement under which the companies will collaborate on creating therapeutic antibodies using MorphoSys’s next generation antibody platform Ylanthia in addition to HuCAL.

Developing drugs with partners gives MorphoSys the opportunity to be involved in indications where it lacks proprietary expertise and typically would not pursue a program on its own. Examples of this include:

The HuCAL antibody bimagrumab, being developed by MorphoSys’s partner Novartis for sporadic inclusion body myositis (sIBMsIBM: sporadic inclusion body myositis, inflammatory myopathy) and other muscle-wasting disorders, is one of the most promising treatments in MorphoSys’s pipeline. This antibody is currently in a phase 3 trial and received “breakthrough therapy designation” from the US Food and Drug Administration (FDA) and “orphan drug designation” (in Europe and the USA) for sIBM. Novartis announced that it may file for regulatory approval of this antibody in 2016.

Guselkumab, a HuCAL antibody against psoriasis developed by MorphoSys’s partner Janssen, is currently in six phase 3 clinical trials and in a phase 2 trial in psoriatic arthritis. Data are expected from the first completed phase 3 trials in 2016, which could lead to a filing for regulatory approval in 2016.

The HuCAL antibody gantenerumab, developed by MorphoSys’s partner Roche, adds a promising treatment for Alzheimer’s disease to MorphoSys’s pipeline. This compound is being investigated in three clinical studies to see if there is a positive effect from intervening at an early stage in the disease’s progression. In one of these studies, Roche is evaluating the compound in around 1,000 patients with mild Alzheimer’s disease. This study is ongoing as an open label study, in which higher doses of gantenerumab are being tested. A second trial with roughly 800 patients with prodromal Alzheimer’s disease was converted into an open-label study after being discontinued temporarily at the end of 2014. A further study, run by the Dominantly Inherited Alzheimer Network (DIAN), is assessing the safety, tolerability and biomarker efficacy in individuals with a genetic predisposition to Alzheimer’s disease. There are currently no drugs that fundamentally improve the course of Alzheimer’s disease, which means there is still a very high medical need for new treatment options in this indication.

03 Table Market Data from Selected Phase 3 Partnered Programs

Program name MorphoSys partner Indication Market potential
Bimagrumab/BYM338 Novartis Sporadic inclusion body myositis, cachexia, sarcopenia, muscle wastage after hip fracture surgery Sporadic inclusion body myositis:
  • Slowly progressive degenerative inflammatory disease of the skeletal muscles with very low prevalence of 4.9 to 9.3/1,000,000 (orphan disease)
  • No curative therapy available
  • Indication’s peak sales potential: US$ 400 to 890 million
Cachexia:
  • Emaciation through degradation of muscle and fatty tissue
  • Indication’s peak sales potential: US$ 1.0 to 2.0 billion Peak sales potential of all indications in clinical testing (sporadic inclusion body myositis, cachexia, sarcopenia, muscular atrophy after hip fracture surgery): US$ 2.6 to 4.9 billion
  • Guselkumab/CNTO1959 Janssen/J&J Psoriasis, psoriatic arthritis Psoriasis:
    • Lifelong disease with high morbidity; has a negative influence on the quality of life
    • Prevalence: 16 million patients1 in 2015
    Psoriatic arthritis:
    • Inflammatory joint disease, usually accompanied by psoriasis
    • up to 30 % of psoriasis patients are affected Peak sales potential (psoriasis, psoriatic arthritis): US$ 2.8 billion

    1 Seven key markets: USA, Japan, France, Germany, Italy, Spain and Great Britain Sources: Defined Health, Decision Resources, Medscape

    INNOVATION CAPITAL

    MorphoSys started its Innovation Capital initiative to combine the traditional investment approach of an industry partner with the cooperative elements of compound development as flexibly as possible. Under this initiative, the Company intends to invest selectively in promising start-ups who have products and technologies that interest MorphoSys. Activities are focused on antibodies, technologies to generate antibody-like structures (scaffolds), proteins and peptides.

    The initiative set the stage for the acquisition of the Dutch pharmaceutical company Lanthio Pharma B.V. in May 2015. MorphoSys had initially acquired a 19.98 % interest in the company in 2012 under the Innovation Capital initiative. In 2014, MorphoSys exercised its option and acquired the technology and, in this past financial year, went on to purchase all of the remaining shares in Lanthio Pharma B.V., which is specialized in the research and development of lanthipeptides. LanthipeptidesLanthipeptides: Novel class of therapeutics with high target selectivity and improved drug-like properties are a novel class of therapeutics demonstrating high target molecule selectivity and improved compound properties. This transaction adds MOR107 (formerly LP2) to MorphoSys’s proprietary portfolio and three other earlier-stage molecules. MOR107 is a novel lanthipeptide with potential to treat diabetic nephropathy and fibrotic diseases.

    Organizational Structure

    ORGANIZATION OF THE MORPHOSYS GROUP

    The MorphoSys Group, consisting of MorphoSys AG and its subsidiaries, develops and commercializes high-quality antibodies for therapeutic applications. The activities of the Group’s two business segments are based on leading-edge proprietary technologies. The Proprietary Development segment combines all of the Company’s proprietary research and development of therapeutic compounds. MorphoSys initially develops its proprietary and in-licensed compounds independently with the option to bring them into partnerships or out-license them. The second business segment, Partnered Discovery, uses MorphoSys’s cutting-edge technologies to make human antibody-based therapeutics on behalf of partners in the pharmaceutical industry. This segment encompasses all business activities related to these collaborations and most of the technological development.

    MorphoSys AG acquired the remaining interest in the Dutch biopharmaceutical company Lanthio Pharma B.V., headquartered in Groningen, the Netherlands, for a price of € 20.0 million on May 7, 2015. Prior to the acquisition, the Company held 19.98 % of Lanthio Pharma B.V. The company Lanthio Pharma B.V. wholly owns LanthioPep B.V., which is also headquartered in Groningen. These companies were consolidated by the MorphoSys Group for the first time as of May 7, 2015.

    Poole Real Estate Ltd. was liquidated and the remaining assets were distributed to MorphoSys AG as the sole shareholder on December 9, 2015.

    In the 2015 financial year, the Group maintained both the registered office of the parent company, MorphoSys AG, in Martinsried near Munich and the registered office of Lanthio Pharma B.V. and LanthioPep B.V. in Groningen, the Netherlands. The Martinsried office houses the central Group functions such as accounting, controlling, human resources, legal, patents, corporate communications and investor relations, as well as the Proprietary Development and Partnered Discovery segments. The subsidiary Lanthio Pharma B.V. and its subsidiary LanthioPep B.V. in Groningen, the Netherlands, are largely autonomous and independently managed. These subsidiaries have their own research and development laboratories, general management and administration functions, as well as human resources, accounting and business development departments.

    Additional information on consolidated companies can be found in the Notes (Item 2.2.1).

    LEGAL STRUCTURE OF THE MORPHOSYS GROUP: GROUP MANAGEMENT AND SUPERVISION

    MorphoSys AG, a German stock corporation listed in the Prime Standard segment of the Frankfurt Stock Exchange, is the parent company of the MorphoSys Group. In accordance with the German Stock Corporation Act, the Company has a dual management structure with the Management Board as the governing body whose four members are appointed and supervised by the Supervisory Board. The Supervisory Board is elected by the Annual General Meeting and currently consists of six members. Detailed information concerning the Group’s management and control and its corporate governance principles can be found in the Corporate Governance Report (page 67). The Senior Management Group, made up of 20 managers from various departments, supports the Management Board of MorphoSys AG.

    Research and Development and Business Development

    2015 BUSINESS PERFORMANCE

    MorphoSys strongly focuses its business activities on advancing its therapeutic programs in research and development to increase the Company’s enterprise value. The clinical development of proprietary drug candidates is at the core of the Company’s focus. In this context, the Company strives to gain access to novel diseasespecific target molecules, advanced product candidates and innovative technology platforms to expand its proprietary development pipeline. MorphoSys also participates in the development success of its partners’ therapeutic programs. The first of these antibodies based on MorphoSys’s technology are approaching the market.

    To MorphoSys, the fundamental measures for success in pharmaceutical research and development include:

    • industry partnerships which create a broad development pipeline, leverage the MorphoSys technology platform and/or enable the commercialization of its therapeutic programs
    • focused progression of its development programs
    • clinical and preclinical results
    • regulatory guidance of health authorities to pursue commercialization of individual therapeutic programs
    • robust patent protection to secure MorphoSys’s market position

    COLLABORATIONS AND PARTNERSHIPS

    New contracts and contract terminations in 2015 almost exclusively involved the Proprietary Development segment.

    At the end of March 2015, MorphoSys and Celgene Corporation agreed to end the existing co-development and co-promotion agreement for MOR202. Following this termination, MorphoSys regained the rights to MOR202. We expect lucrative opportunities to open up – such as a new partnership – provided that sufficiently competitive clinical efficacy and safety data can be generated. The Company is no longer entitled to receive royalties and milestone payments announced under this alliance. MorphoSys is continuing the compound’s clinical development as planned in a phase 1/2a study in patients with relapsed/refractory multiple myelomamultiple myeloma: Type of cancer that develops in a subset of white blood cells called plasma cells formed in the bone marrow with MOR202 alone and in combination with the compounds lenalidomide and pomalidomide, which are provided to MorphoSys by Celgene.

    MorphoSys concluded transactions with several industry partners in 2015, including the purchase of the remaining shares in the Dutch biopharmaceutical company Lanthio Pharma B.V. for € 20.0 million in May. This purchase added new development candidates to the Company’s proprietary portfolio, including LP2 for various fibrotic diseases. Following the acquisition, LP2 was renamed MOR107. MOR107 is a lanthipeptide with potential to treat diabetic nephropathy and fibrotic diseases. Lanthipeptides are a novel class of therapeutics demonstrating high target molecule selectivity and drug-like properties. Their high specificity is expected to open up new therapeutic applications with potential in indications that are not usually targeted with antibodies. Prior to the acquisition, MorphoSys held 19.98 % of Lanthio Pharma, which it had acquired under its Innovative Capital initiative in 2012 as part of Lanthio Pharma’s Series A funding.

    In August 2015, MorphoSys and Swiss-based G7 Therapeutics AG announced a new collaboration to develop novel antibody therapeutics targeting G protein-coupled receptors (GPCRs) and other potentially disease-related transmembrane proteins, such as ion channels. Under this agreement, G7 Therapeutics will give MorphoSys a choice of various receptors that can be linked to the emergence of a variety of diseases. MorphoSys will use its proprietary Ylanthia antibody library to identify and develop antibodies directed against these receptors. MorphoSys has the right to sublicense access to these target molecules in conjunction with therapeutic antibody programs.

    In August 2015, MorphoSys also announced a strategic alliance in the field of immuno-oncology with the German company Immatics Biotechnologies GmbH. The alliance was formed to develop novel antibody-based therapies against a variety of cancer antigens that are recognized by T cells. The agreement gives MorphoSys access to several of Immatics’s proprietary tumorassociated peptides (TUMAPs). In return, Immatics receives the right to develop MorphoSys’s Ylanthia antibodies against several TUMAPs. The companies will pay each other milestone payments and royalties on commercialized products based on the companies’ development progress.

    PROJECT INITIATIONS AND PROGRESS, TRIAL EXTENSIONS

    During the 2015 financial year, the number of individual therapeutic antibodies in the MorphoSys pipeline grew to a total of 103 (December 31, 2014: 94 individual antibodies) Proprietary Development and Partnered Discovery projects. At the end of 2015, MorphoSys had 14 projects (December 31, 2014: ten) in its Proprietary Development portfolio, four of which were in clinical development and ten in preclinical development or the discovery phase. The number of programs being pursued by our partners in the Partnered Discovery segment grew to a total of 89 (December 31, 2014: 84), 21 of which were in clinical development, 25 in preclinical development and 43 in the discovery phase. MorphoSys’s partnered and proprietary clinical pipeline currently comprises 25 unique antibody molecules which are being evaluated in more than 50 clinical trials.

    03 Figure Active Clinical Studies with MorphoSys Antibodies (31 December)

    PROPRIETARY DEVELOPMENT

    When the bispecific antibody MOR209/ES414 entered a phase 1 trial in 2015, it became the fourth clinical-stage drug candidate in MorphoSys’s Proprietary Development segment. In early March 2015, MorphoSys and its development partner Emergent BioSolutions announced the commencement of a phase 1 clinical study with MOR209/ES414 in up to 130 patients suffering from metastatic castration-resistant prostate cancer (mCRPC). The study is being conducted in clinical centers in the USA and Australia and will evaluate the safety, tolerability and clinical activity of the compound in two stages. Stage one’s main objective is to identify the maximum tolerated dose (MTD) and stage two’s objective is to investigate the clinical activity. The study’s launch triggered a milestone payment to Emergent of € 4.7 million. The existing cooperation agreement was updated in the past financial year. After a joint examination of the initial data, the companies decided to adjust the dosing regimen and administration of MOR209/ES414. Clinical development will continue in 2016 with an adapted clinical development plan. Under the terms of the updated agreement, the parties have reduced MorphoSys’s cost sharing in the years 2016 to 2018 and have reduced future milestone payments payable by MorphoSys to Emergent BioSolutions to a total of up to US$ 74 million. Other financial terms and the split of the commercial rights remain unchanged.

    MOR103 was fully out-licensed to GlaxoSmithKline (GSK) in 2013. In the third quarter of 2015, GSK announced the commencement of a phase 2 study with MOR103 (re-named GSK3196165) for rheumatoid arthritis. GSK also plans to initiate a second phase 1b/2a study in hand osteoarthritis during 2016.

    In 2015, an ongoing investigator-initiated clinical trial with the anti-CD19 antibody MOR208 for patients with relapsed/refractory chronic lymphocytic leukemia (CLLCLL: Chronic lymphocytic leukemia; most common type of cancer of the blood and bone marrow, affecting the B cells) conducted at the Ohio State University was expanded to include patients with Richter’s transformationRichter’s transformation: the (often rapid) transition of chronic lymphatic leukemia (CLL) in a higher malignant, diffuse form, a particularly aggressive sub-type of CLL. These patients will be treated with a combined therapy of MOR208 and ibrutinib. A phase 2 clinical trial of MOR208 as monotherapy for patients with acute lymphoblastic leukemia (ALL) was terminated in the first quarter in order to focus on a planned investigator-initiated pediatric study using MOR208 in combination with an immune cell transplantation. This study is scheduled to begin in 2016.

    PARTNERED DISCOVERY

    In early April 2015, MorphoSys announced its receipt of a clinical milestone payment from its partner Janssen. This payment was triggered by the initiation of a phase 2 clinical study with the HuCAL antibody guselkumab (CNTO1959) in a new indication, psoriasis arthritis, and was recognized in the first quarter of 2015.

    In July 2015, MorphoSys announced the receipt of a clinical milestone payment from its partner Novartis. The payment was triggered by the initiation of a phase 1 study of a HuCAL antibody in the field of blood disorders. This became the 11th therapeutic antibody based on MorphoSys’s technologies that Novartis is evaluating in clinical trials. The milestone payment was recognized in the second quarter of 2015.

    In July 2015, MorphoSys also announced that its partner Heptares Therapeutics, a wholly owned subsidiary of Japan’s Sosei Group Corporation, exercised an option to initiate its own therapeutic antibody program under the research alliance entered into by the companies in February 2013. The program will use MorphoSys’s Ylanthia technology to generate antibody candidates against disease- relevant molecules targeting G protein-coupled receptors (GPCRs). Heptares intends to pursue the subsequent development and later commercialization of a program with MorphoSys receiving research funding and development-dependent milestone payments as well as royalties on sales of the resulting therapeutic antibodies.

    In October 2015, MorphoSys announced the receipt of a milestone payment from its partner Bayer HealthCare for the initiation of a phase 1 clinical trial of a HuCAL antibody (BAY1093884) in the field of bleeding disorders. The antibody targets the tissue factor pathway inhibitor (TFPI), a major inhibitor of tissue factor-initiated blood clotting. The study is focused on for the treatment of hemophilia A, the most common type of hemophilia, which affects approximately 400,000 people worldwide.

    In January 2016, MorphoSys’s partner Bayer initiated a phase 2 clinical study in mesothelioma with the mesothelin-targeting anetumab ravtansine antibody (BAY94-9343). The objective is to support registration of the compound based on the study’s results if successful. The related milestone payment was recognized in the first quarter of 2016.

    CLINICAL STUDY DATA FROM CURRENT PROJECTS

    PROPRIETARY DEVELOPMENT

    In 2015, MorphoSys announced interim data from clinical studies for its proprietary drug programs MOR202 and MOR208 at several industry conferences.

    Advanced and progressively more detailed data from the ongoing phase 2a study with the anti-CD19 antibody MOR208 in patients with subtypes of relapsed or refractory non-Hodgkin’s lymphoma (NHL) were presented at the 2015 American Society of Clinical Oncology (ASCO) Annual Meeting in May/June, the European Hematology Association (EHA) congress in June 2015 and the annual American Society of Hematology (ASH) meeting in December 2015. In this open-label multicenter study, MOR208 was tested as a single- agent in 92 patients with diffuse large B cell lymphoma (DLBCLDLBCL: diffuse large B cell lymphoma, a subform of NHL), follicular lymphoma (FLFL: follicular lymphoma, a subform of NHL), mantle cell lymphoma (MCLMCL: Mantle cell lymphoma, a subform of NHL) and other indolent NHLs (iNHL). MOR208 monotherapy was well tolerated in the study and showed encouraging clinical activity. The data presented at the ASH annual meeting in December showed an overall response rate (ORR) of 28 % across all four NHL subtypes, reaching 36 % in the DLBCL subgroup (both based on evaluable patients). At the time of the most recent analysis, several patients – a total of 9 out of 21 – had an ongoing response to the single-agent treatment. The longest response duration exceeded 20 months in both DLBCL and FL. Based on these results, MorphoSys is planning to initiate combination studies of MOR208 in 2016.

    The first promising results on safety and clinical activity from another ongoing phase 2 study with MOR208 were announced at the ASH annual conference in December. In this investigator-initiated clinical trial conducted by scientists at the Ohio State University, combination of MOR208 and the immunomodulator lenalidomide is being evaluated in relapsed/refractory and treatment-naïve chronic lymphocytic leukemia (CLL) patients. Patient recruitment was still underway in both patient groups at the time of the presentation, whereby 16 patients were already enrolled and 11 evaluated. The combination of MOR208 with lenalidomide was generally well tolerated. In patients with relapsed/refractory CLL, three patients showed a partial response (PR) and two patients showed stable disease (SD). Four of the treatment-naïve CLL patients showed partial responses (PR). Patient response generally deepened over time, and five patients were able to complete a 12-week therapy cycle with MOR208.

    MorphoSys’s anti-CD38 antibody MOR202 is currently being evaluated in an ongoing phase 1/2a clinical study. Meaningful and encouraging interim data from this safety and tolerability study were released at a number of conferences in 2015, including the ASCO annual conference in May/June, the EHA congress in June, the Multiple Myeloma Workshop in September and the ASH annual meeting in December. The study evaluates MOR202 at escalating doses alone and in combination with the immunomodulatory drugs lenalidomide and pomalidomide in a total of 52 heavily pretreated patients with relapsed/refractory multiple myeloma. In this study, MOR202 showed encouraging clinical activity, an excellent safety profile and best-in-class infusion tolerability with just a two-hour infusion time. The data presented at the ASH conference in December showed the following clinical efficacy: Among the patients receiving MOR202 alone, three out of nine in groups with clinically relevant dose regimens showed an objective tumor response (ORR = 33 %) and the other six patients showed stable disease. In the combination therapy at 8 mg/kg MOR202 with lenalidomide or pomalidomide, one of the six patients showed a very good partial response (VGPR), two showed partial responses (PR) and one showed a minimal response (MR). Other patients were scheduled to receive 16 mg/kg MOR202 in combination with pomalidomide or lenalidomide. Further patient therapy is planned to validate the recommended dose of MOR202 alone and in combination with pomalidomide or lenalidomide.

    At the 2015 ASH conference, MorphoSys also presented promising preclinical data on MOR202 which demonstrated synergy of MOR202 in combination with different compounds commonly used in the treatment of multiple myeloma. Another set of preclinical experiments focused on MOR202’s ability to kill targeted cells via antibody-dependent cell-mediated cytotoxicity (ADCC). MOR202 showed a level of killing of multiple myeloma cells via ADCC equivalent to that of surrogates of the competing anti-CD38 antibodies daratumumab and isatuximab, but exhibited significantly reduced killing of natural killer cells (NK cellsNK cells: Natural killer cells of the body’s immune system; cells capable of recognizing and killing abnormal cells, e.g. tumor cells) from the body’s own immune system. NK cells, as effector cells, are needed for the killing of the tumor cells. These results suggest that MOR202 may show a more durable clinical response than other compounds of its class by sparing the NK cells needed for ADCC.

    PARTNERED DISCOVERY

    MorphoSys’s partners continued developing their antibody programs in the reporting year and presented their progress at various scientific conferences.

    At the 2015 American Society of Clinical Oncology (ASCO) Annual Meeting at the end of May/early June in Chicago, several of MorphoSys’s partners presented clinical data for a number of HuCAL antibodies.

    Pfizer presented phase 1 data from its study of anti-4-1BB antibody PF-05082566 in patients with non-Hodgkin’s lymphoma (NHL). The combination of PF-05082566 with rituximab was well tolerated and showed anti-tumor activity as well as biomarker modulation.

    Novartis presented results from its phase 1 combination trial evaluating the HuCAL antibody LJM716 in combination with BYL719 and trastuzumab in patients with HER2-positive metastatic breast cancer. The study created a safety profile for the combination therapy and demonstrated the therapy’s anti-tumor activity. Novartis presented preclinical data at the annual American Association for Cancer Research (AACR) conference in April 2015 showing that LJM716 successfully inhibited the target molecules HER3HER3: Human epidermal growth factor receptor 3; member of the epidermal growth factor receptor (EGFR/ERBB) family of receptor tyrosine kinases and EGFREGFR: Epidermal growth factor receptor; cell-surface receptor for members of the epidermal growth factor family (EGF-family) of extracellular protein ligands; the epidermal growth factor receptor is a receptor tyrosine kinase in lung squamous cell carcinoma cell lines and showed preclinical anti-tumor activity.

    OncoMed published the final results of its phase 1a study of tarextumab (OMP-59R5) in combination with an etoposide and platinum-based therapy (EP) in small cell lung cancer (PINNACLE trial). The combination was well tolerated and showed encouraging anti-tumor activity. Additionally, a dosage was determined that is currently being tested in an ongoing, randomized placebo-controlled phase 2 study. At the World Conference on Lung Cancer in September 2015, OncoMed announced new biomarker data and updated its clinical phase 1 data for tarextumab (OMP-59R5).

    MorphoSys’s partner Bayer also presented new clinical results from a phase 1 study at the World Conference on Lung Cancer in September 2015. The study evaluated different doses of the HuCAL antibody anetumab ravtansine (BAY94-9343) in 77 patients with advanced mesothelioma and other solid tumors. Anetumab ravtansine is an antibody drug conjugate (ADCADC: Antibody drug conjugate; a tumor growth-inhibiting substance (cytostatic) that is coupled to an antibody to attack tumors in an even more targeted manner) directed against the mesothelin target molecule. The study determined the maximum tolerated dose (MTD) that showed encouraging efficacy in mesothelioma patients.

    REGULATORY EVENTS

    PARTNERED DISCOVERY

    In the first quarter of 2015, MorphoSys announced that its partner OncoMed had received orphan drug status from the US Food and Drug Administration for the HuCAL antibody tarextumab in pancreatic cancer and small cell lung cancer. The program is currently in clinical development for both indications.

    There were no regulatory decisions announced relevant to the Partnered Discovery segment.

    PATENTS

    During the 2015 financial year, MorphoSys continued to consolidate and expand the patent protection of its development programs and its growing technology portfolio, which are the Company’s most important value drivers.

    At the end of the financial year, the Company maintained roughly 50 different proprietary patent families worldwide in addition to the numerous patent families it pursues with its partners.

    Group Headcount Development

    The success of MorphoSys is based on highly qualified, dedicated employees who are creative and motivated. On December 31, 2015, the MorphoSys Group had 365 employees (December 31, 2014: 329), 145 of whom hold PhD degrees (December 31, 2014: 124). The MorphoSys Group employed an average of 356 employees in 2015 (2014: 315).

    04 Figure Headcount of the MorphoSys Group (31 December)1

    A competitive and attractive remuneration system is a decisive factor when competing for the best employees. To be a competitive employer, MorphoSys compares the Company’s compensation with that paid by other companies in the biotech industry and similar sectors and makes adjustments when necessary. The remuneration system at MorphoSys includes fixed compensation and a variable annual bonus that is linked to the achievement of corporate goals. Individual goals promote both the employees’ personal development and the achievement of key corporate goals.

    A “spot bonus” (given “on the spot”) is promptly awarded to employees for exceptional accomplishments.

    A detailed overview of headcount development and MorphoSys’s activities to promote successful long-term human resource developments can be found in the section “Sustainable Business Development.”

    Changes in the Business Environment

    The global economy lost more steam in 2015. In its latest forecast in January 2016, the International Monetary Fund (IMF) expects global growth to be a modest 3.1 % in 2015 following 3.4 % in 2014. Weak growth in China, the fall in commodity prices and geopolitical tensions, particularly in Russia and the Middle East, will continue to weigh on global growth.

    While the advanced economies had another year of slightly increasing growth momentum and reported 1.9 % growth in 2015 (2014: 1.8 %), the expansion in emerging markets and developing economies slowed significantly with growth reported at 4.0 % (2014: 4.6 %). Growth in the eurozone rose 1.5 % (2014: 0.9 %) compared to the previous year due to a boost in exports because of the weak euro. Germany’s growth held fairly steady at 1.5 % (2014: 1.6 %). Growth momentum in the USA was again much stronger with the economy growing 2.5 % (2014: 2.4 %).

    China, which has been the driving force of the world economy, continued to falter and reported growth in 2015 of 6.9 % (2014: 7.3 %). The pace of growth and the outlook during the year deteriorated progressively, which placed tremendous pressure on both the Chinese and global financial markets in the fourth quarter. The two large emerging countries, Russia (2015: – 3.7 % versus 2014: 0.6 %) and Brazil (2015: – 3.8 % versus 2014: 0.1 %) were in deep recession in 2015.

    Economists expect the ongoing risks to keep the economy vulnerable to setbacks. Global economic uncertainty and rising geopolitical tensions are also a threat to the growth of the global pharmaceutical and biotechnology industries, particularly because fading euphoria in the capital markets and less favorable financing conditions can have an adverse impact on sectors heavily reliant on research financing, such as the biotechnology sector.

    MorphoSys takes into account all potential macroeconomic risks and opportunities when conducting business activities. Political uncertainty in the global markets did not cause the Company to refrain from or change any of its key activities in the past financial year. MorphoSys’s operations were also not affected by any fluctuations within individual countries and, therefore, in this respect, were not directly impacted by global economic developments.

    REGULATORY ENVIRONMENT

    The healthcare industry’s regulatory environment is dominated by ever-increasing product quality, safety and efficacy requirements and places high demands on companies. Novel drugs need to demonstrate a significant benefit over existing therapies in order to be approved, gain the market’s acceptance and be reimbursed by the healthcare system.

    The industry is also subject to potential pricing restrictions because of the dominant role played by cost savings in the healthcare system’s regulatory requirements. References to overpricing and potentially more stringent price control in the US drug market made by presidential candidate Hillary Clinton during the US primaries in September 2015 stirred up uncertainty in the biotech and related sectors.

    Despite the high demands placed on the sector, the market’s situation continues to be positive, particularly in the USA. The US Food and Drug Administration granted approval to 45 drugs in 2015, surpassing the already high number of approvals in the previous year (2014: 41). From 2006 to 2014, the FDA approved an average of 28 new compounds every year, which corroborates the importance of the industry’s commitment to innovation for developing technologically better products and optimizing approved treatment methods.

    The FDA supports compounds with exceptional medicinal potential through measures such as the “breakthrough therapy designation,” introduced in 2013, and the “fast-track” program, both of which help expedite product development and testing. MorphoSys received fast-track status for its proprietary compound MOR208, which is currently undergoing phase 2 clinical evaluation for patients suffering from diffuse large B cell lymphoma (DLBCL). Closer cooperation with the regulatory authorities facilitates the antibody’s targeted development and may help bring it more quickly to the market.

    DEVELOPMENT OF THE PHARMACEUTICAL AND BIOTECHNOLOGY SECTORS

    The global pharmaceutical industry had a stellar year in 2015. After years of stagnating sales, the 20 largest global pharmaceutical companies saw the reemergence of sustainable sales growth: On a constant currency basis, Group sales increased 7 % on average. Experts believe two key factors are responsible for this positive performance: First, companies have overcome the impact of expiring patents and related sales declines, and second, the sector has seen tremendous success in terms of research and development and regulatory approvals for products.

    The market for cancer drugs, which is the most important market for MorphoSys’s pipeline development, is one of the most attractive and fastest-growing segments in pharmaceuticals. The US market research institute IMS Health estimates that in 2014, global sales of oncological compounds exceeded US$ 100 billion for the first time and will continue to grow on average by 6 to 8 % annually until 2018. The aging global population has sustained this growth trend. The World Health Organization (WHO) expects the number of new cancer cases to rise 70 % in the next 20 years.

    However, there are also factors that could slow down the pharmaceutical market. Political and public opposition to higher drug prices became abundantly evident in 2015, particularly in connection with the launch of a new hepatitis C drug by Gilead Sciences priced at US$ 1,000 per pill. Price pressure on biotechnology drugs emerged with the successful development of generically manufactured, patent-free imitation products. Experts also expect pharmaceutical prices to come under pressure due to competition within the biotech and pharmaceutical industry as a result of the global expansion of research pipelines.

    The number of mergers and acquisitions in the pharmaceutical and biotechnology sectors has grown dramatically. In the first half of 2015, transactions reached a record US$ 210 billion and were triple their level in the same period of the previous year; at the end of the full year, transactions in the medical sector had reached US$ 724 billion, or one-seventh of the aggregate volume of mergers and acquisitions worldwide.

    More information on the development of the stock market can be found in the section “Shares and the Capital Market”.

    DEVELOPMENT OF THE ANTIBODY SECTOR

    The year 2015 marked a very successful year for the clinical development of therapeutic antibodies. The FDA set a record with its approval of nine antibodies. According to the scientific publication, mAbs Journal, there are currently 53 antibodies in phase 3 clinical studies and 16 of those are to treat cancer. The “Antibodies to Watch in 2016” list presented by mAbs Journal at the AntibodyAntibody: Proteins of the immune system that ­recognize antigens, thereby triggering an immune response Engineering Conference in San Diego in December 2015 included guselkumab which is derived from MorphoSys’s technology platform and is being developed by Janssen. Results are expected in 2016 from a phase 3 clinical study of this compound in psoriasis.

    Antibodies in the field of cancer immunotherapy continued to dominate headlines in 2015. Clinical data was shown that further corroborated the efficacy of the anti-PD1 and anti-PD-L1 antibodies which act by blocking immune checkpoints. These compounds, which reactivate the body’s immune system for identifying and killing tumor cells, was also a dominant theme at the May/June 2015 ASCO conference, the world’s premier cancer conference. Companies presented promising clinical study results particularly in the areas of skin cancer (melanoma) and lung cancer.

    Additionally, the following antibodies received approval in 2015:

    • Secukinumab (trade name Cosentyx®), the first monoclonal antibody targeting IL 17a for treating patients with moderate to severe psoriasis was approved in the USA and EU.
    • Daratumumab (trade name Darzalex®) targeting the CD 38 antigen became the first antibody to receive FDA approval for treating patients with multiple myeloma, a form of bone cancer.
    • Elotuzumab (trade name Empliciti®), another potent antibody for treating multiple myeloma targeting glycoprotein SLAMF7 (Signaling Lymphocytic Activation Molecule Family Member 7) received FDA approval.

    CURRENCY DEVELOPMENTS

    The European debt crisis, a faster-growing US economy and a stronger US dollar on the back of the US key interest rate increase in December resulted in an even weaker euro. Falling energy prices brought down European inflation rates, which raised the monetary regulator’s deflationary concerns, and the European Central Bank reinforced its expansionary monetary policy, putting additional pressure on the euro. At the end of 2015, the euro was quoted at US$ 1.09, or roughly 10 % lower than its level at the start of the year. According to experts, the euro will continue to move closer to parity with the dollar.

    Changes in these currencies could have an effect on MorphoSys’s future costs and revenues because most of the Company’s business is transacted in euros and US dollars. The ongoing weakness in the euro versus the US dollar has a direct influence on the Company’s operating results because a growing share of its clinical study costs are incurred in the USA.

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