3 Segment Reporting
MorphoSys Group applies IFRS 8 “Segment Reporting”. An operating segment is defined as a unit 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, the Management Board, 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. Other key internal reporting figures include revenues, operating expenses, segment results and the liquidity position.
The Group consists of the following operating segments.
3.1 PROPRIETARY DEVELOPMENT
The segment comprises all activities related to the proprietary development of therapeutic antibodies and peptides. These activities currently comprise a total of 14 antibodies and peptides, including the proprietary clinical programs MOR208, MOR202, MOR209/ES414, which is jointly developed with the US company Aptevo Therapeutics (a spin-off from Emergent BioSolutions), and MOR106, which is developed in cooperation with Galapagos. The program MOR103, also included in this segment, was out-licensed to GSK. All activities are now conducted by GlaxoSmithKline (GSK). The program has been part of this segment since the beginning of its development and will therefore continue to be reported there. MorphoSys is also pursuing other programs that are either at an early stage of proprietary development or fall under co-development agreements. One of these programs is the preclinical program MOR107 (formerly LP2) resulting from the acquisition of Lanthio Pharma B.V. A further eight programs are in the discovery phase. Since January 1, 2016, the development of proprietary technologies has been allocated to the Proprietary Development segment. Until December 31, 2015, these activities and their related costs were contained in the Partnered Discovery segment.
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.
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 Twelve-month Period Ended December 31 (in 000’ €)||2016||2015||2016||2015||2016||2015||2016||2015|
|Other Operating Expenses||78,515||54,057||18,113||25,918||13,212||13,753||109,840||93,728|
|Profit before Taxes||(77,567)||10,723||31,010||20,369||(13,307)||(10,467)||(59,864)||20,625|
|Income Tax Expenses||0||0||0||0||(519)||(5,725)||(519)||(5,725)|
|Total Segment Assets||72,449||76,142||28,580||29,109||362,571||294,828||463,600||400,079|
|Total Segment Liabilities and Equity||27,878||24,012||4,677||5,950||431,045||370,117||463,600||400,079|
|Depreciation and Amortization||1,272||858||2,117||2,243||375||354||3,764||3,455|
The segment result is defined as a segment’s revenue less the segment’s operating expenses. In the 2016 financial year, impairments totaling € 10.1 million were recognized in the Proprietary Development segment (2015: impairments of € 3.7 million in the Partnered Discovery segment).
The Group’s key customers are allocated to the Partnered Discovery and Proprietary Development segments. As of December 31, 2016, the single most important customer represented accounts receivables of a carrying amount of € 8.4 million (December 31, 2015: € 8.3 million). Three of the Group’s customers that were all allocated to the Partnered Discovery segment accounted for € 42.1 million, € 2.5 million and € 2.5 million, respectively, of the total revenues in 2016. In the 2015 financial year, three of the Group’s customers accounted for € 59.3 million, € 41.5 million and € 1.9 million, respectively. The largest customer was allocated to the Proprietary Development segment and the other two customers to the Partnered Discovery segment.
The following overview shows the Group’s regional distribution of revenue.
|in 000’ €||2016||2015|
|Europe and Asia||43,046||41,800|
|USA and Canada||5,077||62,240|
The decline in revenues is mainly due to a one-off effect in 2015 of approximately € 59 million resulting from the termination of the MOR202 co-development and co-promotion agreement with Celgene and the resulting release of deferred revenues.
A total of € 123.7 million (December 31, 2015: € 67.5 million) and € 32.6 million (December 31, 2015: € 32.1 million) 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 € 2.8 million (December 31, 2015: € 8.7 million) were made in Germany, except for € 0.1 million (December 31, 2015: € 0.1 million), 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. MorphoSys defines investments as additions to non-current assets that are not related to acquisitions.