5 Notes to the Assets of the Balance Sheet

5.1 CASH AND CASH EQUIVALENTS

in 000’ € 12/31/2016 12/31/2015
Bank Balances and Cash in Hand 73,929 90,928
Term Deposits 1,252 631
Restricted Cash (1,252) (631)
Cash and Cash Equivalents 73,929 90,928

The decrease in cash and cash equivalents resulted primarily from the use of cash for operating activities.

Restricted cash of € 1.3 million mainly consisted of rent deposits (2015: € 0.6 million).

5.2 FINANCIAL ASSETS AND BONDS, AVAILABLE-FOR-SALE AND FINANCIAL ASSETS CLASSIFIED AS LOANS AND RECEIVABLES

As of December 31, 2016 and December 31, 2015, available-for-sale financial assets consisted of the items below.

Gross Unrealized
in 000’ € Maturity Cost Gains Losses Market Value
December 31, 2016
Money Market Funds daily 63,433 2 73 63,362
Total 63,362
December 31, 2015
Money Market Funds daily 64,089 204 0 64,293
Total 64,293

In 2016, the Group recorded a net gain of € 0.3 million from the disposal of financial assets contained in the income statement. This gain was previously recognized in stockholders’ equity (2015: net gain of less than € 0.1 million).

As of December 31, 2016 and December 31, 2015, bonds available-for-sale consisted of the items below.

Gross Unrealized
in 000’ € Maturity Cost Gains Losses Market Value
December 31, 2016
Bonds daily 6,620 2 90 6,532
Total 6,532
December 31, 2015
Bonds daily 33,599 1 480 33,120
Total 33,120

In 2016, the Group recorded a net loss of € 1.2 million from the disposal of financial assets contained in the income statement that were previously recognized in stockholders’ equity (2015: net loss of less than € 0.1 million). The bonds were purchased at a price above their nominal value. The loss that resulted from the product-specific price development is more than offset by the bond’s interest income and results in a positive overall result.

As of December 31, 2016, the Company held current financial assets of € 136.1 million (December 31, 2015: € 94.6 million) and non-current financial assets of € 79.5 million (December 31, 2015: € 15.5 million), which were allocated to the “loans and receivables” category in accordance with IAS 39 “Financial Instruments”. These financial assets consisted mainly of term deposits with fixed or variable interest rates. The increase is a result of the investment in non-current financial assets using financial liquidity from the capital increase executed in November. The carrying amounts included interest receivables of € 0.1 million (December 31, 2015: € 1.2 million).

Interest income from financial assets under “loans and receivables” amounted to € 0.9 million (2015: € 1.9 million) and was recorded in the finance result. The risk associated with these financial instruments primarily resulted from bank credit risks. There was no indication of impairment in the financial year 2016.

Further information on accounting for financial assets is provided in Item 2.8.1 in the Notes.

5.3 ACCOUNTS RECEIVABLE

All accounts receivable are non-interest bearing and generally have payment terms of between 30 and 45 days. As of December 31, 2016 and December 31, 2015, accounts receivable included unbilled receivables amounting to € 3.3 million and € 3.9 million, respectively.

Based on the Management Board’s estimate, no net loss for allowances for doubtful receivables was recognized in profit and loss in 2016 and 2015.

5.4 OTHER RECEIVABLES

Under the Group’s hedging policy, highly probable cash flows and definite foreign currency receivables collectable within a twelve-month period are tested to determine if they should be hedged. MorphoSys began using foreign currency options and forwards to hedge its foreign exchange risk against US dollar receivables in 2003. These derivatives are recorded at their fair values under “other receivables”.

As of December 31, 2016, there were ten unsettled forward rate agreements with terms ranging from one to twelve months (December 31, 2015: 15 unsettled forward rate agreements). The resulting gross unrealized gain from these forward rate agreements of less than € 0.1 million as of December 31, 2016 was recorded in the finance result (December 31, 2015: gross unrealized gain of € 0.7 million and gross unrealized loss of less than € 0.1 million).

In January 2016, the Group entered into a forward rate agreement expiring in April 2017 to hedge future cash flows. As a cash flow hedge, this derivative is accounted for under hedge accounting. As of December 31, 2016, a gross unrealized gain of € 0.5 million was recognized for this hedging instrument in the revaluation reserve within other comprehensive income.

As of December 31, 2016, immaterial impairments were recognized for other receivables (December 31, 2015: € 0.2 million).

5.5 INCOME TAX RECEIVABLES, INVENTORIES, PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of December 31, 2016 tax receivables amounted to € 3.3 million (December 31, 2015: € 2.7 million) and consisted of receivables due from tax authorities for the remaining surplus from prepayments for value-added taxes in the amount of € 2.8 million (December 31, 2015: € 1.5 million) and receivables from capital gain taxes withheld and income taxes for prior years in the amount of € 0.5 million (December 31, 2015: € 0.8 million).

Inventories amounting to € 0.3 million as of December 31, 2016 were stored at the Planegg location and consisted of raw materials and supplies. As in the previous year, no inventories were carried at fair value less selling costs as of the reporting date.

As of December 31, 2015, inventories amounting to € 0.4 million were stored at the Martinsried location and consisted of raw materials and supplies.

As of December 31, 2016, prepaid expenses and other current assets mainly consisted of combination compounds of € 7.3 million (December 31, 2015: € 0.3 million), prepaid fees for external laboratory services of € 2.4 million (December 31, 2015: € 0.6 million), prepaid fees for sub­licenses of € 0.3 million (December 31, 2015: € 0.3 million), restricted cash for rent deposits of € 0.4 million (December 31, 2015: € 0), and other prepayments amounting to € 0.8 million (December 31, 2015: € 0.5 million).

5.6 PROPERTY, PLANT AND EQUIPMENT

in 000’ € Office and Laboratory Equipment Furniture and Fixtures Total
Cost
January 1, 2016 15,040 1,780 16,820
Additions 1,890 612 2,502
Disposals (272) (3) (275)
December 31, 2016 16,658 2,389 19,047
       
Accumulated Depreciation
January 1, 2016 11,691 1,655 13,346
Depreciation Charge for the Year 1,700 86 1,786
Write-offs for the Year 0 0 0
Disposals (271) (3) (274)
December 31, 2016 13,120 1,738 14,858
       
Carrying Amount
January 1, 2016 3,349 125 3,474
December 31, 2016 3,538 651 4,189
       
Cost
January 1, 2015 13,963 1,765 15,728
Additions 1,372 15 1,387
Additions from Business Combinations 126 0 126
Disposals (421) 0 (421)
December 31, 2015 15,040 1,780 16,820
       
Accumulated Depreciation
January 1, 2015 10,560 1,610 12,170
Depreciation Charge for the Year 1,497 45 1,542
Write-offs for the Year 25 0 25
Disposals (391) 0 (391)
December 31, 2015 11,691 1,655 13,346
       
Carrying Amount
January 1, 2015 3,403 155 3,558
December 31, 2015 3,349 125 3,474

No impairment of property, plant and equipment was recognized in the 2016 financial year. In 2015, impairment of property, plant and equipment was immaterial.

No borrowing costs were capitalized during the reporting period. There were neither restrictions on retention of title nor property, plant and equipment pledged as security for liabilities. There were no material contractual commitments for the purchase of property, plant and equipment as of the reporting date.

Depreciation is included in the following line items of the income statement.

in 000’ € 2016 2015
Research and Development 1,518 1,295
Research and Development (Write-off) 0 25
General and Administrative 268 247
Total 1,786 1,567

5.7 INTANGIBLE ASSETS

in 000’ € Patents License Rights In-process R&D Programs Software Goodwill Total
Cost
January 1, 2016 16,064 23,896 60,960 5,744 11,041 117,705
Additions 355 0 0 56 0 411
Disposals 0 0 0 0 0 0
December 31, 2016 16,419 23,896 60,960 5,800 11,041 118,116
             
Accumulated Depreciation
January 1, 2016 9,923 20,651 0 3,808 3,676 38,058
Depreciation Charge for the Year 1,173 98 0 707 0 1,978
Write-offs for the Year 0 0 10,141 0 0 10,141
December 31, 2016 11,096 20,749 10,141 4,515 3,676 50,177
             
Carrying Amount
January 1, 2016 6,141 3,245 60,960 1,936 7,365 79,647
December 31, 2016 5,323 3,147 50,819 1,285 7,365 67,939
             
Cost
January 1, 2015 15,743 21,896 28,254 5,180 7,352 78,425
Additions 321 2,000 4,495 563 0 7,379
Additions from Business Combinations 0 0 28,211 1 3,689 31,901
December 31, 2015 16,064 23,896 60,960 5,744 11,041 117,705
             
Accumulated Depreciation
January 1, 2015 8,755 20,553 0 3,138 0 32,446
Depreciation Charge for the Year 1,145 98 0 670 0 1,913
Write-offs for the Year 23 0 0 0 3,676 3,699
December 31, 2015 9,923 20,651 0 3,808 3,676 38,058
             
Carrying Amount
January 1, 2015 6,988 1,343 28,254 2,042 7,352 45,979
December 31, 2015 6,141 3,245 60,960 1,936 7,365 79,647

No impairment of patents and licenses was recognized in the 2016 financial year. In 2015, impairment of patents and licenses was immaterial.

As of December 31, 2016, in-process research and development programs were subject to an impairment test as required by IAS 36. This test indicated the need for impairment. Further information on the impairment of in-process research and development programs can be found in Item 5.7.3. in the Notes.

Amortization is included in the following line items of the income statement.

in 000’ € 2016 2015
Research and Development 1,872 1,806
Research and Development (Write-off) 10,141 3,699
General and Administrative 106 107
Total 12,119 5,612

5.7.1 PATENTS

In the 2016 financial year, the carrying amount of patents declined by € 0.8 million from € 6.1 million to € 5.3 million. This was the result of additions amounting to € 0.4 million for patent applications, particularly for proprietary programs and technologies, which were offset by straight-line amortization of € 1.2 million.

5.7.2 LICENSES

In the 2016 financial year, the carrying amount of licenses declined by € 0.1 million from € 3.2 million to € 3.1 million.

5.7.3 IN-PROCESS R&D PROGRAMS

In the 2016 financial year, the carrying amount of in-process R&D programs declined by € 10.1 million to € 50.8 million. The reason for the partial impairment of MOR209/ES414 was the expectation of a lower inflow of benefits and of a delay in the occurrence of future cash flows.

5.7.4 SOFTWARE

In the 2016 financial year, additions to this line item totaled € 0.1 million. The carrying amount decreased by € 0.7 million from € 1.9 million in 2015 to € 1.3 million in 2016. Additions were offset by amortization of € 0.7 million.

5.7.5 GOODWILL

As of September 30, 2016, goodwill of € 3.7 million from the 2010 acquisition of Sloning BioTechnology GmbH was subject to an impairment test as required by IAS 36. The recoverable amount of the cash-generating unit Slonomics technology, which is part of the Partnered Discovery segment, was determined on the basis of value-in-use calculations. The calculation showed that the recoverable amount was higher than the carrying amount of the cash-generating unit. The cash flow forecasts took into account the payments expected under existing contracts as well as the future free cash flows from the contribution of the Slonomics technology to partnered programs and was offset by expected personnel and administrative ex­pen­ses. Cash flow forecasts are based on a period of ten years because the Management Board believes that commercialization through licensing agreements, upfront payments, milestone payments, funded development services and royalties is only feasible by means of medium- to long-term contracts. For this reason, a planning horizon of ten years is considered appropriate for the value-in-use calculation. The cash flow forecasts are largely based on the assumption that the Slonomics technology is very beneficial for existing customers. The values of the underlying assumptions were determined using both internal (past experience) and external sources of information (market information). Based on the updated ten-year cash flow forecast, the value-in-use was determined as follows: A beta factor of 1.2 (2015: 1.2), WACC before taxes of 12.2 % (2015: 12.7 %) and a perpetual growth rate of 1 % (2015: 1 %). In connection with calculating the value-in-use, a detailed sensitivity analysis was performed with regard to the growth rate and the discount rate. The sensitivity analysis assessed changes in one assumption at a time while all other assumptions remained unchanged compared to the original calculation. The analysis did not reveal any additional need for impairment. The values ascribed to the assumptions correspond to the Management Board’s forecasts for future development and are based on internal planning scenarios as well as external sources of information.

As of September 30, 2016, goodwill of € 3.7 million from the Lanthio Group acquisition was tested for impairment. The recoverable amount of the cash-generating unit Lanthio Group, which is part of the Proprietary Develop­ment segment, was determined on the basis of value-in-use calculations. The value-in-use was higher than the carrying amount of the cash-generating unit. The cash flow forecasts included planned cash inflows from the potential sale of compounds based on lanthipeptides expected to achieve market approval. These cash inflows were offset by expected operating expenses for compound development and clinical trials as well as sales and administrative expenses. The duration and likelihood of indi­vidual stages of the study were taken into consideration. Cash flow forecasts are based on a period of 30 years because the Management Board believes that after the successful approval of compounds, the drugs that follow can generate free cash flows within that period of time. The values of the underlying assumptions were determined using both internal (past experience) and external sources of information (market information). On the basis of the updated cash flow forecast, the value-in-use was determined as follows: A beta factor of 1.2 (2015: 1.2) and WACC before taxes of 11.9 % (2015: 13.6 %). A detailed sensitivity analysis was performed with regard to the discount rate. This analysis did not reveal any need for impair­ment. The values ascribed to the assumptions correspond to the Management Board’s forecasts for future development and are based on internal planning scenarios as well as external sources of information.

5.8 PREPAID EXPENSES AND OTHER ASSETS, NET OF CURRENT PORTION

This line item included the non-current portion of prepaid expenses and other assets. The increase in prepaid expenses mainly resulted from prepaid rent for the premises at Semmelweisstraße 7, Planegg. The Group classified certain line items under other assets as “restricted cash” that are not available for use in the Group’s operations (see Items 2.8.1 and 5.1 in the Notes). As of December 31, 2016 and December 31, 2015, the Group held long-term restricted cash in the amount of € 0.9 million and € 0.6 million, respectively, for issued rent guarantees and of € 0.2 million each for convertible bonds granted to employees.

The table below shows the breakdown of this line item.

in 000’ € 12/31/2016 12/31/2015
Prepaid Expenses, Net of Current Portion 2,783 67
Other Current Assets 1,111 882
Total 3,894 949
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