8 Additional Notes

8.1 OBLIGATIONS ARISING FROM OPERATING LEASES, RENTAL AND OTHER CONTRACTS

The Group leases facilities and equipment under long-term operating leases. In financial years 2016 and 2015, leasing expenses amounted to € 3.1 million and € 3.0 million. The 2015 amount includes the recognition of a provision for onerous contracts from rent obligations for office premises. Leasing expenses for 2016 and 2015 include expenses for company cars and machinery totaling € 0.2 million and € 0.2 million, respectively. The majority of these contracts can be renewed on a yearly or quarterly basis. Some of these agreements may be terminated prematurely.

In 2016 a rental agreement was signed for the premises at Semmelweisstraße 7, Planegg. The contract includes a minimum rental period of ten years.

The future minimum payments under non-terminable operating leases, insurance contracts and other services are shown in the following table.

in 000’ € Rent and Leasing 2017 Rent and Leasing 2016 Other 2017 Other 2016 Total 2017 Total 2016
Up to One Year 3,224 2,349 796 840 4,020 3,189
Between One and Five Years 11,245 13,438 1 5 11,246 13,443
More than Five Years 13,950 13,875 0 0 13,950 13,875
Total 28,419 29,662 797 845 29,216 30,507

Additionally, the future payments as shown in the table below may become due for outsourced studies. These amounts could be shifted or be sub­stantially lower due to changes in the study timeline or premature study termination.

in million € Total 2016
Up to One Year 50.8
Between One and Five Years 112.2
More than Five Years 0.0
Total 163.0

8.2 CONTINGENT ASSETS/CONTINGENT LIABILITIES

Contingent liabilities are potential obligations from past events that exist only when the occurrence of one or more uncertain future events – beyond the Company’s control – is confirmed. Current obligations can represent a contingent liability if it is not probable enough that an outflow of resources justifies the recognition of a provision. Moreover, it is not possible to make a sufficiently reliable estimate of the amount of the obligations.

The Management Board is unaware of any proceedings that may result in a significant obligation for the Group and may lead to a material adverse effect on the Group’s net assets, financial position or results of operations.

If certain milestones are achieved in the Proprietary Development segment, for example, filing an application for an investigational new drug (IND) for specific target molecules, this may trigger milestone payments to licensors. However, no further details can be published since the timing and the achievement of such milestones are uncertain.

If a partner achieves certain milestones in the Partnered Discovery segment, for example, filing an application for an investigational new drug (IND) for specific target molecules or the transfer of technology, this may trigger milestone payments to MorphoSys. However, no further details can be published since the timing, and the achievement of such milestones are uncertain.

Obligations may arise from enforcing the Company’s patents against third parties. It is also conceivable that competitors may challenge the patents of the MorphoSys Group companies. MorphoSys may also come to the conclusion that MorphoSys’s patents or patent families have been infringed upon by competitors, which may prompt MorphoSys to take legal action against competitors. At present, there are no specific indications that liabili­ties have occurred as described above.

8.3 CORPORATE GOVERNANCE

The Group has submitted the Declaration of Conformity with the recommendations of the Government Commission on the German Corporate Governance Code for the 2016 financial year under Sec. 161 of the German Stock Corporation Act (AktG). This declaration was published on the Group’s website (www.morphosys.com) on December 2, 2016 and made permanently available to the public.

8.4 RESEARCH AND DEVELOPMENT AGREEMENTS

The Group has entered numerous research and development agreements as part of its proprietary research and development activities and its partnered research strategy.

8.4.1 PROPRIETARY DEVELOPMENT SEGMENT

In the Proprietary Development segment, partnerships are entered into as part of the Group’s strategy to develop its own drugs in its core areas of oncology and inflammatory diseases. Our partners include (in alphabetical order): Aptevo Therapeutics, G7 Therapeutics, Galapagos, GlaxoSmithKline, Immatics Biotechnologies, Merck Serono, MD Anderson Cancer Center, Temple University and Xencor.

In August 2014, MorphoSys and Aptevo Therapeutics, a spin-off from Emergent BioSolutions, announced a co-development and co-promotion agreement for MOR209/ES414. This compound is a bi-specific anti-PSMA/anti-CD3 antibody targeting prostate cancer that was developed by Aptevo based on its proprietary ADAPTIR™ platform (modular protein technology). In early March 2015, MorphoSys and its development partner Aptevo Therapeutics 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’s launch triggered a milestone payment to Aptevo of € 4.7 million. The existing cooperation agreement was updated in the past financial year. After a joint examination of the clinical results, 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. A change in the contractual agreement brought down MorphoSys’s share in the costs for the years 2016 through 2018 and lowers MorphoSys’s potential milestone payments to Aptevo to a maximum of US$ 74 million. There were no changes made to the remaining financial agreements or the division of commercial rights. A partial impairment of € 10.1 million was recognized on the in-process MOR209/ES414 R&D program in 2016 as a result of the program’s lower expected value-in-use.

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 antibody compounds directed against these receptors. MorphoSys has the right to sublicense to partners access to these target molecules in conjunction with therapeutic antibody programs.

In November 2008, MorphoSys and Galapagos announced a long-term drug discovery and co-development cooperation aimed at exploring novel mechanisms for the treatment of inflammatory diseases and developing antibody therapies against these diseases. The agreement covers all activities ranging from the probing of target molecules to the completion of clinical trials for novel therapeutic antibodies. After demonstrating clinical efficacy in humans, the programs may be out-licensed to partners for further development, approval, and commercialization. Both companies contributed their core technologies and expertise to the alliance. Along with the use of its adenovirus-based platform for the exploration of new target molecules for the development of antibodies, Galapagos provided access to target molecules already identified that are associated with bone and joint diseases. MorphoSys provided access to its antibody technologies used for generating fully human antibodies directed against these target molecules. Under the terms of the agreement, Galapagos and MorphoSys will share the research and development costs. In July 2014, the collaboration advanced into the preclinical development of MOR106, an antibody from MorphoSys’ next-generation library Ylanthia directed against a novel Galapagos target molecule. The antibody will be co-developed in the area of inflammatory diseases.

In June 2013, MorphoSys announced it had entered into a global agreement with GlaxoSmithKline (GSK) for the development and commercialization of MOR103. MOR103/GSK3196165 is MorphoSys’s proprietary HuCAL antibody against the GM-CSF target molecule. Under the agreement, GSK assumes responsibility for the compound’s entire development and commercialization. MorphoSys received an immediate upfront payment of € 22.5 million as part of this agreement. Depending on the achievement of certain developmental stages and regulatory, commercial and revenue-related milestones, MorphoSys is eligible to receive additional payments from GSK in the amount of up to € 423 million, as well as tiered double-digit royalties on net sales. The compound is currently being developed in a phase 2b study in patients with rheumatoid arthritis. In April 2016, GSK announced the initiation of a phase 2a clinical trial to investi­gate the safety and efficacy of MOR103/GSK3196165 in patients with inflammatory hand osteoarthritis. GSK also initiated a mechanistic phase 2a trial of MOR103/GSK3196165 in rheumatoid arthritis to further investigate the GM-SCF signaling pathway.

In August 2015, MorphoSys 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 alliance agreement gives MorphoSys access to several of Immatics’s proprietary tumor-associated 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.

In June 2014, MorphoSys and Merck KGaA announced an agreement to identify and develop therapeutic antibodies against target molecules of the class of immune checkpoints. Under this agreement, both MorphoSys and Merck Serono, the biopharmaceutical division of Merck, will co- develop therapies intended to trigger the immune system to attack tumors. MorphoSys will use its proprietary Ylanthia antibody library and other technology platforms to generate antibodies directed against the selected target molecules. Merck Serono is contributing its expertise in the field of immuno-oncology and clinical development and will assume full project responsibility starting with phase 1 of clinical development.

In May 2016, MorphoSys and the University of Texas MD Anderson Cancer Center announced a long-term strategic alliance. With MorphoSys applying its Ylanthia technology platform, the partners will work together to identify, validate and develop novel anti-cancer antibodies through to clinical proof of concept by researching targets in a variety of oncology indications. MorphoSys and MD Anderson will conduct early clinical studies of therapeutic antibody candidates after which MorphoSys has the option to continue developing selected antibodies in later stages of clinical development for its own proprietary pipeline.

In April 2014, MorphoSys agreed to a strategic partnership with the Moulder Center for Drug Discovery Research, a division of the School of Pharmacy at Temple University, USA, to discover new therapeutic anti­bodies. Under this cooperation, the Moulder Center receives access to MorphoSys’s Ylanthia technology for validating new disease-related target molecules and generating therapeutic antibodies directed against these molecules. MorphoSys receives an exclusive option to further develop each antibody resulting from the cooperation. The department for new bio-therapeutic compound discovery at the Moulder Center deals with the compound’s design and optimization of lead candidates in various disease areas, including cancer, Alzheimer’s disease, cardiovascular, metabolic and viral diseases.

In June 2010, MorphoSys AG and the US-based biopharmaceutical company Xencor signed an exclusive global licensing and cooperation agreement under which MorphoSys receives exclusive global licensing rights to the XmAb5574/MOR208 antibody for the treatment of cancer and other indications. The companies jointly conducted a phase 1/2a trial in the US in patients with chronic lymphocytic leukemia. MorphoSys is solely responsible for further clinical development after the successful completion of the phase 1 clinical trial. Xencor received an upfront payment of US$ 13 million (approx. € 10.5 million) from MorphoSys, which was capitalized under in-process R&D programs. Xencor is entitled to development, regulatory, and commercially-related milestone payments as well as tiered royalties on product sales.

In May 2015, MorphoSys acquired the Dutch company Lanthio Pharma B.V., which specializes in research and development of lanthipeptides. MorphoSys had initially acquired almost a 20 % interest in the biopharmaceutical company in 2012 as part of its Innovation Capital initiative before acquiring the remaining shares in the past financial year. Lanthipeptides 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. MOR107 is a novel lanthipeptide in development for fibrotic diseases.

8.4.2 PARTNERED DISCOVERY SEGMENT

Commercial partnerships in the Partnered Discovery segment provide MorphoSys with various types of payments that are spread over the duration of the agreements or recognized in full as revenue when reaching a predefined target or milestone. These payments include upfront payments upon signature, annual license fees in exchange for access to MorphoSys’s technologies and payments for funded research to be performed by MorphoSys on behalf of the partner. In addition, MorphoSys is entitled to development-related milestone payments and royalties on product sales for specific antibody programs.

Prior to the 2015 financial year, active collaborations with a number of partners had already ended because the agreements had expired. However, drug development programs initiated in the active phase are designed so that they can be continued by the partner and, therefore, still result in performance-based payments for the achievement of the defined milestones. For more detailed information on individual drug candidates within the various alliances – limited to information available to the public – please refer to the section “Research and Development” contained in this annual report and the overview of the Group’s drug pipeline. Detailed information on the Group’s individual research alliances is available on the Group’s website.

Partnerships in the Partnered Discovery segment that ended before the beginning of 2015 but where drug development programs were still being pursued, include (in alphabetical order): Astellas, Bayer Healthcare Pharmaceuticals, Boehringer Ingelheim, ContraFect, Daiichi-Sankyo, F. Hoffmann-La Roche, GPC Biotech, Immunogen, Janssen Biotech, Merck & Co., OncoMed Pharmaceuticals, Pfizer, Fibron Ltd. (transfer of the contract from Prochon Biotech Ltd.) and Schering-Plough (a subsidiary of Merck & Co.).

Partnerships that were still active in 2015 include (in alphabetical order): GeneFrontier Corporation/Kaneka, Heptares, LEO Pharma and Novartis.

In November 2016, MorphoSys and LEO Pharma announced a strategic alliance for the discovery and development of therapeutic antibodies for the treatment of skin diseases. The objective of the alliance is to identify novel, antibody-based therapeutics for unmet medical needs that will be valuable additions to both companies’ development pipelines. MorphoSys will apply its Ylanthia technology platform to generate fully human antibody candidates against the targets selected by LEO Pharma. MorphoSys will conduct all development activities up to the start of clinical testing. LEO Pharma will be responsible for clinical development and commercialization of resulting drugs in all indications outside of cancer. In skin cancer indications, MorphoSys will have options to co-develop and, in Europe, co-promote the respective antibody drugs. In addition, MorphoSys will have certain options to develop and commercialize therapeutic programs in other cancer indications arising from the collaboration. MorphoSys will receive R&D funding as well as success-based development, regulatory and commercial milestone payments, plus royalties on net sales of drugs commercialized by LEO Pharma.

The Group’s most comprehensive alliance is with Novartis AG. Both companies started working together in 2004, which has led to the creation of several ongoing therapeutic antibody programs against a number of diseases. In December 2007, MorphoSys and Novartis significantly expanded their previous relationship and forged one of the most comprehensive strategic alliances in the discovery and development of biopharmaceuticals. The contractually guaranteed annual payments for technology access, interna­lization charges, and R&D services amount to more than € 400 million over the contract term of ten years. The total amount of guaranteed payments and probability-weighted performance-based milestones, contingent upon the successful clinical development and regulatory approval of several products, could exceed € 650 million by the expiration of the contract underlying the collaboration. In addition to these payments, MorphoSys is also entitled to royalties on any future product sales. MorphoSys expects the partnership with Novartis to terminate at the end of November 2017 in accordance with the contract and does not believe that Novartis will exercise its option to extend the contract.

In November 2012, MorphoSys and Novartis entered into a cooperation agreement for the use of the new Ylanthia technology platform. This was an extension of the existing strategic cooperation.

8.5 SUBSEQUENT EVENTS

In early January 2017, MorphoSys announced that the Company’s Super­visory Board has appointed Dr. Malte Peters as new Chief Development Officer. Dr. Peters will assume the position on March 1, 2017 and will succeed Dr. Arndt Schottelius, who is leaving the Company to pursue other opportunities. Dr. Schottelius has been Chief Development Officer until February 28, 2017. Dr. Peters joins MorphoSys from Sandoz, a subsidiary of Novartis, where he served as Global Head, Clinical Development Biopharmaceuticals. With effect from March 1, 2017, Dr. Peters is entitled for the period of one year to request the transfer of treasury shares held by the Company to himself up to a total amount of € 500,000.

In February 2017, MorphoSys announced that it has added a second patent with US Patent Number 9,200,061 to its lawsuit against Janssen Biotech, and Genmab, A/S. This patent claims methods of treating hematologic cancer associated with the undesired presence of CD38-positive cells by administering antibodies that bind to a specific region of the target molecule, CD38. In a hearing that took place on February 6, 2017 the District Court granted MorphoSys’s request to add the 9,200,061 patent to the case.

Also in February 2017, MorphoSys announced that its fully owned subsidiary Lanthio Pharma B.V., Groningen, Netherlands, has initiated a phase 1 clinical study with MOR107. MOR107, a selective agonist of the angiotensin II receptor type 2, is a lanthipeptide based on Lanthio Pharma’s pro­prietary technology platform and the first lanthipeptide in MorphoSys’s clinical pipeline. The goal of the trial is to evaluate safety, tolerability, pharmacokinetics and pharmacodynamics in healthy male volunteers.

In March 2017, MorphoSys announced that its partner Roche plans to initiate a new pivotal phase 3 program with gantenerumab in patients with prodromal to mild Alzheimer’s disease. Gantenerumab is a monoclonal antibody directed against beta amyloid based on MorphoSys’s HuCAL antibody library. MorphoSys was informed that Roche intends to commence preparations for two studies and that Roche expects to start the trials later in 2017.

Also in March 2017, MorphoSys announced that its licensee Janssen has reported positive results from two phase 3 clinical studies examining guselkumab, a fully human antibody directed against IL-23 identified from MorphoSys’s HuCAL antibody library, in patients with moderate to severe plaque psoriasis. Janssen has announced to present the data from its VOYAGE 2 and NAVIGATE studies at the American Academy of ­Dermatology (AAD) 2017 annual meeting in Orlando, Florida/USA, from March 3–7, 2017.

Apart from that, no events occurred after the reporting date of December 31, 2016 that require reporting.

8.6 RESPONSIBILITY STATEMENT

To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the Group’s net assets, financial position and results of operations, and the group management report provides a fair review of the development and performance of the business and the position of the Group together with a description of the principal opportunities and risks associated with the Group’s expected development.

Planegg, March 6, 2017

Dr. Simon Moroney
Chief Executive Officer

Jens Holstein
Chief Financial Officer

Dr. Malte Peters
Chief Development Officer

Dr. Marlies Sproll
Chief Scientific Officer

arrow-topCreated with sketchtool.Top arrow-leftCreated with sketchtool.7. Remuneration System for the Management Board and Employees of the Group