MorphoSys AG (MOR) 2005 Q4 法說會逐字稿

It’s my pleasure to welcome all of you to our annual conference. My name is Claudia Gutjahr-Loser, I’m head of Corporate Communications at MorphoSys. I would like to thank you for your interest and your participation at our conference today. With me are my colleagues, Dr. Simon Moroney our CEO, Dave Lemus, our CFO and my colleague Mario Brkulj, PR Manager.

Before we start, I want to remind you that during this conference we will present and discuss certain forward-looking statements concerning the development of MorphoSys’ core technologies, the progress of the current research programs and the initiation of additional programs. Should actual conditions differ from the Company’s assumptions [inaudible] actions may differ from those anticipated. You are, therefore, cautioned not to place undue reliance on such forward-looking statements which speak only as of the date hereof.

Today we will present you the Company’s annual results for the year 2005. We have planned approximately one hour for the presentation. I will start with a short introduction. That’s followed [Simon] the revenue, the year 2005 and discuss our plans for 2006. Subsequently, Dave will give you an overview about the financial results of 2005 and discuss the financial guidance for 2006. At the end of our presentation we will have a Q&A session. For all people listening in the conference call, the presentation is available on our corporate website.

2005 was a really extraordinary year for MorphoSys. We [could] built up on our achievement for the year 2004 and expand our business internationally. With Shionogi, we signed our first year with a Japanese pharmaceutical company. Internationally, we could add a total three new names to our roster of partnerships which speaks of the quality of our technology and our reliability as a partner.

On the research side we added new customers to our list, and with the acquisition Serotec at the beginning of 2006 we gained additional sales [that offers us], not only in the U.S. and U.K., but also in Germany, Norway and France.

Last, but not least, we increased our IR activities. We will expand our [industrial base] in the U.S. To support these efforts we have started an ADR level one program at the beginning of 2006 and Dave will give you some more detailed information about this.

Our operational success led to a growth of over 50% in revenues. Both segments of our business have been very successful in signing new deals, attracting new customers and increasing our market share worldwide. In the Therapeutic area our partnering strategy is paying off, which is underlined by the financial result as well as by our ability to attract new partners and expand our existing partnerships.

In the Research area, the integration of Biogenesis was completed, and with the related acquisition of Serotec we have established ourselves as one of the leading suppliers for research antibodies worldwide. With the extended capabilities we plan to build on this growth during the coming year.

With this I would like to end my introduction and I would hand over now to Simon Moroney, our CEO.

Thank you Claudia and also from me a very warm welcome to all, both here in Frankfurt and on the call to our year end results conference. Claudia has already summarized some of the highlights of 2005. I intend to look at some of these advances in more detail, and then spend some time talking about our plans for the future. Of the three areas in succession namely, Partnered Therapeutic Antibodies, Research Antibodies and finally Proprietary Therapeutics.

As Claudia said, over the last 12 months we have made real progress in executing our strategy. That strategy is aimed at exploiting our proprietary technologies in two areas namely, Therapeutics and Research Antibodies. In the field of Therapeutics we aim to maximize the number and value of drug development programs based on our technologies. Maximizing the total number of programs requires collaboration with partners. Maximizing the total value requires pursuing programs for our own accounts. We’re committed to both of these tracks.

Our partnerships with pharmaceutical and biotech companies comprise the largest part of our business. By collaborating with partners and the application of HuCAL and related technologies to the discovery of new antibody drugs, MorphoSys participates in near term revenues in the form of license fees and research funding but, most importantly, builds long term upside in the form of future milestone and royalty participation. Proprietary programs offer a larger future upside at such time as we choose to partner them.

In the field of Research products, we believe that in the years to come there will be a lucrative commercial opportunity as the generation of new antibodies transitions from the current animal sources to the in-vitro technologies of tomorrow. MorphoSys is at the forefront of this development and all of our efforts in this area are aimed at maximizing the uptake of research antibodies made with our technology.

The success of this dual strategy is visible in our financial results, but even more important in the short term success, are the seeds that we are sowing for future growth. I’ll highlight some of these as we progress through the presentation.

I want to start with a look at developments in the Therapeutics market in which we are active. Total sales of Therapeutic Antibodies worldwide in 2005 reached approximately $12b. As a class of drugs, Therapeutic Antibodies comprised the fastest growing segment of the biotech industry. New data for Herceptin and the adjuvant setting released during 2005 showed a 52% decrease in disease recurrence in patients with early stage HER2 positive breast cancer being treated with Herceptin plus chemotherapy. Similarly, there was positive data for [Vastin] which, together with chemotherapy made its primary end point in patients with non-small cell lung carcinoma. These and other developments further underscored the great potential of antibodies in currently [intractable] diseases.

In February 2005 we saw the withdrawal from the market of Tysabri a humanized antibody marketed by Biogen Idec and Elan for the treatment of multiple sclerosis. Although this was a very significant event for the industry, experts understood this for what it was, namely, a drug specific issue that does not impact on antibodies as a class. Pharmas’ long term appetite for antibodies as a class of drugs does not seem to have been affected and, indeed, it looks as though Tysabri will return during the course of this year.

Nevertheless, the Tysabri withdrawal did have a negative impact on the perception of biotech drugs amongst investors, as can be seen by the downturn in share prices generally in the spring of last year. The interests of big pharmas for antibodies was nowhere more clearly demonstrated that by some high profile acquisitions during the year. Roche Glykar, Pfzier [Biren] and Amgen Abgenics all illustrated the importance of specific antibodies and antibody technologies to big pharm. Interesting, while Amgen Abgenics was product driven, the other two deals were clearly motivated by access to proprietary enabling technology.

What impact have these developments had on MorphoSys? The main driver for pharma is clearly the success of existing market antibodies. An important consideration for them is the fact that antibody discovery and development is traditionally not one of the core competencies of big pharma, therefore, pharma companies looking to enter this space must do so through partnerships. As always, intellectual property is an important considering for pharma companies, who need assurance that they will have freedom to practice the technology and market products based on that technology. And last, but not least, we’re seeing an increasing understanding of targets, and that in turn is driving demand for technology that enables antibody optimization.

For us, all of these demands are matched by our offering. First, HuCAL is genuinely becoming the technology of choice for therapeutic antibody generation. Second, our proven partnering model and our track record and in our favor. Third, in addition to a strong position around our own technology, we’re now completely free of third party intellectual property disputes. And fourth, HuCAL was constructed with the antibody optimization in mind. Added together, all of these factors mean that we are well positioned in a market that continues to grow as new entrants seem to develop therapeutic antibodies, and our existing partners look to ramp up.

I mentioned clarity of intellectual property as an important factor. That clarity comes about in a large part due to our efforts over the last few years. Following our final and complete settlement with Cambridge Antibody Technology over three years ago now, in September of last year we reached a final settlement with Eli Lilly on the dispute over the patents in the AME estate.

While our HuCAL patent estate continues to grow, we now have seven grants of patents in key territories and a number of others pending. A proprietary cyst display technology is the subject of a granted patent in the U.S., and in 2005, we were granted a patent on the same technology in Australia. Other applications are pending.

Turning to the partnerships, in 2005, we signed deals with three new partners. Each of these new partnerships have a special significance for MorphoSys, over and above the purely financial aspects. First, the agreement with Shionogi is a breakthrough and a new geographical market for our HuCAL technology, mainly Japan. Shionogi is one of Japan’s top ten pharmaceutical companies. The deal with Shionogi is a three year license agreement, under which they will use the HuCAL technology in-house. Shionogi will pay annual license fees to us for the use of the technology.

We laid the foundations for this deal in 2004 by entering a strategic marketing relationship with Tokyo based GeneFrontier Pharmaceutical Corporation. With their help we aim to further develop the Japanese market during the course of this year.

Second, as already mentioned, our agreement with the pharmaceutical group, Eli Lilly, in September 2005 brought to an end MorphoSys’ last remaining patent dispute. Here we have again displayed our ability to resolve a complex intellectual property issue, and in this case, turn it to our advantage in the form of a cross license and co-operation.

Eli Lilly has internalized our HuCAL Gold library and would use the technology as its discovery programs. As always in such cases we've centered license fees whilst royalties on development programs. Third in December of last year we entered an important agreement with the U.S. pharmaceutical Merck & Co - our 10th deal with a top 20 pharmaceutical company. Merck is committed to applying the HuCAL technology and it's internal R&D for five years. We expect this deal to add significantly to the debt of the HuCAL derived therapeutic antibodies pipeline over the coming years.

In addition to securing new partners, we continually strive to expand our existing alliances. We were, therefore, delighted to enter new agreements with Boehringer Ingelheim, Bayer, Bristol-Myers Squibb and Imuinigin during the course of 2005.

I'd like to highlight just two of these deals. We've been working with Boehringer Ingelheim since 2003 when we initiated two therapeutic antibody programs. In March of last year, we added an additional partnership for five years, under which we installed the HuCAL technology at their Vienna site and Boehringer Ingelheim secured options for several therapeutic antibody programs.

Shortly before year end we extended our long standing alliance with Bayer. We were concerned a couple of years ago when Bayer discontinued its research activities in Berkley, California where our collaboration was originally focused, but we are delighted that the alliance has found a strong home elsewhere in the organization and that Bayer decided, not only to extend, but also to expand the collaboration. Bayer has commissioned to starting at least three new therapeutic antibody programs in 2006 and potentially many more as we go forward.

With the Merck and Lilly deals we brought to 10 the number of partnerships we have with the world's top 20 pharmaceutical companies. We have thereby achieved one of the goals we set ourselves several years ago, namely, to become the partner of choice for pharmaceutical companies developing antibody drugs. As can be seen on the next slide, chart 14, over the last year we at MorphoSys have entered more deals than any of our competitors. This is an attribute both to the power of our technology, our track record in delivering drug candidates and the excellence of our reputation in the market as a partner.

In addition our partnered pipeline has made real progress. There are currently two antibodies, either in, or about to enter phase 1 clinical trials. A further six are in pre-clinical development, and 21 are at the discovery stage.

The two most advanced programs are first 1DO9C3 a HuCAL antibody in MHC Class 2 which GPC Biotech took into Phase 1 trials for relapsed and remitting lymphoma. Most recently GPC has received Orphan Drug designation in the EU for Hodgkin's lymphoma and chronic lymphocidic leukemia. But a few weeks ago [Hoffman La] Roche announced the filing of an INV for a HuCAL antibody for the treatment of Alzheimer's Disease.

Alzheimer's Disease is one of the largest health care threats to our aging society. The number of sufferers if projected to grow from some 16m today, to 21m by 2010. The market for drugs to treat this disease will grow commensurately from today's level of over €5b. Very significantly there is a high un-met need for new treatment since none of the current treatments provide clear and sustainable benefits to patients.

The HuCAL antibody that we made for Roche is directed against B-amyloid, for which it has a very high affinity. It has been shown to break down aggregations of the peptide invitro, to bind specifically to plaque and brain tissue samples from human patients and to reach its target in an invivo mouse model of the disease. The antibody is intended to be administered intravenously, to show that prolonged persistence in circulation that's typical of human antibodies and from there target abnormal build ups of the protein in the brain's of Alzheimer's patients.

The INV filing triggered milestone payment from Roche that will be booked in our Q1 2006 results.

Looking forward, we continue to see strong demand for our technology and capabilities in the Therapeutic space. There are many companies with whom we have not yet formed partnerships, including those who have not committed to any antibody technology, as well as those who have chosen alternative technology but who remain potential partners for us.

In addition, the pool of potential disease targets is far from being exhausted. We, therefore, hope to start new programs in the years ahead, both with existing and also with new partners. And, of course, new therapeutic antibody programs means not only license and R&D payments today, but also the promise of future milestones and royalties tomorrow.

Regarding the pipeline we project an increase from current 29 to 36 partnered programs by the end of this year. Regarding additional compounds entering the clinic, although we do have visibility on several candidates, the decision is not under our control and we, therefore, can provide no information on timing of when this might occur. The delay in timelines that we had to communicate last year is an illustration of this point. Nevertheless, all programs which we have communicated would enter the clinic this year are ongoing and we expect that in time they will enter clinical trials. Based on the success of our discovery efforts, if all goes well, we project that as many as 10 to 12 partnered HuCAL could be in pre-clinic by the end of this year - up to double what we currently have in pre-clinic.

I want to turn now to the second pillar of our business, our Research Antibodies Division.

We have amalgamated our activities in this area under a single new brand -Antibodies Direct or AbD for short. Our aim on this side of the business is to maximize the penetration of HuCAL in this market. In order to achieve this, we're building our presence through selected deal doing first with our acquisition of Biogenesis in January of last year. We successfully completed the integration during 2005 and thereby gaining a physical presence in the U.K. and in the all important U.S. market. Biogenesis brought us an additional €3m of revenue but most important new sales channels in the market for research antibodies. Bolstered by new access to customers that Biogenesis brought, the custom HuCAL business continued to develop well in 2005, growing its revenues approximately 90% on the year.

I'll come to the Serotec acquisition, which dramatically increased our market presence in a moment. Allied to our existing Antibodies by Design activities, these acquisitions have accelerated our growth in this business and we are confident that we can continue on this growth path.

Just six weeks ago we announced the acquisition of Serotec. We paid just under €30m, about 2.6x their sales, comprising about €20m in cash and the remainder in newly minted MorphoSys shares. Serotec is a household name in the life science research world and the Company brings us more than 4,600 catalogue products, subsidiaries in the U.S.A., U.K., Germany, France and Scandinavia and a good level profitability on about €11m of revenues.

Through the acquisition of Serotec, as shown on chart 21, we have substantially increased our revenue in the Research Antibody segment. Revenues have increased from about €800,000 in 2004, to about €4.3m last year and we expect to hit about €18m this year.

Serotec fits ideally in our existing business but I'd like to just explain why. MorphoSys, through our experience in the therapeutic antibody, field has a deep understanding of state of the art technology, and is well known as a reliable partner. We've expanded out into custom monoclonal antibodies with Antibodies by Design, where we can leverage advantages around economies of scale. Serotec brings a strong catalogue business and brand, while Biogenesis has, in addition, production capabilities and links into the diagnostic industry. For both Biogenesis and Serotec the most important assets are presence in the market which we're aiming to establish HuCAL.

We foresee attractive opportunities for synergy. A key part of our integration planning with our new colleagues at Serotec, is how we will leverage their customer base, sales channels and understanding of the market to sell more HuCAL antibodies. Additionally, we see cost synergies through combined sales and marketing activities. We'll keep you updated on the integration process during the coming months.

The emphasis on maximizing our sales and distribution channels is also evident in our partnerships. To highlight just one, in January this year we signed a marketing deal with Chemicon. The logic behind this deal was the same as the acquisitions. Chemicon is within the world’s top 20 supplier -- one of the world's top 10 -- 20 suppliers of research antibodies. They will supply HuCAL antibodies against -- sorry, we will supply HuCAL antibodies against targets identified by Chemicon, which they will market. We look forward to working with Chemicon to increase the penetration of HuCAL antibodies in the market and to increase in the awareness in the power of the technology. This deal brings to six the number of dedicated HuCAL based co-marketing, co-distribution and research partnerships we've entered. And these arrangements are in addition to the more than 100 agreements we have with distributors which we acquired with Biogenesis and Serotec.

Overall the market for research antibodies is growing at about 10% to 15%, but this should not detract from the fact that, with the right strategy, faster growth rates can be achieved. We see this if we look at Adcam, a newly listed company on the AIM stock exchange in the U.K., and we see it, of course, when we look at our own customer HuCAL Division, formerly Antibodies by Design. Our goals going forward are to outperform the market with three strategies, by increasing the proportion of HuCAL antibodies as replacements amongst newly generated products for our own catalogue, by making HuCAL antibodies as replacements for existing high end products where we see an opportunity to increase profit margins and third, by continuing to grow our custom antibody generation business. We expect this form of organic growth to enable us to outperform the market already in this year.

We also don't rule out further acquisitions as a means of promoting our growth in the segment. I now want to turn to our Proprietary Therapeutic activities.

Over the last several months we've carried out a detailed review of our programs MOR101/102, MOR202 and MOR103. This review concerned our commitment to this segment of our business, because of the lucrative potential upside. The main operational conclusion of this review can be summarized in two words - accelerate and focus. In short, our plans for the currently active programs are as follows.

MOR103 is our most promising candidate and will become the main focus of our efforts. We intend to advance this program as fast as possible to clinical trials for the treatment of rheumatoid arthritis.

For MOR202 we will invest in generating additional pre-clinical data before deciding on next steps and MOR101/102 are to be discontinued.

I now want to provide some more information on each program, starting with MOR101/102 and MOR202. At the beginning of 2005 we set ourselves a goal of partnering at least of our existing programs before year end. Our main efforts in this regard were on our inflammation programs, MOR101/102, directed against the target ICAM1, and the oncology program MOR202 against CD38. We purposely didn't include MOR103 in partnering discussions, as we wanted to generate additional data first.

In April of last year we received results of a second animal study, where we compared MOR102 with Raptiva and Amevive in psoriases. The data were impossible to interpret. Notwithstanding this, the original study, which showed clear efficacy in the same model was published in October of last year in the British Journal of Dermatology. During the year we carried out discussions with a range of potential partners for MOR101 and MOR102. In a handful of cases we entered advanced negotiations with the aim of reaching an agreement to cover the subsequent development of one or the other of these compounds. We went into these negotiations with clear expectations of what we wanted, regarding both financial terms, as well as our rights regarding potential co-development and/or co-marketing.

HuCAL is a premium technology, and a central part of our business strategy is to do premium deals based on the technology and products derived from it. Our adherence to this principle is a key reason why our business is performing so well today.

In the case of MOR101 and MOOR102, we were not able to secure a partnership on the terms that we sought. The problems encountered by Tysabri that I mentioned earlier, although they didn't impact on overall pharma sentiment towards antibodies, it did negatively affect our discussions on MOR101 and MOR102. The common feature is that both Tysabri and MOR101 and MOR102 are directed against cell adhesion molecules, which mediate extravasation, the process by which cells leave the circulation and enter surrounding tissue. This certainly made the discussions around the programs more difficult.

Regardless of the ultimate reasons, we believe our interests are best served by ending our investment in MOR101 and MOR102, in order to be able to focus our efforts elsewhere.

We also carried out numerous discussions and negotiations with potential partners for MOR202. We had some very promising [skid mouse data] for MOR202, and there is no doubt that the level of interest in this program is much higher than for MOR101 and MOR102. Nevertheless, as with MOR101 and MOR102, by year end we had not secured terms on which we would have been prepared to partner the program. In contrast to the conclusion with MOR101 and MOR102, however, we do believe that additional in MOR202 is merited. With a relatively low level of investment we will further strengthen the data package around our lead compound. Such stronger data may give us the opportunity to partner the MOR202 program. However, we make no predictions on this point and our future financial planning makes no assumptions regarding potential payments from such a partnership.

The antibody MOR103 will become the centerpiece of our Proprietary development activities. As already mentioned, we intend to develop MOR103 for the treatment of rheumatoid arthritis. We have a plan that goes as far as clinical efficacy in man. Over the next 18 months we will carry out full formal pre-clinical development, covering manufacturing of the antibody, pre-clinical proof of concept, and toxicity and safety studies. The program will be managed internally by Dr. Robert Friesen, who we appointed to the position of Director of Pre-Clinical Development last year. Robert leads a small team in-house and reports directly to our Chief Scientific Officer.

We do not plan to build a large infrastructure in development but instead will work externally using a panel of expert rheumatologists, in an advisory capacity, plus development consultants and CROs. In this way we can maximize the efficiency of our development efforts. Our plan calls for commencement of clinical trials in second half of next year.

Why have we reached this decision on MOR103? First, the market for rheumatoid arthritis drugs today is over €4b. Nevertheless, there is no question that this is an area of un-met clinical need. Today, despite a range of treatments, remissions are almost unheard of and curers are basically unknown. A number of agents are able to reduce inflammation, but disability usually increases anyway. The current standards of care amongst biologicals comprise the anti TNF therapies Embril, Humera and Rhemicaid. While these compounds have been enormously successful, there is a clear need for alternatives.

In addition to concerns about potential long term toxicity associated with the anti TNFs, the fact is that half of patients no longer respond to an anti TNF therapy after two years of treatment. New approaches such as [Arenthia] the CTLA4IG, which was launched last week in the U.S., [both] appear much more efficacious than the anti TNF. Safety is clearly a concern, for example, with the anti TNFs which are broadly immunosuppressive, there is evidence in some patients of increased rates of infections, particularly, tuberculosis, congestive heart failure, lupus-like conditions, [de-milanating] disease, not to mention a potentially greater long term risk of lymphoma.

Rheumatologists are constantly looking for new treatment options. The goals are to halt, or ideally reverse, the progression of the disease, to optimize the treatment of pain, to minimize the toxicity and overall to improve the quality of life for rheumatoid arthritis sufferers. Further, all of this needs to be done in an affordable way since rheumatoid arthritis is a chronic disease and the cure is currently not foreseeable we're looking at treatment almost certainly for life.

Second we're very excited about the target and the HuCAL antibodies that we have made against these. There’s solid evidence that the target, which we're not disclosing at the moment, is implicated in the patho-physiology of rheumatoid arthritis. There is also a possibility that it may be implicated in other inflammatory conditions. We have several optimized HuCAL antibody candidates which are characterized by an extremely high affinity for the target. Although it is early in the development process, if this high affinity was to translate into a low dose regimen, then the aspect of affordability could be a key advantage of our program.

And third, our business is performing so well that we can now pursue a drug development program without compromising our commitment to maintaining profitability. In contrast to the past, we now have a cash flow positive business and can afford to invest into at least one proprietary program. We also feel that a greater focus than we've perhaps had in the past will allow us to progress faster.

We're convinced that if we're able to generate good proof of concept data in man we will be in a strong position to partner MOR103. The demand from pharma for new drugs continues to be strong. The attraction of doing deals later is evident from a survey on deal terms, as can be seen here on chart 31, deal value increases significantly from pre-clinic through Phases one and two.

I'd like to take this opportunity to make absolutely clear our position regarding internal discretionary investment, such as that aimed at Proprietary Therapeutics. Our business is performing strongly, as was seen by the fact that we're generating increasingly attractive cash flow. We've often stated our intention to re-invest as much of this cash flow as possible. We're convinced that MorphoSys has enormous potential for growth, and it is our intention to take advantage of this potential. We will not jeopardize our long term growth prospects by prioritizing short term financial results. Re-investment is in the best interest of our shareholders as it offers the best chance of capital growth. You should not look at MorphoSys as an earnings per share story, at least not yet. We're a growth Company and we're still growing.

In 2006 we will invest a part of this year's expected cash flow in proprietary HuCAL based development. This will, obviously, come at the expense of increasing profit line but, it’s a decision we've taken for the reasons outlined above. The return on this investment will come in the future as MorphoSys commands an ever stronger financial interest, within partnerships of the type we've been already proving we can successfully do.

Finally, in my part of the presentation, I'd like to mention one more highlight of 2005. That was the appointment of Dr Marlies Sproll to the position of Chief Scientific Officer and member of the [Forstand]. We were delighted to be able to promote Marlies from her previous position of Senior Vice President for R&D to the position of Chief Scientific Officer. Marlies brings many years of experience in biologicals from positions with Boehringer Ingelheim and Merck KGaA. She's been with us for around five years and can claim much of the credit for the successes we have recorded, particularly with our partnerships. Her promotion was richly deserved.

That concludes my review of the year. I'd now like to hand over to Dave Lemus for the financial review.

Thank you Simon. In opening, I'm happy to say that we had another good year in 2005, not only operationally but also financially speaking. Revenues for the MorphoSys Group increased by 52%, leading to a net profit of €4.7m. Our cash position increased to over €50m, in part through a successful private placement in March 2005 as well as positive cash flow from operations. As I will discuss in more detail in a minute, the percentage of success based payments significantly increased during the year, which is a sign that our partnered antibody pipeline is maturing. Additionally, we made first steps to expanding our U.S. institutional shareholder base, by establishing an ADR facility in the very important U.S. market. Last, but not least, we were again rewarded for Corporate Governance Excellence in 2005.

In opening the financial part, I'd like to start with some highlights of our guidance for the year. I think it's fair to say that our expectations at the beginning of 2005 were exceeded by year's end. As you know we had to raise guidance three times during the year for both revenues and net income.

Although we will go into the details of how we ended up where we did, I can already say at the outset that, clearly, the main driver of this out-performance was with revenues or, more specifically, success based milestone payments from our partners to us.

Success performance based payments ranged from MorphoSys receiving an option on an exclusive license all the way through receiving an IND milestone payment. And in 2005, clearly, it was these performance based success payments from partners which made us exceed both revenue and income targets for the year.

Let's start with revenues. The chart on the wall there illustrates where our revenue growth has come from. Revenues for the MorphoSys Group for the full year 2005 increased by 52% to €33.5m compared to €22m in 2004. Clearly, the main driver of revenue growth in 2005 was revenues from the Therapeutic Antibodies segment. Of the €11.5m increase over prior year's revenues, about €8m arose from higher Therapeutic Antibody revenues. As we had no acquisitions on the Therapeutic side of our business, the Therapeutic Antibody segment grew organically around 37%.

As I said previously, driving these Therapeutic Antibody revenues were performance based payments from partners in the amount of about €7m. The rest of the 37% increase came from new or expanded agreements.

While the Research Antibody segment contributed in 2004 only 4% to total Company revenues, in 2005 we saw the segment’s contribution increase to 13%, or €4.4m, mainly as a result of the Biogenesis acquisition.

As we reported earlier, the Biogenesis business is now fully integrated with MorphoSys and the basis for further growth and stability has been laid. On top of this organic revenue growth of the segment, meaning removing the effect of Biogenesis from our 2005 sales, which was roughly €3m sales, resulted in organic growth of the AbD unit of close to 90% which contributed €1.4m sales in 2005.

In summary, organic revenue growth for the total Company was 40%. That growth is roughly in line with our average growth rate over the last five years of 36%.

Measuring the foreign exchange effects in 2005, you can also see on the chart total Company sales measured in constant currency. We were, in fact, helped by the U.S. dollar’s sales on the top line by the gradual weakening of euro versus the U.S. dollar during the year. The positive impact to our top line was roughly €500,000.

Let's take a look at the geographic revenue split. If we take a look at where the sales geographically rose, 56% of MorphoSys’ commercial revenues were generated with biotech and pharma companies located in Europe and Asia, compared with 45% last year. The picture is almost a mirror opposite of this in North America, with 42% sales for 2005 and 55% in 2004. Looking at the two segments’ sales in isolations and how they geographically split, revenues geographically generally mirrors total Company numbers.

I've spoken now so far twice about performance based milestone payments but, given their significant contributions to top and bottom line in 2005, and looking ahead, it’s worth highlighting a few more points. First, I want to point out that performance based payments are becoming an ever larger part of our revenue streams. For the case in point, in 2004, performance based payments made up around 6% or €1.4m of our total revenues. In 2005 that number jumped to 21%, or approximately €7m. That was roughly double or about €3m more than we originally expected for the year. What that indicates is that our business model is maturing and, because of that, we are seeing more upside related to performance based milestones and success payments. Remember, every milestone payment to us is almost pure profit.

There is, however, a dark side to this which is the ability to predict the timing and probability of these payments. Success based payments are very much harder to predict, both from their timing as well as their probability, and that's one of the reasons why we ended up raising guidance three times this year.

Although we were very bullish about our prospects looking ahead, everyone needs to understand that success based payments are a volatile element of our revenue stream, having potential to significantly affect revenues, not only quarter-to-quarter but also year-to-year.

Let's move to operating expenses. Total operating expenses increased by 28% to €27.3m - an increase of about €6m. This increase in operating expenses of €6m was mainly due to higher personnel related costs in conjunction with new collaborations and it's increased in tangible expenses. The incorporation of the Biogenesis Group companies into Group accounts had the effect of increasing operating expenses by around €3.9m.

Moving on to [costs] -- cost of goods sold only arise in the Research Antibody segment and it is composed of costs of goods sold for the Antibodies by Design and Biogenesis accounts. For the year 2005 total costs rose to €2.5m compared to €0.9m in the year 2004, which resulted largely from about €1.5m inclusion of Biogenesis costs in the consolidated Group accounts.

Costs for R&D fall mainly in the Therapeutic Antibody segment. R&D costs increased by 18% to €13.6m. This increase resulted mainly from higher intangibles costs. Costs for intangibles rose due to the Lilly patents settlement, impairment of intangible assets in relation to the Biogenesis and Serotec transactions and increased payments to third party licensors in conjunction with higher revenue levels.

Sales, general and administrative expenses amounted to €10.1m, an increase of 35% compared to the previous year. This effect resulted from increased costs from our external services, mainly marketing expenses for both the Therapeutic and Research units and higher personnel costs mainly associated with the acquired sites of Biogenesis. Biogenesis total contribution to group sales SG&A expenses amounted to €1.6m for the year 2005.

Stock based compensation in the amount of €1.1m for the year 2005 was recorded as a non cash charge. The decrease in stock base compensation was mainly due to declining expenses from options granted in prior periods. Please note that most likely in the financial reporting for 2006 and onwards, we will from now embed stock based compensation expense into R&D and SG&A expenses and no longer show it as a separate line.

Profit from operations increased to €6.2m and was 10 times higher than 2004, again, heavily influenced by higher performance based payments. Non-operating expenses increased by €1.2m to €1.5m in 2005. Much of this relates to an adjustment done in the fourth quarter 2005, for foreign exchange losses on a commercial contract which was re-classified in a non-operating expenses in the amount of €800,000, and revenues were correspondingly grossed.

These foreign exchange losses relate to a commercial contract, where foreign exchange gains and losses are shared with that respective partner. In previous years such shared gains and losses were netted into revenues.

Tax expenses - our first even paid as a profitable Company - amounted to roughly €400,000, largely explaining the rest of the difference for 2005.

MorphoSys achieved a net profit of €4.7m - the result of diluted net income per share for the full year 2005, amounted to 83 cents per share, compared to an EPS of 5 cents per share in the previous year.

Before moving to the balance sheet I'd like to quickly review results by segment. As we mentioned previously, revenues in the Therapeutic Antibody segment increased organically by 37% to €29.1m, heavily influenced, as we've said a couple of times now, by higher levels of performance based payments. The resulting net income was a very strong €12m which, of course, excludes costs which have not been allocated.

The result in the Research Antibody segment was, however, not quite as pleasing. As you can see there was a loss of approximately €3m for the unit. However, I think the reasons for the loss warrant some explanation.

The most important goal for the Research Antibody unit is to achieve a marginal positive cash flow. In order to get a proxy for cash flow for the this unit, in the next chart we removed the amortization and impairment relating to an acquired intangibles of approximately €700,000, corporate allocations of approximately €1.2m which exists whether or not the Research Antibody segment exists or not, and non-cash items such as depreciation of approximately €400,000 and then subtracted CapEx of about €100,000. The resulting number is a reasonably good proxy for cash usage of the unit. As you can see once you remove these non-cash items, cash usage of the unit was closer to €1m - still certainly not where we'd like it to be but a bit more manageable.

That being said there were some positive highlights for the unit in 2005. Aside from the very rapid organic growth in revenues which was experienced, gross margins for the Research Antibody segments were much better in 2005 compared to the previous year, going from a negative amount in 2004 to a positive 43% in 2005. More improvement in this area expected in 2006, particularly, as we utilize more capacity in the unit in Munich.

Let’s moving quickly to the balance sheet. If you look at the balance sheet you can see that the Company's current assets increased by about €18m to €58.5m, mainly as a result of the capital increase successfully completed in March 2005. Looking at non-current assets you can see that these have gone up by approximately €6m, which is mainly the result of consolidating Biogenesis hard and soft assets into our balance sheet. As there were no significant other items on the assets side of the balance sheet was change, I'd like to move over quickly to liabilities.

During the year 2005 total liabilities decreased by €0.3m to approximately €16m. There were no significant changes in respect to liabilities. Stockholders’ equity however grew mainly as a result of 2005 profits, the capital increase in March 2005 and stock options in bond exercises by employees.

Looking at changes in share capital during the year, MorphoSys successfully placed the private placement of approximately 10% of its share capital in March 2005 at €35.5 per share. Another 97,000 shares were issued as a result of an employee convertible bond and option exercises.

In January 2006, in connection with the acquisition of Serotec, MorphoSys issued new shares. As part of the purchase price MorphoSys will issue approximately 208,000 new MorphoSys shares. [The capital increase was, in fact,] registered in the commercial register in February of 2006 and, thereafter, the total number of shares issued will approximately be 6.2m shares.

Moving quickly to shareholding structure, [impressively] our biggest shareholder is Novartis, who owns about 8%, followed by Schering and CAT each with approximately 6%. It might be worth mentioning that CAT sold about one third of the shares that it held during 2005 using a broker we arranged to put them in contact with.

The Free Float according to the definition of Deutsche [Burse] amounted to approximately 80%, and includes roughly 3% shareholding by management and the supervisory boards.

At the end of the year 2005 the MorphoSys Group employed 172 employees, compared to 132 at the year end 2004. Of the 172 employees, 123 worked in research and development and 49 in SG&A. Of the total employees 27 worked in the Biogenesis Group of whom 10 were engaged in R&D and 17 in SG&A. With the acquisition of the Serotec Group companies located in the U.K., Germany, Norway, France and the U.S., in January of this year MorphoSys Group presently employs a total number of employees of approximately 240 people.

As you may have seen, we've recently started an ADR Level one program in the U.S. ADRs are negotiable in U.S. certificates, evidencing ownership of shares for a non-U.S. company, which enable U.S. investors to more easily acquire and trade non-U.S. securities denominated in U.S. dollars. The purpose of the ADR one level program was to encourage, in particular, U.S. investors in the MorphoSys stock, and allow investors who have mandates to trade only in U.S. dollars or U.S. securities easier access to the MorphoSys stock.

I’d also note that MorphoSys has, through this listing, minimal listing costs and minimal reporting requirements to the SEC. Importantly, the Company is not subject to Sarbanes-Oxley.

Okay, let’s move to revenue guidance and overall guidance for 2006. Now before I start guidance, the first thing I want to stress is that our current business model is very much based on us being minimally break even, from a net income perspective. That being said, we don’t feel currently that, at the current Company stage of development, that we should pursue profits for profit sake but rather use our financial flexibility to invest for the future.

So that is a backdrop. We estimate revenues for the full year 2005 at €50m, which represents a 50% increase over the prior year. Without the effect of Serotec in our numbers, we would have seen organic growth of the units at approximately 10% over the prior year. The main part of the revenues will come out of the Therapeutic Antibodies segment, which we estimate at roughly €32m. Of this amount, we expect performance based payments to make up approximately €7m, or about 22% of the segment’s sales.

That level is similar to the actual level achieved in 2005, both in euro and percentage terms. Revenues of the Research Antibodies segment we estimate at roughly €18m, and this amount will include Antibodies by Design, Biogenesis and Serotec sales. Note that in 2006 and beyond we will no longer call the segment in our financial reporting the Research Antibody segment, but rather the AbD segment, in line with the re-branding that we do in 2006.

Moving to expenses, we expect -- we estimate total operating expenses for the Company as a whole at approximately €49m. I think it’s important to highlight a number of assumptions which have been put into that expense line for 2005.

First and foremost, included in our assumptions is more than €4m worth of investment expense in proprietary products and technology development, which was outlined earlier today. Beyond this is included estimations of re-structuring charges of roughly €500,000, relating to the acquisition of Serotec, as well estimations of amortizations related to acquired intangibles of around €2m.

Note that the acquired intangibles estimate is only a best estimate at this point, and may change pending the final purchase price accounting exercise, which we do for Serotec later this year.

Looking at guidance by segment, in the Therapeutic segment, we expect the unit to be profitable as last year. As it relates to the AbD segment, we expect to have a net loss of less than our loss in 2005 which, again, was €3m. In terms of capital expenditures, we expect a CapEx spend of €4m to be spent this year. Of that, approximately €1m relates to one-off, re-structuring efforts related to the acquisition of Serotec. The rest mainly relates to technology development efforts on the Therapeutic side of our business.

The last point I’d like to make on guidance is the volatility of our quarterly numbers in 2006. As I said from the onset, higher levels of performance based payments will also involve higher levels of variability between quarters. Please, do not let the performance of any one quarter overly influence your thoughts relating to the full year.

In closing, I’d like to say we've had an excellent year, both financially and operationally speaking. Based on this performance, we intend to use our cash flow from operations to further invest in growth opportunities for the Company. We believe, by investing in the proprietary development of our own compounds, and maintaining our technological leadership, we can offer our shareholders an increased return on investment.

That concludes the financial analysis for 2005 and guidance for 2006. And I’d now like to hand back over to Simon [for the goals 2006].

Thank you Dave. To bring the presentation to a close, I’ll present our Company’s goals for this year. These are, on the Therapeutic side of the business as Dave has stated, we aim to reach revenues of at least €32m. We anticipate additional deals so that we will increase our market share amongst leading pharma companies. We aim to increase the number of active partnered therapeutic antibody programs, by at least a quarter to 36 by year end.

Finally, on the Therapeutic side of the business, we intend to advance MOR103 according to our plan, so that it will be on track to reach clinical trials in the second half of next year.

On the Research Antibody side of the business, our main focus will be on consolidating the new division. The goals are, therefore, again as Dave has stated, revenues of at least €18m. We aim to complete the integration of Serotec into the unit and to establish our new brand in the market, AbD. Finally, across the Company as a whole we will remain profitable overall on revenues of €50m, as Dave has stated - almost 50% up on last year.

Before opening the Q&A session, I’d like to remind you of the main point to take away, and that is that MorphoSys had a very successful 2005, in which we strengthened our two main business units significantly. Our economic strength today enables us to invest in selected new areas, such as our proprietary product MOR103, to take advantage of growth opportunities in the future.

That concludes the presentation.

I would like to open now the floor for your questions. If you don’t mind, we would start with questions from people listening in by conference call. May I ask the operator if there are any questions?

Thank you. [OPERATOR INSTRUCTIONS]. We will pause for just a moment to allow everyone to signal for questions.

Okay, if there are so far no questions, I think we go back here to the audience, and I think there was a first question over here.

At the beginning of the presentation you mentioned that your market share increased during the last year. What is your market is my question? You only look to antibody developing companies but, if you think about your market, you should look to all companies who have developed tools to develop new products. I think of [Evotech], [Basilea] and so on.

They are concentrated on some special segments but you mentioned Alzheimer, and [Evotech] also is looking to develop something. So the market is not really exactly defined, and the question is if you really increase your market share?

Maybe I can take that one. Obviously, the market for methods and product candidates in the pharmaceutical industry is enormous, and highly segmented. You mentioned Alzheimer’s disease. There are, obviously, a number of different approaches to tackling Alzheimer’s disease. The most useful way for us to look at our market, and segment our market, is to look at the antibodies segment.

There we have a very clear picture of the market, of our competition, and of the customers for our products and technologies. And because that’s the most meaningful way, because that’s the area that we play in, that’s how we do our analysis. And if you confine yourself to that segment, which is a significant segment, we have become over the last year, or during the last year, -- we did more deals than any of our competitors.

And on that basis, we can accurately state that our technology is becoming the method of choice amongst the pharma industry, for developers of therapeutic antibodies. Of course, that’s not to say that there are not other approaches to Alzheimer’s disease or, in fact, any disease.

Can I maybe, first of all congratulations to the excellent result of the Therapeutic business unit, and I'm terribly sorry that I have to ask you some questions on the other business unit which is somewhat lagging behind. Maybe first of all you can give us the revenues of the Biogenesis entities, and maybe compare 2005 to 2004? And it would be quite helpful to have the, if it’s still possible, the revenues of Biogenesis on a quarterly basis in 2005 so to see if a trend is there, if one?

Then maybe some more remarks on the EBIT of minus €3m in this business unit, which is pretty far away from the original guidance of a break even. What are the reasons behind that, and in this context, maybe even an explanation? I think the gross margin of the business unit was around 43%, and when we discussed this issue 12 months ago, I think a figure like 60% was mentioned. So what's the explanation for that pretty huge difference?

And then maybe lastly, on this business unit, or maybe on the guidance of this business unit. What I do not really understand is, I think when you acquired Biogenesis, it was a profitable entity and same is true for Serotec. So, in fact, you're combining somehow two profitable entities, and we end up with a guidance which calls for a loss of something like €2m this year. Maybe some more explanation there as well? But again, Therapeutics was wonderful.

Okay. There a number of financial elements to the question, so I’ll address those first. Maybe the first point I’d like to address is margins. So we believe that the margins for Biogenesis are close to 60% as we said. What's dragged those margins down is the performance of the production unit, Antibodies by Design, in Munich.

And that business, as we've always said, is very much like a movie theater or a theater business and there needs to be a certain critical mass which runs through that unit, so that that unit is profitable. You noticed in 2004 the numbers that we’d showed, we had negative gross profitability for that unit which was the Antibodies by Design in Munich alone.

Now that negative result continued into 2005, which served to drag the entire unit’s overall gross margin, including Biogenesis, down. So without the Antibodies by Design unit, the margins would have been at least in the mid to high 50s. So I think that explains the margin question.

You asked another question, what was the performance of AbD and Biogenesis in 2005? Unfortunately, when we purchased Biogenesis in 2005, the numbers that they had previously were neither IFRS nor inter-company clean. And we've never taken the opportunity to fully clean them out in an audited fashion, so anything I would say now is on un-audited numbers for 2004. But we can say roughly that the growth in the Biogenesis unit between 2004 and 2005 was about somewhere 10% to 12%.

The actual numbers for 2005 - Biogenesis brought in roughly €3.2m and AbD roughly brought in €1.3m. The AbD performance represents growth of 90%, -- or roughly 90% over the previous year. The numbers by quarter, I don’t have them here with me or for Biogenesis. I think it’s fair to say, however, I know that the first quarter of Biogenesis’ numbers were quite weak. That had a lot today with the integration, the purchasing of the company, and in the second half of the year the performance was substantially better than the first half.

But we can provide that to you perhaps at a later point. It was definitely an upward trend. The second half of the year was no question better than the first half of the year, and a lot of that had to do with the fact that this was a small company. They had never been under any of the financial reporting requirements that a public company is. All the things related to the acquisition, the integration, that took time away from their efforts.

But, all-in-all, the growth was more or less where we expected it to be. The performance of Biogenesis was more or less where we expected it to be.

Now maybe going to back to your final point, which is why are we showing a loss in units which are, in fact, profitable? The Biogenesis unit, as we tried to show in chart 42, actually is more or less cash positive. There are, however, a number of things you have to consider when taking a look at comparing cash profitability versus financial profitability.

One of those things, for example, is amortization related to acquired intangibles, and the same thing with Serotec. Those are things that you have to subtract out to get the cash profitability versus financial profitability. We also had some impairment on the Biogenesis business, and that related to acquiring Serotec. Namely Serotec -- the acquisition of Serotec was a triggering effect for some impairment in Biogenesis, and the reason is that there is some overlap between the two businesses.

And because of that we've decided to concentrate more on the Serotec aspects of the business as opposed to the Biogenesis and, hence, there was some impairment on it. So I think that the year 2005 also included, roughly, €500,000 of special impairment. So I think 2005, again, was not a very pretty year but there are reasons to expect changes and improvement in 2006.

[Inaudible].

I think the guidance that we gave this morning was simply that the loss, should there be one, will be less than what we had last year of €3m. We’re somewhat reluctant to give an exact number at this point because, although we have estimates for things like re-structuring charges, and although we have estimates for amortization of acquired intangibles. Those won't become concrete until a little bit later in the year. It’s too late, 30 or 45 days into the acquisition, to give you an exact number at this point.

But we can definitely - definitively say that we expect a loss of less than last year’s loss of €3m for the unit.

Daniel Wendorff of WestLB. I have a question, well a group of questions regarding MOR103. And did it I got that right, that you plan to out-license this program after you have success -- will have probably successfully conducted Phase two trials? And when will that be actually be, and what level of investment would probably be needed to compare to your strategy before?

And there is also a question related to that which I have. If I look at your segment results, I would end up with an operating profit of around €9m and you reported €6.2m. So is the difference related to your Proprietary programs?

And one question also regarding your Research Antibodies Division. I think you said in the last conference call, that you wouldn’t be sure whether you could use your own tax loss carried forwards, for the profits generated by the Serotec Group. Could you give us an update there? Thank you.

Okay, Daniel. I’ll speak to the question about the strategy for MOR103, and then Dave will handle the financial questions. Our strategy for MOR103 is to intend to take it to proof of concept in man, and that is, essentially, at least Phase one/two data where we see that the compound actually works in its proposed indication. At what stage we choose to part with the compound is not yet decided. We will -- As I said, we have a concrete plan to take it to that stage.

The costs, the expenses, for that doing are in our financial projections for the next three years, and we will take a view, as it moves forward, about when and if we’ll partner it. And that decision will be based on our ability to continue financing the development, how promising the compound looks, whether we’re getting traction and interest from potential partners for the compound. So at this stage no decision has been made on that.

But I think the clear message that we want to give you today, is that we’re in a strong enough position to take this compound significantly further forward than we had planned to do in the past with any of our compounds. And in doing that, and this is well known in the industry, essentially, the further on you can take a compound, the more value you can generate in it. But the specific decisions about when to partner it, we've not yet taken.

And the timing?

As I said, our goal is to take it into the clinic in the second half of next year. We anticipate that we could have proof of concept data in man by the end of 2008, if all goes well.

And there were some questions regarding results. If you take a look at the segment reporting, you'll see the results by segment for costs which we can clearly and logically allocate to the segments. There are roughly €2.9m worth of costs in our infrastructure which have no logical allocation basis, for example, the amortization of the HuCAL patent or, for example, the cost of the public relation department. There are no logical bases for allocating those to the segments. So that’s the difference that you're looking for in your result.

With regard to the question, tax NOLs. We do have in excess of €20m usable tax net operating losses which we can use. One of the reasons why we pay taxes this year is because of the minimum taxation law, whereby we pay a certain amount of tax beyond the threshold, the €1m.

To the question can, our subsidiaries profit from these NOLs from their tax position? And the answer is yes, but only in a very limited way. Namely, for their local profits they cannot set off our losses. However, there are certain transfer price arrangements in place and things like inter-company loans, which transfer some of the profit back to headquarters. And that profit, of course, is then set off versus the Munich or the MorphoSys AG tax loss, that carry forwards.

So in principle the subsidiaries don’t use it, but through transfer price tax mechanisms, inter-company loans and expense and so forth, we transfer some of that profit back to us in Munich, where it is applied.

Have [you] the investment level needed from MOR103? Do you have any rough guidance you could probably give us?

Is that -- Dave, is that a number that we are able to communicate at this point or choose to communicate?

I think we decided that we’d chosen not to communicate it but simply lump it into one number, which is product and technology development, equal to €4m this year. Perhaps during the year we might be able to give you a little bit more guidance, but for now we've decided to just leave that number open.

Okay, I had to ask any way. Thanks.

I also have a question regarding MOR103 and the products that you basically gave up. First of all, you mentioned the term -- for 101 and 102 the terms of these did not meet your expectations. Isn’t that a little bit optimistic, basically, now you’re giving it up and maybe writing value off? That’s the question to you, if you have any write-offs regarding 101 and 102?

And the second question is, if you compare -- you mentioned focus and accelerate and if you -- I don’t want to have detailed figures but does this focus and accelerate mean, basically, that you maintain the costs that you have for internal track development, giving 101 and 102 up and focusing on 103 and 202? Does it mean an acceleration of the cost? So, basically, is it on a similar than compared to 2005?

I think it’s fair to say that the level of investment increases, certainly in this year and foreseeably in years to come, of course, as the compounds move forward. I think we've come to the conclusion, to speak to this term, accelerate and focus, that by pumping more money into a single, or perhaps two programs, will be more successful for us than spreading that investment over three or four programs, as we have in the past. I think that’s clear.

And I think what's undisputed in this industry is that the more data you have and the better the quality of that data, then the more value you have. That’s -- I think that’s a given. And we feel after careful, very careful evaluation and consideration, that our best bet is to pump that investment into -- and to pump that focus into MOR103.

Then I have a question on just if you -- the write-down.

No write-down because those expenses have been continually expensed as research and development costs over the last several years. So there's nothing. There is no asset that we ever created.

And then on maybe pre-clinical proof, [inaudible] actually decided really to focus on that. Which disease models have you been running with 103 and rheumatoid arthritis?

Maybe this is an opportunity to say something else about our communication around the programs. We feel that, perhaps, in the past we haven’t been well served by being as open as we have about the status of experimentation and ongoing investigations. And we feel that, in this case, we’d really like to work as quietly and as much away from the public spotlight, if you like, as we possibly can so as not to awaken false expectations.

Our intention is to work as hard as we can and as fast as we can in private, so to speak, to be able to get this thing into the clinic by the second half of next year. And we don’t think our interests are best served about talking about what -- precisely what pre-clinical or what animal experiments we’re going to do at what stage or -- and what the data may look like.

But some -- It’s a practice that’s commonly followed in the pharmaceutical industry, and there's a good reason why pharma companies do that. That is to maintain the confidentiality of what they're doing and, secondly, so as not to awaken false expectations, both in the market and amongst potential patients for the treatment.

And so for those two reasons we’re choosing to do the same which is not talk about week by week or month by month progress in this program, but simply to tell you when the compound’s ready to go in the clinic.

Thank you.

And I have a follow-up question on the Research Antibody division. How do you see yourself positioned in the market there, in terms of globally positioning, or just in Europe? And do you plan any further acquisitions in that area to further expand that market share? Thanks.

We’re certainly internationally positioned. For example, if you look at Serotec, approximately 50% of their revenues come from the U.S. So in other words, their revenue split already reflects the approximate revenue split that you see in the total market. The U.S. is about 50% of that total market. So we have now, through the Serotec acquisition, a significant sales office in North Carolina in the U.S. and we have a significant presence there.

Worldwide - it’s rather difficult to estimate where we stand in a ranking worldwide, because a lot of these companies are private, and so it’s very, very difficult to get any idea of their sales levels. Our estimate says that we’re certainly in the top 20 worldwide, and potentially maybe in the top 15, although, as I say, that’s very, very hard to estimate.

For antibodies for the custom HuCAL based service, we have customers all over the globe and always have done actually. The U.S., Europe, Japan, South Africa, Australia, New Zealand - that is a very international business. Serotec is clearly a very well established international business. Biogenesis was to a lesser extent. So we’re definitely a global player, no question.

Just maybe one thing to add to that. I think the other difficulty of getting exact information on the rankings is that, as you go further and further up the chart, these companies become less and less pure players. But rather mixtures of different types of businesses together. That’s the other difficulty that you have with an exact ranking.

You mentioned during the presentation that your stock is not earnings per share play, but we should keep in mind that the total stock market is somewhat earnings per share play. And if we see the forecast of your figures for the current year, the earnings should be -- the net earnings should be €1m even if we adjust by re-structuring and depreciation costs, it would be €3.5m against the last year of €4m.

And if you look to your valuation which is rather demanding, I see the danger that your stock will be very volatile in the near future at least. And somewhat could be interesting that your costs are even stronger expanding than your sales. So I don’t believe this stock is really the investment for a conservative investor. How would you see it?

Okay [Mick] maybe I can just respond very quickly to the numbers. I think there's one essential calculation, which you didn't make in your calculation that you need to make to compare apples to apples. Mainly the difference which we try to show and highlight today, was that we're investing much more than we have previously into the long term and mid term growth of our Company. And what you also have to do to compare 2005 with 2006 is to add on, or rather subtract from 2006 the €4m worth of investment in proprietary products and technology development. And if you add those back to your €3.5m number you come to €7.5m profit. There I think you'll be comparing little bit more apples with apples.

As to the question, are we an interesting investment for a conservative investor? As a biotech investment, I think definitely yes. Can you name me another company out there which has products in the clinic with its partners, that has that upside that has almost 30 ongoing projects with pharmaceutical partners, that is profitable, has been profitable for the last couple of years and that is now able to put a product in the clinic? I can't name one. So my biased opinion is yes, I think it is an attractive investment.

I want to ask -- yes, it was a follow up on the MOR103. I know that you don't want to disclose your target that's pretty clear, but as you said, I try to quote, you want to create something as an alternative anti TNF therapies. Can we take this that your target is not TNF related?

I don't want to get into a guessing game about what the target may or may not be. We don't want to disclose the target, let's just leave it at that. I think guessing games at this stage is -- don’t serve anyone particular well.

But [it’s a key] alternative to the anti TNF therapies that are out there?

We feel, and this is the reason we made the decision, this is a competitive [state] there's no question. There's very few successful drugs on the market in the Anti TNFs. There are new biological therapies in Arenthia, which has just come to market. [Retaxan] will probably reach the market for rheumatoid arthritis and existing non-Hodgkin's Lymphoma drug. There's no question there's competition out there. We wouldn't have chosen to pursue this product is we'd not felt that we have differentiation from what's out there, that we have something distinct, and that we believe has certain advantages over current biological treatments either on the market or in development.

Yes. And maybe just a brief follow up on the tax loss carry forwards. I think this is a pretty difficult issue, so maybe you can help us with a rough guidance of your tax rate for the next one to three years, something like that?

Okay. For the profits that we generate in the U.K. we -- off the top of my head the tax rates are just under, or just over 30%. I think the blended tax rate here in Germany, if I'm not mistaken, is about 36%. And in the U.S. they're just under 30% if I'm not mistaken.

The actual taxes that we end up paying, or the tax expense that we end up showing is dependent on two things. Obviously number one, the profit that we generate over the next couple of years, which will be highly dependant upon how much we invest, either in this project here, but also future projects which we may of may not decide to start. So to tell you we project a tax expense of ‘x’ next year and tax expense of ‘y’ in the following is not realistic, because, obviously, one of the things we take a look at is the progress on MOR103. Debating whether or not we decide to invest more or less on that will the affect our profit rate for the following years.

That being said we do intend to be profitable. It is our intention, as we said, to run a business, which is predicated on at least cash profitability if not financial profitability although, again, that's not the main focus of the Company. The main focus of the Company is to remain independent to capital markets, to run a business that's expanding rapidly.

As we've said before this business has generated average sales increases over the last five years of 36%. We are profitable for a couple of years but, again, we are not today EPS driven story. We'll continue to invest our profits in things that make the Company grow in the mid to medium term. And mainly today we see that as program MOR103. That may extend to further programs in the future but we can't say today and, hence, I can't tell you how much tax we intend to pay year.

[inaudible] I'm [Thomas Schiessle]. May I have ask some questions concerning the partnering programs? You indicated that this year there will be an increase to approximately 36 programs in total. Could you give us a little bit more detail on that, especially concerning the timeline? So shall we anticipate that this [discretionary] increase of the numbers of partnerships or will there be some jumps within the year? And from which [side] of your partner companies will most of these programs come from? Thank you.

Thomas, one of the greatest frustrations that I have to deal with is not being able to talk about our partnered programs. Amongst those 29 that are currently going on are some really, really exciting programs. And you're only seeing the tip of the iceberg with the Alzheimer's story and the GPC story. So there are 27 other programs amongst which are some very exciting programs.

When we signed our deal with Novartis, one of the requirements that we had to accept was that we don't talk about the indications that are being worked on, or even the number of programs in that collaboration. So, unfortunately, although we have an estimate of what programs will come from which companies during the course of the year, roughly at what times, I'm not at liberty to say which companies they'll be or when those programs might start. But we're pretty confident, which is why we've communicated that today, that the number of total programs active by year end will increase by a quarter over the current level of 29 to about 36.

[What has given you the] confidence of the increase? Is this [progress] of programs within your partner companies or is this, let's say, some type of contract that they signed with you and so they are obliged to move ahead or move forward so you are confident to talk with the public with this number of 36.

It's a mixture, and just to give you one example, we communicated regarding Bayer, that Bayer has committed to starting three programs during the course of this year. Okay, so it's a mixture of some time contractual obligations by the partner to start a certain number of programs and, in the case of existing partners, we have some communication in certain cases that they intend, even though they may not be obliged to, but they intend to start a certain number of new programs. Add all that stuff up together and you get to about a total the 36 by year end.

Will there be some -- add on question. Will there by some partner programs entering the clinicals within this year?

As I mentioned during the presentation, we continue to have visibility on several which may enter the clinic. But what we're not going to do, and we got burned a little bit by this in the past, is communicate when that will be. Because -- and it's important to emphasize this, that these things were absolutely in the hands of the partner. We have no influence at all over when they may decide to take a compound forward or not. And, therefore, we'd prefer not to stick our necks out and say a particular compound might enter the clinic at a particular time because the decision is out of our hands quite simply.

To put the question another way round, those potential projects entering the clinical phase are not within the guidance of sales for the current year, or is there any percentage of those revenues within the sales guidance?

I think it's fair to say that the financial guidance that we've given today for this year does not necessarily assume any additional clinical milestones beyond the Roche milestone for this year.

Thank you very much.

I have a similar question in which I didn't get the [CapEx] for the year for this -- the Company.

€4m.

€4m.

-- of which €1m is Serotec acquisition related. There will be some investments inside in Serotec where we're taking a look at how we manage the overlapping sites out there and there will be some invest there we expect.

And then for the investment in technology and proprietary products can you give a split, which part goes with some kind of technology and if this part what is it? Is it different display technology or something like that? And which part really relates to technology and which one to proprietary product development in the direction of 103?

And the last question is you -- as you do not exclude acquisitions in the area of AbD, do you have any costs relating to that included in your guidance, in your cost guidance?

Maybe I'll handle some financial parts related to that and Simon will handle the second part of the question.

There is minimal costs associated with the possible thinking or actual implementing of an acquisition. In 2006, we have not committed to an acquisition in 2006, albeit we don't rule it out. We can definitively say that that amount of money, it's certainly less that €1m in our budget.

The amount of split between technology development and product development I'm afraid is a question I think was asked a bit earlier which for now, today, we declined to answer However, we may during the year release a little bit more information around that. But today we'd like to decline on that.

We see there -- just to follow up on that point, we see that as, actually, somewhat competitive information and we don't want our competitors to know how much we're investing for the technology development and, of course, product development so we regard it as -- we’re more than happy to give a total R&D spend but we don't want to break that down.

We haven't -- the issue of technology development hasn't come up really at all today here. But we should all recognize that we are where we are, at very strong position, because we have technological leadership in this space. And, of course, technology doesn't stand still, and we recognize that if we’re going to stay technologically leading, we need to invest in it and we're committed to doing that. And there is, obviously, an element of the expenditure that's targeted towards that.

And is it more in the direction of expanding the antibodies space or are you thinking of also about alternative [small put] in development?

No. We have a very specific plan and that involves antibodies. We have no plans to move outside of the molecular type antibodies.

Hans Frohnnmeyer , LBW. I have two short questions. If you see from your perspective from today, do you see that the AbD segment will be profitable next year after excluding -- after all these one-time items from the acquisition?

And the second is, in addition to Thomas Schiessle question. So you can guide us quite pretty clear that you have 36 programs at the end of -- and active at the end of 2006, and probably 10 to 12 pre-clinical programs running. So how high do you see the chance that there will be more phase one programs coming up, except or beside the Roche deal? To me, at least, it looks like there must be something else in during the course of 2006? Thank you.

So maybe again we'll split the answer to that question. As I answered to Thomas Schiessle before, we haven’t assumed any additional clinical milestone payments, beyond the Roche one, which has already taken place for this year. We have visibility, the programs are moving forward, but we don't intend to assume that they may enter the clinic in the course of year and, therefore, we haven't assumed any payment for them. But I have no doubt in my mind that additional molecules will enter the clinic I just don't know precisely when, that's the issue.

And so rather than creating false expectations we'd rather just leave that open and then, as we get closer to the time it's -- our partner has informed us, okay we're now set to [pilot R&D] or move into the clinic, then we’ll communicate it.

Okay. Regarding the question of the AbD unit’s performance, I think what we said in the guidance part that last year’s loss was €3m, financial loss was €3m. And we also mentioned included in our assumptions for 2006 was an estimation only of the amortization related to acquired intangibles of roughly €2m. So from that you can divine that the financial loss, has to be one -- we aim to get a financial loss of less €1m for the year aside from those kind of extraordinary items.

But I'm really unhappy the members of the financial community focus on, not so much on the financial result, which is strongly influenced by as I said acquired intangibles, amortization and corporate allocations, which are things which are not really true indicators of the performance of the year. I think the true performer indication of the unit is the cash generation of the unit. And we will become much more transparent in our financial reporting for 2006 so that's clearly shown to the financial community what the cash generation, the marginal cash generation of the unit is.

[inaudible] my question is also going in the same direction. So did I get that right during the presentation that you want to be cash generating in the Research Antibody Division in 2006, even just marginally?

I'm afraid I didn't say that. I said that that's the goal that we would strive but that's -- we didn't give cash guidance this morning. Perhaps, during the course of the year, as the re-structuring goes further on we'll be able to do that.

I think one of the things that needs to be appreciated is that we've just acquired a company that has not insignificant overlap with another company we've acquired. That has major impacts on what kind of amortization we do, possible impairment and restructuring even within Munich all of which things could influence for example allocations from the headquarters.

So today we're not -- we're in a position to give you a broad picture that the loss, the financial loss we know will be or we hope, or we aim to be less than €3m, which includes a not insubstantial part of acquired intangibles amortization of €2m. Beyond that I ask the indulgence of the financial community that, perhaps, we’ll give you a little bit more transparency on the cash generativeness of unit throughout the year. I would say that it is a goal for us - whether we achieve it or not this year depends very much on how the re-structuring goes.

And maybe also relating to Mr. Frohnnmeyer’s question regarding financial profitability for, well, beyond 2006? Is that likely, not likely? I mean you don't have to give your guidance now ,I understand that, but in terms of the development [company].

I think in broad terms it's fair to say that it is a goal for the Company to run at least cash break even from now on out. And from that perspective, if that includes a financial gain, great. And let's -- but again I prefer not to go into any kind of detailed guidance for 2007. I think that we should focus on this year.

Maybe I'll try it the other way round. Could you provide to us a little more detail on your re-structuring program about AbD. So first with your Munich unit, how far is re-structuring going forward and when will, on this planed schedule, you will be -- the profitability, the break even be reached and on which parameters? So do you need a little bit more on -- heavily more sales to reach, or is it another structural problem on the Munich unit on AbD?

And the other question is regarding the integration of Serotec. How for is this process being conducted and what are the steps which are on -- what are the future steps to be taken? Thank you.

What I would like to focus on as we look at this side of the business, I think Dave has talked extensively about the financial performance and so on, but what we're most focused on doing is two things. One is ensuring the continuity of the existing business so ensuring that, during the integration process, we don't loss sales, either on the custom antibodies, HuCAL antibodies side or from Biogenesis or from Serotec.

But we're also looking, and this is the key and we should all keep this in mind, the key reasons, strategic reasons behind this business is to be ramping up HuCAL antibody sales. And as we mentioned the growth in that HuCAL custom segment was 90% - 90% - and that's what I'm most concerned about as we go forward.

If we can continue to grow that HuCAL research business at rate even half of that 90% that we achieved last year, then we'll be doing well. And the purpose behind the Biogenesis and Serotec acquisitions was to establish a platform where we can much better sell and -- into that market. So the greatest amount of integration that's going on is actually of the Biogenesis and Serotec units, which are, as Dave has mentioned, quite similar. They're very similar businesses. Serotec was about three to four times bigger the Biogenesis in terms of its sales. They're also similar in the fact that they both have U.K. locations, they both have U.S. locations. So those are, of course, the things that we're looking at extremely closely at the moment.

From an operational point of view what makes sense for us in the U.S. and the U.K. and with respect to the other sales organizations. And how do we use those established players in the research antibody market to generate more sales and more turnover for our HuCAL business? That's the focus of the activities at the moment.

We will give you information on the progress of the integration as time goes on. But so far we're only six weeks into the transaction, so it's early days. I would anticipate that within a couple of months we'll be able to give you a much clearer picture of what the final organizational structure will look like then.

Just maybe another one with regards to your proprietary drug development program. What is exactly the difference of the situation now as of today, compared with 2002 when you first tried to set up the [this] proprietary drug development, beside the fact that you're better funded, that's pretty clear?

And what other steps will you make? Which mistakes should you try to avoid looking at?

Okay. First of all we're not going to acknowledge that mistakes were made. But let me just say that we're on a different planet compared to the situation back then. We have a profitable business. We have a strongly cash flow generative business. We don't intend to build a big infrastructure internally to do this. We believe that with a small team internally, working closely with external contract research organizations and consultants, we can minimize the spend on the program but, nevertheless, move it forward extremely fast.

So, perhaps, if you look back to 2001, 2002 we took perhaps a more formalistic approach to development, something maybe that a little bit large pharma company would do, which is to hire a team to do it in a much more formal way. We're looking now to do it more -- faster, more flexibly, and with a lower overall spend. And, most importantly of all, we're in a much, much stronger position to be able to do that today.

One point we haven't touched on, which is very significant is, we've learned an enormous amount from the partnerships that we have with the Novartis's, the Pfizers, the Bayers, the Roches, the Scherings and so on and so forth over the last three or four years about antibody drug development. And if you look at the risk profile, that's also gone down significantly because, thanks to GPC and Roche and now maybe one or two others, we've seen how to take HuCAL antibodies through the pre clinical development process and into the clinic.

So I think the situation today is not to be compared at all with the situation four of five years ago. We learned an enormous amount, we're much stronger and, therefore, I believe we're much more able to execute this time around.

So, in the end we will not see ramp up of your head count as we saw back in 2001, 2002?

No, as I said we have a small team in-house we're talking about ]four to six] people and their job is, first and foremost, organization, co-ordination, management of the resources necessary to get these programs moved forward. Of course we never intended to manufacture the compound ourselves anyway. That will inevitably [be done with] a third party. We have never intended to establish animal facilities. That will be done with a third party. So those are all things which can be effectively outsourced. What you need in-house is a competent and focused team to manage that process.

You are thinking about a filing of an [IND] next year, and do you intend set up at least a small unit for, let's say, contact with the authorities, regulatory affairs, something like that?

Regulatory is, of course, a key part of this whole process, and we will have the competence in-house to be able to liaise with the regulatory authorities, both here in Europe, and also in the U.S., to be able to ensure that the filing is of the necessary quality.

And these guys will be hired over the next couple of --

The necessary competence will be established in-house in order to interact with the full range of people and institutions that we'll work with externally.

Okay, thank you.

Follow on to this question. The MOR202 program, if I remember it rightly, it was CD38 [up] to target. Do you have any patents now done with respect to this program and how focused -- because we now all talk about this more [inaudible] the more focused you are on the MOR202 program?

So first of all we have patent applications on the mode of action of the antibodies. So it seems as though the specificity that our antibodies have something to do with the mode of action. So the antibodies that we have are able to kill CD38 bearing cells. And it seems to be linked to where exactly on CD38 they bind and we have pending patent applications on that process.

Whenever we look at a program we look at our ability to generate intellectual property around that program, and we see the same kind of thing in the case of MOR103. That we have antibodies that seem to show their effectiveness through certain special properties of the antibodies and, again, intellectual property can be created around that. But there always needs to be something that you can project in a program in order to go ahead. And again we have that in MOR103, as in MOR202.

And the focus on MOR202 with respect to your development power. How focused is it in comparison to MOR103?

Less resources will be dedicated to that but we've identified certain key experiments, which I'm not going to go into what they are. But in talking to potential partners, we recognize that the package we had had a couple of things missing and, therefore, we've identified what experiments need to be done and we will dedicate resource internally to do those experiments and generate that data package.

By year end we'll be in a position to say, okay, how strong is the package, shall we now continue without licensing it, or should we have another think about perhaps doing additional work on it ourselves, taking it further forward ourselves? But there are certainly some key experiments that still need to be done there. We're doing that, we're spending the money in contrast to MOR101 and MOR102 because we do see interest and we do see potential in MOR202. So we're not giving up on MOR202.

Are there further questions [inaudible].

On the partnering programs once again. You mentioned in your speech that you have been very pleased with the collaboration with GeneFrontier in Japan. And I wonder what might be the outcome for the -- for this year and the future? Is there something interesting in the pipeline concerning Japanese market you are able to disclose?

Yes, first of all let me say that we can do business development in Europe and the U.S. on our own. We have a great business development team, we don't need external help.

Japan is a different situation. It's very difficult for us, as a German Company, to do business in Japan without someone helping us there and that's GeneFrontier function - to help make contact, to cultivate those contacts and to help us in discussions and negotiations with those contacts. We've been told that penetrating the Japanese market, the hardest thing is the first deal. There is no Japanese company likes to be the first one to sign a deal with a new company.

But that once you've got your foot in the door, so to speak, subsequent deals are easier we're told. We see a large un-met potential in Japan. We see a lot of interest. We're there often and talking to many companies and we hope, and I believe, that we will do additional deals with Japanese pharma.

It looks like there are no more questions. I’ve heard from the operator that there are no further questions from the conference call. So I would like to use opportunity to thank you again for coming today to our conference. We will -- I would like to invite you here to have a little lunch outside so those able to stay a little bit with us to go into further discussions with us we're happy to, if you’re staying here. Thanks for coming, thanks for listening in and have a good day. Goodbye.