MorphoSys AG (MOR) 2009 Q4 法說會逐字稿

Ladies and gentlemen, welcome to MorphoSys' Yearend 2009 Results Conference. (Operator instructions).

Now, I would like to turn the conference over to doctor Claudia Gutjahr-Loser. Please go ahead, madam. Thank you.

Okay. (Technical difficulties) yearend 2009 results conference. My name is Claudia Gutjahr-Loser. I'm Head of Corporate Communications and Investor Relations at MorphoSys.

First of all, I would like to thank you for your participation today. I would like also to thank the people who are listening in by conference call. For those who are listening by conference call, you can find the slide deck we present today on the Company's Website.

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

Let me give you a short overview of what you can expect today from us. We have planned approximately one hour for our presentation. We will start with our general revenue of 2009, followed by a comprehensive revenue and outlook for the three business segments - Partnered Discovery, Proprietary Development, and AbD Serotec. Finally, before-- will give you overview of the financial results of 2009. (Inaudible). And we will present also the guidance for 2010. Before we start the question and answer session, Simon will present you an outlook for 2010 and beyond. At the end of our presentation, we'll take questions from the audience here and also from the conference call. And I will then moderate the Q&A session.

Before we start, actually, with the presentation, let me shortly introduce my colleagues today - first of all, Dr. Simon Moroney, our CEO; Dave Lemus, our Chief Financial Officer; Dr. Arndt Schottelius, our Chief Development Officer.

And then we have two new faces here with us. First, I'll start with Dr. Lisa Rojkjaer, sitting here on the first line-- the first row. She joined MorphoSys as Head of Clinical Development. And I have to read now a little bit from her history. She joined us last August from Novartis Pharma, where she most recently held the position of Head of Medical Affairs for Hematology in Europe. She was responsible for all clinical activities in Europe for Novaritis' hematology portfolio. Prior to her tenure at Novartis, she spent five years with Novo Nordisk in Copenhagen, Denmark, and Princeton, USA. Lisa is a board-certified hematologist who received her M.D. degree from the University of Toronto. Lisa is also available to take questions after the presentation.

And, last but not least, let me introduce Dieter Feger, sitting over here on the stage. Dieter joined MorphoSys in early 2009 as Head of AbD Serotec. Dieter came to us from Abbott Diagnostics in the US. For the last four years, he held the position of Marketing Director for Global Marketing. Most recently, it was his responsibility for infectious diseases, Abbott Diagnostics' biggest reagent franchise. Prior to that, he spent 18 years with Abbott in Europe in a variety of roles, including sales, product management, operational management, and marketing. He will present today the AbD Serotec segment.

With that, I would like now to hand over to Simon, who will start with the general overview.

Thank you, Claudia. And also from me a warm welcome to our yearend 2009 results conference, especially to those of you here in the room here in Frankfurt. We really appreciate your interest.

The year 2009 was one of real achievement for MorphoSys. We're now stronger than ever, and I believe we have everything we need to accelerate our growth in the years ahead. In 2009, we've made more progress than ever before and a vital transition for the Company from technology provider to a company focused on both the discovery and the development of innovative drugs. Technology remains important for us, but, increasingly, it's the products that we've made using that technology that are the center of attention.

As you'll see in the presentation, MorphoSys enters 2010 as a well-positioned and mature company built on a sustainable business model with a very deep and attractive drug pipeline, a strong internal team, a thriving AbD segment, and an extremely solid financial foundation. It's an excellent basis for our future.

Operationally, 2009 was a very strong year, as can be seen from the roster of goals achieved. We'll look at some of these in more detail shortly, but I'd like to pick out just a few of the highlights now.

The Partnered Discovery segment continues to grow at an impressive rate, bringing us the majority of our revenues and profits today with the promise of a substantial increase in both as products move through development to market.

In 2009, the Proprietary Development segment took a huge leap forward as the pipeline advanced and the development team grew under Arndt's leadership.

New leadership also was a key theme within AbD Serotec as Dieter Feger led the unit to above market top line growth at a higher-than-expected profit margin.

Financially, the Company generated a record level of revenue, as well as a very solid profit, despite a large increase in R&D investment.

During 2009, we ran a comprehensive initiative to identify potential acquisitions as a way of further adding to our proprietary drug pipeline. Specifically, we surveyed the landscape for companies with antibodies in late preclinical or early clinical development in our areas of focus; namely, cancer and inflammation. We applied certain financial and operational criteria to come up with a list of roughly 50 companies that we analyzed in detail. 25 of these companies made it to a shorter list, and we engaged in detailed negotiations with three of them.

Finally, no transaction was consummated. Although the reasons varied, I can say that nothing that we found was so attractive as to justify the investment that would have been required.

The process, though, was very instructive. The first thing we learned was that there are very, very few attractive programs available. Second, one of the operational considerations was that acquisition could be a means of securing a development organization, as well as bringing us new drug candidates. This criterion lost weight during the year as we added more and more outstanding talent to our own development team. Third, the search for an acquisition also allowed us to compare our own programs with those of others.

The conclusion is that we are now more confident than ever in our own programs and in our abilities. Under the very good understanding of the external antibody landscape, we now have an increased commitment to drive our own programs forward.

We're therefore announcing today that we're no longer actively pursuing acquisition as a means of adding to our pipeline. We have a plethora of opportunities to build a great pipeline, including our existing programs, new starts that we'll initiate, and co-developments with our partners, Novartis and Galapagos. We are able to pick good targets and secure access where necessary by in-licensing. We may even in-license one or more existing antibody programs. But, to conclude on this point, although we don't rule out an opportunistic acquisition, we feel that this is unlikely, given our knowledge of the landscape. And, for the reasons mentioned, we will no longer actively seek out pipeline acquisitions.

Our proprietary activities and products and technology development are, of course, being funded from our partner discovery alliances. AbD Serotec is also contributing free cash flow to our coffers at a significant level, and this will increase in the years ahead. The ability to commence our proprietary activities through secure cash flows is a unique feature of MorphoSys and sets us apart from the cash-burning, high-risk, single-product biotech business model.

We continue to be interested in using our strong balance sheet to drive growth but intend now to refocus our efforts. Henceforth, we will focus our acquisition interests on the two segments which finance our business; namely, Partnered Discovery and the AbD Serotec segment.

The ongoing, strong demand from pharmaceutical companies for antibody-based drugs plays to our strengths as one of the leading antibody companies. We're therefore interested in opportunities to supplement our existing technology platform, the goal being to be able to generate even better antibody-based drugs. Any acquisition in this area should, of course, fit to our existing platform. We are, of course, investing in technology development in-house and have made some extremely interesting progress here that we aim to announce later this year.

Secondly, we're exploring opportunities to accelerate the growth of the AbD Serotec segment in the diagnostics field, where we see the most attractive potential to build on our existing technological strengths.

In both cases, we would expect an acquisition to help us generate revenues, some of which can be reinvested in our pipeline. Whatever transaction we consider, the only must criterion I'll mention at this stage is that any such acquisition should contribute significantly to free cash flow within one year.

With these opening remarks concluded, I'd now like to start with the first part of our segment review, mainly the progress made in Partnered Discovery, as well as the outlook for this segment.

The numbers here speak to themselves. Our partnered pipeline is now more advanced than at any time before. In 2009, the total number of active partnered programs reached 65, a net increase of 10 from the start of the year. We had more compound into the clinic than in any previous year -three - and more programs move into Phase 2 than ever before, namely, two. Although the 17 new programs that started were fewer than the 20 we projected at the beginning of this last year, we're very pleased with the overall progress we made, especially with all the programs in clinical development.

With regard to the partnerships themselves, the most important development was securing the full ten-year term of our strategic alliance with Novartis. At the end of last year, the final step in the buildup of our internal team dedicated to Novartis was taken so that we're now at full capacity. The long-term commitment that Novartis has made to MorphoSys is very important to our ability to invest in proprietary R&D today and should lead to a number of marketed products in the future.

During 2009, we also secured extensions to our collaborations with partners, Schering-Plough, now part of Merck & Co., and Shionogi.

We're not resting on our laurels here. We've tapped and will continue to exploit new business opportunities. In 2009, we signed an alliance with Daiichi-Sankyo that has a specific focus on certain hospital-acquired infections, an area of enormous unmet medical need. This deal takes advantage of a provision that we negotiated into our 2007 Novartis agreement, which excludes the majority of infectious disease targets. Due to the sheer magnitude of the Novartis alliance, this carve-out was just a side note for many at the time we announced the deal. It was our deliberate decision to exclude this area because we saw attractive opportunities and significant potential value in that space.

For a number of years, Synagis was the only example of a therapeutic antibody being a valuable treatment against infectious disease. However, we now see increasing interest on the part of pharmaceutical companies in the infectious disease space, as evidenced by the alliances that were established in the industry during 2009, some of which are listed on this slide. We intend to take advantage of this growing market and aim to establish new collaborations in the infectious diseases field.

With so many partnered programs ongoing, providing a comprehensive progress report is impossible in the time available to us today. I'd therefore like to pick out just one particularly promising program, mainly Novartis' BHQ880. This program targets the indication of cancer-related bone disease.

At the last ASH meeting in December 2009 in Orlando, Novartis published some early clinical results from this program. BHQ880 reverses the imbalance in bone turnover. The target for the drug is DKK-1, an inhibitor of osteoblast activity that is strongly implicated in osteolytic bone disease. DKK-1 is present at abnormally high levels in multiple myeloma sufferers, and its level in serum correlates well with a number of bone lesions observed in these patients.

Our antibody blocks the binding of DKK-1 to its receptors with very high affinity. Novartis demonstrated BHQ880's activity in vitro and showed that it is a potent inhibitor of tumor-induced osteolytic lesions in several preclinical models. Recently published clinical data shows that the antibody is well tolerated over multiple cycles of administration and has a half-life in excess of two weeks.

Novartis has said that this trial could be completed this year. We know that this is an eagerly awaited event in the investment community.

What is the outlook for this segment of our business? Of most significance, in 2010, we should see for the first time clinical proof of concept for a HuCAL antibody. Proof of concept will be an important milestone for the HuCAL technology, and we know it is eagerly awaited by many investors.

Overall, we expect a lot more visibility around the pipeline as programs advance and partners disclose some of the targets on which they're based. In 2010, we expect somewhere between four and six new programs from our partners to enter Phase 1 clinical trials. The programs already in clinical trials are expected to advance. Roche has already announced that they plan to take gantenerumab, our anti-Amyloid beta antibody for Alzheimer's disease into a Phase 2 clinical trial. There may be others coming from the programs that are currently in Phase 1.

As I mentioned earlier, we'll reveal some of the technology developments we've made during the year. We're not standing still in this area and believe that new technology will be a very important value driver for us in the years ahead.

That concludes my review of 2009 for the Partnered Discovery segment of the business. Arndt will now take you through the review of our Proprietary Development activities.

Thank you, Simon. Following Simon's review of the Partnered segment, I'd like to turn now to our partnered activities and summarize the latest developments in this area.

Last year saw a major expansion of our internal development team and capabilities. We used two strategies to bolster our team. We hired experienced people and top talent from the industry (just to highlight Lisa again that Claudia just introduced to you), and we trained and developed our existing team members. Prior to joining MorphoSys, the new hires on the team have gained experience at companies such as Novartis, Bristol-Myers Squibb, Fresenius, Medigene, and others.

As a result, we now have all important positions in place to develop our own drugs. I believe we have established a high-class development organization within a very short timeframe. Our ability to attract these people so quickly also shows that we have raised our profile in the industry as a development company. We now offer attractive career opportunities for people with a development profile. This new drug-development image will also help us and, it is-- already has helped us secure access to innovative targets and convince academic groups and biotech companies that MorphoSys is the partner of choice to develop valuable antibody therapies.

In terms of actual headcount, we count 56 FTEs in the newly established Proprietary Development segment, tightly connected to my core development team of 15 people, while supporting roles from the research department. Additionally, a strong protein science team, which is not listed here, serves both the Partnered Discovery and the Proprietary Development segment.

As we have stated before, our goal is strong interactions between the research and development groups from start to finish of a program's lifetime in our organization.

With regards to our proprietary pipeline, we've made significant progress over the last 12 months. We have not only finalized the Phase 1 trial and reported data for our lead compound MOR103, based on that data we also applied for regulatory approval to commence a Phase 1b/2a trial in rheumatoid arthritis in several European countries and, as we will see later on, have received the approval in three countries already. The first patient was included in the trial earlier this year. This is the first time that one of our proprietary compounds is being tested in patients, which is a major milestone for the entire R&D team at MorphoSys.

Another important development during 2009 was the preclinical work we have performed to determine a second indication in which we see potential to develop MOR103. That work was successfully concluded, and our planning to commence a Phase 2 study in this second indication is on track.

MOR202 has also made solid progress towards the clinic, and we will come to further details in a minute. One piece of news we would like to make you aware of, however, is that MOR202 was also part of Munich's biotechnology cluster application m4 personalized medicine, which was awarded high-tech cluster status in a German government funding competition earlier this year. We're quite confident that the program will benefit from this source of external funding.

Last but not least, we have added new programs to our roster of proprietary products. The three new programs we have added during the course of 2009 and the two targets already selected early 2010 are based on very promising target molecules; in some cases, in-licensed from external sources - academic groups and biotechnology startups. We are very excited about these targets for which we have secured access and the new ones we have picked for additional starts this year and look forward to sharing more details with you.

On the next two slides, I would like to update you on the two most advanced Proprietary Development programs, MOR103 and 202.

Let's begin with MOR103. As we announced a few weeks ago, we received first approval for our Phase 1b/2a trial from Germany's Paul-Ehrlich-Institut, and the first patient was included in the trial at the beginning of the year. In the meantime, our trial is approved in The Netherlands and Bulgaria as well. With the regional mix we have planned for, we look to secure access to patients with a different treatment history, which will allow us to test response to MOR103, and it has (inaudible) real-world patient population. With regard to the trial design, we have published details on the Website clinicaltrials.gov.

At this point, I would like to speak to the following points. The primary outcome of the trial is to show safety and tolerability of multiple doses [of MOR103] in patients with active rheumatoid arthritis. Nonetheless, we have a rich set of secondary outcome measures, including additional biomarkers to evaluate the drug's potential to inhibit the GM-CSF inflammatory pathway and to improve clinical signs and symptoms of rheumatoid arthritis.

In terms of the overall timeline, we are on track with the MOR103 trial to achieve our goal to finalize enrollment in the first half of 2011.

Let's move on to MOR202. To recapitulate, MOR202 is a fully human cancer antibody against CD38, a public target we chose to pursue based upon internal target-scouting work. One of the first things I did after joining MorphoSys at the beginning of last year was to undertake a detailed review of our development programs. To reconfirm my initial impressions that MOR103 was absolutely on the right track with regard to MOR202, we identified some important additional work that needed to be done to fully exploit the potential of this promising molecule. Although the result had been some delay, I'm convinced that we have now a more valuable program.

While other monoclonal antibodies' programs from two competitors also target CD38 and multiple myeloma, we believe we have an antibody with a very competitive profile and distinct advantages. One key advantage of MOR202 is the fact that we have a working Tox species due to cross-reactivity to non-human primates that we built into our antibody. We believe ours to be the only human anti-CD38 antibody with this feature.

Why is this so important? Being an antibody which is designed to kill cancer cells, analyzing and predicting potential toxicity in humans is key to a robust development plan. Again, the extra work we have invested into the MOR202 program, including the conscious decision to invest into a longer chronic Tox study, is intended to fully exploit the potential of the compound and secure a long-term development plan, which, in turn, will increase its value. We expect to file the clinical trial approval application in Q4 2010 and starts of clinical trials in early 2011.

Let's now have a look at the current and future state of the entire proprietary pipeline. We've already touched on the MOR103 and 202 programs. Both will advance during 2010 according to their respective development plans. The other internal programs initiated in 2009, MOR203, MOR205, and MOR104, are in different stages and earlier stages of antibody generation, optimization, and predevelopment. Targets for two additional programs, MOR105 and MOR206, have already been selected. MOR206 focuses on a cancer stem cell target that we are very excited about.

With regard to our co-development candidates selected as part of the Novartis alliance, that program has advanced well during 2009. We expect a second joint program to commence with Novartis this year.

Finally, some thoughts on portfolio management. We like to think of our proprietary programs as competing entities. In line with our goal to remain profitable, we will channel available investments and capacity to the most valuable candidates in our portfolio. Thus, no one should be too surprised to see slight adjustments to this relatively young portfolio and prioritization taking place in future years. If such an adjustment happens, it happens in favor of those programs with the best and most convincing return on investment profile.

In summary, what can we expect from the Proprietary Development in 2010? First of all, we intend to update the community on several occasions on the progress of the Phase 1b/2a trial for MOR103. Work towards the clinical evaluation of the anti-GM-CSF approach in the second indication will likewise continue in 2010. MOR202 will advance towards the clinic with some extended work in toxicology in 2010. We expect to file the CTA in the fourth quarter of 2010 and commence Phase 1/2 trial in early 2011. This would then become the second clinical asset in our proprietary portfolio.

The expansion of our pipeline will continue in 2010, and we intend to add up to four de novo programs to our pipeline. These will be internal programs, as well as potentially co-development projects. In fact, as we've seen on the previous slide, two target molecules for de novo programs have already been identified.

We, of course, acknowledge your wish to gain more insight into the entire proprietary pipeline. Once we feel we have secured a solid IP and have gained a competitive advantage - for instance, in terms of development timeline - we will talk more in detail about the various programs.

Co-development remains high on our agenda. We have co-development options with our Novartis alliance, where we've prepared to elect a second co-development candidate in 2010. And, as you know, we have a fruitful collaboration with Galapagos, where, currently, four targets are in the process of thorough validation as we will continue to look for other co-development opportunities as well.

That concludes my part of the presentation. I would now like to hand over to Dieter for his part of the AbD Serotec business. Thank you very much.

It is a pleasure to present the AbD Serotec segment here today. I joined MorphoSys a little over a year ago, and I'm happy to say that we have made significant progress during 2009 to position AbD Serotec as a source of steady revenue growth and increasing cash flows for the MorphoSys Group.

When I started back in January of last year, one of my first tasks was a thorough business review, including evaluation of the key management team and the commercial organization. With the integration process of Serotec concluded and AbD Serotec established as a new brand in the research market, my main goals were to strengthen the existing team and adjust our sales and marketing organization to match the needs of the market and the capabilities of our product portfolio. Additionally, given my former experience at Abbott and my established network in the diagnostics industry, the clear, long-term goal is to fully exploit our potential in this market.

During the last year, we filled and replaced a couple of key positions in the unit. And the overall sales organization grew by 10%. Another focus was the systematic training of the sales, marketing, and management teams to further sharpen the commercial focus of the organization. Important measures introduced in AbD Serotec during 2009 were improving knowledge-sharing, streamlining reporting processes, and implementing a new system of performance management.

On the technology side, we continued some very effective technology and process development efforts and gained real benefit from the introduction of HuCAL PLATINUM. The latest version of the HuCAL technology helped us to deliver even better antibodies to our customers, both in the research and in the diagnostic market.

As you may have seen in our most recent press release, all these efforts helped us to increase our success rates in customer projects to 98%, leaving behind the average success rate seen with animal-based methods, which is around 75% to 80%.

On the operational side, we were successful in establishing new partnerships. Unfortunately, the majority of diagnostic customers are rather tight-lipped about new products in development or research partnerships. And, thus, we can only talk about a fraction of all agreements and collaborations we have in place or are working on. What I can say is that AbD Serotec works with more than 20 diagnostic customers, including some of the leading players in the field. These collaborations are focused on developing the diagnostic products of tomorrow, and we hope to see their benefits in the years to come.

But let me talk about those examples which are publicly known, providing a blueprint of our future focus and the direction AbD is increasingly taking.

Let me start with the research collaboration we started with FIND, the Swiss foundation. The goal of this collaboration is to introduce heat-stable antibodies for diagnostic kits to detect tropical diseases. FIND is a nonprofit organization which focuses on delivering leading, scientifically proven diagnostic tools for the developing world. In most of these countries, infrastructure, as well as medical equipment and trained personnel is an issue. Being able to introduce heat-stable antibodies into diagnostic kits may decrease the risk of shelf-life losses due to heat, enabling diagnostic manufacturers to build bigger reagent lots, reducing production costs and, thus, making those new products more affordable for developing countries.

The first project we're working on together with FIND is to identify and create heat-stable antibodies against malaria. This alliance provides a nice example of the higher, value-added projects that AbD Serotec is increasingly pursuing. It also speaks to our ability to target opportunities opened up by our unique technologies.

Another focus of our commercial efforts in 2009 was to increase the number of OEM customers. In the past, they were very dependent on a rather small number of larger customers in this area. As a result, sales from that business were a bit lumpy, depending on the timing of single orders. In 2009, we broadened our customer network in this space, adding, for example, a supply agreement with a Spanish biomarker specialist, Spinreact, as well as some other collaborations. As a result, we are now much better positioned than in the past.

We also exited some less profitable business. As we all know, big sales don't necessarily mean big margins.

In 2009, we added more than 1,500 products to our catalog. New product launches are, without question, important in the research market. But let me clarify that it is not our intention to crank up the total number of catalog products. There are companies in this industry that tout their large numbers of overall catalog products. We don't think total number of products is the right performance indicator. We prefer to avoid keeping low-sellers in the store, maybe more than other suppliers do.

As you will hear from Dave in more detail, all these achievements in 2009 led to a growing top line with a growth rate at constant currencies of 8% and a solid operating profit margin of 5%.

We have a leading antibody technology, which is able to deliver terrific antibodies. While the human composition is a key advantage in therapeutic applications, the [USPs] in the research and diagnostic markets are the ability to make truly differentiated antibodies and speed in manufacturing them.

We are currently active in two major markets, the research antibodies market, a market of approximately $2 billion, which is growing 3% to 5% year over year. AbD Serotec has been able to show a growth rate in 2009 that is substantially above market growth and will continue to outgrow the market in 2010. We address this market mainly through our catalog offering, but, also, through custom-generated antibodies. We have identified several areas; e.g., applications for veterinary medicine, where we really see advantages over other providers and technologies. We see also some other opportunities, and we will keep you updated on our progress here.

The market for immunodiagnostics is a [much larger] market of approximately $7 billion. Growth rates are higher here as well - between 6% to 8%. Here, we see the real potential for our business. There are a lot of areas where we can really solve problems by providing specific antibodies. There are many areas to mention, such as companion diagnostics, flow cytometry, and immunohistory chemistry, just to name three.

There are a lot of opportunities out there, and the key for our success will be to focus on the most lucrative opportunities, where we can exploit the growing market position we already have today to create a market-leading position in the respective area.

Today, we are an established player in the research market. We provide superior antibodies to our customers and sophisticated technical support. We can deliver antibodies against difficult antigens and perform very specific screenings for antibodies which need to fulfill specific criteria.

In 2009, we started to focus on in vivo and in vitro diagnostics, and we are in the process of defining precisely the right products to make. AbD Serotec is in a strong position today, and we can choose those products which are commercially interesting for us. We will continue to focus on the sweet spots, where we can deliver with our cutting-edge technology.

I would like to conclude my presentation with a short outlook of what you can expect in 2010 and subsequent years.

We will continue to execute our strategy. We don't want to be everybody's darling. We will focus on specific product areas with a strong emphasis on high-margin opportunities. The goal is to achieve a market-leading position in those areas we see as our sweet spot.

We will continue to penetrate the diagnostic market. We have become more known in this area. And, with some first successful projects, we are sure that we will become more attractive for additional and new partners.

Geographical expansion will be one of our main focus areas over the coming years. We have started to strengthen our European direct sales force, and we will continue to do so internationally. Additionally, we will tighten our distributor network. In the mid to long term, we plan to build up an Asian sales team.

We hope to increase the visibility of our existing diagnostic relationships as product-focused projects (inaudible).

In terms of financials, we anticipate constant but dynamic top-line growth, with continuously improving margins, despite ongoing investment in the organization.

That concludes my part of the presentation. I would now like to hand over to Dave for the financial review 2009 and the financial outlook 2010. Thank you very much.

Thank you, Dieter. As all of you heard today, 2009 was a very positive year for us in many different ways. Although the global economy saw a major recession, today's results show that the MorphoSys business model remained intact.

Let's have a closer look at the financial details now and start with a brief summary of how our actual results compared to guidance for 2009.

As you can see on that first slide, we reached our financial goals set during the year. At EUR81 million, revenues for the MorphoSys Group for the full year 2009 fell within our original range of guidance, which was EUR80 million to EUR85 million. Group operating profit was slightly above our guidance range, coming in at EUR11.4 million. Regarding the AbD Serotec segment, we saw continued progress, as you just heard from Dieter. Revenues in this segment totaled EUR19.4 million at yearend, slightly below our guidance target of EUR20 million, while the profit margin significantly exceeded our initial guidance for the full year.

Both the underperformance in sales and the outperformance in operating profit had their roots in strong foreign exchange movements during the year, which is a topic that I'll address in a few slides from now.

The next slide addresses some of our key financials.

From the chart, you can see that we are broadly aligned with our expectations. Revenues of the Group increased by 13% for the full year 2009, as outlined in our original guidance at the beginning of the year.

Group operating profit went down by 30% to EUR11.4 million due to a big increase in expenses for research and development. Recall that this R&D represents not only R&D we spend on our own account but also external R&D that we do on behalf of our partners. The expenses in this area amounted to a total of EUR39 million, compared to EUR27.6 million in 2008.

This next slide shows a bit more granularity in the operating result compared to the previous year.

Cost of goods sold, which arises from our AbD segment, decreased by 6% to EUR6.7 million. That number was strongly influenced by foreign exchange effects and, most significantly, affected by the British pound versus euro. The biggest increase in operating expenses can be observed in the R&D expenses, which increased by 41%.

Reasons for this planned increase were twofold. First, Proprietary Development expenses increased to EUR19.3 million, which represents more than a doubling of spend. Second, personnel expenses ramped significantly due to increases of headcount in the Proprietary segment and, as well, the Partnered Discovery segment.

In SG&A, total costs increased by 17% to EUR23.9 million, which was mainly influenced by slightly increased personnel numbers in SG&A, a buyout of license obligations in Q4, and consultants which were employed during the year.

Although the total operating expenses have increased significantly compared to the previous year, they were in line with our operating goals, and, importantly, we remained profitable.

Let's now turn to the financials of our operating segments. As you recall, the Company extended its segment reporting from two segments to three in 2009. The former Therapeutic Antibodies segment was split into two segments; one being the Partnered Discovery segment, where we account for all of our fee-for-service partnerships and collaborations, and the other being the Proprietary Development segment, where we conduct all of our own proprietary, drug-development activities.

The main financial contributor for our Company is the Partnered Discovery business. Revenues in this segment increased by 14% to EUR61.7 million due to a combination of higher levels of funded research, licensing fees, and success-based revenues. Success-based payments increased by 32% to EUR13.1 million. The segment's operating result amounted to EUR39.6 million, an increase of 15% compared to the prior year.

In the Proprietary Development segment, you can see some revenue for the first time. And this stems from our funded research of our co-development program with Novartis. Our investment in our own R&D is reflected in that segment's expenses, which have more than doubled, to EUR19.3 million over the prior year. On that basis, the segment's operating result for 2009 shows a deficit of EUR18.3 million. Looking where that investment went, approximately 60% of expenses were spent on the products MOR103 and 202. The rest of that spend was spent on our preclinical and research portfolio.

The AbD segment contributed about a quarter of total Group revenues, with revenues coming in at EUR19.4 million for the full year. Revenues in this segment increased by 7% over the prior year and were almost in line with our guidance of approximately EUR20 million for the full year. While AbD Serotec's operating expenses increased slightly in 2009, cost of goods sold went down significantly, moving from EUR7.1 million to EUR6.7 million, mainly due to foreign exchange effects.

I'll give a more detailed breakdown of these effects on the next slide.

This foreign exchange effect helped to contribute to an operating profit which more than doubled over the prior year to EUR1 million. As I just mentioned, the rather significant foreign exchange rate fluctuations we saw during the year had an effect on our full-year results. The main effect on our results resided in only two of the three segments; namely, the Partnered Discovery segment, and the AbD Serotec segment.

Measured at constant currencies as of 2008, revenues for the Partnered Discovery segment would have been lower by EUR800,000, while expenses were not materially affected.

With regards to our AbD segment, the relative weakness of the British pound had a negative impact on sales, which was partially mitigated by US dollar strength. You should be aware that more than 60% of the revenues of the AbD Serotec segment are invoiced in those two currencies. On the other hand, operating expenses were also impacted. Note that COGS of the AbD segment is heavily weighted in British pound, given that the UK is our manufacturing center of excellence for most of the non-HuCAL product range. The effect of the British pound on COGS and, additionally, the effect of British pound and US dollar on local operating expenses in the UK and the US was material and amounted to EUR1.1 million for the year.

Let's have a closer look on the operating expenses now, of which expenditure and proprietary R&D is the biggest part. Investment in proprietary product and technology development increased by EUR10.4 million to EUR19.3 million. As you heard from Arndt a bit earlier, investment in our Proprietary Development activities focused on key hires, our two lead programs - MOR103 and 202, and a number of new Proprietary Development programs which have been started.

Looking ahead, we expect our R&D expense growth in the future will be very much focused on proprietary drug development going forward. For 2010, more than 50% of our 2010 R&D budget is allocated for the development of MOR103 and 202. This includes the costs for the ongoing Phase 1b/2a study for MOR103 and the preparation of a second Phase 2 study in another indication for MOR103. It also includes the costs for preparation of the clinical studies for MOR202, including the Tox studies. The remainder of the budget is to be invested in an increasing number of research and discovery programs and, as well, target validation projects such as our collaboration with Galapagos.

Let's continue with non-operating items. Finance income, which includes interest income and realized gains from marketable securities, amounted to EUR2 million. The difference to last year's amount of EUR2.5 million relates mainly to difference in interest rates and changes in gains from securities sales. Other income and expenses changed mainly as a result of gains and losses from foreign exchange. That combined to a result in a profit before taxes of EUR13 million. For 2009, EBIT and EBITDA amounted to EUR12.8 million and EUR18.1 million, respectively. Tax expenses on our profits amounted to EUR4.1 million for 2009.

I would add that our tax loss carry forwards have now been fully utilized, so we will no longer benefit from these going forward. That being said, continue to expect the effective tax rate on IFRS pretax income to be around 30%.

In summary, MorphoSys achieved a net profit of EUR9 million for the full year 2009, and the resulting diluted net income per share amounted to EUR0.40.

Total assets increased by EUR2.8 million to EUR206 million as of December 31, 2009 on the balance sheet. Current assets increased by EUR5.5 million, mainly as the result of an increase in accounts receivable, which was due to significant amounts being invoiced just prior to the balance sheet date.

Compared to the previous year, cash and cash equivalents increased by EUR1.1 million. Compared to December 31, 2008, non-current assets decreased by EUR2.7 million, mainly as a consequence of the amortization of licenses and the release of deferred tax assets capitalized in 2007. As I said earlier, the tax loss carry forwards have now been fully used.

In 2009, current liabilities decreased from EUR24.3 million as of December 31, 2009, arising mainly from a decrease in current, deferred revenue. Non-current liabilities decreased (sic - see Slide Presentation) EUR7.9 million in 2009, mainly impacted by a decrease in non-current deferred revenue of EUR5.6 million.

At the end of the year 2009, the Company held EUR135 million in cash, cash equivalents, and available-for-sale financial assets, compared to a yearend 2008 balance of EUR137.9 million.

Net cash outflow from operations 2009 amounted to EUR1 million, in comparison to a net cash inflow of EUR28.6 million in 2008. The main reasons for the cash outflow were reduced profits, an increase in accounts receivable, and changes in the composition of deferred revenue, which can be mainly seen as a timing effect on the balance sheet.

Before coming to my final slide on guidance for 2010, I'd like to quickly summarize headcount development for MorphoSys during the year. At the end of the year 2009, the MorphoSys Group employed EUR413 employees, which represents an increase of 79 people in the beginning of the year. 273 worked in the Partnered Discovery and proprietary product development segments, and 140 employees worked in the AbD segment. The bulk of the increase in headcount is due to expansion of our proprietary product development activities here in Germany.

That concludes my review for the year 2009.

I'd now like to continue with the outlook for the fiscal year 2010.

To start, as a long-term orientation, recall we'd like to grow the top line by at least 10% each year, and our intention is to continue to remain profitable, despite investing increasing amounts in proprietary drug development.

In terms of Group guidance for 2010, we project total Group revenues of approximately EUR89 million to EUR93 million. Total group operating profit is expected to decrease due to higher R&D investment in our proprietary product pipeline and come in somewhere between EUR5 million and EUR9 million. As always, the achievement of these numbers is heavily dependent on the timing of product development activities during the year. As it relates to the AbD business, at constant currencies, we expect revenues of between EUR21 million and EUR22 million, with an operating profit level between 5% and 8%.

That concludes the financial analysis for 2009 and the outlook for 2010. And, with that, I'd now like to hand back over to Simon for a wrap-up of the business outlook for 2010.

Thank you, Dave. You've now had a comprehensive update on 2009 and prospects for 2010, segment by segment. I'd like to conclude now by presenting our collated company goals for 2010.

We expect continued good progress with our partnered pipeline; potentially, highlighted by the first clinical proof of concept data for the HuCAL antibody. We expect gantenerumab and, potentially, other existing Phase 1 compounds to move into Phase 2. We also project between four and six new INDs from our partners.

For our proprietary pipeline, MOR103 will, of course, continue its Phase 1a/2b trial in rheumatoid arthritis. We also aim to file a clinical trial application for MOR202 in the final quarter of this year. We will add additional discovery programs, and existing earlier-stage programs will continue. We hope to be able to provide some more information on one or more of these programs during the course of the year.

AbD Serotec segment will continue to expand its market share, mainly in the diagnostics field. We project top-line growth of around 10% and an operating margin, as you've just heard from Dave, of 5% to 8%. While our plans call for margins to become significantly higher in the future, our focus currently is on maximizing growth rather than profitability. Therefore, we'll continue to invest in strengthening the organization and improving its geographic reach.

We expect total Group revenues to grow between 10% and 15% for the year. We remain committed to maintaining profitability while driving the development of proprietary products and technology as fast as possible. Operating profit will therefore be between EUR5 million and EUR9 million. Commitments to invest in technology will gain tangible shape later in the year when we reveal some of the developments we've made in this area.

Finally, while we're reluctant to provide guidance about potential strategic acquisitions, in recognition of how difficult they are to predict, I hope we've been able to give you some idea of where our attention is focused. We have very clear criteria regarding how a target company should fit with our existing business and also regarding its financial profile.

I'd like to close by putting our activities today into the context of our longer-term objectives for the Company.

MorphoSys possesses the attributes to become one of the world's leading biotechnology companies. We have the components that experts in our industry agree are a prerequisite for success. First and foremost, we have a number of potentially very lucrative product candidates. The attractiveness of these compounds is based on both the targets they're directed against and the proprietary technology that was used to make them.

Second, we have the expertise. We've made great strides in this area in the last year and have gone from being a fledgling to a credible discovery and development organization.

The therapeutic side of the business is nicely complemented by AbD Serotec. Not only will this unit contribute increasingly to our top and bottom lines, its growing penetration of the diagnostics market positions us to benefit from the burgeoning importance of diagnostics for drug developments and use. We see an array of alliances with pharma and diagnostics companies as being of strategic importance for MorphoSys, and our technology as being at the nexus of these industries.

And, finally, we have the financial muscle, comprising a strong balance sheet, plus the guaranteed payments we have through our partnerships, plus the milestone and royalty payments we'll receive as our pipeline advances.

All together, these factors add up to put MorphoSys at a very strong position.

We've always had a great reputation for our technology. That this technology can produce innovative and valuable therapeutic products is now clearer than ever. There's no question that therapeutic antibodies based on our technologies will be our main value driver in the years ahead. Therefore, our plans for the future revolve around the progress of our pipeline, which will continue to expand and mature.

This chart represents the complete MorphoSys pipeline, both partnered and proprietary programs, and, as you can see, it hardly fits on one slide. At the end of 2010, we expect MorphoSys to be participating in almost 80 unique product opportunities.

We're sometimes asked where MorphoSys will be in five years' time. This chart shows our expectation of how the partnered pipeline will develop. As always in these projections, we are assuming industry-standard attrition rates for antibodies. I should point out, however, that our highly optimized, fully human antibodies could well be expected to beat these rates.

Partnerships will continue to provide the majority of our therapeutic antibody programs. The pipeline will continue to fill with new projects, many coming from our largest partner, Novartis, but also from others. By 2015, we expect the first products to be on the market generating royalties. In between, we will have a rich array of projects spanning all stages of clinical development.

The partnered pipeline will be complemented by a strong proprietary portfolio. It's not shown on this slide, but, by 2015, we expect to have partnered MOR103 and, for this lead program to be well advanced. Importantly, we're not solely dependent on this program. Our ability to invest in multiple proprietary programs today means we will have multiple advanced clinical candidates in five years' time.

Finally, we are convinced that we're on track to build real, long-term value for our investors. Everyone who follows the biotechnology industry knows that the rewards for the companies that succeed can be enormous. I'm convinced that MorphoSys can be one of those companies.

That concludes the presentation. Thank you very much for your attention. I'd now like to hand back to Claudia, who will moderate the Q&A session.

Thank you. With that, I would like to open the phone for your questions. I would like to ask if people here in the room to use the microphone, so the people listening by conference call can also follow the questions. And I just got a signal that there's a question from the conference call. So may I ask the operator to give us the first question? Operator, can we have the first question?

Thank you. Yasir Al-Wakeel, Credit Suisse.

Just on AbD Serotec, to start with, where do you see long-term margin progression for that part of the business? And, with respect to potential inorganic growth, what sort of size of diagnostics business would you be looking to acquire?

A second point is with regards to the partnered antibody program. How confident are you that Roche will begin their Phase 2 study of gantenerumab, given that it's taken them four years since the start of the Phase 1 to make the comment that they will be starting the Phase 2? And are we likely to see the Phase 1 data anytime soon? Thank you very much.

Why don't I start, Yasir, with the second part of that question. Then I'll ask Dieter to handle the part that relates to AbD Serotec.

How confident are we that Roche will start the Phase 2? We're relying on their statement. They made the statement at the occasion of their Q3 results conference last year that they intend to take this into Phase 2. Knowing how cautious pharma companies are about making public statements, I interpret that to mean that they're rather confident that they will indeed commence a Phase 2 trial, or else they wouldn't have said it.

Will there be results of the Phase 1 study published? Here again, we're in the hands of Roche here. They have said that they intend to publish the Phase 1 results. However, we can't say when that might happen.

Thank you.

To the AbD Serotec part, in terms of outlook for margin growth, as mentioned before, the plan is to grow every year our margin. You need to understand I can't tell you how big our margin will be in five years. I actually don't know it. But we will do everything to grow our margin every year constantly.

In terms of potential acquisition, if we're going to buy something, then it should bring in some sales volume, and, also, it should be a profitable company. But, in the first one, we'd rather look at what kind of company we could go after that actually helps us to move up in the value chain, which helps us to enter new markets that belong-- where we actually can do something with our antibody technology. So, rather, instead of just looking for pure sales, we definitely don't go for another antibody supplier because we already make the best antibodies in the world. We'd rather look for somebody where we can use our antibodies to put it in different products.

Thank you.

I find that we have another question from the conference call.

[Gary Fathers], Nomura.

The first one relates to AbD as well. How long is it if we expect to see the HuCAL antibody in an approved diagnostic test?

First of all, we are working and cooperating with diagnostic companies, as mentioned. And then you have to go through the process of evaluating it, let's say, one to two years. But this also depends on in which area of the world you want to launch your product and on the regulatory approval cycle. So, for example, in Europe, to get a CE mark is definitely easier to get than to get a 510(k) approval in the United States. But we hope to see within the next 24 months HuCAL antibodies in a diagnostic product.

Thanks. And, finally, with regard to the pipeline, Simon, you mentioned that there have been 17 new program starts in 2009. But you say the pipeline has only increased by 10 programs. Could you describe where the where there are 7 [stops], if I've got the math right-- how it occurred in terms of which state of development (inaudible) programs stopped?

Yes, Gary. There was, of course, attrition. And we expect that, and we plan for that. And I can't, off the top of my head, tell you precisely how the programs that fell out-- I can't explain each and every one of them how that happened. But I can tell you that a number of those were the results of strategic decisions by the companies concern to discontinue those programs for one or other reason. From memory, I actually think that that was the majority of cases of programs that were stopped-- that it was not for technical failure reasons but, rather, that the companies concerned made, I guess, portfolio decisions not to continue those particular programs. For us, that's a normal and natural component of attrition. And it's something that we reckon with in estimating how the pipeline's going to develop.

Okay. Thanks very much.

Okay. There's another question from the conference call.

George Zavoico, MLB.

Congratulations on a good quarter. Two questions. Simon, you mentioned attrition. Can you comment on whether any programs have fallen off the pipeline this year? That's the first question.

The second question regards manufacturing. You're going to be advancing many products into clinical trials in the next year or so. Is AbD going to make some of your HuCAL antibodies? Do you have manufacturing capability in place and growing to meet that demand?

Thanks, George. Glad to hear that you're on the line from the US. First of all, the first question, if I understood correctly - Has there been any attrition in the pipeline this year? The answer to that one is no.

And, secondly, with regards to manufacturing of clinical candidates, you should understand that all of the manufacturing we do on the therapeutic side of the business is done externally using contract manufacturing organizations. Currently, the two most advanced programs, MOR103 and MOR202, are being made by DSM for us in Holland, using the PER.C6 cell line from Crucell. We haven't made any decisions yet about what cell line and what manufacturer to use for subsequent programs. But that is the status of the two most advanced programs.

We also don't have any plans to establish G&P clinical manufacturing in house. This is something that we see can be perfectly well outsourced to an appropriate contract manufacturer.

Okay. Thank you very much.

Sorry. There's another question? We come here to the questions in the audience as well.

Victoria English, MedNous.

I have a question for Simon, and that concerns the comment that you made at the beginning of your presentation about the search for an acquisition, which was whittled down to three at the end. Can you tell us, please, whether you were looking globally or whether you were looking just in Europe? And can you share with us some of the criteria that you were looking for that were not met?

Sure. The search was indeed conducted internationally. And, as you might guess, the majority of the companies that we identified were actually in North America. It should be no surprise, since most biotech companies are in North America anyway. So it was really a very exhaustive search, and that's why I think we're able to say today that it's probably rather unlikely that something would pop up that we didn't know about, because I think we've really looked at everything that's out there.

In terms of the criteria, I mentioned a couple of them - the focus on cancer and inflammation, which were our two areas of focus. The companies had to be digestible, let's say. So they had to be a certain size. And we didn't want to, for example, acquire anyone that brought an enormous burn rate with them, just to mention one example, that would drag us into loss for the foreseeable future. So that was-- that narrowed the field down somewhat.

In terms of the companies that we finished up looking at most closely and negotiating with, what finally killed them was none of the criteria that we'd set out but were actually the quality of the programs themselves. So, in each case, we couldn't get comfortable that those programs were sufficiently promising to justify the investment that would have been required by us not only to make the acquisition but then to continue to develop those programs.

So, for differing reasons, there were flaws that we identified, which convinced us not to proceed with the transaction. So it wasn't that those companies weren't affordable for us. It was simply that the programs themselves were not up to scratch.

Thank you.

Okay. I hear that there are no further questions on the conference call. Then we'll take questions here from the audience. I think, Oscar, you had a question?

I have two questions; one is financial. Since you mentioned your tax loss carry forward is gone, you're going to pay tax now. Why would you like to make a profit then? Why not invest everything, then, in your pipeline, if you're focusing on your own strength and technology and product?

And the second one is related to the M&A considerations. Since it's now less of a priority with regard to products, but what about technology? You mentioned ones-- maybe the next-generation HuCAL technology. Do we still consider a follow-on technology for HuCAL? Thank you.

I guess, due to the fact that our tax loss carry forwards have expired, that's actually a good reason why we should make less of a profit. And, in that vein, we are reducing our profit guidance (inaudible) next year.

I think the idea of being profitable is a relative one, which has its roots in the idea that we're not making a profit that goes up every year where you make profit for the sake of profit sake, but, rather, we want to remain independent of the capital markets and be self-funded. So I think that's really the root of what we're trying to say when we say we want to be profitable. Clearly, we want to pay as few taxes as possible and make that profit-- We're not trying to maximize profit.

I'm sure the German government appreciates our efforts on this front, but that's not the main reason for it.

Regarding the M&A strategy, we really see a lot of potential opportunities for better antibodies in the future. We're convinced, in general, that antibodies are going to be an important class of drugs for the foreseeable future. But there are definitely things that need to be improved, whether it be administration, whether it be stability, whether it be the kinds of targets that you can go after. There's all sorts of exciting thoughts and experiments and technologies being worked on. And we want to be a part of that. So that's the kind of thing we're thinking about for the next five years and beyond from a technological point of view.

I'm mixed (inaudible). Just go ahead, Mr. Wendorff.

A few questions; maybe one with regards to the development of your Company. You have given guidance now for 2010 and indicated how revenue could grow in 2011. And I would be curious to know whether this would be related to the expansion of existing collaborations. Is this solely due to the Novartis collaboration? Is this milestone related? And, associated with that question, you once mentioned the underlying operating cash flow you could generate is around-- at the moment, around EUR30 million, around EUR10 million coming from milestones and EUR20 million coming from the Novartis collaboration, which you could invest into proprietary R&D. In 2010, we come to a level where you would invest almost all of your underlying operating cash flow into R&D. Is that line growing according with your own R&D line going forward, or would you then run into a situation where you're cash and equivalents would go down?

And another question on the AbD segment. You mentioned the positive cash flow contribution from the business. I would be curious to know how high the cash flow contribution was in 2009. Thank you.

Let me start with a general statement to that. Indeed, we feel that we can continue to grow the top line and, therefore, continue to be in a position to invest more in R&D. I think what you shouldn't expect is the proprietary R&D spend to continue to ramp at the rate it has over the last couple of years. Clearly, that will flatten off. As the top line growth minimizes our ability-- I mean, we can't go on doubling R&D expense, clear, year on year. But, having said that, we feel, importantly, that, for, really, the foreseeable future, which means out for several years, we can continue to invest in proprietary R&D at a really meaningful level. We're spending amounts of money now, which can really have an impact. And that, I think, is the absolutely most critical point. -- and, still, as Dave mentioned, remain profitable, which means not profitability for the sake of profitability but avoiding being dependent on the capital markets. So that's really the way we think about it-- to be able to feed the hungry engine over here that is generating the real value to the Company.

Your question on the AbD margin-- I'm not sure if this answers your question. Please tell me if it's not the case. There's not a big delta between the financial margin that we show in the segment reporting and cash flow for that unit.

Who's next?

Can I just follow up on that question in terms of R&D funding and your revenue growth going forward? You've given guidance now for your expected EBIT for 2010. Are we to expect EBIT to remain around that level, or is that going to increase slightly with revenues as well. I guess, is the margin going to stay where you're guiding it for for 2010, or are you planning to lower or increase that?

Question number two is, actually, on AbD and the operating margin you're guiding for in 2010. I'm just wondering. If that is so dependent on the British pound, are you hedging that in any way so that, if the pound eventually at some point, possibly, goes up again, your margins aren't hit?

And, then, a question on your co-development with Galapagos. The programs you have there-- Are they actually included in your current pipeline already, or are they not?

And then, last, a very daft question. If I add up the revenues you've detailed, EUR61.7 million for the Partnered program, EUR1 million for your Proprietary, and EUR19.4 million for the AbD, I end up at EUR82.1 million. But you've reported EUR81 million. So, how does that come?

Why don't I start? I'll start, as a conjecture here, on the last question about the adding. My guess is that that EUR61.7 million number includes the Proprietary Development. I'm assuming, but I'll check that while Simon answers his [call].

Regarding the AbD dependency on British pound weakness question, I would confirm that, yes, those results that I've given today as a projection for next year's results are dependent on exchange rates being more or less where they were at the beginning of the year. Should there be a significant change to exchange rates - namely, the British pound getting stronger - then those results would be adversely affected. Hence, my caution that you need to look at that in terms of constant exchange rates.

And maybe the last point was as to future guidance as it relates to profitability going forward. And I think this maybe relates back to the answer that I gave to Oscar, which is, again, we are not profitable for profitability's sake. And I think there is no implicit or explicit promise that we've made that profits would either rise or fall vis-a-vis this year's outlook.

That being said, I would imagine-- I think, conceptually, we think of increasing expenses for proprietary drug development if we have increasing profits.

And, Cornelia, maybe to your last question about Galapagos, the activities we're doing with Galapagos are not included in that pipeline sheet, the reason being they're not at the point yet where we feel we can include them as formal discovery programs. We're still in the category that I would class as kind of target validation/discovery.

You outlined very nicely the further development plan on your proprietary pipeline. Just to make this clear regarding your out-licensing strategy, after the Phase 1b/2a data, would that be the point that you define as proof of concept in the sense that you would aim to out-license these programs at this point in time? Or should we expect you to have another Phase 2 trial before you do that?

Let me start with that, and then I'll ask Arndt to expand a little bit. So, yes, we assume that we can have data in 2012 on the back of the Phase 1b/2a trial which would enable us to partner the program. And, Arndt, maybe you want to expand a little bit more on that?

Just to reiterate what I've said before, I've introduced the primary objective of the trial is safety/tolerability, which is appropriate for 1b/2a. But we are looking for clinical signs and symptoms, biomarkers. So we expect that we see first signs of clinical activity there. And, based on that expectation, we hold on the expectation that we would be in a position to out-license 2012.

If I understand you correctly, it very much depends on what you find in terms of clinical data.

Which, would, of course, be the case anyway. If it doesn't work, then we're not going to be able to out-license it. But I think the main point is that the trial is designed and powered to be able, if it works, to get data which could be the basis for a package to out-license it.

And is that also true for MOR202?

I think we haven't explicitly announced our plans for when that can be out-licensed. But the initial plan is, because it's a cancer drug, to run a Phase 1/2 trial. So it would be a trial in patients. And, as to when we would be in a position to partner that, we'll inform you in due course.

Okay. Just a second question, if I may, regarding AbD Serotec. You mentioned your expansion plan geographically. Are you planning to expand also in the US?

If revenues and margins do rise, definitely, we're going to expand in the US because it's the biggest market in the world. We have plans for it. But, first of all, we have to do some structural work there. And then, if everything is in order and we see good, healthy growth, then we'll start to invest in the organization. But, definitely, the goal is-- yes.

Thank you.

(Inaudible), Independent Analyst. Your message is, for me, a little bit unclear. It sounds very positive, but, as an investor, I think about your profit message. Your operating profits went down in 2009 about 35%. It will go down even further to EUR5 million to EUR9 million, which means it could be nearly half. On the other side, you have a balance sheet loss, which halved, also which is positive. But, if your operating profits continue to go down, what do you believe will be your balance sheet loss in the coming year?

And what do you think is the chance that you pay dividends for investors in the coming years? Is there any chance? As long as you make no profits on the net profit level, it's very difficult to value your stock. So there is very much volatility in the future, if we don't know what the earnings level of your Company is.

Maybe I'll just address the balance sheet question very quickly. Yes, our total cash, plus marketable securities, did go slightly down vis-a-vis last year, despite the fact that we had a profit. Some people have asked us why that is the case. I tried to explain that in my speech, but maybe I need to give a little bit more detail on that.

We have several of our contracts with anniversaries at yearend. You may recall in preceding years we typically signed in the months of November and December a lot of our contracts. And, as a result of that, a number of contracts - in particular, the larger ones - have payment dates right around yearend. Now, those payment dates can either fall in the current year or in January the year after. So, in our case in 2009, we had a situation where somewhat in the neighborhood of around EUR15 million, which had, in previous years, been paid in December, was actually paid in January of 2010.

So the money's there. The cash did go down on the balance sheet as of the date of the 2009 balance sheet, but you'll see that windfall, so to speak, in the 2010 statements.

Let me come back to the other aspects of the question, which is the operating profit is decreasing. I hope no on in this room is surprised about that, because we have said time and time and time and time again that EPS now is not our focus. Why not? The focus is on investing - investing in building a valuable product pipeline. Why do we do that? Because there are countless examples in this industry that that is how you build real value for your investors - through building proprietary products for unmet medical needs with great medical value. So that's what we're focused on for the moment. We're focused on that and not on maximizing EPS.

Your question regarding a dividend. Let me just say very clearly we have no plans in the near term to pay a dividend. I'm actually not aware of any biotechnology company in the world that pays a dividend. I may have missed one. If one of you know of a biotech company that pays a dividend, please, tell me about it. Cyagen, which is a very profitable company, recently reiterated their intention not to pay a dividend. Amgen, which is one of the most profitable biotech companies in the world, has said repeatedly that they have not and have no plans to pay a dividend.

So, to be very clear, there are no plans at all for us to pay a dividend. The best thing we can do is to invest as much as we can in building value in our proprietary pipeline, and that's what we intend to do.

Okay. Next question from Mr. Frohnmeyer.

I have three questions. First, if I calculate that right, you probably need or want to spend EUR40 million to EUR60 million for MOR103 and 202. I wonder a bit where all this money goes - like 60% of your internal R&D projects. Is it all in the clinical development, or is it also in the manufacturing process included?

Then the second question. I may have just missed it, but did give the guidance for the milestone payments in this year?

And the third question. I read in your annual report that you might increase your R&D in 2011, and then the operating profit might further decrease. So how likely do you see a scenario where you have a level of EBIT below EUR5 million.

To be clear, yes, that includes all costs for 103 and 202. That would include CMC manufacturing costs. Actually, quite substantial this year for 202 because we're planning a trial next year that would include costs for Tox studies, ramping up the clinical studies, appropriation of that filing, working with the CROs. Obviously, we have and will maintain a nimble organization - powerful but nimble. But we are working with CROs and CMOs. So, yes, the clear answer is that includes all of the costs. And those that will be familiar with this kind of stage of development will probably recognize that that is quite adequate.

As it relates to the milestones, I'm not sure if it was in my speech or not. But, if it wasn't, then we expect approximately EUR10 million worth of milestones.

And, regarding further increases in R&D, as we've said, we want to be able to invest as much as we can in the pipeline. I think probably the best way to think about this is that the operating profit level may stay around-- maybe, relatively fixed in euro terms, roughly, plus or minus a bit, while the top line continues to grow and, therefore, why we continue to invest more in R&D. I think that's probably-- Without wanting to give guidance beyond this year, I think that's probably the most constructive way to think about it.

Okay. The next question is from Holger Blum over there.

A question on biomarkers, personalized medicines, [TNF], and all that whole, did you shape up the organization over the last few years with regard to your antibody work in that respect?

Secondly, on R&D for your proprietary pipeline development, what kind of top line can we expect there for the next two years? And you mentioned that R&D is about to flatten off, maybe, at some point in time. So maybe some more midterm targets with regard to these figures.

And, finally, on net cash, what do you think will be the number in 12 months from now? Thank you.

Arndt, do you want to say anything about biomarkers, perhaps, exemplifying them in one case?

Yes. I'll be glad to. Maybe, if we can clarify-- I'm not sure, Holger, if your question pertained to HuCAL in biomarkers or how we plan to use biomarkers in the clinical development programs.

(Inaudible).

Later. Okay. Maybe I'll start, and then I'll hand over to Lisa. And you can--

So, yes, this is important to us. I think everybody realizes that biomarkers-- specifically, think about predictive biomarkers that would predict response to a certain patient population or subpopulation. We want to build that into the programs. We are doing that. We've written so on a high level, without going into specifics, in our description of the clinical design for 103 because I think it's important to have later information. It's a long road, as you know. And, certainly, you cannot expect anything tangible after an early trial. But we want to have a long-term perspective in biomarkers in the trial, so, if we continued of then, later, the partner continues, that there will be information on that. And that's (inaudible).

I don't have anything to add to that.

So, we also would consider that for all the programs. It might not be adequate for all programs. One should include it when it makes sense. Now, there's, of course, a range of biomarkers. One always includes pharmaco-dynamic markers, where-- And we have included that in the current trial and will do in the future trial-- where you just simply see if your drug hits the target. But I think, Holger, you're probably referring to also the predictive markers with patient subpopulations and high-responding subpopulations - so-called personalized medicine. So, yes, we have an interest in that, and we are really starting to build up those capacities and building it into the trial.

As it relates to your question on the top line for Proprietary Development, I think, until 2012, the only revenues that we foresee in that operating segment are those arising from Novartis co-development. Next year, we see a number of approximately EUR2 million in there. But, of course, the next number that you could imagine to see in that operating segment on the top line would be sometime in 2012, when we out-license 103.

And, maybe in that regard, it should be mentioned that, within the last six months, I believe, there have been three rheumatoid arthritis drugs that have been partnered on the back of Phase 2a data. And the up-front payments were between $80 million and $100 million for those three compounds. Now, I'm not going to sit here and predict that we could get a payment like that. But, even if we could get something approaching that-- even half that, that suddenly presents you with a different proposition in terms of what you can afford to do, obviously.

So, as we think about an out-licensing event and the impact of that on our top line and what it can do for our bottom line and so on, those are the kind of things we're thinking about.

Maybe the final question on the projected yearend cash balance that we might have. We are reluctant today to give that number out for two reasons. Number one, as Simon mentioned in his presentation, it could be that we acquire a company. If we strip out any kind of extraordinary items to it-- The other thing one still needs to consider is the fact that we have approximately EUR15 million coming in from a December payment in 2009 in January 2010. Assuming we don't have the same issue next year, then next year's midpoint profitability is roughly EUR7 million. The noncash charges of stock-based compensation, of depreciation and amortization, and so forth are another EUR7 million on top of that. So, roughly EUR12 million cash flow in addition to what we have today, plus the EUR15 million that came in December, would be my best guess. But I refuse to be held to that at the end of next year.

Okay. There was another question..

One more question, on the AbD Serotec segment. You showed the nice progress you made last year and also the opportunities you see in the two markets - research antibodies and in newer diagnostics. Could you break down a little bit where you currently stand in those two markets in terms of market position, sales, and goals you're aiming for?

It's hard currently to predict where we actually are in the research market. So we are-- I can't give you any numbers there. But we are a well known player. In share of (inaudible) rankings in the research market, we are actually at position number 10/11 in the world. And, you have to think about it; there are about 350 companies, globally, out there. So we're not too bad.

In terms of positioning in the diagnostic market, let me give you a qualitative experience that I had this year. When we presented the HuCAL technology to one of the big players, the first question was - Where have you guys been hiding all those years? They have never seen and heard anything about that. And we get overwhelming, very positive feedback. That just doesn't mean that everybody comes to (inaudible); now we're going to purchase immediately from you. You have to go through a regular selling process. So we have to work our way up the chain. Rome wasn't built in a day, as I always say. So, step by step. That's the only thing that I can tell you qualitative to your question.

Are there further questions (inaudible)? I don't know who's first?

Actually, I have two questions for Arndt. The first one is-- I may have missed it, but how many patients have you already included or treated in your 103 study?

And the next one is-- I'm surprised to hear that you aim for a mix of biologics pretreated and biologics-naive patients because I would be surprised if your study would be powered to actually distinguish between both. And, given the current situation with [TNF] being the gold standard or [NTTNF] being the gold standard, the only think I can imagine is that you can aim for second- or third-line after T&F failure. So you would not expect to see biologics-naive patients in the foreseeable future. Can you comment on that, please?

Very good questions. Thank you. I'll take that. Let me start with the latter one. As I pointed out, we took a slightly different strategy; maybe a little different than what you're alluding to in terms of the standard approach that others with TNF have certainly taken. We chose consciously to take what I would call a real-world. The population is heterogeneous. Yes, it's biologic-naive and biologic-pretreated. And we have powered sufficiently to then detect a signal. The strategy here is really to see-- because, remember, this is a new pathway. It's exciting. I think we have very good proof of concept preclinically. Nobody has really shown clinical proof of concept with the pathway. But we want to detect the signal first. That's why we chose the population to be broader.

Now that means, of course, and I must fully agree, once we have detected the signal, we would choose a subpopulation to go forward. Those would be, then, the following trials. And, certainly-- Obviously, a Phase 3 trial would look at a subpopulation where we have a good signal. That, of course, could include and might very well include the biologic-pretreated or the TNF-inadequate responders, which there would be quite a rationale to go for those, as you know. A third of them doesn't respond, so there is a clear need. So I hope that kind of answers the second part.

The first part-- Let me remember. You asked about-- Lisa, you want to comment that?

He wanted to know how many patients have been enrolled in the study thus far. As we mentioned, the sites were opened in December. The first patient was enrolled in early January. And, aside from that, all we can say is that the enrollment is on track. But we'd prefer not to disclose the specific details.

Just in addition to Arndt's response on your other question, too, we've opened-- You see that the trial has been approved. It's open in Bulgaria. Also, because the primary objective of the study is really to look at safety and tolerability, there are patients-- Not all patients have had previous exposure to TNF inhibitors as well. So we wanted to be-- as Arndt said, to open the trial up to real-life, where not all patients had that previous exposure.

There's a follow-up question, I think.

From my previous life, I know there is a difference between real-life and regulatory agency. And I was alluding to the approach of regulatory agencies. As far as-- At least, me, I would never allow you to go into TNF and naive patients or apply for that.

I think that's a correct statement. The usual path is you would start with a second- or third-line approach. But, again, I think we want to be set up for success early on and have a broad signal. Seek the signal and then go the path. Absolutely. I can fully agree that one must then go in a subpopulation and seek there first. And the easier path first would be biologic-pretreated. It doesn't preclude that one sees, actually, a signal in the (inaudible). But, I absolutely agree. There is a difference. We are signal seeking. And then the regular path later with label-enabling or, really, registration trials, of course, then will be different.

Actually, (Inaudible) posed the biggest part of my question. Thanks for that. Maybe you can briefly outline or discuss the development plans (inaudible) sub-cu, because I wondered if it could make sense to go in naive patients with an IV formulation.

So, maybe I'll just briefly comment. You know, we haven't really talked about any sub-cu formulations. It's understandable that the trend is towards that. And, of course, we're looking at that. But we find it appropriate to, if that was your question, to start with an IV formulation. And it won't be a 2a trial. And, agreed to your statement, there might be merit to that. But we start with IV now and then are looking at different formulations later.

Do you think that you can treat TNF-naive patients with an IV formulation in terms of competition, with regard to all the stuff which is on the market and in the pipeline?

Yes. You know, we haven't really commented on the formulation. I would agree that the competition is there, and the trend clearly goes to sub-cu.

But I think what we can add to that is we're working on that. We're working on formulation of a sub-cu form of the drug. And I think the data that we've got so far is actually very encouraging in terms of the threshold solubility of the compound, which is very high. So everything we know about the compound says that it is actually well suited to be formulated in a sub-cu formulation.

And that will be the plans for later trials - absolutely going sub-cu.

Later trials means later than 2012?

Yes. This trial is IV and later trials will be after that.

Okay. Thank you. And then I've got another question on AbD. It's usually a bit (inaudible) source that, given the fact that you only reached your guidance through the weakness of the British pound, are there any restructuring charges or other one-offs included in the figures (inaudible)? And why can we expect such a deep recovery then in 2010, '11, '12?

First of all, thank you for the question. It's a very good question. No, it's obvious. First of all, we had to reinvest in the organization. Yes, there were some restructuring charges, but we also had to invest in equipment automation. All these press releases you saw in the recent days, they weren't free of charge. We had to pay for it. And, yes, we took benefit out of the foreign exchange advantage and then invested those advantages back into the organization.

And the restructuring process is history by now?

The major restructuring process is done and things which will happen now at a, let's say, lower organizational level wouldn't impact the guidance.

I think just to be clear on that, at constant currencies, we would have been very close to the EUR 20 million. We missed it by about EUR 600,000 or so. We would have been much closer at constant currencies. And we absolutely blew through our profit goal, as you saw. And that was, obviously, probably results of the favorable currencies that we had on the cost side of the business.

And then maybe just to add to that-- So with that luxury of exceeding our guidance because of the pound, and I think Dieter mentioned this, we had the luxury of being able to invest at the end of the year. So I think if we hadn't had that luxury, if we hadn't had that buffer, we still would have made guidance.

Are there further questions?

A question for Simon, if I may - a strategic one. You mentioned in your speech that you would like to enlarge and broaden your base for technology and for the strategic footprint of the Company. Does this mean even more (inaudible) indications, besides the three ones you are currently running? Or is this more, let's say-- even more strengthening in the inflammation or in the Japanese activity? That's one.

And the other is on AbD once again. If you are heading for (inaudible) business and less catalog business, if I do understand your indications rightly, that means you will have less production in UK and more in the German plant. Is this true? So the British pound problem won't be that big anymore. Is this true?

Let me first start with the technology question. As I said before, what we're thinking about in terms of technology are the various ways of making better antibodies and, perhaps, also, hitting different targets. We're not thinking of that as a means of expanding our indication basis. And the decision to concentrate on inflammation and cancer is much more of a development issue than it is a technology issue. That's where it becomes a constraint, as a small organization, to have the development approach the preclinical and the clinical development expertise. As a small company, it becomes impossible to work in multiple indications.

We are doing some infectious-disease-specific technology development, which was a part of the agreement we had with Daiichi-Sankyo, which is specifically related to infectious-disease type of targets.

But, in general, we're not thinking about technology development from an indication point of view; we're thinking about it from just simply making better antibodies for different applications.

Sure. Currently the HuCAL piece of our business is the smaller piece of the overall business. And we don't walk away from catalog business. We just want to walk away from the unprofitable catalog business. And, as I mentioned before, we don't want to be everybody's darling. We want to focus, instead-- Of the whole product portfolio, we want to focus on our sweet spots.

So for the foreseeable future we're definitely going to keep on manufacturing in Oxford. And we also will serve OEM end partners with traditional antibodies out of the Oxford side.

So I actually don't see any change in the volatility of our business to foreign exchange over the next three or four years, definitely. I hope this answers the question.

Are there further questions?

Maybe a follow-up question on the AbD business-- You mentioned you want to grow margin each year. Where do you believe could be a sort of target range, beyond which would become very difficult to increase margins any further?

And then a clarification question on, actually, chart- on page 41 of your presentation. You mentioned that the projections for 2015 assume industry-standard attrition rates. Does this mean the attrition rate you gave us like two years ago on human antibodies are okay?

Let me just take the spotlight off Dieter for a minute. Regarding AbD margins, I think, in general, we feel there's no reason why this unit can't get up into the teens, perhaps the mid teens-- who knows, the higher teens. I don't want Dieter to have to say that and us to hold him to it. But there's no reason at all why we can't reach that. But I don't want to say on what time scale that's in our plans.

Regarding the antibody development attrition rates, yes, indeed, we have those standard probabilities that we use that are based on industry-published data. And that's why I said during the talk you may well expect that we're better than that, actually, because these are fully optimized, fully human antibodies. But, for planning purposes, we don't assume that.

Okay. So are there further questions? I think it's not the case. Then I would like to thank you for your participation. We will be still around for the next hour or so for if you want to talk to us and have some follow-up questions or have a cup of coffee. Thanks for your participation. We also thank you, people listening to the conference call. Have a nice day and goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.