AnnualReport
2013
Table of contents
REPORT OF THE BOARD OF DIRECTORS
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AUDITED CONSOLIDATED 2013 ANNUAL FINANCIAL STATEMENTS
31
CONSOLIDATED INCOME STATEMENTS AND CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED CASH FLOW STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF THE STATUTORY AUDITOR
AUDITED NON-CONSOLIDATED 2013 ANNUAL FINANCIAL STATEMENTS
CONDENSED NON-CONSOLIDATED ANNUAL ACCOUNTS
GLOSSARY
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35
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Galapagos Annual Report 2013
Annual Financial Report 2013
This document, Galapagos’ Annual Financial Report 2013, contains all required information as per the Belgian Code of
Companies.
LANGUAGE OF THE ANNUAL FINANCIAL REPORT 2013
According to Belgian law, Galapagos must publish its Annual Financial Report in Dutch. The Company also provides
an English translation. In case of differences in interpretation, the Dutch version will take precedence. Galapagos is
responsible for the translation and conformity between the Dutch and English versions.
AVAILABILITY OF THE ANNUAL FINANCIAL REPORT 2013
This document is available to the public free of charge and upon request:
Galapagos NV
Investor Relations
Generaal De Wittelaan L11 A3
B-2800 Mechelen, Belgium
Tel: +32 15 34 29 00
ir@glpg.com
An electronic version of the Annual Financial Report 2013 is available on the website of Galapagos, www.glpg.com.
Galapagos will use reasonable efforts to ensure the accuracy of the electronic version, but does not assume responsibility
if inaccuracies or inconsistencies with the printed document arise as a result of any electronic transmission. Therefore,
Galapagos considers only the printed version of the Annual Financial Report 2013 to be legally valid. Other information on
the website of Galapagos or on other websites does not form a part of this Annual Financial Report.
FORWARD-LOOKING STATEMENTS
The Annual Financial Report 2013 may contain forward-looking statements, including, without limitation, statements
containing the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,” “may,” “will,” “could,”
“stands to,” and “continues,” as well as similar expressions. Such forward-looking statements may involve known and
unknown risks, uncertainties and other factors which might cause the actual results, financial condition, performance
or achievements of Galapagos, or industry results, to be materially different from any historic or future results, financial
conditions, performance or achievements expressed or implied by such forward-looking statements. Given these
uncertainties, the reader is advised not to place any undue reliance on such forward-looking statements. These forward-
looking statements speak only as of the date of publication of this document. Galapagos expressly disclaims any obligation
to update any such forward-looking statements in this document to reflect any change in its expectations with regard
thereto or any change in events, conditions or circumstances on which any such statement is based, unless required by law
or regulation.
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Galapagos Annual Report 2013
Report of the Board of Directors
BOARD OF DIRECTORS’ REPORT TO THE SHAREHOLDERS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2013
Ladies and gentlemen,
Dear shareholders,
We present to you our report relating to Galapagos’ consolidated and non-consolidated results during the financial year
ended on 31 December 2013.
Throughout this report the term “Galapagos NV” shall refer solely to the non-consolidated Belgian company. “Galapagos” or
“Group” or “Company” shall refer to the consolidated group of companies.
The companies included in the consolidated results are: Galapagos NV (Mechelen, Belgium); Galapagos BV (Leiden, The
Netherlands); BioFocus DPI (Holdings) Ltd. and its subsidiaries BioFocus DPI Ltd. (Saffron Walden, UK); BioFocus, Inc. and
its subsidiaries, BioFocus DPI LLC, and Xenometrix Inc.; BioFocus DPI AG (Basel, Switzerland) and its subsidiary Discovery
Partners International GmbH (Heidelberg, Germany); Inpharmatica Ltd. (Saffron Walden, UK); Galapagos SASU (Romainville,
France), Argenta Discovery 2009 Ltd. (Harlow, UK), Cangenix Ltd. (Canterbury, UK) and Fidelta d.o.o. (Zagreb, Croatia).
1. OVERVIEW OF DEVELOPMENT, RESULT AND POSITION OF THE GALAPAGOS GROUP
In 2013, Galapagos delivered further validation of its strategy and scientific approach, both in the clinic and on the
deal-making front. Galapagos’ pipeline has matured further and is supported by the strongest balance sheet ever. The
Company expects readouts from four patient studies between now and the end of 2015, with additional novel target based
programs moving into pre-clinical and clinical stages in that period as well. Galapagos is well-positioned to capitalize on its
considerable R&D assets.
Financially, 2013 was a very good year for the Company. The Company grew Group revenues 4% to €160 million, in line
with management guidance. The Company limited its operating and net loss, notwithstanding the planned substantial
increase in spending on Phase 2 clinical programs. The service division improved its performance in the second half of
the year, delivering 5% external revenues growth in H2 2013 compared to H2 2012, normalized for the discontinuation of
BioFocus’ Basel operations. Despite the weak first half of 2013, the service division ended the full year with 2% external
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Galapagos Annual Report 2013
sales growth on a normalized basis1. Galapagos’ liquid assets position is solid with cash reserves of €141.5 million on 31
December 2013 plus €6.0 million in 2013 milestone receivables. With the subsequent divestiture of the service operations in
March 2014, Galapagos has strengthened its balance sheet to unlock more shareholder value in the pipeline.
R&D division delivers strong Phase 2 pipeline, with substantial progress in earlier stage programs
Galapagos invested substantially in its R&D programs, reflecting the progression of multiple programs into Phase 2 clinical
development. More than half of the investment made was on Phase 2 studies in rheumatoid arthritis and Crohn’s disease
with selective JAK1 inhibitor GLPG0634, putting Galapagos into position to earn a $200 million licensing fee and a $50
million Crohn’s success payment in 2015. Galapagos ended 2013 with three Phase 2 drugs, one Phase 1, six pre-clinical,
and more than 20 discovery programs.
In the field of inflammation, Galapagos made good progress in, and expanded, the GLPG0634 franchise with AbbVie. The
Company announced an agreement with AbbVie to enlarge the Phase 2B program in rheumatoid arthritis, receiving an
additional $20 million from AbbVie to compensate for the cost of inclusion of more patients. The study was enlarged
to bring the number of patients per cohort in line with cohort sizes of competitor studies. Later in the year, Galapagos
announced an agreement to include Crohn’s disease in the alliance; Galapagos will fund and run a Phase 2 study in Crohn’s
disease, potentially enabling an immediate subsequent entry in Phase 3 in this indication and winning 2 years’ time in the
development path to registration. In return for this, Galapagos is eligible to receive an additional $50 million fee upon
successful achievement of pre-agreed criteria in the Phase 2 study in Crohn’s disease.
Galapagos started the global Phase 2B program with GLPG0634 in patients with moderate to severe RA who do not respond
to methotrexate (MTX). DARWIN 1 is a dose-range finding study in up to 595 patients on background treatment of MTX.
DARWIN 2 is a dose-range finding study in up to 280 patients without MTX. Both studies are placebo-controlled for the first
12 weeks, with 12 more weeks of treatment after that to collect further safety data. DARWIN 3 is a long-term extension
study to gather additional safety data. On 7 March 2014, Galapagos reported that DARWIN 1 remains on track to deliver
topline 12 week safety and efficacy data by end 2014.
Galapagos completed preparations in 2013 to start the Phase 2 study in Crohn’s disease with GLPG0634 in January 2014.
This innovative study is designed to enroll up to 180 patients with Crohn’s disease, evaluating the induction of disease
remission and exploring the early maintenance of its beneficial effects with up to 20 weeks of treatment. Patients will be
recruited from 49 centers in Eastern and Western Europe.
Furthermore, Galapagos initiated a Phase 2 Proof-of-Concept study with FFA2 inhibitor GLPG0974 in ulcerative colitis. Target
FFA2 was identified by Galapagos as playing a key role in inflammation, and GLPG0974 has shown up to 90% inhibition of
a relevant biomarker for FFA2 in Phase 1 studies. FFA2 is important for the migration of neutrophils, the first line of the
body’s defense system. Neutrophils are overactive in ulcerative colitis patients, leading to inflammation and painful ulcers
in the colon. GLPG0974 is aimed at reducing neutrophil migration. The placebo-controlled Proof-of-Concept study with
GLPG0974 explores 200 mg BID dosing in 45 ulcerative colitis patients for 4 weeks in 16 centers in Belgium and Eastern
1 ’13 Group revenues comprise R&D revenues of €96.4 M and Services revenues of €63.2 M. ‘12 Group revenues comprise R&D revenues
of €87.3 M, normalized Services revenues of €61.9 M and Basel revenues of €3.8 M. The Basel operations of BioFocus were discontinued in
2012.
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Galapagos Annual Report 2013
Europe. Galapagos recently announced the completion of recruitment for the study, with topline efficacy and safety results
expected in June 2014.
The Company reported positive results with GLPG1205, a novel mode of action in Inflammatory Bowel Disease (IBD) in the
inflammation alliance with Janssen Pharmaceuticals NV (J&J). GLPG1205 demonstrated target engagement, a clean safety
profile, and favorable drug-like properties. Galapagos is preparing plans for a Phase 2 study in IBD, to be filed by end 2014.
In the course of 2013, GlaxoSmithKline (GSK) initiated three patients studies with selective JAK1 inhibitor GSK2586184,
formerly known as GLPG0778 and inlicensed from Galapagos in 2012. In February 2014, GSK disclosed to Galapagos that
the dose-range finding Phase 2 study with up to 64 psoriasis patients on 12 weeks of treatment was completed and that
topline results are expected in H1 2014. GSK further notified Galapagos that the Phase 2 study in lupus was stopped after a
first planned interim analysis, due to a lack of effect, and that the exploratory Phase 1/2 study with up to 15 ulcerative colitis
patients was put on hold.
In cystic fibrosis (CF), Galapagos and AbbVie announced a global agreement to co-develop novel oral therapies to treat
the main mutation affecting 70% of CF patients. Both companies contribute funding and science to the collaboration.
Galapagos will lead the research up until completion of Phase 2, when AbbVie will lead the Phase 3 development and
commercialization. Galapagos received a $45 million upfront payment and is eligible to receive up to $360 million
in success-based milestones, plus tiered double-digit royalties on global sales of approved drugs. Galapagos retains
commercial rights in China and South Korea and co-promotion rights in the Benelux countries.
Patients with CF have a genetic mutation affecting the flow of fluid through the lung and other organ membranes. The
resulting build-up of mucus on the lining of the lungs creates an ideal environment for bacteria and other pathogens to
thrive, resulting in severe lung infections and gradual decline in lung function, ultimately leading to death. CF patients have
a life expectancy of 37 years. In order to treat CF patients with the most common mutation, the hypothesis is that both
a corrector and potentiator are needed in combination to correct the defect. Galapagos selected GLPG1837 as pre-clinical
candidate potentiator drug late in 2013 and is working toward selecting a pre-clinical candidate corrector drug by end 2014.
Galapagos plans to enter Phase 1 with GLPG1837 by year end 2014, triggering a milestone payment from AbbVie.
In the field of oncology, Galapagos announced the selection of GLPG1790, a pre-clinical candidate drug showing good
activity against triple-negative breast cancer tumors in pre-clinical models. This compound is the first to target the ephrin
tyrosine kinase receptor, which plays a key role in a number of cancers including melanoma, pancreatic, ovarian, prostatic,
and colorectal cancers.
In the field of osteoarthritis, Galapagos delivered novel molecules in the alliance with Servier, but, due to toxicity findings
also stopped work on a pre-clinical candidate which had been slated to enter the clinic in 2013.
The Flemish agency for Innovation by Science and Technology (IWT) awarded Galapagos grants in 2013 for innovative
research in anti-bacterials (€2.7 million) and IBD (€2.5 million). These grants facilitate investment in important programs
and allow Galapagos to expand its research efforts in Mechelen, Belgium.
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Galapagos Annual Report 2013
Galapagos progressed 23 discovery programs in 2013, most of which are based on novel proprietary targets discovered by
the Company.
Good performance of the service division
The service division reported disappointing financial numbers for the first half in 2013, then improved its performance in
the second half of the year. David Smith was appointed CEO Services in September. BioFocus announced an extension of
the collaboration with the Michael J. Fox Foundation, and signed agreements with Biogen Idec and Boehringer Ingelheim.
Argenta signed a collaboration with Boehringer Ingelheim and extended it drug discovery collaboration with Genentech for
the fourth time.
On 13 March 2014, Galapagos announced that Charles River Laboratories International, Inc. is to acquire the BioFocus and
Argenta service division. Upon closing, Galapagos is to receive €129 million cash and is eligible to receive €5 million in
earn-out payments when certain sales milestones are achieved after one year. Galapagos was approached by Charles River
for the transaction and agreed to sell to strengthen the balance sheet for further investment in the Company’s promising
pipeline.
Personnel
At the end of 2013, the total number of employees working within the Group amounted to 810. With the sale of the
BioFocus and Argenta services division, the total number of employees within the Group will be reduced by half.
Environment
All companies of the Group continue to hold the necessary permits for their exploitation, and to respect the applicable
environmental rules.
Group financial results
Revenues
Galapagos’ revenues for 2013 amounted to €159.5 million, an increase of 4% compared to 2012 and equal to management
guidance. The R&D division reported total revenues of €96.4 million, reflecting milestone achievements in the R&D
alliances, €45 million in revenue recognition from the $150 million upfront and the $20 million extension AbbVie payments
for GLPG0634, and €6.8 million in revenue recognition from the $45 million upfront from AbbVie for cystic fibrosis. The
service division reported total external revenues of €63.2 million, an increase of 2% compared to €61.9 million last year on a
normalized basis.
Result
The Group incurred a net loss in 2013 of €8.1 million, or €0.28 loss per share, compared to a net loss of €5.7 million, or
€0.22 loss per share in 2012.
The R&D division incurred a segment loss of €12.9 million in 2013, compared to a segment loss of €3.5 million last year.
R&D expenses were €99.4 million, compared to €80.3 million last year. This planned increase was driven by the Phase 2B
RA program and Phase 2 Crohn’s disease study for GLPG0634, together with other clinical studies to support the pipeline.
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Galapagos Annual Report 2013
The Service division reported a gross margin of 35.4% compared to 35.9% in 2012 on a normalized basis and a segment
profit of €8.9 million, compared to €9.1 million on a normalized basis in 2012.
General and administrative costs for the Group increased to €26.4 million, compared to €24.5 million in 2012. General and
administrative expenses as a share of group revenues increased to 16.6% compared to 16.0% in 2012.
Liquid assets position
Cash balance was €141.5 million on 31 December 2013, the highest year end cash balance the Company has ever had.
Including €6.0 million in alliance related receivables for which revenues were recorded in 2013 and for which payment is
expected in Q1 2014, the Company’s liquid asset position was €147.5 million at year end 2013, compared to €115.4 million
at year end 2012. In addition, Galapagos’ balance sheet holds a receivable from the French government (Crédit d’Impôt
Recherche)2 amounting to €33 million, payable in four yearly tranches starting mid-2014. Payment of €8.6 million of this is
expected in 2014, with equal tranches expected annually subsequent to that for three more years.
Outlook for 2014
The Phase 2B clinical program for GLPG0634 in RA is on track to deliver the 12 week topline efficacy and safety data for
DARWIN 1 in late 2014. Further topline results are expected from GSK’s Phase 2 psoriasis study with GSK2586184 as
well as Galapagos’ Phase 2 Proof-of-Concept study with GLPG0974 in ulcerative colitis. The Company expects to make
significant progress in both partnered and non-partnered R&D programs as the pipeline continues to mature across a broad
range of therapeutic areas, resulting in multiple additional clinical and pre-clinical stage programs by end 2014. Following
the announced transaction with Charles River for the sale of the BioFocus and Argenta service operations, Galapagos
management guided for €125 million in Group revenues in 2014 and a cash balance of €170 million at year end 2014.
2. OVERVIEW OF DEVELOPMENT, RESULT AND POSITION OF GALAPAGOS NV
Chapter 2 only concerns the non-consolidated statutory results of Galapagos NV. These results are part of
the consolidated results as discussed above.
Galapagos NV’s operating income in 2013 amounted to €152.0 million compared to €133.7 million in 2012. This increase is
mainly due to increased internally generated intangible assets – being capitalized R&D expenses – which contributed €16.0
million more to operating income than in previous year. The other operating income amounts to €13.2 million, including
€2.0 million in grants recognized for R&D projects, €5.0 million in recharges to subsidiaries and €4.1 million recognized in
tax incentives for investments in intangible fixed assets.
The operating costs of 2013 amounted to €167.7 million compared to €133.7 million in 2012. Material purchases remained
flat at €3.4 million. Services and other goods increased to €78.8 million compared to €71.3 million in 2012, mainly as a
result of increased outsourcing for development of our products.
Personnel costs in 2013 amounted to €12.1 million compared to €11.8 million in 2012. The number of employees at
Galapagos NV at the end of 2013 amounted to 128.
2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government
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Galapagos Annual Report 2013
Depreciation increased to €66.8 million in 2013, compared to €45.5 million in 2012. This is due to amortization booked on
the internally generated intangible assets capitalized in 2010, 2011, 2012 and 2013.
Galapagos NV’s 2013 financial income decreased to €1.9 million compared to €3.1 million in 2012. The high balance in
previous year can mainly be explained by realized exchange rate gains on the $150 million upfront payment received from
AbbVie in 2012. Financial costs amounted to €1.6 million compared to €0.9 million in 2012. This is mainly due to realized
exchange rate losses on the AbbVie payments received in 2013 ($20 million for GLPG0634 RA and $45 million for cystic
fibrosis).
Extraordinary costs amount to €1.0 million in 2013, compared to €29.5 million in 2012, of which €28.4 million was related to
the extraordinary write-off of capitalized R&D costs with regard to alliances which ended or programs which were placed on
hold.
Galapagos NV capitalizes its incurred R&D expenses to the extent that the costs capitalized do not exceed a prudent
estimate of their value in use or their future economic benefits for the entity. The ability to recover the capitalized amounts
takes into account assumptions (i.e. future peak sales, market share, sales price, attrition rates regarding the successful
completion of the different R&D phases) which have a highly judgmental nature and depend on the outcome of uncertain
factors which are beyond the control of the entity (i.e. test results). The achievement of these assumptions is critical and
may impact the recoverability of the amounts capitalized. Capitalized R&D expenses amount to €119.8 million compared to
€90.4 million last year.
Investments in fixed assets in 2013 totaled €2.2 million, excluding the internally generated assets. They consist mainly of
new lab equipment, as well as investments in intangible assets, being software development for compound inventory.
Galapagos NV’s cash position at the end of 2013 amounted to €127.1 million.
The non-consolidated annual accounts of Galapagos NV which we submit for your approval were prepared in accordance
with Belgian accounting rules as well as with the legal and statutory requirements. They show a negative result. The
financial year 2013 closed with a loss of €16.4 million compared to a loss of €27.2 million in 2012. The result of Galapagos
NV is largely affected by the fact that, as from financial year 2010, Galapagos NV capitalizes some of its R&D expenses and
revenues that are eligible for such capitalization under Belgian GAAP. This capitalization positively impacted the net result of
Galapagos NV by €5.4 million in 2013, compared to a negative impact of €10.4 million in 2012.
In 2013, neither Galapagos NV nor its affiliates made direct or active use of financial instruments such as hedging.
3. ACTIVITIES IN THE AREA OF RESEARCH AND DEVELOPMENT
For a description of Galapagos’ Research & Development activities in 2013, we refer to what is set forth above in section 1,
topic “R&D division delivers strong Phase 2 pipeline, with substantial progress in earlier stage programs.”
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Galapagos Annual Report 2013
4. SHARES AND CAPITAL
Capital increases and issue of shares
On 1 January 2013, the share capital of Galapagos NV amounted to €144,815,588.27 represented by 26,770,747 shares.
In the course of 2013 there were four capital increases resulting from the exercise of warrants, resulting in the issuance of
326,468 new shares, an increase of the share capital by €1,766,191.88 and an increase of the issuance premium account by
€262,025.36. On 29 April 2013, Galapagos NV issued 2,696,831 new shares through a private placement with institutional
investors, resulting in an increase of the share capital by €14,589,855.71 and an increase of the issuance premium account
by €39,346,764.29. At the end of 2013, the total share capital of Galapagos NV amounted to €161,171,635.86 represented
by 29,794,046 shares.
On 15 May 2013, the Board of Directors issued 602,790 warrants (after acceptances) within the framework of the authorized
capital, for the benefit of the Directors and certain independent consultants of Galapagos NV, and of employees of the Group
under a new warrant plan (“Warrant Plan 2013”). The offer of warrants to the Company’s Directors under Warrant Plan
2013 was approved by the Annual General Shareholders’ Meeting of 30 April 2013. The warrants issued under Warrant Plan
2013 have a term of eight years and an exercise price of €19.38.
On 18 September 2013, the Board of Directors issued 75,000 warrants (after acceptances) within the framework of the
authorized capital, under a new warrant plan (“Warrant Plan 2013 (B)”), for the benefit of Mr David Smith, who joined
Galapagos’ Executive Committee as CEO of the service division. The warrants issued under Warrant Plan 2013 (B) have a
term of eight years and an exercise price of €15.18.
Shares and rights attached to the shares
Of the 29,794,046 shares of Galapagos NV outstanding at the end of 2013, 538,696 were registered shares, 29,254,590
shares were dematerialized shares and 760 shares were bearer shares. All shares are issued and fully paid up and are of
the same class.
Each share (i) entitles its holder to one vote at the Shareholders’ Meetings; (ii) represents an identical fraction of the capital
and has the same rights and obligations and participates equally in the profit of Galapagos NV; and (iii) gives its holder a
preferential subscription right to subscribe to new shares, convertible bonds or warrants in proportion to the part of the
share capital represented by the shares already held. The preferential subscription right can be restricted or cancelled
by a resolution approved by the Shareholders’ Meeting, or by the Board of Directors subject to an authorization of the
Shareholders’ Meeting, in accordance with the provisions of the Belgian Companies Code and Galapagos NV’s articles of
association.
Authorized capital
In accordance with the articles of association, the Extraordinary General Shareholders’ Meeting of Galapagos NV authorized
the Board of Directors to increase the share capital of the Company, in one or several times, and under certain conditions
set forth in extenso in the articles of association of Galapagos NV. This authorization was renewed and is valid for a period
of five years from the date of this renewal, i.e. 23 May 2011. The Board of Directors may increase the share capital of
Galapagos NV within the framework of the authorized capital for an amount of up to €142,590,770.44. In 2013, Galapagos
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Galapagos Annual Report 2013
NV’s Board of Directors made use of the right to increase the capital in the framework of the authorized capital on three
occasions: (1) on 29 April 2013, in connection with a private placement in the framework of which 2,696,831 new shares
were issued for a share capital increase of €14,589,855.71 (plus issuance premium of €39,346,764.29); (2) on 15 May 2013,
in connection with the issuance of Warrant Plan 2013 under which a maximum of 602,790 new shares can be issued for a
total maximum capital increase of €3,261,093.90 (plus issuance premium); and (3) on 18 September 2013, in connection
with the issuance of Warrant Plan 2013 (B) under which a maximum of 75,000 new shares can be issued for a total
maximum capital increase of €405,750.00 (plus issuance premium). On 31 December 2013, an amount of €121,731,103.43
still remained available under the authorized capital.
When increasing the share capital within the limits of the authorized capital, the Board of Directors may, in Galapagos NV’s
interest, restrict or cancel the shareholders’ preferential subscription rights, even if such restriction or cancellation is made
for the benefit of one or more specific persons other than the employees of the Company or its subsidiaries.
Changes in share capital
In accordance with the Belgian Companies Code, Galapagos NV may increase or decrease its capital by decision of the
Extraordinary General Shareholders’ Meeting taken with a majority of 75% of the votes cast, at a meeting where at least
50% of the share capital of Galapagos NV is present or represented. If the attendance quorum of 50% is not met, a new
Extraordinary General Shareholders’ Meeting must be convened at which the shareholders may decide on the agenda
items, irrespective of the percentage of share capital present or represented at such meeting. In this respect, there are no
conditions imposed by the Company’s articles of association that are more stringent than those required by law.
Within the framework of the powers granted to it under the authorized capital, the Board of Directors may also increase
Galapagos NV’s capital as specified in its articles of association.
Purchase and sale of own shares
At the Extraordinary General Shareholders’ Meeting of 23 May 2011, the Board of Directors was authorized to approve
the acquisition, subject to the provisions of the Belgian Companies Code, of Galapagos NV’s own shares or profit sharing
certificates or certificates and to dispose thereof in accordance with the provisions of the Belgian Companies Code, should
such acquisition be necessary to avoid a serious and imminent harm to Galapagos NV. This authorization was granted for
a period of three years from the publication of the aforementioned resolution in the Annexes to the Belgian State Gazette
(i.e. 10 June 2011). This authorization is also applicable to the acquisition of shares of Galapagos NV by its affiliates. The
conditions for the purchase and sale of own shares are set forth in extenso in the articles of association of Galapagos NV.
On 31 December 2013, neither Galapagos NV nor any subsidiary of Galapagos NV held any shares in Galapagos NV nor did
any third party hold any shares in Galapagos NV on their behalf.
Anti-takeover provisions in Galapagos NV’s articles of association
The Board of Directors is expressly authorized during a period of three years as of the date of the General Shareholders’
Meeting which granted this authorization, i.e. 23 May 2011, to increase Galapagos NV’s share capital within the context of
the authorized capital by contributions in kind or in cash with restriction or cancellation of the shareholders’ preferential
subscription rights, even after the FSMA has notified Galapagos NV of a public take-over offer for the Company’s shares,
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Galapagos Annual Report 2013
provided that the relevant provisions of the Belgian Companies Code are complied with, including that the number of
shares issued under such capital increase does not exceed 10% of the shares issued by Galapagos NV prior to such capital
increase. The authorization referred to above may be renewed.
The articles of association explicitly authorize the Board of Directors to acquire and dispose of any shares of Galapagos
NV, without prior approval by the Shareholders’ Meeting, if this is necessary to avoid a serious and imminent harm to the
Company. This authorization was granted for a period of three years from the publication of such decision in the Annexes to
the Belgian State Gazette (i.e. 10 June 2011). This authorization applies under the same conditions to the acquisition of the
shares of Galapagos NV by its subsidiaries.
Anti-takeover provisions under Belgian laws
Under Belgian law, public takeover bids for all the outstanding voting securities issued by the issuer are subject to the
supervision of the FSMA. If the latter determines that a takeover violates Belgian law, it may lead to suspension of the
exercise of the rights attached to any shares that were acquired in connection with the envisaged takeover. Pursuant to
the Belgian law of 1 April 2007 on public takeovers, a mandatory takeover bid must be made when, as a result of its own
acquisition or the acquisition by persons acting in concert with it, a person owns, directly or indirectly, more than 30% of
the securities with voting rights in a company with registered office in Belgium whose securities are admitted to trading
on a regulated or recognized market. The acquirer must offer to all other shareholders the opportunity to sell their shares
at the highest of (i) the highest price offered by the acquirer for shares of the issuer during the 12 months preceding the
announcement of the bid or (ii) the weighted average price of the shares on the most liquid market of the last 30 calendar
days prior to the date on which the obligation of the acquirer to offer the takeover of the shares of other shareholders
starts.
Change of the articles of association
Pursuant to the Belgian Companies Code, any amendment to the articles of association such as an increase or decrease
in the capital of Galapagos NV, and certain other matters such as the approval of the dissolution, merger or de-merger of
Galapagos NV may only be authorized with the approval of at least 75% of the votes validly cast at an Extraordinary General
Shareholders’ Meeting where at least 50% of Galapagos NV’s share capital is present or represented. If the attendance
quorum of 50% is not met, a new Extraordinary General Shareholders’ Meeting must be convened at which the shareholders
may decide on the agenda items, irrespective of the percentage of share capital present or represented at such meeting.
Agreements with and between Shareholders
On the date of this report, Galapagos NV had no knowledge of the existence of any shareholders’ agreements between
Galapagos’ shareholders. Throughout 2013 there were no lock-up agreements in effect between the Company and any of
its shareholders.
Shareholders’ structure
Based on the transparency notifications received by the Company, the shareholders owning 5% or more of the Company’s
shares on 31 December 2013 were Delta Lloyd N.V. (2,954,890 shares), Johnson & Johnson (2,350,061 shares), Baker Bros.
Advisors, LLC (1,722,066 shares), Van Herk Investments B.V. (1,586,727 shares) and The Capital Group Companies, Inc.
(1,554,438 shares).
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At the end of 2013, the CEO owned 357.348 shares of Galapagos and 695,000 warrants. The other members of the
Executive Team held an aggregate of 47,400 shares and 687,500 warrants. The other members of the Board held an
aggregate of 6,800 shares and 192,350 warrants. Each warrant entitles to one share of the Company.
5. RISK FACTORS
Risk management is embedded in our strategy and is considered important for achieving our operational targets (see section
1, topic ‘Outlook 2014’).
To safeguard the proper implementation and execution of the Group’s strategy, we have an internal risk management
and control system. The Board of Directors has delegated an active role to the Audit Committee members for designing,
implementing and operating the Company’s internal risk management and control systems. The purpose of these systems is
to manage in an effective and efficient manner the significant risks to which the Company is exposed.
The internal control system is designed to ensure:
•
•
the careful monitoring of the effectiveness of our strategy
the Company’s continuity and sustainability, through, for instance, consistent accounting, reliable financial
reporting and compliance with laws and regulations
• our focus on the most efficient and effective way to conduct our business
We have defined our risk tolerance on a number of internal and external factors including:
• business performance measures; operational and net profitability
• financial strength in the long run, represented by revenue growth and a solid balance sheet
•
liquidity in the short run; cash
• scientific risks and opportunities
• dependence on our alliance partners
• compliance with relevant rules and regulations
•
reputation
The identification and analysis of risks is an ongoing process that is naturally a critical component of internal control.
On the basis of these and the Company’s risk tolerance, the key controls within the Company will be registered and the
effectiveness will be monitored. If the assessment shows the necessity to modify the controls we will do so. This could be
the situation if the external environment changes, or the laws or regulations or the strategy of the Company change.
Scientific risks
The Group operates adequate standard operating procedures to secure the integrity and protection of its research and
development activities and results, and the optimum allocation of its R&D budgets. The progress of the most important
research and development programs is continuously monitored by the Executive Committee; they are discussed with the
Board at least once per quarter, and Board members with expertise in clinical and scientific matters occasionally attend
meetings with scientific staff to discuss and assess such programs.
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Reliance on key staff and management
Our ability to attract and retain highly skilled personnel on acceptable terms is limited by the competition for qualified
personnel. The absence of professionals could have a material adverse effect on business, financial condition, results of
operations and prospects. Adequate remuneration and incentive schemes and the sharing of the Company’s knowledge
amongst key employees mitigate this risk. In the recent past, Galapagos has continued to be successful in attracting and
retaining qualified employees.
Operational risk
• This risk can take many forms including business interruption, inappropriate behavior, lack of performance. This
risk has a high potential impact, but is mitigated by policies and procedures such as surveillance of the buildings,
annual appraisals and bonuses, and monthly management meetings.
•
Internal and external IT systems
Continuing an uninterrupted performance of our IT system is critical to the success of our business strategy
and operations. A recovery plan for data has been implemented, as well as a system for interception of
power failures. Fire walls and virus scanners provide an additional and adequate protection. The Company’s
personnel should adhere to continuity plans and procedures regarding access rights and installation of different
programs.
Safety risk: handling materials potentially hazardous to health
The very limited use of hazardous materials, the existence of stringent health and safety operation procedures, and regular
inspections and safety days significantly decrease the potential impact as well as the estimated likelihood of the risk.
Furthermore, the Group employs quality & environmental health and safety managers who closely monitor laboratory safety
and continuously seek to improve quality and safety conditions.
Finance risk
• Accounting estimates – impairment of goodwill
The Group constantly uses estimates and assumptions concerning the future, especially when performing
impairment tests on goodwill and (in)tangible assets. These tests are performed on a realistic and regular
basis.
• Credit risk
Credit risk represents the risk of financial loss caused by default of the counterparty. This risk is within
acceptable boundaries as clients are major, well-respected, creditworthy, international pharmaceutical
companies, research foundations, and biotech companies.
• Taxation
The Company may incur unexpected tax charges, including penalties, due to the failure of tax planning or
due to the challenge by tax authorities on the basis of transfer pricing.
Any changes to Belgian and international taxation legislation or the interpretation of such legislation by tax
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authorities may influence the Group’s activities, financial situation and results. Such potential changes and
their impact are monitored carefully by management and its advisors.
• Changes in accounting standards
Any changes to the accounting standards may influence the Group’s financial situation and results. Here as
well, such potential changes and their impact are carefully monitored.
• Financial and liquidity risk
Liquidity risk represents the risk that an entity will encounter difficulty in meeting obligations associated with
its financial liabilities.
The Company monitors its cash on a regular basis by means of cash forecasts and sensitivity analyses. The
Group’s net operating cash flow after investments was negative in 2013 (cash burn) as opposed to a positive cash
flow in 2012, which was mainly due to the $150 million upfront payment received from AbbVie in 2012. To fund
its operations, research activities, and acquisitions, the Group may need additional cash, which may not be
available on acceptable terms when required, if at all. At the moment the Group has no financial debt except
limited financial lease obligations.
• Foreign exchange risk
As a large part of the revenues and costs are denominated in currencies other than the Euro, our functional
currency, the Company has considerable potential exposure to foreign currency fluctuation. The effect of
these fluctuations is recorded in the profit & loss statement or in the consolidated equity, in accordance with the
applicable accounting standards. The Company makes efforts to limit the exposure by closing contracts in local
currencies and by matching revenues and costs in a foreign currency. In order to further reduce this risk,
Galapagos implemented a netting system within the group in the course of 2012, which restrains intra-group
payments between entities with a different functional currency.
Galapagos annually establishes a detailed budget that is submitted to the Board of Directors for review and approval. The
Group’s performance compared to the budget is continuously monitored by the Executive Committee and is discussed
with the Board at least once per quarter. For the establishment of its financial information, the Group has processes and
methods in place that enable the preparation of consolidated financial statements for its annual and mid-year reporting, and
more often if required. The Group’s management reporting systems – which include an advanced integrated ERP system
– secure the generation of consistent financial and operational information, allowing management to follow-up the Group’s
performance on a daily basis.
Intellectual property risk
The Company’s commercial success depends in part on the ability to obtain, maintain and enforce adequate protection of
the intellectual property rights, including patents, in technologies and products and this in a large geographical zone. The
development of grantable patents is not obvious. The possession of patents increases the revenues and is an important
tool when negotiating with potential partners. The outcome of legal disputes concerning patent infringement is difficult
to predict. Legal proceedings over IP rights can be time consuming and expensive and should be avoided by constant
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monitoring of published patents and patent applications. Galapagos endeavors to protect its proprietary technologies and
know-how by entering into confidentiality and proprietary information agreements with employees and partners, and by
setting up special procedures (e.g. with respect to the handling of the laboratory books). Future changes in IP law also can
substantially influence the Company’s operations.
Market risk
• Possible volatility share price
The market price of the shares might be affected by a variety of factors outside management control, such
as the global economic situation, the business development of competitors, sector mergers and acquisitions;
it is difficult to mitigate this risk.
• Economic risk due to failure in confidence
General public confidence about future economic conditions or performance of Galapagos or its suppliers or
customers may impact the ability or willingness of others to trade with the Company.
• Dilution through exercise of warrant plans
The exercise of existing warrants can significantly increase the number of shares.
•
Inability to distribute dividends
The Group has a limited operating history and future profitability cannot be guaranteed. Galapagos NV has
significant losses carried-forward and will thus not be able to distribute dividends in the near future. This can
cause people to refrain from investing in the Company’s stock.
• Acquisition / integration risk
The acquisition and integration of other companies, as part of the Company’s strategy to expand its business
through acquisition of other businesses, present challenges to Galapagos’ personnel and operations.
Specific risks are unanticipated costs, loss of key personnel, the inability to obtain the expected benefits and
synergies of the merger. Galapagos makes sure that every acquisition is preceded by a thorough due
diligence and sets up systems that allow a smooth integration of the acquired businesses and teams.
• Reputational damage
High ethical standards are maintained throughout the entire organization at all levels. Laws and guidelines
are complied with.
Interrupted product supply - loss of key suppliers
A reliable supply of materials is required in order to eliminate production delays.
Most goods and services are provided by several different suppliers, which mitigates the risk of loss of key suppliers.
Expanding the suppliers’ network can be time consuming as all source suppliers are subject to rigorous ethical and quality
control standards. The suppliers should perform as contractually required or expected.
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Reliance on key clients
Certain relationships represent significant sources of revenues. Loss or deterioration of these relationships can significantly
impact the results of the Group. The weakness of the global economy and the ongoing financial crisis has adversely
affected businesses. This risk can be mitigated through multiple alliances with different partners, and through strengthening
relationships with existing clients.
Competition: organizations providing similar contract research – price pressure in the contract research
market
The Group faces competition from contract research companies that may bring products and services to the market which
are more competitive or affordable and which might hurt the position of the service operations.
Legal risks
• Possible litigations and claims – product liability
Product liability cases and claims may give rise to adverse regulatory action and/or negative market perception
of the Company and its products. In most cases damages can be controlled. The likelihood of claims increases
with the increase in size and visibility of the Company. The company carries appropriate insurance policies to
cover its risks, including for its clinical trials.
• Failure to comply with laws and regulations – penalties or cease operations
The industry in which the Company operates is strictly regulated. If the Company fails to meet strict regulatory
requirements, the Company may be required to pay penalties or even to close down certain facilities.
• Change in alliance strategy
Current or prospective licensees and partners may use or develop alternative strategies, technologies or
competing products, independently or in collaboration with others. This strategic shift in business focus can
seriously impact the Company’s results.
• Compliance with Corporate Governance
Galapagos has always in all material respects been compliant with the Corporate Governance Code. Members of
the Executive Committee and of the Board are expected to conduct their duties according to the highest ethical
and professional business standards.
Product development
Pre-clinical testing, clinical research and regulatory approval of a pharmaceutical or medical product is a very intensive and
costly process, and is subject to a high degree of failure in every phase. In some cases regulatory approval might not be
received, or might be restricted to certain geographical regions or indications, or later withdrawn or significantly delayed,
which could impact the receipt of product revenues, if any.
General statement about Galapagos Group risks
According to our current assessment we consider the risks to be manageable and the going concern of the Company not
to be endangered at the time of the current report. Assuming no further deterioration of the global business, financial and
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regulatory environment, the Group considers itself well prepared to meet all future challenges.
6. SIGNIFICANT EVENTS ANNOUNCED AFTER THE END OF THE FINANCIAL YEAR
Galapagos announced the following significant events after 31 December 2013:
• 6 January: Van Herck Investments notify of 5.3% shareholding in Galapagos
• 13 January: Galapagos receives €2.9 million IWT grant for cystic fibrosis research (not included in 2013 revenues)
• 29 January: First clinical centers opened for Phase 2 Crohn’s study with GLPG0634
• 3 February: Galapagos receives €2.3 million IWT grant for fibrosis research (not included in 2013 revenues)
• 17 February: Galapagos completes patient recruitment in Proof-of-Concept study with GLPG0974 in ulcerative
colitis
• 21 February: Galapagos to present GLPG0634 and GLPG0974 at International Conference on IBD
• 28 February: Galapagos provides status update for GSK2586184 in GSK’s psoriasis, lupus, and ulcerative colitis
clinical studies
• 7 March: Galapagos receives €2 million from osteoarthritis alliance with Servier (included in 2013 revenues)
• 13 March 2014: Galapagos announced the signing of a definitive agreement to sell its Argenta and BioFocus
service operations to Charles River Laboratories International Inc. for total cash consideration of up to 134 million.
The transaction is subject to customary closing conditions and is expected to close early in the second quarter
of 2014. Charles River acquires all service operations of BioFocus and Argenta in the UK and the Netherlands.
The acquisition includes all client contracts, order pipeline, premises, equipment, and further obligations of
BioFocus and Argenta. All employees of BioFocus and Argenta will move into Charles River organization upon
completion of the transaction. Charles River agrees to pay Galapagos immediate cash consideration of
€129 million. Upon achievement of a revenue target 12 months after transaction closing, Galapagos will be
eligible to receive an earn-out payment of €5 million.
The legal entities to be sold as part of this transaction are BioFocus DPI Ltd., BioFocus DPI (Holdings) Ltd.,
Argenta Discovery 2009 Ltd. and Cangenix Ltd. Post-transaction, Galapagos NV will still have the following
dormant entities from its service business division: BioFocus DPI AG, BioFocus DPI LLC, BioFocus Inc., Xenometrix
Inc. and Discovery Partners International GmbH. The liquidation of these entities should be completed in 2014
and 2015. The sold service division represents the following contribution for Galapagos in 2013:
-
net profit from the sold service operations of €8.1 million in 2013
- net assets of the sold service division of €70.7 million at 31 December 2013, including €83.4
million of assets and €12.7 million of liabilities.
• 18 March: Galapagos to present favourable pre-clinical data on GLPG1790, a selective ephrin receptor kinase
inhibitor, at AACR in San Diego.
• 21 March: Euronext Amsterdam to become Market Reference for Galapagos.
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7. GOING CONCERN AND ACCOUNTING STANDARDS
The 2013 consolidated results are negative for Galapagos, and the balance sheet shows a loss carry-over. The Board has
examined the statements and accounting standards. Taking into account the solid cash position, in particular after the
conclusion of the RA and CF deals with AbbVie in 2012 and 2013, the divestment of the service division for a total cash
consideration of €134 million (of which €129 million in cash and €5 million potential earn-out payments), and the favorable
outlook of developments of Galapagos NV’s drug discovery activities and its subsidiaries’ activities including GLPG0634, the
Board is of the opinion that it can submit the annual accounts on an ongoing concern basis.
The Board is also of the opinion that additional financing could be obtained, if required. Whilst Galapagos NV’s cash position
is sufficient for the Company’s immediate and midterm needs, the Board points out that if the R&D activities continue to
go well, Galapagos NV may seek additional funding to support the continuing development of its products or to be able to
execute other business opportunities.
8. CORPORATE GOVERNANCE STATEMENT
8.1. General
Galapagos uses the Belgian Corporate Governance Code 2009 (which can be found on
www.corporategovernancecommittee.be) as reference code. Galapagos NV’s Board of Directors approved a Corporate
Governance Charter. The Charter, which is available on the Company’s website, is applicable in addition to the law, the
Company’s articles of association and the corporate governance provisions included in the Belgian Companies Code and the
Belgian Corporate Governance Code 2009.
The Company’s Corporate Governance Charter includes the following specific rules and charters:
• Charter of the Board of Directors
• Charter of the Audit Committee
• Charter of the Nomination- and Remuneration Committee
• Charter of the Executive Committee
• Dealing Charter (which provides procedures and guidelines to prevent abuse of insider knowledge and to
prevent insider trading and market manipulation).
The Board of Directors intends to comply with the provisions of the Belgian Corporate Governance Code at all times.
Nevertheless, it is possible not to comply with certain corporate governance provisions when the specific circumstances
are taken into account. In such cases, which are mentioned in this chapter, the Company applies the “comply or explain”
principle.
8.2. Board of Directors
Galapagos NV’s Board of Directors consists of minimum five and maximum nine members, including the Chairman and the
CEO. The Chairman is a non-executive Director and does not hold the office of CEO. The Board of Directors consists of at
least three independent Directors.
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Except for Mr Onno van de Stolpe, all Board members are non-executive Directors. In 2013, the following persons were
members of the Board: Dr Raj Parekh (Chairman), Ir Onno van de Stolpe (CEO), Dr Harrold van Barlingen, Mr Ferdinand
Verdonck (until 26 February 2013), Dr Werner Cautreels, Mr Howard Rowe, Dr Vicki Sato and Ms Katrine Bosley (as from 27
February 2013); the latter five Directors were appointed as independent Directors within the meaning of article 526ter of the
Belgian Companies Code.
The Board’s role is to pursue the long-term success of the Company by assuming the authority and responsibility of the
Board set out in Belgian Corporate law and by providing entrepreneurial leadership and enabling risks to be assessed and
managed. The activities exercised and offices held by each of the Directors reflect the expertise and experience of each of
them.
In 2013, the Board of Directors held 4 regular meetings, 8 meetings by telephone conference to discuss specific matters and
3 meetings in the presence of a notary (relating to the private placement of 29 April 2013, the issuance of the Warrant Plan
2013 and the issuance of warrant plan 2013 (B)).
The attendance rate (in person or by written proxy to a fellow Director) for the Board members in function at 31 December
2013 was as follows: Dr Parekh 100%, Mr Van de Stolpe 100%, Dr Van Barlingen 93%, Mr Rowe 100%, Dr Cautreels 100%,
Dr Sato 93% and Ms Bosley 92%. The overall attendance rate was 97%. In addition, certain Board members (including Dr
Cautreels and Dr Sato) also attended a number of review meetings with scientific staff of the Group.
The Board of Directors acts as a collegial body. The Company does not have a formalized process in place to evaluate the
Board, its Committees and its individual Directors; the Board is of the opinion that such evaluation can occur on an ongoing
and informal basis within the framework of the meetings of the Board and its Committees.
Galapagos currently complies with the Law of 28 July 2011 with respect to gender diversification in the Board of Directors,
and the Board will continue to monitor this compliance in the future.
8.3. Committees
The Board of Directors has installed a Nomination and Remuneration Committee, an Audit Committee and an Executive
Committee.
At the end of 2013, the Nomination and Remuneration Committee consisted of the following three non-executive Directors:
Dr Parekh (Chairman), Dr Sato and Ms Bosley, the majority of whom are independent Directors. The Committee has the
necessary expertise in the area of remuneration policy.
The Nomination and Remuneration Committee’s role is twofold: providing recommendations to the Board of Directors
regarding the remuneration policy of Galapagos and the remuneration of Directors and members of the Executive
Committee, and selecting the appropriate candidates and making recommendations to the Board of Directors in relation to
the appointment of Directors and members of the Executive Committee.
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The Nomination and Remuneration Committee meets at least twice per year. In 2013, the Nomination and Remuneration
Committee made recommendations on 4 occasions, dealing with matters including grants of warrants and bonuses, the
appointment of Mr David Smith as CEO of the service division, the review of Galapagos’ remuneration policy and salary
increases. The Nomination and Remuneration Committee acts as a collegial body. The overall attendance (present or
represented) at the Nomination and Remuneration Committee meetings in 2013 was 100%. The CEO attended the
meetings of this Committee when the remuneration of the other members of the Executive Committee was discussed.
At the end of 2013, the Audit Committee consisted of the following three Directors: Dr Cautreels (Chairman), Dr Van
Barlingen and Mr Rowe. All members of the Audit Committee are non-executive Directors, the majority of whom are
independent. The Chairman is an independent non-executive Director and has extensive experience in financial matters
(including general accounting and financial reporting) and in matters of audit, internal control and risk control. The other
members have extensive experience in these matters as well.
The role of the Audit Committee is to follow up on financial reporting and verification of financial data, verify and follow up
on the internal control mechanisms, evaluate and verify the effectiveness of the risk assessment systems, and follow up on
the internal and external audit activities.
In 2013, the Audit Committee held 4 meetings, in which it dealt with matters including audit review, risk management and
the ERP system. The Audit Committee acts as a collegial body. The overall attendance (present or represented) at the
Audit Committee meetings in 2013 was 100%. Some of the meetings were attended by the Statutory Auditor.
The tasks of the Executive Committee include the following matters: the research, identification and development
of strategic possibilities and proposals which may contribute to Galapagos’ development in general, the drafting and
development of policy guidelines to be approved by the Board of Directors, Galapagos’ management through, among other
things, the implementation of policy guidelines, the supervision of the performance of the business in comparison with the
strategic goals, plans and budgets, and the support of the CEO with the day-to-day management of Galapagos.
On 31 December 2013, the Executive Committee consisted of five people: Mr Van de Stolpe (CEO, also executive Director),
Dr Andre Hoekema (Senior Vice President, Corporate Development), Dr Piet Wigerinck (Chief Scientific Officer), Mr
Guillaume Jetten (CFO) and Mr David Smith (CEO, Galapagos Services).
The Executive Committee meets regularly, and in principle once per month.
8.4. Remuneration report
8.4.1 Procedure for establishing the remuneration policy and setting the remuneration for members of the
Board of Directors and of the Executive Committee
The procedure for establishing the remuneration policy and setting remuneration for members of the Board of Directors
and of the Executive Committee is determined by the Board of Directors on the basis of proposals from the Nomination and
Remuneration Committee, taking into account relevant benchmarks from the biotechnology industry and, for the members
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of the Executive Committee, also the Group’s performance rating system.
The remuneration of the members of the Board and the grant of warrants to members of the Board are submitted by the
Board for approval to the General Shareholders’ Meeting, and are only implemented after such approval.
The fixed and variable remuneration of the CEO (who is a member of the Board) is established by the Board of Directors
based upon an authorization from the General Shareholders’ Meeting. The fixed and variable remuneration of, and grant of
warrants to, the other members of the Executive Committee is established by the Board of Directors.
8.4.2 Remuneration policy
a) Principles
The objective of Galapagos’ remuneration policy is to attract, motivate and retain the qualified and expert individuals
that the Group needs in order to achieve its strategic and operational objectives. In light of the remuneration policy,
the structure of the remuneration package for the Executive Committee is designed to balance short-term operational
performance with the long-term objective of creating sustainable value within the Group, while taking into account the
interests of all stakeholders.
The remuneration of the non-executive Directors consists of a fixed annual amount, irrespective of the number of Board
meetings that are held during the year, with a correction principle pursuant to which, in the event a Director’s presence rate
at Board meetings is below 75%, the annual remuneration will be proportionally decreased. The remuneration of the non-
executive Directors does not contain a variable part. The Board fees are paid in quarterly installments at the end of each
calendar quarter.
The remuneration of the CEO (who is an executive Director) and of the other members of the Executive Committee consists
of a fixed amount and of a variable part (bonus). Remuneration increases and bonuses are merit-driven and based on
the Group’s performance rating system that is based on individual performance (including exceptional deliverables) in
combination with the overall performance of the Group, compared to the level of achievement of individual and corporate
objectives that are established annually. The corporate objectives and the CEO’s objectives are established annually by
the Board of Directors, and the objectives of the other members of the Executive Committee are established annually
by the CEO and are in relation to the corporate objectives set by the Board. For 2013 the corporate objectives included
elements of revenue, operating profitability, clinical trial progression and business development; all of these objectives
were considered to be of equal importance. The level of achievement of the objectives for the CEO is reviewed at the end
of each year by the Nomination and Remuneration Committee and discussed and finally established by the Board, and the
level of achievement of the objectives of the other members of the Executive Committee is assessed by the CEO at the end
of the year in connection with appraisal discussions, discussed by the Nomination and Remuneration Committee and finally
established by the Board of Directors.
Pursuant to the rules of the Senior Management Bonus Scheme established in 2006, 50% of the bonus is paid immediately
around year-end and the payment of the other 50% is deferred for three years. The deferred 50% component is dependent
on the Company’s share price change relative to the Next Biotech Index (which tracks the Company’s peers). The
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Company’s share price and the Next Biotech Index at the start and end of the 3-year period is calculated by the average
price over the preceding and last month of the 3-year period, respectively.
•
If the Company’s share price change is better than or equal to the change in the Next Biotech Index, the deferred
bonus will be adjusted by the share price increase/decrease and paid out.
•
If the Company’s share price change is up to 10% worse than the change in the Next Biotech Index, 50% of
the deferred bonus will be adjusted by the share price increase/decrease and paid out, and the remainder will be
forfeited.
•
If the Company’s share price change is more than 10% worse than the change in the Next Biotech Index the
deferred bonus will be forfeited.
To be entitled to any deferred payment under the bonus scheme the beneficiary must still be in the Company’s employ.
In addition, exceptional special bonuses, outside the scope of the regular bonus schemes, can be considered by the Board
upon recommendation of the Nomination and Remuneration Committee in the event of and for exceptional achievements.
b) Relative importance of the various components
The CEO’s bonus under the Senior Management Bonus Scheme can be maximum 100% of the fixed part of his annual
remuneration of the year for which the bonus is awarded. The aggregate bonuses of the other members of the Executive
Committee under the Senior Management Bonus Scheme can be maximum 60% of the total amount of the fixed part of
their aggregate annual remuneration of the year for which the bonus is awarded. In addition, the CEO and/or the other
members of the Executive Committee enjoy a number of benefits such as pension payments, insurances and other fringe
benefits, the monetary value of which is, however, limited.
c) Performance-related premiums in shares, options or other rights to acquire shares
The Company does not provide for any performance-related premiums in shares, options or other rights to acquire shares.
The warrants granted to members of the Board of Directors (including the CEO) are not considered as a (performance-
related or otherwise) variable remuneration as defined by the Belgian Companies Code.
d) Information on the remuneration policy for the next two financial years
The Company currently has no plans to substantially deviate from the remuneration policy used in 2013 and the years
before, as described above, in the next two financial years.
8.4.3 Remuneration of non-executive Directors
Pursuant to the decision of the Annual General Shareholders’ Meeting of 30 April 2013, the total maximum amount of
the annual remuneration for all Directors together (other than Dr Parekh and the CEO) for the exercise of their mandate
as a Director of the Company is fixed, on an aggregate basis, at €200,000 (plus expenses). The same Annual General
Shareholders’ Meeting granted a power of attorney to the Board to determine the remuneration of the individual Board
members within the limits of said aggregate amount. Pursuant to this power of attorney, the Board determined, upon
recommendation of the Nomination and Remuneration Committee, the allocation of the aggregate annual remuneration for
Directors as follows: (a) remuneration for non-executive directors who do not represent a shareholder (Dr Van Barlingen
and Mr Rowe): €20,000; (b) remuneration for non-EU-based Directors (who do not represent a shareholder) and/or for
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Directors who actively and on a regular basis provide independent clinical, scientific and/or transactional advice to the Board
of Directors (Dr Cautreels, Dr Sato and Ms Bosley): €40,000; (c) additional remuneration for the chairman of the Audit
Committee (Dr Cautreels): €5,000. The aforementioned levels of remuneration are a continuation of the fees as paid in
previous years.
In the event a Director has a presence rate at Board meetings that is below 75%, the amounts referred to above are
proportionally decreased. Directors representing a shareholder in the Board of Directors would only receive reimbursement
of the expenses incurred for participating in the Board of Directors (there were no such Directors in 2013).
The remuneration of the non-executive Directors does not contain a variable part; hence no performance criteria apply to
the remuneration of the non-executive Directors.
The Chairman of the Board of Directors, Dr Parekh, does not receive remuneration like the other Directors. However,
a consultancy contract was made with him several years ago, under which he receives an annual fee of £50,000 as
compensation for giving strategic advice.
The Board of Directors resolved to issue the Warrant Plan 2013 for the benefit of the Directors and three independent
consultants of Galapagos NV, and of employees of the Group. In accordance with the resolution of the Annual General
Shareholders’ Meeting of 30 April 2013, the following amount of warrants were offered under such Plan to the non-executive
Directors: Ms Bosley: 7,500 warrants; Dr Parekh: 5,400 warrants; Dr Cautreels: 3,780 warrants; and Dr van Barlingen, Mr
Rowe and Dr Sato: each 2,520 warrants. All Directors accepted the warrants. These warrants have a term of eight years.
The exercise price of the warrants is €19.38. As regards the Directors, the warrants vest over a period of 36 months at a
rate of 1/36th per month. The warrants cannot be transferred and cannot be exercised prior to the end of the third calendar
year following the year of the grant. The Board of Directors does not consider these warrants as variable remuneration as
defined by the Belgian Companies Code as they are not subject to any performance-related criteria.
The Board of Directors points out that provision 7.7 of the Belgian Corporate Governance Code 2009 stipulates that non-
executive Directors should not be entitled to performance-related remuneration such as stock-related long-term incentive
schemes. In deviation to this provision, the Board of Directors has decided to grant warrants to non-executive Directors.
This way, the Company has additional possibilities to attract competent non-executive Directors and to offer them an
attractive additional remuneration that does not affect the cash position of the Company. Furthermore, the grant of
warrants is a commonly used method in the sector in which the Company operates. Without this possibility, the Company
would be confronted with a considerable disadvantage compared to competitors who do offer stock-related incentive
schemes to their non-executive Directors. The Board of Directors is of the opinion that the granting of warrants has no
negative impact on the function of the non-executive Directors.
Except as set forth above, there are no other benefits granted to the non-executive Directors.
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Galapagos Annual Report 2013
8.4.4 Remuneration of members of the Executive Committee that are also a member of the Board of Directors
Mr Van de Stolpe is an executive member of the Board of Directors. As managing Director and CEO, he acts as Chairman
of the Executive Committee. Mr Van de Stolpe does not receive any specific or additional remuneration for his work on the
Board of Directors, as this is part of his total remuneration package in his capacity as member of the Executive Committee.
8.4.5 Criteria and methods to evaluate performance of the CEO and the members of the Executive Committee
in connection with their performance-based remuneration
The executive Director (CEO) and the members of the Executive Committee are eligible for performance-based remuneration
(bonus). The level of the achieved bonus is established annually by the Board of Directors on the basis of proposals from
the Nomination and Remuneration Committee (whose proposals are based on recommendations by the CEO for the other
members of the Executive Committee). The award of a bonus is merit-driven and based on the Group’s performance rating
system that is based on annual individual performance (including exceptional deliverables) in combination with the overall
performance of the Group, compared to the level of achievement of individual and corporate objectives that are established
annually. The corporate objectives and the CEO’s objectives are established annually by the Board of Directors, and the
objectives of the other members of the Executive Committee are established annually by the CEO. For 2013 the corporate
objectives included elements of revenue, operating profitability, clinical trial progression and business development; all of
these objectives were considered to be of equal importance. Each of the corporate objectives is clear and measurable so
that it is easy to determine whether or not a specific objective has been achieved or not.
8.4.6 Gross remuneration of the CEO (executive Director, Chairman of the Executive Committee) (Mr Van de
Stolpe) for financial year 2013
a) Base salary (fixed): €414,376.
b) Variable remuneration (bonus): given the level of achievement of the criteria from the Senior Management Bonus Scheme
to be entitled to a bonus (i.e. the corporate objectives for 2013), a bonus of €325,741 (i.e. 75% of the 2013 base salary)
was awarded over 2013 of which 50% was paid early January 2014, and the other 50% was deferred for 3 years. The value
of the 50% deferred part of the bonus awarded over 2010 was established at the end of 2013 and resulted in a payment
in early January 2014 of an amount of €199,256 (a multiple of 1.205 of the deferred bonus, as a result of the share price
performance over the period 2010-2013, see section 8.4.2).
c) Pension: €67,027.
d) Other components of the remuneration: company car and payments for invalidity and healthcare cover, totaling €25,398.
In its meeting of 17 December 2013 (in application of Article 523 of the Belgian Companies Code without the CEO being
present) the Board of Directors resolved, upon recommendation of the Nomination and Remuneration Committee, to
increase the CEO’s salary by 3% as from 2014. The principles applied for such increase were in line with the Remuneration
Policy described above.
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8.4.7 Total (aggregate) gross remuneration of the other members of the Executive Committee for financial
year 2013
a) Base salaries (fixed): €1,053,142.
b) Variable remunerations (bonuses): given the level of achievement of the criteria from the Senior Management Bonus
Scheme to be entitled to a bonus (i.e. the corporate objectives for 2013), an aggregate bonus of €405,000 (i.e. 75% of the
aggregate bonus pot for the incumbents in function on 31 December 2013) was awarded over 2013 of which 50% was paid
early January 2014, and the other 50% was deferred for 3 years. The value of the 50% deferred part of the bonus awarded
over 2010 was established at the end of 2013 and resulted in an aggregate payment of €205,040 (a multiple of 1.205 of
the deferred bonus, as a result of the share price performance over the period 2010-2013, see section 8.4.2). The deferred
bonus was paid in early January 2014.
c) Pensions: €67,793.
d) Other components of the remunerations: company cars, payments for invalidity and healthcare cover, and other fringe
benefits, totaling €45,310.
The amounts in this section include normal payments for compensation and benefits made to Dr Chris Newton, who ceased
to be a member of the Executive Committee, until the date of cessation of his mandate as Executive Committee member, i.e.
until 26 August 2013.
In its meeting of 17 December 2013 the Board of Directors resolved to implement salary increases as from 2014 for the
members of the Executive Committee generally in line with the increases awarded in previous years, based on individual
performance and taking into account the relevant benchmarks. The principles applied for such increases were in line with
the Remuneration Policy described above.
8.4.8 Shares, warrants or other rights to acquire shares awarded to, exercised by or expired for the CEO and
other members of the Executive Committee during financial year 2013
In 2013, only warrants were offered to the members of the Executive Committee, and no shares or other rights to acquire
shares were awarded. No warrants expired for members of the Executive Committee in 2013 and, in aggregate, 75,000
warrants were exercised by members of the Executive Committee in 2013. The Board of Directors does not consider the
granted warrants as a variable remuneration, as they are not subject to any performance criteria. The following number of
warrants were offered to and accepted by members of the Executive Committee in 2013: (i) under the Warrant Plan 2013,
issued by the Board of Directors under the authorized capital on 16 May 2013, to each of Dr Hoekema, Dr Newton (who
exited the Executive Committee per 26 August 2013) and Mr Jetten: 20,000 warrants; to Dr Wigerinck: 30,000 warrants and
to Mr Van de Stolpe: 100,000 warrants; and (ii) under the Warrant Plan 2013 (B), issued by the Board of Directors under the
authorized capital on 18 September 2013, to Mr David Smith (who joined the Executive Committee per 26 August 2013):
75,000 warrants.
The warrants issued under Warrant Plan 2013 have an exercise price of €19.38 per warrant, a life time of 8 years, vest only
and fully at the end of the third calendar year after the year of the grant, except for Mr Van de Stolpe, whose warrants vest
over a period of 36 months at a rate of 1/36th per month. The warrants cannot be exercised prior to the end of the third
calendar year after the year of the grant; they are not transferable, and each warrant gives the right to subscribe to one
share of the Company.
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The warrants issued under Warrant Plan 2013 (B) have an exercise price of €15.18 per warrant, a life time of 8 years, vest
only and fully at the end of the third calendar year after the year of the grant, cannot be exercised prior to the end of the
third calendar year after the year of the grant, are not transferable, and each warrant gives the right to subscribe to one
share of the Company.
At the end of 2013, the CEO owned 357,348 shares of Galapagos and 695,000 warrants. The other members of the
Executive Committee in function on 31 December 2013 held an aggregate of 47,400 shares and 687,500 warrants. The
other members of the Board held an aggregate of 6,800 shares and 192,350 warrants. Each warrant entitles to one share
of the Company.
8.4.9 Contractual provisions regarding compensation for severance for the CEO and other members of the
Executive Committee
The contracts between the Company (or its relevant affiliates) and the CEO and other members of the Executive Committee
do not provide for severance compensation. They do not contain notice periods that exceed six months. However, in
the past the Company has entered into undertakings with the CEO and the other members of the Executive Committee,
providing that in case their contract with the Group is terminated as a result of a change of control of the Company, they
would be entitled to a severance compensation of 12 months’ base salary for the CEO and 9 months’ base salary for the
other members of the Executive Committee.
8.4.10 Severance payment for departing members of the Executive Committee in 2013
Not applicable; in 2013 no members of the Executive Committee (including the CEO) have left the Group.
8.4.11 Claw-back right of the Company relating to variable part of remuneration
There are no contractual provisions in place between the Company and the CEO or the other members of the Executive
Committee that give the Company a contractual right to reclaim from said executives the variable remuneration that would
be awarded based on erroneous financial information.
8.5. Conflict of interest and related parties
In the event of a transaction where a Director’s interest conflicts with the interest of the Company, the Director shall notify
the Board of Directors in advance of the conflict and will act in accordance with the relevant rules of the Belgian Companies
Code (i.e. article 523 of the Belgian Companies Code). In addition, the Company’s Corporate Governance Charter includes a
policy for transactions between the Company and its Directors and executive managers. Without prejudice to the procedure
defined in article 523 of the Belgian Companies Code, this policy provides that all transactions between the Company and its
directors, its members of the Executive Committee or its representatives need the approval of the Board of Directors, whose
approval can only be provided for transactions at normal market conditions. Such a conflict of interest, even in the event
it is not a conflict of interest as provided for in article 523 of the Belgian Companies Code, shall be enacted in the minutes,
and the Director or member of the Executive Committee shall not vote.
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Galapagos Annual Report 2013
In 2013, four cases of conflict of interest between the Company and a Director were noted:
(i) In a meeting of the Board of Directors held on 12 March 2013, it was resolved that the Board would make a
recommendation to the next General Shareholders’ Meeting for a grant of warrants to the CEO and the other members of
the Board under a proposed Warrant Plan 2013 as follows: Mr Van de Stolpe: 100,000 warrants; Ms Bosley: 7,500
warrants; Dr Parekh: 5,400 warrants; Dr Cautreels: 3,780 warrants; Dr Van Barlingen, Mr Rowe and Dr Sato: each 2,520
warrants. In application of article 523 of the Belgian Companies Code, the following is reported in connection with the
proposed warrant offer for the CEO: The Chairman declares that Mr Onno van de Stolpe has informed the Board of
Directors of a conflict of interest, concerning the proposed award to him of 100,000 warrants. It has been explained to
the Board that the said warrant offer is proposed upon recommendation of the Remuneration Committee and is a
justified reward for the results achieved by Mr Van de Stolpe. The award of this benefit will have no material impact
on the financial position of the company. The Board shares the opinion of the Remuneration Committee that the
proposed benefit is justified and reasonable. Mr Van de Stolpe did not take part in the deliberation and the vote
concerning this decision. Furthermore, as a warrant offer is proposed to each Director, the same procedure has been
followed for each Director individually.
(ii) In a meeting of the Board of Directors held on 24 September 2013, the following was reported in application of article
523 of the Belgian Companies Code and in connection with the recommendation of the Remuneration Committee,
further to the resolution of the General Shareholders’ Meeting of 30 April 2013, as to the allocation of the aggregate
annual remuneration of €200,000 (plus expenses) for Directors (other than Dr Parekh and Mr Van de Stolpe) for the
exercise of their mandate as Director: the Chairman declared that the Directors involved had informed the Board of
a conflict of interest, concerning their proposed remuneration. It has been explained to the Board that the proposed
remuneration for each Director is a continuation of the level of the fees as paid in previous years, without increase. The
level of these remunerations will have no material impact on the financial position of the company. Insofar as it related
to his/her individual remuneration, the Director involved did not take part in the deliberation and the vote concerning this
decision.
(iii) During said meeting of the Board of Directors held on 24 September 2013, the following was reported in application of
article 523 of the Belgian Companies Code and in connection with the general possibility of an exceptional special
bonus (if and when applicable) under Galapagos’ remuneration policy, that could become awardable to the executive
Director, Mr Van de Stolpe: the Chairman declared that Mr Van de Stolpe had informed the Board of Directors of a
conflict of interest concerning such general possibility of an exceptional special bonus. It has been explained to the
Board that such exceptional special bonus can only apply in the event of exceptional achievements, and that it should
have no material impact on the financial position of the Company. Mr Van de Stolpe did not take part in the deliberation
and the vote concerning this decision.
(iv) In a meeting of the Board of Directors held on 17 December 2013 the following was reported in application of article
523 of the Belgian Companies Code and in connection with the salary increase and bonus for the CEO: the Chairman
declares that Mr Onno van de Stolpe has informed the Board of Directors of a conflict of interest, concerning the
proposed award to him of a salary increase and a bonus. The salary of Mr Van de Stolpe was increased with 3% as of
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Galapagos Annual Report 2013
2014. Given the actual level of achievement of the criteria from the Senior Management Bonus Scheme to be entitled to
a bonus (i.e. the corporate objectives for 2013) a bonus of €325,741 (i.e. 75% of his 2013 salary) has been awarded
to Mr Van de Stolpe for 2013. It has been explained to the Board that said salary increase and bonus is a justified
reward for the results achieved by Mr Van de Stolpe in 2013. The salary increase and bonus will have no material impact
on the financial position of the Company. The Board shares the opinion of the Remuneration Committee that the
proposed salary increase and bonus is justified and reasonable. Mr Van de Stolpe did not take part in the deliberation
and the vote concerning this decision.
8.6. Other matters
For a description of the most important characteristics of the internal control and risk management systems of the Company
we refer to Section 5 “Risk Factors” of this Report, which is incorporated by reference in this Corporate Governance
Statement.
For information relating to anti-takeover provisions, the major shareholders of the Company and the shares and warrants
held by the members of the Board of Directors and the members of the Executive Committee, we refer to Section 4 “Shares
and Capital” of this report, which is incorporated by reference in this Corporate Governance Statement.
Based on the transparency notifications received by the Company, the shareholders owning 5% or more of the Company’s
shares on 31 December 2013 were Delta Lloyd N.V. (2,954,890 shares), Johnson & Johnson (2,350,061 shares), Baker Bros.
Advisors, LLC (1,722,066 shares), Van Herk Investments B.V. (1,586,727 shares) and The Capital Group Companies, Inc.
(1,554,436 shares).
9. FURTHER INFORMATION
This report of the Board of Directors will also be made available on the Company website:
http://www.glpg.com/index.php/companyoverview/financialskey-financials/financial-reports/
The Board of Directors of Galapagos NV, represented by all its members, declares that, as far as it is aware, the statutory
accounts and consolidated financial statements, prepared according to the applicable standards for financial statements,
give a true and fair view of the equity, financial position and the results of the Company and its consolidated companies as
* * *
of 31 December 2013.
The Board of Directors of Galapagos NV, represented by all its members, further declares that, as far as it is aware,
this report to the shareholders for the financial year ending on 31 December 2013, gives a true and fair view on the
development, results and position of the Company and its consolidated companies and on the most important risks and
uncertainties with which the Company is being confronted.
* * *
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Galapagos Annual Report 2013
On behalf of the Management and the Board of Directors of Galapagos, we would like to thank our shareholders for their
support in 2013, a great year for the Company. The coming year will be rich with patient data readouts on the pipeline,
showing once again the result of financing multiple novel target-based programs toward the clinic.
The Board of Directors will submit to you proposals of resolutions to approve the annual accounts for the financial year
2013, and to discharge the Directors and the Statutory Auditor, for the exercise of their mandate during the financial year
that ended on 31 December 2013.
Mechelen, 27 March 2014
On behalf of the Board of Directors,
(signed)
Onno van de Stolpe
CEO
(signed)
Raj Parekh
Chairman
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Galapagos Annual Report 2013
Consolidated financial statements
CONSOLIDATED INCOME STATEMENTS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR
THE YEARS ENDED 31 DECEMBER
Consolidated income statement
Thousands of €
Services revenue
R&D revenue
Other income
Total operating income
Services cost of sales
R&D Expenditure
General and administrative costs
Sales and marketing expenses
Restructuring and integration costs
Result on divestment
Operating profit/loss (-)
Finance income
Finance cost
Profit/loss (-) before tax
Taxes
NET PROFIT/LOSS (-)
NET PROFIT/LOSS (-) attributable to:
Owners of the parent
Basic result per share (in €)
Consolidated statement of comprehensive income
Exchange difference arising on translating of foreign operations
Other comprehensive income
Total comprehensive income attributable to:
Owners of the parent
31
Notes
4
5
5
5
5
5
34
4/5
7
8
9
10
10
10
2013
61,272
76,427
21,849
2012
65,660
70,608
16,716
159,549
152,984
-41,298
-99,380
-26,430
-2,412
-1,050
-11,020
2,194
-2,368
-48,179
-80,259
-24,511
-2,134
-2,506
-2,006
-6,610
3,820
-2,362
-11,194
-5,152
3,115
-569
-8,079
-5,721
-8,079
-0.28
-5,721
-0.22
-824
-824
959
959
-8,903
-4,761
Galapagos Annual Report 2013
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER
Assets
Thousands of €
NON-CURRENT ASSETS
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax assets
Non-Current tax receivables
Available for sale financial assets and other non-current assets
CURRENT ASSETS
Inventories
Trade and other receivables
Current tax receivables
Cash and cash equivalents
Other current assets
TOTAL ASSETS
Equity and liabilities
Thousands of €
TOTAL EQUITY
Share capital
Share premium account
Other reserves
Translation differences
Accumulated losses
TOTAL LIABILITIES
NON-CURRENT LIABILITIES
Pension liabilities
Provisions
Deferred tax liabilities
Finance lease liabilities
Other non-current liabilities
CURRENT LIABILITIES
Provisions
Finance lease liabilities
Trade and other payables
Current tax payable
Other current liabilities
Notes
2013
2012
110,721
102,602
12
13
14
23
9
16
15
17
9
18
17
39,239
7,832
19,525
4,558
39,347
220
37,667
9,424
18,099
1,705
35,288
419
176,653
132,727
249
19,207
10,625
141,481
5,091
204
32,494
188
94,647
5,194
287,374
235,329
Notes
2013
2012
167,137
118,447
19
20
22
21
29
27
23
24
26
27
24
26
9
26
154,542
112,484
47
170
-100,107
139,347
72,876
994
-94,770
120,237
116,882
7,678
2,189
668
2,192
167
2,462
7,868
2,035
676
2,624
165
2,367
112,559
109,014
81
226
29,365
50
82,838
176
240
22,093
3
86,501
TOTAL LIABILITIES AND EQUITY
287,374
235,329
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CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER
Thousands of €
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
Notes
2013
94,647
2012
32,555
Result from operations
-11,020
-6,610
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible fixed assets
Inventories write off
Exchange gain/loss (-) on translation of net assets of subsidiary
Share based compensation
Gain (-) / Loss (+) on disposal of business
Increase/Decrease (-) provisions
Increase/Decrease (-) pension liabilities (assets)
Profit on disposal of fixed assets
14
13
6,036
2,118
-1
-178
2,742
-88
154
6,884
2,125
3
-659
2,086
3,004
-359
609
-17
Operating cash flows before movements in working capital
-238
7,066
Increase (-)/Decrease in inventories
Increase (-)/Decrease in receivables
Increase/Decrease (-) in payables
Cash generated/used (-) in operations
Interest paid and other financial costs
Taxes
17
26
8
-39
1,069
2,343
3,136
-2,529
-85
291
-16,876
74,249
64,729
-471
-153
NET CASH FLOWS GENERATED/USED (-) IN OPERATING ACTIVITIES
522
64,104
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Thousands of €
Purchase of property, plant and equipment
Purchase of and expenditure in intangible fixed assets
Proceeds from disposal of intangible assets
Proceeds from disposal of property, plant and equipment
Acquisitions (-), disposals (+) of subsidiaries, associates or joint ventures, net of cash acquired
NET CASH USED IN INVESTING ACTIVITIES
Repayment of obligations under finance leases and other debts
Proceeds of Capital and Share premium increases, net of issue costs
Interest received and other financial income
Notes
14
13
13
14
34
7
2013
-7,328
-545
65
-1,152
2012
-5,896
-940
20
379
-8,960
-6,437
-308
54,803
1,325
-477
2,742
1,769
NET CASH GENERATED/USED (-) IN FINANCING ACTIVITIES
55,820
4,034
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH AND CASH EQUIVALENTS
-548
391
INCREASE/DECREASE (-) IN CASH AND CASH EQUIVALENTS
46,834
62,092
CASH AND CASH EQUIVALENTS AT END OF YEAR
141,481
94,647
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share premium
Translation dif-
Other
Accumulated
Thousands of €
Share capital
Balance at 1 January 2012
137,460
account
72,021
Net result
Other comprehensive income
Total comprehensive income
Share based compensation
Exercise warrants
Other
1,887
855
Balance at 31 December 2012
139,347
72,876
Net result
Other comprehensive income
Total comprehensive income
Share based compensation
Issue of share capital
Exercise warrants
13,429
1,766
39,346
262
ferences
reserves
35
959
959
994
-824
-824
47
47
losses
-91,140
-5,721
-5,721
2,086
5
-94,770
-8,079
-8,079
2,742
Total
118,376
-5,721
959
-4,762
2,086
2,742
5
118,447
-8,079
-777
-8,856
2,742
52,775
2,028
Balance at 31 December 2013
154,542
112,484
170
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-100,107
167,137
The consolidated financial statements of Galapagos were approved by the Board of Directors and authorized for issue, on 27
March 2014. They were signed on its behalf by:
(signed)
Onno van de Stolpe
Executive Director
27 March 2014
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Notes to the Consolidated
Financial Statements
1. GENERAL INFORMATION
Galapagos NV (“the Company” or “Galapagos”) is a limited liability company incorporated in Belgium and has its registered
office at Generaal De Wittelaan L11/A3, 2800 Mechelen, Belgium. In this document references to “the Group” include
Galapagos together with its subsidiaries.
Galapagos NV was founded in 1999 as a joint venture between Crucell BV and Tibotec NV. Galapagos is an integrated drug
discovery company with capabilities from target discovery to clinical proof of concept.
R&D
Galapagos’ R&D operations are specialized in the discovery and development of small molecules. Galapagos funds these
programs through alliance payments from its pharma partners, cash generated by its profitable service operations, licensing
agreements, and its cash reserves. Many of these programs are based on proprietary disease-modifying drug targets in
disease areas for which there is a need for safe and effective medicines.
Services
The Service operations comprise BioFocus and Argenta. Galapagos acquired BioFocus in October 2005 and added to
this business through a number of acquisitions in 2006 and 2008. BioFocus offers a full suite of target-to-drug discovery
products and services to pharmaceutical and biotech companies and to patient foundations, encompassing target discovery
and validation, screening and drug discovery through to delivery of pre-clinical candidates.
Galapagos acquired Argenta in February 2010 and retained this company as a separate operation next to BioFocus.
Argenta’s contract research, which includes expertise in medicinal chemistry, computer-aided drug discovery, in vitro
biology, analytics, in vivo pharmacokinetics, pharmacology and world-leading respiratory models, has a strong reputation for
scientific excellence.
On 13 March 2014, Galapagos announced a definitive agreement with Charles River Laboratories, Inc. to sell the BioFocus
and Argenta operations, with closing of the transaction expected in early Q2 2014.
Galapagos acquired GlaxoSmithKline’s research center in Zagreb, Croatia in September 2010, which became part of the R&D
operations. In February 2013 this research center was renamed Fidelta and will become part of the service division once
this site has made the operational transition to a services company.
History of the Company since IPO
The shares of Galapagos NV have been listed on Euronext Brussels and Amsterdam since May 2005.
The Group has grown strongly over the years, both organically and through acquisitions.
At the end of 2005, Galapagos acquired UK-based BioFocus plc. (and its affiliates). The shares of BioFocus were listed
on the Alternative Investment Market (AIM) of the London Stock Exchange and the acquisition occurred through a public
takeover bid in which Galapagos shares were offered in exchange for BioFocus shares. In connection with this acquisition
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the shares of Galapagos were then also listed on AIM.
In July 2006, Galapagos acquired the shares of the subsidiaries of Discovery Partners International, Inc. against cash
payment. As a result, US-based ChemRx Advanced Technologies, Inc. (later renamed into BioFocus DPI, Inc.) and the
Swiss DPI AG (now called BioFocus DPI AG) and their respective affiliates, were added to the Group. In September 2006
Galapagos NV raised €11.1 million in a private placement on Euronext Brussels and Euronext Amsterdam amounting to a net
cash contribution of €10.7 million. In December 2006, Galapagos acquired the UK-based Inpharmatica Ltd and the French
ProSkelia SASU (renamed into Galapagos SASU). Both acquisitions were financed with Galapagos shares. Together with
the acquisition of ProSkelia, Galapagos NV raised €31 million in a private placement, amounting to a net cash contribution of
€29.6 million.
In March 2008, Galapagos’ Level 1 American Depositary Receipt (ADR) facility in the United States became effective. In
April 2008 Galapagos cancelled its quotation on AIM. In August 2008, Galapagos acquired the assets and ongoing service
agreements of UK-based Sareum Limited against cash payment. These assets positioned Galapagos’ service division
BioFocus strongly in the growing field of structure-based drug discovery. In November 2008 Galapagos completed the sale
of its San Diego based affiliate BioFocus DPI, Inc. to ChemVentures Pty Ltd.
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On 21 October 2009, Galapagos raised €18.2 million in a private placement on Euronext resulting in a net cash contribution
of €17.5 million.
On 1 February 2010, Galapagos acquired the service operations of Argenta Discovery for a €16.5 million cash payment.
On 9 September 2010, Galapagos acquired GlaxoSmithKline’s research center in Zagreb, Croatia. On 21 October 2010,
Galapagos raised €28.7 million in a private placement with international institutional investors.
On 1 June 2011, Galapagos announced the sale of Compound Focus, Inc. to Evotec for €10.25M cash and an additional
€2.25 in potential earn-out payments upon performance of the business in 2012/2013 depending on revenues and certain
corporate milestones; in 2012 an amount of €1 million was received as earn-out payment.
On 4 January 2013, Galapagos acquired Cangenix Ltd., a structure-based drug discovery company added to the Argenta
service offering, for a total consideration of €1.7 million. The consideration paid in the course of 2013 amounted to €1.2
million. A deferred consideration of €0.5 million is payable after two years upon achievement of certain conditions.
On 13 March 2014, Galapagos announced a definitive agreement with Charles River Laboratories, Inc. to sell the BioFocus
and Argenta operations, with closing of the transaction expected in early Q2 2014.
A complete list of all companies directly or indirectly owned by Galapagos is detailed in note 33.
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2. ACCOUNTING POLICIES
Basis of preparation
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU. The principal accounting policies used for the preparation of these consolidated financial
statements are set out below.
Standards and interpretations applicable for the annual period beginning on 1 January 2013
•
•
IFRS 13 Fair Value Measurement (applicable for annual periods beginning on or after 1 January 2013)
Improvements to IFRS (2009-2011) (normally applicable for annual periods beginning on or after 1 January 2013)
• Amendments to IFRS 1 First Time Adoption of International Financial Reporting Standards – Severe Hyperinflation
and Removal of Fixed Dates for First-time Adopters (applicable for annual periods beginning on or after 1 January
2013)
• Amendments to IFRS 1 First Time Adoption of International Financial Reporting Standards – Government Loans
(applicable for annual periods beginning on or after 1 January 2013)
• Amendments to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities
(applicable for annual periods beginning on or after 1 January 2013)
• Amendments to IAS 1 Presentation of Financial Statements - Presentation of Items of Other Comprehensive
Income (applicable for annual periods beginning on or after 1 July 2012)
• Amendments to IAS 12 Income Taxes – Deferred Tax: Recovery of Underlying Assets (applicable for annual
periods beginning on or after 1 January 2013)
• Amendments to IAS 19 Employee Benefits (applicable for annual periods beginning on or after 1 January 2013)
•
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (applicable for annual periods beginning on or
after 1 January 2013)
Standards and Interpretations published, but not yet applicable for the annual period beginning on
1 January 2013
•
IFRS 9 Financial Instruments and subsequent amendments (applicable for annual periods beginning on or after 1
•
•
•
•
•
January 2015, but not yet endorsed in EU)
IFRS 10 Consolidated Financial Statements (applicable for annual periods beginning on or after 1 January 2014)
IFRS 11 Joint Arrangements (applicable for annual periods beginning on or after 1 January 2014)
IFRS 12 Disclosures of Interests in Other Entities (applicable for annual periods beginning on or after 1 January
2014)
IAS 27 Separate Financial Statements (applicable for annual periods beginning on or after 1 January 2014)
IAS 28 Investments in Associates and Joint Ventures (applicable for annual periods beginning on or after 1
January 2014)
• Amendments to IFRS 10, IFRS 12 and IAS 27 – Consolidated Financial Statements and Disclosure of Interests in
Other Entities: Investment Entities (applicable for annual periods beginning on or after 1 January 2014, but not
yet endorsed in EU)
• Amendments to IAS 19 Employee Benefits – Employee Contributions (applicable for annual periods beginning on
or after 1 July 2014, but not yet endorsed in EU)
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Galapagos Annual Report 2013
• Amendments to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities
(applicable for annual periods beginning on or after 1 January 2014, but not yet endorsed in EU)
• Amendments to IAS 36 – Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Asset
(applicable for annual periods beginning on or after 1 January 2014, but not yet endorsed in EU)
• Amendments to IAS 39 – Financial Instruments – Novation of Derivatives and Continuation of Hedge Accounting
(applicable for annual periods beginning on or after 1 January 2014)
•
IFRIC 21 – Levies (applicable for annual periods beginning on or after 1 January 2014, but not yet endorsed in
EU)
The amendments to IAS19 Employee benefits applicable for the year 2013 had an impact of €47 thousands for the Group.
The other new standards applicable did not have any impact on the Group’s financials.
Going concern basis
The consolidated financial statements are prepared in accordance with the International Financing Reporting Standards
(IFRS) published by the International Accounting Standard Board (IASB) and the interpretations issued by the IASB’s
International Financial Reporting Interpretation Committee, which have been endorsed by the European Commission.
The consolidated financial statements provide a general overview of the Group’s activities and the results achieved. They
give a true and fair view of the entity’s financial position, its financial performance and cash flows, on a going concern basis.
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Group reporting
The consolidated financial statements comprise the financial statements of the Company and entities controlled by the
Company (its subsidiaries) established at 31 December each year. Together they constitute the Group. Control is achieved
where the Company has the power to govern the financial and operating policies of another entity so as to obtain benefits
from its activities.
The results of subsidiaries are included in the income statement and statement of comprehensive income from the effective
date of acquisition up to the date when control ceases to exist.
Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency with the Group’s
accounting policies.
All intra-group transactions, balances, income and expenses are eliminated when preparing the consolidated financial
statements.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured as the
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
IFRS 3 are recognized at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are
classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which
are recognized and measured at fair value less costs to sell. For each business combination, it is determined whether the
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Galapagos Annual Report 2013
non-controlling interest in the acquiree is measured at fair value or at the proportionate share of the acquiree’s identifiable
net assets.
Business combinations and related goodwill/negative goodwill
Goodwill arising on business combinations is recognized as an asset and initially measured at cost, being the excess
of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent
liabilities of the acquired subsidiary less the value of the non-controlling interests at the date of acquisition. Goodwill is not
amortized but tested for impairment on an annual basis and whenever there is an indication that the cash generating unit
to which goodwill has been allocated may be impaired. Goodwill is stated at cost less accumulated impairment losses. An
impairment loss recognized for goodwill is not reversed in a subsequent period.
In cases in which the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent
liabilities less the value of the non-controlling interests exceeds cost, all fair values and cost calculations are reassessed. In
the event that an excess still exists, it is immediately recognized in the profit or loss statement.
Intangible assets
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the Group’s development activities is recognized only if all of the
following conditions are met:
• Technically feasible to complete the intangible asset so that it will be available for use or sale
• The Group has the intention to complete the intangible assets and use or sell it
• The Group has the ability to use or sell the intangible assets
• The intangible asset will generate probable future economic benefits, or indicate the existence of a market
• Adequate technical, financial and other resources to complete the development are available
• The Group is able to measure reliably the expenditure attributable to the intangible asset during its
development.
The amount capitalized as internally generated intangible assets is the sum of the development costs incurred as of the date
that the asset meets the conditions described above.
Internally generated intangible assets are amortized on a straight-line basis over their useful lives. If the recognition criteria
for accounting as an intangible asset are not met, development costs are recognized as an expense in the period in which
they are incurred.
Intellectual property, which comprises patents, licenses and rights is measured internally at purchase cost and is amortized
on a straight-line basis over the estimated useful life on the following bases:
• Customer relationships: 1-10 years
•
In process technology: 3-5 years
• Software & databases: 3-5 years
• Brands, licenses, patents & know how: 5-15 years
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In the event an asset has an indefinite life, this fact is disclosed along with the reasons for being deemed to have an
indefinite life.
Property, plant and equipment
Property, plant and equipment is recognized at cost less accumulated depreciation and any impairment loss. Depreciation
is recognized so as to write off the cost or valuation of assets over their useful lives, using the straight-line method, on the
following bases:
•
Installation & machinery: 4-15 years
• Furniture, fixtures & vehicles: 4-10 years
Any gain or loss incurred at the disposal of an asset is determined as the difference between the sale proceeds and the
carrying amount of the asset, and is recognized in profit or loss.
Leasehold improvements
Leasehold improvements are depreciated over the term of the lease, unless a shorter useful life is expected.
Assets held under finance lease
Assets held under finance leases are depreciated over their useful lives on the same bases as owned assets or, where
shorter, over the term of the related lease agreement.
Inventories
Inventories are valued at the lower of cost and net realizable value. The net realizable value represents the estimated sales
price less all estimated costs for completion and costs for marketing, sales and logistics.
Cost of raw materials comprises mainly purchase costs. Raw materials are not ordinarily interchangeable, and they are as
such accounted for using the specific identification of their individual cost.
The costs of work in progress comprise costs of materials, direct costs for personnel, and manufacturing overheads linked to
transportation costs of inventory to the production location.
Molecule screening libraries are stated at cost on acquisition and written off over their useful economic lives, calculated by
reference to utilization, but which in any event cannot exceed 5 years.
Financial instruments
Financial assets and financial liabilities are recognized on the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Tax receivables
Non-current tax receivables are discounted over the period until maturity date according to the appropriate discount rates.
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Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value reduced by appropriate allowances for
irrecoverable amounts.
Available for sale financial assets
Available for sale investments are measured at fair value, except for those equity instruments that do not have a quoted
market price in an active market and whose fair value cannot be reliably measured. Those equity instruments are measured
at historical cost.
Gains and losses arising from changes in fair value are recognized directly in equity until the security is disposed of or is
determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the net
profit or loss for the period. Impairment losses recognized in profit or loss for equity investments classified as available
for sale are not subsequently reversed through profit or loss. Impairment losses recognized in profit or loss for debt
instruments classified as available for sale are subsequently reversed if an increase in the fair value of the instrument can be
objectively related to an event occurring after the recognition of the impairment loss.
Cash and cash equivalents
Cash and cash equivalents are measured at nominal value. For the purposes of the cash flow statements, cash and cash
equivalents comprise cash on hand, deposits held on call with banks, other short term deposits, highly liquid investments
and bank overdrafts. Bank overdrafts are presented on the balance sheet as current liabilities.
Trade payables
Trade payables bear no interest and are measured at their nominal value.
Taxation
Income tax in the profit or loss accounts represents the sum of the current tax and deferred tax.
Current tax is the expected tax payable on the taxable profit of the year. The taxable profit of the year differs from the
profit as reported in the financial statements as it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided in full, using the liability-method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not
accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable profit nor loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income
tax liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. As such, a deferred tax asset for the carry forward of
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unused tax losses will be recognized to the extent that is probable that future taxable profits will be available.
The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets
relating to tax losses carried forward are recognized to the extent that it is probable that the related tax benefit will be
realized.
Foreign currencies
• Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are valued using the currency of
the primary economic environment in which the entity operates. The consolidated financial statements are
presented in Euros, which is the Company’s functional and presentation currency.
• Transactions and balances in foreign currency
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Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of transaction. Foreign currency gains and losses resulting from the settlement of such
transactions and from the translation at closing rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the income statement.
Non-monetary assets and liabilities measured at historical cost that are denominated in foreign currencies
are translated using the exchange rate at the date of the transaction.
• Financial statements of foreign group companies
The results and financial position of all Group entities that have a functional currency different from Euro are
translated as follows:
•
Assets and liabilities for each balance sheet presented are translated at the closing rate at the
date of that balance sheet
•
•
•
Income and expenses for each income statement are translated at average exchange rates;
All resulting exchange differences are recognized as a separate component of equity
Such exchange rates are recognized in profit or loss in the period in which the foreign operation is
disposed of.
Revenue recognition
The Group generates revenues from providing research and development services, drug discovery and development
activities, license or royalty agreements, the sale of products, various R&D incentives and from grants. The revenue
recognition policies can be summarized as follows:
• Service business milestone payments are recognized as revenues when achieved
• Research milestone payments are recognized as revenues when achieved. In addition, the payments have
to be acquired irrevocably and the milestone payment amount needs to be substantive and commensurate
with the magnitude of the related achievement. Milestone payments that are not substantive, not
commensurate or that are not irrevocable are recorded as deferred revenue. The Group believes that each
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Galapagos Annual Report 2013
substantive milestone payment represents a separate reasonable value for that phase of the collaboration
agreement
• Non-refundable, upfront payments received in connection with research and development collaboration
agreements are deferred and recognized on a straight-line basis over the relevant periods of continuing
involvement, which is considered to be ended at the moment the first milestone is achieved
• Fees received from partners for options to license molecules or programs are recognized as revenue at fair
value, over the option period unless the license is taken by the partner at an earlier moment than foreseen
in the contract, in which case the remaining fees are recognized as license revenue at that point
• Sales from the BioFocus and Argenta business units typically comprise multiple elements combined in one or
more license agreements. The elements in such multiple element arrangements are accounted for as
follows:
•
•
Sales of molecule collections and reagents are recognized as product revenue when delivered
Contract research and development services are recognized as service revenues at fair value as
such services are rendered. These services are usually in the form of a defined number of the
Group’s full-time equivalent (“FTE”) at a specified rate per FTE
•
Upfront non-refundable license fees are only recognized as revenue at fair value when products
were delivered and/or services were rendered in a separate transaction and the Group has fulfilled
all conditions and obligations under the related agreement. In case of continuing involvement
of the Group, the upfront fee would not be regarded as a separate transaction and the upfront
non-refundable license fees will be deferred over the period of the collaboration
•
Molecule collections or viruses and technology access fees are recognized as license revenue over
the period in which access is granted
•
Revenue under compound repository services is recorded as costs are incurred, which includes
indirect costs that are based on provisional rates estimated by management. If actual costs are
subsequently calculated to be greater than provisional rates, the additional income is recorded
if there is a contractual right to submit updated claims. A reserve is provided against receivables
for estimated losses that may result from rate negotiations, audit adjustments and/or lack of
government funding availability if it is deemed necessary. To the extent that we incur
adjustments due to rate negotiations or lack of government funding availability, revenue may be
impacted
• The Group receives operational grants and tax credits from certain governmental agencies which support
the Group’s research and development efforts. These grants and tax credits generally aim to partly
reimburse approved expenditures incurred in research and development efforts of the Group and are
credited to the income statement when the relevant expenditure has been incurred and there is reasonable
assurance that the grant or tax credit is receivable
• Revenues from term licenses are spread over the period to which the licenses relate, reflecting the obligation
over the term, to update content and provide ongoing maintenance
• Revenues from perpetual licenses are recognized immediately upon sale to the extent that there are no
further obligations, and only if the license imposes no further restrictions.
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Equity instruments
Equity instruments issued by the Company are measured by the fair value of the proceeds received, net of direct issue costs.
Defined contribution plans
Contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred.
Defined benefit plans
For defined retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method,
with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial
gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding
interest), is reflected immediately in the statement of financial position with a charge or credit recognised in other
comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is
reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in
profit or loss in the period of a plan amendment. Net Interest is calculated by applying the discount rate at the beginning of
the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:
• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and
settlements)
• Net interest expenses or income
• Remeasurement
The retirement benefit obligation recognised in the consolidated statement of financial position represents the actual deficit
or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value
of any economic benefits available in the form of refunds from the plans in future contributions to the plans. A liability for
a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination
benefit and when the entity recognises any related restructuring costs.
Provisions
Provisions are recognized on the balance sheet when a Group company has a present obligation as a result of a past event;
when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a
reliable estimate can be made of the amount of the obligations. The amount recognized as a provision is the best estimate
of the expenditure required to settle the present obligation at the balance sheet date. If the effect is material, provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of
the time value of the money and, when appropriate, the risk specified to the liability.
The Group as lessee
Leases are classified as finance leases whenever the terms of the lease substantially transfers all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognized as assets of the Group at their fair value or, if lower, at the present value
of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is
included in the balance sheet as a finance lease obligation. The payments are divided proportionally between the financial
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Galapagos Annual Report 2013
costs and a diminution of the outstanding balance of the obligation, so that the periodic interest rate on the outstanding
balance of the obligation would be constant. Interest is recognized in the income statement, unless it is directly attributable
to the corresponding asset, in which case they are capitalized.
Rents paid on operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits
received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the
lease term.
Impairment of tangible and intangible assets
At each balance sheet date, the Group reviews the carrying amount of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment annually, and whenever there is an indication that
the asset might be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use.
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If the recoverable amount of an asset or cash generating unit is estimated to be less than the carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined, had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss resulting
from a sale of a subsidiary is recognized as income. In other cases impairment losses of goodwill are never reversed.
Net earnings/loss per share
Basic net earnings/loss per share is computed based on the weighted average number of shares outstanding during the
period. Diluted net loss per share, if any, is computed based on the weighted-average number of shares outstanding
including the dilutive effect of warrants.
Share-based payments
The Group uses equity-settled share-based payments as an incentive to certain employees, directors and consultants.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant
date of the warrants is expensed over the vesting period, based on the Group’s estimate of shares that will vest eventually.
Fair value is measured by use of the Black & Scholes model. The expected life used in the model has been adjusted, based
on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations.
Discontinued Operations
A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale and
(a) represents a separate major line of business or geographical area of operations, (b) is part of a single coordinated plan
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Galapagos Annual Report 2013
to dispose of a separate major line of business or geographical area of operations, or (c) is a subsidiary acquired exclusively
with a view to resale.
Segment reporting
Segment results include revenue and expenses directly attributable to a segment and the relevant portion of revenue and
expenses that can be allocated on a reasonable basis to a segment.
Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment
or can be allocated to the segment on a reasonable basis. Segment assets and liabilities do not include income tax items.
For further information, we refer to note 35 “Critical accounting estimates and judgments” and note 36 “Financial risk
management.”
3. SEGMENT REPORTING
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Segment reporting is represented in line with information presented to the CODM (Chief Operating Decision Maker). The
CODM within Galapagos has been identified as the Executive Committee.
The Executive Committee assesses the performance of the operating segments by reviewing revenue, adjusted EBIT and
gross margins by segment. Adjusted EBIT excludes the effects of share option compensation charges, impact of the
impairment test of goodwill and restructuring costs from the operating segments. Interest income and charges and tax are
not included in the results for the operating segments that are reviewed by the Executive Committee.
Operating segments
For management purposes, the Group is divided into two operating divisions: R&D and Services. These divisions form the
basis upon which the Group reports its primary segment information.
Principal activities are as follows:
R&D operations
Galapagos’ R&D operations are specialized in the discovery and development of small molecules. Galapagos funds these
programs through alliance payments from its pharma partners, cash generated by its profitable service operations, licensing
agreements from its proprietary pipeline, and its cash reserves. Many of these programs are based on proprietary disease-
modifying drug targets in disease areas for which there is a need for safe and effective medicines.
Service operations
Galapagos’ service operations offer target-to-drug discovery products and services to pharmaceutical and biotech companies
and to patient foundations, encompassing target discovery and validation, screening and drug discovery through to delivery
of pre-clinical candidates. The service division has two operating units: BioFocus, which Galapagos has operated since 2005,
and Argenta, which Galapagos acquired in February 2010. Galapagos operates these units in parallel, with both providing
additional capacity and drug discovery capabilities to the Galapagos Group.
The operational results of these segments are evaluated monthly at the meetings of the Executive Committee for resource
allocation and performance measurement. Intersegment sales are charged at prevailing rates based on a tax transfer
47
Galapagos Annual Report 2013
pricing study.
On 13 March 2014, Galapagos announced a definitive agreement with Charles River Laboratories, Inc. to sell the BioFocus
and Argenta operations, with closing of the transaction expected in early Q2 2014.
Segment information about these businesses for the years ended 31 December 2013 and 2012 is presented below.
2013 SEGMENT INFORMATION
Thousands of €
R&D revenue
Service revenue
Other Income
Grant Income
External revenue
Internal revenue
Total revenue
Cost of services
Gross Margin
Opex
MR EBIT
MR EBITDA
R&D Tax Credits
Discounting of CIR receivables
Reversal of Novartis revenue recognition
Transfer Pricing Effect
Warrants
IFRS Amortisation
IAS19R reclass actuarial gains/losses
Other effects
IFRS EBIT - RECURRING
Restructuring costs
Other Effect on IFRS Non Recurring Result
R&D
Services
72,478
3,955
61,250
11,046
5,054
52
92,533
61,302
4,719
2,508
97,252
63,810
-6,919
-41,893
90,333
21,917
-103,235
-14,887
-12,903
-9,325
7,030
9,640
4,084
1,903
-110
-197
2,174
-2,174
-1,809
418
-47
63
-934
-1,168
-260
-8,327
4,397
-290
-554
93
Intersegment
Unallocated
Galapagos
eliminations
costs
Group total
72,478
65,205
11,098
5,054
153,835
153,835
-46,494
107,341
-119,347
-12,006
-5,421
5,987
-110
-197
-2,743
-750
-47
-197
-10,063
-1,050
93
-7,226
-7,226
2,318
-4,908
4,908
-6,133
-6,133
-5,736
-6,133
-206
IFRS EBIT
-8,617
3,936
-6,339
-11,020
G
N
I
T
R
O
P
E
R
T
N
E
M
E
G
A
N
A
M
G
N
I
R
R
U
C
E
R
-
S
R
F
I
N
O
N
-
S
R
F
I
G
N
I
R
R
U
C
E
R
Service revenues within the R&D segment relate to fee-for-service work performed by the Zagreb site, as well as fee-for-
service work for Servier.
Unallocated G&A costs relate to corporate costs which mainly consist of management services (i.e. corporate personnel such
as CEO, CFO, investor relations, business development), IT services, legal services, finance services, HR services and IP
costs (legal/patent protection). Depreciation charges and software costs related to the implementation of the company-wide
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Galapagos Annual Report 2013
2012 SEGMENT INFORMATION
Thousands of €
R&D revenue
Service revenue
Other Income
Grant Income
External revenue
Internal revenue
Total revenue
Cost of services
Gross Margin
Opex
MR EBIT
MR EBITDA
R&D Tax Credits
Discounting of CIR receivables
Reversal of Novartis revenue recognition
Transfer Pricing Effect
Warrants
IFRS Amortisation
Other effects
IFRS EBIT - RECURRING
G
N
I
T
R
O
P
E
R
T
N
E
M
E
G
A
N
A
M
G
N
I
R
R
U
C
E
R
-
S
R
F
I
R&D
Services
65,959
4,676
65,766
10,639
2,216
83,490
65,766
4,145
3,201
87,635
68,967
-5,638
-46,378
81,997
22,590
-85,528
-14,373
-3,531
8,217
896
11,652
4,294
-300
-197
472
-1,372
415
-327
-546
-1,369
-472
-714
-1,694
-557
4,779
-3,004
-1,136
981
17
Intersegment
Unallocated
Galapagos
eliminations
costs
Group total
-7,347
-7,347
2,765
-4,582
4,582
-6,333
-6,333
-6,333
-6,333
65,959
70,442
10,639
2,216
149,256
149,256
-49,250
100,006
-101,653
-1,647
6,215
4,294
-300
-197
-2,086
-1,279
-884
-2,099
-3,004
-1,136
-1,369
981
17
Basel closing costs
G Loss on liquidation of Cambridge Drug Discovery Holdings Ltd
N
I
R
R
U
C
E
R
N
O
N
-
Earn Out Income from Evotec
Restructuring costs
Other Effect on IFRS Non Recurring Result
S
R
F
I
IFRS EBIT
-1,914
1,638
-6,333
-6,610
Geographical information
In 2013 the Group’s operations were located in Belgium, Croatia, France, Switzerland, The Netherlands and United Kingdom.
The Group’s R&D division is located in Belgium, Croatia, France and The Netherlands, with its service division operating in
the remaining countries. The Swiss site was closed in the second half of 2012.
In 2013 the Group’s top 10 customers represent 91% of the revenues. Our Group’s client base includes 7 of the top 10
pharmaceutical companies in the world.
In 2013, Galapagos holds €111 million of non-current assets (€103 million in 2012) distributed as follows:
• United Kingdom €57 million
(€53 million in 2012)
• France - €27 million
(€28 million in 2012)
• Belgium - €21 million
(€16 million in 2012)
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Galapagos Annual Report 2013
4. TOTAL OPERATING INCOME
ERP system also contribute to corporate costs.
• Croatia - €4 million
(€5 million in 2012)
• The Netherlands - €2 million
(€1 million in 2012)
4. TOTAL OPERATING INCOME
Thousands of €
Sales of goods
Services (selling FTE)
Milestone payments
License fees
Recognition of up-front non refundable fees
Other operating income
Total
2013
4,108
58,740
22,594
235
52,024
21,849
2012
2,205
66,885
28,201
38
38,493
17,162
159,549
152,984
Sales of goods consist of the sale of chemical compound libraries on a non-exclusive basis.
Service revenues include the sale of biology and chemistry FTEs (full time equivalents) and related access fees under
external contracts for the provision of target discovery and drug discovery services. The decrease compared to 2012 is
mainly due to the closure of the Basel site in 2012.
Milestone payments are mainly earned in the R&D business, as well as the recognition of upfront fees. The upfront fees
are deferred and taken in revenue according to the accounting policies. Upfront fees increased significantly compared to
2012 because of the recognition of €45 million in 2013 of the $150 million (€112 million) upfront received from AbbVie for
GLPG0634 in 2012 (compared to €37 million revenue recognition in 2012), increased with the $20 million extension AbbVie
payment received in 2013 on the one hand. On the other hand €6.8 million of upfront fees has been recognized in 2013
related to $45 million upfront from AbbVie for cystic fibrosis received in October 2013.
License fees cover the provision of chemistry based software and research tools under license agreements, which can also
involve ongoing maintenance obligations.
Other income includes government grants received towards the cost of internal research and development programs. In
many cases these carry clauses which require the Company to maintain a presence in the same region for a number of
years and invest according to pre-agreed budgets. Failure to do so may result in the repayment of all or part of the grants
received. In addition, other income also includes other incentives received from government agencies, and consists mainly
of the French, UK and Belgian tax credit for research companies and the Dutch and Belgian credit for salaries of research
personnel.
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Galapagos Annual Report 2013
5. OPERATING COSTS
Operating result has been calculated after charging (-)/crediting:
Services cost of sales
Thousands of €
Personnel costs
Disposables and lab fees
Depreciation
Provisions
Other operating expenses
Total
2013
-22,372
-8,424
-2,969
-7,533
-41,298
2012
-24,562
-12,940
-4,132
376
-6,920
-48,179
Compared to 2012, cost of sales decreased significantly due to to the ceased operations in Basel which contributed €5.6M to
cost of sales in 2012. Other operational costs mainly contain travel expenses, consultancy costs and fees.
R&D expenditure
Thousands of €
Personnel costs
Disposables and lab fees
Subcontracting
Premises costs
Depreciation
Impairment
Provisions
Other operating expenses
Total
2013
-29,385
-8,308
-44,760
-7,532
-3,393
-27
-5,975
-99,380
2012
-27,131
-9,764
-25,393
-9,013
-3,535
-626
-4,796
-80,259
R&D expenses increased from €80.3 million to €99.4 million. This planned increase was driven by the Phase 2B program in
RA and Phase 2 Crohn’s disease study for GLPG0634, together with other clinical studies to support the pipeline.
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Galapagos Annual Report 2013
General and administrative costs
Thousands of €
Personnel costs
Premises costs
Professional fees
Director fees
Depreciation
Provisions
Other operating expenses
Total
2013
-9,928
-6,059
-1,808
-1,556
-1,796
-113
-5,169
-26,430
2012
-9,445
-4,590
-2,708
-1,524
-1,348
-4,896
-24,511
General and administrative costs increased to €26.4 million, primarily due to increased premises costs for the UK sites.
These premises costs include rent, service charges, property taxes and utility costs such as water, electricity and gas.
Professional fees also include legal and tax fees. Other operational costs mainly contain travel expenses, telephone,
consultancy costs and fees.
Sales and marketing expenses
Thousands of €
Personnel costs
Other operating expenses
Total
Restructuring and integration costs and impairment
Thousands of €
Restructuring and integration costs
Total
2013
-1,675
-737
-2,412
2013
-1,050
-1,050
2012
-1,445
-690
-2,134
2012
-2,506
-2,506
Restructuring and integration expenses of €1.1 million mainly relate to reorganization costs of the UK sites. The decrease
compared to 2012 can be explained by closing costs for the Basel site recorded in 2012.
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Galapagos Annual Report 2013
6. PERSONNEL COSTS
The number of employees on 31 December was:
Total
The average number of employees during the year was:
Key Management
Laboratory staff
Administrative staff
Total
Their aggregate remuneration comprised:
Thousands of €
Wages and salaries
Social security costs
Pension costs
Other costs
Total
2013
810
810
2013
5
673
111
789
2013
-44,940
-8,517
-4,303
-7,156
2012
796
796
2012
6
716
94
816
2012
-46,903
-8,394
-3,656
-3,641
-64,916
-62,594
The other personnel costs mainly relate to costs for meal tickets, canteen costs, travel expenses, costs for temporary
personnel and costs for warrants granted of €2,742K (2012: €2,086K). For the costs of warrants granted, we refer to
note 30.
7. FINANCE INCOME
Thousands of €
Interest on bank deposits
Other financial income
Total
2013
1,189
1,005
2,194
2012
1,022
2,798
3,820
Interest income on bank deposits mainly comes from interests on received AbbVie payments. Decreased other financial
income mainly relates to translation differences coming from CHF recorded in 2012.
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Galapagos Annual Report 2013
8. FINANCE COSTS
Thousands of €
Interest on obligations under finance lease
Other financial costs
Total
2013
-157
-2,210
-2,368
2012
-150
-2,211
-2,362
In 2013 other financial costs mainly relate to exchange rate losses arising from USD. Finance costs in 2012 mainly related
to available-for-sale financial assets which have been written off as management assessed these shares were impaired as
from 2012. On the other hand €0.6 million of goodwill for R&D was impaired and as such reversed in 2012 because this
goodwill was related to programs of ProSkelia SASU (now: Galapagos SASU) for which currently no more work is performed
(on hold). More specifically, the largest part of this goodwill was allocated to GLPG0492 (SARM-Cachexia) for which the
further development of the compound was discontinued in 2012.
9. TAXES
Tax assets and liabilities
Thousands of €
Tax assets
Non-Current tax receivables
Current tax receivable
Total
2013
2012
39,347
10,625
49,972
35,288
188
35,476
The tax receivables relate to refunds resulting from tax credits on research expenses in France, UK and Belgium. Non-
current tax receivables are discounted over the period until maturity date.
Thousands of €
Tax liabilities
Income tax payable
Total
2013
2012
50
50
3
3
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Galapagos Annual Report 2013
Taxes recognized in profit or loss
Thousands of €
Current tax
Deferred tax (note 23)
Total
2013
-165
3,280
3,115
2012
150
-719
-569
Corporation tax is calculated at 34% (2012: 34%) - which is the tax rate applied in Belgium - of the estimated assessable
profit for the year. Current group result before tax is a loss before tax as well as last year. The applied tax rate for other
territorial jurisdictions is the tax rate that is applicable in these respective territorial jurisdictions on the estimated taxable
result of the accounting year.
The tax of the year can be reconciled to the accounting profit/loss as follows:
t
s
e
o
N
Thousands of €
Profit/loss (-) before tax
2013
-11,194
%
34
Income tax credit, calculated using the Belgian statutory tax rate on the accounting
profit/loss (-) before tax (theoretical)
Tax expenses in income statement (effective)
Difference in tax expense to explain
Effect of tax rates in other jurisdictions
Effect of non taxable revenues
Effect of consolidation correction without tax impact
Effect of non tax deductible expenses
Effect of recognition of previous non recognized deferred tax assets
Effect of change in tax rates
Effect of tax losses (utilized) reversed
Effect from under or over provisions in prior periods
Effect of non recognition of deferred tax assets
Effect of R&D tax credit claims
Effect of derecognition of previous recognized deferred tax assets
Total Explanations
-3,805
-3,115
690
-22
-6,817
-388
1,188
-3,595
-245
-499
-89
10,821
-340
676
690
%
34
2012
-5,152
-1,751
569
2,320
-325
-4,520
157
1,840
-14
-127
-1,496
102
8,508
-2,332
527
2,320
The main difference between the theoretical tax and the effective tax is explained by the unrecognized deferred tax assets
on tax losses carried forward for which the Company conservatively assesses that it is not likely that these will be realized in
the foreseeable future, except for BioFocus DPI Ltd. The non-taxable revenues, comprehending tax incentives like CIR, IWT,
etc. in the different sites are also an important factor for the financial year 2013.
55
Galapagos Annual Report 2013
10. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net result attributable to shareholders by the weighted average
number of ordinary shares issued during the year.
Thousands of €
Result for the purpose of basic result per share
Number of shares (thousands)
2013
-8,079
2012
-5,721
Weighted average number of shares for the purpose of result per share
28,787
26,545
Basic result per share (Euros)
-0.28
-0.22
Thousands of €
Result for the purpose of diluted result per share, being net profit/loss
2013
-8,079
2012
-5,721
Number of shares (thousands)
Weighted average number of shares for the purpose of basic result per share
28,787
26,545
Number of dilutive potential ordinary shares
Diluted result per share (Euros)
-0.28
-0.22
As the Group is reporting a net loss, the outstanding warrants have an anti-dilutive effect rather than a dilutive effect.
Consequently, basic and diluted loss per share are the same.
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Galapagos Annual Report 2013
11. RIGHTS AND COMMITMENTS NOT REFLECTED IN THE BALANCE SHEET
For this subject matter we refer to note 28 “Contingent liabilities and assets”.
12. GOODWILL
Thousands of €
On 1 January 2012
Dissolution of subsidiaries
Goodwill impairment
On 31 December 2012
Acquisition of subsidiaries
On 31 December 2013
t
s
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38,880
-620
-593
37,667
1,572
39,239
Goodwill increased in 2013 and is related to the acquisition of Cangenix Ltd. by Argenta Discovery 2009 Ltd. on 4 January
2013. The allocation of this goodwill through a Purchase Price Allocation (PPA) exercise has been performed in line with
IFRS 3 and the outcome was that no goodwill should be allocated to tangible or intangible assets, as the purchase was
driven by acquiring skills relating to structured-based biology and not customer base or customer relationships.
The decrease in goodwill in 2012 can on the one hand be explained by the liquidation of Cambridge Drug Discovery Holdings
Ltd. and its subsidiaries Cambridge Genetics Ltd. and Cambridge Discovery Ltd. On the other hand goodwill for R&D was
impaired and as such reversed because this goodwill was related to programs of ProSkelia SASU (now: Galapagos SASU)
for which currently no more work is performed (on hold). More specifically, the larger part of this goodwill was allocated to
GLPG0492 (SARM-Cachexia) for which the further development of the program was discontinued in 2012.
2013
29,040
10,199
2012
29,040
8,627
39,239
37,667
Thousands of €
Services - BioFocus
Services - Argenta
Total
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Galapagos Annual Report 2013
Services
On 13 March 2014 Galapagos NV announced the signing of a definitive agreement to sell the BioFocus and Argenta service
division operations to Charles River Laboratories International, Inc. for a total consideration of up to €134 million. Charles
River agrees to pay Galapagos immediate cash consideration of €129 million. Upon achievement of a revenue target 12
months after transaction closing, Galapagos will be eligible to receive an earn-out payment of €5 million. The purchase
price implies a multiple of approximately 2 times 2013 sales and approximately 12 times 2013 adjusted EBITDA. The net
asset value of the sold service division operations amounts to €70.7 million at 31 December 2013. Consequently, the gain
on the divestment will be much higher than the goodwill for the service division of €39 million in 2013 and no impairment
charges need to be recorded.
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Galapagos Annual Report 2013
13. INTANGIBLE ASSETS
Thousands of €
Acquisition value
At 1 January 2012
Additions
Sales and disposals
Transfer
Translation differences
Balance at 31 December 2012
Additions
Sales and disposals
Transfer
Translation differences
Customer rela-
In process tech-
Software & data-
tionships
nology
bases
Brands, licenses,
patents & know-
Total
how
4,167
6,066
6,629
15,131
31,991
-2,116
4
2,054
-505
5,561
941
-3
-306
-28
7,231
545
-35
-62
7,680
5,571
455
-187
-28
5,811
607
-35
-62
6,322
1,420
1,358
-375
2,927
100
17,783
-85
17,698
7,336
1,568
-357
2,391
84
11,022
1,409
-65
12,366
941
-377
75
32,629
545
-35
-147
32,993
21,377
2,125
-357
60
23,205
2,118
-35
-127
25,161
6,760
5,332
9,425
7,832
Balance at 31 December 2013
2,054
5,561
Amortization and impairment
At 1 January 2012
Charge for the year
Sales and disposals
Transfer
Translation differences
Balance at 31 December 2012
Charge for the year
Sales and disposals
Transfer
Translation differences
2,403
102
-1,699
4
809
102
6,066
-505
5,561
Balance at 31 December 2013
911
5,561
Carrying amount
At 31 December 2012
At 31 December 2013
1,245
1,143
The additions in software and databases mainly relate to software development for compound inventory. Prior years’
additions mainly related to the implementation of a company-wide ERP system.
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Galapagos Annual Report 2013
14. PROPERTY, PLANT AND EQUIPMENT
Land & building
Installation &
Furniture, fix-
Other tangible
improvements
machinery
tures & vehicles
assets
Thousands of €
Acquisition value
At 1 January 2012
Additions
Sales and disposals
Other increase/decrease (-)
Transfer
Translation differences
Balance at 31 December 2012
Additions
Sales and disposals
Other increase/decrease (-)
Transfer
Translation differences
Balance at 31 December 2013
Depreciations and impairment
At 1 January 2012
Charge for the year
Sales and disposals
Other increase/decrease (-)
Transfer
Translation differences
Balance at 31 December 2012
Charge for the year
Sales and disposals
Other increase/decrease (-)
Transfer
Translation differences
13,675
300
-1,148
791
93
13,712
265
-79
13,898
10,594
1,477
-1,124
731
75
11,753
1,028
1
-66
52,514
5,060
-12,237
1,313
364
47,015
5,460
-358
102
393
-360
52,251
38,877
4,402
-11,902
1,189
268
32,834
4,399
-313
2
-203
36,720
1,547
6,998
539
-11
227
2,012
35
4,350
168
-17
-46
4,455
674
312
-7
435
1,434
21
2,869
249
-5
-27
3,086
1,481
1,368
-4
-4,117
8
2,886
1,730
-644
-393
-13
3,565
5,066
692
-3,354
3
2,408
360
-637
-7
2,123
478
1,441
Balance at 31 December 2013
12,715
Carrying amount
At 31 December 2012
At 31 December 2013
1,959
1,183
14,181
15,532
There are no pledged items of property, plant and equipment. There are also no restrictions in use on any items of
property, plant and equipment.
Total
74,735
5,900
-13,400
227
501
67,962
7,623
-1,019
102
-498
74,169
55,211
6,884
-13,034
435
368
49,864
6,036
-955
2
-303
54,644
18,099
19,525
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Galapagos Annual Report 2013
15. INVENTORY
Thousands of €
Raw materials and supplies (net)
Work in progress (net)
Total
Inventory only consists of raw materials and supplies.
2013
249
249
2012
204
204
16. AVAILABLE FOR SALE FINANCIAL ASSETS AND OTHER NON CURRRENT ASSETS
Available for sale financial assets have been written off in 2012 and represent an investment in common stock in an unlisted
biotechnology company incorporated in the USA. The shares are not traded on the open market; management assesses
these shares to be impaired as from 2012.
In 2008 a reclassification was done from cash and cash equivalents to available for sale financial assets. This reclassification
relates to the CDO (for an amount of €2,000K), that was impaired fully in 2008, and as of 31 December 2013 remained at a
fair value of €0.
Thousands of €
Other non-current assets
Total
17. TRADE AND OTHER RECEIVABLES
Thousands of €
Trade receivables
Prepayments
Other receivables
Other current receivables
Accrued income
Deferred charges
Total
Measurement at cost
Measurement at fair value
2013
220
220
2012
420
420
2013
2012
2013
13,291
2,124
3,792
5,091
4,271
820
2012
27,876
2,125
2,493
5,194
2,685
2,509
24,298
37,688
The Group considers that the carrying amount of trade and other receivables approximates their fair value. The other
current assets mainly include accrued income from subsidy projects and deferred charges.
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18. CASH AND CASH EQUIVALENTS
Thousands of €
Bank balances
Cash at hand
Total
2013
141,478
4
141,481
2012
94,643
4
94,647
The bank balances and cash held by the Group have an original maturity of maximum three months. The carrying amount
of these assets approximates their fair value. The cash and cash equivalents have no restrictions upon them.
19. SHARE CAPITAL
The share capital of Galapagos NV, as included in the articles of association, reconciles to the ‘Capital’ on the balance sheet
as follows:
Thousands of €
Share capital Galapagos NV
Costs of capital increases (accumulated)
Capital
2013
161,172
-6,629
2012
144,815
-5,468
154,542
139,347
Costs of capital increases are netted against the proceeds of capital increases, in accordance with IAS 32 Financial
instruments: disclosure and presentation.
History of Share Capital
The overview below represents the evolution of the share capital as included in the articles of association of Galapagos NV
(rounded).
Date
Shares (in €)
Warrants (in €)
after Transaction
Transaction (in €)
Share Capital
Share Capital
Aggregate Num-
Aggregate Share
Increase New
Increase
Number of
Shares issued
ber of Shares
Capital after
1 January 2012
31 December 2012
5 April 2013
29 April 2013
1 July 2013
21 October 2013
6 December 2013
31 December 2013
14,589,856
1,068,913
487,674
193,240
16,365
197,581
2,696,831
90,143
35,719
3,025
26,421,441
142,928,662
26,770,747
144,815,588
29,794,046
161,171,636
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As of 1 January 2012, the Company’s share capital amounted to €142,928,662.81, represented by 26,421,441 shares. All
shares were issued, fully paid up and of the same class.
On 5 April 2012, warrants were exercised at various exercise prices under Warrant Plan 2002 Belgium, Warrant
Plan 2005, Warrant Plan 2006 Belgium/The Netherlands, Warrant Plan 2006 UK, Warrant Plan 2007, Warrant Plan 2007 RMV
and Warrant Plan 2008. The exercise resulted in a share capital increase of €740,589.74 (plus €359,072.53 in issuance
premium) and the issuance of 137,414 new shares.
On 29 June 2012, warrants were exercised at various exercise prices under Warrant Plan 2006 Belgium/The Netherlands,
Warrant Plan 2006 UK, Warrant Plan 2007, Warrant Plan 2007 RMV and Warrant Plan 2008. The exercise resulted in a share
capital increase of €101,161.59 (plus €59,091.48 in issuance premium) and the issuance of 18,699 new shares.
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On 12 July 2012, the Board of Directors of Galapagos NV decided, within the framework of the authorized capital, to create
a maximum of 530,140 warrants, for the benefit of the Directors and certain independent consultants of Galapagos NV,
and of employees of the Group under a new warrant plan (“Warrant Plan 2012”). After acceptances, the total number of
warrants de facto created and granted under this plan is 481,140. These warrants have a term of eight years. The exercise
price of the warrants is €14.19. As of 31 December 2012 no warrants were exercised under this plan and 456,140 warrants
were still outstanding.
On 14 September 2012, warrants were exercised at various exercise prices under Warrant Plan 2005, Warrant Plan
2006 UK, Warrant Plan 2007 RMV and Warrant Plan 2008. The exercise resulted in a share capital increase of €116,688.29
(plus €28,133.01 in issuance premium) and the issuance of 21,569 new shares.
On 17 December 2012, warrants were exercised at various exercise prices under Warrant Plan 2002 Belgium,
Warrant Plan 2005, Warrant Plan 2006 Belgium/The Netherlands, Warrant Plan 2006 UK, Warrant Plan 2007, Warrant Plan
2007 RMV and Warrant Plan 2008. The exercise resulted in a share capital increase of €928,485.84 (plus €408,400.79 in
issuance premium) and the issuance of 171,624 new shares.
On 31 December 2012, the Company’s share capital amounted to € 144,815,588.27, represented by 26,770,747 shares. All
shares were issued, fully paid up and of the same class.
On 5 April 2013, warrants were exercised at various exercise prices under Warrant Plan 2006 Belgium/The Netherlands,
Warrant Plan 2006 UK, Warrant Plan 2007, Warrant Plan 2008, Warrant Plan 2008 (B), Warrant Plan 2009 and Warrant Plan
2009 (B). The exercise resulted in a share capital increase of €1,068,913.21 (plus €113,013.18 in issuance premium) and
the issuance of 197,581 new shares.
On 29 April 2013, within the framework of the authorized capital and with cancellation of the preferential subscription rights,
the Board of Directors of Galapagos NV decided to increase the share capital of the Company by €14,589,855.71 (plus
€39,346,764.29 in issuance premium) by means of a private placement with institutional investors, resulting in the issuance
of 2,696,831 new shares.
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On 1 July 2013, warrants were exercised at various exercise prices under Warrant Plan 2002 Belgium, Warrant Plan 2005,
Warrant Plan 2006 UK, Warrant Plan 2007 RMV, Warrant Plan 2008, Warrant Plan 2009 and Warrant Plan 2009 (B). The
exercise resulted in a share capital increase of €487,673.63 (plus €96,526.77 in issuance premium) and the issuance of
90,143 new shares.
On 21 October 2013, warrants were exercised at various exercise prices under Warrant Plan 2002 Belgium, Warrant Plan
2005, Warrant Plan 2006 UK, Warrant Plan 2008, Warrant Plan 2009 and Warrant Plan 2009 (B). The exercise resulted in a
share capital increase of €193,239.79 (plus €49,634.41 in issuance premium) and the issuance of 35,719 new shares.
On 6 December 2013, warrants were exercised at various exercise prices under Warrant Plan 2007 RMV and Warrant
Plan 2009. The exercise resulted in a share capital increase of €16,365.25 (plus €2,851.00 in issuance premium) and the
issuance of 3,025 new shares.
Other information
Par value of shares
Ordinary shares
5.41
Total
5.41
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The Board of Directors is authorized for a period of 3 years starting from the date of the General Shareholders’ Meeting that
granted the renewed authorization, being 23 May 2011, to increase the share capital of the Company within the framework
of the authorized capital through contributions in kind or in cash, with limitation or cancellation of the shareholders’
preferential rights, even after notification by the FSMA (Financial Services and Markets Authority) of a public takeover bid
on the Company’s shares, provided that the relevant provisions of the Code of Companies are complied with, including that
the number of issued shares cannot be more than one tenth of the number of shares issued prior to the capital increase and
representing the share capital of the Company. Said authorization can be renewed.
The authorized capital as approved by the Extraordinary General Shareholders’ Meeting of 23 May 2011 amounted to
€142,590,770.44. As of 31 December 2013, €20,859,667.01 of the authorized capital was used, so that an amount of
€121,731,103.43 still remained available under the authorized capital.
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Galapagos Annual Report 2013
20. SHARE PREMIUM
Thousands of €
On 1 January
Increase as a result of capital increase in cash
On 31 December
21. TRANSLATION DIFFERENCE
Thousands of €
On 1 January
Translation differences, arisen from translating foreign activities
On 31 December
2013
72,876
39,608
112,484
2013
994
-824
170
2012
72,021
855
72,876
2012
35
959
994
The decrease in translation differences is mainly related to the translation of foreign operations in USD.
22. OTHER RESERVES
Actuarial gains (-) or losses recognised through OCI
Thousands of €
On 1 January
Actuarial gains or losses (-) recognised through OCI
On 31 December
2013
2012
47
47
0
Other reserves amount to €47K (2012: nil) and relate to actuarial gains due to experience adjustments in 2013 which have
been booked through OCI (instead of through the income statement), in line with IAS19R.
Derivative financial instruments: Currency derivatives
The Group does not actively use currency derivatives to hedge planned future cash flows. On the balance sheet date, total
notional amount of outstanding forward foreign exchange contracts that the Group has committed are nil (2012: nil).
On 31 December 2013 the fair value of the Group’s currency derivatives is estimated to be nil (2012: nil).
The Group does not designate its foreign currency denominated debt as a hedge instrument for the purpose of hedging the
translation of its foreign operations.
See note 36 for further information on how the Group manages financial risks.
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23. DEFERRED TAX
Thousands of €
2013
2012
I
Recognized deferred tax assets and liabilities
Assets
Liabilities
4,558
-2,192
1,705
-2,624
II
Deferred tax assets unrecognized
105,529
106,197
III Deferred taxes
Deferred tax expenses net relating to origination and reversal of temporary differences
Tax benefit arising from previously unrecognized tax assets used to reduce deferred tax expense (+)
Deferred tax expenses relating to write down of previously recognized deferred tax assets
3,280
427
3,529
-676
-719
-205
14
-527
The notional interest deduction for an amount of €2,624K (2012: €2,624K) and the investment deduction of €966K (2012:
€966K) could give rise to deferred tax assets. The amount of notional interest deduction that has been accumulated in the
past can be carried forward for maximum 7 years, the notional interest deduction of 2012 and following years will not be
carried forward according to a change in the Belgian tax legislation. There is no limit in time for the investment deduction.
The unused tax losses carried forward at 31 December 2013 amount to €329,195K (2012: €345,546K), €18,694K relates to
unrecognized tax losses with expiry date between 2014 and 2028.
The tax losses carried forward can be compensated with future profits of the Group for an indefinite period except for
Switzerland, the US, Croatia and The Netherlands. Because BioFocus DPI Ltd. was profitable in 2012 and 2013 and
management expects that this situation is sustainable, a deferred tax asset was set up for an amount of €4,558K (2012:
€1,000K). This amount was based on a conservative estimate of net profits for the next 3 years. A deferred tax asset for
tax losses carried forward, which are limited in time (3 years), was reversed for the Zagreb research center for an amount
of €678K, because of the current year loss and forecasted losses in the foreseeable future due to the fact that Fidelta is in a
transition period to go from an R&D subcontractor company to a fee-for-service company.
The deferred tax liabilities relate to timing differences on the value of fixed assets of BioFocus DPI Ltd., BioFocus DPI
Holdings and Argenta.
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24. FINANCE LEASE LIABILITIES
Thousands of €
2013
2012
2013
2012
Minimum lease payments
Present value of minimum lease
payments
Amounts payable under finance lease
Within one year
In the second to fifth years inclusive
After five years
Less future finance charges
Present value of lease obligation
Less amount due for settlement within 12 months
Amount due for settlement after 12 months
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238
237
475
82
393
327
298
625
220
405
226
167
393
226
167
240
165
405
240
165
Thousands of €
Leased assets
Installation & machinery
Total
Net book value
Acquisition cost
2013
2012
2013
2012
384
384
295
295
2,534
2,534
2,247
2,247
The Group leases certain of its installation and machinery under finance leases. For the year ended 31 December 2013, the
average borrowing rate was 6.17% (2012: 8.29%). The interest rates were fixed at the date of the contracts. All leases are
on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates their carrying value.
25. OPERATING LEASE OBLIGATIONS
The Group as lessee
The Group has rental contracts for office and laboratories which qualify as operating leases as follows:
Thousands of €
Minimum lease payments under operating leases recognized in the income statement for the year
Total
67
2013
6,492
2012
6,702
6,492
6,702
Galapagos Annual Report 2013
On the balance sheet date, the Group had outstanding commitments for future minimum rent payments, which become due
as follows:
Thousands of €
Within one year
In the second to fifth years inclusive
After five years
Total
2013
6,781
19,989
65,331
92,102
The increase in the lease commitments in 2013 is related to the new Robinson Building of BioFocus.
26. TRADE AND OTHER PAYABLES
Thousands of €
Trade payables
Other creditors
Other current liabilities
Accrued charges
Deferred income
Total
Included in current liabilities
Included in non-current liabilities
Total
The increase in trade payables relates mainly to increased accounts payable and accruals for clinical trials in R&D (mainly
GLPG0634 RA and Crohn’s disease).
The decrease in deferred income is mainly due to the revenue recognition of the AbbVie payments. An additional amount
of €15.6M ($20M) has been paid by AbbVie in 2013 for expansion of the patient population in the ‘634 trials. Revenue
recognition of the initial €111.5M ($150M) and the additional €15.6M ($20M) for RA in the course of 2013 amounted to
€45.0M. In addition an upfront of €34.0M ($45M) was paid by AbbVie for cystic fibrosis of which €6.8M was recognized in
the course of 2013. The net movement AbbVie payments and related revenue recognition in the course of 2013 amounts as
such to a decrease of €2.1M.
2012
6,056
20,532
15,883
42,472
2012
22,093
2,367
86,501
2,893
83,608
2013
29,365
2,462
82,838
3,858
78,979
114,664
110,962
112,202
2,462
114,664
108,594
2,367
110,962
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Galapagos Annual Report 2013
27. PROVISIONS
Thousands of €
Balance per 1 January 2013
Additional provisions
Provisions utilized amounts
Reversed
Translation differences
Balance at 31 December 2013
Post-employment
Restructuring
benefits
(non-current)
Other provisions
(non-current)
10
-2
-1
7
666
15
-8
-12
660
provision
(current)
176
-93
-3
81
Total
852
15
-101
-2
-16
747
The non-current provision is mainly related to a dilapidation provision in Argenta of €600K. The decrease of €93K in the
(current) restructuring provision is related to utilized amounts related to the building of the Basel site.
28. CONTINGENT LIABILITIES AND ASSETS
As a result of the acquisition of ProSkelia SASU (now: Galapagos SASU) from ProStrakan in 2006, ProStrakan is entitled
to earn-outs for a maximum amount of €14.5 million, in case of achievement of predetermined milestones in the research
programs that were taken over by Galapagos. The achievement of these milestones will generate a net positive cash flow
for the Group, but this is still too uncertain. Due to this uncertainty a contingent liability has not been recorded yet.
In the course of 2013 Galapagos SASU was subject to a tax audit on fiscal years 2008 to 2011. In December 2013 the
French tax authorities proposed a tax adjustment amounting to €1.9 million in cash and a proposed decrease of its tax
losses carried forward for €19,5 million. A defence response letter rejecting the claim was sent to the tax authorities on
10 February 2014. Considering the defence elements provided in favour of Galapagos SASU, the Board, also based on its
external advisors assessment, evaluated the risk to be remote to possible, but not likely. Accordingly, it was decided not to
record any tax provision in 2013 as the exposure is considered to be limited.
On 13 March 2014 Galapagos NV announced the signing of a definitive agreement to sell the BioFocus and Argenta service
division operations to Charles River Laboratories International, Inc. for a total consideration of up to €134 million. Charles
River agrees to pay Galapagos immediate cash consideration of €129 million. Upon achievement of a revenue target 12
months after transaction closing, Galapagos will be eligible to receive an earn-out payment of €5 million.
29. RETIREMENT BENEFIT SCHEME
Defined contribution plans
The Group operates defined contribution systems for all of its qualifying employees. The assets of the schemes are
held separately from those of the Group in designated pension plans. For defined contribution systems, the Group pays
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contributions to publicly or privately administered pension- or insurance funds. Once the contribution is paid, the Group
does not have any remaining obligation.
The personnel of the Group in Belgium participate in a defined contribution plan (extra-legal pension). These arrangements
are subject to a minimum guaranteed return in accordance with the Belgian legislation. These plans are financed through a
group insurance policy for which the insurance company also guarantees a minimum return. Similar pension schemes apply
to the Group entities in other countries, except for France.
The amounts due by the Group to these pension schemes for 2013 was €2,996,491 (2012: €2,911,423) of which
€33,924 was paid after 31 December 2013 (2012: €52,501). These amounts do not include the pension contributions of
Galapagos SASU (see below).
Defined benefit plans
The Group uses two defined benefit plans for Galapagos SASU France. The defined benefit plans are not supported by
funds.
The first defined benefit plan is an addition to the French Social Security and requires Galapagos SASU to pay certain
pension contributions, as under the French Social Security. In 2013 Galapagos SASU paid for this purpose €717,739 as
employer social contributions (2012: €775,380).
In addition, the Chemical and Pharmaceutical Industry’s collective bargaining agreements require that Galapagos SASU pays
a retirement allowance depending on the seniority of the employees at the moment they retire. The benefit obligations for
these retirement allowances amounted to €1,207,220 for 2013 (2012: € 1,115,870). This increase is mainly due to current
service cost.
Additionally, there are also seniority premiums paid in France. The provisions for these premiums amounted to €981,829 in
2013 (2012: €919,591).
The revised IAS 19 standard is effective for accounting years beginning on or after 1 January 2013 with retroactive effect on
accounting years beginning on or after January 1 2012. Actuarial gains and losses are to be recognized in the balance sheet
immediately, with a charge or credit to other comprehensive income (OCI). They are not recycled subsequently. Regarding
the provisions for seniority premiums (‘Gratifications’) the revised IAS 19 standard did not trigger any changes. Regarding
retirement allowances (‘Indemnités de départ en retraite’), the actuarial gains of €46.642 have been booked through OCI at
the end of 2013.
Obligations included in the balance sheet
In €
Present value of funded defined benefit obligation
Fair value of plan assets
Shortage
Liability included in the balance sheet
31/12/2013
31/12/2012
1,207,220
1,115,870
1,207,220
1,115,870
1,207,220
1,115,870
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Galapagos Annual Report 2013
The present value of the gross obligation developed as follows
In €
Opening balance
Current service cost
Interest cost
Benefits paid
Actuarial gains (-) or losses due to experience adjustments
Actuarial gains (-) or losses due to experience adjustments related to new financial assumptions
Actuarial gains (-) or losses due to experience adjustments related to new demographic
assumptions
Closing balance
31/12/2013
31/12/2012
1,115,870
728,641
113,214
33,476
-8,699
-47,039
78,554
34,610
22,740
250,659
397
666
1,207,220
1,115,870
Amounts recognized in profit or loss for defined benefit plans are as follows
In €
Current service cost
Interest cost
Total expense
This expense is booked as pension cost within G&A personnel costs.
Obligation included in the balance sheet reconciles as follows
In €
Opening balance
Total expense recognized in the income statement
Remeasurement on the net defined benefit liability
Benefits paid
Closing balance
The most important actuarial assumptions are
In €
Discount rate
Expected salary increase
31/12/2013
31/12/2012
113,214
33,476
146,690
78,554
34,610
113,164
31/12/2013
31/12/2012
728,641
387,229
1,115,870
146,690
-46,642
-8,699
1,207,220
1,115,870
31/12/2013
31/12/2012
3.00%
2.50%
3.00%
2.50%
The expected contributions for next year amount to €148,241 of which €112,251 is related to service cost and €35,990 is
related to interest cost.
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30. WARRANT PLANS
Presented below is a summary of Warrant Plans activities for the reported periods. Various Warrant Plans were approved for
the benefit of Directors and independent consultants of Galapagos NV, and of employees of the Group. The warrants offered
to employees and independent consultants vest according to the following schema: 10% of the number of warrants granted
vest upon the date of the grant; an additional 10% vest at the first anniversary of the grant; an additional 20% vest at the
second anniversary of the grant; an additional 20% vest at the third anniversary of the grant; and an additional 40% vest
at the end of the third calendar year following the grant. This vesting mechanism does not apply to the warrants granted
under the Warrant Plan 2011, Warrant Plan 2012, Warrant Plan 2013 and Warrant Plan 2013 (B), for which all warrants vest
at the end of the third calendar year following the year of the grant, with no intermediate vesting. The warrants offered to
Directors vest over a period of 36 months at a rate of 1/36th per month. Warrants cannot be exercised before the end of
the third calendar year following the year of the grant. Pursuant to a resolution of the Extraordinary General Shareholders’
Meeting of 23 May 2011 an in principle provision has been incorporated in the Warrant Plans that in the event of a change
of control of the Company all outstanding warrants vest immediately and will be immediately exercisable.
After the reverse 4:1 share split decided by the Shareholders’ Meeting of 29 March 2005, 4 warrants of Warrant Plan 2002
Belgium entitle the warrant holder to subscribe to one share. For the Warrant Plans created from 2005 onwards, one
warrant entitles the warrant holder to subscribe to one share. In the summaries and tables below, the numbers of warrants
issued under Warrant Plan 2002 Belgium are divided by 4 to avoid a mixture of rights.
The table below sets forth a summary of warrants outstanding and exercisable at 31 December 2013, per Warrant Plan:
Warrants
Allocation
date
Expiry
Date
Exercise
Price (€)
Outstanding
per 1
January
2013
Granted
during the
year
Exercised
during the
year
Forfeited
during the
year
Expired
during the
year
Outstanding
per 31
December
2013
Exercis-
able per 31
December
2013
2002 B
2002 B
2005
2005
2005
2005
09/07/04
08/07/17
31/01/05
30/01/17
04/07/05
03/07/18
23/11/05
22/11/18
15/12/05
14/12/18
22/11/06
21/11/19
2006 BNL
13/02/06
12/02/19
2006 BNL
22/11/06
21/11/19
2006 BNL
04/05/07
03/05/20
2006 BNL
28/06/07
27/06/20
2006 BNL
21/12/07
20/12/20
2006 UK
2006 UK
2006 UK
2007
2007
01/06/06
31/05/14
22/11/06
21/11/14
28/06/07
27/06/15
28/06/07
27/06/15
28/06/07
27/06/20
2007 RMV
25/10/07
24/10/20
4.00
6.76
6.91
8.35
8.60
8.65
8.61
8.65
9.22
8.65
7.12
8.70
8.65
8.43
8.65
8.65
8.65
31,250
52,500
145,000
35,000
12,500
1,995
52,749
7,000
7,500
735
2,100
17,691
1,835
7,890
108,126
104,770
61,775
5,000
2,500
945
6,279
1,000
13,943
1,100
945
126
11,375
31,250
47,500
31,250
47,500
145,000
145,000
32,500
12,500
1,050
46,470
6,000
7,500
735
2,100
3,748
735
6,000
32,500
12,500
1,050
46,470
6,000
7,500
735
2,100
3,748
735
6,000
108,126
108,126
104,644
104,644
50,400
50,400
945
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Galapagos Annual Report 2013
Warrants
Allocation
date
Expiry
Date
Exercise
Price (€)
Outstanding
per 1
January
2013
Granted
during the
year
Exercised
during the
year
Forfeited
during the
year
Expired
during the
year
2008
2008 B
2009
2009 B
2009 B
2010
2010 B
2010 C
2011
2011 B
2012
2013
2013 B
Total
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7,625
50,000
211,500
14,130
26/06/08
25/06/21
26/06/08
25/06/13
01/04/09
31/03/17
02/06/09
01/06/14
02/06/09
01/06/17
27/04/10
26/04/18
27/04/10
26/04/15
23/12/10
26/04/18
23/05/11
22/05/19
23/05/11
22/05/16
03/09/12
02/09/20
16/05/13
15/05/21
18/09/13
17/09/21
5.60
5.60
5.87
7.09
7.09
11.55
11.55
11.74
9.95
9.95
14.19
19.38
15.18
143,765
50,000
490,000
56,670
75,000
462,250
190,248
75,000
569,000
129,220
456,140
602,790
75,000
5,500
140
32,500
1,470
20,650
10,750
Outstanding
per 31
December
2013
Exercisa-
ble per 31
December
2013
136,140
136,140
278,500
278,500
42,540
75,000
42,540
75,000
456,750
190,108
75,000
536,500
127,750
435,490
592,040
75,000
3,347,709
677,790
326,468
71,010
945
3,627,076
1,138,438
Weighted aver-
Warrants
age exercise
price
8.70
9.51
11.50
3,341,290
949,683
481,141
-120,100
-349,306
-5,315
3,347,709
844,181
677,790
-71,010
-326,468
-945
3,627,076
1,138,438
Outstanding on 1 January 2012
Exercisable on 31 December 2011
Granted during the period
Forfeited during the year
Exercised during the period
Expired during the year
Outstanding on 31 December 2012
Exercisable on 31 December 2012
Granted during the period
Forfeited during the year
Exercised during the period
Expired during the year
Outstanding on 31 December 2013
Exercisable on 31 December 2013
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The table below sets forth the valuation of the warrants.
Belgian Plans
Exercise Price
Current share price
Fair value on the grant date
Estimated volatility (%)
Time to expiration (years)
Risk free rate (%)
Expected dividends
2013
29 July
19.38
17.74
7.75
38.76
8.00
1.99
None
2013
2012
18 September
3 September
15.18
14.87
6.80
38.76
8.00
1.99
None
14.19
13.02
5.91
39.91
8.00
2.24
None
The method of determining the exercise share price is set up by the Board of Directors.
The estimated volatility is calculated on the basis of the historical volatility of the share price over the useful life of the
warrants, validated by reference to the volatility of a representative biotech index.
The time to expiration of the warrant is calculated as the estimated duration until exercise, taking into account the specific
features of the plans.
The warrants have been accounted for in accordance with International Financial Reporting Standard 2 on Share Based
Payments. IFRS 2 takes effect for all warrants offered after 7 November 2002.
Warrants expense for warrants that vested in 2013 amounted to €2,742K (2012: €2,086K).
The following table provides an overview of the outstanding warrants per category of warrant holders at 31 December 2013.
Category
Non-executive Directors
Executive Team
Other
Total warrants outstanding
Number of warrants
2013
192,350
1,382,500
2,052,226
2012
180,710
1,345,000
1,821,999
3,627,076
3,347,709
The outstanding warrants at the end of the accounting period have an average exercise price of €11.50 (2012: €9,51) and a
weighted average remaining useful life of 1,628 days (2012: 1,880 days).
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31. RELATED PARTIES
Intercompany transactions between Galapagos NV and its subsidiaries, and amongst the subsidiaries, have been eliminated
in the consolidation and are not disclosed in this note.
Trading transactions
In 2013 and 2012, Galapagos NV and its affiliates had no trading transactions with parties that are considered as related
parties as defined in IAS24.
Potential conflicts of interest between the Company and its Directors
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Pursuant to a power of attorney granted by the Annual General Shareholders’ Meeting held on 30 April 2013, the Board,
upon recommendation of the Nomination and Remuneration Committee, allocated the aggregate annual remuneration for
all Directors (other than Dr Parekh and the CEO) for the exercise of their mandate as a Director of the Company in 2013,
amounting in total to maximum €200,000 (plus expenses) as follows: (a) remuneration for non-executive Directors who
do not represent a shareholder (Dr Van Barlingen and Mr Rowe): €20,000; (b) remuneration for non-EU-based Directors
(who do not represent a shareholder) and/or for Directors who actively and on a regular basis provide independent clinical,
scientific and/or transactional advice to the Board of Directors (Dr Cautreels, Dr Sato and Ms Bosley): €40,000; and (c)
additional remuneration for the chairman of the Audit Committee (Dr Cautreels): €5,000. In 2012 the Directors received
an annual fee of €20,000 plus expenses. The chairman of the Audit Committee received an additional payment of €5,000
per year. In addition, the Annual General Shareholders’ Meeting of 24 April 2012 authorized an additional compensation of
€20,000 for Directors who provide actively and on a regular basis independent clinical and scientific advice to the Board of
Directors. In 2012, this was the case for Dr Cautreels and Dr Sato. Dr Parekh, the Chairman of the Board, is compensated
through a consultancy agreement only (see note 32).
There are no loans between Galapagos NV and the members of its Board of Directors or its Executive Committee.
The remuneration of key management (including the CEO) is set out in note 32.
In 2013 (as in 2012), there were no arrangements or understandings with major shareholders pursuant to which a
representative of such shareholder became a Board Member or Executive Committee member of the Company.
In 2013, a total of 124,240 warrants were issued to the Directors, of which 100,000 for the CEO; this issue of warrants
was decided by the Board of Directors within the framework of the authorized capital, in accordance with the resolution of
the Annual General Shareholders’ Meeting of 30 April 2013. In 2012, the total number of warrants issued to Directors was
117,640 (of which 100,000 for the CEO) by decision of the Extraordinary General Shareholders’ Meeting of 22 August 2012.
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32. REMUNERATION OF KEY MANAGEMENT PERSONNEL
On 31 December 2013, the Executive Committee comprised five members: Mr Onno van de Stolpe, Dr Andre Hoekema, Dr
Piet Wigerinck, Mr Guillaume Jetten and Mr David Smith. In the course of 2013, one individual ceased to be a member of
the Executive Committee: Dr Chris Newton, with effect from 26 August 2013. The remuneration package of the members of
the Executive Committee who were in function in the course of 2013 comprises:
Thousands of € (except for the number of warrants)
31/12/2013
31/12/2012
Short-term employee benefits (*)
Post-employment benefits
Total benefits excluding warrants
Number of warrants offered in the year
2,502
83
2,585
3,348
123
3,470
265,000
230,000
(*) includes: salaries, employer social security contributions, other short term benefits.
The above table includes the normal payments for compensation and benefits made to Dr Newton up to the date of
cessation of his mandate as Executive Committee member.
The members of the Executive Committee provide their services for the Group on a full-time basis. Their remuneration
includes all costs for the Group, including retirement contributions.
The 265,000 warrants offered in 2013 to the members of the Executive Committee were offered under Warrant Plan 2013,
with the exception of the warrants offered to Mr Smith (75,000 warrants), which were offered under Warrant Plan 2013 (B).
The retirement benefits to the members of the Executive Committee are part of the retirement benefit scheme to which all
qualified personnel are entitled; the contributions are paid as a percentage of the gross annual salary.
The Executive Committee members, together with other senior managers, are eligible to receive bonuses under the Senior
Management Bonus Scheme established in 2006. Pursuant to the rules of the Senior Management Bonus Scheme, 50%
of the bonus is paid immediately around year-end and the payment of the remaining 50% is deferred for three years. The
deferred 50% component is dependent on the Company’s share price change relative to the Next Biotech Index (which
tracks the Company’s peers). The Company’s share price and Index at the start and end of the 3-year period is calculated
by the average price over the preceding and last month of the 3-year period, respectively.
•
If the Company’s share price change is better than or equal to the change in the Next Biotech Index, the deferred
bonus will be adjusted by the share price increase/decrease and paid out.
•
If the Company’s share price change is up to 10% worse than the change in the Next Biotech Index, 50% of
the deferred bonus will be adjusted by the share price increase/decrease and paid out, and the remainder will be
forfeited.
•
If the Company’s share price change is more than 10% worse than the change in the Next Biotech Index the
deferred bonus will be forfeited.
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To be entitled to any deferred payment under the bonus scheme the beneficiary must still be in the Company’s employ.
The five members of the Executive Committee (including the CEO) who were in function in the course of 2013 were paid
an aggregate amount of €1,467,517 in remunerations and received an aggregate amount of €841,937 in bonuses. The
aggregate bonus amount was composed of 2 parts: (i) an aggregate bonus of €377,870, being 50% of the bonus for
performance over 2013 (paid in early January 2014), with the other 50% being deferred for 3 years; and (ii) an aggregate
amount of €464,067 paid in early January 2014 as the 50% deferred part of the bonus over 2010; this deferred part was
established at the end of 2013 using a multiple of 1.205 of the deferred part of the 2010 bonus, as a result of the share
price performance over the period 2010-2013. For 2012, the members of the then Executive Committee (comprising 7
members including the CEO) were paid an aggregate amount of €1,759,156 in remunerations and an aggregate amount
of €1,366,470 in bonuses (which was composed of 3 parts: (i) an aggregate bonus of €286,125, being 50% of the bonus
for performance over 2012 (paid in early January 2013), with the other 50% being deferred for 3 years, (ii) an aggregate
amount of €817,915 paid in early January 2013 as the 50% deferred part of the bonus over 2009; this deferred part was
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established at the end of 2012 using a multiple of 1.96 of the deferred part of the 2009 bonus, as a result of the share price
performance over the period 2009-2012; and (iii) an aggregate amount of €262,430 paid in April 2012 as 50% of the special
bonus in connection with the major collaboration agreement relating to GLPG0634 entered into in February 2012, with the
other 50% being deferred for 3 years).
Other components of their remuneration included contributions to the Group’s pension and health insurance schemes,
company cars and certain fringe benefits of non-material value.
Only the CEO is a member of both the Executive Committee and the Board of Directors. The CEO does not receive any
special remuneration for his work on the Board of Directors, as this is part of his total remuneration package in his capacity
as member of the Executive Committee.
No loans, quasi-loans or other guarantees were given to members of the Board and of the Executive Committee.
Transactions with non-executive Directors
In connection with the compensation of Directors, the Annual Shareholders’ Meeting of 30 April 2013, resolved to establish
the total maximum amount of the annual remuneration for all Directors together (excluding Dr Parekh and the CEO) for
the exercise of their mandate as a Director of the Company, on an aggregate basis, at €200,000 (plus expenses). The
same Annual General Shareholders’ Meeting granted a power of attorney to the Board to determine the remuneration of
the individual Board members within the limits of said aggregate amount. Pursuant to this power of attorney, the Board
determined, upon recommendation of the Nomination and Remuneration Committee, the allocation of the aggregate annual
remuneration for Directors as follows: (a) remuneration for non-executive Directors who do not represent a shareholder (Dr
Van Barlingen and Mr Rowe): €20,000; (b) remuneration for non-EU-based Directors (who do not represent a shareholder)
and/or for Directors who actively and on a regular basis provide independent clinical, scientific and/or transactional advice to
the Board of Directors (Dr Cautreels, Dr Sato and Ms Bosley): €40,000; (c) additional remuneration for the chairman of the
Audit Committee (Dr Cautreels): €5,000. The aforementioned levels of remuneration are a continuation of the fees as paid
in previous years.
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Galapagos Annual Report 2013
In 2013, a total amount of €137,625 was paid to the independent Directors as Board fees (2012: €112,474) and €26,104 as
expenses (2012: €11,331).
In 2013 an aggregate amount of €20,000 was paid to the Directors who are not independent Directors and who do not
represent a shareholder (2012: €20,000); they did not claim reimbursement of expenses.
In case a Director attends less than 75% of the meetings of the Board of Directors, the annual compensation set out above
shall be reduced pro rata the absence score of such Director. This rule did not require implementation in 2013 or 2012.
Directors who represent a shareholder on the Board of Directors will only receive reimbursement for the expenses they incur
for attending meetings of the Board of Directors and no other compensation or fees for their Board membership. There
were no such Directors in 2013 or 2012.
As of 1 August 2005, the Chairman of the Board, Dr Parekh, receives an annual consulting fee of £50,000 as compensation
for his specific assignment to assist the Company in strategic positioning, financing and acquisitions, including, amongst
others, the evaluation of several alternative corporate transactions, including potential company and compound acquisitions,
as well as strategic alliance opportunities. Dr Parekh does not receive other cash compensation from the Company.
In 2013, 16,320 warrants were granted to non-executive Directors (2012: 17,640).
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33. CONSOLIDATED COMPANIES AS OF 31 DECEMBER 2013
Name of the subsidiary
through subsidiaries)
2012)
% voting right Galapagos
Change in % voting right
Country
NV (directly or indirectly
previous period (2013 vs
Argenta Discovery 2009 Ltd.
United Kingdom
BioFocus DPI (Holdings) Ltd.
United Kingdom
BioFocus DPI AG
Switzerland
BioFocus DPI Ltd.
United Kingdom
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BioFocus DPI LLC.
BioFocus, Inc.
Cangenix Ltd.
United States
United States
United Kingdom
Discovery Partners International GmbH
Germany
Galapagos BV
The Netherlands
Fidelta d.o.o. (*)
Galapagos SASU
Croatia
France
Inpharmatica Ltd.
United Kingdom
Xenometrix, Inc.
United States
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(*) On 5 February 2013, Galapagos istraživački centar d.o.o. was renamed Fidelta d.o.o.
100%
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Galapagos Annual Report 2013
34. COMPANY ACQUISITIONS AND DISPOSALS
Acquisition of subsidiary
On 4 January 2013 Galapagos acquired Cangenix Ltd. which is located in Canterbury, UK. Cangenix is a structure-based
drug discovery company and has been added to the Argenta service offering. It was formed in 2011 by scientists from
the Structural Biology and Biophysics group at Pfizer Sandwich, UK. Recognized as experts in the field, the Cangenix team
brings over 70 years of combined experience in the application of protein crystallography and biophysical techniques to drug
discovery. Cangenix contributed €1.3 million of revenues for the period between the date of acquisition and 31 December
2013. In the 9 months reference period prior to the date of acquisition, Cangenix reported €0.7 million of revenues. The
consideration paid for Cangenix in the course of 2013 amounted to €1.2 million, including €0.1 million of cash and cash
equivalents acquired. A deferred consideration of €0.5 million has been recognised on the balance sheet and is payable
after two years upon achievement of certain conditions. The goodwill arising on the acquisition of Cangenix Ltd. amounts to
€1.6 million. For this subject matter we refer to note 12 “Goodwill”.
Thousands of €
04/01/2013
CONDENSED BALANCE SHEET CANGENIX AT ACQUISITION DATE
Fixed assets
Work in progress
Debtors and prepayments
Cash
Total assets
Equity
Trade payables and advances received
Accrued charges and other liabilities
Total equity and liabilities
Net assets
Goodwill
TOTAL CONSIDERATION
Initial consideration paid
Deferred consideration
NET CASH OUTFLOW ARISING ON ACQUISITION
Cash consideration
Cash and cash equivalents acquired
100
7
134
84
325
207
67
51
325
207
1,572
1,779
1,236
543
1,695
1,779
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35. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Drafting financial statements in accordance with IFRS requires management to make judgments and estimates and to use
assumptions that influence the reported amounts of assets and liabilities, the notes on contingent assets and liabilities on
the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual
results may differ from these estimates.
The most important assumptions concerning future developments and the most important sources of uncertainty for
estimates on the balance sheet date are presented below.
Share based payments plans
The Group determines the costs of the share based payments plans on the basis of the fair value of the equity instrument
at grant date. Determining the fair value assumes choosing the most suitable valuation model for these equity instruments,
by which the characteristics of the grant have a decisive influence. This assumes also the input into the valuation model
of some relevant judgments, like the estimated useful life of the warrant and the volatility. The judgments made and the
model used are specified further in note 30.
Pension obligations
The cost of a defined pension arrangement is determined based on actuarial valuations. An actuarial valuation assumes
the estimation of discount rates, estimated returns on assets, future salary increases, mortality figures and future
pension increases. Because of the long term nature of these pension plans, the valuation of these is subject to important
uncertainties. We refer to note 29 for additional details.
Impairment of goodwill
Changes in management assumptions on profit margin and growth rates used for cash flow predictions, could have an
important impact on the results of the Group. Determining whether goodwill is impaired requires an estimation of the value
in use of the cash generating units to which the goodwill has been allocated. The value in use calculation requires the entity
to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to
calculate present value. Considering that the consideration received for the sale of the service business is much higher than
its net assets value, no estimation of the value in use is necessary anymore as at the end of 2013. (Cfr note 12. Goodwill).
36. FINANCIAL RISK MANAGEMENT
We refer to note 5 “Risk factors” of the Report of the Board of Directors for additional details on general risk factors.
Capital management
The Group manages its capital to ensure that the Group will be able to continue as a going concern. At the same time, the
Group wants to ensure the return to its shareholders through the results from its research activities. This strategy has not
changed compared to 2012.
The capital structure of the Group consists of financial debt (which currently the Group barely has), cash at bank and in
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hand and cash equivalents, as mentioned in note 18, and equity attributed to the holders of equity instruments of the
Company, such as capital, reserves and results carried forward, as mentioned in the consolidated statement of changes in
equity.
The Group manages its capital structure and makes the necessary adjustments in the light of changes of economic
circumstances, the risk characteristics of underlying assets and the projected cash needs of the current research activities.
The most important parameters used in assessing the capital structure are the current cash situation and the expected cash
generation rate: the cash generation is defined as the net result, corrected for depreciations and reduced by investments in
fixed assets.
The Group wishes to maintain a capital structure that is sufficient to finance research activities for at least 12 months. For
this, cash receipts from possible collaboration or other cash generating contracts, as well as the cash receipts from the
services division BioFocus, are taken into account. To keep the capital structure at a certain level, the Group can issue new
shares or enter into financing agreements.
The Group is not subject to any externally imposed capital requirements.
Financial risk management
The financial department of the Company coordinates the access to national and international financial markets and
considers and manages continuously the financial risks concerning the activities of the Group. These relate to the credit risk
and the currency risk. There are no other important risks, such as liquidity risk or interest rate risk because the Group has
nearly no financial debt and has a good cash position. The Group does not buy or trade financial instruments for speculative
purposes. The Group primarily attempts to manage the currency risk by closing contracts in local currencies with the
other party. These clients are for the most part large pharma groups that typically are better equipped to hedge against a
possible exchange rate risk. For the remainder, the Group attempts to manage the currency risk for debt and receivables
by matching the gains and costs in a foreign currency.
Categories of material financial assets and liabilities:
Thousands of €
Financial assets
Cash at bank and in hand
Trade receivables
Other amounts receivable
Tax receivables (current and non-current)
Financial liabilities
Trade debtors
Other amounts payable
Leasing debts
Tax payable
2013
2012
141,481
13,291
3,792
49,972
29,365
2,462
393
50
94,647
27,876
2,493
35,476
22,093
2,367
405
3
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Credit risk on receivables
The term “credit risk” refers to the risk that a counterparty will default on its contractual obligations resulting in financial
loss to the Group. To limit the risk of financial losses, the Group has developed a policy of only dealing with creditworthy
counterparties.
Galapagos grants credit to its clients in the framework of its normal business activities. Usually, the Group requires
no pledge or other collateral to cover the amounts due. Management continuously evaluates the client portfolio for
creditworthiness. All receivables are considered collectable, except for these for which a provision for doubtful debtors has
been established.
The trade receivables consist of a limited amount of creditworthy customers, many of which are large pharmaceutical
companies, spread over different geographical areas.
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Four clients represented 61% of the trade receivables at the end of 2013 of which 37% is related to one customer for which
important milestones were achieved at year-end 2013 and which will be paid in 2014. Other clients represented less than
10% of the total balance sheet of the Group at the end of 2013. The concentration of the credit risk within the group is
influenced strongly by the size of the amounts in the partnering agreements.
The net book value of the financial assets in the financial statements represents the maximum credit risk.
Aging balance of receivables that are due, but that are still considered collectable:
Thousands of €
60 - 90 days
90 - 120 days
Liquidity risk
2013
1,034
The Group’s consolidated balance sheet shows an amount of €100,107K as incurred losses. Cash needs are projected on
a 3-year rolling forecast basis and are compared with expected available cash balances at the end of each period. These
projections are based on realistic assumptions with regard to milestone and upfront payments to be received, taking into
account the Company’s past track record, including the assumption that not all new projects that are being planned will be
realized. On the basis of these projections and sensitivity analysis the Company expects no need for additional external
funding for its current operations for at least the next 3 years. The Company could also decide to disinvest from some of its
present activities as a means of generating additional cash.
Market risk: interest rate risk
The Group’s financial performance is not subject to any significant interest rate risk. The Company has in its portfolio a
CDO for which the “mark to model” value is zero, and which consequently has been fully impaired. Based on the latest
information, the tranche in our portfolio of the CDO has not been impacted by settled credit events. Galapagos no longer
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receives interests on the CDO.
Market risk: exchange rate risk
The Group’s financial performance is subject to exchange rate risk, because part of its purchases is done in US dollars,
Swiss Francs, GB Pounds and Croatian Kuna. To limit this risk, the Group attempts to align incoming and outgoing cash
flows in currencies other than EUR. In addition, contracts closed by the different entities of the Group are mainly in the
functional currencies of that entity. The exchange rate risk within the Group is therefore almost exclusively caused by the
intra-group transactions between entities with a different functional currency. In order to further reduce this risk, Galapagos
implemented a netting system within the group in the course of 2012, which restrains intra-group payments between
entities with a different functional currency.
The exchange rate risk in case of a 10% change in the exchange rate amounts to:
Net book value - Thousands of €
31/12/2013
31/12/2012
Euros - US Dollars
Euros - GB Pounds
Euros - CH Francs
Euros - HR Kunas
CH Francs - GB Pounds
HR Kunas - GB Pounds
US Dollars - GB Pounds
521
185
163
798
1
31
708
507
927
93
1,146
95
5
807
The magnitude of the amounts on 31 December 2013 has decreased mainly in the conversion Euros – GB Pounds, as well in
the conversion Euros – HR Kunas.
37. AUDIT FEES
The statutory auditor’s fees for carrying out the statutory auditor’s mandate on the level of the Group headed by Galapagos
NV amounted to €94,350 in 2013 (2012: €88,850). The fees for exceptional services or special missions executed by the
statutory auditor, in particular other control missions, amounted to €20,906 in 2013 (2012: €12,863). Fees for persons
related to the statutory auditor for carrying out an auditor’s mandate on the level of the group headed by Galapagos
NV amounted to €105,650 in 2013 (2012: €111,150). The fees paid in 2013 for exceptional services or special missions
executed in this Group by persons related to the statutory auditor for tax and consultancy amounted to €22,524 (2012:
€126,087). The Audit Committee and the Board of Directors are of the opinion that these ad hoc activities do not affect
the independence of the statutory auditor in the performance of his statutory duties. The majority of the abovementioned
additional fees were approved in advance by the Audit Committee. The one to one rule was complied with.
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38. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
Galapagos announced the following significant events after 31 December 2013:
• 6 January: Van Herck Investments notify of 5.3% shareholding in Galapagos
• 13 January: Galapagos receives €2.9 million IWT grant for cystic fibrosis research (not included in 2013 revenues)
• 29 January: First clinical centers opened for Phase 2 Crohn’s study with GLPG0634
• 3 February: Galapagos receives €2.3 million IWT grant for fibrosis research (not included in 2013 revenues)
• 17 February: Galapagos completes patient recruitment in Proof-of-Concept study with GLPG0974 in ulcerative
colitis
• 21 February: Galapagos to present GLPG0634 and GLPG0974 at International Conference on IBD
• 28 February: Galapagos provides status update for GSK2586184 in GSK’s psoriasis, lupus, and ulcerative colitis
clinical studies
• 7 March: Galapagos receives €2 million from osteoarthritis alliance with Servier (included in 2013 revenues)
• 13 March 2014: Galapagos announced the signing of a definitive agreement to sell its Argenta and BioFocus
service operations to Charles River Laboratories International Inc. for total cash consideration of up to 134 million.
The transaction is subject to customary closing conditions and is expected to close early in the second quarter
of 2014. Charles River acquires all service operations of BioFocus and Argenta in the UK and the Netherlands.
The acquisition includes all client contracts, order pipeline, premises, equipment, and further obligations of
BioFocus and Argenta. All employees of BioFocus and Argenta will move into Charles River organization upon
completion of the transaction. Charles River agrees to pay Galapagos immediate cash consideration of
€129 million. Upon achievement of a revenue target 12 months after transaction closing, Galapagos will be
eligible to receive an earn-out payment of €5 million.
The legal entities to be sold as part of this transaction are BioFocus DPI Ltd., BioFocus DPI (Holdings) Ltd.,
Argenta Discovery 2009 Ltd. and Cangenix Ltd. Post-transaction, Galapagos NV will still have the following
dormant entities from its service business division: BioFocus DPI AG, BioFocus DPI LLC, BioFocus Inc., Xenometrix
Inc. and Discovery Partners International GmbH. The liquidation of these entities should be completed in 2014
and 2015. The sold service division represents the following contribution for Galapagos in 2013:
-
net profit from the sold service operations of €8.1 million in 2013
- net assets of the sold service division of €70.7 million at 31 December 2013, including €83.4
million of assets and €12.7 million of liabilities.
• 18 March: Galapagos to present favourable pre-clinical data on GLPG1790, a selective ephrin receptor kinase
inhibitor, at AACR in San Diego.
• 21 March: Euronext Amsterdam to become Market Reference for Galapagos.
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Report of the statutory auditor
Statutory auditor’s report to the shareholders’ meeting
on the consolidated financial statements for the year ended 31 December 2013
Galapagos NV
To the shareholders
As required by law, we report to you in the context of our appointment as the company’s statutory auditor. This report
includes our report on the consolidated financial statements together with our report on other legal and regulatory
requirements. These consolidated financial statements comprise the consolidated statement of financial position as at
31 December 2013, the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, as well
as the summary of significant accounting policies and other explanatory notes.
Report on the consolidated financial statements – Unqualified opinion
We have audited the consolidated financial statements of Galapagos NV (“the company”) and its subsidiaries (jointly “the
group”), prepared in accordance with International Financial Reporting Standards as adopted by the European Union and
with the legal and regulatory requirements applicable in Belgium.
The consolidated statement of financial position shows total assets of 287,374 (000) EUR and the consolidated income
statement shows a consolidated loss for the year then ended of 8,079 (000) EUR.
Board of directors’ responsibility for the preparation of the consolidated financial statements
The board of directors is responsible for the preparation and fair presentation of consolidated financial statements in
accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal
and regulatory requirements applicable in Belgium, and for such internal control as the board of directors determines is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Statutory auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing (ISA). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the statutory auditor’s judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the statutory auditor considers internal control relevant to the group’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the group’s internal control. An audit also includes evaluating
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the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the board of
directors, as well as evaluating the overall presentation of the consolidated financial statements. We have obtained from the
group’s officials and the board of directors the explanations and information necessary for performing our audit.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Unqualified opinion
In our opinion, the consolidated financial statements of Galapagos NV give a true and fair view of the group’s net equity
and financial position as of 31 December 2013, and of its results and its cash flows for the year then ended, in accordance
with International Financial Reporting Standards as adopted by the European Union and with the legal and regulatory
requirements applicable in Belgium.
Report on other legal and regulatory requirements
The board of directors is responsible for the preparation and the content of the directors’ report on the consolidated financial
statements.
As part of our mandate and in accordance with the Belgian standard complementary to the International Standards on
Auditing applicable in Belgium, our responsibility is to verify, in all material respects, compliance with certain legal and
regulatory requirements. On this basis, we make the following additional statement, which does not modify the scope of our
opinion on the consolidated financial statements:
•
The directors’ report on the consolidated financial statements includes the information required by law, is consistent
with the consolidated financial statements and is free from material inconsistencies with the information that we
became aware of during the performance of our mandate.
Kortrijk, 28 March 2014
The statutory auditor
(signed)
_________________________________________________
DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises
BV o.v.v.e. CVBA / SC s.f.d. SCRL
Represented by Gino Desmet
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Non-consolidated Financial
Statements
CONDENSED NON-CONSOLIDATED (STATUTORY) ANNUAL ACCOUNTS
THE STATUTORY AUDITOR HAS ISSUED AN UNQUALIFIED OPINION ON THE STATUTORY FINANCIAL
STATEMENTS
GALAPAGOS NV STATEMENT OF PROFIT AND LOSS
Thousands of € on 31 December
2013
2012
Turnover
Internally generated intangible assets
Other operating income
48,330
90,444
13,185
45,981
74,450
13,282
Operating income
151,959
133,713
Raw materials, consumables and goods for resale
Services and other goods
Remuneration, social security costs and pensions
Depreciation, impairment and other amounts written off on constitution costs, intangible and
tangible assets
Other operating charges
Operating profit/loss (-)
Finance income
Finance cost
-3,399
-78,801
-12,094
-66,820
-6,579
-15,735
1,905
-1,596
-3,423
-71,304
-11,795
-45,490
-1,713
-12
3,117
-860
Result on ordinary activities before taxes
-15,426
2,245
Extraordinary income
Extraordinary cost
Result before taxes
Taxes
Result for the year
Loss brought forward
-1,001
-29,477
-16,427
-27,232
-16,427
-27,232
-115,287
-88,055
Result to be carried forward
-131,714
-115,287
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GALAPAGOS NV BALANCE SHEET ON DECEMBER 31
Assets
Thousands of € on 31 December
Non-current assets
Intangible assets
Property, plant and equipment
Financial Fixed Assets
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Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Thousands of € on 31 December
Equity
Share capital and reserves
Share premium account
Accumulated losses
Investment grants
Liabilities
Non-current liabilities
Obligations under finance lease (non-current)
Other liabilities
Current liabilities
Trade and other payables
Obligations under finance lease (current)
Tax, payroll and social security liabilities
Other liabilities
Total equity and liabilities
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2013
209,812
125,842
3,762
80,209
2012
185,982
100,553
3,233
82,196
156,263
110,482
249
28,873
127,141
204
38,652
71,626
366,075
296,464
2013
140,775
161,172
106,524
-131,714
4,793
2012
98,600
144,816
66,916
-115,287
2,155
225,300
197,864
464
167
297
573
165
408
224,835
197,291
50,782
226
2,452
171,376
366,075
46,033
204
2,370
148,684
296,464
Galapagos Annual Report 2013
Glossary
ACR20
who are not actively trying to lose weight; it can be a
American College of Rheumatology 20% response rate
symptom of underlying illnesses such as cancer, COPD
signifies a 20% or greater improvement in the number
and age-related disorders
of swollen and tender joints as well as a 20% or greater
improvement in three out of five other disease-activity
measures
ADR
American Depositary Receipt; Galapagos has a Level
1 ADR with ticker symbol GLPYY and CUSIP number
36315X101, which is traded over the counter on the Pink
Sheets. One ADR is equivalent to one ordinary share in
Galapagos NV
Attrition rate
The historical success rate for drug discovery and
development, based on publicly known development
paths. Statistically seen, investment in at least 12
target-based programs is required to ensure that at least
one of these will reach a Phase 3 study. Most new drug
Candidate drug
Substance that has satisfied the requirements of pre-
clinical testing and has been selected for clinical testing
for the treatment of a certain disorder in humans
CDO
Collateralized debt obligation; a type of structured
asset-backed security (ABS) whose value and payments
are derived from a portfolio of fixed-income underlying
assets
CGU
Cash-generating unit; the smallest recognizable group
of assets which generates entries of finance largely
independent from entries of finance generated with the
other assets or group of assets
R&D programs are discontinued before reaching Phase 3
CIR
because they are not successful enough to be approved
Credit Impot Recherche, or research credit. Under the
BID dosing
Twice daily dosing
Bioavailability
Assessment of the amount of (candidate) drug
that reaches a body’s systemic circulation after
administration
Biomarker
Substance used as an indicator of a biological state,
particularly to monitor a biological response to a
candidate drug
Black & Scholes model
A mathematical description of financial markets and
derivative investment instruments that is widely used in
the pricing of European options and warrants
Cachexia
CIR, the French government refunds up to 30% of the
annual investment in French R&D operations, over a
period of three years. Galapagos benefits from the CIR
through its operations in Romainville, just outside Paris.
Clinical Proof of Concept (PoC)
Point in the drug development process where the
candidate drug shows efficacy in a therapeutic setting
CODM (Chief Operating Decision Maker)
Within Galapagos it has been identified as the Executive
Committee
Colitis ulcerosa/ulcerative colitis
see IBD
Compound
A chemical substance, often a small molecule with drug-
like properties
Loss of appetite, weight and muscle mass in persons
Compound repository services
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The selection, formatting, storage, processing
batch scale-up, and regulatory filings of Galapagos’ drug
and delivery of compounds, which are owned by
candidates
government, academic and commercial organizations
Discovery
Contract research organization
Process by which new medicines are discovered and/
Organization which provides drug discovery and
or designed. At Galapagos, this is the department that
development services
oversees target and drug discovery research through to
COPD
nomination of pre-clinical candidates
Chronic obstructive pulmonary disease; chronic lung
Disease-modifying
disease characterized by difficulty breathing and
Addresses the cause of disease and modifying the
persistent coughing; includes the diseases commonly
disease progression, not just the symptoms of the
referred to as chronic bronchitis and emphysema
disease
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Corrector drug
Drug that restores the protein forming the ion channel
opening in cystic fibrosis patients. In most CF patients,
a potentiator and corrector drug are needed in
combination to restore the genetic defect causing CF
Crohn’s
see IBD
CRP
Dose-range finding study
Phase 2 clinical study exploring the trade-offs between
efficacy and safety among various doses of treatment in
patients. Results are used to determine doses for later
studies
Downstream milestones
The downstream milestones are for successes at key
decision making points in the alliance, i.e. selection of a
C-reactive protein is a protein found in the blood, the
pre-clinical candidate, start of a clinical research study,
levels of which rise in response to inflammation
regulatory filings and approvals, and achievement of
Cystic fibrosis
commercial sales goals
A life-threatening genetic disease that affects
approximately 70,000 people worldwide. Although the
Drug development
disease affects the entire body, difficulty breathing is
the most serious symptom as a result of frequent lung
Process of bringing a new drug to the market; includes
both pre-clinical development and human clinical trials
infections
DAS28
Drug discovery
Process by which a (potential) therapeutic is either
DAS28 is an RA Disease Activity Score based on
discovered or designed
C-reactive protein, tender and swollen joint counts of 28
Efficacy
defined joints and physician’s global health assessment
Effectiveness for intended use
Development
Process of bringing a new drug to the market. At
Galapagos, this is the department which performs
pre-clinical and clinical development research, clinical
FDA
The Food and Drug Administration is an agency
responsible for protecting and promoting public health
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Fee-for-service
GLPG0778
Payment system where the service provider is paid a
Second candidate drug from Galapagos’ arthritis alliance
specific amount for each procedure or service performed
with GlaxoSmithKline, inlicensed by GSK in 2012. This
FIH
First-in-human clinical trial, usually conducted in healthy
program is now called GSK2586184 and is currently in
Phase 2 studies in lupus, ulcerative colitis, and psoriasis
volunteers with the aim to assess the safety, tolerability
GLPG0974
and bioavailability of the candidate drug
Galapagos candidate drug targeting GPR43, which plays
FSMA
The Belgian market authority: Financial Services and
Markets Authority, or Autoriteit voor Financiële Diensten
en Markten
FTE
Full-time equivalent; a way to measure a worker’s
involvement in a project. For example, an FTE of 1.0
means that the equivalent work of one full-time worker
was used on the project
GLPG0187
a key role in Inflammatory Bowel Disease: currently
in a Phase 2 Proof of Concept study in ulcerative colitis
patients
GLPG1205
Novel mode of action medicine in inflammatory bowel
disease, in the alliance with Janssen Pharmaceutica,
currently on track to enter Phase 2 by end 2014
GLPG1790
A novel drug targeting the ephrin tyrosine kinase
receptor, with potential applications in triple-negative
Galapagos candidate drug which was being developed
breast cancer, melanoma, prostate and other cancer
for treatment of cancer metastasis; Galapagos ceased
types. Currently in pre-clinical candidate stage
further work on the compound in 2013
GLPG1837
GLPG0492
A potentiator drug currently in pre-clinical candidate
A drug to treat cachexia. This drug was outlicensed by
stage, on track to enter Phase 1 by end 2014.
Galapagos to DART Therapeutics for testing in Duchenne
Galapagos and AbbVie are looking for a corrector drug
muscular dystrophy
GLPG0555
to use in combination with GLPG1837 to treat the largest
mutation of CF
First candidate drug from Galapagos’ arthritis alliance
GSK2586184
with GlaxoSmithKline; inlicensed by GSK in 2012
Previously known as GLPG0778, GSK2586184 is a
GLPG0634
Small molecule selective JAK1 inhibitor which showed
excellent efficacy and safety in rheumatoid arthritis
patients in Phase 2 trials in November 2011 and
second candidate drug from Galapagos’ arthritis alliance
with GlaxoSmithKline, inlicensed by GSK in 2012.
This program is currently in Phase 2 studies in lupus,
ulcerative colitis, and psoriasis
November 2012, partnered with AbbVie in 2012.
IBD
Currently in a Phase 2B study in rheumatoid arthritis and
Phase 2 study in Crohn’s disease
Inflammatory Bowel Disease. This is a general term
for autoimmune disease affecting the bowel, including
Crohn’s disease and ulcerative colitis. Crohn’s disease
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affects the small intestine primarily, while ulcerative
body
colitis affects the large intestine. Both diseases involve
inflammation of the intestinal wall, leading to pain,
bleeding, and ultimately in some cases removal of bowel
tissue
Infectious diseases
Diseases that are caused by pathogenic micro-organisms
such as bacteria, viruses, parasites or fungi
Milestone
Major achievement in a project or program; in
Galapagos’ alliances, this is usually associated with a
payment
Molecule collections
Chemical libraries, usually consisting of drug-like small
molecules that are designed to interact with to specific
Inflammatory diseases
target classes. These collections can be screened
A large, unrelated group of disorders associated with
against a target to generate initial “hits” in a drug
abnormalities in inflammation
discovery program
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In-/out-licensing
MRSA
Receiving/granting permission from/to another company
Methicillin-resistant Staphylococcus aureus is a strain of
or institution to use a brand name, patent, or other
Staphylococcus aureus that is resistant to methicillin. It
proprietary right, in exchange for a fee and/or royalty
causes a potentially life-threatening infection that occurs
Intellectual property
most frequently among patients in hospitals
Creations of the mind that have commercial value and
are protected by patents, trademarks or copyrights
Oral dosing
Intersegment
Occurring between the different operations of a
Administration of medicine by the mouth, either as a
solution or solid (capsule, pill) form
company
Osteoarthritis
Investigational New Drug (IND) application
United States Federal law requires a pharmaceutical
company to obtain an exemption to ship an experimental
drug across state lines, usually to clinical investigators,
before a marketing application for the drug has been
The most common form of arthritis, usually occurring
after middle age, marked by chronic breakdown of
cartilage in the joints leading to pain, stiffness, and
swelling
approved. The IND is the means by which the sponsor
OTC
technically obtains this exemption
“Over the Counter” which means trading directly
JAK
Janus kinases (JAK) are critical components of signaling
mechanisms utilized by a number of cytokines and
growth factors, including those that are elevated in
rheumatoid arthritis
Metastasis
between two parties. In the U.S., over the counter
trading in stocks is carried out via market makers who
use quotation services such as the OTC Bulletin Board
(OTCBB) and the Pink Sheets. The US over-the-counter
market is monitored by the NASD. Galapagos’ Level
1 ADR is traded over the counter under ticker symbol
GLPYY on the Pink Sheets in the US, www.pinksheets.
Transmission of cancerous cells from a primary site
com
(usually a tumor) to one or more sites elsewhere in the
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Outsourcing
Contracting work to a third party
toxicology, and chemical upscaling
Pre-clinical candidate (PCC)
Pharmacokinetics (PK)
A potential drug that meets chemical and biological
Study of what a body does to a drug; the fate of a
criteria to begin the development process
substance delivered to a body
Phase 1
First stage of clinical testing of a potential new treatment
designed to assess the safety and tolerability of a drug,
Psoriasis
Psoriasis is an immune-mediated disease that affects
the skin. It is caused by the immune system being
mistakenly triggered, resulting in overproduction of new
usually performed in a small number of healthy human
skin cells
volunteers
Phase 2
Second stage of clinical testing, usually performed in 20-
300 patients, in order to determine efficacy, tolerability
and the most effective dose to use
Phase 3
Large clinical trials, usually conducted in 300-3000
patients to gain a definitive understanding of the efficacy
Rheumatoid arthritis (RA)
A chronic, systemic inflammatory disease that causes
joint inflammation, and usually leads to cartilage
destruction, bone erosion and disability
R&D operations
Research and development operations; unit responsible
for discovery and developing new candidate drugs
for internal pipeline or as part of risk/reward sharing
and tolerability of the candidate treatment by comparing
alliances with partners
it to the “gold standard” treatment; serves as the
principle basis for regulatory approval
Placebo-controlled
A clinical study can only show statistical significance
when the effect of a candidate drug is measured
against that of a placebo, a substance having no
pharmacological effect but administered as a control
in testing experimentally or clinically the efficacy of a
biologically active preparation
Potentiator drug
Drug that restores the ion channel opening in cystic
fibrosis patients. In most CF patients, a potentiator and
corrector drug are needed in combination to restore the
genetic defect causing CF
Pre-clinical
Screening
Method usually applied at the beginning of a drug
discovery campaign, where a target is tested in a
biochemical assay against a series of small molecules
or antibodies to obtain an initial set of “hits” that show
activity against the target. These hits are then further
tested or optimized
Service operations
Business unit primarily focused on delivering products
and conducting fee-for-service work for clients. Since
February 2010, Galapagos’ service operations include the
BioFocus and Argenta business units
SilenceSelect®
Galapagos’ proprietary collection of arrayed
adenoviruses, effective in knock-down human genes
Stage of drug research development, undertaken prior
in primary cells to identify novel drug targets. This
to the administration of the drug to humans. Consists
technology forms the basis of Galapagos’ target
of in vitro and in vivo screening, pharmaco-kinetics,
discovery engine
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Systemic Lupus Erythematosus
Systemic Lupus Erythematosus (SLE) is an autoimmune
disease characterized by inflammation of many parts of
the body. This inflammation is caused by the immune
system that mistakenly attacks healthy cells, leading to
tissue damage
Target
Protein that has been shown to be involved in a disease
process and forms the basis of therapeutic intervention
or drug discovery
Target discovery
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Identification and validation of proteins that have been
shown to play a role in a disease process
Technology access fee
License payment made in return for access to specific
technology (e.g. compound or virus collections)
Ussing Chamber
Ussing chamber is a scientific tool used to measure the
current as an indicator of ion transport taking place
across an epithelium
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Galapagos NV
Generaal De Wittelaan L11 A3
2800 Mechelen
Belgium
Tel: +32 15 34 29 00
Fax: +32 15 34 29 01
E-mail: ir@glpg.com
Careers
E-mail: jobs@glpg.com
www.glpg.com/careers/jobs.htm
www.glpg.com