Galapagos N.V. Annual Report 2014

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FY2014 Annual Report · Galapagos N.V.

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A transition and
execution year
for Galapagos
Annual Report 2014

Galapagos NV Annual Report 2014

CONTENTS

Contents

1 The Galapagos Group

4 Corporate governance

Letter from the CEO ...........................................

At a glance .........................................................

Strategy..............................................................

Overview of Galapagos NV .................................

Policies .............................................................

Board of Directors ............................................

Committees......................................................

Share capital and shares ..................................

Going concern statement.................................

Shareholders....................................................

Risk management ............................................

Remuneration report .......................................

The Galapagos share........................................

Conflict of interests and related parties............

Subsequent events ..........................................

Statement by the Board of Directors ................

Disclaimer and other information ....................

2 Research & Development

5 Financial statements

Consolidated financial statements ...................

The Galapagos pipeline ...................................

Non-consolidated financial statements ............

Target discovery ..............................................

Rheumatoid arthritis .......................................

6 Notes

Inflammatory bowel disease ...........................

Cystic fibrosis ..................................................

IPF ...................................................................

3 Risk factors

Notes to the consolidated financial statements

Report of the Statutory Auditor ......................

112

7 Other information

Glossary .........................................................

114

Financial calendar ..........................................

119

Colophon .......................................................

120

Contact...........................................................

120

Galapagos NV Annual Report 2014

The
Galapagos
Group
An overview of
Galapagos, its strategy
and portfolio in 2014

In 2014, Galapagos made the transition
from a hybrid service and pipeline company
into a clinical stage R&D biotech that
develops drugs with novel modes of action
for high unmet medical needs.

Onno van de Stolpe
CEO of Galapagos

THE GALAPAGOS GROUP

Letter from the CEO
—

Dear shareholder,

placebo controlled for the first 12 weeks, plus 12 more

weeks' treatment for longer term safety data. DARWIN 3:

long term extension study

▪ 98% of eligible patients (434 patients as of end of

February 2015) enrolled in DARWIN 3

▪ Presented a clean drug-drug interaction profile with

We present our 2014 Annual Report, the first online version,

filgotinib

to you. The 2014 Annual Report is our response to market

▪ Continued enrollment in 180-patient Phase 2 Crohn's

requests to offer more information about our strategy, the

study with filgotinib

markets we operate in, and the potential differentiation of

▪ Reported lack of efficacy in Proof of Concept study with

our products, in addition to the financials and a report on

GLPG0974 in ulcerative colitis

corporate governance matters. We hope you find this new

format helpful, and we look forward to receiving your

feedback.

The year 2014 was a transition and execution year for

Galapagos. With the sale of BioFocus and Argenta to Charles

▪ Disclosed novel target GPR84 and positive Phase 1 data
for GLPG1205, prepared for Phase 2 study in ulcerative

colitis with GLPG1205, which initiated in early 2015
▪ Nominated pre-clinical candidate antibody MOR106 in

inflammation in alliance with MorphoSys

River Laboratories

in April 2014, Galapagos made the

transition from a hybrid service and pipeline company into

In cystic fibrosis:
▪ Reported restoration of up to 60% healthy CFTR function

a clinical stage R&D biotech that develops drugs with novel

in pre-clinical evaluations of Galapagos triple

modes of action for high unmet medical needs. Our priority

combination therapy compounds for Class II mutation

is to execute on our current clinical programs, and use our

▪ Initiated Phase 1 study with potentiator GLPG1837,

unique target discovery platform to deliver new innovative

topline results expected Q3 2015

programs in the future.

In 2014 we greatly expanded our clinical activities, and our

pipeline grew to three Phase 2 and two Phase 1 programs.

Galapagos completed recruitment for the global DARWIN

Phase 2b program with filgotinib in rheumatoid arthritis;

we expect to report topline results for 12 weeks of treatment

in DARWIN 1 (mid-April) and DARWIN 2 (early-May). Our

cystic fibrosis program entered the clinic, and we are close to

▪ Nominated corrector GLPG2222 as a pre-clinical
candidate, Phase 1 start expected before end 2015

In osteoarthritis:
▪ Delivered pre-clinical candidate GLPG1972 in the alliance
with Servier, Phase 1 start expected before end 2015

In pulmonary disease:
▪ Initiated Phase 1 study with GLPG1690, reported positive

candidate nomination for our third molecule to complement

topline results in Q1 2015

our triple combination therapy for the main cystic fibrosis

mutation. In addition to filgotinib and cystic fibrosis, the

Company has '1205 (ulcerative colitis) and '1690 (idiopathic

pulmonary fibrosis) in clinical development and 25 programs

in discovery stage.

Grants for research:
▪ Flemish agency for Innovation by Science and

Technology (IWT) grants: €2.9 million for cystic fibrosis

and €2.3 million for fibrosis

2014: Strong progress in R&D

In the field of inflammation:
▪ Completed recruitment of Phase 2b DARWIN program
with filgotinib in patients with moderate to severe RA

2014: Largest year end cash balance in
Company history

Galapagos exceeded guidance for full year revenues in 2014,

achieving €108 million including €18 million in services

who do not respond well to methotrexate (MTX).

revenues from the first quarter. Galapagos is well-positioned

DARWIN 1: dose-range finding in 599 patients on

to create significant value from its R&D assets, with nearly

background treatment with MTX DARWIN 2: dose-range

€200 million in cash on the balance sheet, the largest year

finding in 287 patients without MTX. Both studies are

end cash position ever for Galapagos.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Revenues

results becoming available, a licensing decision by AbbVie is

Galapagos’ revenues and other income for 2014 amounted

expected.

In cystic fibrosis, Galapagos expects to nominate a second

corrector in the first half of 2015. Galapagos will report topline

Phase 1 results with GLPG1837 and initiate a Phase 2 study

in Class III cystic fibrosis patients in the second half of 2015.

Galapagos 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 2015.

Galapagos expects an operational use of cash of €110 -

130 million during 2015, excluding milestone payments and

a potential $200 million license fee from our partner AbbVie

for filgotinib. Excluding income from a potential license of

filgotinib by AbbVie, Galapagos has a runway until the end of

2016.

We appreciate your support as shareholder in 2014. Today,

Galapagos is at a key point in its development, with the first

of 4 readouts from the DARWIN program expected in 2015. We

aim to deliver the most clinical research results in Galapagos’

history in 2015.

Regards,

Onno van de Stolpe
CEO

to €108.2 million, which includes €18.2 million of revenues

and other income from discontinued service operations, sold

to Charles River Laboratories on 1 April 2014. Revenues from

continuing operations of €90.0 million represent a decrease of

7% compared to 2013, reflecting lower recognition of deferred

revenues from upfront payments, as a result of the longer

duration of the filgotinib program. Income from milestones,

grants and R&D incentives was in line with 2013.

Result

The Group realized a net profit in 2014 of €33.2 million, or €1.10

income per share, compared to a net loss of €8.1 million, or

€0.28 loss per share in 2013.

Net

loss

from continuing

operations

amounted

€37.3 million. Operating expenses from continuing operations

at €126.6 million were 11.6% (€13.2 million) higher than in 2013.

This increase is principally the result of higher investments

in the development of our mid-stage product candidates

filgotinib, GLPG1205, and GLPG1690, and increased spending

to accelerate the cystic fibrosis program with AbbVie. This

planned increase was driven by the maturing R&D pipeline

and the resulting costs of clinical trials.

Cash position

Cash,

cash equivalents

and

restricted

cash totaled

€198.4 million on 31 December 2014, which is the highest year-

end cash balance Galapagos has ever reported. Restricted cash

of €10.7 million includes a bank guarantee on real estate lease

obligations and an escrow account connected to the sale of

the service operations. €10.4 million of this restricted cash is

expected to be released by mid-2015. Net cash proceeds from

the sale of the service operations amounted to €130.8 million.

In addition, Galapagos' balance sheet holds R&D incentives

receivables from the French and Belgian governments

amounting to €51.3 million, of which €7.4 million will be

collected in 2015.

Outlook 2015

The Phase 2b clinical program for filgotinib in RA is expected

to deliver the 12-week topline efficacy and safety data for

DARWIN 1 by mid-April 2015, with 12 week topline results

for DARWIN 2 in early May 2015. 24-week results from both

studies are expected in July. The 10-week results from

filgotinib in Crohn's disease (FITZROY trial) are expected in

the second half of 2015. Subsequent to DARWIN 24-week

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

At a glance
—

Key figures (IFRS) Galapagos Group

(thousands of €, if not stated otherwise)

12/31/2014

12/31/2013

12/31/2012

Results1

Revenues and other income

Services cost of sales

R&D expenditure

S, G&A expenses

Restructuring and integration costs

Personnel expenses (including share-based compensation)

Capital expenditure

Depreciation and amortization of (in)tangible assets

EBIT

EBITDA

Net loss from continuing operations

Net income from discontinued operations

Net income / loss (–)

Balance sheet

Total assets

Cash, cash equivalents and restricted cash

Total liabilities

Stockholders' equity

Equity ratio (in %)

Galapagos share

90,021

96,572

(111,110)

(14,867)

(669)

(38,447)

2,804

(3,765)

(36,624)

(32,859)

(37,303)

70,514

33,211

270,467

198,440

64,332

206,135

76%

(99,380)

(13,817)

(290)

(35,979)

8,168

(4,105)

(16,915)

(12,810)

(16,811)

8,732

(8,079)

287,374

141,481

120,237

167,137

58%

92,226

(5,584)

(80,259)

(13,404)

(2,506)

(37,979)

6,841

(4,629)

(9,526)

(4,897)

(7,435)

1,714

(5,721)

235,329

94,647

116,882

118,447

50%

Number of shares issued on 31 December

30,299,129

29,794,046

26,770,747

Basic and diluted income / loss (–) per share (in €)

Dividend (in €)

Share price on 31 December (in €)

Personnel data

Total Group employees on 31 December (number)

1.10

15.49

417

(0.28)

15.30

8102

(0.22)

15.81

7962

1 Service activities (sold to Charles River on 1 April 2014) for the years 2014, 2013 and 2012 are shown on the line item “Net income from
discontinued operations”. All other line items consist of amounts from continuing operations, except for line item “Net income / loss (–)”,
which includes both continuing and discontinued operations.

2 Includes employees from the sold service division.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Employees per site

Number of employees

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Strategy
—

Galapagos seeks to develop a robust portfolio of clinical-stage

breakthrough therapies with potential

to revolutionize

existing treatment paradigms.

(G551D) mutation of the CFTR gene, the same mutation

which is targeted by the only approved therapy for CF,

Kalydeco, marketed by Vertex. However, the most

common mutation in the CFTR gene, the Class II

(F508del) mutation, is present in approximately 90% of

the CF population and is not addressed by Kalydeco. In

order to address the unmet need in patients with Class II

mutations, a combination of novel potentiator and

The ambition of the Galapagos team is to become a leading

corrector molecules ultimately may be required. To that

global biotechnology company focused on the development

aim, Galapagos plans to develop a triple combination

and commercialization of novel medicines. Management’s

therapy, composed of GLPG1837 and two novel corrector

strategy is to leverage Galapagos’ unique and proprietary

molecules. In December 2014, Galapagos initiated a Phase

target discovery platform, which facilitates discovery and

1 trial for GLPG1837 in healthy volunteers. Topline results

development of therapies with novel modes of action.

Key elements of Galapagos’ strategy include:

▪ Rapidly advance the development of filgotinib with
AbbVie, in rheumatoid arthritis (RA) and Crohn’s

disease (CD)
Based on the favorable safety and efficacy profile

demonstrated in our Phase 2a clinical trials, filgotinib

may be a promising candidate for the treatment of RA

and other autoimmune diseases like CD. Topline results

from DARWIN, Galapagos’ two ongoing Phase 2b trials,

after 12 weeks of treatment with filgotinib in subjects

with RA, are expected in April 2015. The final results

from these studies after 24 weeks of treatment are

expected in July 2015. Pending a successful outcome of

these trials, a global Phase 3 clinical program in RA is

expected to be initiated in the first half of 2016. In

parallel, Galapagos is evaluating filgotinib for the

treatment of CD. Results from 10 weeks of treatment in

FITZROY, our 180 patient, 20-week trial of filgotinib in

subjects with CD, are expected in the second half of 2015.

Pending a successful outcome of the FITZROY trial, a

global Phase 3 clinical program in CD is expected.

Filgotinib is being developed under an exclusive

collaboration agreement with AbbVie, under which

agreement Galapagos expects a licensing decision by

AbbVie in the second half of 2015.

▪ Collaborate with AbbVie to develop a cystic fibrosis
(CF) franchise of oral therapies composed of novel

potentiators and correctors
Galapagos is developing a novel potentiator therapy,

called GLPG1837, for CF patients that have the Class III

from this trial are expected in the third quarter of 2015.

Pending a successful outcome from this trial, Galapagos

intends to initiate a Phase 2a trial with GLPG1837 in

Class III patients (G551D) in the second half of 2015. For

the triple combination therapy, Galapagos expects to

combine GLPG1837 with a novel corrector, GLPG2222, and

an additional novel corrector for which Galapagos

expects to initiate pre-clinical development in the first

half of 2015. By the middle of 2015 Galapagos expects to

have all three components of this therapy in

development. In addition, Galapagos has preliminary

pre-clinical data which suggests that Galapagos

candidate drugs in combination with mRNA translation

agents potentially can restore clinically meaningful

CFTR function in Class I mutation patients. Galapagos

entered into an exclusive collaboration agreement with

AbbVie to discover, develop and commercialize these
and other novel CF modulators.

▪ Advance our Phase 2a clinical trial of GLPG1205 in UC

In December 2014, Galapagos started ORIGIN, a

60-patient, 12-week Phase 2a clinical trial of GLPG1205,

an inhibitor of GPR84, a protein which is frequently

overexpressed in inflammatory diseases. Galapagos

expects topline data from this trial in the first half of

2016. Pre-clinical data demonstrated promising activity

in an animal model, and Phase 1 data in human

volunteers demonstrated a favorable safety, tolerability

and pharmacodynamics, or PD, profile. GPR84

antagonists such as GLPG1205 present a novel mode of

action for treatment of inflammatory diseases. Up-

regulation of GPR84 on inflammatory leukocytes is

found in diseases such as IBD and neuro-inflammatory

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

disease, such as multiple sclerosis. GLPG1205 is fully

Galapagos NV’s operating income in 2014 amounted to

proprietary to Galapagos, and management intends to

€172.7 million compared to €152.0 million in 2013. This

develop this drug through Phase 2 independently.

increase is mainly due to increased turnover (i.e. R&D

▪ Prepare for Phase 2a clinical trial of GLPG1690 in IPF
In Q1 2015 Galapagos reported positive topline results of

revenues) which contributed €14.7 million more to operating

income than in the previous year. In addition, income from

internally generated intangible assets – being capitalized R&D

GLPG1690, an autotaxin inhibitor, in healthy volunteers.

expenses – increased as well with €3.9 million compared to

The molecule demonstrated favorable safety and

2013. The other operating income amounts to €15.3 million,

tolerability, as well as a strong pharmacodynamic signal

including €5.2 million in grants recognized for R&D projects,

implying target engagement. Galapagos is currently

€3.3 million in recharges to subsidiaries and €4.3 million

preparing a Phase 2 study in idiopathic pulmonary

recognized in tax incentives for investments in intangible

fibrosis (IPF), to be filed for approval before the end of

fixed assets.

2015. IPF is a chronic and ultimately fatal disease

characterized by a progressive decline in lung function.

▪ Maximize and capture the value of Galapagos’ target
discovery platform by becoming a fully integrated

biotechnology company
Galapagos’ platform has yielded several new mode-of-

action therapies across more than 15 therapeutic areas,

demonstrating the potential of our technology platform.

In addition to the current clinical programs, targeting

inflammation, CF and pulmonary disease, Galapagos

currently has 25 different target-based discovery

programs advancing toward clinical development with

novel modes of action. The most mature pre-clinical

program is in osteoarthritis where management expects

to enter a Phase 1 trial in 2015. Galapagos intends to

The operating costs of 2014 amounted to €197.6 million

compared to €167.7 million in 2013. Material purchases

increased slightly from €3.4 million in 2013 to €3.7 million

in 2014. Services and other goods increased substantially to

€96.7 million compared to €78.8 million in 2013, mainly as a

result of increased subcontracting for our pre-clinical studies

and clinical trials, driven by the maturing pipeline of our

R&D projects.

Personnel costs in 2014 amounted to €13.7 million compared

to €12.1 million in 2013. The number of employees at

Galapagos NV at the end of 2014 amounted to 132.

Depreciation increased to €76.8 million in 2014, compared to

€66.8 million in 2013. This is due to amortization booked on

the internally generated intangible assets capitalized in 2011,

continue to advance more clinical candidates in various

2012, 2013 and 2014.

therapeutic areas independently. Galapagos aims to

select promising programs in specialty pharmaceutical

and orphan indications for internal development and

commercialization to capture greater value for

shareholders and establish Galapagos as a fully

integrated biotechnology company.

Overview of statutory
results of Galapagos NV
—

Galapagos NV’s 2014 financial income increased significantly

to €108.1 million compared to €1.9 million in 2013 and can

be explained by a capital gain of €105.9 million realized in

connection with the sale of the service division to Charles

River Laboratories

International,

Inc. on 1 April

2014.

Financial costs amounted to €1.1 million compared to

€1.6 million in 2013, which was mainly due to realized

exchange rate losses on the AbbVie payments received in 2013

($20 million for GLPG0634 in RA and $45 million for cystic

fibrosis).

Extraordinary costs amount

to €19.7 million in 2014,

compared to €1.0 million in 2013, of which €13.5 million was

This overview only concerns the non-consolidated statutory

related to the extraordinary write-off of capitalized R&D costs

results of Galapagos NV. These results are part of the

with regard to alliances which ended or programs which were

consolidated results as discussed in the Letter from the CEO.

placed on hold.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Tax expenses recorded in 2014 amount to €0.4 million and

relate to capital gain taxes related to the sale of the service

division.

Going concern statement
—

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

these

assumptions is critical and may impact the recoverability of

the amounts capitalized. Capitalized R&D expenses amount

to €129.5 million compared to €119.8 million last year.

To date, Galapagos has incurred significant operating losses,

which is reflected in the balance sheet showing €63.9 million

accumulated losses as at 31 December 2014. However, despite

net losses in previous years, Galapagos realized a consolidated

net income of €33.2 million for the year ended 31 December

2014, owing to the sale of the service division. The Board has

examined the financial statements and accounting policies.

Based on conservative assumptions which exclude income

from a potential $250 million license of filgotinib by AbbVie,

Galapagos believes that its existing cash and cash equivalents

of €187.7 million for the year ended 31 December 2014 will

enable Galapagos to fund its operating expenses and capital

expenditure requirements at least through end of 2016. The

Investments in fixed assets in 2014 totalled €1.3 million,

Board is also of the opinion that additional financing could

excluding the internally generated assets. They consist

be obtained, if required. Taking this into account, as well as

mainly of new lab equipment, as well as investments in

the favourable outlook of developments of Galapagos’ drug

intangible assets, being software development. Galapagos NV’s

discovery and development activities, the Board is of the

cash position at the end of 2014 amounted to €194.0 million.

opinion that it can submit the financial statements on a

going concern basis. Whilst Galapagos’ cash position is

sufficient for Galapagos’ immediate and midterm needs, the

Board points out that if the R&D activities continue to go

well, Galapagos may seek additional funding to support the

continuing development of its products or to be able to

execute other business opportunities.

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 regulatory requirements. They show a positive

result. The financial year 2014 closed with a profit of

€62.0 million compared to a loss of €16.4 million in 2013. The

recorded net profit in 2014 can entirely be explained by a

substantial gain on the sale of the service division as

mentioned above. Overall, 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 €12.1 million in 2014, compared to a

positive impact of €5.4 million in 2013. The non-consolidated

annual accounts of Galapagos NV show accumulated losses of

€69.8 million as at 31 December 2014; we refer to the Going

Concern Statement for justification fot the application of the

valuation rules under the going concern assumption.

In 2014, neither Galapagos NV nor its affiliates made direct or

active use of financial instruments such as hedging.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Risk management
—

Risk management is embedded in our strategy and is

considered important for achieving our operational targets.

The financial risks of Galapagos are managed centrally. The

finance department of Galapagos 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, liquidity

risk and currency risk. There are no other important risks,

such as or interest rate risk, because the Group has nearly

To safeguard the proper implementation and execution of

no financial debt and has a strong cash position. The Group

the Group’s strategy, we have an internal risk management

does not buy or trade financial instruments for speculative

and control system. The Board of Directors has delegated an

purposes.

For

further

reference

financial

risk

active role to the Audit Committee members for designing,

management, see note 38 of the notes to the consolidated

implementing and operating Galapagos’

internal

risk

financial statements. We also refer to the “Risk factors”

management and control systems. The purpose of these

section of the annual report for additional details on general

systems is to manage in an effective and efficient manner the

risk factors.

significant risks to which Galapagos is exposed.

The internal control system is designed to ensure:

▪ the careful monitoring of the effectiveness of our

strategy

▪ Galapagos’ 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 factors and Galapagos’ risk tolerance,

the key controls within Galapagos 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 Galapagos change.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

The Galapagos share
—

Galapagos (ticker: GLPG) is listed on Euronext Amsterdam and Brussels since its IPO in May 2005. Galapagos forms part of

the BelMid index on Euronext Brussels and was included in the Amsterdam Midcap (AMx) Index on Euronext Amsterdam

on 23 March 2015.

The Galapagos share in 2014

In 2014, average daily trading on Euronext was 68,751 shares and €1.0 million trading value. These levels were similar to those of

2013. GLPYY is a company-sponsored level 1 ADR traded over the counter in the United States since 2008. In 2014, a daily average

of 1,898 ADRs were traded over the counter.

Galapagos vs Next Biotech Index in 2014

Investor relations activities

Galapagos presented at 20 conferences in 2014 and did a number of broker-organized and self-organized roadshows in the US

and Europe. Galapagos presented Full Year results 2014 and its Annual R&D Update via webcasts. The main topics of discussion

with investors included the filgotinib DARWIN Phase 2b program and agreement with AbbVie, developments in our cystic

fibrosis programs, and Galapagos’ cash position going forward.

Galapagos NV Annual Report 2014

THE GALAPAGOS GROUP

Subsequent events
—

On 12 March 2015, Janssen Pharmaceutica NV and Galapagos

NV terminated their research alliance and option agreements

to develop and commercialize compounds for the treatment

of inflammation initially focusing on RA. All rights to the

candidate drugs developed under these agreements are

returned to Galapagos.

Disclaimer and other
information
—

This document, Galapagos’ Annual Financial Report 2014,

contains all

required information as per

the Belgian

Companies Code.

Galapagos NV is a limited liability company incorporated in

Belgium and has its registered office at Generaal De Wittelaan

L11/A3, 2800 Mechelen, Belgium. Throughout this report, the

term “Galapagos NV” refers solely to the non-consolidated

Belgian company and references to “the Group” or “Galapagos”

include Galapagos NV together with its subsidiaries.

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 2014 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 2014 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

According to Belgian law, Galapagos must publish its Annual

document to reflect any change in its expectations with

Financial Report in Dutch. Galapagos also provides an English

regard thereto or any change in events, conditions or

translation. In case of differences in interpretation, the Dutch

circumstances on which any such statement is based, unless

version will take precedence. Galapagos is responsible for the

required by law or regulation.

translation and conformity between the Dutch and English

versions.

This document, including the statutory results of Galapagos

NV, 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

Email: ir@glpg.com

An electronic version of the Annual Financial Report 2014,

including the statutory results of Galapagos NV, is available

on the website of Galapagos, www.glpg.com.

Galapagos NV Annual Report 2014

R&D
Research &
Development

I get very passionate about my work,
and I believe in what I do. I like having the
freedom to create, improvise and do new
exciting research. My job challenges me
every day in different ways.

Dr Christel Menet
Director Medicinal Chemistry

RESEARCH & DEVELOPMENT

The Galapagos pipeline
—

Novel, proprietary target
discovery platform
—

Galapagos’ target discovery platform provides a significant

and substantial competitive advantage in its portfolio of

novel mode of action medicines as it:

▪ closely mimics the in vivo situation through the use of
primary human cell with relevant trigger and readout

for a specific disease phenotype

by Galapagos using its discovery platform and are proof of

success of this approach. Filgotinib acts on JAK1 and could

confirm potential for a best-in-class profile in rheumatoid

arthritis and Crohn’s disease clinical trials. GLPG1205 acts

as a GPR84 inhibitor which has shown activity in an

inflammatory bowel disease animal model and is currently

being tested in a Phase 2 ulcerative colitis trial.

The human genome is made up of tens of thousands of

genes which code for the proteins that make up the human

body. Nearly all chronic diseases and disorders are caused

by a disruption in the normal function of certain proteins.

The main goal of pharmaceutical companies is to design

▪ identifies the optimal point to intervene in a disease

drugs that alter the activity of these proteins so that normal

pathway by knocking down of a given protein in these

assays

▪ enables us to rapidly analyze all of the drugable genome
and select pharmaceutically tractable protein targets

directly by their ability to regulate key disease biology

function returns and the cause of the disease is minimized

or eliminated. One of the main obstacles in discovering new

drugs is to understand exactly which of the body’s thousands

of proteins play a key role in a particular disease. Once these

proteins are discovered, they become targets for drug design.

Finding these targets is one of the critical steps in the drug

Galapagos’

product

candidates

in Phase

clinical

discovery process.

development, filgotinib and GLPG1205, both act on targets

whose

role

in the

specific disease were discovered

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

Galapagos’ approach to target discovery is unique as its

additional targets and molecules in RA, IBD, and CF programs,

discovery platform focuses on target identification using

Galapagos is exploring new modes of action in osteoarthritis,

primary human cells, which provides a good system to study

metabolic diseases, fibrosis and immune inflammation.

the effect that a protein might have on the disease in the

human body. Moreover, Galapagos concentrates its efforts on

so called “drugable” proteins and utilizing high throughput

screening

technology to screen these protein targets

efficiently in human cells. This discovery approach may

increase the chances of success in bringing new mode of

action drugs to the market. Since 2009, Galapagos has

generated 22 pre-clinical candidates using the discovery

platform, of which 16 have novel modes of action. Of these, 10

have entered the clinic, of which seven have novel modes of

action.

Filgotinib program in
rheumatoid arthritis
—

The RA market and limitations of current
treatments

RA is a chronic autoimmune disease, characterized by

inflammation and degeneration of the joints.

It affects

In order to study proteins in human cells, Galapagos takes

almost 1% of the adult population worldwide, with onset

advantage of the distinctive properties of adenoviruses.

typically between the ages of 30 and 50 years, and with a high

Adenovirus is the virus that causes the common cold and

prevalence in women. Patients suffer from pain, stiffness,

has the capability to infect almost every type of human cell.

and restricted mobility due to a persistent inflammation

The adenoviruses Galapagos works with have been engineered

of multiple joints, which ultimately results in irreversible

to act as a shuttle vehicle, allowing the delivery of specific

damage of the joint cartilage and bone. As RA develops, the

pieces of DNA into human cells. Additionally, these viruses

body’s immune cells perceive the body’s own protein as

have been made replication incompetent, meaning they do

foreign and cells called lymphocytes react to this protein.

not replicate in the human cell they infect, and so do not

The reaction then causes the release of cytokines, which are

interfere with the processes in the cell. Galapagos has

chemical messengers that trigger more inflammation and

engineered the viruses to carry small pieces of DNA, specific

joint damage. The inflammation may spread to other areas

for individual human genes. When the virus enters the cell,

in the body, ultimately causing not only joint damage but

this DNA piece leads to the production of a short sequence of

also chronic pain, fatigue, and loss of function. Inflammation

RNA that is processed in the cell to become “short interfering

has also been linked to heart disease and the risk of having

RNA”, or siRNA, that specifically interferes with the mRNA

a heart attack. RA nearly doubles the risk of having a heart

of the protein it was designed for. By using these viruses,

attack within the first 10 years of being diagnosed, according

Galapagos can cause the cells to block, or “knock-down,” the

to the ACR.

production of a certain protein, mimicking what a small

molecule drug does in the human body. Galapagos has built

a collection with these adenoviruses, now in excess of 20,000

viruses, that addresses over 6,000 drugable genes.

The primary goals in the treatment of RA are to control

inflammation and slow or stop disease progression. Initial

therapeutic approaches relied on disease-modifying anti-

rheumatic drugs, or DMARDS, such as methotrexate and

Galapagos’ drug discovery research is based on the targets

sulphasalazine. These oral drugs work primarily to suppress

discovered using this technology. Once a target is validated, it

the immune system and, while effective in this regard, the

is tested against large collections of chemical small molecules

suppression of the immune system leads to an increased risk

to identify chemical structures that interact with the target

of infections. These drugs are also associated with side effects

and block or activate protein production. These chemical

including nausea, abdominal pain, and serious lung and liver

structures

are

then optimized to

obtain “drug-like”

toxicities. Further, because these drugs often take on average

characteristics followed by testing of the drug candidate in

from 6-12 weeks to take effect, rheumatologists may also

the clinic.

In addition to its pipeline of molecules in the clinic,

Galapagos has 25 different discovery programs which are

advancing toward clinical development.

In addition to

couple them with over-the-counter pain medications or non-

steroidal anti-inflammatory drugs, or NSAIDs, to treat the

pain and inflammation. Despite their serious shortcomings,

DMARDS are still considered first-line therapies.

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

The development of monoclonal antibodies and biologics

2013 RA Worldwide Market: $15.6B

represented a significant advance in RA treatment. Biologic

therapies involve the use of antibodies or other proteins

produced by living organisms to treat disease. In some people

with arthritis, the TNF protein is present in the blood and

joints

excessive

amounts,

thereby

increasing

inflammation, along with pain and swelling. Biologic

therapies have been developed to address this overproduction

of TNF by disrupting communication between the body’s

immune cells. Thus, they block the production of TNF or

are designed to attach to and destroy the body’s immune

B-cells, which play a part in the pain and swelling caused

by arthritis. Anti-TNFs are currently the standard of care

for first- and second-line biologic therapies for RA patients

who have an inadequate response to DMARDS. Since anti-

TNF drugs function through a suppression of the immune

system, they also lead to a significant increase in the risk

of infections. In addition, all approved anti-TNFs need to be

delivered by injection or intravenously, which is inconvenient

and painful for some patients, and in some cases self-

injection can be particularly difficult for patients who suffer

joint pain and damage from RA.

Not all patients achieve sufficient clinical response or

maintain clinical response to anti-TNFs over time, resulting

in a need to switch or cycle to a new therapy to control

their disease. Approximately one-third of RA patients do not

adequately respond to anti-TNFs. In addition, anti-TNFs are

Despite these limitations, the global market for RA therapies

is large and growing rapidly. The market for RA therapies

across the 10 main healthcare markets was $15.6 billion in

2013 and is expected to grow in excess of $19 billion by 2023,

according to a December 2014 GlobalData PharmaPoint

report.

Injectable, biological

therapies are the largest

component of this market.

However, despite the prevalence of biologics in the treatment

of RA, there continues to be a considerable unmet need with

regard to efficacy, including sustained efficacy, safety, and

convenience of use with these existing first line treatments.

The potential of JAK inhibitors

associated with low rates of disease remission and the

The family of JAKs is composed of four tyrosine kinases, JAK1,

response to these agents is not typically durable. In more

JAK2, JAK3 and Tyk2 that are involved in the JAK signaling

than 30% of

this population,

alternative

treatment

pathway, which regulates normal hematopoiesis, or blood

approaches are needed. A significant number of patients

making, inflammation and immune function. Dysregulation

treated with an anti-TNF will be cycled to their second and

of the JAK signaling pathway has been associated with a

third anti-TNF within 24 months of anti-TNF therapy

number of diseases, including RA, psoriasis and other chronic

initiation. A prospective cohort study of RA patients from

inflammatory diseases. Accordingly, the JAK family has long

a UK national register of new anti-TNF treatments showed

been an area of interest for drug developers working in these

that, within 15 months of treatment, 12% cycle to a second

areas.

anti-TNF due to inefficacy, and 15% cycle to a second anti-

TNF due to toxicity. Ultimately, 30% of patients need an

alternative to anti-TNF treatment. Therapeutic cycling is a

serious issue for patients because the efficacy of each

successive drug is not known typically for several months,

which contributes to progression of disease and continued

irreversible structural joint damage. For RA patients who fail

or for whom anti-TNFs are contraindicated, the oral agent

JAK inhibitors and biologics with distinct mechanisms are in

development.

A growing body of clinical data suggests that the level of

selectivity of a JAK therapeutic is highly correlated to its

efficacy and safety profile. For example, JAK1 is known to

interact with the other JAKs, among others, to transduce

cytokine-driven pro-inflammatory signaling, which leads to

inflammation in human tissues. Therefore, inhibition of JAK1

is believed to be of therapeutic benefit for a range of

inflammatory conditions as well as for other diseases driven

by JAK-mediated signal transduction. In contrast, inhibition

of the other three kinases (JAK2, JAK3, and TYK2) may not

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

be required for the anti-inflammatory effect, whereas their

Galapagos is conducting DARWIN 3, a long-term follow-up

inhibition may contribute to side effects. For example,

trial that allows patients to remain on filgotinib treatment.

inhibition of JAK2 has been linked to anemia, and inhibition

Of the patients who have completed DARWIN 1 and DARWIN

of JAK3 to immunosuppression. Non-selective JAK inhibitors

2, 98% of eligible patients has elected to participate in the

have been shown to increase LDL cholesterol. Therefore, the

DARWIN 3 follow-up trial.

desired efficacy and safety profile of any JAK inhibitor may be

directly linked to the selectivity of the product.

In an in-house human whole blood assay, Galapagos

demonstrated that filgotinib was more selective for JAK1 than

In November 2012, Xeljanz was approved by the FDA as the

any other known compound that is either approved for sale

first and only JAK inhibitor for RA approved for commercial

or in clinical development, with a 30-fold selectivity for JAK1

sale in the United States. Xeljanz is intended for the

over JAK2. Galapagos anticipates that the high selectivity of

treatment of adult patients with RA who have had an

filgotinib for JAK1 may allow for efficacy equal to or better

inadequate

response

to,

or who

are

intolerant

of,

than that of other approved RA therapies, with an improved

methotrexate. Xeljanz is a small molecule suitable for oral

safety profile due to less selectivity for JAK2 and JAK3.

administration and has strong binding affinity for JAK3 and

JAK1, and weaker affinity for

JAK2. The safety and

effectiveness of Xeljanz were evaluated in seven clinical trials

in adult patients with moderately to severely active RA. In

all of the trials, patients treated with Xeljanz experienced

improvement in clinical response and physical functioning

compared to patients treated with placebo. However, the use

of Xeljanz has been associated with a range of side effects,

including anemia (reduced hemoglobin levels) and elevations

in both liver enzyme and lipid levels. For example,

controlled clinical trials for Xeljanz, dose-related elevations

in lipid parameters (total cholesterol, LDL cholesterol, HDL

cholesterol, triglycerides) were observed at one month of

exposure, including a 15% increase in LDL cholesterol in the

Xeljanz 5 mg twice daily arm, the approved dosage in the

United States. Xeljanz was not approved in Europe.

Accordingly, there continues to be a significant unmet

medical need in RA and other inflammatory diseases for

an orally administered approach with a more favorable side

effect profile.

Galapagos’ filgotinib program for RA

Due to its high selectivity for JAK1, filgotinib may have the

potential to offer an improved side effect profile and

improved efficacy in RA patients as compared to other JAK

inhibitors which are less selective for JAK1. Filgotinib is

currently being evaluated in three ongoing Phase 2b trials,

which are referred to collectively as DARWIN, in patients with

moderate to severe RA who have an inadequate response to

methotrexate (MTX) a common first line treatment for RA.

Galapagos expects topline results from 12 weeks of treatment

in the DARWIN trials (DARWIN 1 and 2) in April 2015 and final

results from 24 weeks of treatment in July 2015. In addition,

Selectivity of JAK Inhibitors in RA

Moreover, filgotinib may have the potential to be used as

a once-daily therapy, thereby potentially improving ease of

administration and patient compliance. Filgotinib has the

potential to be used safely with concomitant medications, an

important feature for this patient population since many of

these patients are on other therapies to address co-morbities

or other diseases.

Through the extensive DARWIN clinical programs, Galapagos

aims to demonstrate the following clinical and product

benefits of filgotinib for the treatment of RA:

▪ Safety: That filgotinib will be well tolerated, will show
absence of treatment-induced anemia, will show no

increase of LDL/HDL balance and will result in an

overall lower infection rate as compared to other

approved RA therapies.

▪ Efficacy: That filgotinib will enable rapid onset of action
with durable efficacy equal to or better than approved

biologics and approaches such as anti-TNFs.

▪ Convenience: That filgotinib will enable oral, once-daily

dosing.

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

▪ Combination with other therapies: That filgotinib will
be able to be safely combined with other therapies

commonly prescribed to RA patients, due to its lack of

drug-drug interactions.

CD and limitations of current treatments

CD is an IBD causing chronic inflammation of

the

gastrointestinal, or GI, tract with a relapsing and remitting

course. The prevalence estimates for CD in North America

Filgotinib is currently being evaluated in three ongoing Phase

range from 44 cases to 201 cases per 100,000 persons. In

2b trials in patients with moderate to severe RA and who have

Europe, prevalence varies from 37.5 cases to 238 cases per

demonstrated an inadequate response to MTX. DARWIN 1 and

100,000 persons, according to a January 2014 GlobalData

DARWIN 2 are dose finding trials. DARWIN 3 is a long-term

PharmaPoint report. The disease is slightly more common in

follow-up trial that allows patients to roll-over from DARWIN

women, with a peak incidence at the age of 20 to 40 years.

1 and 2 trials and remain on treatment. These global Phase

The cause of CD is unknown; however, it is believed that the

2b trials are fully recruited. Topline results after 12 weeks of

disease may result from an abnormal response by the body’s

treatment in the DARWIN studies are expected in April 2015

immune system to normal intestinal bacteria.

and final results after 24 weeks of treatment for these studies

are expected in July 2015.

The disease is characterized by inflammation that may affect

any part of the GI tract from mouth to anus, but most

Galapagos has an exclusive collaboration agreement with

commonly the distal small intestine and proximal colon,

AbbVie to develop and commercialize filgotinib. Under this

causing a wide variety of symptoms including anemia,

agreement, Galapagos is responsible for the advancement of

abdominal pain, diarrhea, vomiting, and weight loss. The

three Phase 2 trials in RA and CD. If AbbVie determines that

characteristic

inflammatory

response of CD is

focal

the first two of these trials (DARWIN 1 and 2) meet certain

transmural

inflammation,

frequently

associated with

specified criteria, AbbVie will be deemed to have in-licensed

granuloma formation, which may evolve to progressive

the compound. If the specified criteria are not met, AbbVie

damage over time.

has the opportunity to elect to in-license the compound

following our delivery of the final data package from these

trials. Should AbbVie in-license these programs, AbbVie will

assume sole responsibility for Phase 3 clinical development,

global manufacturing and commercialization of filgotinib.

Galapagos retains an option to exercise certain co-promotion

rights

in the Netherlands, Belgium and Luxembourg,

and Galapagos will be entitled to potential future regulatory

and commercial milestone payments and royalties on global

commercial sales across all approved indications for this

compound, if any.

Galapagos research in
inflammatory bowel disease
(IBD)
—

Galapagos is also researching inflammatory bowel disease

(IBD): filgotinib in Crohn’s disease (CD) and GLPG1205 in Phase

2 addressing a novel target in ulcerative colitis (UC). IBD is

a group of inflammatory conditions in the colon and small

intestine including CD and UC.

Treatment of CD will depend on severity of the disease. The

main goal of treatment is to stop the inflammation in the

intestine, prevent flare-ups and keep patients’ disease in

remission. While mild to moderate symptoms may respond

to an antidiarrheal medicine, antibiotics, and other

medicines to control inflammation, severe symptoms are

often treated with anti-TNF agents. Anti-TNF agents,

however, do not work for all patients, and, in patients who

do find therapeutic benefit, they can lose their effect over

time as a result of relapse. Anti-TNF agents have also

demonstrated side effects arising from long term suppression

of the immune system including increased rate of infections.

Unlike in RA, few biologics have been approved in CD and,

as such, caregivers have a more limited number of available

treatments. To date, there are no oral therapies approved for

CD.

The market for CD therapies, across the 10 main healthcare

markets, was approximately $3.2 billion in 2012 and is

estimated to exceed $4.1 billion in 2022, according to a January

2014 GlobalData PharmaPoint report, driven primarily by use

of anti-TNF agents.

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

The potential of JAK inhibitors for the
treatment of CD

the intestines. For patients who do not respond to 5-ASA,

other

treatment

options

include

corticosteroids,

immunomodulators, biological therapies, such as anti-TNF

As with RA, dysregulation of the JAK-STAT signaling pathway

agents, and cyclosporin. Surgery may be necessary for

has been associated with CD. Accordingly, drugs with high

patients with refractory UC. The global market for UC

selectivity for JAK1 and less selectivity for JAK2 and JAK3 could

therapies was approximately $4.2 billion in 2012, and is

be attractive candidates for development in CD. By inhibition

estimated to grow to $6.7 billion in 2022, driven primarily by

of JAK1 but not JAK2, unwanted effects such as anemia may

use of biological therapies, according to a September 2014

be prevented. Complications surrounding anemia are of

GlobalData PharmaPoint report.

particular importance to IBD patients, who frequently

experience fecal blood loss. There continues to be a significant

unmet medical need in CD treatment for an oral, highly

selective JAK1 inhibitor that allows for the efficacy benefits of

a highly selective JAK1 inhibitor with a more favorable side

effect profile driven by less selectivity to JAK2 and JAK3.

Over the last decade, changes in UC treatment strategies,

accompanied by advances in drug development and the

addition of

targeted biological

therapies, have greatly

improved the

outcomes

for patients. Although the

introduction of anti-TNF agents has changed the treatment

of refractory patients dramatically, only one-third or fewer

Filgotinib is currently in Phase 2 clinical development for CD

patients will achieve long-term remission, and many of those

and has shown favorable activity in pre-clinical models for

patients will eventually lose their response. In addition, anti-

IBD. Galapagos expects to complete recruitment for FITZROY,

TNF agents have known side effects including increased risk

our Phase 2 trial in CD with filgotinib, in 2015. Galapagos

of infections. As such, the medical need in this patient

expects topline results from 10 weeks of treatment in the CD

segment is still considered to be significant.

trial in the second half of 2015, followed by the 20 weeks data

in Q1 2016. Filgotinib is being developed under an exclusive

collaboration agreement with AbbVie, under which Galapagos

expects a licensing decision by AbbVie in the second half of

2015.

Galapagos’ clinical program for GLPG1205
for UC

GLPG1205 is a selective inhibitor of GPR84, a novel target

for inflammatory disorders. GPR84 is a protein involved in

UC and limitations of current treatments

the regulation of macrophages, monocytes, and neutrophils

UC is an IBD causing chronic inflammation of the lining

of the colon and rectum. Unlike CD, UC involves damaging

inflammation of only the colon and rectum. The disease

often presents in young adulthood. In patients with moderate

to severe UC the symptoms include frequent loose bloody

stools, anemia, abdominal pain, fever, and weight loss.

Although the

introduction of anti-TNF biologics has

improved the treatment of some patients, only 33% of

patients will achieve long-term remission, and many patients

lose their response to treatment over time. The medical need

for improved efficacy is high and likely could be achieved by

a new mechanism of action.

The ultimate aim in the treatment of UC is to change the

natural course of the disease by slowing down or halting

its progression, thus avoiding surgery or hospitalization. The

current standard treatment for mild-to-moderate UC is

5-aminosalicylates, or 5-ASA. Given either orally or rectally,

these drugs work to decrease inflammation in the lining of

in the human immune system and is overexpressed in

inflammatory disease patients. GPR84 antagonists such as

GLPG1205 present a novel mode of action for the treatment of

inflammatory diseases. GLPG1205 targets diseases associated

with up-regulation of GPR84 on inflammatory leukocytes,

such as IBD and neuro-inflammatory disease, i.e., multiple

sclerosis, through once-daily oral dosing. Galapagos identified

GPR84 as playing a key role in inflammation, using its target

discovery platform and determined in a pre-clinical IBD

model that GLPG1205 prevents colitis disease progression.

GLPG1205 is fully proprietary, where Galapagos retains all

development and commercial rights.

Galapagos initiated ORIGIN, a 60-patient 12-week Phase 2a

clinical trial of GLPG1205 in UC and the first patients received

treatment in early 2015. The Phase 2a clinical trial is a multi-

center,

randomized,

double-blind,

placebo-controlled,

exploratory proof-of-concept trial with two parallel 12 weeks

of treatment groups in subjects with moderate to severe UC.

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

Galapagos programs in
cystic fibrosis
—

The unmet need in CF

CF is caused by a mutation in the gene for the CFTR protein,

which results in abnormal transport of chloride across cell

membranes. Transport of chloride is required for effective

hydration of epithelial surfaces in many organs of the body.

Normal CFTR channel moves chloride ions to outside of the

cell. Mutant CFTR channel does not move chloride ions,

causing sticky mucous to build up on the outside of the

cell. CFTR dysfunction results in dehydration of dependent

CF is an area of significant unmet medical need for which

epithelial surfaces, leading to damage of the affected tissues

Galapagos

is developing a three-product

combination

and subsequent disease, such as lung disease, malabsorption

therapy.

in the intestinal tract and pancreatic insufficiency.

CF is a rare, life-threatening, genetic disease that affects

Individuals who carry two copies of a defective CFTR gene,

approximately 80,000 patients worldwide. CF is a chronic

referred to as homozygous, are typically affected by CF and

disease that affects the lungs and digestive system. CF

show symptoms of the disease. Individuals who carry one

patients, with significantly impaired quality of life, have an

copy of a defective CFTR gene are called carriers. Carriers are

average lifespan approximately 50% shorter

than the

typically unaffected by CF and show no symptoms of the

population average, with the median age of death at 37. There

disease. Individuals who carry one copy each of two different

currently is no cure for CF. CF patients require lifelong

defective CFTR genes are referred to as heterozygous. They are

treatment with multiple daily medications,

frequent

typically affected by CF and show symptoms of the disease.

hospitalizations and ultimately lung transplant, which is life-

Today, the majority of CF patients are diagnosed at birth

extending but not curative. In the United States, a CF patient

through newborn screening and approximately 92% of

on average incurs approximately $50,000 per year, or

diagnosed patients have been genotyped. There are more

$1,350,000 over his or her lifetime, in outpatient expenses

than 1,900 known mutations in the CFTR gene. Mutations

alone

and substantial

additional

costs

for

frequent

in the CFTR gene can be classified into six classes according

hospitalizations. Kalydeco, the only approved therapy for the

the mode by which they disrupt the synthesis, traffic and

underlying cause of CF, adds approximately $300,000 of

function of CFTR, as described in the diagram below.

additional costs per year.

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

CF Mutations

Source: Adapted from [Proesmans et al., 2008]

mutation impairs the correct processing of CFTR. As the

The two most prevalent mutations in the CFTR gene are Class

II and Class III, including the F508del mutation and the G551D

mutation, respectively. In Class II patients, insufficient CFTR

reaches the membrane, about 50% of the patients have the

F508del mutation on both alleles, the so-called homozygotes.

For clinical trials, these patients form a homogenous group.

The other 50% of the patients, have the F508del mutation on

one allele only and carry another mutation on the second

allele, they are called the heterozygotes. Also this other

group is less homogenous, clinical trials have proven to be

more difficult. The F508del mutation is sometimes called a

“processing” mutation because it results in a defect in the

CFTR protein in which the CFTR protein does not reach the

surface of cells in sufficient quantities. The G551D mutation,

a Class III mutation, is sometimes called a “gating” mutation

because it results in a defect in the CFTR protein in which

the defective CFTR protein reaches the surface of a cell but

does not efficiently transport chloride ions across the cell

membrane. Most therapeutic approaches under development

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

for CF target the defects caused by one or both of these

The Class I mutations affect approximately 7% of all CF

mutations. Given the prevalence of the F508del mutation, a

patients. This mutation shortens the length of the CFTR

compound that corrects the effect of the F508del mutation

protein and leads to complete loss of CFTR function. To date,

can, beside for patients with Class II mutations only, also

there are no approved molecules on the market to treat this

be used for combination therapy approaches in heterozygous

mutation.

patients with Class I and Class III mutations.

The potential of CFTR modulators
(potentiators and correctors) for the
treatment of CF

Lumacaftor (VX-809), which is being developed by Vertex, is a

small molecule corrector being studied in patients with two

copies (homozygous) of the Class II (F508del) mutation in their

CFTR gene for use in combination with Kalydeco. In June

2014, Vertex announced that its two Phase 3 clinical trials

There is no cure for CF, and to date, all but one of the

of lumacaftor, when used in combination with Kalydeco in

therapies approved to treat CF patients have been designed

CF patients homozygous for the Class II (F508del) mutation,

to treat the symptoms rather than address the underlying

showed statistically significant improvement in the trial’s

cause of the disease. The market for CF therapies, across

primary endpoint of improved lung function, compared to

the six main healthcare markets, exceeded $1 billion in 2012

placebo. Vertex

also

showed

statistically

significant

and is to exceed $5 billion in 2018 according to a July 2014

reductions in pulmonary exacerbations in the pooled analysis

GlobalData OpportunityAnalyzer report, primarily driven by

of both studies. Other signs of clinical improvement were

introduction of disease modifying treatments. To treat the

either limited or not statistically different from placebo.

symptoms of disease, such as CF-associated malnutrition,

diabetes,

lung disease and systemic inflammation, an

aggressive combination of specific therapies is required. To

address the cause of the disease, the primary focus has been

on a class of drugs known as CFTR modulators.

Despite the approval of Kalydeco and the pending approval of

Kalydeco/lumacaftor combinations, there is need for better

therapies with improved pulmonary function. Though many

pediatric patients have normal lung function at the time of

diagnosis, physicians generally believe that earlier treatments

Kalydeco, marketed by Vertex, is currently the only approved

can have downstream benefits for the patient by slowing the

therapy to address the cause of CF. Kalydeco is an orally-

deterioration in lung function.

administered CFTR potentiator for the treatment of patients

two years of age and older with CF who have the Class III

(G551D) gating mutation in their CFTR gene. Kalydeco is

designed to keep the CFTR protein channels on the cell

surface open longer in order to increase the flow of salt and

water into and out of the cell. However, this treatment is

limited to the subset of patients who suffer from the Class

III and other gating mutations of the CFTR gene. Class III

mutations occur in only a small percentage of patients with

CF (3%).

In contrast, the Class II F508del mutation affects close to 90%

of all CF patients. In these patients, CFTR is not expressed

at the cell surface and cannot be potentiated by drugs like

Kalydeco (that can only function if CFTR is already present

in the cell membrane). Small molecule corrector approaches

aim to transport the non-functional Class II CFTR protein

to the cell membrane. Other companies currently developing

small molecule correctors include Vertex, Pfizer, Flatley

Laboratories, Genzyme, Targeted Genetics and Bayer. To date,

however, there are no approved corrector molecules on the

market.

Galapagos believes that restoration of CFTR function in

cellular assays may be predictive of clinical outcomes.

Specifically, review of Vertex patient and cellular data has

shown strong correlation as reflected in the diagram below.

F508del – Homozygous for F508del

In the case of patients with F508del mutation,

the

administration of Kalydeco and lumacaftor combination

resulted in approximately 20% restoration of normal, or wild-

type, CFTR. The clinical outcome reflected in Vertex’s Phase 3

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

trial and primary endpoint was that 46% of patients showed

an FEV1 improvement of greater than or equal to 5%. Forced

▪ small molecules allowing for oral administration
▪ adequate safety for chronic use, including pediatric

expiratory volume (FEV1) levels are a measurement of the

application

volume of air that can be forcibly blown out in one second

▪ no adverse interactions with drugs commonly taken by

after full inspiration.

G551D – Heterozygous G551D with F508del

CF patients, including antibiotics and anti-

inflammatory drugs

▪ effective in homo- & heterozygous patients

Galapagos may be well positioned in CF due to its:

▪ robust portfolio of CF modulators, including prolific
chemistry with multiple binding modes to modulate

CFTR

▪ unique assay cascade, including primary cells from CF

patients, for screening of candidate drugs that modulate

the CFTR protein

▪ expertise in working since 2008 with a broad discovery
platform containing highly relevant disease assays

Further, as reflected in the diagram above, for patients with

starting from cells from CF patients

G551D mutation, the administration of Kalydeco resulted in

▪ collaborative partnership with AbbVie, which is an

approximately 30% restoration of wild-type CFTR. The clinical

expert in combination therapies and committed to the

outcome reflected in Vertex’ Phase 3 trial and primary

CF field

endpoint was

that

75% of patients

showed an FEV1

improvement of greater than or equal to 5%.

Galapagos believes these studies demonstrate that cellular

Galapagos novel modulator combinations for
treating CF

models can be used to identify novel molecules to treat Class

Galapagos is developing novel oral corrector-potentiator

II and Class III mutations and select those combinations that

combinations for the treatment of CF patients with the Class

can restore wild-type CFTR to greater than 50%, a threshold

II F508del mutation,

including both homozygous and

that may need to be achieved to lead to disease remission in

heterozygous patients. The aim is to develop multiple

patients.

Galapagos’ programs in CF

correctors and multiple potentiators for patients with this

mutation, and Galapagos has been successful in identifying

multiple candidates in each focus area thus far.

Galapagos has an exclusive collaboration agreement with

Therapies that restore CFTR function through a combination

AbbVie to discover, develop and commercialize novel CF

of correctors and potentiators improve hydration of the lung

modulators.

AbbVie

and

Galapagos

are

working

surface and subsequent restoration of mucociliary clearance.

collaboratively, contributing technologies and resources to

Galapagos is focused on increasing the percentage of wild-

develop and commercialize oral drugs that address the main

type CFTR restored to greater than 50%. A potentiator/

mutations in CF patients, including Class II and Class III.

Galapagos’ CF modulators may have the potential to offer

important advantages compared to currently approved

therapies as well as other therapies under development:

▪ disease modifying activity in Class II/III mutations in CF
▪ regaining greater than 50% of CFTR activity, important

for achieving compelling clinical efficacy

▪ improved risk/benefit compared to standard of care

corrector combination restoring more than 50% of healthy

function CFTR may have a substantially positive impact on

the quality of life of Class II patients and may reverse disease.

Galapagos has identified multiple series of novel corrector

molecules

that

enhance

the

restoration of CFTR in

combination with novel potentiator GLPG1837. Based on pre-

clinical data, potentiator GLPG1837 may have the potential

to offer a superior efficacy and safety profile compared to

Kalydeco,

important

for Class III positioning, but also

Galapagos NV Annual Report 2014

RESEARCH & DEVELOPMENT

important

for

forming the potentiator component of

superior combination therapies for Class II mutation patients

as well. As reflected below, Galapagos’ triple combination

therapy of GLPG1837 plus corrector candidate GLPG2222 plus

other molecules from our other corrector series show up to

60% restoration of wild-type CFTR function in pre-clinical

tests, compared to the 20% demonstrated by the Kalydeco/

lumacaftor combination.

In addition, Galapagos’

triple

combination therapy could offer the ability to combine with

antibiotics and other therapies often prescribed to CF

patients, and these molecules appear to have the potential for

no drug-drug interaction liabilities, important for CF patients

who use multiple medications like antibiotics.

The diagram below is a pre-clinical evaluation of Class II

homozygous primary cells.

Galapagos in-house pre-clinical evaluation of
various compounds in lung epithelial cells
from Class II mutation patients

Galapagos’ IPF program
—

With GLPG1690, Galapagos discovered a novel mode of action

targeting autotaxin, with potential application in idiopathic

pulmonary fibrosis. GLPG1690 completed a Phase 1 first-in-

human trial. The

randomized, double-blind, placebo

controlled, single center trial was conducted in at least 40

healthy volunteers in Belgium. In the first part of the trial,

single ascending doses were evaluated. In the second part, the

new compound was administered daily for 14 days. GLPG1690

proved to be safe and well-tolerated over a wide dose range in

healthy volunteers. Engagement of the autotaxin target was

confirmed using a relevant biomarker. GLPG1690 displayed

a favorable pharmacokinetic and pharmacodynamic profile.

The data shown in Phase 1 encourage Galapagos to explore

a Phase 2 study design in IPF, to be filed before end 2015.

GLPG1690 is wholly owned by Galapagos.

Lumacaftor and Kalydeco achieve approximately 20% wild-

type restoration on average in this assay. The other bars

show potentiator GLPG1837 in combination with lumacaftor,

with GLPG2222, and with another corrector candidate, or a

combination of GLPG2222 and another corrector candidate,

all tested in this assay in the same donor cells. These

compounds may make a clinical difference for heterozygous

Class II patients. Based on pre-clinical data, potentiator

GLPG1837,

in combination with GLPG2222 plus other

molecules from the C2 corrector series showed a 60%

restoration of wild-type, as shown in the diagram above.

Galapagos NV Annual Report 2014

Risk factors
Description of
the risks of which
investors should be
aware

Galapagos is an innovator that discovers and
develops novel treatments for patients suffering
from diseases with high unmet medical needs.

Dr Piet Wigerinck
CSO of Galapagos

RISK FACTORS

Risks related to Galapagos’
financial position and need
for additional capital
—

Galapagos is a clinical-stage biotechnology company and has

not yet generated significant income. Galapagos’ operations

to date have been limited to developing its technology and

undertaking pre-clinical studies and clinical trials of its

product candidates.

Risks related to product
development, regulatory
approval and
commercialization
—

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

Galapagos has incurred significant operating losses since its

important

research

and

development

programs

inception. Galapagos expects to continue incurring significant

continuously monitored by the Executive Committee; they

research, development and other expenses related to its

are discussed with the Board at least once per quarter, and

ongoing operations, and to continue incurring losses for the

Board members with expertise in clinical and scientific

foreseeable future. Galapagos does not anticipate generating

matters occasionally attend meetings with scientific staff to

revenues from sales of products for the foreseeable future,

discuss and assess such programs. Nevertheless, due to

if ever. Because of the numerous risks and uncertainties

Galapagos' limited resources and access to capital, Galapagos

associated with pharmaceutical product development,

must and has in the past decided to prioritize development

Galapagos is unable to predict the timing or amount of

of certain product candidates; these decisions may prove to

expenses and when it will be able to achieve or maintain

have been wrong and may adversely affect its business.

profitability, if ever.

Galapagos will require substantial additional future capital

candidate filgotinib and its other product candidates.

which may not be available to it on acceptable terms, or

Galapagos may not be successful in its efforts to use and

at all, in order to complete clinical development and, if

expand its novel, proprietary target discovery platform to

Galapagos is successful, to commercialize any of its current

build a pipeline of product candidates.

Galapagos is heavily dependent on the success of its product

product candidates. In addition, raising additional capital

may cause dilution to Galapagos’ existing shareholders,

restrict Galapagos’ operations or

require Galapagos

relinquish rights to its product candidates or technologies.

The incurrence of additional indebtedness could result in

increased fixed payment obligations and could also result in

certain additional restrictive covenants that could adversely

impact Galapagos’ ability to conduct its business. In the event

that Galapagos enters into collaborations and/or licensing

arrangements in order to raise capital, it may be required

to accept unfavorable terms,

including relinquishing or

licensing to a third party on unfavorable terms its rights to

technologies or product candidates.

Galapagos' business and future success is substantially

dependent on its ability to develop successfully, obtain

regulatory approval for, and then successfully commercialize

its product candidate filgotinib and its other product

candidates. Galapagos is not permitted to market or promote

any of its product candidates before it receives regulatory

approval from the FDA, the EMA or any other comparable

regulatory authority, and Galapagos may never receive such

regulatory approval

for any of

its product candidates.

Galapagos cannot give any assurances that its clinical trials

for filgotinib or its other product candidates will be

completed in a timely manner, or at all. Galapagos has never

completed a Phase 3 trial or submitted an NDA. If filgotinib

For further reference on financial risks in particular, see note

or any future product candidate is not approved and

38 of the notes to the consolidated financial statements.

commercialized, Galapagos will not be able to generate any

product revenues for that product candidate.

Galapagos NV Annual Report 2014

RISK FACTORS

The regulatory approval processes of the FDA, the EMA and

of these occurrences may harm Galapagos’ business, financial

other comparable regulatory authorities are lengthy, time

condition and prospects significantly.

consuming and inherently unpredictable, and if Galapagos

is ultimately unable to obtain regulatory approval for its

product candidates, its business will be substantially harmed.

Clinical testing is expensive and can take many years to

complete, and its outcome is inherently uncertain. Results of

earlier studies and trials as well as data from any interim

analysis of ongoing clinical trials may not be predictive of

future trial results and failure can occur at any time during

the clinical trial process. If Galapagos experiences delays in

the completion of, or termination of, any clinical trial of its

Risks related to Galapagos’
reliance on third parties
—

Galapagos may not

successful

in maintaining

development and commercialization collaborations, and any

partner may not devote

sufficient

resources

to the

development or commercialization of Galapagos’ product

product candidates, the commercial prospects of its product

candidates.

candidates will be harmed, and its ability to generate product

revenues from any of these product candidates will be

The

collaboration arrangements

that Galapagos has

delayed. If filgotinib or any other product candidate is found

established, and any collaboration arrangements that it may

to be unsafe or lack efficacy, Galapagos will not be able to

enter into in the future may not ultimately be successful,

obtain regulatory approval for it and its business would be

which could have a negative impact on its business, results

materially harmed.

The rates at which Galapagos completes its scientific studies

and clinical trials depend on many factors, including, but are

not limited to, patient enrolment.

Patient enrolment is a significant factor in the timing of

clinical trials and is affected by many factors including

competing clinical trials, clinicians’ and patients’ perceptions

as to the potential advantages of the drug being studied in

relation to other available therapies and the relatively

limited number of patients. Any of these occurrences may

harm Galapagos' clinical trials and by extension, its business,

financial condition and prospects.

Galapagos’ product candidates may cause undesirable side

effects or have other properties that could delay or prevent

their regulatory approval, limit the commercial profile of an

approved label, or result in significant negative consequences

following marketing approval, if any.

Undesirable side effects caused by Galapagos’ product

candidates could cause Galapagos or regulatory authorities

to interrupt, delay or halt clinical trials and could result in

a more restrictive label or the delay or denial of regulatory

approval by the FDA, the EMA or other comparable regulatory

authorities. The drug-related side effects could affect patient

recruitment or the ability of enrolled patients to complete

the trial or result in potential product liability claims. Any

of operations, financial condition and growth prospects. It is

possible that a partner may not devote sufficient resources to

the development or commercialization of Galapagos’ product

candidate or may otherwise

fail

in development or

commercialization efforts, in which event the development

and commercialization of such product candidate could be

delayed or terminated and Galapagos’ business could be

substantially harmed.

Galapagos relies on third party suppliers for which a reliable

supply of materials is required in order to avoid delays in

the drug discovery and development process. 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.

Galapagos relies on third parties to conduct its pre-clinical

studies and clinical trials.

Galapagos has relied upon and plans to continue to rely upon

contract research organizations ("CROs") to monitor and

manage data for its pre-clinical and clinical programs.

Galapagos and its CROs also rely upon clinical sites and

investigators for the performance of its clinical trials in

accordance with the applicable protocols and applicable legal,

regulatory and scientific

standards.

If CROs do not

successfully carry out their contractual duties or obligations

Galapagos NV Annual Report 2014

RISK FACTORS

or meet quality standards, regulatory requirements or

expected, Galapagos’ clinical trials may be extended, delayed

or terminated and Galapagos may not be able to obtain

regulatory approval for or successfully commercialize its

product candidates.

Risks related to Galapagos’
intellectual property
—

Galapagos relies on clinical data and results obtained by third

parties that could ultimately prove to be inaccurate or

unreliable.

As part of its strategy to mitigate development risk, Galapagos

seeks

to develop product

candidates with validated

mechanisms of action and it utilizes biomarkers to assess

potential clinical efficacy early in the development process.

This strategy necessarily relies upon clinical data and other

results obtained by third parties. If the third-party data and

results Galapagos

relies upon prove to be inaccurate,

unreliable or not applicable to its product candidates,

Galapagos

could make

inaccurate

assumptions

and

conclusions about its product candidates and its research and

development efforts could be materially adversely affected.

Risks related to Galapagos’
competitive position
—

Galapagos' ability to compete may decline if Galapagos does

not adequately protect its proprietary rights.

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).

Galapagos' commercial success depends on obtaining and

maintaining proprietary rights to its product candidates, as

well as successfully defending these rights against third party

challenges. Galapagos will only be able to protect its product

candidates, and their uses from unauthorized use by third

parties to the extent that valid and enforceable patents, or

effectively protected trade secrets, cover them. If Galapagos

fails to maintain to protect or to enforce its intellectual

property rights successfully, its competitive position could

suffer, which could harm Galapagos' results of operations.

Pharmaceutical patents and patent applications involve

highly complex legal and factual questions, which,

Galapagos faces significant competition for its drug discovery

determined adversely to Galapagos, could negatively impact

and development efforts, and if

it does not compete

its patent position.

effectively, its commercial opportunities will be reduced or

eliminated.

The patent positions of biotechnology and pharmaceutical

companies can be highly uncertain and involve complex legal

The biotechnology and pharmaceutical

industries are

and factual questions. The interpretation and breadth of

intensely competitive and subject to rapid and significant

claims allowed in some patents covering pharmaceutical

technological change. Galapagos’ competitors may develop

compositions may be uncertain and difficult to determine,

drug products that render its products obsolete or non-

and are often affected materially by the facts and

competitive by developing more effective drugs or by

circumstances that pertain to the patented compositions and

developing their products more efficiently.

In addition,

the related patent claims. The standards of the United States

Galapagos' ability to develop competitive products would be

Patent and Trademark Office, the European Patent Office,

limited if its competitors succeeded in obtaining regulatory

and other foreign counterparts are sometimes uncertain and

approvals for drug candidates more rapidly than Galapagos

could change in the future. If Galapagos fails to obtain and

were able to or in obtaining patent protection or other

maintain patent protection and trade secret protection of its

intellectual property rights that limited Galapagos' drug

product candidates, it could lose its competitive advantage

development efforts.

and competition Galapagos faces would increase, reducing

any potential revenues and adversely affecting its ability to

attain or maintain profitability.

Galapagos NV Annual Report 2014

RISK FACTORS

Galapagos will not seek to protect its intellectual property

risk has a high potential impact, but is mitigated by policies

rights in all jurisdictions throughout the world and Galapagos

and procedures such as surveillance of the buildings, annual

may not be able to adequately enforce its intellectual

appraisals and bonuses, and monthly management meetings.

property rights even in the jurisdictions where Galapagos

seeks protection.

Galapagos could be subject to liabilities under environmental,

health and safety laws or regulations, or fines, penalties or

Filing, prosecuting and defending patents on Galapagos'

other sanctions,

if it fails to comply with such laws or

product

candidates

in all

countries and jurisdictions

regulations or otherwise incurs costs that could have a

throughout the world would be prohibitively expensive, and

material adverse effect on the success of the business. The

Galapagos'

intellectual property rights in some countries

very limited use of hazardous materials, the existence of

could be less extensive than those in the United States and

stringent health and safety operation procedures, and regular

Europe. Consequently, Galapagos may not be able to prevent

inspections and safety days

significantly decrease the

third parties from practicing its inventions in all countries,

potential impact as well as the estimated likelihood of the

or from selling or importing products made using Galapagos'

risk.

Furthermore,

the Group

employs

quality &

inventions.

Risks related to
Galapagos’ organization,
structure and operation
—

environmental health and safety managers who closely

monitor laboratory safety and continuously seek to improve

quality and safety conditions.

Our collaboration arrangements with our strategic partners

may make us an attractive target for potential acquisitions

under certain circumstances. Under certain circumstances,

due to the structure of our collaboration arrangements with

our strategic partners, our strategic partners may prefer to

acquire us rather than paying the milestone payments or

Galapagos’ future success depends on its ability to retain the

royalties under the collaboration arrangements, which may

members of its Executive Committee and to attract, retain

bring additional uncertainties to our business development

and motivate qualified personnel.

If Galapagos

is not

and prospects.

successful

in attracting and retaining highly qualified

personnel, it may not be able to successfully implement its

business strategy. Adequate remuneration and incentive

schemes and the sharing of Galapagos’ knowledge amongst

key employees mitigate this risk.

In the recent past,

Galapagos has continued to be successful in attracting and

retaining qualified employees.

Galapagos may undertake strategic acquisitions in the future

and any difficulties from integrating such acquisitions could

adversely affect Galapagos’ share price, operating results and

results of operations. Galapagos may acquire companies,

businesses and products that complement or augment its

existing business. Galapagos may not be able to integrate

any acquired business successfully or operate any acquired

Risks from the improper conduct of employees, agents,

business profitably. Integrating any newly acquired business

contractors, or collaborators could adversely affect our

could be expensive and time-consuming. Integration efforts

reputation and our business, prospects, operating results, and

often take a significant amount of time, place a significant

financial condition. Our information technology systems

strain on managerial, operational and financial resources,

could face serious disruptions that could adversely affect our

result in loss of key personnel and could prove to be more

business. Continuing an uninterrupted performance of our IT

difficult or expensive than Galapagos predicts. As part of its

system is critical to the success of our business strategy and

efforts to acquire companies, business or product candidates

operations. A recovery plan for data has been implemented,

or to enter into other significant transactions, Galapagos

as well as a system for interception of power failures. Fire

conducts business, legal and financial due diligence with the

walls and virus scanners provide an additional and adequate

goal of identifying and evaluating material risks involved in

protection. Galapagos’ personnel should adhere to continuity

the transaction. Despite its efforts, Galapagos ultimately may

plans and procedures regarding access rights and installation

be unsuccessful in ascertaining or evaluating all such risks

of different programs. Business interruptions could delay us

and, as a result, might not realize the intended advantages of

in the process of developing our product candidates. This

the transaction.

Galapagos NV Annual Report 2014

RISK FACTORS

If Galapagos is unable to use tax loss carryforwards to reduce

management to follow-up the Group’s performance on a

future taxable income or benefit

from favorable tax

daily basis.

legislation, Galapagos' business, results of operations and

financial condition may be adversely affected. Galapagos 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 authorities may

Market risks relating to the
Galapagos shares
—

influence the Group’s activities,

financial situation and

Galapagos has identified the following major market risks:

results. Such potential changes and their

impact are

monitored carefully by management and its advisors.

▪ Possible volatility of share price

The market price of the shares might be affected by a

As a company active in research and development in Belgium

variety of factors outside management control, such as

and France, Galapagos has benefited from certain research

the global economic situation, the business development

and development incentives. If the Belgian and/or the French

of competitors, sector mergers and acquisitions; it is

government decide to eliminate, or reduce the scope or the

difficult to mitigate this risk

rate of, the research and development incentive benefit,

either of which it could decide to do at any time, Galapagos'

▪ Economic risk due to failure in confidence

results of operations could be adversely affected. Galapagos

General public confidence about future economic

also expects to benefit in the future from the “patent income

conditions or performance of Galapagos or its suppliers

deduction”

initiative in Belgium.

If, however, there are

or customers may impact the ability or willingness of

unexpected adverse changes to the Belgian “patent income

others to trade with Galapagos

deduction” initiative, or Galapagos is unable to qualify for

such advantageous tax legislation, its business, results of

▪ Dilution through exercise of warrant plans

operations and financial condition may be adversely affected.

The exercise of existing warrants can significantly

Galapagos has received several technological

innovation

grants to date, to support various research programs from an

agency of the Flemish government to support technological

innovation in Flanders. If Galapagos fails to comply with its

contractual obligations under the applicable technological

innovation grant agreements, Galapagos could be forced to

repay all or part of the grants received. Such repayment could

adversely affect Galapagos' ability to finance its research and

development projects.

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

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

increase the number of outstanding Galapagos 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 Galapagos’

stock

▪ Reputational damage

High ethical standards are maintained throughout the

entire organization at all levels. Laws and guidelines are

complied with

▪ Belgian law provisions

There are several provisions of Belgian company law and

certain other provisions of Belgian law, such as the

obligation to disclose important shareholdings and

merger control, that may apply to Galapagos and which

may make an unfriendly tender offer, merger, change in

management or other change in control, more difficult.

Galapagos NV Annual Report 2014

RISK FACTORS

These provisions could discourage potential takeover

attempts that third parties may consider and thus

deprive the shareholders of the opportunity to sell their

shares at a premium (which is typically offered in the

framework of a takeover bid)

General statement about
Galapagos Group risks
—

According to our current assessment we consider the risks

to be manageable and the going concern of Galapagos not to

be endangered at the time of the current report. Assuming

no further deterioration of the global business, financial and

regulatory environment, the Group considers itself well

prepared to meet all future challenges.

Galapagos NV Annual Report 2014

Corporate
governance
Corporate
governance at
Galapagos in 2014

Filgotinib and our cystic fibrosis programs
were at the top of investors’ agendas in
2014. Going forward, we see investors
asking more often about our platform that
generated these successes.

Elizabeth Goodwin
Head of Corporate Communications and Investor Relations

COPORATE GOVERNANCE

Galapagos’ corporate
governance policies
—

Galapagos has adopted the Belgian Corporate Governance

Code

2009

(which

can

consulted

www.corporategovernancecommittee.be) as

its

reference

code. Galapagos NV’s Board of Directors approved a Corporate

Governance Charter. The Corporate Governance Charter,

which is available on Galapagos’ website www.glpg.com, is

applicable in addition to the law, Galapagos NV’s articles of

association and the corporate governance provisions included

in the Belgian Companies Code and the Belgian Corporate

Governance Code 2009.

internal control and risk management systems of Galapagos.

The “Risk Management” and “Risk Factors” sections are

incorporated by reference in this corporate governance

statement.

Board of Directors of
Galapagos NV
—

Current composition of Galapagos NV’s
Board of Directors

Onno van de Stolpe founded Galapagos NV in 1999 and has
served as our Chief Executive Officer and a member of the

Board of Directors from 1999 to the present. From 1998 to

The Corporate Governance Charter includes the following

1999, he was the Managing Director of Genomics at IntroGene

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 information and

to prevent insider trading and market manipulation).

The Board of Directors strives to comply with the rules of the

Belgian Corporate Governance Code 2009 as much as possible.

At the same time, the Board of Directors is of the opinion

that Galapagos can be justified in not adhering to certain

provisions of the Belgian Corporate Governance Code 2009, in

view of the activities of Galapagos, its size and the specific

circumstances in which Galapagos operates. In such cases,

which are mentioned in this

corporate

governance

statement, Galapagos applies

the “comply or explain”

principle. Reference is made to the “Remuneration of non-

executive Directors of Galapagos NV” section and the “Shares,

warrants or other rights to acquire shares awarded to,

exercised by or expired for the Galapagos NV Executive

Committee members during financial year 2014” section.

In addition to the information set out below, we refer to the

“Risk management” and “Risk factors” sections of this report

for a description of the most important characteristics of the

B.V. (later Crucell N.V., which was acquired by Johnson &

Johnson Services, Inc. in 2011). Prior to joining IntroGene in

1998, he was Managing Director of Molecular Probes Europe

B.V. He established the European headquarters after joining

Molecular Probes, Inc. in the United States. Previously, he

worked for The Netherlands Foreign Investment Agency in

California, where he was

responsible

for

recruiting

biotechnology and medical device companies to locate in The

Netherlands. Onno started his career as Manager of Business

Development at MOGEN International N.V. in Leiden. He

received an MSc degree from Wageningen University. Onno

also serves as a member of the supervisory board of the

Stichting Institute for Human Organ and Disease Model

Technologies and has in the past served as a member of the

board of directors of DCPrime B.V.

Rajesh Parekh, MA, DPhil has served as the Chairman of
Galapagos NV’s Board of Directors since 2004. Raj is a General

Partner at Advent Life Sciences LLP, which he joined in 2005.

During an academic career at Oxford University, he co-

founded Oxford GlycoSciences PLC, where he served as Chief

Scientific Officer and Chief Executive Officer from 1988 until

its sale to Celltech Group PLC (now UCB SA) in 2003. He

has founded or served on the boards of several life sciences

companies in the United States and Europe including Celldex

Therapeutics, Inc.; Avila Therapeutics, Inc.; EUSA Pharma

(Europe) Limited; Thiakis Limited; and Amsterdam Molecular

Therapeutics (AMT) Holding N.V. (now uniQure). Raj currently

serves as a member of the board of directors of Cellnovo

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

Limited, PE Limited, F2G Limited, LuxFold S.A., Biocartis NV
and Levicept Limited. In addition, he serves as a member

specializing

in mass

spectrometry. He

received his

management and financial education from the Harvard

of the board of directors of Advent Management IV Limited,

Business School. Werner currently serves as a member of the

Advent Management Life Sciences Limited, Advent Life

board of directors of Seres Health, Inc.

Sciences Services Limited and is a general partner of Advent

Venture Partners LLP. He is also a member of the Supervisory

Board of the Novartis Venture Fund. During the past five

years he served as a member of the board of directors of

4-Antibody AG, NeRRe Therapeutics Limited and CoCo

Therapeutics Limited. He received his MA in Biochemistry

and DPhil in Molecular Medicine from the University of

Oxford, where he has also been a Senior Research Fellow and

Professor.

Howard Rowe, JD has served as a member of Galapagos NV’s
Board of Directors since 2010. Howard is Managing Director

at Hayfin Capital Management LLP. Prior to joining Hayfin

Capital Management, he was a Managing Director with The

Goldman Sachs Group, Inc. where he had multiple healthcare

responsibilities over his 12 years at the firm. His most recent

roles at Goldman Sachs were as part of the European Special

Situations

and Principal

Strategies

teams where he

established and led the private healthcare investing effort.

Harrold van Barlingen, Ph.D. has served as a member of
Galapagos NV’s Board of Directors since 2005. Harrold is the

During that time he served on the boards of EUSA Pharma

(Europe) Limited, Healthcare Brands International Limited,

managing director and founder of Thuja Capital B.V., Thuja

SmallBone Innovations, Inc. and Ikonisys, Inc. Prior to his

Capital Holding B.V. and Thuja Capital Management B.V. Prior

investing activities, Howard was a senior member of the

to founding Thuja Capital, he headed the life sciences effort

European Healthcare Investment Banking team, where he

of AlpInvest Partners B.V. from 2001 to 2006, managing a

advised numerous corporate clients on M&A and corporate

portfolio of over 30 companies. Previously, he was at the

finance activities. Before joining Goldman Sachs, he was a

Boston Consulting Group (“BCG”) where he worked as a

corporate lawyer with the law firm Sullivan & Cromwell LLP.

consultant in management and strategy from 1999 to 2002.

Howard received his Bachelor of Science in Psychobiology

Prior to BCG, he headed the continental activities of The

from the University of Southern California and his JD from

Lewin Group (a Quintiles subsidiary), an internationally

Harvard Law School. He currently serves as a member of the

active firm specialized in the field of health economics. He

board of directors of MedAvante, Inc.

holds an MSc in Medical Biology and a PhD in Medicine,

both from Utrecht University. From 1991 to 1992 he was a

visiting scientist at the University of Chicago. He is the author

of a wide variety of peer-reviewed scientific and pharmaco-

economics papers. He currently serves on the supervisory

boards of Encare Biotech B.V., TheraSolve NV (chairman),

Hemics B.V. (chairman) and arGEN-X N.V. (ARGX, Euronext).

In addition, during the last five years he also served on the

boards of Okapi Sciences NV and Curacyte GmbH.

Werner Cautreels, Ph.D. has served as a member of
Galapagos NV’s Board of Directors since 2009. Werner is the

Katrine Bosley has served as a member of Galapagos NV’s
Board of Directors since 2013. Katrine is the President, Chief

Executive Officer and member of the board of directors of

Editas Medicine, Inc. From 2009 to 2012, she was President and

Chief Executive Officer of Avila Therapeutics, Inc., which was

acquired by Celgene Corporation in 2012. Prior to her time

at Avila Therapeutics, Katrine was Vice President, Strategic

Operations at Adnexus, a Bristol-Myers Squibb R&D Company,

and was Vice President, Business Development at Adnexus

Therapeutics,

Inc., before that. Katrine joined Adnexus

Therapeutics from Biogen Idec, Inc. where she had roles in

President, Chief Executive Officer and member of the board

business development, commercial operations and portfolio

of Selecta Biosciences,

Inc. Previously, he joined Solvay

strategy in the United States and Europe. Earlier, she was part

Pharmaceuticals SA in 1998 where he was Global Head of R&D

of the healthcare team at the venture firm Highland Capital

and later Global Chief Executive Officer from 2005 onwards,

Partners, Inc. Katrine graduated from Cornell University with

until it was acquired by Abbott Laboratories Inc. in February

a B.A. in Biology. Katrine has also served as a member of the

2010. Prior to joining Solvay he was employed by Sanofi S.A.,

board of directors of Coco Therapeutics Limited and currently

Sterling Winthrop, Inc. and Nycomed Amersham PLC in a

serves as Chairman of the board of Genocea Biosciences, Inc.

variety of R&D management positions in Europe and in the

and as a board member of Scholar Rock, LLC.

United States from 1979 to 1998. He graduated from the

University of Antwerp, with a Doctorate in Chemistry,

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

About Galapagos NV’s Board of Directors

Cautreels and Dr. Sato) also attended a number of review

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. At least three Directors are

independent.

meetings with scientific staff of the Group.

The Board of Directors acts as a collegial body. Galapagos 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 Directors are appointed by the Shareholders’ Meeting

the Board and its Committees.

upon the proposal of the Board, for a renewable term of

up to four years. When a position on the Board becomes

vacant, the other Directors may temporarily fill the mandate

until the Shareholders’ Meeting appoints a new Director. The

Nomination and Remuneration Committee nominates, for

the approval of the Board, candidates to fill vacancies and

advises on proposals for appointment originating from

shareholders, in each case taking into account Galapagos’

needs and the selection criteria determined by the Board.

Except for Mr. Onno van de Stolpe, all Board members are

non-executive Directors. In 2014, the following persons were

members of the Board: Dr. Raj Parekh (Chairman), Ir. Onno

van de Stolpe (CEO), Dr. Harrold van Barlingen, Dr. Werner

Cautreels, Mr. Howard Rowe, Dr. Vicki Sato (until 31 December

During 2014, Galapagos complied with the Law of 28 July 2011

with respect to gender diversification in the Board of

Directors, and the Board will continue to monitor future

compliance. The Board will take gender diversity into account

as one of the key factors in its search for candidates to fill

the vacancy on the Board that was created by Dr. Sato’s

resignation as a Director effective as of 31 December 2014.

Committees of Galapagos
NV’s Board of Directors
—

2014) and Ms. Katrine Bosley; the latter four Directors were

The Board of Directors has installed an Executive Committee,

appointed as independent Directors within the meaning of

an Audit Committee and a Nomination and Remuneration

article 526ter of the Belgian Companies Code.

Committee.

The Board’s role is to pursue the long-term success of

Executive Committee

Galapagos. The Board does so by assuming the authority and

responsibilities assigned to it by Belgian corporate law and by

combining entrepreneurial leadership with appropriate risk

assessment and management. Each of the Directors’ expertise

and experience is exemplified by the varied professional

activities they carry out and offices they hold.

In 2014, the Board of Directors held 4 regular meetings, 10

meetings by telephone conference to discuss specific matters

and 2 meetings in the presence of a notary (relating to the

issuance of Warrant Plan 2014 and the issuance of Warrant

Plan 2014 (B)).

The attendance rate (in person or by written proxy to a fellow

Director) for the Board members in function at 31 December

2014 was as follows: Dr. Parekh 100%, Mr. Van de Stolpe 100%,

Dr. Van Barlingen 94%, Mr. Rowe 94%, Dr. Cautreels 94%, Dr.

Sato 94% and Ms. Bosley 100%. The overall attendance rate

was 97%. In addition, certain Board members (including Dr.

Current composition of Galapagos NV’s Executive
Committee

Onno van de Stolpe founded Galapagos NV in 1999 and has
served as our Chief Executive Officer and a member of the

Board of Directors from 1999 to the present. From 1998 to

1999, he was the Managing Director of Genomics at IntroGene

B.V. (later Crucell N.V., which was acquired by Johnson &

Johnson Services, Inc. in 2011). Prior to joining IntroGene in

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

1998, he was Managing Director of Molecular Probes Europe

B.V. He established the European headquarters after joining

Molecular Probes, Inc. in the United States. Previously, he

worked for The Netherlands Foreign Investment Agency in

California, where he was

responsible

for

recruiting

biotechnology and medical device companies to locate in The

Netherlands. Onno started his career as Manager of Business

Development at MOGEN International N.V. in Leiden. He

received an MSc degree from Wageningen University. Onno

also serves as a member of the supervisory board of the

Stichting Institute for Human Organ and Disease Model

Bart Filius, MBA has served as our Chief Financial Officer
since December 2014. Prior to that, Bart worked over 13 years

Technologies and has in the past served as a member of the

at Sanofi S.A. since 2001, where he was the Chief Financial

board of directors of DCPrime B.V.

Officer of Sanofi Europe during the last three years. Earlier

at Sanofi, he was the Country Manager and Chief Financial

Officer of Sanofi in The Netherlands. Before that, he was Vice

President for Mergers & Acquisitions, during which time he

led and completed the divestiture of various franchises. Prior

to joining Sanofi, he was a strategy consultant at Arthur D.

Little. Bart has an MBA degree from INSEAD and a bachelor’s

degree in business from Nyenrode Business University.

Piet Wigerinck, Ph.D. joined Galapagos in April 2008 from
Tibotec-Virco Comm. VA (a subsidiary of Johnson & Johnson

Services,

Inc.) where he was the Vice President, Drug

Discovery, Early Development and CM&C, and a member of

the Management Board. He started his professional career as

a medicinal chemist at Janssen Research Foundation in 1992.

He then joined Tibotec Group NV in 1998, where, under his

leadership, TMC114 (PrezistaTM) and TMC435 (OlysioTM) were

selected and moved forward into clinical trials. Piet played

Andre Hoekema, Ph.D. is responsible for M&A, licensing
and Intellectual Property at Galapagos. He had the lead in

a key role in Tibotec’s expansion into novel diseases such as

rolling out our pharmaceutical alliance strategy since its start

Hepatitis C and advanced several compounds into Phase 1

in 2006, and is the architect of our two collaborations with

and Phase 2 clinical trials. He brings over 15 years of research

AbbVie (filgotinib and CF). Andre joined Galapagos in March

and development experience from both large pharmaceutical

2005 from Invitrogen Corporation, where he was Managing

companies and biotechnology companies to our company.

Director of Corporate Development Europe, overseeing

Piet holds a Ph.D. from the K.U. Leuven and is inventor on

licensing and M&A for Invitrogen Europe. He brings 20 years

more than 25 patent applications.

of biotech experience from positions at Molecular Probes

Europe B.V.

(Managing Director of the European office),

Crucell N.V.

(Director

of Business Development

and

Intellectual Property), Koninklijke DSM N.V., MOGEN

International N.V. (Research and Project Management), and

Genentech,

Inc.

(postdoctoral researcher). Andre studied

Chemistry and holds a Ph.D. from Leiden University. During

his Ph.D. work, he invented the binary vector system for the

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

genetic modification of plants, which he published in Nature

matters of audit, internal control and risk control. The other

in 1983; this has since then become the global standard in the

members have extensive experience in these matters as well.

field of agricultural biotech. He is the author of more than

30 peer-reviewed scientific papers, and an inventor of over 20

series of patent applications, resulting in 15 patents issued in

the United States.

In 2014, the Audit Committee held 6 meetings, in which it

dealt with matters

including audit

review and risk

management. The Audit Committee acts as a collegial body.

The overall attendance (present or represented) at the Audit

About the Executive Committee of Galapagos NV

Committee meetings in 2014 was 100%. Some of the meetings

The tasks of the Executive Committee include the following

were attended by the Statutory Auditor.

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 actual performance of the business

compared to its strategic goals, plans and budgets, and the

support of the CEO with the day-to-day management of

Galapagos.

On 31 December 2014, the Executive Committee consisted of

four people: Mr Van de Stolpe (CEO, also executive Director),

Dr Andre Hoekema (Senior Vice President, Corporate

Development), Dr Piet Wigerinck (Chief Scientific Officer) and

Mr Bart Filius (CFO, starting from 1 December 2014). Mr David

Smith (former CEO, Galapagos Services) was a member of

the Executive Committee until 1 April 2014 and Mr Guillaume

Jetten (former CFO) was a member of

the Executive

Committee until 1 May 2014.

The Executive Committee meets regularly, and in principle

once per month.

Audit Committee

Nomination and Remuneration Committee

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.

At the end of 2014, 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. Following Dr

Sato’s resignation effective as of 31 December 2014, Dr

Cautreels

joined the Nomination and Remuneration

Committee. The Committee has the necessary expertise in

the area of remuneration policy.

The Nomination and Remuneration Committee meets at

least

twice per year.

In 2014,

the Nomination and

Remuneration Committee made recommendations on 4

occasions, dealing with matters including grants of warrants

and bonuses, the appointment of Mr Bart Filius as CFO, the

The role of the Audit Committee is to follow up on financial

review of Galapagos’

remuneration policy and salary

reporting and verification of financial data, verify and follow

increases. The Nomination and Remuneration Committee

up on the internal control mechanisms, evaluate and verify

acts as a collegial body. The overall attendance rate (present

the effectiveness of the risk assessment systems, and follow

or represented) at

the Nomination and Remuneration

up on the internal and external audit activities.

At the end of 2014, 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

Committee meetings in 2014 was 100%. The CEO attended the

meetings of this Committee when the remuneration of the

other members of the Executive Committee was discussed.

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

Composition of Board Committees (excluding
Executive Committee)

2014 (B)”), for the benefit of Mr. Bart Filius, who joined the

Executive Committee as CFO. The warrants issued under

Warrant Plan 2014 (B) have a term of eight years and an

Audit Committee

Nomination and
Remuneration Committee

exercise price of €11.93.

Onno van de Stolpe

Raj Parekh

Harrold van
Barlingen

Werner Cautreels1

Howard Rowe1

Katrine Bosley1

●

● denotes committee membership
* denotes committee chairmanship
1 denotes qualification as an independent director within the
meaning of article 526terof the Belgian Companies Code

Galapagos NV’s share
capital and shares
—

Share capital increases and issue of shares
by Galapagos NV in 2014

Number and form of Galapagos shares

Of the 30,299,129 shares of Galapagos NV outstanding at the

end of 2014, 538,696 were registered shares and 29,760,433

shares were dematerialized shares (of which 760 shares were

automatically converted into dematerialized shares on

1 January 2014 pursuant to the Belgian legislation on the

abolition of bearer shares). All shares are issued and fully paid

up and are of the same class.

Rights attached to Galapagos shares

Each share (i) entitles its holder to one vote at

the

Shareholders’ Meetings; (ii) represents an identical fraction of

the share capital and has the same rights and obligations and

shares 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’

On 1 January 2014,

the share capital of Galapagos NV

Meeting, or by the Board of Directors

subject

to an

amounted to €161,171,635.86 represented by 29,794,046 shares. In

authorization of the Shareholders’ Meeting, in accordance

the course of 2014 there were four capital increases resulting

with the provisions of the Belgian Companies Code and

from the exercise of warrants, resulting in the issuance of

Galapagos NV’s articles of association.

505,083 new shares, an increase of the share capital by

€2,732,499.03 and an increase of the issuance premium

account by €1,697,217.99. At the end of 2014, the total share

capital of Galapagos NV amounted to €163,904,134.89

represented by 30,299,129 shares.

On 25 July 2014, the Board of Directors issued 571,660 warrants

(after acceptances) within the framework of the authorized

capital, for the benefit of the Directors and an independent

consultant of Galapagos NV, and of employees of the Group

under a new warrant plan (“Warrant Plan 2014”). The offer

of warrants to the Directors under Warrant Plan 2014 was

approved by the Annual Shareholders’ Meeting of 29 April

2014. The warrants issued under Warrant Plan 2014 have a

term of eight years and an exercise price of €14.54.

Galapagos NV’s authorized capital

In accordance with the articles of association,

the

Extraordinary Shareholders’ Meeting of Galapagos NV

authorized the Board of Directors to increase the share

capital of Galapagos NV, 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 2014, Galapagos NV’s Board of Directors made use of the

right to increase the capital

in the framework of the

authorized capital on two occasions: (1) on 25 July 2014, in

On 14 October 2014, the Board of Directors issued 150,000

connection with the issuance of Warrant Plan 2014 under

warrants (after acceptances) within the framework of the

which a maximum of 571,660 new shares can be issued for

authorized capital, under a new warrant plan (“Warrant Plan

a total maximum capital

increase of €3,092,680.60 (plus

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

issuance premium); and (2) on 25 October 2014, in connection

represented at such meeting. The aforementioned rules are

with the issuance of Warrant Plan 2014 (B) under which a

also applicable to the acquisition of shares of Galapagos NV

maximum of 150,000 new shares can be issued for a total

by its subsidiaries.

maximum capital

increase of €811,500.00 (plus issuance

premium). On 31 December 2014, an amount of €117,826,922.83

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 Group.

Procedure for changes in Galapagos NV’s
share capital

In accordance with the Belgian Companies Code, Galapagos

NV may increase or decrease its share capital by decision

of the Extraordinary Shareholders’ Meeting approved by 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 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 Galapagos NV’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 Galapagos treasury
shares

The Board of Directors has currently not been authorized by

an Extraordinary Shareholders’ Meeting to purchase or sell its

own shares.

On 31 December 2014, 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

behalf of Galapagos NV or any of its subsidiaries either.

Anti-takeover provisions in Galapagos NV’s
articles of association

Galapagos NV’s articles of association currently do not

contain any anti-takeover provisions.

Anti-takeover provisions under Belgian law

Under Belgian law, public takeover bids for all outstanding

voting securities of 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 higher 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

In accordance with the Belgian Companies Code, Galapagos

average price of the shares on the most liquid market of the

NV may purchase, subject to the provisions of the Belgian

last 30 calendar days prior to the date on which it became

Companies Code, Galapagos NV’s own shares or profit sharing

mandatory for the acquirer to launch a mandatory takeover

certificates or certificates and dispose thereof by decision

bid for the shares of all other shareholders.

of the Extraordinary Shareholders’ Meeting approved by a

majority of 80% 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 Shareholders’ Meeting must be convened

at which the shareholders may decide on the agenda items,

irrespective of the percentage of share capital present or

Procedure for amendments to Galapagos
NV’s articles of association

Pursuant to the Belgian Companies Code, any amendment to

the articles of association, such as an increase or decrease in

the share capital of Galapagos NV, and certain other matters,

such as the approval of the dissolution, merger or de-merger

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

of Galapagos NV may only be authorized with the approval

At the end of 2014, the CEO owned 364,226 Galapagos shares

of at least 75% of the votes validly cast at an Extraordinary

and 765,000 warrants. The other members of the Executive

Shareholders’ Meeting where at least 50% of Galapagos NV’s

Committee held an aggregate of 20,352 shares and 680,000

share capital is present or represented. If the attendance

warrants. The other members of the Board held an aggregate

quorum of 50% is not met, a new Extraordinary Shareholders’

of 6,800 shares and 199,070 warrants. Each warrant entitles its

Meeting must be convened at which the shareholders may

holder to subscribe to one share of Galapagos NV.

decide on the agenda items, irrespective of the percentage of

share capital present or represented at such meeting.

Agreements between Galapagos NV
shareholders

Shareholders
—

Major shareholders of Galapagos NV

Based on the

transparency notifications

received by

Galapagos NV, the shareholders owning 5% or more of its

shares on 31 December 2014 were Delta Lloyd N.V. (2,954,890

shares),

Johnson & Johnson (2,350,061 shares), Van Herk

Investments B.V.

(1,586,727 shares) and The Capital Group

Companies, Inc. (1,554,436 shares).

Transparency notice shareholders on
31 Dec 2014

Since 31 December 2014, Galapagos has received (i) a

transparency notification from Delta Lloyd N.V. notifying the

reduction of

its

shareholding below the statutory 5%

threshold on 14 January 2015 and (ii) a transparency

On the date of this report, Galapagos NV had no knowledge

of the existence of any shareholders’ agreements between its

shareholders.

Agreements with major Galapagos NV
shareholders

On 23 October

2007, Galapagos NV entered into the

Rheumatoid Arthritis Research Alliance

and Option

Agreement and the Reserved Program Option Agreement

with Janssen Pharmaceutica NV, an affiliate of Johnson &

Johnson. These agreements were terminated in March 2015

(see “Subsequent events”).

Throughout 2014 there were no lock-up agreements in effect

between Galapagos NV and any of its shareholders.

Remuneration report
—

Determination of remuneration of Directors
and Executive Committee members of
Galapagos NV

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 of the Executive Committee, also the Group’s

notification from BNP

Paribas notifying

that

the

performance rating system.

shareholding of entities under their control exceeded the

statutory 5% threshold on 30 January 2015. A pie chart

representing our major shareholders based on transparency

notifications received to date is available on Galapagos’

website, www.glpg.com.

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 Shareholders’ Meeting, and are

only implemented after such approval.

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

The fixed and variable remuneration of the CEO (who is a

for the CEO is reviewed at the end of each year by the

member of the Board) is established by the Board of Directors

Nomination and Remuneration Committee and discussed

based upon an authorization from the Shareholders’ Meeting.

and finally established by the Board, and the level of

The fixed and variable remuneration of, and grant of

achievement of the objectives of the other members of the

warrants to, the other members of the Executive Committee

Executive Committee is assessed by the CEO at the end of the

is established by the Board of Directors.

year in connection with appraisal discussions, discussed by

Galapagos’ remuneration policy

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

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 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 change in the price of Galapagos NV’s

share relative to the Next Biotech Index (which tracks

Galapagos’ peers). The 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 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 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 share price change is more than 10% worse than

The remuneration of the CEO (who is an executive Director)

the change in the Next Biotech Index the deferred bonus

and of the other members of the Executive Committee

will be forfeited.

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

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

To be entitled to any deferred payment under the bonus

scheme the beneficiary must still be in Galapagos’ employ.

In addition, exceptional special bonuses, outside the scope of

the regular bonus schemes, can be considered by the Board

upon

recommendation

the

Nomination

and

Remuneration Committee in the event of and for exceptional

achievements.

objectives of the other members of the Executive Committee

Relative importance of the various components

are established annually by the CEO and are in relation to the

corporate objectives set by the Board. For 2014 the corporate

objectives

included

elements

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

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

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

their aggregate annual remuneration of the year for which

of remuneration are a continuation of the fees as paid in

the bonus is awarded. In addition, the CEO and/or the other

previous years.

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.

Performance-related premiums in shares, options
or other rights to acquire shares

Galapagos 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.

Information on the remuneration policy for the
next two years

Galapagos currently has no plans to substantially deviate

from the remuneration policy used in 2014 and the years

before, as described above, in the next two financial years.

Remuneration of non-executive Directors of
Galapagos NV

Pursuant to the decision of the Annual Shareholders’ Meeting

of 29 April 2014, 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 Galapagos NV is fixed, on an aggregate basis,

at €200,000 (plus expenses). The same Annual 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

the

Nomination

and

Remuneration Committee, the allocation of the aggregate

annual

remuneration for Directors

follows:

(a)

In the event a Director has an attendance 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 2014).

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

2014 for the benefit of employees of the Group and of the

Directors and one independent consultant of Galapagos NV.

In accordance with the

resolution of

the Annual

Shareholders’ Meeting of 29 April 2014, the following number

of warrants were offered under such Plan to the non-

executive Directors: Dr. Parekh: 5,400 warrants; Dr. Cautreels:

3,780 warrants; and Ms. Bosley, 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 €14.54. 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.

remuneration for non-executive directors who do not

The Board of Directors points out that provision 7.7 of the

represent a shareholder (Dr. Van Barlingen and Mr. Rowe):

Belgian Corporate Governance Code 2009 stipulates that non-

€20,000; (b) remuneration for non-EU-based Directors (who

executive Directors should not be entitled to performance-

do not represent a shareholder) and/or for Directors who

related remuneration such as

stock-related long-term

actively and on a regular basis provide independent clinical,

incentive schemes. In deviation from this provision, the

scientific and/or transactional advice to the Board of

Board of Directors has decided to grant warrants to non-

Directors (Dr. Cautreels, Dr. Sato and Ms. Bosley): €40,000;

executive Directors. This way, Galapagos has additional

possibilities to attract competent non-executive Directors

Committee (Dr. Cautreels): €5,000. The aforementioned levels

and to offer them an attractive additional remuneration that

does not affect Galapagos’ cash position. Furthermore, the

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

grant of warrants is a commonly used method in the sector

development; all of these objectives were considered to be of

in which Galapagos operates. Without

this possibility,

equal importance. Each of the corporate objectives is clear

Galapagos would be

confronted with a considerable

and measurable so that it is easy to determine whether or not

disadvantage compared to competitors who do offer stock-

a specific objective has been achieved or not.

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 functioning of the

non-executive Directors.

Gross remuneration of Galapagos’ CEO for
financial year 2014

i. Base salary (fixed): €428,491.

Except as set forth above, there are no other benefits granted

ii. Variable remuneration (bonus): given the level of

to the non-executive Directors.

achievement of the criteria from the Senior

Remuneration of executive Directors of
Galapagos NV

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.

Criteria and methods to evaluate the
performance of Galapagos NV’s CEO and
other Executive Committee members 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

Management Bonus Scheme to be entitled to a bonus

(i.e. the corporate objectives for 2014), a bonus of €268,000

(i.e. 60% of the 2014 base salary) was awarded over 2014 of

which 50% was paid early January 2015, and the other

50% was deferred for 3 years. No performance bonus was

awarded for the year 2011, as three out of five of the

corporate objectives for 2011 were not achieved.

Therefore, no deferred part of the bonus for the year 2011

was paid out in 2014.

iii. Pension: €65,244.

iv. Other components of the remuneration: company car

and payments for invalidity and healthcare cover,

totaling €19,900.

In its meeting of 17 December 2014 (in application of Article

523 of the Belgian Companies Code without the CEO being

present)

the

Board

Directors

resolved,

upon

recommendation of the Nomination and Remuneration

Committee, to increase the CEO’s salary by 2% as from 2015.

The principles applied for such increase were in line with the

Remuneration Policy described above.

Aggregate gross remuneration of the other
Galapagos NV Executive Committee
members for financial year 2014

on the Group’s performance rating system that is based on

i. Base salaries (fixed): €723,107.

annual

individual performance

(including

exceptional

ii. Variable remunerations (bonuses): given the level of

deliverables) in combination with the overall performance

achievement of the criteria from the Senior

of the Group, compared to the level of achievement of

Management Bonus Scheme to be entitled to a bonus

individual and corporate objectives that are established

(i.e. the corporate objectives for 2014), an aggregate bonus

annually. The corporate objectives and the CEO’s objectives

of €200,000 (i.e. 60% of the aggregate bonus pot for the

are established annually by the Board of Directors, and the

incumbents in function on 31 December 2014) was

objectives of the other members of the Executive Committee

awarded over 2014 of which 50% was paid early January

are established annually by the CEO. For 2014 the corporate

2015, and the other 50% was deferred for 3 years. In

objectives

included

elements

revenue,

operating

addition, an aggregate amount of €34,686 was paid to Mr.

profitability,

clinical

trial

progression and

business

Smith as an exceptional special bonus in connection

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

with his instrumental role in the divestment of the

each of Dr. Hoekema and Dr. Wigerinck: 40,000 warrants and

Group’s services division. No performance bonus was

to Mr. Van de Stolpe: 100,000 warrants; and (ii) under the

awarded for the year 2011, as three out of five of the

Warrant Plan 2014 (B), issued by the Board of Directors under

corporate objectives for 2011 were not achieved.

the authorized capital on 14 October 2014, to Mr. Bart Filius

Therefore, no deferred part of the bonus for the year 2011

(who joined the Executive Committee per 1 December 2014):

was paid out in 2014.

iii. Pensions: €118,610.

150,000 warrants.

iv. Other components of the remunerations: company cars,

payments for invalidity and healthcare cover, and other

fringe benefits, totaling €31,078.

The amounts in this section include normal payments for

compensation and benefits made to Mr. David Smith and

Mr. Guillaume Jetten, who both ceased to be a member of

the Executive Committee, until the date of cessation of their

The warrants issued under Warrant Plan 2014 have an

exercise price of €14.54 per warrant, a life time of 8 years, and

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

mandate as Executive Committee member, i.e. until 1 April

subscribe to one share of Galapagos NV.

2014 and 1 May 2014 respectively.

In its meeting of 17 December 2014 the Board of Directors

resolved, upon recommendation of the Nomination and

Remuneration Committee, to implement salary increases as

from 2015 for the members of the Executive Committee

generally in line with the increases awarded in previous years,

The warrants issued under Warrant Plan 2014 (B) have an

exercise price of €11.93 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

based on individual performance and taking into account

one share of Galapagos NV.

relevant benchmarks. The principles applied for

such

increases were in line with the Remuneration Policy

described above.

Shares, warrants or other rights to acquire
shares awarded to, exercised by or expired
for the Galapagos NV Executive Committee
members during financial year 2014

In 2014, 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 2014 and,

aggregate, 112,500 warrants were exercised by members of the

Executive Committee in 2014 (30,000 warrants were exercised

by Onno van de Stolpe, 5,000 warrants by Piet Wigerinck, 2,500

warrants by Andre Hoekema and 75,000 warrants by former

Executive Committee member Guillaume Jetten. 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

2014: (i) under the Warrant Plan 2014, issued by the Board

of Directors under the authorized capital on 25 July 2014, to

At the end of 2014, the CEO owned 364,226 shares of Galapagos

NV and 765,000 warrants. The other members of the Executive

Committee in function on 31 December 2014 held an

aggregate of 20,352 shares and 680,000 warrants. The other

members of the Board held an aggregate of 6,800 shares and

199,070 warrants. Each warrant entitles its holder to subscribe

to one share of Galapagos NV.

The Board notes that Warrant Plan 2010 (C), Warrant Plan

2013 (B) and Warrant Plan 2014 (B), each pertaining to the

issuance of warrants to a new member of the Executive

Committee, were approved by the Board based on a general

authorization of the Shareholders’ Meeting. Pursuant to

provision 7.13 of the Belgian Corporate Governance Code 2009,

however,

schemes under which executive officers are

remunerated in shares, share options or any other right to

acquire shares should be subject

to prior shareholder

approval by way of a resolution at the Shareholders’ Meeting.

However, given (i) the fact that the adoption of these warrant

plans falls within the scope of the authorizations to the Board

of Directors granted by the Extraordinary Shareholders’

Meetings of 2 June 2009 and 23 May 2011 to use the authorized

capital for the issue of warrants in the framework of the

remuneration

policy

for

employees,

directors

and

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

independent consultants of the Group and (ii) the interest of

consistent with the approach adopted in the past for

Galapagos NV in having the relevant beneficiaries join as soon

departing members of the Executive Committee.

as possible, the Board of Directors is of the opinion that it was

not desirable to convene a Shareholders’ Meeting to grant its

express prior approval for the adoption of Warrant Plans 2010

(C), 2013 (B) and 2014 (B).

Contractual provisions regarding
compensation for severance for the
Galapagos NV Executive Committee
members

The contracts between Galapagos NV (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 Galapagos 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 Galapagos,

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.

Severance payments for departing Galapagos
NV Executive Committee members during
financial year 2014

Claw-back right of Galapagos relating to
variable remuneration

There are no contractual provisions in place between

Galapagos and the CEO or the other members of the

Executive Committee that give Galapagos a contractual right

to reclaim from said executives the variable remuneration

that would be awarded based on erroneous

financial

information.

Conflict of interests and
related parties
—

In the event of a transaction where a Director’s interest

conflicts with the interest of Galapagos NV, 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, Galapagos’ Corporate Governance Charter

includes a policy for transactions between Galapagos and its

Directors and members of its Executive Committee. Without

prejudice to the procedure defined in article 523 of the Belgian

In 2014, two members of the Executive Committee have left

Companies Code, this policy provides that all transactions

the Group: Mr. David Smith, effective as of 1 April 2014, and

between Galapagos and its Directors, its members of the

Mr. Guillaume Jetten, effective as of 1 May 2014.

Executive Committee or its representatives need the approval

Further

the

reasoned

recommendation of

the

Remuneration Committee, the Board of Directors approved a

severance package for Mr Jetten upon the termination of his

services in an aggregate amount of €574,375. The value of Mr

Jetten’s severance package exceeds 12 months’ salary but does

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 abstain

not exceed 18 months’ salary. It consisted of the following

elements: (i) a payment of an amount equal to 6 months’

from voting.

salary; (¡i) compensation for loss of post in an amount that

In 2014, three cases of conflict of interests between Galapagos

Galapagos’ external employment counsel advised the Board

NV and a Director within the meaning of article 523 of the

was within the normal range; (iii) payment as consideration

Belgian Companies Code were noted:

for Mr Jetten’s contributions to Galapagos; (iv) outstanding

warrants to continue to vest and be exercisable as though he

were still an employee; and (v) reimbursement for lawyer's

fees and tax advice, subject to an agreed cap. The Board

of Directors further notes that the severance package is

In a meeting of the Board of Directors held on 27 March

2014, it was resolved that the Board would make a

recommendation to the next Shareholders’ Meeting for

a grant of warrants to the CEO and the other members

of the Board under a proposed Warrant Plan 2014 as

follows: Mr Van de Stolpe: 100,000 warrants; Dr Parekh:

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

5,400 warrants; Dr Cautreels: 3,780 warrants; Ms. Bosley,

for the CEO: the Chairman declares that Mr Onno van de

Dr Van Barlingen, Mr Rowe and Dr Sato: each 2,520

Stolpe has informed the Board of Directors of a conflict

warrants. Pursuant to section 523 of the Belgian

of interest, concerning the proposed award to him of a

Companies Code, the following was reported in

salary increase and a bonus. The salary of Mr Van de

connection with the proposed warrant offer for the CEO:

Stolpe was increased with 2% as of 2015. Given the actual

The Chairman declared that Mr Onno van de Stolpe had

level of achievement of the criteria from the Senior

informed the Board of Directors of a conflict of interest,

Management Bonus Scheme to be entitled to a bonus

concerning the proposed award to him of 100,000

(i.e. the corporate objectives for 2014) a bonus of €268,000

warrants. It was explained to the Board that said

(i.e. 60% of his 2014 salary) has been awarded to Mr Van

warrant offer is proposed upon recommendation of the

de Stolpe for 2014. It has been explained to the Board

Remuneration Committee, is consistent with past

that said salary increase and bonus is a justified reward

practice and is a justified reward for the results achieved

for the results achieved by Mr Van de Stolpe in 2014. The

by Mr Van de Stolpe. The award of this benefit will have

salary increase and bonus will have no material impact

no material impact on the financial position of the

on the financial position of the company. The Board

company. The Board shared the opinion of the

shares the opinion of the Remuneration Committee

Remuneration Committee that the proposed benefit is

that the proposed salary increase and bonus is justified

justified and reasonable. Mr Van de Stolpe did not take

and reasonable. Mr Van de Stolpe did not take part in

part in the deliberation and the vote concerning this

the deliberation and the vote concerning this decision.

decision. Furthermore, as a warrant offer is proposed to

each Director, the same procedure was followed for each

Director individually.

ii.

In a meeting of the Board of Directors held on 5 June

In addition, the conflict of interests procedure set forth in

Galapagos’ Corporate Governance Charter was applied twice

in 2014 with respect to conflicts that do not qualify as

conflicts of interests within the meaning of article 523 of the

2014, the following was reported in application of article

Belgian Companies Code.

523 of the Belgian Companies Code and in connection

with the recommendation of the Remuneration

Committee, further to the resolution of the

Shareholders’ Meeting of 29 April 2014, 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.

In a meeting of the Board of Directors held on

17 December 2014 the following was reported in

application of article 523 of the Belgian Companies Code

and in connection with the salary increase and bonus

Galapagos NV Annual Report 2014

COPORATE GOVERNANCE

Statement by the Board of Directors
—

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 Galapagos NV and its consolidated companies as of 31

December 2014.

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 2014, gives a true and fair view on the development, results

and position of Galapagos NV and its consolidated companies and on the most important risks and uncertainties with which

Galapagos is confronted.

The Board of Directors will submit proposed resolutions to the Shareholders’ Meeting to approve the annual accounts for the

financial year 2014, and to release the Directors and the Statutory Auditor from liability for the performance of their mandate

during the financial year ended 31 December 2014.

Mechelen, 26 March 2015

On behalf of the Board of Directors

Onno van de Stolpe
CEO

Raj Parekh
Chairman

Galapagos NV Annual Report 2014

Financial
statements
Consolidated and
non-consolidated
financial statements
for 2014

The Company is well-positioned to create
significant value from its R&D assets, with
nearly €200 million in cash on the balance
sheet end 2014, the largest year end cash
position ever for Galapagos.

Bart Filius
CFO of Galapagos

FINANCIAL STATEMENTS

Consolidated financial statements
—

Consolidated income statement and statement of comprehensive income
for the years ended 31 December

Consolidated income statement

(thousands of €, except share and per share data)

Revenues

Other income

Total revenues and other income

Research and development expenditure

General and administrative expenses

Sales and marketing expenses

Restructuring and integration costs

Operating loss

Finance income

Loss before tax

Income taxes

Net loss from continuing operations

Year ended 31 December,

2014

69,368

20,653

90,021

(111,110)

(13,875)

(992)

(669)

(36,624)

1,424

(35,201)

(2,103)

(37,303)

76,625

19,947

96,572

(99,380)

(12,353)

(1,464)

(290)

(16,915)

780

(16,135)

(676)

(16,811)

Net income from discontinued operations

70,514

8,732

2013(*)

Notes

Net income / loss (–)

Net income / loss (–) attributable to:

Owners of the parent

Basic and diluted income / loss (–) per share

Basic and diluted loss per share from continuing operations

Weighted average number of shares (in thousands of shares)

33,211

(8,079)

33,211

1.10

(1.24)

30,108

(8,079)

(0.28)

(0.58)

28,787

(*) Reclassification of the service division to the discontinued operations as described in note 2 and 9

Consolidated statement of comprehensive income

(thousands of €)

Net income / loss (–)

Items that will not be reclassified subsequently to profit or loss:

Remeasurement of defined benefit obligation

Year ended 31 December,

2014

33,211

(267)

2013

Notes

(8,079)

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Consolidated statement of comprehensive income

(thousands of €)

Items that may be reclassified subsequently to profit or loss:

Translation differences, arisen from translating foreign activities

Translation differences, arisen from the sale of service division

Other comprehensive income, net of income tax

Year ended 31 December,

2014

2013

Notes

460

(1,787)

(1,594)

(824)

(777)

Total comprehensive income attributable to:

Owners of the parent

31,617

(8,856)

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Consolidated statements of financial position
at 31 December

(thousands of €)

Assets

Goodwill

Intangible assets

Property, plant and equipment

Deferred tax assets

Non-current R&D incentives receivables

Non-current restricted cash

Other non-current assets

Non-currents assets

Inventories

Trade and other receivables

Current R&D incentives receivables

Cash and cash equivalents

Current restricted cash

Other current assets

Current assets

Total assets

Equity and liabilities

Share capital

Share premium account

Other reserves

Translation differences

Accumulated losses

Total equity

Pension liabilities

Provisions

Deferred tax liabilities

Finance lease liabilities

Other non-current liabilities

Non-current liabilities

Provisions

(*) restricted cash was reclassified as described in notes 2 and 16

Galapagos NV Annual Report 2014

As at 31 December,

2014

2013(*)

Notes

2,015

10,091

293

43,944

306

215

56,864

281

3,211

7,351

187,712

10,422

4,625

213,603

270,467

157,274

114,182

(220)

(1,157)

(63,944)

206,135

2,865

115

923

3,976

105

39,239

7,832

19,525

4,558

39,347

3,306

220

114,027

249

19,207

10,625

138,175

5,091

173,347

287,374

154,542

112,484

170

(100,107)

167,137

2,189

668

2,192

167

2,462

7,678

FINANCIAL STATEMENTS

(thousands of €)

Finance lease liabilities

Trade and other payables

Current tax payable

Accrued charges

Deferred income

Current liabilities

Total liabilities

Total equity and liabilities

(*) restricted cash was reclassified as described in notes 2 and 16

As at 31 December,

2014

30,007

2,582

585

27,026

60,356

64,332

270,467

2013(*)

Notes

226

29,365

3,858

78,979

112,559

120,237

287,374

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Consolidated cash flow statements
for the years ended 31 December

(thousands of €)

Cash and cash equivalents at beginning of year

Year ended 31 December,

2014

138,175

2013(*)

Notes

94,369

Net income / loss (–)

33,211

(8,079)

Adjustments for:

Tax income (–) / expenses

Financial income (–) / expenses

Depreciation of property, plant and equipment

Amortization of intangible fixed assets

Net realized loss on foreign exchange transactions

Share-based compensation

Increase / decrease (–) in provisions

Increase in pension liabilities

Gain on sale of service division

2,337

(1,841)

3,582

1,067

(261)

2,952

409

(67,508)

(3,115)

174

6,036

2,118

(2,078)

2,742

(88)

154

Operating cash flows before movements in working capital

(26,025)

(2,137)

Increase in inventories

Increase (–) / decrease in receivables

Increase/decrease (–) in payables

Cash generated / used (–) from operations

Interest paid

Interest received

Income taxes paid (–) / received

Net cash flows generated / used (–) in operating activities

Purchase of property, plant and equipment

Purchase of and expenditure in intangible fixed assets

Proceeds from disposal of property, plant and equipment

Acquisitions (–) of subsidiaries, net of cash acquired

Disposals of subsidiaries, net of cash disposed

Increase (–) in restricted cash

(32)

(10,110)

(40,311)

(76,479)

(113)

951

(75,555)

(2,061)

(743)

–

130,787

(7,422)

(39)

1,069

2,242

1,136

(164)

959

(85)

1,846

(7,328)

(545)

(1,152)

(3,028)

Net cash flows generated / used (–) in investing activities

120,606

(11,988)

(*) Reclassification of interest received from financing cash flow to operating cash flow as described in note 2

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

(thousands of €)

Repayment of obligations under finance leases and other debts

Proceeds from Capital and Share premium increases, net of issue costs

Net cash flows generated in financing activities

Effect of exchange rate differences on cash and cash equivalents

Year ended 31 December,

2014

(216)

4,430

4,214

271

2013(*)

Notes

(308)

54,803

54,495

(548)

Increase in cash and cash equivalents

49,537

43,806

Cash and cash equivalents at end of year

187,712

138,175

(*) Reclassification of interest received from financing cash flow to operating cash flow as described in note 2

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Consolidated statements of changes in equity

(thousands of €)

On 1 January 2013

Net loss

Other comprehensive income

Total comprehensive income

Share-based compensation

Private placement

Exercise of warrants

Share capital

Share premium
account

Translation
differences Other reserves

139,347

72,876

994

(824)

13,429

1,766

39,346

262

Accumul.
losses

(94,770)

(8,079)

2,742

Total

118,447

(8,079)

(777)

(8,856)

2,742

52,775

2,028

On 31 December 2013

154,542

112,484

170

(100,107)

167,137

Net income

Other comprehensive income

Total comprehensive income

Share-based compensation

Exercise of warrants

On 31 December 2014

(1,327)

(267)

33,211

2,952

33,211

(1,594)

31,617

2,952

4,430

2,732

1,698

157,274

114,182

(1,157)

(220)

(63,944)

206,135

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Non-consolidated financial statements
—

Statement of profit and loss

(thousands of €)

Turnover

Internally generated intangible assets

Other operating income

Year ended 31 December,

2014

63,033

94,295

15,332

2013

48,330

90,444

13,185

Operating income

172,661

151,959

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

(3,706)

(96,690)

(13,689)

(76,847)

(6,628)

(3,399)

(78,801)

(12,094)

(66,820)

(6,579)

(24,899)

(15,735)

108,110

(1,118)

1,905

(1,596)

Profit / loss (–) on ordinary activities before taxes

82,093

(15,426)

Extraordinary income

Extraordinary cost

(19,705)

(1,001)

Profit / loss (–) before taxes

62,394

(16,427)

Taxes

(436)

Profit / loss (–) for the year

61,958

(16,427)

Loss brought forward

(131,714)

(115,287)

Accumulated losses to be carried forward

(69,756)

(131,714)

Galapagos NV Annual Report 2014

FINANCIAL STATEMENTS

Balance sheet

(thousands of €)

Assets

Non-current assets

Intangible fixed assets

Tangible fixed assets

Financial fixed assets

Current assets

Inventories

Trade and other receivables

Deferred costs

Accrued income

Cash and cash equivalents

Total assets

Equity and liabilities

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

Accrued costs

Deferred income

Total equity and liabilities

As at 31 December,

2014

2013

168,717

131,423

3,227

34,067

219,266

276

1,898

429

22,615

194,046

387,983

207,276

163,904

108,222

(69,756)

4,906

209,812

125,842

3,762

80,209

156,263

249

10,994

318

17,562

127,141

366,075

140,775

161,172

106,524

(131,714)

4,793

180,707

225,300

413

115

298

180,294

53,178

2,723

468

123,873

387,983

464

167

297

224,835

50,782

226

2,452

229

171,147

366,075

Galapagos NV Annual Report 2014

Notes
Notes to our consolidated
financial statements for 2014

Notes

Notes 1-10

NOTES

Notes 21-30

General Information ........................................

Share premium ................................................

Significant accounting policies .........................

Other reserves .................................................

Segment information .......................................

Translation differences.....................................

Total Revenues and other Income ....................

Deferred tax .....................................................

Operating costs................................................

Finance lease liabilities .....................................

Staff costs ........................................................

Trade and other payables.................................

Finance income and expense ...........................

Provisions.........................................................

Taxes................................................................

Operating lease obligations..............................

Discontinued operations..................................

Off-balance sheet arrangements......................

Result per share ...............................................

Contingent assets and liabilities .......................

Notes 11-20

Notes 31-40

Goodwill...........................................................

Retirement benefit plans..................................

Intangible assets ..............................................

Warrant plans...................................................

Property, plant and equipment ........................

Related parties ...............................................

100

Research and Development incentives

Remuneration of key management personnel

101

receivables .......................................................

Consolidated companies as of

Other non-currrent assets................................

31 December 2014 .........................................

103

Restricted cash.................................................

Company acquistions and disposals...............

104

Inventory .........................................................

Critical accounting estimates and judgments .

106

Trade and other receivables and other current

Financial risk management ............................

108

assets...............................................................

Auditor’s remuneration ..................................

110

Cash and cash equivalents ...............................

Events after balance sheet date .....................

111

Share capital ....................................................

Galapagos NV Annual Report 2014

NOTES

1. General information

Galapagos NV is a limited liability company incorporated in Belgium and has its registered office at Generaal De Wittelaan

L11/A3, 2800 Mechelen, Belgium. In the notes to the consolidated financial statements, references to “the Group” or “Galapagos”

include Galapagos NV together with its subsidiaries.

R&D

The R&D operations are specialized in the discovery and development of small molecules. The Group’s ambition is to become

a leading global biotechnology company focused on the development and commercialization of novel medicines. The Group’s

strategy is to leverage its unique and proprietary target discovery platform, which facilitates its discovery and development of

therapies with novel modes of action.

The components of the operating result for continuing operations presented in the financial statements include the following

companies: Galapagos NV (Mechelen, Belgium); Galapagos SASU (Romainville, France); Galapagos B.V. (Leiden, The Netherlands);

Fidelta d.o.o. (Zagreb, Croatia); 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); and Inpharmatica Ltd. (Saffron

Walden, UK).

The Group’s continuing operations have around 400 employees working in the operating facilities in Mechelen (the Belgian

headquarters), The Netherlands, France, and Croatia.

Services

Galapagos sold its service division to Charles River Laboratories International, Inc. on 1 April 2014.

The legal entities that were sold as part of this transaction were BioFocus DPI (Holdings) Ltd., BioFocus DPI Ltd., Argenta

Discovery 2009 Ltd. and Cangenix Ltd. Galapagos B.V. was not sold, its service division operations were carved out by means of

an asset deal.

As a result of this sale the service division is reported as discontinued operations.

2. Significant accounting policies

The principal Group accounting policies are summarized below.

Basis of preparation and going concern assumption

The consolidated financial statements are prepared in accordance with the International Financing Reporting Standards

(IFRS), issued by the International Accounting Standard Board (IASB) and the interpretations issued by the IASB’s International

Financial Reporting Interpretation Committee. 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.

Standards and interpretations applicable for the annual period beginning on 1 January 2014

▪ 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)

Galapagos NV Annual Report 2014

NOTES

▪ 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)

▪ Amendments to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial

Liabilities (applicable for annual periods beginning on or after 1 January 2014)

▪ Amendments to IAS 36 Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets (applicable for

annual periods beginning on or after 1 January 2014)

▪ 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)

Standards and interpretations published, but not yet applicable for the annual period
beginning on 1 January 2014

▪ IFRS 9 Financial Instruments and subsequent amendments (not yet endorsed in the EU)
▪ IFRS 14 Regulatory Deferral Accounts (applicable for annual periods beginning on or after 1 January 2016, but not yet

endorsed in the EU)

▪ IFRS 15 Revenue from Contracts with Customers (applicable for annual periods beginning on or after 1 January 2017, but

not yet endorsed in EU)

▪ Improvements to IFRS (2010-2012) (applicable for annual periods beginning on or after 1 July 2014, but not yet endorsed in

the EU)

▪ Improvements to IFRS (2011-2013) (applicable for annual periods beginning on or after 1 July 2014, but not yet endorsed in

the EU)

▪ Amendments to IFRS 11 Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations (applicable for

annual periods beginning on or after 1 January 2016, but not yet endorsed in EU)

▪ Amendments to IAS 16 and IAS 38 Property, Plant and Equipment and Intangible Assets – Clarification of Acceptable

Methods of Depreciation and Amortisation (applicable for annual periods beginning on or after 1 January 2016, but not

yet endorsed in EU)

▪ Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants (applicable for annual periods beginning on or after 1 January

2016, 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)

▪ IFRIC 21 Levies (applicable for annual periods beginning on or after 1 January 2014)

The new standards applicable did not have any impact on the Group’s financials.

Reclassification made to the consolidated financial statements

Subsequent to the issuance of the Group’s consolidated financial statements as of and for the year ended 31 December 2013,

management made the following reclassifications to the comparative figures:

▪ €3,306 thousand of restricted cash was reclassified out of cash and cash equivalents and was presented separately in our

consolidated statement of financial position. Corresponding reclassifications were made to our consolidated statement of

cash flows to present changes in restricted cash balances as cash flows from investing activities.

▪ €1,325 thousand of interest and other financial income was reclassified as cash flows from operating activities, instead of

cash flows from financing activities for the year ended 31 December 2013.

Galapagos NV Annual Report 2014

NOTES

The reclassifications in the comparative figures mentioned above have been reflected in the consolidated financial statement

and accompanying note. They did not have an impact on the consolidated income statement, total assets, total liabilities or

equity.

Group reporting

The consolidated financial statements comprise the financial statements of Galapagos NV and entities controlled by Galapagos

NV. Together they constitute the Group. Control is achieved where Galapagos NV 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 acquisition 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.

Goodwill arising on business combinations is recognized as an asset and initially measured as 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 date of the 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.

Galapagos NV Annual Report 2014

NOTES

Internally generated intangible assets are amortized on a straight-line basis over their estimated 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

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 are 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.

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. Hedging and derivatives have never been used: the Group does not actively use

currency derivatives to hedge planned future cash flows, nor does the Group make use of forward foreign exchange contracts.

Galapagos NV Annual Report 2014

NOTES

Research and development incentives receivables

Non-current research and development incentives receivables are discounted over the period until maturity date according to

the appropriate discount rates.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value reduced by appropriate allowances for

irrecoverable amounts.

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 and highly liquid investments.

Cash and cash equivalents exclude restricted cash which is presented separately in the statement of financial position.

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 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 Galapagos NV’s functional and presentation currency.

Galapagos NV Annual Report 2014

NOTES

▪ Transactions and balances in foreign currency

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 cumulative exchange differences are recognized as a separate component of equity;
▪ Such cumulative exchange differences are recognized in profit or loss in the period in which the foreign operation is

disposed of.

Revenue recognition

Revenues to date have consisted principally of milestones, license fees and upfront payments received in connection with

collaboration and alliance agreements. The Group also generates revenue from its fee-for-service activities, and various

research and development incentives and grants.

Collaboration and alliance agreements with Galapagos’ commercial partners for research and development activities generally

include non-refundable upfront fees; milestone payments, the receipt of which is dependent upon the achievement of certain

clinical, regulatory or commercial milestones; license fees and royalties on sales.

The revenue recognition policies can be summarized as follows:

Upfront payments

Non-refundable, upfront payments received in connection with research and development collaboration agreements are

deferred and recognized over the relevant, required periods of the Group’s involvement. The payments and the Group’s

involvement relate to a contractually defined phase of the project. At inception Management estimates the period of the

Group’s involvement as well as the cost involved in the project. Upfront payments are recognized over the estimated period

of involvement, either on a straight line basis or based on the cost incurred under the project if such cost can be reliably

estimated. Periodically the Group reassesses the estimated time and cost to complete the project phase and adjusts the time

period over which the revenue is deferred accordingly.

Milestone payments

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. Revenue from these activities can vary significantly from period to period due to the timing of milestones.

Galapagos NV Annual Report 2014

NOTES

Licenses

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.

Royalties

Royalty revenues are recognized when the Group can reliably estimate such amounts and collectability is reasonably assured.

As such, the Group generally recognizes royalty revenues in the period in which the licensees are reporting the royalties to the

Group through royalty reports, that is, royalty revenues are generally recognized in arrears, i.e. after the period in which sales

by the licensees occurred. Under this accounting policy, the royalty revenues the Group reports are not based upon the Group

estimates and such royalty revenues are typically reported in the same period in which the Group receives payment from its

licensees.

Grants and R&D incentives

As a company that carries out extensive research and development activities, the Group benefits from various grants and R&D

incentives from certain governmental agencies. These grants and R&D incentives generally aim to partly reimburse approved

expenditures incurred in research and development efforts of the Group and are credited to the income statement, under other

income, when the relevant expenditure has been incurred and there is reasonable assurance that the grants or R&D incentives

are receivable.

Interests in joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the

assets and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control

of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties

sharing control.

When a group entity undertakes its activities under joint operations, the Group as a joint operator recognizes in relation to its

interest in a joint operation:

▪ its assets, including its share of any assets held jointly
▪ its liabilities, including its share of any liabilities incurred jointly
▪ its revenue from the sale of its share of the output arising from the joint operation
▪ its share of the revenue from the sale of the output by the joint operation
▪ its expenses, including its share of any expenses incurred jointly

The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance

with IFRSs applicable to the particular assets, liabilities, revenues and expenses.

When a group entity transacts with a joint operation in which a group entity is a joint operator (such as sale or contribution

of assets), the Group is considered to be concluding the transaction with the other parties to the joint operation, and gains

and losses resulting from the transactions are recognized in the Group’s consolidated financial statements only to the extent

of other parties’ interests in the joint operation.

When a group entity transacts with a joint operation in which a group entity is a joint operator (such as purchase of assets),

the Group does not recognize its share of the gains and losses until it resells those assets to a third party.

Equity instruments

Equity instruments issued by the Group are measured by the fair value of the proceeds received, net of direct issue costs.

Galapagos NV Annual Report 2014

NOTES

Employee benefits

a/ Defined contribution plans

Contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred.

b/ 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 recognized in other comprehensive income

in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in

retained earnings and will not be reclassified to profit or loss. Past service cost is recognized 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 categorized 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 recognized 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 recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit

and when the entity recognizes any related restructuring costs.

c/ Staff bonus plan

The Group recognizes an expense in the income statement for staff bonus plans.

d/ Management bonus plan

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 Galapagos share price change relative to the Next Biotech Index (which tracks Galapagos’

peers). The Galapagos 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 Galapagos 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 Galapagos 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 Galapagos share price change is more than 10% worse than the change in the Next Biotech Index the deferred

bonus will be forfeited.

Galapagos recognizes 75% of the possible payment within three years at the moment that the bonus amount is determined,

which reflects both an estimation of the number of employees that will remain within Galapagos for three years as well as the

probability that the share price will meet the target. Since the bonus is calculated by reference to Galapagos’ share price, it is

accounted for as a cash-settled share-based payment under IFRS 2. The liability incurred is measured at the fair value of the

liability. Until the liability is settled, the fair value of the liability is remeasured at the end of each reporting period and at the

date of settlement, with any changes in fair value recognized in profit or loss for the period.

Galapagos NV Annual Report 2014

NOTES

Share-based payments

The Group grants equity-settled incentives to certain employees, Directors and consultants in the form of warrants. Equity-

settled warrants 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 warrants that are expected to be exercised. 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.

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.

Finance and operating leases

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

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.

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.

Galapagos NV Annual Report 2014

NOTES

Net income/loss per share

Basic net income/loss per share is computed based on the weighted average number of shares outstanding during the period.

Diluted net income per share is computed based on the weighted-average number of shares outstanding including the dilutive

effect of warrants, if any.

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 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. The Group has only one segment.

3. Segment information

Following the sale of the service division on 1 April 2014, the continuing operations relate primarily to R&D activities.

Consequently there is one reportable segment.

Geographical information

In 2014 the Group’s R&D continuing operations were located in Belgium, Croatia, France and The Netherlands.

In 2014 the Group’s continuing operations top 10 customers represents 98% of the revenues. The Group’s continuing operations

client base includes four of the top 20 pharmaceutical companies in the world in 2014 and 2013.

Following table summarizes Group revenues by destination of customer:

(thousands of €)

United States

Europe

Asia Pacific

Total revenues

Year ended 31 December,

2014

31,100

38,169

100

69,368

2013

46,963

29,662

76,625

Galapagos NV Annual Report 2014

NOTES

Following table summarizes Group revenues of the continuing operations by destination of Group company:

(thousands of €)

Galapagos NV (Belgium)

Galapagos SASU (France)

Fidelta d.o.o. (Croatia)

Xenometrix, Inc. (United States)

Total revenues

Year ended 31 December,

2014

65,448

108

3,726

69,368

2013

73,913

2,514

198

76,625

In 2014, Galapagos held €57 million of non-current assets (€114 million in 2013) distributed as follows:

▪ France: €26 million (€27 million in 2013)
▪ Belgium: €25 million (€24 million in 2013)
▪ Croatia: €4 million (€4 million in 2013)
▪ The Netherlands: €1 million (€2 million in 2013)

The decrease in non-current assets is explained by the sale of the service division located in the United Kingdom which was

contributing €57 million of non-current assets in 2013.

4. Total Revenues and other Income

Revenues

The following table summarizes the revenues for the years ended 31 December 2014 and 2013.

(thousands of €)

Recognition of non-refundable upfront payments

Milestone payments

Other revenues

Total Revenues

Year ended 31 December,

2014

45,838

19,768

3,762

69,368

2013

51,751

20,488

4,387

76,625

Total revenue decreased by €7.3 million, or 9%, to €69.4 million for the year ended 31 December 2014, from €76.6 million for the

year ended 31 December 2013. This decrease was mainly driven by lower recognition of non-refundable upfront payments, as

explained below.

Revenue from non-refundable upfront payments relates to the deferred recognition of upfront payments received under the

agreements with AbbVie, amounting to €111.6 million in 2012 and €49.6 million in 2013, which are amortized over a period

ranging from 27 to 40 months, based on the estimated period of the Group’s involvement.

Milestone revenues decreased by €0.7 million, or 4%, to €19.8 million for the year ended 31 December 2014 compared to

€20.5 million for the year ended 31 December 2013. This decrease was primarily related to fewer milestones achieved in 2014

compared to 2013 as a result of the maturing pipeline of projects under alliance. For the year ended 31 December 2014

€8.3 million of milestones were recognized in relation with the CF Collaboration Agreement with AbbVie and €11.5 million

of milestones primarily related to partnered programs with Janssen Pharmaceutica, Servier and GSK. For the year ended

Galapagos NV Annual Report 2014

NOTES

31 December 2013, €20.5 million of milestones primarily related to partnered programs with Janssen Pharmaceutica, Servier

and GSK.

Other revenues decreased by €0.6 million, or 14%, to €3.8 million for the year ended 31 December 2014 compared to €4.4 million

for the year ended 31 December 2013, principally due to lower revenues from fee-for-service activities.

Other income

The following table summarizes other income for the years ended 31 December 2014 and 2013.

(thousands of €)

Grant income

Other income

Total Other income

Year ended 31 December,

2014

5,646

15,008

20,653

2013

5,054

14,893

19,947

Total other income was composed of grant income and other income and increased by €0.7 million, or 4%, from €19.9 million

for the year ended 31 December 2013 to €20.7 million for the year ended 31 December 2014.

The increase in total other income was primarily attributed to increased grant income, which increased by €0.6 million, or 12%,

from €5.1 million for the year ended 31 December 2013 to €5.6 million for the year ended 31 December 2014. The majority of this

grant income was related to grants from a Flemish agency, representing approximately 90% of all reported grant income in

both years. In many cases these carry clauses which require the Group to maintain a presence in the same region for a number

of years and invest according to pre-agreed budgets.

Other income increased slightly by €0.1 million, or 1%, from €14.9 million for the year ended 31 December 2013 to €15.0 million

for the year ended 31 December 2014. Other income was primarily composed of:

▪ Income from an innovation incentive system of the French government, which represented €7.8 million of other income

for the year ended 31 December 2014 compared to €8.1 million for the year ended 31 December 2013.

▪ Income from Belgian R&D incentives with regard to incurred R&D expenses, which represented €4.3 million of other

income for the year ended 31 December 2014 compared to €4.1 million for the year ended 31 December 2013.

▪ Tax rebates on payroll withholding taxes of R&D personnel in Belgium and The Netherlands, representing €2.4 million of

other income for the year ended 31 December 2014 compared to €2.2 million for the year ended 31 December 2013.

5. Operating costs

Operating result has been calculated after charging (–) / crediting:

Research and development expenditure

The following table summarizes research and development expenditure for the years ended 31 December 2014 and 2013.

Galapagos NV Annual Report 2014

NOTES

(thousands of €)

Personnel costs

Subcontracting

Disposables and lab fees and premises costs

Other operating expenses

Total research and development expenditure

Year ended 31 December,

2014

(31,038)

(54,293)

(16,830)

(8,949)

(111,110)

2013

(29,385)

(44,760)

(15,840)

(9,395)

(99,380)

R&D expenditure increased by €11.7 million, or 12%, to €111.1 million for the year ended 31 December 2014, from €99.4 million for

the year ended 31 December 2013. This increase was principally due to:

▪ Increased R&D personnel costs of €1.7 million, or 6%, from €29.4 million for the year ended 31 December 2013 to

€31.0 million for the year ended 31 December 2014, which was explained by an enlarged workforce, principally on the

Belgian site (Mechelen). This was driven to a large extent by the new CF alliance with AbbVie (signed in September 2013),

and to a smaller extent by the development project portfolio, predominantly the filgotinib project for RA and CD.

▪ Increased subcontracting costs of €9.5 million, or 21%, from €44.8 million for the year ended 31 December 2013 to

€54.3 million for the year ended 31 December 2014. This cost increase was mainly driven by increased subcontracting costs

of €5.7 million for the RA and CD collaboration with AbbVie, reflecting the progress of the filgotinib program. To a lesser

extent subcontracting costs increased by €2.9 million for the CF collaboration with AbbVie.

▪ Intensified use of lab consumables was the main driver of the increase in disposables, lab fees and premises costs of

€1.0 million, or 6%, from €15.8 million for the year ended 31 December 2013 to €16.8 million for the year ended 31 December

2014.

▪ Other operating expenses slightly decreased by €0.4 million, or 5%, from €9.4 million for the year ended 31 December 2013

to €8.9 million for the year ended 31 December 2014.

General and administrative expenses

The following table summarizes the general and administrative expenses for the years ended 31 December 2014 and 2013.

(thousands of €)

Personnel costs and directors fees

Other operating expenses

Total general and administrative expenses

Year ended 31 December,

2014

(8,087)

(5,788)

(13,875)

2013

(7,156)

(5,197)

(12,353)

General and administrative expenses amounted to €12.4 million for the year ended 31 December 2013 and increased by

€1.5 million, or 12%, to €13.9 million for the year ended 31 December 2014. This increase was principally due to personnel costs,

which increased by €0.9 million, or 13%, from €7.2 million for the year ended 31 December 2013 to €8.1 million for the year

ended 31 December 2014, resulting from various effects, such as increased costs of share-based payments plans (warrant plans)

and change in classification between R&D and general and administrative expenditure for some management functions. In

addition, other operating expenses increased by €0.6 million, or 11%, from €5.2 million for the year ended 31 December 2013 to

€5.8 million for the year ended 31 December 2014, mainly due to higher professional fees.

Sales and marketing expenses

The following table summarizes the sales and marketing expenses for the years ended 31 December 2014 and 2013.

Galapagos NV Annual Report 2014

NOTES

(thousands of €)

Personnel costs

Other operating expenses

Total sales and marketing expenses

Year ended 31 December,

2014

(579)

(412)

(992)

2013

(994)

(470)

(1,464)

Sales and marketing expenses decreased by €0.5 million, or 32%, from €1.5 million for the year ended 31 December 2013 to

€1.0 million for the year ended 31 December 2014.

Restructuring and integration costs

(thousands of €)

Restructuring costs

Total restructuring and integration costs

Year ended 31 December,

2014

(669)

2013

(290)

The restructuring and integration costs amounted to €0.7 million for the year ended 31 December 2014 and to €0.3 million for

the year ended 31 December 2013 and were entirely related to workforce reductions within certain of the R&D operations.

6. Staff costs

The table below describes the evolution of the employees of the Group between the years 2014 and 2013. The decrease is

primarily due to the sale of the service division.

Number of employees on 31 December

Total

Year ended 31 December,

2014

417

The average number of employees of the continuing operations during the years 2014 and 2013 was:

Key Management

Laboratory staff

Administrative staff

Total

Year ended 31 December,

2014

353

421

2013

810

2013

348

419

Galapagos NV Annual Report 2014

NOTES

Their aggregate remuneration comprised:

(thousands of €)

Wages and salaries

Social security costs

Pension costs

Other personnel costs

Total personnel costs

Year ended 31 December,

2014

(26,891)

(7,468)

(1,454)

(2,635)

(38,447)

2013

(26,260)

(6,363)

(1,260)

(2,097)

(35,979)

The other personnel costs mainly relate to costs for warrants granted of €2.2 million (2013: €1.8 million). For the costs of

warrants granted, see note 32.

7. Finance income and expense

The following table summarizes finance income and expense for the years ended 31 December 2014 and 2013.

Year ended 31 December,

(thousands of €)

Finance income

Interest on bank deposit

Effect of discounting long term R&D incentives receivables

Currency exchange gain

Other financial income

Total Financial income

Finance expense

Interest expenses

Currency exchange loss

Other financial charges

Total Financial expense

Total Finance income

2014

1,155

920

198

2,291

(110)

(652)

(105)

(867)

1,424

2013

1,179

409

590

2,182

(156)

(1,130)

(116)

(1,402)

780

Finance income increased slightly by €0.1 million, or 5%, from €2.2 million for the year ended 31 December 2013 to €2.3 million

for the year ended 31 December 2014.

Finance expense decreased by €0.5 million, or 38% from €1.4 million for the year ended 31 December 2013 to €0.9 million for the

year ended 31 December 2014, primarily reflecting lower exchange rate losses arising from U.S. dollars. Interest expenses are

related to interests paid on financial lease.

Galapagos NV Annual Report 2014

NOTES

8. Taxes

Income taxes relating to continuing operations

The following table summarizes the income tax recognized in profit or loss for the years ended 31 December 2014 and 2013.

(thousands of €)

Current tax

Deferred tax

Total Taxes

Year ended 31 December,

2014

(2,396)

293

(2,103)

2013

(676)

Current tax recorded in 2014 for an amount of €2.4 million relates to a tax provision for subsidiaries operating under cost

plus transfer pricing arrangements, triggered by a change in estimate in 2014. Deferred tax recorded in 2014 for an amount of

€0.3 million relates to one subsidiary operating on a cost plus basis for the group.

Deferred tax charges representing €0.7 million for the year ended 31 December 2013 related to the reversal of a deferred tax

asset on tax losses carried forward in Croatia. Due to a revised business strategy of the subsidiary in 2013 (transition towards

service company), the company would no longer be in a taxable position or even be profitable in the foreseeable future, which

explained the reversal of the deferred tax asset.

Tax liabilities

The below tables illustrate the tax liabilities related captions in the balance sheet for the year ended 31 December 2014 and

2013.

(thousands of €)

Current tax payable

Total tax liabilities

Year ended 31 December,

2014

2,582

2013

The tax liabilities amounting to €2.6 million on 31 December 2014 are primarily related to the recognition of tax liabilities for

one of the subsidiaries operating on a cost plus basis for the group for €2.1 million due to a change in estimates. In addition,

taxes on gain on the sale of the service division are included in the tax liabilities for €0.4 million. The income tax expense

in connection with the sale of the service division was only €0.4 million, since the gain is considered as a capital gain under

Belgian tax law, which is subject to a tax rate of less than 1%.

Galapagos NV Annual Report 2014

NOTES

Taxes recognized in profit or loss

(thousands of €)

Continuing operations

Current tax

Deferred tax

Total continuing operations

Discontinued operations

Current tax

Deferred tax

Total discontinued operations

Total taxes

Year ended 31 December,

2014

2013

(2,396)

293

(2,103)

(437)

203

(234)

(2,337)

(676)

(165)

3,956

3,791

3,115

Corporation tax is calculated at 34% (2013: 34%)—which is the tax rate applied in Belgium—of the estimated assessable profit for

the 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.

Year ended 31 December,

(thousands of €)

Loss before tax from continuing operations

Income before tax from discontinued operations

Income / loss (–) before tax

Income tax debit / credit (–), calculated using the Belgian statutory tax rate (34%) on the
accounting income / loss (–) before tax (theoretical)

Tax expenses in income statement (effective) from continuing operations

Tax expenses / income (–) in income statement (effective) from discontinued operations

Tax expenses / income (–) in income statement (effective)

Difference in tax expenses / income (–) to explain

Effect of tax rates in other jurisdictions

Effect of non taxable revenues

Effect of consolidation entry without tax impact

Effect of non tax deductible expenses

Effect of recognition of previously 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 previously recognized deferred tax assets

Total Explanations

2014

(35,201)

70,748

35,548

12,083

2,103

234

2,337

(9,746)

(41,249)

12,786

1,459

(293)

(165)

(1,549)

2,144

17,688

(572)

(9,746)

2013

(16,135)

4,941

(11,194)

(3,805)

676

(3,791)

(3,115)

690

(22)

(6,817)

(388)

1,188

(3,595)

(245)

(499)

(89)

10,821

(340)

676

690

Galapagos NV Annual Report 2014

NOTES

The main difference between the theoretical tax and the effective tax for the year 2014 is primarly explained by low capital

gain tax (less than 1%) under Belgian tax law, on the gain on sale of the service division, and by the unrecognized deferred tax

assets on tax losses carried forward for which the Group conservatively assesses that it is not likely that these will be realized

in the foreseeable future.

9. Discontinued operations

The following table summarizes the results from discontinued operations for the years ended 31 December 2014 and 2013.

Year ended 31 December,

(thousands of €, except share and per share data)

Service revenues

Other income

Total revenues and other income

Services cost of sales

General and administrative expenses

Sales and marketing expenses

Restructuring and integration costs

Gain on sale of service division

Operating income

Finance income / expense (–)

Income before tax

Income taxes

Net income from discontinued operations

Basic and diluted income per share from discontinued operations

Weighted average number of shares (in thousands of shares)

2014

17,502

669

18,171

(11,283)

(3,772)

(255)

(38)

67,508

70,331

417

70,748

(234)

70,514

2.34

30,108

2013

61,074

1,902

62,976

(41,297)

(14,077)

(948)

(760)

5,895

(954)

4,941

3,791

8,732

0.30

28,787

The service division was sold on 1 April 2014. The above table illustrates the results of the discontinued operations included

in the consolidated results of operations for the years ended 31 December 2014 and 2013. For the year ended 31 December 2014,

results only relate to the period from 1 January 2014 through the disposal on 1 April 2014.

Service revenues amounted to €17.5 million in the first quarter of 2014 which showed a strong increase compared to the revenue

trend in 2013. Other income reported in 2014 represented income from R&D incentives related to one quarter of activity.

Services cost of sales, general and administrative expenses and sales and marketing expenses showed a slight increase compared

to the trend of the operating costs in 2013, following the growth of the service division.

Net income amounting to €70.5 million in 2014 was mainly driven by the €67.5 million gain on disposal of the service division.

Galapagos NV Annual Report 2014

NOTES

Cash flows from discontinued operations can be summarized as follows:

(thousands of €)

Net cash flows generated / used (–) in operating activities

Net cash flows generated / used (–) in investing activities

Net cash flows generated / used (–) in financing activities

Net cash generated

10. Result per share

Year ended 31 December,

2014

(1,722)

122,580

120,858

2013

7,855

(4,308)

(34)

3,513

Basic result per share and diluted result per share are calculated by dividing the net result attributable to shareholders by the

weighted average number of ordinary shares issued during the year:

Income / loss per share

Result for the purpose of basic income / loss (–) per share (thousands of €)

Year ended 31 December,

2014

33,211

2013

(8,079)

Number of shares (thousands)

Weighted average number of shares for the purpose of basic income / loss per share

30,108

28,787

Basic income / loss (–) per share (€)

1.10

(0.28)

Result for the purpose of diluted income / loss (–) per share (thousands of €)

33,211

(8,079)

Number of shares (thousands)

Weighted average number of shares for the purpose of diluted income / loss per share

30,108

28,787

Number of dilutive potential ordinary shares

Diluted income / loss (–) per share (€)

1.10

(0.28)

As the Group’s continuing operations report a net loss, the outstanding warrants (specified in note 32) have an anti-dilutive

effect rather than a dilutive effect. Consequently, basic and diluted loss per share are the same.

Galapagos NV Annual Report 2014

NOTES

11. Goodwill

(thousands of €)

On 1 January 2013

Acquisition of subsidiaries

On 31 December 2013

Sale of the service division

On 31 December 2014

37,667

1,572

39,239

(39,239)

Goodwill increased in 2013 and is related to the acquisition of Cangenix Ltd. (U.K.) by the service division 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 purchase price was 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 of the goodwill to €0 was exclusively due to the sale of the service division to Charles River. The Group did not

hold goodwill related to its continuing operations in its balance sheet.

(thousands of €)

Services – BioFocus

Services – Argenta

Total goodwill

Year ended 31 December,

2014

2013

29,040

10,199

39,239

Galapagos NV Annual Report 2014

NOTES

12. Intangible assets

Sale of the service division

(2,055)

(thousands of €)

Acquisition value

On 1 January 2013

Additions

Sales and disposals

Translation differences

On 31 December 2013

Additions

Sales and disposals

Translation differences

On 31 December 2014

Amortization and impairment

On 1 January 2013

Amortization

Sales and disposals

Translation differences

On 31 December 2013

Amortization

Sales and disposals

Sale of the service division

Reclassifications

Translation differences

On 31 December 2014

Carrying amount

On 31 December 2013

On 31 December 2014

Customer
relationships

In process
technology

Software &
databases

Brands, licenses,
patents & know-
how

Total

2,055

5,561

7,232

17,783

32,629

2,055

5,561

5,811

5,561

810

102

912

(937)

5,561

1,143

545

(35)

(62)

7,681

728

(503)

183

8,088

(85)

17,698

545

(35)

(147)

32,993

743

(503)

(16,227)

(18,282)

1,512

209

15,161

607

(35)

(62)

6,321

748

(500)

(666)

184

6,087

1,359

2,000

11,022

1,409

(65)

12,366

294

23,205

2,118

(35)

(127)

25,161

1,067

(500)

(11,853)

(12,790)

666

1,497

5,332

208

13,147

7,832

2,015

The intangible assets decreased by €5.8 million from €7.8 million for the year ended 31 December 2013, to €2.0 million for the

year ended 31 December 2014. This decrease was mainly due to the sale of the service division on 1 April 2014 by €5.5 million.

Galapagos NV Annual Report 2014

NOTES

13. Property, plant and equipment

Land & building
improvements

Installation &
machinery

Furniture,
fixtures &
vehicles

Other tangible
assets

(thousands of €)

Acquisition value

On 1 January 2013

Additions

Sales and disposals

Other increase

Reclassifications

Translation differences

On 31 December 2013

Additions

Sales and disposals

Sale of the service division

Reclassifications

Translation differences

On 31 December 2014

Depreciations and impairment

On 1 January 2013

Depreciation

Sales and disposals

Other increase

Reclassifications

Translation differences

On 31 December 2013

Depreciation

Sales and disposals

Sale of the service division

Reclassifications

Translation differences

On 31 December 2014

Carrying amount

On 31 December 2013

On 31 December 2014

Total

67,962

7,623

(1,019)

102

(498)

74,169

2,061

(6,355)

(29,988)

134

40,021

49,864

6,036

(955)

(303)

54,644

3,581

(5,753)

(22,644)

102

29,930

2,886

1,730

(644)

(393)

(13)

3,565

685

(370)

(3,559)

321

2,408

360

(637)

(7)

2,123

168

(299)

(1,884)

110

13,712

265

(79)

13,898

117

(1,733)

(4,022)

8,286

11,753

1,028

(66)

12,715

639

(1,700)

(3,694)

7,984

47,015

5,460

(358)

102

393

(360)

52,251

1,155

(4,549)

4,350

168

(17)

(46)

4,455

104

(73)

(23,677)

(1,919)

3,543

28,820

32,834

4,399

(313)

(203)

36,720

2,531

(4,011)

2,594

2,869

249

(5)

(27)

3,086

243

(42)

(17,404)

(1,247)

1,884

19,790

2,046

1,368

547

1,183

302

15,532

9,031

1,441

210

19,525

10,091

The property, plant and equipment decreased from €19.5 million for the year ended 31 December 2013 to €10.1 million for the

year ended 31 December 2014. This decrease is mainly the result of the sale of the service division, both on lines ‘Sales and

disposals’ (assets carved out) and ‘Sale of the Service division’.

Galapagos NV Annual Report 2014

NOTES

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.

14. Research and Development incentives receivables

The table below illustrates the R&D incentives receivables related captions in the balance sheet for the years ended

31 December 2014 and 2013.

(thousands of €)

Non-current R&D incentives receivables

Current R&D incentives receivables

Total R&D incentives receivables

Year ended 31 December,

2014

43,944

7,351

51,296

2013

39,347

10,625

49,972

Total R&D incentives receivables increased by €1.3 million compared to 31 December 2013. This increase is explained by a new

R&D incentives reported in 2014 for €11.9 million (€7.6 million related to French R&D incentives and 4.3 million related to

Belgian R&D incentives) less the payment received related to French R&D incentives amounting to €8.6 million. The remaining

variance of €1.9 million was explained by the phasing out of the consolidation scope of the service division which contributed

to the Group’s total current R&D receivables at the end of 2013.

The R&D incentives receivables relate to refunds resulting from R&D incentives on research expenses in France, the U.K. (2013)

and Belgium. Non-current R&D incentives receivables are discounted over the period until maturity date.

The below table provides detailed information on the maturity of the non-current R&D incentives receivables reported in the

balance sheet at 31 December 2014.

Non-current R&D incentives receivables

(thousands of €)

French non-current R&D incentives
receivables – nominal value

French non-current R&D incentives
receivables – discounted value

Belgian non-current R&D incentives
receivables – nominal value

Belgian non-current R&D incentives
receivables – discounted value

Total non-current R&D incentives
receivables – nominal value

Total non-current R&D incentives
receivables – discounted value

Year ended 31 December, 2014

Maturity date

2017

8,185

3,377

2018

8,214

3,922

3,916

2016

7,830

3,632

11,462

11,561

12,136

11,462

11,562

12,130

2019

2020

Total

24,229

4,458

4,424

4,458

4,424

4,327

19,716

4,255

19,604

4,327

43,944

4,255

43,833

Galapagos NV Annual Report 2014

NOTES

15. Other non-currrent assets

(thousands of €)

Other non-current assets

Total other non-current assets

16. Restricted cash

(thousands of €)

Non-current restricted cash

Current restricted cash

Total restricted cash

Year ended 31 December,

2014

215

Year ended 31 December,

2014

306

10,422

10,728

2013

220

2013

3,306

Restricted cash of €3.3 million on 31 December 2013 was related to a €3 million bank guarantee issued in 2013 for the rental of

the new premises in France which will expire on 30 June 2015, and €0.3 million rent deposit for premises in Mechelen, Belgium.

Restricted cash increased to €10.7 million for the year ended 31 December 2014. This increase is related to an escrow account

containing part of the proceeds from the sale of the service division in 2014. The amounts on the escrow account will be released

on 30 June 2015 if no claim is introduced by the buyer, Charles River Laboratories International, Inc. As at 31 December 2014,

two claims have been introduced by Charles River Laboratories International, Inc and were fully accrued for on the balance

sheet for a total amount of €0.1 million.

17. Inventory

(thousands of €)

Raw materials and supplies (net)

Total inventory

Inventory only consists of raw materials and supplies.

Year ended 31 December,

2014

281

2013

249

Galapagos NV Annual Report 2014

NOTES

18. Trade and other receivables and other current assets

(thousands of €)

Trade receivables

Prepayments

Other receivables

Trade and other receivables

Accrued income

Deferred charges

Other current assets

Total trade and other receivables & other current assets

Year ended 31 December,

2014

1,340

1,862

3,211

3,242

1,384

4,625

7,836

2013

13,291

2,124

3,792

19,207

4,271

820

5,091

24,299

The movements in 2014 presented in the table above resulted primarily from the sale of the service division.

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.

19. Cash and cash equivalents

(thousands of €)

Bank balances

Cash at hand

Total cash and cash equivalents

Year ended 31 December,

2014

187,711

187,712

2013

138,172

138,175

The Group reported a cash position of €187.7 million at the end of December 2014 compared to €138.2 million at year-end

2013. The Group’s operating activities reported use of €75.6 million of cash in 2014 while the investing activities brought €120.6

million of cash in-flow mainly due the proceeds from the sale of the service division (€130.8 million) and €4.2 million from the

financing activities.

Cash and cash equivalents comprise cash in hand and short term bank deposits or short term highly liquid investments that

are readily convertible to cash and are subject to an insignificant risk of changes in value. The Group’s cash management

strategy monitors and optimizes the Group’s liquidity position. The Group’s cash management strategy may allow short term

deposits with an original maturity exceeding 3 months while monitoring all liquidity aspects. Cash and cash equivalents

comprise €50 million of term deposits with an original maturity longer than 3 months.

Galapagos NV Annual Report 2014

NOTES

20. Share capital

The share capital of Galapagos NV, as included in the articles of association, reconciles to ‘Share capital’ on the balance sheet

as follows:

(thousands of €)

On 1 January

Share capital increase

Costs of capital increase

Share capital on 31 December

Aggregate share capital

Costs of capital increase (accumulated)

Share capital on 31 December

Year ended 31 December,

2014

154,542

2,732

157,274

163,904

(6,629)

157,274

2013

139,347

16,356

(1,161)

154,542

161,171

(6,629)

154,542

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 history of share capital between 1 January 2013 and 31 December 2014 is as follows:

Date

1 January 2013

5 April 2013

29 April 2013

1 July 2013

21 October 2013

6 December 2013

31 December 2013

10 April 2014

4 July 2014

25 September 2014

9 December 2014

31 December 2014

Share capital
increase new shares
(in thousands of €)

Share capital
increase warrants (in
thousands of €)

Number of shares
issued (in thousands
of shares)

Aggregate number of
shares after
transaction
(in thousands
of shares)

Aggregate share
capital after
transaction (in
thousands of €)

26,771

144,815

14,590

1,069

488

193

1,649

982

198

2,697

305

182

29,794

161,171

30,299

163,904

On 1 January 2013, the share capital of Galapagos NV amounted to €144,815.6 thousand, represented by 26,770,747 shares. All

shares were issued, fully paid up and of the same class.

Galapagos NV Annual Report 2014

NOTES

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 €1,069 thousand (plus €113 thousand 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 by €14,589.9 thousand (plus €39,346.8 thousand

in issuance premium) by means of a private placement with institutional investors, resulting in the issuance of 2,696,831 new

shares.

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 €487.7 thousand (plus €96.5 thousand 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 €193.2 thousand (plus €49.6 thousand 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 €16.3 thousand (plus €2.9 thousand in issuance premium) and the issuance

of 3,025 new shares.

On 31 December 2013, the share capital amounted to €161,171.6 thousand, represented by 29,794,046 shares. All shares were issued,

fully paid up and of the same class.

On 10 April 2014, 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 RMV, Warrant Plan 2009, Warrant

Plan 2009 (B), Warrant Plan 2010 and Warrant Plan 2010 (B). The exercise resulted in a share capital increase of €1,648.9 thousand

(plus €732.3 thousand in issuance premium) and the issuance of 304,791 new ordinary shares.

On 4 July 2014, warrants were exercised at various exercise prices under Warrant Plan 2006 Belgium/ The Netherlands, Warrant

Plan 2006 UK, Warrant Plan 2007 RMV, Warrant Plan 2008, Warrant Plan 2009, Warrant Plan 2010 and Warrant Plan 2010

(B). The exercise resulted in a share capital increase of €982.0 thousand (plus €880.3 thousand in issuance premium) and the

issuance of 181,507 new ordinary shares.

On 25 September 2014, warrants were exercised at various exercise prices under Warrant Plan 2006 Belgium/The Netherlands,

Warrant Plan 2006 UK and Warrant Plan 2010. The exercise resulted in a share capital increase of €66.3 thousand (plus €63.7

thousand in issuance premium) and the issuance of 12,260 new ordinary shares.

On 9 December 2014, warrants were exercised at various exercise prices under Warrant Plan 2005 and Warrant Plan 2006

Belgium/The Netherlands. The exercise resulted in a share capital increase of €35.3 thousand (plus €20.9 thousand in issuance

premium) and the issuance of 6,525 new ordinary shares.

On 31 December 2014, the share capital amounted to €163,904.1 thousand, represented by 30,299,129 shares. All shares were issued,

fully paid up and of the same class.

All of the share issuances listed above were for cash consideration.

Other information

Accounting par value of shares (€)

Ordinary shares

5.41

Total

5.41

Galapagos NV Annual Report 2014

NOTES

The Board of Directors is authorized for a period of five years starting from the date of the Shareholders’ Meeting that granted

the renewed authorization, being 23 May 2011, to increase the share capital of Galapagos NV within the framework of the

authorized capital through contributions in kind or in cash, with limitation or cancellation of the shareholders’ preferential

rights. Said authorization can be renewed. The Board of Directors is currently not authorized to increase the share capital after

notification by the FSMA (Financial Services and Markets Authority) of a public takeover bid on Galapagos NV’s shares.

The authorized capital as approved by the Extraordinary General Shareholders’ Meeting of 23 May 2011 amounted to €142,590.8

thousand. As of 31 December 2014, €24,763.8 thousand of the authorized capital was used, so that an amount of €117,826.9

thousand still remained available under the authorized capital.

21. Share premium

(thousands of €)

On 1 January

Increase as a result of private placement

Increase as a result of exercise of warrants

Share premium on 31 December

22. Other reserves

Actuarial gains or losses recognized through other comprehensive income

(thousands of €)

On 1 January

Actuarial gains or losses (–) recognised through OCI

Other reserves on 31 December

Year ended 31 December,

2014

112,484

1,698

114,182

2013

72,876

39,346

262

112,484

Year ended 31 December,

2014

(267)

(220)

2013

The other reserves amount to a negative of €220 thousand (2013: €47 thousand) and relate to remeasurement of defined benefit

obligation booked through OCI in line with IAS19R.

Derivative financial instruments: currency derivates

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 (2013: nil).

On 31 December 2014 the fair value of the Group’s currency derivatives is estimated to be nil (2013: 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 38 for further information on how the Group manages financial risks.

Galapagos NV Annual Report 2014

NOTES

23. Translation differences

(thousands of €)

On 1 January

Translation differences, arisen from translating foreign activities

Translation differences, arisen from the sale of the service division

Translation differences on 31 December

Year ended 31 December,

2014

170

460

(1,787)

(1,157)

2013

994

(824)

170

Translation differences decreased to a negative of €1.2 million at the end of December 2014 mainly due to the sale of the service

division which reported positive translation differences of €2.0 million at the end of December 2013.

24. Deferred tax

(thousands of €)

Recognized deferred tax assets and liabilities

Assets

Liabilities

Continuing operations

Assets

Liabilities

Discontinued operations

Assets

Liabilities

Deferred tax assets unrecognized

Continuing Operations

Discontinued Operations

Deferred taxes

Continuing operations

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

Discontinued operations

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 (+)

Galapagos NV Annual Report 2014

Year ended 31 December,

2014

293

104,484

496

293

203

2013

4,558

(2,192)

4,558

(2,192)

105,529

100,160

5,369

3,280

(676)

3,956

427

3,529

NOTES

The notional interest deduction for an amount of €2.6 million (2013: €2.6 million) and the investment deduction of €1 million

(2013: €1 million) 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 seven 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 consolidated unused tax losses carried forward at 31 December 2014 amounted to €315 million (2013: €329 million),

€21.8 million were related to unrecognized tax losses with expiry date between 2015 and 2029.

The available statutory tax losses carried forward that can be offset against future statutory taxable profits amounted to

€220 million on 31 December 2014. These statutory tax losses can be compensated with future statutory profits for an indefinite

period except for an amount of €18 million in Switzerland, Croatia, the US and The Netherlands with expiry date between 2015

and 2029. On 31 December 2014, the available tax losses carried forward in Galapagos NV (Belgium) amounted to €136 million.

For one subsidiary operating on a cost plus basis for the group a deferred tax asset was set up for an amount of €0.3 million in

2014 (2013: €0 million).

A deferred tax asset for tax losses carried forward, which are limited in time (three years), was reversed for the Croatian

subsidiary for an amount of €0.7 million in 2013 because of the current year loss and forecasted losses in the near future due to

the fact that the entity is in a transition period to go from an R&D subcontractor company to a fee-for-service company.

The deferred tax assets and liabilities recorded on the balance sheet at 31 December 2013 related to discontinued operations.

The Group has a history of losses. Excluding the impact of possible upfront or milestone payments to be received from

collaborations, the Group forecasts to continue incurring taxable losses in the foreseeable future as it continues to invest in

clinical and pre-clinical development programs and discovery platforms. Consequently, no deferred tax asset has been set up

as at 31 December 2014, except for one subsidiary operating on a cost plus basis for the group for which a minor deferred tax

asset was set up (of €0.3 million as explained above).

Galapagos NV Annual Report 2014

NOTES

25. Finance lease liabilities

(thousands of €)

2014

2013

2014

2013

Minimum lease payments

Present value of minimum lease payments

Year ended 31 December,

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

121

179

167

238

237

475

393

115

167

115

(thousands of €)

Leased assets

Installation & machinery

Total leased assets

Net book value

Acquisition cost

Year ended 31 December,

2014

161

2013

384

2014

295

226

167

393

226

167

2013

2,534

The Group leases certain of its installation and machinery under finance leases. For the year ended 31 December 2014, the

average borrowing rate was 6.27% (2013: 6.17%). 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 decrease in leased assets in 2014 is mainly related to a finance lease of lab equipment in the Belgian entity which ended in

2014.

The fair value of the Group’s lease obligations approximates their carrying value.

Galapagos NV Annual Report 2014

NOTES

26. Trade and other payables

(thousands of €)

Trade payables

Other current liabilities

Other non-current liabilities

Accrued charges

Deferred income

Total trade and other payables

Included in current liabilities

Included in non-current liabilities

Total trade and other payables

Year ended 31 December,

2014

29,344

663

923

585

27,026

58,541

57,618

923

58,541

2013

29,365

2,462

3,858

78,979

114,664

112,202

2,462

114,664

The Group’s trade and other payables, amounting to €58.5 million as of 31 December 2014, decreased by €56.1 million compared

to the €114.7 million reported as of 31 December 2013.

The trade payables amounting to €29.3 million as of 31 December 2014 remain stable compared to the €29.4 million at

31 December 2013.

The accrued charges show a decrease of €3.3 million compared to the ending balance on 31 December 2013 which can be fully

explained by the sale of the service division.

Deferred income amounts to €27.0 million at 31 December 2014, which decreased by €52.0 million compared to 31 December

2013. This decrease can mainly be explained by revenues from non-refundable upfront payments recognized in the income

statement for €45.8 million. For the year ended 31 December 2014, €15.0 million revenue was deferred for the filgotinib program

for rheumatoid arthritis and Crohn’s disease with AbbVie, and €11.4 million was deferred for the CF program with AbbVie. The

remainder, being €0.6 million, was mainly composed of discounting effects on non-current R&D incentives receivables and

deferred revenues from grants.

27. Provisions

(thousands of €)

On 31 December 2013

Additional provisions

Provisions utilized amounts

Sale of the service division

Translation differences

On 31 December 2014

Post-
employment
benefits (non-
current)

Other provisions
(non-current)

Restructuring
provision
(current)

Other provisions
(current)

660

(3)

(604)

(50)

Total

747

(53)

(604)

176

The decrease in provisions in 2014 is mainly due to the sale of the service division (€0.6 million).

Galapagos NV Annual Report 2014

NOTES

As of 31 December 2013, the non-current provision was mainly related to a dilapidation provision for facilities located in the

U.K. of €0.6 million. The decrease of €0.1 million in the (current) restructuring provision in 2013 is related to utilized amounts

related to the leased premises in Basel, Switzerland, which is credited to the income statement on line item Provisions within

general and administrative expenses.

28. Operating lease obligations

The Group entered into lease agreements for office and laboratories which qualify as operating leases.

Minimum lease payments under operating leases recognized in the income statement for the year

(thousands of €)

Continuing operations

Discontinued operations

Total minimum lease payments under operating leases

Year ended 31 December,

2014

3,676

643

4,319

2013

4,059

2,433

6,492

Regarding outstanding commitments for future minimum lease payments under operating leases, see off-balance sheet

arrangements as explained in note 29 below.

29. Off-balance sheet arrangements

Contractual obligations and commitments

The Group entered into lease agreements for office and laboratories which qualify as operating leases. The Group also has

certain purchase commitments with CRO subcontractors principally.

On 31 December 2014, the Group’s continuing operations had outstanding obligations for future minimum rent payments and

purchase commitments, which become due as follows:

(thousands of €)

Operating lease obligations

Purchase commitments

Total contractual obligations & commitments

Payments due by period

Total

35,030

36,052

71,082

Less than
1 year

3,759

28,992

32,751

1–3 years

3–5 years

More than
5 years

8,517

7,060

15,577

5,931

16,823

5,931

16,823

30. Contingent assets and liabilities

The French entity has signed a lease agreement in October 2013 for new office premises in the “Parc Biocitech” in Romainville,

France (with effect from 1 February 2015) to replace the current premises in Romainville. The agreement is entered into for a

12-year period. The net rent amounts to €1.4 million on an annual basis. Galapagos NV, as the parent company, has issued a

guarantee on first demand for €2 million to lessor of the building. Additionally a bank guarantee, amounting to €3 million, was

issued for the rental of the new premises. These guarantees entered into force upon signature of the lease agreement and will

expire on 30 June 2015 after the move into the new facilities.

Galapagos NV Annual Report 2014

NOTES

On 13 March 2014, the Group announced the signing of a definitive agreement to sell the service division operations to Charles

River Laboratories International, Inc. (the “Buyer”) for a total consideration of up to €134 million. Charles River agreed to pay

Galapagos an 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. In addition, approximately 5% of the total price

consideration, including price adjustments, is being held on an escrow account which will be released on 30 June 2015 if no

claim has been introduced by the Buyer. Following the divestment, Galapagos remains guarantor for a limited transitional

period in respect of the lease obligations for certain U.K. premises amounting to £40 million future rent payments. The Buyer

will fully indemnify Galapagos NV against all liabilities arising in connection with the lease obligation. Galapagos evaluated

the risk to be remote. Finally, following common practice, Galapagos NV has given customary representations and warranties

which are capped and limited in time.

In the course of 2008, a former director of one of the subsidiaries sued for wrongful termination and seeks damages of

€1.1 million. The Group believes that the amount of damages claimed is unrealistically high. In 2014, the court requested an

external advisor to evaluate the exact amount of damages. This analysis is still ongoing. Considering the defense elements

provided in favor of Galapagos and also the latest evolution in the court, the Board and management evaluated the risk to be

remote to possible, but not likely. Accordingly, it was decided not to record any provision in 2014 as the exposure is considered

to be limited.

31. Retirement benefit plans

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

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). The Belgian defined

contribution pension plans are by law subject to minimum guaranteed rates of return, currently 3.25% on employer

contributions and 3.75% on employee contributions. These rates, which apply as an average over the entire career, may be

modified by Royal Decree in which case the new rate(s) apply to both the accumulated past contributions and the future

contributions as from the date of modification. Therefore, those plans were basically accounted for as defined contribution

plans.

As at 31 December 2014 no net liability was recognised (2013: nil) in the balance sheet as the difference between the minimum

guaranteed reserves and the actual accumulated reserves is not deemed material.

The contributions for those plans that were due by the employer for 2014 and 2013 amounted to respectively €465.6 thousand

and €367.9 thousand, of which €32.9 thousand was paid after 31 December 2014 (2013: €33.9 thousand). No contributions were

made by the employees.

The plan assets as at 31 December 2014 consisted of €886.4 thousand individual insurance reserves, which benefit from a

weighted average guaranteed interest rate of 3.0%, and €0.2 thousand reserves in collective financing funds.

Similar pension schemes apply to the Group’s entities in other countries. The amounts due by the Group’s continuing

operations to these pension plans in 2014 were €1.5 million in total (2013: €1.3 million). The amounts due by the Group’s

discontinued operations to these pension plans in 2013 were €3.0 million in total.

Galapagos NV Annual Report 2014

NOTES

Defined benefit plans

The Group uses two defined benefit plans for France. The defined benefit plans are not supported by funds.

The Chemical and Pharmaceutical Industry’s collective bargaining agreements require that the French entity 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 €1,622.3 thousand for 2014 (2013: €1,207.2 thousand). This increase is mainly due to changed

actuarial assumptions (decrease of discount rate from 3.00% to 1.75%).

Additionally, there are also seniority premiums paid in France. The provisions for these premiums amounted to €1,242.9

thousand in 2014 (2013: €981.8 thousand).

Total obligation included in the balance sheet related to the defined benefit plans amounts to €2,865.2 thousand for the year

ended 31 December 2014 (2013: €2,189.0 thousand).

Actuarial gains and losses are recognized immediately on the balance sheet, with a charge or credit to other comprehensive

income (OCI), in accordance with IAS 19R. They are not recycled subsequently. Actuarial losses of €266.6 thousand have been

booked through other comprehensive income (OCI) at the end of 2014 (2013: €46.6 thousand of actuarial gains).

Obligations included in the balance sheet

(thousands of €)

Present value of funded defined benefit obligation

Fair value of plan assets

Shortage

Liability included in the balance sheet

The present value of the gross obligation developed as follows:

(thousands of €)

Opening balance

Current service cost

Interest cost

Benefits paid

Actuarial gains (–) or losses due to experience adjustments

Actuarial 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

Year ended 31 December,

2014

2,865

Year ended 31 December,

2014

2,189

228

(48)

347

2,865

2013

2,189

2013

2,035

228

(51)

(89)

2,189

Galapagos NV Annual Report 2014

NOTES

Amounts recognized in profit or loss for defined benefit plans are as follows:

(thousands of €)

Current service cost

Interest cost

Revaluations of net liability / net asset

Total expense

Obligation included in the balance sheet reconciles as follows:

(thousands of €)

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:

(%)

Discount rate

Expected salary increase

Sensitivity analysis on discount rate: effect on obligation

Obligation (thousands of €)

Discount rate 1.25%

Discount rate 1.50%

Discount rate 1.75%

Discount rate 2.00%

Discount rate 2.25%

Year ended 31 December,

2014

228

165

457

Year ended 31 December,

2014

2,189

457

267

(48)

2,865

Year ended 31 December,

2014

1.75

2.25

2013

228

(37)

251

2013

2,035

251

(47)

(51)

2,189

2013

3.00

2.50

Year ended 31 December,

2014

3,068

2,964

2,865

2,772

2,682

Galapagos NV Annual Report 2014

NOTES

Sensitivity analysis on discount rate: effect on obligation

Obligation (thousands of €)

Discount rate 2.50%

Discount rate 2.75%

Discount rate 3.00%

Discount rate 3.25%

Discount rate 3.50%

32. Warrant plans

Year ended 31 December,

2013

2,337

2,261

2,189

2,120

2,055

Presented below is a summary of warrant plans activities for the reported periods. Various warrant plans were approved for

the benefit of employees of the Group, Directors and independent consultants of Galapagos NV. For warrant plans issued prior

to 2011, the warrants offered to the employees and independent consultants vest according to the following schedule: 10% of

the warrants vest on 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. The warrants granted under warrant plans created from 2011

onwards 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 adopted at the Extraordinary Shareholders’

Meeting held on 23 May 2011, a provision has been incorporated in the warrant plans, which provides that in the event of a

change of control of the Group, all outstanding warrants vest immediately and will be immediately exercisable.

After the reverse 4:1 share split approved by the Shareholders’ Meeting held on 29 March 2005, four warrants under Warrant

Plan 2002 Belgium entitle the warrant holder to subscribe for one ordinary share. For the warrant plans created from 2005

onwards, one warrant entitles the warrant holder to subscribe for one ordinary share. In the summaries and tables below, the

numbers of warrants issued under Warrant Plan 2002 Belgium are divided by four to avoid a mixture of rights.

Galapagos NV Annual Report 2014

NOTES

The table below sets forth a summary of warrants outstanding and exercisable at December 31, 2014, per warrant plan:

Allocation
date

Expiry date

Exercise
price (€)

Outstanding
per 1
January
2014

Granted
during
the year

Exercised
during
the year

Forfeited
during
the year

Expired
during
the year

Outstanding
per 31
December
2014

Exercisable
per 31
December
2014

Warrants

2002 B

2005

2006 BNL

2006 UK

2007

09.07.2004

08.07.2017

31.01.2005

30.01.2017

04.07.2005

03.07.2018

23.11.2005

22.11.2018

15.12.2005

14.12.2018

22.11.2006

21.11.2019

13.02.2006

12.02.2019

22.11.2006

21.11.2019

04.05.2007

03.05.2020

28.06.2007

27.06.2020

21.12.2007

20.12.2020

01.06.2006

31.05.2014

22.11.2006

21.11.2014

28.06.2007

27.06.2015

28.06.2007

27.06.2015

28.06.2007

27.06.2020

2007 RMV

25.10.2007

24.10.2020

2008

2009

2009 B

2010

2010 B

2010 C

2011

2011 B

2012

2013

2013 B

2014

2014B

Total

26.06.2008

25.06.2021

01.04.2009

31.03.2017

02.06.2009

01.06.2014

02.06.2009

01.06.2017

27.04.2010

26.04.2018

27.04.2010

26.04.2015

23.12.2010

26.04.2018

23.05.2011

22.05.2019

23.05.2011

22.05.2016

03.09.2012

02.09.2020

16.05.2013

15.05.2021

18.09.2013

17.09.2021

25.07.2014

24.07.2022

14.10.2014

13.10.2022

31,250

47,500

145,000

32,500

12,500

1,050

46,470

6,000

7,500

735

2,100

3,748

735

6,000

108,126

104,644

50,400

136,140

278,500

42,540

75,000

456,750

190,108

75,000

536,500

127,750

435,490

592,040

75,000

6.76

6.91

8.35

8.6

8.65

8.61

8.65

9.22

8.65

7.12

8.7

8.65

8.43

8.65

5.6

5.87

7.09

11.55

11.74

9.95

14.19

19.38

15.18

14.54

11.93

2,500

14,000

525

11,372

6,000

3,748

735

6,000

1,050

5,525

120,250

42,540

75,000

210,750

5,088

54,000

60,000

138,800

571,660

150,000

31,250

45,000

131,000

32,500

12,500

525

35,098

7,500

735

2,100

7,500

735

2,100

108,126

104,644

49,350

130,615

158,250

246,000

185,020

75,000

482,500

127,750

375,490

453,240

75,000

571,660

150,000

3,627,076

721,660

505,083

252,800

3,590,853

1,355,213

Galapagos NV Annual Report 2014

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

Granted during the period

Forfeited during the year

Exercised during the period

Expired during the year

Outstanding on 31 December 2014

Exercisable on 31 December 2014

NOTES

Warrants

3,347,709

844,181

677,790

(71,010)

(326,468)

(945)

3,627,076

1,138,438

721,660

(252,800)

(505,083)

3,590,853

1,355,213

The table below sets forth the inputs into 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

2014

14 Oct

11.93

10.95

4.35

38.03

0.58

None

2014

25 Jul

14.54

14.38

6.14

38.76

0.58

None

2013

16 May

19.38

17.74

7.75

38.76

1.99

None

Weighted average exercise
price (€)

9.51

11.50

12.06

2013

18 Sep

15.18

14.87

6.80

38.76

1.99

None

The exercise price of the warrants is determined pursuant to the applicable provisions of the Belgian Companies Code .

The estimated volatility is calculated on the basis of the historical volatility of the share price over the expected 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 of the Group in 2014 amounted to €2,952 thousand (2013: €2,742 thousand).

Galapagos NV Annual Report 2014

NOTES

The following table provides an overview of the outstanding warrants per category of warrant holders at 31 December 2014.