Galapagos N.V. Annual Report 2018

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FY2018 Annual Report · Galapagos N.V.

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Think
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Annual Report 2018

CONTENTS

Contents

The Galapagos group

CSR report

Letter from the management ........................... 4

Our commitment .............................................. 68

At a glance ........................................................... 8

Improving people’s lives .................................. 69

Strategy ............................................................. 10

Diversity and Human Capital Management .. 71

Think big ............................................................ 13

Business ethics ................................................. 74

Going concern statement ............................... 21

Environment, Health, and Safety .................... 77

Risk management and internal control ......... 21

The Galapagos share ....................................... 23

Corporate governance

Overview of Galapagos NV ............................. 25

Disclaimer and other information ................. 27

R&D

Policies ............................................................... 80

Board of directors ............................................ 80

Committees ....................................................... 84

Share capital and shares ................................. 87

The Galapagos pipeline ................................... 30

Shareholders ..................................................... 91

Target discovery platform ............................... 31

Remuneration report ....................................... 92

Filgotinib ............................................................ 33

Conflict of interests and related parties ........ 97

Fibrosis .............................................................. 44

Code of Business Conduct and Ethics ........... 98

Osteoarthritis ................................................... 49

Statement by the board of directors ............. 98

Atopic dermatitis .............................................. 51

Toledo ................................................................ 54

Financial statements

Cystic fibrosis .................................................... 56

Risk factors

Product development, regulatory approval and
commercialization ........................................... 58

Consolidated financial statements ............... 100

Notes to the consolidated financial
statements ...................................................... 106

Non-consolidated financial statements ....... 165

Financial position and need for additional
capital ................................................................ 60

Auditor's report

Reliance on third parties ................................. 60

Competitive position ....................................... 61

Intellectual property ........................................ 62

Report of the statutory auditor .................... 168

Other information

Organization, structure and operation ......... 63

Glossary of terms ........................................... 173

Galapagos shares ............................................. 66

Financial calendar .......................................... 185

General statement ........................................... 66

Colophon ......................................................... 185

Contact ............................................................ 185

Galapagos NV • Annual Report 2018

The Galapagos
group

An overview of Galapagos, its strategy

and portfolio in 2018

we raise the bar.

THE GALAPAGOS GROUP

Letter from the management

Dear shareholder,

2018 was a truly pivotal year in the history of our company, with the publication of our first ever Phase 3 results,

FINCH 2, for filgotinib in rheumatoid arthritis. We again find the results very promising. Moreover, we and our

collaboration partner Gilead also announced promising Phase 2 results in ankylosing spondylitis (TORTUGA) and

psoriatic arthritis (EQUATOR), highlighting once more filgotinib’s potential as a veritable ‘pipeline in a product’.

We are proud that both the TORTUGA and EQUATOR results were published in The Lancet.

We also expanded our fully proprietary fibrosis portfolio, most notably

with the start of the Phase 3 program with autotaxin inhibitor GLPG1690

(ISABELA) and the Phase 2 trial in IPF with our GPR84 inhibitor, GLPG1205

(PINTA). Early 2019, we announced that we broadened the potential reach

of our GLPG1690 program with the Phase 2 trial in systemic sclerosis

(NOVESA). Beyond fibrosis, our MOR106 program entered a Phase 2 trial

(IGUANA) in atopic dermatitis as well as a subcutaneous Phase 1b bridging

trial. Together with our collaboration partner Servier, we started a global

Phase 2b trial in osteoarthritis (ROCCELLA).

With these proofs of platform now in mid-to-late-stage trials, we continue

to leverage our

innovative target discovery platform to develop

breakthrough drugs and ultimately deliver these to patients with large unmet needs. The best example of our

continued efforts to raise the bar in science may be Toledo, our newly revealed preclinical program focused on a

fully proprietary, as of yet undisclosed, novel target class. True to our DNA of ‘following the data’ with agility,

scientific rigor, and purpose, we plan to roll out a comprehensive program in a number of indications with

multiple candidates exhibiting various selectivity profiles.

All this contributes to our purpose of striving to keep at the forefront of innovation in our core disease areas,

inflammation and fibrosis.

In 2019, we look forward to substantial news flow: first and foremost, we just reported that the Phase 3 FINCH 1

& 3 trials with filgotinib in rheumatoid arthritis met their primary and key secondary endpoints. The excellent

safety data shown in FINCH 1 & 3 fully confirmed the differentiated safety profile observed in FINCH 2 and

other previous studies with filgotinib. Our collaboration partner Gilead will now share these positive data with

regulatory agencies and discuss next steps for filings. Also for filgotinib, we expect Gilead to announce the proof-

of-concept results in Sjögren’s and cutaneous lupus and initiate the Phase 3 in psoriatic arthritis. For MOR106,

together with collaboration partners MorphoSys and Novartis, we look forward to the topline results from the

IGUANA trial and the subcutaneous bridging study. For Toledo, we expect results of the first Phase 1 in the second

half of the year, and plan to initiate a Phase 1 study with a second generation Toledo compound.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

From a financial perspective, we ended 2018 with a strong balance sheet, helped by a successful capital

transaction, bringing in gross proceeds of EUR 296 million. We also announced two important business

development deals: together with collaboration partner MorphoSys, we closed a license agreement with Novartis

for MOR106, and we outlicensed our cystic fibrosis portfolio to AbbVie. Looking ahead, we guide for an operational
cash burn1 between EUR 320 and EUR 340 million for full year 2019, mainly driven by our growing and maturing
clinical pipeline. In 2019, we expect to run over 40 trials, with a significant number of late-stage and

proprietary programs, and we are expanding the team in order to deliver on our pipeline. Further, we continue to

build out our commercial organization, as we gear up for the expected market launch of filgotinib.

R&D

In the field of inflammation:

▪ We and Gilead announced positive results in FINCH 2, the first of three Phase 3 trials in RA patients with our

selective JAK1 inhibitor filgotinib

▪ We and Gilead announced positive results in EQUATOR, a Phase 2 trial with filgotinib in psoriatic arthritis

patients. These results were presented in a plenary session at ACR 2018 and published in The Lancet

▪ We and Gilead announced positive results in TORTUGA, a Phase 2 trial with filgotinib in ankylosing

spondylitis patients. These results were published in The Lancet

▪ We and Gilead announced that SELECTION, a Phase 2/3 trial with filgotinib in UC patients moved into Phase

3, following a planned futility analysis

▪ We initiated the IGUANA Phase 2 trial and a Phase 1b bridging trial with MOR106 in atopic dermatitis

patients, together with collaboration partners MorphoSys and Novartis

In fibrosis:

▪ We initiated the Phase 3 ISABELA 1 & 2 trials with fully proprietary autotaxin inhibitor GLPG1690 in IPF

patients

▪ We initiated the PINTA Phase 2 trial with our fully proprietary GPR84 inhibitor GLPG1205 in IPF patients
▪ We presented the FLORA Phase 2a results with GLPG1690 at ATS 2018 and published them in The Lancet

Respiratory

In osteoarthritis:

▪ We and Servier reported that ADAMTS-5 inhibitor GLPG1972 was well tolerated and showed a dose dependent

decrease in ARGS neoepitope, a cartilage breakdown biomarker, in serum of osteoarthritis patients

▪ We and our collaboration partner Servier initiated the global ROCCELLA Phase 2 trial with GLPG1972 in

osteoarthritis patients

▪ We obtained Fast Track review status with GLPG1972 from the FDA

Corporate:

▪ We raised €296.2 million in gross proceeds in a U.S. public offering of ADS and €7.7 million from warrant

exercises

▪ We restructured our CF collaboration agreement with partner AbbVie
▪ We and collaboration partner MorphoSys outlicensed MOR106 in atopic dermatitis to Novartis

Post-period events:

▪ We initiated a Phase 2 trial with fully proprietary autotaxin inhibitor GLPG1690 in systemic sclerosis (SSc;

NOVESA), and recruited the first patient

▪ We initiated a Phase 1 trial with our first Toledo target class inhibitor GLPG3312

1 The operational cash burn (or operational cash flow if this performance measure is positive) is equal to the sum of the net cash flows generated/used (–) in
operating activities and the net cash flows generated/used (–) in investing activities minus (i) the proceeds or cash used, if any, in acquisitions or disposals of
businesses; and (ii) the movement in restricted cash, if any. This alternative performance measure is in our view an important metric for a biotech company
in the development stage. For 2017, the operational cash burn represented €154.1 million

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

▪ We announced partnerships with both Fibrocor and Evotec, inlicensing preclinical targets in the field of

fibrosis

▪ We initiated the GECKO study for MOR106, a Phase 2 study testing a subcutaneous formulation of MOR106 in

combination with topical corticosteroids in patients with atopic dermatitis

▪ We and Gilead reported that the Phase 3 FINCH 1 & 3 trials met their primary and most key secondary

endpoints, confirming the encouraging safety profile observed in FINCH 2 and other previous studies

2018: Details of the financial results

Revenues

Galapagos’ revenues and other income for 2018 amounted to €317.8 million, compared to €155.9 million in 2017.

Increased revenues and other income were mainly driven by an upfront payment of €47.5 million from Novartis

related to the MOR106 program, increased recognition in revenue of the upfront payment and milestones

related to the filgotinib program with Gilead, revenue recognition related to the additional upfront payment

of $45.0 million from AbbVie and previous upfront payment and milestones, and the change in accounting

treatment from the adoption of IFRS 15 – Revenue from contract with customers on 1 January 2018.

Operating result

The group realized a net operating loss in 2018 of €44.8 million, compared to a net operating loss of €89.8 million

in 2017.

R&D expenses for the group in 2018 were €322.8 million compared to €218.5 million in 2017. This planned increase

was due mainly to increased efforts on our clinical and preclinical programs, primarily filgotinib, our IPF

program, and the proprietary preclinical programs in inflammation and fibrosis.

G&A and S&M expenses of the group were €39.8 million in 2018, compared to €27.2 million in 2017. This increase

was due primarily to a planned headcount increase and higher costs for warrant plans (non-cash), mainly as a

result of the increase of the Galapagos share price.

Net result

The group realized a net loss in 2018 of €29.3 million, compared to a net loss of €115.7 million in 2017.

Cash position

Cash and cash equivalents totaled €1,290.8 million on 31 December 2018.

A net increase of €139.6 million in cash and cash equivalents was recorded in 2018, compared to an increase

of €178.0 million in 2017. Net cash flows from financing activities generated €287.9 million of cash, consisting

of €280.2 million net proceeds from the U.S. public offering, and €7.7 million proceeds from warrant exercises.

Furthermore, a net cash outflow from operating activities was

realized for €142.5 million in 2018.

Finally, €15.9 million was used in investing activities and €10.1 million positive exchange rate differences were

generated on cash and cash equivalents. The operational cash burn amounted to €158.4 million.

Furthermore, Galapagos’ balance sheet holds a receivable from the French government (Crédit d’Impôt
Recherche2), payable in 4 yearly tranches, and a receivable from the Belgian Government for R&D incentives, for
a total of both receivables of €84.6 million.

Outlook 2019

For filgotinib, in the second half of the year, we expect Gilead to report topline results for the proof-of-concept

studies in Sjögren’s and cutaneous lupus, and to launch a Phase 3 trial in PsA.

2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

We also plan to fully recruit our Phase 2 PINTA study for our fully proprietary IPF compound GLPG1205, as well

as our ROCCELLA study in OA, together with collaboration partner Servier. For GLPG1690, we plan to continue our

ISABELA trials as well as the NOVESA Phase 2 trial in systemic sclerosis (SSc), for which a first patient was dosed

in early 2019.

For MOR106, together with our collaboration partners MorphoSys and Novartis, we plan to continue our recently

started Phase 2 trial in AtD with MOR106 in combination with topical corticosteroids (the GECKO Phase 2 trial)

as well as a Japanese ethno-bridging study. In the second half of the year, we expect the primary analysis of the

IGUANA Phase 2 trial in AtD and topline results of the subcutaneous Phase 1 bridging study. Pending positive

results, these four studies combined should offer a solid data package for our collaboration partner Novartis to

move into Phase 3.

With regard to our earlier and fully proprietary programs, we expect Phase 1 readouts of a number of earlier stage

studies, including for GLPG3312, the first Toledo compound that entered the clinic in early 2019. This molecule

is scheduled to be dosed in patients in a first proof-of-concept study before the end of the year. We also plan to

initiate a Phase 1 trial with our second generation Toledo compound, GLPG3970, in the second half of the year.

Given the large number of maturing proprietary clinical programs and the expansion of our R&D and commercial

team, we expect an operational cash burn between €320 and €340 million in 2019.

I wish to thank our shareholders for their support last year. We took substantial steps towards becoming an

integrated biopharmaceutical company in 2018. Please stay with us as we continue to "Think Big" and break

innovative ground in inflammation and fibrosis.

Regards,

Onno van de Stolpe
CEO

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

At a glance

Consolidated Key Figures

(thousands of €, if not stated otherwise)

Year ended 31
December 2018

Year ended 31
December 2017

Year ended 31
December 2016

INCOME STATEMENT

Revenues(1)

Other income

R&D expenditure

S, G&A expenses

Operating expenses

Operating loss

Net financial results

Taxes

Net income / loss (-)

BALANCE SHEET

Cash and cash equivalents

R&D incentives receivables

Assets

Shareholders’ equity(1)

Deferred income(1)

Other liabilities

CASH FLOW

288,836

29,009

(322,875)

(39,776)

(362,652)

(44,807)

15,598

(50)

127,087

28,830

(218,502)

(27,218)

(245,720)

(89,802)

(25,705)

(198)

(29,259)

(115,704)

1,290,796

1,151,211

84,646

1,439,496

1,214,249

149,801

75,446

75,783

1,286,274

1,011,983

219,892

54,399

Operational cash burn (-) / operational cash flow(2)

(158,379)

(154,089)

Cash flow from financing activities

Increase in cash and cash equivalents

287,876

129,497

353,357

205,778

Effect of currency exchange rate fluctuation on cash and cash
equivalents

10,089

(27,808)

Cash and cash equivalents on 31 December

1,290,796

1,151,211

129,519

22,093

(139,573)

(23,530)

(163,103)

(11,491)

65,737

(235)

54,012

973,241

64,342

1,083,338

758,701

285,612

39,025

231,881

395,996

628,111

4,816

973,241

FINANCIAL RATIOS

Number of shares issued on 31 December

54,465,421

50,936,778

46,256,078

Basic income / loss (-) per share (in €)

Diluted income / loss (-) per share (in €)

Share price on 31 December (in €)

Total group employees on 31 December (number)

(0.56)

80.56

725

(2.34)

78.98

600

1.18

1.14

60.94

508

(1) Our revenues, shareholders’ equity and deferred income for the year ended 31 December 2018 were influenced by the adoption of the new
standard IFRS 15 – Revenue from contracts with customers, on 1 January 2018. We refer to the notes of this consolidated financial report for
additional information.

(2) The operational cash burn (or operational cash flow if this performance measure is positive) is equal to the sum of the net cash flows generated /

used (-) in operating activities and the net cash flows generated / used (-) in investing activities minus (i) the proceeds or cash used, if any, in
acquisitions or disposals of businesses; and (ii) the movement in restricted cash, if any. This alternative performance measure is in our view an
important metric for a biotech company in the development stage.

Galapagos NV • Annual Report 2018

Employees per site

6 staff

United Kingdom

8 staff

United States

THE GALAPAGOS GROUP

81 staff

The Netherlands

163 staff

France

303 staff

Belgium

10 staff

Switzerland

154 staff

Croatia

Number of employees Galapagos group

725

285
Men

gender:

education:

440
Women

102
Other

237
PhD

112
Bachelor

274
Master

Average age:

Number of
employees older
than 45:

269

Nationalities:

Average years
of service:

Employee
turnover:

10.7%

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Strategy

Our mission is to develop first-in-class medicines based on the discovery of novel targets. Using human primary cells,

we discover which proteins (‘targets’) play a key role in causing diseases. We then identify and develop small molecules

that inhibit these targets, restore the balance, and thereby positively influence the course of the disease. This approach

addresses the root cause of the disease rather than just treating symptoms.

Our ambition is to become a fully integrated biopharmaceutical company focused on the development and

commercialization of novel medicines which will improve people’s lives.

Key elements of our strategy include:

▪ Rapidly advance the development of filgotinib with our collaboration partner Gilead in RA, CD, UC,

PsA, AS, and other inflammatory diseases
Based on the results from our Phase 2 and Phase 3 clinical trials, we believe that filgotinib is a promising

candidate for the treatment of RA, CD, UC, PsA, AS, and other inflammatory diseases. Our collaboration

partner Gilead is conducting Phase 3 clinical programs in RA (FINCH), CD (DIVERSITY) and UC (SELECTION)

and multiple Phase 2 clinical programs in additional inflammatory diseases. In 2018, we disclosed promising

results in a Phase 3 clinical program in RA (FINCH 2) and in Phase 2 clinical programs in PsA (EQUATOR) and

AS (TORTUGA).

▪ Build a commercial organization

We exercised an option to co-promote filgotinib with Gilead in the UK, Germany, France, Italy, Spain, the

Netherlands, Belgium, and Luxembourg. We take a step-wise approach: if approved, we aim to co-promote

filgotinib in a number of European territories with our collaboration partner, Gilead, keeping full commercial

responsibility for RA in our home markets of Belgium, the Netherlands, and Luxembourg. In a next step, we intend

to commercialize successful candidates from our fully proprietary fibrosis pipeline, with a focus on IPF. In order to

support our commercial ambitions, we are expanding the team, starting with a number of key hires with extensive

expertise in our franchises of inflammation and fibrosis. This enables us to set up a commercial organization and

make progress in our ambition to grow towards a fully integrated biopharmaceutical company.

We go step by step on commercial

Mission:

established global biopharma

1690 IPF
global scale, independent launch
collaborations as opportunity

2022+
U.S. & prioritized ROW

filgotinib
top EU markets
Gilead co-promotion

2021
EU - IBD

filgotinib
home territory
booking sales

2020
Benelux –
RA

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

▪ Build a fibrosis franchise

In 2017, we reported positive results with the FLORA Phase 2a trial evaluating GLPG1690 targeting ATX in IPF

patients and initiated the ISABELA global Phase 3 program with GLPG1690 in 2018. We expanded indications

with GLPG1690 by initiating the NOVESA Phase 2a trial in SSc in early 2019. We directed an additional

candidate program with a distinct mechanism of action toward IPF: we started the PINTA Phase 2a trial with

GLPG1205 in IPF patients in 2018. We have worldwide development and commercialization rights for GLPG1690

and GLPG1205. In early 2019, we also inlicensed two early stage compounds with novel modes of action in the

field of fibrosis from Fibrocor and Evotec.

▪ Rapidly advance our Toledo class franchise

We reported remarkable activity with the first of many compounds targeting the Toledo target class

during our R&D Update in 2018. Molecules inhibiting this target family effectuate a dual mode of action on

inflammation by stimulating anti-inflammatory cytokines and inhibiting pro-inflammatory cytokines. We

have observed unprecedented activity in various inflammatory preclinical models with compounds targeting

the class. We are executing on a broad program to discover and develop multiple series of compounds acting

on Toledo, aimed at activity across several conditions, with a key focus on inflammation. We started the

first Phase 1 trial with GLPG3312 in early 2019, and plan to initiate a Phase 1 trial with the second Toledo

compound, GLPG3970, later this year.

▪ Advance GLPG1972 in OA patient clinical trials with our collaboration partner Servier

In 2016, we announced that a Phase 1 first-in-human trial of GLPG1972, targeting ADAMTS-5 for the

treatment of OA, showed the product candidate reduced ARGS neoepitope in healthy volunteers up to

60% within two weeks. In early 2018, we disclosed that GLPG1972 showed a similar, dose-dependent ARGS

neoepitope reduction in OA patients within four weeks. We initiated the ROCCELLA global Phase 2 program

with GLPG1972 together with collaboration partner Servier in 2018 and intend to complete recruitment in

2019. Servier licensed the compound for further development in OA patient trials outside the United States.

We retain all development and commercialization rights to this compound in the United States, where we

also lead all clinical development of GLPG1972.

▪ Advance MOR106 in AtD patient clinical trials with our collaboration partners MorphoSys and Novartis
We announced that 83% of AtD patients treated in Phase 1b with the highest dose of MOR106 achieved
EASI-50, with the effect being sustained for months after stop of treatment. MOR106 targets IL17‑C, a novel
antibody target discovered by us. We initiated a number of Phase 1 and Phase 2 trials with MOR106 in AtD

patients in 2018, with the aim of preparing for Novartis to run the Phase 3 program.

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

biotechnology company
Our platform has yielded many new mode-of-action investigational therapies across multiple therapeutic

areas. Our most mature preclinical programs are GLPG2534, GLPG3121, and GLPG3667 and our second

generation Toledo compound GLPG3970 for inflammation, which we plan to take into Phase 1 trials in 2019.

Additionally, we are exploring the potential of preclinical product candidates in AS, Pso, IBD, AtD, lupus, IPF,

SSc, nonalcoholic steatohepatitis, type 2 diabetes, and hepatitis B. We aim to initiate a Phase 3 trial every

other year, while conducting three proof-of-concept trials, delivering three preclinical product candidates

and six new validated targets every year. We aim to select promising programs for internal development and

commercialization and establish ourselves as a fully integrated biopharmaceutical company.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

R&D ambition

PHASE 3
START

every 2 years

PROOFS-
OF-CONCEPT

every year

PRECLINICAL
CANDIDATES

every year

NEW
TARGETS

every year

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

THINK BIG.

‘We are on a mission'

In 2018, our team has grown immensely.

Diversity and the complementarity of talents is key:
it enables us to develop the company in a way that
is sustainable long-term.

we raise the bar.

+21%

Annelies Missotten has been VP Human Resources at Galapagos since March 2018. In the same year, the

company’s workforce increased from 600 to 725 employees, and this growth is showing no signs of slowing.

“Creating a challenging and secure environment where people can perform at their best, without being

afraid to make mistakes along the way, is crucial for realizing our ambitions.”

Annelies Missotten

VP Human Resources

“As a company, it’s important to be able to offer people a meaningful job with room for

personal development. In our case, that’s not so difficult: we are all united around a terrific

common goal, which is to use our scientific expertise to improve the health of patients. At

the same time, we are constantly expanding, which offers a wealth of opportunities that we

combine with an attractive work environment. Our transition to a fully integrated, global

biopharmaceutical company with a human face offers prospects for plenty of talent.”

We have to help each other to remain responsive and to
remain able to make decisions quickly and flexibly

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Vision and audacity

“‘Think big’ is an inspiring vision that has brought Galapagos to where we are today and it

will take us much further still; it sets a challenge and generates a lot of energy. Such an

ambitious vision means that you have to dare to step out of your comfort zone on a regular

basis, stay alert, be capable of self-reflection, and keep up with what’s going on in the wider

environment. Furthermore, a very important part of the dynamics of our growth is helping

each other to avoid getting bogged down in cumbersome processes, and to remain responsive

and able to make decisions quickly and flexibly.”

Cultivating talent

“For an emerging biopharmaceutical company, the human capital makes all the difference.

How can we best mobilize our knowledge for innovation? Quite a lot depends on the mindset

and attitude of our people. It is the role of HR, together with the Galapagos leadership, to

ensure that every employee feels engaged and challenged, and that people are supported and

guided from the moment they are hired to the start of their career and further development

within the organization. It is essential to develop talent management, professionalize the

way that newcomers are welcomed, and to maintain a human approach in an ever larger

and more geographically widespread organization. Providing a buddy for new employees is

one of the many little examples that support this.”

Mix & match

“We are deliberately developing this company with people from different industries, with

a wide spectrum of backgrounds and experience. Diversity and the complementarity of

talents in our teams is a key part of this. This is a well-considered choice: it enables us

to develop the company in a way that is sustainable long-term. Recruiting people on the

employment market ourselves, wherever possible without intermediaries, is very important

for the success of this strategy. A match stands or falls with the cultural fit and we are best

positioned to make that call.”

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Receiving and taking responsibility

“We expect our people to take responsibility and take ownership of their work. Our basic

principle is: you have skills and experience, you can do your job in whatever way you think

will allow you to make the greatest contribution. It’s all about entrepreneurship: you give the

best of yourself, take initiative and follow-through. Of course, you may make mistakes along

the way. As an employer, we do our best to create the conditions in which you can excel. ‘I

have the feeling that what I do has impact, that it really matters’, is something I hear a lot

from employees. Taking care of people and creating an environment that is stimulating and

secure, where you can succeed through trial and error, is crucial for realizing our ambition

to bring our medicines to patients as rapidly as possible.”

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

THINK BIG.

Charlotte, Karin and Yves share their story

“I really feel part of this company”

Charlotte Op de Beeck

Development Operations
Officer

Charlotte Op de Beeck is Development Operations Officer and works at Galapagos for

about six months. Although the job is pretty demanding, there are no bumps in the

road. And you can take that literally.

Are the order numbers correct? Are the invoices under budget? Does everyone have access

to the right computer programs? Charlotte will run your administration smoothly. “I’ve

already learnt such an enormous amount here,” says Charlotte. “Not just about my job, but

also about the company.”

I am a wheelchair user and I’ve been pleasantly
surprised by what they do for me at Galapagos

For Charlotte, it’s enormously important that she feels comfortable in an organization. “I am a

wheelchair user and I’ve been pleasantly surprised by what they do for me at Galapagos. Before

I started here, a future colleague took me for a quick tour to check whether everything was

wheelchair friendly. At my interview, there was a little sill difficult for me to get over with my

wheelchair. On my first day of work, that threshold was gone and I could smoothly come and

go.”

Charlotte works on the eighth floor. Especially for her, Galapagos has purchased an

evacuation chair that will safely bring her downstairs in the event of a fire. “I have already

worked in a number of companies, but this is the first time that I’ve come across something

like this. There are times I feel a bit shy about it all. But of course, it sets me at ease that

everybody is looking after me so well. It means I can take part in everything. I feel I am truly

part of the company. That helps me to grow and go through life more independently.”

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

“Team building combined with a good cause hits the
bullseye”

Karin Geerts

Management Assistant

For the first time, the Galapagos Company Day in 2018 was dedicated to a good cause.

The annual team-building event focused not just on the employees, but also benefited

organizations where help is always welcome.

Every Galapagos site supported a local organization of its own choosing. In Mechelen,

Galapagos worked with Sjarabang, a creative atelier where people with intellectual or

multiple disabilities work with art, theatre and music. An artist designed a polyester mould

in the form of a fish that Galapagos employees decorated to create a beautiful piece of

artwork. Team building in the form of art!

“This assignment took our scientists outside their comfort zone,” says Management Assistant

Karin Geerts, who was responsible for organizing the day in Mechelen. “Luckily, the members

of Sjarabang were there to teach us artistic techniques and guide us.”

The enthusiasm and the warmth during the Company
Day were unforgettable. It made me realize once again
that I had come to the right company

Karin was as impressed by how focused everybody was on the job, as well as the variety of

creations. The artworks were finally auctioned during the De Warmste Week, a Belgian event

that raises funds for charity, with the proceeds going to Sjarabang. “For me, it’s important

that as a company, we leave our ivory towers and meet people who might not have things

quite so easy. The enthusiasm and the warmth during the Company Day were unforgettable.

It made me realize once again that I had come to the right company.”

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

“Making a difference, one day at a time”

Yves Galimidi

Purchasing Category Buyer

Yves Galimidi is responsible for procuring a range of corporate services and products,

ranging from electricity to company cars. In every aspect of his work, he thinks about

a bright, clean and green future.

Green energy

“I’ll give you an example of how we have gone green. Our electricity provider offered two

options: normal electricity and sustainably sourced electricity. It’s my job to screen options

and analyze figures so we can make the right decision. In this case, despite the slightly higher

cost, management agreed to opt for an environmentally friendly option. In Mechelen, we are

now powered entirely by electricity from renewable sources.”

Driven to lower CO2

“We are working on a project for our fleet of company cars, and are including hybrids and
electric cars. The average CO2 emissions for every car in our fleet will drop from 118 g/km to
99 g/km between 2018 and 2020.”

Virtual meetings

“Of course, there’s no point in travelling when it isn’t necessary. We are in the age of video

conferencing and Skype calls are a click away. Working this way is very efficient. It slashes

our ecological footprint.”

Proud to be green

“Galapagos is very much aware of environmentally friendly solutions that are better for the

environment. Thanks to the choices we make, we are making a difference. One day at a

time.”

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

THINK BIG.

We deliver

20 years ago Onno van de Stolpe

founded Galapagos together with two
scientists …

… Galapagos R&D doubled in staff from 298
in December 2014 to 571 employees
in December 2018 …

… In 2015 we conducted 8 clinical studies,
in 2019 we plan to conduct more than 40,
an increase of 400% …

… Our cash balance increased from 198.4
million euro at years’ end 2014 to 1.291
billion euro in December 2018 …

… From 68,751 average daily trading volume of
ordinary shares on Euronext in 2014 to
approximately 481,000 ordinary shares and ADS
average daily trading volume on Euronext and
Nasdaq year to date in 2019 …

… Our ambition is to deliver
6 new targets,
3 preclinical candidates and
3 proof-of-concepts a year, and
1 Phase 3 start every other year …

… To date, 12 Galapagos compounds with
novel modes of action discovered by us
have entered studies in patients …

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

… We went from 8 investment banks
covering Galapagos in 2008
to 19 in 2019 …

… To date, we have 3 novel mechanisms
showing promising patient results:
filgotinib in multiple inflammatory diseases
GLGP1690 in IPF and
MOR106 in atopic dermatitis …

… In our senior management levels,
33% of our staff is female …

… On 20 June 2019 we will celebrate our
20th birthday as a company …

… In 2018, we nominated 4 new
preclinical candidates, all with a
novel mechanism of action …

… Our global presence extended
from 4 sites in 2014 to 7 in 2018 …

… In 2019, we plan to file our first
medicine for registration …

… We went from 21 nationalities in 2015
to 38 in 2018 …

… The stock price on Euronext has increased
>1,000% and the market capitalization has
increased from ~€62 million to ~€4.8 billion
(>7,000%) from 10 May 2005 to 13 March 2019 …

… We keep delivering.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Going concern statement

To date, we have incurred significant operating losses, which are reflected in the balance sheet showing

€297.8 million accumulated losses as at 31 December 2018. We realized a consolidated net loss of €29.3 million

for the year ended 31 December 2018. The board of directors has examined the financial statements and

accounting policies. Based on conservative assumptions, we believe that our existing cash and cash equivalents

of €1,290.8 million at 31 December 2018 will enable us to fund our operating expenses and capital expenditure

requirements at least through the next three years. The board of directors is also of the opinion that additional

financing could be obtained,

if required. Taking this into account, as well as the favorable outlook of

developments of our drug discovery and development activities, the board of directors is of the opinion that it can

submit the financial statements on a going concern basis. Whilst our cash position is sufficient for our immediate

and mid-term needs, the board of directors points out that if the R&D activities continue to go well, we may seek

additional funding to support the continuing development of our products or to be able to execute other business

opportunities.

Risk management and internal control

Risk management is embedded in our strategy and is considered important for achieving our operational targets.

To safeguard the proper implementation and execution of the group’s strategy, our executive committee has set

up internal risk management and control systems within Galapagos. The board of directors has delegated an

active role to the audit committee members to monitor the design, implementation and effectiveness of these

internal risk management and control systems. The purpose of these systems is to manage in an effective and

efficient manner the significant risks to which Galapagos is exposed.

The internal risk management and 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:

▪ financial strength in the long run, represented by revenue growth and a solid balance sheet
▪ liquidity in the short run; cash
▪ business performance measures; operational and net profitability
▪ 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 2018

THE GALAPAGOS GROUP

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 financial markets risk, credit risk, liquidity

risk and currency risk. There are no other important risks, such as interest rate risk, because the group has

nearly no financial debt and has a strong cash position. The group does not buy or trade financial instruments

for speculative purposes. For further reference on financial risk management, see note 31 of the notes to the

consolidated financial statements. We also refer to the “Risk factors” section of the annual report for additional

details on general risk factors.

The company’s internal controls over financial reporting are a subset of internal controls and include those

policies and procedures that:

▪ pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the company

▪ provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with IFRS as adopted by the EU, and that receipts and expenditures of the company

are being made only by authorized persons; and

▪ provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the company’s assets that could have a material effect on the financial statements

Since the company has securities registered with the SEC and is a large accelerated filer within the meaning of

Rule 12b-2 of the U.S Securities Exchange Act of 1934, the company needs to assess the effectiveness of the internal

controls over financial reporting and provide a report on the results of this assessment.

In 2018 management has reviewed its internal controls over financial reporting based on criteria established in

the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the

Treadway Commission (COSO) and engaged an external advisor to help assess the effectiveness of those controls.

As described in Section 404 of the U.S. Sarbanes-Oxley Act of 2002 and the rules implementing such act, we will

include the management and the statutory auditor’s assessment of the effectiveness of internal control over

financial reporting in our annual report on Form 20-F, which is expected to be filed with the SEC on or around

the publication date of the present annual report.

Management as well as the statutory auditor concluded that the group maintained, in all material respects,

effective internal control over financial reporting as of 31 December 2018.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

The Galapagos share

Galapagos NV (ticker: GLPG) has been listed on Euronext Amsterdam and Brussels since 6 May 2005 and on

the Nasdaq Global Select Market since 14 May 2015. Galapagos NV forms part of the Bel20 index (top 20 listed

companies) on Euronext Brussels, the AEX Index (top 25 listed companies) on Euronext Amsterdam, and the

Nasdaq Biotechnology Index on Nasdaq in New York.

The Galapagos share in 2018

130

120

110

100

01.01.2018

01.04.2018

01.07.2018

01.10.2018

31.12.2018

GLPG.AM (in EUR)

GLPG.US (in USD)

In 2018, the average daily trading volume on Euronext was 440,551 shares and €38.7 million turnover. The daily

trading volume on Nasdaq in 2018 was 113,218 ADSs and $11.7 million turnover.

Galapagos vs Next Biotech Index in 2018

1.4

1.3

1.2

1.1

0.9

01.01.2018

01.04.2018

01.07.2018

01.10.2018

31.12.2018

GLPG (Euronext)

Next Biotech Index

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Galapagos vs Nasdaq Biotechnology Index

1.3

1.2

1.1

0.9

0.8

01.01.2018

01.04.2018

01.07.2018

01.10.2018

31.12.2018

GLPG (Nasdaq)

Nasdaq Biotechnology Index

Investor relations activities

We attracted additional sell-side analyst coverage by U.S. and European banks in 2018. Our IR team presented at a

number of conferences in 2018 and did several of broker-organized and self-organized roadshows throughout the

U.S. and Europe. We presented 2017 Full Year, and Q1, Half Year, and Q3 2018 results, and our Annual R&D Update

via webcasts.

The main topics of discussion with investors included the filgotinib development programs with collaboration

partner Gilead, our Phase 3 plans with GLPG1690 in IPF patients, our ROCCELLA global Phase 2b trial with

collaboration partner Servier in osteoarthritis, and our Toledo program for inflammation.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Overview statutory results of Galapagos NV

This overview only concerns the non-consolidated statutory results of Galapagos NV. These results are part

of the consolidated results as discussed in the letter from the management.

Galapagos NV’s operating income in 2018 amounted to €513.1 million compared to €350.6 million in 2017. This

increase is due to internally generated intangible assets – being capitalized R&D expenses – which contributed

by €86.6 million more to operating income than previous year, and due to €87.4 million higher turnover due

to increased milestone revenues and upfront payments. Other operating income amounted to €9.2 million,

including €2.0 million of grants recognized for R&D projects, €1.4 million of recharges to subsidiaries and

€5.4 million recuperation of withholding taxes for scientists. The income recognized for tax incentives for

investments in intangible fixed assets of €11.3 million (2017: €11.2 million, classified as other operating income), is

in 2018 considered as tax income.

The operating costs of 2018 amounted to €654.6 million compared to €490.4 million in 2017. Services and other

goods increased substantially to €299.8 million compared to €201.2 million in 2017, primarily due to increased

internal and external subcontracting for our preclinical studies and clinical trials as well as increased fees for

insourced personnel.

Material purchases increased slightly from €4.8 million in 2017 to €6.2 million in 2018.

Personnel costs in 2018 amounted to €33.4 million compared to €24.8 million in 2017. The number of employees

at Galapagos NV at the end of 2018 amounted to 262 as compared to 214 at the end of 2017, excluding insourced

personnel.

Depreciation increased to €305.7 million in 2018, compared to €251.4 million in 2017, and related primarily to

amortization of R&D expenses.

Galapagos NV’s 2018 financial income increased to €35.7 million compared to €8.4 million in 2017, while financial

costs decreased to €21.3 million compared to €34.4 million in 2017. This can mainly be explained by non-cash

currency exchange gains on U.S. dollar in 2018, as compared to non-cash currency exchange losses on U.S. dollar

in 2017.

Taxes recorded in 2018 consist of €11.3 million tax income, as compared to €34 thousand tax expenses in 2017. This

is due to the reclassification in 2018 of the income recognized for tax incentives for investments in intangible

fixed assets.

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 (e.g. future peak sales, market share, sale prices, 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 (e.g. test results). The

achievement of these assumptions is critical and may impact the recoverability of the amounts capitalized. The

net book value of capitalized R&D expenditure is zero in 2018 compared to €18.7 million in 2017. The driver for this

decrease was the amortization of internally generated intangible assets prior to 2016. R&D expenses capitalized

as from 2016 onwards are fully amortized in the year in which they’re capitalized. R&D expenses capitalized in

previous years are all amortized at 31 December 2018.

Investments in fixed assets in 2018 amounted to €10.0 million, excluding the internally generated assets. They

consisted mainly of costs for the new building, new laboratory and IT equipment, as well as investments in

intangible assets, being software and licenses.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Accrued income in 2017 included receivables for tax incentives of €39.7 million; in 2018 the receivable for tax

incentives amounted to €48.2 million and was included in other receivables.

Galapagos NV’s cash position at the end of 2018 amounted to €1,274.0 million.

The non-consolidated annual accounts of Galapagos NV which we submit for your approval were prepared in

accordance with Belgian accounting rules as well as with the legal and regulatory requirements. They show a

negative result. The financial year 2018 closed with a loss of €115.7 million compared to a loss of €165.9 million

in 2017. Overall, the result of Galapagos NV is affected by the fact that, as from financial year 2010, Galapagos

NV capitalized some of its R&D expenses and revenues that were eligible for such capitalization under Belgian

GAAP and amortized these costs over a 3-year period until 2015. R&D expenses capitalized as from 2016 onwards

are fully amortized in the year itself. This amortization negatively impacted the net result of Galapagos NV by

€1.1 million in 2018, compared to a negative impact of €17.4 million in 2017. The non-consolidated annual accounts

of Galapagos NV show accumulated losses of €459.5 million as at 31 December 2018; we refer to the Going Concern

Statement for justification for the application of the valuation rules under the going concern assumption.

In 2018, neither Galapagos NV nor its affiliates made direct or active use of financial instruments such as hedging

instruments.

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

Disclaimer and other information

This report contains all information required by Belgian law.

Galapagos NV is a limited liability company organized under the laws of 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 “we,” “our,” “the group” or “Galapagos” include

Galapagos NV together with its subsidiaries.

This report is published in Dutch and in English. Galapagos is responsible for the translation and conformity

between the Dutch and English versions. In case of inconsistency between the Dutch and the English versions,

the Dutch version shall prevail.

This report, including the statutory financial statements of Galapagos NV, is available free of charge and upon

request to be addressed to:

Galapagos NV

Investor Relations

Generaal De Wittelaan L11 A3 2800 Mechelen

Belgium

Tel: +32 15 34 29 00

E-mail: ir@glpg.com

A digital version of this report, including the statutory financial statements of Galapagos NV, is available on our

website, www.glpg.com.

We will use reasonable efforts to ensure the accuracy of the digital version, but do not assume responsibility

if inaccuracies or inconsistencies with the printed document arise as a result of any electronic transmission.

Therefore, we consider only the printed version of this report to be legally valid. Other information on our website

or on other websites does not form a part of this report.

As a U.S. listed company, we are also subject to the reporting requirements of the U.S. Securities and Exchange
Commission, or SEC. An annual report will be filed with the SEC on Form 20‑F. The Form 20‑F will be available in
the SEC’s EDGAR database (https://www.sec.gov/edgar.shtml) and a link thereto will be posted on our website.

Forward-looking statements

This report contains forward-looking statements, all of which involve certain risks and uncertainties. These

statements are often, but are not always, made through the use of words or phrases such as “believe,” “anticipate,”

“expect,” “intend,” “plan,” “seek,” “estimate,” “may,” “will,” “could,” “stand to,” “continue,” as well as similar

expressions. Forward-looking statements contained in this report include, but are not limited to, statements

made in the “Letter from the management”, the information provided in the section captioned “Outlook 2019”,

guidance from management regarding the expected operational use of cash during financial year 2019, and

statements regarding the expected timing, design and readouts of ongoing and planned clinical trials (i) with

filgotinib in rheumatoid arthritis, Crohn’s disease, ulcerative colitis, and other indications (ii) with GLPG1690

and GLPG1205 in IPF, (iii) with MOR106 in atopic dermatitis, (iv) with GLPG1972 in osteoarthritis, and (v) with

GLPG3312 in inflammation. We caution the reader that forward-looking statements are not guarantees of future

performance. Forward-looking statements may involve known and unknown risks, uncertainties and other

factors which might cause our actual results, financial condition and liquidity, performance or achievements,

or the development of the industry in which we operate, to be materially different from any historic or

Galapagos NV • Annual Report 2018

THE GALAPAGOS GROUP

future results, financial conditions, performance or achievements expressed or implied by such forward-looking

statements. In addition, even if our results of operations, financial condition and liquidity, and the development

of the industry in which we operate are consistent with such forward-looking statements, they may not be

predictive of results or developments in future periods. Among the factors that may result in differences are

that our expectations regarding our 2019 revenues and financial results and our 2019 operating expenses may be

incorrect (including because one or more of our assumptions underlying our revenue or expense expectations

may not be realized), the inherent uncertainties associated with competitive developments, clinical trial and

product development activities and regulatory approval requirements (including that data from our clinical

research programs in rheumatoid arthritis, Crohn’s disease, ulcerative colitis, psoriatic arthritis, ankylosing

spondylitis, idiopathic pulmonary fibrosis, osteoarthritis, and other inflammatory indications may not support

registration or further development of our product candidates due to safety, efficacy, or other reasons), our

reliance on collaborations with third parties (including our collaboration partner for filgotinib, Gilead, our

collaboration partner for GLPG1972, Servier, and our collaboration partners for MOR106, MorphoSys and Novartis),

and estimating the commercial potential of our product candidates. A further list and description of these

risks, uncertainties and other risks can be found in our Securities and Exchange Commission filing and reports,
including in our most recent annual report on Form 20‑F filed with the SEC and our subsequent filings and
reports filed with the SEC. We also refer to the “Risk Factors” section of this report. 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. We expressly disclaim any obligation to

update any such forward-looking statements in this document to reflect any change in our expectations with

regard thereto or any change in events, conditions or circumstances on which any such statement is based

or that may affect the likelihood that actual results will differ from those set forth in the forward-looking

statements, unless specifically required by law or regulation.

Galapagos NV • Annual Report 2018

R&D

Research & Development

we raise the bar.

R&D

The Galapagos pipeline

We are an integrated biopharmaceutical company active in the discovery, development, and preparation for

future commercialization of medicines with novel modes of action, addressing disease areas of high unmet

medical need. Our pipeline comprises programs ranging from discovery to Phase 3 clinical trials in inflammation,

fibrosis, osteoarthritis (OA), and other indications. Our highly flexible platform is applicable across many

therapeutic areas. Our clinical stage programs include: filgotinib, which is currently in Phase 3 trials in

rheumatoid arthritis (RA), Crohn’s disease (CD), and ulcerative colitis (UC) and in Phase 2 trials in multiple

additional indications; GLPG1690, our fully proprietary autotaxin (ATX) inhibitor, which is currently in the

ISABELA 1 & 2 pivotal trials for idiopathic pulmonary fibrosis (IPF) and the NOVESA Phase 2 proof-of-concept trial

in systemic sclerosis (SSc); GLPG1205, our fully proprietary GPR84 inhibitor which is currently in the PINTA Phase

2 proof-of-concept trial in IPF; GLPG1972, which is in the ROCCELLA global Phase 2 trial in OA patients; MOR106,

which is being evaluated in Phase 1 and 2 trials in atopic dermatitis (AtD) patients; and the Toledo molecule

GLPG3312, aimed at a novel class of targets discovered by us and currently in Phase 1 clinical development. Almost

exclusively these programs are based on inhibiting targets which were identified using our proprietary target

discovery platform.

We have collaborations with Gilead for filgotinib, with Servier for GLPG1972, and with MorphoSys and Novartis

for MOR106. In 2018 we outlicensed our CF programs to AbbVie. The following table highlights key aspects of our

development program indication areas at the beginning of 2019:

Prolific late stage pipeline

area

filgotinib

IPF/fibrosis

AtD

inflammation/fibrosis

preclinical

phase 1

phase 2

phase 3

10+ indications, more pivotal readouts in ‘19

in ph3 and ph2, proprietary

ph2b underway

ph2 underway

>20 programs

Galapagos NV • Annual Report 2018

R&D

Proprietary target discovery platform

Our target discovery platform provides a significant and substantial competitive advantage as it:

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

for a specific disease phenotype

▪ identifies possible points to intervene in a disease pathway by knocking down an individual protein in these

assays; and

▪ 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

Our product candidate filgotinib acts on a target whose role in the specific disease was discovered by us using

our discovery platform and we believe is a proof of success of this approach. Further proof of this approach was

shown in 2017 with autotaxin inhibitor GLPG1690 in IPF patients, and with MOR106 directed toward IL-17C in AtD

patients. Autotaxin and IL-17C are targets we discovered for these diseases.

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 the industry is to discover and develop molecules that alter the activity of

these proteins so that normal 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 discovery process. Our approach to target discovery

is unique as our discovery platform focuses on target identification using primary human cells, which we believe

provides a good system to study the effect that a protein might have on the disease in the human body.

In order to study proteins in human cells, we take advantage of the distinctive properties of adenoviruses.

Adenovirus is the virus that causes the common cold and has the capability to infect almost every type of human

cell. The adenoviruses we work with have been engineered to act as a shuttle vehicle, allowing the delivery of

specific pieces of DNA into human cells. Additionally, these viruses have been made replication incompetent,

meaning they do not replicate in the human cell they infect, and so do not interfere with the processes in the

cell. We engineered the viruses to carry small pieces of DNA, specific for individual human genes. When the

virus enters the cell, this DNA piece leads to the production of a short sequence of RNA that is processed in the

cell to become “short interfering RNA,” or siRNA, which specifically interferes with the mRNA of the protein it

was designed for. By using these viruses, we can cause the cells to block, or “knock-down,” the production of a

certain protein, mimicking what a small molecule drug does in the human body. We built a collection with these

adenoviruses, now in excess of 20,000 viruses, that addresses around 6,000 drugable genes.

Our drug discovery research is based on the targets discovered using this technology. Once a target is validated,

it is tested against large collections of chemical small molecules to identify chemical structures that interact

with the target and block or activate protein production. These chemical structures are then optimized to obtain

“drug-like” characteristics followed by testing of the product candidate in the clinic.

This discovery approach provides starting points for the discovery and development of new mode of action drugs.

Since 2009, we have generated 41 preclinical candidates of which 23 have novel modes of action. Of these, 19 have

entered the clinic, 12 with novel modes of action.

Galapagos NV • Annual Report 2018

R&D

preclinical candidates
entered clinic
novel modes of action

novel modes of action in patient studies

In addition to our pipeline of molecules in the clinic, we have multiple discovery programs which are advancing

toward clinical development. Further to targets and molecules in RA, IBD, and fibrosis, we are exploring new

modes of action in AS, PsA, IBD, AtD, lupus, IPF, SSc, nonalcoholic steatohepatitis, type 2 diabetes, and hepatitis.

Galapagos NV • Annual Report 2018

R&D

Filgotinib: selective JAK1 inhibitor with a potential
best-in-class product profile

Based on results from our Phase 2 trials and the FINCH Phase 3 trials, we believe that filgotinib is a promising

candidate for the treatment of RA, CD and potentially other inflammatory diseases. We are party to a

collaboration agreement with Gilead to develop and commercialize filgotinib in multiple diseases. Under the

terms of the collaboration, Gilead is primarily responsible for development and seeking regulatory approval of

the licensed product. We are required to use commercially reasonable efforts as requested by Gilead to assist

Gilead with certain development activities. Gilead initiated Phase 3 clinical programs in RA, CD, and UC in 2016,

and we and Gilead initiated Phase 2 trials with filgotinib in additional indications in 2017, with the first readouts

from these trials reported in 2018. The following table highlights our filgotinib program and status at the time of

publication of this report:

We build a filgotinib franchise

area

phase 1

phase 2

phase 3

status

rheumatoid arthritis

Crohn’s disease

ulcerative colitis

ankylosing spondylitis

psoriatic arthritis

small bowel CD

fistulizing CD

Sjögren’s

cutaneous lupus

lupus nephropathy

uveitis

recruited

recruiting

recruited

study
completed

recruiting

recruited

recruiting

Markets for inflammation drugs are considerable and growing. We estimate that the inflammation market

could grow to approximately $65 billion by 2027, driven by new drugs filling the current unmet need for oral,

monotherapy treatments with a rapid response, and higher efficacy maintained over time. RA remains the

largest single market indication, which we estimate to be approximately $30 billion, with the other main markets

combined representing a slightly larger opportunity than in RA:

Galapagos NV • Annual Report 2018

R&D

Inflammation market in ~2027, $B

~10
psoriatic arthritis

~8
ankylosing spondylitis

~9
ulcerative colitis

~30
rheumatoid arthritis

~10
Crohn’s

Based on the Phase 2 and 3 data observed with filgotinib in RA and Phase 2 data in CD, AS, and psoriatic arthritis

(PsA) thus far, we believe that filgotinib has the potential to improve treatment standards substantially in RA,

inflammatory bowel diseases (IBD), AS, and PsA. Compared with biologic agents, filgotinib is orally administered,

with a rapid onset, sustained response, and potential for monotherapy. American College of Rheumatology (ACR)

scores with filgotinib in Phase 2 and 3 trials in RA patients are encouraging, and CDAI remission and SES-50 scores

are similarly promising with filgotinib in a Phase 2 trial in CD patients who are naïve to TNF therapy. ACR and

enthesitis scores were encouraging with filgotinib in PsA in the EQUATOR Phase 2 trial, while spine mobility and

function were significantly improved with filgotinib in AS patients in the TORTUGA Phase 2 trial. Filgotinib is

highly selective for JAK1, resulting in favorable tolerability so far, including low rates of infection reported in all

trials.

Our filgotinib program in RA

RA is a chronic autoimmune disease that affects approximately more than three million patients in the United

States and Europe. RA is characterized by inflammation and degeneration of the joints. Patients suffer from

pain, stiffness, and restricted mobility due to a persistent inflammation of multiple joints, ultimately resulting

in irreversible damage of the joint cartilage and bone. According to GlobalData, sales of RA therapeutics across

the 10 main healthcare markets was $21.7 billion in 2017, with the current market being dominated by injectable,

biological therapies. Biologics, mostly TNF therapies, often lose their effect over time, so there continues to be a

considerable unmet need with regard to efficacy, safety, and convenience of use with existing treatments.

New oral therapies that target the Janus kinase (JAK) signaling pathway are emerging to treat inflammatory

diseases; some JAK inhibitors, however, are associated with a range of side effects, including aberrations in low-

density lipoprotein(LDL cholesterol) and red blood and NK cell counts. We discovered JAK1 in an inflammation

target discovery assay in 2003 and subsequently discovered filgotinib as a JAK1 specific small molecule inhibitor.

In a human whole blood assay we demonstrated that filgotinib has a nearly 30-fold selectivity for JAK1 over JAK2

and for JAK1 over JAK3. These findings were independently corroborated by Dr. Iain McInnes at the 2017 Annual

Meeting of the ACR.

We believe the high selectivity of filgotinib for JAK1 may allow for a positive efficacy profile, with an improved

safety profile for filgotinib due to the improved selectivity over JAK2 and JAK3.

Galapagos NV • Annual Report 2018

R&D

Filgotinib
High selectivity for JAK1

JAK1 vs. JAK2

JAK1 vs. JAK3

y
t
i
v
i
t
c
e
e
s
d
o
f

b
n
i
t
o
g
fi

b
n
i
t
i
c
i
r
a
b

b
n
i
t
i
c
a
f
o
t

b
n
i
t
i
c
a
d
a
p
u

b
n
i
t
o
g
fi

b
n
i
t
i
c
i
r
a
b

b
n
i
t
i
c
a
f
o
t

b
n
i
t
i
c
a
d
a
p
u

Source: Galapagos human whole blood assay

Source: Galapagos biochemical assay

“ExVivo Comparison of Baricitinib, Upadacitinib, Filgotinib, and Tofacitinib for Cytokine Signaling in Human Leukocyte Subpopulations,” McInnes et al, ACR 2017

DARWIN Phase 2 program with filgotinib in RA

Clinical trials to date have shown that filgotinib is well-tolerated, with atherogenic index improvement, absence

of anemia, low infection rates and low incidence of deep venous thrombosis and pulmonary embolisms. We

believe its once-a-day oral dosage and its low risk for drug-drug interactions make it convenient for patient use.

We reported positive results from the DARWIN 1 & 2 Phase 2b dose-range finding clinical trials in 2015; these findings

were published in the Annals of Rheumatological Diseases (Westhovens et al 2016 and Kavanaugh et al 2016).

DARWIN 3 is a multi-center, open-label, long-term follow-up safety and efficacy trial of subjects who have

completed either DARWIN 1 or DARWIN 2. All subjects started the trial at the same dose level, either at 200 mg

filgotinib once per day or at 100 mg filgotinib twice per day (except for males in the U.S. sites of these trials who

receive a maximum daily dose of 100 mg), depending on the regimen administered during the preceding trial,

with DARWIN 1 subjects continuing to use filgotinib in combination with MTX.

We and our collaboration partner Gilead reported findings from DARWIN 3 at 132 weeks of treatment at ACR

2018. Promising activity levels were maintained and a favorable tolerability profile was reported. Data in DARWIN

3 were consistent with the risk/benefit profiles reported in DARWIN 1 and 2. These data were presented by Dr.

Arthur Kavanaugh at the 2018 Annual Meeting of the ACR.

Galapagos NV • Annual Report 2018

R&D

Based on our review of published studies, filgotinib has shown the lowest rates of infection, deep venous

thrombosis (DVT) and pulmonary embolisms per 100 patient year experience (PYE) versus other JAKs and other

therapy types thus far in RA:

Low incidence of DVT and infections

filgotinib

baricitinib

tofacitinib

upadacitinib

tocilizumab

adalimumab

event per
100 PYE

50-200 mg

2 and 4 mg QD

5 mg BID

6 and 12 mg BID 4 and 8 mg/kg

DARWIN3
wk132

Genovese et al
ACR 2017

Wollenhaupt
ACR 2017

Genovese
ACR 2017

Genovese
ACR 2012

Burmester
2011

patient year exp.

2,042

6,637

5,278

serious infection

herpes zoster

1.0

1.5

2.9

3.2

DVT/ PE

deaths

2/2,042*
0.1

31/6,754
0.5

0.2

0.3

2.4

3.8

3/1,849
0.2

0.6

725

2.3

3.7

5/725
0.7

0.3

14,994

23,943

4.5

0.6

4.6

0.8

* one single patient experiencing DVT and PE
DVT/PE = deep venous thrombosis/pulmonary embolism
Note: data not from head-to-head studies, comparisons may not be accurate
Tofacitinib DVT/PE data from Mease, ACR 2017 (5 mg bd), and death data from 2012 FDA Medical review
Baricitinib: DVT/PE Weinblatt ACR 2017

FINCH Phase 3 program with filgotinib in RA

In August 2016, Gilead initiated the FINCH global Phase 3 program investigating the efficacy and safety of 100

mg and 200 mg filgotinib once daily, in RA patient populations, ranging from early stage to biologic-experienced

patients:

FINCH 1 is an ongoing 52 week, randomized, placebo- and adalimumab-controlled trial in combination with
methotrexate (MTX) enrolling 1,759 adult patients with moderately to severely active RA who have had inadequate

response to MTX. The primary endpoint is ACR20 at week 12. The trial includes radiographic assessment at weeks

24 and 52. We and Gilead reported on 28 March 2019 that FINCH 1 met primary and key secondary endpoints.

FINCH 2 was a 24 week, randomized, placebo-controlled trial in 449 patients who were on conventional disease-
modifying anti-rheumatic drugs (cDMARD), and had an inadequate response to biological treatment. In this

study, 23.7 percent of patients had received three or more bDMARDs. The primary endpoint was ACR20 at week 12.

We and Gilead reported in September 2018 that FINCH 2 met all primary and key secondary endpoints.

FINCH 3 is an ongoing 52 week, randomized trial in 1,252 MTX-naïve patients to study filgotinib in combination
with MTX, as well as monotherapy. The primary endpoint is ACR20 at week 24. Radiographic progression will also

be assessed. We and Gilead reported on 28 March 2019 that FINCH 3 met the primary endpoint.

In addition, Gilead is performing a dedicated male patient testicular safety trial in UC patients, called MANTA,

concurrent to all Phase 3 programs. This randomized, double-blind, placebo-controlled trial is intended to enroll

adult male UC patients with a treatment phase of up to 26 weeks.

Galapagos NV • Annual Report 2018

R&D

FINCH 1 results

The study achieved its primary endpoint for both doses of filgotinib in the proportion of patients achieving an

American College of Rheumatology 20 percent response (ACR20) compared to placebo at Week 12.

The proportion of patients achieving ACR50 and ACR70 response was also significantly greater for filgotinib

compared with placebo at Week 12, for both doses. Patients receiving filgotinib 100 mg or 200 mg had a

statistically significant reduction in the Health Assessment Questionnaire Disability Index (HAQ-DI) at Week 12

compared with those receiving placebo. The proportions of patients achieving clinical remission (DAS28(CRP) <

2.6) and low disease activity (DAS28(CRP) ≤ 3.2) at Week 12 were significantly higher for patients in both filgotinib

arms compared with placebo. When comparing low disease activity rates at Week 12, filgotinib 200 mg was non-

inferior to adalimumab. Filgotinib 100 mg and 200 mg also significantly inhibited the progression of structural

damage at Week 24 as assessed by change from baseline in modified total Sharp score (mTSS) compared with

placebo.

Top-line FINCH 1 efficacy^ data are summarized in the table below.

filgotinib

adalimumab

placebo

filgotinib

200 mg

+MTX

(n=475)&

76.6***

47.2***

26.3***

49.7***$

100 mg

+MTX

(n=480)&

69.8***

36.3***

18.5***

38.8***

33.9***¥#

23.8***£#

-0.69***

0.13***

-0.56***

0.17***

40 mg

+MTX

(n=325)&

70.8

35.1

14.2

43.4

23.7

-0.61

0.16

+MTX

(n=475)&

49.9

19.8

6.7

23.4

9.3

-0.42

0.38

ACR20 (%)

ACR50 (%)

ACR70 (%)

DAS28(CRP) ≤ 3.2
(low disease activity) (%)

DAS28(CRP) < 2.6
(clinical remission) (%)

HAQ-DI change

mTSS change

& Number of patients randomized to each treatment group and who received at least one dose of study drug
ACR20/50/70 represents American College of Rheumatology 20%/50%/70% improvements.
*** p <0.001, compared with placebo
$ p <0.001, non-inferiority to adalimumab
£ p <0.01, non-inferiority to adalimumab
¥ p <0.01, superiority to adalimumab
# Comparison not adjusted for multiplicity

^ All efficacy time points assessed at Week 12 except mTSS which was assessed at Week 24

The safety profile of filgotinib in FINCH 1 is consistent with prior studies up to Week 24. Serious adverse events

occurred in 4.4 percent, 5.0 percent, 4.3 percent and 4.2 percent of the patients in the filgotinib 200 mg, filgotinib

100 mg, adalimumab and placebo groups, respectively. There were five deaths, two patients were assigned to

the placebo group, two to the filgotinib 200 mg group and one to the filgotinib 100 mg group. Five patients

with a malignancy were also reported -- three receiving placebo, one receiving adalimumab and one receiving

filgotinib 100 mg, respectively. Three venous thrombotic events were observed (two in the placebo group, one

in the filgotinib 200 mg group), and there were four adjudicated major adverse cardiovascular events, two in

the placebo, one in the adalimumab and one in the filgotinib 100 mg groups. The proportion of patients with

herpes zoster was similar across treatment groups (filgotinib 200 mg = 0.4 percent, filgotinib 100 mg = 0.4 percent,

adalimumab = 0.6 percent, placebo = 0.4 percent), as was the rate of serious infections (filgotinib 200 mg = 1.7

percent, filgotinib 100 mg = 1.7 percent, adalimumab = 2.5 percent, placebo = 0.8 percent).

Galapagos NV • Annual Report 2018

R&D

FINCH 2 results

Filgotinib achieved its primary endpoint in the FINCH 2 trial in the proportion of patients achieving an ACR20

at week 12. Also at weeks 12 and 24, the proportion of patients achieving ACR50 and ACR70 response, low disease

activity, and clinical remission were significantly higher for patients receiving once-daily filgotinib 100mg or

200mg compared to patients receiving placebo. Topline efficacy data are summarized in the table below:

non-responder
imputation

ACR20 (%)

ACR50 (%)

ACR70 (%)

DAS28(CRP) < 2.6
(clinical remission)
(%)

DAS28(CRP) ≤ 3.2
(low disease
activity) (%)

week 12

week 24

placebo

filgotinib

placebo

filgotinib

(n=148)

31.1

14.9

6.8

8.1

100 mg

(n=153)

57.5***

32.0***

14.4*

200 mg

(n=147)

66.0***

42.9***

21.8***

25.5***

22.4***

(n=148)

34.5

18.9

8.1

12.2

100 mg

(n=153)

54.9***

35.3**

20.3**

200 mg

(n=147)

69.4***

45.6***

32.0***

26.1**

30.6***

15.5

37.3***

40.8***

20.9

37.9**

48.3***

ACR20/50/70 represents American College of Rheumatology 20%/50%/70% improvements.

* p <0.05, compared to placebo
** p <0.01, compared to placebo
*** p <0.001, compared to placebo

Filgotinib was generally well-tolerated in the FINCH 2 trial, with no new safety signals compared to those reported

in previous trials of filgotinib. Treatment-emergent adverse events and serious adverse events were mostly mild

or moderate in severity. Serious adverse events occurred in 3.4, 5.2 and 4.1 percent of the patients in the placebo,

100mg and 200mg groups, respectively. The proportion of patients who discontinued study drug due to treatment-

emergent adverse events was also similar across groups. Two cases of uncomplicated herpes zoster were reported

in each filgotinib group. Two MACE were identified, one subarachnoid hemorrhage in the placebo group and one

myocardial ischemia in the filgotinib 100mg group. There was one case of non-serious retinal vein occlusion in

the filgotinib 200mg group and no reports of VTE or pulmonary embolism. There were no deaths, malignancies,

gastrointestinal perforations, or opportunistic infections, including active tuberculosis.

FINCH 3 results

The study achieved its primary endpoint in the proportion of patients achieving an American College of

Rheumatology 20 percent response (ACR20) at Week 24. The proportion of patients achieving the primary

endpoint of ACR20 response at Week 24 was significantly higher for filgotinib 200 mg plus MTX and filgotinib 100

mg plus MTX compared with MTX alone.

The proportion of patients achieving ACR50, ACR70, and clinical remission (DAS28(CRP) < 2.6) at Week 24 was

also significantly higher for patients receiving once-daily filgotinib 100 mg or 200 mg plus MTX compared with

patients receiving MTX alone. Additionally, those who received filgotinib experienced greater reduction in the

Health Assessment Questionnaire Disability Index (HAQ-DI) compared with those receiving MTX alone at Week

24. Filgotinib 200 mg monotherapy inhibited the progression of structural damage at Week 24 compared with

MTX alone as assessed by modified total Sharp score (mTSS).

Galapagos NV • Annual Report 2018

R&D

Top-line FINCH 3 efficacy^ data are summarized in the table below:

filgotinib

200 mg

+MTX

(n=416)&

81.0***

61.5***

43.8***

54.1***

-0.94***

0.20

filgotinib

100 mg

+MTX

(n=207)&

80.2*

57.0**

40.1***

42.5***

-0.90**

0.22

filgotinib

200 mg

monotherapy

(n=210)&

78.1

58.1**#

40.0***#

42.4***#

-0.89*#

-0.04**#

MTX

(n=416)&

71.4

45.7

26.0

29.1

-0.79

0.52

ACR20 (%)

ACR50 (%)

ACR70 (%)

DAS28(CRP) < 2.6 (clinical
remission) (%)

HAQ-DI change

mTSS change

& Number of patients randomized to each treatment group and who received at least one dose of study drug
ACR20/50/70 represents American College of Rheumatology 20%/50%/70% improvements.

* p < 0.05 compared with MTX
** p <0.01, compared with MTX
*** p <0.001, compared with MTX
# Comparison not adjusted for multiplicity

^ Efficacy assessed at Week 24 for all endpoints

The safety profile of filgotinib in FINCH 3 is consistent with prior studies up to Week 24. Serious adverse events

occurred in 4.1 percent, 2.4 percent, 4.8 percent, and 2.9 percent of patients receiving filgotinib 200 mg plus MTX,

filgotinib 100 mg plus MTX, filgotinib 200 mg monotherapy and MTX alone, respectively. There was one venous

thrombotic event (in the MTX group), five cases of adjudicated major adverse cardiovascular events (two in the

filgotinib 200 mg plus MTX group, one in the filgotinib 200 mg group and two in the MTX group) and one

malignancy (in the MTX group). There was one death, reported in the filgotinib 200 mg plus MTX group. Serious

infections occurred in 1.0 percent, 1.0 percent, 1.4 percent and 1.0 percent of the patients in the filgotinib 200

mg plus MTX, filgotinib 100 mg plus MTX, filgotinib 200 mg monotherapy and MTX groups, respectively. The

proportion of patients reporting herpes zoster was 0.5 percent in each of the treatment groups.

FINCH and DARWIN 3 safety

We and Gilead also announced interim safety information from four studies of the investigational compound

filgotinib for the treatment of rheumatoid arthritis (RA). The data include 24 week results of the ongoing Phase 3

FINCH 1, 2, and 3 trials, and updated Week 156 safety data from the Phase 2b DARWIN 3 long term extension study

in patients with RA.

Week 24 safety data from the FINCH 1, 2, and 3 studies are aggregated and summarized in the table below. Data

from 3,452 patients are reported, including 2,088 patients who received filgotinib.

Galapagos NV • Annual Report 2018

R&D

placebo/
MTX

(n=1039)
no. (%)

10 (1.0)

4 (0.4)

3 (0.3)

2 (0.2)

4 (0.4)

5 (0.5)

adalimumab

filgotinib

100 mg

200 mg

total

+MTX
40 mg EOW

+MTX/
csDMARD

(n=325)
no. (%)

8 (2.5)

2 (0.6)

0 (0)

1 (0.3)

(n=840)
no. (%)

13 (1.5)

5 (0.6)

0 (0)

1 (0.1)

2 (0.2)

+MTX/
csDMARD

(n=1038)
no. (%)

13 (1.3)

6 (0.6)

1 (0.1)μ

3 (0.3)

0 (0)

(n=210)
no. (%)

3 (1.4)

1 (0.5)

0 (0)

(n=2088)
no. (%)

29 (1.4)

12 (0.6)

1 (<0.1)

4 (0.2)

1 (<0.1)

2 (0.2)

1 (0.5)

5 (0.2)

serious infections&

herpes zoster&

DVT/PE&

death@

malignancy excluding
NMSC&

MACE&

MTX, methotrexate; EOW, every other week; csDMARD, conventional synthetic disease-modifying antirheumatic drug; DVT, deep venous thrombosis;
PE, pulmonary embolism; NMSC, non-melanoma skin cancer; MACE, major adverse cardiac events
& Treatment-emergent events
μ Excludes one retinal vein occlusion
@ All events

The Phase 2b DARWIN 3 long term extension trial initially enrolled 739 patients, who received filgotinib 100

mg twice daily, 100 mg or 200 mg once daily. Safety data are summarized in the table below. Results represent

treatment through 156 weeks or longer, and comprise 2,203 patient-years of exposure (PYE) to filgotinib.

serious infections

herpes zoster

DVT/PE

death

malignancy excluding NMSC

MACE

number of events
(events per 100 patient-years)

PYE=2,203

27 (1.2)

34 (1.5)

2 (0.1)

5 (0.2)

11 (0.5)

3 (0.1)

DVT, deep venous thrombosis; PE, pulmonary embolism; NMSC, non-melanoma skin cancer; MACE, major adverse cardiac events

Galapagos NV • Annual Report 2018

R&D

Our filgotinib program in inflammatory bowel disease (IBD)

IBD includes CD and UC. We observed high activity and a favorable safety profile in a Phase 2 trial with filgotinib

in CD, as reported in The Lancet (Vermeire et al 2016). The profile we saw with filgotinib in this CD patient trial

leads us to believe the product candidate may show activity and tolerability in UC patient trials as well. IBD

affects approximately two million patients (of which approximately 0.5 million are being treated with biologics)

in the United States and Europe, and the market for IBD therapies is approximately $9 billion today, according

to GlobalData. Current treatments are dominated by anti-TNF agents, with new biologic products gaining some

ground in second line treatment.

CD is an IBD of unknown cause, resulting in chronic inflammation of the gastrointestinal (GI) tract with a

relapsing and remitting course. Today, only 10% of CD patients achieve prolonged clinical remission. There are

currently no highly effective oral therapies approved for CD and, similar to RA, treatment is dominated by

injectable, biologic treatments including anti-TNF therapies. Anti-TNF agents have improved the management

of CD; however, not all patients respond to these drugs, and secondary loss of response is reported in up to 50%

of patients per year in placebo-controlled trials. There continues to be a considerable unmet need with these

existing treatments. Dysregulation of the JAK signaling pathway has also been associated with CD, and we believe

that filgotinib, with its high selectivity for JAK1, is a highly attractive candidate for the treatment of CD. By

inhibiting JAK1 but not JAK2, unwanted effects such as anemia may be prevented. This absence of anemia is of

particular importance to IBD patients, who frequently experience fecal blood loss.

Our clinical program with filgotinib in CD

Our FITZROY Phase 2 trial (174 patients) evaluated filgotinib once-daily versus placebo in patients with moderate

to severely active CD and mucosal ulceration. Patients recruited were either anti-TNF naïve or anti-TNF failures.

FITZROY was the first trial in CD to require endoscopic confirmation of lesions at entry, and also to include a

placebo control on endoscopy. The trial comprised two parts, each of 10 weeks duration: the first part investigated

the safety and efficacy of filgotinib 200 mg once daily versus placebo, while the second part of the trial

investigated continued treatment through 20 weeks in an observational exploratory design. As reported in The

Lancet (Vermeire et al ), the FITZROY trial achieved the primary endpoint of clinical remission at 10 weeks:

the percentage of patients overall achieving a Crohn’s Disease Activity Index (CDAI) score lower than 150 was

statistically significantly higher in patients treated with filgotinib (47%) versus patients receiving placebo (23%).

The share of patients achieving 100-points clinical response (60%) also was significant versus those receiving

placebo (41%). We believe that the activity observed with filgotinib in TNF naïve patients in FITZROY compared

favorably to that seen with other treatments in other, separate trials.

Overall, in the FITZROY trial at 20 weeks of treatment, filgotinib demonstrated a favorable safety profile

consistent with the DARWIN trials in RA. An increase in hemoglobin was also observed in FITZROY, without

difference between filgotinib and placebo. No clinically significant changes from baseline in neutrophils or liver

function tests were observed.

Gilead initiated a Phase 3 trial (DIVERSITY) with filgotinib in CD in November 2016. The DIVERSITY Phase 3 trial

investigates efficacy and safety of 100 mg and 200 mg filgotinib once-daily compared to placebo in patients

with moderately to severely active disease including those with prior antibody therapy failure. Gilead will recruit

approximately 1,300 patients from the United States, Europe, Latin America, Canada, and Asia/Pacific regions.

Men and women in the DIVERSITY trial will be randomized to receive placebo, 100 mg or 200 mg filgotinib. In the

United States, males may receive 200 mg if they failed at least one anti-TNF and vedolizumab, a monoclonal anti-

integrin antibody marketed by Takeda. We expect Gilead to complete recruitment for DIVERSITY in the third

quarter of 2020.

In March 2017, Gilead initiated a Phase 2 trial in small bowel CD and a Phase 2 trial in fistulizing CD.

Galapagos NV • Annual Report 2018

R&D

Our clinical program with filgotinib in UC

UC is an inflammatory bowel disease resulting in ulcerations and inflammation of the colon and rectum. Unlike

CD, UC involves damaging inflammation of only the colon and rectum. According to GlobalData, there were

1.2 million patients being treated for ulcerative colitis in the 7 major markets, for combined total sales of just over

$5 billion in 2017. 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 could likely be achieved by a new mechanism of action.

Gilead initiated the SELECTION Phase 2b/3 trial in UC with filgotinib in December 2016. SELECTION investigates

efficacy and safety of 100 mg and 200 mg filgotinib once-daily compared to placebo in patients with moderately

to severely active disease including those with prior antibody therapy failure. Gilead will recruit approximately

1,300 patients from the United States, Europe, Latin America, Canada, and Asia/Pacific regions. Men and women

in SELECTION were randomized to receive placebo, 100 mg or 200 mg filgotinib. In the United States, males may

receive 200 mg if they failed at least one anti-TNF and vedolizumab.

In May 2018, Gilead and we announced that an independent Data Monitoring Committee (DMC) conducted a

planned interim futility analysis of SELECTION after 350 patients completed the induction period in the Phase 2b

portion of the trial. The DMC recommended that the study proceed into Phase 3 as planned at both the 100 mg

and 200 mg once daily dose level in biologic-experienced and biologic-naïve patients. Gilead completed screening

for SELECTION in 2019.

Other clinical programs with filgotinib

In the course of 2017, Gilead initiated clinical trials with filgotinib in Sjögren’s disease, cutaneous lupus

erythematosus, lupus membranous nephropathy, and uveitis. We initiated patient trials with filgotinib in PsA

and AS, for which we reported topline results in 2018. In 2019, Gilead reported completion of recruitment

for Sjögrens disease and cutaneous lupus erythematosus, and that they are no longer recruiting for lupus

membranous nephropathy.

Psoriatic arthritis

PsA is an inflammatory form of arthritis, affecting up to 30% of psoriasis patients. There are approximately

1 million patients in the U.S. and European Union today, with men and women being affected equally. PsA can

cause swelling, stiffness and pain in and around the joints and cause nail changes and overall fatigue. Studies

show that delaying treatment for PsA as little as six months can result in permanent joint damage. Early

recognition, diagnosis and treatment of PsA are critical to relieve pain and inflammation and help prevent joint

damage. Despite the availability of a number of treatment options, few current treatments effectively relieve the

enthesitis (inflammation of the tendons or ligaments) and symptoms in the joints and the skin.

The EQUATOR Phase 2 trial was a multi-center, randomized, double-blind, placebo-controlled trial to assess

the safety and efficacy of filgotinib in adult patients with moderately to severely active PsA. 131 patients were

randomized in the trial in a 1:1 ratio to receive 200 mg filgotinib or placebo once-daily administered for 16 weeks.

EQUATOR was recruited in eight European countries.

In May 2018, Gilead and we announced that the EQUATOR trial achieved its primary endpoint of improvement

in the signs and symptoms of PsA at week 16, as assessed by ACR20 score. There was an ACR20 response of 80%

for filgotinib versus 33% for placebo (p<0.001). The ACR50 and ACR70 responses at week 16 were also significantly

higher for filgotinib versus placebo (ACR50: 48% for filgotinib versus 15%, p<0.001; ACR70: 23% versus 6%, p<0.01).

Filgotinib was generally well-tolerated in the EQUATOR trial, with no new safety signals observed and similar

laboratory changes compared to those reported in previous trials with filgotinib in RA patients. The adverse

event rate was similar in both groups with mostly mild or moderate events reported. There was one serious

Galapagos NV • Annual Report 2018

R&D

infection in the filgotinib group, a patient who experienced pneumonia with a fatal outcome. One other

patient receiving filgotinib developed herpes zoster. There were no cases of opportunistic infection, tuberculosis,

thromboembolism, or malignancy. The full results of EQUATOR were published in TheLancet and presented in a

plenary session at ACR 2018 (Mease et al 2018).

Ankylosing spondylitis (AS)

AS, a systemic, chronic, and progressive inflammatory arthritis, is one of the most common rheumatic diseases

across the globe, affecting approximately 2 million patients in the U.S., Europe, and Japan today. AS primarily

affects the spine and sacroiliac joints and progresses into severe inflammation that fuses the spine, leading to

permanent painful stiffness of the back. Currently, there is no known cure for AS, but there are treatments

and medications available to reduce symptoms and manage pain. Recent studies show that the newer biologic

medications can potentially slow disease progression in some patients; however, patients respond to different

medications with varying levels of effectiveness. Thus, it takes time to find the most effective course of treatment.

TORTUGA was a multi-center, randomized, double-blind, placebo-controlled, Phase 2 trial to assess the safety and

efficacy of filgotinib in adult patients with moderately to severely active AS. The trial was conducted in Belgium,

Bulgaria, Czech Republic, Estonia, Poland, Spain and Ukraine. In total, 116 patients were randomized in a 1:1 ratio

to receive filgotinib 200 mg or placebo once daily for 12 weeks.

In September 2018, Gilead and we announced that the TORTUGA trial achieved its primary efficacy endpoint in

adults with moderately to severely active AS. In the trial, patients treated with filgotinib achieved significantly

greater improvements in AS Disease Activity Score, the primary endpoint, at week 12, with a mean change from

baseline of -1.5 versus -0.6 for those treated with placebo (p<0.0001). More patients receiving filgotinib also achieved

an Assessment in AS Response of at least 20% improvement compared to those treated with placebo (76% versus

40%, p<0.0001).

Adverse events were generally mild or moderate in severity and were reported in an equal proportion of patients

in the filgotinib and placebo groups. Laboratory changes were consistent with those previously reported for

filgotinib, and no new safety signals were observed in the trial. There was one treatment-emergent serious

adverse event reported for a patient receiving filgotinib who experienced pneumonia and recovered after

hospital-based antibiotic treatment. One patient randomized to filgotinib, with an inherited risk for thrombosis,

experienced a non-serious deep venous thrombosis after completing the course of study drug. No deaths,

malignancies, hepatic events, opportunistic infections or cases of herpes zoster were observed in the study. The

full results of the TORTUGA trial were reported in The Lancet (Van der Heijde et al 2018).

Galapagos NV • Annual Report 2018

R&D

Our fibrosis programs

We are building a fibrosis portfolio with different modes of action, with an initial focus on IPF and aim to expand

to other forms of organ and skin fibrosis. To this end, we are currently working on a number of drug candidates

with distinct novel mechanisms of action, which are fully proprietary to us. In IPF, we believe that having

multiple mechanisms of action within our own portfolio of candidates allows the exploration of combinations of

therapies. We also recently expanded clinical research into SSc, and plan to explore additional fibrotic indications

with our earlier stage compounds in 2019.

Moreover, we actively pursue business development opportunities in the space. In January 2019, we announced a

global collaboration with Fibrocor, focused on a novel target for IPF and other fibrotic indications, followed by a

collaboration with Evotec for an undisclosed target in fibrosis, announced in February.

The following is an overview of our IPF portfolio and expected clinical development in 2019:

program

discovery

preclinical

phase 1

phase 2

phase 3

‘1690 (autotaxin) ISABELA IPF

‘1205 (GPR84) PINTA IPF

new IPF programs

‘1690 NOVESA SSc

status end ‘18

status end ’19 (projected)

About IPF

IPF is a chronic, relentlessly progressive fibrotic disorder of the lungs that typically affects adults over the age

of 40. According to GlobalData, IPF affects approximately 200,000 patients in the United States and Europe, and

this population is expected to grow, in part thanks to improved diagnosis. Furthermore, prevalence is expected to
increase with the aging population3. The clinical prognosis of patients with IPF is poor, as the median survival at
diagnosis is two to four years. Currently, no medical therapies have been found to cure or stop the progression

of IPF. The medical treatment strategy aims to slow disease progression and improve quality of life. Lung

transplantation may be an option for appropriate patients with progressive disease and minimal comorbidities.

Regulatory agencies have approved Esbriet4 and Ofev5 for the treatment of mild to moderate IPF. Both Esbriet
and Ofev have been shown to slow the rate of functional decline in IPF and are gaining ground as the standard

of care worldwide. Combined sales of both drugs reached $1.9 billion in 2017, with 74% of global revenues being in

the United States. These regulatory approvals represent a major breakthrough for IPF patients; yet neither drug

stops the decline in lung function, and the disease in most patients on these therapies continues to progress.

Moreover, the adverse effects associated with these therapies are considerable (e.g., diarrhea, liver function test

abnormalities with Ofev; nausea and rash with Esbriet). Therefore, there is still a large unmet medical need as

IPF remains a major cause of morbidity and mortality. We estimate that the market of approved IPF drugs will

grow to $5 billion by 2025.

3 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3848422/
4 Esbriet® (pirfenidone) is an approved drug for IPF, marketed by Roche/Genentech
5 Ofev® (nintedanib) is an approved drug for IPF, marketed by Boehringer Ingelheim

Galapagos NV • Annual Report 2018

R&D

Our IPF trials

GLPG1690

Our most advanced IPF asset is our product candidate GLPG1690, a potent and selective inhibitor of ATX, which

is fully proprietary to us. We identified ATX as a potential target for IPF, after finding the target using an

inflammation assay in our target discovery platform. Pharmacology and translational studies published by other

parties since then suggest that ATX may also play a role in metabolic disease, arthritic pain, oncology, and lung

disease. Palmer et al published in Chest in 2018 on Bristol Meyers Squibb’s LPA1 inhibitor tested in Phase 2,

showing activity in reducing loss of Forced Vital Capacity in mL (FVC) in IPF patients. LPA1 is downstream of

ATX, supporting further evaluation of ATX inhibition. We evaluated GLPG1690 in a preclinical lung fibrosis model

(bleomycin-treated mice) and observed effects on reducing the fibrotic score, numerically favoring GLPG1690 over

Esbriet.

In August 2017, we announced positive topline results for our Phase 2a FLORA trial in IPF patients. This

randomized, double-blind, placebo-controlled trial investigated a once-daily 600 mg oral dose of GLPG1690,

administered for 12 weeks in 23 IPF patients, 17 of whom received GLPG1690 and six placebo. Primary objectives

of the trial were to assess safety, tolerability, pharmacokinetics and pharmacodynamics of GLPG1690 in an IPF

patient population. Secondary objectives included the evaluation of lung function, changes in disease biomarkers,

functional respiratory imaging (FRI), and quality of life. The IPF diagnosis was confirmed by central reading.

Over the 12-week period, patients receiving GLPG1690 showed an FVC increase of 8 mL, while patients on placebo

showed an FVC reduction of 87 mL (mean from baseline):

FVC: stabilization by ‘1690

FVC (∆ baseline, mL)

300

200

100

-100

-200

-300

BSL
N=6
N=17

week 4
N=3
N=16

week 8
N=4
N=15

week 12
N=4
N=13

placebo

‛1690 600 mg

FU
N=4
N=15

* p<0.05

In addition to the demonstrated absence of lung function decline over the 12 week period, sensitive FRI confirmed

disease stabilization in the GLPG1690 arm, versus the expected disease progression in the placebo arm, reaching

statistical significance on two specific parameters, despite the trial not being powered for significance:

Galapagos NV • Annual Report 2018

R&D

FRI: airway volume & resistance
Significant difference between ‘1690 & placebo

specific airway volume (Δ baseline, mL/L)

specific airway resistance (Δ baseline, kPa/sec)

p=0.0137

3.5

2.5

1.5

0.5

p=0.0255

0.01

-0.01

-0.02

-0.03

-0.04

placebo

‛1690

Source: Mignot et al. ATS 2018

Patients on GLPG1690 treatment showed a clear reduction of serum LPA18:2, a biomarker for autotaxin inhibition,

as expected based on the mechanism of action of GLPG1690. Thus, the level of target engagement observed in

Phase 1 with healthy volunteers was confirmed in IPF patients in FLORA.

GLPG1690 was found to be generally well-tolerated in this Phase 2 trial. Rates of discontinuation due to adverse

events, as well as serious adverse event rates, were similar between patients on GLPG1690 and placebo.

Following these encouraging results, in 2018 we announced the design of our worldwide Phase 3 program, ISABELA,

based on feedback from the FDA and EMA. The ISABELA Phase 3 program consists of two identically designed

trials, ISABELA 1 & 2, and plan to enroll a total of 1,500 IPF patients combined. Recruitment will be worldwide, with

a significant proportion of patients in the U.S. and Europe. The program is intended to support application for

a broad label in IPF in both the NDA and Market Authorization Application (MAA) submissions in, respectively,

the U.S. and EU. Patients will continue on their standard of care and will be randomized to one of two doses of

GLPG1690 or placebo. The primary endpoint will be the rate of decline of FVC (in mL) until week 52. Secondary

assessments will include respiratory-related hospitalizations, mortality, quality of life, safety and tolerability.

All patients will continue on their treatment until the last patient in their respective trial has completed 52

weeks of treatment. Therefore, some patients will remain in the study for substantially longer than 52 weeks.

This approach will allow assessment of less frequent clinical events that are otherwise difficult to assess in

conventional clinical studies of one-year duration.

Galapagos NV • Annual Report 2018

R&D

The following is an overview of the ISABELA trial design:

Phase 3 program ISABELA 1&2

screening

at least 52 weeks

‘1690 200mg

‘1690 600mg

placebo

follow-up

▪ 1500 IPF patients total in two identical Phase 3 studies
▪ Patients remain on standard of care throughout
▪ Global program with U.S. & EU component
▪ Primary endpoint: FVC at 52 weeks
▪ Secondary: hospitalizations, mortality, quality of life, safety/tolerability

First patient dosing in ISABELA was announced in December 2018, and new centers are currently being opened, as

recruitment efforts will continue throughout 2019.

We have received orphan drug designation for GLPG1690 in IPF from the FDA as well as from the European Commission.

GLPG1205

The second product candidate for IPF in our pipeline is GLPG1205, currently in a Phase 2 trial called PINTA.

GLPG1205 is a fully proprietary small molecule selectively inhibiting GPR84, a target discovered by us. GLPG1205 showed a

reduction in signs and symptoms in IPF animal models and has shown favorable tolerability in healthy volunteers and UC

patients in previous trials.

PINTA is a randomized, double-blind, placebo-controlled trial investigating a 100 mg once-daily oral dose of GLPG1205.

The drug candidate or placebo will be administered for 26 weeks in up to 60 IPF patients. Patients may remain on their

local standard of care as background therapy. The primary objective of the trial is to assess the change from baseline (FVC

in mL over 26 weeks compared to placebo. Secondary measures include FRI, safety, tolerability, pharmacokinetics and

pharmacodynamics, time to major events, changes in functional exercise capacity, and quality of life. IPF diagnosis will be

confirmed by central reading. Recruitment for PINTA is planned in 10 countries in Europe, North Africa, and the Middle

East. The first patient dosing was announced in October 2018, and we expect to complete recruitment of this trial in the

course of 2019.

PINTA Phase 2 in IPF

26 weeks

GLPG1205, 100mg once daily (n=40)

screening

follow-up

placebo (n=20)

▪ 60 IPF patients on local standard of care
▪ Primary endpoint: forced vital capacity (FVC) at 26 weeks
▪ Secondary: safety, tolerability, broad range of measurements, incl. FRI
▪ Recruitment in 10 countries in Europe, North Africa, & Middle East

Note: FRI = Functional respiratory imaging

Recruitment completion targeted Q4 ‘19

Galapagos NV • Annual Report 2018

R&D

Our fibrosis trials

Systemic sclerosis (SSc)

SSc is a severe autoimmune disease. One of the most visible manifestations is hardening of the skin. SSc affects

approximately 95,000-155,000 patients in the U.S. and Europe, with a predominance of female patients (over 75%).

Broadly speaking, there are two types of SSc: limited cutaneous SSc, where the skin involvement is restricted, and

diffuse cutaneous SSc. In diffuse cutaneous SSc, which represents about 35% of the SSc patient population, skin

thickening affects several body areas, and patients have a higher risk of developing fibrosis of various internal

organs, such as the lung.

Currently, there are no approved drugs for this disease, which has one of the highest mortality rates among

rheumatic diseases. Hence, SSc represents a significant unmet medical need. Current treatment mainly consists

immunosuppressive drugs

and other

symptom-alleviating

therapies

such as methotrexate or

cyclophosphamide. These aim to avoid cutaneous fibrosis, interstitial lung disease and renal crisis.

NOVESA is a double-blind, placebo-controlled Phase 2a trial evaluating the efficacy, safety and PK/PD of GLPG1690

in patients with SSc. NOVESA is planned to recruit 30 patients with diffuse cutaneous SSc.

NOVESA Phase 2 in SSc

4 weeks

screening

24 weeks

‘1690, 600mg oral once daily (n=20)

placebo (n=10)

12 weeks

follow-up

▪ 30 patients with progressive diffuse (multi-organ) SSc
▪ Recruitment in U.S. & 5 EU countries
▪ Primary endpoint: modified Rodnan Skin Score at 24 weeks
▪ Secondary & exploratory endpoints: safety, tolerability, broad range of measures (FVC, QoL, CRISS)

The primary endpoint of NOVESA is the modified Rodnan skin score (mRSS) at 24 weeks. The mRRS measures the

skin thickness as a surrogate measure of disease severity and mortality, with an increase in thickness associated

with involvement of internal organs and increased mortality. Secondary objectives and exploratory endpoints

include FVC, quality of life, and other scores.

Early in 2019 we recruited our first patient for NOVESA.

Galapagos NV • Annual Report 2018

R&D

Our OA program

Sometimes called degenerative joint disease or degenerative arthritis, OA is the most common chronic condition of the

joints. OA can affect any joint, but it occurs most often in the knees, hips, lower back and neck, the small joints of the

fingers, and the bases of the thumb and big toe. According to GlobalData, OA will be the fourth leading cause of disability

by the year 2020. GlobalData estimates that diagnosed cases will grow to approximately 131 million cases by 2024.

In normal joints, a firm, rubbery material called cartilage covers the end of each bone. Cartilage provides a smooth,

gliding surface for joint motion and acts as a cushion between the bones. In OA, the cartilage breaks down, causing

pain, swelling and problems moving the joint. As OA worsens over time, bones may break down and develop growths

called spurs. Bits of bone or cartilage may chip off and float around in the joint. In the body, an inflammatory process

occurs and cytokines (proteins) and enzymes develop that further damage the cartilage. In the final stages of OA, the

cartilage wears away and bone rubs against bone leading to joint damage and more pain.

Although OA occurs in people of all ages, it is most common in people older than 65. Common risk factors include

obesity, previous joint injury, over-use of the joint, and weak thigh muscles. One in two adults will develop symptoms

of knee OA during their lives. One in four adults will develop symptoms of hip OA by age 85. Current treatments for OA

include weight loss, physical therapy, pain and anti-inflammatory medicines, and surgery, all of which address only

the symptoms of the disease. There are currently no disease-modifying therapies available for OA.

GLPG1972/S201086, also referred to as GLPG1972, is a drug candidate developed by us under our collaboration agreement

with Servier. GLPG1972 acts on ADAMTS-5, a key aggrecanase involved in the breakdown of aggrecan in joint cartilage.

ADAMTS-5 has been validated in the literature in both animal models and human explants, and ARGS, a byproduct of

the cartilage breakdown action of ADAMTS-5, has been shown to be elevated in the joints of human OA patients.

In a Phase 1b trial in OA patients in the U.S., GLPG1972 reduced the ARGS neoepitope, a cartilage breakdown biomarker

measured in the serum, by over 50% over a four-week period:

Strong reduction of ARGS
‘1972 Ph1b study in OA patients

e
n

i
l

e
s
a
b
s
v
n
o
i
t
c
u
d
e
r

%
S
G
R
A
m
u
r
e
s

-20

placebo

low dose

med dose

high dose

days post-dosing

Given these results, we and our collaboration partner Servier advanced GLPG1972 to a Phase 2b trial, ROCCELLA,

the start of which was announced in June 2018.

Galapagos NV • Annual Report 2018

ROCCELLA Phase 2b trial

screening

R&D

52 weeks

‘1972 dose A

‘1972 dose B

‘1972 dose C

placebo

follow-up

▪ 850 patients with knee osteoarthritis, recruited globally
▪ Primary endpoint: reduction in cartilage loss at 52 weeks
▪ Secondary: change in structural and clinical parameters, safety/tolerability

ROCCELLA is a multiregional, randomized, double-blind, placebo-controlled, dose ranging trial evaluating the

efficacy and safety of three different once-daily oral doses of GLPG1972 in patients with knee osteoarthritis. The

trial is planned to recruit approximately 850 patients in up to 15 countries. We are responsible for ROCCELLA in

the U.S., where we retain full commercial rights, and Servier will run the trial in all other countries.

The primary objective of ROCCELLA is to evaluate the efficacy of at least one dose of GLPG1972 compared

to placebo in reducing cartilage loss after 52 weeks of treatment. Cartilage thickness will be measured using

quantitative magnetic resonance imaging of the central medial tibiofemoral compartment of the target knee.

Secondary objectives include safety and tolerability, several additional measures of structural progression,

changes in bone area, pain, function, stiffness, and patient global assessment.

We intend to finalize recruitment of ROCCELLA in the second half of 2019.

We work with Servier to develop GLPG1972. We are eligible to receive milestones and single-digit royalties on

potential commercial sales for GLPG1972, while we retain full commercial rights in the United States.

Galapagos NV • Annual Report 2018

R&D

Our AtD program

AtD, the most severe and common type of eczema, is a chronic relapsing inflammatory skin disease that causes

severe itch, dry skin and rashes, predominantly on the face, inner side of the elbows and knees, and on hands

and feet. Scratching of the afflicted skin leads to a vicious cycle causing redness, swelling, cracking, scaling of

the skin and an increased risk of bacterial infections. Lichenification, thickening of the skin, is characteristic in

older children and adults. The National Eczema Association estimates that AtD affects over 30 million Americans

or up to 25% of children and 2-3% of adults. Sixty percent of AtD patients are diagnosed in the first year of life,

and 90% of patients have a disease onset before age five. Symptoms commonly fade during childhood, however,

approximately 10-30% of the patients will suffer from AtD for life. A smaller percentage first develop symptoms

as adults.

Generic drugs are the approved standard of care, including immunomodulators cyclosporine and mycophenolate

mofetil and topical treatments. There are disease-modifying biologics and small molecules currently in
development, with dupilimab (targeting IL-4Rα) most recently approved.

MOR106 is a human monoclonal antibody designed to selectively target IL‑17C in clinical development worldwide.
IL-17C as a target for AtD was discovered by us and has been shown to be distinct from other members of the

IL-17 cytokine family, playing an important and pro-inflammatory role in certain skin disorders. MOR106 potently

inhibits the binding of IL-17C to its receptor and thus inhibits its biological activity.

MOR106 arises from an alliance between us and MorphoSys, in which both companies contributed their core

technologies and expertise and equally shared costs and benefits. In July 2018, we and MorphoSys announced that

we entered into a collaboration regarding MOR106 with Novartis.

We evaluated MOR106 in a randomized, double-blind, placebo-controlled Phase 1 trial, with the first part

evaluating single ascending doses (SAD) followed by multiple ascending doses (MAD) compared to placebo in

approximately 25 patients with moderate to severe AtD in several European centers. Topline results of the

complete trial were reported in September 2017. In the MAD portion with MOR106 in patients, all adverse drug

reactions observed were mild-to-moderate and transient in nature and did not lead to clinically relevant safety

signals. No serious adverse events and no infusion-related reactions were recorded.

Even though the trial was not statistically powered to show differences in efficacy between treatment groups,

at the highest dose level of MOR106, in 83% of patients (five out of six) an improvement of at least 50% in signs

and symptoms of AtD measured by the Eczema Area and Severity Index (EASI-50) was recorded at week four. The

onset of activity was rapid and occurred within a few weeks and was maintained for over two months after the

last treatment. Among patients receiving placebo, in 17% of patients (one out of six) an EASI-50 improvement was

seen at week four.

As reported at AAD 2018, the pooled, mean EASI scores over time versus placebo show a sustained effect for weeks

after completion of dosing:

Galapagos NV • Annual Report 2018

R&D

MOR106 Ph1b
EASI, % change from baseline, pooled data, median

-10

-20

-30

-40

-50

-60

-70

-80

-90

-100

e
n

i
l

e
s
a
b
m
o
r
f
e
g
n
a
h
c
%

weeks after start of treatment

infusion

placebo

MOR106

Following the results of MOR106, together with Morphosys and then Novartis, we established a Phase 2

development program to enable a Phase 3 program that will be conducted by Novartis. We conduct all of the

Phase 2 clinical research, with funding from Novartis.

We initiated the Phase 2 IGUANA trial with MOR106 in May 2018. This trial is aimed at evaluating various dosages

and administration frequency. In the IGUANA Phase 2-trial, approximately 240 patients with moderate-to-severe

AtD are treated over a 12-week period with one of three different intravenous doses of MOR106 (1, 3 or 10 mg/

kg) or placebo using two different dosing regimens, in multiple centers across Europe. The placebo controlled,

double-blind study will evaluate the efficacy, safety and pharmacokinetics of MOR106. Dosing at two or four-

week intervals will be evaluated over the 12-week treatment period, followed by a 16-week observation period. The

primary objective will be assessed by the percentage change from baseline in EASI score at week 12.

IGUANA Phase 2 trial

screening

12 weeks

MOR106, 1mg/kg

MOR106, 3mg/kg

MOR106, 10mg/kg

placebo

16 week
follow-up

▪ ~240 patients with moderate-to-severe AtD
▪ IV infusion at 2 or 4 week intervals for 1 & 3 mg/kg
▪ IV infusion at 2 week interval for 10 mg/kg
▪ Recruitment in Europe
▪ Primary endpoint: % change from baseline in EASI score at week 12

We expect to report the primary analysis from IGUANA in 2019.

Galapagos NV • Annual Report 2018

R&D

In September 2018 we initiated a Phase 1b bridging trial testing a subcutaneous formulation of MOR106. This

bridging trial is a parallel-design Phase 1 clinical trial conducted in two parts. Part 1 is a single center, randomized,

open-label trial in healthy volunteers who are treated with different single dose levels of MOR106 administered

subcutaneously or intravenously. Part 2 is a multiple center, randomized, placebo-controlled, multiple dose trial

in patients with moderate to severe AtD who will be treated subcutaneously for 12 weeks. Safety and tolerability,

pharmacokinetics and occurrence of anti-drug-antibodies after administration of MOR106 will be assessed as

endpoints. In addition, the efficacy of MOR106 will be explored in subjects with moderate to severe AtD.

MOR106 Phase 1b bridging trial

screening

part 1, healthy volunteers

part 2, atopic dermatitis patients

s.c. 320mg, n=30

s.c. placebo, n=15

12 weeks, bi-weekly dosing, loading dose D1

16 week
follow-up

▪ Primary endpoints: safety, tolerability, PK
▪ Recruitment in EU
▪ Secondary endpoints Part 2: EASI/other efficacy scores, patient reported outcomes

We expect to report the topline results of this trial in 2019.

We initated a Phase 2 trial testing a subcutaneous formulation of MOR106 in combination with topical

corticosteroids in patients with moderate to severe AtD. This trial, called GECKO, aims to randomize 60 patients

who receive either a dose of MOR106 or placebo subcutaneously for 8 weeks, together with topical steroids, with

a 16 week follow-up period foreseen. The primary endpoint of GECKO is the incidence of treatment emergent

adverse events and severe adverse events through day 169.

Pharmacokinetics and occurrence of anti-drug-antibodies after administration of MOR106 will be assessed as

secondary endpoints. In addition, the efficacy of MOR106 will be explored.

Recruitment for GECKO will take place in the U.S. and Canada and will serve as a first trial under an IND to be

submitted to the FDA.

GECKO Phase 2 trial

screening

8 weeks, s.c. dosing every other week

MOR106, n=40

placebo, n=20

16 week
follow-up

▪ Patients with moderate-to-severe AtD, remain on topical steroid
▪ Double (loading) dose on day 1 only
▪ Primary endpoint: incidence of TEAEs and SAEs through day 169
▪ Secondary measures: PK & immunogenicity
▪ Exploratory measures: EASI and other efficacy scores
▪ Recruitment in Canada & U.S.

Galapagos NV • Annual Report 2018

R&D

Our Toledo program

‘Toledo’ is a code name for a novel target class discovered by us. Molecules inhibiting this target family effectuate

a dual mode of action on inflammation by stimulating anti-inflammatory cytokines and inhibiting pro-

inflammatory cytokines. We have observed unprecedented activity in various inflammatory preclinical models

with compounds targeting the class.

Below are the results for the first Toledo compound, GLPG3312, in three preclinical models, each demonstrating

a different mechanism of IBD. These results were first reported at our R&D Update in October 2018. Prior to

discovering Toledo, no single compound showed activity in all three of these preclinical models in our research:

DSS model

T-cell transfer model

MDR1 model

x
e
d
n

y
t
i
v
i
t
c
a
e
s
a
e
s
i
d

)

C
U
A

(

***

healthy diseased

int.
control

Toledo

healthy diseased

IL-12p40
Ab

Toledo

healthy diseased

abatacept Toledo

*p < 0.05; ***p < 0.001

We are now executing on a broad program to discover and develop multiple series of compounds acting on

the Toledo class of targets, aimed at activity across numerous conditions, with a key focus on inflammation.

We initiated our first Phase 1 trial with GLPG3312 in early 2019 to evaluate the efficacy, safety, tolerability, and

pharmacokinetics and pharmacodynamics of GLPG3312 in up to 76 adult healthy male volunteers.

In the second half of 2019, we aim to report topline results for GLPG3312 as well as initiate a Phase 1 trial with the

second Toledo compound, GLPG3970.

The development strategy for Toledo is to advance multiple Toledo candidates across different selectivity profiles,

and to test these in a broad panel of in vivo disease models targeting a number of indications.

The graph below shows the current status of our Toledo program. The different disease areas that we are

currently investigating are IBD, RA, psoriasis (Pso), systemic lupus erythematosus (SLE), OA, osteoporosis (OP), and

fibrosis (Fib). The first generation Toledo, GLPG3312, has delivered promising preclinical results in IBD, RA, Pso, PsA

and Fib, and we expect to generate preclinical data in SLE, OA and OP in 2019. The second generation, GLPG3970,

has shown results in IBD, RA, Pso, SLE and fibrosis, with preclinical read-outs for PsA, SLE, OA and OP planned for

2019. The third, fourth and fifth generation are currently in the lead optimization (LO) stage.

As a next step, we plan on setting up multiple parallel-running proof-of-concept (PoC) trials in patients to
investigate swiftly and efficiently the potential across the different Toledo compounds. A PoC trial for the 1st
generation Toledo compound, GLPG3312, is planned for late 2019, pending satisfactory results of the Phase 1 trial

currently ongoing.

Galapagos NV • Annual Report 2018

R&D

Our Toledo development strategy

▪ Develop multiple candidates across different profiles
▪ Test in broad panel of in vivo disease models
▪ Plan multiple PoC’s in patients in parallel to maximize potential

IBD

Pso

PsA

SLE

Fib

1st gen

‘3312

2nd gen

‘3970

3rd gen

4th gen

5th gen

2019

Galapagos NV • Annual Report 2018

R&D

CF program

Cystic fibrosis (CF) is a rare, life-threatening, genetic disease affecting the lungs and the digestive system,

impacting approximately 80,000 patients worldwide.

Despite the approval of several drugs, there is need for better therapies to improve pulmonary function for a large

majority of the patient population. Though many pediatric patients have normal lung function at the time of

diagnosis, physicians generally believe that earlier treatments can have downstream benefits for the patient by

slowing the deterioration in lung function.

In October 2018, we and AbbVie announced a restructuring of our CF alliance. AbbVie took over all programs in

CF and will continue the development of a combination therapy for CF.

AbbVie obtained exclusive worldwide rights to the current CF drug candidate portfolio developed by the two

companies in the course of the collaboration. The portfolio includes all potentiator and corrector candidates

for CF, with the exception of GLPG1837 and a specific arrangement for GLPG2737. We retain rights to these two

compounds for use outside the field of CF.

AbbVie will be responsible for all future activities and will bear all costs associated with the portfolio in CF going

forward.

We are eligible to receive up to $200 million in additional milestone payments from AbbVie pending completion

of certain development, regulatory, and commercial achievements in CF by AbbVie, as well as royalties ranging

from the single digits to the low teens. AbbVie is eligible for future milestone payments and tiered single digit

royalties on future global commercial sales of GLPG2737, if approved, in indications outside CF.

Galapagos NV • Annual Report 2018

Risk factors

Description of the risks of which

investors should be aware

we raise the bar.

RISK FACTORS

Risks related to product development, regulatory
approval and commercialization

We operate adequate standard operating procedures to secure the integrity and protection of our research and

development activities and results, and the optimum allocation of our R&D budgets. The progress of the most

important research and development programs is continuously monitored by our executive committee; they are

discussed with the board of directors at least once per quarter, and board members with expertise in clinical

and scientific matters occasionally attend meetings with our scientific staff to discuss and assess such programs.

Nevertheless, due to our limited resources and access to capital, we must and have in the past decided to prioritize

development of certain product candidates; these decisions may prove to have been wrong and may adversely

affect our business.

We are heavily dependent on the success of our product candidate filgotinib. We are also dependent on the

success of our other product candidates, such as GLPG1690, GLPG1205, GLPG1972, MOR106, and GLPG3312. We cannot

give any assurance that any product candidate will successfully complete clinical trials or receive regulatory

approval, which is necessary before it can be commercialized.

Our business and future success is substantially dependent on our ability to develop successfully, obtain

regulatory approval for, and then successfully commercialize our product candidate filgotinib and our other

product candidates. We are not permitted to market or promote any of our product candidates before we receive

regulatory approval from the FDA, the EMA or any other comparable regulatory authority, and we may never

receive such regulatory approval for any of our product candidates. We cannot give any assurances that our

clinical trials for filgotinib or our other product candidates will be completed in a timely manner, or at all. We

have never submitted an NDA. If filgotinib or any other product candidate is not approved and commercialized,

we will not be able to generate any product revenues for that product candidate.

The regulatory approval processes of the FDA, the EMA and other comparable regulatory authorities are lengthy,

time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for

our product candidates, our 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 we experience

delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial

prospects of our product candidates will be harmed, and our ability to generate product revenues from any of

these product candidates will be delayed. If filgotinib or any other product candidate is found to be unsafe or lack

efficacy, we will not be able to obtain regulatory approval for it and our business would be materially harmed.

The rates at which we complete our scientific studies and clinical trials depend on many factors, including,

but 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 our clinical trials and by extension, our business,

financial condition and prospects.

Our 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.

Galapagos NV • Annual Report 2018

RISK FACTORS

Undesirable side effects caused by our product candidates could cause us 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 these occurrences may harm our business, financial condition and prospects significantly.

Based on preclinical findings, we expect that filgotinib, if approved, may have a labeling statement warning

female patients of child-bearing age to take precautionary measures of birth control to protect against pregnancy,

similar to warnings included with other frequently used medications in RA, such as methotrexate.

In addition, there may be dose limitations imposed for male patients that are prescribed filgotinib, if approved. In

connection with the DARWIN clinical program, we agreed with the FDA to exclude the 200 mg filgotinib daily dose

for male subjects in the United States; males received a maximum daily dose of 100 mg in the U.S. sites in these

trials. This limitation was not imposed by any other regulatory agency in any other jurisdiction in which the

DARWIN clinical program is being conducted. We agreed to this limitation because in both rat and dog toxicology

studies, filgotinib induced adverse effects on the male reproductive system and the FDA determined there was

not a sufficient safety margin between the filgotinib exposure at the no-observed-adverse-effect-level, or NOAEL,

observed in these studies and the anticipated human exposure at the 200 mg daily filgotinib dose. Accordingly,

in connection with the DARWIN 3 clinical trial, in the United States, male subjects are dosed at a daily dose of

100 mg only. Male participants in this study and their partners are required to use highly effective contraceptive

measures for the duration of the study and during a washout period thereafter. As an additional safety measure,

we monitor clinical laboratory changes in hormone levels for subjects in the DARWIN 3 clinical trial.

More recently generated non-clinical data showed filgotinib did not induce any macroscopic or microscopic

findings in the male reproductive system in animals with higher filgotinib exposure versus previous studies.

The Phase 3 FINCH program, led by our collaboration partner Gilead, is evaluating 100 mg and 200 mg filgotinib

in both males and females in major RA patient populations world-wide. Men and women in both the Phase 2b/

3 SELECTION and Phase 3 DIVERSITY trials in UC and CD, respectively, will be randomized to receive placebo, 100

mg or 200 mg filgotinib. In these SELECTION and DIVERSITY trials in the United States, males may receive 200 mg

only if they failed conventional therapy, anti-TNF and vedolizumab. The filgotinib Phase 3 program also contains

dedicated male patient testicular safety study called MANTA.

Even if filgotinib does receive regulatory approval or marketing authorization, the FDA or other regulatory

authorities may impose dosing restrictions that differ from the approved dosing regimen in other jurisdictions.

Box warnings, labeling restrictions, dose limitations and similar restrictions on use could have a material adverse

effect on our ability to commercialize filgotinib in those jurisdictions where such restrictions apply.

If we are not able to maintain orphan product exclusivity for GLPG1690, or obtain such status for other or for

future product candidates for which we seek this status, or if our competitors are able to obtain orphan product

exclusivity before we do, we may not be able to obtain approval for our competing products for a significant

period of time.

Our commercial success depends upon attaining significant market acceptance of our product candidates, if

approved, among physicians, healthcare payers, patients and the medical community.

Coverage and reimbursement decisions by third-party payers may have an adverse effect on pricing and

market acceptance. Legislative and regulatory activity may exert downward pressure on potential pricing and

reimbursement for any of our product candidates, if approved, that could materially affect the opportunity to

commercialize.

Galapagos NV • Annual Report 2018

RISK FACTORS

As a result of the 2016 election in the United States, there is great political uncertainty concerning the fate of

the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,

or, collectively, the ACA, which became law in the United States in 2010, and other healthcare laws. The United

States Congress is expected to draft legislation to repeal parts of the ACA, but it is uncertain when such legislation

would be passed and whether Congress would replace the law and what any replacement law would encompass.

We cannot predict any initiatives that may be adopted in the future.

Risks related to our financial position and need for
additional capital

We are a clinical-stage biotechnology company and have not yet generated significant income. Our operations to

date have been limited to developing our technology and undertaking preclinical studies and clinical trials of our

product candidates.

Since our inception, we have incurred significant operating losses. We expect to continue incurring significant

research, development and other expenses related to our ongoing operations, and to continue incurring operating

losses for the foreseeable future. We do not anticipate generating revenues from sales of products for the

foreseeable future, if ever. Because of the numerous risks and uncertainties associated with pharmaceutical

product development, we are unable to predict the timing or amount of expenses and when we will be able to

achieve or maintain profitability, if ever.

We will require substantial additional future capital which may not be available to us on acceptable terms, or

at all, in order to complete clinical development and, if we are successful, to commercialize any of our current

product candidates. In addition, raising additional capital may cause dilution to our existing shareholders, restrict

our operations or require us to relinquish rights to our 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 our ability to conduct our business. In the event

that we enter into collaborations and/or licensing arrangements in order to raise capital, we may be required to

accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights

to technologies or product candidates.

For further reference on financial risks in particular, see note 31 of the notes to the consolidated financial

statements.

Risks related to our reliance on third parties

We may not be successful

in maintaining development and commercialization collaborations, and a

collaboration partner may not devote sufficient resources to the development or commercialization of our

product candidates. In particular, we are heavily dependent on Gilead for its further development of our product

candidate filgotinib. Gilead may not devote sufficient resources or give sufficient priority to the filgotinib

program. Our collaborators may not elect to advance the product candidates on which we collaborate. Gilead

may not be successful in the further development and commercialization of filgotinib, even when they do devote

resources and prioritize their efforts for filgotinib.

Galapagos NV • Annual Report 2018

RISK FACTORS

The collaboration arrangements that we have established, and any collaboration arrangements that we may

enter into in the future, may ultimately not be successful, which could have a negative impact on our business,

results of operations, financial condition and growth prospects. It is possible that a collaboration partner may not

devote sufficient resources to the development or commercialization of our 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 our business could be substantially harmed.

We rely 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. Our suppliers are required to adhere to contractual terms that include anti-bribery

and anti-corruption provisions. Our general terms and conditions of purchase also contain a specific clause on

anti-bribery and anti-corruption. They can be found on our website.

We have relied on and plan to continue to rely on contract research organizations, or CROs, to monitor

and manage data for our preclinical and clinical programs. We and our CROs also rely on clinical sites and

investigators for the performance of our 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 or meet quality standards, regulatory requirements or expectations, our clinical trials may be

extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully

commercialize our product candidates. We do retain responsibility for all our studies and are required to and have

put in place measures to manage, oversee, and control our studies, including the CRO selection process, audits,

strong focus on deliverables, timelines, roles & responsibilities, and oversight of conduct of the studies.

We rely on clinical data and results obtained by third parties that could ultimately prove to be inaccurate or

unreliable.

As part of our strategy to mitigate development risk, we seek to develop product candidates with validated

mechanisms of action and we utilize biomarkers to assess potential clinical efficacy early in the development

process. This strategy necessarily relies on clinical data and other results obtained by third parties. If the third-

party data and the results that we rely on prove to be inaccurate, unreliable or not applicable to our product

candidates, we could make inaccurate assumptions and conclusions about our product candidates and our

research and development efforts could be materially adversely affected.

Risks related to our competitive position

We face significant competition for our drug discovery and development efforts, and if we do not compete

effectively, our commercial opportunities will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant

technological change. Our competitors may develop drug products that render our products obsolete or non-

competitive by developing more effective drugs or by developing their products more efficiently. In addition, our

ability to develop competitive products would be limited if our competitors succeeded in obtaining regulatory

approvals for drug candidates more rapidly than we were able to or in obtaining patent protection or other

intellectual property rights that limited our drug development efforts.

Galapagos NV • Annual Report 2018

RISK FACTORS

Risks related to our intellectual property

Our ability to compete may decline if we do not adequately protect our proprietary rights.

We endeavor to protect our proprietary technologies and know-how by entering into confidentiality and

proprietary information agreements with our employees and partners, and by setting up special procedures (e.g.

with respect to the handling of the laboratory books).

Our commercial success depends on obtaining and maintaining proprietary rights to our product candidates,

as well as successfully defending these rights against third party challenges. We will only be able to protect

our 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 we fail to maintain to protect or to

enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our

results of operations.

Pharmaceutical patents and patent applications involve highly complex legal and factual questions, which, if

determined adversely to us, could negatively impact our patent position. Our success will depend in part on our

ability to operate without infringing the intellectual property and proprietary rights of third parties. We cannot

guarantee that our business, products and methods do not or will not infringe the patents or other intellectual

property rights of third parties. There is significant litigation activity in the pharmaceutical industry regarding

patent and other intellectual property rights. Such litigation could result in substantial costs and be a distraction

to management and other employees.

The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve

complex legal and factual questions. The interpretation and breadth of claims allowed in some patents covering

pharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially

by the facts and circumstances that pertain to the patented compositions and the related patent claims. The

standards of the United States Patent and Trademark Office, the European Patent Office, and other foreign

counterparts are sometimes uncertain and could change in the future. If we fail to obtain and maintain patent

protection and trade secret protection of our product candidates, we could lose our competitive advantage and

the competition we face would increase, reducing any potential revenues and adversely affecting our ability to

attain or maintain profitability.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we

may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek

protection.

Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout

the world would be prohibitively expensive, and our intellectual property rights in some countries could be less

extensive than those in the United States and Europe. Consequently, we may not be able to prevent third parties

from practicing our inventions in all countries, or from selling or importing products made using our inventions.

Galapagos NV • Annual Report 2018

RISK FACTORS

Risks related to our organization, structure and
operation

Our future success depends on our ability to retain the members of our executive committee and to attract,

retain and motivate qualified personnel. If we are not successful in attracting and retaining highly qualified

personnel, we may not be able to successfully implement our business strategy. Attractive development and

training programs, adequate remuneration and incentive schemes and a safe and healthy work environment

mitigate this risk.

We expect that if we continue to build our development, medical and commercial organizations, we will require

significant additional investment in personnel, management and resources. Our ability to achieve our research,

development and commercialization objectives depends on our ability to respond effectively to these demands

and expand our internal organization, systems, controls and facilities to accommodate additional anticipated

growth. If we are unable to manage our growth effectively, our business could be harmed and our ability to

execute our business strategy could suffer.

We currently have a limited marketing and sales organization. To the extent any of our product candidates for

which we maintain commercial rights is approved for marketing, if we are unable to establish marketing and

sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may

not be able to effectively market and sell any product candidates, or generate product revenues.

Our information technology systems could face serious disruptions that could adversely affect our business.

Continuing an uninterrupted performance of our IT system is critical to the success of our business strategy

and operations. A recovery plan for data has been implemented, as well as a system for interception of power

failures. Fire walls and virus scanners provide an additional and adequate protection. Our personnel should

adhere to continuity plans and procedures regarding access rights and installation of different programs. Business

interruptions could delay us in the process of developing our product candidates. This risk has a high potential

impact, but is mitigated by policies and procedures such as surveillance of the buildings, annual appraisals and

bonuses, and monthly management meetings.

We have to comply with applicable data privacy laws, including the European General Data Protection Regulation,

or GDPR, which imposes strict obligations and restrictions on the collection and use of personal data. In the

ordinary course of our business, we collect and store sensitive data. Many third party vendors that support our

business processes also have access to and process sensitive information. Although we have taken preventative

measures and set up procedures regarding data processing, data breaches, loss of data and unauthorized access

could still occur. These could result in legal claims or proceedings, liability under laws that protect the privacy

of personal information, including the GDPR, and significant regulatory penalties, disrupt our operations and

damage our reputation.

Despite our efforts to monitor social media and comply with applicable rules, there is a risk that the use of

social media by us or our employees to communicate about our drug candidates or business may cause us to

be found in violation of applicable requirements. In addition, our employees may knowingly or inadvertently

make use of social media in ways that may not comply with our social media policy or other legal or contractual

requirements, which may give rise to liability, lead to the loss of trade secrets, or result in public exposure of

sensitive information. Furthermore, negative posts or comments in social media could seriously damage our

reputation, brand image, and goodwill.

Galapagos NV • Annual Report 2018

RISK FACTORS

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 royalties under the collaboration arrangements, which may bring additional

uncertainties to our business development and prospects.

We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions

could adversely affect our share price, operating results and results of operations. We may acquire companies,

businesses and products that complement or augment our existing business. We may not be able to integrate

any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired

business could be expensive and time-consuming. Integration efforts often take a significant amount of time,

place a significant strain on managerial, operational and financial resources, result in loss of key personnel and

could prove to be more difficult or expensive than we predict. As part of our efforts to acquire companies, business

or product candidates or to enter into other significant transactions, we conduct business, legal and financial

due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our

efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not

realize the intended advantages of the transaction.

The United Kingdom held a referendum on 23 June 2016 in which a majority voted for the United Kingdom’s

withdrawal from the European Union (referred to as “Brexit”). While the United Kingdom’s withdrawal from

the European Union is expected to take effect shortly after the date of publication of this report, significant

uncertainty remains regarding the future relationship between the United Kingdom and the European Union,

in particular if the United Kingdom and the European Union fail to reach agreement on the terms of such

withdrawal (referred to as a “No-Deal Brexit”). The effects of Brexit have been and are expected to continue to

be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic

conditions in Europe and globally and could continue to contribute to instability in global financial and foreign

exchange markets. Brexit could also have the effect of disrupting the free movement of goods, services and people

between the United Kingdom and the European Union. In the event of a No-Deal Brexit, we anticipate incurring

additional costs for customs duties and declarations, and handling and storage of supplies. In addition, we expect

that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations. If the United

Kingdom significantly alters its regulations affecting the pharmaceutical industry, we could face significant new

costs and altered regulations could also add time and expense to the process by which our product candidates

receive regulatory approval in the United Kingdom and European Union. Given these possibilities and others we

may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, results of

operations and financial condition could be adversely affected by Brexit is uncertain.

If we are unable to use tax loss carryforwards to reduce future taxable income or benefit from favorable tax

legislation, our business, results of operations and financial condition may be adversely affected. We 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 influence our activities, financial situation and results.

Such potential changes and their impact are monitored carefully by management and its advisors.

Being active in research and development in Belgium and France, we have benefited from certain research and

development incentives. If the Belgian and/or the French government decide to eliminate, or reduce the scope or

the rate of, the research and development incentive benefit, either of which it could decide to do at any time, our

results of operations could be adversely affected.

Galapagos NV • Annual Report 2018

RISK FACTORS

As a company active in research and development in Belgium, we also expect to benefit from the “innovation

income deduction” in Belgium. The innovation income deduction regime allows net profits attributable to

revenue from among others patented products (or products for which the patent application is pending) to be

taxed at a lower rate than other revenues, i.e., 4.4%, and 3.75% as of 1 January 2020.

When taken in combination with tax losses carried forward and research and development incentives mentioned

above, we expect that this will result in a long-term low rate of corporation tax for us. It should be noted however

that the Belgian corporate income tax reform introduced as of assessment year 2019 a defacto minimum taxable

base, whereby the existing tax attributes have to be allocated into 2 so-called “baskets”: a first basket which

contains the tax deductions that can be applied without any restrictions and a second basket which contains

the tax deductions that are subject to restrictions. The first basket contains (in order of deduction) the non-

taxable items (such as deductible gifts), current year dividends received deduction (DRD), grandfathered patent

income deduction (PID), current year innovation income deduction (IID) and investment deduction. The second

basket contains (in order of deduction and subject to the restrictions as mentioned hereunder) the current year

notional income deduction (NID), DRD carry-forward, IID carry-forward, tax loss carry-forward, unlimited NID

carry-forward and NID carry-forward subject to the 7-year limitation. The taxable base can be reduced without

any limitation with the deductions contained in the first basket. Any remaining taxable basis below €1 million

can be fully compensated with deductions contained in the second basket. If the remaining taxable basis exceeds

€1 million, the excess above €1 million can only be compensated with deductions of the second basket up to

70%. Such minimum taxable basis may have an impact on our future cash flows. At the end of 2018 we had

€195.4 million of carryforward innovation income deduction in Belgium.

Our inability to qualify for the abovementioned advantageous tax regimes, as well as the introduction of the

minimum taxable base and any other future adverse changes of Belgian tax legislation, may adversely affect our

business, results of operations and financial condition.

We have 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 we fail to comply with our

contractual obligations under the applicable technological innovation grant agreements, we could be forced to

repay all or part of the grants received. Such repayment could adversely affect our ability to finance our research

and development projects.

We annually establish a detailed budget that is submitted to the board of directors for review and approval. Our

performance compared to the budget is continuously monitored by our executive committee and is discussed

with the board of directors at least once per quarter. For the establishment of our financial information, we have

processes and methods in place that enable the preparation of consolidated financial statements for our annual

and quarterly reporting. Our management reporting systems – which include an advanced integrated ERP system

– secure the generation of consistent financial and operational information, allowing management to follow-up

our performance on a daily basis.

Galapagos NV • Annual Report 2018

RISK FACTORS

Market risks relating to the Galapagos shares

We have identified the following major market risks:

▪ Possible volatility of share price

The market price of the shares might be affected by a variety of factors outside management control, such

as the global economic situation, the business development of competitors, sector mergers and acquisitions;

it is difficult to mitigate this risk.

▪ Economic risk due to failure in confidence

General public confidence about future economic conditions or performance of us or our suppliers or

customers may impact the ability or willingness of others to trade with us.

▪ Dilution through capital increases

Raising additional capital may cause dilution to our existing shareholders. By raising additional capital

through capital

increases with cancellation of the preferential subscription rights of our existing

shareholders, these shareholders will be diluted.

▪ Dilution through exercise of warrant plans

The exercise of existing warrants can significantly increase the number of outstanding Galapagos shares.

▪ Inability to distribute dividends

We have 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 shares.

▪ Reputational damage

High ethical standards are maintained throughout the entire organization at all levels. Laws and guidelines

are complied with. Our suppliers are required to adhere to contractual terms which include anti-bribery and

anti-corruption provisions. In addition, our external consultants are required to comply with our Code of

Business Conduct and Ethics and U.S. Foreign Corrupt Practices Act Policy.

▪ 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 us and which may

make an unfriendly tender offer, merger, change in management or other change in control, more difficult.

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' risks

According to our current assessment we consider the risks to be manageable and our going concern not to be

endangered at the time of the current report. Assuming no further deterioration of the global business, financial

and regulatory environment, we consider ourselves well prepared to meet all future challenges.

Galapagos NV • Annual Report 2018

CSR report

Improving lives

we raise the bar.

CSR REPORT

Our commitment

Our commitment to Corporate Social Responsibility (CSR) is to find new ways to improve healthcare and quality

of life for patients and their families with our novel mode of action investigational medicines. Our core business

is discovery of breakthrough therapies for diseases with large unmet medical needs in primarily inflammation

and fibrosis. On a daily basis, we aim to make a lasting contribution to society with our discovery and clinical

development efforts. Filgotinib, GLPG1690, and MOR106 are the first clinical examples of how our approach to

finding novel medicines may be able to make a difference for patients in many disease areas. We have a

substantial pipeline of novel candidate medicines in inflammation and fibrosis. This approach addresses the

disease itself rather than just treating the symptoms. In this way, we aim to make a lasting positive contribution

to society through discovery of breakthrough therapies. We aim to bring impactful medicines to patients

ourselves.

Implementing our CSR initiatives

In our business operations we strive to comply with all relevant laws, standards, and guidelines, prioritize the

well-being of our employees, and minimize our impact on the environment. We have high ethical standards

and aim to conduct business with companies that share our ethics and respect the protection of internationally

proclaimed human rights. We aim to support and respect the protection of human rights through policies that

address responsible supplier management, ethical procedures, and health and safety procedures.

Starting in 2019, the audit committee of the board of directors will regularly review CSR initiatives, ensuring

that we implement our planned initiatives and communicate them effectively and accurately to our employees

and shareholders. Our CSR report discloses the main highlights of our CSR initiatives but does not reflect all of

our ongoing initiatives and procedures. As part of our commitment to CSR, we monitor new developments and

practices and will consider implementing new initiatives that could further enhance our CSR activities in the

future.

Our CSR report focuses on:

▪ Improving people’s lives
▪ Diversity and human capital management

▪ Business ethics
▪ Environment, health, and safety

This CSR report provides the non-financial information required by article 96, §4 and article 119, §2 of the Belgian

Companies Code. We have further considered reporting frameworks, such as the Global Reporting Initiative (GRI)

Sustainability Reporting Standards (SRS) and the ‘European Federation of Financial Analysts Societies Guideline

for the Integration of ESG into Financial Analysis and Corporate Valuation’ and used different elements as an

inspiration to build this report.

For a discussion of risks, please see the section called “Risk Factors” in this Annual Report.

The KPIs for our new drug development, handled in the section Improving People’s Lives, are the most material

non-financial KPIs in our report.

Galapagos NV • Annual Report 2018

CSR REPORT

Improving people’s lives

We seek to discover, develop, and eventually commercialize medicines with novel modes of action, addressing

disease areas of high unmet medical need. Our main mission is to improve lives with medicines which offer new

treatment options to patients. Our pipeline comprises programs ranging from discovery to Phase 3 clinical trials

in inflammation, fibrosis, osteoarthritis (OA), and other indications.

There is a real need for medicines with novel mechanisms of action. There are many diseases for which there is

no approved therapy today and many more diseases for which current therapies leave room for improvement in

clinical outcomes. New mechanism of action medicines offer opportunity for new clinical options for caregivers

and patients, and could possibly decrease the burden for society, including lowered healthcare costs.

Our highly flexible target and drug discovery platform has been applied across many therapeutic areas, and our

pipeline today ranges from inflammation to fibrosis candidate drugs.

Almost all of these programs are based on inhibiting targets which were identified using our proprietary target

discovery platform. Using human primary cells, we discover which proteins (‘targets’) play a key role in causing

diseases. We then discover and develop small molecules that inhibit these targets, restore the balance, and

thereby positively influence the course of the disease. This approach addresses the disease itself rather than just

treating the symptoms. In this way, we aim to make a lasting positive contribution to society through discovery

of breakthrough therapies.

Our target discovery platform provides a significant and substantial competitive advantage as it:

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

readout for a specific disease phenotype

▪ identifies possible points to intervene in a disease pathway by knocking down an individual protein in these

assays; and

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

directly by their ability to regulate key disease biology

R&D goal

PHASE 3
START

every 2 years

PROOFS-
OF-CONCEPT

every year

PRECLINICAL
CANDIDATES

every year

NEW
TARGETS

every year

Galapagos NV • Annual Report 2018

CSR REPORT

We aim to initiate a Phase 3 trial every other year, while conducting three proof-of-concept trials, delivering

three preclinical product candidates and six new validated targets every year following the determination of

more stringent, general target validation criteria in 2018. We aim to select promising programs for internal

development and commercialization and establish ourselves as a fully integrated biopharmaceutical company.

Improving people’s lives - 2018 actions

▪ We delivered 2 new validated targets, compared to our goal of 6
▪ We nominated 4 new preclinical candidates, all with a novel mechanism of action, compared to our

goal of 3

▪ We started 4 proof-of-concept trials, compared to our goal of 3
▪ We initiated the ISABELA 1 & 2 Phase 3 program, meeting our goal of 1
▪ These successes brought us to 41 preclinical candidates since 2009, most of which have novel modes

of action. Of these 19 have entered the clinic, 12 with novel modes of action

preclinical candidates
entered clinic
novel modes of action

novel modes of action in patient studies

▪ We dedicated 50 FTEs to discovery efforts exploring the Toledo class of targets in inflammation

Future ambitions

▪ Expand capabilities to support more than 40 planned clinical trials in 2019
▪ Continue to deliver on our annual research & development ambition targets
▪ Invest in our target discovery capabilities to maintain our competitive edge in novel targets

Galapagos NV • Annual Report 2018

CSR REPORT

Diversity and Human Capital Management

We believe that attracting, developing, and retaining human capital is key to our success in developing novel

mechanism of action drugs which can make a difference for patients. We are dedicated to ensuring diversity of

our workforce, while continuously striving to offer our employees a nurturing and rewarding work environment

which facilitates their professional success. With the goal to execute more than 40 clinical trials in 2019, our

organization continues to expand and build capability.

Approximately 125 new employees joined us in 2018, an increase of 21% versus 2017. Most new employees

started in our Drug Development departments such as Clinical Operations, Biometrics, Medical Science, Clinical

Pharmacology, and Project Management, but we also filled key positions in the new Commercial team. The

recruitment of new colleagues will enable us to bring our novel product candidates further through development,

with the ultimate goal to obtain approval for these therapies for patients as quickly as possible.

We expect that our Drug Development departments will continue to grow rapidly and, in 2019, our Commercial

team will expand substantially as well. We continue to invest in Drug Discovery and our Shared Services

departments. Expansion of staff is foreseen at all sites, including Basel, Switzerland and Boston, Massachusetts,

U.S. We seek approximately 130 additional colleagues in 2019 across the business in order to meet our business

goals.

Diversity

We aim to develop a balanced workforce across a number of criteria such as gender, nationality, ethnicity,

experience level, and disability. Our Executive Committee reviews the diversity of the workforce annually and is

committed to creating equal opportunities for inclusion of diverse talent.

Diversity - actions 2018

In 2018 we report a healthy balance in diversity, which continues to improve.

Number of employees Galapagos group

725

285
Men

gender:

education:

440
Women

102
Other

237
PhD

112
Bachelor

274
Master

Average age:

Number of
employees older
than 45:

269

Nationalities:

Average years
of service:

Employee
turnover:

10.7%

Galapagos NV • Annual Report 2018

CSR REPORT

▪ Our board of directors currently comprises seven members of whom three are female (we refer to the
section Board of directors of our Annual Report 2018 for further information on each board member)

▪ We attracted 125 new employees in 2018, an increase of 21% versus 2017
▪ We report stability in gender mix evolution, with 61% of staff overall being female in 2018, 53% of mid-

level staff and 33% of senior management level

▪ Across all functions, over 10% of internal staff at Galapagos R&D experienced a personal growth step

through promotion, extended responsibilities, or new project assignments in 2018
▪ We became more international with staff from 38 nationalities (compared to 25 in 2017)
▪ An additional ombudsperson (“vertrouwenspersoon”) was hired at our Mechelen site

Diversity future goals

▪ Continue the commitment to build a diverse workforce

Human capital management

We invest in the development of employee knowledge, skills, and competencies to continue to deliver innovative

science at our company. Furthermore, we aim to ensure that training of employees takes place on all handling of

hazardous materials, laboratory and other safety aspects, and other relevant policies for conducting our business.

We have policies in place to ensure the well-being of our employees, for example, addressing different forms

of leave and allowing flexible working. We aim to ensure an inclusive, open, and supportive professional work

environment across our international locations. We organize regular engagement meetings for research and

development staff to inspire and align the fast growing teams behind our vision and ambition. We hold regular

informal lunch meetings with executive committee members for new and other employees at different sites. We

organize an all-staff day to reflect upon our core values and last year’s day was reserved for charitable activities.

We use a variety of indicators to measure employee satisfaction, including the rates of absenteeism and turnover

among our employees. These and other indicators allow us to consider actions to optimize our work environment

or working practices.

Galapagos NV • Annual Report 2018

CSR REPORT

Human capital management - actions 2018

▪ Strengthened our human resources team to build and implement an innovative workplace strategy
▪ Streamlined the onboarding process across sites, designation of mentor for each new employee
▪ Identified four core values which we wish to maintain and develop within our company, and which
are designed to foster employee engagement and work satisfaction: Act as a pioneer, Raise the bar,

Embrace change, and Make it happen

▪ Incorporated a focus on our core values in our recruiting, onboarding, and development programs for

employees

▪ Across all functions, over 10% of internal staff experienced a personal growth step through promotion,

extended responsibilities, or new project assignments in 2018

▪ Raised EUR 27,578 for Sjarabang (a charity) in Mechelen, planted city gardens and created dolls for a
Unicef project in Romainville, sported with kids, refurbished elderly homes and taught asylum seekers

in the Netherlands the Dutch language during corporate sponsored charity activities

▪ Implemented a new travel policy to streamline policy with travel needs
▪ 1.4% annual absenteeism reported by Mechelen, Leiden, Romainville sites
▪ 10.7% turnover of employees for the Galapagos group
▪ 93% of employees are trained in our codes of conduct, including insider trading, and other policies &

procedures required by Sarbanes Oxley

Human capital management future goals

▪ Deploy a senior leader-led program to foster culture and build leadership capability across the group
▪ Continue to incorporate our core values into how we attract, onboard, and develop employees
▪ Revisit our performance management approach to deliver a meaningful and impactful way to drive
performance, support personal growth, build a strong company culture, and have a competitive

reward & recognition

Galapagos NV • Annual Report 2018

CSR REPORT

Business ethics

At Galapagos, our primary business is the discovery and development of drugs with novel modes of action, and

we prioritize ethical behavior in all facets of our business.

We believe that ethical behavior when discovering and developing drugs touches particularly on these key areas

for us in this point in our corporate development: preclinical and clinical testing, expanded access to drugs

currently in development, and our codes of ethical conduct while doing business.

Preclinical testing

We are required by law to carry out preclinical testing of our product candidates. For preclinical development

studies including those that help assess safety, pharmacology, toxicology, and absorption, distribution,

metabolism and excretion of our product candidates, we strive to follow the “Three Rs” (3Rs) of Refinement,

Reduction, and Replacement in our preclinical testing involving use of animals. For example, we plan to

use more in silico (computer modelling) and in vitro (cellular testing) designs and approaches for assessing

pharmacodynamics, for example, DEREK software and in vitro micronucleus assay for evaluating genotoxicity,

in vitro hERG assay for evaluating cardiotoxicity. These examples show how we reduce and replace preclinical

testing involving use of animals.

In addition, we follow Directive 2010/63/EU6 in Europe with regards to preclinical testing. The requirement to
be compliant with Directive 2010/63/EU forms part of the pre-assessment and selection process of the European

laboratories that we use for preclinical testing, and we monitor animal welfare in the European laboratories that

we have engaged on a regular basis. We require compliance with local animal welfare regulations in laboratories

outside of the European Union. In the United States, for example, we work only with laboratories that are

accredited by the Association for Assessment and Accreditation of Laboratory Animal Care.

Our clinical trials ethics

Galapagos sponsors and conducts clinical trials in accordance with the applicable international standards.

The fundamental guidelines are the Declaration of Helsinki (and its amendments) and the Good Clinical

Practice (including amendments) and Good Pharmacovigilance Practice guidelines of the International Council

for Harmonisation. Our adherence to these internationally recognized guidelines ensure the rights, safety and

well-being of participants in our clinical trials. Other international guidelines like The Belmont Report, Council

for Coordination of

International Medical Congresses guidelines, The Nuremberg Code, United National

Educational, Scientific and Cultural Organization’s (Declaration on Bioethics and Human Rights) also form the

ethical foundation for our trial activities. We comply with laws and regulation in the countries/regions in which
we are conducting our trials, including the U.S. Code of Federal Regulations, the EU Directive on Clinical Trials7,
etc.

We uphold our own internal procedures and standards for clinical trials, irrespective of the country in which the

trial is conducted, and we only conduct clinical trials in countries where we intend to market our drugs.

Overall, it is our policy that the interest, safety, and well-being of the trial subject will always supersede the

interests of science, commerce, as well as those of society.

6 Directive 2010/63/EU of the European Parliament and of the Council of 22 September 2010 on the protection of animals uses for scientific purposes, OJ L 276,

20 October 2010

7 Directive 2001/20/EC of the European Parliament and of the Council of 4 April 2001 on the approximation of the laws, regulations and administrative provisions
of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use, OJ L 121,
1 May 2001

Galapagos NV • Annual Report 2018

CSR REPORT

Our trials are only initiated if they are scientifically and medically justified and when they have external

validation by clinical experts, and will always be reviewed by local health authorities and ethical committees

before they are initiated. Trial participants (or the legally authorized representative) must give written consent

after being properly informed of the trial, including the risks and potential benefits. Participants are duly

informed that they are able to withdraw from the trial at any time without any explanation and then will receive

appropriate standard care.

We or our representatives conduct regular site monitoring visits to ensure that clinical trials are conducted in

accordance with the applicable approved study protocol.

Any adverse events are monitored and reported to authorities and ethical committees as needed, and appropriate

actions taken.

Our trials ensure proper indemnification of participants in case a product candidate or trial procedure causes

bodily harm.

We favor transparency and make results from our clinical trials conducted in patients available, independent

of outcome to patients, physicians, and researchers, with full consideration for protection of patient data

privacy and commercial confidentiality. We report the outcome in accordance with the CONSORT Statement, or

Consolidated Standards of Reporting Trials, designed to improve transparency around clinical trials.

We publish our trials on the appropriate clinical trial registries (clinicaltrials.gov and the EudraCT Trial Registry)

in a timely manner. We attempt to publish results in peer reviewed journals in accordance with Good Publication

Practice and the International Committee of Medical Journal Editor’s Uniform Requirements for Manuscripts

Submitted to Biomedical Journals or at relevant scientific meetings and congresses. As a publicly listed company

we may also have obligations to communicate trial results by other means, such as via press releases.

Expanded access policy

In our pursuit of the development and commercialization of novel medicines that will improve people’s lives,

we encourage patients to participate in clinical trials whenever possible. These clinical trials are critical to

developing the information (or data) needed to evaluate investigational products and seek their approval by

health authorities, such as the FDA and the EMA. In rare cases, patients are unable to participate in clinical

trials and have exhausted all available treatment options. In these cases, Galapagos may consider providing an

investigational product outside of a clinical trial, through a program called “expanded access.” Expanded access

is also often referred to as “compassionate use.” A full copy of our Expanded Access Policy can be found on our

website.

Our code of business conduct and ethics

We have established a code of business conduct and ethics (the code) to ensure that our directors, officers and

employees are making ethical and legal decisions when conducting Galapagos’ business and performing their

day-to-day duties. We expect our directors, officers and employees to conduct business with integrity, ethics and

respect for human rights. We expect them to turn away from conflicts of interest, corruption and fraud. To this

end, we give trainings on this code to our employees. The code is available at www.glpg.com/charters-and-codes.

Our suppliers are required to adhere to contractual terms that include anti-bribery and anti-corruption

provisions. Our general terms and conditions of purchase also contain a specific clause on anti-bribery and anti-

corruption.

Galapagos NV • Annual Report 2018

CSR REPORT

Business ethics - actions 2018

▪ We completed an Animal Welfare Agency audit in Romainville. There were no citations recorded
▪ We formalized our clinical trials ethics policy
▪ We established a compassionate use policy, in compliance with the 21st Century Cures Act in the U.S.
▪ We trained 93% of all employees in our codes of conduct, including insider trading, and other policies

required by Sarbanes-Oxley

▪ We were not informed of any breaches of our code of business conduct and ethics in 2018

Future goals

▪ Promote the 3R’s further in preclinical testing
▪ Monitor and adjust training to ensure full compliance with our business ethics guidelines

Galapagos NV • Annual Report 2018

CSR REPORT

Environment, health, and safety

We are committed to acting in a sustainable and responsible manner by keeping our environmental impact to

a minimum, reducing waste, and handling it in a safe and responsible way. We operate in a highly regulated

sector and are subject to numerous laws and regulations pertaining to impact on the environment, well-being

of employees, safety, and management of laboratory waste, which also is audited. The effectiveness of our

Environmental, Health, and Safety (EHS) efforts is anchored in the shared responsibility of our staff in ensuring

a safe, healthy and environmentally friendly work environment: every employee is responsible for protecting

people and environment, in and around his or her workplace.

We currently have a limited impact on the environment, as at present, we have no production sites, we own

no buildings, and our administrative facilities have only minor environmental liabilities such as waste handling

and emissions from fume hoods. Nonetheless, we aim to reduce our environmental impact further by recycling

and replacing paper for digital means altogether. We maintain safety monitoring records, in compliance with

applicable legislation. We treat our dangerous waste in accordance with local laws, and we ensure that training

of employees takes place on all handling of hazardous materials, laboratory and other safety aspects, and other

relevant policies for conducting our business.

We also take reasonable and practical initiatives to eliminate accidents and ill health and to provide a safe work

environment and processes. Our goal is to have work form part of a satisfying life, which is to the benefit of both

the individual and the organization.

Environmental, health, and safety - actions 2018

▪ We hired a full time EHS Manager for the group with the mandate to assess current EHS efforts and

establish an improvement roadmap

▪ We established a company-wide EHS framework based on ISO 45001 (HS)+ISO 14001 (E)
▪ There were no safety incidents reported, no recordable injury counts, no fatalities, and no days away

from work reported due to safety issues in 2018

▪ We completed an environmental audit in Leiden and a Federal Agency for nuclear control audit in
Mechelen. There were no major citations recorded in these audits, and all sites were compliant with

applicable EHS laws & regulations in 2018

▪ We completed compliance reviews for health and safety and environment in each of the Leiden,
Mechelen, and Romainville sites, with a number of improvement items identified. Following the

findings, we set priorities and prepared action plans for each site, completing most actions

▪ At our Mechelen site we decommissioned one of our two radio-isotope laboratories. Fluorescence and
luminescence-based technologies were used instead and we did not use radioisotopes in 2018. This

further reduced our toxic and dangerous waste flows

▪ We rolled out a company-wide implementation of Skype video meetings in an effort to reduce

business travel by employees

Galapagos NV • Annual Report 2018

CSR REPORT

Future goals

▪ We organized exclusive use of green energy at our Mechelen site starting in 2019
▪ We plan to establish green car options in our company car fleet to start in 2019
▪ Investigate the possibilities to expand green energy use to other sites
▪ Make employees more aware of the need to limit the environmental impact in their workplaces
▪ We aim to use fewer radio-isotopes
▪ Establish further EHS key performance indicators for internal monitoring and external reporting

Galapagos NV • Annual Report 2018

Corporate
governance

Corporate governance at

Galapagos in 2018

we raise the bar.

CORPORATE GOVERNANCE

Galapagos’ corporate governance policies

We have

adopted the Belgian Corporate Governance Code

2009

(which can be

consulted on

www.corporategovernancecommittee.be) as our reference code. Galapagos NV’s board of directors approved a

corporate governance charter (which is available on our website, www.glpg.com). The corporate governance

charter applies 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.

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 certain deviations from the provisions

of the Belgian Corporate Governance Code 2009 are justified, in view of our activities, our size and the specific

circumstances in which we operate. In such cases, which are mentioned in this corporate governance statement,

we apply the “comply or explain” principle. Reference is made to the “Remuneration of non-executive directors of

Galapagos NV” section below.

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 our internal control and risk management

systems. The “Risk management” and “Risk factors” sections are incorporated by reference in this corporate

governance statement.

Board of directors of Galapagos NV

Composition of Galapagos NV’s board of directors

Onno van de Stolpe – Please refer to the “Composition of Galapagos NV’s executive committee” for a biography.

Rajesh Parekh, MA, DPhil has served as the Chairman of our board of directors since 2004. Dr. Parekh is a
General Partner at Advent Life Sciences LLP, which he joined in 2006. 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; Biocartis NV; Amsterdam Molecular

Therapeutics (AMT) Holding NV (now uniQure); Aura, Inc.; Itara Ltd.; and Cellnovo SA. Dr. Parekh currently serves

as a member of the board of directors of Advent Venture Partners; Advent Life Sciences LLP; Aleta, Inc.; Amphista

Therapeutics Ltd.; Arrakis, Inc.; Artax, Inc.; Capella BioSciences Ltd.; Levicept Limited; PE Limited; Alpha Anomeric

SA; Macrolide, Inc.; Project Paradise Limited; and Tridek-One Therapeutics SAS. He is also a member of the

supervisory board of the Novartis Venture Fund. 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.

Werner Cautreels, Ph.D. has served as a member of our board of directors since 2009. Dr. Cautreels was the
President and Chief Executive Officer and member of the board of Selecta Biosciences, Inc. from 2010 until

December 2018. He is a co-founder and board member of Accoy Pharmaceuticals since 2016. Previously, Dr.

Cautreels joined Solvay Pharmaceuticals SA in 1998 where he was Global Head of R&D and later Global Chief

Executive Officer from 2005 onwards, until it was acquired by Abbott Laboratories Inc. in February 2010. Prior to

joining Solvay he was employed by Sanofi SA, Sterling Winthrop, Inc. and Nycomed Amersham PLC in a variety

of R&D management positions in Europe and in the United States from 1979 to 1998. Dr. Cautreels was a director

of Innogenetics NV and ArQule, Inc. from 1999 until 2006, and of Seres Therapeutics Inc. from 2012 until 2016. He

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

was the President of the Belgian-Luxemburg Chamber of Commerce for Russia and Belarus until June 2010. He

graduated from the University of Antwerp, with a Doctorate in Chemistry, specializing in mass spectrometry. He

received his management and financial education from the Harvard Business School.

Howard Rowe, JD has served as a member of our board of directors since 2010. Mr. Rowe 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. During that time he served on the

boards of EUSA Pharma (Europe) Limited, Healthcare Brands International Limited, SmallBone Innovations, Inc.,

MedAvante, Inc. and Ikonisys, Inc. Prior to his investing activities, Mr. Rowe was a senior member of the European

Healthcare Investment Banking team, where he advised numerous corporate clients on M&A and corporate

finance activities. Before joining Goldman Sachs, he was a corporate lawyer with the law firm Sullivan & Cromwell

LLP. Mr. Rowe received his Bachelor of Science in Psychobiology from the University of Southern California and

his JD from Harvard Law School. He currently serves as a member of the Board of Managers of Paradigm Spine

LLC.

Katrine Bosley has served as a member of our board of directors since 2013. Ms. Bosley served as the President,
Chief Executive Officer and member of the board of directors of Editas Medicine, Inc. from June 2014 to March 2019.

Prior to joining Editas, she was the Entrepreneur-in-Residence at The Broad Institute from 2013 to 2014. From 2009

to 2012, she was President, Chief Executive Officer and member of the board of directors of Avila Therapeutics,

Inc., which was acquired by Celgene Corporation in 2012. She served as President, Celgene Avilomics Research at

Celgene in 2012. Prior to her time at Avila Therapeutics she 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. Ms. Bosley joined Adnexus Therapeutics from Biogen Idec, Inc. where she had roles in business

development, commercial operations and portfolio strategy in the United States and Europe. Ms. Bosley graduated

from Cornell University with a B.A. in Biology. She currently serves on the boards of Genocea Biosciences, Inc., the

Biotechnology Innovation Organization and of the Massachusetts Eye and Ear Institute.

Christine Mummery, Ph.D. has served as a member of our board of directors since 30 September 2015. Dr.
Mummery has served as a Professor of Developmental Biology and Chair of the Department of Anatomy and

Embryology at the Leiden University Medical Centre (LUMC) since 2008 and a Professor of Vascular Modelling at

the Technical University of Twente in the Netherlands since September 2015. In 2007, she was a Radcliffe fellow at

the Harvard Stem Cell Institute and Massachusetts General Hospital when human-induced pluripotent stem cells

were being developed, and she was the first to derive these from patients in the Netherlands. In 2002, she became

a Professor at the Utrecht University Medical Centre in the Netherlands. She was a postdoctoral fellow from 1981

to 1984 at the Hubrecht Institute in Utrecht, where she later also served as a staff scientist and group leader until

2008. Dr. Mummery obtained her B.S. in Physics, Electronics, and Mathematics at the University of Nottingham

and her Ph.D. in BioPhysics at London University in the United Kingdom. Her primary research focus is currently

the development and use of stem cells in cardiovascular development and disease. She served on the Ethical

Councils of the Dutch Ministry of Health, is member of the Royal Netherlands Academy of Arts and Sciences

(KNAW), the KHMW, editor of the Cell Press journal Stem Cell Reports, (vice) president of the International Society

for Stem Cell Research and past-president of the International Society of Differentiation. She was co-founder of

Pluriomics BV (now Ncardia BV). In addition, she chairs the executive board of the Institute for human Organ and

Disease Model Technologies (hDMT), a non-profit R&D institute of which the LUMC is a founding partner. She is

a review committee member of the European Research Council, the Leducq Foundation, the Wellcome Trust (ad

hoc) and the Heineken Jury Prize (KNAW). She is further on the scientific advisory boards of the Gurdon Institute

(Cambridge, UK), Stem Cell Australia and the Allen Institute, Seattle.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

Mary Kerr, Ph.D., has served as a member of our board of directors since 26 July 2016. Dr. Kerr, a UK national,
is Chief Executive Officer and director at NeRRe Therapeutics and Chief Executive Officer and director at KaNDy

Therapeutics. Prior to her appointment at NeRRe, Dr. Kerr held a range of senior leadership roles at GSK over more

than 20 years, most recently as Senior Vice President and Global Franchise leader for the Immuno-inflammation

and Infectious Diseases franchise. Dr. Kerr was a founding member and on the Corporate Executive team of

ViiV Healthcare where she led a turnaround in the performance of the HIV business in Europe. She has spent

the majority of her career on the R&D commercial interface in global strategy and regional operational roles,

predominantly in the specialty and orphan space. Dr. Kerr gained a Ph.D. in Pharmacology at the University of

Bradford, did post-doctoral research at the Michigan Cancer Foundation in Detroit and has an MBA from the

University of Kingston.

About Galapagos NV’s board of directors

Galapagos NV’s board of directors consists of minimum five and maximum nine members, including the

Chairman and the CEO. The Chairman is a non-executive director and does not hold the office of CEO. At least

three directors are independent.

The directors are appointed by the shareholders’ meeting 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. Van de Stolpe, all board members are non-executive directors.

In 2018, the following persons were members of the board: Dr. Parekh (Chairman), Mr. Van de Stolpe (CEO), Dr.

Van Barlingen (until 24 April 2018), Dr. Cautreels, Mr. Rowe, Ms. Bosley, Dr. Mummery and Dr. Kerr; the latter four

directors were appointed as independent directors within the meaning of article 526ter of the Belgian Companies

Code. Dr. Cautreels, who had previously served as an independent director, no longer met the independence

criteria upon his reappointment for a fourth consecutive term on 24 April 2018 because article 526ter, 2° of the

Belgian Companies Code only allows for a maximum of three consecutive terms for independent directors.

In 2018, the board thus consisted of three women and five men (as from 24 April 2018: four men), representing

four different nationalities and different age categories.

Name

Onno van de Stolpe

Rajesh Parekh

Harrold van Barlingen(1)

Werner Cautreels

Howard Rowe

Katrine Bosley

Christine Mummery

Mary Kerr

(1) Until 24 April 2018

Nationality

Dutch

British

Dutch

Belgian

British and U.S.

U.S.

British and Dutch

British

Year of birth

1959

1960

1965

1952

1969

1968

1953

1961

Furthermore, our board members have different educational backgrounds, as can be read in each of their profiles

(above).

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

During 2018, Galapagos NV 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. In proposing candidates, particular

consideration is given to diversity in gender, age, nationality, educational and professional background, as well as

complementary skills, knowledge and experience.

The board’s role is to pursue the long-term success of 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. During its meetings in 2018, the board dealt

with matters pertaining to, among other things, our strategy and growth, the evaluation of business development

opportunities, convening of the shareholders' meeting and preparation of resolutions to be submitted for

approval to the shareholders, review and approval of our financial reporting and assessment of the board and its

committees.

In 2018, the board of directors held four regular meetings, eight meetings by telephone conference to discuss

specific matters and two meetings in the presence of a notary (relating to the issuance of Warrant Plan 2018

and Warrant Plan 2018 RMV, and the issuance of shares with cancellation of the shareholders’ preferential

subscription rights). One meeting in the presence of a notary was attended by Dr. Cautreels and Dr. Van Barlingen

via telephone conference; all other directors were represented by proxy. The other meeting in the presence of a

notary was attended by Mr. Van de Stolpe and Dr. Cautreels; all other directors were represented by proxy.

The attendance rate for the other meetings was as follows: Dr. Parekh: 67%; Mr. Van de Stolpe: 92%; Dr. Cautreels:

100%; Dr. Van Barlingen: 100%; Mr. Rowe: 83%; Ms. Bosley: 75%; Dr. Mummery: 92% and Dr. Kerr: 92%. The overall

attendance rate was 88%. In addition, certain board members also attended a number of review meetings with

scientific staff of the group.

The board of directors acts as a collegial body. A formal evaluation of the board and its committees was initiated

in December 2017 and was completed in March 2018. Each board member provided feedback through individual

assessment forms. The results were presented on an aggregate basis by the secretary of the board and served as

a basis for discussion by the full board. This evaluation specifically addressed the functioning of the board, the

size and composition of the board, the interaction between the board and the executive management, and the

functioning of the audit committee and the nomination and remuneration committee.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

Committees

Executive committee

Composition of Galapagos NV’s executive committee

Onno van de Stolpe founded our company in 1999 and has served as our
Chief Executive Officer and a member of our board of directors from 1999

to the present. From 1998 to 1999, he was the Managing Director of

Genomics at IntroGene BV (later Crucell NV, which was acquired by

Johnson & Johnson Services, Inc. in 2011). Prior to joining IntroGene in 1998,

he was Managing Director of Molecular Probes Europe BV. 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.

Mr. Van de Stolpe started his career as Manager of Business Development

at MOGEN International NV in Leiden. He received an MSc degree from

Wageningen University. Mr. Van de Stolpe has previously served as a member of the board of directors of DCPrime

BV and as a member of the supervisory board of the Stichting Institute for Human Organ and Disease Model

Technologies.

Bart Filius, MBA has served as our Chief Financial Officer since December
2014 and as our Chief Operating Officer since September 2017. Prior to that,

Mr. Filius worked over 13 years at Sanofi SA, where he was the Chief

Financial 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. Mr. Filius has an MBA degree from INSEAD and a

bachelor’s degree in business from Nyenrode Business University.

Piet Wigerinck, Ph.D. joined us in April 2008 as SVP Development and was
appointed Chief Scientific Officer in 2012. Under his leadership, we have

developed a large pipeline of novel mechanism of action drug candidates.

He has supervised multiple successful proof-of-concept patient studies,

including filgotinib, GLPG1690, and MOR106. Prior to his tenure at

Galapagos, Dr. Wigerinck was Vice President, Drug Discovery, Early

Development and CM&C at Tibotec-Virco Comm VA (a subsidiary of

Johnson & Johnson Services, Inc.). Under his leadership at Tibotec, TMC114

(Prezista™) and TMC435 (Olysio™) were selected and moved forward into

clinical trials. Dr. Wigerinck played a key role in Tibotec’s expansion into

novel diseases such as Hepatitis C and advanced several compounds into

Phase 1 and Phase 2 clinical trials. Dr. Wigerinck has over 30 years of R&D

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

experience in the pharmaceutical industry and biotechnology. He holds a Ph.D. from the KU Leuven and is

inventor on more than 25 patent applications. In May 2018, Dr. Wigerinck was elected as an independent board

member of Ipsen SA in France.

Andre Hoekema, Ph.D. is responsible for M&A, licensing and Intellectual
Property at Galapagos as our Chief Business Officer. He joined Galapagos in

March 2005 from Invitrogen Corporation, where he was Managing Director

of Corporate Development Europe. He brings 20 years of biotech experience

from positions at Molecular Probes Europe BV (Managing Director), Crucell

NV (Director of Business Development), DSM Life Sciences NV and

Syngenta MOGEN BV (Research and Project Management) and Genentech,

Inc. (R&D). Dr. Hoekema has a Ph.D. degree from Leiden University and is

the inventor of over 20 series of patent applications, resulting in 15 patents

issued in the United States. Dr. Hoekema currently also serves as a member

of the supervisory board of Mimetas BV and has previously served as a

member of the supervisory board of VitalNext BV.

Walid Abi-Saab, MD started his job as Chief Medical Officer at Galapagos
in March 2017. Dr. Abi-Saab drives Galapagos’ overall medical strategy and

is responsible for late stage clinical development and operations, medical

and regulatory affairs, and safety. Before, Dr. Abi-Saab worked at Shire AG

where he held various clinical development leadership roles, most recently

as Group Vice President, Global Clinical Development – Therapeutic Area

Head, Gastro-intestinal, Endocrinology and Metabolism. Prior to that, he

led clinical development activities at Novartis Pharma AG, Abbott

Laboratories Inc. and Pfizer Inc., addressing a wide range of therapeutic

areas and leading teams throughout the clinical development process.

Under his leadership, more than 30 molecules have advanced through

clinical development leading to several approvals in the United States, EU

and Canada. Prior to his pharma roles, Dr. Abi-Saab was Assistant Professor of Psychiatry and Neurosurgery at

Yale University Medical School, where he headed their Schizophrenia Research at the Clinical Neuroscience

Research Unit and the Neurosurgery Epilepsy Microdialysis Research Program. Dr. Abi-Saab holds an MD degree

from Université Saint Joseph in Beirut, Lebanon.

About the executive committee of Galapagos NV

The tasks of the executive committee include the following matters: the research, identification and development

of strategic possibilities and proposals which may contribute to our development in general, management of

the group, 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.

The executive committee meets regularly, and in principle once per month.

On 31 December 2018, the executive committee consisted of five people: Mr. Van de Stolpe (CEO, also executive

director), Mr. Filius (CFO and COO), Dr. Wigerinck (CSO), Dr. Hoekema (CBO), and Dr. Abi-Saab (CMO), representing

four different nationalities and different age categories.

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Nationality

Dutch

Belgian

Dutch

U.S. and Lebanese

Name

Onno van de Stolpe

Bart Filius

Piet Wigerinck

Andre Hoekema

Walid Abi-Saab

Year of birth

1959

1970

1964

1957

1965

Furthermore, the members of our executive committee have different educational backgrounds, as can be read

in each of their profiles (above).

In proposing candidates for the executive committee, particular consideration is given to educational and

professional background, complementary skills, knowledge and experience, as well as to diversity in age, gender

and nationality.

Audit committee

The role of the audit committee is to follow up on financial reporting and verification of financial data, safeguard

the integrity of our financial reporting, verify and follow up on the internal control mechanisms, evaluate and

verify the effectiveness of the risk assessment systems, follow up on the internal and external audit activities,

review, monitor and evaluate the independence and performance of the external auditor and inform the board

on the results of the statutory audit. The audit committee also reviews corporate social responsibility initiatives.

At the end of 2018, the audit committee consisted of the following three directors: Mr. Rowe (chairman), Dr. Kerr

and Dr. Cautreels . Dr. Kerr replaced Dr. Van Barlingen on the audit committee as from 20 March 2018. Mr. Rowe

took over from Dr. Cautreels as audit committee chairman on 23 April 2018. Dr. Cautreels did remain in office

as audit committee member. All members of the audit committee are non-executive directors, the majority of

whom are independent within the meaning of article 526ter of the Belgian Companies Code. The chairman is

an independent non-executive director. All members of the audit committee have extensive experience in the

life sciences industry. Dr. Cautreels has relevant expertise in financial matters (including general accounting and

financial reporting) and in matters of audit, internal control and risk control. The other members have extensive

experience in these matters as well.

In 2018, the audit committee held seven meetings, in which it dealt with matters pertaining to, among other

things, audit review, risk management, monitoring financial reporting, the monitoring of Sarbanes-Oxley

compliant internal and external audit systems and corporate social responsibility initiatives. The audit

committee acts as a collegial body. The overall attendance at the audit committee meetings in 2018 was 100%.

Some of the meetings were attended by the statutory auditor.

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 2018, the nomination and remuneration committee consisted of the following three non-executive

directors: Dr. Parekh (chairman), Ms. Bosley and Mr. Rowe, the majority of whom are independent directors.

Mr. Rowe replaced Dr. Cautreels on the nomination and remuneration committee as from 20 March 2018. The

committee has the necessary expertise in the area of remuneration policy.

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The nomination and remuneration committee meets at least twice per year. In 2018, the nomination and

remuneration committee held three meetings, dealing with, among other things, matters pertaining to grants

of warrants and bonuses, the nomination and remuneration of directors and salary increases. The nomination

and remuneration committee acts as a collegial body. The overall attendance rate at the nomination and

remuneration committee meetings in 2018 was 88%. Mr. Rowe’s attendance rate was 50% whereas the other

committee members’ attendance rates were all 100%. The CEO attended the meetings of this committee when

the remuneration of the other members of the executive committee was discussed.

Composition of board committees (excluding the executive
committee)

Audit committee

Nomination and remuneration
committee

Onno van de Stolpe

Raj Parekh

Werner Cautreels

Howard Rowe(1)

Katrine Bosley(1)

Christine Mummery(1)

Mary Kerr(1)

• denotes committee membership
* denotes committee chairmanship

•

(1) denotes qualification as an independent director within the meaning of article 526ter of the Belgian Companies Code

Galapagos NV’s share capital and shares

Share capital increases and issue of shares by Galapagos NV in 2018

On 1 January 2018, the share capital of Galapagos NV amounted to €275,509,753.48 represented by 50,936,778 shares.

In the course of 2018 there were four capital increases resulting from the exercise of warrants, resulting in the

issuance of 567,270 new shares, an increase of the share capital by €3,068,930.70 and an increase of the issuance

premium account by €4,587,747.80. In addition, on 17 September 2018, Galapagos NV completed the offering in the

U.S. of 2,961,373 new shares in the form of American Depositary Shares at a price of $116.50 per share. This resulted

in a share capital increase of €16,021,027.93 and an increase of the issuance premium account by €280,167,119.82.

At the end of 2018, the share capital of Galapagos NV amounted to €294,599,712.11 represented by 54,465,421 shares.

On 19 April 2018, the board of directors issued 1,235,245 warrants (after acceptance by the beneficiaries) 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 new warrant plans (“Warrant Plan 2018” and “Warrant Plan 2018 RMV”).

The offer of warrants to the directors and to the members of the executive committee under Warrant Plan 2018

was approved by the annual shareholders’ meeting of 24 April 2018. The warrants issued under Warrant Plan 2018

and Warrant Plan 2018 RMV have a term of eight years and an exercise price of €79.88.

Number and form of Galapagos shares

Of the 54,465,421 shares of Galapagos NV outstanding at the end of 2018, 6,762,666 were registered shares and

47,702,755 shares were dematerialized shares. All shares are issued and fully paid up and are of the same class.

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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’ meeting, or by the board

of directors subject to an authorization of the shareholders’ meeting, in accordance with the provisions of the

Belgian Companies Code and Galapagos NV’s articles of association.

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 publication of this renewal in the Annexes

to the Belgian State Gazette, i.e. 31 May 2017. 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 €82,561,764.93. In 2018, 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 19 April 2018, in connection with the issuance of Warrant Plan 2018 and Warrant Plan 2018

RMV, under which a maximum of 1,235,245 new shares can be issued for a total maximum capital increase of

€6,682,675.45 (plus issuance premium); and (2) on 17 September 2018, in connection with the public offering in

the U.S. of 2,961,373 new shares in the form of American Depositary Shares, resulting in an increase of the share

capital by €16,021,027.93 (plus issuance premium). On 31 December 2018, an amount of €59,858,061.55 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

In accordance with the Belgian Companies Code, Galapagos NV may purchase, subject to the provisions of

the Belgian Companies Code, Galapagos NV’s own shares and dispose thereof by decision 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

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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. The aforementioned

rules are also applicable to the acquisition of shares of Galapagos NV by its subsidiaries.

The board of directors has currently not been authorized by an extraordinary shareholders’ meeting to purchase

or sell its own shares.

On 31 December 2018, 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 average

price of the shares on the most liquid market of the last 30 calendar days prior to the date on which it became

mandatory for the acquirer to launch a mandatory takeover bid for the shares of all other shareholders.

Material contracts containing change of control clauses

The license and collaboration agreement between Galapagos NV and Gilead Biopharmaceutics Ireland Unlimited

Company ("Gilead") dated 16 December 2015 contains provisions granting certain rights to Gilead upon the

occurrence of a public takeover bid on our shares or a change of control in respect of Galapagos NV, including

clause 15.6 (Assignment;IndustryTransaction;AcquiredPrograms), entitling Gilead (i) in the event of an industry

transaction involving Galapagos, as a result of which a drug company of a certain minimum size acquires control

over Galapagos, to terminate our co-promotion rights, to disband all joint committees and undertake exclusive

control of their activities; and (ii) in the event of a change of control as a result of which we acquire rights to

an alternative product that would violate certain of our exclusivity obligations under the agreement, to require

us to either divest or terminate this acquired program. Gilead Biopharmaceutics Ireland Unlimited Company’s

rights and obligations under the license and collaboration agreement were assigned to another affiliate of Gilead

on 7 December 2017.

The product development, license and commercialization agreement between Galapagos NV, Les Laboratoires

Servier and Institut de Recherches Servier (“Servier”) as amended and restated on 8 May 2018 contains provisions

granting certain rights to Servier upon the occurrence of a public takeover bid on our shares or a change of

control in respect of Galapagos NV including, but not limited to, clause 13.4 (Termination by Servier Without

Cause or Due to Galapagos Change of Control), clause 13.5 (Rights on Termination) and clause 13.7 (Change of

Control), entitling Servier, in the event of a change of control of Galapagos NV, to elect to terminate the agreement

subject to an option for Galapagos NV to choose from two contractual termination regimes, both including the

termination of the licenses granted by Galapagos NV to Servier and the freedom for Galapagos NV to conduct

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research and development activities on terminated licensed products, or to have the licenses granted to Servier

continue, with all payment obligations remaining in place, but with Servier having full control over the further

development and patent strategies for the licensed product in Servier’s territory.

The exclusive license agreement among Galapagos NV, MorphoSys AG and Novartis Pharma AG ("Novartis") dated

19 July 2018 contains provisions granting certain rights to Novartis upon the occurrence of a public takeover

bid on our shares or a change of control in respect of Galapagos NV including, but not limited to, clause 3.7

(Change of Control), entitling Novartis, in the event of a change of control of Galapagos NV, to have Galapagos

NV’s representatives removed from the joint committees.

The second amended and restated collaboration agreement between Galapagos NV and AbbVie S.à r.l. ("AbbVie")

dated 24 October 2018 contains provisions granting certain rights to AbbVie upon the occurrence of a public

takeover bid on our shares or a change of control in respect of Galapagos NV, including, but not limited to clause

11.2 (Change in Control of Galapagos), entitling AbbVie, to oblige Galapagos NV to take appropriate measures

to avoid the disclosure of confidential information, to limit AbbVie's reporting obligations to Galapagos NV, or,

depending on the stage in which the change of control occurs, to terminate the agreement.

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 of Galapagos NV may only be authorized with the approval of at least 75% of the votes validly

cast at an extraordinary shareholders’ meeting where at least 50% of Galapagos NV’s share capital is present or

represented. If the attendance quorum of 50% is not met, a new extraordinary 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.

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CORPORATE GOVERNANCE

Shareholders

Major shareholders of Galapagos NV

Based on the transparency notifications received by Galapagos NV under Belgian law and the statements of acquisition

of beneficial ownership filed on Schedule 13G with the U.S. Securities and Exchange Commission under U.S. securities

law, the shareholders owning 5% or more of Galapagos NV’s shares on 31 December 2018 were Gilead Therapeutics

A1 Unlimited Company (6,760,701 shares or 12.41%), Van Herk Investments B.V. (5,379,305 shares or 9.88%), Wellington

Management Group LLP (3,427,128 shares or 6,29%) and Sands Capital Management LLC (2,894,535 shares or 5.31%).

Major shareholders on 31 December 2018

12.41%
Gilead

65.07%
Other shareholders

9.88%
Van Herk Investments

5.31%
Sands Capital Management

6.29%
Wellington Management
Group

1.04%
Insiders

At the end of 2018, our CEO owned 478,289 shares of Galapagos NV and 786,874 warrants. The other members of our

executive committee held an aggregate of 67,502 shares and 1,352,500 warrants. The other members of our board held an

aggregate of 17,974 shares and 216,780 warrants. Each warrant entitles its holder to subscribe to one share of Galapagos NV.

Agreements between Galapagos NV shareholders

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 16 December 2015, we signed an exclusive license and collaboration agreement to develop and commercialize filgotinib

in multiple indications with Gilead Biopharmaceutics Ireland Unlimited Company. This agreement was assigned to

another affiliate of Gilead on 7 December 2017. Under the terms of the collaboration, Gilead is primarily responsible for

development and for seeking regulatory approval of the licensed product. We are required to use commercially reasonable
efforts as requested by Gilead to assist Gilead with certain development activities. In addition, we agreed on a 20‑80 cost
split for development costs of the licensed product, i.e. we will bear 20% of all development costs. We have retained certain

mechanisms to give us cost protection as filgotinib advances in clinical development. We can defer our portion of the

global co-development study costs if they exceed a predetermined level, which we expect to reach at the end of 2019, and

this deferment would be credited against future milestones, royalties or profit sharing at our option. If there are no future

amounts to be paid by Gilead, we will not be obligated to make any payments to Gilead for such deferment.

In the framework of the closing of the transaction on 19 January 2016, Gilead paid a license fee of $300 million (or

€275.6 million) and made a $425 million (or €392 million) equity investment in Galapagos NV by subscribing to new

shares at a price of €58 per share, including issuance premium. This resulted in Gilead owning 6,760,701 ordinary shares

of Galapagos NV, representing 14.75% of the then outstanding share capital of Galapagos. In the framework of this

transaction, the parties agreed to a lock-up arrangement and a standstill arrangement, both of which expired on

31 December 2017.

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CORPORATE GOVERNANCE

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 with appropriate peer

companies and, for the members of the executive committee, also the group’s performance rating system.

The remuneration of the members of the board and the grant of warrants to members of the board are

submitted by the board for approval to the shareholders’ meeting, and are only implemented after such approval.

The fixed and variable remuneration of the CEO (who is a member of the board) is established by the board of

directors based upon an authorization from the shareholders’ meeting. The fixed and variable remuneration of,

and grant of warrants to, the other members of the executive committee is established by the board of directors,

upon recommendation of the nomination and remuneration committee.

Our remuneration policy

Principles

The objective of our remuneration policy is to attract, motivate and retain the qualified and expert individuals

that we need in order to achieve our 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, 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. The remuneration of the non-executive directors does not contain

a variable part. The board fees are paid in quarterly installments at the end of each calendar quarter.

The remuneration of the CEO and of the other members of the executive committee consists of a fixed part and

a variable part (bonus). Remuneration increases and bonuses are merit-driven and based on our performance

rating system that is based on individual performance (including exceptional deliverables) in combination

with our overall performance, compared to individual and corporate objectives that are established annually.

The corporate objectives and the CEO’s objectives are established annually by the board of directors upon

recommendation of the nomination and remuneration committee, and the objectives of the other members

of the executive committee are established annually by the CEO and are in relation to the corporate objectives

set by the board. For 2018, the corporate objectives included elements of clinical trial progression, cash position,

corporate development and business development; all of these objectives were considered to be of equal

importance. The level of achievement of the objectives for the CEO is reviewed at the end of each year by the

nomination and remuneration committee and discussed and finally established by the board, and the level of

achievement of the objectives of the other members of the executive committee is assessed by the CEO at the end

of the year in connection with appraisal discussions, discussed by the nomination and remuneration committee

and finally established by the board of directors.

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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 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 Euronext-
listed biotech companies). 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 change in the Next Biotech Index, the deferred

bonus will be forfeited

To be entitled to any deferred payment under the bonus scheme, the beneficiary must still be in our employ,

except in case of retirement with Galapagos’ consent or in case of redundancy. If employment within the

Galapagos group ends because of either retirement with Galapagos’ consent or redundancy, then the deferred

bonus will become payable on the last day of employment of the beneficiary with the Galapagos group. In

this case, the increase or decrease in the deferred bonus will be calculated in a similar manner to that quoted

above with the exception that the final reference share price will be the price at the close of business on

the Amsterdam/Brussels Euronext Exchange on the last working day immediately preceding the last day of

employment and the final reference value of Next Biotech Index will be the value quoted at the close of trading

on the day preceding the last day of employment.

In addition, exceptional special bonuses, outside the scope of the regular bonus schemes, can be considered

by the board upon recommendation of the nomination and remuneration committee in the event of and for

exceptional achievements.

Relative importance of the various components

The CEO’s bonus under the Senior Management Bonus Scheme can be maximum 100% of the fixed part of his

annual remuneration of the year for which the bonus is awarded. The aggregate bonuses of the other members

of the executive committee under the Senior Management Bonus Scheme can be maximum 75% of the total

amount of the fixed part of their aggregate annual remuneration of the year for which the bonus is awarded.

In addition, the CEO and/or the other members of the executive committee enjoy a number of benefits such as

pension payments, insurances and other fringe benefits, the monetary value of which is, however, limited.

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

Upon recommendation of the nomination and remuneration committee, the board of directors of 18 February

2019 resolved to update the compensation package of the members of the executive committee, based on a

benchmarking exercise performed by an independent advisor. This update aims to (i) bring the short-term

compensation in line with the median of the benchmark (cash and bonus), (ii) bring the total compensation

in line with the median of the benchmark, and (iii) increase the share-based portion of long-term incentives,

reflecting practices within relevant peer companies.

Under the updated compensation structure, a part of the variable remuneration will consist of restricted share

units (“RSUs”). Each RSU reflects the value of one Galapagos share and will be payable, at the company’s discretion,

in cash or in shares after a vesting period of three years, subject to continued employment. If employment within

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CORPORATE GOVERNANCE

the Galapagos group ends because of either retirement with Galapagos’ consent or redundancy, then the RSUs

will become payable on the last day of employment of the beneficiary with the Galapagos group. The allocation

of RSUs will be partly performance-based against the previous year’s objectives, and partly upon the discretion of

the board of directors.

The updated compensation package is being implemented per 1 January 2019 for salary increases, April 2019 for

discretionary grant of RSUs and as from 2020 for objective-related RSUs and cash bonus.

Remuneration of non-executive directors of Galapagos NV

Upon recommendation of the nomination and remuneration committee, the annual shareholders’ meeting

of 24 April 2018 resolved that the compensation (excluding expenses) of the non-executive directors for the

exercise of their mandate during the financial year ending 31 December 2018 was established as follows: (i)

chairman of the board (Dr. Parekh): €80,000; (ii) other non-executive board members (Dr. Cautreels, Mr. Rowe,

Ms. Bosley, Dr. Mummery and Dr. Kerr): €40,000 each; (iii) annual additional compensation for membership of

a board committee (audit committee: Mr. Rowe and Dr. Van Barlingen, replaced by Dr. Kerr as from 20 March

2018; nomination and remuneration committee: Dr. Cautreels, replaced by Mr. Rowe as from 20 March 2018,

and Ms. Bosley): €5,000; (iv) annual additional compensation for the chairmanship of a board committee (audit

committee: Dr. Cautreels, replaced by Mr. Rowe as from 23 April 2018; nomination and remuneration committee:

Dr. Parekh): €10,000.

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.

In 2018, we issued two warrant plans for the benefit of employees of the group and of the directors and one

independent consultant of Galapagos NV: Warrant Plan 2018 and Warrant Plan 2018 RMV. In accordance with the

resolution of the annual shareholders’ meeting of 24 April 2018, the following number of warrants were offered

under Warrant Plan 2018 to the non-executive directors: Dr. Parekh: 15,000 warrants; and Dr. Cautreels, Ms. Bosley,

Mr. Rowe, Dr. Mummery and Dr. Kerr: each 7,500 warrants. All directors accepted the warrants offered. These

warrants have a term of eight years. The exercise price of the warrants is €79.88. 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. No warrants were

offered to directors under Warrant Plan 2018 RMV. The board of directors does not consider the above warrants

as variable remuneration as defined by the Belgian Companies Code as they are not subject to any performance-

related criteria.

The board of directors points out that provision 7.7 of the Belgian Corporate Governance Code 2009 stipulates

that non-executive directors should not be entitled to stock-related long-term incentive schemes. In deviation

from this provision, the board of directors has decided to grant warrants to non-executive directors. This

way, Galapagos has additional possibilities to attract competent non-executive directors and to offer them

an attractive additional remuneration that does not affect Galapagos’ cash position. Furthermore, the grant

of warrants is a commonly used method in the sector in which Galapagos operates. Without this possibility,

Galapagos would be confronted with a considerable disadvantage compared to competitors and peer companies

that do offer stock-related incentive schemes to their non-executive directors. The board of directors is of the

opinion that the granting of warrants has no negative impact on the functioning of the non-executive directors.

In addition to the benefits set forth above, the non-executive directors also received benefits consisting of tax

advisory services in 2018 for an aggregate amount of €3,700.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

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 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 upon

recommendation of the nomination and remuneration committee (with respect to the other members of the

executive committee, such recommendation is based on proposals from the CEO). The award of a bonus is merit-

driven and based on the group’s performance rating system that is based on annual individual performance

(including exceptional deliverables) in combination with our overall performance, compared to the level of

achievement of individual and corporate objectives that are established annually. The corporate objectives and

the CEO’s objectives are established annually by the board of directors, and the objectives of the other members

of the executive committee are established annually by the CEO. For 2018, the corporate objectives included

elements of clinical trial progression, cash position, corporate development and business development. Each of

the corporate objectives is clear and measurable so that it is easy to determine whether or not a specific objective

has been achieved or not.

Gross remuneration of our CEO for financial year 2018

i. Base salary (fixed): €500,193.18 (including €18,859.44 in the form of pension contributions).

ii. Variable remuneration (bonus): given the level of achievement of the criteria from the Senior Management

Bonus Scheme to be entitled to a bonus (i.e. the corporate objectives for 2018), a bonus equal to 100% of the

2018 base salary was awarded over 2018, of which 50% was paid early January 2019, and the other 50% was

deferred for 3 years. The value of the 50% deferred part of the bonus awarded over 2015 was established at the

end of 2018 and resulted in a payment in early January 2019 of an amount of €381,909.00 (a multiple of 1.7 of
the deferred bonus, as a result of the share price performance over the period 2015‑2018 as per the provisions
of the Senior Management Bonus Scheme). In addition, an amount of €266,836.00 was paid in June 2018, being

a multiple of 1.9 of the deferred 50% of the exceptional special bonus awarded for the successful Nasdaq listing

in 2015.

iii. Pension: €62,292.17 (of which €18,859.44 is part of the base salary).

iv. Other components of the remuneration: company car, tax advisory services, and payments for invalidity and

healthcare cover, totaling €38,958.28.

During its meeting of 18 February 2019, the board of directors decided, upon recommendation of the nomination

and remuneration committee, to update the structure of the remuneration of the CEO as set forth above under

"information on the remuneration policy for the next two years". This includes salary increases as from 1 January

2019 and the grant of RSUs as from April 2019.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

Aggregate gross remuneration of the other executive committee
members for financial year 2018

i. Base salaries (fixed): €1,474,111.39 (including €35,000.00 in the form of pension contributions).

ii. Variable remunerations (bonuses): given the level of achievement of the criteria from the Senior

Management Bonus Scheme to be entitled to a bonus (i.e. the corporate objectives for 2018), an aggregate

bonus of €1,015,000.00 (i.e. 100% of the aggregate bonus pool) was awarded over 2018 of which 50% was paid

early January 2019, and the other 50% was deferred for 3 years. The value of the 50% deferred part of the bonus

awarded over 2015 was established at the end of 2018 and resulted in a payment in early January 2019 of an

amount of €435,922.00 (a multiple of 1.7 of the deferred bonus, as a result of the share price performance over
the period 2015‑2018 as per the provisions of the Senior Management Bonus Scheme). In addition, an amount
of €727,735.00 was paid in June 2018, being a multiple of 1.9 of the deferred 50% of the exceptional special bonus

awarded for the successful Nasdaq listing in 2015.

iii. Pensions: €243,345.59 (of which €35,000.00 are part of the fixed base salary).

iv. Other components of the remunerations: company cars, tax advisory services, and payments for invalidity

and healthcare cover, totaling €68,073.03.

During its meeting of 18 February 2019, the board of directors decided, upon recommendation of the nomination

and remuneration committee, to update the structure of the remuneration of the members of the executive

committee as set forth above under "Information on the remuneration policy for the next two years". This

includes salary increases as from 1 January 2019 and the grant of RSUs as from April 2019.

Shares, warrants or other rights to acquire shares awarded to,
exercised by or expired for the executive committee members
during financial year 2018

In 2018, 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 2018 and, in

aggregate, 250,000 warrants were exercised by members of the executive committee in 2018 (60,000 warrants were

exercised by Onno van de Stolpe, 90,000 warrants by Bart Filius and 50,000 warrants by each of Piet Wigerinck and

Andre Hoekema). 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 2018 under Warrant Plan 2018, issued by the board of directors under

the authorized capital on 19 April 2018: to Mr. Van de Stolpe: 100,000 warrants, to Mr. Filius: 80,000 warrants, to

each of Dr. Wigerinck and Dr. Abi-Saab: 60,000 warrants and to Dr. Hoekema: 50,000 warrants.

The warrants issued under Warrant Plan 2018 have an exercise price of €79.88, 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 subscribe to one share of Galapagos NV.

At the end of 2018, Mr. Van de Stolpe owned 478,289 shares of Galapagos NV and 786,874 warrants. The other

members of the executive committee held an aggregate of 67,502 shares and 1,352,500 warrants. The other

members of the board held an aggregate of 17,974 shares and 216,780 warrants. Each warrant entitles its holder to

subscribe to one share of Galapagos NV.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

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, Galapagos NV 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 executive committee members
during financial year 2018

Not applicable; in 2018 no members of the executive committee (including the CEO) left Galapagos.

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 and Galapagos’ Related Person Transaction Policy contain procedures for transactions

between Galapagos and its directors, members of its executive committee, major shareholders or any of their

immediate family members and affiliates. Without prejudice to the procedure defined in article 523 of the Belgian

Companies Code, these policies provide that all transactions between Galapagos and its directors, its members

of the executive committee or its representatives need the approval of the audit committee and the board of

directors, which approval can only be provided for transactions at normal market conditions. Moreover, conflicts

of interest, even in the event they are not a conflict of interest within the meaning of article 523 of the Belgian

Companies Code, are enacted in the meeting minutes, and the director or member of the executive committee

cannot participate in the voting.

In 2018, one conflict of interests between Galapagos NV and a director within the meaning of article 523 of the

Belgian Companies Code was noted: in a meeting of the board of directors held on 18 December 2018, the following

was reported in accordance with article 523 of the Belgian Companies Code in connection with the bonus for the

CEO: the chairman declared that Mr. Onno van de Stolpe had informed the board of directors of a conflict of

interest, concerning the proposed award to him of a bonus. Given the actual level of achievement of the criteria

from the Senior Management Bonus Scheme to be entitled to a bonus (i.e. the corporate objectives for 2018) a

bonus equal to 100% of his 2018 salary was awarded to Mr. Van de Stolpe for 2018. The board considered that said

bonus is a justified reward for the results achieved by Mr. Van de Stolpe in 2018. The bonus will have no material

impact on the financial position of the company. The board shared the opinion of the remuneration committee

that the proposed bonus is justified and reasonable. Mr. Van de Stolpe did not take part in the deliberation

and the vote concerning this decision. However, during its meeting of 18 February 2019, the board of directors

decided, upon recommendation of the nomination and remuneration committee, to update the structure of the

remuneration of the CEO as set forth above under Information on the remuneration policy for the next two years.

Galapagos NV • Annual Report 2018

CORPORATE GOVERNANCE

Code of Business Conduct and Ethics

We have established a Code of Business Conduct and Ethics to ensure that our directors, officers and employees

are making ethical and legal decisions when conducting Galapagos’ business and performing their day-to-day

duties. We expect our directors, officers and employees to conduct business with integrity, ethics and respect for

human rights. We expect them to turn away from conflicts of interest, corruption and fraud. To this end, we give

trainings on this Code to our employees. So far, 93% of our employees from Galapagos R&D have completed the

training.

The Code of Business Conduct and Ethics is available at www.glpg.com/charters-and-codes.

We were not informed of any breaches of our Code of Business Conduct and Ethics in 2018.

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 as of

31 December 2018.

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 2018, gives a true and fair view on the

development, results and position of Galapagos 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 2018, and to release the directors and the statutory auditor from liability for the

performance of their mandate during the financial year ended 31 December 2018.

Mechelen, 26 March 2019

On behalf of the board of directors

Onno van de Stolpe
CEO

Raj Parekh
Chairman

Galapagos NV • Annual Report 2018

Financial
statements

Consolidated and non-consolidated

financial statements for 2018

we raise the bar.

FINANCIAL STATEMENTS

Consolidated financial statements

Consolidated statements of income and comprehensive income /
loss (–)

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

Total operating expenses

Operating loss

Financial income

Financial expenses

Loss before tax

Income taxes

Net loss

Net loss attributable to:

Owners of the parent

Basic & diluted loss per share

Year ended 31 December

2018

288,836

29,009

317,845

127,087

28,830

155,918

2017

Notes

(322,875)

(218,502)

(35,631)

(4,146)

(24,415)

(2,803)

(362,652)

(245,720)

(44,807)

(89,802)

18,335

(2,737)

4,877

(30,582)

(29,209)

(115,507)

(50)

(198)

(29,259)

(115,704)

(29,259)

(0.56)

(115,704)

(2.34)

100

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Consolidated statement of comprehensive income / loss (-)

(thousands of €)

Net loss

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

Re-measurement of defined benefit obligation

Items that may be reclassified subsequently to profit or loss:

Fair value adjustment of available-for-sale financial assets

Translation differences, arisen from translating foreign activities

Other comprehensive income / loss (-), net of income tax

Year ended 31 December

2018

(29,259)

2017

Notes

(115,704)

(94)

–

197

103

(40)

(220)

(664)

(924)

Total comprehensive loss attributable to:

Owners of the parent

(29,155)

(116,629)

101

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Consolidated statements of financial position

(thousands of €)

Intangible assets

Property, plant and equipment

Deferred tax assets

Non-current R&D incentives receivables

Other non-current assets

Non-current assets

Trade and other receivables

Current R&D incentives receivables

Cash and cash equivalents

Other current assets

Current assets

Total assets

Equity and liabilities

Share capital

Share premium account

Other reserves

Translation differences

Accumulated losses

Total equity

Retirement benefit liabilities

Other non-current liabilities

Non-current deferred income

Non-current liabilities

Finance lease liabilities

Trade and other liabilities

Current tax payable

Current deferred income

Current liabilities

Total liabilities

Total equity and liabilities

31 December

2018

2017

Notes

3,632

23,137

2,514

73,443

7,919

110,645

18,609

11,203

2,495

16,692

1,978

64,001

3,461

88,627

27,966

11,782

1,290,796

1,151,211

8,244

1,328,851

1,439,496

6,688

1,197,647

1,286,274

236,540

1,277,780

(735)

(1,557)

(297,779)

1,214,249

3,764

1,578

–

5,342

–

68,928

1,175

149,801

219,905

225,247

233,414

993,025

(1,260)

(1,754)

(211,441)

1,011,983

3,582

1,662

97,348

102,592

48,281

865

122,544

171,699

274,291

1,439,496

1,286,274

102

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Consolidated cash flow statements

(thousands of €)

2018

2017

Notes

Net loss of the period

(29,259)

(115,704)

Adjustment for non-cash transactions

Adjustment for items to disclose separately under operating cash flow

Adjustment for items to disclose under investing and financing cash
flows

Change in working capital other than deferred income

Decrease in deferred income

21,753

(4,389)

(668)

19,922

(153,312)

48,301

(1,912)

–

(12,862)

(65,722)

Cash used in operations

(145,953)

(147,899)

Interest paid

Interest received

Corporate taxes paid

(1,063)

4,558

(8)

(273)

1,341

(199)

Net cash flows used in operating activities

(142,466)

(147,030)

Purchase of property, plant and equipment

Purchase of and expenditure in intangible fixed assets

Proceeds from disposal of property, plant and equipment

Decrease in restricted cash

Acquisition of financial assets held at fair value through P&L

Proceeds from sale of financial assets held at fair value through P&L

(10,392)

(3,325)

–

(4,559)

2,361

(5,312)

(2,125)

6,510

–

372

Net cash flows used in investing activities

(15,914)

(549)

103

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

(thousands of €)

Repayment of obligations under finance leases and other debts

Proceeds from capital and share premium increases, gross amount

Issue costs paid related to capital and share premium increases

2018

(5)

296,188

(15,964)

Proceeds from capital and share premium increases from exercise of
warrants

7,657

5,288

Net cash flows generated in financing activities

287,876

353,357

Increase in cash and cash equivalents

129,497

205,778

2017

Notes

(65)

363,924

(15,790)

Cash and cash equivalents at beginning of year

1,151,211

973,241

Increase in cash and cash equivalents

129,497

205,778

Effect of exchange rate differences on cash and cash equivalents

10,089

(27,808)

Cash and cash equivalents at end of the year

1,290,796

1,151,211

104

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Consolidated statements of changes in equity

(thousands of €)

Share capital

Share
premium
account

Translation
differences

Other
reserves

Accumul.
losses

Total

On 1 January 2017

223,928

649,135

(1,090)

(1,000)

(112,272)

758,701

Net loss

Other comprehensive loss

Total comprehensive loss

Share-based compensation

Issue of new shares

23,331

340,593

Share issue costs

(15,837)

Exercise of warrants

1,992

3,296

(664)

(260)

(115,704)

(924)

(115,704)

(116,629)

16,536

363,924

(15,837)

5,288

On 31 December 2017

233,414

993,025

(1,754)

(1,260)

(211,441)

1,011,983

On 1 January 2018

233,414

993,025

(1,754)

(1,260)

(211,441)

1,011,983

Change in accounting policy
(modified retrospective application
IFRS 15)

Change in accounting policy
(modified retrospective application
IFRS 9)

Restated total equity at 1 January
2018

Net loss

Other comprehensive income

Total comprehensive loss

Share-based compensation

(83,220)

619

(619)

–

233,414

993,025

(1,754)

(641)

(295,279)

928,766

197

(94)

(29,259)

103

(29,259)

(29,155)

26,757

296,188

(15,964)

7,657

Issue of new shares

16,021

280,167

Share issue costs

(15,964)

Exercise of warrants

3,069

4,588

On 31 December 2018

236,540

1,277,780

(1,557)

(735)

(297,779)

1,214,249

105

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Notes to the consolidated financial statements

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

“we”, “us,” “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. Our ambition is to

become a leading global biotechnology company focused on the development and commercialization of novel

medicines. Our strategy is to leverage our unique and proprietary target discovery platform, which facilitates our

discovery and development of therapies with novel modes of action.

The components of the operating result presented in the financial statements include the following companies:

Galapagos NV, Galapagos Real Estate 1 BVBA and Galapagos Real Estate 2 BVBA (Mechelen, Belgium); Galapagos

SASU (Romainville, France); Galapagos B.V. (Leiden, the Netherlands); Fidelta d.o.o. (Zagreb, Croatia); Galapagos, Inc.

and its subsidiary Xenometrix, Inc. (United States); BioFocus DPI AG and Galapagos GmbH (Basel, Switzerland); and

Galapagos Biotech Ltd. (Cambridge, UK).

Our operations had 725 employees as at 31 December 2018 working in the operating facilities in Mechelen (the

Belgian headquarters), the Netherlands, France, Croatia, the United States, United Kingdom and Switzerland.

2. Significant accounting policies

Our principal 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), as adopted by the EU. The consolidated financial statements provide a general overview of

our activities and the results achieved. They give a true and fair view of our financial position, our financial

performance and cash flows, on a going concern basis.

New standards and interpretations applicable for the annual period beginning on
1 January 2018

▪ IFRS 9 Financial Instruments and subsequent amendments (applicable for annual periods beginning on or

after 1 January 2018)

▪ IFRS 15 Revenue from Contracts with Customers, and clarifications on this IFRS (applicable for annual periods

beginning on or after 1 January 2018)

▪ IFRIC 22 Foreign Currency Transactions and Advance Consideration (applicable for annual periods beginning

on or after 1 January 2018)

▪ Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions (applicable for

annual periods beginning on or after 1 January 2018)

▪ Amendments to IAS 40 Transfers of Investment Property (applicable for annual periods beginning on or after

1 January 2018)

▪ Annual improvements to IFRS Standards (2014‑2016) Cycle (applicable for annual periods beginning on or after

1 January 2018)

The above new applicable standards affected the consolidated financial statements as follows:

106

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

IFRS 15 Revenue from Contracts with Customers

We adopted IFRS 15 on 1 January 2018, using the modified retrospective transition method. The adoption of the

new standard resulted in a timing difference of revenue recognition between prior accounting standards and IFRS

15. The cumulative effect of initially applying the new revenue standard was recognized as an adjustment to the

opening balance of accumulated deficit and deferred income.

To determine revenue recognition for arrangements that we determine are within the scope of IFRS 15, we

perform the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract;

(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the

contract; (v) recognize revenue when (or as) the entity satisfies a performance obligation.

As a consequence of the adoption of the new IFRS standard on 1 January 2018, our consolidated accumulated

losses and deferred income were both increased by €83.2 million, reflecting the impact of the new standard on the

revenue recognition of the considerations received related to our ongoing license and collaboration agreements.

Differences in accounting treatment compared to the former standard were identified for (i) the milestones

payments previously received in the scope of our license and collaboration agreement for filgotinib with Gilead,

and (ii) the upfront and milestone payments received related to the license and collaboration agreement with

AbbVie for cystic fibrosis, which were fully recognized in revenue in the previous years under the former

applicable IFRS standard. The collaboration agreement with AbbVie for cystic fibrosis was modified in 2016. Under

IAS 18 this modification was accounted for as a separate contract. However, based on the contract modification

guidance under IFRS 15 we determined that the upfront payment should be recognized over the term of the

modified contract. Finally, the deferred income balance related to the license fee received from Servier in the

scope of our license and collaboration agreement in the field of osteoarthritis was fully reclassified to equity as a

consequence of the adoption of the new standard. We refer to note 5 Total revenues and other income for further

detail.

The impact of the adoption of IFRS 15 on the consolidated financial statements for the year ended 31 December

2018 is detailed in the table below and is due to changes in the accounting policy for revenue recognition

compared to prior accounting standards.

Income statement

Revenues

(thousands of €, except per share data)

Year ended 31 December 2018

Balances in
accordance with IAS
18

As reported

Effect of change
higher / lower (-)

288,836

232,800

56,036

Loss before tax

(29,209)

(85,245)

56,036

Income taxes

Net loss

Basic & diluted loss per share

Balance sheet

Deferred income

Accumulated losses

(50)

–

(29,259)

(0.56)

(85,295)

(1.64)

56,036

1.08

31 December 2018

149,801

(297,779)

122,617

(270,595)

27,184

(27,184)

107

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

IFRS 9 Financial Instruments and subsequent amendments

The only financial instrument held by the group subject to change in accounting treatment following the

adoption of IFRS 9 – Financial Instruments, was the equity investment in a listed company classified as an

available-for-sale financial asset. At 31 December 2017, our balance sheet held shares of this company which were

acquired in 2016. The closing price of the share on Euronext as at the end of the year 2017 led to cumulative

fair value loss amounting to €0.6 million recognized in other comprehensive income following the accounting

treatment applied under IAS 39. Following the adoption of IFRS 9 on 1 January 2018, and considering that the

financial asset should be classified and measured at fair value, with changes in fair value recognized in profit

or loss, the cumulative fair value loss of €0.6 million previously recognized in other comprehensive income was

reclassified to accumulated losses.

Other new standards and interpretations applicable for the annual period beginning on 1 January 2018 did not

have any impact on our consolidated financial statements.

Standards and interpretations published, but not yet applicable for the annual period
beginning on 1 January 2018

▪ IFRS 16 Leases (applicable for annual periods beginning on or after 1 January 2019)
▪ IFRS 17 Insurance contracts (applicable for annual periods beginning on or after 1 January 2021, but not yet

endorsed in the EU)

▪ IFRIC 23 Uncertainty over Income Tax Treatments (applicable for annual periods beginning on or after

1 January 2019)

▪ Amendments to IFRS 9 Prepayment Features with Negative Compensation (applicable for annual periods

beginning on or after 1 January 2019)

▪ Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (applicable for annual periods

beginning on or after 1 January 2019, but not yet endorsed in the EU)

▪ Annual improvements to IFRS Standards (2015‑2017) Cycle (applicable for annual periods beginning on or after

1 January 2019, but not yet endorsed in the EU)

▪ Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (applicable for annual periods

beginning on or after 1 January 2019, but not yet endorsed in the EU)

▪ Amendments to References to the Conceptual Framework in IFRS Standards (applicable for annual periods

beginning on or after 1 January 2020, but not yet endorsed in the EU)

▪ Definition of a Business (Amendments to IFRS 3) (applicable for Business Combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after

1 January 2020, but not yet endorsed in the EU)

▪ Definition of Material (Amendments to IAS 1 and IAS 8) (applicable for annual periods beginning on or after

1 January 2020, but not yet endorsed in the EU)

Standards issued but not yet effective

A number of new standards are effective for annual periods beginning on or after 1 January 2019 with earlier

adoption permitted. However we have not early adopted new or amended standards in preparing our consolidated

financial statements. Of the standards that are not yet effective, we expect IFRS 16 to have a material impact on

our financial statements in the period of initial application.

IFRS 16 Leases (applicable for annual periods beginning on or after 1 January 2019)

We are required to adopt IFRS 16 as of 1 January 2019. We will apply IFRS 16 using the modified retrospective

approach. Consequently, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the

opening balance of retained earnings as at 1 January 2019, with no restatement of comparative figures.

We have assessed the estimated impact that the initial application of IFRS 16 will have on our consolidated

financial statements, as further described below.

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IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use

asset representing its right to use the underlying asset and a lease liability representing its obligation to make

lease payments.

We will use the following practical expedients permitted by the standard:

▪ Leases of low-value items
▪ Short-term leases

We will recognize new assets and liabilities for our leases of mainly buildings and cars. The nature of the expenses

related to those leases will change as we will recognize a depreciation charge for the right-of-use assets and an

interest expense on the lease liabilities. Previously we recognized operating lease expenses on a straight-line basis

over the term of the lease.

We will apply the practical expedient to grandfather the definition of a lease on transition, applying IFRS 16 to

all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

These liabilities are measured at the present value of the remaining lease payments and discounted using our

incremental borrowing rate.

In addition, we will no longer recognize provisions for onerous lease contracts, nor any provisions for termination

payments or liabilities to spread the lease expenses on a straight-line basis over the term of the contract in case

of variable or staggered lease payments.

Based on the information currently available, we estimate that we will recognize right-of-use assets and

corresponding lease liabilities of €26.3 million as of 1 January 2019.

In the statement of profit and loss for accounting year 2019, we expect a shift from lease expenses to depreciation

charges and interest cost of about €5.3 million. Operating result is expected to increase with approximately

€0.2 million offset by a higher finance cost of €0.4 million. The impact on net result is expected to be immaterial.

In the statement of cash flows for accounting year 2019, we expect a shift from cash flow from operating activities

to cash flow from financing activities of approximately €4.9 million with no impact on the net increase/(decrease)

in cash and cash equivalents.

IFRIC 23 Uncertainty over Income Tax Treatments (applicable for annual periods beginning
on or after 1 January 2019)

IFRIC 23 ‘Uncertainty over income tax treatments’ was issued in June 2017 and will be implemented by the group

as from 1 January 2019. The Interpretation clarifies that if it is considered probable that a tax Authority will accept

an uncertain tax treatment, the tax charge should be calculated on that basis. If it is not considered probable, the

effect of the uncertainty should be estimated and reflected in the tax charge. In assessing the uncertainty, it is

assumed that the tax authority will have full knowledge of all information related to the matter. We performed

an assessment of the potential impact of the new interpretation and concluded that it would not have a material

impact on our financial statements.

Consolidated reporting

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

by Galapagos NV. Control is achieved where Galapagos NV has the power to direct the relevant activities 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 our accounting policies. All intra-group transactions, balances, income and expenses are

eliminated when preparing the consolidated financial statements.

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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 our 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
▪ We have the intention to complete the intangible assets and use or sell it
▪ We have 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
▪ We are able to measure reliably the expenditure attributable to the intangible asset during its development

The amount capitalized as internally generated intangible assets is the sum of the development costs incurred as

of the date that the asset meets the conditions described above.

Internally generated intangible assets are amortized on a straight-line basis over their estimated useful lifes. 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 as from the time they are available for use

generally 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. Intangible assets with an indefinite useful life and intangible assets which are not yet available

for use are tested for impairment annually, and whenever there is an indication that the asset might be impaired.

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 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.

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Financial instruments

Financial assets and financial liabilities are recognized on our balance sheet when we become a party to the

contractual provisions of the instrument. Hedging and derivatives have never been used: we do not actively

use currency derivatives to hedge planned future cash flows, nor do we make use of forward foreign exchange

contracts. Additionally, we don’t have financial debts at 31 December 2018.

(i) Financial assets

Financial assets are initially recognized either at fair value or at their transaction price. All recognized financial

assets are subsequently measured at either amortized cost or fair value under IFRS 9 on the basis of both

Galapagos' business model for managing the financial assets and the contractual cash flow characteristics of the

financial asset.

▪ a financial asset that (i) is held within a business model whose objective is to collect the contractual cash
flows and (ii) has contractual cash flows that are solely payments of principal and interest on the principal

amount outstanding is measured at amortized cost (net of any write down for impairment), unless the asset

is designated at fair value through profit or loss (FVTPL) under the fair value option;

▪ a financial asset that (i) is held within a business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets and (ii) has contractual terms that give rise on specified

dates to cash flows that are solely payments of principal and interest on the principal amount outstanding,

is measured at fair value through other comprehensive income (FVTOCI), unless the asset is designated at

FVTPL under the fair value option;

▪ all other financial assets are measured at FVTPL;

A financial asset is classified as current when the cash flows expected to flow from the instrument mature within

one year.

We derecognize a financial asset when the contractual rights to the cash flows from the asset expire, or we

transfer the rights to receive the contractual cash flows on the financial asset in a transaction in which

substantially all the risks and rewards of ownership of the financial asset are transferred.

We classify non-derivative financial assets into the following categories:

▪ financial assets at fair value through profit or loss (equity instruments)
▪ financial assets at amortized cost (receivables and cash and cash equivalents).

Financial assets at fair value through profit or loss

Financial assets are designated at fair value through profit or loss if we manage such investments and make

purchase and sale decisions based on their fair value in accordance with our investment strategy. Attributable

transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss

are measured at fair value, and changes therein, which take into account any dividend income, are recognized in

profit or loss.

Equity instruments

We hold investments in equity instruments, which based on IFRS 9, are designated as financial assets at fair

value through profit or loss, which qualify for level 1 fair value measurement based upon the closing price of such

securities on Euronext at each reporting date.

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Financial assets at amortized cost

Receivables

Receivables are designated as financial assets measured at amortized costs. They are initially measured either at

fair value or at transaction price, if they do not contain a significant financing component, which is the case for

substantially all trade receivables.

All receivables are subsequently measured in the balance sheet at amortized cost, which generally corresponds to

nominal value less expected credit loss provision.

Receivables mainly comprise trade and other receivables and research and development (R&D) incentives

receivables.

The R&D incentives receivables relate to refunds resulting from R&D incentives on research and development

expenses in France and Belgium. Research and development incentives receivables are discounted over the period

until maturity date according to the appropriate discount rates.

Cash and cash equivalents

Cash and cash equivalents are financial assets measured at amortized costs and comprise cash balances and

short-term deposits with maturities of three months or less from the acquisition date that are subject to an

insignificant risk of changes in their fair value and are used by us in the management of our short-term

commitments.

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

position.

(ii) Financial liabilities

Financial liabilities are initially measured either at fair value or at their transaction price. Subsequent to initial

recognition, financial liabilities are measured at amortized cost.

Financial liabilities mainly comprise trade and other liabilities.

Trade and other liabilities are comprised of liabilities that are due less than one year from the balance sheet

date and are in general not interest bearing and settled on an ongoing basis during the financial year. They also

include accrued expense related to our research and development project costs.

We derecognize a financial liability when our contractual obligations are discharged, cancelled or expire.

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. Our 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.

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Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively 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.

Foreign currencies

▪ Functional and presentation currency

Items included in the financial statements of each of our 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 our presentation currency.

▪ 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. We use monthly transaction rates based on the closing exchange rates of the

foreign currencies on the last business day of the month preceding the date of the 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 our 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.

Recognition of expenses linked to clinical trial milestones

We recognize expenses specifically linked to clinical trial milestones with regard to patient recruitment and

patient treatment (i.e. completion), incurred in carrying out clinical trials, in line with actual patient recruitment

or treatment at each period end, in reference to the milestone targets for patient recruitment or treatment.

This involves the calculation of clinical trial accruals at each period end, for which an estimation of the expected

full clinical trial milestone cost is required, as well as the current stage of patient recruitment or treatment.

Clinical trials usually take place over extended time periods and typically involve a set-up phase, a recruitment

phase and a completion phase which ends upon the receipt of a final report containing full statistical analysis

of trial results. Accruals for patient recruitment and patient completion are prepared separately for each clinical

trial in progress and take into consideration the stage of completion of each trial including the number of

patients that have entered the trial and the number of patients that have been treated in the trial. In all cases,

the full cost of each trial is expensed by the time the final report is received.

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Revenue recognition

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

connection with collaboration and license agreements. We also generate revenue from our fee-for-service

activities.

The revenue recognition policies can be summarized as follows:

We recognize revenue when our customer obtains control of promised goods or services, in an amount that

reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue

recognition for agreements that we determine are within the scope of IFRS 15, we perform the following five steps:

(i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction

price; (iv) allocate the transaction price to the performance obligations in the contract; (v) recognize revenue

when (or as) the entity satisfies a performance obligation.

Collaboration and license agreements with our commercial partners for research and development activities

generally include non-refundable upfront fees; costs reimbursements; milestone payments, the receipt of which

is dependent upon the achievement of certain clinical, regulatory or commercial milestones; license fees, royalties

on sales and sometimes profits sharing arrangements.

At contract inception, we assess whether the contract is in scope of IFRS 15. Then, we identify the goods and

services promised in the contract, and assess whether they should be seen as distinct performance obligations

or not. We then recognize as revenue the amount of the transaction price that is allocated to the respective

performance obligation when (or as) the performance obligation is satisfied.

License fees or upfront payments

If the license to our intellectual property is determined to be distinct from the other performance obligations

identified in the arrangement, we recognize revenues from non-refundable upfront fees allocated to the license

at the point in time the license is transferred to the customer and the customer has the right to use the license.

For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined

performance obligation to determine whether the combined performance obligation is satisfied over time or at a

point in time. If over time, revenue is then recognized based on a pattern that best reflects the transfer of control

of the service to the customer.

Milestone Payments

A milestone payment is only included in the transaction price when the achievement of the related milestone

event is highly probable (usually at the time of achievement of the milestone event). We estimate the amount

to be included in the transaction price using the most likely amount method. The transaction price is then

allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize

revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent

reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint,

and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a

cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.

Reimbursement Income for R&D Services

Collaboration and license agreements may include reimbursement or cost sharing for research and development

services: such as outsourcing costs and payment for full-time equivalents at contractual rates. R&D services are

performed and satisfied over time given that the customer simultaneously receives and consumes the benefits

provided by us.

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Such costs reimbursements received are recognized in revenues when costs are incurred and agreed by the parties

when we are acting as a principal in the scope of our stake of the R&D activities. If the later condition is not

fulfilled, costs reimbursements are accounted for as a decrease of the related expenses.

Royalties

License and collaboration agreements include sales-based royalties, including commercial milestone payments

based on the level of sales, and the license has been deemed to be the predominant item to which the royalties

relate. Related revenue is recognized as the subsequent underlying sales occur.

Revenue recognition policies applicable to period ended 31 December 2017

The revenue recognition policies applicable to period ended 31 December 2017 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 our involvement. The payments

and our involvement relate to a contractually defined phase of the project. At inception, management estimates

the period of our 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 we reassess the estimated time and our cost to complete

the project phase and adjust 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.

Reimbursement income

Cost reimbursements resulting from license and collaboration agreements with our commercial partners are

recognized as reimbursement income in revenue as the related costs are incurred and upon agreement by the

parties involved. The corresponding expenses are included in research and development expenditure.

Cost reimbursements from collaboration in which we share equally in the risks and benefits associated with

development of a specific drug with a collaboration partner are recognized as decrease of the related incurred

research and development expenditure.

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 we can reliably estimate such amounts and collectability is reasonably

assured. As such, we generally recognize royalty revenues in the period in which the licensees are reporting the

royalties to us 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 we report are

not based upon our estimates and such royalty revenues are typically reported in the same period in which we

receive payment from our licensees.

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Other income

Grants and R&D incentives

As we carry out extensive research and development activities, we benefit 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 our research and development efforts 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 we undertake our activities under joint operations, we as a joint operator recognize in relation to our

interest in a joint operation:

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

We account for the assets, liabilities, revenues and expenses relating to our interest in a joint operation in

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

When we transact with a joint operation in which we are a joint operator (such as sale or contribution of assets),

we are 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 our consolidated financial statements only to the extent

of other parties’ interests in the joint operation.

When we transact with a joint operation in which we are a joint operator (such as purchase of assets), we do not

recognize our share of the gains and losses until we resell those assets to a third party.

Equity instruments

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

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. Re-measurement,

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. Re-measurement recognized

in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit

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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
▪ Re-measurement

The retirement benefit obligation recognized in the consolidated statement of financial position represents the

actual deficit or surplus in our 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 or a reduction in future

contributions to the plans. A liability for a termination benefit is recognized at the earlier of when we can no

longer withdraw the offer of the termination benefit and when we recognize any related restructuring costs.

c/ Staff bonus plan

We recognize 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 Euronext-listed biotech companies). The Galapagos 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 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 percentage 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 percentage 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

We recognize the possible payment of the deferred component of the Senior Management Bonus Scheme within

three years at the moment that the bonus amount is determined, based on the fair value of the liability at each

reporting period. The fair value of the liability is measured by use of the Monte Carlo valuation model taking into

consideration (a) the average reference price of the Galapagos share and Next Biotech Index, (b) the average price

of the reporting period of the Galapagos share and the Next Biotech Index, (c) the simulation of the evolution

of the Galapagos share price and the Next Biotech Index based on their volatility and correlation until maturity

of the bonus, (d) the applicable discount rates at the end of the reporting period and (e) the probability of the

number of beneficiaries assumed to stay with us until maturity of the bonus. The changes in fair value are

recognized in profit or loss for the period.

Share-based payments

We grant 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 acceptance. The fair value determined at the

acceptance date of the warrants is expensed over time until the end of the vesting period, based on our 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.

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Provisions

Provisions are recognized on the balance sheet when we have 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 specific to

the liability.

Finance and operating leases

Leases are classified as finance leases whenever the terms of the lease substantially transfer 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 our assets 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 it is 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

(i) Financial assets

The impairment loss of a financial asset measured at amortized cost is calculated based on the expected loss

model.

For trade receivables that do not contain a significant financing component (i.e. substantially all trade

receivables), the loss allowance is measured at an amount equal to lifetime expected credit losses. Those are the

expected credit losses that result from all possible default events over the expected life of those trade receivables.

Impairment losses are recognized in the consolidated income statement.

(ii) Tangible and intangible assets

At each balance sheet date, we review the carrying amount of our 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, we estimate the recoverable

amount of the cash-generating unit to which the asset belongs.

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.

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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.

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; and do not include income tax items. We have only two segments (see note 4).

3. Critical accounting estimates and judgments

In the application of the accounting policies, we are required to make judgments, estimates and assumptions

about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The

estimates and associated assumptions are based on historical experience and other factors that are considered to

be relevant. Actual results may differ from these estimates.

Our estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognized in the period in which the estimate is revised if the revision affects only that period or in the period

of the revisions and future periods if the revision affects both current and future periods.

Drafting financial statements in accordance with IFRS requires management to make judgments and estimates

and to use assumptions that influence the reported amounts of assets and liabilities, the notes on contingent

assets and liabilities on the date of the financial statements and the reported amounts of income and expenses

during the reporting period. Actual results may differ from these estimates.

The following are the critical judgments and estimates that we have made in the process of applying the

accounting policies and that have the most significant effect on the amounts recognized in the consolidated

financial statements presented elsewhere in this annual report.

Critical judgments in applying accounting policies

Revenue recognition

Evaluating the criteria for revenue recognition under license and collaboration agreements requires

management’s judgment to assess and determine the following:

▪ The nature of the contractual performance obligations and whether they are distinct or should be combined

with other performance obligations.

▪ The pattern of transfer of each promised license and/or R&D activities identified in the contract, sometimes
using input or output methods which are based on key assumptions such as forecasted costs and

development timelines of our license and collaboration agreements for the assessment of satisfaction of the

performance obligation.

The above may significantly influence our financial statements.

We applied the five step model detailed in IFRS 15 to determine when, how and at what amount revenue is to

be recognized depending on whether certain criteria are met. The positions taken in applying this standard are

detailed below.

The substance of our current arrangements is that we are licensing certain of our intellectual property to

collaboration partners and conduct research and development (“R&D”) activities. Such activities result in a service

that is the output of our ordinary activities. We generate revenue through a number of these arrangements which

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FINANCIAL STATEMENTS

include license fees, milestone payments, reimbursement income and future sales based milestones and sales

based royalties. We assessed that the revenues from our current material licensing and collaboration agreements

are in the scope of IFRS 15.

Collaboration with Gilead

We concluded as follows:

▪ There is one single performance obligation under IFRS 15: the transfer of a license combined with
performance of R&D activities. This is because we considered that the license is not distinct in the context of

the contract.

▪ The transaction price of our agreement with Gilead is currently composed of a fixed part, being an upfront
license fee and a variable part, being milestone payments and cost reimbursements for R&D activities

delivered. Milestone payments are included in the transaction price of the arrangement only when achieved.

Sales based milestones and sales based royalties are a part of our arrangement but are not yet included in

our revenues as our program is still in Phase 3 of development.

▪ The transaction price has been allocated to the single performance obligation and revenues have been
recognized over the estimated service period based on a pattern that reflects the transfer of the license

and progress to complete satisfaction of the R&D activities. This is because we considered that there is a

transformational relationship between the license and the R&D activities to be delivered.

▪ We have chosen an input model to measure the satisfaction of the single performance obligation that
considers percentage of costs incurred for this program that are completed each period (percentage of

completion method).

▪ Costs reimbursements received from Gilead are recognized in revenues when costs are incurred and agreed
by the parties as we are acting as a principal in the scope of our stake of the R&D activities of our ongoing

license and collaboration agreements.

Collaboration with AbbVie

We concluded as follows:

and is not distinct in the context of the contract.

▪ The transaction price of our agreement with AbbVie is currently composed of a fixed part, being upfront
license fees, and a variable part, being milestone payments and cost reimbursements for R&D activities

delivered. Milestone payments are included in the transaction price of the arrangement only when achieved.

Sales based milestones and sales based royalties are a part of our arrangement but are not yet included in

our revenues as the program is still in Phase 1 & 2 of development.

and progress to complete satisfaction of the R&D activities. This is because we considered that there is a

transformational relationship between the license and the R&D activities to be delivered.

▪ We have chosen an input model to measure the satisfaction of the single performance obligation that
considers a percentage of costs incurred for this program that are completed each period (percentage of

completion method).

▪ Costs reimbursements received from AbbVie are recognized in revenues when costs are incurred and agreed
by the parties as we are acting as a principal in the scope of our stake of the R&D activities of our ongoing

license and collaboration agreements.

The second amended and restated collaboration agreement signed on 24 October 2018 was assessed to be a

contract modification including a change in scope and in pricing as the remaining goods or services are not

distinct and form part of the single performance obligation that was partially satisfied at the date of the

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FINANCIAL STATEMENTS

contract modification. We concluded that we must account for this second amended and restated collaboration

agreement as if it was part of the existing contract and recognized as adjustment to revenue the effect of

the contract modification on the transaction price and on the measure of progress towards satisfaction of the

performance obligation.

Collaboration with Servier

The deferred income balance as of 31 December 2017 related to the license fee received from Servier in the scope

of our license and collaboration agreement in the field of osteoarthritis (€5.4 million) was fully reclassified to

equity as a consequence of the adoption of IFRS 15. Any increase in the transaction price from future potential

development and regulatory milestones, sales based milestones and royalties, will be allocated to the license and

will be fully recognized as revenue at a point in time when achieved, as our performance obligation towards

Servier has been fully satisfied.

The contract signed with Servier on 8 May 2018 takes over the terms of the previous agreement but additionally

includes the framework of a joint Phase 2 clinical trial program in which both parties collaborate, share costs and

mutually exchange services. We concluded that this contract modification was not in the scope of IFRS 15 because

there is a mutual exchange of services between Servier and Galapago, Servier is not assessed as a customer but

as a collaboration partner. Any cost reimbursement from our collaboration partner is not recognized as revenue

but accounted as a decrease of the related expenses.

Collaboration with Novartis

We concluded as follows:

▪ There are two distinct performance obligations under IFRS 15: the transfer of a license and the performance
of R&D activities. This is because we considered that the license is capable of being distinct and is distinct in

the context of the contract.

▪ The transaction price of our agreement with Novartis is currently composed of a fixed part, being an upfront
license fee, and a variable part, being milestone payments and cost reimbursements for R&D activities

delivered. Milestone payments are included in the transaction price of the arrangement only when achieved.

Sales based milestones and sales based royalties are a part of our arrangement but are not yet included in our

revenues as our program is still in Phase 2 of development. In addition, the agreed consideration for the R&D

activities that we will still perform up until the end of the Phase 2 of clinical development was also included

in the transaction price.

▪ The transaction price has been allocated to each of the two distinct performance obligations based on our
assessment of their relative stand-alone selling price, this for the R&D activities and using the residual

approach to allocate the remainder of the transaction price to the license. Revenues are recognized at a

point in time for the transaction price allocated to the transfer of the license as we assessed that the license

confers a right to use the intellectual property to Novartis. For the transaction price allocated to the second

performance obligation, the R&D activities, revenues are recognized over the estimated service period based

on a pattern that reflects the transfer of our services to complete satisfaction of this performance obligation.
▪ We have chosen an input model to measure the satisfaction of the performance obligation of the R&D
activities that considers a percentage of costs incurred for this program that are completed each period

(percentage of completion method).

▪ Costs reimbursements received from Novartis will be recognized in revenues when costs are incurred and
agreed by the parties as we are acting as a principal in the scope of the performance of the R&D activities.

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FINANCIAL STATEMENTS

Critical accounting estimates

Share-based payments plans

We determine the costs of the share-based payments plans (our warrant plans) on the basis of the fair value of

the equity instrument at grant date. Determining the fair value assumes choosing the most suitable valuation

model for these equity instruments, for which the characteristics of the grant have a decisive influence. This

assumes also the input into the valuation model of some relevant judgments, like the estimated expected life of

the warrant and the volatility. The judgments made and the model used are further specified in note 28.

We determine the costs of the deferred component of the Senior Management Bonus Schemes on the basis of the

fair value of the liability at each reporting period. Determining the fair value assumes choosing the most suitable

valuation model for this liability, in which the characteristics of the Senior Management Bonus plans and the

Galapagos share price change relative to the Next Biotech Index have a major influence. This assumes also the

input into the valuation model of some relevant judgments, like the simulation of the evolution of the Galapagos

share price and the Next Biotech Index based on their volatility and correlation until maturity of the bonus, the

applicable discount rates at the end of the reporting period and the probability of the number of beneficiaries

assumed to stay with us until maturity of the bonus.

Corporate income taxes

Significant judgment is required in determining the use of tax loss carry forwards. Deferred tax assets arising

from unused tax losses or tax credits are only recognized to the extent that there are sufficient taxable temporary

differences or there is convincing evidence that sufficient taxable profit will be available against which the

unused tax losses or unused tax credits can be utilized. Management’s judgment is that such convincing evidence

is currently not sufficiently available except for one subsidiary operating intercompany on a cost plus basis and

our fee-for-service business and as such a deferred tax asset is therefore recognized.

At 31 December 2018, we had a total of €374.2 million of statutory tax losses carried forward which can be

compensated with future taxable statutory profits for an indefinite period except for an amount of €10.8 million

in Switzerland, Croatia and the United States with expiry date between 2019 and 2030. At 31 December 2018, the

available tax losses carried forward in Belgium amounted to €305.6 million.

As a company active in research and development in Belgium, we also expect to benefit from the “innovation

income deduction (IID)” in Belgium. The innovation income deduction regime allows net profits attributable to

revenue from among others patented products (or products for which the patent application is pending) to be

taxed at a lower rate than other revenues, i.e., 4.4% (3.75% as of 1 January 2020). The available IID carried forward

amounted to €195.4 million at 31 December 2018. It should be noted however that the Belgian corporate income

tax reform introduced as of assessment year 2019 a de facto minimum taxable base, whereby the existing tax

attributes have to be allocated into 2 so-called “baskets”: a first basket which contains the tax deductions that

can be applied without any restrictions and a second basket which contains the tax deductions that are subject

to restrictions. The first basket contains (in order of deduction) the non-taxable items (such as deductible gifts),

current year dividends received deduction (DRD), grandfathered patent income deduction (PID), current year

innovation income deduction (IID) and investment deduction. The second basket contains (in order of deduction

and subject to the restrictions as mentioned hereunder) the current year notional income deduction (NID), DRD

carry-forward, IID carry-forward, tax loss carry-forward, unlimited NID carry-forward and NID carry-forward

subject to the 7-year limitation. The taxable base can be reduced without any limitation with the deductions

contained in the first basket. Any remaining taxable basis below € 1 million can be fully compensated with

deductions contained in the second basket. If the remaining taxable basis exceeds € 1 million, the excess above

€ 1 million can only be compensated with deductions of the second basket up to 70%.

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FINANCIAL STATEMENTS

4. Segment information

The group holds two reportable segments, R&D and fee-for-service business.

Segment information for the year 2018

R&D Fee-for-services

Inter-segment
elimination

278,666

29,000

307,666

10,170

8,508

(8,508)

18,687

(8,508)

(19,734)

1,751

(thousands of €)

External revenue

Internal revenue

Other income

Revenues & other income

Segment result

Unallocated expenses(1)

Operating loss

Financial (expenses)/income

Result before tax

Income taxes

Net loss

(1) The unallocated expenses of €26,824 thousand principally comprise of €26,757 thousand of warrant costs

Segment information for the year 2017

R&D Fee-for-services

Inter-segment
elimination

118,262

28,815

147,077

8,825

5,104

(5,104)

13,945

(5,104)

(73,610)

(thousands of €)

External revenue

Internal revenue

Other income

Revenues & other income

Segment result

Unallocated expenses(1)

Operating loss

Financial (expenses)/income

Result before tax

Income taxes

Net loss

Group

288,836

–

29,009

317,845

(17,983)

(26,824)

(44,807)

15,598

(29,209)

(50)

(29,259)

Group

127,087

–

28,830

155,918

(73,524)

(16,278)

(89,802)

(25,705)

(115,507)

(198)

(115,704)

(1) The unallocated expenses of €16,278 thousand principally comprise of €16,536 thousand of warrant costs.

Segment assets and liabilities are not information being provided to management on a recurring basis. This

information is therefore not disclosed in our segment information.

Geographical information

In 2018 our operations were mainly located in Belgium, Croatia, France and the Netherlands.

In 2018 our top 10 customers represented 98.6% of the revenues. Our client base in 2018 and 2017 included nine of

the largest pharmaceutical companies in the world.

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FINANCIAL STATEMENTS

Following table summarizes our revenues by destination of customer:

(thousands of €)

North America

Europe

Asia Pacific

Total revenues

Year ended 31 December

2018

117.609

171.113

114

288.836

2017

82.050

45.037

–

127.087

Following table summarizes our revenues by major customers:

Gilead

North America

Europe

AbbVie

Europe

Novartis

Europe

Servier

Europe

Total revenues from major customers

Year ended 31 December

2018

2017

(thousands of €)

% (thousands of €)

116,640

7,793

40%

80,687

63%

89,936

31%

34,049

27%

55,218

9,000

278,587

19%

96%

114,736

90%

Following table summarizes our revenues by destination of our entity:

(thousands of €)

Galapagos NV (Belgium)

Galapagos SASU (France)

Fidelta d.o.o. (Croatia)

Total revenues

Year ended 31 December

2018

278.649

10.170

288.836

2017

118.244

8.825

127.087

In 2018, we held €110 million of non-current assets (€89 million in 2017) distributed as follows:

▪ Belgium: €64 million (€47 million in 2017)
▪ France: €36 million (€34 million in 2017)
▪ Croatia: €5 million (€4 million in 2017)
▪ The Netherlands: €4 million (€4 million in 2017)

The increase in non-current assets was mainly explained by the increase in non-current R&D incentives

receivables (see note 14).

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FINANCIAL STATEMENTS

5. Total revenues and other income

Revenues

The following table summarizes the revenues for the years ended 31 December 2018 and 2017.

(thousands of €)

Recognition of non-refundable upfront payments and license fees

Milestone payments

Reimbursement income

Other revenues

Total revenues

Year ended 31 December

2018

196,487

73,394

8,722

10,233

2017

71,971

42,950

3,273

8,893

288,836

127,087

Galapagos’ revenues for 2018 amounted to €288.8 million, compared to €127.1 million in 2017. Increased revenues

were mainly driven by (i) an upfront payment of €47.5 million from Novartis related to the MOR106 program, (ii)

increased recognition in revenue of the upfront payment and milestones related to the filgotinib program with

Gilead, (iii) revenue recognition related to the additional upfront payment of $45.0 million from AbbVie in the

scope of the restructuring of the collaboration and previous upfront payment and milestones, and (iv) the change

in accounting treatment from the adoption of IFRS 15 on 1 January 2018.

The following table summarizes the revenue recognition of upfront payments, license fees and milestone

payments for the years ended 31 December 2018 and 2017, as well as the impact of the adoption of IFRS 15. The

revenues recognized for the years ended 31 December 2018 are presented under the IFRS 15 standard as well as

under the former applicable IAS 18 standard, with a comparison to the year ended 31 December 2017 under the

former applicable IAS 18 standard.

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Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

IAS 18

IFRS 15

IAS 18

IFRS 15

Deferred
income
reclassified
from
equity
following
adoption
of IFRS 15

Outstanding
balance in
deferred
income as at
1 January
2018

Outstanding
balance in
deferred
income as at
31 December
2017

Collabo-
ration
start date

Revenue
recognized,
year ended
31 December
2018

Revenue
recognized,
year ended
31 December
2017

Outstanding
balance in
deferred
income as at
31 December
2018

(thousand of €)

Consideration Consideration

Agreement

(thousand of $) (thousand of €)

Revenue recognition of considerations received prior to 31 December 2017

Gilead
collaboration
agreement
for filgotinib
– Upfront
payment

Gilead
collaboration
agreement
for filgotinib
–
Subscription
agreement(1)

Servier
collaboration
agreement
for
osteoarthritis
– License fee

AbbVie
collaboration
agreement
for CF –
Upfront
payment

Total
upfront
payments
and license
fees:

Gilead
collaboration
agreement
for filgotinib
– Milestone
payments

AbbVie
collaboration
agreement
for CF –
Milestone
payments

Total
milestones:

Total:

300,000

275,558

January
2016

187,449

–

187,449

84,806

62,488

102,643

N.A.

39,003

January
2016

26,532

–

26,532

12,004

8,845

14,528

N.A.

6,000 June 2010

5,362

(5,362)

–

1,532

638

–

45,000

34,001

September
2013

–

14,872

14,140

–

732

219,343

9,510

228,853

110,950

98,342

71,971

117,903

70,000

64,435

January
2016

–

43,832

19,831

77,500

68,310

September
2013

–

219,343

29,878

28,406

73,710

83,220

73,710

302,563

48,237

159,187

–

98,342

9,354

24,001

33,596

1,471

42,950

114,921

25,472

143,375

(1) Deferred income of €39 million booked upon signing of the share subscription agreement with Gilead as required under IAS 39 Financial instruments: recognition and measurement

126

Galapagos NV • Annual Report 2018

Novartis
collaboration
agreement
for MOR106
– Upfront
payment

AbbVie
collaboration
agreement
for CF –
Upfront
payment

Total
upfront
payments
and license
fees:

Gilead
collaboration
agreement
for filgotinib
– Milestone
payments

AbbVie
collaboration
agreement
for CF –
Milestone
payments

Servier
collaboration
agreement
for
osteoarthritis
– Milestone
payment

Total
milestones:

Total:

FINANCIAL STATEMENTS

IAS 18

IFRS 15

IAS 18

IFRS 15

Deferred
income
reclassified
from
equity
following
adoption
of IFRS 15

Outstanding
balance in
deferred
income as at
1 January
2018

Outstanding
balance in
deferred
income as at
31 December
2017

Collabo-
ration
start date

Revenue
recognized,
year ended
31 December
2018

Revenue
recognized,
year ended
31 December
2017

Outstanding
balance in
deferred
income as at
31 December
2018

(thousand of €)

Consideration Consideration

Agreement

(thousand of $) (thousand of €)

Revenue recognition of considerations received in the year ended 31 December 2018

N.A.

47,500

September
2018

47,500

45,000

38,874

September
2013

38,037

85,537

–

837

15,000

12,418

January
2016

7,793

12,418

4,625

10,000

September
2013

8,548

8,364

8,548

184

N.A.

9,000 June 2010

9,000

25,157

110,694

269,881

29,966

115,503

213,845

–

4,809

5,646

149,021

–

Grand total: upfront payments and license fees and milestones

(1) Deferred income of €39 million booked upon signing of the share subscription agreement with Gilead as required under IAS 39 Financial instruments: recognition and measurement

The adoption of IFRS 15 resulted in a timing difference of revenue recognition between IAS 18 and IFRS 15

which negatively impacted the accumulated losses and increased the amount of deferred income (contract

liabilities) by an amount of €83.2 million, as shown in the table above (column “Deferred income reclassified from

equity following adoption of IFRS 15”). We elected the modified retrospective method for the transition which

foresees that prior period figures remain as reported under the previous standard and the cumulative effect

of applying IFRS 15 is recognized as an adjustment to the opening balance of equity as at the date of initial

application (1 January 2018). The IFRS 15 adoption resulted in the recognition for the year ended 31 December

2018 of €60.8 million of deferred revenues related to previously recognized upfront payments (€12.6 million) and

milestones (€48.2 million) under the former applicable standards of IAS 18.

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FINANCIAL STATEMENTS

The following table details revenue recognition approach and amounts for the years ended 31 December 2018

and 2017 by collaboration and license contract by type of revenue: upfront payments, milestone payment,

reimbursement income, and other revenues.

Disaggregation of revenues

(thousands of €)

Over time

Point in time

2018

2017 Over time

Point in time

IFRS 15

IAS 18

Recognition of non-refundable upfront
payments and license fees

Gilead collaboration agreement
for filgotinib

AbbVie collaboration agreement for CF

Novartis collaboration agreement
for MOR106

Servier collaboration agreement
for osteoarthritis

Milestone payments

Gilead collaboration agreement
for filgotinib

AbbVie collaboration agreement for CF

Servier collaboration agreement
for osteoarthritis

Reimbursement income

Novartis collaboration agreement
for MOR106

AbbVie collaboration agreement for CF

Servier collaboration agreement
for osteoarthritis

Other reimbursement income

Other revenues

Fee-for-services revenues

Other revenues

Total revenues

196,486

71,971

96,809

71,333

52,176

47,500

–

638

73,394

42,950

27,623

9,354

36,771

33,596

9,000

–

8,722

3,273

7,718

989

–

453

2,816

10,233

8,893

10,170

8,825

288,836

127,087

For the year ended 31 December 2018, €124.4 million related to the Gilead collaboration agreement were recognized

in revenue under IFRS 15 in function of costs incurred, applying the percentage of completion method. This

revenue recognition consisted of (i) €84.8 million related to the upfront license fee, (ii) €12.0 million related to

the deferred income triggered by the accounting treatment of the share subscription agreement under IAS

39 Financial Instruments: recognition and measurement, at the time of signing of the agreement in 2015, (iii)

€19.8 million related to milestone payments received prior to 31 December 2017, and (iv) €7.8 million related to

milestone payments received in the year 2018. The outstanding balance of deferred income from the Gilead

collaboration agreement at 31 December 2018 amounted to €145.8 million which was all reported as current

deferred income, as we expect to reach cost cap, as specified below, end of 2019.

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FINANCIAL STATEMENTS

In December 2015, we entered into a license and collaboration agreement to co-develop filgotinib with Gilead in

rheumatoid arthritis, Crohn’s disease, ulcerative colitis and other indications. We are responsible for funding 20%

of the associated global development costs of the program. We have retained certain mechanisms to give us cost

protection as filgotinib advances in clinical development. We can defer our portion of the global co-development

study costs if they exceed a predetermined level, which we expect to reach at the end of 2019, and this deferment

would be credited against future milestones, royalties or profit sharing at our option. If there are no future

amounts to be paid by Gilead, we will not be obligated to make any payments to Gilead for such deferment.

For the year ended 31 December 2018, €88.9 million income related to the AbbVie collaboration agreement were

recognized in revenue under IFRS 15 in function of costs incurred, applying the percentage of completion method.

This revenue recognition consisted of (i) €14.1 million related to the initial upfront license fee received in 2013,

(ii) €28.4 million related to milestone payments received in previous years, (iii) €8.4 million related to milestones

achieved in the year 2018 and finally (iv) €38.0 million related to the $45.0 million (€38.9 million) related to

the additional upfront payment received upon execution of the second amended and restated collaboration

agreement in October 2018.. The outstanding balance of deferred income from the AbbVie collaboration

agreement at 31 December 2018 amounted to €3.3 million, all reported as current deferred income.

On 19 July 2018, MorphoSys and Galapagos announced signing of a global exclusive license agreement with

Novartis covering the development and commercialization of the joint program MOR106, a monoclonal antibody

directed against IL-17C, which will be developed further in atopic dermatitis (AtD) and potentially other

indications. MorphoSys and Galapagos received an equal share of an upfront payment of €95 million and are

entitled to potential future milestone payments of up to approximately €850 million plus royalties up to low-

teens to low-twenties. Novartis will bear all future research, development, manufacturing and commercialization

costs related to MOR106. For the year ended 31 December 2018 the upfront payment received from Novartis of

€47.5 million related to the MOR106 program was recognized as revenue.

Finally, for the year ended December 31, 2018, a milestone payment of €9.0 million related to the collaboration

agreement for osteoarthritis with Servier, was additionally recognized in revenue.

Reimbursement income increased by €5.4 million, to €8.7 million for the year ended 31 December 2018 compared

to €3.3 million for the year ended 31 December 2017, due to higher reimbursements in relation with the MOR106

program with MorphoSys. The reimbursement of certain research and development costs for the year ended

31 December 2017 were related to our collaboration agreements with AbbVie and Servier.

Other revenues increased by €1.3 million, or 15%, to €10.2 million for the year ended 31 December 2018 compared to

€8.9 million for the year ended 31 December 2017, principally due to higher revenues from fee-for-service activities.

Other income

The following table summarizes other income for the years ended 31 December 2018 and 2017.

(thousands of €)

Grant income

Other income

Total other income

Year ended 31 December

2018

1,609

27,400

29,009

2017

1,045

27,785

28,830

Total other income was composed of grant income and other income and increased by €0.2 million, or 1%,

from €28.8 million for the year ended 31 December 2017 to €29.0 million for the year ended 31 December 2018.

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FINANCIAL STATEMENTS

Grant income increased by €0.6 million, or 54%, from €1.0 million for the year ended 31 December 2017

to €1.6 million for the year ended 31 December 2018. The majority of this grant income was related to grants from

a Flemish agency, representing approximately 95% of all reported grant income in 2018 (2017: 93%). In many cases

these carry clauses which require us to maintain a presence in the same region for a number of years and invest

according to pre-agreed budgets.

The increase in grant income was partly compensated by a decrease in other income of €0.4 million, or 1%,

from €27.8 million for the year ended 31 December 2017 to €27.4 million for the year ended 31 December 2018. Other

income was primarily composed of:

▪ Income from an innovation incentive system of the French government, which represented €9.3 million of other
income for the year ended 31 December 2018 compared to €10.3 million for the year ended 31 December 2017
▪ Income from Belgian R&D incentives with regard to incurred R&D expenses, which represented €11.3 million of
other income for the year ended 31 December 2018 compared to €11.2 million for the year ended 31 December 2017
▪ Tax rebates on payroll withholding taxes of R&D personnel in Belgium and the Netherlands, representing
€6.3 million of other income for the year ended 31 December 2018 compared to €5.3 million for the year ended

31 December 2017

6. 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 2018 and

2017.

(thousands of €)

Personnel costs

Subcontracting

Disposables and lab fees and premises costs

Other operating expenses

Year ended 31 December

2018

(81,352)

(197,644)

(25,525)

(18,355)

2017

(59,950)

(123,054)

(22,277)

(13,221)

Total research and development expenditure

(322,875)

(218,502)

R&D expenditure increased by €104.4 million, or 48%, to €322.9 million for the year ended 31 December 2018,

from €218.5 million for the year ended 31 December 2017, reflecting the increase of our investments to advance

our partnered and proprietary R&D programs. This increase was principally due to:

▪ Increased R&D personnel costs of €21.4 million, or 36%, from €59.9 million for the year ended 31 December
2017 to €81.4 million for the year ended 31 December 2018, which was explained by an enlarged workforce and

higher warrant costs, mainly as a result of the increase of our share price

▪ Increase in subcontracting costs by €74.6 million, or 61%, from €123.1 million for the year ended 31 December
2017 to €197.6 million for the year ended 31 December 2018 mainly due to increased spending in our IPF

program and in our RA, IBD and other indications program on filgotinib

▪ Intensified spending of lab consumables was the main driver of the increase in disposables, lab fees and
premises costs of €3.2 million, or 15%, from €22.3 million for the year ended 31 December 2017 to €25.5 million

for the year ended 31 December 2018

▪ Other operating expenses increased by €5.2 million, or 39%, from €13.2 million for the year ended 31 December

2017 to €18.4 million for the year ended 31 December 2018, due to an increased headcount.

130

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

The table below summarizes our research and development expenditure for the years ended 31 December 2018 and 2017,

broken down by research and development expenses under alliance and own funded research and development expenses.

(thousands of €)

R&D under alliance

Galapagos funded R&D

Total R&D expenditure

Year ended 31 December

2018

(134,046)

(188,829)

(322,875)

2017

(122,663)

(95,839)

(218,502)

We track all research and development expenditures against detailed budgets and allocate them by individual

project. The table below summarizes our research and development expenditure for the years ended 31 December

2018 and 2017, broken down by program:

(thousands of €)

Filgotinib program (partnered)

CF program (partnered)

IPF program on GLPG1690 (proprietary)

OA program on GLPG1972 (partnered)

AtD program on MOR106 (partnered)

Other

Total R&D expenditure

Year ended 31 December

2018

(66,138)

(30,137)

(72,718)

(15,751)

(14,999)

(123,132)

(322,875)

2017

(53,212)

(46,192)

(16,190)

(7,317)

(8,404)

(87,187)

(218,502)

R&D expenditure under alliance increased by €11.4 million, or 9%, to €134.0 million for the year ended 31 December

2018, from €122.7 million for the year ended 31 December 2017, mainly due to increased R&D spending in our

RA, IBD and other indications program on filgotinib (partnered with Gilead). We increased our investments in

our own funded portfolio by €93.0 million, or 97%, to €188.8 million for the year ended 31 December 2018, from

€95.8 million for the year ended 31 December 2017, because of intensified research investments in our proprietary

programs primarily on our proprietary IPF program GLPG1690, and also due to increased spending on our

inflammation and fibrosis programs.

General and administrative expenses

The following table summarizes the general and administrative expenses for the years ended 31 December 2018

and 2017.

(thousands of €)

Personnel costs and directors fees

Other operating expenses

Total general and administrative expenses

Year ended 31 December

2018

(25,495)

(10,136)

(35,631)

2017

(17,756)

(6,659)

(24,415)

General and administrative expenses amounted to €24.4 million for the year ended 31 December 2017 and increased by

€11.2 million, or 46%, to €35.6 million for the year ended 31 December 2018. This increase was principally due to higher

personnel expenses, which increased by €7.7 million, or 44%, from €17.8 million for the year ended 31 December 2017

to €25.5 million for the year ended 31 December 2018, resulting from various effects, such as increased headcount and

increased costs of share-based payments plans (our warrant plans), mainly as a result of the increase of our share price.

131

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Sales and marketing expenses

The following table summarizes the sales and marketing expenses for the years ended 31 December 2018 and 2017.

(thousands of €)

Personnel costs

Other operating expenses

Total sales and marketing expenses

Year ended 31 December

2018

(2,282)

(1,864)

(4,146)

2017

(2,156)

(646)

(2,803)

Sales and marketing expenses increased by €1.3 million, or 48%, from €2.8 million for the year ended 31 December 2017 to

€4.1 million for the year ended 31 December 2018. This increase was mainly due to the fact that we started to build our

commercial organization in preparation for the co-promotion activities with Gilead for filgotinib in the co-promotion

territories.

7. Staff costs

The table below summarizes the number of our employees on 31 December 2018 and 2017:

Number of employees on 31 December

Total

The average number of employees during the years 2018 and 2017 was:

Executive officers

Research and development

Corporate and support

Total

Their aggregate remuneration comprised:

(thousands of €)

Wages and salaries

Social security costs

Retirement benefit costs

Other personnel costs

Total personnel costs

2018

725

Year ended 31 December

2018

553

119

677

Year ended 31 December

2018

(61,619)

(11,003)

(2,994)

(27,375)

(102,991)

2017

600

2017

461

556

2017

(46,677)

(9,081)

(2,175)

(16,465)

(74,398)

The other personnel costs mainly related to costs for warrants granted of €21.3 million (2017: €11.8 million). For the

costs of warrants granted, see note 28.

132

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

8. Financial income/expenses

The following table summarizes financial income and expense for the years ended 31 December 2018 and 2017.

(thousands of €)

Financial income:

Interest on bank deposit

Effect of discounting long term R&D incentives receivables

Currency exchange gain

Fair value gain on financial assets held at fair value through profit or loss

Gain upon sale of financial assets held at fair value through profit or loss

Other finance income

Total financial income

Financial expenses:

Interest expenses

Currency exchange loss

Other finance charges

Total financial expense

Year ended 31 December

2018

2017

5,219

199

11,027

1,203

668

3,045

–

1,797

–

18,335

4,877

(780)

(1,174)

(782)

(2,737)

(936)

(29,176)

(469)

(30,582)

Total net financial expense (-)/income

15,598

(25,705)

Financial expenses decreased significantly by €27.8 million, from €30.6 million for the year ended 31 December

2017 to €2.7 million for the year ended 31 December 2018. The currency exchange loss in 2017 primarily related to

a currency exchange loss of €27.8 million on deposits held in U.S. dollars. Our cash and cash equivalents include

cash held in U.S. dollars, which could generate foreign currency exchange gain or loss in our financial results in

accordance with the fluctuation of the EUR/U.S. dollar exchange rate as our functional currency is EUR.

Interest expenses were related to interests on term deposits and on lease of cars.

Financial

income increased by €13.4 million,

from €4.9 million for the year ended 31 December 2017 to

€18.3 million for the year ended 31 December 2018. This increase was due to a currency exchange gain of

€10.1 million on our cash and cash equivalents held in U.S. dollar. Interest income was related to interests on term

deposits. Net exchange gain amounted to €9.9 million for the year ended 31 December 2018, compared to a net

exchange loss of €27.4 million for the year ended 31 December 2017.

For the year ended 31 December 2018, fair value gain on financial assets held at fair value through profit or

loss consisted of positive effects from the fair value re-measurement of financial assets classified as equity

investments which qualify for level 1 fair value measurement based upon the closing price of such securities at

each reporting date. The gain realized upon sale of some of those equity investments was reported in financial

income.

133

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

9. Taxes

The following table summarizes the income tax recognized in profit or loss for the years ended 31 December 2018

and 2017.

(thousands of €)

Current tax

Deferred tax

Income taxes

Year ended 31 December

2018

(584)

535

(50)

2017

(218)

(198)

Current tax amounted to €0.6 million for the year ended 31 December 2018 and €0.2 million for the year ended

31 December 2017, and was related to corporate income taxes for subsidiaries operating on a cost plus basis.

Deferred tax income of €0.5 million for the year ended 31 December 2018 and of €0.02 million for the year ended

31 December 2017 related to subsidiaries working on a cost plus basis and to our fee-for-service business.

Tax liabilities

The below table illustrates the tax liabilities related captions in the balance sheet as at 31 December 2018 and 2017.

(thousands of €)

Current tax payable

Total tax liabilities

31 December

2018

1,175

2017

865

On 31 December 2018, €1.2 million of tax liabilities were primarily related to our subsidiaries operating on a cost

plus basis.

Taxes recognized in profit or loss

For the purpose of the disclosure below corporation tax was calculated at 29.58% (2017: 34%) – which is the tax

rate applied in Belgium – on the estimated assessable profit for the year. The applied tax rate for other territorial

jurisdictions was the tax rate that is applicable in these respective territorial jurisdictions on the estimated

taxable result of the accounting year.

134

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

(thousands of €)

Loss before tax

Income tax debit / credit (-), calculated using the Belgian statutory tax rate (29.58%
in 2018, 34% in 2017) on the accounting income / loss (-) before tax (theoretical)

Tax expenses 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 share-based payment expenses without tax impact

Effect of consolidation elimination without tax impact

Effect of non-tax-deductible expenses

Effect of recognition of previously non recognized deferred tax assets

Effect of tax losses (utilized) reversed

Effect of non-recognition of deferred tax assets

Effect of change in tax rates

Total explanations

Year ended 31 December

2018

(29,209)

(8,640)

8,690

411

(11,558)

7,530

382

945

(1,977)

(150)

13,108

–

8,690

2017

(115,507)

(39,261)

198

39,458

(11,277)

5,317

102

404

(414)

(763)

45,895

181

39,458

Non-taxable revenues for the years ended 31 December 2018 and 2017 were related to non-taxable subsidies and

tax credits.

135

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

10. Income/loss (–) per share

Basic income/loss (–) per share is calculated by dividing the net income/loss (–) attributable to owners of the

parent by the weighted average number of ordinary shares issued during the year. Diluted income/loss (–)

per share is calculated based on the weighted average number of shares (diluted) also considering outstanding

warrants, for which our average share price of the year was higher than the exercise price.

Loss per share

Net loss attributable to owners of the parent (thousands of €)

Year ended 31 December

2018

(29,259)

2017

(115,704)

Number of shares (thousands)

Weighted average number of shares for the purpose of basic income /
loss (-) per share

52,113

49,479

Basic loss per share (€)

(0.56)

(2.34)

Net loss attributable to owners of the parent (thousands of €)

(29,259)

(115,704)

Number of shares (thousands)

Weighted average number of shares for the purpose of diluted income /
loss (-) per share

Number of dilutive potential ordinary shares

52,113

–

49,479

–

Diluted loss per share (€)

(0.56)

(2.34)

As we reported a net loss in 2018 and 2017, the outstanding warrants (specified in note 28) have an anti-dilutive

effect rather than a dilutive effect. Consequently, basic and diluted loss per share is the same for 2018 and 2017.

136

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

In process
technology

Software &
databases

Brands, licenses,
patents & know-
how

5,561

1,500

7,061

(7,061)

–

5,561

417

1,083

(7,061)

–

1,500

–

7,185

623

(100)

(212)

7,496

1,561

(20)

9,111

6,182

644

(99)

(212)

6,514

681

(20)

7,250

982

1,862

1,523

1,525

1,763

(569)

2,719

1,501

1,509

(569)

949

1,771

Total

14,269

2,125

(100)

(212)

16,082

3,325

(7,650)

11,832

13,246

652

(99)

(212)

13,587

1,107

1,083

(7,650)

8,200

2,495

3,632

11. Intangible assets

(thousands of €)

Acquisition value

On 1 January 2017

Additions

Sales and disposals

Translation differences

On 31 December 2017

Additions

Sales and disposals

Translation differences

On 31 December 2018

Amortization and impairment

On 1 January 2017

Amortization

Sales and disposals

Translation differences

On 31 December 2017

Amortization

Impairment

Sales and disposals

Translation differences

On 31 December 2018

Carrying amount

On 31 December 2017

On 31 December 2018

The intangible assets increased by €1.1 million from €2.5 million at 31 December 2017, to €3.6 million at

31 December 2018. The amortization of €1.1 million and the impairment of €1.1 million were fully compensated by

new additions for €3.3 million.

On 31 December 2018, our balance sheet did not hold any internally generated assets capitalized as intangible

asset.

137

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

12. Property, plant and equipment

Land &
building
improvements

Installation &
machinery

Furniture,
fixtures &
vehicles

Other
tangible assets

(thousands of €)

Acquisition value

On 1 January 2017

Additions

Sales and disposals

Reclassifications

Translation differences

On 31 December 2017

Additions

Sales and disposals

Reclassifications

Translation differences

On 31 December 2018

Depreciations and impairment

On 1 January 2017

Amortization

Sales and disposals

Translation differences

On 31 December 2017

Amortization

Sales and disposals

Translation differences

On 31 December 2018

Carrying amount

On 31 December 2017

On 31 December 2018

Total

37,624

5,312

(861)

–

120

42,195

10,392

(1,311)

–

51,321

22,663

3,633

(855)

25,502

3,974

(1,310)

4,412

324

4,736

275

29,733

2,973

3,178

(844)

881

112

33,060

4,674

(486)

753

246

(17)

3,209

1,039

(826)

5,011

38,031

3,452

2,025

316

2,342

344

18,252

2,184

3,027

(838)

20,495

3,377

(485)

234

(17)

2,407

236

(826)

1,819

505

1,564

(881)

1,189

4,404

(766)

4,827

203

258

2,686

23,403

275

28,184

2,394

2,325

12,565

14,628

802

1,632

930

4,552

16,692

23,137

The property, plant and equipment increased from €16.7 million as at 31 December 2017 to €23.1 million as at

31 December 2018. This increase was mainly the result of new additions of €10.4 million, partly compensated by a

depreciation charge of €4.0 million.

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.

138

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

13. Other non-current assets

Other non-current assets consisted of non-current restricted cash, financial assets held at fair value through

profit or loss, and other non-current assets.

(thousands of €)

Non-current restricted cash

Financial assets held at fair value through profit or loss

Other non-current assets

Total other non-current assets

31 December

2018

1,276

6,000

643

7,919

2017

1,158

1,754

549

3,461

Restricted cash amounted to €1.2 million on 31 December 2017, and increased to €1.3 million on 31 December

2018, due to additional bank guarantees with regard to the rental of supplementary office space for the Belgian

premises. Restricted cash on 31 December 2018 was composed of bank guarantees on real estate lease obligations

in Belgium and in the Netherlands for €0.7 million and €0.6 million respectively.

Financial assets held at fair value through profit or loss consisted of equity instruments of listed companies.

Galapagos has no restrictions on the sale of these equity instruments and the assets are not pledged under any

Galapagos’ liabilities. These instruments are designated as financial assets held at fair value through profit or loss

which qualify for level 1 fair value measurement based upon the closing price of such securities on Euronext at

each reporting date.

Fair value changes on financial assets with fair value through profit or loss are recognized directly in profit or

loss.

The table below illustrates these financial assets held at fair value through profit or loss as at 31 December 2018

and 2017.

(thousands of €)

Cost at 1 January

Acquisitions of the year

Disposals of the year

Cost at 31 December

Fair value adjustment at 1 January

Cancellation of fair value adjustment following disposal

Fair value adjustment of the year

Fair value adjustment at 31 December

Net book value at 31 December

31 December

2018

2,373

4,736

(2,291)

4,818

(619)

598

1,203

1,182

6,000

2017

2,750

–

(377)

2,373

(399)

(275)

(619)

1,754

139

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

14. Research and development incentives receivables

The table below illustrates the R&D incentives receivables related captions in the balance sheet as at 31 December

2018 and 2017.

(thousands of €)

Non-current R&D incentives receivables

Current R&D incentives receivables

Total R&D incentives receivables

31 December

2018

73,443

11,203

84,646

2017

64,001

11,782

75,783

Total R&D incentives receivables increased by €8.9 million compared to 31 December 2017. This increase is

explained by new R&D incentives reported in 2018 for €20.5 million (€9.2 million related to French R&D incentives

and €11.3 million related to Belgian R&D incentives), by the release of discounting profit of €0.2 million, and

less the payments received related to French R&D incentives amounting to €8.4 million and to Belgian R&D

incentives amounting to €3.4 million. The R&D incentives receivables are future expected refunds resulting from

R&D incentives on research and development expenses in France and Belgium. Non-current R&D incentives

receivables are reported at their net present value and are therefore discounted over the period until maturity

date.

The table below provides detailed information on the maturity of the non-current R&D incentives receivables

reported in our balance sheet at 31 December 2018.

Non-current R&D incentives receivables

31 December 2018

Maturity date

(thousands of €)

2020

2021

2022

2023

2024 – 2028

Total

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

8,959

9,674

10,226

8,959

9,674

10,226

28,859

3,398

4,009

4,863

6,663

26,355

45,288

3,398

4,009

4,863

6,663

25,650

44,583

12,358

13,683

15,089

6,663

26,355

74,148

12,358

13,683

15,089

6,663

25,650

73,443

140

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

15. Trade and other receivables and other current assets

(thousands of €)

Trade receivables

Prepayments

Other receivables

Trade and other receivables

Inventories

Accrued income

Deferred charges

Other current assets

31 December

2018

9,206

142

9,261

18,609

276

3,863

4,104

8,244

2017

22,133

543

5,289

27,966

279

2,584

3,825

6,688

Total trade and other receivables & other current assets

26,852

34,653

Trade and other receivables decreased by €9.4 million to €18.6 million as at 31 December 2018 compared to

€28.0 million as at 31 December 2017. This was mainly due to two milestones achieved before year end 2017 in

our CF collaboration with AbbVie which were accounted for $20 million (€ 17.0 million): respectively $10 million

(€8.6 million) for the Phase 1 trial initiation with GLPG3221 and $10 million (€8.4 million) for the Phase 1 trial

initiation with GLPG2851.

We consider that the carrying amount of trade and other receivables approximates their fair value.

The other current assets mainly included accrued income from subsidy projects and deferred charges.

On 31 December 2018, we did not have any provision for expected credit losses.

141

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

16. Cash and cash equivalents

(thousands of €)

Cash at banks

Term deposits

Money market funds

Cash on hand

31 December

2018

358,016

733,537

199,243

–

2017

288,052

713,446

149,711

Total cash and cash equivalents

1,290,796

1,151,211

We reported a cash position of €1,290.8 million at the end of December 2018 compared to €1,151.2 million at year-

end 2017. Net cash used in operating activities amounted to €142.5 million for the year ended 31 December 2018.

The net cash used in investing activities amounted to €15.9 million for the year ended 31 December 2018. The net

cash generated from financing activities amounted to €287.9 million for the year ended 31 December 2018, which

can mainly be attributed to the public offering in the U.S. of Galapagos shares for which the cash proceeds from

capital and share premium increases amounted to €280.2 million, net of issue costs. In addition, proceeds received

on exercise of warrants contributed to cash generated in financing activities in 2018 for an amount of €7.7 million.

Finally, €10.1 million of foreign currency exchange rate differences on our cash held in foreign currency positively

impacted the ending balance of our cash and cash equivalents.

Cash and cash equivalents comprise cash at banks, short term bank deposits and money market funds that are

readily convertible to cash and are subject to an insignificant risk of changes in value. Our cash management

strategy monitors and optimizes our liquidity position. Our cash management strategy may allow short term

deposits with an original maturity exceeding 3 months while monitoring all liquidity aspects. Cash and cash

equivalents comprised €733.5 million of term deposits which all had an original maturity longer than 3 months.

All cash and cash equivalents are available upon maximum one month notice period and without significant

penalty. Cash at banks were mainly composed of savings accounts and current accounts. We maintain our bank

deposits in highly rated financial institutions to reduce credit risk. Cash invested in highly liquid money market

funds represented €199.2 million and was aimed at meeting short-term cash commitments, while reducing the

counterparty risk of investment.

On 31 December 2018, our cash and cash equivalents included $320.5 million held in USD, which could generate a

foreign currency exchange gain or loss in our financial results in accordance with the fluctuation of the EUR/USD

exchange rate as our functional currency is EUR.

142

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

17. Share capital

The share capital of Galapagos NV, as set forth 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

31 December

2018

233,414

19,090

(15,964)

236,540

294,600

(58,060)

236,540

2017

223,928

25,323

(15,837)

233,414

275,510

(42,096)

233,414

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 the share capital of Galapagos NV between 1 January 2017 and 31 December 2018 is as follows:

Date

1 January 2017

6 April 2017

21 April 2017

20 June 2017

21 September 2017

23 November 2017

31 December 2017

1 January 2018

20 March 2018

20 June 2018

Share capital
increase new
shares
(thousands of €)

Share capital
increase warrants
(thousands of €)

Number of shares
issued
(thousands
of shares)

Aggregate number
of shares after
transaction
(thousands
of shares)

Aggregate share
capital after
transaction
(thousands of €)

46,256

250,187

23,331

1,337

281

152

222

1,613

556

733

167

247

4,313

298

103

2,961

135

50,937

275,510

50,937

275,510

54,466

294,600

17 September 2018

16,021

3 October 2018

23 November 2018

31 December 2018

On 31 December 2018, Galapagos NV’s share capital amounted to €294,600 thousand, represented by 54,465,421

shares. All shares were issued, fully paid up and of the same class.

All of the share issuances listed above were for cash consideration.

143

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

The below table summarizes our capital increases for the years 2018 and 2017.

(thousands of €, except share
data)

Number of

shares Share capital

Share
premium

Share capital
and
share
premium

Average
exercise price
warrants
(in €/ warrant)

Closing share
price on date
of capital
increase
(in €/ share)

On 1 January 2018

50,936,778

233,414

993,025

1,226,439

20 March 2018:
exercise of warrants

20 June 2018:
exercise of warrants

17 September 2018:
U.S. public offering

298,184

1,613

2,311

3,924

13.16

83.72

102,801

556

781

1,337

13.01

85.00

ADSs (fully paid)

2,961,373

16,021

280,167

296,188

Underwriter discounts and
offering expenses (paid)

(15,964)

Total U.S. public offering

2,961,373

280,167

280,224

99.68

3 October 2018:
exercise of warrants

23 November 2018:
exercise of warrants

135,485

733

1,281

2,014

14.86

94.32

30,800

167

215

382

12.40

88.90

On 31 December 2018

54,465,421

236,540

1,277,780

1,514,320

144

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

(thousands of €, except share
data)

Number of

shares Share capital Share premium

Share capital and
share premium

On 1 January 2017

46,256,078

223,928

649,135

873,063

Average
exercise price
warrants
(in €/ warrant)

Closing
share price
on date of
capital
increase
(in €/ share)

6 April 2017:
exercise of warrants

21 April 2017:
U.S. public offering

247,070

1,337

2,697

4,034

16.33

84.60

ADSs (fully paid)

4,312,500

23,331

340,593

363,924

81.34

Underwriter discounts and
offering expenses (paid)

Offering expenses still to be
paid at 31 December 2017

Total U.S. public offering

4,312,500

(15,790)

(47)

7,494

(15,790)

(47)

340,593

348,087

20 June 2017:
exercise of warrants

21 September 2017:
exercise of warrants

23 November 2017:
exercise of warrants

52,030

281

350

632

12.14

70.66

28,100

152

116

268

9.55

84.62

41,000

222

132

354

8.63

77.53

On 31 December 2017

50,936,778

233,414

993,025

1,226,439

The board of directors is authorized for a period of five years starting from the date of publication in the Annexes

to the Belgian State Gazette of the shareholders’ resolution that granted the renewed authorization, being 31 May

2017, 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 subscription

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 shareholders’ meeting of 25 April 2017 amounted to

€82,561.8 thousand. As of 31 December 2018, €22,703.7 thousand of the authorized capital was used, so that an

amount of €59,858.1 thousand still remained available.

145

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

18. Other reserves

Actuarial and other gains or losses recognized through other comprehensive income

(thousands of €)

On 1 January

Change in accounting policy (modified retrospective application IFRS 9)

Restated other reserves at 1 January 2018

Loss on defined benefit obligation recognized through OCI

Reclassification of loss on financial asset available for sale to income statement
(after disposal)

Loss on financial asset available for sale recognized through OCI

31 December

2018

(1,260)

619

(641)

(94)

2017

(1,000)

(40)

(275)

Other reserves on 31 December

(735)

(1,260)

Other reserves consisted of a negative of €0.7 million, compared to a negative of €0.6 million in 2017, which

was related to the re-measurement of defined benefit obligations recognized through OCI in line with IAS19R

Employee Benefits. The negative of €0.6 million at 31 December 2017, related to the fair value adjustment on the

available-for-sale equity investment, was transferred to retained earnings following the first adoption of IFRS 9

(see note 13).

There were no tax effects applicable to the amounts included in other reserves.

Derivative financial instruments: currency derivatives

We do 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 we have committed are nil (2017: nil).

On 31 December 2018 the fair value of our currency derivatives was nil (2017: nil).

See note 31 for further information on how we manage financial risks.

19. Translation differences

(thousands of €)

On 1 January

Translation differences, arisen from translating foreign activities

Translation differences on 31 December

31 December

2018

(1,754)

197

(1,557)

2017

(1,090)

(664)

(1,754)

Translation differences decreased from a negative €1.8 million at the end of December 2017 to a negative

of €1.6 million at the end of December 2018 mainly due to fluctuations of the GB pounds and the U.S. dollar

exchange rates.

146

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

20. Deferred tax

(thousands of €)

Recognized deferred tax assets and liabilities

Assets

Liabilities

31 December

2018

2017

2,514

1,978

Deferred tax assets unrecognized

223,377

164,079

Deferred taxes in the consolidated income statement

Tax benefit arising from previously unrecognized tax assets used to
reduce deferred tax expense (+)

Deferred tax expenses relating to change in tax rates

535

1,973

Deferred tax expenses relating to use of previously recognized deferred tax assets

(1,438)

414

(181)

(213)

The investment deduction of €1 million (2017: €1 million) could give rise to deferred tax assets. There is no limit

in time for the investment deduction. The amount of notional interest deduction that has been accumulated in

the past (2017: €2.6 million) could not be carried forward to 2018, the notional interest deduction of the year itself

can also not be carried forward.

The consolidated unused tax losses carried forward at 31 December 2018 amounted to €688.7 million

(2017: €567 million), €5.7 million were related to unrecognized tax losses with expiry date between 2019 and 2030.

The available statutory tax losses carried forward that can be offset against future statutory taxable profits

amounted to €374.2 million on 31 December 2018. These statutory tax losses can be compensated with future

statutory profits for an indefinite period except for an amount of €10.8 million in Switzerland, Croatia and the

United States with expiry date between 2019 and 2030. On 31 December 2018, the available tax losses carried

forward in Galapagos NV (Belgium) amounted to €305.6 million. In addition to the latter, Galapagos NV (Belgium)

also benefits from the new Belgian innovation income deduction regime which led to report, on 31 December 2018,

a supplementary carried forward tax deduction amounting to €195.4 million that can also be offset against future

statutory taxable results. It should be noted however that the Belgian corporate income tax reform introduced

as of assessment year 2019 a de facto minimum taxable base, whereby the existing tax attributes have to be

allocated into 2 so-called “baskets”: a first basket which contains the tax deductions that can be applied without

any restrictions and a second basket which contains the tax deductions that are subject to restrictions. We refer

to note 3 for more information.

We have a history of losses. Excluding the impact of possible upfront or milestone payments to be received from

collaborations, we forecast to continue incurring taxable losses in the foreseeable future as we continue to invest

in clinical and preclinical development programs and discovery platforms. Consequently, no deferred tax asset

was set up as at 31 December 2018, except for one subsidiary operating on a cost plus basis and for our fee-for-

service business, for which deferred tax assets were recognized for €2.5 million (2017: €2.0 million).

147

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

21. Trade and other liabilities

(thousands of €)

Trade and other liabilities

Other current liabilities

Other non-current liabilities

Accrued charges

Total trade and other liabilities

31 December

2018

68,038

–

1,578

890

70,506

2017

47,122

–

1,662

1,159

49,942

Our total trade and other liabilities, amounting to €70.5 million as of 31 December 2018, increased by €20.6 million

compared to the €49.9 million reported as of 31 December 2017.

The trade and other liabilities, amounting to €68.0 million as of 31 December 2018, increased by €20.9 million

compared to the €47.1 million reported as of 31 December 2017. This increase is mainly due to higher accrued trade

liabilities on 31 December 2018, reflecting the intensification of our investments in our R&D programs.

22. Deferred income

(thousands of €)

Deferred income related to contracts

Gilead collaboration agreement for filgotinib

Gilead collaboration agreement for filgotinib(1)

AbbVie collaboration for CF

Servier collaboration agreement for osteoarthritis

Deferred income related to contracts in our fee-for-service segment

Other deferred income (grants)

31 December

2018

2017

131,270

14,528

3,223

–

471

309

187,449

26,532

–

5,362

248

301

Total deferred income (long term & current)

149,801

219,892

(1) deferred income of €39 million recognized upon signing of the share subscription agreement with Gilead as required under IAS 39 Financial

instruments: recognition and measurement

Deferred income (long term and short term) amounted to €149.8 million at 31 December 2018 and decreased

by €70.1 million compared to €219.9 million as at 31 December 2017. The adoption of IFRS 15 resulted in a timing

difference of revenue recognition between IAS 18 and IFRS 15 which negatively impacted the accumulated losses

and increased the amount of deferred income (contract liabilities) by an amount of €83.2 million, as shown in the

table in note 5 ‘Total revenues and other income’ (column “Deferred income reclassified from equity following

adoption of IFRS 15”).

The outstanding deferred income balance at 31 December 2018 is all short term and included €145.8 million

deferred income related to the collaboration agreement with Gilead for filgotinib, €3.2 million deferred income

related to the collaboration agreement with AbbVie for CF, €0.5 million related to our fee-for-service segment and

€0.3 million of deferred grant income.

148

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

23. Note to the cash flow statement

(thousands of €)

Adjustment for non-cash transactions

Depreciation and amortization

Impairment loss

Share-based compensation expenses

Increase in retirement benefit obligations and provisions

Unrealised exchange gains /losses and non-cash other financial expenses

Fair value adjustment financial assets held at fair value through profit or loss

Total adjustment for non-cash transactions

Adjustment for items to disclose separately under operating cash flow

Interest expense

Interest income

Tax expense

Total adjustment for items to disclose separately under operating cash flow

Adjustment for items to disclose under investing and financing cash flows

Gain on sale of financial assets held at fair value through profit or loss

Total adjustment for items to disclose separately under investing and financing
cash flow

Change in working capital other than deferred income

Decrease in inventories

Increase in receivables

Increase in liabilities

Total change in working capital other than deferred income

24. Operating lease obligations

31 December

2018

2017

5,081

1,083

26,757

(10,063)

(1,203)

21,753

780

(5,219)

(4,389)

(668)

(76)

19,996

19,922

4,285

–

16,536

27,457

–

48,301

936

(3,045)

198

(1,912)

–

(27,656)

14,772

(12,862)

We entered into lease agreements primarily for offices and laboratories which qualify as operating leases.

Minimum lease payments under operating leases recognized in the income statement for the year

(thousands of €)

Total minimum lease payments under operating leases

Year ended 31 December

2018

5,340

2017

4,799

Our outstanding commitments for future minimum lease payments under operating leases are disclosed in the

note 25. Off-balance sheet arrangements.

149

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

25. Off-balance sheet arrangements

Contractual obligations and commitments

We entered into lease agreements for our offices and laboratories which qualify as operating leases. We also have

certain purchase commitments with CRO subcontractors and with collaboration partners principally.

On 31 December 2018, we had outstanding obligations for future minimum rent payments and purchase

commitments, which become due as follows:

(thousands of €)

Operating lease obligations

Purchase commitments

Total

27,704

Less than
1 year

4,722

199,492

106,516

Total contractual obligations & commitments

227,197

111,238

1 – 3 years

3 – 5 years

More than
5 years

10,024

52,632

62,656

6,234

40,344

46,578

6,724

–

6,724

On 31 December 2017, we 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

Total

26,346

65,246

91,592

Less than
1 year

4,150

53,010

57,160

1 – 3 years

3 – 5 years

More than
5 years

7,820

11,233

19,053

6,010

1,002

7,012

8,366

–

8,366

In addition to the tables above, we have a contractual cost sharing obligation related to our collaboration

agreement with Gilead for filgotinib. This is disclosed in the Corporate Governance chapter of this report, under

“Agreements with major Galapagos NV shareholders”. The contractual cost sharing commitment amounted

to €74.0 million at 31 December 2018 (€129.0 million at 31 December 2017), for which we have direct purchase

commitments of €20.3 million at 31 December 2018 (€10.1 million at 31 December 2017) reflected in the tables

above.

26. Contingent assets and liabilities

On 13 March 2014, we announced the signing of a definitive agreement to sell the service division operations

to Charles River Laboratories International, Inc., or CRL, for a total consideration of up to €134 million. CRL

agreed to pay us an immediate cash consideration of €129 million. The potential earn-out of €5 million due

upon achievement of a revenue target 12 months after transaction closing was not achieved. Approximately

5% of the total consideration, including price adjustments, was being held on an escrow account. Four claims

were introduced by CRL, which have all been settled for a total amount of €1.3 million. The remaining balance

of €6.6 million was released in full, as final agreement between the parties was reached in the first quarter of 2017.

Following the divestment, we remained guarantor until early February 2017 in respect of the lease obligations

for certain U.K. premises. Finally, following common practice, we gave representations and warranties which are

capped and limited in time (since 1 April 2016, CRL can only introduce a claim covered by the Tax Deed (during a

period of 5 years), other claims related to the sale cannot be submitted anymore).

In the course of 2008, a former director of one of our subsidiaries sued for wrongful termination and seeks

damages of €1.5 million. We believe that the amount of damages claimed is unrealistically high. On 29 January
2016, the court made a 1st degree judgment, dismissing all claims in full. In appeal, the 2nd degree court instructed
the 1st degree court to conduct a new trial. On 14 December 2018, the 1st degree court again dismissed all claims

150

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

of the plaintiff. On 14 January 2019, the plaintiff lodged an appeal, which is currently pending. The timing of this

appeal procedure can however not be predicted with any degree of certainty. Considering the defense elements
provided to date, as well as the judgment of the 1st degree court of 14 December 2018, our board and management
evaluated the risk to be possible, but not likely. Accordingly, it was decided not to record any provision as the

exposure was not considered to be probable.

In December 2015, we entered into a license and collaboration agreement to co-develop filgotinib with Gilead in

rheumatoid arthritis, Crohn’s disease, ulcerative colitis and other indications. We are responsible for funding 20%

of the associated global development costs of the program. We have retained certain mechanisms to give us cost

protection as filgotinib advances in clinical development. We can defer our portion of the global co-development

study costs if they exceed a predetermined level, which we expect to reach at the end of 2019, and this deferment

would be credited against future milestones, royalties or profit sharing at our option. If there are no future

amounts to be paid by Gilead, we will not be obligated to make any payments to Gilead for such deferment.

27. Retirement benefit plans

Defined contribution plans

We operate defined contribution systems for our qualifying employees (except for Belgium and France). The assets

of the schemes are held separately from ours in designated pension plans. For defined contribution systems, we

pay contributions to publicly or privately administered pension or insurance funds. Once the contribution is paid,

we do not have any remaining obligation.

Defined benefit plans in Belgium

In view of the minimum returns guarantees, the Belgian plans are classified as defined benefit plans. As at

31 December 2017 a net defined benefit obligation of €169.4 thousand was recorded, which increased to a net

defined benefit obligation of €332.4 thousand on 31 December 2018.

Actuarial gains and losses are recognized immediately in equity, with a charge or credit to other comprehensive

income (OCI), in accordance with IAS 19R Employee Benefits. They are not recycled subsequently. Actuarial losses

of €151.9 thousand were recognized through other comprehensive income (OCI) at the end of 2018 (2017: €53.9

thousand of actuarial gains). The contributions to those plans that were due by the employer for the year ended

31 December 2018 and the year ended 31 December 2017, amounted respectively to €993.0 thousand and €964.0

thousand, of which €49.5 thousand was paid after 31 December 2018 (2017: €64.0 thousand). No contributions were

made by the employees.

The plan assets as on 31 December 2018 consisted of €3,357.5 thousand (2017: €2,554.7 thousand) individual insurance

reserves, which benefit from a weighted average guaranteed interest rate of 2.65% (2017: 2.41%).

Defined benefit plans in France

We use two defined benefit plans for the employees of our French entity. The defined benefit plans are not

supported by funds.

The chemical and pharmaceutical industry’s collective bargaining agreements require that our 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 €2,110.1 thousand for 2018 (2017: €2,046.8 thousand). This

increase was mainly due to an increased number of participants.

Additionally, there are also seniority premiums obligations in France. The provisions for these premiums

amounted to €1,321.7 thousand on 31 December 2018 (on 31 December 2017: €1,365.7 thousand).

Total obligation included in the balance sheet related to the defined benefit plans amounted to €3,431.8 thousand

on 31 December 2018 (2017: €3,412.5 thousand).

151

Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Actuarial gains and losses are recognized in equity, with a charge or credit to other comprehensive income

(OCI), in accordance with IAS 19R Employee Benefits. They are not recycled subsequently. Actuarial gains of €58.5

thousand were recognized through other comprehensive income (OCI) at the end of 2018 (2017: €93.9 thousand of

actuarial losses).

Total amounts due by the group to the pension plans in 2018 were €3.0 million (2017: €2.2 million).

Obligations included in the balance sheet

(thousands of €)

Present value of funded defined benefit obligation

Plan assets

Deficit/ surplus

Present value of unfunded defined benefit obligation

Liability included in the balance sheet

The present value of the gross obligation developed as follows

(thousands of €)

Opening balance

Current service cost

Actual taxes on contributions paid

Interest cost

Benefits paid

Actuarial gains (-) or losses due to experience adjustments

Actuarial gains (-) or losses due to experience adjustments related to new financial
assumptions

Actuarial gains (-) or losses due to experience adjustments related to
new demographic assumptions

Closing balance

The fair value of the plan assets developed as follows

(thousands of €)

Opening balance

Interest income on plan assets

Actual administration costs

Contributions from employer

Actual taxes on contributions paid

Plan assets gain during the period

Closing balance

31 December

2018

3,690

(3,358)

332

3,432

3,764

2018

6,136

1,156

(99)

(193)

483

(420)

(30)

7,122

2018

(2,555)

(50)

(849)

(7)

2017

2,724

(2,555)

169

3,412

3,582

2017

5,308

863

(87)

(157)

(100)

222

–

6,136

2017

(1,788)

(41)

(748)

(68)

(3,358)

(2,555)

The fair value of the plan assets is the fair market value of the plan assets. The fair value of the plan assets was

calculated as the reduced lump sums (received from the plan administrators) actualized with the assumptions set

(discount rate and mortality tables). The total plan assets are equal to the fair value of the plan assets increased

with the financing fund.

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Galapagos NV • Annual Report 2018

FINANCIAL STATEMENTS

Amounts recognized in profit or loss for defined benefit plans are as follows

Year ended 31 December

(thousands of €)

Current service cost

Interest cost

Interest income

Administration expenses

Revaluations of net liability / net asset

Total expense

Obligation included in the balance sheet reconciles as follows

(thousands of €)

Opening balance

Real employer contributions

Total expense recognized in the income statement

Re-measurement on the net defined benefit liability

Benefits paid

Closing balance

The most important actuarial assumptions are

(%)

Weighted average discount rate

Expected salary increase

Inflation rate

2018

1,156

(50)

(69)

1,130

2018

3,582

(849)

1,130

(193)

3,764

31 December

2018

1.76%

2.50%

1.90%

2017

863

(41)

926

2017

3,520

(748)

926

(157)

3,582

2017

1.48%

2.50%

1.86%

The discount rate was based on the Merrill Lynch yields for AA rated Eurozone corporate bonds (bonds with

maturity dates which correspond with the commitments). In addition to the above table, we used mortality

tables issued by Belgian and French national institutions for statistics applicable respectively for the Belgian and

the French population.

Breakdown of defined benefit obligation by type of plan participants:

(number of participants)

Active plan participants

Breakdown of defined benefit obligation by type of benefits:

(thousands of €)

Retirement and death benefits