Galapagos N.V. Annual Report 2019

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FY2019 Annual Report · Galapagos N.V.

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Pioneering
for patients

Annual Report 2019

CONTENTS

Contents

Magazine

CSR report

2019 – a historic year ......................................... 3

Our commitment .............................................. 71

The Galapagos group

Letter from the management ......................... 11

At a glance ......................................................... 16

Strategy ............................................................. 19

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

Risk management and internal control ......... 22

Improving people’s lives .................................. 74

Our employees ................................................. 80

Conducting business ethically ........................ 87

Environment, health, and safety .................... 90

CSR at Galapagos – Summary ......................... 92

Corporate governance

The Galapagos share ....................................... 24

Policies ............................................................... 95

Overview of Galapagos NV ............................. 27

Board of directors ............................................ 96

Disclaimer and other information ................. 28

Committees ....................................................... 99

R&D

Our pipeline and drug discovery engine ....... 31

Target discovery platform ............................... 32

Filgotinib in inflammation ............................... 34

Our fibrosis portfolio ....................................... 46

Our OA program .............................................. 53

Our Toledo program ........................................ 55

Early, deep pipeline ......................................... 57

Share capital and shares ............................... 103

Shareholders ................................................... 107

Remuneration policy ...................................... 110

Remuneration report ..................................... 116

Conflict of interests and related parties ...... 123

Code of Business Conduct and Ethics ......... 125

Statement by the board of directors ........... 125

Financial statements

Other partnered programs ............................. 58

Consolidated financial statements ............... 127

Risk factors

Product development, regulatory approval and
commercialization ........................................... 60

Financial position and need for additional
capital ................................................................ 62

Reliance on third parties ................................. 62

Competitive position ....................................... 64

Intellectual property ........................................ 65

Organization, structure and operation ......... 66

Galapagos shares ............................................. 68

General statement ........................................... 69

Notes to the consolidated financial
statements ...................................................... 133

Non-consolidated financial statements ....... 193

Auditor's report

Report of the statutory auditor .................... 195

Other information

Glossary of terms ........................................... 201

Financial calendar .......................................... 215

Colophon ......................................................... 215

Contact ............................................................ 215

Galapagos NV • Annual Report 2019

Pioneering
for patients

2019 – a historic year

At Galapagos, everything we do is with patients in
mind. By using our scientific knowledge, our partner-
ships, and our passion to make a difference, we aim
to improve the lives of those with unmet needs – and
2019 was a historic year in our work to achieve this.

development of further molecules to improve lives
of patients.

2019 also marked a significant anniversary for us,
as we celebrated 20 years of operation.

Receiving positive data from our first Phase 3 study in
RA was a particularly momentous occasion. This has
allowed us to file for a license in Europe, Japan and the
United States. We started our ISABELA trial in IPF: our
first Phase 3 that we execute ourselves and the largest
global study in IPF ever. A true pivotal moment was the
deal we signed with Gilead. The 10 years stability and
$5.5 billion will enable us to focus on the discovery and

Throughout our history, we have worked without
fear to try new approaches and transform how
medicines are discovered. As we grow, we will con-
tinue to raise the bar for ourselves and other bio-
technology companies, developing innovative medi-
cines that will make a difference.

MAGAZINEGalapagos NV • Annual Report 2019Doing more &
moving faster, together

In July 2019, we entered into a 10-year global
research and development collaboration with
Gilead. Through this strategic partnership, we
secured our independence, and we now have
the resources we need to expand and acceler-
ate our research and development programs,
enabling us to get innovative drugs to market
faster.

Onno van de Stolpe, CEO, reflects on the signifi-
cance of this landmark deal.

Getting medicines to market demands a huge com-
mitment in terms of resources, so our collabora-
tion with Gilead will make a great impact in helping
us to speed up our drug delivery process. Our col-
laboration is cause for celebration on both sides –
Gileadbenefitsfromaccesstothepipelinecreated
byourtargetdiscoveryplatform,whilewebenefit
greatly from Gilead’s expertise and infrastructure.

At the same time, we keep our independence and
have the freedom to invest in research and opera-
tions required to make us a global powerhouse in
biotech.

Our collaboration with Gilead will make
a great impact in helping us to speed up
our drug delivery process.

Gilead’sinvestmentbuildsonoursuccessfulfilgo
tinib collaboration and is a huge endorsement of
our target discovery platform and the strength
of our pipeline. At the core of this agreement is a
desire to maximize innovation based on develop-
ing new mode of action medicines. With the capital
provided by Gilead, we can accelerate the devel-
opment of current and new programs for patients.
That will have a huge impact not only on the person
affected,butontheirfamilies,friendsandsociety
in general.

Looking ahead, this partnership will also enable us
toworktowardsourtop10 biotechambition,by
optimizing the global potential of our products.

The acceleration of our programs for
patients will have a huge impact not only
on the person affected, but on their fami-
lies, friends and society in general.

Onno van de Stolpe, CEO

MAGAZINEGalapagos NV • Annual Report 2019We are transforming
drug discovery

At Galapagos, we discover and develop novel medicines. What makes us dif-
ferent is how we innovate. Our daring approach to discovery and development
rests on the knowledge of disease biology that our own experts have built up
over the past 20 years.

In the past, most medicines treated the symptoms of a disease. Today, we tackle
the disease itself. Our proprietary target discovery platform makes it possible to
identify the starting points of disease processes and develop novel medicines,
that address those starting points. This process is shown in the infographic below.

Can we make a
difference

The start of a project is sparked by the
question, ‘Can we make a difference?
Are we the first, can we be the most
innovative, can we really bring benefit
to the patient?’

Disease assay

In the lab, we mimic the disease using
patient cells and carry out our research
in this ‘disease assay’. For each project,
we build a new disease assay. Assays
are proprietary, and this approach yields
new insights and starting points with the
potential to lead to new medicines.

Our proprietary target
discovery engine

The combination of disease assays with
target discovery tools (our proprietary tar-
get discovery engine) generates unique
knowhow about disease processes and the
role of individual tar gets in a disease. We
select targets that play an active role in the
disease process for further drug discovery.

Target discovery tools
(RNAi)

We use our RNAi discovery technology
to find the molecular starting points
(called targets) of a disease. This tech-
nology allows us to knock down targets,
so they are no longer present in the
cells, and study how this influences the
disease process. We do this for thou-
sands of individual targets in parallel.

MAGAZINEGalapagos NV • Annual Report 20194

Find a matching
compound

We now search through large collections of
chemical compounds to find one that attaches
itself to the target and suppresses its function.

Develop a potential
medicine

The next step is to develop the chemical com-
pound into a potential medicine. Through
medicinal chemistry, we introduce the traits
necessary for a drug (e. g. potency, stability,
solubility, safety).

Test the potential
medicine

We assess the effects and safety of the
medicine by testing it in the lab, on animals,
on a small group of human volunteers and
then finally on a large group of patients.

Feed forward into new
drug development

Finally, we feed the insights we gain from our
clinical patient studies into the loop of drug
development, contributing to our knowledge
and expertise in disease biology. Our unique
approach increases the chances of bringing
more, and better, new drugs to the market
and to patients.

Pioneering for patients

We have been using this approach for our research consistently for over 20
years. Thanks to this unique scientific approach, we have built a vast bank of
proprietary knowledge on disease biology. Together with a bullish ambition to
build our pipeline, this has led us to the extraordinary position we find ourselves
in today: over 40 unique compounds, more than half of which have gone into
clinical development.

MAGAZINEGalapagos NV • Annual Report 2019We foster our
people-centricity

Our people and culture are crucial to our business success. We
strive to challenge ourselves without fear of failure, and we look
for people from different backgrounds who thrive in an environ-
ment that embraces change and who are bold in their approach.
We are not afraid to go where others haven’t, working together
to achieve shared goals on our path of discovery.

Here, three colleagues share a personal, standout anecdote that
they believe best demonstrates our culture.

If something doesn’t work out, rethink it

My colleagues and I collect powerful quotes and write them on a
lab window to inspire us as we work. One particular quote – ‘If it
doesn’t happen, make it happen’ – proved particularly useful on
a demanding project involving a chemical synthesis. In 2012, we
knew we were on to a very promising molecule, so, with the quote
in mind, we forged ahead. It took us four months to deliver, but it
eventually led to a preclinical candidate.

Our driving aim is to contribute to molecules that, one day, will
better people’s lives, and our inspirational quotes remind us of
that goal when things are difficult. What I appreciate in Galapagos
is the agility of our research and development. If something doesn’t
work out the way we thought it would, we rethink it. And rethink it.
Until it works.

Maxim De Wachter, Scientist

MAGAZINEGalapagos NV • Annual Report 2019Letting go of our hierarchy makes it easier to see the positive
impact change can have

Since I joined Galapagos 10 years ago, I’ve been building and
shaping the organization, looking at how best to distribute new
and existing roles and responsibilities.

Over time, the development has taken various departments that
were originally reporting to me into other leadership areas. The
overall growth of the company has always provided me opportuni-
ties to build, broaden or deepen something new, and my focus has
been on bringing to the organization what it requires regardless
of the impact on my own territory. I will continue to deliver what
Galapagos requires and look at where certain skills and experience
sit best.

Working at Galapagos has taught me to not be afraid of letting
hierarchy go and to show others the positive results of what can
happen when you do.

Imme Van der Taelen,
Vice President Operations and Project Management

We are encouraged to take risks – but recognize no one is
perfect

A couple of years ago, our CEO, Onno van de Stolpe, asked for my
opinion on a third-party patent I had been analysing. I said I didn’t
think it was something we should pursue. I said there was always
a possibility I could be wrong and that someone else could do
something with the patent and compete with us, but I felt it wasn’t
going anywhere.

Onno said to me: ‘I’m asking for your professional opinion, your
best judgement of what to do. I don’t expect it to be bullet proof.’

At Galapagos, we are encouraged to give our best advice and take
risks, but we recognize that everyone is fallible. If your best analy-
sis turns out to be wrong, no one will come back and blame you. It
is that perspective that gives you the confidence to take risks.

Maria Nichol, Vice President Intellectual Property

MAGAZINEGalapagos NV • Annual Report 2019
Meet our
executive committee

Innovation is at the heart of our company, and an important enabler
for our team spirit that encourages everyone to act as pioneers.
That also applies to our executive committee – together we make it
happen.

Watch the video in our online report

Visit our magazine online

MAGAZINEGalapagos NV • Annual Report 2019The Galapagos group

An overview of Galapagos,
its strategy and portfolio in 2019

Pioneering for patients

THE GALAPAGOS GROUP

Letter from the management

Dear shareholder,
2019 was our 20th anniversary year, and what a year it was!

We are very proud of the deal with our collaboration partner Gilead announced in the summer, and we’re

convinced that it offers us the opportunity to maximize our potential, to the benefit of patients, society, and

shareholders. With independent R&D secured for a period of 10 years, and the financing in place to boost our

research engine and build out our commercial presence, the collaboration set-up creates the right circumstances

to realize our ambition to become one of the largest biopharma companies globally. With the world now facing

the COVID-19 outbreak, we are encountering unexpected challenges, but we are convinced that Galapagos is in an

especially good position to weather the storm.

Importantly, our pipeline made significant progress in 2019. For the first

time in our history, there is a drug candidate from our pipeline under

review for approval: filgotinib in rheumatoid arthritis (RA) in the U.S.,

Europe, and Japan. Pending approval, we are preparing to commercialize

filgotinib in RA in the EU5 and Benelux countries, hand in hand with our

collaboration partner Gilead.

In addition, we and Gilead are advancing filgotinib in a range of

inflammatory diseases. We aim to start the Phase 3 in ankylosing

spondylitis (AS) later in 2020, and importantly, we expect the Phase 3

topline results of our ulcerative colitis (UC) trial, the first inflammatory

bowel disease (IBD) indication, in the second quarter.

Our collaboration with Servier in osteoarthritis (OA) continues to progress

well. We completed recruitment of the ROCCELLA Phase 2 trial with

GLPG1972, and anticipate topline results in the second half of this year. This is the trial to evaluate ADAMTS-5

inhibition with GLPG1972 in patients with knee osteoarthritis. ROCCELLA represents a rigorous study with a

systemic, oral, potentially disease-modifying approach in OA, and as such, we and the medical community look

forward to those results.

We continue to do pioneering work in idiopathic pulmonary fibrosis (IPF) and other fibrotic diseases to address

the current unmet needs of patients suffering from these debilitating and fatal conditions. With GLPG1690 in a

worldwide Phase 3 program that we run with Gilead, GLPG1205 reading out Phase 2 results later this year, and

earlier programs progressing in discovery, we are building a unique pipeline in fibrosis.

We also have an innovative proprietary early stage pipeline, most notably in inflammation with our Toledo

program. We are now executing on a broad and accelerated program to discover and develop multiple series of

compounds against the novel, proprietary Toledo class of targets.

To ensure long-term value creation, we are dedicated to maintaining an active and growing early-stage portfolio.

Currently we have approximately 30 programs running, and while the focus remains on our key franchises in

inflammation and fibrosis, we have promising programs running in additional indications, including type 2

diabetes, hepatitis B, and polycystic kidney disease.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

As we rapidly grow across seven locations and transform into a fully-fledged biopharma, we are cognizant of the

challenges ahead. Our ‘MakeitHappen’ culture is especially key and brought us to where we are today. We see it

as a priority to manage and protect this culture, which we consider essential to maintain our agile, science-driven

DNA.

From a financial perspective, we ended 2019 with a very strong balance sheet, thanks to the Gilead deal bringing

in an upfront of $3.95 billion and an equity investment of $1.5 billion, including the warrant exercised by Gilead.

This capital gives us the firepower to boost our unique research engine and bring much needed innovation to

patients.

R&D

In the field of inflammation:

▪ Gilead submitted applications for approval of selective JAK1 inhibitor filgotinib in RA in the U.S., Europe and

Japan

▪ Gilead dosed the first patients in the PENGUIN Phase 3 trials with filgotinib in psoriatic arthritis (PsA)
▪ We initiated our first-in-human Phase 1 trials with the Toledo compounds GLPG3312 and GLPG3970
▪ We jointly announced with collaboration partners Novartis and MorphoSys that due to lack of efficacy, we

stopped clinical development of MOR106 in atopic dermatitis (AtD)

In fibrosis:

▪ For the ISABELA Phase 3 IPF program with selective ATX inhibitor GLPG1690, nearly all study centers were
opened for recruitment by year end 2019, and to date, over 800 patients are randomized in this study. As part

of the R&D collaboration closed with Gilead, Gilead has in-licensed all ex-European rights on GLPG1690
▪ We completed recruitment of the NOVESA Phase 2a trial with GLPG1690 in systemic sclerosis (SSc) patients
▪ We further strengthened our early-stage fibrosis pipeline through agreements with Evotec and Fibrocor

In osteoarthritis:

▪ We and our collaboration partner Servier completed recruitment for the ROCCELLA Phase 2b trial with

GLPG1972 in osteoarthritis patients

Corporate:

▪ We received $3.95 billion upfront payment from Gilead for the R&D collaboration
▪ We raised €960.1 million and €368.0 million in gross proceeds as result of respectively a share subscription

and a warrant exercise by Gilead and €17.2 million from warrant exercises

Post-period events:

▪ We completed recruitment of the PINTA Phase 2 trial with GPR84 inhibitor GLPG1205 in IPF
▪ We obtained orphan drug designation for GLPG1690 in SSc from the FDA and the European Commission
▪ We expanded the Fibrocor R&D collaboration in fibrosis

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

▪ In light of the ongoing COVID-19 pandemic, we are committed to keeping our stakeholders informed as the

situation evolves. We see the following impact at this point in time:
▪ Staff

Galapagos has strong measures in place to help prevent spread of the virus and protect the health of our

staff. We rolled out our global and site business continuity plans and took appropriate recommended

precautions and restrictions, including suspending all travel. In practice, this means that our employees

are working from home, with the exception of lab personnel and skeleton IT and facilities teams to

ensure safety and operational continuity essential to keep research going. For those, we have stringent

cleaning and sanitation protocols in place, and we strictly respect social distancing policies at all times,

in order to minimize risk of exposure.

▪ Clinical trials

We have a business continuity plan for our non-clinical and clinical trials, including a pandemic

response plan. We have decided to pause the start of Phase 1 trials temporarily. We are continuously

monitoring the situation, always putting patients’ safety and needs front & center, and our teams are

working hand in hand with our CROs and clinical trial sites to define next steps.

Our collaboration partner Gilead and we have paused enrollment into the filgotinib trials in order to

help protect patient safety. This includes the Phase 2 and Phase 3 trials of filgotinib in Crohn’s disease

(DIVERSITY), the Phase 3 in psoriatic arthritis (PENGUIN), the Phase 2 trial in uveitis, and the MANTA

and MANTA-RAy trials.

We anticipate the Phase 3 program in ankylosing spondylitis will now start later this year.

▪ Filgotinib filing process in RA

To date, our collaboration partner Gilead has not been informed by the regulatory agencies in the

US, Europe, and Japan of approval timeline delays. Gilead also confirmed that all sites involved in the

manufacturing of filgotinib are established sites that currently manufacture other Gilead marketed

products, are in good standing with the FDA, and are GMP certified.

▪ Commercial organization

Build-up of our commercial operations in the EU5 countries and the Benelux to prepare for the potential

launch of filgotinib continues as planned.

2019: Details of the financial results

Revenues

Our revenues and other income for 2019 significantly increased to €895.9 million, compared to €317.8 million in

2018. Revenues represented €845.0 million in 2019 compared to €288.8 million in 2018 and were higher due to the

revenue recognition of the upfront payment received in August 2019 from Gilead related to (i) the GLPG1690

program, (ii) the exclusive access to our drug discovery platform (i.e. the IP, technology, expertise and capabilities)

during the collaboration period and exclusive option rights on our current and future clinical programs after

Phase 2 outside Europe and (iii) additional consideration received for the extended cost sharing for filgotinib,

offset by (iv) a negative catch-up effect for revenues related to the previously received upfront and milestones due

to the revised filgotinib collaboration agreement.

Other income increased to €50.9 million, mainly driven by higher income from governmental incentives for our

R&D activities.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Operating result

The group realized a net operating profit in 2019 of €370.3 million, compared to a net operating loss of €44.8 million

in 2018.

R&D expenses for the group in 2019 increased by 32% to €427.3 million compared to €322.9 million in 2018. This

was due to an increase of €52.3 million in subcontracting costs primarily related to our filgotinib program, Toledo

program and other programs. Furthermore, personnel costs increased explained by a planned headcount increase

following the growth in our R&D investments. These factors as well as the preparation of the forthcoming

commercial launch of filgotinib also contributed to the increase in our G&A and S&M expenses which were

€98.3 million in 2019, compared to €39.8 million in 2018.

We reported a non-cash fair value loss amounting to €181.6 million resulting from the re-measurement of

derivative financial instruments triggered by the share subscription agreement with Gilead and the warrants

granted to Gilead, primarily due to the increase in the Galapagos share price.

Net other financial

loss in 2019 amounted to €38.6 million, compared to net other financial

income of

€15.6 million in 2018, which was primarily attributable to €34.9 million realized exchange loss on the U.S. dollars

upfront payment from Gilead (mainly related to the negative hedging effect) and €10.6 million of unrealized

exchange loss on our cash and cash equivalents and current financial investments in U.S. dollars.

Net result

The group realized a net profit in 2019 of €149.8 million, compared to a net loss of €29.3 million in 2018.

Cash, cash equivalents and current financial investments

Current financial investments and cash and cash equivalents totaled €5,780.8 million on 31 December 2019 as

compared to €1,290.8 million on 31 December 2018.

Total net increase in current financial investments and cash and cash equivalents amounted to €4,490.0 million

in 2019, compared to an increase of €139.6 million in 2018. This net increase was composed of (i) €3,162.8 million of

operational cash flow, of which €3,497.1 million net operational cash proceeds from the Gilead collaboration and
€334.3 million of operational cash burn,1(ii) €955.6 million net cash proceeds related to the share subscription by
Gilead and €368.0 million cash proceeds related to the exercise of warrant A by Gilead, (iii) €17.2 million of cash

proceeds from capital and share premium increase from the exercise of warrants in 2019, and (iv) €13.7 million of

negative fair value and currency translation effects.

Furthermore, Galapagos’ balance sheet holds a receivable from the French government (Crédit d’Impôt
Recherche2), and a receivable from the Belgian Government for R&D incentives, for a total of both receivables of
€115.4 million.

Galapagos in 2020

After a historic 2019, 2020 promises to be a particularly newsflow rich year for Galapagos.

First of all, we and our collaboration partner Gilead expect approval of our first product candidate, filgotinib, in

RA in the U.S., Europe, and Japan. We also expect Gilead to report Phase 3 data of filgotinib in ulcerative colitis

(UC) in the second quarter of this year. Moreover, Gilead and we plan to start the Phase 3 program with filgotinib

in ankylosing spondylitis (AS) later in 2020 – a potential additional indication for our growing filgotinib franchise.

Besides the filgotinib UC read-out, we expect to report data from four Phase 2 clinical trials.

1 We refer to note 19 of the notes to our consolidated financial statements for an explanation and reconciliation of this alternative performance measure.
2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Within our fibrosis portfolio, we anticipate reporting topline data from the PINTA Phase 2 trial with GLPG1205 in

IPF and, together with collaboration partner Gilead, from the NOVESA Phase 2a trial with GLPG1690 in SSc.

We also plan to report topline data from the ROCCELLA Phase 2b study of GLPG1972 in OA, together with our

collaboration partner Servier. Following the results, Gilead will have the option to inlicense GLPG1972 for the U.S.

market.

We will continue to execute on our accelerated development plan for Toledo, our next generation inflammation

program. We expect to launch multiple proof-of-concept patient trials in the second half of the year and expect

to report topline data from our first patient study towards the end of the year.

In the meantime, we continue recruitment in our landmark Phase 3 ISABELA program with GLPG1690 in IPF,

together with Gilead. We are proud to report that over 800 patients have been recruited, and the futility analysis

remains on track for the first quarter of 2021.

In total, we expect to conduct more clinical trials in 2020 than ever before, further expanding our broad clinical

pipeline of novel modes of action candidate medicines in indications with high unmet medical needs.

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

teams, in 2020, we expect an operational cash burn between €420 and €450 million, including milestone income

from Gilead for potential regulatory approvals of filgotinib in RA.

We publish this report during the ongoing COVID-19 pandemic. First and foremost, I hope that you and your loved

ones are safe and healthy. Secondly, of course these are challenging times for Galapagos as well, and our share

price has been under severe pressure. I want to assure you that the team continues to face this unprecedented

situation with resilience. And as challenging as the COVID-19 crisis is, this too shall pass. Supported by a strong

balance sheet and by a deep, growing pipeline, I firmly believe that we can weather this storm. This also comes

with a responsibility that we do not take lightly: we are more determined than ever in our unwavering ambition

to bring innovation to patients worldwide.

I wish to thank all our shareholders for their support last year. I also want to thank our teams for their dedication

and hard work. We truly had a transformative year in 2019, but we are just getting started. We remain in a

strong position to weather the uncertainty created by the global corona virus outbreak, and we look forward to

a newsflow rich 2020. We hope that you stay with us, as we are breaking innovative ground in inflammation,

fibrosis, and beyond.

Onno van de Stolpe
CEO

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

At a glance

Consolidated Key Figures

(thousands of €, if not stated otherwise)

Year ended 31
December 2019

Year ended 31
December 2018

Year ended 31
December 2017

INCOME STATEMENT

Revenues

Other income

R&D expenditure

S, G&A expenses

Operating expenses

Operating profit/loss (-)

Net financial results

Taxes

Net profit/loss (-)

BALANCE SHEET

Cash and cash equivalents

Current financial investments

R&D incentives receivables

Assets (*)

Shareholders' equity (*)

Deferred income

Other liabilities (*)

CASH FLOW

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

Cash flow generated/used (-) in operating activities (*)

Cash flow used in investing activities

Cash flow generated in financing activities (*)

Increase in cash and cash equivalents

Transfer to current financial investments

844,985

50,905

(427,320)

(98,278)

(525,597)

370,292

(220,233)

(214)

149,845

1,861,616

3,919,216

115,356

6,068,609

2,875,658

3,000,646

192,305

3,162,804

3,208,617

(3,764,660)

1,335,751

779,708

(198,922)

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

(158,384)

(142,466)

(15,914)

287,876

129,497

–

75,783

1,286,274

1,011,983

219,892

54,399

(154,089)

(147,030)

(549)

353,357

205,778

–

Effect of currency exchange rate fluctuation on cash and cash
equivalents

(9,966)

10,089

(27,808)

Cash and cash equivalents on 31 December

1,861,616

1,290,796

1,151,211

Current financial investments on 31 December

3,919,216

–

Total current financial investments and cash and cash
equivalents on 31 December

5,780,832

1,290,796

1,151,211

(*) Our assets, shareholders' equity, other liabilities, cash flow generated/used (-) in operating activities and cash flow generated in financing

activities for the year ended 31 December 2019 were impacted by the adoption of the new standard IFRS 16 - Leases, on 1 January 2019. We
refer to the notes of this consolidated financial report for additional information.

(**) We refer to note 19 of our consolidated financial statements for an explanation and reconciliation of this alternative performance measure.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

(thousands of €, if not stated otherwise)

FINANCIAL RATIOS

Year ended 31
December 2019

Year ended 31
December 2018

Year ended 31
December 2017

Number of shares issued on 31 December

64,666,802

54,465,421

50,936,778

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)

2.60

2.49

186.50

1,003

(0.56)

80.56

725

(2.34)

78.98

600

(*) Our assets, shareholders' equity, other liabilities, cash flow generated/used (-) in operating activities and cash flow generated in financing

(**) We refer to note 19 of our consolidated financial statements for an explanation and reconciliation of this alternative performance measure.

Employees per site

8 staff

United Kingdom

12 staff

United States

127 staff

The Netherlands

181 staff

France

486 staff

Belgium

31 staff

Switzerland

158 staff

Croatia

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Number of employees Galapagos group

1,003

392
Men

gender:

education:

611
Women

138
Other

283
PhD

203
Bachelor

379
Master

Average age:

Number of employees
older than 45:

359

Nationalities:

Average years of service:

Employee turnover:

New hires in 2019:

4.6

5.6%

279

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Strategy

Our mission is to develop and commercialize 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 disease pathways. 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 is designed to address 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 in areas of unmet medical needs to improve the lives of people suffering

from serious diseases.

The key elements of our strategy include:

▪ Rapidly advance the development of filgotinib in a range of inflammatory diseases with our

collaboration partner Gilead
Based on the results from our Phase 2 and Phase 3 clinical trials, we are planning to further develop filgotinib

in additional indications in inflammation, including CD, UC, PsA, AS, and other inflammatory diseases. Our

collaboration partner Gilead has submitted applications for approval of filgotinib in RA in the U.S., Europe,

and Japan. Gilead is also conducting Phase 3 clinical programs in UC (SELECTION), CD (DIVERSITY) and PsA

(PENGUIN) and several Phase 2 clinical programs in additional inflammatory diseases.

▪ Tackle IPF/fibrosis with our pioneering approach

We are building a diverse fibrosis portfolio with different modes of action in IPF and other forms of organ

and skin fibrosis. We recruited the first 800 IPF patients in the ISABELA global Phase 3 program with ATX

inhibitor GLPG1690, for which Gilead has in-licensed ex-European rights from us. We completed recruitment

for the NOVESA Phase 2a trial with GLGP1690 in SSc as well as recruitment for the PINTA Phase 2a trial

with GPR84 inhibitor GLPG1205 in IPF patients. We also in-licensed two early stage compounds (and have an

exclusive option to in-license a total of four additional novel target programs) with novel modes of action

in the field of fibrosis from Evotec and Fibrocor respectively, thereby strengthening a growing portfolio of

distinct mechanism approaches to tackle IPF and fibrosis.

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

We completed recruitment for the ROCCELLA global Phase 2 program with ADAMTS-5 inhibitor GLPG1972

together with our collaboration partner Servier and expect topline results in the second half of 2020. Servier

licensed the compound for further development in OA outside the United States. Upon successful completion

of the Phase 2 trial, Gilead has the option to license development and commercialization rights to this

compound in the United States, where we currently lead all clinical development of GLPG1972.

▪ Strengthen our innovation leadership in inflammation

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

targeting the class of novel targets we discovered and code-named Toledo. Molecules inhibiting this target

family effectuate a dual mode of action on inflammation by stimulating anti-inflammatory cytokines and

inhibiting pro-inflammatory cytokines. We are executing on a broad and accelerated program to discover

and develop multiple series of compounds acting on Toledo, aimed at activity across several conditions,

including inflammation. We completed much of our Phase 1 work with GLPG3312 and initiated a Phase 1 trial

with GLPG3970 in 2019. We expect to initiate multiple PoC patient trials with these compounds and report

first topline results by the end of the year. Meanwhile, we continue to advance multiple preclinical candidates

in inflammation, scale-up our target and drug discovery productivity, and explore additional modalities of

drug therapies aimed at inflammation.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

▪ Maximize and capture the value of our target discovery platform based on novel modes of action

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

areas. Our most advanced preclinical programs are GLPG4059 (metabolic), GLPG4124 (fibrosis), GLPG4259

(inflammation), and our third generation Toledo compound GLPG4399 for inflammation. Additionally, we are

exploring the potential of preclinical product candidates in AS, Pso, IBD, AtD, lupus, IPF, SSc, nonalcoholic

steatohepatitis, type 2 diabetes, hepatitis B, osteoarthritis and polycystic kidney disease. We aim to initiate

a Phase 3 trial every other year and our ambition is to conduct three proof-of-concept trials, deliver at least

three preclinical product candidates and at least six new validated targets every year. We have paused starts

of Phase 1 trials temporarily, due to the coronavirus pandemic.

R&D ambition – Maintaining an active portfolio of around 30 projects

▪ Build long-term value and accelerate our pipeline with our collaboration partner Gilead

Through our transformative R&D collaboration with Gilead signed in July 2019, we plan to increase our

discovery, development and commercial efforts to bring much needed innovation to patients suffering from

serious diseases. Under the agreement, we also gained a broader commercialization role for filgotinib in

Europe and agreed to equally share all future development costs. Gilead has access to our pioneering discovery

platform and gains option rights to our current and future programs outside Europe. Gilead is subject to a

10-year standstill, made a $3.95 billion upfront payment and a $1.5 billion equity investment including the

exercise of Warrant A. We are also eligible to receive opt-in fees plus ex-filgotinib tiered royalties ranging

from 20-24% on net sales of all our products licensed by Gilead, as well as milestone payments on certain

products. See the Notes to the consolidated financial statements.

▪ After approval, market our innovative products successfully in Europe

We are building a commercial organization to prepare for the expected market launch of filgotinib in

collaboration with Gilead in France, Italy, Spain, Germany, UK and the Benelux in 2020 and 2021. Gilead

will be solely responsible for commercialization outside of these eight countries. In a next step, we intend

to commercialize successful candidates from our Gilead collaboration in our European territories, with

Gilead solely responsible for commercialization outside Europe. See the Notes to the consolidated financial

statements.

Galapagos NV • Annual Report 2019

NEWTARGETSPRECLINICALCANDIDATESPROOFS-OF-CONCEPTPHASE 3STARTevery yearevery yearevery yearevery 2 yearsTHE GALAPAGOS GROUP

European commercial footprint

Going concern statement

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

€109.2 million accumulated losses as at 31 December 2019. We realized a consolidated net profit of €149.8 million

for the year ended 31 December 2019. The board of directors has examined the financial statements and

accounting policies. Based on conservative assumptions, we believe that our existing current financial

investments and cash and cash equivalents of €5,780.8 million at 31 December 2019 will enable us to fund our

operating expenses and capital expenditure requirements for the coming years (and at least for the next 12

months). 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 current financial investments and cash and cash equivalents are sufficient for the coming years

(and at least for the next 12 months), 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.

Galapagos NV • Annual Report 2019

2020 – 2021 filgotinib2022 – 2023• Benelux• France, Italy, Spain• UK, Germany• Roll out in rest of Europe• Future productsTHE GALAPAGOS GROUP

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 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.

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.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

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 internal

control 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 2019.

Galapagos NV • Annual Report 2019

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 2019

230

210

190

170

150

130

110

01.01.2019

01.04.2019

01.07.2019

01.10.2019

31.12.2019

GLPG.AM (in EUR)

GLPG.US (in USD)

In 2019, the average daily trading volume on Euronext was 453,484 shares and €57.9 million turnover. The daily

trading volume on Nasdaq in 2019 was 131,202 ADSs and $18.7 million turnover.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Galapagos vs Next Biotech Index in 2019

2.5

2.2

1.9

1.6

1.3

1.0

01.01.2019

01.04.2019

01.07.2019

01.10.2019

31.12.2019

GLPG (Euronext)

Next Biotech Index

Galapagos vs Nasdaq Biotechnology Index

2.5

2.2

1.9

1.6

1.3

1.0

01.01.2019

01.04.2019

01.07.2019

01.10.2019

31.12.2019

GLPG (Nasdaq)

Nasdaq Biotechnology Index

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

Investor relations activities

We currently have sell-side coverage from >20 analysts and in 2019 we attracted additional sell-side analyst

coverage.

Our IR team hosted 8 investor visits of >70 investors to our Mechelen operations, presented at 20 conferences in

2019 in Europe and the U.S. and did several broker-organized and self-organized roadshows throughout the U.S.,

Europe, and Asia during which we met with >500 investors.

We presented 2018 Full Year, and Q1, Half Year, and Q3 2019 results, our Annual R&D Update, and conference

presentations via webcasts.

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

strategy, the revised filgotinib agreement with collaboration partner Gilead, our new R&D collaboration

agreement with 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 2019

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 2019 amounted to €1,324.3 million compared to €513.1 million in 2018. This

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

by €114.9 million more to operating income than previous year, and due to €683.9 million higher turnover due

to increased milestone revenues and upfront payments under the new collaboration agreement with Gilead.

Other operating income amounted to €21.7 million, including €6.5 million of grants recognized for R&D projects,

€5.9 million of recharges to subsidiaries and €8.7 million recuperation of withholding taxes for scientists.

The operating costs of 2019 amounted to €930.5 million compared to €654.6 million in 2018. Services and other goods

increased substantially to €444.1 million compared to €299.8 million in 2018, 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 €6.2 million in 2018 to €7.5 million in 2019.

Personnel costs in 2019 amounted to €52.2 million compared to €33.4 million in 2018. The number of employees

at Galapagos NV at the end of 2019 amounted to 361 as compared to 261 at the end of 2018, excluding insourced

personnel.

Depreciation increased to €403.3 million in 2019, compared to €305.7 million in 2018, and related primarily to

amortization of R&D expenses.

Galapagos NV’s 2019 financial income decreased to €27.5 million compared to €35.7 million in 2018, while financial

costs increased to €64.0 million compared to €21.3 million in 2018. This can mainly be explained by currency

exchange losses on U.S. dollar in 2019, as compared to non-cash currency exchange gains on U.S. dollar in 2018.

Tax income recorded in 2019 of €21.6 million as compared to €11.3 million tax income in 2018, related to 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. R&D

expenses capitalized are fully amortized in the year in which they’re capitalized.

Investments in fixed assets in 2019 amounted to €9.8 million, excluding the internally generated assets. They

consisted mainly of costs for new laboratory and IT equipment, as well as investments in intangible assets, being

software and licenses.

Other receivables include mainly the receivable for tax incentives amounting to €67.0 million in 2019 and

€48.2 million in 2018.

Galapagos NV’s cash position at the end of 2019 amounted to €5,759.6 million.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

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

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

positive result. The financial year 2019 closed with a profit of €379.0 million compared to a loss of €115.7 million

in 2018. The non-consolidated annual accounts of Galapagos NV show accumulated losses of €80.5 million as at

31 December 2019; we refer to the Going concern statement for justification for the application of the valuation

rules under the going concern assumption.

In 2019, Galapagos NV made use of one financial instrument in relation with the deal with Gilead i.e. a hedging

instrument, but financial instruments are not actively used.

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 is available in the
SEC’s EDGAR database (https://www.sec.gov/edgar.shtml) and a link thereto is posted on our website.

Galapagos NV • Annual Report 2019

THE GALAPAGOS GROUP

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 “Galapagos in

2020”, guidance from management regarding the expected operational use of cash during financial year 2020,

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

filgotinib in ulcerative colitis, Crohn’s disease, psoriatic arthritis, ankylosing spondylitis and other indications

(ii) with GLPG1690 and GLPG1205 in IPF and with GLPG1690 in SSc, (iii) with GLPG1972 in osteoarthritis, and (iv)

with GLPG3312, GLPG3970, and GLPG4399 in inflammation, statements relating to interactions with regulatory

authorities and the potential approval process for filgotinib and statements relating to the build-up of our

commercial organisation. 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

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 2020 revenues and financial results and our 2020 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 and GLPG1690,

Gilead, and our collaboration partner for GLPG1972, Servier), estimating the commercial potential of our product

candidates and the uncertainties relating to the impact of the COVID-19 pandemic. 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 2019

R&D

Research & Development

Pioneering for patients

RESEARCH & DEVELOPMENT

Our broad pipeline and powerful drug discovery
engine

We discover and develop small molecule medicines with novel modes of action, several of which show promising

patient results and are currently in late-stage development in multiple diseases with high unmet medical need.

Our highly flexible discovery platform is applicable across many therapeutic areas and our pipeline comprises

programs ranging from discovery to Phase 3 and registration phase in inflammation, fibrosis, osteoarthritis, and

other indications.

Our clinical pipeline includes: JAK1 inhibitor filgotinib, which is currently filed for approval in RA in the U.S.,

Europe, and Japan, in Phase 3 trials in UC, CD, and PsA, and in Phase 2 trials in multiple additional indications;

autotaxin inhibitor GLPG1690, 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) for which recruitment

was completed end of 2019; GLPG1205, a GPR84 inhibitor which completed recruitment in the PINTA Phase 2

proof-of-concept trial in IPF in early 2020; GLPG1972, an ADAMTS-5 inhibitor for which we completed patient

recruitment in the ROCCELLA global Phase 2b trial in OA patients in June 2019; and the Toledo molecules

GLPG3312, GLPG3970, and GLPG4399, aimed at a novel class of targets we discovered and currently in preclinical and

Phase 1 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, GLPG1690, and other pipeline assets, with Servier for GLPG1972,

with Evotec and Fibrocor for early stage fibrosis programs and with AbbVie in the field of cystic fibrosis (CF). The

following table highlights key aspects of our development program indication areas at the beginning of 2020:

Our clinical pipeline

area

preclinical

phase 1

phase 2

phase 3

approval

filgotinib

IPF/fibrosis

osteoarthritis

Toledo

inflammation/fibrosis/other

multiple indications, submitted for RA

in ph3 and ph2

ph2b underway

ph1 programs

>30 programs

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Flexible target discovery platform

Watch the video on our YouTube channel

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

pathways; and

▪ enables us to rapidly analyze all of the druggable genes and select pharmaceutically tractable protein targets

directly by their ability to regulate key disease biology

A proof of success of this unique approach is demonstrated with filgotinib which acts on JAK1, a target whose

role in the specific disease was discovered by us using our discovery platform. Further proof of this approach was

shown in 2017 with autotaxin inhibitor GLPG1690 in IPF patients.

The human genome consists 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 tens of 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

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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 druggable 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 drugs with new modes of

action. Since 2009, we have generated 44 preclinical candidates. Of these, 22 have entered first-in-human clinical

development, 16 of which have novel modes of action, and 12 entered into 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, hepatitis B,

osteoarthritis and polycystic kidney disease.

Galapagos NV • Annual Report 2019

4412 1622preclinical candidatesentered clinicnovel modes of actionnovel modes of action in patient studiesRESEARCH & DEVELOPMENT

Filgotinib in inflammation

We have a collaboration agreement with Gilead to develop and commercialize filgotinib in multiple diseases. Filgotinib is

currently under regulatory review in the United States, Europe, and Japan, and in Phase 3 clinical trials in UC, CD, and PsA,

with a Phase 3 in AS expected to start in 2020. Gilead completed trials with filgotinib in Sjögren’s disease and cutaneous

lupus erythematosus and is working with us to evaluate next steps in those disease areas. In addition, Gilead is running

Phase 2 trials with filgotinib in uveitis, small bowel Crohn’s disease, and fistulizing Crohn’s disease. The following graphic

represents the broad filgotinib program. At the time of publication of this report, it was decided to pause the recruitment

of ongoing filgotinib trials in connection with the coronavirus pandemic.

Our filgotinib program

RA: rheumatoid arthritis CD: Crohn’s disease UC: ulcerative colitis AS: ankylosing spondylitis PsA: psoriatic arthritis

The market for drugs that treat inflammatory diseases is 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 $26 billion, with the other main markets representing a larger

combined opportunity than RA:

Galapagos NV • Annual Report 2019

phase 2disease areaphase 3statusRAUCCDPsAASothersubmitted in US, Europe, JapanPh3 topline Q2´20Ph3 recruitingPh3 recruitingPh3 preparingrecruitingRESEARCH & DEVELOPMENT

Inflammation market in ~2027, $B

~9
psoriatic arthritis

~6
ankylosing spondylitis

~8
ulcerative colitis

Source: Galapagos estimates, Decision Resources Group

~26
rheumatoid arthritis

~16
Crohn’s

The Phase 2 and 3 data observed with filgotinib in RA and the Phase 2 data in CD, AS, and PsA thus far, indicate the

potential of filgotinib to substantially improve treatment standards in these and other inflammatory conditions.

American College of Rheumatology (ACR) scores in Phase 2 and 3 trials in RA patients were significantly greater for

filgotinib compared with placebo, and CDAI remission and SES-50 scores are similarly promising with filgotinib

in a Phase 2 trial in CD patients who are naive to TNF therapy, and tolerability and safety data were consistently

favorable across those trials. Following an interim futility analysis of the Phase 2b/3 SELECTION trial in UC

patients, the independent Data Monitoring Committee recommended the trial to proceed into the Phase 3

portion of the study. 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 and low rates of venous thrombotic events (VTEs) reported in all trials.

Filgotinib 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. The market for RA treatments in the U.S., EU5 and Japan was

worth $28 billion in 2018, with 60% of patients treated with disease-modifying anti-rheumatic drugs (DMARDs),
including injectable, biological therapies.3

Despite there being many approved agents, considerable unmet need exists, as only one in five patients achieve

full remission in the first year.

Oral therapies targeting the Janus kinase (JAK) signaling pathway are approved to treat inflammatory diseases; some

JAK inhibitors, however, are associated with a range of side effects, including pulmonary embolisms and 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 developed filgotinib as a JAK1 specific small molecule inhibitor. 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.

3 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Filgotinib selectivity
High selectivity for JAK1

JAK1 vs. JAK2

JAK1 vs. JAK3

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

filgotinib

Source: Galapagos human whole blood assay

Source: Galapagos biochemical assay

DARWIN Phase 2b program

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

findings were published in the AnnalsofRheumatologicalDiseases (Westhovens etal. 2016 and Kavanaugh etal.

2016).

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

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

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

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 156 weeks of treatment at ACR 2019.

The data showed that filgotinib maintained its promising activity levels and that it had a favorable tolerability

profile. Data in DARWIN 3 were consistent with the risk/benefit profiles reported in DARWIN 1 and 2, and were

presented by Kavanaugh et al. at the 2019 Annual Meeting of the ACR.

Below is an overview of selected adverse events for filgotinib observed in DARWIN 3:

event per
100 PYE

patient year exp.

serious infection

Herpes zoster

DVT/ PE

deaths

Data on file; DVT/PE = deep venous thrombosis/pulmonary embolism
* one single patient experiencing DVT and PE

filgotinib

50-200 mg

DARWIN 3
week 156

2,203

1.0

1.5

2/2,203*
0.1

0.2

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

FINCH Phase 3 program

The safety and efficacy of 100 mg and 200 mg filgotinib once daily have been investigated in the FINCH clinical

Phase 3 program which was initiated in August 2016 and which includes four Phase 3, randomized, multicenter

studies in patients with moderate to severe RA.

The studies were designed to characterize the efficacy and safety of filgotinib in several key patient populations

following the typical RA treatment pathway. These included:

▪ Patients who had an inadequate response to methotrexate (MTX) (FINCH 1)
▪ Patients with difficult-to-treat RA and an inadequate response to biologic disease-modifying antirheumatic

drugs (csDMARD) (FINCH 2)

▪ Methotrexate-naïve patients (FINCH 3)
▪ Eligible patients could also roll-over into a long-term extension study (FINCH 4)

In both rat and dog toxicology studies in the preclinical phase, filgotinib induced adverse effects on the male

reproductive system. Consequently, Gilead and Galapagos are performing dedicated male patient semen analysis

trials in inflammation (RA, CD, UC, AS, and PsA) patients, called MANTA and MANTA-RAy, concurrent to all Phase

3 programs. These randomized, double-blind, placebo-controlled trials are intended to be combined to meet the

requirement of 200 adult male inflammation patients with a treatment phase of up to 26 weeks. Recruitment

into these trials is, at time of publication of this report, paused in light of the COVID-19 pandemic.

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.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Topline FINCH 1 efficacy4 data are summarized in the table below:

filgotinib

200 mg

+MTX
(n=475)&

76.6***

47.2***

26.3***

49.7***$

filgotinib

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***

adalimumab

placebo

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

FINCH 2 results

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

College of Rheumatology 20 percent response (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 100 mg or 200 mg compared to patients receiving placebo. The clinical

efficacy and quality of life outcomes assessed at week 12 and week 24 were presented at the Annual ACR meeting

2019 (Genovese etal.) and the FINCH 2 results were published in TheJournaloftheAmericanMedicalAssociation,

JAMA (Genovese et al. 2019).

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

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

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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).

Topline FINCH 3 efficacy5 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

MTX, methotrexate
& 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

FINCH safety data

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

filgotinib for the treatment of rheumatoid arthritis. The data include 24 week results of the Phase 3 FINCH 1, 2, and

3 trials in patients with RA and the pooled analyses from these 3 FINCH trials were presented at the Annual ACR

meeting 2019 (Winthrop et al). In this pooled analysis, filgotinib was well-tolerated, no new safety concerns were

identified, and the safety results were consistent with selective JAK1 inhibition. Adverse events of MACE and DVT/PE

were rare and occurred in similar number among all treatment groups. Herpes zoster reactivation was not increased

in the filgotinib groups compared with the other treatment groups. The data highlight the favorable safety and

tolerability profile of filgotinib as monotherapy and in conjunction with MTX/csDMARD in RA.

5 Efficacy assessed at Week 24 for all endpoints

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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:

Placebo/
csDMARD

(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

Applications for approval of filgotinib in RA

Gilead announced acceptance of a Marketing Authorisation Application (MAA) by the European Medicines Agency

in August 2019, submission of a New Drug Application (NDA) to the Japanese Ministry of Health, Labor, and

Welfare (MHLW) in October 2019, and submission of an NDA (under priority review) to the United States Food

& Drug Administration (FDA) in December 2019. We and our collaboration partner Gilead expect decisions on

potential approvals in all these geographies in the course of 2020.

Commercialization of filgotinib in RA

If approved by the European Commission for RA indications, we expect to launch commercial sales activities

in Belgium, The Netherlands, and Luxembourg where we are solely responsible for commercialization, and in

France, Italy, and Spain where we will lead commercial sales responsibilities in RA, pursuant to the parties'

joint commercialization of filgotinib in those countries. We are advanced in our preparations to launch in these

countries in the course of 2020, pending approval of filgotinib. Gilead will launch commercial sales activities in

RA in Germany and the UK, the remaining of the eight countries in which we and Gilead will equally split profits

from filgotinib commercial activities, pursuant to the parties' joint commercialization of filgotinib in those

countries. Gilead will be responsible for the commercial launches in all territories outside these eight European

countries, should filgotinib be approved in these territories. See details on the Gilead collaboration in the Notes

to the consolidated financial statements.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

European commercial footprint

Filgotinib in IBD, which includes UC and CD

Current treatments for IBD are dominated by anti-TNF agents, with new biologic agents gaining market share.

We observed high activity and a favorable tolerability profile in a Phase 2 trial with filgotinib in CD, as reported

in TheLancet (Vermeire etal. 2016). The profile we saw with filgotinib in this CD patient trial indicates that the

product candidate may show activity and tolerability in UC patient trials as well.

Should filgotinib be approved commercially for IBD indications, Galapagos will be lead commercial sales

responsible for the UK, Germany and the Benelux countries, and Gilead will be lead commercial sales responsible

for France, Italy and Spain. All other countries will be Gilead's commercial sales responsibility.

Global SELECTION Phase 2b/3 program in UC

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

2018, nearly 2 million patients were diagnosed with UC in the U.S., EU5 and Japan, and the total market for UC
treatments in the acute and maintenance settings was worth $6 billion in the U.S., EU5 and Japan in 2018.6

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.

Gilead initiated the global 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 1,300 patients

with moderately to severely active disease including those with prior antibody therapy failure. Men and women

in SELECTION were randomized to receive placebo, 100 mg or 200 mg filgotinib. Due to preclinical findings with

filgotinib regarding semen parameters, in the United States, males may receive 200 mg if they failed at least one

anti-TNF therapy and vedolizumab, a monoclonal anti-integrin antibody marketed by Takeda. Adjacent to the

filgotinib Phase 3 programs, we and Gilead are conducting dedicated male semen analysis studies in CD and UC

patients (MANTA) and in RA, PsA, and AS patients (MANTA-RAy).

6 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

2020 – 2021 filgotinib2022 – 2023• Benelux• France, Italy, Spain• UK, Germany• Roll out in rest of Europe• Future productsRESEARCH & DEVELOPMENT

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 could proceed into Phase 3 as planned at both the 100

mg and 200 mg once-daily dose level in biological-experienced and biological-naive patients.

Gilead announced completion of recruitment for SELECTION in 2019, and topline results are expected in the

second quarter of 2020.

FITZROY Phase 2 and global DIVERSITY Phase 3 program in CD

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

relapsing and remitting course. In 2018, nearly 1.5 million patients were diagnosed with CD in the U.S., EU5 and

Japan, and the total market for CD treatments in the acute and maintenance settings was worth $16 billion in
the U.S., EU5 and Japan in 2018.7

Today, only 10% of CD patients on treatment achieve prolonged clinical remission. There are currently no highly

effective oral therapies approved for CD and, similar to RA, treatment is dominated by injectable, biological

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 this suggests that filgotinib,

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

by inhibiting JAK1, unwanted effects such as anemia may be reduced. This is of particular importance to IBD

patients, who frequently experience fecal blood loss.

Our FITZROY Phase 2 trial evaluated the efficacy and safety of once-daily filgotinib in 174 patients with moderate

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

As reported in The Lancet (Vermeire et al. 2016), the FITZROY trial achieved the primary endpoint of clinical

remission at week 10 and filgotinib demonstrated a favorable tolerability profile consistent with the DARWIN

trials in RA.

Gilead initiated the Phase 3 DIVERSITY trial with filgotinib in CD in November 2016. The DIVERSITY Phase 3 trial

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

with moderate to severe 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. Due

to preclinical findings with filgotinib regarding semen parameters, in the United States, males may receive 200

mg if they failed at least one anti-TNF therapy and vedolizumab. Adjacent to the filgotinib Phase 3 programs, we

and Gilead are conducting dedicated male semen analysis studies in CD and UC patients (MANTA) and in RA, PsA,

and AS patients (MANTA-RAy). At the time of publication of this report, it was decided to pause recruitment for

DIVERSITY in connection with the corona virus pandemic.

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

for these studies has also been paused in connection with the corona virus pandemic.

7 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Filgotinib in psoriatic arthritis

PsA is an inflammatory form of arthritis, affecting up to 30% of psoriasis patients. In 2018, 3.5 million patients

suffered from PsA in the U.S., EU5 and Japan and the market for PsA treatments was worth nearly $7 billion in
2018 in these seven major markets.8

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.

EQUATOR Phase 2 program with filgotinib in PsA

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 moderate to severe 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).

Durable response in EQUATOR PsA Ph2

ACR20

ACR50

ACR70

100

)

(
s
r
e
d
n
o
p
s
e
r

8 12 16

12 16

wk16

baseline
FIL/PBO FIL/PBO
65/66

60/64

FILGOTINIB (FIL)
PLACEBO (PBO)

Source: Coates et al. ACR 2019

weeks

8 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

This efficacy response was sustained in the open label extension of EQUATOR, up to 52 weeks:

Durable response in EQUATOR PsA Ph2

EQUATOR OPEN LABEL EXTENSION

100

)

(
s
r
e
d
n
o
p
s
e
r

Source: Coates et al. ACR 2019

ACR20

ACR50

ACR70

weeks

wk16
119

wk52
110

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

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 The Lancet and presented in

a plenary session at ACR 2018 (Mease etal. 2018), and a safety update through 52 weeks was presented at ACR2019

(Coates et al. 2019).

TEAEs of special interest

all serious infections

opportunistic infections

herpes zoster

malignancies

deep vein thrombosis

pulmonary embolism

major cardiac events (adjudicated)

deaths

incidence
# of pts (%)
FIL 200 mg, n=65
wk 0-16

incidence
# of pts (%)
placebo, n=66
wk 0-16

rate/100 PYE
# of events
FIL 200 mg, PYE=160
wk 0-52

1 (1.5)

–

1 (1.5)

–

1 (1.5)

–

1.9 (3)

–

0.6 (1)

–

0.6 (1)

Global PENGUIN Phase 3 program with filgotinib in PsA

In December 2019, Gilead dosed the first patient in the PENGUIN Phase 3 program in PsA. The PENGUIN program

investigates the efficacy and safety of 100 mg and 200 mg filgotinib once-daily compared to placebo. PENGUIN 1

will compare the efficacy and safety of filgotinib, adalimumab, and placebo in approximately 1000 patients with

active PsA who are naive to bDMARD therapy. PENGUIN 2 will measure efficacy and safety of filgotinib vs placebo

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

in 390 patients with active PsA who have an inadequate response or are intolerant to bDMARD therapy. The

primary endpoint of each trial is ACR20 response at Week 12, with multiple secondary endpoints on signs and

symptoms of PsA up to week 24 in PENGUIN 1, and week 16 in PENGUIN 2.

Other indications with filgotinib

Ankylosing spondylitis (AS)

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

across the globe, affecting nearly 2 million patients in the U.S., Europe, and Japan in 2018. The total market for AS
treatments was worth $3 billion in 2018 in the seven major markets.9

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 moderate to severe 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).

We expect that our collaboration partner Gilead will initiate a Phase 3 program with filgotinib in AS during the

course of 2020.

Additional indications

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

erythematosus, lupus membranous nephropathy, and uveitis. In 2019, Gilead reported completion of the trials

in Sjögren's disease and cutaneous lupus erythematosus, and that they are no longer recruiting for lupus

membranous nephropathy.

9 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Our fibrosis portfolio

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. Last year we expanded clinical research into SSc, and we plan to explore additional fibrotic indications

with our earlier stage compounds. At the time of publication of this report, it was decided to temporarily pause

the start of Phase 1 studies, given de COVID-19 pandemic.

Our IPF portfolio and expected clinical development in 2020:

Building an IPF & fibrosis portfolio
Two toplines in H2 ’20, ISABELA futility in Q1 ‘21

program

preclinical

phase 1

phase 2

phase 3

next steps

‘1690 (autotaxin) ISABELA IPF

‘1205 (GPR84) PINTA IPF

‘1690 NOVESA SSc

New programs

Status end ‘19

Status end ’20 (projected)

futility Q1 ‘21

topline H2 ‘20

PCC 2020

About IPF

IPF is a chronic, relentlessly progressive fibrotic disorder of the lungs that typically affects adults over the age of
40. In 2018, 232,000 patients were diagnosed with IPF in the U.S., EU5 and Japan,10 and this population is expected
to grow, in part thanks to improved diagnosis. Furthermore, prevalence is expected to increase with the aging

population and worsening air pollution. The clinical prognosis of patients with IPF is poor, as the median survival

at diagnosis is two to four years. Currently, no therapies have been found to cure or stop the progression of IPF.

The current 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 Esbriet (marketed by Roche/Genentech) and Ofev (marketed by Boehringer

Ingelheim) 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 $2.1 billion in 2018.11 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 and 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.

10 Sources: Decision Resources Group, Global Data, Galapagos Custom Research
11 Sales figures from Roche (pirfenidone; Esbriet®) and Boehringer Ingelheim (nintedanib; Ofev®)

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

We estimate that the market of approved IPF drugs could grow to $5 billion by 2025.

Our IPF trials

GLPG1690

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

(ATX), for which Gilead in-licensed ex-European rights in July 2019 and which is currently in Phase 3.

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

We identified ATX as a potential target for IPF, after finding the target using an inflammation assay in our target

discovery platform. 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.

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. A publication by Palmer et al. published

in Chest in 2018 on the Phase 2 trial data with BMS-986020, a high-affinity LPA1 antagonist developed by Bristol

Meyers Squib, showed that BMS-986020 had activity in reducing loss of Forced Vital Capacity in mL (FVC) in

IPF patients. LPA1 acts downstream of autotaxin in the biology of IPF, supporting further evaluation of ATX

inhibition.

In the course of 2019, BMS published data from the Phase 2 trial with BMS-986020 demonstrating that this

compound slowed the rate of FVC decline in a dose-dependent manner, with significance versus placebo. The

study was terminated due to off-target effects linked to the compound. However, the reduction in slope estimate

over 26 weeks (shown below) indicates that this pathway may be effective in impacting the course of IPF and

further validates our approach with GLPG1690.

BMS validation of ATX pathway in patients

Slope estimate over 26 weeks (mL)

placebo

BMS-986020
600mg QD

BMS-986020
600mg BID

N=48

*p<0.05

N=48

N=47

-40

-80

-120

-160

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

randomized, double-blind, placebo-controlled trial in 23 IPF patients investigated a once-daily 600 mg oral dose

of GLPG1690 or placebo of whom 17 received GLPG1690 and six received placebo. The primary objectives of the trial

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

included the assessment of 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 600mg

FU: follow-up

FU
N=4
N=15

* p<0.05

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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

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

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

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

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 FLORA trial. Rates of discontinuation due to

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

The full FLORA results were published in The Lancet Respiratory (Maher et al. 2018).

Following the encouraging results from the FLORA trial, 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 continue on their standard of care and are randomized

to one of two doses of GLPG1690 or placebo. The primary endpoint is the rate of decline of FVC (in mL) until

week 52. Secondary assessments 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 2019

RESEARCH & DEVELOPMENT

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

▪ 1,500 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 Week 52
▪ Secondary endpoints: hospitalizations, mortality, quality of life, safety/tolerability

First patient dosing in ISABELA was announced in December 2018, and as of early 2020, nearly all centers were

opened and >800 patients were randomized. We announced that a futility analysis for the ISABELA program is

expected to read out in Q1 2021.

Since closing of our collaboration agreement with Gilead in 2019, Galapagos and Gilead share the costs for

ISABELA 1 & 2. Galapagos will be responsible for commercial sales of GLPG1690 in Europe, should the candidate be

approved; Gilead will be responsible for all commercial activities ex-Europe. See also further details on the Gilead

collaboration in the Notes to the consolidated financial statements.

GLPG1205

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

GLPG1205 is a 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 100mg 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

took place in Europe and the Middle East.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

PINTA Phase 2 in IPF

26 weeks

‘1205, 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 Week 26
▪ Secondary endpoints: safety, tolerability, broad range of measurements, incl. FRI
▪ Recruitment in Europe & Middle East

The first patient dosing was announced in October 2018, and recruitment was completed in early 2020, with

topline results from this trial expected in H2 2020.

Our fibrosis trials

Systemic sclerosis (SSc)

SSc is a severe autoimmune disease. One of the most visible manifestations is hardening of the skin. In 2018,
135,000 patients were diagnosed with SSc in the U.S., EU5 and Japan.12

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

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

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

organs, such as the lung. SSc has one of the highest mortality rates among rheumatic diseases.

Currently, there are no approved disease-modifying drugs to treat this disease. Hence, SSc represents a significant

unmet medical need. Current standard of care mainly consists of immunosuppressive drugs and other symptom-

alleviating therapies such as methotrexate or cyclophosphamide, and aims to avoid cutaneous fibrosis, interstitial

lung disease and renal crisis.

Early 2019, we initiated the NOVESA trial, a double-blind, placebo-controlled Phase 2a trial evaluating the efficacy,

safety and PK/PD of GLPG1690 in up to 30 patients with diffuse cutaneous SSc.

We have received orphan drug designation for GLPG1690 in SSc from the FDA and the European Commission.

NOVESA Phase 2a in SSc

4 weeks

screening

24 weeks

‘1690, 600mg oral once daily (n=20)

placebo (n=10)

12 weeks

follow-up

12 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

▪ 30 patients with progressive diffuse (multi-organ) SSc
▪ Recruitment in U.S. & 5 EU countries
▪ Primary endpoint: modified Rodnan Skin Score at week 24
▪ 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 week 24. 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.

We completed recruitment for NOVESA in December 2019 and expect topline results in H2 2020.

Our fibrosis partnerships further strengthen the fibrosis pipeline

In January 2019, we announced a global collaboration with Fibrocor focused on a small molecule inhibitor

program (in the lead optimization phase) against a novel target for IPF and other indications. We are responsible

for the further development and commercialization of the program. In January 2020, we further expanded our

collaboration with Fibrocor under which we received an exclusive option to in-license a total of four additional

novel target programs after they reached the lead optimization phase.

In February 2019, we announced a global collaboration with Evotec focused on a novel small molecule program

(in preclinical development) for the treatment of fibrotic diseases of the liver and other organs. Under the terms

of the agreement, we are responsible for the further development and commercialization of the program.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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. In 2018, about 93 million patients were diagnosed
with OA in the U.S., EU5 and Japan.13

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 are formed which 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 years. 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 the age of 85. Current treatments for

OA include weight loss, physical therapy, pain and anti-inflammatory medicines, and surgery, all of which only address

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 OA patients.

In a Phase 1b trial in OA patients in the U.S., GLPG1972 reduced the ARGS neo-epitope, 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

medium dose

high dose

days post-dosing

13 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Based on 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.

ROCCELLA Phase 2b trial

screening

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 week 52
▪ Secondary endpoints: 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 OA. 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 is running 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 and Servier completed recruitment of ROCCELLA in June 2019, and we expect topline data in H2 2020.

Under the terms of agreement with Servier, we are eligible to receive milestones and single-digit royalties on

potential commercial sales by Servier for GLPG1972. Gilead has an option to in-license the U.S. commercial rights

for GLGP1972 following completion of the ROCCELLA trial. See also further details on the collaboration with Gilead

in the Notes to the consolidated financial statements.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

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 this class.

Below are the results for Toledo compound, GLPG3970, in two preclinical models, each demonstrating a different

mechanism of arthritis:

Efficacy in arthritis models with ‘3970

CIA model

***

100

-50

PsA model
IL-23-induced

***

)
4
4
D
-
7
D

(

C
U
A
e
r
o
c
s

a
c
i
n

i
l
c

400

300

200

100

-100

)
7
4
D
-
2
3
D

(

C
U
A
e
r
o
c
s

a
c
i
n

i
l
c

diseased

‘3970

diseased

‘3970

***p < 0.001

Robust efficacy demonstrated across preclinical models of arthritis

Source: internal data on file

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.

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 healthy volunteers. Later in the year we announced

the start of a Phase 1 trial with the second Toledo compound, GLPG3970. We expect to launch multiple proof-of-

concept patient trials in the second half of 2020 and expect to report topline data from our first patient study

towards the end of the year.

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 compound, GLPG3312, has delivered promising preclinical results in IBD,

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

RA, Pso, PsA, SLE, and Fib. The second generation compound, GLPG3970, has shown promising preclinical results

in IBD, RA, Pso, SLE, OP and Fib. The third-generation compound, GLPG4399, has shown promising results in RA

and Pso, with preclinical readouts in SLE, OP, and Fib expected in the course of 2020. A fourth and fifth generation

are currently in the lead optimization (LO) stage. At the time of publication of this report, it was decided to

temporarily pause the start of Phase 1 studies, given de COVID-19 pandemic.

Our Toledo development strategy

▪ Develop multiple candidates across different profiles
▪ Test in broad panel of in vivo disease models
▪ Run multiple PoC trials in patients in parallel to maximize potential

Toledo: robust activity in in vivo models

IBD

Pso

PsA

SLE

Fib

PanTOL

‘3312

TOL2/3

‘3970

TOL3

‘4399

4th gen

5th gen

2020

Green: preclinical activity; orange: insufficient preclinical activity
IBD: inflammatory bowel disease; RA: rheumatoid arthritis; Pso: psoriasis; PsA: psoriatic arthritis; SLE: systemic lupus erythematosus; OP: osteoporosis; Fib: fibrosis

Gilead has an option to in-license the ex-European commercial rights to each of the Toledo molecules following

completion of Phase 2 trials. See also further details in the Notes to the consolidated financial statements.

Galapagos NV • Annual Report 2019

RESEARCH & DEVELOPMENT

Early, deep pipeline

Beyond our Toledo programs, we continue to invest in our early stage pipeline that we built from our pool of

validated targets and that we are advancing toward clinical development. Within our early stage portfolio, 15

programs are in lead optimization, five programs are evaluated in preclinical proof-of-concept studies and five

are in Phase 1 development. Three molecules are part of our Toledo portfolio. In addition to targets and molecules

in RA, IBD and fibrosis, we are exploring new modes of action in AS, PsA, AtD, lupus, nonalcoholic steatohepatitis,

type 2 diabetes, hepatitis B, osteoarthritis, and polycystic kidney disease.

Galapagos NV • Annual Report 2019

30validated targets15programs in LO5Ph1 programs‘4471 – inflammation ‘4399 – inflammation ‘4259 – inflammation ‘4124 – fibrosis‘4059 – metabolic‘3312 – inflammation ‘3970 – inflammation ‘3667 – inflammation‘555 – inflammation ‘2737 – kidney disease5PCCsRESEARCH & DEVELOPMENT

Other partnered programs

MOR106

MOR106 is a human monoclonal antibody designed to selectively target IL‑17C. We discovered IL-17C as a target for
atopic dermatitis (AtD) and it 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 arose 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.

In October 2019, Novartis, MorphoSys and Galapagos jointly announced the end of the clinical development

program of MOR106 in atopic dermatitis. The analysis of the program detected a low probability to meet the

primary endpoint of this study. The decision was based on a lack of efficacy and not on safety concerns.

On 17 December 2019, Novartis sent us a termination notice, informing us of its decision to terminate the

agreement in its entirety. The notice period for such termination is still ongoing, but we expect that such

termination will become effective later this year.

CF program

Cystic fibrosis (CF) is a rare, life-threatening, genetic disease affecting the lungs and the digestive system, with
66,000 patients being diagnosed with CF in 2018 in the U.S., EU5 and Japan.14

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 is responsible for all future activities and bears all costs associated with the portfolio in CF going forward.

We are eligible to receive up to $175 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.

14 Sources: Decision Resources Group, Global Data, Galapagos Custom Research

Galapagos NV • Annual Report 2019

Risk factors

Description of the risks of which
investors should be aware

Pioneering for patients

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, GLPG3312, GLPG3970, GLPG3667,

GLPG0555 and GLPG2737. Filgotinib is currently under regulatory review for approval in the United States (priority

review), Europe and Japan for the treatment of RA and is not approved anywhere globally. In addition, we are

heavily investing in our early stage product pipeline, including our Toledo early stage compounds, and these drug

candidates must undergo rigorous preclinical and clinical testing, the results of which are uncertain and could

substantially delay or prevent the drug candidates from reaching the market.

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. 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, the MHLW 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

has lack of 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

Galapagos NV • Annual Report 2019

RISK FACTORS

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.

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, the MHLW 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.

Filgotinib, if approved, may have a labeling statement warning for male patients. In preclinical studies, filgotinib

induced adverse effects on the male reproductive system. Adjacent to the filgotinib Phase 3 programs, we and

Gilead are conducting dedicated male semen analysis studies in CD and UC patients (MANTA) and in RA, PsA, and

AS patients (MANTA-RAy).

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 lose orphan product exclusivity for GLPG1690, or are not able to 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 2019

RISK FACTORS

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, and with the exception of the year 2019, 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 cannot be sure to generate

revenues from sales of products as none of our products in development have been approved yet. 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 may 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.

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 are heavily dependent upon our collaboration arrangements with Gilead and certain other third parties for

the development and commercialization of our products and there can be no assurance that these arrangements

will deliver the benefits we expect.

In July 2019, we entered into a 10-year global research and development collaboration with Gilead. In connection

with our entry into the option, license and collaboration agreement, we received an upfront payment of

$3.95 billion and a €960 million ($1.1 billion) equity investment from Gilead. Under the option, license and

collaboration agreement, we will fund and lead all discovery and development autonomously until the end of the

relevant Phase 2 clinical study. After the completion of the Phase 2 clinical study (or, in certain circumstances,

the first Phase 3 study), Gilead will have the option to acquire an exclusive commercial license to that program

in all countries outside of Europe. If the option is exercised, we and Gilead will co-develop the compound and

share costs equally. In addition, we are heavily dependent on Gilead for its further development of our product

candidate filgotinib. In connection with entering into the option, license and collaboration agreement in July

2019, we amended certain terms of our existing agreement with Gilead governing filgotinib. These arrangements

are fundamental to the achievement of our strategy and there can be no assurance that they will deliver the

benefits we expect. Gilead may not devote sufficient resources or give sufficient priority to the programs in

respect of which it acquires a commercial license pursuant to the option, license and collaboration agreement

or to the filgotinib program. Furthermore, Gilead may not be successful in the further development and

commercialization of filgotinib or other programs for which it acquires a commercial license, even when they do

devote resources and prioritize their efforts for such programs.

Galapagos NV • Annual Report 2019

RISK FACTORS

In addition, the terms of the collaboration with Gilead and any collaboration or other arrangement that we

may establish may not ultimately prove to be favorable to us or may not be perceived as favorable, which may

negatively impact the trading price of the ADSs or our ordinary shares. In addition, pursuant to the collaboration

with Gilead, we are entitled to certain option payments and tiered royalties, and milestone payments on certain

products. There can be no assurance that such payments will be sufficient to cover the cost of development of

the relevant product candidates.

We are subject to a number of additional risks associated with our dependence on our collaborations with

third parties, the occurrence of which could cause our collaboration arrangements to fail. In particular, the

collaboration we entered into in July 2019 is managed by a set of joint committees comprised of equal numbers

of representatives from each of us and Gilead. Conflicts may arise between us and Gilead, such as conflicts

concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial

provisions or the ownership of intellectual property developed during the collaboration, and there can be no

assurance that the joint committees will be able to resolve any such conflicts. If any such conflicts arise, Gilead

could act in a manner adverse to our best interests. Any such disagreement could result in one or more of the

following, each of which could delay or prevent the development or commercialization of product candidates

subject to the collaboration arrangements, and in turn prevent us from generating sufficient revenues to achieve

or maintain profitability:

▪ reductions or delays in the payment of milestone payments, royalties or other payments we believe are due;
▪ actions taken by Gilead inside or outside our collaboration which could negatively impact our rights or

benefits under our collaboration including termination of the collaboration for convenience; or

▪ unwillingness on the part of Gilead to keep us informed regarding the progress of its development and
commercialization activities or regulatory approval or to permit public disclosure of the results of those

activities.

In addition to our collaboration with Gilead, we have a collaboration with Servier for GLPG1972, which will also be

subject to the aforementioned risks. We may also enter into future collaborations which will give rise to similar

risks, although our ability to enter into such collaborations may be limited given the scale of our collaboration

with Gilead.

If our global research and development collaboration with Gilead or other collaborations on research and

development candidates do not result in the successful development and commercialization of products or if

Gilead or another one of our collaboration partners terminates its agreement with us, we may not receive any

future research funding or milestone or royalty payments under the collaboration. If we do not receive the

funding we expect under these agreements, our development of our product candidates could be delayed and we

may need additional resources to develop product candidates.

We may not be successful in establishing future development and commercialization collaborations, particularly

given the scale of our collaborations with Gilead, and this could adversely affect, and potentially prohibit, our

ability to develop our product candidates.

Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing

manufacturing capabilities and marketing approved products are expensive. Accordingly, we have sought and

may in the future seek to enter into collaborations with companies that have more resources and experience.

In the future, however, our ability to do so may be limited given the scale of the 10-year global research

and development collaboration that we entered into with Gilead in July 2019. If Gilead declines to exercise its

option and we are otherwise unable to obtain a collaboration partner for our product candidates, we may be

unable to advance the development of our product candidates through late-stage clinical development and

seek approval in any market. In situations where we enter into a development and commercial collaboration

arrangement for a product candidate, we may also seek to establish additional collaborations for development

and commercialization in territories outside of those addressed by the first collaboration arrangement for such

Galapagos NV • Annual Report 2019

RISK FACTORS

product candidate. If any of our product candidates receives marketing approval, we may enter into sales and

marketing arrangements with third parties with respect to otherwise unlicensed or unaddressed territories.

Furthermore, there are a limited number of potential collaboration partners, and we expect to face competition

in seeking appropriate collaboration partners. If we are unable to enter into any development and commercial

collaborations and/or sales and marketing arrangements on acceptable terms, or at all, we may be unable to

successfully develop and seek regulatory approval for our product candidates and/or effectively market and sell

approved products, if any.

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. 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 2019

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 2019

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 are currently further building our 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 2019

RISK FACTORS

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.

Legal, political and economic uncertainty surrounding the planned exit of the U.K. from the European Union, or

EU, may be a source of instability in international markets, create significant currency fluctuations, adversely

affect our operations in the U.K. and pose additional risks to our business, revenue, financial condition, and results

of operations.

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, France and the Netherlands, we have benefited from

certain research and development incentives. If the Belgian and/or the French and/or the Dutch 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.

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 effective rate than other revenues. The effective tax rate can thus be reduced up to 4.4% (3.75%

as of 1 January 2020). At the end of 2019 we had €224.7 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. In 2019 we have also received

a grant from the National Institute for Health and Disability Insurance. 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.

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

Galapagos NV • Annual Report 2019

RISK FACTORS

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.

Our business may be adversely affected as a result of computer system failures. We may suffer data leaks or

become the target of cyber-attacks, as a result of which our financial assets, confidential information and/or

intellectual property may be materially negatively impacted. We may not be able to successfully protect our

computer systems against unauthorized access by third parties.

In order to successfully commercialize and market our products in the future, we may need to implement

additional enterprise resource management systems, which is a complex process that may cause us to face delays.

We may also need to implement computer systems, such as additional global enterprise research systems, or ERP

systems, in which we have limited experience and which may prove a complex process that could cause delays in

our commercialization process.

The occurrence of unforeseen or catastrophic events, including extreme weather events and other natural

disasters, man-made disasters, or the emergence of epidemics, depending on their scale, may cause different

degrees of damage to the national and local economies and could cause a disruption in our operations and have a

material adverse effect on our financial condition and results of operations. Man-made disasters, pandemics, and

other events connected with the regions in which we operate could have similar effects. For example, the impact

of COVID-19 on our business is uncertain at this time and will depend on future developments, but prolonged

closures may disrupt our operations and the operations of our agents, contractors, consultants or collaborators,

which could negatively impact our business, results of operations and financial condition. Further, uncertainty

around these and related issues could lead to adverse effects on the economy of the United States and other

economies, which could impact our ability to develop and commercialize our products and raise capital going

forward.

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.

Galapagos NV • Annual Report 2019

RISK FACTORS

▪ 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 2019

CSR report

Improving lives

Pioneering for patients

CSR REPORT

Our commitment

Our commitment to Corporate Social Responsibility (CSR) is intrinsically linked to our core mission: to discover

and develop novel modes of action medicines for diseases with large unmet medical needs, primarily in

inflammation and fibrosis, with the aim to improve the lives of patients worldwide.

On a daily basis, our goal is to make a valuable and sustainable contribution to society with our discovery,

clinical development and commercialization efforts. Filgotinib, GLPG1690, GLPG1205, and GLPG1972 are clinical

examples of how our approach to finding novel medicines may be able to make a difference for patients in

a range of disease areas. Our unique target discovery approach addresses the root cause of the disease rather

than just treating the symptoms, and we have a substantial, growing pipeline of novel candidate medicines in

inflammation, fibrosis and beyond. In this way, we aim to make a sustainable positive contribution to society.

We and our collaboration partner Gilead expect to receive approval for our first innovative product, filgotinib in

RA, in the U.S., Europe, and Japan in 2020, and make it available to patients worldwide.

Implementing our CSR initiatives

Since our foundation 20 years ago, we focus on the discovery and development of innovative medicines to treat

severe diseases with high unmet medical needs.

Based on our core mission, in 2018, we defined the four material aspects of our corporate responsibility and

sustainability efforts through engaging with internal and external stakeholders across our different locations.

These material aspects help us to identify and prioritize the sustainability issues that matter most to our business

in terms of growth, risk and goals, and to our stakeholders, including patients, investors, analysts, employees and

suppliers. The four material aspects have remained the four pillars that defined our CSR strategy and action plans

in 2019 and ensure that we report on the most interesting and relevant matters. We also regularly re-evaluate the

reporting aspects for materiality to ensure they continue to be current and complete.

Galapagos NV • Annual Report 2019

CSR REPORT

The four priority topics and material CSR aspects that we put
forward are:

Improving people’s lives

▪ Science and innovation management
▪ Building partnerships to bring innovation to patients
▪ Access to our candidate medicines

Go to chapter, page 74

Our employees are the strength behind Galapagos

▪ Building a strong corporate culture
▪ Human capital management
▪ Employees engagement

Go to chapter, page 80

Conducting business ethically and responsibly

▪ Manage our operations with ethics and integrity
▪ Our Code of Business Conduct and Ethics

Go to chapter, page 87

We care about the environment, health and safety

▪ Environmental policy
▪ Eco-efficient operations
▪ Employee well-being

Go to chapter, page 90

To standardize our data collection, we use the Sustainable Development Goals (SDGs), also known as the Global

Goals, as our reference framework to link the material aspects to our areas of engagement. The SDGs were adopted

by all United Nations Member States in 2015 as a universal call to action to end poverty, protect the planet and

ensure that all people enjoy peace and prosperity by 2030. This CSR report provides the non-financial information

required by articles 96 § 4 and 119 § 2 of the Belgian Companies Code (and as from 1 January 2020, articles 3:6 §

4 and 3:32 § 2 of the New Belgian Companies Code). For a discussion on risks, please see the section called Risk

Factors in this Annual Report.

Galapagos NV • Annual Report 2019

CSR REPORT

We have identified eight key SDG goals where we believe we can make a difference. The table below links our

material aspects and engagement areas to selected aspects of the SDG framework:

Good health and well-being
Health and improving lives

through our breakthrough

medicines are at the core of what

we do

Gender equality
We cultivate a corporate culture

where we strive for gender equality

Industry, innovation and

infrastructure
Our mission is to bring innovative

medicines to patients suffering

from severe diseases in areas of

high unmet medical needs in a

social and sustainable way

Climate action
We value our planet and take

initiatives to safeguard the

environment and incorporate

greener practices across our

organization

Quality education
We invest in our employees and

foster an inclusive, open and

supportive work environment

across our seven locations in

Europe and the U.S.

Decent work and economic

growth
We celebrated our 20th anniversary
as a company and currently

employ >1,000 people across our

seven locations in Europe and the

U.S.

Reduced inequalities
We aim to develop a balanced

workforce across a number of

criteria, including gender,

nationality, ethnicity, experience

and disability

Partnerships for the goals
We embrace internal and external

partnerships to work towards our

mission to bringing much needed

innovation to patients

As part of our commitment to CSR, we monitor new developments and practices and will consider implementing

new priority goals that could further enhance our CSR activities in the future. In addition, we recently engaged

a dedicated Learning & Talent specialist, who will further streamline our CSR initiatives and ensure our CSR

strategy is executed successfully throughout the group, with a key focus on diversity and human capital

management.

Our commitment and areas of engagement are described below in the discussion of the four materials aspects,

which are also linked to the eight SDGs that we consider important to the company.

Galapagos NV • Annual Report 2019

CSR REPORT

Material aspect 1: Improving people’s lives

We strive to discover, develop, and eventually commercialize breakthrough medicines with novel modes of action,

addressing disease areas of high unmet medical need. At the core of our mission is the improvement of the lives

of patients suffering from severe diseases with medicines that offer novel treatment options.

We are pioneering for patients.

Our broad product pipeline comprises programs ranging from discovery to Phase 3 clinical trials in inflammation,

fibrosis, osteoarthritis, and other indications. Together with our collaboration partner, Gilead, we are currently

in the registration phase for filgotinib in RA. An NDA was submitted to the regulatory authorities in the U.S.,

Europe and Japan in 2019, and if approved, we expected to launch filgotinib in 2020, providing an important new

treatment option for RA patients worldwide.

There is a real need for medicines with novel mechanisms of action that address the underlying cause of disease.

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 patient outcomes. New mechanism of action medicines offer

the opportunity for alternative new clinical options for caregivers and patients. At the same time, they potentially

decrease the burden for society, including by lowering healthcare costs.

We create value through science

Work at Galapagos, visit www.workatgalapagos.com

Our highly flexible target and drug discovery platform has been applied across many therapeutic areas, and our

deep pipeline today covers a range of diseases, with a focus on inflammation and fibrosis candidate drugs across

all stages of development. Pending potential approval, we expect to make our first product available to patients

with RA during the course of this year.

We think big

Work at Galapagos, visit www.workatgalapagos.com

Galapagos NV • Annual Report 2019

CSR REPORT

R&D goal – Maintaining an active portfolio of around 30 projects

We continue to invest heavily in R&D and aim to initiate a Phase 3 trial every other year, while conducting at

least three to four proof-of-concept trials, delivering at least three preclinical product candidates and at least six

new validated targets annually. The impact of the ongoing COVID 19 pandemic on our R&D efforts at the time of

publication of this report is described here.

€427M

Research and
Development
Expenses in 2019
+32% vs 2018

Based on our powerful drug discovery engine, we are building a deep, early pipeline of novel product candidates

to ensure continued innovation, with potential benefits to patients, healthcare professionals and society.

Galapagos NV • Annual Report 2019

NEWTARGETSPRECLINICALCANDIDATESPROOFS-OF-CONCEPTPHASE 3STARTevery yearevery yearevery yearevery 2 yearsCSR REPORT

We aim to select promising programs for internal development and commercialization and establish ourselves as

a fully integrated biopharmaceutical company. With filgotinib and its potential for five launches in the next four

years, we are well on track to deliver innovative medicines to patients. At the time of publication of this report, it

was decided to pause the recruitment of ongoing filgotinib trials in connection with the coronavirus pandemic.

Filgotinib: potential for 5 launches in next 4 years

RA: rheumatoid arthritis CD: Crohn’s disease UC: ulcerative colitis AS: ankylosing spondylitis PsA: psoriatic arthritis

Galapagos NV • Annual Report 2019

Accelerating innovation through collaborations

We have a number of collaborations with leading pharmaceutical companies to significantly enhance our

R&D efforts and pursue innovation to the benefit of patients. We are very proud of the transformative R&D

collaboration with Gilead that we entered into in 2019. This collaboration should enable us to substantially boost

our pipeline of novel product candidates.

To further strengthen our fibrosis pipeline, in 2019, we entered into collaborations with Fibrocor and Evotec, to

jointly work on innovative approaches to treat severe fibrotic diseases.

We evaluate new opportunities to add to our pipeline on a continuous basis in order to bring innovation to

patients.

Access to our candidate medicines

In pursuit of the development and commercialization of novel medicines that have the potential to improve

people’s lives, we encourage patients to participate in clinical trials whenever possible. These clinical trials are

critical to gather the information (or data) needed to evaluate investigational products and seek their approval

by health authorities, such as the FDA and the EMA.

Information about ongoing clinical trials for our investigational drugs is available on clinicaltrials.gov, a service

of the U.S. National Institutes of Health that provides details on clinical trials conducted worldwide.

Next to the information on clinicaltrials.gov, there are several patient information portals where more

information regarding Galapagos related Phase 3 studies can be found. For instance, as sponsor of the Phase 3

study with GLPG1690 in IPF, Galapagos has launched the ISABELA information portal.

ISABELA, innovative program in IPF

Largest IPF
program thus far

Assesses efficacy & safety
in real world setting

Controlled data on
medically-relevant, hard
endpoints like changes in
FVC, mortality rates,
respiratory-related
hospitalizations and PROs

Large safety dataset
in 1500 patients
over 52 weeks or longer

Our partner Gilead launched study information portals regarding the Phase 3 studies with filgotinib in Crohn's

disease (DIVERSITY) and ulcerative colitis (SELECTION).

In some rare cases, patients are unable to participate in clinical trials and have exhausted all available treatment

options. In these cases, Galapagos has a policy in place to assess whether the investigational product can be

offered to a patient 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.

Galapagos NV • Annual Report 2019

CSR REPORT

Actions in 2019

▪ We delivered 6 new validated targets, compared to our goal of 6
▪ We nominated 3 new preclinical candidates, all with a novel mechanism of action, compared to our

goal of 3

▪ We conducted 6 proof-of-concept trials, compared to our goal of 6
▪ We conducted >30 clinical trials involving >1,800 patients and healthy volunteers
▪ We submitted 1 product candidate (filgotinib) for regulatory review in the U.S., Europe and Japan,

compared to our goal of 1

▪ We received 220 inquiries to our Medical Info portal, of which the large majority requested more

information on inclusion in the ISABELA trials with GLPG1690

These successes brought us to 44 preclinical candidates since 2009, most of which have novel modes of

action. Of these 22 have entered the clinic, 16 of which with novel modes of action.

Future ambitions

▪ Continue to focus on innovation and further expand R&D capabilities to support the planned clinical

trials in 2020

▪ Fully recruit the ISABELA trials with GLPG1690
▪ Report topline results of ongoing clinical trials in UC, IPF, SSc and OA
▪ Start a Phase 3 trial in AS with filgotinib together with Gilead
▪ Further broaden our R&D efforts beyond inflammation and fibrosis, including metabolic and kidney

diseases with high unmet medical needs

▪ Invest in our target discovery capabilities, in order to broaden our pool targets, which in turn, should

deliver more validated targets and proof-of-concepts on a yearly basis
▪ Continue to seek win-win collaborations to bolster the early-stage pipeline
▪ Pending potential approval, we expect to launch our first innovative product, filgotinib in RA in the

U.S., Europe and Japan, with collaboration partner Gilead

▪ Continue the build-out of a European commercial organization to bring innovation to patients in

need for breakthrough medicines

4412 1622preclinical candidatesentered clinicnovel modes of actionnovel modes of action in patient studiesCSR REPORT

Expand our target & drug workspace

6,000+

Drugable by
small

molecules

GLPG
2019

GLPG
2025

20,000+

Protein-encoding
genes

In order to increase our chances to find novel targets, we will expand our target workspace, and not only

use the selected pool of 6,000 drugable genes, but the complete protein-coding genome of over 20,000

genes.

€5.78B

Current Financial
Investments, cash
and cash equivalents
at end 2019
A strong balance sheet
to ensure future
growth

CSR REPORT

Material aspect 2: Our employees are the strength
behind Galapagos

Attracting, developing, and retaining human capital is key to our success in developing novel mechanism of

action drugs that can make a difference for patients. The key to achieve this is to make Galapagos the coolest

place to work.

‘Make it Happen’ is core to our corporate culture and we continue to make sure this aspect is protected and

managed as we continue to grow as an organization.

We are dedicated to ensuring diversity of our workforce and are committed to foster an inclusive, open and

supportive work environment across our locations in Europe and the U.S.

With the goal to execute multiple clinical trials in 2020 and the anticipated commercialization of our first

product, our organization continues to expand, build capability and expertise, and we are committed to

maintaining our corporate DNA.

Gender Equality

We strive for gender equality across multiple dimensions, including talent attraction, female leadership and

talent pipeline development, equal pay and gender pay parity, instilling an inclusive culture, and rigorous

implementation of sexual harassment policies. We are committed to supporting gender equality through policy

development, representation, and transparency.

For example, in February, we celebrated the International Day of Women and Girls in Science, endorsing equal

access to, and participation in science for women and girls. The talent and dedication of the 60% of our R&D

colleagues who are women is essential to helping patients now and in the future.

Galapagos is proud to be included the 2020 Bloomberg

Gender-Equality Index
The list encompasses 325 companies headquartered in

42 countries and regions, across 11 sectors

Galapagos NV • Annual Report 2019

CSR REPORT

Diversity

We aim to continue to develop an inclusive and diverse workforce as our business further grows and evolves

towards an integrated, global biopharma company. We strive for diversity across gender, nationality, ethnicity,

experience level, and disability.

But no matter how diverse we are, we all have the same purpose of pursuing medical breakthroughs to improve

people’s lives.

Our group in numbers
Number of employees Galapagos group

1,003

392
men

gender:

education:

611
women

138
other

283
PhD

203
Bachelor

379
Master

Average age:

Number of employees
older than 45:

359

Nationalities:

Average years of service:

Employee turnover:

New hires in 2019:

4.6

5.6%

279

Board of directors

5
men

3
women

Galapagos NV • Annual Report 2019

CSR REPORT

▪ Our board of directors currently comprises eight members of whom three are female (we refer to the section

Board of directors of our Annual Report 2019 for further information on each board member)

▪ We attracted 279 new employees in 2019, an increase of 38% versus 2018
▪ We continue to attract people with various backgrounds and now have 39 different nationalities within the

Galapagos group

Human capital management

At Galapagos, we believe our strong culture is critical to our business success. Our spirit of challenging ourselves

without fear of failure underpins our work. While this bold attitude is naturally in our DNA – and we recruit

exceptional people who are the right fit – we have defined our culture in a behavioural framework.

▪ We act as a pioneer and are optimistic in our ambitions, motivated by innovation and attracted by the

unknown.

▪ We positively embrace change and adapt to circumstances. Failing on occasion doesn’t deter us; it’s how we

pick ourselves up that matters.

▪ We challenge ourselves and, in doing so, raise the bar of what is possible.
▪ Together, we want to create value and improve lives through science – and we find ways to make it happen.

As Galapagos grows and changes, and new people from different backgrounds join our adventure, we want to

ensure our culture evolves in the right way. We are developing structured, integrated systems and practices that

ensure we are all heading in the same direction on our path of discovery – because our culture transcends

everything we do.

We offer our employees the platform to grow, develop, fail, learn and succeed. Our ambitious business strategy

offers great opportunities to enhance skills & competencies with the aim to continue delivering innovative

science and breakthrough medicines. We honor our successes, whilst constantly raising the bar and allowing

room for trial & error to drive innovation. We encourage our people to take ownership, be entrepreneurial and

make a difference.

At Galapagos, we offer a competitive remuneration package that aims to reward, recognize, develop and retain

our employees in the most relevant way. We have policies in place to ensure the well-being of our employees and

offer different forms of leave and flexible working conditions to ensure a proper work-life balance.

We aim to ensure an inclusive, open, and supportive professional work environment across our international

locations. We organize regular engagement meetings across all our business units 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 long-time employees across the different sites.

We listen to our people through formal and informal channels established to ensure adequate anonymity and

psychological safety. Surveys are conducted to evaluate our actions, impact and agility of our people processes.

These and other indicators allow us to consider actions to optimize our work environment and enhance employee

experience.

Galapagos NV • Annual Report 2019

CSR REPORT

Our involvement with local communities and charities

We are approaching the moment that we bring our first drug to the market. Delivering innovative medicines to

transform patients’ lives is our ultimate goal.

We also want to be part of the community in which we work and live. Since 2018, that has been the idea behind

our annual Company Day, which includes tailor-made programs for each of the Galapagos sites, involving a range

of charity organizations.

Walk

One to one support

We walked with home care residents, active and

We participated in one-on-one activities organized by

dependent elderly people, and people with a disability.

care centers for the elderly and organizations that

fight against the exclusion of the most fragile people

in society (e.g. female victims of human trafficking,

handicapped people).

Visit

For the handy (wo)men

We visited residential care centers and helped

We painted, cleaned, baked pancakes, assembled

organizing a fun day-out for the residents.

furniture and organized other fun activities with

residents and care givers of centers for children and

adults with physical and mental disabilities.

Galapagos NV • Annual Report 2019

CSR REPORT

Entertainment

Be creative

We organized indoor and outdoor activities

for

We decorated the rooms and held a cooking workshop

residents of care centers for children and adults with

for emergency shelters that welcome people in need

disabilities and dementia.

and that help people to stay clear or get out of

prostitution.

Close to nature

In Montreuil, we cleared the wasteland, cleaned the

waste and prepared the soil for plantation. In the

first flower farm of Paris, we will grow young plants

together with the neighborhood residents in a local

greenhouse.

We promote a career in science

We actively engage in promoting science and a career in science. Each year, we organize company visits and

internships for high school and bachelor students at our sites in Leiden, Mechelen and Romainville. Especially

the internships offer students first-hand experience with working in a biopharma environment, show them how

scientific research has the potential to impact patients’ lives.

Galapagos NV • Annual Report 2019

CSR REPORT

Actions in 2019

▪ We engaged with local communities to ‘give back to society’
▪ We celebrated our 20th anniversary in July 2019 with our staff, partners and other stakeholders
▪ Our fast-paced growth has steered us to further improve our candidate-employee experiences, which
started with a revamped talent-scouting model. Insourced recruitment with a team of talent

acquisition and sourcing specialists was set up, raising the quality of our process to attract and assess

talent globally, and hire a diverse complementary mix of talents fitting well with the DNA of the

company

▪ We created a new global career site: ‘call for purpose’ to send the right message to candidates and
to make it more easy for potential talents to apply to interesting careers. We also refreshed our job

stand in line with our employer brand and participated in career fairs

▪ An onboarding application was deployed to handhold employees across ranks, to smoothly yet
effectively internalize the company values and set the tone to help them succeed in their roles.
▪ Following the Gilead transaction, we implemented a company-wide bonus plan to incentivize and

retain our employees and share in the success of the company

▪ 5.6% turnover of employees for the Galapagos group, excluding the termination of temporary and

consultancy contracts

▪ Our Rewards Centre of Expertise accomplished new avenues by establishing the Global mobility
teams to support our international hires. This has been a key step to support our commercialization

ambitions in the big 5 EU markets & Benelux

▪ There were extensive grading & benchmarking efforts to review & ensure that our total rewards
offerings were competitive and fair. We aimed to drive a collective mindset to achieve our ambitions

in a sustainable way

▪ Our performance management processes were enhanced to foster frequent dialogues between the
manager and direct reports as well as with peers. The clear intent to empower each employee, has

contributed to a smoother approach for personal growth and it has strengthened our culture to have

open and honest conversations to drive performance.

▪ 85% of all staff participated in the Performance Boost sessions to improve the quality and maturity
of performance & coaching conversations. In addition, an anytime feedback tool was entrusted to all

our employees to help them broaden their perspectives and sharpen their skills

Galapagos NV • Annual Report 2019

CSR REPORT

Future ambitions

Talent Acquisition: The focus on talent will become even more proactive. We are building talent
pipelines for now and the future, making sure our DNA remains intact. With growth in the markets, we

will also have our talent acquisition specialists support Local4Local hires, in alignment with our hiring

strategy & principles. We further aim to sharpen this axis by preparing interviewing guides for hiring

managers, by putting in place a referral program, by deploying focused employer branding initiatives in

the new operating countries.

Talent Development: Our ambition is to create opportunities for our leaders to role model key behaviors,
embody corporate values and create the context for their teams to excel. Several transformation

initiatives that are personal and leadership centric are envisaged to embark on agile and continuous

learning. The talent philosophy and strategy will be further clarified to better support our leadership and

teams towards collective capability enhancement. Internal Talent pipelines and succession plans will be

refined where appropriate to support the company growth.

Embracing Technology: We are embarking on a journey to adopt cutting edge and digital solutions to
boost candidate and employee experience. Deployment of empowering people processes by continuous

improvement and streamlining, investing in the scalability and consistency of our processes across the

whole organization will be instrumental to success.

Galapagos NV • Annual Report 2019

CSR REPORT

Material aspect 3: Conducting business ethically and
responsibly

At Galapagos, our core business is the discovery and development of drugs with novel modes of action, and we

prioritize ethical behavior in all its aspects.

We believe that ethical behavior is particularly important and inherent to our business: preclinical and clinical

testing, access to our investigational medicines through our clinical trials, expanded access to drugs currently in

development for patients who are not eligible to enroll in clinical trials, and our codes of ethical conduct.

To ensure our business is compliant with regulatory and corporate policies, and that we conduct business in an
ethical way, we have developed a Compliance and Ethics Program that is available on our company intranet.

Animal welfare in drug development

It is not possible to examine the complex interactions in a living organism solely by use of modeling and invitro

studies. In vivo studies remain essential in discovery, development and production of new medicines. Moreover,

regulatory authorities worldwide require that new products have been evaluated in both animals and humans in

order to ensure the quality, efficacy and safety of these products before granting approval.

However, Galapagos explicitly forbids animal neglect or cruelty. We have implemented practices that demonstrate our

commitment and responsibility to reduce and replace non-clinical testing involving use of animals to the extent possible,

and we will continue to promote and further implement alternative methods. For non-clinical development studies,

including those that assess efficacy and safety of our product candidates, we firmly stand behind the “Three Rs” strategy:

Refinement, Reduction, and Replacement. The 3Rs principle is based on the premise that animals should be used only if

a scientist’s best efforts to find a non-animal alternative have failed, and that when animals are needed, only the most

humane methods should be used on the smallest number of animals required to obtain valid information.

To illustrate this point, we make more frequent use of in silico (computer modelling) and in vitro (cellular testing)

designs and approaches. Examples are the implementation of DEREK software, invitro micronucleus assays to evaluate

genotoxicity, and in vitro hERG assays to evaluate cardiotoxicity. Other improvements include the implementation

of PCLS precision cut (liver /lung), imaging for longitudinal studies, the definition of humane endpoints, the review

of procedures by the ethical committees and animal welfare committees. Our focus on animal welfare triggers a

continuous improvement of, amongst others, the housing conditions of animals, accurate anesthesia or analgesia of

animals, refinement of euthanasia methods, better enrichment of the animal environment (food, games, social activities),

zootechnical registry reporting anomalies, and the use of statistical methods in order to reduce the number of animals.

In addition, we follow Directive 2010/63/EU in Europe with regards to animal 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 non-clinical testing, and we monitor animal welfare in the European laboratories we engage with on a regular

basis.

Galapagos NV • Annual Report 2019

CSR REPORT

We also follow the national regulations defining high standards for animal welfare for our internal studies in France

(GLPG internal facility) and Croatia (Fidelta internal facility). We systematically submit our projects to the National

Authorities for ethical approval, and are regularly inspected in order to maintain the highest accreditations.

Outside of the European Union, we require compliance with local animal welfare regulations in laboratories. In

the U.S., for example, we only work 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), as well as Good Pharmacovigilance Practice guidelines of the International Council

for Harmonisation. Our adherence to these internationally recognized guidelines ensures 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 and the EU Directive on Clinical Trials.

Furthermore, 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 trial subjects and patients will always supersede

those of science, commerce, as well as those of society.

Our trials are only initiated if they are scientifically and medically justified and when they are externally validated

by clinical experts. Moreover, they will always be reviewed by local health authorities and ethical committees before

initiation. Trial participants (or the legally authorized representative) must give written consent after being properly

informed of the trial, including of its 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 are taken when needed.

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 the 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, and at relevant scientific meetings and congresses. As a publicly listed company we also have the

obligation to communicate trial results by other means to the investor community, such as via press releases.

Galapagos NV • Annual Report 2019

CSR REPORT

Our code of business conduct and ethics

We have established a Code of Business Conduct and Ethics (the "Code”) that outlines the binding principles of business

conduct and ethical behavior that is expected from all our staff and third parties working on behalf of Galapagos.

Galapagos’ board of directors is responsible for administering the Code. The board of directors has delegated day-

to-day responsibility for administering and interpreting the Code to our General Counsel who has been appointed

as our Compliance Officer under this Code.

We expect our directors, officers and employees to exercise reasonable judgment when conducting our business.

We encourage our directors, officers and employees to refer to this Code frequently to ensure that they are acting

within both the letter and the spirit of this Code.

We expect our employees and third-party suppliers to conduct business with integrity, ethics and respect for

human rights. We expect them to turn away from conflicts of interest, corruption and fraud. Our Code of Business

Conduct and Ethics is a mandatory training and is available on our website: www.glpg.com/charters-and-codes.

Our suppliers are required to adhere to contractual terms that include anti-bribery and anti-corruption provisions. We

have a purchase policy in place that includes selection criteria for the qualification of our suppliers in line with CSR

aspects (and this ranges from, for example, no child labor to selecting coffee suppliers who work with respect for farmers

and the environment). Our general terms and conditions of purchase also contain a specific clause on anti-bribery and

anti-corruption, and we aim to implement a CSR questionnaire for hotels as part of our travel policy.

Actions in 2019

▪ With regard to animal welfare, we took initiatives and decisions that support our 3Rs philosophy, and

included this in our selection process for non-clinical partners

▪ 92% of our employees completed the training on our Code of Business Conduct and Ethics
▪ During the onboarding process, we emphasize the importance and compliance with our Code of

Business Conduct and Ethics

Future ambitions

▪ We will continue evaluating our procedures with regard to animal welfare by way of an internal

Galapagos Animal Welfare committee, for all our internal facilities

▪ The Animal Welfare committee reports directly to the CEO of Galapagos, and in addition to its

advisory role, will regularly organize audits to assess the animal study practices

▪ The task of the Animal Welfare committee is to further exchange and agree on best practices across
all sites, to develop key policies and SOPs, to define KPIs and monitor the effort and progress, and to

communicate on our ethical values, internally and externally

Galapagos NV • Annual Report 2019

CSR REPORT

Material aspect 4: We care about the environment,
health, and safety

Our mission is to bring innovative medicines with novel modes of action to patients suffering from severe diseases

in the most sustainable way and with respect for our planet. We are committed to safeguarding the earth 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 a strict set of laws and regulations related to the impact

on the environment, well-being of employees, safety, and management of laboratory waste. We perform internal

and external audits to monitor compliance with these rules and regulations.

We have implemented an Environmental, Health, and Safety (EHS) framework based on ISO 45001 and ISO 14001,

and have established an EHS group department responsible for the development of an annual action plan to

promote well-being and safety at work. Management guarantees the implementation of this action plan and our

EHS efforts are anchored in the shared responsibility of our staff to ensure a safe, healthy and environmentally

friendly work environment: every employee is responsible for protecting people and the environment in and

around his or her workplace.

We have no production sites, we do not own buildings, and our facilities have only minor environmental liabilities

such as waste handling and emissions from fume hoods. Nonetheless, we aim to reduce our environmental

impact further, for example by recycling and replacing paper by digital means to the extent possible.

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 on other relevant policies for conducting our business.

We also take practical initiatives to eliminate accidents and illness, and to provide a safe work environment and

business processes.

We have bikes at our facilities in Mechelen and Leiden for our employees who need to commute between the

buildings on site. We have implemented green car options in our company car fleet in Mechelen and expect the

green car options to be implemented in other sites as well to further stimulate our employees to select a company

car with low environmental impact.

Galapagos NV • Annual Report 2019

CSR REPORT

Actions in 2019

▪ We further established EHS key performance indicators for internal monitoring and external

reporting

▪ We implemented procedural documents for EHS processes (ProDocs) in waste management, chemical,

biological, and radiation safety

▪ We performed risk assessments in the biology and chemical labs in Mechelen and performed

workplace ergonomics assessments for the full site in Mechelen
▪ We performed risk assessments for individual biology labs in Leiden
▪ We implemented a new green, hybrid car policy in Mechelen
▪ We have bikes at our facilities in Mechelen and Leiden for transport between the buildings
▪ We implemented a shuttle service between the train station and our site in Mechelen that is free for

our employees

▪ There were no safety incidents reported, no recordable injury counts, no fatalities, and no days away

from work reported due to safety issues in 2019

▪ >80% of our staff completed a training on compliance on newly introduced QA and EHS ProDocs

Future ambitions

▪ We will implement four new corporate EHS goals related to the transport of hazardous goods,
emergency preparedness, competences measurement and management of collective and personal

protective equipment

▪ We aim to select new taxi and shuttle services in Belgium that comply with our environmental policy
▪ We are working on a contract with an electric cable supplier to make recharging car batteries

available for our employees

▪ We aim to execute on a workplace strategy to further optimize and improve the workspace at our

facilities across the different locations

▪ We are building new sites in Mechelen and Leiden:

▪ For which the design and concept take into account the various parameters that are being

assessed to obtain a Breeam and Well status;

▪ That will operate in an eco-efficient way (for example a green roof);
▪ That are located close to railway stations to motivate our employees to commute by public

transport

▪ In order to protect and increase the bee population, we aim to install beehives on the roof of our

building in Mechelen, and the beehives will be relocated to our new building in Mechelen

Galapagos NV • Annual Report 2019

CSR REPORT

CSR at Galapagos – Summary

Material Aspect 1: Improving people’s lives

SDG

Areas of engagement
▪ We are pioneering for patients and our mission is to discover and develop innovative medicines that address

high unmet medical needs

▪ Our science and innovation is based on our flexible target discovery, page 0 platform
▪ We commit to an ambitious R&D goal of maintaining an active portfolio of 30 projects
▪ We are building a deep early-stage R&D pipeline
▪ Pending potential approval, we expect to launch our first drug, filgotinib, page 0 in RA, page 0, in 2020, with

additional indications to follow in the coming years

▪ We aim to bring our innovation to patients suffering from severe diseases, includig in IPF, page 0
▪ We accelerate innovation through win-win partnerships

Go to chapter, page 74

Material Aspect 2: Our employees are the strength behind Galapagos

SDG

Areas of engagement
▪ We strive for gender equality
▪ We aim to continue to develop an inclusive and diverse workforce
▪ We have implemented a program that is designed to reward, recognize and retain employees
▪ Our involvement in local communities and charities

Go to chapter, page 80

Galapagos NV • Annual Report 2019

CSR REPORT

Material Aspect 3: Conducting business ethically and responsibly

SDG

Areas of engagement
▪ Animal welfare in drug development
▪ Our clinical trials ethics
▪ Access to our medicines
▪ Our code of business conduct and ethics

Go to chapter, page 87

Material Aspect 4: We care about the environment, health and safety

SDG

Areas of engagement
▪ We strive for a minimal environmental impact
▪ We are compliant with our sector rules and regulations
▪ We go digital as much as possible
▪ We established a company-wide EHS framework

Go to chapter, page 90

Galapagos NV • Annual Report 2019

Corporate governance

Corporate governance
at Galapagos in 2019

Pioneering for patients

CORPORATE GOVERNANCE

Galapagos’ corporate governance policies

For the reporting year beginning on 1 January 2019, the Belgian Corporate Governance Code 2009 (the “2009 Code”)

(which can be consulted on www.corporategovernancecommittee.be) was 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 2009 Code.

For the reporting year beginning on 1 January 2019, the board of directors strove to comply with the rules of the

2009 Code as much as possible. At the same time, the board of directors is of the opinion that certain deviations

from the provisions of 2009 Code were 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.

New legal framework for Belgian companies

On 28 February 2019, a new Belgian Companies Code (the “New Belgian Companies Code“) was approved by the

Belgian Parliament. For existing companies like Galapagos NV, there is a transition regime providing for a

staggered applicability of the new provisions. Certain parts of the new code apply to us as of 1 January 2020.

The full transition must be completed by the earlier of (i) the next extraordinary shareholders’ meeting that

amends our articles of association or (ii) 1 January 2024. On the date of this report, our articles of association

have not yet been amended. The extraordinary shareholders‘ meeting, to be held on 28 April 2020, shall decide on

such amendment. Each reference in this report to the Belgian Companies Code is still a reference to the Belgian

Companies Code of 7 May 1999, except where expressly stated differently.

In light of the New Belgian Companies Code, the Belgian Corporate Governance Committee adopted a new Corporate

Governance Code (the “2020 Code“) (which can be consulted on www.corporategovernancecommittee.be). The 2020 Code

was published on 9 May 2019. The 2020 Code applies compulsorily to reporting years beginning on or after 1 January 2020.

Our board of directors has adopted the 2020 Code for the reporting period beginning on 1 January 2020. Subject to approval

of the new articles of association by the extraordinary shareholders‘ meeting of 28 April 2020, our board of directors will

approve an updated corporate governance charter. Each reference in this report to the Corporate Governance Code is still

a reference to the 2009 Code, except where expressly stated differently.

Proposal to adopt a two-tier governance structure

Under the New Belgian Companies Code, the executive committee in accordance with article 524bis of the

Belgian Companies Code has been abolished. The New Belgian Companies Code introduces (among other things)

a two-tier system, with two new governance bodies: the supervisory board and the management board. The

supervisory board is responsible for the general policy and strategy of the company and has all powers which

are specifically reserved for it under the New Belgian Companies Code. The supervisory board also supervises

the management board. The management board exercises all powers which are not reserved for the supervisory

board in accordance with the New Belgian Companies Code.

The 2020 Code requires companies to make an explicit choice for one of the governance structures provided for

in the New Belgian Companies Code. The board of directors invites the shareholders of Galapagos NV to approve

the introduction of a two-tier governance structure at the occasion of the extraordinary shareholders’ meeting,

to be held on 28 April 2020.

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CORPORATE GOVERNANCE

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 Avila Therapeutics,

Inc., EUSA Pharma (Europe) Limited, Biocartis NV, Amsterdam Molecular Therapeutics (AMT) Holding NV (now

uniQure), Aura, Inc., Itara Ltd., Cellnovo SA, Artax, Inc., and Project Paradise Limited. He was also a member of the

supervisory board of the Novartis Venture Fund. Dr. Parekh currently serves as a member of the board of directors

of Advent Venture Partners, Advent Life Sciences LLP, Aleta, Inc., Alpha Anomeric SA, Amphista Therapeutics

Ltd., Arrakis, Inc., Aura Biosciences, Capella BioSciences Ltd., Levicept Limited, PE Limited, Pheno Therapeutics

Ltd., Tridek-One Therapeutics SAS, and Zikani, Inc. He received his MA in Biochemistry and DPhil in Molecular

Medicine from the University of Oxford, where he has also been a Senior Research Fellow and Professor.

Howard Rowe, JD has served as a member of 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.

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Ms. Bosley graduated from Cornell University with a B.A. in Biology. She served on the board of the Biotechnology

Innovation Organization and currently serves on the boards of Genocea Biosciences, Inc., and of the Massachusetts

Eye and Ear Institute. Ms. Bosley also serves as chairman of the board of Arrakis Therapeutics.

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.

Peter Guenter has served as a member of our board of directors since 30 April 2019. Mr. Guenter has been Chief
Executive Officer of Almirall since 1 October 2017. Prior to joining Almirall, he worked at Sanofi for 22 years,

most recently as Executive Vice President Diabetes and Cardiovascular Global Business Unit. During his tenure

at Sanofi, he held many senior positions including Vice President Eastern Europe and Northern Europe, Vice

President Business Management and Support, General Manager Germany, Senior Vice President Europe, Executive

Vice President Global Commercial Operations and Executive Vice President General Medicine and Emerging

Markets. He was a member of Sanofi’s Executive Committee from 2013 till August 2017. Before joining Sanofi, he

held different positions in sales and marketing at Smith Kline and Ciba Geigy. Mr. Guenter is currently also a

member of the board of the European Federation of Pharmaceutical Industries and Associations (EFPIA). He is

a Belgian citizen and holds a Master’s Degree in Physical Education from the Faculty of Medicine and Health

Sciences, University of Ghent.

Daniel O’Day has served as a member of our board of directors since 22 October 2019. Daniel O’Day joined Gilead
in 2019 to lead the biopharmaceutical company, which has more than 11,000 employees around the world. Prior

to Gilead, Mr. O’Day served as the chief executive officer of Roche Pharmaceuticals. His career at Roche spanned

more than three decades, during which he held a number of executive positions in the company’s pharmaceutical

and diagnostics divisions in North America, Europe and Asia. During his time at Roche, Mr. O’Day demonstrated

vision and leadership, helping to engineer the acquisitions of Flatiron Health and Foundation Medicine in 2018.

He served as a member of the company’s Corporate Executive Committee, as well as on a number of public and

private boards, including Genentech. Mr. O’Day is currently the Chairman and Chief Executive Officer of Gilead

Sciences, Inc. and a member of the board of directors of Pharmaceutical Research and Manufacturers of America

(PhRMA). Mr. O’Day is a U.S. citizen and holds a bachelor’s degree in biology from Georgetown University and an

MBA from Columbia University in New York.

Linda Higgins, Ph.D. has served as a member of our board of directors since 22 October 2019. Linda Slanec
Higgins, Ph.D., joined Gilead Sciences, Inc. in 2010 and is currently Sr. Vice President Research, External Innovation.

In her first nine years at Gilead she led Biology, significantly expanding the therapeutic area scope and capabilities

of the department. She previously served as the President & CEO of InteKrin Therapeutics and as Head of

Research at Scios, Inc., a Johnson & Johnson company, where she provided leadership for drug discovery,

preclinical development, and translational medicine. Dr. Higgins is passionate about biopharmaceutical discovery

and development, and has been dedicated to excellence in applied scientific research since 1991. She has led

projects and departments in multiple therapeutic areas including CNS, fibrosis, inflammation, cardiovascular,

virology, and oncology. Dr. Higgins built many of these as new areas at Scios and Gilead. Dr. Higgins is a U.S. citizen

and earned an A.B. in Behavioral Physiology from Kenyon College, a Ph.D. in Neurosciences from the University

Galapagos NV • Annual Report 2019

CORPORATE GOVERNANCE

of California, San Diego School of Medicine, and completed postdoctoral training in Molecular Genetics at the

Howard Hughes Medical Institute at the University of California, Berkeley. She has authored over 50 original peer

reviewed scientific papers and invited reviews and is an inventor on over a dozen patents.

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. On 31 December 2019, the board of directors consisted of eight members, four

of whom are independent within the meaning of article 526ter of the Belgian Companies Code (and as from 1

January 2020, article 7:87 of the New Belgian Companies Code).

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 2019, the following persons were members of the board: Dr. Parekh (Chairman), Mr. Van de Stolpe (CEO),

Dr. Cautreels (until 30 April 2019), Mr. Rowe, Ms. Bosley, Dr. Mummery (until 30 April 2019), Dr. Kerr, Mr. Guenter

(from 30 April 2019), Mr. O’Day (from 22 October 2019), and Dr. Higgins (from 22 October 2019). Mr. Rowe, Ms. Bosley,

Dr. Kerr and Mr. Guenter were appointed as independent directors within the meaning of article 526ter of the

Belgian Companies Code (and as from 1 January 2020, article 7:87 of the New Belgian Companies Code).

In 2019, the board thus consisted of (i) three women (except between 30 April 2019 and 22 October 2019 when

the board consisted of two women) and (ii) four men until 22 October 2019 and five men from 22 October 2019,

representing four different nationalities and different age categories.

Name

Onno van de Stolpe

Raj Parekh

Werner Cautreels(1)

Howard Rowe

Katrine Bosley

Christine Mummery(1)

Mary Kerr

Peter Guenter(2)

Daniel O'Day(3)

Linda Higgins(3)

(1) Until 30 April 2019
(2) From 30 April 2019
(3) From 22 October 2019

Nationality

Dutch

British

Belgian

British and U.S.

U.S.

British and Dutch

British

Belgian

U.S.

Year of birth

1959

1960

1952

1969

1968

1953

1961

1962

1964

1962

During 2019, 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 profiles of all board members are included in this report

and available on www.glpg.com.

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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 2019, the board

dealt with matters pertaining to, among other things, our strategy and growth, the strategic transaction with

Gilead, the evaluation of other business development opportunities, convening of the shareholders’ meetings and

preparation of resolutions to be submitted for approval to the shareholders, and review and approval of our

financial reporting.

In 2019, the board of directors held four regular meetings, nine meetings by telephone conference to discuss

specific matters and two meetings in the presence of a notary (relating to the issuance of Warrant Plan 2019 and

Warrant Plan 2019 RMV and relating to the closing of the Gilead transaction). The first meeting in the presence

of a notary was attended by Dr. Cautreels and Mr. Van de Stolpe via telephone conference; all other directors

were represented by proxy. The second meeting in the presence of a notary was attended by Mr. Van de Stolpe,

Mr. Guenter and Dr. Kerr via telephone conference; all other directors were represented by proxy. The attendance

rate for the other meetings was as follows: Dr. Parekh: 92%; Mr. Van de Stolpe: 85%; Dr. Cautreels: 100%; Mr. Rowe:

100%; Ms. Bosley: 85%; Dr. Mummery: 67%; Dr. Kerr: 92%; Mr. Guenter: 80%; Mr. O’Day: 100%; and Dr. Higgins: 100%.

The overall attendance rate was 90%. 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.

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.

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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. In May

2019, Mr. Filius was elected as non-executive director in the supervisory

board of ProQR NV.

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

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.

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Walid Abi-Saab, MD joined Galapagos as Chief Medical Officer 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, the

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.

Michele Manto was appointed Chief Commercial Officer in January 2020.
in September 2017 as Senior Vice President
He joined Galapagos

Commercial Operations

to build and lead Galapagos' commercial

organization and capabilities. Previously, Mr. Manto held various

commercial leadership roles at AbbVie, most recently as General Manager,

Global Marketing Rheumatology and as General Manager

in the

Netherlands. Prior to this, he led AbbVie’s commercial activities and

launches in rheumatology, gastroenterology and dermatology in Germany

and other European countries. He started his professional career as a

management and strategy consultant at McKinsey & Company. Mr. Manto

holds an MBA from INSEAD and a degree in engineering from the

Politecnico of Milan.

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 2019, 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).

On 23 January 2020, we announced the appointment of Mr. Michele Manto as Chief Commercial Officer and

member of the executive committee, effective 1 January 2020.

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,

as included in the CSR-report, which contains the non-financial information as required by articles 96 § 4 and

119 § 2 of the Belgian Companies Code (and as from 1 January 2020, articles 3:6 § 4 and 3:32 § 2 of the New Belgian

Companies Code).

At the end of 2019, the audit committee consisted of the following three directors: Mr. Rowe (chairman), Dr. Kerr

and Mr. Guenter. Mr. Guenter replaced Dr. Cautreels on the audit committee as from 18 June 2019. 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 (and as from 1 January 2020, article 7:87 of the New 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. Mr. Rowe 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 2019, the audit committee held nine meetings, in which it dealt with matters pertaining to, among other

things, audit review, risk management, monitoring financial reporting, and the monitoring of Sarbanes-Oxley

compliant internal and external audit systems. The audit committee acts as a collegial body. The overall

attendance at the audit committee meetings in 2019 was 90%. Dr. Kerr’s attendance rate was 78% and

Mr. Guenter’s attendance rate was 83% whereas the other committee member’s attendance rates were all 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.

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At the end of 2019, 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. The

committee has the necessary expertise in the area of remuneration policy.

The nomination and remuneration committee meets at least twice per year. In 2019, the nomination and

remuneration committee held six meetings, dealing with, among other things, matters pertaining to grants of

warrants, RSUs and bonuses, the nomination and remuneration of directors, the nomination and remuneration

of members of the executive committee, salary increases and the legislative changes to the remuneration rules.

The nomination and remuneration committee acts as a collegial body. The overall attendance rate at the

nomination and remuneration committee meetings in 2019 was 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

Howard Rowe(1)

Katrine Bosley(1)

Mary Kerr(1)

Peter Guenter(1)

Daniel O'Day

Linda Higgins

• denotes committee membership
* denotes committee chairmanship

•

(1) denotes qualification as an independent director within the meaning of article 526ter of the Belgian Companies Code (and as of 1 January 2020,

article 7:87 of the New Belgian Companies Code)

Galapagos NV’s share capital and shares

Share capital increases and issue of shares by Galapagos NV in 2019

On 1 January 2019, the share capital of Galapagos NV amounted to €294,599,712.11 represented by 54,465,421 shares.

In the course of 2019 there were four capital increases resulting from the exercise of warrants under employee

warrant plans, resulting in the issuance of 754,605 new shares, an increase of the share capital by €4,082,413.05 and

an increase of the issuance premium account by €13,085,809.23. In addition, on 23 August 2019, Gilead Therapeutics

A1 Unlimited Company subscribed to 6,828,985 new shares at a price of €140.59 per share pursuant to the closing

of the share subscription agreement of 14 July 2019. This resulted in a share capital increase of €36,944,808.85 and

an increase of the issuance premium account by €923,142,192.30. Finally, on 6 November 2019, Gilead Therapeutics

A1 Unlimited Company exercised initial warrant A, resulting in the issuance of 2,617,791 new shares at an issuance

price of €140.59 per share, an increase in the share capital by €14,162,249.31 and an increase of the issuance

premium account by €353,872,987.38.

At the end of 2019, the share capital of Galapagos NV amounted to €349,789,183.32 represented by 64,666,802 shares.

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On 10 April 2019, the board of directors issued 1,699,690 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 2019” and “Warrant Plan 2019 RMV”).

The offer of warrants to the directors and to the members of the executive committee under Warrant Plan 2019

was approved by the annual shareholders’ meeting of 30 April 2019. The warrants issued under Warrant Plan 2019

and Warrant Plan 2019 RMV have a term of eight years and an exercise price of €95.11.

On 22 October 2019, the extraordinary shareholders’ meeting approved the issuance of two warrants for the benefit

of Gilead Therapeutics A1 Unlimited Company, called the initial warrant A and the initial warrant B. These

warrants entitle the holder thereof to subscribe, during the entire term of the respective warrant, upon each

exercise of a warrant, for a maximum number of shares that is sufficient to bring the shareholding of Gilead and

its affiliates to 25.1% and 29.9%, respectively, of the actually issued and outstanding shares after the exercise of the

relevant warrant (rounded down to the nearest whole share). The initial warrant A has a term of one year and an

exercise price of €140.59 per share. The initial warrant B has a term of five years and an exercise price per share

equal to the greater of (i) 120% multiplied by the arithmetic mean of the 30-day daily volume weighted average

trading price of Galapagos’ shares as traded on Euronext Brussels and Euronext Amsterdam, and (ii) €140.59.

Number and form of Galapagos shares

Of the 64,666,802 shares of Galapagos NV outstanding at the end of 2019, 9,382,267 were registered shares and

55,284,535 shares were dematerialized shares. All shares are issued and fully paid up and are of the same class.

Rights attached to Galapagos shares

Each share (i) entitles its holder to one vote at the shareholders’ meetings; (ii) represents an identical fraction of

the share capital and has the same rights and obligations and shares equally in the profit of Galapagos NV; and

(iii) gives its holder a preferential subscription right to subscribe to new shares, convertible bonds or warrants in

proportion to the part of the share capital represented by the shares already held. The preferential subscription

right can be restricted or cancelled by a resolution approved by the shareholders’ meeting, or by the board of

directors subject to an authorization of the shareholders’ meeting, in accordance with the provisions of the New

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 consists of two parts. A general authorization for capital increases up to 20% of the share

capital at the time of convening the shareholders’ meeting of 22 October 2019 (i.e. €67,022,402.04) 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. 13 November 2019. A specific authorization for capital increases of more than 20% and up to 33% of

the share capital at the time of the convening the shareholders' meeting of 25 April 2017 (i.e. € 82,561,764.93), 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. This specific part of the authorized capital can, however, only be used in a

number of specific circumstances and upon a resolution of the board of directors that all independent directors

(within the meaning of article 526ter of the Belgian Companies Code) approve.

In 2019, 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 10 April 2019, in connection with the issuance of Warrant Plan

2019 and Warrant Plan 2019 RMV, under which a maximum of 1,699,690 new shares could be issued for a total

maximum capital increase of €9,195,322.90 (plus issuance premium); and (2) on 23 August 2019, in connection with

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the subscription by Gilead Therapeutics A1 Unlimited Company to 6,828,985 new shares, resulting in an increase

of the share capital by €36,944,808.85 (plus issuance premium). On 31 December 2019, an amount of €67,022,402.04

still remained available under the general part of the authorized capital and an amount of €13,717,929.80 remained

available under the specific part of 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 New 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 New Belgian Companies Code, Galapagos NV may purchase, subject to the provisions of

the New Belgian Companies Code, Galapagos NV’s own shares and dispose thereof 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. 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 2019, 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

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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 amended and restated license and collaboration agreement between Galapagos NV and Gilead Sciences,

Inc. ("Gilead") dated 23 August 2019 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; Industry Transaction; Acquired Programs), entitling Gilead 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.

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

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 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 New 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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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 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 2019 were Gilead Therapeutics

A1 Unlimited Company (16,707,477 shares or 25.84%) and Van Herk Investments B.V. (6,071,472 shares or 9.39%).

Major shareholders on 31 December 2019

63.92%
Other shareholders

25.84%
Gilead

9.39%
Van Herk Investments

0.86%
Insiders

At the end of 2019, our CEO owned 478,289 shares of Galapagos NV and 826,874 warrants. The other members of our

executive committee held an aggregate of 75,357 shares and 1,345,000 warrants. The other members of our board

held an aggregate of 177,600 warrants. Each warrant entitles its holder to subscribe to one share of Galapagos NV.

While the other board members did not personally hold any shares at the end of 2019, board members Daniel

O’Day and Linda Higgins are representatives of our major shareholder Gilead.

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 14 July 2019, we and Gilead announced that we entered into a 10-year global research and development

collaboration. In the context of the transaction, Gilead also made an equity investment in Galapagos. Finally,

we amended and restated the license agreement for filgotinib that we originally entered into with Gilead on

16 December 2015.

On 23 August 2019, the closing of the transaction took place and we received an upfront payment of

€3,569.8 million ($3.95 billion) and a €960.1 million ($1.1 billion) equity investment from Gilead.

Terms of the equity investment

As part of the research and development collaboration, Gilead entered into a share subscription agreement with

us. On 23 August 2019, Gilead Therapeutics A1 Unlimited Company subscribed to 6,828,985 new Galapagos shares at

a price of €140.59 per share, including issuance premium.

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Subject to the approval of Galapagos’ shareholders and certain other conditions, Gilead has the right under

the terms of the share subscription agreement to have two designees appointed to our board of directors. The

special shareholders’ meeting of 22 October 2019 approved the appointment of Daniel O’Day and Linda Higgins as

directors of Galapagos NV.

On 22 October 2019, our extraordinary shareholders’ meeting further issued a warrant to Gilead Therapeutics

A1 Unlimited Company, known as warrant A, that confers the right to subscribe for a number of new shares

sufficient to bring the number of shares owned by Gilead and its affiliates to 25.1% of the issued and outstanding

shares. Warrant A expires one year after the issue date and the exercise price per share is €140.59. On

6 November 2019, Gilead exercised warrant A and increased its ownership in Galapagos to 25.10% of the then

outstanding shares.

On 22 October 2019, Gilead Therapeutics A1 Unlimited Company was also issued another warrant, known as the

initial warrant B, that confers the right to subscribe for a number of new shares sufficient to bring the number of

shares owned by Gilead and its affiliates to 29.9% of the issued and outstanding shares. The warrant will expire on

23 August 2024. The exercise price per share will be the greater of (i) 120% multiplied by the arithmetic mean of

the 30-day daily volume weighted average trading price of the Galapagos shares preceding the date of the exercise

notice with respect to such exercise, and (ii) €140.59. Between 57 and 59 months of 23 August 2019, subject to and

upon approval by the shareholders’ meeting, Gilead Therapeutics A1 Unlimited Company will be issued a warrant

with substantially similar terms, including as to exercise price, to the initial warrant B. This subsequent warrant

B will expire on the earlier of the date that is five years after the fifth anniversary of the closing and the date that

the warrant is issued.

Gilead and Gilead Therapeutics A1 Unlimited Company are subject to certain standstill restrictions until the

date that is 10 years following the closing (23 August 2019). Among other things, during this time Gilead and its

affiliates and any party acting in concert with them may not, without our consent, acquire voting securities of

Galapagos exceeding more than 29.9% of the then issued and outstanding voting securities, and Gilead and Gilead

Therapeutics A1 Unlimited Company may not propose a business combination with or acquisition of Galapagos.

The standstill restrictions are subject to certain exceptions as provided in the share subscription agreement.

Pursuant to the terms of the share subscription agreement, Gilead and Gilead Therapeutics A1 Unlimited

Company also agreed to certain lock-up provisions. They shall not, and shall cause their affiliates not to, without

our prior consent, dispose of any equity securities of Galapagos prior to the second anniversary of the closing

(23 August 2019). During the period running from the date that is two years following the closing until the date

that is five years following the closing, Gilead and its affiliates shall not, without our prior consent, dispose of

any equity securities of Galapagos if after such disposal they would own less than 20.1% of the then issued and

outstanding voting securities of Galapagos. The lock-up restrictions are subject to certain exceptions as provided

in the share subscription agreement and may terminate upon certain events.

Terms of the global research and development collaboration

We will fund and lead all discovery and development autonomously until the end of Phase 2. After the completion

of a qualifying Phase 2 study (or, in certain circumstances, the first Phase 3 study), Gilead will have the option to

acquire a license to the compound outside Europe. If the option is exercised, we and Gilead will co-develop the

compound and share costs equally. Gilead will maintain option rights to our programs through the 10-year term

of the collaboration. This term can be extended, at the discretion of Gilead, for up to an additional three years

thereafter for those programs, if any, that have entered clinical development prior to the end of the collaboration

term. On top, a final term extension can be granted in certain circumstances.

If GLPG1690 is approved in the United States, Gilead will pay us an additional $325 million regulatory milestone

fee. For GLPG1972, after the completion of the ongoing Phase 2b study in osteoarthritis, Gilead has the option

to pay a $250 million fee to license the compound in the United States. If certain secondary efficacy endpoints

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for GLPG1972 are met, Gilead will pay us up to an additional $200 million. Following opt-in on GLPG1972, we are

eligible to receive up to $550 million in regulatory and sales based milestones. For all other programs resulting

from the collaboration, Gilead will make a $150 million opt-in payment per program and will owe no subsequent

milestones. We will receive tiered royalties ranging from 20-24% on net sales of all our products licensed by Gilead

in all countries outside Europe as part of the agreement.

Filgotinib collaboration

Under the revised agreement, we will have greater involvement in filgotinib’s global strategy and participate more

broadly in the commercialization of the product in Europe, providing the opportunity to build a commercial

presence on an accelerated timeline. We and Gilead will co-commercialize filgotinib in France, Germany, Italy,

Spain and the United Kingdom and retain the 50/50 profit share in these countries that was part of the original

filgotinib license agreement, and under the revised agreement, we will have an expanded commercial role. We

will be the lead commercialization party for filgotinib in France, Italy and Spain for rheumatology indications

and Gilead will be the lead commercialization party for gastro indications. In Germany and the United Kingdom,

Gilead will lead the rheumatology indications and Galapagos will lead the gastro indications. We retain exclusive

commercialization responsibility in Belgium, the Netherlands and Luxembourg, where the 50/50 profit share also

applies. The companies will share future global development costs for filgotinib equally until a predetermined

level, in lieu of the 80/20 cost split provided by the original agreement.

Other terms of the original license agreement remain in effect, including the remaining $640 million in

development and regulatory milestones, sales-based milestone payments of up to $600 million and tiered

royalties ranging from 20-30% payable in territories outside of Belgium, France, Germany, Italy, Luxembourg, the

Netherlands, Spain and the United Kingdom. In addition, we achieved two milestones in December 2019 totaling

$30 million.

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Our remuneration policy

The objective of our remuneration policy is to attract, motivate and retain the diverse qualified and expert

individuals that we need in order to achieve our strategic and operational objectives. Our further goals are

to be competitive in the appropriate market by benchmarking against appropriate peer groups, incentivize

performance at the highest possible level, allow for differential rewards according to individual performance, not

to discriminate on any grounds other than performance and to reinforce an open, fair, consistent and equitable

culture. 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 nomination and remuneration committee also develops the company’s global remuneration framework,

which applies to all employees. The nomination and remuneration committee has taken into account the

remuneration of the employees when preparing this policy.

The policy is effective as of 1 January 2020. It has been approved by the board of directors on 24 March 2020,

upon recommendation of the nomination and remuneration committee. It will be submitted to the annual

shareholders’ meeting on 28 April 2020.

Subject to the approval of our shareholders‘ meeting to be held on 28 April 2020 of the amendments to our articles

of association to opt for a dual governance structure under the New Belgian Companies Code, the rules described

in this remuneration policy for members of the board of directors will apply to members of the supervisory board

and the arrangements described in this remuneration policy for members of the executive committee will apply

to members of the management board.

Determination of remuneration of directors and executive
committee members of Galapagos NV

The remuneration for members of the board of directors and of the executive committee (including the CEO)

is determined by the board of directors on the basis of proposals from the nomination and remuneration

committee. It is subject to the approval of the shareholders’ meeting where required, and takes into account

the feedback received from shareholders. It also takes into account relevant benchmarks with appropriate peer

companies and, for the members of the executive committee, also the group’s performance rating system. For the

benchmarking exercise, the nomination and remuneration committee works with reputable external advisors.

The peer group that is taken into consideration consists of publicly listed peer companies in the U.S. and Europe

in the biopharmaceutical industry with a comparable market capitalization. Further details on the identity of

the external advisors for a given year are included in our remuneration report for that year.

The group’s performance rating system assesses the performance of individual employees and managers over

the calendar year against a set of objectives determined at the start of the year, resulting in a rating between

1 (unacceptable performance) and 5 (outstanding performance). In addition, the achievement of pre-determined

annual corporate objectives is also taken into account to determine remuneration increases and bonuses. This

also applies to the members of the executive committee (including the CEO).

The nomination and remuneration committee is composed exclusively of non-executive board members and

a majority of its members qualify as independent directors. This helps prevent the occurrence of conflicts of

interest regarding the setting up, amendments and implementation of the remuneration policy in relation to

the executive committee members of Galapagos NV. The CEO and the other members of the executive committee

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are not invited to take part in any discussions of the nomination and remuneration committee related to their

own individual remuneration. As regards the remuneration of the non-executive board members, all decisions

are adopted by the shareholders’ meeting.

Remuneration policy for directors

The remuneration of the non-executive directors consists of a fixed annual cash 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.

As Galapagos does not own treasury shares and has not been authorized by its shareholders to acquire treasury

shares, it is currently unable to grant shares directly to the non-executive directors as part of their remuneration

in accordance with provision 7.6 of the 2020 Code. However, as from financial year 2020 and subject to approval by

the shareholders’ meeting, the non-executive directors will receive an additional cash compensation equal to the

amount of their fixed annual cash remuneration (not taking into account fees for committee membership and

chairmanship) subject to the commitment by each non-executive director to use the net portion (after taxation)

of such cash remuneration to purchase shares of Galapagos in the open market within a set period of time after

receipt of such cash remuneration. The shares that each non-executive director so acquires are to be held until

at least one year after the non-executive director leaves the board and at least three years after the time of

acquisition.

As from 1 January 2020, Galapagos will no longer grant any warrants to non-executive directors.

Remuneration policy for executive committee members

The remuneration of the CEO and of the other members of the executive committee consists of short-term and

long-term remuneration. The short-term remuneration includes a fixed part, i.e. a base annual remuneration

in cash, and a variable part, i.e. a cash bonus. The long-term incentives include the grant of warrants and

restricted stock units. In accordance with the rules of the New Belgian Companies Code, the grant of all variable

remuneration is dependent on the achievement of certain criteria and at least 50% of the variable remuneration

consists of long-term incentives. The vesting scheme of the restricted stock units takes into account the

requirement that at least one fourth of the variable remuneration is determined on the basis of objective criteria

measured over at least two years and at least one fourth of the variable remuneration is determined on the basis

of objective criteria measured over at least three years.

Short-term remuneration

Fixed remuneration

The fixed annual remuneration in cash of the members of the executive committee is determined by the board

upon the recommendation of the nomination and remuneration committee. External benchmarking exercises

are conducted to ensure the remuneration remains competitive and in line with market practice for our peer

group.

Variable remuneration – general rules

Variable remuneration is 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. These objectives are designed

to be challenging to achieve.

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The corporate objectives include elements of research progress, clinical trial progression, cash position, corporate

development and commercial development; all of which are considered to be of equal importance. Our ambition

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

of novel medicines in areas of unmet medical needs to improve the lives of people suffering from serious

diseases. In order to achieve this long term goal, we want to ensure we keep innovation in our research efforts

while also making sound progress in our clinical trials each year and maintaining a healthy cash position. In

addition, our corporate development goals aim to foster the growth of the company and the creation of value

for all shareholders. Finally, our commercial development goal is intended to bring us closer to becoming a

fully integrated biopharmaceutical company that can (subject to having obtained governmental approvals) bring

novel medicines to market.

The level of achievement of the objectives for the CEO is assessed at the end of each year by the nomination

and remuneration committee and discussed and finally established by the board of directors. 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, discussed by the nomination and remuneration committee and finally established by the board of

directors.

The variable remuneration takes the form of a short term cash bonus and a grant of long term RSUs. In addition,

the members of the executive committee are granted warrants.

Cash bonus

The CEO’s cash bonus can be maximum 75% of the fixed part of his annual remuneration of the year for which

the bonus is awarded. The aggregate cash bonuses of the other members of the executive committee can be

maximum 50% of the total amount of the fixed part of their aggregate annual remuneration of the year for which

the bonus is awarded.

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).

For bonuses granted prior to 2019, pursuant to the rules of the then applicable Senior Management Bonus Scheme,

50% of the bonus was paid immediately around year-end and the payment of the other 50% was deferred for

three years. Therefore, the following mechanism still applies for the deferred portion of the bonuses relating

to financial year 2016, 2017 and 2018. 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) over

a period of three years. Depending on whether our share price change is better or worse than the Next Biotech

Index, the deferred bonus will be adjusted up to take into account the relative share price change if it is better,

adjusted down if the relative share price change is up to 10% worse or forfeited entirely if the relative share price

change is more than 10% worse than the index.

For bonuses granted as from 2019, bonuses consist of both a short-term cash component and a long-term RSU

component.

Long-term incentives

Restricted stock units

Each RSU represents the right to receive one Galapagos share or a payment in cash of an amount equivalent to

the volume-weighted average price of the Galapagos share on Euronext Brussels over the 30-calendar day period

preceding the relevant vesting date, in accordance with these terms and conditions of the relevant RSU program.

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There are three restricted stock unit (RSU) programs:

the Annual Long-Term Incentive Plan, under which the grants are intended to be made every year, subject

to a decision of the board of directors. This plan is intended to provide a long-term incentive to certain of

our employees and executive committee members and replaces the deferred portion of the bonus under the

old Senior Management Bonus Scheme;

the RSU Retention Plan. This plan was introduced in conjunction with the Gilead transaction. It is aimed at

retaining a specific set of our employees and executive committee members whose retention is deemed so

important for the future performance of Galapagos that an additional incentive is desired. The beneficiaries

are nominated by the nomination and remuneration committee and the board approves the list of

beneficiaries. The four-year vesting period is designed to be aligned with long-term shareholder interests;

and

the RSU Discretionary Plan. This plan was granted at the discretion of the board of directors, as announced

in our remuneration policy included in the annual report relating to financial year 2018 under the header

"Information on the remuneration policy for the next two years".

In general, the RSU plans are intended to provide certain members of the executive committee and certain

employees of Galapagos the opportunity to receive Restricted Stock Units as an incentive. Their purpose is to

retain and encourage participants to contribute to the performance of Galapagos and its affiliates by aligning

their financial interests with those of the shareholders.

The main characteristics of these plans are as follows:

the RSUs are offered for no consideration

four-year vesting period, with 25% vesting each year, except for the RSUs granted under the RSU Discretionary

Plan and, solely for beneficiaries who are executive committee members, the Annual Long-Term Incentive

Plan, that will all vest at the same time three years after the offer date;

3. payout will be in cash or shares, at Galapagos’ discretion, it being understood that in respect of members of

the executive committee, any vesting prior to the third anniversary of the offer date will always give rise to a

payment in cash rather than a delivery of shares as an incentive; and

in case of termination of service before the vesting date, forfeiture rules apply.

Under the Annual Long-Term Incentive Plan, the CEO is eligible to receive RSUs up to the equivalent of 75% of the

fixed part of his annual remuneration, and the other members of the executive committee are eligible to receive

RSUs up to the equivalent of 50% of the total amount of the fixed part of their aggregate annual remuneration, as

an equity-based long-term bonus.

Warrant plan

Galapagos grants warrants to the members of the executive committee as part of discretionary warrant plans for

the benefit of our staff. Under the New Belgian Companies Code, warrants are called subscription rights.

The main characteristics of these plans are as follows:

1. The warrants are offered for no consideration;

2. The warrants typically have a lifetime of eight years and a vesting period of three years after the year of

grant; and

3. Forfeiture rules apply in case of termination prior to the end of the vesting period.

The exercise price of the warrants is determined by the board but amounts to at least (i) the average of the price

of the Galapagos share on Euronext during the last thirty days preceding the date of the warrant offer or (ii) the

closing price of the Galapagos share on Euronext on the last trading day preceding the date of the warrant offer.

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Exceptional bonus schemes

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. They may take the form of a payment in cash and/or a grant of RSUs.

For example, an exceptional grant of a cash bonus and RSU grant took place in 2019 under an RSU Transaction

Bonus Plan for the successful closing of the Gilead transaction. The main characteristics of such plan are the

same as described above regarding the other RSU plans, except that 50% of the RSUs granted under the RSU

Transaction Bonus Plan will vest after two years and 50% will vest after three years.

Benefits in kind

In addition, the CEO and/or the other members of the executive committee enjoy a number of benefits such as

a retirement plan, insurance programs (covering life insurance, disability, travel insurance and health), company

cars and the provision of tax advisory services. The aforementioned retirement plan is set up as a defined

contribution type and is in line with market practice in Belgium.

Main contractual terms and conditions of employment of members of the executive
committee

As from 1 January 2020, all members of the executive committee will provide their services under a management

agreement with Galapagos NV, subject to Belgian law, that contains a notice period of six months and no other

severance payments. Galapagos NV also 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.

The paragraphs below set forth the main terms of the agreements that applied until 31 December 2019.

Onno van de Stolpe

Until 31 December 2019, Mr. Van de Stolpe provided his services as managing director and CEO under a

management agreement for an indefinite period dated 1 March 2002, subject to Belgian law, with Galapagos NV for

approximately 40% of his time. In addition, effective 1 March 2011 he entered into (1) an employment agreement,

subject to Dutch law, with Galapagos B.V. on a part-time basis, for approximately 35% of his time, and (2) a

management agreement, subject to French law, with Galapagos SASU for approximately 25% of his time. The

notice period under such agreements amounts to six months.

Bart Filius

Until 31 December 2019, Mr. Filius provided his services as Chief Financial Officer and Chief Operating Officer

under an employment agreement for an indefinite period starting from 1 December 2014, subject to Dutch law,

with Galapagos B.V., for approximately 60% of his time. In addition, Mr. Filius entered into a management

agreement, subject to Belgian law, with Galapagos NV for approximately 40% of his time. The notice period under

such agreements amounts to six months.

Andre Hoekema

Until 31 December 2019, Dr. Hoekema provided his services as Chief Business Officer under an employment

agreement for an indefinite period with Galapagos B.V., subject to Dutch law. The notice period under such

agreement amounts to six months for Galapagos B.V. and three months for Dr. Hoekema.

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Piet Wigerinck

On 28 February 2008, we entered into a management agreement, subject to Belgian law, with Dr. Wigerinck, for

an indefinite period. Dr. Wigerinck was appointed Chief Scientific Officer effective 1 March 2012. The management

agreement stipulates that Dr. Wigerinck shall perform his duties thereunder on an independent basis. The notice

period under such agreement amounts to six months.

Walid Abi-Saab

Until 31 December 2019, Dr. Abi-Saab performed his duties as Chief Medical Officer under an employment

agreement for an indefinite period dated 16 January 2018 with Galapagos GmbH, subject to Swiss law. The notice

period under such agreement amounts to six months.

Reclaim of variable remuneration

The RSU plans and warrant plans contain bad leaver provisions that can result in forfeiture of any unvested

RSU and/or warrant grants in case the beneficiary leaves Galapagos prior to the relevant vesting date. No other

provisions entitling Galapagos to reclaim variable remuneration were in place.

However, starting from financial year 2020, contractual provisions will apply to ensure that Galapagos has the

right to have each executive committee member forfeit any unvested RSUs, deferred portion of previous cash

bonus or unvested warrants in the event of a restatement of the financial statements that has a material negative

effect on Galapagos or a material breach of our Code of Business Conduct and Ethics.

Minimum share ownership

Starting from financial year 2020, the board has set a minimum threshold of shares to be held at any time

by the CEO to the number of shares equivalent to one year of the CEO’s fixed remuneration and by the other

members of the executive committee to the number of shares equivalent to six months’ of the relevant executive

committee member’s fixed remuneration. The threshold will be re-calculated on an annual basis. To determine

the equivalent number of shares for a given calendar year, the closing price of the Galapagos share on Euronext

Amsterdam of the last trading day of the preceding calendar year and the fixed remuneration granted for such

preceding calendar year will be taken into account. Thresholds need to be reached within four years. Such

deadlines start to run from the date of adoption of this remuneration policy for executive committee members

already in office or from the date of the appointment for future members of the executive committee.

Deviations from this policy

In exceptional circumstances, the board of directors may decide to deviate from any items of this policy if

necessary to serve the long-term interests and sustainability of the Company. Any such deviation must be

discussed at the nomination and remuneration committee, which will provide a substantiated recommendation

to the board of directors. Any deviation from this policy will be described and explained in the Company’s

remuneration report.

We do not expect material changes to this remuneration policy to be made in the next two years.

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Remuneration report

This remuneration report must be read together with the remuneration policy which, to the extent

necessary, should be regarded as forming part of this remuneration report.

The nomination and remuneration committtee and the board of directors were assisted by Willis Towers Watson

as external consultants for the conduct of benchmarking exercises regarding remuneration matters.

Remuneration of non-executive directors of Galapagos NV

Upon recommendation of the nomination and remuneration committee, and upon the proposal of the board of

directors, the annual shareholders’ meeting of 30 April 2019 resolved that the compensation (excluding expenses)

of the non-executive directors for the exercise of their mandate during the financial year ending 31 December

2019 was established as follows: (i) chairman of the board (Dr. Parekh): €80,000; (ii) other non-executive board

members (Mr. Rowe, Ms. Bosley, Dr. Kerr and Mr. Guenter, and until 30 April 2019, Dr. Cautreels and Dr. Mummery):

€40,000 each; (iii) annual additional compensation for membership of a board committee (audit committee: Dr.

Kerr and Dr. Cautreels, replaced by Mr. Guenter as from 18 June 2019; nomination and remuneration committee:

Mr. Rowe and Ms. Bosley): €5,000; (iv) annual additional compensation for the chairmanship of a board committee

(audit committee: Mr. Rowe; nomination and remuneration committee: Dr. Parekh): €10,000.

Upon recommendation of the nomination and remuneration committee, the special shareholders’ meeting of

22 October 2019 resolved that Mr. O’Day and Dr. Higgins would not receive any remuneration for their mandate as

non-executive directors.

Subject to the approval of the shareholders’ meeting to be held on 28 April 2020, the annual remuneration for the

non-executive directors will be increased, in line with the median of our peer group, to €100,000 in cash for the

chairman of the board and €50,000 in cash for the other non-executive board members (other than Mr. O’Day

and Dr. Higgins). Committee membership would entitle the board member to an additional €15,000 in cash and

committee chairmanship to €20,000 in cash.

In addition, the chairman would receive a payment of €100,000 and each board member (other than Mr. O’Day

and Dr. Higgins) would receive a payment of €50,000, in each case subject to the requirement to use the net

amount (after taxes) to acquire Galapagos shares. These latter payments make up the equivalent of an equity

component of the directors’ remuneration, as recommended by the 2020 Code. Further details can be found in

the Remuneration policy for directors section of our remuneration policy.

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 2019, 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 2019 and Warrant Plan 2019 RMV. In accordance with the

resolution of the annual shareholders’ meeting of 30 April 2019, the following number of warrants were offered

under Warrant Plan 2019 to the non-executive directors: Dr. Parekh: 15,000 warrants; and Mr. Guenter, Ms. Bosley,

Mr. Rowe 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 €95.11. 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 2019 RMV. The board of directors did 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.

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Provision 7.7 of the 2009 Code recommended that non-executive directors should not be entitled to stock-related

long-term incentive schemes. In deviation from this provision, the board of directors decided to grant warrants

to non-executive directors. This way, Galapagos had 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 has been a commonly used method in the sector in which Galapagos

operates. Without this possibility, Galapagos was 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 had no negative impact on the functioning

of the non-executive directors.

Nevertheless, as from 1 January 2020, Galapagos NV will no longer grant any warrants to non-executive directors,

taking into account the stricter rules of the New Belgian Companies Code. Going forward, Galapagos will thus

comply with provision 7.6 of the 2020 Code.

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

For 2019, the performance criteria include elements of research progress (number of targets identified and

pre-clinical candidates nominated), clinical trial progression (target number of clinical trials initiated and

completed), cash position (actual cash burn versus guidance), corporate development (achievement of business

development transaction, organizational growth and quality goals) and commercial development (filgotinib

commercialization plan). 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.

The board determined that the corporate objectives for 2019, which were aimed at fostering the company’s

long-term performance, had been achieved and on some aspects overachieved. The remuneration for 2019 takes

into account the contributions the members of the executive committee made to these achievements. The

nomination and remuneration committee and board of directors used their ability to award an exceptional

special bonus for the successful closing of the Gilead transaction, with the conviction that the Gilead alliance

secured substantial capital and put other conditions in place for independent R&D innovation and value creation

in the longer term, in line with shareholder interests.

The total remuneration complies with the adopted remuneration policy which applied at the time the

remuneration was granted. The remuneration policy that was in place during the previous financial year can be

found in the remuneration report included in our annual report relating to the year ended 31 December 2018.

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Gross remuneration of our CEO for financial year 2019

1. Base salary (fixed): €600,000 (including €18,859.44 in the form of pension contributions).

2. Variable remuneration (bonus): given the level of achievement of the performance criteria to be entitled to

a bonus (i.e. the corporate objectives for 2019), a cash bonus equal to 75% of the 2019 base salary (i.e. €450,000)

was awarded over 2019 and will be paid in April 2020, and an equivalent number of RSUs (based on the

average share price of the Galapagos share on Euronext Amsterdam during the month of April 2020) will

be granted under the Annual Long-Term Incentive Plan. The value of the 50% deferred part of the bonus

awarded over 2016 was established at the end of 2019 and resulted in a payment in early January 2020 of an

amount of €772,104.57 (a multiple of 3.3 of the deferred bonus, as a result of the share price performance over
the period 2016‑2019 as per the provisions of the Senior Management Bonus Scheme). In addition, an amount
of €2,500,000 was paid and 16,922 RSUs were granted in October 2019, both as an exceptional special bonus

awarded for the successful closing of the Gilead alliance transaction in 2019.

The proportion of fixed remuneration to variable remuneration thus amounted to 1:6.

3. Pension: €67,661.36 (of which €18,859.44 is part of the base salary).

4. Other components of the remuneration: company car, tax advisory services, and payments for invalidity and

healthcare cover, totaling €42,564.45.

The table below further summarizes the information concerning the compensation earned by our CEO during

the year ended 31 December 2019:

(€)

Fixed remuneration (gross)

Variable remuneration (short-term)

Variable remuneration (long-term)

Pension/life

Other benefits

Total

Onno van de Stolpe

600,000.00

2,950,000.00

772,104.57

48,801.92

42,564.45

4,413,470.94

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Gross remuneration of the other executive committee members for
financial year 2019

COO & CFO

1. Base salary (fixed): €400,000.00.

2. Variable remuneration (bonus): given the level of achievement of the performance criteria to be entitled to

a bonus (i.e. the corporate objectives for 2019), a cash bonus equal to €273,000 was awarded over 2019 and will

be paid in April 2020, and an equivalent number of RSUs (based on the average share price of the Galapagos

share on Euronext Amsterdam during the month of April 2020) will be granted under the Annual Long-Term

Incentive Plan. The value of the 50% deferred part of the bonus awarded over 2016 was established at the end

of 2019 and resulted in a payment in early January 2020 of an amount of €385,570.81 (a multiple of 3.3 of the
deferred bonus, as a result of the share price performance over the period 2016‑2019 as per the provisions of
the Senior Management Bonus Scheme). In addition, an amount of €2,500,000 was paid and 16,922 RSUs were

granted in October 2019, both as an exceptional special bonus awarded for the successful closing of the Gilead

alliance transaction in 2019.

The proportion of fixed remuneration to variable remuneration thus amounted to 1:8.

3. Pension: €44,158.88.

4. Other components of the remuneration: company car, tax advisory services, and payments for invalidity

cover, totaling €29,938.24.

CSO

1. Base salary (fixed): €400,000 (including €20,000 in the form of pension contributions).

2. Variable remuneration (bonus): given the level of achievement of the performance criteria to be entitled to

a bonus (i.e. the corporate objectives for 2019), a cash bonus equal to €175,500 was awarded over 2019 and will

be paid in April 2020, and an equivalent number of RSUs (based on the average share price of the Galapagos

share on Euronext Amsterdam during the month of April 2020) will be granted under the Annual Long-Term

Incentive Plan. The value of the 50% deferred part of the bonus awarded over 2016 was established at the end

granted in October 2019, both as an exceptional special bonus awarded for the successful closing of the Gilead

alliance transaction in 2019.

The proportion of fixed remuneration to variable remuneration thus amounted to 1:5.

3. Pension: €60,000 (of which €20,000 are part of the fixed base salary).

4. Other components of the remuneration: healthcare cover, totaling €203.76.

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CBO

1. Base salary (fixed): €360,000.

2. Variable remuneration (bonus): given the level of achievement of the performance criteria to be entitled to

a bonus (i.e. the corporate objectives for 2019), a cash bonus of €156,000 was awarded over 2019 and will be

paid in April 2020, and an equivalent number of RSUs (based on the average share price of the Galapagos

share on Euronext Amsterdam during the month of April 2020) will be granted under the Annual Long-Term

Incentive Plan. The value of the 50% deferred part of the bonus awarded over 2016 was established at the end

granted in October 2019, both as an exceptional special bonus awarded for the successful closing of the Gilead

alliance transaction in 2019.

The proportion of fixed remuneration to variable remuneration thus amounted to 1:8.

3. Pension: €77,333.59.

4. Other components of the remuneration: company car and payments for invalidity cover, totaling €21,141.70.

CMO

1. Base salary (fixed): €400,000.00.

2. Variable remuneration (bonus): given the level of achievement of the performance criteria to be entitled to

a bonus (i.e. the corporate objectives for 2019), a cash bonus equal to €175,500 was awarded over 2019 and will

be paid in April 2020, and an equivalent number of RSUs (based on the average share price of the Galapagos

share on Euronext Amsterdam during the month of April 2020) will be granted under the Annual Long-Term

Incentive Plan. In addition, an amount of €1,500,000 was paid and 10,153 RSUs were granted in October 2019,

both as an exceptional special bonus awarded for the successful closing of the Gilead alliance transaction in

2019.

The proportion of fixed remuneration to variable remuneration thus amounted to 1:4.

3. Pension: €73,412.60.

4. Other components of the remuneration: tax advisory services, and payments for invalidity cover, totaling

€15,058.53.

The table below further summarizes the information concerning the compensation earned by the members of

our executive committee during the year ended 31 December 2019:

(€)

Bart Filius

Piet Wigerinck Andre Hoekema Walid Abi-Saab

Fixed remuneration (gross)

400,000.00

360,000.00

400,000.00

Variable remuneration (short-term)

2,773,000.00

1,675,500.00

2,656,000.00

1,675,500.00

Variable remuneration (long-term)

385,570.81

330,489.73

–

Pension/life

Other benefits

Total

44,158.88

40,000.00

77,333.59

73,412.60

29,938.24

203.76

21,141.70

15,058.53

3,632,667.93

2,501,274.57

3,444,965.02

2,163,971.13

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Warrants awarded to, exercised by or expired for the executive
committee members during financial year 2019

The following number of warrants were offered to and accepted by members of the executive committee in 2019

under Warrant Plan 2019, issued by the board of directors under the authorized capital on 10 April 2019: to Mr. Van

de Stolpe: 100,000 warrants, to Mr. Filius: 65,000 warrants, to each of Dr. Hoekema, Dr. Wigerinck and Dr. Abi-Saab:

50,000 warrants.

The warrants issued under Warrant Plan 2019 have an exercise price of €95.11, 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 2019, Mr. Van de Stolpe owned 478,289 shares of Galapagos NV and 826,874 warrants. The other

members of the executive committee held an aggregate of 75,357 shares and 1,345,000 warrants. More specifically,

Dr. Abi-Saab held 305,000 warrants, Mr. Filius held 10,000 shares and 315,000 warrants, Dr. Hoekema held 22,357

shares and 365,000 warrants and Dr. Wigerinck held 43,000 shares and 360,000 warrants. Each warrant entitles its

holder to subscribe to one share of Galapagos NV.

No warrants expired for members of the executive committee in 2019 and, in aggregate, 282,500 warrants were

exercised by members of the executive committee in 2019 (60,000 warrants were exercised by Mr. Van de Stolpe,

75,000 warrants by Mr. Filius, 100,000 warrants by Dr. Wigerinck and 47,500 warrants by Dr. Hoekema).

RSUs awarded to, vested or expired for the executive committee
members during financial year 2019

The following number of RSUs were offered to and accepted by members of the executive committee in 2019 under

the RSU Discretionary Plan 2019: 15,000 RSUs to Mr. Van de Stolpe; 5,000 RSUs to each of Mr. Filius, Dr. Wigerinck

and Dr. Abi-Saab and 3,000 RSUs to Dr. Hoekema. The RSUs have a vesting period of three years.

Under the RSU Retention Plan, the following number of RSUs were offered to and accepted by members of the

executive committee in 2019: 25,606 RSUs to Mr. Van de Stolpe and 17,924 RSUs to each of Mr. Filius, Dr. Wigerinck

and Dr. Abi-Saab. The RSUs have a vesting period of four years, with 25% of the RSUs vesting each year.

Under the RSU Transaction Bonus Plan 2019, the following number of RSUs were offered to and accepted by

members of the executive committee in 2019: 16,922 RSUs to each of Mr. Van de Stolpe, Mr. Filius and Dr. Hoekema

and 10,153 RSUs to each of Dr. Wigerinck and Dr. Abi-Saab. 50% of the RSUs have a vesting period of two years and

50% of the RSUs have a vesting period of three years.

Each RSU reflects the value of one Galapagos share and will be payable, at the company’s discretion in cash or in

shares, upon vesting. However, in respect of members of the executive committee, any vesting prior to the third

anniversary of the offer date will always give rise to a payment in cash rather than a delivery of shares as an

incentive.

No RSUs vested or expired during financial year 2019.

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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 2019

Not applicable; in 2019 no members of the executive committee (including the CEO) left Galapagos.

Claw-back right of Galapagos relating to variable remuneration

In 2019, there were 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.

As from 2020, contractual provisions will apply to ensure that Galapagos has the right to have the CEO or

the other members of the executive committee forfeit any deferred or unvested portion of their variable

remuneration in case of (i) a material breach of Galapagos’ code of business conduct and ethics or (ii) a

restatement of Galapagos’ financial statements that has a material negative impact on the company.

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Conflict of interests and related parties

We consider that Gilead became a related party of Galapagos in 2019 because of Gilead’s 25.84% shareholding in

Galapagos and the fact that Gilead is entitled to propose two candidates to be appointed to our board of directors

under the share subscription agreement. A detailed explanation of our transactions with Gilead in 2019 can be

found in the section titled Agreements with major Galapagos NV shareholders. We further refer to note 29.

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 and as of 1 January 2020, article 7:96 of

the New 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 (and as of 1 January 2020, article

7:96 of the New 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 (and as of 1 January 2020, article 7:96 of the New Belgian Companies

Code), are enacted in the meeting minutes, and the director or member of the executive committee cannot

participate in the voting.

In 2019, the following conflicts of interests between Galapagos NV and a director within the meaning of article 523

of the Belgian Companies Code were noted:

▪ in a meeting of the board of directors held on 18 February 2019, the following was reported in accordance
with article 523 of the Belgian Companies Code in connection with the proposed compensation review of

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 compensation review of the CEO. The board considered that said

compensation review was based on a benchmark exercise performed by an external advisor, and that the

proposed amendments aim to align the compensation with the median of the peer group’s compensation

level. The update of the compensation structure will have no material impact on the financial position of the

company. The board shared the opinion of the remuneration committee that the proposed amendments are

justified and reasonable. Mr. Van de Stolpe did not take part in the deliberation and the vote concerning this

decision.

▪ in a meeting of the board of directors held on 24 September 2019, the following was reported in accordance
with article 523 of the Belgian Companies Code in connection with the proposed bonus for the CEO for the

successful closing of the Gilead transaction: 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

contributions by the CEO to the successful completion of the transaction with Gilead, Mr. Van de Stolpe is

granted a total bonus of EUR 5 million (of which 50% payable in cash and 50% through the grant of RSUs,

with half of the RSUs vesting after 2 years and the other half of the RSUs vesting after 3 years). The board

considered that said bonus is a justified reward for the results achieved by Mr. Van de Stolpe. 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.

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▪ in a meeting of the board of directors held on 17 December 2019, the following was reported in accordance
with article 523 of the Belgian Companies Code in connection with the proposed salary increase, bonus and

grant of RSUs to the CEO: the chairman declared that Onno van de Stolpe had informed the board of directors

of a conflict of interest, concerning the proposed salary increase and award to him of a bonus and RSUs.

Given the actual level of achievement of the performance criteria to be entitled to a salary increase and a

bonus (i.e. the corporate objectives for 2019) a bonus equal to 75% of his 2019 salary was awarded to Mr. Van

de Stolpe in cash and for 2019 and an equivalent number of RSUs (based on the average share price of the

Galapagos share on Euronext Amsterdam during the month of March 2020) to be granted under the Annual

Long-Term Incentive Plan. Mr. Van de Stolpe’s salary was increased with 4% as of 2020. In addition, the grant

of 25,000 RSUs under the RSU Retention Plan and 15,000 RSUs under the RSU Discretionary Plan to Mr. Van

de Stolpe was ratified by the board. The board considered that said salary increase, bonus and RSU grants

are a justified reward for the results achieved by Mr. Van de Stolpe in 2019. Furthermore, the board deemed

the grant of RSUs to be an important tool in the retention of Mr. Van de Stolpe as CEO of the company. The

salary increase, bonus and RSU grants will have no material impact on the financial position of the company.

The board shared the opinion of the remuneration committee that the salary increase, proposed bonus and

RSU grants are justified and reasonable. Mr. Van de Stolpe did not take part in the deliberation and the vote

concerning this decision.

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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, 92% 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 2019.

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 2019.

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 2019, 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 2019, and to release the directors and the statutory auditor from liability for the

performance of their mandate during the financial year ended 31 December 2019.

Mechelen, 27 March 2020

On behalf of the board of directors

Onno van de Stolpe
CEO

Raj Parekh
Chairman

125

Galapagos NV • Annual Report 2019

Financial statements

Consolidated and non-consolidated
financial statements for 2019

Pioneering for patients

FINANCIAL STATEMENTS

Consolidated financial statements

Consolidated statements of income and comprehensive income/loss (-)

Consolidated income statement

(thousands of €, except per share data)

Revenues

Other income

Total revenues and other income

Year ended 31 December

2019

844,985

50,905

895,890

288,836

29,009

317,845

2018

Notes

Research and development expenditure

(427,320)

(322,875)

General and administrative expenses

Sales and marketing expenses

Total operating expenses

(73,701)

(24,577)

(35,631)

(4,146)

(525,597)

(362,652)

Operating profit/loss (-)

370,292

(44,807)

Fair value re-measurement of share subscription agreement and
warrants

Other financial income

Other financial expenses

(181,644)

21,482

(60,071)

–

18,335

(2,737)

Profit/loss (-) before tax

150,060

(29,209)

Income taxes

(214)

(50)

Net profit/loss (-)

Net profit/loss (-) attributable to:

Owners of the parent

Basic income/loss (-) per share

Diluted income/loss (-) per share

149,845

(29,259)

149,845

(29,259)

2.60

2.49

(0.56)

The accompanying notes form an integral part of these financial statements.

127

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Consolidated statement of comprehensive income / loss (-)

(thousands of €)

Net profit/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:

Translation differences, arisen from translating foreign activities

Other comprehensive income/loss (-), net of income tax

Year ended 31 December

2019

149,845

(4,107)

415

(3,692)

2018

Notes

(29,259)

(94)

197

103

Total comprehensive income/loss (-) attributable to:

Owners of the parent

146,154

(29,155)

The accompanying notes form an integral part of these financial statements.

128

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Consolidated statements of financial position

(thousands of €)

Assets

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

Current financial investments

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

Non-current lease liabilities

Other non-current liabilities

Non-current deferred income

Non-current liabilities

Current lease liabilities

Trade and other liabilities

Current tax payable

Current financial instruments

Current deferred income

Current liabilities

Total liabilities

Total equity and liabilities

31 December

2019

2018

Notes

24,927

66,052

4,205

93,407

14,091

3,632

23,137

2,514

73,443

7,919

202,682

110,645

54,009

21,949

3,919,216

1,861,616

9,138

5,865,927

6,068,609

18,609

11,203

–

1,290,796

8,244

1,328,851

1,439,496

287,282

236,540

2,703,583

1,277,780

(4,842)

(1,142)

(109,223)

2,875,658

8,263

19,558

6,989

2,586,348

2,621,158

5,826

143,434

2,037

6,198

414,298

571,793

3,192,951

6,068,609

(735)

(1,557)

(297,779)

1,214,249

3,764

–

1,578

–

5,342

–

68,928

1,175

–

149,801

219,905

225,247

1,439,496

The accompanying notes form an integral part of these financial statements.

129

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Consolidated cash flow statements

(thousands of €)

Net profit/loss (-) of the year

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

2019

149,845

248,027

(7,731)

(5,061)

12,698

2018

(29,259)

21,753

(4,389)

(668)

19,922

Increase/decrease (-) in deferred income

2,804,202

(153,312)

Cash generated/used (-) in operations

3,201,980

(145,953)

Interest paid

Interest received

Corporate taxes paid

(1,158)

7,852

(57)

(1,063)

4,558

(8)

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

3,208,617

(142,466)

Purchase of property, plant and equipment

Purchase of and expenditure in intangible fixed assets

Proceeds from disposal of property, plant and equipment

Increase in current financial investments

Interest received related to current financial investments

Decrease in current financial investments

Acquisition of financial assets held at fair value through profit
or loss

Proceeds from sale of financial assets held at fair value
through profit or loss

(22,385)

(23,300)

–

(4,787,284)

5,059

1,063,344

(177)

(10,392)

(3,325)

–

(4,559)

2,361

Net cash flows used in investing activities

(3,764,660)

(15,914)

Payment of lease liabilities

(5,091)

(5)

Proceeds from capital and share premium increases, gross
amount

960,087

296,188

Issue costs paid related to capital and share premium
increases

Proceeds from capital and share premium increases from
exercise of warrants

Proceeds from capital and share premium increases from
exercise of warrant A by Gilead

(4,447)

(15,964)

17,167

7,657

368,035

–

Net cash flows generated in financing activities

1,335,751

287,876

Increase in cash and cash equivalents

779,708

129,497

130

Galapagos NV • Annual Report 2019

Notes

FINANCIAL STATEMENTS

(thousands of €)

2019

2018

Cash and cash equivalents at beginning of year

1,290,796

1,151,211

Notes

Transfer to current financial investments

(198,922)

–

Increase in cash and cash equivalents

779,708

129,497

Effect of exchange rate differences on cash and cash
equivalents

(9,966)

10,089

Cash and cash equivalents at end of the year

1,861,616

1,290,796

(thousands of €)

Current financial investments

Cash and cash equivalents

Current financial investments and cash and cash
equivalents

31 December

2019

3,919,216

1,861,616

2018

–

1,290,796

5,780,832

1,290,796

Notes

The accompanying notes form an integral part of these financial statements.

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Galapagos NV • Annual Report 2019

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 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/loss
(-)

Total comprehensive income/loss
(-)

Share-based compensation

(83,220)

619

(619)

–

233,414

993,025

(1,754)

(641)

(295,279)

928,766

(29,259)

197

(94)

103

(94)

(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

On 1 January 2019

236,540

1,277,780

(1,557)

(735)

(297,779)

1,214,249

Change in accounting policy
(modified retrospective application
IFRS 16)

Restated total equity at 1 January
2019

Net profit

Other comprehensive income/loss
(-)

Total comprehensive income/loss
(-)

Share-based compensation

Derecognition of financial liability
from share subscription
agreement and warrant A

Issue of new shares

Share issue costs

Exercise of warrant A by Gilead

Exercise of warrants

236,540

1,277,780

(1,557)

(735)

(297,363)

1,214,665

416

149,845

415

(4,107)

(3,692)

(4,107)

149,845

146,154

38,297

36,945

(4,447)

14,162

4,082

135,702

923,142

353,873

13,085

135,702

960,087

(4,447)

368,035

17,167

On 31 December 2019

287,282

2,703,583

(1,142)

(4,842)

(109,223)

2,875,658

The accompanying notes form an integral part of these financial statements.

132

Galapagos NV • Annual Report 2019

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 Biopharma Belgium BV, Galapagos Real Estate 1 BV and Galapagos Real Estate 2 BV

(Mechelen, Belgium); Galapagos SASU (Romainville, France); Galapagos B.V., Galapagos Biopharma Netherlands B.V.

and Galapagos Real Estate Netherlands 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);

Galapagos Biotech Ltd. (Cambridge, UK); Galapagos Biopharma Germany GmbH (München, Germany); Galapagos

Biopharma Spain S.L.U. (Madrid, Spain) and Galapagos Biopharma Italy S.r.l. (Milan, Italy).

Our operations had 1,003 employees as at 31 December 2019 working in the operating facilities in Mechelen (the

Belgian headquarters), the Netherlands, France, Croatia, Switzerland, the United States and United Kingdom.

2. Summary of significant transaction

On 14 July 2019 we and Gilead announced that we had entered into a 10-year global research and development

collaboration. Through this agreement, Gilead gained exclusive access to our innovative portfolio of compounds,

including six molecules currently in clinical trials, more than 20 preclinical programs and a proven drug discovery

platform.

The transaction was subject to certain closing conditions, including the expiration or termination of the waiting period

under the Hart-Scott-Rodino Antitrust Improvements Act and receipt of merger control approval from the Austrian

Federal Competition Authority. On 23 August 2019 all approvals were obtained and the transaction was closed.

We received an upfront payment €3,569.8 million ($3.95 billion) and a €960.1 million ($1.1 billion) equity investment

from Gilead. On 6 November 2019 Gilead exercised warrant A, which resulted in an additional equity investment

of €368.0 million. We will use the proceeds to expand and accelerate our research and development programs. We

identified the following three performance obligations: (i) the transfer of an extended license on GLPG1690, (ii)

the granting of exclusive access to our drug discovery platform (i.e. the IP, technology, expertise and capabilities)

during the collaboration period and exclusive option rights on our current and future clinical programs after

Phase 2 (or, in certain circumstances, the first Phase 3 study) outside Europe and (iii) an increased cost share

from 20/80 to 50/50 on the global development activities of filgotinib, until we reach the new, increased, joint

predetermined level of costs, as a result of the revised license and collaboration agreement. As part of the

collaboration, Gilead also received option rights for GLPG1972, a Phase 2b candidate for osteoarthritis, in the

United States. We refer to the Critical accounting judgments and key sources of estimation uncertainty section

(note 4) explaining critical judgments in applying accounting policies.

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Gilead also proposed two individuals for our board of directors, which were nominated during the special general

meeting of shareholders of 22 October 2019.

Terms of the collaboration

We will fund and lead all discovery and development autonomously until the end of Phase 2. After the completion

of a qualifying Phase 2 study (or, in certain circumstances, the first Phase 3 study), Gilead will have the option to

acquire a license to the compound outside Europe. If the option is exercised, we and Gilead will co-develop the

compound and share costs equally. Gilead will maintain option rights to our programs through the 10-year term

of the collaboration. This term can be extended for up to an additional three years thereafter for those programs,

if any, that have entered clinical development prior to the end of the collaboration term. On top, a final term

extension can be granted in certain circumstances. If GLPG1690 is approved in the United States, Gilead will pay

us an additional $325 million regulatory milestone fee.

For GLPG1972, after the completion of the ongoing Phase 2b study in osteoarthritis, Gilead has the option to

pay a $250 million fee to license the compound in the United States. If certain secondary efficacy endpoints

for GLPG1972 are met, Gilead will pay us up to an additional $200 million. Following opt-in on GLPG1972, we are

eligible to receive up to $550 million in regulatory and sales based milestones. For all other programs resulting

from the collaboration, Gilead will make a $150 million opt-in payment per program and will owe no subsequent

milestones. We will receive tiered royalties ranging from 20-24% on net sales of all our products licensed by Gilead

in all countries outside Europe as part of the agreement.

Filgotinib collaboration

Under the revised agreement, we will have greater involvement in filgotinib’s global strategy and participate more

broadly in the commercialization of the product in Europe, providing the opportunity to build a commercial

presence on an accelerated timeline. We and Gilead will co-commercialize filgotinib in France, Germany, Italy,

Spain and the United Kingdom and retain the 50/50 profit share in these countries that was part of the

original filgotinib license agreement, and under the revised agreement, we will have an expanded commercial

role. We will be the lead commercialization party for filgotinib in France, Italy and Spain for rheumatology

indications and Gilead will be the lead commercialization party for gastro indications. In Germany and the

United Kingdom, Gilead will lead the rheumatology indications and Galapagos will lead the gastro indications.

We retain exclusive commercialization responsibility in Belgium, the Netherlands and Luxembourg, where the

50/50 profit share also applies. The companies will share future global development costs for filgotinib equally

until a predetermined level, in lieu of the 80/20 cost split provided by the original agreement. Other terms

of the original license agreement remain in effect, including the remaining $640 million in development and

regulatory milestones, sales-based milestone payments of up to $600 million and tiered royalties ranging from

20-30% payable in territories outside of Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and

the United Kingdom. In addition, we achieved two milestones in December 2019 totaling $30 million.

Terms of the equity investment

As part of the research and development collaboration Gilead also entered into a share subscription agreement

with us. Gilead’s equity investment consisted of a subscription for new Galapagos shares at a price of €140.59

per share, representing at 14 July 2019 a 20% premium to Galapagos’ 30-day, volume-weighted average price.

This equity subscription took place at closing of the transaction, on 23 August 2019 and increased Gilead's stake

in Galapagos from approximately 12.3% to 22.04% of the then issued and outstanding shares in Galapagos. In

addition, the extraordinary general meeting of shareholders of 22 October 2019 approved the issuance of warrant

A and initial warrant B allowing Gilead to further increase its ownership of Galapagos to up to 29.9% of the

company’s issued and outstanding shares. The initial warrant B has a term of five years and an exercise price

per share equal to the greater of (i) 120% multiplied by the arithmetic mean of the 30-day daily volume weighted

average trading price of Galapagos’ shares as traded on Euronext Brussels and Euronext Amsterdam, and (ii)

EUR 140.59. Subsequent warrant B is still subject to approval by an extraordinary general meeting of shareholders.

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

This extraordinary general meeting of shareholders shall take place between 57 and 59 months of the closing of

the subscription agreement and this warrant will have substantially similar terms, including as to exercise price,

to the initial warrant B. The agreement also includes a 10-year standstill restricting Gilead’s ability to propose

a business combination with or acquisition of Galapagos or increase its stake in Galapagos beyond 29.9% of the

company’s issued and outstanding shares, subject to limited exceptions. On 6 November 2019 Gilead exercised

warrant A and increased its ownership in Galapagos to 25.10% of the then outstanding shares. Gilead further

increased its ownership to 25.84% at 31 December 2019.

3. 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 2019

▪ IFRS 16 Leases

The above new applicable standard affected the consolidated financial statements as follows:

IFRS 16 Leases

We adopted IFRS 16 on 1 January 2019, in accordance with the transitional provisions of IFRS 16, using the modified

retrospective approach. Consequently, the cumulative effect of adopting IFRS 16 was recognized as an adjustment

to the opening balance of retained earnings as at 1 January 2019, with no restatement of the comparative figures.

On adoption of IFRS 16, we recognized lease liabilities in relation to leases which had previously been classified

as ‘operating leases’ under IAS 17. These liabilities were measured at the present value of the remaining lease

payments and discounted using our incremental borrowing rate as of 1 January 2019. Our weighted average

incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 1.55%.

The differences between our total operating lease commitments as reported in note 25 of our consolidated

financial statements of 31 December 2018 and the total lease liabilities recognized in our statement of financial

position as at 1 January 2019 are summarized below.

(thousands of €)

Operating lease commitments disclosed as at 31 December 2018

Less: discounting effect using the lessee's incremental borrowing rate at the date of
initial application

Less: other

Lease liability recognized as at 1 January 2019

Of which are:

current lease liabilities

non-current lease liabilities

27,704

(1,223)

(569)

25,912

4,516

21,396

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

The change in accounting policy affected the statement of financial position as at 1 January 2019 as follows:

(thousands of €)

Property, plant and equipment (right-of-use assets)

Other current assets (prepaid expenses)

Effect on total assets

Accumulated losses

Lease liabilities (current and non-current)

Deferred income

Effect on total equity and liabilities

1 January

2019

26,406

(494)

25,912

416

25,912

(416)

25,912

We applied the following practical expedients, as permitted by IFRS 16, on the transition date:

▪ Reliance on the previous definition of a lease (as provided by IAS 17) for all contracts that existed on the date

of initial application;

▪ The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
▪ Reliance on previous assessments on whether leases are onerous instead of performing an impairment

review;

▪ The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019

as short-term leases;

▪ No recognition of right-of-use assets and liabilities for leases of low value assets.

We refer to our updated accounting policy on leases as a result of the adoption of IFRS 16.

Other new standards and interpretations applicable for the annual period beginning on 1 January 2019 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 2019

A number of new standards are effective for annual periods beginning on or after 1 January 2020 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 no standard to have a material impact

on our financial statements in the period of initial application.

▪ IFRS 17 Insurance contracts (applicable for annual periods beginning on or after 1 January 2021, 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)

▪ Definition of a Business (Amendments to IFRS 3) (applicable for annual periods 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)

▪ Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (applicable for annual periods

beginning on or after 1 January 2020)

▪ Amendments to IAS 1 Presentation of Financial statements: Classification of liabilities as current or non-
current (applicable for annual periods beginning on or after 1 January 2022, but not yet endorsed in the EU)

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Galapagos NV • Annual Report 2019

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.

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. Because of risks and uncertainties inherent to

the regulatory authorizations and to the development process itself, management estimates that the conditions

for capitalization are not met until we obtain regulatory approval from the competent authorities.

Currently we don’t own products that have obtained regulatory approval and this has resulted in all development

costs being recognized as an expense in the period in which they are incurred.

Intellectual property, which comprises patents, licenses and rights, is measured 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: 3 – 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.

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FINANCIAL STATEMENTS

Leasehold improvements

Leasehold improvements are depreciated over the term of the lease, unless a shorter useful life is expected.

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. We do not actively use currency derivatives to hedge planned future

cash flows, nor do we make use of forward foreign exchange contracts, outside of the Gilead transaction, fully

settled at 31 December 2019. Additionally, we don’t have financial debts at 31 December 2019.

(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 our 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, current financial investments and cash

equivalents)

▪ 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.

Current financial investments

Current financial investments include financial assets measured at fair value through profit or loss and comprise

short term bond funds that have a maturity equal or less than 12 months, and money market funds.

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Cash equivalents measured at fair value through profit or loss

Cash equivalents measured at fair value through profit or loss may comprise short-term deposits, bonds and

money market funds that are readily convertible to cash and are subject to an insignificant risk of changes in

value. These financial assets are used by us in the management of our short-term commitments.

Financial assets at amortized cost

Receivables

Receivables are designated as financial assets measured at amortized cost. They are initially measured either at

fair value or at transaction price, in the absence of a significant financing component.

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 current/non-current 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

Cash are financial assets measured at amortized cost 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 value and are used by us in the management of our short-term commitments.

Cash equivalents measured at amortized costs

Cash equivalents measured at amortized cost comprise short-term deposits that are readily convertible to

cash and are subject to an insignificant risk of changes in value. These financial assets are used by us in the

management of our short-term commitments.

Cash and cash equivalents exclude restricted cash, which is presented in the line other non-current assets 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.

(iii) Financial instruments: derivative assets/liabilities

Financial assets and financial liabilities are recognized on our balance sheet when we become a party to the

contractual provisions of the instrument.

Derivative assets and liabilities are initially measured at fair value. After initial measurement we will measure

the derivatives at fair value through profit or loss.

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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.

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

financial result 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.

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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.

Revenue recognition

Revenues to date have consisted principally of milestones, license fees and non-refundable upfront fees 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

In our current agreements with customers we are mainly transferring licenses on our IP and in some cases

this is combined with access rights and/or providing research and development services and/or cost sharing

mechanisms. In some cases our collaborations also include an equity subscription component. If this is the case,

we analyze if the criteria to combine contracts, as set out by IFRS 15, are met.

(ii) identify the performance obligations in the contract

Depending on the type of the agreement, there can be one or more distinct performance obligations under IFRS

15. This is based on an assessment of whether the promises in an agreement are capable of being distinct and

are distinct from the other promises to transfer goods and/or services in the context of the contract. For some

of our agreements we combine the transfer of the license with the performance of research and development

activities because we consider that the license is not capable of being distinct and is not distinct in the context

of the contract.

(iii) determine the transaction price

Collaboration and license agreements with our commercial partners for research and development activities

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

the achievement of certain clinical, regulatory or commercial milestones; license fees, royalties on sales and

sometimes reimbursement income or profits sharing arrangements.

a/ 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.

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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.

b/ Milestone payments other than sales based milestones

A milestone payment is only included in the transaction price to the extent that it is highly probable that

a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty

associated with the variable consideration is subsequently resolved. We estimate the amount to be included in

the transaction price using the most likely amount method, where milestone payments are included in the

transaction price upon achievement of the milestone event. The transaction price is then allocated to each

performance obligation on a 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.

c/ 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.

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.

d/ Sales based milestone payments and 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.

(iv) allocate the transaction price to the performance obligations in the contract

We allocate the transaction price to each performance obligation identified in the contract based upon stand-

alone selling price. The stand-alone selling price of each performance obligation is estimated by using one of

the following methods: adjusted market assessment approach, the expected cost plus a margin approach or

the residual approach. If management assesses that there is only one single performance obligation, the entire

transaction price would be allocated to this performance obligation.

(v) recognize revenue when (or as) the entity satisfies a performance obligation

Revenue is recognized when our customer obtains control of the goods and/or services foreseen in the contracts.

The control can be transferred over time or at a point in time – which results in recognition of revenue over time

or at a point in time.

In case of revenue recognition over time, we use either an input model that considers estimates of the percentage

of total research and development costs that are completed each period compared to the total estimated costs

(percentage of completion method) or we apply an output method to measure the progress of the satisfaction of

the underlying performance obligation. In other cases, depending on specific circumstances, we recognize revenue

on a straight-line basis over the estimated term of the performance obligation.

We refer to note 6 for detailed information per agreement and to our Critical judgments in applying accounting

policies for more information.

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Contract costs

Contract costs are those costs we incur to obtain a contract with a customer that we would not have incurred if the

contract has not been obtained and are capitalized as intangible assets only if they are expected to be recoverable.

Capitalized contract costs are amortized on a systematic basis that reflects the pattern of transfer of the related

promised goods or services to the customer. Costs that we would have incurred regardless of whether the contract is

obtained or those costs that are not directly related to obtaining a contract would not be capitalized.

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.

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

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.

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d/ Management bonus plan
(I) Bonuses which were granted for performance years until 2018

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.

(II) Bonuses which were granted for performance year 2019 and beyond

The executive committee members, together with other senior managers are eligible to receive a bonus based on

achievement of personal and corporate objectives. This bonus is paid in cash.

Share-based payments

a/ Equity-settled 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.

b/ Long-term incentive plans in RSU’s (Restricted Stock Units)

Executive committee members and other employees were granted RSU’s in 2019. An RSU is a grant that takes

the form of a promise that employees will receive Galapagos stock in the future and it will be payable, at the

company’s discretion in cash or in shares, upon completion of a certain vesting period. Each RSU reflects the

value of one Galapagos share.

The RSU’s are measured based on the average share price over the 30-calendar day period preceding the

measurement date. We recognize the corresponding expense and liability over the vesting period. The fair value

of the liability is re-measured at each reporting date because currently it is management’s intention to settle the

RSU’s in cash.

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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.

Leases

As explained in the beginning of this note, we adopted IFRS 16 on 1 January 2019, resulting in a change in our

accounting policy.

Accounting policy as from 1 January 2019

All leases are accounted for by recognizing a right-of-use asset and a corresponding lease liability except for:

▪ Leases of low value assets; and
▪ Leases with a duration of 12 months or less

Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net

present value of the lease payments that are not paid at the commencement date, discounted using the rate

implicit in the lease. If this rate cannot be readily determined, we will apply the incremental borrowing rate. The

lease payments can include fixed payments, variable payments that depend on an index or rate known at the

commencement date, expected residual value guarantees, termination penalties and extension option payments

or purchase options if we are reasonably certain to exercise this option.

After initial recognition, the lease liability will be measured at amortized cost using the discount rate determined

at commencement and will be re-measured (with a corresponding adjustment to the related right-of-use asset)

when there is a change in future lease payments in case of renegotiation, changes of an index or rate or in case

of reassessment of options.

At the commencement date, the right-of-use assets are measured at cost, comprising the amount of the initial

lease liability, initial direct costs and the expected dismantling and removing costs (when we incur an obligation

for these costs), less any lease incentives received from the lessors.

After initial recognition, the right-of-use assets are measured at cost and depreciated over the shorter of the

underlying asset's useful life and the lease term on a straight-line basis. The right-of-use assets will be adjusted

for any re-measurements of the lease liability as a result of lease modifications. The right-of-use assets are subject

to impairment testing if there is an indicator for impairment, as for property, plant and equipment. The right-of-

use assets are presented in the statement of financial position under the caption “Property, plant and equipment”

and the lease liabilities are presented as current and non-current lease liabilities.

In determining the lease term, we consider all facts and circumstances that create an economic incentive to

exercise an extension option, or not exercise a termination option. We only include extension options (or periods

after termination options) in the lease term if the lease is reasonably certain to be extended (or not terminated).

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects

this assessment and that is within our control.

Each lease payment is allocated between the liability and financial expenses. The finance cost is charged to the

income statement over the lease period so as to produce a constant periodic rate of interest on the remaining

balance of the liability for each period.

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Accounting policy until 1 January 2019

Until the end of 2018, leases of property, plant and equipment were classified as either finance or operating leases.

Leases were classified as finance leases whenever the terms of the lease substantially transferred all the risks and

rewards of ownership to the lessee. All other leases were classified as operating leases.

Assets held under finance leases were 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. These assets held under finance

leases were depreciated over their useful lives on the same bases as owned assets or, where shorter, over the term

of the related lease agreement. The corresponding liability to the lessor was included in the balance sheet as a

finance lease obligation. The payments were 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 was recognized in the income statement, unless it was directly attributable

to the corresponding asset, in which case it was capitalized.

Rents paid on operating leases were 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 were 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, in the absence of a significant financing component, 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) Property, plant and equipment 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.

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.

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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. We don’t report assets and

liabilities by segment as this information is not regularly provided to the chief operating decision maker. We

have only two segments (see note 5).

4. Critical accounting judgments and key sources of estimation
uncertainty

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.

The following are the critical judgments 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

Accounting for warrant A and warrant B granted to Gilead

Warrant A and warrant B were granted to Gilead in combination with the signing of the collaboration agreement

on 14 July 2019. As the issuance of warrants A and B was subject to the approval of our shareholders, management

concluded that a financial instrument as defined under IAS 32 could not be recognized until such an approval

was received. We considered that the transaction price included a premium paid by Gilead (through the upfront

payment) to acquire the warrants in the future, upon approval by the shareholders.

On 23 August 2019, the closing date of the transaction, we received from Gilead the upfront payment that included

a premium for the future issuance of the warrants. In accordance with IFRS 15, on 23 August 2019, we recorded a

contract liability (’warrant issuance liability’) for the expected value of the warrants. We measured both warrants

at fair value and recognized a warrant issuance liability at closing of the transaction for the same amount (as part

of the current deferred income line). This liability is re-measured at each reporting period with a corresponding

impact on the allocation of the transaction price to the performance obligation relating to the drug discovery

platform until the time the warrants are approved and issued.

The issuance of warrant A and initial warrant B was approved by the extraordinary general meeting of

shareholders of 22 October 2019. Upon issuance of warrant A and initial warrant B, on 22 October 2019, the part

of the contract liability related to the warrant A and initial warrant B was reclassified into a financial liability

(derivative) measured at fair value through profit or loss in accordance with IFRS 9.

Had management concluded warrant A and warrant B could have been recognized as derivatives upon closing

of the transaction changes in the fair value of the derivatives would have been recognized through profit and

loss rather than as an adjustment to the transaction price. This would have resulted in an increase of fair value

re-measurement for the warrants by €12.9 million (fair value gain), and a decrease of the deferred income at

31 December 2019 by €28.6 million, resulting in a decrease in revenue recognized in current period by €0.5 million.

As of 31 December 2019 subsequent warrant B is still subject to approval by an extraordinary general meeting of

shareholders.

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IFRS 15 – Revenue recognition Gilead

Our critical judgments were as follows:

Determination of the total transaction price
▪ In connection with this agreement with Gilead, we recognized a deferred income and an offsetting current
financial asset (derivative) of €85.6 million upon signing of the share subscription agreement with Gilead

as required under IFRS 9. The deferred income has been added to the transaction price at inception of the

agreement because it is considered to be part of the overall consideration received for the three performance

obligations. It has been allocated to the drug discovery platform and will be recognized as revenue over

the next ten years. Had we concluded that the equity subscription should be accounted for as a separate

transaction the entire amount of €85.6 million would have been additionally recorded as equity and future

revenue reduced by the same amount.

Performance obligation: License on GLPG1690
▪ The transaction price allocated to this performance obligation reflects our assessment of the stand-alone
selling price of this performance obligation and was valued based on a discounted cash flow approach

including, amongst others, assumptions on the estimated market share and size, peak sales and probability of

success. Changes in these assumptions would have impacted the estimate of the stand-alone selling price of

this performance obligation. This would have resulted in a reallocation of the transaction price between this

performance obligation, for which revenue is recognized at a point in time, and the drug discovery platform,

for which revenue is recognized on a straight-line basis over ten years.

▪ After granting the license for GLPG1690, we share further development costs equally with Gilead. Gilead is
not assessed as a customer but as a collaboration partner, as such this part of the collaboration is not in

scope of IFRS 15. Any cost reimbursement from our collaboration partner is not recognized as revenue but

accounted as a decrease of the related expenses. Had management concluded that the transaction was within

scope of IFRS 15, the reimbursement from our collaboration partner for the year ended 31 December 2019 of

€17.7 million would have been presented as revenue instead of an offset of the related expenses.

Performance obligation: Filgotinib amendment
▪ The standalone selling price of the filgotinib amendment was determined through the cost-plus-margin
approach. Management estimated that an appropriate margin is indirectly embedded in the increased

involvement in the global strategy of filgotinib and the broader commercialization role in the Benelux and

EU5 countries. Had a different margin been estimated the transaction price allocated to the performance

obligation from the filgotinib amendment would have been different with a corresponding adjustment

to the revenue allocated to the drug discovery platform. This would have resulted in a reallocation of

revenue between current periods and future periods, given the transaction price allocated to the performance

obligation from the filgotinib amendment will be recognized over a shorter period as compared to the 10-year

recognition pattern of the transaction price allocated to the drug discovery platform.

Financing component

There are two performance obligations determined in the agreement with Gilead for which the period between

the transfer of the promised goods/services to Gilead and the payment of the underlying consideration by Gilead

exceeds one year, being the performance obligation relating to the drug discovery platform and the performance

obligation resulting from the filgotinib amendment. Although the consideration paid for the drug discovery

platform will be recognized over a period of 10 years as from receipt of the funds, management concluded not

to consider any financing component for this performance obligation as the granting of an exclusive access and

option rights on day one is the predominant value of the drug discovery platform performance obligation. As a

consequence, management has considered it is only appropriate to adjust the part of the transaction price that

was allocated to the filgotinib performance obligation, for the time value of money. Had no financing component

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FINANCIAL STATEMENTS

been applied for the performance obligation resulting from the filgotinib amendment, this would have resulted

in a decrease of €6.9 million in interest expenses, a decrease in revenue recognition of €11.8 million and a decrease

in current and non-current deferred income of €4.9 million for the year ended 31 December 2019.

5. Segment information

The group has two reportable segments, R&D and fee-for-service business.

Segment information for the year 2019

R&D Fee-for-services

Inter-segment
elimination

834,901

50,905

885,806

10,084

6,742

–

(6,742)

16,826

(6,742)

407,464

1,125

(thousands of €)

External revenue

Internal revenue

Other income

Revenues & other income

Segment result

Unallocated expenses(1)

Operating profit

Financial (expenses)/income

Result before tax

Income taxes

Net profit

(1) Unallocated expenses consist of expenses for warrant plans under IFRS 2 Share based payments.

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

Group

844,985

–

50,905

895,890

408,589

(38,297)

370,292

(220,233)

150,060

(214)

149,845

Group

288,836

–

29,009

317,845

(17,983)

(26,824)

(44,807)

15,598

(29,209)

(50)

(29,259)

(1) Unallocated expenses consist mainly of expenses for warrant plans under IFRS 2 Share based payments.

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.

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Geographical information

In 2019 our operations were mainly located in Belgium, Croatia, France and the Netherlands and our top 3

customers represented 98.8% of the revenues. Our client base in 2019 and 2018 included nine of the largest

pharmaceutical companies in the world.

Following table summarizes our revenues by destination of customer:

(thousands of €)

North America

Europe

Asia Pacific

Total revenues

Year ended 31 December

2019

795,605

49,018

362

844,985

2018

117,609

171,113

114

288,836

Following table summarizes our revenues by major customers:

Gilead

North America(1)

Europe(1)

AbbVie

Europe

Novartis

Europe

Servier

Europe

Total revenues from major customers

Year ended 31 December

2019

2018

(thousands of €)

% (thousands of €)

793,873

(4,570)

26,356

19,177

–

834,836

94%

-1%

99%

116,640

7,793

89,936

55,218

9,000

278,587

40%

31%

19%

96%

(1) Following the contract amendment, the revenue recognized for filgotinib for the year ended 31 December 2019 included a negative catch-up

effect of €245.9 million on closing date resulting from the decrease in the percentage of completion applied to previously received upfront and
milestones for that program.

As of 31 December 2019, we held €203 million of non-current assets (€110 million in 2018) distributed as follows:

▪ Belgium: €133 million (€64 million in 2018)
▪ France: €54 million (€36 million in 2018)
▪ The Netherlands: €8 million (€4 million in 2018)
▪ Croatia: €7 million (€5 million in 2018)
▪ Switzerland: €1 million (nil in 2018)

The increase in non-current assets was mainly explained by (i) an increase in property, plant & equipment

explained by new acquisitions in 2019 but also by the recognition of right-of-use assets following the adoption

of IFRS 16 Leases, (ii) an increase in intangible assets due to new acquisitions and capitalization of contract costs

linked to the collaboration agreement with Gilead, and (iii) an increase in non-current R&D incentives receivables

(see note 16).

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6. Total revenues and other income

Revenues

The following table summarizes details of revenues for the years ended 31 December 2019 and 2018 by

collaboration and by category of revenue: upfront payments and license fees, milestone payments,

reimbursement income, and other revenues.

Disaggregation of revenues

(thousands of €)

Over time

Point in time

2019

2018

Year ended 31 December

Recognition of non-refundable upfront
payments and license fees

Gilead collaboration agreement for
GLPG1690

Gilead collaboration agreement for
filgotinib(1)

Gilead collaboration agreement for drug
discovery platform

AbbVie collaboration agreement for CF

Novartis collaboration agreement for
MOR106

Milestone payments

Gilead collaboration agreement for
filgotinib(1)

AbbVie collaboration agreement for CF

Servier collaboration agreement for
osteoarthritis

Reimbursement income

Novartis collaboration agreement for
MOR106

AbbVie collaboration agreement for CF

Other reimbursement income

Other revenues

Fee-for-services revenues

Other revenues

Total revenues

812,058

196,486

666,968

–

62,602

96,809

80,918

1,569

–

52,176

–

47,500

2,878

73,394

(21,187)

24,065

27,623

36,771

–

9,000

19,900

19,177

723

10,150

10,084

8,722

7,718

989

10,233

10,170

844,985

288,836

(1) Following the contract amendment, the revenue recognized for filgotinib for the year ended 31 December 2019 included a negative catch-up

effect of €245.9 million on closing date resulting from the decrease in the percentage of completion applied to previously received upfront and
milestones for that program.

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The upfront payment received from Gilead in connection with the Option, License and Collaboration agreement

signed on 14 July 2019 of €3,569.8 million ($3.95 billion) and the impact of the initial valuation of the derivative

financial

instrument triggered by the share subscription agreement with Gilead were allocated to the

performance obligations identified as follows:

(thousands of €)

Upfront consideration received

Impact initial valuation of share subscription

Less:

Warrant issuance liabilities

Warrant A

Initial warrant B

Subsequent warrant B

Allocation to performance obligations

GLPG1690
Filgotinib additional consideration(1)

Drug discovery platform (10 years)

3,569,815

85,601

3,655,416

(43,311)

(2,545)

(16,184)

3,593,376

666,967

641,663

2,284,747

(1) With regard to the additional consideration received for the extended cost sharing for filgotinib, we assume the existence of a significant

financing component estimated to €44.5 million reflecting the time value of money on the estimated recognition period.

On the closing date of the transaction (23 August 2019) we concluded that the upfront payment implicitly

included a premium for the future issuance of warrant A and initial and subsequent warrant B. The expected

value of the warrants to be issued is treated as a contract liability ("warrant issuance liability") and reducing

the transaction price until approval date of the issuance of the underlying warrants. As from approval date, the

allocation of the upfront payment to the respective warrant becomes fixed and future changes in the fair value

of the respective warrant will be recognized in profit or loss. As such, the part of the upfront payment allocated

to the warrant A and initial warrant B reflects the fair value of these financial liabilities at the warrant approval

date (22 October 2019). The value allocated to the subsequent warrant B reflects the fair value of the underlying

liability at 31 December 2019 since this warrant is not yet approved for issuance.

A summary of all current contracts with customers is given below:

Collaboration with Gilead

On 14 July 2019 we and Gilead announced that we had entered into a 10-year global research and development

collaboration. Through this agreement, Gilead gained exclusive access to our innovative portfolio of compounds,

including six molecules currently in clinical trials, more than 20 preclinical programs and a proven drug discovery

platform. We refer to note 2 Summary of significant transaction for more detailed information.

As part of this deal, our existing license and collaboration agreement for filgotinib with Gilead was also amended.

Under this revised filgotinib agreement, we have greater involvement in filgotinib’s global strategy and participate

more broadly in the commercialization of the product in Europe, providing the opportunity to build a

commercial presence on an accelerated timeline.

We concluded as follows:

as required under IFRS 9. The deferred income has been added to the transaction price at inception of the

agreement because it is considered to be part of the overall consideration received for the three performance

obligations.

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FINANCIAL STATEMENTS

▪ We considered that the transaction price included a premium paid by Gilead (through the upfront payment)
to acquire warrants (warrant A and warrant B) in the future, upon approval by the shareholders. We

measured both warrants at fair value and recognized a warrant issuance liability at closing of the transaction

for the same amount (as part of the current deferred income line). This liability is re-measured at each

reporting period with a corresponding impact on the allocation of the transaction price to the performance

obligation relating to the drug discovery platform.

Financing component
▪ There are two performance obligations determined in the agreement with Gilead for which the period
between the transfer of the promised goods/services to Gilead and the payment of the underlying

consideration by Gilead exceeds one year, being the performance obligation relating to the drug discovery

platform and the performance obligation resulting from the filgotinib amendment. Although the

consideration paid for the drug discovery platform will be recognized over a period of 10 years as from

receipt of the funds, management concluded not to consider any financing component for this performance

obligation as the granting of an exclusive access and option rights on day one is the predominant value of

the drug discovery platform performance obligation. As a consequence, management has considered it is

only appropriate to adjust the part of the transaction price that was allocated to the filgotinib performance

obligation, for the time value of money.

License on GLPG1690
▪ The transaction price allocated to this performance obligation reflects our assessment of the stand-alone
selling price of this performance obligation and was valued based on a discounted cash flow approach

including, amongst others, assumptions on the estimated market share and size, peak sales and probability

of success.

▪ This performance obligation is completely satisfied at 31 December 2019. As such, future milestones (other
than sales based milestones) payments will be included and recognized in the transaction price to the

extent that it is highly probable that a significant reversal of revenue will not occur. Future royalties will be

recognized as revenue as the subsequent underlying sales occur.

▪ After granting the license for GLPG1690, we will share Phase 3 costs equally with Gilead. Any cost
reimbursement from Gilead is not recognized as revenue but accounted as a decrease of the related expenses.

Filgotinib amendment
▪ 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 standalone selling price of the filgotinib amendment was determined through the cost-plus-margin
approach. Management estimated that an appropriate margin is indirectly embedded in the increased

involvement in the global strategy of filgotinib and the broader commercialization role in the Benelux and

EU5 countries.

▪ The transaction price 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 to the extent that it is highly probable that a

significant reversal of revenue will not occur. Sales based milestones and sales based royalties are a part of

the arrangement but are not yet included in our revenues as our program is still in Phase 3 of development.
▪ Revenues are recognized over time through satisfaction of the performance obligation. The "cost-to-cost"
input model is applied to measure the progress of the satisfaction of this performance obligation. The

predetermined level of costs has increased compared to the original agreement and as a result, the

percentage of completion has decreased leading to the recognition in revenue of a negative cumulative catch-

up effect in 2019.

▪ We expect to recognize revenues from the current transaction price over time in future periods until

satisfaction of this performance obligation based on the cost-to-cost model.

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FINANCIAL STATEMENTS

Access rights to the drug discovery platform, option rights and R&D activities
▪ The revenue allocated to the drug discovery platform will be recognized over time as Gilead receives exclusive
access to our drug discovery platform and option rights on our current and future pipeline as well as R&D

activities during the collaboration term. Management concluded that an equal spread over the collaboration

period is the most reliable and appropriate recognition method.

▪ Management assessed the appropriate period over which to recognize the drug discovery platform revenue
to be 10 years. This is because we granted exclusive rights over a 10-year period. However, if at the end of

the 10-year period, some programs in existence as of this time would have reached the clinic (i.e. IND filed

with regulatory authorities), the rights for those specific programs may be extended, for a maximum of three

years. We will reassess this critical estimate at each year-end based on the evolution of our pipeline.

Collaboration with Servier

In 2010 we signed a license and collaboration agreement with Servier in the field of osteoarthritis. 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 us, 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 for as a decrease of the related expenses.

Collaboration with Novartis

Together with our collaboration partner MorphoSys, we closed a license agreement with Novartis for MOR106 in

July 2018. MorphoSys and we received an equal share of an upfront payment of €95 million and were entitled

to potential future milestone payments and royalties. Novartis would bear all future research, development,

manufacturing and commercialization costs related to MOR106. Costs reimbursements received from Novartis

were recognized in revenues when costs were incurred and agreed by the parties as we were acting as a principal

in the scope of the performance of the R&D activities.

On 28 October 2019, we announced the end of the clinical development program of MOR106 in AtD.

On 17 December 2019, Novartis sent us a termination notice, informing us of its decision to terminate the

agreement in its entirety. The notice period for such termination is still ongoing, but we expect that such

termination will become effective later this year.

Collaboration with AbbVie

We concluded as follows for the related revenue recognition:

▪ There was one single performance obligation under IFRS 15: the transfer of a license combined with
performance of R&D activities. This was because we considered that the license was not capable of being

distinct and was not distinct in the context of the contract.

▪ The transaction price of our agreement with AbbVie was 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 were only included in the transaction price to the extent that it was highly probable that

a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty

associated with the variable consideration is subsequently resolved. Given the nature of our industry, we only

consider this once the milestone event is achieved. Sales based milestones and sales based royalties are a part

of our arrangement but are not yet included in our revenues.

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FINANCIAL STATEMENTS

▪ 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 a percentage of costs incurred for this program that are completed each period (percentage of

completion method).

▪ Costs reimbursements received from AbbVie were recognized in revenues when costs were incurred and
agreed by the parties as we were acting as a principal in the scope of our stake of the R&D activities of these

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 were

not distinct and form part of the single performance obligation that was partially satisfied at the date

of the 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 an adjustment to reflect the

contract modification on the transaction price and on the measure of progress towards satisfaction of the

performance obligation.

The performance obligation related to this agreement is considered being fully satisfied at 31 December 2019.

Other income

The following table summarizes other income for the years ended 31 December 2019 and 2018.

(thousands of €)

Grant income

R&D incentives

Other

Total other income

Year ended 31 December

2019

6,549

43,923

433

50,905

2018

1,609

26,912

488

29,009

The majority of the grant income was related to grants from a Flemish agency and the national government,

representing approximately 99% of all reported grant income in 2019 (2018: 95%). 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. In 2019, we also received a grant of €5.5 million from the National Institute for Health and

Disability Insurance. This grant aims to incentivize innovative Belgian biotech companies who are performing

research and development activities in order to identify new medicines.

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FINANCIAL STATEMENTS

R&D incentives income was primarily composed of:

▪ Income from an innovation incentive system of the French government, which represented €12.4 million of
other income for the year ended 31 December 2019 compared to €9.3 million for the year ended 31 December

2018

▪ Income from Belgian R&D incentives with regard to incurred R&D expenses, which represented €21.7 million
of other income for the year ended 31 December 2019 compared to €11.3 million for the year ended

31 December 2018

▪ Tax rebates on payroll withholding taxes of R&D personnel in Belgium and the Netherlands, representing
€9.9 million of other income for the year ended 31 December 2019 compared to €6.3 million for the year ended

31 December 2018

7. 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

2019 and 2018.

(thousands of €)

Personnel costs

Subcontracting

Disposables and lab fees and premises costs

Depreciation

Other operating expenses

Year ended 31 December

2019

(124,260)

(249,926)

(23,880)

(10,874)

(18,380)

2018

(81,352)

(197,644)

(25,525)

(5,655)

(12,699)

Total research and development expenditure

(427,320)

(322,875)

The R&D expenditure increase reflects the increase of our investments to advance our R&D programs. This

increase was principally due to:

▪ Increased R&D personnel costs were explained by an enlarged workforce following the growth in our R&D

activities as well as an exceptional bonus following the successful closing of the Gilead transaction

▪ The increase in subcontracting costs is mainly due to increased expenditure in our partnered programs with
Gilead, including our increased cost share for filgotinib. Moreover expenditures have further increased as we

advance our IPF program, our OA program GLPG1972, our Toledo program and our other programs.

▪ Premises costs decreased and depreciation expenses increased due to the accounting treatment related to the

adoption of IFRS 16 (the effect of IFRS 16 on the depreciation expenses amounted to €5.3 million)

▪ Other operating expenses increased in line with the increase of the R&D staff.

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FINANCIAL STATEMENTS

The table below summarizes our research and development expenditure for the years ended 31 December 2019

and 2018, broken down by program:

(thousands of €)

Filgotinib program

IPF program on GLPG1690

OA program on GLPG1972

Toledo program

CF program

AtD program on MOR106

Other programs

Total research and development expenditure

General and administrative expenses

Year ended 31 December

2019

(100,032)

(75,951)

(19,958)

(47,204)

(3,897)

(24,051)

(156,227)

(427,320)

2018

(66,138)

(72,718)

(15,751)

(20,967)

(30,137)

(14,999)

(102,165)

(322,875)

The following table summarizes the general and administrative expenses for the years ended 31 December 2019

and 2018.

(thousands of €)

Personnel costs and directors fees

Depreciation

Legal and professional fees

Other operating expenses

Total general and administrative expenses

Year ended 31 December

2019

(51,906)

(1,513)

(11,775)

(8,506)

(73,701)

2018

(25,495)

(513)

(4,284)

(5,339)

(35,631)

The increase in our general and administrative expenses in 2019 was mainly due to a planned increase in the

staff supporting the growth of the company, as well as an exceptional bonus following the successful closing of

the Gilead transaction, costs related to the RSU plans granted in 2019 and additional legal and professional fees.

Sales and marketing expenses

The following table summarizes the sales and marketing expenses for the years ended 31 December 2019 and 2018.

(thousands of €)

Personnel costs

Depreciation

External outsourcing costs

Other operating expenses

Total sales and marketing expenses

Year ended 31 December

2019

(7,558)

(61)

(15,722)

(1,236)

(24,577)

2018

(2,282)

–

(1,284)

(580)

(4,146)

The increase in our sales and marketing expenses in 2019 is mainly explained by an increase in personnel costs

due to recruitments, as well as related increase in outsourcing costs. The latter was mainly due to €8.2 million

of expenses relating to our 50/50 cost share mechanism with Gilead for expenses incurred in preparation for the

co-promotion activities for filgotinib.

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FINANCIAL STATEMENTS

8. Staff costs

The table below summarizes the number of our employees on 31 December 2019 and 2018:

Number of employees on 31 December

Total

The average number of employees during the years 2019 and 2018 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

2019

1,003

Year ended 31 December

2019

667

193

865

2018

725

2018

553

119

677

Year ended 31 December

2019

(116,408)

(16,858)

(4,715)

(39,109)

2018

(61,619)

(11,003)

(2,994)

(27,375)

(177,090)

(102,991)

The other personnel costs mainly related to costs for warrants granted of €32.5 million (2018: €21.3 million). For

the costs of warrants granted, see note 28.

9. Fair value re-measurement of share subscription agreement and
warrants granted to Gilead

Total fair value re-measurement for the year ended 31 December 2019 can be split up as follows:

(thousands of €)

Fair value re-measurement of the share subscription agreement

Fair value re-measurement of warrant A

Fair value re-measurement of initial warrant B

Total fair value re-measurement of share subscription agreement and warrants

Year ended 31 December

2019

(142,350)

(35,642)

(3,653)

(181,644)

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FINANCIAL STATEMENTS

Gilead share subscription agreement

On 23 August 2019, the closing date of the contract, Gilead made a €960.1 million equity investment in Galapagos

NV by subscribing to 6,828,985 new ordinary shares at a price of €140.59 per share, including issuance premium.

The equity subscription was accounted for as a financial asset at signing date of the contract on 14 July 2019 and

changes in fair value were recorded through profit or loss until closing date, when the financial liability was

derecognized.

We recognized a fair value loss of €142.4 million, which reflects the increase in the Galapagos share price between

signing and closing of the Gilead agreement. On 23 August 2019, the fair value of the financial liability amounting

to €56.7 million was derecognized through the share premium account in equity.

(thousands of €)

Fair value of financial asset at signing date

Change in fair value recorded in profit or loss

Fair value of financial liability at closing date

Derecognition at closing date

Fair value on 31 December 2019

Gilead warrants A and B

2019

85,601

(142,350)

(56,749)

56,749

–

We measured the warrants (warrant A and initial and subsequent warrant B) at fair value and recognized a

warrant issuance liability at closing date of the transaction. Upon approval of the issuance of warrant A and

initial warrant B on 22 October 2019 (warrant approval date) the variable consideration was re-measured with

a corresponding impact on the transaction price allocated to the performance obligation relating to our drug

discovery platform, and the warrant issuance liability became a financial liability measured at fair value with

changes through profit or loss as from that moment.

Warrant A has been valued using a standard option model (Black & Scholes Merton). The input data used in the

model were derived from market observations (volatility, discount rate and share price) and from management

estimates (number of shares to be issued, applied discount for lack of marketability). On 6 November 2019 Gilead

exercised warrant A and as such increased its ownership in Galapagos to 25.10% of the then outstanding shares.

Between the warrant approval date and the exercise of warrant A our share price increased significantly, resulting

in a fair value loss of €35.6 million recognized in profit or loss. On 6 November 2019 the related financial liability,

amounting to €79.0 million was derecognized through the share premium account in equity.

Management assessed that the financial liability relating to this warrant A had no remaining fair value at

31 December 2019 mainly because Gilead further increased its ownership to 25.84% at 31 December 2019.

(thousands of €)

Fair value of financial liability at warrant approval date

Change in fair value recorded in profit or loss

Derecognition at warrant A exercise date

Fair value on 31 December 2019

2019

(43,311)

(35,642)

78,953

–

The issuance of initial warrant B was approved on 22 October 2019 by the extraordinary general meeting of

shareholders and is not yet exercised by Gilead at 31 December 2019. The fair value measurement of this financial

liability is categorized as level 3 in the fair value hierarchy. Initial warrant B has been valued on the basis of a

Longstaff-Schwartz Monte Carlo model. The input data used in the model were derived from market observations

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FINANCIAL STATEMENTS

(volatility, discount rate and share price) and from management estimates (number of shares to be issued and

applied discount for lack of marketability). The recognized fair value loss of €3.7 million is mainly the result of an

increase in the implied volatility of our share price and our share price itself between the warrant approval date

and year-end. The fair value of the financial liability related to the initial warrant B amounts to €6.2 million on

31 December 2019.

The financial liability will be re-measured at fair value at each reporting period.

(thousands of €)

Fair value of financial liability at warrant approval date

Change in fair value recorded in profit or loss

Fair value on 31 December 2019

2019

(2,545)

(3,653)

(6,198)

The fair value of the financial liability related to the initial warrant B of €6.2 million at 31 December 2019 is

presented as current financial instrument, in the section current liabilities, in our consolidated statement of

financial position.

Subsequent warrant B is still subject to approval by an extraordinary general meeting of shareholders and is

therefore still presented as warrant issuance liability in our deferred income (we refer to note 24 for more

information). Subsequent warrant B has been valued on the basis of a Longstaff-Schwartz Monte Carlo model. The

input data used in the model were derived from market observations (volatility, discount rate and share price)

and from management estimates (number of shares to be issued and applied discount for lack of marketability).

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FINANCIAL STATEMENTS

10. Other financial income/expenses

The following table summarizes financial income and expense for the years ended 31 December 2019 and 2018.

(thousands of €)

Other financial income:

Interest income

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

Fair value gain on current financial investments

Gain upon sale of financial assets held at fair value through profit or loss

Other finance income

Total other financial income

Other financial expenses:

Interest expenses

Effect of discounting long term deferred income

Currency exchange loss

Fair value loss on current financial investments

Other finance charges

Total other financial expenses

Year ended 31 December

2019

2018

14,306

850

5,355

611

264

5,219

199

11,027

1,203

668

21,482

18,335

(1,302)

(6,900)

(47,769)

(3,700)

(400)

(60,071)

(780)

(1,174)

(782)

(2,737)

Total net other financial expenses (-)/income

(38,589)

15,598

The currency exchange loss in 2019 primarily related to a realized currency exchange loss of €34.9 million on the

U.S. dollars upfront payment from Gilead and an unrealized exchange loss of €10.6 million on deposits and current

financial investments held in U.S. dollars. We have cash, cash equivalents and current financial investments 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.

The decrease in currency exchange gain was due to a currency exchange gain in 2018 of €10.1 million on our

cash and cash equivalents held in U.S. dollar. Net exchange loss amounted to €46.9 million for the year ended

31 December 2019, compared to a net exchange gain of €9.9 million for the year ended 31 December 2018.

Interest expenses were related to interests on term deposits and on lease of buildings and cars. Other financial

expense for 2019 also includes €6.9 million of costs linked to the accounting for a financing component embedded

in the upfront consideration received from Gilead in connection with the revised agreement for filgotinib.

For the year ended 31 December 2019, 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 fair values loss on the current financial investments reflects the effect of the re-

measurement at fair value of our money market funds denominated in EUR at 31 December 2019. These fair value

losses are mainly the result of the negative returns on the EUR denominated money market funds.

161

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

11. Income taxes

The following table summarizes the income tax recognized in profit or loss for the years ended 31 December 2019

and 2018.

(thousands of €)

Current tax

Deferred tax

Income taxes

Year ended 31 December

2019

(1,372)

1,158

(214)

2018

(584)

535

(50)

Current tax was related to corporate income taxes for subsidiaries operating on a cost plus basis.

Deferred tax income 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 consolidated statement of financial position

as at 31 December 2019 and 2018.

(thousands of €)

Current tax payable

Total tax liabilities

31 December

2019

2,037

2018

1,175

On 31 December 2019, the 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% (2018: 29.58%) – 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.

162

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

(thousands of €)

Profit/loss (-) before tax

Income tax debit/credit (-), calculated using the Belgian statutory tax rate (29,58%)
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 expenses/income (-) not subject to tax

Effect of non-tax-deductible expenses

Effect of recognition of previously non recognized deferred tax assets

Effect of tax losses (utilized) reversed

Effect from under or over provisions in prior periods

Effect of non-recognition of deferred tax assets

Effect of derecognition of previously recognized deferred tax assets

Effect of use of IID

Total explanations

Year ended 31 December

2019

150,060

44,388

214

(44,173)

831

(13,079)

10,318

53,270

795

(2,286)

(136)

47,413

106

(141,435)

(44,173)

2018

(29,209)

(8,640)

8,690

411

(11,558)

7,530

382

945

(1,977)

(150)

–

13,108

–

8,690

Non-taxable revenues for the years ended 31 December 2019 and 2018 were related to non-taxable subsidies and

tax credits. Expenses/income (-) not subject to tax for the year ended 31 December 2019 mainly consisted of the

fair value re-measurement of the derivative financial liabilities related to share subscription agreement and the

warrants granted to Gilead (see note 9). The use of the IID for the year ended 31 December 2019 referred to the

“innovation income deduction” regime in Belgium. This 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

effective tax rate than other revenues. The effective tax rate can thus be reduced up to 4.4% (3.75% as of 1 January

2020).

163

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

12. 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 outstanding 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. The possible increase

in the number of shares resulting from the outstanding initial warrant B has not been included in the calculation

of the diluted income per share as at 31 December 2019 because they were antidilutive.

Income/loss (-) per share

Net profit/loss (-) attributable to owners of the parent (thousands of €)

Year ended 31 December

2019

149,845

2018

(29,259)

Number of shares (thousands)

Weighted average number of shares for the purpose of basic income/loss (-) per
share

57,614

52,113

Basic income/loss (-) per share (€)

2.60

(0.56)

Net profit/loss (-) attributable to owners of the parent (thousands of €)

149,845

(29,259)

Number of shares (thousands)

Weighted average number of shares for the purpose of diluted income/loss (-) per
share

Number of dilutive potential ordinary shares

57,614

2,498

52,113

–

Diluted income/loss (-) per share (€)

2.49

(0.56)

As we reported a net loss in 2018, 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.

164

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

13. Intangible assets

(thousands of €)

Acquisition value

On 1 January 2018

Additions

Sales and disposals

Translation differences

On 31 December 2018

Additions

Sales and disposals

Translation differences

On 31 December 2019

Amortization and impairment

On 1 January 2018

Amortization

Impairment

Sales and disposals

Translation differences

On 31 December 2018

Amortization

Sales and disposals

Translation differences

On 31 December 2019

Carrying amount

On 31 December 2018

On 31 December 2019

In process
technology

Software &
databases

Brands,
licenses,
patents &
know-how

Contract cost

Total

7,061

(7,061)

–

5,561

417

1,083

(7,061)

–

7,496

1,561

(20)

9,111

5,463

(64)

1,525

1,763

(569)

2,719

2,453

–

15,384

16,082

3,325

(7,650)

11,832

23,300

(64)

14,541

5,172

15,384

35,099

1,509

(569)

949

678

6,514

681

(20)

7,250

816

(63)

–

13,587

1,107

1,083

(7,650)

8,200

2,006

(63)

–

512

8,034

1,626

512

10,173

1,862

6,507

1,771

3,546

–

14,872

3,632

24,927

New additions primarily related to the capitalization of contract costs related to the recent deal with Gilead,

which are being amortized on a straight-line basis over a period of 10 years.

On 31 December 2019, our balance sheet did not hold any internally generated assets capitalized as intangible

asset.

165

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

14. Property, plant and equipment

Fully owned

(thousands of €)

Acquisition value

On 1 January 2018

Additions

Sales and disposals

Reclassifications

Translation differences

On 31 December 2018

Additions

Sales and disposals

Reclassifications

Reclassifications to right-of-use

Translation differences

On 31 December 2019

Depreciations and impairment

On 1 January 2018

Depreciations

Sales and disposals

Translation differences

On 31 December 2018

Depreciations

Sales and disposals

Reclassifications to right-of-use

Translation differences

On 31 December 2019

Carrying amount

On 31 December 2018

On 31 December 2019

Land &
building
improvements

Installation &
machinery

Furniture,
fixtures &
vehicles

Other tangible
assets

4,736

275

5,011

273

33,060

4,674

(486)

753

38,031

6,382

(1,521)

1,792

(30)

5,284

44,655

2,342

344

2,686

394

20,495

3,377

(485)

23,403

4,018

(1,521)

(15)

3,209

1,039

(826)

3,452

649

(97)

4,028

2,407

236

(826)

1,819

399

(99)

Total

42,195

10,392

(1,311)

–

51,321

22,380

(1,618)

–

(251)

(8)

1,189

4,404

(766)

4,827

15,076

(1,795)

(251)

17,856

71,823

258

275

(251)

25,502

3,974

(1,310)

28,184

4,818

(1,620)

(251)

(15)

3,080

25,885

2,119

31,117

2,325

2,204

14,628

18,770

1,632

1,909

4,552

17,825

23,137

40,707

166

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Land &
building

Installation &
machinery

Furniture,
fixtures &
vehicles

–

24,056

3,270

27,364

–

4,666

4,670

–

219

251

554

–

251

342

Total

–

26,406

4,530

251

–

2,130

1,176

3,307

31,225

–

867

–

5,624

251

5,879

Right-of-use

(thousands of €)

Acquisition value

On 1 January 2019

Change in accounting policy (modified
retrospective application IFRS 16)

Restated balance on 1 January 2019

Additions

Reclassifications

Translation differences

On 31 December 2019

Depreciations and impairment

On 1 January 2019

Depreciations

Reclassifications

Translation differences

On 31 December 2019

Carrying amount

On 31 December 2019

22,694

212

2,440

25,345

Carrying amount on 31 December 2019

Property, plant and equipment fully owned

Right-of-use

Total property, plant and equipment

40,707

25,345

66,052

Due to adoption of IFRS 16 on 1 January 2019 we recognized an opening balance of right-of-use assets of

€26.4 million on the balance sheet.

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.

167

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

15. 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

2019

1,418

11,275

1,399

14,091

2018

1,276

6,000

643

7,919

Restricted cash on 31 December 2019 was composed of bank guarantees on real estate lease obligations in Belgium

and in the Netherlands for €0.9 million and €0.5 million respectively.

Financial assets held at fair value through profit or loss consisted of equity instruments of listed companies. We

have no restrictions on the sale of these equity instruments and the assets are not pledged under any of our

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 in other financial

income/other financial expenses.

The table below illustrates these financial assets held at fair value through profit or loss as at 31 December 2019

and 2018.

(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

2019

4,818

–

(82)

4,736

1,182

5,355

6,539

11,275

2018

2,373

4,736

(2,291)

4,818

(619)

598

1,203

1,182

6,000

168

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

16. Research and development incentives receivables

The table below illustrates the R&D incentives receivables related captions in the balance sheet as at 31 December

2019 and 2018.

(thousands of €)

Non-current R&D incentives receivables

Current R&D incentives receivables

Total R&D incentives receivables

31 December

2019

93,407

21,949

115,356

2018

73,443

11,203

84,646

The increase in R&D incentives receivables is explained by additional R&D incentives reported in 2019 for

€34.1 million (€12.4 million related to French R&D incentives and €21.7 million related to Belgian R&D incentives),

by the release of discounting profit of €0.1 million, decreased by the setup of tax provision in France for

€0.4 million and decreased by the payments received related to Belgian R&D incentives amounting to €3.0 million.

The R&D incentives receivables are future expected refunds or tax deductions 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 2019.

Non-current R&D incentives receivables

(thousands of €)

2021

2022

2023

2024

2025 – 2029

Total

31 December 2019

Maturity date

French non-current R&D
incentives receivables –
discounted value

Belgian non-current R&D
incentives receivables –
discounted value

9,668

10,223

11,913

31,804

4,881

5,734

7,534

10,190

33,263

61,603

Total non-current R&D incentives
receivables – discounted value

14,549

15,957

19,447

10,190

33,263

93,407

169

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

17. 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

2019

39,603

292

14,114

54,009

255

4,443

4,439

9,138

2018

9,206

142

9,261

18,609

276

3,863

4,104

8,244

Total trade and other receivables & other current assets

63,147

26,852

Trade and other receivables increased due to the outstanding receivable as at 31 December 2019 of €17.8 million

($20 million) on Gilead related to a milestone for NDA filing in the United States related to filgotinib and the 50%

cost reimbursement for GLPG1690 (€13.4 million) invoiced to Gilead under the cost sharing mechanism.

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 2019, we did not have any provision for expected credit losses.

18. Current financial investments

On 31 December 2019, our current financial

investments amounted to €3,919.2 million compared to nil at

31 December 2018. These current financial investments include a short-term bond fund and money market funds.

The short-term bond fund has a minimum recommended investment horizon of six months. The money market

funds are highly liquid investments that can be readily convertible to cash and are subject to an insignificant

risk of changes in value but they cannot be classified as cash equivalents because they are currently not used by

us for meeting short-term cash commitments.

On 31 December 2019, our current financial investments included $850.5 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.

We refer to note 31 for more information on these current financial investments.

170

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

19. Cash and cash equivalents

(thousands of €)

Cash at banks

Term deposits

Money market funds

31 December

2019

907,939

953,677

–

2018

358,016

733,537

199,243

Total cash and cash equivalents

1,861,616

1,290,796

Cash and cash equivalents may 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 €953.7 million of term deposits which all had an original maturity longer than 3 months.

All cash and cash equivalents are available upon maximum three 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.

At 31 December 2019, our cash and cash equivalents included $656.9 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.

As at 31 December 2019, the money market funds were no longer classified as cash equivalents but as current

financial investments because we no longer used them for meeting short-term cash commitments.

The net increase in cash and cash equivalents of €570.8 million consisted of a transfer to current financial

investments of €198.9 million, negative unrealized exchange differences of €10.0 million, both compensated by

an increase in cash and cash equivalents of €779.7 million. This latter was composed of (i) €3,162.8 million of

operational cash flow, of which €3,497.1 million net operational cash inflow from the Gilead collaboration and

€334.3 million operational cash burn, (ii) €955.6 million net cash proceeds related to the share subscription by

Gilead and €368.0 million cash proceeds related to the exercise of warrant A by Gilead , (iii) €17.2 million of cash

proceeds from capital and share premium increase from exercise of warrants in 2019, less (iv) the net increase in

current financial investments of €3,723.9 million.

Operational cash burn (or operational cash flow if this performance measure is positive) and net cash inflow from

the Gilead transaction are financial measures that are not calculated in accordance with IFRS. Operational cash

burn/cash flow is defined as the increase or decrease in our cash and cash equivalents (excluding the effect of

exchange rate differences on cash and cash equivalents), minus:

the net proceeds, if any, from share capital and share premium increases included in the net cash flows

generated/used (–) in financing activities

ii.

the net proceeds or cash used, if any, in acquisitions or disposals of businesses; the movement in restricted

cash and movement in current financial investments, if any, included in the net cash flows generated/used

(–) in investing activities.

This alternative performance measure is in our view an important metric for a biotech company in the

development stage.

171

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

The following table presents a reconciliation of operational cash flow, net cash inflow from the Gilead transaction

and the operational cash burn adjusted for the Gilead transaction, to the closest IFRS measures, for each of the

periods indicated:

(thousands of €)

Increase in cash and cash equivalents (excluding effect of exchange differences)

Less:

2019

779,710

2018

129,497

Net proceeds from capital and share premium increases

(1,340,842)

(287,881)

Increase in current financial investments

Decrease in current financial investments

Total operational cash flow/cash burn (-)

Upfront consideration received from Gilead

Realized exchange loss on Gilead upfront

Costs associated to the transaction with Gilead

Net operational cash proceeds from the Gilead transaction

Operational cash burn adjusted for Gilead transaction

20. Share capital

(158,384)

4,787,284

(1,063,344)

3,162,809

3,569,815

(34,853)

(37,849)

3,497,113

(334,304)

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

2019

236,540

55,189

(4,447)

287,282

349,789

(62,507)

287,282

2018

233,414

19,090

(15,964)

236,540

294,600

(58,060)

236,540

Costs of capital increases are netted against the proceeds of capital increases, in accordance with IAS 32 Financial

instruments: disclosure and presentation.

172

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

History of share capital

The history of the share capital of Galapagos NV between 1 January 2018 and 31 December 2019 is as follows:

Share capital
increase new
shares
(in thousands €)

Share capital
increase due to
warrant exercise
(in thousands €)

Number of shares
issued
(in thousands
of shares)

Aggregate
number
of shares after
transaction
(in thousands
of shares)

Aggregate share
capital after
transaction
(in thousands €)

50,937

275,510

Date

1 January 2018

20 March 2018

20 June 2018

17 September 2018

16,021

3 October 2018

23 November 2018

31 December 2018

1 January 2019

20 March 2019

20 June 2019

23 August 2019

18 September 2019

6 November 2019

25 November 2019

31 December 2019

36,945

1,613

556

733

167

808

1,127

1,632

14,162

515

298

103

2,961

135

149

208

6,829

302

2,618

54,466

294,600

54,466

294,600

64,667

349,789

On 31 December 2019, Galapagos NV’s share capital amounted to €349,789 thousand, represented by 64,666,802

shares. All shares were issued, fully paid up and of the same class.

All of the share issuances listed above were for cash consideration.

173

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

The below table summarizes our capital increases for the years 2019 and 2018.

(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 2019

54,465,421

236,540

1,277,780

1,514,320

20 March 2019:
exercise of warrants

20 June 2019:
exercise of warrants

23 August 2019:
share subscription by Gilead

149,370

808

2,673

3,481

23.30

90.32

208,310

1,127

3,198

4,325

20.76

113.55

Ordinary shares (fully paid)

6,828,985

36,945

923,142

960,087

Derecognition of financial liability
from share subscription
agreement

Underwriter discounts and
offering expenses (paid)

Total share subscription by
Gilead

56,749

(4,447)

6,828,985

32,498

979,891

1,012,389

148.90

18 September 2019

301,745

1,632

5,043

6,675

22.12

145.25

6 November 2019:
exercise of warrant A by Gilead

Exercise of warrant A

2,617,791

14,162

353,873

368,035

Derecognition of financial liability
related to warrant A

Total exercise of warrant A by
Gilead

25 November 2019:
exercise of warrants

78,953

2,617,791

14,162

432,826

368,035

140.59

170.75

95,180

515

2,172

2,687

28.23

172.95

On 31 December 2019

64,666,802

287,282

2,703,583

2,911,912

174

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

(thousands of €, except share
data)

Number of

shares Share capital

Share
premium

Share capital and
share premium

On 1 January 2018

50,936,778

233,414

993,025

1,226,439

Average
exercise
price
warrants
(in €/
warrant)

Closing share
price on date
of capital
increase
(in €/ share)

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

(15,964)

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

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 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 authorized capital of Galapagos consists of two parts. A general authorization for capital

increases up to 20% of the share capital at the time of convening the shareholders’ meeting of 22 October 2019

(i.e. €67,022,402.04) 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. 13 November 2019. A specific authorization for capital increases

of more than 20% and up to 33% of the share capital at the time of the convening the shareholders' meeting of

25 April 2017 (i.e. €82,561,764.93), 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. This specific part of the authorized

capital can, however, only be used in a number of specific circumstances and upon a resolution of the board

of directors that all independent directors (within the meaning of article 526ter of the Belgian Companies Code)

approve. 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.

As of 31 December 2019, an amount of €67,022,402.04 still remained available under the general part of the

authorized capital and an amount of €13,717,929.80 remained available under the specific part of the authorized

capital.

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

21. Deferred tax

(thousands of €)

Recognized deferred tax assets and liabilities

Assets

Liabilities

31 December

2019

2018

4,205

–

2,514

–

Deferred tax assets unrecognized

289,833

223,377

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 use or derecognition of previously recognized
deferred tax assets

1,158

1,537

(379)

535

1,973

(1,438)

The consolidated tax losses, innovation income deduction and investment deduction carried forward and the

deductible temporary differences at 31 December 2019 amounted in total to €1,179.0 million, €4.2 million were

related to unrecognized tax losses with expiry date between 2020 and 2028.

The available statutory tax losses carried forward that can be offset against future statutory taxable profits

amounted to €374.1 million on 31 December 2019. These statutory tax losses can be compensated with future

statutory profits for an indefinite period except for an amount of €7.2 million in Croatia and the United States

with expiry date between 2020 and 2028. On 31 December 2019, the available tax losses carried forward in Galapagos

NV (Belgium) amounted to €307.7 million. In addition to the latter, Galapagos NV (Belgium) also benefits from

the Belgian innovation income deduction regime which led to report, on 31 December 2019, a carried forward tax

deduction amounting to €224.7 million that can also be offset against future statutory taxable results. In addition,

Galapagos NV (Belgium) also has available investment deduction carried forward of €1 million (2018: €1 million)

that can be offset against future taxable profits. There is no limit in time for the innovation income deduction

and investment deduction carried forward.

With the exception of 2019, we have a history of losses. Excluding the impact of possible sales related revenues

for filgotinib (which is subject to regulatory approval), 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 2019, except for two subsidiaries

operating on a cost plus basis and for our fee-for-service business, for which deferred tax assets were recognized

for €4.2 million (2018: €2.5 million).

176

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

22. Lease liabilities

Due to adoption of IFRS 16 on 1 January 2019 we recognized lease liabilities in relation to leases which had

previously been classified as ‘operating leases’ under IAS 17.

(thousands of €)

Lease liabilities

Within one year

In the second to fifth years inclusive

After five years

Less future finance charges

Present value of lease obligation

Less amount due for settlement within 12 months

Amount due for settlement after 12 months

23. Trade and other liabilities

(thousands of €)

Trade and other liabilities

Other non-current liabilities

Accrued charges

Total trade and other liabilities

Lease payments

Present value of lease payments

31 December

2019

2018

2019

2018

6,189

16,320

3,844

26,353

969

25,384

–

5,826

15,783

3,775

25,384

5,826

19,558

–

31 December

2019

142,510

6,989

923

150,422

2018

68,038

1,578

890

70,506

The increase in trade and other liabilities is mainly due to higher accrued trade liabilities on 31 December 2019,

reflecting the intensification of our investments in our R&D programs, and increased cost sharing with our

partner Gilead. The increase in other non-current liabilities is mainly due to a higher bonus provision caused by

the increase in the Galapagos share price and RSU’s granted during 2019.

24. Deferred income

The table below illustrates the deferred income captions in the balance sheet as at 31 December 2019 and 2018.

(thousands of €)

Deferred income related to contracts

Gilead collaboration agreement for filgotinib

Gilead collaboration agreement for drug discovery platform (*)

AbbVie collaboration for CF

Deferred income related to contracts in our fee-for-service segment

Other deferred income (grants)

31 December

2019

2018

780,261

2,220,013

–

362

145,798

–

3,223

471

309

Total deferred income (long term & current)

3,000,646

149,801

(*) This amount comprises an issuance liability for subsequent warrant B of €16,184 thousand

177

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

The movement in the non-current and current deferred income is detailed in the table below.

(thousands of €)

Total

Gilead
collaboration
agreement
for filgotinib

Gilead
collaboration
agreement
for GLPG
1690

On 1 Januari 2018

219,892

213,981

–

AbbVie
collaboration
agreement
for CF

Servier
collaboration
agreement
for
osteoarthritis

Deferred
income
related
to
contracts
in our
fee-for-
service

segment Other

–

5,362

248

301

Gilead
collaboration
agreement
for drug
discovery
platform(2)
–

Reclassified from equity
following adoption of
IFRS 15

83,220

43,832

44,749

(5,362)

Upfront received

Milestones received

38,874

20,965

12,417

Revenue recognition of
upfront

Revenue recognition of
milestones

(148,985)

(96,809)

(64,394)

(27,623)

38,874

8,548

(52,176)

(36,771)

Other movements

230

223

On 31 December 2018

149,801

145,798

–

3,224

–

471

308

Upfront received and
impact of initial
valuation of share
subscription

3,655,416

641,663

666,967

2,346,787

Milestones received

49,727

27,317

22,410

Significant financing
component

6,900

Revenue recognition of
upfront

Revenue recognition of
milestones

Catch-up effect on
closing date(1)

(1,009,663)

(260,207)

(666,967)

(80,918)

(1,570)

(51,156)

(27,092)

(24,064)

245,883

Other movements

(46,262)

(45,856)

(109)

(297)

On 31 December 2019 3,000,646

780,261

–

2,220,013

–

362

(1) Following the contract amendment, the revenue recognized for filgotinib for the year ended 31 December 2019 included a negative catch-up

effect resulting from the decrease in the percentage of completion applied to previously received upfront and milestones for that program.

(2) The upfront received and the outstanding balance at 31 December 2019 comprise the issuance liabilities for the warrants and the upfront

payment allocated to the drug discovery platform. Other movements include the derecognition of warrant issuance liabilities through the share
premium account.

We refer to note 6 for a detail of the allocation of the transaction price paid by Gilead.

178

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

25. Note to the cash flow statement

(thousands of €)

Adjustment for non-cash transactions

Depreciation and amortization

Impairment loss

Share-based compensation expenses

Decrease (-)/increase in retirement benefit obligations and provisions

Unrealized exchange losses/gains (-) and non-cash other financial expenses

Discounting effect of deferred income

Fair value re-measurement of share subscription agreement and warrants

Net fair value adjustment current financial investments

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

Interest income on current financial investments

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

31 December

2019

2018

12,448

–

38,297

(156)

11,169

6,900

181,644

3,081

(5,355)

248,027

1,302

(9,247)

214

(7,731)

(2)

(5,059)

(5,061)

(67,263)

79,940

12,698

5,081

1,083

26,757

(10,063)

–

(1,203)

21,753

780

(5,219)

(4,389)

(668)

–

(668)

(76)

19,996

19,922

179

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

26. Off-balance sheet arrangements

Contractual obligations and commitments

We entered into lease agreements for offices, laboratories and cars. As a consequence of the adoption of IFRS 16

Leases, on 1 January 2019, lease obligations in the scope of the new standard are presented as lease liabilities in

the statements of financial position and no longer disclosed separately as off-balance sheet commitments. We

refer to note 22 for a breakdown of our lease liabilities.

On 31 December 2019, we had outstanding obligations for future purchase commitments, which become due as

follows:

(thousands of €)

Total

Less than
1 year

1 – 3 years

3 – 5 years

More than
5 years

Purchase commitments

251,670

175,006

70,675

5,989

–

At 31 December 2019 we were committed to two leases which have not yet started. The total future cash outflows

for leases that had not yet commenced were as follows:

(thousands of €)

Lease commitments not commenced

Total

8,986

Less than
1 year

1 – 3 years

3 – 5 years

More than
5 years

5,793

1,502

188

In addition we have engaged a property developer for the construction of the new building in Leiden.

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

222,033

121,139

Total contractual obligations & commitments

249,737

125,862

1 – 3 years

3 – 5 years

More than
5 years

10,024

81,879

91,903

6,234

19,014

25,248

6,724

–

6,724

* Subsequent to the issuance of our consolidated financial statements for the year ended 31 December 2018, we noted that the total of our

purchase commitments as disclosed in note 25 to our consolidated financial statements for the year ended 31 December 2018 was understated
by €22.5 million. In addition, the split based on the expected due date was not presented correctly. Management assessed the materiality of the
errors from a quantitative and qualitative perspective and concluded that the correction was not material to our previously issued consolidated
financial statements. We elected to adjust the historical consolidated financial information presented in this disclosure note to reflect the
correction of this error. Since the revisions were not material, no amendments to previously filed reports were required. The total purchase
commitments due within 1 year were understated by €14.6 million, those due within 1-3 year were understated by €29.2 million and the ones
becoming due within 3-5 years were overstated by €21.3 million. Each affected item within this line relating to this correction has been adjusted.

In addition to the tables above, we have a contractual cost sharing obligation related to our collaboration

agreement with Gilead for filgotinib. The contractual cost sharing commitment amounted to €614.1 million

at 31 December 2019 (€74.0 million at 31 December 2018), for which we have direct purchase commitments of

€27.5 million at 31 December 2019 (€20.3 million at 31 December 2018) reflected in the tables above.

180

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

27. 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 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. Due to the revised license and

collaboration agreement related to filgotinib, that became effective in August 2019, we are responsible for funding

50% of the associated global development costs of the program. We have retained a mechanism to give us cost

protection as we are no longer obliged to bear any further costs if they exceed the joint predetermined level.

In addition, we are eligible to receive $640 million in development and regulatory milestones, sales-based

milestone payments of up to $600 million and tiered royalties ranging from 20-30% payable in territories outside

of Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the United Kingdom. In addition, we

achieved two milestones in December 2019 totaling $30 million.

As a result of the Option, License and Collaboration agreement signed with Gilead in July 2019, we share further

development costs for GLPG1690 equally with Gilead. We are also entitled to an additional milestone for GLPG1690

upon approval in the United States and we are eligible to receive tiered royalties ranging from 20-24% on net sales

of GLPG1690 by Gilead in all countries outside Europe.

As explained in the summary of the significant transaction in note 2 to our consolidated financial statements, Gilead

received exclusive option rights to acquire a license on compounds. Exercising such an option would trigger an opt-in

payment, a 50-50 cost share mechanism for the future development activities, development and sales milestones and

royalties.

28. Warrant plans

Presented below is a summary of warrant activities for the reported periods. Various warrant plans were approved

for the benefit of our employees, and for directors and independent consultants of Galapagos NV. For warrant plans

issued prior to 2011, the warrants offered to the employees and independent consultants vest according to the following

schedule: 10% of the warrants vest on the date of the grant; an additional 10% vest at the first anniversary of the grant;

an additional 20% vest at the second anniversary of the grant; an additional 20% vest at the third anniversary of the

grant; and an additional 40% vest at the end of the third calendar year following the grant.

The warrants granted under warrant plans created from 2011 onwards vest at the end of the third calendar year

following the year of the grant, with no intermediate vesting, with the exception of the warrants granted under

Warrant Plan 2015 (B), Warrant Plan 2015 RMV, and Warrant Plan 2016 (B), which vest on the third anniversary of

the notary deed enacting the acceptance and issuance of the warrants.

The warrants offered to directors vest over a period of 36 months at a rate of 1/36th per month.

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Warrants cannot be exercised before the end of the third calendar year following the year of the grant, except for warrants

granted under Warrant Plan 2015 (B), Warrant Plan 2015 RMV, and Warrant Plan 2016 (B), which become exercisable on

the third anniversary of the notary deed enacting the acceptance and issuance of the warrants. In the event of a change

of control over Galapagos NV, all outstanding warrants vest immediately and will be immediately exercisable.

The table below sets forth a summary of warrants outstanding and exercisable at 31 December 2019, per warrant plan:

Warrant
plan

Allocation
date

Expiry
date

Exercise
price (€)

Outstanding
per
1 January
2019

Granted
during
the year

Exercised
during
the year

Forfeited
during
the year

Expired
during
the year

Outstanding
per
31 December
2019

Exercisable
per
31 December
2019

2006
BNL

2007

2007
RMV

2008

2011

2012

2013

2014

21.12.2007 20.12.2020

28.06.2007 27.06.2020

25.10.2007 24.10.2020

26.06.2008 25.06.2021

23.05.2011 22.05.2019

03.09.2012 02.09.2020

16.05.2013 15.05.2021

25.07.2014 24.07.2022

2014 (B) 14.10.2014 13.10.2022

2015

30.04.2015 29.04.2023

2015 (B) 22.12.2015 21.12.2023

2015
RMV

2016

2016
RMV

22.12.2015 21.12.2023

01.06.2016 31.05.2024

2016 (B) 20.01.2017 19.01.2025

17.05.2017 16.05.2025

19.04.2018 18.04.2026

10.04.2019 09.04.2027

2017

2017
RMV

2018

2018
RMV

2019

2019
RMV

Total

1,050

29,374

24,550

77,100

37,500

110,040

195,560

347,560

60,000

515,053

399,000

97,500

504,250

120,000

150,000

595,500

127,500

1,097,745

137,500

7.12

8.65

5.60

9.95

14.19

19.38

14.54

11.93

28.75

49.00

46.10

62.50

80.57

79.88

95.11

(29,374)

(9,570)

(75,735)

(37,500)

(30,000)

(75,126)

(95,220)

(60,000)

(232,580)

(69,500)

(40,000)

(12,500)

1,504,940

(18,250)

10.04.2019 09.04.2027

95.11

194,750

1,050

–

14,980

1,365

–

80,040

120,434

252,340

–

282,473

329,500

57,500

1,050

–

14,980

1,365

–

80,040

120,434

252,340

–

282,473

329,500

57,500

504,250

120,000

150,000

595,500

127,500

1,085,245

137,500

1,486,690

194,750

4,626,782 1,699,690 (754,605)

(30,750)

–

5,541,117

1,139,682

182

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Warrants

3,970,807

763,344

1,235,245

(12,000)

(567,270)

–

4,626,782

882,734

1,699,690

(30,750)

(754,605)

–

5,541,117

1,139,682

Weighted average
exercise price (€)

39.32

13.71

79.88

43.21

13.50

53.30

14.05

95.11

88.92

22.75

70.09

30.16

Outstanding on 31 December, 2017

Exercisable on 31 December, 2017

Granted during the period

Forfeited during the year

Exercised during the period

Expired during the year

Outstanding on 31 December, 2018

Exercisable on 31 December, 2018

Granted during the period

Forfeited during the year

Exercised during the period

Expired during the year

Outstanding on 31 December, 2019

Exercisable on 31 December, 2019

The table below sets forth the inputs into the valuation of the warrants.

Warrant plans

2019

2019 RMV

2018

2018 RMV

10 April 2019

19 April 2018

Exercise Price (€)

95.11

Weighted average share price at acceptance date
(€)

107.05

107.45

Weighted average fair value on the acceptance
date (€)

Weighted average estimated volatility (%)

Weighted average expected life of the warrant
(years)

Weighted average risk free rate (%)

Expected dividends

40.04

35.86

6.02

(0.27)

None

40.05

35.63

6.00

(0.28)

None

79.88

84.88

38.39

39.44

0.51

None

79.88

84.88

38.39

39.44

0.51

None

The exercise price of the warrants is determined pursuant to the applicable provisions of the Belgian Companies

Code.

The weighted average estimated volatility is calculated on the basis of the implied volatility of the share price

over the expected life of the warrants.

The weighted average expected life of the warrant is calculated as the estimated duration until exercise, taking

into account the specific features of the plans.

Our share based compensation expense in 2019 amounted to €38,297 thousand (2018: €26,757 thousand).

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

The following table provides an overview of the outstanding warrants per category of warrant holders at

31 December 2019 and 31 December 2018.

Category (in number of warrants)

Non-executive directors

Executive team

Other

Total warrants outstanding

31 December

2019

222,600

2,171,874

3,146,643

5,541,117

2018

216,780

2,139,374

2,270,628

4,626,782

The outstanding warrants at the end of the accounting period have an average exercise price of €70.09 (2018:

€53.30) and a weighted average remaining expected life of 1,439 days (2018: 1,500 days).

29. Related parties

Relationship and transactions with entities with (joint) control of, or significant influence over, Galapagos

Gilead

Gilead is exercising significant influence over Galapagos as from the equity subscription on 23 August 2019.

As a result of the equity subscription we received a transparency notification from Gilead on 28 August 2019

confirming they held 22.04% of the then issued and outstanding shares of Galapagos. The presumption of

significant influence is also confirmed by the fact that Gilead has the right, for as long as it holds more than 20%

of Galapagos’ share capital, to appoint two Investor Board Designees to Galapagos’ board of directors.

The following balances are outstanding at the end of the reporting period in relation to Gilead:

Relations with Gilead

(thousands of €)

Trade and other receivables

Trade and other payables

31 December

2019

31,645

39,100

The trade and other receivables balances mainly relate to €13.4 million cost reimbursement for GLPG1690 and

€18.2 million relating to the development milestone payment triggered by the NDA submission in December 2019.

The outstanding liabilities mainly relate to the cross charges relating to the development of filgotinib in the

fourth quarter of 2019 (€30.9 million) and €8.2 million related to sales and marketing expenses.

On 14 July 2019, we entered into a 10-year global research and development collaboration with Gilead. In

connection with our entry into the option, license and collaboration agreement, we received an upfront payment

of $3.95 billion (€3.6 billion) and a €960 million ($1.1 billion) equity investment from Gilead (see note 20). In

connection with this share subscription agreement, we recognized a deferred income and an offsetting current

financial asset (derivative) of €85.6 million upon signing of the share subscription agreement with Gilead as

required under IFRS 9. The deferred income has been added to the transaction price at inception of the

agreement. In connection with entering into the option, license and collaboration agreement in July 2019, we also

amended certain terms of our existing agreement with Gilead governing filgotinib.

In addition, the extraordinary general meeting of shareholders of 22 October 2019 approved the issuance of

warrant A and initial warrant B to Gilead allowing them to further increase its ownership of Galapagos to up

to 29.9% of the company’s issued and outstanding shares. Subsequent warrant B is still subject to approval by

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

an extraordinary general meeting of shareholders. This extraordinary general meeting of shareholders shall

take place between 57 and 59 months of the closing of the subscription agreement and this warrant will have

substantially similar terms, including as to exercise price, to the initial warrant B. On 6 November 2019 Gilead

exercised warrant A, which resulted in an additional equity investment of €368.0 million. By exercising warrant A

Gilead increased its ownership in Galapagos to 25.10% of the then outstanding shares. Gilead further increased its

ownership to 25.84% at 31 December 2019.

This has resulted in a total transaction price of €3,655 million that has been allocated to the three performance

obligations and the warrant issuance liabilities (see note 6).

During 2019 we already recognized in revenue the entire transaction price allocated to the license on GLPG1690

(€667 million), €81 million relating to the performance obligation for the drug discovery platform and a total

of €41 million representing the total impact on our revenues coming from the initial and amended filgotinib

performance obligation. The latter consists of upfront payments and milestone payments that were recognized

in accordance with the percentage of completion of the underlying performance obligation.

Furthermore, we recognized €17.7 million of cost reimbursements from Gilead with respect to the development of

GLPG1690 as a decrease of the related expenses (on the line research and development expenditure). An amount

of €72.0 million relating to cross charges from Gilead relating to filgotinib was recognized as expense on the line

research and development expenditure.

Finally, we recognized €8.2 million of sales & marketing expenses relating to our 50/50 cost share mechanism with

Gilead for expenses incurred in preparation for the co-promotion activities for filgotinib.

As at 31 December 2019 we have two outstanding performance obligations under IFRS 15 towards Gilead, being

the performance obligation related to our drug discovery platform and the performance obligation relating to

filgotinib. This results in an outstanding deferred income balance of €2.2 billion for the drug discovery platform

(including the warrant issuance liability relating to subsequent warrant B) and €780 million for the performance

obligation relating to filgotinib.

A detailed explanation of our transactions with Gilead in 2019 can be found in the section titled Agreements with

major Galapagos NV shareholders. There are no other shareholders or other entities who, solely or jointly, control

Galapagos or exercise significant influence over Galapagos.

Relationship and transactions with subsidiaries

Please see note 30 for an overview of the consolidated companies of the group, which are all wholly-owned

subsidiaries of Galapagos NV.

Intercompany transactions between Galapagos NV and its subsidiaries, and amongst the subsidiaries, have been

eliminated in the consolidation and are not disclosed in this note.

Relationship and transactions with key management personnel

Our key management personnel consists of the members of our executive committee and the members of our

board of directors. All amounts mentioned in this section are based on expenses recognized in the financial

statements for the relevant financial year.

Remuneration of key management personnel

On 31 December 2019, our executive committee had five members: Mr. Onno van de Stolpe, Mr. Bart Filius, Dr.

Piet Wigerinck, Dr. Andre Hoekema and Dr. Walid Abi-Saab. They provide their services to us on a full-time basis.

On 31 December 2019, our board of directors consisted of eight members: Mr. Onno van de Stolpe, Dr. Raj Parekh,

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Mr. Howard Rowe, Ms. Katrine Bosley, Dr. Mary Kerr, Mr. Peter Guenter, Mr. Daniel O’Day and Dr. Linda Higgins.

Dr. Werner Cautreels’ and Dr. Christine Mummery’s mandates as directors expired immediately after the annual

shareholders’ meeting of 30 April 2019.

Only the CEO is a member of both the executive committee and the board of directors. Our CEO does not receive

any special remuneration for his board membership, as this is part of his total remuneration package in his

capacity as member of the executive committee.

The remuneration package of the members of key management personnel comprises:

Year ended 31 December

2019

2018

Remuneration of key management personnel:

Thousands of € (except for the number of warrants and RSUs)

Short-term benefits for executive committee members as a group

Gross salary

Employer social security on gross salary

Cash bonus

Exceptional bonus

Employer social security on exceptional bonus

Other short-term benefits

Long-term benefits for executive committee members as a group(1)

Board fees and other short-term benefits for directors

Raj Parekh

Harrold van Barlingen(2)

Howard Rowe

Werner Cautreels(3)

Katrine Bosley

Christine Mummery(3)

Mary Kerr

Peter Guenter(4)

Daniel O'Day(5)

Linda Higgins(5)

14,129

2,121

1,230

10,500

108

109

1,874

–

2,909

1,920

125

757

–

107

1,812

–

Post-employment benefits(6)

Total benefits excluding warrants and RSUs(7)

323

16,619

305

5,346

(1) Only executive committee members are granted long-term benefits. Pursuant to the Senior Management Bonus Scheme, these consist of the

deferred part of the bonus from 3 years ago

(2) Dr. Van Barlingen's director's mandate expired on 24 April 2018
(3) Director's mandate expired on 30 April 2019
(4) Mr. Guenter's director's mandate began on 30 April 2019
(5) Director's mandate began on 22 October 2019
(6) Only executive committee members are granted post-employment benefits
(7) For 2018, this amount excludes an amount of €20,1 thousand tax advisory services that is included in the amount of €107 thousand other short-

term benefits

(8) This is the sum of the RSUs awarded during financial year 2019, excluding the RSUs representing the deferred portion of the bonus for 2019 (still

to be granted). Only executive committee members were awarded RSUs

186

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Number of warrants granted in the year

Executive committee members as a group

Raj Parekh

Howard Rowe

Werner Cautreels(3)

Katrine Bosley

Christine Mummery(3)

Mary Kerr

Peter Guenter(4)

Daniel O'Day(5)

Linda Higgins(5)

Total number of warrants granted in the year

Total cost of warrants granted in the year

Number of RSUs granted in the year(8)

Total number of RSUs granted in the year

Year ended 31 December

2019

2018

315,000

15,000

7,500

–

7,500

–

7,500

–

360,000

14,236

183,450

350,000

15,000

7,500

–

402,500

15,507

–

(1) Only executive committee members are granted long-term benefits. Pursuant to the Senior Management Bonus Scheme, these consist of the

deferred part of the bonus from 3 years ago

term benefits

(8) This is the sum of the RSUs awarded during financial year 2019, excluding the RSUs representing the deferred portion of the bonus for 2019 (still

to be granted). Only executive committee members were awarded RSUs

Other

No loans, quasi-loans or other guarantees were given by Galapagos NV or any of its subsidiaries to members of

the board and of the executive committee. We have not entered into transactions with our key management

personnel, other than as described above with respect to remuneration arrangements relating to the exercise of

their mandates as members of the executive committee and the board of directors.

187

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

30. Consolidated companies as of 31 December 2019

Name of the subsidiary

Biofocus DPI AG in liquidation

Galapagos Biopharma Belgium BV

Country

Switzerland

Belgium

Galapagos Biopharma Netherlands B.V.

The Netherlands

Galapagos Biopharma Spain S.L.U

Galapagos Biopharma Italy S.r.l.

Galapagos Biopharma Germany GmbH

Galapagos Biotech Ltd.

Galapagos BV

Galapagos GmbH

Galapagos, Inc.

Galapagos NV

Galapagos Real Estate 1 BV

Galapagos Real Estate 2 BV

Spain

Italy

Germany

United Kingdom

The Netherlands

Switzerland

United States

Belgium

Galapagos Real Estate Netherlands B.V.

The Netherlands

Galapagos SASU

Fidelta d.o.o.

France

Croatia

Xenometrix, Inc. in liquidation

United States

% voting right
Galapagos NV
(directly
or indirectly
through
subsidiaries)

Change in % voting
right previous
period
(2019 vs 2018)

100%

Parent company

100%

In the course of 2019 we incorporated the following new legal entities: Galapagos Biopharma Belgium BV

(Mechelen, Belgium), Galapagos Biopharma Netherlands B.V. and Galapagos Real Estate Netherlands B.V. (Leiden,

the Netherlands); Galapagos Biopharma Germany GmbH (München, Germany); Galapagos Biopharma Spain S.L.U.

(Madrid, Spain) and Galapagos Biopharma Italy S.r.l. (Milan, Italy).

There are no significant restrictions on the group’s ability to access or use assets, or settle liabilities, of one of the

group’s subsidiaries.

188

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

31. Financial risk management

Financial risk factors

Our financial risks are managed centrally. Our finance department coordinates the access to national and

international financial markets and considers and manages continuously the financial risks concerning our

activities. 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 on borrowings, because we have no financial debt and have a

strong cash and cash equivalents and current financial investments balance. We do not buy or trade financial

instruments for speculative purposes.

Categories of financial assets and liabilities:

(thousands of €)

Financial assets held at fair value through profit or loss

Equity instruments

Current financial investments

Financial assets at amortized cost

Cash and cash equivalents

Restricted cash (current and non-current)

Trade & other receivables (excl prepayments)

Total financial assets

31 December

2019

2018

11,275

3,919,216

6,000

–

1,861,616

1,290,796

1,418

53,717

1,276

18,467

5,847,242

1,316,539

Financial liabilities held at fair value through profit or loss

Current financial instruments

6,198

–

Financial liabilities at amortized cost

Trade and other liabilities

Other non-current liabilities

Lease liabilities

Total financial liabilities

142,510

6,914

25,384

181,006

68,038

1,502

–

69,540

The carrying amounts of trade and other payables and trade and other receivables are considered to be the same

as their fair values, due to their short-term nature.

Financial assets held at fair value through profit or loss

Financial assets held at fair value through profit or loss consisted of equity instruments of listed companies and

current financial investments.

We have no restrictions on the sale of these equity instruments and the assets are not pledged under any of

our liabilities. These instruments are classified 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.

The market price of those shares might face fluctuations and might be affected by a variety of factors, such as

the global economic situation, the business development of competitors, sector mergers and acquisitions; it is

difficult to mitigate this risk.

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FINANCIAL STATEMENTS

Current financial investments include a short-term bond fund and money market funds in EUR and USD, which

all classify for level 1 fair value measurement.

Liquidity risk

Current financial investments and cash and cash equivalents amounted to €5,780.8 million on 31 December 2019.

Management forecasts our liquidity requirements to ensure that we have sufficient cash to meet operational

needs. We have no credit lines. Such forecasting is based on realistic assumptions with regards to milestone and

upfront payments to be received, taking into account our past track record, including the assumption that not

all new projects that are being planned will be realized.

All our current financial investments and cash and cash equivalents have only an insignificant liquidity risk as

they are all convertible upon a maximum three month notice period and without incurring a significant penalty.

Credit risk

The term “credit risk” refers to the risk that counterparty will default on its contractual obligations resulting in

financial loss for us.

The trade receivables consist of a limited amount of creditworthy customers, many of which are large

pharmaceutical companies, spread over different geographical areas. To limit the risk of financial losses, we have

developed a policy of only dealing with creditworthy counterparties.

We grant credit to our clients in the framework of our normal business activities. Usually, we require no

pledge or other collateral to cover the amounts due. Management continuously evaluates the client portfolio for

creditworthiness. All our receivables are considered collectable.

We applied the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss

allowance for all receivables. To measure the expected credit losses, receivables have been grouped based on credit

risk characteristics and the days past due. The provision for expected credit losses was not significant given that

there have been no credit losses over the last three years and the high quality nature of our customers.

Aging balance of receivables that are due, but that are still considered collectable:

(thousands of €)

60 – 90 days

90 – 120 days

more than 120 days

31 December

2019

–

2018

236

–

Our cash and cash equivalents are invested primarily in saving and deposit accounts. For banks and financial

institutions, only independently rated parties with a minimum rating of ‘A’ are accepted at the beginning of

the term. Our current financial investments are also kept within different financial institutions and include

short-term bond funds and money market funds with credit ratings ranging from AAA to A- at the beginning

of the investment. All of these current financial investments are investments in a basket of funds so there is no

individual credit risk involved.

Interest rate risk

The only variable interest-bearing financial instruments are cash and cash equivalents and current financial

investments. Changes in interest rates may cause variations in interest income and expenses resulting from

short-term interest-bearing assets. Management does not expect the short-term interest rates to decrease

significantly in the immediate foreseeable future, which limits the interest exposure on our cash and cash

equivalents and current financial investments.

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FINANCIAL STATEMENTS

Effect of interest rate fluctuation

A 100 basis points increase in interest rates at balance sheet date would have increased profit or loss, and

equity, by approximately €57.8 million (2018: €12.9 million); a 100 basis points decrease in interest rates would have

decreased profit or loss, and equity, by approximately €57.8 million (2018: €12.9 million).

Foreign exchange risk

We are exposed to foreign exchange risk arising from various currency exposures. Our principal functional

currency is euro, but we receive payments from our main collaboration partners AbbVie and Gilead in U.S. dollars

and acquire some consumables and materials in U.S. dollars, Swiss francs, GB pounds and Croatian kuna.

To limit this risk, we attempt to align incoming and outgoing cash flows in currencies other than EUR. In

addition, contracts closed by our different entities are mainly in the functional currencies of that entity, except

for the alliance agreements signed with AbbVie and Gilead for which payments are denominated in U.S. dollars.

The exchange rate risk in case of a 10% change in the exchange rate amounts to:

(thousands of €)

Net book value

Increase in Euros – U.S. Dollars

Increase in Euros – GB Pounds

Increase in Euros – CH Francs

Increase in Euros – HR Kunas

Increase in U.S. Dollars – GB Pounds

31 December

2019

2018

(133,373)

(27,200)

113

538

650

(894)

100

208

611

(923)

The exchange rate risk on the U.S. dollar is primarily related to our cash and cash equivalents and current

financial investments held in U.S. dollars.

Capital risk factors

We manage our capital to safeguard that we will be able to continue as a going concern. At the same time, we

want to ensure the return to our shareholders through the results from our research and development activities.

Our capital structure consists of current financial investments, cash and cash equivalents, financial debt (as of

31 December 2019, we only have leasing liabilities ), and equity attributed to the holders of our equity instruments,

such as capital, reserves and results carried forward, as mentioned in the consolidated statement of changes in

equity.

We manage our capital structure and make the necessary adjustments in the light of changes of economic

circumstances, the risk characteristics of underlying assets and the projected cash needs of the current research

and development activities.

The adequacy of the capital structure will depend on many factors, including scientific progress in the research

and development programs, the magnitude of those programs, the commitments to existing and new clinical

CROs, the ability to establish new alliance or collaboration agreements, the capital expenditures, the new

commercial activities, market developments and any future acquisition.

Neither Galapagos NV nor any of its subsidiaries are subject to any externally imposed capital requirements, other

than those imposed by generally applicable company law requirements.

191

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

32. Statutory auditor’s remuneration

The statutory auditor’s fees for carrying out his mandate at group level amounted to €1,406.8 thousand in

2019 (2018: €414.6 thousand). The fees for audit-related services executed by the statutory auditor, related to the

performance of the audit or review of the company’s affiliates financial statements, amounted to €29.2 thousand

(2018: nil). Audit-related services executed by persons related to the statutory auditor for carrying out an auditor’s

mandate at the level of the Company’s affiliates, amounted to €29.2 thousand in 2019 (2018: €27.5 thousand). Other

fees related to audit-related fees, in particular related to legal assignments, which generally the auditor provides,

amounted to €43.0 thousand in 2019 (2018: €92.1 thousand). Other fees related to non-audit services executed by the

statutory auditor, in particular related to services provided ahead of the commercial phase, amounted to €148.2

thousand in 2019. Other fees related to non-audit services executed by persons related to the statutory auditor

amounted to €46.6 thousand in 2019 and related to IT services (2018: €134.8 thousand). The audit committee and

the board of directors are of the opinion that these non-audit services do not affect the independence of the

statutory auditor in the performance of his audit. The abovementioned additional fees were fully approved by

the audit committee in accordance with article 133 §6 of the Belgian Companies Code.

33. Events after balance sheet date

On 17 March 2020, 152,220 warrants were exercised (with an average exercise price of €35.18 per warrant), of which

15,000 warrants were exercised by our CEO, 15,000 warrants by other members of our executive committee, and

17,520 warrants by other members of our board of directors. This resulted in a share capital increase (including

issuance premium) of €5,354,538.80 and the issuance of 152,220 new ordinary shares. The closing price of our share

on 17 March 2020 was €141.40.

Our consolidated financial statements were approved by the board of directors and authorized for publication, on

24 March 2020. They were signed on behalf of the board of directors by:

(signed)

Onno van de Stolpe
Managing Director and CEO

24 March 2020

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Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Non-consolidated financial statements

Income statement

(thousands of €)

Turnover

Internally generated intangible assets

Other operating income

Year ended 31 December

2019

2018

902,817

399,874

21,655

218,961

284,964

9,224

Operating income

1,324,346

513,149

Raw materials, consumables and goods for resale

Services and other goods

Remuneration, social security costs and pensions

Depreciation, impairment and other amounts written off on constitution costs,
intangible and tangible assets

Other operating charges

Non-recurring operating costs

(7,522)

(444,088)

(52,231)

(403,311)

(23,301)

(38)

(6,215)

(299,814)

(33,400)

(305,723)

(8,281)

(1,160)

Operating profit/loss (-)

393,855

(141,443)

Finance income

Finance cost

27,511

(63,967)

35,743

(21,275)

Profit /loss (-) before taxes

357,399

(126,976)

Taxes

21,619

11,286

Profit/loss (-) for the year

379,018

(115,690)

Loss brought forward

(459,547)

(343,858)

Accumulated losses to be carried forward

(80,528)

(459,547)

193

Galapagos NV • Annual Report 2019

FINANCIAL STATEMENTS

Balance sheet

(thousands of €)

Assets

Non-current assets

Intangible fixed assets

Tangible fixed assets

Financial fixed assets

Current assets

Inventories

Trade and other receivables

Deferred costs

Accrued income

Cash and cash equivalents

Total assets

Equity and liabilities

Equity

Share capital and reserves

Share premium account

Accumulated losses

Liabilities

Non-current liabilities

Other non-current liabilities

Current liabilities

Trade and other payables

Tax, payroll and social security liabilities

Accrued costs

Deferred income

Total equity and liabilities

31 December

2019

2018

85,005

11,137

9,507

64,361

67,704

5,576

8,958

53,170

5,918,486

1,358,360

252

150,838

4,103

3,710

5,759,583

6,003,491

266

79,260

2,406

2,457

1,273,970

1,426,063

2,897,031

1,172,722

349,789

2,627,771

(80,528)

294,600

1,337,670

(459,547)

3,106,459

253,341

3,361

3,103,098

227,243

12,061

1,089

2,862,705

6,003,491

857

252,484

137,120

6,406

766

108,192

1,426,063

The non-consolidated annual accounts of Galapagos NV were prepared in accordance with Belgian accounting

rules as well as with the legal and regulatory requirements. They show a positive result. The financial year

2019 closed with a profit of €379.0 million compared to a loss of €115.7 million in 2018. The non-consolidated

annual accounts of Galapagos NV show accumulated losses of €80.5 million as at 31 December 2019; we refer to

the Going concern statement for justification for the application of the valuation rules under the going concern

assumption.

194

Galapagos NV • Annual Report 2019

REPORT OF THE STATUTORY AUDITOR

Report of the statutory auditor

Statutory auditor’s report to the shareholders’ meeting of Galapagos
NV for the year ended 31 December 2019 - Consolidated financial
statements

The original text of this report is in Dutch

In the context of the statutory audit of the consolidated financial statements of Galapagos NV (“the company”)

and its subsidiaries (jointly “the group”), we hereby submit our statutory audit report. This report includes our

report on the consolidated financial statements and the other legal and regulatory requirements. These parts

should be considered as integral to the report.

We were appointed in our capacity as statutory auditor by the shareholders’ meeting of 25 April 2017, in

accordance with the proposal of the board of directors issued upon recommendation of the audit committee. Our

mandate will expire on the date of the shareholders’ meeting deliberating on the financial statements for the

year ending 31 December 2019. We have performed the statutory audit of the consolidated financial statements of

Galapagos NV for 14 consecutive years. We are the statutory auditor of Galapagos NV for 20 consecutive years.

Report on the consolidated financial statements

Unqualified opinion

We have audited the consolidated financial statements of the group, which comprise the consolidated statement

of financial position as at 31 December 2019, the consolidated statement of comprehensive income, the

consolidated statement of changes in equity and the consolidated statement of cash flow for the year then

ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated

statement of financial position shows total assets of 6 068 609 (000) EUR and the consolidated statement of

comprehensive income shows a profit for the year then ended of 149 845 (000) EUR.

In our opinion, the consolidated financial statements give a true and fair view of the group’s net equity and

financial position as of 31 December 2019 and of its consolidated results and its consolidated cash flow for the year

then ended, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European

Union and with the legal and regulatory requirements applicable in Belgium.

Basis for the unqualified opinion

We conducted our audit in accordance with International Standards on Auditing (ISA), as applicable in Belgium.

In addition, we have applied the International Standards on Auditing approved by the IAASB applicable to the

current financial year, but not yet approved at national level. Our responsibilities under those standards are

further described in the “Responsibilities of the statutory auditor for the audit of the consolidated financial

statements” section of our report. We have complied with all ethical requirements relevant to the statutory audit

of consolidated financial statements in Belgium, including those regarding independence.

We have obtained from the board of directors and the company’s officials the explanations and information

necessary for performing our audit.

We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion.

195

Galapagos NV • Annual Report 2019

REPORT OF THE STATUTORY AUDITOR

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit

of the consolidated financial statements of the current period. These matters were addressed in the context of

our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not

provide a separate opinion on these matters.

Determination and allocation of the transaction price as a result of the Transformative Research and

Development Collaboration – Refer to Notes 2, 4, 6, and 24 to the financial statements

Key Audit Matter Description

The Company entered into a Transformative Research and Development Collaboration with Gilead (“the

Collaboration”), resulting in the receipt of an upfront payment of EUR 3,65 billion and an equity investment of

EUR 960 million, including the proposed issuance of warrant A and warrant B (jointly referred to as “the Financial

Instruments”) by the Company to Gilead, subject to shareholder approval. The timing of this being recognized

prior to shareholder approval was a critical judgement as it impacted the determination of the transaction price

and whether the transaction was within the scope of IFRS 9 – Financial Instruments.

As part of the IFRS-15 analysis, the Company concluded the transaction price was impacted by the Subscription

Agreement, including contractual warrant A and warrant B that had been entered into simultaneously. The

Company identified three performance obligations capable of being distinct in the context of the contract, for

which the stand-alone selling price was determined, using valuation models, including both observable and

unobservable inputs. The revenue related to these performance obligations is recognized either at a point in time

or over time, based on the Company’s conclusion on the satisfaction of the respective performance obligation-

patterns.

The evaluation of the reasonableness of management’s estimates and assumptions related to these specific

critical judgements and accounting estimates require a high degree of auditor judgement and a significant degree

of extra audit effort, including the need to involve our accounting and valuation Specialists.

The determination of the transaction price, together with the allocation to those distinct performance

obligations and the subsequent revenue recognition pattern is complex and required critical judgements in the

following areas:

Determination of the transaction price
▪ Interdependency between the Financial Instruments and the transaction price in the Collaboration

Identification of distinct performance obligations
▪ Assessment of the existence of a significant financing component related to the Drug Discovery Platform.

Allocation of the transaction price to the distinct performance obligations
▪ Determination of the stand-alone selling price of GLPG1690, including the appropriateness of the valuation

model and the unobservable inputs.

▪ Determination of the stand-alone selling price of the Filgotinib amendment, including the appropriateness

of the margin, being a non-cash consideration, included in the cost-plus margin approach.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures to address all critical judgements related to the Collaboration included reading the

Subscription Agreement, Option, License and Collaboration Agreement and the First Amendment to the License

and Collaboration Agreement and management’s accounting position paper to understand the terms of each

contract and evaluate management’s conclusions.

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REPORT OF THE STATUTORY AUDITOR

In relation to management’s critical judgements related to the Collaboration, our audit procedures included the following:

Determination of the transaction price
▪ We tested the effectiveness of controls over the determination of the transaction price, as part of management’s
controls over the application of IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial

Instruments, including the interdependency of the Financial Instruments.

▪ With the assistance of our accounting Specialists, we evaluated the impact of the interdependency and the timing
of recognition of the Financial Instruments (IFRS 9 – Financial instruments) on the transaction price in the

Collaboration (IFRS15–revenuefromCustomers), including the impact of subsequent re-measurement of these

Financial instruments on the transaction price.

Identification of distinct performance obligations
▪ We tested the effectiveness of controls over the identification of distinct performance obligations, as part of
management’s controls over the application of IFRS15–RevenuefromContractswithCustomers, including those

controls addressing the existence of a significant financing component.

▪ We tested management’s identification of distinct performance obligations by evaluating whether the underlying
goods, services, or both were highly interdependent and interrelated and the absence of a significant financing

component for the Drug Discovery Platform performance obligation. We read minutes of committee meetings

and management’s position papers to understand the customer’s intended use of the licenses and other

obligations included in the Collaboration and whether or not the elements included in the Collaboration give rise

to a significant financing component for the Drug Discovery Platform performance obligation.

Allocation of the transaction price to the distinct performance obligations
▪ We tested the effectiveness of controls over the allocation of the transaction price to the distinct performance
obligations, including management’s controls over the valuation of GLPG1690 and the Filgotinib amendment.
▪ With the assistance of our valuation Specialists, we evaluated the reasonableness of the (i) valuation methodology
and (ii) unobservable inputs of most significance to the valuation, being estimated market share and size, peak

sales and probability of success, used to determine the stand-alone selling price by comparing our independent

estimates, derived from external data on the disease area and competitive landscape, to those included by

management in the valuation model of GLPG1690. We performed sensitivity analysis on the variances identified

to determine whether the Company’s valuation was within an acceptable range.

▪ We tested management’s valuation methodology on the Filgotinib amendment, by assessing the appropriateness
of the non-cash consideration, being the increased involvement in the global strategy of filgotinib and the broader

commercialization role in the Benelux and EU5 countries, reflected as margin in the cost-plus-margin approach.

We have read minutes of committee, management position papers, and have inquired with management, in

order to (i) understand management basis for conclusion on the appropriateness of the non-cash consideration,

(ii) assess any contradictory evidence.

Fair Value Measurement of the Financial Instruments arising from the Collaboration - Refer to Notes 2, 4,

6, and 9 to the financial statements

Key Audit Matter Description

As a result of the Collaboration, the Company committed to issue warrant A and warrant B, jointly referred to as

“the Warrants”, to Gilead.

As the fair value measurement of the Warrants is based on complex models and unobservable inputs, these are

classified as Level 3 assets or liabilities.

The valuation of the Warrants classified as Level 3 is inherently subjective, and involves the use of complex

models, including the Longstaff-Schwartz Monte Carlo model, and various unobservable inputs, including the

discount for lack of marketability and estimated strike price.

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Galapagos NV • Annual Report 2019

REPORT OF THE STATUTORY AUDITOR

Given management uses complex models and unobservable inputs to estimate the fair value of Level 3 assets and

liabilities, this required a high degree of auditor judgement and a significant incremental audit effort, including

the need to involve our valuation Specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures included the following:

▪ We tested the effectiveness of controls over management’s valuation of the Warrants, including those related

to assessing the appropriateness of the unobservable inputs and the valuation model applied.

▪ With the assistance of our valuation Specialists, we (i) evaluated the appropriateness of the valuation model,
(ii) evaluated the appropriateness of unobservable inputs determined by management (discount for lack of

marketability), and (iii) developed independent fair value estimates.

Responsibilities of the board of directors for the preparation of the consolidated
financial statements

The board of directors is responsible for the preparation and fair presentation of the consolidated financial

statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European

Union and with the legal and regulatory requirements applicable in Belgium and for such internal control as the

board of directors determines is necessary to enable the preparation of consolidated financial statements that

are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the board of directors is responsible for assessing the group’s

ability to continue as a going concern, disclosing, as applicable, matters to be considered for going concern and

using the going concern basis of accounting unless the board of directors either intends to liquidate the group or

to cease operations, or has no other realistic alternative but to do so.

Responsibilities of the statutory auditor for the audit of the consolidated financial
statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue a statutory auditor’s report

that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit

conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can

arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably

be expected to influence the economic decisions of users taken on the basis of these consolidated financial

statements.

During the performance of our audit, we comply with the legal, regulatory and normative framework as

applicable to the audit of consolidated financial statements in Belgium. The scope of the audit of annual accounts

does not comprise any assurance regarding the future viability of the company nor regarding the efficiency or

effectiveness demonstrated by the board of directors in the way that the company’s business has been conducted

or will be conducted.

As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional

skepticism throughout the audit. We also:

▪ identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from an error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

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REPORT OF THE STATUTORY AUDITOR

▪ obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness

of the group’s internal control;

▪ evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and

related disclosures made by the board of directors;

▪ conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that

may cast significant doubt on the group’s ability to continue as a going concern. If we conclude that a

material uncertainty exists, we are required to draw attention in our statutory auditor’s report to the related

disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our

opinion. Our conclusions are based on the audit evidence obtained up to the date of our statutory auditor’s

report. However, future events or conditions may cause the group to cease to continue as a going concern;
▪ evaluate the overall presentation, structure and content of the consolidated financial statements, and
whether the consolidated financial statements represent the underlying transactions and events in a

manner that achieves fair presentation.

▪ obtain sufficient appropriate audit evidence regarding the financial information of the entities and business
activities within the group to express an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and performance of the group audit. We remain solely responsible

for our audit opinion.

We communicate with those charged with the audit committee regarding, amongst other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in internal

control that we identify during our audit.

We also provide those charged with the audit committee with a statement that we have complied with relevant

ethical requirements regarding independence, and we communicate with them about all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated to those charged with the audit committee, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and are

therefore the key audit matters. We describe these matters in our report unless law or regulation precludes any

public disclosure about the matter.

Other legal and regulatory requirements

Responsibilities of the board of directors

The board of directors is responsible for the preparation and the content of the directors’ report on the consolidated

financial statements, and other matters disclosed in the annual report on the consolidated financial statements.

Responsibilities of the statutory auditor

As part of our mandate and in accordance with the Belgian standard complementary to the International

Standards on Auditing (ISA) as applicable in Belgium, our responsibility is to verify, in all material respects, the

director’s report on the consolidated financial statements and other matters disclosed in the annual report on

the consolidated financial statements, as well as to report on these matters.

Aspects regarding the directors’ report on the consolidated financial statements and
other information disclosed in the annual report on the consolidated financial
statements

In our opinion, after performing the specific procedures on the directors’ report on the consolidated financial

statements, this report is consistent with the consolidated financial statements for that same year and has been

established in accordance with the requirements of article 3:32 of the Code of companies and associations.

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REPORT OF THE STATUTORY AUDITOR

In the context of our statutory audit of the consolidated financial statements we are also responsible to consider, in

particular based on information that we became aware of during the audit, if the directors’ report on the consolidated

financial statements is free of material misstatement, either by information that is incorrectly stated or otherwise

misleading. In the context of the procedures performed, we are not aware of such material misstatement.

The non-financial information as required by article 3:32, § 2 of the Code of companies and associations, has

been disclosed in the directors’ report on the consolidated financial statements that is part of section Corporate

Social Responsibility. This non-financial information has been established by the company in accordance with

the Sustainable Development Goals (“SDGs”). In accordance with article 3:80, §1, 5° of the Code of companies and

associations we do not express any opinion on the question whether this non-financial information has been

established in accordance with these SDGs.

Statements regarding independence

▪ Our audit firm and our network have not performed any prohibited services and our audit firm has remained

independent from the group during the performance of our mandate.

▪ The fees for the additional non-audit services compatible with the statutory audit, as defined in article 3:65
of the Code of companies and associations, have been properly disclosed and disaggregated in the notes to

the consolidated financial statements.

Other statements

▪ This report is consistent with our additional report to the audit committee referred to in article 11 of

Regulation (EU) No 537/2014.

Zaventem, 27 March 2020

The statutory auditor

Deloitte Bedrijfsrevisoren/Réviseurs d’Entreprises CVBA/SCRL
Represented by Gert Vanhees

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OTHER INFORMATION

Glossary of terms

100 points clinical response

Percentage of patients achieving a 100-point decrease in CDAI score during a clinical trial in CD patients

20-F

SEC filing submitted to the US Securities and Exchange

ACR

American College of Rheumatology

ACR20 (ACR 20/50/70)

American College of Rheumatology 20% response rate signifies a 20% or greater improvement in the number of

swollen and tender joints as well as a 20% or greater improvement in three out of five other disease-activity

measures. ACR50 and ACR70 reflect the same, for 50% and 70% response rates, respectively

ADAMTS-5

ADAMTS-5 is a key enzyme involved in cartilage breakdown (Larkin 2015)

ADS

American Depositary Share; Galapagos has a Level 3 ADS listed on Nasdaq with ticker symbol GLPG and CUSIP

number 36315X101. One ADS is equivalent to one ordinary share in Galapagos NV

AFM

Dutch Authority for the Financial Markets

Anemia

Condition in which the patient has an inadequate number of red blood cells to carry oxygen to the body’s

tissues

Ankylosing spondylitis (AS)

AS is a systemic, chronic, and progressive spondyoloarthropathy primarily affecting the spine and sacroiliac

joints, and progressing into severe inflammation that fuses the spine, leading to permanent painful stiffness of

the back

Anti-TNF

Tumor necrosis factor. An anti-TNF drug acts by modulation of TNF

ARGS neoepitope

Byproduct of the breakdown of cartilage by aggrecanase, can be used as a biomarker for cartilage breakdown

ASDAS

Ankylosing Spondylitis Disease Activity Score, a composite score of symptoms such as back pain, duration of

morning stiffness, and peripheral pain and swelling. We measured ASDAS scores in the TORTUGA trial with

filgotinib in AS

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OTHER INFORMATION

Assays

Laboratory tests to determine characteristics

Atherogenic index

Total cholesterol over HDL ratio. Improvement of the atherogenic index may be a forecast of cardiovascular

health

Atopic dermatitis (AtD)

Also known as atopic eczema, atopic dermatitis is a common pruritis inflammatory condition affecting the skin,

which most frequently starts in childhood

ATS

ATS, the American Thoracic Society improves global health by advancing research, patient care, and public

health in pulmonary disease, critical illness, and sleep disorders

Attrition rate

The historical success rate for drug discovery and development, based on publicly known development paths.

Statistically seen, investment in at least 12 target-based programs is required to ensure that at least one of these

will reach a Phase 3 study. Most new drug R&D programs are discontinued before reaching Phase 3 because they

are not successful enough to be approved

Autotaxin (ATX)

An enzyme important for generating the signaling molecule lypophosphatidic acid (LPA). GLPG1690 targets

autotaxin for IPF and SSc

BID dosing

Twice-daily dosing (bis in die)

Bioavailability

Assessment of the amount of product candidate that reaches a body’s systemic circulation after (oral)

administration

Biomarker

Substance used as an indicator of a biological process, particularly to determine whether a product candidate

has a biological effect

Black & Scholes model

A mathematical description of financial markets and derivative investment instruments that is widely used in

the pricing of European options and warrants

Bleomycin model

A preclinical model involving use of bleomycin (a cancer medication) to induce IPF symptoms

Bridging trial

Clinical trial performed to "bridge" or extrapolate one dataset to that for another situation, i.e. to extrapolate

data from one population to another for the same drug candidate, or to move from IV to subcutaneous dosing

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CDAI

Crohn’s Disease Activity Index, evaluating patients on eight different factors, each of which has a pre-defined

weight as a way to quantify the impact of CD

CDAI remission

In the FITZROY trial, the percentage of patients with CD who showed a reduction of CDAI score to <150

CIR

Crédit d’Impôt Recherche, or research credit. Under the CIR, the French government refunds up to 30% of the

annual investment in French R&D operations, over a period of three years. Galapagos benefits from the CIR

through its operations in Romainville, just outside Paris

Clinical proof-of-concept (PoC)

Point in the drug development process where the product candidate first shows efficacy in a therapeutic setting

Compound

A chemical substance, often a small molecule with drug-like properties

Contract research organization

Organization which provides drug discovery and development services

Corticosteroids

Any of a group of steroid hormones produced in the adrenal cortex or made synthetically. They have various

metabolic functions and some are used to treat inflammation

Crohn’s disease (CD)

An IBD involving inflammation of the small and large intestines, leading to pain, bleeding, and ultimately in

some cases surgical removal of parts of the bowel

CRP

C-reactive protein is a protein found in the blood, the levels of which rise in response to inflammation

Cutaneous lupus

Cutaneous lupus is a heterogeneous autoimmune skin disease that can present itself as an organ-specific disease

(e.g., in the skin only) or as a systemic disease involving multiple organs

Cutaneous lupus erythematosus

Lupus affecting the skin. In this autoimmune disease, the body's immune system attacks healthy skin

Cystic fibrosis (CF)

A life-threatening genetic disease that affects approximately 80,000 people worldwide. Although the disease

affects the entire body, difficulty breathing is the most serious symptom as a result of clogging of the airways

due to mucus build-up and frequent lung infections

Cytokine

A category of small proteins which play important roles in signaling in processes in the body

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Dactylitis

Dactylitis is inflammation of a digit (either finger or toe) and is derived from the Greek word dactylos meaning

finger. The affected fingers and/or toes swell up into a sausage shape and can become painful. Dactylitis was

measured in the EQUATOR trial with filgotinib in psoriatic arthritis

DARWIN

Phase 2 program for filgotinib in RA. DARWIN 1 explored three doses, in twice-daily and once-daily

administration, for up to 24 weeks in RA patients with insufficient response to methotrexate (MTX) and who

remained on their stable background treatment with MTX. DARWIN 2 explored three once-daily doses for up to

24 weeks in RA patients with insufficient response to methotrexate (MTX) and who washed out of their

treatment with MTX. DARWIN 1 and 2 were double-blind, placebo-controlled trials which recruited

approximately 900 patients globally and for which results were reported in 2015. DARWIN 3 is a long term

extension trial in which all patients are on 200 mg filgotinib, except for U.S. males who are on 100 mg. The week

156 results from DARWIN 3 were reported in 2019

DAS28 (CRP)

DAS28 is an RA Disease Activity Score based on a calculation that uses tender and swollen joint counts of 28

defined joints, the physician’s global health assessment and a serum marker for inflammation, such as C-

reactive protein. DAS28 (CRP) includes the C-reactive protein score calculation: scores range from 2.0 to 10.0, with

scores below 2.6 being considered remission

Deep venous thrombosis (DVT)

The formation of one or more blood clots in one of the body's large veins, most commonly in the lower limbs.

The blod clot can travel to the lung and cause a pulmonary embolism

Development

All activities required to bring a new drug to the market. This includes preclinical and clinical development

research, chemical and pharmaceutical development and regulatory filings of product candidates

Discovery

Process by which new medicines are discovered and/or designed. At Galapagos, this is the department that

oversees target and drug discovery research through to nomination of preclinical candidates

Disease-modifying

Addresses the disease itself, modifying the disease progression, not just the symptoms of the disease

DIVERSITY

Phase 3 program evaluating filgotinib in CD

DLCO

DLCO (diffusion capacity of the lung for carbon monoxide) is the extent to which oxygen passes from the air sacs

of the lungs into the blood. This is measured in IPF patients

Dose-range finding study

Phase 2 clinical study exploring the balance between efficacy and safety among various doses of treatment in

patients. Results are used to determine doses for later studies

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Double-blind

Term to characterize a clinical trial in which neither the physician nor the patient knows if the patient is

taking placebo or the treatment being evaluated

Efficacy

Effectiveness for intended use

EMA

European Medicines Agency, in charge of European market authorization of new medications

Endoscopy

A non-surgical procedure involving use of an endoscope to examine a person’s digestive tract

Enthesitis

Inflammation of the tendons or ligaments; this is one of the key symptoms of psoriatic arthritis and was also

measured in the EQUATOR trial with filgotinib

EQUATOR

A Phase 2 trial with filgotinib in psoriatic arthritis patients

Esbriet

An approved drug (pirfenidone) for IPF, marketed by Roche

FDA

The U.S. Food and Drug Administration is an agency responsible for protecting and promoting public health and

in charge of American market approval of new medications

Fee-for-service

Payment system where the service provider is paid a specific amount for each procedure or service performed

FEV

Forced expiratory volume measures how much air a person can exhale during a forced breath. The amount of

air exhaled may be measured during the first (FEV1), second (FEV2), and/or third seconds (FEV3) of the forced

breath

Fibrotic score

The Ashcroft fibrotic score involves measuring pulmonary fibrosis through examination of histopathology tissue

FIH

First-in-human clinical trial, usually conducted in healthy volunteers with the aim to assess the safety,

tolerability and pharmacokinetics of the product candidate

Filgotinib

Formerly known as GLPG0634. Small molecule selective JAK1 inhibitor, currently under review for approval in RA

in the U.S., Europa and Japan. Filgotinib is partnered with Gilead for the development and commercialization of

filgotinib in a number of diseases. Filgotinib currently is in Phase 3 trials in UC, CD and PsA, and Phase 2 trials in

additional indications

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FINCH

Phase 3 program evaluating filgotinib in RA

Fistulizing CD

Fistulae are inflammatory tracts that most often occur between the distal colon and the perianal region.

Fistulae are one of the most severe sequelae of luminal CD and the lifetime risk of occurrence is close to 50% of

those with active CD

FITZROY

A double-blind, placebo controlled Phase 2 trial with filgotinib in 177 CD patients for up to 20 weeks. Full results

were published in The Lancet in 2016

FLORA

A double-blind, placebo-controlled exploratory Phase 2a trial with GLPG1690 in up to 24 IPF patients; topline

results were reported in August 2017

FRI

Functional respiratory imaging is a technology which enhances 3D visualization and quantification of a

patient’s airway and lung geometry

FSMA

The Belgian market authority: Financial Services and Markets Authority, or Autoriteit voor Financiële Diensten

en Markten

FTE

Full-time equivalent; a way to measure an employee’s involvement in a project. For example, an FTE of 1.0

means that the equivalent work of one full-time worker was used on the project

Futility analysis

Analysis of the likelihood of a trial to meet its primary endpoint, based on a subset of the total information to

be gathered. The term 'futility' is used to refer to the low likelihood of a clinical trial to achieve its objectives. In

particular, stopping a clinical trial when the interim results suggest that it is unlikely to achieve statistical

significance can save resources that could be used on more promising research

FVC

Forced vital capacity is the amount of air which can be forcibly exhaled from the lungs after taking the deepest

breath possible. FVC is used to help determine both the presence and severity of lung diseases such as IPF

G&A expenses

General & administrative expenses

GLPG0555

A clinical candidate with undisclosed mode of action directed toward inflammation

GLPG0634

Molecule number currently known as filgotinib

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GLPG1205

A GPR84 inhibitor fully proprietary to us. We initiated the PINTA patient trial with GLPG1205 in IPF

GLPG1690

A novel drug targeting autotaxin, with potential application in IPF & SSc. Topline results from the Phase 2a

FLORA trial were reported in August 2017. The ISABELA Phase 3 program was initiated in 2018 and the NOVESA

Phase 2 trial in SSc was initiated in early 2019. Gilead retained the rights on GLPG1690 in IPF in 2019

GLPG1972/S201086

GLPG1972/S201086, also referred to as GLPG1972, is a novel mode-of-action product candidate that is part of the

OA collaboration with Servier. Galapagos and Servier have completed recruitment of the ROCCELLA global Phase

2b trial with GLPG1972/S201086

GLPG2737

A clinical candidate with undisclosed novel mode of action. This compound is part of the CF collaboration with

AbbVie but Galapagos regained rights outside of CF

GLPG3312

A compound currently in Phase 1 with an undisclosed mode of action directed towards inflammation (IBD).

GLPG3312 is a Toledo compound and the first one to enter Phase 1

GLPG3667

A compound currently in Phase 1 with an undisclosed mode of action directed toward inflammation

GLPG3970

A compound currently in Phase 1 with an undisclosed mode of action. GLPG3970 is part of the Toledo target

family

GLPG4059

A compound with undisclosed mode of action currently in the preclincal phase directed toward metabolic

diseases

GLPG4124

A compound with undisclosed mode of action currently in the preclincal phase directed toward fibrosis

GLPG4259

A compound with undisclosed mode of action currently in the preclincal phase directed toward inflammation

GLPG4399

A compound with undisclosed mode of action currently in the preclincal phase directed toward inflammation

GLPG4471

A compound with undisclosed mode of action currently in the preclincal phase directed toward inflammation

GPR84 inhibitor

Drug candidate aimed at inhibiting or blocking G-protein coupled receptor 84. GLPG1205 is a GPR84 inhibitor

aimed at IPF

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HDL

High-density lipoprotein. HDL scavenges and reduces low-density lipoprotein (LDL) which contributes to heart

disease at high levels. High levels of HDL reduce the risk for heart disease, while low levels of HDL increase the

risk of heart disease

Hemoglobin

A protein inside red blood cells that carries oxygen from the lungs to tissues and organs in the body and carries

carbon dioxide back to the lungs

Histopathology

Microscopic examination of tissues for manifestations of a disease

IBD

Inflammatory Bowel Disease. This is a general term for an autoimmune disease affecting the bowel, including

CD and UC. CD affects the small and large intestine, while UC affects the large intestine. Both diseases involve

inflammation of the intestinal wall, leading to pain, bleeding, and ultimately, in some cases, surgical removal of

part of the bowel

IL-17C

IL-17C has been shown to be distinct from other members of the IL-17 family of cytokines. IL-17C has been

shown to be an important mediator in inflammatory skin diseases, and is the target of MOR106

In-/out-licensing

Receiving/granting permission from/to another company or institution to use a brand name, patent, or other

proprietary right, in exchange for a fee and/or royalty

In vitro

Studies performed with cells outside their natural context, for example in a laboratory

Inflammatory diseases

A large, unrelated group of disorders associated with abnormalities in inflammation

Inspiratory capacity

Total lung capacity or the amount of gas contained in the lung at the end of a maximal inhalation

Intellectual property

Creations of the mind that have commercial value and are protected or protectable, including by patents,

trademarks or copyrights

Intersegment

Occurring between the different operations of a company

Investigational New Drug (IND) Application

United States Federal law requires a pharmaceutical company to obtain an exemption to ship an experimental

drug across state lines, usually to clinical investigators, before a marketing application for the drug has been

approved. The IND is the means by which the sponsor obtains this exemption, allowing them to perform

clinical studies

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OTHER INFORMATION

IPF

Idiopathic pulmonary fibrosis. A chronic and ultimately fatal disease characterized by a progressive decline in

lung function. Pulmonary fibrosis involves scarring of lung tissue and is the cause of shortness of breath.

Fibrosis is usually associated with a poor prognosis. The term “idiopathic” is used because the cause of

pulmonary fibrosis is still unknown

ISABELA

Phase 3 clinical program investigating GLPG1690 in IPF patients. The ISABELA Phase 3 program consists of two

identically designed trials, ISABELA 1 and ISABELA 2, and will enroll a total of 1,500 IPF patients combined

JAK

Janus kinases (JAK) are critical components of signaling mechanisms utilized by a number of cytokines and

growth factors, including those that are elevated in RA. Filgotinib is a selective JAK1 inhibitor

LDL

Low-density lipoprotein. LDL contributes to heart disease at high levels

Lipoprotein

Lipoproteins are substances made of protein and fat that carry cholesterol through your bloodstream. There are

two main types of cholesterol: High-density lipoprotein (HDL), or "good" cholesterol and Low-density lipoprotein

(LDL), or "bad" cholesterol

Liver enzymes

Inflamed or injured liver cells secrete higher than normal amounts of certain chemicals, including liver

enzymes, into the bloodstream

LPA

Lysophosphatidic acid (LPA) is a signaling molecule involved in fibrosis

Lymphocyte

Type of white blood cell that is part of the immune system

MACE

Major adverse cardiovascular events; a composite endpoint frequently used in cardiovascular research

MANTA

A Phase 2 semen analysis trial with filgotinib in male patients with CD or UC

MANTA-RAy

Phase 2 semen analysis trial with filgotinib in male patients with RA, PsA, or AS

Membranous lupus nephritis

Membranous lupus nephritis is an inflammation of the kidneys caused by systemic lupus erythematosus and is

characterized by the presence of subepithelial immune complex deposits seen on kidney biopsy

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MHLW

Japanese Ministry of Health, Labor and Welfare (MHLW), in charge of Japanese market authorization of new

medications

Milestone

Major achievement in a project or program; in our alliances, this is usually associated with a payment

Molecule collections

Chemical libraries, usually consisting of drug-like small molecules that are designed to interact with specific

target classes. These collections can be screened against a target to generate initial “hits” in a drug discovery

program

MOR106

MOR106 acts on IL-17C, a novel antibody target discovered by Galapagos. In October 2019 Novartis, MorphoSys and

Galapagos jointly announced the end of the clinical development program of MOR106 in patients with atopic

dermatitis

MTX

Methotrexate; a first-line therapy for inflammatory diseases

NDA

New Drug Application

Neutrophil

Type of immune system cell which is one of the first cell types to travel to the site of an infection in the body.

Neutrophils are another type of white blood cell which fight infection by ingesting and killing microorganisms

NK cells

Natural killer cells, type of white blood cell with granules of enzymes which can attack tumors or viruses

Nonalcoholic steatohepatitis (NASH)

NASH is liver inflammation and damage caused by a buildup of fat in the liver. It is part of a group of conditions

called nonalcoholic fatty liver disease

NOVESA

A Phase 2 trial to evaluate GLPG1690 in systemic sclerosis (SSc)

Ofev

An approved drug (nintedanib) for IPF, marketed by Boehringer Ingelheim

Oral dosing

Administration of medicine by the mouth, either as a solution or solid (capsule, pill) form

Organoids

Miniature organ produced from cells from a donor; organoids have all the phenotypic characteristics of the

patient donor, making them useful tools for in vitro drug research

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OTHER INFORMATION

Osteoarthritis (OA)

The most common form of arthritis, usually occurring after middle age, marked by chronic breakdown of

cartilage in the joints leading to pain, stiffness, and swelling

Outsourcing

Contracting work to a third party

PENGUIN

Phase 3 trials with filgotinib in psoriatic arthritis

Pharmacokinetics (PK)

Study of what a body does to a drug; the fate of a substance delivered to a body. This includes absorption,

distribution to the tissues, metabolism and excretion. These processes determine the blood concentration of the

drug and its metabolite(s) as a function of time from dosing

Phase 1

First stage of clinical testing of an investigational drug designed to assess the safety and tolerability,

pharmacokinetics of a drug, usually performed in a small number of healthy human volunteers

Phase 2

Second stage of clinical testing, usually performed in no more than several hundred patients, in order to

determine efficacy, tolerability and the dose to use

Phase 3

Large clinical trials, usually conducted in several hundred to several thousand patients to gain a definitive

understanding of the efficacy and tolerability of the candidate treatment; serves as the principal basis for

regulatory approval

Phenotypic screening

Phenotypic screening is a strategy used in drug discovery to identify molecules with the ability to alter a cell’s

disease characteristics. Animal models and cell-based assays are both strategies used to identify these molecules.

In contrast to target-based drug discovery, phenotypic screening does not rely on knowing the identity of the

specific drug target or its hypothetical role in the disease. A key benefit this approach has over target-based

screening, is its capacity to capture complex biological mechanisms that are not otherwise achievable

PINTA

Phase 2 trial with GPR84 inhibitor GLPG1205 in IPF patients

Pivotal trials

Registrational clinical trials

Placebo-controlled

A substance having no pharmacological effect but administered as a control in testing a biologically active

preparation

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Preclinical

Stage of drug research development, undertaken prior to the administration of the drug to humans. Consists of

in vitro and in vivo screening, pharmacokinetics, toxicology, and chemical upscaling

Preclinical candidate (PCC)

A new molecule and potential drug that meets chemical and biological criteria to begin the development

process

Product candidate

Substance that has satisfied the requirements of early preclinical testing and has been selected for development,

starting with formal preclinical safety evaluation followed by clinical testing for the treatment of a certain

disorder in humans

Proof-of-concept (POC)

A clinical trial in which first evidence for efficacy of a candidate drug is gathered. A Proof-of-Concept trial is

usually with a small number of patients and for short duration to get a first impression of drug activity

Proof-of-concept study

Phase 2 patient study in which activity as well as safety in patients is evaluated, usually for a new mechanism of

action

Pruritis

Extreme itching, as observed in AtD patients

Psoriatic arthritis (PsA)

Psoriatic arthritis or PsA is an inflammatory form of arthritis, affecting up to 30% of psoriasis patients. Psoriatic

arthritis can cause swelling, stiffness and pain in and around the joints, and cause nail changes and overall

fatigue

Pulmonary embolisms

A blockage in one of the pulmonary arteries in the lungs

QD dosing

Once-daily dosing (qd from the Latin quaque die)

R&D operations

Research and development operations; unit responsible for discovery and developing new product candidates for

internal pipeline or as part of risk/reward sharing alliances with partners

Rheumatoid arthritis (RA)

A chronic, systemic inflammatory disease that causes joint inflammation, and usually leads to cartilage

destruction, bone erosion and disability

ROCCELLA

Global Phase 2b trial, together with our collaboration partner Servier, evaluating GLPG1972/S201086 (GLPG1972) in

osteoarthritis (OA)

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Screening

Method usually applied at the beginning of a drug discovery campaign, where a target is tested in a biochemical

assay against a series of small molecules or antibodies to obtain an initial set of “hits” that show activity against

the target. These hits are then further tested or optimized

SEC

Securities Exchange Commission in the US

SELECTION

Phase 3 program evaluating filgotinib in UC patients

Service operations

Business unit primarily focused on delivering products and conducting fee-for-service work for clients. Our

service operations included the BioFocus and Argenta business units, which were both sold in April 2014 to

Charles River Laboratories

SES-CD scores

Simple endoscopic score for CD, involving review of five pre-defined bowel segments, assigning values from 0

(unaffected) to 3 (highly affected)

Sjögren’s syndrome

Sjögren’s Syndrome is a systemic inflammatory disease which can be felt throughout the body, often resulting

in chronic dryness of the eyes and mouth

S&M expenses

Sales and marketing expenses

Small bowel CD (SBCD)

CD causes chronic inflammation and erosion of the intestines. It can affect different regions of gastrointestinal

tract including the stomach and small and large intestines. While isolated SBCD is an uncommon presentation

of CD, involvement of some portion of the small bowel, particularly the ileum, is common

Spondylitis

About 20% of patients with psoriatic arthritis will develop spinal involvement, which is called psoriatic

spondylitis. Inflammation of the spine can lead to complete fusion, as in AS, or affect only certain areas such as

the lower back or neck. We measured spondylitis in the EQUATOR trial with filgotinib in psoriatic arthritis

Systemic sclerosis (SSc)

Systemic sclerosis (SSc) or scleroderma is an autoimmune disease. One of the most visible manifestations is

hardening of the skin. In diffuse cutaneous SSc, which has one of the highest mortality rates among rheumatic

diseases, fibrosis occurs in multiple organs, such as the lung

Target

Proteïn that has been shown to play a role in a disease process and that forms the basis of a therapeutic

intervention or discovery of a medicine

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Target discovery

Identification and validation of proteins that have been shown to play a role in a disease process

Technology access fee

License payment made in return for access to specific technology (e.g. compound or virus collections)

Tendinitis

Tendinitis is inflammation or irritation of a tendon, the thick fibrous cords that attach muscle to bone. The

condition causes pain and tenderness just outside a joint. We measured tendinitis in the EQUATOR trial with

filgotinib in psoriatic arthritis

Toledo

Toledo is a code name for a target family with a novel, undisclosed mode of action. GLPG3312 is the first of the

Toledo compounds for which a Phase 1-trial has been initiated early 2019

Topical corticosteroids

Corticosteroids which are administered through the skin using an ointment

TORTUGA

Phase 2 trial with filgotinib in patients with ankylosing spondylitis. In 2018, we and Gilead reported that

TORTUGA met its primary endpoint

Ulcerative colitis (UC)

UC is an IBD causing chronic inflammation of the lining of the colon and rectum (unlike CD with inflammation

throughout the gastrointestinal tract)

Uveitis

Uveitis is the term that refers to inflammation inside the eye. This inflammation can be caused by infection,

autoimmune reaction, or by conditions confined primarily to the eye

Venous thrombotic events

When a blood clot breaks loose and travels in the blood, this is called a venous thromboembolism (VTE). The

abbreviation DVT/PE refers to a VTE where a deep vein thrombosis (DVT) has moved to the lungs (PE or

pulmonary embolism)

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Financial calendar

Colophon

28 April 2020

Annual and Extraordinary Shareholders’

Concept, design and online programming
nexxar GmbH, Vienna – Online annual reports

and online sustainability reports

Meeting in Mechelen

07 May 2020

First quarter 2020 results

06 August 2020

Half year 2020 results

05 November 2020

Third quarter 2020 results

18 February 2021

Full year 2020 results

Contact

www.nexxar.com

Photography
Frank van Delft

Video ‘Together we make it happen’
Deep Thought Productions

Copy deadline: 26 March 2020

This report is also available in Dutch and

available for download in the Downloads section

of this report or at www.glpg.com

Elizabeth Goodwin
Vice President Investor Relations

Sofie Van Gijsel
Director Investor Relations

Carmen Vroonen
Senior Director Communications

Galapagos NV

Generaal De Wittelaan L11 A3

& Public Affairs

Galapagos NV

2800 Mechelen, Belgium

Generaal De Wittelaan L11 A3

Tel +1 781 460 1784

Email: ir@glpg.com

Tel. +32 485 19 14 15

Email: ir@glpg.com

2800 Mechelen, Belgium

Tel. +32 473 82 48 74

Email:

communications@glpg.com

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Galapagos NV • Annual Report 2019