Details of the unaudited interim results

Details of the unaudited interim results

Revenues and other income

Revenues

The following table summarizes our revenues for the three months ended 31 March 2017 and 2016.

 

Three months ended 31 March

(thousands of €)

2017

2016

Recognition of non-refundable upfront payments

15,225

4,843

Milestone payments

16,564

Reimbursement income

104

3,950

Other revenues

2,099

1,327

Total revenues

33,992

10,121

Revenues (€34.0 million vs €10.1 million for the same period last year) were higher due to increased milestone revenues from AbbVie for our CF program and to an increase in revenue recognition of the upfront payment from Gilead related to the filgotinib program, which is recognized in function of the costs incurred.

The following table summarizes the upfront payments revenue recognition for the three months ended 31 March 2017 and 2016.

Agreement

Upfront received

Upfront received

Date of receipt

Revenue recognized, three months ended 31 March 2017

Revenue recognized, three months ended 31 March 2016

Outstanding balance in deferred income as at 31 March 2017

 

(thousands of $)

(thousands of €)

 

(thousands of €)

(*)

deferred income of €39 million recognized upon signing of the share subscription agreement with Gilead as required under IAS 39.

Gilead collaboration agreement for filgotinib

300,000

275,558

January 2016

13,337

4,243

236,600

Gilead collaboration agreement for filgotinib

N.A.

39,003(*)

January 2016

1,888

600

33,488

Total recognition of non-refundable upfront payments

15,225

4,843

270,088

For the three first months of 2017, €15.2 million of deferred income related to the Gilead collaboration agreement were recognized in revenue in function of costs incurred, applying the percentage of completion method. This revenue recognition consisted of €13.3 million related to the upfront license fee and €1.9 million related to the deferred income triggered by the accounting treatment of the share subscription agreement under IAS 39. The outstanding balance of deferred income from the Gilead collaboration agreement at the end of March 2017 amounted to €270.1 million of which €191.3 million reported as non-current deferred income.

Other income

The following table summarizes our other income for the three months ended 31 March 2017 and 2016.

 

Three months ended 31 March

(thousands of €)

2017

2016

Grant income

293

594

Other income

5,578

4,102

Total other income

5,871

4,696

Other income increased slightly (€5.9 million vs €4.7 million last year) in the first three months of 2017, mainly driven by higher income from R&D incentives.

Results

We realized a net loss of €13.6 million for the first three months of 2017, compared to a net profit of €35.9 million in the first three months of 2016. Last year’s result was primarily driven by €57.5 million fair value gain from the re-measurement of the financial asset triggered by the share subscription agreement with Gilead.

We reported an operating loss amounting to €11.2 million for the first quarter of 2017, compared to an operating loss of €17.4 million for the same period last year.

Our R&D expenses in the first three months of 2017 were €44.9 million, compared to €27.8 million in 2016. This planned increase was due mainly to an increase of €11.7 million in subcontracting costs for our filgotinib and cystic fibrosis programs. Furthermore, personnel costs increased, explained by a planned increase in headcount, as well as higher costs for warrants and bonus plans as a result of the increase of our share price.

Our G&A and S&M expenses were €6.2 million in the first quarter of 2017, compared to €4.4 million in the first quarter of 2016. This increase mainly resulted from higher costs recognized in relation to the warrants and bonus plans as a result of the increase of the Galapagos share price, as well as a planned slight headcount increase.

Net other financial expenses in the first three months of 2017 amounted to €2.4 million compared to net other financial expenses of €4.1 million in 2016, and were primarily attributable to €2.5 million of unrealized exchange loss on our cash position in U.S. dollar as a consequence of the fluctuation of the U.S. dollar exchange rate in the first quarter of 2017.

Financial results in 2016 were primarily driven by the fair value re-measurement of the share subscription agreement.

Segment information

 

Segment information for the three months ended 31 March 2017

 

(thousands of €)

R&D

Fee-for-services

Inter-segment elimination

Group

(1)

Unallocated expenses consist of expenses for warrant plans under IFRS 2.

External revenue

31,950

2,042

33,992

Internal revenue

1,005

(1,005)

Other income

5,859

12

5,871

Revenues & other income

37,809

3,059

(1,005)

39,863

 

 

 

 

 

Segment result

(7,745)

(457)

 

(8,202)

Unallocated expenses(1)

 

 

 

(3,023)

Operating loss

 

 

 

(11,225)

Financial (expenses) / income

 

 

 

(2,380)

Result before tax

 

 

 

(13,605)

Income taxes

 

 

 

Net loss

 

 

 

(13,605)

 

Segment information for the three months ended 31 March 2016

 

(thousands of €)

R&D

Fee-for-services

Inter-segment elimination

Group

(1)

Unallocated expenses consist of expenses for warrant plans under IFRS 2.

External revenue

8,840

1,281

10,121

Internal revenue

1,310

(1,310)

Other income

4,636

60

4,696

Revenues & other income

13,476

2,651

(1,310)

14,817

 

 

 

 

 

Segment result

(14,624)

(869)

 

(15,493)

Unallocated expenses(1)

 

 

 

(1,902)

Operating loss

 

 

 

(17,395)

Financial (expenses) / income

 

 

 

53,345

Result before tax

 

 

 

35,950

Income taxes

 

 

 

Net income

 

 

 

35,950

The basis of accounting for any transactions between reportable segments is consistent with the valuation rules and with transactions with third parties.

Liquid assets position

Cash, cash equivalents and restricted cash totaled €958.6 million at 31 March 2017.

A net decrease of €19.9 million in cash and cash equivalents was recorded during the first three months of 2017, compared to an increase of €638.0 million during the same period last year. Net cash used in operating activities amounted to €22.8 million in the first quarter of 2017.

Furthermore, €5.5 million was generated in investing activities primarily driven by the release of restricted cash to cash and cash equivalents for €6.6 million, and finally €2.5 million of negative unrealized exchange rate differences were reported on cash and cash equivalents.

Restricted cash amounted to €7.7 million at the end of December 2016, and decreased by €2.5 million to €5.2 million at the end of March 2017. This decrease was explained by the full release of the escrow account containing the remaining €6.6 million of proceeds from the sale of the service division in 2014, as final agreement between the parties was reached. However, this was largely offset by an increase of €4.0 million from the proceeds received as a consequence of warrant exercises. This amount remained on a blocked bank account until 6 April 2017, being the date of the notary deed formally establishing the capital increase.

On 31 March 2017, restricted cash was composed of €0.5 million and €0.7 million bank guarantees on real estate lease obligations in Belgium and in the Netherlands respectively, and €4.0 million advances on capital increase from warrant exercises.

Cash and cash equivalents amounted to €953.4 million at the end of March 2017 and comprised cash and 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 may allow short term deposits with an original maturity exceeding three months while monitoring all liquidity aspects. Cash and cash equivalents comprised €661.5 million of term deposits with an original maturity longer than three months but which are available upon one month notice period. Cash at banks were mainly composed of savings accounts and current accounts. We maintain our bank deposits in highly rated financial institutions to reduce credit risk. Cash invested in highly liquid money market funds represented €99.9 million and aim at meeting short-term cash commitments, while reducing the counterparty risk of investment.

 

31 March

31 December

(thousands of €)

2017

2016

Cash at banks

191,937

357,630

Term deposits

661,496

515,632

Money market funds

99,949

99,977

Cash on hand

3

2

Total cash and cash equivalents

953,385

973,241

On 31 March 2017, our cash and cash equivalents included $201.6 million held in U.S. dollar which could generate unrealized 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. We expect to use this cash held in U.S. dollar to settle our future payables in U.S. dollar which will be primarily linked to our global collaboration with Gilead for the development of filgotinib.

Furthermore, our balance sheet held R&D incentives receivables from the French government (Crédit d’Impôt Recherche2Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.) amounting to €37.0 million as of 31 March 2017, to be received in yearly tranches from 2017 to 2021. Our balance sheet also held R&D incentives receivables from the Belgian Government amounting to €31.9 million as of 31 March 2017, to be received in yearly tranches from 2017 until 2027.

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