Details of the unaudited interim results

Revenues and other income

Revenues

The following table summarizes our revenues for the nine months ended 30 September 2017 and 2016.

Revenues for the nine months ended 30 September 2017 (€87.9 million vs. €50.0 million for the nine months ended 30 September 2016) were higher due to increased revenue recognition of the upfront payment from Gilead related to the filgotinib program, which is recognized in function of the costs incurred, and due to an increase in milestone payments.

The following table summarizes the revenue recognition of upfront payments and license fees for the nine months ended 30 September 2017 and 2016.

For the first nine months of 2017, €53.2 million of deferred income related to the Gilead collaboration agreement was recognized as revenue in function of costs incurred, applying the percentage of completion method. This revenue recognition consisted of €46.6 million related to the upfront license fee and €6.6 million related to the deferred income triggered by the accounting treatment of the share subscription agreement with Gilead under IAS 39. The outstanding balance of deferred income from the Gilead collaboration agreement at 30 September 2017 amounted to €232.1 million, of which €130.6 million reported as non-current deferred income.

Under the collaboration agreement with Servier for osteoarthritis, we received a license fee payment of €6.0 million end of July 2017. The license fee revenue is recognized over the estimated period of our involvement. As such, an amount of €0.3 million was recognized as license revenue for the nine months ended 30 September 2017.

Other income

The following table summarizes our other income for the nine months ended 30 September 2017 and 2016.

Other income increased in the first nine months of 2017 (€18.5 million vs. €15.0 million in the first nine months of 2016), mainly driven by higher income from R&D incentives.

Results

We realized a net loss of €85.9 million for the first nine months of 2017, compared to a net profit of €8.1 million for the first nine months of 2016. Last year’s net profit was primarily driven by €57.5 million non-cash 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 €62.6 million for the first nine months of 2017, compared to an operating loss of €48.5 million for the first nine months of 2016.

Our R&D expenses for the first nine months of 2017 were €149.2 million, compared to €96.7 million for the first nine months of 2016. This planned increase was due mainly to an increase of €37.0 million in subcontracting costs, mostly for our filgotinib and cystic fibrosis programs. Furthermore, personnel costs increased in 2017, 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 €19.7 million for the first nine months of 2017, compared to €16.8 million for the first nine months 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 for the first nine months of 2017 amounted to €23.1 million, compared to net other financial expenses of €0.9 million for the first nine months of 2016, and were primarily attributable to €24.8 million of unrealized exchange loss on our cash position in U.S. dollars as a consequence of the fluctuation of the EUR / U.S. dollar exchange rate in the first nine months of 2017. We expect to use this cash held in U.S. dollars to settle our future payables in U.S. dollars, which will be primarily linked to our global collaboration with Gilead for the development of filgotinib.

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

Segment information

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 €1,220.1 million at 30 September 2017.

A net increase of €245.6 million in cash and cash equivalents was recorded during the first nine months of 2017, compared to an increase of €590.5 million during the first nine months of 2016. Net cash used in operating activities amounted to €86.2 million in the first nine months of 2017. Furthermore, €3.6 million was generated in investing activities primarily driven by the release of restricted cash to cash and cash equivalents for €6.6 million.

Financing activities generated €353.0 million of cash, consisting of €348.1 million proceeds from the U.S. public offering and €4.9 million proceeds from warrant exercises. Finally €24.8 million of negative unrealized exchange rate differences were reported on cash and cash equivalents.

Restricted cash amounted to €7.7 million at 31 December 2016, and decreased by €6.5 million to €1.2 million at 30 September 2017. This decrease is primarily explained by the full release of the escrow account containing the remaining €6.6 million of proceeds from the sale of the service division to Charles River Laboratories International, Inc. in 2014, as a final agreement between the parties was reached.

On 30 September 2017, restricted cash was comprised of €0.5 million and €0.7 million bank guarantees on real estate lease obligations in Belgium and in the Netherlands, respectively.

Cash and cash equivalents amounted to €1,218.9 million at 30 September 2017 and were comprised of 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 €792.6 million of term deposits with an original maturity longer than three months but which are available upon one month's notice. Cash at banks was 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 €149.8 million, aim at meeting short-term cash commitments, while reducing the counterparty risk of investment.

On 30 September 2017, our cash and cash equivalents included $255.6 million held in U.S. dollars, 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. dollars to settle our future payables in U.S. dollars, 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 Recherche³Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.) amounting to €42.0 million as of 30 September 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 €34.2 million as of 30 September 2017, to be received in yearly tranches from 2018 until 2027.

Capital increase

On 6 April 2017, 247,070 warrants were exercised at various exercise prices (with an average exercise price of €16.33 per warrant), resulting in a share capital increase (including issuance premium) of €4.0 million and the issuance of 247,070 new shares. The closing price of the Galapagos share on that date was €84.60.

On 21 April 2017 our U.S. public offering of 4,312,500 American Depositary Shares (“ADSs”) was fully underwritten, at a price of $90.00 per ADS, before underwriting discounts, for gross proceeds of €363.9 million. Underwriting discounts and offering expenses amounted to €15.8 million. As such, net proceeds amounted to €348.1 million.

On 20 June 2017, 52,030 warrants were exercised at various exercise prices (with an average exercise price of €12.14 per warrant) resulting in a share capital increase (including issuance premium) of €0.6 million and the issuance of 52,030 new shares. The closing price of the Galapagos share on that date was €70.66.

On 21 September 2017, 28,100 warrants were exercised at various exercise prices (with an average exercise price of €9.55 per warrant) resulting in a share capital increase (including issuance premium) of €0.3 million and the issuance of 28,100 new shares. The closing price of the Galapagos share on that date was €84.62.

On 30 September 2017, Galapagos NV’s share capital was represented by 50,895,778 shares. All shares were issued, fully paid up and of the same class.