Details of the unaudited condensed consolidated interim results

Notes

Revenues and other income

Revenues

The following table summarizes our revenues for the nine months ended 30 September 2018 and 2017.

 

Nine months ended 30 September

(thousands of €)

2018

2017

Recognition of non-refundable upfront payments and license fees

124,616

53,526

Milestone payments

46,219

25,918

Reimbursement income

3,872

2,319

Other revenues

7,750

6,108

Total revenues

182,457

87,870

The following table summarizes the revenue recognition of the upfront payments, license fees and milestones payments for the nine months ended 30 September 2018 and 2017, as well as the impact of the adoption of IFRS 15. The revenues recognized for the nine months ended 30 September 2018 are presented under the IFRS 15 standard as well as under the former applicable IAS 18 standard, with a comparison to the first nine months of 2017 under the former applicable IAS 18 standard.

 

 

 

 

IAS 18

 

IFRS 15

IFRS 15

IAS 18

IAS 18

IFRS 15

Agreement

Consideration

Consideration

Collaboration start date

Outstanding balance in deferred income as at 31 December 2017

Deferred income reclassified from equity following adoption of IFRS 15

Outstanding balance in deferred income as at 1 January 2018

Revenue recognized, nine months ended 30 September 2018

Revenue recognized, nine months ended 30 September 2018

Revenue recognized, nine months ended 30 September 2017

Outstanding balance in deferred income as at 30 September 2018

 

(thousands of $)

(thousands of €)

 

(thousands of €)

(*)

deferred income of €39 million booked upon signing of the share subscription agreement with Gilead as required under IAS 39 Financial instruments: recognition and measurement

Revenue recognition of considerations received prior to 31 December 2017

Gilead collaboration agreement for filgotinib – Upfront payment

300,000

275,558

January 2016

187,449

187,449

63,384

63,384

46,632

124,066

Gilead collaboration agreement for filgotinib – Subscription agreement(*)

N.A.

39,003

January 2016

26,532

26,532

8,971

8,971

6,600

17,561

Servier collaboration agreement for osteoarthritis – License fee

N.A.

6,000

June 2010

5,362

(5,362)

1,149

293

AbbVie collaboration agreement for CF – Upfront payment

45,000

34,001

September 2013

14,872

14,872

4,761

10,111

Total upfront payments and license fees:

 

219,343

9,510

228,853

77,116

73,504

53,526

151,737

 

 

 

 

 

 

 

 

 

 

 

Gilead collaboration agreement for filgotinib – Milestone payments

70,000

64,435

January 2016

43,832

43,832

14,821

9,354

29,011

AbbVie collaboration agreement for CF – Milestone payments

77,500

68,310

September 2013

29,878

29,878

9,565

16,564

20,313

Total milestones:

 

 

73,710

73,710

24,387

25,918

49,324

Total:

 

 

219,343

83,220

302,563

101,502

73,504

79,444

201,061

 

 

 

 

 

 

 

 

 

 

 

Revenue recognition of considerations in the nine months ended 30 September 2018

Novartis collaboration agreement for MOR106 – Upfront payment

N.A.

47,500

September 2018

 

 

 

47,500

 

 

Total upfront payments and license fees:

 

 

 

 

47,500

 

 

Gilead collaboration agreement for filgotinib – Milestone payments

15,000

12,418

January 2016

 

 

 

6,827

 

 

5,591

AbbVie collaboration agreement for CF – Milestone payments

10,000

8,548

September 2013

 

 

 

6,006

 

 

2,542

Servier collaboration agreement for osteoarthritis – Milestone payment

N.A.

9,000

June 2010

 

 

 

9,000

 

 

Total milestones:

 

 

 

 

 

21,833

 

 

8,133

Total:

 

 

 

 

 

69,333

 

 

8,133

Grand total: upfront payments and license fees and milestones

 

 

 

170,835

 

 

209,194

The adoption of IFRS 15 Revenue from contracts with customers resulted in a timing difference of revenue recognition between IAS 18 and IFRS 15 which negatively impacted the accumulated losses and increased the amount of deferred income (contract liabilities) by an amount of €83.2 million, as shown in the table above (column “Deferred income reclassified from equity following adoption of IFRS 15”). We elected the modified retrospective method for the transition which foresees that prior period figures remain as reported under the previous standard and the cumulative effect of applying IFRS 15 is recognized as an adjustment to the opening balance of equity as at the date of initial application (beginning of the year 2018).

For the first nine months of 2018, €94.0 million of deferred income related to the Gilead collaboration agreement were recognized in revenue under IFRS 15 in function of costs incurred, applying the percentage of completion method. This revenue recognition consisted of (i) €63.4 million related to the upfront license fee, (ii) €9.0 million related to the deferred income triggered by the accounting treatment of the share subscription agreement under IAS 39 Financial Instruments: recognition and measurement, (iii) €14.8 million related to milestone payments received prior to 31 December 2017, and (iv) €6.8 million related to milestone payments received in the first nine months of 2018. The outstanding balance of deferred income from the Gilead collaboration agreement at the end of September 2018 amounted to €176.2 million of which €16.5 million was reported as non-current deferred income.

For the first nine months of 2018, €20.4 million of deferred income related to the AbbVie collaboration agreement were recognized in revenue under IFRS 15 in function of costs incurred, applying the percentage of completion method. This revenue recognition consisted of (i) €4.8 million related to the upfront license fee, (ii) €9.6 million related to milestone payments received in previous years and (iii) €6.0 million related to milestones achieved in the first nine months of 2018. The outstanding balance of deferred income from the AbbVie collaboration agreement at the end of September 2018 amounted to €33.0 million of which €6.6 million was reported as non-current deferred income.

As of the end of the reporting period of the first nine months of 2018, no conclusion had been reached with regard to the review of our collaboration with AbbVie. Consequently, our revenue recognition method remained unchanged.

On 19 July 2018, MorphoSys and Galapagos announced signing of a global exclusive license agreement with Novartis covering the development and commercialization of the joint program MOR106, a monoclonal antibody directed against IL-17C, which will be developed further in atopic dermatitis (AtD) and potentially other indications. MorphoSys and Galapagos received equal share of an upfront payment of €95 million and are entitled to potential future milestone payments of up to approximately €850 million plus royalties up to low-teens to low-twenties. Novartis will bear all future research, development, manufacturing and commercialization costs related to MOR106.

For the first nine months of 2018 the upfront payment received from Novartis of €47.5 million related to the MOR106 program and the milestone payment of €9.0 million related to the collaboration agreement for osteoarthritis with Servier, were fully recognized in revenue.

Other revenues

Other revenues mainly consisted in service revenues from our fee-for-service business for €7.7 million, as reported under the segment information disclosure below.

Other income

The following table summarizes our other income for the nine months ended 30 September 2018 and 2017.

 

Nine months ended 30 September

(thousands of €)

2018

2017

Grant income

1,314

690

Other income

21,309

17,794

Total other income

22,623

18,484

Other income increased to €22.6 million for the first nine months of 2018 from €18.5 million for the first nine months of 2017, mainly driven by higher income from R&D incentives.

Segment information

We have two operating segments: R&D and our fee-for-service business Fidelta, located in Croatia.

 

Segment information for the nine months ended 30 September 2018

(thousands of €)

R&D

Fee-for-services

Inter-segment elimination

Group

(1)

Unallocated expenses consist of expenses for warrant plans under IFRS 2 Share based payments.

(2)

Financial results and taxes information are not being provided to management in our management reporting as segment results and therefore, their aggregate amount is disclosed at the level of the group in our segment reporting.

External revenue

174,770

7,687

 

182,457

Internal revenue

 

5,826

(5,826)

Other income

22,614

9

 

22,623

Revenues & other income

197,384

13,522

(5,826)

205,080

 

 

 

 

 

Segment result

(38,186)

2,672

 

(35,514)

Unallocated expenses(1)

 

 

 

(18,001)

Operating loss

 

 

 

(53,515)

Financial (expenses) / income(2)

 

 

 

8,958

Result before tax

 

 

 

(44,557)

Income taxes(2)

 

 

 

343

Net loss

 

 

 

(44,215)

 

Segment information for the nine months ended 30 September 2017

(thousands of €)

R&D

Fee-for-services

Inter-segment elimination

Group

(1)

Unallocated expenses consist of expenses for warrant plans under IFRS 2 Share based payments.

(2)

Financial results and taxes information are not being provided to management in our management reporting as segment results and therefore, their aggregate amount is disclosed at the level of the group in our segment reporting.

External revenue

81,830

6,040

 

87,870

Internal revenue

 

4,024

(4,024)

Other income

18,469

14

 

18,484

Revenues & other income

100,299

10,078

(4,024)

106,354

 

 

 

 

 

Segment result

(50,774)

(81)

 

(50,855)

Unallocated expenses(1)

 

 

 

(11,697)

Operating loss

 

 

 

(62,552)

Financial (expenses) / income(2)

 

 

 

(23,142)

Result before tax

 

 

 

(85,694)

Income taxes(2)

 

 

 

(161)

Net loss

 

 

 

(85,855)

The basis of accounting for any transactions between operating segments is consistent with transactions with third parties.

Liquid assets position

Cash and cash equivalents totaled €1,343.7 million on 30 September 2018.

Cash and cash equivalents at 30 September 2018 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 €626.8 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 €149.4 million and aim at meeting short-term cash commitments, while reducing the counterparty risk of investment.

 

30 September

31 December

(thousands of €)

2018

2017

Cash at banks

567,506

288,052

Term deposits

626,776

713,446

Money market funds

149,382

149,711

Cash on hand

3

3

Total cash and cash equivalents

1,343,668

1,151,211

On 30 September 2018, our cash and cash equivalents included $231.0 million held in U.S. dollars which could generate foreign 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.

Finally, our balance sheet held R&D incentives receivables from the French government (Crédit d’Impôt Recherche) amounting to €36.2 million as of 30 September 2018, to be received in four yearly tranches. Our balance sheet also held R&D incentives receivables from the Belgian Government amounting to €44.3 million as at 30 September 2018.

Capital increase

On 30 September 2018, Galapagos NV’s share capital was represented by 54,299,136 shares. All shares were issued, fully paid up and of the same class. The below table summarizes our capital increases for the nine-month period ended 30 September 2018.

(thousands of €, except share data)

Number
of shares

Share
capital

Share
premium

Share capital and share premium

Average exercise price warrants

Closing share price on date of capital increase

On 1 January 2018

50,936,778

233,414

993,025

1,226,439

 

 

 

 

 

 

 

 

 

20 March 2018: exercise of warrants

298,184

1,613

2,311

3,924

13.16

83.72

 

 

 

 

 

 

 

20 June 2018: exercise of warrants

102,801

556

781

1,337

13.01

85.00

 

 

 

 

 

 

 

17 September 2018: U.S. public offering

 

 

 

 

 

 

ADSs (fully paid)

2,961,373

16,021

280,167

296,188

 

 

Underwriter discounts and offering expenses (paid)

 

(15,008)

 

(15,008)

 

 

Offering expenses still to be paid at 30 September 2018

 

(924)

 

(924)

 

 

Total U.S. public offering

2,961,373

89

280,167

280,256

 

99.68

 

 

 

 

 

 

 

On 30 September 2018

54,299,136

235,672

1,276,284

1,511,956