Risks related to Galapagos’ organization, structure and operation
Galapagos’ future success depends on its ability to retain the members of its Executive Committee and to attract, retain and motivate qualified personnel. If Galapagos is not successful in attracting and retaining highly qualified personnel, it may not be able to successfully implement its business strategy. Adequate remuneration and incentive schemes and the sharing of Galapagos’ knowledge amongst key employees mitigate this risk. In the recent past, Galapagos has continued to be successful in attracting and retaining qualified employees.
Risks from the improper conduct of employees, agents, contractors, or collaborators could adversely affect our reputation and our business, prospects, operating results, and financial condition. 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. Galapagos’ 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.
Galapagos could be subject to liabilities under environmental, health and safety laws or regulations, or fines, penalties or other sanctions, if it fails to comply with such laws or regulations or otherwise incurs costs that could have a material adverse effect on the success of the business. The very limited use of hazardous materials, the existence of stringent health and safety operation procedures, and regular inspections and safety days significantly decrease the potential impact as well as the estimated likelihood of the risk. Furthermore, the Group employs quality & environmental health and safety managers who closely monitor laboratory safety and continuously seek to improve quality and safety conditions.
Our collaboration arrangements with our strategic partners may make us an attractive target for potential acquisitions under certain circumstances. Under certain circumstances, due to the structure of our collaboration arrangements with our strategic partners, our strategic partners may prefer to acquire us rather than paying the milestone payments or royalties under the collaboration arrangements, which may bring additional uncertainties to our business development and prospects.
Galapagos may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could adversely affect Galapagos’ share price, operating results and results of operations. Galapagos may acquire companies, businesses and products that complement or augment its existing business. Galapagos 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 Galapagos predicts. As part of its efforts to acquire companies, business or product candidates or to enter into other significant transactions, Galapagos conducts business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite its efforts, Galapagos ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction.
If Galapagos is unable to use tax loss carryforwards to reduce future taxable income or benefit from favorable tax legislation, Galapagos' business, results of operations and financial condition may be adversely affected. Galapagos 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 the Group’s activities, financial situation and results. Such potential changes and their impact are monitored carefully by management and its advisors.
As a company active in research and development in Belgium and France, Galapagos has benefited from certain research and development incentives. If the Belgian and/or the French government decide to eliminate, or reduce the scope or the rate of, the research and development incentive benefit, either of which it could decide to do at any time, Galapagos' results of operations could be adversely affected. Galapagos also expects to benefit in the future from the “patent income deduction” initiative in Belgium. If, however, there are unexpected adverse changes to the Belgian “patent income deduction” initiative, or Galapagos is unable to qualify for such advantageous tax legislation, its business, results of operations and financial condition may be adversely affected.
Galapagos has received several technological innovation grants to date, to support various research programs from an agency of the Flemish government to support technological innovation in Flanders. If Galapagos fails to comply with its contractual obligations under the applicable technological innovation grant agreements, Galapagos could be forced to repay all or part of the grants received. Such repayment could adversely affect Galapagos' ability to finance its research and development projects.
Galapagos annually establishes a detailed budget that is submitted to the Board of Directors for review and approval. The Group’s performance compared to the budget is continuously monitored by the Executive Committee and is discussed with the Board at least once per quarter. For the establishment of its financial information, the Group has processes and methods in place that enable the preparation of consolidated financial statements for its annual and mid-year reporting, and more often if required. The Group’s management reporting systems – which include an advanced integrated ERP system – secure the generation of consistent financial and operational information, allowing management to follow-up the Group’s performance on a daily basis.