6. Operating costs

6. 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 2017 and 2016.

 

Year ended 31 December

(thousands of €)

2017

2016

Personnel costs

(59,950)

(42,315)

Subcontracting

(123,054)

(65,649)

Disposables and lab fees and premises costs

(22,277)

(20,414)

Other operating expenses

(13,221)

(11,196)

Total research and development expenditure

(218,502)

(139,573)

R&D expenditure increased by €78.9 million, or 57%, to €218.5 million for the year ended 31 December 2017, from €139.6 million for the year ended 31 December 2016, reflecting the increase of our investments to advance our partnered and proprietary R&D programs. This increase was principally due to:

  • Increased R&D personnel costs of €17.6 million, or 42%, from €42.3 million for the year ended 31 December 2016 to €59.9 million for the year ended 31 December 2017, which was explained by an enlarged workforce, higher warrant costs and a higher payable for short term and long term management bonus, mainly as a result of the increase of our share price change relative to the Next Biotech Index on Euronext
  • Increase in subcontracting costs by €57.4 million, or 87%, from €65.6 million for the year ended 31 December 2016 to €123.1 million for the year ended 31 December 2017 mainly due to increased spending in our RA and IBD program on filgotinib and increased spending on our CF program.
  • Intensified use of lab consumables was the main driver of the increase in disposables, lab fees and premises costs of €1.9 million, or 9%, from €20.4 million for the year ended 31 December 2016 to €22.3 million for the year ended 31 December 2017
  • Other operating expenses increased by €2.0 million, or 18%, from €11.2 million for the year ended 31 December 2016 to €13.2 million for the year ended 31 December 2017.

The table below summarizes our research and development expenditure for the years ended 31 December 2017 and 2016, broken down by research and development expenses under alliance and own funded research and development expenses.

 

Year ended 31 December

(thousands of €)

2017

2016

R&D under alliance

(122,663)

(71,980)

Galapagos funded R&D

(95,839)

(67,593)

Total R&D expenditure

(218,502)

(139,573)

We tracked all research and development expenditures against detailed budgets and allocated them by individual project. The table below summarizes our research and development expenditure for the years ended 31 December 2017 and 2016, broken down by program:

 

Year ended 31 December

(thousands of €)

2017

2016

Filgotinib program (partnered)

(53,212)

(22,376)

CF program (partnered)

(46,192)

(31,203)

IPF program on GLPG1690 (proprietary)

(16,190)

(7,129)

OA program on GLPG1972 (partnered)

(7,317)

(6,538)

AtD program on MOR106 (partnered)

(8,404)

(3,491)

Other

(87,187)

(68,836)

Total R&D expenditure

(218,502)

(139,573)

R&D expenditure under alliance increased by €50.7 million, or 70%, from €72.0 million for the year ended 31 December 2016 to €122.7 million for the year ended 31 December 2017, mainly due to increased R&D spending in our RA and IBD program on filgotinib (partnered with Gilead), and increased R&D spending on our CF program in collaboration with AbbVie. We increased our investments in our own funded portfolio by €28.2 million, or 42%, from €67.6 million for the year ended 31 December 2016 to €95.8 million for the year ended 31 December 2017, primarily because of intensified research investments in our proprietary programs on inflammation and fibrosis, as well as increased spending on our proprietary IPF program GLPG1690.

General and administrative expenses

The following table summarizes the general and administrative expenses for the years ended 31 December 2017 and 2016.

 

Year ended 31 December

(thousands of €)

2017

2016

Personnel costs and directors fees

(17,756)

(15,160)

Other operating expenses

(6,659)

(6,584)

Total general and administrative expenses

(24,415)

(21,744)

General and administrative expenses amounted to €21.7 million for the year ended 31 December 2016 and increased by €2.7 million, or 12%, to €24.4 million for the year ended 31 December 2017. This increase was principally due to higher personnel expenses, which increased by €2.3 million, or 23%, from €10.0 million for the year ended 31 December 2016 to €12.3 million for the year ended 31 December 2017, resulting from various effects, such as increased headcount and increased costs of share-based payments plans (our warrant plans) and increased payables for short and long term management bonus, mainly as a result of the increase of our share price change relative to the Next Biotech Index on Euronext.

Sales and marketing expenses

The following table summarizes the sales and marketing expenses for the years ended 31 December 2017 and 2016.

 

Year ended 31 December

(thousands of €)

2017

2016

Personnel costs

(2,156)

(1,167)

Other operating expenses

(646)

(618)

Total sales and marketing expenses

(2,803)

(1,785)

Sales and marketing expenses increased by €1.0 million, or 57%, from €1.8 million for the year ended 31 December 2016 to €2.8 million for the year ended 31 December 2017. This increase was due to higher personnel expenses as in the second half of the year ended 31 December 2017, we started to build our commercial organization in order to prepare for the co-promotion activities with Gilead for filgotinib in the co-promotion territories. In addition, costs of share-based payments plans (our warrant plans) and payables for short and long term management bonus increased for the year ended 31 December 2017, mainly as a result of the increase of our share price change relative to the Next Biotech Index on Euronext.