Letter from management

Dear Shareholders,

Galapagos reached another milestone in its development as a leading biotechnology company this quarter: after confirming the best-in-class potential of filgotinib at 24 weeks in the Phase 2B DARWIN 1 and DARWIN 2 studies in rheumatoid arthritis, we regained full rights to filgotinib, thereby accelerating our transformation into a Phase 3 company and opening up discussions with multiple potential partners. Meanwhile, our development team is working diligently to prepare for Phase 3 studies in rheumatoid arthritis, in time for our planned start in the first half of 2016. We look forward to bringing filgotinib into Phase 3, preferably together with a strong pharma partner to ensure fastest route to market introduction. We also await the topline 10 week results from the FITZROY Phase 2 study with filgotinib in Crohn’s disease, which are expected before year end.

In October, Galapagos reported promising data from our cystic fibrosis programs at the NACFC in Phoenix. Innovative assays and models arising from the CF collaboration with AbbVie helped us to characterize and categorize interactions between the compounds in our portfolio. External laboratories confirmed the contribution of our potentiators to CFTR rescue and demonstrated how our potentiators restored CFTR in the nonsense (Class I) mutation in vitro. Furthermore, we reported that our novel potentiator GLPG1837 was well tolerated and demonstrated favorable drug-like properties in a Phase 1 study.

Galapagos has progressed in implementing a multiple-program strategy to manage development risk in cystic fibrosis. Importantly, GLPG2665 was selected as a first of an anticipated multiple second corrector portfolio, to complete a potential triple combination therapy for Class II mutation patients. The Company now has lead compounds in place for all components of a potential triple combination therapy for Class II mutation patients, with a backup potentiator as well. Backup C1 and C2 correctors are expected to be selected before year end. Combinations of our lead compounds in vitro resulted in a range of efficacies up to a six-fold greater restoration of CFTR activity in homozygous F508del cells, compared to Orkambi^®, the current standard of care for this class of patients. We look forward to bringing GLPG2665 into Phase 1 studies by mid 2016.

We continue to move our other programs forward. Galapagos completed recruitment for GLPG1205 early and expects to report topline results from a Phase 2A study in ulcerative colitis patients by early 2016. Preparations are underway to file an exploratory Phase 2 study of GLPG1690 in idiopathic pulmonary fibrosis before year end. Both ’1205 and ’1690 target new modes of action and are fully proprietary to Galapagos.

Operational overview Q3 2015

• Rheumatoid arthritis
  • Galapagos reported promising efficacy and a potentially differentiated safety profile in its topline week 24 results for DARWIN 1 (594 rheumatoid arthritis patients, methotrexate add-on) and DARWIN 2 (283 RA patients, monotherapy) with filgotinib in July and August 2015
  • AbbVie terminated the agreement for filgotinib, returning full global rights to filgotinib to Galapagos
• Inflammatory bowel disease
  • In August, Galapagos completed patient recruitment for the FITZROY Phase 2 study with filgotinib in Crohn’s disease. Management expects to report primary endpoint topline results from the first 10 weeks of treatment in FITZROY before end 2015
  • Galapagos completed patient recruitment for ORIGIN, a Phase 2 Proof-of-Concept study with GLPG1205, a selective inhibitor of GPR84, in 60 ulcerative colitis patients. We expect to announce topline results from ORIGIN in Q1 2016
• Cystic fibrosis
  • AbbVie and Galapagos presented novel assays and a new model used by both companies to screen for novel corrector-potentiator combinations at NACFC 2015
  • Galapagos reported pharmacokinetic, safety and tolerability in Phase 1 with potentiator GLPG1837 at NACFC 2015
  • GLPG2665 was nominated in October as the first C2 corrector to complete the discovery phase of the potential triple combination therapy
  • Nomination of second corrector candidate GLPG2665 in early October completed discovery phase of potential triple combination therapy in cystic fibrosis
  • Further clinical trial initiations are expected in the CF program before end 2015
• IPF
  • At ERS in September, Galapagos presented pre-clinical data and promising safety and tolerability, and favorable drug-like properties from a Phase 1 First-In-Human study with GLPG1690, a selective autotaxin inhibitor fully owned by Galapagos. Filing of an exploratory Phase 2 study protocol for evaluation in patients with idiopathic pulmonary fibrosis is still expected before year end
• Other/corporate
  • Galapagos licensed Organoid Technology from the HUB foundation for use in IBD and cystic fibrosis
  • Galapagos raised a further €1.2 million from warrant exercises during the third quarter

Q3 2015 financial result

Revenues

Group revenues and other income for the first nine months of 2015 amounted to €47.2 million compared to €62.7 million in the same period of 2014. Revenues (€32.4 million vs €49.1 million last year) were lower due to a decrease in revenue recognition of upfront payments and reduced milestone payments, reflecting the increasingly proprietary nature of our pipeline programs. Other income (€14.8 million vs €13.6 million last year) increased in the first nine months of 2015, driven mainly by R&D incentives in Belgium and France.

Results

The Group realized a net loss for the first nine months of 2015 of €61.4 million, compared to a net loss of €27.0 million in the first nine months of 2014 for continuing operations.

Following the sale of the service division, the Group reported a net profit from discontinued operations of €70.5 million in the first nine months of 2014. Galapagos recorded a result on divestment of €67.5 million.

R&D expenses for the Group in the first nine months of 2015 were €96.9 million compared to €77.2 million in 2014. This planned increase is mainly due to increased efforts on the filgotinib and cystic fibrosis programs.

G&A and S&M expenses of the Group were €13.6 million in the first nine months of 2015, compared to €10.8 million in the first nine months of 2014. This increase is primarily due to a higher provision for short term and long term management bonus as well as higher costs for warrant plans, amongst other as a result of the recent evolution of Galapagos share price change relative to the Next Biotech Index.

Finally, for one subsidiary, a deferred tax asset was set up for an amount of €1.8 million on 30 September 2015, of which €1.5 million was additionally recognized in the first nine months of 2015.

Liquid assets position

Cash, cash equivalents and restricted cash totalled €374.4 million on 30 September 2015.

A net increase of €178.8 million in cash and cash equivalents was recorded during the first nine months of 2015, compared to an increase of €67.7 million during the same period last year. Net cash flows from financing activities generated €259.9 million through a recent global offering and concurrent listing on NASDAQ, as well as €11.4 million from warrant exercises. Furthermore, Galapagos continued to intensify its R&D investments, with a net cash outflow from operating activities of €90.3 million in the first nine months of 2015.

Restricted cash amounted to €10.7 million at the end of September 2014, and decreased to €7.9 million at the end of September 2015. This decrease is mainly related to the release of the €3 million bank guarantee issued in 2013 for the rental of the new premises in France which expired on 30 June 2015 following the move to the new offices.

Furthermore, Galapagos’ balance sheet holds an unconditional and unrestricted receivable from the French government (Crédit d’Impôt Recherche)^[1] now amounting to €37.5 million, payable in 4.75 yearly tranches. Galapagos’ balance sheet also holds a receivable from the Belgian Government for R&D incentives now amounting to €23.7 million, payable as from 2016 in 5.75 yearly tranches.

Outlook 2015

The fourth quarter of 2015 promises to be an exciting one, with topline results expected from filgotinib’s Phase 2 study in Crohn’s disease, an update planned on the progress of our negotiations with potential new partners for filgotinib, and multiple anticipated clinical study initiations.

Based on the forecast for the remainder of the year, management retains 2015 guidance for operational cash burn: €110 - €130 million.

We thank you again for your support of Galapagos. With filgotinib’s compelling results in the DARWIN program, we have proven our approach delivered a potential best-in-class new therapy for RA patients. With your continued support, we will bring our other programs into patients to investigate their potential as well.