Details of the unaudited interim results

Revenues and other income

Revenues

The following table summarizes our revenues for the six months ended 30 June 2017 and 2016.

Revenues (€60.9 million vs €38.8 million for the same period last year) 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.

The following table summarizes the upfront payments revenue recognition for the six months ended 30 June 2017 and 2016.

For the first six months of 2017, €31.0 million of deferred income related to the Gilead collaboration agreement were recognized in revenue in function of costs incurred, applying the percentage of completion method. This revenue recognition consisted of €27.1 million related to the upfront license fee and €3.8 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 the end of June 2017 amounted to €254.4 million, of which €163.0 million reported as non-current deferred income.

Other income

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

Other income increased slightly (€12.1 million vs €10.0 million last year) in the first six months of 2017, mainly driven by higher income from R&D incentives.

Results

We realized a net loss of €49.2 million for the first six months of 2017, compared to a net profit of €32.2 million in the first six months of 2016. Last year’s result 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 €32.9 million for the first six months of 2017, compared to an operating loss of €24.3 million for the same period last year.

Our R&D expenses in the first six months of 2017 were €92.9 million, compared to €62.4 million for the same period in 2016. This planned increase was due mainly to an increase of €21.3 million in subcontracting costs for our filgotinib and cystic fibrosis programs. Furthermore, personnel costs increased, 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 €13.0 million in the first half of 2017, compared to €10.7 million in the first half-year 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 in the first six months of 2017 amounted to €16.2 million, compared to net other financial expenses of €0.9 million for the same period in 2016, and were primarily attributable to €17.1 million of unrealized exchange loss on our cash position in U.S. dollar as a consequence of the fluctuation of the U.S. dollar exchange rate in the first half-year of 2017. We expect to use this cash held in U.S. dollar to settle our future payables in U.S. dollar, 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 €1,263.2 million at 30 June 2017.

A net increase of €288.8 million in cash and cash equivalents was recorded during the first six months of 2017, compared to an increase of €620.2 million during the same period last year. Net cash used in operating activities amounted to €51.3 million in the first half-year of 2017. Furthermore, €4.5 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 €352.8 million of cash, consisting of €348.1 million proceeds from the U.S. public offering and €4.7 million proceeds from warrant exercises. Finally €17.1 million of negative unrealized exchange rate differences were reported on cash and cash equivalents.

Restricted cash amounted to €7.7 million at the end of December 2016, and decreased by €6.6 million to €1.1 million at the end of June 2017. This decrease was 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 final agreement between the parties was reached.

On 30 June 2017, restricted cash was composed 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 €1,262.1 million at the end of June 2017 and 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 €832.5 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 €149.9 million and aim at meeting short-term cash commitments, while reducing the counterparty risk of investment.

On 30 June 2017, our cash and cash equivalents included $261.2 million held in U.S. dollar, 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. dollar to settle our future payables in U.S. dollar, 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 €39.6 million as of 30 June 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 €31.9 million as of 30 June 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 amount to €15.9 million, of which €15.8 million had been paid at 30 June 2017 and €0.1 million remains to be settled in cash. As such, net proceeds amount 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 30 June 2017, Galapagos NV’s share capital was represented by 50,867,678 shares. All shares were issued, fully paid up and of the same class.