Details of the unaudited condensed consolidated interim results
Revenues and other income
Revenues
The following table summarizes our revenues for the three months ended 31 March 2020 and 2019.
|
Three months ended 31 March |
||
(thousands of €) |
Over time |
2020 |
2019 |
Recognition of non-refundable upfront payments and license fees |
|
88,287 |
20,232 |
Gilead collaboration agreement for filgotinib |
|
32,105 |
19,787 |
Gilead collaboration agreement for drug discovery platform |
|
56,182 |
- |
AbbVie collaboration agreement for CF |
|
- |
444 |
|
|
|
|
Milestone payments |
|
3,272 |
5,302 |
Gilead collaboration agreement for filgotinib |
|
3,272 |
4,834 |
AbbVie collaboration agreement for CF |
|
- |
468 |
|
|
|
|
Reimbursement income |
|
3,193 |
5,135 |
Novartis collaboration agreement for MOR106 |
|
3,193 |
4,680 |
AbbVie collaboration agreement for CF |
|
- |
456 |
|
|
|
|
Other revenues |
|
3,420 |
2,378 |
Fee-for-services revenues |
|
3,355 |
2,312 |
Other revenues |
|
66 |
66 |
Total revenues |
|
98,173 |
33,047 |
Revenues (€98.2 million for the first three months of 2020, compared to €33.0 million for the first three months of 2019) were higher due to the revenue recognition of the upfront payment received in August 2019 from Gilead related to (i) the access and option rights to our drug discovery platform, and (ii) additional consideration received for the extended cost sharing for filgotinib.
The rollforward of the outstanding balance of the current and non-current deferred income between 1 January 2020 and 31 March 2020 can be summarized as follows:
(thousands of €) |
Total |
Gilead collaboration agreement for filgotinib |
Gilead collaboration agreement for drug discovery platform(1) |
Deferred income related to contracts in our fee-for-service segment |
Other |
||||
|
|||||||||
On 1 January 2020 |
3,000,646 |
780,261 |
2,220,013 |
362 |
10 |
||||
|
|
|
|
|
|
||||
Significant financing component(2) |
4,435 |
4,435 |
|
|
|
||||
|
|
|
|
|
|
||||
Revenue recognition of upfront |
(88,287) |
(32,105) |
(56,182) |
|
|
||||
Revenue recognition of milestones |
(3,272) |
(3,272) |
|
|
|
||||
|
|
|
|
|
|
||||
Other movements |
(124) |
|
|
(114) |
(10) |
||||
|
|
|
|
|
|
||||
On 31 March 2020 |
2,913,398 |
749,319 |
2,163,831 |
248 |
- |
||||
Other income
Other income increased by €0.9 million, mainly driven by higher incentives income from the government for R&D activities.
Results
We realized a net loss of €50.6 million for the first three months of 2020, compared to a net loss of €48.7 million in the first three months of 2019.
We reported an operating loss amounting to €44.6 million for the first three months of 2020, compared to an operating loss of €53.2 million for the first three months of 2019.
Our R&D expenditure in the first three months of 2020 amounted to €116.8 million, compared to €83.2 million in the first three months of 2019. This planned increase was mainly due to an increase of €19.4 million in subcontracting costs primarily related to our filgotinib program, our Toledo program and other clinical programs. Furthermore, personnel costs increased explained by a planned headcount increase.
The cost increase for filgotinib for the first three months of 2020 compared to the same period in 2019, was mainly due to the increased cost share from 20/80 to 50/50 on the global development activities effective as from the closing of our collaboration agreement with Gilead on 23 August 2019. As from this date, we also started to share the development costs equally with Gilead for ziritaxestat (GLPG1690), while those costs were carried fully by us before, which is the main driver of the decrease in our costs for this program.
The table below summarizes our R&D expenditure for the three months ended 31 March 2020 and 2019, broken down by program.
|
Three months ended 31 March |
|
(thousands of €) |
2020 |
2019 |
Filgotinib program |
(29,296) |
(14,400) |
IPF program on ziritaxestat (GLPG1690) |
(13,783) |
(20,013) |
OA program on GLPG1972 |
(6,427) |
(3,861) |
Toledo program |
(16,871) |
(7,775) |
AtD program on MOR106 |
(4,248) |
(5,490) |
CF program |
- |
(1,343) |
Other programs |
(46,138) |
(30,313) |
Total research and development expenditure |
(116,763) |
(83,195) |
Our G&A and S&M expenses were €34.7 million in the first three months of 2020, compared to €11.0 million in the first three months of 2019. This increase mainly resulted from higher personnel costs due to a planned headcount increase and increased costs from the preparation of the commercial launch of filgotinib in Europe.
We reported a non-cash fair value loss from the re-measurement of initial warrant B issued to Gilead, amounting to €20.5 million, mainly due to the increased implied volatility of the Galapagos share price.
Net other financial income in the first three months of 2020 amounted to €14.8 million, compared to net other financial income of €4.7 million for the first three months of 2019, which was primarily attributable to €34.3 million of unrealized exchange gain on our cash position in U.S. dollars, partly compensated by a fair value loss on current financial investments of €14.5 million.
Segment information
We have two reportable segments: R&D and our fee-for-service business Fidelta, located in Croatia.
|
Segment information for the three months ended 31 March 2020 |
|||
(thousands of €) |
R&D |
Fee-for-services |
Inter-segment |
Group |
External revenue |
94,817 |
3,356 |
|
98,173 |
Internal revenue |
|
2,092 |
(2,092) |
- |
Other income |
8,743 |
- |
|
8,743 |
Revenues & other income |
103,560 |
5,448 |
(2,092) |
106,916 |
|
|
|
|
|
Operating result |
(46,170) |
1,585 |
|
(44,585) |
Financial (expenses)/ |
|
|
|
(5,681) |
Result before tax |
|
|
|
(50,266) |
Income taxes |
|
|
|
(336) |
Net loss |
|
|
|
(50,601) |
|
Segment information for the three months ended 31 March 2019 |
|||||
(thousands of €) |
R&D |
Fee-for-services |
Inter-segment |
Group |
||
|
||||||
External revenue |
30,735 |
2,312 |
|
33,047 |
||
Internal revenue |
|
1,481 |
(1,481) |
- |
||
Other income |
7,865 |
7 |
|
7,872 |
||
Revenues & other income |
38,600 |
3,800 |
(1,481) |
40,919 |
||
|
|
|
|
|
||
Segment result |
(46,967) |
(276) |
|
(47,242) |
||
Unallocated expenses(1) |
|
|
|
(6,000) |
||
Operating loss |
|
|
|
(53,242) |
||
Financial (expenses)/ |
|
|
|
4,655 |
||
Result before tax |
|
|
|
(48,588) |
||
Income taxes |
|
|
|
(68) |
||
Net loss |
|
|
|
(48,656) |
||
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 and cash equivalents and current financial investments totaled €5,722.4 million on 31 March 2020.
A net decrease of €58.4 million in cash and cash equivalents and current financial investments was recorded during the first three months of 2020, compared to a net decrease of €67.9 million during the first three months of 2019. This net decrease was composed of (i) €83.4 million of operational cash burn, (ii) €5.4 million of cash proceeds from capital and share premium increase from exercise of warrants in the first three months of 2020, (iii) €19.6 million of unrealized positive exchange rate differences and fair value losses on current financial investments.
The operational cash burn (or operational cash flow if this performance measure is positive) is a financial measure that is not calculated in accordance with IFRS. Operational cash burn/ cash flow is defined as the increase or decrease in our cash and cash equivalents (excluding the effect of exchange rate differences on cash and cash equivalents), minus:
i.the net proceeds, if any, from share capital and share premium increases included in the net cash flows generated / used (–) in financing activities
ii.the net proceeds or cash used, if any, in acquisitions or disposals of businesses; the movement in restricted cash and movement in current financial investments, if any, included in the net cash flows generated / used (–) in investing activities. This alternative performance measure is in our view an important metric for a biotech company in the development stage.
The following table represents a reconciliation of the operational cash burn:
|
Three months ended 31 March |
|
(thousands of €) |
2020 |
2019 |
Increase/ |
864,695 |
(72,863) |
Less: |
|
|
Net proceeds from capital and share premium increases |
(5,355) |
(3,481) |
Net sale of current financial investments |
(942,738) |
- |
Total operational cash burn |
(83,398) |
(76,344) |
Cash and cash equivalents and current financial investments comprised cash at banks, short-term bank deposits, treasury bills, a short-term bond fund and money market funds. The short-term bank deposits and money market funds 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 €1,123.1 million of term deposits that are available upon maximum three 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 €1,451.6 million and are presented as current financial investments on 31 March 2020 because we are not using them for meeting short-term cash commitments. The current financial investments also include a short-term bond fund and treasury bills. We also made additional purchases of treasury bills just before and on 31 March 2020 for a total amount of €379.7 million. These funds were still presented as cash and cash equivalents on 31 March 2020 because these transactions will only be settled at the beginning of April 2020.
|
31 March |
31 December |
(thousands of €) |
2020 |
2019 |
Cash at banks |
1,620,488 |
907,939 |
Term deposits |
1,123,085 |
953,677 |
Total cash and cash equivalents |
2,743,573 |
1,861,616 |
On 31 March 2020, our cash and cash equivalents and current financial investments included $1,496.8 million held in U.S. dollars which could generate foreign exchange gains or losses in our financial results in accordance with the fluctuation of the EUR/U.S. dollar exchange rate as our functional currency is EUR. The foreign exchange loss (–) / gain in case of a 10% change in the EUR/U.S. dollar exchange rate amounts to €136.6 million.
Finally, our balance sheet held R&D incentives receivables from the French government (Crédit d’Impôt Recherche), to be received in four yearly tranches, and R&D incentives receivables from the Belgian Government, for a total of €115.2 million as at 31 March 2020.
Capital increase
On 31 March 2020, Galapagos NV’s share capital was represented by 64,819,022 shares. All shares were issued, fully paid up and of the same class. The below table summarizes our capital increases for the period ended 31 March 2020.
(thousands of €, |
Number of shares |
Share |
Share premium |
Share |
Average exercise price warrants (in €/warrant) |
Closing share price on date of capital increase (in €/share) |
On 1 January 2020 |
64,666,802 |
287,282 |
2,703,583 |
2,911,912 |
|
|
|
|
|
|
|
|
|
17 March 2020: |
152,220 |
824 |
4,531 |
5,355 |
35.18 |
141.40 |
|
|
|
|
|
|
|
On 31 March 2020 |
64,819,022 |
288,105 |
2,708,114 |
2,917,266 |
|
|
Note to the cash flow statement
|
Three months ended 31 March |
|
(thousands of €) |
2020 |
2019 |
Adjustment for non-cash transactions |
|
|
Depreciation and amortization |
4,189 |
2,758 |
Share-based compensation expenses |
9,227 |
6,000 |
Increase in retirement benefit obligations and provisions |
90 |
87 |
Unrealized exchange results and non-cash other financial expenses |
(32,856) |
(4,777) |
Discounting effect of deferred income |
4,435 |
- |
Fair value re-measurement of warrants |
20,529 |
- |
Net fair value adjustment current financial investments |
14,507 |
- |
Fair value adjustment financial assets held at fair value through profit or loss |
2,745 |
1,455 |
Other non-cash costs |
70 |
- |
Total adjustment for non-cash transactions |
22,935 |
5,524 |
|
|
|
Adjustment for items to disclose separately under operating cash flow |
|
|
Interest expense |
1,007 |
237 |
Interest income |
(2,090) |
(1,822) |
Tax expense |
336 |
68 |
Total adjustment for items to disclose separately under operating cash flow |
(747) |
(1,517) |
|
|
|
Adjustment for items to disclose under investing and financing cash flows |
|
|
Gain on sale of assets |
- |
(3) |
Interest income on current financial investments |
(2,596) |
- |
Total adjustment for items to disclose separately under investing and financing cash flow |
(2,596) |
(3) |
|
|
|
Change in working capital other than deferred income |
|
|
Increase (-)/ |
(62) |
2 |
Decrease/ |
27,581 |
(1,239) |
Increase/ |
24,962 |
(1,057) |
Total change in working capital other than deferred income |
52,481 |
(2,294) |
Fair value re-measurements
Gilead warrant B
The issuance of initial warrant B was approved on 22 October 2019 by the extraordinary general meeting of shareholders and is not yet exercised by Gilead at 31 March 2020. The fair value measurement of this financial liability is categorized as level 3 in the fair value hierarchy. Initial warrant B has been valued on the basis of a Longstaff-Schwartz Monte Carlo model. The input data used in the model were derived from market observations (volatility, discount rate and share price) and from management estimates (number of shares to be issued and applied discount for lack of marketability). The recognized fair value loss of €20.5 million was mainly the result of an increase in the implied volatility of our share price between 31 December 2019 and 31 March 2020. The fair value of the financial liability related to the initial warrant B amounted to €26.7 million on 31 March 2020 and was presented as a current financial instrument.
Subsequent warrant B is still subject to approval by an extraordinary general meeting of shareholders and is therefore still presented as warrant issuance liability in our deferred income.