Details of the unaudited condensed consolidated interim results
Revenues and other income
Revenues
The following table summarizes our revenues for the nine months ended 30 September 2020 and 2019.
|
|
Nine months ended 30 September |
|||||
|---|---|---|---|---|---|---|
|
(thousands of €) |
Over time |
Point in time |
2020 |
2019 |
||
|
Recognition of non-refundable upfront payments and license fees |
|
|
273,409 |
709,819 |
||
|
Gilead collaboration agreement for ziritaxestat |
|
|
|
666,968 |
||
|
Gilead collaboration agreement for filgotinib(1) |
|
|
102,728 |
17,561 |
||
|
Gilead collaboration agreement for drug discovery platform |
|
|
170,681 |
23,922 |
||
|
AbbVie collaboration agreement for CF |
|
|
|
1,368 |
||
|
Milestone payments |
|
|
43,191 |
(7,932) |
||
|
Gilead collaboration agreement for filgotinib(1) |
|
|
43,191 |
(31,722) |
||
|
AbbVie collaboration agreement for CF |
|
|
|
23,790 |
||
|
Reimbursement income |
|
|
5,256 |
16,437 |
||
|
Novartis collaboration agreement for MOR106 |
|
|
5,289 |
15,837 |
||
|
AbbVie collaboration agreement for CF |
|
|
(33) |
600 |
||
|
Other revenues |
|
|
11,734 |
7,395 |
||
|
Fee-for-services revenues |
|
|
11,666 |
7,329 |
||
|
Other revenues |
|
|
68 |
66 |
||
|
Total revenues |
|
|
333,589 |
725,719 |
||
|
||||||
Revenues (€333.6 million for the first nine months of 2020, compared to €725.7 million for the first nine months of 2019) were mainly lower due to the one-time revenue recognition in the first nine months of 2019 of the upfront payment received in August 2019 from Gilead related to ziritaxestat for €667.0 million. In the first nine months of 2020, our revenues from the Gilead collaboration related to (i) the access and option rights to our drug discovery platform, and (ii) upfront consideration received for the extended cost sharing for filgotinib as well as milestone payments, increased as we continue to recognize these revenues over time.
Due to the approval of filgotinib, by both the Japanese and European authorities on 25 September 2020, we achieved a total milestone of $105.0 million (€90.2 million) from Gilead that is recognized in revenue over time until the end of the development plan.
The rollforward of the outstanding balance of the current and non-current deferred income between 1 January 2020 and 30 September 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 |
Deferred income related to grants |
Other |
||||
|---|---|---|---|---|---|---|---|---|---|---|
|
On 1 January 2020 |
3,000,646 |
780,261 |
2,220,013 |
362 |
– |
10 |
||||
|
|
|
|
|
|
|
|
||||
|
Significant financing component(2) |
12,849 |
12,849 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||
|
Milestones received |
90,192 |
90,192 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||
|
Revenue recognition of upfront payments |
(273,409) |
(102,728) |
(170,681) |
|
|
|
||||
|
Revenue recognition of milestone payments |
(43,191) |
(43,191) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||
|
Other movements |
2,097 |
|
|
(324) |
2,431 |
(10) |
||||
|
|
|
|
|
|
|
|
||||
|
On 30 September 2020 |
2,789,183 |
737,383 |
2,049,332 |
38 |
2,431 |
– |
||||
|
||||||||||
Other income
Other income (€35.0 million for the first nine months of 2020, compared to €26.7 million for the first nine months of 2019) increased by €8.3 million, mainly driven by higher incentives income from the government for R&D activities.
Results
We realized a net loss of €247.6 million for the first nine months of 2020, compared to a net profit of €265.3 million in the first nine months of 2019.
We reported an operating loss amounting to €163.2 million for the first nine months of 2020, compared to an operating profit of €393.0 million for the first nine months of 2019.
The net profit and operating profit for the first nine months of 2019 were mainly due to one-time recognition in revenue in the first nine months of 2019 of the upfront payment received from Gilead related to ziritaxestat for €667.0 million.
Our R&D expenditure in the first nine months of 2020 amounted to €398.1 million, compared to €298.2 million in the first nine months of 2019. This planned increase was mainly due to an increase of €52.3 million in subcontracting costs primarily related to our filgotinib program, our Toledo program and other clinical programs. Furthermore, personnel costs increased by €34.4 million explained by a planned headcount increase and increased costs of the subscription right plans.
The cost increase for filgotinib for the first nine 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, 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 nine months ended 30 September 2020 and 2019, broken down by program.
|
|
Nine months ended 30 September |
|
|---|---|---|
|
(thousands of €) |
2020 |
2019 |
|
Filgotinib program |
(96,992) |
(58,840) |
|
Ziritaxestat program |
(39,676) |
(58,552) |
|
OA program on GLPG1972 |
(17,973) |
(15,144) |
|
Toledo program |
(61,156) |
(31,254) |
|
AtD program on MOR106 |
(8,616) |
(19,771) |
|
CF program |
(73) |
(3,028) |
|
Other programs |
(173,649) |
(111,658) |
|
Total research and development expenditure |
(398,135) |
(298,247) |
Our G&A and S&M expenses were €133.6 million in the first nine months of 2020, compared to €61.2 million in the first nine months of 2019. This increase mainly resulted from higher personnel costs for €33.8 million due to a planned headcount increase and higher costs of the subscription right plans. The remaining part of the increase, amounting to €38.6 million, was mainly due to increased costs from the preparation of the commercial launch of filgotinib in Europe.
In the first nine months of 2020, we reported a non-cash fair value loss from the re-measurement of initial warrant B issued to Gilead, amounting to €8.1 million, mainly due to the increased implied volatility of the Galapagos share price as well as its evolution between 31 December 2019 and 30 September 2020. We refer to our Q3 2019 report for more detailed information on the €142.3 million non-cash fair value loss from the re-measurement of a derivative financial instrument triggered by the share subscription agreement with Gilead in the first nine months of 2019.
Net other financial loss in the first nine months of 2020 amounted to €75.2 million, which was primarily attributable to €51.2 million of unrealized negative exchange losses on our cash and cash equivalents and current financial investments in U.S. dollars and €13.3 million negative changes in (fair) value of current financial investments. The other financial expenses also contained the effect of discounting our long term deferred income for €12.8 million, offset by interest income. Net other financial loss in the first nine months of 2019 amounted to €2.0 million, which was primarily attributable €34.9 million realized exchange loss on the U.S. dollars upfront payment from Gilead, which was partly compensated by a €32.4 million of unrealized exchange gain on our cash position in U.S. dollars.
Segment information
We have two reportable segments: R&D and our fee-for-service business Fidelta, located in Croatia.
|
|
Segment information for the nine months ended 30 September 2020 |
|||||
|---|---|---|---|---|---|---|
|
(thousands of €) |
R&D |
Fee-for-services |
Inter-segment elimination |
Group |
||
|
External revenue |
321,923 |
11,666 |
|
333,589 |
||
|
Internal revenue |
|
5,564 |
(5,564) |
– |
||
|
Other income |
35,003 |
|
|
35,003 |
||
|
Revenues & other income |
356,927 |
17,230 |
(5,564) |
368,592 |
||
|
|
|
|
|
|
||
|
Operating result(1) |
(167,553) |
4,399 |
|
(163,154) |
||
|
Financial (expenses)/income |
|
|
|
(83,297) |
||
|
Result before tax |
|
|
|
(246,452) |
||
|
Income taxes |
|
|
|
(1,096) |
||
|
Net loss |
|
|
|
(247,548) |
||
|
||||||
|
|
Segment information for the nine months ended 30 September 2019 |
|||||
|---|---|---|---|---|---|---|
|
(thousands of €) |
R&D |
Fee-for-services |
Inter-segment elimination |
Group |
||
|
External revenue |
718,390 |
7,329 |
|
725,719 |
||
|
Internal revenue |
|
5,548 |
(5,548) |
– |
||
|
Other income |
26,737 |
7 |
|
26,744 |
||
|
Revenues & other income |
745,127 |
12,884 |
(5,548) |
752,463 |
||
|
|
|
|
|
|
||
|
Segment result |
419,963 |
1,186 |
|
421,149 |
||
|
Unallocated expenses(1) |
|
|
|
(28,128) |
||
|
Operating loss |
|
|
|
393,021 |
||
|
Financial (expenses)/income |
|
|
|
(144,391) |
||
|
Result before tax |
|
|
|
248,630 |
||
|
Income taxes |
|
|
|
16,699 |
||
|
Net profit |
|
|
|
265,329 |
||
|
||||||
The basis of accounting for any transactions between reportable segments is consistent with the valuation rules and with transactions with third parties.
Cash position
Cash and cash equivalents and current financial investments totaled €5,308.6 million on 30 September 2020 (€5,780.8 million on 31 December 2019)
A net decrease of €472.2 million in cash and cash equivalents and current financial investments was recorded during the first nine months of 2020, compared to a net increase of €4,309.0 million during the first nine months of 2019. This net decrease was composed of (i) €433.3 million of operational cash burn, (ii) offset by €25.7 million of cash proceeds from capital and share premium increase from exercise of subscription rights in the first nine months of 2020, and (iii) €13.3 million of negative changes in (fair) value of current financial investments and €51.3 million of unrealized negative exchange rate differences.
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 (–)/operational cash flow:
|
|
Nine months ended 30 September |
|
|---|---|---|
|
(thousands of €) |
2020 |
2019 |
|
Increase in cash and cash equivalents (excluding effect of exchange differences) |
262,149 |
4,276,610 |
|
Minus: |
|
|
|
Net proceeds from capital and share premium increases |
(25,672) |
(974,567) |
|
Net sale of current financial investments |
(669,747) |
– |
|
Total operational cash burn (–)/operational cash flow |
(433,270) |
3,302,041 |
Cash and cash equivalents and current financial investments comprised cash at banks, short-term bank deposits, treasury bills 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 €778.6 million of term deposits that are available upon maximum three months 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 €1,615.5 million and are presented as current financial investments on 30 September 2020 because we are not using them for meeting short-term cash commitments. Since 2020, the current financial investments also include treasury bills, amounting to €1,605.3 million on 30 September 2020.
|
|
30 September |
31 December |
|---|---|---|
|
(thousands of €) |
2020 |
2019 |
|
Cash at banks |
1,309,232 |
907,939 |
|
Term deposits |
778,564 |
953,677 |
|
Total cash and cash equivalents |
2,087,796 |
1,861,616 |
On 30 September 2020, our cash and cash equivalents and current financial investments included $1,428.1 million held in U.S. dollars ($1,507.4 million on 31 December 2019) 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 €122.0 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 €122.9 million as at 30 September 2020.
Capital increase
On 30 September 2020, Galapagos NV’s share capital was represented by 65,340,842 shares. All shares were issued, fully paid up and of the same class. The below table summarizes our capital increases for the period ended 30 September 2020.
|
(thousands of €, except share data) |
Number of shares |
Share capital |
Share premium |
Share capital and share premium |
Average exercise price subscription right (in €/subscription right) |
Closing share price on date of capital increase (in €/share) |
|---|---|---|---|---|---|---|
|
On 1 January 2020 |
64,666,802 |
287,282 |
2,703,583 |
2,990,865 |
|
|
|
|
|
|
|
|
|
|
|
17 March 2020: exercise of subscription rights |
152,220 |
824 |
4,531 |
5,355 |
35.18 |
141.40 |
|
|
|
|
|
|
|
|
|
28 May 2020: exercise of subscription rights |
435,540 |
2,356 |
15,558 |
17,914 |
41.13 |
186.60 |
|
|
|
|
|
|
|
|
|
18 September 2020: exercise of subscription rights |
86,280 |
467 |
1,936 |
2,403 |
27.85 |
117.70 |
|
|
|
|
|
|
|
|
|
On 30 September 2020 |
65,340,842 |
290,929 |
2,725,608 |
3,016,537 |
|
|
Note to the cash flow statement
|
|
Nine months ended 30 September |
|
|---|---|---|
|
(thousands of €) |
2020 |
2019 |
|
Adjustment for non-cash transactions |
|
|
|
Depreciation and amortization |
13,237 |
8,837 |
|
Share-based compensation expenses |
59,673 |
28,128 |
|
Increase in retirement benefit obligations and provisions |
264 |
255 |
|
Unrealized exchange results and non-cash other financial result |
51,361 |
(32,272) |
|
Discounting effect of deferred income |
12,849 |
2,090 |
|
Fair value re-measurement of the share subscription agreement |
– |
142,349 |
|
Fair value re-measurement of warrants |
8,085 |
– |
|
Net change in (fair) value of current financial investments |
13,277 |
– |
|
Fair value adjustment of financial assets held at fair value through profit & loss |
669 |
1,979 |
|
Other non-cash costs |
387 |
– |
|
Total adjustment for non-cash transactions |
159,802 |
151,366 |
|
|
|
|
|
Adjustment for items to disclose separately under operating cash flow |
|
|
|
Interest expense |
6,876 |
697 |
|
Interest income |
(6,304) |
(7,430) |
|
Tax expense |
1,096 |
(16,699) |
|
Total adjustment for items to disclose separately under operating cash flow |
1,668 |
(23,432) |
|
|
|
|
|
Adjustment for items to disclose under investing and financing cash flows |
|
|
|
Gain (–)/loss on sale of fixed assets |
84 |
(3) |
|
Interest income related to current financial investments |
(2,634) |
– |
|
Total adjustment for items to disclose under investing and financing cash flows |
(2,551) |
(3) |
|
|
|
|
|
Change in working capital other than deferred income |
|
|
|
Decrease/increase (–) in inventories |
(84) |
3 |
|
Increase in receivables |
(88,953) |
(28,142) |
|
Increase in liabilities |
11,571 |
69,265 |
|
Total change in working capital other than deferred income |
(77,466) |
41,127 |
The increase in the costs of our subscription right plans is primarily related to the issuance of our subscription right plans 2020 to a higher number of beneficiaries as well as a higher fair value of the attached subscription rights mainly due to the increase in the price and the volatility of the Galapagos share at the issuance of the plan. Under these subscription right plans, 2,173,335 subscription rights were granted to the beneficiaries of the plans. The subscription rights have an exercise term of eight years as of the date of the offer and have an exercise price of €168.42 (the average closing price of the share on Euronext Amsterdam and Brussels during the thirty days preceding the date of the offer on 17 April 2020). The subscription rights are not transferable and can in principle not be exercised prior to 1 January 2024. Each subscription right gives the right to subscribe to one new Galapagos share.
Fair value re-measurements
Gilead warrants 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 30 September 2020. 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 €8.1 million was mainly the result of an increase in the implied volatility of our share price as well as its evolution between 31 December 2019 and 30 September 2020. The fair value of the financial liability related to the initial warrant B amounted to €14.3 million on 30 September 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 issuance liability in our deferred income.