Overview of statutory results of Galapagos NV

This overview only concerns the non-consolidated statutory results of Galapagos NV. These results are part of the consolidated results as discussed in the Letter from the CEO.

Galapagos NV’s operating income in 2014 amounted to €172.7 million compared to €152.0 million in 2013. This increase is mainly due to increased turnover (i.e. R&D revenues) which contributed €14.7 million more to operating income than in the previous year. In addition, income from internally generated intangible assets – being capitalized R&D expenses – increased as well with €3.9 million compared to 2013. The other operating income amounts to €15.3 million, including €5.2 million in grants recognized for R&D projects, €3.3 million in recharges to subsidiaries and €4.3 million recognized in tax incentives for investments in intangible fixed assets.

The operating costs of 2014 amounted to €197.6 million compared to €167.7 million in 2013. Material purchases increased slightly from €3.4 million in 2013 to €3.7 million in 2014. Services and other goods increased substantially to €96.7 million compared to €78.8 million in 2013, mainly as a result of increased subcontracting for our pre-clinical studies and clinical trials, driven by the maturing pipeline of our R&D projects.

Personnel costs in 2014 amounted to €13.7 million compared to €12.1 million in 2013. The number of employees at Galapagos NV at the end of 2014 amounted to 132.

Depreciation increased to €76.8 million in 2014, compared to €66.8 million in 2013. This is due to amortization booked on the internally generated intangible assets capitalized in 2011, 2012, 2013 and 2014.

Galapagos NV’s 2014 financial income increased significantly to €108.1 million compared to €1.9 million in 2013 and can be explained by a capital gain of €105.9 million realized in connection with the sale of the service division to Charles River Laboratories International, Inc. on 1 April 2014. Financial costs amounted to €1.1 million compared to €1.6 million in 2013, which was mainly due to realized exchange rate losses on the AbbVie payments received in 2013 ($20 million for GLPG0634 in RA and $45 million for cystic fibrosis).

Extraordinary costs amount to €19.7 million in 2014, compared to €1.0 million in 2013, of which €13.5 million was related to the extraordinary write-off of capitalized R&D costs with regard to alliances which ended or programs which were placed on hold.

Tax expenses recorded in 2014 amount to €0.4 million and relate to capital gain taxes related to the sale of the service division.

Galapagos NV capitalizes its incurred R&D expenses to the extent that the costs capitalized do not exceed a prudent estimate of their value in use or their future economic benefits for the entity. The ability to recover the capitalized amounts takes into account assumptions (i.e. future peak sales, market share, sales price, attrition rates regarding the successful completion of the different R&D phases) which have a highly judgmental nature and depend on the outcome of uncertain factors which are beyond the control of the entity (i.e. test results). The achievement of these assumptions is critical and may impact the recoverability of the amounts capitalized. Capitalized R&D expenses amount to €129.5 million compared to €119.8 million last year.

Investments in fixed assets in 2014 totalled €1.3 million, excluding the internally generated assets. They consist mainly of new lab equipment, as well as investments in intangible assets, being software development. Galapagos NV’s cash position at the end of 2014 amounted to €194.0 million.

The non-consolidated annual accounts of Galapagos NV which we submit for your approval were prepared in accordance with Belgian accounting rules as well as with the legal and regulatory requirements. They show a positive result. The financial year 2014 closed with a profit of €62.0 million compared to a loss of €16.4 million in 2013. The recorded net profit in 2014 can entirely be explained by a substantial gain on the sale of the service division as mentioned above. Overall, the result of Galapagos NV is largely affected by the fact that, as from financial year 2010, Galapagos NV capitalizes some of its R&D expenses and revenues that are eligible for such capitalization under Belgian GAAP. This capitalization positively impacted the net result of Galapagos NV by €12.1 million in 2014, compared to a positive impact of €5.4 million in 2013. The non-consolidated annual accounts of Galapagos NV show accumulated losses of €69.8 million as at 31 December 2014; we refer to the Going Concern Statement for justification fot the application of the valuation rules under the going concern assumption.

In 2014, neither Galapagos NV nor its affiliates made direct or active use of financial instruments such as hedging.