Overview statutory results of Galapagos NV

Overview 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 management.

Galapagos NV’s operating income in 2019 amounted to €1,324.3 million compared to €513.1 million in 2018. This increase is due to internally generated intangible assets – being capitalized R&D expenses – which contributed by €114.9 million more to operating income than previous year, and due to €683.9 million higher turnover due to increased milestone revenues and upfront payments under the new collaboration agreement with Gilead. Other operating income amounted to €21.7 million, including €6.5 million of grants recognized for R&D projects, €5.9 million of recharges to subsidiaries and €8.7 million recuperation of withholding taxes for scientists.

The operating costs of 2019 amounted to €930.5 million compared to €654.6 million in 2018. Services and other goods increased substantially to €444.1 million compared to €299.8 million in 2018, primarily due to increased internal and external subcontracting for our preclinical studies and clinical trials as well as increased fees for insourced personnel.

Material purchases increased slightly from €6.2 million in 2018 to €7.5 million in 2019.

Personnel costs in 2019 amounted to €52.2 million compared to €33.4 million in 2018. The number of employees at Galapagos NV at the end of 2019 amounted to 361 as compared to 261 at the end of 2018, excluding insourced personnel.

Depreciation increased to €403.3 million in 2019, compared to €305.7 million in 2018, and related primarily to amortization of R&D expenses.

Galapagos NV’s 2019 financial income decreased to €27.5 million compared to €35.7 million in 2018, while financial costs increased to €64.0 million compared to €21.3 million in 2018. This can mainly be explained by currency exchange losses on U.S. dollar in 2019, as compared to non-cash currency exchange gains on U.S. dollar in 2018.

Tax income recorded in 2019 of €21.6 million as compared to €11.3 million tax income in 2018, related to tax incentives for investments in intangible fixed assets.

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 (e.g. future peak sales, market share, sale prices, 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 (e.g. test results). The achievement of these assumptions is critical and may impact the recoverability of the amounts capitalized. R&D expenses capitalized are fully amortized in the year in which they’re capitalized.

Investments in fixed assets in 2019 amounted to €9.8 million, excluding the internally generated assets. They consisted mainly of costs for new laboratory and IT equipment, as well as investments in intangible assets, being software and licenses.

Other receivables include mainly the receivable for tax incentives amounting to €67.0 million in 2019 and €48.2 million in 2018.

Galapagos NV’s cash position at the end of 2019 amounted to €5,759.6 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 2019 closed with a profit of €379.0 million compared to a loss of €115.7 million in 2018. The non-consolidated annual accounts of Galapagos NV show accumulated losses of €80.5 million as at 31 December 2019; we refer to the Going concern statement for justification for the application of the valuation rules under the going concern assumption.

In 2019, Galapagos NV made use of one financial instrument in relation with the deal with Gilead i.e. a hedging instrument, but financial instruments are not actively used.