0001554855-21-000053 | 20-F | XBRL Viewer

Print Document View Excel Document

Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2020 shares
Document and Entity Information [Abstract]
Document Type	20-F
Document Registration Statement	false
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Document Period End Date	Dec. 31, 2020
Entity Registrant Name	GALAPAGOS NV
Entity Common Stock, Shares Outstanding	65,411,767
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Central Index Key	0001421876
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity File Number	001-37384
Entity Incorporation, State or Country Code	C9
Document Accounting Standard	U.S. GAAP
Entity Addresses [Line Items]
Entity Address, Address Line One	Generaal De Wittelaan L11 A3
Entity Address, City or Town	Mechelen
Entity Address, Postal Zip Code	2800
Entity Address, Country	BE
Business Contact [Member]
Entity Addresses [Line Items]
Entity Address, Address Line One	Generaal De Wittelaan L11 A3
Entity Address, City or Town	Mechelen
Entity Address, Postal Zip Code	2800
Entity Address, Country	BE
Contact Personnel Fax Number	32 15 342 901
Contact Personnel Name	Onno van de Stolpe

Consolidated Statement of Financial Position - EUR (€) € in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Assets
Intangible assets	€ 67,565	€ 24,927	€ 3,632
Property, plant and equipment	103,378	66,052	23,137
Deferred tax assets	4,475	4,205	2,514
Non-current trade receivables	50,000	0	0
Non-current R&D incentives receivables	111,624	93,407	73,443
Other non-current assets	11,343	14,091	7,919
Non-current assets	348,384	202,682	110,645
Trade and other receivables	148,418	54,009	18,609
Current R&D incentives receivables	24,104	21,949	11,203
Current financial investments	3,026,278	3,919,216	0
Cash and cash equivalents	2,135,187	1,861,616	1,290,796
Other current assets	11,953	9,138	8,244
Current assets from continuing operations	5,345,941	5,865,927	1,328,851
Assets classified as held for sale	23,406	0	0
Total current assets	5,369,347	5,865,927	1,328,851
Total assets	5,717,731	6,068,609	1,439,496
Equity and liabilities
Share capital	291,312	287,282	236,540
Share premium account	2,727,840	2,703,583	1,277,780
Other reserves	(10,907)	(4,842)	(735)
Translation differences	(3,189)	(1,142)	(1,557)
Accumulated losses	(334,701)	(109,223)	(297,779)
Total equity	2,670,355	2,875,658	1,214,249
Retirement benefit liabilities	14,996	8,263	3,764
Non-current lease liabilities	23,035	19,558	0
Other non-current liabilities	8,096	6,989	1,578
Non-current deferred income	2,365,974	2,586,348	0
Non-current liabilities	2,412,101	2,621,158	5,342
Current lease liabilities	6,401	5,826	0
Trade and other liabilities	172,386	143,434	68,928
Current tax payable	1,248	2,037	1,175
Current financial instruments	3,164	6,198	0
Current deferred income	443,159	414,298	149,801
Current liabilities from continuing operations	626,357	571,793	219,905
Liabilities directly associated with assets classified as held for sale	8,917	0	0
Current liabilities	635,274	571,793	219,905
Total liabilities	3,047,375	3,192,951	225,247
Total equity and liabilities	€ 5,717,731	€ 6,068,609	€ 1,439,496

Consolidated Statement of Operations - EUR (€)
€ in Thousands

12 Months Ended

Dec. 31, 2020

Dec. 31, 2019

Dec. 31, 2018

Consolidated Statement of Operations

Revenues

€ 478,053

€ 834,901

^[1]

€ 278,666

^[1]

Other income

52,207

50,896

^[1]

29,000

^[1]

Total revenues and other income

530,260

885,797

^[1]

307,666

^[1]

Research and development expenses

(523,667)

(420,090)

^[1]

(316,222)

^[1]

Sales and marketing expenses

(66,468)

(24,577)

^[1]

(4,146)

^[1]

General and administrative expenses

(118,757)

(72,382)

^[1]

(34,377)

^[1]

Total operating expenses

(708,892)

(517,049)

^[1]

(354,746)

^[1]

Operating income/loss (-)

(178,632)

368,748

^[1]

(47,080)

^[1]

Fair value re-measurement of share subscription agreement and warrants

3,034

(181,644)

^[1]

Other financial income

18,667

21,389

^[1]

18,264

^[1]

Other financial expenses

(152,844)

(59,968)

^[1]

(2,602)

^[1]

Income/loss (-) before tax

(309,775)

148,525

^[1]

(31,417)

^[1]

Income taxes

(1,226)

165

^[1]

(822)

^[1]

Net income/loss (-) from continuing operations

(311,001)

148,689

^[1]

(32,240)

^[1]

Net income from discontinued operations, net of tax

5,565

1,156

^[1]

2,981

^[1]

Net income/loss (-)

(305,436)

149,845

^[1],[2]

(29,259)

^[1],[2]

Net income/loss (-) attributable to:

Owners of the parent

€ (305,436)

€ 149,845

^[1]

€ (29,259)

^[1]

Basic income/loss (-) per share

€ (4.69)

€ 2.60

^[1]

€ (0.56)

^[1]

Diluted income/loss (-) per share

(4.69)

2.49

^[1]

(0.56)

^[1]

Basic income/loss (-) per share from continuing operations

(4.78)

2.58

^[1]

(0.62)

^[1]

Diluted income/loss (-) per share from continuing operations

€ (4.78)

€ 2.47

^[1]

€ (0.62)

^[1]

Weighted average number of shares - Basic (in '000 shares)

65,075

57,614

52,113

[1]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued opearations in 2020.
[2]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued operations in 2020.

Consolidated Statement of Comprehensive Income/Loss (-) - EUR (€)
€ in Thousands

12 Months Ended

Dec. 31, 2020

Dec. 31, 2019

Dec. 31, 2018

^[1]

Consolidated Statement of Comprehensive Income/Loss

Net income/loss (-)

€ (305,436)

€ 149,845

^[1],[2]

€ (29,259)

^[2]

Items that will not be reclassified subsequently to profit or loss:

Re-measurement of defined benefit obligation

(6,065)

(4,107)

^[1]

(94)

Items that may be reclassified subsequently to profit or loss:

Translation differences, arisen from translating foreign activities

(1,024)

415

^[1]

197

Realization of translation differences upon liquidation of foreign operations

(1,023)

Other comprehensive income/loss (-), net of income tax

(8,112)

(3,692)

^[1]

103

Total comprehensive income/loss (-) attributable to:

Owners of the parent

(313,548)

146,154

^[1]

(29,155)

Total comprehensive income/loss (-) attributable to owners of the parent arises from:

Continuing operations

(318,841)

145,050

^[1]

(32,159)

Discontinued operations

5,293

1,104

^[1]

3,003

Owners of the parent

€ (313,548)

€ 146,154

^[1]

€ (29,155)

[1]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued operations in 2020.
[2]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued opearations in 2020.

Consolidated Statement of Changes in Equity - EUR (€)
€ in Thousands

Total

Warrant A

Gilead

Share capital.

Warrant A

Gilead

Share premium account

Warrant A

Gilead

Translation differences

Other reserves

Accumulated losses

Balance at beginning of period (IFRS 15) at Dec. 31, 2017

€ (83,220)

Balance at beginning of period (IFRS 9) at Dec. 31, 2017

€ 619

(619)

Balance at beginning of period (Restated total equity at January 1) at Dec. 31, 2017

928,766

€ 233,414

€ 993,025

€ (1,754)

(641)

(295,280)

Balance at beginning of period at Dec. 31, 2017

1,011,983

233,414

993,025

(1,754)

(1,260)

(211,441)

Net income/loss (-)

(29,259)

^[1],[2]

(29,259)

Other comprehensive income / loss (-)

103

^[1]

197

(94)

Total comprehensive income / loss (-)

(29,155)

197

(94)

(29,259)

Share-based compensation

26,757

Issue of new shares

296,188

16,021

280,167

Share issue costs

(15,964)

Exercise of warrant/ subscription rights

7,657

3,069

4,588

Balance at end of period (IFRS 9) at Dec. 31, 2018

416

Balance at end of period (Restated total equity at January 1) at Dec. 31, 2018

1,214,665

236,540

1,277,780

(1,557)

(735)

(297,363)

Balance at end of period at Dec. 31, 2018

1,214,249

236,540

1,277,780

(1,557)

(735)

(297,779)

Net income/loss (-)

149,845

^[1],[2]

149,845

Other comprehensive income / loss (-)

(3,692)

^[1]

415

(4,107)

Total comprehensive income / loss (-)

146,154

415

(4,107)

149,845

Share-based compensation

38,297

Derecognition of financial liability from share subscription agreement and warrant A

135,702

Issue of new shares

960,087

36,945

923,142

Share issue costs

(4,447)

Exercise of warrant/ subscription rights

17,167

€ 368,035

4,082

€ 14,162

13,085

€ 353,873

Balance at end of period at Dec. 31, 2019

2,875,658

287,282

2,703,583

(1,142)

(4,842)

(109,223)

Net income/loss (-)

(305,436)

Other comprehensive income / loss (-)

(8,112)

(2,047)

(6,065)

Total comprehensive income / loss (-)

(313,548)

(2,047)

(6,065)

(305,436)

Share-based compensation

79,959

Share issue costs

Exercise of warrant/ subscription rights

28,288

4,031

24,257

Balance at end of period at Dec. 31, 2020

€ 2,670,355

€ 291,312

€ 2,727,840

€ (3,189)

€ (10,907)

€ (334,701)

[1]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued operations in 2020.
[2]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued opearations in 2020.

Consolidated Statement of Cash Flows - EUR (€)
€ in Thousands

12 Months Ended

Dec. 31, 2020

Dec. 31, 2019

Dec. 31, 2018

Condensed Cash Flow Statements, Captions [Line Items]

Net income/loss (-)

€ (305,436)

€ 149,845

^[1],[2]

€ (29,259)

^[1],[2]

Adjustment for non-cash transactions

230,723

248,027

21,753

Adjustment for items to disclose separately under operating cash flow

4,067

(7,731)

(4,389)

Adjustment for items to disclose under investing and financing cash flows

(2,472)

(5,061)

(668)

Change in working capital other than deferred income

(146,092)

12,698

19,922

Increase/decrease (-) in deferred income

(207,787)

2,804,202

(153,312)

Cash generated/used (-) in operations

(426,998)

3,201,980

(145,953)

Interest paid

(9,033)

(1,158)

(1,063)

Interest received

10,054

7,852

4,558

Income taxes paid

(1,358)

(57)

(8)

Net cash flows generated/used (-) in operating activities

(427,336)

3,208,617

(142,466)

Purchase of property, plant and equipment

(42,522)

(22,385)

(10,392)

Purchase of and expenditure in intangible fixed assets

(48,793)

(23,300)

(3,325)

Proceeds from disposal of intangible assets

Proceeds from disposal of property, plant and equipment

Purchase of current financial investments

(4,574,206)

(4,787,284)

Interest received related to current financial investments

3,500

5,059

Sale of current financial investments

5,415,316

1,063,344

Acquisition of financial assets

(2,681)

(177)

(4,559)

Proceeds from sale of financial assets held at fair value through profit or loss

6,626

2,361

Net cash flows generated/used (-) in investing activities

757,288

(3,764,660)

(15,914)

Payment of lease liabilities and other debts

(6,247)

(5,091)

(5)

Proceeds from capital and share premium increases, gross amount

960,087

296,188

Issue cost paid, related to capital and share premium increases

(4,447)

(15,964)

Proceeds from capital and share premium increases from exercise of subscription rights/warrant

28,287

17,167

7,657

Net cash flows generated in financing activities

22,040

1,335,751

287,876

Increase in cash and cash equivalents

351,994

779,708

129,497

Cash and cash equivalents at beginning of year

1,861,616

1,290,796

1,151,211

Transfer to current financial investments

(198,922)

Increase in cash and cash equivalents

351,994

779,708

129,497

Effect of exchange rate differences on cash and cash equivalents

(70,539)

(9,966)

10,089

Cash and cash equivalents at end of year

2,143,071

1,861,616

1,290,796

Warrant A | Gilead

Condensed Cash Flow Statements, Captions [Line Items]

Proceeds from capital and share premium increases from exercise of subscription rights/warrant

€ 0

€ 368,035

€ 0

[1]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued operations in 2020.
[2]	The 2019 and 2018 comparatives have been restated to consider the impact of classifiying the Fidelta business as discontinued opearations in 2020.

Consolidated Statement of Cash Flows, Current Financial Investments - EUR (€) € in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statement of Cash Flows
Current financial investments.	€ 3,026,278	€ 3,919,216	€ 0
Cash and cash equivalents	2,135,187	1,861,616	1,290,796
Cash and cash equivalents classified as assets held for sale	7,884	0	0
Current financial investments and cash and cash equivalents	€ 5,169,349	€ 5,780,832	€ 1,290,796

General information

12 Months Ended

Dec. 31, 2020

General information.

General information

1. General information

Galapagos NV is a limited liability company incorporated in Belgium and has its registered office at Generaal De Wittelaan L11 A3, 2800 Mechelen, Belgium. In the notes to the consolidated financial statements, references to “we,” “us,” “the group” or “Galapagos” include Galapagos NV together with its subsidiaries.

R&D

The research and development (“R&D”) operations are specialized in the discovery and development of small molecules. Our ambition is to become a leading global biotechnology company focused on the development and commercialization of novel medicines. Our strategy is to leverage our unique and proprietary target discovery platform, which facilitates our discovery and development of therapies with novel modes of action.

The components of the operating result presented in the financial statements include the following companies: Galapagos NV, Galapagos Biopharma Belgium BV, Galapagos Real Estate Belgium BV (Mechelen, Belgium); Galapagos SASU (Romainville, France); Galapagos B.V., Galapagos Biopharma Netherlands B.V. and Galapagos Real Estate Netherlands B.V. (Leiden, the Netherlands); Galapagos, Inc. and its subsidiary Xenometrix, Inc. (United States); Galapagos GmbH (Basel, Switzerland); Galapagos Biotech Ltd. (Cambridge, UK), Galapagos Biopharma Germany GmbH (München, Germany), Galapagos Biopharma Spain S.L.U. (Madrid, Spain) and Galapagos Biopharma Italy S.r.l. (Milan, Italy).

Our continuing operations had 1,304 employees on December 31, 2020 working in the operating facilities in Mechelen (the Belgian headquarters), the Netherlands, France, Switzerland, Germany, Italy, Spain, the United States, and United Kingdom.

On November 23, 2020 we signed a share purchase agreement with Selvita S.A. in relation to the disposal of Fidelta d.o.o. (our fee-for-service segment). Fidelta d.o.o. had 185 employees on December 31, 2020 working in the operating facilities in Croatia. As net assets associated with our fee-for-service business will be recovered principally through a sale transaction rather than through continuing use, we classified these assets and the associated liabilities as held for sale in our financial statements for the year ended December 31, 2020. The transaction was completed on January 4, 2021 for a total consideration of €37.1 million (including the customary adjustments for cash and working capital).

Impact of COVID-19 on the financial statements

To date, we have experienced limited impact on our financial performance, financial position, cash flows and significant judgements and estimates, although we continue to face additional risks and challenges associated with the impact of the outbreak.

Summary of significant transaction	12 Months Ended
Summary of significant transaction	Dec. 31, 2020
Summary of significant transaction
Summary of significant transaction	2. Summary of significant transaction On July 14, 2019 we and Gilead announced that we entered into a 10-year global research and development collaboration. Through this agreement, Gilead gained exclusive access to our innovative portfolio of compounds, including clinical and preclinical programs and a proven drug discovery platform. At inception of this collaboration in 2019, we received an upfront payment €3,569.8 million ($3.95 billion) and a €960.1 million ($1.1 billion) equity investment from Gilead. On November 6, 2019 Gilead exercised warrant A, which resulted in an additional equity investment of €368.0 million. At inception of this collaboration, we identified the following three performance obligations: (i) the transfer of an extended license on GLPG1690, (ii) the granting of exclusive access to our drug discovery platform (i.e. the IP, technology, expertise and capabilities) during the collaboration period and exclusive option rights on our current and future clinical programs after Phase 2 (or, in certain circumstances, the first Phase 3 study) outside Europe and (iii) an increased cost share from 20/80 to 50/50 on the global development activities of filgotinib, as a result of the revised license and collaboration agreement. As part of the collaboration, Gilead also received option rights for GLPG1972, a Phase 2b candidate for osteoarthritis, in the United States. In November 2020, Gilead however declined to exercise its option for GLPG1972. Since October 22, 2019, Gilead has had two representatives on the supervisory board of Galapagos (Daniel O'Day and Linda Higgins). During Q4 2020, Gilead decided not to pursue FDA approval of the RA indication for filgotinib in the U.S. as a result of Complete Response Letter (CRL) from the Food and Drug Administration (FDA). Due to this, Gilead and we agreed to amend our existing collaboration for the commercialization and development of filgotinib. Under the new arrangement, we will assume sole responsibility in Europe for filgotinib in RA and in all other potential future indications and will fully support the costs of certain of the development activities. In connection with the changes in responsibility for the commercialization and development of filgotinib in Europe, we received a payment of €35.0 million ($42.5 million) from Gilead in January 2021 and are entitled to additional payments of €125.0 million ($151.8 million), of which €75.0 million will be paid in 2021 and €50.0 million will be paid in 2022. In addition, we will no longer be eligible to receive future milestone payments relating to filgotinib in Europe, and we will pay royalties on net sales of Jyseleca (filgotinib) in Europe to Gilead as from January 1, 2024. This modification to the collaboration with Gilead did not result in the creation of new performance obligations, and only the performance obligation related to the development activities for filgotinib has been reassessed. We retain the following three performance obligations, of which the first one was satisfied completely in 2019; (i) the transfer of an extended license on GLPG1690, (ii) the granting of exclusive access to our drug discovery platform (i.e. the IP, technology, expertise and capabilities) during the collaboration period and exclusive option rights on our current and future clinical programs after Phase 2 (or, in certain circumstances, the first Phase 3 study) outside Europe and (iii) an increased cost share from 20/80 to 50/50 to 100/0 (for certain agreed activities (Group A activities)) on the global development activities of filgotinib, until we complete the remaining development activities. We refer to the critical accounting judgments and key sources of estimation uncertainty section (note 4) explaining critical judgments and estimates in applying accounting policies. Terms of the collaboration We will fund and lead all discovery and development autonomously until the end of Phase 2. After the completion of a qualifying Phase 2 study (or, in certain circumstances, the first Phase 3 study), Gilead will have the option to acquire a license to the compound outside Europe. If the option is exercised, we and Gilead will co-develop the compound and share costs equally. Gilead will maintain option rights to our programs through the 10-year term of the collaboration. This term can be extended for up to an additional three years thereafter for those programs, if any, that have entered clinical development prior to the end of the collaboration term. In addition, a final term extension can be granted in certain circumstances. If GLPG1690 had been approved in the United States, Gilead would have paid us an additional $325 million regulatory milestone fee. Development of GLPG1690 was discontinued in February 2021. For GLPG1972, after the completion of the ongoing Phase 2b study in osteoarthritis, Gilead had the option to pay a $250 million fee to license the compound in the United States, but declined to exercise its option in November 2020. If certain secondary efficacy endpoints for GLPG1972 had been met, Gilead would have paid us up to an additional $200 million. Following opt-in on GLPG1972, we would have been eligible to receive up to $550 million in regulatory and sales based milestones. In November 2020, Gilead declined to exercise its option to GLPG1972. For all other programs resulting from the collaboration, Gilead will make a $150 million opt-in payment per program and will owe no subsequent milestones. We will receive tiered royalties ranging from 20-24% on net sales of all our products licensed by Gilead in all countries outside Europe as part of the agreement. Revised filgotinib collaboration Under the revised agreement, we will assume all development, manufacturing, commercialization and certain other rights for filgotinib in Europe, providing the opportunity to build a commercial presence on an accelerated timeline. The transfer will be subject to applicable local legal, regulatory and consultation requirements. The parties intend to transfer most activities by December 31, 2021 and complete the transition by December 31, 2022. Beginning on January 1, 2021, Galapagos will bear the future development costs for certain studies (defined as “Group A activities”), in lieu of the equal cost split contemplated by the previous agreement. These studies include the DARWIN3, FINCH4, FILOSOPHY, and Phase 4 studies and registries in RA, MANTA and MANTA-RAy, the PENGUIN1 and 2 and EQUATOR2 studies in PsA, the SEALION1 and 2 studies in AS, the HUMBOLDT study in uveitis in addition to other clinical and non-clinical expenses supporting these studies and support for any investigator sponsored trials in non-IBD conditions and non-clinical costs on all current trials. The existing 50/50 global development cost sharing arrangement will continue for the following studies (defined as “Group B activities”): SELECTION and its long-term extension study (LTE) in UC, DIVERSITY and its LTE, DIVERGENCE 1 and 2 and their LTEs and support for Phase 4 studies and registries in Crohn’s disease, pediatric studies and their LTEs in RA, UC and Crohn’s disease, and support for investigator sponsored trials in IBD. All commercial economics on filgotinib in Europe will transfer to Galapagos as of January 1, 2022, subject to payment of tiered royalties of 8 to 15% of net sales in Europe to Gilead, starting in 2024. In connection with the amendments to the existing arrangement for the commercialization and development of filgotinib, Gilead has agreed to irrevocably pay us €160 million, which will be split between a €110 million payment in 2021 (of which €35 million has been received in January 2021) and a €50 million payment in 2022 and is subject to certain adjustments for higher than budgeted development costs. In addition, Galapagos will no longer be eligible to receive any future milestone payments relating to filgotinib in Europe. Other terms of the original license agreement remain in effect, including the remaining $295 million in development and regulatory milestones (excluding the remaining approval milestones in Europe that became forfeited), sales-based milestone payments of up to $600 million and tiered royalties ranging from 20-30% payable in territories outside Europe (whereas before it was applicable for all countries outside of Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the United Kingdom). In addition, we achieved two regulatory approval milestones in 2020 totaling $105 million. Terms of the equity investment As part of the research and development collaboration of 2019 Gilead also entered into a share subscription agreement with us. Gilead’s equity investment consisted of a subscription for new Galapagos shares at a price of €140.59 per share, representing on July 14, 2019 a 20% premium to Galapagos’ 30-day,volume-weighted average price. This equity subscription took place at closing of the transaction, on August 23, 2019 and increased Gilead’s stake in Galapagos from approximately 12.3% to 22.04% of the then issued and outstanding shares in Galapagos. In addition, the extraordinary general meeting of shareholders of October 22, 2019 approved the issuance of warrant A and initial warrant B allowing Gilead to further increase its ownership of Galapagos to up to 29.9% of the company’s issued and outstanding shares. The initial warrant B has a term of five years and an exercise price per share equal to the greater of (i) 120% multiplied by the arithmetic mean of the 30-day daily volume weighted average trading price of Galapagos’ shares as traded on Euronext Brussels and Euronext Amsterdam, and (ii) EUR 140.59. Subsequent warrant B is still subject to approval by an extraordinary general meeting of shareholders. This extraordinary general meeting of shareholders shall take place between 57 and 59 months of the closing of the subscription agreement and this warrant will have substantially similar terms, including as to exercise price, to the initial warrant B. The agreement also includes a 10-year standstill restricting Gilead’s ability to propose a business combination with or acquisition of Galapagos or increase its stake in Galapagos beyond 29.9% of the company’s issued and outstanding shares, subject to limited exceptions. On November 6, 2019, Gilead exercised warrant A and increased its ownership in Galapagos to 25.10% of the then outstanding shares. Gilead did not exercise any of its warrants during 2020 and warrant A came to maturity in October 2020. Gilead’s ownership slightly diluted to 25.54% at December 31, 2020.

Significant accounting policies

12 Months Ended

Dec. 31, 2020

Significant accounting policies

Significant accounting policies

3. Significant accounting policies

Our principal accounting policies are summarized below.

BASIS OF PREPARATION AND GOING CONCERN ASSUMPTION

The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and the interpretations issued by the IASB’s International Financial Reporting Interpretation Committee. The consolidated financial statements provide a general overview of our activities and the results achieved. They give a true and fair view of our financial position, our financial performance and cash flows, on a going concern basis.

NEW STANDARDS AND INTERPRETATIONS APPLICABLE FOR THE ANNUAL PERIOD BEGINNING ON JANUARY 1, 2019

IFRS 16 Leases

The above new applicable standard affected the consolidated financial statements as follows:

We adopted IFRS 16 on January 1, 2019, in accordance with the transitional provisions of IFRS 16, using the modified retrospective approach. Consequently, the cumulative effect of adopting IFRS 16 was recognized as an adjustment to the opening balance of retained earnings as at January 1, 2019, with no restatement of the comparative figures.

On adoption of IFRS 16, we recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under IAS 17. These liabilities were measured at the present value of the remaining lease payments and discounted using our incremental borrowing rate as of January 1, 2019. Our weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 1.55%.

The differences between our total operating lease commitments as reported in our consolidated financial statements of December 31, 2018 and the total lease liabilities recognized in our statement of financial position as at January 1, 2019 are summarized below.

	(Euro, in thousands)
Operating lease commitments disclosed as at December 31, 2018	€	27,704
Less : discounting effect using the lessee's incremental borrowing rate at the date of initial application		(1,223)
Less : other		(569)
Lease liability recognized as at January 1, 2019		25,912
Of which are :
current lease liabilities		4,516
non-current lease liabilities	€	21,396

The change in accounting policy affected the statement of financial position as at January 1, 2019 as follows:

	January 1, 2019
	(Euro, in thousands)
Property, plant and equipment (right-of-use assets)	€	26,406
Other current assets (prepaid expenses)		(494)
Effect on total assets		25,912

Accumulated losses		416
Lease liabilities (current and non-current)		25,912
Deferred income		(416)
Effect on total equity and liabilities	€	25,912

We applied the following practical expedients, as permitted by IFRS 16, on transition date:

▪ Reliance on the previous definition of a lease (as provided by IAS 17) for all contracts that existed on the date of initial application;

▪ The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

▪ Reliance on previous assessments on whether leases are onerous instead of performing an impairment review;

▪ The accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases;

▪ No recognition of right-of-use assets and liabilities for leases of low value assets.

We refer to our updated accounting policy on leases as a result of the adoption of IFRS 16.

Other new standards and interpretations applicable for the annual period beginning on January 1, 2019 did not have any impact on our consolidated financial statements.

NEW STANDARDS AND INTERPRETATIONS APPLICABLE FOR THE ANNUAL PERIOD BEGINNING ON JANUARY 1, 2020

New standards and interpretations applicable for the annual period beginning on January 1, 2020 did not have any material impact on our consolidated financial statements.

STANDARDS AND INTERPRETATIONS PUBLISHED, BUT NOT YET APPLICABLE FOR THE ANNUAL PERIOD BEGINNING ON JANUARY 1, 2020

A number of new standards are effective for annual periods beginning on or after January 1, 2021 with earlier adoption permitted. However we have not early adopted new or amended standards in preparing our consolidated financial statements. Of the standards that are not yet effective, we expect no standard to have a material impact on our financial statements in the period of initial application.

CONSOLIDATED REPORTING

The consolidated financial statements comprise the financial statements of Galapagos NV and entities controlled by Galapagos NV. Control is achieved where Galapagos NV has the power to direct the relevant activities of another entity so as to obtain benefits from its activities. The results of subsidiaries are included in the statement of operations and statement of comprehensive income from the effective date of acquisition up to the date when control ceases to exist. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency with our accounting policies. All intra-group transactions, balances, income and expenses are eliminated when preparing the consolidated financial statements.

INTANGIBLE ASSETS

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally generated intangible asset arising from our development activities is recognized only if all of the following conditions are met:

▪ Technically feasible to complete the intangible asset so that it will be available for use or sale

▪ We have the intention to complete the intangible assets and use or sell it

▪ We have the ability to use or sell the intangible assets

▪ The intangible asset will generate probable future economic benefits, or indicate the existence of a market

▪ Adequate technical, financial and other resources to complete the development are available

▪ We are able to measure reliably the expenditure attributable to the intangible asset during its development

Internally generated intangible assets

The amount capitalized as internally generated intangible assets is the sum of the development costs incurred as of the date that the asset meets the conditions described above. Because of risks and uncertainties inherent to the regulatory authorizations and to the development process itself, management estimates that the conditions for capitalization are not met until we obtain regulatory approval from the competent authorities.

Currently we recognize all development costs as an expense in the period in which they are incurred, even for approved products because they do not generate separately identifiable incremental future economic benefits that can be reliably measured.

Licenses, patents & know-how

Acquired in-process research and development obtained through in-licensing agreements, business combinations, collaboration agreements or separate acquisitions are capitalized as an intangible asset provided that they are separately identifiable, controlled by us and expected to provide economic benefits. As the probability criterion in IAS 38 is always considered to be satisfied for separately acquired research and development assets, upfront and milestone payments to third parties for products or compounds for which regulatory approval has not yet been obtained are recognized as intangible assets. We consider such intangible assets as not yet available for use until the moment that the underlying asset is approved and commercially launched. Amortization will commence when the underlying asset is approved for commercialization and the asset will be amortized over its useful life.

Licenses, patents and know-how will be amortized over their useful life (generally between 5 and 20 years), using the straight-line method.

Intangible assets may also consist of upfront fees paid to third party institutions in exchange for an option to negotiate a license to any of the third party’s rights in technology resulting from the collaboration. The upfront fee paid in exchange for this option is capitalized as intangible asset and amortized over the expected duration of the option.

In the event an asset has an indefinite life, this fact is disclosed along with the reasons for being deemed to have an indefinite life. Intangible assets with an indefinite useful life and intangible assets which are not yet available for use are tested for impairment annually, and whenever there is an indication that the asset might be impaired.

Software

Acquired software is recognized at cost less accumulated amortization and any impairment loss. Amortization is recognized so as to write off the cost of assets over their useful lives (generally between 3 and 5 years), using the straight-line method.

Contract costs

Contract costs are those costs we incur to obtain a contract with a customer that we would not have incurred if the contract has not been obtained and are capitalized as intangible assets only if they are expected to be recoverable. Capitalized contract costs are amortized on a systematic basis that reflects the pattern of transfer of the related promised goods or services to the customer. Costs that we would have incurred regardless of whether the contract is obtained or those costs that are not directly related to obtaining a contract would not be capitalized.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recognized at cost less accumulated depreciation and any impairment loss.

Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Depreciation is recognized so as to write off the cost of assets over their useful lives, using the straight-line method, on the following bases:

▪ Installation & machinery: 3–15 years

▪ Furniture, fixtures & vehicles: 4–10 years

Leasehold improvements are depreciated over the term of the lease, unless a shorter useful life is expected.

The other tangible assets category mainly consists of assets under construction. Assets under construction are not depreciated.

Any gain or loss incurred at the disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset, and is recognized in profit or loss.

Leases

As explained in the beginning of this note, we adopted IFRS 16 on January 1, 2019, resulting in a change in our accounting policy.

Accounting policy as from January 1, 2019

All leases are accounted for by recognizing a right-of-use asset and a corresponding lease liability except for:

- Leases of low value assets; and

- Leases with a duration of 12 months or less

Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the lease payments that are not paid at the commencement date, discounted using the rate implicit in the lease. If this rate cannot be readily determined, we will apply the incremental borrowing rate. The lease payments can include fixed payments, variable payments that depend on an index or rate known at the commencement date, expected residual value guarantees, termination penalties and extension option payments or purchase options if we are reasonably certain to exercise this option.

After initial recognition, the lease liability is measured at amortized cost using the discount rate determined at commencement and will be re-measured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments in case of renegotiation, changes of an index or rate or in case of reassessment of options.

At the commencement date, the right-of-use assets are measured at cost, comprising the amount of the initial lease liability, initial direct costs and the expected dismantling and removing costs (when we incur an obligation for such costs), less any lease incentives received from the lessors.

After initial recognition, the right-of-use assets are measured at cost and depreciated over the shorter of the underlying asset’s useful life and the lease term on a straight-line basis. The right-of-use assets will be adjusted for any re-measurements of the lease liability as a result of lease modifications. The right-of-use assets are subject to impairment testing if there is an indicator for impairment, as for property, plant and equipment. The right-of-use assets are presented in the statement of financial position under the caption “Property, plant and equipment” and the lease liabilities are presented as current and non-current lease liabilities.

In determining the lease term, we consider all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. We only include extension options (or periods after termination options) in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within our control.

Each lease payment is allocated between the liability and financial expenses. The finance cost is charged to the statement of operations over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Accounting policy until January 1, 2019

Until the end of 2018, leases of property, plant and equipment were classified as either finance or operating leases.

Leases were classified as finance leases whenever the terms of the lease substantially transferred all the risks and rewards of ownership to the lessee. All other leases were classified as operating leases.

Assets held under finance leases were recognized as our assets at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. These assets held under finance leases were depreciated over their useful lives on the same bases as owned assets or, where shorter, over the term of the related lease agreement. The corresponding liability to the lessor was included in the balance sheet as a finance lease obligation. The payments were divided proportionally between the financial costs and a diminution of the outstanding balance of the obligation, so that the periodic interest rate on the outstanding balance of the obligation would be constant. Interest was recognized in the statement of operations, unless it was directly attributable to the corresponding asset, in which case it was capitalized.

Rents paid on operating leases were charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease were also spread on a straight-line basis over the lease term.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognized on our balance sheet when we become a party to the contractual provisions of the instrument. We do not actively use currency derivatives to hedge planned future cash flows, nor do we make use of forward foreign exchange contracts, outside of the Gilead transaction, fully settled at December 31, 2019. Additionally, we don’t have financial debts at December 31, 2020.

(i) Financial assets

Financial assets are initially recognized either at fair value or at their transaction price. All recognized financial assets will subsequently be measured at either amortized cost or fair value under IFRS 9 on the basis of both our business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

▪		a financial asset that (i) is held within a business model whose objective is to collect the contractual cash flows and (ii) has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding is measured at amortized cost (net of any write down for impairment), unless the asset is designated at fair value through profit or loss (FVTPL) under the fair value option;

▪		a financial asset that (i) is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets and (ii) has contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, is measured at fair value through other comprehensive income (FVTOCI), unless the asset is designated at FVTPL under the fair value option;

▪		all other financial assets are measured at FVTPL.

A financial asset is classified as current when the cash flows expected to flow from the instrument mature within one year.

We derecognize a financial asset when the contractual rights to the cash flows from the asset expire, or we transfer the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

We classify non-derivative financial assets into the following categories:

- financial assets at fair value through profit or loss (equity instruments, current financial investments and cash equivalents)

- financial assets at amortized cost (receivables, current financial investments and cash and cash equivalents).

Financial assets at fair value through profit or loss

Financial assets are designated at fair value through profit or loss if we manage such investments and make purchase and sale decisions based on their fair value in accordance with our investment strategy. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which take into account any dividend income, are recognized in profit or loss.

Equity instruments

We hold investments in equity instruments, which based on IFRS 9, are designated as financial assets at fair value through profit or loss. The fair value of listed investments is based upon the closing price of such securities on Euronext at each reporting date. If there is no active market for an equity instrument, we establish the fair value by using valuation techniques.

Current financial investments measured at fair value through profit or loss

Current financial investments include financial assets measured at fair value through profit or loss and may comprise short term bond funds that have a maturity equal or less than 12 months, and money market funds.

Cash equivalents measured at fair value through profit or loss

Cash equivalents measured at fair value through profit or loss may comprise short-term deposits, bonds and money market funds that are readily convertible to cash and are subject to an insignificant risk of changes in value.

Financial assets at amortized cost

Receivables

Receivables are designated as financial assets measured at amortized cost. They are initially measured either at fair value or at transaction price, in the absence of a significant financing component.

All receivables are subsequently measured in the balance sheet at amortized cost, which generally corresponds to nominal value less expected credit loss provision.

Receivables mainly comprise trade and other receivables and current/non-current R&D incentives receivables.

The R&D incentives receivables relate to refunds resulting from R&D incentives on research and development expenses in France and Belgium. Research and development incentives receivables are discounted over the period until maturity date according to the appropriate discount rates.

Current financial investments measured at amortized cost

Current financial investments measured at amortized cost include treasury bills that have a maturity equal or less than 12 months. We apply settlement date accounting for the recognition and de-recognition of current financial investments measured at amortized cost.

Cash

Cash are financial assets measured at amortized cost and comprise cash balances and short-term deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their value.

Cash equivalents measured at amortized costs

Cash equivalents measured at amortized cost comprise short-term deposits that are readily convertible to cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents exclude restricted cash, which is presented in the line other non-current assets in the statement of financial position.

(ii) Financial liabilities

Financial liabilities are initially measured either at fair value or at their transaction price. Subsequent to initial recognition, financial liabilities are measured at amortized cost.

Financial liabilities mainly comprise trade and other liabilities.

Trade and other liabilities are comprised of liabilities that are due less than one year from the balance sheet date and are in general not interest bearing and settled on an ongoing basis during the financial year. They also include accrued expense related to our research and development project costs.

We derecognize a financial liability when its contractual obligations are discharged, cancelled or expire.

(iii) Financial instruments: derivative assets/liabilities

Financial assets and financial liabilities are recognized on our balance sheet when we become a party to the contractual provisions of the instrument.

Derivative assets and liabilities are initially measured at fair value. After initial measurement we will measure the derivatives at fair value through profit or loss.

TAXATION

Income tax in the profit or loss accounts represents the sum of the current tax and deferred tax.

Current tax is the expected tax payable on the taxable profit of the year. The taxable profit of the year differs from the profit as reported in the financial statements as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Our liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided in full, using the liability-method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. As such, a deferred tax asset for the carry forward of unused tax losses will be recognized to the extent that is probable that future taxable profits will be available.

FOREIGN CURRENCIES

Functional and presentation currency

Items included in the financial statements of each of our entities are valued using the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Euros, which is our presentation currency.

Transactions and balances in foreign currency

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transaction. We use monthly transaction rates based on the closing exchange rates of the foreign currencies on the last business day of the month preceding the date of the transaction. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the financial result in the statement of operations.

Non-monetary assets and liabilities measured at historical cost that are denominated in foreign currencies are translated using the exchange rate at the date of the transaction.

▪ Financial statements of foreign group companies

The results and financial position of all our entities that have a functional currency different from Euro are translated as follows:

▪ Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

▪ Income and expenses for each statement of operations are translated at average exchange rates;

▪ All resulting cumulative exchange differences are recognized as a separate component of equity;

▪ Such cumulative exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of.

RECOGNITION OF EXPENSES LINKED TO CLINICAL TRIAL MILESTONES

We recognize expenses specifically linked to clinical trial milestones with regard to patient recruitment and patient treatment (i.e. completion), incurred in carrying out clinical trials, in line with actual patient recruitment or treatment at each period end, in reference to the milestone targets for patient recruitment or treatment.

This involves the calculation of clinical trial accruals at each period end, for which an estimation of the expected full clinical trial milestone cost is required, as well as the current stage of patient recruitment or treatment.

Clinical trials usually take place over extended time periods and typically involve a set-up phase, a recruitment phase and a completion phase which ends upon the receipt of a final report containing full statistical analysis of trial results. Accruals for patient recruitment and patient completion are prepared separately for each clinical trial in progress and take into consideration the stage of completion of each trial including the number of patients that have entered the trial and the number of patients that have been treated in the trial. In all cases, the full cost of each trial is expensed by the time the final report is received.

REVENUE RECOGNITION

Revenues to date have consisted principally of milestones, license fees, non-refundable upfront fees and royalties received in connection with collaboration and license agreements. We also generate revenue from our fee-for-service activities, which is reported as discontinued operations per December 31, 2020.

The revenue recognition policies can be summarized as follows:

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for agreements that we determine are within the scope of IFRS 15, we perform the following five steps:

(i) identify the contract

In our current agreements with customers we are mainly transferring licenses on our IP and in some cases this is combined with access rights and/or providing research and development services and/or cost sharing mechanisms. In some cases our collaborations also include an equity subscription component. If this is the case, we analyze if the criteria to combine contracts, as set out by IFRS 15, are met.

(ii) identify the performance obligations in the contract

Depending on the type of the agreement, there can be one or more distinct performance obligations under IFRS 15. This is based on an assessment of whether the promises in an agreement are capable of being distinct and are distinct from the other promises to transfer goods and/or services in the context of the contract. For some of our agreements we combine the transfer of the license with the performance of research and development activities because we consider that the license is not capable of being distinct and is not distinct in the context of the contract.

(iii) determine the transaction price

Collaboration and license agreements with our commercial partners for research and development activities generally include non-refundable upfront fees; milestone payments, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones; license fees, royalties on sales and sometimes reimbursement income or profits sharing arrangements.

a/ License fees or upfront payments

If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable upfront fees allocated to the license at the point in time the license is transferred to the customer and the customer has the right to use the license.

For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If over time, revenue is then recognized based on a pattern that best reflects the transfer of control of the service to the customer.

b/ Milestone Payments other than sales based milestones

A milestone payment is only included in the transaction price to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate the amount to be included in the transaction price using the most likely amount method, where milestone payments are included in the transaction price upon achievement of the milestone event. The transaction price is then allocated to each performance obligation on a stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.

c/ Reimbursement Income for R&D Services

Collaboration and license agreements may include reimbursement or cost sharing for research and development services: such as outsourcing costs and payment for FTEs at contractual rates. R&D services are performed and satisfied over time given that the customer simultaneously receives and consumes the benefits provided by us.

Such costs reimbursements received are recognized in revenues when costs are incurred and agreed by the parties when we are acting as a principal in the scope of our stake of the R&D activities. If the later condition is not fulfilled, costs reimbursements are accounted for as a decrease of the related expenses.

d/ Sales based milestone payment and Royalties

License and collaboration agreements include sales-based royalties, including commercial milestone payments based on the level of sales, and the license has been deemed to be the predominant item to which the royalties relate. Related revenue is recognized as the subsequent underlying sales occur.

(iv) allocate the transaction price to the performance obligations in the contract

We allocate the transaction price to each performance obligation identified in the contract based upon the stand-alone selling price. The stand-alone selling price of each performance obligation is estimated by using one of the following methods: adjusted market assessment approach, the expected cost plus a margin approach or the residual approach.

If management assesses that there is only one single performance obligation, the entire transaction price would be allocated to this performance obligation.

(v) recognize revenue when (or as) the entity satisfies a performance obligation

Revenue is recognized when our customer obtains control of the goods and/or services foreseen in the contracts. The control can be transferred over time or at a point in time – which results in recognition of revenue over time or at a point in time.

In case of revenue recognition over time, we use either an input model that considers estimates of the percentage of total research and development costs that are completed each period compared to the total estimated costs (percentage of completion method) or we apply an output method to measure the progress of the satisfaction of the underlying performance obligation. In other cases, depending on specific circumstances, we recognize revenue on a straight-line basis over the estimated term of the performance obligation.

We refer to note 6 for detailed information per agreement and to our Critical accounting judgments and key sources of estimation uncertainty for more information.

OTHER INCOME

Grants and R&D incentives

As we carry out extensive research and development activities, we benefit from various grants and R&D incentives from certain governmental agencies. These grants and R&D incentives generally aim to partly reimburse (approved) expenditures incurred in our research and development efforts and are credited to the statement of operations, under other income, when the relevant expenditure has been incurred and there is reasonable assurance that the grants or R&D incentives are receivable.

EQUITY INSTRUMENTS

Equity instruments issued by us are measured by the fair value of the proceeds received, net of direct issue costs.

EMPLOYEE BENEFITS

a/ Defined contribution plans

Contributions to defined contribution pension plans are recognized as an expense in the statement of operations as incurred.

b/ Defined benefit plans

For defined retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Re-measurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur. Re-measurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.

Defined benefit costs are categorized as follows:

▪ Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements)

▪ Net interest expenses or income

▪ Re-measurement

The retirement benefit obligation recognized in the consolidated statement of financial position represents the actual deficit or surplus in the defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or a reduction in future contributions to the plans. A liability for a termination benefit is recognized at the earlier of when we can no longer withdraw the offer of the termination benefit and when we recognize any related restructuring costs.

c/ Staff bonus plan

We recognize an expense in the statement of operations for staff bonus plans.

d/ Management bonus plan

(I) Bonuses which were granted for performance years until 2018

The management board members, together with other senior managers, are eligible to receive bonuses under the Senior Management Bonus Scheme established in 2006. Pursuant to the rules of the Senior Management Bonus Scheme, 50% of the bonus is paid immediately around year-end and the payment of the remaining 50% is deferred for three years. The deferred 50% component is dependent on the Galapagos share price change relative to the Next Biotech Index (which tracks Euronext-listed biotech companies). The Galapagos share price and the Next Biotech Index at the start and end of the 3‑year period is calculated by the average price over the preceding and last month of the 3‑year period, respectively.

▪		If the Galapagos share price change is better than or equal to the change in the Next Biotech Index, the deferred bonus will be adjusted by the share price increase/decrease percentage and paid out
▪		If the Galapagos share price change is up to 10% worse than the change in the Next Biotech Index, 50% of the deferred bonus will be adjusted by the share price increase/decrease percentage and paid out, and the remainder will be forfeited
▪		If the Galapagos share price change is more than 10% worse than the change in the Next Biotech Index the deferred bonus will be forfeited

We recognize the possible payment of the deferred component of the Senior Management Bonus Scheme within three years at the moment that the bonus amount is determined, based on the fair value of the liability at each reporting period. The fair value of the liability is measured by use of the Monte Carlo valuation model taking into consideration (a) the average reference price of the Galapagos share and Next Biotech Index, (b) the average price of the reporting period of the Galapagos share and the Next Biotech Index, (c) the simulation of the evolution of the Galapagos share price and the Next Biotech Index based on their volatility and correlation until maturity of the bonus, (d) the applicable discount rates at the end of the reporting period and (e) the probability of the number of beneficiaries assumed to stay with us until maturity of the bonus. The changes in fair value are recognized in profit or loss for the period.

(II) Bonuses which were granted for performance year 2019 and beyond

The management board members, together with other senior managers are eligible to receive a bonus based on achievement of personal and corporate objectives. This bonus is paid in cash.

SHARE-BASED PAYMENTS

a/ Equity-settled share based payments

We grant equity-settled incentives to certain employees, supervisory board members and consultants in the form of subscription rights. Equity-settled subscription rights are measured at fair value at the date of acceptance. The fair value determined at the acceptance date of the subscription rights is expensed over time until the end of the vesting period, based on our estimate of subscription rights that are expected to be exercised. Fair value is measured by use of the Black & Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations.

b/ Long-term incentive plans in RSUs (Restricted Stock Units)

Management board members and other employees were granted RSUs in 2019 and 2020. An RSU is a grant that takes the form of a promise that employees will receive Galapagos stock in the future and it will be payable, at the company’s discretion in cash or in shares, upon completion of a certain vesting period. Each RSU reflects the value of one Galapagos share.

The RSUs are measured based on the volume weighted average share price over the 30-calendar day period preceding the measurement date. We recognize the corresponding expense and liability over the vesting period. The fair value of the liability is re-measured at each reporting date because currently it is management’s intention to settle the RSUs in cash.

PROVISIONS

Provisions are recognized on the balance sheet when we have a present obligation as a result of a past event; when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate can be made of the amount of the obligations. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of the money and, when appropriate, the risk specific to the liability.

IMPAIRMENT

(i) Financial assets

The impairment loss of a financial asset measured at amortized cost is calculated based on the expected loss model.

For trade receivables, in the absence of a significant financing component, the loss allowance is measured at an amount equal to lifetime expected credit losses. Those are the expected credit losses that result from all possible default events over the expected life of those trade receivables.

Impairment losses are recognized in the consolidated statement of operations.

(ii) Property, plant and equipment and intangible assets

For intangible assets with an indefinite life or intangible assets not available for use yet, we perform an impairment test at least on an annual basis. Furthermore we review at each balance sheet date the carrying amount of our tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, we estimate the recoverable amount of the cash-generating unit to which the asset belongs.

If the recoverable amount of an asset or cash generating unit is estimated to be less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss resulting from a sale of a subsidiary is recognized as income. In other cases impairment losses of goodwill are never reversed.

NET INCOME / LOSS PER SHARE

Basic net income/loss per share is computed based on the weighted average number of shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares outstanding including the dilutive effect of warrants, if any.

Segment reporting

The group had two reportable segments, R&D and fee-for-service business. Due to the disposal of Fidelta d.o.o. (our fee-for-service segment), we have reported this segment as discontinued operations at December 31, 2020. Galapagos is therefore operating as a single operating segment.

Assets held for sale and discontinued operations

A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale. It must either: represent a major separate line of business or geographical area of operations; be part of a single coordinated disposal plan; or be a subsidiary acquired exclusively with a view to resale.

Intercompany transactions between continuing and discontinued operations are eliminated against discontinuing operations.

Non-current assets and disposal groups are classified as assets held for sale if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated. The prior-year consolidated balance sheet is not restated.

On November 23, 2020, we signed a share purchase agreement in relation to the sale of our fee-for-service business. As the net assets associated with our fee-for-service business will be recovered principally through a sale transaction rather than through continuing use, we classified these assets and the associated liabilities as held for sale in our financial statements for the year ended December 31, 2020.

On January 4, 2021, we concluded the sale of our fee-for-service business to Selvita S.A.

Where applicable and in accordance with IFRS 5, we have restated the 2018 and 2019 comparatives in the consolidated statement of operations and in the notes to consider the impact of classifying the Fidelta business as discontinued operations in 2020.

Critical accounting judgments and key sources of estimation uncertainty

12 Months Ended

Dec. 31, 2020

Critical accounting judgments and key sources of estimation uncertainty

Critical accounting judgments and key sources of estimation uncertainty

4. Critical accounting judgments and key sources of estimation uncertainty

In the application of the accounting policies, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Our estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revisions and future periods if the revision affects both current and future periods.

The following are the critical judgments that we have made in the process of applying the accounting policies and the key sources of estimation uncertainty that have the most significant effect on the amounts recognized in the consolidated financial statements presented elsewhere in this annual report.

Critical judgments in applying accounting policies

IFRS 15 – Revenue recognition Gilead

Our critical judgments were as follows:

Identification of the contract

•		Although formal executive contracts are still being finalized with Gilead, we assessed that the impact of the modification must already be accounted for in our consolidated financial statements for the year ended December 31, 2020 given the legally binding and enforceable character of the term sheet that was signed between us and Gilead on December 15, 2020 as a consequence of both parties’ decision to amend our existing agreement for the commercialization and development of filgotinib.
•		Despite our obligation to pay future sales-based royalties to Gilead and a change in the governance structure for the development activities, we concluded that all activities are still beneficial for the further development of filgotinib, for which Gilead still owns the ex-Europe rights. The contract modification has thus been analyzed following the requirements of IFRS 15 as we concluded that Gilead is still to be considered as a customer. This is also supported by the fact that we subsequently concluded that there continues to be only one performance obligation with respect to filgotinib after the contract modification.

Identification of the performance obligation

•

The modification did not give rise to new performance obligations. There was only a change in scope and price of the existing filgotinib performance obligation, which was only partly satisfied at the time of the modification. The Group A and Group B development activities (see note 2 for more details) still to be performed are interrelated and thus cannot be seen as separate performance obligations. Based on this, the contract modification has been treated on a cumulative catch-up basis under IFRS 15.

Allocation of the total transaction price

•		The increased fixed consideration as result of the modification has been allocated in its entirety to the filgotinib performance obligation. We assessed that the contract modification only changes the scope of the filgotinib performance obligation and the change in both fixed and variable consideration is reflective of the updated stand-alone selling price for the remaining activities of this performance obligation. If we would have concluded that the increased consideration was not, or only partially, related to the filgotinib performance obligation, the consideration would have been potentially allocated to other performance obligations in the contract, which would alter the timing of revenue recognition.
•		The denominator used in the calculation of the percentage of completion reflects our best estimate of the total costs to complete the filgotinib performance obligation. These costs were assessed considering that all ongoing and planned clinical trials (including long term extension trials) would be completed until their final stage.

Key sources of estimation uncertainty

The following are the key sources of estimation uncertainty that have the most significant effect on the amounts recognized in our consolidated financial statements for the year ended December 31, 2020.

Costs to complete the filgotinib performance obligation

The denominator used in the calculation of the percentage of completion reflects our best estimate of the total costs to complete the filgotinib performance obligation. As our estimate of the costs is depending on the evolution of the development activities, it may be subject to change in the future. If the outcome of certain activities would be different from the assumptions that we made, it could lead to a material adjustment to the total estimated costs, resulting in a reallocation of revenue between current and future periods. Our total deferred income balance related to this filgotinib performance obligation amounts to €818.7 million at December 31, 2020.

Segment information

12 Months Ended

Dec. 31, 2020

Segment information

Segment information

5. Segment information

Operational segmentation

The group had two reportable segments, R&D and fee-for-service business. Due to the disposal of Fidelta d.o.o. (our fee-for-service segment), we reported this segment as discontinued operations. Galapagos is therefore operating as a single operating segment.

GEOGRAPHICAL INFORMATION

In 2018, 2019 and 2020, our continuing operations were mainly located in Belgium, France and the Netherlands.

Following table summarizes the revenues by destination of customer:

	Year ended December 31,
	2020		2019		2018
	(Euro, in thousands)
United States of America	€	472,445	€	793,873	€	116,680
Europe		5,607		41,028		161,986
Total	€	478,053	€	834,901	€	278,666

Following table summarizes the revenues by major customers:

		Year ended December 31,
		2020				2019			2018
Spilt up of revenues by major customers		(Euro, in thousands)	%			(Euro, in thousands)	%		(Euro, in thousands)	%
Gilead:
United States of America ⁽¹⁾	€	472,445	99%		€	793,873	95%	€	116,640	42%
Europe ⁽¹⁾		1,460	0%			(4,570)	-1%		7,793	3%
AbbVie:
Europe		(52)	0%			26,356	3%		89,936	32%
Novartis:
Europe		4,125	1%			19,177	2%		55,218	20%
Les Laboratoires Servier:
Europe		—	0%			—	0%		9,000	3%
Total revenues from major customers	€	477,978	100%	€		834,836	100%		278,587	100%

(1) Following the contract amendment with Gilead in 2019, the revenue recognized for filgotinib for the year ended December 31, 2019, included a negative catch-up effect on closing date of €245.9 million resulting from the decrease in the percentage of completion applied to previously received upfront and milestones for that program.

As of December 31, 2020, we held €171 million (€91 million in 2019; €27 million in 2018) of property, plant and equipment and intangible assets distributed as follows:

	December 31,
	2020		2019 (*)		2018 (*)
		(Euro, in thousands)
Belgium	€	113,524	€	57,007	€	13,134
France		18,398		18,102		5,413
The Netherlands		28,210		7,951		3,947
Croatia		—		6,182		3,661
Switzerland		7,668		1,057		519
Spain		2,755		—		—
Other		388		681		95
Total	€	170,943	€	90,979	€	26,769

(*) In accordance with IFRS 8 we only present the total of the property, plant and equipment and intangible assets in this disclosure note. This is a change in presentation compared to the amounts that were published in the disclosure note for the years ended December 31, 2019 and December 31, 2018. We elected to adjust the historical consolidated financial information presented in this disclosure note to reflect this change in presentation.

As the net assets associated with Fidelta d.o.o. (Croatia) will be recovered principally through a sale transaction rather than through continuing use, we have classified these assets and the associated liabilities as held for sale in our financial statements for the year ended December 31, 2020.

Total revenues and other income

12 Months Ended

Dec. 31, 2020

Total revenues and other income

Total revenues and other income

6. Total revenues and other income

REVENUES

The following table summarizes the revenues for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Recognition of non-refundable upfront payments and license fees	€	411,417	€	812,058	€	196,486
Milestone payments		46,261		2,878		73,394
Reimbursement income		4,073		19,900		8,722
Other revenues		70		66		63
Commercial revenues		16,232		—		—
Total revenues	€	478,053	€	834,901	€	278,666

The following table summarizes details of revenues for the years ended December 31, 2020 and 2019 by collaboration and by category of revenue: upfront payments and license fees, milestone payments, reimbursement income, other revenues and commercial revenues.

	Over time	Point in time		2020		2019
				(Euro, in		(Euro, in
				thousands)		thousands)
Recognition of non-refundable upfront payments and license fees			€	411,417	€	812,058
Gilead collaboration agreement for ziritaxestat				-		666,968
Gilead collaboration agreement for filgotinib⁽¹⁾				181,816		62,602
Gilead collaboration agreement for drug discovery platform				229,601		80,918
AbbVie collaboration agreement for CF				-		1,569

Milestone payments				46,261		2,878
Gilead collaboration agreement for filgotinib ⁽¹⁾				46,261		(21,187)
AbbVie collaboration agreement for CF				-		24,065

Reimbursement income				4,073		19,900
Novartis collaboration agreement for MOR106				4,125		19,177
AbbVie collaboration agreement for CF				(52)		723

Other revenues				70		66
Other revenues				70		66

Commercial revenues				16,232		-
Sale of goods				2
Royalties				16,227
Other commercial revenues				2

Total revenues			€	478,053	€	834,901
(1) Following the contract amendment with Gilead in 2019, the revenue recognized for filgotinib for the year ended December 31, 2019, included a negative catch-up effect at closing date of €245.9 million, resulting from the decrease in the percentage of completion applied to previously received upfront and milestones for that program.

The below table summarizes the transaction price of our collaboration with Gilead.

							(Euro, in thousands)
Allocation of transaction price		Filgotinib agreement 2015		Milestones achieved during 2015-2019		Option, License and Collaboration agreement (July 14, 2019)		December 31, 2019		Other movements in 2020		Filgotinib amendment (December 15, 2020)		December 31, 2020
Upfront consideration	€	275,558			€	3,569,815	€	3,845,373			€	160,000	€	4,005,373
Milestones achieved			€	104,171				104,171	€	90,192				194,363
Royalties								—		16,227				16,227
Impact initial valuation of share subscription		39,003				85,601		124,604						124,604
		314,561		104,171		3,655,416		4,074,148		106,419		160,000		4,340,567
Less :
Warrants issuance liabilities
Warrant A								(43,311)						(43,311)
Initial warrant B								(2,545)						(2,545)
Subsequent warrant B								(16,184)		8,325				(7,859)
		314,561		104,171		3,655,416		4,012,108		114,744		160,000		4,286,852
Allocation to performance obligations
Ziritaxestat						666,967		666,967						666,967
Filgotinib ⁽¹⁾	€	314,561	€	104,171		641,663		1,060,395		106,419		160,000		1,326,814
Drug discovery platform (10 years)					€	2,284,747	€	2,284,747		8,325				2,293,072

(1) With regard to the additional consideration received as a result of the Option, License and Collaboration agreement (July 14, 2019) allocated to the filgotinib performance obligation, we assumed the existence of a significant financing component estimated to €44.5 million as of December 31, 2019 reflecting the time value of money on the estimated recognition period. This financing component was reassessed to €55.3 million as of December 31, 2020, considering the effects of the amendment of December 15, 2020.

On the closing date of the transaction (August 23, 2019) we concluded that the upfront payment implicitly included a premium for the future issuance of warrant A and initial and subsequent warrant B. The expected value of the warrants to be issued is treated as a contract liability ("warrant issuance liability") and reduces the transaction price until approval date of the issuance of the underlying warrants. As from approval date, the allocation of the upfront payment to the respective warrant becomes fixed and future changes in the fair value of the respective warrant will be recognized in profit or loss. As such, the part of the upfront payment allocated to the warrant A and initial warrant B reflects the fair value of these financial liabilities at the warrant approval date (October 22, 2019). 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 (we refer to note 24 for more information). The value initially allocated to the subsequent warrant B reflects the fair value of the underlying liability on December 31, 2019. On December 31, 2020 the value of the subsequent warrant B decreased to €7.9 million, driven by the decrease of our share price in 2020, partly compensated by an increase in the implied volatility.

On December 15, 2020 we and Gilead signed a term sheet modifying our existing collaboration for filgotinib. As a result of this modification an additional consideration of €160.0 million was allocated to the filgonitib performance obligation.

A summary of all current contracts with customers is given below:

Collaboration with Gilead

On July 14, 2019 we and Gilead announced that we had entered into a 10-year global research and development collaboration. Through this agreement, Gilead gained exclusive access to our innovative portfolio of compounds, clinical and preclinical programs and a proven drug discovery platform.

As part of this deal, our existing license and collaboration agreement for filgotinib with Gilead was amended for the first time. Under this revised filgotinib agreement, we obtained greater involvement in filgotinib’s global strategy and participate more broadly in the commercialization of the product in Europe, providing the opportunity to build a commercial presence on an accelerated timeline.

On December 15, 2020 our license and collaboration agreement for filgotinib with Gilead was amended a second time. Under the new arrangement, we will assume sole responsibility in Europe for filgotinib in RA and in all future indications.

We retain the following three performance obligations, of which the first one was satisfied completely in 2019; (i) the transfer of an extended license on GLPG1690, (ii) the granting of exclusive access to our drug discovery platform (i.e. the IP, technology, expertise and capabilities) during the collaboration period and exclusive option rights on our current and future clinical programs after Phase 2 (or, in certain circumstances, the first Phase 3 study) outside Europe and (iii) an increased cost share from 20/80 to 50/50 to 100/0 (for Group A activities only) on the global development activities of filgotinib, until we complete the remaining development activities (Group A and Group B activities).

We concluded as follows:

Determination of the total transaction price

· In connection with this agreement with Gilead, we recognized a deferred income and an offsetting current financial asset (derivative) of €85.6 million upon signing of the share subscription agreement with Gilead as required under IFRS 9. The deferred income has been added to the transaction price at inception of the agreement because it is considered to be part of the overall consideration received for the three performance obligations.

	·	We considered that the transaction price included a premium paid by Gilead (through the upfront payment) to acquire warrants (warrant A and warrant B) in the future, upon approval by the shareholders. We measured both warrants at fair value and recognized a warrant issuance liability at closing of the transaction for the same amount (as part of the current deferred income line). This liability is re-measured at each reporting period with a corresponding impact on the allocation of the transaction price to the performance obligation relating to the drug discovery platform as long as the warrants are not approved by the shareholders. Due to the fact that warrant A and initial warrant B were already approved in 2019, only the remeasurement of subsequent warrant B still has an impact on the transaction price considered for the revenue recognition of the performance obligation relating to the drug discovery platform.
	·	We assessed that the contract modification of December 15, 2020 only changes the scope of the filgotinib performance obligation and the change in both fixed and variable consideration is reflective of the updated stand-alone selling price for the remaining activities of this performance obligation. As a consequence, the increase in the transaction price of €160.0 million as a result of this modification has been allocated in its entirety to the filgotinib performance obligation.

Financing component
	·	There are two performance obligations determined in the agreement with Gilead for which the period between the transfer of the promised goods/services to Gilead and the payment of the underlying consideration by Gilead exceeds one year, being the performance obligation relating to the drug discovery platform and the performance obligation resulting from the filgotinib amendment. Although the consideration paid for the drug discovery platform will be recognized over a period of 10 years as from receipt of the funds, management concluded not to consider any financing component for this performance obligation as the granting of an exclusive access and option rights on day one is the predominant value of the drug discovery platform performance obligation. As a consequence, management has considered it is only appropriate to adjust the part of the transaction price that was allocated to the filgotinib performance obligation, for the time value of money. The additional consideration as a result of the contract modification of December 15, 2020 has also been adjusted for the time value of money.

License on GLPG1690
	·	The transaction price allocated to this performance obligation reflects our assessment of the stand-alone selling price of this performance obligation and was valued based on a discounted cash flow approach including, amongst others, assumptions on the estimated market share and size, peak sales and probability of success.
	·	This performance obligation was completely satisfied as at December 31, 2019. Following the very recent discontinuation of the ziritaxestat trials, we don’t expect future milestone payments or royalties.
	·	After granting the license for GLPG1690, we shared Phase 3 costs equally with Gilead. Any cost reimbursement from Gilead was not recognized as revenue but accounted as a decrease of the related expenses.

Filgotinib amendment
	·	There is one single performance obligation under IFRS 15: the transfer of a license combined with performance of R&D activities. This is because we considered that the license is not distinct in the context of the contract.
	·	The standalone selling price of the filgotinib amendment was determined through the cost-plus-margin approach. Management estimated that an appropriate margin is indirectly embedded in the increased involvement in the development and global strategy of filgotinib, our sole responsibility for filgotinib in Europe and the accompanying increase in the risk.
	·	The transaction price is currently composed of a fixed part, being non-refundable upfront and license fees and a variable part, being milestone payments, sales based milestones and sales based royalties, and cost reimbursements for R&D activities delivered. Milestone payments are included in the transaction price of the arrangement to the extent that it is highly probable that a significant reversal of revenue will not occur. Milestone payments received from Gilead are recognized in revenue over time till the end of the development plan. Sales-based milestones and sales-based royalties are also part of the arrangement and are recognized as revenues at a point in time at the moment they occur. During 2020 we reported €16.2 million of revenues from royalties from Gilead.
	·	Revenues, excluding sales based milestones and sales based royalties, are recognized over time through satisfaction of the performance obligation. The "cost-to-cost" input model is applied to measure the progress of the satisfaction of this performance obligation. The estimated costs to complete the performance obligation have been reassessed as a result of the contract modification from 2020 leading to a small decrease in the percentage of completion. Nevertheless, we recognized higher revenues in financial year 2020 as compared to financial year 2019 for filgotinib because the total transaction price increased due to the contract modification (€160.0 million) and the milestone payments obtained in 2020 for the regulatory approval of filgotinib for RA in Europe and Japan for a total amount of $105 million (€90.2 million).

Access rights to the drug discovery platform, option rights and R&D activities

· The revenue allocated to the drug discovery platform will be recognized over time as Gilead receives exclusive access to our drug discovery platform and option rights on our current and future pipeline as well as R&D activities during the collaboration term. Management concluded that an equal spread over the collaboration period is the most reliable and appropriate recognition method.

· At the inception of the collaboration (July 2019) we assessed the appropriate period over which to recognize the drug discovery platform revenue to be 10 years. This is because we granted exclusive rights over a 10-year period. However, if at the end of the 10-year period, some programs in existence as of this time would have reached the clinic (i.e. IND filed with regulatory authorities), the rights for those specific programs may be extended, for a maximum of three years. This critical estimate is reassessed at each year-end based on the evolution of our pipeline and is still valid per December 31, 2020.

Collaboration with Servier

In 2010 we signed a license and collaboration agreement with Servier in the field of osteoarthritis. Any increase in the transaction price from future potential development and regulatory milestones, sales based milestones and royalties, will be allocated to the license and will be fully recognized as revenue at a point in time when achieved, as our performance obligation towards Servier has been fully satisfied.

The contract signed with Servier on May 8, 2018 took over the terms of the previous agreement but additionally included the framework of a joint Phase 2 clinical trial program in which both parties collaborate, share costs and mutually exchange services. We concluded that this contract modification was not in the scope of IFRS 15 because there is a mutual exchange of services between Servier and Galapagos, Servier is not assessed as a customer but as a collaboration partner. Any cost reimbursement from our collaboration partner is not recognized as revenue but accounted for as a decrease of the related expenses.

In December 2020, Servier decided to terminate the agreement. Such termination became effective in March 2021. As a result of such termination, rights to the GLPG1972 were returned to Galapagos, subject to payment of a regulatory milestone, a commercial milestone and a mid single digit sales-based royalty upon successful commercialization of GLPG1972 in countries outside the U.S.

Collaboration with Novartis

Together with our collaboration partner MorphoSys, we closed a license agreement with Novartis for MOR106 in July 2018. MorphoSys and we received an equal share of an upfront payment of €95 million and were entitled to potential future milestone payments and royalties. Novartis would bear all future research, development, manufacturing and commercialization costs related to MOR106. Costs reimbursements received from Novartis were recognized in revenues when costs were incurred and agreed by the parties as we were acting as a principal in the scope of the performance of the R&D activities.

On October 28, 2019, we announced the end of the clinical development program of MOR106 in AtD.

On December 17, 2019, Novartis sent us a termination notice, informing us of its decision to terminate the agreement in its entirety. The termination became effective in 2020.

Collaboration with AbbVie

We concluded as follows for the related revenue recognition:

· There was one single performance obligation under IFRS 15: the transfer of a license combined with performance of R&D activities. This was because we considered that the license was not capable of being distinct and was not distinct in the context of the contract.

· The transaction price of our agreement with AbbVie was composed of a fixed part, being upfront license fees, and a variable part, being milestone payments and cost reimbursements for R&D activities delivered. Milestone payments were only included in the transaction price to the extent that it was highly probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is subsequently resolved. Given the nature of our industry, we only consider this once the milestone event is achieved. Sales based milestones and sales based royalties are a part of our arrangement but are not yet included in our revenues.

· The transaction price was allocated to the single performance obligation and revenues were recognized over the estimated service period based on a pattern that reflects the transfer of the license and progress to complete satisfaction of the R&D activities. This is because we considered that there is a transformational relationship between the license and the R&D activities to be delivered.

· We chose an input model to measure the satisfaction of the single performance obligation that considers a percentage of costs incurred for this program that are completed each period (percentage of completion method).

· Costs reimbursements received from AbbVie were recognized in revenues when costs were incurred and agreed by the parties as we were acting as a principal in the scope of our stake of the R&D activities of this license and collaboration agreements.

· The second amended and restated collaboration agreement signed on October 24, 2018 was assessed to be a contract modification including a change in scope and in pricing as the remaining goods or services were not distinct and form part of the single performance obligation that was partially satisfied at the date of the contract modification. We concluded that we must account for this second amended and restated collaboration agreement as if it was part of the existing contract and recognized an adjustment to revenue to reflect the contract modification on the transaction price and on the measure of progress towards satisfaction of the performance obligation.

The performance obligation related to this agreement was considered fully satisfied at December 31, 2019.

For the years ended December 31, 2019 and 2018

The following table summarizes details of revenues for the years ended December 31, 2019 and 2018 by collaboration and by category of revenue: upfront payments and license fees, milestone payments, reimbursement income, and other revenues.

	Over time	Point in time		2019		2018
				(Euro, in		(Euro, in
				thousands)		thousands)
Recognition of non-refundable upfront payments and license fees			€	812,058	€	196,486
Gilead collaboration agreement for ziritaxestat				666,968		-
Gilead collaboration agreement for filgotinib⁽¹⁾				62,602		96,809
Gilead collaboration agreement for drug discovery platform				80,918		-
AbbVie collaboration agreement for CF				1,569		52,176
Novartis collaboration agreement for MOR106				-		47,500

Milestone payments				2,878		73,394
Gilead collaboration agreement for filgotinib⁽¹⁾				(21,187)		27,623
AbbVie collaboration agreement for CF				24,065		36,771
Servier collaboration agreement for osteoarthritis				-		9,000

Reimbursement income				19,900		8,722
Novartis collaboration agreement for MOR106				19,177		7,718
AbbVie collaboration agreement for CF				723		989
Other reimbursement income				-		16

Other revenues				66		63
Other revenues				66		63
Total revenues			€	834,901	€	278,666

(1) Following the contract amendment, the revenue recognized for filgotinib for the year ended December 31, 2019 included a negative catch-up effect on closing date of €245.9 million resulting from the decrease in the percentage of completion applied to previously received upfront and milestones for that program.

OTHER INCOME

The following table summarizes other income for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Grant income	€	5,452	€	6,549	€	1,609
R&D incentives		45,951		43,923		26,912
Other income		804		425		479
Total other income	€	52,207	€	50,896	€	29,000

Operating costs

12 Months Ended

Dec. 31, 2020

Expenses by nature [abstract]

Operating costs

7. Operating costs

Operating result has been calculated after charging (-) / crediting:

RESEARCH AND DEVELOPMENT EXPENDITURE

The following table summarizes research and development expenditure for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Personnel costs	€	(161,509)	€	(118,875)	€	(75,819)
Subcontracting		(301,841)		(255,725)		(203,406)
Disposables and lab fees and premises costs		(22,349)		(19,573)		(20,967)
Depreciation		(11,707)		(9,330)		(4,846)
Professional fees		(12,692)		(1,834)		(262)
Other operating expenses		(13,570)		(14,753)		(10,922)
Total R&D expenses	€	(523,667)	€	(420,090)	€	(316,222)

All research and development expenditures are tracked against detailed budgets and allocated by individual project. The table below summarizes our research and development expenditure for the years ended December 31, 2020, 2019 and 2018, broken down by program.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Filgotinib program	€	(126,879)	€	(100,032)	€	(66,138)
Ziritaxestat program		(55,902)		(75,951)		(72,718)
OA program on GLPG1972		(22,966)		(19,958)		(15,751)
Toledo program		(87,107)		(47,204)		(20,967)
CF program		(69)		(3,897)		(30,137)
AtD program on MOR106		(7,618)		(24,051)		(14,999)
Other programs		(223,126)		(148,997)		(95,512)
Total R&D expenses	€	(523,667)	€	(420,090)	€	(316,222)

SALES AND MARKETING EXPENSES

The following table summarizes the sales and marketing expenses for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Personnel costs	€	(31,727)	€	(7,558)	€	(2,282)
Depreciation		(140)		(61)		—
External outsourcing costs		(27,174)		(15,721)		(1,284)
Professional fees		(3,420)		(459)		—
Other operating expenses		(4,007)		(777)		(580)
Total sales and marketing expenses	€	(66,468)	€	(24,577)	€	(4,146)

GENERAL AND ADMINISTRATIVE EXPENSES

The following table summarizes the general and administrative expenses for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Personnel costs	€	(70,110)	€	(51,204)	€	(24,740)
Depreciation		(5,147)		(1,421)		(449)
Legal and professional fees		(25,592)		(11,568)		(4,026)
Other operating expenses		(17,908)		(8,190)		(5,162)
Total general and administrative expenses	€	(118,757)	€	(72,382)	€	(34,377)

Staff costs

12 Months Ended

Dec. 31, 2020

Staff costs

Staff costs

8. Staff costs

The following table illustrates the personnel costs for the years 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Wages and salaries	€	(139,681)	€	(113,660)	€	(57,237)
Social security costs		(26,471)		(14,566)		(10,290)
Pension costs		(7,337)		(4,715)		(2,994)
Costs related to subscription right plans		(79,959)		(38,297)		(26,757)
Other personnel costs		(9,897)		(6,399)		(5,564)
Total personnel costs	€	(263,345)	€	(177,636)	€	(102,842)

Fair value re-measurement of share subscription agreement and warrants granted to Gilead

12 Months Ended

Dec. 31, 2020

Fair value re-measurement of share subscription agreement and warrants granted to Gilead

Fair value re-measurement of share subscription agreement and warrants granted to Gilead

9. Fair value re-measurement of share subscription agreement and warrants granted to Gilead

Total fair value re-measurement for the years ended December 31, 2020 and 2019, can be split up as follows:

		Year ended December 31,
	2020		2019
	(Euro, in thousands)
Fair value re-measurement of the share subscription agreement	€	—	€	(142,350)
Fair value re-measurement of warrant A		—		(35,642)
Fair value re-measurement of initial warrant B		3,034		(3,653)
Total fair value re-measurement of share subscription agreement and warrants	€	3,034	€	(181,644)

Fair value re-measurement of the Gilead share subscription agreement
	(Euro, in thousands)
Fair value of financial asset at signing date	€	85,601
Change in fair value recorded in profit or loss		(142,350)
Fair value of financial liability at closing date		(56,749)
Derecognition at closing date		56,749
Fair value on December 31, 2019	€	—

Fair value re-measurement of the financial instrument related to the issuance of warrant A
	(Euro, in thousands)
Fair value of financial liability at warrant approval date	€	(43,311)
Change in fair value recorded in profit or loss		(35,642)
Derecognition at warrant A exercise date		78,953
Fair value on December 31, 2019	€	—

Fair value re-measurement of the financial instrument related to the issuance of initial warrant B	2020		2019
		(Euro, in thousands)
Fair value of financial liability at January 1,	€	(6,198)
Fair value of financial liability at warrant approval date			€	(2,545)
Change in fair value recorded in profit or loss		3,034		(3,653)
Fair value on December 31,	€	(3,164)	€	(6,198)

Other financial income / expenses

12 Months Ended

Dec. 31, 2020

Other financial income / expenses

Other financial income / expenses

10. Other financial income / expenses

The following table summarizes other financial income and expense for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
		(Euro, in thousands)
Other financial income:
Interest income	€	10,030	€	14,305	€	5,217
Effect of discounting long term R&D incentives receivables		93		93		199
Currency exchange gain		4,697		775		10,978
Fair value gain on financial assets held at fair value through profit or loss		2,397		5,355		1,203
Fair value gain on current financial investments		—		611		—
Gain upon sale of financial assets held at fair value through profit or loss		—		2		667
Other finance income		1,450		248		—
Total other financial income		18,667		21,389		18,264

Other financial expenses:
Interest expenses		(9,389)		(1,268)		(780)
Effect of discounting long term deferred income		(16,278)		(6,900)		—
Currency exchange loss		(110,416)		(47,720)		(1,057)
Loss upon sale of financial assets held at fair value through profit or loss		(88)		—		—
Fair value loss on current financial investments		(15,901)		(3,700)		—
Other finance charges		(773)		(380)		(764)
Total other financial expense		(152,844)		(59,968)		(2,602)

Total net other financial expense (-)/ income	€	(134,177)	€	(38,579)	€	15,663

Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

11. Income taxes

INCOME TAXES

The following table summarizes the income tax recognized in profit or loss for the years ended December 31, 2020, 2019 and 2018.

	Year ended December 31,
	2020		2019		2018
	(Euro, in thousands)
Current tax	€	(1,069)	€	(1,372)	€	(584)
Deferred tax		(157)		1,537		(238)
Income taxes	€	(1,226)	€	165	€	(822)

TAX LIABILITIES

The below table illustrates the tax liabilities related captions in the consolidated statement of financial position as at December 31, 2020, 2019 and 2018.

	December 31,
	2020		2019		2018
	(Euro, in thousands)
Current tax payable	€	1,248	€	2,037	€	1,175
Total tax liabilities	€	1,248	€	2,037	€	1,175

On December 31, 2020, the tax liabilities were primarily related to our subsidiaries operating on a cost plus basis.

TAXES RECOGNIZED IN STATEMENT OF OPERATIONS

For the purpose of the disclosure below corporation tax was calculated at 25% (2019: 29.58%, 2018: 29.58%)— which is the tax rate applied in Belgium—on the estimated assessable profit for the year. The applied tax rate for other territorial jurisdictions was the tax rate that is applicable in these respective territorial jurisdictions on the estimated taxable result of the accounting year.

	Year ended December 31,
	2020		2019		2018
	(Euro, in thousands)

Income/loss (-) before tax	€	(309,775)	€	148,525	€	(31,417)
Income tax debit/credit (-), calculated using the Belgian statutory tax rate on the accounting income/loss (-) before tax (theoretical)		(77,444)		43,934		(9,293)
Tax expenses/income (-) in statement of operations (effective)		1,226		(165)		822
Difference in tax expense/income to explain	€	78,670	€	(44,097)	€	10,116

Effect of tax rates in other jurisdictions	€	184	€	960	€	599
Effect of non-taxable revenues		(10,196)		(13,079)		(11,547)
Effect of share based payment expenses without tax impact		19,990		10,318		7,530
Effect of expenses/income (-) not subject to tax		(639)		53,394		175
Effect of non tax-deductible expenses		1,053		724		914
Effect of recognition of previously non recognized deferred tax assets		(475)		(2,286)		(532)
Effect of tax losses (utilized) reversed		(150)		(136)		(150)
Effect of under or over provision in prior periods		(25)		30		—
Effect of non-recognition of deferred tax assets		69,141		47,413		13,127
Effect of derecognition of previously recognized deferred tax assets		157		—		—
Effect of use of investment deduction		(370)		—		—
Effect of use of IID		—		(141,435)		—
Total explanations	€	78,670	€	(44,097)	€	10,116

Non-taxable revenues for the years ended December 31, 2020, 2019 and 2018 related to non-taxable subsidies and tax credits. Expenses/income (-) not subject to tax for the years ended December 31, 2020 and December 31, 2019 mainly consisted of the fair value re-measurement of the derivative financial liabilities related to the share subscription agreement and the warrants granted to Gilead in 2019 (see note 9). The use of the IID for the year ended December 31, 2019 referred to the “innovation income deduction” regime in Belgium. This regime allows net profits attributable to revenue from among others patented products (or products for which the patent application is pending) to be taxed at a lower effective tax rate than other revenues. The effective tax rate can thus be reduced up to 3.75%.

Income/loss (-) per share

12 Months Ended

Dec. 31, 2020

Income/loss (-) per share

Income/loss (-) per share

12. Income/loss (-) per share

Basic income/loss (-) per share is calculated by dividing the net income/loss (-) attributable to shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted income/loss (-) per share is calculated based on the weighted average number of shares (diluted) also considering outstanding subscription rights, for which our average share price of the year was higher than the exercise price.

The possible increase in the number of shares resulting from the outstanding initial warrant B has not been included in the calculation of the diluted income per share as at December 31, 2019 because they were antidilutive.

Income/loss (-) per share

	Year ended December 31,
	2020		2019		2018
Net income/loss (-) attributable to owners of the parent (Euro, in thousands)	€	(305,436)	€	149,845	€	(29,259)
Number of shares (thousands)
Weighted average number of shares for the purpose of basic income/loss (-) per share		65,075		57,614		52,113
Basic income/loss (-) per share (Euros)	€	(4.69)	€	2.60	€	(0.56)

Net income/loss (-) attributable to owners of the parent (Euro, in thousands)	€	(305,436)	€	149,845	€	(29,259)
Number of shares (thousands)
Weighted average number of shares for the purpose of diluted income/loss (-) per share		65,075		57,614		52,113
Number of dilutive potential ordinary shares		—		2,498		—
Diluted income/loss (-) per share (Euros)	€	(4.69)	€	2.49	€	(0.56)

As our operations reported a net loss in 2020 and 2018, the outstanding subscription rights (specified in note 29) have an anti-dilutive effect rather than a dilutive effect. Consequently, basic and diluted loss per share were the same for 2020 and 2018.

Intangible assets

12 Months Ended

Dec. 31, 2020

Intangible assets

Intangible assets

13. Intangible assets

		Software & databases		Brands, licenses, patents & know-how		Contract costs		Total
	(Euro, in thousands)
Acquisition value
On January 1 , 2018		€	7,496	€	8,586	€	—	€	16,082
Additions			1,561		1,763				3,325
Sales and disposals			(20)		(7,630)				(7,650)
Translation differences			74						74
On December 31, 2018			9,111		2,719		—		11,832
Additions			5,463		2,453		15,384		23,300
Sales and disposals			(64)						(64)
Translation differences			31						31
On December 31, 2019			14,541		5,172		15,384		35,099
Additions			9,494		39,299				48,793
Sales and disposals			(17)						(17)
Reclassifications to assets held for sale			(159)		(38)				(197)
Translation differences			(143)		(1)				(144)
On December 31, 2020		€	23,717	€	44,432	€	15,384	€	83,534

Amortization and impairment
On January 1 , 2018		€	6,514	€	7,070	€	—	€	13,587
Amortization			681		426				1,107
Impairment					1,083				1,083
Sales and disposals			(20)		(7,630)				(7,650)
Translation differences			74						74
On December 31, 2018			7,250		949		—		8,200
Amortization			816		678		512		2,006
Sales and disposals			(63)						(63)
Translation differences			31						31
On December 31, 2019			8,034		1,626		512		10,173
Amortization			2,303		2,289		1,538		6,130
Sales and disposals			(17)						(17)
Reclassifications to assets held for sale			(143)		(33)				(176)
Translation differences			(142)						(142)
On December 31, 2020		€	10,034	€	3,883	€	2,050	€	15,968

Carrying amount
On December 31, 2018		€	1,862	€	1,771	€	—	€	3,632
On December 31, 2019		€	6,507	€	3,546	€	14,872	€	24,927
On December 31, 2020		€	13,683	€	40,549	€	13,334	€	67,565

On December 31, 2020, our balance sheet did not hold any internally generated assets capitalized as intangible asset.

Property, plant and equipment

12 Months Ended

Dec. 31, 2020

Property, plant and equipment

Property, plant and equipment

14. Property, plant and equipment

FULLY OWNED	Land & leasehold improvements		Installation & machinery		Furniture, fixtures & vehicles		Other tangible assets		Total
	(Euro, in thousands)
Acquisition value
On January 1, 2018	€	4,736	€	33,060	€	3,209	€	1,189	€	42,195
Additions		275		4,674		1,039		4,404		10,392
Sales and disposals				(486)		(826)				(1,311)
Reclassifications				753		13		(766)		—
Translation differences				29		16				46
On December 31, 2018		5,011		38,031		3,452		4,827		51,321
Additions		273		6,382		649		15,076		22,380
Sales and disposals				(1,521)		(97)				(1,618)
Reclassifications				1,792		3		(1,795)		—
Reclassifications to right of use								(251)		(251)
Translation differences				(30)		22				(8)
On December 31, 2019		5,284		44,655		4,028		17,856		71,823
Additions		885		3,737		1,824		32,218		38,664
Sales and disposals		(51)		(1,096)		(81)				(1,228)
Reclassifications		10,625		(623)		2,084		(12,086)		—
Reclassifications to assets held for sale		(2)		(8,938)		(484)		(686)		(10,110)
Translation differences		(2)		(127)		(19)		(30)		(178)
On December 31, 2020	€	16,739	€	37,607	€	7,352	€	37,273	€	98,972

Depreciations and impairment
On January 1 , 2018	€	2,342	€	20,495	€	2,407	€	258	€	25,502
Depreciation		344		3,377		236		17		3,974
Sales and disposals				(485)		(826)				(1,310)
Translation differences				16		2				18
On December 31, 2018		2,686		23,403		1,819		275		28,184
Depreciation		394		4,018		399		7		4,818
Sales and disposals				(1,521)		(99)				(1,620)
Reclassifications to right of use								(251)		(251)
Translation differences				(15)						(15)
On December 31, 2019		3,080		25,885		2,119		31		31,117
Depreciation		654		3,587		1,418		7		5,666
Sales and disposals		(51)		(1,058)		(77)				(1,186)
Reclassifications		46		(1,675)		1,629				—
Reclassifications to assets held for sale				(4,327)		(448)		(39)		(4,814)
Translation differences		(1)		(61)		(13)				(75)
On December 31, 2020	€	3,728	€	22,350	€	4,628	€	—	€	30,708

Carrying amount
On December 31, 2018	€	2,325	€	14,628	€	1,632	€	4,552	€	23,137
On December 31, 2019	€	2,204	€	18,770	€	1,909	€	17,825	€	40,707
On December 31, 2020	€	13,011	€	15,257	€	2,724	€	37,273	€	68,264

RIGHT-OF-USE	Land & building		Installation & machinery		Furniture, fixtures & vehicles		Total
	(Euro, in thousands)
Acquisition value

On December 31, 2018	€	—	€	—	€	—	€	—
Change in accounting policy ( modified retrospective application IFRS 16)		24,056		219		2,130		26,406
Restated balance on January 1, 2019		24,056		219		2,130		26,406
Additions		3,270		84		1,176		4,530
Reclassifications to right of use				251				251
Translation differences		38						38
On December 31, 2019		27,364		554		3,307		31,225
Additions		18,341		186		2,932		21,459
Sales and disposals				(6)		(161)		(167)
Reclassifications to assets held for sale		(5,940)				(263)		(6,202)
Translation differences		(88)		—		(3)		(90)
On December 31, 2020	€	39,678	€	734	€	5,812	€	46,225



Depreciations and impairment

On December 31, 2018	€	—	€	—	€	—	€	—
Depreciation		4,666		91		867		5,624
Reclassifications to right of use				251				251
Translation differences		4						4
On December 31, 2019		4,670		342		867		5,879
Depreciation		5,350		128		1,405		6,883
Sales and disposals				(6)		(161)		(167)
Reclassifications to assets held for sale		(1,334)				(115)		(1,448)
Translation differences		(36)				(1)		(36)
On December 31, 2020	€	8,651	€	464	€	1,995	€	11,111

Carrying amount

On December 31, 2019	€	22,694	€	212	€	2,440	€	25,345
On December 31, 2020	€	31,027	€	270	€	3,817	€	35,113

	December 31,
Carrying amount		2020		2019		2018
Property, plant and equipment fully owned	€	68,264	€	40,707	€	23,137
Right-of-use		35,113		25,345		—
Total property, plant and equipment	€	103,378	€	66,052	€	23,137

Due to adoption of IFRS 16 on January 1, 2019 we recognized an opening balance of right-of-use assets of €26.4 million on the balance sheet.

There are no pledged items of property, plant and equipment. There are also no restrictions in use on any items of property, plant and equipment.

Other non-current assets

12 Months Ended

Dec. 31, 2020

Other non-current assets

Other non-current assets

15. Other non-current assets

Other non-current assets consisted of non-current restricted cash, financial assets held at fair value through profit or loss and other non-current assets.

		December 31,
	2020		2019		2018
	(Euro, in thousands)
Non-current restricted cash	€	1,482	€	1,418	€	1,276
Financial assets held at fair value through profit or loss		8,951		11,275		6,000
Other non-current assets		910		1,399		643
Total other non-current assets	€	11,343	€	14,091	€	7,919

Restricted cash on December 31, 2020 was composed of bank guarantees on real estate lease obligations in Belgium and in the Netherlands for €1.0 million and €0.5 million, respectively.

Restricted cash on December 31, 2019 was composed of bank guarantees on real estate lease obligations in Belgium and in the Netherlands for €0.9 million and €0.5 million, respectively.

Financial assets held at fair value through profit or loss consisted of equity instruments of both listed and non-listed companies.

We have no restrictions on the sale of these equity instruments and the assets are not pledged under any of our liabilities. These instruments are designated as financial assets held at fair value through profit or loss. The fair value of the equity instrument of the listed company is determined by reference to the closing price of such securities on Euronext at each reporting date (classified as level 1 in the fair value hierarchy). The fair value of the equity instrument of the non-listed company has been determined mainly by reference to the initial transaction price (classified as level 3 in the fair value hierarchy).

Fair value changes on financial assets with fair value through profit or loss are recognized in profit or loss, in other financial income/other financial expenses.

The table below illustrates these financial assets held at fair value through profit or loss as at December 31, 2020, 2019, and 2018.

		December 31,
	2020		2019		2018
	(Euro, in thousands)
Costs at January 1,	€	4,736	€	4,818	€	2,373
Acquisitions of the year		1,994		—		4,736
Disposals of the year		(2,820)		(82)		(2,291)
Costs at December 31,		3,910		4,736		4,818
Fair value adjustment at January 1,		6,539		1,182		(619)
Cancellation of fair value adjustment following disposal		(3,894)		2		598
Fair value adjustment of the year		2,397		5,355		1,203
Fair value adjustment at December 31,		5,042		6,539		1,182
Net book value at December 31,	€	8,951	€	11,275	€	6,000

Research and Development incentives receivables

12 Months Ended

Dec. 31, 2020

Research and Development incentives receivables

Research and Development incentives receivables

16. Research and Development incentives receivables

The table below illustrates the R&D incentives receivables related captions in the balance sheet on December 31, 2020, 2019, and 2018:

		December 31,
	2020		2019		2018
		(Euro, in thousands)
Non-current R&D incentives receivables	€	111,624	€	93,407	€	73,443
Current R&D incentives receivables		24,104		21,949		11,203
Total R&D incentives receivables	€	135,728	€	115,356	€	84,646

The R&D incentives receivables are future expected refunds or tax deductions resulting from R&D incentives on research and development expenses in France and Belgium. Non-current R&D incentives receivables are reported at their net present value and are therefore discounted over the period until maturity date.

The table below provides detailed information on the maturity of the non-current R&D incentives receivables reported in our balance sheet on December 31, 2020.

Non-current R&D incentives receivables

	December 31, 2020
	Maturity date
	2022		2023		2024		2025		2026-2030		Total
	(Euro, in thousands)

French non-current R&D incentives receivables - discounted value	€	10,223		11,911		11,722					€	33,856
Belgian non-current R&D incentives receivables - discounted value		6,647		8,429		11,078		13,716		37,898		77,768
Total non-current R&D incentives receivables - discounted value	€	16,870	€	20,340		22,800		13,716		37,898	€	111,624

Trade and other receivables and other current assets

12 Months Ended

Dec. 31, 2020

Trade and other receivables and other current assets

Trade and other receivables and other current assets

17. Trade and other receivables and other current assets

		December 31,
	2020		2019		2018
	(Euro, in thousands)
Non-current trade receivables	€	50,000	€	—	€	—
Trade receivables		134,632		39,603		9,206
Prepayments		219		292		142
Other receivables		13,568		14,114		9,261
Trade and other receivables		148,418		54,009		18,609
Inventories		355		255		276
Accrued income		1,096		4,443		3,863
Deferred charges		10,502		4,439		4,104
Other current assets		11,953		9,138		8,244
Total trade and other receivables & other current assets	€	210,371	€	63,147	€	26,852

The carrying amount of trade and other receivables approximates their fair value. Other current assets mainly included accrued income from subsidy projects and deferred charges.

On December 31, 2020, we did not have any provision for expected credit losses.

Current financial investments

12 Months Ended

Dec. 31, 2020

Current financial investments

Current financial investments

18. Current financial investments

On December 31, 2020, our current financial investments amounted to €3,026.3 million compared to €3,919.2 million at December 31, 2019 and nil at December 31, 2018. On December 31, 2019 these current financial investments included a short-term bond fund and money market funds. On December 31, 2020 these current financial investments included treasury bills (€1,454.4 million) and money market funds (€1,571.9 million). Our portfolio of treasury bills contains only AAA rated paper, issued by Germany and The Netherlands. Our money market funds portfolio consists of AAA short-term money market funds with a diversified and highly rated underlying portfolio managed by established fund management companies with a proven track record leading to an insignificant risk of changes in value. The funds have an important daily liquidity and can be easily converted to cash.

On December 31, 2020, our current financial investments included $524.6 million held in USD, which could generate a foreign currency exchange gain or loss in our financial results in accordance with the fluctuation of the EUR/USD exchange rate as our functional currency is EUR.

We refer to note 32 for more information on these current financial investments.

Cash and cash equivalents

12 Months Ended

Dec. 31, 2020

Cash and cash equivalents.

Cash and cash equivalents

19. Cash and cash equivalents

	December 31,
	2020		2019		2018
	(Euro, in thousands)
Cash at banks	€	1,239,993	€	907,939	€	358,016
Term deposits		895,194		953,677		733,537
Money market funds		—		—		199,243
Cash and cash equivalents from continuing operations		2,135,187		1,861,616		1,290,796
Cash and cash equivalents included in assets classified as held for sale		7,884		—		—
Total cash and cash equivalents	€	2,143,071	€	1,861,616	€	1,290,796

Table of Contents

Cash and cash equivalents may comprise 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 monitors and optimizes our liquidity position. 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 €895.2 million of term deposits which all had an original maturity longer than three months. All cash and cash equivalents are available upon maximum three-month notice period and without significant penalty. Cash at banks were mainly composed of notice accounts and current accounts Our credit risk is mitigated by selecting a panel of highly rated financial institutions for our deposits.

On December 31, 2020 our cash and cash equivalents included $894.3 million held in U.S.dollars, which could generate a foreign currency 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.

Share capital

12 Months Ended

Dec. 31, 2020

Share capital

Share capital

20. Share capital

	2020		2019		2018
	(Euro, in thousands)
On January 1	€	287,282	€	236,540	€	233,414
Share capital increase		4,031		55,189		19,090
Costs of capital increase		—		(4,447)		(15,964)
Share capital on December 31,	€	291,312	€	287,282	€	236,540

Aggregate share capital	€	353,819	€	349,789	€	294,600
Costs of capital increase (accumulated)		(62,507)		(62,507)		(58,060)
Share capital on December 31,	€	291,312	€	287,282	€	236,540

Costs of capital increases are netted against the proceeds of capital increases, in accordance with IAS 32—Financial instruments: disclosure and presentation.

HISTORY OF SHARE CAPITAL

The history of the share capital of Galapagos NV between January 1, 2018 and December 31, 2020 is as follows:

Date	Share capital increase new shares (in thousands €)		Share capital increase due to exercise subscription rights (in thousands €)		Number of shares issued (in thousands of shares)	Aggregate number of shares after transaction (in thousands of shares)	Aggregate share capital after transaction (in thousands €)
January 1, 2018						46,256	€	250,187
March 20, 2018				1,613	298
June 20, 2018				556	103
September 17, 2018		16,021			2,961
October 3, 2018				733	135
November 23, 2018				167	31
December 31, 2018						54,466		294,600
March 20, 2019				808	149
June 20, 2019				1,127	208
August 23, 2019		36,945			6,829
September 19, 2019				1,632	302
November 6, 2019				14,162	2,618
November 25, 2019				515	95
December 31, 2019						64,667		349,789
March 17, 2020				824	152
May 28, 2020				2,356	436
September 18, 2020				467	86
December 4, 2020				384	71
December 31, 2020						65,412	€	353,819

On December 31, 2020, Galapagos NV’s share capital amounted to €353,819 thousand, represented by 65,411,767 shares. All shares were issued, fully paid up and of the same class.

All of the share issuances listed above were for cash consideration.

The below table summarizes the capital increases for the years 2018, 2019, and 2020.

(Euro, in thousands, except share data)	Number of shares		Share capital		Share premium			Share capital and share premium	Average exercise price subscription right	Closing share price on date of capital increase
									( in Euro/ subscription right)	( in Euro/ share)
On January 1, 2018		50,936,778	€	233,414	€	993,025	€	1,226,439

March 20, 2018 : exercise of subscription rights		298,184		1,613		2,311		3,924	13.16	83.72

June 20, 2018 : exercise of subscription rights		102,801		556		781		1,337	13.01	85.00

September 17, 2018 : U.S. public offering
ADSs (fully paid)		2,961,373		16,021		280,167		296,188
Underwriter discounts and offering expenses (paid)				(15,964)				(15,964)
Total U.S. public offering		2,961,373		57		280,167		280,224		99.68

October 3, 2018 : exercise of subscription rights		135,485		733		1,281		2,014	14.86	94.32

November 23, 2018 : exercise of subscription rights		30,800		167		215		382	12.40	88.90

On December 31, 2018		54,465,421		236,540		1,277,780		1,514,320

March 20, 2019 : exercise of subscription rights		149,370		808		2,673		3,481	23.30	90.32

June 20, 2019 : exercise of subscription rights		208,310		1,127		3,198		4,325	20.76	113.55

August 23, 2019 : share subscription by Gilead
Ordinary shares (fully paid)		6,828,985		36,945		923,142		960,087		148.90
Derecognition of financial liability from share subscription agreement						56,749		56,749
Underwriter discounts and offering expenses (paid)				(4,447)				(4,447)
Total share subscription by Gilead		6,828,985		32,498		979,891		1,012,389

September 19, 2019 : exercise of subscription rights		301,745		1,632		5,043		6,675	22.12	145.25

November 6, 2019 : exercise of warrant A by Gilead
Exercise of warrant A	2,617,791		14,162		353,873		368,035
Derecognition of financial liability related to warrant A					78,953		78,953
Total exercise of warrant A by Gilead	2,617,791		14,162		432,826		446,988	140.59	170.75

November 25, 2019 : exercise of subscription rights	95,180		515		2,172		2,687	28.23	172.95

On December 31, 2019	64,666,802		287,282		2,703,583		2,990,865

March 17, 2020 : exercise of subscription rights	152,220		824		4,531		5,355	35.18	141.40

May 28, 2020 : exercise of subscription rights	435,540		2,356		15,558		17,914	41.13	186.60

September 18, 2020 : exercise of subscription rights	86,280		467		1,936		2,403	27.85	117.70

December 4, 2020 : exercise of subscription rights	70,925		384		2,232		2,616	36.88	100.30

On December 31, 2020	65,411,767	€	291,312	€	2,727,840	€	3,019,153

Other information

					Ordinary shares			Total
Accounting par value of shares (€)						5.41			5.41

The supervisory board is authorized for a period of five years starting from the date of publication in the Annexes to the Belgian State Gazette of the shareholders’ resolution that granted the renewed authorization, to increase the share capital of Galapagos NV within the framework of the authorized capital through contributions in kind or in cash, with limitation or cancellation of the shareholders’ preferential subscription rights. Said authorization can be renewed. The authorized capital of Galapagos consists of two parts. A general authorization for capital increases up to 20% of the share capital at the time of convening the shareholders’ meeting of October 22, 2019 (i.e. €67,022,402.04) was renewed and is valid for a period of five years from the date of publication of this renewal in the Annexes to the Belgian State Gazette, i.e. November 13, 2019. A specific authorization for capital increases of more than 20% and up to 33% of the share capital at the time of the convening the shareholders' meeting of April 25, 2017 (i.e. €82,561,764.93), was renewed and is valid for a period of five years from the date of publication of this renewal in the Annexes to the Belgian State Gazette, i.e. May 31, 2017. This specific part of the authorized capital can, however, only be used in a number of specific circumstances and upon a resolution of the supervisory board that all independent supervisory board members (within the meaning of article 7:87 of the Belgian Companies Code) approve. The supervisory board is currently not authorized to increase the share capital after notification by the FSMA (Financial Services and Markets Authority) of a public takeover bid on Galapagos NV’s shares.

As of December 31, 2020, an amount of €55,264,659.69 still remained available under the general part of the authorized capital and an amount of €13,717,929.80 remained available under the specific part of the authorized capital.

Deferred tax

12 Months Ended

Dec. 31, 2020

Deferred tax

Deferred tax

21. Deferred tax

	December 31,
	2020		2019		2018
	(Euro, in thousands)
Recognized deferred tax assets and liabilities
Assets	€	4,475	€	4,205	€	2,514
Liabilities	€	—	€	—	€	—

Deferred tax assets unrecognized	€	365,639	€	289,833	€	223,377

Deferred taxes in the consolidated statement of operations	€	(157)	€	1,537	€	(238)

Tax benefit arising from previously unrecognized tax assets used to reduce deferred tax expense (+)		581		1,537		528
Deferred tax expenses relating to temporary differences		(44)		—		—
Deferred tax expenses relating to use or derecognition of previously recognized deferred tax assets		(695)		—		(766)

The total amount of tax attributes and deductible temporary differences at December 31, 2020 amounted to €1,485.8 million (2019: €1,179.0 million). This is composed of i) consolidated tax losses carried forward and deductible temporary differences at December 31, 2020 amounting to €1,229.3 million (2019: €953.3 million; 2018: €688.7 million), and (ii) innovation income deduction, dividend received deduction and investment deduction carried forward at December 31, 2020 amounting to €256.5 million (2019: €225.7 million; 2018: €196.4 million).

The available statutory tax losses carried forward that can be offset against future statutory taxable profits amounted to €478.6 million on December 31, 2020. These statutory tax losses can be compensated with future statutory profits for an indefinite period except for an amount of €2.7 million in the United States and the Netherlands with expiry date between 2026 and 2034. On December 31, 2020, the available tax losses carried forward in Galapagos NV (Belgium) amounted to €416.6 million. In addition to the latter, Galapagos NV (Belgium) also benefits from the Belgian innovation income deduction regime which led to report, on December 31, 2020, a carried forward tax deduction of €247.2 million (2019: €224.7 million; 2018: €195.4 million) that can also be offset against future statutory taxable results. In addition, Galapagos NV (Belgium) also has available investment deduction carried forward of €1 million (2019 and 2018: €1 million) and a dividend received deduction carried forward of €8.4 million (2019 and 2018: nil) that can be offset against future taxable profits. There is no limit in time for the innovation income deduction, the dividend received deduction and investment deduction carried forward.

With the exception of 2019, we have a history of losses. We forecast to continue incurring taxable losses in the foreseeable future as we continue to invest in clinical and preclinical development programs and discovery platforms. Consequently, no deferred tax asset was set up as at December 31, 2020, except for four subsidiaries operating on a cost plus basis for which deferred tax assets were recognized for €4.5 million (2019: €4.2 million and 2018: €2.5 million).

Lease liabilities

12 Months Ended

Dec. 31, 2020

Lease liabilities.

Lease liabilities

22. Lease liabilities

On adoption of IFRS 16 on January 1, 2019, we recognized lease liabilities in relation to leases, which had previously been classified as ‘operating leases’ under IAS 17.

	December 31,						December 31,
	2020		2019		2018		2020		2019		2018
		(Euro, in thousands)						(Euro, in thousands)
		Lease payments						Present value of lease payments
Lease liabilities

Within one year	€	6,772	€	6,189			€	6,401	€	5,826
In the second to fifth years inclusive		20,399		16,320				19,833		15,783
After five years		3,214		3,844				3,201		3,775
	€	30,385	€	26,353	€	-	€	29,436	€	25,384	€	-

Less future finance charges		949		969
Present value of lease liabilities	€	29,436	€	25,384	€	-

Less amount due for settlement within 12 months								6,401		5,826
Amount due for settlement after 12 months							€	23,035	€	19,558	€	-

Trade and other liabilities

12 Months Ended

Dec. 31, 2020

Trade and other liabilities

Trade and other liabilities

23. Trade and other liabilities

	December 31,
	2020		2019		2018
	(Euro, in thousands)
Trade and other liabilities	€	171,316	€	142,510	€	68,038
Other non-current liabilities		8,096		6,989		1,578
Accrued charges		1,070		923		890
Total trade and other liabilities	€	180,482	€	150,422	€	70,506

Deferred income

12 Months Ended

Dec. 31, 2020

Deferred income.

Deferred income

24. Deferred income

The movement in the non-current and current deferred income is detailed in the table below.

		Total		Gilead collaboration agreement for filgotinib		Gilead collaboration agreement for ziritaxestat		Gilead collaboration agreement for drug discovery platform⁽²⁾		AbbVie collaboration agreement for CF		Servier collaboration agreement for osteoarthritis		Deferred income related to contracts in our fee-for-service segment		Other deferred income (grants)
		(Euro, in thousands)

On December 31, 2017	€	219,892	€	213,981	€	—	€	—	€	—	€	5,362	€	248	€	300

Reclassified from equity following adoption of IFRS 15		83,220		43,832						44,749		(5,362)

On Januari 1, 2018		303,112		257,814		—		—		44,749		—		248		300

Upfront received		38,874								38,874
Milestones received		20,965		12,417						8,548

Revenue recognition of upfront		(148,985)		(96,809)						(52,176)
Revenue recognition of milestones		(64,394)		(27,623)						(36,771)

Other movements		229												222		7

On December 31, 2018		149,801		145,798		—		—		3,224		—		471		308

Upfront received and impact of initial valuation of share subscription		3,655,416		641,663		666,967		2,346,787
Milestones received		49,727		27,317						22,410
Significant financing component ⁽³⁾		6,900		6,900

Revenue recognition of upfront		(1,009,663)		(260,207)		(666,967)		(80,918)		(1,570)
Revenue recognition of milestones		(51,156)		(27,092)						(24,064)
Catch-up effect on closing date ⁽¹⁾		245,883		245,883

Other movements		(46,262)						(45,856)						(109)		(297)

On December 31, 2019		3,000,646		780,261		—		2,220,013		—		—		362		10

Upfront payments		160,000		160,000
Milestones received		90,192		90,192
Significant financing component ⁽³⁾		16,278		16,278

Revenue recognition of upfront		(411,417)		(181,816)				(229,601)
Revenue recognition of milestones		(46,261)		( 46,261 )

Other movements		(305)												(362)		57

On December 31, 2020	€	2,809,133	€	818,654	€	—	€	1,990,412	€	—	€	—	€	—	€	67

(1) Following the contract amendment, the revenue recognized for filgotinib for the year ended December 31, 2019 included a negative catch-up effect resulting from the decrease in the percentage of completion applied to previously received upfront and milestones for that program.

(2) The upfront received and the outstanding balance on December 31, 2020 and on December 31, 2019 comprise the issuance liabilities for the warrants and the upfront payment allocated to the drug discovery platform. Other movements in 2019 include the derecognition of warrant issuance liabilities through the share premium account.

(3) With regard to the additional consideration received for the extended cost sharing for filgotinib, we assume the existence of a significant financing component reflecting the time value of money on the estimated recognition period.

The outstanding deferred income balance on December 31, 2020 included €818.7 million related to the collaboration agreement with Gilead for filgotinib (€604.9 million classified as long term deferred income), and €1,990.4 million, including €7.9 million warrant issuance liability related to subsequent warrant B, related to the collaboration agreement with Gilead for the drug discovery platform (€ 1,761.1 million classified as long term deferred income) and €0.1 million related to deferred grants.

The outstanding deferred income balance on December 31, 2019 included €780.3 million related to the collaboration agreement with Gilead for filgotinib (€594.7 million classified as long term deferred income), €2,220.0 million, including €16.2 million warrant issuance liability related to subsequent warrant B, related to the collaboration agreement with Gilead for the drug discovery platform (€1,991.6 million classified as long term deferred income) and €0.4 million related to our fee-for-service segment. We refer to note 6 for a detail of the allocation of the transaction price received from Gilead.

Discontinued operations

12 Months Ended

Dec. 31, 2020

Disclosure of analysis of single amount of discontinued operations [abstract]

Discontinued operations

25. Discontinued operations

On November 23, 2020 we signed a share purchase agreement with Selvita S.A. in relation to the disposal of Fidelta d.o.o. (our fee-for-service segment). As net assets associated with our fee-for-service business will be recovered principally through a sale transaction rather than through continuing use, we have classified these assets and the associated liabilities as held for sale in our financial statements for the year ended December 31, 2020.

The transaction was completed on January 4, 2021 for a total consideration of €37.1 million (including the customary adjustments for cash and working capital). Fidelta will continue performing drug discovery services for us for the next five years for which we have purchase commitments for an aggregate amount of €27.0 million.

Held for sale assets are stated at their carrying amount, which is lower than the fair value less costs to sell.

As we expect to continue to purchase services from Fidelta d.o.o. after the closing of the transaction, we eliminated the intragroup revenue and cost in discontinued operations.

(i) Financial performance

	Year ended December 31,
	2020		2019			2018
		(Euro, in thousands, except share and per share data)
Revenues	€	16,140	€	10,084	€	10,170
Other income				8		9
Total revenues and other income		16,140		10,092		10,179

Research and development expenses		(7,685)		(7,229)		(6,653)
General and administrative expenses		(2,000)		(1,319)		(1,253)
Total operating expenses		(9,685)		(8,548)		(7,906)

Operating income		6,455		1,544		2,273

Other financial income		179		93		71
Other financial expenses		(176)		(102)		(135)

Income before tax		6,458		1,535		2,209

Income taxes		(893)		(379)		773

Net income	€	5,565	€	1,156	€	2,981

Basic income per share from discontinued operations	€	0.09	€	0.02	€	0.06
Diluted income per share from discontinued operations	€	0.08	€	0.02	€	0.06
Weighted average number of shares (in thousands of shares)		65,075		57,614		52,113
Weighted average number of shares - Diluted (in thousands of shares)		67,572		60,112		53,922

(ii) Assets and liabilities

The following assets and liabilities were classified as held for sale in relation to the discontinued operations:

	2020
		(Euro, in thousands)
Intangible assets	€	21
Property, plant and equipment		10,050
Other non-current assets		160
Trade and other receivables		4,428
Cash and cash equivalents		7,884
Other assets		863
Total assets classified as held for sale		23,406


Non-current lease liabilities		4,115
Other non-current liabilities		70
Trade and other liabilities		3,649
Current lease liabilities		727
Income tax payable		356
Liabilities associated with assets classified as held for sale		8,917

Net assets	€	14,488

(iii) Cash flow


		2020	2019			2018
		(Euro, in thousands)
Net cash flows generated in operating activities	€	7,173	€	2,911	€	3,335
Net cash flows used in investing activities		(2,284)		(1,350)		(799)
Net cash flows used in financing activities		(664)		(709)		—
Net cash flow from discontinued operations	€	4,225	€	852	€	2,536

Operating Cash Flow

12 Months Ended

Dec. 31, 2020

Consolidated Statement of Cash Flows

Operating Cash Flow

26. Operating Cash Flow

The following table details the adjustments related to the operating cash flow:


	2020		2019		2018
	(Euro, in thousands)
Adjustment for non-cash transactions
Depreciation and amortization	€	18,682	€	12,448	€	5,081
Impairment loss						1,083
Share-based compensation expenses		79,959		38,297		26,757
Decrease (-)/increase in retirement benefit obligations and provisions		(260)		(156)		99
Unrealized exchange losses/gains (-) and non-cash other financial result		105,055		11,169		(10,063)
Discounting effect of deferred income		16,278		6,900
Fair value re-measurement of share subscription agreement and warrants		(3,034)		181,644
Net change in (fair) value of current financial investments		15,900		3,081
Fair value adjustment financial assets held at fair value through profit or loss		(2,396)		(5,355)		(1,203)
Other non-cash expenses		539
Total adjustment for non-cash transactions	€	230,723	€	248,027	€	21,753


Adjustment for items to disclose separately under operating cash flow
Interest expense	€	9,424	€	1,302	€	780
Interest income		(7,476)		(9,247)		(5,219)
Tax expense		2,119		214		50
Total adjustment for items to disclose separately under operating cash flow	€	4,067	€	(7,731)	€	(4,389)

Adjustment for items to disclose under investing and financing cash flows
Gain (-)/loss on sale of fixed assets	€	82	€	(2)	€	(668)
Interest income on current financial investments		(2,554)		(5,059)
Total adjustment for items to disclose separately under investing and financing cash flow	€	( 2,472 )	€	(5,061)	€	(668)

Change in working capital other than deferred income
Increase (-)/decrease in inventories	€	(100)	€	20	€	3
Increase in receivables		(177,155)		(67,263)		(76)
Increase in liabilities		31,163		79,940		19,996
Total change in working capital other than deferred income	€	(146,092)	€	12,698	€	19,922

Off-balance sheet arrangements

12 Months Ended

Dec. 31, 2020

Off-balance sheet arrangements

Off-balance sheet arrangements

27. Off-balance sheet arrangements

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

We entered into lease agreements for offices, laboratories and cars. As a consequence of the adoption of IFRS 16 Leases, on January 1, 2019, lease obligations in the scope of the new standard are presented as lease liabilities in the statements of financial position and no longer disclosed separately as off-balance sheet commitments. We refer to note 22 for a breakdown of our lease liabilities.

On December 31, 2020, we had outstanding obligations for future purchase commitments, which become due as follows:

	Total		Less than 1 year			1 - 3 years		3 - 5 years		More than 5 years
					(Euro, in thousands)

Purchase commitments	€	347,873	€	271,922		€	73,009	€	2,870	€	72

On December 31, 2019, we had outstanding obligations for future purchase commitments, which become due as follows:

	Total		Less than 1 year			1 - 3 years		3 - 5 years		More than 5 years
					(Euro, in thousands)
Purchase commitments	€	251,670	€	175,006		€	70,675	€	5,989	€	—

On December 31, 2019 we were committed to two leases which have not yet started. The total future cash outflows for leases that had not yet commenced were as follows:

	Total		Less than 1 year			1 - 3 years		3 - 5 years		More than 5 years
					(Euro, in thousands)

Lease commitments not yet commenced	€	8,986	€	5,793		€	1,502	€	1,502	€	188

On December 31, 2018, we had outstanding obligations for future minimum rent payments and purchase commitments, which become due as follows:

	Total		Less than 1 year			1 - 3 years		3 - 5 years		More than 5 years
					(Euro, in thousands)
Operating lease obligations	€	27,704	€	4,722		€	10,024	€	6,234	€	6,724
Purchase commitments (*)		222,033		121,139			81,879		19,014		—
Total contractual obligations & commitments	€	249,737	€	125,862		€	91,903	€	25,248	€	6,724

In addition to the tables above, we have a contractual cost sharing obligation related to our collaboration agreement with Gilead for filgotinib. The contractual cost sharing commitment amounted to €614.1 million at December 31, 2019, (€74.0 million at December 31, 2018).

On December 31, 2020, after the recent renegotiation of the filgotinib collaboration, our estimate of this cost sharing commitment amounts to €493.4 million, for which we have direct purchase commitments of €18.1 million at December 31, 2020 (€27.5 million at December 31, 2019, €20.3 million at December 31, 2018) reflected in the tables above.

Contingent assets and liabilities

12 Months Ended

Dec. 31, 2020

Contingent assets and liabilities

Contingent assets and liabilities

28. Contingent assets and liabilities

On January 4, 2021, we closed the sale of our Croatian subsidiary Fidelta. Selvita acquired 100% of the outstanding shares in Fidelta for a total consideration of €37.1 million including customary adjustments for net cash and working capital. In accordance with common practice, we gave representations and warranties which are capped and limited in time.

In December 2015, we entered into a license and collaboration agreement to co-develop filgotinib with Gilead in rheumatoid arthritis, Crohn’s disease, ulcerative colitis and other indications. This agreement was revised a first time in August 2019 and in December 2020, we agreed to further revise this agreement. Under the terms of the new arrangement, we will assume all development, manufacturing, commercialization and certain other rights for filgotinib in Europe. Beginning on January 1, 2021, we will bear the future development costs for certain studies, in lieu of the equal cost split contemplated by the previous agreement. The existing 50/50 global development cost sharing arrangement will continue for certain other studies.

All commercial economics on and commercialization responsibilities for filgotinib in Europe will transfer to us as of January 1, 2022, subject to payment by us of tiered royalties of 8 to 15% of net sales in Europe to Gilead, starting in 2024. In connection with the amendments to the existing arrangement for the commercialization and development of filgotinib, Gilead has agreed to irrevocably pay us €160 million, subject to certain adjustments for higher than budgeted development costs. Gilead paid €35 million in January 2021 and will pay an additional €75 million in 2021 and will pay €50 million in 2022. In addition, we will no longer be eligible to receive any future milestone payments relating to filgotinib in Europe. However, we will remain eligible to receive tiered royalty percentages ranging from 20% to 30% on Gilead's global net sales of filgotinib outside of Europe and future development and regulatory milestone-based payments of up to $295 million and sales-based milestone payments of up to $600 million. We achieved two milestones under the first revised agreement in September 2020 totaling $105 million.

As a result of the Option, License and Collaboration agreement signed with Gilead in July 2019, we share further development costs for GLPG1690 equally with Gilead. We were also entitled to an additional milestone for GLPG1690 upon approval in the United States and we were eligible to receive tiered royalties ranging from 20-24% on net sales of GLPG1690 by Gilead in all countries outside Europe. In February 2021, we and Gilead announced our decision to discontinue all ongoing development activities with GLPG1690.

As explained in the summary of the significant transaction in note 2 to our consolidated financial statements, Gilead received exclusive option rights to acquire a license on compounds. Exercising such an option would trigger an opt-in payment, a 50-50 cost share mechanism for the future development activities, potential future development and sales based milestones and royalties.

Share based payments

12 Months Ended

Dec. 31, 2020

Share based payments

Share based payments

29. Share based payments

Subscription right plans

Presented below is a summary of subscription right activities for the reported periods. Various subscription right plans were approved for the benefit of our employees, and for members of the supervisory board and independent consultants of Galapagos NV.

The subscription rights granted under subscription right plans created from 2011 onwards vest at the end of the third calendar year following the year of the grant, with no intermediate vesting.

The subscription rights offered to members of the supervisory board vest over a period of 36 months at a rate of 1/36th per month. As of 2020, we no longer grant subscription rights to supervisory board members.

Subscription rights cannot be exercised before the end of the third calendar year following the year of the grant. In the event of a change of control over Galapagos NV, all outstanding subscription rights vest immediately and will be immediately exercisable.

The table below sets forth a summary of subscription rights outstanding and exercisable on December 31, 2020, per subscription right plan:

				Outstanding					Outstanding	Exercisable
				per	Granted	Exercised	Forfeited	Expired	per	per
Subscription	Allocation	Expiry	Exercise	January 1,	during	during	during	during	December 31,	December 31,
right plan	date	date	price (€)	2020	year	year	year	year	2020	2020
2006 BNL	12/21/2007	12/20/2020	7.12	1,050		(1,050)			—	—
2007 RMV	10/25/2007	10/24/2020	8.65	14,980		(14,980)			—	—
2008	06/26/2008	06/25/2021	5.6	1,365					1,365	1,365
2012	09/03/2012	09/02/2020	14.19	80,040		(80,040)			—	—
2013	05/16/2013	05/15/2021	19.38	120,434		(64,770)			55,664	55,664
2014	07/25/2014	07/24/2022	14.54	252,340		(83,000)			169,340	169,340
2015	04/30/2015	04/29/2023	28.75	282,473		(63,000)			219,473	219,473
2015 (B)	12/22/2015	12/21/2023	49.00	329,500		(68,000)			261,500	261,500
2015 RMV	12/22/2015	12/21/2023	49.00	57,500		(17,500)			40,000	40,000
2016	06/01/2016	05/31/2024	46.10	504,250		(161,625)			342,625	342,625
2016 RMV	06/01/2016	05/31/2024	46.10	120,000		(51,000)			69,000	69,000
2016 (B)	01/20/2017	01/19/2025	62.50	150,000		(140,000)			10,000	10,000
2017	05/17/2017	05/16/2025	80.57	595,500					595,500
2017 RMV	05/17/2017	05/16/2025	80.57	127,500					127,500
2018	04/19/2018	04/18/2026	79.88	1,085,245			(2,000)		1,083,245
2018 RMV	04/19/2018	04/18/2026	79.88	137,500					137,500
2019	04/10/2019	04/09/2027	95.11	1,486,690			(8,850)		1,477,840
2019 RMV	04/10/2019	04/09/2027	95.11	194,750			(1,750)		193,000
2020	04/17/2020	04/16/2028	168.42	—	1,925,185		(19,151)		1,906,034
2020RMV	04/17/2020	04/16/2028	168.42	—	248,150		(8,625)		239,525
Total				5,541,117	2,173,335	(744,965)	(40,376)	—	6,929,111	1,168,967

		Weighted
		average
	Subscription rights	exercise
	Subscription rights	price (Euro)
Outstanding on January 1, 2018	3,970,807	€	39.3
Exercisable on December 31, 2017	763,344		13.7

Granted during the period	1,235,245		79.9
Forfeited during the year	(12,000)		43.2
Exercised during the period	(567,270)		13.5
Expired during the year	—		—
Outstanding on December 31, 2018	4,626,782	€	53.3
Exercisable on December 31, 2018	882,734		14.0

Granted during the period	1,699,690		95.1
Forfeited during the year	(30,750)		88.9
Exercised during the period	(754,605)		22.8
Expired during the year	—		—
Outstanding on December 31, 2019	5,541,117	€	70.1
Exercisable on December 31, 2019	1,139,682		30.2

Granted during the period	2,173,335		168.4
Forfeited during the year	(40,376)		144.8
Exercised during the period	(744,965)		38.0
Expired during the year	—		—
Outstanding on December 31, 2020	6,929,111	€	104.0
Exercisable on December 31, 2020	1,168,967		37.8

The table below sets forth the inputs into the valuation of the subscription rights.

	2020		2020 RMV		2019		2019 RMV		2018		2018 RMV
	April 17		April 17		April 19		April 19		April 18		April 18
Exercise Price (€)	€	168.42	€	168.42	€	95.11	€	95.11	€	79.88	€	79.88
Weighted average share price at acceptance date (€)	€	178.95	€	178.95	€	107.05	€	107.45	€	84.88	€	84.88
Weighted average fair value on the acceptance date (€)	€	86.45	€	85.79	€	40.04	€	40.05	€	38.39	€	38.39
Weighted average estimated volatility (%)		51.30		51.32		35.86		35.63		39.44		39.44
Weighted average expected life of the subscription rights (years)		6.00		6.00		6.02		6.00		8.00		8.00
Weighted average risk free rate (%)		(0.44)		(0.44)		(0.27)		(0.28)		0.51		0.51
Expected dividends		None		None		None		None		None		None

Subscription right Plans

The exercise price of the subscription rights is determined pursuant to the applicable provisions of the Belgian Law of 26 March 1999.

The weighted average estimated volatility is calculated on the basis of the implied volatility of the share price over the expected life of the subscription rights.

The weighted average expected life of the subscription right is calculated as the estimated duration until exercise, taking into account the specific features of the plans.

Our share based compensation expense in 2020 amounted to €79,959 thousand (2019: €38,297 thousand; 2018: €26,757 thousand).

The following table provides an overview of the outstanding subscription rights per category of subscription right holders on December 31, 2020, 2019 and 2018.

Category

	December 31,
	2020		2019		2018
	(in number of subscription rights)
Supervisory board members		157,560		222,600		216,780
Management board members		2,101,874		2,171,874		2,139,374
Other		4,669,677		3,146,643		2,270,628
Total subscription rights outstanding		6,929,111		5,541,117		4,626,782

The outstanding subscription rights at the end of the accounting period have a weighted average exercise price of €103.95 (2019: €70.09; 2018: €53.30) and a weighted average remaining life of 2,050 days (2019: 2,023 days; 2018: 1,975 days).

Restricted stock units RSUs

Each RSU represents the right to receive one Galapagos share or a payment in cash of an amount equivalent to the volume-weighted average price of the Galapagos share on Euronext Brussels over the 30-calendar day period preceding the relevant vesting date, in accordance with the terms and conditions of the relevant RSU program.

We currently have the following types of restricted stock unit (RSU) programs:

•		Plan 2020.I, under which the grants are intended to be made every year, subject to a decision of the supervisory board. This plan is intended to provide a long-term incentive to certain of our employees and management board members and replaces the deferred portion of the bonus under the former Senior Management Bonus Scheme;
•		Plan 2019.II and Plan 2020.II These plans are aimed at retaining a specific set of our employees and management board members whose retention is deemed so important for the future performance of Galapagos that an additional incentive is desired. The beneficiaries are nominated by the nomination and remuneration committee and the supervisory board approves the list of beneficiaries. The four-year vesting period is designed to be aligned with long-term shareholder interests;

•		Plan 2019.I This plan was granted at the discretion of the supervisory board, as announced in our remuneration policy included in the annual report relating to financial year 2018 under the header "Information on the remuneration policy for the next two years."
•		Plan 2019.III This exceptional RSU grant took place in 2019 under an RSU Transaction Bonus Plan for the successful closing of the Gilead transaction.

The main characteristics of all these plans are as follows:

•		the RSUs are offered for no consideration
•		four-year vesting period, with 25% vesting each year, except for the RSUs granted under the Plan 2019.I and, solely for beneficiaries who are management board members, the Plan 2020.I, that will all vest at the same time three years after the offer date and the RSUs granted under Plan 2019.III, of which 50% vests after two years and 50% vests after three years ;
•		payout will be in cash or shares, at Galapagos’ discretion, it being understood that in respect of members of the management board, any vesting prior to the third anniversary of the offer date will always give rise to a payment in cash rather than a delivery of shares as an incentive;
•		in case of termination of service before the vesting date, forfeiture rules apply.

The table below sets forth a summary of RSUs outstanding at December 31, 2020, per RSU plan:

	2020	2019
	(in number of RSUs)
Outstanding on January 1,	213,147	—

Granted during the period	128,769	213,147
Forfeited during the year	(1,052)
Paid in cash during the period	(27,268)
Outstanding on December 31,	313,596	213,147

The RSUs are measured based on the volume-weighted average price of the Galapagos share on Euronext Brussels over the 30-calendar day period preceding the reporting period and they are re-measured at each reporting date. We recognize the corresponding expense and liability over the vesting period.

The following table provides an overview of the outstanding RSUs per category of RSU holders on December 31, 2020 and December 31, 2019.

	December 31,
Category	2020	2019
	(in number of RSUs)
Management board members	229,276	188,571
Other	84,320	24,576
Total outstanding RSUs	313,596	213,147

Related parties

12 Months Ended

Dec. 31, 2020

Related parties

Related parties

30. Related parties

Relationship and transactions with entities with (joint) control of, or significant influence over, Galapagos

Gilead

Gilead is exercising significant influence over Galapagos as from the equity subscription on August 23, 2019. As result of the equity subscription we received a transparency notification from Gilead on August 28, 2019 confirming they held 22.04% of the then issued and outstanding shares of Galapagos.

Furthermore, the extraordinary general meeting of shareholders of October 22, 2019 approved the issuance of warrant A and initial warrant B to Gilead allowing them to further increase its ownership of Galapagos to up to 29.9% of the company’s issued and outstanding shares. Subsequent warrant B is still subject to approval by an extraordinary general meeting of shareholders. This extraordinary general meeting of shareholders shall take place between 57 and 59 months of the closing of the subscription agreement and this warrant will have substantially similar terms, including as to exercise price, to the initial warrant B. On November 6, 2019 Gilead exercised warrant A, which resulted in an additional equity investment of €368.0 million. By exercising warrant A Gilead increased its ownership in Galapagos to 25.10% of the then outstanding shares. Gilead further increased its ownership to 25.84% at December 31, 2019. Gilead’s ownership then diluted to 25.54% at December 31, 2020, due to four capital increases resulting from the exercise of subscription rights under employee subscription right plans in the course of 2020. On January 6, 2021 we received a transparency notification from Gilead notifying a change in the chain of intermediary companies through which Gilead holds its shares in Galapagos and confirming they held 25.54% of the then issued and outstanding shares of Galapagos.

The presumption of significant influence is also confirmed by the fact that Gilead has the right, for as long as it holds more than 20% of Galapagos’ share capital, to appoint two Investor Board Designees to Galapagos’ supervisory board.

The following balances are outstanding at the end of the reporting period in relation to Gilead:

	December 31,
	2020		2019
	(Euro, in thousands)

Non-current trade receivables	€	50,000	€	—
Trade and other receivables	€	132,825	€	31,645
Trade and other payables	€	27,074	€	39,100

The non-current trade receivables and trade and other receivables balances mainly relate to a total of €160.0 million to receive in relation to the recently modified collaboration for filgotinib of which €110.0 million will be received in 2021 and €50.0 million in 2022. Additionally, the trade and other receivables contain €22.8 million of receivables relating to our collaborations for GLPG1690 and filgotinib. The outstanding liabilities mainly relate to the cross charges from Gilead for the development cost sharing of filgotinib in the fourth quarter of 2020 (€24.8 million).

Due to the approval of Jyseleca, by both the Japanese and European authorities in September 2020, we received milestone payments of respectively $30.0 million (€25.8 million) and $75.0 million (€64.4 million) from Gilead that are recognized in revenue over time until the end of the development period.

During 2020 we recognized in revenue €229.6 million (€80.9 million for the year ended December 31, 2019) relating to the performance obligation for the drug discovery platform and a total of €228.1 million (€41.4 million for the year ended December 31, 2019) representing the total impact on our revenues coming from the filgotinib performance obligation. The latter consists of upfront payments and milestone payments that were recognized in accordance with the percentage of completion of the underlying performance obligation.

Additionally, we recognized royalty income for an amount of €16.2 million in relation to the commercialization of Jyseleca.

Furthermore, we recognized €34.1 million (€17.7 million for the year ended December 31, 2019) of cost reimbursements from Gilead related to the development of GLPG1690 as a decrease of the related expenses (on the line research and development expenditure). An amount of €101.0 million (€72.0 million for the year ended December 31, 2019) relating to cross charges from Gilead relating to filgotinib was recognized as expense on the line research and development expenditure.

Finally, we recognized €4.7 million as a deduction of sales & marketing expenses and €3.1 million as a deduction of research and development expenditure (compared to €8.2 million additional sales & marketing expenses for the year ended December 31, 2019) mainly relating to our 50/50 profit/(cost) share mechanism with Gilead for direct sales of Jyseleca (filgotinib) in the shared territory and expenses incurred for the co-promotion activities for Jyseleca (filgotinib).

As at December 31, 2020, we have two outstanding performance obligations under IFRS 15 towards Gilead, being the performance obligation related to our drug discovery platform and the performance obligation relating to filgotinib. This results in an outstanding deferred income balance of €2.0 billion for the drug discovery platform (including the warrant issuance liability relating to subsequent warrant B) and €819 million for the performance obligation relating to filgotinib.

A detailed explanation of our transactions with Gilead in 2019 and 2020 can be found in the section titled "Agreements with major Galapagos NV shareholders." There are no other shareholders or other entities who, solely or jointly, control Galapagos or exercise significant influence over Galapagos.

Relationship and transactions with subsidiaries

Please see Note 31 for an overview of the consolidated companies of the group, which are all wholly-owned subsidiaries of Galapagos NV.

Intercompany transactions between Galapagos NV and its subsidiaries, and amongst the subsidiaries, have been eliminated in the consolidation and are not disclosed in this note.

Relationship and transactions with key management personnel

Our key management personnel consists of the members of our management board and the members of our supervisory board. All amounts mentioned in this section are based on expenses recognized in the financial statements for the relevant financial year.

Remuneration of key management personnel

On December 31, 2019, our management board had six members: Mr. Onno van de Stolpe, Mr. Bart Filius, Dr. Piet Wigerinck, Dr. Andre Hoekema, Dr. Walid Abi-Saab and Mr Michele Manto. They provide their services to us on a full-time basis. On December 31, 2020, our supervisory board consisted of eight members: Dr. Raj Parekh, Mr. Howard Rowe, Ms. Katrine Bosley, Dr. Mary Kerr, Mr. Peter Guenter, Mr. Daniel O’Day, Dr. Linda Higgins and Dr Elisabeth Svanberg. Dr Elisabeth Svanberg was appointed as supervisory board member on our annual shareholders’ meeting of April 28, 2020.

Only the CEO was, prior to the implementation of the two-tier governance structure, a member of both the executive committee and the board of directors. Our CEO did not receive any special remuneration for his board membership, as this was part of his total remuneration package in his capacity as management board member.

The remuneration package of the members of key management personnel comprises:

	Year ended December 31,
	2020		2019		2018
Remuneration of key management personnel:
Euro, in thousands (except for the number of subscription rights and RSUs)
Short-term benefits	€	3,102	€	14,129	€	2,909
Management board members as a group ⁽¹⁾
Gross salary		2,531		2,121		1,920
Employer social security on gross salary		—		61		125
Cash bonus		433		1,230		757
Exceptional bonus		—		10,500		—
Employer social security on exceptional bonus		—		108		—
Other short-term benefits		138		109		107
Long-term benefits for management board members as a group ⁽²⁾		—		1,874		1,812
Board fees and other short-term benefits for supervisory board members
Raj Parekh		220		90		92
Harrold van Barlingen ⁽³⁾		—		—		15
Howard Rowe		125		55		53
Werner Cautreels ⁽⁴⁾		—		15		48
Katrine Bosley		115		45		45
Christine Mummery ⁽⁴⁾		—		13		40
Mary Kerr		115		45		46
Peter Guenter ⁽⁵⁾		115		30		—
Daniel O'Day ⁽⁶⁾		—		—		—
Linda Higgins ⁽⁶⁾		—		—		—
Elisabeth Svanberg ⁽⁷⁾		78		—		—
Post-employment benefits ⁽⁸⁾		392		323		305
Total benefits excluding subscription rights and RSUs ⁽⁹⁾	€	4,262	€	16,618	€	5,346
Number of subscription rights granted in the year
Management board members as a group		275,000		315,000		350,000
Onno van de Stolpe		85,000		100,000
Bart Filius		50,000		65,000
Andre Hoekema		30,000		50,000
Piet Wigerinck		40,000		50,000
Walid Abi-Saab		40,000		50,000
Michele Manto		30,000		40,000
Supervisory board members as a group		—		45,000		52,500
Raj Parekh				15,000		15,000
Harrold van Barlingen (3)				—		—
Howard Rowe				7,500		7,500
Werner Cautreels ⁽⁴⁾						7,500
Katrine Bosley				7,500		7,500
Christine Mummery (4)						7,500
Mary Kerr				7,500		7,500
Peter Guenter ⁽⁵⁾				7,500
Daniel O'Day ⁽⁶⁾
Linda Higgins ⁽⁶⁾
Elisabeth Svanberg ⁽⁷⁾
Total number of subscription rights granted in the year		275,000		360,000		402,500
Total cost of subscription rights granted in the year under IFRS 2	€	22,921	€	14,236	€	15,507
Number of RSUs granted in the year (10)
Onno van de Stolpe		18,317		57,528		0
Bart Filius		12,600		39,846		0
Andre Hoekema		832		19,922		0
Piet Wigerinck		12,080		33,077		0
Walid Abi-Saab		12,080		33,077		0
Michele Manto		5,920		5,121		0
Total number of RSUs granted in the year		61,829		188,571		-

(1) Mr. Manto was appointed as Chief Commercial Officer and member of the management board, effective as of January 1, 2020. As a result the management board consisted of six persons in 2020.
(2) Only management board members are granted long-term benefits. Pursuant to the Senior Management Bonus Scheme, these consist of the deferred part of the bonus from 3 years ago. For financial year 2020 the deferred part of the bonus was not paid out.
^{(3) Dr. Van Barlingen's director's mandate expired on April 24, 2018}
(4) Director's mandate expired on April 30, 2019
(5) Mr. Guenter's supervisory board member's mandate began on April 30, 2019
(6) Supervisory board member's mandate began on October 22, 2019
^{(7) Supervisory board member's mandate began on April 28, 2020}
(8) Only management board members are granted post-employment benefits
(9) For 2018, this amount excludes an amount of €20.1 thousand tax advisory services that is included in the amount of €107 thousand other short-term benefits
(10) This is the sum of the RSUs awarded during the respective financial year, excluding the RSUs representing the deferred portion of the bonus for 2019 in financial year 2019 and for 2020 in financial year 2020 (each time to be granted in the following financial year). Only management board members were awarded RSUs

OTHER

No loans, quasi-loans or other guarantees were given by Galapagos NV or any of its subsidiaries to members of the supervisory board and of the management board. We have not entered into transactions with our key management personnel, other than as described above with respect to remuneration arrangements relating to the exercise of their mandates as members of the management board or supervisory board.

Consolidated companies as of December 31, 2020

12 Months Ended

Dec. 31, 2020

Consolidated companies as of December 31, 2020

Consolidated companies as of December 31, 2020

31. Consolidated companies as of December 31, 2020

		Year ended December 31,
		2020		2019	2018
Name of the subsidiary	Country	% voting right Galapagos NV (directly or indirectly through subsidiaries)	Change in % voting right previous period (2020 vs 2019)	% voting right Galapagos NV (directly or indirectly through subsidiaries)	% voting right Galapagos NV (directly or indirectly through subsidiaries)

BioFocus DPI AG (liquidated)	Switzerland	0%	(100%)	100%	100%
Galapagos Biopharma Belgium BV	Belgium	100%		100%
Galapagos Biopharma Netherlands B.V.	The Netherlands	100%		100%
Galapagos Biopharma Spain S.L.U	Spain	100%		100%
Galapagos Biopharma Italy S.r.l.	Italy	100%		100%
Galapagos Biopharma Germany GmbH	Germany	100%		100%
Galapagos B.V.	The Netherlands	100%		100%	100%
Galapagos Biotech Ltd. (formerly Inpharmatica Ltd.)	United Kingdom	100%		100%	100%
Galapagos GmbH	Switzerland	100%		100%	100%
Galapagos, Inc. (formerly Biofocus, Inc.)	United States	100%		100%	100%
Galapagos NV	Belgium	Parent company		Parent company	Parent company
Galapagos Real Estate Belgium BV (former Galapagos Real Estate 1 BV)	Belgium	100%		100%	100%
Galapagos Real Estate 2 BV	Belgium	0%	(100%)	100%	100%
Galapagos Real Estate Netherlands B.V.	The Netherlands	100%		100%
Galapagos SASU	France	100%		100%	100%
Fidelta d.o.o.	Croatia	100%		100%	100%
Xenometrix, Inc. in liquidation	United States	100%		100%	100%

In 2019 we incorporated the following legal entities: Galapagos Biopharma Belgium BV, Galapagos Biopharma Netherlands B.V., Galapagos Biopharma Spain S.L.U., Galapagos Biopharma Italy S.r.l., Galapagos Biopharma Germany GmbH and Galapagos Real Estate Netherlands B.V.. During 2020 we merged Galapagos Real Estate 2 BV with Galapagos Real Estate 1 BV, with the latter being the surviving entity whose company name changed into Galapagos Real Estate Belgium BV. In 2020, we also completed the liquidation of our Swiss subsidiary Biofocus DPI AG. In 2021, it still needs to be deregistered from the Swiss commercial register.

On November 23, 2020 we signed a share purchase agreement for the sale of our subsidiary Fidelta d.o.o. (Zagreb, Croatia). As we expect that the net assets associated with Fidelta d.o.o. will be recovered principally through a sale transaction rather than through continuing use, we have classified these assets and the associated liabilities as held for sale in our financial statements for the year ended December 31, 2020. On January 4, 2021, we closed the sale of our fee-for-service business Fidelta to Selvita S.A. Selvita acquired 100% of the outstanding shares in Fidelta.

There are no significant restrictions on the group’s ability to access or use assets and settle liabilities of one of the group’s subsidiaries.

Financial risk management

12 Months Ended

Dec. 31, 2020

Financial risk management

Financial risk management

32. Financial risk management

Financial risk factors

Our financial risks are managed centrally. Our finance department coordinates the access to national and international financial markets and considers and manages continuously the financial risks concerning our activities. These relate to the following financial markets risks: credit risk, liquidity risk, currency and interest rate risk. Our interest rate risk is limited because we have nearly no financial debt. In case of decreasing interest rates we will face a reinvestment risk on our strong cash and cash equivalents and current financial investments balance. We do not buy or trade financial instruments for speculative purposes.

Categories of financial assets and liabilities:

	December 31,
	2020		2019(*)		2018(*)
	(Euro, in thousands)
Financial assets held at fair value through profit or loss
Equity instruments	€	8,951	€	11,275	€	6,000
Current financial investments		1,571,858		3,919,216		—
Financial assets at amortised cost
Current financial investments		1,454,420		—		—
Cash and cash equivalents		2,135,187		1,861,616		1,290,796
Restricted cash (current and non-current)		1,482		1,418		1,276
Other non-current assets		907		1,399		644
Trade receivables		184,632		39,603		9,206
Total financial assets	€	5,357,438	€	5,834,526	€	1,307,922

Financial liabilities held at fair value through profit or loss
Current financial instruments	€	3,164	€	6,198	€	—

Financial liabilities at amortised cost
Trade liabilities		134,905		116,749		52,466
Lease liabilities		29,436		25,384		—
Total financial liabilities	€	167,505	€	148,331	€	52,466

(*) The historical consolidated financial information for 2019 and 2018 presented in this disclosure note has been adjusted mainly to correct for the amounts of other receivables and other payables that are outside the scope of IFRS 9.

The carrying amounts of trade payables and trade receivables are considered to be the same as their fair values, due to their short-term nature.

Financial assets held at fair value through profit or loss

Financial assets held at fair value through profit or loss consisted of equity instruments of listed/non-listed companies and current financial investments.

We have no restrictions on the sale of these equity instruments and the assets are not pledged under any of our liabilities. These instruments are classified as financial assets held at fair value adjustment through profit or loss. The equity investments in listed companies ualify for level 1 fair value measurement based upon the closing price of the securities on Euronext at each reporting date.

The market price of those shares might face fluctuations and might be affected by a variety of factors, such as the global economic situation, the business development of competitors, sector mergers and acquisitions; it is difficult to mitigate this risk.

The fair value of the equity instrument in the non-listed company has been determined mainly by reference to the initial transaction price (classified as level 3 in the fair value hierarchy).

Current financial investments include money market funds in EUR and USD, which all classify for level 1 fair value measurement.

Liquidity risk

Our current financial investments and cash and cash equivalents amounted to €5,169.3 million on December 31, 2020. Management forecasts our liquidity requirements to ensure that there is sufficient cash to meet operational needs. We have no credit lines. Such forecasting is based on realistic assumptions with regard to milestone and upfront payments to be received, taking into account our past track record, including the assumption that not all new projects that are being planned will be realized.

All our current financial investments and cash and cash equivalents have only an insignificant liquidity risk as they are all convertible upon a maximum three-month notice period and without incurring a significant penalty in normal market circumstances.

Credit risk

The term “credit risk” refers to the risk that counterparty will default on its contractual obligations resulting in financial loss.

The trade receivables consist of a limited amount of creditworthy customers, many of which are large pharmaceutical companies, spread over different geographical areas. To limit the risk of financial losses, a policy of only dealing with creditworthy counterparties has been developed.

We grant credit to our clients in the framework of our normal business activities. Usually, we require no pledge or other collateral to cover the amounts due. Management continuously evaluates the client portfolio for creditworthiness. All our receivables are considered collectable.

We applied the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all receivables. To measure the expected credit losses, receivables have been grouped based on credit risk characteristics and the days past due. The provision for expected credit losses was not significant given that there have been no credit losses over the last three years and the high-quality nature of our customers.

Aging balance of receivables that are due, but that are still considered collectable:

	December 31,
	2020		2019		2018
	(Euro, in thousands)
60 - 90 days	€	—	€	87	€	236
90 - 120 days		—		—		12
more than 120 days	€	—	€	—	€	—

Our cash and cash equivalents are invested primarily in current, notice and term accounts. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted at the beginning of the term. Our current financial investments are also kept within different financial institutions and include money market funds and treasury bills with an AAA rating. The money market funds are invested in a well-diversified portfolio of highly rated assets.

Interest rate risk

The only variable interest-bearing financial instruments are cash and cash equivalents and current financial investments. Our interest rate income is impacted by the negative interest rate environment in EUR, and the low interest rate environment in USD.

Changes in interest rates may cause variations in interest income and expenses resulting from short term interest-bearing assets. Management does not expect the short term interest rates to decrease significantly in the immediate foreseeable future, which limits the interest exposure on our cash and cash equivalents and current financial investments.

Effect of interest rate fluctuation

A 100 basis point increase in interest rates at balance sheet date would have increased profit or loss, and equity, by approximately €51.7 million (2019: €57.8 million; 2018: €12.9 million); a 100 basis point decrease in interest rates would have decreased profit or loss, and equity, by approximately €51.7 million (2019: €57.8 million; 2018: €12.9 million). These scenarios assume our entire cash portfolio would immediately reprice at the new interest rates.

Foreign exchange risk

We are exposed to foreign exchange risk arising from various currency exposures. Our principal functional currency is euro, but we receive payments from our collaboration partner Gilead in U.S. dollars and acquire some consumables and materials in U.S. dollars, Swiss Francs, GB Pounds and Croatian Kuna.

To limit this risk, we attempt to align incoming and outgoing cash flows in currencies other than EUR. In addition, contracts closed by our different entities are mainly in the functional currencies of that entity, except for the collaboration agreement signed with Gilead for which payments are denominated in U.S. dollars.

The exchange rate risk in case of a 10% change in the exchange rate amounts to:

	December 31,
	2020		2019		2018
Net book value	(Euro, in thousands)
Increase in Euros - U.S. Dollars	€	(116,690)	€	(133,373)	€	(27,200)
Increase in Euros - GB Pounds		303		113		100
Increase in Euros - CH Francs		2,013		538		208
Increase in Euros - HR Kunas		—		650		611
Increase in U.S. Dollars - GB Pounds	€	—	€	(894)	€	(923)

The exchange rate risk on the U.S. dollar is primarily related to our cash and cash equivalents and current financial investments held in U.S dollars.

Capital risk factors

We manage our capital to safeguard that we will be able to continue as a going concern. At the same time, we want to ensure the return to our shareholders through the results from our research and development activities.

Our capital structure consists of current financial investments, cash and cash equivalents, financial debt (we only have leasing debts as of December 31, 2020), and equity attributed to the holders of our equity instruments, such as capital, reserves and results carried forward, as mentioned in the consolidated statement of changes in equity.

We manage our capital structure and make the necessary adjustments in the light of changes of economic circumstances, the risk characteristics of underlying assets and the projected cash needs of the current research and development activities.

The adequacy of the capital structure will depend on many factors, including scientific progress in the research and development programs, the magnitude of those programs, the commitments to existing and new clinical CROs, the ability to establish new alliance or collaboration agreements, the capital expenditures, market developments and any future acquisition.

Neither Galapagos NV nor any of its subsidiaries are subject to any externally imposed capital requirements, other than those imposed by generally applicable company law requirements.

Auditor's remuneration

12 Months Ended

Dec. 31, 2020

Auditor's remuneration

Auditor's remuneration

33. Auditor’s remuneration

The statutory auditor’s fees for carrying out his mandate at group level amounted to €1,202.8 thousand in 2020 (2019: €1,406.8 thousand). The fees for audit-related services executed by the statutory auditor, related to the performance of the audit or review of the company’s affiliates financial statements, amounted to €23.9 thousand (2019: €29.2 thousand). Audit-related services executed by persons related to the statutory auditor for carrying out an auditor’s mandate at the level of the Company’s affiliates amounted to €29.2 thousand in 2020 (2019: €29.2 thousand). Other fees related to audit-related fees, which generally the auditor provides, amounted to €161.3 thousand in 2020 (2019: €43.0 thousand). Other fees related to non-audit services executed by the statutory auditor amounted to €47.7 thousand in 2020 (2019: €148.2 thousand). Other fees related to non-audit services executed by persons related to the statutory auditor amounted to €890.7 thousand in 2020 and related to IT services and CSV services (2019: €46.6 thousand). The audit committee and the supervisory board are of the opinion that these non-audit services do not affect the independence of the statutory auditor in the performance of his audit. The abovementioned additional fees were fully approved by the audit committee in accordance with article 3:64 of the Belgian Companies Code.

Events after balance sheet date

12 Months Ended

Dec. 31, 2020

Events after balance sheet date

Events after balance sheet date

34. Events after balance sheet date

On March 19, 2021, 99,814 subscription rights were exercised (with an average exercise price of €22.62 per subscription right), of which 41,874 subscription rights were exercised by our CEO, 10,000 subscription rights by other members of our management board, and 5,040 subscription rights by former members of our supervisory board. This resulted in a share capital increase (including issuance premium) of €2,258,042.82 and the issuance of 99,814 new ordinary shares. The closing price of our share on March 19, 2021, was €68.48.

On February 10, 2021, we announced the discontinuation of all development with ziritaxestat due to an insufficient risk-benefit profile observed in the ISABELA Phase 3 program.

On January 4, 2021, we completed the sale of Fidelta to Selvita S.A. for a total consideration of €37.1 million (including the customary adjustments for cash and working capital). Fidelta will continue performing drug discovery services for us for the next five years for which we have purchase commitments for an aggregate amount of €27.0 million.

Significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2020

Significant accounting policies

Basis Of Presentation And Going Concern Assumption

BASIS OF PREPARATION AND GOING CONCERN ASSUMPTION

New Standards and Interpretations Applicable for the Annual Period

NEW STANDARDS AND INTERPRETATIONS APPLICABLE FOR THE ANNUAL PERIOD BEGINNING ON JANUARY 1, 2019

IFRS 16 Leases

The above new applicable standard affected the consolidated financial statements as follows:

	(Euro, in thousands)
Operating lease commitments disclosed as at December 31, 2018	€	27,704
Less : discounting effect using the lessee's incremental borrowing rate at the date of initial application		(1,223)
Less : other		(569)
Lease liability recognized as at January 1, 2019		25,912
Of which are :
current lease liabilities		4,516
non-current lease liabilities	€	21,396

The change in accounting policy affected the statement of financial position as at January 1, 2019 as follows:

	January 1, 2019
	(Euro, in thousands)
Property, plant and equipment (right-of-use assets)	€	26,406
Other current assets (prepaid expenses)		(494)
Effect on total assets		25,912

Accumulated losses		416
Lease liabilities (current and non-current)		25,912
Deferred income		(416)
Effect on total equity and liabilities	€	25,912