SOURCE: Galapagos NV

August 04, 2006 02:19 ET

Galapagos announces sharp revenue increase and profitability of service division in its half-year 2006 results

MECHELEN, BELGIUM -- (MARKET WIRE) -- August 4, 2006 --



* Revenues of EUR 11 M, up +78% on pro forma basis

* Service division BioFocus contributes EUR 2.4 M to results

* Gross margins more than doubled from 21% to 47%

* Bone- and joint programs accelerate toward clinic on R&D investment of EUR 4 M

* Loss before taxes of EUR 5.2 M, a 31% decrease on pro forma basis

* Cash position of EUR 20 M on 30 June 2006

* Total downstream milestones for Galapagos now exceed EUR 220 M

Webcast audio conference presentation 9.30 CET at www.glpg.com

Mechelen, Belgium; 4 August 2006 - Galapagos NV (Euronext & LSE: GLPG), an integrated drug discovery company, announces its financial results for the first half of 2006 and reiterates revenue guidance for the second half of 2006.

Galapagos' first half 2006 operational and strategic highlights include:

* Galapagos drug discovery accelerates toward clinical development, led by the rheumatoid arthritis program. Galapagos expanded its portfolio and improved potency of molecules that target proprietary targets in bone and joint disease, on track for clinical testing in 2008.

* Broad alliance with GlaxoSmithKline (GSK) in osteoarthritis, worth EUR 137 million in upfront, milestone and equity payments and up to double digit royalties on commercial products.

* Acquisition of the drug discovery operations of Discovery Partners International for EUR 4.3 million cash, closure completed on 5 July 2006.

* Long term service agreements with Roche, Boehringer Ingelheim and Arthrogen totaling in excess of EUR 9.5 million in potential value.

* Headcount increase from 220 to 330, including 144 PhDs, located in seven countries including a strong presence in the US.

"Our achievements in the first half of 2006 will transform Galapagos into a leading European biotechnology company. The broad osteoarthritis alliance with GSK is a strong validation of our technology, and the acquisition of DPI's operations have propelled BioFocus DPI to the top tier in our sector of drug discovery services. Galapagos is right on track with the execution of its strategic goals for 2006," said Onno van de Stolpe, Galapagos' CEO.

"The services business generated a EUR 2.4 million segment profit in the first six months of 2006. This underscores the value of our hybrid business model," added David Smith, Galapagos' CFO "BioFocus is progressing as planned toward delivering annual organic sales growth of between 40-70%. Including DPI sales in the second half of 2006, BioFocus DPI more than tripled the consolidated 2005 revenues."

Pro forma results

Note: BioFocus plc, a listed company based in the United Kingdom was acquired by Galapagos on 17 October 2005. The interim financial statements for the six months ended 30 June 2005 therefore exclude the operating activities for BioFocus plc. Although not formally part of the interim financial statements, the following information is provided for illustration purposes, showing the results of the group had the combination occurred at the beginning of 2005. Cash payment for the DPI operations and their operational results will be consolidated starting from 6 July 2006.

Key figures, pro forma comparison (EUR thousands)


+-------------------------------------------------------------------+
|                         |           30 June | 30 June 2005 |      |
|                         |              2006 |              |      |
|-------------------------+-------------------+--------------+------|
| Revenues                |            10,973 |        6,177 |78%   |
|-------------------------+-------------------+--------------+------|
| Cost of sales           |            -5,758 |       -4,883 |18%   |
|-------------------------+-------------------+--------------+------|
| Gross profit            |             5,215 |        1,294 |303%  |
|-------------------------+-------------------+--------------+------|
| R&D expenditure         |            -4,045 |       -2,743 |47%   |
|-------------------------+-------------------+--------------+------|
| Sales, general, admin   |            -6,391 |       -6,534 |  -2% |
|-------------------------+-------------------+--------------+------|
| Operating loss          |            -5,221 |       -7,983 | -35% |
|-------------------------+-------------------+--------------+------|
| Other                   |              -344 |         -129 |166%  |
|-------------------------+-------------------+--------------+------|
| Loss before taxes       |            -5,565 |       -8,112 | -31% |
+-------------------------------------------------------------------+


Revenues for the first six months of 2006 totaled EUR 11.0 million, an increase of 78% compared to EUR 6.2 million pro forma revenues in the first six months of 2005. BioFocus revenues in the first six months of 2006 amounted to EUR 10.2 million, a 96% increase compared to EUR 5.2 million pro forma revenues in the same period last year. Income from government grants in the first half of 2006 was EUR 0.8 million, compared to EUR 1.0 million in the first half of 2005. Gross margins more than doubled from 21% to 47%. BioFocus contributed a segment profit of EUR 2.4 million to the result of the Group in the first half of the year, compared to a loss of EUR 0.4 million in the first half of 2005. Total research and development expenses in the first six months of 2006 amounted to EUR 4.0 million, compared to EUR 2.8 million on a pro forma basis in 2005. The loss before taxes for the first half year 2006 was EUR 5.6 million, a 31% decrease compared to the EUR 8.1 million pro forma loss in the first six months of 2005.

Bone and joint programs

The increased investment in R&D strengthened the drug discovery portfolio, progressing programs in bone and joint disease toward preclinical development. A step change in potency was achieved on the most advanced drug candidates in rheumatoid arthritis. The team delivered promising additional drug candidates using the fast follower approach, and a third rheumatoid arthritis target now has a compound series showing dual activity against cytokines as well as T-cell activation. In the osteoporosis program, a new biological model was developed to accelerate the analysis of bone development; the recently announced IWT grant for EUR 1.8 million will fund development of more such models. Importantly, the Company remains on track to enter the clinic in 2008.

Acquisition of the operations of Discovery Partners International

On 13 June 2006, Galapagos announced the acquisition of the drug discovery operations of Discovery Partners International for EUR 4.3 million in cash. This acquisition propels the new BioFocus DPI service division to the top tier in drug discovery services and provides additional capacity to deliver on the GSK osteoarthritis alliance. Integration of DPI's operations is already well underway. The acquisition cash payment as well as the operational results of the DPI operations will be consolidated starting from 6 July 2006.

Major collaborations

* Galapagos and GSK entered into a broad alliance to discover and develop novel drugs in osteoarthritis. In this multi-year, multi-program alliance, Galapagos will develop molecules based on proprietary targets and take these all the way through to clinical Proof of Concept (Phase IIA), with the option for GSK's CEEDD (Center of Excellence for External Drug Discovery) to further develop and market the resulting drugs. This alliance builds on Galapagos' internal target and drug discovery program in osteoarthritis and could result in EUR 137 million in payments by GSK based on up-front fees, success dependent milestone payments and equity investments, plus up to double digit royalties on worldwide sales. Notably, this was the first European alliance for GSK's CEEDD and only its second since inception. With this deal, the total downstream milestones that Galapagos could benefit from have now grown to well over EUR 220 million.

* A three-year agreement with Roche to supply exclusive chemical compound libraries.

* A three-year target discovery alliance with Arthrogen on gene therapy targets for rheumatoid arthritis. Total contract value exceeds EUR 7.5 million, excluding royalties.

* A one-year cancer research collaboration with Cancer Research Technology for medicinal chemistry services.

* A chemistry contract with AstraZeneca worth EUR 0.7 M.

* A distribution agreement with Upstate for adenoviral products worldwide excluding Japan.

Consolidated results

Note: Results are unaudited and include BioFocus results from 1 October 2005. Cash payment for the DPI operations and their operational results will be consolidated starting from 6 July 2006.

Key figures, consolidated

(EUR thousands, except net loss per share)

+-----------------------------------------------------------------+
|                           |         30 June 2006 | 30 June 2005 |
|---------------------------+----------------------+--------------|
| Revenues                  |               10,973 |        2,202 |
|---------------------------+----------------------+--------------|
| Cost of sales             |               -5,758 |         -744 |
|---------------------------+----------------------+--------------|
| Gross profit              |                5,215 |        1,458 |
|---------------------------+----------------------+--------------|
| R&D expenditure           |               -4,045 |       -2,788 |
|---------------------------+----------------------+--------------|
| Sales, general, admin     |               -6,391 |       -2,105 |
|---------------------------+----------------------+--------------|
| Other                     |                 -283 |           38 |
|---------------------------+----------------------+--------------|
| Net loss for the period   |               -5,504 |       -3,397 |
|---------------------------+----------------------+--------------|
| Loss per share (EUR )     |                -0.42 |        -0.51 |
|---------------------------+----------------------+--------------|
|                           |                      |              |
|---------------------------+----------------------+--------------|
| Cash and cash equivalents |               20,004 |       27,527 |
+-----------------------------------------------------------------+

Consolidated revenues for the first six months of 2006 totaled EUR 11.0 million, compared to EUR 2.2 million in the first six months of 2005. Collaborative revenue in the first six months of 2006 amounted to EUR 10.2 million, compared to EUR 1.2 million in the same period last year. Income from government grants in the first half of 2006 was EUR 0.8 million, compared to EUR 1.0 million in the first half of 2005. The net loss for the half year 2006 was EUR 5.5 million, or EUR 0.42 per share, compared to EUR 3.4 million, or EUR 0.51 per share for the half year 2005. Total research and development expenses in the first six months of 2006 amounted to EUR 4.0 million, compared to EUR 2.8 million in 2005. Cash burn for the first six months of 2006 amounted to EUR 3.6 million, as planned. Galapagos' cash and cash equivalents totaled EUR 20.0 million on 30 June 2006.

Financial outlook second half of 2006

When Galapagos announced the acquisition of DPI's drug discovery assets on 13 June 2006, guidance for 2006 full-year revenues was increased to a range of EUR 33 to EUR 38 million, a 200 - 240% increase over consolidated revenues of EUR 11.2 million in 2005. Previously, Galapagos has given guidance on its investment in R&D in 2006. As a result of the GSK alliance, R&D investments in the second half of 2006 will further increase, and the Company now expects a R&D investment for 2006 of EUR 12.0 million, a 79% increase over 2005.

Interim report half year 2006

The electronic version of Galapagos' Interim Report for half year 2006 is now available online at www.glpg.com/investor/financial_reports.htm. Printed versions of the report can be requested by e-mailing ir@glpg.com.

Conference call and webcast presentation

Galapagos will conduct a conference call open to the public today at 09.30 Central European Time (CET), which will also be webcast. To participate in the conference call, please call +32 2290 1608 ten minutes prior to commencement. A question and answer session will follow the presentation of the results. The live audio webcast can be accessed via Galapagos' website at www.glpg.com. The archived webcast also will be available for replay shortly after the close of the call.

About Galapagos

Galapagos is a publicly traded, genomics-based drug discovery company (Euronext Brussels, GLPG; Euronext Amsterdam, GLPGA, London AiM: GLPG) that has drug discovery programs based on proprietary, novel targets in bone and joint diseases - osteoarthritis, osteoporosis and rheumatoid arthritis. Galapagos offers a full suite of target-to-drug discovery products and services to pharmaceutical and biotech companies through its division BioFocus DPI, encompassing target discovery and drug discovery services through to delivery of pre-clinical candidates. In addition, BioFocus DPI provides adenoviral reagents for rapid identification and validation of novel drug targets and compound libraries for drug screening. Galapagos currently employs more than 330 people, including 144 PhDs, and operates facilities in seven countries, with global headquarters in Mechelen, Belgium. More information about Galapagos and BioFocus DPI can be found at www.glpg.com.

CONTACT:

Galapagos NV
Onno van de Stolpe, CEO
Tel: +31 6 290 980 28
ir@glpg.com

This press release may contain forward-looking statements, including, without limitation, statements containing the words "believes", "anticipates", "expects", "intends", "plans", "seeks", "estimates", "may", "will" and "continues" as well as similar expressions. Such forward-looking statements may involve known and unknown risks, uncertainties and other factors which might cause the actual results, financial condition, performance or achievements of Galapagos, or industry results, to be materially different from any future results, financial conditions, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, the reader is advised not to place any undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date of publication of this document. Galapagos expressly disclaims any obligation to update any such forward- looking statements in this document to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, unless required by law or regulation.




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