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

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

        Service division BioFocus contributes €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 €4 M

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

        Cash position of €20 M on 30 June 2006

        Total downstream milestones for Galapagos now exceed €220 M

 

 

 

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 €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 €4.3 million cash, closure completed on 5 July 2006.

        Long term service agreements with Roche, Boehringer Ingelheim and Arthrogen totaling in excess of €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 €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.”

 

 

 

 

	30 June 2006	30 June 2005
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 €11.0 million, an increase of 78% compared to €6.2 million pro forma revenues in the first six months of 2005.  BioFocus revenues in the first six months of 2006 amounted to €10.2 million, a 96% increase compared to €5.2 million pro forma revenues in the same period last year.  Income from government grants in the first half of 2006 was €0.8 million, compared to €1.0 million in the first half of 2005.  Gross margins more than doubled from 21% to 47%.  BioFocus contributed a segment profit of €2.4 million to the result of the Group in the first half of the year, compared to a loss of €0.4 million in the first half of 2005.  Total research and development expenses in the first six months of 2006 amounted to €4.0 million, compared to €2.8 million on a pro forma basis in 2005.  The loss before taxes for the first half year 2006 was €5.6 million, a 31% decrease compared to the €8.1 million pro forma loss in the first six months of 2005.

 

 

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 €1.8 million will fund development of more such models.  Importantly, the Company remains on track to enter the clinic in 2008.

 

 

On 13 June 2006, Galapagos announced the acquisition of the drug discovery operations of Discovery Partners International for €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.

 

 

        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 €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 €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 €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 €0.7 M.

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

 

 

 

 

	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 (€)	-0.42	-0.51
Cash and cash equivalents	20,004	27,527

 

Consolidated revenues for the first six months of 2006 totaled €11.0 million, compared to €2.2 million in the first six months of 2005.  Collaborative revenue in the first six months of 2006 amounted to €10.2 million, compared to €1.2 million in the same period last year.  Income from government grants in the first half of 2006 was €0.8 million, compared to €1.0 million in the first half of 2005.  The net loss for the half year 2006 was €5.5 million, or €0.42 per share, compared to €3.4 million, or €0.51 per share for the half year 2005.  Total research and development expenses in the first six months of 2006 amounted to €4.0 million, compared to €2.8 million in 2005.  Cash burn for the first six months of 2006 amounted to €3.6 million, as planned.  Galapagos’ cash and cash equivalents totaled €20.0 million on 30 June 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 €33 to €38 million, a 200 – 240% increase over consolidated revenues of €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 €12.0 million, a 79% increase over 2005.

 

 

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.

 

 

 

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.

 

 

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.

 

 

 

Galapagos NV

Onno van de Stolpe, CEO

Tel: +31 6 290 980 28