Galapagos expands osteoarthritis alliance with GlaxoSmithKline

GSK makes €4.4 million equity investment in Galapagos

• Up to two drug discovery programs will be added by GlaxoSmithKline (GSK) to the existing osteoarthritis alliance with Galapagos
• Galapagos to obtain up to €186 million in total milestones if the expanded alliance yields 2 marketed products, plus up to double digit royalties on worldwide sales
• GSK makes €4.4 million equity investment in Galapagos

Mechelen, Belgium; 2 July 2007 - Galapagos NV (Euronext & LSE: GLPG) announced today that its existing multiyear alliance in osteoarthritis with GSK will be expanded, and that Galapagos has issued 513,281 new shares for an investment of €4.4 million by GSK. GSK will bring a drug discovery program against a selected GSK target into the alliance. Within this additional program, Galapagos will progress a disease-modifying drug towards completion of clinical Phase IIa (“Proof-of-Concept”), at which point GSK’s global research and development organization will be responsible for the late-stage development, production and marketing of the drug. Furthermore, GSK may add a second osteoarthritis drug discovery program against a selected GSK target into the alliance.

Upon achievement of a future milestone event already defined in the original alliance, Galapagos will receive an additional cash payment from GSK of €3 million for initiating the first additional program plus €3 million if GSK brings a second program under the alliance. In total, for products arising from two new programs brought into the alliance, Galapagos would receive up to €32.3 million in development milestones upon achievement of clinical Proof-of-Concept by Galapagos. Upon successful completion of all agreed criteria, total cash value for Galapagos, including the €4.4 million equity investment, would be €61.7 million for each product, plus up to double-digit royalties on GSK worldwide sales. Galapagos could obtain up to €186 million in total milestones if the expanded collaboration yields 2 marketed products.

The expansion builds on the existing strategic alliance between Galapagos and GSK in osteoarthritis and secures a full exploration of Galapagos drug discovery capabilities to optimize the value of the collaboration for both parties. With the expanded alliance in place, Galapagos and GSK will continue to collaborate in the existing multiyear alliance as planned, and GSK will maintain its financial obligations under the original collaboration agreement. The original alliance carried up to €137 million in upfront, equity and milestone payments for two marketable products and up to double-digit royalties. Galapagos already has received €7.6 million in access fees and milestone payments from GSK since the start of the program in June 2006.

The expansion broadens the portfolio of validated targets and compounds in the field of osteoarthritis. Galapagos pursues medicinal chemistry programs and develops compounds into candidate selection molecules through to a successful Proof of Concept in clinical research Phase IIA. GSK will have exclusive options to further develop and commercialise these compounds on a worldwide basis. Galapagos will have the right to further develop and commercialise compounds for which GSK does not exercise its option.

As part of the transaction expanding the alliance, Galapagos and GSK have entered into an agreement pursuant to which GSK has made an equity investment of €4.4 million in Galapagos by subscribing to 513,281 newly issued shares from Galapagos at €8.63 per share (the average Galapagos share price over the last thirty days prior to 29 June 2007 as quoted on Euronext Amsterdam). These shares will be subject to a lock up of one year. The newly issued shares rank pari passu with the existing Galapagos shares. Galapagos shall within one month from the issue apply for a listing of the newly issued shares on Euronext Brussels and Euronext Amsterdam as well as on London AiM. This investment replaces the up to €3 million equity investment that was part of the original alliance conditions announced June 7th 2006 and which was due upon reaching a certain milestone.

Hugh Cowley, Senior Vice President of GSK and head of the Center of Excellence for External Drug Discovery (CEEDD) at GSK noted, “The alliance between the CEEDD and Galapagos is off to an excellent start, and the CEEDD is very pleased with the progress to date. We expect the alliance to contribute to GSK’s development pipeline in osteoarthritis in the future, validating the collaboration model we sought to establish under the CEEDD strategic initiative at GSK.”

“The expansion of the collaboration announced today shows the strength of our drug discovery engine and the trust that GSK has in our capabilities to develop novel drugs,” said Onno van de Stolpe, Chief Executive Officer of Galapagos. “Through this combination of GSK’s understanding of medical needs and Galapagos’ innovation in drug discovery, we aim to bring new medicines to patients.”

Galapagos’ osteoarthritis program

Galapagos has an ongoing osteoarthritis research programs and focuses on chondrocytes, which are the main cell types in cartilage. These programs will be the basis of the alliance with GSK. Galapagos has identified a number of novel targets that have been validated in cellular disease models and has progressed these into drug discovery. Modulation of these targets in human chondrocytes should lead to a net production of stable cartilage and should therefore be able to prevent and repair damage to this cartilage in patients.

About osteoarthritis

Osteoarthritis (OA) is the most common form of arthritis, typically affecting people aged 45 and older. It is a degenerative disease characterized by joint destruction and loss of articular cartilage. Cartilage is the slippery tissue that covers the ends of bones in a joint. Healthy cartilage allows bones to glide over one another. It also absorbs energy from the shock of physical movement. In OA, the surface layer of cartilage breaks down and wears away. This allows bones under the cartilage to rub together, causing pain, swelling, and loss of motion of the joint. Over time, the joint may lose its normal shape. Also, bone spurs - small growths called osteophytes - may grow on the edges of the joint. Bits of bone or cartilage can break off and float inside the joint space. This causes more pain and damage.

No currently available treatments prevent OA or even reverse or block the disease process. Treatment of OA involves pain control, weight control, and exercise. Many OA patients have pain that persists despite these measures. Most of these patients use non-steroidal anti-inflammatory drugs (NSAIDs) that relieve the symptoms without changing the course of the underlying disease. Healthcare providers are concerned about long-term NSAID use due to serious possible side effects.

It is expected that with the ageing of the population, more individuals will be prone to develop OA. As mobility of seniors is of high importance to maintaining a high quality of life, preventing the severity of OA is seen as an immense clinical need over the next decade. The market potential of a disease-modifying drug could exceed $8 billion annually, based on the current market and the absence of disease-modifying treatment.

About the GSK CEEDD

GlaxoSmithKline is enhancing the way it discovers and develops drugs by creating a small dedicated team who will feed the GSK pipeline solely through the efforts of its external collaborations. In essence, the CEEDD (Center of Excellence for External Drug Discovery) will ‘virtualize’ a portion of the GSK pipeline; namely, from Target to Clinical PoC, by forming multiple risk-sharing/reward-sharing alliances.

About Galapagos

Galapagos (Euronext Brussels, GLPG; Euronext Amsterdam, GLPGA; London AiM: GLPG) is a drug discovery company with clinical and pre-clinical programs in bone and joint diseases, cachexia, and menopausal hot flashes. Its division BioFocus DPI offers a full suite of target-to-drug discovery products and services to pharmaceutical and biotech companies, encompassing target discovery and validation, screening and drug discovery through to delivery of pre-clinical candidates. BioFocus DPI also provides adenoviral reagents for rapid identification and validation of novel drug targets, compound libraries for drug screening as well as chemogenomics and ADMET database products to select targets and compounds. Galapagos currently employs 450 people and operates facilities in eight countries, with global headquarters in Mechelen, Belgium. More information about Galapagos and BioFocus DPI can be found at www.glpg.com and www.biofocusdpi.com.

This release may contain forward-looking statements, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,” “may,” “will,” “could,” “stands to,” 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 historic or 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.

Contact Information

Onno van de Stolpe

CEO

Galapagos NV

Contact via E-mail