Nanobodies. inspired by nature

Nanobodies inspired by nature ANNUAL REPORT 2010

Content 01 Introduction 02 03 Letter to the Shareholders 05 Highlights 2010 02 The Nanobody product engine 06 07 Products in the clinic 17 Pre-clinical development Partners, operations and 03 investor information 21 22 Partnering strategy 23 Operational performance 24 Key performance indicators 25 The shares in 2010 26 Glossary Corporate governance and financial review 27 1 Content Ablynx Annual Report 2010

01 Introduction 2 Introduction Ablynx Annual Report 2010

Letter to the Shareholders Dear Shareholders, 2010 was another important year for Ablynx, in which we further demonstrated our transformation from a technology platform company to a product focused organisation. In addition to developing our own internal product pipeline, we made considerable progress in our collaborative programmes. We signed an important new deal with Merck Serono, we continued to invest in our Nanobody technology and we carried out a successful Secondary Public Offering raising 50 million. We have created a critical mass in terms of people, technology, product candidates and development capabilities, to ensure continued progress in the years ahead. In 2010, we expanded our internal product pipeline, including the nomination of two clinical development candidates, the start of a new Phase II programme and the progression of the ongoing Phase II and Phase I studies. At the end of 2010, we had more than 25 projects in the R&D pipeline, including those that are partnered, and there were five Nanobodies in clinical development. In the past year, we continued to demonstrate the unique Nanobody technology advantages as we generated functional Nanobodies against ion channels and GPCRs, target classes that are challenging to address with conventional antibodies. Furthermore, we advanced into pre-clinical development the first Nanobody (anti-rsv) designed to be administered via the pulmonary route rather than by injection. During the year, the Phase II study being performed by Pfizer with an anti-tnfα Nanobody (ATN-103) continued, as did our own Phase II study in ACS with an anti-vwf Nanobody (ALX-0081). The Pfizer study is due to generate potential proof-of-concept data in the second quarter of 2011 and our ALX-0081 study is now on track to generate potential clinical proof-of-concept data in the second half of 2011. Importantly, in September we opened the first clinical centre for our Phase II study in the orphan disease TTP, using an antivwf Nanobody delivered both intravenously and subcutaneously (ALX-0081 plus ALX-0681), which should take about two years to complete. The anti-vwf Nanobody approach in the treatment of TTP has the potential to be first-in-class and could offer significant benefits to patients. The Phase I study with our anti-rankl programme (ALX- 0141) in healthy post-menopausal women, which was initiated at the end of 2009, made good progress with positive preliminary data being published in the third quarter of 2010. ALX- 0141 appears to show a more potent effect than we had anticipated and we are continuing the Phase I follow-up, with final results expected in the first half of 2011. Pfizer also started a Phase I trial with a second anti-tnfα Nanobody (PF-05230905) which employs a different half-life technology compared to ATN-103. The start of this trial resulted in a $3 million milestone payment to us. 01 Three pre-clinical development programmes were progressed during the year. We filed an IMPD for an anti-il-6r Nanobody (ALX-0061) in December and in March 2011 we initiated a Phase I/II trial in patients with active rheumatoid arthritis. Preparations for Phase I trials for our anti-rsv (ALX-0171) and anti-cxcr4 programmes (ALX-0651) proceeded well and both these studies are anticipated to begin in 2011. All three programmes are a good illustration of the wide applicability, competitive differentiation and advantages of Nanobodies in indications as diverse as inflammation, viral infection and cancer. Edwin Moses 3 Introduction Ablynx Annual Report 2010

Letter to the Shareholders In addition to Pfizer, our other collaborations continued to proceed encouragingly. As part of our Strategic Alliance with Boeh ringer Ingelheim, we received a total of 11 million in technical milestones alone during the year for successes in three different programmes including the first under this agreement to enter pre-clinical development. In our Alzheimer s collaboration with Boehringer Ingelheim, we received a 2 million milestone payment as they selected a Nanobody candidate for further development. We signed a second agreement with Merck Serono, on a single target with an up-front payment of 10 million. Critically, and for the first time in any of our collaborations, we retain responsibility for running the programme through to the generation of the IMPD/IND package, at which point Merck Serono will pay a further 15 million if they choose to proceed with the IMPD/IND filing. We then have the option to remain responsible for 50% of the development costs in return for 50% of any profits, or to convert the deal to a classic milestone and royalty arrangement. This new type of deal structure is designed to build on the respective strengths of both parties and we are very excited about the potential it offers. In the summer, we were pleased that Novartis exercised their rights to license Nanobodies, for further development and commercialisation, against two complex targets, which had been discovered as part of our collaboration which began in 2005. During the year, we have continued to aggressively invest in our product portfolio and technology as well as expanding the capabilities of our organisation by growing to 262 people and moving into a 8,000m 2 state-of-the-art facility. As a result of good financial management, a Secondary Public Offering that raised 50 million, and the earning of multiple different payments from our collaborators, we have ended the year with a very healthy cash position of 115.9 million. This cash position helps to support our strategy of taking multiple programmes forward in parallel and to mitigate the natural risks of attrition, and allows us to choose to partner programmes at their optimal value inflection point, or as in the case of our TTP programme, to consider taking the product independently through to commercialisation. We believe that the Nanobody technology platform is an extremely productive product engine which could generate a series of best-in-class and first-in-class drugs. In the next three years, we expect at least eight Nanobody programmes to produce potential clinical proof-of-concept data. This exceptional asset base already establishes Ablynx as one of the leading biotechnology companies and we have every intention of continuing to rapidly build on the progress made so far. Finally, I would like to thank all our staff, investors and other key stakeholders for their continued dedication, commitment and enthusiasm. We are all proud to be guardians of this fabulous Nanobody technology and want to continue to aggressively exploit it to provide fulfilling employment opportunities, to generate significant value for shareholders and to improve the lives of patients with many different serious diseases. Edwin Moses Chief Executive Officer and Chairman 01 4 Introduction Ablynx Annual Report 2010

Highlights 2010 Building critical mass Internal pipeline maturing Continued recruitment for the Phase II trial in ACS/PCI with an anti-vwf Nanobody, ALX-0081 Initiated a single blinded, randomised Phase II study for TTP patients, with an anti-vwf Nanobody (ALX-0081/ALX-0681) Announced positive interim safety data for the Phase I study with ALX-0141, a Nanobody targeting RANKL Filed an IMPD to enable the start of a Phase I/II study with ALX-0061, a Nanobody targeting IL-6R, in patients with rheumatoid arthritis (RA) Selected for pre-clinical development, the first Nanobody against a GPCR, ALX-0651 (anti-cxcr4) Selected for pre-clinical development, the first Nanobody to be delivered via the pulmonary route, ALX-0171 (anti-rsv) Reported the successful generation of functional Nanobodies against ion channels Announced new in vivo data on pulmonary and needle-free administration of Nanobodies Increased staff numbers by 14% to 262 Moved into a 8,000m² state-of-the-art facility on the Technologiepark in Ghent, Belgium Progressed five Nanobody programmes in the clinic (two licensed to Pfizer) Maintained > 25 programmes in the R&D pipeline Established the potential for eight clinical proof-of-concepts in the next three years Strong financial position Successfully completed a Secondary Public Offering (SPO), raising 50 million Finished the year with 115.9 million in cash, cash equivalents, restricted cash and short term investments Managed net cash burn to only 23.6 million Increased revenues by 6% to 31.4 million New partnerships and progress in existing collaborations Pfizer completed recruitment for its lead anti-tnfα Nanobody, ATN-103, in Phase II in patients with RA Pfizer initiated a long-term safety study with ATN-103 in RA patients, which is an open label extension of the Phase II trial with ATN-103 Received a $3 million milestone payment from Pfizer for the initiation of Phase I with a second anti-tnfα Nanobody, PF-05230905 Boehringer Ingelheim started pre-clinical development with a lead Nanobody selected from its single target collaboration in Alzheimer s disease, which triggered a 2 million milestone payment to Ablynx Received a total of 11 million in milestone payments as part of the Strategic Alliance with Boehringer Ingelheim Entered into a second collaboration with Merck Serono, for a single inflammatory disease target, with an up-front payment of 10 million and a potential 15 million IND acceptance fee Received a 1 million payment as Novartis exercised their rights to license two Nanobodies for further development and commercialisation 01 Received total grants of 2.6 million from the Flemish agency for Innovation and Technology (IWT) and the Portuguese government 5 Introduction Ablynx Annual Report 2010

The Nanobody product engine 02 6 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic Ablynx has a broad portfolio of Nanobody-based therapeutics which are being developed in-house and in collaboration with pharmaceutical partners. To maximize the chances of overall success and to mitigate the risks that are inherent to drug development, Ablynx aims to maintain an extensive product portfolio targeting a range of therapeutic areas including haematology and thrombotic disorders, inflammation, viral infections, musculoskeletal diseases and oncology. The Nanobody platform is a very powerful product engine. At the time of its IPO in November 2007, Ablynx promised to deliver five IND s (or IND equivalents) in five years. By the end of 2011, Ablynx expects to have exceeded this promise and to have submitted five IND s in four years. On 31 December 2010, Ablynx had more than 25 programmes in research and development, including its partnered programmes, and there were five Nanobodies in clinical development. Two Nanobodies are on track to reach potential clinical proof-of-concept during 2011. ATN-103 1 (TNFα) ALX-0081 (vwf) ALX-0081/ALX-0681 (vwf) Inflammation Haematology/ Thrombosis Haematology/ Thrombosis ALX-0141 (RANKL) Musculoskeletal PF-05230905 1 (TNFα) NAME INDICATION DEVELOPMENT STAGE ALX-0061 (IL-6R) ALX-0651 (CXCR4) ALX-0171 (RSV) BI 2 BI 2 Inflammation Inflammation Oncology Respiratory Oncology Alzheimer s Various projects in multiple diseases 3 1 partnered with Pfizer 2 partnered with Boehringer Ingelheim 3 both partnered and own projects 02 DISCOVERY PRE-CLINICAL PHASE I PHASE II PHASE III MARKET Start Phase I in 2011 Phase I data in 2011 Potential PoC in 2011 7 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ATN-103 and PF-05230905 Anti-TNFα Nanobodies in rheumatoid arthritis Inflamed joints ATN-103 and PF-05230905 are being developed by Pfizer as part of the exclusive license agreement with Ablynx for Nanobodies targeting TNFα. ATN-103 is initially being developed to treat rheumatoid arthritis (RA). To date, Ablynx has received $10 million in milestone payments as part of this collaboration. 2010 progress ATN-103 - completed enrolment of 312 RA patients in Phase II - started a long-term safety study in patients with RA PF-05230905 2 nd anti-tnfα Nanobody entered Phase I in healthy volunteers About TNFα and the interaction with the Nanobody Tumour necrosis factor (TNF, cachexin or cachectin and formerly known as tumour necrosis factor-alpha) is a cytokine involved in systemic inflammation and is a member of a group of cytokines that stimulates the acute phase immune reaction. Tumour necrosis factor promotes the inflammatory response, which, in turn, causes many of the clinical problems associated with autoimmune disorders such as rheumatoid arthritis, ankylosing spondylitis, inflammatory bowel disease, and psoriasis. Both ATN-103 and PF-05230905 block the TNFα pathway and subsequently the inflammatory response. AML SSZ, gold MTX, LEF Higher-level immune regulation and immune senescence APC T cell B cell RF ACPA T REG Nature Reviews Rheumatology - 2009 02 GM-CSF TNF IL-1 IL-6 IL-17 Osteoblast Osteoclast Synovial inflammation Extracellular matrix proteins Destructive changes Systemic inflammation Temperature ( C) Time 8 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ATN-103 and PF-05230905 About rheumatoid arthritis and the medical need RA is a chronic, progressive inflammatory disease of the joints and surrounding tissues that is associated with pain, irreversible joint destruction and systemic complications such as fatigue and anaemia. Although the cause of rheumatoid arthritis is still unidentified, it is known that various inflammatory factors play a significant role, including TNFα, interleukin-1 (IL-1) and interleukin-6 (IL-6). Various RA treatments are available, including non-steroidal anti-inflammatory drugs (NSAIDs) and corticosteroids. However, while these types of drugs treat the symptoms of RA, they do not modify the disease itself. Traditional small molecule disease modifying anti-rheumatic drugs (non-biological DMARDs) are widely prescribed and have the potential to reduce or prevent joint damage, and preserve joint integrity and function. The American College of Rheumatology recommends non-biological DMARDs for use in RA, either as monotherapy or combination therapy with biological DMARDs, with the latter being dominated by anti-tnfα drugs. Despite the success of these TNFα blockers, there is a clear need for new, differentiating anti-tnfα drugs, including products with a more convenient dosing regimen. RA in the seven major markets Prevalence 1-4.6 million people in 2010-5.2 million people expected by 2019 Market size 2 2010 sales of the five 3 anti-tnfα blockers of $18.4 billion 1 Datamonitor, 2010 Nanobody advantages The Nanobody s specific characteristics could potentially result in a superior product in the anti-tnfα space. Its small size and format could lead to better tissue penetration, its pharmacokinetics, combined with its pharmacodynamic properties, could result in lower dosing frequency, and the product s stability potentially enables routes of administration other than injection. The Nanobody s ease of manufacturing offers the potential for relatively low cost of goods compared with conventional antibodies. Project status In the summer of 2009, Pfizer completed single ascending dose Phase I studies with 144 healthy volunteers for ATN-103 in the US, the rest of the world and Japan. In September 2009, multiple dose Phase II trials in the US, the rest of the world and Japan for ATN-103 were initiated in patients with RA. The Phase II trials include two randomised, double blind studies in patients with active RA on a treatment background of methotrexate, and who either receive subcutaneous injections of ATN-103 every four or every eight weeks, or placebo. The primary endpoint is the clinical response (ACR 20) at week 16. ACR 20 is a complex composite endpoint requiring a 20%, or more, improvement of several parameters, including tender joint count, swollen joint count and three of the following five ACR core set measures: patient-assessed global assessment, physician-assessed global assessment, pain, disability and level of acute-phase reactant. The trials completed enrolment of 312 patients in September 2010 and are expected to generate potential clinical proof-of-concept data during the second quarter of 2011. 02 In February 2010, before the Phase II study enrolment was finished, Pfizer initiated a long-term safety study with ATN- 103, which is an open label extension of the Phase II trial in rheumatoid arthritis, and which will investigate the safety profile of ATN-103, administered subcutaneously every four weeks, for up to 48 weeks. In addition to the progression with the lead candidate ATN- 103, Pfizer started a single ascending dose Phase I trial with a second anti-tnfα Nanobody, PF-05230905 in October 2010 in healthy volunteers, which is expected to generate safety data during the second half of 2011. 9 The Nanobody product engine Ablynx Annual Report 2010 2 Company data 3 Enbrel, Humira, Cimzia, Simponi, Remicade

Products in the clinic ALX-0081 and ALX-0681 Anti-vWF Nanobodies in haematology and thrombotic disorders 1 2 1) Small bleeding lesions under the skin 2) platelet string formation caused by UL-vWF in plasma of TTP patients Structure of ALX-0081 ALX-0081 and ALX-0681 are the same Nanobody targeting von Willebrand factor (vwf), delivered through an intravenous and a subcutaneous route respectively. The anti-vwf Nanobody is being developed in two indications: high risk ACS patients undergoing a percutaneous coronary intervention (PCI) and thrombotic thrombocytopenic purpura (TTP), a rare blood disorder. 2010 progress ALX-0081 further advanced the Phase II study in high risk ACS patients undergoing a PCI procedure ALX-0081/ALX-0681 initiated a Phase II study in patients with TTP About vwf and the interaction with the Nanobody von Willebrand factor is a blood glycoprotein involved in haemostasis, a complex procedure which causes the bleeding process to stop. Its primary function is binding to other proteins, and it is important in platelet adhesion to wound sites. It acts at an early stage in the blood clotting cascade in the arteries (high shear area) by controlling platelet adhesion and aggregation. Importantly, vwf is not involved in the mechanism of thrombus formation in the veins where, due to the lower velocity blood flow, the platelets are able to bind directly to the exposed collagen. Ablynx s anti-vwf Nanobody selectively inhibits the interaction of vwf with the GPIb receptors on platelets in areas of high shear (arteries) and represents a potential novel antithrombotic agent in cardiovascular diseases. vwf is also implicated in thrombotic thrombocytopenic purpura (TTP), a rare disease where precursors of vwf (ultralarge vwf multimers) are present in the blood of patients and lead to blood clot formation and potentially life-threatening pathologies. Under normal circumstances, ultra-large vwf (UL-vWF) is rapidly processed into smaller sized multimers through enzymatic cleavage by the enzyme ADAMTS13. In patients with TTP, processing of UL-vWF into smaller sized multimers is impaired due to a lack of functional ADAMTS13. UL-vWF can readily bind platelets in the absence of collagen, leading to the formation of the characteristic string-like clots found in the blood of this patient population. The anti-vwf Nanobody inhibits the platelet binding on the UL-vWF and thus has the potential to prevent the formation of the string-like clots in small blood vessels. ACS and the Nanobody interaction High shear Endothelium Subendothelium ULvWF multimers Endothelium vwf 02 platelet recruitment at high shear platelet string formation Area of vascular damage TTP and the Nanobody interaction platelet recruitment inhibited by Nanobody platelet string formation inhibited by Nanobody 10 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ALX-0081 and ALX-0681 About acute coronary syndrome and the medical need Arterial thrombosis is the formation of a blood clot within an artery and it usually affects patients who have atherosclerosis. In those patients, the artery wall thickens as a result of the build-up of plaques that can eventually lead to clot formation within the lumen of the artery. This, at worst, can cause blockage of the vessel, resulting in insufficient blood supply to tissues and organs. The narrowing of the vessel in the coronary arteries can lead to a set of signs and symptoms, referred to as acute coronary syndrome (ACS), including unstable angina and myocardial infarction. In the Western world, percutaneous coronary intervention (PCI) is rapidly becoming the standard procedure of care in ACS. This procedure involves surgically widening of the arteries using either a small balloon or a stainless steel tube (stent). Currently, GPIIb/IIIa inhibitors such as ReoPro are often added to standard anti-thrombotic therapy 1 to improve inhibition of arterial thrombosis in high risk patients undergoing a PCI procedure. However, published reports state that the addition of ReoPro results in a two- to three-fold increase in the risk of clinically significant bleeding 2. Hence, there remains a high unmet medical need for safer anti-thrombotics for high risk patients undergoing PCI procedures. A Nanobody based product targeting vwf, which selectively inhibits vwf-mediated platelet adhesion and aggregation in areas of high shear, may provide a highly potent anti-thrombotic drug with a favourable safety profile that could contribute significantly to the prophylactic and therapeutic treatment of patients with, or at risk of, arterial thrombus formation. However, this disease area is increasingly challenging from a commercial and clinical development viewpoint and hence Ablynx continues to review its options here. About thrombotic thrombocytopenic purpura and the medical need Thrombotic thrombocytopenic purpura (TTP) is a rare disorder of the blood-coagulation system, causing extensive microscopic thromboses in small blood vessels throughout the body. It is a life-threatening disorder characterised by thrombocytopenia, haemolytic anaemia and microvascular thrombosis (most frequently cardiac or cerebral) causing variable degrees of tissue ischemia and infarction. TTP exists in two forms: a congenital and an acquired form, with the latter accounting for >90% of the patients. ACS in the seven major markets Prevalence ACS 3-3.1 million people in 2009-3.5 million people expected by 2014 PCI procedures 3-2 million in 2009-3 million expected by 2014 02 There are currently no drugs specifically approved for the treatment of TTP. The predominant treatment is multiple plasma exchanges for acquired TTP and plasma transfusions for congenital TTP, which require lengthy hospital stays, and which can often be associated with clinical complications. Despite these procedures, mortality due to TTP remains high at 8-30% 4. Ablynx s anti-vwf Nanobody could be the first drug specifically approved for the treatment of acquired TTP. It received Orphan Drug designation from both the EMA (EU) and the FDA (US) in May 2009. TTP in the seven major markets Prevalence in acquired TTP 5 about 10,000 acute events annually Treatment cost 5 current cost of plasma exchange and hospitalization is estimated to be in the range 18-50K (depending on complications) 11 The Nanobody product engine Ablynx Annual Report 2010 1 Plavix, heparin, aspirin 2 Thomson Pharma 3 SDG Life Sciences (Unit of IMS) April 2009 4 Allford et al 2003 5 Infusion Pharma Consulting Feb 2010

Products in the clinic ALX-0081 and ALX-0681 Nanobody advantages The bivalent format of the anti-vwf Nanobody results in considerably increased potency compared with the monovalent Nanobody. The anti-vwf Nanobody is highly selective, has a fast onset of action, is quickly cleared from the body, and has a pharmacological behaviour that is well-predicted from the preclinical animal models. It is available in two forms of administration: subcutaneous and intravenous (ALX-0681 and ALX- 0081). ACS project status ALX-0081 is currently in Phase II clinical development. The study was initiated in September 2009 as a randomised, open label study in patients with high risk of coronary arterial clot formation undergoing a PCI procedure. These patients have a background treatment with the standard anti-thrombotic therapy and, in addition, are randomly assigned to receive either ALX-0081 administered as an intravenous bolus every six hours over 24 hours, or ReoPro administered as an intravenous bolus followed by 12 hours of continuous infusion. The primary endpoint is the number of bleeding events and the goal is to show a significant reduction (40%) in these events for ALX-0081 compared to ReoPro. The publication of Phase II data is on track for the second half of 2011. TTP project status In September 2010, the first clinical centres were opened for the Phase II trial with ALX-0081/ALX-0681 in patients with acquired TTP. In this trial, patients receive either placebo, or an intravenous bolus with ALX-0081 as adjunct to plasma exchange, followed by placebo or subcutaneous daily injections of ALX-0681 for the duration of plasma exchange plus 30 days. The primary endpoint is the time to response, based on normalisation of the platelet count and the goal is to demonstrate a significant reduction in this time. Final Phase II results are expected during the first half of 2013. 02 12 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ALX-0141 Anti-RANKL Nanobodies in diseases characterised by unwanted bone loss Normal bone Osteoporosis Structure of ALX-0141 ALX-0141 is a bivalent bi-specific construct composed of two Nanobodies targeting Receptor Activator of Nuclear factor Kappa-B Ligand (RANKL) linked to a Nanobody that binds to human serum albumin, which may also lead to preferential targeting of inflamed tissue and cancerous regions. ALX-0141 is currently in a Phase I clinical trial in healthy post-menopausal women. 2010 progress ALX-0141 - announced positive interim Phase I data - progressed Phase I in 42 healthy post-menopausal women About RANKL and the interaction with the Nanobody RANKL is a key mediator of bone resorption (break up of bone) and an essential regulator of the generation and activation of osteoclasts, the cells involved in the breakdown of bone. Bone remodelling is a highly co-ordinated lifelong process. However, in certain diseases, the refilling of cavities created by osteoclasts is incomplete, resulting in a net loss of bone mass. Postmenopausal osteoporosis, cancer-related bone loss and other conditions are associated with an increase in the rate of bone remodelling, leading to accelerated bone loss and increased risk of fractures. ALX-0141 inhibits bone resorption by targeting and binding to RANKL and thereby preventing RANKL from binding to receptors on the surface of osteoclasts. The Nanobody product has the potential in treating diseases characterised by unwanted bone loss such as osteoporosis, chronic inflammation and cancer, or treatment related bone loss. CFU-M 2 Hormones Growth factors Cytokines 1 Osteoprotegerin 2 Colony forming cells Osteoblasts Bone formation Preosteoclast 02 The role of RANKL in bone resorption RANKL RANK OPG 1 Osteoclast formation, function and survival inhibited Bone resorption inhibited 13 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ALX-0141 About bone loss and the medical need Osteoporosis is a disease of the bones that leads to an increased risk of fracture. In patients with osteoporosis, the bone mineral density is reduced, bone micro-architecture deteriorates, and the amount and variety of proteins in the bone is altered. Osteoporosis takes a huge personal and economic toll on affected patients. For women, gradual bone loss is accelerated after the menopause and is referred to as primary type 1 or postmenopausal osteoporosis. Primary type 2 or senile osteoporosis occurs after the age of 75 and is seen in both females and males at a ratio of about 2:1. Non-age related osteoporosis may also occur. For instance, in patients who receive the so called hormone-ablative therapy for their cancer (i.e. prostate cancer and breast cancer), bone resorption is accelerated and can result in severe signs of treatment induced osteoporosis and is also characterised by an increased fracture risk. In addition, cancer patients in whom the cancer has spread to the bones often experience bone deterioration or bone loss. Osteoporosis in the seven major markets Prevalence 1-163 million people in 2010-188 people expected by 2020 Market size 1 - $7 billion in 2010 - $9 billion in 2020 Another group of patients who are often affected by severe bone loss are patients with rheumatoid arthritis. Bone erosions are one of the characteristics of advanced disease and quite often significantly affect the quality of life of these patients. Current treatments for bone loss can either inhibit bone degradation through the use of bisphosphonates and selective oestrogen receptor modulators, or promote bone building by the use of parathyroid hormones and analogues. Oral bisphosphonates are by far the leading treatment class. However, their use is associated with unpleasant gastric side effects and they require a complicated dosing schedule. Denosumab has a new mode of action and is the first anti- RANKL humanized monoclonal antibody on the market. It is approved for the treatment and prevention of osteoporosis in post-menopausal women, and the treatment and prevention of bone loss in women and men receiving hormone therapy for either breast or prostate cancer. Denosumab was recently approved in the US for the prevention of skeletal-related events in patients with bone metastasis from solid tumours. Bone metastasis in the seven major markets Prevalence 2 - about 270,000 patients in 2010 - about 283,000 patients in 2018 Market size 2 - $1.4 billion in 2010 - $2.1 billion in 2018 02 Nanobody advantages The bivalent formatting of ALX-0141, together with its relatively small size and its albumin targeting half-life extension technology may result in a number of potential product advantages, including increased potency, improved tissue distribution, and selective targeting of inflamed and cancerous regions. In addition, the Nanobody is very stable and can be formulated in high concentrations for subcutaneous administration (up to 140mg/ml has already been achieved) without the formation of aggregates. With its size of 41kD, the Nanobody is about 1/3 rd of the size of a conventional monoclonal antibody, and on a molar basis, three times more Nanobody can be administered per dose, which could result in a convenient dosing and scheduling opportunity for ALX-0141 in all relevant indications. ALX-0141 is manufactured at high titres in a microbial production system, which could result in a relatively low cost of goods compared with conventional antibodies. Project status ALX-0141 is currently in Phase I clinical trials, involving 42 healthy post-menopausal women, to assess the product s safety, pharmacological profile and biologically effective dose. ALX-0141 was administered at six different dose levels, ranging from 0.003 mg/kg to 1 mg/kg. Interim data demonstrated that ALX-0141 is well tolerated and no serious adverse events occurring in the first 120 days following the drug administration. Following single doses of 0.1 mg/kg to 1mg/kg, subjects showed statistically significant suppression of the bone biomarker CTX-1, even at the nine month follow-up in the highest dose group. This compares favourably with denosumab which demonstrated significant inhibition of the bone biomarker, serum NTX, at nine months, and only for the highest dose level of 3mg/kg. 14 The Nanobody product engine Ablynx Annual Report 2010 1 Datamonitor, July 2010 2 Datamonitor, March 2008

Products in the clinic ALX-0061 Anti-IL-6R Nanobodies in rheumatoid arthritis Inflamed joint Structure of ALX-0061 ALX-0061 is a half-life extended monovalent Nanobody that interacts with the interleukin-6 receptor (IL-6R) and neutralises pro-inflammatory activity in the IL-6 pathway. The Nanobody is half-life extended using an anti-human serum albumin Nanobody which may also lead to preferential targeting of inflamed tissue. 2010 progress ALX-0061 - generated encouraging pre-clinical data - filed an IMPD in December About IL-6R and the interaction with the Nanobody Interleukin-6 (IL-6) is a cytokine with a wide range of biological activities. Dysregulated production of IL-6 and IL-6R has been implicated in the pathogenesis of many diseases, including RA, multiple myeloma, autoimmune diseases and prostate cancer. High concentrations of both the ligand and receptor have been documented in the serum and synovium (i.e. the thin layer of tissue that covers the joint from the inside) of RA patients, and are believed to play a pivotal role in inflammation, swelling, joint damage and destruction of cartilage. ALX-0061 potently inhibits the interaction of the IL-6 receptor with its ligand, thereby neutralising pro-inflammatory activity in the IL-6 pathway. The IL-6 pathway is also an important mediator of anaemia and fatigue, as well as cardiac events and mortality, which are systemic implications of RA. As such, inhibition of the IL-6 pathway not only blocks the specific local inflammatory response but also has the potential to significantly improve general health and the overall quality of life of patients with RA. 02 Biological activities of interleukin-6 proliferation mesangial cells proliferation plasmacytoma cells B-cells plasma cells differentiation T-cells differentiation cytotoxic T-cells proliferation growth inhibition keratinocytes breast carcinoma cells growth inhibition melanoma cells IL-6 APP expression hepatocytes regeneration PC12-cells stem cells hematopoiesis 15 The Nanobody product engine Ablynx Annual Report 2010

Products in the clinic ALX-0061 About rheumatoid arthritis and the medical need There are several cytokines involved in the inflammatory process, including TNFα, IL-1 and IL-6. Currently, the preferred biologic disease-modifying anti-rheumatic drugs (DMARDs) are TNFα inhibitors. It is estimated that this drug class will remain the first line biologic in RA, based on significant clinical experience with these therapeutic agents. However, physicians are increasingly looking for drugs with alternative mechanisms of action, as up to 30% of patients do not tolerate or adequately respond to their anti-tnfα treatment 1. Even those patients who do respond, can become resistant over time, requiring them to shift to a different TNFα blocker or a biologic DMARD with a different mechanism of action. RA in the seven major markets Prevalence 1-4.6 million people in 2010-5.2 million people expected by 2019 Market size 1 increased use of non-tnfα blockers in patients from 14% in 2010 to 36% in 2015 1 Datamonitor, 2010 According to Datamonitor, it is anticipated that there will be an increased use of non-tnfα biologics across the seven major markets. TNFα inhibitors are likely to remain the dominant biologic class but there will be considerable opportunity for products with alternative mode of actions, such as Actemra (the only anti-il-6r drug on the market), to gain access to a greater number of patients who have not been treated with a biologic yet. Nanobody advantages ALX-0061 potently neutralises the pro-inflammatory activity in the IL-6 pathway. Compared to conventional antibodies that target IL-6R, the Nanobody may offer an improved safety profile as a result of its binding mode (no potential for unwanted cross-linking of receptors) and its lack of an Fc function. Importantly, ALX-0061 incorporates albumin targeting as a means of half-life extension which may facilitate targeting to inflamed tissues. Thanks to its small size, the Nanobody could achieve improved tissue penetration. ALX-0061 is manufactured in a relatively low cost microbial system. Project status The pre-clinical studies with ALX-0061 showed that the Nanobody selectively and potently binds to both the soluble and membrane-bound form of IL-6R, and that it has a favourable PD, PK and safety profile. Based on the promising pre-clinical data, Ablynx initiated a Phase I/II trial directly in RA patients with active RA in March 2011. This study will investigate the safety, PK, PD and efficacy of single and multiple intravenous administrations of ALX-0061 in up to 72 patients in a number of centres in Europe. 02 16 The Nanobody product engine Ablynx Annual Report 2010

Pre-clinical development In addition to focusing on the rapid development of its clinical pipeline, Ablynx continues to invest both on its own and with partners in a significant number of discovery and pre-clinical programmes covering a range of therapeutic indications. The next programmes which are anticipated to enter Phase I trials in 2011 are an anti-cxcr4 Nanobody (ALX-0651) for use in stem cell mobilisation, and an anti-rsv Nanobody (ALX-0171) for treatment of pulmonary respiratory syncytial virus (RSV) infections. ALX-0651 will be the first Nanobody targeting a GPCR to enter the clinic and ALX-0171 will be the first Nanobody which will be delivered via the pulmonary route to start clinical trials. In total, Ablynx has more than 25 programmes in its R&D pipeline of which the majority are wholly owned. Haematology/ Thrombotic disorders Immunology/ Infection/ Inflammation Musculoskeletal Neurology Pulmonary disease Oncology Various ALX-0081 (vwf) ALX-0681/0081 (vwf) ATN-103 (TNFα) PF-05230905 (TNFα) ALX-0061 (IL-6R) ALX-0141 (RANKL) ALX-0171 (RSV) ALX-0651 (CXCR4) TARGET SELECTION LEAD IDENTIFICATION LEAD OPTIMIZATION 02 PRE-CLINICAL PHASE I PHASE II PHASE III REGISTRATION Ablynx-led programme Partner-led programme The three Merck Serono programmes are in co-discovery and co-development with Ablynx 17 The Nanobody product engine Ablynx Annual Report 2010

Pre-clinical development ALX-0651 Anti-CXCR4 Nanobodies in stem cell mobilisation Haematopoietic stem cells Structure of ALX-0651 ALX-0651 is expected to be the first Nanobody against a GPCR (CXCR4) to enter clinical trials. This is a biparatopic Nanobody, targeting two different epitopes on the same protein. GPCRs comprise a target class that has proved very challenging to address with conventional antibodies, but the unique physical characteristics of Nanobodies have already allowed Ablynx to generate functional blockers for a number of different GPCRs. 2010 progress ALX-0651 - initiation of pre-clinical development - Phase I study preparation About CXCR4/CXCL12 and stem cell mobilisation CXCR4 is a chemokine receptor specific for the ligand CXCL12 (SDF-1), a potent chemo-attractant. Constitutive expression of CXCL12 by bone marrow stromal cells is critical for the recruitment and retention of haematopoietic stem cells to the bone marrow. The key role of CXCR4 in stem cell mobilisation has been clinically validated by the small molecule antagonist plerixafor, (Mozobil ). Mozobil was approved in the USA in December 2008 where it is indicated for use in combination with G-CSF (granulocyte colony stimulating factor) to mobilise haematopoietic stem cells to the bloodstream for collection and subsequent autologous transplantation in patients with non-hodgkin s lymphoma and multiple myeloma. Mozobil was approved in Europe in July 2009 as combination therapy with G-CSF for haematopoietic stem cell mobilisation and subsequent autologous transplantation in patients with lymphoma and multiple myeloma whose cells mobilise poorly. Blocking CXCR4 effectively releases the lock and allows stem cell release Cells are locked in bone marrow under control of stromal cells and extracellular matrix proteins Erythrocytes (Red blood cells) Myeloid progenitor cell Multipotent stem cell 02 Role of CXCR4 in stem cell mobilisation Hematopoietic stem cell Inside the patient Pluripotent stem cell Leukemia patient (HSC) Bone marrow G-CSF + Mozobil (HSC) (HSC). mobilisation. engraftment Transplant into the patient Bone marrow ALX-0651 (HSC) (HSC) 18 The Nanobody product engine Ablynx Annual Report 2010

Pre-clinical development ALX-0651 Medical need in stem cell mobilisation and transplantation Successful bone marrow transplantation requires the infusion of a sufficient number of haematopoietic stem cells capable of trafficking to the marrow cavity and regenerating a full array of haematopoietic cell lineages in a timely way. These stem cells can come from the patient (autologous), from a donor (allogenic), or from umbilical cord blood. Haematopoietic growth factors such as G-CSF or chemotherapeutic agents are currently frequently used to stimulate the mobilisation of stem cells into the peripheral blood for ease of collection (as compared with harvesting from the bone marrow). However, the patients currently need to undergo multiple mobilisation procedures to achieve the target number of cells (i.e. the required response), which is associated with increased hospital stays and related costs. Therefore, there is a need for new therapies with improved pharmaco-economics that could have the potential for shorter dosing regimens, fewer apheresis procedures, and improved transplant engraftment, resulting in lower drug costs and reduced time spent in the hospital. ALX-0651 is currently being developed to address this need. Opportunity beyond stem cell mobilisation CXCR4 is a widely expressed chemokine receptor in cancer, having been described in over 23 different tumour types. The role of CXCR4 in metastatic spread of tumours to distant organs such as the liver, lung, lymph nodes and bone marrow that constitutively express CXCL12 has been demonstrated in numerous in vivo models for cancer, including breast, lung, ovarian, prostate and melanoma. There is some evidence of a role for CXCR4 in tumour cell proliferation and survival, and in helping mediate resistance to cytotoxic drugs. In addition, the CXCL12: CXCR4/CXCR7 axis has also been shown to promote angiogenesis, the formation of new blood vessels within a tumour, which is essential for tumour growth and tumour invasion. Targeting the CXCL12: CXCR4/CXCR7 axis therefore represents an attractive therapeutic opportunity within the oncology setting, beyond stem cell mobilisation. Nanobody advantages By constructing a biparatopic molecule, Ablynx has been able to significantly increase the potency compared with a monovalent Nanobody. ALX-0651 has been shown to be very selective for CXCR4, which should provide a positive benefit in terms of safety. The relatively short half-life of this Nanobody should ensure that it has the preferred characteristics of rapid, transient and controllable stem cell release, whilst limiting unwanted side effects such as long lasting increase of leukocytes. Project status Ablynx has demonstrated in vivo proof-of-concept in a haematopoietic stem cell model, where a single, intravenous administration of ALX-0651 resulted in rapid mobilisation of stem cells. Ablynx is on track to file an IMPD during the first half of 2011 to enable the start of a Phase I clinical trial in healthy volunteers. The trial will assess the product s safety and biological effectiveness and will comprise a single ascending dose and multiple dose study, administered both subcutaneously and intravenously. 02 19 The Nanobody product engine Ablynx Annual Report 2010

Pre-clinical development ALX-0171 Anti-RSV Nanobodies in respiratory viral infection RSV viral particle infecting the lungs Structure of ALX-0171 ALX-0171 is a trivalent Nanobody that specifically binds to and neutralises respiratory syncytial virus (RSV). It is the first Nanobody which will be administered via the pulmonary route to enter clinical trials. ALX-0171 is being developed as a potential therapeutic to treat RSV infections. 2010 progress ALX-0171 - initiation of pre-clinical development - Phase I study preparation About respiratory syncytial virus RSV is a respiratory virus that infects the lungs and respiratory tract. Most healthy people recover from an RSV infection within one or two weeks. However, the infection can be much more severe in immune-compromised individuals, the elderly, infants with cardio-pulmonary disease and premature babies. RSV is the most common cause of bronchiolitis (inflammation of the bronchioles, the smallest air passages of the lungs) and pneumonia in children younger than one year, and is increasingly being recognised as an important cause of respiratory illness in the elderly. Medical need There is no established antiviral agent currently available for the treatment of RSV. Patients requiring therapy are treated symptomatically, which often involves hospitalisation. High risk infants can be protected with Synagis, a humanised antibody, which is a prophylactic drug indicated for the prevention of serious lower respiratory tract disease caused by RSV in children at high risk, such as those with chronic lung disease, congenital heart disease or who are born prematurely. Synagis is administered via intramuscular injection once a month for five months. It reported sales of $1. billion in 2010 1. Despite the success of the prophylactic approach in RSV, Ablynx believes there remains a significant opportunity to address additional patient groups and hence an even larger market in the therapeutic setting. 02 Nanobody advantages and opportunity to capture the larger therapeutic RSV market ALX-0171 is highly stable and therefore is amenable to nebulisation and convenient administration to the patient without significant degradation or loss of potency. Achieving high concentrations of active Nanobody at the site of infection in the lungs is considered essential to obtaining a therapeutic effect. Project status ALX-0171 has achieved in vivo proof-of-concept in a preclinical Cotton rat model. Ablynx is on track to file an IMPD during the second half of 2011 to enable the start of a Phase I study in healthy volunteers to assess the product s safety and tolerability. 20 The Nanobody product engine Ablynx Annual Report 2010 1 Company data

Partners, operations and investor information 03 21 Partners, operations and investor information Ablynx Annual Report 2010

Partnering strategy Ablynx has ongoing commercial relationships with Pfizer, Boehringer Ingelheim, Merck Serono and Novartis. These relationships have already generated over 118 million in cash since 2006. At present, there are ten collaborative programmes being pursued at various stages of pre-clinical and clinical development. In October, Ablynx and Merck Serono entered into a second collaboration. This involves a single inflammatory target and Ablynx received a 10 million up-front payment. An important structural change compared to the first agreement signed in 2008 is that under this new agreement, Ablynx retains full responsibility for early drug discovery until the delivery of an IND/IMPD package. Once this stage has been reached, Merck Serono will pay a 15 million acceptance fee if they decide to proceed, after which both parties can continue the development on a 50:50 co-development basis, and split any profits equally. Ablynx does however retain the flexibility to convert this co-co partnership into a classic licensing deal with milestone payments and significant tiered royalties at pre-agreed time points. Both collaborations with Boehringer Ingelheim progressed well during 2010. As part of the Alzheimer s disease collaboration, Boehringer Ingelheim selected the first lead candidate for further development, triggering a 2 million milestone payment. Within the Strategic Alliance, Ablynx earned a total of 11 million in revenues during the year, as a number of laboratory-based technical milestones were achieved, including the selection of a development candidate in the field of oncology. During 2010, Pfizer extended its anti-tnfα Nanobodies research collaboration with Ablynx for another year and selected a second anti-tnfα Nanobody, PF-05230905, to enter Phase I clinical development, which triggered a $3 million milestone payment to Ablynx. The lead anti-tnfα Nanobody, ATN-103, that is in Phase II development, completed patient recruitment in September 2010 and is anticipated to reach potential clinical proof-of-concept during the second quarter of 2011. In February 2010, Pfizer initiated a long-term safety study with this lead product, with the results expected during the second half of 2011. In the summer of 2010, Novartis exercised their rights to license two Nanobodies against complex disease targets for further development and commercialisation, which triggered payments totalling 1 million to Ablynx. Novartis is responsible for the continued progress of both programmes and Ablynx is eligible to receive further milestone payments and royalties on sales following commercialisation of the products. The Company intends to selectively enter into new collaborations or extend existing partnerships when these could enhance value creation or support risk management. 03 22 Partners, operations and investor information Ablynx Annual Report 2010

Operational performance Achievements in IT As Ablynx further transformed itself from a platform company to a product focused company, Ablynx made significant progress during the past year on several fronts, including the optimisation of company-wide IT processes and the implementation of a GMP and GLP laboratory. Amongst many other activities, Ablynx s intellectual property department successfully opposed a half-life extension patent that had been granted to Domantis. Moved to the new state-of-the-art 8,000m² facilities with a new IT infrastructure that allows Ablynx to maximize its use of new communication technologies Successfully implemented a SAP system to support the continuous growth of the Company Successfully implemented an electronic Document Management System compliant with regulatory requirements to support clinical trials activities Effectively validated software and procedures to support the new GLP/GMP departments Installed new video conference systems, and developed a new intranet and Company website, as part of a continuous improvement plan to enhance communications with internal and external partners Achievements in IP and legal Achievements in quality systems 03 Installed a GMP QC unit, which in the future will release-test all Drug Substance and Drug Product batches and which will perform all stability and analytical programs on these batches. The unit is expected to be operational by the end of Q1 2011 Implemented an internal GMP laboratory which will reduce the costs currently associated with outsourcing manufacturing while increasing the efficiency and control of key analytical processes Installed a GLP unit, which is in the final preparation phase for accreditation that will allow Ablynx to perform toxicology studies in-house, which will result in more flexibility, reduced testing time and lower associated costs The inspection and certification of both the GMP and GLP facilities are expected during the first half of 2011 Successfully opposed a half-life extension patent, which had been granted to Domantis (a member of the GSK group of companies), resulting in this patent being revoked in full Reached a settlement with remynd concerning a collaboration agreement dispute 17 new Ablynx patent families were published, including applications on Nanobodies against RSV, against IL-6R and against various other targets of therapeutic interest, as well as applications on techniques for generating Nanobodies against difficult classes of targets such as GPCR s and ion channels, on pulmonary delivery of Nanobodies, and on improved production methods for Nanobodies Received a Notice of Allowance from the US Patent and Trademark Office for its patent application protecting the composition of matter of its programmes targeting von Willebrand factor (ALX-0081 and ALX-0681) 23 Partners, operations and investor information Ablynx Annual Report 2010

Key performance indicators Number of employees Number of products in the clinic 5 300 5 262 250 4 230 4 205 200 3 3 150 144 2 100 88 1 1 50 0 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 R&D G&A TOTAL Year-end cash (EUR million) Revenues (EUR million) 150 40.0 126.5 120 110.0 115.9 29.7 31.4 30.0 92.3 90 20.0 16.8 60 9.9 10.0 25.8 30 4.0 0 0.0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 03 Facilities (m²) 10,000 8,000 8,000 6,000 4,890 4,420 4,000 2,830 2,830 2,000 0,000 2006 2007 2008 2009 2010 24 Partners, operations and investor information Ablynx Annual Report 2010

The shares in 2010 On 31 December 2010, there were 43,620,983 shares representing a total share capital of the Company of 81,522,140.41 1. The total number of outstanding warrants (in number of shares) as at 31 December 2010 was 2,389,343 with the total number of fully diluted shares being 46,010,326. Ablynx s shares are traded on NYSE Euronext Brussels (symbol: ABLX). Since July 2009, the shares have been included in the Euronext Bel Mid Cap Index. Based on the most recent notifications received to 31 December 2010, the shareholder structure of the Company is as follows: KBC Private Equity, 3% Multifund, 4% Boehringer Ingelheim, Gilde, 7% 5% Alta Partners, 7% VIB, 3% Abingworth, 9% For full details of the shareholders, please visit page 33 1 Under Belgian GAAP Free float, 29% Sofinnova, 14% GIMV, 18% 120 115 110 105 100 95 90 85 80 Ablynx s share price in 2010 Ablynx Bel Mid Index /01/2010 15/03/2010 26/05/2010 /08/2010 13/10/2010 22/12/2010 The total annual value of equity traded in 2010 was 50,765,141 representing 6,505,386 shares traded. 160 140 120 100 80 60 40 20 0 Ablynx s share price since its IPO in November 2007 Ablynx Bel Mid Index 24/01/2011 07/11/2007 22/01/2008 //2008 26/06/2008 17/09/2008 27/11/2008 12/02/2009 27//2009 07/07/2009 15/09/2009 24/11/2009 /02/2010 19//2010 28/06/2010 06/09/2010 15/11/2010 03 At the end of 2010, Ablynx was covered by eight analysts: Broker Analyst Berenberg Bank Adrian Howd Edison Investment Research 2 Mick Cooper Helvea Olav Zilian KBC Securities Jan De Kerpel Kempen & Co Sachin Soni Petercam Delphine Delhez UBS Investment Bank Guillaume Van Renterghem Van Leeuwenhoeck Research 2 Marcel Wijma 2 paid research Financial calendar 2011 Date Event 22 February Full year results 2010 28 April Annual General Meeting 18 May Results Q1 2011 25 August Half year results 2011 16 November Results Q3 2011 25 Partners, operations and investor information Ablynx Annual Report 2010

Glossary ACR ACS Affinity Biomarker Biparatopic construct Bi-specific construct the response criteria for achievement of clinical response after treatment with the anti-rheumatoid therapeutics (e.g. ACR20) acute coronary syndrome - term including a range of clinical conditions resulting from insufficient blood supply to the heart muscle, including unstable angina and myocardial infarction measure of binding strength between an antibody and its antigen characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes, or pharmacologic responses to a therapeutic intervention two Nanobodies binding two different epitopes on the same antigen Nanobody construct which bind to two different epitopes on the same target Bivalent construct two Nanobodies with identical binding sites for the same antigen Bolus injection Bone metastasis CXCR4 DMARD Epitope Fc G-CSF GLP rapid injection of a drug, medication or other substance directly into the blood vessel tumours in the bones, arising from the spreading (metastasis) of a primary tumour from another organ C-X-C chemokine receptor type 4 also known as fusion or CD184 (cluster of differentiation 184) is a protein that in humans is encoded by the CXCR4 disease modifying anti-rheumatic drug site on an antigen recognised by an antibody fragment crystallisation region the tail region of an antibody that interacts with cell surface receptors and some proteins of the complement system. The property allows antibodies to activate the immune system granulocyte colony-stimulating factor - cytokine that stimulates the bone marrow to produce stem cells good laboratory practice GLP refers to a quality system of management controls for laboratories and research organisations to ensure the consistency and reliability and reproducibility of results GMP GPCRs IL-6R IMPD IND Nanobody Nebuliser Orphan drug PCI PD good manufacturing practice cgmp stan dards are a part of the guarantee of the biopharmaceutical quality of the drug and guarantee that drugs are made up and controlled in a consistent way, according to a standard of quality adapted to the considered use and in compliance with provisions on drugs G protein-coupled receptors, also known as seven-transmembrane domain receptors cell membrane proteins of high medical and pharmacological importance receptor of interleukin-6 - a cytokine involved in a wide range of biological activities Investigational Medicinal Product Dossier - a dossier containing the detailed technical information on a investigational drug. This covers information on the quality (structure, manufacturing process, quality control) of the drug as well as non-clinical data (from animal studies) and clinical data (from human studies). The IMPD is one of the documents to be submitted to Health Authorities when applying for authorisation of a clinical study in the European Union (additional documents include the Clinical Study Protocol and the Investigator s Brochure). Note: IMPDs are not used in the United States, there the corresponding quality, nonclinical and clinical information is part of the Investigational New Drug (IND) application investigational new drug application request for clinical trials authorisation protein that is composed of one or more binding domains with the structural and functional characteristics of naturally occurring heavy chain variable domains (VHH s) from Camelidae patient. Nanobody os a registered trademark of Ablynx a device used to administer medication in the form of a mist inhaled into the lungs drug treating a rare disease the grant of orphan drug status by the authorities provides certain privileges, intended to stimulate the research, development and commercialisation of orphan drugs including market exclusivity of ten years in Europe and seven years in the United States percutaneous coronary intervention - surgically widening of the arteries using either a balloon or a stainless steel tube (stent) pharmacodynamics - the action or effect of drugs on living organisms Phase I Phase II Phase III PK Pre-clinical Proof-of-concept study 03 first stage of testing in human subjects. Normally, a small (20-100) group of healthy volunteers will be selected. This phase includes trials designed to assess the safety (pharmacovigilance), tolerability, pharmacokinetics, and pharmacodynamics of a drug once the initial safety of the study drug has been confirmed in Phase I trials, Phase II trials are performed on larger patient groups (20-300) and are designed to assess how well the drug works, as well as to continue Phase I safety assessments in a larger group of patients phase III studies are randomised controlled multicenter trials on large patient groups (300 3,000 or more depending upon the disease/medical condition studied) and are aimed at being the definitive assessment of how effective the drug is, in comparison with current gold standard treatment. Because of their size and comparatively long duration Phase III trials are the most expensive, time-consuming and difficult trials to design and run, especially in therapies for chronic medical conditions pharmacokinetics - the study of the absorption, distribution, metabolism, and excretion of drugs in the body involves in vitro (test tube or cell culture) and in vivo (animal) experiments using wide-ranging doses of the study drug to obtain preliminary efficacy, toxicity and pharmacokinetic information Clinical trial to demonstrate the product is effective in patients RA rheumatoid arthritis autoimmune disease that causes chronic inflammation of the joints, the tissue around the joints, as well as other organs in the body RANKL RSV TNFα TTP UL-vWF vwf Receptor Activator of Nuclear factor Kappa-B Ligand - a key regulator in bone remodelling respiratory syncytial virus protein named Tumour Necrosis Factor-alpha - a cytokine involved in systemic inflammation thrombotic thrombocytopenic purpura - a rare blood disorder ultra-large vwf multimers von Willebrand factor - a blood glycoprotein involved in haemostasis 26 Partners, operations and investor information Ablynx Annual Report 2010

Corporate governance and financial review 27 Corporate governance and financial review Ablynx Annual Report 2010

Content 29 01 Report of the Board of Directors 29 1.1 Strategic Highlights 30 1.2 Analysis of Results of Operations 30 1.3 Balance Sheet Analysis 31 1.4 Cash Flow Analysis 31 1.5 Outlook 2011 31 1.6 Corporate Governance Statement 41 1.7 Transactions within the Authorised Capital 41 1.8 Acquisition of Own Securities 41 1.9 Use of Financial Instruments by the Group 42 1.10 Statements required by Article 34 of the Royal Decree of 14 November 2007 42 1.11 Circumstances that could considerably affect the Development of the Group 42 1.12 Research and Development 43 1.13 Conflicting Interests of Directors (Article 523 of the Belgian Companies Code) 44 1.14 Risks 45 1.15 Independence and Expertise of at least one Member of the Audit Committee 45 1.16 Justification of the Valuation Rules 45 1.17 Appropriation of Results 45 1.18 Important Events subsequent to the Accounting Reference Date 45 1.19 Grant of Discharge to the Directors and the Statutory Auditor 46 02 Responsibility Statement 47 03 Statutory Auditor s Report to the General Shareholders Meeting on the Consolidated Accounts of the Group as of and for the Year ending 31 December 2010 48 Consolidated Balance Sheet 49 05 Consolidated Statement of Comprehensive Income 50 06 Consolidated Cash Flow Statement 51 07 Consolidated Statement of Changes in Shareholder s Equity 52 08 Notes to the Consolidated Financial Statements 52 8.1 General Information 52 8.2 Summary of Significant Accounting Policies 58 8.3 Financial Risk Management 59 8.4 Critical Accounting Estimates and Judgements 59 8.5 Segment Information 59 8.6 Intangible Fixed Assets 60 8.7 Property, Plant and Equipment 61 8.8 Restricted Cash 61 8.9 Trade Receivables and Other Current Assets 62 8.10 Available-for-Sale Financial Assets 62 8.11 Other Short-term Investments 62 8.12 Cash and Cash Equivalents 62 8.13 Financial Instruments by Category 63 8.14 Share Capital 64 8.15 Share-based Payments 69 8.16 Borrowings 70 8.17 Trade Payables and Other Current Liabilities 70 8.18 Deferred Income Tax 70 8.19 Retirement Benefit Obligations 70 8.20 Research and Development Expenses 71 8.21 General and Administrative Expenses 71 8.22 Other Income and Expenses 71 8.23 Employee Benefit Expense 71 8.24 Operating Leases 71 8.25 Finance Income and Expenses 72 8.26 Income Tax Expense 72 8.27 Earnings Per Share 72 8.28 Contingencies and Arbitrations 72 8.29 Commitments 75 8.30 Related Party Transactions 75 8.31 Events after the Balance Sheet Date 76 09 Disclosure Audit Fees 77 10 Condensed Statutory Financial Statements of Ablynx NV as of and for the Year ended 31 December 2010 80 11 Summary of Valuation Rules and Additional Information 28 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors Dear Shareholders, We are pleased to present to you the consolidated financial statements for the fiscal year ended 31 December 2010 prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. 1.1 Strategic Highlights During 2010, revenues increased by 6% to 31.4 million, with research and development expenses increasing by 5.7 million to 48.5 million, resulting in a loss for the year of 24.5 million. At year end, Ablynx had 115.9 million in cash, cash equivalents, short-term investments and restricted cash. The net cash burn for the year was 23.6 million, excluding the proceeds of the Secondary Public Offering. At the end of 2010, there were five Nanobodies in the clinic, three wholly-owned and two developed by its partner Pfizer. The three internally developed Nanobodies that are in the clinic include two Phase II programmes and one Phase I programme. Two internally developed Nanobody programmes, ALX-0081 and ALX-0081/ALX-0681, are in Phase II clinical trials. They are the same Nanobody targeting von Willebrand factor (vwf), delivered through an intravenous and a subcutaneous route respectively. ALX-0081 is being developed in high-risk patients suffering from ACS (acute coronary syndrome) who undergo a percutaneous coronary intervention (PCI) and is on track to reach potential clinical proof-of-concept during the second half of 2011. ALX-0081/ALX-0681 is being developed to treat TTP (thrombotic thrombocytopenic purpura), a rare blood disorder. This programme is expected to reach potential clinical proofof-concept during the first half of 2013. The third Nanobody developed by Ablynx that is in the clinic is ALX-0141, an anti-rankl Nanobody, which is in Phase I clinical development. The programme reported positive interim safety and pharmacodynamic/pharmacokinetic data at six and nine months follow-up. Additional safety and efficacy data are expected during the first half of 2011. The TNFα programmes partnered with Pfizer comprise two Nanobodies: ATN-103 which is in Phase II clinical development in patients with rheumatoid arthritis, and PF-05230905, which is in Phase I development. The Phase II trial with ATN- 103 completed recruitment in September 2010 and could generate potential clinical proof-of-concept data during the second quarter of 2011. This could be the first Nanobody with clinically proven efficacy. In February 2010, Pfizer initiated a long-term safety trial with ATN-103, which is an extension of the ongoing Phase II study. The second Nanobody, PF- 05230905, is expected to generate Phase I safety data during the second half of 2011. In December 2010, Ablynx filed an IMPD for the start of a Phase I/II study in patients with rheumatoid arthritis with ALX- 0061, an anti-il-6r Nanobody. Besides the programmes in the clinic, Ablynx has a broad R&D pipeline comprising more than 25 programmes, both wholly-owned and partnered. The two most advanced internally developed programmes in pre-clinical development are ALX-0651, an anti-cxcr4 Nanobody for use in stem cell mobilisation, and ALX-0171, an anti-rsv Nanobody for the treatment of respiratory synctial viral infections. Since its foundation in 2001, Ablynx has entered into a number of collaborations with major pharmaceutical companies, including Boehringer Ingelheim, Pfizer, Merck Serono and Novartis. With the exception of Merck Serono, these partnerships involve Ablynx receiving over a period of years, one or a combination of the following: up-front payments, full-time equivalent related payments (FTE funding), payments for the achievement of milestones (e.g. on achieving laboratory-based in vitro and in vivo technical objectives or the initiation of preclinical development, Phase I, Phase II or Phase III trials), and royalty payments on future product sales. The two deals with Merck Serono are different from deals done with Pfizer, Boehringer Ingelheim and Novartis and represent a greater degree of shared risk in return for a potentially greater degree of shared upside. The first deal, signed in 2008, includes an up-front payment of 10 million for the rights to Nanobodies against two targets. Under the terms of the agreement, both companies equally share research and development costs for the two programmes and so will share equally in any resulting profits. This deal can be converted into a classic milestone and royalty deal should Ablynx no longer wish to bear 50% of the costs of the programmes. The second deal with Merck Serono, which was signed in 2010, is different from the first co-co partnership in two ways. Firstly, Merck Serono paid an up-front fee to Ablynx of 10 million for a single target. Secondly, Ablynx is responsible for all activities up to the delivery of an IND/IMPD package, i.e. just before the start of Phase I clinical development. Should Merck Serono accept this IND/IMPD package, it will pay a 15 million acceptance fee to Ablynx, after which Ablynx has the option to continue with Merck Serono on a 50:50 co-development basis and share the resulting profits, or to convert this collaboration into an exclusive, worldwide licensing deal with milestone payments and royalties. To date (31 March 2011), Ablynx s collaborations have generated over 118 million in cash since 2006 (including 15 million in equity). In 2010, Ablynx earned a total of 11 million in milestone payments from Boehringer Ingelheim as part of the Strategic Alliance that was signed in 2007. 29 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors In addition, Boehringer Ingelheim started pre-clinical development with a lead Nanobody selected from its collaboration in Alzheimer s disease, which triggered a 2 million milestone payment to the Company. During the past year, Pfizer paid a total of $3 million in milestones to Ablynx as part of their partnership on anti-tnfα Nanobodies, which they entered into in 2006. In 2010, Ablynx received 1 million from Novartis as Novartis exercised their rights to two complex Nanobody targets. During 2010, Ablynx received a total of 2.6 million in grants from the Flemish Agency for Innovation by Science and Technology (IWT) and the Portuguese Government. These grants will allow Ablynx to advance certain product programmes as well as to explore routes of delivery of Nanobodies into the central nervous system (CNS) and developing Nanobodies against therapeutically relevant CNS targets. Ablynx continues to attract the best talent from around the world and as at 31 December 2010, the Company had 262 employees, of which 224 in research and development. Ablynx now employs 15 different nationalities. In June 2010, the Company moved into a 8,000m² state-of-the-art facility on the Technologiepark in Ghent, Belgium. During the past year, Ablynx successfully opposed a half-life extension patent, which had been granted to Domantis (a member of the GlaxoSmithKline group of companies), resulting in this patent being revoked in full. The Company also reached a settlement with remynd concerning a collaboration agreement dispute. In 2010, Ablynx received a Notice of Allowance from the US Patent and Trademark Office for its patent application protecting the composition of matter of its anti-vwf programmes ALX-0081 and ALX- 0081/ALX-0681. 1.2 Analysis of Results of Operations Revenues Total revenues increased by 1.7 million to 31.4 million in 2010 (2009: 29.7 million). This increase was primarily attributable to milestone payments received under the collaborative agreements with Boehringer Ingelheim. Research and development expenses Research and development expenses increased by 5.7 million to 48.5 million in 2010 (2009: 42.8 million). This increase was primarily attributable to a 1.4 million increase in personnel costs, as research and development staff increased to 224 by the end of 2010 (2009: 195); and a 3.8 million increase in external development costs largely related to clinical trials. General and administrative expenses General and administrative expenses stabilised at 8.9 million in 2010 (2009: 9.0 million). Operational result As a result of the foregoing, the loss from continuing operations before tax and the net finance income increased to 25.9 million in 2010 (2009: 22.2 million). Finance income (net) Finance income (net) primarily comprised interests from deposits and fixed rate notes. Finance income (net) decreased by 0.8 million to 1.4 million in 2010 (2009: 2.2 million). This decrease was primarily attributable to lower interest rates. Loss before taxes As a result of the foregoing, the loss before taxes increased to 24.5 million in 2010 (2009: 20.0 million). Income tax As the Group incurred losses in all of the relevant periods, the Group had no taxable income, and therefore paid no taxes. Loss for the period As a result of the foregoing, the loss incurred by the Group increased to 24.5 million in 2010 (2009: 20.0 million). 1.3 Balance Sheet Analysis The Group s intangible assets include a portfolio of patents, which are being depreciated over approximately 12 years and technology licences that are being depreciated over 5 and 18 years. The Group has not capitalised any other patents and it expenses all of its research and development activities. The intangible assets also include software licenses acquired over the last years. The Group s non-current tangible assets include the Group s laboratory and office equipment, the investments in the building and 3 million restricted cash. The Group does not own any real estate, but continues to invest in equipment for its research activities. Restricted cash is related to a cash pledge the Company has provided. The Group s current assets consist mainly of trade receivables, other short-term investments and cash and cash equivalents. The 24.6 million increase during the period 2009-2010 is primarily related to the net proceeds of 47.2 million resulting from the Secondary Public Offering in March 2010. The Group s equity increased from 76.1 million to 100.8 million mainly as a result of the net proceeds of 47.2 million resulting from the Secondary Public Offering in March 2010. The equity increase has partially been compensated by the loss of the year amounting to 24.5 million. 30 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors The Group s non-current liabilities relate to the financing of additional investments in the building. The Group s current liabilities primarily relate to deferred income from collaborative agreements and trade payables. 1.4 Cash Flow Analysis Cash flow from operating activities represented a net outflow of 20.6 million in 2010, as compared to a net outflow of 19.9 million in 2009. Cash flow from investing activities represented a net outflow of 43.5 million as compared to a net inflow of 15.6 million in 2009. The net outflow is a result of higher short-term investments. Cash flow from financing activities represented a net inflow of 47.1 million mainly attributable to the net proceeds resulting from the Secondary Public Offering in March 2010. 1.5 Outlook 2011 The current Phase II trial for ATN-103 in patients with RA developed by Pfizer has completed patient recruitment in September 2010 and is expected to deliver potential clinical proof-of-concept during the second quarter of 2011. In February 2010, Pfizer initiated a long-term safety study with ATN-103 in RA patients, which is an extended study of the Phase II trial with expected completion date by the end of 2011. Pfizer also started clinical development with a second anti-tnfα Nanobody, PF-05230905, which entered into a Phase I trial in November 2010, with the primary study completion date expected during the second half of 2011. The ongoing Phase II trial for ALX-0081 is a direct head-tohead comparison with ReoPro in high-risk ACS patients undergoing a PCI procedure. Final Phase II data are expected by the second half of 2011. The Phase II study with ALX-0081/ ALX-0681 in TTP patients started at the end of 2010 and is expected to deliver potential clinical proof-of-concept data during the first half of 2013. This programme could, if the primary endpoint is achieved, be immediately submitted for registration in Europe in such that the earliest possible market approval in the TTP indication would be 2014 in Europe. ALX-0141 is in Phase I development in healthy postmenopausal women. Given the prolonged biological activity seen with the Nanobody at the nine-month follow-up, final Phase I data are now only expected during the second quarter of 2011. ALX-0141 is on track to enter Phase II clinical development by the end of 2011. Ablynx filed an IMPD for ALX-0061 in December 2010 and a Phase I/II clinical trial directly in patients with rheumatoid arthritis has just been initiated. This study could deliver potential clinical proof-of-concept data in the course of 2012. The Company is on track to initiate two Phase I trials during the course of 2011. One with ALX-0651, the first Nanobody against a GPCR (CXCR4), in stem cell mobilisation; and one with ALX-0171, the first Nanobody that is delivered via the lungs rather than injection and which targets RSV. In addition to the news flow on its pipeline progressions, Ablynx expects to receive additional milestones from its current partners and will selectively expand existing collaborations or establish new partnerships. 1.6 Corporate Governance Statement The corporate governance of the Company has been organised pursuant to the Belgian company law and the Company s Articles of Association. The Company s Corporate Governance Charter is available on the Ablynx website. The Company s Corporate Governance Charter has been adopted in accordance with the recommendations set out in the Belgian Corporate Governance Code (the CGC ) that was issued on 9 December 20 by the Belgian Corporate Governance Committee and subsequently amended on 12 March 2009. The charter is regularly updated and the date of modification is mentioned each time. The Company has opted for a two-tier governance structure. As a result, the governance structure of Ablynx is based on a distinction between: the management of Ablynx (including the daily management), a task conducted by the Executive Committee ( Directiecomité ) within the meaning of Article 524bis of the Belgian Companies Code and within the framework of the general strategy defined by, and under the supervision of the Board of Directors; and the development of the general strategy of Ablynx, the supervision of the Executive Committee and the exercise of specific powers attributed by the Belgian Companies Code, the Company s Articles of Association and the Company s Corporate Governance Charter, which fall within the powers of the Board of Directors. All transactions involving conflicts of interests were in line with the precisions of the Corporate Governance Charter and are listed in the annual report under point 1.13. 31 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.6.1 Capital and shares The following capital increases took place in 2010: On 22 January 2010, the Company issued 33,717 new shares in exchange for 76,627.20 as the result of the exercise of warrants by some employees and consultants of the Company. On 15 March 2010, the Company increased its share capital as a result of the Secondary Public Offering and issued 6,666,667 new shares for an amount of 50,000,000 booked in share capital and share premiums. On 30 April 2010, the Company issued 11,624 new shares in exchange for 25,391 as a result of the exercise of warrants by some employees and consultants of the Company. On 23 July 2010, the Company issued 1,780 new shares in exchange for 3,609.60 as the result of the exercise of warrants by some employees and consultants of the Company. On 20 October 2010, the Company issued 17,406 new shares in exchange for 44,437 as the result of the exercise of warrants by some employees and consultants of the Company. The share capital consists of shares, which are fully paid up, with a par value of 1.87 per share. Number of shares on 31 December 2009 36,889,789 Number of new shares (SPO March 2010) 6,666,667 Number of new shares (exercise of warrants) 64,527 Number of shares on 31 December 2010 43,620,983 During the General Shareholders Meeting of 29 April 2010, the issuance of a maximum number of 500,000 warrants was approved and 287,700 warrants have been issued. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 7.59 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2014 until April 2015). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All non-vested warrants become lapsed upon termination of the agreement. The duration of the warrants is five years as of the issue date of the warrants. Any warrants that have not been exercised within five years following their creation date become null and void. During the Board meeting of 3 December 2010, the December 2010 warrant plan was approved. The Board of Directors was allowed to issue a total number of 97,500 warrants to employees and consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 8.24 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2014 until December 2017). In case of a normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All nonvested warrants become lapsed upon termination of the agreement. The duration of the warrants is seven years as of the issue date of the warrants. Any warrants that have not been exercised within seven years of their creation become null and void. The Company had a total of 3,619,662 outstanding warrants at the end of 2010. 32 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.6.2 Shareholders and shareholder structure As at 31 December 2010, the shareholding structure is as follows (based on the most recent transparency declarations): Shareholder Address Number of voting rights % of voting rights GIMV NV, Adviesbeheer GIMV Life Sciences NV and Biotech Fonds Vlaanderen Karel Oomsstraat 37, 2018 Antwerpen, Belgium Sofinnova Partners SAS Abingworth Management Limited and Abingworth LLP Alta California Partners IV, LP 17, rue de Surène, 75008 Paris, France 38 Jermyn Street, SW1Y 6DN London, UK One Embarcadero Center, 37th Floor, 94111 San Francisco, USA Gilde Europe Food & Agribusiness Fund B.V. Newtonlaan 91, 3584 BP Utrecht, The Netherlands C.H. Boehringer Sohn AG & Co. KG Binger Strasse 173, 55216 Ingelheim am Rhein, Germany Multifund B.V., Nederlandia Investments B.V.and Stichting Avivia Admiraliteitskade 77 -K, 3063 EE Rotterdam, The Netherlands KBC Groep NV and KBC Private Equity NV Havenlaan 2, 1080 Brussel, Belgium VIB VZW Rijvisschestraat 120, 9052 Zwijnaarde, Belgium 7,991,430 18.32% 5,927,830 13.59% 4,102,952 9.41% 3,135,583 7.19% 2,941,772 6.74% 2,142,857 4.91% 1,900,000 4.36% 1,411,556 3.24% 1,375,000 3.15% Free Float 12,692,003 29.10% 33 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.6.3 Board of Directors 1.6.3.1 Composition of the Board Edwin Moses Stephen Bunting Denis Lucquin Jim Van heusden Mats Pettersson Remi Vermeiren Geert Cauwenbergh The Board of Directors consists of seven members, one of whom is an executive Director and six of whom are nonexecutive Directors, including three independent Directors. Name Year of birth Position Term (1) Board Committee Memberships Edwin Moses (2) 1954 Chairman and Chief Executive Officer 2011 - Stephen Bunting 1953 Non-executive Director 2011 Member of the Nomination and Remuneration Committee Sofinnnova Partners S.A., represented by its permanent representative, Denis Lucquin 1957 Non-executive Director 2011 - Jim Van heusden 1971 Non-executive Director 2011 Member of the Audit Committee Mats Pettersson 1945 Independent Director 2011 Chairman of the Nomination and Remuneration Committee and Member of the Audit Committee Remi Vermeiren 1940 Independent Director 2011 Chairman of the Audit Committee Geert Cauwenbergh 1954 Independent Director 2011 Member of the Nomination and Remuneration Committee Notes: (1) The term of the mandate of the Director will expire immediately after the Annual Shareholders Meeting held in the year indicated. All Directors were re-appointed during the Extraordinary Shareholders Meeting held on 12 October 2007, except for Jim Van heusden, who replaced Frank Bulens end of 2009 and whose appointment was confirmed in the General Assembly of 29 April 2010 (2) First appointed as independent Director by the Extraordinary Shareholders Meeting held on 21 October 20. He has been re-appointed as executive Director by the Extraordinary Shareholders Meeting held on 23 August 2006. Mr. Moses has taken up the position of CEO on 6 June 2006 34 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.6.3.2 Activity report In 2010, 18 Board meetings have been held. In four of these meetings, the strategy and the company results have been discussed. All members of the Board were present in these meetings, except for Mats Pettersson, who was absent during one meeting. All other Board meetings related to the exercise of warrants, General Assemblies and the organisation of the Secondary Public Offering in March. During these meetings, all members were present or represented. 1.6.3.3 Performance evaluation of the Board Under the lead of the Chairman, the Board plans to conduct a performance evaluation in 2011 to determine whether it and its Committees are functioning effectively. The evaluation shall have the following objectives: assessing how the Board operates; verifying that important issues are adequately prepared and discussed; evaluating the actual composition of each Director s work, the Director s presence in the Board and Committee meetings and his constructive involvement in discussions and decision-making and verifying the Board s current composition against the Board s desired composition. The non-executive Directors will assess their interactions with the Executive Committee in 2011. At least once a year, they meet in the absence of the CEO. No formal Board decision can be taken in such meeting. At the time of their re-election, the Directors commitments and contributions are evaluated within the Board, and the Board ensures that any appointment or re-election allows an appropriate balance of skills and experience to be maintained in the Board. The same applies at the time of the appointment or the re-election of the Chairmen (of the Board and of the Board s Committees). The Board shall act on the results of the performance evaluation by recognising its strengths and addressing its weaknesses. Where appropriate, this will involve proposing new members for appointment, proposing not to reelect existing members or taking any measure deemed appropriate for the effective operation of the Board. 1.6.4 Audit Committee As of 8 January 2009 (the date on which the Law of 17 December 2008 with regard to the incorporation of an Audit Committee in listed companies and financial companies entered into effect), large listed companies (as defined in Article 526bis of the Belgian Companies Code) are legally obliged to establish an Audit Committee within their Boards of Directors. The Board of Directors has set up an Audit Committee. The Audit Committee is composed of three members, which are exclusively non-executive Directors. The majority of its members are independent Directors and two of its members have an expertise in the field of accounts and audit. The Chairman of the Audit Committee is not the Chairman of the Board of Directors. 1.6.4.1 Composition The following Directors are members of the Audit Committee: Remi Vermeiren (Chairman), Jim Van heusden and Mats Pettersson. Remi Vermeiren and Mats Pettersson have expertise in the field of accounts and audit and are both independent Directors. 1.6.4.2 Activity report The Audit Committee assembled four times in 2010. The average attendance was 100%: Remi Vermeiren, Mats Pettersson and Jim Van heusden were present in all meetings. 1.6.5 Nomination and Remuneration Committee The Board of Directors has set up a Nomination and Remuneration Committee. The Nomination and Remuneration Committee consists of three Directors. All members are non-executive Directors and the majority of its members are independent. The CEO and the Vice-President Human Resources, the latter for specific agenda items only, attend the meetings of the Nomination and Remuneration Committee in an advisory and non-voting capacity on all matters except those concerning themselves. 1.6.5.1 Composition The following Directors are members of the Nomination and Remuneration Committee: Mats Pettersson (Chairman), Geert Cauwenbergh and Stephen Bunting. 1.6.5.2 Activity report The Nomination and Remuneration Committee assembled three times in 2010. The average attendance was 100%. Mats Pettersson, Geert Cauwenbergh and Stephen Bunting attended all meetings. 1.6.6 Executive Committee 1.6.6.1 Composition The Board of Directors has established an Executive Committee ( Directiecomité ) within the meaning of Article 524bis of the Belgian Companies Code and Article 24 of the Company s Articles of Association. 35 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors The Executive Committee consists of five members, the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), the Chief Scientific Officer (CSO), the Chief Business Officer (CBO) and the Chief Medical Officer (CMO). The current members of the Executive Committee are listed in the table below. Name Function Year of birth Nationality Edwin Moses Chief Executive Officer 1954 British Wim Ottevaere (1) Chief Financial Officer 1956 Belgian Debbie Law (2) Chief Scientific Officer 1965 American Eva-Lotta Allan Chief Business Officer 1959 Swedish Josefin-Beate Holz Chief Medical Officer 1965 German (1) Mr. Ottevaere acts as the permanent representative of Woconsult NV (2) Mrs. Debbie Law left the company end of August 2010 and will be replaced 1.6.6.2 Activity report In principle, the Executive Committee meets once every month. Additional meetings may be called at any time by the CEO or at the request of two members. The Executive Committee shall constitute a quorum when all members have been invited and the majority of the members are present or represented at the meeting. The resolutions of the Executive Committee shall be passed unanimously. If unanimity cannot be reached, the matter shall be referred to the Board of Directors, which shall decide upon the matter in its next meeting. 1.6.7 Remuneration report Directors The level of remuneration should be sufficient to attract, retain and motivate Directors who match the profile determined by the Board. Only independent Directors shall receive a fixed remuneration in consideration of their membership of the Board and their attendance to the meetings of the Committees of which they are members. They will not receive, in principle, any performance-related remuneration, nor will any option or warrants be granted to them in their capacity as Director. However, upon advice of the Nomination and Remuneration Committee, the Board may propose to the Shareholders Meeting to deviate from the latter principle in the event that, in the Board s reasonable opinion, the granting of options or warrants would be necessary to attract or retain independent Directors with the most relevant experience and expertise. All other non-executive or executive Directors shall receive no (additional) compensation for serving as a member of the Board. The Nomination and Remuneration Committee recommends the level of remuneration for Directors, including the Chairman of the Board, which is subject to approval by the Board and, subsequently, by the shareholders meeting in which the annual accounts are approved. The Nomination and Remuneration Committee benchmarks the Directors compensation against peer companies to ensure competitiveness. Without prejudice to the powers granted by law to the shareholders meeting, the Board sets and revises at regular intervals the rules and the level of compensation for Directors executing a special mandate or having a seat in one of the committees, as well as the rules for reimbursement of Directors business-related out-of-pocket expenses. The remuneration of Directors will be disclosed to the Company s shareholders in accordance with the applicable laws and regulations. Apart from the above remuneration for independent Directors, all Directors will be entitled to a reimbursement of out-ofpocket expenses actually incurred as a result of their participation in meetings of the Board of Directors. The Directors mandate may be terminated ad nutum (at any time) without any form of compensation. There are no employment nor service agreements that provide for notice periods or indemnities between the Company and the members of the Board of Directors, who are not a member of the Executive Committee. In respect of the members of the Board of Directors, who are a member of the Executive Committee, reference is made to the section Executive Committee below. Director remuneration The General Meeting of Shareholders of 11 January 2011 decided to adapt the fixed remuneration of independent Directors. The fixed annual remuneration of independent Directors was increased by five thousand to twenty thousand euro, and the additional fixed annual remuneration of the Chairman of the Nomination and Remuneration Committee and the Chairman of the Audit Committee was fixed at ten thousand euro effective from 1 June 2010. The additional fixed remuneration for the independent Directors, who are ordinary members of the Board of Directors, remains unchanged at five thousand euro per committee. 36 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors The total amount of the remunerations and the benefits paid in 2010 to the Directors (in such capacity) was 65,000 (gross, excluding VAT and warrants), 25,000 was paid to Mats Pettersson, 20,000 to Remi Vermeiren and 20,000 to Geert Cauwenbergh. There is no performance-related remuneration for non-executive Directors. Mats Pettersson, Remi Vermeiren and Geert Cauwenbergh have each received 3,571 warrants in October 2007. The table below gives an overview of the shares and warrants held by the members of the Board. This overview should be read together with the notes listed below. Total shares and warrants (i) Shares Warrants (i) Name Number % (iii) Number % (iii) Number % (iii) Edwin Moses 846,700 1.84% 9,200 0.02% 837,500 1.82% Stephen Bunting 15,000 0.03% 15,000 0.03% 0 0.00% Sofinnnova Partners S.A., represented by its permanent representative, Denis Lucquin 6,727,830 (ii) 14.62% 6,727,830 (ii) 14.62% 0 0.00% Jim Van heusden 0 0.00% 0 0.00% 0 0.00% Mats Pettersson 7,228 0.02% 3,657 0.01% 3,571 0.01% Remi Vermeiren 18,571 0.% 15,000 0.03% 3,571 0.01% Geert Cauwenbergh 3,571 0.01% 0 0.00% 3,571 0.01% (i) Reflecting the number of shares of the Company, to which such warrants give right to subscription (ii) Held by Sofinnova Capital IV FCPR, a fund managed by Sofinnova Partners; based on the transparency declaration, they held 5,927,830 shares (iii) Percentage on a fully diluted basis 37 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors Executive Committee The remuneration of the members of the Executive Committee is determined by the Board of Directors on the recommendation of the Nomination and Remuneration Committee and subsequent to the CEO s recommendation to this Committee (except for his own remuneration). Ablynx strives to be competitive in the biotech market. The starting salary is primarily based on market data and the merit increase on individual performance. Via external compensation and benefit consultants, Ablynx annually receives a market salary survey. Biotech/Pharma industry, or if not available, general industry data will determine the compensation market. The level and structure of the remuneration of the members of the Executive Committee shall be such that qualified and expert professionals can be recruited, retained and motivated taking into account the nature and scope of their individual responsibilities. An appropriate proportion of the remuneration package of a member of the Executive Committee shall be structured so as to link rewards to corporate and individual performance, thereby aligning the interests of a member of the Executive Committee with the interests of the Company and its shareholders. Schemes under which members of the Executive Committee are remunerated in shares, share options or any other rights to acquire shares, shall be subject to prior shareholder approval by way of a resolution taken by the Annual General Shareholders meeting. The approval shall relate to the scheme itself and not to the grant to individuals of sharebased benefits under the scheme. As a rule, shares shall not vest and options shall not be exercisable within less than three years. The remuneration policy for the Executive Committee shall at least include the main contractual terms including the main characteristics of pension schemes and termination arrangements, the key elements for determining the remuneration, including (i) the relative importance of each component of the remuneration; (ii) the performance criteria chosen for the variable elements; (iii) the fringe benefits. Each year, the CEO prepares a corporate goal document which is approved by the Board of Directors before the start of the next year. The Board of Directors evaluates performance versus individual and corporate goals based on a document prepared by the CEO and reviews and approves final increases, bonuses and LTIs for the Executive Committee and the overall compensation plan for all Ablynx employees. Currently, all members of the Executive Committee are employed on the basis of a service agreement, which can be terminated at any time provided that a previously determined term of notice is observed, which, at the Company s discretion, can be replaced by a corresponding termination remuneration. There are no other termination remunerations foreseen. All service agreements contain non-competition clauses, as well as confidentiality obligations and obligations relating to the transfer of intellectual property. The Corporate Governance Charter requires that every contractual settlement agreed upon before or after 1 July 2009 concerning the remuneration of the CEO or any other member of the Executive Committee, clearly states that the amount of the exit remuneration, which is granted when the contract is prematurely terminated, should not exceed the basic and variable remuneration of twelve months. All existing contractual settlements reached with the CEO or any other member of the Executive Committee have been entered into before 1 July 2009 and do not contain any exit remuneration that deviates from the Corporate Governance Charter. 38 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors Remuneration Executive Committee The total amount of remunerations and benefits paid to the members of the Executive Committee and to the persons they are represented by, amounted to approximately 1.65 million (gross, excluding VAT and share-related payments) in 2010, of which a detailed breakdown is shown in the table below: Total (*) of which CEO (*) Basic salary 1,207,937.64 (*) 362,114.61 (*) Variable remuneration 280,995.40 (*) 92,963.41 (*) Group insurance (pension, invalidity, life) 106,976.71 (*) 36,972.88 (*) Other (car, cell phone, 51,171.43 (*) 13,982.69 (*) hospitalisation insurance) (**) Total 1,647,081.19 (*) 506,033.59 (*) (*) paid in cash (**) not including other share-based payments mentioned on page 67 The pension plan for which the above amounts have been paid, is a defined contribution plan for which 10% of the base salary is contributed on a yearly basis. The table below provides an overview of the shares and warrants held by the members of the Executive Committee, including the executive Director. This overview should be read together with the notes listed below. Total shares and warrants (i) Shares Warrants (i) (Number) (%) (Number) (%) (Number) (%) Members of the Executive Committee 1,659,930 3.61% 11,805 0.03% (ii) 1,648,125 (iii) 3.58% (i) Reflecting the number of Company shares to which such warrants give a right to subscribe (ii) Wim Ottevaere, Chief Financial Officer, holds through his management company, Woconsult NV, 2,605 shares in the Company and Edwin Moses, Chairman of the Board of Directors and CEO, holds 9,200 shares (iii) Edwin Moses, Chairman of the Board of Directors and CEO, holds warrants giving the right to subscribe for 837,500 shares (of which 75,000 in 2010); Wim Ottevaere, Chief Financial Officer, holds through his management company, Woconsult NV, 381,250 warrants giving the right to subscribe for 231,250 shares (of which 18,750 in 2010); Eva-Lotta Allan, Chief Business Officer, holds 427,500 warrants giving the right to subscribe for 277,500 shares (of which 37,500 in 2010); Josi Holz, Chief Medical Officer, holds 427,500 warrants giving the right to subscribe for 277,500 shares (of which 37,500 in 2010); Debbie Law, Chief Scientific Officer, has left the Company in 2010, and she holds 24,375 warrants giving the right to subscribe for 24,375 shares. As a consequence of her resignation, 175,625 warrants have expired. The key features of the options attributed in 2010 are discussed in point 8.15.5 of the notes 39 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.6.8 Most important characteristics of the Company s internal control systems and risk management The Executive Committee should lead the Company within the framework of prudent and effective control, which enables to assess and manage risks. The Executive Committee should develop and maintain adequate internal controls so as to offer a reasonable assurance concerning the realisation of the goals, the reliability of the financial information, the observance of applicable laws and regulations and the execution of internal control procedures. The Audit Committee assists the Board of Directors in the execution of its task to control the Executive Committee. The Board of Directors yearly approves the strategy and the goals. Each year, a business plan is elaborated for the next three years, as well as a detailed budget for the next year, which is submitted to the Board of Directors for approval. The budget is systematically followed up at each Audit Committee and Board of Directors meeting, and regularly adjusted to changing prospects. The Audit Committee decided not to create an internal audit role for the time being, since the scope of the business does not justify a full-time role. The Company has assessed its main risks, which are described under point 1.14. 1.6.9 Statutory auditor PricewaterhouseCoopers Bedrijfsrevisoren bcvba, a civil company having the form of a co-operative company with limited liability ( coöperatieve vennootschap met beperkte aansprakelijkheid ) and existing under the laws of Belgium, with registered offices at Woluwedal, B-1932 Sint-Stevens- Woluwe, Belgium, represented by Raf Vander Stichele BVBA, itself represented by Raf Vander Stichele, was re-appointed as Statutory Auditor of Ablynx on 24 April 2008 for a term of three years ending immediately after the Shareholders Meeting to be held in 2011 that will have deliberated and resolved on the financial statements for the financial year ended on 31 December 2010. 1.6.10 Comply or explain The Company s Board of Directors complies with the Corporate Governance Charter (CGC), and believes that certain deviations from its provisions are justified in view of the Company s particular situation. These deviations include the following: Provision 1.5 CGC: for reasons of continuity in the management of the Company, the Chairman of the Board of Directors and the CEO are one and the same individual. Provision 7.7 CGC: only the independent Directors shall receive a fixed remuneration in consideration of their membership to the Board of Directors and their attendance in the meetings of the committees of which they are members. In principle, they will not receive any performancerelated remuneration, nor will any options or warrants be granted to them in their capacity as Director. However, on the advice of the Nomination and Remuneration Committee, the Board of Directors may propose in the Shareholders Meeting to deviate from that principle if, in the Board of Directors reasonable opinion, the granting of options or warrants would be necessary to attract or retain independent Directors with the most relevant experience and expertise. Provision 8.8 CGC: only shareholders who individually or collectively represent at least 20% of the total issued share capital may submit proposals to the Board of Directors for the agenda of any Shareholders Meeting. This percentage is in line with Article 532 of the Belgian Companies Code (relating to the convening of a Shareholders Meeting) but deviates from the 5% threshold as stipulated in the Corporate Governance Charter. 40 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.7 Transactions within the Authorised Capital In 2010, two transactions have occurred within the authorised capital that are required to be reported in accordance with article 608 of the Belgian Companies Code. During the Board meeting of 3 December 2010, the Board of Directors approved a warrant plan offering a total number of 97,500 warrants to certain employees and external consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price of 8.24 per warrant. The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis. The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted. If the warrant plan would be fully exercised, this would lead to a 0.22% dilution of the existing shareholders as per year end. During the Board meeting of 25 February 2010, and as confirmed in the subsequent meeting of the Board before the notary on the same date, the Board of Directors proposed to increase the Company s share capital in the framework of a Secondary Public Offering by way of a contribution in cash for a maximum amount of 92 million (capital increased with share premium), and taking into consideration the threshold of the authorised capital, through the issuance of new common shares of the Company. The SPO resulted in the issuance of 6,666,667 shares and a 15% dilution of the existing shareholders at that date. 1.8 Acquisition of Own Securities Neither Ablynx NV nor any direct affiliate nor any nominee acting in his own name but on behalf of the Company or of any direct affiliate, have acquired any of the Company s shares. Ablynx NV has not issued profit-sharing certificates or any other certificates. 1.9 Use of Financial Instruments by the Group The Group did not use any financial instruments. 41 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.10 Statements required by Article 34 of the Royal Decree of 14 November 2007 All shares are ordinary shares and represent the entire capital. There are no preference shares. Some of the important agreements that Ablynx has entered into may be amended or terminated in the event of a change of control over Ablynx. The Boehringer Ingelheim Alzheimer s Agreement provides that in the event of a change of control over Ablynx, Boehringer Ingelheim is entitled to terminate the research (as a result of which each party is released from paying any research licence fees and Ablynx is no longer entitled to the research licence from Boehringer Ingelheim), and is no longer held to participate in joint committees or to share its development and commercialisation plans. This clause was approved by the Company s Annual Shareholders Meeting held on 29 April 2010 in accordance with Article 556 of the Belgian Company Code. Under the Boehringer Ingelheim Strategic Alliance Agreement and in the event of a change of control over Ablynx, Boehringer Ingelheim is also entitled to terminate the research (without being released from the obligation to pay royalties on licensed products, if any) and is no longer held to participate in joint committees, to share its development and commercialisation plans or to start new programmes. However, Boehringer Ingelheim is entitled to continue the research independently, and Ablynx s option to co-promotion rights expires. This clause was approved by the Extraordinary Shareholders Meeting of 12 October 2007. The Merck Serono Agreement signed in September 2008 provides that a change of control may result automatically, in the case of early joint research and development programmes, in a full opt-out by Ablynx. In the event of further advanced joint research and development programmes, Merck Serono may at its sole discretion invite the controlling shareholder of Ablynx to continue to contribute to such joint research and development programme. If Merck Serono does not extend such invitation or if Ablynx s controlling shareholder does not accept such invitation, the change of control results in a full opt-out by Ablynx. This clause was approved by the Company s Annual Shareholders Meeting held on 29 April 2010 in accordance with Article 556 of the Belgian Company Code. The Merck Serono Agreement signed in October 2010 provides that (i) in the event of a change of control over Ablynx during the research term, Merck Serono is entitled to terminate the programmes and to assume sole responsibility for further discovery, development and commercialization; and (ii) in the event of a change of control over Ablynx (a) in respect of early programmes, Ablynx will be deemed to have exercised its opt-out right in full (if the first opt-out point had been reached; if the first opt-out point had not yet been reached, as of the time that the first opt-out point will have been reached); and (b) in respect of further advanced programmes, Ablynx will be deemed to have exercised its opt-out right under the agreement in full, provided that Merck Serono, at its sole discretion, invites the new controlling shareholder of Ablynx to continue to contribute to such programme. If Merck Serono does not extend such invitation or if Ablynx s new controlling shareholder does not accept such invitation, the change of control results in an opt-out in full by Ablynx (in which case, however, the entitlement to royalties will be replaced by an entitlement to a share of net income calculated according to the percentage of resources provided by Ablynx to a programme until the first commercial sale). The clauses under (ii) cease to have effect, on a programme-by-programme basis, as of the first commercial sale of a product resulting from a programme. This clause was approved by the Company s Extraordinary Shareholders Meeting of 11 January 2011. 1.11 Circumstances that could considerably affect the Development of the Group No special events have occurred that could considerably affect the development of the Group. 1.12 Research and Development We are committed to fully exploiting our technology platform to develop a diverse and broad portfolio of therapeutic Nanobodies, and to exploring next generation Nanobody-based technologies. We will continue to leverage the advantages of the Group s Nanobody technology in view of identifying potential drug candidates across a range of therapeutic areas and exploring and developing the potential of Nanobodies in areas where they have specific advantages. We will invest in further advancing the technology platform in terms of performance, applicability and scale. We expect that research and development expenditures for the discovery, development and commercialisation of drug candidates will continue to increase as the Group progresses its clinical and pre-clinical programmes into the next phase. In addition, we intend to initiate new discovery programmes and we are committed to seek to maintain and expand our proprietary Nanobody technology and intellectual property position. 42 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.13 Conflicting Interests of Directors (Article 523 of the Belgian Companies Code) The Directors report that during the financial year one decision has been taken that falls within the provisions of article 523 of the Belgian Companies Code. As required by article 523 of the Belgian Companies Code, the full minutes of said meeting of the Board of Directors relating to such conflict of interests are to be reproduced hereunder: Meeting of the Board of Directors of 15 February 2010 Mr. Moses did not participate in the deliberations and resolution of the Board with respect to this item on the agenda. Prior to the deliberation on this item, the other members of the Board acknowledge that they have been informed, in accordance with Article 523 of the Belgian Companies Code, by e-mail dated 9 February 2010 of the declaration by Edwin Moses in respect of his conflict of interest in relation to this item on the agenda, as follows: In accordance with Article 523 of the Belgian Company Code, I wish to report that I am faced with a conflict of interest of a financial nature in respect of the proposed decision of the Board of Directors to grant discharge to the members of the Executive Committee. The decision to grant discharge to the members of the Executive Committee entails in principle a lapse of the right of the Company to submit a liability claim against (the members of) the Executive Committee in respect of the actions or decisions (in their capacity as member) of the Executive Committee during the 2009 fiscal year. As I am a member of the Executive Committee, the decision to grant discharge to the members of the Executive Committee entails a conflict of interest of a financial nature between the Company and myself: as a result of such decision, I will no longer be subject to such liability claims in respect of my function as a member of the Executive Committee in the 2009 fiscal year, while the Company loses the opportunity to claim against me and the other members of the Executive Committee, which may lead to potentially negative financial consequences for the Company. The exact amount of the financial impact on the Company of this decision cannot be determined at this time, as it cannot be known, at this time, whether the Company would wish, in the future, to assert any liability claim vis-à-vis myself or the Executive Committee and, if so, in what amount. The financial impact on the Company consists of the loss of this particular possibility. However, I believe that the decision to grant discharge to the members of the Executive Committee is in the interest of the Company. Through such decision, the Company expresses its confidence in the members of the Executive Committee and offers such members a measure of security, which will allow the Company to attract and retain capable managers within the Company, as well as keep the current members of the Executive Committee motivated, committed and focused on their tasks. The Company s statutory auditor has been copied on this e-mail, thereby notifying him of this conflict of interest. The Board confirmed that the financial impact on the Company of the decision to grant discharge to the members of the Executive Committee cannot be determined at this time, but consists in the lapse of the right of the Company to submit a liability claim against the (members of the) Executive Committee. The Board was of the opinion that the decision to grant discharge to the members of the Executive Committee is in the interest of the Company, because it expresses the confidence in the members of the Executive Committee, which will allow the Company to attract and retain capable managers and because it keeps the current members of the Executive Committee motivated, committed and focused on their tasks. In that perspective, the Board declared that it believes that the decision to grant discharge to the members of the Executive Committee is in the interest of the Company. After deliberation on the basis of the draft of the annual statutory Belgian GAAP accounts and the annual report of the Board on the statutory Belgian GAAP accounts for the financial year 2009, which counts as Annual Activity Report as described in the Charter of the Executive Committee, the Board unanimously granted discharge to the individual members of the Executive Committee for the execution of their mandate during the financial year 2009. 43 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.14 Risks The Group is potentially subject to the following inherent risks: Nanobody-based drug candidates must undergo rigorous pre-clinical and clinical testing, the results of which are uncertain and could substantially delay or prevent the drug candidates from reaching the market. Delays in clinical trials are common and may have many causes. Such delays could result in increased costs and jeopardise or delay the Group s ability to achieve regulatory approval and commence product sales as currently contemplated. The Group s drug candidates may not obtain regulatory approval when expected, if at all, and even after obtaining approval, the drugs will be subject to ongoing regulation. To date, none of the Group s drug candidates have reached the stage of submission or evaluation for regulatory approval. The Group has a history of operating losses and an accumulated deficit; the Group may never become profitable or may not be able to sustain profitability in subsequent periods. The Group is reliant on collaborative partners for the development and commercialisation of most of its existing and future drug candidates. The Group s patents and other intellectual property rights may not adequately protect its products and drug candidates, which may impede the Company s ability to compete effectively. The Group may infringe the patents or other intellectual property rights of others and may face patent or other intellectual property litigation, which may be costly and time consuming. The Group faces, and will continue to face, significant competition and rapid technological change, which could limit or eliminate the market opportunity for its products and drug candidates. The Group relies on outsourcing arrangements with third parties for some of its activities including manufacturing and clinical trials management. The Group may not have adequate insurance cover, particularly in connection with product liability risk. The commercial success of the Group will depend on attaining significant market acceptance of its drug candidates among physicians, patients, healthcare payers and the medical community. The Group has not yet commercialised any product. If the Group fails to attract and retain qualified personnel, it may be unable to successfully develop its technologies, conduct its clinical trials and commercialise drug candidates. The Group may need additional funding, which may not be available on acceptable terms when required, if at all. Our financial risk management consists of: Liquidity risk management The Group makes use of term accounts and treasury notes. The maturities of the term deposits are limited to a maximum of 1 year. The Group has 3 million restricted cash related to a cash pledge. The Group has limited financial debt relating to investments in the building. Interest rate risk As the Group has no significant interest-bearing assets or liabilities, its income and operating cash flows are independent of changes in the market interest rates. Credit risk The credit risk arises from outstanding transactions with customers. It is the Group s policy to deal with creditworthy partners to avoid significant risk exposure. The trade receivables relate to a limited number of high-ranked international customers for whom there is no recent history of default. The short-term deposits have credit ratings varying from A to AA. Available liquidities are placed with several banks. Foreign exchange risk The Group has sales transactions from research and collaboration agreements denominated in USD and purchase transactions denominated in GBP, SEK and USD. The Group did not enter into any currency hedging arrangements in order to cover this risk as the exposure is limited. 44 Corporate governance and financial review Ablynx Annual Report 2010

01 Report of the Board of Directors 1.15 Independence and Expertise of at least one Member of the Audit Committee Remi Vermeiren has been appointed as independent Director of Ablynx. He is Chairman of the Audit Committee and holds a degree in Economic and Financial Sciences. Before he became an independent Director of Ablynx, he had a 43-year long career at Kredietbank NV, which in 1998 merged with Cera Bank and ABB Insurance into KBC Bank and Insurance Group. Currently, Remi is also a member of a number of quoted and non-quoted companies. He is currently a member of the Board or administrative management or supervisory bodies of the following companies: Ravago NV (Belgium), Devgen NV (Belgium), ACP II SCA (Luxembourg) and Zinner NV (Belgium). Mats Pettersson has been appointed as independent Director of Ablynx. Mats Pettersson is a member of the Audit Committee and has obtained a BSc in economics and business administration. Mats Pettersson is the founder of Biovitrum AB, a spinout Company from Pharmacia and one of the largest biotech companies in Europe, and he was its first CEO from 2001 until 2007. After a career as a CPA (1968-1976), he joined the Pharmacia group in 1976 where he mainly worked in CFO and Business Development positions. He is currently a Board member of Lundbeck A\S (Denmark), Photocure AS (Norway) and to-bbb technologies B.V. (the Netherlands), Chairman of the Board of NsGene A\S (Denmark) and Independent Pharmaceutica AB (Sweden) and founder and Board member of SwedenBio AB (Sweden). He is also the Chairman of the Investment Advisory Board of Karolinska Development Fund (Sweden). 1.16 Justification of the Valuation Rules Ablynx NV, established in 2001, is a biotechnology Company. For the further successful expansion of the research and development activities, the Group is, among others, dependent on sufficient financial funding, the results obtained from research and the Group s capacity to obtain and maintain adequate protection of its intellectual property. In addition, several clinical tests are planned in the next years and the number of personnel is expected to significantly expand, which will increase the operational costs. On the other hand, major commercial deals were closed which have already generated and which will generate important revenues as milestones have been achieved. In view of the above, the Company initiated an IPO on Euronext in November 2007 and raised 85.2 million and initiated an SPO on Euronext in March 2010 and raised 50 million. The current cash position of 115.9 million including cash, other investments, restricted cash and deposits will allow the Group to keep up with the financial obligations for at least the following 12 months. Consequently, the annual accounts have been prepared on the assumption that the Company is a going concern. 1.17 Appropriation of Results Ablynx NV, the parent Company, ended the financial year 2010 with a net profit of 8,612,830.65. The profit of Ablynx NV is mainly attributable to the fact that, as from 2009, Ablynx NV has capitalised its R&D expenses under Belgian GAAP. The Board of Directors proposed to appropriate the profit of the year of 8,612,830.65 to retained losses, which thus amount to 39,231,353.55. 1.18 Important Events subsequent to the Accounting Reference Date On 9 January 2011, we announced an update on our ongoing Phase I study in 42 healthy post-menopausal women treated with ALX-0141, a Nanobody targeting Receptor Activator of Nuclear Factor kappa B Ligand (RANKL). On 24 January 2011, we announced that an additional 37,628 common shares have been issued by the Company in exchange for 94,858.40 as a result of the exercise of warrants by some employees and consultants of the Company. 1.19 Grant of Discharge to the Directors and the Statutory Auditor You are requested, for Ablynx NV, in accordance with the law and the Articles of Association, to grant discharge to the Directors and the Statutory Auditor for the duties carried out by them during the financial year ending 31 December 2010. This report will be deposited according to the legal requirements and can be consulted at the Company s address. Ghent, 22 February 2011 For the Board of Directors, Edwin Moses, Chairman 45 Corporate governance and financial review Ablynx Annual Report 2010

02 Responsibility Statement We hereby certify that, to the best of our knowledge, the consolidated financial statements as of 31 December 2010, prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union, and the legal requirements applicable in Belgium, give a true and fair view of the assets, liabilities, financial position and loss of the Group and the undertakings included in the consolidation taken as a whole, and that the management report includes a fair review of the development and the performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. On behalf of the Board of Directors Edwin Moses Chairman NV Woconsult represented by Wim Ottevaere, CFO 46 Corporate governance and financial review Ablynx Annual Report 2010

03 Statutory Auditor s Report to the General Shareholders Meeting on the Consolidated Accounts of the Group as of and for the Year Ending 31 December 2010 As required by law and the Company s Articles of Association, we report to you in the context of our appointment as Statutory Auditor. This report includes our opinion on the consolidated accounts and the required additional information. Unqualified opinion on the consolidated accounts We have audited the consolidated accounts of Ablynx NV and its subsidiary (the Group ) as of and for the year ended 31 December 2010, prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union, and the legal and regulatory requirements applicable in Belgium. The consolidated accounts of the Group are set forth on pages 48 to 75. These consolidated accounts comprise the consolidated balance sheet as of 31 December 2010 and the consolidated statements of comprehensive income, cash flow and changes in shareholders equity for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The total of the consolidated balance sheet amounts to EUR (000) 131,389 and the consolidated statement of comprehensive income shows a group share in the loss for the year of EUR (000) 24,470. The Company s Board of Directors is responsible for the preparation of the consolidated accounts. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Our responsibility is to express an opinion on these consolidated accounts based on our audit. We conducted our audit in accordance with the legal requirements applicable in Belgium and the Belgian auditing standards, as issued by the Institut des Reviseurs d Entreprises/Instituut der Bedrijfsrevisoren. Those auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated accounts are free of material misstatement. In accordance with the auditing standards referred to above, we have carried out procedures to obtain audit evidence about the amounts and disclosures in the consolidated accounts. The selection of these procedures is a matter for our judgment, as is the assessment of the risk that the consolidated accounts contain material misstatements, whether due to fraud or error. In making those risk assessments, we have considered the Group s internal control relating to the preparation and fair presentation of the consolidated accounts, in order to design audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. We have also evaluated the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as the presentation of the consolidated accounts taken as a whole. Finally, we have obtained from the Board of Directors and Group officials the explanations and information necessary for our audit. We believe that the audit evidence we have obtained provides a reasonable basis for our opinion. In our opinion, the consolidated accounts set forth on pages 48 to 76 give a true and fair view of the Group s net worth and financial position as of 31 December 2010 and of its results and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union, and with the legal and regulatory requirements applicable in Belgium. Additional information The Company s Board of Directors is responsible for the preparation and content of the management report on the consolidated accounts. Our responsibility is to include in our report the following additional information, which does not have any effect on our opinion on the consolidated accounts: The management report on the consolidated accounts deals with the information required by the law and is consistent with the consolidated accounts. However, we are not in a position to express an opinion on the description of the principal risks and uncertainties facing the companies included in the consolidation, the state of their affairs, their forecast development or the significant influence of certain events on their future development. Nevertheless, we can confirm that the information provided is not in obvious contradiction with the information we have acquired in the context of our appointment. In accordance with Article 523 of the Companies Code, the Directors have informed you, in their management report on the consolidated annual accounts of the following decision taken during the year in respect of one of the Directors, Mr E. Moses, being the grant of discharge by the Board of Directors to the members of the Executive Committee of which Mr E. Moses is also a member. The Board s management report explains appropriately the financial consequences of this decision for the company. Brussels, 22 February 2011 The statutory auditor PricewaterhouseCoopers Bedrijfsrevisoren bcvba Represented by Raf Vander Stichele Auditor 47 Corporate governance and financial review Ablynx Annual Report 2010

Consolidated Balance Sheet As at 31 December ( 000) 2010 2009 Non-current assets 9,108 4,277 Intangible fixed assets (Note 8.6) 1,416 799 Property, plant & equipment (Note 8.7) 4,692 3,478 Restricted cash (Note 8.8) 3,000 0 Current assets 122,281 97,645 Trade receivables (Note 8.9) 5,277 1,697 Other current assets (Note 8.9) 3,034 1,500 Accrued income and deferred charges (Note 8.9) 1,128 2,127 Available-for-sale financial assets (Note 8.10) 0 20,012 Other short term investments (Note 8.11) 85,500 28,000 Cash and cash equivalents (Note 8.12) 27,342 44,309 Total assets 131,389 101,922 Equity attributable to equity holders 100,790 76,126 Share capital 73,076 63,189 Share premium account 126,421 88,851 Share-based payments 5,177 3,489 Fair value reserves (Note 8.10) 0 12 Retained earnings (103,884) (79,415) Non-current liabilities 1,134 0 Borrowings (Note 8.16) 1,134 0 Current liabilities 29,465 25,796 Borrowings (Note 8.16) 322 3 Trade payables (Note 8.17) 7,582 7,200 Other current liabilities (Note 8.17) 2,813 2,647 Deferred income (Note 8.17) 18,748 15,946 Total liabilities 30,599 25,796 Total equity and liabilities 131,389 101,922 The notes on pages 52 to 76 are an integral part of these financial statements. 48 Corporate governance and financial review Ablynx Annual Report 2010

05 Consolidated Statement of Comprehensive Income As at 31 December ( 000) 2010 2009 Revenue Research and development 29,169 28,068 Grants 2,263 1,615 Total revenue 31,432 29,683 Research & development expense (Note 8.20) (48,512) (42,800) General & administrative expense (Note 8.21) (8,882) (9,4) Total operating expenses (57,394) (51,844) Other operating income/(expense) (Note 8.22) 97 1 Operating result (25,865) (22,160) Finance income (net) (Note 8.25) 1,395 2,165 Finance income 1,607 2,487 Finance cost (212) (322) Loss before taxes (24,470) (19,995) Income tax expense (Note 8.26) 0 0 Loss for the year (24,470) (19,995) Other comprehensive loss Fair value gains/losses on available-for-sale financial assets, net of tax (12) 111 Total comprehensive income for the period (24,482) (19,884) Loss attributable to equity holders (24,470) (19,995) Total comprehensive loss attributable to equity holders (24,482) (19,884) Basic and diluted loss per share (Note 8.27) (0.58) (0.54) The notes on pages 52 to 76 are an integral part of these financial statements. 49 Corporate governance and financial review Ablynx Annual Report 2010

06 Consolidated Cash Flow Statement As at 31 December ( 000) 2010 2009 Cash flows from operating activities Loss before income tax (24,470) (19,995) Adjustments for Amortisation (Note 8.6) 487 198 Depreciation (Note 8.7) 2,390 2,406 (Profit)/loss on disposal of property, plant and equipment (49) 0 Share-based payment expense 1,814 1,614 Finance income net (Note 8.25) (1,359) (2,332) Net movement in trade and other receivables (4,124) 2,665 Net movement in trade and other payables 3,349 (6,799) Cash used in operations (21,962) (22,243) Interest paid (Note 8.25) (13) (2) Interest received (Note 8.25) 1,374 2,334 Income tax paid (Note 8.26) 0 0 Net cash used in operating activities (20,601) (19,911) Cash flows from investing activities Purchases of property, plant and equipment (Note 8.7) (2,596) (1,684) Proceeds from sale of property, plant and equipment 106 0 Purchases of intangible assets (Note 8.6) (517) (199) Purchases of available-for-sale financial assets (Note 8.10) 0 0 Purchases of short-term investments (Note 8.11) (57,500) 0 Sale of available-for-sale financial assets (Note 8.10) 20,000 16,000 Sale of short-term investments (Note 8.11) 0 1,500 Transfer to non-current asset (3,000) 0 Net cash used in investing activities (43,507) 15,617 Cash flows from financing activities Proceeds from issuance of ordinary shares 47,181 527 Proceeds from exercise of warrants 150 0 Repayments of borrowings (190) (57) Net cash generated from financing activities 47,141 470 Net (decrease)/increase in cash and cash equivalents (16,967) (3,824) Cash and cash equivalents at beginning of the period 44,309 48,133 Cash and cash equivalents at end of the period 27,342 44,309 50 Corporate governance and financial review Ablynx Annual Report 2010 The notes on pages 52 to 76 are an integral part of these financial statements.

07 Consolidated Statement of Changes in Shareholder s Equity ( 000) Share capital Share premium Share based payments Retained loss Fair value reserve Total equity Balance at 31 December 2008 62,485 88,851 2,053 (59,420) (99) 93,870 Loss of the period (19,995) Other comprehensive income Available-for-sale financial assets 111 Total Comprehensive Income (19,995) 111 Warrant plans Share-based payments 1,614 Transactions with owners Exercise of warrants 7 (178) Balance at 31 December 2009 63,189 88,851 3,489 (79,415) 12 76,126 Loss of the period (24,470) Other comprehensive income Available-for-sale financial assets (12) Total Comprehensive Income (24,470) (12) Warrant plans Share-based payments 1,813 Transactions with owners Exercise of warrants Capital increase 12,460 37,541 Issuance costs (2,819) Exercise of warrants 246 29 (125) Balance at 31 December 2010 73,076 126,421 5,177 (103,885) 0 100,789 The notes on pages 52 to 76 are an integral part of these financial statements. 51 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.1 General Information The Company was incorporated on 4 July 2001 under the name MatchX. It changed its name to Ablynx on 12 June 2002. Ablynx is a public limited liability company ( naamloze vennootschap or NV ) organised and existing under the laws of Belgium with registered offices at Technologiepark 21, 9052 Zwijnaarde, Belgium (company number 75.295.446 (RPR Ghent)). Ablynx is focused on the discovery and development of Nanobodies, a novel class of antibody-derived therapeutic proteins based on single-domain antibody fragments, for a range of serious life-threatening human diseases. Ablynx is developing a portfolio of Nanobody-based therapeutic programmes in a number of major disease areas, including inflammation, thrombosis, oncology and pulmonary disease. The unique structure and stability of Nanobodies has allowed Ablynx, and its partners, to pursue targets that are typically difficult to reach with conventional antibodies. To date, the Company has raised 71.5 million private equity financing including the exercise of warrants, raised an additional 85.2 million as a result of its IPO on Euronext in November 2007, and raised 50 million resulting from its SPO on Euronext in March 2010. It has research facilities in Ghent (Belgium) and Porto (Portugal), and, as at 31 December 2010, it employed 262 staff. 8.2 Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 8.2.1 Basis of preparation The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS), as adopted by the EU, IFRIC Interpretations and Belgian legal requirements applicable to the Group. The consolidated financial statements are presented in thousands of euro (unless stated otherwise). The consolidated financial statements for the financial year ended 31 December 2010 have been approved for issue by the Board of Directors on 22 February 2011. The consolidated financial statements have been prepared under the assumption that the Group is a going concern and under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of consolidated financial statements in conformity with IFRS, as adopted by the EU, requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 8.4. Changes in accounting policy and disclosures (a) New and amended standards, endorsed by the EU and effective for the periods ending 31 December 2010 adopted by the Group The Group has adopted the following new and amended IFRSs as of 1 January 2010: Annual improvements project (2009) (effective since 1 January 2010) This standard improves existing standards and amends standards, basis of conclusions and guidance. The improvements include changes in presentation, recognition and measurement plus terminology and editorial changes, except for the amendment to the definition of assets held for sale and discontinued operations. (b) Standards and interpretations endorsed by the EU as at 31 December 2010 but not yet effective for the periods ended 31 December 2010 and not early adopted by the Group: IAS 24 (revised) Related party disclosures (effective 1 January 2011) Amendments to IAS 32 Financial Instruments: Presentation on classification of rights issues (effective 1 February 2010) Amendment to IFRS 7, Financial Instruments: Disclosures (effective 1 January 2011) Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement (effective January 2011) IFRIC 19 Extinguishing financial liabilities with equity instruments (effective 1 July 2010) 52 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements (c) New standards and interpretations effective for the periods ended 31 December 2010 but not relevant to the Group: IFRS 1 (revised) First-time adoption (effective 1 July 2009) Amendment to IAS 39 Financial Instruments: Recognition and measurement on eligible hedged items (effective 1 July 2009) Amendments to IFRS 1 for additional exemptions (effective 1 January 2010) Amendment to IFRS 2 Share- based payments Group cash-settled share-based payments transactions (effective 1 January 2010). IFRS 3 (revised) Business Combinations and consequential amendments to IAS 27 Consolidated and separate financial statements, IAS 28 Investments in associates and IAS 31 Interests in Joint Ventures effective 1 July 2009. IFRIC 12 Service concession arrangements (effective 30 March 2009) IFRIC 15 Arrangements for construction of real estates (effective 1 January 2009 but EU endorsed for 1 January 2010) IFRIC 16 Hedges of a net investment in a foreign operation (effective 1 October 2008 but EU endorsed for 1 July 2009) IFRIC 17 Distributions of non cash assets to owners (effective 1 July 2009) IFRIC 18 Transfer of assets from customers (effective 1 July 2009) 8.2.2 Consolidation scope Ablynx NV controls a sole 100%-owned subsidiary (Ablynx SA with registered offices in Rua do Campo Alegre 1021, 4150-180 Porto, Portugal). The consolidated financial statements are presented in euro and rounded to the nearest thousand. 8.2.3 Segment reporting The Group operates as a single operating segment. 8.2.4 Foreign currency translation Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in euro, which is the functional and presentation currency of the Group. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in other comprehensive income (OCI) as stated in point 8.2.11. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Group companies The subsidiary has the same functional currency as the parent and no translation differences arise on consolidation. The following foreign exchange rates have been used for the preparation of the accounts: 1 Euro = X foreign currency Closing rate Average rate 2010 2009 2010 2009 US Dollar 1.3402 1.4406 1.3335 1.3948 GB Pound 0.8586 0.8881 0.8633 0.8909 8.2.5 Revenue recognition The Group generates revenue from research collaboration agreements and from government grants. The Group recognises revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. 53 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements Research collaboration agreements These research agreements typically contain license fees, nonrefundable up-front access fees, research and development service fees and milestone payments. The revenue recognition policy for research projects can be summarised as follows: License fees are recognised when the Group has fulfilled all conditions and obligations. The license fee will not be recognised if the amount cannot be reasonably estimated and if the payment is doubtful. As the Group has a continuing involvement during the license period, license fees are recognised rateably over the term of the agreement. Non-refundable up-front fees for access to prior research results and databases are recognised when earned, if the Group has no continuing performance obligations and all conditions and obligations are fulfilled (this means after the delivery of the required information). If the Group has continuing performance obligations towards the client research fees, the fee will be recognised on a straight-line basis over the contractual performance period (with adjustment to the actual performance period at the end of the contract or at the actual termination date). Research and development service fees are recognised as revenue over the life of the research agreement as the required services are provided and costs are incurred. These services are usually in the form of a defined number of fulltime equivalents (FTE) at a specified rate per FTE. Commercial collaborations resulting in a reimbursement of research and development (R&D) costs are recognised as revenue as the related costs are incurred. The corresponding research and development expenses are included in research and development expenses in the consolidated financial statements. Milestone payments are recognised as revenue upon the achievement of the milestone, when all conditions attached have been fulfilled. Deferred revenue represents amounts received prior to revenue being earned. Government grants Grants related to research projects received from governmental agencies are recognised at their fair value over the period necessary to match them with the costs that they are intended to compensate, and when there is reasonable assurance the Group will comply with the conditions attached to the grants, but not prior to the formal grant approval. These grants are separately presented in the income statement as revenue. 8.2.6 Intangible fixed assets Internally generated intangible assets Research expenses are charged to the profit and loss statement as incurred. Development costs are only capitalised if the following conditions are met: the internally developed intangible asset is identifiable and controlled by the entity the asset will generate future economic benefits the development costs can be reliably measured At present, the current stage of development activities does not allow any capitalisation of intangible assets. The existing regulatory and clinical risks constitute an important uncertainty with respect to the capitalisation of development costs. As no internally generated assets are recognised, all costs with respect to the protection of intellectual property are expensed as R&D expenses. Purchased intangible assets Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis over their estimated useful lives of maximum three years. Acquired knowledge in the form of licenses and patents is recorded at cost less accumulated amortisation and impairment. It is amortised on a straight-line basis over the shorter of the term of the license agreement and its estimated useful life. The Group does not have intangible fixed assets with an indefinite useful life. 54 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.2.7 Property, plant and equipment An item of property, plant and equipment is carried at historical cost less accumulated depreciation and impairment. Costs relating to the day-to-day servicing of the item are recognised in the income statement as incurred. Gains and losses on the disposal of property, plant and equipment are recognised in other income or expense. A pro rata straight-line depreciation method is used to reflect the pattern in which the asset s future economic benefits are expected to be consumed by the entity. The residual value and the useful life of an asset is reviewed each financial year-end for possible impairment. Depreciation is charged to the income statement on the following basis: Equipment: Hardware: Furniture: Leasehold improvements: 3 years 3 years 5 years the shorter of the useful life or the minimum rent term Property, plant and equipment under construction are not depreciated. 8.2.8 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 8.2.9 Derivative financial instruments and hedging activities The Group has no derivative financial instruments, in all material respect, to hedge interest rate and foreign currency risks. 8.2.10 Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. 8.2.11 Available-for-sale financial assets Unlisted shares and listed redeemable notes held by the Group that are traded in an active market are classified as being available-for-sale financial assets and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in other comprehensive income with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are directly recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in other comprehensive income is included in the profit or loss for the period. 8.2.12 Other short-term investments Term deposits with an initial term of more than three months are held to maturity and measured at amortised cost. 8.2.13 Cash and cash equivalents The cash and cash equivalents heading consists of cash, deposits held at call with banks and short-term deposits with an initial term not exceeding three months. 8.2.14 Equity instruments Equity instruments issued by the Group are recorded at the proceeds received, net of direct issuance costs. 8.2.15 Trade payables Payables after and within one year are measured at amortised cost, i.e. at the net present value of the payable amount. Unless the impact of discounting is material, the nominal value is taken. 8.2.16 Borrowings Interest-bearing bank loans are initially recorded as the proceeds received, net of transaction costs, and subsequently carried at amortised cost: the financial charges are accounted for on an accrual basis using the effective interest rate method and added to the carrying amount of the borrowing to the extent that they are not settled in the period in which they occur. 55 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.2.17 Income taxes Income taxes are accrued for in the same period as the related revenues and expenses. The taxable result can differ from the net profit or loss, because of revenues and expenses which are taxable in another fiscal year or that will never be taxable or deductible. 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 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 or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. As such, a deferred tax asset for the carry forward of unused tax losses will be recognised to the extent that is probable that future taxable profit will be available. 8.2.18 Employee benefits The Group offers several post-employment benefit schemes. Substantially, all employees have access to these schemes. These plans are defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contribution into a separate entity. For the majority of its employees, the Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits they are entitled to under the existing schemes. The pension contributions paid by the Group to the group insurance plan are expensed when due. Early termination obligations are recognised as a liability when the Group is demonstrably committed to terminating the employment before the normal retirement date. The Group is demonstrably committed when, and only when, it has a detailed formal plan for the early termination without the realistic possibility of withdrawal. Where such benefits are long-term, they are discounted using the same rate as above for defined benefit obligations. Normal termination obligations are accrued as the obligation arises from past service. 8.2.19 Provisions A provision is recognised only when: the Group has a present obligation to transfer economic benefits as a result of past events; it is probable (more likely than not) that such a transfer will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. When the impact is likely to be material (for long-term provisions), the amount recognised as a provision is estimated on a net present value basis (discount factor). The increase in provision due to the passage of time is recognised as an interest expense. A present obligation arises from an obligating event and may take the form of either a legal obligation or a constructive obligation (a constructive obligation exists when the Group has an established pattern of past practice that indicates to other parties that it will accept certain responsibilities and as a result has created a valid expectation on the part of those other parties that it will discharge those responsibilities). An obligating event leaves the Group no realistic alternative to settling the obligation, independently of its future actions. Provisions for decommissioning costs and restoring sites are recorded as appropriate in application of the above. Provisions for future operating losses are strictly prohibited. If the Group has onerous contracts (the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it), the present obligations under the contract are recognised as a provision. A provision for restructuring is only recorded if the Group demonstrates a constructive obligation to restructure at the balance sheet date. The constructive obligation should be demonstrated by: (a) a detailed formal plan identifying the main features of the restructuring; and (b) raising a valid expectation to those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features to those affected. 56 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.2.20 Leases A financial lease is a lease that substantially transfers all the risks and rewards incident to ownership of an asset. The cost of assets acquired by way of a finance lease is measured at the lower of the fair value of the leased asset and the present value of the minimum lease payments, using the interest rate implicit in the lease as the discount rate, both determined at the inception of the lease. Initially incurred costs, directly attributable to the arrangement of the finance lease, are added to the amount recognised as an asset. Assets acquired under financial leases are depreciated over the shorter of the lease term and their estimated useful life if it is not reasonably certain that the entity will obtain ownership of the asset by the end of the lease term. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. 8.2.21 Share-based payment transactions The Group has offered equity-settled, share-based compensation plans to its employees, executive management and consultants. The cost with respect to the employee services received in compensation for the grant of these warrants is recognised as an expense. The total amount of the expense is recognised over the vesting period and determined on the basis of the fair value of the warrants at grant date. The fair value of each warrant is estimated on the date of grant using the Black-Scholes model. The total cost is initially estimated on the basis of the number warrants that will become exercisable. At each balance date, the Group revises its estimates of the number of warrants that will become exercisable. The impact of the revision is recognised in the income statement over the remaining vesting period with a corresponding adjustment to equity. 8.2.22 Earnings per share Basic net profit/(loss) per share is computed on the basis of the weighted average number of ordinary shares outstanding during the period, excluding treasury shares. Diluted net profit/(loss) per share is computed based on the weighted-average number of ordinary shares outstanding including the dilutive effect of warrants. Warrants should be treated as dilutive, when and only when their conversion to ordinary shares would decrease the net profit per share from continuing operations. 57 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.3 Financial Risk Management 8.3.1 Financial risk factors Liquidity risk management The Group makes use of term accounts and treasury notes. The maturities of the term deposits are limited to a maximum of 1 year. The Group has 3 million restricted cash related to a cash pledge. The Group has limited financial debt related to investments in the building. Interest rate risk As the Group has no significant interest-bearing assets or liabilities, its income and operating cash flows are independent of changes in market interest rates. Credit risk The credit risk arises from outstanding transactions with customers. It is the Group s policy to deal with creditworthy partners to avoid significant risk exposure. The trade receivables relate to a limited number of high-ranked international customers for whom there is no recent history of default. The short-term deposits have credit ratings varying from A to AA. Available liquidities are placed with several banks. Credit quality of financial assets ( 000) Rating 2010 2009 Cash and cash equivalents AA 25,907 8,399 A+ 535 18,701 A 900 17,209 Total 27,342 44,309 Short-term investments AA 7,000 28,000 A+ 23,000 0 A 55,500 0 Total 85,500 28,000 Foreign exchange risk The Group has sales transactions from research and collaboration agreements denominated in USD and purchase transactions denominated in GBP, SEK and USD. The Group did not enter into any currency hedging arrangements in order to cover this risk as the exposure is limited. At 31 December 2010, if the EUR had weakened 10% against the GBP and strengthened 10% against the USD with all other variables held constant, the loss of the period would have been 588,000 (2009 : 590,000) higher. Conversely, if the EUR had strengthened 10% against the GBP and weakened 10% against the USD with all other variables held constant, the loss of the period would have been 606,000 (2009 : 579,000) lower. The table below provides an indication of the Group s open net foreign currency position as per year end: ( 000) 2010 2009 Liabilities denominated in USD 142 135 Liabilities denominated in GBP 78 200 Liabilities denominated in SEK 1 243 Assets denominated in USD 111 0 8.3.2 Capital risk management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the costs of capital. 8.3.3 Fair value estimation The carrying amount of all financial instruments approximates its fair value at reporting date. The following table presents the group s assets that are measured at fair value: ( 000) Level 1 Level 2 Level 3 Total balance Available-for sale financial assets 2010 0 0 0 0 Available-for sale financial assets 2009 0 0 20,012 20,012 58 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.4 Critical Accounting Estimates and Judgements At each reporting date, the Group makes assumptions and estimates with respect to the impact of past events on the future resulting in a number of accounting estimates, which at present have a very limited impact. Ablynx amended its initial accounting estimate for the initial recognition of the 10 million up-front fee received as part of the Merck Serono joint discovery and development agreement entered into on 3 September 2008, on a straight-line basis, reconsidering the 27-month period during which the Company estimated its hands-on involvement in discovery. Based on a decision jointly taken with Merck Serono at the end of March 2010, Ablynx will be longer involved in the project than originally anticipated. The effect of this has been recognised prospectively and therefore the remaining deferred revenue of 3.0 million will be spread over a 21-month period starting as from end of March 2010. The Company has not identified at reporting date any sources of estimation uncertainty, which involve a significant risk of material adjustment to the financial statements in the following year. 8.5 Segment Information The Group does not distinguish different operating segments. The income stems from four pharmaceutical partners, namely Boehringer Ingelheim, Merck Serono, Pfizer and Novartis. Moreover, in 2009 and 2010, more than half of the income originated from Boehringer Ingelheim. 8.6 Intangible Fixed Assets ( 000) Patents Software Total Year ended 31 December 2009 Opening net book amount 678 123 801 Additions 34 164 198 Amortisation charge (140) (60) (200) Closing net book amount 572 227 799 As at 31 December 2009 Cost 2,124 412 2,536 Accumulated amortisation and impairment (1,552) (185) (1,737) Net book amount 572 227 799 Year ended 31 December 2010 Opening net book amount 572 227 799 Additions 50 469 519 Transfer 0 588 588 Amortisation charge (135) (355) (490) Closing net book amount 487 929 1,416 As at 31 December 2010 Cost 2,174 1,469 3,643 Accumulated amortisation and impairment (1,687) (540) (2,227) Net book amount 487 929 1,416 The intangible fixed assets mainly consist of a portfolio of acquired patents and software licences. 59 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.7 Property, Plant and Equipment ( 000) Equipment Furniture Year ended 31 December 2009 Equipment under leasing Leasehold improvements PPE under construction Opening net book amount 3,701 99 115 282 3 4,200 Additions 968 43 0 85 588 1,684 Disposals - acquisition value 0 0 0 0 0 0 Disposals - accumulated depreciation and impairment 0 0 0 0 0 0 Depreciation charge (2,080) (32) (108) (186) 0 (2,406) Closing net book amount 2,589 110 7 181 591 3,478 As at 31 December 2009 Cost 8,460 212 350 454 591 10,067 Accumulated depreciation and impairment (5,871) (102) (343) (273) 0 (6,589) Net book amount 2,589 110 7 181 591 3,478 Year ended 31 December 2010 Opening net book amount 2,589 110 7 181 591 3,478 Additions 1,754 471 1,642 347 25 4,239 Disposals - acquisition value 0 (142) 0 0 0 (142) Disposals - accumulated depreciation and impairment 0 93 0 0 0 93 Depreciation charge (1,831) (262) (118) (179) 0 (2,390) Transfer 0 0 0 3 (588) (585) Closing net book amount 2,512 270 1,531 352 28 4,693 As at 31 December 2010 Cost 10,214 634 1,992 8 616 14,260 Accumulated depreciation and impairment (7,702) (364) (461) (452) (588) (9,567) Net book amount 2,512 270 1,531 352 28 4,693 Total 60 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.8 Restricted Cash Restricted cash is related to a cash pledge the Company has provided in respect of the service agreement with NV Bio- Versneller (see point 8.29.3). As at 31 December ( 000) 2010 2009 Restricted cash 3,000 0 8.9 Trade Receivables and Other Current Assets As at 31 December ( 000) 2010 2009 Trade receivables Trade receivables 5,191 1,656 Credit notes to receive 0 0 Invoices to be made 66 41 Credit notes to be issued 0 0 Prepayment 20 0 Total 5,277 1,697 Other current assets VAT receivable 840 784 Income tax receivable 489 401 Other receivables 1,705 315 Total 3,034 1,500 Accrued income and deferred expenses Accrued income 717 1,500 Deferred expenses 411 627 Total 1,128 2,127 Trade receivables consist of amounts due from research collaboration partners. The nominal amount of both trade and other receivables approximates the fair value. Trade receivables that were past due are not impaired. The trade receivables relate to a limited number of high-ranked international customers for whom there is no recent history of default. The ageing analysis of the past due trade receivables is as follows: As at 31 December ( 000) 2010 2009 Up to 1 month 93 343 Between 1 & 3 months 0 0 Over 3 months 0 0 The carrying amounts of the Group s trade and other receivables are denominated in the following currencies: As at 31 December ( 000) 2010 2009 6,784 2,011 US $ 111 0 The income tax receivables relate to recoverable withholding taxes paid on interest income. The other receivables mainly include a tax credit relating to research expenditure capitalised under local GAAP. Accrued income consists mainly of earned income from government grants for which no payments have been received. 61 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.10 Available-for-Sale Financial Assets ( 000) As at 31 December 2009 Opening net book amount 35,901 Additions 0 Sales (16,000) Reserves available-for-sale 111 Closing net book amount 20,012 ( 000) As at 31 December 2009 Opening net book amount 20,012 Additions 0 Sales (20,000) Reserves available-for-sale (12) Closing net book amount 0 The floating rate note from Arcade Finance Plc, managed by KBC ( 20 Mio) with a variable interest rate of Euribor 6M +2bps has been sold in 2010. During 2010, the note has generated an interest income of 73,450. 8.11 Other Short-term Investments As at 31 December ( 000) 2010 2009 Term deposits > 3 months 85,500 28,000 These are monies placed on term deposits with banks with an initial term between 3 and 13 months. 8.12 Cash and Cash Equivalents As at 31 December ( 000) 2010 2009 3 months 12,754 35,309 Cash at bank and on hand 14,588 9,000 Total 27,342 44,309 The cash and cash equivalents heading consists of cash, deposits held at call with banks and short-term deposits. 8.13 Financial Instruments by Category ( 000) 2010 Loans and Receivables A-F-S Instruments Total Restricted cash 3,000 3,000 Trade receivables - other current assets 8,311 8,311 AFS assets 0 0 Other Short Term Deposits 85,500 85,500 Cash and Cash equivalents 27,342 27,342 ( 000) 2009 Loans and Receivables A-F-S Instruments Total Restricted cash 0 0 Trade receivables - other current assets 3,197 3,197 AFS assets 20,012 20,012 Other Short Term Deposits 28,000 28,000 Cash and Cash equivalents 44,309 44,309 62 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.14 Share Capital 8.14.1 Capital transactions during the year The following capital increases took place in 2010: On 22 January 2010, the Company issued 33,717 new shares in exchange for 76,627.20 as the result of the exercise of warrants by some employees and consultants of the Company. On 15 March 2010, the Company increased its share capital as a result of the Secondary Public Offering and issued 6,666,667 new shares for an amount of 50,000,000 and is booked in share capital and share premiums. On 30 April 2010, the Company issued 11,624 new shares in exchange for 25,391 as a result of the exercise of warrants by some employees and consultants of the Company. On 23 July 2010, the Company issued 1,780 new shares in exchange for 3,609.60 as the result of the exercise of warrants by some employees and consultants of the Company. On 20 October 2010, the Company issued 17,406 new shares in exchange for 44,437 as the result of the exercise of warrants by some employees and consultants of the Company. The share capital consists of common shares, which are fully paid up, with a par value of 1.87 per share. Number of shares on 31 December 2009 36,889,789 Number of new shares (SPO March 2010) 6,666,667 Number of new shares (exercise of warrants) 64,527 Number of shares on 31 December 2010 43,620,983 As at 31 December 2010 the shareholding structure is as follows (based on the most recent transparency declarations): Shareholder GIMV NV, Adviesbeheer GIMV Life Sciences NV and Biotech Fonds Vlaanderen Sofinnova Partners SAS Abingworth Management Limited and Abingworth LLP Alta California Partners IV, LP Address Karel Oomsstraat 37, 2018 Antwerpen, Belgium 17, rue de Surène, 75008 Paris, France 38 Jermyn Street, SW1Y 6DN London, UK One Embarcadero Center, 37th Floor, 94111 San Francisco, USA Gilde Europe Food & Agribusiness Fund B.V. Newtonlaan 91, 3584 BP Utrecht, The Netherlands C.H. Boehringer Sohn AG & Co. KG Binger Strasse 173, 55216 Ingelheim am Rhein, Germany Multifund B.V., Nederlandia Investments B.V. and Stichting Avivia Admiraliteitskade 77 -K, 3063 EE Rotterdam, The Netherlands KBC Groep NV and KBC Private Equity NV Havenlaan 2, 1080 Brussel, Belgium VIB VZW Rijvisschestraat 120, 9052 Zwijnaarde, Belgium Number of voting rights % of voting rights 7,991,430 18.32% 5,927,830 13.59% 4,102,952 9.41% 3,135,583 7.19% 2,941,772 6.74% 2,142,857 4.91% 1,900,000 4.36% 1,411,556 3.24% 1,375,000 3.15% Free Float 12,692,003 29.10% 63 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.14.2 Authorised capital The Extraordinary General Assembly of 29 April 2010 authorised the Board of Directors to carry out capital transactions during a period of five years for a total amount of 81,486,264.59. In December 2010, the Board of Directors issued a new warrant plan with a total number of 97,500 warrants at an exercise price of 8.24 per warrant effective as from 2011. At 31 December 2010, the authorised capital amounts to 81,486,264.59. 8.14.3 Voting rights Each share gives right to one vote. If the share is encumbered by usufruct, the voting rights attached to the share shall be exercised by the usufructuary. The voting rights attached to pledged shares shall be exercised by the owner-pledgor. 8.14.4 Dividends and minimum share capital The Company has never distributed any dividends to its shareholders. According to Belgian company law, the Company is required to deduct at least 5% from its profit to constitute the legal reserve until it reaches one-tenth of the Company s statutory share capital. As of 31 December 2010, no profits were available for distribution. In accordance with Belgian company law, the minimum share capital of a public limited liability company is 61,500. 8.15 Share-Based Payments 8.15.1 Warrants issued in January 2009 for members of the Executive Committee and consultants During the Extraordinary Shareholders meeting of 23 January 2009, the above-mentioned warrant plan was approved. The Board of Directors was allowed to issue a total number of 135,000 warrants to members of the Executive Committee and consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 4.52 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). Initially, the warrants could only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2013 until December 2013). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All nonvested warrants become lapsed upon termination of the agreement. The duration of the warrants is five years as of the issue date of the warrants. Any warrants that have not been exercised within five years of their creation become null and void. 8.15.2 Warrants issued in July 2009 for employees and consultants During the Board meeting of 9 July 2009, the abovementioned warrant plan was approved. The Board of Directors was allowed to issue a total number of 190,000 warrants to employees and consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 5.79 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2013 until July 2016). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All non-vested warrants become lapsed upon termination of the agreement. The duration of the warrants is seven years as of the issue date of the warrants. Any warrants that have not been exercised within seven years of their creation become null and void. 64 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.15.3 Warrants issued in September 2009 for employees and consultants During the Board meeting of 29 September 2009, the abovementioned warrant plan was approved. The Board of Directors was allowed to issue a total number of 205,850 warrants to employees and consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 6.99 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2013 until September 2016). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All nonvested warrants become lapsed upon termination of the agreement. The duration of the warrants is seven years as of the issue date of the warrants. Any warrants that have not been exercised within seven years of their creation become null and void. 8.15.4 Warrants issued in October 2009 for members of the Executive Committee and consultants During the Extraordinary Shareholders meeting of 30 October 2009, the above-mentioned warrant plan was approved. The Board of Directors was allowed to issue a total number of 170,000 warrants to members of the Executive Committee. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 8.19 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2013 until October 2014). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All non-vested warrants become lapsed upon termination of the agreement. The duration of the warrants is five years as of the issue date of the warrants. Any warrants that have not been exercised within five years of their creation become null and void. 8.15.5 Warrants issued in April 2010 for employees and consultants During the General Shareholders Meeting of 29 April 2010, the issuance of a maximum number of 500,000 warrants was approved and 287,700 warrants have been issued. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 7.59 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2014 until April 2015). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All non-vested warrants become lapsed upon termination of the agreement. The duration of the warrants is five years as of the issue date of the warrants. Any warrants that have not been exercised within five years of their creation become null and void. 65 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.15.6 Warrants issued in December 2010 for employees and consultants During the Board meeting of 3 December 2010, the abovementioned warrant plan was approved. The Board of Directors was allowed to issue a total number of 97,500 warrants to employees and consultants. Each warrant gives the beneficiaries the right to subscribe to one share of the Company (equity-settled). The warrants are granted for free and have an exercise price equal to the average closing rate of the share over a period of 30 days before the date of the grant ( 8.24 per warrant). The warrants vest rateably over four years: 25% of the warrants vest after one year; thereafter, the remaining 75% become vested on a monthly basis (2.083% per month). The warrants can only be exercised when vested and as from the beginning of the fourth calendar year following the year in which the warrants have been granted (thus starting as from 1 January 2014 until December 2017). In case of normal termination of the employee contract or the consulting agreement, all the vested warrants need to be exercised during the current or next exercise period. Vested warrants which have not been exercised in the foreseen period cannot be transferred to future exercise periods and become lapsed. All nonvested warrants become lapsed upon termination of the agreement. The duration of the warrants is seven years as of the issue date of the warrants. Any warrants that have not been exercised within seven years of their creation become null and void. 8.15.7 Extension of certain warrant plans The General Shareholders Meeting of 30 April 2009 and the Board of Directors meeting of 22 June 2009 approved the 5-year extension of certain warrant plans in accordance with Article 583 of the Belgian Company Code and in accordance with Article 21 of the Economische Herstelwet. Because of this extension, the fair value of the warrants has changed. The incremental fair value was calculated as the difference between the fair value with and without extension at the date of extension. The incremental fair value granted had a 483,000 impact on the share-based cost for the year 2009. Date of issuance Duration (years) Extension (years) Total incremental fair value Impact results 31/12/2009 ( 000) ( 000) 2/07/2003 7 5 10 10 28/12/20 7 5 78 78 15/12/2005 7 5 27 27 13/07/2006 7 5 445 250 29/12/2006 7 5 34 15 14/06/2007 7 5 120 42 12/10/2007 4.78 5 12 12 22/08/2008 7 5 3 49 Total 1,030 483 66 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements Warrants 2003 20 2005 2006 2006 2007 2007 2008 2009 2009 2009 2009 2010 2010 Number of warrants granted 426,000 477,000 509,500 1,750,000 135,000 425,000 10,713 375,000 135,000 187,500 205,400 170,000 287,700 47,500 Number of warrants not vested at 31/12/2010 39,063 137,500 49,479 59,740 66,791 113,333 285,950 47,500 Exercise price (in )* 0.70 0.90 0.90 1.00 1.40 1.40 7.00 4.88 4.52 5.79 6.99 8.19 7.59 8.24 Expected dividend yield 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Expected stock price volatility 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 50% 50% Risk-free interest rate 3.50% 3.33% 3.20% 3.95% 3.95% 4.63% 4.22% 4.42% 3.79% 3.20% 3.14% 3.11% 2.75% 3.46% Expected duration 7.00 7.00 7.00 7.00 7.00 7.00 4.78 7.00 5.00 7.00 7.00 5.00 5.00 7.00 Fair value (in ) at grant date 0.44 0.56 0.56 0.63 0.88 0.90 3.78 3.11 2.06 3.51 5.25 5.07 3.23 4.49 Incremental Fair Value (in ) at extension 0.24 0.28 0.26 0.26 0.31 0.30 1.13 0.84 Expected dividend yield 0 0 0 0 0 0 0 0 Expected stock price volatility 60% 60% 60% 60% 60% 60% 60% 60% Risk-free interest rate 3.03% 3.24% 3.35% 3.41% 3.46% 3.50% 3.33% 4.08% Expected duration at extension 6.26 7.75 8.71 9.29 9.75 10.21 8.54 11.17 *Equals the fair market value of the underlying shares on the grant date 67 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements Warrants 2003 20 2005 2006 2006 2007 2007 2008 2009 2009 2009 2009 2010 2010 At 31 December 2008 Outstanding 41,000 293,814 373,0 1,705,937 122,416 4,947 10,713 375,000 3,8,178 1.37 Non-vested 34,875 659,063 58,500 240,162 0 375,000 1,367,600 2.15 Exercisable 41,000 293,814 338,165 1,6,874 63,916 164,785 10,713 0 2,436,578 0.93 Granted 135,000 182,500 205,400 522,900 5.93 Forfeited 2 12,918 11,666 24,586 - Exercised 6,000 39,500 275,726 798,537 0.66 Expired 0 - At 31 December 2009 Outstanding 35,000 254,314 97,312 1,705,937 109,498 4,947 10,713 363,334 135,000 182,500 205,400 3,503,955 2.20 Non-vested 0 0 0 242,813 22,375 140,781 0 242,223 135,000 182,500 205,400 1,171,092 4.06 Exercisable 35,000 254,314 97,312 1,463,124 87,123 264,166 10,713 121,111 0 0 0 2,332,863 1.27 Granted 170,000 287,700 47,500 505,200 7.85 Forfeited 1 12,312 5,003 16,185 40,000 65,625 109,563 10,000 1,750 260,439 - Exercised 4,000 2,314 8,812 55,620 58,308 129,054 1.16 Expired 0 - At 31 December 2010 Outstanding 31,000 252,000 88,500 1,650,316 38,878 399,944 10,713 347,149 95,000 116,875 95,837 160,000 285,950 47,500 3,619,662 2.77 Non-vested 39,063 137,500 49,479 59,740 66,791 113,333 285,950 47,500 799,356 6.57 Exercisable 31,000 252,000 88,500 1,650,316 38,878 360,881 10,713 209,649 45,521 57,135 29,6 46,667 0 0 2,820,306 1.69 The weighted average share price at the date of exercise for warrants exercised during 2009 was 4.08 per share and for warrants exercised during 2010 was 7.85 per share. Total number Average Exercise price (in ) 68 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.16 Borrowings As at 31 December ( 000) 2010 2009 Non-current Secured 1,134 0 Non-secured 0 0 Total 1,134 0 Current Secured 322 3 Non-secured 0 0 Total 322 3 The leasing borrowing has been secured with the asset it provides financing for. The asset is a an investment in the building. 8.16.1 Maturity table The maturity of non-current borrowings (including financial lease) is as follows: As at 31 December ( 000) 2010 2009 Borrowings Between one and two years 648 0 Between two and five years 808 0 Over five years 0 0 Total 1,456 0 The details on the borrowings are summarised below: Year Nominal Amount Currency Secured (s) / Non secured (ns) First installments Number of installments Periodicity of installments 2006 130,000 ns 18/12/2006 36 Monthly 2010 1,641,920 s 18/06/2010 60 Monthly The carrying amounts of borrowings approximate their fair value. As at 31 December ( 000) 2010 2009 Finance lease obligations Future lease payments Within one year 340 3 In the second to the fifth year 1,162 0 After five years 0 0 Total 1,502 3 Less future finance charges (46) 0 Present value of lease obligations 1,456 3 69 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.17 Trade Payables and Other Current Liabilities Trade payables As at 31 December ( 000) 2010 2009 Trade payables 3,968 3,564 Accruals for invoices to be received 3,614 3,636 Total 7,582 7,200 Other current liabilities As at 31 December ( 000) 2010 2009 Taxes other than income taxes payable 0 0 Social security 418 431 Payroll accruals 2,401 2,103 Other liabilities (6) 113 Total 2,813 2,647 Deferred income As at 31 December ( 000) 2010 2009 Deferred income 18,717 15,931 Accrued expenses 31 15 Total 18,748 15,946 Deferred income mainly relates to cash received from research collaboration agreements prior to completion of the earnings process. 8.18 Deferred Income Tax As at 31 December ( 000) 2010 2009 Tax loss carried forward (80,588) (73,388) Other temporary differences Amortisation of intangible assets Depreciation of tangible assets Total temporary differences Unrecognised deferred tax asset (33,99%) 1,110 2876 (71,108) (35,924) (733) (614) (151,319) (107,050) (51,433) (36,386) The Group has unused tax losses carry forward. This, combined with the other temporary differences, results in a net deferred tax asset position. Due to the uncertainty surrounding the Group s ability to realise taxable profits in the near future, the Company did not recognise any deferred tax assets. 8.19 Retirement Benefit Obligations The Group has set up several post-employment benefit schemes covering all staff members. The major plan is a cafeteria plan in which the employees can opt to receive on top of their pension benefits an additional death and disability coverage (waiver of premium and disability annuity). The premiums needed to finance this additional coverage are limited to the total premium budget (4% and 2% of the annual salary for the employer and employee contributions respectively). This plan is to be considered as a defined contribution plan. The Group has recognised an expense of 639,0.77 and 576,465.69 in the years 2010 and 2009 respectively. 8.20 Research and Development Expenses Year ended 31 December ( 000) 2010 2009 Consumables 4,542 4,850 Outsourcing 22,736 18,876 Patent costs 2,244 2,072 Personnel costs 13,191 11,781 Share-based payments 519 449 Other operating expenses 2,906 2,406 Subtotal 46,138 40,434 Depreciation and amortisation 2,374 2,366 Total research and development expenses 48,512 42,800 The increase in outsourcing is mainly related to increased clinical trial related expenses. 70 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.21 General and Administrative Expenses Year ended 31 December ( 000) 2010 2009 Personnel costs 2,642 2,322 Share-based payments 1,295 1,164 Executive Committee compensation* 1,612 1,961 Consultancy 1,187 2,138 Other operating expenses 1,643 1,215 Subtotal 8,379 8,800 Depreciation and amortisation 503 244 Total general and administrative expenses 8,882 9,4 * The Executive Committee consists of key management members and the entities controlled by them. 8.22 Other Income and Expenses Year ended 31 December ( 000) 2010 2009 Other operating income 160 1 Other operating expenses 63 0 Total 97 1 8.23 Employee Benefit Expense Year ended 31 December ( 000) 2010 2009 Salaries, wages and bonuses 10,172 9,327 Social security 3,407 2,926 Group and hospitalisation insurance cost 569 526 Share-based payments 1,813 1,614 Other employment costs 1,684 1,323 Executive Committee compensation 1,612 1,961 Total 19,257 17,677 Headcount Executive Committee* 4 5 R&D personnel 224 195 General and administrative staff 34 33 Average FTE 243 218 * The Executive Committee consists of key management members and the entities controlled by them. 8.24 Operating Leases As at 31 December ( 000) 2010 2009 Current lease payments 1,902 1,590 Future lease payments Within one year 3,0 1,606 In the second to the fifth year 13,482 762 After five years 3,706 0 The majority of the lease arrangements concerns the leasing of company cars and office facilities. 8.25 Finance Income and Expenses Year ended 31 December ( 000) 2010 2009 Interest income on financial assets 1,373 2,334 Other finance income 234 153 Total 1,607 2,487 Finance expenses Interest charges on financial liabilities 13 4 Other finance expenses 200 318 Total 213 322 In 2010, the line Other finance expenses included foreign exchange losses of 185,6 (2009: 298,113). 71 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.26 Income Tax Expense The reconciliation between the expected income tax and the effective income tax reads as follows: Year ended 31 December ( 000) 2010 2009 Current income taxes 0 0 Total 0 0 Loss of the year (24,470) (19,995) Stock issuance costs (2,819) 0 Share-based payments 1,813 1,614 Other permanent differences (18,792) (19,503) Expected income tax credit (15,7) (12,877) Impact unrecognised deferred tax asset 15,7 12,877 Effective income taxes 0 0 8.27 Earnings Per Share Year ended 31 December ( 000) 2010 2009 Loss of the year (24,470) (19,995) Weighted average number of shares outstanding Basic and diluted loss per share after reverse split (in ) 42,212,702 36,856,245 (0.58) (0.54) Earnings per share are calculated by dividing the net result attributable to shareholders by the weighted average numbers of shares during the year. As the Group is suffering operating losses, warrants have an anti-dilutive effect. As such, there is no difference between basic and diluted earnings per share. 8.28 Contingencies and Arbitrations On 2 June 2010, Ablynx NV and remynd NV reached a settlement concerning a dispute relating to a collaboration agreement to discover and commercialize new Nanobodies, which Ablynx and remynd entered into in 2003. In order to amicably resolve the dispute, Ablynx and remynd have signed a settlement agreement which terminates the 2003 agreement and under which remynd could receive up to 2 million in payments based on the successful achievement of milestones in Ablynx s Alzheimer s collaboration with Boehringer Ingelheim, as well as a 1% royalty on sales of any products potentially arising from this collaboration. 8.29 Commitments 8.29.1 Collaborative research agreements and clinical research agreements a) Boehringer Ingelheim (BI) - Strategic Alliance BI and Ablynx announced a major global strategic alliance to discover, develop and commercialise up to 10 different Nanobody programmes. In return, Ablynx received an up-front payment and will receive research license payments, milestones and royalties. Additionally, Boehringer Ingelheim subscribed for 15 million in the IPO in November 2007. Ablynx will have certain co-promotion rights in Europe. b) Boehringer Ingelheim Agreement - Alzheimer disease BI and Ablynx agreed to collaborate to identify Nanobodies in a specific biological target believed to be relevant in Alzheimer s disease and BI received an exclusive worldwide license to develop and commercialise such Nanobodies. In return, Ablynx received an up-front payment and will receive milestone payments, FTE payments and royalties as Nanobody drug candidates proceed through development and potentially reach the market. Ablynx will also participate in the relevant Steering Committees. On 21 August 2008, the research funding was extended for another year. c) Pfizer Agreement Pfizer received an exclusive worldwide license to develop and commercialise all Nanobodies to TNFα for all indications. Pfizer is responsible for all costs associated with the development of these Nanobodies and Ablynx will participate in the relevant Steering Committees and will/has received FTE payments, up-front payments, milestones and royalties. On 20 December 2007, 18 February 2009 and 20 May 2010 respectively, the research term was extended for another year. 72 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements d) Novartis Agreement The agreement with Novartis was signed in December 2005. Under this agreement, Ablynx will seek to discover Nanobodies against a number of targets nominated by Novartis in a collaborative research programme. The deal includes R&D payments, FTE payments, license fees, milestones and royalties. On 10 December 2007, the alliance was extended for another year and on 5 February 2009, it was extended again for another year. On 8 July 2010, two License, Development and Commercialization Agreements were signed for two targets. e) Procter & Gamble Pharmaceuticals Agreements Ablynx has signed two agreements with P&GP. In July 20 and in March 2006, the companies signed agreements to discover and develop Nanobody drug candidates against targets specified by P&GP. Under the terms of the partnership, P&GP provides Ablynx with research and development funding, predetermined milestones, and royalties upon commercialisation. Ablynx announced in December 2006 and June 2007 that it achieved two milestones. On 20 January 2009, Ablynx announced that it expanded its musculoskeletal research portfolio by transferring in-house full ownership of a bone disorder R&D programme initiated under its collaboration with Procter & Gamble Pharmaceuticals. f) Merck Serono Co-discovery and Co-development Agreement Ablynx and Merck Serono announced a co-discovery and codevelopment collaboration on 4 September 2008. They will collaborate to research and develop Nanobody-based therapeutics against two disease targets, one oncology and one immunology exploiting some of the key benefits Nanobodies have over conventional antibodies and other fragments. Under the terms of the agreement, both companies will equally share all research and development costs. Should Ablynx contribute equally to each programme, it will be eligible to receive fifty percent of the resulting profits. In addition, Ablynx will have an option to opt-out partly or fully during the research and development programmes, in which case Ablynx would be eligible to receive either a reduced profit share, in the case of a partial opt-out, or milestones and royalties on potential sales in the case of a full opt-out. The agreement includes an up-front cash payment to Ablynx of 10 million. g) Merck Serono Second Co-discovery and Co-development Agreement On 11 October 2010, Ablynx and Merck Serono announced that they have expanded their relationship and entered into a second agreement to co-discover and co-develop Nanobodies against an inflammatory disease target. Under the terms of the agreement, Ablynx will receive an up-front payment of 10 million and be responsible for all activities and costs, excluding manufacturing costs, up to the delivery of a pre-clinical package that will form the basis for the filing of an IND or IND equivalent. Upon acceptance of the package by Merck Serono, Ablynx will be eligible for a 15 million milestone payment. Ablynx has the option to continue with Merck Serono up to a 50:50 co-development basis and share the resulting profits, or to convert this collaboration into an exclusive, worldwide licensing deal with milestone payments and tiered royalties. h) Other collaborative research agreements Ablynx has entered into numerous agreements with universities, medical centers and external researchers for research and development work and for the validation of the Group s technology and products. These agreements typically have durations of one to three years. Ablynx must pay fixed and variable fees to the collaborators and in exchange receives access and rights to the results of the work. 73 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.29.2 Principal government grants Ablynx was awarded three additional grants in 2010; altogether, the Group received a fixed percentage of the expenses incurred in the following R&D projects: 1) Exploring and expanding therapeutic uses and applicability of therapeutic heavy-chain derived single variable domains: the Nanobody Novel Uses Programme. Grantor: IWT Start date: 1 January 2007 End date: 31 December 2009 Amount approved: 1,855,686 Amount recognised: 1,816,676 Amount received: 1,816,676 2) Development of novel protein half-life extension technologies that result in long half-lives and favourable pharmacokinetic properties for small protein drugs. Grantor: IWT Start date: 1 September 2008 End date: 31 August 2011 Amount approved: 1,808,138 Amount recognised: 1,303,5 Amount received: 1,205,000 3) Improving Nanobody drugability Grantor: IWT Start date: 1 July 2008 End date: 30 June 2010 Amount approved: 454,114 Amount recognised: 445,937 Amount received: 364,000 4) Accelerating the development of pulmonary and oral delivery technologies for Nanobodies Grantor: IWT Start date: 1 July 2009 End date: 30 June 2011 Amount approved: 1,133,636 Amount recognised: 751,852 Amount received: 678,000 5) Pre-clinical and clinical development of an anti-il-6r Nanobody Grantor: IWT Start date: 1 September 2009 End date: 30 June 2012 Amount approved: 1,198,325 Amount recognised: 477,000 Amount received: 477,000 6) Expansion of the Nanobody platform to pulmonary delivery: pre-clinical and clinical development of an anti-rsv Nanobody Grantor: IWT Start date: 1 February 2010 End date: 31 July 2012 Amount approved: 1,134,496 Amount recognised: 569,530 Amount received: 362,000 7) Grouped feasibility studies application Grantor: IWT Start date: 1 May 2010 End date: 30 April 2011 Amount approved: 420,000 Amount recognised: 0 Amount received: 0 The approval of this grant has only recently been obtained in January 2011. 8) Generation of Nanobody libraries for targeting novel epitopes LibLynx Grantor: Portuguese government Start date: 15 November 2009 End date: 31 March 2011 Amount approved: 298,157 Amount recognised: 55,817 Amount received: 119,763 9) Exploration and development of Nanobody-based therapeutic solutions for disorders of the central nervous system - Brainiac 1 Grantor: Portuguese government Start date: 2 February 2010 End date: 31 October 2012 Amount approved: 205,470 Amount recognised: 77,403 Amount received: 0 74 Corporate governance and financial review Ablynx Annual Report 2010

08 Notes to the Consolidated Financial Statements 8.29.3 Principal lease and borrowings contracts Ablynx has signed contracts with NV Bio-Versneller, who provides the Company with 8,000 m 2 of laboratory facilities within the Technologiepark as from June 2010, with an initial term of eight years which can be extended. The Company moved all its activities on the Technologiepark into this new facility in the months of June and July 2010 and, concurrently, gave up the leases on the facilities provided by VIB and NV Alho. Ablynx was granted by KBC Bank a credit commitment of 3.2 million for the guarantee clause, which is mentioned in the NV Bio-Versneller contract and of which end 2010 1.3 million was withdrawn. For this same amount, a pledge was granted to KBC Bank NV and is constituted as restricted cash. The pledge and the restricted cash of 1.3 million can be increased to a maximum of 3.2 million in relation to the cash position of the Company. NV Bio-Versneller was granted a pledge of 1.7 million in the framework of additional investments which NV Bio-Versneller made in the Bio-Versneller building at the request of NV Ablynx. The pledge is being reduced every year over a period of five years as from January 2012. The amount of the pledge is considered as restricted cash. Ablynx rents 25,322m 2 of land from BVBA Rootom in Stekene (Belgium). The Company developed facilities on this land for the housing of Llamas. 8.30 Related Party Transactions 8.30.1 Remuneration key management Key management consists of the members of the Executive Committee and the entities controlled by any of them. Number of management members As at 31 December 2010 2009 4 5 ( 000) 2010 2009 Short-term employee benefits (salaries, social security bonuses, lunch vouchers) Post employee benefits (group insurance) 849 1,162 109 123 Share-based compensation 1,1 972 Other employee costs 271 263 Management fees 318 347 Total 2,651 2,867 Number of warrants granted (in units) Cumulative outstanding warrants (in units) 168,750 260,000 2,661,250 2,522,500 Exercised warrants (in units) 0 0 Outstanding payables 0 28 Shares owned (in units) 11,805 11,805 8.30.2 Transactions with non-executive Directors As at 31 December ( 000) 2010 2009 Share-based compensation 0 0 Management fees 65 65 Total benefits 65 65 Number of warrants offered (in units) Cumulative outstanding warrants (in units) - - 10,713 10,713 Non-vested warrants - - Shares owned (in units) 6,761,487 5,946,487 8.31 Events after the Balance Sheet Date On 24 January 2011, Ablynx announced that an additional 37,628 common shares have been issued by the Company in exchange for 94,858.40 as the result of the exercise of warrants by some employees and consultants of the Company. 75 Corporate governance and financial review Ablynx Annual Report 2010

09 Disclosure Audit Fees Auditor s fees 47,500 Fees for exceptional services or special missions executed in the Group by the auditor Other attestation missions 196,000 Tax consultancy - Other missions external to the audit - Fees for exceptional services or special missions executed in the Group by people they are linked to Other attestation missions 3,130 Tax consultancy 57,889 Other missions external to the audit 6,256 Mention related to Article 133 paragraph 6 of the Companies Code In its meeting of 24 August 2010, the Audit Committee has approved the exemption on the 1:1 rule as the tax services delivered do not endanger the independence of the statutory auditor. 76 Corporate governance and financial review Ablynx Annual Report 2010

10 Condensed Statutory Financial Statements of Ablynx NV as of and for the Year ended 31 December 2010 In accordance with Article 105 of the Belgian Companies Code, the condensed statutory financial statements of Ablynx NV are presented. These condensed statements have been drawn up using the same accounting principles for preparing the complete set of statutory financial statements of Ablynx NV at and for the year ending 31 December 2010. The management report, the statutory financial statements of Ablynx NV and the report of the statutory auditor will be filed with the appropriate authorities and are available at the Company s registered offices. The statutory auditor has issued an unqualified report on the statutory financial statements of Ablynx NV. The complete set of the statutory financial statements of Ablynx NV is also available on the Company s website www.ablynx.com. SUMMARY BALANCE SHEET ( 000) Assets as at 31 December 2010 2009 Fixed assets 77,498 40,052 Intangible fixed assets 72,523 36,723 Tangible fixed assets 4,425 2,779 Financial fixed assets 550 550 Current assets 125,075 97,080 Amounts receivable within one year 9,088 3,825 Current investments 101,254 83,309 Cash at bank and in hand 14,182 8,912 Deferred charges and accrued income 551 1,034 Total assets 202,573 137,132 ( 000) Liabilities as at 31 December 2010 2009 Equity 168,712 109,949 Capital 81,522 68,942 Share premium account 126,421 88,851 Accumulated profits (losses) (39,231) (47,844) Amounts payable after more than one year 1,134 0 Current liabilities 32,727 27,183 Amounts payable within one year 10,464 9,456 Deferred charges and accrued income 22,263 17,727 Total liabilities 202,573 137,132 77 Corporate governance and financial review Ablynx Annual Report 2010

10 Condensed Statutory Financial Statements of Ablynx NV as of and for the Year ended 31 December 2010 SUMMARY INCOME STATEMENT ( 000) 2010 2009 Operating Income 81,448 69,854 Turnover 29,169 28,068 Own construction capitalised 47,880 40,587 Other operating income 4,399 1,199 Operating charges 71,406 56,402 Services and other goods 39,388 34,997 Remuneration, social security costs and pensions 16,913 15,282 Depreciation of and amounts written off formation expenses, intangible and tangible fixed assets 15,053 6,115 Other operating charges 52 8 Operating Profit 10,2 13,453 Financial result (1,430) 2,163 Financial income 1,600 2,478 Financial charges (3,030) (315) Gain (loss) on ordinary activities before taxes 8,612 15,615 Extraordinary result 0 1 Extraordinary income 0 1 Profit (loss) for the year before taxes 8,612 15,616 Taxes 0 0 Profit (loss) for the period available for appropriation 8,612 15,616 78 Corporate governance and financial review Ablynx Annual Report 2010

10 Condensed Statutory Financial Statements of Ablynx NV as of and for the Year ended 31 December 2010 APPROPRIATION ACCOUNT ( 000) 2010 2009 Profit (loss) to be appropriated (39,233) (47,845) Profit (loss) to be appropriated 8,612 15,616 Profit (loss) to be carried forward (47,845) (63,461) Profit (loss) to be carried forward (39,233) (47,845) CAPITAL STATEMENT (position as at 31 December 2010) ( 000) Amounts Number of shares A. Capital 1. Issued capital - At the end of the previous year 68,942 - Changes during the year 12,580 - At the end of this year 81,522 2. Capital representation 43,620,983 2.1. Shares without par value - Bearer and dematerialized 43,620,983 B. Own shares held by 0 C. Commitments to issue shares 0 D. Authorised capital not issued 81,486 79 Corporate governance and financial review Ablynx Annual Report 2010

11 Summary of Valuation Rules and Additional Information Summary of valuation rules 1. Principles The valuation rules have been prepared in agreement with the requirements of the Royal Decree of 30 January 2001 concerning the enforcement of the Commercial Code. 2. Specific Rules Company Formation Expenses Formation expenses are charged directly to the profit and loss account. Intangible Fixed Assets Concessions, patents, licenses, know-how, trademarks. Software licenses and implementation costs are capitalised at their acquisition prices, and depreciated straight-line at a ratio of 33.33% per year. Other licenses are valued at their acquisition prices and depreciated straight-line over the economic life of the patent to which they relate. The maximum depreciation period for other licenses is five years. Research and Development As in 2009, research costs have also been capitalised at cost price in 2010, insofar as the cost price does not exceed the value in use or the future return of these assets for the company. They are depreciated straight-line over five years. Other intangible fixed assets are capitalised at their cost price and depreciated straight-line at a percentage that corresponds to their probable useful life for the company. These other intangible fixed assets include contributed technology. The contribution value of this technology is depreciated linearly over five years. Tangible Fixed Assets Tangible fixed assets are capitalised at their acquisition price, including all subsequent direct costs required to make such assets operational. The following depreciation percentages are used: Asset Method Basis Depreciation % 1 Formation Cost 2 Intangible Fixed Assets L NR 20-33.3% 3 Installations, machinery and equipment L NR 33.3% 4 Office equipment and furniture L NR 20% 5 Other tangible fixed assets L NR 33.3% L-D-O NR-R Principle costs (Min-Max) Subsequent costs (Min-Max) 6 Leasehold improvements : the shorter of the useful life or the minimum rent term L = linear D = degressive O = Other NR = not revalued R = revalued Financial Fixed Assets Guarantees are measured at their acquisition price. Amounts Receivable within One Year The receivables are measured at their nominal value. Each receivable is individually valued. Devaluation of receivables is recorded, if the actual value is lower than their nominal value. Cash Cash is measured at its nominal value. Grants and Government Incentives Grants and government incentives are recognised in the income statement when all the conditions of the grants and government incentives are fulfilled and costs are incurred. Grants and government incentives related to capitalised research cost are recognised in the income statement in accordance with the depreciation rhythm of the asset to which they relate. In accordance with the CBN recommendation issued in 2010, the reduction in withholding tax has been directly recorded in other operating income. Amounts Payable within One Year Amounts payable are measured at their nominal value. Foreign Currencies Transactions in foreign currencies during the year are booked at the current exchange rate. All outstanding payables and receivables at year-end are recorded at the exchange rate on the balance sheet date. Exchange rate gains and losses are recognised in the results under the heading Other Financial Charges and Income. Turnover Turnover from research contracts is recognised over the duration of the contract in accordance with the progress of the work and contractual terms. 80 Corporate governance and financial review Ablynx Annual Report 2010

11 Summary of Valuation Rules and Additional Information Additional information Warrants Outstanding as per 31 December 2009 2003 20 2005 2006 2006 2007 2007 2008 2009 2009 2009 2009 2010 2010 Total number Average Exercise price (in ) 35,000 254,314 97,312 1,705,937 109,498 4,947 10,713 363,334 135,000 182,500 205,400 3,503,955 2.20 Non-vested 0 0 0 242,813 22,375 140,781 0 242,223 135,000 182,500 205,400 1,171,092 4.06 Exercisable 35,000 254,314 97,312 1,463,124 87,123 264,166 10,713 121,111 0 0 0 2,332,863 1.27 Granted 170,000 287,700 47,500 505,200 7.85 Forfeited 1 12,312 5,003 16,185 40,000 65,625 109,563 10,000 1,750 260,439 - Exercised 4,000 2,314 8,812 55,620 58,308 129,054 1.16 At 31 December 2010 Outstanding 31,000 252,000 88,500 1,650,316 38,878 399,944 10,713 347,149 95,000 116,875 95,837 160,000 285,950 47,500 3,619,662 2.77 Non-vested 39,063 137,500 49,479 59,740 66,791 113,333 285,950 47,500 799,356 6.57 Exercisable 31,000 252,000 88,500 1,650,316 38,878 360,881 10,713 209,649 45,521 57,135 29,6 46,667 0 0 2,820,306 1.69 Grants Grant Assigned Received at 31/12/2010 Recognised as income of previous years Recognised as income 2010 Still to receive IWT 6 1,855,686 1,816,676 1,816,676 1,466,685 83,020 0 IWT 7 1,808,138 1,808,138 1,205,000 197,454 177,231 603,138 IWT 8 454,114 454,114 364,000 118,987 69,668 90,114 IWT 9 1,133,636 1,133,636 678,000 9,966 113,286 455,636 IWT 10 10,000 10,000 10,000 166 2,000 0 IWT 11 1,198,325 1,198,325 477,000 0 114,651 721,325 IWT 12 1,134,496 1,134,496 362,000 0 58,761 772,496 81 Corporate governance and financial review Ablynx Annual Report 2010

Addresses Ablynx s registered office and headquarters Ablynx NV Technologiepark 21 9052 Zwijnaarde Belgium T. +32 (0)9 262 00 00 F. +32 (0)9 262 00 01 info@ablynx.com investors@ablynx.com dealing_code@ablynx.com www.ablynx.com Independent registered public accounting firm PricewaterhouseCoopers Reviseurs d Entreprises Bedrijfsrevisoren Woluwe Garden Woluwedal 18 1932 Sint-Stevens-Woluwe Belgium T. +32 (0)2 710 42 11 F. +32 (0)2 710 42 99 www.pwc.com Ablynx NV Technologiepark 21 l 9052 Zwijnaarde l Belgium www.ablynx.com