Earnings Call Transcript - GLPG Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Galapagos Conference Call. I would now like to hand the conference over to your speaker today, Elizabeth Goodwin. Please go ahead.

Elizabeth Goodwin, Investor Relations

Thank you and welcome all to the audio webcast of Galapagos’ Full-Year 2020 Results. I’m Elizabeth Goodwin, Investor Relations, also representing a great reporting team at Galapagos. This recorded webcast is accessible via our website homepage and will be available for download and replay later today. I would like to remind everyone that we will be making forward-looking statements during today’s webcast. These forward-looking statements include remarks concerning future developments of the pipeline in our company and possible changes in the industry and competitive environment. Because these forward-looking statements involve risks and uncertainties, Galapagos’ actual results may differ materially from the results expressed or implied in these statements. Today’s speakers will be Onno van de Stolpe, CEO; and Bart Filius, COO and CFO. Onno will reflect on the operational highlights and then Bart will go over the financial results and end with expected news flow for the year. You’ll see a PowerPoint presentation on screen. We estimate that their prepared remarks will take about 10 minutes and then we’ll open it up to Q&A with Bart and Onno, joined by the rest of our management board. And with that, I’ll now turn it over to Onno. Go ahead, Onno.

Onno van de Stolpe, CEO

Thank you, Elizabeth, and welcome everybody to this webcast. Before going into 2020 with an overview, let’s spend a couple of minutes on the ISABELA discontinuation. Last week, the independent Data and Safety Monitoring Board contacted Galapagos with the fact that they had seen a dose-dependent mortality in the study, meaning that the arms treated with ziritaxestat showed more mortality than the placebo. Clearly, that was a kiss of death for this program. We immediately stopped the trial and informed the markets within 24 hours after the information was brought to our attention and after we could analyze the data. On top of that, we also saw when the data were unblinded that the efficacy was below expectations, which was a disappointment as well. As a consequence, we have stopped all activities with ziritaxestat, all the trials, and all further analysis for now. Clearly, a big disappointment, we had worked long and hard on this program, the original 1690 program, which was a big hope for IPF patients. The community was looking forward to the outcome of this trial with a potential solution to this deadly disease. A big blow for Galapagos, but we stay firm. With regard to our commitment to IPF, we have 4 development programs and a number of preclinical programs aimed at fibrosis. So we will be back in the IPF space with more modes of action and more trials. We think it’s an area that needs new effective treatments. And we think we have a good franchise here. It’s unfortunate that this has happened. But this is the risk we’re running with new modes of action. Galapagos goes on routes that nobody else has gone before. And that means that we accept the risk associated with novelty, and the casualty that we have seen here with ziritaxestat is part of the business we’re in. We will overcome this. And we’ll come back with new modes of actions for IPF. If we can go to 2020 and review it, and clearly ziritaxestat discontinuation fallout a couple of other disappointments over the last year, most notably, the complete response letter that we received for filgotinib in the U.S. for rheumatoid arthritis. Our partner Gilead received that letter. And based on that, the analysis with the FDA decided not to launch filgotinib in the United States for RA. That doesn’t say anything about other applications of filgotinib. We have a big trial going in Crohn’s disease, and we have the data in ulcerative colitis. So it’s not that filgotinib is dead in the U.S., but for RA, Gilead is not going to file the low dose. On top of that, we also had a failure in a new mode of action program with 1972 in osteoarthritis in the ROCCELLA trial. We didn’t see efficacy there. It was a Phase 2b trial that we executed here. Unfortunate like with ziritaxestat, this is part of the business we’re in, that with modes of action, you have a high chance that programs don’t reach the finish line. I used to show a graph, where we saw the attrition rate from 12 targets, 12 novel targets leading to 1 program in Phase 3. And these fallouts are part of this attrition that is the nature of the business we’re in. We also saw a number of very positive news over 2020. Although they were overshadowed by the negatives, we had Jyseleca, of course, initiated in the European market. The EMA approved filgotinib Jyseleca for the market. And we started commercialization in Germany and in the Netherlands. We anticipate other countries to follow shortly here in Europe. As part of the restructuring of the filgotinib franchise, we were able to retain all European rights on filgotinib in Europe. We will now be marketing Jyseleca all over Europe under the Galapagos name. So that is a big step forward for us. A firm commercial organization in Europe has always been our ambition, and with Jyseleca we can achieve that. We are also very active on the licensing end, where we got a number of new molecules, early molecules into the pipeline. The last one that we announced, and the biggest one actually, was OncoArendi, which is a molecule that we are developing for fibrosis, which is Phase 2 ready. So an exciting program. We’re very pleased with that license from the Polish company. We also did a divestiture. We sold Fidelta, our service division in Croatia successfully. We think it’s a win-win, both for Galapagos as well as for Fidelta, because they are now part of a bigger CRO activity and where they play a very important role in the growth of that business, whereas within Galapagos, they were not very visible. So I think it’s good for Fidelta. And it’s also good for us to focus on the core being developing new modes of actions. We had a lot of clinical progression. We started our Toledo program in patients, the SIK2/3 inhibitor, 3970 that we started in 3 proof-of-concept trials. We started the TYK2 program in psoriasis. We had positive data of 1205 in the PINTA trial. So a lot happened over the year. This is really the beginning of a whole range of clinical data that we will see over 2021 as well. This is based on this deep R&D portfolio that we have been developing for a number of years, where we’re always focusing on quite a large number of validated targets that we progress through lead optimization towards preclinical candidates, and then into clinical stage programs. Here you see, again, the attrition as well, but also the broadness of the pipeline. We’re starting from 27 targets. We currently have 10 clinical stage programs. It’s a pipeline that will deliver a number of programs into patient trials over the years to come. And we remain extremely excited about this pipeline. As you can see on the next slide, it’s quite broad, especially on inflammation and fibrosis. Inflammation with filgotinib being our lead program there with trade name Jyseleca, of course, approved now for RA, it’s submitted for ulcerative colitis in the EU. We are expecting recruitment of the Crohn’s disease trial this year. This remains a very important part of the Galapagos business. Then a whole range of other molecules with different mechanisms, the Toledo programs with SIK2/3 inhibitor, but you also see lower on the list in SIK3 4399, which we’re developing for inflammation. Other SIK inhibitors are in there, other JAK/TYK inhibitors. We are continuing to broaden this pipeline with the whole range of new modes of action that are in preclinical and moving towards Phase 1. The same holds true for fibrosis, which is now led by 1205, a molecule that has been in the PINTA Phase 2a trial. We’re preparing for a Phase 2b there with the target of GPR84. You can see that we have a range of different mechanisms in the fibrotic pipeline, including also Toledo program 4605. We remain committed to IPF and to fibrosis in general. You can see that with this broad pipeline. We have a couple of other programs outside these areas. One that we will expand further is in kidney disease. It’s an area that we think is very interesting; our first program is a CFTR inhibitor in PCKD, that program is in Phase 2. Hopefully, we can show positive results there. All in all, I think it’s a pipeline that we can still be very proud of. It’s progressing rapidly, we have the resources, the people, as well as the financials to move those forward. Hopefully, they will deliver the data that we’re all waiting for. With that, I would like to hand it over to Bart to continue with the commercial footprint. Bart, over to you.

Bart Filius, COO and CFO

Thank you, Onno, and good morning everyone in the states, and good afternoon in Europe listening to this webcast. Let’s say a few words about our efforts to build out our European commercial footprint. I’ll move into the financials and the outlook, and that would conclude the presenting part, and then we’ll go into Q&A afterwards. So on this one, we’re very busy at the moment trying to roll out Jyseleca, we’re building out infrastructure at Galapagos. We are in the process of negotiating with various payers throughout Europe to get reimbursement for the products. We had very interesting news earlier in the year that we have a positive NICE recommendation on Jyseleca also for the moderate RA population, which is actually a novelty not just in the class of JAKs, but actually in all advanced therapies, previously these have not been available yet for patients with moderate RA and only for severe RA. So we’re very happy with that particular bit of news and we look forward to launching in the UK in the next coming months. In Germany, the launch is on track; as you know, the German launch is run on the Gilead site, so also numbers are reported by Gilead. Now it’s early days, obviously, it was first product sales in November and December, so it’s early days. But so far, so good, we are very happy to see with the numbers that we’ve seen. So launch is on track there. As Onno mentioned in the Netherlands, we’re also now in the market for a couple of months, but actually in reality mostly since first of January as the contracts period starts in January in Holland. In other countries, the process is ongoing. That includes countries such as France, Italy, Spain, Belgium, but we’re also looking at the Nordic countries, and Austria and Switzerland will follow thereafter. All in all, we are planning to complete the transition of Jyseleca from the co-promotion structure that we had with Gilead, where it was 50-50 between the 2 companies to a full operation run by Galapagos by year-end. There’s quite a bit of background work that needs to be done; the marketing authorization is going to be transferred, structures are being put in place. By year-end, we should be running this fully independently. In the meantime, we’ll make sure that we keep our eye on the ball with regard to the launch, and make sure that we make a success out of the products in Europe. Then, moving on to the financials. As usual, I’ll start with a perspective on cash. As you can see here, and as was highlighted in our press release as well, we have landed the year with a cash burn of €517 million, which is in line with the guidance that we gave to be between €490 million and €520 million. This includes also the cash out, for example, for the licensing efforts that we’ve done on the OncoArendi compound in November. What we always exclude from this cash burn are, on one hand, any cash proceeds from equity. In this case, this is relatively a small amount of €28 million due to warrant exercises. We also exclude currency translation effects, which are meaningful in the year; the dollar has weakened significantly by about 10% over the year. We’ve seen this in all of the quarters of the year already reflected in our cash balance. These are non-realized effects because this purely represents the dollar position that we hold, which is roughly between 20% and 25% of our total cash balance. At the end of the year, we have a cash balance of about €5.2 billion. Then on the P&L, in the key financials for the year, maybe a couple of highlights there. First of all, on revenues, we’ve had a year about €530 million of revenues. Those are largely accounting revenues related to filgotinib, on one hand, where we recognize all milestones license income and a portion of Gilead’s that before the periods of executing the development plan. In the year 2020, we recognized a little less than €230 million. We’ve also had royalties about €16 million, mainly related to our portion of milestones received by Gilead from Eisai for their partnering in Japan. On the platform, we recognize in a straight line over a 10-year period the portion allocated to the platform as part of the 2019 Gilead deal to the €230 million. This number is lower in revenues than the previous year. I should say, in 2019, we were recognizing a one-shot €667 million for ziri, which explains the decline in revenue on the top line. Operating costs are up by about 35%. The increase is really driven by 3 key elements. First of all, filgotinib, to a certain extent that’s mechanical because we’re now paying 50% of the filgotinib costs, and that’s reflected on the revenue recognition side in revenues as well. Previously, we were paying 20% in 2019 for half a year. So there’s a mechanical increase on filgotinib. Then, Toledo is clearly an investment focus for the company, we’ve seen increases in investments in the Toledo program. Finally, SG&A has gone up between the 2 years, reflecting the increase of the organization and specifically the rollout of our commercial efforts throughout Europe. The final comment on the net loss that includes financial expenses of about €134 million, there are a couple of things on the line. But I’d like to highlight that more than 90% of this is non-cash, it’s really the translation effects of the dollar position that I was showing on previous slides on cash. The outlook on the next slide, first maybe the key events for the year, and then I’ll say a few words about our outlook on cash burn as well. Key events on filgotinib, we file in Japan for ulcerative colitis. We also anticipate first half of this year to get insight into the MANTA and MANTA-RAy trials; we anticipate an approval decision for ulcerative colitis in Europe. For the second half of the year on filgotinib, we think that Gilead will have fully recruited the DIVERSITY trial, which we are running for Crohn’s disease. Other readouts, the most meaningful ones are Toledo, there are 3 POCs, where we think we are going to have data for psoriasis, RA, and UC. We also have in January disclosed a program and we disclose the target, the TYK2 target here, where we’re running a Phase 1b in psoriasis and we anticipate data from patients there as well. Finally, 555 is a JAK1 inhibitor that we’re evaluating in osteoarthritis, and we should see patient data on that program as well during the year 2021. I’ll conclude on a couple of words on cash burn. We have refrained from giving specific guidance as you’ve seen in our press release last night. In January, I think I’ve given some guidance as to where the cash burn would have landed, around €670 million, which is basically an increase of about €50 million expenses compared to last year. Those are connected to the launch buildup in Europe. After the news last week on ziri, we’ve decided to take a good look at our portfolio and our cash burn. There will be an immediate, positive impact on our cash burn from the fact that the ziri trial is stopping. Beyond that, we will be coming back to you hopefully shortly with some further details about that exercise. The direction of the cash burn is clearly down, not up compared to the numbers that I have previously been talking about. With that, I’d like to conclude and give the floor back to Elizabeth for Q&A.

Elizabeth Goodwin, Investor Relations

Thank you both. That does conclude the presentation portion of the audio conference call. I’d like to ask our operator, Annette, to connect us to any callers with questions for the executives. Go ahead, Annette.

Operator, Operator

Thank you, everyone.

Elizabeth Goodwin, Investor Relations

Operator, could you please go ahead and open the line for the first person in the queue?

Unidentified Analyst, Analyst

Hello. Thanks for taking my question. This is Lars Angilda from JP Morgan. I have two questions, please. Firstly, I understand that you are not providing quantitative guidance on operational cash burn, but any further insight on how you see sales and marketing spending evolving following the discontinuation of ziritaxestat would be appreciated. Additionally, when do you anticipate having more clarity on the R&D outlook? Secondly, how do you plan to address the potential gap in the pipeline, given that the Toledo program is unlikely to yield an approved therapy before 2025 and beyond, assuming successful outcomes? Thank you very much.

Bart Filius, COO and CFO

Yeah, maybe let me take the first question. And then the second question, Onno, I guess, you will take that one. Sales and marketing spend evolution, so first of all, it's important to highlight that the business case for taking on Jyseleca fully in Europe was not built on ziritaxestat. It was built on filgotinib itself. In January, we highlighted some key numbers in terms of our expectations for Jyseleca. We anticipate that we can make this a €0.5 billion product in the second half of this decade. We also anticipate that by then this can be a contribution margin of approximately 50%. We’ve highlighted that we think this is going to be breakeven in 2024, so after 3 years of investments. That should give you some direction as to how we think our spend would evolve. We do believe that by the end of this year, the structure is fully in place in Europe, maybe a bit of a full-year effect in 2022, but that should be it. That is unchanged as a result of the ziri news. For when we can give you further direction, at this stage, no precise timeline, but I would estimate that latest by our Q1 reporting, which is end of April, beginning of May, we should be giving you some further clarity.

Onno van de Stolpe, CEO

This is Onno. To address the second question regarding the gap in our pipeline, it’s clear that with ziri out of there, we have a gap between the commercial product Jyseleca and our Phase 2 programs. We would like to fill that. So we will be active on the in-licensing M&A activity this year to see if we can find a program likely in the fibrosis/inflammation area to fill that gap. There are opportunities out there. We have an interesting alliance, of course, with Gilead, where Gilead has an option to take on the non-European rights. For any in-licensed program, they will get the option to take the non-European rights. We have a solid partner there to market the product when it is in-licensed. We are already quite active in analyzing the opportunities and I hope to find an attractive molecule. With that said, we will remain focused on new modes of action and novel targets. That is also a criterion for any program that we will in-license.

Unidentified Analyst, Analyst

Thank you.

Elizabeth Goodwin, Investor Relations

So our next question comes from Laura Sutcliffe from UBS. Go ahead, Laura, your line should be open.

Laura Sutcliffe, Analyst

Hello. Thank you. Can I start with a broad question, please? So could you maybe just comment on whether in aggregate you think the pipeline, as it stands, has an acceptable commercial and clinical risk profile? And then, something a bit more specific, on ziritaxestat, do you have any idea of why you saw what you saw on safety? I appreciate it is early days. But I was just wondering if you had learned anything so far that you could apply elsewhere. And then maybe if I can just sneak a third one in, on the MANGROVE trial, do you think you will get any fileable data from that study? Thank you.

Onno van de Stolpe, CEO

Yeah, let me start with the broad question. Then Walid can follow up with the ziri question. Yes, we believe the pipeline has the right balance from a scientific point of view, clinical point of view, as well as commercial. We think Toledo has great potential. We also have programs with smaller potential indications in there. It remains all a question of getting the product through clinical trials to the patients. With every new mode of action that isn’t more risky business than if you go for Me2 products. Ultimately, we strongly believe that innovation is what should drive our industry. Especially as a biotech company, we should focus on getting these new modes of action to patients. We are in the lucky situation that we have enough cash to support these programs, that we can actually support a whole range of parallel Phase 2s and even Phase 3s. We will come back with a strong Phase 3 pipeline over the coming years. We anticipate that a number of programs like ziri reach the patient there. Walid, you want to continue?

Walid Abi-Saab, Chief Medical Officer

Thank you, Onno, and good morning, good afternoon, everyone. Regarding ziri, it’s a very good question. We looked at the data; it’s difficult to see a very clear signal right now that points to a way forward to figure out how we can de-risk other programs. What we have observed is that this increase in mortality started manifesting itself when subjects have been in the trial for at least 6 or 9 months. It didn’t come until late. This is not due to any new tox signals, like for example a liver signal or anything else, or cardiovascular signal. If we look at the mortality, at a high level, it seems it’s due to exacerbation of IPF, which is a bit surprising. At this point, we need to look further into the data and the narrative. It’s early days. There’s nothing that popped up that has a link to a mechanism of action that could explain as of today, or any tox finding that we’ve seen in our preclinical tox package. We’ve looked at that in detail, as soon as we got these data. I’ll turn it over to Piet.

Piet Wigerinck, Chief Scientific Officer

Thank you, Walid. Regarding the MANGROVE data, so MANGROVE is a Phase 2 study in ADPKD patients where we dose 60 patients. It’s a placebo-controlled study. This is the first step. After this study, if we detect a good signal, we will need to do other studies in those ranges for a late study. We are not putting forward any filing data yet. Thank you.

Elizabeth Goodwin, Investor Relations

All right. Our next question comes from Peter Welford of Jefferies. Go ahead, Peter.

Peter Welford, Analyst

Hi, I hope you can hear me. I’ve got three questions. Firstly, is just, I guess, a bigger sort of picture question for Onno or maybe for Walid. In hindsight, from a strategy perspective, has this changed the attitude of Galapagos towards sort of fast-tracking some development programs? I guess there has been a lot of debate about discussions you have with the FDA and the decision to move straight into ISABELA. I’m curious internally whether you’ve reevaluated from a risk perspective what decisions you’re willing to make? Or do you think this is just, if you like, an unfortunate part of clinical development? Secondly then is that, I guess, there’s technical questions about just on the filgotinib share, the €16.2 million. Am I right in saying that that’s recognized in the other income part, if you like, of your revenue and not in the other revenue part? I’m just trying to understand from an accounting perspective where that €16.2 million has been recognized. And then, thirdly, just thinking about the European strategy and then sort of cash burn, is it possible for you to give us the rough cash burn or spend for ziritaxestat in 2020? Presuming from back of the envelope, it would help, if you could at least as a starting point have a rough idea on how much ISABELA was in cash burn during 2020 to think about for 2021.

Onno van de Stolpe, CEO

Yeah, Peter, I’ll start. One good news of the failure is that you don’t have to pronounce ziritaxestat very often anymore. So that’s a silver lining. Did it change our appetite for risk, the fast-tracking? We’re going to review various gating events and review also what we did with ziri and what we have done with 1972. I think one of these things we – maybe we have been a little bit naïvely optimistic, thinking that we could target big diseases like OA relatively simply. We had our molecule, we had good preclinical data, exciting Phase 1b data in healthy volunteers, then went into a large Phase 2 with a 1-year treatment, 900 patients, and we didn’t see an effect. Now with ziri getting this tox signal and a disappointing efficacy signal, we need to rethink how we move forward. On the other hand, this is part of new mode of action development. We will face more disappointments in the future. We need a success that brings us to the patient. We don’t need to throw away the baby with the bathwater here. Our innovative approach and rapid approach with small effective Phase 2s is not something to immediately abandon. But we might fine-tune it somewhat to give us more certainty or at least less risky steps going from here. Maybe, Walid, you want to comment on that from a clinical point, and then we’ll turn it over to Bart.

Walid Abi-Saab, Chief Medical Officer

Yeah, thank you, Onno. I want to say a couple of words regarding ziri. At the time when we got the FLORA data, we really debated this at length. We didn’t go in with eyes closed; we went in with eyes wide open. We knew that we could take a path where we could do a Phase 2b study, which would be long and costly and delay the program or take a more aggressive approach and go straight into the ISABELA program, which we ended up going. However, we put a lot of stopgap measures. We put the data monitoring committee that meets, a very robust committee that meets relatively frequently for a study like this, to check on the safety, but also on efficacy on an ongoing basis. We added the futility. Those are stopgap measures that will protect the patient and us against excessive investment. This study stopped probably at about 50% cost of the whole program from a clinical perspective. This incremental investment could have gotten us patients 2.5 years earlier. At the time, we debated that, and we knew we were taking a risk, but we thought that the incremental investment would be worth it. Of course, had we succeeded, we would have been heroes. Now, retrospectively, we’re saying, okay, well, maybe we shouldn’t have done that. But we will take a look and see how we better balance our portfolio to have a certain limited amount of programs with large time, resource, and money until initial results arrive, and maybe other areas where we can have an early readout for psoriasis, RA, and IBD. That’s good housekeeping on our part and a natural consequence of the disappointments we’ve seen recently. We will be able to guide more on that, once we have concluded our assessment. Thank you. I’ll pass it on to Bart now.

Bart Filius, COO and CFO

Thanks, Walid. Yeah, Peter, your two questions: filgotinib royalties, they are recorded in revenue. They are not in other income. They’re reported in revenues. In other income, you’ll find things like tax incentives and grants. Cash burn ziri in 2020, we spent about €55 million on ziritaxestat. That’s a net number, taking into account that we are sharing those costs with Gilead. Your question on what you can expect in terms of 2021, the immediate reduction as a result of the ziri stop, I would say it’s in the vicinity of about €40 million, Peter. That’s what I can tell you in terms of the immediate consequences of the ziri stopping in 2021.

Peter Welford, Analyst

And so my follow-up just on the filgotinib royalties, because I guess, just speaking of these. But I do the math, because I think previously I think you’ve booked sort of a reimbursement thing, I think in the first half of the year of about €6 million, €7 million or something like that. I guess, yeah, it looks as though that assumes there was no reimbursement or anything like that in the second half of the year on filgotinib; am I missing something?

Bart Filius, COO and CFO

The royalty – if you’re talking about the royalties is €16 million that is all booked, that’s all part of the second half of the year, it’s actually all Q4 connected to the Eisai deal that Gilead disclosed with Japan. There have been fluctuations between the quarters on filgotinib revenue recognition as a result of changes to our development plan, changes to the structure that followed the transfer of some of these trials in Q4 to us. There’s a bit of moving parts there, so the net number that you’ve seen on the slides is what we’ve recognized for filgo, and the €16 million is what’s reflected as the royalties in 2020.

Operator, Operator

Right. So our next question comes from Brian Abrahams of RBC. Go ahead, Brian.

Brian Abrahams, Analyst

Hey, guys, thanks so much for taking my questions. Two for me. I guess, first off, what do you need to provide to Europe on MANTA and MANTA/Ray, and how clear are you as to what they’ll be looking for from the interim blinded data to maintain the label and authorization of Jyseleca? And then secondly, just as you think about future cash burn following the ziri setback, I’m just curious sort of bigger picture as your predilection to reprioritize and use the cash you would have otherwise spent on ziri to invest further in other assets? Or should we think about more, I guess, reduced spending to preserve capital because you won’t have those future revenues from the late-stage assets? Thanks.

Walid Abi-Saab, Chief Medical Officer

Thank you, Brian. This is Walid. I’ll take the first question on MANTA. So MANTA and MANTA/RAy are both parts of one study. As you guys might know, we look at a number of endpoints; the primary endpoint is more than 50% reduction in sperm concentration. Also, we look at motility, morphology, hormone levels, and so on. The interpretation of this is going to be difficult from the perspective of a primary endpoint that is not also the study is not powered for statistical significance on the primary endpoint because health authorities have said that they will look at the totality of the data since there’s no clear black and white way to interpret the data. Unless, of course, the compound is toxic and causes a lot of things, then that becomes very clear, and we will have to report immediately. The data will be the totality of the data, and there is no clear definition of what would be an acceptable deviation and an imbalance that you would see in one but not the other. The expectation from the FDA is that we maintain those studies blinded until we finished the monitoring phase. However, we have obligations to the European authority and patients as well and Japan, where we are marketing Jyseleca, to once we have the data from the 26 weeks that we present these data to these health authorities. As such, we agree to the FDA, there’s going to be a small unblinded team that will have access to the data to prepare the documents that will be needed to provide to the health authorities in Europe and Japan, so that we can adjust the label accordingly and inform the prescribers and the patients.

Bart Filius, COO and CFO

I’ll take the other question, Brian. On cash burn, we are not going to reallocate the ziri spend to other assets. The idea is we need to right size our total expenses for the year 2021. The number will end up lower than the number that I was guiding for in January, including the €40 million that I just mentioned on the ziri savings, including potentially a bit more.

Elizabeth Goodwin, Investor Relations

Great. So the next question comes from Matthew Harrison at Morgan Stanley. Go ahead, Matthew.

Thomas Lavery, Analyst

Hi, this is Thomas for Matthew. For TYK2, do you think the ziri’s data can demonstrate any difference over the profile of the leading TYK2? Thank you.

Walid Abi-Saab, Chief Medical Officer

Thank you, Thomas. Did I understand you correctly? You meant the psoriasis study? I didn’t hear you very well.

Thomas Lavery, Analyst

The TYK2 inhibitor.

Walid Abi-Saab, Chief Medical Officer

Right. But what kind of data were you talking about?

Thomas Lavery, Analyst

The psoriasis.

Walid Abi-Saab, Chief Medical Officer

Yeah. That is a relatively small study. I think directionally, it will tell us whether we are active, but I don’t think it will give you a precision to what degree you can compare with competitors, where you have much more advanced data. It will give you an idea directionally. That study is 30 patients study, 20 on active with 10 on each dose, and 10 on placebo, and its duration is 4 weeks as well because it’s a Phase 1b. Directionally, we can have an idea, but it will be difficult to have the precision with which to compare against the more advanced compounds.

Elizabeth Goodwin, Investor Relations

Okay. Now, our next question comes from Rushee Jolly at Bernstein. Go ahead, Rushee.

Rushee Jolly, Analyst

Hi, Rushee Jolly at Bernstein. Thanks for taking my questions. Two please. Firstly, I guess a follow-on question on psoriasis. I mean, I know the data is early, and you also have a Toledo assets that’s entering psoriasis. But I wanted to ask maybe kind of longer-term perspective on where you see the bar for success here and how Galapagos can differentiate themselves? The reason I’m asking is because psoriasis is incredibly competitive as it is, but we could also expect to see another IL-17 in the market later this year that perhaps sets a new bar in terms of efficacy. And then secondly, I want to ask maybe a bigger picture question on management’s view of the value of the company today. You have a lot of cash on the balance sheet, but perhaps you could comment on maybe the balance of cash burn and the requirement to invest in the pipeline, and perhaps your view of what the current pipeline and platform represents from a valuation perspective? Thank you.

Walid Abi-Saab, Chief Medical Officer

Okay. I’ll take the first one. The reason we’re doing the psoriasis study is to have a quick assessment in a Phase 1 setting which this indication lends itself to generate some initial clinical data to see whether we have a path forward to be able to truly see whether we’re competitive. Our battle is to go into a psoriatic arthritis study, which is an indication that fits better with our outlook. It’s a fair question. The point that we’re coming from is that we need to generate enough data with this asset, which so far looks very good. We want to generate more data with this asset so that we can ascertain if it’s a competitive asset to continue to push forward for later stage development or not. Number two, psoriasis right now is not a primary indication for us. It’s an initial study to tell us whether we’re on the right path. Once we do a full evaluation and advance further, if competitors are on the market with psoriatic arthritis and psoriasis, it becomes an easy way to broaden into psoriasis. But all of that will be part of our assessment with commercial positioning to see whether we have a way forward or not. It’s still too early to tell if the initial data will tell us directionally whether we’re heading there. Then the next question is whether it’s worth investing in a Phase 2b psoriatic arthritis study so that you can have much better precision to compare to competitors and see whether you have differentiated product out there or not to be worthwhile to invest further into.

Bart Filius, COO and CFO

Yeah, let me say a few words on the second question, Rushee. I’m sure you’ve done the math, I think our total cash balance is sort of equal to about €79 a share. Currently, in terms of the value we are getting on the Street, we are not getting value for cash that alone. We’re not getting any value for our platform; we’re not getting any value reflected for our pipeline that Onno showed earlier. This includes about 10 clinical stage compounds in development. It doesn’t include any value for Jyseleca either, which we think definitely has a value in Europe and abroad. It’s not up to me to determine what the value appreciation is of shareholders in the company. We feel that there’s a disconnect currently in terms of cash burn. Our cash burn plans indicate that we have enough to live out the collaboration period until the end of the decade. That is a fantastic opportunity to demonstrate we can create scientific value by bringing compounds to later stages and to the market. We see opportunities to bring other compounds to the finish line during this period. We should be able to create value based on that cash rather than just see it as spending on an annual basis. There is the technology, clinical compounds, market compounds, and firepower for business development that should be part of Galapagos' value.

Elizabeth Goodwin, Investor Relations

And now we take a question from Phil Nadeau at Cowen. Go ahead, Phil.

Phil Nadeau, Analyst

Good morning. Thanks for taking my questions. Two for me, also. First is on commercial. I’m curious to hear a bit more about your marketing message for Jyseleca in Europe, how are you differentiating it versus the other JAKs? Along those lines, do you think the recent data from Celgene’s basically failed study helps you, or does that hurt the JAK class? That’s question one. Then question two is just on the accounting. We are amortizing upfront on the filgotinib payments over 4 to 5 years post 2019. Does the amount that we should be amortizing in our model change post the December agreement and the cash payments that you have coming up this year, next year? Thanks.

Michele Manto, Chief Commercial Officer

Yeah. So this is Michele here, Phil, take the first part of your question on the messaging. The messaging is leveraging the strength of the balance we have with efficacy demonstrated with Jyseleca across different lines of treatments, so the bio-naive and bio-inflamed, and actually the tolerability and safety data that also differentiate our profile in the clinical development programs. This is the balance that we are bringing to physicians. The feedback we are getting from Germany, the Netherlands, Belgium to the countries where we have the promotion ongoing is really converting and reflecting that; so that’s coming back from the market researchers, the advisory boards reflecting the strength of this profile. Regarding the impact of the sales data, it’s a double-edged sword. It strengthens the value of our proposition because it gives more attention to the safety data we have in our profile. On the other hand, it requires a reflection from physicians about JAKs, which we know already was there in terms of the safety from the first generation JAKs. On that, we see reflected that physicians appreciate the second generation, so the JAK1 preferential, and we see an opportunity there if this is reflected.

Bart Filius, COO and CFO

The amortization of the filgo upfront, we had about €640 million in filgotinib upfront payments to amortize over 4 to 5 years in our model. That number is now about €800 million, reflected in our deferred revenues. That’s going to be recognized over the next couple of years. It’s up because the extra payments that were negotiated as part of the agreements in Q4 are also partially put into the balance sheet. We’ve recognized as development costs incurred over the next couple of years. The same period going forward, around another 3 to 4 years, approximately a bit more than €800 million. We’ll have deeper in the annual reports to be recognized over that period.

Elizabeth Goodwin, Investor Relations

Okay. And then our next question comes from Jason McCarthy of the Maxim Group. Go ahead, Jason.

Michael Okunewitch, Analyst

This is Michael Okunewitch on the line for Jason. Thanks for taking the question. One thing I’d like to ask considering M&A seems to be a priority for 2021 and likely on the later stage of things. How does that work with and how do you take into account the existing agreement with Gilead? Would they have an option on in-license programs? Do you have to factor that into the price you’re willing to pay considering they contain license for €150 million?

Onno van de Stolpe, CEO

Good question. This is Onno. Gilead has an option on everything we in-license. If we do it through an M&A or through a product license, they have an opt-in for the non-European rights for a price of €150 million. This has consequences for what Galapagos can do regarding in-licenses, not making it easier with three people at the table. Our relationship with Gilead is solid, making it a workable way forward.

Michael Okunewitch, Analyst

Thank you. If you don’t mind, I just want to ask one thing on IPF, specifically if 1205 in the kinase has the same combination potential as you had with ziri considering both of those assets target the macrophage aspect of the immune response?

Onno van de Stolpe, CEO

Piet, would you like to take this?

Piet Wigerinck, Chief Scientific Officer

I can take it. From a mechanism point of view, both the Chitinase and GPR84 can be combined with other mechanisms. What we’ve seen in PINTA, what into study is that there was a negative PK interaction between 1205. We saw more toxicity. In that sense, if we talk about the combo potential later of those 2 assets, we need to find the exact dosing for 1205, that might be different from those we could get on the top of pirfenidone. From a mechanism point of view, indeed, you can combine them with either pirfenidone or Nintedanib.

Michael Okunewitch, Analyst

Thank you very much.

Elizabeth Goodwin, Investor Relations

All right. Thank you. And our next question comes from Evan Seigerman from Credit Suisse. Go ahead, Evan.

Evan Seigerman, Analyst

Hi, guys, thank you for taking the question. I know this has been touched on before, but current valuation suggests a negative enterprise value should imply a number of things. One being that your spend is not generating the value essentially. What is your plan to really reverse this trend and convince the market that the investment you’re engaged with the portfolio on the pipeline will create value for shareholders? Thank you.

Onno van de Stolpe, CEO

It will come from the programs we have, plus, of course, the performance of Jyseleca in the market. We must regain the confidence of the investors. We’ve lost that due to the CRL, 1972, and now the ISABELA trial. It’s a normal reaction; when things fail, people turn their back on the technology and the company. We are strong believers that we have everything in-house to bring new modes of actions to patients. We have a very exciting pipeline I just showed you earlier. We must deliver on that pipeline. We need to get programs through the various trials into Phase 3 and to patients. If we can deliver that, I’m sure the investors will come back, and the excitement will regain traction around Galapagos. We need to focus on what we’re good at: bringing these new modes of action through clinical development. We’ll look very closely at our processes, our gating events, our programs as well. We will report to the market when we have done that analysis on what we’re going to do for the years to come.

Evan Seigerman, Analyst

Okay, great. Thank you.

Elizabeth Goodwin, Investor Relations

And our next question comes from Graig Suvannavejh from Goldman Sachs. Go ahead, Graig.

Graig Suvannavejh, Analyst

Thanks, Elizabeth. Thank you for taking my questions. I’ve got two, please. My first is just revisiting the current cash balance of €5 billion and the topic of in-licensing and M&A. Are there particular themes that you can comment on? Is it more asset-specific? Is it looking for something that fills in the gap in the late-stage pipeline, or is it more around technologies? I know in the past, the company has talked about interests in perhaps RNA-based therapeutics or even protein degrader, so just wanted to visit that theme. Secondly, the company is currently focused on inflammation and fibrosis. I think there is a view that inflammation is increasingly more competitive. Fibrosis is a tough space generally. I was wondering if the company has any interest in looking beyond inflammation and fibrosis, and whether there is any discussion with Gilead to ensure there is synergy there. Thank you very much for my question.

Bart Filius, COO and CFO

Onno? We might have lost Onno. Let me address that, Graig. First of all, in terms of BD efforts, I would say there is still the need to look at the technology side. We’ve done quite a few in-licensing deals over the last 12 months, as well as some smaller technology-based deals. We will continue that effort because it’s good to rejuvenate the technology of our platform going forward. In terms of size, that’s going to be probably smaller. When we refer to larger transactions on BD, we’re talking about later stage assets. Something more meaningful regarding cash spent on them, but it doesn’t preclude us from doing other efforts on the BD front. Regarding therapy area choices, it’s clear inflammation and fibrosis are committed areas. We announced last year that kidney is an area we’re looking into, and that is confirmed. If we make changes in those, there is no need for us to talk to Gilead about it. It’s really up to us to determine where our strengths are and where our focus should be.

Graig Suvannavejh, Analyst

If I could just follow up for clarification just on M&A. Did you mean to imply that you would prefer to do smaller deals versus a larger deal? I guess if you are contemplating larger deals, is there a size of a transaction you think is appropriate for the profile of Galapagos? Thank you.

Bart Filius, COO and CFO

Yeah, I think it will be too early to give specifics about exact sizes. Clearly, we’re talking about something else than the €25 million we were talking about last year. That’s what I would call the smaller deals that we will continue to be interested in, to look at, to refresh our earlier pipeline. But the BD we’re talking about here is going to be larger scale. We’ll take that on as our analysis and evaluations progress.

Elizabeth Goodwin, Investor Relations

Okay, thank you. That’s all we have time for today on the call. Please reach out to the IR team if you still have questions. Our next financial results call will be the Q1 results on May 7. Thanks for participating today. Goodbye.