Earnings Call Transcript - GLPG Q2 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Galapagos H1 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sofie Van Gijsel. Please go ahead.

Sofie Van Gijsel, Investor Relations

Thank you, operator, and welcome to the audio webcast of Galapagos' H1 2023 Results. I'm Sofie Van Gijsel, Investor Relations, representing the reporting team at Galapagos. This recorded webcast is accessible via the Galapagos 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 and 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 Paul Stoffels, CEO; and Thad Huston, CFO and COO. Paul will reflect on the operational highlights and provide an update on our pipeline. Thad will go over the commercial and financial results. You will see a presentation on screen. We estimate that the prepared remarks will take about 25 minutes. Then we'll open it up to Q&A with Paul and Thad, joined by Michele Manto, Chief Commercial Officer; and Daniele D'Ambrosio, Head of Immunology. And with that, I'll now turn it over to Paul.

Paul Stoffels, CEO

Thank you, Sofie, and thank you all for joining today's webcast. I'm very pleased to introduce to you Thad Huston. Thad joined Galapagos as our new CFO and COO as of July 1. Over the years, Thad gained experience through several positions in finance, commercial, BD, and operations. He joined us from Kite Pharma, where he was Senior VP Finance and Corporate Operations and before he was CFO of LivaNova, a listed medtech company. Thad was the CFO of J&J Medical Devices and CFO of Janssen R&D in earlier years. Thad spent four years in China as the President of Janssen China for Janssen. Thad and I have known each other for quite some time. I worked with Thad at J&J, where he held a number of leadership positions for more than 25 years. He was instrumental in transformational phases of Janssen Global R&D. It goes without saying that his knowledge of R&D and cell therapy is a perfect fit for our company. We are very excited to have Thad on board. On today's call, Thad will present the operational and financial section. Thad?

Thad Huston, CFO and COO

Thanks for the introduction, Paul. And it's great to be here. I'm so excited to be joining forces with you again together with the Galapagos team to create value for our stakeholders.

Paul Stoffels, CEO

Thank you, Thad, and I'm happy to work together again and with the teams. Here you see a slide summarizing our vision and mission statement. At Galapagos, we want to transform patients' outcomes through life-changing science and innovation, aiming at bringing more years of life and quality of life. In order to achieve this, we strive for groundbreaking science with an entrepreneurial spirit and a collaborative mindset. At the R&D Day back in November '22, we introduced the course that we have set for the company to unlock significant value. On this slide, you see a snapshot of how we have been executing the transformation of the company over the last 18 months. We continued to roll out a commercial organization in Europe for our first product, Jyseleca. In mid-'22, we announced the acquisition of CellPoint and AboundBio, propelling us into the space of next-generation CAR-T therapeutics. We refocused the R&D organization on two therapeutic areas: immunology and oncology. And late last year and early this year, we presented encouraging initial safety and efficacy data on the two CD19 CAR-T trials in relapsed refractory NHL and CLL in a point-of-care setting with our Cocoon platform. In parallel, we accelerated the discovery portfolio both in small molecules and biologics. And we also announced and completed the restructuring of our discovery activities. We transitioned the Romainville discovery activities to NovAliX in France. Let's move on to our pipeline as it stands today. As mentioned, the pipeline is refocused on two therapeutic areas: immunology and oncology. I will come back on some of the programs in more detail below. In summary, in immunology, unfortunately, the Phase 3 trial in Crohn's disease did not bring us the results we had hoped for. But we have RA and you see on the market with a registrational trial in AxSpA out of the gates now. We are progressing our TYK2 in dermatomyositis and SLE and aim to start a patient study with our CD9 CAR-T 5101 this year in severe refractory lupus. Meanwhile, we are working on multiple exciting preclinical targets that we are eager to push forward if we see best-in-class potential. In oncology, we made good progress with the CD19 programs. I will come back on that later. We plan to initiate the BCMA program in multiple myeloma with 5301 after the summer. Meanwhile, with AboundBio as well as via external collaborations, we continue to work on next-generation CAR-T and leverage our point-of-care Cocoon platform for those. Here is a reminder of our progress with TYK2 3667; we initiated the Phase 2 trial in dermatomyositis and dosed our first patients with top-line results expected in 2025. We also progressed 367 in a lupus trial, and we opened the first 30 centers that are in the process of screening patients, where the top-line results are expected in 2026. Now let's move to oncology. Today, the approved CAR-T products are manufactured via central production, which has several limitations. For example, products need to be frozen and shipped. As mentioned, with the acquisition of CellPoint last year, we pivoted into cell therapy with a point-of-care solution striving for infusion of a fresh cell product with a seven-day vein-to-vein time in a decentralized setting close to the patient. Here, you see a picture of what many of you have seen before, of the Cocoon point-of-care solution. We have exclusive rights for hematological cancers with Lonza for the Cocoon in the point-of-care setting, allowing us to invest in that platform and provide global access to hospitals. The teams are further optimizing the CAR-T production process and automating the quality release testing, simplifying the point-of-care manufacturing on-site. Today, only a small portion of eligible CAR-T patients received treatment; high unmet need cancer patient populations that are not helped today would benefit from CAR-T therapy. These are patients with fast-progressing cancers that can be supported by quick access via the seven-day vein-to-vein time, as well as patients with poor prognosis or with cancers for which no standardized treatment strategy is available today. As mentioned before, within the pool of patients deemed eligible for CAR-T treatment, we see that only 10% to 20% currently receive CAR-T products due to barriers in terms of logistics and manufacturing, limiting access to products. Our aim is to increase the addressable patient population by leveraging the point-of-care model. Let's move to the updates on our CD19 CAR-T trials. Here you see the design of the CD19 CAR-T Phase 1/2 trial in relapsed refractory NHL. This is a basket trial recruiting patients with diffuse large B-cell lymphoma, follicular lymphoma, mantle cell lymphoma, and marginal zone lymphoma. Encouraging initial results have been communicated on seven patients, with an overall response rate of 86% and a complete response rate of 86% among the overall responders. Only mild ICANS and CRS were reported, and the median vein-to-vein time for administration was seven days. This quarter, we made important progress in our Phase 1 trial in NHL. We decided to recruit additional patients to generate larger data sets for specific subpopulations with high unmet medical needs. This allows us to build a robust package in support of our pivotal study. We submitted an abstract to a future scientific conference and plan to provide updated safety and efficacy data on the NHL by the year-end. The Phase 2 expansion part of the NHL study is already open, and we are actively dosing the first patients in indolent lymphoma, as well as in mantle cell lymphoma in those cohorts. We have selected our first U.S.-based point-of-care manufacturing site and tech transfer activities have started. We are preparing an IND submission, which we plan to submit in the first half of '24. Here you see the design of the CD19 Phase 1/2 trial in relapsed/refractory CLL. Earlier this year, we announced encouraging initial results on seven patients, with an overall response rate of 100% and a complete response rate of 86%. Advanced CLL, especially among patients with riskless transformation, remains a high unmet medical need sub-group. As announced earlier this year, we are encouraged by the initial safety and efficacy results. No CRS above grade 3 and no ICANS were reported, and the median vein-to-vein time was seven days for this initial patient population. In the first half of the year, we made important progress in our CLL clinical trial and are now close to completing the Phase 1 recruitment with the last patient identified. In the first half of 2024, we aim to initiate a Phase 2 dose expansion part of the study, and we established the recommended Phase 2 dose based on the safety profile observed. As for the NHL study, we submitted an abstract to a future scientific conference and plan to provide updated safety and efficacy data from the CLL trial before the year-end. Now over to our discovery portfolio, last year, we implemented a new operating model and R&D strategy with a goal to accelerate innovation and rebuild our product pipeline to achieve shorter time to patients. We built on strong therapeutic area expertise in immunology and added oncology, bringing in new top talent and capabilities. Additionally, to complement our internal discovery, we are combining internal and external innovation. We now apply a best-in-class target approach, going through transformational products in high unmet medical needs. The research teams have performed an internal exercise and identified and selected a set of targets and indications in immunology and oncology. We can now build on our expertise in small molecules and our innovative biology discovery platforms with the team of AboundBio. For immunology, on the cell therapy front, we have nominated a preclinical candidate that is a fully human CD19 CAR-T targeting a unique epitope with differentiated binding kinetics. Meanwhile, the small molecule teams identified over five targets across several immune indications that fit with our renewed approach and are currently in different stages of preclinical development. For oncology, the team has identified over five targets across hematology and solid cancer indications and multiple differentiated armoring strategies have been set forward alongside a multi-targeting approach. We certainly see an opportunity to leverage our small molecule expertise in oncology, which ties in with our aim to deliver precision medicine. A review of the landscape was done, and the teams identified five targets across cancer types. Our aim is again to nominate the first clinical candidate from the Discovery portfolio in '24. This concludes my review of R&D with the strategic changes we made over the last 12 months. I will now hand it over to Thad.

Thad Huston, CFO and COO

Thank you, Paul. I will provide an operational and financial update for our first half results, and then I'll open the call for Q&A. We had another soft quarter in Q2 for Jyseleca, with the sales coming in at €28 million or €54 million for the first half of 2023. We see a number of headwinds for Jyseleca with the slowdown of the JAK class, reflecting the impact of the Article 20 outcome and label change, increased competition in UC, and the effect of the miss in Crohn's disease as a third indication. We are evaluating various strategic options for Jyseleca, and more information will follow later this year. As a result of the slower growth in sales for the first half of 2023, we have lowered our 2023 net sales guidance to €100 million to €120 million for the year. A few words on our cash position: our cash and cash equivalents reached €3.9 billion at the end of Q2 2023. Our operational cash burn for the first half of 2023 reached €224 million. Although the second quarter burn is higher compared to Q1, we are confirming our full year cash burn range of €380 million to €420 million. The higher burn in Q2 is partly due to a prepayment for future services from NovAliX as part of the collaboration agreement with NovAliX in Q1. Also for our cash balance at the end of the year, we anticipate a positive contribution from interest income offsetting the higher burn rate in Q2, and we expect approximately a 3% return on our outstanding cash balance. Finally, we continue to be disciplined and remain focused on managing our resources effectively while we pursue opportunities to drive value and growth. Going to our P&L, we reported a net profit of €28 million in the first half of 2023, in part driven by higher revenue recognition for filgotinib. Collaboration revenues increased mainly due to revenue recognition related to the collaboration agreement with Gilead for the filgotinib development amounting to €155 million in the first six months of 2023 compared to €115 million in the same period last year. This increase is primarily driven by a positive catch-up of revenue explained by a decrease in the total estimated remaining cost to complete filgotinib development. This was a consequence of the top-line results from the Phase 3 DIVERSITY trial of filgotinib in Crohn's disease and our decision not to submit a marketing authorization application in Europe. Revenue recognition for the platform is stable quarter-over-quarter at €115 million year-to-date. Jyseleca's sales were €54 million in the first half of 2023, and we received a sales milestone of €1 million and €3 million in royalties for Jyseleca year-to-date. We also saw a reduction in total operating expenses of €50 million, or down 13% versus the prior year due to lower R&D expenses in Q2, primarily due to a prior year impairment and a decrease in subcontracting costs due to portfolio rationalization, as well as lower sales and marketing expenses in Q2. We also received higher interest income in the first half of 2023. Before we move on to the outlook for 2023, a small word on our BD approach: I want to highlight that BD is key to our vision to create shareholder value. M&A is essential to our success, and we have a clear M&A roadmap, and we will deploy capital to broaden and strengthen our portfolio. Let's look ahead with the outlook for the remainder of 2023. It's important to note that our next progress update on 5101 and 5102 and NHL and CLL will be in Q4 2023. We hope to confirm the encouraging safety and efficacy data on a larger patient pool and present more durability data to further validate our point-of-care approach with the Cocoon platform. Also in oncology, we aim to make regulatory progress with an IND submission for a CD19 in the first half of 2024. The CTA for our BCMA candidate 5301 has been approved, and we aim to initiate the trial this year. We also submitted the CTA for our CD19 5101 in refractory SLE. We also planned several trial initiations. We recently dosed the first patient in AxSpA with filgotinib and in dermatomyositis with 3667. The lupus trial with 3667 has been initiated, and we hope to dose the first patient soon. We also aim to kick off another trial in severe lupus patients with the CD19 CAR-T this year. We'll also execute on the NHL and CLL expansion cohorts with the CD19 programs and start the Phase 1b multiple myeloma with BCA CAR-T 5301. As we continue to execute on our company's transformation, we are focused on accelerating our early-stage pipeline, building on our renewed discovery portfolio. We continue to broaden our late-stage pipeline, pushing forward our internal programs and scouting for new business development opportunities. We aim to execute on our plans in oncology, progressing our CAR-T programs and expanding our footprint with our Cocoon platform. Following the changing market dynamics and revised sales guidance for Jyseleca, we are evaluating strategic options for Jyseleca. We commit to stay disciplined in our use of cash to focus our investments to maximize value.

Sofie Van Gijsel, Investor Relations

Thanks so much, Paul and Thad. That concludes the presentation portion of today's audio conference call. I would now like to ask the operator to open up the line for Q&A.

Operator, Operator

We will now take the first question from the line of Brian Abrahams from RBC. Please go ahead.

Unidentified Analyst, Analyst

This is Joe on for Brian. Can you elaborate more on the strategic options you're considering for Jyseleca? You mentioned that you will be looking at subgroups for your CD19 CAR-Ts. Can you also talk a little more about this subgroup analysis, please?

Paul Stoffels, CEO

Yes, Thad, why don't you take the first one? I'll follow up.

Thad Huston, CFO and COO

Yes. So we are adapting to the changing market dynamics and obviously taking our responsibility as a company to ensure that we're creating long-term value. We are going to do a strategic evaluation of various scenarios and options for Jyseleca as quickly as possible, and we anticipate coming up with an outcome of that assessment in the coming months. We cannot provide any further details at this call.

Paul Stoffels, CEO

Yes. Regarding the subgroups, as I said in the call, we have several indications within the NHL, and we are missing a few patients in some of the subgroups to have a complete response compared to the competitors as well as for submission with the regulatory authorities. That's why we are continuing to recruit until we have in each of the groups the patients we need. This will happen in the next few weeks to two months, and we'll have an update on that before the year-end.

Unidentified Analyst, Analyst

Got it. That was very helpful. If I could ask a follow-up. On IND filing for the CAR-T cells, can you also comment on the level of engagement with the FDA ahead of the filing? Can you talk about some of the requirements for the filing? And can you share with us your latest strategy there? Any specific regions of focus? How are you thinking about prepping the potential clinical sites ahead of the filing?

Paul Stoffels, CEO

The most critical step for us is to have a clinical trial production center ready, which needs to be submitted with IND. We have done an extensive evaluation of centers, and the first tech transfer to the U.S. site is active. That is determining the timing of our IND submission. Before that, we had a very good engagement in a pre-IND meeting with the FDA on all the aspects we need to start the clinical trial. What I just told you was that having the first center validated on U.S. soil is the critical step, and that's why we indicate that we will submit the IND in the first half of next year. Since the first one is ongoing, I think that will be quite optimistic in the earlier months of the next year. We are trying to focus on centers close to home at the moment; we started on the East Coast and will reach out later to other parts of the U.S. as we speak.

Operator, Operator

Thank you. We will like to kindly ask participants to ask one question per person. We will now take the next question from the line of Emily Field from Barclays. Please go ahead.

Emily Field, Analyst

I wasn’t going to just ask one or two, but just on the Jyseleca point. I was wondering, while you’re going through this review, will you be making any changes to the commercial promotion of the product? I saw that you're initiating the AxSpA Phase 3 study. So, will there be any changes on the R&D side while this review is ongoing or anything operational that would change? If I could just slip in one more, any initial color you could provide on the small molecule discovery program in oncology? Would this maybe move into solid tumors? Or would you expect this to be in hem-onc? Any color you can provide would be great.

Thad Huston, CFO and COO

Regarding Jyseleca promotion, we will evaluate and do a deep dive analysis. It's a very thoughtful analysis market by market, understanding how we can maximize the potential value of the asset while also supporting the current promotion of the product and seeing how we can further optimize that. We'll come back with more details after we do this assessment.

Paul Stoffels, CEO

Regarding oncology, we are working in both solid and hematological oncology and we hope to provide more detail on the different targets and fields in one of the next meetings, where the head of research will be joining that presentation.

Operator, Operator

Thank you. We will now take the next question from the line of Jason Gerberry from Bank of America. Please go ahead.

Jason Gerberry, Analyst

As you look to move your BCMA CAR-T program into the clinic, I'm curious, as you've evolved with the CD19 program and optimized the manufacturing process, how portable is that to new antigen-directed BCMAs or CAR-Ts in terms of the process? Are there meaningful changes? Or is there a lot that you can leverage as you move into new CAR-T programs?

Paul Stoffels, CEO

That's a very good question. We can leverage the entire package of our system. We have done the validation of the BCMA on voluntary samples; the next phase is the validation on patient blood. It is very transferable, and thus far, we see no issues in scaling up the BCMA program. Of course, what we did with CD19, we observed in clinical trials a very good efficacy and safety profile because of our method of producing cells and the seven-day vein-to-vein process. It's difficult to dissect what causes good efficacy and safety, but we observe that it works. This will be our next phase for BCMA where we'll evaluate results before making commitments to proceed with full development.

Operator, Operator

Thank you. We will now take the next question from the line of Mike Ulz from Morgan Stanley. Please go ahead.

Mike Ulz, Analyst

Just a quick follow-up on Jyseleca; given you're starting the strategic review, can you give us a sense of when you might be able to provide some final decisions there?

Thad Huston, CFO and COO

Thanks, Mike. We are actively working on this. The process is ongoing, and I think we'll have an outcome of the assessment in the coming months. I’m obviously new on board; we will do a very thoughtful assessment.

Paul Stoffels, CEO

We have done a deep dive on the whole organization, commercial operations in the last month and are now ready to engage in the next steps. It'll take some time, and like Thad is saying, it’ll take a few months to bring clarity and an outcome.

Operator, Operator

Thank you. We will now take the next question from the line of Brian Balchin from Jefferies. Please go ahead.

Brian Balchin, Analyst

So, since we got cut on Jyseleca, what about the peak sales target of €400 million? I don't think that's baked in with label restrictions just yet; should we expect further cuts there?

Thad Huston, CFO and COO

Yes, the higher sales number of €400 million is probably not likely given the current sales trends. We want to do a thorough assessment of the sales potential and revise our models and forecasts. We'll come back when we complete this assessment and review the overall business case.

Paul Stoffels, CEO

Regarding the timing of the CAR-T to market, it will depend on our choice of indications. As we've shown in the initial seven patients and those with riskless transformation, we see a strong effect in a high medical need. We are deciding our focus based on the basket study and the broader CLL activity to address the highest unmet medical need for faster recruitment and development.

Operator, Operator

Thank you. We will now take the next question from the line of Xian Deng from UBS. Please go ahead.

Xian Deng, Analyst

I have one just for Thad, given this is your first appearance as the new CFO. Could you share some thoughts on your first impression of Galapagos? What’s your overall strategy here? You have cellular commercialization, internal R&D, and M&A. What do you like the most? Where do you want to change to accelerate M&A?

Thad Huston, CFO and COO

Thank you for your question. I'm incredibly excited and honored to be part of this team. There is a tremendous opportunity for us to drive an innovative approach to bringing life-saving therapies to patients at Galapagos. I believe we are doing things that other players aren’t, which is exciting. I have CAR-T experience and oncology experience, which can also be beneficial with point-of-care treatments. I’m excited about allocating resources to business development deals to innovate and make a difference for patients. It’s not easy, of course, but I see potential to change that.

Operator, Operator

Thank you. We will now take the next question from the line of Phil Nadeau from TD Cowen. Please go ahead.

Philip Nadeau, Analyst

We wanted to ask about the program of moving your CD19 into autoimmune diseases and particularly lupus. Given the size of the market, those programs have created a lot of excitement among other companies. Can you talk about the timeline of your investigations in SLE? When could that trial start, when could we see data? What’s the value proposition for point-of-care in a slow-moving disease like lupus?

Paul Stoffels, CEO

The status is that we submitted the clinical trial applications in Europe, so we await that outcome and hope to start the study later this year. The hematologists who treat patients see the benefit of on-site manufacturing. We are exploring the fresh approach with local production, which we hope will yield better results. We expect significant recruitment in this trial before the year-end.

Operator, Operator

Thank you. We will now take the next question from the line of Dane Leone from Raymond James. Please go ahead.

Dane Leone, Analyst

Congratulations on all the progress. A consistent question I hear from investors: you still have a sizable cash balance to draw on for more meaningful external asset acquisitions. You retain quite a high R&D burn rate even with Jyseleca activities winding down a bit. How are you thinking about balancing that going forward and beyond into 2024? Will there still be meaningful business development moves beyond cell therapy?

Paul Stoffels, CEO

We absolutely do not only focus on CAR-T. The reason we stepped into CAR-T was to bring the two teams together with Abound and CellPoint, accelerating us into oncology. We have brought capabilities and products into our portfolio, allowing us to make a fast entry into transformation therapies. Our BD teams have evaluated many options outside the CAR-T space, complementary to our capabilities, and we consider both fields. We have a high bar for product entry, which must address high unmet medical needs with a differentiated product. We will pursue significant deals over the next 18 months.

Thad Huston, CFO and COO

Regarding cash burn, actions have been taken to reduce it compared to prior years; we will continue to be disciplined in managing resources for long-term value and growth. Furthermore, we are seeing benefits in interest rates that will enhance our interest income.

Operator, Operator

We will now take the next question from the line of Sebastiaan van der Schoot from Kempen. Please go ahead.

Sebastiaan van der Schoot, Analyst

I wanted to ask regarding the delay in the IND filing towards H1 '24. Can you elaborate on why the IND has not come off the ground? You talked about different CD19 CARs, specifically for autoimmune disease—what are the differences compared to oncology that would require a different CD19 CAR?

Paul Stoffels, CEO

Regarding the IND, we had the pre-IND discussion, and the FDA requires a validated site on U.S. soil for submission. This takes time, as we need to transfer and validate technology. Each has taken longer than expected, but the IND requirement is the most important one. The differences in CD19 CARs: there is no clear insight into which product will work best. We're using a different CAR-T for our investigational studies versus those that are well-known. We will have to experimentally prove the efficacy and safety of different products.

Sebastiaan van der Schoot, Analyst

I can squeeze in the last question; you mentioned for non-Hodgkin's lymphoma that you are already in dose expansion. Does that mean we will get results from that by year-end? Could we prepare for a Phase 2 in non-Hodgkin's lymphoma in 2024?

Paul Stoffels, CEO

The non-Hodgkin's lymphoma trials are divided into different buckets, as I described earlier. Two of them are in expansion, and we will present all the data later this year. We will decide based on the highest unmet medical need and the most urgent clinical benefit for the indication we will prioritize.

Operator, Operator

We will now take the next question from the line of Jacob Mekhael from KBC Securities. Please go ahead.

Jacob Mekhael, Analyst

I have one just regarding the ATALANTA-1 trial. You mentioned that you would include more patients or specific subpopulations. Will the planned trial size of 45 patients be larger? How many patients have been recruited so far, and how many additional patients do you plan to recruit? Also, will you file an IND for the BCMA CAR-T as well? What is the expected timeline for that?

Paul Stoffels, CEO

The planned trial size for ATALANTA-1 is still around 45 patients. It depends on the recruitment for the specific subpopulations, and we won't stop until the study is closed. Regarding the IND for BCMA, we will file that, but the initial dose-finding study is done in Europe, which will take several months before it's ready.

Operator, Operator

There are no further questions at this time. I would like to hand back over to the speakers for final remarks.

Sofie Van Gijsel, Investor Relations

Thank you very much, operator. That concludes today's earnings call. Please feel free to reach out to the IR team if you still have questions. Our next financial results will be our Q3 2022 results on November 3. Thank you all for participating, and have a great rest of your day.

Paul Stoffels, CEO

Thank you all for participating. Have a good day.

Operator, Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.