Earnings Call Transcript - GLPG Q1 2024

Sofie Van Gijsel, Investor Relations

Thank you, operator, and welcome all to the audio webcast of Galapagos' Q1 2024 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 first quarter of 2024 and present the corporate update. Thad will provide an operational update and go over the financial results. He will also discuss the outlook for 2024 and present concluding remarks. You will see a presentation on screen. We estimate that the prepared remarks will take about 20 minutes. Then we'll open it up to Q&A with Paul and Thad, joined by Jeevan Shetty, Head of Development Oncology. And with that, I'll now turn it over to Paul.

Paul Stoffels, CEO

Good day, and thank you all for joining for today's webcast. I would like to take a minute to start with our foundation, our vision, and mission, which we presented shortly after I joined Galapagos in 2022, and which informs all we do. We aim to transform patient outcomes through life-changing science and innovation for more years of life and quality of life. The vision is to eventually reach patients around the world. To that aim, we accelerate transformation innovation through the pursuit of groundbreaking science and collaborations with industry and scientific partners. Since I joined a little over 2 years ago, we went through a very important company transformation. With the recent transfer of the Jyseleca business to Alfasigma, we have transformed Galapagos into a pure-play biotech with a revitalized pipeline and put in place the tools we need to meet our future growth ambitions. Today, we are focused on driving value creation in our key therapeutic areas of immunology and oncology, where significant unmet medical needs remain for patients. Our strategy is to spearhead our efforts with indications that have breakthrough designation potential in oncology and immunology. We are building a broad R&D pipeline of potential best-in-class cell therapies and small molecule drugs. We put in place strong leadership with a track record of delivering transformative drugs to patients around the globe. We take a collaborative approach, combining internal and external innovation. Our strategy is supported by a very strong cash position of EUR 3.6 billion as of the 31st of March 2024. I'm pleased to present our new management team to you. We assembled a team of experienced world-class leaders across our therapeutic areas and platforms with top talent from companies such as J&J, Kite, GSK, and BMS. Combined, the team has brought well over 30 drugs to market. We strongly believe that we have the capabilities in place to drive value creation from here. We are building our differentiated platform technologies to bring medicines to patients across the globe, working on small molecules, cell therapy, and biologics. Thanks to the acquisition of Abound and CellPoint in 2022, we added cell therapy and biologics to our capabilities. In cell therapy, we have an innovative, scalable, decentralized manufacturing platform that enables us to deliver fresh CAR-T therapies close to patients. We have a unique R&D engine to discover and develop multi-targeting CAR-Ts for hematology and solid tumors. We have a strong legacy of small molecule research and development in immunology, and we have now expanded our small molecule efforts to precision oncology. The teams are progressing our discovery and development efforts across multiple modalities, focusing on finding groundbreaking solutions for high unmet medical needs with the aim to accelerate time to patients. Here you see our pipeline in 2 therapeutic areas, oncology and immunology. We aim to deliver best-in-class therapeutics. In oncology, we are progressing our Phase I/II CAR-T programs, 5101 in NHL and 5201 in CLL and Richter's transformation, as well as our BCMA-directed multiple myeloma program with 5301. In our early research, we have over 10 discovery programs across CAR-T and small molecules in both hematologic and solid tumors. In immunology, we are progressing our 2 Phase II studies with 3667 in lupus and dermatomyositis. We have over 5 discovery programs across various inflammatory and autoimmune indications. As we continue to broaden our pipeline, we continuously look for differentiated technologies that enable us to reach more patients with high unmet needs in an innovative way. Decentralized CAR-T cell therapy is a key example of that. CAR-T is one of the most remarkable advances in cancer therapy in the last several decades. Nonetheless, we see today that only 10% to 30% of eligible patients receive this therapy. Access is restricted for a number of reasons that go hand in hand with the fact that these products are produced in large and costly GMP facilities in a centralized way. Centralized manufacturing faces significant logistics challenges, including cryopreservation of cells to allow for shipment. We address the limitation of existing CAR-T therapies with our decentralized manufacturing model. We have an exclusive global license with Lonza for the Cocoon manufacturing platform for the decentralized delivery of CAR-T cells in hematological tumors. We are able to deliver fresh, fit cells with a median 7-day vein-to-vein time. This allows for greater physician oversight and for a production model near the patient that is globally scalable. Currently, we have 3 clinical trials running on the Cocoon with very encouraging efficacy and safety results in critically ill patients with NHL, CLL, and Richter's transformation. We are also actively rolling out our decentralized CAR-T network, both in Europe and the U.S. In the U.S., we collaborate with Landmark Bio for the Boston area and with Thermo Fisher for the Bay Area. We are in discussions with other parties for additional centers. In Europe, we plan to add additional sites to the 5 that we currently have up and running in 3 different countries. We expanded our operations in Pittsburgh, Pennsylvania. As you remember, this is the site, which we added with the acquisition of AboundBio in 2022. We opened an office in Princeton, New Jersey, where we are adding key capabilities in strategy, regulatory, operations, and quality. I would like to highlight our extensive work to rebuild and expand our earlier-stage pipeline, where we're making important progress throughout the therapeutic areas in both small molecules and cell therapy. We have over 15 programs in discovery across oncology and immunology, and we expect to deliver the first preclinical candidates this year and start first in human studies in 2025. I would now like to hand it over to Thad for the financial and operational update.

Thad Huston, CFO and COO

Thank you, Paul, and thanks, everyone, for joining today. Let's take a look at the financial results for the first quarter. As a reminder, we transferred the Jyseleca business to Alfasigma, and the transaction closed on January 31 of this year. As a result, the Jyseleca results moved to discontinued operations. For our continued operations, revenue remained flat year-over-year and mainly consists of the linear recognition of the platform for the Gilead collaboration. We see an increase in R&D cost as compared to last year, which is mainly driven by our investments in oncology, both in CAR-T and small molecules. We recorded a net profit driven by fair value adjustments, foreign exchange, as well as EUR 25 million in interest income. We also reported net profit from discontinued operations of EUR 67 million, mainly driven by the one-time gain of EUR 53 million for the Jyseleca transaction with Alfasigma. Now over to our 2024 guidance. You may have seen that we report an operational cash burn of EUR 125 million for the first quarter of 2024. This is on the higher end due to the phased transition of services for Jyseleca to Alfasigma, as announced last year, as well as timing of interest income and tax credits. We expect that our operational cash burn will continue to improve in future quarters, and we therefore reconfirm our full-year cash burn guidance of EUR 280 million to EUR 320 million. Our cash balance in Q1 2024 amounted to EUR 3.6 billion. With streamlined operations and a strong balance sheet, we are confident that we have the organizational setup and firepower to execute on R&D and collaboration opportunities. Now turning to our outlook for 2024. We anticipate important regulatory progress with our CAR-T trials in the United States. Mid this year, we plan to submit the IND for our NHL trial, building on the tech transfer to our first U.S. site, Landmark Bio. In the second half of the year, we aim to submit an additional IND for 5201 in CLL and Richter's transformation. We will share further data on the safety, efficacy, and durability of our ongoing CAR-T programs. We hope that this will confirm the data with our decentralized CAR-T platform that we have observed thus far. We are preparing to expand our ATALANTA trial in NHL to the U.S., to initiate the Phase II EUPLAGIA trial in CLL and Richter's transformation in Europe, as well as expand our Phase I/II PAPILIO trial in Europe. Operationally, we are working to add additional sites for our decentralized CAR-T manufacturing network, both in the U.S. and in Europe. We are also exploring additional partnerships for our CAR-T network across the globe. We also aim to execute on additional licensing agreements and acquisitions as well as research collaborations. Our business development efforts serve as an overarching purpose of accelerating breakthrough solutions to patients in need. Let me conclude by coming back to the strong fundamentals that we have put in place to build a global innovative biotech company and the clear path that we have towards value creation. We are progressing our early-stage pipeline, building on our renewed discovery portfolio based on best-in-class targets towards best-in-class medicines. While we push forward internal programs, we are also very active in business development discussions to broaden our portfolio. We continue to execute on our scientific progress in our key therapeutic areas of immunology and oncology. We invested and we continue to invest in strengthening the team in key positions globally. We benefit from a very strong balance sheet, and we commit to staying disciplined in our use of cash to focus our investments to maximize value. We want to thank our investors for their continued support as we continue to deliver on our strategy to generate sustainable long-term value for shareholders.

Sofie Van Gijsel, Investor Relations

Thank you. That concludes today's presentation portion of the conference call. I would now like to ask the operator to hand it over for Q&A.

Xian Deng, Analyst

Just one, please. As you mentioned, the tech transfer is due in the U.S. in H1 this year. So I was just wondering, do you think this is the gating factor for a rapid increase in the progression of enrollment for the trial? And once you have all those centers set up, do you think we can expect to see a rapid enrollment increase and potentially a very quick progression to pivotal, say, dose expansion phase? Or do you think this is more of a strategic allocation of resources and capital? Please.

Jeevan Shetty, Head of Development Oncology

Thank you for the question. I can certainly start. Clearly, the gated step with regard to the tech transfer goes hand-in-hand with the IND for NHL and CLL. We plan for that from mid-2024. The tech transfers are important in terms of patient recruitment, which is already ongoing in our clinical program in Europe, but for it to be initiated and accelerate in the U.S.

Thad Huston, CFO and COO

Yes, we have qualified Landmark Bio recently, and that site is ready. So that puts us well positioned for the IND filing midyear. We're also in the process of getting Thermo Fisher for the Bay Area in the second half, and we're going to be adding additional sites. So we're very focused on expanding the number of sites, both in the U.S. and Europe, to help us build out our platform to support all of our clinical studies.

Philip Nadeau, Analyst

Congrats on the progress. Just one from us. In terms of 5101, 5201, and 5301, when could we see the next data? We understand you're continuing to enroll patients, but any specific plans to present updated results from those programs?

Jeevan Shetty, Head of Development Oncology

Thank you for your question. With regard to the first 2 studies, we will be presenting data in upcoming hematology conferences this year, a combination of new data and also updated durability data. With regard to your reference to the multiple myeloma study, the program has just opened very recently and just started recruitment. So a little bit early regarding that, but there will be a continuous stream of data over the 2024 and beyond.

Nevin Varghese, Analyst

This is Nevin on for Brian. Just a follow-up on that question. How are you thinking about advancing 5301 in multiple myeloma, especially in light of some of the other competitor products that are moving up in the treatment paradigm, and some of the other bispecifics that are expected to launch in the space as well? And then how much additional value does the decentralized manufacturing process offer to multiple myeloma treatment versus either NHL or CLL?

Paul Stoffels, CEO

Well, the multiple myeloma program is in Phase I, dose-finding. We are learning about the 7-day vein-to-vein process, which we can also apply here and look at what type of efficacy and durability we can generate with that. Pending that, we'll decide going forward with additional studies, but that is ongoing as we speak in Europe. Hopefully, we'll have more data towards the end of the year or in the beginning of next year on concluding. We've seen significant good efficacy and safety with the fresh cells in both 5101 and 5201. We are using the fresh cells approach close to patients to see whether we can generate a benefit for patients in terms of safety, efficacy, and durability. Then we'll decide next steps.

Judah Frommer, Analyst

Yes. Can you hear me okay?

Paul Stoffels, CEO

Yes.

Judah Frommer, Analyst

I just wanted to get your thoughts on commentary coming out of other CAR-T players. Gilead has discussed expanding toward the community setting given capacity constraints, and Bristol has expanded its partnership with Cellares and their Cell Shuttle system. Just curious if you see these as confirming the need for point-of-care CAR-T. Does this invite incremental competition? And if so, do you feel that you're in the lead with the Cocoon system?

Paul Stoffels, CEO

I think with the Cocoon system, we can provide several benefits. It's really scalable on a global basis, where you can go to every corner of the world, including Europe and the U.S. There is still a very high unmet medical need due to access in many parts of the U.S. and Europe. We can provide access with a truly scalable model to patients. As the indications and applications expand, the need for capacity will grow even bigger. We believe we are the first with a solid system to go decentralized, close to the patient. We provide an advantage of a 7-day vein-to-vein process that can treat people with a very high medical need and short life expectancy, as we've observed in our current trials. We hope to confirm this in Phase II studies, but we see a lot of benefits in our platform to address the challenges of short life expectancy and increased capacity needs across NHL - in hematological and solid tumors.

Jeevan Shetty, Head of Development Oncology

Just to add to that, the platforms you mentioned, like Cellares with BMS and others. We are quite differentiated from them because we are delivering fresh products, fresh cells, and the translational data we are publishing demonstrates clear differentiation, and we will continue to show that as the years progress.

Unknown Analyst, Analyst

This is Chi on for Jason. Maybe two on I&I for us. I'm curious if you can talk about your research and development efforts for CAR-T in the broader I&I landscape outside of lupus. If the effort is still in early stage, when do you think investors can learn more about your efforts there? And my second question is on 3667. Curious if you have any thoughts of exploring that agent in additional indications? For instance, filgo previously had some interesting Phase II data in uveitis, and Roivant recently provided some Phase IIa top-line data with their JAK1 TYK2 inhibitor. Curious if you think the mechanism of 3667 makes sense or whether the market opportunity for uveitis makes sense for you to explore this agent in uveitis?

Paul Stoffels, CEO

Let me start with the TYK2 program, your second part of the question. We are currently validating and conducting proof of concept studies in the two indications, dermatomyositis and lupus. We believe that the mechanism of action with the complete inhibition of Type 1 interferon signaling, without inhibiting IL-10 signaling, gives us a product with a good chance of working in these diseases. We will first deliver results on dermatomyositis and lupus before expanding into other indications. There might be a lot of other applications, but we've decided to finalize our proof of concept in those two indications before we explore others. Regarding autoimmune and CAR-T, we are exploring new technologies to step away from integrated viral vectors into the genetic material. We have ongoing internal efforts as well as external collaborations and will keep you updated when we have internal results or Business Development opportunities.

Jacob Mekhael, Analyst

I'm just curious when you refer to BD opportunities. I would just like to get a better idea of your approach here. Do you have a preference for licensing compared to M&A, or are those equally on the table? What factors would influence your choice either way?

Thad Huston, CFO and COO

Both licensing and M&A acquisitions are on the table. We look for opportunities in immunology or oncology that address high unmet medical needs, where we set a high bar. We're also looking at late preclinical to early clinical proof-of-concept types of opportunities where we think we can add substantial value. We also have pursued research collaborations to broaden our portfolio.

Sean McCutcheon, Analyst

Maybe to build on the last question. For the next wave of potential assets within the portfolio, interesting to deal with BridGene, maybe using that as a backdrop for more macro comments on the development strategy. They have targeted small molecules and covalent PROTACs. What is your view as you build out the portfolio on the state of play in targeted oncology? There are many me-too assets for validated targets, but where do you think Galapagos could fit? What's your view on the degraders and the optionality they might bring in oncology and immunology? Is that a mechanism of action that you're interested in pursuing?

Paul Stoffels, CEO

Yes, we did a collaboration with BridGene focusing on precision medicine using existing validated targets, while also differentiating with next-generation therapies. We believe that we can make differentiated medicines against several of these targets by addressing diseases with no current solutions, enabling good clinical efficacy leading to breakthrough designation and accelerated approval due to the high unmet medical need. We plan to provide a more extensive review of our early-stage portfolio in the coming quarters, aiming to present first results.

Sebastiaan van der Schoot, Analyst

In the past, you have mentioned that you see the CLL program as the most likely to get fast proof of concept and reach the market. Can you provide your vision on the current progress of the program and the likelihood of a pivotal study after the update later this year? Can you also put the results in context of BMS' recent approval in CLL?

Jeevan Shetty, Head of Development Oncology

Thank you for your question. Regarding our high-risk CLL and Richter's transformation studies, the expansion part is to be initiated imminently. We've had meaningful conversations with the authorities, particularly with the EMA, regarding our regulatory path forward, and we have a clear plan. The IND will facilitate discussions with U.S. regulators. We clearly wish to align closely with the regulators, and we believe we'll be able to help a significant number of patients, particularly in Richter's transformation, which has a major unmet need. Regarding Bristol's data with Breyanzi, while we welcome new therapies for this underserved disease, their single-arm study had no patients suffering from Richter's transformation, with a median vein-to-vein time of 36 days and less than 20% efficacy presented, highlighting opportunities for improvement that we can address through our unique platform.

Shan Hama, Analyst

Just also on business development. Should we expect yields as a string of pearls throughout the year? Or is it preferable to have the outright acquisition of one company with a number of derisked late-stage assets?

Thad Huston, CFO and COO

We continue to follow our plans to assess the string of pearls, and we're in discussions with several companies regarding earlier, late, preclinical, and early clinical assets. We also assess larger transformations to seek assets that are near-term to market, and we continue to evaluate several potential business development opportunities.

Sofie Van Gijsel, Investor Relations

Thank you. 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 call is our H1 2024 call on August 2. Thank you all for participating, and have a great rest of your day.

Operator, Operator

That does conclude our conference for today. Thank you for your participation. You may now all disconnect. Have a nice day.