Earnings Call Transcript - GLPG Q4 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Galapagos Full Year 2022 Financial Results Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please note that today's conference is being recorded. I would now like to hand over to your first speaker Sofie Van Gijsel. Please, go ahead.

Sofie Van Gijsel, Investor Relations

Thank you and welcome to the audio webcast of Galapagos full year 2022 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 downloads and replays later on 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 from 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 Bart Filius, COO and President. Paul will reflect on the operational highlights of the year and provide an update on our oncology and immunology franchise. Bart will go over the commercial and financial results. 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 Bart, 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

Good morning and good afternoon and welcome to our 2022 annual results reporting. So thank you for joining. It goes without saying that 2022 was an eventful year at Galapagos. We made significant progress with good sales performance and further rollout of the commercial organization. We entered a new therapeutic area with oncology, with the acquisition of Abound and CellPoint. We made significant progress in the regulatory review with JYSELECA on both on the testicular safety with the Manta CHMP positive opinion, as well as with the adoption of the PRAC regulation recommendations. In our Capital Markets Day, we shared with you our vision on 2028 and our new strategy focused on immunology, oncology and accelerating time to market for drugs. But we also disclosed to you the further optimization of our organization, with the restructuring of 200 people out of the organization and a new organizational structure. And then, later in the year, we were able already to highlight the first good data of our ongoing trials with our CD19 in NHL and I'll also give you an update on the more recent data on CLL. Galapagos remains and positions itself for strong growth in the future. We focused the pipeline on immunology and oncology, going from first-in-class to best-in-class, adding into that business development, new opportunities, external opportunities, and accelerated our entry in oncology with CAR-T and new modalities. We now have the ability to do cell therapy and also on top of the small molecules we can do now biologicals in the modalities. We continue to build on a long-term collaboration with Gilead, both on the R&D side, but also on BD with multiple interactions and exchanges of information between the two companies for our future collaboration. At the end of 2022, we had a cash position of €4.1 billion and that gives us a strong basis to continue to work for an accelerated path to market with several drugs in our pipeline. Here you have a top line view of our current pipeline. In filgotinib, unfortunately, Crohn's disease was taken out as we missed the co-primary endpoints in induction. We are excited to announce the start of a Phase III in AxSpA, and more of this will follow later in the presentation. Also in our immunology portfolio, we added a CD19 CAR-T program in refractory lupus. And then in Oncology, as early indicated, we made good progress on our CD19 programs with NHL and CLL as well as we are initiating imminently, a study with BCMA in multiple myeloma program early this year. In our oncology roadmap for 2028, as we showed on the Capital Markets Day, our short term is to validate decentralized CAR-T delivery models. We generated very encouraging initial data already in NHL CLL, as well as a very solid production method to be able to do this CAR-T production as point-of-care in hospitals. In the medium term, the focus will be to further enhance our pipeline with best-in-class cell therapies, where we are looking both internally with the bound research team, as well as with business development opportunities and further scale up the decentralized CAR-T platform globally, with launching this year at several centers in the United States. In the longer term, we can further leverage the capabilities we are building today, in small molecules, antibodies and also in CAR-Ts and continue to address unmet medical needs, most likely including CAR-Ts in solid tumors. This is a top line of the more recent data on the CD19 CAR-T Phase I/II in relapsed refractory CLL. And what you see on the slide is the Phase I/II design in CLL with point-of-care, which we presented at the recent EBMT EH meeting in Netherlands two weeks ago, where we have the two dose levels which are currently being tested. If you look at the slide, you see we have three dose levels tested in the dose escalation study and that is followed by dose expansion of particular doses we select to do that for. We aim to present the top line data around the middle of this year. The next slide shows you the encouraging results we have. Overall, the response rate of the first seven patients was six out of seven had an objective response rate and had a complete response. On the right scan, you see a patient with ritux transformation that is in complete remission at day 28 after treatment with one dose of CAR-T. This is based on a PET scan evaluation, which can be done 28 days after the start of therapy. Going into more details of these results, here you can see that the swim lane plot where four patients out of the seven with CLL had a risk of transformation. Ritux transformation is manifested as an aggressive lymphoma with a very poor prognosis. It's mutational alterations where CLL transforms into a more aggressive DLBCL. Today the unmet need remains very high and there are currently no available treatments and overall survival is between six and 12 months when patients receive this diagnosis. What you see here in dose level 1 and 2 is that four out of four patients with Richter transformation got a complete response within four to eight weeks. That is one out of the seven patients with CLL who got a CD19 negative escape. Overall, this is very encouraging and gives us good hope that we can progress this 5201 CD19 into further clinical expansion cohorts as well as into pivotal studies later in the year. If you go to the safety, then you see that so far in terms of safety we see a very encouraging profile. No CRS above Grade two and no ICAN were observed. This is in line with the safety data for the CD19 in NHL where we saw similar data as we presented last year. Now going through the Crohn's disease diversity study, unfortunately, in the induction phase, the two cohorts missed the co-primary endpoints of clinical remission and endoscopic response at week 10. Maintenance looked much better. Filgotinib 200-milligrams achieved the co-primary endpoints of clinical remission and endoscopic response at week 58. Safety was generally consistent with the known profile of filgotinib with no new safety effects. But based on the data, we decided not to submit for approval with regulatory authorities in Europe. We remain fully committed to filgotinib in the approved indications RA and UC and now to the development of AxSpA. On this slide, you see a progress in AxSpA well first of all the data on the positive data from two of the Phase 2 trials in AxSpA, which was published in the Lancet in 2018 where we saw an immediate response starting from week one with a very good continued response up to week two and at the endpoint of the study. AxSpA is an indication in Spine and Sacroiliac joint with very high clinical features. It's a high medical need. Only 15% to 20% of the patients get into remission and limited options are available as well as no new mode of actions are expected in the next few years. So there is a real opportunity for us to expand filgotinib into that area. You see the design of the study. It's going to be a study in radiographic and non-radiographic AxSpA comparing filgotinib 200-milligrams with placebo. 238 patients will be enrolled and either treated with active or placebo. The endpoint is AxSpA which will be scored at week 16 and there will be an open label phase up to week 52. The start is anticipated in Q2 this year and top line data are expected in 2025. This concludes my remarks on the clinical side. Bart, I'll leave it to you for the financials.

Bart Filius, COO and President

Thank you, Paul, and good morning everyone in the US. Good afternoon in Europe. Happy to be with you for the annual results and happy to also give you some color to the numbers that we've completed the year with. So let me start off with something that we're extremely proud of at Galapagos, which is the European performance of our commercial teams with JYSELECA. As you can see here, we are landing now the year at €88 million in terms of sales in JYSELECA in Europe. And as you remember, we've been able to increase our guidance twice during the year. And also this number is at the top end of that guidance range. And that within a year where there was the Article 20 review of the entire class, we are extremely proud of this achievement. We're treating now 18,000 patients across Europe and that number is increasing. Two noteworthy events in addition. First of all, we got the feedback from the EMA or the CHMP opinion on the MANTA and MANTA-RAy studies and how we can adjust the label for that, and that opinion was positive, and we'll be able to in the course of this year update the label accordingly. So we're very pleased with that. That point is off the table for the European markets. And secondly, we've also seen the outcome of the Article 20 review process and it has confirmed that JYSELECA remains available for both biologic refractory and biologic naïve patients. And that any limitations are indicated for high-risk patients. So we're also pleased with that outcome for the entire class because we believe the Class is a very strong class for patients with RA and UC. I'll give a bit further detail on guidance in a few slides in a few seconds. But indeed next year, this year I should say in 2023, we anticipate sales to go up, again, between €140 million and €160 million as a range is what we're forecasting. Then, a couple of words on the next slide on the actual financial results and let me start off as usual with the cash position. As you know, we focus on cash burn and our guidance was between €480 million and €520 million. We've landed at €514 million, which you can see here in dark green. We always exclude from the cash burn the cash out from acquisitions. The €150 million reflects the acquisitions of CellPoint and AboundBio earlier this year. We also exclude currency effects from cash burn, which was a €50 million positive. Compared to the Q3 results obviously, that number is a bit lower. We've seen the dollar fluctuate quite a bit during the year, very positively in the first nine months and a little bit in the other direction in the last three months of the year. But overall still a positive €51 million contribution to our cash balance from the dollar-euro exchange rates. So, we're landing the year at €4.1 billion of cash on our balance sheet, which as a reminder reflects a good €62 a share. Then, on the next slide, I will touch on some words on the P&L. We focus always on product sales and cash burn because we believe that these are the strong metrics to focus on to evaluate Galapagos. A lot of other things are going on in the P&L. Some of these are accounting. For those of you that are following the story longer, you see a couple of these things coming back every quarter. We always assess the development costs for filgotinib until the end of the development period, and based on that, we recognize the income that we received from Gilead over the last couple of years. This has generated €174 million of revenues in the year 2022. Also, the remainder of the Gilead transaction from 2019 is a recognition that we see every year coming back in our numbers of €230 million on a straight-line basis. As a reminder, there is still in our balance sheet about €2 billion of revenues still to be recognized over the next couple of years, €1.5 billion on the platform and €0.5 billion on JYSELECA. Then the product sales we've discussed. On top of that we have also royalties coming from the Japan business and a couple of sales milestones from our partnership with SOBI. On the operating cost side, we've seen an increase in operating costs. There's a couple of things happening under the hood, if you like. As part of the discontinuation of some of the programs in fibrosis and kidney, we've also taken some impairments in the last quarter. The total impairment charge for the year is about €55 million. Some of this was already in previous quarters but that's what I would call a cleanup of the intangibles on our balance sheet from some of the discontinued programs. What also is happening here is that we've put some restructuring costs into our P&L for 2022. As Paul was alluding to before, we've downsized our organization quite meaningfully. As a result, we've taken a charge in the 2022 P&L for this. Finally, another important point, already noted several times during the previous quarters is that this year 2022 we've had for the first time no cost share with Gilead on the commercial and medical affairs expenses. This is no longer part of income or a reduction of operating costs. As a result, you see sales and marketing costs going up a bit from year 2021 to 2022. Net loss then comes at €200 million negative, which includes the FX income as I pointed out before. Then guidance for the next year. I already spoke about sales, so between €140 million and €160 million we believe is feasible. That reflects the current growth trends year-over-year that we've seen in 2022 and also now coming back in 2023. It also includes further launches in some countries in Europe. We know that UC has been launched in quite a few countries but there are still a couple to go or a couple are also very early days in the launch. We anticipate also some further UC launches throughout Europe to help us achieve that number. Then on the cash burn guidance, this has been a big focus for us to make sure that we spend our cash wisely. When we did the R&D Day, I indicated that we would be reducing our cash burn compared to 2022. I'm happy to report that we're going to be able to reduce it by more than €100 million to land at if I take the midpoint, €400 million of cash out for the year. That's a result of the program discontinuations that we highlighted, also the JYSELECA performance and the organizational restructuring. We have a bit more friendly interest rate environment. On the other hand, we are also investing in the other direction in the oncology buildup. Net-net we should be able to significantly reduce our cash burn in 2023 compared to 2022. Then a few words on the overall business case for JYSELECA. Obviously, we were very disappointed with the readout of the DIVERSITY trial, and therefore we have had to take out Crohn's from our peak sales estimates. Now we believe that we're going to be landing around €400 million at peak. That includes RA and UC, which are already in the markets but also actually spondyloarthritis, which we plan to launch in a couple of years' time. So €400 million is the net-net outcome of taking out Crohn's, adding AxSpA, while taking into account any impacts from the Article 20 outcomes from the review that was done last year. We still believe that the contribution margin can stay at 50% or even a bit better than that. So net-net, if you look at the peak year, previously we were estimating €500 million at 50%. We're now guiding for €400 million at 50%. The net-net impacts of losing Crohn's in Europe from our business case is about €50 million at peak. Full commercial structure is in place, breakeven product contribution, we're shifting it with one year backwards. It's quite a small adjustment. But in full transparency, we're just not going to be there at breakeven in 2024. We're losing a milestone on Crohn's in 2024, which was foreseen, and we're also paying a little bit higher royalties to our partner Gilead as a result of the loss of diversity. So net-net, we're going to be slightly negative in 2024 still, but we should be positive in 2025 and that gives us then an additional 10 years of patent exclusivity to benefit from the proceeds of JYSELECA to our company. I'll conclude with an outlook on the clinical side for 2023, before we hand it over to Sofie for Q&A. So, key top line results that we're anticipating are the results in NHL and CLL with our two CD19 programs at the point of care. We have some initial results already. We will be excited to look at the full top line results later this year. In terms of the regulatory process also in the oncology space, we plan to have a submission for IND for the CD19 program, but also clinical trial approval for the BCMA program. We're anticipating several trial initiations. The AxSpA first patient first visit is anticipated, as well as for 3667 our TYK2 inhibitor in dermatomyositis and lupus. We are excited to start a program with our CD19 in lupus and will initiate that trial in the course of this year. We'll initiate expansion cohorts in NHL and CLL. Finally, the BCMA program will also get off the ground in the course of 2023, so a lot going on the clinical front. I'm sure that we'll have a little bit of discussion of that in the Q&A as well. We're still very much looking for additional business development deals, both for clinical and preclinical programs. We believe that will be an important part of the transformation journey that Galapagos is on currently. With that, I conclude the opening remarks and hand it over to Sofie and the operator for the Q&A. Thank you very much.

Sofie Van Gijsel, Investor Relations

Thank you, Paul and Bart. That concludes the presentation of today's audio conference call. I would now like to ask the operator to open up the lines for Q&A.

Operator, Operator

Thank you. We are now going to proceed with our first question. The questions come from the line of Matthew Harrison from Morgan Stanley. Please ask your question. Your line is open.

Unidentified Analyst, Analyst

Hi. This is Juan Zhang from Matthew's team. Thanks for taking our questions. I am curious about the potential efficacy bar of the CAR-T program. So, what would you see a potential response rate in a larger cohort and the potential duration of response that could be the current SOC? Thank you.

Paul Stoffels, CEO

Well, I think from a response rate standpoint, what we can say based on the very small numbers, two times seven patients which we have today fast expanding in clinical that the initial response rate and complete response rates are very high. That probably has to do with a good quality of cells and a very good expansion of the cells. What we don't know is, the duration because most of the time the failure is happening because of CD19 escape. The fact that we have very good complete response rates is predicting that we might expect a good overall durability, but the clinical trials have to show that. So I think so far so good. The clinical trial results midyear will give us the full dose finding as well as some of the expansion cohorts will give a good indication on duration. For now, we stay with the response rates we see in the small cohorts and what we have observed in NHL and CLL.

Unidentified Analyst, Analyst

Just a follow-up with the CD19 program, can you talk about the case to use the CD19 in lupus? And are you looking at other autoimmune indications?

Paul Stoffels, CEO

Yeah, there was a study which was done by a German group which was published and I think that's very well known in five patients where many of us were surprised with a very positive outcome of that study with full responses in these people with very advanced lupus. So, it's an exploratory study. We are going to try to repeat those results with our drug. There's a good chance that this type of medicine, this type of indication can be tackled with the CD19 CAR-T. But to be confirmed, so far we know of five patients with good results, five on five. It was not our drug; it was a drug developed by a university in Germany. But it's an initial study exploring efficacy in lupus with CD19.

Unidentified Analyst, Analyst

Okay. Thank you.

Paul Stoffels, CEO

Thank you.

Operator, Operator

We are now going to proceed with our next question. The next question comes from Phil Nadeau from Cowen. Please ask your question. Your line is open.

Phil Nadeau, Analyst

Good morning and thanks for taking my question and congrats on the progress last year. Sticking on the theme of the CD19 CAR-Ts, can you discuss what you think the regulatory requirements will be for CMC for point-of-care manufacturing? Is there any visibility on what the regulators will require in terms of the site visits, inspections or verification in order to get the CD19s approved? Thanks.

Paul Stoffels, CEO

Yeah. It's very early, of course, to explain full CMC requirements but what we see in the clinical trial today is that we are able to do a CD19 end-point of care fresh cells seven days vein-to-vein with all the necessary quality controls and quality release to make the release happen in the clinical trial environment. We are further automating and simplifying the quality control testing. We have a combination of a point-of-care system combined with a Digital Data System which records all of the quality control testing as well as the manufacturing parameters and under the clinical trial agreements with the government. Today we can do this in point of care. What is required is a GMP environment, because certain handlings have to be done in a GMP environment. We select at the moment the centers based on GMP capabilities and that works really well. They are at least in Europe; they are expected by the authorities. So, I think we are safe. We are in a good position. In the U.S., most likely the strengthening of GMP capabilities in hospitals will need to happen. That's not that a big step. It's doable. So from that perspective, I think it's important that GMP capabilities are there. What we'll have to discuss with the regulators at the time of approval is the release criteria on potency on serology and also in our Phase III clinical trials on what will be required to release in point-of-care testing. So, we’re–this is all in the making. But currently in clinical trials we are able to do it in a very practical and pragmatic way with approval of the authorities.

Phil Nadeau, Analyst

That’s very helpful. Thanks for taking my question.

Operator, Operator

We are now going to proceed with our next question. The question comes from Peter Verdult from Citi. Please ask your question. Your line is open.

Peter Verdult, Analyst

Yes, thanks. Good afternoon. Pete Verdult from Citi. Two questions, please. Paul, just wondering if you've done any early post mortem on diversity and reasons for the failure. Anything you could share there? Any thoughts there would be helpful. And then secondly, just on BD. Would you like to – I mean we're approaching a year of your tenure. Would you like to do more? Or could you characterize the environment for doing BD? How conducive or not is it in terms of finding the lessons you're looking for? Thank you.

Paul Stoffels, CEO

I missed on the first one.

Peter Verdult, Analyst

Do you want me to repeat the first question?

Paul Stoffels, CEO

Yes. No, that's too early. We went into a deep dive. It's very recent. We went into a deep dive on the data to be able to come to the conclusion. We are now looking at what happened in the study why negative, why the induction was negative but also the maintenance was positive. More to follow on that. More work is to be done on the details of the data before coming with the conclusion there. On the BD side, we have done and we are doing very extensive evaluations. First as you know, we have done Cellpoint and Abound already back in June and we brought them on board. They are now fully integrated. We are building on that capability of cell therapy to get to next-gen cell therapy potential, where we are evaluating multiple opportunities in the world. I think that's one. But on top of that we are evaluating multiple opportunities in other modalities in oncology as well as immunology. The team is very busy. The environment is good for us I think. But it's also how much can you take on with the company in a very short time with going through a restructuring as well as bringing on-boarding significant new teams. I think it's going well. More to follow. The next year will be a year of on-boarding acquiring and on-boarding more assets.

Peter Verdult, Analyst

Thank you.

Operator, Operator

We are now going to proceed with our next question. The question comes from the line of Brian Abrahams from RBC Capital Markets. Please ask your question.

Brian Abrahams, Analyst

Hi there. Thanks for taking my question. I was wondering if you could expand a little bit more upon like what we should be looking for from the NHL and CLL top line CD19 CAR-T data this year in terms of maybe a little bit more in terms of the dose levels, patient numbers and duration of follow-up. And then what's the latest on how you guys are thinking about a potential registrational path? Is there still an opportunity to accelerate development and perhaps a more niche indication? Or do you plan to go broad? Thanks.

Paul Stoffels, CEO

The two studies on CLL and NHL are progressing together. Each involves a study of 15 patients during dose escalation to evaluate low, medium, and high doses. Depending on the selected doses, we will include 30 patients per cohort in the expansion phase, totaling approximately 45 patients for each disease. The studies commenced around mid this year after starting in 2022, and we anticipate having one year of response data. The CLL study began somewhat later, but we expect to see response time data within nine to twelve months. We plan to present top-level data for both disease areas, CLL and NHL, by mid this year. The implementation of point of care facilitates the treatment of very sick, advanced patients facing short life expectancies. Many centralized CAR-T therapies do not cater to this urgent need due to the limited time available for patients to receive treatment. We will engage with regulators to determine the necessary studies for addressing urgent medical needs where effective solutions are lacking. We have observed patients with life expectancies of one to three months achieving good outcomes with a seven-day vein-to-vein therapy conducted in a hospital setting. Our initial focus is on these high medical need areas where we can offer a differentiated product with life-saving potential. Notably, the ritux transformation in CLL is currently unsolvable by any existing therapy, leading us to explore whether this indication could qualify for accelerated review, breakthrough designation, and expedited consideration from authorities. While we are not at the submission stage yet, there is a pathway to potentially fast-track our offering to address a significant medical need. The top-line data expected mid-next year will provide comprehensive insights into our discussion points.

Brian Abrahams, Analyst

Thanks so much for the details there. So really helpful. Thanks.

Operator, Operator

We are now going to proceed with our next question. The questions come from the line of Jason Gerberry from Bank of America. Please ask your question.

Unidentified Analyst, Analyst

Hi, good morning, good afternoon. This is Chi on for Jason. Thanks for taking the question. I guess first one just JYSELECA. I'm hoping, you can provide a bit more color on the guidance change on peak sales. Earlier in the call you mentioned guidance make €50 million peak sales for Crohn's and do guidance factor in impact from Article 20. Could you help us understand your assumptions on the contribution of parts among these three indications? And then second on 3667. Arguably TYK2 your landscape has evolved quite a bit over the past six to 12 months, following the deucravacitinib could you talk about the potential point of differentiation with 3667. Does there have any distinctive molecular features, say selectivity, potency or PK that you think could stand at relative to competitive programs? Thanks.

Bart Filius, COO and President

Yes. So Michele will take the first question on JYSELECA, and then Daniele you can maybe chime in on the question on the TYK2.

Michele Manto, Chief Commercial Officer

Sure. Regarding the JYSELECA model, the peak sales have changed from €500 million to €400 million, which represents a €100 million difference. At the peak, the contribution margin is 50%, meaning €100 million in sales translates to a €50 million contribution. This €50 million is the figure Bart mentioned earlier for context. The main changes are due to Crohn's disease reference dropping out, and AxSpA coming in, along with some minor adjustments due to Article 20's impact. To elaborate on these components, Crohn's disease won't be part of the €500 million as we did not disclose its exact contribution earlier. For reference, we identified a €3 billion market for rheumatoid arthritis, €2 billion for Crohn's, and €1 billion for ulcerative colitis, with Crohn's making up roughly a third of that market. Losing that approval significantly affects our potential. Conversely, AxSpA is projected to represent about a €1 billion market in Europe at launch, and we aim for an 8% to 12% market share there, which is a positive development. Finally, regarding Article 20, its approval is anticipated, resulting in a more favorable outcome than the limitations imposed by the FDA in the US. However, it still requires consideration for patients with risk factors, which will have a marginal impact on our access and potential. These factors contribute to the adjusted projection of €400 million.

Daniele D’Ambrosio, Head of Immunology

Thank you. Regarding 3667, we were very encouraged by the results of the collaboration with deucra and TYK2, which clearly distinguishes itself from JAK. Our compound features a kinase domain inhibitor therapy for TYK2, setting it apart from other cell inhibitors that have been developed. Interestingly, when we profiled our compound in relevant biological systems, particularly in cellular assays focusing on cytokine signaling, we observed a unique cytokine inhibition profile. We identified a strong inhibition of interferon alpha at the doses and exposure that align with our clinical dosage, which performed well in our initial clinical study targeting psoriasis. Based on these findings, we determined that the most suitable indication for our compound corresponds to diseases driven by interferon alpha. In conditions like dermatomyositis and lupus, we recognize that interferon alpha plays a significant role in the development and progression of these diseases, which is why we chose to concentrate our efforts there. We believe we have a promising profile, and while we must conduct studies, we plan to proceed with these soon, starting with the first patient in dermatomyositis, followed by trials in lupus.

Unidentified Analyst, Analyst

Great. Thanks.

Paul Stoffels, CEO

Sure. Thank you.

Operator, Operator

We are now going to proceed with our next question. And the questions come from the line of Rosie Turner from Jefferies. Please ask your question.

Rosie Turner, Analyst

Hi. Good afternoon. Thank you so much for taking my questions. Maybe just following up on Pete's question around business development. Can we clarify, are you still looking at, kind of, very much earlier stage assets? Or is there a potential that it could be something, kind of, mid-stage? And then thinking about your Richter transformation patients. Was it a conscious decision for targeting that population within these two early-stage trials? And are you aware of anybody else who is looking at this area? Thank you.

Bart Filius, COO and President

Yes, Rosie. Let me first take the question on BD, and then Paul, you'll take the question on the Richter patients. So I think it's unchanged compared to focus what we've expressed before. We're very much interested to do either licensing or M&A in a stage of development where there's still value creation to be made by Galapagos. You will not find us very quickly in a major competitive bidding process for a late-stage asset at high values. We think we should be more on the early clinical. I would not rule out mid-stage as you say. I think Phase 2 is definitely part of the equation. Ultimately what also matters here is time to market and not just the actual precise stage of the molecule. We do also want to make sure that we have some assets in our pipeline that still can get to the approval stage within the decade like is the case for our existing pipeline. So maybe that helps. All-in-all still looking for early stage Phase 1, Phase 2, definitely still be on the agenda. We are also looking at preclinical opportunities because in some areas that's definitely also interesting. Finally, also the European, let's say, assets for leveraging our commercial infrastructure are very much also part of the focus of our BD teams.

Paul Stoffels, CEO

Yes. On the Richter transformation what we observe is that because of the point of care and the availability of a 7-day vein-to-vein, at the moment in the studies, people are brought to the hospitals where we are able to treat those. So that is first an observation. If you ask would we only target Richter's? Most likely not. But it would be the aggressive form of CLL whatever that definition embraces as well as Richter transformation to have those people who have a short life expectancy with severe disease who can benefit from the point of care advantage of having a 7-day vein-to-vein in the hospital available. Currently, we are not aware of anybody focusing on Richter. Maybe with our data some other companies would start doing that. But I think the very important thing is the 7-day vein-to-vein and the very short time access for very advanced people, which is difficult to match with centralized production. That is where we have a good product combined with the decentralized process and seven days vein-to-vein fresh cells that probably gives the benefit to these patients.

Rosie Turner, Analyst

Thank you.

Operator, Operator

We are now going to proceed with our next question. The questions come from the line of Dane Leone from Raymond James. Please ask your question.

Dane Leone, Analyst

Hi, thank you for taking the questions. And congrats on all the progress. I just want to follow up on a JAK2 question. I know there's been some questions earlier in the call but let me pose the question this way. Clearly, there's a growing investment in the space as a drug class that might be a better oral solution in certain autoimmune inflammatory disorders and what was able to be achieved with the JAK inhibitor class. Later this year we'll get proof of concept in Crohn's and ulcerative colitis from the deucravacitinib effort over at Bristol. Clearly, Takeda is going to put a lot of investment behind the Nimbus asset that they've recently acquired. So the question for your team is currently we're waiting on the start of the dermatomyositis study. But there really has not been a lot of messaging on how that program would expand around that. Is your view that one, it needs to be more of a measured approach to developing the Galapagos TYK2 inhibitor maybe given the experience with filgotinib? Or is there going to be an approach where you're looking to go into indications maybe that the other two players are not going to be pushing into that might be a lower investment from both money and time to get to market? Any insight there would be greatly appreciated. Thank you.

Daniele D’Ambrosio, Head of Immunology

Yes, maybe I can take this question again. So as you said, there will be inflection points and information that will come during the course of the year. We will obviously look at that very carefully. But at this point, given the data we have in our hands and having seen the data from the competitors so far, we believe the best scenario for our molecule is the indication we are currently pursuing. That doesn't mean that we are not going to reevaluate new data to potential other opportunities. But we really see based on what we understand of the below in our hands and the competitors that the two indications are the very good benefit-risk profile, very high and need. I think again, a good fit with the mechanism of action that we see with our molecule and the preferential inhibition of certain cytokines, which we've seen differently inhibited by the other molecules. We really feel this is the best room for this compound at this point in time. That might change, of course, with new data but this is the current situation.

Bart Filius, COO and President

So, maybe if I can add one or two words on this one beyond the clinical choices. I would say in needing that we're carefully selecting the indication that we go after for the reasons that Daniele just described. We believe, for example, going now, for psoriasis five years after deucra given the stage that we are in today, is not the most logical thing to do. But, we are keen to see the data in dermatomyositis and lupus to understand exactly what we have in hand before we make final choices and further choices in terms of development. So, just to say, we are very keen and interested in this field. We like the asset that we have a lot. We welcome the fact that the big players are also stepping into this field. We'll make sure that we develop this wisely and make our choices over time. I hope that helps.

Operator, Operator

We are now going to proceed with our next question. The questions come from the line of Sebastiaan van Schoot from Kempen. Please ask your question.

Suzanne van Voorthuizen, Analyst

Hi there. This is Suzanne on for Sebastian. Thanks for taking our questions. First, regarding the mid-2023 data assets that you will present for NHL and CLL, can you clarify what number of patients we should be expecting to be included in those data cuts? Should we expect that all those expansion patients are included next to the dose escalation even though there will be shorter follow-up for dose?

Bart Filius, COO and President

Well, the final data of the dose finding will be presented there. Whatever data we have on the dose expansion will be included on the safety side. We hope to be able to have significant durability data from the dose findings mid-year; towards the end of the year, we'll have more data on the longitudinal follow-up of the expansion cohorts.

Suzanne van Voorthuizen, Analyst

Got it, got it. And just to double check, should we also be expecting an announcement on the recommended Phase II dose for those two studies in between now and the mid-2023 data presentation?

Paul Stoffels, CEO

Not between now and the mid-'23 data presentation, that will be part of the regulatory discussions happening later next year.

Suzanne van Voorthuizen, Analyst

Got it. And then, maybe a final question regarding your breakeven point being moved out to 2025 versus previously. Just to understand, given Crohn's was not expected to be a large contributor to 2024 per se. Can you elaborate on the dynamics that led you to adjust your forecast? If it's more relating to lower sales expectations or higher sales and marketing costs?

Bart Filius, COO and President

No, Suzanne. It's related to the fact that in 2024 we were expecting a milestone on Crohn's approval, which we will not have. As part of the 2021 agreement with Gilead, we are paying a slightly higher royalty to them now that the total market potential is a bit lower. These two factors will dip us just below breakeven, so we need to extend it to 2025. The impact is relatively small, with a maximum negative effect of up to €50 million for 2024. These are minor adjustments, but we wanted to be transparent with the Street. This does not affect the overall cash burn perspective I shared back in November at the R&D Day in New York, because we believe that our actual cash spending on the rest of the business, coupled with the reduction of more than €100 million for this year, can definitely offset the extension of the breakeven point. Overall, the cash profile for Galapagos remains unchanged. We expect diminishing cash burn in the short and medium term, ultimately allowing JYSELECA to contribute roughly €200 million a year in cash. That figure is somewhat lower than what we anticipated when Crohn's was still a factor. I hope that clarifies.

Suzanne van Voorthuizen, Analyst

Got it. Thank you very much.

Operator, Operator

We have no further questions at this time. I will now hand the conference back to Sofie Gijsel for closing remarks. Hello, Sofie, over to you.

Sofie Van Gijsel, Investor Relations

Thank you very much, operator. So 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 will be our Q1 2023 results on May 5. Thank you all for participating and have a great rest of your day.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.