Earnings Call Transcript - GLPG Q3 2022

Sofie Van Gijsel, Host

Welcome all to the Galapagos Capital Markets Day and Third Quarter Results. This presentation is webcast and accessible via the Galapagos website home page. The presentation will be available for download and replay 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 of the pipeline in our company and possible changes in the industry and competitive environments. Because these forward-looking statements involve risks and uncertainties, Galapagos' actual results may differ materially from results expressed or implied in these statements. We start today with a strategic and financial update, followed by a deep dive in our efforts in oncology. Next, we'll discuss our immunology franchise and commercial capabilities, followed by Q&A. And with that, I'll now turn it over to Paul. Thank you.

Paulus Stoffels, Chairman and CEO

Thank you, Sofie, and welcome to the Galapagos R&D Day. It's great to be here in New York today, and I appreciate everyone joining us. I’m Paul Stoffels, the Chairman and CEO of Galapagos. I have a background in medicine and science, and I led R&D at Johnson & Johnson for 12 years before retiring at the end of last year. In April, I succeeded Onno van de Stolpe as CEO and have been collaborating with the teams on our renewed strategy since then. I co-founded Galapagos in 1999, initially as a target discovery company, and worked with Onno throughout the years, notably before the human genome was sequenced. Our company achieved a significant milestone with the market launch of our first medicine, Jyseleca, in Europe, demonstrating our capability to develop new targets into market-ready products. Over the past 20 years, we have transitioned from a target discovery firm to a comprehensive biopharmaceutical company focusing on small molecule drugs for fibrosis and inflammation. Today, we will outline our plans to expedite our journey toward new medicines, emphasizing our strategies in immunology and oncology, and enhance our platforms, including biologics and CAR-T therapy. We will increase our external innovation efforts to introduce new medicines into Galapagos, aiming for a robust late-stage portfolio by 2028, potentially including one new medicine already in the market. Additionally, we are strengthening our partnership with Gilead for commercialization outside of Europe. While we had success with Jyseleca, we faced some midterm setbacks in our pipeline, so we are initiating a major acceleration strategy to introduce several late-stage assets and potentially one more product by 2028. Our focus will be on areas with high unmet medical needs, advancing small molecule medicines for inflammation and fibrosis, and following a disease-driven strategy in immunology and oncology, utilizing top-tier targets and expanding into biological modalities like antibodies and CAR-Ts. We have a strong financial position with EUR 4 billion in cash, and we plan to use our resources judiciously to maximize the value creation through research and development of new drugs. We believe we have built a solid foundation, characterized by deep scientific expertise from our 20 years of R&D experience and robust teams at four research centers in Europe. Our experience in launching Jyseleca in rheumatoid arthritis and ulcerative colitis has given us a strategic advantage. In a complex market like Europe, with its varying regulations and payer systems, this experience will facilitate faster product launches in Europe, including our CAR-T initiatives. We will also capitalize on the R&D capabilities of our partner, Gilead, along with their commercial framework in the U.S. market for our medicines. This partnership is a significant asset, allowing us to co-develop in Phase III, expedite launches, and secure substantial royalties on sales, enabling us to operate on a larger scale globally and make a notable impact. By harnessing our financial strength, we aim to rapidly build a strong pipeline through selective business development and disciplined spending. Our strategy combines internal research with external assets focused on high medical needs to enhance value creation at Galapagos. By 2028, our goals include having 10 lead optimized compounds and 5 preclinical assets ready for clinical trials. We also aim to develop 5 late-stage assets, with 3 being cell therapies and 2 small molecules, while seeking to introduce at least 2 new indications for Jyseleca and 1 cell therapy across multiple indications, particularly in oncology due to its significant unmet medical need by 2028. We will continue developing business opportunities to further accelerate our pipeline. Our priority is to achieve fast market access; time to market has become crucial for us. We aim to preserve value by acquiring late-stage and early clinical assets rather than buying expensive late-stage assets that mainly benefit shareholders. Thus, our focus will be on early-stage, late-clinical, and early preclinical opportunities to significantly enhance our own value. Our commercial reach in Europe is appealing to various companies, especially with our focus on immunology and oncology, serving high unmet medical needs. Our aim is to adopt a 'string-of-pearls' approach to acquire multiple assets from internal or external sources and expedite them to market. We offer partners end-to-end development capabilities backed by our proven leadership and entrepreneurial spirit, as well as commercial rollout expertise. Where applicable, our collaboration with Gilead can provide access to additional assets and global outreach for interested companies. Our strong financial position affords us the time to achieve these goals over the next five years. We believe that integrating internal science with external innovation is key to our success. Our focus on immunology and oncology is critical as it addresses specific areas within immunology and targets high unmet medical needs. Filgotinib is already on the market and performing well in Europe for rheumatoid arthritis and ulcerative colitis. We expect significant progress for Jyseleca as it solidifies its market presence. We plan to have Phase III data for Crohn's disease by the first half of next year and have launched a new study for AxSpA now in Phase II. We are also starting studies in dermatomyositis and lupus next year, supported by strong evidence for our TYK2 compound, '3667. From our SIK portfolio, we will continue exploring SIK3 '4399 in RA and the rest of the SIK portfolio in preclinical stages to potentially advance these exciting new targets to clinical trials. A major new initiative for us is in CAR-T therapy, leveraging CellPoint's decentralized production tool. As a smaller company, we could not aspire to become a leading CAR-T firm without this differentiated technology. We are combining two existing CD19 CAR-Ts on a new platform and proceeding with testing. This initiative is currently in Phase I/II, and we plan to reenter the clinic with BCMA early next year. Our later-stage goals include multiple next-generation CAR-T therapies, utilizing an advanced CAR-T production platform to establish ourselves as a prominent player in this field. To streamline our operations, we are rationalizing our pipeline, discontinuing projects in fibrosis and kidney disease, and reallocating our resources towards oncology and immunology. I will now hand over to Bart to discuss the financial details. Thank you, Bart.

Bart Filius, CFO

Thank you, Paul, and good morning, everyone, here in New York, and good afternoon to those of you in the webcast in Europe. Thanks for joining. Let me say a few words about the financials, about capital allocation, but it's also our Q3 release. So there's also a bit of, I would say, corporate housekeeping here in terms of clarifying the numbers for the Q3 report that went out yesterday. First, I always start with the cash balance, EUR 4.4 billion at the end of September. A very healthy cash balance, obviously, for our company. We reiterate our guidance for the year still between EUR 480 million and EUR 520 million, as we announced at the end of Q2. Our cash burn over the first 9 months has been EUR 340 million. You see two additional impacts wash out; one is that we benefited from the dollar appreciation over the first 9 months of the year that offset investments in acquisitions, notably for CellPoint and Abound. On the P&L side, revenues have reached EUR 440 million. That includes two noncash items: recognition of accounting revenue for filgotinib and recognition of accounting revenue for the Gilead transaction signed back in 2019. However, there's also now a significant portion of cash revenue that contributes to our P&L, primarily from strong sales of Jyseleca. We generated EUR 60 million in sales during the first 9 months of the year and are increasing our guidance for Jyseleca for the full year to EUR 80 million to EUR 90 million. We started the year off at EUR 65 million to EUR 75 million. This marks our second revenue increase. With the EUR 25 million sales number in Q3, we believe we now comfortably fall within the EUR 80 million to EUR 90 million range by year-end. We also have royalties relating to Japan, which includes the UC approval and several milestones from our partner, Sobi, who is launching Jyseleca in Eastern Europe. Our operating results show a negative EUR 135 million. The primary reason is a depreciation on our OncoArendi transaction in fibrosis that we completed in Q2, along with an increase in sales and marketing expenses this year due to the factor that we're no longer sharing commercial costs in Europe with Gilead. Overall, the net result is almost breakeven. We're supported by foreign exchange and net other financial income of EUR 130 million. I would like to highlight several important factors regarding cash burn and capital allocation. Starting with 2023, and then I’ll discuss the long-term outlook. As I mentioned, we maintain our guidance of approximately EUR 500 million for this year. On the left-hand side, you can see how that cash burn is split between Jyseleca-related expenses and R&D spending. Jyseleca’s burn includes both development investments for major ongoing trials, such as Crohn's disease, and the commercial rollout in Europe. It's significant to mention that as Jyseleca progresses, we expect this burden to decrease notably. We've taken the decision to discontinue fibrosis and kidney not only for the scientific prospects of these therapeutic areas but also to free up resources for oncology. We've communicated recently to our teams that we will be reducing the workforce by 200 positions, resulting in savings for these two franchises. While those savings will primarily be reallocated to oncology, we anticipate cash burn to be lower in 2023 compared to this year, with adjustments for nonrecurring payments from Gilead and investments in oncology factored in. Looking ahead to 2024, we anticipate Jyseleca could be breakeven, which means commercial income minus R&D and commercial investments would cover each other, excluding overhead costs. This projection signifies that we will decrease R&D and corporate spending moving forward. Furthermore, we expect to achieve significantly lower cash burn in 2024. Anticipating into 2028, we envision cash burn to be notably reduced as Jyseleca approaches peak sales expectations, approximately EUR 500 million, with potential for cash contribution to the company around EUR 250 million. Overall, our goal is to significantly contribute to research and development from that point onwards. I hope this clarifies our capital allocation and ongoing cash burn strategy. With that, I pass the floor to Tol to discuss our oncology franchise.

Tolleiv Trimborn, Oncology Lead

Good morning to all. I’m going to explain a bit about our new manufacturing platform that we’ve established to make CAR-Ts, especially accessible to patients. As Professor Orentas has previously mentioned, many eligible CAR-T patients currently are unable to access the treatment due to various hurdles. This drove us to develop our new manufacturing at the point-of-care. For CAR-T patients, the T cells collected from the clinical site's patients can be converted into CAR-T cells and only 7 days later, those patients will receive treatment. Currently, we have a short manufacturing protocol that's easily scalable, allowing us to add more machines if needed. We rely on a machine called Cocoon made by Lonza, which is a fully closed and automated bioreactor capable of manufacturing T cells. The system remains sterile, utilizing disposable cassettes, and after each run, is clean and does not require internal cleanup. The Cocoon maintains a small footprint, making it easy to install multiple units at cell and gene therapy facilities already present in large hospitals in Europe and the U.S. Our exclusive partnership with Lonza ensures their responsibility in deploying these Cocoon machines at clinical sites, while we provide all other necessary materials needed to operate successfully. Trainees from Lonza will train clinic personnel on operating the machine while we train them on processing protocols and quality control. In return, Lonza receives a royalty on profits generated from their product. We've also developed an IT system called xCellit, which facilitates patient scheduling, monitors manufacturing processes, and ensures high-quality data capture for regulatory documentation. It provides real-time oversight throughout the process. We've established a very short manufacturing time, with less than 6 days for production and a 7-day vein-to-vein timeline, allowing us to treat patients with fresh infusion cells rather than cryopreserved ones. And as all biologists will know, thawing results in loss of cell viability, but our process ensures high viability rates above 95%. We have already completed over 100 runs successfully without any failures, maintaining sterility across the board. We currently have six sites operating in Europe and our first site in the U.S. is being onboarded in Ohio. By the end of the year, we aim to have at least 10 sites functioning. I’d like to share some exciting data: our ongoing clinical trials have seen significant T cell expansion rates that are better than existing therapies. Importantly, we see a very nice expansion of T cells in our first study, which is a Phase II trial. Based on promising observations, we hope to roll over this trial into an additional cohort quickly and pursue further studies. In conclusion, our new platform makes CAR-Ts more accessible while enhancing product quality. I’d like to turn it over to John Mellors now, CEO of Abound.

John Mellors, CEO of Abound

Good morning. It's great to be back here in New York. I did my training at Yale, so it feels familiar and is particularly exciting to witness how this new machinery can revolutionize therapy and save lives. I'm the CEO of Abound and have a background in antibody discovery and engineering. This journey has transformed HIV from a lethal disease to a manageable and life-saving therapy. Now I look forward to applying those same principles to hematologic malignancies and solid tumors. We have developed proprietary libraries for rapid antibody discovery, providing us with access to a broad range of fully human antibodies derived from over 500 donors. Our libraries allow us to discover high-affinity binders that can be modified to target different malignant cells efficiently. Considering the reality of cancer treatment, we know that combination therapy is crucial. Therefore, our approach involves targeting multiple proteins on malignant cells using various binders, which aligns with our strategy of developing multispecific CAR-T cells. In addition, we're working to improve the proliferation and persistence of CAR-T cells and addressing challenges like the hostile tumor microenvironment posed by solid tumors. By combining our resources with modalities like antibody-drug conjugates, we believe we can arm our CARs and improve the efficacy of our treatments. Let me turn it back to Sofie to introduce Dr. Anguille.

Sofie Van Gijsel, Host

Thanks, John. Professor Anguille, thank you for being here today.

Sébastien Anguille, Head of Hematology, Antwerp University Hospital

Good morning. I appreciate the opportunity to participate in this trial, especially considering the context for CD19 CAR-T cell therapies available today. As the Head of Hematology at Antwerp University Hospital and one of the principal investigators, I aim to address those lymphoma patients who currently lack access to CAR-T treatment due to specificity. The trial allows us to treat multiple types of lymphoma that are typically excluded from standard therapies. Moreover, the point-of-care model significantly enhances patient access overall because it introduces control, flexibility, and speed during treatment selection and processing. Our unique approach helps us avoid long centralized manufacturing wait times that can prevent timely treatment. This study enables us to move quickly, and I can now provide an example of real-world application with patient Tom, who is doing extremely well six months after treatment and leading a normal life again.

Paul Stoffels, Chairman and CEO

Thank you, Professor Anguille. Seeing the practical benefits of new treatment capabilities through your work is truly inspiring.

Walid Abi-Saab, Head of R&D

Good morning, everyone. I'd like to thank Paul for the introduction. As we transition into discussing our immunology franchise, I want to highlight that Galapagos has made significant strides over the past two decades and built a deep expertise. Our goal is to streamline our portfolio focusing on medications that significantly impact patients' quality of life. Filgotinib remains on the market and is performing well, supported by our ongoing work in the pipeline. We have two other key programs: TYK2, which is poised for Phase II studies, and a salt-inducible kinase program awaiting further development. Our focus on SIK holds potential across various therapeutic areas, and we have learned valuable lessons from our progress thus far. We are selectively pursuing candidates that demonstrate a higher likelihood of success and distancing ourselves from candidates facing significant challenges. We are currently monitoring our progress and tailoring future studies accordingly.

Michele Manto, Chief Commercial Officer

Thank you, Walid, and it's great to connect with everyone here. Now, I will provide insights into Jyseleca's market performance. Jyseleca is consolidating its position as the next-generation preferential JAK1 inhibitor, approved in Europe and Japan across two indications, RA and UC, with a specific focus on the competitive landscape. We've integrated new operational capabilities for Galapagos, leveraging our established commercial foundation to reach effective market access and sales in various key regions. Importantly, we are increasing our revenue guidance for the year, reflecting strong sales driven by satisfied physicians and patients. We're seeing Jyseleca establishing itself securely, with a pathway for future growth in additional indications like Crohn's disease.

Paulus Stoffels, Chairman and CEO

Thank you, Michele. As we move toward the conclusion of our presentations, I hope we have provided a thorough overview of Galapagos' direction as a financially sustainable biopharmaceutical company. We are committed to developing our oncology portfolio and supporting our existing programs in immunology. We aim to have a strong late-stage portfolio by 2028 and continue delivering transformational therapies that change patient lives. Thank you all for joining us today.

Sofie Van Gijsel, Host

Susan, I think there's a question here. Okay, Brian.

Brian Abrahams, Analyst

Can you talk a little bit more about some of the PK dynamics you're seeing for the CAR-T therapy? And then I guess I'm curious to learn more about the higher peak T cell levels. What you think the implications there might be for efficacy, if you are seeing or expecting to see more robust responses there? And then on the safety side, it seems like you're seeing pretty clean safety with the low dose, but just want to understand the long-term implications for safety as well as durability for the unique PK profile.

Tolleiv Trimborn, Oncology Lead

I think this is a very good question. We're very excited about these higher peak levels. It's a bit too early to speculate on the effect. When we set out to create this new platform, our aim was to develop a better product through key parameter changes compared to other existing companies. While we hope we've achieved a better product with enhanced potency, true clarity in data will come from the forthcoming results at ASH, showcasing how the first patients respond.

Paulus Stoffels, Chairman and CEO

We are involved in ongoing discussions and collaboration with Gilead, aiming to leverage opportunities while ensuring our unique developments are recognized. Our collaboration continues to progress positively as we advance toward next-gen CAR-T development.

Peter Verdult, Analyst

Just a few quick ones. Maybe just starting with Tol. Are we going to see anything in addition to what we saw in the abstract yesterday at ASH in terms of more patients or a longer duration of follow-up? I know you can't talk to the data, but will there be anything incremental when we actually see that data next month?

Tolleiv Trimborn, Oncology Lead

I think we will report on that. We will show the details that are relevant around patient responses and follow-up. There will be a poster at ASH that covers this.

John Mellors, CEO of Abound

We hope to see our first antibody or bispecific from our platform in the clinic by the end of next year as we continue developing the exciting potential of our proprietary libraries for antibody discovery.

Paulus Stoffels, Chairman and CEO

In terms of the current business development environment, it is indeed favorable for us, especially since we attract many inbound inquiries for collaboration. But we focus on ensuring strong value propositions at every stage of our development activities and investments.

Philip Nadeau, Analyst

Just a follow-up on the TYK2 pipeline questions. The indications you've chosen have been historically hard to develop any drugs. Can you discuss your decision to pursue these indications rather than those with more historical success?

Walid Abi-Saab, Head of R&D

Our choice to focus on dermatomyositis and lupus reflects a careful consideration of changing dynamics. Recent developments with the FDA indicate a more favorable outlook. We strive to ensure our approaches are based on solid data to necessitate more informed decisions regarding our trials as we progress.

Emily Field, Analyst

I'm just wondering, can you elaborate on the string-of-pearls strategy? What is the expected deal size you're targeting for new opportunities? Also, regarding the BCMA CAR-T, could it have a faster pathway if successful in the current CD19 efforts?

Bart Filius, CFO

Regarding business development, we are looking for smaller, targeted opportunities rather than any multibillion-dollar acquisitions. Our aim is to strengthen our pipeline gradually through selective access to new assets with potential sub-EUR 1 billion deals. Now, about the speed to market for BCMA, certainly having established a presence with CD19 will streamline accreditations and patient access for new CAR-Ts moving into pivotal stages.

Paulus Stoffels, Chairman and CEO

The decentralized manufacturing model with the Cocoon allows us to minimize the logistics and challenges associated with traditional CAR-T methodologies while enabling us to rapidly scale the production capacity across multiple sites efficiently.

Sofie Van Gijsel, Host

Thank you for your insights today. We look forward to further developments from Galapagos and the rewarding impact this will have in patient care.