Earnings Call Transcript - GLPG Q4 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to Galapagos Full Year 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be the 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, and welcome all to the audio webcast of Galapagos Full Year 2021 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 Onno van de Stolpe, CEO; and Bart Filius, COO and President. Onno will reflect on the operational highlights, and 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 up to Q&A with Onno and Bart joined by the rest of our management Board. And with that, I will now turn it over to Onno.

Onno van de Stolpe, CEO

Thank you, Sofie. This is a significant moment as I share the financial results of Galapagos for the last time. After 22 years, I'm passing the leadership to Paul Stoffels, an esteemed figure in our industry. I am very pleased to entrust the responsibilities to him. I have known Paul throughout my tenure at Galapagos; he was one of the company’s founders and has been a part of our Board in the early years. Our connection remained strong even after he moved on from Tibotec to leadership roles at Johnson & Johnson, where he was responsible for launching numerous drugs. Paul will be joining Galapagos as Chief Executive Officer on April 1. I believe Galapagos is in excellent hands with him. He is a robust leader with a strong scientific background and possesses an incredible global network. His dedication to providing innovative medicines for patients aligns perfectly with Galapagos's mission. Having known Galapagos all these years, he will be well-acquainted with the organization's culture and will be warmly welcomed by everyone. Many employees have previously worked with him at Tibotec or J&J, and his appointment has been met with enthusiasm. We have also received congratulations globally for his selection as CEO, which marks significant progress for the company. This demonstrates the value of Galapagos, a company that has successfully developed Jyseleca and is actively marketing it throughout Europe. We possess the cash, infrastructure, and personnel needed to introduce multiple products to the market. While we faced disappointments in the last 1.5 years, we have a solid organization with a fantastic culture, and I am confident that under Paul’s leadership, we will bring new drugs to patients. I wish him all the best and am certain of his success. Regarding the year-end review, there were both positive and negative developments. We had to halt our Phase 3 trial in idiopathic pulmonary fibrosis with ziritaxestat due to efficacy and safety concerns, resulting in its complete discontinuation. We also encountered disappointing clinical results with our first SIK program, GLPG3970. Although we observed some clinical activity and a new mode of action in psoriasis and ulcerative colitis, it was insufficient to pursue this molecule further. We are now focused on developing more potent SIK compounds. On a positive note, Jyseleca received approval in the EU. Although the lack of approval in the U.S. is disappointing, we are encouraged by Jyseleca's progress in Crohn's disease, with recruitment now complete, and we expect data early in 2023. Our clinical trials are generating notable updates. Given the setbacks with Jyseleca in the U.S. and the outcomes from 3970 and ISABELA, we have restructured the company and prioritized our R&D efforts, positioning us well for the next phase, which Paul will guide based on his assessment of what is necessary. The investment case remains robust, bolstered since our partnership with Gilead. We have a strong target discovery platform, and our pipeline, while still early-stage, is promising. We are progressing in several programs. The filgotinib molecule is now fully launched in Europe for rheumatoid arthritis and is beginning its launch for ulcerative colitis. By summer, we aim to have a comprehensive launch for UC across most European countries, and that franchise is gaining momentum. Bart will provide more details on this. The collaboration with Gilead remains strong, despite both companies hoping for more success with ziritaxestat and SIK results. However, we are committed to this long-term partnership for another eight years, confident it will ultimately benefit patients and investors alike. We are fortunate to have a healthy cash position of €4.7 billion, close to $5 billion, ensuring our future. Our agreement with Gilead secures our independence for the following eight years, allowing us to rebuild our pipeline over time and demonstrate to investors that Galapagos has a lasting presence. Examining our portfolio, except for the filgotinib JAK1 inhibitor, the remaining candidates are in early stages. Filgotinib is approved for ulcerative colitis and rheumatoid arthritis, and is fully recruited in the Crohn's disease trial, while other programs are in Phase 1 or Phase 2. There is a gap we need to address, and developing new candidates internally is taking too long. Therefore, we are actively seeking molecules to fill our pipeline and support our commercial operations in Europe moving forward, and M&A is a priority on our agenda. Lastly, I want to touch on our collaboration with AbbVie in cystic fibrosis. We had a long-term partnership that ended in 2018, transferring all rights to AbbVie for a one-time payment of milestones and royalties. Recently, it appears that this program at AbbVie is gaining momentum, with expectations for data on dual and triple combination therapies for cystic fibrosis, potentially competing with the Vertex portfolio. If AbbVie successfully launches these combinations, we will receive royalties on global CF sales, which is appealing, along with additional milestones totaling up to €175 million. As it seems that two out of the three molecules in the triple combination may stem from Galapagos research, this could lead to meaningful royalties. We are eager to see how this unfolds, and if AbbVie enters the market, we hope to benefit from this long-standing collaboration. With that, I would like to turn it over to our President, Bart Filius. Bart?

Bart Filius, COO and President

Thank you, Onno, and good morning, everyone in the U.S. Good afternoon from Europe. It's quite a significant moment as we've shared this experience together about 30 times now. Overall, I think our early calls went well, with only one exception when we mistakenly hit the hang-up button instead of mute. The other 29 events were successful, so thank you for that collaboration, Onno. I'm now pleased to provide you with an update on our commercial performance and financials for the full year, starting with Jyseleca. We're very proud to have our first marketed product approved for rheumatoid arthritis and ulcerative colitis, with final approval received in the fourth quarter. We've completed the transfer of marketing authorization from Gilead and are now the sole commercial partner for Jyseleca. Regarding the business case, we believe Jyseleca has peak sales potential of about €0.5 billion and could achieve a contribution margin of 50% at peak. Our full commercial structure is now established in all countries where we have rheumatoid arthritis and inflammatory bowel disease staff active. We aim to reach break-even contribution from Jyseleca in 2024, benefiting from around 11 to 12 years of patent exclusivity, which supports a strong business case for profitability in Europe. Looking at the launch, our full-year sales just fell short of €26 million, with €15 million recorded on our side. This marks the last year of dual booking, as Gilead retained ownership in Germany and the U.K. for part of the year. Despite some fluctuations in sales caused by stock adjustments in June and July, the overall trend has been positive, showing steady growth to about €4 million monthly by December last year. We project sales for 2022 will be in the range of €65 million to €75 million as we expand in both rheumatoid arthritis and ulcerative colitis across Europe. We are now reimbursed in 14 countries, including the top five, with ongoing efforts in the rest of Europe. Our launch in Germany and the Netherlands for ulcerative colitis took place in November. Partnerships for Eastern European countries, Portugal, and Greece are underway, with reimbursement and launch efforts planned for early 2022. We've been notified by the EMA regarding an ongoing safety review of JAK inhibitors for inflammation, with results expected in Q3. We look forward to engaging with the EMA about our data, which has already undergone extensive review in the UC process. In terms of market share, Jyseleca holds about 18% of the total market in rheumatoid arthritis and a growing dynamic market share of around 26% among patients switching from other therapies or naive to advanced treatments. This reflects a notable increase from 21% a year prior, influenced by the launches of Jyseleca and Rinvoq. For ulcerative colitis, there's a clear demand for new treatment options as current remission rates remain suboptimal. Many patients rely on corticosteroids, raising safety concerns. The treatment landscape is complex, with injectables being commonly used, leaving Jyseleca as a unique oral treatment option. We identify this as an attractive market, currently valued at about €1 billion, with growth potential. Our induction study shows promising results with rapid responses in just two weeks for both naive and refractory populations. Statistically significant differences between active and placebo groups were noted, with clinically relevant declines observed after 10 weeks. We are also proud of the remission data collected at week 58 from the maintenance phase of the study, signaling strong efficacy. Moving to our financials, we finished December 2021 with a cash burn of €565 million, falling within our guided range of €530 million to €570 million, which is lower than earlier expectations due to restructuring efforts. Other positive impacts on our cash position included proceeds from the sale of our subsidiary Fidelta and favorable currency effects, highlighting a total cash balance of €4.7 billion at year-end. Total revenues for the year accumulated to €539 million, with half attributable to filgotinib development and half to revenue recognition strategies from our agreements with Gilead. This includes actual sales of €15 million for Jyseleca. Our operating costs remained stable compared to 2020, leading to a net loss of about €100 million, inclusive of benefits from Fidelta's disposal and currency improvements. Looking ahead, we anticipate a cash burn of between €450 million and €490 million for 2022, representing a significant reduction compared to 2021 due to cost-adjusted strategies, with a further decrease expected in subsequent years as Jyseleca begins to contribute positively to our cash flow. To summarize, our R&D remains central to our future ambitions, and we will continue to develop new candidates for clinical exploration. We are focused on a successful rollout of Jyseleca for rheumatoid arthritis and ulcerative colitis, and we're exploring opportunities for business development, especially with our new CEO, Paul Stoffels. Our specific guidance for 2022 remains at €65 million to €75 million in sales for Jyseleca and a cash burn of €450 million to €490 million. I will now hand it back to Sofie to guide us through the Q&A session.

Sofie Van Gijsel, Investor Relations

Thanks very much, Onno and Bart. So this concludes the presentation portion of today's audio conference call. I would now like to ask the operator to open the line for Q&A.

Operator, Operator

The first question comes from Jason Gerberry at Bank of America.

Jason Gerberry, Analyst

So my question is just was there anything new or unique from the post-marketing data from tofa or baricitinib that triggered the EU scrutiny on the deck? Or is it just more of the same issue that FDA has reported in the past? And if you can just talk about some of the potential scenarios that could emerge from the CHMP opinion, I imagine that this is mainly a labeling consideration, but just curious if you guys can clarify on that, I'd appreciate it.

Walid Abi-Saab, VP of Clinical Development

Jason, this is Walid. I'll address that question. I'm not certain if everyone is on the call from Australia right now. The information we received from track was quite specific, relating to data from post-marketing studies, I believe involving baricitinib. This isn't new information. They observed a higher risk of thromboembolic events, specifically VTEs, and possibly MACE as well. There’s nothing new in this regard. As you know, we've been monitoring this area for quite a while in relation to the drug class, regularly reporting our data concerning filgotinib. Regarding the process and potential outcomes, it’s still too early to determine. The CHMP and EMA are tasked with overseeing the ongoing safety of approved compounds. In this instance, there was an Article 20 review conducted previously on tofacitinib, and now we have new data concerning baricitinib. They are diligently monitoring this daily alongside the other three JAK1 inhibitors in the inflammatory domain, which includes upadacitinib, filgotinib, and the new compound from Pfizer for atopic dermatitis, focusing on the adverse events we’ve been tracking, and as of now, there are no new signals. Based on this evaluation, they will decide on the next steps. However, it’s premature for us to make any assessment right now. I would like to take this opportunity to reaffirm our strong belief in the risk-benefit profile for filgotinib. We have been communicating this for a lengthy period. We believe that the JAK1 preferential activity observed with our compound, combined with our careful choice of doses, will lead us to what we consider the best risk-benefit profile. You have seen this reflected in various data regarding filgotinib, particularly in the context of serious infections and other related events. We look forward to collaborating with the EMA on this matter, and we hope to convey our message clearly, ultimately providing information that will be most beneficial for prescribers using these critical compounds, especially filgotinib, for the patient population that needs it most.

Operator, Operator

The next question comes from the line of Dane Leone from Raymond James.

Dane Leone, Analyst

Just 2 questions for me. Firstly, I guess, in terms of the guidance for Jyseleca, the results of MANTA seem very helpful. But for the commercial infrastructure that you've built out, how fungible are the calling points between the rheumatologists that you're working on with RA to the touch points that you expect for ulcerative colitis? And what's in place now versus what would have to be built there? And how do you factor in the contribution from ulcerative colitis in terms of the longer-range forecast that you now have for Jyseleca? And then the second question, which, obviously, I would have never thought I would have to ask you, but is there any expected disruption from the ongoing war in Ukraine?

Michele Manto, Chief Commercial Officer

Dane, this is Michele here. Good afternoon and good evening also from my perspective. I'll take the first question on Jyseleca. So well, we already clarified our expectation to have a €500 million peak sales in the second half, and that, of course, includes the infrastructure for commercializing in RA and commercializing the 2 indications in IBD, so UC and Crohn's. As we got approval for UC in Europe and then subsequently in great region, November and January, recently, we have been building or expanding our infrastructure in the countries to account also for that indication. So to say that, so the bulk of the organization is already in place and was already in place for RA. Everything to do with, of course, distribution more of the backbone operationally, but also the market access, the negotiation at a national level and subnational level is the same infrastructure we have for RA. And actually, it was a good continuation of work after we got a very successful RA reimbursement to then continue immediately and put further for UC as well. In terms of field force or sales force and also MSL medical, we have different approaches country by country to vary judiciously to understand how much really it's needed incrementally. In some countries, actually not too much because the prescriptions happen in hospital. So we managed to get also into some type of hybrid roles that maximize efficiently the detailing capabilities on also the gastroenterologists. In some other countries, actually, it pays off and it's better to have dedicated employees in both commercial and medical roles to then communicate to gastroenterologists. But all in all, where we assess the business case to be positive, consistently positive for UC considering the incremental resources that we have to put in place. And considering as well then the reimbursement cycle, so typically in Europe, about 12 months from central regulatory approval, we are building up those capabilities in the countries as we go. And I've indicated earlier, we launched already in Germany and UC, so we are pretty structured and organized there in the countries that typically longer, like Italy and Spain to get central reimbursement. We are building that up in these times in the next months. Also considering the impact of COVID and how much the face-to-face connections and calls will be needed versus more of a centralized digital approach. I can't give a sense on the second question about the current situation in Ukraine. Not directly on this part of the organization besides, of course, the tragic humanitarian political situation there. I might then pass the board to Walid for something that is related more to the R&D or studies.

Walid Abi-Saab, VP of Clinical Development

Yes, thank you, Michele, and thank you, Dane, for your question. This situation was not unexpected; we had anticipated it for a few days and have been assessing whether it would cause any disruptions. I can address this from various angles, including not only clinical studies but also R&D and drug supply. Currently, we do not foresee any major disruptions in these areas. In terms of clinical studies, patient safety remains our top priority. We managed a similar situation during the COVID pandemic by focusing on balancing patient safety with providing access to necessary medications. Fortunately, our studies in Ukraine are showing very low numbers, and we do not expect significant interruptions. However, we are closely monitoring the situation. We've established a core team to track developments daily and make adjustments as needed. At this point, I can confidently say we do not see any major disruptions.

Operator, Operator

The next question comes from the line of Peter Verdult from Citi.

Peter Verdult, Analyst

Thank you. Peter Verdult, Citi. I have a question on business development, please. Just Onno and team, how would you characterize the general environment to execute BD in light of the biotech sector selloff? And if I may squeeze in 1 extra addendum. Specifically, when we met last month with the announcement of Paul as the new CEO, you mentioned at that time that the Board was assessing a deal. I realize this is not the floor to go into details, but can we assume Paul has had a chance to assess that deal and in theory could Galapagos act quite quickly once he starts in April?

Onno van de Stolpe, CEO

Yes, let me answer this. Clearly, to have cash in the current market is a clear benefit if you are on the hunt for a deal in this sector. Clearly, the capital markets are quite negative on biotech at the moment. So yes, that's clearly in our favor. And with the announcement of Paul, we actually have received a lot of inbound calls regarding companies that would like to collaborate or do a deal one way or the other. Clearly, the network of Paul is tremendous, and we can benefit from that. Paul is already quite active in discussions with the Galapagos team. Although he starts in a little over a month, he is already not continuously, but regularly involved. And so we are moving forward in the process of selecting potential interesting candidates.

Operator, Operator

The next question comes from the line of Brian Abrahams from RBC Capital.

Brian Abrahams, Analyst

Just my congratulations to all your accomplishments over these last several decades and best wishes going forward. Just on the Toledo program, can you give us an update on the status of the next-generation compounds? I guess, how far along you are some of the key similarities and differences as you work through the chemistry there? And then maybe just a quick follow-up on the business development side. Just wondering, I guess, how you and Gilead are working to align on overall strategy there?

Walid Abi-Saab, VP of Clinical Development

Brian, this is Walid. I'll take the first question. I'll turn it over to Onno. So on the Toledo program, we currently have the SIK3 inhibitor 4399 finishing Phase 1. And then once we get the results of that study in healthy volunteers, we will have data on pharmacodynamic effects as well as PK and safety. And this will put us in the right place to decide on what would be the most appropriate next step for this compound. At the same time, what we have been doing, actually, we're not done with this is to look at the totality of the data both from safety as well as efficacy and biomarker from the large number of compounds that we have developed through various stages in discovery and 3 of them right now until now in the clinic to be able to have a much better idea as to the appropriate next step. So today, our working hypothesis is that going after selective compounds for SIK2 and SIK3 is the right approach. And it's working with compounds that have a higher target engagement and, as a result, being more potent with higher target engagement in the clinic will be what would be needed. These are the lessons learned from RX with 3970. So we expect that 1 or 2 of such molecules will be coming into the clinic in the next, I want to say, 6 to 12 or so months so that we can advance these forward and have an assessment as to the differential activity between SIK2, SIK3 and what does a combination of SIK2, SIK3 bring forth. Having said that, I'm very confident that our know-how in the space of inflammation with this novel pharmacology and the fact that we were able to demonstrate evidence of clinical activity in psoriasis with a molecule that probably did not inhibit the target as much as we would have wanted to, but clearly showed evidence of clinical activity in psoriasis, not competitive, but still adequate vocal. And some evidence of biologic activity in ulcerative colitis, that to me bodes well for the future of this class of compound and inflammation. And I think Galapagos is well poised to be the leader in that space because we are truly developed a wealth of information that's going to put us in a great place to capitalize on this and figure out what is the true potential of this class of compounds. And so stay tuned, we'll keep you posted in the next several months after the development. I'm very positive about where it's going to go. But at the same time, I'm very careful. I don't want to be overpromising and get ahead of myself. With that, I'll turn it over to Onno.

Onno van de Stolpe, CEO

Thank you, Walid, and thank you, Brian, for your question. For those who may not be familiar with our agreement with Gilead, they have the option to take on all programs that Galapagos develops or in-licenses after we complete Phase 2. They have the option for non-European rights, which involves a license fee of €150 million for each program. Once the option is exercised, we will jointly develop Phase 3 on a 50-50 basis. This arrangement is clear and beneficial for the programs we develop internally. However, if we acquire programs or companies, things can become more complex, particularly if the acquisition costs are significant. It wouldn't make sense to spend €0.5 billion or €1 billion on an acquisition and then only receive €150 million for the non-European rights. Gilead is aware of this and has expressed interest in collaborating with Galapagos on acquisitions, including contributing to upfront and milestone payments. We will need to discuss each case with Gilead individually. We regularly share ideas about potential acquisition and licensing candidates. I am hopeful that this year we will finalize a deal where Gilead partners with Galapagos to add a product to our pipeline, retaining the non-European rights or fewer, but definitely retaining U.S. rights and participating in the acquisition costs.

Operator, Operator

The next question comes from the line of Laura Sutcliffe from UBS.

Laura Sutcliffe, Analyst

A quick question on the TYK2, please. You've mentioned evaluating this in the context of a competitive landscape. But what are the parameters you're working with here? Does it have to be best in class for you to want to keep pursuing it? Or at the other end of the spectrum, are you essentially committed to keeping it going if it looks say, no matter what? And then maybe just a quick follow-up on the Gilead piece. You restructured your agreement before. Are you in a position if both sides want that to restructure it again? Or is there anything would not be doing that?

Walid Abi-Saab, VP of Clinical Development

I'm sorry, was the first question on the TYK2?

Laura Sutcliffe, Analyst

It was, yes.

Walid Abi-Saab, VP of Clinical Development

Yes, I apologize for the interruption. Regarding the TYK2 program, we're nearing the end of Phase 1, as previously mentioned. This phase will provide us with insights into the safety data, tolerability, target engagement, and some pharmacodynamic endpoints, along with pharmacokinetics. This information will clarify the potential of this compound moving forward. However, we have to consider the current regulatory environment, especially concerning the JAK class in the U.S., where JAKs are being assigned as second or third line treatments after biologic-IR. Since TYK2 operates through the same pathway as JAKs, pursuing indications like psoriasis could be too risky for us at this stage in development. On the other hand, pursuing TYK2 inhibitors for ulcerative colitis makes sense, as they inhibit signaling through IL-12 and IL-23, which are known to be involved in the condition, and this can lead to clinical benefits. Recent data from deucravacitinib presented at ECCO highlighted that in biologic naive patients, the results were challenging to interpret, showing a tendency for poorer outcomes on the drug compared to placebo, potentially due to a higher placebo response. This context needs to be factored into our considerations. While there were some numerical differences in biologic-IR, we must evaluate the overall data and compare it against our own to determine a path forward in ulcerative colitis. The threshold appears to be high, and the level of target inhibition with deucravacitinib was evidently insufficient to provide a competitive treatment option. Nonetheless, TYK2 inhibition has significant implications for several diseases. We are exploring potential indications driven by interferon alpha, including dermatomyositis, polymyositis, and lupus. We anticipate completing our evaluation in the first half of this year and hope to initiate a study towards the end of this year in one of these areas if the data supports it. Now, I will hand it over to Onno for the next question.

Onno van de Stolpe, CEO

Yes, Laura, it's Onno. Yes. I think in general, we believe that in gastrointestinal, the opportunities are bigger. The unmet medical need there is higher. Clearly, less competition is probably the most competitive field to play in. So yes, if we can find interesting opportunities in the IBD space, then that clearly has the priority.

Sofie Van Gijsel, Investor Relations

Thanks, everyone. That's all we have time for on today's 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 2022 results on May 6. Thank you all for participating, and have a great day.

Operator, Operator

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