Earnings Call Transcript - GLPG Q2 2020

Elizabeth Goodwin, Investor Relations

Thank you all for joining us today for the audio webcast of Galapagos' First Half 2020 Results. I'm Elizabeth Goodwin, Investor Relations, also representing a great reporting team. This recorded webcast is accessible via the Galapagos website homepage and will be available for replay later on today. So that your questions can be included, we request that you call into one of the telephone numbers given in last night's press release. I've got one for you here, 32 for Belgium, 2404-0659, with code 8997710. I'd like to remind everyone that we'll 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, the CEO, as Bart Filius is away. Onno is going to go through the operational highlights, and explain the financial results and expected future news flow. You'll see a PowerPoint presentation on screen and we estimate that this will take about 10 minutes. And then we're going to open up the call for questions with Onno, who will be joined by Walid Abi-Saab, our CMO; Piet Wigerinck, CSO; and Michele Manto, who is our Chief Commercial Officer. And now I'd like to hand to Onno. Go ahead Onno.

Onno van de Stolpe, CEO

Thank you, Elizabeth, and thank you all for attending this webcast. I hope you all are enjoying the summer, a strange summer in view of COVID-19, but we are all making the best of it. We're all dispersed in various locations today, so hope the logistics go well. Yes, let's start with a very positive note on the positive CHMP opinion for filgotinib in rheumatoid arthritis that's created a hallmark moment for Galapagos, our first molecule that received a positive CHMP opinion. We're very pleased with the progress we're making to get filgotinib introduced into the market. This opinion is a recommendation for marketing authorization in Europe for the treatment of moderate-to-severe rheumatoid arthritis patients. The very good news is that we got both the 100 mg as well as the 200 mg dose recommended. This will give an option to doctors to prescribe a lower as well as the higher dose which we believe is a benefit for this molecule. The patients that will receive filgotinib are those patients who have inadequate response or intolerance to one or more standard treatments and monitor it all in combination with methotrexate, which was expected in the recommendation, so we're very pleased with that recommendation. All of this is based on the FINCH and the DARWIN data, the Phase 3 and the Phase 2 datasets that included a total of 4,500 patients. So there is a lot of efficacy and safety data on filgotinib with the regulators. So, we are now awaiting the EU marketing authorization that normally should come in a two-month period. So if we look at how we are approaching this in the commercialization, then clearly we will start in a limited number of countries. Gilead will have the remainder of Europe to introduce filgotinib in RA, while Galapagos will handle this in the Netherlands and Belgium, as well as in France, Italy, and Spain, so quite a large geography where Galapagos is responsible for the full marketing and commercialization of filgotinib. We are also expecting that later we will also get authorization to market filgotinib for inflammatory bowel diseases in Belgium, the Netherlands, as well as the UK and Germany, so different geography than for rheumatoid arthritis. A big advantage for us is that we can gradually increase our marketing efforts and presence in Europe preparing for full European presence on the commercial side for our next product that may hit the market, most likely that should be our product for idiopathic pulmonary fibrosis, ziritaxestat. So for now, we are ramping up for the first quarter launch for filgotinib in those five territories, which we believe is a great challenge. We are ready to take on that challenge and we're very well prepared. In the SELECTION Phase 3 results in ulcerative colitis with filgotinib, we saw very good data coming out of this trial. We achieved the primary endpoint, both with the 100 mg and the 200 mg on EVS remission at week 10 and 68; with the 200 mg we achieved both the induction as well as the maintenance endpoints. The 100 mg achieved the maintenance endpoint, but not the induction endpoint. It was tough to treat these patients, and we were very pleased with the outcome of this trial. Looking at the safety side, the rates of serious adverse events were low and very comparable across the treatment groups and in line with what we have seen in other trials for rheumatoid arthritis and other indications. So the full data will be presented at a future medical conference in collaboration with Gilead. That's for the science and development part. Let's switch to the financials. Normally Bart would have presented that, but I'll try to do it as well as I can. We've started the year at €5.8 billion, and cash burn on the operational side reduced to €230 million, completely according to plan, so we ended the first half with a cash position of €5.6 billion. This was completely in line with expectations. You will see the financial highlights, and revenues are significantly up compared to a year ago, reaching an extra €160 million, landing revenues at €224 million. However, this is the consequence of the big deal we signed with Gilead, where we have revenue recognition on the technology access they received through the option agreement and the upfront payment, which is recognized over a 10-year period. Operating costs went up substantially by €150 million, as we are expanding in all areas including development, research, G&A, and also preparation for commercial launches, which will start to kick in seriously affecting the financial side. All according to plan, and we're very pleased with how that is all coming along. Total debt combined with the net results showed a loss of €165 million compared to a loss of €70 million last year, which of course is a consequence of the substantial increase in various aspects of our business, and nothing to be concerned about. We had previously communicated to the market that we would ramp up our expenses in research, development, and commercialization. Our guidance for operational cash burn is estimated at €400 million to €430 million, which includes €205 million in potential milestones subject to regulatory approval. If these milestones do not come in this year for whatever reason, we could see higher cash burn than €400 million to €430 million. And one last slide is regarding the milestones that we expect for the remainder of the year. The SELECTION data will come in, and we're now awaiting three Phase 2 readouts: two Phase 2a and one Phase 2b. The first PINTA study is in idiopathic pulmonary fibrosis, and we are expecting that data shortly. Then we have the second indication for ziritaxestat, with the first indication in IPF and the second indication being systemic sclerosis. We will get that data in the NOVESA trial in the upcoming months. There is also the longer wait for important trial data of 1972 in the ROCCELLA trial, which is a very large trial of over 800 patients that we're conducting together with Servier. Data from that trial should also be coming in the remainder of the year. Lastly, we are awaiting anticipated regulatory decisions in RA, beginning in the EU following the CHMP opinion as well as from the FDA and Japan; all three of these decisions should come in the coming months, for which we should know how we plan to market filgotinib based on those decisions. With that as an introduction, I will hand it back to Elizabeth to take the Q&A.

Elizabeth Goodwin, Investor Relations

Okay, thanks Onno. That does conclude the presentation part. Questions will now be taken on a first come, first serve basis. You know we don’t manage the queue, so please limit yourselves to one question per caller today and now I'd like to ask the operator, Jennifer, to connect us to anyone with questions for the team. Go ahead.

Unidentified Analyst, Analyst

Hi Rashid Ali, good afternoon. Thanks for taking my question. Do you expect a warning on the filgotinib label for tested toxicity and if there is such a warning, how might filgotinib be affected in the label post MANTA data, and what impacts could you see on uptake as a result of that? Thank you.

Walid Abi-Saab, CMO

Maybe I'll address the regulatory question and then turn it over to Michele. This is Walid. Good morning, good afternoon to those folks on the phone. I am assuming you're referring to the European label because we don’t know anything about the U.S. yet. The MANTA data is meant to evaluate whether we see any evidence of effects in humans based on the safety or toxicity endpoints that were used, and those data will be very important to inform any potential risks to humans. As soon as we have those data, we will be submitting them to the CHMP and discussing with them how they will be implicated in the label. We believe that this study is rightly being conducted, and those results will truly inform any potential risk to humans. I'll turn it over to Michele regarding the uptake question.

Michele Manto, Chief Commercial Officer

Yes, so based on what Walid said, the driving force will be the label. We have confidence, but there is no point in speaking now. We also know that the overall profile of the drug is significant enough to make a good case.

Unidentified Analyst, Analyst

Got it, thank you very much.

Debjit Chattopadhyay, Analyst

Hey, good afternoon. In the SELECTION study, male patients on the 200 mg dose had both TNF and etrolizumab, which lowered the placebo-adjusted rates to between 8% and 11% range. I'm curious how women might have fared if those rates are comparable. Thank you.

Walid Abi-Saab, CMO

Yes, thank you for the question. You broke up a little bit, but I assume you are asking whether there is any difference between males and females in the trial. I will be honest—we haven’t disclosed that information yet. We plan to present the details of the SELECTION trial at an upcoming scientific conference, then we can dive into the specifics of the breakdown based on previous treatments with etrolizumab and TNF both as failures as well as male, female, and age. At this point, I can tell you we have not found any unusual results, and we'll have to see it at the conference when we present the data. Additionally, we had a significant number of patients, close to about 50%, who were exposed to both. We're looking forward to sharing those data with you soon.

Debjit Chattopadhyay, Analyst

Thanks.

Onno van de Stolpe, CEO

Thank you.

Evan Seigerman, Analyst

Hi guys, thank you so much for taking the question, and congrats on the progress. As we head into the potential launch of filgotinib in the United States and Europe, can you review some of the pre-commercial activities you're engaging in, especially in Europe, given the competitive space? Any points of differentiation? I know it's a common question you get a lot, but it is a question I receive often as well. Thank you.

Michele Manto, Chief Commercial Officer

Yes, hi, this is Michele. Thank you for the call. First, we built up our presence as Onno highlighted earlier, and we are very happy with the progress we're making. The first step was to recruit a strong team with experience in our therapy areas, specifically in the UK and Germany, who already have strong contacts with our customers. At the same time, we are experts in Medical and Access. Now the first actions involve talking and planning the best and most effective ways to achieve reimbursement while setting up compliant contacts before the approval of filgotinib. Despite the ongoing COVID situation, we have strong first connections with experts, yielding encouraging feedback and expectations regarding our upcoming launch. The significant presence in the virtual space allowed us to test our mutual capabilities given the uncertainties in the future scenario, and we had good discussions with Gilead during that period with top leaders in rheumatology. Thank you for the call.

Evan Seigerman, Analyst

Great, thank you so much.

Brian Abrahams, Analyst

Hey guys, thanks for taking my question. Coming out of the SELECTION study, I was wondering if you could talk a little bit more about the status of regulatory engagement and maybe your expectations for the GI division's view on MANTA and MANTA-Ray. What might they look for there, and your confidence that this division would be amenable to a broad label in ulcerative colitis, particularly with the limited number of TNF male patients enrolled in the U.S. at that dose? Thanks.

Onno van de Stolpe, CEO

Yes, thanks, Brian, for this question. Tough to answer. All I can tell you is that we in Gilead are preparing for submissions, not just in the U.S. but also in Europe and Japan for ulcerative colitis. We cannot provide any specific details about where the agency stands. It would be speculation at this point. However, we are quite confident with the data that we have with filgotinib, especially with the totality of the safety data we’ve seen from both rheumatoid arthritis and also IBD data. But I cannot speculate on where the agency would sit regarding approval of the 200 mg, so we need to wait a bit longer for that.

Brian Abrahams, Analyst

Thanks. Okay, understood. Thanks.

Jason Gerberry, Analyst

Hi, good morning. Thanks for taking my questions. My question is just on filgotinib. When you look to initiate your proof-of-concept trials in the second half, I know the plan was to evaluate ulcerative colitis initially. I just wanted to confirm that you will also be conducting trials in other populations. Will that be strictly limited to the EC population? Thanks.

Piet Wigerinck, CSO

Jason, Piet here. Thanks for the question on the other pipeline. We remain ambitious for the later program, so filgotinib will be explored broadly. We will start with different strategies; we have one which will have three proxies, and that will come to Wave 2 which will have longer studies and then Wave 3 which focuses on more chronic indications. We remain committed to our ambitions and plan to start a different number of clinical studies in the second half if COVID allows. Thank you.

Jason Gerberry, Analyst

Thank you.

Matthew Harrison, Analyst

Hi all. Thanks for taking the question. This is Connor on for Matthew. So just two quick ones for you. Can you comment on the enrollment speed in the IPF studies, and if they remain generally on track mid COVID, as well as the futility analysis? You noted in your press release pending successful start of the Toledo studies. Do you plan on providing more information? We're just wondering if you could provide what kinds of impacts you're seeing and the potential for delay on those gives COVID. Thank you.

Walid Abi-Saab, CMO

Alright, I will take the first question. This is Walid. We have discussed before that the COVID situation did impact these trials and enrollments. This impact has not been consistent across the world but rather comes in waves, following the pandemic situation. We have seen a return towards normal in the studies we have in recruitment, and we feel confident that we should finish recruitment sometime in the first half of next year. The futility analysis is still on track to be conducted in the first half of next year. While the situation is fluid, we are cautiously optimistic that we are starting to see an increase, albeit less so in certain parts of the U.S. but mostly in Latin America. The rest of the world is beginning to return gradually towards normal.

Onno van de Stolpe, CEO

Thanks, Walid. I will address the question on the COVID impact on the Toledo study. The challenge there was different; we had to start these studies, and during the first wave, especially in the countries we planned to initiate them, we simply could not get to the hospitals, and they were not ready to start any clinical study. Now that situation is over and our current view is that we expect to be able to start these studies in the second half of the year. We are fully prepared to kick them off. Of course, we hope that a second wave does not disrupt the medical system again, but we believe that it will not happen. We are confident today that we will start those studies in the second half. Thank you.

Unidentified Analyst, Analyst

Thank you.

James Gordon, Analyst

Hello, thanks for taking the question, James Gordon with JP Morgan. My question is actually on OpEx. OpEx was about $200 million when you quoted last night annualized and about $100 million. With respect to the ramp up in sales and marketing, what's going on in the pipeline? So could OpEx significantly exceed this higher annualized 2020 figure or is this somewhat exceptional for this quarter?

Onno van de Stolpe, CEO

We haven't provided guidance yet for 2021, clearly. This is Onno, thanks for your question. But our costs are expected to increase as we ramp up commercial operations, especially as we are ramping up. Our trials also continue to mature to a later stage, which will drive up costs. Conversely, we expect to see our first commercial sales coming in with revenues for shorter milestones related to regulatory approvals. It's a mix of pluses and minuses, but generally, it is clear that 2021 will not be a year where we will be moving closer to breakeven or profitability.

Lenny Van Steenhuyse, Analyst

Hi, good afternoon, everyone. A question on the commercial side: we've seen competitors ramping up sales impressively last quarter. Of course, the main focus is in the U.S., while you, apart from Gilead, will be commercializing in Europe. How do you think about differences and competitive pressure in these two regions? Are there any specific dynamics unique to each market? Do you believe a higher or lower market share is possible in Europe versus the U.S.? Can you provide some insight on that?

Michele Manto, Chief Commercial Officer

Yes, thank you for the question. This is Michele. It's also a unique time to look at our predictions amid the ongoing COVID pandemic, which affects the number of patients being treated. We are strategically focusing on Europe while taking advantage of Gilead's strong presence in the U.S. The key difference here is that while observing strong uptake in Europe, we have already seen the products reach 15%+ market share. JAK would be the next mode of action following anti-TNF. In the U.S., the successful deals are important for new oral therapies. Additionally, JAK usage is increasing in both regions, even in first-line treatments with naïve patients, whereas previously, usage was limited to TNF failure patients. This trend further signals the need for successful launches. Thank you for the question.

Lenny Van Steenhuyse, Analyst

Thanks very much.

Emily Field, Analyst

Hi, I just had a quick follow-up on the question regarding OpEx. I couldn't quite hear the last comment about 2021. Did you say that you will be progressing towards breakeven? If you could clarify what you said? My second question is for Walid; a competitor recently showed compelling data in psoriasis with an IL-17 A and F inhibitor, expressing optimism about that mechanism of action in psoriatic arthritis and ankylosing spondylitis due to the potential beneficial impacts on joint inflammation. I was wondering why you believe that JAKs would be particularly compelling in those two indications? Thank you.

Onno van de Stolpe, CEO

I apologize if I wasn't clear. Due to the substantial increase in costs next year, associated with commercial ramp-up and pipeline progression, we do not expect to move closer to breakeven. You can expect that our cash burn will at least be as high as it is now. So yes, Walid?

Walid Abi-Saab, CMO

Yes. Thanks, Emily. Look, the data we currently have with the JAKs shows that the efficacy is promising for RA and our initial data in psoriatic arthritis, while others have demonstrated results as well. We need to consider speed of onset, magnitude of effect, and sustainability. While the competitor’s data may be compelling, we are confident in our own results and believe we will be highly competitive in that space.

Emily Field, Analyst

Great, thank you.

Benoit Louage, Analyst

Hello, good afternoon. Thank you for taking my question. Maybe just a small one on the SELECTION trial. Can you verify if the submission for filgotinib in UC is still planned for this semester, or will that be more in 2021? Thank you.

Onno van de Stolpe, CEO

Usually, submissions for another indication will need to wait for approval of the first indication, which depends on what's happening in the U.S. regarding RA. In Europe, the path seems to be clear. We expect an opinion from the EU that follows the CHMP advice, but they retain some prerogative to change their mind. Assuming they proceed down the same path, we would expect that to happen this year. Similarly for Japan, we are still on track, but first, we need to hear about the primary indication before we move forward.

Benoit Louage, Analyst

Thank you.

Dane Leone, Analyst

Hi, thank you for taking the questions, and congratulations on the progress. I wanted to focus on IPF. Can you set the table a bit with PINTA and what you're expecting on that readout? Can you provide any insight into historical data regarding palmitic acid with similar mechanisms? Additionally, several have asked about the statistical plan for ISABELA with respect to the futility analysis. Could you update us on the particulars of that plan? Thank you.

Walid Abi-Saab, CMO

Let me start with the ISABELA stats. The plan for futility is to avoid exposure to ineffective drugs while conducting extensive trials, which drives the futility analysis. We needed to collect data from approximately a third of patients in each trial, translating to 70% information because we include the data of patients who have completed 52 weeks. We will estimate the differences between drug and placebo based on the annualized rate, aiming to detect any significant separation from placebo. We will stop trials if we find that both doses do not demonstrate separation from the placebo group. Piet, would you like to address the PINTA question?

Piet Wigerinck, CSO

Sure, PINTA shows our commitment to recruitment, and we are awaiting the results. This is a different study design than FLORA, as we include a mix of treatment backgrounds in patients. PINTA has the potential to yield positive results that could immediately propel us into the next phase of studies. Given the competitor’s disappointing outcomes with other treatments, we remain hopeful regarding our GPR84 antagonist and its effectiveness in treating IPF patients.

Onno van de Stolpe, CEO

If you compare the compounds, it’s clear that GPR84 antagonists offer distinct action mechanisms, and we are confident that our compound will prove effective in PINTA.

Phil Nadeau, Analyst

Good morning. Thanks for taking my questions. A question on the clinical trials of 1972—clinicaltrials.gov lists the study as complete as of mid-July. Should we expect data over the next several weeks to months? Could you also explain how the study is powered, particularly regarding the endpoint of cartilage thickness? What range would you consider a clinically meaningful difference?

Walid Abi-Saab, CMO

Yes, indeed. The study has completed, and we're in the process of data cleaning and locking the database. These efforts are somewhat hampered by COVID-19 challenges, with site visits taking longer than usual. However, we're still on track to have the data in the second half of the year. The primary endpoint of the study involves assessing cartilage thickness using MRI in the medial portion of the knee, employing a rigorous automated algorithm. We are confident in our ability to detect a reduction in cartilage loss by about 75%. As for the clinically meaningful difference, we currently do not possess an answer since historical outcomes have yet to demonstrate that impact, but we are actively collaborating with experts and regulators for future trial design.

Phil Nadeau, Analyst

That's very helpful. Thank you.

Laura Sutcliffe, Analyst

Hello, thank you. On MANTA and MANTA-Ray, you’ve mentioned your plans today and previously to share data from those trials with regulators. Will you also make the data from those trials public?

Onno van de Stolpe, CEO

That's a good question. I don't believe we have discussed this specifically with Gilead. However, I think judging by both our operating principles, the data are highly significant. The scientific community would be very interested in it. While I can’t commit before getting Gilead's consent, I think it's our obligation to the patients involved in the trial and the community to share the data. That’s likely our path forward, but I cannot confirm it entirely.

Graig Suvannavejh, Analyst

Thank you for taking my question. Regarding the PINTA study, could you clarify what you’re looking for in the Phase 2a results and if the data you expect should match or exceed what you've observed previously with ziritaxestat? If it doesn't achieve those levels, will that impact your decision to move forward?

Onno van de Stolpe, CEO

Thanks for this question on PINTA. We view IPF as a space with unfulfilled medical needs, where existing early treatments have been approved. We're hopeful to provide the market with treatments that are at least as effective, if not better, and importantly differentiated on safety. In that sense, PINTA is proof-of-concept and the primary endpoint will show a clear signal of our drug's effectiveness, similar to what we see with ziritaxestat. The extended data from a larger patient group will also assist in making the best decisions for this program.

Elizabeth Goodwin, Investor Relations

Alright, thank you all for your questions and for joining us today. We appreciate your participation. Our next schedule financial results call will be for the Q3 results on the 6th of November. Thanks again—I wish you all a great weekend, and please stay safe. Thank you.

Operator, Operator

This does conclude today's conference. We thank you for your participation.