Good day and thank you for standing by. Welcome to the First Half 2022 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sofie Van Gijsel. Please go ahead.

Thank you, operator, and welcome all to the audio webcast of Galapagos' H1 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 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. The company's 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 discuss the highlights of H1 and Bart will go over the operational and financial results. You will see a presentation on the 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 Walid Abi-Saab, Chief Medical Officer; and Michele Manto, Chief Commercial Officer. And with that, I'll now turn it over to Paul.

Thank you, Sofie and welcome to this first half review of the year. Let me say, I think we have made very good progress and we'll hope to give you a good insight on where we are with the company. We'll focus on the full half year, but first on Q1, you probably have seen that and remember that JYSELECA was approved in the U.K. and Japan for UC, and that practice has started on all JAK inhibitors, and we'll come back to that later on. That review is ongoing, and we'll expect the information by the end of the year. In Q2, a lot of change is happening in the company. First, I joined on April 1 as CEO of the company, joining a team which I know for a long time and with a lot of enthusiasm working together with the team on how we can create a very value-creating pipeline as a company. First, I must say, we are very proud of JYSELECA. We got reimbursement in 15 countries for RA now, 6 countries for UC, and you will see that in Bart's review where the results of that are following on the European sales. I think we are all very happy about that. I'm very proud that we can progress JYSELECA in this way. In the pipeline, we kicked off the whole program of reviewing the pipeline in our capital allocation accordingly. And so we made a move on acquiring two companies, CellPoint and Abound to move into oncology. We moved into a very exciting part of oncology with CAR-T, both with new CAR-T products and also with a very transformational platform where we can bring CAR-T to the point-of-care and we'll highlight that in the presentation which is now in clinical trials, testing it out. But on the other hand, we also made the decision to discontinue four early-stage programs in order to focus our resources on the most value-creating programs we have in the organization. If you look at the pipeline, you will see here what we are working on. First, we have the JAK inhibitor, filgotinib with very good results in RA and UC in Europe. But we expect data from Crohn's disease out of that Phase III in the first half of next year. That will hopefully provide an additional accelerated boost to the sales in Europe as this type of compound is highly needed in the market. We are starting with the TYK2 3667, a study in dermatomyositis. We'll provide updates on that. It had good results in Phase I. Building on that, we have chosen a selected indication to bring it into the clinic. We are still further evaluating our SIK compounds, SIK3 4399 is in healthy volunteers. We are looking for the data before deciding what indication we are moving forward with. Then we have several SIK compounds in two entry and previously combinations where we have now decided to evaluate what SIK2 can bring and see how we can move that forward. The CD19 CAR-T is now in Phase II clinical trials; we'll provide updates on that. We committed to develop three next-gen CAR-Ts through AboundBio in the next three years with transformational CAR-T products. Still, one product is in preclinical in fibrosis, SIK2/3 4605, and for the kidney program, we also expect results in the first half of next year and will decide by then whether we go forward or not. We discontinued four compounds of 555, 3121 and then 4716, 4586. As you see on the slide, the first two are in inflammation, the second two are in fibrosis. Both were reviewed deeply in terms of scientific evaluation and prioritization exercise. The 4716 and 4586 are compounds which we returned to the original owners of the company. The 4716 is still under evaluation; the 4586 we are evaluating for other indications but not anymore in fibrosis. In dermatomyositis with TYK2, we chose a selected indication of a high unmet medical need. The combined 3667 TYK2 has shown clinical activity in psoriasis in Phase Ib and was well tolerated. Dermatomyositis is a chronic immune disease of skin and muscle with an estimated incidence of 2 to 10 cases per 100,000. The key drivers for it are the Type I and III interferons as well as the IL-23 pathways. It's a severe disease with muscle weakness, rash, and papules, and we hope to start the study before the end of the year. That is the aim, and the teams are working on that. A few words on the acquisitions of CellPoint and Abound. We've said we would bring a disruptive CAR-T manufacturing with CellPoint and Abound, facilitating a 7-day vein-to-vein process with a clinical stage pipeline. The acquisition of Abound is complementary and brings broader biological capabilities in antibodies. This is supported by our fully integrated biopharma capabilities with end-to-end development at Galapagos as well as our commercial presence in Europe today. There is still a significant unmet need in hem CAR-Ts as of today. With our approach, we hope to address access, durability, and toxicity, which are three key points with CAR-Ts. There are manufacturing constraints and logistics issues; patients need to wait. Limited access on a global scale leads to mortality. We can present a significant opportunity to accelerate on-site with a 7-day vein-to-vein process, enhancing access to CAR-Ts on a large scale. Regarding durability, high relapse rates today necessitate innovative approaches, and we aim to prevent these relapses through multiple binders. As for toxicity, our fresh cell approach should help avoid intensive care hospitalization. The initial observation compares 7 days vein-to-vein versus the 15 to 30-day process with centralized manufacturing. Our scalable point-of-care incubator combined with a gazette will allow us to produce this type of CAR-T at the hospital. We are collaborating with Lonza, who developed a tool out of two elements: the Cocoon incubator and the gazette for production. CellPoint's quality system collects data, allowing us to provide quality-released products within hours of the process completion. We believe we will provide CAR-T production in multiple units for hospitals. Abound brings a highly experienced team with significant track records in CAR-T, antibodies, and ADCs. We aim to bring three differentiated CAR-Ts in three distinct indications over the next three years; one annually. The Phase I study with the CAR-T in Cocoon is progressing well with patients enrolled in the Netherlands, Belgium, and Spain. Part 1 is dose escalation. The low-dose cohort has completed both trials, and we plan to present data in upcoming meetings before year-end. With that, Bart, I would like to give it to you to discuss our financial results. Thank you.

Thank you, Paul, and good morning, everyone in the U.S. and good afternoon in Europe. Happy to be with you this afternoon to give you some background on our performance in the numbers as well as our commercial operations. So if we can go to the next slide. On JYSELECA, as a reminder, it's our first marketed product. We are also the marketing authorization holder since bringing that back from Gilead. We are reimbursing 15 countries in rheumatoid arthritis and now six countries in ulcerative colitis. We anticipate that the vast majority of Western Europe will be reimbursed in UC by the end of this year. So that process is progressing well. I'll say a few words about how the drug is received in that indication in a few seconds. Notably, we will have Phase III top line data in the first half of next year in Crohn's disease. Hopefully, that will enable us to make another indication part of JYSELECA's lifecycle. If we look at the performance in the market, on the next slide, you see the quarterly sales from when we began in Germany in Q1 '21 to now in Q2 of 2022. We reached €21 million in revenues for the quarter with strong quarter-on-quarter growth. We're optimistic about our anticipated full-year sales, taking an additional €10 million guidance increase for a range between €75 million and €85 million, up from €65 million. The first €35 million has been realized in the first half of the year. We received a milestone from SOBI in the second quarter for starting countries in Eastern Europe, showing that the business is starting to gain traction. On the next slide, I will give you a bit more detail about UC. We see our market share in the German market for UC in multiple categories. Our overall market share is 12%, but notable is that in the switch category of patients, we lead with 25%, which reflects the unmet need in this indication. The remission rates in patients remain suboptimal, with many therapies requiring corticosteroids, and treatments remain complex with safety concerns. With JYSELECA, we believe we can address these critical unmet needs. Michele Manto, our Chief Commercial Officer, is available for any further questions on the commercial side. Moving on to the financials. Our cash burn for the half year has been €217 million from our operating cash burn. A portion of our cash balance remains in dollars, leading to positive currency translation effects of €70 million. We spent €133 million on the acquisitions of CellPoint and AboundBio. Our guidance for full-year cash burn has increased by €30 million, now ranging between €480 million and €520 million, against a very healthy cash balance of €4.4 billion at the end of June. The highlights on the P&L include revenues and other income of €290 million, driven by government and Gilead transactions and sales of €35 million, with the R&D line showing a €27 million impairment related to the transaction with OncoArendi for molecule 4716 that Paul mentioned earlier. Our net loss stands at €32 million with financial income largely driven by currency effects. I conclude with our strategic priorities as we move into the second half of the year. We are still amid our scientific and strategic review. Additional discontinuations announced are part of that process. We are calling for an R&D update, the Capital Markets Day on October 5 in the U.S. where we will provide more details on the outcome of this scientific and strategic review. Our focus will continue on ensuring JYSELECA's success, growing the pipeline across therapeutic areas, and building our point-of-care cell therapy network. Thank you for that, and I will turn it back to Sofie for the Q&A.

Thanks very much. That concludes the presentation portion of today's audio conference call. I would now like to ask the operator to open up the line for Q&A.

I guess bigger picture, you've announced some deprioritizations within the pipeline. I was wondering if you could maybe talk a little more about the overall rationale, what you're looking for in the assets that you're going to be moving forward? And I guess, sort of bigger picture, how much this reflects your overall strategy in terms of what indications you'll be focusing on? Or is this more of an asset-specific decision process? What should we be looking for going forward as you continue to prioritize the pipeline?

Yes. Let me give a high-level answer to this. First, we will focus on real added value, which is very logical but addressing medical needs with highly differentiated compounds and then look at the competitive market on where we stand globally and see how we can create competitive products that generate significant value. For that, you need focus. Our continued focus will be on inflammation, expanded into oncology with specific technologies and indications. We are also building capability in biologics and small molecules in oncology. We will evaluate fibrosis as a part of our portfolio and look at whether it can continue to be a part of our capital allocation strategy. We hope to deliver a pipeline by 2025-2028 because that's our goal here. We want to ensure that we advance valuable assets.

And your next question comes from the line of Jason Gerberry from Bank of America.

First one just on 667. Just curious how you see your molecule potentially differentiating from Pfizer's dual TYK2 JAK1 which is moving into Phase III for dermatomyositis. I know it's early days but I'm not sure if there's anything even there in terms of your approach versus their dual inhibition approach or any pharmacological differences that you think are important? And then on the cell therapy front, just can you talk about the investment needed, how you plan to scale that over time as you get important derisking data in the next year or so?

All right. With the first question on 3667, regarding the compound from Pfizer, that's JAK1 TYK2. There have been some data showing a profile of JAK1 TYK2. However, in our case, 3667, our molecule is a selective TYK2 inhibitor, which should provide a significant different profile, particularly around some of the safety questions that we need to consider. The specificity in dermatomyositis with blocking interferon alpha is also important. We will have to assess the risk-benefit profile based on the results from the data that will be presented. In our case, 3667 has shown clear activity in psoriasis aligned with TYK2 inhibition. Additionally, we have observed evidence of pharmacodynamic activity at the doses used in Phase I, demonstrated in ex-vivo assays. We feel positive about the selectivity of our TYK2 and its success in this indication. Concerning the investment needed for CAR-T, our collaboration with Lonza provides us with a scalable existing platform. We won't need to deploy hundreds of millions before starting work in the market. We'll manage investment for clinical trials and product development while benefiting from the platform's stability.

With regard to the investment in CAR-T, collaboration with Lonza offers a stable existing platform that’s scalable. This significantly mitigates the financial burden typically associated with launching such programs. We'll use this partnership to ensure efficient investment in clinical trials and product development efforts. Furthermore, the existing platform functions well and has validated processes with volunteers and patients, providing us competitive advantage to bring new CAR-Ts to market efficiently.

Your next question comes from the line of Charlie Mabbutt from Bernstein.

I'm interested to hear what other indications you are discussing internally? And if you'd wait for this Phase II readout before starting other trials? And I'm wondering if you think it makes a difference to go for a different indication in Phase II versus the competition for the selective TYK2s if they can then use proof of concept? And then secondly, I noticed that your year-on-year spend for Toledo has sort of halved in the R&D line. Should we read anything into this in terms of your confidence in the program?

Thank you, Charlie. We've taken a step back to evaluate the regulatory environment, particularly in terms of psoriasis and the status of TYK2 as a JAK family member. We hesitated on entering psoriasis while contemplating the implication of the PDUFA date for the BMS compound. We're evaluating ulcerative colitis as another indication, with recent data adding caution. We're discussing other locations, including lupus, given recent positive data from deucravacitinib in lupus. Our approach remains to leverage strong rationale for success, evaluating dermatomyositis and lupus as potential indications; we will not necessarily wait for results from dermatomyositis before proceeding. Regarding the Toledo program, we're assessing the confidence of our investment. We've conducted small clinical studies with mixed results. The efficacy of compound 3970 was not competitive, and we are examining other molecules, staying attuned to the best prospects and timelines.

Your next question comes from the line of James Gordon from JPMorgan.

A couple of questions, please. First one was JYSELECA. I saw you took up this year's guide but you haven't increased the EU peak sales. So, is it the case that your longer-term sales expectations haven't changed at all? Is consensus being overly cautious? Or could there be a possibility that peak sales could be higher now? So how are you thinking about that? Second question was on the collaboration with CAR-T. How do we think about modeling the profitability? So let's say there was €100 million of sales. How much of that actually could end up as profit for Galapagos versus what actually goes to Lonza? Can you help us think about how to model that properly? And then my final question was about the October 5 R&D event. Is there going to be significant new clinical data? Is it more about things that you're planning to start? And might you have been nice in any further assets by then that you're going to talk about? Could you elaborate a bit on what we're going to find out at that event, please?

On your peak sales expectation, it's early to adjust significantly after a great quarter. We're pleased with this year's performance. Regarding your question about how much sales would translate into profit, we're unable to provide a detailed distribution of expenses. However, I would say we have a differentiated cost of goods approach with the CellPoint platform that should provide us a competitive advantage. Regarding the Capital Markets Day, expect a comprehensive overview of our strategy and insights into our cell therapy platform, including dermatomyositis and the performance of JYSELECA. We won't have the Crohn's data available until early next year. I think it will be a rich and insightful day.

Your next question comes from the line of Matthew Harrison from Morgan Stanley.

I was wondering if you could just give us a little bit of a view on how far you are through the portfolio review? Obviously, you discontinued four compounds here. Just how broad should we be thinking about? And how much more work do you have to do at this point to sort of understand where you are? And I guess, secondarily, obviously, you've made the pivot into oncology. Should we be thinking about pivots into additional therapeutic areas? Or do you think the therapeutic areas that we know about now are set?

We are actively engaging in both an internal review and an external evaluation of business opportunities. This dual approach allows us to explore strategic direction and potential acquisitions concurrently. Our current focus is on oncology and inflammation, while we will carefully evaluate any select opportunities in infectious diseases. Remember, we are in the midst of this review and this reporting marks our first step in that regard. More insights will be shared at the Capital Markets Day regarding our long-term strategy.

Your next question comes from the line of Phil Nadeau from Cowen.

The question is on JYSELECA. Could you go into maybe a bit more detail about what drove the strong quarter-over-quarter growth? Was it specific indications UC versus RA or specific geographic areas? And then second, you mentioned the EU product review coming out later this year. What is Galapagos' opinion on the potential scenarios for the conclusion of that review? How could they impact JYSELECA's long-term potential?

Yes. It's been a strong quarter. The acceleration comes from various factors, including the launch of UC contributing significantly, especially with Germany being the first country having immediate reimbursement after EMA approval. It’s early days for this indication, but we’re observing a positive trend. There's also been strong growth from the full activation of our geographies. Countries like Italy and Spain are beginning to thrive after long reimbursement timelines; benchmarks show a strong competitive position. The integration of the Gilead teams and improved engagement following lockdowns also enriches customer interactions. This positive dynamic is why we felt confident increasing our target for this year. For the regulatory position, Walid, hand it to you.

It's speculative for us to comment on potential outcomes of the EU review, as this is a procedure that will take due course. We are collaborating fully with EMA and answering questions, monitoring adverse events of special interest. This is an ongoing dialogue, and we expect feedback by the end of the year.

And the next question comes from the line of Jeroen Van den Bossche from KBC Securities.

Congrats on the very strong performance. Maybe two quick questions. With the expansion into more business development activities, will that impact future cash burn? Should we expect that to remain on target? And I'm looking at 2024 and beyond? The second question is related to CAR-T. With the decentralized approach, what will be the legal manufacturer of those materials? Will it be the hospital or Galapagos? And how will you manage GMP requirements? What percentage of hospitals do you see suitable for this manufacturing?

Let me take the first question. We anticipate that our cash burn will remain on target. Still, we expect that JYSELECA's breakeven will be achieved in 2024, which also aligns with our previous projections. However, with meaningful business development, it's essential to note that cautions on expenses may affect the envelope we've communicated previously. We will give guidance each year as this evolves. Now on CAR-T, as you noted, the legal manufacturer will be Galapagos; we will hold the marketing authorization and be responsible for the product. We will train the staff in hospitals to ensure GMP compliance and utilize our quality system for managing the manufacturing process effectively.

To further clarify, our system ensures Galapagos holds primary responsibility for quality control, while training will extend to hospital staff. Our integrated data system will allow for consistent monitoring. This model aims to decentralize production while ensuring rigorous safety and compliance.

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

As we look ahead to the R&D Day in October, how much can you preview for us about unveiling your compound library and possibilities with targets that are not currently in your stated portfolio? I ask this because it feels like to many in the investment community, there's a considerable amount of risk associated with the salt and usable kinase portfolio despite years of development without proof of concept. Also, TYK2 and CAR-T are highly competitive areas. So, where do you stand on unveiling differentiated assets versus the ongoing need for aggressive business development?

We will provide a comprehensive update on our internal pipeline at the R&D Day, including significant insights on new indications we are pursuing and our capabilities in CAR-T. We will showcase initial results, discuss our differentiated approach, and provide timelines for next steps. Our focus is on value creation over the next three years—this event will highlight our strategy, current progress, and any additional external assets we may consider.

And your last question today comes from the line of Rosie Turner from Jefferies.

Just one more on 3667. Just thinking about the broader market dynamics in dermatomyositis and how that plays out. We have Ultomiris in Phase III, and we also have an IG study from CSL coming. Where do you see TYK2 fitting within the treatment paradigm? And do you have any insights on the size of the indication in terms of potential revenue?

When evaluating the space, we recognize a substantial unmet medical need. Currently, I.V. therapies dominate the market, with no oral treatments available. We believe TYK2’s mechanism of action, particularly in inhibiting interferon alpha pathways, positions us well for success. Competitors advancing to Phase III will need to demonstrate strong risk-benefit profiles based on their upcoming data. For now, we're confident in our strategy. Michele, would you like to elaborate on market potential?

There is indeed a high unmet need, as well as high market potential due to the current treatment landscape. Launch timing may still be premature for concrete estimates, but we expect to build on that opportunity in a future setting. The goal will be to address the unmet needs and improve patient experience, which may open the door for significant revenue possibilities. We’ll need further analysis as we proceed.

Thanks very much. That concludes the call. Please feel free to reach out to the IR team with any further questions. We hope to see you at our R&D update on October 5 in New York as an in-person event. Thank you all for participating and have a great rest of your day.

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