Good day, and welcome to the Galapagos third quarter 2019 results conference call. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead, madam.
Hi, everybody, and welcome to the audio webcast for our third quarter results. I'm Elizabeth Goodwin, investor relations. This recorded webcast will be accessible via the Galapagos website homepage and will be available for replay later on today. If you have questions, we request that you call in to one of the telephone numbers given in last night's press release. I'll give you one for Belgium. That's 32, for Belgium, 2404-0659, and the access code is 6653712. I'd like to remind everyone we'll be making some forward-looking statements today during the 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's 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 CFO. Onno will go through the operational highlights, and Bart will explain the financial results and go over the news flow we expect. You'll see a PowerPoint presentation on screen during this presentation. We estimate that the presentation will take about 15 minutes, and this will be followed by a Q&A session with Bart and Onno, joined by Walid Abi-Saab, our CMO, and Piet Buyck, our Chief Scientific Officer. I'd now like to hand over to Onno. Go ahead.
Thank you, Elizabeth, and thank everybody for joining the webcast. A pleasure to present the highlights of the third quarter to you all. Let's briefly recap the deal with Gilead that we signed this summer. A unique deal in life sciences, especially the way it's constructed, is very positive for Gilead and for us, and I hope for the whole industry. It's a very long alliance that we have signed with Gilead, 10 years, where we will be collaborating on a scientific level. Beneficial to Galapagos is that there will be a standstill, which basically means that the next 10 years, the independence of the company is guaranteed, which is important for Galapagos to build it out into an important player in the life sciences. We got a very substantial upfront amount of money as a consequence of this deal of $3.95 billion.
This money will be used for research and development. It's money that will be going back into innovation, into our innovative platform to come up with new mode of actions. There are additional financial milestones, opt-in fees, that are part of this deal. Gilead expanded its holding in Galapagos shares by buying additional new shares for a total value of EUR 1.1 billion, and they also got some additional warrants to expand their shareholdership to a maximum of 29.9%. Gilead has an option to license all products after the conclusion of phase II for the worldwide territory except Europe. Europe will stay with Galapagos, where we will commercialize. For the worldwide territories, Gilead will pay an opt-in fee per product, and they will pay royalties between 20% and 24%. A very comprehensive deal that clearly has taken the headlines in the industry because of its innovative nature.
If you can go to the next slide and talk about the highlights of the last quarter, a lot happened around filgotinib, our flagship product. There was a pre-NDA meeting between Gilead and the FDA. The path was cleared towards submission with the FDA this year. Gilead confirmed yesterday that they are on track to do the filing before the end of the year. In the quarter, they submitted the dossier of filgotinib for RA, both in Europe and Japan. We're now on track for all these different territories to get filgotinib introduced in the market in the second half of next year. After rheumatoid arthritis, UC, and Crohn's, there's now a fourth indication that filgotinib is being explored in a phase III, that is in psoriatic arthritis. We had very good data in this disease.
A year and a half ago, we announced that data set, we're now ready to start dosing the first patient in a phase III trial, registration trial. Gilead is busy building up the commercial organization for filgotinib next year in RA, Galapagos in Europe is building this organization in seven different countries, which is our first commercialization effort, a major activity. It's a major effort for us to get it all ready, but we're on track to be ready to start selling filgotinib in these countries when we got the approval, and the reimbursement is being arranged for. Very exciting next phase for Galapagos. In the inflammatory area, we're very pleased that the first Toledo compounds made it into the clinic. First was 3667, and now followed by 3970. The first one is a more pan-Toledo compound, the second one is more selective.
Both compounds are moving through phase I, with the intention to start phase II trials next year in a number of different inflammatory indications. Very exciting program. We're very pleased that science is going so well that multiple compounds are going towards the clinic here. In MOR106, we started a Japanese bridging study. We're doing that together with MorphoSys and Novartis. A lot happened this quarter. More to come in Q4. At the end of the presentation, Bart will discuss the expectations for next year, where a lot of clinical data will become available. An exciting period of Galapagos.
We call it Galapagos 2.0 because with all the funds available, with the collaboration with Gilead, we are at a moment in time that we can really accelerate the innovation and hopefully can come up with a lot more novel modes of actions in various different diseases. Exciting to be here, and happy to hand it over to Bart for the financials.
Thank you, Onno, good morning everyone in the U.S. Good afternoon in Europe. Happy to say a few words around the numbers and also the outlook for 2020. I'll spend a little bit more time this time than usual on the numbers, because there is some complexity around the accounting for the Gilead collaboration, as you can imagine. I hope that the report and press release have been relatively self-explanatory, but I'll take a few minutes to take you through the key items thereof. First, maybe I'll start with cash and cash equivalents. As usual, it remains the key focal point for us as a company. Our cash balance at the end of September, EUR 5.6 billion, which is an increase of 4.3 compared to the end of December. You see the waterfall that highlights the different elements that have led to this increase.
There's two smaller elements at the beginning that's the usual exclusions from our cash flow, which are cash proceeds from warrant exercises and currency translation effects resulting from our dollar position. Obviously the two orange bars represent the two key components of the Gilead transaction. These are all euro denominated, EUR 960 million is connected to the share subscription agreement. EUR 3.5 billion is the euro equivalent of the upfront that Gilead has paid us for the collaboration. Usually according to our non-GAAP definition of cash flow, that means that the cash flow for the company for the first nine months is EUR 3.3 billion.
I thought it useful to split this into two, the Gilead collaboration on one hand, and what I would call the recurring cash burn on the other hand, because obviously we've given guidance on that recurring cash burn, and that number now stands at EUR 230 million negative for the first nine months. Cash burn of EUR 230 million, and that's also the number that you need to compare to our overall guidance, which is between EUR 320 million and EUR 340 million, and we'll keep that unchanged. Obviously, the net cash flow will be positive for the year, but I'll split it out when I do the annual results next February as well. That gray piece will be landing between the EUR 320 million and EUR 340 million cash burn, excluding the Gilead collaboration.
A very strong balance sheet position in terms of cash, but that there's also some other balance sheet items that I think are worthwhile highlighting. If I go to the next slide, I'll lead you through how we have allocated the transaction price. This is about the upfront amount that Gilead has been paying us for the transaction of, in blue, $3.95 billion, or in euros, EUR 3.5 billion. There's a couple of elements to highlight. First of all, Gilead has also paid us a premium on the shares, and it's a premium if you compare the share price before the transaction was signed, and the actual subscription price of EUR 140. That premium is represented in the orange bar there of EUR 85 million. The combined of the upfront and the premium is actually the total transaction value that we have accounted for, EUR 3.6 billion.
This is split into several elements. First of all, we've also granted two warrants to Gilead to subscribe to first 25% and later on 29.9% of shares. Especially the first one, which comes at a fixed strike price of EUR 140. That first one represents a financial liability. EUR 50 million, EUR 45 of that is the first initial one-year warrants, is the first element that we are accounting for separately within deferred income. Now that these warrants have been approved last Tuesday by the exceptional general meeting, these will be classified as a financial liability and marked to market every quarter, according to the evolution of the share price. There's EUR 3.6 billion remaining, and we've put that into three different buckets. First of all, an immediate recognition of the elements connected to the license on 1690.
Secondly, there is the cost-sharing of 50% on the filgotinib agreement. We've allocated EUR 640 million to that portion. Thirdly, most importantly, obviously, the allocation to the platform, which basically includes all of the rights that Gilead can subscribe to at certain moments in time during the 10-year periods on programs that are either currently in very early stage of discovery or programs that are in later stage or in early development. In terms of recognition, as I said, the EUR 667 is recognized immediately and is part of our top line in the Q3 numbers.
Filgotinib will be recognized as we have always accounted for the filgotinib income over a period of four to five years, we estimate, and the four to five years is what we estimate the phase of development of filgotinib still to last, including several other indications beyond RA that we are investing in. Finally, the platform we've decided for linear recognition over the 10-year period that the collaboration is signed up for. This gives us some clarity as to what we'll be accounting for in the future as well. If you do the math on the platform, we should be recognizing EUR 230 million annually. Add on filgotinib, that should be another EUR 150 million-EUR 200 million as well. As a reminder, in the press release, I spoke of a total filgotinib deferred income of EUR 800 million.
That's because there is still some deferred income left from the original 2016 transaction. The actual total number of deferred income that is going to be recognized over the next periods is EUR 3.1 billion. That's the allocation of the transaction price and the way we've accounted for. That brings us to our P&L for year-to-date third quarter 2019, as you can see here on this slide. What I've done here is to try and highlight what I'd call an analytical P&L to separate out both the P&L that we would have had excluding the Gilead collaboration, then the impact of the Gilead collaboration itself. I'll get back to those in a bit more detail on the next slides. Then the as-reported numbers, including the Gilead collaboration.
On the first column, what I can say is it's pretty much in line with what you've seen in previous quarters, and especially noteworthy, the operating expenses of EUR 330 million, which is generally an increase of roughly 30% compared to the previous year first nine months as well. Obviously the big impact in the quarter and therefore also in the year-to-date figures is coming from the Gilead collaboration. On the next slide, you'll see the same numbers coming back again. I've given some more color to the different components thereof. Next slide. You see here again, the same numbers in orange, the impact of the Gilead collaboration. The top line is including EUR 600 million from the Gilead collaboration. There was the 1690 recognition, as you've seen two slides back, EUR 667 million allocation there.
There's also been what we call a catch-up effect on filgotinib, as we are now contributing more to the filgotinib expenses. Effectively, our what we call percentage of completion has gone down compared to previous estimates. Therefore, we've reassessed that, and that means that there is a negative impact on the top line on filgotinib recognition, which obviously will follow in the next four to five years back into our P&L. A net of EUR 600 million positive, and there's a bit of recognition on the platform in the first month of the collaboration as well. Operating expenses are slightly higher. There's a couple of things happening there. First of all, the cost share for 1690 has gone up, meaning it's a positive impact on our P&L because we're now sharing those expenses 50/50 with our partner.
On the other hand, the filgotinib costs have clearly increased because we're there also sharing now 50/50 as opposed to the 20/80 rule we had before. There were some bonuses connected to the Gilead transaction that have an adverse impact of EUR 20 million and some fees to that transaction as well of a negative EUR 3 million. Overall, operating expenses impact negatively our P&L by EUR 29 million. Two elements that are sometimes a bit counterintuitive but are material. I'll take a minute to go through those as well. First of all, the financial result is negative EUR 160. On two slides back, you've seen that we have recognized the premium, the EUR 85 million into our deferred income as a result of the share subscription, and this was the difference between the price before signing and the price on the share subscription amounts.
Those of you that have been tracking Galapagos, you've seen this before in 2015 and 2016. We are recognizing a financial derivative for the period between signing and closing of the transaction. Because of the increase of the share price of Galapagos, that premium then in the derivative becomes a liability which flows through the P&L for EUR 142 million. The big chunk of the EUR 160 negative is coming from this derivative accounting. Obviously, this is all non-cash and somewhat counterintuitive, but that's the way we are appropriately accounting for the impact of the share subscription agreements. Finally, income taxes, it's actually a positive. There are no tax cash outs on the Gilead collaboration, but we are recognizing a deferred tax asset of EUR 17 million, and that's in our numbers as well.
The overall impact, EUR 424 + on the quarter, bringing us to a net result of EUR 265 million, as reported on the year-to-date Q3 figures. Happy to take those in the Q&A or offline if some of you want to. Let's stop that for now on the numbers and let's go to the outlook for 2020. We thought it was important to highlight this because really, if you look at 2019, it's been an amazing year. The Gilead collaboration is clearly transformational. The commercial build-up, we still have up and coming the R&D update, and I can invite you all to our R&D update on the 14th of November. Obviously, the application for RA in the U.S., the filing thereof should take place in the fourth quarter as well.
2019 has been a very important year, but 2020 is really going to be a major year of data also for the company and other events. Obviously, we are anticipating the global launch of filgotinib in RA. We also are looking forward to see the data with filgotinib in ulcerative colitis. We're going to have data from our phase IIb osteoarthritis trial. We're going to have data in the Toledo program, both in phase I and in phase II, and we're going to have data with MOR106 phase II readouts.
2020 is going to be a very big year for Galapagos and hopefully leading us to our ambition in 2021 and beyond to build a commercial powerhouse in Europe, having additional product launches in additional indications for filgotinib and for other programs, and further maturing of our pipeline with all the opportunities that we're working on in discovery and early development. With that, I'll conclude. Hand the floor back to Elizabeth and the operator, and we'll be happy to take your questions for the next 40 minutes.
Thank you, Bart and Onno. That does conclude the presentation part of the call. Now I'd like to ask the operator, Sergey, to connect us to any callers with questions for our executives.
Thank you, Elizabeth. If you wish to ask a question at this time, please press star one on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Our first question comes from Eliana Merle of Cantor Fitzgerald. Please go ahead.
Hey, guys. Thanks so much for taking my question, and congrats on all the progress. Just a question, sorry to ask on this. I'm sure you get this a lot. Just on filgotinib, can you provide your thoughts on class labeling for thrombosis risk and weigh in on the potential to avoid this? Is it a real scenario or more of a long shot? Just curious to get your thoughts. My second question, in terms of Toledo, given sort of the novel biology, can you give us a little bit more color on how we should think about the timing around when we could see this hypothesis play out from a clinical perspective? Could we get signs of differentiation in the phase II studies in 2020, or is it, say, maybe more of like a 2021 event?
If you could just remind us the latest in terms of the timing for when you will disclose this very anticipated target to us. Thanks.
This is Walid. I'll take the first question. Good morning, good afternoon, everybody. Regarding the class labeling for the JAKs regarding, I'm assuming thrombosis is what you mean. I think this will, in the end, be a review issue. However, you have to look at the data that we have currently with filgotinib. The FDA will look at the totality of the data, and they judge based on the frequency of the events in your program, but also they will judge based on the background rates of these events. We've always said that we believe in the selectivity of our JAK1 inhibition with filgotinib, that this will translate in a very favorable safety profile. The data that we have to date support this point.
Particularly if you think about not just on preclinical data, but if you look at the clinical data with filgotinib and use the changes in hemoglobin and in platelets as a way to gauge whether treating of the underlying condition with filgotinib is interfering with the natural ability of the body to recover by increasing hemoglobin and reducing platelets, you see that hemoglobin does not interfere with that. Actually, you can look at it side by side with a medication like maybe adalimumab that do not interfere at all with JAK signaling, and you see that we behave in the same way. These are clear evidence in the clinic that tells you that filgotinib actually does not affect the JAK2 pathway, does not interfere with the EPO signaling or the TPO signaling for the platelets.
With that, we think this is why we have such a lower rate of thromboembolic event. We've been communicating on this, as you know, on a regular basis, and when we continue to update the data and show you, we still see the same very low rates of these events. We believe that when we present the totality of the data to the FDA, we have a very strong case to make.
To support our hypothesis, not just pre-clinic, but we have very solid clinical data and also the rates of these thromboembolic events. In the end, it will be a review issue with the agency, and we look forward to have that scientific discussion with them around this point. I'll turn it on to Piet for the Toledo.
Thanks, Walid. Good morning to the people in the U.S. Good afternoon to the people in Europe. Thanks for asking the question on the Toledo program. As you all know, we're extremely excited about this program. Up to now, we've selected three different molecules with different profiles for development. GLPG3312 as the first is we're advancing in multiple ascending dose in Phase I healthy volunteers now, and will move early next year into a first patient study. That patient study will for sure give us a good indication on the level of efficacy we can attain. This will be a short study.
Whether this will be sufficient to completely get an idea on the differentiation profile versus other treatments, that is a bit early, I think, but at least we hope to confirm in that first patient study the impressive efficacy we have seen in the animal studies. GLPG3970 has started phase I. It's in the early steps of a single ascending dose and will move next year into multiple proof of concept that we will announce at that moment. We don't have any plans on the short-term to disclose what the target is. You're all welcome to the R&D update in New York on November 14th, but don't expect that we're going to disclose the target there. I can tell you that up front. There is a third and more compounds are following, and so they will then move one after the other into development.
Thank you.
Thank you. We will now move to our next question from Brian Abrahams of RBC Capital Markets.
Hey, guys. Thanks so much for taking my questions. Two questions on filgotinib. One on commercial elements and one on development. I guess first on the commercial side, I'm wondering if you have any sort of learnings or market research, or anything you're hearing from the recent competitor JAK1 launch that might shape your view on the potential positioning for filgotinib and perhaps areas of differentiation for filgotinib that could potentially resonate the most with clinicians, patients, and payers. I had a follow-up. Thanks.
Hi, Brian, it's Bart speaking. Let me answer that first one. Look, at the end of the day, what we'll be doing first is to look at the filgotinib profile, we think that the filgotinib profile has shown great results in the clinic, both in terms of efficacy and in terms of safety, we feel that the data that we have is differentiated from other JAKs there. That's going to be the key angle. We're going to see what, as Walid was just pointing out, what the label will eventually bring, that will determine obviously, overall our commercial strategy. It's not that much based on what the others are doing currently in the market as more on the strength of our own molecule.
Got it. Thanks. On the development side, can you talk about maybe the type of evidence of activity that you saw from the phase II lupus and Sjögren's study, perhaps reasons why those might not have hit their primary endpoints and what you and Gilead will be looking at to potentially move forward in those indications, any subpopulations, for instance, and how those results might shape how you guys think about future indications. I'll hop back in the queue. Thanks.
Thanks, Brian, for this question. Yes. I think you answered partially some of the question yourself. The bottom line, I just need maybe to frame it a little bit. These studies were exploratory in nature. Just if you take the lupus, the way Gilead tackled this is that we went after cutaneous lupus, where we also have another ongoing study in membranous lupus nephritis. Sjögren's, this was our first foray in there. These studies were designed to essentially inform the next step in phase II development. While the primary endpoint was not met, I can tell you for filgotinib, when you look at patients who have markers of more active disease or markers of inflammation or right out systemic lupus, you clearly see a signal of activity.
When I say signal of activity, I'm talking about the typical endpoint that we use for lupus, but also for Sjögren's. This is not just changes in certain biomarkers specifically. I can tell you, I'm personally excited about these results. I think these support taking the next step and further evaluating in phase II and probably, as you say, certain subpopulations. What we need to do now, which is what we're doing with Gilead, is to fully analyze the data set and look at which patients will benefit most from it and design the next studies that we will be doing. This is something that's ongoing between us and Gilead. Then I will close by saying that we will share these results more fully in an upcoming scientific meeting coming up soon. Thanks.
That's really helpful. Thanks so much.
Thank you. We will now move to our next question from Matthew Harrison of Morgan Stanley. Please go ahead.
Hi, everyone. This is Conor de Mari on for Matthew Harrison. you mentioned that psoriatic arthritis that recently Or will be moving to phase III. we were just wondering about potential, or if you could just give a recap on overall phase II programs that filgotinib is currently engaged in. then maybe just, you touched on this briefly just a moment ago, but next steps potentially related to lupus and Sjogren's indications as well.
I'm sorry, I'm going to ask you this, Walid. I'm now going to ask you to repeat the question on psoriatic arthritis. You kind of broke up for a moment there. What specifically were you asking about it?
Yeah, sorry. You mentioned that that recently moved from phase II and is soon moving into phase III, so I was just focusing more on the phase II area. Could you just give sort of an update to us, what are the primary programs ongoing in the phase II stage for filgotinib?
Other than psoriatic arthritis, right?
Yeah.
All right. I think we have one more study in the lupus nephritis and lupus, as I mentioned before, and there's an ongoing study in uveitis. Those are the ongoing studies. There are still a couple of studies in adjacent areas in Crohn's, fistulizing Crohn's and related, small bowel, I believe, Crohn's. These are the studies that are currently ongoing with filgotinib. Regarding the studies with lupus, I think it's what we talked about. I don't have any further details. We need to really dig into the data, to see where we need to go. Again, I think, what we have seen with filgotinib would be very encouraging to be able to take the next steps. We need to figure out in which patient population, how to best select.
Particularly in lupus, if you think about it, this has been an area that's been very challenging in drug research, and we have to be very careful as we evaluate things to choose the right population so we make sure that we are able to detect a signal, if one exists, so that we can bring the drug to patients. That's why we're being careful in the way we look at this and way we plan our next steps. We're actively doing that.
Got it. Thanks.
Our next question comes from Adam Walsh of Stifel. Please go ahead.
Good afternoon, guys. Thanks for taking my question. Onno, maybe you could comment on the state of drug reimbursement in Europe, and you're thinking about that as it relates to the upcoming filgotinib launch there. Specifically, what you can do now or what you're doing now to ensure that you optimize that reimbursement potential, and what's your longer-term strategy to maximize reimbursement access in Europe? Thank you.
I'll hand that over to Bart.
Hi, Adam. Yeah, happy to take that question. Look, there's no one short answer on drug reimbursement in Europe because there's different countries that have different approaches and different policies, and also different timelines. It's also different in terms of classes, how reimbursement is being put into play. I think at the end of the day, I think we have very strong chances to get quickly reimbursement in the key countries in Europe with filgotinib, clearly because of the clinical profile of the drug, but also because of reimbursement trajectories that Olumiant from Lilly and Xeljanz from Pfizer have had over the past years. I can also say that actually the take-up of those two drugs has been encouraging over the last 18 months, encouraging for the class. That bodes well, I think, for when filgotinib gets to the market later on in the course of next year.
Great. Just one follow-up. Just in terms of the timing on MANTA, is there any chance the MANTA results would not be available prior to the launch in either the U.S. or Europe?
Walid, will you take the MANTA question?
Yes. The MANTA study is moving as planned. Actually, we're quite happy with the progress. As you know, we don't give out details and usually, Gilead would be the first one to answer this. I think it's not going to have any implication, as we said, on the filing in the U.S., and we had previously mentioned that it will not be required also for filing in Europe, which already happened. Did I answer your question or did I miss anything?
I think you got the gist of it. Thank you.
All right. Thank you.
Thank you. We will now take our next question from Wimal Kapadia of Bernstein. Please go ahead.
Oh, great. Thank you very much for taking my question. Wimal Kapadia from Bernstein. Coming back to, I know you're probably tired of it, but coming back to thrombosis and the label for filgotinib. Can I just think of a scenario where filgo does have similar comments on label for thrombosis? How should I think about your strategy to differentiate the product? Is it a case of highlighting the trial data where you are clearly the safest product or potentially the two-dose approval, or is there another approach in mind, such as price? Trying to think about the product commercially, particularly in the U.S. Second question is just on IPF. Just thinking about the speed at which you will begin to start combination trials if we see good data. Specifically, PINTA phase II in the second half of 2020.
How should we think about potential combinations for that product? Would we need to wait to see the full data for ISABELA, or would you want to run a phase III study for the monotherapy first, or would you be comfortable in beginning to run combination trials? Thank you very much.
Bart, I'll let you answer the first question. I'm assume it's more around positioning in case.
Yeah, no, I'm happy if you take that. I think for me, the question is more around what the chances are for the label and how to get that off the label, Walid. I think at the end of the day, today, we will not be in a position to comment really on pricing or any type of discussions, especially not for the U.S., which is Gilead's territory. Maybe you can comment on the thrombo label.
Sure. Yeah, I think I've said that before. I think it's very difficult to predict what the position the FDA will take. All we can do is share the data that we have, which, as you guys know continues to be very favorable. We can articulate scientifically why we believe that we do have a differentiated profile when it comes to safety and also the low rates of the thromboembolic events. Beyond that, I think, we need to make sure that the data are adequately shared with the community, with the prescribing community as well, and then that's where we go from there. I think the data will speak for themselves. So far, I think you have seen that the safety profiles for filgotinib, including, but not just limited to the thromboembolic event, has been very favorable, and we think that's due to our selectivity for JAK1.
Maybe I can take on, move on to the IPF. Yeah, good point. I think what we're currently doing, as you know, is we're running another program, which is the GLPG1205 program, GPR84 antagonist, which is currently in phase II. Depending on the AdCom of these results, if they turn out to be good, I would imagine that we would expect to run a study that would evaluate the combination of GLPG1205 with 1690. The shape of the program right now, I think it's a little bit early to describe, but I think that would be, for us, the trigger to start evaluating whether there's benefit of combining the two compounds to treat IPF.
As you know, this is a disease with high unmet medical needs, as a result, whatever we can use to try and stop the progress of the disease towards death and these patients, this would be our goal. Combination therapy is the way to go, as you know.
Great. Thank you very much. Sorry, just to follow up on the first question. I also wanted to get your comments on the importance of the two-dose approval and how important will that be to the commercial aspect for filgotinib.
Yeah. Look, I'll take that. Bart speaking. Look, I think at the end of the day, we have a chance with getting two doses approved, but it's also important that we have a good chance to get the high dose approved because of the high-dose efficacy that we've seen and the safety profile that goes with that. We think that definitely is an element of differentiation that we can also use in the marketplace.
Great. Thank you very much for taking the extra question. Thank you.
We will now move to our next question from Emily Field of Barclays. Please go ahead.
Hi, thank you. I just had a question about how the mechanics might work regarding a potential advisory committee meeting for filgotinib with the FDA. I could be wrong here, but I was curious, is the company actively trying to have an AdCom in order to have a public forum in which to educate the agency in terms of the potential benefits of the JAK1 selectivity of filgotinib, and would it be a safe assumption to assume if there is not an AdCom that perhaps the agency has decided that there will likely be a class label for thrombosis for just the JAK class overall? Secondarily, I was just wondering if you could talk about Just in terms of communication going forward, I know that we'll be expecting a futility analysis for 1690 at some point, potentially next year.
Given the expanded collaboration, is that something now that will be in Gilead's control, or will this still be something that will be sort of decided and publicly communicated by Galapagos? If there's any insights that you can give in terms of what we should be expecting in terms of when and what will be communicated as part of that for the ISABELA futility update. Thank you.
Okay, this is Walid again. I'll start with the 1690 because it's easier. We will be giving more details on this on our R&D day on November 14th, where we will give more color on how well things are going in terms of recruitment and when do we expect to get the futility analysis. The fact that this compound is now a joint development between us and Gilead, this will be a joint decision between us and them regarding communication. It's not in Gilead's control or in our control. This is a joint discussion or decision and communication that will come from both of us.
Going to the AdCom on filgotinib, I think this is nothing that will be in our control. We cannot influence. This would be the AdCom mechanics is that during the review process, the division will decide whether or not they have certain questions that a specialized advisory committee will help them answer. What specific questions? Advisory committees are not open-ended. There are specific questions that the review division will have for the advisory committee, and based on that, they will convene it with the right composition to be able to answer those questions. That's what I can say. Whether or not this will mean that if there's no advisory committee, that means there's automatic class labeling. I don't think that would be the case. It depends really to what degree the agency has a question, and that's what they use the AdCom for.
If it's clear in their mind that there should be no class labeling, there will not be an AdCom. If it's clear for them there should be class labeling, there would be no AdCom. If they have questions, they would have an AdCom. They could also have an AdCom for other reasons as well, and that will only be apparent after they start their review. Thanks.
Thank you. That's helpful.
We'll now move to our next question from Lenny Van Steenhuyse of KBC Securities. Please go ahead.
Thank you, and good afternoon. Two questions from my side. There has been some discussion on UPA pricing and health economics in the past month. With the pricing of RINVOQ now known, do you expect Filgo to be priced in the same ballpark as that or aiming for, or will pricing be an area of competitive differentiation for Galapagos? A short second question. Recently, we had an announcement of a smaller Chinese biotech company of an R&D collaboration being established with Galapagos surrounding their technology platform. Just wondering if you could elaborate on this partnership and the context and goals of that going forward. Thank you.
Yeah, maybe let me take, as Bart's speaking, let me take the first question on pricing and then, Piet, maybe you can say a few words about this discovery collaboration. Lenny, I think it's too early, to be very honest, to speak about pricing of filgotinib and how we will approach the market there. I think generally what you can expect is that Gilead and Galapagos will be more, let's say, straightforward about that, more transparent about that when we get much closer to the launch. Today, there is clearly still the review and approval process ongoing. The label will be determining, and then we'll really come with our conclusions on pricing. I'm sorry I can't be a little bit more forthcoming, but I think we need to be a little bit more patient on pricing there. Piet, can you say a few words on the Chinese?
Yeah. This is Piet here. Thank you for the question on the Chinese company we work with. Over the past years, we've been working hard to expand our drug discovery platform, mainly planning, but also setting the first steps to spread our wings. In New York on the R&D update, we'll give you a clear view on where we're going to, what elements we want to incorporate. This contract with the Chinese company is a very small step in that much, much broader effort where we as well try to broaden our chemistry access. We have internally a compound library of a couple of hundred thousand compounds, and by accessing a compound library of a couple of billions, we clearly expand our chances of finding starting points for the drug discovery efforts.
This is a quite small step into much, much broader efforts for which I'm very happy to update you in New York on the 14th of November. Thank you.
Okay, thanks very much. Looking forward to the R&D update.
Our next question comes from Peter Welford of Jefferies. Please go ahead.
Hi. Yeah, thanks for taking my questions. A couple. Firstly, on GLPG1690, you said you'd give an update on recruitment during the second half of the year. You said also that there would be a timing of the futility. I think you've previously outlined that the futility would likely happen by the end of 2020. Can you still confirm that that's the case, but obviously give more precise guiding at the R&D day? Could you also just talk about that futility analysis that will happen next year? Is there a plan to look at different subgroups, i.e., the monotherapy versus, on the other hand, the paclitaxel and osmanemtin combinations? I guess I'm curious if there is potentially a positive effect, but equally an adverse effect in certain subgroups.
Can the futility be able to tease that out such that only certain cohorts continue, or is that not possible at this interim stage? Secondly, just on filgotinib, just a point of clarification on the accounting. Thanks for running through it all in detail. Can we infer that there isn't, I presume, any milestone on starting the psoriasis, psoriatic arthritis, sorry, phase III? Equally, there obviously hasn't been a milestone for Japanese or European filing. Can you also confirm, please, there isn't a milestone due either from Gilead, the U.S. filing, when that happens by the end of the year? Thank you.
Okay, I'll take the GLPG1690 question. Yeah, we'll be updating the recruitment at the November 14th meeting. What I will do is provide you with a bit more details and timelines. That's why I didn't want to provide any specific date because I still am working with the team to see when we will get the data, because there's so much to be done to be able to clean the data, to do the interim analysis. It's not enough to have recruited the people and having them pass through the checkpoint that we need them to pass through to be able to have enough data. We also need to make sure that the data are clean and in a way to be analyzed.
Forgive me, I'm not going to confirm, but I don't think we've been telling you that we're going to be doing it around the time where we have about 25% to 30% of the patient recruited, and they would have passed a full year in the trial. In addition, we need about 70% of the information available on the trial. Those are the two fundamental pieces that drive the analysis. Recruitment has been going well. We're very happy with this. The study is progressing very well, actually. With that, we will provide you with a bit with more details on the timeline at the November 14th. Regarding subtype analyses and so on and so forth, that is not really what has been included in this futility. Frankly, we will not have enough power at that point for a futility to be able to drill into subtype analyses.
The futility will be able to essentially advise us to stop the trial in the event that we don't see any meaningful effect that will translate into a significance at the end of the trial. If that chance is low, it's really not ethical to continue the trial, and that's the purpose of a futility analysis. That's as much that we can ask of it with the number of subjects included in the trial. Otherwise, we would be unable to make those inferences. Thanks.
Yes, Peter, it's Bart speaking. Thanks for the question on the milestones. Let me give you a little bit of clarity here. There is actually a small milestone of EUR 10 million connected to the first dosing in psoriatic arthritis, and the trial has started. The screening has been on the way. I don't think that the first dosing has taken place, but it could be any moment. There is a small milestone that we are expecting this quarter. This will be the last milestone that is connected to any type of trial initiation as we had in the past. From there on, the milestones are connected to filing and approval and most prominently, clearly on approval. There will be a EUR 20 million milestone connected to the filing in the U.S. for RA.
As you point out, indeed, there were no milestones connected to the filing in Europe or Japan.
Thank you very much.
We will now take our next question from Nick Nieland of Citi. Please go ahead.
Hi. Thanks for taking the questions. One for Bart, please. I note that your SG&A expenses have taken a bit of a step up in third quarter. I wonder if you could talk about how your infrastructure in Europe is going to build out and how that might look going into 2020, and how much you plan to invest. Secondly, on GLPG1972, does that product still have a path to approval if the primary endpoint of cartilage thickness is not met? Thank you.
Hi, Nick. Yes. Let me answer the first part. SG&A has gone up indeed quite meaningfully. There's a couple of things happening there. Important to note that in SG&A, we also cover the costs that are connected to employee warrants, and those are dependent on share price evolution. The share price has gone up meaningfully over the quarter, and as a result, there's an accounting expense that is connected to that, which is part of that SG&A. Indeed, we are also at this moment expanding our infrastructure in commercial. We're building the commercial teams in France, Spain, Italy, Belgium, and Holland initially, because those will be the countries where we are going to be leading the RA launch, as opposed to Germany and the U.K., where Gilead is going to be leading the RA launch.
Later on, in IBD, we will be doing Germany and the U.K. and Gilead will take those other three countries. We've swapped those locations. That build-out will take place over the course of the next 12 months because clearly if we get the approval in the second half of next year in Europe, we need to be ready to launch this successfully and to give you a taste, I think for those three countries plus the Benelux, we were looking at probably somewhere in the vicinity of around 150 FTE that are in the commercial teams. I hope that answers the question. Maybe Walid, you can take the other question on 1972.
Okay. Thanks, Bart. Yeah, the ROCCELLA study has been designed and powered to evaluate the cartilage thickness over a period of one year. In addition, we'll be looking at a number of other endpoints around pain and around function using the traditional way of looking at things like the WOMAC score, in addition to other patient-reported outcomes. We will also look at X-ray and joint space narrowing. We will have a lot of data to comb through. I certainly would hope that we will not have a problem with meeting the cartilage thickness, it would be really very difficult to be able to speculate what we would do. It really depends on the data. If there's a clear signal on other endpoints such as functioning and pain, I think that there's a clear path forward there.
You guys have to be patient with us and by the end of next year, we should be in a better place to give much more clarity on the next steps with this compound. Okay, thank you.
Thank you. We will now take our next question from Dane Leone of Raymond James. Please go ahead.
Hi. Congrats on all the work over the course of the year to date and the Gilead partnership. Thanks for taking some of the questions for us. I just have a couple targeted questions here. Just from a high level, is psoriatic arthritis the second and most near-term indication that would tack on to the rheumatology channel post the approval in RA?
Yes.
Do we have an updated idea of how long the phase III might take to run now that you've just kicked it off? Or any kind of standard timelines that you guys generally use as a rule of thumb for that?
Yeah, Dane. This is Walid. I don't think we have guided to that yet. This would be a discussion that we would need to have with Gilead, but I think it's early days now to be able to estimate, because we still haven't started yet. We'll have to come back and revisit this at a later time.
Okay. The second target question here. Is some of the ongoing evaluation for cutaneous lupus related to the possibility of maybe using a topical formulation for filgotinib?
I don't think that is ruled out, but I don't think that is currently the natural next step. I think, as I mentioned, the data that we've seen in the study, particularly in the subset of patients with more severe disease or with actually lupus itself, systemic lupus, would suggest that in certain group of patients, filgotinib orally as it was given in that trial, would be the way to go.
Okay, the last question from me. Obviously, in two weeks, we're going to have the American College of Rheumatology coming up, which is obviously probably one of the biggest years for you guys ahead of the launch of filgotinib and RA. Could you just maybe give us what your team's focused on for the presentations that are going to be at the conference? Also, what you're trying to accomplish on maybe the bridging into the commercial side now. Thank you.
I think it's a question for maybe both of us, Bart. I don't know how you want to tackle it. I think for the commercial part, maybe I'll leave it to Bart and discussions with Gilead. For us, it would be continuing to present data that would characterize essentially the mechanism of action of filgotinib, the data that we have in the clinic, and continue to show the evidence of efficacy with this compound and also in terms of efficacy in certain subpopulation, and so on and so forth. You could see that from the abstracts, maybe we have some abstracts in older population and so on and so forth. It will continue to disseminate the data that is stemming from analysis of the trials that we've conducted, particularly, I believe FINCH 2 is mostly being analyzed in some additional subpopulations.
Bart, I don't know if you want to tackle the other piece.
Look, what I can add is that these congresses are terribly important because it's really the place where we have a chance to really display the clinical results and really make a start with the commercial positioning, even though we're not yet in an approved phase. This is an important congress for us, like the European equivalents of these congresses. There's going to be significant presence of both the Gilead and the Galapagos teams, including both CEOs that will be attending the congress. Yes, ACR is a big event for us, and we'll be hoping to display the characteristics of the molecule there in full force.
Great. Thank you very much.
Thank you, ladies and gentlemen.
Thanks, Dane.
Go ahead please, yeah.
Yeah, thank you. Yes. That does really wrap up our hour with you today. I want to thank everybody for participating. I am glad that ACR and our R&D update came up many times in the call. Please reach out to the IR team if you'll be attending ACR in Atlanta this year so we can include you in our program. Our next scheduled call will be for the R&D update at 8:00 A.M. Eastern on the 14th of November. It's still possible to sign up for participation in person. Just reach out to the IR team. Again, thank you very much for listening and for all your questions today. We wish everyone an excellent weekend. Goodbye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.