Good day. Welcome to the Galapagos H1 Results Conference Call. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead, ma'am.
Welcome all to the audio webcast of Galapagos's first half 2019 results. I'm Elizabeth Goodwin in investor relations, and this recorded webcast is accessible via the Galapagos website homepage and will be available for replay later on today. That your questions can be included, we request that you call in to one of the telephone numbers given in last night's press release. I'll give you the one for Belgium. That's 32- 2404- 0659, and the access code is 6080337. I'd like to remind everyone that we will be making forward-looking statements during today's webcast. These forward-looking statements include remarks concerning future developments of the pipeline in our company and possible changes in the industry and competitive 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 2019 news flow we expect in the second half of the year. You'll see a PowerPoint presentation on screen, and we estimate that this part will take about 10 minutes, and this will be followed by a question and answer session with Bart and Onno, who will be joined by Walid Abi-Saab, our CMO. At this point, I'd like to hand over to Onno to begin the presentation. Go ahead.
Thank you, Elizabeth. Pleasure to have the word and talk to you about the operational highlights of the first half. Clearly a fantastic first half on all aspects, the clinic, the commercial operation start, of course, the deal with our friends from Gilead recently announced that I'll come back to in more detail. Let's first look at the clinical delivery over the first half. A lot of news on filgotinib, where we had the excellent FINCH 1 and FINCH 3 phase III results in rheumatoid arthritis. Clearly a hallmark data set for Galapagos and Gilead. We also completed the recruitment in our phase III ulcerative colitis trial, as well as in phase II trials in Sjögren's and lupus. We are nicely on track to build our commercial organization within Galapagos for the European market, where we will be operating in rheumatoid arthritis.
In IPF, after starting last year 60/90 in IPF with the ISABELA study, we went for the second indication in sclerosis. We started the NOVESA phase II trial, very nice that we went into the second indication so rapidly. We strengthened the IPF franchise by licensing two early-stage compounds from FibroCor and Evotec. In osteoarthritis, we completed the recruitment in the phase IIB trial together with Servier, actually six months ahead of schedule, we're very pleased with the rapid recruitment there, we will be looking forward to the data next year on that trial. In MOR106, we started an additional trial, the GECKO phase II trial. That's a program we're doing together with MorphoSys and Novartis. Novartis licensed this compound from us last year. Further in inflammation, we were very pleased to have our first Toledo compound in the clinic.
We started phase I with 3312. The second one is on its way to enter the clinic shortly. Toledo is getting shape. We believe this could be a very important program for inflammation going forward. Let's look at the deal with Gilead. Of course, you've all heard about it and seen many of the details. Let's highlight some of the facts again in the next couple of slides. It's clearly a deal that is transformative for Galapagos and very innovative for the industry, I must say. It's the largest life science collaboration in history of the life sciences. That's a hallmark for, I guess, also European biotech. I'm very pleased with the model where we remain independent for a very long time and get enormous amounts of fund to really go after innovation.
That is really what the focus of this deal is, and that should be very good for patients going forward. It's based on our unique discovery engine, especially our target discovery, where we have the antiviral collection to come up with novel targets for various diseases, and then followed by very rapid drug discovery capabilities that Galapagos has to move programs rapidly into preclinical and then towards the clinic. Clearly, we can benefit from the expertise that Gilead has in chemistry and development, formulation, and of course, the infrastructure to market drugs worldwide. Clearly, we are not at all in the commercial side of business yet. We will now focus on Europe for the commercial aspects of the business, and leave the rest of the world to Gilead, which we believe is a very good step for us.
This will all lead to further acceleration of the current programs, but also of new programs. We now plan to double our R&D efforts, and hopefully come up with new mode of actions rapidly to improve the lives of patients. With this current structure, we have our work ahead to roll out the commercial infrastructure throughout Europe and build that over the next couple of years in all the various countries, so that in a 10 years period, we will be a fully equipped European biopharmaceutical company and then wander out to the rest of the world after that period of time. Let's look a little bit at the financials of this deal. It's quite complex and it's large. We get a $3.95 billion upfront payment to do this deal. Interestingly, Gilead has no say in where this money will be spent.
It's all up to Galapagos on what therapy areas, what targets, but also what acquisitions we would do. There are no limitations, and there's no impact from Gilead in that. They also do an equity investment at this point of $1.1 billion, which is at a 20% premium to the 30-day average, when the deal was announced, and that increases their stake to 22%. They get two warrants to further increase the percentage to 29.9% over the next couple of years. They receive an opt-in for all the programs that we currently have for all the rights outside Europe, as well as on programs that we are going to develop over the next 10 years. They pay us an opt-in fee, and I'll come back to the numbers and certain milestones as well.
Very interesting to note is that after they opt-in, they're going to pay 50% of all the phase III costs. We're splitting the cost worldwide, which reduces the risk of these phase IIIs tremendously. We're still getting a very nice royalty on sales that they're making outside Europe, between 20%-24%. Let's go through the specific programs details here. First, on the platform. It was very important when we talked about this deal that there would be no barriers, there would be no secrecy between the two companies. We are sharing all the targets that Galapagos is working on, also future targets that we discover, and there will be full transparency to Gilead to maximize the science collaboration between the two companies. We plan to exchange scientists back and forth to maximize the synergy between the two companies.
We can do it because it's very clear what happens later on when they can opt-in and not opt-in. I think all of that is very nicely worded in the contract, and I think it will benefit the science tremendously. As part of the deal, we revised the current filgotinib collaboration, where we actually taking on a larger part of the expenses. It's going to be 50/50 going forward as of now of the development cost. Galapagos is getting a bigger say in the European commercialization. In the big five countries, Galapagos will have a big impact on the commercialization of filgotinib in the various diseases. For 1690, our IPF drug, we provided the license as part of this deal for all rights outside Europe. We will continue in Europe.
We will market that, of course, like all the other drugs, but they will market it outside Europe. They will still pay a EUR 325 million milestone if the drug gets approved in the U.S. 1972, it's a little bit different because that is in a partnership with our French partner, Servier, where we only have the U.S. rights unencumbered. Gilead gets an option for those rights after the phase II-b that's currently running the ROCCELLA trial. They will pay us a EUR 350 million opt-in if they want to exercise the option, and EUR 750 million in further milestones downstream from that. For the rest of the world, Servier has the rights, and we are getting royalties from Servier on sales in the other territories. These are substantially lower than the ones Gilead is paying. Servier is single-digit royalties.
It's a deal that was signed with Servier when we are at a target stage, a very early-stage deal. All other programs, including Toledo. Toledo actually consists of a number of different programs. Every single program, there is an option fee when Gilead decides to exercise after phase II study of EUR 150 million. Then, as I said before, we'll share all further development costs 50/50 between the parties. We're getting on all the programs except for filgotinib, where we get royalties between 20%-30%. For all other programs, we get royalties between 20%-24%. I think these are the program highlights, and of course, these are very large numbers and it's a very impressive deal.
I think what is important, more from a holistic point of view, is that we have found a very innovative way, I think, to work together and still keep our full independence going forward, both on an equity point of view, where we will remain an independent company on the stock market, but also on a science point of view, which is very important for us, that we can continue to do what we believe are the right things to invest in the science. For the next 10 years, it's clear that we have a very close marriage with Gilead, and the start has been a very good relationship, very high energy, a lot of adrenaline. We had actually the honor of Dan O'Day visiting Galapagos last week and talking to our staff, and that went extremely positive. The deal is very well received within the company.
I think it's been a very positive outcome of six months of negotiations, and we're all very pleased that this is now done. Of course, we still are waiting for the competitive review in the U.S., but we expect that to end in the next four weeks or so. The deal will be delivered. With that, I would like to hand it over to Bart, who has been extremely instrumental in getting the deal together. He can now talk about the financials.
Thank you, Onno. Good morning, everyone in the U.S. Good afternoon in Europe. Obviously, the focus of this call is to largely set on this transaction with Gilead, but we also have to report the second quarter financials. I'll do this with two slides that those of you that are following the company have seen before, and they'll describe basically the financial evolution over the second quarter of this year. The first slide there is on cash. As usual, we are ending the cash balance sheet at EUR 1.15 billion at the end of June. If you look back, you take out a couple of specific items which you always do, such as capital increases and translation effects, the actual net cash burn is a little more than EUR 150 million over the first six months of the year.
As a reminder for everyone, the guidance that I've given at the beginning of the year for total cash burn is between EUR 320 million and EUR 340 million. The EUR 152 million that you see here on the chart is coming pretty close to 50% of that number. This is just to say that the cash burn over the first six months is completely in line with our expectations. I've chosen not to change the guidance for the full year, even though we all understand that the ultimate operating cash burn will be different because of the Gilead transaction. I felt it was more relevant to highlight the underlying operational cash burn, which indeed we confirm to be on track as per previous guidance.
Clearly we anticipate a significant cash in the course of the second half of this year, $3.95 billion upfront in dollars and $1.1 billion in equity stake, including the premium in dollars as well. Over to P&L. The highlights, again, revenues are a little higher than they were in the first half in 2018. There's two elements that are supporting that. First of all, for MOR106, we are actually recording the reimbursements for the expenses that we make by Novartis in our revenues. That drives part of the increase. Secondly, we've also achieved a milestone of $25 million in our collaboration with AbbVie for the final completion of the FALCON study. That's also in these numbers included in the first half year.
Operating costs are clearly higher than they've been in the first half of 2018, fully in line with expectations, the key drivers are really the mid- and late-stage development expenses. Within that bucket, obviously 1690, its expenses are increasing significantly versus last year as the phase III program has really come off the ground in 2019. As a result of those two, revenues being a bit higher, operating costs being clearly higher as well, the net result is negative compared to the first half of 2018 by about €35 million, which also includes a bit of financial income and expenses. My final slide to highlight what is still to deliver in terms of key news flow over the second half of this year, and that's quite a bit.
Maybe first to highlight is that we have achieved all of the guidance as we have presented in the first half of the year. As you see on this slide, with one exception of one phase I starts that we were anticipating for first half 2019, which is now going to be first half of 2020. On the second half of the year, there is data coming on two more for both of the indications. Onno already spoke about those. Sjögren's and Lupus is still to come in the second half of the year. We're also anticipating the start of the phase III program in psoriatic arthritis. Obviously, a key event for filgotinib are also the filings in Europe and the U.S. that we are anticipating in the second half of this year.
In fibrosis, we will have our PINTA study with GLPG1205 fully recruited by the end of the year. We already achieved ahead of schedule, the ROCCELLA study, fully recruited. On MOR106, there is one specific Japanese study that we're starting in the second half of the year. Then there's quite a bit going on also with the earlier programs in phase I. We anticipate top line data phase I for our first generation Toledo compounds. That's going to be something to look out for in the second half of the year, clearly. We're also starting two further phase Is, one with a novel agent, 3667, and with a, what we call a second generation Toledo compound, 3970 as well.
Finally, we hope by the end of this year, if phase I allows, we hope to start a proof of concept with our first Toledo compound in IBD with 3312. That's with regard to the news. Still a lot to come in the second half of the year. As the year progresses, we'll start giving also some guidance as to the key data events, the numerous key data events, I would say, in 2020, that'll come in the next 12 months. With that, I'll stop, and give the word back to Elizabeth to lead us through the Q&A.
Thank you, Bart and Onno. That does conclude the presentation portion of the call today. I'm going to ask our participants to limit their questions to only one per firm today so we can give more people an opportunity to ask questions. Our operator, Jenny, will be helping us to achieve that. I'd like to ask Jenny now to connect us to any callers who may have questions for our executives.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We'll pause just a moment to allow everyone an opportunity to signal for questions. We'll hear first from Rashi Jolly of Bernstein.
Hi. Rashi Jolly, Bernstein. Thanks for taking my question. Firstly, on costs post the Gilead deal. You've already outlined that you intend to hire for commercial operations in Europe. How should we think about the level of incremental sales and marketing spend, and over what time period can we expect saving for this? Likewise for R&D as well. Thank you.
All right, Rashi, let me take that. Bart speaking. First of all, on the commercial cost, maybe good to highlight to everyone on the phone that the economics of the filgotinib structure have not changed except for the development cost share. We're still in Europe sharing all expenses 50/50. To the extent that we are incurring further expenses on our P&L, as opposed to on the Gilead P&L, it will be a shift in line items compared to previous guidance. It's not going to be the commercial cost, I think, which is going to be the key driver for increasing in cash burn. On the other hand, we do anticipate, as Onno was speaking to, a significant increase in our research and development costs. This will not be from one year to the next.
This will be a gradual increase over the next couple of years. First of all, we all know that it will take a bit of time to get to this doubling of infrastructure, both in terms of people and fixed infrastructure. That will take a couple of years. At the same time, obviously, a large element of our expenses in development is depending on the actual result that we achieve. Where we do see increases next year, and more detailed guidance will come over the next, let's say, six months. Where we do see meaningful increase next year is in development costs regarding the Toledo program, which we were anticipating, by the way, already independent of the Gilead transaction. I hope this clarifies a bit the question, Rashi.
Our next question comes from Evan Seigerman of Credit Suisse.
Hi, guys. Thank you for taking my question. Just one on your large cash balance. How do we ensure that you're basically going to be using this to generate shareholder value? What are your strategic priorities in terms of spend, aside from increasing R&D? Thank you very much.
Thank you for the question. Bart again. Clearly our priorities are indeed on the R&D. For now, what we've said is that we are intending to double those investments in innovation, and that it will take a couple of years to materialize. We actually are inviting you and others here on the phone also to attend our R&D Day on the 14th of November of this year, where we're planning to give some further details on our plans for the next couple of years. Obviously we will maintain our same threshold, our same focus on high quality innovation in Galapagos as we have demonstrated over the past couple of years going forward as well.
We are not in a hurry to work on this other than that we want to make sure that it is invested behind the right and the good ideas for true innovation for patients. In terms of track record, let me add then also that we have been able to do this very successfully over the last three, four years as well. Our cash expenses have also doubled in that period, and even more than doubled. There's ample opportunity, I think, from within our own company to invest in R&D and make sure that the cash balance is used in a wise fashion.
We'll go next to a question from Emily Field of Barclays.
Hi. Yes. I was just wondering if the FDA thus far has seen any of the preliminary data from the MANTA studies, when you expect MANTA and MANTA-RAy to be fully enrolled, and if you expect you will need the full data to file, assuming the SELECTION trial is successful?
Yes. Hi, this is Walid. Take your call. Good morning, everybody in the U.S., and good afternoon for the rest. Regarding the meeting with the FDA, we did have a discussion with the FDA, including all the FINCH data and the available MANTA data, which were blinded. There was no unblinding of the MANTA study. That formed the basis of the discussion that Gilead actually led with the FDA. At the end of that, we agreed that we can move forward and file in the U.S. regardless of the MANTA study. Of course, we will include all the data available from MANTA, from all the other open label also, or studies that are ongoing. The completion of the MANTA program will not be needed prior to filing. I believe you asked a question about SELECTION.
I don't think that was a subject of a discussion, but I don't think this will be necessarily treated any different than the program in RA, because in the end, we are generating more data by that time. Did I answer your question? I'm not sure if I captured all the pieces of your questions.
How enrollment is going since the addition of the MANTA-RAy study?
Right. We have not been guiding on this. Gilead is going to be taking the lead in sharing information. To a great extent, since MANTA is not on the critical path for filing, I believe, this is essentially not critical information to guide for this. I can assure you that recruitment is going up more on the side of MANTA because we increased the site, as we talked about. With discussion with the FDA, we increased the inclusion/exclusion criteria, modified them to be able to allow us to recruit faster. Also MANTA-RAy, with the engagement with a number of sites, we will be seeing this. We're not providing any specific details on this.
We will go next to Brian Abrahams of RBC Capital Markets.
Hi there. Thanks so much for taking my question. Congrats again on the Gilead deal. Continuing on filgotinib, what are your latest expectations on a potential label relative to competitors in RA from an efficacy and safety standpoint? Any compromises you might expect on the label that has enabled filing before the completion of MANTA? How much can be interpreted on safety from blinded sperm counts? Thanks.
Yeah. Thanks, Brian. We've been very pleased with the results of the FINCH program. I think we've been saying this for a long time, that our highly selective JAK1 profile for filgotinib is going to translate into a very beneficial risk-benefit profile, and that materialized. To sort of specifically speculate on what the label would look like, I think that would be quite premature. I think that is a review issue that the FDA will have to weigh in on, of course, and I cannot sort of put the cart in front of the horse in that case.
In the event of the MANTA and evaluating the blinded data, I think that would give you a general sense of certain changes that you would see, whether they make you feel more or less comfortable. Again, I don't want to go into the details of this. Suffice it to say, when the data from the blinded MANTA program plus the totality of the FINCH program were discussed with the FDA, we felt comfortable that we can move forward and file in the U.S. this year still.
Thanks very much.
Our next question comes from James Quigley of JP Morgan.
Hello. Thanks for taking my question. Just one quick one on the JAK1 TYK2 which was discontinued. Is TYK2 still a mechanism that you'd look to develop drugs for, especially given that Bristol's drug is progressing relatively rapidly? I think I'll leave it there. Thank you.
Yeah. Thank you, James. Yes, TYK2 is an area that we're interested in, developing compounds in this area. As we've been saying for a long period of time, having also our own JAK1, which is very advanced, and filgotinib offers an opportunity to consider combination treatment which would really enable us to address a key unmet medical need in these indications. Just keep in mind how much more improvement is needed in these patients. I remind you, we talk about ACR 50s of around 40%-50%, ACR 70s at about 20%-30%. Those numbers should be ACR 70s around 70%-80%. There's a huge room for improvement. Combination therapy with filgotinib is an important strategy. Toledo will be also a very important strategy for us to achieve those goals, and that's what we're striving towards.
Our next question comes from Ellie Merle of Cantor Fitzgerald.
Hi, guys. Thanks for taking the question and congrats on all the progress. Just one on sort of your M&A and BD strategy, given your very strong cash position now. Can you just elaborate a little bit on how you're thinking about this and I guess, what therapeutic areas or modalities you think would complement your discovery efforts? Thanks.
Yeah, this is Onno here. I'm happy to answer your question. It's clear that we will be on the lookout for compounds that could complement our portfolio. Clearly, fibrosis inflammation remain important, but we will be expanding the therapeutic areas with our internal research. Well, we're already doing that, but we will accelerate that expansion and diversification, and clearly we will also be looking for compounds in those areas as well. Don't expect any major acquisitions for now. That most likely will be more compound licenses and maybe technology platforms if they really complement what we currently have internal. There will be a busy time ahead for us there.
We'll go next to Peter Welford of Jefferies.
Hi, thanks. Yeah, I wanted to ask about your earlier preclinical phase I type and drug discovery efforts. Firstly, I guess just with regards to the discussions with Gilead, were there any particular new areas they wanted you to increase efforts in, perhaps, or any agreements reached as far as areas that they would like to see you move into? I wonder as well, 3667, is that a brand new class or is that similar to any of the drugs that you already have within your pipeline? Thank you.
I'll do the first part, Matthew. There has been no pressure or not even mentioning by Gilead of areas of interest for them to go into. That's really clear from day one that that's off limits. We determine what we think are the right areas to focus on. They only have information, right? We're going to inform them regularly on what we're doing. They will not be able to influence our program. Walid?
This is Walid. For the 3667, we're not disclosing the target today. What I can tell you is that it is not a backup compound to any compound that we have in our pipeline. I think it's safe to assume that it's a new pharmacology.
We'll go to our next question from Matthew Harrison of Morgan Stanley.
Hey, good morning. Thanks for taking the question. I guess, for me, just a question broadly on Toledo. I think, Onno, on the Gilead call, you suggest that you're planning to start, I think, 10 phase II studies sometime next year and kind of have a very broad effort towards finding potential areas to move that program forward. Can you just maybe outline for us what you think is important about the phase I data and how things will get this year, and then when you might start to disclose some of the indications and the breadth of that program? Thanks.
Yeah, this is clearly Walid in a better position to answer. Walid?
Thank you, Onno. Look, we've identified this area a couple of years ago, and we were very impressed with the data that we've seen pre-clinically. We decided to invest heavily in it from a chemistry and biology. We view this program as a new platform that's going to give us the opportunity to address a number of unmet medical needs. As such, we are advancing these programs, these various molecules forward with various level of selectivity for certain subtypes, if you think of them as the JAKs, you know, JAK1, JAK2, JAK3, so on and so forth. There's a huge element of learning from the clinic that we're going to take back to the lab to help inform what's going on.
It's in the same spirit that when we go broadly into indications in the inflammation space and perhaps in fibrosis as well, that we want to sort of learn and adjust the best molecule with the best selectivity to the target indication. What we've learned from phase I? Well, first, the most important part of the learning in phase I is about the safety and the tolerability of these compounds, and that's why we're very excited that we're able to get into clinic and we're advancing forward. By the end of the year, we'll share more information about it. There are also certain pharmacodynamic endpoints that we're including in these trials to also guide us about sort of which type of cytokine might be affected and so on and so forth.
It's very important that you think of this, that we're taking a really large approach, a platform approach, where these molecules are going to be informing each other and guiding the subsequent development to be niched towards the best indication that will address the most important unmet medical need, but also to help us to speed up development by learning from compounds that are more advanced to influence the ones that are coming at their heels.
We'll hear next from Anastasia Karpova of Kempen.
Good afternoon. Quick question. On becoming read out in Sjögren's, can you at least please explain what made you comfortable going in this indication, given that JAK is not directly related in the pathology and its modulation of interferon gamma would be sufficient to show efficacy or clinically meaningful efficacy indication that hasn't seen any de-certifying drugs?
I'm sorry. I didn't quite catch. You were going in and out, but I'm assuming you're asking about what is the rationale for why we went into Sjögren's syndrome. Is that what you're saying?
Yeah, and how comes [audio distortion] with a positive outcome?
Well, look, I think, the preclinical data that we had convinced us that this is an indication that we have a likelihood that we could work. Of course, in that indication, there's still a significant unmet need, and the nature of the phase II study that we put in place was maybe more exploratory, just as you said, because it's not as well formed and advanced, say, for example, compared to ankylosing spondylitis or psoriatic arthritis.
The nature of the phase II study is more exploratory to cast a wider net and look at various endpoints to see where we need to go next. As we indicated, the results will be shared in the second half of the year, and we will use that information to guide what would be the next step and whether filgotinib is going to be able to address an unmet medical need in Sjögren's syndrome to take it forward.
We'll hear next from Dane Leone of Raymond James.
Hi. Thank you very much. Congratulations on the update. Since I was not on the last call, congratulations on the Gilead deal. The one question from me, may be a bit of a delayed question, but it's one that's been percolating quite a bit within the investment community here in the U.S. When you look at some of the complicated programs that you and Gilead are going to tackle, such as the Toledo program, a lot of people have been debating whether it's a fair comparison to the complicated algorithm that was the CF program, that your team undertook in partnership with AbbVie. The question comes out is, how are you structuring some of the decision-making here between the two teams?
What we saw with the AbbVie partnership that somewhat dissolved over time, I know the backstory is a little bit more complicated, but it seemed to be finally come down to a difference of opinion on how to accelerate some assets from early testing to later testing, between the two teams and, ultimately the conflict resolution had to occur. Just from a high level, how are you thinking about managing that type of conflict resolution when you have these complicated programs like Toledo and other ones presumably that'll occur over the life of this partnership? Thank you.
That's a good point. This all now, it's completely different than in the previous collaboration, with AbbVie, where it was a complicated decision-making and conflict resolution. It is quite simple that we have final say on all aspects with regard to the programs until the end of phase II. The final phase II has to be a qualifying phase II for Gilead to exercise its option, to decide to exercise the option or not. If they exercise the option, it's going to be a joint collaboration, there's a clear dispute resolution described in the contract, with the final say, ultimately related to the territory. We will always have final say on Europe and Gilead will always have final say after they exercise the option in the territories outside Europe. That makes it all quite a bit more clear and straightforward to exercise.
Ultimately that could lead, it's not desired, but it's a possibility that we would do a separate European phase III if we have, by example, a major issue with Gilead on how a phase III would be designed worldwide, or the planning of that phase III. That has all been discussed, and we think it's very elegantly resolved in the contract that we have signed.
We'll hear next from Graig Suvannavejh of Goldman Sachs.
Yeah. Hey, good afternoon. Thanks for taking the question. Sorry about the noise in the background, just a question about BD. Given the company's traditional focus on small molecules, you talk about platforms that you're looking at Can you just give us additional color? Are you looking at, say, biologic-based approaches or gene editing-based approaches? Any color there on the platforms you're looking at? Thank you.
Well, it's not our first priority to see if we can get the large molecules into our platform or in our pipeline, but also not excluding it at this point in time. It's still very early days. We have to sit together with the teams and see what makes the best sense to move forward. Clearly, we will be looking at new areas for Galapagos, including RNA, which seems to be a very attractive area to expand into. We will be open for various different technologies to enter the research engine of Galapagos.
Our next question comes from Christopher Marai of Nomura Instinet.
Hi. Good morning. Thanks for taking the question. Just number 1 on capital allocation. I was wondering if you could comment on any interest in potentially reacquiring rights to some of the compounds that you currently have collaborations or partnerships around, obviously outside the Gilead collaborations. Secondly, maybe Walid can help us understand what the target is for Toledo. Thank you.
Maybe I'll take the first question, Chris. Bart speaking. On your capital allocation, no, that's not on the agenda to look for reacquiring certain rights that we had previously licensed. I think everything that's been licensed to third parties has been up for good strategic reasons more than anything else. That's not on the agenda. The Toledo target question, I'll hand it over to Walid, but I'm sure the answer is going to be relatively short. Walid, do you want to comment on this one?
Well, thank you, Bart. I think you could have answered it. Look, we're not sharing the target for Toledo. We've been saying this. It's important for us to do this for competitive reasons. Our objective will be, or our plan would be to do it sometime when we start our multiple phase II trials, as we said previously.
The Toledo target, that is. Thank you.
I'm sorry, I didn't hear what you said, Chris.
Oh, I'm sorry. Does the R&D day in November make sense from the perspective of releasing the Toledo target? That's my last question. Thank you very much. Congrats on the collaboration.
Yeah. Thank you, Chris. I think it will be more in next year sometime after we start our phase II trials with multiple phase II trials at the same time. That's been our target.
Our next question comes from Pasha Sarraf of SVB Leerink.
Hi, this is Dylan Dupuis sitting in for Pasha. Just two quick questions. Number one, are you going to be bringing in-house any discovery programs or discovery targets that Gilead is currently working on? Number two, how does your plans to expand your R&D, how does that impact your previously stated goals for bringing X amount of compounds through different stages of development? Thank you.
I'll do the first part. First part was?
Discovery programs coming in from Gilead.
Yeah. There is a possibility that Gilead, or it's likely that Gilead is working on similar programs that we have programs on. We haven't shared that yet because we're still in a period that we cannot share that kind of information. We'll do that immediately after the conclusion of the transaction. If there is an interest to join efforts on programs, we will do that. There's also a possibility that they will continue independently, both options are described in the contract. It's very well possible that we will jointly work on a program that Gilead already has efforts on.
Yeah. I'll take the second part of the question. I think this is also one to discuss in more detail on the R&D day in November. Clearly, if we are going to invest more in our discovery platform and programs, we would anticipate higher output also for those programs. Previously, we've also always guided for three pre-clinical candidates every year coming out of our discovery efforts. Yes, you should expect this number to go up clearly if we are increasing our investments there as well.
We'll hear next from Phil Nadeau of Cowen and Company.
Morning, thanks for taking my questions and congratulations on the progress. First on the Sjögren's and CLE data that we're going to see for filgotinib in the second half of the year. Given that both of those have a variety of symptoms, can you give us some sense of what data would serve as proof of concept, kind of what changes on what endpoints? Briefly, just a housekeeping item. Do you have any sense of how the upfront is going to be accounted for? Is it going to be amortized, and if so, over what period? Thanks.
Yeah. I think for those studies, again, I think I mentioned this a little bit before, we were being a bit more exploratory, at least Gilead has been. When I say we, I use the joint we. We're looking at various endpoints. For cutaneous lupus, the endpoint itself for cutaneous lupus is actually the typical endpoint we will look at. I am sorry, I can't remember it off the top of my head, to be honest with you. We're also looking at other manifestation of lupus that some of these patients will also have.
Again, those studies tend to be more exploratory in nature, that we're looking at virtually all things that we can look at that would be affected in this disease, with the idea that this will guide the next studies, which could be either phase II or phase III, depending on how robust the data and how convinced we are with these findings. Off to you, Bart.
I'll take that one, Walid, on the upfront accounting, I feel. That will be amortized over years. Basically, it's going to be spread out in different buckets. There is parts of the upfront that will be allocated to 1690. There will be parts allocated to the platform, to other molecules, to filgotinib. It's a relatively complicated exercise. At the end of the day, what I expect is that we will have, let's say, roughly 15%-20% recognized in one shot in the 2019 accounts, and the remainder being recognized over the period of the collaboration. That's a 10-year period with some fluctuations over years, probably a little bit more in the early years and then winding down towards the later years.
I'll give full details on that in our Q3 call in October, once we will have closed the transaction and then also finalized the accounting of that transaction. This gives you an idea as to how we're thinking about this at this stage, and then full clarity will come in a couple of months.
We'll hear next from Adam Walsh of Stifel.
Oh, hi. Good afternoon. Thanks for taking my questions. On the ROCCELLA phase II-b trial with 1972 in osteoarthritis, that enrollment's now complete. The primary endpoint's a reduction in cartilage loss by quantitated MRI. I'm just wondering what results would be considered positive or sufficient to trigger Gilead to opt in. I think those results will be coming in about 12 months now. If you could give us a sense for kind of what the thresholds there are, that would be great. Thank you.
Adam, Walid. As you correctly indicated, that trial, the primary endpoint is a reduction in cartilage loss as measured by MRI over a 12-month period. At the same time, we're looking at the usual suspects, at the WOMAC with all its sub-scales. Also measure the pain, the patient assessment, looking also at joint space narrowing by X-ray. Not expecting also that in this trial with the size, that you would be able to see something on the joint space narrowing, but still those will give you directionally where things are heading. There are no specific discussions with Gilead as to a threshold that will make them opt-in. Actually, that probably question is more appropriate to ask Gilead than us, what would good look like in their opinion.
Look, this is an area of high unmet medical need, and there's a very high potential reward financially if things move forward. There's no treatment to modify the disease. Gilead is very excited about this program, as are we. When the data become available, we'll be sitting together and look, poring over it. I think the decision whether or not they opt in is probably better asked to them and not to us. Thanks.
We'll go to our next question from Patrick Trucchio of Berenberg Capital Markets.
Thanks. Good morning and afternoon. My question's regarding filgotinib in Europe. Can you remind us how we should think about the necessity of the MANTA studies and data in the EU filings, and when in 2020 we should anticipate the potential launch in RA in the EU? Thanks.
We've talked about the filgotinib filing in Europe that's now in discussions with the EMA. There was no need to have the results of the MANTA trial before we file. The plan for filing in the EU is in the second quarter, and probably the earlier part of the second quarter, if I can be a little bit more specific. With that, one would expect launching sometime next year, probably in the second half. Bart?
Yeah, I thought I heard you say second quarter, third quarter is what filing, right, Walid?
I'm sorry. I meant second. Yeah. I meant second half, sorry.
At this time, there are no other questions in the queue. I'll turn the call back to our presenters.
All right. Thanks, everybody. This does conclude the call today. Our next scheduled call is going to be the third quarter 2019 results on the 25th of October. We thank all the callers for their support and participation, and wish everybody a very happy summer. Thank you. Bye-bye.