Ladies and gentlemen, good day and welcome to the Galapagos Results Webcast. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead, ma'am.
Thank you, and welcome all to the audio webcast of Galapagos first half 2018 results. I'm Elizabeth in investor relations, and I'll be hosting today's event. 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 the telephone number given in the press release from last night. I'll give you the Belgian number, that's 32 for Belgium, 24040659, and our code is 1122269. I would like to remind everyone that we will be making forward-looking statements during today's webcast. These forward-looking statements include remarks concerning future developments of the pipeline and our company and possible changes in the industry and competitive environment. These forward-looking statements involve risks and uncertainties, Galapagos' actual results may differ materially from the results expressed or implied in these statements.
Today's participants will include Onno van de Stolpe, our CEO, and Bart Filius, COO and CFO, who will go through some prepared remarks, and then they will be joined by Walid Abi-Saab, our CMO, and Piet Wigerinck, our CSO, for the Q&A session. At this point, I'd like to hand over to Onno to start the talk of the prepared remarks.
Thank you, Elizabeth, and thank you for joining us in this webcast around the first half results 2018. Let's first have a look at the deliveries in the first half and specifically around the development results that we have achieved. In inflammation, we saw very nice results in psoriatic arthritis with filgotinib in the EQUATOR trial. We also were very pleased that in the SELECTION trial in ulcerative colitis, filgotinib moved from a phase II into a phase III trial there. This is done in collaboration, of course, all with our friends from Gilead. In osteoarthritis, we started ROCCELLA, which is the phase II trial with GLPG1972 in collaboration with our friends from Servier and with our friends of MorphoSys, we started our phase II in atopic dermatitis in the IGUANA trial. A lot of activities there.
In IPF, our proprietary programs, we started ISABELA 1 and 2, which is our first proprietary phase III program that we're running for 1690. Everything is okay there, and the first patients will be dosed in the next quarter or this quarter. The PINTA trial, which is another mechanism of action GLPG1205 that we're moving in phase II in idiopathic fibrosis. Lots of activities there. In CF, we shared the results of the PELICAN study, the GLPG2737 program. We started our first triple combo trial, so three individual components together in the FALCON trial and that is now fully screened and we're moving forward with that data set. Unfortunately, AbbVie decided not to advance our second triple combo. We were planning to start that last month, and you have seen that in the press release that was halted.
As a result, we are reviewing the status of that collaboration with AbbVie. All in all, fantastic results here in the development front. Of course, also a lot of activities in research that will highlight at the future R&D day and all of that with a substantial cash balance of EUR 1.1 billion by half year. Briefly showing you the results again of the psoriatic arthritis trial with filgotinib because these data were quite spectacular. We reached the ACR scores similar to what we have seen in rheumatoid arthritis with an ACR20 of 80 and an ACR50 of almost 48%. Clearly these are the best phase II data ever reported for any potential drug in psoriatic arthritis. We and our partner, Gilead, were extremely pleased to show these results with you.
Clearly everything is being prepared to make the decision to move that into a phase III trial. Lots of phase II and phase III trials are being planned or are underway. This is a portfolio that Galapagos has never seen and shows the maturation of the company moving into a fully fledged development organization. The ISABELA program is our biggest program as Galapagos, where we are running two identical phase III programs with 1,500 patients in total in idiopathic pulmonary fibrosis. A large program is going to take quite a long time to recruit and to run for 52 weeks, but a lot of excitement in the community around this program as well as on the trial design. With MOR106, we have started the IGUANA trial, also a large trial for 12 weeks, so shorter duration.
In osteoarthritis with 972, together with our partners at Servier, we're doing an 850-patient, 52-week trial around the world in the ROCCELLA trial. Also a very exciting molecule, a very exciting program that potentially has tremendous value for both Galapagos and Servier. We have the PINTA trial, which is a new mechanism, GLPG1205 that we previously tested in ulcerative colitis and now in IPF. We're running that for a 26-week trial with 60 patients. All in all, we're moving over 2,500 patients in these programs. These are numbers that Galapagos has never seen before. It shows how this company is developing in time. I'm bringing you to the next slide, which is a slide we have shown before, which you can expect in 2018 regarding our late-stage clinical news flow. This excludes early programs as well as the whole research pipeline.
These were the objectives that we shared with you previously, and you see we have most of them already achieved. One big red cross at the second triple combo because AbbVie decided not to move that forward. All the others are nicely moving along with three achievements still to be made. Clearly the FINCH 2 data are eagerly expected by the market, which will be in Q3, which is for filgotinib in RA. This is the first phase III readout that Galapagos will have, so it's going to be eagerly awaited by us, Gilead, and of course, everybody that follows Galapagos. Also very excited about the phase II trial of filgotinib in ankylosing spondylitis, the TORTUGA trial, of which the data will also be presented in Q3. These are very important moments in the history of the company.
We also will present in the second half the FALCON data, the triple combo in cystic fibrosis. As I said, this is fully screened and the whole timing of that trial is according to planning. All in all, I think 2018 is going to look like a fantastic year for the company with regard to the development objectives that we set. We also signed in this quarter the licensing deal around MOR106 with Novartis. MOR106 is a partnership around an antibody that's targeting IL-17C that we have in combination with MorphoSys. We have this target originated from the target discovery engine of Galapagos, and we have jointly moved this forward through discovery and through development where we showed the proof of concept data to the market.
Based on that, we started our phase II trial and we initiated discussions with parties to see if we found the right licensing partner for this program. Ultimately, we're very pleased to sign this deal with Novartis and of course, one of the leading pharma companies in the world, very well-respected partner. We are extremely excited because of the plans that Novartis has with this molecule, this antibody that we have. They will move this in multiple indications. They have committed to at least two new indications. On top of the current indication in atopic dermatitis. Also nice is that they are going to pay for all the costs that we further incur on phase II trials. They take over the complete expenses of that program and it's considerable because it's a large program that we are executing.
They're responsible for the whole phase III and commercialization. In exchange for this license of the program, they pay MorphoSys and Galapagos an upfront of $111 million that we share 50/50, milestones up to 1 billion and royalties in the low teens and low 20s. The deal has been signed, but still needs antitrust clearance that we're expecting in the not too far future. An exciting deal. We think it's the right thing to do for this program to partner at this stage. The terms are nice. The partner is fantastic. We will be running this phase II program as we had planned. We're still in charge there. All in all, I think we can be very proud of this program and the results. With that, I would like to hand it over No. Is the next slide?
Bart.
To Bart. Yeah.
Yeah. Thank you, Onno. Let me show you a couple of slides on the key financials. As usual, I'll start with cash. Cash burn over the first six months of the year has been EUR 95 million. As you can see on this slide, we've had small positives from small capital increases as the result of warrant exercises as well as a small currency translation effect, which is positive this first half year. Those two we never take into account in our operational cash burn. Our cash burn definition includes cash income from milestones and all other cash expenses, leading to a result of EUR 95 million over the first half year and giving us a cash position of EUR 1.067 billion by the end of June. Key P&L figures on the next slide. Revenues are up by almost EUR 30 million to a little over EUR 100 million.
Be aware that this is to a large extent driven by accounting treatments. There is clearly an increase in the recognition of deferred revenues that are associated to the upfront that was paid to us by Gilead for the filgotinib transaction in 2016. At the same time, there is also a change in accounting standards with the implementation of IFRS 15, which had a net positive effect of a little over EUR 10 million over the first half year. Operating costs are expenses associated mainly with research and development, clearly. Research expenses are slightly up, but the real increase is in development expenses and clearly associated with filgotinib, GLPG1690, and CF. That's a trend that we will expect to see also going forward in terms of increases, as these programs that Onno was just describing are coming online and we are running more of our own proprietary programs.
Net result is a negative EUR 59 million, which is EUR 10 million worse than the first half of 2017, which is the combination of the two previous components as well as some currency translation effects in between. Again, a large extent driven by accounting treatments. Finally, maybe a quick word on guidance. We've lowered our cash burn guidance for the year 2018. Originally, we had EUR 220 million to EUR 240 million as a range. We expect to receive 50% of the upfront that was paid or that will be paid by Novartis for the MOR106 transaction. As a result, we're lowering the guidance for the full year 2018 to a range of EUR 180 million to EUR 200 million. With that, I think we will close our prepared remarks and we'll hand it over back to Elizabeth for the Q&A.
Okay. Thank you. That does indeed conclude the presentation portion. I'd now like to ask the operator, Abby, to connect us to any callers with questions. Abby, go ahead.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star one if you would like to ask a question. We will take our first question from Matthew Harrison with Morgan Stanley. Please go ahead.
Great. Good morning. Thanks for taking the questions. Two from me. Both related to filgotinib. I guess the first question is, can you just give us an update on the male toxicity study? On clinicaltrials.gov, it suggests that won't read out till 2021. I'm just wondering how that impacts timelines for filgotinib and how enrollment is going with that study. Then secondly, could you just also talk about, I noticed that you started a filgotinib study or maybe Gilead did with hepatic impairment. Is there a specific reason for starting that study or is that just a standard requirement as part of the package you need to deliver to the FDA? Thanks.
Hi, Matthew. This is Walid. I'll take both questions. I'll start with the easier one first. For the hepatic impairment study, this is the usual clinical pharmacology package that one does when submitting this. There's no particular reasons why we did it in the case of filgotinib. It's just a regular completing the package and preparing for filing. Regarding the male toxicity study or sperm toxicity study, as you heard last week in the Gilead Q2 result, that this will be part of the overall package that we submit to the FDA. Gilead is doing everything they can to work on MANTA recruitment and move it as quickly as possible. I like to point out that we've been quite impressed with the speed with which Gilead performed our FINCH trials. If you recall, we kind of wrapped those up a bit one year ahead of schedule.
That also included an update on what's available on clinicaltrials.gov, which sometimes lags behind how things are progressing. What I can tell you is Gilead is working diligently to recruit the MANTA study. They're quite focused on this and moving this along and once we have more information, we'll be able to share with you an update on timing of the filing for filgotinib.
Great. Thanks very much. Appreciate it.
We will take our next question from Nick Nieland with Citi. Please go ahead.
Thanks for taking the questions. I've got three, please. Just to clarify on the last question, what's the earliest possible timing, do you think, for filing of filgotinib in RA? Presumably you have to wait for the final FINCH 1 and 3 data, and you have to wait for the MANTA trial to actually read out before you can actually submit that package. Secondly, do you think that Gilead will use a priority review voucher for that filing? Second question is on cystic fibrosis. Is it your intention to take the second triple combination into phase II once you've resolved this dispute with AbbVie? Is that likely to involve another partner or is that something you could take on yourselves?
Just how much should we expect R&D to ramp up now in the second half of 2018 and 2019, given all of these, or the successful progression of your pipeline? Thank you.
Maybe I'll take the filgotinib question regarding MANTA. At this point, we're not really prepared to share any specific timing regarding the filing. As you know, we need to complete the whole program and have been communicated, we will get results from FINCH 2 later this quarter, and then FINCH 1 and 3 will be in early 2019. We will have to look at the totality of the data and include the data from the MANTA into the package. At this point, we cannot guide on the exact timing. We're doing the best we can to move forward. Regarding Gilead's use of priority review, I think this is a question that's probably better addressed to Gilead. I cannot make a comment on this at this point. We should hope they will. That is our position.
Yeah, I'll answer this. This is on the CF question. There's not much we can tell at this point in time over what we have expressed in our press release. The fact that we're clearly we're not pleased by the decision by AbbVie not to move the second triple into patients. We are reviewing our partnership, and that's the only comment I can make regarding CF at this point in time. I'll take the last question, Nick, around the ramp-up of R&D expenses for the second half of the year. Our guidance points towards, let's say, the higher end of that range was EUR 200 million, which includes, I'm rounding now, roughly EUR 50 million of income from the Novartis transaction. The actual gross expense expected for the second half of the year is around EUR 150. That's a number that we will expect to continue into 2019.
I'll get back to you all with more detailed guidance as usual around the full-year results call information. Clearly, that number will not go down. It will rather go up from that level.
Okay, thank you.
We will take our next question from Brian Abrahams with RBC Capital Markets. Please go ahead.
Hi there. Thanks so much for taking my questions. One on MOR106 and one on CF. On 106, wondering if you could talk a little bit about some of the other indications that might be contemplated beyond atopic derm. Also if you could give us any sense as to how the overall milestones may be allocated. Should we think of those as primarily regulatory commercial, or might you realize material amounts for development in the coming years? On CF, on the PELICAN study, wondering if you guys have seen any evidence that the ORKAMBI backbone might have interfered, if not with exposure, then maybe with measurement of FEV1, such that we might expect a triple combo to show more impressive benefits overall when we see the FALCON data. Thanks.
Brian, Piet here. Thanks for asking the questions on MOR106. For the extra indications, I think the easiest way to answer the question is to refer you to the Panzer paper, which came out a couple of months ago, and which is a very nice piece of research that really points to the importance of the IL-17 pathway in a number of TH17-induced diseases. I can't comment on specific indications because we will do that at the moment in our study, but we've had a very interesting and deep discussion with Novartis, as you can imagine, on how we want to develop MOR106 broadly. That paper really points you to a number of diseases which are on the board now, and we will keep you informed as we move forward. That Panzer paper 2018 gives you nice indications. On CF, moving to CF, the PELICAN study.
Prior to starting the PELICAN study, we had good idea on how much of PK interaction we expected from the ORKAMBI, let's call it backbone here or treatment on 2737. In terms of exposure, we were fully in line with our expectation of the patients. We really reached our target levels there. For sure it's not a PK interaction. What you then point to is the sometimes negative impact of ORKAMBI on lung function. We don't have the impression that has happened. That typically happens at the start of the treatment of ORKAMBI and then goes away over time. That effect typically is at the beginning. Most of these patients were on treatment for average a couple of years. We don't expect that that played a significant role is unfortunately the limited efficacy we saw in the PELICAN study.
I think I answered swiftly your question. There was a question for Bart on the MOR106 extra milestones. Bart will tackle that.
I'll take that, Piet. Yes, Brian, the question you had on milestones. We've agreed not to detail all the milestones stage by stage. What I can tell you is that a significant majority of the milestones are associated with development and regulatory events and a minority is associated with sales triggers. Obviously within the development of regulatory, the larger numbers are around the regulatory events and the smaller numbers around development, but not insignificant for us either.
Very helpful. Thanks.
We will take our next question from Sandra Cauwenberghs with KBC Securities. Please go ahead.
Hi. I have one other question on MorphoSys 106. I was wondering, besides the other indications, if there has been any communication on a potential combination trial, for instance, with COSENTYX, or if that could be an interesting rationale. With regard to 1690, if you could give us some information on the timelines of the two global trials, total duration, recruitment time, et cetera. Thank you.
This is Walid Abi-Saab. I'll take the 1690 question first. As we've communicated before, these will be two large identical studies, 750 patients each, conducted worldwide for a total of 1,500 patients. The in-life phase of the trial is 52 weeks, but there were some specific elements in that the patients will continue on their randomized treatment until the last patient finishes 52 weeks of treatment. We expect to start the trials, as Onno van de Stolpe mentioned, very shortly, and those will be conducted worldwide. In terms of the duration of the trials, we're not guiding yet on how long it will take us to recruit, simply because it's too early. We haven't yet seen any performance, how it goes, and so on and so forth.
As you know, our trials are really on top of standard of care, including those who are on any anti-fibrotic treatment, such as pirfenidone and nintedanib, and those who are on none. We believe this will make it relatively easier to remove some of the hurdles. Yet we're dealing still with a rare disease, we're talking about a large program of 1,500. We have all the resources behind it. We're well prepared for it. As of today, I cannot give you any guidance as to the duration of the recruitment timeline for the trial. Off to you, Piet Wigerinck.
Yeah. Okay, Walid. Thank you. On the MOR106 question, of course, Novartis was a very interesting candidate for IL-17C to license. They are a major player in that IL-17 space. The plan currently is that we execute the phase II plan as we had it on the books. This is first a dose ranger IV plus a bridge to a subQ. A subQ first into human and then later in a subQ efficacy study. From there on, Novartis will take over for phase III. If they want to combine with IL-17A, then that will be part of that program. I can't comment further on a combo trial that they want to plan currently. Thank you.
Okay, thanks.
We will take our next question from Adam Walsh with Stifel. Please go ahead.
Hi, this is Adam Walsh for Adam. Thanks for taking my questions. My first question is on filgotinib, a more general one. The phase II top-line data are around the corner. Can you please remind us what do we expect in efficacy, like ACR scores and safety from this phase III trial? How do we think of market positions of filgotinib relative to other JAK inhibitors in terms of developmental stage and potential usage in RA patient?
Maybe I can take this question about our expectations. You've seen the data so far with our RA program, with a number of phase II trials in RA. You've seen the recent data in psoriatic arthritis, where filgotinib performed in this trial better than anything has been reported so far. You've seen our data also in the control trial in Crohn's disease. I think we have a compound that so far has demonstrated time and time again in well-controlled, placebo-controlled, and well-designed trials, where we have remarkable performance and efficacy. In addition, our safety profile continues to demonstrate, as the data are being accumulated, a best-in-class profile. All of this, as you guys know, is not surprising, because of the high selectivity for JAK1, which we think is where we need to be.
I would imagine that the phase III trial, or I would expect actually, that the phase III trials with filgotinib in RA and also in IBD later on, will continue to demonstrate a superb efficacy along with the best-in-class safety so that we can combine to have actually, an excellent or outstanding risk-benefit profile for this. Was there a question on positioning as well? I wasn't very clear. I might have not caught it. I'm sorry, Adam.
Yeah. In clinical settings, if it's approved, relative to other JAK inhibitors.
Well, look, I think we will have to wait until we have the totality of the data of our phase III program, to be able to make that a statement with more confidence. So far, based on the data that we've seen today and based on what we know about the drug and its selectivity, and its emerging safety profile, we expect it to be best in class. If you're best in class, you'll be used much more commonly than otherwise. It's very difficult to make predictions without the data, but so far, what we know of promises to be a very good profile at the completion of phase III.
Okay, thank you. My second question, can you please give us some updates on ROCCELLA phase II trial with GLPG1972? How many osteoarthritis patients have been enrolled, and when do we expect some data readouts? Thank you.
Yeah, good question. This is, as you've heard, a large trial. 850 patients will be randomized across the world. We are responsible for the portion of this in the U.S., which is approximately 300 patients. The study is imminently ready to start. We should be recruiting in the next few weeks. Again, in terms of how long it will take to complete the trial, it's a bit premature to say at this point. We will have to see how things go. Again, we are working with a partner who is well experienced in this space, and we have a lot of excitement as this mechanism of action really promises to be very good in this space, especially having demonstrated some proof of mechanism in patients already with OA and a safety profile that so far, looks very promising.
I think these will help us with recruitment, but I cannot really give you any guidance on timelines today. It's a bit too early for that.
Thank you.
We will take our next question from Emily Field with Barclays. Please go ahead.
Hi. Yeah. Just on filgotinib. Going back to the end of phase II meeting, it had sort of seemed that the question of male toxicity and RA had been resolved, given the dosing schedule that you were going into the FINCH program with. I just wanted to confirm that nothing has changed, and that there haven't been any sort of incremental safety signals that you've seen aside from what was initially seen in the preclinical data.
Thanks, Emily, for your question. No, there's been no new development that would make you feel any more concerned or any new data that emerged. This is the usual point that we need to have the totality of the data. At the end of the day, it's a judgment that has to be made on the risk-benefit. I can confirm there's been no new development that could change the course forward since we had the end of phase II meeting.
Thank you.
We will take our next question from Phil Nadeau with Cowen and Company. Please go ahead.
Morning. Thanks for taking my questions. Just a couple on cystic fibrosis. Just first is on the collaboration with AbbVie. You mentioned that you're in the process of reviewing the collaboration. What are the dispute resolution procedures in that collaboration? According to the collaboration, can either party discontinue at their own desire? Is there something else that needs to happen to get out of the collaboration?
Yeah. This is Onno. Unfortunately, I cannot get any more specific on the CF situation with AbbVie than what I've told previously. Yeah, I have to leave you in the dark here.
Okay, the follow-up on the CF program is just on the FALCON data. I think the guidance is for that data later this quarter. Will we be getting both doses in that initial release, or will it just be dose A?
Okay. Thanks for going back to science now. Indeed, as you mentioned, we have the FALCON study ongoing. The news there is that we've recruited fully that first cohort, and that first cohort will contain one dose only. All patients, it's an open label trial, all patients are on the same regimen and all on the same dose. Thank you.
When could we see dose B? Is that?
Sometime later this year?
Well, as the trial is fully recruited and dosing is for about a month. Around the end of Q3, we should have all data and have it analyzed. It can be within Q3 or early October, something like that.
Okay.
stay-
Thanks so much.
Yeah.
We will take our next question from Peter Welford with Jefferies. Please go ahead.
Hi. Thanks. A couple of left on CF, I think. Just on the second triple, it was my understanding that Galapagos leads development until proof of concept has been demonstrated. I guess I'm just curious, given the way that relationship is run, why can you not continue development of the second triple, as AbbVie doesn't take over the responsibility until after that proof of concept data have been shown. Secondly, I think there's, in CF, a milestone, if I read the financial report right, was hit during the second quarter, triggering some money from AbbVie. Just inquiring as to what that milestone was that triggered that money in 2Q. Then just a bit of an annual financial one, depreciation and amortization ticked up quite a bit in 2Q. I mean, it's a small number. What was the rationale for that? Thanks.
Okay. I'll take the first one. I cannot go into specifics, but it's clear that for us to take the triple into patients, we need the okay from AbbVie to do so, and they didn't give the okay, so we couldn't move that into patients. That's the only thing I can say over that part of the contract. The other questions will be answered by Bart.
Yeah, Peter. On the milestone, you're correct. There was indeed one milestone that was connected to completion of the phase 1 of our triple, including GLPG3067. That was completed and the milestone achieved in the second quarter. On the amortization point, it's a really small amount, but there was a very early stage compounds, on which we had to amortize, I think it was a little more than EUR 1 million in the second quarter as well.
Thanks so much.
We will take our next question from Anastasia Karpova with Kempen. Please go ahead.
Hi. Two quick questions on the FINCH 2 program. Compared to baricitinib, I know baricitinib trial, you have quite higher proportion of Japanese trials. In regards to that, would FINCH program be sufficient to support filing in Japan as well, or is there plans for separate clinical program? Second, do you observe any significant deviations in terms of the placebo rates in Japanese populations compared to the Western one? Thanks.
Okay. Walid. Yes, indeed, the plan would be to have enough patients to be able to file in Japan at the completion of the program. That's still our plan. In terms of difference of placebo in Japanese patients, I'm not aware of any significant differences of concern or concerns. I'm going to say no.
Thanks.
Our next question is from Hugo Solvet with Bryan Garnier. Please go ahead.
Hi. Hello. Thanks for taking my question. Just one on MOR106. Could you give some indication on the positioning that will be seeked by Novartis with respect to dupilumab? Thank you.
Hugo, thank you. I think it's a bit early to already compare MOR106 to dupilumab. It's clear we target the same disease and currently the same patients. We are early in phase II. It has shown promising efficacy, apart maybe somewhat better than the dupilumab. Of course, over time, we will watch how long the efficacy stays with the dupilumab. It's a bit early, I think, to say it is going to be better or similar. We are hopeful that we'll at least match the efficacy and once we have those data, Novartis can then decide how to position this in the market. Thank you.
As a reminder, it is star one if you would like to ask a question. We have no additional phone questions at this time.
All right. Well, thank you everybody. This does conclude the Q&A part of the call. Please note that our next planned financial results are expected on October 25th. We thank everyone for participating today, and I hope you have a great day. Thank you. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.