Thank you for standing by and welcome to the joint business update call for Gilead Sciences and Galapagos. My name is Daniel, and I'll be your conference operator today. At this time, all participants are in listen-only mode. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sung Lee, Senior Vice President, Investor Relations. Please go ahead.
Thank you, Daniel. We appreciate everyone joining us on a Sunday for this call. Earlier today, Gilead and Galapagos issued a press release announcing that both companies have entered into a comprehensive 10-year global clinical and research collaboration. On our call today, we would like to review the terms of the collaboration and benefits to both companies, and then address any questions you may have. We have posted a set of slides on each company's website for your reference. The speakers on today's call will be Daniel O'Day, Chairman and Chief Executive Officer of Gilead Sciences, Onno van de Stolpe, Chief Executive Officer of Galapagos, and Elizabeth Goodwin, Vice President, Investor Relations, Galapagos.
Before we begin, let me remind you that both companies will be making forward-looking statements that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those referred to in any forward-looking statements. Those risks and uncertainties are contained in our joint press release, presentation, and latest SEC filings of each company. I will now turn the call over to Dan.
Well, good afternoon, good evening, everybody. On behalf of Onno and myself, I really want to thank you all for joining us here today. We'd like to articulate why we think this is such a unique and transformational agreement in the industry between two very strong companies that have very strong futures. Let me articulate it by going to the next slide, which is, oh, sorry, this slide is really the three key aspects of this collaboration from our side. First of all, Gilead gains access to a pioneering research platform and an exclusive right to Galapagos' current and future medicines outside of Europe. We really think there's a complementarity to our two organizations' skill set. It combines Galapagos' ability to identify novel targets, first-in-class targets, with Gilead's expertise on chemistry, on speed to markets, and on infrastructure.
This is a deal that's really based about the unique capabilities of both organizations coming together to create something stronger. Of course, the investment in this deal enables Galapagos to expand and accelerate that highly productive R&D that we've seen over the past two decades now. If we go to the next slide, in summary, what are the elements of this from a financial standpoint? Gilead will provide a $3.95 billion upfront payment, in addition to $1.1 billion in equity investment. Gilead will have a stake with that additional $1.1 billion of equity investment of 22% at the beginning of our collaboration, with an option and an ability to take that up to just below 30%.
We've prenegotiated, predefined opt-in fees and milestone payments in a way that allows us to really concentrate on the science, move the most promising medicines into development and onto the market. We'll have a 50/50 development cost split after the opt-in, which will generally occur after the phase II time point, and the royalties have also been standardized across the programs in the range of 20%-24%. If we turn our attention to the next slide, it gives an overview of the current and future programs that are a part of this agreement. This has, I think, both short, medium, and long-term advantages for both companies and for patients and for shareholders. The discovery platform is world-leading. I'll let Onno talk about that, but our scientists and myself greatly appreciate the unique nature of this platform, the proven nature of this platform over the past two decades.
We'll have a revised filgotinib collaboration component of this that will essentially do two major changes. One is allow filgotinib to create an infrastructure, a franchise in Europe to allow them to increase their commercial presence. We'll be co-commercializing filgotinib in the major five European countries, and we split the lead between rheumatoid arthritis and IBD. The cost-sharing for the global development agreement on filgotinib converts to really the cost-sharing that we have now for all the other programs in the agreement, which is a 50/50 from what was previously an 80/20, 80 Gilead, 20 Galapagos. There's six programs beyond filgotinib that Galapagos has in the clinic, 20 more preclinically. The two that are just highlighted here are the IPF program, GLPG1690.
You can see the milestone for that, which essentially now we have opted into as a result of this agreement, so we'll begin the 50/50 global development costs. We have an option to opt into the U.S. rights for GLPG1972, the osteoarthritis program for EUR 250 million opt-in, and a variety of milestone payments due to the potential size and opportunity here that would add up to EUR 750 million. Then we standardized all other clinical programs that could come out of this arrangement in the form of EUR 150 million opt-in after the phase II for ex-Europe rights and 50/50 global development cost shares split the post opt-in. On the next slide, I'll just come at it from what I think are some of the most significant benefits for Gilead, and I'll let Onno comment on Galapagos.
As you recall, since I've come on board four and a half months ago, I had promised you that I'd be focused on the portfolio at Gilead, both internally and externally. Secondly, the commercial delivery, and thirdly, the people and talent piece. I'm obviously continuing to work on all three of those. This represents a really significant major step forward for the portfolio of Gilead. At the end of the day, this essentially doubles our research base overnight with a highly competent, highly capable research organization. It significantly increases our portfolio. You can see the strategic advantages there, access to the IP, the technology, the expertise, the capabilities in inflammation and fibrosis, which is Galapagos' most significant strength right now. Of course, they can follow the science into other disease areas as well, and we would be grateful for that.
It also establishes a strong research base for us in Europe, a company that's been Gilead predominantly focused on U.S.-based talent. We now have the ability to tap into the best scientific talent in Europe and be able to allow that to help us grow and develop our medicine base in the future. Strengthens our pipeline, like I said, with six clinical development programs in addition to filgotinib. I would just say that I couldn't be more pleased that this is the first collaboration that I announce under my leadership because I think it speaks to the type of value we'll create for the portfolio. I want you to know that at Gilead, we will continue. This is one of a variety of things that we'll continue to look at to enhance our innovation network, and to create opportunities for growth for Gilead into the future.
With that, thank you for your attention. I'll turn it over to you, Onno, to pick it up from here.
Thank you, Dan. It's very exciting to announce this deal and to talk about it and to also hear the nice words that Dan is saying about the capabilities of Galapagos. We have worked very hard over the last 20 years to build a biotech company, and then in this anniversary year to get a deal like this is quite something. I want to start with saying a big thank you to the team of Gilead and the team of Galapagos who got it together. It's a very complicated, large, overarching deal that of course, took a lot to get together. The teams worked throughout the last couple of day and night continuously to get it all in time for today's-
Agreed
signing and announcement. I thought I need to thank them very much for that. It's great. It's all about innovation, innovation, innovation. I think that's the big plus of this deal, the fact that we're partnering this with Gilead, who has innovation also very high in its strategy. This funding that we're now getting from Gilead will enable us to dramatically increase the efforts in discovery and development. The planning is to double the research engine at Galapagos. We have about 100 people at the most. That will go to about 1,000, as long as we can do it operationally, but that's really the planning, to get more new modes of action as fast as possible out of this engine. We are focusing on Europe. Clearly, as a result of this, we built the commercial infrastructure.
The planning is in a couple of years to cover all countries in Europe and be ready to enter the programs when they're ready. That's not all it is. We get access to the great expertise at Gilead, especially in chemistry and development, and of course, the commercial infrastructure and the operations. I think it's a deal that gives us a lot, not only financial, but also from a technological point of view. A couple of things I'll get the followers on this call about our target discovery technology. There's a very nice movie that's displaying how this all works on our website illustrating this. It's a technology that we actually set up about 20 years ago when we started the first couple of years building a platform to come up with a rapid way to identify novel targets.
This technology today, after all these years, is still the superior way to play a central role in even a day-to-day class. It's a technology platform with a set of assays. We use an adenovirus to use small pieces of DNA into a human cell. The fact that we use this adenovirus enables us to work with primary human cells directly out of the human body, which of course, mimics the in vivo situation as much as possible, and therefore makes it such a valuable tool. All the targets that we have been working on were identified using this technology. It's really an exciting platform that can be used in every disease that we're interested in to investigate. We also have a wide variety of target validation tools, which you have to do before you actually get started the drug discovery process.
Over the years, we have built a very large pipeline of molecules moving forward at the various phases of clinical trial or discovery. Filgotinib, of course, being the most advanced, filing for registration in Europe and the U.S. this year, so that's very exciting for rheumatoid arthritis. As you can see on this slide, we have over 10 indications where filgotinib is being investigated. Great potential for this JAK1 inhibitor. The second program in idiopathic pulmonary fibrosis is in phase III, a very exciting program. We also have another IPF program in phase II. We have an osteoarthritis program in phase II-B. Great potential, higher risk than IPF, but if we get there. Then we got lots of discovery programs, including a very exciting program, Toledo, that we have highlighted to the investors already and we believe could be the next wave to treat inflammatory disorders.
It's an exciting platform. Every month, we're coming up with novel targets that we're investigating moving forward into the pipeline. We hope to expand this pipeline with many other programs to come. The last part of what Galapagos was lacking is the commercial infrastructure. We developed from being a royalty franchise to now a fully integrated biopharmaceutical company. We're starting this commercial infrastructure with selling filgotinib in the Benelux. With this new deal around filgotinib, we will be expanding our reach in Europe, including the Big 5, first in RA and later in IBD. We will follow with, if it all works out, with 6090 and IPF and the other products, starting from 2022. The idea is that we're now building up a full commercial organization in Europe as fast as we can. To summarize, it's clearly a transformative 10-year collaboration.
It's a collaboration of two partners focused on science and innovation. It's all aimed at delivering meaningful new drugs to patients that targets parts of the disease that are not well treated at this point in time. It's based on our discovery engine, being it target discovery as well as the drug discovery, both of which are very well developed in the company. We believe that with Gilead's expertise, we can bring products faster to the market, which is, of course, very important, and we can build the infrastructure thanks to the money paid by Gilead. We all hope that this is going to be a very productive, successful, innovative-based collaboration that both companies will actually benefit from. We believe that both Gilead and Galapagos have done an excellent deal here. It's unprecedented in the history.
It's clearly the largest life science deal so far. I think we are in a very good position to show that this is the way pharma and biotech should work together. With that, I would like to hand it back for discussion.
Great. Thank you, Onno. Let's now open the call for questions. Operator?
Today's question- and- answer session will be conducted electronically. Anyone wishing to ask a question may signal us by firmly pressing the star key, followed by the digit one on his or her touch-tone telephone. We will call on you in the order that you signal us. If you find that your question has been asked, you may remove yourself from the roster by pressing the pound key. As a reminder, we will be taking a maximum of one question per person at a time. If you have further questions, you are welcome to rejoin the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Brian Abrahams with RBC Capital Markets. Your line is now open.
Hi there. Thanks for taking my question and congrats to both companies, both teams on the announcement today. I was wondering if you could talk a little bit more about how you anticipate Galapagos's drug discovery capabilities and Gilead's chemistry expertise working together collaboratively, effectively. I'm curious if there's any particular earlier pipeline programs or target efforts where the teams see the most immediate potential impact about to drive a clinical candidate. Thanks.
Maybe I can start. We will be completely transparent to Gilead on what targets we're actually working on. We're going to disclose that as we speak, actually. That there will be no barriers, there will be no secrecy. That means that anything that Gilead can bring to the table that can help to progress these programs will be beneficial for both parties. That can be that we're actually going to exchange scientists from Gilead at Galapagos and vice versa. Could also be, for example, formulation or specific chemistry questions that Gilead can help us where we would be or could be struggling. I don't think we have identified a specific program yet where we immediately need the help of Gilead.
That now with the deal signed and all the confidentiality basically broken open, we can very rapidly get the teams together and talk about where the synergies in the programs are actually going to be.
Yeah, I would just add, Brian. Thanks. I completely agree with Onno. I think Onno and I would say that one of the reasons we're so enthusiastic about this is that our scientists are highly supportive of this deal. At the end of the day, when you look into our scientists' eyes, they see the complementarity of it. They see the mutual expertise that can come together. For me, that comes together in a couple of different ways. One is being able to leverage this very unique discovery platform that Galapagos has developed over the past two decades. It's really a highly productive, high throughput platform that allows target discovery of new molecules, first-in-class molecules in a unique way that Gilead does not do today.
At the same time, I think there's a real benefit from a skill set standpoint to combine some of Gilead's world-leading chemical expertise and ability to target known targets in a way that has proven to be very powerful, either from a binding perspective, and therefore the resulting efficacy and selectivity of that chemistry. I think there's a complementarity in the skill set. I also still think there's a complementarity in the therapeutic area knowledge and expertise. Galapagos has really developed a very strong expertise in inflammation and fibrosis discovery, amongst others. Gilead's heritage, as you know, is antivirals now emerging into oncology with cell therapy and other liver diseases. At the same token, I think this allows us to really expand our expertise in inflammation and fibrosis, with the cooperation with Galapagos. There's a lot of complementarity here.
There's a lot of mutual respect for science and keeping the buy high for transformational medicines. I'm really a believer that this is going to be a 1 + 1 = 3 , because of the nature of how these skill sets and therapeutic areas will come together.
Thanks so much. I'll hop back in the queue.
Thanks, Brian.
Thank you. Our next question comes from Umer Raffat with Evercore ISI. Your line is now open.
Hi. Thanks so much for taking my question. I do have one question, one for Dan and one for Onno, if I may. Dan.
A little, we'll go with it.
Dan, can you break down for us this $4 billion? Because presumably the economics on filgotinib didn't really change. I know they changed on the cost side a little bit, but can you break that down, the $4 billion across 1690 IPF versus the OA program versus the platform? I think those are really the three components of it. If you could just break it down for us so we get a sense for how much you're paying for what. And then Onno, my question for you is this. There was one case of cholangiocarcinoma on 1690 in the IPF trial. And we've seen, obviously, the Bristol study with the LPA1 antagonist get discontinued because of cholestasis. My question is, what do we know about that? Are we concerned about that going into phase III?
And do we know of any blinded events in this general organ area that have happened in phase III?
Umer, thank you. I'll make it relatively brief because I really wouldn't want to break it down to each one of those assets. I think you have to take a big step back and look at the value creation of this deal. At the end of the day, the way we look at it at Gilead for that $3.95 billion and the consideration of the equity is to say, look, Galapagos can bring significant value to Gilead over this period of time. It can come in a variety of different forms. It can come in a successful IPF, a successful OA, a successful Toledo. It could come in any number of programs.
But the concept of being able to look at this from the standpoint of the current pipeline, which is, in addition to filgotinib, six programs in the clinic, and 20 preclinical programs, combined with the increased investment of that $3.95 billion that Onno has already mentioned, he has the target to try to double his research resources, could lead us to, a nd Onno should speak to this better than I can, but the way we look at it is could be one to two new clinical candidates a year going into the clinic. I think when you step back and take a look at the totality of Gilead's investment here, it takes all those things into account. Over to you, Onno. Would you agree on the-
Absolutely.
Okay.
Well, of course, in the negotiations, you go from all directions and you end up with a certain number. We, in the negotiations, ultimately also didn't discuss those separate components anymore. It is about the number that we believe was the right one to do the deal for and that Gilead was willing to pay as an upfront. That is what it is, and it's up to you, the analysts, to work that in your models. Good luck with that. Regarding your question on the OA trial, 1690, it's clear that the BMS molecule, as BMS has reported themselves, had a compound-specific toxicity and not a target-specific one. We haven't seen any of that with 1690. The trial is well on the way. As part of the due diligence that Gilead did on the programs, they looked at the blinded data so far.
Of course, we have a number of patients that have been on the drug for quite a while, and there was nothing that was concerning to us or to them regarding the blinded data that we have seen. We're very optimistic still that we got a clean compound here.
Thank you very much.
Thank you. Our next question comes from Michael Yee with Jefferies. Your line is now open.
Hey, guys. Thanks. Congrats on the deal as well. I had a question for Dan related to perhaps maybe just talking about the timing of the deal and sort of why this came together now. Obviously, we had a big announcement on filgotinib in the FDA meeting recently. Maybe talk to how much we learned from that and why now and what's playing into that. As a follow-up, because it is sort of near- term, can you just remind us if there is a futility analysis on the IPF program and what we should know about that as well? Thanks so much.
Good. I'll start. I'll let you comment, Onno, on the futility in a second. Thanks a lot, Michael, and appreciate your compliments on the deal. Yeah, I think it's important to note that. The deal is not directly related in any way to filgotinib or the new news on filgotinib relative to the U.S. filing decision. That's good news. Nonetheless, I'll just take a step back. The teams had been discussing a way to expand the collaboration prior to me coming into the organization. When I came in, very shortly after arriving, I was briefed by the teams. At that point in time, I didn't yet have all the FINCH trial readouts, but we had one FINCH trial readout. I was really intrigued by that.
Within the first couple of weeks of my tenure in the role, I flew over to sit down and get to know Onno more. I thought this was going to be an important relationship, and something that held great promise and potential. The teams have been working very, very hard ever since I came in, compliments to the team. Onno and I have also been working on our relationship, which is very important. At the end of the day, in my experience in these types of arrangements, and of course, the ones I have experience with are the Genentech arrangements in the past, the Chugai arrangements. It really comes down to the teams working well together, but also, the CEOs working well together.
I have to say, I couldn't be more enthusiastic to work with Onno to see what he and his team have created over the past 20 years. We're very like-minded in terms of how we see innovation and how to drive that. Once we got that relationship established, we only encouraged our teams to accelerate the type of progress and to come up with a structure and an architecture that would make sense for both of us. I'm really pleased that we worked so hard to do that. That was the timing of the deal. We came to conclusion that this was the right thing to do, Onno and I, and then we let our teams get into the detail, and they brought it across the finish line. Filgotinib, of course, then happened in the process of all of this, right?
We had the FDA meeting during this. That's very encouraging news as we put the release out that we do have a path forward now to file in the United States still this year. We're very excited about that. We'll be working on that wholeheartedly to get that in. We'll be filing both in the U.S. and Europe this year. That obviously is good news for filgotinib, but we already had an agreement on filgotinib. It didn't necessarily affect this broader deal in any way. That was good news for filgotinib, the broader deal was done with the concept of appreciating exactly what we've talked about here, the benefit of this to innovation and to expanding both of our abilities to accelerate our innovation. On the IPO?
Yeah.
Yeah, sorry.
Yeah. On the relationship, I think it's very important that CEOs get along very well. I've also asked Dan to actually join the Galapagos Board. Of course, that ultimately will be up to the shareholders to approve, but we nominate Dan as one of the two board seats that Gilead acquires with this transaction. I think it's important that we meet each other very frequently to make sure that this collaboration runs as smoothly as it can. The signs are very good to start with. Regarding 1690, the interim analysis that will be done after 25% of the patients have concluded one year of treatment. That is still more than a year away. We are doing well in the recruitment. We're ahead of the planning, but it's always difficult to get the centers online very rapidly. It's a hockey stick acceleration that you see.
We're very pleased with the reception at the centers regarding 1690. There's a lot of excitement from the investigators to participate and bring patients. It looks very good, but of course, we cannot wait to get this drug to the market as fast as possible because the unmet medical need is so large and all the patients that don't have access for whatever reason to this drug, it's very difficult because their life expectancy is so short.
Thanks. Very helpful. Appreciate the backdrop comments. Thanks.
Thanks, Michael.
Thank you. Our next question comes from Phil Nadeau with Cowen & Company. Your line is now open.
Good afternoon. Thanks for taking my question. Same thing, using both my Gilead analyst and Galapagos analyst hat, I'm hoping to get one question in for both of you. Dan , for you first, the upfront and equity investment you're making in Galapagos is a meaningful percentage of the current market cap. Why not just buy all of Galapagos? Why structure this as a collaboration rather than an outright acquisition? Onno , one for you. You are getting a substantial amount of financing with this deal. Congrats. Can you give us some sense which programs you're likely to accelerate with the funding? Thanks.
Yeah. Thanks, Phil. I think it's an excellent question. The bottom line is that, in my experience, I think there's different structural mechanisms for a deal that make the most sense. For this particular deal, the fact that it's based upon people, it's based upon talent, it's based upon scientists following the best scientific hypothesis. I firmly believe that the concept that we've come up with, the concept of enabling Galapagos with a significant capital infusion to further invest in that research, and at the same time, keeping their independence as a premier European biotech company that allows them to recruit the very best talent, make their own decisions, and progress programs according to their judgment. At the same time, of course, we want to make sure that Gilead shareholders are protected with our investment, which is the reason, of course, we're increasing our equity investment in the company.
I think those three elements structurally in place. I believe that you're going to create more value than an acquisition. I think the independence is critically important in the early stages of our discovery, and this will assure that we have a motivated Galapagos independent driving the portfolio. Then with exclusive rights to everything that comes out of it, I think we more than make up for the benefits that will come out of that versus an acquisition. In this particular case, I'm convinced this will create more value in this structure. Onno, do you agree?
Yeah. You'll be surprised that I completely agree with you. We're very happy with the outcome. I don't think I would have accepted an acquisition proposal. To be fair, there never was an acquisition proposal by Gilead. From the beginning on, we have been talking about this kind of structure, and I think that's the right thing, and hopefully a model that other biotech companies will follow because that's how we should all grow up as companies and not be acquired by Big Pharma. That's a little bit on the side. You asked where we will use our money on the short- term to accelerate, and clearly a program that we are spending a lot of money on already, but that clearly will be accelerated even more, is on Toledo.
We have Toledo at the moment, one program in phase I and the other one starting any time. We hope next year to actually do something what we believe has never been done before, is with a new mode of action, immediately go into eight parallel phase II programs, of which a couple will be dose finding to prepare for phase III. All to maximize the time advantage that we have over the competition, we will disclose the target. We are now in a unique position with this target and with the molecules, and we want to keep that. We're going to maximize the investment in that program. It is really a unique program that could be a step up in the way inflammatory diseases are being treated compared to the current treatments, including filgotinib, the JAK inhibitors.
If that really comes to full development, it's going to be a very expensive program for us, but also for Gilead, of course, but also a great opportunity to capture market share in this large market.
Perfect. That's very helpful. Thanks for taking my questions.
Thank you. Our next question comes from Geoffrey Porges with SVB Leerink . Your line is now open.
Thank you very much for taking the question. Congratulations on the collaboration. There aren't going to be any CFOs on the call, but I hope they're in the room. Wondering if you could just tell us when the upfront payment will be recognized, and will you pro forma it out to Gilead? Is there any sense that that's going to be gated over a period of time or be all on closing of the transaction? How long is the warrant outstanding for? Presumably, Dan, that's at the current or at least the price that you acquire in the equity, but just wondering how long that will be underpinning Galapagos's stock. Thanks.
Well, Bart Filius is in the room, so we'll introduce him here, our Chief Operating and Chief Financial Officer.
Hi, Geoff . Thanks for the question, happy to answer that. In terms of recognition, this will not be recognized all up front. Actually, it will be largely spread out over the 10-year period because clearly there is a commitment from the company to invest in the programs that we're running. From an accounting point of view, we'll see that as a recognition over time. There might be a bonus at the first year for the license that is applicable to 1690, but otherwise it's going to be spread out over the 10-year period. On the warrants, if I take that question immediately as well, there's actually two warrants, one to get to a level of 25% shareholding and one to the level of 29.9% shareholding.
The first one is at the same strike price as the current equity issuance, around EUR 140, and it's valid for one year. The second one is valid for the entire term of collaboration and has a strike price which is going to be based on the future rev up plus 20% premium.
Great. Thank you very much.
Geoff, this is Sung . For Gilead , the upfront payment would be expensed, so it would go through GAAP accounting, and then for non-GAAP purposes, it would be excluded .
Okay. Thanks very much.
Thank you. Our next question comes from Alethia Young with Cantor Fitzgerald. Your line is now open.
Hey, guys. Thanks for taking my question, and congrats on the deal this afternoon. I just wanted to ask maybe for Gilead, a big picture R&D question. When you think about this kind of deal and the history of Galapagos and novel targets, do you think your I&I goal is to be on a first-in-class with molecules and different kind of things like that? Are you looking also to kind of diversify and go after some later stage, more well-known targets as well? Thanks.
Well, thanks, Alethia. Yeah, I think it's absolutely a combination of both. I think we've seen in Gilead's past also a combination of both. The important thing is that we want to be either first in class or best in class. I think the great thing about the Galapagos agreement is they're really generally going after first in class, whereas we want to do that, but we also think there are plenty of opportunities still to be best in class with our world-leading chemistry expertise, our ability to target things differently than targets and to make still a transformational difference on standard of care, but do that also by pursuing known targets. We'll continue to have a combination of both.
Alethia, as I go throughout the second half of this year, I'll be speaking more about my insights into the overall Gilead strategy and giving you even more color to that, where we feel we would best be placed in terms of our strategy for the future. More on that later in the year.
Thank you. Our next question comes from Patrick Trucchio with Berenberg Capital. Your line is now open.
Thanks. Good morning and good afternoon, again, congrats on the collaboration. My question is regarding the filgotinib collaboration, specifically the sharing of future global development costs evenly versus the prior arrangement where the split was 80/20. Is there anything to interpret here beyond Galapagos contributing a bit more to the program? For example, is the program costing or expected to cost more than originally expected, or are advanced studies into more indications than those you're already aware of planned?
I think in general, yeah, the budget has grown because of the success of filgotinib in the various diseases that's been tested. Phase III are being started for ankylosing spondylitis and psoriatic arthritis, which clearly carry a price tag. It's actually good news, right? The fact that filgotinib is working beyond the IBD and RA. The more readouts expected, Sjögren's, lupus this year, and we got some other phase II running. Yeah, the price tag has been going up. I think the fact that we brought it to a 50/50 has more to do because of the rest of the programs also are at a 50/50 basis funding now.
What we also did, as was explained in the press release and in the presentation, is that we have a bigger commercial presence and more equal position in the countries that Galapagos is co-marketing the molecule together with Gilead.
I just agree. It really was largely intended to harmonize the nature of the deal from both a commercial standpoint, so providing Galapagos with the ability to accelerate their commercial presence in Europe. At the same time then harmonizing the development cost split with filgotinib with what will be all the other programs in the agreement. Part of what Onno and I and the teams wanted to establish, and I think it's to try to make this It is a complex deal, but actually, it's quite simple at the end of the day in terms of the terms for new programs that come into it. Every new clinical program has the same opt-in now after the ones that we've carved out already and spoken about, EUR 150 million opt-in. They'll all have the 50/50 global development cost. They'll all have the Europe split versus rest of world split.
I think that's really helpful when you want two organizations to work well together, that they can feel uninhibited. They understand they should do the best things for science and patients in bringing these things forward, and they don't have to get lost in the complexity of a deal moving forward. That was also contemplated to try to keep this simple and keep it pragmatic so that we can really focus on doing what's right between the two organizations.
Thank you. Our next question comes from Christopher Marai with Nomura. Your line is now open.
Hi, this is Jackson Harvey on for Christopher. Congratulations on the deal. I just wanted to clarify, I'm sorry if this was mentioned earlier. I came on a little bit late. In terms of the IPF drug, has all the data from the phase III, is that still blind, or have you been made aware of any additional data that may have influenced this collaboration?
No. Everything is still blinded, and it's still early days. The only thing that we have shared with Gilead is the unblinded safety goal.
Got it. Oh, thank you. Congratulations again.
Thanks.
Our next question comes from Matthew Harrison with Morgan Stanley. Your line is now open.
Great. Good afternoon or good evening. Thanks for taking my question. Dan, what I wanted to ask was, can you just talk about how you think about this deal impacting near-term Gilead versus long-term Gilead and maybe some of the items that as you think about the business near- term versus long- term, which were the key items for you? Onno, maybe part of that, can you just talk about what does additional scale in target discovery mean to you? What does that actually translate to in terms of your productivity and your throughput there? Thanks.
Sure, Matthew. A couple of things on the nearer term, I would put it in the nearer term . It allows us to be very aligned on filgotinib, maximizing that opportunity in a way that allows us to jointly share in the costs and get ready for this model on how to combine two organizations. I think there's a benefit to that. It helps accelerate getting to a pattern that will help us for future products.
Also in the category of near- term is clearly, the IPF and OA molecules, which are the most advanced. Onno knows these better than I do. I see them as very high potential medicines, different risk levels, as we've already articulated between IPF and OA. It provides Gilead the option of enhancing its late-stage portfolio, which is something that has been a key objective of ours and Gilead's, and certainly mine, coming in. Longer term, it just depends.
Nearer and longer term, I guess, start to blend together at some point in time, because I could see acceleration of a program like Toledo and others fairly fast into the clinic and depending on the results into different indications. Certainly from Toledo then back into the Galapagos portfolio and pipeline. Here, of course, knowing exactly which ones are going to be successful becomes more difficult to identify as usual. Otherwise, you're not exploring really creative science. One can imagine the productive R&D machine that is Galapagos now being enhanced by this capital infusion from Gilead. Whatever you've seen in the past in terms of productivity, one can only expect with this capital infusion that it's going to increase.
Therefore, the longer term for both Galapagos and for Gilead, I think we have more intelligent, focused, first-in-class type shots on goals that start to help us in this decade-long agreement. That's the way I see it, Matthew. Over to you, Onno.
Yeah. It's a little early to give you a very concrete direction on where we're going to go with research. One area that we have started to invest in from a target discovery point of view is osteoarthritis again, because we are building up the expertise now anyway, with 1972. It's an unmet medical need. There's hardly any competition out there. We decided to go back to setting up new cellular assays and starting to investigate those again. The human genome to identify novel targets. Those are the first concrete steps that we'll spend more money on now. There will be other disease indications that we can now go into, because we got the funding. The nice thing with the technology platform is that it's so versatile that they're not limited to a specific disease.
Of course, as a company at the moment, we're seriously limited because of the expertise that we have in-house. We're in a fibrosis inflammation company. With the capital and also the position of Galapagos now in the European market, we're able to really attract the best people out there. We can also expand the disease focus and make that more broadly than we currently have.
Thank you. Our next question comes from Mohit Bansal with Citigroup. Your line is now open.
Great. Thanks for taking my question, and congrats on the deal for both sides. If I could ask one question on osteoarthritis trial, which we should see data within one year. Could you please help us understand what would be good data, the 3D trial, what would be good data for 12 months cartilage thickness changes? Where do you expect this to fit in the treatment paradigm, given that this is an oral? Thank you.
Well, the trial, the primary endpoint, is indeed the protection of cartilage. We'll measure with MRI, the cartilage at day one and after 52 weeks. That trial is well underway. We got fully recruited, so hopefully we get the data and is the molecule in good shape. There will be other endpoints, like the WOMAC score, that we'll be looking for. Where this ultimately will play, it's too early to tell. We don't have any disease-modifying data yet, but assuming that the data we have seen in patients, where we saw a dramatic reduction in the breakdown of cartilage into a relevant disease score, then this, of course, is a great opportunity to bring an oral drug to this tremendous market, where currently there's no disease-modifying treatment available.
Got it. Thank you.
Thank you. Our next question comes from Wimal Kapadia with Bernstein. Your line is now open.
Hi, thank you very much for taking my question. Can I just ask on IPF, do you think it's possible with this cash infusion that we see combination trials earlier? I'm just thinking of 1690 in combination with 1205, sooner like post futility analysis, is that a possibility? When would you expect 2384 and 3499 to also enter the clinic? Again, with the cash infusion, any plans for combination trials earlier with these programs? Thank you.
It's a good question. First, we need to see if 1205 actually gives a benefit to the patient. If we get a read out of that trial, that of course, is much smaller trial and shorter, so we'll get the data way before 1690 reads out. If that data is compelling, we might actually start a combination trial earlier. It's not currently in the planning, but we can always consider that depending on how it looks like. The other molecules will move forward. Do we exactly know when the trial, when they go into phase I? Did we disclose this?
No, not yet.
No, it's not disclosed yet. I'll stop there.
Great. Thank you very much.
Thank you. Our last question comes from Evan Seigerman with Credit Suisse. Your line is now open.
Hi, all. Thank you for fitting me in. One for Dan. With this transaction, how much more capacity do you have to transact over the balance of 2019 into 2020? Do you expect to add more assets in inflammation or potentially in oncology with your recent appointment of a CEO to Kite? For Onno, with a healthy cash balance, why now did you decide to sell potential future economics for your unpartnered assets? Thank you.
Thanks, Evan. Suffices to say, we still have plenty of capacity. As you know, we will be funding this deal on cash on hand. As of the last quarter, we had roughly EUR 30 billion reserves in cash and continue to generate cash. I think we still have plenty of strategic firepower to put to work on things that we think will make the most sense. Look, we will be driven by the highest science in areas of expertise that we have, is the bottom line. I can't tell you whether the next one would be in inflammation or oncology or both or potentially another therapeutic area. We have our net out there. As I said before, I want to make everybody aware that this is one of a series of things, a very, very important one to enhance our portfolio.
We will continue to look at others and continue to act on things that we think are really differentiated out there. As I also said, towards the end of this year, I will be articulating a little bit more about our overall strategy at Gilead, and some of that will include our therapeutic area approach. Inflammation, oncology, both areas we are still very interested in addition to others. Thanks, Evan. Over to you, Onno.
A good question. Right now, we have a healthy pipeline, actually a healthy cash balance as well. We had over EUR 1 billion in the bank before this deal with Gilead. For us, we have felt quite vulnerable over the years as an independent company. With the success of filgotinib and 1690, we believe that the vulnerability only increased to continue as an independent company. We were looking for an anchor to make sure that the independence would be guaranteed long- term so we could make the right decisions independently for our research pipeline. When the discussions with Gilead started, it was very compelling. As you have heard, they really respect and value our independence and the independence road of our research.
I believe it is the best of all worlds here for us to now get substantially more capital than we could ever raise on the financial markets. We would have probably needed more money than the EUR 1 billion anyway with the Toledo program moving forward. We now have the right cash. We can completely determine what we are going to do in research. Gilead has no vote in any of the programs, disease areas. We feel that we can execute on our plans to bring innovative products to the clinic. Then after phase III, it is actually a very attractive situation for shareholders as well because with new mode of actions, the risk is high. Phase IIIs are expensive. If we share that with Gilead, then clearly the risk of those late-stage trials is also shared. Of course, we are giving up upside.
We believe we negotiated a nice royalty clause here to get part of that opportunity back. I think for shareholders, this is actually a good situation to see. We now are an extremely well-funded company with a lower risk profile than we had before, still with fantastic opportunity with new mode of actions that move forward. Ac tually, m ore than we had before because we are expecting to generate one to two additional proof of concept preclinical candidates per year. We will deliver more innovation to the market at a lower risk situation, which should be attractive.
Great. Thanks for taking the questions. Appreciate it.
Thank you. This does conclude the question- and- answer portion of today's call. I would like to hand the program back to Sung Lee.
Thank you, Daniel, and thank you all for joining us today. We appreciate your interest and look forward to updating you on our progress on future calls.