Please stand by. Good day. Welcome to the Galapagos 2017 results webcast. At this time, I'd like to turn the conference over to Elizabeth Goodwin. Please go ahead.
Hello, everyone. I'm Elizabeth Goodwin, 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 last night's press release. That's 32 for Belgium, 2404-0659. The code is 9171161. We also have this number on our homepage if you'd like to double-check it. I would like to remind everyone that we'll 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 environments. 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 speakers will be Onno van de Stolpe, CEO, Walid Abi-Saab, CMO, Piet Wigerinck, CSO, and Bart Filius, COO and CFO. Onno, Walid, and Piet will go through the operational highlights of 2017, and Bart will explain the financial results and give guidance on 2018. Onno will close with the late-stage clinical news flow we expect this year. You will see a PowerPoint presentation on screen during the presentation. We estimate that the talk will take about 20 minutes and will be followed by a Q&A session at the end. At this point, I'd like to hand over to Onno. Go ahead.
Thank you, Elizabeth. Thank you for attending the webcast. We clearly had a solid 2017 with delivery in all aspects into the company. We're very pleased with the results that we can present to you today. If you first look at the filgotinib, Gilead and us initiated phase II trials in eight new indications on top of the three that were already ongoing. We also showed very nice DARWIN 3 results, which is the long-term extension study from the DARWIN 1 and DARWIN 2 trials that confirmed the profile with respect to activity and safety profile in rheumatoid arthritis. We initiated the building of the commercial organization that will prepare Galapagos for the launch of filgotinib in eight European countries. A good start in that site and that activity, and that will accelerate in 2018 clearly.
In IPF, idiopathic pulmonary fibrosis, we saw very nice data in a 12-week study where we halted the disease progression in these patients, which gave us a lot of confidence that we have some very interesting molecule that will move into late-stage trials in 2018. On top of that, we announced that we have two other mechanism of actions that will move forward in IPF. That enables us to build a franchise here of three independent molecules moving forward that on its own or in combination may be good treatment for this deadly disease. In cystic fibrosis, we saw good results with our Corrector one in patient study in the ALBATROSS and FLAMINGO studies.
We are now preparing to launch our first triple combination study that is our Potentiator Corrector one and Corrector two in a triple in patients called FALCON, which is on track to start this quarter. We're looking forward to that data set later in the year. Clearly, Galapagos is more than these three indications. We see a continuously expanding pipeline. Very nice data in our collaboration with MorphoSys MOR106, our IL-17C antibody, where we showed promising data in atopic dermatitis patients, and we showed very strong data with regard to a biomarker in osteoarthritis patients with our molecule 1972. These are just some of the clinical highlights. We also had a lot of new developments in our preclinical pipeline that hopefully will get to the clinic shortly. If you can go to the next slide.
You see our track to get to the market with our molecule and with our organization, where last year showed us our second and third proof of concept with novel targets in patients. This year and next year, we'll continue to show data in the pivotal trials for filgotinib, and also expansion of the later-stage pipeline. That should lead in 2020, 2022 to the introduction of multiple products on the market, starting with filgotinib, but followed with other products from our pipeline. Hopefully we'll see a number of the early-stage program moving forward to late-stage development. A lot is ongoing and can be expected.
If we step back and look at filgotinib, on the next slide, you see that that is a massive franchise now where we started with rheumatoid arthritis that's expanded in phase III trials in Crohn's and UC, a whole range of phase II trials that were initiated by Galapagos and by Gilead. Filgotinib is being tested in this whole range of autoimmune inflammatory diseases and hopefully will lead to a number of indications where this can reach the market. To give you more detail on that, I would love to hand it over to Walid to discuss filgotinib. Walid, the floor is yours.
Thank you, Onno. On the next slide, please. We have great ambitions for filgotinib's profile based on the data generated so far in the phase II studies in rheumatoid arthritis and in Crohn's. We're very excited by filgotinib's safety and tolerability profile, which promises to be best in class. We believe this is due to its high selectivity for JAK1. With data from more than 2,000 patient year exposure to date, we have been consistently impressed by the favorable safety and adverse event profile. We expect to present long-term data with up to two years of treatment from the DARWIN 3 open label study in the rheumatoid arthritis patients at the upcoming ACR meeting this year. Looking beyond tolerability, the efficacy we observed in the phase II studies in both RA and Crohn's were robust and showed a rapid onset of action and sustained activity over time.
The phase III program is progressing and reading out over this year and next, we expect that these initial findings will be confirmed and demonstrate filgotinib as a convenient oral once-a-day monotherapy agent with an excellent safety, efficacy, and tolerability attributes. Next slide. Over the past year, we have made great progress in the FINCH program in RA. This is a robust phase III program in more than 3,000 patients. Three large studies where both the 100 and 200 milligram doses are fully being evaluated in methotrexate incomplete responder, methotrexate-naive patients, and in biologic incomplete responders. Results from the FINCH 2 study in biological incomplete responders are expected in the second half of this year. In addition, recruitment in the FINCH 1 study will be completed in the second quarter, and the case of FINCH 3 in the third quarter of this year. Next slide.
Here you see our phase III program in inflammatory bowel diseases, both UC and CD, which is equally robust with approximately 2,600 patients in total. We expect the results of the interim fertility analysis and the phase II/III SELECTION study in UC to be available in the first half of this year. We also expect recruitment to be complete in the Crohn's phase III program in the second half of next year. Next slide. Here we see the EQUATOR study. This is a study that we started last year. It's a proof of concept study in patients with moderate to severe psoriatic arthritis. This is an ongoing study where patients are randomized one-to-one to either filgotinib 200 milligram daily or placebo for 16 weeks. We have approximately 60 patients per arm in this study, where the primary endpoint is the ACR20. EQUATOR is being conducted in eight European countries.
It is fully recruited, and we expect top line results in the second quarter of this year. Next slide. This is the second phase II study we conducted, but in this case, it's in moderate and severe patients with ankylosing spondylitis. The study, which is called TORTUGA, is also conducted in eight European countries. Approximately 100 patients per arm will be randomized in a one-to-one ratio to filgotinib 200 milligram daily or to placebo and treated for a total of 12 weeks. The primary endpoint in this study is the Ankylosing Spondylitis Disease Activity Score, ASDAS. The study is fully recruited, and we expect top line results in the second half of the year. Next slide. Moving on to idiopathic pulmonary fibrosis, a lot has happened this past year, as you've heard initially from Onno in the introduction.
Back in the summer, we announced the exciting results from the FLORA study, which showed that GLPG1690, an autotaxin inhibitor, managed to stop disease progression as evidenced by virtually no change in forced vital capacity after 12 weeks of treatment, whereas patients who were randomized to placebo lost approximately 90 mils, as would be expected in this population over that period of time. These exciting data, coupled with a very encouraging safety and tolerability profile, led us to embark on a registrational program, which we are currently discussing with the FDA and EMA. I'm happy to share that we had a very positive meeting with the FDA a couple of weeks ago. In the next two weeks, we will be meeting with the EMA.
I'm quite confident we will be finalizing our program soon after that, at which time we will share with you the details of the design of the studies. You should expect that in March or April timeframe. Capitalizing on the promise of 1690, in addition to two other fully proprietary compounds with novel mechanism of action, we decided to build an IPF franchise and develop these compounds and ultimately commercialize them on our own. In addition to 1690, we have 1205, which is a GPR84 antagonist. This compound, which is currently in Phase II, will be evaluated in a proof of concept study in IPF later this year. Our third compound is 3499, which is currently in the IND preparation phase, getting ready to enter phase I later in the year.
Having three compounds with distinct and novel mechanisms of action will allow for combination therapy in this very serious and lethal disease, where a high unmet medical need still exists. Last but not least, for my part of the discussion today is 1972. This is an ADAMTS-5 inhibitor, which is being developed in osteoarthritis, an area of large and ever-increasing unmet medical need, where no disease-modifying agent exists today. We are showing data here from a recently completed study in osteoarthritis patients. In this study, we treated OA patients with three different doses of 1972 or placebo over a four-week period. Similar to what we have seen in healthy subjects and reported before, here we show robust reductions in ARGS levels in the blood. You see a gradual decrease in ARGS over a period of two weeks, a plateauing, then recovery after treatment is stopped on day 29.
You can also appreciate on this slide a good dose response curve with the highest dose showing a maximum of approximately 55% reduction from baseline in ARGS levels. These data are relevant because ARGS are a byproduct of collagen breakdown, suggesting that treatment with 1972 could reduce the loss of collagen and have disease-modifying properties in osteoarthritis. In order to evaluate this, we are going to conduct a large dose-finding Phase II-B study in collaboration with our partner, Servier. If positive, this robust study will enable us to move into Phase III development. With this, I will now turn the floor to Piet.
Thank you, Walid. Let me start with MOR106. Earlier this week at the dermatology conference in San Diego, we presented the phase I data consisting of both an SAD in healthy volunteers and multiple ascending dose in patients. Let me remind you, IL-17C is a cytokine that is expressed mainly in the epithelia and shows very low systemic levels. We see it as a local amplifier of ongoing processes, and as a target, it holds the promise to show full efficacy with a very low propensity of systemic side effects. The phase I data, which are shown on the slide as well, impressed both ourselves, partner MorphoSys, and many people in the external world.
With weekly intervals, dosed the atopic derm patients four times, and we saw a very nice efficacy, both in terms of magnitude of efficacies, in terms of number of patients that responded to the therapy, and most of all, in terms of the length with which the efficacy was maintained after we stopped dosing. I was quite impressed and working extremely hard to now initiate quite soon a large phase II IV dose ranger study, which will kick off over the coming weeks. We hope to recruit almost 200 patients into that atopic derm study, and the results will become available somewhere next year.
In parallel to this large IV dose ranger study, we will bring as well the subcu form into healthy volunteers first and patients later this year and hope that we can bridge them at the moment when we have the IV data towards a subcu program, which can then move into phase III. On this slide, we have given the EASI, which is one of the disease scores which are frequently used in the disease atopic derm. I'm not sure we can say that the compound shows efficacy data which are on par with the ones of the dupilumab, which has been recently approved for this disease. Let's now move to CF, where we've been working for many years in the CF field, have set up a large drug discovery program.
We discovered our own internal series of both of potentiators, C1s and C2s, progress PCC candidates, backup candidates, all to phase I. 2018 is for us the year of the serious work, where we'll initiate multiple triple studies with different combos. Our experience up to now, we've been validating, and we've reported a number of those data during 2017, where we, in smaller studies, validated the single components in CF patients. As I said, this year, we will initiate multiple triple studies, and we'll have as well the readout of a couple of those studies. Over these recent years, we've built out a nice global network of both sites and countries and included more than 100 patients in our study.
We feel confident as well that we will be finding the patients and the centers to execute the plan as we have laid out before. For the first study that will read out is the PELICAN study. I will come back to that study later. The second triple study, which will start, is in fact the GLPG2451, GLPG2222, GLPG2737 study. We have also named the FALCON study. We did receive MHRA approval and as well approval of the ECFS-CTN for this triple combo. As soon as we now have ethical committee approval, we can start dosing patients in the study. This will be the first fully owned triple study which will kick off. Portfolio as well, we have completed dosing in healthy volunteers of our second triple, consisting of GLPG3067, GLPG2222, and GLPG2737.
We are preparing a large global phase II dose ranging program that will include both homozygous and het min patients. That program will kick off around mid of the year and will be running on a global basis. Let me now go to the PELICAN study, which is going to be the first study which we will be reading out. In PELICAN, we have included homozygous delta F508 patients, which were on a stable regimen of ORKAMBI and stayed on the ORKAMBI regimen. The study was quickly fully recruited. We only opened study in Germany, but could easily find sufficient patients. The patients will be on therapy or either on placebo. It is a placebo control study, for four weeks.
Top lines will include FEV1, sweat chloride, and as well, a few dose on top of ORKAMBI and a lot of plasma PK measurements, and we will report on those. We expect to report out the study during Q2 of this year, and this will be the first time that we then can see the efficacy of GLPG2737/C2. The next study reading out somewhat later will be the FALCON study with GLPG2451, GLPG2222, and GLPG2737. That is it for the CF. Now over to Bart for the financial highlights.
Thank you, Piet. Let me take you through the financial results for the full year of 2017. As usual, I will start with a view on our cash position and our cash burn during the year. As you can see on this slide, we have been able to increase our cash position to EUR 1.15 billion during the year, driven by, on one hand, a capital increase that we executed in April, totaling approximately EUR 350 million. There is a currency translation effect in our cash position. As a reminder, this is non-cash in the sense that this is translation of our USD position into euros on the balance sheet. We keep roughly 20% of our cash in dollar terms as a natural hedge against the dollar expenses that we have in some of our programs. Our operational cash burn consists of two elements.
On one hand, there is cash income from milestones, a little bit more than EUR 30 million during the year. On the other hand, there is cash expenses, which is really our operational spend. The total of the two is a cash burn of EUR 154 million, which is in our guidance, which was between EUR 135 million and EUR 155 million. I would say that it's a little higher than I anticipated back when we spoke in October, where I anticipated to be a bit in the lower end of the guidance. This is due to the fact that two milestones that we have received or that were accounted for in the fourth quarter on CF, were both received in terms of cash in January. As a result, we ended up a little bit higher, but on the expense side, it's fully in line with expectations.
A healthy position on the balance sheet in terms of cash allowing us to execute on the many programs that were described by the team in the previous slides. A view on revenues. A little higher than last year, EUR 155 million for the full year. As you know, a big component of our revenues is the revenue recognition of the upfront that we received from the Gilead transaction in early 2016. This is accounted for in proportion to the expenses, so this is also reflecting the increase in expenses around filgotinib. We recognized EUR 72 million in 2017 on the filgotinib franchise. Fee for service income from our subsidiary, Fidelta, has increased a little bit. There's milestones, which is lower than in 2016.
As a reminder, in 2016, in the fourth quarter, we had received $60 million in milestones from Gilead, connected to the start of our Crohn's and our UC programs in SELECTION and DIVERSITY. Corrected for this particular event in 2016, milestones are actually more or less in the same ballpark in 2017, even a little bit higher. Grants and other income is the last component of our revenues. This is to a large extent, income that is connected to tax incentives in both Belgium and France and has gone up by EUR 6 million over the year. Going to operating expenses. As expected and as seen already in previous quarters when we did the previous calls during 2017, we continue to increase our operating expenses line.
This is really to the largest extent driven by increase in development expenses, which is again, in turn, driven by the massive program on filgotinib, but also the successes that we've had in other developments programs in phase II and the investment in the CF program. Coming to net results. Last year we booked a profit as a net result, which was completely driven by a one-off event, which was this financial asset adjustment that we booked in the first quarter of 2016.
Corrected for this and corrected for the foreign exchange effect, which is largely translation effect as I described before, the operational underlying evolution is really roughly EUR 80 million, EUR 78 million to be exact, negative from 2016 to 2017, which is fully driven by the operating expenses that I've shown on the previous slides, leading to a net loss in 2017 of EUR 115 million. On a slightly different topic, I'd like to take the opportunity to give you an update on some changes in the Belgian tax regimes that are interesting and also positive for the company. This is around what's called in the old setting, a patent income deduction scheme, and now in the new setting is called an innovation income deduction.
There's been a change to this scheme, this is about a deductible, a tax-based reduction that the company achieves on income that's connected to patents, which is derived from innovation that has been invested in by Galapagos in the Belgian territory. This is connected to upfronts, to milestones, and to royalties going forwards, even if these royalties are embedded royalties as such, can be also structured as through transfer pricing. In the old system, we had a deductible of 80% of gross revenues. In the new system, this percentage has gone up to 85%, which is beneficial for us. At the same time, it's now based on net revenues, meaning that we deduct the actual R&D expenses that are associated to the same program. On a net net basis, by the way, this is favorable for Galapagos.
Another major positive change in this new regime is that we're also allowed to carry forward these tax-based credits under the new regime. As of today, we have tax credits carry forwards of EUR 90 million, which are not recognized on our balance sheet yet, but will be usable in the future. On top of the additional EUR 260 million that we have in usual tax losses carry forward. A EUR 350 million total position of tax losses carry forward, which can be used as well in the future, subject to some limitations in size as of the moment when we are going to be profitable. In addition to that, the Belgian corporate tax rate is going down 34% in 2016 to a 25% rate in 2020, which is the year when this starts to becoming relevant for Galapagos.
As a net result, that's, I guess, the key message on this slide, as you've conceded here, our effective tax rates, if you do the math, under the new regime is going to be 15%, which is the remaining parts of the revenues after deducting 85%, times the 25% of tax rates, resulting in an effective tax rate on these programs of 3.75%, which obviously is favorable for the company. A last word on guidance. Operating cash burn guidance between EUR 220 million and EUR 240 million. That's an increase from the EUR 150 million and some that we've reached in 2017. This I've announced in previous encounters that this number would go up indeed. 2018 and 2019 are going to be the years when the filgotinib program reaches its peak, that's a big driver, obviously, of this increase.
The other big driver of the increase is the start of our late-stage trials with 1690, which as we're going to take this forward fully proprietary, are also going to be expensed fully proprietary. There's going to be significant increases on 1690 and then roughly one-third left for all other development programs together. We're going to be executing no less than 13 phase II or phase III trials at Galapagos in 2018, sorry, explaining this increase in cash burn, which we believe is a good sign of the successes that we've had with our pipeline. With that, I conclude the financial section and hand it back over to Onno for the outlook for the year.
Thank you, Bart. This cash burn is increased over 2017, as you can see on this slide, we are expecting a lot of return for the money being spent. We'll be initiating trials in a number of diseases in IPF, the late-stage 1690 trial. We'll also start a phase II trial in IPF with 1205. We got the triple trials for cystic fibrosis. The osteoarthritis trial, GLPG1972, which we are conducting together with Servier, but we are responsible for the U.S. part of that trial. We're initiating a full phase II on MOR106 in atopic dermatitis together with MorphoSys. We'll also see POC data of filgotinib in psoriatic arthritis and ankylosing spondylitis, and we'll see the data, proof of concept data of the PELICAN and the FALCON trials.
A lot of data on proof of concept, even more important, the pivotal data that we're expecting on filgotinib in the FINCH 2 trial and the decision to move filgotinib in ulcerative colitis to a full phase III, the go, no-go decision that will take place this year.
Also, as already announced by Walid, we're expecting a full completion of recruitment for the FINCH 1 and the FINCH 3 trials. A lot of activity there, you can expect as an investor, the news flow regarding these trials in the months to come. With that, I'll hand it back to Elizabeth. Thank you very much.
All right. Thank you, all. That concludes the presentation part of our call today. I'd now like to ask our operator, Matt, to connect us to any callers who have questions. Go ahead, Matt, explain how to pose a question.
Certainly. If you would 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 is star one to ask a question. Our first question will come from Brian Abrahams with RBC Capital Markets.
Hey, guys. Thanks very much for taking my questions, and congratulations on all the pipeline progress. A couple of questions on 106, and then I had a CF question follow-up. I guess on 106, you presented data recently showing some interesting maintenance of effects post-dosing, and I think you alluded to it in your prepared remarks as well. I'm wondering if you could speak to sort of what that durability of effects on some of the different endpoints that you looked at might mean for just the overall potential frequency of administration for the drug in the future, whether this represents any changes in the underlying biology that the drug's able to induce. Really sort of curious as you move into phase II, how you hope to elicit differentiation versus some of the later stage programs, I guess, on the efficacy and safety side.
What are some of the specific trial design elements that might be incorporated to show that?
Thank you, Brian, for this question. Indeed, as I said during presentation, we, but also many others, were impressed by the maintenance of efficacy post-dosing. What it typically means is that we are probably dosing at the high, or we have been dosing at the higher end of the dose range, because if after dosing, the efficacy goes away immediately, clearly shows that you're within your dose response. Often, it is not approved, but often when your efficacy is maintained over a longer period of time, can mean that you saturate your target and that it's time for the drug to come off. In this study, indeed, we dosed once weekly. In the phase II-A dose ranging study will give the design when finally approved. We explore dosing every two weeks and every four weeks.
We really don't anticipate that we will have to dose weekly. In order to be competitive with current medications for atopic derm and with the medications which are in development, we hope we can get it to a once a month. Once every two weeks should be really feasible as well. Differentiation, the first phase II dosing is mainly a dose ranger. Where we want to explore, one, the magnitude of efficacy, how frequently do we need to dose, or what is the optimal dose. We will launch a couple of other smaller studies as well to probe more the differentiation. They will launch later and in parallel, and we will comment on those when we open those studies. Thank you.
That's very helpful. Then maybe just shifting gears to the CF program and the FALCON study, the triple study. Wondering if you could provide any more clarity on sort of the potential trial design there, whether you'll be looking at the types of patients you'll be looking at, perhaps duration, whether we should be looking for interim data, maybe from the dual run-in or from the triple around the middle of this year. Then you mentioned that, too, you have sign-off from, I guess, two of three organizations on the start of that study. Any additional kind of rate-limiting steps or gating factors to getting the final approval to initiate that study? What are the next steps there? I'll hop back in the queue. Thanks.
FALCON will be a proof of concept study with this first triple design. We'll be dosing for four weeks as triple both homozygous in the study as well. We will include het min patients. As long as we don't have the final sign-off of everybody, again, trial is not started and online officially, we will comment on the full design. We're executing, as I said, according to the plan. We should have the top-line data of the first cohorts around the middle of the year. That's well planned for. Anything else?
Thanks.
Yeah.
We will now hear from Anastasia Karpova with Kempen.
Good afternoon. Two questions on IPF and a general one on the pipeline. Given that there are two late-stage compounds going into late-stage trials in pulmonary fibrosis, do you see any challenges in recruitment for your phase III trial? Furthermore, the competitive compounds have at least some safety data in combination with standard of care, but either in nintedanib or in pirfenidone, while that was not explored in FLORA. If that is any impediment or a delay for your phase III trial. Finally, on 1205, how do you see it positioned alongside GLPG1690? Mechanistically, do you see any potential synergies in targeting GPR84 and autotaxin simultaneously?
Maybe the final one on the general pipeline, the 13 phase II trials that you're guiding this year, do they only include the compounds that are currently listed in the presentation, or shall we also expect additional drugs coming out of the woodwork?
Okay, Anastasia. Thank you. This is Walid. I'll take your question. With regard to recruitment, we've conducted our feasibility and also in talking to major KOLs across the U.S. and Europe and actually the rest of the world, we're getting a very positive response to the profile that we've seen with our compounds. Based on what we know today, I don't expect any difficulties in recruitment. I understand this is a competitive field, and obviously, this is a rare disease, but so far, the response that we've got is positive, and we feel quite positive about our ability to move this forward. With regard to 1205, we will be conducting our phase II study now. Then we will, based on these data, be able to decide the performance of the drug, how does it compare to 1690, and opportunities to mix together.
At the same time, as you can imagine, as we have heavily invested in this space from a biological standpoint to understand this, we are doing our preclinical work to evaluate models by which we can predict whether a combination of these two medicines could lead to improved efficacy. This is definitely something on our radar screen. With regard to the pipeline question around the trials, the ones that you've seen are from the pipeline that we have shared with you. At least the molecules that we have shared with you in our pipelines. I'm not sure if I missed any of your questions, but I think I've covered them all.
Yeah. On safety with standard of care for GLPG1690, and if you would need-
Yeah
to do an additional healthy volunteers trials or safety run-ins in the late-stage trials.
I can say that we do not have to do any additional trials before we start our late-stage program.
Thanks a lot.
Thank you.
Our next question will come from Adam Walsh with Stifel.
Hi. This is Adam Wangian for Adam. Thanks for taking my questions. First, congrats on all your progress in the year 2017. I have also a question on IPF. Now you have three assets, it allows you for potential combination study. Could you please provide any additional comments on the rationale for combo study? What have you learned so far from these three drugs in term of MOA or any data that make you think a combo will be better compared to a monotherapy?
Maybe, this is Walid. I'll take the first part of it, and then I'll turn over to Pete to talk a little bit more about the mechanisms. I think in this disease, which is very serious and lethal, we are seeing also from the guidance from the agency that there's very interest to add treatment on top of standard of care to be able to achieve the efficacy. There's been some data reported in small trials combining nintedanib and pirfenidone together, where there's some semblance of increased efficacy when you combine the two. Obviously, the study was not powered for that, and it was small, but again, those are encouraging data that combining treatment could lead to improved efficacy. If you've seen also some data that were shared from the ProMetic compound as well on top of nintedanib, at least, they do see some improvement effects.
There is some initial clinical data that suggests combining different mechanism of actions together could lead to an improvement. It's certainly in this disease where there's a high unmet medical need. This is highly needed and desired. From that perspective, I think there's good rationale to go forward. Then I'll turn to Piet with regard to mechanism of actions and the work we've been doing here.
In the IPF field, we have one of the first compound is autotaxin, the second is GPR84 antagonist, the third we didn't disclose yet. In principle, they tackle the disease from a complete different angle, all three of them. We are looking very hard now to see in which models we can find sufficient window to test also either in vivo how good
A combination will perform versus the monotherapies. For example, the bleomycin is not a very suitable model to do that because of a very limited window. As part of the full development this year, we will do many of the combo studies pre-clinically, and this will be a combination both of in vitro work and in vivo work. Hopefully by the end of the year can show nice data why certain combos might make more sense than others. In general, the trend in the field is still this is a lethal disease, let's intensify treatment. There is not a request yet to show in fact that the combination works much better than single compounds. We will report on those combo studies over the coming months this year. Thank you.
Since GLPG1690 trial is much more advanced, is GLPG1205 or GLPG3499 going to be studied only for add-on to GLPG1690? Is that the case? Thank you.
I think it's a bit premature to answer you, to be honest. We are internally discussing this and also taking into consideration the feedback we're receiving from the health authorities regarding GLPG1690. Good question. Maybe we'll be in a better position to answer it next time we talk.
All right. Thank you.
Now we will go to Peter Welford with Jefferies.
Hi, yeah. Thanks for taking my questions. On CF, first of all, I wondered if you could just talk about the FALCON study, whether or not we should still be anticipating a lead-in with the doublet and then going to a triple, and whether you can talk about at all the dosing that you're considering with the different components. On the second triple, have you filed your INDs for GLPG2737 or GLPG3067? I know GLPG2222, I think, has an IND. Just wondering about GLPG2737 and GLPG3067, and presumably we'll need those before we can start the global phase II. Given Bart's on the call, a couple of financial ones. First of all, on the tax, always a wonderful topic, just to understand the filgotinib tax, given the European co-promote that you have, how should we think about the tax rate for filgotinib?
Is that going to impact how we should book the profits through the P&L, given presumably some of that can't be classified as income deduction, or can it? Also on the R&D cap for filgotinib, are we anywhere near reaching that cap such that we should be thinking of knocking off future milestones from Gilead? Are you still tracking below the cap at the present, and therefore we don't need to worry about that? Thank you.
Shall I take those first, Peter, and then I'll hand it over to Piet to give you the feedback on the CF questions. First of all, on the co-promote and those financial flows. Basically, the way the tax authorities look at this is that embedded royalties, so royalties that would actually be at arm's length between different subsidiaries would also qualify under the IID. The co-promote will lead basically to a similar type of IID benefit than a normal royalty stream. Obviously, everything in excess in terms of profits that comes on top of that would not qualify for the IID. The second question on the cap. We do indeed have a cap on the contribution to the filgotinib expenses. Currently, we're still tracking below that cap clearly, and we anticipate that we'll do the year 2018 and 2019 still within the cap.
Once we get to the later quarters of 2019 or early 2020, we will have reached the cap levels, Peter. To Piet for CF.
Yeah. Okay, Bart, thank you. For the FALCON study, in fact every phase II study we will kick off with a triple combination. We'll have a dual lead-in. That's the current plan, that we first do a couple of weeks dual lead-in, and then bring a third component on top so to see the incremental efficacy triggered by the third component. On the INDs, indeed, we have GLPG2222 open. To start in the U.S., we are in the process of filing a GLPG3067 IND, GLPG2737 opening IND will be part of that launch of that triple study in the U.S. We've agreed with FDA on that principle, there is no need to first do another study and then we have to wait for the data of that study.
No, we've discussed with them, our anticipation is currently that we will open IND GLPG2737 as start of that triple study, before that have opened a GLPG3067. Thank you.
That's great. Sorry, can I just come back to the tax? Just I can understand. Are you saying that some of the European co-promote profits will fall outside the IID, just to be clear? I understand the embedded royalties comment, you're saying not all of the European co-promote can be classified as IID. Is that what you're saying?
No, it's very nuanced, basically what I'm trying to say is that everything that is in terms of economics at the bottom end of the P&L comparable to royalties would be qualifying under the IID. If there will be excess profits, it would not qualify under the IID. Only to the extent that.
Got you. That's clear. Thank you.
The co-promote delivers a higher profit, it would not be IID.
Our next question will come from Phil Nadeau with Cowen and Company.
Morning. Thanks for taking my questions. A couple on the upcoming results. I guess first on the PELICAN result that we're going to get in the second quarter. Can you give us some sense of what you would consider proof of concept being achieved in that trial? I believe in the recent data released by Vertex for tezacaftor plus ivacaftor and its triples in homozygous patients, we saw a 7%-9% improvement in FEV1. Is that the bar that we should be thinking of, or are there other factors that we should consider when looking at the PELICAN data?
Thank you, Phil, for asking me to predict the optimal bars. Well, it's the first time we dose 27/37, so I don't think we're going to put the bar at 13% of FEV1. I think everything which comes close to that is a success. Don't forget, it's a complicated trial in terms of drug interactions. In principle, we are comfortable that we should keep sufficient 27/37 on board in view of how it's metabolized. We will see. The time when we can bring the data will mainly depend on all of the PK studies, all the PK measurements that we have included and that we will need to analyze. It's clear that anything below 5% is a failure, I would say. Between 5% and 13%, I think would be a sign of a good efficacy.
Got it. That's very helpful. The second question on filgotinib in psoriatic arthritis, basically the same question. For XELJANZ, we've seen about a 20%-30% improvement in ACR20. Although that data, I believe, is 12-week data, not 16-week data. When we look at filgotinib in psoriatic arthritis, is that 20%-30% ACR20 increment above placebo generally what we should have in mind, or are there other complicating factors in that in interpreting that data as well?
I think the data, the study design is fairly straightforward, I don't think there are complicating factors in interpreting it. I think the target that you set is a good place to start with. We're hoping we would do better than that. Again, we are waiting eagerly to see the results.
Great. One last question from me. On the second CF triple, I noticed in your 2018 milestone charts, there wasn't a mention of the data from that second CF triple reading out this year. Was that an omission, or is that data actually expected in early 2019?
Well, it's a quite large study where we do the full combinations as well, it probably will be early 2019. We hope that we can recruit as fast as we can, we'll see where we come out.
Great. Thanks for taking my questions, congratulations on the progress.
Thank you.
We will now hear from Matthew Harrison with Morgan Stanley.
Hi, everyone. This is Vikram on for Matthew. We had two questions from our side, one on IPF and one on CF. On IPF, I am not sure if you are ready or willing to talk about this, but for when you get into the pivotal studies, do you think you will be needing to run studies versus placebo or on top of standard of care? On CF, it was not clear to me exactly what is pending with the discussions with regulators to start the FALCON study. If you can comment on any kind of monitoring that may have been put in place for the long-lived metabolite you saw earlier, that would be helpful. Thanks.
Okay, Vikram. This is Walid. I will respond to the IPF question. What we are prepared to say today is that we had a very productive meeting with the FDA a couple of weeks ago, and we have also received initial feedback from EMA, with whom we will be meeting the first week of March. The feedback from both agencies is consistent. I am quite confident that we will finalize the study design soon after the EMA meeting, and at that time, we will be able to get into more details about the design of the trials. As I said, we should expect to hear back from us in the March-April timeframe around these.
Okay, on the FALCON study. We got approval from MHRA. We also got an approval from the CF European Clinical Trial Network that thinks it is a very important study to be run in their centers. As I said during the call, we are waiting for the ethical committee approval now. There was also a question on the monitoring for the long-lived metabolites. We will follow up the patients, and we have an idea on the wash out. We will PK our sample for PK the patients after they stopped the medication, and we will follow up them as long as we can see plasma levels. Thank you.
Thank you.
Our next question will come from Christopher Marai with Nomura Instinet.
Hi, this is Alan Shaw for Christopher Marai. Thanks for taking my questions. I just have a couple questions regarding GLPG1972 and OA. First, regarding the recent phase I-B data, were there any differences in the biomarker reduction between patients with OA of the hip, knee, or other regions? More broadly, do you see any particular activity or limiting factors that may limit the addressable population? Like the one discontinued patient in the hydro cohort, was he on any concurrent symptomatic treatments? Secondly, I know it may be a bit early, but can you talk about the efficacy endpoints under consideration for the phase II trial? Are we looking at Western Ontario, McMaster OA? Conceptually, can you discuss how the biomarker reduction could be correlated to functional outcomes, and what kind of treatment duration we should expect before functional outcomes improve?
Lastly, any milestones attached to the planned phase II trial?
Okay, thanks, Alan. Again, Walid. In terms of the study results, if you've seen the study is a sort of small number of subjects per arm. Our goal was to look at the change in ARGS in the blood. For that, the end was sufficiently ample to see the very tight error bars actually on the slides that we shared with you. That doesn't allow us at all to look at subtypes of patients or people who are hip versus knee OA. You can tell by how tight these data are that there's no difference really between the patients. As well, these data are very consistent with the healthy subjects as well, data in terms of magnitude effect and changes over time. I'm pretty confident that our target engagement and subsequent reduction in ARGS is consistent in human beings in general.
In terms of study design, we will be in a better place to describe that study in more details once approved and ready to go forward. It should be a matter of months from now. You should expect a trial that's long. I'm talking about one year. The endpoints are going to be the typical endpoints that you look at from imaging, using MRI, but also looking at X-ray and using the functional endpoints that you mentioned, WOMAC and other key endpoints. In terms of a correlation between the changes between ARGS and the functional effects, I expect them to be good. That's why we're doing the trial, but I guess it will remain to be seen. Maybe I can ask Bart to comment on the milestones, please.
Yeah, sure Walid. The milestones are not significant. There are some milestones, but it's very smallish. The real value for us in the program clearly is that we have the U.S. rights for this molecule, and Servier has the rights for the rest of the world. We'll be running the trial also together with our partner, but we'll be running the part in the U.S. Milestones are there, but it's not significant.
Got it. Thank you very much. That's very helpful.
Thanks, Alan, and thanks everybody who's asked questions today. I'm afraid we've run out of time. This was our last question. I would say we've had some really good ones today. Paul van der Horst over in Europe, and I, Elizabeth Goodwin, over here in the U.S., are available to take any questions that you were not able to pose today, anything else that's come up. Please contact us. Please also look for publication of our annual report 2017 on or around March 23rd. We thank all the audience members, all the people who've called in, for your support and your participation today. Take care, and we'll speak again soon. Bye