Good day, ladies and gentlemen. Welcome to the Galapagos Results Webcast. At this time, I would like to turn the conference over to Ms. Elizabeth Goodwin. Please go ahead, madam.
Welcome all to the audio webcast of Galapagos' first quarter 2017 results. I'm Elizabeth Goodwin, Investor Relations, and I'll be hosting the call today. 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 today's press release. Here's the Belgium number, 32 for Belgium, 2404-0659. There's an access code, 5,402,616. I would like to remind everyone that we will be making forward-looking statements during today's webcast. These forward-looking statements include remarks concerning future developments of the pipeline and our company and possible changes in the industry and competitive environment. Because 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, CFO. Onno, Walid, and Piet will go through the operational highlights. Bart will explain the financial results. Onno will then close with the news flow. You will see a PowerPoint presentation on screen during their talk. We estimate that the presentation will take approximately 20 minutes. This will be followed by a Q&A session. I'd now like to hand over to Onno to start the presentation.
Thank you, Elizabeth. We can look back on another excellent quarter for the company, where we have seen very good progress both in the research as well as in the development part of the company. Most eye-catching has been the rollout of filgotinib in a large number of inflammatory diseases. It's now in nine different phase II and phase III studies. There's more to come later in the year. Also, the CF program has seen a lot of activity in the first quarter, where we had multiple clinical starts. We have started to do a combo with a triple on track for this summer. Galapagos is clearly more than CF and filgotinib. We have, in idiopathic pulmonary fibrosis, a phase II ongoing that will read out in the second half. It's fully recruited now.
Financially, we received some milestones from AbbVie for the CF program, a total of EUR 7.5 million. We ended the quarter with almost EUR 1 billion in cash. After the quarter, we did a very successful placement on the Nasdaq, where we raised EUR 360 million, EUR 365 million. With that, I would like to hand it over to Walid to take us through the filgotinib program. Walid, over to you.
Thank you, Onno. Good morning. Good afternoon, everybody. I am very excited to make my debut at these quarterly results today. On this slide, I wanted to share with you that our excitement with the program progressing very nicely with filgotinib in our phase III program, both in RA and IBD. In addition, as you've heard through a number of communications that we've shared, that we've started a number of phase II studies, both within Galapagos and with Gilead, to investigate other sort of types of Crohn's disease phase II study to complement the lead indication. In addition, a number of studies in Sjögren's syndrome, ankylosing spondylitis, psoriatic arthritis, and most recently, cutaneous lupus erythematosus to evaluate these indications further. On the next slide. This is not really new information.
I think we've shared this with you previously, I want to highlight here our programs both in RA and then on the next slide, as you will see in IBD, where we fully evaluate both our 100 milligram and 200 milligram across all of these studies. We believe this type of assessment, if I can have the next slide, please, will enable us to truly have a very good sense, data-driven, on the risk-benefit of these two doses across these various indications. With that, I would like to turn it over to Piet Wigerinck. Piet.
Thank you, Walid. I will cover the rest of the pipeline. As you all know, most of our attention goes to the cystic fibrosis program, where we have the ambition to come with the best triple combination for CF patients. In that program, we've made nice progress during this quarter. We've completed the dosing in the Jewel study, 2451/2222. We have initiated the first-in-human study with 3067, which is a backup molecule for 2451. We have initiated two phase II studies with the Corrector-1, 2221. I would give some explanations on those designs. We've also completed a dosing of 27, 37 in the first-in-human study containing a single-ascending and multiple-ascending dosing design. Safety in this study was so good that we have extended the dose range beyond what we've planned, and all of those dosings have been completed.
We gather the data and with all those data, we are ready to kick off our triple program over the summer this year. Next to CF, we're looking forward to look to the data on GLPG1690. The first autotaxin inhibitor ever being in IPF patients. As well as said, we announced the full recruitment of this study. In the meanwhile, all patients have completed dosing. There as well, we have a couple of follow-up periods of patients collecting the data and we'll report out over the summer. Today, as the OARSI meeting is ongoing, we disclose at the OARSI meeting the target of our osteoarthritis program. I will give some more explanations later, but that's the ADAMTS5 enzyme. Very pleased to announce as well that we are well progressed in our multiple ascending dose study with MOR106 as the antibody we together with MorphoSys develop.
It's as well a novel mechanism of action, IL-17C. We are proud to be the first to bring this to patients, and we are well on track to report the data out second half of the year. We have a couple of novel targets in preclinical evaluation. Let's now have a look to the two phase II studies in CF with GLPG2222. The first study we call is the ALBATROSS study. ALBATROSS study is a study where we dose GLPG2222 on top of ivacaftor in Class III patients. More than half of the Class III patients have a second CF mutation, and they have deltaF508 as a second CF mutation. What we do in this study, patients take ivacaftor that will correct the Class III mutation.
By adding a corrector, we as well hope to bring additional benefit by correcting the deficit on the second allele these patients have. That's a design also Vertex used before. It's a study with two active and a placebo group control patients on ivacaftor and stay on ivacaftor, and we hope that they can further benefit in terms of efficacy of GLPG2222. It is the first time we chronically administer in this study GLPG2222 to CF patients. The study is running in Europe and Australia. We are well advanced in the recruitment as well of this study. The next study is the FLAMINGO study, and that's now the first patient study where we enter U.S. soil. We have designed together with the CFF network this study, and the study runs in the U.S. and Europe.
It's a monotherapy design where we have a dose escalation mode and where we evaluate GLPG2222 as a monotherapy in homozygous deltaF508 patients. Main focus of this study is safety and tolerability of GLPG2222 as a monotherapy. Finally, our OA program. A little bit of explanation on the target. ADAMTS5 is an enzyme that degrades one of the two major components of cartilage, and that is the aggrecan. In the body, that enzyme will degrade the aggrecan and will cleave off what we call ARGS-neoepitope. That's as well then a biomarker we can follow if we inhibit it. ADAMTS5 has been well-validated by numerous groups in the world and at different levels as being a promising target for OA.
We believe the first company that shows and that has designed a small molecule that has shown good efficacy in this model and has shown a decrease of ARG levels in healthy volunteers. As well, we're advanced, and we hope to initiate a study in the U.S. with 9072 over the summer as well. That's so far for my part. Over to Bart now.
Thank you, Piet. Allow me to show you a couple of slides on the financials over the first quarter. Good morning everyone in the U.S., good afternoon in Europe. On the first slide that's in front of you now here is our cash position. We ended the year at EUR 981 million. There were warrant exercises that generated EUR 4 million and currency translation effects of negative EUR 2.5 million. But our cash burn in the quarter is EUR 24 million, split into an income in cash terms in milestones from AbbVie, $10 million, EUR 9.5 million, and offset by EUR 33.5 million in cash expenses. Net of EUR 24 million. I'm splitting it out this time. In previous quarters, I've actually always combined those 2 numbers into one. I'm splitting it out this quarter to clarify during the year 2017 how expenses and milestones are coming in over the quarters.
End of quarter position, EUR 960 million. With this cash burn, we're comfortable to maintain our cash guidance between EUR 135 million and EUR 155 million for the full year, reflecting larger expenses in the quarters to come in 2017 than in the first quarter, as especially the recruitment of the filgotinib trials is going to accelerate quite dramatically over the year. I've added to this, to the very right, our post-financing cash position. After our placement that we did 2 weeks ago in the U.S., $390 million, a net of EUR 350 million. We are a little over EUR 1.3 billion of cash, well-financed to invest in our portfolio of programs that we have elaborated on before. Maybe then to the P&L side. Revenues and other income increasing, more than doubling, actually. Increasing by EUR 25 million from the first quarter last year to the first quarter of this year. 2 key drivers therein.
In green, you see the recognition of deferred revenues. This is a non-cash item, and is actually the recognition of the upfront that was paid by Gilead to us in January 2016. This number actually by quarter will go up, as also the expenses go up. We recognize actually this upfront, which from memory was EUR 300 million. We recognize this upfront in proportion to the expenses that we actually make on the program. That's one part of the increase. The other part of the increase is actually cash generative. It's milestones, EUR 16.5 million. On the previous slide, you saw EUR 9.5 million. The gap between the 2 is actually the last milestone from IP, which was P&L-wise received in March, but cash-wise received only in April, hence, not in the cash numbers, but in the revenue numbers.
Other items in our top line are basically unchanged compared to the first quarter of last year. Expenses are going up, as we had indicated in our previous calls. Expenses are going up, most notably on the development side, but actually also a bit on the research sides. Once you take into account that there's a bit of non-cash increases in there because of the share price increase, and as a result, the cost provisions required for our warrants and bonus programs. The large chunk of the actual increase is a real fundamental increase in terms of expenses, both in filgotinib, as I explained before, and in CF, with all the programs that have started in the first quarter in CF, as well as in investments in our proprietary programs, FLORA and MOR106 combination in atopic dermatitis.
The net result of our growing income and our growing expense is still an improvement operationally of our bottom line to a negative EUR 13.6 million net results. This is an operational improvement of EUR 8 million, EUR 7.9 million to be exact. Obviously, we need to offset here the one-time non-cash accounting entry that we had in the first quarter of 2016. I will not go through those details one more time, but I've explained it quite a few times on previous calls, where we had a benefit of EUR 57.5 million in Q1 2016, which obviously is not recurring now in the first quarter of 2017. With that, I hand it back over to Onno for the news flow and the outlook.
Thank you, Bart. If you look at the news flow, it's going to be a busy rest of the year of the various programs. The two slides. On the first slide, I want to highlight the DARWIN 3 interim results that will be presented at the EULAR conference in June, where we have the long-term efficacy and safety data on filgotinib in the RA trial. Also, of course, we're looking forward to start the triple in CF in patients. That will be happening this summer. If you go to the next slide, I would like to highlight the IPF data with GLPG1690, the FLORA study that will read out in the second half of this year. Also the atopic dermatitis data that we're doing together with MorphoSys, that will read out in the second half of the year. A lot to look forward to.
If you look at the outlook, clearly we are in very good shape. Filgotinib in phase III and in phase II trials. The CF program going according to plan, moving towards the triple combo in patients. We're getting lots of patient data in various trials with our proprietary molecules. The discovery engine continues to deliver, which will lead to more programs going to pre-clinical and reaching human clinical trials. All of that with a very solid balance sheet, with EUR 1.3 billion in cash. With that, this is the end of the formal presentation, and I hand it back to Elizabeth.
All right. Well, thank you very much. That does conclude the presentation portion of our audio conference call. I'd now like to ask the operator to connect us to any callers with questions for the executives.
Thank you, madam. Ladies and gentlemen, if you would like to ask a question at this time, please press the star or the asterisk key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signals to reach our equipment. Again, please press star one to ask a question. We will pause for a moment to allow everyone to signal. We will now take the first question from Timothy Woodward from Goldman Sachs. Please go ahead.
Hi. Thanks very much for taking my questions. I have three, please. Onno, you mentioned your strong balance sheet, and it certainly is. Could you just discuss what the rationale was for your recent capital raise, and how you envisage those proceeds being spent?
On the cystic fibrosis side, could you talk a bit about how you're thinking about the design of that phase II trial for the triple combination? What do you think timelines are there, and how we should be thinking about that trial? As you think about eventually going from a phase II to a phase III trial for the triple combination, data for how many combos will you need to make a decision on which triple combination to advance into phase III? Thanks very much.
Okay. Thank you, Tim. I have all these great executives with me, so I'll hand the first question to Bart.
Hi, Tim. Bart Filius speaking. Thanks for the question. Indeed, a strong balance sheet, EUR 1.3 billion, as I mentioned in the presentation. We felt that a capital raise was the right thing to do at the moment. As you know, we have, in our use of proceeds for our capital raise, identified specifically filgotinib and CF as being two main targets. On filgotinib, you know that we're now in nine different studies, and we are actually very hopeful that some of these proof of concept studies will also indeed lead to further phase III programs later on in the timeline of development that will require further investments, both from Gilead and from ourselves. Secondly, we are also intending this year to elect for the commercialization of filgotinib in the European market, the big five European markets and the Benelux, Belgium, Netherlands, and Luxembourg.
This will also require some upfront cash investments as we build out that structure. On CF, obviously, the number of programs is increasing exponentially, and that is indeed an important use of proceeds as well. Finally, as we've explained quite often to the markets, we also want this cash position to be there as a strategic reserve to be able to benefit from any opportunity that might arise, either in licensing or in M&A. No specific plans, before you ask. No specific plans today on the table. We want to be in a position to execute on this swiftly if something arises.
Thanks, Bart. Hand it over to Piet for the CF questions.
Thank you, Tim, for the questions. On the CF study, plan is to do studies in both homozygous patients, heterozygous minus patients as well, so that we really tackle immediately the areas of highest unmet medical need. As you said as well, we are progressing. Well, all the focus is on our first combo, and with full rights to that. If you look to portfolio, we are as well developing other molecules and over time plan to do more than one combo. In one way, I would say the more the better, because it increases the chance that we find a very highly effective treatment for the patients. On the other hand, there is an element of speed as well there. I think the window will go there within 1 to 2 years.
It's indeed the plan to develop, let's say, 2 to 3 of those combos over time. Hopefully the first one we kick-off over the summer is immediately an excellent one, and one that can progress quickly into phase II and phase III later.
We will now take the next question from Peter Welford from Jefferies. Please go ahead.
Hello. Thank you for taking my questions. The first question is just staying with cystic fibrosis for a minute. Just wondered if you could just repeat the commentary you made on GLPG2737. Did I correctly understand that the phase I in both single and multiple ascending dose has now been completed, but you've expanded the dose range? Will we get the data from the full expansion to all the doses being investigated at the ECFS conference later on this quarter? Just moving further on, at this stage now, is there any other trial by the PK or preclinical or other trials that are required before potentially a triple trial could be conducted in healthy volunteers? I guess I'm thinking particularly relevant to GLPG2737, but also any of the other components.
Are all the other trials now in place to be able to start that healthy volunteer study once those results are in? Secondly, just on filgotinib, just wondering whether all of the proof of concept studies, are there any restrictions at all on use of the 200 milligram dose in those trials? Or is that dose, the 200 mg once daily, being used in those studies, irrespective of perhaps prior drugs or male/female status? Thank you.
Thank you, Peter. I'll kick off with the CF questions. GLPG2737, indeed, I can confirm that dosing have been completed. So the full SAD, MAD study, the dosing is finished and completed. As I said, safety allowed us to dose further than we planned at the beginning, and that's why we decided to add another cohort and go higher than what we have in the initial filing. That's good news that it proves that the compound is well-tolerated in this phase I study. Second question was, do we need more studies now with this data? The dual GLPG2451, GLPG2222, 2727, we have the package and also the preclinical data to put together all the elements for a triple combo design, which we will kick off in the summer. I'll give over to Walid for the filgotinib question.
All right, Peter. Regarding filgotinib POC studies, I confirm we do not have any restrictions on the dose. I'm presuming you're asking about the 200 milligrams. I think we're good to go there in the studies that we're doing.
Okay. Just returning to the triple combo then, I guess, just if I follow up. I guess if all the SAD, MAD studies are done and obviously you've gone into higher dose and I guess obviously GLPG2222 and GLPG2451 are still in combination. I guess, what is the limiting factor between now and the summer that's, for want of a better word, delaying start of a triple combo in healthy? I mean, is it that you want to get some insights on the interactions of 222 and GLPG2451 together first in a dual, I guess, what is the gating factor before we can start a triple trial?
What is now limiting is we have to get all the data we've observed in a finalized report so that we can add that to the filing and so that we have a solid data package everybody can review, that needs to review. The bringing together of all of those data and having them as completed reports is what is time-critical. This is well planned, and this will allow us to kick off the triple program over the summer.
Okay, that's great. Thank you.
Yeah. Okay.
We will now take the next question from Anastasia Karpova from Kempen. Please go ahead, madam.
Good afternoon. Three questions, if I may. First, regarding the recruitment of homozygous patients in the U.S., one of your competitors has experienced significant delays in that specific market. Specifically in regards to FLAMINGO, which is probably not going to demonstrate any efficacy. Would you envisage any challenges in recruitment, and what are you doing to avoid that? Secondly, in the context of your collaboration with AbbVie, if the phase II triple combo trial is positive, would you envisage AbbVie to take over the development from there, or there would be additional steps required? Finally, on osteoarthritis target. Pfizer and GSK both had early-stage programs targeting also ADAMTS5, and one discontinued on poor pharmacokinetics and the other one dropped because of negative or unwanted activity on aggrecan substrate. What are you doing differently that would allow you to avoid those mistakes or challenges? Thank you.
Thank you, Anastasiya. Let me start with the FLAMINGO recruitment. As you pointed out rightly, this is a study in which there is not too much benefit to be expected for the CF patients. We've discussed this extensively as well with the CFF network. They see a possibility to recruit this. From the two studies we have ongoing now, ALBATROS and FLAMINGO will take somewhat more time, but we are nicely on schedule in terms of getting patients in. It's a study, and I agree with you, for the patient is not too much benefit. On the other hand, this is a highly motivated field, and we are confident that we'll have it recruited as we have planned it. On the AbbVie phase II, phase III.
According to the contract, we do phase Is, phase IIs, and as soon as phase II is complete, they will execute the phase III. At that moment when we have phase II, we've selected a dose, regimen, all of that, AbbVie will take over, and we hope that if we can go in with a one today, it will only be a question of picking the right dose of the triple component. Finally on OA. Indeed, there's been earlier attempts by Pfizer-Wyeth. Must say that indeed they were limited by PK, and I think everybody that has seen our animal model data agrees that what we bring here is a different type, is a different level of efficacy. The exposures are higher, the inhibition is better. We've shown in two different animal models, in fact, that we have a beneficial impact on the cartilage.
I think everybody in the field recognizes that our molecule is way different and better than what was tested in the clinic a number of years ago. You pointed as well to the GSK program. That's an antibody. As far as we saw the data, they were concerned because they saw cardiovascular side effects. We've done an extensive cardiovascular safety evaluation and could not detect anything wrong there, and that was for us the trigger then to move forward into the clinic with this molecule. Okay. Thank you.
Thank you.
We will now take the next question from Phil Nadeau from Cowen. Please go ahead.
Morning. Thanks for taking my questions and congratulations on the progress. First one on cystic fibrosis. Have you completed the preclinical carcinogenicity studies for GLPG2451, GLPG2737, and GLPG2222? For those that you have completed, what were the findings, if any?
Okay. Thank you for that question, Phil. We are extensively pre-clinical testing these molecules, but CARC studies typically only start when you have phase II and running parallel with phase II to phase III. This is too early to expect any CARC data, honestly. We've done the mono therapies, we've done the combo therapies, tox studies. We need to move into the triple program. For the CARC studies, this is a bit too early to expect data. Thank you.
Okay, great. Second question is just a follow-up to a prior question. It sounds like you've got all the data you need for GLPG2451, GLPG2737, and GLPG2222, and all that is between you and starting the triple combo in patients is literally paperwork. Is that a correct interpretation of what you've said?
Paperwork is, we are finalizing the design as we speak. We'll discuss the design with the CFF network and then submit those filings. There's indeed a lot of work to be done, but it's not pending any scientific data. That's correct.
Great. Last question is actually on filgotinib. I'm just curious to hear your impression of the FDA's issues with baricitinib's filing and whether it has any implications for filgotinib's development program or the data that you will seek before filing for FDA approval of filgotinib.
Thank you, Phil. Like you and many others, we've been watching very carefully the response from the FDA to baricitinib. Frankly, I'm not going to be speculating. You guys can do as well as anybody to look at this and try to estimate what that could be. What I want to say is really that we are quite confident in the program that we have. One of the reasons why we're showing you today on the slides the size of our program and the fact that both doses are really fully evaluated in our program. We believe that we've really done a very good job, and at the end of the day, we will have a very robust data package that would allow adequate assessment of a risk-benefit for either one of those doses in either of the indications.
I think to really conclude, from our perspective, our confidence has not changed at all with filgotinib based on the recent developments with baricitinib. There was nothing that currently we plan to do differently as a result of that.
That's helpful. Thanks for taking my questions.
Thanks.
We will now take the next question from Adam Walsh from Stifel. Please go ahead.
Hi. Good morning. Thanks so much for taking my questions, and congrats on all the progress. My first question is on just a clarification question. I just want to make sure I'm clear in my own mind. When you talk about having everything ready to start the triple combo study, I mean, we still need to go through the phase I triple, correct? That needs to be done first, then, of course, you'll begin the phase II triple in CF patients. That's my first question. The second question is, would you consider running dual combo phase IIs in parallel to the phase II triple combo therapy? Thank you.
Adam, thanks a lot. On the triple program, we will share with you the designs and how we take it on as soon as we have agreed this with the CFF first and then the regulator second. I'll not comment on that today. In terms of how much duals we plan to take later, I think as part of the dose ranging, there will be cohorts there where we compare dual to triples. The idea currently is that that can be done in single studies rather than we have to have many parallel studies. If over time we learn that parallel studies are better, we still can do that. The idea is that as part of the dose ranger, you can evaluate duals and triples. That are the current ideas in the field. Thank you very much.
Great. On the phase I clarification for the triple?
Well, as I said, we are discussing that design with the CFF network as we speak, so it's not a moment now to disclose any real designs on our phase I triple program today. Because it can change if we get the feedback next week. I don't think that's a good moment now.
Right. Just to be clear, so that's the gating factor before you put the triple into CF patients. We're still going to do the phase I triple, and then you go into CF patients in the summer.
Well, as I said, we are discussing various designs on how to bring this to the patients with the CFF experts. Depending on what they really ask, we will adapt our design. That's why I'm not going to disclose any designs here now, because they can change as we have active discussions with the experts in the field.
Understood. Thank you.
Once again, ladies and gentlemen, it's star one if you wish to ask a question. We will now take the next question from Vamil Divan from Credit Suisse. Please go ahead.
Hi. Thanks so much for taking my questions. I think most of mine have already been asked, just with the several additional indications that you've started trials with filgotinib, I'm wondering if you can give a little bit more insight into the ones that you maybe have a little bit more confidence on. Not obviously the later stage ones like RA, Crohn's, and UC, but the newer ones you started. Which ones do you have maybe a little bit more data to base your decisions on, and which ones are maybe higher risk? Thanks.
Wow. You're asking me to choose which of my children I like the most. It's a tough decision, to be honest with you. Look, I think it's safe to say that we're quite confident that we have a good reason to believe that it will work based on the preclinical data, based on also some other data that we have clinically from the class in general or from anti-inflammatory agents in general. It's going to be very difficult for me to pick one over the other. We have good enough reason to run them. As you know, we do these studies to see what our drug will perform in these patients and how beneficial it would be. I'm just going to leave it at that and wait to see what we find out at the end of it.
Okay. Maybe just one quick follow-up. This was sort of asked a little bit before. Are all of these using the once-daily dosing for filgotinib, all these new indications?
Yes, that's correct.
Okay. All right. Thank you.
We will now take the next question from Matthew Harrison from Morgan Stanley. Please go ahead, sir. Please go ahead, Mr. Harrison. Your line is open. It seems he has stepped away. There are no further questions in the telephone queue.
All right. Well, that concludes the Q&A part of our call. Our next webcast will actually be on the 20th of June when we broadcast from New York for our R&D update. I really look forward to that. We'll be sending out a save-the-date, those of you who are still listening, you get the premiere. Our next financial results will be for the first half of the year, will be issued post-market on the 27th of July with our webcast the next day at the usual time. I want to thank all of the callers and listeners for their support and participation today and speak with you soon. Bye.
Ladies and gentlemen, this will conclude the Galapagos Results Webcast. Thank you all for your participation today. You may now disconnect.