Galapagos - Earnings Call - Q1 2017

Transcript

Speaker 0

Good day, ladies and gentlemen, and 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.

Speaker 1

Welcome all to the audio webcast of Galapagos' first quarter twenty seventeen 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. So that your questions can be included, we request that you call in to the telephone number given in today's press release. So here's the Belgian number, 32 for Belgium, 24040659 and there's an access code 540-2616.

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 Ana Van Stolpe, CEO Walid Abhisab, CMO Pete Wiehrenk, CSO and Bart Filius, CFO. Anno, Walid and Pete will go through the operational highlights and Bart will explain the financial results.

Anno will then close with the news flow and you will see a PowerPoint presentation on screen during their talk. We estimate that the presentation will take approximately twenty minutes and this will be followed by a Q and A session. I'd now like to hand over to Anno to start the presentation.

Speaker 2

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 have been the rollout of filgotinib in a large number of diseases, inflammatory diseases. It's now in nine different Phase II and Phase III studies and there's more to come later in the year. Also the CF program has seen a lot of activity in first quarter where we had multiple starts, clinical starts, and we have started to do a combo with a triple on track for this summer.

But Gladworth is clearly more than CF and filgotinib. We have idiopathic pulmonary fibrosis in 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 $7,500,000 And we ended the quarter with almost $1,000,000,000 in cash. And after the quarter, we did a very successful placement on the NASDAQ where we raised €360,000,000 €65,000,000 With that, I would like to hand it over to Walid to take us through the filgotinib program.

Walid, over to you.

Speaker 3

Thank you, Ono. 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 Sjogren Syndrome, ankylosing spondylitis, psoriatic arthritis, and most recently, continuous 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, but I want to highlight here our programs both in RA and then on the next slide that you will see in IBD, where we fully evaluate both our one hundred milligram and two hundred milligram across all of these studies. And 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. And with that, I would like to turn it over to Pete Wiggering.

Pete?

Speaker 4

Thank you, Walid. So I will cover the rest of the pipeline. And 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 JUUL studies, 02/1951, 02/2022.

We have initiated a first into human study with three thousand and sixty seven, which is a backup molecule for two thousand four hundred and fifty one. We have initiated two Phase II studies with the COLLECTOR-one, 02/2021. I will give some explanations on those designs. And we've also completed dosing of two thousand seven hundred thirty seven in the first into human study containing a single ascending and multiple ascending dosing 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 CFU, looking forward to look to the data on 06/2019, the first autotaxin inhibitor ever being in IPF patients. As Zoro 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 fellow office of patients collect the data and will report out over the summer. Then today, as the ORC meeting is ongoing, we disclosed at the ORC meeting the target of our osteoarthritis program.

I'll give some more explanations later, but that's the ADAMTS-five enzyme. Then 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. Its well as 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. And then we have a couple of novel targets in preclinical evaluation.

Let's now have a look to the two Phase two studies in CFX-two thousand two hundred twenty two. The first study we call is the Albatross study. Albatross study is a study where we dosed two thousand two hundred twenty two on top of Ivacaftor in class III patients. So more than half of the class III patients have a second CF mutation and they have delta-five zero eight as a second CF mutation. So what we do in this study patients, take Ivacaftor that will correct the class III mutation, but by adding a corrector, we as well hope to bring additional benefit by correcting the deficit on the second allele these patients have.

So that's the design also Vertex used before. It's a study with two active and a placebo group control patients are on Ivacaftor and still on Ivacaftor and we hope that they can further benefit in terms of efficacy of two thousand two hundred twenty two. It's the first time we chronically administered in this study two thousand two hundred twenty two to CF patients. Study is running in Europe and Australia. We are well advanced in the recruitment as well of this study.

Then the next study is the Flamingo study and that's now the first patient study where we enter U. S. Soil. So we have designed together with the CSF network, the study and the study runs in The U. S.

And Europe. So it's a monotherapy design where we have a dose escalation mode and where we evaluate two thousand two hundred twenty two as a monotherapy in homozygous delta-five zero eight patients. Main formula of this study is safety and tolerability of two thousand two hundred twenty two abnormal therapy. And now finally, our OA program, so a little bit of explanation on the targets. So ADAMTS-five.

ADAMTS-five is an enzyme, an enzyme that degrades one of the two major components of cartilage and that's the aggregant. So in the body, that enzyme will degrade the aggregant and will cleave off what we call ARK levels. So that's as well done a biomarker we can follow if we inhibit it. ADAMTS-five has been well validated by numerous groups in the world and at different levels as being a promising target for OA. And we believe the first company that shows and that has designed a small molecule that has shown good efficacies in this model and has shown a decrease of ARC levels in healthy volunteers.

So as well, well advanced and we hope to initiate a study in The U. S. With nineteen seventy two over the summer as well. That's so far for my part. Over to Bart now.

Thank you, Pete.

Speaker 5

Then allow me to show you a couple of slides on the financials over the first quarter. So good morning everyone in 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 €981,000,000 There were warrant exercises that generated €4,000,000 and currency translation effects of negative 2,500,000.0 But our cash burn in in the quarter is €24,000,000 split into an income in cash terms in milestones from AbbVie ten million euros €9,500,000 and offset by €33,500,000 in cash expenses, so net of €24,000,000 I was splitting it out this time in previous quarters.

I've actually always combined those two 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 €960,000,000 And with this cash burn, we are comfortable with our remain to maintain our cash guidance between €135,000,000 and €155,000,000 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. So after our placement that we did two weeks ago in The U.

S, dollars $390,000,000, a net of €350,000,000 We are a little over €1,300,000,000 of cash well financed to invest in our portfolio of programs that we have elaborated on before. Maybe then to the P and L side, revenues and other income increasing more than doubling actually, increasing by €25,000,000 from the first quarter last year to the first quarter of this year. Two 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. And this number actually by quarter will go up as also the expenses go up.

So we recognize actually this upfront which for memory was €300,000,000 We recognize this upfront in proportion to the expenses that we actually make on the program. So that's one part of the increase. The other part of the increase is actually cash generative, its milestones €16,500,000 On the previous slide you saw €9,500,000 The gap between the two is actually the last milestone from IP which was P and L wise received in March, but cash wise received only in April and 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 side. Once you take into account that there is 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. But 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 results of our growing income and our growing expense is still an improvement operationally of our bottom line to a negative €13,600,000 net results. This is an operational improvement of €8000000.7900000.0 to be exact.

Obviously, we need to offset here the one time non cash accounting entry that we had in the 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 €57,500,000 in Q1 twenty sixteen, which obviously is not recurring now in the 2017. So with that, I hand it back over to Ronald for the news flow and the outlook.

Speaker 2

Thank you, Bart. If you look at

Speaker 4

the news flow, it's going

Speaker 2

to be a busy rest of the year of the various programs. The two slides on the first slide, want to highlight the Darwin III interim results that will be presented at EULAR conference in June, where we have the long term efficacy and safety data of filgotinib in RA trial. Also of course, looking forward to start the triple in CF in patients that will be happening this summer. And if you go to the next slide, I would like to highlight the IPF data with sixteen ninety, the FLORA study that will read out the second half of next year of this year, sorry. And also the atopic dermatitis data that we're doing together with MorphoSys that will read out in the second half of the year.

So a lot to look forward to. And if you look at the outlook, then clearly, we are in very good shape. Filgotinib in Phase III and 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.

And the discovery engine continues to deliver, which will lead to more programs going to preclinical and reaching human clinical trials. And all of that with a very solid balance sheet with $1,300,000,000 in cash. With that, this is the end of the formal presentation and I hand it back to Elizabeth.

Speaker 1

All right. Well, 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 questions for the executives.

Speaker 0

Thank you, madam. We will now take the first question from Timothy Woodward from Goldman Sachs. Please go ahead.

Speaker 6

Hi, thanks very much for taking my questions. I have three, please. Ono, 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? And then on the cystic fibrosis side, could you talk a bit about the how you're thinking about the design of that Phase II trial in triple combination with for the triple combination?

What do you think timelines are there? And how we should be thinking about that trial? And also 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.

Speaker 7

Okay.

Speaker 2

Thank you, Tim. I have all these great executives with me. So I'll hand the first question to Bart.

Speaker 5

Tim, Bartfili speaking. Thanks for the question. So indeed, a strong balance sheet, 1,300,000,000.0, 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, 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 and that will require further investments both from Gilead and from ourselves. And secondly, we are also intending this year to elect for the commercialization of filgotinib in the European markets, the big five European markets and the Benelux, Belgium, Netherlands and Luxembourg. And this will also require some upfront cash investments as we build out that structure. And then on CF, what we see are the number of programs is increasing exponentially and that is indeed an important use of proceeds as well. And then 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 and A.

No specific plans before you ask, no specific plans today on the table, but we want to be in a position to execute on this swiftly if something arises.

Speaker 2

Thanks Bart. Hand it over to Pete for the CF questions.

Speaker 4

Thank you, Tim for the questions. On the CF study, plan is to do studies in both homozygous patient, heterozygous minus patients as well so that we really tackle immediately the areas of highest unmet medical need. As you said as well is that we are progressing well, all the focus is on our first combo and we've got rights to that. If you look to portfolio where we are 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. So I think the window will go there within one to two years. So but it's indeed the plan to develop, let's say, two to three of those combos over time, but hopefully the first one we kick off over the summer is immediately an excellent one and then one that can progress quickly into Phase II and Phase III later.

Speaker 0

We will now take the next question from Peter Welford from Jefferies. Please go ahead.

Speaker 8

Hello. Thank you for taking my questions. So the first question is just staying with cystic fibrosis for a minute. Just wondered if you could just repeat the commentary you made on 02/1937. Did I correctly understand that the Phase one in both single and multiple ascending dose has now been completed, but you've expanded the dose range?

And will we get the data from the full expansion to all the doses being investigated at the ECFS conference later on this quarter? And then just moving further on then, is the at this stage now, is there any other trial by the PK or preclinical or other trials that are required before potentially then a triple trial could be conducted in healthy volunteers? I guess I'm thinking it's particularly relevant to 02/1937, 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? And then secondly, just on filgotinib.

I'm just wondering whether all of the proof of concept studies, are there any restrictions at all on use of the two hundred milligram dose in those trials? Or is that dose of the two hundred mg once daily being used in those studies irrespective of perhaps prior drugs or male female status? Thank you.

Speaker 4

Thank you, Peter. I'll kick off with the CF questions. 2737 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.

So but that's a 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? So the JUUL twenty four, fifty one, twenty two, twenty two, twenty seven, 27, 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. And then I'll give over to Walid for the question.

Speaker 3

All right, Peter. So regarding filgotinib POC studies, I confirm we do not have any restrictions on the dose. I'm presuming you're asking about the two hundred milligrams. So I think we're good to go there in the studies that we are doing.

Speaker 8

Okay. So just returning to the triple combo then, I guess just if I follow-up, I guess if all the SADMAD studies are done and you've obviously gone into higher dose and I guess obviously twenty two thousand two twenty two and twenty four thousand five fifty one 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, it that you want to get some insights on the interactions of two twenty two and two thousand four fifty one together first in a dual? Or I guess, what is the gating factor before we can start a triple trial?

Speaker 4

No. 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 can that we have a solid data package everybody can review that needs to review. And so the bringing together of all of those data and having them as completed reports is what is time critical. Now this is well planned and this will allow us to kick off the triple program over the summer.

Speaker 5

We

Speaker 0

will now take the next question from Anastasia Karpova from Kempen. Please go ahead, madam.

Speaker 9

Good afternoon and 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 trial, 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 two triple combo trial is positive, would you envisage AbbVie to take over the development from there, or there would be additional steps required?

And finally, on osteoarthritis target, Pfizer and GSK both had early stage programs targeting also ADAMTS thirteen, and one discontinued on poor pharmacokinetics, and the other one dropped because of negative or unwanted activity on aggregate substrate. So what are you doing differently that would allow you to avoid those mistakes or challenges? Thank you.

Speaker 4

Thank you, Anastasia. Let me start with the Flamingo recruitment. As you pointed out rightly, so this is a study in which there is not too much benefit to be expected for the CF patients. So 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 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. Then on the AbbVie Phase two, Phase three, so according to the contract, we do Phase one, Phase two and as soon as Phase two is complete, they will execute the Phase three. So that's at that moment when we have Phase two, we selected a dose regimen, all of that AbbVie will take over And we hope that if you can go in with the once a day, it will only be a question of picking the right dose of the triple component.

And finally, on OA, indeed, there have been earlier attempts by Pfizer White, must say that indeed they were limited by PK, and I think everybody 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. And we've shown in two different animal models, in fact, that we have an impact a beneficial impact on the cartilage. So I think everybody in 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, were concerned because they saw cardiovascular side effects. So we've done an extensive cardiovascular safety evaluation and could not detect anything wrong there and that was for us to trigger them to move forward into the clinic with this molecule. Okay, thank you.

Speaker 0

We will now take the next question from Phil Nadeau from Cowen. Please go ahead.

Speaker 10

Good morning. Thanks for taking my questions and congratulations on progress. First one on cystic fibrosis. Have you completed the preclinical carcinogenicity studies for 02/1951, 2737 and 02/2022? And for those that you have completed, what were the findings, if any?

Speaker 4

Okay, thank you for the question, Phil. So we are extensively preclinical testing these molecules, but CARC studies typically only start when you have Phase II and running parallel with Phase II to Phase three, so this is too early to expect any any CARC data, honestly. So but we've done the more therapies, we've done the the combo therapies, toxicities we need to move into the triple program, but for the core studies, this is a bit too early to expect data. Thank you.

Speaker 10

Okay, great. And then second question is just a follow-up to a prior question. It sounds like you've got all the data you need for 02/1951, 2737 and 2222 and that is between you and starting the triple combo and patients is literally paperwork. Is that a correct interpretation of what you've said?

Speaker 4

Paperwork is we are finalizing the design as we speak. We'll discuss the design with the CSF network and then submit those filings. So there's indeed a lot of work to be done, but it's not pending any scientific data. That's correct.

Speaker 10

Great. Then 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?

Speaker 3

Yes. Thank you, Phil. Yes, 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 look at this and try to estimate what that could be.

But what I want to say is really that we are quite confident in the program that we have. And 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. So I think to really conclude from our perspective, our confidence has not changed at all with filgotinib based on the recent developments with baricitinib. And there was nothing that currently we plan to do differently as a result of that.

Speaker 10

That's helpful. Thanks for taking my questions. We

Speaker 0

will now take the next question from Adam Walsh from Stifel. Please go ahead.

Speaker 11

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, Are you speaking I mean, we still need to go through the Phase I triple, correct?

That needs to be done first. And then, of course, you'll begin the Phase II triple in CF patients. That's my first question. And the second question is, would you consider running dual combo Phase IIs in parallel to the Phase II triple combo therapy? Thank you.

Speaker 4

Okay, Adam. Thanks a lot. So 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. So I'll not comment on that today. In terms of how much jewels we plan to take later, I think as part of the dose ranging, there will be cohorts there that where we compare dual to triples, but the ID countries 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. But the idea that as part of the dose ranges, you can evaluate the jaws and triples that are the current ideas in the field. Thank you very much.

Speaker 11

Great. And on the Phase one clarification

Speaker 10

for the triple?

Speaker 4

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 one triple program today. So because it can change if you get the feedback next week, so I don't think that's a good moment now.

Speaker 11

Right. But 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.

Speaker 4

Well, as I said, so we are discussing various designs on how to bring this to the patients with the CFF experts and depending on what they really ask, we will adapt our design. So 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.

Speaker 11

Understood. Thank you.

Speaker 0

We will now take the next question from Vam El Divan from Credit Suisse. Please go ahead.

Speaker 7

Hi, thanks so much for taking my questions. I think most of mine have already been asked. But 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.

Speaker 3

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. I look, I mean, I think we're it's safe to say that we're quite confident that we have a good reason to believe that we 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, but also, as you know, we do these studies to see what our drug will perform in these patients and how beneficial it would be. So I'm just going to leave it at that and wait to see what we find out at the end of it.

Speaker 7

Okay. Maybe just one quick follow-up, and this was sort of asked a little bit before, but are all of these using the once daily dosing for filgotinib, all these new indications?

Speaker 3

Yes, that's correct.

Speaker 7

Okay. All right. Thank you.

Speaker 0

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.

Speaker 1

All right. Well, that concludes the Q and A part of our call. Our next webcast will actually be on the June 20 when we broadcast from New York for our R and D update. So I really look forward to that. We'll be sending out a save the date, but those of you who are still listening, you get the premier.

Our next financial results will be for the first half of the year and will be issued post market on the July 27 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.

Speaker 0

Ladies and gentlemen, this concludes the Galapagos Results Webcast. Thank you all for your participation today. You may now disconnect.