Galapagos - Earnings Call - Q2 2017

Transcript

Speaker 0

Good day and welcome to the Galapagos H1 reporting webcast. Today's webcast is being recorded. At this time, I would like to turn the webcast over to Ms. Elizabeth Goodwin. Please go ahead, ma'am.

Speaker 1

Thank you, and welcome all to the audio webcast of Galapagos' First Half twenty seventeen Results. 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. So that your questions can be included, we request that you call in to the following telephone number, That's 32 for Belgian, 24006926, and the code is 4659682. I'd 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 Anno Valestolpe, CEO Pete Wiefering, CSO and Bart Filius, CFO. Anno and Pete will go through the operational highlights. Bart will explain the financial results and the 2017 guidance.

And then Ana will close with the expectations for this year. You'll see a PowerPoint presentation on screen while they're talking. We estimate that the presentation will take about about twenty minutes and this will be followed by a Q and A session. And at this point, I'd like to hand over to Anno to start the presentation.

Speaker 2

Thank you, Elizabeth. Pleasure here to kick off the half year presentation. Clearly, we had a very solid year with a lot of results both on the financial side as well as on the R and D side. Highlighted with filgotinib that clearly moves forward in the clinical programs. We showed the long term extension study Darwin III in rheumatoid arthritis, which was very consistent with regard to the previous results.

Pete will provide you more color on this data set later in this presentation. But we haven't stopped there apart from the IBD programs filgotinib is now rolled out in multiple Phase II studies and more to come. Some are being executed by Galapagos, some are executed by our partner Gilead. Clearly, we are blanketing the whole market here as broadly as possible to look at all possible indications for this remarkable molecule. In CF, we're making very nice progress with our various components of the triple combination study.

All Phase 1s have been completed. We're now moving forward with preparations for the start of the Phase three the triple combo Phase two study. In IPF idiopathic pulmonary fibrosis, we are shortly expecting to show the data on 1690, the FLORA study. We also had an orphan status given to Galapagos for this program. So we're looking forward to progressing this program very rapidly.

In osteoarthritis, we start the first dosing in patients in The U. S. With 1972. And today we announced that Servier has executed its opt in and has now licensed this program everywhere outside The U. S.

The research group has also come up with some remarkable results and we have now three more PCCs, preclinical candidates, which brings the total of proprietary assets in our pipeline to seven. So clearly, you see a transition from a very partnered pipeline development pipeline to a more proprietary one. That together with the very successful offering on NASDAQ, we now have €1,300,000,000 in cash. So we're well funded for the future both on our internal activities as well as potential acquisitions or licensing. Also very pleased that we can announce that Mikaela Manto has joined us as the Senior VP Commercial Operations.

He's quite an extraordinary person was with AbbVie before where he was responsible for the global marketing of HUMIRA, the largest selling drug in the world and also responsible for the preparation of the launch of ABT-four ninety four, the competitor product for filgotinib. If you can go to the next slide, I'll give you some color on the opt in by Servier of the 1972 molecule. With this opt in Servier gains worldwide commercial rights in all indications except for The United States. There Galapagos has the sole rights to commercialize and develop this molecule. Of course, with the license they also have an obligation to further develop this.

We're getting a €6,000,000 license fee, which might look quite modest, but please remember that this deal was signed in 2010 when we had only targets and no molecules, so very early stage partnerships with partnership with Servier. And at that time, this milestone was very appropriate. We're getting more milestones down the road on this program. We have future milestones on 1972 of 200,000,000 But far more important of course are The U. S.

Commercial rights that we have and the royalties that we're getting on all sales outside The U. S. So we're very excited about this program as we have reported previously. And this opt in by Servier is a sign of confidence that we have a partner that truly believes that this molecule has great opportunity in osteoarthritis. With that, I would like to hand it over to Pete, who will give you much more details on all these programs.

Speaker 3

Thank you, Ono. And let me start with filgotinib. As you all know, we have three Phase III ongoing. We've commented on those sufficiently in the past. But over Q2 as well, we have started five new Phase two studies starting on this slide with the Sjogren's for the first study we started in Q2 over ankylosing spondylitis, psoriatic arthritis, lupus study and uveitis.

So there's only part of the total program we plan, but this plan clearly shows that together with partner Gilead, we are extremely ambitious in exploring filgotinib to the maximum extent in a variety of inflammatory diseases. So more studies will come over the coming quarters and we will update you as soon as those studies come on clinicaltrials.gov. During Q2 as well at the occasion of EULAR, we for the first time have shown both efficacy and additional safety data from DARWIN III. DARWIN III as a reminder is an open label safety study. So almost all patients coming out of DARWIN I and DARWIN got the invitation and wanted to participate in the long term follow-up study.

And on this slide, we start with the efficacy. So we were extremely pleased to see that we already at the end of DRAWIN had a high ACR50 scores, that those ACR50 scores further increased up to close to 70%. And then more importantly as well, these data show on the left that our choice to go for a once a day for Phase three was very valid as you can see on the left graph here that both BID and QD give you essentially the same efficacy outcome as part of DARLIN-three. On the right as well, output I would like to illustrate is the fact that as part of DARWIN-three, we have both patients coming from the monotherapy study in DARWIN-two as those coming from the add on to methotrexate study in DARWIN-one And we've compared them on this slide in terms of clinical efficacy, again, ACR50 and there again, you don't see any difference. So this will not influence our Phase three program, but clearly illustrate that we filgotinib as JAK1 inhibitor late in the market, it could excellently play as a monotherapy for all patients failing on methotrexate.

I'm very pleased with the efficacy that's also show over time, there is no decrease of the efficacy effect, so this is a sustainable efficacy both as a monotherapy and as an add on to megatrexate. A few highlights on the safety, so filgotinib is the first and the only really selective JAK1 inhibitor in the field and is quite nicely illustrated by what is in fact the return to the midpoint of the normal values in hemoglobin. And this slide both illustrates the speed of that return as the extent of the return of the hemoglobin values which are low because of disease at start and they return quickly to the midpoint of the normal values. Another illustration of the safety of filgotinib as part of Darvin three are the platelets as with most of the RA drugs on the market, also filgotinib shows effect and return to the normal values as patients have higher values, you see a quick drop during the first twelve weeks. And then as part of Darwin three, some of the placebo after twenty four weeks go inactive, you see in fact from week forty eight onwards is stable value of platelets over time.

So this is a classic picture you see with most of the RA drugs on the market. The only exception to this is baricitinib, which in fact shows an increase in these patients. That concludes for me the update as part of this presentation on filgotinib. Let's now look to the rest of the clinical pipeline. So in the CF field, nothing has changed.

We have three potentiators in the game and clearly for triple, we are focused on 2451 and 03/1967. I've clearly highlighted that as part of the R and D update in June. Our C2-two thousand two hundred twenty two is well advanced in Phase II, both as a monotherapy and as an add on to LIDICO and we expect to read out the first data this year. And then we have two C2 molecules in the game, one in Phase one, two thousand seven hundred thirty seven, which will move into triple patients during this year and then a second one, three thousand one hundred twenty one, which will move into healthy volunteers this year and then inpatients next year. On the IPF line, in fact, we have replaced the previous new PCC two thousand nine hundred thirty eight by 3,499, so this molecule is from the same family, acts on the same target, but it has really shown us much better in vivo efficacy data in the animal model, so we decided to start off the development of three thousand four hundred and ninety nine as a second mechanism of action in the IPF field.

So for GPR84 and twelve oh five, we are looking for a second indication and hope to announce as well before end of this year what the second indication is, will bring this molecule or test this molecule in the clinic. The rest of the slide in the middle there did not change, but at the bottom, so we have added a new PCC in the inflammation area and undisclosed levels target 3,312 and then we as well have a new mechanism of action in pain, which is number 3,535. So that's a molecule we will explore in the field of pain. Our ambition is there to see whether we can add anything to filgotinib or eventually an O A drug as pain is one of the most remaining complaints that patients currently have when treated with the O A drugs. Over to CF now, so this is the same slide as of the R and D update.

So we are progressing three triple combos and plan to put them into the clinic over the coming twelve months. So the first that will enter is '22, 22, 27, 37, 24, 51 planned to go into Phase I in patients this year. What on this slide as well is remarkable effect that on the left in gray, our dual platform 2,222 plus 2,451 in these predictive HB cells outperforms in a consistent way, the VERTEX dual platform, the Theta Captor, IVAC Captor combination. So we expect to start from a more solid dual basis to show the additional benefit of our C2s as part of the triple combination. So really there, we are looking forward to both gather dual and triple data over the coming years.

So the second C2, which is the second triple, which is planned to move into patients is the one with the other potentiate of three thousand and sixty seven and then the same C1two thousand two hundred twenty two and two thousand seven hundred thirty seven. And then by mid of next year, we as well hope to bring the next C2three thousand two hundred twenty one into patients as planned. So that is in fact another mechanism of action and consistently shows somewhat higher efficacy in vitro. So we are clearly pushing forward every C2 we have in hand and which we believe is a valid clinical candidate. So in terms of patient studies on CF, and that is a question we get frequently.

So the first study to read out and from which we will report our data this year is the ALBATRA study is a dual therapy of 2,222 in the G501D patients. Then we have the second study we'll be reading out early next year is the Flamingo study is this V1 correct of two thousand two and twenty two as a monotherapy in homozygous Delta-five zero eight patients and then we shift to the triple study. So we will start soon a triple study where we add two thousand seven hundred thirty seven to ORKAMBI patients in the homozygous Class II patients. And then later we'll start our first patient study with the internal triple base 2,451, 2,222 two thousand seven hundred and thirty seven. So we are well on track with the plan we announced in June.

So we are in we have submitted to The UK regulatory authorities the questions we have and we will meet with them over the coming months to finalize the design and to kick off the triple study in patients. And then early next year, you see the 3067 triple study in patients and then by mid, the 03/2021 triple study also in patients. So we are as well using here in a project whatever triple we believe can make it and can make a difference for patients to bring that to patients and to test patients. Not so far for this yet, but we'll probably get more questions during the Q and A. On flora, so during Q2, we've completed the collection of all data, looked at the database and we now daily get pieces of the total package in and we are analyzing and so you can expect us to read out over the coming weeks and to tell to you how six thousand nineteen performed in this twelve week study.

So it's a twelve week study in IPF patients where we did our best to do a study according to current standards with a simply confirmed diagnosis and those patients, this is a monotherapy study, those patients either did not have access to pisphenidone or nintedanib or were in Western Europe waiting before they could get on the treatment. So it's a study with about 20 patients and we will read out both on biomarkers and on the number of secondary endpoints like FVC and others when we report the data. Then in the OA field, so today we announced that Servier has taken the option they had to the ex U. S. Rights.

We have the option to do both studies and to market the drug in The U. S. So as part of those rights, we have started the Phase one study, which we discussed with Sergey and agreed, in which we both extend the dose range and the age range of patients. So these are OA patients, it's a study running in The U. S.

So we've started our first study there and have included patients where we will dose them for a month. We will follow most importantly PK safety, but as well as the biomarker and then have a first exploratory look to some of the clinical endpoints. So in the meanwhile, together with Sergey, we are discussing how the Phase II will look like and how we will execute that study. This can be still one or two separate studies that is under discussion with them. So then the next readout of data we expect soon is in effect on MorphoSys one hundred six and then with soon I mean during Q3 this year.

So this is the first time this will be the readout of both the single ascending dose in healthy volunteers, but more interestingly, the multiple ascending dose we've been performing in patients. So we are still collecting the last data. So those you can expect the data of this study by end of Q3, in fact. So there we will look as well safety PK, but as well have measured and followed up the classic scores in atopic dermatitis field and we will report out on how MOR106 performed over time versus those scores. That's I think, Belive, for the research, the highlights of the Q2.

Thank you, Pete. Good afternoon, everyone, or good morning if you're in

Speaker 4

The U. S. My name is Bart Filius, Chief Financial Officer, and I'll take you through the numbers of the second quarter or the 2017. Firstly, as always, I'll start with our cash position, which is at the June, 1,250,000,000.00, a healthy increase from where we were at the 2016, which was a little less than €1,000,000,000 As you know, we've done an equity offering in The U. S.

In April, which has netted €350,000,000 of proceeds, which is the big driver for this increase in the first six months of this year. Taking you through the bridge, which is on this slide, you see a €17,000,000 negative, which is a translation effect. And maybe to clarify this a bit further, we keep most of our cash in euros, but we have a portion also in dollars. This portion is roughly $250,000,000 which is to basically give a natural hedge to the expenses that we have in dollars over the next couple of years around the filgotinib program. And as we report, obviously, in euro currency, we get a translation effect.

So this is not an expense, but it's really a translation of that dollar position into euros as a result of the decline of the dollar against the euro. Then maybe more interestingly, getting to the cash burn. I've split it out in two categories. One is cash income from milestones, 25,000,000 over the first six months. And on the other hand, basically the cash expense, which is a net of some income, but mostly relates to R and D expenses of negative €80,000,000 bringing us to a total cash burn over the first six months of a little over €50,000,000 We retain our cash guidance in the bracket between 135,000,000 and €155,000,000 as I pointed out when we announced our 2016 annual results.

We retain that guidance, which means that there's actually going to be a larger cash spend in the second half of this year, driven by two facts. On one hand, the milestones that we expect are a bit lower than the ones in the first half of the year, but more importantly, cash expenses will go up in the second half of this year as the filgotinib program matures and the recruitment accelerates. All in all, a healthy position on the balance sheet, 1,250,000,000.00, and that's not even taking into account, which is in the footnote, a little over €70,000,000 of receivable from the Belgian and French governments, which are going to pay out over the next four, five years, which are actually tax incentives. On to the P and L. First revenues, healthy increase of revenues of 50% from the 2016 to the 2017.

Two big drivers therein. First of all, an accounting driver, which is non cash, which is the recognition of deferred revenues. This applies to our upfront license that we've received for filgotinib in early twenty sixteen from Gilead, which we've not recognized in full, but which we actually recognize in our P and L in proportion to the expenses that we make on the program, which means that this will be recognized over a roughly, let's say, four year period and which obviously then increases versus last year as the expenses have also gone up. And the other driver is that we've slightly higher milestones in the half of the year mostly around CF where we've started multiple extra trials in the first six months of this year. Then going to expenses.

Operating expenses going up as well mostly on developments and that development expense is driven by, I will repeat myself, filgotinib on one hand and CF on the other hand where the program, as Pete was explaining it, is getting broader and broader. The total of the two of revenues and operating expenses both increasing leads us to widening of our operating loss of €8,600,000 Then if you look at our net results, that gap versus first half of last year is obviously much bigger because there is a couple of extraordinary events in there. First of all, in the 2016, we have recognized €57,500,000 positive in our P and L as a one off accounting entry as a result of the Gilead transaction. And that is not recurring obviously again in 2017, so we need to rebase our net results to take that into account. And the other driver is a €15,500,000 difference in foreign exchange and other financial income, which is the translation effect that I explained before combined with a little bit of interest revenue and expense.

So that translation effect also leads to a negative P and L impact there. But the real underlying evolution in our P and L is a negative 8% on operations, which again is a combination of increasing revenues against increasing expenses, bringing our first half year results to negative €50,000,000 So far on the financials, I'll hand it back to Onno for the outlook.

Speaker 2

Thank you, Bart. Thank you, Pete.

Speaker 3

Before we

Speaker 2

go into the questions and outlook for the remainder of the year, clearly filgotinib will continue in Phase 3s in RA in Crohn's disease and ulcerative colitis, of course also continuing in all the Phase 2s and more to come in the second half in other disease indications. We also see the start of the triple combo in patients in cystic fibrosis something the market and ourselves and the patients are looking forward to. And hopefully, will be able to generate as positive data or better data than our colleagues at Vertex. We are going to show data from patients in IPF and atopic dermatitis in the coming weeks and months. So we're looking forward to present those data to you.

All in the backlight of having a growing number of proprietary clinical programs with our research organization continuing to come up with novel candidates that we move into development. With Michaela, we have started to build the commercial organization to commercialize filgotinib in the big five EU countries and the Benelux Belgium and Holland. And that will be the basis of further commercialization efforts by Galapagos for our proprietary programs in the future. Our balance sheet as Bart has shown is very solid. We can continue to fund our own products, our own programs and we have more than enough financial leverage to actually look at potential acquisitions or licensing that can strengthen our portfolio.

With that, I would like to hand it back to Elizabeth and we can start the Q and A.

Speaker 1

All right. Thank you very much. This concludes the presentation portion of the call. I'd like to ask the operator, Ebony, to connect us to any callers who may have questions for our executives. Go

Speaker 0

Our first question will come from Debjit Chattopadhyay with Janney. Please go ahead.

Speaker 5

Hey, good morning. Can you hear me?

Speaker 3

Hello? Yes, we hear you fine.

Speaker 5

Can you hear me?

Speaker 3

Debjit, Okay, hear you

Speaker 5

great, thanks. So just start off with IPF. So given the relatively small number of patients in the study, would you expect to see a stat sig benefit in FVC? And what is your internal hurdle in moving the program forward?

Speaker 3

Okay. Benjie, thanks for the question. So indeed, it's a very small study. As we said, we had in Phase one a plasma biomarker, you want to see that confirmed. We've put in a number of exploratory biomarkers in the valve.

But most importantly, I think we will look to the respiratory parameters and hope to see that active is at least as good and hopefully a bit better than the placebo. So and finally, we don't want to see extreme drops in the active group that would highlight that maybe some patients might improve, but others are at risk of worsening of the disease. So it's going to be looking to the means, but also the extremes of what we see in the patient population, which clearly that this study is not powered to show any difference between the active and placebo.

Speaker 5

Great. So then on the osteoarthritis drug, as you start thinking about the patient studies, are you considering excluding the KL3 and four OA patients primarily because the disease is probably so advanced in these and you know, there are probably morphological changes to the bone alignment. So you know, maybe they don't have cartilage or even if there is any cartilage, the rescue may not be therapeutically beneficial. So just wondering how we should think about what kind of OA patients are most likely going to be in the study?

Speaker 3

Okay. On the OA3 design, indeed, we have a mechanism of action that is blocking the degradation of cartilage. So it's important that we include patients that still have cartilage and that will indeed lead to a limitation of which patients will go into the study, whether this is not exactly only KLA2 and not three or different, I will not highlight today, which clearly is one of the key points in the design of our study that we have the right patients there. It's not going to be an all comer study where we are at risk of having too much patients that probably can't show any benefit.

Speaker 5

So if you could stratify the OA market then, what percent of the OA patients are KL1 and two versus three and four? Or I mean is there I mean clearly for this drug to be a a blockbuster, there's got to be some sort of a biomarker screening of patients much earlier on than that is currently used?

Speaker 3

Thanks for the question. Well, with this drug we first want to show that it's working and showing benefit. So I'm not too worried about how big the market is. Honestly, there are very sufficient patients that even if you only take part of the market, this is going to be a fantastic drug. So this is a field where not a single drug has been approved over the past fifteen years or really no disease modifying drugs in this field.

So whether in the end we will only have the patients early in disease mid or end, I'm not too worried. And so I can't give you those numbers, but you can find them clearly elsewhere published by other groups.

Speaker 5

And just one last question, the testicular safety study which is underway, in terms of timing and when we should expect a readout? And do you think that would finish early enough for you to recruit younger male patients in The U. S. In the GI studies? Or it doesn't really matter because you have plenty more patients ex U.

S. From a labeling perspective? Thank you so much for taking my questions.

Speaker 3

Yes. So the safety study in The U. S. Will help us at a certain moment to extend the age range. So we've tested as part of the healthy volunteers up to 55 and now we are extending up to 75.

And as you know, most of the eight are more in the elderly section of the population, which we can start this study earlier and as soon as we have those data, expand the inclusion criteria. So there is no limitation there. That's for the safety study OA1972. Maybe there was a question on the safety study on filgotinib. So that study has kicked off and will not allow typically to expand the inclusion.

So there we have a safety study as agreed with FDA and the plan is that that reads out in parallel and together with the efficacy studies that we have running at the moment.

Speaker 5

Thank you.

Speaker 0

And our next question will come from Dane Leone with BTIG. Please go ahead.

Speaker 6

Hi, thank you for taking the questions.

Speaker 7

So I wanted to ask is and apologies if I missed this, but is three thousand four hundred ninety nine an autotoxin? No. So the same mechanism of action is one second.

Speaker 3

On the pipeline slide, on the line for IPF, we have the autotaxin and then the second compound is another mechanism of action different from autotaxin. So and in that program, we have replaced twenty nine thousand three hundred and thirty eight by a new compound, which has shown far superior in vivo efficacy. And thanks for the question because so it allows me to clarify that indeed, this is a new mechanism of action different from the atlataxin.

Speaker 7

Do you have a time line in terms of when you might be able to characterize it a little bit more for us?

Speaker 3

So this now start preclinical development, give us fifteen months to bring it to Phase I. But to disclose the target, we typically wait until we bring this to patients. So this could take a while before we're going to disclose the target of this novel approach in IPF. Thank you.

Speaker 7

Okay. And I guess switching over to atopic dermatitis. As you move, we'll see the top line data of a healthy study in I guess this quarter. Going forward, what

Speaker 6

do

Speaker 7

you think the realistic challenges are for running a larger atopic dermatitis study in the moderate to severe population now that Dupixent is on the market? I would assume eventually you would have to run part of the study in The U. S. Do you foresee any challenges? Would you think that you would be looking post someone coming off of Dupixent therapy?

Or does it not matter given that you're looking at IL-17C?

Speaker 3

Thanks again for the excellent question, which is how we will design or what types of patients we're going to include in an atopic dermatitis Phase II study, which if the Phase 1b is successful is the logic next step. It will all depend a bit on the risk benefit outcome, how much of efficacy do we see. But from a scientific point of view IL-17C is independent of the IL-four pathway of the Regeneron drug. So there is no reason why we would have ourselves scientifically oriented on that program. Quadris and if you look forward five years from here, it's going to be a market of patients that did not respond, patients that have a moderate response.

So you could think about an add on design, you could think about a design where you focus on the failures. But I guess the first study will be rather looking to a monotherapy. It's not saying that that's the final place in the market, but where we will try to get an idea in terms of efficacy, how the risk benefit looks with this novel mechanism of action in atopic dermatitis.

Speaker 7

And the last one for me is 2,534 also an IL-seventeen targeted drug or is it a different mechanism of action?

Speaker 3

Pat, thanks as well for allowing me to clarify a bit our early pipeline. Now this is a small molecule, not a mechanism of action, which we've been working on for a while, but have shown now and we've looked in preclinical models into a number of inflammatory indication, which really in terms of efficacy in the animal models, atopic derm was the best we've seen. And so it's going to be a small molecule novel target program that we started there. Thank you.

Speaker 7

Thank you for the questions.

Speaker 0

And we'll move next to Matthew Harrison with Morgan Stanley. Please go ahead.

Speaker 8

Great. Thanks very much. Good afternoon. Two CF questions, if I may, for me. I was wondering first if you could just comment on your views on the recent VERTEX data and how you see that what the implications are to your program from that data?

And then secondly, any updates on timing from when you expect to sort of finish receiving scientific advice from The U. K. And when you might be able to communicate what the program looks like after that advice?

Speaker 3

Thank you, Matthew, for the questions. First of all, let me say we were pleased with the VERTEX data. I'm pleased for a number of reasons. First of all, pleased for the many patients in the CF field for which we have no clinical data that supported our ambition to bring effective treatments to them. I think with those new Vertex data in the head minus population, that dream of bringing treatment for more than ninety percent of the CF patients is coming much closer now.

So that's very good. Secondly, we are pleased as well because it completely validates as well our approach that we have a triple that the triple therapy is the way for in the future to treat both homozygous and the HET minus patients. So we saw it a nice validation of our platform as well. Finally, it takes us way as well a number of worries when doing the CF studies. There is a clear SWAT signal, there is a clear AVV signal.

So in terms of studies, we need to do early on to evaluate whether we have an effective and competitive treatment by using both Svete and FEV even with small numbers of patients and trials ranging from one to three months, we should get a good view on that. So that as well helps us early on to assess well the competitive value of our different triples. Finally, in terms of timelines, we've been watching the VERTEX program for a while. It's all coming very concrete, but the timing they've indicated coincides with what we had in terms of planning for when we want to start the late stage clinical studies for CF. I hope I covered most of your questions.

Scientific advice timing, so well, we've submitted the questions and we are on track there that we expect to file and to start patients inclusions in the second half of this year. So we are completely on track of what we told at the R and D Day. Thanks for all.

Speaker 8

Perfect. Thanks very much.

Speaker 0

Our next question will come from Stephanie Plutt with Degroof Petercam. Please go ahead.

Speaker 9

Hi, good afternoon. Thank you for taking my questions. Maybe first on osteoarthritis with following the in licensing by Sanofi, how do you see the path going forward specifically for The U. S. Going towards Phase II, Phase III studies?

Will this be split up? Will you look for a partner eventually in The U. S? Can you shed some light on that? Then on the CF, will you present a Phase I data in healthy volunteers of the different components at any scientific conferences?

And then lastly, a small detailed question concerning the recently announced tax reform in Belgium. Do you have any idea yet if this might affect the patent income deduction regime that you or the innovation deduction regime that is called now looking to fill out something that is coming closer to market? Thank you.

Speaker 2

I'll start with the first question on the Servier collaboration and The U. S. Non U. S. Situation.

So we have all rights in The U. S. And we can execute the Phase two in The U. S. Independent of Servier.

At the moment, are discussing how we're going to move forward with our partner here and that might result in a separate Phase two or actually a combined Phase two. That's still under discussion and we'll inform the market as soon as that has cleared up.

Speaker 3

On the tax reforms, Bob? Yes. Let me take

Speaker 4

the question, Stephanie, on the tax reforms because indeed that's one that has major impacts on the company. In the sense so first of all, for those that are less familiar with the Belgian situation, there's a ruling where we are allowed under a regime called PID. It's actually a patent box regime where we are allowed to deduct 80% of our income from IP from our taxable base. So as a result, we're only taxed on the remaining 20% of that income. There's a new ruling in Belgium where there's a new system called iID, which effectively comes to sort of the same outcome.

It's slightly different. I won't go into those details there, but it's, if anything, a slight improvement over the old regime. And then thirdly, there's also some plans around Belgian tax reform, around Belgian corporate tax rates. It's a bit too early to comment, but it looks like the direction is down, so meaning the tax rates are going to go down meaningfully, while the IID regime after 2020 will be protected and sustained. So if anything, again, too early to comment in details, but if anything, it will be a beneficial outcome for us for future income coming out of IP related assets such as filgotinib and CF and any other programs we're developing.

So then for CF, Sainte, I'll give you to you, please.

Speaker 3

Stephane, thanks for the question. So as a company effect, and allows me to remind most people on the call, we have a policy that we publish all the Phase one data that we generate. So every clinical study we execute, we publish those data either at the conference, either as part of a manuscript. And for those that have followed us in the CF field, they know that we've been quite well present at every CF conference. With a continuous flow of novel data.

So you will see a next flow early November at the North American Cystic Fibrosis Conference. And then the next flow will then come early twenty eighteen at the European CF Conference, but every Phase one even and also for sure the Phase two studies, which we execute. We as soon as we have the data, we will publish them and comment on them at conferences. I hope I answered your question.

Speaker 9

Yes. Very clear. Thank you.

Speaker 0

Our next question will come from Christopher Malloy with Nomura Instinet. Please go ahead.

Speaker 6

Hi, good morning everybody. Thank you. Good afternoon. Thank you for taking the questions. Number one, I was just wondering if you could further clarify perhaps some of the potentiator metabolite half life questions you may have received from regulators in any discussions that you may have had?

And then secondarily, maybe remind us, is there a path forward to use currently approved potentiators and just have the correctors on top of those? Should the small molecules be trickier than we all anticipated to move forward? Thank you.

Speaker 3

Okay, Chris. Thank you for the questions. The interactions with the authorities is ongoing and we never comment on ongoing regulatory interactions. But what I can say is that we feel very comfortable that all of the data we've generated shows that two thousand four hundred fifty one and its active metabolite is going to be an effective and safe chronic treatment for the CF patients, and this will be part of as part of a triple therapy. So we are very comforted with all of the data we had generated and we have been generating over the past months.

So but we never comment, in fact, on an ongoing regulatory interaction. So we will not do that today. Then the second question, what can we combine with an approved potentiator? In theory, you can. On the other hand, there is quite a restriction on the availability of the approved potentiator.

So if we would try to execute that theory that we can buy in the free market sufficient of Leidco to combine, I think we would immediately run simply as part of the clinical studies in a logistic nightmare because there's not that much available. And so that would immediately give us a very, very slow program to execute. So we've from day one more or less excluded that option. Finally, as well, if you combine with compound from the competitors for the final pricing, there's a nice discussion to have. And you might need a license for that.

Don't forget that some of the combo treatments that have been brought to the market have required licenses from the company that has brought to the market. So there is not an easy executable way of developing our own C1s and C2s, and it's not part of our plans. Thank you.

Speaker 6

Okay. Thank you. That's helpful. And if I may, one follow-up. Just again, sort of thinking about your compounds and the data you've seen in your own labs versus the competitor compounds in terms of just the triple.

Could you perhaps comment on why you believe that you may have a potentially equal or better opportunity once you're inpatient, given the data that we saw this quarter?

Speaker 3

Thank you for the question. I well, also during this call as well during the R and D Day, I showed some data that compare our dual platform and that's in twenty fourfifty one, two, '22 or 03/1967, 2222 because we get in vitro exactly the same data. Systematically, both validated internally and with many external labs, really in vitro outperforms the Vertex dual platform. So we believe we will have an excellent dual basis to start from. And so we so the whole team have included, we believe that the dual platform is better than the Vertex platform.

So we have a better launching platform for the triple therapies. Quite honestly, we don't know what how the chemical structure is of the Vertex C2, so we can't do or perform any comparative studies in vitro currently in house. So I can't comment on experiments we can't do. So what we can do is compare on published data. And there, we feel very comfortable that in terms of fold increases we see from starting our dual, it is quite similar of what Vertex shows, what they see as terms of increases starting from their dual platform.

So if you start from a higher base revolver and see the same fold increases, we are hopeful that we will end up with higher FEV values. But it needs to be proven in clinic, that's clear. Thank you.

Speaker 0

We'll move next to Tim Woodward with Goldman Sachs. Please go ahead.

Speaker 10

Hi, thank you very much for taking my questions. Just to stay on the cystic fibrosis topic, I think a couple of the patients on the VERTEX side had elevated liver enzymes in that Phase II in those Phase II studies. And is that something that you've seen in your own early work? And is there a mechanistic reason that you're aware of that a triple combination therapy could lead to elevated liver enzymes? And then a second question, if I may.

It feels like you've waited on the cystic fibrosis program for drugs and data to come through so that you can pursue a once daily dosing strategy versus Vertex have been using twice daily dosing. As you see it, how relevant is that advantage of once daily dosing versus twice daily? Thanks very much.

Speaker 3

Thanks, Tim, for the questions. On the elevated liver enzymes, if there is one thing everybody wants to avoid early on in the development program, it's really early liver enzyme increases because typically never get better over time with longer dosing and more patients. So if you would have seen elevated liver as part of the Phase one, that would have been for us reason not to progress molecules further. So what I can say there is part of the portfolio we haven't seen it and we are not progressing compounds where we have seen liver enzyme increases. But for the Vertex molecules, they have to judge themselves and see what is an effective and a safe dose and then take the decision what molecule at what dose in triple they will progress.

But according to me, there is no mechanistic reason why a C2 should or might increase liver enzymes. Then on the QD dosing effect, you're pointing to what differentiators are there left in the CF market. I think that's the big question many people have after having seen the first efficacy data of the Vertex triples. But I don't think it's any different towards any other program at this stage. So differentiation can happen either on an efficacy basis, either on a safety basis, either on a dosing or a dose regimen basis.

And for patients that have to take medication every day, lifelong, QD makes a big difference for them. So eventually I think QD, if you would have the same risk benefit profile, would for patients be a good reason to change because it really affects their life if they have to take drugs twice a day or only once a day. So that is my answer to the QD dosing. Thanks for the question.

Speaker 4

Thanks very much.

Speaker 0

Our next question comes from Peter Welford with Jefferies. Please go ahead.

Speaker 11

Hi, yes. Thanks for taking my questions. I think I've got four last. Firstly, just on the Sycamore cystic fibrosis. Is there any impact at all from the VERTEX data on your choice of components within the triple, I guess, and which triple combination you perhaps preferentially would like to accelerate development of?

I guess just trying get a feel of whether or not you think that there's any differences between those that are worth pursuing more or less. Secondly then just on filgotinib, I think it's been discussed with regards to the platelet levels. But I just wondered if you clarified the patient that did in your studies have a thromboembolic event On what dose that patient had that event in the Phase II studies that have been conducted to date? Thirdly, then on 1972, is the plan to wait for The U. S.

Study that's ongoing before kick starting Phase two? Or will a Phase two start prior to those U. S. Data? And then finally, a bit of a pedantic question on the financials, but the €6,000,000 license fee, is that recognized in full?

Or will that be deferred over the next coming period from Servier? All

Speaker 4

right, Peter. I'll take the last question maybe first, and we'll kind of deal with that quite quickly. We'll recognize that in full in our P and L immediately. And then, Pete, I guess you'll take the other three questions

Speaker 3

on the science side. Yes. So let me start with Filgottripen. Thanks for the question, so I can clarify. So as part of the placebo controlled RA studies where we had different dosages of filgotinib, we have seen no thromboembolic events.

So if you look to the placebo controlled part in RA, our count is zero there. And that's in fact the number that if people want to compare to what Lilly is reporting, they've reported a number as part of the placebo controlled trials that they've seen, but as part of placebo controlled RA studies, we have had no thromboembolic events. So that means that we've seen three cases up to now, one in the Fidroide program where we've only dosed two hundred milligram, one in Darwin three, where we also have two hundred milligram and then one other in the Phase two. So all of the events we see and Norbert really explained very well yesterday how unlikely it is that most but they are linked to filgotinib, all of them were up to two hundred milligram dose. I hope that answers on the platelets and the thrombotic events.

Then in terms of 1972, that's an easy question. So we plan to finalize the design earlier, the submissions as well. And as soon as we then have the data from the Phase 1b study, extend the age range in the planned Phase two study. So we will not wait for the outcome of those study to start the process to initiate and start the Phase II studies of 1972. And then on the CF field, did the Vertex molecule make any does it have any influence on the choice of compounds?

As I said, we try to bring every triple therapy, we believe, based on all our data we have in terms of preclinical safety Phase one and preclinical efficacy, every competitive triple we will bring to patients. And then it's going to depend because time lines for the last one will need to be very faster. So that's going to depend a bit for when Vertex plan to file for Phase three. But for the first two, there is no change there. We are exactly with our plans within the on track in terms of progression, and we will start pivotal study timely as we have said during the call.

I hope this clarifies your questions.

Speaker 11

Thank you.

Speaker 1

All right. I'm just going to this is Elizabeth. I'm just going to intervene here. The time is up now and I have the feeling there might be more questions. So Paul Van de Horst in Europe and Elizabeth Goodwin will be available offline after this call to take your questions.

You can best reach me via my email as I'm in Europe this week as well. So this wraps up for today. And our next financial results webcast is expected on October 27 when we present Q3. I want to thank all of those who dialed in and listened in today and wish you a great weekend. Goodbye.

This

Speaker 0

concludes today's call. Thank you for your participation. You may now disconnect.