Galapagos - Earnings Call - Q4 2017
February 23, 2018
Transcript
Speaker 0
Good day, and welcome to the Galapagos twenty seventeen Results Webcast. At this time, I'd like to turn the conference over to Elizabeth Goodwin. Please go ahead.
Speaker 1
Hello, everyone. I'm Elizabeth Goodwin, Investor Relations, and I'll be hosting today's event. This recorded webcast is accessible via the Galapagos website homepage and will be available for replay later on today. So that your questions can be included, we request that you call into the telephone number given in last night's press release. That's 32 for Belgium, 059, and the code is 9171161.
We also have this number on our homepage if you'd like to double check it. I would like to remind everyone that we'll be making forward looking statements during today's webcast. These forward looking statements include remarks concerning future developments of the pipeline 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 Anil Amestolta, CEO Walid Abhisab, CMO Pete Wiecherenk, CSO and Bart Filias, COO and CFO.
Anno, Walid and Pete will go through the operational highlights of 2017 and Bart will explain the financial results and give guidance on 2018. Anna will then close with the late stage clinical news flow we expect this year. You will see a PowerPoint presentation on screen during the presentation. We estimate that the talk will take about twenty minutes and will be followed by a Q and A session at the end. At this point, I'd like to hand over to Anno.
Go ahead.
Speaker 2
Thank you, Elizabeth, and thank you for attending the webcast. We clearly had a solid twenty seventeen with delivery in all aspects into the company. So we're very pleased with the results that we can present to you today. If you first look at filgotinib, Gilead and us initiated Phase II trials in eight new indications on top the three that were already ongoing. We also showed very nice DARWIN III results, which is the long term extension study from the DARWIN I and DARWIN II trials that confirmed the profile with respect to activity and safety profile in rheumatoid arthritis.
And we initiated the building of the commercial organization that Galapagos that will prepare Galapagos for the launch of filgotinib in eight European countries. So a good start in that site and that activity, and that will accelerate in 2018, clearly. In IPF idiopathic pulmonary fibrosis, we saw very nice data in a twelve week study where we halted the disease progression in these patients, which gave us a lot of confidence that we have some very interesting molecule that will move into late stage trials in 2018. And on top of that, we announced that we have two other mechanism of actions that will move forward in IPF. So that enables us to build a franchise here of three independent molecules moving forward that on its own or in combination may be a good treatment for this deadly disease.
In cystic fibrosis, we saw good results with our CORRECTOR I inpatient study in the Albatross and Flamingo studies. And we are now preparing to launch our first triple combination study that is our potentiator, CORRECTOR I and CORRECTOR II in a triple in patients called FALCON, which is on track to start this quarter. And we are looking forward to that data set later in the year. But clearly, Galapagos is more than these three indications. We see a continuously expanding pipeline, very nice data in our collaboration with MorphoSys, MOR106, our IL-17C antibody where we showed promising data in atopic dermatitis patients.
And we showed very strong data with regard to a biomarker in osteoarthritis patients with our molecule nineteen seventy two. These are just some of the clinical highlights. We also had a lot of new developments in our preclinical pipeline that hopefully will get to the clinic shortly. If you can go to the next slide, you see our track to get to the market with our molecule and with our organization, where last year showed us our second and third proof of concept with novel targets in patients. This year and next year, we'll continue to show data in the pivotal trials for filgotinib and also expansion of the later stage pipeline.
And that should lead in 2020, 2022 to the introduction of multiple products on the market, starting with filgotinib, but followed with other products from our pipeline. And hopefully, we'll see a number of the early stage program moving forward to late stage development. So a lot is ongoing and can be expected. If we step back and look at filgotinib on the next slide, you see that that is a massive franchise now where we started with rheumatoid arthritis that's expanded in Phase III trials in Crohn's and UC. And then whole range of Phase II trials that were initiated by Galapagos and by Gilead.
And so filgotinib is being tested in this whole range of autoimmune inflammatory diseases and hopefully will lead to a number of indications where this can reach the market. To give you more detail on that, I would love to hand it over to Elit to discuss filgotinib.
Speaker 3
Elit, the floor is yours.
Speaker 4
Thank you, Ono. We have on the next slide, please. We have great ambitions for the filgotinib's profile based on the data generated so far in the Phase II studies in rheumatoid arthritis and in Crohn's disease. We're very excited by filgotinib safety and tolerability profile, which promises to be best in class. We believe this is due to its high selectivity for JAK1.
With data from more than 2,000 patient year exposure to date, we have been consistently impressed by the favorable safety and adverse event profile. We expect to present long term data with up to two years of treatment from the DARWIN-three open label study in the rheumatoid arthritis patients at the upcoming ACR meeting this year. Looking beyond tolerability, the efficacy we observed in the Phase two studies in both RA and Crohn's disease were robust and showed a rapid onset of action and sustained activity over time. As the Phase three program is progressing and reading out over this year and next, we expect that these initial findings will be confirmed and demonstrate filgotinib as a convenient oral once a day monotherapy agent with an excellent safety, efficacy and tolerability attributes. Next slide.
Over the past year, we have made great progress in the FINCH program in RA. This is a robust Phase three program in more than 3,000 patients, three large studies where both the one hundred milligram and two hundred milligram doses are fully being evaluated in methotrexate incomplete responder, methotrexate naive patients and in biologic incomplete responders. Results from the FINCH two study in biological incomplete responders are expected in the second half of this year. In addition, recruitment in the FINCH one study will be completed in the second quarter and the case of FINCH three in the third quarter of this year. Next slide.
Here you see our Phase three program in inflammatory bowel diseases, both UC and CD, which is equally robust with approximately two thousand six hundred patients in total. We expect the results of the interim futility analysis and the Phase twothree selection study in UC to be available in the first half of this year. We also expect recruitment to be complete in the Crohn's Phase three program in the second half of the year as well of next year. Next slide. Here, we see the EQUATOR study.
This is a study that we started last year. It's a proof of concept study in patients with moderate to severe psoriatic arthritis. This is an ongoing study where patients are randomized one to one to either filgotinib two hundred milligram daily or placebo for sixteen weeks. We have approximately 60 patients per arm in this study, where the primary endpoint is the ACR20. EQUATOR is being conducted in eight European countries.
It is fully recruited and we expect top line results in the second quarter of this year. Next slide. This is the second Phase two study we conducted, but in this case, it's in moderate and severe patients with ankylosing spondylitis. The study, which is called Tortuga, is also conducted in eight European countries. Approximately 100 patients per arm will be randomized in a one to one ratio to filgotinib two hundred milligram daily or to placebo and treated for a total of twelve weeks.
The primary endpoint in this study is the ankylosing spondylitis disease activity score, ASDAS. The study is fully recruited and we expect top line results in the second half of the year. Next slide. So moving on to idiopathic pulmonary fibrosis, a lot has happened this past year as you've heard initially from Ono in the introduction. Back in the summer, we announced exciting results from the FLORA study, which showed that GLP-sixteen ninety, a notataxin inhibitor, managed to stop disease progression as evidenced by virtually no change in forced vital capacity after twelve weeks of treatment, whereas patients who were randomized to placebo lost approximately 90 mL, as would be expected in this population over that period of time.
These exciting data, coupled with a very encouraging safety and tolerability profile led us to embark on a registrational program, which we are currently discussing with the FDA and EMA. I'm happy to share that we had a very positive meeting with the FDA a couple of weeks ago. In the next two weeks, we will be meeting with the EMA. I'm quite confident we will be finalizing our program soon after that, at which time we will share with you the details of the design of the studies. You should expect that in March or April timeframe.
Capitalizing on the promise of sixteen ninety, in addition to two other fully proprietary compounds with novel mechanism of action, we decided to build an IPF franchise and develop these compounds and ultimately commercialize them on our own. So in addition to sixteen ninety, we have twelve oh five, which is a GPR84 antagonist. This compound, which is currently in Phase II, will be evaluated in a proof of concept study in IPF later this year. Our third compound is three thousand four hundred ninety nine, which is currently in the IND preparation phase, getting ready to enter Phase one later in the year. Having three compounds with distinct and novel mechanism of action will allow us for combination therapy will allow for combination therapy in this very serious and lethal disease where the high unmet medical need still exists.
And last but not least for my part of discussion today is nineteen seventy two. This is an ADAMTS-five inhibitor, which is being developed in osteoarthritis, an area of large and ever increasing unmet medical need, where no disease modifying agent exists today. We are showing data here from a recently completed study in osteoarthritis patients. In this study, we treated OA patients with three different doses of nineteen seventy two or placebo over a four week period. Similar to what we have seen in healthy subjects and reported before, here we show robust reductions in ARGs levels in the blood.
You see a gradual decrease in ARGs over a period of two weeks, a plateauing, then recovery after treatment is stopped on day twenty nine. You can also appreciate on this slide a good dose response curve, with the highest dose showing a maximum of approximately 55% reduction from baseline and ARGs levels. These data are relevant because ARGs are a byproduct of collagen breakdown, suggesting that treatment with nineteen seventy two could reduce the loss of collagen and have disease modifying properties in osteoarthritis. In order to evaluate this, we are going to conduct a large dose finding Phase 2b study in collaboration with our partner Servier. If positive, this robust study will enable us to move into Phase three development.
And with this, I will now turn the floor to Pete. Thank you, Waleed.
Speaker 5
Let me start with MOR106. So earlier this week at the Dermatology Conference in San Diego, we presented the Phase one data consisting of both an azidine healthy volunteers and multiple ascending dose in patients. So let me remind you IL-17C is a cytokine that is expressed mainly in the epithelia and shows very low systemic levels. So we see it as a local amplifier of ongoing processes. And as a target, it holds a promise to show full efficacy with a very low propensity of systemic side effects.
So the Phase I data, which was shown on the slide as well, impressed both our sales partner MorphoSys and many people in the external world. So we with weekly intervals dosed the patients for four times, the atopic derm patients four times and we saw a very nice efficacy both in terms of magnitude of the efficacies, in terms of number of patients that responded to the therapy and most of all in terms of the length with which the efficacy was maintained after we stopped dosing. So we are quite impressed and working extremely hard to now initiate quite soon a large Phase two IV Dose Ranger study, which will kick off over the coming weeks. We hope to recruit almost 200 patients into that atopic derm study and the results will become available somewhere next year. In parallel to this large IV dose range of study, we will bring as well the subcu form into healthy volunteers first and patients later this year and hope that we can bridge them at the moment when we have the IV data towards a subcu program, which will then be which can then move into Phase three.
So on this slide, we have given the ESAI, which one of the disease course, which are frequently used in the disease atopic derm. And I'm not sure we can say that the compound shows efficacy data, which are on par with the ones of dupilumab, which has been recently approved for this disease. So let's now move to CF, where we've been working for many years in the CF field, have set up a large drug discovery program. We discovered our own series internal series of both of potentiators, C1s and C2s, progressed PCC candidates, backup candidates, all to Phase one. And so 2018 is for us the year of the serious work where we'll have we'll initiate multiple triple studies with different combos.
So our experience up to now, we've been validating and we've reported a number of those data during 2017, where we in smaller study validated the single components in CF patients. And as I said, this year, we will initiate multiple triple studies and we'll have as well the readout of a couple of those studies. But over these recent years, we've built out a nice network global network of both sites and countries and included more than 100 patients in our study. So we feel confident as well that we will be finding the patients and the centers and to execute the plan as we have laid out before. So for the first study that will readout is a Pelican study.
I'll come back to that study later. But so the second triple study, which will start is in fact the 02/1951, 02/1927, 03/30007 study. So we have also named the FALCON study. We did receive MHRA approval and as well approval of the clinical of the CF clinical trial network for this triple combo. And as soon as we now have ethical committee approval, we can start dosing patients in this study.
So this will be the first fully owned triple study, which will kick off. Portfolio as well, we have completed dosing in healthy volunteers of our second triple consisting of 3,672, 22 and 2,737. And we are preparing a large global Phase two dose ranging program that will include both homozygous and head minus patients. So that program will kick off around the mid of the year and will be running on a global basis. But let me now go to the PELECAN study, which is going to be the first study which we'll be leading out.
So in PELECON, we have included homozygotes DELTA-five zero eight patients, which were on a stable regimen of ORKAMBI and stayed on the ORKAMBI regimen. The study was quickly fully recruited. We only opened study in Germany, but could easily find sufficient patients. And so the patients will be on therapy or either on placebo controlled study for four weeks. So top lines will include AVV, sweats and as well if you dose on top of Orkambi and lot of plasma PK measurements and we will report on those.
So we expect to report out this study during Q2 of this year. And this will be the first time that we then can see the efficacy of two thousand seven hundred and thirty seven after C2. And then the next study reading out somewhat later will be the FALCON study with 02/1951, 2222 and 02/1937. But that's it for the CF. And now over to Bart for the financial highlights.
Speaker 3
Thank you, Pete. Let me take you through the financial results for the full year of 2017. And as usual, I will start with a view on our cash position and our cash burn during the year. As you can see on this slide, we've been able to increase our cash position to €1,150,000,000 during the year, driven by, on one hand, a capital increase that we executed in April totaling approximately €350,000,000 There is a currency translation effect in our cash position. This is for as a reminder, this is noncash in the sense that this is translation of our U.
S. Dollar position into euros on the balance sheet. We keep roughly 20% of our cash in dollar terms as a natural hedge against the dollar expenses that we have in some of our programs. Then our operational cash burn consists of two elements. On one hand, there is cash income from milestones, a little bit more than €30,000,000 during the year.
And on the other hand, there is cash expenses, which really are operational spend. The total of the two is a cash burn of 154,000,000 which is in our guidance, which was between 135,000,000 and €155,000,000 I would say that that's a little higher than I anticipated back when we spoke in October, where I anticipated to be a bit in the lower end of the guidance. This is due to the fact that two milestones that we have received or that were accounted for in the fourth quarter on CF were both received in terms of cash in January. And as a result, so we ended up a little bit higher. But on the expense side, it's fully in line with expectations.
So a healthy position on the balance sheet in terms of cash, allowing us execute on the many programs that were described by the team in the previous slides. Then a view on revenues, a little higher than last year, 155,000,000 for the full year. As you know, big component of our revenues is the revenue recognition of the upfront that we received from the Gilead transaction in early twenty sixteen. This is accounted for in proportion to the expenses. So this is also reflecting the increase in expenses around filgotinib and we recognized €72,000,000 in 2017 on the filgotinib franchise.
Fee for service income from our subsidiary Fidelta has increased a little bit and then there's milestones, which is lower than in 2016. As a reminder, in 2016, in the fourth quarter, we had received $60,000,000 in milestones from Gilead connected to the start of our Crohn's and our UC programs in selection and diversity. So corrected for this particular event in 2016, milestones are actually more or less in the same ballpark in 2017, even a little bit higher. Grants and other income is the last component of our revenues. This is to a large extent income that is connected to tax incentives in both Belgium and France and has gone up by €6,000,000 over the year.
Going to operating expenses. As expected and as seen already in previous quarters when we did the previous calls during 2017, we continue to increase our operating expenses line and this is really to the largest extent driven by increase in development expenses, which is again in turn driven by the massive program on filgotinib, but also the successes that we've had in our development programs in Phase II and the investments in the CF program. Then coming to net results. Last year, we booked a profit at the as a net result, which was a little bit driven by or a little bit was completely driven by a one off event, which was this financial asset adjustments that we booked in the 2016. So corrected for this and corrected for the foreign exchange effect, which is largely a translation effect, as I described before.
The operational underlying evolution is really roughly €80,000,000 78,000,000 to be exact negative from 2016 to 2017, which is fully driven then by the operating expenses that I've shown on the previous slides, leading to a net loss in the year 2017 of €115,000,000 Then on a slightly different topic, I'd like to take the opportunity to give you an update on some changes in the Belgian tax regimes that are interesting and also positive for the company. And this is around what's called in the old setting a patent income deduction scheme and now in the new setting is called an innovation income deduction. So there has been a change to this scheme and this is about a deductible, a tax based reduction that the company achieves on income that's connected to patents, which is derived from innovation that has been invested in by Galapagos in the Belgian territory. So this is connected to upfronts, to milestones and to royalties going forward, even if these royalties are embedded royalties as such, so can be also structured as through transfer pricing. So in the old system, we had a deductible of 80% of gross revenues.
In the new system, this percentage has gone up to 85%, which is beneficial for us. At the same time, it's now based on net revenues, meaning that we deduct the actual R and D expenses that are associated to the same program. On a net net basis, by the way, this is favorable for Galapagos. Another major positive change in this new regime is that we're also allowed to carry forward these tax base credits under the new regime. And as of today, we have tax credits carryforwards of €90,000,000 which are not recognized on our balance sheet yet, but will be usable in the future.
On top of the additional €260,000,000 that we have in usual tax losses carryforward. So a €350,000,000 total position of tax losses carryforward, which can be used as well in the future subject to some limitations in size as of the moment when we are going to be profitable. And then in addition to that, the Belgian corporate tax rate is going down 34% in 2016 to a 25% rate in 2020, which is the year when this starts to be becoming relevant for Galapagos. So as a net result, that's, I guess, the key message on this slide, as you can see it here, our effective tax rate, if you do the math, under the new regime is going to be 15%, which is the remaining parts of the revenues after deducting 85% times the 25% of tax rates, resulting in an effective tax rate on these programs of 3.75%, which obviously is favorable for the company. Then a last word on guidance.
Operating cash burn guidance between $220,000,000 and €240,000,000 That's an increase from the 150 and some that we've reached in 2017. This I've announced in previous encounters that this number would go up. Indeed, '18 and 2019 are going to be the years when the filgotinib program reaches its peak, And that's a big driver obviously of this increase. The other big driver of the increase is the start of our late stage trials with 1690, which as we're going to take this forward fully proprietary are also going to be expensed fully proprietary. So there's going to be significant increases on 1690 and then roughly one third left for all other development programs together.
We are going to be executing no less than 13 Phase II or Phase III trials at Galapagos in 2017 in 2018, sorry, explaining this increase in cash burn, which we believe is a good sign of the successes that we've had with our pipeline. And with that, I conclude the financial section and hand it back over to Onno for the outlook for the year.
Speaker 2
Thank you, Bart. Well, this cash burn is increased over 2017. But as you can see on this slide, we are expecting a lot of return for the money being spent. We'll be initiating trials in a number of diseases in IPF, the late stage sixteen ninety trial. We'll also start a Phase II trial in IPF with twelve oh five.
Then we got the triple trials for cystic fibrosis, the osteoarthritis trial 1972, which we are conducting together with Servier, but we are responsible for The U. S. Part of that trial. And we're initiating a full Phase two on MOR106 and atopic dermatitis together with morphosis. We also see POC data of filgotinib in psoriatic arthritis and ankylosing spondylitis and we'll see the data proof of concept data in the of the PELECON and the FALCON trials.
So a lot of data on proof of concept. And even more important, the pivotal data that we're expecting on filgotinib in the FINCH two trial and the decision to move filgotinib in ulcerative colitis to a full Phase III, the gono go decision that will take place this year. And also as already announced by Valeet, we have we're expecting full completion of recruitment for the FINCH one and the FINCH three trials. So a lot of activity there, and you can expect as an investor the news flow regarding these trials in the months to come. With that, I'll hand it back to Elizabeth.
Thank you very much.
Speaker 1
All right. Thank you all. That concludes the presentation part of our call today. I'd now like to ask our operator, Matt, to connect us to any callers who have questions. Go ahead, Matt, explain how to pose a question.
Speaker 0
Certainly. And our first question will come from Brian Abraham with RBC Capital Markets.
Speaker 6
Hey, guys. Thanks very much for taking my questions and congratulations on all the pipeline progress. Couple of questions on 01/2006 and then I had a CF question follow-up. I guess on 01/2006, you presented data recently showing some interesting maintenance of effects post dosing and I think you alluded to it in your prepared remarks as well. I'm wondering if you could speak to sort of what that durability of effects on some of the different endpoints that you looked at might mean for just the overall potential frequency of administration for the drug in the future, whether this represents any changes in the underlying biology that the drug is able to induce?
And really sort of curious as you move into Phase II, your how you hope to elicit differentiation versus some of the later stage programs, I guess, the efficacy and safety side, what are some of the specific trial design elements that might be incorporated to show that?
Speaker 5
Thank you, Brian for this question. Indeed, as I said during the presentation, we but also many others were impressed by the maintenance of efficacy post dosing. What it typically means is that at least that we are probably dosing at the high or we have been dosing at the higher end of the dose range because if after dosing the efficacy goes away immediately, clearly shows that you're within your dose response and often is not approved, but often when your efficacy is maintained over a longer period of time can mean that you saturate your target and that it's time for the drug to come off. In this study, indeed, we dosed once weekly. And so in the Phase 2a dose ranging study, we'll give the design when finally approved, but we explore dosing every two weeks and every four weeks.
So we really don't anticipate that we will have to dose weekly. And in order to become competitive with current medications for atopic derm and with the medications which are in development. We hope we can get it to a once a month and but once every two weeks should be really feasible as well. Differentiation, the first Phase two dosing is mainly a dose ranger. So where we want to explore one, the magnitude of efficacy, how frequently do we need to dose, what is the optimal dose.
We will launch a couple of other smaller studies as well to probe more the differentiation, but they will launch later and in parallel and we will comment on those when we open those studies. Thank you.
Speaker 6
That's very helpful. And then maybe just shifting gears to the CF program and the FALCON study, the triple study. Wondering if you could provide any more clarity on sort of the potential trial design there, whether you'll be looking at the types of patients you'll be looking at perhaps duration, whether we should be looking for interim data maybe from the dual run-in or from the triple around the middle of this year? And then you mentioned that two you had sign offs from I guess two of three organizations on the start of that study. Any additional kind of rate limiting steps or gating factors to getting the final approval to initiate that study?
What are the next steps there? And I'll hop back in the queue. Thanks.
Speaker 5
So FALCON will be a proof of concept study with this first triple design. We'll be dosing for four weeks of triple both homozygous and in the study as well, we will include head minus patients. But if we as long as we don't have the final sign off of everybody, again, is not started and online officially. So we will comment on the full design, but we are executing as I said according to the plan and we should have the top line data of the first cohorts around the mid of the year. So that is that's well planned for.
Speaker 7
Anything else? Thanks.
Speaker 4
Yes.
Speaker 0
And we will now hear from Anastasia Karpova with Kempen.
Speaker 8
Good afternoon. And two questions on IPF and a general one Given on the that there are two late stage compounds going into late stage trials in pulmonary fibrosis, do you see any challenges in recruitment for your late stage trial? Furthermore, the competitive compounds have at least some safety data in combination with standard of care by either in entadanib and prefernodon while that was not explored in FLORA and if that is any impediment or a delay for your Phase three trial? And finally, on 12/2005, how do you see it positioned alongside sixteen nineteen? And mechanistically, do you see any potential synergies in targeting GPR84 and out of action simultaneously?
And maybe the final one on the general pipeline, the thirteenth Phase II trial that you are guiding this year, do they only include the compounds that are currently listed in the presentation? Or shall we also expect additional drugs coming out of the woodwork?
Speaker 4
Okay, Anastasia. Thank you. This is Walid. I'll take your question. With regard to recruitment, we've conducted our feasibility and also in talking to major KOLs across The U.
S. And Europe and actually the rest of the world, we were getting a very positive response to the profile that we've seen with our compound. So based on what we know today, I don't expect any difficulties in recruitment. I understand this is a competitive field and obviously this is a rare disease. But so far the response we've got is positive and we feel quite positive about our ability to move this forward.
With regard to 12/2005, we will be conducting our Phase II study now and then we will, based on these data, be able to decide the performance of the drug, how does it compare to 1690 and opportunities to mix together. But at the same time, as you can imagine, as we have heavily invested in this space from a biological standpoint to understand this, we are doing our preclinical work to evaluate models by which we can predict whether combination of these two medicines could lead to improved efficacy. This is definitely something on radar screen. With regard to the pipeline question around the trials, the ones that you've seen are from the pipeline that we have shared with you, at least the molecules that we have shared with you in our pipelines. I'm not sure if I missed any of your questions, but I think I've Yes. Covered them
Speaker 8
safety with standard of care for 06/2019. And if you would need to do an healthy volunteers trials or safety run ins in the late stage trials?
Speaker 4
I can say that we do not have to do any additional trials before we start our late stage program.
Speaker 8
Thanks a lot.
Speaker 4
Thank you.
Speaker 0
And our next question will come from Adam Walsh with Stifel.
Speaker 9
Hi, this is Adam and John on for Adam. Thanks for taking my questions. First, congrats on all your progress in the year 2017. I have also a question on RTF. Now you have three assets and it allows you for potential combination study.
So could you please provide any additional comments on the rationale for combo study? What have you learned so far from these three drugs in terms of MOE or any data that make you think a combo will be better compared to a monotherapy?
Speaker 4
Maybe so maybe this is Walid. I'll take the first part of it and then I'll turn it over to Pete to talk a little bit more about the mechanism. I mean, think in this disease, which is very serious and lethal, we are seeing also from the guidance from the agency that there's very interest to add treatment on top of standard of care to be able to achieve the efficacy. There's been some data reported in small trials combining nintellenib and parfanidone together, where there's some semblance of increased efficacy when you combine the two. Obviously, the study was not powered for that and it was small.
But again, those encouraging data that combining treatment could lead to improved efficacy. If you've seen also some data that were shared from the proMETYK compound as well on top of nintinib, at least they do see some improvement effects. So there is some initial clinical data that suggests combining different mechanism of actions together could lead to an improvement. And it's certainly in this disease where there's a high unmet medical need, this is highly needed and desired. So from that perspective, I think there's good rationale to go forward.
So and then I'll turn to Pete with regard to mechanism of actions and the work we've been doing here.
Speaker 5
So in the IPF field, have one of the first compound is anthotaxin, the second is GPR84 antagonist, the third we didn't disclose yet. And but in principle, they tackle the disease from a complete different angle, all three of them. We are looking very hard now to see in which models we can find sufficient window to test also either in vivo, either in vivo, how good combination will perform versus monotherapy. But for example, the bleomycin is not a very suitable model to do that because of a very limited window. So as part of the full development this year, we will do many of the combo studies preclinically and this will be a combination both of in vitro work and in vivo work.
And hopefully, by the end of the year, can show nice data why certain combos might make more sense than others. But in general, the trend in the field is still this is a lethal disease, let's intensify treatment. And there is not a request yet to show in fact that the combination works much, much better than single compounds. But we will report on those compounds to this over the coming months this year. Thank you.
Speaker 9
Since 1690 trial is much more advanced, is twelve oh five or 3,499 going to be studied only for add on to sixteen ninety? Is that the case? Thank you.
Speaker 4
I think it's a bit premature to answer you, to be honest. We are internally discussing this and also taking into consideration the feedback we're receiving from the health authorities regarding sixteen ninety. Good question. Maybe we'll be in a better position to answer it next time we talk.
Speaker 9
All right. Thank you.
Speaker 0
And now we will go to Peter Welford with Jefferies.
Speaker 7
Hi, yes. Thanks for taking my questions. On CF, first of all, I wondered if you could just talk about the FALCON study, whether or not we should still be anticipating a lead in with the doublet and then going to a triple and whether you can talk about at all the dosing that you're considering with the different components? Also then on the second triple, have you filed your INDs for 2737 or 03/1967? I know 02/22, I think, has an IND.
But just wondering about 2737 and 03/1967. I presume we will need those before we can start then the global Phase two. And then given Bart's on the call, a couple of financial ones. First of all, on the tax, always a wonderful topic, but just to understand the filgotinib tax. Given the European co promote that you have, how should we think about the tax rate for filgotinib?
Is that going to impact how we should book the profits through the P and L given presumably some of that can't be classified as income deduction or can it? And then also on the R and D cap for filgotinib, are we anywhere near reaching that cap such that we should be thinking of knocking off future milestones from Gilead? Or are you still tracking below the cap at the present and therefore we don't need to worry about that? You.
Speaker 3
So I take those first, Peter, and then I'll hand it over to Pete to give you the feedback on the CF questions. So first of all, the co promote and this and those financial flows, basically the way the tax authorities look at this is that embedded royalties, so royalties that would actually be at arm's length between different subsidiaries would also qualify under the IID. So the co promote will lead basically to a similar type of IID benefits than a normal royalty stream. Obviously, everything in excess in terms of profits that comes on top of that would not qualify for the IID. And the second question on the cap, we do indeed have a cap on the contribution to the tucatinib expenses.
Currently, we anticipate we're still tracking below that cap clearly, and we anticipate that we'll do the year 2018 and 2019 still within the cap. But once we get to the later quarters of 2019 or early twenty twenty, we'll be we will have reached the cap levels, Peter. And to Pete for CF?
Speaker 5
Yes. Okay. Bart, thank you. So for the FALCON study, in fact, every Phase II study, we will kick off with a triple combination. We'll have a dual lead in.
That is the current plan that we first do a couple of weeks, dual lead in and then bring a third component on top so to see the incremental efficacy triggered by the third component. On the INDs, indeed, we have 2,222 open. But to start in The U. S, we are in the process of filing a 3,067 IND. And so the 2,737 open IND will be part of that launch of that triple study in The U.
S. We've agreed with FDA on that principle. So there is no need to first do another study and then we have to wait for the data of that study. We've discussed with them and our anticipation is currently that we will open IND 2,737 as start of that triple study and before that have opened at 3,067. Thank you.
Speaker 10
That's great. Sorry, could I just come back to the tax? Just so
Speaker 7
I can understand. So are you saying that some of the European co promote profits will fall outside the IID, just to be clear? So I understand the embedded royalties comment, but you're saying not all of the European co promote can be classified as IID. Is that what you're saying?
Speaker 3
No, it's very nuanced. But basically, what I'm trying to say is that everything that is in terms of economics at the bottom end of the P and L comparable to royalties would be qualifying under the IID. But if there will be excess profits, it would not qualify under the IID. Only to the extent that the co promote delivers a higher profit, it would not be IID.
Speaker 0
And our next question will come from Phil Nadeau with Cowen and Company.
Speaker 11
Good morning. Thanks for taking my questions. A couple on the upcoming results. Just first on the PELICON result that we're going to get in the second quarter. Can you give us some sense of what you would consider proof of concept being achieved in that trial?
I believe in the recent data released by Vertex for tizacaftor plus ivacaftor and its triples in homozygous patients, saw like a seven percent to nine percent improvement in FEV1. Is that the bar that we should be thinking of? Or are there other factors that we should consider when looking at the Pelican data?
Speaker 5
Thank you, Phil, for asking me predict the optimal of our studies. It's the first time we dosed twenty seven percent, thirty seven percent. So I don't think we're going to put the bar up thirteen percent of ABB, where I think everything which come close to that is a success. Don't forget, it is a complicated trial in terms of drug interactions. In principle, are comfortable that we should keep sufficient 2,737 on board in view of how it's stabilized.
But we will see the time when we can bring the data will mainly depend on all of the PK studies, all the PK measurements that we have included and that we will need to analyze. So it's clear that anything below five percent is a failure, I would say. And then between five percent and thirteen percent, I think you will would be a sign of a good efficacy.
Speaker 11
Got it. That's very helpful. Then second question on filgotinib and psoriatic arthritis, basically the same question. For Xeljanz, we've seen about a twenty percent to thirty percent improvement in ACR20, although that data I believe is twelve week data, not sixteen week data. So when we look at filgotinib in psoriatic arthritis, is that twenty percent to thirty percent ACR twenty increment above placebo generally what we should have in mind?
Or are there other complicating factors in that and interpreting that data as well?
Speaker 4
I think the data, the study design is fairly straightforward. So I don't think there are complicating factors in interpreting it. I think the target that you set is a good place to start with. We're hoping we would do better than that. But again, we are waiting eagerly to see the results.
Speaker 11
Great. And then one last question for me. On the second CF triple, I noticed in your twenty eighteen milestone charts, there wasn't a mention of the data from that second CF triple reading out this year. Was that an emission or is that data actually expected in kind of early twenty nineteen?
Speaker 5
Well, it's a quite large study where we do the full combination as well. So it probably will be early twenty nineteen, but we hope that we can recruit as fast as we can and we'll see where we come out.
Speaker 11
Great. Thanks for taking my questions and congratulations on the progress.
Speaker 12
Thank you.
Speaker 0
And we will now hear from Matthew Harrison with Morgan Stanley.
Speaker 10
Hi, everyone. This is Vikram on for Matthew. So I had two questions from our side, one on IPF and then one on CF. So on IPF, not sure if you're ready or willing to talk about this, but for when you get into the pivotal studies, do you think you'll be needing to run studies versus placebo or on top of standard of care? And then on CF, it wasn't clear to me exactly what's pending with the discussions with regulators to start the FALCON study?
And if you can comment on any kind of monitoring that may have been put in place for the long lived metabolite you saw earlier, that would be helpful. Thanks.
Speaker 4
Vikram. This is Walid. I'll respond to the IPF question. So what we are prepared to say today is that we had a very productive meeting with the FDA a couple of weeks ago. And we have also received initial feedback from EMA with whom we will be meeting the March.
So the feedback from both agencies is consistent. I'm quite confident that we will finalize the study design soon after the EMA meeting. And then at that time, we will be able to get into more details about the design of the trials. So as I said, we should expect to hear back from us in the March, April timeframe around these.
Speaker 5
Okay. On the FALCON study, so we got approval from MHRA. So we also got an approval from the CF, European Clinical Trial Network, that thinks it's a very important study to be run-in their centers. And so as I said during the call, we are waiting for the Ethical Committee approval now. And there was also a question on the monitoring for the long lived metabolites.
So we will follow-up the patients and we have an idea on the watch out. We'll PK our sample for PK patients after they stopped the medication and we'll follow-up them as long as we can see plasma levels. Thank you.
Speaker 10
Thank you.
Speaker 0
And our next question will come from Christopher Marai with Nomura Instinet.
Speaker 12
Hi, this is Alan Chia on for Christopher Murai. Thanks for taking my questions. I just have a couple of questions regarding nineteen seventy two and OA. First, regarding the recent Phase 1b data, were there any differences in the biomarker reduction between patients with OA of the hip, knee or other regions? Maybe more broadly, do you see any particular activity or limiting factors that may limit the addressable population?
Like the one discontinued patient in the high dose cohort, was he on any concurrent symptomatic treatment? Secondly, I know it may be a bit early, but can you talk about the efficacy endpoints under consideration for the Phase II trial? Like are we looking at Western Ontario, McMaster, Wake? Conceptually, can you discuss how the biomarker reduction could be correlated to functional outcomes? And what kind of treatment duration we should expect before functional outcomes improve?
And lastly, any milestones attached to the planned Phase II trial?
Speaker 4
Okay. Thanks, Alan. So again, it's Walid. So in terms of the study results, mean, you've seen the study is sort of small number of subjects per arm. Our goal was to look at the change in ARGs in the blood for that.
The N was sufficiently ample to see the very tight error bars actually on the slides that we shared with you. But that doesn't allow us at all to look at subtypes of patients or people who are hip versus knee OA. But you can tell by how tight these data are that there's no difference really between the patients. And as well, these data are very consistent with the healthy subjects as well data in terms of magnitude effect and changes over time. So I'm pretty confident that our target engagement and subsequent reduction in ARGs is consistent in human beings in general.
In terms of study design, we will be in a better place to describe that study in more details once approved and ready to go forward. It should be a matter of months from now. But you should expect a trial that's long, I'm talking about a year. The endpoints are going to be the typical endpoints that you look at from imaging using MRI, but also looking at X-ray and using the functional endpoints that you mentioned, Womack and other key endpoints. In terms of correlation between the changes between ARGs and the functional effects, it's I expect them to be good.
That's why we're doing the trial, but I guess it will remain to be seen. Maybe I can ask Bart to comment on the milestones, please.
Speaker 3
Yes. Sure, Walid. So the milestones are not significant. There are some milestones, but it's very smallish. The real value for us in the program clearly is that we have The U.
S. Rights for this molecule and Servier has the rights for the rest of the world. And we'll be running the trial So together with our partner, we will be running the part in The U. S. So milestones are there, but it's not significant.
Speaker 1
Thanks, Alan, and thanks everybody who's asked questions today. I'm afraid we've run out of time. This was our last question. I would say we've had some really good ones today. Paul Van de Horst over in Europe and I, Elizabeth Goodwin over here in The States are available to take any questions that you were not able to post today, anything else that's come up.
Please contact us. Please also look for publication of our Annual Report 2017 on or around March 23. We thank all the audience members, all the people who've called in for your support and your participation today. Take care and we'll speak again soon. Bye.