Galapagos - Earnings Call - Q4 2019
February 21, 2020
Transcript
Speaker 0
Good day, and welcome to the Galapagos Full Year twenty nineteen Results Webcast and Conference Call. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead.
Speaker 1
You and welcome all to the audio webcast of Galapagos' full year twenty nineteen results. I'm Elizabeth Goodwin, Investor Relations. This recorded webcast will be 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 one of the telephone numbers given in last night's press release. Here's the one for Belgium, 32240659, and the code is 800000371984.
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 Anna van der Stolpe, CEO and Bart Filius, COO and CFO. Anna will go through the operational highlights and Bart will explain the financial results and we'll end with the expected future news flow.
You will see a PowerPoint presentation on screen. We estimate that this presentation will take no more than about fifteen minutes and then we'll open up the call to a Q and A session including Bart and Anno who will be joined by Walid Abhisab, CMO Pete Wiegherink, CSO and Michele Manto, Chief Commercial Officer. And with that I would now like to hand over to Anno. Please go ahead.
Speaker 2
Thank you, Elizabeth. Good morning, good afternoon. What a fantastic year we have had. Our anniversary year, twenty years, has been a hallmark year for the company. We saw fantastic great clinical progress in our programs, exciting research results and a substantial growth of the organization.
But our real hallmark moment of the year was the announcement of the strategic alliance with Gilead for a ten year period. You see here on the slides the data on that alliance. For us, it's very important that we now have a ten year independent future as a company where we can build out into a global leader in this sector. Gilead obtained an option to license in programs after Phase 2b for the whole world except for Europe. In Europe we will build our own commercial organization.
They paid us an upfront of almost $4,000,000,000 They paid $1,500,000,000 as an equity investment to get up to 25% of stock in Galapagos. And we made a very nice option arrangement where when they license in a program, they pay us a milestone and they pay us royalties between 2024%. This deal is unique in the life sciences and it's really a science related deal. We are jointly going to work on new mode of actions that we're going to move to the clinic as fast as possible. Galapagos is in the lead in any therapeutic area that we choose up to the end of Phase II after which Gilead has the option to opt in and after that it's a joint program.
We are very, very excited about it. We believe this will greatly accelerate our programs and help to build a pipeline for Gilead, but really for us to build first a European organization and in the end a global organization to market our new mode of actions. So if we look at the pipeline development, we saw really good progress in all the programs. Of course with filgotinib, we saw the FINCH one and three data in rheumatoid arthritis, which really supports the potential best in class profile of the filgotinib molecule. Based on the FINCH data, submitted, or Gilead submitted for approval in Europe, U.
S. And Japan. And so in The U. S. And Europe, we expect filgotinib to be entered into the market after the summer.
We also initiated with Gilead the Phase III program in psoriatic arthritis, the penguin program. But we also saw a lot of other progress in other programs. In osteoarthritis, the RUCELA trial was fully recruited and we are expecting readout in the second half of this year. Same with the NOVEYSA sixteen ninety trial in systemic sclerosis, we are expecting the readout in the second half of this year. This program is the second indication for sixteen ninety after IPF, the program that is ongoing, so really expanding the opportunity for this molecule.
And in IPF we saw the second molecule in Phase II, twelve oh five, going into the PINTA trial, of which we're also expecting the results in the second half. ISABELA, the Phase III program in 1690 is going extremely well. The recruitment at the end of the year we had over 600 patients recruited already and we're on track to reach full recruitment near the end of this year. And then our Toledo program, the program with the code name Toledo of which we will give more information after the summer. We are moving forward with a number of different molecules, and actually the first two molecules hit the clinic last year, three thousand three hundred twelve and three thousand nine hundred seventy.
We're very excited about that program. And of course there's much more behind this. We're seeing a very nice progression in the research activities. And you can expect significant news flow in 2020. So filgotinib, if you look at the pipeline now, clearly has reached the point of approval, but many different disease indications are being tested.
Look at IPF and fibrosis where we have multiple programs in research, phase one, phase two. In osteoarthritis, the 1972 program, we're waiting for the outcome, but we also initiated research activities there that hopefully going to bring multiple molecules for OA also into the clinic. Toledo already discussed it in a number of different programs and then in the research in various different research areas we have over 30 programs. A very exciting pipeline that we're extremely proud about. If we go to the next slide, look at our commercial organization buildup.
Last year we have made very good progress in building a commercial organization in Holland and Belgium and France, Italy and Spain. And we are completing that commercial organization in the coming months to be prepared for the launch of filgotinib in rheumatoid arthritis. So that is our first step into commercialization. Then when filgotinib is hopefully getting approved in ulcerative colitis in 'twenty one, we will market filgotinib for that area in The Benelux as well as in England and The UK and Germany. So we do a stepwise approach in building the commercial organization and that should then be followed up hopefully with 1619 IPF where we are going to market all over Europe, but that will be beyond 2022.
So that is how we are moving forward in the commercial activities. And with that, I would like to hand it over to Bart to talk about the financials. Bart?
Speaker 3
Thank you, Arnaud, and good morning, everyone, in The U. S. Good afternoon for those listening in here in Europe. A pleasure to give some color to the financials as well as give some perspective on what the year 2020 is going to bring us both in terms of numbers and in terms of scientific activities. As you can see here on the first slide, let's start off with what we believe still is the most important KPI for Galapagos, which is the cash position.
And we've ended the year, as you have seen, with a very strong cash position of €5,800,000,000 It's called cash and current financial investments. So some of these are invested in short term money market funds, hence qualification current financial investments here. Some smaller items that are as usual excluded from the cash burn definition itself are the cash proceeds from warrant exercises and some currency translation effects. But then we get into the more meaningful elements that have given rise to the increase in the cash balance during 2019. First of all, as Alain was pointing out, the investments by Gilead in terms of equity in the company.
These are all euro denominated, so €1,300,000,000 And then the actual cash flow consists of two buckets. On one hand, there is the cash flow from the upfront from Gilead in euros that's a net of €3,500,000,000 And then the remainder and for transparency purposes, we've taken a separation of the two as I've done also in the third quarter reporting because our guidance was focusing on the cash burn excluding the income from Gilead collaboration. And we've landed that number at €334,000,000 within the range that we were guiding for throughout the year of $320,000,000 to $3.40 So a very healthy balance sheet position that we have to invest in future years into our R and D platform. I would understand that the accounting of the transaction is a bit complex, and I've explained and clarified some of this as part of the Q3 results. But let me reiterate a couple of points there as well, and let's first start with the upfront the allocation of the upfront transaction price.
So we started off with about $4,000,000,000 in euros translated at €3,500,000,000 There is some accounting for the equity investments that Gilead has put into Galapagos, most notably the premium of €85,000,000 on the shares, which would also go into our deferred income total. And then on the other hand, there was a set of warrants that we've given as part of this transaction to Gilead, one to get to the 25% level and a second one to get to the 29.9% level. And that is basically resulting in a liability of about €60,000,000 which is again a decrease of the total purchase price that we need to allocate. So that gives us €3,600,000,000 of purchase price to be allocated. Three key components therein: first of all, in terms of immediate recognition, the license that Gilead has taken on 1690 is there for €667,000,000 And then the two others are actually going to be recognized over the next years.
First of all, filgotinib. For filgotinib, we have allocated €640,000,000 and this will be recognized as long as the, let's say, development plan of filgotinib is still active. So as long as we're still involved in participating in those expenses. And we estimate this to be for a period of four to five years, given all the other indications that we're working on with filgotinib. So this recognition will be over the next years in function of the completion of that development program.
And then the remainder, about €2,300,000,000 is allocated to the rest of our platform, rest of our R and D activities. And we'll recognize this linearly over the next ten years. So you would expect every year to find €230,000,000 of this in our top line in our P and L numbers. Overall, at this moment, we have about €3,000,000,000 of deferred income on our balance sheet. So the €3,000,000,000 is still to be recognized over the next ten years.
Then let me get to the full year results themselves. And here as well, I've broken out both the results as reported on the far right and in orange, the impact of the Gilead collaboration, and I'll do a deep dive on that orange part in a second. But as we reported, we are reporting a profit this year with €150,000,000 of net results, and we are reporting a top line of close to €900,000,000 If we do a deep dive actually on the next slide, on the orange column, you see the various numbers that are a result of the Gilead collaboration. And first of all, in revenues, the big impact there is the recognition, as I just pointed out, on 1690, euros $667,000,000 that we recognized in 2019 in one shot. Then there is some movements on the remainder.
On filgotinib, it's actually a negative, which might sound little bit awkward, but this is because we are combining the twenty fifteen agreement that we had with Gilead on filgotinib with the current agreements on filgotinib, and we're reassessing the overall completion, and that led to some derecognition of previous, upfront and milestones from the 2015 agreement. So that's a negative, onetime negative in 2019. And as I was just pointing out, we'll be recognizing filgotinib deferred income over the next four to five years. And then the platform itself for the four months that we had the deal closed, we've recognized €81,000,000 on the platform. Operating expenses is a smaller adjustment there, but the two key components are, on one hand, that we're sharing now cost for 16 90, fifty-fifty.
So that is actually a positive of €18,000,000 On the other hand, for filgotinib, we went from 20% to 50% of cost share and that's in a negative of €33,000,000 Bonuses and fees has also had a negative effect of total of €23,000,000 on the operating expenses. And then the last is on financial results, and this is all related to derivative accounting and FX accounting, which is to a large extent non cash. And I already reported that also back in the Q3 webcast. We are recognizing derivative accounting negative of €140,000,000 connected to the evolution of the share price of Galapagos between the signing of the deal and the closing of the deal. And the other €40,000,000 are recognition of the evolution of the Galapagos share price between the approval of the warrants at the AGM in October and the actual exercise that Gilead has done in the month of November.
So it's all accounting non cash related, but this is the way to appropriately account for both those instruments and are both the result of an increase of the Galapagos share price. Then on FX, euros 58,000,000 of this €35,000,000 is realized FX and the remainder is non realized on the dollar position that we maintain after the Gilead collaboration. And the realized FX basically represents the slight strengthening. It's basically $1.12 to $1.11 of the dollar on the euro between signing and closing of the deal over summer and was already reported in our nine months data. So overall, we see a lot of impact from the Gilead collaboration.
I'm happy to take any questions on this if useful either during the webcast or later on as well. Then let me move to the operating cash burn look out for 2020. We're guiding for a cash burn between €420,000,000 and €450,000,000 This basically is an increase compared to the $334,000,000 that I was mentioning in 2019, but it also includes an estimated milestone of $200,000,000 or I should say milestones because it's multiple estimated 200,000,000 of milestones upon approval in RA for filgotinib in The U. S, Europe and Japan. So actually, the underlying cash burn is increasing more than just €100,000,000 compared to the 2019 number that I just presented.
And there is really three key components to highlight here. Two are connected to research and development and one is connected to the commercial launch. Research and development costs, we anticipate for the year 2020 to be increasing between 3540% on a P and L basis, which is actually a similar percentage as we've done in 2019 vis a vis 2018 as well. And therein, there is two elements. One is mechanical, that's the filgotinib cost share that's going up from 20% to 50%.
So as a result of that, obviously, we are increasing our R and D spends on filgotinib. And the other one is through investments in or through additional investments, I should say, in discovery and early development. And finally, the third bucket of that's driving the increase in cash burn is the preparation for the commercial launch in SG and A expenses, which is obviously ramping up now as we are getting ourselves ready for launch in EU5 and the Benelux. Then if I go to the next slide, I'll pass on the financials and I'll move to the more qualitative elements of 2020. And the thing to highlight, and Ono mentioned that already, is the significant number of data readouts that we're going to be having during 2020.
We're actually expecting no less than five patient data sets during the year to start off with ulcerative colitis filgotinib in Phase which will come in the second quarter. And then in the second half of this year, we anticipate the results of the PINTA study, the NOVESSA study, the ROCCELLA study and finally also our first patient data sets on Toledo. The activity level in 2020 is increasing significantly. We are anticipating to be executing over 80 clinical trials in 2020 on more than 10 different molecules. So this includes Phase I, Phase II, Phase III plus supporting clinical trials to all of the molecules that we have in our rich pipeline.
And then finally, and certainly least but not last but not least, expected approvals for filgotinib in RA in U. S, Europe and Japan will make this also a transformational year again 2020 for Galapagos. Let me close with that and open the floor to questions.
Speaker 1
Thank you very much, Bart. That does conclude the presentation part. We are going to open up the line now to callers. We don't manage the queue at Galapagos, so I do ask that everyone limit themselves to one question to give everyone an opportunity to ask. So with that, Elaine, our operator, can explain what the procedure is to pose a question over the phone.
Go ahead, Elaine.
Speaker 0
Thank you, Elizabeth. We will take our first question from Dan Leone from Raymond James. Please go ahead.
Speaker 4
Hi, thank you very much and congrats on a stellar year. I just wanted to get some more color in terms of some of the readouts that were coming up. Could you just provide a bit more around what depth and detail we would expect from the ulcerative colitis program as it reads out? And I guess I'll just leave one follow-up. Can you provide a little bit more out of what we would see around the Toledo program this year?
You said you would give more color in the second half of the year. But I guess, what are you hoping to entail? Or what type of unveil would that actually look like? You.
Speaker 5
Dan, this is Walid. I will take your question on filgotinib. So as usual, we and Gilead have been or actually Gilead has been leading this. The way that we disclose top line on our Phase III trials is to give the high level picture for efficacy, but also the key safety elements, and I think that's what we should be expecting. And then the details of this will be shared at an upcoming scientific meeting.
And with that, I'll turn over to Pete.
Speaker 6
Thank you, Arit. Hey, Dan. Thanks for the questions. So for the Toledo program, '20 is an important year. We have an extremely ambitious program to run.
So and that will include the selection of next PCCs and typically we plan for more than one to start of Phase one for April. And then we plan as well to generate patients data. So we have two assets there running, both 3312 and 03/1970. And when we present or around the moment when we present the first patient data, we as well plan to disclose the target to the public. So that's what we have on the agenda for Toledo this year.
Thank you.
Speaker 7
Thank you.
Speaker 0
We will take our next question from Rishi Jalali from Bernstein. Please go ahead.
Speaker 8
Hi, Rishi Jalali, Bernstein. So on Silgo, we're going to see the UC data in 2Q and Crohn's next year. So would you be able to talk through what you consider your internal bar for success to be in each indication? But also how you think of potential positioning with respect to the TNF and also Entyvio? Thanks.
Speaker 5
I don't know if Michele, you want to take the positioning part, and I'll take on the first part.
Speaker 9
Yes, that's okay, David.
Speaker 5
Yes. I mean, I think for us, as you know, we do not have any data with filgotinib in UC. However, we have data in Crohn's. But also we have seen how other JAK1s have performed in UC and also how they performed in other inflammatory indications like RA, PSA and AS. And if you look at the totality of the data that we have so far from Phase II and also from Phase III with filgotinib, you can expect what level of efficacy you would see that would be on top of the range when it comes to the JAKs that are being tested in that space and safety to be best in class, which is what we have seen so far.
So we expect that those would be the type of data that we will see in UC by sort of pegging this on performance and other indications, particularly also with corona. We have very good data with Fitzroy. And with that, I'll turn it over to Michele for positioning.
Speaker 9
Yes. So thank you for the question. So in UC, there is still a high unmet need. So we have one out of eight patients that are already treated with advanced treatment. So there's clear need there.
And as Valid indicated, so there are still questions to be addressed with the readouts. But with the profile, we can see that some of these unmet needs can be addressed with a drug like the potential of filgotinib. So on the durability of response, the safety profile, the quick onset of action, these are all needs that the patients have in UC. And we are really comfortable that we'll have a good very good opportunity there.
Speaker 10
Thank you very much. We
Speaker 0
will now move to Christopher Marre from Nomura Instinet. Please go ahead.
Speaker 11
Hi, thanks for the question. Just with respect to your IPF programs, could you elaborate on the type of update we might get from the futility analysis for 1690 in IPF. Will this be efficacy based only, or
Speaker 2
will we also get some sense
Speaker 12
of
Speaker 11
safety? And then just remind us of the duration of exposure that patients will have had to sixteen ninety at the time of the futility analysis, know, like what duration they've been exposed to the drug? And then secondarily, with respect to your PINTA program in IPF, how does this asset compare to other GPR84 programs out there? And then how would you look at potential combinations with sixteen ninety and or running one program versus another based on success? Would you continue both programs?
Thank you.
Speaker 5
All right. Thanks, Chris. Let me tackle the first part of the question. So with the futility, actually, what we will be sharing is just simply whether it's a go or a no go. Just to remind you, this program is a program with 1,500 patients where the primary endpoint is after fifty two weeks of treatment.
However, patients will continue on whatever drug they were randomized to, placebo or active, until the last patient finishes the fifty two weeks. By the time we will have the cutoff for the futility, I think we have about a third of the patients who would have been exposed to fifty two weeks, and probably the majority, if not all the patients, would have been recruited in the trial. It's hard for me to guess exactly the duration of exposure, but, you know, you can look at when we started, which was earlier this year earlier last year, I should say, we're in 2020 now and kind of guess a little bit
Speaker 2
of where we would be.
Speaker 5
We also, just from a safety perspective, because I think you asked a bit of a question on that, on a regular basis, we've been looking at a safety us on a blinded way, but the external data monitoring committee in an unblinded manner. And on a regular basis, we've been getting, of course, the thumbs up, keep going the way it is, and we don't have any safety signal. So I think I hope I answered all of your pieces around Isabella program. And I'll let Pete tackle the question on PIMTA.
Speaker 6
Okay. Thanks for the question and allowing me to shed some light on the twelve oh five. Twelve oh five is our small molecule GPR84 antagonist, which we developed indeed in Phase II for IPF. You asked to compare to other GPR84, so I assume you want to compare GPDG-twelve
Speaker 5
oh
Speaker 6
five with the Promethic compound PBI, where it's forty-fifty, I believe. We tried our best and it's roughly impossible to on a scientific level compared the two of their quite different agents. So twelve oh five is a nanomolar antagonist of GPR84. The Prometic is a micromolar compound acting on GPR84 that's quite clear whether it's an antagonist or an agonist, we could not figure out in our assays. Our assays are not fitted to have a clear sensitive measurement on agonist versus antagonist.
It's also a dual compound, has dual mechanism of action. So it's very hard and frustrating also for us, but also for you to understand that to compare those two compounds at face value because it is not a single assay where both show a result. So that is for the competitors. Combining with 6,019 is a great question. So as you know, we have a plan to really play big in IPF.
We really believe patients deserve much better treatment than the one currently out there and probably will need to build up a cocktails with one compound after the other. So indeed, it's in our mind if the data twelve oh five are as good as we hope that at a certain stage, we can go and combine it with 06/1990. But there is no actual study in the planning currently, because we probably first will wait the Phase three data of 1690 before we start on a combination study. Having said that, as soon as we have the data and 12/2005 is good, we'll do whatever is needed and best to bring to the market and patients as quickly as we can. Thank you.
Speaker 9
Thank you.
Speaker 0
We'll take our next question from James Quigley from JPMorgan.
Speaker 13
Hi, thanks for taking my questions. One for Michel really. On the commercial build out of the teams, how are you progressing and how are you leveraging the Gilead sales force and the Gilead influence? And is there anything that you haven't got or that you need to sort of to progress and to move forward in order to be competitive versus AbbVie? And I'd also love to get your view on the class black box warning and how this could affect the uptake across the inflammatory conditions?
Speaker 9
Yes. Thank you for the question. I'll address the first point on the commercial buildup on that. I'd say I'm really pleased with the progression that we are having on the buildup on our European commercial organization. And we are really attracting and keep attracting strong talent with deep expertise in the field in array in inflammation in the countries at the international level.
So with knowledge of the scientific community, the payers' environment, the competitive arena, and that's progressing very well. So that we'll be ready for the approval and then the reimbursement processes, the registration, the pre launch activities. And we are doing that, of course, as Galapagos because we want to build our commercial footprint, as Onno illustrated at the beginning. And we are doing together with Gilead, which is also a big opportunity to put resources together also the different type of companies we are as a biotech and a very established strong organization as Gilead is in the country, so that there's a lot of synergies and common learnings we can have in this process. On your question about competition,
Speaker 3
well,
Speaker 9
I know that competition very well. I've been in this field of immunology for more than ten years. And of course, it's something that we take seriously. At the same time, we see two things. There is one end still big unmet need also in rheumatoid arthritis, still very few patients, twenty percent, thirty percent of the patients achieve a real sustained remission.
So there is need there for newer therapies, better therapies, and I would say also newer JAKs in that sense. So the space is there. And at the same time, also we want to play smart. We are building, I'd say, a strong commercial and medical infrastructure where we want to leverage the strong data we haven't forgotten and the potential best in class we have there and play it smart in the payer environment, play it with the patient who can benefit most and take that competitive edge. Does that answer your question?
Speaker 13
It does. Thank you very much.
Speaker 9
Welcome.
Speaker 0
We will now move to our next question from Adam Walsh from Stifel. Please go ahead.
Speaker 14
Hey, thanks for taking my questions. Let me add my congrats on all the success over the past year. On 1690, real quick, the Phase II in systemic sclerosis, Can you just remind us what we'll be looking for when those data mature and whether or not you think there's any read through between any of the efficacy data points in that trial and what we might hope to see in IPF? Thank you.
Speaker 5
Adam, it's Walid. Thank you for the question. Just to kind of give a little bit of background, this is a small exploratory Phase II study in 30 patients It will be six months in duration, double blind, placebo controlled. We will have a two:one on drug versus placebo, so we expect patients on drug and 10 patients on placebo.
The primary endpoint will be the modified Rodnan Skin score. We will also look at other endpoints that are commonly used in systemic sclerosis. We will also look at FVC, but we don't expect there to be a lot of changes because we didn't specifically select patients who have SSC ILD. So we didn't select patients who have interstitial lung disease with systemic sclerosis. Since we were looking at those patients, measured FVC.
So from a read through perspective, I think there will be literally my expectations are very low, because again, we're dealing with a read through for IPF, because this is a small study to give us an initial signal or foray into the systemic sclerosis space. If you've been following that space, it's really a very difficult disease. It's heterogeneous in terms of progression of the disease, but also the endpoint, which is the modified Rodman's score, is notoriously variable, and also it goes one way in the early part of the disease and another way in the later part of the disease. So you have to be very careful when you select your patients. So all of this is to tell you that this is our initial foray exploration into that space.
We would obviously, if we have positive data, we'd be very excited. It will determine the next step. But if the data are not positive from the perspective of a p value that's being hit because it's an exploratory, it will still guide us to see whether we want to continue looking in this patient population in certain subpopulations in that group and things of that sort going forward. I hope I addressed your comment.
Speaker 15
You did. Thank you.
Speaker 6
Thanks, Alan.
Speaker 0
We will take our next question from Emily Field from Barclays.
Speaker 16
Hi. Thank you. Yeah, I was just wondering which of the readouts expected in 2020 could lead to an opt in decision from Gilead. I'm assuming that 12/2005 could result in that decision. And then also would the POC in 3312 qualify?
And also just kind of on that same topic, do you expect to continue developing 3312 into commercialization? Or will the findings that more be kind of used to inform the development of the rest of the Toledo program? Thank you.
Speaker 3
This is Jaime, Bart speaking. Let me give you a perspective on the opt in of these five, and then I'll have ask Pete Thukun to comment on the progress on 03/2012 and whether we take that forward on the commercialization. So in the five readouts, we have filgotinib, which obviously is already part of the Gilead license. We have also sixteen ninety, so the NOVESSA trial, and it's a license by molecule. So that's also already part of the alliance.
And then the others, the one that is definitely a triggering clinical trial, as we call it, is '19 72, the OA program. So that will lead to a decision by Gilead whether they opt in or not. On PINTA, it's not strictly speaking a triggering clinical trial, but it might still lead to an opt in. We'll see what that data set will bring. And finally, the Toledo program will definitely not be an opt in moment that will be later on.
As usual, the contract defines the opt in to be after a Phase IIb program, and we're not there yet with the Toledo program. So Pete, maybe you can comment on 03/2012 and the path forward there.
Speaker 6
Yes. Thank you, Bart. So three thousand three twelve, I always make the comparison to filgotinib. At the moment, we started to feel got it about the best drug we ever saw in our models of our age. So three thousand twelve is the best drug we've ever seen in our models for IBD.
So in that sense, I'm here the hopeful guide that hopes that this drug can make it to the market because it's simply the best. So whether we will get there depends on many clinical studies we still need to do, but good drugs typically make sure that they get to the market. So we're hopeful that we can do that. Thank you.
Speaker 16
Thank you.
Speaker 0
We will take our next question from Ellie Merle from Cantor Fitzgerald.
Speaker 17
Hey guys, thanks so much for taking the question. Just on ulcerative colitis, curious about how you're thinking about the space compared to the S1P1 class. If both have positive Phase III readouts this year, what do you think are the key advantages or key points of differentiation for JAKs versus F1Ps given potential for both in orals in this space?
Speaker 5
Thanks. Alex, well, the you broke up initially. I think I got the gist of your question comparing the JAKs, the S1Ps. I mean, I think the S1P data that I have seen so far, there are a couple of things that actually stood out for us. One is the speed of onset.
I think also by virtue of their mechanism of action, you would expect that it would be a bit slower. So I would imagine that there would be a potential differentiation for the JAKs. We've seen the JAKs work quite rapidly. And actually, at the very first time, what they look at changes in symptoms, you can see an improvement in these patients. So I would imagine that would be a positive differentiating factor.
The second part, and we'll have to see, is what is the liability, the cardiovascular liability I know historically they've been plagued with questions about slowing heart rate. The distribution of these receptors in the heart are well documented, and it remains to be seen in larger trials, whether we do still see some slowing of the heart rate and potential exclusion of certain portion of the population. And what would be the safety longer term will have to be seen. It's a bit too early to really comment on that part.
Speaker 17
Thanks.
Speaker 0
We will now move to Lenny von Steenhoiser from KBC Securities.
Speaker 18
Hi, and thanks for taking my question. Some weeks ago, we saw the first equity investment in a third party with Fibrocor. I was wondering if we can expect these smaller participations as now a fundamental part of the future strategy looking for external innovation? And if we can expect similar deals going forward in 2020? Thank you.
Speaker 2
Yes, I'll take this question. This is Ono. Yes, clearly, we have said when we did the deal with Gilead that acquisitions are going to be a strategy going forward. So we are looking at opportunities out there. But clearly, we will take our time, look how it fits within our organization and in our pipeline.
There will be no major, major acquisitions. There will be bolt on acquisitions to what we currently have. We have a great pipeline. We have a great R and D organization. So it's not that we have a lack of programs, but in the areas where we are active, we're always looking at additional molecules that could complement our own efforts to build a stronger franchise.
So we're always looking to the outside world and see if there are new motive actions there that could complement our own efforts and the Fibrocore deal was clearly in that direction. And you might and you can expect more acquisitions going forward.
Speaker 11
Okay. Thank you.
Speaker 0
We will take our next question from Brian Abrahams from RBC Capital Markets.
Speaker 7
Hey, guys. Thanks so much for taking my questions. Two quick ones on Toledo. I was wondering if you could talk about any additional insights on the activity and therapeutic window that you've gained from the ongoing preclinical and healthy volunteer work that you're doing. And then on filgotinib, just curious your level of confidence in the potential for priority review based on the voucher and when you'd expect to hear back from the FDA on potential filing, etcetera.
Speaker 6
Pete here. So on the Toledo, we typically bring forward drugs we believe are safe, and that's as far as we typically comment on in terms of safety margins with any of our novel drugs. And that's where I would like to keep it with Toledo as well. Thank you.
Speaker 5
So the question on Toledo, I think we confirm that indeed the FDA has accepted the filing for filgotinib and classified it as a priority review with a goal date in the second half of this year.
Speaker 7
Great. Thanks so much.
Speaker 10
Thanks.
Speaker 0
We will now move to Patrick Trucchio from Berenberg Capital Markets.
Speaker 12
Thanks. Good morning and good afternoon. My question is regarding the more than 80 clinical trials in 2020. Can you frame for us what proportion of these trials are evaluating novel mechanisms and what proportion are improving on existing mechanisms? And then secondly, with the early stage pipeline broadening substantially in 2020, how many Phase II and III clinical trials could Galapagos have up and running in two or three years from now?
Thanks.
Speaker 5
I guess we've been discussing who needs to answer this question, because it spans a bunch of things. I think we can say that those are actually when we say the clinical trials encompasses everything. So the trials that we have ongoing that you're familiar with, phase three and phase two, plus a lot of the supporting phase one studies, the drug drug interactions and so on and so forth. But we mentioned this number to give a scope of the amount of work and how the pipeline is actually progressing. I'm not sure what you mean by improving on molecules that we have.
I think, you know, Galapagos has been consistently going after, you know, sort of novel mechanism of action with all these programs that we have, And we will be seeing over the next two to three years, I would say upwards of maybe 20 different phase II trials and novel indications. I think we've talked also about Toledo by itself, evaluating about 10 plus indications that we're going to be going after. So I think it's a very healthy combination of Phase II evaluating new diseases, new pharmacology, plus also all the supporting Phase I studies to enable us to move these programs from Phase I to Phase II to Phase III as well as we're moving forward.
Speaker 0
We will now move to Phil Nadeau from Cowen and Co. Please go ahead.
Speaker 12
Good morning. Thanks for taking my question. Just a follow-up to Brian's question on the Toledo program. Do you still expect to disclose the mechanism when 3312 starts the UC proof of concept trial at some point this year? Could you give us maybe a little bit more clarity on exactly when that disclosure will happen?
And maybe could you remind us how 3312 versus 3970 and 04/2003 '99 differ? What should we expect to see different between a Pan Toledo versus a Toledo 23 and a Toledo three? Thanks.
Speaker 6
Thank you, Phil, for the question. So also promised that we will disclose the target this year. So that's a promise from us to all of the investors. So the mystery will be there for a number of months that we will help you out of your dreams there and bring you back to the reality in course of this year. That's a promise.
So I can spend, I think too much time to really explain the difference between all of the different profiles. I think 3,970, as I said before, is a compound that behaves well across tissues. So it has intrinsically the same pharmacogen profile than three thousand three twelve, but behaves much more different after all dosing in every tissue and that means skin, joints, GI tract. Three thousand twelve is a compound which has the same mechanism of action that really only scores well in scores much better in the GI versus other tissues. So that's why we target this to the IBD space.
Forty four thousand nine hundred is a complete because it's part of Toledo, but only has the anti inflammatory activity does not push the pro inflammatory cytokines. So it's really a different compound as it's only pushing down the cytokines and that currently we have only a couple of diseases in mind for that compound. But that whole explanation could take me an hour as well, which we don't have over here now. Thank you.
Speaker 5
That's helpful. Thank you.
Speaker 0
We will take our next question from Peter Welford from Jefferies.
Speaker 19
Hi, thanks. A couple of thoughts on the financial side, if you don't mind. Firstly, just on the revenues, is it possible at all to give us some sort of split, I guess, of the $238,000,000 or so of all the leverage bit of that is without the other income as far as where the source of those revenue came from during 2019? Just help us with modeling purposes. And then also just with regards to the European collaboration for the profit share, where should we think about as that launches your share of profit?
Is that going to be booked as an offset to your sales and marketing expense? Or how should we think of that? And can you perhaps give us some sort of idea? I think sales and marketing expenses ticked up quite a lot in the fourth quarter. I appreciate the color on R and D, P and L expense.
But is it possible to give us any insight as well into how we should think about that line given, clearly, I imagine there's quite a lot of ambition to expand by the sound of it, the headcount there? So how should we think about that line going into 2020?
Speaker 3
Peter, thanks for the questions. Let me try and give you couple of answers. Hopefully, I'm capturing them properly. In terms of revenues split out for 2019, the revenues itself, I explained, I think, in the earlier slides, are highly driven by the €670,000,000 of the license on 1690. And then there is the filgotinib revenue recognition in addition.
There's some other income that we have, which is about €50,000,000 in 2019, which is mainly connected to grants and tax credits from French and Belgian governments. And we have a bit of income as well in revenues from our fee for service subsidiary, Fidelta. In terms of guidance for 2020 and specifically the sales and marketing line, what I've been trying to do in the guidance is to give you the three key drivers. So two of those are in R and D and represents the 35% to 40% of increase on the R and D line. The third is in SG and A, and all three are, let's say, of similar size.
Want to get into more precision now because sometimes our numbers are influenced by some accounting entries here and there that are noncash, but similar size, the three buckets, two of which are in R and D and the last one in SG and A. And that's clearly connected to indeed the build out in the commercial infrastructure. The way we're going to be accounting for that going forward is that we have both our own expenses, which will show up in operating expenses, and we will have the share of, let's say, the profit share, which will be initially the loss share from the Gilead site. So to the extent it will become a profit share, it will end up obviously in the top line. To the extent it will be still a loss, which is what's going to be in 2020, is going to show up in our cost of sales lines as well.
Speaker 1
We
Speaker 0
will take our next question from Matthew Harrison from Morgan Stanley.
Speaker 10
Hi, everyone. This is Connor on for Matthew. Thanks for taking the question. You touched on this briefly before, but on PINTA, could you just provide some more detail on what kind of data you need to see out of 12/2005 to move it into further study? And then would you expect to wait for Phase III data from 1690 to start a Phase III?
Or would you potentially consider a combination study between the two as a first step? Thank you.
Speaker 6
Okay. Thank you for the question on So PINTA is a Phase II study with 60 patients. So they are well balanced in terms of background treatment, where one third is on mintivanimod, one third on PIFFIDON, one third on local standard of care in countries where none of these two none of these drugs is readily used. So we'll have a well balanced study. We'll have readouts in terms of FVC and as well we have included FRI.
So that would give us the sufficient readouts to decide whether it is on its own is a promising drug and whether we see that this on its own for IPF is a promising drug, will move it forward. Certain stage, we will for sure try the combination with six thousand and nineteen. And that is not the first thing that we need to do next, but it's really on our agenda as soon as we have the Phase three readout of six thousand nineteen that we can start and study the combination of those two, assuming of course that both have been successful up to that stage. Thank you.
Speaker 0
We will now take our next question from Benoit Lwaj from Degroof Petercam.
Speaker 15
Hello, good afternoon and good morning. Thank you for taking my question. Mine relates to the ROCCELLA trial. I was wondering whether the primary endpoint on cartilage thickness would be the main decision maker in order to go and decide to go into a Phase III or whether you would also aim to achieve a certain level of pain relief? And also maybe what the current regulator perspective is on novel disease modifying drugs for osteoarthritis?
Thank you.
Speaker 5
Yes. Thank you very much for that question, Ben. Yes, indeed, the primary endpoint and the way the study is powered is to detect whether we do have a change on cartilage thickness in the medial part of the knee as measured by MRI. Of course, moving forward and getting regulatory approval will require both demonstrating effects on structure, as well as on function or pain. So those endpoints actually will be looked at as part of the trial, but again, the trial itself was powered on the structural changes.
In terms of what will it take to take us to Phase III, I think, obviously, we need to see a clear effect on the structure. But also we need to see some trend on either pain, as you indicated, or on function as well. And that's why it's really very difficult to a priori set the guidelines very clearly for this, because the results could come out in very different flavors. And it could very well be that certain subset of patients would have to be looked into in order to progress this forward. This is a very huge unmet medical need, and the agency, just as the scientific community and also the pharmaceutical industry, are working together to figure out a path forward.
Often it's like the chicken or the egg. You almost need data of a compound that actually is able to move the needle so that you can have fruitful discussion concretely with the health authorities about what will constitute the next step forward. And that's really what we intend to do. We're working with the best academic collaborators. Our partner, Servier, is also very well versed in this space, And we will be putting our heads together and talking to regulatory authorities based on our data to figure out a clear way forward for the Phase III program.
So I hope that answers your question.
Speaker 15
Yes, very helpful. Thank you very much.
Speaker 5
Thank you.
Speaker 1
Okay. And with that, I'm afraid we're going to have to call this a day. I realize there might be some folks who had some questions that weren't able to get in. Please reach out to the IR team and we'll make sure you get your answers. Our next scheduled call will be for the Q1 twenty twenty results at eight a.
M. Eastern on the May 8. And we thank everybody for their participation today and wish everyone an excellent weekend. Thank you and goodbye.