Galapagos NV (GLPG) 2015 Q3 法說會逐字稿

Good day, and welcome to the Galapagos Q3, 2015 results webcast. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead.

Thank you very much, and welcome all to the audio webcast today. I'm Elizabeth Goodwin, Investor Relations at Galapagos. This webcast is accessible via the Galapagos website homepage and will be archived for one year starting a little bit later today.

If you'd like to ask some questions at the end of the call we request that you dial now into the telephone number given in today's press release. I will give you the Belgian number now, that's 32 for Belgium 2404-0660, and the code is 2724028.

I'd like to remind everyone that we will be making forward-looking statements during today's audio conference. These forward-looking statements include remarks concerning future developments of the Company and possible changes in the industry and competitive environment.

Because these forward-looking statements involve risks and uncertainties, Galapagos' actual results may differ materially from the results expressed or implied in these statements.

Today's speakers will be Onno van de Stolpe, CEO, and Bart Filius, CFO. They will go over Galapagos' operational and financial highlights for the third quarter of 2015, and the outlook for the remainder of the year. You will see a PowerPoint presentation on screen and we estimate that the presentation will take about 10 minutes. This will be followed by a Q&A session with our executives.

I'd now like to hand over to Onno to start the presentation. Onno?

Thank you, Elizabeth. It's been an exciting quarter, and we are very pleased to discuss our highlights and the financials over the last three months.

We had a lot of activity around filgotinib, our best-in-class JAK1 inhibitor. We completed our DARWIN 1 and DARWIN 2 trials, and the data confirmed what we had seen after the 12-week data point: that we, both on the efficacy as well on safety, have a fantastic product in our hands.

Even though the data were quite spectacular, ultimately as we decided not to exercise the option to license in the molecule, but instead decided to pursue their own internal JAK inhibitor 494, which meant that all rights are now unencumbered with Galapagos.

As we have communicated to the market, we are in discussions with a number of pharma partners to find a new licensor for this molecule, a partner that will bring this into the clinic, not only for RA, but for other indications as well. The second indication should also start the phase III trial in 2016 in Crohn's.

In Crohn's we are at the end of a Phase II trial with 170 patients, and we're expecting the first data, the 10-week results, by the end of this year in December. We look forward to that data and, based on that, we anticipate that we can go to the FDA and EMA, so that we can start a trial on Crohn's in Phase III in the second half of 2016.

Also, a lot of progress in our other programs, including in cystic fibrosis, where we were very pleased to announce that we have all three components of the triple combo now available in pre-clinical development. We also shared with the market the initial in-vitro data of the triple combo, where we showed a six-fold CFTR presence in the assay versus [our combi], the approved dual combination by Vertex.

So a great increase of activity by the triple combo in this in vitro assay, and that bodes well for the further development of the triple combo therapy.

So clearly if we take these clinical developments, Galapagos is continuing to accelerate into a full Phase III company with a very attractive pipeline.

If we go to the next slide you see the clinical pipeline highlighted here with a JAK1 filgotinib program in RA and Crohn's, both at the end of Phase II; starting Phase III next year.

We also have a new mode of action program, GPR84, that we're developing for ulcerative colitis. That is the molecule GLPG1205. We are expecting that data to be announced to the market early next year. We initially had said in December, but because of all the preparations of the Phase III for filgotinib and RA the capacity to focus on the data management is insufficient within Galapagos, at the moment, so we decided to delay that till January.

And then another very exciting program with the new mode of action in autotaxin inhibitor, GLPG1690, that we're developing for IPF will move into Phase II next year. We are currently doing the long-term tox studies necessary to enable this to go into Phase II.

Then as I discussed the CF program is making very nice progress, where we got the ingredients of the triple combo in place. 1837, the potentiator, will go into Phase II for the class 3 mutations later this year.

The 2222, the corrector 1, will go into a healthy volunteer Phase I study before the end of the year and then the C2 corrector 2665, that we just announced as a candidate, is scheduled to go into man by halfway next year. The aim for the triple combo is actually to bring all three together in patients in the first half of 2017.

So exciting developments here. More programs are moving into the clinic in the near future, so Galapagos is really building a very exciting pipeline.

So with that introduction, I would like to hand it over to Bart Filius, our CFO, to discuss the Q3 financials.

Thank you very much, Onno; and thanks, everyone, for joining this afternoon in our quarterly results call and webcasts.

This is the first time that Galapagos is doing a third quarter webcast and that we present quarterly results, which is something that we've decided upon after our IPO at NASDAQ earlier this year in May. So, from now on, you can expect this to be a recurring event on a quarterly basis.

I'd also like to invite you to take a look at our online Annual Report that we are publishing -- sorry, our online reports that we started with our Annual Reports earlier this year, that we're publishing on our website, where you can find additional detailed information on both the qualitative and the quantitative developments over the last quarter for Galapagos.

On the slide that you see in front of you now I start with, what we consider at Galapagos, to be a most important metric from a financial point of view, which is the cash position, which is solid.

At the end of September of 2015 we have cash position of EUR374 million which was an increase of EUR176 million (sic - see press release, "EUR178.8 million").

We've raised approximately EUR260 million in May with our offering at NASDAQ. We have additionally raised throughout the year EUR11 million through the exercise of warrants. The remainder is our cash burn over the first nine months of 2015, which is EUR95 million.

In terms of our look forward to the end of the year, we initially gave guidance to be landing between EUR110 million and EUR130 million of cash burn for all the four quarters of 2015. We have today confirmed that we are retaining that guidance.

I would add to that that we are probably going to be landing on the high end of that guidance. Originally, we were expecting a decrease of cash spend in the fourth quarter, but, more likely, we expect now that we are going to be continuing at the same rate our cash burn in the fourth quarter, as we have seen in the previous quarter. So, everyone, can do the math from the EUR95 million that is on this slide.

The reason for this slightly higher cash burn in the fourth quarter than we internally expected is because we're spending a bit more money on filgotinib in the expenses for Darwin 3, our continuing safety study on filgotinib, as well as the preparations for Phase III.

But to confirm again, we retain our guidance, so we will be within the range of EUR110 million to EUR130 million, albeit probably at the higher end of that range.

Go to the next slides. Should be on screen now, which is the slide on revenues from continued operations. We keep on emphasizing the continued operations as stacked here, because we are comparing ourselves against 2014.

As many of you know, in 2014, part of the year was still influenced by revenues from discontinued operations, more specifically the part of the business that was sold to Charles River in April of 2014.

So we are looking here on a like-for-like basis constant perimeter continued operations and we see a decline of our revenues from EUR63 million to EUR47 million.

The most important driver in there is that we are depleting our deferred revenue base, which was built up by the upfront payments by AbbVie, both for our collaboration on filgotinib in 2012 and our collaboration on cystic fibrosis in 2013.

We were writing down the deferred revenue post on our balance sheets over the period of involvement and we are now almost at zero for that with regard to the balance sheet position. So you should expect that in the fourth quarter there will be almost no further deferred revenues being recognized.

The second aspects on this, which is driving -- on this slide, which is driving the decrease it's a reduced number of milestone payments, which is essentially reflecting the more proprietary nature of our pipeline and most of our assets are proprietary with some exceptions. And as a result of this strategic choice, we are receiving fewer milestone payments from pharma partners.

Positively we see the growth of revenues of our Fidelta business in Croatia, as well as growth in our other income, which is mainly reflecting the tax incentives that we receive in Belgium and in France.

That leads us to our operating expenses on the next slide. There we see an increase on operating expenses fully in line with what I've been showing in our Q2 webcast. The same type of increase, even though we see obviously over nine months the numbers are higher.

Our research expenses are more or less flat, but the increase is found in development expenses, which is, on one hand, compared to 2014 increased expenses on filgotinib, where we have been concluding the Darwin 1 and Darwin 2 trials; and, on the other hand, increased expenses in development of cystic fibrosis.

Again, the maturing pipeline and the proprietary nature of this drive the increase in operating expenses and is in line with our own internal expectations.

That leads us then to our net results comparison, where, in the first nine months of 2014, we still included a positive net result, because of the divestiture of our service business to Charles River, and we were actually reporting a positive EPS of EUR1.44.

We're now reporting a loss over the first nine months of 2015, and I compare on this slide the evolution in continuing and in discontinuing operations.

The evolution in continuing operations is negative [EUR34 million], which is the combined effects of reduced revenues that I was explaining earlier, as well as increased expenses.

The evolution in discontinued operations, once again, reflects the non-recurring aspect of the book profits on the sale of our service business. So nine months earnings per share, EUR1.78 and a net loss of EUR61 million.

With that, Onno, can I give it to you for the outlook?

Yes, Bart. Thank you. Yes, the outlook for the next quarter or for this quarter will be focused around filgotinib.

We are expecting the Crohn's data in December. We clearly will await that data before signing a new partnership around filgotinib with a pharma partner. But we're still confident that we can sign a partnership before yearend.

The reason we have that urgency in getting a new partner on board has everything to do with the start of Phase III for filgotinib in RA. That is clearly a crucial moment; speed is of the essence there and, as a partner will likely want to have input on the design of the Phase III trial, and that design will have to be communicated and approved with the FDA and the EMA, it is urgent to get this partner on board, so that we jointly can prepare and execute the meetings with the FDA and EMA.

The planning for Phase III start currently is still in April next year after the FDA meeting that is scheduled for March next year. The preparation -- the documents need to be in a couple of months earlier, beginning of January. So that means that we have to get a partner on board before the end of the year to make sure that the input in the Phase III documentation is done properly.

The alternative is that a partner -- that we delay the partnering discussions until we have had the end of Phase II meeting. We're not excluding that option, but at the moment, we think that the inputs for the Phase III discussions with the regulatory authorities give us a preference to get a partner on board earlier than later, but definitely, after we've got the Crohn's disease data.

So a lot to do before Christmas. We're quite excited about everything going on around filgotinib and we hope you share that excitement.

With that, I would like to hand it back to Elizabeth.

Okay, thanks very much. Now that concludes the presentation portion of the call. I'd now like to ask the operator, Owen, to explain to us how callers can pose questions to our executives.

(Operator Instructions). Roderick Verhelst, Petercam.

You seem to indicate that the FITZROY readout will be an important parameter for your partner discussions. Can you shed some light on the different proposals that are currently on the table? Are they all dependable on the outcome of the FITROY study?

Then the next part is the Xeljanz failed in the Crohn's disease. Why do you think that the chances are higher that your compounds will be successful? There seems to be quite -- it seems to be a risky disease to be in.

And lastly, it's a small question. Do you -- can give you an update on Fidelta, what the plans are? Are you still looking to divest that? Thank you.

Thank you, Roderick. Onno, I'll target the first two questions. Bart will answer the third. FITZROY, the study in Crohn's, how important this is in the partnership discussion, it's quite important. Crohn's is a very important disease and if the molecule work in Crohn's, it's very likely that it also will work in ulcerative colitis, so the other large IBD disease.

In Crohn's, there hasn't been a small molecule approved yet. This -- filgotinib would be the first JAK that moves into Phase III for Crohn's, which is very, very exciting. It is thanks to our JAK1 selectivity that we believe filgotinib has an excellent proposition there for these patients, because of the hemoglobin increases. These patients often suffer from anemia.

So we are quite bullish about the commercial opportunity for a Crohn's disease product here and the partners see that likewise.

So yes, if the Crohn's disease trial is negative, it definitely will have an impact on the discussions. We have told the partners to assume that -- to take the assumption that the Crohn's disease trial will be positive. Clearly, if the trial will be negative, then we have to re-discuss these partnerships with the potential partners that are left.

So it's a complete package. All indications with, at the moment, of course, RA is all panned out; everybody knows what they can expect. Crohn's will be there in December. If Crohn's is positive, likely ulcerative colitis will be positive as well. Then you've got other indications as well like psoriasis and other inflammatory diseases, so it's a whole package of potential indications where filgotinib can be developed, but Crohn's is important.

You asked a second question, Xeljanz, the pan-JAK from Pfizer that was tested in Crohn's disease trial, which was actually negative in outcome. We believe that it had to do with the very short induction period that they took. It was a four-week trial versus our FITZROY study, where we are treating these patients for 10 weeks, so a much longer period.

According to the physicians that are involved in this study, they believe that you need at least six weeks of induction therapy before you can see a measurable effect. So with 10 weeks, we are on the safe side here and therefore, we have quite high hopes for this indication.

Bart?

Let me say a few words on Fidelta. You saw there the top line going up. We're actually quite pleased with the performance of our team in Croatia that is really building up a fee-for-service business. That's the opportunity that we gave to them to build that up, and to make sure that they become a profitable standalone unit.

They've reached a level where they are no longer putting a burden on the cash from Galapagos and we are considering Fidelta not to be core of Galapagos going forwards. So when the time is appropriate we'll be looking for divestitures or other strategic options for Fidelta, but they're on good track so far in 2015.

Okay, thank you very much.

Phil Nadeau, Cowans.

First, just on the timelines. Onno, you said that you expect the partnership by yearend, but also, the Crohn's data is important and that data is coming in December. So it seems like the time's really tight to get a partnership done after the data. Do you have term sheets now that has seen positive data and you can execute those upon the release of data? How is this all going to work?

I'm not going to comment on how far we are in the process and with how many parties. But yes, you can assume that there are terms sheets on the table, yes.

Okay. And then second, one the FDA discussions, is that the point where you have clarity on what doses you can use in the Phase 3? Is there any way we can get clarity before? Is it really dependent upon those discussions and the minutes from that meeting?

That's correct. It all depends on that discussion, yes. In the end of Phase II meeting the Phase III plan will be discussed, including the dosages, and the authorities will give their input on those programs. They will take all data that are presented to them in consideration in reviewing the dosage schemes.

Okay, great. Thanks for taking my questions.

Sure.

(Operator Instructions). Jan De Kerpel, KBC Securities.

I actually wanted to build on the dosing in the Phase III. Could you give us some more view on where you are going there with the 200 milligram; and if you still the plan to go, for the first couple of weeks, months, with a certain dosing and then follow up with something else?

As a second question highly linked to that, AbbVie said this week that it intends to go with the once-daily dosing for its ABT molecule, so if you could just maybe share also your views on that?

And then as a third question, also linked to this AbbVie data report, how do you look at the data over there on the safety? For instance, they have a 40% rate of infections. How does it compare to your molecule?

Hi, Jan, this is Onno. Induction versus maintenance therapy for ROA, we are quite in favor of that, starting with a BID dose for the first 10 weeks and then moving to a maintenance dose.

Of course, our thoughts with regard to how to go into Phase III ourselves is also being influenced by the discussions we're having with the pharma partners. So we actually learn a lot from all the interactions that we have with very experienced groups in the field.

So I'm not going to give a definite answer, if Galapagos is going to do the Phase III, how that design will look like. We are preparing all the end of Phase II documents. How the exact Phase III will look like, if we go by ourselves, is still under discussion, so I can't give you a definite answer. But clearly, longer term, we go for a once-a-day dosing, just like baricitinib and just like AbbVie is planning with 494.

Yes, they said they are going with the once-daily dosing, which is interesting, let me phrase that word, based on the half-life of the molecule. So they will probably have to come up with a slow release version of that molecule, but it's more a question you should post to AbbVie than to ours.

I'm also not going comment on further characteristics of 494. You have seen the reviews that have come out of the ACR Meeting, based on the poster that they presented on the safety of 494 and the selectivity. I think these comments, which were being made by the analysts, are quite instructive.

We are very pleased with our safety profile in all aspects: the hemoglobin levels; the infections, which were extremely low in the DARWIN studies; the NK cells they didn't go down. All aspects of safety were good in -- for filgotinib. I think most of the reviewers of the 494 poster had, at least, some question marks.

Okay, thank you.

There are no further questions at this time.

All right. Well, I just want to thank everyone who participated today and all the folks who've listened in. Thanks for your support and we look forward to updating you as we go through to the end of the year with all the news flow that we have promised.

So, I'll speak with you all again very soon. Thank you and bye, bye.

That will conclude today's conference call. Thank you, ladies and gentlemen. You may now disconnect.