Galapagos NV (GLPG) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Galapagos half-year 2015 results conference call. At this time I would like to turn the conference over to Elizabeth Goodwin. Please go ahead.

Thank you and welcome, everybody, to our audio webcast today for the Galapagos half-year results for 2015. I'm Elizabeth Goodwin, Head of Investor Relations at Galapagos. And I just want to tell you that the webcast is accessible via our website home page, middle of the right-hand column, and will be archived for one year starting later today.

For folks who are watching on the website, if you have some questions you'd like to pose to us you can join the audio conference. There are a whole bunch of numbers in the press release but I'll give you one for Holland. That's 31-20-716-8257 and the code is 5671265.

I just would also like to say that for folks who are watching on the website, the audio and the slide changes are synchronized. For those who are listening only via the phone you may note that the web version of the slides will be slightly delayed relative to what you hear.

And now 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 involves risks and uncertainties, Galapagos' actual results may differ materially from the results expressed or implied in these statements.

Today you're going to hear Bart Filius, Chief Financial Officer. He'll take you through Galapagos' operational and financial highlights for the first half-year 2015 and the outlook for the second half of this year. You'll see a PowerPoint presentation on screen and we estimate that this part will take about 15 minutes followed by a Q&A session.

So, with that. I would very much like to hand over to Bart.

Thank you very much, Elizabeth, and good afternoon all of you in Europe, good morning for those that are in the US. It's great that you join us today for this webcast.

I'm happy to take you through a couple of slides. First of all the progress that we made in 2015 and I give you an update on where we stand with our clinical pipeline. I will obviously take you through the key financials and, finally, I will give you an overview of what is still expected in 2015 from Galapagos in the remainder of the year.

So on this slide the progress for the first half-year and obviously top of mind there is the results that we've shown on filgotinib.

In April and May we have shown the 12 weeks' results of DARWIN 1 and DARWIN 2. And, if I extend the half-year into the month of July, last week we reported also the 24 weeks' results on DARWIN 1. And all those together have given us the belief that this can be a potential best-in-class drug in RA.

We also this morning announced that we have completed the recruitments for our FITZROY study in Crohn's and later on this year we'll be sharing results of that study.

On cystic fibrosis we've made good progress. We're still targeting a triple combination therapy and we're working in a Phase 1 on our potentiator and we're doing the pre-clinical work on our first corrector and are targeting to nominate a pre-clinical candidate second corrector later on this quarter.

Then we have two proprietary programs: one under the number 1205 and one under the number 1690.

In 1205 we have completed the recruitment or Phase 2 proof of concepts in ulcerative colitis and we'll be sharing those results probably early 2016.

And in 1690 we communicated to the market good safety and target engagements from our Phase 1 study and we're currently in preparation for Phase 2.

Another highlight of the year was a very successful and warm welcome for a listing on NASDAQ where we raised, in total, net proceeds of EUR261 million, which was, at the time, the largest biotech IPO in the last decade at NASDAQ.

And, since that moment on, we're now happy to report the highest cash balance of the Company in history with more than EUR400 million of cash in the bank, allowing us a strong strategic position for the Company going forwards.

The next slide's showing a quick snapshot on our clinical pipeline and I've mentioned those in the previous slide in terms of what we're working on. This is the clinical part of our programs. We obviously have a very meaningful pipeline in pre-clinical assets, which we generally do not communicate on as extensively as we do on our clinical pipeline.

So this is what we show here. There's filgotinib, which has ended Phase 2 in RA and is in the process of ending Phase 2 in Crohn's.

In ulcerative colitis, against the target GPR84, our program is in the proof of concepts in Phase 2.

In cystic fibrosis we have here on the slide a potentiator and a corrector that are both in development and, as I said earlier, a second corrector is on its way.

And finally, our last proprietary program, 1690 in idiopathic pulmonary fibrosis, has ended Phase 1 and we'll be filing for the protocol of Phase 2 later on this year.

Then let me got to the numbers, and this is maybe a bit of a change compared to what we did in the past, but I start obviously with what I believe is the most important element in our financials, which is our cash position.

And we have a cash position EUR405 million at the end of June and I've explained on the graph where this is coming from.

We were roughly at EUR200 million at the end of December. We had the cash proceeds from our IPO at NASDAQ, EUR261 million. We had a very good set of warrant exercises resulting in EUR10 million of cash proceeds in the first half as well. And then we had a cash burn of EUR65 million.

We have, in March, given guidance to the market that we would have a cash burn over the full year between EUR110 million and EUR130 million. If you take the EUR65 million of the first half, this is fully in line with that guidance, especially knowing that we had a slightly higher cash burn in the first half than what we expect for the second half, given the fact that we are concluding our filgotinib program, as we speak, over this summer.

Also worthwhile on this slide still to note is that the EUR405 million does not include a receivable of, in total, EUR58 million, which is on our balance sheet as well, which is from the Belgian and French Governments, based on R&D incentives. And those will be paying out over the next 4.5 years as well.

So, with that on the cash balance, we are in a very comfortable position going forward. So what does the rest of the P&L look like? First slide on revenues.

The revenues are down compared to the first half of 2015. And the real difference is in the fact that we have lower milestones in the first half of 2015 compared to last year in 2014.

And this is essentially a reflection of the fact that we keep our programs on a proprietary basis longer and that we invest in those ourselves and not realizing necessarily the milestones but, at the same time, creating value through advancing those programs in developments on our own risk.

We also are still recognizing deferred revenues, and I'd like to draw your attention very quickly to that.

These are essentially revenues that have been cash paid in previous years, 2012, 2013, relating to the programs around filgotinib and cystic fibrosis. We're now at a stage where we've almost completely depleted the income recognition from these two programs. There is still a small EUR4 million left on our balance sheet, as you can see.

So this number, which is still EUR23 million in first half of 2015, will be significantly lower in the second half by mechanical consequence.

Then a word on investments or operating expenses. Those are going up, as we had announced them to go. They're in line with our own plans and is also a reflection of a maturing pipeline. We've broken those down between research and development and SG&A.

And the slide clearly shows that the increase here is fully on the account of the development expenses, which is, again, due to increased expenses on cystic fibrosis in the first and, secondly, the expenses on filgotinib that are still significant in the first half of 2015.

As a result, on our next slide, our earnings per share and our net result of the Company is worse compared to the first half of 2014. There's two remarks to that.

First of all, we all remember that in the first half of 2014 we had an exceptional event, which was the sale of our services division to Charles River.

In the first half discontinued operations, as we classified it, were still responsible for EUR70 million, which we do not repeat obviously then in 2015.

And, similarly, as I just explained in terms of top-line and expense evolution, we have in continuing operations a decreasing of our results by EUR20 million. As a result, also a negative EPS in the first half 2015.

Then a few words on the outlook for the rest of the year, because we've had a very exciting and very packed first half of the year but we have also a very exciting and very full second half of the year in terms of news flow. And let me take you through those one by one.

As you all know, later on this month we will be sharing with you the results of DARWIN 2 24 weeks in rheumatoid arthritis. We'll be seeing a decision by AbbVie on whether or not to take the license on the program in the period right after that.

And, as I said before, we will be completing the FITZROY study in Crohn's as to regard the primary endpoint, which is the first 10 weeks. And we will be sharing data with you towards the fourth quarter. And the 20 weeks, by the way, will then, by mechanic, come in the first quarter of 2016.

Second thing in cystic fibrosis, what can we still expect? We will have the readout of our Phase 1 of our potentiator 1837. And we will targeting to start a Phase 2 in cystic fibrosis with our potentiator.

We will be nominating our second corrector candidate later on this quarter. And, later on in the year, we will be starting a Phase 1 with our first corrector 2222 in cystic fibrosis.

Then our two fully-owned programs. We are going to be finalizing ulcerative colitis, the [program] 1205; data sharing probably expected in 2016 first quarter. And we'll be filing the Phase 2 protocol for 1690.

And all this we reiterate our cash burn for the full year. As you see, we are on track for the first half and we anticipate to be on track in the second half. And we reiterate our guidance between EUR110 million and EUR130 million in 2015.

And then I would like to open the floor for questions.

Thanks, Bart, for those comments. I'd like to invite our operator to explain how the callers can pose a question.

(Operator Instructions). Marc Frahm, Cowen and Co.

If you could just review first the process once we do read out the DARWIN 2 data in terms of AbbVie's decision. What exactly has to happen? And all the timings on all that?

And then if you could talk a bit about the FITZROY study and how you guys are thinking about defining success in that trial.

Let me answer the first one on the DARWIN 2 process. This we will be sharing with the market data on DARWIN 2 later on this month. We will also be obviously delivering the data package on the results to AbbVie. They will then have a period of 60 days to let us know whether or not they decide to license in the program.

So that decision should come basically within the two-month period after the communication of the results also to the market.

Then on FITZROY, on Crohn's, there are success criteria defined but we have not disclosed those to the markets. Our primary endpoint here is the percentage of patients reaching a CDAI below 150, which is the equivalent of clinical remission. But all our criteria we have not disclosed to the market.

Okay. Thank you.

Jan De Kerpel, KBC Securities.

I have three questions. I will pose them one by one. So first question is on the collaborations that you used to have. So in the beginning of the year J&J ended those. And I was wondering how many active collaborations or alliances do you still have?

We have the collaborations, obviously, with AbbVie for both filgotinib and for cystic fibrosis. We have a collaboration with Servier in place. We have a collaboration with MorphoSys in place. And then a collaboration which is technically still in place, but not very active, with GSK.

Okay, thank you. The second question is financially oriented on the R&D slide that you showed. How much of the money in 2015 is being spent on the filgotinib studies in 2015 in development and other areas? And how do you see R&D costs changing going forward into next year?

Obviously filgotinib is an important portion of this in terms of P&L. I think also in the March results I signaled that we would be spending approximately EUR35 million on the filgotinib programs in 2015.

We should distinctly show that between cash and P&L, because cash is maybe even a bit higher there. If you wind the program down, obviously, you finalize also the outstanding bills, so there's some working capital impacts, answering your first question.

On your second question, it's a bit too early to give guidance on R&D spend in 2016 with all the events that are still out there in the next four months for us.

I would not necessarily simply assume that we can take out the costs for filgotinib for 2016 as a saving. On the contrary. We are hoping to be able to invest significant amounts in cystic fibrosis and in 1205 and in 1690, as I explained before.

But an exact guidance I will be able to give to the markets in the beginning of 2016.

Okay, that's clear. Then on cystic fibrosis, can you remind us a little bit on the financials over there? So when will AbbVie take over certain developments? Can you, in certain sub-groups, develop the molecules or one of the molecules further down the road into the market? What kind of royalties have you negotiated? Could you give some more information on that?

Basically on CF, on the contract, we are responsible for development up until the end of Phase 2 and then AbbVie takes over. We have communicated to the markets royalty rates between the mid-teens and 20% on the program. And basically it's a full alliance on the program; i.e., in principle we develop all the molecules, including the combinations, in a joint manner.

But as of end of Phase 2 AbbVie takes over. That means that the story there ends for Galapagos. So in sub-groups you won't be able to test it yourself, how the contract is written today.

It's not that the story ends. Not at all. We are really a partner in this together with AbbVie. Even though the final responsibility is with them in terms of the work there, there will be sufficient involvement of Galapagos, including a contribution also to the costs of further development.

Sorry, into -- a contribution of costs into development when it goes into Phase 3?

Yes, including a contribution to the cost of development later on in the program.

Okay, thanks. I'll go back into the queue.

(Operator Instructions). (inaudible), Petercam.

First on the osteoarthritis partnership you have with Servier, I don't see anything mentioned about it in the press release. How active is this partnership with Servier. Are there any issues why you don't put it forward that you're going to initiate your Phase 1 before yearend?

And next, it's a bit related on the cash burn. You already mentioned or alluded to that the R&D spend will go down, of course, after filgotinib study. Do you think that the cash burn will rather be at the low end of the range? Because if I look at the other programs, I think it's likely that it will be around EUR110 million. Thank you.

First on the OA program with Servier. That alliance is in very good shape, actually. We've not communicated explicitly on it and we will certainly have an opportunity later on this year or early next year to do so. But the alliance is in good shape and it's making very good progress and very much alive.

We've chosen not to communicate on it because we want to focus on those programs which are currently in clinical development, as I'd shown also on the pipeline charts.

In terms of the cash burn, I reiterate the guidance. It's going to be between EUR110 million and EUR130 million, without specifying there within that range, otherwise I could have adjusted obviously the guidance. But it's going to be within that range.

Just as a reminder, my previous point that I made to Jan as well, even though the program on filgotinib stops, there is, from a cash point of view, a bit of a tail in terms of paying out the final bills. So, hence, you will not see an immediately stop [at] zero after we announce the data to the market and it will actually continue for a little while longer.

So that should give you a bit of indication as to where we are, but we're comfortable with the guidance between EUR110 million and EUR130 million.

Okay. Thank you.

There are no further questions in the queue.

All right, well I think that means that --

We actually have a follow-up question from Jan, if you wish to take it?

Go ahead, Jan.

I saved this question for a second round. You guys have a tremendous amount of money. That's very clear and congratulations to that. What are you missing that you would like to do with that? Could you give us some options? Obviously, I know there's pipeline stuff as well, but this is not -- that amount of money is not needed on the short term to do all these ambitions with the current pipeline.

So could you give us some options in which direction we could think how you would create value with that cash?

I think for any biotech company having a sufficient cash balance is an enormous strategic asset because it gives us also the possibility to make choices and to accelerate where we can accelerate in the development of our programs.

In terms of use of proceeds, when I did the IPO in the US we obviously put a lot of emphasis on cystic fibrosis and we put a lot of emphasis on our two proprietary programs 1205 and 1690. Obviously the development of these will be meaningful in terms of expenses; certainly if we do them on a proprietary basis. And we'll put our money to use in the best way and as we've done in previous years.

Okay. Thanks.

No further questions? All right, well thank you all so much for your questions today and your participation and we look forward to speaking with you again soon on the DARWIN 2 24-week results. Bye-bye.

Bye-bye.

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.