Galapagos NV (NASDAQ:GLPG) Q1 2023 Earnings Call Transcript

Galapagos NV (NASDAQ:GLPG) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Good day, and thank you for standing by. Welcome to the Galapagos Q1 2023 Financial Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Sofie Van Gijsel. Please go ahead.

Sofie Van Gijsel: Thank you, operator, and thank you, and welcome to the audio webcast of Galapagos First Quarter 2023 Results. I’m Sofie Van Gijsel, Investor Relations representing the reporting team at Galapagos. This recorded webcast is accessible via the Galapagos website homepage and will be available for download and replay later on today. I would 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 environments. 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 Paul Stoffels, CEO; and Bart Filius, President, COO and CFO. Paul will discuss the Q1 highlights and provide an update on our immunology and oncology portfolio. Bart will go over the commercial and financial results. You will see a presentation on screen. We estimate that the prepared remarks will take about 20 minutes, then we’ll open it up to Q&A with Paul and Bart joined by Michele Manto, Chief Commercial Officer; and Daniele D’Ambrosio, Head of Immunology. And with that, I’ll now turn over to Paul.

Paulus Stoffels: Thank you, Sofie. Good morning, good afternoon and thank you for joining our Q1 results highlights. Let’s take a moment to look at the highlights as presented on the slide here. To first take on immunology. While we were very disappointed with the outcome of the Crohn’s disease study, we are happy that we recently dosed the first patient in a Phase III registrational study with filgotinib in axial spondyloarthritis, a potential third indication for Jyseleca. In addition, we are opening clinical sites for our Phase II study with a TYK2 inhibitor and should dose the first patients in the coming days or weeks. Moving to oncology. We presented very encouraging safety and efficacy results for ‘5201, our CAR T — CD19 CAR-T in CLL, at the EHA meeting in February.

We will come back to this data later in the presentation. Meanwhile, we are expanding our Cocoon network and making good progress in opening additional sites in Europe and our first sites in the U.S. On a corporate level, we took important steps in executing the strategic reorientation of our company. Importantly, we successfully transferred our drug discovery and research activities in Romainville, France to NoValiX, a French drug discovery-focused contract research organization. We are extremely pleased with this transfer as NoValiX is a good home for our French colleagues, and it fits very well with our strategy to build fit-for-purpose R&D organizations. Here, you see our pipeline. As mentioned, the pipeline is refocused on two therapeutic areas: Immunology and oncology.

And I will go in a little detail of the different programs. I’ll summarize them. In immunology, as mentioned, unfortunately, the Crohn’s disease did not give us the expected results. But we have RA and UC on the market with the registration trial in AxSpA out of the gate now. We are progressing our TYK2 in SLE, and aim — TYK2 in dermatomyositis, sorry, and also in SLE, and aim to start the patient study with our CD19 CAR-T in SLE later this year. Meanwhile, we are working on multiple preclinical targets that we are eager to push forward and see — and if we see a best-in-class profile. In oncology, we are making good progress with the CD19 programs. Happy to report that this morning, we received approval to start the clinical trial with our BCMA program in multiple myeloma.

And meanwhile, with Abound as well, as well as via external collaborations, we are progressing with multiple new targets, developing our new next-generation CAR-Ts for the point-of-care units. In immunology, we are focusing on all steps of the research progress, initiating new preclinical and research programs on best-in-class targets. We are merging our CAR-T capabilities with our immunology team in the CD19 for lupus. The TYK2 is progressing as a late-stage molecule, and filgotinib is expanding the indication. So we keep strongly focused on immunology. A little bit more explanation on our axial spondyloarthritis study. AxSpA is a disease with the inflammation of spine and the sacroiliac joints. It’s a very heterogeneous disease. It affects young people with low remission rates today.

Patients have limited option with currently available drugs, and there are no new modes of actions expected in the coming years. So the TORTUGA data in AxSpA, was communicated in 2018 and published in Lancet, provide the comfort to go into AxSpA with filgotinib. And this is also shown in the graph on the slide. The 200 milligrams show strong, significant effect size in mean change from baseline in the ASDA score compared to placebo. Early onset of action is visible already at week 1 of the treatment with continued response till week 12. So good hopes in this indication. The start of the OLINGUITO Phase III in AxSpA with filgotinib is — in non-radiographic and radiographic disease, a total of 238 patients will be included either in placebo, as you see on the slide, are 200-milligram filgotinib.

The primary endpoint, ASAS40, is at week 16. And patients will be able to enter into a open-label part of the study until week 52, which we’ll report also as top line results. Start anticipated next quarter, the second quarter, with top line in 2025. From week 52 in the study to week 104, we plan to re-randomize the patients who achieved low disease activity at week 52 to study either the 100-milligram or 200-milligram until week 104. The design is endorsed by the authorities and good to go. As indicated, the TYK2 study, the GALARISSO trial, is currently active, underway and set out in the fields to start recruiting patients. It’s also a placebo-controlled study in 62 patients for 24 weeks with a 4-week follow-up in patients with active dermatomyositis and reduced muscle strength.

The top line results are expected in the first half of ’25. As a reminder, with the same molecule, we also started SLE study, which should read out also the second half of ’25. In oncology, as I explained last time at the meeting, we are very much focused on our point-of-care network for CAR-T. And this slide shows how we change the paradigm of CAR-T treatment by the way of decentralizing production with our Cocoon platform, which we brought in to Galapagos with the acquisition of CellPoint. And in collaboration with CellPoint, we are now developing these new products. The decentralized has the benefit to give a short, 7 days vein-to-vein time. We at the moment run this production in the hospitals with a very high success rate as we are running now 2 clinical trials, and soon 3.

On the next slide, you see the Cocoon as — on the left side, you see the cartridge, the whole Cocoon in its environment. And then you see also the future where we can put many Cocoons on the stack in order to reduce GMP use — GMP unit space. This is complemented with the development of data — digital and data system which collects and registers all the data, allowing us to do at the same time the quality control, quality release, allowing the 7 days vein-to-vein. As I said, very consistent production of the centers, and we have close to 100% delivery of — to patients here. The next slide shows you the data, which I talked about in CLL. The study design, at least 3 dose levels are being studied in a Phase I/II dose-finding study in CLL in the point of care with encouraging data we presented at the EBMT-EHA Conference in February.

Data on 2 dose levels are available, the third dose level is currently being tested. Important here is that we include Richter’s transformation patients, which are typically — which typically is not the case in CLL trials. And we see very good results, I’ll come back to that in a minute. We aim for the top line results of the 3 dose levels of mid-’23. And the data will be presented at ASH later in the year. Here, the next slide shows you the first data and shows that we had an overall response rate in 6 out of the 7 patients — 7 out of 7 patients, with 6 out of 7 having a complete response. And on the right side of the slide, you see a patient with Richter’s, where after 28 days, the patient is in complete remission and no disease is detected anymore with biomarkers in the body of the patient.

The swimming plot of the patient shows you that, in the 2 different levels, all the responders — overall responders and all the complete responders, with 1 patient relapsing after 5 months with CD19 escape. What is very encouraging here is that all the patients with Richter’s transformation had a complete response. We are further recruiting into these studies. And as I said, an update will be given later in mid this year and data will be published as we go on the large conference. We continue on the safety side to prove the safety of the product. Also again remarkable, we don’t see a Grade 3 or 4 CRS in any of the patients in the 2 dose levels we tested so far. And also, no neurotoxicity or ICANS, as we have observed in the whole study. So overall, high efficacy, very complicated patients and very good safety profile.

At this moment, I would like to transition to Bart. It’s an important meeting. It’s Bart’s last call, as you probably have read in the press earlier this week, because Bart is going to leave us. I want to thank Bart for his contribution, over 9 years, to the company with — he has been the leader of introducing us on Nasdaq. He was the — instrumental in getting the Gilead deal done. He built the European commercial organization. And so much more day in and day out. And very important was that Bart was on my side to transition into Galapagos, and we have had a very productive collaboration over the last 14 months. So Bart, I give it to you.

Bart Filius: Thank you, Paul. Thanks for those kind words. Good morning, everyone, good afternoon. Indeed, this is going to be my last webcast. I also would like to express, first of all, my thanks to all of you shareholders, investors, analysts and anyone else listening into this call and previous calls. We went through this together in some ups and some downs. But again, thank you for following the story, for following Galapagos. It’s been really a fantastic 9 years at the company. But now, after having been able to support the leadership transition over the last 12 months, the time maybe has come for me to explore new opportunities. Having said that, I’ll go through, for the last time, the financials and operational details right now.

And obviously, we are all available for Q&A right after. Starting with Jyseleca sales. Honestly, Jyseleca sales were a bit disappointing for us in the first quarter. They were really weaker than anticipated. It looks like the impact on the JAK class in terms of market share in advanced therapies has been stronger than what one would expect based on the actual outcome of the drug review and the label change. So it looks like doctors take a conservative approach, at least in the first reactions and the first resulting market shares. Now it’s very early days. It’s really 1 quarter, and we’re really in the midst of evaluating the impacts of the label change, the impact of how it’s perceived in the markets; but also the duration, whether we’re talking about, let’s say, a quarter of slow growth or whether it’s actually a longer-duration impact.

So as a result, we’ve decided to revisit the guidance at the Q2 call in early August. So today, we are neither withdrawing nor confirming our existing guidance. But it goes without saying that we will need to see real strong return of quarterly growth as of Q2 to really reach our original guidance range. So a bit disappointed in terms of impact in Q1 of Jyseleca sales. Then if I go to the next slide, say a few words about our cash position. EUR 4 billion at the end of Q1 with a EUR 99 million quarterly cash burn. As you know, we are confirming again our full year cash burn range of EUR 380 million to EUR 420 million, so the EUR 99 million fits perfectly into that trend after 1 quarter. Obviously, another element of interest, I think, for all of you and definitely for all of us is the treasury management around cash in 2 dimensions: One, from a risk management point of view; and secondly, from a return point of view.

Happy to say at least that, on a risk management point of view, we’ve not been exposed to any of the financial institutions that went into trouble over the last quarter. We have a very, very conservative investment policy. We spread our total cash balance across term deposits at financial institutions of the highest grades; money market funds that can also deliver diversity in investments; and also T bills, up to AAA-rated T-bills. So a conservative approach. In terms of euro-dollar, the second question I’ve been getting a lot over the last period, we are still approximately 80% in euros, 20% in dollars. We are a euro-denominated company. We do not want to take exposure on the dollar beyond what we believe is our operating exposure in the future, and we’ve estimated that to be around the 20% mark.

Then on the return side of cash. We’re really happy that — obviously, that we’re starting to get into a positive interest rate territory. We think actually that, over the full calendar year, our return on our capital can reach a level of approximately 3% of the total outstanding balance on average. There’s a little less in the earlier quarters, a little more towards the end of the quarters. We were invested very short, but some of these T-bills and term deposits, obviously, you need to unwind from previous quarters. I would like to stress, however, that not all of the 3% you’ll find back in our cash burn or our cash inflows because some of this invested, for example, in money market funds, ends up to be a fair market value effect, which you find in the middle category here also on this chart, which also includes currency exchanges.

So cash burn-wise, it will not be around the 3%, it’s going to be probably more around the 2%. But in terms of actual results that we reach, that sort of the range that we anticipate, , what you will see reflected also in our cash balance at the end of the year. If I then go to the P&L, we had a good quarter from a P&L point of view. We ran a profit of EUR 23 million. A big driver thereof is revenues. Revenues were significantly higher in revenue recognition for filgotinib. The key driver for that is unfortunately a negative event, which was the DIVERSITY study. As a result of the DIVERSITY study, we have cut down the development budgets for the future. Obviously, we’re not going to invest in Crohn’s from here on. And as a result, our percentage of completion — it’s a bit technical, but that’s the way we account for this.

Our percentage of completion of the filgotinib development program has effectively gone up because the total expense has gone down. And then we recognize this as a one-off effect of about EUR 50 million in our first quarter in the revenue line. Revenue recognition for the platform is stable at EUR 58 million. And we talked about the sales level for Jyseleca previously. Operating costs are flat versus last year, which is a bit of a mix effect between, on one hand, oncology going up, some other expenses going down. And indeed, interest income is supporting our net results, giving us a net profit for the quarter of EUR 23 million. So far with regard to the financials, then let me conclude by the outlook slide. The key top line results that we are anticipating this summer are the results with the NHL and the CLL trials with ‘5101 and ‘5201, the CD19 programs that Paul has spoken about.

On regulatory process, we have the CD19 IND submission still to go, but we’re happy that we’ve also now gotten the approval for — the CTA approval for BCMA program in-house. And in terms of trial initiations, the AxSpA trial has started. Dermatomyositis and lupus will start shortly. We have also the plan to start a CD19 trial in lupus later this year with our CAR-T program. And then we are also intending to start the expansion cohorts. And the Phase I/II with the BCMA as well is going to start shortly. And then finally, we are very active also on the BD front. We also aim really to execute on additional BD deals in calendar year 2023. Let me conclude with, again, saying thanks to you all. And I hand it over to the operator for the Q&A.

Sofie Van Gijsel: Thank you, Paul and Bart. That concludes the presentation portion of today’s audio conference call. I would now like to ask the operator to open up the line for Q&A.

Q&A Session

Operator: [Operator Instructions]. The first question comes from the line of Brian Abrahams from RBC Capital Markets.

Operator: Your next question comes from the line of Mike Ulz from Morgan Stanley.

Operator: The next question comes from the line of Peter Verdult from Citigroup.

Operator: Your next question comes from the line of Dane Leone from Raymond James.

Operator: [Operator Instructions]. Your next question comes from the line of Jason Gerberry from Bank of America Securities.

Operator: [Operator Instructions]. Your next question comes from the line of Brian Balchin from Jefferies.

Operator: [Operator Instructions]. There seems to be no further questions. I’d like to hand back for any closing remarks.

Sofie Van Gijsel: Thank you, operator. This concludes today’s call. Please feel free to reach out to the IR team if you still have questions. Our next financial results call will be our H1 2023 results on August 4. Thank you all for participating, and have a great rest of your day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.