Galapagos NV

Welcome all to the Galapagos Capital Markets Day and third quarter results. This presentation is webcast and accessible via the Galapagos website homepage. The presentation 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 in 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. We start today with a strategic and financial update, followed by a deep dive in our efforts in oncology. Next, we discuss our immunology franchise and commercial capabilities, followed by Q&A. And with that, I'll now turn it over to Paul. Thank you.

Well, thank you, Sophie. And all welcome to the Galapagos R&D Day. Happy to be here in New York today, and thank you for joining. My name is Paul Soffels. I'm the chairman and CEO of Galapagos. I'm a physician scientist and headed to R&D at J&J for the last 12 years before I retired from J&J at the end of last year. In April this year, I took over from the CEO, Arnold van der Stolpen, and have been working with the teams on the renewed strategy since then. I co-founded Galapagos back in 1999 as a target discovery company and have been working alongside all over a long time. But this was done at a time before the human genome was sequenced. So it was at that moment a transformational company with a breakthrough new technology. And the company was successful in putting its first medicine on the market, Yaiselica, in Europe, which was a big achievement for a company to go end-to-end from the start of a new target to getting a product on the market. Galapagos evolved from a target discovery company to a fully integrated biopharmaceutical company over the last 20 years, focused on small molecules, drugs, and fibrosis and inflammation. Today, we will talk about our plan to accelerate our path to new medicines, focus on our strategy on immunology and oncology, and broaden our platforms, including biologics and CAR-T. We will expand external innovation efforts to bring new medicines in late preclinical or early clinical to Galapagos. And this should result in a strong late stage portfolio in 2028 and potentially already one new medicine on the market. Last but not least, we continue to build on a strong relationship with Gilead to commercialize outside of Europe. While we were successful with Gizellica, we experienced some mid-term failures in our pipeline. And we are now embarking on a significant acceleration strategy with the aim to bring multiple late-stage assets into the pipeline, as well as one additional product in the market by 2028. We'll focus on areas with high medical need, from a new target discovery research and development of small molecule medicines in inflammation and fibrosis, to a disease area-driven strategy in immunology and oncology, deploying best-in-class targets and expanding into biological modalities such as antibodies and CAR-Ts. We have a strong balance sheet of $4 billion cash, and we are aiming to use our cash in a disciplined way, on the research and development of new drugs to maximize the value creation. We can build on a very strong fundamental in the company. On the one hand, we have deep scientific expertise with 20 years of R&D experience and strong teams in our four research centers in Europe. We built a European commercial infrastructure, which launched at Celica in R.A. and U.C., and that gives us a real strategic advantage now, where we have built in a very challenging market, Europe, where every country has different rules, the connection with the payers, the connection with the regulatory authorities, and also with the authorities in the countries to distribute drugs. Going forward, this allows us to launch products in Europe fast, and we already will be able to benefit from that with a strong basis in the launch of a CAR-T in Europe. We are continuing to leverage the R&D capabilities of our partner Gilead, as well as their commercial infrastructure for the US market for our medicines. I consider this as a strong asset. We can co-develop in phase three, accelerate a launch, and we get high royalties on sales. That allows us to do much more, much faster on a global scale and have significant impact. Using our financial strength to create a strong pipeline in accelerated time by select BD and disciplined spending will even further accelerate our pipeline. So the combination of internal research combined with external access to new assets focused on high medical need will be able to accelerate the value creation at the company. So our objectives for 2028. In early stage, by 2028, we should have 10 lead optimized compounds and five preclinical assets ready for the clinic. In late stage, it is our goal to have five assets in late stage development, of which three are cell therapies and two small molecules. We think that is feasible. In the market, very important, we aim to bring at least two new indications for Yaiselica, as well as one cell therapy in multiple indications. Also that, because of the high medical need in oncology, is a possibility for us, and we aim to do that by 2028. We will continue to do business development. Next slide, please. And in order to even further accelerate our pipeline, what are we looking for? On the one hand, for fast access to market, as I was explaining, time to market is for us now a critical prerogative in order to make this happen. Late preclinical and early clinical stage to preserve a lot of the value creation from within the company. Buying late stage assets, very expensive, and most of the value you pay out to all the shareholders. We would like to go early stage, late clinical, early preclinical. in order to continue to add significant value ourselves. We have commercial leverage in Europe, which is very attractive for many companies to work with us, with a strong focus on immunology and oncology, and within that, high unmet medical needs. Going for the string of pearls approach, how can we bring a number of assets on board from internal or external in the development stage and accelerate them to market? What do we bring for partners? End-to-end development capabilities. We've done it before. We have a strong leadership and entrepreneurial mindset. A proven commercial rollout now adds to the strong capabilities of the company. where needed and possible, a collaboration partner with Gilead bringing additional assets and global reach for companies who want to work with that. And last but not least, a solid balance sheet which gives us the time to make this all happen in the next five years. So supplementing internal science with external innovation is the way we want to succeed. Next. So The portfolio we focus on, immunology and oncology, is a very important one because that focuses us on specific areas in immunology as well as bringing in a new area with high medical need. Filgotinib, which is in the market, and the team will talk about it later, for RA and UC, it's approved in Europe and doing very well. We expect big things from Yaiselica going forward as it really solidifies in the market. We will have a phase three data for Crohn's disease in the first half of next year. And we are starting a new study, a new indication, AXPA, now in phase two. We have good evidence for a strong tick two. with 3667, and we are starting a study in dermatomyositis, followed by one in lupus in the course of next year. And then from our SICK portfolio, we will continue to further explore the SICK3 for 399 in RA, and the rest of the SICK portfolio in preclinical to see how can we bring this very interesting new target into the clinic in a later stage. Really new for us is CAR-T. And we built CAR-T on the basis of having access and bringing in cell point with access to a decentralized production tool. A small company like us could never have the ambition to be a large CAR-T company in the world with differentiated technology. And that's what we do here, combining a CD19 technology Two CD19, two existing CD19s on a new platform testing it out. It's in phase one, two at the moment. We're entering with the BCMA into the clinic early next year. And then our later stage objectives are having next-gen CAR-Ts combined with a next-gen CAR-T platform for production, and so being a big player in this space. In order to do so and to focus the company, we do a pipeline rationalization where we will discontinue fibrosis and kidney and refocus our resources and capabilities on oncology and immunology. Now I leave it to Bart for talking about the financials. Thank you, Bart.

Thank you, Paul. And good morning, everyone, here in New York, also from me. And good afternoon for those of you that are in the webcast in Europe. Thanks for joining. Let me say a few words about the financials, about capital allocation. But it's also our Q3 release. So there's also a bit of, I would say, corporate housekeeping here in terms of clarifying the numbers for the Q3 report that went out yesterday. So first, I always start. Let me see if I can get this working. Yeah. Yeah. With the cash balance, 4.4 billion at the end of September, a very healthy cash balance, obviously, for our company. We reiterate our guidance for the year, still between 480 and 520, as we announced at the end of Q2. Our cash burn itself over the first nine months has been 340 million euros, and you see two additional impacts that sort of wash out. One is that we have had the benefit of the dollar appreciation over the first nine months of the year that has offset the investments that we've done on acquisitions, most notably the acquisitions for CellPoint and Abound. On the P&L side, revenues, $440 million. That always includes two non-cash items that are recognition of accounting revenue for Filgotinib, and recognition of accounting revenue for the Gilead transaction that we signed in 2019. But there's also now a significant portion here in cash revenue that's coming to be part of our P&L. And we're very proud with the sales number of Jaiselica. We have 60 million of sales in the first nine months of the year. And with that, we are also increasing further our guidance for Jaiselica for the full year, to 80 to 90 million euros. And we started the year off at 65 to 75. This is our second raise in terms of revenues. But with the 25 million Q3 sales number, we feel comfortable that we are in the 80 to 90 million range when we close the books at the end of December. So good, healthy revenues from Forgottenip. And Michaela, our chief commercial officer, will detail more about the performance in the markets later on this morning. There's also royalties here that relate to Japan that also includes the UC approval in Japan. and a couple of milestones from our partner, Sobi, who is now also launching Jaisetica in Eastern Europe. Our operating results, 135 negative. The most notable point here is a depreciation on our Oncoarendi transaction in fibrosis that we had done already in Q2. And you also see an increase in sales and marketing expenses compared to last year. which is mainly driven by the fact that this year, in 2022, we're no longer sharing the commercial cost in Europe with Gilead, but we're taking that on fully ourselves. Overall, the net result is almost break-even. Again, we're helped here by foreign exchange, net other financial income of 130 million euros. With that, then, maybe a few words about longer-term perspective on cash burn and capital allocation. First, a view on 2023, and then I'll continue for the longer term as well. So as I've said, the guidance for this year is about 500 million euros, and you can see here on the left how that's split out between burn that is connected to Giseleca, and that includes both the investment that we're still making in the development of Giseleca, for example, in Crohn's disease, where we've got a big trial still ongoing in phase three, but also the investments in the commercial rollout of Giseleca in Europe. So that's a big portion of that burn, and I'm highlighting that particularly because obviously as Gia Celica progresses, as the numbers increase, that burn will come down significantly, and I'll show in the next slides that we actually anticipate that burn to be completely disappearing as of 2024. In orange, you see the R&D burn. That's actually all the research that we do, but also the activities that Paul was highlighting on our TIC2, on our SIC program, and on our self-therapy program, and then corporate and G&A costs there as well. Now, what's happening into 2023? There's actually four big elements that I believe are noteworthy here. So it's too early to give a precise guidance. We'll come with that as usual in our February announcement of full-year results. But on the Giseleca side, we should take into account that this year we're still receiving about 80 million euros from Gilead in terms of payments for development costs and also, as I said before, the approval for UC. And that will be non-recurring. So that's what I call a bad guy in terms of the... perspective towards next year because we're not going to get that same cash in next year. On the other hand, that's going to be fully and more than offset by the performance that we anticipate for Giseleca and also the reduction in development costs that we're going to be seeing already in 2023. So overall, we anticipate the Giseleca burn to go down next year. On the R&D side, there as well, we anticipate the burn to go down next year, and we've taken the decision to discontinue fibrosis in kidney, not just for the scientific prospects of those two therapeutic areas, but also to free up resources to invest in oncology. And we've announced yesterday also to our teams in Galapagos that we will be reducing the workforce with 200 positions. And as a result, we anticipate a saving compared to this year on those two franchises. And that saving will be offset, not fully, but will be offset to a large extent with investments in oncology as we're building out that franchise in 2023. So overall, again, the message is cash flow in 2023 is going to be lower next year than it is this year. But it's not going to be a significant reduction as a result of those non-recurring Gilead payments and as a result of the investments in oncology. Then a look at the longer term. So first of all, 2024. We anticipate in 2024 that Jaiselica can be break-even. And break-even here is defined as commercial income and the deductions for R&D on Jaiselica and the deductions for the commercial investments in Jaiselica. So there's no overhead and GNA allocation included there. But overall, from a product point of view, we believe that Jaisalica will be breakeven in the course of 2024. And that's good news because it means that the gray part of this Casperian forecast is going to disappear. And as of 2024, we will be at a significantly lower level of R&D and corporate spend. Now, there's an arrow in there in 2024 going up and down on the R&D side. Obviously, it's very difficult to predict where we're going to land exactly in terms of our R&D spend. This is going to be dependent on the results scientifically that we will have over the next, let's say, 18, 24 months. So it can be a bit more. It can be a bit less. Also, obviously, if we would do significant business developments, this would also change the R&D burden. But everything being equal, if you look at our current spend, we anticipate that 2024 will see a significant reduction in cash burden. But then if you look forward, and you look forward five years to 2028, you'll see that if Gia Celica starts to become closer to its peak, and as a reminder, our peak sales expectation is about 500 million euros, we believe that Gia Celica has the potential to deliver about a 50% product contribution, i.e. deliver actually cash into the company of about 250 million euros. And again, everything else being equal, which we all know is not going to be the case by 2028, but I wanted to show this to you because it basically tells us that we're going to be significantly reduced by the time we reach 2028 in terms of cash burden, and we have the potential to invest in other R&D from there on. So I hope this clarifies a little bit the capital allocation from an ongoing cash burden perspective. And with that, I hand it over to Paul on the ecology franchise.