Galapagos NV

Thank you and welcome to the audio webcast of Galapagos' full year 2022 results. I'm Sofie van Heefel, 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 Soffels, CEO, and Bart Filius, COO and President. Paul will reflect on the operational highlights of the year and provide an update on our oncology and immunology franchise. 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 Manso, Chief Commercial Officer, and Daniele D'Ambrosio, Head of Immunology. And with that, I'll now turn it over to Paul.

Good morning and good afternoon and welcome to our 2022 annual results reporting. So thank you for joining. It goes without saying that 2022 was an eventful year at Galapagos. We made significant progress with good sales performance and further rollout of the commercial organization. We entered a new therapeutic area with oncology with the acquisition of Abound and CellPoints. We made significant progress in the regulatory review with Gyselica on both on the testicular safety with the Manta CHMP positive opinion, as well as with the adoption of the PRAC regulation recommendations. In our Capital Markets Day, we shared with you our vision on 2028, and our new strategy focused on immunology, oncology, and accelerating time to market for drugs. But we also disclosed to you the further optimization of our organization with the structuring of 200 people out of the organization and a new organizational structure. And then later in the year we were able already to highlight the first good data of our ongoing trials with our CD19 in NHL and I'll also give you an update on the more recent data on CLL. Galapagos remains and positions itself for strong growth in the future. We focused a pipeline on immunology and oncology, going first in class to best in class, adding into that business development, new opportunities, external opportunities, and accelerated entry in oncology with CAR-T. and with new modalities. We now have the ability to do cell therapy and also, on top of the small molecules, we can do now biologicals in our modalities. We continue to build on a long-term Gilead collaboration, both on the R&D side but also on BD, with multiple interactions and exchange of information between the two companies on the future for our collaboration. At the end of 2022, we had a cash position of $4.1 billion, and that gives us a strong basis to continue to work for an accelerated path to market with several drugs in our pipeline. Here you have a top-line view of our current pipeline. Unfortunately, Crohn's disease was taken out as we missed the co-primary endpoints. in induction. We are excited to announce the start of a phase three in AXPA, and more of this will follow later in the presentation. Also in our immunology portfolio, we added a CD19 CAR-T program in refractory lupus. And then in Onco, as I early indicated, we made good progress on the CD19 programs with NHL and CLL, as well as we are initiating imminently a study with BCMA in multiple myeloma program early this year. In our oncology roadmap for 2028, as we showed on the Capital Markets Day, our short term is to validate decentralized CAR-T delivery models. We generated very encouraging initial data already in NHL CLL, as well as a very solid production method to be able to do this CAR-T production as point of care in hospitals. In the medium term, the focus will be to further enhance our pipeline with best-in-class cell therapies, where we are looking both internally with our Abound research team, as well as with business development opportunities, and further scale up the decentralized CAR-T platform globally, with launching this year several centers in the United States. In the longer term, we can further leverage the capabilities we are building today in small molecules, antibodies, and also in CAR-Ts and continue to address unmet medical needs, most likely including CAR-Ts in solid tumors. This is a top line of the more recent data on the eplagia CD19 CAR-T phase 1, 2 in the refractory relapsed refractory CLL. And what you see on the slide is the Phase 1-2 design in CLL with point-of-care, which we presented at the recent EBMT-EH meeting in Rotterdam two weeks ago, where we have two dose levels which are currently being tested. If you look at the slide, you see we have three dose levels tested in a dose escalation study, and that is then followed by a dose expansion when of particular doses we select to do that for. We aim to present the top line data around mid of this year. Next slide shows you the encouraging results we have. Overall, the response rate of the first seven patients, six out of seven had an objective response rate and had a complete response. And six out of seven had a complete response. On the right scan, you see a patient with Richter's transformation that is in complete remission at day 28 after treatment with one dose of CAR-T. This is based on a PET scan evaluation which can be done 28 days after start of therapy. Going more in details of these results, here you can see that the swim lane plot where four patients out of the seven with CLL had Richter transformation. And Richter transformation is manifest as an aggressive lymphoma with a very poor prognosis. It are mutational alterations where CLL transform into a more aggressive DLBCL. And today the unmet need remains very high and there are no currently available treatments and overall survival is between six and 12 months when patients receive this diagnosis. What you see here in dose level one and two, that four out of four patients with Richter transformation got a complete response within four to eight weeks. That is in one out of the seven patients with CLL got a CD19 negative escape. Overall, this is very encouraging and gives us good hope that we can progress this 5201 CD19 into further clinical expansion cohorts, as well as into pivotal studies later in the year. If you go to the safety, then you see that so far, safety-wise, we see a very encouraging profile. No CRS above grade two, and no ICANNs were absorbed. And this is in line with the safety data for the CD19 in NHL, where we saw similar data as we presented last year. Now, going through the Crohn's disease diversity study, unfortunately, in the induction phase, the two cohorts missed the co-primary endpoints of clinical remission and endoscopic response at week 10. Maintenance looked much better. Filgotinib 200 milligram achieved the co-primary endpoints of clinical remission and endoscopic response at week 58. Safety was generally consistent with the known profile of filgotinib with no new safety effects. But based on the data, we decided not to submit for approval with regulatory authorities in Europe. We remain fully committed to Fulgotinib in the approved indications, RA and UC, and now to the development of AXPA. On this slide, you see a progress in AXPA. Well, first of all, the data, the positive data from Tortuga, the phase two trial in AXPA, which was published in The Lancet, in 2018 where we saw an immediate response starting from week one with a very good continued response up to week two and at the end point of the study. The AXPA is an indication in spine and sacroiliac joint, a very heterogeneous clinical feature It's a high medical need, only 15 to 20% of the patients get into remission, and limited options are available, as well as no new mode of actions are expected in the next few years. So there is a real opportunity for us to expand filgotinib into that area. EUC, the design of the study, it's going to be a study in radiographic and non-radiographic EXPA. Comparing filgotinib 200 milligram with placebo, 238 patients will be enrolled and either treated with active or placebo. The endpoint ASS40 will be scored at week 16 and will be in an open label up to week 52. The start is anticipated in Q2 this year and top line data are expected in 2025. This concludes my remarks on the clinical side. Bart, leave it to you for the financial.

Thank you, Paul. And good morning, everyone in the US. Good afternoon in Europe. Happy to be with you for the annual results and happy to also give you some color to the numbers that we've completed the year with. So let me start off with something that we're extremely proud of at Galapagos, which is the European performance of our commercial teams with Jaisalica, as you can see here. We are landing now the year at 88 million in terms of sales of Jaisalica in Europe. And as you remember, we've been able to increase our guidance twice during the year, and also this number is at the top end of that guidance range. And that was in the year where there was the Article 20 review of the entire class. We are extremely proud with this achievement. We're treating now 18,000 patients across Europe, and that number is increasing. Two noteworthy events in addition. First of all, we got the feedback from the EMA or the CHMP opinion on the Manta and Manta-Ray studies and how we can adjust the label for that. And that opinion was positive, and we'll be able to, in the course of this year, update the label accordingly. So we're very pleased with that, that that point is off the table for the European market. And secondly, we've also seen the outcome of the Article 20 review process, and it has confirmed that Jai Sadaka remains available for both biologic refractory and biologic naive patients, and that any limitations are indicated for high-risk patients. So we're also pleased with that outcome for the entire class, because we believe the class is a very strong class for patients with RA and UC. And I'll give a bit further detail and guidance in a few slides, in a few seconds, but indeed next year, this year I should say in 2023, we anticipate sales to go up again between 140 and 160 as a range is what we're forecasting. Then a couple of words on the next slide on the actual financial results, and then we start off as usual with the cash position. As you know, we focus on cash burn, and our guidance was between 480 and 520. We've landed at 514, which you can see here in dark green. We always exclude from the cash burn cash out from acquisitions. The 150 here reflects the acquisitions of CellPoint and about bio earlier this year. And we also exclude currency effects from cash burn, which was a 50 million positive. Compared to the Q3 results, obviously that number's a bit lower. We've seen the dollar fluctuate quite a bit during the year, very positively in the first nine months, a little bit in the other direction in the last three months of the year, but overall still a positive 51 million contribution to our cash balance from the dollar-euro exchange rates. So we're landing the year at 4.1 billion euros of cash on our balance sheets. which as a reminder reflects a good 62 euros a share. Then on the next slide, a couple of words on the P&L. We focus always on product sales and cash burden because we believe that these are the strong metrics to focus on to evaluate Galapagos. A lot of other things are going on in the P&L. Some of these are accounting. For those of you that are following the story longer, You see a couple of these things coming back every quarter. We always assess the development costs for Filgotinib until the end of the development period. And based on that, we recognize the income that we received from Gilead over the last couple of years. And we recognize that over that period. And that has generated 174 million of revenues in the year 2022. And also the remainder of the GLEA transaction from 2019 is a recognition that we see every year coming back in our numbers, 230 million on a straight line basis. And as a reminder, there is still in our balance sheet about two billion of revenues still to be recognized over the next couple of years, one and a half on the platform, and half a billion on Jaisalica. Then the product sales we discussed. On top of that, we have also royalties coming from the Japan business and a couple of sales milestones from our partnership with Sobi. On the operating cost side, we've seen an increase in operating costs. There's a couple of things happening under the hood, if you like. As part of the discontinuation of some of the programs in fibrosis and kidney, we've also taken some impairments in the last quarter. Total impairment charge for the year is about 55 million. Some of this was already in previous quarters, but that's what I would call cleanup of the intangibles on our balance sheet from some of the discontinued programs. What also is happening here is that we've put some restructuring costs into our P&L for 2022. As Paul was alluding to before, we've downsized our organization quite meaningfully, and as a result, we've taken a charge in the 2022 P&L for this. And finally, another important one that's been already noted several times during the previous quarters is that this year, 2022, we've had for the first time no cost share with Gilead on the commercial and medical affairs expenses. So that is no longer part of income or reduction of operating costs. As a result, you see sales and marketing costs going up a bit from year 2021 to 2022. Net loss then comes at 200 million negative, which includes the FX income, as I pointed out before. Then guidance for the next year, already spoke about sales, so between 140 and 160 we believe is feasible. That does reflect, I think, the current growth trends year over year that we've seen in 2022, and also now coming back in 2023. It also does include further launches in some countries in Europe. We know that UC has been launched in quite a few countries, but there are still a couple to go or a couple are also very early days in the launch. So we anticipate also some further UC launches throughout Europe to help us achieve that number. And then on cash burn guidance, obviously this has been a big focus for us to make sure that we spend our cash wisely. When we did the R&D day, I indicated that we would be reducing our cash burn compared to 2022. And actually, I'm happy to report that we're actually going to be able to reduce it by more than 100 million euros to land at, if I take the midpoint, 400 million euros of cash outs for the year. And that's the result of the program discontinuations that we highlighted. Also, the GESETICA performance, obviously, the organizational restructuring. We have a bit more friendly interest rate environments. And on the other hand, we're also investing in the other direction in the oncology buildup. Net-net, we should be able to significantly reduce our cash burden in 2023 compared to 2022. Then a few words on the overall business case for Gysetica. Obviously, we were very disappointed with the readout of the diversity trial, and therefore we have had to take out Crohn's from our peak sales estimates. And we now believe that we're going to be landing around 400 million at peak. And that includes RA and UC, which are already on the market, but also axial spondyloarthritis, which we plan to launch in a couple of years' time. So 400 million is the net-net outcome of taking out Crohn's, adding X-SPA, but also taking into account any impact from the Article 20 outcomes of the review that was done last year. We still believe that the contribution margin can stay at 50% or even a bit better than that. So net-net, if you look at the peak here, previously we were estimating 500 million at 50%. We're now guiding for 400 million at 50%. So the net-net impact of losing Crohn's in Europe from our business case is about 50 million at peak. Full commercial structure is in place. breakeven product contribution, we're shifting it one year backwards. It's quite a small adjustment, but in full transparency, we're just not going to be there at breakeven in 2024. We're losing a milestone on Crohn's in 2024, which was foreseen, and we're also paying a little bit higher royalties to our partner Gilead as a result of the loss of diversity. So net-net, we're going to be slightly negative in 2024 still, but we should be positive in 2025, but that gives us then an additional 10 years of patent exclusivity to benefit from the proceeds of Gyselica to our company. Then I'll conclude with an outlook on the clinical side for 2023 before we give it over to Sophie for Q&A. So key top line results that we're anticipating are the results in NHL and CLL with our two CD19 programs at the point of care. We've had some initial results there already. We will be excited to look at the full top-line results later this year. In terms of regulatory process, also in the oncology space, we plan to have a submission for IND for the CD19 program, but also clinical trial approval for the BCMA program. And trial initiations, quite a few. The AXPA first patient, first visit is anticipated, as well as for 3667, our TIK2 inhibitor, in dermatomyositis and lupus. Then we're also excited to start a program with our CD19 in lupus, and we'll initiate that trial also in the course of this year. We'll initiate the expansion cohort in NHL and CLL, and then finally the BCMA program will also get off the ground in the course of 2023. So a lot going on on the clinical front. And I'm sure that we're gonna have a little bit of discussion of that in the Q&A as well. We're still very much looking out for additional business development deals, both for clinical programs and preclinical programs. And we believe that that's got to be an important part of the transformation journey that Galapagos is on currently. With that, I conclude the opening remarks and suggest to go to Sophie and the operator for the Q&A. Thank you very much.