Letter from the management
The Galapagos team continues to push the limits, with progress in our inflammation, cystic fibrosis, and other pipeline programs in the first quarter of 2017.
In addition to the FINCH, DIVERSITY, and SELECTION Phase 3 programs initiated last year with filgotinib, Gilead started additional Phase 2 studies in small bowel and fistulizing Crohn’s disease as well as in Sjögren’s syndrome and cutaneous lupus erythematosus. Adding the Phase 2 studies in psoriatic arthritis and ankylosing spondylitis that we initiated this quarter, filgotinib currently is being investigated in nine different inflammation indications. We expect more studies with filgotinib in new indications to be initiated throughout 2017. We now have in excess of 1,500 patient years’ experience with filgotinib in RA patients, as DARWIN 3 continues; we expect to report the first longer term interim readout from DARWIN 3 at EULAR in June this year.
We delivered on our promise to show strong progress in cystic fibrosis, with several study starts in the first quarter, including the Phase 1 study with a combination of novel potentiator GLPG2451 and novel corrector GLPG2222 in healthy volunteers. We plan to initiate a patient evaluation of a potential triple combination therapy by mid this year.
We also completed recruitment for the FLORA Phase 2a study with fully proprietary autotaxin inhibitor GLPG1690 in IPF patients this quarter. Topline for this study is expected in the second half of this year.
Also this quarter, we welcomed Walid Abi-Saab to our executive committee, in the role of Chief Medical Officer. Walid is building his team and has taken over operations for filgotinib within Galapagos. Walid comes at a great time for Galapagos, as we grow the late-stage pipeline and move closer to running our own Phase 3 programs in the future.
We look forward to updating you on execution of our strategy this year, on our way to becoming a fully integrated biopharmaceutical company.
Operational overview Q1 2017
- Our collaboration partner Gilead initiated new Phase 2 studies with filgotinib in small bowel Crohn’s disease and fistulizing Crohn’s disease
Cystic fibrosis (CF)
- We plan to initiate a patient evaluation with a potential triple combination therapy in mid-2017
- We reported dosing of the first patient with Class III (F508del and a gating mutation like G551D) with novel CF corrector GLPG2222 as an add-on to Kalydeco®1Kalydeco® is a potentiator drug marketed by Vertex Pharmaceuticals. in a Phase 2a study
- We opened an Investigational New Drug application with the US Federal Drug Administration for novel corrector GLPG2222 triggering a $10 million payment from our collaboration partner AbbVie
- We initiated a Phase 1 study with a combination of GLPG2451 and GLPG2222
- We initiated a Phase 1 study with novel potentiator GLPG3067, triggering a $7.5 million milestone payment from our collaboration partner AbbVie
Idiopathic pulmonary fibrosis (IPF)
- We completed patient recruitment for the FLORA Phase 2a study with GLPG1690 in IPF
Corporate & other
- Dr Walid Abi-Saab joined as Chief Medical Officer of Galapagos
- We were awarded a €1.4 million grant from Flanders Innovation & Entrepreneurship (VLAIO) for research efforts towards the identification of new strategies in the management of autosomal dominant polycystic kidney disease
- On 4 April 2017, we announced that our collaboration partner Gilead will initiate a Phase 2 study with filgotinib in Sjögren’s syndrome
- On 5 April 2017, we announced the start of a Phase 2 study with with filgotinib in ankylosing spondylitis and psoriatic arthritis; the initiation of the latter triggered a $10 million milestone payment from Gilead to Galapagos
- On 6 April 2017, 247,070 warrants were exercised at various exercise prices (with an average exercise price of €16.33 per warrant) resulting in a share capital increase (including issuance premium) of €4 million and the issuance of 247,070 new shares. The closing price of the Galapagos share at this date was €84.60. The exercise price of these warrants was received from the warrantholders end of March 2017 and was classified as restricted cash in the Q1 financials
- On 21 April 2017, we announced the closing of our underwritten public offering of 4,312,500 American Depositary Shares (“ADSs”), at a price of $90.00 per ADS, before underwriting discounts, for gross proceeds of €363.9 million. This includes the full exercise of the underwriter’s option to purchase additional ADSs. Each of the ADSs offered represents the right to receive one ordinary share. The estimated net proceeds of this public offering after underwriting discounts and offering expenses amount to €348.0 million
- On 25 April 2017, we announced that our collaboration partner Gilead will initiate a Phase 2 study with filgotinib in CLE
Q1 2017 financial result
Revenues and other income
Our revenues and other income for the first three months of 2017 amounted to €39.9 million, compared to €14.8 million in the same period of 2016. Revenues (€34.0 million vs €10.1 million for the same period last year) were higher thanks to increased milestone revenues and revenue recognition of upfront payments. The milestone revenues were related to our cystic fibrosis program with AbbVie, whereas the revenue recognition of upfront payments related to our filgotinib program with Gilead. Other income increased slightly (€5.9 million vs €4.7 million for the same period last year), mainly driven by higher income from R&D incentives.
We realized a net loss of €13.6 million for the first three months of 2017, compared to a net profit of €35.9 million in the first three months of 2016. Last year’s result was primarily driven by a €57.5 million fair value gain from the re-measurement of the financial asset triggered by the share subscription agreement with Gilead.
We reported an operating loss amounting to €11.2 million for the first quarter of 2017, compared to an operating loss of €17.4 million for the same period last year.
Our R&D expenses in the first three months of 2017 were €44.9 million, compared to €27.8 million for the first quarter of 2016. This planned increase was due mainly to an increase of €11.7 million in subcontracting costs for our filgotinib and cystic fibrosis programs. Furthermore, personnel costs increased explained by a planned headcount increase, as well as higher costs for warrants and bonus plans as a result of the increase of our share price.
Our G&A and S&M expenses were €6.2 million in the first quarter of 2017, compared to €4.4 million in the first quarter of 2016. This increase primarily resulted from higher costs recognized for warrants and bonus plans as a result of the increase of our share price.
Net other financial expenses in the first three months of 2017 amounted to €2.4 million, compared to net other financial expenses of €4.1 million for the same period last year, and were primarily attributable to €2.5 million of unrealized exchange loss on our cash position in U.S. dollar.
Liquid assets position
Cash, cash equivalents and restricted cash totaled €958.6 million at 31 March 2017.
A net decrease of €19.9 million in cash and cash equivalents was recorded during the first three months of 2017, compared to an increase of €638.0 million during the same period last year. Net cash flows used in operating activities amounted to €22.8 million in the first quarter of 2017. Furthermore €5.5 million was generated in investing activities primarily driven by the release of restricted cash to cash and cash equivalents for €6.6 million, and finally €2.5 million of unrealized negative exchange rate differences were reported on cash and cash equivalents.
On 31 March 2017, our balance sheet held a receivable from the French government (Crédit d’Impôt Recherche2Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.) amounting to €37.0 million, to be received in yearly tranches from 2017 to 2021. Our balance sheet also held a receivable from the Belgian Government for R&D incentives amounting to €31.9 million, to be received in yearly tranches from 2017 to 2027.
In the first quarter of 2017, Galapagos executed as planned on its R&D strategy. We aim to initiate a CF patient evaluation of our triple combination therapy in mid-2017, as well as launching new clinical studies with CF candidates and combinations throughout the year. Together with our collaboration partner Gilead we plan to start additional proof-of-concept studies with filgotinib. Topline results from the FLORA Phase 2a study with GLPG1690 in IPF and from the Phase 1b study with MOR106 in atopic dermatitis patients are expected in the second half of 2017. We expect to initiate a Phase 1b study with GLPG1972 in osteoarthritis patients in the United States, as well as Phase 1 studies with GLPG2938 (IPF) and GLPG2534 (AtD). We expect an operational use of cash of €135-155 million during 2017.
We thank you again for your support of Galapagos. We aim to discover and to develop more novel medications, bring the successful therapies to the market, and improve patients’ lives.
Onno van de Stolpe
1 Kalydeco® is a potentiator drug marketed by Vertex Pharmaceuticals.
2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.