Letter from the management
Dear shareholders,
It’s our 20th anniversary year, and what a year so far! Just recently we signed a truly unique and landmark deal with our great collaboration partner Gilead. Galapagos has been highly effective at target identification and drug discovery, progressing novel molecules from research into the clinic. We will benefit greatly from Gilead’s expertise and infrastructure and believe this collaboration will provide an accelerated path to advance our pipeline. This agreement is about maximizing innovation based on the identification and development of new mode of action medicines. With the capital provided by Gilead, we aim to progress innovation to patients.
The first half year in 2019 was already transformative, before we announced this remarkable deal. Together with Gilead, we announced positive 24 week data of the remaining and largest of the FINCH Phase 3 trials in rheumatoid arthritis (RA), FINCH 1 and FINCH 3. This brings our total patient exposure to beyond 3,000 patient-years. The FINCH trial efficacy and safety data were consistent with the long term data observed in the DARWIN 3 trial. This further strengthens our understanding of the impact of selective JAK1 inhibition on patients, and filgotinib’s potentially differentiated safety profile. We are also proud that earlier this week, the FINCH 2 results were published in JAMA1Journal of the American Medical Association, which is recognition of the importance of the filgotinib program.
And this is only the beginning: we believe that the efficacy and safety results of filgotinib in RA have potential read-throughs to the overall filgotinib development program, currently ongoing in more than 10 different inflammatory conditions. In 2019, we anticipate readouts of proof-of-concept studies of filgotinib in Sjögren's syndrome and cutaneous lupus, and the initiation of a Phase 3 trial in psoriatic arthritis.
Early July, our collaboration partner Gilead announced the outcome of the pre-NDA meeting with the FDA. Gilead discussed with the agency the Phase 3 FINCH studies, as well as the ongoing Phase 2 MANTA safety study, and concluded that they intend to submit filgotinib for approval in RA in the US in 2019. In the meantime, European submission is on track for Q3 2019.
We also continue our extensive preparations to become a fully integrated biotechnology company: we are well underway with the hiring of our commercial team for Belgium, the Netherlands, and Luxembourg, and will begin hiring for commercial operations in the EU52France, Germany, Italy, Spain and United Kingdom as per our revised filgotinib agreement with Gilead.
We are excited about the regulatory and commercial progress made, as it will help us bring filgotinib to patients.
In the first half of 2019, we not only saw the very encouraging research results from FINCH, but also laid further foundation for future results with our late stage portfolio of drug candidates. Our research engine continues to be extremely productive, with additional late stage trial starts, including the GECKO Phase 2 trial with MOR106 in atopic dermatitis, and the completion of recruitment in ROCCELLA, a global Phase 2b trial with ADAMTS-5 inhibitor GLPG1972 in osteoarthritis. Recruitment was wrapped up months ahead of schedule, underlining the large unmet medical need for a disease-modifying drug for OA patients. We also initiated our first Phase 1 trial from the next-generation Toledo program for inflammation. We experience good recruitment of the ISABELA 1 & 2 Phase 3 trials with autotaxin inhibitor GLPG1690 in idiopathic pulmonary fibrosis and hope to give an update on timelines later this year. The enthusiasm for the ISABELA program amongst clinicians, centers, and patients is palpable, and we remain fully committed to moving ahead to potentially offer help for the large unmet medical need in IPF. We are running approximately 40 clinical trials at Galapagos this year and are gearing up for another big year of clinical trial execution in 2020, especially if the Toledo programs come through Phase 1 with green lights.
While making substantial progress in R&D, Galapagos ended the first half of 2019 with a very strong balance sheet. We continue to grow our organization to support this broad pipeline, while we continue to build a commercial organization for potential launch of filgotinib in Europe next year. Our late stage development is growing, leading to increased costs for our company. Our financial guidance for full year 2019 operational cash burn3
The operational cash burn (or operational cash flow if this performance measure is positive) is equal to the increase or decrease in our cash and cash equivalents (excluding the effect of exchange rate differences on cash and cash equivalents), minus:
- the net proceeds, if any, from share capital and share premium increases included in the net cash flows generated / used (–) in financing activities
- the net proceeds or cash used, if any, in acquisitions or disposals of businesses; and the movement in restricted cash, if any, included in the net cash flows generated / used (–) in investing activities.
This alternative performance measure is in our view an important metric for a biotech company in the development stage.
between €320 and €340 million is unchanged, excluding the proceeds from the recent deal announced with Gilead. Upon closing we will receive an upfront payment of $3.95 billion and a $1.1 billion equity investment, which are expected before the end of 2019.
Operational overview Q1 2019
We refer to our Q1 2019 report.
Operational overview Q2 2019
Inflammation
- Completed recruitment of the ROCCELLA Phase 2b trial with GLPG1972 in osteoarthritis, with Servier, in 9 months
- Initiated GECKO Phase 2 trial in atopic dermatitis with MOR106 with collaboration partners MorphoSys and Novartis
Corporate & other
- Achieved a $25 million milestone from AbbVie following the completion of the FALCON study
- Raised €4.3 million from warrant exercises in the second quarter
- Received a transparency notice from the Capital Group Companies that they hold 5.08% of outstanding shares
Recent events
- Gilead and Galapagos entered into a 10-year global R&D collaboration
- Gilead announced the outcome of the pre-NDA meeting with the FDA, concluding that a path has been established to file filgotinib in RA in the US in 2019
- Publication of the detailed FINCH 2 results in JAMA, a top-tier peer-reviewed journal
- We recently stopped a Phase 1 study with GLPG3121, a JAK1/TYK2 inhibitor targeting inflammation, due to an undesirable PK profile
- Received a transparency notice from Van Herk Group that they hold 10.57% of outstanding shares
H1 2019 financial result
Revenues and other income
Our revenues and other income for the first six months of 2019 amounted to €108.5 million, compared to €101.9 million for the first six months of 2018. Revenues (€91.8 million for the first six months of 2019 vs €87.6 million for the first six months of 2018) were higher due to a milestone achieved in June 2019 related to the CF program with AbbVie and higher reimbursement income mainly from Novartis in the scope of our collaboration for MOR106. This was partly compensated by a lower over time recognition in revenue of the upfront payments and milestone payments related to the filgotinib program with Gilead.
Other income increased (€16.7 million for the first six months of 2019 vs €14.3 million for the first six months of 2018), mainly driven by higher income from R&D incentives.
Results
We realized a net loss of €95.9 million for the first six months of 2019, compared to a net loss of €59.1 million for the first six months of 2018.
We reported an operating loss amounting to €97.6 million for the first six months of 2019, compared to an operating loss of €65.8 million for the first six months of 2018.
Our R&D expenditure in the first six months of 2019 amounted to €177.6 million, compared to €151.4 million for the first six months of 2018. This planned increase was mainly due to an increase of €10.2 million in subcontracting costs primarily related to our IPF program and other proprietary programs. Furthermore, personnel costs increased explained by a planned headcount increase and higher costs related to the warrant plans as a result of the increase in the number of beneficiaries and of the Galapagos share price. These also explained the increase in our G&A and S&M expenses which were €28.6 million in the first six months of 2019, compared to €16.2 million in the first six months of 2018.
Net financial income in the first six months of 2019 amounted to €1.8 million, compared to net financial income of €6.9 million for the first six months of 2018, which was primarily attributable to €1.9 million of unrealized exchange gain on our cash position in U.S. dollars (€5.3 million of unrealized exchange gain on our cash position in U.S. dollars in the first six months of 2018).
Liquid assets position
Cash and cash equivalents totaled €1,147.9 million on 30 June 2019.
A net decrease of €142.9 million in cash and cash equivalents was recorded during the first six months of 2019, compared to a net decrease of €84.4 million during the first six months of 2018. This net decrease was composed of €152.5 million of operational cash burn, offset by (i) €7.8 million of cash proceeds from capital and share premium increase from exercise of warrants in the first six months of 2019 and (ii) €1.9 million of unrealized positive exchange rate differences.
Finally, our balance sheet as at 30 June 2019 held a receivable from the French government (Crédit d’Impôt Recherche4Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.), payable in 4 yearly tranches, and a receivable from the Belgian Government for R&D incentives, for a total of €94.3 million.
Outlook 2019
Following on the positive Phase 3 FINCH trial results, Gilead discussed submissions for approval of filgotinib in RA with regulatory authorities in 2019. Early July, Gilead announced that following a meeting with the U.S. FDA, a path forward for filing filgotinib in RA in 2019 has been established. Gilead intends to file filgotinib for approval in RA in Europe in Q3 2019. They also anticipate readouts from the proof-of-concept trials in Sjögren's syndrome and cutaneous lupus, and plan to launch a Phase 3 trial in psoriatic arthritis.
We will continue recruitment in our proprietary ISABELA, NOVESA and PINTA trials, and plan to provide an update on recruitment timelines for the ISABELA program in H2 2019. For MOR106, together with our collaboration partners MorphoSys and Novartis, we plan to continue executing the Phase 1 and 2 trials running.
With regard to our earlier and fully proprietary programs, we expect the Phase 1 readout of GLPG3312, our first Toledo compound, with a Phase 1 start for a second Toledo compound (GLPG3970) scheduled for the second half of the year.
Our guidance for an operational cash burn between €320 - €340 million in 2019 is unchanged, excluding the proceeds from the recent deal announced with Gilead.
The Gilead transaction, which is expected to close late in the third quarter of 2019, is subject to certain closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and receipt of merger control approval from the Austrian Federal Competition Authority.
Upon closing, we are entitled to an upfront payment of $3.95 billion in addition to a $1.1 billion equity investment.
We thank you again for your support of Galapagos, as we aim to discover and to develop more novel medications, bring successful therapies to the market, and improve patients’ lives.
Onno van de Stolpe
CEO