Letter from the management
The first quarter of 2020 was marked by the global outbreak of COVID-19, and first and foremost, I hope that you and yours are staying safe and healthy as we continue to navigate this unprecedented crisis.
For us at Galapagos, the pandemic also brings unexpected challenges. We decided to postpone temporarily the start of early-stage clinical trials, and with our collaboration partner Gilead, we paused recruitment into the ongoing Phase 2 and 3 trials with filgotinib. We continuously monitor the situation, always putting patients’ safety and needs front and center, and our teams work hand in hand with our CROs and clinical trial sites to define next steps.
Importantly, despite the challenging environment, we remain on track to report on a number of later stage clinical trials, and the remainder of the year promises to be particularly news flow rich.
The regulatory review process of our first product candidate, filgotinib in rheumatoid arthritis (RA), is progressing, and we still anticipate approval decisions in the U.S., Europe and Japan later this year.
Furthermore, in the first quarter, we made important progress in the build-out of our commercial organization. We are confident that we will hit the ground running upon potential approval of filgotinib in the EU5 and Benelux countries, hand in hand with our collaboration partner Gilead. We should be able to complete our transformation into a fully integrated biopharma company, bringing our first approved, novel mode of action product to patients later this year.
Moreover, we are on track to report the topline results from the SELECTION Phase 3 trial of filgotinib in ulcerative colitis (UC) in the second quarter. This is the first inflammatory bowel disease (IBD) Phase 3 data read-out for filgotinib. Pending positive results, we see an important potential role for filgotinib in this indication, given the high unmet need of patients suffering from UC.
Moving on to our other programs, we and collaboration partner Servier continue to advance the fully recruited ROCCELLA Phase 2b trial with our ADAMTS-5 inhibitor GLPG1972 in patients with knee osteoarthritis (OA). With current visibility in light of COVID-19, we still remain on track to report topline results for ROCCELLA in the second half of this year.
Our programs in fibrotic diseases are also making important progress. Patient recruitment continues in the global ISABELA Phase 3 program with ziritaxestat (GLPG1690) in idiopathic pulmonary fibrosis (IPF) that we conduct together with Gilead. While we see an impact on recruitment rates due to COVID-19, mitigations such as virtual visits and direct shipment of medication to patients keep the trial running relatively smoothly for the more than 1,000 patients randomized to date. We expect to report the outcome of the futility analysis for ISABELA in the first half of 2021.
Also for our NOVESA Phase 2a trial with ziritaxestat in systemic sclerosis (SSc), we remain on track to report topline results in the second half of this year, together with Gilead. We completed recruitment with GLPG1205 in the PINTA Phase 2 IPF trial in early 2020, and we expect to report topline results later this year.
With regard to Toledo, our novel mode of action program in inflammation, we completed Phase 1 studies in healthy volunteers with our Toledo drug candidates, GLPG3312 and GLPG3970. Given the superior profile of GLPG3970 observed in Phase 1, we decided to prioritize the further development of GLPG3970. We still anticipate the start of several proof-of-concept patient trials with GLPG3970 in the second half of the year, with topline results now expected in the first half of 2021.
In the labs, we continue to exploit our powerful target discovery engine to ensure long-term value creation, and to deliver on our ambition to maintain an active R&D portfolio in inflammation, fibrosis, and other severe diseases, including type 2 diabetes, hepatitis B and polycystic kidney disease.
From a financial perspective, we ended the first quarter of 2020 with a cash position of €5.7 billion which will allow us to grow our pipeline and attract new talent to support our ambitious growth plan. As a result of COVID-19, our cash burn guidance for FY2020 is expected to be in the range of €400 - €430 million, down versus the previously stated cash burn projection due to the pause in recruitment or postponed starts of some clinical trials.
Operational overview Q1 2020
- Completed recruitment of the PINTA Phase 2 trial with GPR84 inhibitor GLPG1205 in IPF
- Obtained orphan drug designation for ziritaxestat (GLPG1690) in SSc from the FDA and the European Commission
- Expanded the Fibrocor R&D collaboration in fibrosis
Corporate & other
- Raised €5.4 million from warrant exercises
- Announced a collaboration with Ryvu Therapeutics (WSE: RVU) focused on the discovery and development of novel small molecule drugs in inflammation, based on a novel drug target identified by Ryvu
- On 28 April 2020, Galapagos held its annual (ordinary) and extraordinary shareholders’ meetings. Due to the COVID-19 pandemic, the meetings were held behind closed doors, with advance shareholders’ participation only. All agenda items were approved, including the appointment of Dr. Elisabeth Svanberg as independent director, the remuneration policy and -report, the amendment of the company’s object and the amendment of the articles of association in light of the new Belgian Code of Companies and Associations
Q1 2020 financial result
Revenues and other income
Our revenues and other income for the first three months of 2020 amounted to €106.9 million, compared to €40.9 million for the first three months of 2019. Revenues (€98.2 million for the first three months of 2020 compared to €33.0 million for the first three months of 2019) were higher due to the revenue recognition of the upfront payment received from Gilead in August 2019 related to (i) the exclusive access to our drug discovery platform during the collaboration period and exclusive option rights on our current and future clinical programs after Phase 2 outside Europe, and (ii) additional consideration received for the extended cost sharing for filgotinib.
Other income (€8.7 million vs €7.9 million for the same period last year) increased, mainly driven by higher incentives income from the government for our R&D activities.
We realized a net loss of €50.6 million for the first three months of 2020, compared to a net loss of €48.7 million for the first three months of 2019.
We reported an operating loss amounting to €44.6 million for the first quarter of 2020, compared to an operating loss of €53.2 million for the first quarter of 2019.
Our R&D expenditure in the first three months of 2020 amounted to €116.8 million, compared to €83.2 million for the first quarter of 2019. This planned increase was mainly due to an increase of €19.4 million in subcontracting costs primarily related to our filgotinib program, our Toledo program and other clinical programs. Furthermore, personnel costs increased explained by a planned headcount increase following the growth of our R&D activities. This last factor, together with increased costs from the preparation of the commercial launch of filgotinib in Europe, contributed to the increase in our G&A and S&M expenses which were €34.7 million in the first three months of 2020, compared to €11.0 million in the first three months of 2019.
We reported a non-cash fair value loss from the re-measurement of initial warrant B issued to Gilead, amounting to €20.5 million, mainly due to the increased implied volatility of the Galapagos share price.
Net other financial income in the first three months of 2020 amounted to €14.8 million, compared to net other financial income of €4.7 million for the first three months of 2019, which was primarily attributable to €34.3 million of unrealized exchange gain on our cash position in U.S. dollars, partly compensated by a fair value loss on current financial investments of €14.5 million.
Cash and cash equivalents and current financial investments
Current financial investments and cash and cash equivalents totaled €5,722.4 million on 31 March 2020.
A net decrease of €58.4 million in cash and cash equivalents and current financial investments was recorded during the first three months of 2020, compared to a net decrease of €67.9 million during the first three months of 2019. This net decrease was composed of €83.4 million of operational cash burn1We refer to the note on the liquid assets position of our condensed consolidated interim financial statements for an explanation and reconciliation of this alternative performance measure., offset by (i) €5.4 million of cash proceeds from capital and share premium increase from exercise of warrants in the first three months of 2020, (ii) €19.6 million of unrealized positive exchange rate differences and fair value losses on current financial investments.
Finally, our balance sheet as at 31 March 2020 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.) and a receivable from the Belgian Government for R&D incentives, for a total of €115.2 million.
The remainder of the year promises to be eventful for Galapagos.
We and our collaboration partner Gilead expect to report Phase 3 SELECTION trial data of filgotinib in ulcerative colitis in the second quarter. We also expect approval of our first product candidate, filgotinib, in RA in the U.S., Europe, and Japan in the second half of 2020. Gilead and we plan to start later in 2020 the Phase 3 program with filgotinib in ankylosing spondylitis – a potential additional indication for our growing filgotinib franchise.
Within our fibrosis portfolio, in the second half of the year, we anticipate reporting topline results from the PINTA Phase 2 trial with GLPG1205 in IPF and, together with collaboration partner Gilead, from the NOVESA Phase 2a trial with ziritaxestat in SSc. In the meantime, we continue recruitment in our landmark Phase 3 ISABELA program with ziritaxestat in IPF, together with Gilead, and we expect to report the outcome of the futility analysis in the first half of 2021.
Also in the second half of the year, we and Servier expect to report topline results from the ROCCELLA Phase 2b trial of GLPG1972 in knee osteoarthritis. Upon successful completion of this trial, Gilead has the option to license development and commercialization rights in the U.S. for GLPG1972.
We will continue to execute on our accelerated development plan for Toledo, our next generation inflammation program. Pending positive developments related to the COVID-19 pandemic, we expect to launch multiple proof-of-concept patient trials with GLPG3970 in the second half of the year, and we now expect to report topline data in the first half of 2021.
Due to the temporary pause in recruitment for a number of ongoing Phase 2 and 3 trials and delays in the start of a number of planned early-stage trials, our cash burn guidance has been revised down and is now expected to be in the range of €400 and €430 million compared to €420 and €450 million previously guided. The cash burn includes milestone income from Gilead for potential regulatory approvals of filgotinib in RA.
I would like to thank you all for your continued trust and support. We are in a strong position to navigate the sudden challenges caused by the COVID-19 pandemic, and we remain dedicated to breaking innovative ground to improve patients’ lives. Please stay with us as we continue on this exciting innovation journey.
Onno van de Stolpe
1 We refer to the note on the liquid assets position of our condensed consolidated interim financial statements for an explanation and reconciliation of this alternative performance measure.
2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.