Letter from the management
Dear shareholders,
This quarter has been one of mixed fortunes for Galapagos.
September 25 was a historic day with the approval of filgotinib, under the brand name Jyseleca®, for the treatment of moderate to severe rheumatoid arthritis (RA) patients by both the Japanese and European authorities. This is a major achievement, and a great recognition of the tireless work by so many at Galapagos. Both authorities approved Jyseleca’s 100 mg and 200 mg dose, as monotherapy or in combination with methotrexate (MTX). Our commercial teams are in the process of bringing our first product to patients in the Benelux and EU5, together with our co-commercialization partner Gilead.
Unfortunately we also had less good news this quarter, as Gilead received a Complete Response Letter (CRL) from the U.S. Food and Drug Administration (FDA) for the New Drug Application (NDA) for filgotinib in the U.S. for the treatment of adults with moderate to severe RA. This was a very disappointing result. In order to finalize its review of the application, the FDA requests the results of the MANTA and MANTA-RAy studies. In addition, the FDA expressed concerns about the overall risk-benefit profile of the filgotinib 200 mg dose.
Although this is a significant setback, we, together with our collaboration partner Gilead, continue to believe in the risk-benefit profile of filgotinib.
The potential of filgotinib was further confirmed with positive results from the SELECTION Phase 2b/3 study of filgotinib in patients with ulcerative colitis (UC), a chronic disorder that, despite existing therapies, has a huge impact on the quality of the lives of more than 2 million people worldwide. This is the first Phase 2b/3 study for filgotinib in inflammatory bowel diseases (IBD). The SELECTION results, which were presented to the scientific and healthcare community at the International United European Gastroenterology Week (UEGW), demonstrated that filgotinib 200 mg, orally administered, versus placebo reduced bleeding and stool frequency, while also achieving remission across a range of measures, such as endoscopy and histology. Gilead submitted an application for approval in UC in Europe, and a filing for UC in Japan is expected in the first half of 2021. In the U.S., Gilead is expected to provide timelines on the filing for UC once the MANTA and MANTA-RAy results are in.
Another disappointment was the result of the ROCCELLA Phase 2 study of GLPG1972 in patients with osteoarthritis. Galapagos and collaboration partner Servier executed this study in 932 patients over 52 weeks of treatment, but the study did not meet its primary and secondary objective. With that result, the development of GLPG1972 for OA is halted.
Moving to fibrosis, we and partner Gilead announced positive topline results for the NOVESA Phase 2a study with ziritaxestat (GLPG1690) in patients with diffuse cutaneous systemic sclerosis (dcSSc). SSc is a difficult indication, and there currently are no drugs approved for overall disease treatment. The fact that ziritaxestat reached statistical significance for the primary endpoint in this difficult to treat patient population is an additional validation of the anti-fibrotic activity of ziritaxestat, which was already observed in the FLORA study in patients with idiopathic pulmonary fibrosis (IPF).
In addition, ziritaxestat obtained Fast Track status from the FDA in the lead indication of IPF. There is a high need for new treatment options for patients with this rare and progressive disease. The worldwide ISABELA Phase 3 study with ziritaxestat in IPF patients is currently ongoing and we still expect to announce the results of the futility analysis of ISABELA in the first half of 2021.
Our most innovative program in inflammatory diseases and fibrosis, Toledo, continues to advance rapidly. The first patients with psoriasis were dosed with GLPG3970, our most advanced Toledo compound in a new target category with dual action in inflammatory diseases and fibrosis. Several proof-of-concept patient studies have been initiated to evaluate GLPG3970 in various autoimmune diseases: the CALOSOMA Phase 1 study in psoriasis, SEA TURTLE Phase 2 study in UC, and LADYBUG Phase 2 study in RA. We also expect to initiate two additional Phase 2 studies with GLPG3970 early next year. We recently revealed that the Toledo target family are salt-inducible kinase inhibitors, and presented the preclinical and clinical data which confirm the dual mode of action of lead compound GLPG3970.
Our balance sheet in the third quarter remains strong with a cash position of €5.3 billion, enabling us to deliver on our growth plan, further expand our pipeline, attract new talent, and support the commercialization of our first medicine. For the full fiscal year 2020, we retain our previous cash burn guidance of between €490 and €520 million.
Operational overview H1 2020
We refer to our H1 2020 report.
Operational overview Q3 2020
In inflammation
- Announced a collaboration with Scipher Medicine to validate a series of new targets identified by Scipher for drug development in inflammatory bowel diseases
- Initiated Phase 1b study with GLPG0555, a JAK1 inhibitor in inflammation
In fibrosis
- Obtained Fast Track status from the FDA for ziritaxestat in IPF
In metabolic diseases
- Initiated Phase 1 study with GLPG4059, a molecule with a new, undisclosed mechanism of action, in metabolic diseases
Corporate & other
- Raised €2.4 million from subscription right1“Subscription rights” is the new term for instruments formerly referred to as “warrants”, under the new Belgian Code of Companies and Associations. exercises
Recent events
- Gilead and Galapagos announced that the European Medicines Agency (EMA) validated the approval application for filgotinib in UC in Europe
- Galapagos and collaboration partner Servier announced that GLPG1972/S201086 did not meet its primary and secondary objectives in the ROCCELLA Phase 2 study in patients with osteoarthritis
- We presented positive results at UEGW for filgotinib 200 mg in SELECTION Phase 2b/3 study in moderate to severe UC
Q3 2020 financial result
Revenues and other income
Our revenues and other income for the first nine months of 2020 amounted to €368.6 million, compared to €752.5 million for the first nine months of 2019. Revenues (€333.6 million for the first nine months of 2020 compared to €725.7 million for the first nine months of 2019) were lower due to the one-time revenue recognition in the first nine months of 2019 of the upfront payment received from Gilead in August 2019 related to ziritaxestat for €667.0 million.
In the first nine months of 2020, our revenues from the Gilead collaboration 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) upfront consideration received for the extended cost sharing for filgotinib as well as milestone payments, increased as we continue to recognize these revenues over time.
Due to the approval of filgotinib, by both the Japanese and European authorities on 25 September 2020, we achieved a total milestone of $105.0 million (€90.2 million) from Gilead that is recognized in revenue over time until the end of the development plan.
Other income (€35.0 million vs €26.7 million for the same period last year) increased, mainly driven by higher incentives income from the government for our R&D activities.
Results
We realized a net loss of €247.6 million for the first nine months of 2020, compared to a net profit of €265.3 million for the first nine months of 2019.
We reported an operating loss amounting to €163.2 million for the first nine months of 2020, compared to an operating profit of €393.0 million for the first nine months of 2019.
The net profit and operating profit for the first nine months of 2019 were mainly due to one-time recognition in revenue in the first nine months of 2019 of the upfront payment received from Gilead related to ziritaxestat for €667.0 million.
Our R&D expenditure in the first nine months of 2020 amounted to €398.1 million, compared to €298.2 million for the first nine months of 2019. This planned increase was mainly due to an increase in subcontracting costs primarily related to our filgotinib program, our Toledo program and other clinical programs. Furthermore, personnel costs increased because of the planned headcount increase following the growth of our R&D activities and increased cost of our subscription right plans. 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 €133.6 million in the first nine months of 2020, compared to €61.2 million in the first nine months of 2019.
We reported a non-cash fair value loss from the re-measurement of initial warrant B issued to Gilead, amounting to €8.1 million, mainly due to the increased implied volatility of the Galapagos share price as well as its evolution between 31 December 2019 and 30 September 2020.
Net other financial loss in the first nine months of 2020 amounted to €75.2 million, compared to net other financial loss of €2.0 million for the first nine months of 2019, which was primarily attributable to €51.2 million of unrealized exchange loss on our cash and cash equivalents and current financial investments in U.S. dollars and to €13.3 million of negative changes in (fair) value of current financial investments.
Cash position
Current financial investments and cash and cash equivalents totaled €5,308.6 million on 30 September 2020 (€5,780.8 million on 31 December 2019).
A net decrease of €472.2 million in cash and cash equivalents and current financial investments was recorded during the first nine months of 2020, compared to a net increase of €4,309.0 million during the first nine months of 2019. This net decrease was composed of (i) €433.3 million of operational cash burn,2We refer to the note on the cash position of our condensed consolidated interim financial statements for an explanation and reconciliation of this alternative performance measure. (ii) offset by €25.7 million of cash proceeds from capital and share premium increase from exercise of subscription rights in the first nine months of 2020, and (iii) €13.3 million of negative changes in (fair) value of current financial investments and €51.3 million of unrealized negative exchange rate differences.
Finally, our balance sheet as at 30 September 2020 held a receivable from the French government (Crédit d’Impôt Recherche3Crédit 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 €122.9 million.
Outlook 2020
Our collaboration partner Gilead is in direct dialogue with the FDA on filgotinib’s NDA following receipt of the CRL for filgotinib in RA in the U.S., and we expect more clarity on next steps in the coming months. With the MANTA and MANTA-RAy studies fully recruited, we expect to have key results available in the first half of 2021.
In the fourth quarter of this year we expect to report topline data from the PINTA Phase 2 study with GLPG1205 in IPF. Furthermore there have been over 1,200 patients recruited in our global landmark ISABELA Phase 3 program with ziritaxestat in IPF. We remain on track to announce the futility analysis in the first half of 2021.
In order to evaluate the broad potential of our most advanced Toledo compound, the SIK2/3 inhibitor GLPG3970, in inflammatory diseases, we anticipate first dosing in the LADYBUG (RA) and SEA TURTLE (UC) proof-of-concept studies.
We retain our operational cash burn guidance of €490 to €520 million for full year 2020.
As we head into the last months of 2020, we continue to execute on our strategy to develop novel mechanism of action drugs aimed at addressing unmet need in inflammation, fibrosis, and other diseases. We have a strong cash position, expert teams, and excellent science to achieve this.
Onno van de Stolpe
CEO