Letter from the management
The business of biotech is not like any other. It takes grit, patience, persistence, and a lot of hard work, with the risk of disappointing outcomes of clinical trials, perhaps especially when going for novel targets. We remain excited about the potential of our target discovery platform, our drug development capacities, and the strength of our teams, but we have to acknowledge that we experienced significant setbacks in recent quarters, and we drew important lessons from them. The discontinuation of the global Phase 3 program with ziritaxestat, announced earlier this year, in particular was a turning point. Halting this late-stage program in idiopathic pulmonary fibrosis (IPF) triggered a process of reassessment of our R&D efforts, and we consequently announced a number of portfolio decisions in our first quarter reporting, along with a significant cost-savings program. While not easy, we are convinced that it is crucial to right-size the organization for the Galapagos that we are today, in order to put us on the strongest footing for the future.
We continue to work hard on building our pipeline, and we recently announced positive topline data with GLPG3667, our proprietary selective TYK2 compound, in psoriasis (Pso). The clinical activity observed at 4 weeks for the high dose of GLPG3667 versus placebo in this Phase 1b trial, combined with the encouraging safety and tolerability profile, warrant further progression of GLPG3667. We currently are running a further dose escalation study in healthy volunteers, and we intend to launch a Phase 2b dose finding study in Pso as well as a Phase 2 study in ulcerative colitis (UC) with GLPG3667 in 2022.
Early Q3, we also announced the read-outs of the first patient studies with SIK2/3 inhibitor GLPG3970, pointing to the potential of SIK inhibition as a novel mode of action in inflammation. While the study in rheumatoid arthritis (RA; LADYBUG) did not give a signal, we observed clinical activity in Pso (CALOSOMA) as well as biologically important effects in ulcerative colitis (UC; SEA TURTLE) on a number of objective endpoints. GLPG3970 was generally safe and well tolerated across the three 6-week long trials. We are keen to draw learnings from our findings, including from additional biomarker data and analyses available later this year, as we work on optimizing the pharmacology of additional SIK compounds in our Toledo portfolio. We plan to bring an additional SIK2/3 molecule into a healthy volunteer Phase 1 study in 2022.
We are also proud of the progress achieved to date with our European commercial launch of filgotinib, under the brand name Jyseleca®. The transition from Gilead to us remains on track to be completed by year-end, and over the first half of 2021, we achieved a number of key milestones in gaining access and reimbursement. We are pleased to announce first sales of filgotinib in 11 countries. We are excited to bring our first commercial product to people suffering from RA, and we are looking forward to regulatory updates on the potential European approval of filgotinib in UC before year-end.
On the development side, we announced the start of our first large-scale real-world evidence program, the FILOSOPHY Phase 4 European outcomes study in RA. Earlier this year, we also presented encouraging exploratory data from the DIVERGENCE 2 study with filgotinib in fistulizing Crohn’s disease (CD), corroborating data from the DIVERGENCE 1 study in small bowel CD.
We also announced publication of the Phase 3 SELECTION full results with filgotinib in UC in The Lancet.
We continue to advance our refocused, differentiated portfolio of pipeline assets in our core areas of inflammation, fibrosis and kidney disease, as the below overview shows:
Operational overview Q1 2021
We refer to our Q1 2021 report.
Operational overview Q2 2021
- Gilead submitted the new drug application in Japan for filgotinib for the treatment of UC in patients with an inadequate response to conventional therapies
- We reported encouraging exploratory data from the DIVERGENCE 2 trial with filgotinib in fistulizing CD
- We published the SELECTION Phase 3 data (Feagan et al. 2021) in The Lancet
- We presented 15 abstracts at EULAR (European League Against Rheumatism congress) in 2021, including new safety data analyses of 7 trials from the development program for filgotinib
- We initiated the FILOSOPHY Phase 4 study with filgotinib in RA
Corporate & other
- All annual general meeting (AGM) proposals were approved by shareholders at the AGM on 28 April 2021
- We announced an extension of the lock-up period for Gilead’s current shares (currently 25.5%) in Galapagos to 2024
- We received the second installment of €75 million from Gilead in Q2, following payment of an earlier installment of €35 million in January 2021, included under the revised filgotinib agreement as announced in December 2020
- We created new subscription right plans, offering all Galapagos employees the opportunity to participate
- We raised €0.3 million from subscription right exercises
- We announced the planned departure of Piet Wigerinck, our Chief Scientific Officer, later this year
- We observed activity with TYK2 inhibitor GLPG3667 in Pso, and recently launched a dose escalation study in healthy volunteers
- We reported on biological activity with SIK2/3 inhibitor GLPG3970 in inflammation
H1 2021 financial result
Details of financial results
Due to the sale of our fee-for-service business (Fidelta) to Selvita on 4 January 2021 for a total consideration of €37.1 million (including customary adjustments for net cash and working capital), the results of Fidelta are presented as “Net profit from discontinued operations” in our unaudited condensed consolidated income statement.
Revenues and other income from continuing operations
Our revenues and other income from continuing operations for the first six months of 2021 amounted to €277.2 million, compared to €217.2 million for the first six months of 2020.
Revenues amounted to €253.7 million for the first six months of 2021 compared to €194.4 million for the first six months of 2020, and were higher mainly driven by the increase in revenue recognition of upfront consideration and milestone payments received in the scope of the collaboration with Gilead for filgotinib amounting to €136.1 million for the first six months of 2021 (€75.0 million for the same period last year).
Other income (€23.6 million vs €22.8 million for the same period last year) increased, mainly driven by higher grant income.
Results from continuing operations
We realized a net loss from continuing operations of €77.2 million for the first six months of 2021, compared to a net loss of €169.2 million for the first six months of 2020.
We reported an operating loss amounting to €97.6 million for the first six months of 2021, compared to an operating loss of €134.4 million for the same period last year.
Our R&D expenditure in the first six months of 2021 amounted to €268.8 million, compared to €262.9 million for the first six months of 2020. This increase, primarily related to our filgotinib program and our Toledo program, was compensated by a decrease for ziritaxestat, the OA program with GLPG1972, and the program in atopic dermatitis (AtD) with MOR106. Personnel costs increased due to an increase in headcount compared to the same period last year, and increased costs of our subscription right plans. This last factor, together with increased costs of the commercial launch of filgotinib in Europe, contributed to the increase in our G&A and S&M expenses which were €106.0 million in the first six months of 2021, compared to €88.7 million in the first six months of 2020.
We reported a non-cash fair value gain from the re-measurement of initial warrant B issued to Gilead, amounting to €2.8 million, mainly due to the decreased implied volatility of the Galapagos share price as well as its evolution between 31 December 2020 and 30 June 2021.
Net other financial income in the first six months of 2021 amounted to €17.1 million, compared to net other financial loss of €13.0 million for the first six months of 2020, which was primarily attributable to €33.4 million of currency exchange gain on our cash and cash equivalents and current financial investments in U.S. dollars, to €8.7 million of negative changes in (fair) value of current financial investments and financial assets and to €4.4 million of interest charges. The other financial expenses also contained the effect of discounting our long term deferred income of €4.8 million.
Results from discontinued operations
The net profit from discontinued operations for the six months ended 30 June 2021 consisted of the gain on the sale of Fidelta, our fee-for-services business, for €22.2 million.
Group net results
The group realized a net loss for the first six months of 2021 amounting to €55.0 million, compared to a net loss of €165.6 million for the same period in 2020.
Current financial investments and cash and cash equivalents totaled €5,006.6 million on 30 June 2021 (€5,169.3 million on 31 December 2020, including the cash and cash equivalents included in the assets classified as held for sale).
Total net decrease in current financial investments and cash and cash equivalents amounted to €162.7 million in the first six months of 2021, compared to a net decrease of €214.3 million during the first six months of 2020. This net decrease was composed of (i) €223.2 million of operational cash burn,1We 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. offset by (ii) €2.6 million of cash proceeds from capital and share premium increase from exercise of subscription rights in the first six months of 2021, (iii) €5.8 million of negative changes in (fair) value of current financial investments and €35.0 million of mainly positive exchange rate differences, (iv) €28.7 million cash in from the disposal of Fidelta, net of cash disposed.
Finally, our balance sheet on 30 June 2021 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 €142.7 million.
Following the strategic exercise announced at Q1, we are focused on developing our resized pipeline and implementing our savings program, while executing on the successful commercial launch of Jyseleca and diligently evaluating business development opportunities.
In 2021, we expect the European regulatory assessment of filgotinib for the treatment of UC and anticipate both an opinion from Committee for Medicinal Products for Human Use (CHMP) and a decision from the European Commission later this year. We also expect additional reimbursement decisions for filgotinib in RA across a number of European countries. We are on track to complete the transition from our collaboration partner Gilead to us of the full European commercial operations for filgotinib by year-end, and we anticipate reporting on our own European sales of filgotinib starting in the second half of the year.
Completion of the recruitment in the global DIVERSITY Phase 3 trial with filgotinib in CD by our collaboration partner Gilead is also expected later this year.
With regard to our SIK portfolio, we are advancing our SIK3 inhibitor GLPG4399 in healthy volunteers this year, and we aim to advance a follow-up SIK2/3 preclinical candidate into the clinic in 2022.
Following the positive topline data from our TYK2 inhibitor, GLPG3667, we currently are running an extended dose escalation study in healthy volunteers, and we are preparing for a Phase 2b trial in Pso and a Phase 2 trial in UC next year.
In our other programs, by year-end we intend to finalize recruitment into the GLPG2737 Phase 2a trial in polycystic kidney disease.
Following the previously announced review of our plans for 2021, we reiterate our guidance for full year 2021 operational cash burn of €580 to €620 million.
We want to express our gratitude for your support and your patience, as we are working hard to rebuild the confidence in Galapagos.
Onno van de Stolpe
President & COO
1 We 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.
2 Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.