Letter from the management
Dear shareholder,
We have come a long way.
17 years ago I started Galapagos with two scientists. Now there are over 440 of us, we have developed a broad pipeline of promising molecules, the Company is listed on Euronext and NASDAQ, and we are nearing what we were aiming to do from the beginning: deliver novel drugs that will improve the quality of patients’ lives.
On our journey, we experienced setbacks as well: molecules that – despite promising data – had no effect in patients, alliances with pharma that did not work out, and programs that were handed back to us. We’ve had to rise to the occasion and come up with solutions that kept us on track, kept our focus on the bigger picture. We trusted our scientists and our technology, and we empowered our people, in order for them to go where no one has gone before: to discover and develop novel molecules that have the potential to be of benefit for so many people. We learned from mistakes and moved on while putting this additional experience and knowledge to use and in practice. The progress we make every day as a company and in our programs has made this trip such an exciting adventure. And now we are reaching a new era for our company.
The year 2015 has been stellar for Galapagos, as we truly stepped up to the next level in our development towards becoming a commercially based biotech company. We achieved a number of remarkable milestones in 2015: delivery of best-in-class efficacy and safety Phase 2 data with our selective JAK1 inhibitor filgotinib in rheumatoid arthritis and Crohn’s disease, a NASDAQ listing, and a licensing deal with Gilead that will help transform our company. In our cystic fibrosis program, we completed the discovery phase for a potential triple combination therapy that is expected to address 90% of patients with CF, and we advanced several of our novel mode-of-action programs to later stages. All of these were important stepping stones in our ongoing efforts to deliver novel medications to patients.
Each consecutive day for the past 17 years we have built on what we were and where we were at that point in time. As we enter 2016, we are about to become a Phase 3 company with filgotinib, and see a maturing pipeline of Phase 2 and Phase 1 programs. We have come a long way, but we are not there yet. Our endeavor to discover and develop novel medications that will improve the quality of life is an ongoing quest. This company was built step by step, and we will keep on building. What an exciting journey this is.
We present our Annual Report 2015, reflecting the important progress made last year.
2015: Building on our success in R&D
R&D
In the field of inflammation:
- Reported potential best-in-class efficacy and safety with filgotinib in both DARWIN 1 and DARWIN 2 studies at 12 and 24 weeks
- Received termination notice for the agreement with AbbVie for filgotinib
- Reported excellent efficacy and safety with filgotinib at 10 weeks in the FITZROY Phase 2 study in Crohn’s disease
- Signed a global agreement with Gilead for the further development and commercialization of filgotinib in inflammatory diseases
- Conducted a proof-of-concept study with GLPG1205 in patients with ulcerative colitis
In cystic fibrosis:
- Disclosed the strategy to develop lead and follow-on compounds for potentiator, C1, and C2 corrector positions in a triple combination therapy for Class II mutation patients
- Reported up to 6-fold better CFTR restoration in pre-clinical evaluations of Galapagos’ potential triple combination therapy compounds for class II mutation, compared to Orkambi®1Orkambi® is a prescription medicine marketed by Vertex Pharmaceuticals, used for the treatment of cystic fibrosis (CF) in patients age 12 years and older who have two copies of the F508del mutation (F508del/F508del) in their CFTR gene.
- Reported favorable safety and tolerability in a Phase 1 study with potentiator GLPG1837, initiated a Phase 2 program in Class III mutation patients in Q1 2016
- Initiated a Phase 1 study start with C1 corrector GLPG2222
- Nominated the first pre-clinical candidate C2 corrector GLPG2665, completing the first potential triple combination therapy
In osteoarthritis:
- Initiated a Phase 1 study with candidate GLPG1972 in the alliance with Servier
In pulmonary disease:
- Reported good safety, drug like properties, and target engagement with GLPG1690 in a Phase 1 study
- Janssen Pharmaceutica NV returned the full rights for GLPG1690 to Galapagos
- Filed an exploratory Phase 2 study with GLPG1690 in idiopathic pulmonary fibrosis patients
Grants and other:
- €2.5 million IWT grant for antibiotic research
- €1.6 million IWT grant for hepatitis B program
Corporate
- Raised $317 million gross proceeds in a global offering with concurrent listing on NASDAQ
- Raised additional €12 million from warrant exercises
- Licensed organoid technology from the HUB Foundation
- Christine Mummery joined the Galapagos Board of Directors
2015: Details of the financial results
Revenues
Galapagos’ revenues and other income for 2015 amounted to €60.6 million, compared to €90.0 million in 2014. Revenues were lower due to a decrease in revenue recognition of upfront payments and reduced milestone payments from collaboration partners, reflecting the increasingly proprietary nature of our pipeline programs.
Operating result
The Group realized a net operating loss in 2015 of €89.4 million, compared to a net operating loss of €36.6 million in 2014 for continuing operations.
R&D expenses for the Group in 2015 were €129.7 million compared to €111.1 million in 2014. This planned increase is due mainly to increased efforts on our clinical and pre-clinical programs, primarily the cystic fibrosis programs.
G&A and S&M expenses of the Group were €20.3 million in 2015, compared to €14.9 million in 2014. This increase is due primarily to non-cash items such as a higher provision for short term and long term management bonus and higher costs for warrant plans, mainly as a result of the evolution of the Galapagos share price.
Non-cash adjustment on short term financial asset
Galapagos recognized a short term financial asset worth €39 million upon signing of the share subscription agreement with Gilead, as required under IAS 39. This financial asset initially reflected the share premium that Gilead committed to pay above the closing stock price of Galapagos on the day of signing of the subscription agreement. Under IAS 39, the fair value of the financial asset needed to be re-measured at year end and again upon entering into force of the subscription agreement on 19 January 2016, when the financial asset expired. Variations in fair value of the financial asset were recorded in the income statement.
The decrease in the fair value of the financial asset resulting from the increase in the Galapagos share price between signing of the subscription agreement and 31 December 2015, resulted in a negative, non-cash fair value charge of €30.6 million in the 2015 financial results. The subsequent increase in the fair value of the financial asset resulting from the decrease in the Galapagos share price between 1 January 2016 and 19 January 2016 will result in a positive non-cash gain of €57.5 million in the financial result of the first quarter 2016 financial reporting.
Cash position
Cash, cash equivalents, and restricted cash totalled €348.2 million on 31 December 2015.
A net increase of €149.8 million in cash, cash equivalents and restricted cash was recorded in 2015. Net cash flows from financing activities generated €259.4 million through a global offering and concurrent listing on NASDAQ, as well as €12.0 million from warrant exercises. Furthermore, the Company continued to intensify its R&D investments, resulting in a cash burn of €121.6 million in 2015.
Furthermore, Galapagos’ balance sheet holds an unconditional and unrestricted receivable from the French government (Crédit d’Impôt Recherche2Crédit d’Impôt Recherche refers to an innovation incentive system underwritten by the French government.) now amounting to €33.4 million, payable in 4 yearly tranches. Galapagos’ balance sheet also holds a receivable from the Belgian Government for R&D incentives now amounting to €25.1 million. Galapagos received $725 million in cash from Gilead upon closing of their global collaboration agreement on 19 January 2016. Galapagos had €1.02 billion in cash, cash equivalents, and restricted cash after the closing of the transaction.
Outlook 2016
The 20-week results from filgotinib in Crohn’s disease (FITZROY) are expected in April. Galapagos and Gilead are preparing to initiate Phase 3 programs in rheumatoid arthritis and Crohn’s disease with filgotinib in 2016.
In cystic fibrosis, Galapagos expects to report topline results with GLPG1837 in the Phase 2 SAPHIRA study in Class III mutation patients before year end and report Phase 1 topline results with other CF compounds. All components of a future triple combination are anticipated to be in clinical evaluation by year end.
Galapagos expects to complete recruitment in its Phase 2 study with GLPG1690 in idiopathic pulmonary fibrosis before year end for topline results in 1H 2017, and to report topline results from its Phase 1 study with osteoarthritis program GLPG1972 around mid-year.
The Company expects an operational use of cash of €100-120 million during 2016, excluding payments received from our collaboration partner Gilead for filgotinib.
I wish to thank our shareholders for their support last year. We ended 2015 in excellent shape, both financially and operationally. We are ready to advance the most effective combination therapy in CF to patient studies, to progress the rest of our promising pipeline, and to work with our collaboration partner Gilead to get the Phase 3 programs with filgotinib in rheumatoid arthritis and Crohn’s disease under way.
Regards,
Onno van de Stolpe
CEO