Letter from the management
We are turning the page on an eventful 2020, followed by the ziritaxestat setback last month. This undoubtedly is one of the most challenging periods in our history, and we are currently reviewing our plans for 2021. At the same time, 2020 also brought us important scientific and commercial progress and opportunities, and we are confident that we are well positioned to build on our strengths going forward. Also, we are encouraged by the recently announced primary endpoint data from the ongoing MANTA and MANTA-RAy safety studies with filgotinib.
2020 was marked by the complete response letter (CRL) received in August by our collaboration partner Gilead from the U.S. Food and Drug Administration (FDA) for filgotinib in rheumatoid arthritis (RA). Based on the feedback received from the FDA during the NDA review process and in the Type A meeting, Gilead decided not to pursue FDA approval of filgotinib for RA. While both Gilead and Galapagos continue to believe in the clinical profile of the 200 mg dose, Gilead concluded that this dose was required to be competitive in RA in the U.S. and that the 200 mg dose is unlikely to achieve approval for RA in the U.S. without conducting substantial additional clinical studies. Consequently, we and Gilead decided to stop the global trials of filgotinib in psoriatic arthritis (PsA), ankylosing spondylitis (AS), and non-infectious uveitis. Both companies continue to pursue the inflammatory bowel disease (IBD) opportunity with filgotinib and the Phase 3 DIVERSITY program in Crohn’s disease (CD) continues to recruit patients.
On the other hand, we made significant regulatory progress with filgotinib: in September the approval of filgotinib was achieved for RA, from both the Japanese and European authorities, with our first ever marketing authorization granted in two key geographies. Both authorities approved filgotinib 200 mg and 100 mg doses for the treatment of moderate to severe RA. I am incredibly proud of the teams that made this a reality, and we are thrilled to bring a new treatment option to patients suffering from this debilitating condition. Moreover, following the positive Phase 3 results in ulcerative colitis (UC), our collaboration partner Gilead and we filed for approval in Europe, and we expect Gilead to submit for approval in Japan in the first half of 2021.
From a commercial perspective, we opened up a significant opportunity for Galapagos in Europe: in December, we renegotiated the collaboration agreement for filgotinib, with Galapagos taking over all commercial activities in Europe. Through a phased transition period, the majority of activities supporting and commercializing filgotinib in Europe are expected to be assumed by Galapagos by the end of 2021. Galapagos will receive payments from Gilead in connection with changes in responsibility for the commercialization and development of filgotinib in Europe, and Gilead will receive royalties from European sales of filgotinib starting in 2024. We have made tremendous progress in building our own European commercial organization, securing reimbursement, and in preparing successful launches for filgotinib in RA. Filgotinib is now on the market in Germany, Italy, and The Netherlands, with other European territories scheduled to follow in the course of 2021.
In the meantime, we made important progress in the remainder of our inflammation pipeline, and most notably with our Toledo program. We revealed the target of our Toledo compounds as salt-inducible kinase (SIK) inhibitors, and we observed its novel dual mode of action mechanism, stimulating anti-inflammatory cytokines and inhibiting pro-inflammatory cytokines, across a series of preclinical models. For our most advanced Toledo molecule, GLPG3970, a SIK2/SIK3 inhibitor, we have observed that dual mode of action mechanism in blood from healthy volunteers, in a dose-dependent manner and with an encouraging tolerability profile. We are currently conducting five Proof of Concept studies with GLPG3970, and we expect to report top line results in psoriasis, UC, and RA in the second half of this year. Taking a programmatic approach, we continue to advance multiple Toledo candidates across different selectivity profiles, targeting a range of inflammatory and even fibrotic indications.
In October, Servier and Galapagos announced that in the ROCCELLA Phase 2b study with GLPG1972 in osteoarthritis (OA) patients, there was no difference observed between the active and placebo groups. As a result, it was decided to stop the further development of GLPG1972 in OA.
Our fibrosis portfolio made progress in 2020, with positive topline results in our PINTA trial in IPF, preclinical candidate nomination of a new Toledo compound directed towards IPF, and the inlicensing of promising early molecules. Unfortunately, due to an insufficient risk-benefit profile observed in the ISABELA Phase 3 program, we recently had to discontinue all development with ziritaxestat.
Given the recent setbacks in our late stage portfolio, we aim to assess lessons learned and will continue to reassess the R&D portfolio in light of this learning. We again ended 2020 with a very strong balance sheet, providing us with the capital to leverage the full potential of our R&D engine and to evaluate business development opportunities. We landed our operational cash burn in 2020 in line with our guidance at €517 million, including the milestones received for the approval of filgotinib in Europe and Japan. Following the recent discontinuation of the ziritaxestat trials, we are currently performing a thorough strategic assessment, and we aim to provide an updated cash burn guidance for 2021 upon conclusion of this review.
In the field of inflammation:
- Gilead received approval for filgotinib in RA in Europe and Japan
- Gilead received a CRL for filgotinib in RA from the FDA in the U.S. and decided not to resubmit in this indication
- We and Gilead announced a new commercialization and development agreement for filgotinib in Europe, and achieved our first sales in Germany and The Netherlands
- We and Gilead announced the achievement of the primary endpoint in the SELECTION Phase 3 trial with filgotinib in UC
- Gilead submitted for approval of filgotinib in UC in Europe
- We and Gilead completed recruitment into the MANTA and MANTA-RAy trials with filgotinib
- We initiated three Proof of Concept trials with the Toledo compound GLPG3970, a SIK2/3 inhibitor, in psoriasis (CALOSOMA), UC (SEA TURTLE) and RA (LADYBUG)
- We initiated a Phase 1b trial with GLPG3667, a TYK2 inhibitor, in patients with psoriasis
- We initiated a Phase 1b trial with GLPG0555, a JAK1 inhibitor administered via intra-articular injection, in patients with OA
- We and Servier announced that the ROCCELLA Phase 2b trial with GLPG1972 in osteoarthritis patients showed no signal of activity, and we decided to stop further development of the compound in this indication
- We announced collaborations with Ryvu and Scipher Medicine to discover and advance novel targets in inflammation
- We continued recruitment into the ISABELA Phase 3 program with ziritaxestat in IPF, with over 1,300 patients recruited and all nearly all study centers opened for recruitment by year-end 2020. All development with ziritaxestat was discontinued in February 2021
- We announced positive topline results in the PINTA Phase 2a trial with GLPG1205, a GPR84 inhibitor, in IPF patients
- We strengthened our IPF portfolio with GLPG4716, a chitinase inhibitor, inlicensed from OncoArendi, and expanded our early-stage fibrosis pipeline through an expanded collaboration with Fibrocor
- We nominated our first novel preclinical candidate with an undisclosed mode of action from our collaboration with Fibrocor, GLPG4586
- We nominated our first Toledo compound, GLPG4605, as a preclinical candidate directed toward fibrosis
Other clinical programs:
- We initiated the MANGROVE Phase 2 trial with investigational CFTR inhibitor GLPG2737 in patients with autosomal dominant polycystic kidney disease (ADPKD)
- We started Phase 1 with GLPG4059 directed toward metabolic disease
- We agreed to sell fee-for-service business Fidelta to Selvita for a total of €37.1 million
- We raised €28.3 million from subscription right exercises
- We and Gilead announced interim data on the primary endpoint of MANTA/RAy studies. 8.3% patients on placebo and 6.7% patients on filgotinib had a 50% or more decline in sperm concentration at week 13
- We discontinued all development with ziritaxestat due to an insufficient risk-benefit profile observed in the ISABELA Phase 3 program
- We initiated two additional Proof of Concept trials with the Toledo compound GLPG3970, a SIK2/3 inhibitor, in systemic lupus erythematosus (TAPINOMA) and Sjögren’s syndrome (GLIDER)
- Gilead announced that the National Institute for Health and Care Excellence (NICE) recommends the use of filgotinib in the UK for people with moderate to severe RA. Filgotinib is the first advanced therapy to be recommended by NICE in patients with moderate RA
- We published the FINCH 1 Phase 3 data (Combe et al. 2021) and FINCH 3 Phase 3 data (Westhovens et al. 2021) in the Annals of the Rheumatic Diseases
2020: Details of the financial results
Details of financial results
We previously held two operating segments. Due to the completion of the sale of our fee-for-service business (Fidelta) to Selvita on the 4 January 2021 for a total consideration of €37.1 million (including the customary adjustments for net cash and working capital), the results of Fidelta are presented as “Net results from discontinued operations” in our consolidated income statements for the year 2020 and 2019.
Revenues and other income from continuing operations
Our revenues and other income from continuing operations for 2020 amounted to €530.3 million, compared to €885.8 million in 2019. Revenues (€478.1 million in 2020 compared to €834.9 million in 2019) were lower due to the one-time revenue recognition in 2019 of the upfront payment received from Gilead in August 2019 related to ziritaxestat for €667.0 million. In 2020, our revenues from the Gilead collaboration (€473.9 million) related to (i) the exclusive access to our drug discovery platform (€229.6 million), and (ii) the filgotinib revenue recognition (€228.1 million). Additionally we have recognized royalty income from Gilead for filgotinib for €16.2 million.
Due to the approval of filgotinib, by both the Japanese and European authorities in September 2020, we received a total milestone of $105.0 million (€90.2 million) from Gilead. As a consequence of the recently renegotiated collaboration for filgotinib, we also have accrued for a €160 million payment expected from Gilead in our 2020 financial statements. Both amounts are recognized in revenue over time until the end of the development period.
Other income (€52.2 million in 2020 vs €50.9 million in 2019) mainly consisted of incentives income from the government for our R&D activities.
Results from continuing operations
We realized a net loss from continuing operations in 2020 of €311.0 million, compared to a net profit of €148.7 million in 2019.
We reported a net operating loss in 2020 of €178.6 million, compared to a net operating profit of €368.7 million in 2019.
The net profit and operating profit in 2019 were mainly due to one-time recognition in revenue in 2019 of the upfront payment received from Gilead related to ziritaxestat for €667.0 million.
Our R&D expenditure in 2020 increased by 25% in 2020 to €523.7 million compared to €420.1 million in 2019. This planned increase was mainly due to an increase in subcontracting costs primarily related to our filgotinib program, Toledo program and other clinical programs. Furthermore, personnel costs increased explained by a planned headcount increase following the growth in our R&D activities and increased cost of our subscription right plans. This factor, and the increased cost of the commercial launch of filgotinib in Europe, contributed to the increase in our S&M and G&A expenses which were respectively €66.5 million and €118.8 million in 2020, compared to €24.6 million and €72.4 million in 2019.
In 2020 we reported a non-cash fair value gain from the re-measurement of initial warrant B issued to Gilead, amounting to €3.0 million, mainly due to evolution of the Galapagos share price as well as its implied volatility. In 2019 we reported a non-cash fair value loss amounting to €181.6 million resulting from the re-measurement of derivative financial instruments triggered by the share subscription agreement with Gilead and the warrants granted to Gilead, primarily due to the increase in the Galapagos share price.
Net other financial loss in 2020 amounted to €134.2 million, compared to net other financial loss of €38.6 million in 2019, and was primarily attributable to €106.4 million of unrealized exchange loss on our cash and cash equivalents and current financial investments in U.S. dollars (€10.6 million of unrealized exchange loss in 2019), and to €15.9 million of negative changes in (fair) value of current financial investments (€3.1 million of net negative changes in (fair) value in 2019).
Group net results
The group realized a net loss in 2020 of €305.4 million, compared to a net profit of €149.8 million in 2019.
Cash, cash equivalents and current financial investments
Current financial investments and cash and cash equivalents totaled €5,169.3 million on 31 December 2020 as compared to €5,780.8 million on 31 December 2019.
Total net decrease in current financial investments and cash and cash equivalents amounted to €611.5 million in 2020, compared to an increase of €4,490.0 million in 2019. This net decrease was composed of (i) €517.4 million of operational cash burn,1We refer to note 19 of our consolidated financial statements for an explanation and reconciliation of this alternative performance measure (ii) €28.3 million of cash proceeds from capital and share premium increase from the exercise of subscription rights in 2020, and (iii) €15.9 million of negative changes in (fair) value of current financial investments and €106.4 million of unrealized negative exchange rate differences.
Furthermore, our balance sheet 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 both receivables of €135.7 million.
1 We refer to note 19 of our consolidated 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
Outlook for 2021
We anticipate a year filled with announcements on regulatory developments with filgotinib as well as progress in our deep pipeline of novel target-based candidates.
In early 2021, filgotinib received a recommendation by NICE in the UK for use in moderate to severe active RA patients. This is a landmark decision, as filgotinib is the first JAK inhibitor and first advanced therapy recommended by NICE in the moderate disease population. Going forward, we anticipate reimbursement decisions in most key European markets for filgotinib in RA this year, as we complete the transition to a full European commercial operation by year-end. We anticipate a Committee for Medicinal Products for Human Use (CHMP) opinion and a European Commission (EC) approval decision for filgotinib in UC, as well as Gilead’s submission for approval of filgotinib in UC in Japan. We expect that our collaboration partner Gilead will complete recruitment for the global DIVERSITY Phase 3 trial in Crohn’s disease this year.
Within our broader inflammation portfolio, we expect to report topline results from several trials, including a Phase 1b trial with TYK2 inhibitor GLPG3667 in psoriasis, a Phase 1b trial with JAK1 inhibitor GLPG0555 via intra-articular injection in OA, and three Proof of Concept studies with lead Toledo candidate SIK2/3 inhibitor GLPG3970 in psoriasis, UC, and RA. Within our fibrosis portfolio, we expect to progress clinical compounds with novel mechanisms of action, casting a wide net with the aim to develop novel treatments to help patients.
Following the recent discontinuation of the ziritaxestat trials, we aim to review our plans for 2021, after which we expect to give cash burn guidance for 2021. We believe that we have the science, the people, and the capital to weather this storm, and to look forward with confidence. We wish to thank all our shareholders for their support as we review our plans and set a new course for growth of our company.
Onno van de Stolpe