U.S. Markets close in 5 hrs 8 mins

Edited Transcript of GLPG.AS earnings conference call or presentation 24-Feb-17 1:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Galapagos NV Earnings Call

Mechelen Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Galapagos NV earnings conference call or presentation Friday, February 24, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Elizabeth Goodwin

Galapagos NV - IR Director

* Onno van de Stolpe

Galapagos NV - CEO

* Piet Wigernick

Galapagos NV - Chief Scientific Officer

* Bart Filius

Galapagos NV - CFO

================================================================================

Conference Call Participants

================================================================================

* Stephanie Put

Petercam - Analyst

* Matthew Harrison

Morgan Stanley - Analyst

* Phil Nadeau

Cowen and Company - Analyst

* Debjit Chattopadhyay

Janney Montgomery Scott - Analyst

* Tim Woodward

Goldman Sachs - Analyst

* Anastasia Karpova

Kempen & Co. - Analyst

* Peter Welford

Jefferies International - Analyst

* Adam Walsh

Stifel Nicolaus - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Elizabeth Goodwin, Galapagos NV - IR Director [1]

--------------------------------------------------------------------------------

Thank you and welcome, all, to the audio webcast of Galapagos' full-year 2016 results. I am Elizabeth Goodwin from Investor Relations and I will be hosting the call today. This recorded webcast will be accessible via the Galapagos website homepage and will be available for replay later on today. So that your questions could be included, we request that you call into the telephone number given in today's press release. That's 32 for Belgium, 2-400-69-26, and the code is 9245880.

Moving on to the next slide, I'd like to remind everyone that we will be making forward-looking statements during today's webcast. These forward-looking statements include remarks concerning future developments of the pipeline and of our Company, and possible changes in the industry and competitive environment. Because these forward-looking statements involve risks and uncertainties, Galapagos' actual results may differ materially from the results expressed or implied in these statements.

So, today's speakers will be Onno van de Stolpe, our CEO, Piet Wigernick, Chief Scientific Officer, and Bart Filius, our Chief Financial Officer. Onno and Piet will go through the operational highlights and Bart will explain the financial results and give guidance for 2017. Onno will then close with the considerable news flow we expect this year.

You will see a PowerPoint presentation on screen during this talk. We estimate that the presentation will take about 20 minutes and will be followed by a Q&A session.

So, with this, I'd like to hand over to Onno. Go ahead Onno.

--------------------------------------------------------------------------------

Onno van de Stolpe, Galapagos NV - CEO [2]

--------------------------------------------------------------------------------

Thank you Elizabeth. Well, 2016 was another great year for Galapagos. We made major progress in pretty much all of our programs and in the pipeline as well is in our research activities, clearly dominated by the progress in filgotinib where three Phase III studies were initiated in rheumatoid arthritis and Crohn's disease and ulcerative colitis. And we indicated to the market that quite a number of additional new disease indications will be explored through Phase II studies in 2017.

The second area where we made major progress was in cystic fibrosis. We expanded the collaboration with our partner, AbbVie, and we made very good progress with our triple combo approach where we are combining (inaudible) with two correctors to treat over 90% of the cystic fibrosis population. And we are moving forward to a planned start of the triple combo in patients halfway in 2017. And with the dual combo today announced that we are in healthy volunteers, we made the next step in that planning.

We also showed in the CF space very nice data with our protease 1837 where we had activity similar to Kalydeco, very predictable data based on our preclinical models, which gives us a lot of confidence in the rest of the program.

But Galapagos is more than filgotinib and cystic fibrosis. We have an extensive pipeline that I will discuss in the next slide that will give more, will provide more molecules towards the market in the years to come, and we are also very excited about our research portfolio.

The partnerships provide substantial income. Last year, we had EUR90 million in milestone payments, a record for the Company. And that helped to conserve our cash position. We had a year-end cash of about EUR1 billion, so we are very well capitalized at this point in time.

Also nice to remark that we now included in the major indexes in Belgium and the Netherlands, which gives us more exposure to shareholders.

If we go to the next slide, you have a look at our pipeline. You see that it is increasing in the number of programs, indications, as well as in the stages that they are in compared to previous years. Of course, filgotinib in there for the three indications that I already said in the previous slide. We are exploring filgotinib now in the first additional indication in small bowel disease, Crohn's disease, and more to come in the near future.

In CF, we are making substantial progress, and Piet will discuss this with regard to the portfolio of molecules that ultimately should deliver us the triple combo in patients. And we are eagerly awaiting the outcome of our Autotaxin molecule in the idiopathic pulmonary fibrosis trial that we are expecting by the end of this half year.

And other programs are earlier, our osteoarthritis program in combination with Servier, the (inaudible) program with -- in atopic dermatitis, and then other programs that we haven't disclosed the target yet and are unencumbered and Galapagos programs. And this is just what we currently have in clinical development. More to come from the research engine.

With that, it's time to hand it over to Piet, our CSO.

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [3]

--------------------------------------------------------------------------------

Thank you Onno, and welcome, all, on this call. I will start with the research highlights during 2016.

So, the first important achievement for us was to see that partner Gilead offered many (inaudible) work hard on filgotinib to it move forward in RA has launched a big and major RA program with filgotinib. So, it's a Phase III program in which we take forward both 100 and 200 milligram, consists of three studies, FINCH 1, 2 and 3. FINCH 1 can be is described in terms of design and (inaudible) because it is a Phase III program. We dose up to 52 weeks, so the primary endpoint will be ACR 20 at 12 weeks. Within that study, we have an adalimumab control, and we as well will assess the radiographic progression. So it is the core of the program that we have placebo-controlled adalimumab controlled study and where primary endpoint will reach but in radiographic assessment at 52 weeks, allowing us to position (inaudible) versus the anti-TNFs of these days.

The Second FINCH trial is a biologic nonresponder trial, so patients are on (inaudible) probably (technical difficulty) and have stayed at least one biologic and then will move to filgotinib. So it's a 24 week trial only in smaller because, in this setting, typically JAKs show quickly a nice efficacy.

And then the third part is also large trial where we in fact try to move a little bit upwards in the indication. So these are patients that are methotrexate naive, so it's very large 30 (inaudible) patients and (inaudible) well have included a radiographic assessment and from which will then come the claim. We hope to obtain the claim for the monotherapy. So this study includes both monotherapy as well as combinations with methotrexate arms in a single study.

The total of this large FINCH 3 program has been set up to give us a broad claim at the end of Phase III.

So, the second highlight for us during 2016 was additional FITZROY data in Crohn's. So by end 2015, we were the first to show that the JAK inhibitor filgotinib could show clinical efficacy in Crohn's patients. During 2016, we have added the endoscopy data. As well, we are very proud that filgotinib was the first JAK inhibitor that showed that a higher number of patients got an endoscopic improvement. And (inaudible) now assessed by the center reading or the local reading. Both readers gave us a higher endoscopic efficacy for filgotinib compared to placebo. So, the study was not powered to obtain a statistical significant value. Especially in the local inning, we came very close to that value, so a very big highlight of filgotinib as one of the most promising oral treatments in the pipeline worldwide for Crohn's patients.

So, both the clinical improvement and endoscopic improvement have led to a start of two Phase III programs in IBD, so one program aiming at Crohn's patients, the other aiming at ulcerative colitis patients. Both a little bit mirror of each other with more than 1,200 -- 1,300 patients. Full trial length is 58 weeks of treatment, and they have a typical endpoint for Crohn's you see. So for both programs as well, there's a long-term extension study planned in parallel so that patients can have the maximum benefit of participating in this trial. The trials will aim -- will include both TNF naive as well as TNF experienced patients and will provide us with (inaudible) for both induction and maintenance. So as well a quite competitive program in IBD for these two indications.

Then let's move to the CF field now. So for 2017, our main task internally is to bring forward the CF portfolio. As you all know, our main goal is to develop a triple combination addressing the unmet medical need in both the heterozygous minus and the homozygous (inaudible) patients. And currently, we have seven compounds in the portfolio, three (inaudible) now in our triple combo, and lead corrector 2222 and a backup 2851, and then the first corrector 22737, and then from a complete different chemical series we aim at bringing as well a second mechanism of action into Phase I second half of this year. So with this portfolio, we are well-positioned to come up with a more than competitive triple combo, and we have -- we are on the plan, as we said, to move this forward, both (inaudible) to healthy volunteers and later into patients. That's highlighted on the next slide.

So where we are currently? So we've announced today the aim with the triple combo is to really achieve a much higher clinical efficacy than what currently is obtained with Orkambi. So a number of in vitro experiments both on this slide, you see the homozygous patients as well for the heterozygous ones. We have shown that our triple combo brings a multiple of efficacy that we see in vitro with Orkambi. So these data have really made all of those people (inaudible) both in the Company, outside the Company, and give us a big drive to move forwards as quickly wherever there is a medical need in CF triple combo.

So, timelines for this triple combo, on the next slide, so as you can see, today we've announced the initiation of a dual Phase I combination with the potency 2451 and the corrector 2222. In the meanwhile, we are as well advanced into the MED phase with 2737, so as soon as that is finished in Q1, we can move into a triple combination in healthy volunteers. During Q2, there is a second plan on this slide. And so that triple combination in healthy volunteers will take place during Q2. That is the plan. And then as soon as we have those data, we have a plan to move the triple combination into patients the second half of this year. So, these are (technical difficulty) triple data currently available, we believe we are on the plan today.

So another disease for which you can expect clinical data today is the FLORA study for IPF. So I can announce today that we have fully recruited this folk study. So it's a study, it's a biomarker study in 24 IPF patients. So patients will be dosed for 12 weeks, have a diagnosis of IPF by a number of criteria and was essentially confirmed and those patients have background demarked treatment today, so they are not on pirfenidone or nintedanib.

So extra studies running in Europe, Italy, Ukraine and the UK. And we have fully enrolled the study and so around midyear, we will have the data.

What is special in this small high content study is that we take (inaudible) lavage upstart at also 12 weeks and we want to really show that we can block the activity of the Autotaxin enzyme, which is a target of GLPG1690. So GLPG1690 is the first Autotaxin inhibitor to move into IPF patients. And if we can show that in IPF patients who brought this enzyme, then the plan is to move this forward into a larger IPF study of six months. So this data will come around midyear.

The next slide.

--------------------------------------------------------------------------------

Bart Filius, Galapagos NV - CFO [4]

--------------------------------------------------------------------------------

I'll take over from you, Piet. Good morning everyone in the US. Good afternoon in Europe. My name is Bart Filius. I'm the Chief Financial Officer and I'll take you through the financial results of 2016. As usual, I'll start with a slide on the cash and our evolution throughout the year on cash.

So our year-end position, cash EUR981 million, an increase of more than EUR600 million from the end of December 2015. Obviously, the big impact was the transaction that we had with Gilead, which included an upfront license fee, an equity infusion, as well as milestones that we received in the fourth quarter for the start of the Crohn's trial and the UC trial respectively. And the total increase there was EUR700 million plus throughout the year 2016.

Then in terms of operational cash burn, we ended up at about EUR100 million, comparing this to guidance of EUR100 million to EUR120 million, excluding the Gilead payments, so on the low end of that guidance. And we had further -- we were further helped by EUR4 million cash proceeds from warrant exercises and EUR4.8 million in currency effects that we exclude from the operational cash burn. So, overall, almost EUR1 billion in cash at the end of 2016, which is the largest cash position ever.

Actually, we've looked at the investments that were made since the foundation of the Company in 1999 by equity investors, and basically, in total, we have received EUR873 million of equity investments over the 18 years of our existence. With our current cash position of EUR981 million, basically the conclusion is that Galapagos is cash positive on a cumulative basis since we were founded in 1999. And that obviously doesn't even include the comparison to the market capitalization that we are currently trading at.

Going into the P&L then, revenues and other income on the next slide, a significant increase in 2016 to EUR152 million. And in the orange colors, you see the various components of this income, which are largely cash income, whereas, in green, this is what I would call accounting income. So the counting income is recognition of license fees that were paid to us in the past. In 2015, these were all associated to payments by add the regarding both filgotinib and cystic fibrosis, and those were all deeply disconcluded by the end of 2015. In 2016, we see actually the first elements of the recognition of the license fee and the share premium that was paid to us by Gilead for filgotinib. And this amount will be recognized over the next three to four years, in line with the development plan for filgotinib.

The orange colors is what is cash income, an increase still from our subsidiary in Zagreb, (inaudible), fee-for-service income up to EUR8 million. But the big increase is related to milestones, EUR82 million, $90 million, associated with the filgotinib milestone from Gilead but also $30 million in our CF partnership with AbbVie.

And then some other pieces of income, cost reimbursements, and not to forget grants and other income, which are actually mostly incentives from governments in France and Belgium for the R&D activities that we have in those two countries.

So then, in operating expenses, a small increase there, EUR150 million to EUR163 million. It might be a bit counterintuitive that our development expenses in 2015 and in 2016 are more or less at the same level. I remind everyone that, in 2015, we were incurring 100% of the filgotinib Phase II costs, part of the Darwin program whereas, in 2016, this only is 20% of the filgotinib Phase III costs. Now, these numbers obviously for filgotinib will go up as the programs expand in the coming years and that 20% portion will increase, but the fact that we are more or less stable between the two years is I would say more a coincidence of the numbers and is really on a different basis of expenses.

Increases in SG&A and research expenses, to a certain extent, especially in SG&A, those are non-cash expense increases related to higher provisions for warrants and bonuses, long-term bonuses, that are directly driven by the positive evolution of our share price in that calendar year.

On the next slide, I won't go through this one in all details because I've shown it now I think for five times in different webcasts. I still like to share it here because it is a big impact on our net results. The positive one in 2016, EUR57.5 million positive associated with the movement of our share price between January 1, 2016 and the actual closing date of the Gilead transaction on January 19. So this has been in our numbers in every quarter and is a positive in the 2016 overall P&L.

You see, coming back in the next slide, which is the bridge from the net result that we had in 2015 to the net result in 2016. Last year, we had EUR180 million negative. This was negatively influenced by this non-cash financial asset adjustment by EUR30.6 million. Then, obviously, we had a positive this year of EUR57.5 million, and then the remainder was EUR84 million of what we would call operational evolution. So the actual underlying improvements recurring from 2015 to 2016 is EUR84 million, which, again, is the combination of the higher income of the top line with slightly higher expenses in operations.

And to our guidance in 2017, the operating cash burden is what we give guidance on at Galapagos. We estimate this to be between EUR135 million and EUR155 million. This is the full cash flow from operations and investing. So last year, we had excluded the Gilead payments because it would be -- because of the significance, it would be too difficult to forecast the exact outcomes there. But here we've included every income and expense in operations and investing. And what you see here is an increase which reflects lower anticipated milestones in 2017, and at the same time an increase in spending, in filgotinib and cystic fibrosis but also on our proprietary programs.

So, with that, I give it back to Onno for the outlook for 2017.

--------------------------------------------------------------------------------

Onno van de Stolpe, Galapagos NV - CEO [5]

--------------------------------------------------------------------------------

Thank you Bart. If you look at the news flow, in 2017, it is a lot on all the programs. If we look at filgotinib, we are looking forward to the Darwin 3 interim results. Darwin 3 is the long-term extension study where patients that have -- that had enrolled in Darwin 1 and 2 continue to be receiving the 200 milligram a day drug for a long period of time and are still on that drug as we speak. So we are building up a large database on efficacy as well as on safety, and we will do an interim analysis presentation at the EULAR conference, the rheumatology conference, here in Europe. Later in the year, we will present also at the ACR conference.

Regarding Crohn's, you see we will have posters and presentations at conferences in Europe and the US. And then of course, we'll get a lot of news flow on new indications where filgotinib will be tested in proof of concept Phase II trials.

It's going to be a very busy year for cystic fibrosis on the news flow front where we already had a number of different announcements, including the one today that will get much more data out there regarding start of trials, start of molecules, and also the expected start of the triple combination in patients in halfway or beginning of the second half next year. And then of course, again, presentations at the cystic fibrosis conferences in Europe and in the US.

If we look at the remainder of the pipeline, we are awaiting the data in idiopathic pulmonary fibrosis, the FLORA trial, where we get the data in the second half of this year. And as you can see on this slide, the other programs also will start trials or read out trials. So we are looking forward to the new programs that hopefully will be the next set of molecules that can go into late stage development and be beneficial for treatment in these various diseases.

So, we are very excited about this news flow coming up. And of course, there will be more programs coming out of our research engine that will end the clinical development, and we'll make those announcements as they get there.

With that, I think I can hand it back to Elizabeth, and this ends the formal presentation.

--------------------------------------------------------------------------------

Elizabeth Goodwin, Galapagos NV - IR Director [6]

--------------------------------------------------------------------------------

That really does conclude the presentation portion of the audio conference call. I'd now like to ask the operator, Marion, to connect us to any callers with questions for the executives.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions). Stephanie Put, Degroof Petercam.

--------------------------------------------------------------------------------

Stephanie Put, Petercam - Analyst [2]

--------------------------------------------------------------------------------

Thank you very much. Good afternoon. My first question would be if you can give an indication on the increase in operational expense and the split in R&D costs for each program.

Then as the second question, I was wondering, in your FLORA study, before you were speaking of the blind result in Q2 2017. Now it has been moved to the beginning of H1 2017. Is there a delay in recruitment or is it just a small difference? I'll start with those two questions. Thank you.

--------------------------------------------------------------------------------

Bart Filius, Galapagos NV - CFO [3]

--------------------------------------------------------------------------------

Okay, thanks. This is Bart speaking. I'll take the first question on the increase in expenses. Now, our guidance is on total cash burn, which we believe is the most relevant to talk about, so that's I think (inaudible) EUR135 million to EUR155 million guidance. What I can tell you is that increase that we will have is mostly associated to development phase products. Research expenses will -- maybe there is going to be a small increase but it's not going to be major. New investments are towards our development phase programs, and there you see increases in filgotinib because, obviously, the recruitment is accelerating for both RA, Crohn's and UC. But you also see increases in cystic fibrosis where the number of trials is increasing exponentially for us. But we also will be investing in our proprietary programs. So it's the three combined that will drive us and lead to an ultimate cash burn of between EUR135 million and EUR155 million.

The second question on FLORA, can I give that to Piet?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [4]

--------------------------------------------------------------------------------

Thank you. So, FLORA, this is the study in IPF patients. As I said earlier, we have completed the enrollment, and so patients will be on treatment during the coming months. And so the analysis will take us between two and three months, and so that's going to end up close to the middle of the year. So at the safe side, we say that we are going to report in the second half. If we are lucky, it still could be June 25, but I think, on the safe side, we will name this second half of the year. It will be early in Quarter 3.

--------------------------------------------------------------------------------

Stephanie Put, Petercam - Analyst [5]

--------------------------------------------------------------------------------

Okay. You didn't experience any difficulty in recruitments or --

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [6]

--------------------------------------------------------------------------------

Well, it's not an easy indication to recruit patients. In IPF, it's well-known everybody that has long clinical studies in the field knows it's a very difficult indication to find the patients, but within the time frame we foresee, and we added to the screen period about one month to full year recruit (inaudible) in total we can say that we are on plan there and we will report by the middle of the year.

--------------------------------------------------------------------------------

Stephanie Put, Petercam - Analyst [7]

--------------------------------------------------------------------------------

Thank you very much.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Matthew Harrison, Morgan Stanley.

--------------------------------------------------------------------------------

Matthew Harrison, Morgan Stanley - Analyst [9]

--------------------------------------------------------------------------------

Great. Good morning everybody. Thanks for taking the questions. I have three if I may. The first one, just on FLORA, Piet, can you talk to us about what kind of data you're going to look for from this to move ahead? Obviously, IPF is a difficult indication, and you're going to have biomarker data. Is that enough to then run a major sort of Phase II commitment? Or how do you think about what the bar for the data is?

And then second, on 2451, the fact that you've moved that ahead as a doublet, does that mean you have chosen that now as the lead potentiator and that's what we should expect to see going forward?

And then finally just with filgotinib in Crohn's and UC, can you just remind us what sort of long-term follow-up data we should expect to see either at DDW or at UEGW? Thank you.

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [10]

--------------------------------------------------------------------------------

So, I am assuming that I'm taking all of these questions. So, let me start with FLORA. So FLORA study, GLPG1690, our Autotaxin inhibitor for IPF. So first of all, it's a terrific study in patients so we evaluate the safety (inaudible) of GLPG1690 in IPF patients and it's essential that these data are good. More important is that we can find in those long levels of autotaxin, active autotaxin and that we as well can show that those dose we've given to the patient, that we effectively can block autotaxin there and that we see a drop in those lipid mediators that trigger fibrosis. So, it's important that we confirm that in those biomarker data that there is autotaxin present in the lungs and that the dose we give to patients is capable of blocking the enzymes in the lungs, because this has been the observation in the animal studies. Indeed there is autotaxin there and that we block in the lungs the formation of the lipid mediators that trigger fibrosis. So we want to see indeed and confirm that autotaxin is an important player or is present as a player, at least in IPF.

And finally, you want to see that when you block that, at least this does not cause inverse consequence on the lung function parameters. But we don't aim there to see with (inaudible) improvement but you want to make sure that, if you block autotaxin there, that this has no negative impact. We don't expect it. It lets us at least check that we need to before moving forward into larger studies in IPF.

Then over to the CF field, so 2451 is indeed the first policy that moves into a dual combination and the plan towards to move triple is indeed based on 2451, 2222. And then, as I said before, during the Quarter 2, we will have 2737 in healthy volunteers as our first triple evaluation in healthy volunteers and then, in the second half of the year, immediately start evaluating that triple combo in patients. That is the plan today.

And finally, filgotinib. What are we going to present at DDW and at UHEV, FITZROY, first of all, is close to the only solar. We don't have any data on UC, so you should expect then that we will present additional data and we will especially take a deeper dive where we will bring biomarkers next to the endoscopy and it will improve. So there's a whole world of biomarker data coming which we are analyzing and we have been analyzing and we will present that at the WUGV. We've presented recently the 20 week-data as well, so they are out. So in terms of the main clinical endpoints, most of the data now are known and what we will present over the coming conference is a deeper dive to the biomarker level. Thanks for all the questions, by the way.

--------------------------------------------------------------------------------

Matthew Harrison, Morgan Stanley - Analyst [11]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Phil Nadeau, Cowen and Company.

--------------------------------------------------------------------------------

Phil Nadeau, Cowen and Company - Analyst [13]

--------------------------------------------------------------------------------

Good morning. Thanks for taking my questions. Maybe first a follow-on to Matthew's question. If you are moving 2451 forward as your first choice, as it seems like you are based on your slides and the comments to that last question, what is the rationale for that? Is it simply because it's a once daily drug, or are there other things that you've seen in the clinic or preclinically that make you feel like this is the best potentiator that you have thus far?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [14]

--------------------------------------------------------------------------------

Thank you for the question. We presented some final data last year. Out of those data it became indeed clear that 1837, our first potentiator, really is one high dose, mid to high dose to show clinical efficacy. Secondly it is a b.i.d. drug. And with 2451, indeed we have a compound that allows all of those reflex flexibility we might need later. So we -- our anticipation is that we'll have to dose much lower and that we will dose only once a day, and that gives us all the flexibility for whatever chronic combo pill we want to make later. These are the main reasons, but not any other preclinical scenes that have driven that choice.

--------------------------------------------------------------------------------

Phil Nadeau, Cowen and Company - Analyst [15]

--------------------------------------------------------------------------------

Got it. And then the second question, on your correctors, both the C1 and C2 correctors, have all completed their preclinical talks thus far? Your potential competitor, Vertex, did disclose that some of their C2 compounds ran into issues in preclinical talks. I'm curious if you have successfully completed all of those studies for your correctors.

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [16]

--------------------------------------------------------------------------------

Okay, thank you for the question on the status of the correctors. So what I can say, the C1 corrector, 2222, passed all of the testing. 2831, that's still ongoing, so we only plan to move that into Phase I by year-end, so that is still in a preclinical phase, but 2222 is a solid choice.

On the C2 correctors, as we currently well ahead in the (inaudible) dose phase of 2737, so that has well gone through GLP talks. One month study, more chronic studies are still going, but that has grown through a one-month GLP talks and has been going in combination talks which we need for the triple combo.

The second C2 corrector, 3221, is still in GLP talks. So we only initiate Phase I later this year, and so that corrector is complete novel chemistry (inaudible). As well, we have impression that it binds differently to CFTR and 2737 is still in preclinical and we need to wait until we have all the GLP talks before we can decide whether or not we can move this into Phase I.

--------------------------------------------------------------------------------

Phil Nadeau, Cowen and Company - Analyst [17]

--------------------------------------------------------------------------------

Great. One last question for me. Just on the filgotinib Phase II proof of concept combo studies that did start this year, do you expect (inaudible) any novel combinations, so combinations of JAK with other investigative mechanisms, or are all of these likely to be monotherapy proof of concept studies?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [18]

--------------------------------------------------------------------------------

On the filgotinib Phase II programs, so we are pleased that the first has been initiated by Gilead. Over the year, you will see multiple studies appearing there being initiated, Phase II studies, POX studies. Gilead already has initiated a study where we have parallel groups and if, at a certain moment, Gilead, as I said, will start to explore combination studies, we will let you know. It is too soon to comment on that today, but Gilead has been cleared and that's part of the plan. But when those studies will start, I cannot comment today.

--------------------------------------------------------------------------------

Phil Nadeau, Cowen and Company - Analyst [19]

--------------------------------------------------------------------------------

Great, thanks for taking my questions.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [21]

--------------------------------------------------------------------------------

Good morning and thank you for taking my questions. I just want to start with the FLORA study first. The patients on the placebo cohort, they will be without therapy for a total of about 16 weeks, including the washout period. So, in terms of the disease stage, knowing that IPF patients, some progress much faster than the others, so are these patients -- what kind of patients are these? Given 16 weeks is a fairly long-term to be without a drug. So I'm just wondering what do we see when the data comes out, whether these are the slow progressors or the rapid progressors, or is there a biomarker which can tell you that?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [22]

--------------------------------------------------------------------------------

Thank you for the question. So, FLORA, as you rightly pointed out, the placebo group does not have access to treatment. That made the design and the set-up of this study special, so we really had to look to places where -- places and reimbursement settings where certain patients did not have yet access to pirfenidone or nintedanib and that was the criteria. So there was no criteria on whether they were slow or rapid progressors (inaudible) study we have to go to regions where for those patients over the coming 20 weeks access to pirfenidone or nintedanib was not possible and as a conference, they could be enrolled in the study. There was no difference between slow or rapid progressors.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [23]

--------------------------------------------------------------------------------

Great. And then moving on to the corrector, the C1 and C2, structurally, how are these different from the Vertex compounds? I'm just trying to get at how would you avoid the side effects that you are seeing with both the Vertex correctors?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [24]

--------------------------------------------------------------------------------

That is still speculation, so Vertex has not disclosed the chemical structures of their C2 correctors, at least they have not linked one-on-one their research cohorts with chemical structures. There have appeared some patterns of Vertex compounds which claim to have the type of activity which we can't be sure on whether these are really the Vertex compounds. So, it's a little bit too early in terms of the C2 correctors to start comparing different classes of different companies as we don't know which code links exactly to which chemical structures. So I can't answer, unfortunately, not that question.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [25]

--------------------------------------------------------------------------------

The FINCH 2 study, which is 24 weeks, [420] patients, in terms of data readout, do you think the first quarter of 2018 sounds reasonable given the shorter duration and fewer patients there?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [26]

--------------------------------------------------------------------------------

What is clear is indeed that FINCH 2 will be the first study to read out, but I don't think Gilead has disclosed an exact quarter there. But it will be for sure the first (inaudible) to read out its most number of patients (inaudible) shortest duration and think it's reasonable to expect that will happen somewhere next year, but they haven't according to me disclosed an exact quarter there.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [27]

--------------------------------------------------------------------------------

And finally, the 200 milligram dose and the impact on testicular safety, both in ulcerative colitis and Crohn's disease, at least in the US, any update on how that segment is progressing in terms of expanding it into younger patients?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [28]

--------------------------------------------------------------------------------

Thank you for the question. There is no limitation in terms of age in the study, so I want to make that clear. So in the Crohn's and ulcerative colitis program, patients, as you know, they are diagnosed with the disease, and as long as they fit the right criteria, there is no age limitation. So we will generate data in adults starting from 18 years onwards worldwide. In the US, they have to have failed a biology treatment. That is the only limitation that we currently have in the study.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [29]

--------------------------------------------------------------------------------

And one more question on -- it's a more housekeeping question in terms of milestones from the CF program. One of the slides said you expect lower milestones this year. So how should we look at the CF, the EUR250 million milestones, excluding the ones that you've already accounted for? Is that not expected in 2017 or -- I'm not sure how to account for it.

--------------------------------------------------------------------------------

Bart Filius, Galapagos NV - CFO [30]

--------------------------------------------------------------------------------

Bart speaking. So, it's true that there's going to be lower milestones all over in 2017 compared to 2016. In 2016, I suppose, as a reminder, it was $90 million, $60 million of which was all around filgotinib and $30 million of which was around CF. We are not going to split it out exactly for the year 2017 but it is going to be lower than that number, and also more meaningful milestones around CF would be expected later on beyond 2017, but there is some to come also within 2017.

--------------------------------------------------------------------------------

Debjit Chattopadhyay, Janney Montgomery Scott - Analyst [31]

--------------------------------------------------------------------------------

Thanks so much.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Tim Woodward, Goldman Sachs.

--------------------------------------------------------------------------------

Tim Woodward, Goldman Sachs - Analyst [33]

--------------------------------------------------------------------------------

Thank you for taking my questions. I have three. First is on the C2 corrector, 2737. Are you waiting for any more Phase I results from that as a standalone, or are you now ready, from your perspective, start it in Phase I in the triple when you have the data from 2222 and 2451?

The second is when you get any interim readouts on the Albatross study for 2222 in Kalydeco before you start the triple combination in Phase I, and will there be any read across from that?

And the third is just a follow-up the previous questions. For cystic fibrosis, if I compare the milestones you expect to receive and what you expect to spend on R&D, should I think about this as being broadly cash neutral for you in 2017? Thank you.

--------------------------------------------------------------------------------

Bart Filius, Galapagos NV - CFO [34]

--------------------------------------------------------------------------------

Let me take the first one and then I'll hand it over to Piet for the other two. It would not be for 2017 completely neutral, as I think that our expenses are going to be a little bit higher than milestones coming in. Piet, do you want to take the questions around 2737 and Albatross?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [35]

--------------------------------------------------------------------------------

Yes, okay. Thank you, Tim, for those questions. The real medical need for the CF patients currently, especially (inaudible) homozygous is really bring forward triple combinations. So as soon as we have all of the Phase I (inaudible) data with 2737, we will move that as quickly as we can into the triple in healthy volunteers, which should be next quarter, and then immediately after triple into patients. So the plan is not to generate monotherapy data with 2737 but immediately put into triple and move that towards patients as quickly as we can.

Then the second question was on do we need interim data from Albatross, and the answer is no. So we've always said that we would do that study to learn more about 2222, but that will not influence dose selection as we currently see that for the triple combination. So we of course are watching the safety with 2222 in combination with Kalydeco. There is no interim plan there in terms of efficacy or whatever to select the dose from triple combination.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Anastasia Karpova, Kempen.

--------------------------------------------------------------------------------

Anastasia Karpova, Kempen & Co. - Analyst [37]

--------------------------------------------------------------------------------

Good afternoon. I have three questions if I may. Assuming that you've completed the safety trial for 2451, can you please comment on the difference in the safety profile between 2451 and 1851 and if you see any major differences in PK/PD profile between those?

Also, with FLORA trial, following FLORA, if the results are positive to satisfy your requirements, would you envisage developing Autotaxin as a monotherapy or rather as a combination with one of the approved agents, and if you can speculate which one of them do you prefer and if you can already share some preclinical data on the combinations?

And finally, more of a speculation question, but given its recently acquired priority review voucher, do you -- would it be possible to contemplate that that can be used to accelerate approval for filgotinib to catch up against (inaudible) compound?

--------------------------------------------------------------------------------

Onno van de Stolpe, Galapagos NV - CEO [38]

--------------------------------------------------------------------------------

I'll start with that. I would say thanks for the question. Regarding the voucher, yes, of course it could be used for it, but that is pure speculation. This is Gilead's decision to buy it, and they will use it wherever they think it makes the most impact. And I'm sure they will look at their portfolio with regard to the competition and at some point make a decision. But if it could by example help to get filgotinib in Crohn's as the first oral to the market, that might be a great opportunity to use a voucher like that. But this is all at this moment pure speculation.

Hand it over to Piet.

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [39]

--------------------------------------------------------------------------------

Thanks for the questions. Let's start with the FLORA questions, how potentially the next -- design of the next study look like. In the next study, currently, the plan is to dose on top of standard of care, and this will be standard of care, whether it's pirfenidone or nintedanib. So there is no intention today to fix or to limit it to one combination, but in any of the IPF trials today, the way forward is to really dose on top of standard of care. The number of patients, IPF patients, that in the rest of the world don't have access to those medications is quite low, and developing compounds in the (inaudible) are the ones that don't have access is not what has been advised to us, both in terms of feasibility and in terms of medical need as well by design.

So we have shown, I believe, combination data in terms of efficacy on top of nintedanib where we have shown that the combination of 1690 and nintedanib works better in the (inaudible) IPF run levels. So we've shown at least that the combination worked better than the two alone in certain settings. And that allows us then to set up a study with the combination. There's going to be a combination on top of standard of care.

I hope I answered the FLORA question, and then over to the CF field. The choice for the (inaudible) 2451, as I said before, it is driven by the dosing flexibility we see with 2451 that directly allows us to one dose a lower dosage, which is good for a combination pill and gives us the flexibility whether the therapy is once a day or b.i.d., that doesn't matter. We can make (inaudible) with 2451. So that's why we have chosen 2451.

Your other question as well on PK/PD. So 2451 has not been in patients yet, so we don't have a (inaudible) for 2451. We only have that for 1837. Thank you for the questions.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Peter Welford, Jefferies.

--------------------------------------------------------------------------------

Peter Welford, Jefferies International - Analyst [41]

--------------------------------------------------------------------------------

Thanks for take my questions. I've got three. Firstly, on the 2451, just staying with that topic, I wonder if you could comment on the healthy volunteers trial, whether or not you did reach a maximum tolerated dose in the single ascending dose trial, and whether there were any sort of tolerability factors during the dose ranging before it went into the multi-ascending dose that you can comment on and when we should see the results from that healthy volunteer study.

Secondly then, just on the outlook for the cash burn, just so I'm clear, in the EUR135 million to EUR155 million, you mentioned Gilead, but is the EUR135 million to EUR155 million also including potential cash income you could get from cystic fibrosis this year? In other words, is the true operating expense presumably closer to EUR200 million or so this year?

And then finally, just big picture, there was no sort of comment made I guess on the fact you have EUR1 billion of cash, and you obviously have an expanding pipeline but also there are presumably some other business development opportunities available to you. Is this still an active endeavor within Galapagos? Are you increasingly looking to the fact that the pipeline is getting broader and therefore there's a lot of internal uses of your resources that you need to consider or how are you thinking about that at this time? Thank you.

--------------------------------------------------------------------------------

Bart Filius, Galapagos NV - CFO [42]

--------------------------------------------------------------------------------

Bart speaking. I'll take the question on the cash burn and hand it over to Onno for the BD and then to Piet for 2451. So, on the cash burn, the answer is yes to your question. It is all-inclusive. So basically this includes a milestone income. It also includes income from tax incentives that we receive on a cash basis. So it's really for cash burn. The only thing which is not included is for example if we would have some further warrant exercises that would probably go on top of or reduce actually the total cash expense for the year. But otherwise it's a full cash burn picture. Onno for BD?

--------------------------------------------------------------------------------

Onno van de Stolpe, Galapagos NV - CEO [43]

--------------------------------------------------------------------------------

Regarding potential acquisitions and in-licensing, we have indicated we are interested to look at opportunities. And over the year, we have been looking at opportunities. We haven't found what we are looking for. We are comfortable with the cash that we have in the bank. If we see the right opportunity that will strengthen our pipeline, we will make a move. And otherwise, we will carefully watch it.

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [44]

--------------------------------------------------------------------------------

On 2451, we haven't disclosed topline results, so it's a little bit hard to comment on things we haven't disclosed. (inaudible) moving 2451 forward into a dual study, which is a chronic study in healthy volunteers. It's clear that we feel comfortable with whatever we see during [MED] to get into dose levels and exposure levels which we will need for clinical efficacy. I think that's obvious if you move something forward, that we are on track there and that we have exposed the exposures when we needed and the safety profile allows us to continue this program. So without having topline, it is a little bit difficult to add more to this question. Thank you.

--------------------------------------------------------------------------------

Elizabeth Goodwin, Galapagos NV - IR Director [45]

--------------------------------------------------------------------------------

I think we have time for one more set of questions.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Adam Walsh, Stifel.

--------------------------------------------------------------------------------

Adam Walsh, Stifel Nicolaus - Analyst [47]

--------------------------------------------------------------------------------

Thanks so much for fitting me in. My first question is for Onno. When you signed the deal with Gilead, you had mentioned at the time there was a standstill agreement in place. Would you be willing to share with us when that standstill comes off?

--------------------------------------------------------------------------------

Onno van de Stolpe, Galapagos NV - CEO [48]

--------------------------------------------------------------------------------

No. We have at the time decided not to share that, so I cannot -- we only shared what the lock-up period was, and that was -- two years? And the standstill we didn't disclose.

--------------------------------------------------------------------------------

Adam Walsh, Stifel Nicolaus - Analyst [49]

--------------------------------------------------------------------------------

That's great. And one follow-up. On Slide 11, you show kind of the outline -- the timeline for your triple combination progress. And it appears that the Phase I in healthy volunteers is going to end sometime in the third quarter, but you showed the Phase II beginning at the beginning of the third quarter. Is that just the way the slide was built, or is there a way that you can start the patient evaluations prior to getting the full Phase I data on the triple?

--------------------------------------------------------------------------------

Piet Wigernick, Galapagos NV - Chief Scientific Officer [50]

--------------------------------------------------------------------------------

The slides indicate indeed that we start with the triple in healthy volunteers during Q2. That arrow extends a little bit into Q3 because that's when we have the final report and all of that sort of official duration of that study. But as soon as we have the topline data in terms of PK and safety, we feel comfortable that we will be able moving forward based on those data to triple into patients. So we don't need to wait until the formal end of the study, so we will do that based on an interim analysis based on the full PK, the full safety of the healthy volunteers during the treatment and with sufficient follow-up post-treatment. Based on that, we plan to move forward into patients. Thank you for the question.

--------------------------------------------------------------------------------

Adam Walsh, Stifel Nicolaus - Analyst [51]

--------------------------------------------------------------------------------

That's so helpful. Thank you.

--------------------------------------------------------------------------------

Elizabeth Goodwin, Galapagos NV - IR Director [52]

--------------------------------------------------------------------------------

All right. That now concludes the Q&A part of our call today. If you have any more questions, please feel free to direct them to me, ElizabethGoodwin@Galapagos. Please also look for a publication of our annual report and [28th] filing around March 23. Our next financial results will be for Q1 2017 post-markets on April 27, and our webcast will be held the next day.

So we thank all audience -- all callers and supporters for your participation today and look forward to speaking with you again soon. Thank you and goodbye.