Galapagos NV (NASDAQ:GLPG) Q4 2023 Earnings Call Transcript
Galapagos NV (NASDAQ:GLPG) Q4 2023 Earnings Call Transcript February 23, 2024
Galapagos NV beats earnings expectations. Reported EPS is $2.39, expectations were $-2.23. Galapagos NV isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Full-Year 2023 Financial Results Call and Webcast. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please note that we will be taking only one question per participant today. And please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Sofie Van Gijsel from Investor Relations. Please go ahead.
Sofie Van Gijsel: Thank you, operator, and thank you all for joining the audio webcast of Galapagos' full year 2023 results. I'm Sofie Van Gijsel, Investor Relations, representing the reporting team at Galapagos. This recorded webcast is accessible via the Galapagos website homepage and will be available for download and replay later on today. I would 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 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.
Today's speakers will be Paul Stoffels, CEO and Thad Huston, CFO and COO. Paul will reflect on the highlights of 2023 and present a corporate and pipeline update. Thad will provide an operational update and go over the financial results. Paul will discuss the outlook for 2024 and present concluding remarks. You will see a presentation on screen. We estimate that the prepared remarks will take about 20 minutes. Then we'll open it up to Q&A with Paul and Thad, joined by Jeevan Shetty, Head of Development, Oncology and Daniele D'Ambrosio, Head of Immunology. And with that, I'll now turn it over to Paul.
Paul Stoffels: Thank you all for joining today's webcast. I would like to take a moment to look at the turnaround we are realizing and how we set up the company for future growth and value creation. First of all, we redesigned our scientific approach and now we have a patient-centric focus on two therapeutic areas, immunology and oncology. In our core therapeutic areas, we pursue best-in-class medicines with multiple modalities. Today, we are a pure-play biotech with strong end-to-end R&D capabilities. We focus on breakthrough medicines and high unmet medical needs. We took a fresh look at our early-stage discovery work and broadened our modalities beyond small molecules. Our aim is to nominate a set of preclinical candidates this year that have the potential to enter the clinic next year.
We also expanded our scope to bringing in external innovation as we believe that combining internal and external innovation is the best approach to accelerate our pipeline. Importantly, last year, we embarked on a strategic review of our commercial product Jyseleca and now transferred the product, the dedicated teams and related activities to Alfasigma. We strongly believe that our transformation to a pure-play biotech company allows us to focus on our research and development efforts. We have expanded our end-to-end R&D capabilities, especially in our more recently added therapeutic area of oncology. Today, we are a smaller, focused organization with approximately 700 employees. As a result of the organization measures we took, we were able to significantly bring down our cash burn.
Thad will come back on how this frees up resources to redeploy in future growth. Conclusion, we believe that we have made significant progress in resetting the company to drive value in 2024 and going forward. As I mentioned, we have broadened our biological scope from small molecules to cell therapy and biologics. We have a long history and strong legacy of small molecule research and development in immunology and we have now expanded our small molecule efforts into oncology. Thanks to the acquisition of AboundBio and CellPoint in 2022, we added cell therapy and biologics to our capabilities. In cell therapy, we have an innovative decentralized manufacturing platform for CAR-T, a clinical pipeline and groundbreaking research capabilities. We will continue to build expertise to discover novel biologics.
The teams are working hard to progress our discovery and development efforts across the three modalities with a laser-sharp focus on finding solutions for high unmet medical needs with an aim to accelerate time to patients. Now let's have a look at our pipeline today. In immunology, you can see that filgotinib has been removed following the transfer of Jyseleca. We have trials running with our selective TYK2 inhibitor 3667 in dermatomyositis and SLE. Recruitment is progressing and we are on track for Phase II readouts in '25 and '26, respectively. For strategic reasons, we decided to discontinue the development of our CD19 CAR-T in refractory SLE. We have seen multiple players entering this area in a short time frame. The field has become highly competitive and in light of the risk benefit and time to develop, we made this decision.
We believe that the cell therapy approach will be a game changer for patients with autoimmune diseases, but for the long term success, it will be important to have an approach providing CD19 CAR-T like benefits with an optimal safety profile. Summary, we remain committed to immunology as a core therapeutic area and in our early research, we are working on multiple preclinical targets with small molecules and other modalities and continue to pursue external opportunities. In oncology, we made important progress with our three clinical-stage programs, the CD19 CAR-T 5101 in non-Hodgkin lymphoma, the CD19 CAR-T 5201 in chronic lymphocytic leukemia and Richter's transformation patients, and also with our program in BCMA-directed CAR-T 5301 in multiple myeloma.
I'll come back to very encouraging preliminary data in NHL and CLL in a moment. Also in oncology, we are progressing multiple targets across modalities and are on track to nominate preclinical candidates over the course of 2024. At ASH, in December last year, we presented encouraging safety and efficacy data for our EUPLAGIA program in CLL and Richter's transformation with 5201 in a heavily pretreated patient population. I will not go off of the results in detail, but summarizing, we observed an objective response rate of 93% and a complete response rate up to 63% at dose level 2. Moreover, at dose level 2, 100% of the Richter's transformation patients responded to treatment. We also observed encouraging safety results with no CRS higher than or equal to Grade 3 and no ICANS reported.
The data informed our decision to select dose level 2, 100 million cells as a recommended dose for the Phase II part of the study. The study is ongoing and we continue to collect more follow-up data. We now have the first patient in an ongoing response for over one year. Turning to our ATALANTA program in NHL for which we presented Phase I and II data at ASH last year, we observed encouraging efficacy in patients with multiple subtypes of relapse or refractory NHL, again in heavily pretreated patients. Overall, an objective response rate of 86% was observed with high rates of complete response. Also, for ATALANTA, we observed an encouraging safety profile. The study is ongoing and we are collecting data on more patients with longer follow-up time.
We now have the first patients also in this study in an ongoing response for over one year. 2023 was also a busy year in building out a global point-of-care network. You will remember that we have an exclusive global license with Lonza for the Cocoon point-of-care device in blood cancers. We started the tech transfer to our first U.S. site, Landmark Bio, and hope to finish this in the coming months. This is an important step in the roll out of our clinical trials as the tech transfer data will be part of the anticipated IND submission with the FDA. We recently entered into a strategic collaboration agreement with Thermo Fisher out of the Bay Area and we aim to sign on additional manufacturing sites in the near future. Our aim is to establish a proximity network of sites that can deliver to hospitals in the vicinity.
In Europe, we have five clinical trial centers up and running across three countries, Spain, Belgium, and the Netherlands, and we are actively working on opening additional centers. Late December, we launched our third clinical study on the Cocoon with the BCMA CAR-T 5301 in multiple myeloma. Internally, we also strengthened and continue to strengthen our capabilities in oncology. This includes quality assurance, clinical, and regulatory talent both in Europe and the U.S. I would now like to hand it over to Thad for the operational and financial update. Thad?
Thad Huston: Thank you, Paul, and thank you everyone for joining the call. As Paul indicated, 2023 was a turnaround year and we now have a focused R&D organization ready to accelerate our pipeline and create value. We completed our transactions with NovAliX for our Romainville site in France and with Alfasigma for Jyseleca. These transactions enable us to significantly reduce our cash burn while allowing for the redeployment of resources in building our portfolio. We continue to be disciplined in our cash use internally, but also when assessing and executing business development opportunities to accelerate and expand our pipeline. Meanwhile, we have significantly increased our capabilities and expertise to support our growth in our key therapeutic areas of interest, immunology and oncology as we continue to build on our R&D organization, including in the U.S. As Paul stated, we successfully closed the transfer of Jyseleca to Alfasigma in January of this year.
Galapagos transferred the entire Jyseleca business to Alfasigma including the European and U.K. marketing authorization, sales marketing and all filgotinib development activities as well as approximately 400 employees across our European operations. Upon closing, Galapagos received EUR50 million upfront and is entitled to potential sales-based milestones up to EUR120 million. In addition, Alfasigma will pay royalties in the mid-single to mid-double-digit on European sales to Galapagos. Galapagos will pay up EUR40 million in development cost to Alfasigma before June 2025. We also streamlined our remaining workforce and operations to align with the renewed focus on innovation. This had an impact of approximately 100 positions throughout the organization.
The transaction allows us to realize considerable savings to invest in future growth and we expect annualized savings between EUR150 million and EUR200 million as of 2025. Here you see the Jyseleca performance. We realized EUR112 million in net sales in 2023 and EUR30 million in the fourth quarter, delivering on our restated guidance of EUR100 million to EUR120 million. Jyseleca is approved across Europe for RA and UC and currently over 21,000 patients benefit from the drug. With the transfer of Jyseleca at Alfasigma, we believe we've secured the best option for patients, our people, and the product. Let's first go over the key financials for 2023. With the transfer of Jyseleca, the Jyseleca financials are now moved to discontinued operations.
We will continue to receive royalties for sales by Gilead and Alfasigma going forward. In our full-year 2023 revenues, you will see EUR230 million of revenue recognition related to the Gilead collaboration. As a reminder, this is a linear recognition of revenue for the value of the platform. I would also like to point out the reduction in OpEx, down 8% year-over-year due to a decrease in R&D costs and SG&A. We delivered a net profit for the year mainly driven by increased collaboration revenue due to the positive catch-up effect of the revenue recognition from the government. We also report higher financial income as a result of our capital in 2023 versus 2022, driven by an increase in interest income and money market funds, in part offset by a decrease due to exchange rates.
Here you see a clear split between our continuing and discontinued operations per financial item. As you can read from the slide, our discontinued operations for the Jyseleca business had a positive contribution to the bottom line of our P&L with a net profit of discontinued operations of EUR216 million. As explained, this is driven by positive catch-up effect in the revenue recognition for filgotinib. Now a few words on our cash position and guidance. Our cash and cash equivalents were EUR3.7 billion at year-end 2023. Our operational cash burn for 2023 reached EUR415 million. This lands within our 2023 guidance range of EUR380 million to EUR420 million. Thanks to the transfer of Jyseleca, we expect to realize significant savings and our 2024 guidance is now within the range of EUR280 million to EUR320 million.
The transfer also allows us to redeploy resources to invest in our business and pipeline, and we will continue to be focused on managing our resources effectively. Please note that our guidance excludes potential future business development activity. And that brings me to the next slide. We've been very focused on our plans to execute one or more additional deals to accelerate our pipeline in oncology and immunology across modalities. We put the bar high, taking a science-driven approach and a focus on strategic, highly selective partnering. As you know, we have a partnership in place with Lonza and in 2023, we entered into partnerships with Landmark Bio and Thermo Fisher as manufacturing sites for our CAR-T network. In January, we announced the collaboration with BridGene.
While early stage, we believe that the collaboration has the potential to accelerate our internal efforts in precision oncology with small molecules. Last night, we announced that we participated in a Series C financing round with Frontier Medicines, a U.S.-based biotech company. Frontier Medicines is a pioneer in precision oncology with a unique technology platform and a pipeline of potential best-in-class assets that fit with our oncology strategy. We are excited about the company and the potential of a future collaboration. We continue to explore the possible acquisitions and licensing opportunities as a key priority for our operations. I'll now hand it back over to Paul for the outlook and concluding remarks.
Paul Stoffels: Thank you, Thad. For 2024, we anticipate important regulatory progress with our CAR-T trials in the U.S. Mid this year, we aim to submit the IND for our NHL trial, building on the tech transfer to our first U.S. site, Landmark Bio. In the second-half of the year, we aim to submit an additional IND for 5201 in CLL and Richter's transformation. In terms of trial progress, pending IND approval, we plan to start the Phase II expansion cohort over ATALANTA trial in NHL in the U.S. We also aim to expand our Phase II EUPLAGIA trial in CLL and Richter's transformation in Europe, opening additional clinical trial centers for the study, and expand their Phase I/II PAPILIO study in multiple myeloma across Europe as well.
In 2024, we expect to present program updates on our ongoing clinical studies in NHL, CLL, and Richter's transformation as well as multiple myeloma at key scientific conferences. As I mentioned, we remain very active in business development. We are exploring additional partnerships for a CAR-T point-of-care network across the globe. We also aim to execute on additional license agreements and acquisitions, as well as research collaborations and strategic equity investments. Our business development efforts serve our overarching purpose of accelerating breakthrough therapies to patients in need. Let me conclude by coming back to the strong fundamentals that we put in place to build a global, innovative biotech company and a clear path we have towards value creation.
We are progressing our early-stage pipeline, building on our renewed discovery portfolio based on validated targets towards best-in-class medicines. We aim to deliver on our scientific progress in our key therapeutic areas of immunology and oncology, and continue to focus on business development. We are strengthening our R&D team capabilities and building a world-class team in Europe and the U.S. We benefit from a very strong balance sheet and we commit to staying disciplined in our use of the cash to focus our investment to maximize value. We want to thank our investors for their continued support as we deliver on our strategy to generate sustainable long-term value. Thank you.
Sofie Van Gijsel: Thank you, Paul and Thad. That concludes the presentation portion of today's audio conference call. I would now like to ask the operator to open up the line for Q&A.
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