Welcome to the Galapagos webcast. At this point, I would like to hand the call over to Elizabeth Goodwin. Please go ahead, ma'am.

Thank you. Welcome all to the audio webcast of Galapagos' Q3 2018 Results and Annual R&D Update. I'm Elizabeth Goodwin, Investor Relations, and I'll be hosting today's event. This reported webcast is accessible via the Galapagos website home page and will be available for replay later on today. Note that we will be posting the file copies of our webcast slides to the website as well later today. [Operator Instructions]. Moving on to the disclaimer slide. I would like to remind everyone that we will be making forward-looking statements today 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. Let's look at the agenda for today. Today's participants will involve some prepared remarks from our executives. Today, we also welcome Dr. Philip Mease from the University of Washington who will be joining us from ACR in Chicago. For Dr. Mease, we will open up the floor and phone very briefly for a couple of questions immediately following his talk. But for the others, I request you hold your questions until the Q&A session at the end. So with this point, I'd really like to hand over to Onno van de Stolpe, our CEO, who's joining us remotely from the Netherlands today. The folks here in the room can see him. And Onno, please go ahead and start our talk.

Thank you, Elizabeth. Pleasure to address people in New York and the rest of the audience on the webcast. Good morning, good afternoon. Happy to give an intro on what's happening at Galapagos. And of course, we'll start with the announcement we did this morning or late last night regarding the revised agreement with AbbVie. There has been a lot of uncertainty in the market regarding what was going to happen with the cystic fibrosis program especially after the last press release, where we announced we were reevaluating the collaboration with AbbVie. Now we have come to the conclusion that in this space, AbbVie is the better partner to continue in the program than Galapagos. Galapagos is really a new mode of action company focusing on novel targets that we discover with our platform and has been moved forward. And clearly, in the heat of competition that the CF space is in, it is more a pharma play than a biotech play. And I think both parties have understood that and we've come to a very good arrangement, I think, both for AbbVie as well as for ourselves regarding the future of the program with a consequence that all programs move to AbbVie. They pay us an upfront $45 million. We get nice milestones along the way if they reach their goal of getting triples into patients and to the market. And we also get very nice royalties ranging in percentage based on the number of candidates in there. All in all, I think we are very pleased with this outcome, and I think it's really the best for the program. We negotiated giving access to 2737, the candidate, for indications outside CF, and we hope to report on that program in the future to you maybe as in the…

Thank you, Onno. And good morning, everyone here in the U.S., and also good afternoon for those of you that are listening in, in Europe. I'll take the opportunity of this R&D Day to give you a quick snapshot on the Q3 results for Galapagos that we also reported yesterday. I'll do this rather quickly. I will have room for questions at the end of the session, but I'll do this rather quickly now so that we have enough time to focus on what really matters in terms of the purpose of today, which is the R&D programs. So maybe first, the delivery in our third quarter. And it has been a remarkable quarter for us. A hallmark quarter is what we called it in our press release because we had the first Phase III results of filgotinib in the FINCH 2 trial. And we'll go into that into a lot more detail later on. And those were very exciting to us, obviously, as a company. Then also in ankylosing spondylitis, we had the TORTUGA trial readouts. We had the first dosing in the ROCCELLA trial in osteoarthritis, our program that we partnered with Servier where we had the full U.S. rights. And also, in MOR106, we have started a bridging study for the subcu formulation. And as well in the negotiations with Novartis, we're expanding the development of MOR106 into other indications. And at a corporate level, the closing of the Novartis deal has been in July. So that's been part of our third quarter as well. We had, in September, a follow-on offering, which raised €300 million gross, and that has led us to a cash balance at the end of the quarter of a little over €1.3 billion. So let me get into the cash right away.…

Thank you, Bart. And at this point, we are going to toggle back to bring in Dr. Philip Mease from the University of Washington in Seattle. Dr. Mease, are you on the line?

I am. Can you hear me?

Yes, we can. We can hear you. And we are looking - there he is. Welcome, Dr. Mease. Thank you very much for taking the time to join us there from Chicago for your flight back to Seattle. I invite you to go ahead and tell us more about the results you presented.

Okay, good morning. So you're in New York, and good afternoon to those calling in from Europe. My name is Philip Mease. I'm a rheumatologist based in Seattle, Washington. I direct rheumatology research at the Swedish-Providence Health System and a clinical professor at University of Washington. If I could go to the next slide, please. Let me just frame the presentation of the filgotinib data on psoriatic arthritis that occurred this week at the ACR meeting. The first comment to make is that the abstract was chosen as a plenary presentation. There are - on three days of the meeting, there are, what I call, plenary presentations where there are no other concurrent sessions. There are six abstracts chosen for each day, so 18 abstracts out of the many, many thousand abstracts that are presented at the meeting. So that - I'm framing that perfectly because you can see that there was a lot of interest in this particular study at the meeting. I think it reflects also a rising interest in psoriatic arthritis in general in comparison to rheumatoid arthritis and other rheumatic diseases, and it also reflects an interest in the JAK mechanism of immunomodulation. So this first slide that is being shown indicates the basic biology of how JAKs, at the receptor level, mediate cytokine stimulation of the cell. JAK1, 2 and 3 mediate pro-inflammatory cytokine signaling as well as JAK2. There - filgotinib is a very specific and selective JAK1 inhibitor. And we put in, in here that JAK2 has some off-target signaling as well, including hematologic. And when we get to the safety data, we're going to see some reflection of the fact that filgotinib does not inhibit or work through JAK2, so may have less in the way of hematologic side effect issues. And…

Thank you, Dr. Mease. This is Elizabeth here at the Yale Club. Operator, could you please instruct callers as to how they can pose a question?

[Operator Instructions].

Okay. And while we're waiting for people to dial in, are there any questions here in the room? I see a question here from Sam.

Sam Wisely [ph]. The - you are a little bit late, at least, in the JAK space. The body of evidence on safety and effectiveness looks pretty good. Would you say that, that is because of your JAK1 selectivity? Or are there other aspects of your selection of the candidate? If so, what are those? Did you do some structure activity work? Or did you just perhaps - it does happen. Did you just perhaps get lucky?

Elizabeth, what might be best is some of the - some aspects of that question are going to be best handled by internal representatives of Galapagos. A comment I might make just as an outside physician is that I'm not - I want to caution you that these are Phase II results. We did see a very high ACR20 response, which is good. But as you know, sometimes, in Phase - as you move into Phase III, results come down to earth a bit more. So it's a little bit tough to take this data and say that it's fairly - that there is a signal for necessarily greater efficacy. I think a key point though has to do with the fact that there may be some differences in the safety.

And is there a question on the line, operator?

There are no questions at this time. So I'd like to turn the conference back to you, Elizabeth.

Okay. Are there any other questions here in the room? Okay. Thank you very much, Dr. Mease. We hope you have safe travels back to Seattle. Thank you.

All right. Thank you very much.

All right. Good morning, everybody. Good morning - or good afternoon for those of us joining us from other parts of the world. Can you switch to - perhaps I can address one element of the question. It will come through also in my presentation, but I want to say it here. I agree with Dr. Mease that again, this a Phase II trial and about 60 patients each. So we'll have to take those data with the limitations of the size of the study. But if you look at the totality of the program with filgotinib, I think the data are becoming more and more consistent, demonstrating the very high level of activity in terms of efficacy with a best-in-class safety and tolerability profile. And I think this is really borne out as a result of the selectivity. And I think this is a core area of focus in my presentation now. So I'm happy to take your question afterwards if you want to delve into more details after we open the Q&A session, okay. All right. So talking about filgotinib and you look at this and you see generally that this is a pipeline in the drug. So we're, generally here, building a franchise with this compound. We have a number of studies that are going on in Phase III in rheumatoid arthritis and inflammatory bowel disease. But in addition, there are a large number of data in Phase II trials both in rheumatic diseases and inflammatory bowel diseases that are coming through. And now we've seen data from psoriatic arthritis, and I'll show you later data from ankylosing spondylitis. But we also have studies that are ongoing in Sjögren's syndrome, uveitis and lupus erythematosus. So we're very excited about the data coming up and the way this…

Thank you, Walid. And welcome to all the people in the room here in New York, and as well to the people on the line. There's a good reason to stay a bit longer in the stock because I have a couple of scoops for you. So for the first time, I'm going to present to the outside world the project that we have coming and that's going to keep us busy for the coming years. I'll show you the thinking behind and I'll show you some of the impressive animal model data that really has convinced the whole company, in fact, that while we're so pleased with the efficacy we see with filgotinib, we need to remain ambitioned and we need to remain and try to push that up to the next level of efficacy. I also have a scoop in the IPF right there, where I'll highlight two new compounds in the pipeline and I'll show some data on that. But let's start with the Toledo franchise. It's in fact, a Spanish town that we call it after this project. Some people ask me where is that name coming from and it's a very nice town in the center of Spain. And for all of you ever traveling into Europe, if you're out of ideas, it's always a good idea to go and visit that city. First of all, the question, does all these diseases still need next level drugs? And let me show here, over time, the evolution of how many patients fully can control or almost fully can control the signs and symptoms of psoriasis. You can see about 15 years ago in 2000, it was less than 10%. And with good science of many companies, we've now pushed this to 80%. So let's be clear,…

Right, Thank you, Piet, a very exciting pipeline both in the inflammation space as well as fibrosis. So I'm just trying to move forward with the sake of time. So 1690, as you guys know, we've published last year the results of the FLORA study in patients. Again, to remind you, this was a small study, 23 patients, randomized 3:1, placebo to drug. What was striking for us was that the patients on drugs seemed to stabilize and not have any loss and as we see over periods of 12 weeks compared to placebo where it performed, as you would expect, in this patient population in terms of disease progression. What was also important for us is that the adverse event profile of this drug appeared to be quite benign with no difference between drug and placebo in that patient population, which is an important factor. As Piet said before, the current drugs that are approved that are in the market right now are problematic and ask that patients actually elect not to take medication despite the fact that, that is a very bad consequence to the natural progression of their disease. And in that same trial, when we used a more sensitive way to measure progression of the disease, this is a technique that employs high-resolution CT scan and couples it with low computerized flow modeling. You see - over time, what you would expect to see is the disease progressing, which is an increase in a specific area of volume and the resulting reduction in the resistance and what we see with the orange bars, with 1690, is complete stabilization of this. And those were statistically significant. Again, this is a biomarker. This company is using a technology that is developing, so we don't have a robust way…

Thank you, Walid, and thank you, Piet, for those very interesting presentations. I'll make some closing remarks before we get into a Q&A, where I think we have about 20 minutes left for Q&A. I think there might be quite a few on your minds that you want to pose. But in terms of takeaways for today's meeting, I hope that you'll remember a couple of things. First of all, the pipeline that we're proposing here at Galapagos and the depth of that pipeline and the science behind that pipeline that we're very proud of, the platform that has now been proven in - with multiple targets, in patients ultimately. Also, the news flow that is coming up regarding, especially filgotinib, but also the other compounds that we have in our pipeline is strong. And then, finally, we're also moving towards commercial stage, as we speak, we are couple of years away from launching in Europe filgotinib. We're going to do that together with our partner, Gilead. And we're going to build out our own commercial infrastructure also in those countries as the next step for Galapagos in terms of its growth as it brings us to our motto then, think big, and that's what we're after with Galapagos. So with those remarks, I'd like to conclude. And I'll hand the floor to Elizabeth for a Q&A, and we'll take those questions between the three of us depending on the topics.

Thank you very much, Bart. Operator, this is the moment you inform the callers again about how they can pose a question.

[Operator Instructions]. We will now take the first question from Peter Welford from Jefferies.

Got a couple, I think, for a broader range of different people. Firstly, just with regards to the allocation of resources, obviously, a significant number of people were previously allocated to the cystic fibrosis programs internally. I'm just wondering where those people and resources are now being allocated to and whether or not this could result in net savings, if you like, to the budget in 2019 or whether or not actually you're looking out to invest the potential savings for that in, if you like, in other projects and, therefore, actually capitalize on the savings that you expect? Secondly then, just a financial one, I guess, Bart, just with regard to the remaining upfront money from AbbVie. Should we see that now as accelerated recognition in the fourth quarter, given the collaboration is ended? And then, finally, just with regards to a comment that I think I caught at the very start, am I right in understanding that the tiered royalty on cystic fibrosis there is depending on the number of components and the identity of those components not as typically it seemed based on the level of commercial sales that are achieved?

Peter, I'll briefly also repeat the questions in case some of the audience here, also in New York, had not fully understood. But I'll take those three questions. First one was around allocation of resources, whether taking people outside of the CF program would result in savings. Peter, we are - as a company, we are growing rapidly. And over the last year, we have increased our staff from about 600 people to about 700 people throughout the various sites that we have in Europe. We have, indeed, a group of people that were active in CF, but we're going to be reallocating them to our other programs that we're starting. The number of programs that are in Phase II and in Phase III is so strong that we have very quickly a place for this group of people. So do not expect major savings out of the stopping of this CF program at the short term. Clearly, stopping CF in the medium and long term takes away also the expense that would have been associated with developing CF forwards. But for the short term, in 2018, we think the big impact is the receipts of the upfront payment of $45 million. That brings me then to your second question, how do we deal with that upfront. That is, indeed, expected to be received in cash in the fourth quarter. In terms of recognition of this upfront, that's probably going to be largely in the fourth quarter, but there might be small overflow into Q1 because there are some transition activities still ongoing over the next couple of months, and we'll need to recognize both the remaining milestones that were still in our balance sheets as well as this particular upfront over the period of future involvement. But this is definitely something which is short-term both in terms of accounting revenue and in cash as well. And then your last question was around the structure of the royalties. What I can say there is that these royalties are dependent on two variables. On one hand, sales levels, as was the case in the original agreements as well as on the number of components from - that are currently developed, that have been developed by the collaboration previously into a future triple combination that AbbVie would put into the markets. And that ranges from zero components to two components of the triple. And so royalties would, obviously, be lower when there's zero components existing being used in any future triple combination. And they would go up as more components of - that have currently been developed will be part of that combination.

Sorry. If I could do a quick follow-up on the 2737. Is the fact that you have carved that out as a potential drug that you could develop yourself outside of CF, given the results we've seen from the FALCON study, where, clearly, that C2 corrector seems to have minimal, if any, effect, does this - is it a fact you think that, that drug has a potential, other mechanism or other activity that is perhaps was misunderstood, if you like, in the first place? And after the review for this drug, is there another indication? Or should we just read that some other way, given that, that drug has been significantly carved out, and that seems to be the component that failed, if you like?

Yes, let me just make sure that I've understood the question correctly but - because the sound is not always great, Peter, but I apologize. So 2737 is, indeed - there is a carve-out option outside of CF for Galapagos for 2737. Today, we're not ready to talk about the details of where we think this component - this compound can actually be effective, but we have some scientific ideas that we want to explore with 2737 outside CF. And in the case we would develop this further, some royalties will be due also from us to AbbVie.

Yes, we can take a question here from the room now. Edwin Zhang?

Yes, Edwin Zhang from Stifel. Congrats on the very exciting quarter and all the progress to deliver an outstanding data on FINCH 2. So people are paying more attention to the time line of the potential registration, so your overall plan on this, are we still expecting for here, in the next year, a filing for RA? We know there's also a MANTA 50 study ongoing. Are there any updates on that trial? So my second question is on IPF. So what should we consider for a successful trial in term of the primary endpoints, FVC, in terms of trial design? Is it a non-inferiority design?

So I'll take both questions. So let's start with the filing and with RA. I think Gilead, later today, will have their own Q3 results. And I think they might give more color to this, but I think they have already shared some information on this from the perspective that, as you could imagine, the - in order to be able to file, you need a certain safety database for each dose. I don't know if you guys are aware of this, but this is a chronic disease you're treating with also an immunosuppressant agent, drugs that work very well, but still they're not trivial drugs. So the agency indicates that they want longer-term data for each dose that you plan to file on. So it's not good enough to just finish the trial, we need to accumulate those data. We need the FINCH 1 and 3 to complete and also have the full data set to enable us to have a strong risk-benefit assessment for each one. In addition, and that applies only for the U.S., not for Europe or Japan, the reading from the FDA of some of the histologic findings that have - in some of the top studies was that we would need to do a clinical study in humans, a reproductive safety study, the MANTA study. And that the data from those studies will be needed - from that study will be needed to be included in the overall package in order to support the adequate sustenance. So at this point, that's what we can say about it. As to the progress of this, look, the RA program went faster than anticipated, that puts a little bit more pressure on MANTA, I think. But Gilead is very much engaged in moving this forward. And so…

Operator, do we have a question on the line?

Yes, certainly. We will now take our next question from James Quigley from JPMorgan.

A couple from me. So on Toledo, it looks like it's - the mechanism of action is it's blocking then the sick cells getting through to the epithelial barrier. Have you done - or any analysis in the mice as to whether T cells can still get into the brain? And I'm sort of thinking along the lines here around Tysabri and PML list, that's number one. Number two is in IPF. I'll be interested to know how 1690 stacked up in the bleomycin model and the radiation model versus nintedanib as the 3499 and 1205 look fairly similar. But obviously, we've seen the data from FLORA, which say 1690 could deliver you a disease effect. So just wondering how that's shaped up there. And then, finally, with filgotinib in FINCH 2, I may have missed this, but have you shown any data on the impact on pain alone? I'm just thinking more that GSK are positioning MOR103 as potentially having a strong impact on pain. I just wondered how filgotinib - or how patients responded on pain with filgotinib specifically?

Who's going to start? So this is Walid. I'll start with your last questions on FINCH 2 and pain. So all the additional analyses have not been fully communicated, and there's a limit to what we can do. But I can - and I realize - I was just at ACR, and the focus on pain is large. The data that we have on pain are also very good. I just don't have the exact numbers that I can share with you, but those will be communicated as more data will be released on FINCH 2.

First question, if I understood the question well, is there any risk that the compound penetration to the brain as a consequence might have an increased risk for brain as a serious side effect. So that's - we've gone through the talks, and that's not a lot or very less that we clear, honestly, with the chemistry we typically do - we hardly see any brain - any drugs that penetrate well into the brain. And that they are same up to now for what we've seen with this class of drugs, so that is not any of our concerns at the moment. And the second question?

The 1690 and BLM results. So I - we haven't shown the data because, again, we've shared it before, but the data with 1690 and BLM are equally robust to the ones I've seen. I don't know if you can add more color to it, Onno?

Well, for 1690, we've performed the various forms of the BLM, the prophylactic, the therapeutic, both ways we did it. 1690 performed very well. We also did the radiation model, if that was a question also there, it performs across all the different models.

Just want to add that we do have all of our preclinical work that we've published at conferences on 1690 on our website, clinical section, R&D. Okay, now we've got some questions in the room. Thanks, Phil - thanks, James. Okay, we've got a question from Phil Nadeau.

All right. Phil Nadeau from Cowen. Two questions from me. First on IPF, you mentioned in your prepared remarks that you could look at combination regimens. Can you give us some sense when those combination trials could start and which of the candidates are likely to be used in them? And then second on CF, I'm just curious to hear a little bit more about your thinking as to outlicensing that program to AbbVie. Clearly, you don't need the cash, and it seems like a program you are pretty passionate about before, so I'm just wondering why you let them take control.

Let me start with your last question, Phil, on CF. And the question was why it was licensed back to AbbVie. Essentially, and I think Onno alluded to that in his introductory remarks, we announced in June that we felt that the collaboration was not productive so we needed to find an approach that would either bring the molecules at AbbVie or at us. And we felt that, strategically for us, given everything that we have ongoing in all those other programs, in IPF, in - with filgotinib, with OA, that we are - that we have enough on our plates to work on. We think that the program will be in good hands at AbbVie. As Onno said, we are a company that's focusing on novel modes of action, first-in-class, and AbbVie will probably have an approach, which is more geared towards a best-in-class approach. And that's what they will be doing with the CF program going forward. So we felt that all in all, the package of the situation at Galapagos, the economics of this transaction was very compelling to sign up the agreement as we did yesterday, and we're very pleased with that outcome.

On IPF. I don't know it is the right question. I think you alluded to how and when do you plan to combine the different components we have in the pipeline. So combination of the drug components in this were our big ambitions. We have been looking hard and, in fact, the dynamic range in the animal model is too limited, so that's not going to give us the answer, and that's not going to probably give us a push to accelerate that. So the plan there currently is, first, proof for each of them as a monotherapy and then, over time, and that will then probably depend on how far we are with 1690, first, as a drug on its own, combine them. But certainly, we don't plan currently for the coming year or two any combination of clinical studies where it's - it's a long-term ambition because this disease really needs much better treatments. And as we don't understand it well, tackling it from different angles and bringing those together is a way forward. That's the case.

Okay, we'll take another question from the phone, operator.

Certainly. So the next call we will take is from Wimal Kapadia from Bernstein.

Wimal Kapadia from Bernstein. Just a couple on filgotinib, please. So do you believe that FDA will view the retinal vein occlusion as a thrombo event? And then tied to this, can you give us any color on what rate of thrombo events per hundred patient years? Do you think it will be the limit for FDA to consider a blind spot warning? I'm just trying to get a sense of how to think about the headline safety data when FINCH 1 and 3 are announced. Then I guess, a similar question on herpes zoster. Is there a threshold event rate that FDA could consider enough to turn a front page warning into black box warning?

Okay. Well, thank you for the question. So whether they will consider a retinal vein occlusion a thrombotic event, I think that is a thrombotic event, whether it's a deep venous thrombosis, it's not, and it's not a retinal embolism. I mean I think it depends how you want to look at it, but I think the - while the potential consequence of having retinal vein occlusion could be severe with edema of the eye, potentially the loss of sight. It's not going to kill you, unlike, for example, preliminary embolism, which could be a result of deep venous thrombosis. When you look at the data from Barry, they divided things between arterial thrombosis and venous thrombosis. So the agency will look at these sub-qualifications and evaluate this. But even if you look at that, still the rate is very, very low. In terms of the patient year exposure, I'm not - I don't have the patient year exposure data from FINCH 2 or the others. What we have is what I showed you is that DARWIN 3 where the rate is 0.1 per hundred patient year currently, and it's trending very low. Regarding zoster, this is a well-known class effect for the JAK. So if you - if some of you who were at ACR or followed us, you see this - with all the JAKs, this is a known effect. And again, I think the data - our data are looking very consistent where we're trending at the lower end of all the other JAKs that are out there. And again, we think it's because of our selectivity for JAK1.

Great. That's really helpful. Can I just follow up? I guess it's more on the lines of is there - do you think there's a threshold for FDA to start to consider then starting to allocate these warnings on per hundred patient years?

I'm not aware of a specific threshold, to be honest. I - yes, we - I'm not aware of it. I haven't seen any communication from the FDA on that.

All right, thank you. And I'm afraid that, that's going to be the end of our session today. I - if you have a question, a burning question you'd like to pose, you can mail me at elizabeth.goodwin@glpg.com or ir@glpg.com, and we'll try to get your questions answered. End of Q&A: