Good day and thank you for standing by. Welcome to the Galapagos H1 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Again please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sofie Van Gijsel. Please go ahead.

Thank you, operator, and welcome all to the audio webcast of Galapagos' H1 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 operational highlights and provide an update on our pipeline. Thad will go over the commercial and financial results. You will see a presentation on screen. We estimate that the prepared remarks will take about 25 minutes. Then we'll open it up to Q&A with Paul and Thad joined by Michele Manto, Chief Commercial Officer; and Daniele D'Ambrosio, Head of Immunology. And with that, I'll now turn it over to Paul.

Thank you, Sofie, and thank you all for joining today's webcast. I'm very pleased to introduce to you Thad Huston. Thad joined Galapagos as our new CFO, COO as of July 1. Over the years, Thad gained experience through several positions in finance, commercial, BD and operations. He joined us from Kite Pharma, where he was Senior VP Finance and Corporate Operations and before he was CFO of LivaNova, a listed medtech company. Thad was the CFO of J&J Medical Devices and CFO of Janssen R&D in earlier years. Thad spent four years in China as the President of Janssen China for Janssen. Thad and I have known each order for quite some time. I worked together with Thad at J&J, where he held a number of leadership positions for more than 25 years. And he was instrumental in transformational phase, Janssen Global R&D. It goes without saying that his knowledge of R&D and cell therapy is a perfect fit for our company. We are very excited to have that on a board. On today's call, Thad will present the operational and financial section. Thad?

Thanks for the introduction, Paul. And it's great to be here. I'm so excited to be joining forces with you again together with the Galapagos team to create value for our stakeholders.

Thank you, Thad, and happy to work again together and work with the teams. Here you see a slide summarizing our vision and mission statement. At Galapagos, we want to transform patients' outcome to life changing science and innovation, aiming at bringing more years of life and quality of life. In order to achieve this, we go for groundbreaking signs with an entrepreneurial spirit and a collaborative mindset. At the R&D Day back in November '22, we introduced the course that we have set out for the Company in order to unlock significant value. On this slide, you see a snapshot of how we have been executing on the transformation of the Company over the last 18 months. We continued to roll out a commercial organization in Europe for our first product, the Jyseleca. In mid-'22, we announced the acquisition of CellPoint and AboundBio propelling us into the space of next-generation CAR-T therapeutics. We refocused the R&D organization on two therapeutic areas: immunology and oncology. And late last year and early this year, we presented encouraging initial safety and efficacy data on the two CD19 CAR-T trials in relapsed refractory NHL and CLL in point of care setting with our Cocoon platform. In parallel, we accelerated the discovery portfolio both in small molecules and biologics. And we also announced and completed the restructuring of our discovery activities. We transitioned the Romainville discovery activities to NovAliX in France. Let's move on to our pipeline as it stands today. As mentioned, the pipeline is refocused on two therapeutic areas: immunology and oncology. I will come back on some of the programs in more detail below. In summary, in immunology, unfortunately, the Phase 3 trial in Crohn's disease did not bring us the results we had hoped for. But we have RA and…

Thank you, Paul. I will provide an operational and financial update for our first half results, and then I'll open the call for Q&A. We had another soft quarter in Q2 for Jyseleca with the sales coming in at €28 million or €54 million for the first half of 2023. We see a number of headwinds for Jyseleca with the slowdown of the JAK class, reflecting the impact of the Article 20 outcome and label change, increased competition in UC and the effect of the miss in Crohn's disease is a third indication. We are evaluating various strategic options for Jyseleca, and more information will follow later this year. As a result of the slower growth in sales for the first half of 2023, we have lowered our 2023 net sales guidance to €100 million -- to €120 million for the year. A few words on our cash position, our cash and cash equivalents reached €3.9 billion at the end of Q2 2023. Our operational cash burn for the first half of 2023 reached €224 million. Although the second quarter burn is higher compared to Q1, we are confirming our full year cash burn range of €380 million to €420 million. The higher burn in Q2 is partly due to a prepayment for future services from NovAliX as part of the collaboration agreement with NovAliX in Q1. Also for our cash balance at the end of the year, we anticipate positive contribution from interest income offsetting the higher burn rate in Q2, and we expect approximately 3% return on our outstanding cash balance. Finally, we continue to be disciplined and remain focused on managing our resources effectively while we continue to pursue opportunities to drive value and growth. Going to our P&L, we reported a net profit of €28 million…

Thanks so much, 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.

[Operator Instructions] We will now take the first question from the line of Brian Abrahams from RBC. Please go ahead.

This is Joe on for Brian. Can you elaborate more on the strategic options you're considering for Jyseleca? And I guess you mentioned that you will be looking at subgroups for your CD19 CAR-Ts. Can you also talk a little more about this subgroup analysis please?

Yes, Thad, why don't you take the first one? I'll follow up.

Yes. So we are adapting, obviously, to the changing market dynamics in the environment and obviously taking our responsibility as a company to ensure that we're creating long-term value. We are going to do this strategic evaluation of various scenarios and options for Jyseleca as quickly as possible, and we anticipate coming with an outcome of that assessment in the coming months, and we can provide an update at that point in time. So we can't provide any further details at this call.

Yes. And for the subgroups, we had, as I said, indicated in the call, several indications within the NHL within the NHL and we are missing a few patients in some of the subgroups to have a complete response comparing to the competitors as well as for submission with the regulatory authorities. And that's why we are -- have continued to recruit until we have in each of the groups the patients we need. So -- and that will happen in the next few weeks, two months or so, and we'll have an update on that in -- before the year-end.

Got it. That was very helpful. If I could ask a follow-up. On IND filing for the -- in the first half of next year for CAR-T cells, can you also comment on the level of engagement with the FDA and a head of the filing? And if you could just talk about some of the requirements for the filing? And can you share with us your latest strategy there? Any specific regions of focus? And how are you thinking about prepping the potential clinical sites ahead of the filing?

The most important critical step for us is to have a clinical trial, a production center ready, which has to be submitted with IND. There, we have done an extensive evaluation of incentives. And the first tech transfer to the U.S. site is active. And so that will -- that is determining the timing of our submission for the IND. Before that, we had a very good engagement in a pre-IND meeting with the FDA on all the aspects we need to start clinical trial. And so what I just told you was the having the first center validated on U.S. ground on U.S. soil is the critical step, and that's why we indicate that we'll start -- we'll submit IND first half of next year. But since the first one is ongoing, I think that will be quite optimistic in the course of the earlier months in the next year. So that's where we are. Obviously, we are trying to focus closer by home at the moment. So we started at the East Coast, and we'll reach out later to other parts of the U.S., but that's where we start the first scan of potential centers. And as we speak, that's ongoing, multiple centers as are in discussion and contract discussions.

Thank you. We will like to kindly ask participants to ask one question per person. We will now take the next question from the line of Emily Field from Barclays. Please go ahead.

I wasn't losing just asked one or two, but just on the Jyseleca point. I was just wondering if while you're going through this review, will you be making any changes to the commercial promotion of the product? I saw that you're initiating the AxSpA Phase 3 study. So one -- so any changes on the R&D side while this review is ongoing or anything operational that would change? And if I could just slip in one more, just any initial color you could provide on the small molecule discovery program in oncology, would this maybe move into solid tumors? Or would you expect this to be in hem-onc? Any color you can provide would be great.

So, regarding Jyseleca in the promotion, of course, we're going to be evaluating and doing a deep dive analysis. It's a very thoughtful analysis market by market and understanding kind of how we can maximize the potential value of the asset, also looking at just the resources and obviously supporting the current promotion of the product and is just seeing how we can further optimize that. And we'll come back with more details after we do this assessment.

Yes. And your comment on par, it will be going on we conclude on the options what we do going forward. And in oncology, we both are working in solid and heme oncology, hematological oncology. And we'll use one of the next meetings to give you further detail on the different targets, the different fields and will bring in Head of Research for having that discussion or having that presentation. So wait for an update there for one of the next meetings where we will come back.

Thank you. We will now take the next question from the line of Jason Gerberry from Bank of America. Please go ahead.

Mine was just as you look to move the BCMA CAR-T program into the clinic, just curious, sort of as you've evolved with the CD19 program and optimize the manufacturing process. How portable is that to new antigen-directed BCMAs or, I guess, CAR-Ts in terms of the process? Are there meaningful changes? Or is there a lot that you can leverage as you move into new CAR-T programs?

Yes, that's a very good question. And we can leverage the entire package Empire system. We have done the validation of the BCMA on volunteer sample or voluntary blood, which is done. And so -- and now we are waiting -- we are starting the initiation of the study to do on patients on patient blood. It is like -- it's like very transferable and so far with good valuation for the BCMA. Of course, then you work on disease material in the next phase, and so we'll be able to confirm that in our next report. But we see no issues on transferring the process. It's a very simple process, automated process where, of course, the vector is different. The cell growth has to be studied, but so far so good. We see no issues in scaling up the BCMA. And of course, what we did with CD19, we observed in the clinical trials, a very good efficacy and safety profile because of the way we produce cells and the seven days vein-to-vein, fresh vein-to-vein, very difficult to dissect what is the cause of the good efficacy, good safety but we observe that it works. And that's not the next phase for BCMA. We'll do the same. We do a study, evaluate and we'll look at the results before making commitments to go forward with the full development.

Thank you. We will now take the next question from the line of Mike Ulz from Morgan Stanley. Please go ahead.

Maybe just a quick follow-up on Jyseleca, just given you're starting the strategic review, can you give us a sense of when you might be able to provide some final decisions there?

Yes. Thanks Mike. We are -- we're actively working on this. The process is ongoing. I think it's going to -- we'll have an outcome of that assessment in the coming months. And we can provide an update then. I'm obviously new onboard and here in just over a month. So of course, we're all working very hard to do a very thoughtful assessment.

That did deep dive on the whole organization or commercial organization, the operations in the last month and now ready to engage in next steps. It will take some time. And like that is saying next few months or a couple of months, we'll bring clarity and an outcome.

Thank you. We will now take the next question from the line of Brian Balchin from Jefferies. Please go ahead.

So, since we got cut for Jyseleca, but what about the peak cell target of 400 million. I don't think that's baked in label restriction just yet should we be expecting further cuts there?

Yes... sorry, go ahead, Brian. I'm sorry to interrupt.

I was going to squeeze in a cheeky second one. How confident are you then being able to get a CAR-T the market by '26, '27 as previously stated, given push timeline?

Yes, I'll take the first part on the Jyseleca. I mean obviously, the higher sales number, 400 million is probably given kind of where we are with sales trends, probably not likely. So, we want to do also a thorough assessment of the sales potential and revise our models and forecasts and then obviously come back when we do this assessment and look at the overall business case.

Yes, Brian, on the timing of the CAR-T to market, it will depend on how we choose our indications, as we indicated -- as we have shown in the first seven patients and then the patients within that on rickets transformation, we see like a very strong effect in a very high medical need. And we are deciding as we go already based on the basket study and then the broader CLL activity on where should we focus to really address a very high unmet medical need in order to get this accelerated recruitment, but also accelerated development part. And so for now, while we set the target around '27, it's '26 -- late '26, '27 that still would be possible if we get breakthrough designation and have a very high unmedical need to be addressed. But to be decided when we move for the pivotal study and discussions with the regulatory authority. The demand is very, very high. So what we see in our clinical trial, especially in these indications, people flock to the clinical trials to get in. So especially in the high medical need -- unmet medical needs. So hopefully, we can -- we're broadening the centers in the world, including in the U.S., recruit fast, and have a very strong observation. That's what we hope, as we see in the Phase 1/2 study. If we see the same observation in the pivotal study, we can still reach this time frame.

Thank you. We will now take the next question from the line of Xian Deng from UBS. Please go ahead.

This is Xian from UBS. Maybe just for -- one question for Thad, please. Given now this is your first appearance as the new CFO, so just wondering if you could share some of your thoughts on the first impression of Galapagos what's your overall strategy here? I mean, of course, you have the cellular commercialization, you have internal R&D and you have, of course, M&A. And so just wondering what you like the most? Where do you want to change for you accelerate M&A? So yes, any thoughts that would be great?

Thank you so much for your question. And yes, I'm just incredibly excited and honored to be part of this team. I think, obviously, working together with Paul again. We've been through transformations in the past. And certainly, we think that there's a tremendous -- I believe there's a tremendous opportunity for us to really drive an innovative approach to bringing life-saving therapies to patients in Galapagos. And I think we're doing some things that the other players are not doing that I think is really exciting. And of course, I have a CAR-T experience and oncology experience, I think, can also be beneficial in terms of what could be on with point of care and also just so excited to think about what are the possibilities for us to really allocate resources to do business development deals to further innovate and to make a difference for patients. It's not easy, of course. I mean there's a lot to do, but it's also the opportunity that we have. It's not also lost on me that where our valuations are and to see that there's a tremendous opportunity to change that.

Thank you. We will now take the next question from the line of Phil Nadeau from TD Cowen. Please go ahead.

We wanted to ask about the program of moving your CD19 into autoimmune diseases and particularly lupus. Given the size of the market, those programs have created a lot of excitement for some other companies. Can you talk about the time line of your investigations in SLE? When could that trial start, when could we see data? And then maybe more generally, what's the value proposition for point of care in a more slow moving disease like lupus.

Yes. The status is that we submitted in Europe by clinical trial applications. So we'll wait for that outcome in the discussion, and we hope and trust that we can start the study later this year. What is attractive as a complement to our CAR-T network is that, of course, the hematologists, they do the rheumatologist is the physician who treats the patient. But in this intervention, the hematologist is doing the application. And that's where this goes very well together with the point of care incentives where we have in the centers where we have today our point of care they're already asking where they can participate. So they see the benefit of the manufacturing on site. There also, again, yes, will we see benefit from a fresh approach the current approach with airline use was a fresh cell approach done produce locally, what are we going to see from the approach we are going to do in the clinical trial center. So I think the benefit of the complementarity on the site where this is done as well as the approach we have taken and the center was one of the first patients has taken to their report on treating patients. Will we see better results or different results, of course, to be determined. But I think before the year-end, we'll be significantly on recruiting in this trial.

Thank you. We will now take the next question from the line of Dane Leone from Raymond James. Please go ahead.

Congratulations on all the progress kind of a consistent question for me that I hear from a lot of investors. You have -- you still have a sizable cash balance to draw down on for more meaningful external asset acquisitions. And on kind of counterbalancing that, you still are retaining quite a high R&D burn rate even with Jyseleca activities maybe winding down a bit or continuing to wind down a bit. How are you thinking about balancing that out going forward and perhaps even into 2024, if you could entertain that far into the future? Are we still expecting to do something more meaningful on the business development front perhaps away from cell therapy and more into traditional I&I or what we kind of see on the table from your team today is probably going to be the core area to build out from, and we should expect maybe more bolt-on acquisitions to supplement the activities that are already ongoing internally. And what can we get that cash burn down to now that we are winding these larger I&I studies down with filgotinib, while ramping up maybe more targeted studies with the cell therapy platform?

Yes. First, let me start, and Thad will follow up. First, we absolutely just don't focus -- do not focus only on CAR-T. The reason we stepped into CAR-T, we were able to bring two teams together with a Abound and CellPoint which accelerated us in oncology. And we are there now since 13 months -- 13 months ago, Galapagos with no oncology. We were able with two teams, bringing them in, the teams, the capabilities and the products to where we are today. It allows us to have a fast time to market in the next four, five years. And that was the main reason to enter oncology via the big door and go fast in transformation therapies. In parallel, I can tell you, our BD teams have been evaluating many options, which are not in the CAR-T space, complementary with some of the capabilities we have in the Company, but also considering other fields. So -- but we have a very high bar for bringing products in either they come as a product with a strong team and that typically would be an acquisition or they come in as a strong product, but the product is the core here, where you have to have address a differentiate -- a high unmet medical need and where we can reach the market with a differentiated product. That is the definition for us to do a good BD. And then secondly, it has to be a global deal, yes. We can -- we could consider or we can consider local deals in Europe, but that's not value creating enough for the money we spend. So we always will try to go global deals, highly differentiated products in a very high unmet medical need. That are the criteria, and we hold all our BD discussions we do against that. So that's how we tackle BD, and I hope we can bring significant deals in the next 18 months working on that.

Yes. And addressing the cash burn, I mean it's clear that actions have been taken this past year to reduce the cash burn from even the prior year operationally we're going to continue to be very disciplined and focusing on managing our resources effectively to really continue to drive the long-term value and also growth and finding those opportunities. Also as Paul mentioned, the deals that we're really going to fit our M&A strategy. And at the same time, I think that we are seeing some benefits in interest rates that also help our interest income as well as we're going to make good portfolio decisions and allocate resources appropriately.

[Operator Instructions] We will now take our next question from the line of Sebastiaan van der Schoot from Kempen. Please go ahead.

I just wanted to ask regarding the delay in the IND filing towards H1 '24. Can you maybe go into the fact that you are still discussing why the IND has not come off the ground? And then also quickly, you talked about different CD19 cars and also one specifically for autoimmune disease, can you maybe highlight what the differences are between autoimmune disease and oncology that would require a different CD19 CAR?

Yes. First, on the IND, we had the pre-IND discussion. And so to submit the IND, the FDA required to have a site validated on U.S. soil. And that takes some time as we need to transfer technology, first install the technology transfer the technology validate. And that will take us up till the end of the year. At that moment, we can submit an IND when that validation is done. And that is the basic reason why taking -- getting to a contract, getting to centers on -- and have that done took maybe somewhat longer than expected, but basically, the IND requirement was the most important one that it brings in over the year-end. The difference on the CD19 CAR, there is no clear insight what type of CD19 CAR will work best. The [indiscernible] used the [indiscernible] CAR-T which is very well known. We are using a different CAR-T for hours, which one developer sells, one buyer license in. So, we'll use one of our two CAR-Ts to go into the SLE, but it's not clear which ones will work. They will have to experimental be proven that they work. So it's very difficult to predict what safety and efficacy will be for the different products. So, that's all I can say at this moment on that.

Okay. Got it. And maybe then I can squeeze in the last question, and I'm also the last in queue. You mentioned for non-Hodgkin's lymphoma that you are already in dose expansion. Does it also mean that we will get results from the dose expansion by year-end and that you can maybe prepare for Sally in 2024 for Phase 2 in non-Hodgkin's lymphoma?

It -- the non-Hodgkin's lymphoma is divided in the different buckets, as I described it in my talk. Two of them are in expansion will present all of the data later this year, but we'll make a decision based on the highest unmet medical need and the most urgent clinical benefit we can deliver as the first indication we will bring forward. And that's where the large B cell is still one which we have to recruit additional patients in and that we'll do in the next yes. So, you will see all the data we'll have in that abstract, which will be submitted and available and will become available hopefully at an upcoming call.

[Operator Instructions] And we will now take the next question from Jacob Mekhael from KBC Securities. Please go ahead.

I have one just regarding the ATALANTA-1 trial. You mentioned that you will include more patients or certain subpopulations. Does that mean that the plant trial size of 45 patients will not be larger? And if so, how many patients have been recruited so far and how many additional patients do you plan to recruit? And I have a follow-up that as well, on the IND that will be filed in the U.S. for the CD19 CAR-T. Do you also plan to file an IND for the BCMA CAR-T as well? And what is the expected time line for that?

Okay. I have very difficult to understand the first part of your question. You should repeat that. But we can stand on the IND for the BCMA. Yes, we'll file that. At the moment, we have a dose finding study done in Europe. So that will take some time, and that's not for this year, of course, that will take another several months before that will be done. The first part of the question, I missed.

So just the planned file size for the ATALANTA-1 trial is 45 patients, I'm just curious, is that still the same? Or is that going to be increased?

Yes, it is in that range. The dose finding was indicated there's about 15 patients and then the expansion dose was about 30. So, the total size of the population is about 45, it depends a little bit how many patients will be in which of the subgroups in the study. We won't stop recruiting patients until we close the study. So, we will be around that number at the end.

Okay. And I just have one more question actually. Also on the IND for the U.S., will those trials be an extension of the Phase 2 trials? Or do you expect that in the U.S., you will go into a later trial that builds on the data set generated in Europe?

Yes, it's a lot of -- we want to use the data we have in -- generated in Europe to start a pivotal study in the U.S. and Europe and so in parallel submit an IND as well as go to the European authorities to do a clinical trial in Europe in order to get to our pivotal studies and get to the outcome.

There are no further questions at this time. I would like to hand back over to the speakers for final remarks.

Thank you very much, operator. That concludes today's earnings call. Please feel free to reach out to the IR team if you still have questions. Our next financial results will be our Q3 2022 results on November 3. Thank you all for participating, and have a great rest of your day.

Thank you all for participating. Have a good day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.