With Confidence Annual Report 2020 CONTENTS
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Forward with confidence Annual Report 2020 CONTENTS Contents The Galapagos group CSR report Letter from the management ........................... 4 Our commitment .............................................. 63 COVID-19 impact ................................................ 9 Improving people’s lives .................................. 66 At a glance ......................................................... 11 Our employees ................................................. 72 Strategy ............................................................. 14 Conducting business ethically ........................ 80 Going concern statement ............................... 16 Environment, health, and safety .................... 84 Risk management and internal control ......... 16 CSR at Galapagos – Summary ......................... 86 The Galapagos share ....................................... 18 Overview of Galapagos NV ............................. 21 Corporate governance Disclaimer and other information ................. 23 Policies ............................................................... 89 Supervisory board ............................................ 90 R&D Committees ....................................................... 95 Our pipeline and drug discovery engine ....... 26 Management board ......................................... 96 Versatile target discovery platform ............... 27 Share capital and shares ................................. 99 Our inflammation franchise ........................... 29 Shareholders ................................................... 102 Our fibrosis portfolio ....................................... 46 Remuneration report ..................................... 105 Other pipeline .................................................. 50 Conflict of interests and related parties ...... 123 Code of Business Conduct and Ethics ......... 124 Risk factors Statement by the supervisory board ........... 125 Commercialization ........................................... 52 Product development and regulatory Financial statements approval ............................................................ 52 Consolidated financial statements ............... 127 Financial position and need for additional Notes to the consolidated financial capital ................................................................ 54 statements ...................................................... 134 Reliance on third parties ................................. 54 Non-consolidated financial statements ....... 198 Competitive position ....................................... 56 Intellectual property ........................................ 57 Auditor's report Organization, structure and operation ......... 58 Report of the statutory auditor .................... 200 Galapagos shares ............................................. 60 General statement ........................................... 61 Other information Glossary of terms ........................................... 206 Financial calendar .......................................... 221 Colophon ......................................................... 221 Contact ............................................................ 222 2 Galapagos NV • Annual Report 2020 The Galapagos group An overview of Galapagos, its strategy and portfolio in 2020 Forward with confidence THE GALAPAGOS GROUP Letter from the management Dear shareholder, We are turning the page on an eventful 2020, followed by the ziritaxestat setback last month. This undoubtedly is one of the most challenging periods in our history, and we are currently reviewing our plans for 2021. At the same time, 2020 also brought us important scientific and commercial progress and opportunities, and we are confident that we are well positioned to build on our strengths going forward. Also, we are encouraged by the recently announced primary endpoint data from the ongoing MANTA and MANTA-RAy safety studies with filgotinib. 2020 was marked by the complete response letter (CRL) received in August by our collaboration partner Gilead from the U.S. Food and Drug Administration (FDA) for filgotinib in rheumatoid arthritis (RA). Based on the feedback received from the FDA during the NDA review process and in the Type A meeting, Gilead decided not to pursue FDA approval of filgotinib for RA. While both Gilead and Galapagos continue to believe in the clinical profile of the 200 mg dose, Gilead concluded that this dose was required to be competitive in RA in the U.S. and that the 200 mg dose is unlikely to achieve approval for RA in the U.S. without conducting substantial additional clinical studies. Consequently, we and Gilead decided to stop the global trials of filgotinib in psoriatic arthritis (PsA), ankylosing spondylitis (AS), and non-infectious uveitis. Both companies continue to pursue the inflammatory bowel disease (IBD) opportunity with filgotinib and the Phase 3 DIVERSITY program in Crohn’s disease (CD) continues to recruit patients. On the other hand, we made significant regulatory progress with filgotinib: in September the approval of filgotinib was achieved for RA, from both the Japanese and European authorities, with our first ever marketing authorization granted in two key geographies. Both authorities approved filgotinib 200 mg and 100 mg doses for the treatment of moderate to severe RA. I am incredibly proud of the teams that made this a reality, and we are thrilled to bring a new treatment option to patients suffering from this debilitating condition. Moreover, following the positive Phase 3 results in ulcerative colitis (UC), our collaboration partner Gilead and we filed for approval in Europe, and we expect Gilead to submit for approval in Japan in the first half of 2021. From a commercial perspective, we opened up a significant opportunity for Galapagos in Europe: in December, we renegotiated the collaboration agreement for filgotinib, with Galapagos taking over all commercial activities in Europe. Through a phased transition period, the majority of activities supporting and commercializing filgotinib in Europe are expected to be assumed by Galapagos by the end of 2021. Galapagos will receive payments from Gilead in connection with changes in responsibility for the commercialization and development of filgotinib in Europe, and Gilead will receive royalties from European sales of filgotinib starting in 2024. We have made tremendous progress in building our own European commercial organization, securing reimbursement, and in preparing successful launches for filgotinib in RA. Filgotinib is now on the market in Germany, Italy, and The Netherlands, with other European territories scheduled to follow in the course of 2021. In the meantime, we made important progress in the remainder of our inflammation pipeline, and most notably with our Toledo program. We revealed the target of our Toledo compounds as salt-inducible kinase (SIK) inhibitors, and we observed its novel dual mode of action mechanism, stimulating anti-inflammatory cytokines and inhibiting pro-inflammatory cytokines, across a series of preclinical models. For our most advanced Toledo molecule, GLPG3970, a SIK2/SIK3 inhibitor, we have observed that dual mode of action mechanism in blood from healthy volunteers, in a dose-dependent manner and with an encouraging tolerability profile. We are currently 4 Galapagos NV • Annual Report 2020 THE GALAPAGOS GROUP conducting five Proof of Concept studies with GLPG3970, and we expect to report top line results in psoriasis, UC, and RA in the second half of this year. Taking a programmatic approach, we continue to advance multiple Toledo candidates across different selectivity profiles, targeting a range of inflammatory and even fibrotic indications. In October, Servier and Galapagos announced that in the ROCCELLA Phase 2b study with GLPG1972 in osteoarthritis (OA) patients, there was no difference observed between the active and placebo groups. As a result, it was decided to stop the further development of GLPG1972 in OA. Our fibrosis portfolio made progress in 2020, with positive topline results in our PINTA trial in IPF, preclinical candidate nomination of a new Toledo compound directed towards IPF, and the inlicensing of promising early molecules. Unfortunately, due to an insufficient risk-benefit profile observed in the ISABELA Phase 3 program, we recently had to discontinue all development with ziritaxestat. Given the recent setbacks in our late stage portfolio, we aim to assess lessons learned and will continue to reassess the R&D portfolio in light of this learning. We again ended 2020 with a very strong balance sheet, providing us with the capital to leverage the full potential of our R&D engine and to evaluate business development opportunities. We landed our operational cash burn in 2020 in line with our guidance at €517 million, including the milestones received for the approval of filgotinib in Europe and Japan. Following the recent discontinuation of the ziritaxestat trials, we are currently performing a thorough strategic assessment, and we aim to provide an updated cash burn guidance for 2021 upon conclusion of this review. R&D In the field of inflammation: ▪ Gilead received approval for filgotinib in RA in Europe and Japan ▪ Gilead received a CRL for filgotinib in RA from the FDA in the U.S. and decided not to resubmit in this indication ▪ We and Gilead announced a new commercialization and development agreement for filgotinib in Europe, and achieved our first sales in Germany and The Netherlands ▪ We