Feb 24, 2018
Executives
Elizabeth Goodwin - Investor Relations Onno van de Stolpe - Chief Executive Officer Walid Abi Saad - Chief Medical Officer Piet Wigerinck - Chief Scientific Officer Bart Filius - Chief Operating Officer and Chief Financial Officer
Analysts
Brian Abrahams - RBC Capital Markets Anastasia Karpova - Kempen Peter Welford - Jefferies Phil Nadeau - Cowen & Company Vikram Purohit - Morgan Stanley
Elizabeth Goodwin
Hello, everyone. I am Elizabeth Goodwin, Investor Relations and I will be hosting today’s event.
This recorded webcast is accessible via the Galapagos website homepage and will be available for replay later on today. So that your questions can be included, we request that you call in to the telephone number given in last night’s press release, that’s 32 for Belgium, 24040659 and the code is 9171161.
We also have this number on our homepage if you would like to double check it. 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 Onno van de Stolpe, CEO; Walid Abi Saad, CMO; Piet Wigerinck, CSO; and Bart Filius, COO and CFO. Onno will lead and Piet will go through the operational highlights of 2017, Bart will explain the financial results and give guidance on 2018.
Onno will then close with the late stage clinical news flow we expect this year. You will see a PowerPoint presentation on screen during the presentation.
We estimate that the call could take about 20 minutes and will be followed by a Q&A session at the end. At this point, I would like to hand over to Onno.
Go ahead.
Onno van de Stolpe
Thank you, Elizabeth and thank you for attending the webcast. We clearly had solid 2017 with delivery in all aspects to the company.
So, we are very pleased with the results that we can present to you today. If you first look at filgotinib, Gilead and us, initiated Phase 2 trials in 8 new indications on top of the 3 that were already ongoing.
We also showed very nice DARWIN 3 results which is the long-term expansion study from the DARWIN 1 and DARWIN 2 trials that confirmed the profile with respect to activity and safety profile in rheumatoid arthritis. As we initiated the building of the commercial organization that Galapagos – that will prepare Galapagos for the launch of filgotinib in 8 European countries, so a good start in that side and that activity and that will accelerate in 2018 clearly.
In IPF, idiopathic pulmonary fibrosis, we saw very nice data in a 12-week study, where we halted the disease progression in these patients, which gave us a lot of confidence that we have some very interesting molecule that will move into late stage trials in 2018. And on top of that, we announced that we have two other mechanism of actions that will move forward in IPF, so that enables us to build a franchise here of three independent molecules moving forward that on its own or in combination maybe good treatment for this deadly disease.
In cystic fibrosis, we saw good results with our corrector 1 in-patient study in the ALBATROSS and FLAMINGO studies and we are now preparing to launch our first triple combination study that is our potentiator corrector 1 and corrector 2 in triple patients called FALCON, which is on track to start this quarter and we are looking forward to that dataset later in the year. But clearly, Galapagos is more than these three indications, we see in continuously expanding pipeline, very nice data in our collaboration with MorphoSys, MOR106, our IL-17C antibody, where we showed promising data in atopic dermatitis patients and we showed very strong data with regard to a biomarker in osteoarthritis patients with our molecule 1972.
These are just some of the clinical highlights, we also had a lot of them new developments in our preclinical pipeline that hopefully will get to the clinic shortly. If we can go to the next slide you see our track to get to the market with our molecule and with our organization where last year showed us our second and third proof of concept with novel target in patients.
This year and next year we will continue to show data in the pivotal trials for filgotinib and also expansion of the latest stage pipeline. And that would lead in 2020, 2022 to the introduction of multiple products on the market starting with filgotinib that followed with other products from our pipeline.
And hopefully we will see a number of programs the early stage programs moving forward to late stage development. So a lot is ongoing and it can be expected.
If we step back and look at filgotinib on the next slide, you will see that that is in a massive franchise now, where we started with rheumatoid arthritis that is expanded in Phase 3 trials in Crohn’s and UC and then all wings of Phase 2 trials that were initiated by Galapagos and by Gilead. And so filgotinib is being tested in this whole range of autoimmune inflammatory diseases and hopefully will lead to a number of indications where this can reach the market.
To give you more detail on that, I would love to hand it over to Walid to discuss filgotinib. Walid, the floor is yours.
Walid Abi Saad
Thank you, Onno. We have on the next slide please – we have great ambitions for the filgotinib’s profile based on the data generated so far in the Phase 2 studies in rheumatoid arthritis and in Crohn’s disease.
We are very excited by filgotinib’s safety and tolerability profile which promises to be best in class. We believe this is due to a high selectivity for JAK1.
With data from more than 2,000 patient year exposure to-date, we have been consistently impressed by the favorable safety and adverse event profile. We expect to present long-term data with up to 2 years of treatment from the DARWIN 3 open label study in rheumatoid arthritis patients at the upcoming ACR meeting this year.
reading out 0308
Next slide, over the past year we have made great progress in the FINCH program in RA. This is a robust Phase 3 program in more than 3,000 patients, three large studies were both the 100 milligrams and 200 milligrams doses are fully being evaluated in methotrexate incomplete responder, methotrexate naive patient and in biologic incomplete responders.
Results from the Phase 2 study in biological incomplete responders are expected in the second half of this year. In addition recruitment in the FINCH 1 study will be completed in the second quarter and the case of FINCH 3 in the third quarter of this year.
Next slide, here you see our Phase 3 program in inflammatory bowel diseases, both UC and CD which is equally robust with approximately 2,600 patients in total. We expect the results of the interim futility analysis in the Phase 2/3 selection study in UC to be available in the first half of this year.
We also expect the recruitment to be complete in the Crohn’s Phase 3 program in the second half of the year – of next year. Next slide, here we see the EQUATOR study.
This is a study that we started last year. It’s a proof of concept study in patients with moderate-to-severe psoriatic arthritis.
This is an ongoing study where patients are randomized one-to-one to either filgotinib 200 milligram daily or placebo for 16 weeks. We have approximately 60 patients per arm in this study, where the primary endpoint is the ACR20.
EQUATOR is being conducted in 8 European countries. It is fully recruited and we expect top line results in the second quarter of this year.
Next slide, this is the second Phase 2 study we conducted, but in this case, it’s in moderate and severe patients with ankylosing spondylitis. The study which is called TORTUGA is also conducted in 8 European countries.
Approximately, 100 patients per arm will be randomized in a one-to-one ratio to filgotinib 200 milligrams daily or to placebo and treated for a total of 12 weeks. The primary endpoint in this study is the anklyosing spondylitis disease activity score, ASDAS.
The study is fully recruited and we expect top line results in the second half of the year. Next slide, so moving on to idiopathic pulmonary fibrosis, a lot has happened this past year as you have heard initially from Onno in the introduction.
Back in the summer, we announced the exciting results from the FLORA study, which showed that GLPG1690, an autotaxin inhibitor managed to start disease progression as evidenced by virtually no change in forced vital capacity after 12 weeks of treatment, whereas patients who are randomized to placebo lost approximately 19 mls as would be expected in this population over that period of time. These exciting data coupled with a very encouraging safety and tolerability profile led us to embark on a registrational program, which we are currently discussing with the FDA and EMA.
I am happy to share that we had a very positive meeting with the FDA a couple of weeks ago. In the next 2 weeks, we will be meeting with the EMA.
I am quite confident we will be finalizing our program soon after that at which time we will share with you the details of the design of the study. You should expect that in March or April timeframe.
Capitalizing on the promise of 1690 in addition to two other fully proprietary compounds with novel mechanism of action, we decided to build an IPF franchise and develop these compounds and ultimately commercialize them on our own. So in addition to 1690, we have 1205 which is a GPR84 antagonist.
This compound, which is currently in Phase 2, will be evaluated in a proof-of-concept study in IPF later this year. Our third compound is 3499, which is currently in the IND preparation phase getting ready to enter Phase 1 later in the year.
Having three compounds with distinct and novel mechanism of action will allow us for combination therapy – will allow for combination therapy in this very serious and lethal disease where the high unmet medical need still exist. And last but not least for my part of the discussion today is 1972, this is an ADAMTS-5 inhibitor, which is being developed in osteoarthritis in the area of large and ever increasing unmet medical need where no disease modifying agent exists today.
We are showing data here from a recently completed study in osteoarthritis patients. In this study, we treated OA patients with three different doses of 1972 or placebo over a 4-week period.
Similar to what we have seen in healthy subjects and reported before, here we show robust reductions in our levels in the blood. You see a gradual decrease in ARGS over a period of 2 weeks, a plateauing then recovery after treatment is stopped on Day 29.
You can also appreciate on this slide a good dose response curve with the highest dose showing a maximum of approximately 55% reduction from baseline in ARGS levels. These data are relevant, because ARGS are a byproduct of collagen breakdown suggesting that treatment with 1972 could reduce the loss of collagens and have disease modifying properties in osteoarthritis.
In order to evaluate this, we are going to conduct a large dose finding Phase 2b study in collaboration with our partner, Servier. If positive, this robust study will enable us to move into Phase 3 development.
And with this, I will now turn the floor to Piet.
Piet Wigerinck
Thank you, Walid. Let me start with MOR106.
So earlier this week, at the dermatology conference in San Diego, we presented the Phase 1 data consisting of both an SAD in healthy volunteers and multiple ascending dose in patients. So, let me remind you IL-17C is a cytokine that is expressed mainly in the epithelia and shows very low systemic levels.
So, we see it as a local amplifier of ongoing processes and as a target it holds the promise to show full efficacy with very low propensity of systemic side effects. So with Phase 1 data which we will show in the slide as well impressed both ourselves, partner MorphoSys and many people in external world.
So with weekly intervals dosed the patients for 4x the atopic dermatitis patients first time and we saw a very nice efficacy both in terms of magnitude of efficacies, in terms of number of patients that responded to therapy. And most of all in terms of the length with which efficacy was maintained after which we stopped dosing.
So we are quite impressed and working extremely hard to now initiate quite soon a large Phase 2 IV dose range of study which will kick off over the coming weeks. We hope to recruit almost 200 patients into that atopic dermatitis and the results will become available somewhere next year.
In parallel to this large IV dose range of study, we will bring as well as the subcu form into healthy volunteers first and patients later this year and hope that we can bridge them at a moment when we have the IV data towards in a subcu program which will then be – which can then move into Phase 3. So on this slide, we have given the insight, which is one of the disease course which is frequently used in the disease of atopic dermatitis and I am not sure we can say that the compound shows efficacy which are at par with the ones of dupilumab [ph] which have been recently approved for this disease.
So let’s now move to CF, where we have been working for many years in the CF field, have setup a large drug discovery program. We discovered our own internal series of both of potentiators C1s and C2s progress to cystic candidates, backup candidates all to Phase 1.
And so 2018 is sort of the year of the series work where we will have will initiate multiple triple studies with different combos. So our experience up to now is being validating and we have reported a number of those data during 2017 where we in smaller studies validated the single components in CF patients.
And as I said this year we will initiate multiple triple studies and will have to as well readout of a couple of those studies. With over these recent years, we have build out a nice network, global network about five countries and included more than 100 patients in our study.
So we feel confident as well that we will be finding the patients and the centers and to execute the plan as we have laid out before. So for the first study that we will readout is the PELICAN study, I will come back to that study later.
But so the second triple study which was started in fact the 2451, 22, 2737 study. So we have also named the PELICAN study.
We did receive MHRA approval and as well approval of the clinical - of the CF clinical trial network for this triple combo. And as soon as we now have ethical committee approval we can start dosing patients in this study, so this will be first fully owned triple study which will kick off.
Portfolio as well we have complete dosing in healthy volunteers of our second triple consisting of 3067, 2222 and 2737 and we are preparing a large global Phase 2 dose range program that will include both homozygous and [indiscernible] patients. So that program will kick off around mid of the year and will be running on a global basis.
Let me now go to the PELICAN study which is going to be the first study which will be leading us. So in PELICAN we have included the homozygous Delta 508 patients which were on the stable regimen of Orkambi and stayed on the Orkambi regimen.
The study was quickly fully recruited. We only opened study in Germany that could easily find sufficient patience as sort of patients will be on therapy or either in placebo controlled study for four weeks.
So top lines will include a disease as well if you dose on top of Orkambi and a lot of plasma PK measurements and we will report on those. So we expect to report of this study during Q2 of this year and this will be the first time that we can then see the efficacy of 2737 of the C2.
And then the next study reading out somewhat later will be the FALCON study with 2451, 2222 and 2737, but that’s it for the CF. And now over to Bart for the financial highlights.
Bart Filius
Thank you, Piet. Let me take you through the financial results for the full year of 2017.
And as usual, I will start with a view on our cash position and our cash burn during the year. As you can see on these slides, we have been able to increase our cash position to €1.15 billion during the year driven by on one hand a capital increase that we executed in April totaling approximately €350 million.
There is a currency translation effect in our cash position this is for – as a reminder, this is non-cash in the sense that this is translation of our U.S. dollar position into euros on the balance sheet.
We keep roughly 20% of our cash in dollar terms as a natural hedge against the dollar expenses that we have in some of our programs. Than our operational cash burn consists of two elements, on one hand, there is cash income from milestones, a little bit more than €30 million during the year and on the other hand, there is cash expenses, which are operational spend.
The total of the two is a cash burn of €154 million, which is in our guidance, which was between €135 million and €155 million, I would say that it’s little higher than I anticipated back when we spoke in October, where I anticipated to be within the lower end of the guidance. This is due that to the fact that two milestones that we have received or that were accounted for in the fourth quarter on CF.
We are both received in terms of cash in January. And as a result, we ended up a little bit higher, but on the expense side, it’s fully in line with expectations.
So, a healthy position on the balance sheet in terms of cash allowing us to execute on the many programs that were described by the team in the previous slides, then a view on revenues, a little higher than last year €155 million for the full year. And as you know a big component of our revenues is the revenue recognition of the upfront that we received from the Gilead transaction in early 2016.
This is accounted for in proportion to the expenses. So, this is also reflecting the increase in expenses around filgotinib and we have recognized €72 million in 2017 on the filgotinib franchise.
Fee-for-service income from our subsidiary, Fidelta, has increased a little bit and then there is milestones which is lower than in 2016. As a reminder in 2016 in the fourth quarter, we had received $60 million in milestones from Gilead connected to the start of our Crohn’s and our UC programs in selection and diversity.
So corrected for this particular event in 2016, milestones are actually more or less in the same ballpark in 2017 even a little bit higher. Grants and other income is the last component of our revenues.
This is, to a large extent, income that is connected to tax incentives in both Belgium and France and has gone up by €6 million over the year. Going to operating expenses and as expected and as seen already in previous quarters, when we did the previous calls during 2017, we continue to increase our operating expenses line and this is really to the largest extent driven by increase in development expenses, which is again in turn driven by the massive program on filgotinib, but also the successes that we have had in all our developments programs in Phase 2 and the investment in the CF program.
Then coming to net results, last year, we booked a profit as a net result, which was a little bit driven by or little bit was completely driven by one-off events, which was this financial asset adjustments that we booked in the first quarter of 2016. So corrected for this and corrected for the foreign exchange effects, which is largely translation effect as I described before.
The operational underlying evolution is really roughly €80 million, €78 million to be exact negative from 2016 to 2017, which is fully driven then by the operating expenses that I have shown on the previous slides leading to a net loss in the year 2017 of €115 million. Then on a slightly different topic, I would like to take the opportunity to give you an update on some changes in the Belgium tax regimes that are interesting and also positive for the company and this is around what’s called in the old setting, a patent income deduction scheme and now in the new setting is called an innovation income deduction.
So, there has been a change to this schema. This is about a deductible, a tax-based reduction that the company achieves on the income that’s connected to patents which is derived from innovation that has been invested in by Galapagos in the Belgium territory.
So, this is connected to upfront, to milestones and to royalties going forward, even if these royalties are embedded royalties as such, so it can be also structured as through transfer pricing. So in the old system, we had a deductible 80% of gross revenues.
In the new system, this percentage has gone up to 85%, which is beneficial for us at the same time it’s now based on net revenues meaning that we deduct the actual R&D expenses that are associated to the same program. On a net-net basis by the way this is favorable for Galapagos.
Another major positive change in this new regime is that we are also allowed to carry forward these tax-based credits under the new regime. And as of today, we have tax credits carry-forwards of €90 million which are not recognized on our balance sheet yet, but will be usable in the future on top of the additional €260 million that we have in usual tax losses carry-forward.
So, a €350 million total position of tax losses carry-forward which can be used as well in the future subject to some limitations in size as of the moment when we are going to be profitable. And then in addition to that the Belgium corporate tax rate is going down 34% in 2016 to a 25% rate in 2020, which is the year and this starts to becoming relevant for Galapagos, so a net result and I guess, the key message on this slide as you can see it here, our effective tax rate if you do the math under the new regime is going to be 15%, which is the remaining parts of the revenues after deducting 85, times the 25% of tax rate resulting in an effective tax rate on these programs of 3.75%, which obviously is favorable for the company.
Then last word of guidance, operating cash burn guidance between €220 million and €240 million, that’s a increase from the €150 million and some that we have reached in 2017. This I have announced in previous encounters that this number would go up.
Indeed, 2018 and 2019 are going to be the years, when the filgotinib program reaches its peak and that’s a big driver obviously of this increase. The other big driver of the increase is the start of our late stage trials with 1690, which as we are going to take this forward fully proprietary are also going to be expensed fully proprietary, so there is going to be significant increases on 1690 and then roughly one-third left for all other development programs.
Together, we are going to be executing no less than 13 Phase 2 or Phase 3 trials at Galapagos in 2018 sorry – explaining this increase in cash burn, which we believe is a good sign of the successes that we have had with our pipeline. And with that, I conclude the financial section and hand it back over to Onno for the outlook for the year.
Onno van de Stolpe
Thank you, Bart. Well, this cash burn is increased over 2017, but as you can see on this slide, we are expecting a lot of return for the money being spent.
We will be initiating trials in a number of diseases in IPF, the late stage 1690 trial. We also start a Phase 2 trial in IPF with 1205, then we got the triple trials for cystic fibrosis, the osteoarthritis trial with 1972, which we are conducting together with Servier, but we are responsible for the U.S.
part of that trial and we are initiating a full Phase 2 on MOR106 in atopic dermatitis together with MorphoSys. We will also see POC data of filgotinib in psoriatic arthritis and ankylosing spondylitis.
And we will see the data, the proof of concept data in the – of the PELICAN and the FALCON trials, so a lot of data on proof of concept. And even more important the pivotal data that we are expecting on filgotinib in the FINCH 2 trial and the decision to move filgotinib in Ulcerative colitis to a full Phase 3 the go, no go decision that will take place this year.
And also as already announced by Walid we have – we are expecting full completion of recruitment for the FINCH 1 and FINCH 3 trials. So a lot of activity there and you can expect as an investor the news flow regarding these trials in the month to come.
With that I will hand it back to Elizabeth. Thank you very much.
Elizabeth Goodwin
Alright. Thank you.
That concludes the presentation part of our call today. I would now like to ask our operator, Matt to connect us to any callers who have questions.
Go ahead Matt. Explain how to post the question.
Operator
[Operator Instructions] And our first question will come from Brian Abrahams with RBC Capital Markets.
Brian Abrahams
Hi guys. Thanks very much for taking my questions and congratulations on all the pipeline progress.
A couple of questions on 106 and then I had a CF question follow-up, I guess on 106 you presented data recently showing some interesting maintenance of effect post dosing and I think you alluded to it in your prepared remarks as well, I am wondering if you can speak to sort of what that durability of effects on some of the different endpoints that you looked at might mean for just the overall potential frequency of administration for the drug in the future whether this represents any changes in the underlying biology that the drug is able to induce and really sort of curious as you move into Phase 2 your – like how you hope to elicit differentiation versus some of the latest stage programs, I guess on the efficacy and safety side what are some of the specific trial design elements that might be incorporated to show that?
Piet Wigerinck
Thank you, Brian for this question. Indeed as I said during the presentation, we but also many others were impressed by the maintenance of efficacy post dosing, what it typically means is that at least that we are probably dosing – we have been dosing at the higher end of the dose range because it’s after dosing the efficacy goes away immediately, clearly shows that you are within your dose response and often is not approved often then your efficacy is maintained over a longer period of time.
It can mean that you saturate your target under this time for just to come off. In this study indeed we dosed once weekly and so in the phase – those ranges actually will give the design when finally approved that we explore dosing every two weeks and every four weeks.
So we really don’t anticipate that we will have to dose weekly and in order to be competitive with current medications for atopic derm and with medications which are in development. We hope we can get it to once a month and that once every two weeks should be really feasible as well.
Differentiation, the first Phase 2 dosing is mainly of dose ranges so that we want to explore one, the magnitude of efficacy, how frequently do we need to dose what is optimal dose. We have a large couple of other smaller studies as well to promote the differentiation.
But they will launch later and that will – we will comment on those when we open those studies. Thank you.
Brian Abrahams
That’s very helpful. And then maybe just shifting gears to the CF program and the FALCON study, the triple study, wondering if you could provide any more clarity on sort of the potential trial design there, whether you will be looking at – the types of patients you will be looking at perhaps duration, whether we should be looking for interim data maybe from the dual run in or from the triple around the middle of this year.
And then you mentioned that too, you had sign-offs from I guess two of three organizations on the start of that study, any additional kind of rate limiting steps or gating factors to getting the final approval to initiate that study. What are the next steps there?
And I will hop back in the queue. Thanks.
Piet Wigerinck
So, FALCON will be proof-of-concept study with this first triple design, we will be dosing for 4 weeks of triple, both homozygous in the study as well, we will include het/minus patients, but if we – as long as we don’t have the final sign-off of everybody, again trial has not started and online officially. So, we will comment on the full design, but you are executing as I said according to the plan and we should have the top line data of the first cohorts around the mid of the year, so that is just – that’s well planned for.
Anything else?
Brian Abrahams
Thanks.
Operator
And we will now hear from Anastasia Karpova with Kempen.
Anastasia Karpova
Good afternoon and two questions on IPF and a general one on the pipeline. Given that there are two late-stage compounds going into full late-stage trials in pulmonary fibrosis.
Do you see any challenges in recruitment for your late-stage trial? Furthermore, the competitive compounds have at least some safety data in combination with standard of care, either in nintendanib and pirfenidone, while that was not explored in Florida and if that is any impediment or a delay for your Phase 3 trial?
And finally on 1205, how do you see it positioned alongside 1690 and mechanistically do you see any potential synergies in targeting GPR84 and out of action simultaneously? And maybe the final one on the general pipeline, the 13 Phase 2 trials that you are guiding this year do they only include the compounds that are currently listed in the presentation or shall we also expect additional drugs coming out of the woodwork?
Walid Abi Saad
Okay, Anastasia. Thank you.
This is Walid. I will take your question.
With regard to recruitment, we have conducted our feasibility and also in talking to major KOLs across the U.S. and Europe and actually the rest of the world, we are getting a very positive response to the profile that we have seen with our compound.
So based on what we know today, I don’t expect any difficulties in recruitment. I understand this is a competitive field and then obviously this is a rare disease, but so far the response we have got is positive and we feel quite positive about our ability to move this forward.
With regard to 1205, we will be conducting our Phase 2 study now and then we will, based on these data, be able to decide the performance of the drug, how does it compare to 1690 and opportunities to mix together, but at the same time, as you can imagine as we heavily invested in the space from a biological standpoint to understand this, we are doing our preclinical work to evaluate models by which we can predict whether combination of these two medicines could lead to improved efficacy. This is definitely something on our radar screen.
With regard to the pipeline question around the trials, the ones that you have seen are from the pipeline that we have shared with you at least the molecules that we have shared with you in our pipelines. I am not sure if I missed any of your questions, but I think that’s covered them all.
Anastasia Karpova
Yes, on safety with standard of care for 1690 and if you would need additional healthy volunteers trials or say run-ins into late stage trials?
Walid Abi Saad
I can say that we do not have to do any additional trials before we start our late stage program.
Anastasia Karpova
Thanks a lot.
Walid Abi Saad
Thank you.
Operator
And our next question will come from Adam Walsh with Stifel.
Unidentified Analyst
Hi, this is [indiscernible] for Adam. Thanks for taking my questions.
First, congrats on all your progress in the year 2017, I have also a question on IPF, now you have three assets and it allows you full potential combination study, could you please provide any additional comments on the rationale of combo study, what have you learned so far from these three drugs in terms of [indiscernible] or any data that make you think a combo will be better compared to a monotherapy?
Walid Abi Saad
Maybe I had – so maybe this is Walid. I will take the first part of it and then I will turn over to Piet to talk a little bit more about the mechanism.
I mean I think in this disease which is very serious and lethal, we are seeing also from the guidance from the agency that there is very interest to add treatment on top of that of care to be able to achieve the efficacy. There has been some data reported in this in small trials combining nintendanib and pirfenidone together where there is some semblance of increased efficacy when you combine the two.
Obviously the study was not powered for that and it was small, but again those are the encouraging data that combining treatment could lead to improved efficacy. If you have seen also some data that was shared that from the Prometic compound as well on top of nintendanib at least that they do see some proven effects.
So there is some initial clinical data that suggest combining different mechanism of actions together could lead to an improvement and it certainly in this disease where there is a high unmet medical need this is highly needed and desired. So from that perspective I think there is good rationale to go forward.
So and then I will turn to Piet with regard to mechanism of action and the work we have been doing here.
Piet Wigerinck
So in the IPF since we have almost the first component is autotaxin, the second is GPR84 antagonist and the third we didn’t disclose yet. And but in principal they tackle this disease from complete different angle.
All three of them we are looking very hot now to see in which models we can find sufficient window to test also either in vivo, how good combination will perform versus the monotherapies. But for example the bleomycin is not a very suitable model to that because of very limited between those.
So as part of the full development this year, we will do many of the combo studies preclinically and this will be in the combination both of in vitro work and in vivo work. And hopefully by the end of the year it can show nice data why certain combos might make more sense than others.
But in general the trend in the field is still is the little disease that intensifies a treatment and this is not a request yet to show effect that the combination that’s much, much better than a single compound. But we will report on those combo studies over the coming months this year.
Thank you.
Unidentified Analyst
Since the 1690 trial is much more advanced is 1205 or 3499 going to be studied only for add-on to 1690, is that the case? Thank you.
Walid Abi Saad
I think it’s a bit premature to answer you to be honest. We are internally discussing this and also taking into consideration the feedback we were receiving from the health authorities regarding the 1690.
Good question and maybe we will be a better position to answer it next time we talk.
Unidentified Analyst
Alright. Thank you.
Operator
And now we will go to Peter Welford with Jefferies.
Peter Welford
Hi. Thanks for taking my questions.
And on the CF first of all, I wondered you could just talk about the FALCON study whether or not we should still be anticipating and leading with the doublet and then going to a triple and whether and you can talk about the dosing that you are considering with the different components. Also then on the second triple, if you filed your INDs for 2737 or 3067, I know 2222 I think has an IND, but just wondering about 2737 and 3067, I presume you may need those before we can start then the global Phase 2.
And then given Bart on a couple of financial ones, first of all on the tax, it was a wonderful topic, but just to understand the filgotinib tax, given the European co-promote that you have, how should we think about the tax rate for filgotinib, is that going to impact how we should book the profits through the P&L given presumably some of that comp be classified as income deduction or can it? And then also on the R&D cap for filgotinib, are we anywhere near reaching that capital, such that we should be thinking of knocking off the future milestones from Gilead or are you still tracking below the cap at the present and therefore we don’t need to worry about that?
Thank you.
Bart Filius
I will take those first, Peter and then I will hand it over to Piet to give you the feedback on the CF questions. So, first of all on the copromote and this – and those financial flows, basically the way the tax authorities look at this is that embedded royalty, so royalties that would actually be at arm’s length between different subsidiaries would also qualify under the IID.
So, the copromote will lead basically to a similar type of IID benefits than a normal royalty stream, obviously everything in terms of profits that comes on top of that would not qualify for the IID. And the second question on the cap.
We do indeed have a cap on the contribution to the filgotinib expenses. Currently, we anticipate we are still tracking below that gap clearly and we anticipate that we will do the year 2018 and 2019 still within the cap, but once we get to the later quarters of ‘19 or in 2020 we will have reached the cap levels, Peter.
And to Piet?
Piet Wigerinck
Yes. Okay, Bart, thank you for the FALCON study, every Phase 2 study we will kick off with a triple combination, we will have a dual lead-in.
That’s the current plan as we first do couple of its dual lead-in and then bring a third component on top to see the incremental efficacy triggered by the third component. On the IND, indeed, we have 2222 open, but to start in the U.S.
we are in the process of filing 3067 IND and so the 2737 open IND will be part of that launch of that triple study in the U.S. We have agreed with FDA on the principle, so there is no need first do another study and then we have to wait for the data of that study, where we have discussed with them.
And our anticipation is currently that we will open IND 2737 at start of that triple study and before that have opened at 3067. Thank you.
Peter Welford
That’s great. Sorry, can I just come back to the tax, just so I can understand so you are saying that some of the European copromote profits will fall outside the IID just to be clear.
So I understand the embedded royalty is coming, but you are saying not all of the European copromote can be classified as IID is that what you are saying?
Bart Filius
It’s very nuanced but basically what I am trying to say is that everything that is in terms of economics at the bottom end of the P&L comparable to royalties would be qualifying under the IID, but if there will be excess profits, it will not qualify under the IID. So, only to the extent that we co-promote delivers a higher profit, it would not be IID.
Operator
And our next question will come from Phil Nadeau with Cowen & Company.
Phil Nadeau
Good morning. Thanks for taking my questions.
Couple on the upcoming results. Just first on the PELICAN result that we are going to get into second quarter.
Could you give us some sense of what you would consider proof-of-concept being achieved in that trial? I believe in the recent data released by Vertex tezacaftor plus ivacaftor and it’s triples in homozygous patients we saw like a 7% to 9% improvement in FEV1.
Is that the bar that we should be thinking of or are there other factors that we should consider when looking at the PELICAN data?
Onno van de Stolpe
Thank you, Phil for asking me to predict the optimal loss. So, well it’s the first time we dosed 2737, so I don’t think we are going to put the bar up 13% of FEV, I think everything, which come close to that is a success.
Don’t forget this is a complicated trial in terms of drug interactions. In principle, we are comfortable that we should keep sufficient 2737 on board in view of how it’s metabolized, but we will see.
And the time when we can bring the data we will mainly depend on all of the case studies, all the PK measurements that we have included and that we will need to analyze. Basically that anything below 5% is a failure I would say and I am between 5% and 13% I think would be a sign of good efficacy.
Phil Nadeau
Got it, that’s very helpful. And then second question on filgotinib and psoriatic arthritis, basically the same question for [indiscernible] we have seen about a 20% to 30% improvement in ACR20 although that data I believe is 12-week data, not 16-week data, so when we look at filgotinib and psoriatic arthritis is that 20% to 30% ACR20 increment above placebo.
generally what we should have in mind or are there other complicating factors in that in interpreting that data as well?
Walid Abi Saad
I think the data the study design is fairly straightforward. So I don’t think there are complicating factors in interpreting it.
I think the target that you set is a good place to start with. We are hoping we would do better than that, but again we are waiting eagerly to the see the results.
Phil Nadeau
Great. And then one last question for me on a second CF triple, I noticed your 2018 milestone charts there wasn’t a mention of the data from that second CF triple reading out this year, was that an omission or is that actually expected in kind of early 2019?
Piet Wigerinck
Well, it is a quite large study where we do the full combination as well. So it probably will be early 2019 but with all that we can – as we can and we see where we come out.
Phil Nadeau
Good. Thanks for taking my questions and congratulations on the progress.
Piet Wigerinck
Thank you.
Operator
And we will now hear from Matthew Harrison with Morgan Stanley.
Vikram Purohit
Hi everyone. This is the Vikram on for Matthew.
So we have two questions from our side, one on IPF and then one on CF, so on IPF and I am not sure if you are willing to talk about this, but or when you get into pivotal studies, do you think you are needing to run studies versus placebo on top of standard of care. And then on yes, it wasn’t clear to me exactly what’s pending with the discussions with regulators to start the FALCON study and if you can comment on any kind of monitoring that may have been put in place for the long-lived metabolite you saw earlier that would be helpful?
Thanks.
Walid Abi Saad
Okay, Vikram, this is Walid. I will respond to the IPF question.
So, what we have prepared to say today is that we had a very productive meeting with the FDA a couple of weeks ago and we have also received initial feedback from EMA with whom we will be meeting the first week of March. So, the feedback from both the agency is consistent.
I am quite confident that we will finalize the study design soon after the EMA meeting and then at that time we will be able to get into more details about the design of the trials. As I said, we should expect to hear back from us in the March-April timeframe around these.
Piet Wigerinck
Okay. On the FALCON study, so we got approval from MHRA.
So, we also got an approval from the CF European Clinical Trial that think it’s a very important study to be run in their center. And so as I said during the call, we are awaiting for the committee approval now.
And there was also a question on the monitoring for the long-lived metabolite, so we will follow up the patients and we have [indiscernible] on the watch out will PK – our samples for PK risk patients after they stopped the medication and will follow up them as long as we can see plasma levels. Thank you.
Vikram Purohit
Thank you.
Operator
And our next question will come from Christopher Marai with Nomura Instinet.
Unidentified Analyst
Hi, this is [indiscernible] on for Christopher Marai. Thanks for taking my questions.
I just have a couple of questions regarding 1972 in OA. First, regarding the recent Phase billion data, were there any differences in the biomarker reduction between patients with OA of the hip, knee or other regions?
Maybe more broadly, do you see any particular activity or limiting factors that may limit the addressable population like the one discontinued patient in the high-dose cohort was he on any concurrent symptomatic treatment? Secondly, I know it maybe a bit early, but can you talk about the efficacy endpoints under consideration for the Phase 2 trial?
Like are we looking at Western Ontario with McMaster OA? And conceptually, can you discuss how the biomarker reduction could be correlated to functional outcomes and what kind of treatment duration we should expect for functional outcomes to improve?
And lastly, any milestones attached to the planned Phase 2 trial?
Walid Abi Saad
Okay, thanks Allen. So, again it’s Walid.
So, in terms of the study results, I mean, you have seen the study as a sort of small number of subjects per arm. Our goal was to look at the change in ARGS in the blood.
For that, the end was sufficiently ample to see the very tight error bars actually on the slides that we shared with you. But that doesn’t allow us at all to look at subtypes of patients or people who are hip versus knee OA.
But he can tell by how tight these data are that there is no difference really between the patients and as well, these data are very consistent with the healthy subjects as well data in terms of negative effect and changes over time. So, I am pretty confident that our target engagement and subsequent reduction in ARGS is consistent in human beings in general.
In terms of study design, we will be in a better place to describe that study in more details once approved and ready to go forward, it should be a matter of months from now, but you should expect a trial that’s long, I am talking about a year. The endpoints are going to be the typical endpoints that you look at from imaging using MRI, but also looking at x-ray and using the functional endpoints that you mentioned WOMAC and other key endpoints.
In terms of correlation between the changes between ARGS and the functional effects, I expect them to be good. That’s why we are doing the trial, but I guess it will remain to be seen.
Maybe I can ask Bart to comment on the milestones please.
Bart Filius
Yes, sure Walid. So, the milestones are not significant.
There are some milestones, but it’s very smallish. Really, the real value for us in the program clearly is that we have the U.S.
rights for this molecule and Servier has the right for the rest of the world and we will be running the trial. So, together with our partner, we will be running the part in the U.S.
So, milestones are there, but it’s not significant.
Unidentified Analyst
Got it. Thank you very much.
That’s very helpful.
Elizabeth Goodwin
Thanks, Allen and thanks everybody who has asked questions today. I am afraid we have run out of time.
This was our last question. I think we have had some really good ones today.
Paul van der Horst over in Europe and I, Elizabeth Goodwin, over here in the States are available to take any questions that you were not able to pose today, anything else that’s come up, please contact us. Please also look for publication of our annual reports 2017 on or around March 23.
We think all the audience members, all the people who have called in for your support and your participation today. Take care and we will speak again soon.
Bye.