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Galapagos NV (NASDAQ:GLPG)
Q2 2019 Earnings Call
Jul 26, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Galapagos H1 Results Conference Call. At this time, I would like to turn the conference over to Elizabeth Goodwin. Please go ahead, ma'am.

Elizabeth Goodwin -- Vice President Investor Relations & Corporate Communications

Welcome all to the audio webcast of Galapagos' First Half 2019 Results. I'm Elizabeth Goodwin, Investor Relations, and this recorded webcast is accessible via the Galapagos website home page and will be available for replay later on today. So that your questions can be included, we request that you call in to one of the telephone numbers given and last night's press release. I'll give you the one for Belgium, that's 32-2404-0659 and the access code is 6080337.

I'd 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 in 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; and Bart Filius, COO and CFO. Onno will go through the operational highlights and Bart will explain the financial results and 2019 news flow we expect in the second half of the year. You'll see a PowerPoint presentation on screen, and we estimate that this part will take about 10 minutes, and this will be followed by a question-and-answer session with Bart and Onno, who will be joined by Walid Abi-Saab, our CMO.

And at this point, I'd like to hand over to Onno to begin the presentation. Go ahead.

Onno van de Stolpe -- Chief Executive Officer

Thank you, Elizabeth. Pleasure to have the word and talk to you about the operational highlights of the first half. Clearly, a fantastic first half on all aspects. The clinic, the commercial operations start and of course, the deal with our friends from Gilead who have recently announced that I'll come back to in more detail. But let's first look at the clinical delivery over the first half. A lot of news on filgotinib where we had the excellent Phase 1 and Phase 3 results in the rheumatoid arthritis. Clearly a hallmark data set for Galapagos and Gilead. We also completed the recruitment in our Phase 3, ulcerative colitis trial, as well as in Phase 2 trials in Sjogren and lupus, and we are nicely on track to build our commercial organization within the Galapagos for the European market where we will be operating in rheumatoid arthritis. In IPF, after starting last year '1690 in IPF with ISABELA study, we went for the second indication in sclerosis.

We started the NOVESA Phase 2 trial. So, very nice that we went into the second indication so rapidly. And we think that the IPF franchise, by licensing two compounds from early stage compounds from Fibrocor and Evotec. In osteoarthritis, we completed the recruitment in the Phase 2b trial together with Servier, actually six months ahead of schedule, so we're very pleased with the rapid recruitment there.

And we will be looking forward to the data next year on that trial. And in MOR106, we started an additional trail, the GECKO Phase 2 trial that's a program we do together with MorphoSys and Novartis. Novartis licensed this compound from us last year.

And then further in inflammation, we are very pleased to have our first Toledo compound in the clinic. We started Phase 1 with '3312, and the second one is on its way to enter the clinic shortly. So, Toledo is getting shape and we believe this could be a very, very important program for inflammation going forward.

But let's look at the deal with Gilead. Of course, you've all heard about it and seen many of the details, but let's highlight some of the facts again in the next couple of slides.

It's clearly a deal that is transformative for Galapagos and very innovative for the industry, I must say. It's the largest life science collaboration in history of the life sciences. So that's a hallmark for, I guess, also European Biotech. I'm very pleased with the model where we remain independent for a very long time and get enormous amounts of funds to really go after innovation, innovation, and innovation. So that is really what the focus of this deal was, and that should be very good for patients going forward. It's based on our unique discovery engine, especially our target discovery, where we have the annual viral collection to come up with novel targets for various diseases and then followed by very rapid drug discovery capabilities that Galapagos this[Phonetic] has to move programs rapidly into preclinical and then toward the clinic. But clearly, we can benefit from the expertise that Gilead has in chemistry and development, formulation, and of course, the infrastructure to market drugs worldwide. Clearly, we are not at all in the commercial side of business yet. We will now focus on Europe as for the commercial aspects of the business and leave the rest of the world to Gilead, which we believe is a very good step for us.

And this will all lead to a further acceleration of the current programs but also of new programs. We now plan to double our R&D efforts, and hopefully come up with new mode of actions rapidly to improve the lives of patients. And with this current structure, we have our work ahead to roll out the commercial infrastructure throughout Europe and build that over the next couple of years in all the various countries so that in a 10-year period, we will be a fully equipped European biopharmaceutical company, and then wander out to the rest of the world after that period of time.

Let's look a little bit at the financials of this deal. It's quite complex and it's large. We got a $3.95 billion upfront payments to do this deal. Interestingly, Gilead has no say in where this money will be spent. It's all up to Galapagos, on what therapy areas and what target, with also what acquisitions we would do. There are no limitations, and there's no impact from Gilead in that.

They also did an equity investment at this point of $1.1 billion, which is at the 20% premium to the 30 day average when the deal was announced. And that increases their stake to 22%. They got two warrants to further increase the percentage to 29.9% over the next couple of years. They received an opt-in for all the programs that we currently have for all the right outside Europe as well as on programs that we are going to develop over the next 10 years. They pay us an opt-in fee, and I'll come back to the numbers and certain milestones as well.

Also very interesting to note is that after they opt-in, they're going to pay 50% of all the Phase 3 cost. So we're splitting the cost worldwide, which reduces the risk of these Phase 3 tremendously. And we're still getting a very nice royalty on sales that they're making outside Europe , between 20% and 24%.

So, let's go through the specific program details here. First on the platform. It was very important when we talked about this deal that there would be no barriers, there would be no secrecy between the two companies. So we are sharing all the targets that Galapagos is working on. Also, future targets as we discover, and there will be full transparency to Gilead to maximize the designs collaboration between the two companies. We plan to exchange scientists back and forth to maximize the opportunity, the synergy between the two companies.

We can do it because it's very clear what happens later on when they can opt-in and not opt-in. So I think all of that is very nicely worded in the contract, and I think, it will benefit the science tremendously. As part of the deal, we revised the current filgotinib collaboration where we're actually taking on a larger part of the expenses. It is going to be 50/50 going forward as of now of the development costs, and Galapagos is getting a bigger say in the European commercialization. So in the big five countries, Galapagos will have a big impact on the commercialization of filgotinib in the various diseases.

For '1690, our IPF drug, we provided the license as part of this deal for all rights outside Europe. We will continue in Europe. We will market as of course like all the other drugs, but they will market it outside Europe, and they will still pay a $325 million milestone if the drug gets approved in the US.

In '1972, it's a little bit different, because that's in a partnership with our French partner, Servier, where we only have the US rights unencumbered. So Gilead gets an option for those rights after the Phase 3, that's currently running ROCCELLA trial. They will pay us in $250 million opt-in if they want to exercise the option, and a $750 million in further milestones downstream from that. And for the rest of the world, Servier has the rights, and we are getting royalties from Servier on sales in the other territories. These are substantially lower than the ones Gilead is paying. Servier is a single-digit royalty. So it's a deal that was signed with Servier, when we were at the target stage, very early stage deal.

And then all other programs, including Toledo, and Toledo actually consist of a number of different programs. With every single program, there is an option fee when Gilead exercises after-- decides to exercise after Phase 2 study of $150 million, and then as I said before, we'll share all further development costs 50/50 between the parties, and we're getting on all the programs, except for filgotinib, where we get royalties between 20% and 30%, for all other programs we get royalties between 20% and 24%.

So, I think, these are the program highlights. And of course, these are very large numbers and it's a very impressive deal. I think what is important more from a holistic point of view is that we have found a very innovative way, I think, to work together and still keep our full independence on going forward both on an equity point of view where we will remain an independent company on the stock market, but also on a science point of view, which is very important for us, that we can continue to do what we believe are the right things to invest in the science. And for the next 10 years, it's clear that we have a very close marriage with Gilead, and the start has been very good, good relationship, very high energy, a lot of adrenaline, we had actually the honor of Daniel O'Day visiting Galapagos last week and talking to our staff, and that went extremely positive. He was very well received within the company. So I think it's been a very positive outcome of six months of negotiations. And we're all very pleased that this is now done. Of course, we still are waiting for the competitive review in the US, but we expect that to end in the next four weeks or so. And then the deal will be delivered.

With that, I would like to hand it over to Bart, who has been extremely instrumental in getting the deal together, but he can now talk about the financials.

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Thank you, Onno. Good morning, everyone in the US. Good afternoon in Europe. Obviously, the focus of this call is to a large extent on this transaction with Gilead, but we also have to report the second quarter financials. So I'll do this with two slides that's, those of you that are following the company have seen before. And they'll describe basically the differential evolution over the second quarter of this year.

So the first slide there is on the cash. As usual, we are ending the cash balance sheet at EUR1.15 billion at the end of June. And if you look back, we take out a couple of specific items which we always do, such as capital increases and translation effects. Well then[Phonetic] the actual net cash burn is a little more than EUR150 million over the first six months of the year. And as a reminder for everyone, the guidance that I've given at the beginning of the year for total cash burn is between EUR320 million and EUR340 million. So the EUR152 million that you see here on the chart is coming pretty close to 50% of that number. So this is just to say that the cash burn over the first six months is completely in line with our expectations.

Now, I've chosen not to change the guidance for the full year, even though we all understand that the ultimate operating cash burn will be different because of the Gilead transaction. But I felt it was more relevant to highlight the underlying operational cash burn, which indeed we confirm to be on track as per previous guidance, but then clearly we anticipate significant cash in the course of the second half of this year, $3.95 billion upfront in dollars and $1.1 billion in equity stake, including the premium in dollars as well.

So then over to P&L. The highlights again, revenues are a little higher than they were in the first half in 2018. There's two elements that are supporting that. First of all, for MOR106, we are actually recording the reimbursements for the expense that we make by Novartis in our revenues that drives part of the increase.

Secondly, we've also achieved a milestone of $25 million in our collaboration with AbbVie for the final completion of the FALCON study. So that's also in these numbers included in the first half year.

Operating costs are clearly higher than they've been in the first half of 2018, fully in line with with expectations. And the key drivers are really to the mid and late stage development expenses. And then within that buckets, obviously '1690, it's expenses are increasing significantly versus last year as the Phase 3 program has really come off the ground in 2019.

So as a result of those two, revenues being a bit higher, operating cost being clearly higher as well, then the net result is negative compared to first half of 2018 by about EUR35 million, which also includes a bit of financial income and expenses.

Then my final slides to highlight what is still to deliver in terms of a key news flow over the second half of this year. And that's quite a bit. Maybe first to highlight is that we have achieved all of the guidance. As we have presented in the first half of the year, as you see on this slide, with one exception of one Phase 1 starts, that we were anticipating for the first half 2019, which is now going to be first half of 2020. On the second half of the year, there is data coming on to more of filgotinib indications. Onno already spoke about those, Sjogren and lupus is still to come in the second half of the year.

We're also anticipating the start of the Phase 3 program in psoriatic arthritis, and obviously the key events for filgotinib are also the filing in Europe and the US that we are anticipating in the second half of this year.

In fibrosis, we will have our PINTA study with '1205 fully recruited by the end of the year. We already achieved ahead of schedule the ROCCELLA study fully recruited. and on MOR106, there is one specific Japanese study that we're starting in the second half of the year.

And then there's quite a bit going on also with the earlier programs in Phase 1. We anticipate topline data Phase 1 for our first generation Toledo compounds. That's going to be something to look out for in the second half of the year, clearly. But we're also starting to further Phase 1, one NOVESA[Phonetic] agents '3667 and with a what we call a second generation Toledo compounds '3970 as well.

And then finally, we hope by the end of this year, if Phase 1 allows, we hope to start a proof of concepts with our first Toledo compound in IBD with the '3312.

So that's with regard to the news. So still a lot to come in the second half of the year, and then as the year progresses, we'll start giving also some guidance as to the key data events, the numerous key data events, I would say in 2020, that'll come in the next 12 months.

So with that, I'll stop and give the word back to Elizabeth to lead us through the Q&A.

Elizabeth Goodwin -- Vice President Investor Relations & Corporate Communications

Thank you Bart and Onno.

That does conclude the presentation portion of the call today. I am going to ask our participants to limit their questions to only one per firm today so we can give more people an opportunity to ask questions, and our operator Jenny will be helping us to achieve that. I'd like to ask Jenny now to connect us to any callers who may have questions for our executives.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. And we'll hear first from Rushee Jolly of Bernstein.

Rushee Jolly -- Bernstein

Hi. Rushee Jolly, from Bernstein. Thanks for taking my question. Firstly on costs post [Phonetic] the Gilead deal. You already outlined that you intend to high[Phonetic] commercial operations in Europe. So how should we think about the level of incremental sales and marketing spend? And over what time period can we expect phasing for this and likewise the R&D as well? Thank you.

Bart Filius -- Chief Financial Officer and Chief Operating Officer

All right. Actually let me take that. Bart Filius speaking. First of all, in the commercial cost, may be good to highlight to everyone on the phone that the economics of the filgotinib structure have not changed except for the development cost chair. So we're still, in Europe, sharing all expenses 50/50. So to the extent that we are incurring further expenses on our P&L as opposed to on the Gilead P&L, it will be a shift in line items compared to previous guidance.

So it's not going to be the commercial cost. I think which is going to be the key driver for increasing in cash burden. On the other hand, we do anticipate, as Onno was speaking to a significant increase in our research and development costs. This will not be from one year to the next. This will be a gradual increase over the next couple of years. First of all, we all know that it will take a bit of time to get to this doubling of infrastructure, both in terms of people and fixed infrastructures, that will take a couple of years. And at the same time, obviously, a large element of our expenses in development is depending on the actual results that we achieve. So where we do see increases next year, more detailed guidance will come over the next 6 months. But where we do see meaningful increase next year is in development cost regarding the Toledo program, which we were anticipating, by the way, already independent of the Gilead transaction. I hope this clarifies a bit, the question Rushee.

Operator

And our next question comes from Evan Seigerman of Credit Suisse.

Evan Seigerman -- Credit Suisse -- Analyst

Hi, guys. Thank you for taking my question. Just one on your large cash balance. So how do we ensure that you're basically going to be using this to generate shareholder value? What are your strategic priorities in terms of spend aside from increasing R&D? Thank you very much.

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Yes. Thanks for the question. Bart again, so clearly our priorities are indeed on the research and development. For now, what we've said is that we are intending to double those investments in innovation and that it will take a couple of years to materialize. We actually are inviting you. And others [Phonetic] here are on the phone also to attend our R&D day on the 14th of November of this year, where we're planning to give some further details on our plans for the next couple of years. But obviously, we will maintain our same threshold, our same focus on high quality innovation in Galapagos, as we have demonstrated over the past couple of years going forward as well. So we are not in a hurry to work on this, other than that we want to make sure that it is invested behind the right and the good ideas for true innovation for our patients.

And in terms of track record, let me add then also that we have been able to do this very successfully over the last three, four years as well. Our cash expenses have also doubled in that periods and even more than doubled. So there's ample opportunity, I think, from within our own company to invest in R&D, and make sure that the cash balance is used in a wise fashion.

Operator

And we'll go next to a question from Emily Field of Barclays.

Emily Field -- Barclays -- Analyst

Hi. Yes, I was just wondering if the FDA thus far has seen any of the preliminary data from the MANTA studies? When you expect MANTA and MANTA RAY to be fully enrolled? And if you expect you will need the full data to file assuming the selection trial is successful?

Walid Abi-Saab -- Chief Medical Officer

Hi. This is Walid to take your call. Good morning, everybody in the US, and good afternoon for the rest. So regarding the meeting with the FDA, we did have a discussion with the FDA, including all the FINCH data and the available MANTA data which were blinded. So there was no underlining of the MANTA study and that formed the basis of the discussion that Gilead actually lead with the FDA. At the end of that, we agreed that we can move forward and file in the US regardless of the MANTA study. Of course, we will include all the data available from MANTA from all the other open label, also studies that are ongoing, but the completion of the MANTA program will not be needed prior to filing.

And I believe you asked the question about selection, and I don't think that was a subject of the discussion, but I don't think this will be necessarily treated any different than the program RAY, because in the end, we are generating more data by that time. Did I answer your question? I'm not sure if I captured all the pieces of the your question.

Emily Field -- Barclays -- Analyst

How enrollment is going since the addition of the MANTA RAY study.

Walid Abi-Saab -- Chief Medical Officer

Right. So, we have not been guiding on this. Gilead is going to be taking the lead in and sharing the information. But to a great extent, since MANTA is not on the critical path for filing, I believe this is essentially not critical information to guide for this. But I can assure you that the recruitment is going up more on the side of MANTA, because we increased the size as we talked about it and with discussion of the FDA, we increased the inclusion-exclusion criteria, modified them to be able to allow us to recruit faster.

And also MANTA RAY with the engagement, with a number of sites, so we'd be seeing this. But we're not providing any specific details on this.

Operator

And we will go next to Brian Abrahams of RBC Capital Markets.

Brian Abrahams -- RBC Capital Markets -- Analyst

Hi there. Thanks so much for taking my question. Congrats again on the Gilead deal. Continuing on filgotinib, what are your latest expectations on a potential label relative to competitors in RA from an efficacy and safety standpoint? Any compromises you might expect on the label that has enabled filing before the completion of MANTA and how much can be interpreted on safety from blinded sperm counts? Thanks.

Walid Abi-Saab -- Chief Medical Officer

Yes. Thanks, Brian. So, look, we've been very pleased with the results of the French program. I think we've been saying that for a long time that our highly selective JAK1 profile for filgotinib, is going to translate into a very beneficial risk benefit profile and that materialized. And from there to sort of specifically speculate on what the label would look like, I think that would be quite premature.

I think that that is a review issue, that the FDA will have to weigh in on of course, and I cannot, sort of put the cart in front of the horse in that case. In the event of the MANTA and evaluating the blinded data, I think that would give you a general sense of certain changes that you would see, whether they make you feel more or less comfortable. Again, I don't want to go into the details of this, but suffice it to say, when the data from the blinded MANTA program, plus the totality of the French program were discussed with the FDA, we felt comfortable that we can move forward and file in the US this year, so.

Brian Abrahams -- RBC Capital Markets -- Analyst

Thanks very much.

Operator

And our next question comes James Quigley of JP Morgan.

James Quigley -- JP Morgan -- Analyst

Hello. Thanks for taking my question. Just one quick one on the JAK1/TYK2, which was discontinued, is TYK2 still a mechanism that you'd like to develop drugs forms[Phonetic], especially given that the Bristol drug is progressing relatively rapidly? I'll go with that. [Phonetic]Thank you.

Walid Abi-Saab -- Chief Medical Officer

Yes. Thank you, James. Yes. TYK2 is an area that we're interested in developing compounds in this area. And as you've been saying for a long period of time, having also our own JAK1, which is very advanced, and filgotinib offers an opportunity to consider combination treatment which would really enable us to address key unmet medical need in these indications.

Just keep in mind how much more improvement is needed in these patients. I remind you, we talk about ACR50s of around 40% or 50%. ACR70s at about 20% or 30%. Those numbers should be ACR70's around 70% and already 80%. There's a huge room for improvement. Combination therapy, with our filgotinib is an important strategy. Toledo will be also a very important strategy for us to achieve those goals. And that's what we're striving toward.

Operator

And our next question comes from Eliana Merle with Cantor Fitzgerald.

Eliana Merle -- Cantor Fitzgerald -- Analyst

Hi, guys. Thanks for taking my question. And congrats on all the progress. Just one on sort of your M&A and BD strategy, given your very strong cash position now. Can you just elaborate a little bit on how you're thinking about this? And I guess, what therapeutic areas or modalities you think would complement your discovery efforts? Thanks.

Onno van de Stolpe -- Chief Executive Officer

Yes, this is Onno here. I'm happy to answer your question. It's clear that we will be able to lookout for compounds that could complement our portfolio. Clearly, fibrosis inflammation remain important, but we will be expanding the therapeutic areas with our internal research, while we're already doing that, we'll little accelerate that expansion and that give us indication[Phonetic]. And clearly, we will also be looking for compounds in those areas as well. Don't expect any major acquisitions for now. It most likely will be more compound licenses and maybe technology platforms as they really complement what we currently have internal, so there will be busy time ahead for us then.

Operator

And we'll go next to Peter Welford from Jefferies.

Peter James Welford -- Jefferies LLC

Hi. Thanks. I wanted to ask about your earlier preclinical Phase 1 type and drug discovery efforts. Firstly, I guess, just with regards to the discussions with Gilead, were there any particular new areas they wanted you to increase effort then perhaps or any, I guess, were there any agreements reached despite the areas that they would like to see you move into? And I wonder as well, '3667, is that brand new class or is that similar to any of the drugs that you already have within your pipeline? Thank you.

Onno van de Stolpe -- Chief Executive Officer

I'll do the first part, Matthew. There has been no pressure or not even mentioning by Gilead of areas of interest for them to go into. That's really clear from day one that, that's off limits. We determine what we think are the right areas to focus on and they only have information, right. So we are going to inform them regularly on what we're doing. But they will not be able to influence our program.

Walid Abi-Saab -- Chief Medical Officer

And this is Walid. So for the '3667, we're not disclosing the target today. But what I could tell you is that it is not a backup compound to any compound that we have in our pipeline. So I think it's safe to assume that it's a new pharmacology.

Operator

And we'll go to our next question from Matthew Harrison of Morgan Stanley.

Matthew Harrison -- Morgan Stanley -- Analyst

Hi, good morning. Thanks for taking my question. I guess for me, just a question broadly on Toledo, I think, on the Gilead call you suggest that you're planning to start a 10 Phase 2 study sometime next year. And I have a very broad effort toward finding potential areas to move that program forward. Can you maybe outline for us, what you think is important about the Phase 1 data, and how things will get this year, and then when you might start to disclose some of the indications and the breadth of that program? Thanks.

Onno van de Stolpe -- Chief Executive Officer

Yes. This is, clearly Walid, in a better position to answer. So Walid?

Walid Abi-Saab -- Chief Medical Officer

Thank you Onno. Yes. Look, I mean, we've said, we've identified this area a couple of years ago, and we were very impressed with the data that we've seen. Clinically, we decided to invest heavily in it from a chemistry and biology. We review this program as a new platform that's going to give us the opportunity to address a number of unmet medical need.

And as such, we are advancing these programs, these various molecules forward with various level of selectivity for certain subtypes, if you think of them as JAK, you know, JAK1, JAK2, JAK3, so on, so forth. And there's a huge element of learning from the clinic that we're going to take back to the lab to help inform what's going on. And through the same spirit that when we go broadly into indications on the inflammation space and perhaps the fibrosis as well, that we want to sort of learn and adjust the best molecule with the best selectivity to the target indication.

So what we learn from Phase 1. Well, first, the most important part of the learning in Phase 1 is about the safety and the tolerability of these compounds. And that's why we're very excited, that we're able to get into clinic and we are advancing forward, so by the end of the year, we share more information about it.

But there are also certain pharmacodynamic endpoints that we're including in these trials to also guide us about sort of which type of cytokines that might be effective and so on, so forth. But it's very important that you think of this, that we're taking a really large approach, a platform approach, where these molecules are going to be informing each other and guiding the subsequent development to be niche toward the best indication that will address the most important unmet medical needs, but also to help us to speed up development by learning from compounds that will advance to influence the ones that are going, that are coming at their heels.

Operator

And we'll hear next from Anastasia Karpova of Kempen.

Anastasia Karpova -- Kempen & Co -- Analyst

Good afternoon. Quick question. On coming to Sjogren's, somebody please explain what made you comfortable going in this indication given that JAK is not directly related to pathology and its modulation of [Indecipherable] would be sufficient to show [Indecipherable] indication that hasn't seen any of these in the final[Phonetic] drugs.

Walid Abi-Saab -- Chief Medical Officer

I'm sorry. I didn't quite catch that, you were going in and out, but I'm assuming you're asking about what is the rationale for why we went in to Sjogren's syndrome. Is that what you're saying?

Anastasia Karpova -- Kempen & Co -- Analyst

Yes, and how comfortable are you with your positive outcomes?

Walid Abi-Saab -- Chief Medical Officer

Well, look, I think, the preclinical data that we have convinced us that this is an indication that we have a likelihood that we could work. Of course, in that indication, there's still a significant unmet need. And the nature of the Phase 2 study that we put in place was maybe more exploratory, just as you said, because it's not as well formed and advance, say, for example, compared to ankylosing spondylitis or psoriatic arthritis. So the nature of the Phase 2 study is more exploratory, to cast a wider net and look at various endpoints to see where we need to go next. As you indicated, the results will be shared in the second half of the year, and we will use that information to guide what would be the next step and whether filgotinib is going to be able to address an unmet medical need in Sjogren syndrome to take it forward.

Operator

And we'll hear next from Dane Leone of Raymond James.

Dane Leone -- Raymond James -- Analyst

Hi. Thank you very much. Congratulations on the update. And since I was not on the last call, congratulations on Gilead deal. So, the one question form me, maybe a bit of a delayed question, but it's one that's been percolating quite a bit within the investment community here in the US. When you look at some of the complicated programs that you and Gilead are going to tackle, such as the Toledo program, a lot of people have been debating, whether it's a fair comparison to the complicated algorithm that was the CF program that your team undertook in partnership with AbbVie.

And the question comes out is how are you structuring some of the decision making here between the two teams? Because what we saw with the AbbVie partnership that you know somewhat dissolved over time. I know the backstory is a little bit more complicated, but it seem to be finally come down to a difference of opinion on how to accelerate some assets from early testing to later testing between the two teams. And ultimately, the conflict resolution had to occur. So just from a high level, how are you thinking about managing that had a conflict resolution when you have these complicated programs like Toledo and other ones presumably that'll occur over the life of this partnership? Thank you.

Onno van de Stolpe -- Chief Executive Officer

Yes, that's a good point. This is Onno. It's completely different than in the previous collaboration with AbbVie, where it was a complicated decision making and conflict resolution. Here, it is quite simple that we have final say on all aspects with regard to the programs until the end of Phase 2. The final Phase 2 has to be a qualifying Phase 2 for Gilead to exercise its option to decide to exercise the option or not.

If they exercise the option, then it's gonna be a joint collaboration, and there is a clear dispute resolution described in the contract with the final say ultimately related to the territory. So, we will always have final say on Europe and Gilead will always have final say after they exercise the option in the territories outside Europe and that makes it all quite a bit more clear and straightforward to exercise. So ultimately that could lead, it's not desired, but it's a possibility that we would do a separate European Phase 3, if we have, for example, a major issue with Gilead on how Phase 3 would be redesigned worldwide or the planning of that Phase 3. So that is all being discussed and we think it's very elegantly resourced in the contract that we have signed.

Operator

And we'll hear next from Graig Suvannavejh of Goldman Sachs.

Graig Suvannavejh -- Goldman Sachs -- Analyst

Yes. Hi, good afternoon. Thanks for taking questions. Sorry about the noise in the background, but it's a question about IBD, given the company's traditional focus on small molecules and you talked about platforms that you're looking at, can you just give us additional color? Are you looking at, say, biologics based approaches or [Indecipherable] based approaches, any color there on the platforms you're looking at? Thank you.

Onno van de Stolpe -- Chief Executive Officer

Well, it's not our first priority to see if we can get the large molecules into our platform or in our pipeline, but we're also not excluding it. At this point in time, it's still very early days. We have to sit together with the teams and see what makes best sense to move forward. But clearly, we will be looking at new areas for Galapagos, including RNA, which seems to be a very attractive area to expand into. So we will be open for various different technologies to enter the research engine of Galapagos.

Operator

And our next question comes from Christopher Marai of Nomura Instinet.

Christopher Marai -- Nomura Instinet -- Analyst

Hi. Good morning, thanks for taking the question. So just number one on capital allocation. I was wondering if you could comment on any interest in potentially reacquiring rates to some of the compounds that you currently have collaborations or partnerships around, Obviously, outside the Gilead collaboration?

And then secondly, maybe Walid can help us understand what the target is for Toledo. Thank you.

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Maybe I'll take the first question, Chris. It's Bart speaking. So on your capital allocation. No, that's not on the agenda to look for reacquiring certain rights that we've previously licensed. I think everything that's been licensed to third parties has been done for good strategically reasons more than anything else. So, that's not on the agenda. The Toledo target question, I'll hand it over to Walid for that, I'm sure the answer is going to be relatively short. Walid if you want to comment this one.

Walid Abi-Saab -- Chief Medical Officer

Well, thank you, Bart. I think, you could have answered it. Look, we're not sharing the targets for Toledo. We've been saying this. It's important for us to do this for competitive reasons and our objective will be or our plan would be to do it sometime when we start our multiple Phase 2 trial as we said [Indecipherable].

Christopher Marai -- Nomura Instinet -- Analyst

[Technical Issues] the Toledo target, that is. Thank you.

Walid Abi-Saab -- Chief Medical Officer

I'm sorry, I didn't hear what you said, Chris.

Christopher Marai -- Nomura Instinet -- Analyst

I'm sorry, does the R&D day in November make sense from the perspective of releasing the Toledo target? That's my last question. Thank you very much. Congrats on the collaboration.

Walid Abi-Saab -- Chief Medical Officer

Yes. Thank you, Chris. No, I think it will be more in next year sometimes after we start our Phase 2 trial with multiple Phase 2 trials at the same time. That's been our target.

Operator

Our next question comes from Pasha Sarraf of SVB Leerink.

Dylan Dupuis -- SVB Leerink -- Analyst

Hi, this is Dylan Dupuis sitting in for Pasha. Just two quick questions. Number one, are you going to be bringing in-house any discovery programs or discovery targets that Gilead is currently working on? And then number two, how does your plans to expand R&D, how does that impact your previously stated goals for bringing X amount of compounds through different stages of development? Thank you.

Onno van de Stolpe -- Chief Executive Officer

I'll do the first part. First part was?

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Discovery programs coming in from Gilead.

Onno van de Stolpe -- Chief Executive Officer

Yes. There is a possibility that Gilead or it is likely that Gilead is working on similar programs that we have programs on. We haven't chatted yet, because we still in the, appear that we cannot share that kind of information. But we'll do that immediately after the conclusion of the transaction. And if there is an interest to join efforts on programs, we will do that.

There is also a possibility that they will continue independently. But both options are described in the contract. So it's very well possible that we will jointly work on a program that Gilead already has efforts on.

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Yes, I'll take the second part of the question, and I think this is also one that, to discuss in more detail on the R&D day in November. But clearly if we are going to invest more in our discovery platform and programs. We would anticipate higher output also for those programs. So previously we've always guided for three preclinical candidates every year coming out of our discovery efforts. And yes, you should expect this number to go up, clearly if we are increasing our investment there as well.

Operator

And we'll hear next from Phil Nadeau of Cowen and Company.

Phil Nadeau -- Cowen and Company -- Analyst

Good morning. Thanks for taking my questions and congratulations on the progress. First on the Sjogren's and CLE data that we're gonna see for filgotinib in the second half of the year. Given that both of those have a variety of symptoms, can you give us some sense of what data would serve as proof of concept, kind of what changes and what endpoints? And briefly, just at housekeeping item. Do you have any sense of how the upfront is going to be accounted for? Is it going to be amortized, and if so, over what period? Thanks.

Walid Abi-Saab -- Chief Medical Officer

Yes, so I mean, I think for those studies, again, I think I mentioned this a little bit before, we were being a bit more exploratory, at least Gilead has been, and I say, we, I used the joint we. So we're looking at various end points for continuous lupus, the end point itself for continuous lupus is actually, the typical end point we will look at, I am sorry, I can't remember it on the top of my head to be honest with you, but we're also looking at other manifestation of lupus that some of these patients will also have.

So again, those studies tend to be more exploratory in nature that we're looking at virtually all things that we can look at, that would be affected in this disease, with the idea that this will guide the next studies, which could be the Phase 2 or Phase 3, depending on how robust the data and how convinced we are with these findings. Off to you, Bart.

Bart Filius -- Member of the Executive Committee, Chief Financial Officer, Chief Operating Officer

I'll take that one Walid. On the upfront accounting, I feel, yes, that will be amortized over years. Basically, it's going to be spread out in different buckets. There is parts of the upfront that will be allocated to '1690, there will be parts allocated to the platform to other molecules to filgotinib. So it's a relatively complicated exercise. At the end of the day, what I expect is that we will have, let's say about 15% to 20% recognized in one shot in the 2019 accounts and the remainder being recognized over the period of the collaboration. So that's a 10-year period, with some fluctuations over years, will be a little bit more in the early years and then winding down toward the later years. I'll give full details on that in our Q3 call in October once we will have closed the transaction and then also finalized the accounting of that transaction, but this gives you an idea as to how we're thinking about this at this stage and then full clarity will come in a couple of months.

Operator

We'll hear next from Adam Walsh of Stifel.

Adam Walsh -- Stifel -- Analyst

Hi, good afternoon, and thanks for taking my questions. On the ROCCELLA Phase 2b trial with '1972 and osteoarthritis, is that enrollments now complete, are the primary endpoints, a reduction in cartilage loss by a quantitative MRI. I'm just wondering what the results would be considered positive or sufficient to trigger Gilead to opt-in. I think those results be coming in about 12 months now. Could you give us a sense for kind of what the threshold there are? That would be great. Thank you.

Walid Abi-Saab -- Chief Medical Officer

Adam, this is Walid. So as you correctly indicated, that trial on the primary endpoint is a reduction in cartilage loss as measured by MRI, at the same time over a 12 month period. At the same time, we're looking at the usual suspects, the WOMAC with all its subscales, also, measures of pain, the patients assessment looking also at joint base narrowing by x-ray.

Not expecting also that this trial will decide that you would be able to see something on a joint space narrowing. But still, those will give you directionally where things are heading. There are no specific discussions with Gilead, as to the threshold that will make them opt-in. Actually that, probably, question is more appropriate to ask Gilead than us. What would good look like and their opinion.

But look, this is an area of high unmet medical need and there is a very high potential reward financially. Things move forward. There's no treatment to modify the disease and Gilead is very, very excited about this program, as are we. And when the data become available, we'll be sitting together, poring[Phonetic] over it. And I think the decision whether or not they opt-in, is probably better asked to them, and not to us. Thanks.

Operator

And we'll go to our next question from Patrick Trucchio of Berenberg Capital Markets.

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

Thanks. Good morning and afternoon. My question is regarding filgotinib in Europe. Can you remind us, how we should think about the necessity of the MANTA studies and data in EU filings? And when in 2020, we should anticipate the potential launch in RA and EU. Thanks.

Walid Abi-Saab -- Chief Medical Officer

So we've talked about the filgotinib filing in Europe that in our discussions with EMA. There was no need to have the results of the MANTA trial before we file. So the plan for filing in the EU is in the second quarter, and probably, the earlier part of the second quarter if I can be a little bit more specific. And then with that, one would expect launching sometime next year, probably in the second half.

Bart?

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

Yes. I heard you say second quarter, and third quarter is what's filing right, Walid?

Walid Abi-Saab -- Chief Medical Officer

I'm sorry. I meant, yes, I meant second half. Sorry.

Operator

And at this time, there are no other questions in the queue. I'll turn the call back to our presenters.

Elizabeth Goodwin -- Vice President Investor Relations & Corporate Communications

All right, thank you, everybody. This does conclude the call today. Our next scheduled call is going to be the third quarter 2019 results on the 25th of October. We thank all the callers for their support and participation and wish everybody a very happy summer. Thank you. Bye bye.

Duration: 55 minutes

Call participants:

Elizabeth Goodwin -- Vice President Investor Relations & Corporate Communications

Onno van de Stolpe -- Chief Executive Officer

Bart Filius -- Chief Financial Officer and Chief Operating Officer

Walid Abi-Saab -- Chief Medical Officer

Bart Filius -- Member of the Executive Committee, Chief Financial Officer, Chief Operating Officer

Rushee Jolly -- Bernstein

Evan Seigerman -- Credit Suisse -- Analyst

Emily Field -- Barclays -- Analyst

Brian Abrahams -- RBC Capital Markets -- Analyst

James Quigley -- JP Morgan -- Analyst

Eliana Merle -- Cantor Fitzgerald -- Analyst

Peter James Welford -- Jefferies LLC

Matthew Harrison -- Morgan Stanley -- Analyst

Anastasia Karpova -- Kempen & Co -- Analyst

Dane Leone -- Raymond James -- Analyst

Graig Suvannavejh -- Goldman Sachs -- Analyst

Christopher Marai -- Nomura Instinet -- Analyst

Dylan Dupuis -- SVB Leerink -- Analyst

Phil Nadeau -- Cowen and Company -- Analyst

Adam Walsh -- Stifel -- Analyst

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

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