Jefferies 16 december 2020
Galapagos (GLPG NA | GLPG)
HOLD, €98.12 | $117.53 PT: €118.00 | $139.50
Partner Gilead is discontinuing pursuit of US filgotinib approval for arthritis after meeting FDA as safety concerns for the high dose cannot be addressed. Outside inflammatory bowel disease, the filgotinib collaboration is essentially being unwound with GLPG regaining EU rights. Back-of-the-envelope this halves our filgotinib NPV to sub-€10 from €19/share. Net Cash is worth c.€80/share, albeit declining 10% p.a., with other pipeline assets worth €15-20/share.
Insights
FDA concerns for high dose appear insurmountable; Gilead throws in the towel: Following a Type A meeting with FDA to discuss the complete response letter (CRL) for filgotinib treating rheumatoid arthritis (RA), partner Gilead will no longer pursue this indication. Feedback suggests substantial additional studies will be required to convince FDA of the overall risk:benefit profile of the filgotinib high dose (200mg) in RA, with Gilead deeming this dose critical to achieving commercial success. Recall, both doses of filgotinib/Jyseleca have been approved for RA in Europe and Japan, with Galapagos now assuming sole commercial responsibility in Europe, paying Gilead royalties, whilst Gilead will retain commercial rights outside of Europe, including in Japan where filgotinib is co-marketed with Eisai.
Filgotinib peak sales likely at least halved: We currently forecast $1.1bn filgotinib sales in RA, including a modest $400m in the US, already reflecting high dose uncertainties. However, the decision to discontinue global development of filgotinib for other rheumatology indications, psoriatic arthritis, ankylosing spondylitis, and non-infectious uveitis, has a potentially more material impact on the commercial opportunity for filgotinib, with these indications combined accounting for $1.7bn of our $4bn filgotinib WW peak sales. A back-of-the-envelope estimate suggests the restructured collaboration could at least halve our filgotinib WW peak sales, reducing the NPV to sub-€10 from €19/share (c.16%).
MANTA now critical for IBD and filgotinib's future in the US: Whilst Gilead retains filgotinib commercial rights ex-Europe, the sole focus in the US is now inflammatory bowel disease (IBD). Recall, high-dose filgotinib 200mg met both co-primary endpoints in the Phase III SELECTION trial in ulcerative colitis (UC), whilst the lower 100mg dose only met the maintenance endpoint. US filing in ulcerative colitis will now be contingent on MANTA safety data 1H21E, with FDA also now requesting up to week-52 data in patients that show >50% decrease in semen parameters by week-26 and do not recover, for US filing potentially early-2022E for launch 2023E. In Crohn's disease, data from the Phase III DIVERSITY trial are expected in 2022E. Filgotinib has been filed in Europe for ulcerative colitis, with Japan filing planned for 1H21E.
Clearing event for the shares but high risk events remain driving our Hold: Whilst this essentially removes the near-term filgotinib overhang, which together with the Phase II ROCCELLA failure of GLPG1972 in osteoarthritis had dented sentiment, we continue to see upcoming catalysts as high-risk, notably the Phase III interim analysis of ziritaxestat in lung fibrosis.