Jefferies 3Q Update as Expected; Re-partnership Talks
in Progress
3Q update as expected with financials tracking in-line and the pipeline
on-track. Understandably there is no update on discussions to re-partner
filgotinib, likely to be a focus for the call. Despite AbbVie not exercising its
option on filgotinib late-Sept, we still believe the drug has significant value,
with $3bn peak sales for €40/share NPV, at least pending a new top-tier
commercial partner. A possible deal and pipeline news are catalysts, hence the
Buy.
3Q update as expected: Revenues and OpEx spend are tracking in-line with our full year
estimates, hence our forecasts remain unchanged. Net Cash of €374m at 30 September
2015 should be sufficient to fund development of the pipeline beyond 2017E, in our view,
even if Galapagos initially fully funds the filgotinib Phase III trials in rheumatoid arthritis
(RA). Discussions to re-partner filgotinib are "opening up" with "multiple partners", but
understandably no further details are provided. We expect the types of deal and timing to
be key questions on the 1pm GMT (8am EST) conference call.
2015 cash burn aim reiterated: Management still anticipates full year cash burn
between €110-130m, with our current €128m forecast near the top-end.
Pipeline on-track: (1) Filgotinib Phase II FITZROY top-line 10-week results in Crohn's
disease during December; (2) Filgotinib Phase III programme in rheumatoid arthritis
anticipated to commence in 1H16E; (3) Headline data from the GLPG1205 proof-of-concept
Phase IIa study (ORIGIN) in ulcerative colitis during 1Q16E; and (4) Phase II trial with
potentiator GLPG1837 in G551D cystic fibrosis patients likely to start by YE, in addition to
Phase I for corrector GLPG2222.
Filgotinib still competitive: All filgotinib rights reverted to Galapagos late-September
as AbbVie (ABBV, $60, Buy) elected not to exercise its option, preferring to advance its own
once-daily JAK1 inhibitor ABT-494 into Phase III by YE15. Given filgotinib's impressive Phase
IIb data vs. both other oral JAK inhibitors and marketed biologics, we remain confident in
blockbuster potential. We forecast $3bn WW peak sales, with $2.75bn in RA after launch by
YE18E. We assume a 60% probability for a €40/share NPV, pending a new deal with a top-tier
partner able to provide the necessary commercial reach and development expertise. Phase
III trials are still on-track to begin 1H16E. We understand management would prefer to sign
a partner before discussions with US FDA on the Phase III trial design, both to optimise the
clinical plan and hear feedback on use of the highest dose in males, after the regulator's pre-
Phase IIb concerns about preclinical testicular toxicity findings.
Cystic fibrosis momentum: We are encouraged by progress in the AbbVie CF alliance,
with a second corrector candidate GLPG2665 recently chosen and Phase I data from
potentiator GLPG1837 demonstrating safety and good tolerability at the NACFC conference,
9 October. The commercially important triple combination could enter Phase II by 1H17E,
with '1837 also likely to be developed in Phase II alone for the niche G551D patient
population. Our sum-of-the-parts includes a conservative c.€4/share NPV for the CF
collaboration assuming a 20% likelihood of $1bn peak sales.