Berenberg 29 juni 2018
Galapagos (GLPG NA) - Cystic fibrosis collaboration under review
Galapagos (GLPG NA, Buy; PT EUR 112.00)
Galapagos has announced the results of its PELICAN phase II trial in cystic fibrosis, which was evaluating corrector GLPG2737 in combination with double therapy Orkambi (from Vertex Pharmaceuticals). The trial met its primary endpoint of reducing sweat chloride but did not significantly improve lung function (FEV1), a key secondary endpoint, although there was a positive trend showing a 3.4% improvement in FEV1 over placebo. However, the bigger news is that partner Abbvie has decided not to proceed with a second triple-combination trial, bringing into question the future of its collaboration with Galapagos. While the tensions between the two partners have not been a secret recently, this decision increases the risk profile around the whole programme as the parties decide which of them will take the lead.
The PELICAN trial was designed to be a proof of concept evaluating the target exposure levels and efficacy of the corrector GLPG2737. While there was a clear improvement in sweat chloride levels in patients, an improvement in FEV1 of 3.4% over placebo is lower than the 5% improvement generally seen as meaningful. Importantly, the drug was well tolerated, with no serious adverse events and no discontinuations due to adverse events.
PELICAN was part of a broad development programme, with a number of combination trials underway or in planning. The FALCON trial, evaluating the first investigational triple combination (GLPG2451, GLPG2222 and GLPG2737), is due to read out later this year and is progressing as planned. A second triple-combination trial (GLPG3067, GLPG2222 and GLPG2737) is currently in preparation. However, Abbvie has told Galapagos that it does not want to proceed with this specific combination. Abbvie’s decision is most likely due to a combination of the recent PELICAN data as well as the long-standing tension between the two partners. As a result, Galapagos has stated that it is reviewing the future of its collaboration with Abbvie as it is becoming clear that the two cannot continue development together.
Under the current terms, Galapagos is responsible for funding up to phase II development. Abbvie, meanwhile, is responsible for funding phase III development and commercialisation, paying Galapagos up to USD600m in milestones and a royalty of up to 20%. However, both parties are involved in the design and planning of the programme at all stages. There had been rumours that the relationship was strained for some time, contributing to delays in trial starts and disagreements on progress. This is clearly an opportunity for Galapagos to take full control of the programme and develop it internally, potentially finding a new partner down the line. At this stage, the financial implications of a termination are not clear. However, the company has assured us that FY 2018 guidance is unchanged.
The cystic fibrosis programme is currently worth EUR14.7 per share in our EUR112 valuation, risk adjusted to 50%. Clearly, this news creates uncertainty around the programme. However, in recent months several pipeline programmes have progressed into more-advanced trials, jumping up the ranks in relative valuation. GLPG1690 for IPF (idiopathic pulmonary disease) has moved into phase III development, MOR106 for atopic dermatitis has progressed into into phase II development, and most recently GLPG1972 for osteoarthritis progressed into phase II development. Additionally, we have seen strong data for filgotinib this year, the most valuable pipeline programme, in psoriatic arthritis and progress into phase III in ulcerative colitis. Data from FINCH 2, in rheumatoid arthritis, is expected in H2 with FINCH 1 and FINCH 3 expected next year.
Based on an SOTP valuation of the pipeline, our valuation of EUR112 per share offers significant upside, particularly as we receive data from filgotinib’s FINCH 2 and the cystic fibrosis programme triple-combination trials, and the initiations of several clinical trials validate the pipeline.