Morgan Stanley GLPG From: $129.00 To: $117.00
Stock Rating Overweight
Price Target $117.00
Matthew Harrison, Connor Meehan
Catalysts Upcoming; Revising Model for Toledo and TYK2
We include both the TYK2 asset (GLPG3667) and the first Toledo candidate (GLPG3970) in our estimates, and remove value from the IPF program. PT to $117, remain OW.
WHAT'S CHANGED?
Galapagos NV (GLPG.O)
Price Target
From: $129.00
To: $117.00
With an attractive risk/reward we focus on key upcoming catalysts: We have updated our Galapagos model to include risk-adjusted revenue estimates from the Toledo program and the TYK2 asset, as well as removed estimates associated with ziritaxestat in IPF. Our changes to the model are summarized below.
-Toledo (GLPG3970): We have built patient models for both psoriasis and rheumatoid arthritis indications for lead Toledo asset GLPG3970. We assign a 15% probability of success to both indications, and assume '3970 is approved for use in the U.S. in psoriasis by 2024, and by 2025 for RA. Across both indications, including EU estimates, we model risk adjusted peak sales of ~$470M (~€389M) by 2030E. The low probability of success for the Toledo asset is a result of the novel mechanism of action, which involves inhibition of the salt-inducible kinase (SIK) pathway(s).
-TYK2 (GLPG3667): As with GLPG3970, we have built a psoriasis patient model to estimate potential sales from Galapagos' TYK2 asset. We assign a 60% probability of success and estimate commercialization in the U.S./EU by 2027, with risk adjusted sales of ~$542M (~€448M) by 2030E. The TYK2 pathway is well-validated (see deucravacitinib, note here), and warrants a higher probability of success versus the Toledo asset.
-(Removed) Ziritaxestat: After a safety signal, at the recommendation of the IDMC, all ziritaxestat trials (in IPF and SSc) have been discontinued. Accordingly, we have removed estimates from our model.
Key catalysts to look for in 2021: Galapagos is running a number of proof-of-concept studies for the Toledo program, notably for GLPG3970 in psoriasis, RA, and ulcerative colitis (CALOSOMA, LADYBUG, and SEA TURTLE, respectively). Mgt. anticipates that readouts from these three studies will be available during 2021. GLPG3667 (TYK2) is currently being investigated in a PhIb study, and mgt. expects to present initial data from this study during 2021. Additionally, during 2021, data is expected from GLPG555 (JAK1) in osteoarthritis. On filgotinib, following positive 13-week MANTA/MANTA-RAy data last week (note here), mgt. expects an EU decision on the UC filing in the near term, as well as a filing for UC in Japan. The DIVERSITY study of filgotinib in Crohn's disease is expected to be fully recruited by the end of the year.
Other key takeaways from the 4Q20 earnings call: (1) Following the cancellation of all activities in ziritaxestat due to dose-dependent mortality observed in the ISABELA study, mgt. has not yet provided cash burn guidance for 2021. However, due to the ziri failure, the figure is expected to be down from FY20 figures (~$628M). Mgt. had previously spent EUR ~55M (~$67M) on ziri in 2020, and the immediate benefit to 2021 will be near EUR ~40M (~$49M); (2) Mgt. plans to fill the gap in the pipeline left by ziri with in-licensing or acquisitions of anti-fibrotic/inflammatory assets, with a focus on novel targets and MoAs; (3) With regard to the TYK2 asset, mgt. believes the readout will be directionally informative, and noted that the small trial size makes comparison to other TYK2 assets difficult; (4) Mgt. highlighted a 35% Y/Y increase in operating costs, primarily attributable to the filgotinib handover, an increase in R&D associated with the Toledo program, and an increase in SG&A due to commercialization efforts; (5) Mgt. continues to expect a full transition of Jyseleca commercial activities from Gilead to Galapagos by YE21.