Extract Nomura Instinet 15 juli 2019
First Look: Galapagos NV (GLPG US, Buy) - GILD Deal: Best Outcome Short of M and A
Christopher Marai, Ph.D. - ILLC
On Sunday, July 14th, GLPG and GILD published a press release and hosted a conference call on a revised R&D collaboration with highly favorable terms for GLPG (PR here, presentation here, collaboration overview here). Briefly, GILD will pay GLPG $3.95bn upfront, and make a $1.1bn investment in the company (consisting of a subscription for new GLPG shares at 140.59 EUR per share, or ~$158.45). This investment increases GILD’s stake to 22% of issued and outstanding shares—however, the collaboration contains a 10-year standstill restricting GILD from trying to increase its stake beyond 29.9%. Overall, the deal is structured to give GILD access to GLPG’s pipeline and to yield some commercial control over filgotinib to GLPG in Europe. The deal also prevents GILD from taking over GLPG for the next 10 years, making this deal the best outcome for GLPG short of full acquisition, in our view. NOTE: our current target price is below the last closing as we evaluate our estimates; our rating remains Buy.
Previous GILD/GLPG Deal: Filgotinib-Centric with GILD Taking Commercial Lead and 80:20 Cost Split. In 2016, GILD closed a licensing and collaboration agreement with GLPG for filgotinib. GILD has an exclusive, WW, royalty bearing license for filgotinib and was primarily responsible for development and regulatory approval. GILD was responsible for 80% of costs incurred (and GLPG responsible for 20%). GILD made an upfront license fee payment of $300mn and a $425mn equity investment in GLPG (at the time, representing 14.75% of GLPG’s outstanding share capital). GLPG was eligible to receive regulatory milestone-based payments of up to $755mn, sales-based milestone payments of up to $600mn, and tiered royalties on global net sales from 20-30% (with exception of certain co-promotion territories where profits would be split, which include the UK, Germany, France, Italy, Spain, the Netherlands, Belgium, and Luxembourg).
Current Revised GILD/GLPG Deal: Greater GLPG Involvement in Commercializing Filgotinib in Europe, and 50-50 Cost Split; GILD Now Has Rights to GLPG1690 (IPF, Ph3) and GLPG1972 (OA, Ph2b). The new collaboration agreement retains GILDs WW rights and co-development with GLPG in UK, Germany, France, Italy, and Spain. However, GLPG now has exclusive rights in the Netherlands, Belgium, and Luxembourg. In exchange for this expanded commercial role, GLPG will now have to split the costs 50-50 with GILD instead of 20-80. Importantly, GILD now has rights to GLPG pipeline, including outright rights to GLPG1690 for idiopathic pulmonary fibrosis (IPF) and an option for rights on GLPG1972 for osteoarthritis (OA). If ‘1690 is approved, GILD will pay GLPG $325mn; if GILD exercises its option for ‘1972, GILD will pay $250mn after completion of the Ph2b in OA (and an additional $200mn if certain secondary endpoints are met). GLPG would be eligible for $550mn in regulatory and commercial milestones if GILD opts in on ‘1972.
Conference Call Focus Was Around GLPG’s R&D Platform and Downplayed Recent Filgotinib Results as Driving Factor. We noted the conference call’s focus was on GILD’s interest in GLPG’s target and drug discovery platform. GILD emphasized their access to GLPG’s IP and programs in inflammation and fibrosis. GILD’s O’Day would not break down how GILD’s investment varied by assets and said that he believe their investment is holistic toward GLPG’s pipeline. In the Q&A, management from both companies downplayed the recent news on filgotinib US filing as an impetus for the deal—O’Day noted long-standing interest on expanding this collaboration (even prior to O’Day joining GILD), and the framework for the deal appears to have been largely set even prior to the recent filgotinib updates.
‘1690 and IPF: High Unmet Need Market with 200K Patients in US and EU; 2017 Sales of Poorly Tolerated Nintedanib and Pirfenidone Was $1.9bn. GILD now has rights to ‘1690, an autotaxin inhibitor to block the bioactive signaling molecule LPA. It is a first-in-class inhibitor of autotaxin. The Ph2b data from FLORA was published in the “The Lancet, Respiratory Medicine). No important safety or tolerability issues were identified, and FVC was stabilized at week 12. With respect to the current collaboration, GILD does not have access to any unblinded data from the ongoing Ph3 studies ISABELLA 1 and 2 but did have unblinded access to safety data. We believe this may be important, as we had previously been concerned about theoretical toxicity from blocking LPA in the CNS. GILD’s interest after seeing unblinded safety data bodes well for the drug, in our view. Recall, this is a high unmet disease population, where 50% of patients die within 2-5 years post-diagnosis. The SOC include pirfenidone and nintedanib, which only slow down decline in lung function and are poorly tolerated (25% discontinuation rate due to AEs). 2016 pricing for pirfenidone and nintedanib was ~$95K/year/patient.