AbbVie, a global biopharmaceutical company, today announced that it will advance ABT-494, its internally developed investigational selective JAK1 inhibitor, to Phase 3 studies in rheumatoid arthritis. Following a thorough review of available data, AbbVie will not exercise its right to in-license the Galapagos JAK1 inhibitor, filgotinib.
"We believe ABT-494 has the potential to become a best-in-class therapy for patients," said Michael Severino, M.D., executive vice president, research and development and chief scientific officer, AbbVie. "In our view, ABT-494 also offers a faster path to Phase 3 development with less uncertainty."
Per the terms of the agreement with Galapagos, all rights to filgotinib will revert solely to Galapagos.
My eyes focus not on the verbiage but on the fact that ABT-494 is internally developed at ABBV. The rest of the ABBV commentary means little to me.
Thus, I think that GILD may have gotten a good deal, as described two weeks ago in:
GALAPAGOS AND GILEAD ANNOUNCE GLOBAL PARTNERSHIP TO DEVELOP FILGOTINIB FOR THE TREATMENT OF RHEUMATOID ARTHRITIS AND OTHER INFLAMMATORY DISEASES
...Galapagos will receive an upfront payment of $725 million consisting of a license fee of $300 million and a $425 million equity investment in Galapagos. In addition, Galapagos is eligible for payments of up to $1.35 billion in milestones, with tiered royalties starting at 20% and a profit split in co-promotion territories.
Phase 2 trial data show that filgotinib has the potential to be an effective and well-tolerated oral therapy for patients with rheumatoid arthritis (DARWIN studies) and Crohn's disease (FITZROY study). The companies will start Phase 3 trials in RA and Crohn's in 2016 pending the successful outcome of discussions with regulatory authorities.
Now, there is a lot to show to make filgotinib a successful oral entrant in RA. Other effective oral drugs will be (and already are) there first. Galapagos makes some of the case for the drug in a recent presentation regarding the DARWIN Phase 2 studies for this drug in RA. Noting that it's GLPG's corporate propaganda, if you will, the data looks good to me.
Then there's the Crohn's/IBD data, which was covered not in the presentation but in a press release recently:
Galapagos NV: Filgotinib meets primary endpoint in phase 2 study in patients with moderate to severe Crohn's disease
First JAK-inhibitor to show efficacy in Crohn's disease
48% clinical remission rate, statistically significant versus placebo after 10 weeks induction therapy
Significant improvements in clinical response and IBDQ quality of life
Filgotinib safety profile similar to that previously observed
This also looks promising. The press release ends with management patting itself on the back:
"Filgotinib is the first JAK inhibitor to show efficacy in Crohn's disease, a disease with still few treatment options today," said Piet Wigerinck, CSO of Galapagos. "These favorable FITZROY study results complement the excellent DARWIN data in rheumatoid arthritis and open up new opportunities in a broader range of inflammatory diseases for filgotinib, our selective JAK-1 inhibitor."
"We are proud to bring innovative treatments to patients where high unmet medical need exists. We intend to move this drug to Phase 3 as soon as possible," said Onno van de Stolpe, CEO of Galapagos. "Once again, Galapagos has demonstrated that its technology platform has the potential to deliver safe and efficacious drugs which actually can modify the disease for patients. Our pipeline is filling with later stage programs based on the same approach we used to discover and develop filgotinib."
With GILD taking an equity stake to own 15% of GLPG as part of the deal, management's self-congratulation may have had merit.
I do not want to discuss the details of the deal, but it fits the GILD mold. GILD has a candidate for IBD, the antibody GS-5745, so filgotinib can help GILD build a franchise. Meanwhile, the trend toward potent oral drugs to treat RA can have a very long period in the sun. The real battle may not be so much between, say, the ABBV oral drug mentioned above and a number of other competitors, but between the orals and the injectables such as ABBV's Humira, Amgen's (NASDAQ:AMGN) Enbrel and the like.
Let me sum up now and put the above news in a broader context.
GILD and perceptions of its growth path
GILD's core chemistry expertise, going back to the company's founding, led it to become the leading antiviral for-profit company. How impressive is it that its discovery of Tamiflu, made two decades ago, is still the only important oral drug to treat influenza?
However, having taken GILD's market cap up from about $30 B before the foray into hepatitis C treatment to about $150 B today, Wall Street is demanding that either via internal R&D and/or an acquisition strategy, GILD show investors even more. Clearly, the company is evolving its strategy, but at some point, maybe imminently, the growth from its two major franchises will end. The single-digit P/E of GILD's stock provides, in my view, an important margin of safety against downside action, but it also correctly reflects the difficulty that a company doing about $11 B in sales in 2013 has in growing after seeing sales triple in two years.
I continue to see GILD as attractive, given its various avenues for growth in its existing franchises and its very strong current free cash flow that allows it to take almost all reasonable steps to both grow its shareholder capital return program and provide for prudent growth. Nonetheless, the path forward for the stock is uncertain. I continue to focus on the China opportunity as one that could move GILD's peak EPS notably higher than the Street expects, and look forward to positive news somewhere in the R&D pipeline this year and next. I also do expect the company to pursue a solid deal strategy, and look at the GLPG deal as an example of its good judgment in that sphere.
Thus, as has been the case for some time, I remain overweighted in GILD's shares with a patient approach.
Finally, I wish all readers a happy, healthy and prosperous new year. May the Force be with you.
Additional disclosure: Not investment advice. I am not an investment adviser.
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