Galapagos (GLPG NA)
Jefferies International Limited
Key Takeaway
2015 results are not material, in our view, but management targets markedly
lower 2016E cash burn than we anticipated at €100-120m vs. our current
€146m. Importantly, the pipeline is on-track with Phase III filgotinib RA and
Crohn's trials due to start this year. We see 2016E newsflow largely being driven
by the cystic fibrosis alliance with AbbVie. We expect this, and the upcoming
filgotinib Phase III regulatory discussions, to be the focus for the call.
Targeting lower 2016E cash burn than we anticipated: Management's outlook
for full year cash burn is €100-120m, well below our current €146m forecast. This may
suggest a slower ramp-up of Phase III filgotinib costs, which Galapagos funds 20%, than we
anticipated or lower spend on early-stage pipeline assets.
Pipeline on-track: (1) Final week-20 results from the Phase II FITZROY trial with filgotinib
in Crohn's disease expected in April. (2) Filgotinib Phase III programme in rheumatoid
arthritis (RA) and Crohn's anticipated to commence this year. (3) Headline results from
Phase II SAPHIRA programme with potentiator GLPG1837 in cystic fibrosis (CF) patients with
certain mutations by YE16E. (4) A number of clinical studies for the CF portfolio are expected
in 2016E, including initial Phase I data for corrector GLPG2222. Both correctors required for
a triple combination are still anticipated to be in the clinic by YE.
2015 financials not material: Revenues are just above consensus but shy of our
estimate, with R&D spend also slightly higher than we expected. The €348m YE Net Cash,
yet to include the upfront income from the recent Gilead (GILD, $88, Hold) partnership for
filgotinib, is broadly in-line and should be sufficient to fund development of the pipeline
beyond 2017E, in our view. The wider Net Loss reflects a non-cash financial charge relating
to Galapagos' share price appreciation between signing the Gilead deal and YE, since the
partner agreed to subscribe to $425m new equity at €58/share on deal close in January.
This non-cash charge will be more than reversed in 1Q16E.
n Revenues €60.6m vs. JEFe €64.9m & consensus €58.9m
n R&D spend €130m vs. JEFe €125m
n Net loss €118.4m vs. JEFe €74.9m & consensus €87.0m
n Net cash YE €348m vs. JEFe €360m & consensus €345m
Filgotinib regulatory meetings looming: Discussions in March with FDA and EMA
should finalise the RA Phase III trial design for filgotinib, with FDA allowing use of the highest
dose likely a focus after preclinical testicular toxicity findings. Given filgotinib's impressive
Phase IIb data vs. both other oral JAK inhibitors and marketed biologics, we remain confident
in blockbuster potential, forecasting $3.5bn WW peak sales for a €50/share NPV at 65%
probability of success. We assume the Phase III trials will begin in 2Q16E, with launch by
1H19E. AbbVie (ABBV, $56, Buy) remains the most significant competitive threat, in our view,
with its own once-daily JAK1 inhibitor ABT-494 now in Phase III.
Cystic fibrosis the story for 2016: On 16 February, Galapagos announced initiation of
its first study for the exploratory open label Phase IIa SAPHIRA 1 and two trials of potentiator
GLPG1837. The studies will explore safety, PK/PD and activity, including assessment of sweat
chloride and pulmonary function, in treating 12 and six CF patients with G551D and S1251N
class III mutations, respectively; results are expected in 4Q16E. The commercially important
triple combination of a potentiator and two correctors could enter Phase II by 1H17E. Our
sum-of-the-parts includes a conservative c.€4/share NPV for the CF collaboration assuming
a 20% likelihood of $1bn peak sales.