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Gilead potential value drivers: Galapagos and Kite Pharmaceuticals
Galapagos is an amazing company with a clean track record of creating new drug candidates via its strong platform. On 09/14/19, Galapagos and Gilead (GILD) intensified their collaboration. Gilead injected $5.05 bln cash and will take responsibility for a big part of future development costs. Gilead will be responsible for selling the drugs outside of Europe and will pay 20-30% royalties on these revenues. Galapagos will maintain selling rights in most European countries. I believe this was a very smart collaboration for both companies. On the one hand, Gilead could gain several blockbusters to ensure long term growth. On the other hand, Galapagos can still stay independent and increase its R&D capabilities to improve its pipeline even further. Last year, Galapagos' outstanding results were rewarded with a big surge in its stock price, while Gilead didn't move an inch. Since my bullish initiation on Seekingalpha, the stock gained another 38%. In this section, I will discuss three candidates which could become big blockbusters for Galapagos and Gilead and add potential value drivers from Kite Pharmaceuticals.
Filgotinib
Filgotinib is a compound being advanced for rheumatoid arthritis and other inflammatory diseases. It is already filed in one indication ("RA"), currently enrolling in four Phase 3 and eight Phase 2 stages. Filgotinib's strength lies in its safety. If interested, you can read this thoroughly in my Galapagos article. The potential market is huge for Filgotinib, but Gilead will face a lot of competition from (again) Abbvie, Pfizer (PFE), Eli Lilly (LLY) and others. However, Filgo should be able to differentiate itself from other drugs with its superior safety profile. Further information (expected mid-2020) about a possible exemption from a black-box warning could be of significant importance for the commercialization of this drug. My calculations are based on the five diseases in which Filgo is the most advanced (phase 3). As you can see, Filgo can become an enormous blockbuster with sales peaking at around $6 bln for Gilead. Its patent is expected to expire in 2030.
(Source: author based on market data; revenues are calculated after deducting the avg 25% royalties payable to Galapagos; numbers are in $ mln)
GLPG '1690
GLPG '1690 is a high-potential candidate to cure the IPF (lung fibrosis) disease. Right now, IPF is a market with highly unmet needs as current treatments from Roche (OTCQX:RHHBY) named Pirfenidone and Boehringer Inghelheim named Nintedanib only expand the life-time of patients but can't cure the disease and have poor tolerability. Right now, the IPF market is $2.1 bln big and equally shared by Roche and Boehringer. However, as this report states, the market is expected to increase significantly over the coming years:
The Idiopathic Pulmonary Fibrosis market is expected to reach $5,733.24 million by 2026 growing at a CAGR of 13.5% from 2018 to 2026.
Factors such as the rise in geriatric population, a surge in cigarette smoking population and an increase in a number of patients suffering from idiopathic pulmonary fibrosis are fuelling the market growth. However, unavailability of proper treatment options is restricting the market growth.
Phase 2 results from '1690 have shown that this candidate is far superior than the drugs which are currently available for patients. The Forced Vital Capacity ("FVC"), the main end-point for treatments, represents the volume of air in the lungs that can be exhaled following a deep inhalation. Astonishingly, '1690 was able to stabilize FVC in patients (below in picture), compared to a strong decline in FVC for Pirfenidone (upper left) and Nintedanib (upper right). CEO Onno Van Den Stolpe recently mentioned that '1690 is the product of which he is the most proud, as it could lead to a much longer survival rates for patients. It could become a real life-changing product.
(Source: author based on Galapagos R&D day presentation)
However, this study should be taken with a grain of salt as it is not statistically representative with only 13 patients (compared to 278 and 329 for other studies) on treatment and as the FVC change was measured on a 12-week period (compared to 52 weeks for competitors). However, Galapagos is currently recruiting 1500 patients for its phase 3 trial. The futility analysis results of 28% of the patients are expected for Q1 2021. If these 52-weeks results come even remotely close to the results from its phase 2 trial, this drug could become a giant blockbuster for Gilead.In the bear case when approved, GLPG would show comparable results vs. the other drugs. As a consequence, the market will only grow slightly as the number of new IPF cases every year (estimated +35%) is grossly offset by the number of deaths per year (estimated -25%). But if GLPG '1690 could improve the survival rate significantly (let's hope so for the patients), in addition to growth in market share the IPF market would increase significantly as well, putting a leverage on sales. In my base and bull case, the median survival rate would increase to 6 years and 8 years.
(Source: author estimates; revenues are calculated after deducting the avg 22% royalties payable to Galapagos; numbers are in $ mln)
GLPG '1972
GLPG '1972 is a drug for Osteoarthritis ("OA") patients targeting a breakdown of joint cartilage. This is seen as the highest-risk program as many companies have tried to tackle this disease, but failed to launch a product. Berenberg had some interesting comments about this drug in their report:
OA afflicts a large and growing patient population; for instance, it is estimated that OA affects 14% of adults aged 25 and older and 34% of those aged 65 and older. Nearly eight million Americans receive intra-articular (i.e., in the joint) injections to treat their knee OA pain each year. Thus, to us, the OA market is a significant market with robust opportunities for non-opioid pain treatments, as well as disease-modifying therapies. The caveat is whether or not a disease-modifying therapy that does not impact pain symptoms could even be approved by the FDA, which historically has focused on improvement in pain symptom scores for approvals of knee OA drugs.
If this drug can tackle both pain symptoms and reduce cartilage loss (which, less face it, is unlikely), it could potentially become a bigger blockbuster than Filgotinib. The FDA gave Galapagos a Fast track designation, which confirms huge unmet medical needs in this market and their believe that this candidate could potentially tackle this disease. The impact of such an approval on the overall quality of life is widely underestimated. Everybody is talking about Biogen's (BIIB) alzheimer drug, but these read-outs could in fact be equally important. Phase 2b data of the trial on 850 patients for 52 weeks are expected to be released at the end of 2020. As the potential revenues for this drug are very hard to predict, I will use the Berenberg assumptions below. However, they also stated that these predicitions are very conservative and could change drastically after the read-out in 2020.
(Source: Berenberg)