Pipeline Stays Alive, But More Work To Do
First Glance | Comment
July 14, 2021
RBC Capital Markets, LLC
Brian Abrahams (Analyst) (212) 858-7066
Stephen Mallon (Senior Associate)
Sector: Biotechnology
Rating: Sector Perform
Price Target: USD 87.00
Our View: This afternoon's readouts from GLPG's key rheum pipeline programs '3970 and '3667 show some signals and avoid a worst-case scenario of a complete whiff, though demonstrate there is still work to be done to adequately de-risk and differentiate. The three '3970 pilot studies show signals of activity in at least psoriasis and ulcerative colitis, though with what looks like limited efficacy and a tox ceiling the company will need to go back to the drawing board on what would be a differentiated SIK2/3 mechanism. TYK2-targeting asset '3667 showed clear activity and looks viable, though with the primary competitor years ahead, it will take time to determine any potential advantages - and akin to filgo, any hiccups in development of a later, same-class follow-on in an increasingly crowded space could lead to magnified setbacks. We expected limited stock movement in either direction and maintain a Sector Perform rating.
Toledo asset '3970 did not hit the bar for efficacy, so GLPG will look further back in the Toledo pipeline for additional assets. Mgmt believes signals of biologic activity including a PASI 50 at week 4 of 31% (4/13, vs. 0 in placebo) in psoriasis and endoscopy improvements at week 6 in 38% (7/18 vs. 1/9 on placebo) of ulcerative colitis patients justifies the underlying approach of targeting salt-inducible kinases, and we would agree this represents important progress in this novel target. However, given an undisclosed, not previously discussed dose limit toxicity prevents dose escalation of '3970, the company will pursue next-gen assets expected to move into the clinic next year instead - though mgmt appeared convinced any preclinical safety issues are compound rather than class specific. While the program could provide GLPG a potentially differentiated asset in the competitive rheumatology space, we had believed the odds of success were low going into the read-out and that the Street will put limited value on the program - especially given a development process that recalls prior unsuccessful attempts with CFTR modulators - until one of the pipeline assets progresses further.
Clear signals of activity for Tyk2 in psoriasis, even if small study and unclear benchmark limit data comparisons. Given limited PASI 50 comparator data from competitor deucravacitinib at earlier time points, it is difficult to assess the competitiveness of '3667. However, we do see clear signals of activity, with PASI 50 at week four at 40% in the high dose vs. 10% in placebo. PASI 75 at the high dose was 10-20% vs. 0% (depending on whether or not credit is given for a 74% PASI score) for placebo, which in our view looks reasonable comparable to what BMY had shown for deucrava at 6mg BID at the 4wk timepoint. GLPG plans to initiate a ph.IIb trial in 2022 that we believe will take 1.5 years to complete. With at least theoretical advantages that highly selective targeting with allosteric inhibitors has, as compared to '3667 which targets the active site, we believe the bar for differentiation vs. other TYK2's remains high and believe a clearer picture on relative efficacy and any safety liabilities will be needed before the program generates more considerable value.