Galapagos NV
June 8, 2015
DARWINian Selection Supports LT
Growth; Initiate at Overweight
Best in class data from its oral rheumatoid arthritis compound
filgotinib supports in-licensing by AbbVie with a base valuation of
$43/share. Cystic Fibrosis adds $30/share, where the Galapagos
portfolio positions it to compete with leader Vertex. Unlicensed
pipeline represents higher-risk upside.
Initiate at OW, $73 PT: Galapagos offers a differentiated pipeline with access
to large market opportunities including the $15B rheumatoid arthritis (RA)
market and $10B+ cystic fibrosis (CF) market. Galapagos was built as a
discovery platform which has allowed management to build a broad pipeline.
The two leading pipeline projects are filgotinib, a selective JAK1 inhibitor for
RA and Crohn's disease and a library of CFTR modulators that can correct
underlying genetic defects which cause CF. Both assets are partnered with
AbbVie, incl. a mid-teens to low twenties royalty. We value Galapagos based
on a DCF model to filgotinib patent expiration with no terminal value.
Phase IIb DARWIN data demonstrates best in class profile of filgotinib
and support $3B in peak sales: Initial 12 week data from the DARWIN1 and
DARWIN2 datasets were released in April. The data suggests that filgotinib
achieved disease reductions in excess of the other competing oral agents
without similar toxicities, especially anemia. While existing oral agents such as
Pfizer's Xeljanz have failed to gain significant traction, our physician calls
suggest this is due to (a) lack of favorable insurance coverage due to Pfizer's
pricing strategy, (b) safety/tolerability of Xeljanz and (c) some trepidation
among physicians to use new agents. We do not believe AbbVie will make
similar commercial mistakes and see the differentiated profile of filgotinib as
supporting above consensus sales.