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Gilead swoops down on Galapagos JAK1 candidate filgotinib in $2.075B deal
By Cormac Sheridan
DUBLIN – Gilead Sciences Inc., is stepping in where Abbvie Inc. stepped out, laying down a whopping $725 million, with up to $1.35 billion more to come in milestones, for rights to Galapagos NV's Janus kinase 1 (JAK1)-selective inhibitor filgotinib (GLPG0634). Foster City, Calif.-based Gilead is paying $300 million up front and is investing another $425 million in Galapagos shares to get its hands on one of the hottest pharmaceutical assets in European biotechnology.
Mechelen, Belgium-based Galapagos also stands to receive tiered royalties that start at 20 percent, as well as an option to co-promote the drug in Europe's biggest markets – Germany, France, the U.K., Italy and Spain and in its home Benelux territory, comprising Belgium, the Netherlands and Luxembourg. Galapagos will pick up 20 percent of the outstanding development costs for the drug, which is due to enter a pivotal phase III trial in rheumatoid arthritis (RA) in the first half of next year, as well as phase III trials in Crohn's disease and ulcerative colitis at an undetermined date during 2016.
Although the costs will not be insignificant, the deal makes Galapagos the richest biotech in Europe. The company will have more than €1 billion (US$1.08 billion) in cash once the transaction closes in January, having reported €374 million on its balance sheet at Sept. 30.
The deal represents its second payday with filgotinib. This time round the up-front and headline numbers are even bigger, reflecting the progress it has made in the clinic since Abbvie paid $150 million up front in a licensing deal then worth up to $1.35 billion. (See BioWorld Today, March 1, 2012.)
Positive data from phase IIb trials in RA as monotherapy (Darwin 2) and in combination with methotrexate (Darwin 1) were enough, most industry watchers assumed, for North Chicago-based Abbvie to trigger its option on the program and hand over a $200 million milestone. (See BioWorld Today, Aug. 12, 2015.)
However, it confounded expectations in September by walking away from a program that many had viewed as the successor to its lucrative RA franchise with tumor necrosis factor-alpha (TNF-alpha) inhibitor Humira (adalimumab), which could soon encounter biosimilar competition. (See BioWorld Today, Sept. 28, 2015.)
Abbvie has bet that its internal JAK inhibitor, ABT-494, offers a clearer – and cheaper – path to market. It has also raised concerns about Galapagos' drug, regarding potential reproductive toxicity in males, on the basis of a preclinical study in rats, issues which caused the FDA, but not other regulators, to eliminate its highest dose of 200 mg from the phase II program. That, evidently, was not an issue for Gilead.
In the meantime, Galapagos has further bolstered the case for filgotinib by unveiling positive phase II interim data in Crohn's disease. Earlier this month, it met the primary endpoint of the so-called Fitzroy study, with a statistically significant (p=0.0067) clinical remission rate of 48 percent (n=128), vs. 23 percent for placebo (n=44). It was the first time a JAK inhibitor demonstrated efficacy in Crohn's.
GILEAD VS. ABBVIE
Analyst response to the new deal was mixed. "We view Gilead's deal with Galapagos for filgotinib generally favorably, as it adds a much-needed fresh element to their pipeline with blockbuster potential and some strategic fit, and without breaking the bank, even if some outstanding program questions remain," Jefferies analyst Brian Abrahams wrote in an investor note. "With the partnership, Gilead gets rights to a potential blockbuster candidate that could re-energize interest in the pipeline, without the hugely material investment a midcap acquisition would have required," he added.
Jan De Kerpel, analyst at KBC Securities, was also enthusiastic. "Today's announced deal terms set a new [benchmark] in small-molecule partnering and leave little doubt on the ambitions that Gilead has in entering the inflammation market," he noted. "The deal should also remove doubts investors had on the reason why Abbvie didn't lift the option. In the hands of Gilead, filgotinib has found a strong partner, both from a development and commercial aspect, who can take the maximum value out of the molecule."
Joshua Schimmer, senior analyst at Piper Jaffray, took a more critical stance. "Gilead's efforts to extend beyond HIV/HCV in the past have proved disappointing, and we struggle to see how this JAK inhibitor can make a difference," he noted. His problem with the deal stems from Gilead's current absence from the RA and Crohn's disease markets. "With no domain expertise in either of these conditions, it's hard to get excited over this use of a fairly meaningful pile of cash," Schimmer wrote.
Galapagos CEO Onno van de Stolpe conceded on an analyst call that there are pros and cons to that situation. Gilead does not have the same contacts with key opinion leaders, drug regulators and payers that a company with an existing TNF-alpha inhibitor would have, he said. But, because there are no existing sales to cannibalize, the program will have its "undivided attention." Gilead was actually Galapagos' partner of choice "from day one," van de Stolpe said, because of its track record in quickly bringing drugs to the market. "They're unrivaled in that – their speed of execution is phenomenal," he said.
The looming contest between Gilead and Abbvie carries an interesting subtext, about the relative clinical development and dealmaking capabilities of big biotech vs. those of big (albeit slightly reconstructed) pharma. It won't take too long to work out who the winner will be, as ABT-494 is also due to enter phase III trials in RA shortly.
Abbvie, while still part of Abbott Laboratories Inc., pulled off one of the great deals in the history of the pharmaceutical industry by picking up Humira for $6.9 billion when it acquired Knoll Pharmaceuticals from BASF AG in 2002. Its most noteworthy achievement since it was spun out from its parent at the start of 2013 has been to walk away from a $55 billion inversion-fueled takeout of Dublin-based Shire plc, a move that cost it a hefty break-up fee of $1.635 billion. Its three-and-a-half-year dalliance with Galapagos didn't come cheap, either.
Although a small-molecule drug company, Gilead is, along with Summit, N.J.-based Celgene Corp., one of the upstarts founded in the 1980s that have upended big pharma's traditional hierarchy in recent years through aggressive acquisitions of late-stage assets. Gilead's heritage is in treating HIV infection. Its $11 billion acquisition of Pharmasset in 2011 has echoes of Abbvie's Knoll deal, and brought the company a lucrative, if controversial, franchise in hepatitis C virus infection.
Gilead is paying €58 per share for Galapagos's stock, which represents a premium of about 20 percent over the average share price for the past 30 days. The deal gives it a stake of about 15 percent in the company. Shares in Galapagos (BRUSSELS:GLPG) closed Thursday at €51.79, a dip of 1.5 percent on the previous day's close of €52.60, having peaked at €60.55 shortly after trading began.