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Galapagos (GLPG NA): CF Triple On-track & Filgotinib Expanding; Boosting PT to €110
Rating BUY
Price Target €110.00 (from €80.00)
Price €80.46
ADR
ADR Price Target $120.00
ADR Price $86.86
Key Takeaway
Catalysts this year hinge on cystic fibrosis alliance and early-stage pipeline, notably GLPG1690 Phase IIa lung fibrosis (IPF) data in early-3Q. We understand all CF Phase I data are now in-house to move a triple combo into the clinic, initially in volunteers and then patients around 3Q17E. We still view the current share price to be a compelling entry point given filgotinib blockbuster potential and CF optionality; reiterate Buy with PT hiked to €110/$120.
Confident in filgotinib blockbuster potential: Impressive Phase IIb DARWIN rheumatoid arthritis (RA) data and positive Phase II FITZROY Crohn's data support our confidence in $6bn WW peak sales with partner Gilead (GILD, Buy). These sales include $3bn in RA, $600m in Crohn's, $400m in ulcerative colitis, and now $2bn in other indications given the multiple proof-of-concept studies initiated. We assume launch by 2H20E. We estimate 20-30% tiered royalties but anticipate a 50:50 profit-share on co-promotion in EU5 and Benelux. GLPG could still receive up to c.$1.3bn milestones and funds only 20% of R&D. AbbVie (ABBV, Buy) remains the most significant competitive threat, in our view, with its own once-daily JAK1 inhibitor ABT-494 in Phase III, potentially with data by YE17E.
Cystic fibrosis momentum: Management remains committed to the broad AbbVie CF alliance successfully moving the commercially important triple combination into the clinic around mid-17E for the most common class II ?F508 cohort. Galapagos/AbbVie are likely lagging behind market incumbent Vertex (VRTX, Buy), with four combos in Phase II, hence superior proof-of-concept in Phase I-II may be critical to expedite pivotal trial enrolment, and ultimately gain share. Importantly, completing Phase I dosing trials of C1 corrector '2222 combined with potentiator '2451, and C2 corrector '2737 alone, suggest all are well tolerated to-date. We understand sufficient data are in-house to advance a triple combo into the clinic. Our sum-of-the-parts includes c.€12/share NPV for the CF alliance assuming a 20% likelihood of $3bn peak sales.
Well funded to execute: c.€1bn Net Cash at 31 March is more than sufficient to fund pipeline plans and consider potential bolt-on acquisitions, in our view.
Valuation/Risks
Our €110/$120 PT is based on a SOTP valuation comprising a 65% probability-adjusted NPV for filgotinib plus Net Cash. Risks include: (1) efficacy, safety, or regulatory setbacks; (2) need to execute future out-licensing and alliances; and (3) clinical trial failures.
Peter Welford, CFA *, Equity Analyst