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One of the greatest success stories of the Brussels stock exchange of the past decades has lost its luster. Rather than speeding up to full gallop with his rheumatic drug filgotinib, Galapagos stumbles over the final hurdle.
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It must have been a huge blow in the gray, Mechelen office of Galapagos when CEO Onno van de Stolpe opened the letter from the Food and Drug Administration (FDA) on Wednesday. In lieu of the US pharma watchdog’s anticipated nod of approval for the rheumatic drug filgotinib, Galapagos and its US partner Gilead Sciences were told that the revolutionary drug is not yet allowed to enter the lucrative US pharmacy shelves.
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The FDA is primarily concerned about the potential negative effects of filgotinib – we’ll abbreviate the drug to ‘filgo’ for the sake of convenience – on sperm production. Long ago, Galapagos detected spermatozoa damage during tests on rats and dogs, which also hit the stock market price back then. Although there is no indication that this is the case in humans, the health watchdog requested additional tests on men. Galapagos is conducting those MANTA and MANTARAy studies to measure the effect. Admit it: a manta is a bit like a sperm when it glides through the ocean.
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During our CEO Talks eighteen months ago, Van de Stolpe said that these tests are more difficult to perform than expected. Young healthy men are not eager to take something for a fee to measure the effect on their potential offspring. In the meantime, enough test subjects have been recruited. Galapagos and Gilead were of the opinion that their file could already be approved for subsequent submission of the study results. Rheumatism is mainly a condition that affects the elderly. They think less about making babies.
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The results of the Manta studies will be waiting until the beginning of next year, so that filgo, which was given its commercial name Jyseleca, can be launched in the US one and a half years later, at best. That means a lot of lost income. JPMorgan estimated peak sales of the drug for rheumatism at $ 2 billion per year. Moreover, it gives more space to other players who come onto the market with new rheumatism drugs. AbbVie has in its portfolio Rinvoq, a JAK inhibitor of the filgotinib type. Pfizer is on the market with Xeljanz and is working on even more competition.
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200 milligram
The FDA had another negative surprise in store. The watchdog says it is “concerned” about the risk-benefit profile of the highest dose of 200 milligrams. It is precisely with this dose that filgo distinguishes itself most from the existing rheumatism.
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“This is a near worst-case scenario for Filgo and a complete shock to the company,” commented JPMorgan analyst Cory Kasimov. His colleague Vamil Divan of Mizuho notes that the FDA has been critical of JAK inhibitors for some time, Janus kinase inhibitors in full. The FDA has only approved much lower doses so far. I am not a doctor, but in short janus kinases are proteins involved in the transmission of messages in the immune system via so-called cytokines. A JAK inhibitor tempers those cytokines, which calms the arthritis. However, critics argue that they make the entire immune system less resistant to infection. The Roman god Janus also had two faces.
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What does that mean for Galapagos? First, the Mechelaars are not yet receiving the promised $ 100 million milestone payment from Gilead. As a result, Galapagos will burn more cash this year than expected: EUR 490-520 million instead of EUR 400-430 million. Fortunately, the company does not need pennies. Thanks to a few well-targeted capital increases – when the price went into the stratosphere after positive test results – the company has a cash mountain of 5.6 billion euros. That is 85 euros per share or two thirds of the stock price.
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St. Rumbold’s Tower
Van de Stolpe can calmly continue to build his new head office behind Mechelen station. According to the Dutchman, it will shape the skyline of the city, so that it is not only the Sint-Romboutstoren that still determines it. A few meters further, the brand-new headquarters of the fashion group FNG is still shining. There are not many people there now.
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If the FDA still approves filgo in all its dosages, analysts say it will not only be a deferral of the revenue. To be competitive as a late player, Galapagos will have to drop the price by about 20-25 percent, Degroof Petercam estimates. Although the cost of about $ 30,000 per treatment per year is not minus. Analysts estimate the impact on Galapagos’ valuation at 14 to 30 euros per share. On the condition that filgo does receive final approval in Japan and Europe, where everything is running smoothly for the time being.
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The target price cuts for Galapagos are in a range of 19 to 93 euros per share.
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For the US, stock exchange houses lowered filgo’s chances of success, although most still assume that it will reach the US shelves. Negotiations with the FDA are often a procession from Echternach. UCB experienced this in the 1980s with its anti-allergy drug Zyrtec, which subsequently became an unlikely blockbuster. But if the FDA doesn’t approve, that decision hangs like a sword of Damocles over the other indications that Galapagos is investigating for filgo, such as for Crohn’s disease, the inflammatory bowel disease ulcerative colitis, arthritis in patients with the skin disease psoriasis, and other conditions. . The stock exchange Jefferies estimates the value of filgo in the current test phases for all diseases at 95 euros per share.
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Uncertainty trumps. This results in very different reactions from the specialists. The target price cuts for Galapagos are in a range of between 19 and 93 euros per share.
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The pill for the man
If filgo did not make it because of its negative impact on spermatozoa, could it still serve as the pill for men? Who knows, that unexplored market is even bigger than that for rheumatism? Also with Viagra, the erectile-stimulating effect was discovered as a side effect during a study of a medicine for severe chest pain when the heart muscle receives too little blood. The smart guys and girls at Pfizer saw the tremendous potential of the “side effect.”
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All joking aside, the boom at Galapagos shows that biotech investing is not for the faint-hearted and involves very high risk. Of all the biotech companies that have floated to the Brussels stock exchange in the past 25 years, only six have made a profit. Three of these (Ablynx, Devgen and Movetis) were acquired at a price higher than their introductory price. A bid of 2.80 euros per share has been made for Genkyotex, no less than 96 percent below the price of the IPO. Only three names that are still on the price list are listed higher than at their IPO. Argenx is the outlier with a sprint of 2,260 percent. This is followed by Galapagos (+ 1,557%) and Mithra (+ 43%). All other names lost money to their investors from the very beginning.
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Nevertheless, this should not deter investors who dare to invest in biotech. It remains a very exciting sector that contributes to our society and healthcare, where the scarce successes often make up for the many failures. All Belgian biotech on the stock exchange still yielded an average of 208 percent profit. But it shows that spreading is necessary and that you can hit the wall with your nose when things go wrong.
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