Why Galapagos’s Phase 3 rheumatoid arthritis success is largely irrelevant.

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The News:

Galapagos NV (Mechelen BEL) and Gilead Sciences Inc. (Foster City CA) have reported positive results from a Phase 3 trial testing Galapagos’s lead drug candidate in patients with rheumatoid arthritis.

The clinical trial recruited patients with rheumatoid arthritis that did not respond or were intolerant to three or more biological antirheumatic drugs. After 12 weeks of treatment, 57% of patients in the lower dose and 66% in the higher dose groups achieved the level of response set as a primary endpoint. The results for the placebo group were significantly lower.

The drug candidate, called filgotinib, is being developed by Galapagos and Gilead as a treatment for 11 different diseases caused by inflammation. The rheumatoid arthritis, ulcerative colitis and Crohn’s disease programs are the most advanced, currently in Phase 3 trials. Another program, in ankylosing spondylitis, yielded positive results in a Phase 2 trial last week.

The inflammation market is huge, expected to reach over €100Bn by 2020, says Labiotech. The world’s best-selling drug, Humira (adalimumab) is indicated against multiple inflammatory conditions, including rheumatoid arthritis. By targeting patients that do not respond to biological drugs like Humira, Galapagos could have a competitive advantage in this market. However, it will be facing competition from its previous partner, AbbVie Inc. (North Chicago).

Before the partnership with Gilead, Galapagos was working with AbbVie in the development of filgotinib. However, the big pharma walked out of their agreement in 2015 and is now developing its own candidate drug for rheumatoid arthritis. AbbVie’s drug candidate, upadacitinib, which has a similar mechanism of action to filgotinib’s, also yielded positive Phase 3 data in April.

Steve’s Take:

What would otherwise be cause for a lot of champagne corks popping is largely a snooze in the eyes of at least one analyst. So, what just happened?

Well, think glass half full. But think gigantic glass. Yes, Gilead and Galapagos will trail Pfizer, Eli Lilly and AbbVie in rheumatoid arthritis drugs, but the twosome’s treatment will be the best in its class, an analyst recently predicted. The two drugmakers said their rheumatoid arthritis treatment, called filgotinib, hit key goals in a midstage study. Previously, patients had an inadequate response to other biologic drugs, Gilead and Galapagos said in a news release.

According to Allison Gatlin at IBD, Leerink analyst Geoffrey Porges suggested Sept. 12 that filgotinib will prove to be the “best in its class” of drugs. You see, Filgotinib is a Janus kinase inhibitor, or JAK inhibitor. It works to block a family of enzymes. JAK inhibitors can be used to treat cancer and inflammatory disease.

“This hypothesis is indeed valid and supports the notion that while filgotinib may not be the first of these drugs to market (likely the last), it might be the best,” Porges said in a report.

Rheumatoid arthritis treatments

Patients in the study had moderately to severely active rheumatoid arthritis. They were split into three groups. Two groups received 100-milligram or 200-milligram doses of filgotinib, and a third group of patients received a placebo.

The study measured filgotinib on a scale by the American College of Rheumatology, or ACR. ACR20 signifies a 20% improvement in arthritic symptoms. Researchers also took a look at patients who achieved 50% and 70% improvements in their symptoms.

Both doses of filgotinib outperformed the placebo at weeks 12 and 24. At the highest dose, 66% of patients hit ACR20 at week 12. That increased to more than 69% at week 24. At the highest dose, nearly 31% of patients were in remission and 32% hit ACR70 at week 24.

Porges called the response “impressive,” especially in patients who previously didn’t respond to treatment with tumor-necrosis-factor (TNF) inhibitors like AbbVie’s Humira, Amgen’s Enbrel and Johnson & Johnson’s Remicade. The results also compare favorably to other JAK inhibitors.

“These results establish (AbbVie’s JAK inhibitor) upadacitinib and filgotinib as the best of this class of medicines, and the final competitive positioning is likely to come down to safety and tolerability labeling,” Porges said.

Safety appears solid

One filgotinib-treated patient developed a blockage of the small veins in the eye. Further, there were four cases of shingles and one patient had reduced blood flow to the heart. But there were no deaths, malignancies or opportunistic infections.

“This safety profile, if maintained through other pivotal trials, should leave filgotinib with a better, but still imperfect, label,” Porges said, according to IBD.

By comparison, Lilly and Incyte’s Olumiant carries the risk of serious infections, lymphoma and other malignancies, and damaging blood clotting. The label for Pfizer’s Xeljanz warns against lymphoma and other malignancies, and opportunistic infections.

“At this stage, we don’t know if these laboratory changes were observed with filgotinib, but we presume that some of them are reduced by the virtue of filgotinib’s greater JAK1 selectivity compared to (Olumiant) and (Xeljanz),” Porges said.

Porges sees an 80% likelihood of success for filgotinib, up from his earlier view for 65%.

Credit Suisse analyst Vamil Divan calls for filgotinib to bring in $2.5 billion in peak sales, with an 80% chance it will be approved. He kept his Neutral rating on Galapagos stock. The biggest challenge for filgotinib is that Pfizer’s Xeljanz will likely face generic competition in 2025, Divan said in a note to clients. Assuming filgotinib launches in the US in 2021, that means generic competitors could start rivaling JAK inhibitors soon after.

Bottom Line:

Everyone covers Gilead. So, instead let’s check out its not-so-famous Belgian partner with the funny sounding name that conjures up the legendary, volcanic archipelago in the Pacific Ocean.

Strengths:

  • ·        The company has a market capitalization of $6.3 billion, placing it squarely in the established mid-cap category.
  • ·        The company usually releases upbeat results with huge surprise rates.
  • ·        Upward revisions of sales forecasts reflect a renewed optimism among the analysts covering the stock.
  • ·        Over the last twelve months, the sales forecast has been frequently revised upwards.
  • ·        For the last week, the EPS forecast has been revised upwards.
  • ·        According to recent estimates, analysts give a positive overview of the stock.
  • ·        For the past twelve months, the EPS forecast has been revised upwards.
  • ·        Analysts have a positive opinion on this stock. Average consensus recommends Overweighting or Buying the stock.
Weaknesses:

  • ·        Stock prices approach a strong, long-term resistance in weekly data at $118.
  • ·        The company has insufficient levels of profitability.
  • ·        Prospects from analysts covering the stock are inconsistent.
  • ·        Dispersed sales estimates confirm the poor visibility into the company’s activity.

Of the 7 analysts who cover the company, 3 rate it a Buy, 3 rate it Outperform and 1 rates it a Hold. The closing price on Sept. 20 was $114.75. The spread from that to the highest 12-month target price is 22%. The spread to the average target price is 6.1%. And the spread to the lowest target is -17%.

The Barchart Technical Opinion rating is an 88% Buy with an Average short-term outlook on maintaining the current direction.

Longer term, the trend strength is Strong. Long-term indicators fully support a continuation of the trend.

All of which places the company with the name Charles Darwin made famous by inspiring his theory of evolution as a Buy. But only for portfolios with a high-risk component.

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