How to explain the Galapagos peak

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Since mid-September, Galapagos’ shares have been rising explosively and reaching new all-time highs. This was curious, since the company has not made any major announcements or released any new information, the usual reasons for double-digit share price hikes. The rumor mill started spinning, and various possible explanations started to surface. Here’s an overview on the Galapagos hype.

At the end of August, Galapagos announced that filgotinib, their small-molecule medication for the treatment of rheumatoid arthritis, had entered the final stage of development. The FINCH phase III studies will determine whether filgotinib is suitable and ready for commercialization. This announcement was the last major statement the company would make for more than a month.

Read more on Galapagos here.

Nevertheless, Galapagos’ shares soared to unseen heights between September 13–23. Prices had been relatively stable for months, when suddenly the graphs took an almost vertical course. As this uptick happened without apparent reason, various rumors about its origin quickly started to spread.

The Gilead factor

During the same period as the rapid rise of Galapagos’ shares, the company’s management was doing a roadshow in the US, presenting the company and providing updates to existing and potential investors. While this could account for some of the positive traction the company was able to create, no roadshow is “+30% share price”-level successful.

One of the factors influencing the price rally was revealed to be the US pharma giant Gilead, Galapagos’ trusty partner in the development of filgotinib. Galapagos struck a very favorable deal with Gilead in December 2015, after AbbVie opted out of the option to co-develop filgotinib. With waning revenues from their hepatitis therapies, Gilead is facing pressure to identify new ventures. Gilead shareholders have been eagerly waiting for the company to put their large cash reserve to work by acquiring promising smaller companies. For now, they’ll have to keep waiting.

Gilead simply can’t buy Galapagos.

As part of the development deal for filgotinib, Gilead acquired 15% of all Galapagos shares. As such, Galapagos seems like an obvious candidate for Gilead to acquire. However, in their agreement, the partners included a standstill that prevents Gilead from acquiring Galapagos for an undisclosed length of time. This hasn’t deterred investors from speculating on a Galapagos acquisition by Gilead, however, and it’s likely that this has driven Galapagos’ share price through the roof. Eventually, this bubble burst; Galapagos’ shares took a 7% dive when CEO Onno van de Stolpe clearly stated in a radio interviews that “Gilead simply can’t buy Galapagos.”

Filgotinib sets the tone

Meanwhile, Galapagos is enjoying the exposure, and filgotinib continues its path to the market, which is expected to be completed by 2019 if everything goes as planned. As if the molecule weren’t successful enough in treating rheumatoid arthritis, it also appears to be effective against Crohn’s disease. That’s no coincidence, as both diseases are inflammatory in origin and filgotinib targets a central inflammatory protein. It might also mean that filgotinib’s usefulness can still be expanded to other inflammatory diseases. Clinical trials for filgotinib are currently underway in rheumatoid arthritis, Crohn’s disease and ulcerative colitis.

This is the first known double-blind, placebo-controlled study in Crohn’s disease with endoscopic central reading as an inclusion criterion and as efficacy endpoint.

Phase III trials in rheumatoid arthritis started in August, and filgotinib recently completed phase II trials in Crohn’s disease. Not only were the results encouraging, Galapagos is also setting a standard in how these trials should be executed:

“This is the first known double-blind, placebo-controlled study in Crohn’s disease with endoscopic central reading as an inclusion criterion and as efficacy endpoint,” says Dr. Piet Wigerinck, Chief Scientific Officer at Galapagos. These endpoints will most likely also be adopted in trials of filgotinib’s closest rival in countering Crohn’s disease: Celgene’s GED-0301. Galapagos aims to initiate both a phase III trial in Crohn’s disease and a phase II/III trial in ulcerative colitis before the end of the year, proving that the company is more than just a speculative share dependent of the whims of big pharma.