PharmaTelevision - Galapagos: 3 Pillars to Success, The Galapagos Model

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Video title: Galapagos: 3 Pillars to Success, The Galapagos Model

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In this episode of PharmaTelevision News Review,filmed in Amsterdam at BioEurope Spring 2012, Fintan Walton talks to Onno Van De Stolpe, CEO of Galapagos

Business model

Fintan Walton:

Hello and welcome to PharmaTelevision News Review. On this show I have Onno Van De Stolpe, who is the CEO of company called Galapagos, welcome.

Onno Van De Stolpe:

Thank you, welcome.

Fintan Walton:

Onno, you've been on our show before a number of times, you have told us the story about Galapagos and how was founded and it's story about making for several acquisitions to get where you are today and I suppose most people will look at you as a bench mark company in the model that you took you adopted and both the fee for service side to your business but also enduring your own risk and taking products forward and then partnering those as well. So Onno, the first question is, are you still happy with the business model?

Onno Van De Stolpe:

Yes, I think it's been the basis of the company since the start we always have had a revenue generating business provided once by services and in the other hands alliances and internal programs, so we basically have three pillars under the company and during the years the focus has shifted somewhat from the service revenues to alliances and now with the latest deal with Abbott the licensing aspect [PharmaDeals ID = 45670], but I believe that the three pillars are still very much the value of the company and I don't think we should change the model.

Fintan Walton:

Right, so although there is a change potentially in the value of those businesses you try to sector them out in the end you think the combination of all those provides the 1+1+1 makes four or whatever value?

Onno Van De Stolpe:

Yes, especially because not every year all the three businesses perform equally well. Last year we had a tough time with milestones and the alliances we fell short in the expected revenues but we had an over performance of the service division, so at least that division went extremely well and compensated for the fact that we missed some of the alliance milestones and so I think by having these different aspects of generating revenues and delivering results helps you to level out the overall performance of the company and we have done so very well over the years so we have had two-years of profitability, last year we slipped back into the wet because we didn't get the licensing deal and the milestones fell short, but I think going forward we can see a track of continuing growth in revenues and potentially continuing the profitability.

Fintan Walton:

Because one of the things that's changed most dramatically over the last few years is the how big pharma has basically closed out lot of its research and development and that's hit the headlines big time it now talks about externalization of its research, it talks about the partnerships more, it talks about getting access to earlier stage programs, does that mean that Galapagos is now even more important to the industry than was before?

Onno Van De Stolpe:

Well it's the trend that has been going on for years the CRO part of the business so the service side has been growing not only in Europe but definitely in India and China where companies like (indiscernable) have taken over a massive part of the discovery arms of pharma. Pharma has been closing down their R&D sides reducing their footprint, we believe we have more chemists in Europe than any pharma company, we have 400 chemists within the Galapagos group. So yes, I think we are a crucial part in the full chain with regard to coming up with new molecules, what pharma is looking for mainly is of course clinical assets with positive data in patients and that's what we have seen with Abbott deal , but there are very few of those molecules available these programs don't come very often, so they are looking earlier and earlier so they go to a Phase I deal, so a pre-clinical deals or as we have shown over the last couple of years in these alliances where you basically jointly bring your program forward we do the research and they pay as we go out to our milestones when the program progresses from target to lead to candidate to the clinic and that model has worked extremely well for pharma to get new innovative new mode of action molecules into their pipeline without them having to take the risk or actually doing that in-house because they have been very unsuccessful in progressing that innovation internally.

History and significance of deal with Abbott

Fintan Walton:

Well that brings us on to the Abbott deal [PharmaDeals ID = 45670], because that the JAK molecules that you are dealing with have a history and may be just remind us what that history is because it sort of emphasize the point you're making there.

Onno Van De Stolpe:

It's a very interesting history how we got to the 634 molecule, about eight and a half years ago we started to target discovery program in osteoarthritis we identified the JAK1 as a target for osteoarthritis and together with a number of other targets and we then partnered the osteoarthritis program in an alliance with GlaxoSmithKline in 2006 [PharmaDeals ID = 24397] for years that progressed from target to lead and at certain point GSK lost the interest in osteoarthritis and the programs switch to autoimmune diseases being obtained a number of these targets back with 634 or the JAK program went with the remain of the targets into autoimmune diseases, it got to a preclinical stage the molecule 634 was ready to go into the clinic and at that time GSK made the portfolio decision and it fell out of their selection criteria, outside their selection criteria and was returned to Galapagos. So in December of 2010 we entered the clinic with 634 with a program that was returned by GSK [PharmaDeals ID = 24397] and at our own risk and cost we've entered to the clinic and then it turned out to be a very successful program, we didn't know at the time that it was JAK1 selective with one we have the patient data with the human data we showed it was JAK1 selective and when we had the efficacy data without the side effects that some of the comparable programs have shown basically the whole of pharma somebody was interested in this specific target.

Fintan Walton:

So you took it to, you brought into what stage then before you took the deal with Abbott?

Onno Van De Stolpe:

We brought it to a proof of concept, so a very small trial of 36 patients of which 12 had placebo and 24 obtained the molecule for 4 weeks and those data were spectacular, we had scores there is a certain score ACR20 where you look at the 20% improvement over the placebo and we had a difference of 50% compared to placebo response in that.

Fintan Walton:

And when you were looking at partners for this program and before Abbott they struck the deal with you how many term sheets that you have in was it a popular interest out there considering this was now a program that had been ultimately rejected by GSK?

Onno Van De Stolpe:

Yes, and of course that was an issue heard the fact that it was rejected by GSK?

Fintan Walton:

Due diligence, your due diligence was gonna be pretty strict?

Onno Van De Stolpe:

Pretty strict and so we had contacted a number of parties before the data came out and said well assume that the data are positive are you guys interested in talking about the license and so we entered due diligence with the number parties including Abbott a couple of months before the data were released in November, but when the data were released we were contacted by a number of other pharma companies and biotech companies that wanted to take part in reviewing the data, so we talked to about 12 or 13 companies not all in parallel they went in different speeds and ultimately we got nine term sheets on the table which is a quite extra ordinary.

Fintan Walton:

Yes, pretty high and of course it was heralded as one of the biggest deals of its time?

Onno Van De Stolpe:

It is a very large deal and it reflects the stunning results we have shown in the Phase II, but it's also the reflection of what the industry is looking for. Pfizer just entered registration within the JAK inhibitor tofacitinib for rheumatoid arthritis and so that the market is going to be opened up for JAK inhibitor small molecules that can be given orally to the patient as a first new wave of treatment for patients that up to now only had the TNF-alpha inhibitors like enbrel or remicade that are given by injection or IV. So completely a different way of treating the disease opened up by Pfizer but with an opportunity to come with a better molecule into that JAK space and we have shown in our trial although it's only four weeks short it's a short trial we've shown that there was no anemia, and no cholesterol and in the four week trials of the competitors with their JAK molecules they hit different JAK target than our JAK that they showed anemia and cholesterols, so there are some side effects that it looks like our molecule doesn't have. And that of course is very interesting because if you can come in with a same efficacy or better efficacy and a better safety profile you can probably capture a substantial part of that market when you enter the market even though that is years later.

Cystic fibrosis program

Fintan Walton:

Right, now rheumatoid arthritis it is a big market, it's a big boy stuff you're still a, you're doing some good deals but your business model going back to that if we look at your ambition to take your own products to market that appears to be an often styled business is that's your target now to move into more orphan based products?

Onno Van De Stolpe:

Yes correct, we have said two-years ago that we have had chosen cystic fibrosis is the first area where we would like to get drugs all the way under the Galapagos label to the patient do not partner, at least do not partner in Europe may be the worldwide right we can negotiate with the pharma company, but at least get a presence in Europe in selling the drug there. We have a fantastic program in cystic fibrosis where we are working where we identified 16 targets together with the Cystic Fibrosis Foundation [PharmaDeals ID = 29116], we have an exclusive access to those targets and then number of those we've moved into a drug discovery they now at almost at the candidate stage, they are not there yet between lead and candidate so it's still a couple of years before we'll be in the clinic but it's very promising and we hope to with these deals like the one with Abbott and with our service division and with the alliances generate enough cash flow to fund to development of these programs all the way to registration. In an area like RA there is no way a company like Galapagos could be in that to market, the expectations are just for 634 may be about 400 million Euros have to be invested from the stage where it's currently at to get it registered well that's something that definitely a biotech company in Europe cannot afford, so you need to partner at the certain stage and the proof of concept is probably the best moment to partner where the most value creation in the shortest speed of time can be realized. So we believe that this was the right moment to partner get the cash for it and then use that to progress some of the internal programs and then especially the cystic fibrosis .

Future goals and partnership strategies

Fintan Walton:

So continuing the business model is the message I hear, but what is that involved does that involve you deciding to do some acquisitions in the future, are you going to have to partner bring in these molecules yourselves you know what is the strategy going forward for Galapagos in order to achieve these overall goals?

Onno Van De Stolpe:

Well we are well positioned I guess both on the service side as well as on the drug discovery and development sides, we are boosting now our development group, we have about 20 people in there that's gonna go to about 40 because of the massive Phase II trials that we are going to do for 634 with the Abbott deal [PharmaDeals ID = 45670], but we are well positioned to move the various program forward however we are always opportunistic with regard to expanding our capabilities and capacity, two-years ago we bought Argenta [PharmaDeals ID = 34815] a very successful drug discovery service company in the UK that's been very successful within the Galapagos group, so I wouldn't exclude any acquisitions but we are not on the lookout for any at the moment, what we will continue to do is drive the alliances forward, move molecules into the clinic, get milestones along the way and potentially get more programs like 634 out of the alliances when the pharma partner decides not to obtain and then return the rights to Galapagos, another example has been in the same GSK alliance program in the December [PharmaDeals ID = 24397] that we are developing for inflammation as well just before got into the clinic GSK returned that program to us and we have now taken that into a Phase I trial ourselves. So it's interesting that the alliances not only generate the milestones and the future the royalties but they also boost our internal pipeline. At the same time before you think that GSK is not taking anything we have had a very successful program in the clinical in the alliance with GSK [PharmaDeals ID = 24397], GSK actually opted in on our molecule 778 two months ago and then take that now into their own clinical pipeline themselves so they are also very happy partners.

Fintan Walton:

So they really, they do really love you?

Onno Van De Stolpe:

I believe they love us to a certain extent yes.

Fintan Walton:

Yes. Onno Van De Stolpe, thank you very much indeed for coming on the show.

Onno Van De Stolpe:

My pleasure.

Fintan Walton

Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).

Onno Van De Stolpe

CEO

At the time of recording this PTV interview Onno Van De Stolpe serves as CEO of Galapagos. Mr. Van de Stolpe founded Galapagos in 1999 while he was Managing Director Genomics at Introgene (now Crucell). Prior to joining Introgene in 1998, he was Managing Director of Molecular Probes Europe. He established this European headquarters after joining Molecular Probes in the US. Previously, he worked for the Netherlands Foreign Investment Agency in California, where he was responsible for recruiting biotech and medical device companies to locate in the Netherlands. Mr. Van de Stolpe started his career as Manager Business Development at MOGEN in Leiden. He received a MSc degree from the Agricultural University in Wageningen.

PharmaVentures

PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.

Galapagos

Galapagos was founded in 1999 as a joint venture between Crucell and Tibotec. Galapagos has developed a target discovery platform that provides novel starting points for drug and antibody therapies, thereby addressing the industry's need for innovative, disease-modifying medicines. Galapagos is exploiting this platform in disease areas for which there is a clear need for better medicines. The Company's product portfolio consists mainly of new mode-of-action drugs in bone and joint diseases as well as programs in cancer metastasis, cachexia and orphan diseases. To enable the progression of a broad portfolio of programs, Galapagos has established risk sharing alliances with big pharma companies in specific disease areas. Through an alliance with MorphoSys, Galapagos is also developing new antibodytherapies in bone and joint diseases.