Galapagos: from Hero to Zero (EV)
May 29th, 1999, Manchester United defeats the Bayern Munich in the finals of the UEFA Champion’s League, scoring twice in the extra-time and winning 2-1, after having been led since the 6th minute. What were the odds? For those who followed the saga of filgotinib application in RA in the US (and the Galapagos investors among them), this is the question they may have asked themselves, after the CRL issued by the FDA in August 2020 to Gilead and Galapagos. In their CRL, the FDA expressed concerns on the benefit/risk profile of the 200 mg dose (a key point of differentiation), and after a surprising statement that the agency could not complete the review without having more data from the ongoing male testicular safety study (MANTA/MANTA-Ray trials). A real seismic shock.
Just 13 months ago, on July 14th, 2019, the Belgian-American couple had sealed an historical long-term strategic alliance for a decade, with a 4 bUSD / 3.5 bEUR upfront, another equity investment of 1.5 bUSD / 1.3b EUR, and a total deal value of 7.7 bUSD / 6.8 bEUR. Galapagos even transiently became the largest European public biotech company ahead of Genmab, which was the dream of its CEO, Onno van de Stolpe. Except that he meant more for a longer period than just a few days or weeks.
After a new meeting with the FDA to address the agency’s concerns, the position of the FDA did not change at all, according to Onno van de Stole, leading Gilead to abandon the idea of marketing filgotinib in RA in the US, and more generally to the reshaping of the licensing deal for filgotinib. Obviously, the ambitions for filgotinib were reviewed down by the market, by much, while AbbVie’s upadacitinib (Rinvoq) continues to generate positive data in other indications (e.g. recently in UC, where the results seem to indicate a better efficacy than filgotinib).
The CEO of Galapagos indicated that the FDA provided no reason on why they changed their mind on the need to see the data from the MANTA/MANTA-Ray studies. As a reminder, the original plan was indeed to integrate the data from these studies in the US dossier. But timing-wise, these trials were in the critical path for the US dossier in RA. Given that the timing aspect was also critical not to let Rinvoq take a too strong lead, Gilead and Galapagos understood they could file without having the MANTA/MANTA-Ray studies completed (note that the wording does not say that no data at all would be needed during the review, but just indicates that the dossier could be submitted without having the data in hands at the time of the submission). Which is what they did. Finally, the FDA seemingly changed their mind during the review of the dossier, and even raised the bar in their last meeting with the applicants: they indeed requested a longer follow-up to check the reversibility of any potential negative effect on spermatogenesis, delaying the final outcome by at least 6 months. For sure, the message in the EMA “EPAR” evaluation dossier indicate some potential negative effects in rodents, and the durability was not clear. There is also no explanation on why filgotinib would cause such an issue (it is apparently molecule specific, and not pathway specific). The EMA approved the dossier but obviously, this is in the to-do list of Galapagos to submit any new relevant data to the EMA. So, what led the FDA to be so highly suspicious remains a mystery? Did Galapagos and Gilead provide all the data to the FDA? Or is this just another FDA U-turn that the agency can be used to do in some reviews? Also, why not approving the 100mg dose? And finally, the safety profile of the 100mg and the 200mg doses, according to the reported data, really seems similar, even for each individual adverse events of special interest. If one may acknowledge that the incremental efficacy can probably be judged as modest, is there a safety component in the FDA’s mind that makes them so reluctant to approve the 200mg dose? Still a lot of questions, but hard to get the answers and really know what happened there.
Obviously, the market was taken by surprise, and the sanction was severe, with -57% in 2020 for the stock (11th worse performance among our list of European listed biotech companies). The sentiment has been so bad that stock traded close to its project cash at the end of 2020 (5.25 bEUR market cap for a cash position around 5.1 bEUR), which makes the simplified Enterprise Value (market cap minus cash) of 150 mEUR be close to… 0. Actually, the company has around 200 mEUR of liabilities so the EV would be more 350-400 mEUR, but this doesn’t change the global picture.
Then the question is: how and when can Galapagos get out of this negative spiral? As the CEO says, things are what they are, and the company has to move on. One may even laud the efforts of Galapagos to commercialize their products as best as they can in Europe. So, what could really change the sentiment in 2021 on Galapagos. Unfortunately, at first sight, there is not much catalysts that one would consider as de-risked in 2021. Even worse, there is a futility analysis for ziritaxestat in IPF (a pivotal program) that could add another layer of failure if the trial is found to be futile. However, if not futile, one would have to wait for the end of 2021 or early in 2022 to know the outcome. Maybe the Crohn’s phase 3 readout could be performed towards the end of the year, which seems to be a chance for a positive outcome, based on their phase 2 data. Otherwise, Galapagos will have to rely on the early POC studies for their first TOLEDO compounds to try to change the investors’ mood. The company had -and still has- high expectations for this new compound family, even though the fate of GLPG3312 had casted some doubts on how high the expectations should be. Given that these POC studies are very small ones, it means that the efficacy signal will have to be very high to convince. Which hopefully will be the case, at least in some indications. When at the bottom, sometimes only a small positive signal might trigger a reversal. Let’s hope for Galapagos there will be enough evidence generated in 2021 to trigger such a reversal. If there is one sector where a company can switch several times between a "Hero" and a "Zero" status, that’s clearly the biotech sector. In any case, with the current cash on hands, there is no red alert yet in the short-mid term. However, the high cash burn should prompt the company to increase its discipline level. So, real rebound in 2021, or later?
Last minute from the JP Morgan Healthcare conference: the CEO Onno van de Stople understood that after the 2020 newsflow, "the company had to regain the trust of the shareholders". Outside TOLEDO, Galapagos unveiled the target of GLPG3667, which is a TYK2 inhibitor, a hot target in inflammation, alone (see BMS late breaker at last ACR) or in combination with JAK1 inhibition within the same compound (see Pfizer, or even GLPG3121, still listed in the company’s pipeline but for which an "undesirable PK progile" had been found in 2019). The net cash burn is expected to increase by 50mEUR in 2021. Jyseleca is guided to reach peak sales of 500 mEUR in RA/UC/CD, with a breakeven point for the product reached in 2024.
2 iconic French bios signing the 2 worst stock performances in 2020: Genfit or the end of the NASH mirage, and anaphylactic shock for DBV
Tragic ending for the phase 3 of Genfit’s elafibranor in NASH in 2020. Not that it was completely unexpected, at least by some, given the prior phase 2b results, and the emphasis of both the study investigators and the company on several post hoc analysis to extract anything that could have seemed positive and supportive for phase 3 development, despite negative primary outcomes based on the original design. Of course, the NASH area being immature back in 2015, some changes like the definition of the NASH resolution were not coming from the company, but the reasons mentioned to support the fact that elafibranor was likely de-risked should have -at least- led the investors and the analysts to have some second thoughts on the case. And this is without talking about the commercial opportunity of a drug with such a low efficacy profile, even by considering the best case numbers. Anyways, the French investors had decided that Genfit was a sure bet. In 2015, it was clearly one of the most popular stock among the French retail investors (several thousands, if not several tens of thousands).
However, the bar to reach statistical significance in this 1000-patient phase3 trial was so low that the negative outcome ultimately renders the failure even bigger. The company let themselves 6 months to see if there was any way to salvage the program but French biotech eventually acknowledged the KO at the end of the Summer. Genfit then presented its new strategy, based on what was left, i.e. the same elafibranor, but in PBC, and their non-invasive (or more exactly minimally invasive) diagnostic solution based on the company’s NIS4 algo (set of 4 biomarkers to screen patients likely with NASH). Fortunately for the Genfit investors, the level of evidence of elafibranor in PBC and in NASH has seemingly nothing in common. The phase 3 was launched in the second half of 2020 but the readout is not expected before 2023. The NIS4 biomarker algo for NASH patient screening is partnered with LabCorp, with a commercial launch expected in 2021.
Back in 2017, Genfit "had prepared for success", having contracted 180 mEUR debt facility (convertible bonds with no odds of conversion after the failure disclosure). With a 2022 maturity, and just 250 mEUR in cash disclosed at the last financial statements, there was an emergency to restructure the company’s debt. Which was executed smoothly in H2 2020 (there’s still an EGM vote needed but no surprise expected).
With its single-product company profile (or mostly), Genfit stock plummeted and lost 77%, being the second largest loss of 2020 for any European listed biotech company.
But there was worse for the French investors in 2020, with DBV Technologies (-78%). Here again, we are talking about another iconic company, since it was the largest French biotech 4-5y ago (>1.5 bEUR market cap). At that time, DBV was leading the peanut allergy field in terms of development of therapeutics, ahead AImmune. They were thought to have the best product in hands, with their Viaskin Peanut patch, delivering peanut allergen via epicutaneous delivery (“EPIT”), especially versus AImmune traditional oral immunotherapy (“OIT”). Except that the fairy tale ended abruptly at the end of 2017 for DBV, with the results of the PEPITES phase 3 study. They fell way short of the expectations, that were more aligned with the promising phase 2 data, that we now know, for some reason, were very biased. Even though the difference in responders at a food challenged between Viaskin Peanut patch and the control arm was statistically significant, the lower bound of the 95% confidence interval equal to 12.4% was below the 15% threshold predefined in the Statistical Analysis Plan agreed with FDA, which formally made the study a “fail”. However, since there was no drug approved, the FDA was still willing to review the dossier, and DBV filed a BLA application for Viaskin Peanut (considered as a drug-device combination). Except that the FDA was about to issue a Refuse-To-File to DBV, based on many dossier issues (relating to CMC & manufacturing), and DBV voluntarily withdrew its application a few weeks later before the RTF. From here, things went from bad to worse. DBV changed almost all its management, and thought they had addressed the questions of the FDA. They re-filed in the Summer of 2019 but the FDA issued a CRL a year later. The US agency still expressed concerns regarding the impact of patch-site adhesion on efficacy (participating to the mechanism of action of the patch, and notably on the release of the allergen), requested patch modifications with new clinical data needed to support the application of the modified patch, along with additional CMC data. At least, there was no concern on the safety, and there was no comment on the lower bound of the 95% confidence interval, even if one may consider that the patch adhesion concerns are somewhat linked to this issue. Meamwhile, AImmune took the lead smoothly, as Palforzia was approved in the US, and was even acquired by Nestlé in 2020 for 2.6bUSD.
Moreover, early in 2018 and early in 2019, DBV has disclosed more than mixed data for its follow-on programs in cow milk allergy and in milk-induced eosinophils esophagitis, which did not really help to build a positive momentum for the stock. Nevertheless, early in 2020, the 36-month data of the PEOPLE study (longer treatment by PEPITES participants) showed that, as seen in phase 2b, the proportion of responders continued to increase over time versus the 12-month data, and that the Eliciting Dose was still increasing with a longer treatment. This allowed the company to discuss with the EMA on the next steps. DBV decided to file in Europe at the end of the Summer 2020, for the original version of the patch, which already allowed the stock to recover a bit, since this move was not really expected by a lot of investors. DBV had been quite vague on the timing of their European plans, but given the few advances in the US, the company probably had to re-prioritize their actions for the Old Continent. Luckily for DBV, the EMA doesn’t seem to have the same concerns on patch adhesion as the FDA, at least for now.
Not later than this week, the FDA provided some more clarity to DBV, concerning the path forward for a modified Viaskin Peanut. Not everything is clear though. The endpoints of the 6-month safety and patch adhesion study have still to be determined and agreed, and the size and the duration of the execution of the study are not clear either. The management was understandably reluctant to provide any timing for a re-filing date in the US for a modified Viaskin Peanut patch. But at least, it seems realistic that a re-submission in 2022 or 2023 can be achieved.
Finally, DBV was also burning a lot of cash (approximately 150 mEUR per year over the past 3 years), with no real progress, so this didn’t help the stock performance either. The cash runway is currently guided to be through H2 2022, thanks to cost killing. But the social impact is dramatical, with the layoff of more than 200 people (90 left after reorganization). The number of employees was superior to 320 at the end of June 2019. This also leads to potential questions with respect to the commercial strategy of the company, which was to go to market alone in the US, and seems less likely now. Potential partnering for Europe as well?
Outside what was discussed above, DBV could also disclose new data from ongoing studies in peanut allergy (PEOPLE, REALISE, EPITOPE), and perhaps also from the milk allergy study (MILES).
After the anaphylactic shock of 2020 (the worst stock performance last year for European biotech companies), the guidance delivered this week by the FDA had the effect of an epinephrine shot to DBV’s stock.
The IPOs of European biotech companies at their lowest of past decade in Europe, and the continuing exodus of UK biotech companies from AIM
Only 2 IPOs of biotech companies took place in 2020 on the main European markets: 1 in Sweden (Stayble Therapeutics for 35 mSEK or 3.3 mEUR in Q1 2020), and 1 in Belgium (Hyloris Pharma for 64mEUR in Q2 2020). One has to get back to the period 2011-2013, within our universe or nano-to-smidcap biotech companies with a main listing in Europe, depending on if we look at listings or IPOs. The European ecosystem is still digesting the large number of companies that were listed over the 2014-2018 period, still representing more than half of today’s landscape (see more explanation and data in our 2019 review and in our Introductory Report).
Additionally, 6 European companies were newly listed on the main European stock exchanges, all in the Nordic countries: Idogen, Nanexa, NextCell Pharma, Toleranzia in Nasdaq OMX Stockholm (we don’t include Spotlight in our universe), and Vaccibody on Oslo Bors (now part of Euronext). Anecdotally, an early-stage Asian company named Aptorum (not in our universe) was listed on Euronext Paris in July, at the same time it floated on Nasdaq in the US. The liquidity is basically null in Paris.
Concerning the dual-listings on Nasdaq, the figure is slightly more positive, since 8 European biotech companies already listed in Europe managed to float also in the US. However only 4 out of these 8 listings included a simultaneous initial US offering. Still among the good years. These offerings were those from Calliditas, the first Swedish bio ever dual-listed (June 2020 for 97 mUSD or 85 mEUR), followed by Inventiva in July (France, for 108 mUSD or 954 mEUR) just after their positive phase 2b data in NASH. Then the Danish company Orphazyme raised 108 mUSD or 535 mDKK or 72 mEUR, with the intent to launch arimoclomol in Niemann-Pick Disease Type C in 2021 in the US. Finally, Nanobiotix (France, for 113 mUSD or 94 mEUR) also used the good momentum initiated around the SITC conference in 2020 to make a follow-on IPO move. There was no large USD IPO in 2020, all the raised amounts being around the quite standard 100mUSD.
In the UK, the attractivity of the AIM market (London Stock Exchange), on which almost all the British bios in our universe are listed, still showed some worrying signs in 2020. Indeed, even if the performance of the UK bios has been literally stunning last year, being listing on AIM is seemingly more seen as a plea than as an advantage by many important deep pocketed investors, preventing them to invest in this market place, globally poorly liquid.
In 2019, Realm Therapeutics disappeared and Summit Therapeutics announced its intention to only float in the US, which was accomplished early in 2020. Tiziana had also planned to re-domiciliate in Bermudas and to leave AIM but they finally gave up this plan. Verona Pharma, whose fate changed radically after a strong financial backing of a concert of several US funds relating to the prospects of ensifentrine in COPD and COVID, was de-listed in Q4 2020 from AIM, also only floating on Nasdaq. A similar story occurred on Mereo Biopharma in 2020. Several US funds interested by the potential of their anti-TIGIT, on the shelves until 2020 after the merger with Oncomed, re-financed the company but at their conditions. The company was de-listed from AIM last December and is now only listed on Nasdaq. Also leaving soon, 4D Pharma was acquired by the SPAC of Longevity, and then 4D is also to leave AIM in the following weeks. In the same vein, 2 large fund managing entities with crossover funds (Redmile, assisted by Sofinnova) “took over” Redx Pharma. It would not be surprising if Redx lists in the US some day and de-lists from AIM. Finally, Motif Bio, a cash shell since 2020, is likely to be out of the biotech picture in the coming weeks, since they are to merge with the company by the end of the month. Otherwise, that will make one less biotech listed on AIM (not that it will miss to many investors in the landscape). With all the SPACs burgeoning in the US every day, a few more companies could merge and follow the path of 4D Pharma, only leaving a few historical companies and a bunch of small companies. If on top of that, you add the Brexit, one may really wonder about the future of the UK biotech on London AIM.
Not in our universe because of their direct listing on Nasdaq, the last of the 3 most advanced mRNA companies, the German Curevac raised 245 mUSD in August, amidst the pandemic, obviously with the main aim to finance the development, the manufacturing and the distribution of their COVID-19 vaccine. In last year review, we were wondering when this would happen, given that the company was slight behind in terms of maturity. But COVID-19 speeded things up. After Moderna in 2018 and BioNTech in 2019, Curevac could not miss this opportunity. The market cap jumped from 2.8 bUSD based in the IPO pricing to 14.5 bUSD at the end of 2020 (best-performing IPO of 2020 according to Jefferies), the investors aligning the valuation to its mRNA peers, irrespective of the data available, the timing of the availability of the vaccine, and the pipeline. Rightfully, Curevac, well backed by the German Federal State (several hundreds of million euros) and Europe (75mEUR EIB loan rapidly awarded), managed to negotiate the largest COVID-19 vaccine preorder from the European Commission (for initial doses) among the 3 mRNA players. Indeed, Curevac is set to deliver 225 million doses if approved, versus only 100 million doses for Pfizer/BioNTech and 80 million for Moderna. The contracts have changed since, but this tended to indicate a lower price for Curevac vaccine, which was furtherly confirmed by the leaked data of the [see out topic]. Curevac announced at the beginning of the year that they will be assisted by Bayer for the operations and the regulatory part concerning the COVID-19 vaccine and its supply to the European countries. Of note, Curevac currently has no COVID-19 vaccine pre-orders outside Europe.
On the other side of the Atlantic, 2020 was yet another IPO boom. According to data compiled by Bruce Booth from Altas Venture (see his blog post here - a very recommended resource), there were 74 biotech IPOs on Nasdaq (56 in 2018, 46 in 2019), more than the previous peak of 2014 (69), raising approximately 14 bUSD, versus around 5.85 bUSD in 2019 & almost 7 bUSD in 2018. A record. In fact, all the metrics presented (the US biotech indices), the number of IPOs, the funds raised from these IPOs, the IPO performances, the number of follow-on offerings and the amounts raised from these secondary offerings, as well as the amounts from VC financing, all ended or reached new highs in 2020. Finally, not in our scope but still good to know, the VC financing in Europe also saw a strong increase in 2020, according to the data from SVB Leerink . The amounts raised by the biopharma private sector reached 4.7 bUSD in 2020 (versus around 25 bUSD in the USD), up from 3.1 bUSD in 2019 (roughly +50%) and 2.8 bUSD in 2018. Like in the US, the large series A rounds are also increasingly common in Europe. The number of series A deals for European biopharma companies reached 53 operations for 1.1 bUSD in 2020, up from 640 mUSD in 2019 and 770 mUSD in 2018, both with 43 operations. Now the question for the future is whether these European private companies funded in the past few years will only aim at being listing straight in the US (for those who will go public), or if we will see some being listing in Europe first.
Overall, the gap in financing power remains huge between the US and Europe, but things globally moved in the right direction on this side of the Atlantic in 2020. Given the massive financing boost seen in 2020, one would expect that the IPO trend for European biotech bottomed in 2020. However, similarly to our take for 2020, it would be surprising to see figures already back at the same levels as in the 2014-2018 period. But there is certainly more room than in the past couple of years.
2021 will be focused on the rollout of the COVID vaccination worldwide. No surprise expected on the rates. More support for the economy in the US and also being talked about in Europe. So far, with all the focus on the COVID-19 pandemic, the election of Biden as the new US President had no negative effect on the healthcare sector. But one could imagine that, the pandemic fixed, Biden and the democrats seriously consider working on the drug pricing. Given that the Congress and the Senate are now democrats, how more favorable of a political setup could it be (at least before the midterm elections)? In that case, you can be sure that the pharma sector will not miss the opportunity to put in front their involvement to end the pandemic. But at the same time, can the US afford to see 7% annual price hikes on old biologics forever? What is certain is that the ICER’s list of drug price increase unsupported by new clinical evidence does not risk to be depleted in the years to come without any change.