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Abbott to Buy Galapagos Arthritis Drug Rights for as Much as $1.35 Billion

Abbott Laboratories (ABT) agreed to pay Galapagos NV (GLPG) as much as $1.35 billion for rights to an experimental rheumatoid arthritis drug that would compete with a Pfizer Inc. pill.

Abbott will pay Mechelen, Belgium-based Galapagos $150 million upfront for rights to the drug, GLPG0634, the companies said in a statement today. If mid-stage clinical trials are successful, Abbott Park, Illinois-based Abbott will pay another $200 million to license the treatment, they said. Galapagos is eligible for additional payments totaling $1 billion if development, regulatory and sales goals are met.

The deal gives Abbott, whose Humira is the world’s top- selling rheumatoid arthritis treatment, access to a drug that may be the best in a “new wave” of pills against a disease that’s now treated with injections, said Andre Hoekema, head of Galapagos’s corporate development. Humira, which earned Abbott $7.9 billion last year, may face competition this year if Pfizer’s pill, tofacitinib, wins U.S. regulatory approval.

“Galapagos is not No. 1, but we feel we have a very good chance to be the best-in-class,” Hoekema said on a conference call with reporters today.

Abbott fell less than a percent to $56.61 at 4 p.m. New York time.

Galapagos surged 21 percent to 13.09 euros in Brussels, its highest closing price since October 2010. The stock has gained 26 percent this year, valuing the company at 345.9 million euros ($462.3 million).

Injections Dominate

Galapagos’s compound may help Abbott retain its leading position in rheumatoid arthritis, said Barbara Ryan, an analyst with Deutsche Bank.

“Abbott’s efforts in developing follow-on therapies that would allow it to leverage and extend its dominant position in autoimmune diseases have been lacking to date, and concerns about Humira’s outlook have weighed on the stock’s valuation,” Ryan said in a note to clients today. “The acquisition of GLPG0634 could potentially significantly improve the long term outlook for Abbott’s key pharma franchise.”

About 1.3 million people in the U.S. have rheumatoid arthritis, a chronic disease in which the immune system mistakenly attacks healthy tissue, causing inflammation in and around joints. Treatments suppress the immune system and can increase vulnerability to infection.

Market Domination

The market for drugs against the disease is dominated by injections such as Humira, Johnson & Johnson (JNJ)’s Remicade and Amgen Inc. (AMGN)’s Enbrel, which New York-based Pfizer shares. These block a protein called tumor necrosis factor, or TNF, that’s overproduced by patients with rheumatoid arthritis.

GLPG0634 and tofacitinib belong to a new class of drugs called JAK inhibitors that block an enzyme called Janus kinase. Kinases play a role in the signaling mechanism used by a number of proteins known as cytokines that are involved in autoimmune diseases such as rheumatoid arthritis. Unlike Pfizer’s drug, GLPG0634 only targets one of the four JAK proteins, JAK1, avoiding side effects such as anemia and raised cholesterol, Hoekema said.

‘Must-Have’ Drug

JAK inhibitors “are very much en vogue -- a ‘must-have’ pipeline accessory” for drugmakers including Pfizer, Eli Lilly & Co. (LLY), Novartis AG (NOVN) and now Abbott, said Shawn Manning, an analyst at Singer Capital Markets in London. “Given the value of the deal, we would hypothesize that the Belgian company benefited from a competitive bidding process,” Manning wrote in a note to clients today.

Galapagos held discussions with 12 potential partners for the drug, Chief Executive Officer Onno van de Stolpe said on a conference call today. By the end of the process, there were “multiple” bidders, Hoekema said. Galapagos chose Abbott because “they are innovative, they’re a dominant player, and they were willing to pay premium terms,” van de Stolpe said.

In a trial of GLPG0634 in 24 patients, the drug reduced symptoms of the disease by 20 percent in 83 percent of patients after four weeks, compared with 33 percent of those who got a placebo, Galapagos said in November. Tofacitinib reduced symptoms by 20 percent in as much as 53 percent of patients after six months, in a trial involving 717 patients, Pfizer said the same month.

The data shows that it will compete well with other JAK inhibitors, said Adelle Infante, a spokeswoman for Abbott. “Early data for GLPG0634 suggests better efficacy and safety profile than other JAK inhibitors currently in development,” Infante said in an e-mail.

Data by 2014

Galapagos said it plans to begin a second mid-stage trial shortly, and will deliver a package of data to Abbott in 2014.

If Abbott licenses the drug at that juncture, the U.S. company will be responsible for the third and final stage of clinical trials typically needed for regulatory approval, according to the statement. Abbott will pay Galapagos double- digit royalties on sales if the drug comes to market.

Galapagos plans to use the proceeds to fund development of other experimental medicines, the company said.

Van de Stolpe isn’t interested in selling the company, he said on the conference call. “The chance that somebody will launch a bid on the company is reduced, which is good news because we would like to keep the company independent,” he said.

“In the last couple of years, on a licensing deal we haven’t seen any bigger numbers,” Van de Stolpe said of the deal size. The agreement “will enable us to start building an infrastructure that we need for further pipeline molecules that we’re driving towards the market.”

Galapagos will give an earnings forecast when it reports results on March 2, Van de Stolpe said. The Abbott payment “clearly will have an impact,” he said.

It’s too early to tell what peak sales of the drug may be, said Van de Stolpe. Analysts predict Pfizer’s (PFE) product, tofacitinib, will reach $2 billion to $5 billion peak sales, “and clearly we are targeting the same market,” he said.

Abbott said Oct. 19 that it will split this year, with one company selling generic drugs and medical devices and the other prescription medicines.

To contact the reporters on this story: Phil Serafino in Paris at pserafino@bloomberg.net; Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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