What happened

Shares of Galapagos (GLPG -1.80%) were crashing 24.6% lower as of 11:14 a.m. EDT on Wednesday. The big drop came after the biotech's partner, Gilead Sciences (GILD -0.44%), announced that it had received a complete response letter (CRL) from the U.S. Food and Drug Administration (FDA) for its regulatory filing for approval of filgotinib in treating rheumatoid arthritis. Gilead teamed up with Galapagos on development of the investigational drug in 2015.

So what

The FDA requested data from the MANTA and MANTA-RAy clinical studies evaluating filgotinib in other indications before completing its review of the regulatory filing for the drug in treating rheumatoid arthritis. Data from these studies won't be available until the first half of 2021.

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Image source: Getty Images.

This is bad news all by itself for both Galapagos and Gilead. It means that any potential FDA approval and commercial launch of filgotinib could be pushed back well over a year.

But there's even worse news: Gilead stated that the FDA "expressed concerns regarding the overall benefit/risk profile of the filgotinib 200 mg dose." This could possibly jeopardize the chances of approval for filgotinib in rheumatoid arthritis or any other targeted indication.

Investors were counting on filgotinib becoming a blockbuster for Gilead and generating billions of dollars over the long run for Galapagos. The FDA's thumbs-down creates considerable uncertainty for Galapagos' prospects. 

Now what

Gilead's chief medical officer, Merdad Parsey, stated that the company "will evaluate the points raised in the CRL for discussion with the FDA." However, Gilead also noted that filgotinib recently received a positive recommendation from the European Medicines Agency's Committee for Medicinal Products for Human Use. Merdad said that Gilead "continue[s] to believe in the benefit/risk profile of filgotinib" in treating rheumatoid arthritis.

Until the dust settles, it's likely that Galapagos' share price will remain highly volatile. Investors are probably best steering clear of the biotech stock in the meantime.