In December, the well-heeled Gilead Sciences (NASDAQ:GILD) inked a collaboration deal with Galapagos (NASDAQ:GLPG) on the JAK1 inhibitor filgotinib, and this week, the U.S. Federal Trade Commission granted early termination of the waiting period associated with the agreement, clearing the way for the deal to close by the end of January.
The FTC's decision is in keeping with the two companies' previously announced timeline to begin phase 3 trials of filbotinib this year, positioning Gilead Sciences to compete in an autoimmune disease market worth billions of dollars in sales annually.
Detailing the deal
Gilead Sciences will hand over $300 million in upfront cash to license filbotinib from Galapagos, and it will also pay Galapagos $425 million in cash in exchange for a 15% ownership stake in the company.
Additionally, Gilead Sciences has agreed to pay Galapagos up to an additional $1.35 billion in development and commercial milestones, and if filbotinib is approved, Galapagos will receive tiered royalties beginning at 20% in most markets. Galapagos can also opt-in to co-promote filbotinib in specific European markets, including Germany, and if it does, it will split profit (or losses) equally in those markets with Gilead Sciences.
A monstrously big market
The market for autoimmune disease treatment is one of the biggest prescription drug markets in the world, and rheumatoid arthritis is one of the largest autoimmune disease indications. Worldwide, up to 1% of the population suffers from rheumatoid arthritis, including about 1.5 million people in the United States.
So far, Gilead Sciences' efforts to tap into this market consist mostly of a few under-the-radar, in-house projects. Therefore, this deal could be trans-formative because filbotinib has already completed phase 2 trials in rheumatoid arthritis and Crohn's disease, and results have been encouraging. In addition to demonstrating efficacy, the drug has also been well-tolerated with a low risk of drug interactions.
A clean safety profile and limited drug interactions may provide Gilead Sciences with a big advantage over current biologic therapies used to treat rheumatoid arthritis. Biologics, including AbbVie's (NYSE:ABBV) $12 billion per year plus anti-TNF therapy, Humira, often don't play nicely with other medications. Further, filbotinib's oral dosing could help it win market share away from biologics, which are injected instead.
Overall, filbotinib potential advantages could allow it to capitalize on spending growth anticipated for rheumatoid arthritis treatment. According to GBI Research, the rheumatoid arthritis market will climb to $9.3 billion in 2020, up from $6.4 billion in 2013.
There's no guarantee that filbotinib's trials will pan out, or that competing drugs in development won't prove to be better.
Previously, Galapagos was teamed up with AbbVie on filbotinib, yet AbbVie exited that relationship after filbotinib's phase 2 results were published. Instead, AbbVie has decided to develop its own drugs to succeed Humira, which loses patent protection later this year. Because AbbVie opted-out of further development of filbotinib, it appears the company believes its drugs are as good as, or better than, filbotinib. If that's true, then filbotinib's market opportunity may end up being smaller than hoped.
Nevertheless, after reviewing the same information AbbVie did, Gilead Sciences still decided that filbotinib is worth the risk, and given Gilead Sciences' impressive track record in HIV and hepatitis C, investors may want to give management the benefit of the doubt that it sees something in filbotinib that AbbVie doesn't.
Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.