Gilead Sciences (NASDAQ:GILD) inked a collaboration deal with Galapagos NV (NASDAQ:GLPG) in 2015 to gain rights to the latter's JAK1 inhibitor filgotinib. Today, Galapagos decided to execute its co-commercialization rights to filgotinib in several European countries. The move comes only weeks ahead of a standstill agreement between the two companies expires and positions Galapagos to split profit in regions covered by the co-marketing agreement. Since Galapagos' decision could have a big impact on its financials, let's learn more about filgotinib and the company's relationship with Gilead Sciences.

What's the story?

Gilead Sciences swooped in with enough money to license it and acquire a nearly 13.3% equity ownership stake in Galapagos after AbbVie Inc. (NYSE:ABBV) walked away from its license to focus on its own autoimmune disease drugs.

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Gilead Sciences gave Galapagos $300 million in up-front cash for its license and handed over $425 million in cash for its ownership stake. As part of the agreement, Gilead Sciences agreed to give Galapagos up to an additional $1.35 billion in development and commercial milestones, and if filgotinib is approved, tiered royalties beginning at 20%.

Gilead Sciences also agreed to allow Galapagos to opt in to co-promote filgotinib in various European markets, an option that Galapagos took advantage of this week. After exercising its option, Galapagos will split profit on filgotinib sales in Germany, France, Italy, Spain, the U.K., the Netherlands, Belgium, and Luxembourg.

Since agreeing to license filgotinib, Gilead Sciences has advanced it into phase 3 trials in rheumatoid arthritis, ulcerative colitis, and Crohn's disease. Filgotinib is also in phase 2 trials for eight more autoimmune disease indications. 

A massive market

The market for autoimmune disease drugs is massive, especially for rheumatoid arthritis drugs. Globally, up to 1% of the population suffers from rheumatoid arthritis, including about 1.5 million people in the United States and Europe.

In 2016 alone, the rheumatoid arthritis market was worth $19 billion and the market for inflammatory bowel diseases, including ulcerative colitis and Crohn's disease, was worth $8 billion. In those indications, anti-TNF therapies such as Humira dominate first-line treatment and they represent over 40% and 70% of the second-line market, respectively.

We won't know how much of these markets filgotinib can win away until its ongoing phase 3 trials wrap up, but phase 2 results in rheumatoid arthritis and Crohn's disease were encouraging. In those trials, Filgotinib was efficacious and well tolerated, with an arguably lower risk of drug interactions than other autoimmune disease treatment options.

If filgotinib performs similarly in its pivotal trials, then Gilead Sciences and Galapagos could stand a very good chance of shaking up treatment. That's because biologics used in autoimmune diseases, such as AbbVie's $18 billion per year Humira, can interact with other medications, making their use less than ideal. Filgotinib also has a dosing advantage over biologics because it's taken orally rather than injected or infused.

Overall, Galapagos decision to execute its option suggests that it's beginning to take the steps needed to prepare to shift from a clinical-stage to a commercial-stage company. Frankly, it couldn't ask for a better partner to help it along. Gilead Sciences is among the biggest biopharma's in the world and it's got plenty of experience tapping multibillion-dollar markets, so if any company can help make filgotinib a success, it's Gilead Sciences.