Galapagos Signs Major Arthritis Deal with J&J

Belgian biotechnology company Galapagos said on Wednesday it had signed a deal potentially worth up to one billion euros with Johnson & Johnson unit Janssen Pharmaceutica.

Galapagos, which specializes in bone and joint diseases, will enter into a global alliance with Janssen on rheumatoid arthritis research.

Shares in the company shot up at the opening and were 12 percent higher at 7.6 euros.

Galapagos will receive 15 million euros ($21.3 million) in upfront cash payments plus a first 2 million euro alliance milestone payment. It will also receive yearly option fees and is eligible for discovery, development, regulatory and sales milestones and royalties on worldwide sales.

Highlights include up to 430 million euros in development and regulatory milestone payments should more than one product be launched and up to 346 million euros of sales milestones as well as double-digit royalties.

"Between five and eight years, a substantial part of these milestone payments should come into the company," Chief Executive Officer Onno van de Stolpe told a conference call.

Johnson & Johnson already sells Remicade to treat rheumatoid arthritis, but this in an injection, while the alliance with Galapagos could lead to a pill.

"Clearly J&J is looking to a next generation of drug to take on the position of Remicade," Van de Stolpe said, adding Remicade was currently selling $4 billion per year. "So there is clear upside for Galapagos."

Forecasts Raised

Based on this deal, it said it expected 2007 revenues of 60-64 million euros ($85.27-$90.96 million), up from previous guidance of 54-58 million euros, and a cash position by year-end of more than 48 million euros against a previous 31 million-euro forecast.

Under the agreement, Janssen may select up to 12 programs from Galapagos' internally identified rheumatoid arthritis targets. Galapagos will continue research with a further seven.

"The main competitive edge that we have is that Galapagos has focused on the identification of novel targets, human proteins that are directly responsible for rheumatoid arthritis," Van de Stolpe said. "We have new starting points to develop a new drug."

The first candidate drug is set to start phase I clinical trials in 2008. Two more could follow in 2009.

"This deal gives the company access to the necessary funds and expertise to bring its RA products much closer to the market. Together with the GSK deals, this significantly improves Galapagos's long-term potential and reduces the risk profile of the company," KBC Securities said in morning research note.

Galapagos already has a major alliance with GlaxoSmithKline in osteoarthritis, with up to 186 million euros in milestone payments and potential double-digit royalties.

Van de Stolpe said he saw the Janssen deal as a model for its other program for brittle bone disorder osteoporosis.

"We believe that pharma is looking for a risk-sharing alliance and is willing to pay big bucks and share the upside through royalty agreements," he said.