Galapagos business modelFintan Walton:
Hello and welcome to PharmaTelevision News Review here at BioPartnering Future Europe, in Brussels. On this show I have Onno Van De Stolpe, who is CEO of Galapagos, welcome.
Onno Van De Stolpe:
Thank you. Good to be back.
Fintan Walton:
Yes indeed Onno, you've been here on Pharma TV quite a number of times over the last few years, give us a quick update on where Galapagos is in terms of its, particularly its product development, but also it's other elements to business including its services side?
Onno Van De Stolpe:
Yes, very briefly what the strategy of the company is in the model where we have both revenues from services as well as our alliance model and we have our internal programs. And the big news earlier this year was a deal that we signed with Abbott [
PharmaDeals ID = 45670] regarding our rheumatoid arthritis drug 634 which is in Phase II clinical trials, that was a very large deal, a $150 million upfront and a billion in potential milestones, plus royalties, so really a serious amount of money and that was because that data of that trial that we released late last year were very, very positive, very good scores with regarding to the effects on patients and no safety signals, and we are currently concluding a trial in 90 patients which is a dose finding trial where we have four different dosages of the molecule given to patients, and of course the placebo group and that data should come out by the middle of November and we see the investors and there is ourselves of course looking forward to that dataset.
Internal research and development programFintan Walton:
Right, so that's your, that's one of your programs that you've obviously partnered, then you've got your internal research and development program, how is that going?
Onno Van De Stolpe:
Yes, we are focusing there on three different programs. The furthest advanced is a program we currently have in the clinic, that's an integrin receptor antagonist that we are developing for metastasis and we are having a program in the clinic also for inflammation that we are developing for inflamed bowel disease, and that is a very attractive program, it's a completely novel mode of action against a new target GPR43, but that also carries a lot of risk because nobody has ever seen any effects of a molecule against that target, in a clinic yet has been done so we are really pioneering there, that will go to a Phase II Proof of Concept Study early next year, so that is in the a program we are very excited about. And then earlier in the pipeline is a large program that we are having in cystic fibrosis, and we have said a couple of years back that area we would like to bring products all the way to the patients under the Galapagos label, so not partnered, at least not partnered within Europe for that program and build our own brand and our own sales force.
Fintan Walton:
Right, here you obviously because of that can get orphan status through that?
Onno Van De Stolpe:
Orphan status is much easier to get to the patient through the patients organizations, where as in these huge areas like inflammation there is no role for a biotech company because you need really the power that the pharma has to bring it to the market.
Fintan Walton:
Now each of these molecules where discovered within the Galapagos discovery machine?
Onno Van De Stolpe:
Yes that's correct. We've been working on identification of novel targets since 2002, now we have our own platform using our adenoviral technology that's still the basis of finding novel targets, and then we go the long way of validating the target and then starting the chemistry to identify a molecule that can be developed as a drug.
Galapagos 's service side business Fintan Walton:
Right, and then the third side to the business is the services side and how is that going?
Onno Van De Stolpe:
Well we had a record first half year, we have two companies operating in that service division, that's BioFocus and Argenta, both based in the UK, they're both doing very well, it is interesting that in that sector a lot of competitors have left the field because there has been a huge swing of these kind of activities to China and India, but there is still an opportunity for the high end part of drug discovery services. We have pharma companies as our clients, but also patient foundations, universities, Wellcome Trust funded programs and also biotech companies that more and more are looking at a more a virtual model where they are not investing themselves in chemistry with outsourcing that to companies like BioFocus and Argenta. So that's an interesting part of the business and really the stable basis underneath the company, so clearly the lowest risk, the most predictable part of Galapagos and over the years contributed substantial amount of cash to the R& D activities of the company.
Fintan Walton:
And as a result you will stick to that model?
Onno Van De Stolpe:
Yes, we have said that at least for the next couple of years, it's difficult in this sector to look too far into the future, but the next couple of years we would like to the continuation of the model, we make use of the service divisions for some of our internal programs, we like the cash flow and the revenues and at least until the Phase II trials with the 634 molecule are completed, which is planned for the end of 2014, then Abbott will take the license on the molecule, at least until that license has been taken we believe that we won't change the current model in any serious way there.
Fintan Walton:
Right, I suppose the, you know the thing that all people often ask is the valuation of the company based on the services versus a risk business which is taking drugs through clinical trials, obviously your share price will move according to the success on the R& D side mostly?
Onno Van De Stolpe:
It's interesting that a couple of years back we were completely valued, at least by European investors on the service part of the business plus the cash in the company, now it looks the other, we reversed and we are completely valued mainly by US investors by the way that are stepping into the stock on the 634 molecule and they understand the value of a JAK inhibitor that's the target that 634 is developed against in that playing field of small molecules in the rheumatoid arthritis space, and we see a shift of interests from the more generalist European investors to highly specialized the US based funds that buy into the story not on the service division but really on the 634 molecule and the opportunities.
Onno Van De Stolpe's perspective: Galapagos 's Business model and European biotech market vs American biotech marketFintan Walton:
Right, so obviously as a CEO of a company in Europe with this particular business model, is that the type of model that works for Europe or you are just a particular case, what's your view on that?
Onno Van De Stolpe:
Well I've been asked that question many times over the years, we started off with a dual model where we tried to generate revenues for, through our technology that we were developing, in a time that that was not very popular, this was the hyper amount the whole genome periods in 1990-2000 when money was very widely available and lots of companies got funded without any plan to generate revenues in the short-term. When that money wasn't that easily available after the bubble burst it became a model that lots of European investors found very attractive, because we didn't have to go back to the shell was all the time, be at the VC's, or be at the public markets to keep running the operations, and we actually have two-years of profitability in 2009 and 2010 realized as the result of that model. So I think in the European market it is a very sound business model, the US investors are more knowledgeable about the sector, and knowledgeable about the risks and they rather make a bet on the therapeutic program and not necessarily need the hybrid model as Galapagos has built that, but we are listed on Euronext, we are based here in Europe, and so I think for us it has worked well and by now it's very well respected by our investors.
Fintan Walton:
And how, looking again from a European perspective, you are based here in Europe, how do you measure now as a CEO of a company, like Galapagos is doing pretty well, European biotech company versus US based companies? Are there, do you still feel that in some ways you wish you were based in the US or you a happy CEO being based here in Europe?
Onno Van De Stolpe:
Well I have never run a company a biotech company in the US, so I don't know what the pros and cons would be. With regard to access to capital it is a completely different game and I think if you have a good story to tell to investors the opportunities in the US are larger, and therefore you can keep programs longer within your own, within your own space without having to partner like we having to do here in Europe, and ultimately if that product reaches the market of course the value for the investors is much higher, and also for the company to keep your programs longer in-house is of course of interest to the employees as well because they like to continue to work on a successful program, but I am not bitter about that that's reality of life, we are here in Europe and we are going to make the best of it, and I think the fact that you have this model where you actually generating a profit or a small loss makes you also very, very closely looking at all the cost associated with your business, because if you are losing 50 million anyway it doesn't really matter if it's 50 or 55, but if you are just profitable or three million of a loss that's a huge difference in the perception of the investors. So everybody in within Galapagos is always looking at, do we reach the milestones in time? Is the cost control in order, what do we invest in internal programs? And that is actually a sound way to run a business, and I think if the money is too easily available you might lose some of that focus.
Fintan Walton:
Onno, thank you very much indeed for coming on the show.
Onno Van De Stolpe:
My pleasure, as always.
Fintan Walton:
Thank you.