Gilead, Galapagos Slide After FDA Rejects Filgotinib Over Toxicity Concerns

Shares of Gilead (GILD) and partner Galapagos (GLPG) are under pressure on Wednesday after the companies received a Complete Response Letter from the Food and Drug Administration for its filgotinib in moderately to severely active rheumatoid arthritis, requesting more data and expressing concerns about the treatment. Commenting on the news, JPMorgan analyst Cory Kasimov told investors that the CRL by the FDA for filgotinib is a "shock" and looks like a "near worst case scenario." Voicing a similar opinion, his peer at Credit Suisse called it "a major setback" for the filgotinib program.

FILGOTINIB CRL: Gilead Sciences announced that the Food and Drug Administration has issued a complete response letter for the New Drug Application for filgotinib, an investigational treatment for moderately to severely active rheumatoid arthritis. The FDA has requested data from the MANTA and MANTA-RAy studies before completing its review of the NDA. The MANTA and MANTA-RAy studies are designed to assess whether filgotinib has an impact on sperm parameters. The FDA also has expressed concerns regarding the overall benefit/risk profile of the filgotinib 200 mg dose.

"We are disappointed in this outcome and will evaluate the points raised in the CRL for discussion with the FDA. We continue to believe in the benefit/risk profile of filgotinib in RA, which has been demonstrated in the FINCH Phase 3 clinical program," said Merdad Parsey, Chief Medical Officer of Gilead Sciences.

'NEAR WORST CASE SCENARIO': In a research note to investors, JPMorgan analyst Cory Kasimov said the Complete Response Letter by the FDA for Gilead Sciences' filgotinib is a "shock" and looks like a "near worst-case scenario." Not only will the MANTA studies delay a potential approval by at least one year, the potential lack of dosing flexibility could impact filgotinib's competitive profile, he contended. Further, Kasimov believes Gilead's ability to grow sales over the next couple years is now under even more pressure. He kept a Neutral rating on the shares.

As U.S. approval of filgotinib was widely expected, FDA's rejection of the application is "a major setback" for the filgotinib program, Credit Suisse analyst Evan Seigerman told investors. The analyst believes that unfortunately for both Gilead and partner Galapagos, there is no easy or quick way to resolve the issues. Seigerman also pointed out that the delay and concerns are only further compounded with the highlight competitive nature of the RA treatment landscape.

Keeping an Underweight rating and a $67 price target on Gilead's shares, Barclays analyst Carter Gould noted that given Gilead messaging last summer that there was a path to approval ahead of the sperm read-outs, the CRL will come as a surprise to investors and likely weigh on shares. The news should raise some greater uncertainty around the sperm read-outs, strengthen AbbVie's (ABBV) Rinvoq's competitive positioning across the JAK landscape, likely push out approval until 2022 at the earliest, and delay any more meaningful impact on Gilead's income statement from filgotinib until 2023, the analyst contended.

Also commenting on the news, Mizuho analyst Salim Syed said he believes the CRL is worth 3%-5% of downside in Gilead's shares. Consensus currently models $2B peak sales for filgotinib on an out-year revenue base of $20B so 10% of risk-adjusted revenue is worth $5-$6 per share on a discounted cash flow basis, Syed argued, adding that the Street is likely to trim estimates after the news, worth $2-$3 to the stock's valuation, or 3%-5% downside. Nonetheless, Syed kept a Buy rating on Gilead with an $81 price target.

TARGET CUTS: Jefferies analyst Michael Yee lowered the firm's price target on Gilead to $78 from $97, while keeping a Buy rating on the shares after the company and partner Galapagos announced that they received a CRL from the FDA for the filgotinib filing in RA. Yee sees the CRL as a setback given it was a key growth driver and $2B-plus peak consensus, but doesn't think expectations were very high for Gilead against AbbVie (ABBV). Moreover, Yee believes Gilead will await more safety data in the first half of 2021, but ultimately could make tough decisions on filgotinib and will continue to increase focus on oncology.

Wells Fargo analyst Jim Birchenough also lowered his price target on Gilead to $69 from $76 following the FDA complete response letter for filgotinib in rheumatoid arthritis. With failure to gain timely filgotinib approval, Gilead falls further behind JAKi competitors, with serious questions raised regarding a relative dearth on late stage product opportunities to drive future growth, he contended. Birchenough views recent focus on early stage technology and high-risk immuno-oncology assets as not appropriately balanced with more de-risked and later stage assets and would take a wait-and-see approach to efforts to shore up its late stage pipeline. The analyst has an Equal Weight rating on the shares.

Cantor Fitzgerald and BMO Capital also lowered their price targets for Gilead to $84 and $74, respectively.

SELLOFF OVERDONE: Meanwhile, Citi analyst Nick Nieland upgraded Galapagos to Buy from Neutral with a EUR 145 price target. The analyst believes the negative market reaction to the FDA's CRL for filgotinib is overdone. While he admits that the treatment's prospects in the U.S. have changed, but he feels European approval is "almost guaranteed."
'CLEAR POSITIVE' FOR ABBVIE, PFIZER: Mizuho analyst Vamil Divan views the FDA's Complete Response Letter to Gilead and Galapagos for "important immunology pipeline asset" filgotinib as a "clear positive" for AbbVie. The news is an "important positive" to AbbVie and Pfizer (PFE) as filgotinib was expected to be an important near-term competitor to their products Rinvoq and Xeljanz, respectively, in the rheumatoid arthritis space, Divan added.

PRICE TARGET: In morning trading, shares of Gilead have dropped just over 4% to $66.27, while Galapagos' stock has plunged about 24% to $143.24.

Disclosure: None.

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