Morgan Stanley: Time To Buy Galapagos

In a report published Monday, Morgan Stanley analyst Matthew Harrison initiated coverage of Galapagos NV GLPG with an Overweight rating and a price target of $73, while expressing optimism regarding the company's long-term growth, given the pipeline for rheumatoid arthritis (RA) and cystic fibrosis (CF).

The company's pipeline provides it access to large market opportunities including the $15B RA and $10B+ CF markets. Galapagos has two leading pipeline projects:

1. Filgotinib - a selectiveJAK1 inhibitor for RA and Crohn's disease
2. A library of CFTR modulators - can correct underlying genetic defects which cause CF

Both these assets are in partnership with AbbVie Inc ABBV, which includes mid-teens to low twenties royalty.

In the report Morgan Stanley noted, "Initial 12 week data from the DARWIN1 and DARWIN2 datasets were released in April. The data suggests that filgotinib achieved disease reductions in excess of the other competing oral agents without similar toxicities, especially anemia."

Existing oral agents, such as Xeljanz launched by Pfizer Inc. PFE, have failed to gain significant traction. The reasons cited are:

• lack of favorable insurance coverage due to Pfizer's pricing strategy
• safety/tolerability of Xeljanz
• some trepidation among physicians to use new agents

"We do not believe AbbVie will make similar commercial mistakes," analyst Matthew Harrison said, while adding that the differentiated profile of filgotinib could reach $3B in peak sales.