Galapagos, Merck sign inflammatory disease agreement

Partnership on small molecule drug candidates could be worth up to $257 million

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MECHELEN, Belgium—Belgian biotech Galapagos NV announced in April that it has reached a deal worth up to approximately $257 million with Merck & Co. to identify inflammatory disease targets, namely obesity and diabetes.

The alliance will make use of Galapagos' proprietary SilenceSelect target discovery platform for identification of novel targets in inflammatory diseases. After validation, targets will be selected by a joint steering committee and entered into screening and chemistry by Galapagos. Merck will be responsible for the development and commercialization of the candidate drug and has the option to acquire an exclusive license to each candidate drug and upon exercise of such an option.

"This new alliance with Merck in inflammatory diseases, our sixth pharma alliance to date, underscores the quality and versatility of Galapagos' target discovery platform," says Onno van de Stolpe, Galapagos' CEO. "Galapagos has proven it delivers on its alliance programs, making us attractive to potential pharma partners seeking to fill their pipelines with medicines based on novel modes of action."

Galapagos has a separate agreement with Merck to develop candidates for the treatment of obesity and diabetes. Other agreements are with Eli Lilly & Co., Johnson & Johnson, Janssen Pharmaceutica and GlaxoSmithKline.

According to van de Stolpe, any compounds not pursued by Merck could be licensed to other pharma companies, or Galapagos could take them through preclinical/Phase I itself, depending on the opportunity and the financial muscle available at the time.

Under the terms of the agreement, Galapagos will receive an upfront fee of $3.3 million from Merck. In addition to upfront fees, Galapagos is eligible to receive discovery, development and regulatory milestone payments that could potentially exceed $254 million total for multiple products, as well as specific sales milestones and royalties upon commercialization of any products covered under the agreement.

"We have milestone opportunities during the whole program, and we anticipate that on a yearly basis the milestones will cover our research costs," says van de Stolpe. "After the licensing at candidate or after Phase I, Merck will be responsible for the further development and for Galapagos there will be no further costs in getting the later milestones."

According to van de Stolpe, the first milestone could come later this year, with a number of additional milestones next year. He declined to detail the value of the payments.

The rising milestone payments could make Galapagos an attractive candidate for acquisition. Some partners could find that it is cheaper to acquire Galapagos rather than to pay the milestone payments.

"We would like to grow Galapagos independently and are not looking to be acquired," notes van de Stolpe. "As we have other pharma companies as alliance partners, it is not likely that either one of these will be interested to acquire us in the near future. The rest would be speculating."

The focus of the agreement will be on compounds targeting obesity and diabetes.

"By combining Galapagos' novel target identification strategy with Merck's drug development expertise, this collaboration provides a unique opportunity to discover and develop potential new therapies for diabetes and obesity," says Catherine Strader, vice president of external basic research at Merck Research Laboratories.

KBC analyst Jan de Kerpel points out that with Merck having the right to license and develop a candidate drug in the pre-clinical stage, Galapagos' involvement might be restricted to pre-clinical studies, limiting its milestone payments. More importantly, he adds, the company is moving into new treatment areas.

"There is only a limited chance of success starting at such an early discovery that a drug will make it the market, but the company is aware of that and is working in different areas to spread the risk," de Kerpel told Reuters.

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