Why not start this summer off right with Galápagos? I know what you’re thinking — the Galápagos Islands are quite dreamy, but what I really mean is the stock, as in Galápagos NV or $GLPG. Galápagos NV is a promising biotechnology company based out of Belgium with one of the largest and most diverse clinical pipelines. They specialize in various diseases such as ulcerative colitis, rheumatoid arthritis, and idiopathic pulmonary fibrosis. Their approach is simple: discover the proteins that cause these diseases and then develop molecules that act as inhibitors to control them.
By Matthew Rojas, Financial Analyst
Currently, Galápagos is investigating several diseases in Phase I, II, and III clinical trials; not to mention, they have over 20 discovery programs dedicated to finding proteins that cause diseases and their subsequent inhibitors. Galápagos has several strategic partnerships with other biotechnology companies including Novartis, Servier, and, most notably, Gilead Sciences. The Summer of 2020 is an exciting time for both Galápagos and Gilead as their potential blockbuster inhibitor, filgotinib, recently tested positive for moderate to severely active ulcerative colitis in their Phase IIb/III clinical trial.
Filgotinib is a JAK1 inhibitor designed to treat ulcerative colitis, Crohn’s disease, rheumatoid arthritis, and other inflammatory diseases. JAK1 inhibitors are new mechanisms of action that are attractive to less severe patient populations because they are oral medications. Additionally, ulcerative colitis, for example, is a heterogeneous disease that requires many mechanisms of action to serve the entire patient population. Therefore, filgotinib is a revolutionary invention that has the potential to help patients who have not had success with other drugs. According to Phil Nadeau, Wall Street Analyst at Cowen and Co., there is a “market opportunity of over $4 billion for the 90,000 US [ulcerative colitis] patients who fail conventional therapy”. As of May 20, 2020, the 200 mg dose of filgotinib has tested positive for moderate to severely active ulcerative colitis. More importantly, the drug may have avoided the potentially fatal venous thrombosis black box warning, which other JAK1 inhibitors, such as Abbvie’s RINVOQ and Pfizer’s Xeljanz, have failed to do.
Additionally, on June 4, 2020, Galápagos and Gilead released their week 52 results from their Phase III clinical trial for filgotinib in adults with moderate to severely active rheumatoid arthritis. According to the study, “The data demonstrate sustained efficacy and a consistent safety profile with up to 52 weeks of filgotinib across RA patient populations”. Because filgotinib appears to be both effective and safer for ulcerative colitis and rheumatoid arthritis patients, this drug represents a perfect opportunity for people to invest in Galápagos.
The Numbers (in thousands of €):
Galápagos has strong financials and statistics, allowing it to operate productively even during the current pandemic. According to its 2020 first-quarter balance sheet, Galápagos has €2,743,573 in cash and cash equivalents, a 124% increase compared to its first-quarter in 2019. Many companies are currently in a liquidity crunch due to COVID-19, whereas Galápagos has ample cash to continue operations. Furthermore, Galápagos’ current ratio is a staggering 9.28, meaning that it can easily cover its short-term debt obligations. They also have an ideal debt-to-equity ratio of 1.1, indicating a small amount of risk because the company is growing steadily without taking on a serious amount of debt.
Moving to the first-quarter income statement, Galápagos is currently operating at a loss of €50,601; however, it is important to keep in mind that this is not necessarily a bad thing. During the first quarter of 2020, the company invested €116,763 in R&D, and during the year of 2019, they invested €427,320 in R&D. Galápagos is a growing company that is using its earnings to reinvest in initiatives that will likely payout in the future. Beyond filgotinib, Galápagos has other molecules in mid to late stages of clinical trials such as GLPG1960 for idiopathic pulmonary fibrosis and GLPG1972 for osteoarthritis.
According to its most recent statement of cash flows, Galápagos burned just €83,398 in cash and ended the first quarter with a net increase of €864,965 in cash and cash equivalents. The company is clearly generating more than enough cash to keep up with its quarterly expenditures. Overall, Galápagos has stellar financials across all three statements, making them an excellent company to invest in.
At its peak this past February, Galápagos was trading at $274.03, whereas now the share price has decreased by about 27% to approximately $200. This decrease in share price is likely because Galápagos has no initiatives specifically dedicated to COVID-19, so it is not at the forefront of many investors’ minds. However, with the myriad of molecules that Galálagos has in its clinical pipeline and with the recent success of filgotinib, this lower stock price represents a great opportunity for people to buy low and sell high once the market inevitably recovers.
At the end of 2019, Galápagos had a P/E ratio of 37.76, which was right in the range of other successful biotechnology companies. For example, Abbvie and Gilead Sciences had P/E ratios of 39 and 30.65 at the end of 2019, respectively. However, Galápagos now has a P/E ratio of 70.13, indicating that for every dollar invested, investors are profiting less than they would have last December. Nevertheless, these sharp increases in P/E ratios are what many companies are seeing as they struggle to deliver as many profits to shareholders as they did before the pandemic. This ratio will likely decrease as the economy gradually resumes full-scale operations.
Currently, Galápagos’ earnings per share is -$1.69, signaling that investors are losing money — not to worry, though — this is common for biotechnology companies. Galápagos is investing heavily in R&D to push its molecules through clinical trials, and it has had a steady progression thus far. In the future, Galápagos will likely have more of its molecules approved by the FDA, and its earnings per share will increase.
Even though Galápagos’ stock has suffered due to the current COVID-19 crisis, the company has a multitude of strong selling points: they have a large and diversified clinical pipeline, filgotinib recently tested positive in the Phase IIb/III clinical trial, and the company has sufficient liquidity to carry on and recover its first-quarter losses. Overall, Galápagos has significant potential, and now is the perfect time to invest while many people are focused on stocks related to COVID-19. This summer, get on the Galápagos boat — I promise you won’t regret it.