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Galapagos Expands Osteoarthritis Alliance with GlaxoSmithKline

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Galapagos NV has announced that its existing multiyear alliance in osteoarthritis with GSK will be expanded, and that Galapagos has issued 513,281 new shares for an investment of €4.4 million by GSK.

GSK will bring a drug discovery program against a selected GSK target into the alliance. Within this additional program, Galapagos will progress a disease-modifying drug towards completion of clinical Phase IIa (Proof-of-Concept), at which point GSK’s global research and development organization will be responsible for the late-stage development, production and marketing of the drug.

Furthermore, GSK may add a second osteoarthritis drug discovery program against a selected GSK target into the alliance.

Upon achievement of a future milestone event already defined in the original alliance, Galapagos will receive an additional cash payment from GSK of €3 million for initiating the first additional program plus €3 million if GSK brings a second program under the alliance.

In total, for products arising from two new programs brought into the alliance, Galapagos would receive up to €32.3 million in development milestones upon achievement of clinical Proof-of-Concept by Galapagos.

Upon successful completion of all agreed criteria, total cash value for Galapagos, including the €4.4 million equity investment, would be €61.7 million for each product, plus up to double-digit royalties on GSK worldwide sales. Galapagos could obtain up to €186 million in total milestones if the expanded collaboration yields 2 marketed products.

The expansion builds on the existing strategic alliance between Galapagos and GSK in osteoarthritis and secures a full exploration of Galapagos drug discovery capabilities to optimize the value of the collaboration for both parties. With the expanded alliance in place, Galapagos and GSK will continue to collaborate in the existing multiyear alliance as planned, and GSK will maintain its financial obligations under the original collaboration agreement.

The original alliance carried up to €137 million in upfront, equity and milestone payments for two marketable products and up to double-digit royalties. Galapagos already has received €7.6 million in access fees and milestone payments from GSK since the start of the program in June 2006.

The expansion broadens the portfolio of validated targets and compounds in the field of osteoarthritis. Galapagos pursues medicinal chemistry programs and develops compounds into candidate selection molecules through to a successful Proof of Concept in clinical research Phase IIA.

GSK will have exclusive options to further develop and commercialise these compounds on a worldwide basis. Galapagos will have the right to further develop and commercialise compounds for which GSK does not exercise its option.

As part of the transaction expanding the alliance, Galapagos and GSK have entered into an agreement pursuant to which GSK has made an equity investment of €4.4 million in Galapagos by subscribing to 513,281 newly issued shares from Galapagos at €8.63 per share (the average Galapagos share price over the last thirty days prior to 29 June 2007 as quoted on Euronext Amsterdam). These shares will be subject to a lock up of one year.

The newly issued shares rank pari passu with the existing Galapagos shares. Galapagos shall within one month from the issue apply for a listing of the newly issued shares on Euronext Brussels and Euronext Amsterdam as well as on London AiM. This investment replaces the up to €3 million equity investment that was part of the original alliance conditions announced June 7th 2006 and which was due upon reaching a certain milestone.

Hugh Cowley, Senior Vice President of GSK and head of the Center of Excellence for External Drug Discovery (CEEDD) at GSK noted, “The alliance between the CEEDD and Galapagos is off to an excellent start, and the CEEDD is very pleased with the progress to date. We expect the alliance to contribute to GSK’s development pipeline in osteoarthritis in the future, validating the collaboration model we sought to establish under the CEEDD strategic initiative at GSK.”

“The expansion of the collaboration announced today shows the strength of our drug discovery engine and the trust that GSK has in our capabilities to develop novel drugs,” said Onno van de Stolpe, Chief Executive Officer of Galapagos. “Through this combination of GSK’s understanding of medical needs and Galapagos’ innovation in drug discovery, we aim to bring new medicines to patients.”