Washington Editor

Belgium biotech Galapagos NV Wednesday said it formed a partnership with Eli Lilly and Co. to develop new osteoporosis therapies in a deal worth at least $395 million.

The deal is the third the firm has struck with large pharmaceutical companies in the past few months.

Under the Lilly partnership, Galapagos will provide the Indianapolis-based pharmaceutical firm access to 12 of the biotech's osteoporosis targets and drug discovery programs.

Galapagos will receive an up-front payment from Lilly of $4.3 million. The biotech is eligible for up to $126.4 million in discovery, development and regulatory milestones for each target program.

"Clearly, with 12 targets the potential would be 12 times 88, but that is clearly unrealistic because there will be a potential for attrition going forward," Galapagos CEO Onno van de Stolpe told investors Wednesday in a conference call. "With 12 programs, not all programs will lead to a product into the clinic, let alone a product on the market."

If a product makes it to the market, Galapagos could bank up to $191 million in a one-time sales milestone payment.

That sales milestone, Stolpe emphasized, will be linked to reaching certain sales levels of a product in the worldwide market and only will be paid on the first product that makes it to the market under the alliance.

Galapagos also is eligible to receive double-digit royalties on worldwide sales on products developed under the Lilly partnership. "The royalties are ultimately the big payback for the company when we are successful in bringing products to market," Stolpe said.

On the assumption that one product reaches the market, he added, the deal is valued at $395 million.

"Clearly, if there would be more products resulting from this program, which is, of course, a possibility, the deal value would be higher," Stolpe noted. However, he said, if no products make it to the market, "the value will be less."

The "big upside" for Galapagos, he added, is ultimately when the firm hands over products to Lilly.

Under the terms of the agreement, Galapagos will be responsible for developing drug candidates through to the Phase IIa clinical proof-of-concept stage, while Lilly, which markets the osteoporosis medications Evista (raloxifene) and Forteo (teriparatide), will have the exclusive option to further develop and commercialize drug candidates on a worldwide basis.

Galapagos will have the right to further develop and commercialize compounds for which Lilly does not exercise its option.

Galapagos structured its alliance with Lilly so that, "on a year-by-year basis, the cost of the alliance, more or less, is neutralized by the revenues that we can get through the milestones," Stolpe explained.

The firm, he said, has spent about $47.5 million on research and development this past year. "We anticipate further growth in 2008," Stolpe added.

"We have the largest R&D team bone and joint disease area worldwide," declared Graham Dixon, vice president of drug discovery for Galapagos. "We are approaching 200 expert scientists working on our internal portfolio of projects in the bone and joint disease area."

Galapagos, Stolpe added, has more than 40 target-based discovery programs in five disease areas, which largely are partnered with big pharma companies.

"We believe it is one of the largest programs in the biotech industry," Stolpe said. "We are on track to be the leading biotech company in Europe."

Galapagos padded its coffers considerably recently. It formed an alliance worth up to $1.4 billion in October with Titusville, N.J.-based Janssen LP, a Johnson & Johnson subsidiary, to develop products to treat rheumatoid arthritis. (See BioWorld Today, Oct. 25, 2007.)

The Mechelen, Belgium-based biotech earlier this month announced a $315 million deal with London-based GlaxoSmithKline plc to develop anti-infective drugs. Galapagos already has a $267 million agreement with GSK inked in 2006 to develop osteoarthritis therapies.

The biotech Tuesday received a $10.8 million milestone payment under that deal, which brings to date total milestones for the GSK osteoarthritis alliance to $21.7 million for Galapagos.