RPT-UPDATE 1-Biotech firm Galapagos says GSK stops joint drug project

Fri Aug 8, 2014 7:07am EDT

* GSK stops project in ulcerative colitis and psoriasis

* Galapagos' main drug based on similar technology

* Shares fall to two-year low (Repeats to additional subscribers)

BRUSSELS, Aug 8 (Reuters) - Belgian biotech group Galapagos said its partner GlaxoSmithKline had stopped a joint drug development project over concerns about adverse effects, sending its shares to a two-year low.

Galapagos, which is developing several new drugs with large pharmaceutical firms, said Britain's GSK had decided to end work on its drug GSK2586184 for treatment of ulcerative colitis and psoriasis after tests showed it did not combine well with certain cholesterol drugs.

The Belgian firm said on Friday it could not comment on GSK's study because it had not seen the full results of the test. GSK said it was considering how to proceed with the project.

The end to this project prompted investors to worry about similar drugs, so-called JAK1 inhibitors, in the company's development portfolio such as its most-developed drug GLPG0634.

GLPG0634 is set to become a treatment for rheumatoid arthritis which Galapagos researches jointly with U.S. group AbbVie.

"I think investors are now worried about the company's main product which is a large part of its valuation," KBC Securities analyst Jan De Kerpel said.

Galapagos said it had carried out tests in the lab with GLPG0634 and had not found adverse effects related to drug interactions.

Its shares fell as much as 11 percent to their lowest level since the third quarter of 2012, making them the worst performer on Euronext Brussels on Friday.

Galapagos also said it expected to have more cash at the end of 2014 than initially thought, following the sale of its services division in the first half of the year.

It said its cash position at the end of the first half was 232 million euros ($309.93 million) and it expected to have 175 million euros of cash at the end of the year, just above its original 170 million target.

Excluding the sale of its services unit, the group burned through 15 million euros of cash in the first half, to fund its various clinical studies and trials.

It lowered its revenue outlook for the year to 100 million euros from the 180 million it had forecast in March, mainly because of the timing of expected payments from drug development programmes.

Galapagos said it expected several test results to become available in the next 18 months, typically a stronger trigger for the shares than quarterly results. ($1=0.7486 Euros) (Reporting by Robert-Jan Bartunek; Editing by Erica Billingham)