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Is This a "10-Bagger" in the Making?

Baby biotech Galapagos NV (PINK ADR: GLPYY) has done it again.

Galapagos – our first recommendation, and our biggest winner to date – revealed that a second of its drug discoveries is about to enter Phase II studies.

And Big Pharma heavyweight GlaxoSmithKline Inc. (NYSE ADR: GSK) will be running the trials, the Mechelen, Belgium-based Galapagos disclosed Tuesday.

Permanent Wealth Investor Editor Martin Hutchinson recommended Galapagos back on Aug. 11, 2011 – Private Briefing's first day of publication. Since then, the stock has risen as much as 205%.

Despite the gains, Martin has repeatedly told Private Briefing subscribers that there's still a big potential profit in this stock.

Indeed, it could easily end up as a "10-bagger," Martin told us back on Sept. 11.

"You just don't find opportunities like this very often," Martin said at the time. "This is one [investment] that investors will be able to buy and hold for a very long time … it's a lovely stock."

The latest news has to do with GSK2586184 (the new GSK designation of the drug formerly known as GLPG0778), which targets systemic lupus erythematosus (SLE) and chronic plaque psoriasis – both autoimmune disorders.

In SLE patients, GSK hopes to assess the safety and efficacy profile of varying doses of GSK2586184 in a 12-week, multi-center placebo-controlled Phase II study. It will conduct a similar study for chronic plaque psoriasis.

Galapagos said that GSK2586184 – a "selective JAK1 inhibitor" – was discovered and developed as part of its osteoarthritis alliance with GlaxoSmithKline.

Janus kinase inhibitors – also known as JAK inhibitors – are a type of drug that inhibits the one or more of the "Janus kinase" family (JAK1, JAK2, JAK3 and TYK2) of enzymes. As such, these inhibitors have therapeutic benefits in the treatment of cancer and inflammatory diseases.

GSK in-licensed the molecule in February 2012, in a deal that gives it worldwide rights for additional development and commercialization. Even without any additional investment, Galapagos is eligible to receive $46 million (34 million euros) in additional milestones. It also has the potential to earn double-digit royalties on global commercial sales of the drug.

GSK2586184 is the second selective "JAK1 molecule" discovered by Galapagos to enter Phase II studies.

"Inhibition of JAK1 is considered a promising new therapeutic route to treat inflammatory diseases [and] Galapagos is leading the field with two JAK1 inhibition molecules being tested in patients," said Galapagos CEO Onno van de Stolpe. "With two of our JAK1 molecules in Phase II we hope that this will deliver a new class of medicines to patients with inflammatory diseases."

The other drug JAK1 drug is GLPG0634, an orally-available, selective JAK1 inhibitor for the treatment of rheumatoid arthritis (RA) and other inflammatory diseases. It's about to enter Phase IIb studies.

Galapagos and AbbVie Inc. (NYSE: ABBV) have signed a worldwide license agreement that calls for the bigger company to further develop and commercialize that drug.

The Belgian biotech specializes in developing drugs with novel modes-of-action. And it boasts a pretty large pipeline with four clinical, six pre-clinical and 30 discovery-stage small-molecule and antibody programs in cystic fibrosis, inflammation, antibiotics, metabolic disease, and other indications.

"Bill, this is a company that continues to go from strength to strength – and that is still very reasonably priced as a research powerhouse," Martin said during a recent discussion. "That said, we do have to note that the stock's tripling in price is being noticed by the market, so it's not as obscure as it was. That's not necessarily a bad thing. But it does mean one must take protective measures. If you don't have one, put a broad (say 30%) trailing stop on it, so that if the price zooms and crashes, you'll get out near the top."

And if you're looking to establish a new position, or add to an existing one, think about "averaging in" as a strategy that will let you offset any downdrafts, should they occur.

[Editor's Note: Galapagos' U.S. shares are somewhat thinly traded. That doesn't have to scare you off, though. If you buy the U.S. shares, just be sure to use limit orders to purchase at the price you desire. The stock is also actively traded on the Brussels exchange – about 66,000 shares a day, Martin says. Check with your broker to see if it allows U.S. investors to buy shares abroad.]

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