Gilead to boost Galapagos stake as part of $5.1b deal

Bloomberg

Gilead Sciences Inc agreed to pay $5.1 billion to raise its stake in Belgian biotechnology company Galapagos NV to deepen its research into inflammatory diseases and other disorders.
The deal is the largest Gilead has executed since new Chief Executive Officer Dan O’Day took the reins in March as he attempts to bolster the San Francisco giant’s drug pipeline. Gilead is in danger of becoming a victim of its own success after launching some of the top drugs of all time, its bestselling hepatitis-C franchise.
Sales from those therapies have since declined due to increased competition.
Under the agreement, Gilead, which will pay $3.95 billion upfront to Mechelen, Belgium-based Galapagos and invest $1.1 billion to raise its stake to 22 percent from 12.3 percent, the companies said in a statement. The investment, at 140.59 euros a share, is 9.7 percent higher than the Belgian company’s closing price.
“Gilead will significantly expand its pipeline in a smart and financially savvy expanded partnership deal with Galapagos, essentially gaining options on everything in their pipeline without having to acquire the company full out,” Jefferies analysts including Michael J Yee and Andrew Tsai wrote in a note.
As Gilead seeks to fill the growing hole left from its hepatitis drugs, the Galapagos announcement may signal a shift in focus. The smaller biotech has no oncology programmes and instead focusses on research into diseases that have to do with inflammation and fibrosis, which is a kind of internal scarring.
Gilead has also had research programmes in such diseases, including through its collaboration with Galapagos, though some had speculated it may stake its future on cancer.
Gilead is already the biggest shareholder of the Belgium company before the increase in stake, according to data compiled by Bloomberg. Now it gets the option to license all of Galapogos’s future, late-stage drug candidates.
O’Day, who joined Gilead from cancer giant Roche AG, said he’s not done making good on his promise to expand the pipeline. He noted the deal almost doubles Gilead’s research capacity and establishes a strong research base in Europe where the company has historically not been as active.
“In no way is this the only thing that we’re looking at or the only thing that we’re going to do,” O’Day said. “You can look at this like it’s the beginning.”
Gilead and Galapagos held talks about an expanded partnership prior to O’Day joining the company. He was briefed on those discussions after taking the top job and within the first couple of weeks, got to know the CEO of Galapagos better.
Following those talks, the pair decided to being finalising the agreement.
This is a “science-driven deal,” Onno van de Stolpe, founder and chief executive officer of Galapagos, said in an interview. Gilead will be taking on more of the commercial side for Galapagos, helping the smaller company to focus on research. “We can now do more of what we’re good at.”
The money being invested beyond the equity stake will be used largely to double Galapagos’s R&D staff to 1,000 from 500 over an unspecified time, Van de Stolpe said. Those jobs will be added in Belgium, the Netherlands and France. “It’s massive funding — we don’t have a detailed plan yet on how to spend it,” he said.
The pact includes a provision in which Gilead’s stake could rise to 29.9 percent, if Galapagos shareholders approve two
warrants. The companies were already partners on an experimental drug for rheumatoid arthritis.
That drug, filgotinib, hit its main goal in a late-stage study in March, triggering the Belgian biotech company’s shares to surge by the most in six months.
Galapagos shares have risen 59 percent since the start of the year, compared with the 5.9 percent gain in Gilead’s stock.
O’Day had a reputation as a dealmaker while at Roche, likely one of the reasons he was selected for Gilead’s top job at a time when the company needs to look externally to drive growth.