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Mergers & Acquisitions

Gilead and Galapagos strike big R&D deal

Gilead will pay more than $5 billion for access to the Belgian firm’s new drug pipeline

by Michael McCoy
July 15, 2019

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In a second big move to bolster its new product pipeline as its hepatitis C drugs mature, Gilead Sciences is investing more than $5 billion in the Belgian biotech company Galapagos.

The two firms have been partners for more than three years in the development of filgotinib, a potential treatment for arthritis and other inflammatory conditions. Galapagos said earlier this month that it expects to submit filgotinib for US Food and Drug Administration approval later this year.

Under the new agreement, which lasts for 10 years, Gilead will pay Galapagos $3.95 billion in cash and buy $1.1 billion of the firm’s stock. In exchange, Gilead will get exclusive rights outside Europe to six more Galapagos molecules currently in clinical trials and more than 20 products still in preclinical development. Galapagos, meanwhile, will get a broader role in commercializing filgotinib in Europe.

Galapagos, which is 20 years old, employs more than 500 scientists at sites in Belgium and elsewhere in Europe. In a drug discovery approach it calls unique, the firm uses human primary cells and patient cells to find disease-causing proteins, then develops small molecules to inhibit them.

The deal is the second recent large transaction for Gilead. Last year it acquired Kite Pharma, a California-based immunotherapy specialist, for $11.9 billion. Both moves are intended to create new avenues of growth for Gilead, which has seen its sales fall to less than $22 billion last year from a peak of $33 billion in 2015 as the market for its hepatitis C treatments matures.

Gilead struck the deal under the leadership of Daniel O’Day, who became CEO in March after more than 30 years at Roche. In leaving Galapagos independent, O’Day is following an approach that Roche used in its many-year investment in Genentech—which ended in 2008 when Roche acquired the biotech firm outright—and in its ongoing investment in Japan’s Chugai Pharmaceutical.

However, that’s not necessarily an approach that investors like. Umer Raffat, a stock analyst with Evercore ISI who covers Gilead, says investors prefer outright R&D platform acquisitions, such as Pfizer’s recently announced purchase of Array BioPharma for $10.6 billion.

Moreover, Raffat considers the next molecule in Galapagos’ pipeline, an idiopathic pulmonary fibrosis treatment called GLPG1690, to be a risky project. Bristol-Myers Squibb, he notes, ended development of a somewhat similar molecule last year. His analysis assumes a 35% chance of approval for the Galapagos drug.

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