Through Gilead, Galapagos secures an independent future
For $5bn up front Gilead has effectively gained access to the Belgian company’s pipeline, in a deal that will tie the US biotech to Galapagos for many years to come.
The expansive Gilead and Galapagos collaboration unveiled over the weekend was, in hindsight, a predictable move from an executive that had witnessed first-hand the benefits of arms-length but loving relationships with important partners. Before Daniel O’Day took the reins at Gilead earlier this year he was a lifer at Roche, a company known for similar deals with Genentech and Chugai – arrangements that presumably provided something of a blueprint here.
Indeed on a joint company conference call yesterday Mr O’Day made much of his desire for Galapagos to maintain its independence, for the benefit of both parties. With Gilead already owning rights to the Belgian firm’s lead project, filgotinib, a full-blown takeout was perhaps not necessary anyway. But the huge cash injection is undeniably a game changer for Galapagos, which must now be considered one of Europe’s most powerful research enterprises.
Galapagos already had around €1bn in cash in the bank, and the $3.95bn upfront fee will substantially swell the pot. The company plans to double its R&D workforce to around 1,000 people and invest heavily in bringing new mechanisms to the clinic, Onno van de Stolpe, Galapagos’s chief executive, said on the call.
Much of that new cash will go towards development of filgotinib, the Jak inhibitor over which the two companies are already collaborating. Under the new deal Galapagos is on the hook for half of development costs, up from 20% previously; given the expansive programmes across various inflammatory conditions, this will represent a substantially bigger outlay.
The new collaboration also gives Galapagos the chance to build a bigger European commercial presence, as it gives it a wider role in selling filgotinib in Europe, always assuming it comes to market.
In return, Gilead gets a big pipeline boost, something that investors have been clamouring for. This includes US rights to GLPG1690, Galapagos’s promising phase III candidate for idiopathic pulmonary fibrosis, and various options over other pipeline candidates. The press release cites six molecules currently in clinical trials though it is not clear which these are, beyond those listed below.
|The Gilead and Galapagos engagement|
|Filgotinib||Jak inhibitor; filed for RA, phase III other inflammatory conditions.||Global development costs split equally; 50/50 profit share in certain European countries; Galapagos has exclusive Benelux rights; $1.3bn milestones outstanding, and 20-30% royalties in ex-Galapagos territories.|
|GLPG1690||Autotaxin inhibitor; phase III IPF project.||Gilead gains full rights, $395m milestone due on US approval.|
|GLPG1972||ADAMTS-5 inhibitor; phase 2b osteoarthritis project.||Servier retains ex-US rights, Gilead has option to buy US rights for up to $550m after phase IIb.|
|Other early stage programmes||Includes Toledo assets, a novel inflammatory target.||Gilead has option to buy ex-Europe rights for $150m per programme, no further milestones, 20-24% royalties.|
|Source: Company statements.|
Presumably this includes a Toledo project, a key area of early-stage research for Galapagos, and one that will benefit from the extra cash, Mr van de Stolpe said. Next year the company plans “something not done before”, he said, describing putting a new mode of action into eight parallel phase II trials, in preparation for a quick push into phase III.
“We are in a unique position with this target and we will now maximise our investment. This could be a step up in the way inflammatory diseases are being treated. It’s going to be a very expensive programme, for us and later for Gilead, but we have a big opportunity to capture market share,” he told investors.
The deal also saw Gilead up its stake in Galapagos to 22%, from 12% previously, buying shares at a 20% premium for a total cost of $1.1bn. Warrants that could take the US company’s stake to almost 30% are also set to be issued, while Gilead has also agreed to a 10-year standstill, which restricts its ability to take its stake any higher.
So while this arrangement guarantees Galapagos’s independence, this is only true to a point, particularly as Gilead also gets two board seats. It is hard to see how any third party could muscle in on the Belgian company now, though investors seem unperturbed by this reality: Galapagos shares jumped 17% today, taking the company’s valuation to €8.3bn ($9.2bn), while Gilead edged 2% higher.
On the conference call executives insisted that discussions had never turned to talk of a full takeout, and there are few reasons to doubt this. Mr O’Day has seen the benefits of autonomous R&D units at Roche, and presumably would prefer to keep his powder dry for other moves. Meanwhile Mr van de Stolpe has long expressed his desire to keep Galapagos independent.
“Hopefully more [deals like this] will follow as this is how [small biotechs] should all grow up, rather than being acquired by big pharma,” he said.
Similar statements were no doubt made when the hugely successful Genentech and Roche tie-up was first forged, before history showed that any collaboration can end when the bigger partner decides its intentions have shifted. Galapagos has undoubtedly received a huge boost from this deal, but Gilead has its feet firmly under the table.