A ‘2G’ network

Gilead and Galapagos ink expansive R&D deal

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FOSTER CITY, Calif. & MECHELEN, Belgium—2019 might be more than halfway over at this point, but some companies are gaining momentum rather than tapering off. Among those are Gilead Sciences Inc. and Galapagos NV, which have begun a global research and development collaboration with a price tag of more than $5 billion.
The agreement is big in terms of more than just its value. This collaboration is slated to run 10 years, and provides Gilead with access to a wide array of compounds, including six molecules in clinical trials, more than 20 preclinical programs and Galapagos’ drug discovery platform.
“We are excited to enter into this unique agreement, which will generate both long-term strategic value and mutual, immediate benefits. We chose to partner with Galapagos because of its pioneering target and drug discovery platform, proven scientific capabilities and outstanding team,” said Daniel O’Day, chairman and CEO of Gilead. “Gilead also gains exclusive access to all current and future compounds in Galapagos’ rich pipeline while Galapagos is able to expand its research activities and build commercial infrastructure. The collaboration reflects Gilead’s intent to grow our innovation network through diverse and creative partnerships.”
Per the terms of the deal, Gilead will pay Galapagos $3.95 billion in an upfront payment, as well as $1.1 billion in an equity investment. In return, Gilead will gain an exclusive product license and option rights to develop and commercialize all current and future programs in all countries outside of Europe. The partners have amended certain terms in the agreement related to filgotinib to give Galapagos a broader commercialization role in Europe. In addition, Gilead will be nominating two individuals to Galapagos’ board of directors once the deal closes.
Galapagos will fund and lead all discovery and development until the end of Phase 2. After that point, Gilead will have the option to acquire an expanded license to the compound. If Gilead exercises its, the partners will co-develop the compound and share costs equally. Gilead will maintain option rights to Galapagos’ programs through the 10 years of the collaboration and for up to an additional three years thereafter for those programs that entered clinical development before the end of the collaboration.
If GLPG1690 is approved in the U.S., Gilead will pay Galapagos an additional $325 million milestone fee. Gilead has the option to pay $250 million to license GLPG1972 in the U.S. after the ongoing Phase 2b study in osteoarthritis is completed. If certain secondary efficacy endpoints are met, Galapagos stands to receive up to an additional $200 million. Following opt-in, Galapagos could receive up to $550 million in regulatory and commercial milestones.
For all other programs under this collaboration, Gilead will pay $150 million per program to opt in and will owe no subsequent milestones. Galapagos will receive tiered royalties ranging from 20 to 24 percent on net sales of all Galapagos products licensed by Gilead as part of the agreement.
“It’s clearly a transformative 10-year collaboration. It’s a collaboration of two partners focused on science and innovation, it’s all aimed at delivering meaningful new drugs to patients that target parts of the disease that are not well treated at this point in time,” Galapagos CEO Onno van de Stolpe remarked in an investor call. “It’s based on our discovery engine, being its target discovery as well as drug discovery, both of which are very well developed in the company. We believe with Gilead’s expertise we can bring products faster to the market, which of course is very important, and we can build the infrastructure thanks to the money paid by Gilead.”
As for filgotinib, the partners will co-commercialize the compound in France, Germany, Italy, Spain and the United Kingdom, with a 50/50 profit share in those countries as per the original filgotinib license agreement. Under the revised agreement, Galapagos has an extended commercial role, with exclusive rights in Belgium, the Netherlands and Luxembourg. Gilead and Galapagos will share future global development costs for the compound equally, as opposed to the 80/20 split in the original deal. Filgotinib is being advanced as a treatment for rheumatoid arthritis and other inflammatory diseases, and the partners recently completed their Phase 3 FINCH program for filgotinib in rheumatoid arthritis, with plans to seek regulatory approval in the U.S. and Europe before the end of 2019.
The equity investment consists of a subscription by Gilead for new Galapagos shares at a price of €140.59 per share, which will increase Gilead’s stake in Galapagos from roughly 12.3 percent to 22 percent of issued and outstanding shares. Galapagos is planning to go to its shareholders for approval of two warrants that will allow Gilead to increase its ownership to up to 29.9 percent, though this agreement also features a 10-year standstill that restricts Gilead’s ability to increase its stake in Galapagos beyond that percentage or seek to acquire the company.
The transaction is expected to close late in Q3 2019. Certain closing conditions—including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and receipt of merger control approval from the Austrian Federal Competition Authority—apply.
SVB Leerink was generally favorable about the deal, commenting that “In our view this investment has a rich price target for relatively limited tangible value. Galapagos is generally viewed as an effective research organization, and for Gilead’s investors, bridging away from Gilead’s sole field of demonstrated research success (antivirals) is probably a good thing. This investment seems to offer more protection for Gilead than its now ill-fated Kite acquisition, and with a substantial equity stake in their partner, and board participation for Gilead, seems to have a reasonable probability of creating value. Investors are likely to react negatively at first, since $5.1bn up front is a lot to pay for Ex EU rights to one drug (GLPG1690) and an option on U.S. rights for one more (GLPG1972).
“To a large extent, Galapagos is now tethered to Gilead, which has both guaranteed their independence and limited their autonomy. In our view, Galapagos investors should benefit from significant near-term upside, and from a secure floor under their stock price, but may also come to wonder why they don’t see more upside over time, as Galapagos’ compounds advance through clinical development and are optioned and advanced by Gilead.”

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