Gilead strengthens its stake in Galapagos as part of a $ 5.1 billion deal

(Bloomberg) – Gilead Sciences Inc. has agreed to spend $ 5.1 billion to increase its stake in Belgian biotech company Galapagos NV to strengthen its research on inflammatory diseases and other disorders.

This is Gilead's most important operation ever since the new chief executive, Dan O'Day, took the reins in March as he attempted to strengthen the San Francisco giant's drug pipeline. Gilead is in danger of becoming a victim of its own success after launching some of the most reputable drugs of all time, its best-selling franchise for the treatment of hepatitis C. Sales of these therapies have since declined in because of increased competition.

As part of the deal, Gilead will spend $ 3.95 billion in Mechelen, Galapagos, Belgium, and invest $ 1.1 billion to increase its stake to 12 percent from 22.3 percent to 22 percent. %, the company said in a statement. The investment, at 140.59 euros per share, is 9.7% higher than the closing price of the Belgian company Friday.

"Gilead will significantly expand its product portfolio through a partnership developed with Galapagos, which will have sufficient financial resources, without having to acquire the company entirely," wrote Jefferies analysts, including Michael J. Yee and Andrew Tsai. Note.

As Gilead seeks to fill the growing void of his hepatitis medication, the announcement of the Galapagos could mark a change in direction. The smaller biotechnology does not have an oncology program, it focuses instead on research into diseases related to inflammation and fibrosis, a kind of internal scar.

Gilead has also established research programs on these diseases, including through its collaboration with Galapagos, although some have speculated on the risk of cancer. Gilead is already the largest shareholder of the Belgian company before the stake, according to data compiled by Bloomberg. From now on, it is possible to license all future Galapogos drug candidates.

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O'Day, who joined the Gilead Group of cancer giant Roche AG, said he had not kept his promise to develop the pipeline. He noted that the agreement almost doubled Gilead's research capacity and established a strong research base in Europe, where society was historically not as active.

"This is by no means the only thing we are looking at or doing," O'Day said in an interview. "You can look at this as if it was the beginning."

Gilead and Galapagos discussed an expanded partnership before O'Day joined the company. He was informed of these discussions after holding the position of senior official and during the first two weeks he got to know the CEO of Galapagos better. As a result of these interviews, the two men decided to finalize the agreement.

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It is a "science-based agreement," said Onno van de Stolpe, founder and CEO of Galapagos, in an interview. Gilead will focus more on Galapagos business activities, helping the small business focus on research. "We can now do more of what we are good at."

The money invested beyond equity participation will go a long way to doubling Galapagos research and development from 1,500 to 1,500 over an indefinite period, "said Van de Stolpe. These jobs will be added in Belgium, the Netherlands and France. "It's massive funding. We do not have a detailed plan yet on how to spend it, "he said.

The covenant includes a provision that Gilead's interest could reach 29.9% if Galapagos shareholders approve two warrants. The companies were already partners with an experimental drug for rheumatoid arthritis. Filgotinib, the drug, achieved its main goal in a late-stage study in March, which resulted in a record increase in shares of the Belgian biotechnology company over the last six months.

Galapagos shares have risen 59% since the beginning of the year, compared to 5.9% for Gilead shares.

While at Roche, O'Day enjoyed a reputation as a negotiator. This is probably one of the reasons he was chosen for the position of Prime Minister Gilead at a time when the company needs to call in outside to stimulate growth. He added that, in this case, the companies had opted for a partnership-type agreement rather than a complete takeover because full mergers can often destroy innovation in the event of the dissolution of research and management teams. Roche's transaction philosophy is essentially the same, as the Swiss giant chose to leave many independently managed units, even if they owned them in their own right.

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