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



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Gilead Sciences
Inc.

will pay $ 5.1 billion to strengthen its stake in

Galapagos

NV and obtain rights outside Europe on the developing treatments of the Belgian biotech company, as part of a broad research collaboration aimed at increasing the growth of drug manufacturers.

Under the terms of the agreement, which will be announced Sunday, Gilead will make a payment of $ 3.95 billion to the Galapagos. It will also invest $ 1.1 billion, or € 140.59 ($ 158.49) per share, to increase its stake in the drug manufacturer to 22% from 12.3%. This represents a premium of 20% over the 30-day weighted average share price of the Galapagos, which trades in Amsterdam and on the Nasdaq and whose market value is about $ 7.9 billion. .

Assuming that Galapagos shareholders sign their agreement, Gilead could eventually increase its stake to 29.9 percent, officials at both companies said during the weekend. As part of this agreement, Gilead will receive two seats on the Galapagos board of directors.

Gilead, which is looking for new products to regain an intoxicating sales growth, has been providing access to one of the most promising and risky pipelines in the industry for the last ten years. Galapagos uses six compounds in tests on humans, including potential drugs for diseases such as knee osteoarthritis and pulmonary fibrosis that could be sold in multi-billion dollar markets.

The Galapagos, for their part, receive a significant injection of money to advance their efforts in drug research. The agreement could also help the Galapagos remain independent, since Gilead will agree not to bid for more than 29.9% of the company's capital during the contract and that other potential contenders would probably be disarmed because of its deep-seated nature. involvement in society.

The companies know each other well: for more than three years, they have been collaborating on the development of a rheumatoid arthritis drug. They hope to get permission to sell this drug, filgotinib, by the end of the year. As part of their wider collaboration, the Galapagos will get more extensive European commercial rights over the drug, which analysts say could be a big seller.

Gilead, based in Foster City, Calif., Is under pressure to reduce annual sales by about $ 22 billion. Its sales fell to a record high of $ 33 billion in 2015 due to slower sales of its exceptional offers against hepatitis C, including Sovaldi and Harvoni. In 2017, Gilead spent about $ 11 billion to buy Kite Pharma Inc., which specializes in a new type of cancer treatment, but sales of its drug Yescarta have been disappointing.

Instead of pursuing a full-fledged takeover of the Galapagos, however, Gilead has opted for an unusual but unheard-of research partnership.

Among the large pharmaceutical companies that have concluded such large-scale research

Sanofi

SA, whose contract with

Regeneron Pharmaceuticals
Inc.

produced a number of approved drugs and significant sales for each company.

The Galapagos partnership will be one of the first notable deals for Daniel O'Day, Gilead's new chief executive, who has direct experience of the industry's most successful research collaboration, a link between

Roche Holding

AG and Genentech biotech. O'Day arrived in Gilead in March from Roche, where he also played a role in his research partnership with the Japanese drug manufacturer.

Chugai Pharmaceutical

Co.

In an interview, O'Day said the transaction's structure guaranteed Galapagos independence and allowed Gilead to protect the value of its investment.

"Large companies can often prevent the organization from pursuing science and tracking innovation," he said. "I prefer a transaction like this."

Galapagos, from Mechelen, Belgium, has sought out the first drugs to treat incurable diseases through a new program, which looks for new targets by exploring what happens in diseased human cells when genes are activated or not. The company is then developing so-called small molecule drugs to reach these new targets. If the drugs work, the benefits could be huge, but there is a risk that they will not do so because the research is at the forefront of technology.

Gilead shares a special focus on small molecule drugs and the company has explored some of the same areas as Galapagos, such as fatty liver disease, which is marked by the accumulation of scar tissue.

Onno van de Stolpe, chief executive of the Galapagos, said the companies were seriously considering expanding their partnership earlier this year.

Write to Jonathan D. Rockoff to [email protected] and Cara Lombardo at [email protected]

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