Gilead-Galapagos Ink $5.1B Deal For Additional Compounds

Gilead Sciences, Inc. (NASDAQ:GILD) entered a 10-year global research and development collaboration with Galapagos NV (NASDAQ:GLPG) .

Hence, Gilead will gain access to an innovative portfolio of compounds, including six molecules currently in clinical trials, more than 20 preclinical programs and a proven drug discovery platform.

In exchange, Gilead will make a $3.95-billion upfront payment to Galapagos and a $1.1-billion equity investment in the same. Galapagos will use the proceeds to expand and accelerate its research and development programs.

Gilead’s equity investment will consist of a subscription for new Galapagos shares at €140.59 per share. The price represents a 20% premium to Galapagos’ 30-day, volume-weighted average price. As a result, Gilead’s stake in Galapagos will increase to 22% from 12.3%. In addition, Galapagos intends to seek shareholder approval to issue two warrants, allowing Gilead to further increase its ownership of Galapagos to up to 29.9% of the company’s issued and outstanding shares. The agreement also includes a 10-year standstill, restricting Gilead’s ability to seek acquisition of Galapagos or increase its stake beyond 29.9% of the company’s issued and outstanding shares, subject to limited exceptions.

Additionally, Gilead will receive an exclusive product license and option rights to develop and commercialize all current and future programs in all countries outside Europe.

Galapagos will fund and lead all discoveries and development autonomously until the end of phase II. Once the qualifying phase II study is completed, Gilead will have the option to acquire an expanded license to the compound. If the option is exercised, the companies will develop the compound and share costs equally. Gilead will maintain option rights to Galapagos’ programs through the 10-year term of the collaboration and for up to an additional three years thereafter for those programs that have entered clinical development prior to the end of the collaboration term.

Per the terms, Gilead will gain rights to Galapagos’ late-stage candidate, GLPG1690. The candidate is in phase III for idiopathic pulmonary fibrosis. Gilead will pay Galapagos an additional $325-million milestone fee if GLPG1690 is approved in the United States.

Gilead also will receive option rights for GLPG1972, a phase IIb candidate for osteoarthritis, in the United States for a $250-million fee. In addition, the company will receive option rights to Galapagos’ other current and future clinical programs outside Europe. If certain secondary efficacy endpoints are met, it would pay up to an additional $200 million. Following opt in, Galapagos would be eligible to receive up to $550 million in regulatory and commercial milestones.

For all other programs resulting from the collaboration, Gilead will make a $150-million opt-in payment per program and owe no subsequent milestones. Galapagos will receive tiered royalties of 20-24% on net sales of all its products licensed by Gilead as part of the agreement.

We note that both the companies already have an agreement for filgotinib. As a result of this new agreement, both companies have agreed to amend certain terms for filgotinib. The candidate is being evaluated for rheumatoid arthritis and other inflammatory diseases to provide a broader commercialization role to Galapagos in Europe. A comprehensive phase III program has already been completed. Both companies plan to seek regulatory approval for the drug in the United States and Europe by the end of the year. Gilead will also nominate two individuals to Galapagos’ board of directors following the closing of the transaction.

Moreover, Galapagos will now have greater involvement in filgotinib’s global strategy and participate more broadly in the commercialization of the drug in Europe. The companies will co-commercialize filgotinib in France, Germany, Italy, Spain and the U.K., and retain equal share in profits in these countries per the original filgotinib license agreement, while Galapagos will have an expanded commercial role. It will retain exclusive rights in Belgium, the Netherlands and Luxembourg. The companies will share future global development costs for filgotinib equally as compared to the original cost sharing in the ratio of 80:20.

The transaction is expected to close in the third quarter of 2019.

Gilead’s stock has gained 5.9% in the year so far against the industry's decline of 0.2%.

Given the persistent decline in HCV sales, stiff competition from the likes of Glaxo (NYSE:GSK) and pricing pressure in the HIV market, the company is looking to newer avenues to boost the top line. It has made quite a few collaborations, of late, to strengthen and diversify its pipeline.

The company is intending to foray into the inflammation market with late-stage candidate, filgotinib. It collaborated with big pharma companies like Novo Nordisk (NYSE:NVO) to develop treatments for non-alcoholic steatohepatitis (NASH).

Zacks Rank

Gilead currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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