Madebeliefje schreef op 27 december 2017 21:13:
The Only Reason Why Gilead Might Not Buy Galapagos Straight Away
Dec.19.17 | About: Gilead Sciences, (GILD)
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Summary
In January 2016, Gilead bought 6.760.701 Galapagos shares, 13.27% of all outstanding shares.
The lockup and standstill arrangement under the companies' January 2016 agreement expires at the end of this month.
Is Galapagos interesting to buy for Gilead?
Galapagos' CEO Van De Stolpe always fiercely opposed a takeover, but I feel something has changed in his tone.
I think the real question will not be 'if' but 'when'. The only reason Gilead may be waiting is new results from filgotinib studies and its competitors.
Introduction
Two years ago, in December 2015, Gilead (GILD) announced that it would invest $2B in the Belgian biotech Galapagos (GLPG) to develop filgotinib, for the treatment of rheumatoid arthritis and other inflammatory diseases.
Gilead made a $425 million investment in Galapagos shares, which bought them 6,760,701 shares of Galapagos, 13.27% of the total number of outstanding shares. In addition to that, Gilead paid a $300M license payment and further payments up to $1.35B can come from royalties and profit sharing. Gilead and Galapagos also agreed on a lock-up and standstill arrangement, which will expire on December 31. Basically, this lock-up means that Gilead can't buy or sell any shares until then.
Since then, Galapagos' price has gone up considerably, while that of Gilead went down by more than a quarter.
ChartGLPG data by YCharts
On Thursday, December 14, just two weeks before the lock-up period expires, Galapagos announced that it would co-promote filgotinib with Gilead in eight European countries: Germany, France, Italy, Spain, the United Kingdom, the Netherlands, Belgium and Luxembourg. It will take on 35% of the promotion costs in those countries and the profits and costs are split in even parts.
This deal was inked just before the lock-up period expired. That means that Gilead can then buy more shares or maybe even the whole company. With a current market cap of $4.4B and maybe a 50% premium, this could coin the deal at something between $7B and $7.5B, which is just a small part of Gilead's heap of $29B in cash.
Would Galapagos be a good acquisition for Gilead?
I think that Gilead is convinced of filgotinib. Otherwise, it would not have invested so much. And, as I showed in a previous article, filgotinib could become a blockbuster, raking in maybe up to $3B per year if everything goes according to plan. So, even if it is still unsure and there is a lot of competition heating up in rheumatoid arthritis, filgotinib alone would be enough to justify a Galapagos takeout. There are 11 studies rolling for filgotinib at this moment:
(Source: Galapagos website)
But there is much more to the story. Because of the collaboration, Gilead was able to sniff at Galapagos for two long years, exploring its other products in the pipeline too, probably in great detail. That's how it goes when you work together and human beings are involved: the chitchat at the coffee machine is often a great place for information.
This is the rest of Galapagos's pipeline:
As you can see, GLPG-1609 is also in Phase 2 and the medicine is still completely in Galapagos' hands, without any partner. IPF stands for idiopathic pulmonary fibrosis, a fatal disease of the lungs. There is no cure yet. The only thing drugs can do is slow down the disease and relieve the symptoms.
The drugs that are used now are nintedanib and pirfenidone. Nintedanib is sold under the brand names Ofev and Vargatev by Boehringer Ingelheim. Side effects are abdominal pain, vomiting, and diarrhea. Pirfenidone is marketed in Europe and the USA under the name Esbriet. It has a whole list of side effects too: gastrointestinal reactions, skin and liver problems, etc.
The results of GLPG-1609 so far are really encouraging: it looks as if the disease is halted and there are no more side effects reported than in the placebo group.
The interesting aspect for Gilead is that the IPF market is projected to be $3.2B by 2025. So if everything goes well, GLPG-1609 could become a blockbuster too.
So I think that you can say without hesitation: yes, Galapagos would be a very interesting addition to Gilead's pipeline, which has been criticized for being not exiting enough.
But will the deal go through?
Until now, the CEO and founder of Galapagos, Onno Van De Stolpe, has always been very articulate: he didn't want to sell his company. Two years ago, in the announcement of the deal with Gilead, Van De Stolpe said this:
Clearly, Gilead is in the driver's seat. They are responsible for the clinical, regulatory, manufacturing, and the marketing of the molecule and the product. But we have been able to secure substantial rights for Galapagos in the co-marketing of this molecule in the main markets in Europe as well as in the Benelux. This means that Galapagos is able to use filgotinib to build up a sales force, to build up an infrastructure, actually book the sales in the Benelux, and actually become a fully integrated Company.
And Galapagos CFO Bart Filius said on that same announcement:
What is on this slide is that this is a partnership where Galapagos has the opportunity to really co-develop and co-commercialize filgotinib, which is really, as Onno was pointing out before, our opportunity to make a step into creating a commercially-based biotech company in Europe.
With the announcement of yesterday, this strategy seems still to be the focus point of Galapagos: building out a commercially-based biotech from the ground up in Europe. So far, so good for Galapagos.
But does this mean the deal will not go through? I don't think so. There have been more CEOs and founders who didn't want to sell their company, until they were promised a great position in the management of the acquiring company. And besides that: money often wins.
On Friday, December 15, there is a very interesting interview in the Belgian financial newspaper De Tijd ('The Time') with Galapagos CEO Onno Van De Stolpe. Since I happen to understand Dutch, I can read between the lines that Van De Stolpe has changed his mind or at least his attitude somewhat.