Trust favourite Gilead expands R&D deal with Galapagos – US biotech giant Gilead Sciences (NASDAQ: GILD) has entered into a ten-year R&D collaboration with Galapagos (Euronext/NASDAQ: GLPG) covering rights to the Belgium group’s entire development portfolio. The transformative deal includes a $3.95bn upfront payment – a new record in the industry – as well as $1.1bn in equity, purchased at a 20% premium. This equity investment will boost Gilead’s shareholding in Galapagos from 12% to 22%; it also obtains an option to increase this to 29.9%, but with a standstill arrangement designed effectively to preserve Galapagos’ independence.
Gilead has been under pressure from many US investors to conclude an “transformative” M&A transaction, because of its declining HCV franchise and $30bn cash pile. The stock is widely held by many biotech specialist investment trusts, including International Biotechnology Trust (IBT), where it was its largest holding as of 31 May (7.1% of NAV). It is also a top 10 holding for Biotech Growth Trust (BIOG) and BB Biotech (BION) among others.
The deal, announced yesterday, builds on a pre-existing relationship between the two companies that covered Galapagos’ filgotinib, a JAK1 inhibitor for rheumatoid arthritis and other autoimmune conditions. Under the new arrangement, Gilead will receive an exclusive product license and option rights to develop and commercialise all current and future programs in all countries outside Europe, while Galapagos will be able to take up a broader commercial role for the commercialisation of filgotinib in Europe.
Gilead will gain access to six molecules currently in clinical trials and more than 20 preclinical programmes . Galapagos is expected to use the more than $5bn combined upfront and equity investment to expand its internal R&D programmes. As part of the collaboration, Gilead obtains rights to GLPG1690, an autotaxin inhibitor for idiopathic pulmonary fibrosis (IPF) that is currently in Phase III trials and option rights over GLPG1972, an ADAMTS-5 inhibitor in Phase IIb for osteoarthritis in the US. The French company Servier holds ex-US rights to GLPG1972 (as S201086). Both GLPG1690 and GLPG1972 are first-in-class compounds.
Galapagos will fund and lead all discovery and development autonomously until the end of Phase II, when Gilead will have the option to acquire an expanded license to the compound. If the option is exercised, Gilead and Galapagos will co-develop the compounds and share costs equally. If GLPG1690 is approved in the US, Gilead will pay Galapagos an additional $325m milestone fee. For GLPG1972, Gilead has the option to pay a $250 million fee to license the compound in the United States after the completion of the ongoing Phase IIb study in osteoarthritis. If certain secondary efficacy endpoints are met, Gilead would pay up to an additional $200m. Following opt in, Galapagos would be eligible to receive up to $550m in regulatory and commercial milestones.
For all other programmes resulting from the collaboration, Gilead will make a $150m opt-in payment per programme and will owe no subsequent milestones. Galapagos will receive tiered royalties ranging from 20-24% on net sales of all Galapagos products licensed by Gilead as part of the agreement.
The deal will give Gilead an option over Gapalagos’ GLPG3121, a JAK1/TYK2 inhibitor aimed at inflammation which recently engtered Phase I. The TYK2 space has seen growing interest from investors, not least because of the potential in a number of autoimmune conditions and the fact they have become an area of interest for antitrust regulators in the pending Bristol-Myers Squibb-Celgene deal. The UK’s Sareum (SAR) has a preclinical TYK2/JAK1 inhibitor, SDC-1801, which is one of the few unpartnered assets in this particular class.