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Gilead to Boost Stake in Belgian Biotech Galapagos as Part of $5.1 Billion Deal

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07/14/2019 | 12:21pm EDT

By Jonathan D. Rockoff and Cara Lombardo

Gilead Sciences Inc. will pay $5.1 billion to boost its stake in Galapagos NV and gain rights outside Europe to the Belgian biotechnology company's treatments in development, in a broad research collaboration aimed at increasing growth at the drugmakers.

Under the terms of the deal, to be announced Sunday, Gilead will make a $3.95 billion payment to Galapagos. It also will invest $1.1 billion, or EUR140.59 ($158.49) a share, to increase its stake in the drugmaker to 22% from 12.3%. That represents a 20% premium to the 30-day weighted average share price of Galapagos, which trades in Amsterdam and on Nasdaq and has a market value of around $7.9 billion.

Assuming Galapagos shareholders sign off, Gilead could eventually boost its ownership stake to as much as 29.9%, officials of the companies said in interviews over the weekend. Gilead will get two seats on Galapagos's board of directors as part of the deal.

Gilead, which has been looking for new products to regain its once-heady sales growth, is securing access for a decade to one of the industry's most promising but also risky pipelines. Galapagos has six compounds in human testing, including potential drugs for conditions such as knee osteoarthritis and pulmonary fibrosis that would sell in multibillion-dollar markets.

Galapagos, meanwhile, gets a large infusion of cash to advance its drug-research efforts. The deal also could help Galapagos remain independent since Gilead will agree not to make a bid for more than 29.9% of the company over the course of the agreement, and other potential suitors would likely be turned off by Gilead's deep involvement with the company.

The companies know each other well: For more than three years, they have partnered on development of a drug for rheumatoid arthritis. They expect to seek approval to sell that drug, filgotinib, by the end of the year. As part of the broader collaboration they undertaking, Galapagos will get expanded European commercial rights to the drug, which analysts say could be a big seller.

Gilead, based in Foster City, Calif., is under pressure to keep its roughly $22 billion in annual revenue from declining further. Its top line has fallen from a peak of $33 billion in 2015 amid slowing sales of its blockbuster hepatitis C offerings including Sovaldi and Harvoni. In 2017, Gilead spent around $11 billion to buy Kite Pharma Inc., which specializes in a new kind of cancer treatment, but sales of its drug Yescarta have been disappointing.

Instead of pursuing a full-blown takeover of Galapagos, however, Gilead has opted for an unusual -- although not unheard of -- research partnership.

Among the big pharmaceutical companies that have struck such broad-based research deals are Sanofi SA, whose deal with Regeneron Pharmaceuticals Inc. has produced a number of approved drugs and significant sales for each company.

The Galapagos partnership would be among the first notable transactions for Daniel O'Day, Gilead's new chief executive, who had firsthand experience with perhaps the most successful research collaboration in the industry, a tie-up between Roche Holding AG and biotech Genentech. Mr. O'Day came to Gilead in March from Roche, where he also played a role in its research partnership with Japanese drugmaker Chugai Pharmaceutical Co.

Mr. O'Day said in an interview that the structure of the deal ensures Galapagos's independence and allows Gilead to protect the value of its investment.

"Megamergers can often distract the organization from pursuing the science and following the innovation," he said. "I prefer a transaction like this."

Galapagos, of Mechelen, Belgium, has sought to discover the first drugs to treat intractable diseases through a novel program, which looks for new targets by exploring what happens in diseased human cells when genes are revved up or down. Then the company develops so-called small-molecule drugs to hit these new targets. If the drugs work, the payoff could be huge, but there is a risk they won't because the research is so cutting edge.

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

Galapagos Chief Executive Onno van de Stolpe said the companies began seriously considering expanding their partnership earlier this year.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
GALAPAGOS -0.65% 151.85 Delayed Quote.89.61%
GALAPAGOS NV (ADR) -1.12% 169.88 Delayed Quote.85.18%
GILEAD SCIENCES -0.03% 66.92 Delayed Quote.6.99%
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