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Galapagos-Gilead billion-dollar deal: beyond the numbers

Written by ALB on in the category Insights with the tags , , .


Last month, Galapagos sealed a 5-billion-dollar deal with Gilead. Now that the dust has started to settle, we’re taking a closer look at the agreement. Why is this deal so unique in the biotech world? What will the ripple effects be in the European ecosystem? BioVox spoke with Lenny Van Steenhuyse, Healthcare Equity Analyst at KBC Securities, for a deeper insight.

What’s the big deal?

Put plainly, the Galapagos-Gilead agreement is the largest biopharma licensing deal made this decade. The upfront payment alone, $3.95 billion, is worth as much as the previous top-three deals combined: Merck & Co – Astrazeneca ($1.6 billion), Astrazeneca – Daiichi Sankyo ($1.35 billion) and Merck & Co – Bayer ($1 billion).

What sets this deal apart isn’t just the sheer size of it though: the truly distinguishing feature of the Galapagos-Gilead agreement is how broad it is. Where all the above-mentioned licensing deals were for 1-2 key assets, either in Phase III clinical trials or already commercialized, the Galapagos-Gilead deal concerns nearly the entire Galapagos pipeline.

The all-encompassing nature of the Galapagos-Gilead deal makes it a world-first. It’s very rare for the whole portfolio of a biotech company with a broad pipeline to check all the boxes for a big pharma player. - Lenny Van Steenhuyse, KBC Securities
 

Breaking it down, the Galapagos-Gilead ten-year agreement includes an upfront payment of $3.95 billion and $1.1 billion equity investment and multiple milestones for compounds across preclinical and clinical development. Galapagos will control its R&D until the end of Phase II clinical trials, at which point Gilead now has the option to opt-in at a set fee of $150 million per compound.

Galapagos is a drug-discovery powerhouse with a deep pipeline of 6 clinical and over 20 preclinical assets; a pipeline where Gilead now has full transparency and priority access for the next ten years. Van Steenhuyse explains:

“The all-encompassing nature of the Galapagos-Gilead deal makes it a world-first. Normally, a licensing deal is negotiated asset by asset. It’s very rare for the whole portfolio of a biotech company with a broad pipeline to check all the boxes for a big pharma player. And if they did, why would the company not then push for an outright acquisition?”

Galapagos CEO Onno van de Stolpe has always advocated for Galapagos independence. Though some may argue that Galapagos has now become an R&D engine of Gilead, the Galapagos management have nonetheless secured the freedom to pursue their own goals for the next ten years. So how was Galapagos able to negotiate such an unprecedented deal?

Avoiding mess and stress

Acquisitions happen on a regular basis... However, whenever these all-out acquisitions take place, there is a loss of time and productivity as the new companies are picked apart and integrated. - Lenny Van Steenhuyse, KBC Securities
 

Along with competitors like Abbvie and Celgene, Gilead is a ‘second generation’ biopharma company. These companies all became big based on 1-2 assets, which have now nearly run their course. It means that these companies are at the point where they really need to make acquisitions for new assets, quickly. What’s more, they need a ‘plug-and-play’ model: assets that are close to market and can be fed directly into their commercial channels, to keep the revenue going.

“Galapagos knew very well that Gilead was hunting for new assets and was under some pressure to secure them,” Van Steenhuyse says. “Galapagos took advantage of this when negotiating the terms of their agreement, which are very favorable.”

But the question remains: if Gilead simply wanted access to all of Galapagos’ assets, why didn’t they push for an outright acquisition? Why this unique licensing deal? Van Steenhuyse suggests it may have been a clever decision for both parties:

“Acquisitions happen on a regular basis: just last year Ablynx was bought by Sanofi for close to $5 billion. We’ve had the buyout of Celgene by Bristol-Myers Squibb and Allergan by AbbVie; huge deals, focused on the commercial assets. However, whenever these all-out acquisitions take place, there is a loss of time and productivity as the new companies are picked apart and integrated.”

Read this previous BioVox article for more on the Ablynx aquisition.

“The CEO of Gilead, Daniel O'Day, earned a reputation as a dealmaker in his previous role at Roche, where he where he witnessed the benefits of allowing R&D organizations to maintain independence after the $47 billion acquisition of Genentech in 2009. That buyout was quite unique, because Genentech was allowed to maintain its independence, despite being owned by Roche. Now with Galapagos, he’s gone one step further and opted for a licensing deal instead of an acquisition.”

Gilead also knows that, left to its own devices, Galapagos will use its powerful R&D engine to keep generating value for them both. The deal works well for both parties, as it allows Galapagos to maintain independence, while also giving Gilead the benefit of new assets minus the mess and stress associated with integrating a new company.

A new way of doing things

So, will other biopharma companies be following suit? Van Steenhuyse thinks we might:

“The deal certainly could become a model for others, but there were a lot of very specific factors involved in this particular deal that allowed it to take place. For such a large licensing deal to occur, a company first has to be allowed to develop until they hit a critical mass.

Galapagos had several different partners for filgotinib that, for various reasons, came and went, meaning van de Stolpe was able to grow the company extremely rapidly while maintaining independence. That will obviously not be the case for every company.”

Nevertheless, Van Steenhuyse maintains that the deal could become a template for a select few companies that, like Galapagos, manage to reach a considerable size on their own and develop a broad set of assets that are complementary to pharma portfolios.

Right now, Europe is gaining momentum... It’s important to have champions in the ecosystem and the Galapagos-Gilead deal has generated a lot of attention. - Lenny Van Steenhuyse, KBC Securities
 

Buoying Belgian biotech?

This deal has secured the future for Galapagos for the next ten years. They will use the cash injection to significantly increase their workforce and operations in Belgium. Money is flowing into the European biotech sector, promoting a cycle of growing expertise and growing financial assets; things that fundamentally and structurally build the ecosystem. Van Steenhuyse is confident:

“As the system grows, it also begins to attract more capital. In early-stage funding rounds in Belgium, we’re seeing series A rounds of over $30 million (eg. Confo Therapeutics, Aelin Therapeutics, Camel IDS). For the US that’s quite common, but for Europe rounds of that magnitude are still novel.”

Read this previous BioVox article for more on Confo Therapeutics.

“Right now, Europe is gaining momentum. The acquisition of TiGenix, Ablynx and now the Galapagos deal: these are events that really bring Europe onto the international stage. It’s important to have champions in the ecosystem and the Galapagos-Gilead deal has generated a lot of attention.

A deal this size turns heads; it is good for building expertise and building credibility with investors. It sets a new bar for what your ambitions can be as a European biotech company.”

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