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Gilead (GILD) Collaborates with Galapagos for Filgotinib

Zacks Equity Research

Gilead Sciences, Inc. GILD announced that it has entered into a worldwide agreement with Galapagos NV GLPG for the development and commercialization of the JAK1-selective inhibitor, filgotinib, for inflammatory disease indications including rheumatoid arthritis (RA).

The companies plan to initiate phase III studies evaluating the candidate for RA and Crohn’s disease in 2016.

Terms of the Agreement

Under the terms of the agreement, Gilead will make an upfront payment of $725 million, comprising license fees of $300 million and equity investment of $425 million (by subscribing for shares at a price of €58 per share, which represents a premium of 20% as compared to the average share price over the last month). After the issuance of shares, Gilead will own approximately 15% of the outstanding share capital of Galapagos.

Galapagos will fund 20% of global development activities and has the option to co-promote filgotinib in the UK, Germany, France, Italy, Spain, Belgium, the Netherlands and Luxembourg. Gilead will undertake the responsibility for manufacturing, and worldwide marketing and sales activities. Gilead will also make milestone payments up to $1.35 billion and tiered royalties starting at 20%, except co-promotion territories where profits will be shared equally.

The transaction is a huge win for Galapagos, which had received a setback in September when AbbVie ABBV decided not to exercise its right to in-license filgotinib from Galapagos and terminated its agreement with the company for the development of filgotinib.

Meanwhile, Gilead has a history of boosting its portfolio and pipeline by entering into licensing and acquisition agreements. In fact, the blockbuster hepatitis C virus (HCV) infection therapy, Sovaldi, was added to Gilead’s portfolio through the Pharmasset acquisition in 2012. In May 2015, Gilead acquired privately held Danish company, EpiTherapeutics ApS, for $65 million, thereby gaining access to the latter’s library of first-in-class, selective small molecule inhibitors of epigenetic regulation of gene transcription, in particular, histone demethylases. Earlier this year, the company acquired privately held biotechnology company, Phenex, to develop treatments for liver diseases, including nonalcoholic steatohepatitis. Thus, we hope to see more of such acquisitions by Gilead in the near term.

Gilead carries a Zacks Rank #2 (Buy). Achillion Pharmaceuticals, Inc. ACHN is another well-ranked stock in the health care sector, sporting a Zacks Rank #1 (Strong Buy).

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