Not A Done Deal

Don't Count on Gilead Buying Galapagos

The drugmaker needs a deal, but this European biotech isn't it.
Photographer: David Paul Morris/Bloomberg via Getty Images
At Closing, January 17th
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Though Gilead Sciences Inc. has only just begun to absorb its $12 billion purchase of Kite Pharma Inc. in October, drums are already beating for another deal.

The current buzz is about Galapagos NV, a European biotech that has a licensing deal with Gilead for its autoimmune drug filgotinib. Buyout rumors have cropped up because Galapagos exercised an option on Friday to co-promote filgotinib if the drug gets regulatory approval in parts of Europe, and because a lockup and standstill agreement tied to Gilead's stake in the company expires New Year's Eve. Galapagos shares rose nearly 9 percent on Friday, pushing its market cap to nearly 4 billion euros. 

But a deal is far from inevitable. 

Jumping the Gun

Investors think there's a growing chance Gilead may purchase Galapagos

Source: Bloomberg

This is not to say Gilead doesn't need one. The company's hepatitis C drug franchise is in terminal decline, set to accelerate in 2018 with the market entry of AbbVie Inc.'s competitively priced Maviret. Gilead's purchase of Kite is an interesting long-term bet on the future of cancer care. But it's unlikely to provide much in the way of revenue any time soon.

Hero to Less Than Zero

Gilead's sales growth has cratered due to competition for its hepatitis drugs

Source: Bloomberg

Gilead clearly believes in filgotinib. But a Galapagos buyout would involve paying up for full ownership of an asset it already largely controls. Galapagos's European opt-in gives it a slightly larger piece of future sales, but is far from a game-changer. The medicine looks promising and is being tested in a wide variety of conditions. But the market for autoimmune drugs is already highly competitive and will become even more so in the years to come.

Gilead likely wants a better look at the drug and its competition before committing further. 

There's also the nagging fact that AbbVie -- arguably the most successful autoimmune drugmaker in history -- passed on an earlier, cheaper chance to license filgotinib in favor of an in-house alternative. 

Along with paying for more filgotinib exposure, Gilead would have to pay a premium for the rest of Galapagos's portfolio. Several of the company's later-stage drugs are already partnered with other companies, with the exception of an idiopathic pulmonary fibrosis medicine. But that drug is still far from market and may end up going head-to-head with a very promising FibroGen Inc. drug candidate. 

Gilead has already made a long-term pipeline investment in Kite, and it faces big near-term sales declines. Its would be better off seeking deals for drugs closer to the market and that diversify its risk, rather than doubling down on Galapagos.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Max Nisen in New York at

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    Mark Gongloff at

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