It's not often a biotech attracts billions of dollars from a large partner without sacrificing its independence.
But Belgian drugmaker Galapagos was able to do just that. A research deal inked in July with Gilead provides $5.1 billion in cash and equity investment as well as an uncommon guarantee its partner won't try to take it over for at least 10 years.
"I didn't want to negotiate with Gilead when there was at all the threat of an acquisition," Galapagos CEO Onno van de Stolpe told BioPharma Dive. "I didn't want to negotiate with a gun against my head."
Though van de Stolpe secured his company's autonomy — painting him as a savvy dealmaker — Galapagos now needs to show its partner's bet was well placed.
"To me, it could very well be the next Regeneron, the next Genentech," SVB Leerink's Pasha Sarraf said of Galapagos. "We just have to wait and see."
For Galapagos to join the ranks of Regeneron and Genentech, it would have to churn out at least a half dozen marketable drugs. That's challenging even for the biggest of companies, yet Galapagos and Gilead leadership seem to think it's possible.
The first real test of the biotech's R&D capabilities will be filgotinib, an inflammation drug that is under review in Japan and Europe and should, by year's end, be submitted to U.S. regulators as a treatment for rheumatoid arthritis.
Despite there being three drugs on the market that work like filgotinib, and the class as a whole raising concerns about side effects, some on Wall Street see Galapagos' offering as safer and a blockbuster in the making. Investment bank Stifel expects filgotinib to fetch $2.5 billion from rheumatoid arthritis sales at its peak. A key factor is whether Galapagos can secure a better label than rival drugs from Pfizer, Eli Lilly and AbbVie.
Galapagos can't rest on a single drug, however.
"Filgotinib is there, and that gives them some level of validation," Cowen & Co. analyst Phil Nadeau said. "But it's the other agents ... people will look at those and evaluate whether the pipeline is truly that productive."
Beyond filgotinib, at least six Galapagos drugs have moved into human testing. Perhaps the most highly anticipated of them come from a secretive program called TOLEDO, to which Galapagos has deployed half of its research organization.
So far, all investors really know is that TOLEDO is code for a new class of anti-inflammatory agents discovered by Galapagos, and that two of its drugs are in Phase 1. The company intends to reveal targets for the program next year, after Phase 2 testing begins.
"Everyone's curious as to what is the target, when are we going to know the target," Nadeau said. "People want to see proof of concept that does suggest this is as promising as management thinks it is."
In the meantime, investors appear sold on Galapagos. Its share price surged 26% around the time of the Gilead deal and has more than doubled since the start of the year. By Dec. 6, Galapagos had a market value of just over $14 billion, similar to some commercial-stage biotechs like Alnylam Pharmaceuticals and BioMarin Pharmaceutical.
Gilead, naturally, sees value as well. Linda Higgins and John Sundy, the respective heads of research external innovation and inflammation and respiratory diseases, note how it wasn't one particular asset that caught their company's attention, but rather Galapagos' chemistry, biology, and fast-paced drug development.
"That drove a lot of the structure of this deal — to preserve the things that are the real positives about Galapagos," Sundy said.
"It was clear that independence was one of their aims, and one of ours was to expand our pipeline not just in size but in diversity," Higgins said.
Once Gilead executives made it clear they weren't pursuing a takeover, van de Stolpe became more willing to enter deal talks. He said the main point of contention was the upfront payment — so much so that, by June, it looked like a deal might not go through. Gilead ultimately offered $3.95 billion for certain license and option rights outside of Europe to all current and future Galapagos drugs, as well as $1.1 billion worth of additional stock purchases.
"In the end, it's absolutely irrelevant if Gilead pays $3 billion, $4 billion or $5 billion," van de Stolpe said. "If this alliance is successful, they will get way more benefit from it than a couple billion more or less."
From his end, van de Stolpe proposes that, by maintaining Galapagos' culture, the alliance is more likely to succeed.
"I don't think [Galapagos] will fit well in any bigger organization, be it big pharma or be it even Gilead," he said. "You always see a moment where big pharma reorganizes or has a different view or different management, and decides that the research should be cut back. And the first part to cut back is innovative target discovery research."
While van de Stolpe contends that Galapagos didn't need the Gilead deal to be successful, there are upsides to having a large commercial partner — particularly with the continued controversy over drug pricing and the competition looming over filgotinib.
The deal's funding may also cushion Galapagos in the event one of its riskier programs doesn't work out. For example, Galapagos' GLPG1972 goes after osteoarthritis, which Sarraf likens to "shooting for the stars" because of how difficult it's been for drugs to show symptomatic benefits.
Still, Sarraf and other analysts remain bullish on Galapagos.
"Obviously some of the programs will fail; some of the programs will not be as exciting as one would hope. But overall, what they're doing is first rate," Sarraf said.
"What Onno is trying to do," he added, "is let this company grow without choking it, which I think is really bright."