Investors are salivating at the possibility of a hot merger-and-acquisition market in 2018.
Investors are salivating at the possibility of a hot merger-and-acquisition market in 2018. Some of this is based on the pending tax reform bill, which if passed, would dramatically cut corporate taxes and also allow companies to repatriate overseas cash for a one-time low rate of about 10 percent.
Two of the companies everyone’s keeping an eye on is Gilead Sciences and Galapagos NV. The two companies signed a collaboration deal in 2015 for Galapagos’ JAK1 inhibitor filgotinib. Galapagos flipped the switch Friday on its co-commercialization rights to the drug in several countries in Europe. Todd Campbell, writing for The Motley Fool, notes, “The move comes only weeks ahead of a standstill agreement between the two companies expires and positions Galapagos to split profit in regions covered by the co-marketing agreement.”
In the original deal, Gilead took about a 13.3 percent equity stake in Galapagos after AbbVie abandoned its license with the company. Gilead paid Galapagos $300 million in cash upfront on top of the $425 million in cash for the ownership stake. The deal also called for Gilead to pay Galapagos up to another $1.35 billion in various milestones, and if the drug is approved, tiered royalties starting at 20 percent.
In exchange, Gilead allowed Galapagos the option to co-promote filgotinib in part of the European market—which Galapagos triggered on Friday. Galapagos will split profits in Germany, Franc, Italy, Spain, the UK, the Netherlands, Belgium, and Luxembourg.
The drug has moved into Phase III trials in rheumatoid arthritis, ulcerative colitis, and Crohn’s disease. It is also in Phase II trials for eight other autoimmune diseases. This is, overall, an enormous market. The rheumatoid arthritis market in 2016 was about $19 billion, and for inflammatory bowel diseases, including ulcerative colitis and Crohn’s, was about $8 billion. Humira is the dominant drug in the arena.
Campbell writes, “We won’t know how much of these markets filgotinib can win away until its ongoing Phase III trials wrap up, but Phase II results in rheumatoid arthritis and Crohn’s disease were encouraging. In those trials, filgotinib was efficacious and well tolerated, with an arguably lower risk of drug interactions than other autoimmune disease treatment options.”
Andrew McConaghie, writing for Pharmaphorum, argues that this is a great opportunity for Gilead to acquire Galapagos. He writes, “The Mechelen-headquartered biotech has just taken up an option to co-promote filgotinib with Gilead in eight European countries, reflecting its goal to become a fully-fledged commercial company. Meanwhile, a ‘standstill’ agreement between the companies blocking a takeover bid from Gilead also expires at the end of 2018, leading many to suspect it will seize its opportunity.”
Gilead has the money, with $41 million in cash still available after its acquisition of Kite. Galapagos’ chief executive officer, Onno van de Stolpe, recently told the Belgian newspaper De Tijd, that Gilead hadn’t approached them regarding an acquisition and didn’t know if they would. Galapagos’ exercising its marketing option for the drug means it’s less profitable for Gilead, which would be motivation to buy the company—it would save on all the milestone payments and royalties. But other analysts suspect that Gilead would wait until later, possibly 2019, after Phase III readouts for Crohn’s disease.
Van de Stolpe told the newspaper, “The risk for Gilead would then be lower, and by then they will have a better view on the results of similar medicines under development and thus on the competitive position of filgotinib. So for now, a bid may not be necessary. I don’t know.”
On the other hand, the executive added, “I think we have become more attractive to Gilead. They have got to know us better—we’re no longer that unknown outfit from Belgium. We’ve not only talked about filgotinib but other research programs as well. Among other things, [IPF lung disease candidate] GLPG 1690. We have a number of things that would suit them.”
