Natural Selection

Gilead buys Galapagos

Image source: Fat Jackey, Suteren, Vic Hinterlang - Shutterstock

What's going on?

Blessed be the fruit. US drugmaker Gilead Sciences pledged to invest an additional $5 billion in Belgian-Dutch biotech company Galapagos, pushing the latter’s stock up 19% on Monday.

What does this mean?

Gilead first visited Galapagos back in 2015, scooping up 12% of the firm. It’s now increasing that stake to 22%, spending $1 billion on stock and $4 billion on ramping up research and development. No surprises there: drug researchers are notoriously cash hungry, as readers of the Investing in Biotech Pack in the Finimize app will know.

The two companies have agreed to a further ten-year collaboration which will give Gilead inside access to Galapagos’s drug portfolio and exclusive rights to sell its treatments outside Europe. And Galapagos will ask other shareholders for permission to let Gilead eventually increase its stake to just under 30%.

Why should I care?

For markets: Galapagos’s island got bigger.
Galapagos’s stock price hit an all-time high on Monday. Gilead’s paying 20% more than what shares were worth over the previous month – partly in order to gain greater control over the company. Galapagos is issuing a large chunk of new shares for Gilead to purchase at the premium price, but existing shareholders aren’t likely to part with their shares for much less.

The bigger picture: Vindication stations.

When drug companies buy biotechs, they’re gambling on the future success of half-cooked drugs – and with numerous chances to fail between inception and approval, many’s the slip ‘twixt the cup and the lip. But fortune favors the brave. When GlaxoSmithKline bought biotech Tesaro last December, it did so at more than double its share price. Investors were worried it’d paid well over the odds – but on Monday GSK announced that clinical trials of one of Tesaro’s biggest hopes were starting to show results, and investors sent its stock up 2%. Galapagos’ portfolio includes six drugs currently in clinical trials: Gilead will be hoping one of them becomes a blockbuster and brings in the big bucks. Under his eye

Originally posted as part of the Finimize daily email.

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