Sick Economics

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Galapagos NV Stock Performance

By John Kehoe, Equity Analyst


Success within the biotech industry is extremely difficult. It is exceedingly rare for companies to mimic the path of Pfizer ($PFE) or Moderna ($MRNA) where they find massive profit and stability through independent research and sales. In order to achieve success, many companies remain independent but license and partner with large pharmaceutical companies. Another popular avenue to success is selling an entire business, after developing some valuable intellectual property, to companies that are more suited to finish the development and commercialization of the product. There is a lot of buying and selling within this industry, so identifying the companies that are most likely to be sold for a high price can be an important process for potential investors. It is never easy to pinpoint companies that are going to be consumed by larger entities, but there are some key indicators that can foreshadow a merger. Galapagos NV ($GLPG) is a pharmaceutical company that has been on many investors’ radar as a takeover target for quite some time. The recent poor performances of its FDA trials has caused its share price to decrease more than 70% over the past year. Despite these failures, some are saying that Galapagos could still be a worthwhile investment due to the possibility of a merger with a large pharmaceutical company. 

What Went Wrong? 

After seeing great success throughout 2019 and the beginning of 2020, Galapagos NV has left many of its investors feeling distraught in the past year. In 2019, Galapagos formed a $5.1 billion, 10 year agreement with Gilead Sciences Inc ($GILD) which gave Gilead full access to Galapagos’s product pipeline. This seemed to be an indication of inevitable success for Galapagos as most biotechs that can forge partnerships with pharmaceutical giants are rewarded with immediate benefits. It has been two years since this blockbuster deal and Galapagos has been unable to capitalize on its massive funds and new resources. This poor performance is partially a result of the long awaited decision by the FDA concerning the approval of filgotinib, a Rheumatoid Arthritis treatment that Galapagos was developing with partner Gilead Sciences Inc. This drug was the cornerstone of Galapogos’s product pipeline as it was trying to tap into the Rheumatoid Arthritis Drugs Market which is projected to reach $36.11 billion by 2027. Sadly, the FDA failed to approve this drug in the United States and cited issues with potential testicular toxicity as the reasoning for this failure. This decision has caused Gilead to lose the race to enter the drug market as the third JAK inhibitor approved by the FDA for moderate-to-severe Rheumatoid Arthritis, which serves as a major blow to these two companies’ relationship. Gilead has since dropped the U.S program that deals with the development and testing of this drug. On the bright side of things, filgotinib was approved for use in the European Union and Japan, but Gilead has left Galapagos in charge of the commercialization of this drug. The commercialization of drugs and medicine is an extremely difficult task for smaller biotech companies and this will be an uphill battle for Galapagos. These failures have continued to pile up after another drug, ziritaxestat, has been unable to pass through its phase 3 clinical testing. Ziritaxestat was meant to treat Idiopathic Pulmonary Fibrosis and infiltrate another drug market that has sales potential north of $1 billion per year. Galapagos still has another idiopathic pulmonary fibrosis drug in its pipeline, but this decision allows other companies to break into this market first. Galapagos and Gilead will continue to tread forward in their attempts to broaden their product pipelines, but so far this blockbuster relationship has only provided disappointments.

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Ripe for Acquisition?

After almost two years of disappointing clinical trials, Galapagos would need some major breakthroughs to see their share price increase. If they are unable to make progress in their clinical testing, one of their only other options would be a complete merger with a larger company. It doesn’t seem very likely that Gilead would be interested in purchasing Galapagos given their current ten year agreement and Gilead’s shift towards oncology based medicine. Therefore, Galapagos must look towards new relationships and hope that a larger company sees value in their intellectual property and current resources. Their current management team has faith that their product pipeline contains value that is “not reflected in the share price”. In most cases, takeover targets in the biotech industry are companies that are performing very well and have caught the eye of other companies through their large profits. In order for an underperforming company to be considered a takeover target, they usually have obtained promising results through their clinical trials that can help justify their poor financial situation. Galapagos fails to fall under either one of these categories. They are currently trading below cash, which means that its market cap is currently less than its cash on the balance sheet. This is usually an indication that a company’s growth prospects are poor. Needless to say, Galapagos is not currently considered an attractive investment due to their industry successes and massive profits. They have also failed to develop any intellectual property that is proven to be valuable after numerous failures with the FDA. Galapagos does have an enormous amount of cash and still has more products that are undergoing clinical testing. There is a small potential for a breakthrough and eventual growth, but as time goes on, this opportunity for growth is dwindling. 


Galapagos has quickly morphed from a stock market sensation into a horror story. Its famous successes of the past and its previous partnerships have helped prolong its relevance and lure in investors. As of right now, this is an extremely risky investment, especially if it is reliant on a merger with another company. Oftentimes when a company’s share price plummets investors will claim that it is now undervalued and will rebound in the near future. Many people may be tempted to buy shares of Galapagos while its price is low, but there is little evidence to support this investment. There is not much value in Galapagos right now, for both small investors and large pharmaceutical companies. There is a small glimmer of hope that Galapagos will be able to capitalize on the European and Japanese market with filgotinib or that a European giant will decide to purchase Galapagos to maximize the sales of filgotinib in the European market. Galapagos still has enough cash to continue its research and development, but with numerous drugs failing to receive FDA approval, it is unlikely that they will strike gold. 


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