While navigating the waters of the stock market, you sometimes stumble upon oddities, the kind that makes you ask : “Hey am I completely stupid or what ?”

That’s exactly the case with Galapagos NV. As you’ll see, the pitch is quite simple and the catalysts are quite clear.

Here is the Espresso summary :

• 3bn€ of cash, trading at 1.5bn€

• Short term catalysts in the form of imminent breakup

• Activist involved with a board seat

Interested ? Let’s dig a little deeper.

Galapagos is a Belgian biotech company founded in 1999 as a JV between Crucell and Tibotec. It went public in 2005. Initially, the plan was to leverage its proprietary target discovery platform to identify new disease pathways and drug targets. Over time, Galapagos evolved into a fully integrated biopharmaceutical company focused on developing and commercializing therapies in immunology and oncology.

Thanks for the cash, Gilead

One of these treatments was filgotinib (later Jyseleca), which aimed at treating rheumatoid arthritis and other inflammatory diseases. Following multiple positive results for different phases, including Phase 2, Galapagos signed a partnership with Gilead in December 2015.

Galapagos received an upfront payment of $725 million consisting of $300m license fee and a $425 million equity investment – Gilead purchased shares at 58€ (20% premium) and held c15% of Galapagos post operation. In addition, Galapagos was eligible for payments of up to $1.35 billion in milestones.

Fast forward to 2019. Development of filgotinib has advanced quite well with new positive results from other studies. Same thing for the stock price : from 50€ to 100€. In July, Galapagos and Gilead entered a new agreement, substantially larger than the previous one : 3.95bn$ of upfront payment and an equity investment of 1.1bn$ – at c140€ per share, 20% premium. In exchange, Gilead obtained a 10-year option on Galapagos’ pipeline of products, 22% of Galapagos, and warrants to get up to 29.9% of ownership.

La vie en rose : Galapagos had more than 5.5bn€ of cash on the balance sheet, and its stock price shot up from <100€ in early 2019 to >200€ in 2020. The market cap was above 13bn€. But trouble soon followed…

In 2020, the FDA rejected filgotinib – now Jyseleca – for the treatment of rheumatoid arthritis in the US, citing toxicity concerns. The largest market in the world ? Forget about it.

Then in late 2021, Gilead pulled back from Jyseleca rights in Europe, creating uncertainty and showing a lack of confidence from a key partner.

Also, Jyseleca had trouble gaining traction against already developed competition (Pfizer, Abbvie, Eli Lilly). Cumulative sales for 2021-22 barely reached 100m€ (NB : 112m€ in 2023).

Last straw : Onno van de Stolpe, Galapagos founder’s and original CEO since 1999, announced his retirement in August 2021, serving until a successor was found.

Mixing all this, the stock price plunged : from 200€ to less than 50€.

Here comes Paul Stoffels

In January 2022, the company saw the light at the end of the tunnel. Or it seemed. Paul Stoffels was announced as CEO starting in April. Stock price reaction : +20%. Of course it had to, Stoffels is a big, big fish. Plus he already knows the company : he’s the founder of Tibotec, a co-owner of the original JV, and was on the board during a few years.

But what gave real hope was his CV. Stoffels was the Chief Scientific Officer (CSO) of J&J from 2012 to 2022. He oversaw the development of dozens of new drugs, including multiple blockbusters like Darzalex, Stelara, and Imbruvica. In 10 years, J&J pharma sales doubled to c50bn$. The idea when he arrived was simple : Stoffels would replicate similar successes at Galapagos thanks to the 5bn€ of cash he was free to spend.

The thing is, it just didn’t happen. Between 2022 and the end of 2024, Stoffels basically did 2 things : 1/ he acknowledged the failure of Jyseleca and sold it in January 2024 for 50m€ upfront (plus 120m€ potential milestones payment), and 2/ he refocused the R&D efforts on the CAR-T therapy (if you want to know more check this Penn Medicine webpage), notably through the acquisition of CellPoint and AbundBio (for 140m€ total).

At the end of 2024, the pile of cash had slimmed to 3.3bn€ from c4.7bn€ at the end of 2021, and the pipeline was nearly empty. Clearly, the narrative of Stoffels is a genius and will do a J&J Episod 2 has died. The CV spoke too loudly.

A new era

By August 2024, things had changed : stock price dropped from c40€ to <25€. Nodelman changed his stance and filed a 13D, acknowledging that :

The Reporting Persons believe that the securities of the Issuer are deeply undervalued and represent an attractive investment opportunity, and have invested in the Ordinary Shares based on their belief in the long-term value of the Issuer.

The Reporting Persons intend to communicate with the Issuer’s management and board of directors (the “Board”) about a variety of topics relating to the Issuer’s performance, business, operations, strategic opportunities and governance, including Board composition.

Translation : things have to change, the Board hasn’t done its job, I’ll come and shake things up. First positive sign.

Second one : by late September, Ecor1 transformed its ADSs into ordinary shares, enabling direct vote and facilitating a potential Board role.

Third one : in early October Nodelman joined Galapagos’ Board.

When you see that, you know something’s going to happen. And indeed in early January, Galapagos presented a plan to breakup the company.

The issue is : 1/ the plan was presented by Stoffels, and 2/ Stoffels will keep the smallest part of the company. A clear “désaveu” for Stoffels and a shitty communication from Galapagos : it’s like asking the captain of a major ship to present its future course while you ask him to take off with the rowboat.

How did the market react ? Well, it was not that good. The stock traded at 27.7€ before the announcement, it went up 12% during the presentation, and finally closed flat. 3 weeks later, it traded 20% below at 22€. Today, it trades at 23€.

So what’s the plan then, and what should we expect ?

Essentially it appears like Gilead was fed up seeing the billions it poured in Galapagos being idled and found a solution to sort of take them back and put them to use. At separation, Spinco will get 2.45bn€ of cash, while Galapagos retains 500m€. Gilead will keep a 25% ownership in both companies, with a 2-year lockup period in Galapagos and a 6-month period in the Spinco.

I expected the market to move only once the Spinco’s management was announced as it has clearly no confidence in Stoffels. However, last Monday, the CEO of the new entity, still called XYZ was announced. It’s Henry Gosebruch that will lead it. He briefly was CEO of Neumora, a clinical-stage biotech, that he led through the IPO process in 2023 before leaving it in early 2025 following disappointing clinical results. However he spent most of his career in finance/strategic roles. First at JP Morgan for 20 years, doing M&A, then at Abbvie for 10 years as Chief Strategic Officer, notably overseeing the Allergan acquisition. He’s currently based in Chicago, we’ll see if it’s a better place than Mechelen, Belgium to make acquisitions. There was no real reaction from the market post announcement, I guess it’s still expecting more clarity on the project. I think we’ll have it by July once the breakup is acted out.

What could it be worth ?

For the Galapagos part, we have 500m€ of cash (annual cash burn c200m€) and the pipeline. As part of the management change announcement on Monday, Stoffels announced he was going to retire as CEO in the next 12 months, once someone else is appointed (CFO/COO also announced his departure a week before). So we still get a bit of uncertainty on that part, but it’s not like Stoffels was revered by the market so… Assuming it trades at a similar discount to today on the cash it will have in 1 year (ie 50% discount on 300m€ cash), you get c2€ per share. You could also be conservative and make it a 0, that won’t really change the big picture.

So you have a package worth somewhere between 30€ (20% discount on the Spinco cash, no value for Galapagos) and 40€ (Spinco trading at NAV, Galapagos valued at 50% discount to future cash) trading at 23€ today. I don’t have a position yet, but I think the situation is quite compelling. The margin of safety is quite big and the reward could come in a couple months, once the split is done. The AGM is next week (April 29th) so we’ll get new information quickly.