April 20, 2009 / 6:13 AM / 10 years ago

UPDATE 2-Galapagos signs Merck deal, shares leap

* Total payments to Galapagos could exceed 192 million euros

* Galapagos to get 2.5 million euros in upfront payment

* CEO says first milestone payment could come by end of 2009

* CEO sees 60 million euros in total milestones in 2009

* Stock rises 15.6 percent to 14-month high

(Adds details, background, CEO comment)

By Anne Jolis

BRUSSELS, April 20 (Reuters) - Belgian biotechnology group Galapagos inked a deal with Merck (MRK.N) that could be worth over 192 million euros ($251.7 million), sending its shares to a 14-month high.

The alliance to develop treatments for inflammatory diseases, announced on Monday, prompted Galapagos shares to rise as much as 15.6 percent to 7.20 euros.

The Belgian bone and joint specialist now has six leading partnerships, which its chief executive said could leave it fighting off takeover attempts in coming years.

“That’s a risk we’re facing as Galapagos— for shareholders it might be good if Galapagos is acquired, but it’s not the preferred scenario of the management,” Onno van de Stolpe said in a conference call.

Galapagos will receive an upfront payment of 2.5 million euros to develop drug candidates for inflammatory diseases. U.S. drugmaker Merck would then have an exclusive option to bring the drugs to clinical trials and commercialise them.

Galapagos would also be eligible to receive milestone payments that may exceed 192 million euros plus possible royalties and other payments.

“Potentially, the first milestone could come in 2009, with a number of more milestones scheduled in 2010,” Van de Stolpe said, declining to detail the value of each of these payments.

He noted the initial milestone payments would be modest.

Galapagos has no drugs on the market but has forecast 100 million euros in revenue this year. Van de Stolpe on Monday predicted Galapagos would capture 60 million euros in milestone payments in 2009.

PARTNERSHIPS INCREASE TAKEOVER RISK

Certain partners could decided it would be cheaper to buy Galapagos than to keep paying it milestones.

“The total company is now worth 130 million euros on the total stock market, but clearly the value of the company is — in the eyes of the companies licensing drugs from us — going to be much higher,” said Van de Stolpe.

Galapagos has another deal with Merck to develop obesity and diabetes treatments. Its other major tie-ups are with Eli Lilly (LLY.N), GlaxoSmithKline (GSK.L) and Johnson & Johnson’s (J&J) JJ.N Janssen Pharmaceutica.

Under the Janssen Pharmaceutica deal, Janssen could exercise an option on a rheumatoid arthritis drug in 2011, triggering a payment of 60 million euros to Galapagos.

If it exercises that option in 2011, Janssen could wind up paying another 776 million euros in milestone payments and double-digit royalties on sales to Galapagos.

“It’s going to be clear that J&J will of course look at the financials of that deal compared to the value of the company,” Van de Stolpe said, adding there have been no takeover talks yet and that he would not welcome a takeover. (Reporting by Anne Jolis; editing by Simon Jessop and Rupert Winchester) ($1=.7628 Euro)

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