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Gilead Sciences (GILD) said Monday that it will boost stake in Belgian listed biotech Galapagos NV (GLPG) by more than $5 billion in a "transformative" deal that could tap new opportunities for the California-based group in fibrosis and arthritis.

Gilead will invest $1.1 billion in Galapagos' equity capital, as well as an upfront cash payment of $3.95 billion, for a 10-year global research and development collaboration with the Dutch-Belgian group, which specializes in the treatment of inflammatory conditions such as rheumatoid arthritis. After the deal closes, Gilead will have a 22% stake in Galapagos, while the up-front cash payment will be used to expand and accelerate the European biotech's research and development programs.

"We are excited to enter into this unique agreement, which will generate both long-term strategic value and mutual, immediate benefits. We chose to partner with Galapagos because of its pioneering target and drug discovery platform, proven scientific capabilities and outstanding team," said Gilead CEO Daniel O'Day. "Gilead also gains exclusive access to all current and future compounds in Galapagos' rich pipeline while Galapagos is able to expand its research activities and build commercial infrastructure."

"The collaboration reflects Gilead's intent to grow our innovation network through diverse and creative partnerships," he added.

Galapagos' U.S.-listed shares surged 16.8% to $170.65 each following news of the Gilead investment, while its European shares rose 16.9% to €149.80 each. Gilead shares jumped 2.7% higher to an opening bell price of $68.20 each.

"We are encouraged by the scope of Galapagos's pipeline (6 clinical, 20 preclinical assets) but believe the deal's size will keep expectations high and will be watching GLPG1690, currently in Phase 3 for IPF," said BMO Capital Markets analyst Matthew Luchini, who lowered his Gilead price target by $2 to $76 per share. "Looking forward, we expect business development to remain a focus with management indicating continued deal-making capacity."