investing · Uncategorized

Is Galapagos NV ($GLPG) undervalued?

After the (small) market correction in February and the stocks with bullish growth last year cooling down it might be time to look at other types of stocks. While I usually do not invest in single stocks and prefer ETFs, I do feel my portfolio at this point is large enough at this point to take a bet.

Galapagos is a stock I am very familiar with. I was actually invested in this stock heavily in 2019 when it was only 94 EUR. The stock skyrocketed and I eventually sold it with a 52% gain at 143 EUR. While it was a nice profit it continued to rise all the way to 225 EUR. so I missed off gigantic, but at the time I felt diversification was the most important.

I missed a lot of profit compared to the peak but I also missed a huge drop. Since its high peak Galapagos had a large bad news strike of non-approved medicines, the latest being Filgotinib, causing drop after drop.

I watched it all closely and with the stock reaching a new low of 71 EUR I decided this stock deserves my attention once more and this time for the long term.

The company had a stroke of bad news and many investors have lost confidence in the stock. When reading about Galapagos now on Blogs or Vlogs from Financial Influencers then you will mostly see that they are looking at he company’s past instead of its future. They see only the past and because of this they risk missing out. Most likely the fact plenty of people lost money has clouded their judgement about the future potential.

As for me, I remember what this stock did for me in 2019, but apart from emotional reasons I can see several reasons why this stock is worth a gamble.

#1 Sector advantage

With Tech stocks having risen more then any other stocks a correction for those type of stocks could be around the corner and is already starting. Pharmaceutical research company’s on the other hand have seen a modest rise and are expected to outperform the market in 2021 as investors look beyond tech stocks. Pharmaceutical research company’s will be in general a good investment in 2021.

#2 Galapagos has a huge cash position

The current cash position of $GLPG is actually worth more now then the company itself. They can buy up all their stocks and still have money left to go on a holiday to the Maldives with the entire company.

They could also use this money to fuel their pipeline for another 10 years. Which of course is needed since medicines do take a long time to go trough the timeline.

#3 Galapagos still has diamond in the mine

Galapagos projects are based on the idea that nearly all chronic diseases are due to malfunctioning proteins. Galapagos aspires to create effective treatments by developing molecules that alter the behavior of proteins – in such a way that the disease is minimized or eliminated.

An important fact for investors to consider is that there continues to be a huge amount of diseases without decent treatments. Galapagos attempts to develop treatments for some of these, like systemic sclerosis.

The risk here is very high, however there is also a high reward if new medicines get approved.

Galapagos still has a very big pipeline. Of course their medicines Filgotinib and Fibrosis failed unfortunately to get great results. BUT they still have 30+ programs in their pipeline, the most advanced being Toledo currently.

Toledo can treat auto-immune disorders. It can be a gamechanger for many patients because it literally changes the paradigm of treating these kinds of diseases

Clinical trials already started last year for Toleda and Galapagos is expected to report results on this mid 2021.

Now if those results are promising the stock will for sure make a jump. If its disappointing however another drop can not be excluded. But there is right now another 6 months to go to those results, so enough time to grow a bit and prepare for a drop if it comes. If it turns out to be good news then by the time the new comes it will be to late to purchase the stock at a good price.

#4 The stock is cheap

After the stock dropped from 250 EUR to 70 EUR, knowing that their cash position is huge, it is difficult not see potential in this stock. I really believe the stock is cheap right now and has a huge potential. The main reason why its trading so low is because Galapagos had a streak of bad news in 2021.

Investors have lost confidence in the stock, and that’s good news for us because it means the current price does not reflect its actual value and we can pick it up at bargain price.

#5 They have tested their platform

While the FDA did not approve their top 2 medicines, they do managed to test their pipeline and their platform. Galapagos now owns a great target discovery platform that can yield valuable molecules. This is something they have despite of the non-FDA approval.

#6 They do have some short term revenue prospects

While Filgotinib’s is not approved by the FDA, it is approved in Europe and Japan and Galapagos is researching Filgotinib’s effectiveness for other diseases like ulcerative colitis, Crohn’s disease, ankylosing spondylitis and psoriatic arthritis. So that means that Filgotinib can still generate cash for Galapagos

#7 Galapagos is located in Pharma Valley

Being from Belgium I happen to know the climate for pharmaceutical companys is amazing here. Belgium really is the Silicon valley of Pharma also known as Pharma Valley.

Pharma company’s choose Belgium en-masse to settle. The reasons being that there is a great amount of knowledge here, but also because the Belgian Government is investing hugely in this sector. Of course its also perfectly located to export medicines when created.

Have a look at this map. It contains all locations that are involved in researching or producing covid vaccines. Almost every vaccine that the EU bought is researched or produced here. This includes Pfiver, Curevac, Johnson & Johnson and AstraZeneca but also a few that are still in the pipeline.

Should you buy Galapagos?

I must stress that I am not a financial advisor. I am not qualified to give Financial Advise. I recommend you do your own research and do your own due diligence. What I can say is that I took a position in Galapagos at 0.6% of my portfolio just today at about 71 EUR and am certainly considering to raise this with another 0.3% next month if there would be another drop the next weeks.

The stock price of Galapagos in 2021 will mostly depend of the results Toledo yields. So my position is small enough to be able to stomach a loss in the short term in case that Toledo underperforms and big enough to have an impact on my portfolio if it fulfills my expectations and outperforms.

No matter what 2021 brings, it is likely that there are some successful projects in their 30-projects big pipeline, so long term I absolutely believe in their future.

For now I’m strongly looking forward to the mid-2021 results of Toledo and will be following up this stock closely.

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12 thoughts on “Is Galapagos NV ($GLPG) undervalued?

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