What happened

Shares of Galapagos NV (NASDAQ:GLPG), a clinical-stage biotech, rose by as much as 18% in premarket trading today. The spark?

Over the weekend, Galapagos NV announced that its partner Gilead Sciences (NASDAQ:GILD) has decided to deepen their relationship through an additional $5.1 billion investment. Gilead will reportedly dole out $3.95 billion in upfront cash and make an additional $1.1 billion equity investment in Galapagos. Upon closing, Gilead will effectively own around 22% of the Belgian biotech, but this stake could increase to as much as 29.9% per the duo's new 10-year standstill agreement.  

A brown paper cut out of a rocket appearing to soar on a chart drawn on a blue piece of paper.

Image source: Getty Images.

So what

Per the terms of the deal, Gilead will gain the commercial rights to a host of early-, mid-, and late-stage compounds outside of Europe, such as the experimental idiopathic pulmonary fibrosis treatment, GLPG1690, that's presently in phase 3 development. That's great news for Gilead and its shareholders, given the biotech's repeated failures on the pipeline front over the past several years. 

Now what

The slightly odd part of this deal, however, is that Gilead could have simply doled out a few billion more to acquire Galapagos lock, stock, and barrel. Yet the biotech decided to go with a heavy equity investment instead, thereby allowing Galapagos to maintain its independence for the most part.

Gilead's shareholders, though, shouldn't be all that surprised by this strategic decision. After all, the biotech's new CEO, Daniel O'Day, recently carved the anticancer unit Kite Pharma out into a separate entity and even hired Christi Shaw to run the cell therapy company. Investors, in turn, can probably expect more sizable equity investments in other biotechs with compelling late-stage assets in hand -- rather than full-on buyouts -- with O'Day at the helm.