Background:

• Galapagos is an innovative, cash burning biotech company.  They have 500 scientists, develop novel targets, and have multiple programs in the clinic.  Their most advanced program was recently rejected by the FDA.  To add insult to injury, the program was just returned to them by their partner Gilead.

Thesis:

• Stock has been hit 3x this year and is down 50%+.  First, the FDA rejected their application for the drug (filgotinib), and they were left with an uncertain path to market.  Second, another drug in mid-stage research for osteoarthritis failed its clinical study.  Finally, Gilead basically returned their rights to filgotinib and Galapagos is on their own to commercialize.
• Filgotinib is a zero, but the market values as a negative.  The drug does not matter.  It likely won't generate any material profits, but it also likely won't consume a ton of cash (management will just pull the plug).  Analysts have dramatically cut their numbers but also jacked up their opex to support the compound.  The most likely outcome is the company gives it a push for a couple years then exits the asset.
• The company has a $0 EV.  The company has over $6B in cash which they "earned" by getting Gilead to give them an unbelievable $5B to buy into their sexy science last year.  While the programs have broadly disappointed since then, no takebacks!  (It also speaks to the boom/bust nature of biotech)  While their cash burn will rise to $500M+, they also have tremendous rope to find something new (10 years!).
• Hate and tax loss selling.  I am assuming both factors are at work.  The sellside has piled on by basically saying the company has crappy science and will be worth less as they keep burning down the cash.  While true, I am pointing out that one positive data point makes the valuation look silly in a market like this.
• Pipeline could be worth something.  Yes, the company will burn the cash, but you basically get to buy into the optionality of that pipeline for $0 value.  Most drug assets have negative value, but if even just one program looks interesting the EV should expand much faster than the cash goes down.  Specifically, they have a phase 3 trial ongoing with an early look at the data in 2Q.  While it's a risky program it is also in an area of significant unmet need.  If that drug were to work, it would easily be a $1B+ drug and worth $Bs to GLPG.
• Skew trade.  Let's fast forward 2 years.  In the bear case let's assume they burn 10% of cash per year.  If the stock continues to trade for cash the downside would be 20%.  However, high science companies do not trade for $0 tech value, so I would hazard a guess that the company is unlikely to trade below its recent low ($93) in the next year.  On the bull case let's say some program generates interesting data.  The company could trade from a modest to an extreme EV.  (It traded for >$10B EV earlier this year).  I'm just assuming $5B cash a $2B EV = 13% return.  But the real call is the low cost to get long an option that could have much more upside.  Why not $5B cash and $5B EV = $150?
• Sell in 1Q.  It's not that hard.  Stock should trade up from Dec 17th low of $93 to a meaningfully higher number in 1Q.  Data in 2Q will force people to assess this as an interesting R/R trade into data.

Risks:

• crazy cash deployment.  Management could burn the cash into the ground.  However, they are already burning a ton organically so they are unlikely to blow it externally too (but it could happen!)
• Pipeline failures.  The futility analysis for GLPG1690 probably fails in 2021.  That would be disappointing, but would stock really trade for much less than cash? What if it's positive?