The "Smart Money" is Buying This Baby Biotech

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Belgian biotech Galapagos NV (PINK ADR: GLPYY) – the stock we recommended on Private Briefing's very first day of publication – established yet another record high yesterday, and is now up nearly 182% since we first told you about it.
And that's just the beginning.
We continue to believe this is a potential "10-bagger" in the making, meaning the biggest gains are still to come.
"It goes without saying that we're delighted with the success of Galapagos," said Martin Hutchinson, the former merchant banker and Permanent Wealth Investor editor who actually recommended the stock to Private Briefing subscribers. "And as we've said before, this is merely the start: You not only have the long-term upside of a top-quality biotech lab, but the company continues to announce deals that will serve as near-term catalysts for the stock."
Galapagos announced one such deal yesterday. The baby biotech said it had delivered a fifth "pre-clinical" candidate drug to GlaxoSmithKline PLC (NYSE ADR: GSK) - which triggered a "milestone" payment called for under a 2006 partnership agreement between the two companies. That 2006 drug-discovery-and-development alliance calls for Galapagos to deliver disease-modifying drugs to GSK's global R&D organization.
The amount of the payment wasn't specified in the Galapagos announcement. But the revelation helped send the stock up as much as 6% – to an all-time-record high of $24.32. The stock closed 5.77% higher and is up 181.5% from where we issued our Aug. 11, 2011 "Buy" call.
I know what you're thinking: Given the 181.5% gain we're already seen, is this a stock that I've missed?
As Martin told me (in that refined British accent of his): "Certainly not."
Indeed, Martin says that – despite the gains – this stock is still cheap … as in "10-bagger" cheap.
And the run-up hasn't scared away the savvier institutional players.
In mid-July for instance – with the stock already up 85% from where Martin recommended it – Galapagos received a "transparency notification" (a European form of investment disclosure) from Baker Bros. Life Sciences LP/Baker Bros. Advisors LLC, an institutional player that's very well known for picking winners in the biotech sector. The Baker ventures combined to take a Galapagos stake of 1.722 million shares – or 6.48% of the baby biotech's total shares.
Investments like that tend to be long-term in nature. And other investors have taken big stakes in Galapagos – both before and after the Bakers.
One of the things we like about this company is that – despite its small size – there's a lot going on. It's pushing forward with multiple partners on multiple drug-development programs. So there's consistent activity to track.
In late November 2011, for instance, Galapagos shares soared 41% in a week after the company disclosed that its GLPG0634 drug compound had demonstrated "excellent efficacy and safety" in a Phase II rheumatoid arthritis (RA) study.
And the good news didn't stop.
The stock continued to run and was up 78% by late February 2012, when Big Pharma player Abbott Laboratories Inc. (NYSE: ABT) agreed to pay Galapagos as much as $1.35 billion for rights to the very same RA drug.
Given that Galapagos' market cap at the time was only about $400 million, this was a huge deal – and one that continues to have a blockbuster payoff potential. (Even now, the market cap is only a little more than $600 million – still pretty tiny in a market in which the five biggest Big Pharma players have a combined $70 billion in cash on their balance sheets).
News of the stakes taken by the institutional players have helped push the stock up even more.
"Bill, what your subscribers need to understand here is that you just don't find opportunities like this very often," Martin told me when we talked about Galapagos just before the holidays. "This is one of those rare profit plays that investors will be able to buy and hold for a very long time … it's a lovely stock."
One caveat: As we've stated before, Galapagos is a thinly-traded stock. But that doesn't mean you can't invest. There are several ways to buy it (including overseas shares), and several strategies (such as "limit orders") you can use to invest at a price that you designate.
If you want more insight on Galapagos, take a look at our Sept. 11 report "When Martin Predicts a 10-Bagger, You Should Listen."
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]

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