Roche Holding AG’s $4.8 billion bid for Spark Therapeutics Inc. raises the stakes further in the bidding for makers of therapies that promise to treat rare, debilitating diseases by correcting inborn flaws in DNA.
Purchasing Philadelphia-based Spark will put Roche near the front of the pack with Swiss neighbor Novartis AG in developing the promising new area of medicine and highlights growing enthusiasm for a field that’s become the focus of a flurry of deals.
Roche is entering gene therapy after Novartis agreed last year to pay $8.7 billion for AveXis Inc. and the Zolgensma DNA therapy that treats — and may cure — spinal muscular atrophy, a rare muscle disease that’s the leading genetic cause of death in infants. Spark will give Roche a chance to make up ground in a field where single treatments may command more than $1 million. It also snaps up an asset that rivals like Novartis may have coveted, according to Pierre Corby, an analyst with Oddo BHF.
“The price paid represents a very good opportunity for Roche to gain a foothold in gene therapy and to offer itself — at a more than reasonable price — a platform that has already been validated,” Corby said in a note to clients.
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Roche will pay $114.50 a share for Spark, a 122 percent premium to the biotechnology company’s Friday close. While the price is rich, the U.S. company’s shares were trading above $90 as recently as last year. Roche said its offer was a 19 percent premium to Spark’s 52-week intraday high. The U.S. biotech soared 120 percent to $113.60 in New York trading. Roche’s shares were little changed in Zurich.
The Spark deal is part of the Swiss company’s expansion outside cancer, where it’s facing stiffer competition from new medicines and cheaper copies of its old drugs. It’s branching out into new areas including multiple sclerosis and hemophilia.
Plugging a Gap
Founded in 2013, Spark will give Roche Luxturna, a gene therapy for eye disease. The biotech also offers four products in clinical trials, along with early-stage development programs in rare disorders including Huntington’s disease. Its experimental treatment for hemophilia A complements another important plank in the company’s new portfolio: the hemophilia medicine Hemlibra, Morgan Stanley analysts led by Mark Purcell said in a note Monday.
Roche broke into the hemophilia market in the last two years with Hemlibra, an antibody that mimics the action of the clotting factor needed to stop bleeding. Investors have long questioned, however, whether Roche could compete long-term without having a gene therapy. The Spark deal adds to Roche’s franchise while giving access to the only platform “with a proven track record for getting gene therapy to the market, ” Stefan Schneider, an analyst at Vontobel Research, said in a note to clients.
“We will continue to invest in this space,” Roche Chief Executive Officer Severin Schwan said in an interview, promising that the company will look at technologies as well as assets.
To do so, Roche will need to compete with Novartis, which has also pledged more gene therapy deals. The Spark combination adds another twist to the entanglement of the two Basel-based drugmakers: a 2018 licensing agreement gives Novartis the rights to sell Luxturna outside the U.S. There’s some precedent for the arrangement. Roche sells Lucentis, another eye-disease drug, in the US, while Novartis has the rights in the rest of the world. Novartis also holds a stake in Roche worth about $12.9 billion.
Much of the early work on Spark’s gene therapy was conducted at Children’s Hospital of Philadelphia by researchers including co-founder Katherine High, who’s now the company’s head of research and development. Luxturna treats an inherited form of blindness by injecting a working version of a gene called RPE65. In affected people, the working genes can help restore sight. After Luxturna was approved by U.S. regulators in 2017, Spark said it would charge $425,000 per eye for the treatment.
The value of the one-time treatments with the potential for cure is still a matter of debate, and some drugmakers, including GlaxoSmithKline Plc, have shed assets in the field. The Institute for Clinical and Economic Review, which assesses the value of drugs, said last week that Novartis’s Zolgensma would be cost-effective at as much as $1.5 million. The company has said the treatment would be worth as much as $5 million.
Echoing other drugmakers in the field, Schwan suggested that Roche could solve the pricing conundrum by spacing out the cost. An annuity-style system would allow payers to avoid a high up-front payment and spread the risk over time, he said, with the full value of the drug only being paid out if it works.
Roche’s deal for Spark actually looks more expensive than Novartis’s AveXis purchase when comparing enterprise value to expected future sales, Sam Fazeli of Bloomberg Intelligence said.
It continues a trend of rich valuations in recent pharmaceutical deals. Acquirers paid an average 45 percent premium in takeovers of listed pharmaceutical and biotechnology companies announced over the past five years, data compiled by Bloomberg show. Ipsen SA’s $1.3 billion planned acquisition of Clementia Pharmaceuticals Inc., also announced Monday, represents a premium of 77 percent to Clementia’s 30-day volume-weighted average stock price. Ipsen fell 4.6 percent in Paris.
Citigroup is acting as financial adviser and Davis Polk & Wardwell as legal counsel to Roche, according to the statement announcing the deal. Centerview Partners is acting as financial adviser and Goodwin Procter as legal counsel to Spark, while Cowen also acted as a financial adviser.
Date: March 4, 2019