Spark Therapeutics Inc., founded by researchers from Children's Hospital of Philadelphia, has agreed to be sold to Switzerland-based Roche Holding AG for $4.3 billion, the University City-based gene-therapy developer said Monday.
The CHOP Foundation will collect around $430 million of that total for its Spark shares _ a huge return for the hospital's $33 million investment since 2013. Venture capitalists and investment funds that backed the company early will also profit.
"It shows gene therapy is here to stay. And it's great for the Philadelphia area: it brings attention and hopefully more dollars, for the many, many therapies in the pipeline," some for diseases that affect only a few thousand people, said Kapila Ratnam, partner at Radnor-based NewSpring. NewSpring was an early investor in what is now WuXi AppTec, a gene-therapy contract manufacturer with 600 employees at the Navy Yard, and a current investor in Paragon Specialty, a Baltimore-based firm that manufactures adeno-associated viral vectors originally developed at Penn.
"This is a resounding affirmation of the vibrancy of the genetic engineering field," and for Spark cofounder Katherine High, a "terrific" pioneer, said Richard W. Vague, founder of Philadelphia-based Gabriel Investments and a donor and investor in biotech research.
Roche is also taking over around $500 million in Spark debt, for a total deal value of around $4.8 billion. The sale price is the biggest payout for a gene therapy company since doctors at research hospitals including CHOP and the University of Pennsylvania began gene therapy trials in the 1990s, in hopes of giving people the power to fight lethal diseases using their own improved cells.
Spark said it will continue operating in Philadelphia as an independent company within Roche, a $57 billion (yearly sales) multinational that sells treatments for diseases from acne to cancer. Spark has about 370 employees, with close to 300 based in Philadelphia, said spokeswoman Monique DaSilva.
Why sell now? "With its worldwide reach and extensive resources, Roche will help us accelerate the development of more gene therapies for more patients for more diseases," said Spark CEO Jeffrey D. Marrazzo in a joint statement issued with Roche. He went on to boast that Spark is so far "the only biotechnology company that has successfully commercialized a gene therapy for a genetic disease in the U.S." Shares of Uniqure, a Dutch gene therapy company that, like Spark, targets hemophilia, were up 30 percent Monday after the Spark news.
CEO Marrazzo also acknowledged in a memo to employees that the sale "may be a time of potential uncertainty." Staff met early Monday morning to talk about the sale, followed by a general meeting with employees, according to a memo the company filed with the Securities and Exchange Commission.
For Roche, the merger gives the company a promising treatment for hemophilia, an inherited bleeding disorder, and a pipeline for other new genetic products, said its CEO, Severin Schwan.
"In particular, Spark's hemophilia A program could become a new therapeutic option for people living with this disease," Schwan said in a statement. "We are also excited to continue the investment in Spark's broad product portfolio and commitment to Philadelphia as a center of excellence."
Under the agreement, Roche would purchase all of the outstanding shares of Spark common stock at $114.50 per share in cash.
The multi-billion dollar price for a company that isn't making money yet "demonstrates Big Pharma's renewed interest in gene therapy," said Roy Rosin, the former Silicon Valley executive who now heads Penn Innovation. Academic investors like CHOP made it possible for true believers like High to persevere and "keep the faith" despite early disappointments, Rosin added. "This will be a big boost for researchers working in gene therapy." Shares of another
Since CHOP owns around 10 percent of the company, that windfall offers a big boost to the hospital's foundation, whose assets totaled $2 billion at the end of 2016. That earlier total enabled the foundation to grant $128 million to the hospital that year, after $15 million in expenses.
If CHOP were to spend the Spark share proceeds like previous foundation assets, the cash would help the hospital and its programs spend at least another $28 million a year.
Bloomberg LP reported CHOP grossed at least $285 million in earlier Spark share sales, for a total payback of more than $700 million, making Spark one of the most profitable investments by a U.S. teaching hospital. Bloomberg said UCLA made $520 million when it sold prostrate cancer treatment Xtandi in 2016, while Northwestern University has collected at least $1.4 billion in royalties from sales of the nerve drug Lyrica.
Roche hopes to close the sale this spring.
Spark stock closed up Friday at $51.56 a share. The stock bounced above $90 a share last summer but fell below $40 in December as investors speculated on its prospects, including its likely acquisition _ typical for a company that spent more in research than it brought in from sales. Roche's market cap is $230 billion, nearly 50 times what it is paying for Spark.
"This is a remarkable exit for this revolutionary company," Stephen Tang, the former head of the University City Science Center, where Spark manufactures, said before the company confirmed the sale but after rumor of a deal was reported in the Wall Street Journal on Saturday. He called it a "very strong vote of confidence by Roche in Spark's product pipeline and expertise."
The sale is "extremely positive news for patients, the investors, CHOP and Philly," said Kevin Mahoney, executive vice president at Penn's medical system and co-director of the Penn Medicine Center for Health Care Innovation. Penn gene therapy developers have attracted investment capital from Boston, Silicon Valley and China for their start-ups, as well as $50 million voted by Penn trustees last spring. Deals like Spark's make Mahoney's job helping boost area biotech start-ups easier.
Vague said he hoped that "somewhere down the road, Philly companies would be acquirers, too, not just acquirees." He noted that in the investment business deals, deals tend to "come in waves," and added that the premium that Roche plans to pay for Spark _ more than double the stock's recent price _ has not "raised too many eyebrows" among Roche investors, a good sign for future deal pricing.
This is the wave," said Dean Miller, president of PACT, the Philadelphia Alliance for Capital and Technologies, which represents start-ups in the region and their backers. "You have a big epicenter coming out of CHOP and Penn. They found a great time to go public, and there have been a significant number of financings in cell and gene therapy out of this region in just the past 12 months. There are going to be multiples."
The sale, as well as the 2017 public share offering that preceded it, will further enrich Spark's early investors. Its board, at the time it raised $72 million from investors in 2014, included officials from Bala Cynwyd-based Susquehanna International Group, as well as Silicon Valley-based Sofinnova Ventures and New Enterprise Associates, among others, along with former CHOP president Steven M. Altschuler.
At least some of that money is likely to stay in the area and back more gene therapy firms, said investor Vague.
Major public shareholders of Spark include investment giants Fidelity, BlackRock, Vanguard and JPMorgan. The company's hired CEO, Jeffrey Marrazzo, son of former Philadelphia water commissioner and public-television executive William Marrazzo, held 663,000 shares as of last year's annual proxy statement, worth more than $70 million at the sale price. The company's medical cofounder, Katherine A. High, held shares now worth more than $40 million.
Spark's sale to Roche marks the second major exit for a Philadelphia start-up in recent weeks. Invisible Sentinel, a specialist in food safety and another resident of the University City Science Center, announced its sale earlier this month for $75 million to France-based BioMerieux, a premiere player in diagnosing infectious diseases worldwide.
Spark says 2018 sales totaled around $65 million, including $27 million from Luxturna, which in December 2017 became the first gene therapy approved for a genetic disease by the U.S. Food and Drug Administration. Luxturna is used to treat Leber's congenital amaurosis, a rare inherited form of blindness that affects the retinas of about 1,000 children in the United States, and a single injection to the retina restores sight in infants.
In January 2018, the Swiss drugmaker Novartis agreed to pay Spark $105 million, and up to $65 million more pending European regulatory approvals and early sales, to sell Luxturna outside the U.S.
Besides experimental drugs to treat hemophilia, Spark is also working on therapies for Huntington's disease, a fatal genetic brain disorder, and Batten's disease, a fatal nervous-system condition _ potentially multi-billion-dollar opportunities in an emerging market.
