Innovation Pharmed Out

Roche announced a $5 billion acquisition

Image source: JPC-PROD - Shutterstock

What's going on?

Swiss pharmaceutical company Roche – the world’s second-biggest – announced on Monday that it was buying US biotech firm Spark Therapeutics for $5 billion in the sector’s latest deal.

What does this mean?

Spark is big on gene therapy, whereby defective genes are replaced with healthy ones. It’s a relatively new technique: the first gene therapy drug – developed by Spark to treat eye disease, and a bargain at $850,000 – was approved in the US just over a year ago. But such treatments could well be the future – and pharma companies are eager to get in on the ground floor.

Spark has a gene therapy treatment for hemophilia in the pipeline – which could fit in nicely alongside a new Roche hemophilia treatment expected to make it billions of dollars annually. Several of Roche’s other big-name drugs are falling off a “patent cliff”, after which the company can no longer sell them exclusively – meaning they’ll soon bring in much less cash.

Why should I care?

For markets: Big risk, big (potential) reward.

Pharma companies typically spend loads of money developing the next “blockbuster” treatments, which they can then sell exclusively for a time – recouping their investment and then some. While Spark’s gene therapy for hemophilia is still in clinical trials, it could well be a blockbuster – but then again, it might never get approved. By buying biotechs, pharma companies are effectively buying innovation without having to put in the legwork. But such shortcuts aren’t cheap: Roche is paying more than double what Spark was worth last week.

The bigger picture: Pharma’s hot.

With a slew of pricey mergers and acquisitions, healthcare stocks were among the best performers of 2018 – and there’s already been another $100 billion of pharma “M&A” in 2019 so far. Just on Monday, slimming-down giant General Electric agreed to sell its bio-pharma business to Danaher for $21 billion, while French pharma company Ipsen announced a $1 billion purchase of a US peer.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

Pause The Wars II

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.