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.