Spark Therapeutics (ONCE): Did You Feel the Ground Shake, Too?

It’s a very rewarding trading day for investors in Spark Therapeutics (ONCE) with shares skyrocketing 120%, making the stock Wall Street’s bull of the day.

Why the excitement? This morning, Roche announced an agreement to acquire Spark Therapeutics for $4.8 billion, or $114.50 per share. The deal represents an approximately 122% premium to the closing price on Friday, and 15% premium to the company’s all-time high. The deal follows Novartis’s $8.7 billion acquisition of another AAV-based gene therapy company, AveXis, at a 72% premium.

To reflect the purchase price, Cantor analyst Elemer Piros is increasing his price target on ONCE stock to $114.50 (from $80), while lowering his rating to Neutral from Overweight. (To watch Piros’ track record, click here)

“We think Roche was attracted to the numerous potential advantages SPK-8011 has over Hemlibra,” Piros commented. “Hemlibra is currently approved for hemophilia A patients with and without factor VIII (FVIII) inhibitors in the U.S. and other countries. At this time, Hemlibra is approved for patients with inhibitors to FVIII in EU, and is under review for patients without inhibitors to FVIII. Despite already having an existing drug for hemophilia A, we believe the frequent dosing regimen for Hemlibra is less attractive than the opportunity for a once in a lifetime curative approach (gene therapy). We would also note that Hemlibra has a Boxed Warning related to thrombotic microangiopathy and thromboembolism, which means patients are constantly monitored. With Spark also having an asset (SPK-8016) to address the inhibitor market, we believe hemophilia A was the driving force of the acquisition.”

The analyst continued, “Outside of hemophilia A, we believe Roche had interest in the additional pipeline assets; inherited retinal diseases, hemophilia, lysosomal storage disorders, and neurodegenerative diseases. While Roche will only be eligible for royalty payments for hemophilia B, we anticipate the company will move forward with other preclinical indications and build a gene therapy portfolio of its own. Of particular interest to us is SPK-3006 for the treatment of Pompe disease. In our view, Spark is offering a differentiated approach to deliver secretable GAA, which has shown clear benefit vs. AAV alone.”

Echoing Cantor’s sentiment, Mizuho analyst Difei Yang downgraded ONCE from Buy to Neutral, while boosting her price target to $114.50 (from $62). (To watch Yang’s track record, click here)

Yang stated, “We believe this transaction is driven by more than just gaining access to Spark’s current late-stage/commercial products such as Luxturna, and Hemophilia A. With the deal, Roche gains access to integrated capabilities throughout the entire value chain in gene therapy. We believe the valuation is reasonable for several reasons: 1) 122% premium offered is in line with the previous acquisition in the gene therapy space; 2) Our M&A premium analysis shows a 60% premium across the board for all Pharma/Biotech transactions, and we would argue gene therapy assets should garner above average premiums given the novelty in technology and scarcity of available assets. We do not anticipate a competing offer due to the sizable break-up fee. Strategically, Roche is well-positioned to guide Spark and allow the company to reach its full potential in leading the gene therapy space for many years to come.”

Overall, Wall Street sizes up ONCE as a ‘Hold’ stock, as most analysts cheer the deal from the sidelines. In the past month, the stock has received 4 bullish ratings versus 8 analysts hedging their bets. (See ONCE’s price targets and analyst ratings on TipRanks)


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