CHOP 20X Return in 6 years with Roche Acquisition of Spark Therapeutics

Roche Aquire

Swiss Roche Holding AG recently announced its intension to acquire U.S. biotechnology company Spark Therapeutics Inc. (Spark) as recently reported by NASDAQ. Priced at $4.3 billion the target represents a considerable premium over just recent valuation of $2 billion. Since TrialSite News first got news of the pending deal, Spark’s stock price has risen by 120.9%.  Spark came into existence thanks to early stage discovery and development work, and subsequent spin-off activity from Children’s Hospital of Philadelphia.

Brief  Spark Therapeutics Overview

A gene therapy company with a pipeline of products targeting hemophilia to neurodegenerative diseases, their core mission centers on discovering, developing and delivering potential treatments for genetic disease.  Spark was formed in March 2013 in Delaware as AAVenue Therapeutics, LLC and amended its Certificate of Formation in October 2013 to change its name to Spark Therapeutics LLC. It converted from an LLC to a C corporation in 2014. A gene therapy company, it was formed to transform the lives of patients suffering from debilitating genetic diseases by developing potentially one-time, life-altering treatments.  It received approval for its LUXTURNA (voretigene neparvovec-rzyl) on December 2017 by the U.S. Food and Drug Administration for the treatment of patients with viable retinal cells and confirmed biallelic RPE65 mutation-associated retinal dystrophy.

Like most early-stage biotechnology ventures the company has accumulated losses since its inception and will continue to do so for the foreseeable future (of course pending Roche deal it should be ultimately absorbed into its Genentech U.S. Its commercial viability is highly dependent on a combination of dynamics including:

  • Success of its research and development (now of course it appears this will be driven by Roche)
  • Regulatory approval of future products
  • Successful commercialization of LUXTURNA
  • Successful existing and future clinical trials
  • Out maneuvering competitors in the highly dynamic and risky gene therapy treatment space

Since the inception, they have focused on the development of gene therapy products for patients with suffering debilitating diseases.  The company’s product portfolio includes:

  • LUXTURNA (voretigene neparvovec), currently in Phase III clinical trial for the treatment of genetic blinding conditions caused by mutations in the RPE65 gene.
  • SPK-CHM, currently in Phase I/II clinical trial for the treatment of choroideremia.
  • SPK-7001 currently in Phase ½ clinical trial also for choroideremia treatments
  • SPK-9001 currently in Phase 1/2 trial for hemophilia
  • SPK-8011 Phase 1/2 for hemophilia A
  • SPK-FVIII Program to treat hemophilia A
  • SPK-TPP1 program for treatment of CLN2 disease
  • RhoNOva for the treatment of rhodopsin-linked autosomal dominant retinitis pigmentosa & other neurodegenerative diseases
  • Collaboration Agreement with Pfizer for the development and commercialization of SPK-FIX product candidates in its gene therapy program for treatment of hemophilia B

The company floated an IPO in 2015 for $161 million. Spark generated revenue of $63 million from its early-stage collaborative deals; yet, like many early-stage clinical biopharmaceutical ventures, operates with considerable losses.  Based on a Yahoo Finance  review, most recent EBITDA represents a loss of approximately –$187 million. The company accumulated $50 million in debt via a Wells Fargo financing; throughout the past few years however, it has managed to retain approximately $450 million in cash. Owler reported 315 employees.  The founding duo of Spark represents an interesting duo.

Jeffrey Mazzarro doesn’t appear to have deep industry experience. Other than Spark he only spent a couple years with a company called Generation Health. Mr. Mazzarro was a “special assistant” to Governor Rendell of Pennsylvania for four years after earning impressive advance degrees from Harvard and Wharton.  Perhaps revealing a special talent, Mr. Mazzarro, in our opinion, falls under the brilliant category. Few can pull off what he has done–with a lack of industry experience nor deep bioscience networks, Spark Therapeutics not only secured valuable intellectual property rights from CHOP; not to mention an IPO—but also a pending billion dollar-plus  Roche acquisition. Undoubtedly, he will be invited to many business seminars at top eastern-seaboard MBA programs moving forward. Success is a team effort. His partner was undoubtedly complimentary—and then some. Ms. Katherine High, a physician and Emeritus Professor of Pediatrics at Perelman School of Medicine at the University of Pennsylvania, was educated at Harvard, University of North Carolina School of Medicine and Yale.   She has worked extensively on the use of gene therapy for hemophilia while serving as director of the Center for Cellular and Molecular Therapeutics and since 2001 head of hematology research at Children’s Hospital of Philadelphia.  Ms. High has also been a principal investigator at Howard Hughes Medical Institute. She was one of three finalists in the $1 million Lorraine Cross Award for innovation in medicine and science.

Children’s Hospital of Philadelphia (CHOP)

CHOP is a material shareholder as the company initially was a spin-off of this venerable Philadelphia healthcare institution.  In October 2013, CHOP licensed intellectual property to Spark. As they reported to the Securities and Exchange Commission (SEC) in quarterly its’ 10Q the two parties entered into a technology and license agreement for certain commercialization licenses to be provided to Spark so that it could execute on a plan to develop services, methods and marketable products for commercialization. The license agreement required that Spark reimburse CHOP for the patent costs related to underlying licensed rights incurred post deal closure. From June 30 2017 through 2018 Spark recorded expenses totaling $900,000 in patent costs due to CHOP.  By structuring and entering into a “Master Research Services Agreement” with CHOP the founders effectively tapped into, and leveraged assets and resources of CHOP including research, development and manufacturing services. CHOP also structured a “Services Agreement” providing for clinical, technical and administrative services. By 2018, Spark has accumulated a few million in expenses due.

Industry news recently reported on the potential upside for CHOP as a result of this licensing deal.  The 164 year-old hospital had a 10.6 % stake in Spark that will yield approximately $1 billion.  Based on news sources this figure is based on the approximately $33 million total invested in the company.  An incredible return in six years.

Industry Collaborations

The Spark team in just a few years structured sophisticated contracts with some major industry players.  What follows are some of the deal details as reported in the most recent 10Q.


In 2014 Spark and Pfizer entered into a global collaboration to develop and commercialize SPK-FIX product candidate for the treatment of hemophilia B. Under the agreement Spark granted Pfizer and exclusive worldwide license to any factor IX gene therapy that it develops, manufacturers or commercializes prior to December 31, 2024. . Under the agreement, the Company granted Pfizer an exclusive worldwide license to any factor IX gene therapy that it develops, manufactures or commercializes prior to December 31, 2024.  Assuming the pending Roche acquisition doesn’t impact this agreement, for Phase 1/2 the parties would share development costs under an agreed product plan for each product candidate with Spark’s share of costs under the agreement limited to $10.6 million. Post Phase 1/2 Pfizer would be primarily responsible for development and manufacture, regulatory approval and commercialization. In consideration for this agreement, Spark received $20 million upfront payment for the license back in December 2014. In November 2017, Spark amended the Pfizer agreement and received an additional $15 million as well as became eligible for an additional $10 million in payments upon completion of certain transition activities.  The Company is eligible to receive up to an additional $230.0 million in aggregate milestone payments, $110.0 million of which relate to potential development, regulatory and commercial milestones for the first product candidate to achieve each milestone and $120.0 million of which relate to potential regulatory milestones for additional product candidates. In addition, the Company is entitled to receive royalties calculated as a low-teen percentage of net sales of licensed products. The royalties may be subject to certain reductions, including for a specified portion of royalty payments that Pfizer may become required to pay under any third-party license agreements, subject to a minimum royalty. Under the agreement, the Company remains solely responsible for the payment of license payments payable by the Company under specified license agreements.

In February 2018, the Company entered into a supply agreement with Pfizer to begin production in 2018 for one batch of drug substance expected to be used for Phase 3 development. The Company received $7.0 million upfront and will receive up to $7.0 million upon delivery. The $14.0 million of consideration is being recognized as revenue as batches of the drug substance is completed.

During the six months ended June 30, 2017, and 2018, the Company recognized $2.8 million and $34.1 million of contract revenue, respectively, related to the Company’s agreements with Pfizer. During each of the six months ended June 30, 2017 and 2018, the Company recorded $2.1 million as a reduction to research and development expenses for the reimbursement of costs from Pfizer. As of June 30, 2018, there is $1.8 million of current deferred revenue on the consolidated balance sheet related to the Pfizer agreements. In July 2018, Pfizer announced they have initiated a Phase 3 program following the Company’s transfer of responsibility for the hemophilia B gene therapy program to Pfizer.


In January 2018, the Company entered into a licensing and commercialization agreement (Novartis License Agreement) with Novartis Pharma AG (Novartis) to develop and commercialize voretigene neparvovec (also known as LUXTURNA) outside the United States. Under the terms of the Novartis License Agreement, the Company has granted Novartis an exclusive right and license, with the right to grant certain sublicenses, under the Company’s intellectual property reasonably necessary or useful for the development or commercialization of LUXTURNA for the treatment, prevention, cure or control of RPE65-mediated inherited retinal disease (IRD) in humans outside the United States. Under the terms of the Novartis License Agreement, the Company received a non-refundable, one-time payment of $105.0 million in the first quarter of 2018, which is included as deferred revenue on the accompanying consolidated balance sheet as of June 30, 2018. The Company is eligible to receive up to an additional $65.0 million in aggregate milestone payments. The Company also is entitled to receive royalty payments at a percentage of net sales on a royalty-region by royalty-region basis, subject to reduction and extension in certain circumstances.

In conjunction with the Novartis License Agreement, the Company and Novartis also entered into a Supply Agreement, under which the Company has agreed to supply all of the commercial supply of voretigene neparvovec required by Novartis, subject to certain conditions. The Supply Agreement continues until the expiration or early termination of the Novartis License Agreement. In addition, either party may terminate the Supply Agreement upon the other party’s uncured material breach of the Supply Agreement, insolvency or bankruptcy. The majority of the $170.0 million of consideration associated with the Novartis License Agreement will be recognized as revenue as the Company sells supply to Novartis.


In December 2016, the Company entered into a License and Option Agreement (Selecta License Agreement) with Selecta  that provides the Company with exclusive worldwide rights to Selecta’s proprietary Synthetic Vaccine Particles (SVP™) platform technology for co-administration with gene therapy targets. Under the terms of the Selecta License Agreement, Selecta has granted the Company certain exclusive, worldwide, royalty-bearing licenses to Selecta’s intellectual property and know-how relating to its SVP technology to research, develop and commercialize gene therapies for factor VIII, an essential blood clotting protein relevant to the treatment of hemophilia A, which is the initial target under the license. In addition, for a specified period of time, the Company may exercise options to research, develop and commercialize gene therapies utilizing the SVP technology for up to four additional targets, subject to the Company’s payment of the applicable option exercise fee, in a range of $1.4 million to $2.0 million depending on the incidence of the applicable indication, to Selecta in each case.


  • Spark has faced, like all pre-revenue biotech’s, a good deal of risk. With the pending acquisition, much of that financial risk will be mitigated, or transferred to Roche itself.  Some key risks as identified by recent financial reports:
  • They have generated limited revenue from one approved product LUXTURNA
  • They have a limited operating history and pre-Roche pending acquisition it was difficult for shareholders to evaluate the success of the business as well as future viability
  • Failure to raise additional capital could materially impact the firm’s ability to continue product development and commercialization
  • The commercial success for LUXTURNA depends on the extent to which patients, physicians and payers accept and adopt the treatment for inherited retinal disease (IRD), caused by biallelic mutations in the RPE65 gene
  • The RPE65-mediated IRD patient population may be smaller than they estimate and hence produce revenue projections not what they forecasted
  • Securing third-party payer coverage of LUXTURNA is vital for the future of their business
  • Their gene therapy product candidates are based on novel, unproven technologies and thus, make it difficult to predict the time and cost of development and of ultimately securing regulatory approval—if they even are able to achieve such a milestone
  • Due to the fact that in some cases they are developing product candidates for diseases in which there is little clinical experience—and in some cases—developing new endpoints or methodologies—there is an increased risk that certain regulatory authorities may not consider the endpoints of their clinical trials to provide clinically meaningful results
  • They will face the same risks that most other commercial sponsors face with patient recruitment and clinical trial operational challenges


Roche has announced its intention to acquire Spark Therapeutics for a considerable premium over its recent market capitalization. This represents yet another recent example of large biopharmaceutical manufacturer paying top dollar for unprofitable or even pre-revenue niche-focused biotech ventures.  In many industries such premiums would be striking—not in the world of drug discovery and development where strategic platforms such as gene therapy are highly sought after. Spark Therapeutics’ founders executed on a brilliant strategy—in just 6 years converting a CHOP license agreement into a nearly $5 billion-dollar acquisition.  Post -acquisition the Spark Therapeutics team will increase their odds favorably with the global scale, talent pool and capital and development and commercialization expertise Roche will bring to bear.