Roche's Spark buy hits another hurdle as U.S., U.K. antitrust regulators pile on

Roche’s hope of closing its $4.3 billion acquisition of Spark Therapeutics this quarter looks far-fetched now, as the deal has drawn closer scrutiny from antitrust watchdogs in the U.S. and U.K.

Roche and Spark both received a “second request” for additional information and documents from the U.S. Federal Trade Commission (FTC), the two companies said Monday. At the same time, the U.K. Competition and Markets Authority (CMA) has opened its own investigation.

Because of the FTC delay, Roche extended its tender offer deadline from June 14 to July 31, though all deal terms remain unchanged, the Swiss drugmaker said.

The delay marks the fourth setback for the star-crossed merger. On May 23, Roche confirmed to FiercePharma that it had refiled its premerger forms with the FTC, as planned when it unveiled the third postponement. That FTC submission came with a waiting period that ended last Friday before the two parties could close their transaction.

But according to the FTC’s own explanation, “if the initial review has raised competition issues,” it may ask for what’s known as a “second request.” And that’s exactly what the agency did. Once the two companies have complied with the request, the FTC has 10 days to complete its review.

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The repeated delays have puzzled some industry watchers, because there are no obvious anti-competitive concerns. Roche is making a bid for Spark to establish a foothold in the hot and new gene therapy arena and to beef up its hemophilia franchise.

“[W]e think the hemophilia gene therapy market is probably the most competitive and 'crowded' field in gene therapy and don't see how this could be a concern,” Jefferies analyst Michael Yee argued in a Monday memo to investors, drawing comparisons to the hepatitis C market where several players and drug updates have pushed down prices significantly over time.

And among the gene therapy players in hemophilia, Spark isn’t even in the lead. BioMarin is ahead with valoctocogene roxaparvovec in phase 3 hemophilia A development. And Spark’s SPK-8011 “is still quite risky as the new phase 2 data hasn't even been reported or finished, and it's on a small number of patients,” Yee said.

Besides, the mechanism of action of gene therapy differs from Roche’s existing antibody drug Hemlibra.

Some investors have pointed to potential competitive concerns about treatments for hemophilia A patients with factor VIII inhibitors, Yee said. According to Roche management on the company's first-quarter earnings call, Hemlibra had already “highly penetrated” the inhibitor population by the end of last year's third quarter.

Spark has an early-stage program for inhibitor patients, and perhaps the FTC sees this field as a unique population, competitively speaking, Yee said. But again, BioMarin also boasts a similar pipeline, and neither Spark nor BioMarin have even treated patients yet, Yee noted.

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Despite the previous three delays, Roche has repeatedly said it expected to wrap up the deal in the second quarter. But with the new FTC demand, “it is unlikely that the transaction will close during the first half of 2019,” a Roche spokesman said in a statement to FiercePharma on Monday, adding that the company's now expecting the deal to close within the year. “The delay has no impact on our financial outlook for the year 2019,” he said.

According to Roche, the previous delays were all meant to allow U.S. regulators more time for their review, but there’s one more wrinkle this time around.

U.K. regulators opened a separate probe to determine whether the CMA has jurisdiction over the acquisition. If so, the agency may open another review to evaluate whether the merger would hurt competition in the U.K.

“Pending the outcome of its investigation, the CMA has issued an Interim Enforcement Order that would become effective upon closing of the transaction and would require Roche to hold separate the Spark business,” Roche said.

If so, Roche wouldn't be able to integrate the gene therapy specialist—and that's not much of a problem, because the companies said at the outset that Spark would continue operating in Philadelphia as “an independent company” within Roche.

Even though both companies’ boards unanimously backed the deal, Spark’s investors don’t seem so excited. As of last Friday, only 21.1% of Spark’s outstanding shares had been tendered, only slightly higher than the 21% reported about a month ago.