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Roche's Small Spark Deal Holds a Big Regulatory Warning

Roche's Small Spark Deal Holds a Big Regulatory Warning

(Bloomberg Opinion) -- Roche Holding AG’s $4.7 billion purchase of gene-therapy developer Spark Therapeutics Inc. finally closed Tuesday after a 10-month regulatory saga. Many industries would shrug at that length of a review period, but it’s an eternity by biotech bolt-on standards.  To the extent it’s a signal of things to come, potential acquirers and targets in this corner of the M&A market should take note — not to mention investors.

Roche expected a second-quarter close when it announced the deal in late February. Antitrust authorities made a hash of that timeline as they grew concerned that Roche might stymie Spark’s potentially curative one-time hemophilia treatment to protect its current blockbuster Hemlibra, which treats the same condition. Regulators eventually came to the conclusion that Roche didn’t have much incentive to spike a medicine that it’s paying nearly $5 billion to acquire. 

It would be easier to dismiss Roche’s troubles if it were the only sign of regulatory wrangling, but this year also brought an unexpected  hiccup for Bristol-Myers Squibb & Co. as it sought to clinch its $74 billion acquisition of Celgene Corp. 

Roche's Small Spark Deal Holds a Big Regulatory Warning

The Spark holdup confused the market because there are multiple other drugmakers developing hemophilia gene therapies. Investors were equally shocked in June when Bristol-Myers announced a plan to sell Celgene’s psoriasis drug Otezla as part of a deal with the Federal Trade Commission intended to speed the acquisition along. Otezla is a lucrative medicine, but it isn’t dominant. The FTC was worried about the competitive risk to or from a Bristol-Myers pipeline drug, but it’s in a different drug class and is years away from hitting the market. 

Everything worked out in both of these cases. Bristol-Myers managed to sell Otezla at a reasonable price, while Roche is getting a hold of Spark well before its hemophilia therapy hits the market. The added expense and uncertainty caused by the forced remedy and delay were still damaging, however. Concern that deals that used to be routine might become messy will be more than enough to squash some potential acquisitions. 

An optimist might see these as one-off delays. Spark and Roche could have just been the unfortunate victims of regulatory unfamiliarity with new technology. The sheer size of the Bristol/Celgene deal may have left the FTC feeling like it needed to do something. 

A more jaundiced view is probably warranted. If marginal concerns created a 10-month delay for Roche and a $13.4 billion divestiture for Bristol-Myers to resolve, what’s going to happen when there’s a real competitive issue? 

Biotech M&A isn’t going to screech to a halt, but it is likely to stay more cautious. Investors should adjust target lists and expectations accordingly.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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