Roche Finishes Year With Big Deals, Gene Therapy In Focus As Competition Heats Up – Seeking Alpha

Roche (OTCQX:RHHBY) has been quite busy in 2019 and it is apparent that it is making a hard push towards building a pipeline of gene therapies. This involves two major deals this year dealing specifically with gene therapy companies. Both of these were large ones, and it shows the commitment of Roche and many other big pharmaceuticals looking to make a move in this particular space. That's because of the potential to cure rare diseases using gene therapy. I believe that Roche has done well with its oncology pipeline over the years. It has been able to establish big blockbuster products in the cancer space like Herceptin, Avastin, and Rituxan. It seems to have made a good shift towards gene therapy as of late, which is evidenced by the large deals it had enacted.

The latest deal that was made by Roche was between itself and Sarepta Therapeutics (SRPT). Specifically, Roche received the rights to launch and commercialize Sarepta's gene therapy SRP-9001 outside of the United States. Roche is to pay an upfront cash payment of $750 million in cash and then about $400 million worth of equity. From there, Sarepta is eligible to receive up to $1.7 billion in regulatory sales and milestones, plus royalties on net sales of products. Sarepta will still pay for the cost of manufacturing and clinical development of the SRP-9001 candidate. Both Roche and Sarepta will share equal costs of global clinical development of the gene therapy.

The most important question to ask is why was Roche interested in gaining ex-US rights for SRP-9001? The first and foremost important reason is that it involves the potential for a one-off treatment or cure for DMD patients. The theory is that by using a micro-dystrophin gene therapy product, the patient would, in turn, achieve an improvement of dystrophin production. Any company that achieves such an outcome for DMD patients would pretty much take most if not the entire market. A second reason why Roche would get involved is because of the early clinical data shown to date. In a non-placebo controlled study with 4 patients, it was shown that there was a mean micro-dystrophin expression of 95.8%. Right away, it is important to note that a 4 patient sample size is not highly adequate to predict clinical outcomes for future trials. It is quite possible that a larger group of patients may not achieve a similar outcome.

On the flip side, the preliminary data does show that SRP-9001 is highly active in treating the disease. This is not shocking because of gene therapies making major strides in treating diseases, but for the fact that micro-dystrophin is being used. A typical dystrophin gene (DMD gene) is too large to have DNA of the gene encoded into the vector. Therefore, micro-dystrophin is a shortened version of the dystrophin gene necessary for DMD patients to have in order to improve muscle movement. Getting back to the vector, it is a differentiated type known as AAVrh74.

The point here is that AAVrh74 works in a much different manner compared to other gene therapies. Especially, those that utilize AAV9. A notable item to mention is that AAVrh74 is delivered to target cells with minimal immune response. It also does not cross the blood brain barrier. This point was proven in the 4 patient study where no serious adverse events ((SAEs)) were noted from treatment with SRP-9001. There were 3 patients who had elevated levels of gamma-glutamyl transferase (GGT). GGT is an enzyme found in the liver. The concentration of the enzyme rises when it is triggered by certain events. The micro-dystrophin gene therapy did cause this enzyme to elevate, but at the same time, the problem was immediately resolved when patients were given steroid therapy.

As I noted above, the type of vector AAVrh74 is likely a big reason why Roche got involved with Sarepta. Especially, when you dig deeper into the science of the vector. Specifically, it offers a MHCK7 promoter. What is the intended reason for having an MHCK7 promoter for SRP-9001? It is because if offers selective gene expression. By selective gene expression, it is inferred that the promoter drives expression to specific tissues that will likely benefit DMD patients. MHCK7 drives selective tissue expression in areas such as skeletal muscle, cardiac muscle, and diaphragm. All 3 of these areas are where dystrophin production is necessary for muscle movement.

It is my belief that Roche was highly impressed with the AAVrh74.MHCK7 vector itself that brought it to make such a large deal. In my opinion, it is a major advance in gene therapy, rather than the use of typical AAV9 vectors. Having said that, Roche also obtains the option of acquiring ex-U.S. rights to certain future DMD specific programs that Sarepta may yield at a later time. Yet again, this adds further potential for Sarepta to receive additional separate milestones, royalty payments and cost sharing for such other DMD programs. It is said that the licensing of SRP-9001 was one of the largest ex-U.S. gene therapy deal to date.

It is safe to say that the timing of this deal between Roche and Sarepta couldn't have come at a better time. Roche obtains ex-U.S. rights to the micro-dystrophin gene therapy and Sarepta obtains a lot of cash it can use towards developing its other products in its pipeline (including other gene therapies). Roche is the right partner in this regard because it has massive global reach to commercialize products. If and when SRP-9001 is approved, it will be rapidly dispersed because of the large commercial capability Roche has.

Having said all that, the deal made by Roche to acquire ex-U.S. rights for Sarepta's DMD gene therapy isn't the first deal done for this sector. Roche just recently completed its acquisition of Spark Therapeutics (ONCE). Roche announced that it would acquire the gene therapy company back in February of 2019 but has seen many delays since. The most notable reason for the delays was for regulators to make sure that the transaction wouldn't cause a monopoly or stifle competition in any way. This point is proven, where months ago, the US Federal Trade Commission (FTC) had requested information from both companies as part of review for the deal. In addition, the Competition and Markets Authority (CMA) wanted to review the deal as well. The CMA noted that the proposed deal could potentially reduce competition in the United Kingdom.

From Spark Therapeutics, Roche gains several prominent gene therapies. The biggest of which is Luxturna, which has already been approved by the FDA for an inherited form of vision loss. Specifically, in patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy which may lead to vision loss and complete blindness. The most likely acquisition for Spark was probably because of SPk-8011, which is being developed as a one-time treatment for Hemophilia A. This works well for Roche because it has already received FDA approval for one of its Hemophilia A drugs, known as Hemlibra. Hemlibra has done well on the market and it is expected that it could possibly generate as much as $5 billion in peak sales. If anything, SPK-8001 has the potential to become a one-off treatment. In my opinion, such a treatment option is something that these patients would highly desire over other treatments that require frequent dosing. Not only that, but it would protect Roche from competition in the Hemophilia A Space.

Roche seems to be making big bets in the gene therapy space. I will admit it is an exciting time for this sector, however, it doesn't come without notable risks. First and foremost, the biggest risk is pricing. That's because whether or not these gene therapy products survive in the market is highly dependent upon how they are priced. In addition, whether or not insurance carriers will cover the costs of the treatments. In the case of Novartis (NVS) with Zolgensma, it seems to be bucking the trend well so far, generating a solid quarter with $160 million in sales. Analysts only expected about $100 million, which was a huge surprise. Especially, since Zolgensma is priced at $2.1 million per treatment. As I have stated in prior articles though, such pricing can possibly be fixed by working with insurers. One such method is spreading out that $2.1 million price tag over a 5- or 6-year period. Thus, giving payers more incentive to cover the treatment. Roche may, hopefully, be able to fix such an issue with its partner Sarepta. In the case of Spark's Luxturna, it has not gone so well in terms of revenue. This will be a major problem for Roche because it will need to improve sales with this acquired gene therapy treatment. Another risk is the SPK-8011 gene therapy. That's because while the gene therapy was able to reduce the risk of bleeding events by 97% in 12 patients, it didn't do so without incident. There were 2 out of 7 patients who had an immune response issue and had seen Factor VIII levels to drop below 5% of normal when given the highest dose. One patient responded to oral steroids and the problem was resolved. The second patient didn't respond to oral steroids and had to go to the hospital to receive intravenous steroid treatment. Eventually, the second patient had responded to intravenous steroid treatment and was okay. The point here is that, while gene therapies acquired from ex-US rights for SRP-9001 along with the acquisition of Spark look promising, there is no guarantee that such products will reach the market.

I believe Roche made the right move in developing the ex-U.S. rights deal it did with Sarepta for SRP-9001. Especially, for the fact that the vector being used to deliver micro-dystrophin is quite unique compared to others. I also liked the way it set up the deal where it could have the option to obtain rights to certain future DMD programs. This would be other specific DMD programs in exchange for milestone payments/royalties type of a deal again. Lastly, I view these deals as being good for Roche as part of its commitment to help develop and commercialize therapies that improve the lives of patients with rare diseases. Based on the latest acquisitions of gene therapy companies it has achieved, I believe it is set up to do well in this sector for years to come.

This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers a deep-dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.

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Roche Finishes Year With Big Deals, Gene Therapy In Focus As Competition Heats Up - Seeking Alpha