Spark Therapeutics: Earnings Update For This Core Biotech Holding

Summary

• My last "buy the dip" piece was followed by an all-out implosion (great example of the risks involved in the biotech sector).
• The stock has rebounded nicely since late February and been a solid performer for the Core Biotech model portfolio.
• An ex-US partnership inked with Novartis strengthened the bullish thesis and the firm appears increasingly prepared for its US launch.
• A few catalysts are coming for the pipeline that readers should be aware of.
• Readers who have done their due diligence should purchase a pilot position. Dips or weakness in the initial stage of the LUXTURNA launch would be a welcome buying opportunity for readers with multi-year time frames.

Shares of Spark Therapeutics (ONCE) have seen a nice bounce recently, having risen by 30% since late February. It looks like my "buy the dip" piece in late November was followed by a much larger "dip" than I was expecting (Note: This was an unexpected event and great example of how biotech is a minefield).

Figure 1: ONCE daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)

The stock plummeted as low as the $40 level after data for hemophilia A candidate SPK-8011 fell short of competitor BioMarin Pharmaceutical's (BMRN) valoctocogene roxaparvovec. While initial data was "positive," and in a small number of patients, mean factor VIII activity level after week 12 varied widely and a dose-response was not clearly observed, I'd say this program is far from dead, and there is a hope that clarity will be forthcoming with higher number of patients. Data could potentially improve with higher dosing considering the safety profile was solid (no serious adverse events observed).

Another event that significantly strengthened the bullish thesis was the ex-US collaboration inked with Novartis (NVS), whereby the larger firm forked over $105 million in upfront cash, could pay up to $65 million in potential near-term milestone payments, and will be on the hook for royalty payments (static mid-20s percent) on net sales. In addition to a nice cash infusion, this esteemed partner adds much credibility to the story and allows Spark to focus on maximizing its U.S. opportunity.

The stock has made an outsized move upward since fourth-quarter and full-year results were reported on February 20th and is currently the best performer in our Core Biotech model account. The company reported a cash position of $540 million (about 20% of the current market cap), while net loss for the full year came in at $253.5 million. General and administrative expenses more than doubled to $111.1 million.

The company appears quite prepared for the first-quarter launch with several key initiatives in place, such as a proposal that would grant commercial and government payers the option to spread payments out over several years (discussed on the conference call). Regulatory approval in Europe could be coming in the second half of the year.

Future catalysts with its pipeline include additional data in hemophilia A and follow-up data from its choroideremia program (lower expectations for the latter). For the former the company is preparing to design and advance a phase 3 study as well. While farther off (2019), it will be exciting when its Pompe program makes it into the clinic as well.

Spark Therapeutics is a Buy.

Readers who have done their due diligence and are interested in the story should purchase a pilot position. Dips or weakness in the initial stage of the LUXTURNA launch would be a welcome buying opportunity for readers with multi-year time frames.

Risks to thesis include disappointing data with earlier stage programs, clinical setbacks, competition from other gene therapy enterprises, and dilution in the near to medium term. I still believe that it's rather hard to read patient stories and come away unconvinced of LUXTURNA's utility as four-year data has added more evidence to a longer durability of effect. It's also possible that the addressable market is in fact much lower than current peak sales estimates project.

A close eye should be kept on specific competitors and their programs, such as the progression of BioMarin's BMN 270 for hemophilia A into pivotal studies. As the market opportunity in the indication is very large, it will be interesting to see how various competing drugs fit into the treatment landscape in what doesn't appear to be a zero-sum game. Keep in mind that other earlier-stage competitors such as Shire (SHPG) and Sangamo (SGMO) are also ushering their programs forward as well.

It is my hope that you found this article helpful. As a reminder, I publish my medium- to long-term ideas on this free platform (including the popular Core Biotech series), while my writing on select ROTY stocks (near term upside) is solely accessible with a subscription. The ROTY community continues to grow and I'm excited about what we have to offer and the potential to help other traders/investors achieve their goals.

In recent news, I just came out with a new article series titled "5 ROTY Ideas For Potential Pilot Purchases," which I hope helps newer traders starting out or those with less time looking for a narrowed list of trade setups.

Disclaimer: Commentary presented is not individualized investment advice. Opinions offered here are not personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to (and encouraged) form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account. I am in a collaborative relationship with The Biotech Forum/Bret Jensen.

Analyst’s Disclosure: I am/we are long ONCE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.