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Roche to buy InterMune for $8.3 billion, adding lung drug

Published on NewsOK Modified: August 25, 2014 at 10:51 am •  Published: August 25, 2014
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Roche Holding, the world's largest maker of cancer drugs, is strengthening its portfolio of medicines for respiratory ailments with an agreement to buy InterMune for $8.3 billion in cash.

Roche will pay $74 a share for InterMune, an unprofitable biotechnology company that's awaiting U.S. approval of its biggest drug, the Basel, Switzerland-based company said Sunday in a statement. The agreement reflects Roche's confidence in pirfenidone, potentially the first drug in the U.S. for a rare lung disease that typically kills in five years.

The deal's one of several this year involving a handful of disease areas where the medical need is great, treatment options are few and prices may be substantial. Roche's interest was piqued when research released in May showed pirfenidone cut in half a patient's risk of dying from idiopathic pulmonary fibrosis, or IPF, after the first year of treatment. While the disease is only diagnosed in about 48,000 Americans annually, analysts have predicted the drug could generate $1 billion a year.

"The key driver was the clinical data," Roche Chief Executive Officer Severin Schwan said in a conference call Sunday. "This will allow Roche to grow and strengthen its pulmonary franchise globally. It's a perfect fit from a portfolio point of view."

Pirfenidone will add to existing respiratory medicines sold by Roche that include Pulmozyme for cystic fibrosis and Xolair for asthma, both approved more than a decade ago. The agreement with Brisbane, California-based InterMune reflects Roche's strategy of adding specific brands that will enhance its product offerings, rather than diversifying or expanding with a mega- merger, Schwan said.

Roche has a market value of about 230 billion francs ($251 billion).

The deal makes sense because Roche already has a sales force for pulmonary drugs, Tim Anderson, an analyst at Sanford C. Bernstein & Co. in New York, wrote in a report Monday. Investors are likely to question the price, since Roche is buying a company with one product in a therapeutic area that will get more competitive over time, he said.

InterMune's "valuation reflects an unfortunate reality in the world of biotech M&A -- good assets (especially late-stage ones) don't come cheap, and drug companies are generally either forced to pay a high price or walk away empty handed," Anderson wrote.

As it worked on the InterMune deal, Roche was considering buying out Chugai Pharmaceutical, its Japanese partner on cancer and arthritis drugs, with a bid of about $10 billion for the 38 percent it didn't own, according to a person familiar with the matter. The Swiss company decided against pursuing the deal after the Japanese management signaled opposition to a bid, and instead focused on InterMune, the person said.

The $74 a share bid for InterMune is 38 percent more than the Aug. 22 closing price for the California biotech company, and 63 percent higher than on Aug. 12, when news of a potential sale first emerged. Analysts predict pirfenidone will generate in excess of $1 billion a year in global sales by 2019 by slowing the progression of IPF, which causes tissue deep in the lungs to become thick and scarred over time.

The price of the deal suggests that Roche believes the drug will generate more than $1 billion in peak sales and that it can slash InterMune's current expenses by folding it into Roche's existing operations, Michael Yee, an analyst at RBC Capital Markets in San Francisco, said in a note Sunday.

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