Roche to Acquire InterMune for $8.3 Billion
Swiss Pharmaceutical Giant Makes First Big Buy After a String of Much Smaller Purchases
LONDON — Roche Holding AG ROG.VX +0.04% said it has agreed to buy San Francisco-based InterMune Inc. ITMN +1.11% for $8.3 billion in cash, the biggest acquisition in years for the Swiss pharmaceutical giant after a string of much smaller purchases.
The deal aims to boost Roche's relatively small respiratory business through InterMune's single drug, pirfenidone, a pill that treats a progressive and fatal lung disease called idiopathic pulmonary fibrosis. The drug is approved for marketing in some of the world's biggest markets, but not yet in the U.S.
It is also the latest big deal by a big global pharmaceutical group in a fast-changing industry. Health systems around the world, particularly in the U.S., have started to put pressure on drug companies to keep prices down.
And a number of blockbuster drugs from some of the world's biggest manufacturers have lost or will soon lose patents to expiration. Roche's biological drugs, however, are better protected than some of its rivals' chemical-based pills, partly because their patents expire later, and partly because they are harder to copy.
Roche has so far kept a low profile in the big deal-making that has characterized 2014, despite its large cash generation. Novartis AG NOVN.VX +0.31% and GlaxoSmithKline GSK.LN -0.35% PLC signed a series of asset swaps worth more than $20 billion in April. AbbVie Inc. ABBV +0.44% agreed to acquire Shire SHPG +0.04% PLC for about $54 billion last month.
Roche has picked off a number of smaller companies, all in deals worth less than $1 billion in upfront payments, in recent months. But it hasn't made a big play for another company since abandoning a proposed $7 billion acquisition of Illumina Inc., ILMN -0.05% a U.S. gene-sequencing group, in 2012.
This latest acquisition, which Roche said has been recommended by InterMune board, is the Swiss group's biggest since 2009, when it bought the remaining shares in Genetech that it hadn't already owned, for $46.8 billion.
InterMune's pirfenidone is already marketed in Europe, Canada, Japan and China under the brand names Esbriet, Pirespa and Etuary. Regulators are currently deciding whether the drug can be marketed in the U.S.
Roche's offer represents a 38% premium over InterMune's closing share price on Friday of $53.80 and a 63% premium before takeover speculation about the U.S. biotech company started circulating earlier in August.
The InterMune deal marks a move to diversify away from Roche's core businesses in oncology, autoimmune diseases and accompanying diagnostic tools. Roche has only two marketed respiratory products in the U.S., both in specialist fields: Xolair for severe and allergic asthma and Pulmozyme for cystic fibrosis. One of its pipeline products—lebrikizumab—is also being developed for severe asthma.
The InterMune acquisition also departs from the much smaller-scale deals Roche has focused on recently to build out its oncology and diagnostics businesses. Those include an agreement signed to acquire Seragon Pharmaceuticals for $725 million in July and deals for diagnostics companies IQuum and Genia Technologies earlier this year, both of which were worth less than $500 million each.
Roche is betting big on pirfenidone. InterMune has no other drugs in clinical trials, although it is conducting preclinical research on other fibrosis treatments. A U.S. regulatory decision on pirfenidone is due in late November.
The U.S. Food and Drug Administration rejected the drug in 2010, asking for more data to prove the treatment's effectiveness. The resulting additional trial data could also be presented to regulators in Europe to try and expand its use in a broader range of patients there.
Apart from regulatory risk in the U.S., pirfenidone could soon face competition. German pharmaceutical group Boehringer Ingelheim has a rival drug candidate for idiopathic pulmonary fibrosis called nintedanib, which also is U.S. regulatory review. A decision on nintedanib is expected next February.
Analysts have predicted both drugs could rack up blockbuster sales by 2019. But while both may slow the loss of lung function, they don't cure the disease.
There are about 128,000 U.S. sufferers of idiopathic pulmonary fibrosis, which mainly affects middle-aged and older adults, and more men than women. The disease kills quickly: Median survival time after diagnosis is two to three years.
Roche has ample financial firepower for the deal. Before Sunday's announcement, it was set to move to a net cash position next year, having largely paid off debt it took on for the Genentech buyout.
Roche generates around $14 billion a year in free cash flow, before dividend payments. Roche said it expects the InterMune deal to be accretive to earnings from 2016 onward.