Roche is buying (again): extends biotech shopping spree with $8.3B InterMune buyout

Roche has won the behind-the-scenes auction for InterMune ($ITMN) and its late-stage drug for idiopathic pulmonary fibrosis, announcing Sunday that it is buying up the U.S. biotech for $8.3 billion.

Market rumors have been flying for weeks that Roche ($RHHBY) and Sanofi ($SNY) were in a bidding war for the Brisbane, CA-based biotech, circling the IPF drug pirfenidone, which is widely expected to grab a blockbuster share of the market. The drug is OK'd in the EU and Canada and has a breakthrough drug designation at the FDA, leaving most analysts expecting a near-term entry into the big U.S. market by the PDUFA date looming in November.

Roche is paying $74 per share for the company, which has seen its stock price gyrate upwards on the market buzz that InterMune signed on Goldman Sachs and Centerview Partners to advise it on bids from the two Big Pharmas as well as Actelion and GlaxoSmithKline ($GSK). Novartis ($NVS) and Gilead ($GILD) have also been mentioned as possible buyers over the last couple of years, helping stoke the auction process as InterMune moved closer to a key market approval.

Even at a 38% premium over the swelled share price posted on Friday, the buyout fits neatly into Roche's emerging business development strategy: Buying bolt-on companies and drugs and, in this case, expanding its presence in the respiratory drug market. That's common for many Big Pharma companies, but Roche hasn't been much of a biotech buyer since it finished its big deal for Genentech in 2009. That changed in recent months, though. There was a $1.7 billion Genentech deal for Seragon's cancer therapy as well as the recent $450 million Santaris RNAi buyout for its pRED group based in Basel--all amid strong rumors that it could switch gears and buy out the equity in Chugai it doesn't already own. CEO Severin Schwan, who ruled out a deal for Chugai earlier in the year, has been emphatic recently that these kinds of smaller biotech buyouts are key to the company's future. And pRED chief John Reed--who helped reorganize the big research group in Europe--was adamant at the J.P. Morgan meeting in January that the company started the year with a fresh appetite for a string of deals in 2014.

Not everyone on the Street, though, likes the numbers involved in this particular deal.

"Investors will likely call into question the price that ROG will pay – a hefty $8.3B," noted Bernstein's Tim Anderson. "This is for a company with one drug where the competitive landscape in IPF probably gets tougher over time, not easier.  ITMN's stock has, in fact, been the subject of two recent broker downgrades because of its higher valuation…ITMN'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. Roche faces another hurdle that its other pharma peers don't – because of its share class structure, returning cash by doing share buybacks is more difficult."

IPF is a rare and lethal disease, but with a relatively large population for the orphan therapy field. Patient groups say there are about 128,000 diagnosed cases in the U.S., with tens of thousands of patients newly diagnosed every year. Scarring in the lungs starves the brain and other organs of oxygen, and as of now there are no approved drugs for the disease in the U.S.

InterMune has had to come back from a regulatory rejection in 2010, but posted positive data from a new Phase III study that positioned its top drug as a leader in the field. Now analysts expect the drug approval to trigger a sales launch at the beginning of 2015, leaving it ahead of rival Boehringer Ingelheim, which has been advancing nintedanib through its own late-stage trial.

Back in the spring of this year InterMune outlined data demonstrating that patients taking pirfenidone did much better than the placebo arm on forced vital capacity, a standard measure of performance known as FVC. After a year of therapy, 16.5% of the patients in the drug group had registered a 10% or greater decline in FVC--enough to seriously increase the risk of mortality--compared to 31.8% of the placebo group. Pirfenidone also cleared the bar on a secondary endpoint based on a 6-minute walk test while failing another secondary goal for shortness of breath.

Experts in the field were quick to herald the unprecedented results as groundbreaking, noting that current therapies for IPF can only blunt the symptoms of the disease, rather than change its deadly trajectory. 

Significantly, there appears to be a continuing role for InterMune's R&D team. The companies said in a joint statement that they are planning a "smooth transition," adding InterMune's staffers to the Roche organization as they continue work on the biotech's drug development projects. Just about all of the company's eggs are in the pirfenidone basket, though, with two ongoing Phase II follow-up studies of the drug currently underway.

- here's the release