Just in case you've forgotten,
merger and acquisition activity
in the biotech sector is alive and well.
Source: Thetaxhaven via
Over the weekend we witnessed the latest sizable deal in the
biotech sector go down with global pharmaceutical giant
announcing that it would pay $8.3 billion in cash, or $74 per
share, to acquire
, a 38% premium over the company's closing price on Friday.
According to the press release from InterMune, the buyout is
expected to be earnings-neutral to Roche in 2015, but should be
earnings accretive for each year beyond 2016. Specifically, the
buyout is being undertaken by Roche to "broaden and strengthen its
respiratory portfolio globally," and it plans to use InterMune's EU
and Canada-approved idiopathic pulmonary fibrosis (
) drug Esbriet (also known as pirfenidone) as the jumping off point
for its expansion.
IPF is a progressive, rare, and eventually fatal lung disease
that causes scarring of a patients' lung tissue, rendering them
less able to absorb oxygen. It's estimated that some 70,000 to
200,000 people in the U.S. suffer from IPF. There is no cure for
IPF, and in the U.S., at least for the moment, there are no drugs
specifically approved to treat IPF.
But, that could be about to change.
Pirfenidone: a slam-dunk approval
In February, InterMune reported its
long-awaited ASCEND phase 3 trial data
on the efficacy of pirfenidone. The findings from ASCEND
demonstrated that just 16.5% of pirfenidone-treated patients at
week 52 experienced a decline in their forced vital capacity (FVC)
from baseline of 10% or greater, or had unfortunately passed away.
Comparatively, 31.8% of patients in the control group had their FVC
decline by 10% or greater, or had patients pass away. The
difference between the two is a statistically significant 47.9%
reduction in patients that experienced a meaningful decline in FVC
Additionally, nearly one in four pirfenidone patients (22.7% to
be precise) exhibited no decline in FVC compared to just 9.7% of
placebo group enrollees, a
between baseline and week 52.
It's this data that allowed pirfenidone to be resubmitted to the
FDA in May as a treatment for IPF -- InterMune received a complete
response letter (i.e., rejection) in 2010 -- and to achieve
the breakthrough therapy designation from the Food and Drug
Administration in July. The current timeline has pirfenidone on
pace to receive a thumbs-up or thumbs-down decision from the FDA on
or before Nov. 23, 2014.
Logistically, this makes sense
From a number of angles the purchasing InterMune makes a lot of
sense for Roche.
To begin with, there are no FDA-approved IPF treatments in the
U.S. Although Esbriet hasn't sold exceptionally well in overseas
markets, bringing in just $35.7 million in sales in the
second-quarter, albeit that was up 148% from the year-ago period,
the opportunity for healthy margins in the U.S. is clearly on the
table. Given the rare nature of the disease, as well as the factors
influence prescription drug pricing
in the U.S., pirfenidone's pricing should be attractive enough to
be an impressive growth driver for Roche.
Pirfenidone/Esbriet also complements Roche's existing
respiratory products well. Roche already has asthma drug Xolair and
cystic fibrosis drug Pulomzyme approved and on the market. It also
has a handful of clinical-stage respiratory compounds, including
lebrikizumab for severe asthma, with an expected filing data
(assuming all trials go according to plan) in 2016, quilizumab for
asthma with a filing expected in 2017, and lebrikizumab being
examined as a treatment for IPF. However, note that lebrikizumab
isn't expected to be filed for approval for what looks to be at
least three more years according to Roche's
The deal also takes a lot of the launch execution risk off the
table for InterMune. Roche has a great sales team, and Roche's
considerably deeper pockets allow InterMune's research team to
focus on product development and quality and worry less about
marketing and product launches now.
Finally, it will add to Roche's profitability beginning in 2016.
Anytime investors see the word "accretive" in the effects of a
merger or acquisition they tend to be happy campers.
But this aspect doesn't make much sense
But, as a tried and true skeptic, there's one particular aspect
about this deal I don't particularly care for: the premium Roche
ponied up to acquire InterMune.
On one hand, Roche could find incredible success if pirfenidone
is the only drug approved to treat IPF in the U.S. But, the chances
of the IPF treatment field staying free and clear of competition
Privately held Boehringer-Ingelheim has an experimental IPF
drug, nantedanib, currently under priority review by the FDA which
was accepted in early July. Like pirfenidone, nantedanib was
effective at outperforming the placebo and lessening the decline of
lung function in its two IMPULSIS studies. In other words, Roche
may have just bought into a field that's about to get crowded.
Secondly, Wall Street estimates for pirfenidone amount to
approximately $1.1 billion in peak annual sales. Yet, as
InterMune's only approved therapy, Roche is paying between seven
and eight times that amount. Anything north of a premium of
three-to-five times peak annual sales can be a potential red flag
as the rewards from the deal may not be worth the amount paid
before pirfenidone loses its exclusivity many,
years down the road.
Esbriet's quarterly sales growth through Q4 2013 (in millions of
U.S. dollars), InterMune's 2013 Annual Report. Source:
Who wins? Who loses?
The big winner here are IPF-diagnosed patients. Roche has
considerably deeper pockets and a much more experienced marketing
team, therefore access to pirfenidone/Esbriet and education of
physicians surrounding the drug are likely to improve.
It's also a monstrous win for InterMune shareholders. InterMune
wasn't expected to turn the corner to profitability until 2016
anyway, and its slow launch of Esbriet in Europe certainly had
existing shareholders on edge. With Roche paying a hefty premium,
in cash nonetheless, I don't see how InterMune's stakeholders
couldn't be happy with this deal.
If anyone loses on this deal it could be Roche and its
investors. Though InterMune's pirfenidone is likely to provide an
EPS boost for the company beginning in 2016, the remainder of
InterMune's pipeline is comprised of a few preclinical compounds
targeted at fibrotic diseases, as well as a solitary midstage study
(LOTUSS) of pirfenidone as a treatment for systemic
sclerosis-related interstitial lung disease. Put plainly, Roche
spent more than $8 billion to acquire a single rare lung disease
drug that may soon face competition, and whose sales may now
struggle to top $1 billion annually.
I, for one, think Roche grossly overpaid, but that's going to be
for investors and time to decide.
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$8.3 Billion Buyout: InterMune Inc. Stock
Shareholders Can Breathe Easier Thanks to Roche
originally appeared on Fool.com.
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