A deep breath for an $8.3-billion plunge

Roche and InterMune enter merger agreement aimed at expanding Roche’s respiratory portfolio

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BASEL, Switzerland—Late August brought news that Roche, looking in large part to expand its respiratory product portfolio, had entered into a definitive merger agreement with Brisbane, Calif.-based biotech InterMune Inc. under which Roche will fully acquire InterMune at a price of $74 per share in an all-cash transaction.
A key attraction for Roche in this deal is InterMune Inc.’s lead product Esbriet (pirfenidone for idiopathic pulmonary fibrosis). 
The acquisition of InterMune, a company focused on the research, development and commercialization of innovative therapies in pulmonology and fibrotic diseases, will allow Roche to broaden and strengthen its respiratory portfolio globally, as Esbriet is already approved for idiopathic pulmonary fibrosis (IPF) in the European Union (EU) and Canada and is under regulatory review in the United States. IPF is a progressive, irreversible and ultimately fatal disease characterized by progressive loss of lung function due to fibrosis, or scarring, in the lungs. Roche markets the pulmonary drugs Pulmozyme and Xolair in the United States and has other novel therapeutic medicines targeting respiratory diseases in clinical development.
This $74-per-share price corresponds to a total transaction value of $8.3 billion on a fully diluted basis and represents a premium of 38 percent to InterMune’s closing price on Aug. 22 and a premium of 63 percent to InterMune’s unaffected closing price on Aug. 12. The merger agreement has been approved by the boards of InterMune and Roche.
“We are very pleased that we reached this agreement with InterMune. Our offer provides significant value to InterMune’s shareholders, and this acquisition will complement Roche’s strengths in pulmonary therapy,” said Severin Schwan, CEO of Roche. “We look forward to welcoming InterMune employees into the Roche Group and to making a difference for patients with idiopathic pulmonary fibrosis, a devastating disease.”
Roche says it plans “a smooth transition of InterMune employees and operations into the Roche organization,” in part to help ensure readiness for an expected launch of pirfenidone in the United States in 2014.
Leerink Partners provided a favorable opinion in analyzing the deal, noting that the acquisition “represents a favorable ending of [InterMune’s] story, which has endured an arduous road in pioneering the development of the first approved treatment for idiopathic pulmonary fibrosis in Europe and potentially in the U.S.”
Leerink analysts see the acquisition offer as “capturing good value for InterMune shareholders in assumed long durability of Esbriet as an asset, majority of sales synergy. We believe the acquisition is a recognition of the potential to develop a fibrosis franchise with pirfenidone (Esbriet) as a starting point, which even as a simple molecule in its unoptimized form appears to provide remarkable therapeutic benefits in IPF that are at least as robust as the alternative approach of targeting angiogenic enzymes … This upside requires significant additional development, and we believe it's appropriate for Roche to capture this upside.”
The U.S. Food and Drug Administration (FDA) is expected to make a determination about approval of the drug, for which the agency has already granted Breakthrough Therapy status, by late November. Credit Suisse analysts have predicted that annual revenues for Esbriet could reach $675 million by the end of 2016. Revenues for the drug are expected to be $144 million this year, according to those same analysts’ forecasts—Esbriet has been marketed by InterMune in the EU and Canada since regulatory approval in 2011 and 2012, respectively.
Under the terms of the merger agreement, Roche was to commence a tender offer no later than Aug. 29 to acquire all outstanding shares of InterMune common stock, and InterMune was to file a recommendation statement containing the unanimous recommendation of the InterMune board that InterMune’s shareholders tender their shares to Roche. The transaction is expected to be neutral to core earnings per share in 2015 and accretive from 2016 onwards.
“This merger recognizes the significant value created by our team’s commitment, hard work and execution for more than a decade to develop and commercialize treatment options for IPF patients and their families,” said Dan Welch, InterMune’s chairman, CEO and president. “Roche shares our passion and commitment to the IPF community and to ensuring that pirfenidone is available as quickly as possible to patients in the United States, pending FDA approval. Roche’s global resources and scale will not only facilitate and accelerate our ability to deliver pirfenidone to more patients around the world, but also to realize our joint vision to bring additional innovative therapies to patients with respiratory diseases.”
As we reported in the July issue of DDNews, InterMune resubmitted its 2010 New Drug Application to the FDA—four years after the FDA asked for a more stringent Phase 3 clinical trial. On May 18, 2014, the biotech reported top-line results from ASCEND (Assessment of Pirfenidone to Confirm Efficacy and Safety in IPF), a controlled Phase 3 trial sponsored by InterMune. ASCEND data reportedly confirmed observations from other clinical studies that pirfenidone significantly reduced IPF disease progression, showed a favorable safety profile and was generally well tolerated.
On July 17, pirfenidone received its Breakthrough Therapy designation from the FDA. This designation is reserved for drugs that are intended to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.
In addition to pirfenidone, InterMune has research programs exploring new targets and pathways that may ultimately lead to improved treatment options for people with IPF and other fibrotic diseases.

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