Roche Inks $8.3 Billion InterMune (Nasdaq: ITMN) Deal By Diane Alter

Swiss pharmaceutical behemoth Roche Holdings (OTCMKTS ADR: RHHBF) couldn't wait until Monday to announce its biggest deal in five years.

Sunday, the healthcare giant said it is buying California-based biotech company InterMune Inc. (Nasdaq: ITMN) in an $8.3 billion all-cash transaction.

Roche will pay $74 in cash for each outstanding share of InterMune. That's a hefty 38% premium to ITMN's closing price of $53.80 prior to the announcement and a whopping 63% premium before takeover chatter surrounding the U.S. biotech company started swirling earlier this month.

"We are very pleased that we reached this agreement with InterMune," Roche Chief Executive Officer Severin Schwan said in a statement. "Our offer provides significant value to InterMune's shareholders and this acquisition will complement Roche's strengths in pulmonary therapy. 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."

The deal is a shift away from Roche's key cancer, autoimmune, and accompanying diagnostic tools businesses. The hope is the tie-up will boost Roche's presence in the global pulmonary therapy market.

Indeed, it's InterMune's sole drug, pirfenidone, an oral tablet used to treat the progressive and fatal lung disease called idiopathic pulmonary fibrosis (IPF), that has Roche moving away from its core and heavily wagering on. Here's why...

Pirfenidone is approved for use in a number of the world's biggest markets. But it has yet to get authorization from the U.S. Food and Drug Administration's (FDA) for use in the United States.

Regulators, however, are considering giving approval for pirfenidone to be marketed in the United States. A decision on the drug is expected in late November.

The FDA rejected the drug in 2010, stating it needed more data on the treatment's effectiveness. Additional data from trials accumulated since then is also likely to be presented to European regulators in attempts to expand its use in a broader range of patients overseas.

Data showing even modest effectiveness might be enough for the FDA to give pirfenidone the okay.

Here's why there is such a great need for a drug that treats patients with IPF, and why pirfenidone is so attractive to Roche Holdings...

Some 128,000 people in the United States alone suffer from IPF. The disease causes tissues deep in the lungs to become thick, stiff, and scarred. As lung tissues thicken, lungs cannot properly transport oxygen into the bloodstream. As a result, the brain and other organs are starved of the oxygen they need.

Most often afflicted with the disease are middle-aged and older adults. Men are more likely than women to be sufferers.

There is no cure for IPF, and patients only live an average of three to five years after diagnosis.

Roche's move suggests it believes pirfenidone could get FDA approval. But, competitors are closely nipping at the drug's heels.

Rival German pharmaceutical group Boehringer Ingelheim's in-trial drug, nintedanib, is also under U.S. regulatory review. A verdict on nintedanib is set to be announced in February.

Industry experts project pirfenidone and nintedanib could generate blockbuster sales totals by 2019. Both may slow lung function loss, yet neither cure the disease.

Still, InterMune says 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."

The InterMune deal is the biggest acquisition for Roche since 2009, when it bought the remaining share in Genetch that it didn't already own for $46.8 billion.

It also marks Roche's biggest play since canceling a proposed $7 billion acquisition of U.S. gene sequencing firm Illumina Inc. (Nasdaq: ILMN) in 2012.

The transaction also follows a series of much smaller buys in recent months aimed at building Roche's primary oncology and diagnostic arms.

In July, Roche inked an agreement to acquire Seragon Pharmaceuticals for $725 million. Earlier this year, Roche bought IQuum and Genia Technologies for less than $500 million each.

The deal is also the latest in a string of purchases (and attempted purchases) by big pharma worldwide that has 2014 on track to be the busiest year for mergers and acquisitions since the dot-com heyday.

Most pharma deals have been prompted by concerns over key drugs losing patent protection.

Roche, however, is in a better position than many of its rivals. Roche's biological drugs are better protected than some of its competitors' chemical-based pills, in part because their patents have a longer expiration date, and in part because they're harder to replicate.

Roche expects an easy transition of InterMune employees and operations, ensuring readiness for an expected launch of pirfenidone in the United States in 2014.

The Swiss drug giant also anticipates the deal to be accretive to its earnings from 2016 onward.

The transaction has been approved by both companies' boards and is expected to close this year.

InterMune (Nasdaq: ITMN) stock is soaring on news of the deal, with shares up more than 35% at $73.03 in morning trading.

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