Roche’s (RHHBY) $8.3 billion deal, announced over the weekend, to take over biotech firm InterMune (ITMN) triggered significant stock price appreciation in many mid-cap firms in the space on Aug 25.
Recap of the Deal
Switzerland-based Roche is looking to strengthen its respiratory portfolio through the impending InterMune buy. The offer price of $74.00 per share represents a premium of 37.5% to InterMune’s closing price on Aug 22, 2014. In the event of the deal going through, Roche’s respiratory portfolio would be bolstered by the addition of Esbriet (idiopathic pulmonary fibrosis). The drug, already approved in Canada and Europe, targets a market with significant unmet medical need (read our Detailed Coverage on the Deal: Roche to Boost Respiratory Product Lineup with InterMune Buy).
The deal did not come as a surprise as rumors regarding it have been doing the rounds for a couple of weeks.
Midcap Biotechs Ignited by InterMune Deal
The imminent takeover by a company as large as Roche caused the shares of Brisbane, CA based InterMune to jump 35.1% to $72.85. InterMune was not the only mid-cap biotech company to gain on the news. New Haven, CT based Achillion Pharmaceuticals (ACHN), Los Angeles, CA based Puma Biotechnology (PBYI) and NY-based Intercept Pharmaceuticals (ICPT) were the other notable gainers in the mid-cap biotech space on Aug 25. All these stocks are also potential buyout candidates.
Achillion Pharmaceuticals, Puma Biotechnology and Intercept Pharmaceuticals gained 10.45%, 5.14% and 2.59%, respectively, on Aug 25. The surge in these mid-cap stocks led the NASDAQ Biotechnology Index higher by 2.41% to end the trading session yesterday at $2,850.43.
Shares of Achillion Pharmaceuticals have gained over 16% ever since it announced positive data from a phase II study on its hepatitis C virus (HCV) candidate, ACH-3102. The HCV space offers significant commercial potential. Consequently, the company represents an attractive M&A target. Achillion Pharmaceuticals holds a Zacks Rank #2 (Buy).
Puma Biotechnology also appears to be another attractive buyout candidate. The company’s share price has been on an uptrend ever since it reported positive top-line results from a phase III trial on its breast cancer candidate neratinib (PB272) last month (read more: Puma Biotech Surges on Positive Results on Neratinib). Puma Biotechnology carries a Zacks Rank #3 (Hold).
Intercept Pharmaceuticals, a Zacks Rank #3 stock, has jumped over 24% from the announcement of positive data from a phase II study on obeticholic acid (OCA) for the treatment of nonalcoholic steatohepatitis (NASH) earlier this month. This too marks Intercept as a lucrative buy.
Conclusion
With many large companies eyeing smaller companies with promising pipelines or products we believe that deals similar to the one broached between Roche and InterMune will be common in the months ahead. The substantial premium offered by Roche to buy a one-drug company further highlights the importance attached to companies with high potential products/candidates. We expect investor focus to remain on the next such M&A deal in the biotech space.
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