The Swiss pharmaceutical company, Roche Holdings AG (VTX:ROG) will pay $8.3 billion in cash to buy InterMune Inc (NASDAQ:INTM).

InterMune is a company that focuses on biotechnology. InterMune is based in Brisbane, California, and currently employs about 450 workers. It holds access to what may be the first drug in the United States that treats a lung disease that can be fatal within 5 years of diagnosis.

The $8.3 billion price tag values InterMune at $74 per share. This valuation is 38 percent higher than the company’s closing price on August 22^nd, and is 63 percent more than the company’s closing price on August 12^th, which is when the news of the potential sale was first released.

The purchase of InterMune gives Roche access and control of pirfenidone, which analysts and industry experts say will generate $1 billion in sales around the world for the pharmaceutical company. The drug treats idiopathic pulmonary fibrosis, which is an illness that makes the tissues deep in the lungs to become thick and scarred as the disease progresses. Roche is currently the largest manufacturer of cancer drugs, but has faced challenges to expand beyond oncology. This is stopped the development of drugs to treat heart diseases and diabetes in the past few years.

In a statement released by Severin Schwan, the chief executive officer of Roche, he stated that the merger with InterMune will allow Roche to strengthen and grow its pulmonary franchise across the globe. The combination of the two companies is a perfect fit in terms of a portfolio point of view. Schwan expects a smooth transition of the two businesses to make sure they are ready to handle the expected launch of pirfenidone in the United States by 2014.

The purchase of InterMune is the largest acquisition that Roche has made since 2009, which is when it acquired an additional 44 percent stake in Genentech Inc for roughly $46.8 billion. Since then, Roche has paid off about 75 percent of the debt that it owes for making that purchase, and now has more buying power for acquisitions.

Target Purchases

Schwan stated in July that Roche was looking for targeted acquisitions of technologies and products to boost its current diagnostics and drug operations. In the first six months of this year, the Swiss pharmaceuticals company received just under 7.9 billion Swiss francs (about $8.6 billion) of free cash flow.

The company’s acquisition of InterMune is a perfect example of the type of bolt-on acquisition that Roche has been trying to go after. It supplements and extends current products instead of building a huge merger or segregating the company.

Schwan stated in a conference call that the merger is “right on what our M&A strategy is.” The acquisition allows Roche to generate value in an extremely targeted way for investors, patients, and employees.

At the same time as the InterMune deal, Roche was also in discussions about offering a bid for 40 percent of Chu ai Pharmaceutical Co, a Japanese partner of Roche. According to an individual familiar with the matter, the deal in question will offer roughly $10 billion for 40 percent. Earlier this month, the Swiss pharmaceutical company decided not to pursue the deal after the management board of the Chuagi signaled against a bid. Now the Swiss company is whole heartedly focused on the purchase of InterMune.

Partnership

Roche and InterMune had been partners since 2006 working on the development of a drug for hepatitis C.

The locations of the headquarters of the two firms, Roche in Switzerland and InterMune in California, are close together, making it easier for the two companies to integrate.

Other companies in the drug and biotechnology industry have announced deals this year that have totaled to $245.9 billion, which is a huge increase from the $67.9 billion last year. That figure for this year does not include the $117 billion offer that Pfizer made for AstraZeneca plc, which was dropped because of AstraZeneca’s repeated rejections.

Companies are merging with rivals in order to offer a wider range of therapies in certain illness areas where the need for medical treatment is significant, the number of treatment options are few, and the prices of drugs are great. The merger of Roche and InterMune may lead to renewed rumors of a potential offer for Swiss company Actelion Ltd and United Therapeutics Corp from Maryland.

Hypertension Drugs

Both Roche and InterMune make drugs for the treatment of pulmonary arterial hypertension. The disease narrowing the patient’s arteries.

Potential buyers include Roche, Biogen Idec Inc, Gilead Sciences Inc, and Bayer AG.

The executive boards of Roche and InterMune have both agreed to the acquisition, which the companies expect to sign and close by the end of 2014. The payment will consist of cash and newly issued bonds. The merger will not have an impact on next year’s core earnings per share, and will add to the company’s profitability beginning in 2016.

InterMune made a name for itself in the drug making space and attracted buyers, such as GlaxoSmithKline Plc and Actelion, as pirfenidone became closer and closer to being released in the United States.

The drug is also known as Esbriet, and is already being sold on the markets in Canada, Europe, and Japan. The drug would be the first treatment available in the United States that treats a disease that kills over 40,000 Americans annually.

Roche’s Current Line Up

Pirfenidone will join the Roche’s current cabinet of pulmonary drugs. This stable includes Pulmozyme for cystic fibrosis and Xolair for asthma, both of which hit the market over ten years ago. The company is currently developing another promising drug for asthma, called lebrikizumab.

The current sales figures and support staff for Roche is led by its Genentech unit. This branch will boost pirfenidone’s start up in the United States and help get insurance coverage for the drug. The company’s sheer size and reach around the world should also help increase access to the medicine, company executives said.

The United States Food and Drug Administration is also expected to take action by November 23^rd regarding the regulatory requirements that the company filed for approval.

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