This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Roche Investors Should Breathe Easier After InterMune Acquisition

Stocks in this article: RHHBYITMNAZNNVSJNJGSKMRKBMY

NEW YORK (TheStreet) -- On Sunday, Swiss drugmaker Roche Holding (RHHBY) answered the all-important question investors have always posed to management: What's up with the non-oncology pipeline?

Roche finally responded by announcing it had picked off InterMune (ITMN) , a company that specializes in drugs to treat fatal lung disease. The all-cash deal valued at $8.3 billion is the latest in a string of drug M&A activity as companies look to strengthen and,  in some cases, diversify their current offerings.

Roche stock closed Friday at $36.32, down 0.33%. Shares have gained 6% on the year to date, almost half of the health care sector's 11% gain, according to Morningstar.

Roche's stock has grossly underperformed rivals like AstraZeneca (AZN) and Novartis (NVS) , which have posted gains of 39% and 12%, respectively. Even Johnson & Johnson (JNJ) has rewarded investors with close to 15% returns.

Read More: Warren Buffett’s Top 10 Dividend Stocks

For Roche, whose shares have traded sideways since February, investors have wondered if there was any value left. Despite the relative underperformance in the shares, the stock was still expensive at a price-to-earnings ratio of 20.

Making matters worse, until Sunday, management had done little to differentiate the company from the likes of, say, GlaxoSmithKline (GSK) , a company investors can buy at a much cheaper multiple of 13. And Glaxo pays a 5.3% yield compared to no dividend for Roche.

This deal for InterMune, however, changes the landscape.

In InterMune, Roche saw an opportunity it couldn't pass up, even at a 38% premium to InterMune's most recent closing price. It's not a cheap deal. What I think is more important to consider, though, is the value InterMune will bring -- whether on its own strengths or as a value-add to Roche's reparatory assets in Xolair (used to treat asthma) and Pulmozyme (used to treat cystic fibrosis).

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs