This Day On The Street
Continue to site right-arrow
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

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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!
RHHBY $34.25 -0.23%
ITMN $73.89 -0.03%
AAPL $123.25 -0.80%
FB $83.30 0.35%
GOOG $548.34 -1.23%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

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