Drug deal shows how huge is the new little

When a company like Roche buys InterMune for $8 billion and calls it a mere bolt-on, you know you're seeing signs of a much bigger trend.

By Jim Cramer Aug 25, 2014 10:56AM

InterMune Inc. signage is displayed outside of the company's headquarters in Brisbane, Calif., Aug. 15, 2014 © David Paul Morris/Bloomberg via Getty ImagesYou want to know what's the biggest change that has come over mergers and acquisitions in the past few years? No, it is not inversions. It's the definition of "bolt-on." This morning I sat and listened in amazement to how Roche described the $8.38 billion purchase of InterMune (ITMN) as a bolt-on acquisition that fits right into the company's emphasis on pulmonary care drugs.


Since when is $8.3 billion a bolt-on? That's like saying that a Cartier ring is a bolt-on to your jewelry collection.


In truth, all of the major drug companies are challenged for new products and are scrambling to make acquisitions just like this one, even as it is a 38 percent premium to where the stock went out on Friday and the stock was already up 265 percent for the year. They are scrambling because their own labs simply seem incapable of the kind of greenfield breakthroughs that biotechs are developing. 


TheStreet.com logoThis spring InterMune produced test results of Pirfenidone, its anti-idiopathic pulmonary fibrosis drug that showed dramatically life-saving possibilities against an illness that is now pretty much a death sentence. The compound, which addresses a disease that affects about 100,000 people a year, will most likely be approved by year's end. There is nothing else on the market that has been able to arrest this progressive disease, so Roche will presumably have the market all to itself. Roche has a small pulmonary business with its own sales force, and this drug will help it diversify away from its core oncology business. We highlighted this biotech company after TheStreet's Adam Feuerstein reported that there might be some very promising trials going on for this lead InterMune drug.


What else do we know about InterMune? How about that it is profitless? How about that it has lost more than a billion in the past nine years? How about that it has an amazingly overstretched valuation, to use the term that the Fed recently got nailed using when it talked about what's wrong with the stock market right now? How about the fact that there were apparently other, equally challenged buyers out there that forced Roche to reach so high to get it?


Which brings me back to the new definition of bolt-on. Typically, on a conference call when analysts are worried that a company might do a big expensive acquisition, management soothes them with the words that if they do anything at all, not to fret, it will just be bolt-on. I think what we have here after this bid is a new definition of bolt-on, one that says: "Nearly 10 billion is not anything to be concerned or worried. It's simply a welcome little addition to the product portfolio."


Little, though, now encompasses what huge used to be. That's why you can now cull over all of these one- and two-product, money-losing biotechs and try to find those that have important stage-three trials for unmet needs of 100,000 people or so and recognize that they, too, could be the subject of bolt-on acquisitions that can give you a 300 percent return in a year.


It's still one more piece of evidence that this dissed and allegedly distended market, so often labeled as propped up by the Fed, just keeps giving you amazing gifts when you least expect it. That's because $8 billion, once a monumental amount, is now just small change to these gigantic companies challenged to stay relevant when they are so focused on beating estimates, paying big dividends and just staying one step ahead of the shrinking price-to-earnings multiple posse.


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45Comments
Aug 25, 2014 12:42PM
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Here is the basic deal, large corporations will go where ever they want, they have the money to relocate and are interested in revenue, costs, and the bottom line. Taxes are only a small portion of that and they do not pay 35% anyway, they have tax accountants to deal with getting down into a lower bracket. We could let them pay nothing and if from a business sense they could make more in another country, they would go. They only make up 8% of our work force anyway. Why do we let Congress focus so much effort on them vs the small and medium companies? Why do we let Congress invest while they are writing legislation? They should have their money in a trust that they have no contact with until they are
done serving the American people. Oh, ya that was suppose to be SERVE your country. Ask not what you can do for Congress, ask ---What the hell is Congress doing?
Aug 25, 2014 11:19AM
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Was it not Bobo the clown that told us Russia was driving the market a few short days ago yet Russia has tanks moved into Ukraine today and the market is soaring. How can any one person be wrong so often.
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yep the anti-Christ is here and soon everything will be controlled by one company and one person and no one will be able to sell or buy just as the bible says

Expect the mergers to continue and anti-monopoly laws abandoned soon

Aug 25, 2014 2:10PM
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"...huge is the new little?"  

There has to be a wiener joke in there somewhere.
Aug 25, 2014 11:35AM
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Putin is the first war monger I can remember that put his supply line in first... LMAO at the idiots that did not shoot up those trucks.
Aug 25, 2014 12:02PM
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Look closely at the breakdown of France's government. Leaving the EU creates broad economy for the voter base. It only hurts inheritors and job blockading business platforms. Add to it the countries that have already left (and where they are strategically located) and it spells ruin for the EU. Wall Street is heavily invested in the EU so collapse destroys most stock values by evaporation.
It's Monday so big banks borrowed to bolster bad stocks today, again... the overconfident crowd is loving the rise, but our stocks are essentially debt certificates. The more you own, the more you will owe in repayment. I suspect the return interest rate will well exceed the .25% offered today.
Good money is in small business, big is the new broke.
Aug 25, 2014 11:08AM
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is this a puppet company?  one who is an R&D loss center for losses to be used by the parent company?  how can some company lose so much for so long and stay afloat if not propped up by someone else? 

 

 

"""What else do we know about InterMune? How about that it is profitless? How about that it has lost more than a billion in the past nine years? """

Aug 25, 2014 11:47AM
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This is starting to feel like the Enron Days, only problem, there appears to be far more of them here and globally. Jimmy, it's labeled propped up by the Global Feds because that's exactly what's has happened.
Aug 25, 2014 7:37PM
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I think we should try this again....it all went so well last time?? This is the real issue not the tax rate here in the USA.  Most multi-national companies do not pay the 35% here after all the tax breaks. It is the money out of the country that is taxed so heavily. How about we do the Canada 26% or less one time.... Remember people running for Congress where going to address this last time we had an election???? Wait, they were going to address it the last 2 times we had an election....
Ha...
In 2004, Congress passed the American Jobs Creation Act to create new jobs in an effort to boost the economy. One of the results of the act was the implementation of a repatriated  break, which gave U.S.  a one-time tax break on money earned in foreign countries.

The tax break allows foreign earnings to be taxed at a rate of 5.25%, which is significantly lower than the usual  rate of 35%. Previously, much of the earnings derived from foreign countries were not transferred back to the U.S. because multinationals can defer paying taxes on foreign earnings until they decided to send the earnings back in the form of a dividend.

Ultimately, the government's rationale is that the tax break would act as a good incentive for American multinationals to send their foreign earnings back to the U.S., and then use the earnings to create more American jobs and/or expand operations in the U.S.

Critics of the idea believe that because the companies aren't required to use the repatriated earnings for the sole purpose of American job creation (but the bill does prevent companies from using the money for executive compensation,  and stock ), it is not assured that the tax break will increase job creation. Furthermore, the tax break can be seen as a reward for companies that are deferring regular repatriation of foreign earnings and a punishment for companies that regularly send money back. As a result of this, critics also worry that this act sets a bad precedent, as U.S. multinationals may see this tax break as an incentive to withhold future foreign earnings in the hope that another repatriated tax break will occur. 
Aug 26, 2014 10:59AM
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Who is posting all of the thumbs down on any comments that point to the monopolistic tide of BiG Business??? 
We DO NOT have a free market system -- not because of regulations -- but because the markets are controlled by a few BIG CORPS and SUPER WEALTHY individuals. These few often act in concert for their mutual benefit.
Aug 25, 2014 11:30AM
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This entire con game of euphemistically coming up with different names is hiding some very dangerous  new trends.  We are seeing some very massive and in my opinion dangerous consolidation that we refer to as bolt ons.  Our entire food industry is being compressed into just a few conglomerate organizations.  Arrogance will soon follow as has always happened with these events.  I like now how the face of Free Trade and Globalism is being euphemistically colored over with the idea all the jobs were replaced by robots.  Total BS those jobs have been spread around the globe through these favored nations treaties that are in place to do nothing more than spread American wealth to developing nations at the expense of American citizens.  Education and history could have helped prevent the catastrophe that will be inevitable in our nation but like Germany in the thirties the citizens were conned into actually believing they could and should rule the world.  Not a whole lot different than these globalists who have at present infilitrated and are now controlling the face of Corporatism we see here today. Controlling the world is a very very bad idea but just one more "bolt on" can't hurt now can it?
Aug 25, 2014 12:07PM
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The Cramer Chronicles populated by his nutty buddies - NTU, Little Bobo, Dave, VL, & Steve!

Yuk yuk!
Aug 25, 2014 11:42AM
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Someone should acquire Cramer! Maybe the nut house?

Yuk yuk!
Aug 25, 2014 12:19PM
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Well, a few minutes before noon time scumbags started doing their thing so we are drifting lower....Call it as we see it folks, almost 4 hours to go, a lifetime down here....We will see if we can keep things going or manipulators will get their way...Remember, being up triple digits is nothing if and when these dirt bags take control on and off the floor, the lead could disappear in a NY minute....Not saying that will happen today but, it has plenty of times....Be cautious. More later.
Aug 25, 2014 11:20AM
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Good Monday morning....We opened up nicely, Dow over 120 points, S&P touched 2000 points, everything is looking good....However, and there always is a however, lets not take anything for granted, long way to go and manipulators are populating the floor and regrouping so, even though we are looking good, as usual, caution is advised....More a bit later.
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