After spending the last few months in a well-defined trading range of $8-10 per share, the pulmonary fibrosis drug development company InterMune (NASDAQ:ITMN) has settled right in the middle (at $9/share) as investors wait for more news on its flagship product, pirfenidone.
Pirfenidone is the only approved treatment in the world right now for idiopathic pulmonary fibrosis ((IPF)). It was approved in the European Union in March 2011, and it at the end of phase III trials in the United States.
Idiopathic pulmonary fibrosis is a disease that has no known cause at this time (hence the "idiopathic" designation), but the apparent efficacy of pirfenidone is very impressive given the fact that no other medications have shown any potential in IPF treatment. Some doctors use corticosteroids to reduce inflammation in patients' lungs, but this actually increases the risk of death in most patients without offering any actual potential in the direct treatment of IPF. Most of the patients with pulmonary fibrosis are between the ages of 50 and 70 according to the U.S. National Library of Medicine, and available estimates put the total number of pulmonary fibrosis patients above 128,000 within the United States.
Since pirfenidone targets a patient population that is considered "small" by the FDA's guidelines, it was granted orphan drug status by the FDA as well as fast-track status to expedite the development of the drug in order to meet the significant unmet demand for an effective IPF drug. An orphan drug designation gives a drug 7 years of exclusivity according to PDUFA guidelines, which is longer than the standard 5 years that other drugs receive. In addition to the expanded time period of exclusivity, orphan drug developing companies receive other benefits like tax incentives and fee waivers to help sweeten the deal. The catch is that orphan diseases are often difficult to treat (typically due to their complex nature, which is certainly the case with IPF). There are also some incentive problems due to the small patient population that some of these drugs have, although we usually see drug companies earning very high sales revenue per patient with these orphan drugs to further compensate for the smaller overall market.
Pirfenodine, like stated before, is approved in Europe but remains in phase III trials in the United States. This is because the FDA and the EMA (European Medicines Agency) had quite different opinions on the NDA (New Drug Application) and MAA (Marketing Authorization Application) that InterMune submitted that year. These applications both looked to bring pirfenodine to the market using data that the company collected in clinical trials throughout the development process of the drug, but the NDA was met with a CRL (Complete Response Letter) by the FDA on May 4, 2010 which caused a 74% drop in shares of ITMN. Clearly, the market was disappointed that InterMune was unable to get their orphan drug - an IPF treatment at that, approved in one go. Although the stock has been very quiet ever since the extreme display of volatility in 2010, we are getting closer to another NDA submission based on new clinical trial data that could possibly bring the stock back to old highs.
The complete response letter from 2010 stated that the FDA wanted to see more data that could establish the efficacy profile of pirfenodine in the treatment of pulmonary fibrosis. In January of the next year (2011), InterMune announced that it would conduct a new phase III study (known as the ASCEND trial) to study the efficacy of pirfenodine in IPF with a primary endpoint defined by forced vital capacity (%FVC) of patients undergoing the recommended dose of pirfenodine versus placebo. The study is estimated to be finished as soon as December of 2013, although we may see interim results presented at investor conferences or through direct company press releases sooner. There's a good chance that InterMune was just unlucky in 2010, and will bolster its case with a new phase III trial resulting in an NDA with an extremely high chance of approval in 2014 or so, which would bring the stock significantly higher due to the peak revenue potential of pirfenodine. There is also a short interest of 21% of floated shares, which presents some opportunity of a substantial short squeeze if ITMN breaks out of its $8-10 trading range. Even though the really big news is still a year away, it's definitely worth keeping an eye on ITMN to see if the speculation starts to move the shares early on.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.