Can InterMune Sustain Positive Momentum?

| About: InterMune, Inc. (ITMN)

This year has been a volatile one for InterMune (NASDAQ:ITMN), but next year looks like it should be promising for the Brisbane, California, based company. InterMune has made significant progress in the launch of their flagship product, Esbriet. The company is now in a period of sustained sales growth due to the headway they have made in their European and Canadian markets. InterMune believes that the successful completion of their Phase 3 study, which is nearing full enrollment, will lead to the registration of Esbriet in the United States and provide a further acceleration of the company's sales growth.

So far this month, InterMune stock has experienced very volatile trading. On Friday, November 2, the stock fell to a daily low of $7.84. By Monday, November 5, the stock rose to as high as $9.06 a share, only to fall as low as $8.04 on November 6. On November 8, the stock made another dramatic jump reaching $9.87. By November 15, the stock had fallen to $7.98, but then jumped to $9.00 on November 16.

The recent scenario may be a short seller's dream, but InterMune is a company worthy of long-term investment consideration.

On November 7, InterMune reported that during the 3rd quarter of 2012, the company was making significant progress advancing its sole product, Esbriet, in Europe. Total revenues for the quarter rose to $7.5 million from $100,000 in the comparable quarter last year.

On November 8, Canaccord Genuity upgraded InterMune from Hold to Buy with a price target of $13.00 (from $11.00) after hearing the company's Q3 results.

The firm stated, ""We've been waiting for a signal that ITMN could execute on marketing Esbriet - we think this could be it. We think the strength in Q3 sales may signal the start of a new ramp in pirfenidone sales, buoyed by upcoming French and Italian launches. We expect continued positive momentum in H1/13 as France and Italy could be better organized and more enthusiastic re pirfenidone than Germany. We are raising our target on increased adoption rates forecast in Q4/12, 2013 and 2014."

InterMune is a biotechnology company focused on the treatment of idiopathic pulmonary fibrosis (NYSEARCA:IPF), a progressive and eventually fatal lung disease, characterized by scarring of the lungs that thickens the lining of the lungs, interfering with the tissue's ability to transport oxygen. IPF ultimately suffocates a patient. About two-thirds of IPF patients die within five years.

Idiopathic Pulmonary Fibrosis

IPF is one of about 200 disorders called interstitial lung diseases ((ILDs)). IPF is the most common form of ILD. IPF affects about 128,100 people in the United States, with about 48,000 new cases diagnosed annually. About 40,000 people die each year of IPF, the same as to breast cancer. IPF is five times more common than cystic fibrosis and Lou Gehrig's Disease (or ALS), yet the disease remains virtually unknown to most of the public and even among some physicians. A recent poll found only 29% of Americans know anything about the disease. Many people with IPF are upset that IPF receives a fraction of the research funding as other disorders that inflict a similar number of people. For example, approximately $18 million per year is spent on IPF research when $85 million per year is spent on cystic fibrosis research and $48 million per year is spent on ALS research. A recent study found that IPF may be 5 to 10 times more prevalent than previously thought. It is unknown whether this increase is due to more people contracting the disease or to a previous lack of definitive guidelines for diagnosing IPF.

According to Decision Resources, a research and advisory firm focusing on pharmaceutical and healthcare issues, the IPF drug market is forecasted to grow to $4.6 billion in 2020 in the United States and Europe. The firm found that increasing diagnosed and drug-treated populations as well as the launch of five drugs with novel mechanisms of action are key drivers of this growth.


InterMune markets pirfenidone under the trade name Esbriet. Pirfenidone is an orally active, small molecule drug that inhibits the synthesis of TGF-beta, a chemical mediator that controls many cell functions including proliferation and differentiation. Pirfenidone plays an important role in fibrosis. It also inhibits the synthesis of TNF-alpha, a cytokine that is known to have an active role in inflammation. Pirfenidone has demonstrated activity in multiple fibrotic conditions, including those of the lung, kidney and liver.

InterMune licensed certain rights to pirfenidone from Marnac, Inc. and its co-licensor, KDL GmbH, in 2002. In 2007, the company purchased from Marnac and KDL the rights to sell the compound under the patents in the United States, Europe and other territories, except in Japan, Taiwan and South Korea, where rights to the molecule were licensed to Shionogi & Co. Ltd. of Japan. In October 2008, pirfenidone was approved for use in Japan for IPF patients where it is marketed as Pirespa by Shionogi & Co. In July 2012, Shionogi & Co., Ltd., a Japan-based pharmaceutical company, initiated litigation against InterMune, alleging that InterMune has failed to pay royalties to Shionogi on sales of Esbriet in the European Union.

Esbriet European Union Launch

Until the launch of InterMune's Esbriet (pirfenidone) in Germany earlier this year, no drugs were licensed for IPF in either the United States or Europe. IPF has traditionally been treated with antioxidants and immunosuppressants, but these agents' lack of efficacy accounts for their limited usel Novel agents such as Esbriet along with Boehringer Ingelheim's Vargatef, Janssen Biotech's, a subsidiary of Johnson and Johnson (NYSE:JNJ), carlumab, FibroGen's FG-3019 and Novartis's (NVS) QAX-576, are expected to launch in the United States and Europe within the next 10 years, should expand the drug-treated population because they will offer disease modification.

Pirfenidone is approved for marketing by InterMune in the EU and Canada. The company plans to launch of Esbriet in Canada on January 1, 2013. Esbriet is currently in a Phase 3 clinical trial in the United States, where the company has had a difficult time getting US Food and Drug Administration (FDA) approval.

In May 2010, both InterMune and the market were stunned when the FDA did not approve pifendone. The company's stock was skyrocketing. Some analysts predicted that Esbriet could achieve annual sales of $1 billion or more. All the excitement was considerably tempered after the agency decided that the company would need to conduct a new clinical trial for pirfenidone because the drug worked in one late stage clinical trial but not in a second. Earlier, an FDA Advisory Committee recommended the approval of pirfenidone by a 9-3 margin. As a result, the price of InterMune stock tripled. When InterMune trading was halted before the FDA decision, the company shares were trading at $45.44. After the negative FDA vote, InterMune shares plummeted about 80 percent.

It was more bad news for the company. Over the years, InterMune was receiving a significant amount of negative press after the company distributed an August 28, 2002 press release that claimed that Actimmune, an InterMune drug in a Phase 3 trial reduced deaths by 70 percent in patients with mild to moderate IPF. In October 2006, InterMune entered a deferred prosecution agreement, which included a payment of $36.9 million, that settled criminal charges and civil liability claims that the drug was illegally marketed and caused false claims for reimbursement. In September 2009, the company's former CEO Scott Harkonen was convicted of wire fraud for his involvement in the incident.


On November 7, 2012, InterMune reported total revenue of $18.0 million for the first nine months of 2012, compared with $2.7 million in the first nine months of 2011. The company reported revenues of $7.5 million in the third quarter of 2012, up over 90% from previous year revenues of $100,000.

The company anticipates that Esbriet revenue will be in a range of $20 to $25 million. The company anticipates that full-year revenue will be at or slightly above the high end of this range.

Net loss for the third quarter of 2012 was $45.4 million, or 70 cents per share, compared with a net loss of $38.2 million, or 63 cents per share, in the same quarter of 2011. Net loss for the first nine months of 2012 was $91.5 million, or $1.41 per share, compared with a net loss of $110.2 million, or $1.88 per share, in the first nine months of 2011.

Total operating expenses are currently anticipated to be in a range of $200 to $235 million.

As of September 30, 2012, InterMune had cash, cash equivalents and available-for-sale securities of approximately $351.4 million.

Conclusion: Buy

While some analysts are bearish about InterMune because the company is dependent on a single product for growth, the company is totally focused on marketing that drug, Esbriet, in a strategic manner that should enable them to experience a period of sustained sales growth. Here's the plan:

InterMune expects to launch Esbriet in France in the second half of November 2012.

InterMune has completed the Esbriet pricing and reimbursement process in Belgium effective December 1, 2012. The company plans to launch Esbriet there in early 2013. The Belgian annualized price of Esbriet is €30,240, or $36,533 at current exchange rates.

InterMune has now concluded successful pricing and reimbursement discussions in nine European countries: Austria, Belgium, Denmark, France, Germany, Iceland, Luxembourg, Norway and Sweden. The company should also complete pricing and reimbursement processes for Esbriet in Italy, Spain, and the United Kingdom soon.

InterMune expects to have launched Esbriet in 75% of the EU population and 80-85%of the European pharmaceutical market, in the second quarter of 2013, assuming acceptable pricing and reimbursement is secured.

Health Canada has approved Esbriet for the treatment of mild to moderate IPF in adult patients. IPF affects approximately 5,000 to 8,000 Canadians. InterMune expects to make Esbriet available in Canada beginning January 1, 2013. Approximately one-third of IPF patients in Canada are covered by private insurance and InterMune expects to secure coverage from private insurance plans in the first half of 2013. Public drug reimbursement plans cover approximately two-thirds of IPF patients in Canada, and reimbursement from these plans is typically secured within 12 to 18 months of marketing approval.

In the United States, InterMune is continuing its Phase 3 pirfenidone study, ASCEND (Assessment of Pirfenidone to Confirm Efficacy and Safety in IPF). The trial is planned to enroll approximately 500 IPF patients with mild-to-moderate impairment in lung function and certain characteristics that the company believes enhance the probability of a successful study outcome.

This $590 million market company is working hard to successfully complete the pricing and reimbursement processes and launch Esbriet throughout Europe over the coming months, along with the planned launch of Esbriet in the near future. With the launch of Esbriet in Canada on January 1, 2013, InterMune may very well beginning a period of steady and sustained annual sales growth.

InterMune trading is volatile. Analyst price targets range from $7 to $33. Since the stock has a 52 week range of $7.21 low to a $19.33 high, the stock has a long way to go It is not unusual for the stock to rise or fall 10% or more in a day. Buy low. Sell high and with a little luck, you should do just fine.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Rewrote introduction. Hope it makes sense. Thanks for your help,

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