UPDATE 1-InterMune shares tank on doubts of lung drug’s future

(Recasts; adds analysts comments, updates stock movement)

By Krishnakali Sengupta

BANAGALORE, May 5 (BestGrowthStock) – Shares of InterMune Inc
(ITMN.O: ) crashed 78 percent after U.S. health regulators
declined to approve its lung drug, raising doubts about the
drug’s future.

The company will have to decide whether to pursue
development of the drug, pirfenidone, which would require an
expensive new trial and several more years of investment, or
concentrate its developmental efforts on more viable products.

Late Tuesday, InterMune said the U.S. Food and Drug
Administration sought a new study to prove the drug’s efficacy
in treating idiopathic pulmonary fibrosis, a rare, fatal
condition in which the lungs suffer scarring due to unknown
causes. [ID:nSGE6430LX]

“We felt that the odds of approval were favorable given
there are no approved products for this deadly disease, its
orphan designation … and the FDA’s body language throughout
the panel meeting,” analyst Aaron Reames of Wells Fargo
Securities said in a note Wednesday.

An FDA advisory panel had recommended the approval of the
drug in March by a 9-3 margin. [ID:nN09248590]

However, Jefferies & Co analyst Eun Yang, who had predicted
an FDA denial, said it was clear from the March meeting that
the regulator did not like the results of the main goal of the
study.

The panel had only been 7-5 in favor of finding that
InterMune’s data showed “substantial evidence” of a meaningful
benefit. Dissenters worried that the drug appeared to work only
in certain patients and its widespread use could expose a
larger population of IPF patients to “risks without benefits.”

On Tuesday, InterMune said it will have a follow-up meeting
with the FDA over the next 60 to 90 days to discuss what the
regulator would specifically like to see in a confirmatory
study.

UNCERTAIN FUTURE

Most analysts were concerned about the timing, duration,
size and cost of an additional trial.

Katherine Xu of Wedbush Securities Inc said though the
company would not provide much details about the new study
before its meeting with the FDA, going into another study will
cost the company in “tens of millions”.

Lazard Capital Markets’ Terence Flynn estimates the cost of
another trial could exceed $75 million, but still has a “buy”
on the stock, as he sees the drug eventually gaining approval
in the European market.

Oppenheimer & Co analyst Brian Abrahams also sees a
possible European approval for the drug, though not before the
first half of 2011.

To pay for the new trial, Abrahams said InterMune will
probably restructure its development agreement with Roche
Holding AG (ROG.VX: ) on its hepatitis C drug ITMN-191.

“We estimate (a restructuring) would lower InterMune’s R&D
spend by approximately $17 million to 20 million annually, and
also InterMune’s potential future royalties on the (Hep C)
drug,” Abrahams, who downgraded the stock from “outperform” to
“perform, said.

Given the uncertain outcome of an additional study and the
related funding risk, Jefferies’ Yang said it won’t be
surprising if the company decides to end the pirfenidone
program altogether.

Yang maintained an “underperform” rating and a price target
of $6 on the stock.

InterMune shares were down $35.79 at $10.65 in afternoon
trade. They had earlier touched a low of $9.75 Wednesday on
Nasdaq.

Analyst Xu, who cut the stock to “neutral” from “outperform
said a pirfenidone suspension may force InterMune to partner on
other people’s product, given the company’s lack of a strong
pipeline.

Apart from pirfenidone and the hepatitis C drug, InterMune
has next generation versions of both drugs in the pre-clinical
stage.
Stock Market Basics

(Reporting by Krishnakali Sengupta in Bangalore; Editing by
Anthony Kurian)

UPDATE 1-InterMune shares tank on doubts of lung drug’s future