The InterMune Debacle Post-Script

InterMune must make some tough choices the day after FDA rejects its lung drug pirfenidone.
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BRISBANE, Calif. (

TheStreet

) --Next day notes and observations about the

InterMune

(ITMN)

debacle following the decision by U.S. regulators Tuesday to

reject the company's drug pirfenidone as a treatment for idiopathic pulmonary fibrosis

, a fatal lung disease:

  • What's InterMune worth today? Fund manager Tim Collins (a RealMoney contributor) did some quick calculations Tuesday night to derive a $15-a-share fair value for the browbeaten company. (Collins was long InterMune going into Tuesday.)Here's another way of looking at InterMune's current value: Back in February, InterMune was trading in the mid-to-high teens. That's right before InterMune released mixed-positive results from the two pirfenidone phase III studies. Wall Street had its doubts about pirfenidone back then, as it surely does now given the FDA rejection, so perhaps the stock deserves to trade in the mid teens, as Collins suggests.
  • Not everyone was caught off guard Tuesday. Congratulations to Jefferies analyst Eun Yang for correctly forecasting FDA's rejection of pirfenidone. By making a great stock call, Yang becomes the InterMune axe so note that her price target for InterMune is $6 a share. Many other sell-side analyst notes issued Wednesday morning are pegging InterMune's value in the $12-15 range, post pirfenidone rejection. InterMune shares climbed to just under $11 in Tuesday's after-hours trading session, after opening around $8.
  • Rule No. 1 in biotech: Grab all the money you can, when you can. You think InterMune regrets now not raising additional cash immediately after the advisory panel recommended pirfenidone's approval in March? Sure, a quickie financing before the FDA approval decision would have angered existing shareholders and raised eyebrows over the timing, but at least InterMune would have socked away cash for a rainy day fund. As it stands now, InterMune, with a bit more than $178 million in the bank at the end of the first quarter, is going to need more cash to bankroll a new pirfenidone clinical trial (assuming the company can't convince FDA to reverse its decision.)InterMune's money worries include $126 million in convertible debt, $41 million of which is due in March 2011.
  • Reader Michael M. sees a silver lining: "Thank the Lord Gilead Sciences (GILD) - Get Report didn't buy InterMune," he says. Amen!
  • Is InterMune the next Dendreon (DNDN) ? Similarities certainly do exist. Pirfenidone and Provenge are both designed to treat fatal diseases, although neither drugs are curative. Like Provenge, the pirfenidone phase III studies yielded mixed, somewhat equivocal results. Provenge and pirfenidone were each reviewed by an FDA advisory panel, which after contentious debate ultimately voted to recommend approval. And of course, for both Provenge (in 2007) and pirfenidone on Tuesday, FDA threw out the advice offered by its advisory panels and decided against approval.If we continue the analogy, InterMune, like Dendreon, will spend the next 2-3 years conducting a new pivotal study in order to prove definitively that pirfenidone works. Whether InterMune's can match Dendreon's ultimate success is anyone's guess.
  • Pirfenidone is approved in Japan, marketed by Japanese drug maker Shionogi. Can InterMune use the phase III study of pirfenidone conducted by Shionogi to convince FDA to approve the drug faster than it would take for the company to run an entirely new clinical trial?InterMune will likely try this tactic, although FDA didn't accept the Shionogi data as part of the first pirfenidone review because patient-level data wasn't made available to the agency. Even if InterMune can fully translate the Shionogi study from Japanese into English and patient-level data is obtained, FDA may still not accept the Japanese pirfenidone study after questions were raised about the integrity of the results in a European medical journal.An article by H.R. Collard, a researcher from the University of California, San Francisco, in the April issue of the European Respiratory Journal, raises three areas of concern about the Japanese pirfenidone study: 1) the primary endpoint was changed during the course of the trial; 2) handling of missing data; and 3) the absence of reported patient outcomes.
  • InterMune filed for pirfenidone's approval in Europe in March. Given recent trends, European regulators may be more amenable to approved pirfenidone than FDA. A decision on European approval could come towards the end of the first quarter 2011.
  • The FDA's rejection of pirfenidone stunned investors Tuesday, but maybe the decision wasn't that surprising after all. Recall, the FDA's advisory panel in March voted 7-5 in favor of pirfenidone's efficacy. The panel later voted 9-3 to recommend pirfenidone's approval. While positive votes all, the discussion and debate were rather contentious, with some experts on the panel questioning pirfenidone's benefit for IPF patients and calling on InterMune to conduct additional studies.
  • When FDA approved drugs by Dendreon and Pozen (POZN) recently, observers remarked that perhaps the agency was becoming a drug-approving pushover. Now that InterMune has been dinged, some of these same observers are bemoaning FDA's toughness.The reality of the situation is that every drug undergoing FDA review is a case unto itself. Making future predictions based on the approval or rejections of unrelated drugs is a fool's errand.
  • The Twitter stock-trading community was abuzz Tuesday with InterMune chatter. @CraigLipset: "Wait, let me see if I get this. Are you suggesting FDA is made of objective scientists & clinicians that look at data?"@BioRunup: "It's too bad $ITMN followers aren't as crazy as $CTICs. We would have opened at $9 and spiked to $60."@rabmanduky: "ITMN shouldn't be a complete shock since the panel had a lot of people arguing about more studies or not. It wasn't a 100% vote."@JohnWelshphd: "This is 2nd time in a month a biotech was at 52-week high only to hit 52-week low that day. #Biotech can break you $$"

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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