Intermune

(ITMN)

shares were up as much as 10% Friday on a smattering of Wall Street chatter, including rumors of a possible takeover bid.

The Brisbane, Calif.-based firm has been on the minds of biotech investors lately. In late August, Intermune took the wraps of long-awaited data that showed its lead drug, Actimmune, to be the first and only effective treatment for patients with idiopathic pulmonary fibrosis, a fatal disorder marked by scarring of the lungs. Since then, longs and shorts have been

debating the credibility of the data and the company's growth prospects, with bulls having the best of the argument, so far.

Intermune shares took off Friday morning initially on positive comments made by executives with

Accredo Health

(ACDO)

, a specialty drug distributor that handles Actimmune. Accredo said demand for Actimmune was strong and that insurance reimbursement for the drug -- a concern weighing on Intermune -- doesn't appear to be a problem. No specific sales guidance for the drug was given, according to two fund managers who listened to the Accredo conference call.

Then the takeover rumors took hold, with biotech biggies like

Genentech

(DNA)

,

Biogen

(BGEN)

,

Chiron

(CHIR) - Get Report

and

Medimmune

(MEDI)

all reportedly eyeing Intermune as an acquisition target. Specifics, however, were hard to come by. And some of the most prolific spreaders of the Intermune happy talk were bullish longs, no doubt reveling in the opportunity to take another shot at short-sellers.

Intermune shares jumped as much as 10% to $33.08 just before noon, before falling in the face of the nasty market decline. Still, Intermune closed up $1.18, or just under 4%, to $31.73 on a bit less than double average trading volume. And the stock was one of the few positive performers in the sector. The Amex biotech index lost nearly 4%.

Before the positive Actimmune data were released in late August, Intermune executives were forecasting current year sales of about $100 million. The company now believes that the IPF study results support peak sales of around $500 million. So now, everyone is waiting to see how whether actual sales support that forecast.

While the comments from Accredo are important, Adams Harkness Hill biotech analyst Pat Flanagan says it will be more important to hear from

Priority Healthcare

(PHCC)

, which inked a pact in September with Intermune to become the primary distribution partner for Actimmune.

"I think it's still a little early to see a big increase in Actimmune sales given that the new data didn't come out until late August," says Flanagan, adding that the first real test will come during the fourth quarter. Flanagan rates Intermune a strong buy and his firm did underwriting for the company in March.

In recent weeks, Intermune executives have told Wall Street fund managers and analysts that call volume concerning Actimmune from patients and doctors has increased, but they've been unwilling to quantify the changes.

As for the takeover talk, no one will really be surprised if Intermune is getting offers. All of the big-cap biotech firms, with the exception of

Amgen

(AMGN) - Get Report

, could stand to benefit from the addition of another drug that's either on the market, or in the late-stages of development. Actimmune fits that bill quite well.

Genentech makes for an interesting suitor, given that the No. 2 biotech firm actually controlled but gave up on, Actimmune years ago. That's how the drug fell into the hands of Intermune. (

TheStreet.com

discussed Genentech's potential pipeline

problem in a recent article.) Earlier this week at the Banc of America Securities investment conference, COO Myrtle Potter reiterated the company's willingness to use some if its $2 billion in cash on acquisition deals. Heck, just five miles separates the headquarters of each company.

The other potential suitors talked up Friday -- Chiron, Medimmune and Biogen -- are all in similar situations. Chiron and Medimmune both have existing pulmonary drug franchises that would make it easy to add Actimmune.

But Flanagan warns that Intermune takeover talk is likely a bit premature. Even at its $1 billion market valuation, the company is still undervalued and could easily fetch a higher price for itself later on, once actual Actimmune sales start moving towards that $500 million-a-year goal.

"A lot of companies are likely taking a hard look at Intermune right now, but is it willing to sell at this valuation? I'd say no," he says.