Updated from 9:36 a.m. EDT

Intermune's ( ITMN) top-selling drug, Actimmune, is only a mildly effective treatment for a debilitating and often-fatal lung disease and failed to meet its statistical endpoint in a late-stage clinical study, according to results released Wednesday morning.

The mixed results from the Phase 3 study of Actimmune for idiopathic pulmonary fibrosis decreases the odds that Intermune will be able to get Food and Drug Administration approval for the drug as an IPF treatment. The effect on Actimmune sales could be significant: Peak sales of $300 million to $400 million without FDA approval, vs. as much $750 million to $1 billion in sales if the drug were to become an FDA-certified IPF treatment, analysts say.

Actimmune is already prescribed off-label for patients with IPF because the drug is approved for two rare, congenital disorders. Intermune is expected to rack up about $100 million in Actimmune sales this year, which makes up the vast majority of the company's total revenue.

Investors appear sanguine with the mixed results, especially because they support the case for some further growth in Actimmune sales. Intermune shares were up $2.02, or 11%, to $20.02 in early Wednesday trading.

Idiopathic pulmonary fibrosis is an insidious disease marked by the gradual buildup of scar tissue in the lungs, interfering with a person's ability to breathe normally. The disease has no known cure, and current treatments such as steroids aren't considered very helpful. Ultimately, a person stricken with IPF dies unless a lung transplant is performed. There are about 50,000 IPF patients in the U.S., and about 15,000 new cases are diagnosed each year.

Intermune put the best spin possible on the clinical study results Wednesday, stating that a subset of patients -- those with mild-to-moderate forms of IPF given Actimmune -- live longer than those who took a placebo. But the study was designed to show that the drug slowed the progression of the disease. It did, by about 10%, but that was not enough to meet the statistical endpoint of the study.

"We are extremely pleased with these results, which indicate that Actimmune may extend the lives of patients suffering from this debilitating disease," said Intermune CEO Scott Harkonen in a statement. He added that the study results support the use of Actimmune as an IPF treatment and will lead to peak sales in the range of $400 million to $500 million per year, which will propel the company to profitability in 2004.

On a Wednesday morning conference call, Harkonen said Intermune would still like to seek FDA approval for Actimmune as an IPF treatment, but those plans are contingent on upcoming discussions with drug regulators. The company should have a better handle on its filing strategy later this year, he added.

According to results of the study, which enrolled 330 patients, there was no statistically significant increase in survival among patients taking Actimmune compared to those on placebo. But when the data were parsed to look at 254 patients with mild-to-moderate form of the disease, a statistically significant survival benefit of about 70% was produced.

On its conference call, Harkonen said these mixed results should be enough to boost demand for the drug among patients and doctors because they confirm findings from earlier studies. Further analysis and discussion of the study will take place at medical meetings later this year, and the company hopes this will be sufficient for insurers to continue to pay for the treatment, which can cost upwards of $50,000 annually per patient.