(ITMN) InterMune Reports Quarterly Loss Smaller Than Estimates

InterMune, Inc. (ITMN) posted third-quarter adjusted loss per share of 63 cents, wider than the year-ago loss per share of 44 cents due to higher operating expenses. The loss was, however, narrower than the Zacks Consensus Estimate of a loss per share of 73 cents resulting from lower-than-expected R&D expenses.

InterMune reported revenues of $5.2 million in the third quarter, below the year-ago revenue of $5.7 million. Slightly higher revenues of InterMune’s marketed drug Actimmune was offset by decreased collaboration revenue from the termination of research agreement with Roche Holdings Ltd. (RHHBY) effective from June 30, 2011. Revenue included $0.1 million earned from the sales of InterMune’s potential blockbuster drug Esbriet which was launched in Germany in September this year. Esbriet is approved for the treatment of idiopathic pulmonary fibrosis (IPF). Revenue, however, slightly edged past the Zacks Consensus Estimate of $5.0 million.

Quarterly Details

During the reported quarter, research and development (R&D) expenses increased 9% to $17.0 million in preparation for the ASCEND trial (discussed below). R&D expenses were, however, down approximately 15% sequentially.

Selling general and administrative (SG&A) expenses shot up 120.2% to $24.0 million primarily from establishing the European infrastructure (including increased workforce) to support the commercialization of Esbriet.

2011 Guidance

InterMune maintained its R&D expense guidance in the range of approximately $85–$95 million. However, InterMune now expects SG&A expense to reach the higher end of the previously provided guidance range of $75–$85 million as it better prepares itself for Esbriet launch.

Esbriet Update

Esbriet, already approved in the European Union, was launched in Germany in mid September 2011. It is expected to be launched in France, Spain and Italy in the first half of 2012 and in the United Kingdom in the third quarter of 2012. The company plans to launch Esbriet in all top 10 European countries by the end of 2012. Esbriet is sold in Japan by InterMune’s partner Shionogi under the trade name Pirespa since 2008.

In the US, InterMune is conducting a late stage additional study (ASCEND; n~500) of Esbriet for the treatment of IPF. InterMune had received a complete response letter (CRL) from the US Food and Drug Administration (FDA) in early May 2010. The regulatory body had requested data from an additional clinical trial before considering the regulatory approval of Esbriet. Accordingly, InterMune began the ASCEND study to meet the requirements of the FDA. The trial is expected to be fully enrolled by the first half of 2012 with data to be presented in mid 2013.

In September 2011, InterMune presented new data which demonstrated that Esbriet was safe even for use over a long period of time. Data presented at the European Respiratory Society (ERS) Annual Congress from the RECAP trial showed that there was no change in the safety profile of Esbriet even when dosed for more than three years. We believe this data would encourage long-term use of the drug.

Currently, there is no FDA approved therapy for the treatment of IPF, a fatal lung disease, in the US. With the EU approval of Esbriet, InterMune became the first company to offer an IPF medicine in Europe. Hence, we believe a huge market opportunity exists for the drug.

Our Recommendation

We currently have a Neutral recommendation on InterMune. The stock carries a Zacks #3 Rank (short-term ‘Hold’ rating). We consider the EU approval of Esbriet as a major positive for InterMune. However, we prefer to remain neutral until visibility improves on its US approval.

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