InterMune, Inc. (ITMN)

PDTBiotech (86.18) Submitted: 2/07/08 7:08 PM

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2007 annual/4Q conference call just ended. Here are my impressions:

*On 1/7/2008 ITMN had announced that in regards to ITMN-191:

"it is on track to announce top-line viral kinetic and safety results from at least three treatment-naïve dose cohorts of the ongoing trial later in the first quarter of his year. The company also expects to submit full data of the study in the second quarter of 2008."

Now they say:

"In conjunction with its partner, Roche, InterMune has decided to complete a fourth cohort of the Phase 1b multiple-ascending-dose (MAD) study to further inform the planned 14-day triple therapy study and potential direct antviral combination studies in the future. Consequently, InterMune has decided to announce results from the first four cohorts of the Phase lb MAD study at or before the EASL meeting and/or the Digestive Disease Week meeting. These meetings will take place in April and May, respectively."

Analysts were really, really not happy about this, and a lot of the discussion centered around analysts trying to figure out the reason for the delay. Questions were clearly aimed at whether maybe the 3rd cohort was giving them something they didn't want to see, but ITMN was adamant that they hadn't seen the data yet and the decision to enroll a 4th cohort was made with their partner Roche, as was the decision to wait and release the data from all 4 cohorts at once rather than on a cohort-by-cohort basis. Analysts asked several times (several different ways) whether the delay was due to data embargo policies at one or both of the meetings vs. a major snag in the 3rd cohort, but ITMN execs stated that they hadn't seen the data from cohort 3 at least half a dozen times.

*Top-line data for the Phase III CAPACITY study evaluating pirfenidone in the treatment of IPF is now expected to be available in January '09; previously it had been estimated that this data would be available in late 2008. When asked about commercialization assuming the results are good, ITMN said they expect to file an NDA some time in mid-2009, approval some time around the end of 2009/start of 2010, and are planning on doing marketing research in 2008 followed by a classic pre-launch in 2009 (hire salespeople, etc.).

*Shionogi and Co., Ltd is developing pirfenidone for treatment of IPF in Japan, and have applied for approval there. ITMN and Shionogi have a data sharing agreement and have access to each others clinical data. When asked whether they had heard anything about the outcome of the application, ITMN said "we can't comment". Based on the application date and Japan's regulatory procedures ITMN estimates that an approval decision will be made some time in the first half of 2008. Obviously this news could have a big effect on ITMN's share price.

*Financials (from the press release - annual only, I left out the quarterlys):

"The net loss for the year was $89.5 million, or $2.52 per share (analyst estimates -2.60) compared with a net loss of $107.2 million, or $3.22 per share in 2006.

Total revenue in 2007 was $66.7 million (analysts predicted $66.74), compared with total revenue of $90.8 million in 2006, reflecting lower off-label revenues of Actimmune in IPF. Actimmune revenues totaled $53.4 million in 2007, compared with $90.3 million in 2006, a decrease of 41%. Revenue from the collaboration with Roche for the development of protease inhibitors, including ITMN-191, was $13.3 million for the full year 2007, consisting of a $10.0 million development milestone payment and $3.3 million in amortization of the $70 million in initial milestone payments, compared to $0.5 million in 2006. The Roche collaboration was initiated in October 2006.

R&D expenses were $105.8 million in 2007, or 2% higher, compared with $103.8 million in 2006. The increase was primarily due to the much larger number of patients in the two Phase 3 CAPACITY studies during 2007 and the conduct of the Phase 1a and 1b studies of ITMN-191, partially offset by reduced costs related to the discontinuation of the INSPIRE program. G&A expenses were $29.6 million in 2007, compared with $40.4 million in 2006, a decrease of 27%, reflecting the impact of cost reductions related to the closure of the INSPIRE trial for Actimmune.

InterMune recorded income from discontinued operations in 2007 of $5.0 million, reflecting a clinical-related milestone received from Valeant Pharmaceuticals related to Infergen®, which Valeant acquired from InterMune in December 2005.

In 2007, InterMune recorded approximately $10.2 million in charges for restructuring-related expense associated with the termination of the INSPIRE study in March. Approximately $6.8 million of the restructuring charges were related to the termination of an existing supply agreement with Boehringer Ingelheim Austria for the commercial and clinical supply of Actimmune."

*Guidance (from press release):

"For the year ending December 31, 2008, R&D expense is anticipated to be similar to 2007 in a range of approximately $100 to $110 million, net of development cost reimbursements under the Roche collaboration. G&A expense is anticipated to be in a range of approximately $25 to $30 million."

-$125M to -$140M; they didn't give a revenue estimate so I'll just assume further whittling away of Actimmune off-label sales and say $50M (including money from Roche), giving a (very) rough estimate of -$75M to -$90M. Analyst estimates for this year is currently listed at -2.63, or -$102M; depending on how analysts see Actimmune's sales going and how much revenue ITMN may get from Roche this estimate be adjusted up to fit better with ITMN's guidance, possibly with a bump in share price. Not that any of this really matters right now, as 2009 and 2010 estimates are what are likely to drive this stock one way or the other.

*Overall I don't think this will be well-received by analysts, as nearly every one of their questions ended up with ITMN defending their decision to release data on ITMN-191 later than previously stated and ITMN swearing that it has nothing to do with the data they've seen. If cohort 3 turns out to have a serious problem with the data analysts will burn this company to the ground. I still don't see anything that warrants taking off my short position, and view analysts' suspicion of the company's delaying releasing their data as a good sign for shorts, as it suggests that downgrades are more likely than upgrades in the near-term.

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PDTBiotech (86.18) Submitted: 2/08/08 4:43 PM

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As a follow-up to yesterday's conference call, ITMN closed yesterday at 16.38, opened today at 16.07, and closed today at 15.39, down 6.04% on the day on a little over double average volume. Since I'm short I obviously like the pop to the downside, but would've liked to see more volume. ITMN has now given back about half of the price run-up it enjoyed on Jan. 7th when they released positive data about the safety and performance profile of ITMN-191. If it gets back to the $13 area I'll have to consider covering vs. letting it ride. An AP article this morning summed up analysts' responses - basically buys said they still like it, sells still don't like it. I was struck by how high the two analysts who have buy recs out on ITMN have set their price targets - $26-$29 and $33, basically a double. Also, analyst estimates for 2009 are now available on Yahoo; current estimates are EPS E2008 -2.63 (12), E2009 -2.82 (9); Revenue E2008 40.72M (10), E2009 46.62M (9). The highest revenue estimate for 2009 is $95.64M, indicating that at least one analyst (probably at least two) thinks they're going to see approval of pirfenidone early enough to begin selling it in 2009.

Here is the meat of the article:


"We urge investors not to read anything suspicious in this delay," Wachovia Capital Markets analyst George Farmer said in a note to investors.

He added that the company is already indicating that there are no safety issues and the trial seems to be achieving its main goal. He reaffirmed a "Outperform" rating with a $26 to $29 valuation range.

Analysts are taking varied stances on the company's pipeline outlook, which includes ITMN-191 and pirfenidone as a treatment for the lung-scarring condition pulmonary fibrosis. Jefferies & Co. analyst Eun Yang reaffirmed a "Hold" rating with a $14 price target, saying the risks for the company currently outweigh possible rewards. She said competitive concerns could weigh down the stock and pirfenidone is a high-risk product.

Oppenheimer & Co. analyst Dr. Brian Abrahams reaffirmed a "Outperform" rating with a $33 price target and said ITMN-191 has strong potential to become a twice-a-day treatment.

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PDTBiotech (86.18) Submitted: 3/24/08 5:49 PM

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ITMN had swooned to 12.15, then today shot up to 14.12 (+16.21%) on ~1.6X normal volume. They presented at Lehman's healthcare conference last Thursday. I listened to their presentation, and it looks like top-line data for ITMN-191 will be coming out in Q2 2008 for their four treatment-naive cohorts at or before EASL (4/08) and/or DDW (5/08). My guess is that today's spike is due to institutional buying; analysts seem to have been assured that the reason for the delay in the release of data from the MAD trial isn't due to shenanigans, but ITMN and Roche's wish to release the data all at once. No news on pirfenidone until early 2009, except that Shinogi, the Japanese company developing pirfenidone there, will give phase III data at ATS on May 20th in Toronto. Still no decision on their NDA in Japan, but acceptance will probably send ITMN up considerably. I have to say, regardless of whether you like ITMN-191 or not, it's scary to have a stock respond this dramatically to Phase IB data. If I was long ITMN I'd really, really like to see them advance some new drugs to clinical testing.

As a side note, their former CEO Scott Harkonen was indicted last Tuesday for falsely promoting ActImmune for IPF while he was still head of ITMN. He faces a maximum of 23 years in prison. ITMN settled this case in October 2006 for $37M and Harkonen has been gone for several years, so this shouldn't impact the stock.

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PDTBiotech (86.18) Submitted: 5/21/08 10:53 PM

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5-21-2008 PIRFENIDONE UPDATE

Interesting movement in ITMN this week. It closed at 14.93 last Friday, and had a busy week, with an announcement that the FDA had granted pirfenidone fast-track status on Monday morning driving the stock up to 15.52 at the opening bell, then drifting down to close at 15.12, all on average volume. Volume picked up heavily on Tuesday in anticipation of a CC after close Tuesday evening to discuss some results about to be published by a Japanese group trying to develop pirfenidone, with ITMN closing at 15.60 before the call. Today (Wednesday) the stock opened up at 15.94, then dropped on about double average volume to close at 13.99.

So what's going on?

As for Monday's spike up, fast-track status can certainly help a company get to the revenue-generating stage faster, but it's an extremely common occurrence for the FDA to grant this status. It also means that if the drug is going to fail it's going to happen sooner than later. It's the kind of thing CEO's love to crow about to try to get people who are naive to the drug development process worked up, and in this case Dan Welch's statement that:

"There are no approved medicines to treat patients who suffer from IPF, a uniformly fatal disease characterized by scarring and inflammation of the lungs. The FDA's action in granting fast track designation is an indication of pirfenidone's potential to address this serious, unmet medical need. We look forward to reporting top-line results of our Phase 3 CAPACITY program of pirfenidone in IPF, in January of 2009."

did just that, as evidenced by the price increase on low volume (i.e. retail, not institutional) buying Monday.

The timing of the CC was extremely interesting. ITMN's last quarterly earnings announcement was May 1st, meaning that this CC was specifically designed to try to manage the public response to whatever data the Japanese group was about to unfurl. If it was good news, they'd be banging the drum, if it was bad news and they bothered to risk bringing more attention to it by having a CC you can bet they were trying to spin some results they didn't like in the most positive way they could. The rise in stock price on fairly heavy volume suggested institutional buyers were anticipating good results. Gave it a listen, and Welch and company stressed that:

*The fast-track status' impact on their licensing schedule is "important and very favorable"
*Shinogi's results were "the strongest phase III efficacy data ever reported for an IPF medicine"
*same results were "unequivocally positive on primary outcome measure vital capacity"
*improvement in progression-free survival was "unparalleled in IPF clinical trials"
*While dropout rates remain high, they're always that way for IPF because it's a difficult disease to manage.

In other words, all good, no bad - typical Welch.

Then you look at Shinogi's press conference from the American Thoracic Society meeting, which might explain why ITMN dropped today:

*Pirfenidone did show significantly significant improvement in VC and progression-free survival.
*"there was a 32% overall dropout rate, broken down into 37% in the high-dose group, 28% in the low-dose group, and 27% in the placebo group"
*"drop-outs in the treatment groups were mainly due to adverse effects, while the patients in the placebo groups tended to stop because of lack of benefit."
*"The most common adverse events were photosensitivity, loss of appetite, dizziness, and elevated gamma-glutamyl transpeptidase, a marker of poor liver function."
*A doctor commenting on the results of the trial called for further trials "in a well-defined larger patient population with IPF at different clinical stages." (ITMN's trial is bigger, with a longer treatment schedule)

The first three adverse events are fairly standard side-effects of drugs in just about every disease field, but increased liver enzymes are the #1 cause of attrition in the approval process and not to be taken lightly. It'd be interesting to back out all of the patients who dropped out due to lack of benefit and get a more realistic handle on just how well/poorly this drug was tolerated - I was disappointed that none of the analysts on the call said anything about this, I would think it would be a primary concern. Since volume was still up today and the stock was back below where it closed last week, it looks like the institutional buyers weren't as impressed with the data as they'd hoped to be and/or might not have liked the possible ramifications to pirfenidone's safety profile.

This is the last we're supposed to hear about pirfenidone until January '09's release of top-line data for the current Ph. III trial, so for the rest of the year expect ITMN's share price to be driven by a combination of ITMN-191 data releases and speculation as to how well the pirfenidone trial is going.

As a side note, conference calls give us a good opportunity to judge executives. I try to give execs the benefit of the doubt, but I prefer straight-shooters who don't deflect or squirm under analyst questioning. Simply acknowledging a concern as valid, or pointing out a potential speedbump and saying how they plan to avoid/deal with it gives a CEO so much more credibility. Welch is a typical example of the kind of CEO I hate to see running a drug company - the slightest bit of news which can be perceived as good sends him straight to the bullhorn, and negative events never seem to happen. While I haven't heard anything overtly slimy (Harkonen-esque, if you will), I would say that any positive news from him has to be taken with a grain of salt about the size of the building I'm typing this in (14 stories), and if you're long and you ever see him admitting anything negative there's a good chance that you just lost half your stake.

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