UPDATE: Intermune Soars On FDA Panel, Buyout Speculation

InterMune Inc. (ITMN) shares surged Wednesday to eight-year highs after a panel recommended that the Food and Drug Administration approve its lung-disease treatment.

The panel's support Tuesday greatly increases the chances for ultimate approval, which would produce a valuable asset in a niche disease area, something Wall Street expects will attract acquirers to the company.

The Brisbane, Calif., drug developer is seeking FDA approval for pirfenidone, which was developed to treat a lung condition known as idiopathic pulmonary fibrosis, the thickening and scarring of lung tissue.

The FDA is expected to issue its final decision by early May, although the FDA isn't bound by the panel's ruling and questions remain about the strength of the drug's data.

Nonetheless, the rise in InterMune shares--which have nearly tripled since the end of last week--reflects how much FDA approval of pirfenidone, also known by its proposed brand name Esbriet, would transform the company. Intermune would have its first product on the market, for which it owns all the rights, in an area with little competition and the potential to garner sales of more than a billion dollars a year.

Those prospects make Intermune a potential takeover candidate, especially by large drug makers with struggling pipelines and facing generic competition on key drugs.

In a conference call Tuesday, InterMune declined to comment on any takeover speculation but said it would be obligated to consider any proposal that offers shareholders greater value than company's own strategic plan.

Intermune shares recently rose 64% to $38.25. The stock's high Wednesday was $39.50, its best mark since February 2002. It's been a rapid rise for the stock, which traded at $14.41 as recently as Thursday. The stock jumped 59% Friday after briefing documents for the FDA panel meeting were viewed positively by investors.

Analysts now are projecting annual sales of the drug to eventually exceed $1 billion. Much of that would be driven by a price estimated to be more than $50,000 a year per patient.

That type of pricing power in such orphan-type drugs, which serve rare diseases, has become more attractive to larger companies. The drugs are also given longer exclusivity periods--seven years in the U.S. and 10 years in Europe--to encourage their development.

For pirfenidone, that protection will be important as its major patent protection has expired, something that would be heavily considered by potential acquirers.

Analyst Brian Abrahams from Oppenheimer & Co. names Gilead Sciences Inc. (GILD) as an obvious fit for InterMune, because the larger HIV-focused company has made a push into respiratory disease and is developing Hepatitis C drugs, something that is in InterMune's pipeline.

He also mentioned Roche Holding AG (RHHBY, ROG.VX) as potentially interested in InterMune to add to its own respiratory business. The companies are partnered to develop those hepatitis drugs together.

Spokesmen for Gilead and Roche declined to comment.

Interestingly, InterMune Chief Executive Dan Welch previously served in the same position at Triangle Pharmaceuticals, which Gilead acquired in 2003 for $464 million. Triangle developed HIV drug Emtriva, a component of the combination treatments Truvada and Atripla. The two drugs had combined 2009 sales of almost $5 billion.

ThinkEquity analyst Brian Skorney believes a deal is likely, but he thinks that such takeover talk for InterMune is a bit too early, as several hurdles remain before a large takeout premium would be considered by larger companies.

He said InterMune shareholders would likely resist such a bid now, which would be viewed as "trying to steal the company," as FDA approval, pricing information and other developments will only add more value. Plus, pharmaceutical companies seem content to wait to see how the drug performs in the market.

Idiopathic Pulmonary Fibrosis involves the scarring of the lungs, often from an unknown cause, which makes it hard for the oxygen to enter the blood. About 200,000 Americans have the condition, with about 50,000 new cases every year, according to the National Institutes of Health. It mostly affects people between 50 and 75 years old, and patients generally live three to five years after diagnosis.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

Gilead Sciences (NASDAQ:GILD)
Historical Stock Chart
From Jun 2024 to Jul 2024