Loss at ITMN Narrower than Expected

InterMune Inc.’s ( ITMN - Snapshot Report ) third-quarter loss per share of 70 cents was narrower than the Zacks Consensus loss Estimate of 84 cents. The narrower than expected loss was primarily attributable to higher than expected revenues. Third quarter loss was in line with the year-ago loss.

InterMune reported revenues of $7.5 million in the third quarter of 2012, up almost 91% from year-ago revenues of $0.1 million. Notably, revenues in the year-ago quarter included only negligible sales of Esbriet. The drug was launched in Germany in September 2011. Revenues also beat the Zacks Consensus Estimate of $6 million.

Quarterly Details

Esbriet (pirfenidone) was the sole contributor to InterMune’s total revenues in the third quarter of 2012. Esbriet is approved for the treatment of idiopathic pulmonary fibrosis (IPF), a fatal lung disease.

During the reported quarter, research and development (R&D) expenses increased 54% to $26.2 million. The increase in R&D was due to the expenses associated with the ASCEND trial.

The ASCEND trial is supporting pirfenidone for the treatment of IPF in the US. The company expects to complete enrollment for the phase III study of pirfenidone by the end of the year. The result of the ASCEND trial is expected in the first half of 2014. We expect positive top-line data from the study will be beneficial for the future sales growth of the company.

Selling general and administrative (SG&A) expenses almost remained flat at $23.8 million year over year.

2012 Guidance

Apart from releasing the third quarter earnings results, InterMune also provided guidance for Esbriet sales and operating expenses for 2012.

The company guides Esbriet sales for 2012 in the range of $20–$25 million. Esbriet sales for 2012 are expected to be at or a little higher than the top end of the company’s projected range.

InterMune reaffirmed its operating expense guidance for 2012. The company continues to expect operating expenses in the range of $200–$235 million for 2012.

The company’s 2012 R&D expense guidance is in the range of $90–$105 million and the SG&A expense guidance is forecast in the range of $110–$130 million. InterMune expects 2012 R&D expenses to be at the high end of the projected range, while SG&A expenses are expected to be on the lower end of the current range.

Esbriet Update

In October 2012, Esbriet was approved in Canada. InterMune expects to launch the product in the country in January 2013.

InterMune also secured pricing and reimbursement in Belgium, which will be effective from December this year. The company expects to launch the product there in early 2013. The product is now successfully priced and reimbursed in a number of European countries, namely Austria, Belgium, Denmark, France, Germany, Iceland, Luxembourg, Norway and Sweden. The company is continuing its pricing and reimbursement processes in other EU countries as well.

Our Recommendation

We currently have a Neutral recommendation on InterMune. The stock carries a Zacks #3 Rank (short-term ‘Hold’ rating).

We believe Esbriet has significant commercial potential as it targets IPF which is an orphan indication. Though Esbriet is the only approved medicine for IPF, companies like Novartis ( NVS - Snapshot Report ) , Sanofi ( SNY - Analyst Report ) and Celgene Corporation ( CELG - Analyst Report ) are developing candidates for IPF treatment. We remain concerned about the fact that InterMune is dependent on a single product for growth.