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InterMune Loss Rise, Costs Flare Up

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InterMune Inc. posted second-quarter adjusted loss per share of 68 cents, wider than the Zacks Consensus Estimate of a loss per share of 61 cents and the year-ago loss per share of 44 cents. Steeper operating expenses resulted in the higher loss in the reported quarter.

InterMune reported revenues of $6.2 million in the second quarter, above the year-ago revenue of $5.9 million and also ahead of the Zacks Consensus Estimate of $5.0 million. Increased collaboration revenue from Roche Holdings Ltd. (RHHBY - Free Report) was partially offset by lower revenues of InterMune’s only marketed drug Actimmune. Revenues were however below $6.4 million recorded in the sequentially preceding quarter.

Quarterly Details

During the reported quarter, research and development (R&D) expenses spiked 36% to $20.1 million in preparation of the ASCEND trial (discussed below).

General and administrative (G&A) expenses shot up 70% to $21.7 million primarily due to increased legal costs from establishing the European infrastructure, global intellectual property expansions, and higher stock based compensation expenses.

2011 Guidance

InterMune maintained its R&D expense guidance in the range of approximately $85–$95 million. SG&A expense guidance was however upped from a range of $65–$75 million to $75–$85 million.

Product/Pipeline Update

InterMune’s lead pipeline drug, Esbriet (pirfenidone), is indicated for the treatment of idiopathic pulmonary fibrosis (IPF). It is already cleared by regulatory authorities in the European Union (EU) and is expected to be launched there in September 2011, beginning with Germany. Esbriet will subsequently be launched in France, Spain and Italy in the first half of 2012 and in United Kingdom in the third quarter of 2012. It will be launched in all other major European countries by mid-2012.

The drug is also approved in countries such as Norway, Iceland and Japan. Esbriet is sold in Japan by InterMune’s partner Shionogi in the trade name Pirespa. In the US, the drug is in late stage testing.

The road has not been smooth for Esbriet in the US. InterMune began a late stage additional study (ASCEND) of Esbriet in the US for the treatment of IPF in July 2011. 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 in the US. 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. InterMune intends to file the new drug application (NDA) in the second half of 2013, which will contain data from the ASCEND study.

At the analyst day, in May 2011, InterMune announced that it has decided to move out of the Hepatitis C (HCV) space and focus on new formulations, combo regimens and Esbriet follow-on products. It has decided to drop its preclinical programs in the HCV area in order to focus more fully on pulmonary and fibrotic diseases.

Our Recommendation

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