(Recasts; adds analysts comments, updates stock movement)
By Krishnakali Sengupta
BANAGALORE, May 5 (Reuters) - Shares of InterMune Inc
The company will have to decide whether to pursue development of the drug, pirfenidone, which would require an expensive new trial and several more years of investment, or concentrate its developmental efforts on more viable products.
Late Tuesday, InterMune said the U.S. Food and Drug Administration sought a new study to prove the drug's efficacy in treating idiopathic pulmonary fibrosis, a rare, fatal condition in which the lungs suffer scarring due to unknown causes. [ID:nSGE6430LX]
"We felt that the odds of approval were favorable given there are no approved products for this deadly disease, its orphan designation ... and the FDA's body language throughout the panel meeting," analyst Aaron Reames of Wells Fargo Securities said in a note Wednesday.
An FDA advisory panel had recommended the approval of the drug in March by a 9-3 margin. [ID:nN09248590]
However, Jefferies & Co analyst Eun Yang, who had predicted an FDA denial, said it was clear from the March meeting that the regulator did not like the results of the main goal of the study.
The panel had only been 7-5 in favor of finding that InterMune's data showed "substantial evidence" of a meaningful benefit. Dissenters worried that the drug appeared to work only in certain patients and its widespread use could expose a larger population of IPF patients to "risks without benefits."
On Tuesday, InterMune said it will have a follow-up meeting with the FDA over the next 60 to 90 days to discuss what the regulator would specifically like to see in a confirmatory study.
UNCERTAIN FUTURE
Most analysts were concerned about the timing, duration, size and cost of an additional trial.
Katherine Xu of Wedbush Securities Inc said though the company would not provide much details about the new study before its meeting with the FDA, going into another study will cost the company in "tens of millions".
Lazard Capital Markets' Terence Flynn estimates the cost of another trial could exceed $75 million, but still has a "buy" on the stock, as he sees the drug eventually gaining approval in the European market.
Oppenheimer & Co analyst Brian Abrahams also sees a possible European approval for the drug, though not before the first half of 2011.
To pay for the new trial, Abrahams said InterMune will probably restructure its development agreement with Roche Holding AG
"We estimate (a restructuring) would lower InterMune's R&D spend by approximately $17 million to 20 million annually, and also InterMune's potential future royalties on the (Hep C) drug," Abrahams, who downgraded the stock from "outperform" to "perform, said.
Given the uncertain outcome of an additional study and the related funding risk, Jefferies' Yang said it won't be surprising if the company decides to end the pirfenidone program altogether.
Yang maintained an "underperform" rating and a price target of $6 on the stock.
InterMune shares were down $35.79 at $10.65 in afternoon trade. They had earlier touched a low of $9.75 Wednesday on Nasdaq.
Analyst Xu, who cut the stock to "neutral" from "outperform said a pirfenidone suspension may force InterMune to partner on other people's product, given the company's lack of a strong pipeline.
Apart from pirfenidone and the hepatitis C drug, InterMune has next generation versions of both drugs in the pre-clinical stage. (Reporting by Krishnakali Sengupta in Bangalore; Editing by Anthony Kurian)
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