InterMune’s Surprise U.S. Drug Rejection Sinks Shares

InterMune Inc.’s application for a potential $1-billion-a-year lung treatment was rejected by U.S. regulators, causing the drugmaker to plunge 79 percent in extended trading.

The Food and Drug Administration asked for a new clinical trial of the medicine, Esbriet, to prove it delays progression of idiopathic pulmonary fibrosis, InterMune said today in a statement. The shares fell $35.76 to $9.68 at 5:33 p.m. New York time after the official close of the Nasdaq Stock Market.

The FDA turned aside the recommendation of an outside advisory panel that urged approval of the drug in March with calls for patient education and follow-up studies to examine potential liver and skin-reaction risks. While investors’ expectations of an approval had caused shares to triple ahead of today’s decision, analysts said they anticipated a minor delay at worst.

“We are of course very disappointed by this outcome,” said Chief Executive Officer Dan Welch on a conference call. “We intend to meet with the FDA as soon as possible to understand their points of view and to determine the most appropriate path forward.”

New Study

The company, based in Brisbane, California, declined to comment on the potential size or cost of the new study, saying those details will be worked out with the FDA during a meeting in the next 60 to 90 days. The trial may evaluate patients’ mortality or lung function, based on what the FDA said in its “complete response letter” to the company, Welch told investors and analysts on the conference call.

Before today, InterMune’s shares had surged since an FDA staff report released March 5 eased investor concerns that another study of the drug would be required after one failed to show a benefit.

Options traders had become increasingly bullish on the stock in the past week, increasing wagers that the shares will climb to $65 in May and to $75 next year. InterMune’s ratio of outstanding put options to calls, a longer-term gauge of sentiment, has fallen from a 16-month high of 1.23 on April 6.

Brian Abrahams, an analyst at Oppenheimer & Co., said last week that the chances the FDA would require a new study were only 10 percent. A delay caused by negotiations over labeling or a risk-management program was more likely, he said in an interview.

100,000 Americans

About 100,000 Americans have idiopathic pulmonary fibrosis, which causes an unexplained scarring and inflammation in the lungs and is usually fatal within five years. The condition mostly affects people ages 50 to 75, causing air sacs in the lung to be gradually replaced with scar tissue, according to the National Heart, Lung, and Blood Institute’s Web site. Most patients die of respiratory failure when the lungs can’t expand to get oxygen into the bloodstream.

Esbriet, chemically known as pirfenidone, improved breathing in one of two studies submitted to U.S. regulators, and InterMune’s new drug application was given a six-month priority review as part of a program to speed access to novel medicines. Treatment options now include oxygen therapy, medicines to relieve symptoms or a new lung if a patient is healthy enough for a transplant.

Annual sales of pirfenidone capsules may reach $1.07 billion in 2014, according to the average estimate of six analysts surveyed by Bloomberg. InterMune reported $48.7 million in revenue last year.

InterMune said March 2 that it had also submitted an application to market the drug in Europe. Welch said today that the company still expects a decision on that filing in the first half of 2011. The company’s only current product is Actimmune to reduce infections and disease progression in congenital disorders. Shionogi & Co., of Osaka, Japan, sells pirfenidone in Japan under the name Pirespa.

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