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InterMune’s Surprise Rejection Leads Stock to Plummet

InterMune Inc.’s application for a potential $1-billion-a-year lung treatment was rejected by U.S. regulators, causing the drugmaker to lose three-quarters of its value in Nasdaq 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 yesterday in a statement. The Brisbane, California-based company plans to meet with the FDA in 60 to 90 days to discuss possible next steps.

The agency snubbed the recommendation of an outside advisory panel that urged approval of the drug in March even after it failed to show benefit in one of two studies. The FDA usually follows the advice of its panels, buoying investors whose bets on approval had caused shares to triple ahead of yesterday’s decision.

“I really wouldn’t be surprised if they decided to end the program and not do an additional study,” said Eun Yang, a biotechnology analyst at Jefferies & Co. in New York, in a phone interview today. “You’re talking about probability for success at 50-50 at best. Why would you subject yourself to that and who would be willing to give the money?”

Yang has had a $6 price target on InterMune shares and an underperform rating on the stock since February 2009, nine months before the company submitted its new drug application with the FDA.

InterMune fell $34.06, or 75 percent, to $11.38 at 4 p.m. in Nasdaq Stock Market composite trading, the biggest drop since the shares began trading in March 2000. The stock had traded at $49.46 on May 3, its highest level in eight years.

Positive Sentiment

At least seven analysts lowered their ratings and price targets on InterMune today. The stock had surged after an FDA staff report released March 5 eased investor concerns that another study of the drug would be required.

Brian Abrahams, an analyst at Oppenheimer & Co. in New York, 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.

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.

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 website. 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.


The new study may evaluate the Esbriet’s effect on mortality instead of lung function, according to the FDA’s “complete response letter,” Chief Executive Officer Dan Welch said on a conference call yesterday. The company wants to have “some visibility as to exactly how we might address the needs and interests of the FDA” after their meeting, Welch said.

Yang, of Jefferies, estimated that a mortality study of 300 patients may take three years and cost about $30 million.

Welch said InterMune would hold off giving forecasts for this year until after the FDA meeting.

If approved, annual sales of Esbriet 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. The company has said throughout the FDA’s review that it wouldn’t add sales representatives until the drug was cleared for sale.

The company said March 2 that it had also submitted an application to market the drug in Europe. Welch said 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.

While InterMune may choose to submit data from Shionogi to the FDA, “there is a relatively low likelihood” that will be enough for approval, said Abrahams, of Oppenheimer.

Actelion Ltd., Switzerland’s biggest biotechnology company, said March 1 that its Tracleer medicine failed to help patients with idiopathic pulmonary fibrosis live longer in a study. The drug is in the final of three stages of testing generally required for U.S. approval.

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