InterMune Sale Looms as Lung Drug Nears FDA Nod: Real M&A

InterMune Inc., whose stock has lost 81 percent since the biotechnology company last explored a sale, is back in play.

InterMune’s Esbriet medication went on sale in Europe in 2011 and became available in Canada last month, and analysts estimate the drugmaker will double revenue this year in those regions, according to data compiled by Bloomberg. While the treatment was rejected by the U.S. Food and Drug Administration in 2010, William Blair & Co. says there’s an 80 percent chance it will get clearance this time around for sale in a nation where at least 132,000 people stand to benefit from the remedy.

InterMune may once again be a takeover target since biotechnology companies typically get bought a couple of years after their drugs begin selling, according to Lazard Capital Markets LLC. The company had weighed a sale in April 2011, people familiar with the matter said at the time. JMP Group Inc. says a buyer will wait until U.S. approval is secured. While that’s at least a year away as the $742 million company continues its phase 3 trial of the drug’s safety and efficacy, Robert W. Baird & Co. says Novartis AG, GlaxoSmithKline Plc and Gilead Sciences Inc. will probably be among interested suitors.

“Any pharma company, if they have confidence in the commercial opportunity and it gets approval, has to take a look at it,” Brian Skorney, a New York-based analyst for Baird, said in a phone interview. “If the trial data are positive, people will absolutely expect there’s the potential for an acquisition.”

Jim Goff, a spokesman for Brisbane, California-based InterMune, said the company doesn’t comment on potential M&A activity, when asked whether it will weigh a sale or has been approached by suitors.

Lung Scars

InterMune makes Esbriet, a treatment for idiopathic pulmonary fibrosis, or IPF, a rare disease that causes unexplained scarring in the lungs and makes it hard for patients to breathe.

Esbriet was approved by the European Commission in March 2011, and InterMune said last month that the drug is available for purchase in nine of the 15 countries it’s targeting in the region, including Germany and France. It also began selling in Canada in January.

The company’s revenue may more than double this year and next to about $130 million in 2014, analysts’ estimates compiled by Bloomberg show. Even before obtaining U.S. approval, analysts project InterMune’s shares will climb 62 percent in the next 12 months to $14.75 from $9.12 yesterday, the data show.

Today, InterMune shares fell 0.7 percent to $9.06.

FDA Rejection

While Esbriet won the backing of an FDA advisory panel three years ago, U.S. regulators rejected the medicine in May 2010 and asked that a new clinical trial be conducted. The decision caused InterMune’s stock price to plunge from more than $45 to about $11.

InterMune had 500 patients enrolled in December for its phase 3 trial in the U.S. The results are expected in the second quarter of 2014 and will help the FDA determine whether to approve Esbriet.

“Even if the data are positive, the next hurdle is getting through the FDA,” Katherine Xu, a New York-based analyst for William Blair, said in a phone interview. She pegs the odds at 80 percent.

“There’s a good chance” it gets approved for sale in the U.S., she said. “That’s the basis of our ’buy’ thesis.”

Orphan Appeal

The pressure will be on the FDA to clear the drug because no other treatments have been approved specifically for IPF in the U.S. yet, said Liisa Bayko, an analyst for JMP in San Francisco. At least 132,000 Americans have the disease and 40,000 die from it each year, according to the Pulmonary Fibrosis Foundation.

“This is a pretty big unmet medical need,” Bayko said in a phone interview. “How I would vote with my dollars” is that “there’s going to be a lot of pressure to approve this drug.”

In April 2011, after InterMune won European approval for Esbriet and its shares touched as high as $51.08, Bloomberg News reported that the company was weighing a sale and working with Goldman Sachs Group Inc. to find a buyer, citing three people with knowledge of the matter. InterMune said a day after the report that it was “not currently in discussions” over a sale.

U.S. approval could make InterMune an attractive takeover candidate for pharmaceutical companies such as Novartis, Glaxo and Gilead that have an interest in orphan diseases -- those that affect fewer than 200,000 people -- and respiratory-related franchises, Baird’s Skorney said.

Respiratory Synergies

Novartis, Europe’s largest drugmaker, makes Seebri for smoker’s cough, which competes with Glaxo’s Advair, the world’s best-selling drug for that condition and asthma. Gilead, which focuses on HIV and hepatitis C medicines, expanded into treatments for respiratory illnesses through the acquisitions of Corus Pharma Inc. and Myogen Inc. in 2006.

Julie Masow, a spokeswoman for Basel, Switzerland-based Novartis, and Amy Flood, a spokeswoman for Foster City, California-based Gilead, declined to comment on whether their companies are interested in InterMune. Mary Anne Rhyne, a spokeswoman for London-based Glaxo, also wouldn’t comment and referred to the chief financial officer’s remarks last week.

“If we do any M&A, it’s going to be relatively small bolt-ons and in-fills,” Simon Dingemans, Glaxo’s CFO, said in a Bloomberg Television interview Feb. 13. Multibillion-dollar deals are “not really on the cards,” he said.

InterMune is in a race with Boehringer Ingelheim GmbH, the world’s biggest family-owned drugmaker, to secure FDA clearance for the U.S.’s first medicine for IPF. Competition from the German company could hurt InterMune’s share price and even dissuade suitors, said JMP’s Bayko.

Upside Potential

Should there be any interested acquirers, bids are unlikely to surface before Esbriet is approved in the U.S., and InterMune probably wouldn’t want to sell itself before then so that it can get the best price in a deal, Bayko said.

“Why would InterMune sell now without trying to capture that upside?” she said. “In today’s day and age, pharma companies are unwilling to give you any credit for things like that just given the downside risk. They’d rather pay more and get in later.”

Still, InterMune Chief Executive Officer Dan Welch has a history of selling businesses. Welch was at the helm of Triangle Pharmaceuticals Inc. when Gilead bought it in 2002. The deal gave Gilead an HIV drug that was already under FDA review and helped build the company into the world’s largest maker of such medicines.

“That was widely heralded as the best acquisition in the history of biotech,” Skorney said. Welch is seen “as not being an empire builder, but someone who takes things to a certain point and then sells the company.”

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