Thursday, August 04, 2011

Intermune (NASDAQ:ITMN): Next to blow up?

Jefferies is out with a rather well-timed call on Intermune (NASDAQ:ITMN) saying it could be the next Dendreon (NASAQ:DNDN) to blow up.

Ahead of Esbriet launch starting this September in Germany, they view ITMN shares as likely to come under further pressure given likely slow uptake (vs. consensus high expectations) and potential financing risk (cash enough thru 2012). On very modest sales of Shionogi's Pirespa in Japan and competitors in the works, high expectations for Esbriet may need to be adjusted near term.

- Firm is lowering their target to a Street low of $18 (from $24) & is reiterating Underperform rating.

New drug sales are increasingly dictated by drug efficacy/cost-benefits, not necessarily by a lack of other approved drugs or by the large # of eligible patients, particularly in the current HC cost-sensitive environment. Bull case for ITMN is that there is no alternative for IPF patients; so once launched, Esbriet would be rapidly/widely used, and eligible IPF patients would continue to be on the drug once started. However, given the very modest efficacy of Esbriet, the firm views uptake would be slower and adherence is debatable due to side effects (nausea ~20%, rash ~20%, dyspepsia ~11%, photosensitivity reaction ~11%, placebo-adjusted). While ITMN estimates Esbriet-eligible IPF patients in EU at ~70K, the real question is how many will actually receive Esbriet and continue to stay on the drug. Based on the disappointing launches of several biotech drugs, in jeffco's view it is hard to be convinced why the Esbriet launch would be drastically different.

Lowering their already below-cons Esbriet sales estimates by ~33% & their PT to $18; consensus #s need to come down significantly, in our view. Jefferies notes they now assume ~$400M/$400M in peak EU/U.S. annual sales for Esbriet (vs. ~$670M/$530M previously. For 2011/2012, consensus of $10M/$105M (vs. Jeffco's of $2M/$35M) implies ~880/~2,330 patients being treated with Esbriet (vs. their ~176/780 pts) at assumed $45K/pt/yr.

Estimated current cash balance of ~$200M may not be sufficient through 2012 by our estimates, thus posing financing risks. ITMN currently has ~$85M in convertible debt due in 2015 (coupon rate/conversion price of 5%/$18.88), with a long-term debt-to-capitalization ratio of ~33%.

Notablecalls: With Dendreon (DNDN) crushed last night on lower-than-expected Provenge ramp the timing of this call couldn't have been better (or worse, depending on one's point of view).

JPM's Biotech analyst Cory Kasimov notes this morning: 'As if investors needed another reason to “short the launch” of one-product biotech companies, DNDN just served up the ultimate case study.'

Kasimov's right, investors have seen too many one-trick ponies get slaughtered after analyst estimates collide with reality. Esbriet with its $45K price tag & low efficiency fits right in.

Now Jeffco is saying ITMN may end up being another disappointment. This means stock will likely be taken to the back of the woodshed today and shot.

ITMN could be down as much as 7-10% today, putting 28-29 levels in play.

This could serve as a meaningful overhang for quite some time, so the stock could move lower than that.

PS: I'm posting this at around market open 9:30 AM ET

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