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InterMune Q2 Loss Wider than Expected, Expense Guidance Up

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InterMune Inc.’s (ITMN) second-quarter 2014 adjusted loss per share of 67 cents was narrower than the year-ago loss of 78 cents but wider than the Zacks Consensus Estimate of a loss of 56 cents.

InterMune reported revenues of $35.7 million in the second quarter, compared with the year-ago revenues of $14.4 million. Revenues also increased 17.8% on a sequential basis. The sharp increase in total revenues was primarily due to a boost in Esbriet (pirfenidone) sales. The drug was launched in Germany in Sep 2011. Revenues were just above the Zacks Consensus Estimate of $35 million.

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Quarterly Details

Esbriet was the sole contributor to InterMune’s revenues in the second quarter of 2014. Esbriet is approved for the treatment of idiopathic pulmonary fibrosis (IPF), a fatal lung disease.

During the quarter, research and development (R&D) expenses increased 44% to $39.7 million. The increase in R&D was primarily due to expenses associated with the completion of the ASCEND trial and related to the RECAP open-label extension study.

Selling general and administrative (SG&A) expenses were up 41% to $52.6 million during the reported quarter. The increase in SG&A expenses during the reported quarter was primarily due to expenses related to pre-launch preparations of Esbriet in the U.S.

Esbriet Update

In May 2014, InterMune resubmitted its New Drug Application (:NDA) for Esbriet based on encouraging top-line results from the phase III ASCEND study which was announced in February this year. Last month, Esbriet was granted breakthrough therapy designation in the U.S. A final decision from the FDA on the approval of Esbriet is expected by Nov 23, 2014.

To date, Esbriet has been successfully launched in 14 European countries, namely, Austria, Belgium, Denmark, France, Germany, Iceland, Luxembourg, Norway, Sweden, Finland, Italy, England, the Netherlands and Ireland. The company expects to provide an update on pricing and reimbursement discussions in Spain by the end of the year.

We note that Esbriet is also being developed in a phase II study for the treatment of systemic sclerosis-related interstitial lung disease (SSc-ILD). The study is expected to conclude in the last quarter of this year.

2014 Guidance

InterMune now expects 2014 Esbriet sales on the higher end of its previously provided guidance range of $130−$140 million. The Zacks Consensus Estimate for 2014 total revenues of $143 million is above the company’s guidance range.  

The company increased its 2014 R&D expense guidance to the range of $130 million to $140 million from the previous range of $110 million to $120 million. Fourth quarter 2014 R&D expenses are expected in the $30 million to $35 million range.

The company’s SG&A expense guidance has also been increased to the range of $250 million to $260 million from the previous range of $210 million to $225 million. 2014 operating expense guidance is now expected in the range of $380 million to $400 million (previous: $320 million to $345 million).

Our Take

InterMune’s second quarter results were below par. The company’s guidance is also below expectations. However, we are encouraged by InterMune’s progress with Esbriet so far.

Though Esbriet is the only approved medicine for IPF, several companies are developing their candidates to tap the IPF market. The nearest threat for InterMune is from Boehringer Ingelheim’s IPF candidate nintedanib, which was filed in the U.S. in Jul 2014. Nintedanib is under review in the EU as well. Companies like Novartis (NVS) and Sanofi (SNY) are also developing candidates for IPF.

InterMune, a biotechnology company, presently carries a Zacks Rank #3 (Hold). A better-ranked biotechnology stock is Actelion Ltd. (ALIOF) carrying a Zacks Rank #1 (Strong Buy).

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