FDA Dishes The Unexpected to InterMune (ITMN)
InterMune Inc. (NASDAQ: ITMN) is going to put the hurt on the biotech sector this week. Shares closed down 5.4% at $45.44 on fairly active trading. But then came a trading halt a few minutes before the market close for “NEWS PENDING.” The FDA just squashed it….
The FDA issued a complete response letter for its New Drug Application for Esbriet for the treatment of patients with idiopathic pulmonary fibrosis to reduce decline in lung function. A complete response letter by the FDA means a review is completed, but when there are one or more than one reasons precluding an approval:
- The FDA has requested an additional clinical trial to support the efficacy of Esbriet in IPF patients. InterMune intends to meet with the FDA as soon as possible to explore the best ways to address the points raised by the Agency and to discuss pathways to approval.
The company noted the positive FDA Advisory Committee meeting of March 9, where the Committee recommended the approval of the new drug application by a fairly wide 9-3 margin.
Needless to say, InterMune said it is disappointed by this outcome. It will meet with the FDA as soon as possible to understand their points of view and to determine the most appropriate path forward to “make Esbriet available to the approximately 100,000 patients” with idiopathic pulmonary fibrosis. Lastly, InterMune also noted that there are no FDA-approved medicines which exist for this, and there are about 200,000 cases between the US and Europe.
- The median survival time from diagnosis is two to five years, with a five-year survival rate of approximately 20%. Patients diagnosed with IPF are usually between the ages of 40 and 70, with a median age of 63 years and the disease tends to affect slightly more men than women. There are no medicines approved in Europe and the United States for the treatment of IPF.
This FDA action just wiped out about $2 billion in investor market cap, and just delayed the time of this drug if it will be approved. As noted above, shares closed down 5.4% at $45.44, but now the stock is down 80% at $9.00 in the after-hours session.
The new implied market cap will now be about $470 million if the current $9.00 handle stays correct. At the end of 2009, InterMune listed almost $86.95 million in cash and short-term securities and another $12.65 million as “long term investments” on the books. The liabilities come to a total of $220.5 million, over $125 million of which is long-term debt and another $57+ million which is listed as :deferred long term liability charges.”
Here is the real kicker, and the proof that this was completely unexpected. At $45.44, the 52-week range is $10.48 to $49.46. At the end of 2009, InterMune was a $13.04 stock. It was in March when the stock rifled higher on this FDA panel recommendation. There was much concern about the FDA panel ahead of time, which means that this surprise today took the big thunder out of this stock. You can look for a massive amount of trading volume on this stock Wednesday.
The efficient market theory has always been more theory than reality. This reaction and other reactions in the land of BioHealth investing should prove how there is no such thing as an efficient market theory….
JON C. OGG
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