ITMN Jumps on Institutional Position; Look to Esbriet’s International Launch for Near-Term Trades

Deerfield Capital reported a 6.2% stake in InterMune (NASDAQ:ITMN) on Tuesday, causing shares of the biotechnology company to climb 10% in the following trading session. InterMune develops and markets Esbriet, a treatment for idiopathic pulmonary fibrosis (IPF) that is approved in Europe and, as of October 2, Canada. FDA approval is still forthcoming, dependent primarily on the Phase III ASCEND trial which is expected to complete enrollment by the end of the year and report data in the first half of 2014. In the meantime, Esbriet is launching internationally, and those announcements may present short-term trading opportunities.

ITMN performance for the next year rides on its commercial success and reimbursement in approved countries. So far, eight countries have priced Esbriet for reimbursement - most recently France - and the company expects to receive reimbursement authorization from five more countries by year’s end; the U.K. and Ireland will provide pricing for the drug in early 2013. InterMune plans to launch Esbriet as expeditiously as possible as reimbursement goes on-line in respective nations. Evidence of the company’s commercialization efforts can be seen in its escalating SG&A costs, up 33% year-over-year to $52M in the first six months of 2012 as InterMune builds its infrastructure and sales force across the pond.

Revenue totaled $10.4M in the first six months of 2012, noteworthy next to the non-existent sales revenue in the first half of 2011, but compared to the $1B in peak sales that some analysts have predicted, Esbriet has far to go. Canada’s pricing agreement and Esbriet’s launch in the neighbor-to-the-North will go a long way towards improving total revenue, but Canadian sales aren’t anticipated until at least January of 2013. Including sales in France, InterMune guides for 2012 revenue of $25M and a staggering $200-250M in operating expenses for the year. The company had $135M in cash on June 30, and $393M including available-for-sale securities, but keeping a close on the company’s burn rate and available capital is prudent as marketing efforts continue.

If past performance is any indication, ITMN will continue to provide short-term gains as international reimbursement arrangements are announced, providing some trading potential in the fourth quarter and early next year. The stock climbed 25% following France’s pricing of Esbriet on Sept. 11, and 10% following Sweden’s reimbursement authorization on June 28. Of course, an FDA approval is most anticipated, but investors will be waiting at least another year before even seeing data that might precede a New Drug Application. For now, it may be worthwhile to play the swings as reimbursements are announced, but waiting to analyze sales growth is the best bet before a long-term investment.