Is the Price Finally Right to Buy InterMune?

Shares of biotech company InterMune (Nasdaq: ITMN  ) hit a 52-week low on Thursday. Let's take a look at how it got there and see if cloudy skies are still in the forecast.

How it got here
To take a page from Naked Eyes blockbuster in the 1980s, InterMune has failed to live up to "Promises, Promises" and now sits at a 52-week low following more delays for its supposed breakthrough idiopathic pulmonary fibrosis drug, pirfenidone (known as Esbriet in Europe, Pirfenex in India, and Pirespa in Japan).

Much like Human Genome Sciences and Dendreon (Nasdaq: DNDN  ) when they introduced Benlysta, the first approved lupus treatment in 50 years, and Provenge, which was expected to lengthen survival rates for advanced prostate cancer patients, InterMune's Esbriet has failed to launch out of the gate in Europe. For HGS, it was a matter of the ebb-and-flow nature of the disease that constrained sales. For Dendreon and InterMune, the price of the drug and convincing physicians that they'll be reimbursed seems to be the biggest drawback. Esbriet recently lowered its pricing to "just" $33,000 per treatment, but sales and delays continue to disappoint.

In its second-quarter report, released just a few weeks earlier, InterMune recorded just $5.5 million in Esbriet sales. Wall Street analysts had predicted the company would sell closer to $40 million of the drug. In fact, projected sales of the IPF treatment were lowered by InterMune to a paltry $20 million-$25 million in fiscal 2012 versus original expectations from the Street of $77.9 million. InterMune is encountering pricing delays in many EU countries and still faces phase 3 enrollments hurdles in the United States.

Perhaps the lone bright spot for InterMune shareholders was its $55 million sale of its rights to Actimmune to privately held specialty-drug maker Vidara Therapeutics.

How it stacks up
Under normal circumstances, we'd take a closer look at how InterMune stacks up against its peers, here. But there's one problem -- it doesn't have any.

ITMN Chart

ITMN data by YCharts

One word, two syllables: antacid!

InterMune at one point had a moderately diversified pipeline that included Actimmune, an FDA-approved therapy used to treat chronic granulomatous disease, and danoprevir which, at the time, was a phase 2 hepatitis-C drug that it was developing in collaboration with Roche. In April, Roche released positive data that demonstrated danoprevir in interferon removed the virus completely 12 weeks after stopping treatment in genotype 4 patients, and 93% efficacy rate in genotype 1 patients. With Bristol-Myers Squibb (NYSE: BMY  ) going on the offensive with a $2.5 billion purchase of Inhibitex earlier this year and Pharmasset being gobbled up by Gilead Sciences (Nasdaq: GILD  ) for $11 billion last year, you have to wonder what might have happened had InterMune not sold danoprevir to Roche for $175 million in 2010.

Now, all that's left for InterMune is its IPF treatment pirfenidone which was projected by analysts to be worth as much as $1 billion, if not more, in sales at its peak.

What's next
Now for the $64,000 question: What's next for InterMune? That question really does depend entirely on pirfenidone's pricing approval in Europe; if it gets approval in the United States; if it can sort out its reimbursement issues; and if it can fend off losses long enough to turn a profit.

Our very own CAPS community gives the company a two-star rating (out of five), with 73.3% of members expecting it to outperform. I've yet to personally make a CAPScall on InterMune, and I won't be making one today, but if my arm were twisted, I'm leaning toward an underperform call.

This is a simple case of putting all of your eggs in one basket, and (as of now) failing! It isn't like Esbriet sales just missed the mark in Europe; they weren't even in the same ballpark as Wall Street's estimates. For pirfenidone to realize its $1 billion potential, InterMune is going to have to overcome the high price of its drug at a time when Europe's austerity measures are kicking in in full force, and it'll need to push hard to get patients enrolled in its phase 3 trial in the United States. InterMune is likely years away from realizing its potential (and pirfenidone's fate in the U.S.), which could make for years of hard times ahead for shareholders.

Peter Lynch has always inspired investors to buy what they know and businesses they could easily understand. InterMune and its solitary drug are a good example of that. Our analysts at Motley Fool Stock Advisor couldn't agree more and recently released a report highlighting three stocks that middle-class investors like you and I, who don't have Warren Buffett-type cash in our pockets, can use to get rich. See what companies they've highlighted, for free, by clicking here.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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