InterMune Batting .500

The results weren't exactly what Rule Breakers pick InterMune (Nasdaq: ITMN  ) was looking for, but things could have been worse -- its stock is up 38% so far today.

This morning, the pharmaceutical announced positive results for one of its two phase 3 trials testing pirfenidone against idiopathic pulmonary fibrosis (IPF). This disease is marked by decreased lung capacity because of buildup of fibrous tissue, ultimately resulting in death. While most people have probably never heard of it, that shouldn't be a obstacle for getting InterMune into the black; BioMarin Pharmaceuticals (Nasdaq: BMRN  ) and Genzyme (Nasdaq: GENZ  ) have both made boatloads of money developing orphan drugs for illnesses that few people have heard of.

The primary endpoint for both trials was a measurement of lung capacity after 72 weeks, and the subjects taking the drug performed remarkably similarly in both trials. Unfortunately, one of the placebo groups performed better than the other, and when the treatment groups were compared to the placebo groups, the magnitude of the difference was only statistically significant in one of the two trials.

Even though only one of the two trials met its primary endpoint, InterMune is planning to file marketing applications in the U.S. and Europe "as soon as possible." It has some data suggesting that pirfenidone was working in the trial that didn't meet its endpoint: The data at 48 weeks was statistically significant, and a retrospective analysis of the data using all the time points suggests that, overall, the drug is helping patients.

Those weren't specified endpoints, though, and missing the primary endpoint in one trial makes it more difficult, although not impossible, to convince the Food and Drug Administration to approve the drug. InterMune's best move at this point might be to outlicense the drug and exchange some future revenue for some up-front cash to fund its pipeline, should pirfenidone not get approved.

Personally, if I were the FDA reviewer, I'd approve the drug. It's relatively safe, and there's evidence that it works. Given the lack of other treatment options for IPF -- there aren't any approved in the U.S.A. or Europe -- I'd rather see the drug get approved and let doctors and their patients decide whether it's working. If one of the clinical trials for Gilead Sciences (Nasdaq: GILD  ) , Celgene (Nasdaq: CELG  ) , or United Therapeutics' (Nasdaq: UTHR  ) IPF drugs turn out positive, then great. Until then, pirfenidone is all IPF suffers have.

Unfortunately for investors, the FDA has yet to call me and ask for this Fool's opinion on any drug. The reviewers tend to focus on prespecified endpoints instead. The FDA usually isn't interested in retrospective analysis and combined data -- just ask Dendreon (Nasdaq: DNDN  ) . That will make InterMune's job difficult, even if the totality of the data is good.

While there's clearly some risk in holding InterMune's shares, there's also considerable reward if the drug is approved. In that case, sales could eventually reach $1 billion by some estimates, and InterMune would be worth considerably more than its current $600 million market cap. Unfortunately, predicting how the FDA will react has become more difficult over the last few years, making InterMune more of a gamble than anything else at this point.

Further non-fibrous Foolishness:

InterMune and BioMarin are both Motley Fool Rule Breakers selections. Find out what other hot drug stocks and other cutting-edge picks the newsletter has discovered. Click here to grab a free 30-day trial subscription and get access to our latest picks and all the back issues.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a fully approved disclosure policy.


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