Talk about an unexpected Christmas gift. The Committee for Medicinal Products for Human Use (CHMP) issued a positive recommendation for the approval of InterMune's (Nasdaq: ITMN) idiopathic pulmonary fibrosis (IPF) treatment, Esbriet, sending shares up 140%.

Unlike the U.S., where the advisory committee makes a recommendation and the Food and Drug Administration does whatever it wants -- like rejecting Esbriet earlier this year -- a positive CHMP recommendation is essentially an approval. InterMune just needs to wait for the European Commission to ratify the recommendation, which typically takes a few months.

After that, InterMune can start negotiating with the individual countries for repayment, which can take many more months. The company is shooting to have Esbriet launched in the top five countries in Europe by the middle of 2012. The early Christmas present won't pay off for awhile.

The IPF market in the European Union is actually larger than in the U.S., with about 110,000 patients -- of which about two-thirds are appropriate for treatment of Esbriet. Since there aren't any approved drugs approved to treat IPF, InterMune has to figure out some other way to determine how much EU countries would be willing to pay.

InterMune thinks pulmonary arterial hypertension (PAH) drugs like Gilead Sciences' (Nasdaq: GILD) Letairis and Pfizer's (NYSE: PFE) Thelin, the latter of which was just pulled from the market, are appropriate for price comparison purposes. PAH and IPF don't have anything in common clinically -- one is a heart disease, and the other affects the lungs -- but they're both life-threatening diseases with a relatively small market size. Using the pricing of Actelion's PAH drug Tracleer, the potential market for Esbriet is $3 billion. InterMune won't capture all of that -- it assumes every appropriate patient takes Esbriet -- but even if we cut it by a third, that's still solid revenue for a company with a market cap under $2 billion.

As for the U.S., the company is planning on letting investors know in first quarter of next year about its plans for resubmitting its marketing application. This isn't the first time that Europe has approved a drug that the FDA has turned down: Merck's (NYSE: MRK) Cordaptive and sanofi-aventis' (NYSE: SNY) Acomplia, for instance. In the case of Acomplia, the drug was ultimately pulled from the EU market, vindicating the FDA's decision. Merck is still trying to get Cordaptive approved in the U.S.

While the EU decision is great news, I wouldn't count on it affecting the FDA's thinking in any way. InterMune will likely have to submit data from another positive trial because in the U.S., batting .500 in clinical trials is only deserving of a lump of coal.

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