With the cost of successfully bringing a new drug to market averaging more than $800 million, nobody ever said drug development was cheap. Biotech companies like InterMune
By the end of last year, InterMune had racked up nearly half a billion dollars in accumulated deficit for all its drug programs since the company was founded in 1998. With two drugs in the middle of large phase 3 trials and another just beginning clinical trials, InterMune expects to burn approximately $100 million just on research and development expenses this year.
Having already gone the partnering route to get help in developing its early-stage hepatitis C treatment, ITMN-191, InterMune filed a shelf registration statement yesterday to sell up to $175 million worth of common stock or related securities.
Despite the Roche partnership agreement for ITMN-191, InterMune was still down to $230 million in cash and equivalents after Roche's $60 million up-front payment, so some sort of dilution was bound to happen. Also, it's important to remember that this shelf registration statement is not a firm commitment to sell the equivalent of $175 million worth of securities, but rather gives InterMune the chance to opportunistically sell shares if it needs to.
So does the shelf registration statement mean that InterMune's management thinks shares are overvalued now, or that they have nowhere to go but down? Filing for a shelf in some industries may be a bad sign, but with a profitless biotech, the need for cash is always present, whether shares are trading at $30 a stub or $3. So I wouldn't take this as any commentary on management's valuation of the business.
For investors' sake, getting any necessary dilution over and done with at higher share prices means fewer shares, warrants, or other versions of the diluting financing need to be issued, so it's smart that InterMune is getting ready to sell shares now in case more positive clinical trial results cause shares to spike.