When a compound fails in clinical testing, which happened to Rule Breakers pick InterMune (NASDAQ:ITMN) earlier this month, drug companies can be left scrambling to pick up the pieces. Yesterday, InterMune updated the status of its business and clinical development strategies after its only marketed drug, Actimmune, failed in an important label-expanding phase 3 study two weeks ago.

Actimmune was shown to be unable to benefit patients with idiopathic pulmonary fibrosis (IPF, or scarring of the lungs) in clinical testing, and InterMune derived all its sales from the drug. Something had to give. Thankfully, in InterMune's case, it decided to cut back on its workforce and expenditures outside of its clinical trial work, so that its two developmental compounds won't be delayed.

After a 50% reduction in its workforce, InterMune expects annual operating expenses to be reduced by $40 million to $50 million by 2008. Even with these savings, InterMune will need to do a dilutive financing by next year, as its operating expenses will still be in the $125 million to $145 million range for 2007, and its cash cushion is expected to be sitting at $205 million to $210 million at the end of the first quarter.

InterMune saved a bit of good news for this conference call. Its other drug candidate for IPF, pirfenidone, is enrolling patients in a phase 3 trial at a much faster rate after positive results from another study with the drug were announced in December.

Results from InterMune's clinical trial with pirfenidone are now expected to come out almost a year earlier, in the first quarter of 2009, even with an extra 135 patients added to the 580-person study to increase the odds that the trial shows a treatment effect with the drug, if there is any.

This razor-sharp focus on spending is a welcome sight in an industry that is notorious for its free-spending ways. By taking hold of its expenses, InterMune will limit the amount of painful dilution that shareholders have to endure when it needs to raise more money later in the year. 

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Fool contributor Brian Lawler owns shares of InterMune. The Fool has a disclosure policy.