InterMune gets Christmas gift early

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With Christmas just around the corner, InterMune has managed to buy itself the kind of bargain present that other companies currently shopping for assets could be justifiably envious.

Yesterday, the California-based biotechnology group revealed that it had, with a wave of its wallet, wiped out all future royalty and milestone payments for pirfenidone, the experimental phase III treatment for progressive lung scarring associated with idiopathic pulmonary fibrosis (IPF).

The group, which agreed to pay up to $67m, now owns outright the rights to pirfenidone in the US and the rest of the world, excluding parts of Asia, leaving its partner Marnac with the rights to Japan, Korea and Taiwan. Its other partner, KDL, leaves the partnership considerably richer.

Sums add up for InterMune

The deal appears to be a very smart move on the part of InterMune. According to EvaluatePharma’s NPV Analyzer, the drug is worth $626m and is forecast to have sales of £367m by 2012.

So the price tag of $13.5m upfront, with $53.5m to come on the back of positive phase III data and US and European registration, looks like a deal even Scrooge would be proud of.

The sum gets even more miserly when you take into account that $7.5m of the $13.5m upfront payment will be off set by a milestone payment InterMune paid its partners back in the autumn.

Thus, for a modest investment InterMune will forgo paying a $14.5m milestone and 9% royalty on net sales. If consensus forecasts for the drug are to be believed, this works out at a saving of $155m five years after the expected 2010 launch.

A bargain in anyone’s books, especially as it gives InterMune sole rights to the most valuable drug in its thin looking pipeline, which only includes one marketed product, with sales of $90m last year, and a phase I product for hepatitis C.

Getting it right

Perhaps some of the reasons why pirfenidone has not been valued higher, or snapped up by a bigger player, is its chequered past, which includes its failure in a range of indications, including renal fibrosis. It was also once part of Schering AG's portfolio, as a treatment for multiple sclerosis, before being abandoned at the phase II stage in 2003.

But InterMune appears to have hit on the right target for the drug, with encouraging phase II data. Additionally, no treatment exists for IPF and most sufferers are dead within two to five years of diagnosis. As such, it is unsurprising that pirfenidone has been granted orphan drug status both in the US and Europe.

InterMune shares, which have fallen 48% since the start of the year finished yesterday 21 cents, or 1% lower, but if the drug performs to plan there could be considerable upside over the next 18 months, making it InterMune’s turn to play Father Christmas to its patient shareholders.

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