Fortune seems to be the latest tool of the shorts:
Biotech's Next Big Blowup?
Investors are high on InterMune, but its biggest drug has yet to win FDA approval for the main condition it treats.
FORTUNE
Monday, March 18, 2002
By David Stires
You might think the ImClone fiasco would have tempered speculation in the biotech sector. After all, when the Food and Drug Administration rejected its application for a much-anticipated cancer drug, the stock collapsed, erasing nearly $4 billion in shareholder wealth. But take a close look at InterMune Pharmaceuticals and you'll see that speculation is alive and well.
The Brisbane, Calif., biotech outfit became a darling of Wall Street soon after the New England Journal of Medicine in October 1999 published promising results of a study involving InterMune's main drug, Actimmune. The study tested the drug on patients with a debilitating and usually fatal lung disease known as idiopathic pulmonary fibrosis (IPF) and found that all the patients demonstrated "substantial improvements." With an estimated 100,000 people suffering from IPF in the U.S. and Europe and no cure or even effective treatment currently available, the results sent pulmonologists scrambling for their prescription pads. "It was a very exciting study," says one pulmonologist. "Everybody jumped on it."
Including investors. After going public at $20 in March 2000, InterMune shares rocketed to a high of $55 by September, giving the profitless company a market capitalization of $1.6 billion. Although the price has since come down to $40 a share, it still sells for a lofty 28 times sales. (That's right, sales. Earnings don't come into the picture.) The average biotech stock, by contrast, trades for just eight times sales.
But a closer look shows that investors may be in a drug-induced haze. Actimmune accounted for 90% of the company's $40 million in sales last year, and virtually all of that came from treating some 1,200 patients for IPF.
The only problem: Actimmune hasn't yet been approved by the FDA to treat IPF. The company is only in Phase III clinical trials with the drug and doesn't expect to announce the results until November. Then it needs to go through the lengthy approval process with the FDA.
So why is the drug on the market at all? Actimmune does have FDA approval to treat two rare congenital diseases. For that reason, it's commercially available. And because there are no laws preventing doctors from prescribing approved drugs for other conditions, they have been giving it to IPF patients.
To be sure, prescribing drugs for unapproved, or "off-label," uses is hardly unusual. But it can be risky. While the FDA allows companies to provide doctors with published research concerning a drug's off-label use, the agency prohibits them from actually promoting a drug for those purposes. It's a fine line, and the agency has recently been cracking down on companies that run afoul of its guidelines. Last September, for example, the FDA sent a warning letter to Oratec Interventions for marketing its catheter for unapproved uses. The stock tanked.
Another major risk is that the Phase III trial could flop. The results from the study cited in the October 1999 New England Journal of Medicine were derived from an extremely small sample--just 18 patients. More alarmingly, some clinicians using Actimmune off-label are finding the drug simply isn't effective. For example, Sanjay Kalra and his team at the Mayo Clinic found that only one of 59 patients who had been taking Actimmune off-label showed improvement in lung function. Kalra acknowledges that those patients were sicker than the ones in the published study. But his results nevertheless call into question whether Actimmune is such a miracle drug after all.
Finally, there's the question of paying for the treatment. Actimmune isn't cheap--a year of therapy costs $50,000. Right now 70% of patients are fully reimbursed for treatment, but some analysts caution that as off-label usage grows, insurers may balk at covering a pricey drug that's not even approved to treat IPF. If they do, that would obviously crimp sales.
So with all these questions, is InterMune backing down? Not at all. Chief executive Scott Harkonen says the sales team is closely following the FDA's guidelines regarding off-label sales and is optimistic that the drug will win the agency's approval. In fact, he recently increased 2003 revenue guidance 25%, to $200 million, virtually all of which is expected to come from Actimmune.
Wall Street has certainly bought it: All seven analysts covering InterMune rate the stock a buy or better, according to Zacks. But at least one portfolio analyst is aghast. "I have difficulty naming any biotech drug that brings in $200 million a year," he says. "It's even harder to think of one that hasn't been approved for the indication that will generate the vast majority of that revenue." Speculation, it seems, knows no bounds. |
