Biotech Values

[ghmm]

Some Arguments For Investing in InterMune
1. It is my impression that some of the criticisms of Actimmune are side effects and limited efficacy. The fact is IPF is a disease with no good therapy and Actimmune has the potential to lengthen lives. While it does not appear to reverse the disease for some patients (treated early) it helps to keep it in check longer. To me a comparison should be more akin to some of the harder to treat cancers (The company also uses PAH as a model I think PAH therapies are much further ahead then IPF treatment options). With no treatment available one would hope the FDA does not place an extremely high hurdle and one would think patients would be very receptive (it appears Pirfenidone is exceeding enrollment expectations and INSPIRE enrollment for Actimmune added 225 patients in less then 6 months)
2. Both Actimmune and Pirfenidone are potential Billion dollar drugs.
a. Actimmune:
i. Price for fully compliant patient 60K (lets use 50K)
ii. Using OLD incidence of 30K (25K mild-to-moderate) and say 25% penetration
iii. Say average patient stays on therapy 3 years
iv. The math then: 50K * 6250 * 3 = 937,500,000
v. This is VERY CONSERATIVE and VERY doable
1. If approved reimbursement by Medicare for large percent of patients (2/3 > 65)
2. Does not take into consideration incidence (OLD numbers of 50K mild-to-moderate)
3. Feel free to use
a. Higher penetration rates
b. Account for some of the 83K (50K mild-to-moderate) prevalence
c. Longer time on therapy (after all if successful Actimmune will extend life expectancy)
d. NEW prevalence and incidence numbers of 128,000 and 48,000
b. Pirfenidone:
i. Price 30K (estimate based on discount of Tracleer pricing in PAH)
ii. Again using OLD incidence but say 33% penetration (as patients may be more willing to take this as it is an Oral therapy)
iii. Again using 3 years average on therapy
iv. The math: 30K * 8333 * 749,970,000 + EU royalty? Or if market themselves
c. Some preclinical work done and it appears the compounds do not antagonize each other. In fact suggests the compounds may be complimentary if not synergistic.
d. The company has < 35 million shares and even if you include the convertible (due 2011) that adds about 8 million more shares. I’d work out the EPS numbers for you but you wouldn’t believe me, so you can plug in the numbers yourself. The COGS for Actimmune have been in the 21-23%. Sales force would be targeted (50 – 100 people say 200K each). SG&A 30-45 ’06 guidance (feel free to add a fair increase). R&D 90 -105 in ’06. Oh and the company has over 450 million in NOL’s
3. If Actimmune is successful one would think the PEGylated version becomes more of a priority to extend the product and gain patients with an easier to tolerate treatment. Also this may open the door to pursuing some other indications.
4. 191 Will be partnered at some point. It seems to me 500 million is the starting point, OK 191 may be 3rd but it appears (at least preclinically) to have some advantages of Schering and Vertex compounds. See http://messages.finance.yahoo.com/Healthcare/Biotechnology_and_Drugs/threadview?m=tm&bn=9830&...

and Some Risks…
1. Actimmune failed in its previous Phase 3 and INSPIRE is based in part on retrospective analysis (everybody loves those!)
2. Actimmune has been tested and failed to progress in a number of other indications, most recently a Phase 3 trial in Ovarian Cancer was stopped (company states combo with chemo too toxic and Actimmune group did not receive Full Chemo to account for poorer results)
3. Actimmune is an injectable and has some side effects, though it is approved and has been used safely for a number of years.
4. If the dropout rate is high or compliance to dosing in INSPIRE is low (if one is injecting themselves thinking they are doing so with a Placebo it may be hard to keep on schedule)
5. Pirfenidone causes light sensitivity and may have some liver monitoring requirements
6. I believe the CEO was working (consulting?) for Warburg Pincus and they have a couple of board seats and a big position.
7. Other companies looking at IPF include Genzyme (collaboration with what was CAT) in Phase 1, Actelion (with Tracleer though Phase 2 failed in their endpoint proceed with Phase 3 different end point), Gleevec (believe it failed Phase 2 not sure going forward). CoTherix (PAH patients with IPF), others?