Biotech Values

[ghmm]

Updates: general IPF info, Roche transaction, Q3 financials, links and misc. cleanup


InterMune http://www.intermune.com/

Focus on Pulmonology and Hepatology. In Pulmonology focused on Idiopathic Pulmonary Fibrosis (IPF) and in Hepatology Protease Inhibitor recent collaboration with Roche and an undisclosed preclinical compound (in collaboration with Array).

IPF
• Scarring of lungs, unknown cause
• Median survival from diagnosis 2-5 years
• US Prevalence 128,000, Incidence 48,000 each year http://tinyurl.com/u6kgo, journal abstract http://tinyurl.com/tqd6m (old prevalence incidence 83K US and 30K incidence; In 2000 it was believed prevalence was 50K US).
• No approved therapy steroid and immune suppressants used with little effect. Drugs used include: Imuran (Azathioprine), Cellcept (Mycophenolate mofetil), Rheumatrex (Methotrexate) and Prednisone along with off-label use of Actimmune. Other off-label use include: Remicade (Infliximab), Enbrel (Etanercept) and Gleevec (Imatinib).

Actimmune http://www.actimmune.com/
• Interferon Gamma 1B naturally occurring protein administered by sub-q injection (200mcg, 3x week for IPF patients in protocol for INSPIRE study)
• IP Protection (http://tinyurl.com/yawz9q) announced today that it has been issued two composition of matter patents that together cover the manufacture, use and sale of Actimmune(R) (interferon gamma-1b) in the United States. These patents, USPN 6,936,694 and USPN 6,936,695, expire in 2022 and extend a portfolio of intellectual property rights relating to Actimmune(R), which includes another composition of matter patent that expires in 2014.
• Investigational Studies being conducted in Idiopathic Pulmonary Fibrosis. Had failed prior phase 3 trial with composite endpoint and subject to controversial debate on benefits of interferon gamma results and letter in NEJM. INSPIRE Trial is current Phase 3 trial aimed at showing survival benefit in IPF patients. January 8, 2005 NEJM “A Placebo-Controlled Trial of Interferon Gamma-1b in Patients with Idiopathic Pulmonary Fibrosis” http://content.nejm.org/cgi/content/full/350/2/125. October 21, 1999 NEJM “A Preliminary Study of Long-Term Treatment with Interferon Gamma-1b and Low-Dose Prednisolone in Patients with Idiopathic Pulmonary Fibrosis” http://content.nejm.org/cgi/content/full/341/17/1264 criticism of the study http://content.nejm.org/cgi/content/extract/342/13/974
• Approved usage (Past 10-K’s) ACTIMMUNE has proven to be safe for patients since its approval in 1990 for the treatment of chronic granulomatous disease. There are an estimated 400 patients with chronic granulomatous disease in the United States, and there is no FDA-approved treatment for these patients other than ACTIMMUNE. Based on the indicated dosage levels, the annual cost per patient is approximately $25,000. There are approximately 400 patients with osteopetrosis in the United States. The FDA approved Actimmune for the treatment of this disease in February 2002. Based on expected dosing levels for osteopetrosis patients, we expect the annual cost per patient would be approximately $25,000.
• Method of Action (Company presentations) Immunomodulatory, Anti-fibrotic, Anti-infective – Antiviral, Anti-proliferative
• Pricing (Company presentations) based on dosing in INSPIRE for fully compliant IPF patient would equate to $60,000/patient for year of therapy. Medicare Part D would be operative because 70 percent of patients are over 65.
• Partner (http://tinyurl.com/y4m3gz) outside US, Canada and Japan, Boehringer Ingelheim with InterMune option to promote where BI does not.
• Patient Population (Company presentations) When numbers were reported as 83K prevalence and 30K incidence in US company estimated that 50K would be mild to moderate and 80% of newly diagnosed patients would fall into that category. This is significant because the “mild-to-moderate” is what the company is targeting in the INSPIRE study.
• Prior Studies supporting INSPIRE GIPF-0011 (NEJM, Jan 2004) 330 ITT, follow-up 1.4 years Deaths in Actimmune 16/162 (9.9%), Deaths in Control 28/168 (16.7%), relative reduction 41% p=.08. Ziesche2 (CHEST, Nov 2002), 18 ITT, 5 years follow-up, Deaths in Actimmune 2/9 (22%), Deaths in Control 7/9 (77.8%), relative reduction 71% p=.01. Antoniou3 (ERJ, April 2006), 50 ITT, follow-up ~2 years, Deaths in Actimmune 5/31, Deaths in Control 7/18 (38.8%), relative reduction 70% p=.028.

INSPIRE Trial http://www.inspiretrial.com/
http://www.clinicaltrials.gov/ct/show/NCT00075998
• Trial Randomized, Double-Blind, Placebo-Controlled, 2:1 Randomization – Actimmune: Placebo
• Administration Subcutaneous 3x week injections, 200 micrograms
• ~81 Sites – U.S., Canada and Europe
• Primary Endpoint Survival Time
o Greater then 90% power to detect 50% difference of mortality over 3 years
o Greater then 80% power to detect 40% difference in mortality over 3 years
• Patients – Mild to Moderate IPF (forced vital capacity ≥ 55% and carbon monoxide diffusing capacity ≥ 35%)
• Treatment Period 2 Years after randomization of 600th patient. 600th patient enrolled in November 2005. Completed enrollment April 2006 (826 patients total). Rational for increasing enrollment http://tinyurl.com/y53xcb
• INSPIRE Trial Update (Company Presentations, Q3 2006 Call recent update). 2 Interim efficacy analysis in protocol (not clear if any have yet occurred). When asked about “drop-out” company did not specifically address but stated extremely pleased with “study conduct” which includes dropout, staying on medication, etc.

Pirfenidone
• Administration Orally active small molecule 3x day pill of either 267 mg capsules (CAPACITY 1) or 267 mg or 133 mg (CAPACITY 2)
• Acquired NA and EU rights from Marnac, http://www.marnac.com/ for Fibrotic Indications. (PR http://tinyurl.com/yy2qao and 10K’s) In March 2002, we licensed from Marnac, Inc., a privately held biopharmaceutical company, and its co-licensor, KDL GmbH, their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including pulmonary, liver and renal fibrosis. Under the terms of the agreement, we received an exclusive license from Marnac and KDL in exchange for an up-front cash payment of $18.8 million and future milestone and royalty payments.
• Method Of Action (Company presentations) Preferentially binds to and disables the kinase p38-gamma. Significantly inhibits TGF-beta synthesis (fibrosis), Also inhibits TNF-alpha synthesis (inflammation)
• IP Protection (Conference call) Older compound patent from Marnac licensed covering anti-fibrotic uses 2011 expires. Basis of exclusivity more on Orphan drug. Granted in US (7 years) and Europe (10 years) after approval.
• Other Indications being studied in a number of trials (not all by InterMune). InterMune is seeking approval in Idiopathic Pulmonary Fibrosis. It is also conceivable that they later seek a broader approval for Fibrotic disease of the lung. Most notably an NIH study in Hermansky Pudlak Syndrome.
• Shionogi Phase 2 Results PR http://tinyurl.com/y5nwel Stopped after 6 months (efficacy). Treatment of 9 month. Observation/ Placebo/ Pirfenidone: Improved Minimal O2 Oximetry/6.1%/24.2% Declined Saturation/33.3/18.2% P=.016 Vital Capacity Improved/0%/9% Vital Capacity Declined/36.4%/13.4% P=.003
• InterMune Phase 2 Results PR http://tinyurl.com/y49zp7

CAPACITY Trials, http://www.capacitytrials.com/
http://www.clinicaltrials.gov/ct/show/NCT00287729
http://www.clinicaltrials.gov/ct/show/NCT00287716 - Three Arm Study
• Primary endpoint is change in forced vital capacity (FVC) after 60 weeks of treatment
• Two concurrent, multi-national trials CAPACITY 1 and CAPACITY 2
• Approximately 580 patients
• Randomized first patient April 27, 2006
• Expect enrollment to conclude around the end of 2007, with top-line data expected in early 2009
• Exploring European partnering opportunities
• CAPACITY Trials Update (Company Presentations, Q3 2006 Call recent update). Enrollment proceeding at a brisk pace. Hinted could complete before end ’07 target.

InterMune 191
• Collaboration began with Array BioPharma http://tinyurl.com/y75d42
• Royalties Described as “mid-single digits”. Array describes their royalties as 3% (generally speaking about royalty deals they have in past not just 191). As pointed out by rkrw (SI) and Dew other 3rd party royalties Chiron/others (~2%?)
• High affinity for and stability in the liver
• Favorable pharmacokinetic profile potential BID dosing.
• 28 day preclinical tox suggests safe over dose range predicted to have anti-viral effect for chronic Hepatitis C patients.
• Potency of ITMN compound is maintained against mutations that show resistance to other protease inhibitors
• HCV replicon EC50 = ~2nM (VX-950=402nM, SCH-503034=200nM)
• Liver exposure in Rat/Primate (30 mg/kg) nM concentration 2,680/188 Log Drop in replicon RNA 3.23/2.08 (after 12 hours!)
• HCV protease selectivity is high
• Good safety margins for: Body weights, organ weights, Clinical chemistry, clotting parameters and hematology, Renal, neurologic, gastrointestinal, immune and cardiovascular systems
• There were no significant effects on microscopic histopathology on any organ or tissue, including heart and liver
• 9/26/06 CTA submitted to the French Medicinal and Biological Products Evaluation Directorate http://tinyurl.com/yevhgh

Roche Collaboration http://tinyurl.com/y2e87x
• 60 million on closing, assuming successful develop in US and other countries will receive up to 470 million in milestones. 530 million total. Potentially 35 million (of 470 million) in next 12 months.
• Cost sharing – Roche responsible for 67% global development costs including all related mfg costs.
• Royalties outside US Roche commercializes all products from collaboration InterMune Royalties “mid-high teens %” depending on net sales level
• In US commercialize and share profits on 50/50 basis.
• Same economic terms would cover any 2nd generation PI’s developed and commercialized, roughly doubling value.
• Roche responsible for World-wide formulation development and manufacturing any compound.
• InterMune has 3rd party royalty obligations that total in mid single digits. Split 50/50 with Roche in US, InterMune responsible for them outside US
• Development self funding through development. Beyond significant post development milestones.
• Can opt out of either co-development or com-commercialization. If do so would receive higher x-US royalties and same royalties replace profit share in US.
• Expect to close pending Hart-Scott-Rodino around mid November

Other Pipeline/Interests
• Early stage preclinical program partnered with Array (undisclosed indication in Hepatology). Royalty described by Array as high single digits. Array Responsible for creating clinical trial and all synthetic process. InterMune take into clinical development through commercialization.
• Equity interest in Targanta Therapeutics, http://www.targanta.com/ as a result of selling Oritavancin in December 2005. (http://tinyurl.com/yznhod)
• Early stage work on PEGylated version of Actimmune (with Maxygen), does not appear to have much effort as this time. (http://tinyurl.com/yn4e4z)
• PEG-Alfacon (PEGylated version of Infergen) appears unlikely to be further developed.
• Research work in both Hepatology and Pulmonology

Financials
• Cash 169.2 million (end of Q3 2006)
• 170 million convertible. Coupon rate .25%. 2011 maturity. Conversion Price $21.63.
• 33 million shares outstanding
• 2006 Guidance
o Revenue 85– 95 million.
o COGS 21-23%.
o R&D 90-105 million (Does not factor any savings by Roche cost share, if closes in mid November). Including 5-10 million for est. FAS 123R.
o SG&A 30-45 million including 5-10 million for FAS 123R (not including 30 million for settlement).
• Government settlement for past Actimmune promotion (http://tinyurl.com/y3wa8a) . The company will pay $36.9 million plus 5% interest over five years. The first annual installment is $5 million and will be paid this year. Note some acceleration terms exist should InterMune receive 150 million in partnering/licensing (capped at $10 million/year).

Time-Line
• Late Q4 ‘06/Early Q1 ’07 Shionogi Pirfenidone Phase 3 trial top-line results (InterMune has data sharing agreement but it is not clear if the results will be released to the public… the market will know!)
• Mid Q4 ’06 Hear back from EU about 191 submission.
• Late Q4 ’06 Start dosing patients with 191
• ???? ’07 Interim look in INSPIRE. Company said likely would not disclose unless it was material (i.e. trial stopped)
• November ’07 INSPIRE trial ends (2 years after 600th patient enrolled)
• Q4 ’07 CAPACITY Trials enrollment targeted completion
• Q1 ’08 INSPIRE data released
• Q4 ‘07/Q1 ’08 CAPACITIY (Pirfenidone) treatment period ends
• Q1 ’09 Top line results from CAPACITY

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.
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.

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, Bosentan (Tracleer) from Actelion, Phase 2 failed in their endpoint proceeding with Phase 3 different end point, Imatinib (Gleevec), I believe it failed Phase 2 not sure of status going forward. Ilhprost (Ventavis) from CoTherix (PAH patients with IPF), others?