Biotech Values

[ghmm]

Updates: IPF competitive landscape, Shionogi Pirfenidone, Actimmune-BI relationship, financials, milestones, and misc. cleanup, corrections (IPF vs. PF prevalence information)

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 (for PF) 128,000, Incidence 48,000 each year http://tinyurl.com/u6kgo, journal abstract http://tinyurl.com/tqd6m IPF prevalence incidence 83K US and 30K incidence.
• No approved therapy steroid and immune suppressants used with little effect. Drugs used include: Imuran (Azathioprine), Cellcept (Mycophenolate mofetil), Rheumatrex (Methotrexate), Mucomyst/Parvolex (N-acetylcysteine [NAC]) and Prednisone along with off-label use of Actimmune. Other off-label use include: Remicade (Infliximab), Enbrel (Etanercept) and Gleevec (Imatinib).

Competitive Landscape for IPF
1. Genzyme (collaboration with what was CAT) in Phase 1
2. Bosentan (Tracleer) from Actelion, Phase 2 failed in their endpoint proceeding with Phase 3 different end point expected to initiate in early 2007
3. Imatinib (Gleevec), I believe it failed Phase 2 not sure of status going forward.
4. Sildenafil (Phase 2) http://www.clinicaltrials.gov/ct/show/NCT00352482
5. Pipex (Tetrathiomolybdate) Phase I-II completed http://clinicaltrials.gov/ct/show/NCT00189176 Company filings say plans to initiate Phase 3
6. FivePrime Collaboration http://tinyurl.com/yz444l
7. Others?

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) In Q4 2006 Earnings Call said increased price 6.8% effective 1/07 to 206 for ½ ml vile. Presentation said almost 65,000/yr for fully complaint patient. 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) With 83K prevalence and 30K incidence in US company estimates that 50K would be mild to moderate and 80% of newly diagnosed patients would fall into that category. Company is targeting the “mild-to-moderate” 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.
• Boehringer Ingelheim relationship re Actimmune (Imukin) http://tinyurl.com/yh9pez

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. Q4 2006 company continues to state will only report if interim analysis causes trial to stop for efficacy or futility.

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. Company states on Q4 2006 call that it is working on expanding IP and have certain activities and progress (very vague could be anything from follow-on compound to exploring new patents
• 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
• Journal Articles http://ajrccm.atsjournals.org/cgi/content/full/171/9/1040 (Shionogi Phase 2), http://ajrccm.atsjournals.org/cgi/content/full/159/4/1061
• Shionogi Phase 3 Top Line PR http://www.shionogi.co.jp/ir_en/news/detail/e_061222.pdf


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 585 patients
• Randomized first patient April 27, 2006
• Expect enrollment to conclude Q4 of 2007, with top-line data expected in early 2009
• Exploring European partnering opportunities
• Enrollment proceeding “Very Well” (according to Q4 call) company still maintains enrollment expected to complete in Q4 2007.
• Differences between CAPACITY and Shionogi Phase 3 (Company presentations) Shionogi 250 patients, ours I-260, II-325, roughly same. Length Shionogi-52 ours 60 weeks. Dosing in Shionogi low dose 400mg TID high 600 TID, CAPACITY I-800mg TID, CAPACITY II 800mg and 400mg both TID, if account for avg. body weight of US/EU vs. Japan about 30mg/kg in each. Endpoint Shionogi change in Vital Capacity ours Change in Percent Predicted Forced Vital Capacity. Comparable measures of lung volume. Other difference is the patient population, Shionogi is Japanese ours is mainly NA and EU do not know of any metabolism difference in population or Pirfenidone between two groups.

InterMune 191 / PI Program
• Collaboration began with Array BioPharma http://tinyurl.com/y75d42
• Royalties due 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%?)
• 191 General Characteristics
1. Active Sight NS3/4 PI
2. High affinity for and stability in the liver
3. Favorable pharmacokinetic profile potential Q12/BID dosing.
4. Good safety margins for: Body weights, organ weights, Clinical chemistry, clotting parameters and hematology, Renal, neurologic, gastrointestinal, immune and cardiovascular systems
5. Potency of ITMN compound is maintained against mutations that show resistance to other protease inhibitors
6. HCV protease selectivity is high
7. There were no significant effects on microscopic histopathology on any organ or tissue, including heart and liver
• 191 more specifics
1. Replicon Potency (genotype 1) EC-50 1.6nM, EC-90 14.1nM, EC-99 155.3, EC-999 1567.3 nM
2. 28 day preclinical tox suggests safe over wide dose range
3. Mutants D168A primary driver of 191 sensitivity. Hypersensitive mutation to Pegasys shift by about order may suggest suggests combo will result in protection against mutation.
4. Rat studies (looking at livers) various dose concentrations including 16 hours above EC 99.9 (3 log drop) 30 mg/kg equiv about 300mg in human to get similar human concentration.
• Some comparisons to VX-950/other PI’s
1. HCV replicon EC50 = ~2nM (VX-950=402nM, SCH-503034=200nM)
2. Mutations resistant to other PI primarily A156T 191 is highly active against mutation indicating complimentary profile with other PI’s in development
• 9/26/06 CTA submitted to the French Medicinal and Biological Products Evaluation Directorate http://tinyurl.com/yevhgh
• For technically oriented suggest listening to Think Equity “Think Tank” presentation by Dr. Blatt on 11/10/06 most technical info in company presentation to date.
• Phase 1A Trial Information http://tinyurl.com/32lvtz
1. One clinical trial site in Europe and will enroll approximately 74 healthy volunteers.
2. First patient dosed early January 2007.
3. Single-dose ascending dose in healthy volunteers.
4. Expects to complete the currently running Phase 1a study of ITMN-191 in healthy subjects in the first half of 2007.
5. Schering and Vertex held 1A until 1B that could be something we’ll do and have not disclosed plans yet.
• Phase 1B Trial Information (Press release/call) “InterMune plans to evaluate ITMN-191 in a Phase 1b randomized, double- blind, placebo controlled, multiple ascending dose study in patients infected with chronic hepatitis C virus. ITMN-191 will be administered to treatment naïve patients for 14 days and the study will include a cohort of non- responder patients. InterMune and its partner Roche expect to announce initial viral kinetic results from the Phase 1b trial in the second half of 2007.”
1. Not disclosing number of patients at this point
2. A specific cohort of non-responders in our mono-therapy studies so we can understand is there any difference in kinetics between non-responders and naïve patients. Ours will be the first in systematic fashion look at those directly.
3. We have very clear definition of what it means to be non-responder as operational defined in protocol. Will be a homogeneous group. (in response to question about type of non-responders)
• Other 191 Information
1. Looking at addition of ribavirin toxicology and PK (preclinical).
2. Plan to move quickly into Phase 2 of a design and duration of what would want to do in Phase 3 which you may imagine would include PEG-Interferon and Ribavirin.

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. Note this was clarified to mean excluding the up-front payment.
• 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/securities 214.5 million (end of Q4 2006)
• 170 million convertible. Coupon rate .25%. 2011 maturity. Conversion Price $21.63.
• Shelf registration (http://tinyurl.com/29rsqc) for up to 175 million filed 12/28/2006
• 33 million shares outstanding
• 2007 Guidance
o Revenue 70– 90 million.
o COGS 21-23%.
o R&D 110-125 million. Including 5-10 million for est. FAS 123R.
o SG&A 35-45 million including 5-10 million for FAS 123R.
• 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/Medical Presentations
• Interim look in INSPIRE. Company said likely would not disclose unless it was material (i.e. trial stopped for efficacy or futility) 2 in protocol not stated if any have occurred.
• Present 8 abstracts from Pulmonology research at ATS in May
• Present 3 abstracts of preclinical experience of 191 at EASL in April
• Submitted several abstracts on preclinical data for 191 for DDW in May
• 2H ’07 Phase 1B data
• November ’07 INSPIRE trial ends (2 years after 600th patient enrolled)
• Q4 ’07 CAPACITY Trials enrollment targeted completion [I think it will be MUCH earlier]
• 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 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 (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)
b. Pirfenidone:
i. Price 30K (estimate based on discount of Tracleer pricing in PAH)
ii. Using incidence figure 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 in trials has had high incidence of photosensitivity and some GI side effects.
6. I believe the CEO was working (consulting?) for Warburg Pincus and they have a couple of board seats and a big position.