InterMune Inc.(ITMN) posted first-quarter adjusted loss per share of 57 cents, much narrower than the Zacks Consensus Estimate of a loss per share of 78 cents and the  year-ago loss per share of 66 cents. Higher revenue and lower research and development expenses contributed to the narrower loss suffered by the company in the reported quarter.

InterMune reported revenues of $6.4 million in the first quarter, above the year-ago revenue of $6.1 million and also ahead of the Zacks Consensus Estimate of $5.0 million. The revenue growth was driven by increased collaboration revenue from Roche Holdings Ltd. (RHHBY) under the agreement entered into in January 2011. Under the agreement, the companies will research to identify and develop next-generation protease inhibitors for the treatment of HCV.

Management announced that it is currently not considering sale of the company, contrary to recent speculations about the same, sending its shares lower, despite the earnings beat.

Quarterly Details

During the reported quarter, research and development (R&D) expenses declined 18% to $16.8 million. The decrease was the result of the completion of trials of Esbriet and the divestiture of danoprevir.

General and administrative (G&A) expenses increased 16% to $17.6 million primarily in preparation of the European launch of its idiopathic pulmonary fibrosis (IPF) drug, Esbriet.

Pipeline Update

In March 2011, InterMune received marketing authorization from the European Commission (EC) for Esbriet in the European Union (EU), making it the first company to offer an IPF medicine in Europe. The approval of Esbriet in the European Union would give the company a major shot in the arm. InterMune plans to launch the drug in the top five European countries first, beginning with Germany in September 2011. InterMune has also received marketing authorizations in Norway and Iceland.

In April 2011, InterMune launched its named patient access program, or NPP. Under this program qualified physicians can make Esbriet available to IPF patients in EU (who meet certain prespecified medical criteria and conditions) free of charge until Esbriet is commercially available in their country. The program is expected to continue for 12 months, by which time Esbriet is expected to be commercially available throughout Europe.

As regards Esbriet approval in the US, InterMune received a complete response letter (CRL) from the FDA in early May 2010, requesting data from an additional clinical trial before considering the regulatory approval of Esbriet. InterMune plans to conduct a late stage additional study (ASCEND) as requested by the FDA. The primary endpoint of the 52-week study will be forced vital capacity (FVC). The study is expected to begin in June 2011.InterMune will discuss further details of the study design and plans for resubmission of the new drug application (NDA) for Esbriet at its Analyst Day to be held at the end of this month.

Our Recommendation

We currently have a Neutral recommendation on InterMune which is supported by a Zacks #3 Rank (short term hold). We consider the EU approval of Esbriet as a major positive for InterMune. However, we prefer to remain Neutral until visibility improves on its US approval.

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