| InterMune [NSDAQ:INTM] jumps $5 today (11%) from Friday's close |
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| Biotechnology Companies | |||
| Written by Hugh McManus | |||
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InterMune jumped 7% today, most likely in anticipation of the PDUFA decision tomorrow on pirfenidone. I thought the company could do well this week, but not so soon! There's never a guarantee that the FDA will actually announced the news on the PDUFA deadline--in at least 30% of recent cases, the FDA has delayed the decision--sometimes by months--without too much in the way of meaningful comment. For a drug that has an admittedly small patient population, 100,000 in the US, but that is signaling a hefty annual charge for the therapy--between $20k to $30, the stock has really taken off. Normally, estimating a patient population of 5% of the total affected doesn't trigger too many objections. Realistically, InterMune may get as many as 20% since there's no competing therapy. That percentage would give a patient population of 20,000 or more for the treatment, meaning it would have annual revenues of between $400 to $600 million. Not bad. It's not a blockbuster either, but it is a very healthy top line for the company. The best time to get involved with a company such as ITMN is early. There is more risk, but understanding market is key to profiting in biotech. Pirfenidone had some factors that reduced risk: approval elsewhere, Japan, and orphan drug status for a painful and fatal disease that doesn't have a therapy. Tomorrow holds a lot of unknowns: will the FDA make a decision on the PDUFA date? Will InterMune get the full marketing approval it requested? Will the FDA turn down the application or ask for more phase III data? Chances are that approval will be granted and the run up suggests that others agree. The worst that could likely happen is that more data would be requested; rejecting the application is possible but unlikely. Given the uncertainty surrounding this drug, perhaps the best way to play InterMune would normally be with a straddle; however, as pricy as things looked on Friday, the options pricing is even worse today. A $40 May put is $7.10—not much difference than a $48 put priced at $8.80. Even a $30 put is expensive at $4.00. Someone is getting insurance against bad news tomorrow. A $49.00 call is priced at $9.60; however, $60 is priced at $4.00—downside is covered here. The lesson I am taking from the InterMune story is what I said previously: get in early, particularly if there is some bad news with the company. There were opportunities to buy this company much earlier, before it got to the PDUFA deadline. In that time, the news hasn't changed much, but time has moved on and, apparently, more people have noticed InterMune.
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