Sitting atop the Russell 2000 Index was a surprising name at the
end of December - biotechnology company
InterMune (Nasdaq: ITMN).
The stock finished out the month with a 190 percent return. Much of
that came in trading on December 17, when the biotech gained an
eye-popping 145 percent in a single day, pushing the company's
market capitalization past $1.8 billion.
Credit the jump to good news coming out of European operations
that hadn't been expected until sometime in early 2011.
The European Medicines Agency's Committee for Medicinal Products
for Human Use, or CHMP, recommended the approval of the company's
experimental drug to treat a fatal lung disease, called idiopathic
pulmonary fibrosis (
). That is expected to lead to overall European regulatory approval
in the first quarter of the year.
Suddenly, a beaten-down company looked much better to investors
-- and it could still be worth consideration. That said, remember
that biotech stocks are among the most volatile in the market, so
make sure you do your research and are comfortable with big swings
in stock price if you buy them.
***InterMune develops niche drugs for diseases affecting the
lungs, such as IPF, and the liver. It's banking on its new
experimental drug, Esbriet (the commercial name for pirfenidone) to
become its billion-dollar baby. No effective treatment of IPF
Investors who got in on InterMune early in 2010 have enjoyed a
179 percent return - but also endured a stomach-churning year of
major rallies and drops. InterMune fell 75 percent after the U.S.
Food and Drug Administration snubbed an advisory panel's
recommendation to approve Esbriet last May. This week, the company
said it would start a late-stage Phase 3 trial of the drug in the
first half of the year.
InterMune is taking what's known as an orphan drug and
developing it (including the risky, time-consuming and expensive
trials) in the hopes of bringing an abandoned compound to market.
Orphans also gain a seven-year exclusivity period once approved.
The drug is already being sold in Japan by a partner, but drug
makers usually find that it's much more difficult to pass muster
with European and U.S. regulators.
CEO Dan Welch told Dow Jones Newswires that InterMune expects to
go it alone when marketing Esbriet in Europe, where there are an
estimated 110,000 patients with IPF. Expansion plans also include
the U.S. There are a similar number of patients in the U.S., with
30,000 new cases diagnosed annually. InterMune says that IPF is
more prevalent than ovarian cancer and is equal to all types of
That's why the company is suddenly becoming a darling of Wall
Street analysts. Following the news out of Europe, InterMune picked
up two buy recommendations, one upgrade to buy and a previous buy
recommendation reiterated. Baird put a 12-month price target of $47
on InterMune, 34 higher than the current stock price. A Wedbush
analyst also suggested that InterMune could become a takeover
Gilead Sciences (Nasdaq: GILD),
The company hopes to surprise investors when it reports year-end
results in early February by reporting a profitable fourth quarter.
Analysts surveyed by Thomson Reuters think InterMune will provide
$0.33 earnings per share, which could help cut the full-year loss
Last month's European recommendation goes a long way towards
putting Esbriet back on track after getting derailed by the
I agree with the analysts who are bullish on InterMune, but warn
that the downside here is also significant if things don't pan out
with Esbriet. But if Esbriet makes it to market in Europe, I
wouldn't be surprised to see another sudden surge is share price.
And if the company's newest clinical trial proves effective, the
FDA could issue its approval. This could give the stock another