InterMune Inc.
(
ITMN
) recently priced its concurrent underwritten public offerings of
convertible senior notes and shares of its common stock,
announced earlier this week. InterMune has agreed to sell its
2.5% convertible senior notes (due 2017) of around $105 million
along with 13.5 million shares of its common stock at $9.90 per
share.
InterMune said that the initial conversion rate for the 2.5%
senior notes will be 77.7001 shares of common stock per $1,000
principal amount. This is equivalent to an initial conversion
price of about $12.87 per share and represents a 30% premium to
the pricing of the concurrent stock issue.
Underwriters will have 30-day options to purchase an
additional $15.8 million aggregate principal amount of
convertible senior notes plus up to 2 million shares of common
stock. InterMune expects to raise around $228.1 million from the
concurrent offerings after adjusting underwriting discounts,
commissions and other expenses.
We note that InterMune exited the third quarter of 2012 with
outstanding 5.00% convertible senior notes (due 2015) of $84.1
million. The company expects to use the net proceeds from the
offerings to repay its outstanding convertible senior notes.
Holders of 5.00% convertible senior notes may allow InterMune to
repurchase around $50 million of the 2015 convertible notes.
Moreover, InterMune also intends to use the funds for
Esbriet's (pirfenidone) commercialization. The company is looking
to fund the ASCEND trial on Esbriet in the US from the proceeds.
The company may use a part of the funds raised for other
corporate purposes as well. InterMune also has plans to spend a
portion of its net proceeds for capital expenditures,
acquisitions or other investments.
We remind investors that the company expects total operating
expense of $245-$285 million in 2013, including R&D expense
of $100-$120 million and SG&A expense of $145-$165
million.
Our Recommendation
We believe Esbriet has significant commercial potential as it
targets idiopathic pulmonary fibrosis (IPF), which is an orphan
indication. Though Esbriet is the only approved medicine for IPF,
companies like
Novartis
(
NVS
),
Sanofi
(
SNY
) and
Celgene Corporation
(
CELG
) are developing candidates for IPF treatment. We are concerned
about the fact that InterMune is dependent on a single product
for growth.
We currently have a Neutral recommendation on InterMune. The
stock carries a Zacks Rank #3 (Hold). Meanwhile other pharma
stocks such as
Targacept Inc.
(
TRGT
) carry a Zacks Rank #1 (Strong Buy).
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