Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ITMN > SEC Filings for ITMN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for INTERMUNE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for INTERMUNE INC


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the Report) contains certain information regarding our financial projections, plans and strategies that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve substantial risks and uncertainty. You can identify these statements by forward-looking words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "could," "should," "continue" or the negative of such terms or similar words or expressions. These forward-looking statements may also use different phrases.

We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include, among other things, statements which address our strategy and operating performance and events or developments that we expect or anticipate will occur in the future, including, but not limited to, statements in the discussions about:

• product and product candidate development;

• the market or markets for our products or product candidates;

• the ability of our products to treat patients in our markets;

• the ability to achieve certain pricing and reimbursement levels for our product in various countries in the European Union and elsewhere;

• timing and expectations of the timing of enrollment in our ASCEND clinical trial, expected enrollment completion dates and announcement of clinical results from our ASCEND clinical trial;

• timing and expectations of when our products or product candidates may be marketed or made available to patients in various jurisdictions;

• opportunities to establish development or commercial alliances;


Table of Contents
• commercial launch preparations, including the timing of launches in the various European Union jurisdictions and the implementation of the infrastructure required for the commercial launches;

• the scope and enforceability of our intellectual property rights, including the anticipated durations of patent protection and marketing exclusivity in the European Union, United States and other jurisdictions, and including claims that we or our collaborators may infringe third party intellectual property rights or otherwise be required to pay license fees and or royalties under such third party rights;

• our expectations regarding the complaint Shionogi filed against us alleging principally that we breached our agreement with Shionogi governing the exchange and use of certain documents and information relating to the parties' respective clinical trials of pirfenidone;

• governmental regulation and approval;

• requirement of additional funding to complete research and development and commercialize products;

• liquidity and sufficiency of our cash resources;

• future revenue, including those from product sales and collaborations, adequacy of revenue reserve levels, future expenses, future financial performance and trends;

• our future research and development expenses and other expenses; and

• our operational and legal risks.

You should also consider carefully the statements under the heading "Risk Factors" below, which address additional factors that could cause our results to differ from those set forth in the forward-looking statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in this Report, including those discussed in this Report under the heading "Risk Factors" below. Because of the factors referred to above, as well as the factors discussed in this Report under the heading "Risk Factors" below, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. When used in the Report, unless otherwise indicated, "InterMune," "we," "our" and "us" refers to InterMune, Inc. and its consolidated subsidiaries.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur periodically, could materially change the financial statements. We believe there have been no significant changes during the nine month period ended September 30, 2012 to the items that we disclosed as our critical accounting policies and estimates under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2011.


Table of Contents

Company Overview

We are a biotechnology company focused on the research, development and commercialization of innovative therapies in pulmonology and orphan fibrotic diseases. We have an advanced-stage product candidate in pulmonology, pirfenidone, that was granted marketing authorization effective February 2011 in all 27 member countries of the European Union ("EU") for the treatment of adults with mild to moderate idiopathic pulmonary fibrosis ("IPF"). Pirfenidone has since been approved for marketing in Norway, Iceland and, most recently as of October 2012, in Canada.

On June 19, 2012, we completed the divestiture of our worldwide development and commercialization rights to the pharmaceutical product containing Interferon Gamma-1b sold by us under the tradename Actimmuneฎ for $55.0 million in cash, plus certain conditional royalty payments for a period of two years following the closing. Such divestiture was consummated pursuant to the terms of the Asset Purchase Agreement, dated as of May 17, 2012, that we entered into with Vidara Therapeutics International Limited, an Irish company, Vidara Therapeutics Holdings LLC, a Delaware limited liability company and Vidara Therapeutics Research Limited, an Irish company. The operating results of our Actimmune activities have been reclassified as discontinued operations for all periods presented.

Pirfenidone (Esbrietฎ)

Pirfenidone is an orally active, small molecule compound under development for the treatment of idiopathic pulmonary fibrosis. In September 2011, we launched commercial sales of pirfenidone in Germany under the trade name Esbriet ฎ, and Esbrietฎ is now also commercially available in Austria, Denmark, Iceland, Luxembourg, Norway and Sweden. We are continuing to prepare for the commercial launch of Esbriet ฎ in the other countries in the EU as well as in Canada where we expect to make Esbriet available by January 1, 2013. On September 11, 2012, we announced that we were granted reimbursement for Esbriet in France wherein we expect to commence commercial launch in the second half of November 2012. In addition, we have been granted reimbursement in Belgium, effective December 1, 2012, and plan to launch Esbriet there in early 2013. With respect to Italy, subject to EU country reimbursement timelines, we currently expect to conclude the pricing and reimbursement process in December 2012 and to launch Esbriet in Italy as soon as practicable after the process is successfully concluded and various authorizations are secured. With respect to Spain, considering a Royal Decree introduced in 2012 affecting health care expenditures and pharmaceuticals and the continuing economic challenges of the country, we currently anticipate that a decision regarding pricing and reimbursement of Esbriet in Spain will occur in the first half of 2013. Furthermore, we currently plan to conclude the discussions with the authorities in the United Kingdom in the first quarter of 2013, and, depending on the outcome of such discussions, make Esbriet available in the United Kingdom as soon as practicable thereafter if appropriate. In addition to launches in the remaining so called "Top 5" EU countries, we expect to launch Esbriet in the Netherlands, Finland and Ireland in the first half of 2013 assuming that acceptable pricing and reimbursement conditions are negotiated in these countries.

To support our commercialization efforts of Esbriet in Europe, we have invested significantly and continue to invest in the establishment of a commercial infrastructure within the EU, including an increase to our employee headcount in that region. On December 17, 2010, we announced several additions to our senior leadership team in support of our commercialization efforts as well as announcing the establishment of our European headquarters in Reinach, Switzerland, subsequently moved to Muttenz, Switzerland in early 2012. In December 2010, we transferred all of our non-U.S. rights to research, develop and commercialize pirfenidone for IPF to our wholly-owned Swiss subsidiary, InterMune International AG. Based on our current intellectual property portfolio, we expect to have exclusive rights to sell pirfenidone within the European Union through 2030.

We are also pursuing the registration of pirfenidone to treat IPF in the United States. After reviewing various regulatory and clinical development options and following our discussions with the United States Food and Drug Administration ("FDA"), we commenced an additional pivotal Phase 3 clinical study of pirfenidone in IPF in July 2011, known as the ASCEND trial. The results of the ASCEND trial are expected to supplement the existing Phase 3 clinical study data from our CAPACITY clinical trials to support the registration of pirfenidone to treat IPF in the United States. We expect to complete clinical enrollment of the ASCEND trial around the end of 2012 and that results from the study will be available in the first half of 2014.

Results of Operations

Revenue

Total revenue was $7.5 million and $0.1 million for the three-month periods ended September 30, 2012 and 2011, respectively. For the nine-month periods ended September 30, 2012 and 2011, total revenue was $18.0 million and $2.7 million, respectively, representing an increase of 567%. Revenue for the three- and nine-months ended September 30, 2012 consists solely of Esbriet product sales, primarily in Germany, following the launch in that country in September 2011. Revenue for the three- and nine-month periods ended September 30, 2011 consists of Esbriet product sales and collaboration revenue from Roche as a reimbursement for research services performed.


Table of Contents

Cost of goods sold

Cost of goods sold included product manufacturing costs, distribution costs, inventory write-downs and amortization of acquired product rights. Cost of goods sold were $2.0 million and $0.4 million for the three-month periods ended September 30, 2012 and 2011. For the nine-month periods ended September 30, 2012 and 2011, total cost of goods sold were $6.2 million and $0.4 million, respectively. Cost of goods sold for the three- and nine-months ended September 30, 2012 and 2011 consists solely of costs related to Esbriet.

Research and development expenses

Research and development (R&D) expenses were $26.2 million and $17.0 million for the three-month periods ended September 30, 2012 and 2011, respectively, representing an increase of $9.2 million, or 54%. R&D expenses were $74.6 million and $54.0 million for the nine-month periods ended September 30, 2012 and 2011, respectively, representing an increase of $20.6 million, or 38%. The increases primarily reflect the commencement of the ASCEND trial in July 2011.

The following tables list our current product development programs and the research and development expenses recognized in connection with each program during the indicated periods. The category title "Programs-Non-specific" is comprised of facilities and personnel costs that are not allocated to a specific development program or discontinued programs, and $3.5 million and $4.5 million of stock-based compensation in 2012 and 2011, respectively. Our management reviews each of these program categories in evaluating our business. For a discussion of the risks and uncertainties associated with developing our products, as well as the risks and uncertainties associated with potential commercialization of our product candidates, see the Risk Factors below including those under the headings "Risks Related to the Development of Our Products and Product Candidates."

The following chart shows the status of our product development programs as of September 30, 2012:

                                                 Preclinical        Phase I     Phase II      Phase III
Pulmonology
Pirfenidone - Idiopathic pulmonary fibrosis                                                            X *
Hepatology**
Next generation protease inhibitors                         X
NS5A inhibitors                                             X

Our development program expenses for the nine-month periods ended September 30, 2012 and 2011 were as follows (in thousands):

                                               Nine Months Ended
                                                 September 30,
                   Development Program         2012          2011
                   Pulmonology               $  58,794     $ 34,271
                   Hepatology**                     -         2,668
                   Programs - Non-specific      15,759       17,028

                   Total                     $  74,553     $ 53,967

* Granted marketing authorization for Esbriet in the European Union effective February 2011.

** No further investments in hepatology are planned.

Historically, the largest component of our total operating expense was our ongoing investment in research and development and, in particular, the clinical development of our product pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA requirements for a new human drug to be marketed in the United States include:

• the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the product's safety;

• the submission of an IND with the FDA to conduct human clinical trials for drugs;


Table of Contents
• the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and

• the submission by a company and acceptance and approval by the FDA of an NDA or BLA for a drug product to allow commercial distribution of the drug.

In light of the factors mentioned above, we consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these factors, it is difficult to give accurate guidance on the anticipated proportion of our research and development investments or the future cash inflows from these programs. In addition, due to these same factors and others, we are unable to reasonably estimate the efforts needed and, therefore, the costs we will incur to complete any of our projects or the estimated time to complete such projects. We are also unable to provide costs incurred for specific research and development projects within each major development program as well as the cumulative costs incurred to date given that we do not maintain specific financial records to this level of detail. However, a substantial majority of our resources have been invested in our pirfenidone project and, prior to our divesture, former danoprevir project in order to advance them into Phase 3 and Phase 2 clinical development, respectively. The remaining projects within our hepatology research programs are dormant and no longer receive any funding.

The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and overall safety and efficacy profile as ultimately decided upon by the FDA. Due to these factors, we believe it is difficult to give accurate guidance on the anticipated proportion of our research and development investments or the future cash inflows from these programs. In addition, due to these same factors and others, we are unable to reasonably estimate the efforts needed and, therefore, the costs we will incur to complete any of our projects or the estimated time to complete such projects.

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses were $23.8 million for the three-month period ended September 30, 2012 and $23.7 million for the same period in 2011. SG&A expenses were $75.7 million for the nine-month period ended September 30, 2012 and $62.7 million for the same period in 2011, an increase of $13.0 million, or 21%. The increased spending for the nine-month period ended September 30, 2012 compared with the same period in 2011 is attributed to the creation of our European infrastructure and investments in the pre-commercial launch and commercial launch of Esbriet in Europe, including but not limited to additional headcount.

Interest income

Interest income was $0.1 million for the three-month period ended September 30, 2012, compared to $0.1 million for the three-month period ended September 30, 2011. Interest income was $0.5 million for the nine-month period ended September 30, 2012 and $0.4 million for the same period in 2011. The slight difference reflected modest yields on our cash and short-term investments resulting from our conservative investment portfolio.

Interest expense

Interest expense increased to $2.0 million in the three-month period ended September 30, 2012 from $1.3 million for the three-month period ended September 30, 2011. Interest expense also increased to $6.5 million in the nine-month period ended September 30, 2012 from $4.2 million for the nine-month period ended September 30, 2011. These increases are the result of our issuance in September 2011 of $155.3 million aggregate principal amount of 2.5% convertible senior notes due 2018.

Discontinued operations

The $51.3 million gain from discontinued operations reflects the divestiture of our worldwide development and commercialization rights to Actimmune for $55.0 million in cash, partially offset by transaction costs and the value of inventory. The components of the income from discontinued operations include Actimmune revenue, net, as well as cost of goods sold and certain specific general and administrative costs for each of the three- and nine-month periods ended September 30, 2012 and September 30, 2011.


Table of Contents

Liquidity and Capital Resources

At September 30, 2012, we had available cash, cash equivalents and available-for-sale securities of $351.4 million compared to $425.1 million at December 31, 2011. The decrease of $73.7 million was primarily driven by the use of cash for our operations, partially offset by the $55.0 million in proceeds received from our divestiture of Actimmune in June 2012. In addition, in September 2011, we completed a registered underwritten public offering of 4.6 million shares of our common stock and a concurrent registered underwritten public offering of $155.3 million aggregate principal amount of 2.5% convertible senior notes due 2018. The aggregate net proceeds from these concurrent offerings were approximately $255.0 million. The proceeds from these offerings and our Actimmune divestiture are being used to support the establishment of our EU commercial infrastructure and the commercial launch of Esbriet in the EU, conducting our ASCEND trial as well as for general working capital purposes. We believe that our existing cash, cash equivalents and available-for-sale securities as of September 30, 2012, together with anticipated cash flows from sales of Esbriet will be sufficient to fund our operating expenses, debt obligations and capital requirements under our current business plan through at least the next 12 months. Some of these available cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our core operating accounts. The invested cash is invested in interest bearing funds managed by third party financial institutions. We can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. In addition, at any point in time we could have balances that exceed the Federal Deposit Insurance Corporation insurance limits. While we monitor the cash balances in our operating accounts on a regular basis, these cash balances could be impacted and we may be unable to access our cash if the underlying financial institutions fail or if we become subject to other adverse conditions in the financial markets. To date we have not experienced a lack of access to cash in any of our third party financial institution accounts.

The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. federal and state governments and their agencies and high-quality corporate issuers, and, by policy, restrict our exposure by imposing concentration limits and credit worthiness requirements for all corporate issuers.

Operating Activities

Cash used in operating activities was $128.3 million during the nine-month period ended September 30, 2012, comprised primarily of a net loss of $91.5 million and an increase in inventories of $4.6 million, primarily consisting of purchases and production of Esbriet inventory. Details concerning the loss from operations can be found above in this Report under the heading "Results of Operations."

Investing Activities

Cash provided by investing activities was $44.0 million during the nine-month period ended September 30, 2012, comprised primarily of proceeds from the divestiture of Actimmune, as well as sales and maturities of available-for-sale securities of $302.8 million, partially offset by purchases of $311.3 million of available-for-sale securities.

Financing Activities

Cash provided by financing activities of $2.1 million for the nine-month period ended September 30, 2012 was due to the issuance of stock to our employees under our employee benefit plans.


Table of Contents

We expect to incur net losses in the near term as we continue our commercialization and commercial launch activities in the EU, continue the development of pirfenidone for approval in the United States with the ongoing ASCEND study, continue our research in the area of orphan fibrotic diseases, and continue to grow our operational capabilities. We believe that our existing cash, cash equivalents and available-for-sale securities as of September 30, 2012, together with anticipated cash flows from sales of Esbriet will be sufficient to fund our operating expenses, debt obligations and capital requirements under our current business plan through at least the next 12 months. This forward-looking statement involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed under "Item 1A. Risk Factors." This forward-looking statement is also based upon our current plans and assumptions, which may change, and our capital requirements, which may increase in future periods. Our future capital requirements will depend on many factors, including, but not limited to:

• capital requirements related to our commercialization and commercial launch activities of Esbriet for the European Union jurisdictions, including the expansion of our commercial infrastructure and related personnel and facility expenses;

• the timing and financial requirements of the ongoing Phase 3 clinical study of pirfenidone in the U.S. (ASCEND);

• sales of Esbriet or any of our product candidates in development that receive commercial approval;

• pricing and reimbursement decisions from third-payors for Esbriet, particularly state-run payors in the EU;

• our ability to partner our programs or products;

• the progress of our research and development efforts;

• the scope and results of preclinical studies and clinical trials;

• the costs, timing and outcome of regulatory reviews;

• determinations as to the commercial potential of our product candidates in development;

• the costs, timing and outcome of our legal proceeding with Shionogi;

• the pace of expansion of administrative expenses;

• the status of competitive products and competitive barriers to entry;

• the establishment and maintenance of manufacturing capacity through third-party manufacturing agreements;

• the establishment of collaborative relationships with other companies;

• the payments of annual interest on our long-term debt; and

• the timing and size of payments we may receive from potential collaboration agreements.

As a result, we may require substantial additional capital and may attempt to . . .

  Add ITMN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ITMN - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.