UBS Securities analyst Matthew Harrison initiated coverage of InterMune Inc. (NASDAQ:ITMN) with a "Neutral" rating and $13.50 price target.
Harrison likes InterMune's focus on orphan drugs as these markets generally yield high prices, data exclusivity and motivated patients. However, the continued uncertainty over EU pricing keeps him on the sidelines.
The analyst believes Esbriet, InterMune's product for Idiopathic Pulmonary Fibrosis (IPF), can be a $500 million drug even with an additional 15% price cut, but greater cuts would represent potential downside to his estimates.
Harrison models a blended pan-EU price which consists of an additional 15% price cut in Germany, a 20% price cut from the current German ex-factory price of 36,000 euros for France, Spain and Italy and a UK price equal to his assumed pan-EU price.
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While the analyst believes the recent German/France action puts somewhat of a floor on pricing, his EU reimbursement consultant believes negotiated pricing could be from 0-30% below current pricing. He does not model any US Esbriet sales. While he believes management has done the best it can to set up ASCEND for success, he still has concerns.
Based on January/February German IMS sales (about 10% sequential growth), BIBF 1120 enrollment and December IQWiG decision, the analyst sees limited Q1-2012 adds and expects a second half of 2012 rebound.
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While Harrison expects the stock to trade around quarterly revenue and be range-bound into year-end pricing clarity, he views the recent decline as an overshoot, and while he sees many positives in the ITMN story, current pricing uncertainty keeps him on the sidelines.
The brokerage introduced its 2012 loss per share estimate of $3.12, its 2013 loss estimate of $2.40 and its 2014 loss estimate of $0.73.
ITMN closed Thursday's regular trading up 0.97% at $11.99.