Washington Editor

InterMune Inc. agreed to hand over $10.4 million to shareholders to settle a 2-year-old class-action lawsuit.

The litigation, still pending in the U.S. District Court for the Northern District of California, charged the company and two former executives with securities fraud. Plaintiffs alleged that InterMune and its past CEO and chief financial officer had falsely projected sales forecasts two years ago for one of its products, Actimmune (interferon gamma-1b). Representatives of the company declined to comment specifically on the decision to settle the suit, as did the plaintiffs' lawyers at Goodkind Labaton Rudoff & Sucharow LLP in New York.

But Richard Joffe, a lawyer at Goodkind Labaton Rudoff & Sucharow, said the complaint alleges that much of the product's sales were generated by its off-label use for idiopathic pulmonary fibrosis. When the Brisbane, Calif.-based company revised its guidance downward, and admitted that it had overstated the number of patients using the drug, its stock lost a third of its value in a single trading day to close at $16.74. (See BioWorld Today, June 13, 2003.)

That prompted the original lawsuit, which was filed two weeks later.

"The way that the market concludes as to what InterMune's future revenues would be is based on how many patients they have," Joffe told BioWorld Today, adding that the complaint alleges a year's worth of Actimmune prescriptions cost $50,000. "After the initial [misstated patient number] announcement, the stock price went way up, and after the correction it went way down. In addition to that, we've alleged that they've made other misleading statements."

Among the allegations are charges that the company actively promoted Actimmune's off-label use for idiopathic pulmonary fibrosis. According to its FDA label, the human protein is indicated for reducing the frequency and severity of infections associated with chronic granulomatous disease, as well as for delaying time to disease progression in patients with severe, malignant osteopetrosis.

Nevertheless, the company has said that the drug's off-label use accounts for most of its sales. According to its latest quarterly report for the period ended March 31, Actimmune accounted for about 77 percent of InterMune's $36.1 million in three-month product revenues. Substantially all of those revenues, the company added, were derived from off-label prescriptions for idiopathic pulmonary fibrosis.

The drug is in Phase III studies to expand the label and include that indication.

In exchange for the settlement money, the defendants will receive a complete release of claims in the securities lawsuit.

The settlement, which is being funded in large part by InterMune's primary insurance carrier, remains subject to a number of conditions, including the signing of a definitive agreement and final court approval. Joffe said his firm probably would file the settlement papers with the court within a few days, after which the public can obtain the agreement documents.

As a result of the resolution, InterMune is including about $2 million of selling, general and administrative expense to its first-quarter financial results to reflect the potential cost of the legal action.

Other lawsuits against the company are continuing, including a derivative suit with similar securities fraud allegations, a government investigation into alleged sales promotions for off-label use, as well as a wrongful termination suit filed by a former sales representative.

On Tuesday, InterMune's shares (NASDAQ:ITMN) lost 6 cents to close at $11.05.