The news drove InterMune's stock up as much as 11 percent on Thursday and closed up 10 percent at $15.28 on the Nasdaq.

The recommendation by the Transparency Commission of the French National Health Authority comes after a German reimbursement body last month ruled that Esbriet provided additional benefit to patients suffering from lung scarring.

The company's stock has gained 22 percent since the start of the year even as concerns linger over the drug's approval in the United States, where regulators rejected it in May 2010 asking for more efficacy data.

The drug -- which has an "orphan drug" status in Europe -- is being tested for its safety and efficacy in a late-stage trial in the United States, as the company seeks to re-submit its marketing application. Orphan drugs are those approved for the treatment of rare medical conditions.

InterMune said French authorities granted Esbriet an Amelioration du Service Medical Rendu (ASMR) rating of level IV, which means the drug has added clinical value in comparison with existing therapies.

"Once you get this kind of rating ... you can potentially be in a good position for pricing negotiations," William Blair & Co analyst Katherine Xu told Reuters.

Reimbursement of drugs has become a contentious issue in France over the last few years, as the country, which has one of the costliest healthcare systems in the world, cuts back on spending as part of its deficit reduction measures.

The Transparency Commission has not recommended reimbursement in 32 percent of all its new product appraisals since early 2011, according to InterMune.

The company said it is optimistic about concluding "successful negotiations" with the French government to make Esbriet available to patients in the country "as soon as possible."

Analyst Xu said the drug could target two-thirds of the 100,000 patients in Europe suffering from the condition.

Esbriet, which won European regulatory approval in March 2011, is indicated for the treatment of idiopathic pulmonary fibrosis -- the scarring or thickening of the lungs without a known cause.

(Reporting by Zeba Siddiqui in Bangalore; Editing by Viraj Nair)

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