Why Buyers Sent Infinity 550% Higher In The Last Year Print E-mail
By Brian Wilson, Lead Contributor   
Friday, 22 February 2013 08:53

Infinity Pharmaceuticals (NASDAQ: INFI) has been on an absolute tear during the last year, moving up 550% in share price on the company’s most recent developments.

This week alone, the stock moved up over 20% on a bullish note released by Morgan Stanley, citing the market prospects and potential pricing power of the company’s pipeline. The firm gave INFI an overweight rating, which seemed to excite the market quite a bit due to the fact that the stock has already been such a good performer.

 

If you consider Infinity’s current valuation, which has now reached $1.6 billion, you can see that there is quite a bit of confidence in the company’s two phase II drugs.

IPI-145 can be considered their flagship product, and is an inhibitor of delta and gamma phosphoinositide-3-kinases (PI3K). This drug is being developed for quite a few indications, including hematologic malignancies (blood cancers), asthma, and rheumatoid arthritis. What makes this one especially exciting is the fact that IPI-145 is the only P13K-delta and P13K-gamma inhibitor currently in development, which means that we could see unique results.

The company’s other potential blockbuster is Retaspimycin HCl (IPI-504), a potent Hsp90 inhibitor which is being developed as a treatment for non-small cell lung cancer (NSCLC). Infinity will be combining this treatment with docetaxel therapy as a standard NSCLC treatment for heavy smokers, and will be evaluating their Hsp-90 inhibitor as a go-to treatment for NSCLC patients with the KRAS mutation.

Although both development programs hold plenty of potential down the road, it seems that investors have been especially enthusiastic about recent developments in the IPI-145 development program. On December 10th 2012, phase I data for the drug presented at the 2012 American Society for Hematology meeting showed that the drug had activity in B-cell and T-cell malignancies. This could be a big deal for Infinity, since IPI-145 is a unique drug in terms of its mechanism of action that is now poised to target some very large and profitable indications like mantle cell lymphoma, chronic lymphocytic leukemia, and others.

Although it will be quite a long wait, this is certainly a development program that should be watched. The question is whether or not Infinity has gotten too expensive to buy in the short run.

There is one catalyst in the near-term that could propel shares much higher, which is the release of Retaspimycin HCl’s Phase II data non-small cell lung cancer data in H1 2013, which could shift some attention back to this drug and its substantial potential.

Later on in the year, we should be seeing asthma data for IPI-145 too.

Ultimately, it still seems like the real market prospects of this company will be centered around IPI-145’s sales potential in the blood cancers. This is a huge market (roughly $22 billion in annual revenues), and has spawned a few blockbuster drugs. One prominent example is Novartis’ (NYSE: NVS) Gleevec for CML, which will be consistently generating $3-4 billion until expiration.

If we consider that Infinity’s PI3K inhibitor has major potential in the blood cancer drug market due to its mechanism of action, we can already justify the bulk of Infinity’s valuation although it’s also important to factor in how early IPI-145 is in development for this indication in particular. Although this drug has a decent shot at becoming a blockbuster, upside has been limited because of the extreme optimism surrounding the development program right now.

Although the company got a lot more expensive in the last year, I think Infinity might a potential acquisition target by one of the larger pharmaceutical companies. They hold the worldwide commercialization rights to potential multi-billion dollar drug IPI-145, and are now only liable for a few milestone payments to Millenium  Pharmaceuticals. This is a very comfortable position that keeps substantial future value locked into INFI.




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