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Why Investors Are Writing Off Infinity Pharma

The American Society of Hematology (ASH) annual meeting has come and gone as well as the pre-conference run up and post-conference sell-off.  As the dust settles, I want to touch on a company that had good data at ASH but whose stock price has gone from bad to worse: Infinity Pharmaceuticals (INFI - Get Report)

You may remember Infinity as having a tremendous run into ASCO this summer only to be relentlessly sold afterwards as their data raised questions about the rate and severity of treatment related infections.  ASH was their chance to alter the sentiment and start a new trend higher. While the data were fine, the stock continues down. Why?

By way of short background, Infinity's lead product IPI-145 is an oral PI3K delta/gamma inhibitor. It is being developed for the treatment of B-cell malignancies, among some other indications. If this sounds familiar, then you might be thinking about the Gilead Sciences (GILD - Get Report) drug, idelalisib, which is an oral PI3K delta inhibitor being developed for the treatment of B-cell malignancies.  The main difference between the two drugs is that IPI-145 inhibits both the gamma and delata isoform whereas idelalisib focuses on the delta isoform. Infinity believes that targeting both delta and gamma isoforms will give it the best in class.

The B-cell malignancy space is also more than Gilead as you have the elephant in the room of the recently approved ibrutinib, which is being marketed by Pharmacyclics (PCYC) and Johnson and Johnson (JNJ).  In addition, AbbVie (ABBV - Get Report) has ABT-199 in late stage development.  You can also toss in the CAR-T programs that are early but might be significant competition in years to come. While the space is likely large enough for multiple winners, the question that surrounds IPI-145 is whether it can carve out a space against such a large number of players and players with strong commercial experience.

Looking back to the beginning of 2013 it was thought that Infinity had the best in class PI3K inhibitor and the development lead held by Gilead could be overcome with better efficacy. ASCO threw a giant wrench in that thesis as many started to worry about the higher rates of serious infections (although this is another story as the rates were similar to idelalisib.)  Regardless of whether the rates were higher or not, the fact was IPI-145 was no longer seen as a clearly better drug. Thus the development lead of Gilead became a much larger hurdle.

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ASH was the chance to present additional data that highlighted both the improved efficacy of IPI-145 and allay concerns over the rate of infections. Given the extremely negative sentiment, this seemed like a good contrarian bet (assuming good data). In many ways, IPI-145 held up its end of the bargain as the data were fine but the stock continues to sell. Why?

The issue was that many saw the data as good as, but not obviously better than, idelalisib. The consensus was that it was not nearly enough to overcome the development lead and commercial experience of Gilead. As such, sentiment went beyond negative.  How can sentiment move beyond extremely bearish? It moves into indifference and that was what I detected at ASH. People wrote off IPI-145.

The contrarian in me likes such an extreme but it all comes down to Infinity's business development plan. It seems unlikely that IPI-145 will be able to successfully compete against ibrutinib, idelalisib, ABT-199 and the commercial experience that backs all of those drugs. That being said a running theme at the conference was the belief that the future treatment paradigm will involve combinations. This is where Infinity might be able to salvage the situation.

These combinations are expected to increase the already impressive efficacy of the new B-cell malignancy drugs. The problem for the companies, however, is economics, i.e. they want it all for themselves. For instance, idelalisib is usually combined with Rituxan, which means that Gilead and Roche have to split the economics.  What if Gilead had its own anti-CD20 compound or Roche its own PI3K inhibitor?  In these cases, the company could reap all of the economics. So if the future is combinations, it could be that the larger players will want access to drugs in each of the major classes. This ultimately means there can be multiple winners in each class.

There will obviously be a best in class anti-CD20, PI3K drugs, and so on but would a company need to own the best in class to have an effective combination? I do not think so. As such, IPI-145 as a standalone drug might have a difficult future but it certainly has value to larger companies that want fully in-house combinations.   Ultimately this means there is a path forward for Infinity and IPI-145 but it all comes down to their business development plans and willingness to partner the drug.

Long story short is that Infinity can still be a turnaround play. It might not happen soon but I would keep an eye on how the company talks about development plans as going it alone would be difficult but partnering offers a chance at significant value creation from these levels.

Sobek has no position in Infinity.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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