|Shares Out. (in M):||60||P/E||0||0|
|Market Cap (in $M):||235||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
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Infinity Pharmaceuticals (INFI)
This small biotech company has a data readout next week that could dramatically de-risk their lead drug and also reveal a tremendous market opportunity as a potentiating agent for checkpoint inhibitors (a >$25B annual revenue drug class).
At a PPS of $3.67, INFI has a market cap of ~$235 M. They have cash on hand of $34 million as of EOY 2020, with a $10 M quarterly burn. Their lead drug is called Eganelisib (Also known as IPI-549). Eganelisib is a first-in-class, oral, once-daily, immuno-oncology development candidate that selectively inhibits phosphoinositide-3-kinase gamma (PI3K-gamma). It is essentially designed to reprogram key immune suppressive cells (macrophages) from a pro-tumor function to an anti-tumor function. If it works, it should enhance the efficacy of other immuno-oncology agents such as checkpoint inhibitors (currently a >$25 Billion annual revenue category projected to increase to >$40 Billion per year by 2024).
Company History and Management
The company has been around for over 20 years, and has re-invented itself a few times along the way. They successfully developed a drug called duvelisib and sold off some of the rights, but since then duvelisib has not performed well, and the stock has languished. While a glance at the long term stock chart does not inspire confidence, they have generally been good at not diluting shareholders needlessly and focusing on the science. One excellent addition has been Brian Schwartz last year, who is now acting Chief Medical Officer. He was recently at Arqule, a company acquired by Merck for $2.7 billion, and is well respected in the field. His involvement is a positive indicator that the company’s science has potential.
Progress to Date
INFI has promising pre-clinical data supporting their mechanism of action for Eganelisib but for the sake of brevity I will focus on their clinical data to date, which is more material.
In December of 2020, INFI revealed early clinical data from their MARIO-3 study in triple-negative breast cancer (TNBC) and also from their partner Arcus Biosciences’ study in TNBC and ovarian cancer.
In MARIO-3, patients were enrolled on a combination of Atezolizumab (a checkpoint inhibitor), Nab-Paclitaxel and Eganalisib. The enrollment criteria matched that of a large randomized trial so they could use prior study results as a historical control. Response rates in the first 13 patients were 100% in the PD-L1+ patients (a biomarker for checkpoint eligible patients), 50% in PD-L1 low patients, and 69% overall. This compared favorably to the historical control of 56% overall response rate in patients treated with Nab-Paclitaxel and Atezolizumab. Perhaps more importantly, all the patients in the study showed some tumor reduction, and some showed deepening of responses over time. A “swimmers plot” of the responses follow (PR = partial response, CR = complete response). More data from this study will be forthcoming from this study in 1H 2021 and 2H 2021.
Mario-3 “swimmer’s plot”. Source: INFI Company Presentation
In December, early data was also presented by their partner, Arcus Biosciences, from another study, as can be seen in the chart below. The triplet arm tested with Eganelisib fared much better than the doublet arm without it, showing additional signs of activity from another study in a different patient population.
Source: INFI Company Presentation
INFI has shown evidence of activity in squamous cell cancer of the head and neck (SCCHN), and melanoma, in PD-1 refractory patients, in another study, but this data is more anecdotal so I will not dwell on it here.
INFI has also been enrolling a randomized, controlled trial of urothelial cancer patients called MARIO-275, and they have said in early January that interim results are “positive” and will be the basis on which they move to a pivotal trial. The stock has already appreciated based on this news, and the news from the studies reported in December, but I do not believe the market capitalization is at all reflective of the robust and compelling data they have generated to date. Importantly, I believe it is possible that the MARIO-275 data, when presented next week, could be a significant revaluation event. I will outline this further in the “Upcoming Catalyst” section below.
Given early activity from their current studies, INFI has said they will focus on PD-L1 low patients in a pivotal trial in urothelial cancer. This indication has about 26k patients in the US, and about 18k would be PD-L1 low. A 25% share of this would be >$500 M in peak sales in the US alone for Eganalisib assuming pricing of ~$125k per year.
TNBC is the next indication for INFI in terms of available proof of concept data. It has a poor prognosis and a prevalence of about 40k patients in the US alone. A 20% penetration at $125k per year would be >$800 M per year. This does not include EU or ROW.
Eganelisib also has shown activity in SCCHN, melanoma, and ovarian cancer. Their renal cell carcinoma data from a phase 2 study is due to read out in 2022. All of these other indications could dramatically expand the market opportunity.
Typically, biotech companies with promising therapies are valued at 3-5x their peak sales numbers at the time of launch. If we limit our valuation assessment to their two lead indications, INFI shows a $1.3 billion US peak sales opportunity. If you assume a launch valuation of $5 billion, time to launch of 4 years, and a discount rate of 15%, that would assume a fair valuation today of $2.5 billion with no technical risk. Adding in some dilution along the way, the current market valuation assumes about a 15% chance of success, which seems low considering the encouraging evidence we have seen thus far.
But that $1.3 billion peak sales number dramatically underestimates the overall opportunity, which could be all PD-1 low and PD-L1 low patients across numerous cancer types, arguably a >$5B peak sales opportunity in the US alone. Even this number could be conservative, as I will outline further in my “more reasons to be bullish” below.
On February 11th, Infinity will be presenting interim data from their controlled study in urothelial cancer. An abstract of this data may also be released earlier in the week, on February 8th. I believe this data could have a profound impact on sentiment because:
It is the largest clinical data set reported on Eganelisib to date, with 49 patients.
It is from a randomized, controlled trial, the gold standard in determining an efficacy signal in clinical studies.
They have already said it is positive, showing activity in PD-L1 negative patients, and supportive of moving to a pivotal trial.
My confidence in this catalyst is principally driven by the robust data we have seen to date, but it is also supported by management comments. As one key example, in the Q&A portion of the company’s recent JP Morgan presentation, management was pressed on “what would be a good result” for the MARIO-275 study. They had some comments on the totality of the data, and looking at Kaplan Meier curves, but what caught my attention is that management said they would need to “at least double the response rate” in PD-L1 patients from the control arm. From my perspective, a doubling of response rates in a randomized controlled study would be an exceptional result, and could garner a great deal of interest. Since management would have already seen the data at the time of the JP Morgan presentation, I find it hard to believe that they won’t hit this goal with their upcoming readout next week.
More Reasons to Be Bullish
The data collected so far across three studies shows a positive efficacy effect of Eganelisib, and the market is still assessing the probability of success to be extremely low, or otherwise not appreciating the huge market opportunity. The urothelial study is the only traditionally randomized controlled study of the three, so it is possible that when this data is revealed next week, the market will take notice. But beyond this, there are additional reasons to be bullish that may become apparent when the data is revealed or shortly thereafter:
Significant big pharma synergies: If Eganelisib is successful across a number of tumor indications, it should be able to garner billions of dollars in revenue, but what the market may not realize is that it will be used in combo with a checkpoint inhibitor in PD-1 / PD-L1 low patients, thereby also driving checkpoint inhibitor revenues in a population that previously would be ineligible. Thus whichever checkpoint is used in phase 3 studies with Eganelisib stands to also gain billions in revenue, while potentially shutting out competitive checkpoints from that indication. INFI can use this to its advantage to create a bidding war between big pharma heavyweights for access to Eganelisib. Importantly, Eganelisib is the only PI3K-gamma inhibitor in clinical development I am aware of. One could argue that being the checkpoint inhibitor of choice for INFI’s trials could be worth big pharma cutting a significant check regardless of any ownership rights gained for Eganelisib.
Eganelisib is an oral drug: Unlike many IV biologics, ease of administration will be a significant advantage, and it could rapidly expedite its adoption and penetration across multiple tumor indications.
Don’t forget about PD-1+, PD-L1+ patients: In theory, Eganelisib should also potentiate immuno-oncology therapies in these patients as well. In fact, although there were only 5 PD-L1+ patients in MARIO-3, all 5 on the triplet including Eganelisib responded to treatment. INFI is choosing PD-L1 low patients first as an easier target because patients have a higher unmet need, but there is no reason the drug could not also help ALL patients who are on checkpoints, doubling the market opportunity yet again.
This is a biotech company so safety and tolerability issue could arise in the data readout. However, after treating > 70 patients in studies to date this likelihood is low. INFI has already identified liver enzyme elevations at a higher dose in this study. They claim at the current lower dose they haven’t had the same issues, but there could be other tolerability issues that reduce the attractiveness of the drug, or the liver enzymes issue could become a problem in larger studies.
Another risk with INFI in the near term is a dilutive offering. If the price stays below $3.75 it may result in a requirement for some dilutive warrant issuances per an agreement with their largest shareholder, BVF. But if the stock is above that level, the warrant issuance is not required. Either way, the company needs capital, and it could be dilutive unless they are creative in carving out geographic rights or convincing Big Pharma to subsidize their future trials in exchange for checkpoint inhibitor revenue upside.
There is always a risk that competitive therapies supersede Eganalisib or limit the drug’s penetration. In this case, while there are no other PI3K-gamma inhibitors in clinical development, others could enter the field. In addition, the therapeutic landscape for checkpoint inhibitors and combination strategies is complex, and it is likely that other competitive combination approaches will come to market. However, it should be noted that some competition is accounted for in the cited penetration rates, and also in the extremely low technical success probabilities.
INFI’s current market valuation assumes only a ~15% chance of success in the two lead indications only, which seems low for a company with strong data across three studies, one of which is a phase 2 placebo controlled study. The valuation does not include 1) many other PD-1 / PD-L1 low cancer indications, which are also likely to work if the first do as we know from the mechanism of action and early clinical data. 2) PD-L1+ and PD-1+ patients, which we have seen early indications of efficacy 3) any Ex-US sales, which could be 0.5-1x more than the US alone, and 4) the synergy value of driving checkpoint additional checkpoint inhibitor sales, which could be worth up to another 1x the sales of Eganelisib. Given all this potential, it is not unreasonable to believe the company could be addressing a peak sales potential of >$5 billion and having a >$15B in valuation in a few years. It is my bet that the market begins waking up to this possibility next week.
Disclaimer: The information contained herein reflects the views of the author as of the date of publication. These views are subject to change without notice at any time subsequent to the date of issue. The author has an economic interest in the price movement of the securities discussed in this presentation, but the author’s economic interest is subject to change without notice. All information provided in this presentation is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any data presented. In addition, there can be no guarantee that any projection, forecast or opinion in this presentation will be realized. All trade names, trademarks, service marks, and logos herein are the property of their respective owners who retain all proprietary rights over their use. This presentation is confidential and may not be reproduced without prior written permission from the author.
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