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INFINITY PHARMACEUTICALS, INC. Reports Operating Results (10-Q)

August 04, 2010 | About:

10qk

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INFINITY PHARMACEUTICALS, INC. (INFI) filed Quarterly Report for the period ended 2010-06-30.

Infinity Pharmaceuticals, Inc. has a market cap of $153.1 million; its shares were traded at around $5.89 with and P/S ratio of 3. INFI is in the portfolios of Wilbur Ross of Invesco Private Capital, Inc., Jim Simons of Renaissance Technologies LLC, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

committees for the alliance. Mundipharma is obligated to pay 100% of our contractually budgeted amounts for research and development expenses incurred by us for early discovery projects and product candidates included in the alliance until the later of December 31, 2013 and the commencement of the first Phase 3 clinical trial of such product candidate, which we refer to as the transition date. The contractually budgeted amount for the period between November 19, 2008 and December 31, 2009 was $50 million and the contractually budgeted amounts for the years ended December 31, 2010 and 2011 are $65 million and $85 million, respectively. After the transition date for each product candidate other than those arising out of the FAAH project, we will share with Mundipharma all research and development costs for such product candidate equally. We are recording revenue for reimbursed research and development services we perform for Mundipharma and Purdue. We recorded $17.7 million and $32.9 million in such revenue in the three and six months ended June 30, 2010, respectively. We recorded $12.4 million and $21.1 million in such revenue in the three and six months ended June 30, 2009, respectively.

In connection with the entry into the strategic alliance agreements, we also entered into a securities purchase agreement and line of credit agreement with Purdue and its independent associated company, Purdue Pharma L.P., or PPLP. In March 2009, Purdue assigned its interest under the line of credit agreement to PPLP. Under the securities purchase agreement we issued and sold in a first equity closing in November 2008 an aggregate of four million shares of our common stock at a purchase price of $11.25 per share, for an aggregate purchase price of $45 million. Of such shares, two million shares of our common stock were purchased by each purchaser. In January 2009, we conducted a second equity closing where we issued and sold an aggregate of two million shares of our common stock, and warrants to purchase up to an aggregate of six million shares of our common stock, for an aggregate purchase price of $30 million. Of the second closing securities, an equal number were purchased by each purchaser.

In 2008, we recorded $23.8 million as deferred revenue associated with the grant of licenses to Mundipharma and Purdue. This amount represented the excess of the amount paid by Purdue and PPLP for our common stock ($11.25 per share) over the closing market price on the day before the first equity closing ($5.29 per share). In 2008, we considered our obligation, absent material adverse changes, to issue Purdue and PPLP the second closing securities to be a forward contract with immaterial intrinsic value, which was recorded in stockholders equity. This forward contract closed in January 2009 upon the issuance of the second closing securities. In January 2009, we recorded $18.2 million as deferred revenue associated with the grant of licenses to Mundipharma and Purdue, representing the excess of the $30 million paid by Purdue and PPLP for the second closing securities over the fair market value of these securities ($5.29 per share for the common stock and approximately $1.3 million for the warrants) as of the day before the first equity closing. All deferred revenue related to the strategic alliance with Mundipharma and Purdue will be recognized as revenue ratably over 14 years, which is our estimated period of performance under the arrangement. We will periodically review this estimate and make adjustments as facts and circumstances dictate. We recognized $0.7 million in such revenue in the three months ended June 30, 2010 and 2009 and $1.5 million in such revenue in the six months ended June 30, 2010 and 2009.

The extension of the line of credit at an interest rate below our incremental borrowing rate represented the transfer of additional value to us in the arrangement. As such, we recorded the fair value of the line of credit of $17.3 million as a loan commitment asset on our balance sheet in 2008. We began amortizing this asset to interest expense over the life of the loan arrangement, or 10 years, on April 1, 2009. We recorded approximately $0.4 million and $0.9 million of related amortization expense in the three and six months ended June 30, 2010, respectively. We recorded approximately $0.4 million of related amortization expense in the three and six months ended June 30, 2009. Because Purdue and its associated companies became related parties as a result of their equity ownership, we recorded the offset to this asset as additional paid-in capital in 2008. As of June 30, 2010, no amounts have been borrowed under this line of credit.

Intellikine. In July 2010, we entered a development and license agreement with Intellikine to discover, develop and commercialize pharmaceutical products targeting the delta and/or gamma isoforms of PI3K. Under the terms of the agreement, we obtained global development and commercialization rights to Intellikines portfolio of inhibitors of PI3K delta and/or gamma, including INK1197, a dual delta/gamma-specific inhibitor of PI3K, which we now refer to as IPI-145. We are obligated to pay Intellikine $13.5 million in initial license payments, which we expect to include as research and development expense in the quarter ending September 30, 2010. In addition, we are obligated to fund research activities conducted by Intellikine under a two year research program to identify additional novel delta, gamma and dual delta/gamma-specific inhibitors of PI3K for future development. We expect to recognize these costs as research and development expense as they are incurred. We may extend the research program for an additional year upon written notice to Intellikine at least 180 days prior to the last day of the initial two-year research term. We are also obligated to pay up to $25 million in success-based milestones for the development of two distinct product candidates, and up to $450 million in success-based milestones for the approval and commercialization of two distinct products. In addition, we are obligated to pay Intellikine royalties upon successful commercialization of products licensed to us, which are payable until the later to occur of the last-to-expire of specified patent rights and the expiration of non-patent regulatory exclusivities in a country, subject to reduction in certain circumstances.

Our revenue during the three and six months ended June 30, 2010 consisted of approximately $17.7 million and $32.9 million, respectively, for reimbursed research and development services and $0.7 million and $1.5 million, respectively, from the amortization of the deferred revenue associated with the grant of licenses under our strategic agreements with Mundipharma and Purdue. Our revenue during the three and six months ended June 30, 2009 consisted of approximately $12.4 million and $21.1 million, respectively, for reimbursed research and development services and $0.7 million and $1.5 million, respectively, from the amortization of the deferred revenue associated with the grant of licenses under our strategic alliances with Mundipharma and Purdue. The increase in reimbursed research and development services revenue is a result of a contractual increase in the commi

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