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

March 15, 2011 | About:
10qk

10qk

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INFINITY PHARMACEUTICALS, INC. (INFI) filed Amended Quarterly Report for the period ended 2010-09-30.

Infinity Pharmaceuticals Inc. has a market cap of $142.3 million; its shares were traded at around $5.37 with and P/S ratio of 2.9.

Highlight of Business Operations:

commercialization activities for products arising out of the FAAH project and will fund 100% of all subsequent research, development and commercialization expenses. Mundipharma is obligated to pay 100% of our contractually budgeted amounts for research and development expenses incurred by us for all other programs 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. We have the right to exceed the contractually budgeted amount at our own expense, which we expect to be the case for 2010 due primarily to the license of our PI3K inhibitor program. Any activities we conduct related to the transition of the FAAH program to Purdue and Mundipharma will be reimbursed in addition to the contractually budgeted amount. After the transition date for each product candidate, we will share with Mundipharma all research and development costs for such product candidate equally. We are recognizing revenue for reimbursed research and development services we perform for Mundipharma and Purdue. We recognized $21.5 million and $54.4 million in such revenue in the three and nine months ended September 30, 2010, respectively. We recognized $13.1 million and $34.2 million in such revenue in the three and nine months ended September 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 November 2008, we recorded $41.1 million as deferred revenue associated with the grant of rights and licenses to Mundipharma and Purdue. This amount was comprised of $23.8 million for 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) and $17.3 million for the value of the loan commitment asset related to a line of credit extended to us by PPLP at below market terms as discussed below. 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 an additional $18.2 million as deferred revenue associated with the grant of rights and 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.

Since the shares of our common stock were purchased by Purdue and PPLP at a premium to the closing stock price on November 19, 2008, and the fair value of the rights and licenses transferred as part of the collaboration arrangement could not be reliably determined, we have attributed the premium over the closing price of our common stock using the residual method to the grant of rights and licenses to Mundipharma and Purdue. In addition, we have attributed the value of the loan commitment asset of $17.3 million using the residual method to the grant of rights and licenses to Mundipharma and Purdue. There is no obligation for us to repay the $59.3 million allocated to the grant of rights and licenses and we are recognizing this deferred 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 $1.0 million in such revenue in the three months ended September 30, 2010 and 2009 and $3.1 million in such revenue in the nine months ended September 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 $1.3 million of related amortization expense in the three and nine months ended September 30, 2010, respectively. We recorded approximately $0.4 million and $0.9 million of related amortization expense in the three and nine months ended September 30, 2009. We recorded the offset to the loan commitment asset as deferred revenue in 2008. As of September 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 under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the delta and/or gamma isoforms of PI3K, including IPI-145. We are obligated to pay Intellikine $13.5 million in initial license payments, which is included as research and development expense in the three and nine months ended 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 are recognizing 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 tiered royalties ranging from single digits to low teens 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.

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