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INFI > SEC Filings for INFI > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for INFINITY PHARMACEUTICALS, INC.

Form 10-Q for INFINITY PHARMACEUTICALS, INC.


7-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled "Risk Factors" in Part II of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Business Overview

We are an innovative biopharmaceutical company dedicated to discovering, developing and delivering to patients best-in-class medicines designed to address difficult-to-treat diseases. We combine proven scientific expertise with a passion for developing novel small molecule drugs that target emerging disease pathways. We have worldwide development and commercialization rights to all of our product candidates and early discovery programs, subject to certain financial obligations to our current licensor and former development partners.

Research and Development Programs

PI3 Kinase Inhibitor Program

The PI3Ks are a family of enzymes involved in multiple cellular functions, including cell proliferation and survival, cell differentiation, cell migration and immunity. The PI3K-delta and PI3K-gamma isoforms are preferentially expressed in white blood cells, where they have distinct and mostly non-overlapping roles in immune cell development and function. Targeting PI3K-delta and PI3K-gamma may provide multiple opportunities to develop differentiated therapies for the treatment of hematologic malignancies and inflammatory diseases. IPI-145, our lead product candidate, is a potent, oral inhibitor of Class I PI3K-delta and PI3K-gamma, which we are investigating in both hematologic malignancies and inflammatory diseases. We believe that IPI-145 is the first PI3K-delta,gamma inhibitor in clinical development.

We are planning to initiate a Phase 3, randomized, controlled study evaluating IPI-145 dosed at 25 mg twice daily (BID) compared to ofatumumab in approximately 300 patients with relapsed or refractory chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL) in the fourth quarter of 2013. The U.S. Food and Drug Administration (FDA), and the European Medicines Agency have granted orphan drug designation to IPI-145 for the potential treatment of CLL and SLL.

We have also initiated a Phase 2, open-label, single arm study evaluating the safety and efficacy of IPI-145 dosed at 25mg BID in approximately 120 patients with indolent non-Hodgkin lymphoma (iNHL), including follicular lymphoma, marginal zone lymphoma, and SLL, whose disease is refractory to radioimmunotherapy or both rituximab and chemotherapy. Patients enrolled in the study must have progressed within six months of receiving their last therapy. The primary endpoint of the study is response rate according to the International Working Group Criteria. The FDA has granted orphan drug designation to IPI-145 for the potential treatment of follicular lymphoma, the most common subtype of iNHL.

Both the Phase 3 trial in patients with CLL/SLL and the Phase 2 trial in patients with iNHL are supported by data from our ongoing Phase 1, open-label, dose-escalation study designed to evaluate the safety, pharmacokinetics and clinical activity with advanced hematologic malignancies. The dose-escalation portion of the trial is complete, with the maximum tolerated dose defined at 75 mg BID. We are continuing to evaluate patients across seven expansion cohorts in this study at two different doses as follows:

25 mg BID expansion cohorts

1. Relapsed/refractory CLL, iNHL and mantle cell lymphoma (MCL)

2. Treatment-naοve CLL in high-risk patients (over age 65 or having a 17p del or p53 mutations)

75 mg twice daily BID expansion cohorts

3. Relapsed/refractory CLL, iNHL and MCL

4. T-cell lymphomas

5. Aggressive B-cell lymphomas

6. Myeloid neoplasms

7. T-cell or B-cell acute lymphoblastic leukemia/lymphoma


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Data from this ongoing Phase 1 study were presented in June at the 2013 American Society of Clinical Oncology (ASCO) Annual Meeting and at the 12th International Conference on Malignant Lymphoma (ICML) showing that IPI-145 was well tolerated with no dose-related trends in adverse events at the doses evaluated. Pharmacokinetic (PK) data showed that IPI-145 is rapidly absorbed and demonstrates a linear PK profile through 75 mg BID, with complete inhibition of PI3K-delta and at least 50 percent inhibition of PI3K-gamma at doses greater than or equal to 25 mg BID. Data reported also showed that IPI-145 is clinically active across a broad range of patients with advanced hematologic malignancies, with responses observed in patients with B-cell or T-cell malignancies, including iNHL, CLL, T-cell lymphoma, MCL and Hodgkin lymphoma (HL).

Clinical Activity in CLL

Preliminary data from our Phase 1 study reported at ASCO and ICML show that IPI-145 is clinically active in patients with CLL, with a rapid onset of response as defined by the International Workshop on Chronic Lymphocytic Leukemia (IWCLL) criteria and a rapid resolution of lymphocytosis. Among the 22 patients evaluable for response, there were 12 partial responses (55 percent IWCLL partial response rate) and an additional seven nodal responses, which are not classified as a partial response under IWCLL criteria. Nodal response describes patients who achieved a greater than 50 percent reduction in their lymph node disease but have not met at least one additional criteria required to meet IWCLL criteria for a partial response. The median time to response was under two months (range: 1.8-5.6 months). Ten of the 12 partial responses were at doses £ 25 mg BID.

The trial also includes patients with a deletion of the short arm of chromosome
17 (17p del) or with mutations in the p53 gene. Patients with CLL with a 17p del or p53 mutations generally have a poor response to chemotherapy and worse prognosis. Among four patients evaluable with a 17p del, there were two partial responses, one stable disease, and one progression due to Richter's transformation, an aggressive disease. Among six patients evaluable with a p53 mutation, there were four partial responses and two nodal responses.

Clinical Activity in Lymphoma

Additional data reported at ASCO and ICML showed clinical activity of IPI-145 across a broad range of patients with lymphomas, with responses observed in patients with iNHL, T-cell lymphoma, MCL and HL. The onset of activity was rapid, with a median time to response of under two months (range: 1.6 - 4.1). Clinical responses in patients with lymphoma were as follows:

                                             Patients (n)                                  Best Observed Response (n)                             Median Time to
                                                                        Complete          Partial           Stable          Progressive            Response in
Diagnosis                              Treated         Evaluable        Response          Response          Disease           Disease             Months (Range)
iNHL                                         26                19               3                10                4                   2       1.8 (1.7 - 4.1)
T-cell lymphoma                              17                 9               1                 2                2                   4       1.9 (1.7 - 2.7)
MCL                                           9                 6               1                 3                1                   1       1.8 (1.6 - 1.9)
HL                                            3                 3               1                 0                1                   1       1.7 (Not Applicable)
aNHL*                                        13                10               0                 0                4                   6       (Not Applicable)

* aNHL (aggressive non-Hodgkin lymphoma)

We expect to present additional data from our Phase 1 study of IPI-145 in advanced hematological malignancies at the American Society of Hematology (ASH) 2013 Annual Meeting in December 2013.

Inflammation

In addition to exploring hematologic malignancies, we are investigating IPI-145 for potential applications in inflammatory diseases in two Phase 2 trials. The first is a Phase 2a randomized, double-blind, placebo-controlled trial of IPI-145 in patients with mild, allergic asthma. Endpoints of this multi-dose, two-way crossover study include safety, pharmacokinetics and FEV1, a measure of lung function. We expect to provide an update on this trial by the end of 2013. The second trial, which we refer to as the ASPIRA trial, is a Phase 2, randomized, double-blind, placebo-controlled study designed to evaluate the efficacy, safety and pharmacokinetics of IPI-145 in patients with rheumatoid arthritis (RA). The study is expected to enroll approximately 316 adults with moderate-to-severe RA and is designed to examine three dose levels of IPI-145 given twice daily for 12 weeks in combination with methotrexate compared to treatment with methotrexate alone. The primary efficacy endpoint of the study is the American College of Rheumatology (ACR)20 response rate, which is defined as the proportion of people who achieve at least a 20 percent improvement in ACR response criteria.


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Pipeline Expansion

We are also developing our second PI3K product candidate, a potent, oral inhibitor of PI3K-delta and gamma which we refer to as IPI-443. By the end of 2013, we expect to complete nonclinical studies designed to enable the initiation of Phase 1 clinical development.

Retaspimycin Hydrochloride

In September 2013 we announced topline data from our Phase 2 study evaluating retaspimycin hydrochloride (HCl), a novel, potent and selective inhibitor of heat shock protein 90 (Hsp90), in combination with docetaxel, a chemotherapy, in 226 patients with second or third-line non-small cell lung cancer (NSCLC) who are naive to docetaxel treatment and have a history of heavy smoking. In this randomized, double-blind, placebo-controlled study, retaspimycin HCl did not meet its pre-specified efficacy endpoints for demonstrating an improvement in overall survival in the total patient population or in patients with squamous cell carcinoma. Additionally, the combination of retaspimycin HCl plus docetaxel did not show a treatment benefit in patient populations defined by pre-specified biomarkers, including KRAS, p5 and plasma levels of Hsp90-alpha. We expect to present final data in a peer-reviewed setting after all analyses are complete.

We also announced in September that we expect to complete enrollment of the final cohort of patients in our separate, exploratory study of retaspimycin HCl in combination with everolimus (an mTOR inhibitor) in NSCLC patients with a KRAS mutation by the end of 2013, which we expect will conclude our development of retaspimycin HCl.

FAAH Inhibitor Program

In addition to our clinical stage programs, we have multiple innovative projects in earlier stages of development. Through our internal discovery efforts, we also discovered IPI-940, a novel, orally available inhibitor of fatty acid amide hydrolase (FAAH). It is believed that inhibition of FAAH may enable the body to bolster its own analgesic and anti-inflammatory response, and may have applicability in a broad range of painful or inflammatory conditions. We are currently seeking potential partnering opportunities for our FAAH program.

Strategic Alliances

Millennium

In July 2010, we entered into a development and license agreement with Intellikine, Inc. (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 and we paid Intellikine a $13.5 million up-front license fee. In January 2012, Intellikine was acquired by Takeda Pharmaceutical Company Limited (Takeda) acting through its Millennium business unit. We refer to our PI3K program licensor as Millennium. In December 2012, we amended and restated our development and license agreement with Millennium.

Under the terms of the amended and restated agreement, we retained our worldwide development and commercialization rights for products arising from the agreement for all therapeutic indications. We and Millennium no longer conduct the collaborative research program, and the restrictions on each party's ability to research, develop and commercialize products directed to the delta and/or gamma isoforms of PI3K that meet certain selectivity criteria have terminated, subject, in the case of Millennium, to the exclusive licenses granted to us under the amended and restated agreement.

Additionally, under the amended and restated agreement, Millennium waived the option it had under the original agreement to convert, upon payment of an option fee, its royalty interest in U.S. sales of PI3K products and its right to receive certain milestone payments with respect to such products into the right to share in 50 percent of profits and losses on U.S. development and commercialization of those PI3K products for which the first Phase 2 clinical trial, as defined in the original agreement was conducted in an oncology indication, and to participate in up to 30 percent of the detailing effort for these products in the United States. In consideration of such waiver, we agreed to pay to Millennium $15 million, payable in installments. During the year ended December 31, 2012, we paid $1.7 million of the $15 million, and we recorded the $15 million release payment at its fair value of $14.4 million in research and development expenses. The remaining amount is payable in two equal payments due in January 2014 and January 2015, which we recorded as short-term and long-term liabilities due to Millennium on our balance sheet.

In addition to developing IPI-145, we are seeking to develop our second potent, oral PI3K-delta,gamma inhibitor product candidate, IPI-443, and we are seeking to identify additional novel inhibitors of PI3K-delta and/or PI3K-gamma for future development. We are obligated to pay to Millennium up to $15 million in remaining success-based milestone payments for the development of two distinct product candidates, of which we expect to pay a $10 million milestone payment in the fourth quarter of 2013 in connection with the initiation of our Phase 3 study of IPI-145 in patients with relapsed or refractory CLL. We are also obligated to pay up to $450 million in success-based milestones for the approval and commercialization of two distinct products. As a result of the amendment, such products may include products we license in from a third party. In addition, we are obligated to pay Millennium tiered royalties on worldwide net sales ranging from 7 percent to 11 percent, which are the same royalty levels as those


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specified under the original agreement, upon successful commercialization of products described in the agreement. Such royalties are payable until the later to occur of the expiration of specified patent rights and the expiration of non-patent regulatory exclusivities in a country, subject to reduction, and limits on the number of products, in certain circumstances.

The amended and restated agreement expires on the later of the expiration of certain patents and the expiration of the royalty payment terms for the products, unless earlier terminated. Either party may terminate the agreement on 75 days' prior written notice if the other party materially breaches the agreement and fails to cure such breach within the applicable notice period, provided that the notice period is reduced to 30 days where the alleged breach is non-payment. Millennium may also terminate the agreement if we are not diligent in developing or commercializing the licensed products and do not, within three months after notice from Millennium, demonstrate to Millennium's reasonable satisfaction that we have not failed to be diligent. The foregoing periods are subject to extension in certain circumstances. Additionally, Millennium may terminate the agreement upon 30 days' prior written notice if we or a related party bring an action challenging the validity of any of the licensed patents, provided that we have not withdrawn such action before the end of the 30-day notice period. We may terminate the agreement at any time upon 180 days' prior written notice. The agreement also provides for customary reciprocal indemnification obligations of the parties.

Mundipharma and Purdue

Strategic Alliance Termination Agreements

On July 17, 2012, we terminated our strategic alliance with Mundipharma and Purdue and entered into termination and revised relationship agreements with each of those entities, which we refer to as the 2012 termination agreements. The alliance was previously governed by strategic alliance agreements that we entered into with each of Mundipharma and Purdue in November 2008. The strategic alliance agreement with Purdue was focused on the development and commercialization in the United States of products targeting FAAH. The strategic alliance agreement with Mundipharma was focused on the development and commercialization outside of the United States of all products and product candidates that inhibit or target the Hedgehog pathway, FAAH, PI3K, and product candidates arising out of our early discovery projects in all disease fields. Our Hsp90 program was expressly excluded from the alliance.

Under the terms of the 2012 termination agreements:

• All intellectual property rights that we had previously licensed to Mundipharma and Purdue to develop and commercialize products under the previous strategic alliance agreements terminated, with the result that we have worldwide rights to all product candidates that had previously been covered by the strategic alliance.

• We have no further obligation to provide research and development services to Mundipharma and Purdue as of July 17, 2012.

• Mundipharma and Purdue have no further obligation to provide research and development funding to us. Under the alliance, Mundipharma was obligated to reimburse us for research and development expenses we incurred, up to an annual aggregate cap for each alliance program other than FAAH. We recorded $0 and $47.1 million in collaborative research and development revenue for the three and nine months ended September 30, 2012, respectively. In addition, we recognized $46.6 million related to a gain on termination of Purdue entities alliance for the three and nine months ended September 30, 2012 as a result of the 2012 termination agreements. We did not record a liability for amounts previously funded by Purdue and Mundipharma as this relationship was not considered a financing arrangement.

• We are obligated to pay Mundipharma and Purdue a four percent royalty in the aggregate, subject to reduction as described below, on worldwide net sales of products that were covered by the alliance until such time as they have recovered approximately $260 million, representing the research and development funding paid to us for research and development services performed by us through the termination of the strategic alliance. After this cost recovery, our royalty obligations to Mundipharma and Purdue will be reduced to a one percent royalty on net sales in the United States of products that were previously subject to the strategic alliance. All payments are contingent upon the successful commercialization of products subject to the alliance, which products are subject to significant further development. As such, there is significant uncertainty about whether any such products will ever be approved or commercialized. If no products are commercialized, no payments will be due by us to Mundipharma and Purdue; therefore, no amounts have been accrued.

Royalties are payable under these agreements 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, provided that if royalties are payable solely on the basis of non-patent regulatory exclusivity, each of the royalty rates is reduced by 50 percent. In addition, royalties payable under these agreements after Mundipharma and Purdue have recovered all research and development expenses paid to us are subject to reduction on account of third party royalty payments or patent litigation damages or settlements which might be required to be paid by us if litigation were to arise, with any such reductions capped at 50 percent of the amounts otherwise payable during the applicable royalty payment period.


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Line of Credit Agreement

In connection with the previous strategic alliance with Mundipharma and Purdue, we also entered into a line of credit agreement with Purdue and its independent associated company, Purdue Pharma L.P. (PPLP), that provided for the borrowing by us of one or more unsecured loans up to an aggregate maximum principal amount of $50 million. We recorded interest expense on the net amount borrowed using the effective interest method. We recorded $0.5 million and $1.9 million of related interest expense in the three and nine months ended September 30, 2012, respectively, using an effective interest rate of 7.29 percent.

On September 7, 2012, upon completion of the sale and issuance of common stock to PPLP under the 2012 securities purchase agreement described below, the line of credit agreement with PPLP terminated in its entirety.

2012 Securities Purchase Agreement; 2013 Offering

On July 17, 2012, in connection with the termination of the strategic alliance with Mundipharma and Purdue, we executed a securities purchase agreement with PPLP, which we refer to as the 2012 securities purchase agreement, under which we agreed to sell and issue 5,416,565 shares of our common stock to PPLP and two entities associated with PPLP, which we collectively refer to as the BRP entities, at a price of $14.50 per share for an aggregate consideration of approximately $78.5 million. The consideration was composed of extinguishment of approximately $51.0 million in principal and interest owed to PPLP under a line of credit agreement and $27.5 million in cash. We completed the sale and issuance on September 7, 2012 at which time the line of credit agreement with PPLP terminated in its entirety.

The 2012 securities purchase agreement also terminated, as of July 17, 2012, all attendance rights to meetings of our board of directors held by the Purdue entities.

On April 16, 2013, the BRP entities, through two selling stockholders, sold 11,416,565 shares in an underwritten public offering at a price of $40 per share, representing their entire holdings in our common stock. In connection with the public offering and sale of their common stock, we entered into an agreement with the BRP entities, pursuant to which the 2012 securities purchase agreement, as amended in connection with the offering, terminated in its entirety.

Financial Overview

Revenue

All of our revenue to date has been derived from license fees, the reimbursement of research and development costs, contract service revenue and milestone payments received from our collaboration partners. License fees were recognized as revenue ratably over the expected research and development period under our arrangement with Mundipharma and Purdue. Because our agreements with Mundipharma and Purdue also provided for funding for our research and development efforts, we recognized this cost reimbursement as revenue in the period earned in proportion to our forecasted total expenses as compared to the total research funding budget for the year. In the future, we may generate revenue from a combination of product sales, research and development support services and milestone payments in connection with strategic relationships and royalties resulting from the sales of products developed under licenses of our intellectual property. We expect that any potential future revenue we generate will fluctuate from year to year as a result of the timing and amount of license fees, research and development reimbursement, milestone and other payments earned under our collaborative or strategic relationships, and the amount and timing of payments that we earn upon the sale of our products, to the extent any are successfully commercialized.

Research and Development Expense

We are a drug discovery and development company. Our research and development expense primarily consists of the following:

• compensation of personnel associated with research activities;

• clinical testing costs, including payments made to contract research organizations;

• costs of purchasing laboratory supplies and materials;

• costs of manufacturing product candidates for preclinical testing and clinical studies;

• costs associated with the licensing of research and development programs;

• preclinical testing costs, including costs of toxicology studies;

• fees paid to external consultants;

• fees paid to professional service providers for independent monitoring and analysis of our clinical trials;

• costs for collaboration partners to perform research activities, including development milestones for which a payment is due when achieved;


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• depreciation of equipment; and

• allocated costs of facilities.

General and Administrative Expense

General and administrative expense primarily consists of compensation of personnel in executive, finance, accounting, legal, information technology infrastructure, corporate communications, corporate development, human resources and early commercial functions. Other costs include facilities costs not otherwise included in research and development expense, and professional fees for legal and accounting services. General and administrative expense also consists of the costs of maintaining our intellectual property portfolio.

Other Income and Expense

Investment and other income typically consists of interest earned on cash, cash equivalents and available-for-sale securities. Interest expense included accrued interest on the long-term debt, including amortization of the debt discount.

Income from the Massachusetts tax incentive award represents the pro-rata amount earned for an award we received for headcount growth.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accrued expenses, assumptions in the valuation of stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions . . .

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