Equity Research. Infinity Pharmaceuticals, Inc. (INFI-NSDQ) INFI: balanced risk/reward profile, maintaining a HOLD rating. OUTLOOK SUMMARY DATA

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1 Equity Research July 10, 2009 Gargi B Banerjee Grant Zeng, CFA x 9466 gzeng@zacks.com North Canal Street, Chicago, IL Infinity Pharmaceuticals, Inc. INFI: balanced risk/reward profile, maintaining a HOLD rating. Current Recommendation Hold Prior Recommendation Buy Date of Last Change 02/11/2007 Current Price (07/09/09) $5.93 Six- Month Target Price $7.20 SUMMARY DATA 52-Week High $ Week Low $4.15 One-Year Return (%) Beta 0.28 Average Daily Volume (sh) 200,762 Shares Outstanding (mil) 26 Market Capitalization ($mil) $155 Short Interest Ratio (days) 1.16 Institutional Ownership (%) 37 Insider Ownership (%) 26 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) -4.6 Earnings Per Share (%) N/A Dividend (%) N/A P/E using TTM EPS 7.8 P/E using 2009 Estimate N/A P/E using 2010 Estimate N/A Zacks Rank 3 (INFI-NSDQ) OUTLOOK Infinity Pharmaceuticals Inc. is a biopharmaceutical company focused on cancer and related care. The company is collaborating with Purdue/Mundipharma to develop oncology programs other than its Hsp90 inhibitor program and Bcl program. However, most of these programs are in early-stage clinical trials or preclinical trials except for the phase III GIST trial of IPI-504. But Infinity received a major setback as the phase III RING trial had to be terminated based on the recommendation of its independent data monitoring committee (IDMC) We don t see any huge upside potential for the shares soon. Thus, we rate the shares of Infinity a Hold with a price target of $7.2. Risk Level Above Avg. Type of Stock Small-Value Industry Med-Drugs Zacks Rank in Industry 57 of 100 ZACKS ESTIMATES Revenue (in millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 5.7 A 7.5 A 5.3 A 24.5 A A 2.5 A 2.5 A 67.0 A 83.4 A A 3.1 E 3.5 E 3.8 E 32.3 E E Earnings per Share (EPS is operating earnings before non recurring items) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.15 A -$0.21 A -$0.10 A -$0.40 A -$0.87 A $0.38 A -$0.57 A -$0.63 A -$0.79 A -$2.34 A $0.63 A -$0.82 E -$0.88 E -$1.00 E -$3.31 E $2.44 E Zacks Projected EPS Growth Rate - Next 5 Years % N/A Copyright 2009, Zacks Investment Research. All Rights Reserved.

2 WHAT S NEW Reports first quarter earnings in line with our expectation On May 4, 2009, Infinity Pharmaceuticals, Inc. announced financial result for the first quarter of The company reported total revenue of $21.9 million for the first quarter of 2009, 92.1% more than $11.4 million recorded in the same period last year. Revenue for the quarter included $8.7 million for reimbursed R&D expenses, $0.7 million due to amortization of deferred revenue associated with grant of licenses under the company s alliances and $12.45 million as residual funding from Astra Zeneca. Net loss for the quarter was $4 million (net loss per share of $0.15) compared to a net income of $0.4 million (net income per share of $0.02) during the first quarter of R&D expenses for the quarter rocketed nearly 150% to $21.2 million from the same period last year. Due to Infinity s cost sharing agreement with Astra Zeneca, the company used to get credit for R&D expenses which are no longer applicable at present since December 2008, since it reacquired from Astra Zeneca all rights related to its Hsp90 chaperone inhibitor program. Apart from this, R&D expenses increased primarily due to pipeline advancements including higher clinical and pharmaceutical development as well as salary expenses. As of March 31, 2009, Infinity had $153.7 million in cash and investments. OVERVIEW Infinity Pharmaceuticals Inc. (IPI) is a biopharmaceutical company whose mission is to discover, develop, and deliver to patients medicines for the treatment of cancer and related conditions. The company has built a pipeline of product candidates for multiple cancer indications, all of which represent proprietary applications of its expertise in small molecule drug technologies. On September 12, 2006, Infinity Pharmaceuticals Inc. (a private company) completed a reverse merger with Discovery Partners International, Inc. (DPI), a public company. Infinity Pharmaceuticals Inc. (IPI) was the surviving corporation in the merger. The ticker symbol for Infinity Pharmaceuticals Inc. is INFI which trades on the NASDAQ Global Market. Upon completion of the merger, former old Infinity owned approximately 69% of the combined company on a fully diluted basis and former DPI owned approximately 31% of the combined company on a fully diluted basis. Accordingly, for all purposes, including SEC reporting, the financial statements for periods prior to the merger reflect the historical results of Old Infinity, and not DPI, and financial statements for all subsequent periods reflect the results of the combined company. Infinity is headquartered in Cambridge, Massachusetts. As of February 28, 2009, the company had 161 full-time employees, 129 of whom were engaged in research and development and 32 of whom were engaged in management, administration and finance. Zacks Investment Research Page 2

3 Source: Company Annual Report 2008 BULL STORY Strategic alliance with Purdue/Mundipharma On Nov. 20, 2008, Infinity entered into a global strategic alliance with Purdue Pharmaceutical Products L.P. and Mundipharma International Corporation Limited. The alliance will focus on the advancement of Infinity's early-stage clinical and discovery pipeline of novel, small molecule drug candidates. This pipeline includes IPI-926, Infinity's potent inhibitor of the Hedgehog pathway. Infinity's pipeline also includes several earlier stage discovery programs, including a program directed to fatty acid amide hydrolase (FAAH), an emerging target for the treatment of neuropathic pain. Under the terms of the strategic alliance agreements, Infinity will retain U.S. commercialization rights for all oncology products developed under these programs. Infinity is obligated to pay Mundipharma a royalty on U.S. sales of these products. Mundipharma has the right to commercialize these products outside of the United States, and is obligated to pay a royalty to Infinity on sales outside of the U.S. Infinity will direct and lead all oncology discovery and development efforts on a worldwide basis. Purdue has made an equity investment of $75 million in Infinity through the purchase Infinity common stock and warrants. The warrants may be exercised between Jan and June 30, 2012 at prices ranging from $15 to $40 per share. Purdue also made available a $50 million line of credit for use by Infinity for any business purpose, and Mundipharma may provide approximately $400 million in R&D funding if the funded research program extends for the full five year period. Under the alliance, Mundipharma will participate in Infinity's Hedgehog program as well as new Infinity discovery and development programs (subject to certain opt-out rights outlined below) for three years, with an ability to extend this right for two additional one-year terms. Mundipharma will fund the costs of these programs until the later of the start of the first phase III trial for the program or December 31, If a program commences phase III studies after December 31, 2013, Infinity and Mundipharma will share the costs of development equally. Zacks Investment Research Page 3

4 The alliance will also encompass Infinity's discovery program directed to FAAH. Purdue and Mundipharma will have the right to assume development of the FAAH program at the conclusion of phase I clinical studies by funding the research and development costs of the program through approval and paying a royalty to Infinity on global net sales. Finally, under the alliance, Infinity grants to Mundipharma an option, on set terms, to participate in programs that Infinity may in-license during the term. Mundipharma will have the right to opt-out of development of any particular program on an annual basis, with the first opt-out right becoming available in July 2009 for the Hedgehog and FAAH programs. If Mundipharma elects to opt-out of a program, it will be obligated to continue funding that program for an additional year, and have the right to receive royalties on future sales based on the stage of development of the program when the election to opt-out took place. Infinity's Hsp90 inhibitor program, comprising IPI-504 (retaspimycin hydrochloride), and oral IPI-493, is excluded from this alliance. Infinity's program targeting the Bcl family of proteins, which was transitioned to Novartis in February of 2008, is also excluded from this alliance. The alliance with Purdue is important as it replaced alliance with AstraZeneca to provide funding for the R&D programs As a background, in late August, 2006, IPI entered into an agreement with MedImmune (now part of AstraZeneca) to jointly develop and commercialize Heat Shock Protein 90 (Hsp90) inhibitors for cancers as well as those targeting the Hedgehog pathway. Pursuant to the agreement, MedImmune and Infinity will share equally all costs and profits from the development and commercialization of any future products. In addition to the one-time upfront payment of $70 million, Infinity could receive up to an additional $430 million in milestone payments. For each of the Hsp90 and Hedgehog pathway programs, Infinity will retain primary responsibility for discovery, preclinical development and translational clinical development of products through proof-of-concept in humans. MedImmune and Infinity will jointly conduct clinical development through first product approval. MedImmune will lead worldwide regulatory strategy as well as sales and marketing of resulting products; Infinity retains an option to co-promote any future products in the United States, contributing up to 35 percent of the total promotional effort. In April 2007, MedImmune announced that it had entered into a definitive agreement to be acquired by AstraZeneca PLC. In accordance with the terms with MedImmune, the collaboration between IPI and MedImmune continued after a change of control of MedImmune on the same terms. However, Infinity regained from MedImmune all development and worldwide commercialization rights for Infinity's Hedgehog pathway inhibitor program and Hsp90 program in late 2008 and early We believe the reason is that AstraZeneca has been developing its only Heat shock Protein and hedgehog programs. Therefore, we think the new alliance with Purdue is important to Infinity. With the new alliance, Infinity expects to have sufficient cash to fund its current operations and research, development and commercial plans through IPI-504 for GIST IPI-504 (Retaspimycin for injection) is the most advanced candidate in Hsp90 program. IPI-504 is a small molecule inhibitor of Hsp90 which is a molecule that maintains the structure and activity of specific proteins, known as client proteins of Hsp90. Many cancers result from specific mutations in these client proteins. Hsp90 enables those cancers to survive by allowing the client proteins to continue functioning. In December 2005, Infinity initiated a phase I clinical trial of IPI-504 for Gleevec-resistant metastatic gastrointestinal stromal tumors (GIST). Infinity reported interim results in early June, 2007 at the ASCO meeting, and final results were reported in late May 2008 at the 2008 ASCO meeting. Zacks Investment Research Page 4

5 The open-label trial consisted of a dose-escalation phase and an expansion phase in which a total of 63 patients with either GIST (n=45) or other soft tissue sarcomas (n=18) were treated with IPI-504. In the dose-escalation phase, patients were treated on two schedules of administration at dose levels ranging from 90 to 500 mg/m2. The recommended dose and schedule were determined to be 400 mg/m2 administered on a three-week cycle, consisting of twice-weekly treatment for two weeks followed by one week off treatment. To further characterize the activity and safety of this dose and schedule of IPI-504, 26 additional patients were enrolled in an expansion phase. In both phases of the trial, IPI-504 was generally well-tolerated with an acceptable side-effect profile. Evidence of biologic activity was assessed by CT imaging using the Response Evaluation Criteria in Solid Tumors (RECIST). Thirty-six of the 45 total patients with GIST received treatment on the recommended schedule across all dose levels. Key findings reported at ASCO include: 70% of the 36 patients with GIST experienced overall disease control (Partial Response and/or Stable Disease by RECIST) after two cycles of therapy; 3% demonstrated Partial Response; 67% demonstrated Stable Disease Estimated median progression free survival (PFS) for the same patient population was 12 weeks. higher doses of IPI-504 were associated with improved anti-tumor effect (p=0.03) Also reported in the presentation at ASCO was a Partial Response by RECIST in one of three patients treated with IPI-504 who had liposarcoma, a form of soft tissue sarcoma. This patient had tumor reduction of 43 percent over eight cycles (24 weeks) of administration of IPI-504. Based on these phase I data, Infinity initiated a phase III registration trial of IPI-504 in patients with refractory gastrointestinal stromal tumors (GIST) on October 24, The trial is expected to be completed within approximately two years, positioning IPI-504 as the potential first-in-class Hsp90 inhibitor. The initiation of the phase III trial triggered $15 payment for AstraZeneca in fourth quarter of The phase III RING (Retaspimycin hydrochloride IN GIST) trial is a randomized, double-blind, placebocontrolled study evaluating approximately 200 patients with refractory GIST in over 20 countries and 50 sites worldwide. Patients whose tumors have grown despite treatment with at least imatinib and sunitinib are eligible to enroll in the RING trial and there is no limit to the number of prior therapies they may have received. The primary endpoint of the study is progression free survival (PFS); secondary endpoints include disease control rate, time to progression, and overall survival. Patients will be randomized 2:1 to IPI-504 or placebo, with a cross-over to treatment with IPI-504 if progression occurs. Response is being evaluated by Response Evaluation Criteria in Solid Tumors (RECIST). Imaging with CT scans will be obtained at early time points to enable close monitoring of tumor activity. On April 15, 2009 Infinity announced the termination of its phase III RING trial based on the recommendation of IDMC. The recommendation was based on an early review of safety data from the first 46 patients enrolled in the study, which showed a higher-than-anticipated mortality rate among the patients enrolled in the treatment arm. The failure of IPI-504 casts its shadow on the company s other trials related to breast cancer and lung cancer. The phase III protocol has been granted a Special Protocol Assessment (SPA) agreement by the U.S. FDA, and the European Medicines Evaluation Agency has provided scientific advice consistent with that of the FDA regarding the phase III trial design. IPI-504 for HER-2 positive breast cancer On March 30, 2009, Infinity Pharmaceuticals announced the initiation of phase II clinical trial of IPI-504 in combination with Herceptin in patients with human epidermal growth factor receptor 2 (HER2) positive breast cancer. The study will enroll 46 patients whose preliminary data can be expected by mid 2010.The Zacks Investment Research Page 5

6 goal of this clinical trial is to evaluate the safety and anti-tumor activity of IPI-504 in combination with Herceptin in patients with pretreated, locally advanced or metastatic HER2 positive breast cancer. IPI- 504 is to be administered intravenously at 300mg/m2 on a three-week cycle, on a twice-weekly treatment for two weeks followed by a gap of one week. Herceptin will be administered intravenously once every three weeks. Evidence will be evaluated using RECIST (Response Evaluation Criteria in Solid Tumors) criteria. In April 2009, Infinity presented preclinical data on IPI-504 in a model of HER-2 positive breast cancer at the 2009 American Association of Cancer Research (AACR) annual meeting. The study showed that in Herceptin-resistant xenografts, HER2 protein levels were significantly reduced in vivo after a single dose of IPI-504. Additionally, dose administration in this model produced substantial tumor growth inhibition. Preclinical data suggest that the HER2 oncoprotein degrades rapidly when Hsp90 is inhibited by IPI-504. This eliminates HER2 signaling thus ultimately destroying the tumor cells. IPI-504 for NSCLC In February 2007, Infinity and MedImmune initiated another phase I/II clinical trial of IPI-504 for advanced non-small cell lung cancer (NSCLC). The company reported preliminary results in October 2007 at the American Association for Cancer Research-National Cancer Institute-European Organization for Research and Treatment of Cancer (EORTC) International Conference on Molecular Targets and Cancer Therapeutics in San Francisco. In the phase I portion of the open-label trial, 12 patients received IPI-504 at three dose levels (150, 225, and 300 mg/m2) on a four-week cycle consisting of twice-weekly dose administration with no break in treatment; data were available for 11 patients. All 11 patients had Stage IV NSCLC with an average of 3.7 prior therapies. Evidence of biological activity in these patients was evaluated using both CT scans and PET imaging. In seven of nine evaluable patients, disease stabilization by RECIST was achieved over at least one cycle of administration. One patient with a mutation in the epidermal growth factor receptor (EGFR) and prior history of progression on targeted kinase inhibitors experienced extended stable disease over seven cycles (27 weeks); this clinical benefit satisfies one of the prospectivelydefined endpoints for expansion into the phase II portion of the trial (stable disease greater than 12 weeks). Additionally, two of four evaluated patients who underwent positron emission tomography (PET) had partial responses by PET according to EORTC criteria. All four patients exhibited a decrease in tumor metabolic activity in response to IPI-504 administration as measured by PET. On this twice-weekly schedule of administration with no treatment break, IPI-504 was well-tolerated through the doseescalation reaching a maximum tolerated dose of 225 mg/m2. Based on the preliminary data from the phase I portion, Infinity and MedImmune initiated the phase II portion of the phase I/II clinical trial of IPI-504 in patients with advanced non-small cell lung cancer (NSCLC) in December The goal of this open-label, multi-center clinical trial is to evaluate the antitumor activity of IPI-504 in patients with NSCLC. Initially, the phase II portion of the study will enroll a total of 20 patients in two equal groups: one group with known epidermal growth factor receptor (EGFR) mutations and one group with wild-type EGFR. Evidence of anti-tumor activity will be evaluated using RECIST (Response Evaluation Criteria in Solid Tumors) criteria. If sufficient evidence of clinical benefit is observed in either cohort, 19 additional patients will be enrolled in that cohort. IPI-504 is being administered intravenously at 400 mg/m2 on a three-week cycle, consisting of twice-weekly treatment for two weeks followed by one week off treatment. On Oct. 29, 2008, Infinity announced that it has met pre-specified criteria to expand both arms of its ongoing phase II clinical trial evaluating IPI-504 (retaspimycin hydrochloride) in patients with advanced non-small cell lung cancer (NSCLC). At least one patient in each arm met the criteria to trigger the expansion phase of the study by achieving extended stable disease during treatment with IPI-504. Zacks Investment Research Page 6

7 Infinity published phase II results at the 2009 American Society for Clinical Oncology (ASCO) annual meeting in Orlando, Florida. Preliminary data from the phase II study of advanced NSCLC patients demonstrate anti-tumor activity, including four partial responses along with a generally well-tolerated safety profile. The data show that heavily pretreated patients with wild-type EGFR expression NSCLC (n=28) experienced a 14.2% overall response rate (ORR); all four responses were partial responses. Additionally, the progression free survival for these patients was 3.9 months which seems quite encouraging compared to the other treatments. Patients with mutant EGFR expression (n=19) or patients whose EGFR status was unknown (n=10) failed to respond to the trial. Some common adverse events such as nausea and fatigue were noticed during the study. A number of patients continue to receive IPI- 504 at 225mg/m2 on the same cycle of administration. IPI-504 in combination with chemotherapy In addition to be tested as a single agent, IPI-504 is also tested in combination with other chemotherapies. On Jan 4, 2008, Infinity and MedImmune initiated a phase Ib clinical trial of IPI-504 in combination with Taxotere (docetaxel) in patients with advanced solid tumors. Enrollment for this new study has commenced at Memorial Sloan-Kettering Cancer Center in New York, N.Y., with additional sites expected to be added as the study progresses. The goal of this open-label, dose-escalation study is to establish the safety, maximum tolerated dose (MTD) and optimal schedule of administration for IPI-504 in combination with Taxotere. Initially, patients will receive 75 mg/m2 of Taxotere followed by 300 mg/m2 of IPI-504 on day one of each 21-day cycle. Once an MTD is reached, the trial will expand to enroll up to 20 additional patients. Additional schedules, including once-weekly dosing of IPI-504 and Taxotere, may also be explored as the trial progresses. At the ASCO annual meeting 2009, preliminary data was presented from a phase Ib dose-escalation study evaluating IPI-504 in combination with Taxotere on multiple schedules of administration. The study initially enrolled advanced solid tumor patients and expanded in late 2008 to focus on patients with advanced NSCLC. Data showed that the combination regimen has been generally well tolerated in patients (n=22) with a variety of solid tumor malignancies. The company will continue to evaluate this combination at a dose of 300mg/m2 whereas the maximum tolerated dose of 450mg/m2 was reached when administered every three weeks. The reported data also shows evidence of anti-tumor activity, with one partial response in a patient with metastatic pancreatic cancer refractory to Gemcitabine, and six additional patients who experienced stable disease for at least three months. In preclinical models of prostate cancer, Taxotere demonstrates increased anti-tumor activity when administered in combination with IPI-504. In addition, preclinical data suggest that IPI-504 may have anticancer properties in prostate, lung and breast cancers -- all tumors in which Taxotere has demonstrated clinical efficacy. These data provide a rationale for investigating IPI-504 in combination with Taxotere in multiple tumor types. Oral Hsp90 programs and Hedgehog programs In addition, Infinity is also testing oral formulations of IPI-504 in preclinical studies. Infinity and MedImmune presented preclinical data on the oral formulation of IPI-504 in NSCLC in April 2007 at the Annual Meeting of the AACR. The data demonstrated that IPI-504 is orally-available and shows evidence of efficacy in preclinical NSCLC models, including models with tumors that are resistant to treatment with EGFR inhibitors. In addition, the companies have initiated IND-enabling studies on a second ansamycin class oral Hsp90 inhibitor, IPI-493, which has demonstrated potent and selective inhibition of Hsp90 in preclinical models. Zacks Investment Research Page 7

8 On July 30, 2008, Infinity initiated a phase I clinical trial of IPI-493, its oral anti-chaperone agent, in patients with advanced solid tumors. IPI-493 has demonstrated significant oral availability, as well as potent and selective inhibition of heat shock protein 90 (Hsp90), in preclinical studies. IPI-493 expands the company's Hsp90 portfolio, which also includes IPI-504 (retaspimycin hydrochloride). The multi-center, phase I study of oral IPI-493 is designed as a dose-escalation trial in patients with advanced solid tumors. The primary objectives of the study are to assess safety and tolerability and to identify a treatment regimen (dose and schedule) for subsequent studies of IPI-493. Anti-tumor activity of IPI-493 will be measured using computed tomography (CT) imaging using Response Evaluation Criteria in Solid Tumors, as well as disease specific markers. Pharmacokinetics parameters, biologic activity, and effects of IPI-493 on pharmacodynamic markers of biological activity will also be assessed. Preliminary data from the phase I clinical trial of IPI-493 is expected to be reported in In their Hedgehog cell-signaling pathway program, Infinity and MedImmune have selected a lead clinical candidate, oral IPI-926. IPI-926 is a novel, proprietary inhibitor of the Hedgehog signaling pathway. It is a derivative of the natural product cyclopamine that binds to and inhibits a key regulator of this pathway, the Smoothened receptor. The Hedgehog signaling pathway is normally active in regulating tissue and organ formation during embryonic development. However, abnormal activation of the Hedgehog pathway can lead to cancer and is believed to play a central role in allowing the proliferation and survival of several types of cancers, including pancreatic, prostate, lung, breast, and certain brain cancers. In preclinical models, IPI-926 has shown potent and selective inhibition of the Hedgehog pathway and good pharmacologic properties including oral bioavailability and extended half-life. The company reported positive preclinical studies at the Annual Meeting of the American Association of Cancer Research (AACR) in San Diego, California in April Based on preclinical results, Infinity and MedImmune initiated a phase I clinical trial of IPI-926 in patients with advanced and/or metastatic solid tumors in October The phase I trial is an open-label, dose-escalation study evaluating IPI-926 in approximately 30 to 50 patients with advanced and/or metastatic solid tumors. The primary objectives of the study are to evaluate the safety, tolerability, and pharmacokinetics of IPI-926, and to determine a recommended dose and schedule for subsequent studies. Additionally, Infinity will evaluate potential anti-tumor activity of IPI- 926, and examine pharmacodynamic markers of its biological activity. In this trial, IPI-926 is being administered daily. On May 29, 2009, INFI came out with promising data regarding its drug candidate IPI-926 further proving the effectiveness of Hedgehog signaling pathway inhibition for treating cancer. The data showed that the administration of IPI-926 in combination with Gemcitabine in a preclinical mouse model of treatmentresistant pancreatic cancer and increased tumor cell death, resulting in a reduction of tumor size and increased survival. The Bcl-2 Program with Novartis IPI also entered into an alliance with Novartis to discover, develop and commercialize drugs targeting the Bcl-2 family of proteins in March Under the agreement with Novartis, Novartis has paid IPI a $15 million up-front license fee, an affiliate of Novartis has made a $5 million equity investment in IPI, and Novartis has provided IPI research funding of approximately $10 million over the initial two-year research term, which expired in February Novartis has also agreed to make aggregate milestone payments of over $370 million if certain research, development and commercialization milestones are met for multiple products for multiple indications. In addition, IPI is entitled to receive royalties upon successful commercialization of any products developed under the alliance. The two companies will conduct joint research to identify molecules for clinical development. Once a clinical candidate is identified, IPI can participate in the clinical development of the candidate under specified conditions. This clinical development will be led and paid for by Novartis. Upon commercialization of any products developed Zacks Investment Research Page 8

9 under the collaboration, IPI has an option to co-detail Bcl-2 family inhibitors in the United States, with detailing costs to be reimbursed by Novartis. In February 2008, Novartis chose not to exercise its option to extend the research term beyond two years, and Infinity has transitioned the program to Novartis. Hence, Infinity has no further performance obligations to Novartis and will not recognize any revenue from the up-front license fee and reimbursable research and development services associated with this collaboration in future periods. Bcl-2 proteins are key regulators of programmed cell death, or apoptosis. Cancers that have higher than normal levels of Bcl-2 are believed to evade apoptosis and become increasingly resistant to chemotherapy. Infinity has identified selective inhibitors of Bcl-2 and its related protein family member, Bcl-xL, and is performing lead optimization activities on these compounds. Fatty Acid Amide Hydrolase (FAAH) Program Infinity has recently selected IPI-940 as its candidate in the field of fatty acid amide hydrolase, or FAAH, which is an emerging target for the treatment of neuropathic pain. The enzyme FAAH degrades anandamide, which is an endogenous cannabinoid that produces an analgesic effect in response to pain and nerve injury. FAAH inhibition increases the duration of anandamide s analgesic effect, prolonging pain relief at the site of release. The company expects to begin IND by 2009 end. Other Collaborations Infinity also has three technology access alliances with Novartis International, Amgen Inc., and Johnson & Johnson Pharmaceutical Research & Development relating to its diversity oriented synthesis technologies. These three companies have each been granted non-exclusive rights to use subsets of Infinity s collection of diversity oriented synthesis compounds for use in their respective internal drug discovery programs. The alliances have provided Infinity with over $65 million in up-front license fees, equity payments and other near-term committed revenues. Infinity may also receive potential milestone and royalty payments upon successful commercial development of select products resulting from Novartis International s use of the compounds to develop drug candidates. BEAR STORY We have seen failed clinical programs and similar situation may happen again in the future Infinity is still an early to middle stage biotech company with only one candidate in phase III clinical trials. Drug development process is long and costly. Although the collaborations with MedImmune and Novartis validate Infinity s technology and clinical programs, the company still needs to navigate the clinical and regulatory process in order to deliver any successful candidate to patients. At this point, we see both the Hsp90/hedgehog program and the Bcl-2 program risky. In a recent setback, the company had to halt the phase III RING trial of IPI-504 based on the recommendations of the IDMC. The company already failed to observe the necessary biological activity of IPI-504 in a phase I trial for multiple myeloma indication and phase II trial for prostate cancer. This candidate can also fail in other indications. The competitive landscape is not favorable for Infinity Infinity also faces intense competition in the area of Hsp90. Specifically, Kosan Biosciences (acquired by Bristol Myers Squibb in June 2008) is evaluating KOS-953 in phase III clinical trials in patients with relapsed refractory multiple myeloma in combination with Velcade. KOS-953 is also being studied in the Zacks Investment Research Page 9

10 phase II clinical trial in combination with Herceptin in patients with HER2-positive metastatic breast cancer. Kosan is also conducting a phase II clinical trial of KOS-953 in patients with metastatic melanoma. In addition, intravenous and oral formulations of Kosan's second-generation Hsp90 inhibitor, alvespimycin (KOS-1022), are being evaluated in phase I clinical trials for hematological malignancies and solid tumors, including HER2-positive metastatic breast cancer. At the same time, Biogen Idec is developing Hsp90 inhibitor which is in phase II trial. Vernalis plc is in early clinical stage development with one or more compounds in collaboration with Novartis. Serenex Inc. has multiple compounds targeting Hsp90 in preclinical trials. Abraxis Biosciences ABI-010 is in phase I clinical trial for solid tumors. Competitive Scenario (Hsp 90) Bristol Myers Squibb Biogen Idec Vernalis Pfizer Synta Pharmaceuticals Astex Therapeutics Exelixis Source: Company phase III and multiple phase II clinical trials of tanespimycin and multiple phase I clinical trials of alvespimycin; phase II clinical trial of BIIB-021 phase I clinical trial of an Hsp90 inhibitor in collaboration with Novartis two phase I clinical trials of SNX-5422 two phase I clinical trials of STA-9090 phase I clinical trial of AT phase I clinical trial of XL888 In the area of Hedgehog Pathway Inhibitors, Curis, Inc. together with Genentech Inc. is conducting several phase II clinical trials of GDC Apart from this, Bristol Myers Squibb through its collaboration with Exelixis is also conducting phase I clinical trial of XL139. In the area of Bcl-2, Abbott Laboratories, Gemin-X Biosciences and Ascenta Therapeutics are each in early-stage clinical development of small molecule drugs that target Bcl-2 and related family members. With the intense competition for its lead candidates, Infinity needs to show competitive advantages over its competitors in order to gain market share when its drug candidates get approved. So far, it s too early to tell if IPI-504 has edges over its competitors. Cash position is a matter of concern At March 31, 2009, Infinity had total cash, cash equivalents, and available-for-sale securities of approximately $153.7 million. Based on its 2009 R&D and business objectives, we estimate the company should have cash of $125 million at the end of Infinity expects to have sufficient cash to fund its current operations and research, development and commercial plans through 2012, we remain cautious about its cash position. When the company moves its drug candidates into advanced clinical trial, R&D costs will soar. We estimate Infinity has sufficient resources to fund its current operating plan through the end of Zacks Investment Research Page 10

11 RECENT NEWS May 30, 2009: Infinity Pharmaceuticals, Inc announced encouraging clinical data for IPI-504 at the ASCO annual meeting in Orlando, Florida. May 29, 2009: Infinity Pharmaceuticals, Inc. announced that preclinical data show anti-tumor activity of IPI-926 in combination with Gemcitabine in chemo-resistant pancreatic cancer. May 4, 2009: Infinity Pharmaceuticals, Inc. announced financial result for the first quarter of The company reported total revenue of $21.9 million for the first quarter of 2009, 92.1% more than $11.4 million recorded in the same period last year. Revenue for the quarter included $8.7 million for reimbursed R&D expenses, $0.7 million due to amortization of deferred revenue associated with grant of licenses under the company s alliances and $12.45 million as residual funding from Astra Zeneca. R&D expenses for the quarter soared nearly 150% to $21.2 million from the same period last year due to change in collaboration programs. Net loss for the quarter was at $4 million (net loss per share of $0.15) compared to net income of $0.4 million (net income per share of $0.02) during the first quarter of As of March 31, 2009, Infinity had $153.7 million in cash and investments. April 15, 2009: Infinity Pharmaceuticals, Inc. announced the termination of its phase III RING trial based on the recommendation of the IDMC. The recommendation was based on an early review of safety data from the first 46 patients enrolled in the study, which showed a higher-than-anticipated mortality rate among patients enrolled in the treatment arm. Source: Infinity Pharmaceuticals, Inc. VALUATION We maintain a Hold rating on Infinity Pharmaceuticals Inc. with a price target of $7.20. Infinity recently completed its reverse merger with DPI which raised its visibility in terms of its business development and clinical trials. On the clinical side, we are cautious about the developments of IPI-504 to address several cancer indications after its recent failure in the most advanced RING trial. But the company expects to continue with its developmental program of IPI-504 for other cancer indications and IPI-493 as oral Hsp90 inhibitor. On the business development front, although AztraZeneca terminated the cooperation with the company, we are pleased to see the company has established a new global strategic alliance with Purdue Pharmaceutical Products L.P. and Mundipharma International Corporation Limited. However, we don t see any huge upside potential of its shares in the near term since most of its clinical programs are still in early stage of development. We arrive at our price target of $7.2 by applying the biotech industry average P/S of 15 x, multiplied by our estimated revenue of $30 in 2011, divided by weighted average share number of 32 million and discounted at 25% for 2 years. Zacks Investment Research Page 11

12 Industry Comparables Top competitors P/E EPS Gr. Price / (TTM) 5-Yr Est. Sales Infinity Pharma N/A 3% 1.9 x Biotech Mean 42.3x 29% 15.0 x S&P x 6% 3.1x Celgene, Inc. N/M 26% 8.9 x Regeneron Pharma N/A 30% 5.0 x Alnylam Pharma N/A 17% 8.1 x Onyx Pharma N/M 30% 7.7 x Zacks Investment Research Page 12

13 PROJECTED INCOME STATEMENT $ in millions except per share data 12/07 Q1 Q2 Q3 Q4 12/08 A Q1 Q2 Q3 Q4 12/09 E 12/10 E 12/11 E Collaborative R&D $24.5 $11.4 $2.5 $2.5 $67.0 $83.4 $21.9 $3.1 $3.5 $3.8 $32.3 $28.0 $30.0 Total Revenues $24.5 $11.4 $2.5 $2.5 $67.0 $83.4 $21.9 $3.1 $3.5 $3.8 $32.3 $28.0 $30.0 YOY Growth 32.7% 86.3% -55.8% -66.7% % 240.1% 92.1% 24.0% 40.0% -94.3% -61.3% -13.3% 7.1% CoGS $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Gross Income $24.5 $11.4 $2.5 $2.5 $67.0 $83.4 $21.9 $3.1 $3.5 $3.8 $32.3 $28.0 $30.0 Gross Margin 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% SG&A $14.0 $3.8 $3.7 $3.8 $5.6 $16.8 $5.3 $4.5 $5.0 $5.5 $20.3 $22.5 $25.0 % SG&A 57% 33% 147% 151% 8% 20% 24% 145% 143% 145% 63% 80% 83% R&D $33.8 $8.5 $10.8 $11.7 $16.4 $47.5 $21.2 $17.5 $18.9 $21.5 $79.1 $75.0 $90.0 % R&D 138% 75% 431% 469% 25% 57% 97% 565% 540% 566% 245% 268% 300% Other $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 % Other 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Operating Income ($23.3) ($0.9) ($12.0) ($13.0) $45.0 $19.1 ($4.7) ($18.9) ($20.4) ($23.2) ($67.2) ($69.5) ($85.0) Operating Margin -95% -8% -478% -521% 67% 23% -21% -610% -583% -611% -208% -248% -283% Other Net $6.4 $1.3 $0.8 $0.6 $1.8 $4.5 $0.7 $0.5 $0.5 $0.4 $2.1 $2.5 $2.0 Pre-Tax Income ($16.9) $0.4 ($11.1) ($12.4) $46.8 $23.7 ($4.0) ($18.4) ($20.0) ($22.8) ($65.1) ($67.0) ($83.0) Taxes (benefit) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Tax Rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Reported Net Income ($16.9) $0.4 ($11.1) ($12.4) $46.8 $23.7 ($4.0) ($18.4) ($20.0) ($22.8) ($65.1) ($67.0) ($83.0) YOY Growth -53.5% % 50.8% 160.9% % % -46.6% 287.5% 267.8% -19.9% % % 191.8% Net Margin -69% 4% -446% -496% 70% 28% -18% -594% -570% -600% -202% -239% -277% Weighted avg. Shares Out Reported EPS ($0.87) $0.02 ($0.57) ($0.63) $2.11 $1.14 ($0.15) ($0.82) ($0.88) ($1.00) ($2.78) ($2.44) ($2.55) YOY Growth FAS-123R Adjustment $5.22 $1.31 $1.50 $1.46 $1.57 $5.84 $1.50 $1.70 $1.75 $1.85 $6.80 $7.80 $9.40 FAS-123R Net Income ($11.7) $1.7 ($9.7) ($10.9) $48.3 $29.5 ($2.5) ($16.7) ($18.2) ($21.0) ($58.3) ($59.2) ($73.6) FAS-123R EPS ($0.60) $0.09 ($0.49) ($0.55) $2.18 $1.42 ($0.09) ($0.75) ($0.81) ($0.92) ($2.49) ($2.15) ($2.26) One time charge $0.00 ($8.10) $0.00 $0.00 ($64.20) ($72.30) ($12.45) $0.00 $0.00 $0.00 -$12.45 $0.00 $0.00 Non GAAP Net Income ($16.9) ($7.7) ($11.1) ($12.4) ($17.4) ($48.6) ($16.4) ($18.4) ($20.0) ($22.8) ($77.6) ($67.0) ($83.0) Non GAAP EPS ($0.87) ($0.38) ($0.57) ($0.63) ($0.79) ($2.34) ($0.63) ($0.82) ($0.88) ($1.00) ($3.31) ($2.44) ($2.55) Source: Zacks Investment Research, Inc. Copyright 2009, Zacks Investment Research. All Rights Reserved.

14 HISTORICAL ZACKS RECOMMENDATIONS DISCLOSURES The analysts contributing to this report do not hold any shares of INFI. Zacks EPS and revenue forecasts are not consensus forecasts. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Buy- Zacks expects that the subject company will outperform the broader U.S. equity market over the next one to two quarters. Hold- Zacks expects that the company will perform in line with the broader U.S. equity market over the next one to two quarters. Sell- Zacks expects the company will under perform the broader U.S. Equity market over the next one to two quarters. The current distribution of Zacks Ratings is as follows on the 1042 companies covered: Buy- 23.9%, Hold- 67.4%, Sell 8.3%. Data is as of midnight on the business day immediately prior to this publication. Copyright 2009, Zacks Investment Research. All Rights Reserved.