Infinity Shares (INFI) Soar 42% on AbbVie (ABBV) Partnership

by Ryan Fitzwater, Director of Research, The Oxford Club
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Shareholders of Infinity Pharmaceuticals (Nasdaq: INFI) are smiling today after the company revealed a partnership with pharmaceutical juggernaut AbbVie Inc. (NYSE: ABBV) to help develop and market the experimental blood cancer drug duvelisib.

Under the terms of the collaboration announced today, Infinity will receive an upfront payment of $275 million. It could also receive a sizable $530 million in additional “milestone” payments. Considering that before the market open today Infinity’s market cap was just $530 million, payments of this size have sent shares soaring over 42%.

The agreement gives AbbVie the right to license Infinity’s experimental blood cancer drug worldwide. Duvelisib, also known as IPI-145, is designed to block a protein known as PI3K, which is critical for tumor cell growth.

Both companies will jointly commercialize duvelisib in the U.S., and tiered double-digit royalties on products sales will be awarded to Infinity if the drug makes it through the regulatory gauntlet. Royalties will range from 23.5% to 30.5%.

AbbVie enters the partnership after seeing its lead blood cancer drug candidate, ABT-199 (which has been effective in mid-stage studies), get bogged down with safety concerns. And there are concerns with duvelisib’s safety as well, along with worries about its ability to compete with other PI3K inhibitors that are already on the market.

But this didn’t stop AbbVie from taking on the partnership to help broaden its growing oncology pipeline. The company’s chief scientific officer Michael Severino stated, "We believe that duvelisib is a very promising investigational treatment based on clinical data showing activity in a broad range of blood cancers."

The partnership is a win for Infinity and will give it much-needed funds to keep the lights turned on. As for AbbVie, the risk of taking on a partnership with Infinity is small peas. Throwing in $275 million to start and another half million if clinical trials continue to succeed is a drop in the bucket for the company - it is sitting on over $10 billion in cash.

Unfortunately, Infinity is too small and speculative to judge from a fundamental perspective. And since shares are up over 40% today, we are a little late to the current party. Earnings are negative and will be for some time to come. If duvelisib makes it through the regulatory hurdles, this could be a big win for your portfolio. But if you are considering picking up shares, do so with caution. This is a speculative play.

AbbVie, on the other hand, is trading flat after today’s announcement, and the $87 billion company is more than large enough to handle a duvelisib failure and a grade from a fundamental perspective. So let’s get down to business and see how it scores on our Investment U Fundamental Factor Test:

Earnings-per-Share (EPS) Growth: AbbVie saw a small 2.99% jump in EPS last quarter. While this number isn’t something to write home about, it still meets our criteria of year-over-year growth.

Price-to-Earnings (P/E) Ratio: While many analysts still believe the biotech sector is overpriced, from an industry standpoint AbbVie is well-priced. It has a P/E of 19.02, well below its peers, which are averaging 23.50.

Debt-to-Equity AbbVie is overleveraged at the moment. Its debt-to-equity of 282.50% is well above the industry average of 69.44%, not what we want to see.

 Free Cash Flow Per Share Growth: Another swing and another miss. AbbVie saw an 18% drop in free cash flow in the most recent quarter. And the Infinity partnership will surely drag this down a bit more this quarter. Let’s hope the collaboration works out.

Profit Margins We are back to positive metrics. AbbVie’s profit margins of 22.29% are six points above the industry average of 16.34%.

 Return on Equity AbbVie closes out our checklist with another win, and this is a big one. ROE is an amazing 95.03%, three times higher than its peers at 30.69%.

*Why did we look at these specific metrics? Find out more here.

Fundamental Factor Test Score

B: Buy with Caution (Matches four key metrics, no less)

Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers over a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here.

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