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New Biotech Pair Trade: Infinity Pharma Over ImmunoGen

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  • Infinity Pharmaceuticals Inc (NASDAQ: INFI) shares are down nearly 45 percent year-to-date, while Immunogen, Inc (NASDAQ: IMGN) shares have gained 143 percent over the same period.
  • Morgan Stanley’s Matthew Harrison upgraded the rating on Infinity from Equal-Weight to Overweight, while downgrading the rating on Immunogen from Equal-Weight to Underweight.
  • Lack of near-term catalysts for Immunogen; and higher relative value and attractive risk-reward for Infinity are the reasons for the change in ratings, Harrison said.

Analyst Mathew Harrison reduced the price target for Infinity from $15 to $13. He mentioned that the company’s hematology asset Duvelisib has achieved high ORR of 72 percent in NHL in Phase I dataset thus demonstrating best-in class potential.

Referring to investor concerns over the recent purchase of Imbruvica by AbbVie Inc (NYSE: ABBV) and its impact on Duvelisib‘s focus, Harrison said that Duvelisib is a PI3K inhibitor while Imbruvica is strong in a different indication CLL.

Despite some commercial challenges, solid NHL data would generate modes sales of Duvelisib, given Imbruvica's relative weakness in NHL. “Further, while consensus is clearly concerned that AbbVie could opt-out of duvelisib, we note the need for duvelisib to build out a complete leukemia and lymphoma franchise,” the Morgan Stanley report added.

Harrison projected peak NHL sales at ~$600M. “Thus, we believe with duvelisib potentially on the market in 2017E, and key derisking data in mid-2016E, INFI should move higher with key milestones ahead,” he added.

Although an AbbVie opt-out would put pressure on Infinity, there is limited downside and positive data would drive Infinity, Harrison believes.

Absence of Near-Term Catalysts Raise the Risk

Mathew Harrison reduced the price target of Immunogen from $10 to $9 and highlighted the risk to study design for its key asset IMGN853, along with the absence of any meaningful catalysts until mid-2016. The launch of IMGN853 is now expected in 2019 instead of 2017.

In the report Morgan Stanley noted that Immunogen’s management plans to study alternative dosing schedules besides adding two “additional cohorts with IMGN853 as part of the PhI protocol (n=40 in combination with steroid eye drops and n=20 with pre/post treatment biopsy) in addition to the already enrolled n=40 expansion cohort.”

This indicates that the company is trying to expand the therapeutic window and that “safety/tolerability remains a risk.” Harrison mentioned that this slows down the approval timing too. The absence of any catalysts in the near-term mean limited newsflow to drive Immunogen shares higher in the near term.

“We see higher relative value and attractive risk-reward elsewhere in our coverage with INFI,” the Morgan Stanley report stated.

Latest Ratings for INFI

DateFirmActionFromTo
Jun 2016William BlairDowngradesOutperformMarket Perform
Jun 2016JefferiesDowngradesBuyHold
Jun 2016Morgan StanleyDowngradesOverweightEqual-Weight

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