Will AbbVie's $805 Million Agreement for Duvelisib Pay Off? - Analyst Blog

By Zacks Equity Research,

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In order to boost its pipeline, AbbVie Inc. ( ABBV ) inked a collaboration agreement with Infinity Pharmaceuticals ( INFI ) to develop and commercialize the latter's oncology candidate duvelisib (IPI-145). Infinity Pharma's shares jumped over 44% following the announcement.

The Deal in Details

AbbVie will be making an upfront payment of $275 million to Infinity Pharma to jointly commercialize duvelisib in the U.S. and will share the potential profits or losses equally. The companies will also share the royalty obligation in the U.S. equally relating to duvelisib.

Outside the U.S., AbbVie will be solely responsible for the development and commercialization of duvelisib. Infinity Pharma will receive tiered double-digit royalties (23.5% to 30.5%) on net sales of duvelisib following approval.

Apart from the upfront payment, Infinity Pharma is also eligible to receive additional payments of up to $530 million on duvelisib achieving certain development, regulatory and commercial milestones. The amount includes a payment of $405 million through the first commercial sale of duvelisib.

Duvelisib is currently being developed in the phase III DUO study for the treatment of patients suffering from chronic lymphocytic leukemia (CLL) and in the phase II DYNAMO program for the treatment of indolent non-Hodgkin lymphoma (iNHL). The candidate is also under development in several other studies. As per the agreement, AbbVie and Infinity Pharma will be initiating several phase II and phase III studies on duvelisib in hematologic malignancies in the next several years.

Other Development

The second pact struck by AbbVie is a research and development (R&D) agreement with Calico Life Sciences to jointly discover and develop candidates to treat age-related diseases including neurodegeneration and cancer.

As part of the deal, both AbbVie and Calico will be funding up to $250 million each initially and may also contribute another $500 million each later. Calico will be responsible for the early R&D programs for the first five years and will continue to advance the programs through phase IIa over a ten-year period. AbbVie on the other hand will support Calico in early R&D stages and will have the option to manage late-stage development and commercial activities. The companies will be sharing costs and profits equally.

Guidance Upheld

AbbVie maintained its adjusted guidance for the third quarter and full year 2014 following the announcement of the two deals as the expenditures will be treated as special items. Third quarter earnings are still expected in the range of 77 cents to 79 cents per share. The Zacks Consensus Estimate is 77 cents. AbbVie continues to expect 2014 earnings in the range of $3.06 to $3.16 per share. The Zacks Consensus Estimate of $3.15 is on the higher end of the guidance range.

Our Take

The two agreements will significantly boost AbbVie's pipeline. Infinity Pharma's duvelisib is a great strategic fit for AbbVie's existing oncology pipeline. With AbbVie's expertise the candidate may hit the market faster. However, the question remains whether duvelisib is worth as much as $805 million?

We remind investors that AbbVie is working on strengthening its portfolio with the impending acquisition of Shire ( SHPG ). This deal will not only boost its portfolio but will also help to lower its tax rates.

AbbVie carries a Zacks Rank #3 (Hold). A better-ranked stock in the health care sector is Allergan Inc. ( AGN ), carrying a Zacks Rank #1 (Strong Buy).

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ALLERGAN INC (AGN): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

ABBVIE INC (ABBV): Free Stock Analysis Report

INFINITY PHARMA (INFI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AGN , SHPG , ABBV , INFI

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