Array BioPharma Needs a Partner to Take It to the Next Level

Array BioPharma (NASDAQ: ARRY  ) was trading at multiyear highs in July after the company announced positive phase 2 data for its experimental drug ARRY-502, used for the treatment of mild to moderate allergic asthma. In the company latest earnings call, CEO Ron Squarer said about the treatment, "We were excited by its potential to become the first new oral medication for asthma patients since Singulair was introduced over 15 years ago." He also said, "Despite the availability of treatment options the ongoing burden of asthma remains extremely high. This is partially due to a large proportion of patients not being well controlled on current medications and due to poor compliance with inhaled drugs. By some estimates as many as 80% of asthma patients are poorly controlled at this time." 

Singulair is manufactured by Merck  (NYSE: MRK  ) and generated global sales of $3.8 billion in 2012. Sales are down from a peak of $5.5 billion in 2011, however, following the expiration of its patent last August. While Merck is left scrambling to make up revenues for what was its biggest-selling individual drug, Array BioPharma is looking to take ARRY-502 to the next level by seeking a partner to take it forward. Could Merck be a development partner for Array Biopharma? On paper it looks a natural marriage, but is ARRY-502 ready for the big stage? 

With such a lucrative market open to it, can Array Biopharma seal a deal for ARRY-502? The company has had some success with existing partnerships, although ARRY-502 is the treatment most likely to generate tangible upside. For perspective, let's look at a few of the company's past partnerships.

Selumetinib
Selumetinib is a small-molecule MEK inhibitor that prevents cancer cell proliferation, particularly cancers that have BRAF and NRAS mutations. AstraZeneca (NYSE: AZN  ) has exclusive worldwide rights to selumetinib, although Array BioPharma retained the potential for milestone payments and royalties from its collaboration. Array BioPharma has already banked $21.5 million in up-front and milestone payments, with an additional $75 million available to tap (not including royalties on product sales). The AstraZeneca deal includes a recently started clinical trial to tackle thyroid cancer, with a phase 3 trial for non-small-cell lung cancer expected later in the year.

A 100-person study conducted at Memorial Sloan-Kettering for the use of Selumetinib in the treatment of uveal melanoma, a cancer of the eye, also showed promise. The drug controlled tumor growth for more than twice as long as the current standard chemotherapy treatment. Half of the Selumetinib treatment group saw a reduction in tumor size, with 15% of this group "achieving major shrinkage."

MEK162
MEK162 is under co-development with Novartis (NYSE: NVS  ) . Novartis has started its own phase 3 trial to investigate the efficacy of MEK162 in patients with NRAS mutation-positive melanoma. Interim results, presented by Novartis at the ASCO annual meeting, showed positive findings for MEK162 when used in combination with a BRAF inhibitor compared to use of the BRAF inhibitor alone. Fewer side effects were recorded as well, giving MEK162 a "distinct safety profile" versus other treatments. Under the terms of the agreement with Novartis, Array BioPharma retains exclusive worldwide right to develop and commercialize MEK162.

Celgene partnership
Outside of its treatment pipeline, Array BioPharma has a deal with Celgene (NASDAQ: CELG  ) focusing on the discovery, development, and commercialization of novel therapeutics in cancer and inflammation. The arrangement entitles Array BioPharma to exclusive worldwide right to these drugs, except for limited co-promotional rights in the U.S.

In 2012, the company received $1.5 million in payments from this partnership. However, there was no mention in the recent earnings call of ARRY-382, a cFMS inhibitor that was developed under this program and was in phase 1 clinical trials at the end of 2010. It now appears that progress has stalled, with ARRY-382 currently in a dose escalation study. Under the terms of the agreement, milestone payments totaling $490 million were available, although these payments now look a long way off.

Facts and figures
Array BioPharma does not yet have a commercial product in the market. Furthermore, it announced that it planned to reduce staff by 20% to generate $10 million a year in savings. The company spent $59 million in research and development for fiscal year 2013, so staff cuts will be expected to generate savings here.

The company runs at an operating loss of $39 million with $125 million in cash, however. It has only guided for revenue of $48 million in 2014, a drop of more than 20 million on 2013 and $37 million from 2012. Despite staff cuts, this revenue guidance suggests that operating costs could creep to $50 million in 2014, leaving the company heavily reliant on a developmental partner for ARRY-502 to make up the cash shortfall. Ron Squarer had commented in response to an analyst on "strong interest from the likely parties" to partner with for ARRY-502 development. 

Summary
While the company has the cash reserves and development pipeline (with associated milestone payments) to see it through finding a partnership deal for ARRY-502, it will likely be a rocky road getting there. While it has a broad enough development drug base to work with, any sniff of trouble around ARRY-502's efficacy could be curtains for the company's stock price. Tread carefully.

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  • Report this Comment On October 07, 2013, at 5:23 PM, Hope4GoodFuture wrote:

    "The company has had some success with existing partnerships, although ARRY-502 is the treatment most likely to generate tangible upside."

    I'm very confused. I've been following this company (and have invested) and they have made it very clear that they are concentrating on heme-onc going forward. All other programs are non-core. I doubt too many people invest in ARRY for ARRY-502 but, hey, you never know. I certainly didn't.

    Your conclusion that "any sniff of trouble around ARRY-502's efficacy could be curtains for the company's stock price" is out of line with the way I think about the company, or anyone I talk to either. Of course, if the MEK inhibitors end up going nowhere, that's another story.

  • Report this Comment On October 07, 2013, at 10:17 PM, alphasize wrote:

    Hope4GoodFuture - understand your confusion, the author appears to have no clue about the company, which you can see from the headline. Apparently Array with more partners than most other development stage biotech companies can ever dream of, needs a partner. Oh well.

  • Report this Comment On October 07, 2013, at 10:26 PM, usubanas wrote:

    I totally agree with the above comment. Pretty clear to ARRY investors and to the company (based on comments they make on conference calls) that their 4 most important programs are: the 2 partnered MEKs, and the two wholly owned MM and MDS compounds. The asthma program is certainly not in the top 4, if it works or it's partnered it will be a nice surprise.

    Btw, not the first article on biotech totally off-base by Fool.com

  • Report this Comment On October 10, 2013, at 7:08 AM, CIBLUE wrote:

    The writer of this article clearly has not done his/her research correctly. The ARRY-502 isn't its biggest asset. ARRY has many drugs moving expected to be put for approval in the next year; most of them cancer drugs. If ARRY-502 needs some extra funding, then ARRY has shown that it has the clout to get partnerships and/or funding from some other source and that it delivers on those. And if ARRY decides to stop ARRY-502 or it doesn't get approved, the company won't suffer much. It just has so much going on that it can make up for it.

  • Report this Comment On October 10, 2013, at 7:13 AM, CIBLUE wrote:

    Also, this isn't really news. The CEO stated that they will partner with someone for the ARRY-502 drug on Sept. 27th on Mad Money with Jim Cramer.

    http://video.cnbc.com/gallery/?play=1&video=3000202773#e...

    The part about the Asthma drug is the last sgment at 5:06.

  • Report this Comment On October 11, 2013, at 5:58 AM, fallond wrote:

    Thanks for feedback everyone.

    Optimists can call this a stock up 260% from its 2012 lows; pessimists could say this is a stock down 60% from its 2007 highs. What's offered is an opinion based on interpretation of available information, nothing more and nothing less.

    This is a stock which is experiencing falling annual revenues and has had to lay off 20% of its staff. I may be wrong, but to me this isn't some small re-organisation, but a significant change in its operation. It strikes me (as a non-shareholder) as a bit of a Hail Mary pass. The company has great potential and a number of strong developmental programs in place, but it needs to boost revenues... According to its latest report, cash flow from operating activities for the 12 months to June 30, 2013 was $87 million in the red.

    @Hope4GoodFuture Yes, the company has emphasized it's focus on heme-onc, and in announcing the staff layoffs had stated heme-onc remains its primary goal.

    However, if one was to fast forward five years and look back at what the breakthrough for the company, I would think a successful asthma treatment would be a bigger financial success than (a still great, btw) cancer treatment.

    According to the company, there are an estimated 1 million new cases of cancer every year; breast and lung cancer accounting for nearly half of these cases. The prevalence for asthma is rising: 8.4% (according to the CDC) in 2010 against 7.3% in 2001. That's 25 million Americans diagnosed with asthma. 4 million babies were born in the U.S. in 2012 of which 330,000 will be diagnosed with asthma. Asthma is a disease which can require a lifetime of treatment, something a cancer treatment either cures for the period it's administered, or the patient dies.

    The company is cautiously optimistic on ARRY 502, and is coy about saying too much until it has a development partner in place, but I think (again my opinion) this is where the value for the company lies. If Array BioPharma were to announce a delay in finding a partner, or if it had to mothball the program, I don't think investors would ignore that fact, even if the company has stated it's not a key priority.

    Flipside to this, when Array BioPharma does announce a partner, I think Array BioPharma will get a nice pop. And investors will have to start paying attention to what happens with ARRY-502. I'm assuming the four of you here are holding and have your reasons for doing so. All I'm saying is I think ARRY-502 is bigger news than what the company may yet be willing to divulge.

    @alphasize Array BioPharma *doesn't* (yet) have a partner for what could be the first real competitor to Singulair. My article outlined some of those partnerships, not sure where you get the "the author appears to have no clue about the company"???

    @usubanas @CIBLUE Again, when Array BioPharma gets around to announcing a partner for ARRY-502 I do think shareholders will get a "nice surprise", and I suspect this would just be the start of it.

    My take on Array BioPharma is not on what it has now, but on what it may become. My worry now is it has a cash flow problem and has forced itself to undergo a major re-organisation. if it can get past this, then the future could be very bright indeed.

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