Array BioPharma (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 (MRK -0.47%) 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 (AZN 1.64%) 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 (NVS 0.66%). 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 (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.
