Motley Fool writer and Rule Breakers stroller Brian Lawler (TMFBreakerBrian) sat down with CEO Robert Conway and talked about November 2007 recommendation Array BioPharma (NASDAQ:ARRY). Array discovers, develops, and commercializes targeted small-molecule drugs to treat cancer and inflammatory diseases.

Brian Lawler: How did Array get its start?

Robert Conway: Array was founded in 1998 by three ex-Amgen (NASDAQ:AMGN) scientists, Kevin Koch, Ph.D., David Snitman, Ph.D., and Anthony Piscopio, Ph.D., after Amgen closed its Boulder, Colo., research and development facility and moved its small-molecule research capability to its headquarters in Thousand Oaks, Calif.

At Array's founding, there were no intellectual property assets or ongoing proprietary programs. The company's primary asset was a group of 25 ex-Amgen drug-discovery scientists, and they formed the nucleus of Array's drug-discovery capability. At the start of the company, we focused on partnered research as the primary funding mechanism to build our drug-discovery platform, including over 200 scientists.

In 2002, we started to invest in our own proprietary research and to build a clinical pipeline and development team. In December 2003, we out-licensed our lead drug, the MEK inhibitor ARRY-886, to AstraZeneca, which signaled Array's transition to a product-based biotech company rather than a services organization. Our investment in proprietary research has been very productive, and today we have 10 programs in development, eight of which are 100% owned by Array.

Lawler: What makes Array unique among its development-stage pharma peers?

Conway: We're not a single-product biotech company; we have a broad pipeline of development-stage assets aimed at important therapeutic targets, all with large market opportunities in cancer and inflammatory disease. We have a track record of successfully inventing new drugs driven by a critical mass of 200 discovery scientists across all of the technologies needed to create new drugs. We have a very productive and efficient research capability, inventing new drugs through filing an investigational new drug (IND) application for less than $15 million each. In fiscal 2007, we filed four INDs resulting from our proprietary research.

Array has had a very disciplined use of capital. We've raised $270 million in equity and have $168 million in cash and only $15 million in debt, for a net capital usage of $117 million, advancing 10 drugs in development by the end of 2008 and having built a 200-scientist discovery capability. We believe our discovery efficiency, resulting in high-quality targeted molecules, is unmatched either by our peers or by any of the big pharmaceutical companies.

Lawler: Large drugmakers such as Celgene (NASDAQ:CELG) have been complimentary about Array, but what technology or competitive advantage do you have that makes a Celgene or an AstraZeneca want to partner with you?

Conway: In the case of AstraZeneca, we had a program that a number of companies were competing for, and AstraZeneca provided us the most attractive deal. AstraZeneca abandoned its in-house effort in MEK to partner with Array.f Celgene partnered with Array based primarily on our track record of success in discovery.

Lawler: What makes your drug discovery process different from other discovery companies', such as Exelixis (NASDAQ:EXEL)?

Conway: Array creates highly selective drugs that are either first in class or best in class second-generation drugs that we believe provide a competitive advantage over marketed drugs or drugs in clinical development. Exelixis has employed a research strategy of inhibiting multiple targets simultaneously. Array has created a paperless laboratory in discovery that we believe is the benchmark in the drug industry. This capability has significantly improved our research productivity and allows for rapid decision-making, considering all of the data.

Lawler: Who are Array's biggest competitors?

Conway: For similar research and development capabilities and business model, small-molecule drug discovery and development companies with a significant research capability and a broad clinical pipeline include Exelixis, Theravance, Vertex Pharmaceuticals, and Incyte.

For competitor drugs and research programs, Array competes directly with major pharmaceutical companies and other biotech companies:

  • ARRY-543 competes with GlaxoSmithKline's Tykerb.
  • ARRY-886 competes with Pfizer (NYSE:PFE), Genentech (NYSE:DNA), and Exelixis.
  • ARRY-797 competes with Johnson & Johnson (NYSE:JNJ), Roche, and GlaxoSmithKline.
  • ARRY-520 competes with GlaxoSmithKline and Cytokinetics' Ispinesib.
  • ARRY-614 competes with Johnson & Johnson, Roche, and GlaxoSmithKline.

Lawler: Can you give us an overview of Array's top pipeline candidates?

Conway: We currently have 10 programs in our development pipeline, eight of which are wholly owned by us. Our most advanced development programs consist of:

  • ARRY-886 and ARRY-704, MEK inhibitors for cancer (AstraZeneca partnership).
  • ARRY-543, an ErbB-2/EFGR dual inhibitor for cancer.
  • ARRY-162, a MEK inhibitor for inflammation.
  • ARRY-797, a p38 inhibitor for inflammation and for pain (two programs).
  • ARRY-520, a KSP inhibitor for cancer.
  • ARRY-380, an ErbB-2 inhibitor for cancer.
  • ARRY-614, a p38/Tie 2 dual inhibitor for inflammation and for cancer (two programs).

Our three top pipeline candidates are ARRY-886, ARRY-543, and ARRY-797.

Lawler: Where do you envision Array will be in 10 years?

Conway: Array will be a fully integrated, commercial-stage biopharmaceutical company inventing, developing, and marketing safe and effective targeted therapies to treat patients afflicted with cancer and inflammatory diseases.

Partnering will remain an important part of our strategy over the next five years. Today, we plan to advance our development assets to clinical proof of concept prior to partnering them to maximize their risk-adjusted value. Our goal is to retain as much of the U.S. commercial rights as possible through these deals, with our partners providing funding and development and commercial resources.

Array will initially build a commercial capability that will be responsible to position our drugs to maximize their overall value. As our first drug nears approval, we will build a U.S.-based sales force to promote or co-promote our drugs.

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