In its twelve-year history as a publicly traded biotechnology company, Array BioPharma, Inc. (ARRY) has built an extensive pipeline, which today, consists of fourteen mostly early-stage drug candidates covering an "array" of disease indications in hematologic malignancies, infectious diseases, and inflammatory disorders. More impressive has been the company's ability to raise over $1 billion in debt and equity through public offerings of common stock and collaboration agreements with Big Pharma such as Novartis (NVS) (MEK162), AstraZeneca (AZN) (selumetinib), Amgen (AMGN), and Roche. With its two MEK programs set to enter Phase III studies this year, Array has seamlessly made the difficult transition in becoming a late-stage development company. In addition, its two wholly owned hematology drug candidates - ARRY-520 and ARRY-614 - are considered the company's other major value drivers.
The investment community today attributes the company's valuation to its two MEK programs - selumetinib, which is entering a Phase III study in non-small cell lung cancer (NSCLC) in the second half of this year, and MEK162 in BRAF and NRAS advanced melanoma, which is slated to begin a Phase III study this quarter - and to Array's development strategy to advance at least one of its HemeOnc programs without the need of a partner.
Looking further into the deep pipeline, however, we find that positive up-coming data from either selumetinib in uveal melanoma or ARRY-502 in asthma could add meaningful value to the company and provide a near-term catalyst to the current stock price.
Validating Selumetinib Through Uveal Melanoma
At its annual investor day meeting on March 21, 2013, AstraZeneca discussed as part of its plans for 2013 to advance selumetinib in multiple indications including a Phase III study in second-line KRAS NSCLC and a pivotal Phase IIb study in thyroid cancer. In addition, AstraZeneca also mentioned plans to present up-coming data from its randomized Phase II study in uveal melanoma at the American Society of Clinical Oncology (ASCO) annual meeting at the end of May this year. With 38 on-going studies for selumetinib in other cancers such as hepatocellular, rectal, colorectal, pancreatic, breast, and melanoma, little attention has been paid to the potential of selumetinib in this niche tumor indication.
According to the Ocular Melanoma Foundation (OMF), uveal melanoma is the most common primary cancer of the eye in adults, diagnosed in about 2,500 adults every year in the US and 5,500 in Europe. It is the second most common type of melanoma after cutaneous and represents about 5% of all melanomas. Approximately 50% of patients with uveal melanoma will develop metastases within 10 to 15 years after diagnosis.
The randomized Phase II study compares the unique mechanism of action of MEK inhibitor selumetinib to temozolomide in treating patients with metastatic melanoma of the eye with Progression-Free Survival (PFS) as primary and Overall Survival (OS) as secondary endpoints. The primary analysis focuses on those patients with the GNAQ/GNA11 mutation, which according to clinical cancer research shows up in 46%-53% of uveal melanoma patients.
Selumetinib has thus far shown promising results in a small subset of patients doubling the PFS time at 114 days versus 50 days for temozolomide. The Phase II study is powered to show that selumetinib will decrease the 4-month progression rate by 40% when compared with temozolomide in the GNAQ/11-mutant patient population that is temozolomide/dacarbazine naïve. It also assesses the efficacy of selumetinib in temozolomide/DTIC naïve patients regardless of genetic background as well as patients with GNAQ/11 mutation who have previously been treated with temozolomide/DTIC.
Today, there is no standard therapy for this patient population, allowing for the increased potential of selumetinib reaching the market in this indication on a faster track in order to serve this unmet medical need. With a price tag of comparable therapies around $100,000 annually, selumetinib could generate approximately $400 million in peak annual revenue for AstraZeneca, and with a low double-digit royalty between 10%-15%, subsequently $40-$60 million of non-dilutive capital for Array. An approval of selumetinib in this indication, more significantly, would provide further validation of its mechanism of action and make a compelling case for its increased value proposition given that selumetinib is advancing into two Phase III studies this year.
ARRY-502 - Asthma, A Free Call Option
Last October, Array announced plans to present top-line results for its Phase II study in persistent asthma sometime early this summer. One of the four wholly owned assets in the pipeline, ARRY-502 plays an important part in fulfilling Array's development strategy. It is also an asset to which analysts have yet to assign any value. Positive data from the up-coming study and Array will seek to find a worldwide partner. As such, we view ARRY-502 as a free call option in Array's current valuation.
ARRY-502 is an oral CRTh2 antagonist that mediates the actions of PGD2, which is shown to activate CRTh2, resulting in chemotaxis and activation of inflammatory cells and stimulate the production of cytokines that control asthma pathophysiology. ARRY-502, thus, presents a unique and attractive approach to the treatment of mild-moderate allergic asthma. In January 2012, Oxagen Ltd. presented compelling data from its own CRTh2 compound in a randomized Phase IIa study demonstrating a mean change in pre-bronchodilator Forced Expiratory Volume in 1 second FEV(1) > +9% versus placebo, "providing the first clinical evidence that CRTh2 receptors to airflow limitation, symptoms and eosinophilic airway inflammation in asthma." Similar to Roche/Genentech's IL13 (interleukin 13) lebrikizumab, which showed a FEV(1) > +8% in a select patient population with high-periostin and pre-specified based on Th2-signature status in a Phase II study, ARRY-502, which showed a good safety profile across the mild-to-moderate asthma spectrum, could prove to be of major interest to Big Pharma. Prior to falling off patent, Singulair brought in $5 billion a year in annual sales for Merck (MRK). Positive data out of its Phase II study could well land Array a large upfront payment of $40-$60 million.
A Catalytic Summer
Many sidelined investors who continue to focus on the cash position of $109 million versus the steady annual burn of about $50 million do not believe Array will be able to finance its up-coming Phase III HemeOnc studies without the need of additional capital next year. It is very likely, however, that positive data from either selumetinib in uveal melanoma or ARRY-502 in asthma could bring in the non-dilutive capital that would put a floor on the stock price around its current $5 level and compel analysts to raise their target prices.
A higher valuation will become even more compelling at this year's ASCO in May when Novartis plans to present data on its Phase Ib/II study of LGX818 in combination with MEK162 (royalties greater than 20%) in BRAF tumor population. Positive data could provide evidence for why this combination trial should be given breakthrough or accelerated approval status. With further validation of its MEK programs and a potentially lucrative partnership with ARRY-502 on the horizon, it appears Array's development strategy could be on the verge of paying dividends to its long-term shareholders.