Array BioPharma Inc. F1Q10 (Quarter Ended June 30, 2010) Earnings Call Transcript

Array BioPharma Inc. (ARRY)

F1Q10 Earnings Call

November 3, 2009 9:00 am ET

Executives

Tricia Haugeto - Investor Relations

Robert E. Conway - Chief Executive Officer, Director

Kevin Koch Ph.D. - President, Chief Scientific Officer, Director

R. Michael Carruthers - Chief Financial Officer

David L. Snitman, Ph.D. - Chief Operating Officer and Vice President, Business Develop

Analysts

Eun Yang, Ph.D. - Jefferies & Company

Edward Tenthoff - Piper Jaffray & Company

Simos Simeonidis - Rodman & Renshaw

Presentation

Operator

Good morning ladies and gentlemen my name is Doris and I will be your conference operator today. At this time I would like to welcome everyone to Array’s BioPharma First Quarter 2010 Earnings Conference Call. (Operator Instructions). At this time for opening remarks I would like to turn the call over to Miss Tricia Haugeto. Please go ahead ma’am.

Tricia Haugeto

Thank you, Doris. Good morning and welcome once again to Array BioPharma's conference call to discuss our financial results for the first quarter of fiscal 2010.

You can listen to this conference call on Array's website at www.arraybiopharma.com. In addition, a replay of the conference call will be available via telephone for the next seven days and via the Internet.

I would like to introduce Array's Chief Executive Officer, Bob Conway and our Chief Financial Officer, Mike Carruthers, who will lead the call today. I would also like to introduce Kevin Koch, our President and Chief Scientific Officer and David Snitman, our Chief Operating Officer and Vice President of Business Development who will be available to answer questions as needed. But, before I hand over the call to Bob, I would like to read the following Safe Harbor statement.

The matters we are discussing today include projections or other forward-looking statements about the future results, research and development goals of Array and its collaborators and future financial performance of Array. These statements are estimates based on management's current expectations and involve risks and uncertainties that could cause them to differ materially from actual results. We refer you to risk factors discussed in our filings with the SEC, including our annual report filed on Form 10-K for the year ended June 30, 2009, and in other filings Array makes with the SEC. These filings identify important risk factors that could cause actual results to differ materially from those in our projections or forward-looking statements.

Now I would like to turn it over to Array's CEO, Bob Conway.

Bob Conway

Thanks Tricia. Thanks for joining the call this morning to discuss Array’s first quarter results for the fiscal year ending June 30, 2010. I hope everyone has had a chance to review last night’s press release.

We are excited about the rapid progress we made in our proprietary pipeline during the quarter, while we tightened our spending and secured additional capital to fund our 100% known programs in clinical development. In spite of our current stock price we feel good about Array’s prospects for advancing our pipeline and partnering select drug programs.

Today I would like to review with you three areas: First is our partnering strategy; second is how we are doing in advancing our proprietary clinical pipeline; and third is a review of our partner programs.

Partnering is an essential part of our strategy. Unlike many biotech companies Array has a deep pipeline of drugs in discovery and development and a track record of successful collaborations, providing significant partnering opportunities. Partnering our drugs provides resources and capital to advance the drug as well as additional non-dilutive capital to fund Array. In addition, once a drug is partnered either all or a majority of the funding is provided by the partner reducing our near term spend.

Since our inception partnerships have generated a total of $350 million from upfront payments, milestones, and funded research. Our goal is to complete one to two new partnerships each year. We are currently negotiating with a number of major pharmaceutical companies to partner both development and discovery stage drugs. We still anticipate closing one or more significant deals and are achieving our partnering goal for the year. Achieving this goal will add significant capital to our balance sheet and further reduce our burn for next calendar year.

In proprietary research during the quarter we made significant progress advancing the pipeline. Normally Kevin Koch does a report on our proprietary programs, but he is at BIO-Europe this week and is not going to do a report today, but will be available later in the call for questions.

There are six proprietary programs I want to report on today. The first of those is Array-403 a glucokinase activator for type 2 diabetes. We announced positive top line data from the Phase 1 single ascending dose clinical trial in patients with type 2 diabetes in August. The drug met its primary and secondary endpoints of safety, pharmacokinetics, and glucose control.

Following on the success of the SAD study we initiated a 1-day MAD trial or multiple ascending dose trial in type 2 diabetic patients. We anticipate completing this study during the first quarter of 2010 and having top line results in the second quarter of 2010. We have an aggressive development plan for 403; we are also negotiating with potential partners to conclude a deal as the best way to maximize 403’s benefit to patients.

The second drug is Array-162 our MEK inhibitor for cancer. We filed an additional IND for Array 162 on July 13^th to initiate a Phase 1 rising dose tolerance study to evaluate the safety, pharmacokinetics, and pharmacodynamics of 162 in advanced cancer patients. The IND cleared FDA around August 13^th and we dosed our first patient on August 17^th. There is a lot of excitement around this drug in the investigator community and we’ve already completed enrolling two cohorts and have partially enrolled a third. This is a record for us and as fast as anyone has enrolled a cancer trial. We should reach an MTD in the next few months and will move into an expansion phase, initially in delivery tract cancer patients. There is significant partnering interest in this program. We believe this is the lat MEK inhibitor currently in the clinic available for partnering.

The third drug is Array-520 our KSP inhibitor. Array continued a Phase 1 trial of 520, a novel KSP inhibitor in patients with solid tumors in two Phase 1b II trials in patients with AML and multiple myeloma. We will have two posters on Array-520, they are scheduled to be presented at ASH the first week of December; the first is preclinical results of drug combinations and the second are results of the Phase 1 dose escalation study in advanced leukemia patients.

Array-380 is our selective ErbB-2 inhibitor for metastatic breast cancer. We remain on track for completing patient recruitment of the Phase 1 escalating dose trial with Array-380 this year. The trial is designed to evaluate the safety, maximum tolerated dose in pharmacokinetics of Array-380 in patients with advanced cancer. We will have results on the Phase 1 clinical trial with 380 at the San Antonio Breast Cancer Meeting the second week of December.

Array-543 is an ErbB family inhibitor for solid tumors. Array continued a Phase 1 dose trail with a tablet formulation in patients with solid tumors, and three Phase 1b combination trial; that is Array-543 in combination with Xeloda®, docetaxel and Gemzar®. We will have results in a Phase 1 tabulation study in ERTC later this month.

Finally Array-614 is our p38 Tie2 inhibitor. We continue dosing patients with myelodysplastic syndrome or MDS in a Phase 1 trial with 614 to determine the safety, maximum tolerated dose pharmacokinetics, and preliminary estimates of efficacy of the compound in this patient population.

Next let’s move to our partner pipeline. In our partner pipeline we have six drugs in clinical development in two large discovery programs. One of the benefits of the partner program is these programs are all advancing on funding provided by the partners. The two most advanced clinical programs are AZD6244. That is the MEK inhibitor that we partnered with AstraZeneca in 2004. AZ is conducting two Phase 2 trials in combination with chemotherapeutic agents in melanoma and non-small cell lung. In addition, AstraZeneca and Merck have combined two experimental agents, 6244 the MEK inhibitor with Merck’s AKT inhibitor and the thought here is if you can shut down two of the cancer pathways simultaneously you could potentially create tremendous clinical benefit for cancer patients. There are also six single agent trials on going in collaboration between AstraZeneca and the NCI.

The next drug is ITM-191 and that is the NS3 protease inhibitor for HCV that we invented for InterMune which was later partnered with Hoffman-La Roche. It appears to be making rapid progress in the clinic currently. Array received a million dollar milestone payment from InterMune in August 2009 after InterMune and Roche advanced 191 into a Phase 2b trial evaluating 191 in combination with standard of care therapies.

In addition, we are making good progress on our two large discovery programs, one with Genentech, and the other with Celgene and we should start seeing news of these drugs entering clinical development in 2010.

The total economics from our partnered programs is $1.3 billion in potential milestones and royalties up to 13%. Overall we’re quite pleased with the progress we made during the quarter in all three areas, in partnering, in advancing our proprietary pipeline, in advancing our partnered pipeline.

Let me pass it over to Mike Caruthers, our CFO, to drill down on the financials. Mike?

Mike Carruthers

Thanks Bob. Array’s revenue for the first quarter of $7.9 million is in line with our expectations and reached the highest quarterly level in nearly two years. This revenue includes a $1 million milestone payment for InterMune and Roche advancing ITM and 191 into a Phase 2b hepatitis C trial.

Our loss per share for the quarter of $0.52 is a bit better than the consensus estimate. The lower loss was helped by our R&D spending for the quarter of only $19 million which is the lowest quarterly level of R&D spend in two years and a 20% decline versus the same quarter last year. As of September 30^th Array’s cash equivalents and marketable securities totaled $77 million; this level is the result of receiving a net of $39 million during the quarter on the Deerfield credit facility and using approximately $21 million in operations.

Now I will update guidance. At our last call, which was in early August, I provided guidance for the full year that called for revenue to be approximately $37 million and loss per share to be about $2.00; we still believe that this is good guidance. For the second quarter this year we did not specifically provide guidance at our last call. We think that this second quarter revenue will be about $6 million and loss per share will be about $0.56, so clearly we expect the last half of the year to be improved for revenue and loss per share and this is based on the expectation of a partnership.

Bob Conway

Thanks Mike. Let me review our milestones for calendar 2010 and then we will open it up for questions. We provide these milestones in January; I mean this is January 2009 for calendar 2009, so the milestones I am going to walk through are the ones that we anticipate completing by the end of this calendar year. The first of those is to raise $80 million through partnerships; that would include up front payments and milestones and guarantees we receive from the partner. Array-403, our glucokinase activator for type 2 diabetes, we have completed both of the milestones here and that was to complete the Phase 1 SAD trial and initiate the Phase 1 MAD trial.

162 MEK for cancer we said we would initiate the Phase 1 trial in cancer patients in the third quarter, which we did.

Array-543 our ErbB-2 EGFR inhibitor in solid tumors, we plan on reporting out the Phase 1b trial in HER2 positive metastatic breast in ERV family tumors and we did this at the AACR meeting in April in Denver.

Array-380 our ErbB-2 program for breast cancer, we planned on by the fourth quarter, we haven’t hit it yet, completing the Phase 1 escalating dose trial and we will report on those results at the San Antonio Breast Cancer Meeting in December.

Array-614 is our p38 Tie2 inhibitor for MDS. We reported on the SAD/MAD results for the Phase 1 study in the second quarter of 2009 and initiated a Phase1b-2 MDS study in the second quarter as well.

Array-520 is our KSP inhibitor. We said in the fourth quarter that we would complete the Phase 1b expansion in solid tumors and we should get that done this year and then have top-line results on the Phase 1b in AML and we will report on those at ASH in a couple of weeks.

The multiple myeloma enrollment will spread into 2010.

Array-797 our p38 program completed enrollment of the high dose MAD study which we did in top-line results in the 28-day RA study with methotrexate and we reported on those.

Finally, Array-300, which is now a backup for Array-162, we said we would complete a Phase 1 single thinning dose trial in normal volunteers and we did complete that.

With that let me pass it back over to you, Doris, and see if there are any questions on the call today.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Eun Yang with Jefferies & Company.

Eun Yang - Jefferies & Company

I want to ask questions regarding the partnerships. In the past you mentioned that the dual RV2 EGFR inhibitor as well as a selective RV2 inhibitor, you are looking for partners, but it seems to me that partnership discussions on MEC inhibitor and glucokinase inhibitor seem to be going better and potentially a partnership could do you more if you do the programs rather than an EGFR dual inhibitor as well as selective inhibitors. My question is what happened with the discussions or your plan to find a partner for EGFR inhibitor programs and are you still anticipating using a general partnership on those two programs?

David Snitman

We are in discussions with multiple programs, as you mentioned. The oncology programs, yes we do have active discussions ongoing with both 543 and 380; however, I think you are correct to say that the discussions around our MEC oncology program and glucokinase program are advancing at a rapid pace. So, our goal and our ability to close on multiple deals by the end of the year, we are on track for that and at this time of year I think one has to select which programs one wants to put their full attention to and focus on those and that’s what we’re doing.

Eun Yang - Jefferies & Company

My second question is on the inflammation programs. Is it fair to assume that MEK inhibitor 162 and p38 MEK kinase inhibitor or 797, is it fair to assume that those programs are pretty much on hold at this point?

David Snitman

Yes. MEK, we announced this when we had the results on the 162 program. The focus now for 162 is solely on oncology. We are in partnering discussions with the drug; there is a lot of excitement around that. We may discuss with a partner down the line additional applications for 162, but right now the concentration is on cancer and we don’t plan on investing more array capital in 162 in inflammation.

In p38 we’re not currently in clinical trials with our 797 p38 program, though we are evaluating that and we do think the drug has promise in support of cancer care as well as pain applications and we’re evaluating those. But, we have recognized that we can only have so many programs ongoing at one time in clinical development to do a good job on those and to effectively deploy our capital. So, we don’t have anything going on 797 right now, but we are evaluating alternatives for that program.

Eun Yang - Jefferies & Company

Thank you.

Operator

Your next question comes from Edward Tenthoff from Piper Jaffray & Company.

Edward Tenthoff - Piper Jaffray & Company

I was just looking at sort of burn for the quarter. I know you guys have been tightening the belt here, but a million in cash obviously the onus is on bringing in new capital from partnerships [inaudible] of that guidance. Does the fact that you put that guidance out there that the cash is starting to decrease, put any extra pressure on the negotiations, or can you classify where talks are around some of the different programs?

Bob Conway

Let me make a couple of comments. First, I am delighted with the news on InterMune. Since we have a royalty on that drug it is close to our heart. On all of these programs if you have multiple bidders looking at them, as we do with the programs that we are in discussions with, there is clearly less pressure on to do a deal with any individual company. While we have almost a years cash on the balance sheet, and when we complete the deals along with other programs that we’re in discussions on, the amount of spend or burn that we’ll have in calendar 2010 will be less than calendar 2009 and the cash on the balance sheet should go up significantly by the first quarter. So we feel pretty good about where we will be cash balance by the first quarter of 2010.

Edward Tenthoff - Piper Jaffray & Company

Looking in the rear view mirror that line of credit that was raised really looks very smart. What is your longer-term thinking about that liability? Is it something that you would intend to keep on the books, or what is your longer-term view of that?

Bob Conway

That is a great question. We have $120 million with Deerfield that is due in 2014, so it is almost five years from right now. We can pay it back, with certain restrictions, either cash or stock. What we would really like to do is have Array’s stock appreciate significantly and at some time before 2014 pay off that debt in stock, but it’s a 7.5% interest rate in this environment it is an effective cost of capital to have provided that money in the form that we got it from Deerfield. We feel pretty good about the relationship with Deerfield and we have five years to pay that back, so we are in a good position with that.

Edward Tenthoff - Piper Jaffray & Company

Great, thanks very much Bob.

Operator

Your next question comes from Simos Simeonidis with Rodman & Renshaw.

Simos Simeonidis - Rodman & Renshaw

Do you expect to see 162 in a cancer trial in Phase 2 in 2010?

Bob Conway

Yes, we do, we expect to see it in a Phase 2 trial in 2010.

Simos Simeonidis - Rodman & Renshaw

Okay and then did you mention what meeting and when you are going to present the Array data from 797?

Bob Conway

From 797 I don’t feel a lot of pressure to do that, but it would probably be at a future meeting maybe this coming up summer, but I don’t think we’ve submitted an abstract on that yet, on the 28-day RA study.

Simos Simeonidis - Rodman & Renshaw

When will you make a decision whether to go into the sub chronic pain in supportive cancer care?

Bob Conway

It will probably be in the second half of 2010. We have a lot on our plate right now in clinical development and we want to execute those trials very, very well and there are a lot of opportunities to create significant value out of those trials, as well as moving forward with the partnering programs that we have ongoing.

Like any company we need to prioritize what we’re working on and I don’t think we would start a clinical trial before the second half of 2010.

Simos Simeonidis - Rodman & Renshaw

All right and finally on 300, are you going to report the ascending dose data in a meeting or a press release or?

Bob Conway

We will probably report that at some time in a meeting. How we think about that drug today is a back up to Array-162, so that drug is not in clinical trials right now.

Simos Simeonidis - Rodman & Renshaw

Michael, assuming you meet the guidance and you are able to bring in about $80 million in partnerships in the next couple of months, in your calculations is that enough for the next fiver or six quarters, or do you think you might do something else like a Deerfield arrangement again, or do you think that if you were to meet that $80 million guidance you wouldn’t need to raise additional money that way?

Mike Carruthers

That is right; we would not need to raise additional money.

Simos Simeonidis - Rodman & Renshaw

Great, thank you very much.

Operator

Your final question comes from Eun Yang with Jefferies & Company.

Eun Yang - Jefferies & Company

Bob, you mentioned in your prepared remarks that multiple ascending dose study data for glucokinase inhibitor is expected in the second quarter next year. Your partnership discussion on this program, is that contingent upon this mass study data?

Bob Conway

No, we are in deep negotiations right now and the MAD study data is in the future, so no the two are not connected.

Eun Yang - Jefferies & Company

Okay and just for clarification, 3800 the second generation MEK inhibitor I thought that that was in Phase 1 running single ascending dose study, but I think if I heard you correctly you said that it is not in clinic yet.

Bob Conway

No, no we have completed the single ascending dose trial and we had good PK, it was well tolerated and the drug looks fine, but we think about that drug today as a back up for 162. There is a good chance that if we were to do a deal here that 300 may be included as part of that deal, but we are thinking about that today as a back up for 162.

Eun Yang - Jefferies & Company

I understand thanks.

Operator

I will now turn the call back over to Mr. Conway for any additional remarks.

Bob Conway

Thanks very much, Doris and thanks to everyone on the call for joining us today. I would also like to thank our 340 employees for their dedication, creativity, and hard work and the contributions that they have made once again towards Array. I would also like to thank our partners and shareholders for their continued confidence and support and we look forward to updating you about 90 days from now. Thanks everybody.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation. (Operator Instructions).

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