Tricia Haugeto – IR
Bob Conway – CEO
Mike Carruthers – CFO
Kevin Koch – President and Chief Scientific Officer
Eun Yang – Jefferies & Company
Stephen Willey – Stifel Nicolaus
Array BioPharma Inc. (ARRY) F1Q2011 Earnings Call Transcript November 9, 2010 9:00 AM ET
Good day, everyone and welcome to today’s Array BioPharma first quarter fiscal 2011 financial results conference call. Today’s call is being recorded. At this time for opening remarks, I would like to turn the call over to Tricia Haugeto. Please go ahead.
Thank you, Takisha [ph]. Good morning and welcome once again to Array BioPharma's Conference Call to discuss our financial results for the first quarter of fiscal 2011. You can listen to this conference Call on Array's website at www.arraybiopharma.com. Also, we are using slides today to accompany our remarks. The slides can be downloaded on the Investor Relations homepage of our website. In addition, a replay of the conference call will be available via telephone for the next seven days and via the internet.
I'd 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, 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, 2010 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'd like to turn over to Array's CEO, Bob Conway.
Thanks, Tricia. Good morning everyone. Thanks for joining the call to discuss Array's first quarter results for the fiscal year ending June 30, 2011. As Tricia mentioned, we'll be using slides today that you can access through our website at arraybiopharma.com and on the Investor Relations page. And I'll announce the slide I'm going to right before I have my remarks for that. I hope everyone had a chance to review last night’s press release. We're pleased to report on our progress this past quarter for both our proprietary and partnered programs.
I'm on slide three now and let me start by reminding you of Array's value proposition and why we believe Array continues to be a good investment and has significant opportunity to build value in the future. We have multiple high value Phase II programs, strong partnerships with leading companies including AstraZeneca, Amgen, Novartis, Genentech, Roche and Celgene. These are high value deals with terrific economics, almost $3 billion in potential milestones, double digit royalties and an option to co-detail or promote on several programs.
We continue to have a deep pipeline of drugs in discovery and development providing significant future partnering opportunities. We put 13 drugs into Clinical Development over the last five or six years. We're well capitalized with 109 million of cash and marketable securities as of September 30, 2010, plus a stream of potential milestones from our partners to fund the company.
Moving on to slide four, this details our accomplishments. And we got a lot done during the first quarter of fiscal 2011. First, MEK162, this is our MEK inhibitor we partnered with Novartis, completed patient enrollment in the biliary tract cancer expansion trial and initiated KRAS and BRAF mutant colorectal cancer expansion trials as well.
Selumetinib that’s the new name for AZD6244, the MEK inhibitor we partnered with AstraZeneca completed patient enrollment of two Phase II combination trials in melanoma and non small cell lung. Array-520 is our 100% owned kinesin spindle protein inhibitor where we established the maximum tolerated dose and initiated a Phase II single agent trial in multiple myeloma. AMG 151 is a glucokinase activator partnered with Amgen. We completed a Phase I multiple sending dose trial and now all future activities will be – clinical activities will be done by Amgen.
Array-380 is a selective HER2 inhibitor. Again, we own 100% of the rights to this drug. We reported positive Phase I data and initiated an expansion trial in patients with metastatic breast cancer. And finally, the Danoprevir is NS3 protease inhibitor that we invented for InterMune, which later partnered with Roche. Roche acquired all of the rights to Danoprevir this past quarter from InterMune for $175 million payment. Array retains its milestone and royalty rights.
Let's move on now to slide five. Today, we're focusing investor retention on our four highest value programs with near-term value creating events that are even in Phase II proof-of-concept trials or soon will be. These include the two MEK inhibitors and you could see the ownership for these in right hand side of the slide, one with Novartis, the other with AstraZeneca. Our KSP program Array-520 and our glucokinase activator for Type II Diabetes. I'll update you on each of these programs today.
Moving to slide six, in addition to the key development programs we have a number of earlier stage programs in our pipeline. Three of the programs we own 100% of the rights to. We can potentially partner these programs or continue to develop them ourselves on a case-by-case basis, to maximize their value. The other four and those were at the bottom of the slide, are partnered with the partner funding all of the development. Later in the presentation, we will update you on recent results for Array 380.
To slide seven. MEK inhibition, this is looking at the MEK markets has strong support in the oncology community both as single agent and in combination. We are addressing with our two inhibitors significant unmet medical needs in targeted patient populations and have trials ongoing with one or both of our MEK inhibitors in all of the tumor types listed on the left-hand side of slide seven. The aggregate of patients in these tumors in the major markets is over 340,000, a huge market opportunity. In addition, there was a scientific rationale to test MEK inhibitors in a dozen or more other tumors as well.
Let’s move on to slide eight. Our first generation MEK inhibitor was partnered with AstraZeneca about six years ago. Today, it's the most advanced MEK inhibitor in the industry. We have a potential double digit royalty on this drug depending on sales and AstraZeneca has over 30 ongoing or completed trials with this drug.
If you move to slide nine, Selumetinib was presented at ASCO this year and impressive Phase I results combining Selumetinib and chemotherapy agents primarily DTIC in melanoma patients, showing a 56% response rate in a subset of BRAF melanoma patients. This was the first disclosed efficacy data with the new formulation of Selumetinib all previously reported data were with the mix and drink formulation.
The new solid dosing form provides twice the drug exposure at the preferred dose. As you can see on the top chart of the nine BRAF patients selected for this trial in combination with DTIC, there were five PR’s [ph] four stable disease and no progressive disease, a 56% response rate and these are heavily pre-treated patients. At the bottom chart, it shows that these responses were very durable. All nine BRAF mutated melanoma patients had time to progression greater than 12 weeks on study and the medium time to progression was 31 weeks.
Moving on to slide 10 now, there were two randomized Phase II trials ongoing with Selumetinib in combination with DTIC, that was the same combination as I showed you on the previous results, in melanoma and in combination with Taxotere in non-small cell lung cancer. Enrollment was completed this past summer on both trials and we're expecting data in 2011. This could be a very meaningful both for this drug and if positive, put a halo over our other MEK inhibitor as well. This is potentially a big value creating event for Array.
Let's move on to slide 11 now. In April, we partnered our second generation MEK inhibitor with Novartis this was recognized as a very high value Phase I deal. The economics of this deal were an initial payment of $45 million, potential milestones of over $400 million, double digit royalties outside the U.S., significantly higher than that inside the U.S., we have a co-development option that we need to fund to keep our higher royalties in the U.S. and finally, our co-detail rights in the U.S.
Novartis will fund an Array sales-force for this drug once it gets to commercialization. We've completed both a Phase I dose escalation study to set the MTD for 162 and the biliary tract cancer expansion trial with 28 patients enrolled currently. We've initiated an expansion trial in KRAS mutant colorectal patients, which is quickly enrolling and should lead into a larger Phase II KRAS colorectal trial as well. We've also initiated a BRAF mutant colorectal expansion trial and we're looking forward to the results on all of those.
Let's move on now to our KST inhibitor, Array 520 on slide 12. 520 is a KSP inhibitor which prevents bipolar spindle formation leading to cell death. Disruption of cell division or mitosis prevents cell proliferation and is been validated in cancer treatments with the taxanes and the vencas.
520 is targeting multiple myeloma and there's approximately 100,000 patients in the major markets with multiple myeloma and the estimated market for these multiple myeloma today is $3 billion. That's primarily Velcade and Revlimid today.
Moving on to slide 13, gives our development program and multiple myeloma. We've completed the Phase I trial at the top with Array-520 and plan to report this data next month at the ASH meeting in Orlando. It's a first week of December. We've initiated a single agent Phase II trial in Relapsed/Refractory Multiple Myeloma patients as well. In addition we're initiating a Phase 1b/2 trial in combination with Velcade in the same patient population. Pre-clinically, we have some pretty startling data when you combine 520, our drug with Velcade. We hope to enroll both of these trials by the end of 2011.
Let's move on to slide 14 which is the next drug. It's the AMG 151-Glucokinase Activator for Type 2 Diabetes, which has been, this was originally the Array-403 small-molecule Glucokinase activator. In December 2009, we partnered this drug with Amgen for one of the richest Phase I deals ever done. We received $60 million up front, $600 million in potential milestones and a double-digit royalty and have a co-promote option on the drug.
AMG 151 controls glucose levels via dual mechanism of action working through both the pancreas and liver to reduce blood glucose levels, following a meal and to maintain lower fasted blood glucose levels throughout the day.
If you move to slide 15, it gives the market size, the estimated market size for Type 2 Diabetes. There is in total about $54 million Type 2 diabetic patients in the major markets and we think half of those patients are being treated. That adds up to about a $20 billion market worldwide and it's estimated in the U.S. as many as a third of adults will have Type 2 Diabetes by the year 2015, 2050 rather.
Moving on to slide 16. This is a data slide that provides the single ascending dose data fasting blood glucose at a 24 hour time point. This last line at the top is the baseline. And as you go out, it lists out the various data and you can see the increasing glucose control as you go from 25, 50, 100 up to 400-milligram dose of AMG 151. Extremely impressive data and it's one of the reasons that we had a number of major pharma companies that were very interested partnering with Array on this slide.
Let me move on now to the final drug that I want to talk about today. It's ARRAY-380 and it's on slide 17. It's our Potent Oral Selective HER2 inhibitor. We reported positive results on the Phase I dose escalation trial at the ASCO breast cancer meeting in Washington, in the first week of October.
On slide 18, you can see the tumor –the anti-tumor activity of this drug. There were 17 HER2 positive patients on the trial with measurable disease at doses greater than 200 milligrams BID. All of these patients have been previously treated with Herceptin and 80% had also received Tykerb.
On average the patients on this trial had had five pre-treatments. Nine of the 17 patients had tumor regressions with two partial responses, one confirmed and one unconfirmed. In addition, three patients without measurable disease had regressions of non-target chest wall lesions documented via photographic evaluation.
Moving on to slide 19 and it's one of the reasons we're so excited about this drug, is the safety profile. 380 was well tolerated with the predominant treatment related adverse event being Grade I – being Grade ones. Because 380 is selective for HER2 and does not inhibit EGFR, there was expected a low incidence and severity of diarrhea, rash, fatigue.
Additionally there were no Grade IV or adverse cardiac events reported on the trial. There were two reversible Grade III DLTs reported at 800 milligrams BID, which is above the established maximum tolerated dose of 600 milligrams BID.
You can find the complete results of this on a poster from the presentation along with all of the other poster presentations and publications on Array's website, arraybiopharma.com. An expansion cohort in patients with HER2 positive metastatic breast cancer patients is ongoing and confirms safety and explores efficacy in the pharmacodymanic markers.
Let me pass it over now to Mike Carruthers, our Chief Financial Officer to report on what we think was a really good first quarter financially for Array. Mike?
Thank you, Bob. Array's revenue for the first quarter was 18.5 million and is a new record high quarterly revenue level. Approximately, 60% of the revenue is from recognition of upfront license payments from Amgen, Novartis and Celgene. This is the main driver for the revenue more than doubling from the same period last year.
Our collaboration revenue also increased from the same quarter last year and came largely from Genentech and Amgen for performing discovery and or development activities for a number of programs. This is the first quarter for the co-development activities and related accounting with Novartis on 162. The co-development agreement has Novartis reimbursing Array for all costs we incur over the first two years starting this quarter. The reimbursement to Array for this first quarter will be $2.2 million and we expect to receive that reimbursement in December.
If we continue to co-develop in the third year, we will be responsible for a fractional share of the total development costs up to a maximum amount and with annual caps. The portion of development costs that hit our P&L this quarter shows up in the cost of revenue line at $700,000. This is only the fractional portion that is our share and since we are being reimbursed, it's a non-cash item.
This strong revenue combined with the co-development arrangement with Novartis and reduced R&D spending in general, held our loss per share for the quarter to $.20. The last time we had a quarterly loss per share this low was in fiscal 2005. Both the revenue and even more significantly loss per share beat the consensus estimate.
Our cash equivalents and marketable securities as of September 30 is $109 million. And for the quarter, our net cash used in operating activities or burn was held to only $20 million. Now, I'd like to change gears a little bit and provide a little bit more color on guidance.
We've previously provided guidance for fiscal 2011. The guidance includes revenue at $75 million and loss per share at $1. Further, we've indicated we expect to receive $20 to $30 million in milestone payments and a net cash burn of $50 to $60 million. These targets are still the best guidance for the full year.
Looking at the quarters, it's important to note that the next quarter, our fiscal second quarter, will be comparable to the quarterly levels in the last part of last fiscal year, so what I expect is revenue to be about $16 million and loss per share to move back up to around $0.28 or $0.29. Then on average, the last two quarters will be somewhat improved from the second quarter.
And with that I'd like to turn it back over to Bob.
Thanks, Mike. If you move to slide 21, these are the 2010 milestones for Array. Even though we're on a fiscal year end of June 30, we provide the milestones every January and then those are calendar year milestones and you can see the check marks on the right hand side indicate that we've accomplished them. So we’ve delivered on almost all of the milestones that we set up in January of 2010 with the exception of two.
The first of those is to file INDs for two new drugs, an IND was filed for the AKT inhibitor that’s partnered with Genentech early this year. So we got one of the two drugs. The second one we're still confident will happen before the end of the year. We accomplished all of the other activities on 162, 520, 543, 380.
On 614, we said we complete and report the Phase I trial. That's not going to happen until 2011. The drug has been better tolerated than we were expecting and the trial has gone on longer so we're not going to be reporting the Phase I results this year. Other than that, all in all I think it was a great year from a milestone standpoint.
At that, that ends our prepared remarks for this morning, but Tricia, let me turn it back over to you, the operator and see if there's any question’s for us today.
(Operator Instructions) Our first question today comes from Eun Yang with Jefferies.
Eun Yang – Jefferies & Company
Hi. If you have mentioned this already, I apologize, I got on the call a little bit late. Last time you provided an update on Array 797, you were kind of in discussions with KOL for potential indications. Any update on that product?
We’re still in discussions with the KOL, still in an evaluation mode. We’ll come to a decision by the end of this year and have it for you on the next call. But I think there’s a lot of exciting things that have taken place, both there’s a couple of major pharma companies that had some really interesting results on p38 inhibitors. I think Glaxo and Pfizer have both had some interesting results and I think the target is becoming more interesting again and we’re carefully evaluating what to do with what we think is probably one of the better p38 drugs in the industry.
Eun Yang – Jefferies & Company
Okay. And then regarding AstraZeneca and Novartis, the partnerships, you guys already have this follow-on product. Any update on those? Like for example, AZ D, A330 and 300? Second generation inhibitors from Novartis.
Yeah. We don’t have visibility, I think, on either one of those today. The AstraZeneca drug, I mean we’ve stopped taking non-public information from AstraZeneca when we decided to, that we may want to outlicense another MEK inhibitor and that was in September of 2009 – 2008, I think it was, but I think with both of those and I’m guessing and I don’t know what Novartis’ plans are, but I think AstraZeneca’s plan always was to get that through Phase I and then only advance it if they thought it would adjunct what was going on with 6244, Selumetinib as it’s pronounced today and that seems to be going great and we’re looking forward to results in 2011 on two large Phase II trials with that drug.
Eun Yang – Jefferies & Company
Okay. And then in terms of the proprietary programs, you have about four or five cancer programs on your own and among those, is it fair to say that 520 is more of your key focus at the moment?
Yeah. I would say 520 because and how it got on the key focus list is how quickly we could get proof-of-concept data and value creating events surrounding it. We’re excited about the other drugs as well. Some of those we’re in partnering discussions on currently and some were advancing ourselves. So how it makes on to the key development list is we think there’s near term significant value creation with proof of concept data.
Eun Yang – Jefferies & Company
Thanks, Eun. Thanks.
(Operator Instructions). Our next question comes from Stephen Willey with Stifel Nicolaus.
Stephen Willey – Stifel Nicolaus
Yeah. Hi, good morning. Thanks for taking my question. Just curious, you mentioned that you had some interesting pre-clinical results with 520 and Velcade. There’s obviously been a lot of speculation around what the mechanism of action is for Velcade. I am just wondering if you have any hypothesis as to what a KSP inhibitor might be doing to be improving Velcade efficacy?
Let me get Kevin Koch, our chief scientific officer to answer that, Stephen. Kevin?
Hi, Stephen. Yeah. We’ve done some extensive work looking at survival factors and which tumors depend on which kind of survival factors. We believe MCL1 is important in multiple myeloma patients and of course, protease inhibitors in various ways regulate the half life of certain survival factors. And so, what we found is with 520, it is highly dependent on the ratio of MCL1 and other proteins that actually stabilize its activity and existence.
We think at the same time Velcade controls the half life of some of these survival proteins so that combination turns out to be highly productive of Velcade and 520 in myeloma patients, although that’s probably the extent of our knowledge at this time and we have an extensive biomarker work going on to try and understand what is the driving factor in the efficacy of 520 and we’ve seen again good efficacy with some patients being on now for as much as 12-14 months.
Stephen Willey – Stifel Nicolaus
And then just in thinking about the two myeloma trials and as this drug kind of moves further into the clinic, there’s obviously a lot of salvage myeloma patients, but there are quite a few drugs all vying for those patients right now in the clinical trials. Do you foresee any kind of challenges to enrollment on the myeloma front?
Surprisingly and this is what’s gotten our enthusiasm increased is that our enrollment has been spectacular. In fact, we have patients lining up to take this drug in both the single agent and in the combination studies. We’re working with MMRC on the Velcade study and we are working in particular with a couple of great sites on the single agent study and we’re essentially filling our cohorts in about six weeks, four weeks.
So we’re pretty happy about that given the competitive nature of these groups. I must also say that as you see what’s going on in the entire industry in myeloma, there are increasing number of patients who will ultimately fill [ph] Revlimid and Velcade and they are kind of piling up and then there’s a couple of agents after them that are in around Phase III. Our strategy would be to look at some of the Velcade refractory patients first and then look to go into the relapse and refractory population with a control trial.
Stephen Willey – Stifel Nicolaus
That’s helpful, thank you.
(Operator Instructions). It appears we have no further questions at this time. I’d like to turn the conference back over for any additional or closing remarks today.
Well thanks operator and thanks everybody for joining us today. We were pleased to report on our progress over the past quarter and we’re pleased with the way things are going. I would like to thank our 330 employees for their dedication, creativity and hard work and continued contribution they’ve made again this quarter to Array.
I’d also like to thank our partners and shareholders for their continued confidence and we look forward to updating you on our next scheduled call in about three months. Thanks, everybody.
Ladies and gentlemen that does conclude today’s conference. Thank you for your participation.