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Array BioPharma, Inc. (NASDAQ:ARRY)

F4Q08 (Qtr End 06/30/08) Earnings Call Transcript

August 12, 2008 9:00 am ET

Executives

Tricia Haugeto – Manager, Communications

Bob Conway – CEO

Mike Carruthers – CFO

John Yates – Chief Medical Officer

David Snitman – COO and VP, Business Development

Kevin Koch – President and Chief Scientific Officer

Analysts

Ted Tenthoff – Piper Jaffray

Tim Lugo – William Blair

Mike King – Rodman & Renshaw

Jim Birchenough – Lehman Brothers

William Ho – Banc of America Securities

Operator

Good day, everyone, and welcome to today's Array BioPharma fourth quarter and full year 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.

Tricia Haugeto

Thank you, Kim. Good morning and welcome once again to Array BioPharma's conference call to discuss our results for the fourth quarter and full year of fiscal 2008. You can listen to this conference call on Array's web site 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'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'd also like to introduce John Yates, our Chief Medical Officer, who will provide an update on our proprietary development program; and 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're 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 30th, 2007, 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 over to Array's CEO, Bob Conway.

Bob Conway

Thanks, Tricia. Thanks for joining the call this morning to discuss Array's fourth quarter and full year results for fiscal year ending June 30th, 2008. I hope everyone got a chance to review last night's press release. As you can see, we had another strong quarter and accomplished a great deal in 2008. In many ways, 2008 was a transformational year for Array as we advanced and broadened our drug pipeline and significantly enhanced our clinical development capabilities.

Unlike most single drug biotech companies, we have the luxury at Array with our broad pipeline and productive discovery platform to conduct definitive Phase 2 clinical trials that are designed to determine the value of our drugs early in a program. 2009 will be an important year for Array as we deliver proof-of-concept results on several programs, any one of which could create tremendous value.

As we do each year, we recently provided a comprehensive strategic plan to Array's Board of Directors. The plan looks out over the next five years and is our roadmap to achieve Array's vision; that is becoming a fully integrated commercial stage biopharmaceutical company, inventing, developing, and commercializing targeted small molecule drugs to treat patients afflicted with cancer and inflammatory disease.

We have five strategies to achieve this vision. The first is inventing targeted small molecule drugs that are either first-in-class or second-generation drugs that demonstrate a competitive advantage over drugs on the market or in later stage clinical development. Two is partnering drugs after proof of concept for co-development and commercialization, retaining select U.S. commercial and/or co-promotion rights that can be distributed – for drugs that can be distributed through a therapeutic specialty sales force. Three is partnering select early-stage program for continued research and development, under which we would receive research funding plus significant milestones and royalties. Four is to continue building a comprehensive clinical development organization capable of providing timely, robust, proof-of-concept data and then capable of late-stage development and NDA filings. Finally, continue building a commercial capability to position our drugs to maximize their overall value. As our first drugs near approval, we will build a U.S.-based, therapeutically focused sales force to commercialize or co-promote our drugs.

Part of our strategy in the near-term involves partnering our clinical program, providing us major source of funding to Array beginning in calendar 2009. During the next three years we plan to complete proof-of-concept data on clinical programs and then partner the drugs while retaining as much U.S. rights to each program as possible. However, we will continue to evaluate on a program-by-program basis opportunities to take select drugs forward ourselves.

We enter fiscal 2009 in a very strong position. We have four programs in Phase 2, two programs in Phase 1 and two drugs that will advance from discovery to development around the end of 2008. As we enter calendar 2009, we will have eight programs in clinical development, all invented by Array, and we own 100% of the rights to these programs. Each of the programs is aimed at a large market opportunity with an important therapeutic target. By the end of calendar 2009 and we will advance five to six programs through clinical proof-of-concept studies. Success in any one of these programs could create significant value for our shareholders.

Let me review with you progress we've made since last quarter. In advancing our clinical pipeline, we've presented positive Phase 2 acute inflammatory pain trial results on ARRY-797 a novel pan-cytokine p38 inhibitor, at the American Pain Society, and have completed a second larger dental pain study with an active comparator, which we'll report on this fall.

We presented Phase 1 clinical trial results in rheumatoid arthritis patients with ARRY- 162, a novel a small molecule MEK inhibitor, at the 2008 EULAR conference. We are actively enrolling a 12-week Phase 2 RA trial with 200 patients in combination with methotrexate at about 30 worldwide sites.

We are completing enrollment on a Phase 1b expansion trial for ARRY-543, a pan-ErbB inhibitor. Half of the patients are Herceptin-resistant ErbB2-positive metastatic breast cancer patients, and the other half will have ErbB-family implicated cancers.

We completed patient enrollment in a Phase 1 dose escalation clinical trial of ARRY- 520, a small molecule Kinesin Spindle Protein inhibitor, and started the expansion phase to further evaluate safety, tolerability, and preliminary efficacy at the maximum tolerated dose.

We also have ongoing a Phase 2 trial in AML patients.

We continued Phase 1 clinical trial of ARRY- 380, an oral, selective ErbB-2 inhibitor for cancer.

And finally, we are nearing completion of a Phase 1 single- and multiple-ascending dose clinical trial in normal, healthy volunteers, with ARRY- 614, a p38/Tie2 inhibitor.

In our partnered research and development, Genentech exercised its option to extend our discovery collaboration by an additional two years recently.

AstraZeneca, our partner for our MEK inhibitor, AZD6244, reported results at ASCO from three Phase 2 single-agent studies compared to what was the standard of care in melanoma, colorectal and non-small cell lung cancer. In each of these studies AZD6244 demonstrated similar efficacy to the active comparator arm.

AZ also presented the Phase 1 clinical trial results on a new capsule formulation that replaces the mix-and-drink formulation that we used in prior clinical trials. The new capsule's maximum tolerated dose was 25% lower than the mix-and-drink formulation, yet provided significantly higher exposure and also reported a complete response in one of the patients.

AZ will be initiating two combination studies in melanoma and non-small cell lung and also has, in collaboration with NCI, six ongoing Phase 2 monotherapy trials.

We strengthened our financial position during the quarter, received a funding commitment of $80 million in debt that is convertible into Array common stock, from Deerfield Management, a leading healthcare investment organization. The company received $40 million of the commitment in June 2008 and anticipates receiving an additional $40 million in December 2008. We were generally on plan with all of our proprietary and partnered research programs for the quarter.

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

Mike Carruthers

Thank you, Bob. Array's revenue for the fourth quarter of $6 million is in line with our expectations. Our loss per share for the quarter of $0.68 is also in line with guidance provided during our last call in early May. Our R&D spending for the quarter of $28 million, while meeting our expectations, is the highest quarterly level ever, growing from the prior sequential quarter by $4.5 million. This is the result of costs for two of GLP tox studies for compounds that will move into development in early 2009 as well as multiple Phase 1 trials are ongoing and several Phase 2 trials with increasing enrollment.

Two expense categories below the loss from operations line on the P&L had new or increased activity during the quarter. Were recorded a $1.9 million charge for other than temporary impairment in the value of our auction rate securities. We have $29 million, based on the current fair value, in auction rate securities on our balance sheet, classified as long-term marketable securities, since there is no market currently for selling them. The original cost of these securities was nearly $33 million. It is approximately half of the $4 million decline in value that we are classifying in this other than temporary category, which increased our loss per share by $0.04 during the quarter.

The other expense category to point out is the increase in interest expense. This is from the Deerfield loan. On our last earnings call, I adjusted guidance in this area to address the impact of the loan.

As of June 30th, Array's cash equivalents and marketable securities totaled $126 million. Recall that we drew down $40 million on the Deerfield loan facility during the quarter, and the remaining $40 million will be drawn in December.

Now I'd like to provide guidance for fiscal year 2009. This is the first time that we have provided guidance for the next fiscal year. Fiscal year 2009's revenue will decrease slightly from $29 million achieved in 2008 to about $25 million in 2009. Of the $25 million total revenue, the collaboration revenue component will be approximately $17 million, and upfront and milestone revenue recognized will be about $8 million. Quarterly revenue will be fairly even over the year, such that I would expect the first quarter's total revenue to be about $6 million, and the following quarters to be just slightly higher.

Now I will provide spending guidance for next year. All of the following functional area expense categories exclude the non-cash charge for compensation from options, which we expect to total $7 million next year. Cost of revenue will be $17 million, approximately mirroring the average margin on total revenue we experienced over the last year. R&D spending will increase to $110 million. This is up from the $87 million we spent in 2008 and is driven by external costs of running proof-of-concept trials on no fewer than four clinical compounds. The first quarter's R&D spending will be in the $27 million to $28 million range and will generally stay at that level quarter-to-quarter. This level does not take into account any significant partnering deals, which, when we do partner programs, that would likely allow for a decrease from this current level of spending.

SG&A expenses will increase to $16 million for the full-year, growing mostly as a result of patent prosecution costs. Our interest expense will be $10.5 million for the year. 75% of this is accruing interest on the Deerfield loan that is payable in 2014 or related to the warrant. So it will not impact cash flow until then or at all for the warrant. The items I have covered will result in a loss of approximately $130 million or about $2.75 a share, including the compensation from options. That's the $7 million I noted earlier. And finally, we expect our quarterly cash burn to remain near the current level, and that's around the $27 million range per quarter. And with that, I'll turn it back over to Bob.

Bob Conway

Thanks, Mike. Can I ask John Yates, our Chief Medical Officer, to comment on our development programs. John?

John Yates

Yes, thanks, Bob, good morning. I'm pleased to provide you with a further update on the progression of the clinical development pipeline at Array. The top line is that all six of our wholly-owned clinical development drugs are progressing well within our expectations. We believe that each of them has a realistic prospect to achieve a meaningful proof of concept that will pave the way for complete development through NDA and beyond. I will focus on our foremost advanced compounds, starting with our oncology portfolio.

As you know, ARRY-543 is our dual EGFR ErbB-2 inhibitor. As such, this drug has potential utility in tumor types known to be driven by either ErbB-2, such as ErbB-2 positive breast cancer, or EGFR, such as non-small cell lung cancer. However, many tumor types express or over-express both types of receptor and cross-talk between the members of the ErbB family is likely to play a key role in aberrant signaling, leading to tumor proliferation and survival. Although lapatinib or Tykerb has some anti-EGFR activity in vitro, there is increasing evidence to suggest that the pharmacological effects of lapatinib are mediated solely by its effects on ErbB-2. Since ARRY-543 is clearly active against both ErbB-2 and EGFR in vivo, we believe it has first-in-class potential as a first true dual-EGFR / ErbB-2 inhibitor.

We think that this is likely to translate into increased activity in a variety of tumor types expressing one or both of these receptors. We are continuing our Phase 1b/2 study of ARRY-543 in combination with capecitabine in patients with ErbB-2 positive metastatic breast cancer. In addition, we're initiating a Phase 1b study of ARRY-543 in combination with Docetaxel, which will substantially increase the options for further development. Based upon the experience to date, our study investigators are very excited about this compound, and enrollment is progressing well in each of our studies.

Our KSP inhibitor, ARRY- 520, continues in the dose escalation phase of a Phase 2 trial in patients with acute myeloid leukemia. Again, we're seeing good enthusiasm for this drug, which is translating into rapid enrollment. We're currently initiating a second Phase 2 study for ARRY-520, this one in patients with multiple myeloma who have failed to respond to prior therapies, including Velcade and the IMiDs, either Revlimid or thalidomide. Our preclinical data suggests that myeloma may be a particularly responsive target disease. Moreover, by gaining greater understanding of the tissue pharmacodynamics of ARRY-520, we think we have defined an approach to dosing this drug in humans that will optimize our probability of success.

In our hands, we have seen greater efficacy of ARRY-520 in animal tumor xenograft models relative to Ispinesib, an early member of this class. Thus, we continue to believe that ARRY-520, with its novel anti-mitotic mechanism, has good potential utility both in solid and hematological malignancies.

Now let me move to our two lead drugs for inflammation, our p38 inhibitor, ARRY-797, and our MEK inhibitor, ARRY-162. As you recall, at the American Pain Society in May of this year, we released results from a Phase 2 dental pain study showing substantial analgesic efficacy of ARRY-797 in the management of pain resulting from extraction of impacted third molars.

As a consequence of the positive data from that study, we have now conducted a 250-patient follow-on dental pain study in which we compare three doses of ARRY-797 that is 200, 400 and 600 milligrams, both to placebo and with an active comparator, which is celecoxib at its maximum acute dose of 400 milligrams. As I projected to you in May, that study has now completed on schedule and we're currently in the process of analyzing the data. You can expect to see data from this study released at a scientific meeting in October of this year.

Our preparations for a 12-week study of ARRY-797 in ankylosing spondylitis remain on track, and we will begin patient recruitment this quarter. This study well enroll 140 patients and is planned to provide efficacy data within 2009. Our total experience of ARRY-797 continues to be well-tolerated, even as we push the doses up as high as 600 milligrams.

Our other Phase 2 program in inflammation is with our MEK inhibitor, ARRY-162. The 12-week Phase 2 rheumatoid arthritis study is actively enrolling, and we are on track to complete enrollment of all 200 patients by the first quarter of next year. In particular, we now have activated study sites in both Eastern Europe and Latin America. The investigators are highly enthusiastic about this drug and enrollment is proceeding well.

So that summarizes the progress we've made on our four most advanced compounds. ARRY-380 and ARRY-614 continue to progress as expected in Phase 1. We are also looking forward to entering additional compounds into clinical development over the next year.

This growth and progress in our clinical pipeline might seem to be very ambitious for a company that just one year ago had four products all in Phase 1. However, we have more than doubled the headcount in clinical development in that period, and in particular made several key hires of experienced leaders in the field. 100% of our studies use electronic data capture to collect data and we're striving to integrate our people, systems, and processes to maximize efficiency and speed. We've also opened a North Carolina office last month that provides us with direct access to a very rich talent pool of development personnel, thus greatly enhancing our ability to match our capacity to our needs. Thus, we are well positioned to become a world-class clinical development company to match our well-established prowess in drug discovery and translational medicine. All of us at Array feel that this is an extremely exciting time. We are poised in the near- to mid-term to deliver proof of concept on several of our drugs and well positioned to take full advantage of our successes.

Thanks, I will now hand back to Bob.

Bob Conway

Thanks, John. Let me quickly review with you the milestones for the remainder of 2008, and at the end of this year, we'll announce the milestones for 2009. ARRY-797, our p38 inhibitor, will complete the second Phase 2 dental pain study and report study results. We'll also initiate a Phase 2 study in ankylosing spondylitis this quarter. ARRY-162, our MEK inhibitor for inflammatory disease, will complete the majority of enrollment of the Phase 2 RA study this year. ARRY-543, our ErbB-2 / EGFR inhibitor, will complete the Phase 1b expansion and initiate Phase 2 studies. ARRY-520, our Kinesin Spindle Protein inhibitor, will complete the Phase 1 expansion and initiate a Phase 2 study in multiple myeloma. ARRY-380, our ErbB-2 inhibitor, will continue the Phase 1 study to the maximum tolerated dose, and ARRY-614 p38 / Tie2 inhibitor will complete Phase 1 and define the Phase 2 development plan. And then around the end of this year, we'll move two discovery programs into development.

Kim, let me pass it back over to you and see if there are any questions this morning.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question today is from Ted Tenthoff from Piper Jaffray.

Ted Tenthoff – Piper Jaffray

Great, thank you very much for taking the time to run through such a thorough update on the company. There's a lot going on. I'll just focus in first on 543, if I may. I know that as we talked earlier this calendar year that we had been looking at what I thought was maybe a bit of a broader or a faster development plan there going into Phase 2. So, can you just kind of take a step back, go into a little bit more detail on what you're seeing with that compound, and really the reasoning behind the studies that you are picking out?

John Yates

Yes. So, 543 has continued very well in the initial Phase 1 study. The expansion cohort is close to complete enrollment now. When you get into combination studies, obviously there is a step-wise process in terms of dose escalation with combination drugs before we can go into expansion phases in combination. And all of that takes time. Those initial phases tend to be with relatively few centers. But I would say that we're very pleased with the progress that we're making in those Phase 1b/2 combination trials. And, as I say, we have a lot of investigator enthusiasm behind the product now. So I think that as we learn more about 543, its activity and really how it stacks up relative to lapatinib in particular, I think we ourselves feel that the potential for this drug's success is very high, and I think that that will translate into rapid enrollment in the studies going forward.

Ted Tenthoff – Piper Jaffray

Great, that’s really helpful. And just one quick follow-up, can you give us a sense of what the two – what some of the lead horses are in the new development programs that you might potentially advance later this year?

Bob Conway

Ted, you're going to have to be patient. We want to come out with those later in the year, and I think they're both exciting programs, but we probably won't announce those until the fourth quarter.

Ted Tenthoff – Piper Jaffray

Look forward to it, thanks.

Bob Conway

Okay.

Operator

And moving on, our next question is from Tim Lugo from William Blair.

Bob Conway

Hi, Tim.

Tim Lugo – William Blair

Hi guys. Congratulations on a productive quarter.

Bob Conway

Thank you.

Tim Lugo – William Blair

With the expansion of the Genentech relationship during the quarter, can you give us an update I guess on your current working relationship with them? When do you expect to see some compounds put into the clinic? And if we should use this relationship as sort of a proxy for the timelines of your Celgene relationship and your other partnerships?

Bob Conway

Yes, David, why don't you – this is Dave Snitman, our–

David Snitman

Yes, thanks Tim. So, when we signed this agreement in 2003 Genentech had an option to renew this after five years for one or two years. They elected to maximize their current position and basically decided to continue the discovery program for an additional two years. I think we're making excellent progress on the three targets in that program, and we expect we will put products into the clinic in that timeframe of the expansion. But the expansion is really not an expansion in headcount; it's just an expansion in the term of the agreement. So the same teams will be working on these programs, and we're looking forward to putting products in the clinic with our partner, Genentech.

Tim Lugo – William Blair

Alright, that’s great. Thanks.

Operator

(Operator instructions) Our next question today comes from Mike King from Rodman & Renshaw.

Mike King – Rodman & Renshaw

Good morning guys. Thanks for taking the question. Just a couple of specifics on the clinical plans. John, can you talk about, with regard to both 797 and 162, I'm thinking – and in particular with regard to 797, are you anticipating any kind of cardiovascular safety trial along the way? And, would that be done prior, before moving to Phase 3, or do you think that would be side-by-side, or not necessary at all?

John Yates

So I think with any drug in development, you have to look at the totality of the data in order to evaluate risks. And everything that we know about 797 to date and, in fact, p38 inhibitors to-date, suggest that if they have any cardiovascular effect, it may well be beneficial. As you know, atherosclerosis and acute conditions like acute coronary syndrome, myocardial infarction, are very highly inflammatory. And there's a clear suggestion that inhibiting those mechanisms may be beneficial, and there was some data from a Vertex compound p38 inhibitor that suggested or showed that CRP was greatly reduced in acute coronary syndrome patients. So we don't anticipate any negative effects. There may be positive effects of 797 in terms of cardiovascular protection. But those studies are very long, very challenging, so we don't think that that would be the first indication that we would go for with ARRY-797. Well we don’t anticipate any (inaudible).

Mike King – Rodman & Renshaw

Well are you thinking more like a blood pressure study, or something simpler than an outcome study.

John Yates

So, blood pressure, of course, is readily measurable and is being measured in all of our studies. We've not seen any suggestion of an increase in blood pressure. And s I think that everything points to a pretty clean profile from a cardiovascular perspective.

Mike King – Rodman & Renshaw

Okay, great, thanks.

John Yates

It's the same with 162.

Mike King – Rodman & Renshaw

I was just going to say, same with 162, okay.

John Yates

Nothing has jumped out in any negative way with respect to any cardiovascular effect. Obviously, it's early days with both of these drugs. And as we accumulate data, and particularly as you go into larger studies in Phase 3, you learn more about the mechanism and the drugs. But to-date, there is nothing to suggest any negative effects of either one.

Mike King – Rodman & Renshaw

Okay. And then, Bob, could you – you whizzed through a bunch of upcoming milestones, and I couldn't keep track with you; I think I missed the – your '08 milestones for 380. Do you mind repeating those, please?

Bob Conway

Yes, for 380 it's just to continue the escalating dose trial up through the MTD. We're not sure; we hope that will occur this year, but we are not sure. We need to continue escalating until we hit it.

Mike King – Rodman & Renshaw

Okay, and then how is recruitment going with 543? I mean is the availability of lapatinib having any effect on your ability to enroll?

John Yates

I would say not. As with any drug, the investigators look at the drug and what it can do, based upon clinical and preclinical evidence. And they are pretty excited about 543. I think it's clear that lapatinib has efficacy, which is good, because we have a drug which has ErbB-2 inhibition. But it's clear that there is room for improvement, and I think that, based on the factors that I discussed, the fact that we have better EGFR efficacy, we also think we have better ErbB-2 efficacy at the pharmacological doses that were given over a 24-hour period. We think that we're hitting ErbB-2 harder and longer than lapatinib. So we think that there is real potential for us to be more effective not only in the indications where lapatinib has been proven to be effective, which is ErbB-2-positive breast cancer, but we think that other tumor types that express either EGFR or ErbB-2 or both are potentially very susceptible to a good dual inhibitor, and we think we are first-in-class there. So I think, overall, we and our investigators are enthusiastic, and really I don't think the presence of lapatinib is a major handicap for us right now. It provides a useful proof of concept of the mechanism that we have, but I think we can extend beyond that. And with enthusiasm, investigators can actually – obviously, they vote with their patients. And I think we're seeing that in terms of the recruitment that we're seeing right now.

Mike King – Rodman & Renshaw

Okay, and then just one final question on 543 I mean I think you've given us a good sense sort of next steps ,but I wonder if you possibly could talk about your registration strategy. Do you think it's one that could go sort of along the same lines as, let's say, ixabepilone, combo with capecitabine versus capecitabine alone? Or, do you see it in combination with an ixabepilone, or is it possible that there are multiple prongs to registration?

John Yates

So, I think there's two major thrusts here. One is in metastatic breast cancer, and there, I think combination therapy, particularly with capecitabine, is the obvious path to go. And this is the path that lapatinib took. Because of the fact that we think that we are better both on ErbB-2 and EGFR, we think that we can have very positive data there and a very clear pathway to approval with Phase 3 studies in metastatic breast cancer ErbB-2 positive. The other thrust, and I hinted at this in my opening remarks, is that there are many tumors that express not only ErbB-2 but also EGFR, and these tumors have shown suggestions of efficacy with either EGFR or ErbB-2 inhibitors. But we think that a true dual inhibitor may have some real potential there because of the heterodimerization between these receptors we have is considered – is commonly referred to as cross-talk. We think, by inhibiting both, that we may have greater efficacy there. And that's actually a wide range of different solid tumor types that are dual expressing. So we think that that provides a huge untapped opportunity that we are really looking at all of our options there to decide what is the best path in tumors that are known to express both kinds of receptor.

Mike King – Rodman & Renshaw

I guess you'll be watching the outcome of the beta lung study very closely?

John Yates

Yes.

Mike King – Rodman & Renshaw

Okay, thanks. I will get back in queue.

John Yates

Okay.

Operator

(Operator instructions) Our next question will come from Jim Birchenough from Lehman Brothers.

Jim Birchenough – Lehman Brothers

Hi guys. Two questions, one broad and one more specific. Just on the broad question, with so much proof-of-concept data coming next year, maybe you could go through each program and perhaps tell us what would define proof of concept for each of the programs. What's the hurdle rate for moving forward into Phase 3? And then, just on 543 specifically, just wondering if you are looking at doing any K-Ras testing and trying to optimize for K-Ras wild type, given the focus on EGFR.

Bob Conway

Kevin, if you are – Koch is actually on the East Coast. I could ask Kevin to answer the second question first. Are you there, Kevin?

Kevin Koch

Yes, no, I'm there. Yes, we will be (inaudible) about how to utilize the K-Ras data. At this point in time, we've not determined the exact tumor type that is EGR expressing that would be an amenable to that kind of testing, but we certainly are watching the data, and our interest in the outcome of (inaudible) has been doing and looking at what Erbitux has been doing. So at this time, we're not actually testing that particular end point, but we are looking at how we might take advantage of the data that's coming out.

Bob Conway

Thanks, Kevin. And Jim, in regard to your second question, we are not prepared to go into a level of detail of what would provide a go/no go on each of the programs into Phase 3. I think it's a little early for that.

John Yates

Maybe I can – without getting into that level of detail, just comment very briefly. Obviously, with 162, the rheumatoid arthritis study, is going to be a very important study there. That is the proof of concept. And essentially, we are looking for efficacy that is similar to or close to that of a biologic agent and with adequate safety. And obviously you have to look at both. The 797, I think we have already a significant level of proof of concept that we work in acute pain, and we will continue to look at that possible area. And, there's a range of indications of acute and sub-acute inflammatory pain that are of interest and could be pursued. But clearly, our focus is on chronic inflammation with 797 and ankylosing spondylitis is really a great opportunity for us. It is a common disease, although relatively under-recognized, and I think if we are successful and demonstrate clinical benefit there, and we think that we have a good chance of that, then that will, in and of itself, be a major indication. And I think that it also may well pave the way for other chronic inflammatory indications, such as rheumatoid arthritis, chronic inflammatory bowel disease, those kinds of things.

And then, in the oncology portfolio, success can come in many different ways. And we can have success with monotherapy or in combination. In 543, we've discussed the program. 520, I think our program in AML and now in myeloma, I think we've got some very clear markers of disease activity. And, if we can show beneficial effects, then I think that that will be very exciting and actually a pretty fast pathway for us to be able to continue to explore the best possible way of giving this drug. And I think a significant opportunity for developing the drug within hematological malignancies, but also paving the way for broader indications in solid tumors. So, I don't know if that helps enough to answer your question. It doesn't tell you specifically what the go/no go is, but I think it just kind of gives you a flavor of the kind of data we're looking for in the next year or so that I think could really make a difference in terms of how not only we but the investment community and potential partners will look at Array.

Jim Birchenough – Lehman Brothers

Great. Thanks for taking the questions.

Bob Conway

Thanks, Jim.

Operator

And moving on, we’ll take a follow-up from Ted Tenthoff from Piper Jaffray.

Ted Tenthoff – Piper Jaffray

Right, thank you. And that was actually really good detail. Just maybe following up on Jim's question a little bit, when you look at 543 and the detail that you just discussed and, in particular, the heterodimerization, how does 380, then, fit into or complement that portfolio? And, what's your kind of current thinking about how this maybe – fits into your overall oncology portfolio?

John Yates

Right, so it's a very good question. 380 clearly is a very highly potent, very specific ErbB-2 inhibitor. ErbB-2 is clearly very well validated as a target, being the target of Herceptin and Pertuzumab, and therefore clearly knocking out ErbB-2 in particularly breast cancer but potentially some other solid tumors, maybe ovarian cancer, is a productive path. And also, there's always the balance in drugs of having multiple mechanisms versus very specific mechanisms. So, in terms of the overall tolerability and safety of a drug, it generally is true that more specific drugs may have better tolerability than ones that have many off-target effects. So I think it remains to be proven exactly how 380 plays out relative to 543. But if our hypothesis is correct, that this will be a very well tolerated drug, very good targeting for ErbB-2, then we think that there may well be a very important place for it in the overall armamentarium of treatment, particularly of breast cancer.

Ted Tenthoff – Piper Jaffray

Perfect, that's really helpful. And now just looking back at 162 a little bit, it seems like enrollment may be slipping there a little bit. Is that primarily a factor of just competition for RA drugs at this point, and in particular, more and more oral compounds trying to enroll?

John Yates

So you are right that we may be a month or two behind our original expectations. We hope to complete enrollment by the end of this calendar year. I think it's more looking likely that it will be sometime early on mid first quarter of next year. But it's no reflection of enrollment. It's really a reflection of the regulatory hurdles that are in place in establishing sites in places like Eastern Europe and Latin America, where it often takes six, seven or eight months to go from final protocol to getting a study up and running. So the studies are coming into line. They are being initiated now. We have about 30 patients or so screened. I just reviewed the data yesterday and we're having a good success rate in terms of eligibility of patients coming into the study. So I think it's just taking off, and we anticipate that the enrollment will be very swift from here on in and through the end of the year and probably in the first month or two of next year.

Ted Tenthoff – Piper Jaffray

When you look at 520, the KSP inhibitor, can you just give me a little bit of background, and I apologize for not knowing this, but with respect to AML and then also multiple myeloma as well, what is the rationale between focusing in on the hematologic cancers, and is there broader opportunity that you see down the path for a more potent KSP inhibitor?

John Yates

So, the rationale for the hematological malignancies is really two-fold. One is hematological malignancy is very monitorable in terms of measuring things in the peripheral blood as well as being able to take repeat bone marrow over time, so we can measure things in AML. Obviously, there are peripheral blast counts that can be measured on a daily or a weekly basis and a repeat aspiration bone marrow, where we can look at the marrow blast cell counts over time. And in myeloma, probably even more so, you've got para-proteins, myeloma proteins that can be measured on a frequent basis. Then the other piece of the rationale is that we think that hematological malignancies may be particularly appropriate and sensitive to this particular anti-mitotic mechanism. We have some very good preclinical data, particularly in myeloma models. So we are focusing there first because we know we can't do everything and we think that we can learn a lot from hematological malignancies. But that does not detract from the significant potential that a novel anti-mitotic mechanism may also be very useful in a range of solid tumors. So we are enrolling those particular patients in the expansion phase of our Phase 1b study with solid tumors, and we think that there is a lot of potential, broadly, for this drug. But we think if we can demonstrate it first in hematological malignancies, that's a faster pathway to proof of concept and to the initial approval.

Ted Tenthoff – Piper Jaffray

And it makes sense to me to first look at these as monotherapy in these hematologic indications. But clearly, the longer-term potential is going to be in combination as well. So is that sort of the goal to establish this proof of concept mono and then look at potential combinations?

John Yates

Yes. With 520 I think that that's exactly the pathway because, with an anti-mitotic mechanism, we think that this is likely to be fairly robust and have efficacy even in patients who have failed multiple therapies. And we think that that's the fastest pathway to establish proof of concept and then move into combination therapy as the next wave.

Ted Tenthoff – Piper Jaffray

Alight. That’s very helpful. Thank you.

John Yates

Thanks, Ted.

Operator

Our next question today is from William Ho from Banc of America Securities.

William Ho – Banc of America Securities

Hey guys, thanks for taking my question. Just a quick question about the upcoming dental pain trial with ARRY-797. Can you talk a little bit about kind of the dose ranges that you are examining within that study, and how difficult is it to hit your I guess the hurdles in comparison with celecoxib?

John Yates

Yes, so, in the initial study of dental pain one, we call it, that we studied a dose of 400 milligrams and compared that with 200 milligrams dose both preoperatively and another 200 post-operatively. That clearly was very effective, but we had placebo but no active comparator in that study. We did, obviously, look historically at what had been reported in other dental pain studies. But, because of differences in design of our study relative to other studies, it was difficult to predict exactly how 400 milligrams would stack up against a drug like celecoxib at its maximum dose, 400 milligrams. So that was the nature of the experiment that we did in this study, and we decided to take a lower dose, maybe 200 milligram, and a higher dose, 600, into this particular trial. And so this is a major study with over 250 patients actually enrolled in the study. And as we indicated, we'll be presenting the data at a scientific meeting in October.

William Ho – Banc of America Securities

How are the patients in your trial perhaps different from those that you have seen in the prior celecoxib trials just in terms of comparability? And, do you expect to see any kind of response in the 200 or only in the 400 or only in the 600?

John Yates

So, patients vary a little bit between studies. You have to look very carefully at the method section. And in our first study, we required only two molars to be extracted, one of which was impacted. In this study, there we required more teeth to be extracted, so this is a more severe model, if you like, of pain. But every single study you look at is maybe slightly different in its design, so this is really the way to test things scientifically to say how do we stack up to the maximum dose of celecoxib? So we now – obviously, we are looking at the data internally, and we'll be releasing it externally in a few months.

William Ho – Banc of America Securities

Okay. And just as one final question, what's the actual hurdle? Is it 30% difference?

John Yates

The hurdle for what? Sorry.

William Ho – Banc of America Securities

I guess, between the 797 arm and the celecoxib arm, what kind of a difference are you looking for?

John Yates

So, I think what we have is a different mechanism of treating inflammatory pain with a p38 inhibitor relative to an NSAID or a COX-2 inhibitor. And as you know, COX inhibitors have, really, only one mechanism that is inhibiting the production of Prostaglandin E2, which is certainly a major mediator of pain. But in terms of mediation of inflammation, prostaglandins play a relatively minor role. It's thought that cytokines such as TNF, IL-1, and IL-6 probably play a more major role in chronic inflammation. So, when you have a pan-cytokine inhibitor, p38 does have effects on all of those – PGE2, IL-1, IL-6 and TNF – we think that there's a substantial potential to have greater overall anti-inflammatory effects, which we think over time, a period of days or maybe weeks, that we'll have greater efficacy than a drug that inhibits PGE2 alone. Of course, we need to test that in the clinic. And so we're looking, obviously, at the ankylosing spondylitis study as a way to test the chronic utility of ARRY-797, and we are looking at some other potential studies that will also look at this question.

William Ho – Banc of America Securities

Great. Thank you.

John Yates

Thanks, Will.

Operator

And that's all the time we have for questions today. Speakers, I'll turn the conference back to you for additional or closing remarks.

Bob Conway

Okay, thanks operator. I'd like to thank our almost 390 employees for their dedication, creativity, and hard work, and the contribution they've made once again towards Array's continuing success. I'd also like to thank our partners and shareholders for their continued confidence and support. I look forward to updating everybody on the call around the first week of November on the first quarter results of fiscal 2009. Thanks, everybody.

Operator

And that does conclude our conference call today. Thank you all for your participation.

Bob Conway

Thanks, operator.

Operator

Thank you. Have a good day.

Bob Conway

Bye now.

Operator

Bye-bye.

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