Can Array BioPharma's Breakout Run Hold Or Continue?

| About: Array BioPharma (ARRY)

Shares of Array BioPharma (NASDAQ:ARRY) have soared since we first reported that the firm was planning to partner more products.

A few days later, Array revealed an important market moving development when it announced that it had achieved an $8.5 million milestone in its collaboration with Amgen. The late 2009 agreement for the worldwide development of the small-molecule glucokinase activator (GKA) program -- including AMG 151 -- was the focus of the news, as the milestone was achieved after Amgen reached a pre-defined patient enrollment level in a Phase 2a clinical trial.

Can Array's climb continue after hitting a 52-week high? Technically, the stock looks like it is in the middle of a strong run after finally breaking out to new 52-week highs and holding on late last week.

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Fundamentally, we point to our transcript of the Q&A with Biotech Stock Analyst David Moskowitz in which Ron Squarer, Chief Executive of Array, discussed the company`s pipeline, positioning, and commercialization strategies. Among other potential important developments, Squarer underscores the fact that additional partnerships may happen and be announced during the latter half of this year.

David Moskowitz: So with 14 candidates in the clinic, which is an amazing number, can you speak about the productivity of your R&D efforts?

Ron Squarer: Yeah, sure. It's been an incredible story. You know, I've only been with the company for a short time now, but I've been tracking them for a while and it's not just the number of molecules that the R&D organization has created. I think one of the best statistics is the number of molecules that are currently in Phase 2 and that's 10, 10 molecules in Phase 2. You know, its one thing to make a molecule, get it into Phase 1, but actually get into Phase 2 with that many molecules speaks to the quality of the science. I think it's why we've attracted some of the finest companies in the industries to partner with, but it's also why we're so excited about our own Phase 2 compounds that we plan to take forward into registration trials.

David Moskowitz: It really is an amazing unsung story with that many compounds. Can you talk about yourself joining the company recently? You know, what attracted you to the company, and a little bit about your background.

Ron Squarer: Yeah. So I think, you know, what attracted me to the company is I think what attracts investors to the company. It's got one of the most incredible pipelines, you know, almost in the history of companies of this size. So it's almost a fully blown pharmaceutical company within a biotech company. It's not just the partner compounds, but also the internal pipeline.

So I'll touch a little bit on the internal pipeline because we're so excited about it. One of our lead compounds is ARRY-614 that's being studied in MDS, and it's being studied in a particular area of MDS -- low risk, earlier patients for which there really is no treatment after HMA failure, and for which there's very little research going on, so very little competition in terms of development as well. So it represents this great regulatory pathway, hopefully, quite rapid and a huge unmet need for patients that actually live a while. And we believe that we're ready to really go forward into Phase 3. So we also have another hematology product potentially in the 520, which is a multiple myeloma drug, and then we get data on a pain product very shortly. So we've got a lot of choices going forward.

My background is heavy in oncology. I worked at Pfizer for a number of years in commercial development, involved with the products that have now made it to market, including sunitinib and axitinib, as well as the new ALK that's doing quite well. Then I worked for Mayne Pharma, which was an oncology-focused company that we sold to Hospira. I spent some years at Hospira working in strategy MNA, but ultimately responsible for commercial operations, about $4 billion in sales around the world, about 2500 people. Now I'd like to bring this commercial development strategy, portfolio prioritization, and ultimately commercialization experience to Array. I think we've got a very good future.

David Moskowitz: It's a great background, and it's almost as if Array was waiting for your entry. So can you talk a little bit about the partnerships that you have? I mean there are many -- AstraZeneca, Novartis, Roche, Amgen -- which of these partnerships are you most excited about?

Ron Squarer: Yeah. Well, you know we love all of our partners, of course, but there are certain compounds that are further along and so I think you hit on a couple of those. We've just come in last day from what we're calling the MEK fest at ASCO. This is with selumetinib, which is our MEK inhibitor that's partnered with AstraZeneca as well as MEK-162, which is our MEK inhibitor that is partnered with Novartis. These compounds were really, in many ways, the hit of ASCO and for very clear reasons.

If you look at selumetinib, you've got a compound that, for the first time ever, has shown activity in KRAS mutant nonsmall cell lung cancer, a very tough disease where we hadn't seen activity before. Then you flip to Novartis, where they're showing for the first time in the NRAS melanoma population some great results, and so that offers some clear pathways forward to these companies to really own very important and pretty substantial components of the cancer landscape. But selumetinib goes even further than that. Beyond the oral for lung cancer, there's an oral for thyroid, where patients who had become resistant to radioactive iodine are re-sensitized. [We] are seeing pretty remarkable responses there as well. You wouldn't expect to see that. There's also some very exciting data in general for MEKs in hepatocellular carcinoma, and even ovarian out there. So you see these very broadly active compounds that we believe represent a huge potential franchise, and we've got two of, let's say three, products that are moving forward in that space.

The beauty of the way it worked out is that you've got AstraZeneca, that tends to be a little bit more focused in MEK cytotoxic combinations. Novartis is more focused on targeted compounds. So they're really pursuing different strategies, and often different tumors, and so we're really covering the landscape very well.

I'll mention one other product in our -- actually a couple of other products in our partner pipeline. One is our diabetes product with Amgen. I mentioned it only because we would expect, potentially at the beginning, a milestone based on patient recruitment in the study, which is encouraging, and we'll see how that goes going forward. Then last year, we entered into a very innovative relationship with Genentech for a Chk1. Innovative because it won actually the deal of the year at a Deloitte conference recently -- because it combines their portfolio of Chk1s with our compound and whoever wins, the economics essentially remain the same. So it's going to be a very healthy partnership, and the dollars were very substantial for what was a preclinical program -- tens of millions upfront -- very significant milestones, and healthy royalties on the back-end. Typical for what Array has managed to get for its compounds, given that our partners believe in the science.

David Moskowitz: So within the more advanced programs -- the AstraZeneca MEK program and the Novartis MEK program -- [are there any that] seem to be the key drivers of Array's stock at this point?

Ron Squarer: Well, yeah. They certainly are part of the story, and if I was to sort of focus on what the catalyst are going to be in the near terms, it's really going to be about AstraZeneca and/or Novartis moving into Phase 3. We'd like to see them both move forward because they have clear pathways there. Then I'd also look to the Array portfolio, to us entering full registration with one of our compounds 614 from MDS, or the multiple myeloma agent and/or our pain program. Those are really going to be the key catalysts going forward, and you could look to some data for our internal hematology programs at ASH later in the year. That's where we expect to present more data, so it could be a very important catalyst there.

David Moskowitz: So, in terms of the AstraZeneca and/or the Novartis program, when do you think they could move forward in terms of moving into Phase 3?

Ron Squarer: The data is out there -- and very compelling -- not just for AstraZeneca, but also for Novartis. And then there's other MEKs that are creating data. So the case for moving forward is very clear, and right now AstraZeneca is working through its process. They've had a change in leadership, but their processes are still working, and they have a date and they're going to be moving forward with that decision shortly. Novartis, interestingly, is a slightly different relationship where, in addition to our terms on 162 for their development, we actually have the opportunity to co-develop with them and pick an Array indication and potentially move forward. So there's Novartis moving forward into Phase 3, and then we may actually enter into the clinic with our own studies in collaboration with a very healthy relationship that we have with Novartis. I would say that we'd been looking at seeing those things happen certainly within the next year.

David Moskowitz: Sticking with the high level or more advanced partnerships, what kind of economics do you get from those programs, and are those a model for what we could expect going forward with new partners?

Ron Squarer: Yeah. So I think typically what you're seeing is significant upfront, and you're seeing substantial milestones. I think if you add up all our milestones, you get to about $3.4 billion and then there's royalties, which we're usually targeting double-digit royalties on commercial success. Novartis is a little different. It's much richer terms, but it does anticipate us co-developing and remaining involved actually co-commercializing as well. We've been very pleased with our partnerships, and we're pretty flexible on whether we would go for the traditional upfronts and milestones, or more of these arrangements that are closer to what's called our profit sharing, with us participating in the investment in the process. And it's really going to depend on the partner and the assets and where we are.

Some of the potential deals that we might be looking at going forward: We have an asthma product in Phase 2. This is ARRY-502 and we've got a lot of excitement about it, a lot of inquiries, and we would expect to partner that and we'll look at a range of possibilities. We also have a diabetes product that's a little bit earlier that we wouldn't expect to take forward on our own, and so we'd be looking to potentially partner those in the near term. As I said, the history, the quality of the deals, and more importantly, the partners, has been very good so we expect that to continue.

David Moskowitz: So a number of products on the earlier front that are still proprietary unpartnered.

Ron Squarer: That's right.

David Moskowitz: And you expect some of those to possibly happen in the back half of this year?

Ron Squarer: We haven't been really clear on timing it. We'd like to see the Phase 2 data roll off of the asthma program, and we're continuing to collect information about the GPR-119 diabetes program. So we'll watch that space. But as I mentioned, you know, we have three products that are ready to potentially go forward into Phase 3, and what we've been saying is we're definitely going to take one of them forward. That's our goal. Regarding the other two, it's potentially partnering them in either completely or partially going forward. So those are the decisions that we're going to look at based on the data, and the data is rolling out soon. Pain during the summer, and then for the multiple myeloma program, during the year to be presented at ASH. We want to make data driven decisions about which ones to do on our own and which ones to partner.

David Moskowitz: Got it. So again just reviewing, it's pain, it's multiple myeloma, and it's MDS.

Ron Squarer: MDS.

David Moskowitz: MDS.

Ron Squarer: Yeah.

David Moskowitz: And the multiple myeloma and MDS we should see data at the ASH meeting --

Ron Squarer: That's correct.

David Moskowitz: -- later this year.

Ron Squarer: Yeah.

David Moskowitz: Okay. It's a vast pipeline.

Ron Squarer: Yes.

Question: Very exciting. Would there be a scenario where you could keep any of these products for internal development and commercialization or is the strategy --

Ron Squarer: Yeah. That is our strategy. Pick at least one product, take it into the clinic, registration, and then ultimately commercialize it. The three all have potential. So MDS and multiple myeloma being hematologic disorders, we can do those and quite reasonably. Pain is going to very much depend on the profile. If it ends up being a good product for the chronic setting -- mass market and the world is waiting for a new mechanism in pain -- and we believe regulators are as well, and are quite open to encouraging new mechanisms in pain. These are specifically NSAID-resistant patients, so there's a big need there. If it's a chronic mass market, that's probably not going to be us. If it's more suitable for an acute setting -- perhaps an institutional setting around perioperative pain -- potentially that's something we could do going forward, but we're going to have to wait and see the data.

David Moskowitz: And briefly, what is the mechanism of action of that pain --

Ron Squarer: It's a P38 studied extensively in inflammatory diseases, and we did as well in rheumatoid arthritis and AS, a type of rheumatoid arthritis of the spine. But along the way, we also did some dental pain studies, and now we're in an OA study focused really [on] pain management, not inflammation, which doesn't seem to have as much promise. But the data is pretty compelling in pain management, so we're pretty excited about the program.

David Moskowitz: Very good. And just wrapping up, can you talk a little bit about your balance sheet? I know that you guys just recently bolstered the balance sheet with a capital raise. So what does the balance sheet look like today and what is the cash burn that investors can expect --

Ron Squarer: So at the end of the last quarter, we had $100 million. In terms of burn rate, we are looking about a net of $40 million a year, because we expect about $20+ million a year in milestones to roll off of the partner portfolio. So about $60 million in burn and net $40 million. So we have some runway there to get done what we need to, and then as I mentioned between the asthma, the diabetes, and the three front runners to go forward -- those all represent opportunities for additional non-dilutive capital, which is obviously the way we would like to go.

David Moskowitz: Just simplifying those five potential assets that could bring in non--

Ron Squarer: Right.

David Moskowitz: -- capital.

Ron Squarer: In addition to the money we have, yeah.

David Moskowitz: Very good. So we've kind of touched on this before, but last question, what are the key drivers for this year? What are the reasons to own the stock?

Ron Squarer: Yeah. So our Phase 3 in the MEK portfolio, which the data is so compelling. We can't speak for our partners, but we speak to them often and we know the teams there are incredibly excited about the compounds. So we look forward to those announcements coming over time. We've got that 797 pain data this summer, so we'll have a peek at that. And then towards ASH [at the] end of the year in this potential hematology franchise that we could be building -- one that would be very reasonable for a company like ours to own all the way to market.

Array's Proprietary Pipeline

Array BioPharma's proprietary drug development pipeline is primarily focused on the treatment of cancer and inflammatory disease, and includes several small molecule drug candidates that are designed to regulate targets in therapeutically important biologic pathways. Its discovery platform includes: structural biology, predictive informatics, high throughput screening, cell biology, lead generation, lead optimization, drug metabolism, pharmacology, process research & cGMP and clinical or regulatory technologies.

Array BioPharma's product pipeline includes: ARRY-162, an orally active MEK inhibitor that has demonstrated potent anti-inflammatory and bone-protective activity along with synergistic efficacy indicated for the treatment of rheumatoid arthritis; ARRY-797, a selective, orally active inhibitor of p38 (Pan-cytokine) indicated for the treatment of cancer; ARRY-614, a potent, orally active inhibitor of p38, Abl, Tie2 and VEGFR2 indicated for the treatment of arthritis; ARRY-543, a novel, oral, pan-ErbB inhibitor indicated for the treatment of cancer, etc.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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