Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ARRY > SEC Filings for ARRY > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for ARRAY BIOPHARMA INC

Form 10-Q for ARRAY BIOPHARMA INC


9-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our expectations related to the progress, continuation, timing and success of drug discovery and development activities conducted by Array and by our partners, our ability to obtain additional capital to fund our operations, changes in our research and development spending, realizing new revenue streams and obtaining future out-licensing partnership or collaboration agreements that include up-front, milestone and/or royalty payments, our ability to realize up-front milestone and royalty payments under our existing or any future agreements, future research and development spending and projections relating to the level of cash we expect to use in operations, our working capital requirements and our future headcount requirements. In some cases, forward-looking statements can be identified by the use of terms such as "may," "will," "expects," "intends," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof or other comparable terms. These statements are based on current expectations, projections and assumptions made by management and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition, as well as any forward-looking statements are subject to significant risks and uncertainties, including but not limited to the factors set forth under the heading "Risk Factors" in Item 1A. under Part II of this Quarterly Report and under Item 1A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, and in other reports we file with the SEC. All forward-looking statements are made as of the date hereof and, unless required by law, we undertake no obligation to update any forward-looking statements.

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. The terms "we," "us," "our," "the Company," or "Array" refer to Array BioPharma Inc.

Overview

Array is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Seven Phase 3 or pivotal studies are already in progress, or are planned to begin this year. These programs include the wholly-owned hematology drug, filanesib (ARRY-520) for multiple myeloma, or MM, and two partnered cancer drugs, selumetinib, partnered with AstraZeneca, and binimetinib (MEK162), partnered with Novartis.

Our most advanced wholly-owned clinical stage drugs include:

      Proprietary
      Program       Indication                                           Clinical Status
 1.   Filanesib     KSP inhibitor for MM                                     Phase 2
 2.   ARRY-614      p38/Tie2 dual inhibitor for myelodysplastic              Phase 1
                    syndromes, or MDS
 3.   ARRY-797      p38 inhibitor for LMNA-related dilated                   Phase 2
                    cardiomyopathy
 4.   ARRY-502      CRTh2 antagonist for asthma                              Phase 2

With our progress on filanesib for MM we believe hematology/oncology is the area of greatest opportunity for Array and where we intend to concentrate our resources and build on our capabilities in fiscal 2014 and beyond. In addition, we have initiated a Phase 2 trial with ARRY-797 in a rare cardiovascular disease, based on scientific rationale, in vivo data and anecdotal clinical information. We are seeking a partner to advance our asthma program for ARRY-502.


Table of Contents

In addition, we have 11 ongoing partner-funded clinical programs, including two MEK inhibitors, both in Phase 3 clinical trials, binimetinib with Novartis and selumetinib with AstraZeneca:

      Drug Candidate         Indication                        Partner          Clinical Status
 1.   Binimetinib            MEK inhibitor for cancer         Novartis              Phase 3
                                                            International
                                                         Pharmaceutical Ltd.
 2.   Selumetinib            MEK inhibitor for cancer     AstraZeneca, PLC          Phase 3
 3.   Danoprevir             Hepatitis C virus          InterMune (danoprevir       Phase 2
                             protease inhibitor          now owned by Roche
                                                             Holding AG)
 4.   ASLAN001/ARRY-543      HER2 / EGFR inhibitor      ASLAN Pharmaceuticals       Phase 2
                             for gastric cancer               Pte Ltd.
 5.   Ipatasertib/GDC-0068   AKT inhibitor for cancer      Genentech, Inc.          Phase 2
 6.   VTX-2337               Toll-like receptor for            VentiRx              Phase 2
                             cancer                     Pharmaceuticals, Inc.
 7.   GDC-0575               Chk-1 inhibitor for           Genentech, Inc.         Phase 1b
                             cancer
 8.   ARRY-380/ONT-380       HER2 inhibitor for           Oncothyreon Inc.         Phase 1b
                             breast cancer
 9.   LY2606368              Chk-1 inhibitor for        Eli Lilly and Company       Phase 1
                             cancer
10.   GDC-0994               ERK inhibitor for cancer      Genentech, Inc.          Phase 1
11.   LOXO-101               PanTrk inhibitor for        Loxo Oncology, Inc.        Phase 1
                             cancer

We also have a portfolio of proprietary and partnered preclinical drug discovery programs, including inhibitors that target Trk receptors for the treatment of pain and other indications. In July 2013, we partnered with Celgene to discover and develop drugs targeting a novel inflammation pathway. Also in July 2013, we partnered with Loxo Oncology, Inc., a newly-formed, venture-backed company, for continued development of certain preclinical compounds, including LOXO-101, invented by Array in the field of oncology that Loxo has the exclusive right to develop in clinical trials and to commercialize. In April 2014, Loxo initiated a Phase 1 trial with LOXO-101 in patients with cancer. Additionally, Loxo and Array amended our collaboration agreement in April 2014 to expand the number of FTEs conducting research activities and to revise the targets under the agreement. We may out-license other select promising candidates through research partnerships in the future.

We have received a total of $631.5 million in research funding and in up-front and milestone payments from our partnerships and collaborations from inception through March 31, 2014, including $154 million in initial payments from strategic agreements with Amgen, Celgene, Genentech, Novartis and Oncothyreon that we entered into over the last four years. Our existing partnered programs entitle Array to receive a total of approximately $1.8 billion in additional milestone payments if we or our partners achieve the drug discovery, development and commercialization objectives detailed in those agreements. We also have the potential to earn royalties on any resulting product sales or share in the proceeds from licensing or commercialization from 11 partnered programs.

Fiscal Periods
Our fiscal year ends on June 30. When we refer to a fiscal year or quarter, we are referring to the year in which the fiscal year ends and the quarters during that fiscal year. Therefore, fiscal 2014 refers to the fiscal year ending June 30, 2014, and the third or current quarter refers to the quarter ended March 31, 2014.

Business Development and Partner Concentrations

We currently license or partner certain of our compounds and/or programs and enter into partnerships directly with pharmaceutical and biotechnology companies through opportunities identified by our business development group, senior management, scientists and customer referrals. In general, our partners may terminate their collaboration or license agreements with 60 to 180 days' prior notice. Specifics regarding termination provisions under our material collaboration or partnering agreements can be found in Note 3 - Collaboration and License Agreements to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.


Table of Contents

Additional information related to the concentration of revenue among our partners is reported in Note 1 - Overview and Basis of Presentation - Concentration of Business Risks to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.

All of our partnership and collaboration agreements are denominated in U.S. dollars.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations are based upon our accompanying financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Our actual results could differ significantly from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur periodically, could materially change the financial statements. Our critical accounting policies and estimates are described in Note 1 - Overview and Basis of Presentation to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Restructuring Charges

In August 2013, we completed a reduction in force of approximately 50 employees, mainly in our drug discovery organization. After the 20% reduction, we have approximately 200 employees whose capabilities are more tightly aligned with our strategy to fund our discovery organization with strategic collaborations and focusing development and commercialization resources on our later stage clinical programs. See Note 6 - Restructuring Charges to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations

License and Milestone Revenue

License and milestone revenue consists of up-front license fees and ongoing
milestone payments from partners and collaborators.

Below is a summary of our license and milestone revenue (dollars in thousands):

                        Three Months Ended               Change               Nine Months Ended              Change
                            March 31,                 2014 vs. 2013               March 31,               2014 vs. 2013
                         2014           2013          $           %           2014          2013          $           %

License revenue    $    3,037         $ 4,653     $ (1,616 )     (35 )%   $   13,764     $ 23,726     $ (9,962 )     (42 )%
Milestone revenue       1,250           2,195         (945 )     (43 )%        9,875        9,614          261         3  %
Total license and
milestone revenue  $    4,287         $ 6,848     $ (2,561 )     (37 )%   $   23,639     $ 33,340     $ (9,701 )     (29 )%

License revenue decreased during the three and nine months ended March 31, 2014, from the same periods in the prior fiscal year. Between the comparable three-month periods, we had decreased license revenue of $1.1 million and $559 thousand from Celgene and Genentech, respectively. Additionally, we have not recognized any license revenue from Amgen or Celgene during the current fiscal year compared with the recognition of $9.8 million from Amgen and $3.1 million from Celgene during the nine months ended March 31, 2013. We recognized


Table of Contents

all license revenue from both of these partners prior to the start of the current fiscal year. In addition, license revenue recognized under our Chk-1 License Agreement with Genentech decreased by $1.5 million between the comparable nine-month periods because we increased the expected timing for milestone achievement under the Genentech collaboration by six months, resulting in adjustments to the amount of the remaining license revenue recognized each quarter. Partially offsetting the license revenue decreases during the current nine-month period was the recognition of $4.5 million in non-cash license revenue under our collaboration with Loxo, representing the full estimated fair value of the preferred shares received as consideration for an exclusive license to our technology, which approximated the estimated selling price of the license, as discussed under Note 3 - Collaboration and License Agreements - Loxo Oncology, Inc. to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Milestone revenue decreased during the three months ended March 31, 2014 primarily due to the recognition of $1.3 million of milestone revenue from Celgene during the three months ended March 31, 2013, and no corresponding Celgene revenue during the current three-month period. The decrease was partially offset by a $313 thousand increase in milestone revenue from Novartis during the current three-month period related to achievement of a Phase 3 start milestone.

Milestone revenue increased during the nine months ended March 31, 2014, when compared with the prior period. Milestones earned during the current nine months, including $5 million earned from AstraZeneca in October 2013 for the start of a Phase 3 clinical study and $1 million earned from Genentech during the first quarter of fiscal 2014 for a Phase 2 start milestone, as well as increased Novartis milestone revenue of $938 thousand, contributed to the increase. Partially offsetting the above were decreases in milestone revenue from other partners such as Celgene, which decreased $3.8 million, Amgen, which decreased $1.3 million, and VentiRx, which decreased $1.5 million. No Amgen, Celgene or VentiRx milestones were earned during the current periods presented, and we fully recognized all previous milestones earned from these partners prior to the start of the current fiscal year.

Collaboration Revenue

Collaboration revenue consists of revenue for our performance of drug discovery and development activities in collaboration with partners, which include development of proprietary drug candidates we out-license, as well as screening, lead generation and lead optimization research, custom synthesis and process research and, to a small degree, the development and sale of chemical compounds.

Below is a summary of our collaboration revenue (dollars in thousands):

Three Months Ended Change Nine Months Ended Change March 31, 2014 vs. 2013 March 31, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ %

Collaboration revenue $ 3,486 $ 3,107 $ 379 12 % $ 12,428 $ 10,825 $ 1,603 15 %

Collaboration revenue increased during the three and nine months ended March 31, 2014, as new collaborations such as those with Loxo and Oncothyreon more than offset the decreases in revenue from other collaborations such as our 2003 agreement with Genentech following the conclusion of the research term in January 2013, and under our previous collaboration with DNA BioPharma, which concluded in February 2013. Additionally, collaboration revenue under our new July 2013 agreement with Celgene was slightly higher during the current three- and nine-month periods compared with the collaboration revenue recognized during the same periods of the prior year under the 2007 Celgene agreement. Our obligations under the 2007 Celgene agreement were completed during the fourth quarter of fiscal 2013.

Cost of Partnered Programs

Cost of partnered programs represents costs attributable to discovery and development including preclinical and clinical trials we may conduct for or with our partners and, to a small degree, the cost of chemical compounds sold from our inventory. These costs consist mainly of compensation, associated fringe benefits, share-based compensation, preclinical and clinical outsourcing costs and other partnership-related costs, including supplies,


Table of Contents

small tools, travel and meals, facilities, depreciation, recruiting and relocation costs and other direct and indirect chemical handling and laboratory support costs.

Below is a summary of our cost of partnered programs (dollars in thousands):

                      Three Months Ended              Change              Nine Months Ended              Change
                          March 31,               2014 vs. 2013               March 31,               2014 vs. 2013
                       2014         2013           $            %         2014         2013            $            %

Cost of partnered
programs           $   10,756     $ 8,624     $    2,132        25 %   $ 34,524     $ 23,072     $    11,452        50 %
Cost of partnered
programs as a
percentage of
total revenue             138 %        87 %                                  96 %         52 %

Cost of partnered programs increased during the three and nine months ended March 31, 2014, due to increasing costs to advance binimetinib, our MEK inhibitor, through clinical trials under our co-development arrangement with Novartis, as well as our new collaborations with Loxo and Oncothyreon. Partially offsetting the increases were reduced costs under our 2003 agreement with Genentech following the conclusion of the research term, as well as engaging fewer scientists in the current period under the new Celgene agreement compared to the previous Celgene agreement during the same period of fiscal 2013.

Cost of partnered programs as a percentage of total revenue increased for the three and nine months ended March 31, 2014, primarily because of the increased actual costs as noted above and the decreased license revenue recognized during the same periods.

Research and Development Expenses for Proprietary Programs

Our research and development expenses for proprietary programs include costs associated with our proprietary drug programs for scientific and clinical personnel, supplies, inventory, equipment, small tools, travel and meals, depreciation, consultants, sponsored research, allocated facility costs, costs related to preclinical and clinical trials and share-based compensation. We manage our proprietary programs based on scientific data and achievement of research plan goals. Our scientists record their time to specific projects when possible; however, many activities simultaneously benefit multiple projects and cannot be readily attributed to a specific project. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on a program basis.

Below is a summary of our research and development expenses for proprietary programs by categories of costs for the periods presented (dollars in thousands):

                       Three Months Ended              Change               Nine Months Ended              Change
                           March 31,                2014 vs. 2013               March 31,               2014 vs. 2013
                       2014           2013          $           %           2014          2013          $           %

Salaries, benefits
and share-based
compensation       $     5,195     $  6,306     $ (1,111 )     (18 )%   $   14,495     $ 17,001     $ (2,506 )     (15 )%
Outsourced
services and
consulting               5,484        5,105          379         7  %       10,880       14,299       (3,419 )     (24 )%
Laboratory
supplies                 1,310        1,629         (319 )     (20 )%        4,198        4,915         (717 )     (15 )%
Facilities and
depreciation             1,736        1,669           67         4  %        4,716        5,210         (494 )      (9 )%
Other                      406          396           10         3  %        1,033        1,155         (122 )     (11 )%
Total research and
development
expenses           $    14,131     $ 15,105     $   (974 )      (6 )%   $   35,322     $ 42,580     $ (7,258 )     (17 )%


Table of Contents

Research and development expenses for proprietary programs decreased during the three and nine months ended March 31, 2014. The decreases were primarily due to lower spending on our preclinical programs and shifting funding to our partnered programs, including Loxo and Oncothyreon. In addition, we largely completed the ARRY-502 Phase 2 asthma study prior to the start of the current fiscal year. Partially offsetting these decreases were higher costs to advance filanesib in three ongoing clinical trials and start-up costs for two additional late-stage studies. During the nine months ended March 31, 2014, we also incurred $2.2 million of additional expenses for termination benefits related to our reduction in workforce in August 2013 that are reflected in salaries, benefits and share-based compensation in the table above.

General and Administrative Expenses

General and administrative expenses consist mainly of compensation and associated fringe benefits not included in cost of partnered programs or research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting and relocation, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.

Below is a summary of our general and administrative expenses (dollars in thousands):

                        Three Months Ended                  Change                 Nine Months Ended               Change
                            March 31,                   2014 vs. 2013                  March 31,               2014 vs. 2013
                         2014           2013             $              %          2014          2013           $            %

General and
administrative

expenses $ 5,405 $ 5,001 $ 404 8 % $ 16,056 $ 14,390 $ 1,666 12 %

General and administrative expenses increased during the three and nine months ended March 31, 2014. Higher patent and share-based compensation expenses contributed to the increases in both the current three- and nine-month periods. Additionally, during the current nine-month period, we incurred $602 thousand for severance costs related to the reduction in our workforce.

Other Income (Expense)

Below is a summary of our other income (expense) (dollars in thousands):

                      Three Months Ended               Change               Nine Months Ended              Change
                          March 31,                2014 vs. 2013                March 31,              2014 vs. 2013
                      2014          2013            $             %         2014         2013           $            %

Interest income    $      22     $     18     $      4            22 %   $     61     $     42     $       19        45 %
Interest expense      (2,435 )     (2,837 )        402            14 %     (7,246 )     (8,456 )        1,210        14 %
Total other
expense, net       $  (2,413 )   $ (2,819 )   $    406            14 %   $ (7,185 )   $ (8,414 )   $    1,229        15 %


Table of Contents

The following table shows the details of our interest expense for all of our debt arrangements outstanding during the periods presented, including actual interest paid, amortization of debt and loan transaction fees, and losses on early prepayment that were charged to interest expense (in thousands):

                                               Three Months Ended             Nine Months Ended
                                                    March 31,                     March 31,
                                               2014            2013           2014          2013
Comerica Term Loan
Simple interest                           $      118        $     120     $      360     $     364
Amortization of fees paid for letters of
credit                                             9               27             38            81
Total interest expense on the Comerica
term loan                                        127              147            398           445
Convertible Senior Notes
Contractual interest                             992                -          2,987             -
Amortization of debt discount                  1,245                -          3,655             -
Amortization of debt issuance costs               71                -            206             -
Total interest expense on the convertible
senior notes                                   2,308                -          6,848             -
Deerfield Credit Facilities
Simple interest                                    -            1,608              -         4,826
Amortization of debt discounts and
transaction fees                                   -            1,140              -         3,420
Change in fair value of the embedded
derivatives                                        -              (58 )            -          (235 )
Total interest expense on the Deerfield
credit facilities                                  -            2,690              -         8,011
Total interest expense                    $    2,435        $   2,837     $    7,246     $   8,456
. . .
  Add ARRY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ARRY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.