ARRY : Array BioPharma Stock Analysis and Research Report

2017-10-02 - by Asif

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Array is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule cancer therapies. Eight registration studies are currently advancing related to seven Array-owned or partnered drugs: binimetinib (MEK162), encorafenib (LGX818), selumetinib (partnered with AstraZeneca), danoprevir (partnered with Roche), ipatasertib (partnered with Genentech), larotrectinib (partnered with Loxo Oncology) and tucatinib (partnered with Cascadian Therapeutics).

The company have received a total of $1.0 billion in research funding and in up-front and milestone payments from partners from inception through June 30, 2017 , including $292.0 million in initial payments from strategic agreements that The company entered into over the last ten years. The company received an up-front cash payment of $85.0 million upon the March 2015 effective date of the asset transfer agreement with Novartis for binimetinib, $30.0 million in January 2016 from Pierre Fabre and $31.2 million in June 2017 from Ono. Its existing partnered programs entitle Array to receive a total of over $2.7 billion in additional milestone payments if The company or its partners achieve the drug discovery, development and commercialization objectives detailed in those agreements. The company also have the potential to earn royalties on any resulting product sales or share in the proceeds from licensing or commercialization from 17 partnered clinical and discovery programs. The potential milestones The company are entitled to receive are further described in Note 5 – Collaboration and Other Agreements to its financial statements included elsewhere in this Annual Report on Form 10-K.

Binimetinib and Encorafenib

In March 2015, The company regained development and commercialization rights to binimetinib, a MEK inhibitor, under the Termination and Asset Transfer Agreement with Novartis Pharma AG and Novartis Pharmaceutical Ltd. and acquired development and commercialization rights to encorafenib, a BRAF inhibitor, under the Asset Transfer Agreement with Novartis Pharma AG (which the company collectively refer to as the “Novartis Agreements”). The company believe these programs present significant opportunity to Array in the area of oncology.

Along with global ownership of both assets, The company received an upfront payment of $85.0 million from Novartis under the Novartis Agreements. Novartis continues to substantially fund all ongoing trials with binimetinib and encorafenib that were active or planned as of the close of the Novartis Agreements in 2015, including the COLUMBUS Phase 3 trial. Reimbursement revenue from Novartis was approximately $107.2 million for the fiscal 2017, of which $21.8 million was recorded over the quarter ended June 30, 2017.

Array BioPharma also entered into agreements with Pierre Fabre Medicament SAS, (or "Pierre Fabre" or "PFM") and Ono Pharmaceutical Co., Ltd. (or "Ono") related to the binimetinib and encorafenib programs. The Development and Commercialization Agreement with Pierre Fabre, which became effective in December 2015 (or, the "PF Agreement"), granted Pierre Fabre exclusive commercial rights to countries outside the US, Canada, Japan, South Korea and Israel, including Europe. The License, Development and Commercialization Agreement with Ono, which became effective in May 2017 (or the "Ono Agreement"), granted Ono exclusive rights to commercialize binimetinib and encorafenib in Japan and the Republic of Korea (referred to as the “Ono Territory”), along with the right to develop these products in the Ono Territory. Array retains all rights outside the Ono Territory (subject to the rights granted to Pierre Fabre under the PF Agreement), as well as the right to conduct development and manufacturing activities in the Ono Territory.

All clinical trials involving binimetinib and encorafenib that were active or planned when the Novartis Agreements became effective in March 2015, including the NEMO and COLUMBUS trials and other then active Novartis sponsored and investigator sponsored clinical studies, continue to be reimbursed pursuant to the terms of the Novartis Agreements. Further worldwide development activities of binimetinib and encorafenib are governed by a Global Development Plan (or the "GDP") with Pierre Fabre. Pierre Fabre and Array will jointly fund worldwide development costs under the GDP, with Array covering 60% and Pierre Fabre covering 40% of such costs. The GDP involving Pierre Fabre includes multiple trials, including the BEACON CRC trial, and Pierre Fabre and Array have agreed to commit at least €100 million in combined funds for these studies in colorectal cancer (or "CRC") and melanoma.

Pierre Fabre is responsible for seeking regulatory and pricing and reimbursement approvals in the European Economic Area and its other licensed territories. The company has also entered into a clinical and commercial supply agreement with Pierre Fabre pursuant to which The companywill supply or procure the supply of clinical and commercial supplies of drug substance and drug product for Pierre Fabre, the costs of which will be borne by Pierre Fabre. The company has also agreed to cooperate with Pierre Fabre to ensure the supply of companion diagnostics for use with binimetinib and encorafenib in indications where needed.

Under the Ono Agreement, The company received an upfront cash payment of ¥3.5 billion , or $31.2 million , and it retain all rights to conduct, either itself or through third parties, all clinical studies and file related regulatory filings with respect to binimetinib and encorafenib and to develop, manufacture and commercialize binimetinib and encorafenib outside the Ono Territory (subject to rights Array has granted to Pierre Fabre in certain countries). The company are also entitled to receive up to ¥1.8 billion in milestone payments from Ono if certain development goals are achieved, ¥5.0 billion in milestone payments from Ono if certain regulatory milestones are achieved, and ¥10.5 billion in milestone payments from Ono if certain sales milestones are achieved. A portion of these milestones represent Ono’s co-funding obligation as part of Ono’s participation in the Phase 3 BEACON CRC trial. Array is further eligible for tiered double-digit royalties on annual net sales of binimetinib and encorafenib in the Ono Territory, starting at 22% for annual net sales under ¥10.0 billion and increasing to 25% for annual net sales in excess of ¥10.0 billion , subject to certain adjustments. Based on exchange rates as of June 30, 2017, ¥1.0 billion was the equivalent of approximately $8.9 million.

Under the Ono agreement, Ono has the right to participate in any future global development of binimetinib and encorafenib by contributing 12% of those future costs. Ono is responsible for any development of binimetinib and encorafenib specifically necessary to obtain regulatory and marketing approvals for products in the Ono Territory and for seeking those approvals. Array will furnish clinical supplies of drug substance to Ono for use in Ono’s development efforts, and Ono may elect to have Array provide commercial supplies of drug product to Ono pursuant to a commercial supply agreement to be entered into by Array and Ono, in each case the costs of which will be borne by Ono. Array has also agreed to discuss and agree on a strategy with Ono to ensure the supply to Ono of companion diagnostics for use with binimetinib and encorafenib in certain indications in the Ono Territory. Each party has also agreed not to distribute, sell or promote competing MEK or RAF products in the Ono Territory during the term of the Ono Agreement.

Array BioPharma also entered into clinical research collaborations with Merck and Bristol-Myers Squibb to study binimetinib plus anti-PD-1 therapy in patients with microsatellite stable metastatic CRC (or "MSS CRC"). The trial with Merck will investigate the safety and efficacy of binimetinib with Merck's KEYTRUDA ® (pembrolizumab). The trial with Bristol-Myers Squibb will investigate the safety, tolerability and efficacy of binimetinib in combination with Bristol-Myers Squibb's Opdivo ® (nivolumab) and Opdivo + Yervoy ® (ipilimumab) regimen. The company entered into these collaborations based on the growing body of preclinical and clinical evidence that the immune activity of an anti-PD-1 therapy can be enhanced when combined with a MEK inhibitor, such as binimetinib.

The Phase 1/2 studies are expected to establish recommended dose regimens for further study and explore the preliminary anti-tumor activity of the combinations. Results from these studies, which are anticipated to begin in the second half of 2017, will be used to determine optimal approaches to further clinical development of these combinations. Under the Merck agreement, Merck will act as the sponsor of this clinical trial, and Array will supply Merck with binimetinib for use in the trial. Under the Bristol-Myers Squibb agreement, Array and Bristol-Myers Squibb will jointly support the study with Array acting as the sponsor.

Binimetinib and encorafenib are currently being studied in Phase 3 trials in advanced cancer patients, including the COLUMBUS trial studying encorafenib in combination with binimetinib in patients with BRAF-mutant melanoma and the BEACON CRC trial (Binimetinib, Encorafenib and Cetuximab Combined to treat BRAF-mutant CRC) to study encorafenib in combination with binimetinib and cetuximab in patients with BRAF V600E-mutant CRC (or "BRAFm CRC"). Binimetinib and encorafenib are investigational medicines and are not currently approved in any country.

COLUMBUS

The company continue to advance the Phase 3 COLUMBUS trial, which compares binimetinib and encorafenib versus vemurafenib in BRAF-mutant melanoma patients. As part of this trial, Array submitted two NDAs to the FDA to support use of the combination of binimetinib 45 mg twice daily and encorafenib 450 mg once daily (or "COMBO450") for the treatment of patients with BRAF -mutant advanced, unresectable or metastatic melanoma. The submissions are supported by data from the pivotal Phase 3 COLUMBUS study, whicth showed that patients who received binimetinib and encorafenib had a significantly longer progression free survival (or "PFS") compared to patients receiving vemurafenib. Array’s European partner, Pierre Fabre, remains on track to file the Marketing Authorization Applications for binimetininb and encorafenib during the summer 2017.

BEACON

The company is advancing the BEACON CRC trial, a global Phase 3 trial of encorafenib and Erbitux® (cetuximab), with or without binimetinib, versus standard of care in patients with BRAF -mutant colorectal cancer (or "CRC") who have previously received first- or second-line systemic therapy. In May 2017, Array announced that based on an attractive safety profile and with early encouraging clinical activity observed in the safety lead-in, the randomized portion of the trial continues to enroll patients. Data from the safety lead-in will be presented at the ESMO Congress in September 2017 in Madrid, Spain. The presentation will include objective response rate, duration of exposure, durability of response and details on adverse event reporting.

BEACON CRC was initiated based on results from a Phase 2 study including the combination of encorafenib and cetuximab in patients with advanced BRAF -mutant CRC, which were presented at the 2016 ASCO annual meeting. In this study median Overall Survival for these patients exceeded one year, which is more than double several historical published benchmarks for this population.

ARRY-382 AND ARRY-797

The company is advancing a Phase 1/2 dose escalation immuno-oncology trial of ARRY-382 in combination with pembrolizumab (Keytruda®), a PD-1 antibody, in patients with advanced solid tumors, including melanoma and non-small cell lung cancer. ARRY-382 is a wholly-owned, highly selective and potent, small molecule inhibitor of CSF-1R kinase activity.

The company plan to initiate a Phase 3 trial of ARRY-797, an oral, selective p38 MAPK inhibitor, in patients with LMNA A/C-related dilated cardiomyopathy this summer as it evaluates options regarding the asset, including advancing it internally, partnering the program for further development and commercialization or creating a separate company. LMNA A/C-related dilated cardiomyopathy is a rare, degenerative cardiovascular disease caused by mutations in the LMNA gene and characterized by poor prognosis.

Amgen Collaboration

The company initiated an inflammation collaboration agreement with Amgen for the discovery and development of novel drugs for autoimmune disorders. The undisclosed target and lead inhibitors were discovered using Array's proprietary Kinase-Directed Phenotypic Screening Platform that leverages its deep expertise in chemistry and early lead development. Under the terms of the agreement, Amgen and Array will collaborate on preclinical development with Array leading the medicinal chemistry work. Amgen is responsible for clinical development and commercialization. In exchange for exclusive rights to its preclinical program, Amgen will make upfront and milestone payments, as well as pay royalties on sales of resulting therapies.

RECENT DEVELOPMENTS

On August 7, 2017, The company entered into an amendment to the convertible promissory notes issued to Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd. pursuant to which the maturity date of each of the notes was extended to August 6, 2018 and the exit fee payable upon cash repayment of each of the notes was increased to an amount equal to 50% , or $5.0 million of the principal amount under each of the notes.

Business Development and Partner Concentrations

The company currently license or partner certain of its compounds and/or programs and enter into collaborations directly with pharmaceutical and biotechnology companies through opportunities identified by its business development group, senior management, scientists and customer referrals. In general, The company's partners may terminate their agreements with it with 60 to 180 days' prior notice. Specifics regarding termination provisions under its material collaboration or license agreements can be found in Note 5 – Collaboration and Other Agreements to the accompanying audited financial statements included elsewhere in this Annual Report on Form 10-K.

Additional information related to the concentration of revenue among its partners is reported in Note 1 – Overview, Basis of Presentation and Summary of Significant Accounting Policies – Concentration of Business Risks to the accompanying audited financial statements included elsewhere in this Annual Report on Form 10-K.

All of the company's collaboration and license agreements are denominated in U.S. dollars, except its agreement with Ono which is denominated in Japanese Yen.

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