In sticking to the knitting has Array given up too much?

At a time when most of biotech seems to want to become “the next Genentech” Array Biopharma has stuck to a partnering model and, in hindsight, lost out in the process.

Spotlight

Becoming a fully integrated biopharma company is a long-term vision of many of the sector’s junior players, most of which will also be aware that this vision will never come to pass. Array Biopharma is an outlier, having consistently pursued a business model that involved a minimal amount of early development followed by partnering.

A measure of Array's success is the remarkable number of recent deals that have featured assets that it had originated: think Loxo, Cascadian and Astra/Merck. But, in giving away rights at an early stage in return for a relatively small fee, the group looks in hindsight to have sold shareholders short.

This is not to deny that what Array has achieved is little short of incredible. Since inception in 1998, when the company was founded as a drug discovery services player, Array has generated a total of $1.2bn in research funding, up-front and milestone fees from partners.

Its projects have been behind the takeovers of Loxo by Lilly, Cascadian by Seattle Genetics, Intermune by Roche, and Ventirx by Celgene, while one of Mirati’s most promising assets, a KRAS inhibitor that recently entered the clinic, was also originated by Array.

The takeovers alone have seen acquirers pay a combined $17bn. However, hardly any of this has trickled down to Array, which in structuring its many alliances appears not to have written in fee-generating change-of-control provisions; one of the few times that Array did stand to generate a return was on Celgene’s takeout of Ventirx, as a result of an equity stake it held in the latter.

Perhaps the most damning indictment of Array’s business model is that, despite the combined $1.2bn cash flow from licensing deals, the company has a history of net losses and has burnt through $1.1bn of investor funds since inception. Except for one-offs Array has always been lossmaking, and sustainable profitability still looks like a pipe dream.

Selected Array assets that have been licensed on
Project Mechanism Licensed to Financial benefit for Array Related events
Mektovi (binimetinib) Mek inhibitor Pierre Fabre & Ono $30m up front in 2016 from P Fabre;
$31.2m up front from Ono in 2017
Handed back to Array by Novartis for "de minimis" payment
Braftovi (encorafenib) Braf kinase inhibitor Array got asset & $85m from Novartis after alleging antitrust
Vitrakvi & LOXO-195 TRK inhibitors Loxo $13m paid before Lilly takeout Licensed by Loxo to Bayer for $400m; Lilly bought Loxo for $8bn
LOXO-292 Ret inhibitor Lilly bought Loxo for $8bn
Ganovo (danoprevir) Protease inhibitor Intermune $4.2m paid so far Roche bought Intermune for $8.3bn
Ipatasertib AKT inhibitor Roche $26.5m paid so far  
Varlitinib Pan-Her2 inhibitor Aslan $23m up front in 2018 Failed in 1st-line gastric cancer
Selumetinib Mek inhibitor Astrazeneca $26.5m paid so far Licensed by Astra to Merck & Co for $1.6bn; subsequent lawsuit
Tucatinib Her2 inhibitor Cascadian $10m up front in 2013 Seattle Genetics bought Cascadian for $614m
Motolimod TLR8 agonist Ventirx $2.6m & equity before Celgene takeout Celgene bought Ventirx for undisclosed amount
Prexasertib CHK-1 inhibitor Lilly $0.4m paid so far  
ARRY-382 CSF-1R antagonist (wholly owned) Celgene paid $50m Celgene did not exercise option
RG7741 CHK-1 inhibitor Roche $28m up front in 2011  
MRTX849 KRAS G12C inhibitor Mirati $9m paid so far  
ARRY-954 TRKA inhibitor Asahi Kasei $12m up front in 2016  
Source: SEC filings, company presentations.

There are caveats, of course, such as the fact that late-stage development is expensive, and this is something Array has not wanted to take on. Many peers groups that took assets further on their own have been burned by clinical failure; paradoxically, Array's shortcomings have only been brought to light by the subsequent success of many of its assets.

And, as most of Array's deals were struck early it would have been unrealistic to expect more than a token up-front fee. But it is the group's failure to benefit from subsequent business development activity around these assets that stands out, though it could also be argued that encumbering them with change-of-control provisions might have prevented follow-on activity.

The company’s latest focus has fallen on the Braf/Mek inhibitor combination of Braftovi and Mektovi, which is approved in melanoma and licensed to Pierre Fabre in Europe and Ono in Japan. Pierre Fabre recently told Vantage that this combo was the key pillar of its own transformation from a chemotherapy player to a bona fide drug R&D group.

How Array came to own both parts of the combo is itself down to a clever sleight of hand: Novartis had had rights to Mektovi, but handed these back, throwing in its own Braftovi plus $85m, when Array alleged an antitrust breach occasioned by the Swiss firm’s ownership of the similarly acting Mekinist/Tafinlar combo (Array plays its Braf/Mek hand to perfection, January 26, 2015).

Since then there have been ups and downs: developing Mektovi for Nras-mutated melanoma, based on the Nemo study, was abandoned after US and EU regulators rejected the data package. However, more recently the Beacon CRC study has presented a new focus for the combo in second/third-line Braf-mutant colorectal cancer.

Recently presented results of a safety lead-in phase of Beacon CRC have revealed 15.3 months of overall survival for the Braftovi, Mektovi, Erbuitux triplet, something hailed as unprecedented in this setting. Interim data from the phase III portion, including a direct comparison against Erbitux plus chemo, are due in the first half of 2019.

Array licensed a separate Mek-targeting small molecule, selumetinib, to Astrazeneca, which included it in a 2017 agreement with Merck & Co that focused on the Parp inhibitor Lynparza. Array is now in dispute with Astra, claiming that it is owed a 16% royalty on part of the $1.6bn Merck handed over up front.

Meanwhile, all future milestone payments potentially due to Array, including $400m from Pierre Fabre, could reach $2.7bn – a figure dwarfed by the $17bn partners have realised in M&A. Yet Array, along with other small-molecule oncology players, is seen as a takeover target itself in light of the Loxo takeout, and its market cap stands at $3.6bn.

Whether Array could already have achieved such an outcome had it held on to some of its assets rather than giving them away for a song is something for investors to ponder.

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