How Array Got its Groove Back

Array’s (ARRY) recent licensing deal with Novartis (NVS) is another evidence of pharma’s appetite for new oncology compounds, especially for targeted agents. Facing a patent cliff and dwindling internal pipelines, pharmaceutical companies are willing to pay a generous price for promising early stage compounds.

This is why companies with broad platform technologies that can feed the industry with new compounds represent an attractive investment opportunity. These companies include (in alphabetical order)  Arqule (ARQL), Array, Exelixis (EXEL), Immunogen (IMGN), Micromet (MITI) and Seattle Genetics (SGEN). From that list, Array has been the worst performer in 2009 due to liquidity fears as well as lack of exciting clinical data for its proprietary compounds. The two recent deals with Amgen (AMGN) and Novartis helped Array strengthen its balance sheet, but more importantly, they prove that the company’s discovery and early stage development capabilities have been underestimated by the market.

Novartis in-licensed Array’s MEK inhibitors, including ARRY-162, currently in phase I in cancer patients. The deal included an upfront payment of $45M as well as double digit royalties on international sales and opt-in rights for the US. Although large licensing deals for early stage oncology compounds with limited efficacy data are not a rare event, Array’s deal with Novartis stands out as it has already out licensed a similar compound to AstraZeneca (AZN) several years ago. The AstraZeneca deal, which was announced in late 2003, covered AZD6244 (a preclinical stage compound nearing IND at the time) and backup compounds for an upfront payment of $10M.

The interesting part of the Astra agreement was that it permitted Array to develop other MEK inhibitors but only for non-oncology indications. This restriction was set to expire in April 2009. During that period, Array advanced two additional MEK inhibitors to clinical trials as part of its inflammation pipeline, one of which, ARRY-162, failed in a phase II trial in rheumatoid arthritis last year. Despite the failure, ARRY-162’s value kept going up, as the interest in MEK as a target for cancer therapy reached unprecedented levels in 2009.

MEK is part of the MAPK pathway, one of the two major signaling axes in cancer, on which multiple signals converge and lead to cell growth. The other axis is the PI3K pathway. The current approach with targeted therapies such as MEK inhibitors is to combine them with other drugs in order to block several cascades in parallel. The hottest trend right now is modulating both the MAPK and the PI3K pathways simultaneously, as cancer cells often activate both of these pathways. A good example for this trend is an ongoing phase I trial combining Astra’s MEK inhibitor (AZD6244) and Merck’s Akt inhibitor (MK-2206). This is probably the first time in history two pharmas decide to combine two drugs at such an early stage of development.

Array was not the first to strike a large MEK inhibitor deal. In April of last year, Ardea (RDEA) sold rights for a phase I MEK inhibitor to Bayer in a deal that included an upfront payment of $35M and low double-digit royalties. Array managed to get better terms, as its drug has a comprehensive safety and pharmacokinetics data package thanks to the inflammation program. In addition, ARRY-162 was the last unpartnered clinical stage MEK inhibitor in the market, which probably helped Array in the negotiation table.       

On the clinical front there were mainly two factors that positioned MEK as a hot target. The first was a spectacular data set from a phase I of PLX4032, a drug developed by privately held Plexxikon and Roche for melanoma. Although PLX4032 does not target MEK , the fact that it hits a different target in the MAPK signaling pathway (BRAF) seems to further validate MEK as a target. Another reason for the great interest in MEK inhibitors was large amount of clinical data for AZD6244, the MEK inhibitor Array licensed out to AstraZeneca more than 6 years ago. Although, AZD6244 failed in three phase II trials and did not reach a registration trial, it still demonstrated interesting signs of efficacy, especially in tumors harboring certain mutations. This has led some to blame the AZD6244’s delays on a poorly designed clinical program rather than the compound itself. Therefore, ironically, the effort and money put into AZD6244 by AstraZeneca enabled Array to sign such a lucrative deal for its other MEK inhibitor with Novartis.

From Novartis’ stand point, it added another promising kinase inhibitor to the armamentarium. The company’s kinase inhibitor pipeline for cancer comprises of 9 compounds in development and three approved drugs, including Gleevec, the best selling kinase inhibitor to date. The company will probably have a fourth drug in the market next year following data from a registration study for INC424. This is the place to admit the size of the INC424 deal, which included an upfront payment of $210M for rights outside of the US, easily topped my predictions which turned out to be ridiculously low.

In contrast to INC424, ARRY-162 is still an early stage compound with no clear route for approval. As discussed above, its value will probably be in combination with other drugs, which is why large companies like Novartis aspire to have a diverse pipeline of targeted therapies that could be mixed and matched according to the clinical setting. Novartis, for example, has a strong presence in the PI3K arena, with one drug (Affinitor) already approved for kidney cancer and two others in clinical testing with what appear to be early signs of efficacy.  On top of Array’s MEK inhibitor, Novartis also has a phase I compound which hits BRAF, another component of the MAPK pathway. Coincidentally or not, at last week’s AACR annual meeting, Array presented an extensive preclinical project on the combination of its ARRY-162 with Novartis’ Affinitor. This will probably be just one of many combinations Novartis will evaluate in the clinic.

In summary, the collaboration with Novartis is a great achievement for Array and a testament of excellent long term strategic planning. The company’s MEK inhibitors are now being developed in the hands of two of the top 5 pharmaceutical companies. The Novartis deal comes after a lucrative deal with Amgen in diabetes, which increase the number of clinical stage partnered compounds to 8. This is on top of four wholly owned compounds in the clinic.

Even after the recent climb, Array’s market cap is still under $200M, which is substantially lower than other companies with kinase inhibitor platforms such as Exelixis and Arqule. The only thing that separates Array from these companies is the fact that it does not have one drug with a clear path to market. Most of Array’s drugs are still in early clinical development, so investors cannot put a price tag on them. Once investors see the light at the end of the tunnel with at least one of Array’s drugs (partnered or unpartnered), the company’s valuation should increase dramatically. It is hard to predict the timing of such an event, but with the amount of shots on goal Array has, it is probably only a matter of time.

Portfolio updates

Since its inception 18 months ago, the biotech portfolio, managed by Ran Nussbaum and myself is up 82.3%. The table below compares its performance to other general and life sciences-oriented indices and ETFs. Although the portfolio is still at the no.2 spot, we managed to narrow the gap to 3%.

                                            The biotech portfolio as of Apr 25th 2010

 biotech-portfolio-25-4-10.png

 biotech-indices-25-4-10.png

 

 

 

22 thoughts on “How Array Got its Groove Back

  1. With the rise in share price for ARQL, do you see them doing a secondary? Your recent comments on MITI seem less enthusiastic…am I misreading your opinion on them?

    Love the blog!!!Keep us informed on the future od Biotech!

    heymang

  2. Thanks, heymang.

    I don’t know about a secondary at ARQL. Their cash position is pretty solid and they are not supprting any large clinical programs (they pay for 197’s development with milestones and future royalties). If I were them, I would wait till later this year after the ASCO data and p3 initiation. On the other hand, who knows in what shape the markets will be in by then…

    I am still very enthusiastic about MITI.If you are referring to my low expectations towards MT110, I think it’s still a high risk program and will require relatively high dose levels.

    ohad

  3. It seems like there is more excitement over cldx the closer we get to asco, however, it is only currently trading for about 8 while it was 14 last year at around asco. Shouldnt there be just as much excitement this year with more mature data for cdx 110?

    Would you consider cldx a strong buy?

  4. I would attribute today’s jump to DNDN’s approval. There are certainly a great deal of anticipation for the ACTIII data, which should include a large number of patients (even though it is not randomized. It would also be interesting to see data with CDX-11 in breast cancer. It’s hard for me to predict the stock’s movement going into ASCO. 14 sounds pretty high though…

    ohad

  5. Some biotech analysts are looking for the next dndn and one of their top picks was cldx.

    Some analysts reasoning was that there is much more upside for cldx because it has a better safety profile and prolongs over survivals in brain cancer than dndn did with prostate cancer.

    Arqle seems like it may be a safter bet than cldx but that cldx has much more upside in the short term than arql leading to asco.

    If you had to choose arql or cldx with what we know right now which would you consider buying?

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aWSNKmcFDuJY&pos=7

  6. No doubt CLDX is one of the promising cancer vaccines out there. Unlike DNDN’s Provenge, their vaccine has never been validated in a randomized controlled trial. Also, the market size of EGFRvIII GBM is pretty limited (1 of 4 pts).

    If I had to choose, I would go with ARQL. Good data set with CDX-011 might change my mind.

    ohad

  7. Last year you gave your top picks for asco 2009. Do you plan on giving your top picks for asco 2010?

    always a pleasure to read you thoughs,
    Sam

  8. What do you think of the MITI 110 abstract? Mediocre results or is that what you were expecting?? Thanks for your thoughts as always!!!!
    heymang

  9. arql held up remarkedly well during the market turmoil.
    arql was only down only down 5% during the last 5 days compared to cldx being down almost 25% and miti down 15%.

    also traders seemed to pleased with arql abstracts because arql traded higher a few percent on friday in contrast to miti down 7% on friday and cldx down almost 10%

    Youre right again to exercise caution on miti and cldx while being optmistic on arql and I guess others are slowing coming to the same conclusion. Thanks for your helpful insight.

    sam

  10. Well I was expecting the usual ASCO sell off, held on to ARQL and MITI–from long time as I believe in their technology and management above all the others. Regardless, I think its time for another insightful post from you regarding the ASCO presentations. I know its greedy of me, but you are due for a post, and now is the perfect time :-)

  11. Hi Alex,

    I think it’s mostly that. This is not a show stopper for XL184 but it’s certainly bad news for EXEL, as the drug has been returned twice first by GSK and now by BMS).

    In general, Exelixis’ compounds did not generate “earth shattering” data at ASCO although there were some nice signals. The randomized discontinuation study looks interesting but we’ll have to wait several months to get a clear picture.

    Ohad

  12. Hello Ohad,

    a question to Curis. GDC-0449 failed in patients with metastatic colorectal cancer. After that announcement the pps collapsed. Do you believe GDC-0449 has still good chances to be successful in other indications?

    Regards
    Toby

  13. Toby,

    It’s hard to predict trial outcomes on a specific basis but I think GDC-0449 is a very active drug that has already demonstrated impressive activity in a niche indication. In other words, we know it can efficiently inhibit the target (SMO)but how relevant this target is in other idications- hard to tell but my bet is that it is. The next data readout is from the ovarian cancer study. Personally, I think that there’s also a very strong rationale for using the drug for pancreatic cancer so I’m looking forward to results in that indication next year.

    Ohad

    Ohad

  14. Ohad,
    thanks for your post and a question about CAL 101. Any thoughts?

    It appears to hit the target

  15. Yep, very nice compound with solid clinical data, even though it’s in blood cancers. The approach of hitting specific isoforms of PI3K is a differentiator that could pay off going forward.

    ohad

  16. Pingback: Hammer Stock Blog » Blog Archive » Biotech Portfolio Updates – Immunogen, Array and Seattle Genetics

  17. Pingback: Array gets binimetinib back (phenomenal deal terms) | Open Reading Frame

Leave a Reply

Your email address will not be published. Required fields are marked *