Array Biopharma Inc (NASDAQ:ARRY), a biotech company primarily focused on discovery of drugs for cancer treatment, is making forays into the asthma market. The company recently announced encouraging results – 6.8% improvement in FEV1 versus placebo – of Phase II clinical trials of ARRY-502, an oral medication for management and treatment of asthma. FEV1 (forced expiratory volume in one second) is a measure of lung function and one of the parameters used for classifying asthma. The other two are frequency of symptoms and peak expiratory flow.
Potential partners
AstraZeneca plc (ADR) (NYSE:AZN), which already partners Array Biopharma Inc (NASDAQ:ARRY) in a cancer drug, could be one of them. AstraZeneca plc (ADR) (NYSE:AZN), whose treatment for COPD, Symbicort, is under threat from a new class of LAMA/LABA drugs, and needs to secure its position in the market. It was probably for this purpose that it acquired Pearl Synthetics, a specialist in respiratory drugs, for $1.15 billion. More recently, the company announced a partnership with FibroGen for an anemia drug committing $350 million cash and another $465 million in milestone payments.
75% of AstraZeneca plc (ADR) (NYSE:AZN)’s $28 billion revenue is contributed by its top ten drugs. With the threat of patent expirations and a pipeline that is not so great, the company is under pressure to maintain regular dividend payments. At CMP of $50.74 a share, the company has a dividend yield of 5.5%.
COPD (Chronic Obstructive Pulmonary Disease) and asthma have similar symptoms but have different pathophysiology. Both are results of inflammation of one of the components of the immune system, white blood cells, but of different types. While in COPD, it is due to inflammation of the microphages and neutrophils, in asthma it is from eosinophils. There are other differences as well – FEV1 decreases between asthma episodes but is irreversible in COPD. Asthma often progresses into COPD.
GlaxoSmithKline plc (ADR) (NYSE:GSK) is another company that could evince interest in ARRY-502. The company has a major presence in the respiratory drug market. Advair, a combination drug for management of asthma and COPD is the company’s top selling drug with 20% of its pharmaceutical sales.
Array’s ARRY-502 would indeed be a welcome asset in the company’s respiratory candidates under development while it awaits approval of Brio/Revlar, which combines the corticosteroid (fluticasone: inhalable) with a LABA (vilanterol). Breo/Revlar is being considered as the next generation treatment of asthma/COPD even as Advair’s first quarter sales increased by 2% to $1.92 billion.
It’s not about asthma alone
Coming back to Array Biopharma Inc (NASDAQ:ARRY), the company’s primary focus is on discovery and development of targeted small molecule drugs for treatment of cancer and ARRY-502 is just one of the five candidates in the company’s pipeline – one each for multiple myeloma, MDS (myelodysplastic syndrome), pain and diabetes.
In preclinical trials, ARRY-520, the company’s candidate for multiple myeloma currently in mid-stage trials, demonstrated rapid onset of death of tumor cells whose survival depends upon MCL – 1 protein. Early July, the company achieved a $5 million milestone when it initiated Phase III clinical evaluation of MEK 162 in patients with low grade serious ovarian cancer who have “progressed to cytotoxics and have no other proven therapeutic options.”
Robust pipeline at minimal cost
Funding research is the biggest issue with early stage companies. In Array’s case it is an even bigger issue because of the number of compounds it is working on. Despite that, the company has been able to manage funding through strategic partnerships without having to dilute equity. In fact, it has received more by way of upfront and milestone payments than it has spent on discovery and development. Out of the $589 million received (against $563 million actually spent) since inception in 1998, $133 million has been from Novartis, Amgen and Genentech (now Roche).
The majority of the company’s value stems from partnerships with AstraZeneca plc (ADR) (NYSE:AZN) and Novartis for Selumetinib and AZD8330 – MEK Program and MEK162 and MEK300 – MEK Inhibitor Program. Any partnership that the company enters for its asthma candidate can only add to that value.
Conclusion
Regardless of encouraging results and potential of pipeline products, it is crucial that the fundamentals of early stage biotech companies like Array Biopharma Inc (NASDAQ:ARRY) are also examined.
Array’s revenue has been growing continuously for the last three years – from $53.88 million in FY 2010 to $85.14 million in 2012. In addition, there has also been a more than significant drop in net loss – from $77.63 million to $23.58 million.
At the same time, considering the state of its balance sheet, with $88 million in cash and short term investments and annual burnout of more than $70 million, the company depends largely on the results of its ongoing evaluation programs and milestone payments from its partners that include Celgene and Eli Lilly.
Considering the potential of its healthy pipeline, I would suggest investors to consider buying Array Biopharma Inc (NASDAQ:ARRY) for the long term, at least till end of 2014.
The article This Cancer Biotech Is Looking for Other Green Pastures originally appeared on Fool.com and is written by Dr. Kanak Kanti De.
Dr. Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Kanak is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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