Array and Novartis Choose Pact Over Merger (ARRY, AZN)
Array BioPharma Inc. (NASDAQ: ARRY) is not usually the most active stock during the regular trading sessions of any day, let alone for it to be one of the most active in the after-hours trading session. Yet this evening Array is very active, and active to the upside. If you read just the headline and interpolate the data on a straight line as “a $467 million deal,” you might wonder why shares are not up even more. It might even make you wonder if Novartis should have just acquired the company.
- It was last summer when we noted that Array may have a pay-off in its inhibitor pipeline.
After the close, Array announced that it has entered into an agreement with Novartis (NYSE: NVS) that will cover the development of the small-molecule MEK inhibitors ARRY-162, currently in a Phase 1 cancer trial, its back-up, ARRY-300, and other MEK inhibitors. This is a worldwide partnership valued at $467 million if all conditions come to pass. Not bad for a $152.7 million market cap.
The terms are of course not a straight payment of $467 million. In the deal, Array will initially receive $45 million comprising an upfront and milestone payment, and Array is eligible to receive up to an additional $422 million if certain clinical, regulatory and commercial milestones are achieved.
In addition to the payments, Array said it plans to co-develop ARRY-162 in one or more specific indications and that it will fund a portion of the development costs. Seeing as that it had over $100 million in cash and long-term securities at the end of 2009, this is not out of the doable realm even if you consider its debt level.
Array will receive double-digit royalties on sales of approved drugs outside of the U.S., but Array will receive a “significantly higher royalty rate” for U.S. sales provided that Array meets its co-funding obligations.
Array also has a co-detailing right in the U.S. for approved drugs. These two areas covered are as follows:
- MEK is a key protein kinase in the RAS/RAF/MEK/ERK pathway, which signals cancer cell proliferation and survival. MEK has been shown to be frequently activated in cancer, in particular in tumors that have mutations in the RAS and RAF pathways.
- ARRY-162 is currently in a Phase 1, open-label, multiple dose trial that is designed to determine the maximum tolerated dose and evaluate safety, pharmacokinetics and pharmacodynamics of ARRY-162 following daily oral administration in advanced cancer patients with solid tumors.
If you adjust the $467 million in totality as payments made to a small-cap biotech, you might just wonder why the company was not acquired. The reason is somewhat simple. It is cheaper upfront with less risk for Novartis to throw some money at the firm and pay out royalties if the drugs become successful and make it to market.
Today’s regular trading day was a know-nothing, do-nothing day with far less than the average volume of 310,000 shares in a normal day. Yet here at 7:20 PM, the flat stock close at $3.02 is up a whopping 27% at $3.84 and it has traded over 1 million shares since the 4:00 PM EST closing bell.
The 52-week trading range is $1.68 to $4.65 and the market cap at the closing bell was about $152.7 million.
JON C. OGG
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3 Responses to “Array and Novartis Choose Pact Over Merger (ARRY, AZN)”
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Glad to see Doug Macintyre didn’t write this story. He told me he thought ARRY would be out of business by the end of the year – - and was pretty sure about it.
Good thing you actually aren’t a biased reporter, and report the facts, and keep your opinions to yourself. Seems like Doug loves to tell news about failures and loves when it happens.
Doug really is a JV writer.
nice suggestion,
tnxxxx great post,