Post by stcks on Sept 12, 2017 14:24:19 GMT
Investment Thesis:
Despite regaining some of its valuation lost during Q2, 2017, Array Biopharma’s current price does not appear to factor in the colorectal cancer ("CRC") opportunity for its lead drugs, BINI and ENCO. This weekend at ESMO, Array presented more data not only on its phase 3 COLUMBUS registration trial for BRAF-mutant melanoma, but more importantly from our view, on the lead-in stage of its phase 3 BEACON registration trial for BRAF-mutant CRC. Although it is hard to predict whether there will be a large upward movement going forward, the data presented were positive and there does not appear to be significant downside risk at this point. Therefore, the possibility of some future upward movement with a low likelihood of downside, plus a possible run up to approval for BINI and ENCO in BRAF-mutant melanoma in the first half of next year, make ARRY an attractive long-term investment.
Company Overview:
Array Biopharma (NASDAQ: ARRY) has been a prolific drug development company over the last decade discovering a host of small molecule drug candidates for the treatment of cancer and other indications. However, Array has not yet commercialized any of its compounds to date. To share early risk and aid in bringing these candidates to market, the company has partnered with various companies for almost every clinical trial it is currently running, including Merck (NYSE: MRK) and Bristol-Myers Squibb (NYSE:BMY) for using binimetinib in combination with their respective PD-1 inhibitors in microsatellite stable (MSS) CRC. At ESMO, Array presented data from trials in BRAF-mutant melanoma (COLUMBUS) and BRAF-mutant colorectal cancer (BEACON CRC) testing encorafenib and binimetinib, which is licensed to the Japanese company Ono Pharmaceutical Co., Ltd (“Ono”) to facilitate the development and commercialization of these drugs in Japan and South Korea and Pierre Fabre for EU and rest of world commercialization. Below is a comprehensive table of Array’s many partnerships, including deal scope, milestones, and asset class.
Tap to see the table
Financials:
Array currently has about ~$235M in cash, and excluding one-time operational costs from the last quarter, the burn rate is ~$26M/Q as of June 30, 2017. This cash position gives them a solid runway of a little over 2 years, showing an unlikely need to raise funds in the near future. Also, although Array currently does not have any marketed products, it should be receiving milestone payments from several of its partnerships and additional royalties for future sales.
Background and Context:
Encorafenib (ENCO) and binimetinib (BINI) are cancer drug candidates for which Array Biopharma currently holds all rights in the US, Canada and Israel. Array has partners for these drug candidates with Ono Pharmaceuticals in Japan and Pierre Fabre in the rest of world. Binimetinib is a late-stage small molecule MEK inhibitor and encorafenib is a late-stage small molecule BRAF inhibitor, both of which target key enzymes in an important cellular pathway used by cancer cells, called the MAPK signaling pathway.
BRAF-Mutant, Advanced or Metastatic Melanoma
The beneficial combination of ENCO and BINI has been established in the COLUMBUS Phase 3 registration trials, overall demonstrating improved response rates and progression-free survival (PFS) in BRAF-mutant melanoma. The COLUMBUS trials were separated into two parts: In Part 1, 577 patients were randomized to receive either BINI+ENCO, ENCO, or vemurafenib (VEM). As discussed in late September, 2016, Part 1 met its primary endpoint demonstrating a robust improvement in PFS increasing to a median of 14.8 months with the combination of ENCO and BINI compared to 7.3 months with VEM. Furthermore, overall response rates improved to between 56% and 81% with the ENCO and BINI combination compared to 33-57% in the VEM arm. Part 2 of COLUMBUS randomized 344 patients to receive either BINI+ENCO or ENCO alone. The results of Part 2 were further discussed at ESMO, but in May, 2017, preliminary data again showed the combination was superior to ENCO alone with a median PFS of 12.9 vs 9.2 months, respectively. Earlier this summer, Array filed an NDA for the ENCO and BINI combination therapy for BRAF-mutant melanoma.
BRAF-Mutant Colorectal Cancer
ENCO was most recently studied in a Phase 2 clinical trial for relapsed BRAF-mutant CRC. The results of that trial showed that ENCO plus the EGFR inhibitor cetuximab (CETUX) improved median overall survival to 12.4 months versus historical values for other treatments of only 4-6 months. Additionally, the overall response rate (ORR) was 22%, which compares favorably with other trials for other drugs for this very difficult to treat patient population in CRC. For example, as recently as this past June, CETUX in combination with irinotecan achieved an ORR of 4%.
This weekend's news regarding the ongoing Phase 3 BEACON trial of ENCO and BINI with CETUX in CRC support that this therapy could be a major breakthrough in the treatment of this very difficult to treat patient population. The data which were initially reported Saturday, indicate that an ORR of 41% was achieved with the ENCO/BINI/CETUX triplet, including a complete response. Moreover, no patient experienced progressive disease and 76% of patients were still receiving treatment at a time that more than doubled the historical mPFS. Overall, this appears to be a major breakthrough and improvement from the current standard of care for these patients.
Competition:
Due to the time sensitive nature of this report, we were unable to provide a full evaluation of the competitive landscape. However, see here for other MEK/BRAF combos in clinical trials. Additionally, readers should be aware that while BINI+ENCO has shown impressive responses in BRAF-mutant melanoma, they will be third to market in this indication which will likely add some additional difficulty in capturing market share. Currently approved MEKi include Mekinist and Cotellic. Despite their first-mover advantages, we believe BINI+ENCO may provide a better tolerability profile (fever and photosensitivity are common with Mekinist and Cotellic, respectively) and may prove slightly more efficacious in melanoma. In CRC, the additive benefit of the BINI+ENCO+CETUX combo (if it plays out in the full Phase 3 trial) should give Array a clear advantage in that indication. We plan to look further at the potential competition in the CRC market from ongoing clinical trials with other drug candidates in the future. Together, Array’s combo should capture at least some of the BRAF-mutant melanoma market and probably, more of the BRAF-mutant CRC market.
Market Opportunity:
In the US, there were about 87,000 new cases of melanoma (see here) and there were around 130,000 new cases of colorectal cancer (see here) in 2015. BRAF mutations occur in about 50% of metastatic melanoma patients and BRAF mutations occur in approximately 10% of patients with colorectal cancer. These mutations predict a poor response to standard therapies and an overall poorer prognosis relative to patients without these mutations. Considering the higher percentage of melanoma patients with a BRAF mutation and the greater incidence of colorectal cancer, Array has reported that the market sizes for the BRAF-mutant populations between these cancers is similar.
Given the similar market sizes of the opportunities for ENCO and BINI in BRAF-mutant melanoma and CRC, it is interesting to compare the likely value of each of these indications in the current Array stock price. With the positive Phase 3 results that were presented for melanoma in the COLUMBUS trial in September 2016, Array’s stock price almost doubled, from $3.69 to $6.60. Whereas, with Array’s Phase 2 CRC data in 2015 and 2016, the stock price did not appear to increase. Furthermore, with Array’s announcement of very positive Phase 3 lead-in data this weekend, the stock is up less than 10% at the time of this drafting. And although there was an approximate 25% runup of the stock in August/early September that may in part be attributed to the CRC data, we believe the market continues to underestimate the value of Array’s compounds in CRC.
Summary:
Based on the above analysis, we believe there is a good chance of more upside in ARRY stock price in the next 12 months and a chance for near-term gains as today’s groundbreaking triplet data in BRAF-mutant CRC is further appreciated by the market. We took a position in ARRY in our AMP hypothetical model fund earlier this week, and will likely hold it long-term.
At AMP, we aim to differentiate ourselves with deeper analysis that leverages our years of scientific training and industry experience. Currently contributing are several PhDs and 1 MD.
Disclosure: I am/we are long ARRY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
