BST Trade Alert: January 10, 2013
January 10, 2013
Recommendation:
Buy Array BioPharma (NASDAQ: ARRY) up to $4.80 per share.
About the Company:
Advancing a new drug through clinical testing to FDA approval is a long and costly process. As a result, most small biotechs focus their limited resources on developing just one or two new drugs. And the vast majority of their drug pipelines are in the early stages of development.
However, that’s not the case with Array BioPharma.
Array might be small (it’s market cap is less than $500 million), but it has a robust pipeline of new drugs in development. And that’s not all. Array is quickly evolving into a late-stage development biotech.
Let me explain…
Right now Array has a whopping 14 small-molecule drugs in the pipeline.
Four wholly-owned drug candidates are in development for multiple myeloma, myelodysplastic syndrome, pain, and asthma. And 10 new drugs are being developed with major pharma and biotech partners for diabetes, hepatitis C virus, inflammatory disease, and a variety of cancers.
No question about it, this is one massive pipeline for a small biotech.
But that’s not all…
While the pipeline’s enormous size is impressive, there’s more to this story. As I mentioned earlier, a number of Array’s drug candidates are advancing into the late stages of clinical testing.
Two of the company’s proprietary drugs – ARRY-614 and ARRY-520 – and three partnered programs – selumetinib (Astra Zeneca), MEK162 (Novartis), and danoprevir (Intermune/Roche) – could begin pivotal phase 3 trials by the end of 2013. With so many drug candidates closing in on the critical phase of clinical testing, Array is that much closer to becoming a self-sustaining biotech.
And that’s sure to put ARRY on many biotech investors’ radar screens this year.
In addition to a robust pipeline, Array also has a solid financial position.
The company finished the quarter ending in September with $68 million in cash. And they just added another $70 million from the sale of 20.7 million shares of stock.
That brings their total cash position to an enviable $138 million.
Now, Array does have a heavy debt load of nearly $94 million. But with the recent cash infusion, the company’s current ratio increases from 1.06 to 2.07. That should be sufficient liquidity for Array to reach their research and development goals for this year.
Speaking of research and development, let’s take a closer look at Array’s drug candidate with the nearest upcoming catalyst.
About the Drug:
ARRY-502 is an oral CRTh2 antagonist with potential to treat asthma, particularly severe cases of the disease. And the drug may have advantages over molecules being developed by Array’s competitors.
Before I explain how ARRY-502 is designed to work, let’s first try to understand the disease.
Asthma is the result of chronic inflammation of the airways which subsequently leads to increased contractability of the surrounding smooth muscles. This and other factors lead to bouts of narrowing of the airway, which produces wheezing, coughing, chest tightness, and shortness of breath.
While there’s no cure for asthma, FDA approved medications are available to treat the symptoms. However, Array believes ARRY-502 may be a safer and more effective treatment.
So, how does the drug work?
A lot of research has been done in the area of severe allergic asthma. And this research shows that a greater presence of prostaglandin D2 (PGD2) and an upregulation of CRTh2 may play a particularly important role in asthma’s more pronounced symptoms.
I know this is complicated, but bear with me…
Prostaglandins are lipid compounds derived enzymatically from fatty acids. They’re found in most tissues and organs of the human body. And they have a variety of strong physiological effects.
Most importantly, they’re responsible for regulating the contraction and relaxation of smooth muscle tissue.
CRTh2 is the receptor for PGD2-mediated allergic response found on inflammatory cells. Activation of CRTh2 has been shown to activate inflammatory cells and stimulate the production of cytokines (small cell-signaling protein molecules) that are thought to drive asthma pathophysiology.
Here’s the key…
ARRY-502 is designed to bind to CRTh2 and prevent activation of inflammatory cells. As a result, Array believes ARRY-502 has a greater chance of successful treatment for patients with allergic asthma.
ARRY-502 is currently being tested in a six-week phase 2 trial involving 180 patients with persistent asthma. Top-line results are expected in the second quarter of 2013. After the results are released, Array intends to find a development partner for the drug.
About the Market for This Drug:
Inappropriate inflammatory responses to environmental allergens underlie allergic reactions such as allergic asthma, allergic rhinitis, and atopic dermatitis. These conditions collectively affect up to 20% of the American population.
That’s a mind-boggling 60 million people!
Despite the range of treatments for allergic asthma, there’s a significant need for treatments for patients with severe asthma. What’s more, there’s a significant need for safer, more convenient, and more effective therapies for patients with mild-to-moderate, persistent asthma.
Severe asthma affects only about 10% of the asthmatic population. But the condition results in approximately 60% of the total healthcare costs associated with asthma.
Currently, few treatment options exist for patients with severe asthma.
Right now, Merck/Kyorin’s Singulair is the dominant treatment in the $15 billion asthma market. According to Decision Resources, the drug generated sales of $3.2 billion in major markets during 2011.
While generic versions of popular asthma treatments are just now becoming available, there’s still a huge market opportunity for ARRY-502. As such, we believe positive results from the phase 2 trial would be a big upside catalyst for ARRY.
About the Potential Catalyst:
Top-line results from the phase 2 trial of ARRY-502 in severe asthma are expected in the second quarter of 2013.
About the Shares:
The time is now to climb aboard the ARRY express.
After hitting a 52-week high of $6.17 in October 2012, the stock declined to a low of $3.25 in mid-November. However, it has recently begun moving higher.
As I write, ARRY is trading at $4.34 per share. That’s a 34% gain off the recent low, but it’s still a hefty 30% discount to the 52-week high.
In other words, ARRY has a significant upside potential from here.
With its massive pipeline, strong financial position, and upcoming catalyst, ARRY is likely to trend higher over the weeks and months ahead. Go ahead and grab your shares of this exciting biotech as soon as possible.
Key Facts:
| Company: | Array BioPharma |
| Ticker: | ARRY |
| Recent Price: | $4.34 |
| Market Cap: | $415 million |
| Avg. Daily Volume: | 1,339,700 shares |
Chart:
Category: BST Trade Alert
