U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2005
or
o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-31979
Array BioPharma Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
84-1460811 |
(State or
Other Jurisdiction of
|
|
(I.R.S. Employer Identification No.) |
|
|
|
3200 Walnut Street, Boulder, CO |
|
80301 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
|
|
|
(303) 381-6600 |
||
(Registrants Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one): Large Accelerated Filer o Accelerated Filer ý Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
As of January 31, 2006, the registrant had 38,819,242 shares of common stock, par value $.001 per share, outstanding.
ARRAY BIOPHARMA INC.
TABLE OF CONTENTS
2
ARRAY BIOPHARMA INC.
(Unaudited)
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
12,305,662 |
|
$ |
12,429,526 |
|
Marketable securities |
|
65,358,388 |
|
78,296,782 |
|
||
Restricted cash |
|
|
|
1,979,678 |
|
||
Accounts receivable, net |
|
1,578,968 |
|
679,609 |
|
||
Inventories, net |
|
2,006,624 |
|
2,153,486 |
|
||
Prepaid expenses and other |
|
1,675,161 |
|
1,025,871 |
|
||
Total current assets |
|
82,924,803 |
|
96,564,952 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment |
|
63,719,235 |
|
61,516,975 |
|
||
Less accumulated depreciation and amortization |
|
(34,591,942 |
) |
(30,210,523 |
) |
||
Property, plant and equipment, net |
|
29,127,293 |
|
31,306,452 |
|
||
|
|
|
|
|
|
||
Other assets |
|
80,246 |
|
80,246 |
|
||
|
|
|
|
|
|
||
Total assets |
|
$ |
112,132,342 |
|
$ |
127,951,650 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
||
Accounts payable |
|
$ |
4,342,836 |
|
$ |
3,708,656 |
|
Advance payments from collaborators - current |
|
2,854,126 |
|
6,698,292 |
|
||
Accrued compensation and benefits |
|
3,052,161 |
|
4,320,755 |
|
||
Deferred rent - current |
|
430,256 |
|
341,555 |
|
||
Other current liabilities |
|
1,872,680 |
|
1,061,080 |
|
||
Total current liabilities |
|
12,552,059 |
|
16,130,338 |
|
||
|
|
|
|
|
|
||
Long term liabilities |
|
|
|
|
|
||
Advance payments from collaborators - long term |
|
312,500 |
|
937,500 |
|
||
Deferred rent and other liabilities |
|
1,324,277 |
|
1,354,533 |
|
||
Long term debt |
|
12,553,232 |
|
10,000,000 |
|
||
Other long term liabilities |
|
350,398 |
|
113,933 |
|
||
Total long term liabilities |
|
14,540,407 |
|
12,405,966 |
|
||
|
|
|
|
|
|
||
Total liabilities |
|
27,092,466 |
|
28,536,304 |
|
||
|
|
|
|
|
|
||
Stockholders equity |
|
|
|
|
|
||
Preferred stock |
|
|
|
|
|
||
Common stock |
|
38,674 |
|
38,467 |
|
||
Additional paid-in capital |
|
197,801,830 |
|
193,696,156 |
|
||
Accumulated other comprehensive loss |
|
(377,212 |
) |
(279,098 |
) |
||
Accumulated deficit |
|
(112,423,416 |
) |
(94,040,179 |
) |
||
Total stockholders equity |
|
85,039,876 |
|
99,415,346 |
|
||
|
|
|
|
|
|
||
Total liabilities and stockholders equity |
|
$ |
112,132,342 |
|
$ |
127,951,650 |
|
See notes to condensed financial statements
3
ARRAY BIOPHARMA INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
||||
Collaboration revenue |
|
$ |
9,231,735 |
|
$ |
9,548,445 |
|
$ |
17,515,150 |
|
$ |
16,892,953 |
|
License and milestone revenue |
|
2,708,337 |
|
2,500,000 |
|
5,666,669 |
|
5,012,499 |
|
||||
Total revenue |
|
11,940,072 |
|
12,048,445 |
|
23,181,819 |
|
21,905,452 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses (1) |
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
10,012,941 |
|
9,464,030 |
|
19,402,586 |
|
18,257,157 |
|
||||
Research and development for proprietary drug discovery |
|
7,801,805 |
|
5,312,484 |
|
16,427,149 |
|
9,794,609 |
|
||||
Selling, general and administrative expenses |
|
3,379,212 |
|
2,340,814 |
|
6,833,515 |
|
4,676,005 |
|
||||
Total operating expenses |
|
21,193,958 |
|
17,117,328 |
|
42,663,250 |
|
32,727,771 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Loss from operations |
|
(9,253,886 |
) |
(5,068,883 |
) |
(19,481,431 |
) |
(10,822,319 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(153,090 |
) |
|
|
(281,621 |
) |
|
|
||||
Interest income |
|
695,782 |
|
191,866 |
|
1,379,815 |
|
329,974 |
|
||||
Net loss |
|
$ |
(8,711,194 |
) |
$ |
(4,877,017 |
) |
$ |
(18,383,237 |
) |
$ |
(10,492,345 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted net loss per share |
|
$ |
(0.23 |
) |
$ |
(0.16 |
) |
$ |
(0.48 |
) |
$ |
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Number of shares used to compute per share data |
|
38,616,654 |
|
30,705,855 |
|
38,557,434 |
|
29,806,512 |
|
(1) Operating expenses include share-based compensation expense of $1.7 million and $3.4 million for the three and six months ended December 31, 2005, respectively. For the three and six months ended December 31, 2004, share-based compensation expense was $0 and $151,004, respectively. See Note 1, Accounting for Share-Based Compensation, to the Unaudited Notes to Condensed Financial Statements.
See notes to condensed financial statements
4
ARRAY BIOPHARMA INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended
|
|
||||
|
|
2005 |
|
2004 |
|
||
Operating activities |
|
|
|
|
|
||
Net loss |
|
$ |
(18,383,237 |
) |
$ |
(10,492,345 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
4,627,076 |
|
3,923,980 |
|
||
Share-based compensation expense |
|
3,411,043 |
|
151,004 |
|
||
Changes in operating assets and liabilities |
|
(5,432,612 |
) |
1,154,116 |
|
||
Net cash used in operating activities |
|
(15,777,730 |
) |
(5,263,245 |
) |
||
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
(2,414,162 |
) |
(2,777,815 |
) |
||
Purchases of marketable securities |
|
(34,884,720 |
) |
(76,745,554 |
) |
||
Proceeds from sale and maturity of marketable securities |
|
47,725,000 |
|
32,000,000 |
|
||
(Increase) decrease in restricted cash |
|
1,979,678 |
|
(726,455 |
) |
||
Net cash provided by (used in) investing activities |
|
12,405,796 |
|
(48,249,824 |
) |
||
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
||
Proceeds from sale of common stock, net of issuance costs |
|
|
|
66,626,986 |
|
||
Proceeds from exercise of stock options and shares issued under the employee stock purchase plan |
|
694,838 |
|
857,679 |
|
||
Proceeds from the issuance of long term debt |
|
2,553,232 |
|
|
|
||
Net cash provided by financing activities |
|
3,248,070 |
|
67,484,665 |
|
||
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
(123,864 |
) |
13,971,596 |
|
||
Cash and cash equivalents, beginning of period |
|
12,429,526 |
|
6,499,589 |
|
||
Cash and cash equivalents, end of period |
|
$ |
12,305,662 |
|
$ |
20,471,185 |
|
Supplemental disclosure of cash flow information
Cash paid for interest was $226,858 and $0 for the six months ended December 31, 2005 and 2004, respectively.
See notes to condensed financial statements
5
ARRAY BIOPHARMA INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 2005
(Unaudited)
Note 1: Basis of Presentation and Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the year ending June 30, 2006. For further information, refer to the financial statements and footnotes thereto as of and for the year ended June 30, 2005, included in the Annual Report on Form 10-K of Array BioPharma Inc. (the Company or Array ) filed on September 13, 2005, with the Securities and Exchange Commission.
Summary of Significant Accounting Policies
Cash Equivalents and Marketable Securities
Cash equivalents consist of short term, highly liquid financial instruments that are readily convertible to cash and have maturities of three months or less from the date of purchase and may consist of money market funds, taxable commercial paper, U.S. government agency obligations and corporate notes and bonds with high credit quality. Marketable securities consist of similar financial instruments with maturities of greater than three months.
At December 31, 2005 and June 30, 2005, management designated marketable securities held by the Company as available-for-sale securities for purposes of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Securities available-for-sale are carried at fair value, with unrealized gains and losses reported as a component of stockholders equity until their disposition. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses, declines in value judged to be other-than-temporary on securities available-for-sale and interest on securities available-for-sale are included in investment income. The cost of securities sold is based on the specific identification method.
Inventories
Inventories consist of individual chemical compounds in the form of Optimer â building blocks available-for-sale and commercially available fine chemicals used in the Companys proprietary drug discovery programs and research collaborations. Inventories are stated at the lower of cost or market, cost being determined under the first-in, first-out method. The Company designs and produces the chemical compounds comprising its Optimer building blocks and capitalizes costs into inventory only after technological feasibility has been established. The Company reviews its chemical inventories periodically and, when required, writes down the carrying cost for non-marketability to estimated net realizable value through an appropriate reserve.
6
Revenue Recognition
Most of the Companys revenue is derived from designing, creating, optimizing, evaluating and developing drug candidates for its collaborators. The majority of collaboration revenue consists of fees received based on contracted annual rates for full time equivalent employees working on a project. The Companys collaboration agreements also include license and up-front fees, milestone payments upon achievement of specified research or development goals and royalties on sales of resulting products. A small portion of the Companys revenue comes from fixed fee agreements and from sales of compounds on a per-compound basis.
Collaboration agreements typically call for a specific level of resources as measured by the number of full time equivalent scientists working a defined number of hours per year at a stated price under the agreement. The Company recognizes revenue under its collaboration agreements on a monthly basis for fees paid to the Company based on hours worked. The Company recognizes revenue from sales of Lead Generation Library and Optimer building block compounds as the compounds are shipped, as these agreements are priced on a per-compound basis and title and risk of loss passes upon shipment to the Companys customers.
Revenue from license fees and up-front fees is non-refundable and is recognized on a straight-line basis over the expected period of the related research program. Milestone payments are non-refundable and are recognized as revenue over the expected period of the related research program. A portion of each milestone payment is recognized when the milestone is achieved based on the applicable percentage of the research term that has elapsed. Any balance is recognized ratably over the remaining research term. Revenue recognition related to license fees, up-front payments and milestone payments could be accelerated in the event of early termination of programs.
In general, contract provisions include predetermined payment schedules or the submission of appropriate billing detail. Payments received in advance of performance are recorded as advance payments from collaborators until the revenue is earned.
The Company reports revenue for lead generation and lead optimization research, custom synthesis and process research, the development and sale of chemical compounds and the co-development of proprietary drug candidates it out-licenses, as collaboration revenue. License and milestone revenue is combined and reported separately from collaboration revenue.
Accounting for Share-Based Compensation
Effective July 1, 2005, the Company adopted the fair value method of accounting for share-based compensation arrangements in accordance with Financial Accounting Standards Board (FASB) Statement No. 123R, Share-Based Payment (SFAS 123R), using the modified prospective method of transition. Under the provisions of SFAS 123R, the estimated fair value of options granted under the Companys Amended and Restated Stock Option and Incentive Plan (the Option Plan) is recognized as compensation expense over the option-vesting period. In addition, the Companys Employee Stock Purchase Plan (the ESPP) is considered to be a compensatory plan under SFAS 123R as purchases are made at a discount to the market price of the Companys common stock as reported on the first or last day of each quarterly offering period (whichever is lower). Compensation expense is recognized based on the estimated fair value of the common stock during each offering period and the percentage of the purchase discount. Using the modified prospective method, compensation expense is recognized beginning with the effective date of adoption of SFAS 123R for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption.
Prior to July 1, 2005, the Company accounted for share-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and its related interpretations. Under the provisions of APB 25, no compensation expense was recognized with respect to purchases of the Companys common stock under the ESPP or when stock options were granted with exercise prices equal to or greater than market value on the date of grant.
7
The Company recorded $1.7 million and $3.4 million, or $0.04 and $0.09 per share, respectively, of total share-based compensation expense for the three and six months ended December 31, 2005 as required by the provisions of SFAS 123R, substantially all of which was related to stock options. The share-based compensation expense associated with stock options is calculated on a straight-line basis over the vesting periods of the related options. Share-based compensation expense for purchases under the ESPP is recognized based on the estimated fair value of the common stock during each offering period and the percentage of the purchase discount. These charges had no impact on the Companys reported cash flows. In addition, during the three-month period ended September 30, 2004, the Company recorded approximately $151,000 of stock compensation expense pursuant to APB 25 associated with the final amortization of deferred stock compensation related to the vesting of stock options that were granted prior to its initial public offering of common stock in November 2000. Share-based compensation expense is allocated among the following categories:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
545,744 |
|
$ |
|
|
$ |
1,071,015 |
|
$ |
113,251 |
|
Research and development for proprietary drug discovery |
|
320,516 |
|
|
|
733,229 |
|
|
|
||||
Selling, general and administrative expenses |
|
798,355 |
|
|
|
1,606,799 |
|
37,753 |
|
||||
Total |
|
$ |
1,664,615 |
|
$ |
|
|
$ |
3,411,043 |
|
$ |
151,004 |
|
Under the modified prospective method of transition under SFAS 123R, the Company is not required to restate its prior period financial statements to reflect expensing of share-based compensation under SFAS 123R. Therefore, the results for the three and six months ended December 31, 2005 are not comparable to the same periods in the prior year.
As required by SFAS 123R, the Company has presented pro forma disclosures of its net loss and net loss per share for the prior year periods assuming the estimated fair value of the options granted prior to July 1, 2005 is amortized to expense over the option-vesting period as presented below.
|
|
Three Months Ended
|
|
Six Months Ended December 31, 2004 |
|
||
|
|
|
|
|
|
||
Net loss, as reported |
|
$ |
(4,877,017 |
) |
$ |
(10,492,345 |
) |
Add: Share-based employee compensation expense included in reported net loss |
|
|
|
151,004 |
|
||
|
|
|
|
|
|
||
Less: Total share-based employee compensation expense determined under fair value based method for all options granted |
|
(1,822,570 |
) |
(3,595,278 |
) |
||
Pro forma net loss |
|
$ |
(6,699,587 |
) |
$ |
(13,936,619 |
) |
|
|
|
|
|
|
||
Net loss per share: |
|
|
|
|
|
||
Basic and diluted - as reported |
|
$ |
(0.16 |
) |
$ |
(0.35 |
) |
Basic and diluted - pro forma |
|
$ |
(0.22 |
) |
$ |
(0.47 |
) |
For purposes of disclosure in the foregoing table and for purposes of determining estimated fair value under SFAS 123R, the Company has computed the estimated fair values of all share-based compensation using the Black-Scholes option pricing model and has applied the assumptions set forth in the following table. The Company increased the estimated life of stock options granted beginning in fiscal 2006 as a result of guidance from the SEC as contained in Staff Accounting Bulletin No. 107 permitting the initial application of a simplified method, which is based on the average of the vesting term and the term of the option. Previously, the Company calculated the estimated life based on the expectation that options would be exercised within five years on average. The Company based its estimate of expected volatility for options granted in fiscal year 2006 on daily historical trading data of its common stock from November 17, 2000, the date of the Companys initial public offering, through the last day of the applicable period. For options granted in fiscal year 2005, the Company based its volatility estimate under the
8
same method as fiscal year 2006, using the period from November 1, 2001 through the last day of the applicable period.
|
|
Average
|
|
Dividend
|
|
Volatility
|
|
Weighted-
|
|
First six months of Fiscal Year 2006 |
|
4.30 |
% |
0 |
% |
76.4 |
% |
6.38 |
|
First six months of Fiscal Year 2005 |
|
3.49 |
% |
0 |
% |
79.4 |
% |
5 |
|
The Black-Scholes option pricing model requires the input of highly subjective assumptions. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models may not provide a reliable single measure of the fair value of its employee stock options or common stock purchased under the ESPP. In addition, management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, and which could materially impact the Companys fair value determination.
A summary of option activity under the Option Plan as of December 31, 2005, and changes during the six months then ended is presented below.
Summary Details for Plan Share Options
|
|
Number of
|
|
Weighted-
|
|
Weighted-
|
|
Aggregate
|
|
||
|
|
|
|
|
|
|
|
(in millions) |
|
||
Outstanding Balance, June 30, 2005 |
|
6,634,541 |
|
$ |
6.46 |
|
|
|
|
|
|
Granted |
|
1,858,900 |
|
6.53 |
|
|
|
|
|
||
Exercised |
|
(108,840 |
) |
1.17 |
|
|
|
|
|
||
Forfeited or expired |
|
(283,383 |
) |
7.31 |
|
|
|
|
|
||
Outstanding Balance, December 31, 2005 |
|
8,101,218 |
|
6.51 |
|
7.0 |
|
$ |
12.3 |
|
|
Exercisable shares as of December 31, 2005 |
|
4,689,629 |
|
6.33 |
|
5.7 |
|
$ |
9.7 |
|
|
The weighted-average, grant-date fair value of options granted during the six-month period ended December 31, 2005 was $4.68 based on using the Black-Scholes option pricing model on the date of grant. The total intrinsic value of options exercised during the six-month period ended December 31, 2005 was approximately $618,000 and represents the difference between the exercise price of the option and the closing market price of the Companys common stock on the dates exercised. The foregoing table corrects certain errors in the Companys presentation of total intrinsic value of outstanding options and exercisable options reported in the Companys Form 10-Q for the quarter ended September 30, 2005.
A summary of the status of the Company unvested shares as of December 31, 2005, and changes during the six-month period then ended is presented below.
Unvested Shares Issued Under the Plan
|
|
Nonvested
|
|
Weighted-
|
|
|
Unvested Balance, June 30, 2005 |
|
2,649,739 |
|
$ |
4.88 |
|
Granted |
|
1,858,900 |
|
4.68 |
|
|
Vested |
|
(872,034 |
) |
5.16 |
|
|
Forfeited |
|
(225,016 |
) |
4.86 |
|
|
Unvested Balance, December 31, 2005 |
|
3,411,589 |
|
4.69 |
|
|
9
Unrecognized Share-Based Compensation Expense
As of December 31, 2005, there was $11.7 million of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Plan. This expense is expected to be recognized over a weighted-average period of 2.0 years as follows:
|
|
(in thousands) |
|
|
Fiscal Year 2006 - remaining periods |
|
$ |
2,605 |
|
Fiscal Year 2007 |
|
3,616 |
|
|
Fiscal Year 2008 |
|
2,842 |
|
|
Fiscal Year 2009 |
|
1,791 |
|
|
Fiscal Year 2010 |
|
805 |
|
|
|
|
$ |
11,659 |
|
Comprehensive Loss
A reconciliation of net loss to comprehensive loss is as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
(8,711,194 |
) |
$ |
(4,877,017 |
) |
$ |
(18,383,237 |
) |
$ |
(10,492,345 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Change in unrealized gain (loss) on marketable securities |
|
9,581 |
|
(20,275 |
) |
(98,114 |
) |
38,598 |
|
||||
Total comprehensive loss |
|
$ |
(8,701,613 |
) |
$ |
(4,897,292 |
) |
$ |
(18,481,351 |
) |
$ |
(10,453,747 |
) |
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. The Company has excluded the effects of outstanding stock options from the calculation of diluted net loss per share because all such securities are anti-dilutive for all periods presented. The number of common share equivalents relating to these stock options excluded from the diluted loss per share calculations for the three and six months ended December 31, 2005 were 1,382,458 shares and 1,380,623 shares, respectively. For the three and six months ended December 31, 2004 the number of common share equivalents were 1,213,282 shares and 1,196,876 shares, respectively.
Reclassifications
Certain reclassifications have been made to the prior years amounts to conform to the current years presentation. These reclassifications had no impact on the reported results of operations.
Use of Managements Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
10
Note 2: Cash, Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities classified as available-for-sale and restricted cash as of December 31, 2005 and June 30, 2005 consist of the following:
|
|
December 31,
|
|
June 30,
|
|
||
Cash and cash equivalents: |
|
|
|
|
|
||
Cash |
|
$ |
350,798 |
|
$ |
440,958 |
|
Money market fund |
|
11,954,864 |
|
11,988,568 |
|
||
Total |
|
$ |
12,305,662 |
|
$ |
12,429,526 |
|
|
|
|
|
|
|
||
Marketable securities: |
|
|
|
|
|
||
Auction rate securities |
|
$ |
5,759,852 |
|
$ |
28,553,313 |
|
Federal agency mortgage-backed securities |
|
59,598,536 |
|
49,743,469 |
|
||
Total |
|
$ |
65,358,388 |
|
$ |
78,296,782 |
|
|
|
|
|
|
|
||
Restricted cash: |
|
|
|
|
|
||
Money market fund |
|
$ |
|
|
$ |
1,979,678 |
|
On December 28, 2005, the Company entered into a First Amendment to its Loan and Security Agreement (First Amendment) with Comerica Bank (Comerica or Bank). The First Amendment decreased the required minimum cash balance that the Company must maintain at the Bank to zero, as long as the Companys total cash, cash equivalents and marketable securities, including those invested at the Bank, is $40 million or higher. As of December 31, 2005, the Companys total cash, cash equivalents and marketable securities exceeded $40 million; therefore none of the Companys cash was restricted.
Debt securities at December 31, 2005 and June 30, 2005, are shown below by contractual maturity. Actual maturities may differ from contractual maturities because issuers of the securities may have the right to prepay obligations.
|
|
December 31,
|
|
June 30,
|
|
||
Marketable securities: |
|
|
|
|
|
||
Due in one year or less |
|
$ |
49,885,528 |
|
$ |
56,147,883 |
|
Due after one year through two years |
|
15,472,860 |
|
22,148,899 |
|
||
Total |
|
$ |
65,358,388 |
|
$ |
78,296,782 |
|
The Company has included marketable securities due after one year within current assets, as these investments are available for use in current operating activities.
Note 3: Inventory Components
|
|
December 31,
|
|
June 30,
|
|
||
|
|
|
|
|
|
||
Fine chemicals |
|
$ |
3,125,911 |
|
$ |
2,884,541 |
|
Optimer building blocks |
|
2,109,659 |
|
2,186,260 |
|
||
Total inventories at cost |
|
5,235,570 |
|
5,070,801 |
|
||
Less reserves |
|
(3,228,946 |
) |
(2,917,315 |
) |
||
Total inventories, net |
|
$ |
2,006,624 |
|
$ |
2,153,486 |
|
11
Note 4: Long Term Debt
On June 28, 2005, the Company entered into a Loan and Security Agreement (Loan and Security Agreement) with Comerica Bank. The Loan and Security Agreement provides for a term loan, equipment advances and a revolving line of credit, all of which are secured by a security interest in the Companys assets, other than its intellectual property. The full $10 million term loan was advanced to the Company on June 30, 2005, and currently has an interest rate of 5.5% per annum and a maturity date of June 28, 2010. Up to $5 million in equipment advances are available to the Company from time to time through December 28, 2006 to finance the purchase of equipment, capitalized software and tenant improvements. As of December 31, 2005, the Company has received $2.6 million of equipment advances, which currently have an interest rate of 5.5% per annum and a maturity date of June 28, 2010. A revolving line of credit, with a maturity date of June 28, 2008, in the amount of $2 million is available to support outstanding standby letters of credit that have been issued in relation to the Companys facilities leases.
Interest on the loans is payable in monthly installments, with a balloon payment of $12.6 million due in June 2010, based on current amounts outstanding as of December 31, 2005. The agreement contains certain covenants that restrict the Companys ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends and make investments. The agreement also requires the Company to maintain certain minimum balances in an interest earning Comerica money market account when the Companys total cash, cash equivalents and marketable securities, including those invested at the Bank, is below $40 million.
Based on the outstanding debt balances and interest rates in effect as of December 31, 2005, the aggregate future minimum interest payments of the Loan and Security Agreement are $345,000 for the remainder of fiscal 2006, $690,000 in each of fiscal years 2007, 2008, 2009 and 2010 with $12.6 million of principal payable in 2010.
Note 5: Stock Compensation Plans
Stock Options
In September 2000, the Companys Board of Directors approved the Amended and Restated Stock Option and Incentive Plan (the Option Plan), which is the successor equity incentive plan to the Companys 1998 Stock Option Plan (the 1998 Plan), initially adopted by the Board of Directors in July 1998. Upon the closing of the Companys initial public offering, the Option Plan became effective and no additional grants were made under the 1998 Plan. A total of 14.2 million shares of common stock have been reserved for issuance under the Option Plan to eligible employees, consultants and directors of the Company. Of these shares, 4.8 million were authorized pursuant to the provision under the Option Plan which provides for the reservation of additional authorized shares on any given day in an amount equal to the difference between: (i) 25% of the Companys issued and outstanding shares of common stock, on a fully diluted and as-converted basis and (ii) the number of outstanding shares relating to awards under the Option Plan plus the number of shares available for future grants of awards under the Option Plan on that date. As of December 31, 2005, there were 3.6 million shares available for future grant under the Option Plan.
The Option Plan provides for awards of both nonstatutory stock options and incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and other incentive awards and rights to purchase shares of the Companys common stock. A total of 7.75 million shares of common stock may be issued as incentive stock options as of January 1, 2006. The Option Plan provides that the number of shares reserved for issuance as incentive stock options increased on January 1 of each year from 2003 through 2006 by 250,000 shares, provided that this number did not exceed the total number of shares reserved under the Option Plan.
The Option Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted and to determine whether and to what extent stock options and other stock incentive awards are to be granted, the number of shares of common stock to be covered by each award, the vesting schedule of stock options, generally straight-line over a period of four years, and all other terms and conditions of each award.
12
Employee Stock Purchase Plan
During fiscal year 2001, the Company adopted an Employee Stock Purchase Plan (the ESPP), authorizing the issuance of 800,000 shares of its common stock pursuant to purchase rights granted to eligible employees of the Company. During fiscal 2003, stockholders approved an increase of 400,000 shares for a total of 1.2 million authorized shares for issuance under the ESPP. The ESPP provides a means by which employees purchase common stock of the Company through payroll deductions of up to 15% of their base compensation. The Compensation Committee determines the length and duration of the periods during which payroll deductions will be accumulated to purchase shares of common stock. This period is known as the offering period. Within a single offering period, the Company permits periodic purchases of stock, known as purchase periods. During the first six months of fiscal 2006, the offering periods were six-month periods and the purchase periods were three-month periods. Effective January 1, 2006, the purchase periods will be 12-month periods. The Compensation Committee may modify the duration of the offering periods and the purchase periods again in the future. At the end of each purchase period during a calendar year, the Company uses accumulated payroll deductions to purchase, on behalf of participating employees, shares of common stock at a price equal to the lower of 85% of the fair value of a share of common stock (i) at the beginning of the offering period or (ii) at the end of the purchase period. Generally, all employees, including executive officers, who work at least 20 hours per week and five months per year, may participate in the ESPP. Employees who are deemed to own greater than 5% of the combined voting power of all classes of stock of the Company are not eligible for participation in the ESPP. For the three and six months ended December 31, 2005 total shares issued under the ESPP were 54,660 and 108,588, respectively. As of December 31, 2005, there were 49,975 shares available for future issuance under the ESPP. On December 9, 2005, the Companys Board of Directors approved an additional 450,000 shares of common stock for issuance under the ESPP, subject to shareholder approval.
Note 6: Operating Lease
Amendment to Lease Agreement. On August 5, 2005, the Company amended two existing Lease Agreements (the Prior Lease Agreements), for the two buildings totaling approximately 75,000 square feet that the Company occupies in Longmont, Colorado under the terms of an Addendum No.4 (the Amendment). Under the Amendment, the Company has the option to expand its leased space by up to an additional 80,000 square feet in three adjacent buildings. On December 2, 2005 and December 22, 2005, the Company entered into Addendum No.5 and Addendum No.6, respectively, representing the Companys exercise of the option to occupy two of the three buildings. In addition, the Company has the right to purchase each of the leased buildings, including the expansion space. The Amendment provides for monthly lease payments along with 3% annual increases.
Addendum No. 5 also extended the lease terms under the Prior Lease Agreements for both buildings to May 31, 2013. The Company also has options to extend the term of the lease for three additional consecutive terms of five years each.
Note 7: Segment, Geographic and Concentration Information
All operations of the Company are considered to be in one operating segment and, accordingly, no segment disclosures have been presented. The physical location of the Companys property, plant and equipment is within the United States. The following table details revenue from customers by geographic area based on the country in which collaborators are located or the destination where compounds from the Companys inventories are shipped.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
7,809,300 |
|
$ |
8,057,860 |
|
$ |
14,778,725 |
|
$ |
13,861,520 |
|
Europe |
|
2,548,569 |
|
3,232,523 |
|
6,062,586 |
|
6,405,006 |
|
||||
Japan and Asia-Pacific |
|
1,582,203 |
|
758,062 |
|
2,340,508 |
|
1,638,926 |
|
||||
Total revenue |
|
$ |
11,940,072 |
|
$ |
12,048,445 |
|
$ |
23,181,819 |
|
$ |
21,905,452 |
|
13
Approximately 97% of the revenue generated from Europe during both the three months ended December 31, 2005, and 2004, is related to the Companys collaboration and licensing agreement with AstraZeneca AB, located in Sweden. During the six months ended December 31, 2005 and 2004, revenue from AstraZeneca represented 95% and 97%, respectively, of the revenue generated from Europe. For the three and six months ended December 31, 2005, revenue generated primarily from two Japanese customers represented 13% and 10%, respectively, of total revenue. No other individual international country exceeded 10% of the Companys revenue for any of the above periods.
During the three months ended December 31, 2005, revenue from three of the Companys customers represented approximately 35%, 22%, and 21% of total revenue, while three of the Companys customers represented approximately 34%, 26%, and 11% of total revenue for the comparative period in fiscal 2005. For the six-month period ended December 31, 2005, revenue from three of the Companys customers represented approximately 33%, 25%, and 20% of total revenue, while three of the Companys customers represented approximately 29%, 28%, and 11% of total revenue for the comparative period in fiscal 2005.
Note 8: Recent Accounting Pronouncement
In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS 154) , which replaces APB Opinion No. 20, Accounting Changes , and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement when the pronouncement does not include specific transition provisions. SFAS 154 requires retrospective application of changes in accounting principle to prior periods financial statements unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of the change in net income for the period of the change in accounting principle. SFAS 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. SFAS 154 also carries forward the guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the basis of preferability. SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 with early adoption permitted. The Company does not believe that the adoption of this statement will have a material impact on its financial condition or results of operations.
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our expectations related to realizing new revenue streams and obtaining future collaboration agreements that include milestone and/or royalty payments, the success of our internal proprietary drug discovery activities, the expected level of our investment in proprietary research and our future headcount and capital expenditure requirements. These statements involve significant risks and uncertainties, including those discussed below and those described more fully in other reports filed by Array BioPharma with the Securities and Exchange Commission. Because these statements reflect our current expectations concerning future events, our actual results could differ materially from those anticipated in these forward-looking statements. The factors that could cause actual results to differ from our expectations include, but are not limited to, our ability to achieve and maintain profitability, the extent to which the pharmaceutical and biotechnology industries are willing to in-license drug candidates for their product pipelines and to collaborate with and fund third parties on their drug discovery activities, our ability to out-license our proprietary candidates on favorable terms, our ability to continue to fund and successfully progress internal research efforts and to create effective, commercially viable drugs, risks associated with our dependence on our collaborators for the clinical development and commercialization of our out-licensed drug candidates, the ability of our collaborators and of Array to meet objectives, including clinical trials, tied to milestones and royalties, our ability to attract and retain experienced scientists and management, and the risk factors contained in the Annual Report on Form 10-K filed by Array with the Securities and Exchange Commission (SEC) on September 13, 2005. We are providing this information as of the date of this report. We undertake no duty to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements or of anticipated or unanticipated events that alter any assumptions underlying such statements.
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes to those statements included elsewhere in this report.
Array BioPharma is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat life threatening and debilitating diseases. Our proprietary drug development pipeline is primarily focused on the treatment of cancer and inflammatory disease and includes clinical candidates that are designed to regulate therapeutically important targets. In addition, leading pharmaceutical and biotechnology companies collaborate with Array to discover and develop drug candidates across a broad range of therapeutic areas.
We have identified multiple drug candidates in our own proprietary programs and in collaborations with other drug companies. We intend to progress our proprietary drug programs internally through clinical testing and continue to evaluate select programs for out-licensing opportunities with pharmaceutical and biotechnology partners.
We have built our drug development pipeline, and our discovery and development capabilities, primarily through cash flow from collaborations and through sales of our equity securities. Through December 31, 2005, we have recognized $173.1 million in collaboration revenue, and we have received $18.2 million in up-front payments and $7.7 million in milestone payments from our collaborators and out-licensing partners. Under our existing collaboration agreements, we have the potential to earn over $190.0 million in additional milestone payments if we achieve all of the drug discovery objectives under these agreements, as well as royalties on any resulting product sales from 14 different programs.
We have incurred net losses since inception and expect to incur losses in the near future as we continue to invest in our proprietary drug discovery programs. As of December 31, 2005, we had an accumulated deficit of $112.4 million.
15
Revenue . We generate revenue through the out-licensing of select proprietary drug discovery programs for license and up-front fees, research funding based on the number of full-time equivalents contractually assigned to the program, and research and development milestone payments. We also have the potential to generate revenue from royalties on future product sales. Four programs have been out-licensed to date to AstraZeneca, Genentech, Inc. and Amgen Inc., and we have received up-front license fees of $18.2 million in total for these programs.
We also generate revenue through collaborations aimed at inventing drug candidates for our collaborators. We receive research funding based on the number of full-time equivalent employees contractually assigned to a program, plus related research expenses. Under certain of these agreements, we are entitled to receive additional payments based on the achievement of research milestones, drug development milestones and/or royalty payments based on sales of products created as a result of these collaborations.
We sell our Optimer â building blocks, which are the starting materials used to create more complex chemical compounds in the drug discovery process, on a per-compound basis without any restrictions on use. In addition, we have licensed our Lead Generation Libraries, which are a collection of structurally related chemical compounds that may have the potential of becoming drug candidates, on a non-exclusive basis to our collaborators for their internal research purposes. We are no longer developing new Lead Generation Libraries other than for our proprietary research. Under our existing agreements, we retain all other rights to the compounds, which permits us to license the same compounds to other collaborators. Some of our existing Lead Generation Library agreements allow our collaborators to obtain exclusive rights to commercialize particular compounds upon the payment of additional fees. Lead Generation Library revenue represented less than 1% of total revenue for each of the three and six months ended December 31, 2005 and approximately 4% of revenue for the full 2005 fiscal year. Future revenue from any sales of compounds in our Lead Generation Library is not expected to be significant.
We report revenue for lead generation and lead optimization research, custom synthesis and process research, the development and sale of chemical compounds and the co-development of proprietary drug candidates we out-license, as collaboration revenue. License and milestone revenue is combined and reported separately from collaboration revenue.
Revenue recognition. We recognize revenue from fees under our collaboration agreements on a monthly basis as work is performed. Per-compound revenue is recognized as compounds are shipped. Revenue from license fees and up-front fees is recognized on a straight-line basis over the expected period of the related research program. Payments received in advance of performance are recorded as advance payments from collaborators until the revenue is earned. Milestone payments are non-refundable and are recognized as revenue over the expected period of the related research program. A portion of each milestone payment is recognized when the milestone is achieved based on the applicable percentage of the research term that has elapsed. Any balance is recognized ratably over the remaining research term. Revenue recognition related to license fees, up-front payments and milestone payments could be accelerated in the event of early termination of programs.
Customer concentration. Our top 20 collaborators contributed approximately 99% of our total revenue for the first six months of fiscal 2006, and our current top three collaborators, Genentech, AstraZeneca and InterMune, Inc, accounted for 33%, 25%, and 20%, respectively, of our total revenue. During the same period of fiscal year 2005, AstraZeneca, Genentech, and Eli Lilly and Company accounted for 29%, 28%, and 11%, respectively, of our total revenue. In general, our collaborators may terminate their collaboration agreements with us on 30 to 90 days prior notice.
Cost of revenue. Cost of revenue consists mainly of compensation, associated fringe benefits and other collaboration-related costs, including research and development conducted for our collaborators, supplies, small tools, facilities, depreciation, recruiting and relocation and other direct and indirect chemical handling and laboratory support costs. Fine chemicals consumed as well as any required inventory reserve adjustments are also recorded as cost of revenue. We review the levels and values of our chemical inventories periodically and, when required, write down the carrying cost of our inventories for non-marketability to estimated net realizable value through an appropriate reserve.
16
Research and development expenses for proprietary drug discovery. Research and development expenses for proprietary drug discovery consists of all costs associated with our proprietary drug development pipeline, including compensation and fringe benefits, consulting and outsourced services, laboratory supplies, and allocated facility costs and depreciation. When an internal proprietary program is out-licensed, all subsequent costs of the out-licensed program are reported as cost of revenue.
Selling, general and administrative expenses. Selling, general and administrative expenses consist mainly of compensation and associated fringe benefits not included in cost of revenue or research and development expenses and include other management, business development, accounting, information technology and administration costs, including patent prosecution, recruiting and relocation, consulting and professional services, travel and meals, advertising, sales commissions, facilities, depreciation and other office expenses.
Business development. We currently license or sell our compounds and enter into collaborations directly with pharmaceutical and biotechnology companies through opportunities identified by our business development group, senior management, scientists and customer referrals. In addition, we license or sell our compounds and collaborations in Japan through an agent. International revenue represented 36% of our total revenue during the first six months of fiscal year 2006, down slightly from 37% for the same period in the prior year. Our international revenue is primarily attributable to both European and Japanese collaborations. All of our collaboration agreements and purchase orders are denominated in United States dollars.
Future outlook . We plan to increase our investment in proprietary research to broaden our product pipeline and to further enhance our clinical and regulatory capabilities to allow us to advance drugs further in clinical development. We will consider commercializing select programs ourselves with appropriate market characteristics while continuing to evaluate out-licensing opportunities to maximize the risk-adjusted return of our proprietary programs. We also intend to evaluate opportunities to grow our product pipeline by acquiring or in-licensing later-stage clinical programs. As part of these efforts, we expect near term selling, general and administrative costs to rise in connection with increased patent and other intellectual property related costs incurred to protect and enforce our intellectual property rights in our proprietary programs. As we devote more scientists to our proprietary research, we expect fewer scientists will be assigned to revenue generating collaborations. In addition, as of November 2005, we have fully recognized all revenue from previously received up-front and milestone payments from out-licensed proprietary programs. Because of our strategy to retain other proprietary programs later in clinical development before out-licensing them or commercializing them ourselves, it is unlikely that this revenue will be replaced during the remainder of fiscal 2006. Our statements about future events in this paragraph are subject to many risks and uncertainties, including many that are beyond our control. These risks are described in the risk factors included in our annual report on Form 10-K filed with the SEC on September 13, 2005, and in other reports we file with the SEC.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
|
|
(in thousands) |
|
(in thousands) |
|
||||||||
Revenue |
|
|
|
|
|
|
|
|
|
||||
Collaboration revenue |
|
$ |
9,232 |
|
$ |
9,548 |
|
$ |
17,515 |
|
$ |
16,893 |
|
License and milestone revenue |
|
2,708 |
|
2,500 |
|
5,667 |
|
5,012 |
|
||||
Total revenue |
|
$ |
11,940 |
|
$ |
12,048 |
|
$ |
23,182 |
|
$ |
21,905 |
|
Three and Six Months Ended December 31, 2005 and 2004
Revenue. Total revenue for the three months ended December 31, 2005 was $11.9 million, down slightly from $12.0 million in the same period of the prior year. For the six months ended December 31, 2005, total revenue was $23.2 million, up 6% from $21.9 million in the same period of the prior year. Collaboration revenue from research collaborations increased by $4.1 million and $7.0 million for the three and six months ended December 31, 2005, respectively, over the same periods in the prior year, as a result of expanded programs with Genentech and InterMune and a new research collaboration with Ono Pharmaceutical Co., Ltd. These increases were partially offset
17
by decreased collaboration revenue from research programs of $2.9 million and $4.4 million during the same time periods above, related to programs that expired in fiscal 2005 with QLT Inc., as well as the expiration of one of our two research programs with Eli Lilly. In addition, revenue from our programs with AstraZeneca declined over the first half of fiscal 2006 as the research-funding period expired in November 2005. Additionally, collaboration revenue from the sale of Lead Generation Libraries decreased during the three and six months ended December 31, 2005, by $1.5 million due to the sale of the remainder of our Lead Generation Library compounds to a single collaborator that occurred during December 2004.
License and milestone revenue increased by approximately $208,000 and $654,000 during the three and six months ended December 31, 2005, over the same periods of the prior year. This increase was due to the recognition of $1.5 million of milestone payments received from AstraZeneca during the first six months of fiscal 2006 for advancing our out-licensed compound, ARRY-142886, into Phase Ib clinical trials and the selection of a second clinical candidate. Partially offsetting this increase was one less month of recognized revenue from previously received up-front and milestone payments from out-licensed proprietary programs.
Cost of revenue. Cost of revenue increased by approximately 6% during each of the three and six months ended December 31, 2005 over the same periods of the prior year, primarily due to the recording of approximately $546,000 and $1.1 million, respectively, of share-based compensation expense in accordance with FASB Statement No. 123R, Share-Based Payment an amendment of FASB Statement No. 123 and 95 (SFAS 123R). During the three and six months ended December 31, 2004, we expensed $0 and approximately $113,000, respectively, of share-based compensation expense, associated with the final amortization of deferred stock option compensation related to grants prior to our initial public offering of common stock in November 2000. In addition, during June 2005, we began amortizing the cost of leasehold improvements for our facility located in Boulder, Colorado over the remaining months of our initial lease term, which ends March 2008. Prior to that, all leasehold improvements were amortized over a period of 15 years, which included optional lease extension periods we were reasonably assured of exercising at that time. This change in useful life resulted in approximately $143,000 and $263,000, respectively, of additional leasehold improvement amortization to cost of revenue for the three and six months ended December 31, 2005 compared to the same periods of the prior year.
Research and development expenses for proprietary drug discovery. Research and development expenses for proprietary drug discovery increased by approximately 47% and 68% during the three and six months ended December 31, 2005, over the same periods of the prior year. This increase was primarily due to additional scientists and increased pharmacology studies supporting our expanded efforts to advance proprietary compounds into regulated safety testing and clinical trials. The most significant increase in costs came from outsourced pharmacology studies to support the advancement of our ErB2/EGFR, P38, Mek for inflammation, and other programs. We expect that proprietary research and development spending will continue to increase as we focus more resources on our proprietary drug discovery and development programs and advance our programs into and through clinical development. For the three and six months ended December 31, 2005, we expensed approximately $321,000 and $733,000, respectively, related to share-based compensation in accordance with SFAS 123R. In addition, as described in cost of revenue above, we recorded approximately $240,000 and $500,000, respectively, of additional leasehold improvement amortization to research and development expenses for proprietary drug discovery for the three and six months ended December 31, 2005 compared to the same periods of the prior year.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 44% and 46%, respectively, during the three and six months ended December 31, 2005, over the same periods of the prior year. The increase was primarily the result of approximately $798,000 and $1.6 million, respectively, of share-based compensation in accordance with SFAS 123R. The remaining increase was primarily attributable to increases in compensation expense, as well as costs associated with the audit of our internal control over financial reporting in compliance with Section 404 of the Sarbanes Oxley Act for the end of fiscal year 2005 and the first half of fiscal 2006. For the three and six months ended December 31, 2005, compensation expense increased by approximately $98,000 and $212,000, respectively, over the same periods of the prior year, while consulting and audit fees related to Section 404 compliance increased by approximately $61,000 and $174,000 for the same comparable periods.
Interest expense. During the three and six months ended December 31, 2005, we incurred interest expense of approximately $153,000 and $282,000, respectively, associated with borrowings related to the Loan and Security Agreement that we entered into on June 28, 2005.
18
Interest income. Interest income increased to approximately $696,000 and $1.4 million for the three and six months ended December 31, 2005, from approximately $192,000 and $330,000, respectively, in the same periods of the prior year. This increase was primarily due to higher investment interest rates earned on higher average cash and investment balances with the increased balances primarily being attributable to the Companys public common stock offering in December 2004.
Share-Based Compensation . Effective July 1, 2005, we adopted the fair value method of accounting for share-based compensation arrangements in accordance with SFAS 123R, using the modified prospective method of transition. Share-based compensation arrangements covered by SFAS 123R currently include stock options granted under our Amended and Restated Stock Option and Incentive Plan (the Option Plan) and purchases of common stock by our employees at a discount to the market price during each offering period under our Employee Stock Purchase Plan (the ESPP). Prior to July 1, 2005, we accounted for share-based employee compensation plans using the intrinsic value method of accounting in accordance with APB 25. Under the provisions of APB 25, no compensation expense was recognized with respect to purchases of our common stock under the ESPP or when stock options were granted with exercise prices equal to or greater than market value on the date of grant and no compensation expense was recognized for purchases of shares of our common stock by employees under our ESPP. Under the modified prospective method of transition, we are not required to restate our prior period financial statements to reflect expensing of share-based compensation under SFAS 123R. Therefore, the results as of the three and six months ended December 31, 2005 are not directly comparable to the same periods in the prior year.
As required by the provisions of SFAS 123R, we recorded $1.7 million and $3.4 million, or $0.04 and $0.09 per share, respectively, of share-based compensation expense for the three and six months ended December 31, 2005. These amounts are allocated among cost of revenue, research and development expenses for proprietary drug discovery and selling, general and administrative expenses based on the function of the applicable employee. This charge had no impact on our reported cash flows. We used the Black-Scholes option pricing model to determine the estimated fair value of our share-based compensation arrangements.
As of December 31, 2005, there was $11.7 million of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Option Plan. See Note 1, Accounting for Share-Based Compensation, to the Unaudited Notes to Condensed Financial Statements and Critical Accounting Policies Share-Based Compensation below for more information about the adoption of SFAS 123R.
We have historically funded our operations through revenue from our collaborations and the issuance of equity securities. As of December 31, 2005, cash, cash equivalents, restricted cash and marketable securities totaled $77.7 million compared with $92.7 million at June 30, 2005.
Net cash used in operating activities was $15.8 million and $5.3 million for the six months ended December 31, 2005, and 2004 respectively. During the first six months of fiscal year 2006, our net loss of $18.4 million was reduced by noncash charges of $8.0 million, primarily associated with depreciation, share-based compensation, and an increase in our net operating assets and liabilities, excluding cash and marketable securities, of approximately $5.4 million. Net operating assets and liabilities increased due to decreases in advance payment balances from collaborators and decreased accrued compensation and benefits. Advance payments from collaborators decreased by $4.5 million due to the recognition of revenue from previously received up-front license and milestone payments. Accrued compensation and benefits decreased by $1.3 million primarily due to the payment of the fiscal year 2005 employee bonuses during August 2005, partially offset by the bonus accrual amounts recorded through December 31, 2005 for fiscal 2006.
During the six months ended December 31, 2005, we invested $2.4 million in laboratory equipment, primarily for biology and drug metabolism operations, as well as in various computer hardware and software. Purchases of marketable securities used $34.9 million of cash while proceeds from the sale and maturity of marketable securities provided $47.7 million of cash. During the six months ended December 31, 2005, p reviously restricted cash in the amount of $2.0 million became available for use in operations. Financing activities provided $3.2 million of cash consisting of $2.6 million from the issuance of long term debt used to finance purchases of capital equipment and approximately $695,000 of cash resulting from the exercise of stock options under our stock option plan and purchases of stock under our employee stock purchase plan.
19
As of December 31, 2005, we had a $10 million term loan and $2.6 million of equipment advances outstanding under our Loan and Security Agreement, which currently bear interest at the rate of 5.5% per annum. Interest on the loans is payable in monthly installments. A balloon payment of $12.6 million is due at maturity of the loan on June 28, 2010, based on current amounts outstanding as of December 31, 2005. We also have a revolving line of credit, with a maturity date of June 28, 2008, in the amount of $2 million to support outstanding standby letters of credit that have been issued in relation to our facilities leases.
Our future capital requirements will depend on a number of factors, including the rate at which we invest in proprietary research, the growth of our collaboration business and the amount of collaboration research funding we receive, the timing of milestone and royalty payments, if any, from our collaboration and out-licensed programs, our capital spending on new facilities and equipment, expenses associated with unforeseen litigation, regulatory changes, competition, technological developments, general economic conditions and the extent to which we acquire or invest in other businesses, products and technologies.
In addition, our future capital requirements may be impacted if we do not receive milestone or royalty payments under our existing or future collaboration agreements. Our ability to realize these payments is subject to a number of risks, many of which are beyond our control and include the following: the drug development process is risky and highly uncertain, and we or our collaborators may not be successful in commercializing drug candidates we create; our collaborators have substantial control and discretion over the timing and continued development and marketing of drug candidates we create; the sale and manufacture of drug candidates we develop may not obtain regulatory approval; and, if regulatory approval is received, drugs we develop will remain subject to regulation or may not gain market acceptance, which could delay or prevent us from generating milestone or royalty revenue from the commercialization of these drugs.
We believe that our existing cash, cash equivalents and marketable securities and anticipated cash flow from existing collaboration agreements will be sufficient to support our current operating plan for at least the next 12 months. This estimate of our future capital requirements is a forward-looking statement that is based on assumptions that may prove to be wrong and that involve substantial risks and uncertainties. Our actual future capital requirements could vary as a result of a number of factors, including:
the progress of our research activities;
the availability of resources for revenue generating collaborations as we devote more resources to our proprietary programs;
our ability to enter into agreements to out-license and co-develop our proprietary drug candidates, and the timing of those agreements in each candidates development stage;
the number and scope of our research programs;
the progress of our preclinical and clinical development activities;
the progress of the development efforts of our collaborators;
our ability to establish and maintain current and new collaboration agreements;
the ability of our collaborators to fund research and development programs;
the costs involved in enforcing patent claims and other intellectual property rights;
the decision to stay in our current facilities, or to consolidate operations in an existing or new location;
the costs and timing of regulatory approvals; and
the costs of establishing clinical development, business development and distribution or commercialization capabilities.
20
The following table shows our contractual obligations and commitments as of December 31, 2005.
|
|
Payments due by period |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
|
|
Less than
|
|
1-3 years |
|
4-5 years |
|
After 5
|
|
Total |
|
|||||
Operating lease obligations |
|
$ |
5,005 |
|
$ |
7,026 |
|
$ |
1,626 |
|
$ |
6,935 |
|
$ |
20,592 |
|
Purchase obligations |
|
5,012 |
|
890 |
|
100 |
|
|
|
6,002 |
|
|||||
Debt obligations (including interest) |
|
690 |
|
1,381 |
|
13,589 |
|
|
|
15,660 |
|
|||||
Total obligations |
|
$ |
10,707 |
|
$ |
9,297 |
|
$ |
15,315 |
|
$ |
6,935 |
|
$ |
42,254 |
|
We are obligated under noncancelable operating leases for our facilities and certain equipment. The original lease terms for our facilities range from seven to eight years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area and other operating costs. Equipment leases generally range from three to five years.
Due to the high cost to replace and the limited availability of laboratory facilities, we concluded that the exercise of a portion of our lease term options for at least 15 years was reasonably assured. During the last quarter of fiscal 2005, we reassessed our facility requirements and began to consider the possibility of consolidating operations in one of our existing locations, or a new location. During the second quarter of fiscal 2006, we entered into an agreement to extend and expand our existing facility in Longmont, Colorado. Therefore it is no longer reasonably assured that we will remain in our Boulder, Colorado location beyond the initial lease term, which ends in March 2008. We have not changed our determination that it is reasonably assured that we will exercise certain of our lease extensions and lease our other facility, located in Longmont, Colorado, for at least another 13 years. Therefore, we have included in our operating lease obligations reflected in the table above the cash to be paid for our facility leases for the remaining reasonably assured lease terms of 2-1/4 years for our Boulder facility and 13 years for our Longmont facility. The portion of operating lease obligations that is related to optional extension periods for our Longmont facility is $4.8 million and is included within the after 5 years column above.
We believe critical accounting policies are essential to the understanding of our results of operations and require our management to make significant judgments in preparing the financial statements included in this report. Management has made estimates and assumptions based on these policies. We do not believe that materially different amounts would be reported if different assumptions were used. However, the application of these policies involves judgments and assumptions as to future events and, as a result, actual results could differ. The impact and any associated risks related to these policies on our business operations is discussed throughout Managements Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.
21
Revenue Recognition
We believe our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. We follow the guidance of Staff Accounting Bulletin No. 104, which requires that a series of criteria be met in order to recognize revenue related to the performance of services or the shipment of products. If these criteria are not met, the associated revenue is deferred until the criteria are met. We recognize revenue when (a) persuasive evidence of an arrangement exists, (b) products are delivered or services are rendered, (c) the sales price is fixed or determinable and (d) collectibility is assured.
Most of our revenue is derived from designing, creating, optimizing, evaluating and developing drug candidates for our collaborators. The majority of our collaboration revenue consists of fees received based on contracted annual rates for full time equivalent employees working on a project. Our collaboration agreements also include license and up-front fees, milestone payments upon achievement of specified research or development goals and royalties on sales of resulting products. A small portion of our revenue comes from fixed fee agreements and from sales of compounds on a per-compound basis.
Our collaboration agreements typically call for a specific level of resources as measured by the number of full time equivalent scientists working a defined number of hours per year at a stated price under the agreement. We recognize revenue under our collaboration agreements on a monthly basis for fees paid to us based on hours worked. We recognize revenue from sales of Lead Generation Library and Optimer building block compounds as the compounds are shipped, as these agreements are priced on a per-compound basis and title and risk of loss passes upon shipment to our customers.
Revenue from license fees and up-front fees is non-refundable and is recognized on a straight-line basis over the expected period of the related research program. Milestone payments are non-refundable and are recognized as revenue over the expected period of the related research program. A portion of any milestone payment is recognized at the date the milestone is achieved which is determined using the applicable percentage of the research term that has elapsed at the date the milestone is achieved. Any balance is recognized ratably over the remaining research term. Revenue recognition related to license fees, up-front payments and milestone payments could be accelerated in the event of early termination of programs.
In general, contract provisions include predetermined payment schedules or the submission of appropriate billing detail. Payments received in advance of performance are recorded as advance payments from collaborators until the revenue is earned.
We report revenue for lead generation and lead optimization research, custom synthesis and process research, the development and sale of chemical compounds and the co-development of proprietary drug candidates we out-license, as collaboration revenue. License and milestone revenue is combined and reported separately from collaboration revenue.
Share-Based Compensation
During the first quarter of fiscal 2006, we adopted the fair value method of accounting for share-based awards using the modified-prospective method of transition as outlined in Financial Accounting Standards Board Statement No. 123R, Share-Based Payment (SFAS 123R). Under SFAS 123R, the estimated fair value of share-based-compensation, including stock options granted under the Option Plan and purchases of common stock by employees at a discount to market price under the ESPP, is recognized as compensation expense. The estimated fair value of stock options is expensed on a straight-line basis over the expected term of the grant. Compensation expense for purchases under the ESPP is recognized based on the estimated fair value of the common stock during each offering period and the percentage of the purchase discount. Prior to July 1, 2005, we accounted for share-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and its related interpretations. Under the provisions of APB 25, no compensation expense was recognized with respect to purchases of common stock under the ESPP or when stock options were granted with exercise prices equal to or greater than market value on the date of grant.
22
Under the modified prospective method of transition that we adopted, compensation expense is recognized beginning with the effective date of adoption for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption. Under the modified prospective method of transition, we are not required to restate our prior period financial statements to reflect expensing of share-based compensation under SFAS 123R. Therefore, the results for the periods ended September 30, 2005 and December 31, 2005 are not comparable to the same periods in the prior year.
Under SFAS 123R, we use the Black-Scholes option pricing model to estimate the fair value of the share-based awards as of the grant date. The Black-Scholes model, by its design, is highly complex, and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the estimated lives of the share-based awards and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two data inputs. Beginning in fiscal year 2006, we calculated the estimated life of stock options granted using a simplified method, which is based on the average of the vesting term and the term of the option, as a result of guidance from the SEC as contained in Staff Accounting Bulletin No. 107 permitting the initial use of this method. Previously, we calculated the estimated life based on the expectation that options would be exercised on average five years after the date of grant. We determined expected volatility for fiscal year 2006 using the historical method, which is based on the daily historical trading data of our common stock from November 2000, the date of our initial public offering, through the last day of the applicable period. For fiscal year 2005, we determined expected volatility using the same method as fiscal year 2006, using the period from November 2001 though the last day of the applicable period. Management selected the historical method primarily because we have not identified a more reliable or appropriate method to predict future volatility. See Note 1, Accounting for Share-Based Compensation, to our financial statements for more information about the adoption of SFAS 123R.
Recent Accounting Pronouncements
For a summary description of a recent accounting pronouncement, see Note 8 to the Unaudited Notes to Condensed Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk . Our interest income is sensitive to changes in the general level of United States interest rates, particularly since a significant portion of our investments are and will be in short term marketable securities. Due to the nature and short term maturities of our short term investments, we have concluded that there is no material market risk exposure. Based on outstanding investment balances at December 31, 2005, a change of 100 basis points in interest rates would result in a change in our annual interest income of approximately $773,000.
We are also impacted by adverse changes in interest rates relating to variable-rate borrowings under our credit facility. We pay interest on advances under our loan agreement at one of three variable rates, which are adjusted periodically for changes in the underlying prevailing rate. Changes in prevailing interest rates will not affect the fair value of our debt, but would impact future results of operations and cash flows. At December 31, 2005, we had $12.6 million of long-term debt outstanding and the interest rate on our term loan and equipment advances was 5.5%. This rate is adjusted based on changes in the banks prime lending rate. Assuming constant debt levels, a change of 100 basis points in our interest rate would result in a change in our annual interest expense of approximately $126,000.
Foreign currency rate fluctuations. All of our collaboration agreements and purchase orders are denominated in United States dollars. Therefore, we are not exposed to changes in foreign currency exchange rates.
Inflation . We do not believe that inflation has had a material impact on our business or operating results during the periods presented.
23
In connection with the closing of the general ledger and the preparation of our Form 10-Q for the quarter ended September 30, 2005, errors were identified in the adoption of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment (SFAS 123R) and in the calculation of compensation expense under the provisions of SFAS 123R. In addition, management discovered a miscalculation and error in the disclosure of the aggregate intrinsic values included in Footnote 1, Accounting for Share-Based Compensation in the quarterly report filed on Form 10-Q for the quarter ended September 30, 2005. Management concluded that the errors associated with the disclosure of aggregate intrinsic values were not material and the disclosure has been corrected in this quarterly report.
A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented or detected. Management and the Audit Committee concluded that ineffective controls relating to the adoption of this new accounting pronouncement, the entry of transactional data and the application of certain assumptions used in the calculation of estimated fair value of share-based compensation under SFAS 123R could result in a material misstatement in Arrays annual or interim financial statements that would not be prevented or detected. Consequently, management and the Audit Committee concluded that these control deficiencies constituted a material weakness. Management identified steps considered necessary to address these weaknesses, including additional training of finance personnel, additional review of transactional data, additional oversight of the entry of data relating to transactions, a comprehensive third party review of the processes used to gather and enter transactional data and the application of such data to critical accounting practices, and certain upgrades to our option tracking software. Management believes that the compensating internal controls and remediation efforts, taken as a whole, reduces the risk of error with respect to our preparation of this quarterly report on Form 10-Q for the period ended December 31, 2005. We began implementing the above improvements during the second quarter of fiscal 2006 and will continue to test these controls through the remainder of the fiscal year. Management believes that its controls and procedures will continue to improve as a result of further implementation of these measures.
Other than the above mentioned improvements to the controls for accounting for share-based compensation under SFAS 123R, there has been no change in our internal control for financial reporting that occurred during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We evaluated, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and other senior management personnel, the effectiveness of the design and operation of our disclosure controls and procedures. Because of the existing control deficiencies described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2005, Arrays disclosure controls and procedures were not effective to ensure that information required to be disclosed in the reports we file with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.
24
The annual meeting of the Companys stockholders was held on October 26, 2005. At that meeting, three proposals were submitted to a vote of the Companys stockholders. Proposal 1 was a proposal to elect three Class II directors to serve a three-year term of office expiring on the date of the 2008 annual meeting of stockholders. The three nominees for Class II director were Marvin H. Caruthers, Ph.D., Robert E. Conway and Kyle A. Lefkoff. Proposal 2 was a proposal to approve the material terms of the performance criteria for payment of executive incentive compensation. Proposal 3 was a proposal to ratify the appointment of KPMG LLP as the Companys independent auditors for the fiscal year ending June 30, 2006. For further information regarding the annual meeting, including the terms of office of the directors remaining in office following the meeting, please see the Companys Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 27, 2005. The stockholders approved the proposals as follows:
|
|
Number of Votes |
|
||||
Proposal |
|
For |
|
Against |
|
Abstain/
|
|
|
|
|
|
|
|
|
|
Proposal 1 - Election of Class II directors |
|
|
|
|
|
|
|
Marvin H. Caruthers, Ph.D. |
|
35,671,324 |
|
|
|
36,815 |
|
Robert E. Conway |
|
35,671,453 |
|
|
|
36,686 |
|
Kyle A. Lefkoff |
|
35,671,474 |
|
|
|
36,665 |
|
|
|
|
|
|
|
|
|
Proposal 2 - Approval of the material terms of the performance criteria for executive incentive compensation |
|
25,048,592 |
|
502,146 |
|
10,157,401 |
|
|
|
|
|
|
|
|
|
Proposal 3 - Ratification of the appointment of KPMG LLP |
|
35,696,429 |
|
7,901 |
|
|
|
(a) |
|
Exhibits |
|
|
|
10.1 |
|
Amendment No. 2, dated October 1, 2005, to the Collaboration and License Agreement by and between Registrant and Genentech, Inc. ** |
10.2 |
|
Drug Discovery Agreement by and between Registrant and Ono Pharmaceutical Co., Ltd., dated November 1, 2005. ** |
10.3 |
|
First Amendment to Loan and Security agreement by and between Registrant and Comerica Bank dated December 19, 2005. |
10.4 |
|
Addendum No. 5, dated December 2, 2005 and Addendum No. 6, dated December 22, 2005, to Lease Agreement by and between Registrant, as Tenant, and Circle Capital Longmont LLC, as Landlord. |
10.5 |
|
Amendment to the Array BioPharma Inc. Employee Stock Purchase Plan, as amended and restated September 12, 2002 and as amended on April 29,2004. * |
10.6 |
|
First Amendment to the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. * |
31.1 |
|
Certification of Robert E. Conway pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification of R. Michael Carruthers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.0 |
|
Certifications of Robert E. Conway and R. Michael Carruthers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Management contract or compensatory plan.
** Confidential treatment of redacted portions has been applied for
Items 1, 2, 3 and 5 of Part II are not applicable and have been omitted.
25
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boulder, State of Colorado.
|
|
ARRAY BIOPHARMA INC. |
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||
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|
|
||
Dated: February 6, 2006 |
By: |
/s/ Robert E. Conway |
|
|
|
|
Robert E. Conway |
||
|
|
Chief Executive Officer |
||
|
|
|
||
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|
||
Dated: February 6, 2006 |
By: |
/s/ R. Michael Carruthers |
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|
|
|
R. Michael Carruthers |
||
|
|
Chief Financial Officer |
||
|
|
(Principal Financial and |
||
|
|
Accounting Officer) |
||
26
EXHIBIT 10.1
[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
SECOND AMENDMENT TO DRUG DISCOVERY COLLABORATION AGREEMENT
T HIS A MENDMENT N O . 2 (Second Amendment), effective as of October 1, 2005 (Amendment Date), is entered into by and between Genentech, Inc., a Delaware corporation, having a principal place of business at 1 DNA Way, South San Francisco, California 94080 (Genentech) and Array BioPharma Inc., a Delaware corporation, having a principal place of business at 3200 Walnut Street, Boulder, Colorado 80301 (Array) (collectively, the Parties or individually, a Party).
W HEREAS , Genentech and Array entered into a Drug Discovery Collaboration Agreement, effective as of December 22, 2003, which was subsequently modified by a Letter Agreement, dated October 11, 2004, and amended by a First Amendment, dated May 20, 2005 (collectively, the Agreement).
N OW , THEREFORE , the Parties agree as follows:
1.55 Research Term means the period commencing on January 30, 2004 (the date that the Research Plan was Approved by the JRC) and ending on the first to occur of (a) termination of this Agreement by either Party under Article 10; or (b) [*] . Genentech has the right to extend the foregoing Research Term, in its sole discretion, for [*] , upon written notice to Array at least six (6) months prior to the expiration of the Research Term. Any such notice shall specify the number of [*] for which Genentech is extending the Research Term.
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6.2 |
[* ]; Outsourcing. |
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|
|
(a) [*] . |
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|
|
(b) [* ] |
IN WITNESS WHEREOF , the Parties have caused this Second Amendment to be executed by their respective duly authorized representatives as set forth below.
GENENTECH, INC. |
ARRAY BIOPHARMA INC. |
||||
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||||
By: |
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|
By: |
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Name: |
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Name: |
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Title: |
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Title: |
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2
EXHIBIT 10.2
[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
DRUG DISCOVERY AGREEMENT
THIS DRUG DISCOVERY AGREEMENT (the Agreement), is made and entered into, effective as of November 1, 2005 (the Effective Date), by and between Ono Pharmaceutical Co., Ltd., a Japanese corporation having a principal place of business at 8-2 Kyutaromachi 1-Chome, Chuo-Ku Osaka 541-8564, JAPAN ( ONO ), and Array BioPharma Inc., a Delaware corporation having a principal place of business at 3200 Walnut Street, Boulder, Colorado 80301, USA ( ARRAY ).
RECITALS
A. ARRAY has skills, expertise and proprietary technology for the discovery, generation, optimization and preclinical testing of small molecule clinical candidates from drug discovery programs. ONO is a pharmaceutical company involved in the research, development, manufacture and sale of pharmaceutical products.
B. ONO has identified multiple protein targets that have the potential to be used as the basis for drug discovery programs.
C. ONO and ARRAY desire to enter a collaboration wherein ARRAY will perform certain drug discovery research on protein targets requested by ONO with assistance from ONO, with the goal of delivering to ONO multiple preclinical candidates for selection as clinical lead compounds for clinical development and commercialization by ONO.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, ONO and ARRAY, intending to be legally bound, hereby agree as follows:
Capitalized terms used in this Agreement, whether used in the singular or plural, shall have the meanings set forth below, unless otherwise specifically indicated herein.
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(i) results from a chemical synthesis program based on one or more Compounds;
(ii) is based on structure-activity data relating to a Compound; or
(iii) is covered by the claims of any ONO Patent, which patent application or patent discloses any compound in (i) or (ii) above.
ONO will not synthesize any chemical entities for use against a Collaboration Target during the Collaboration Term.
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(i) trade, cash and quantity discounts or rebates actually allowed or taken;
(ii) credits or allowances given or made for rejection or return of, and for uncollectible amounts on, previously sold Collaboration Products or for retroactive price reductions (including, without limitation, rebates similar to Medicare and/or Medicaid);
(iii) taxes, duties or other governmental charges levied on or measured by the billing amount, as adjusted for rebates or refunds, that are borne by the seller thereof and that are not refundable and to the extent non-creditable;
(iv) charges for freight and insurance directly related to the distribution of the Collaboration Products (to the extent not paid by the Third Party customer); and
(v) credits or allowances given or made for wastage replacement, indigent patient and similar programs.
For purposes of this Section 1.20, Distributor means a Third Party that is employed by or otherwise under written contract with ONO or its Affiliates or Sublicensees to sell, promote, distribute, market, import, and/or export Collaboration Products on behalf of or in partnership with ONO or its Affiliates or Sublicensees.
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2.6.1 Term . The Collaboration Term for the Collaboration Target set forth in Section 1.9 (i) shall commence on the Effective Date and shall end upon [*] after the Effective Date. Further, the Collaboration Term for the Collaboration Target set forth in Section 1.9 (ii) shall commence on the Effective Date and shall end upon [*] after the Effective Date. ONO shall have the right to extend the Collaboration Term for each Collaboration Target for [*] by providing written notice to ARRAY at least [*] before the end of the then-current Collaboration Term.
2.6.2 [* ] . ONO shall have the right [*] for each Collaboration Target, of this Agreement within [*] following the first anniversary of the Collaboration Term for each Collaboration Target, with [*] from ONO to ARRAY. In such event, the provisions of [* ] shall apply.
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4.2.1 Collaboration Technology . Subject to the terms and conditions of this Agreement, ARRAY hereby grants to ONO (i) a non-exclusive, sublicensable, royalty free license in the Territory under ARRAYs interest in the Collaboration Patent and the Collaboration Know-How, to develop, make, have made, use, offer to sell, sell, import and export any Inactive Compound or Claimed Compound (other than Active Claimed Compounds, which are subject to the license in Section 4.1 above), and (ii) upon ONOs discovery that a particular Inactive Compound or such Claimed Compound is active against a particular target, the right to negotiate to obtain the exclusive rights to such Inactive Compound or Claimed Compound, in each case in the Territory.
4.2.2 Pre- existing A RRAY Patents . In the event that the development, making, having made, use, offer for sale, sale, import and export by ONO of (i) any Active Compound, Inactive Compound, Active Claimed Compound, Claimed Compound or Derivative Compound, (ii) any Collaboration Product, Product or any product containing an Inactive Compound, a Claimed Compound or Derivative Compound would infringe during the term of the Agreement a claim of Pre-existing ARRAY Patent, ARRAY hereby grants to ONO, to the extent ARRAY is legally able to do so, a non-exclusive, sublicensable, royalty-free license in the Territory under such Pre-existing ARRAY Patent for those purposes.
4.3 Inactive Compounds and Claimed Compounds . With respect to an Inactive Compound or a Claimed Compound (other than an Active Claimed Compound, which is subject to the license in Section 4.1 above), at least [*] prior to ARRAY entering into material and substantial negotiations to grant to a Third Party any rights to such Inactive Compound or Claimed Compound, ARRAY agrees to notify ONO in writing, together with a description of the chemical entity that would be the subject of such negotiations. Within thirty (30) days after receipt from ARRAY of such notice, ONO shall notify ARRAY whether or not it desires to discuss terms and conditions under which ARRAY would grant exclusive rights to such Inactive or Claimed Compound to ONO. However, in the event that ONO reasonably determines that a sample evaluation of such Inactive Compound or Claimed Compound is crucial for ONOs decision-making ONO shall immediately inform ARRAY, and ARRAY shall provide such sample(s) to ONO, and such thirty (30)-day period shall be extended for a certain period of time as mutually agreed by the Parties. ARRAY and ONO will then negotiate in good faith for [*] to finalize the terms and conditions of such grant of rights.
4.4 No Implied Licenses . Only the licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No other license or rights shall be created by implication, estoppel or otherwise.
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5.1.1 Research Phase Payment Schedule . ONO agrees to pay ARRAY research funding for the conduct of the Collaboration quarterly, in advance, in an amount equal to the number of ARRAY FTEs called for in the Research Plan for the applicable quarter multiplied by the ARRAY FTE Rate (as defined below). Such payments shall be paid in quarterly installments, in advance. The initial payment shall be made within thirty (30) days after the Effective Date, and subsequent payments shall be made before the first day of each quarter thereafter. ARRAY shall submit to ONO an invoice for such payment calculated based on the Research Plan and the ARRAY FTE Rate at least thirty (30) days prior to the initiation of each quarter for relevant research, except for the invoice for initial payment which shall be submitted to ONO immediately after the Effective Date.
5.1.2 FTE Rate . The A RRAY FTE Rate shall be equal to [*] per FTE per year. Beginning on the first anniversary of the Effective Date, the ARRAY FTE Rate shall increase no more than once annually by the percentage increase, if any, in the Consumer Price Index, since the Effective Date or the last adjustment hereunder, whichever is later.
5.1.3 Non-FTE Costs . Non-FTE costs and research requirements associated with the research activities specified in the Research Plan shall be borne by ARRAY, except that ARRAY shall not be required to incur any extraordinary chemical or screening costs without ARRAYs prior written consent. In the event that ONO agrees, in the course of the Collaboration during the Collaboration Term, to enter into one or more agreements with a Third Party for the performance of additional activities which are not covered under the Research Plan, ONO will be responsible for the payment of all additional amounts incurred as a result of any such agreement.
5.2.1 Collaboration Products Containing Active Compounds.
(a) [*] . For each Collaboration Product containing an Active Compound, which Active Compound is demonstrated [*]:
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(b) [*] . For each Collaboration Product containing an Active Compound, which Active Compound is demonstrated [*] :
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5.2.2 Collaboration Products Containing Active Claimed Compounds . For each Collaboration Product containing an Active Claimed Compound:
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5.3 Royalties . In partial consideration for the licenses granted to ONO under Section 4.1, ONO shall pay ARRAY a royalty on the worldwide Net Sales of Collaboration Products by ONO, its Affiliates or Sublicensees. Such royalty shall be paid based on the total annual worldwide Net Sales, on a Collaboration Product-by-Collaboration Product basis.
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business day. Any payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the U.S. prime rate per annum quoted in the Money Rates column of The Wall Street Journal , Eastern Edition, on the first business day after such payment is due, plus an additional [*] calculated on the number of days such payment is delinquent. This Section 5.5 shall in no way limit any other remedies available to ARRAY.
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5.6.4 Currency Conversion . For the purpose of computing the Net Sales in a currency other than United States Dollars, such currency shall be converted into U.S. dollars using the buying exchange rate for conversion of the foreign currency with U.S. dollars, quoted for current transactions reported in The Wall Street Journal , Eastern Edition for the last business day of March or September to which such payment pertains.
ONO shall use diligent efforts to research, develop and commercialize Collaboration Products, and to perform its obligations under Section 2. 10 of this Agreement, and to obtain the optimum commercial return for each Collaboration Product in all major markets throughout the world, consistent with the practice of ONO in pursuing the research, development, commercialization, and marketing of pharmaceutical products of its own development and of similar commercial value potential .
7.1.1 Ownership . Title to all inventions and other intellectual property made by ARRAY in the course of performing, or in connection with, the Collaboration during the Collaboration Term shall be owned by ARRAY; title to all inventions and other intellectual property made by ONO in the course of performing, or in connection with, the Collaboration during the Collaboration Term shall be owned by ONO; title to all inventions and other intellectual property made jointly by ONO and ARRAY in the course of performing, or in
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7.1.2 [* ] . Upon receipt by ARRAY of [*] , ARRAY shall [*] its right, title and interest in any Collaboration Patent claiming the Active Compound or Active Claimed Compound contained in such Collaboration Product or a method of using or a method of making such Active Compound, Active Claimed Compound or Collaboration Product.
7.1.3 Disclosure of Inventions . Each Party shall promptly disclose to the other Party any inventions made in connection with this Agreement.
7.2.1 Collaboration Technology . ONO shall be responsible, at its expense, (i) for preparing, filing, prosecuting and maintaining the Collaboration Patent, and (ii) for conducting any interferences, re-examinations, reissues and oppositions relating thereto. ONO may elect, upon ninety (90)-day prior notice, to discontinue prosecution of any such Collaboration Patent and/or not to file or conduct any further activities with respect to such Collaboration Patent. In the event ONO declines to file, or having filed, fails to further prosecute or maintain any such Collaboration Patent, or conduct any proceedings including, but not limited to, interferences, re-examinations, reissues and oppositions relating thereto, then ARRAY shall have the right to prepare, file, prosecute and maintain such Collaboration Patent in such countries as it deems appropriate, and conduct such proceedings, at its sole expense. In such case, ONO shall immediately execute all necessary documents that may be required in order to enable ARRAY to file, prosecute and maintain such Collaboration Patent and to conduct any such proceedings.
7.2.2 Other Technology . Except as provided in Section 7.2.1, each Party shall be responsible, at its own expense and in its sole discretion, for preparing, filing, prosecuting and maintaining, in such countries as it deems appropriate, any and all patent applications and patents directed to inventions owned or controlled by such Party outside the Collaboration and conducting any interferences, re-examinations, reissues and oppositions relating to such patent applications and patents.
7.2.3 Cooperation . Each Party shall keep the other Party fully informed as to the status of patent matters described in Section 7.2.1, including without limitation, by providing the other Party with the opportunity, as far in advance of filing dates as possible, to fully review and comment on any documents which will be filed in any patent office, and by providing the other Party with copies of any substantive documents received by such Party from such patent offices promptly after receipt by such Party, including notice of all interferences, reissues, re-examinations, oppositions or requests for patent term extensions and shall incorporate all reasonable comments of the other Party in documents which will be filed in
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7.3.1 Notice . Each Party shall promptly notify the other Party of either (i) any infringement of any Collaboration Patent by any Third Party or (ii) any misappropriation or misuse of the Collaboration Know-How by a Third Party that may come to such Partys attention.
7.3.2 ONO . ONO shall have (i) the initial right, but not the obligation, to take reasonable legal action to enforce against infringements of the Collaboration Patent or misappropriation or misuse of the Collaboration Know-how by any Third Party or defend any declaratory judgment action relating to the Collaboration Patent filed pursuant to Section 7.2.1, and (ii) the sole right, but not the obligation, to take reasonable legal action to enforce against patent infringement by any Third Party or defend any declaratory judgment action relating to any patent filed by ONO pursuant to Section 7.2.2, or the Collaboration Patent [* ] ONO pursuant to Section 7.1.2, at its sole cost and expense. If, within six (6) months following receipt of such notice from ARRAY, ONO fails to take such action to halt a commercially significant infringement of the Collaboration Patent filed pursuant to Section 7.2.1 (but not [*] ONO), ARRAY shall, in its sole discretion, have the right, at its sole expense, to take such action.
7.3.3 ARRAY . ARRAY shall have the sole right, but not the obligation, to take reasonable legal action to enforce against patent infringement by Third Parties or defend any declaratory judgment action relating to any patent filed by ARRAY pursuant to Section 7.2.2, at its sole cost and expense.
7.3.4 Cooperation; Costs and Recoveries . Each Party agrees to render such reasonable assistance as the enforcing Party may request, at the enforcing Partys expense, including but not limited to joining such actions and/or executing such documents as may be necessary to, for example, enable the enforcing Party to establish standing in any court or tribunal to enforce the Collaboration Patent or the Collaboration Know How. Amounts recovered from enforcing the Collaboration Patent filed pursuant to Section 7.2.1 or [*] pursuant to Section 7.1.2, whether as payment in settlement or otherwise, shall belong to the Party bringing the action, provided, however, that amounts recovered by ONO shall first be used to reimburse ONO for its reasonable expenses in enforcing the patent (including attorneys and experts fees), with the remainder, and then the amount of any recovery remaining shall be allocated between the Parties on a pro rata basis taking into consideration the relative economic losses suffered by each Party. For example, [*] . A settlement, consent judgment or other voluntary final disposition of a suit under this Section 7.3 may be entered into by ONO without the consent of ARRAY, provided that such settlement, consent judgment or other disposition does not admit the invalidity or unenforceability of any Pre-existing ARRAY Patent or any Collaboration Patent and provided further, that any rights to make such settlement, consent judgment or other disposition shall be limited to those rights ONO (and/or its Sublicensees) otherwise has the right to grant. The costs in bringing any action to enforce a patent filed
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(a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;
(d) was independently developed by the receiving Party as demonstrated by documented evidence prepared contemporaneously with such independent development; or
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Notwithstanding the above, ONO has the sole right, without any consent of ARRAY, to make any publication or presentation with respect to the development and sale by or on behalf of ONO of any Collaboration Product, Product or any product containing an Inactive Compound, a Claimed Compound or Derivative Compound after the Collaboration Term. ONO shall provide ARRAY, for information purposes, with copies of publications by ONOs or its Affiliates employees, Sublicensees, academic entity or consultants following such publication or presentation.
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(i) any breach by the Indemnitor of its representations, warranties, covenants or agreements under this Agreement; or
(ii) any personal injury or proprietary damage occurring at a location owned, leased or under the control of the Indemnitor in connection with the transactions contemplated by this Agreement (except to the extent such Liabilities arose out of or resulted from the gross negligence, recklessness or willful misconduct of the other Party or its Affiliates, and their respective directors, officers, employees, and agents).
(i) any Active Compound, Inactive Compound, Claimed Compound, Derivative Compound, Product or Collaboration Product developed, manufactured, used, sold or otherwise distributed by or on behalf of ONO, its Affiliates or Sublicensees or other designees (including, without limitation, product liability); or
(ii) the use of a Collaboration Target (including a nucleic acid encoding such Collaboration Target, a Collaboration Target protein or a derivative, modification or subunit of any of the foregoing) which is involved in the conduct of the Collaboration and the making or use of modulators of such Collaboration Target,
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except, in each case, to the extent such Liabilities arose out of or resulted from the gross negligence, recklessness or intentional misconduct of Array or its Affiliates, directors, officers, employees, and agents.
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ONO shall promptly [*] to ARRAY all of ONOs right, title and interest in any Collaboration Patent [*] to ONO under Section 7.1.2.
11.6.3 Upon termination by ONO of this Agreement pursuant to Section 11.3 . If this Agreement is terminated by ONO pursuant to Section 11.3, all the licenses and rights granted to ONO by ARRAY under Article 4 shall survive subject to ONOs obligation to pay milestone and royalty payments as set forth in Sections 5.2 and 5.3; [*] . [*] . Further, Article 7, Sections 2.11, 5.5, 5.6 and 5.7 shall also survive. ARRAY shall promptly return to ONO all Confidential Information (including, without limitation, all Know-How) received from ONO.
11.6.4 Upon termination by ONO of this Agreement pursuant to Section 11.4 . If this Agreement is terminated by ONO pursuant to Section 11.4 due to the rejection of this Agreement by or on behalf of ARRAY under Section 365 of the United States Bankruptcy Code (the Code) or similar foreign laws, all licenses and rights to licenses granted under or pursuant to this Agreement, including but not limited to Article 4, by ARRAY to ONO are, and shall otherwise be deemed to be, if required for purposes of Section 365(n) of the Code, licenses of rights to intellectual property as defined under Section 101(35A) of the Code or similar foreign laws. The Parties agree that ONO, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Code or similar foreign laws, and that upon commencement of a bankruptcy proceeding by or against ARRAY under the Code or similar foreign laws, ONO shall be entitled to a complete duplicate of, or complete access to (as ONO deems appropriate), any such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments thereof shall be promptly delivered to ONO (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by ONO, unless ARRAY elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of ARRAY upon written request therefor by ONO.
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5. 3 Royalties . ONO shall pay ARRAY a royalty of [*] on the worldwide Net Sales by ONO, its Affiliates or Sublicensees of each Collaboration Product [*] . Such royalties shall be paid on a country-by-country basis from the date of the first commercial sale of each such Collaboration Product with respect to which royalty payments are due until the expiration of the last to expire the Collaboration Patent owned by ARRAY in such country covering the composition of matter, a method of manufacture or the use of such [*] . It is understood and agreed that no royalty shall be due on sales of [* ] .
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O no Pharmaceutical Co., Ltd. |
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8-2 Kyutaromachi 1-Chome, Chuo-Ku |
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Osaka 541-8564, JAPAN |
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Attention: Director, International Business |
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Facsimile: +81 (6) 6263-2958 |
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With a copy to: |
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Ono Pharma USA, Inc. |
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2000 Lenox Drive |
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Lawrenceville, NJ 08648, USA |
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Attention: President |
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Facsimile: +1 (609) 219-9229 |
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If to ARRAY: |
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A rray BioPharma Inc. |
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3200 Walnut Street |
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Boulder, CO 80301 , USA |
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Attention: Chief Operating Officer |
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Facsimile: +1 (303) 381-6697 |
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With a copy to: |
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Array BioPharma Corporation |
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3200 Walnut Street |
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Boulder, CO 80301 , USA |
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Attention: General Counsel |
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Facsimile: +1 (303) 386-1290 |
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their authorized representatives and delivered in duplicate originals as of the Effective Date.
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EXHIBIT 1.31
RESEARCH PLAN
Appendix to Drug Discovery Agreement between ONO and ARRAY: Research Plan for [ * ] Projects
The following is the research plan on [ * ] mutually agreed by ONO and ARRAY. It is derived from analysis of the targets by ARRAY and after several discussions with ONO. This Research Plan is intended to be a plan and guide for the project team. The goasl, strategy and resource distribution can and will be changed in response to ongoing results, competitive information and changing science. Significant changes to the Research Plan must be ratified by the Joint Management Committee.
Topics:
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
[ * ] .[ * ]
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EXHIBIT 1.3 3
[*]
[* ]
Exhibit 10.3
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (the Amendment) is entered into as of December 19, 2005, by and between COMERICA BANK (Bank) and ARRAY BIOPHARMA, INC. (Borrower).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of June 28, 2005 (as amended from time to time, together with any related agreements, the Agreement). Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the Indebtedness. The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
I. Incorporation by Reference . The Recitals and the documents referred to therein are incorporated herein by this reference. Except as otherwise noted, the terms not defined herein shall have the meaning set forth in the Agreement.
II. Amendment to the Agreement . Subject to the satisfaction of the conditions precedent as set forth in Article IV hereof, the Agreement is hereby amended as set forth below.
A. The first sentence of Section 6.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
Borrower shall at all times, measured on a daily basis, (A) maintain a balance of Cash at Bank of not less than: (i) Zero Dollars ($0) if Borrowers total Cash at Bank plus Cash covered by Account Control Agreements is not less than Forty Million Dollars ($40,000,000), (ii) Two Million Dollars ($2,000,000) if Borrowers total Cash at Bank plus Cash covered by Account Control Agreements is at least Thirty Million Dollars ($30,000,000) but less than Forty Million Dollars ($40,000,000), (iii) Eight Million Five Hundred Thousand Dollars ($8,500,000) if Borrowers total Cash at Bank plus Cash covered by Account Control Agreements is at least Twenty Five Million Dollars ($25,000,000) but less than Thirty Million Dollars ($30,000,000), (iv) Seventeen Million Dollars ($17,000,000) if Borrowers total Cash at Bank plus Cash covered by Account Control Agreements is less than Twenty Five Million Dollars ($25,000,000) and (B) maintain a balance of Cash at Bank plus Cash covered by Account Control Agreements of not less than Twenty Million Dollars ($20,000,000).
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Comerica Bank |
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m/c 4770 |
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75 E Trimble Road |
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San Jose, CA 95131 |
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Attn: Manager |
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FAX: (408) 556-5091 |
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C. The fourth sentence of Section 11 of the Agreement is hereby amended and restated in its entirety to read as follows:
D. The dollar amount of Eight Million Dollars ($8,000,000) in Sections 2.a. and 2.b. of Exhibit D (LIBOR/Cost of Funds Addendum) to the Agreement is hereby changed to Ten Million Dollars ($10,000,000).
III. Legal Effect .
A. The Agreement is hereby amended wherever necessary to reflect the changes described above. Borrower agrees that it has no defenses against the obligations to pay any amounts under the Indebtedness.
B. Borrower understands and agrees that in modifying the existing Indebtedness, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Agreement. Except as expressly modified pursuant to this Amendment, the terms of the Agreement remain unchanged, and in full force and effect. Banks agreement to modifications to the existing Indebtedness pursuant to this Amendment in no way shall obligate Bank to make any future modifications to the Indebtedness. Nothing in this Amendment shall constitute a satisfaction of the Indebtedness. It is the intention of Bank and Borrower to retain as liable parties, all makers and endorsers of Agreement, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Amendment. The terms of this paragraph apply not only to this Amendment, but also to all subsequent loan modification requests.
C. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. This is an integrated Amendment and supersedes all prior negotiations and agreements regarding the subject matter hereof. All modifications hereto must be in writing and signed by the parties.
IV. Conditions Precedent . Except as specifically set forth in this Amendment, all of the terms and conditions of the Agreement remain in full force and effect. The effectiveness of this Agreement is conditioned upon receipt by Bank of this Amendment, and any other documents which Bank may require to carry out the terms hereof, including but not limited to the following:
A. This Amendment, duly executed by Borrower;
B. A legal fee from the Borrower in the amount of $250; and
C. Such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
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3
Exhibit 10.4
ADDENDUM #5 TO LEASE AGREEMENT
THIS ADDENDUM #5 TO LEASE AGREEMENT, dated as of December 2, 2005, is entered into by and between CIRCLE CAPITAL LONGMONT LLC, a Delaware limited liability company (Landlord) and ARRAY BIOPHARMA, INC., a Delaware corporation (Tenant).
Recitals:
A. Landlords predecessor in interest and Tenant entered into a written lease agreement, dated February 28, 2000, as amended by Addendum to Lease Agreement #1 dated May 24, 2001, Addendum to Lease Agreement #2, dated February 11, 2002, Addendum to Lease Agreement dated November 30, 2004 and Addendum #4 to Lease Agreement dated August 1, 2005 (Addendum #4) (collectively, the Lease), pertaining to Suites A & B of the Building located at 2620 Trade Centre Avenue which Premises consist of approximately 43,200 rentable square feet of space (the Premises). (Initially capitalized terms not otherwise defined herein have the same meaning as in the Lease.)
B. Under Addendum #4 to Lease Agreement, Tenant was granted an option, under certain terms, to lease additional space (as defined in Addendum #4, the Expansion Option) in the buildings located at 2500, 2420 and/or 2410 Trade Centre Avenue. To exercise the Expansion Option, Tenant was required to give written notice to Landlord of its election to exercise the Expansion Option on or before the 120 th day after mutual execution of Addendum #4.
C. Tenant desires to exercise the Expansion Option with respect to the buildings located at 2500 and 2420 Trade Centre Avenue. Tenant and Landlord have engaged in discussions concerning Tenants interest in the possible expansion and improvement of the building located at 2410 Trade Centre Avenue. Tenant remains interested in exercising the Expansion Option with respect to the building located at 2410 Trade Centre Avenue, particularly if such building can be appropriately expanded and improved.
D. Landlord and Tenant desire to amend the Lease in the manner and form hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, Landlord and Tenant hereby agree as follows:
1. Tenant is not required to exercise the Expansion Option with respect to all the Option Space at once. Rather, Tenant may submit more than one Tenants Expansion Notice, provided that Tenant complies with the provisions set forth in Section 10B(ii) of Addendum #4.
2. Upon execution by both Landlord and Tenant, this Addendum shall be deemed Tenants Expansion Notice with respect to the buildings located at 2500 and 2420 Trade Centre Avenue. Following the mutual execution of this Addendum, the procedures provided in Sections 10.B through 10.F of Addendum #4 shall govern the leasing of such space.
3. To exercise the Expansion Option with respect to the building located at 2410 Trade Centre Avenue, Tenant shall give Tenants Expansion Notice on or before December 31, 2005. If Tenant exercises the 2410 Trade Centre Avenue Expansion Option by giving Tenants Expansion Notice, Landlord shall use reasonable efforts to notify Tenant whether 2410 Trade Centre Avenue is included within the Expansion Premises on or before the 90 th day after mutual execution of this Addendum, but in no event later than the 90 th day after receipt of Tenants Expansion Notice for 2410 Trade Centre Avenue.
4. In connection with Tenants consideration of whether to exercise the Expansion Option pertaining to 2410 Trade Centre Avenue, Tenant has requested that Landlord consider addition of a partial second floor to 2410 Trade Centre Avenue of sufficient size such that the building would comprise 36,000-40,000 square feet and improvements to the entry and landscaping to be compatible for use as a corporate office headquarters. Tenant has already provided Landlord with preliminary requirements and with drawings of the requested addition and improvements. Following the mutual execution of this Addendum, Landlord
shall review and approve or suggest revisions to the preliminary requirements and drawings submitted by Tenant and thereafter Landlord and Tenant shall reasonably cooperate to finalize preliminary plans, taking into account reasonable design suggestions by Tenant concerning the nature and scope of such expansion and improvements; when approved by Landlord and Tenant such plans shall be deemed the 2410 Preliminary Plans. Following mutual approval of the 2410 Preliminary Plans, (i) Landlord shall use commercially reasonable efforts to obtain preliminary approvals of the 2410 Preliminary Plans from all relevant local officials prior to December 31, 2005, and (ii) prior to December 31, 2005, Landlord shall provide Tenant a written offer (as an alternative to the terms that would otherwise be applicable under Section 10.D of Addendum #4), taking into account the estimated costs for completing work in accordance with the 2410 Preliminary Plans, which offer shall include the terms under which Landlord would rent 2410 Trade Centre Avenue to Tenant assuming completion of such expansion and improvements and delivery of such space by March 1, 2008 (which offer would be subject to Landlord obtaining final building permit approvals for construction in accordance with the 2410 Preliminary Plans and confirming its ability to reach agreement with the existing tenant as provided below) and the terms that would be applicable to a purchase of 2410 Trade Centre Avenue under Section 12 of Addendum #4 taking into account such work (collectively, Landlords 2410 Offer).
5. If Tenant desires to exercise Tenants Expansion Option for the building at 2410 Trade Centre Avenue, Tenant shall give Landlord Tenants Expansion Notice on or before January 6, 2006. The terms of Section 10.D of Addendum #4 (without regard to Landlords 2410 Offer) shall govern the leasing of such space. In the event Tenant remains interested in expansion and improvement of the building at 2410 Trade Centre Avenue in accordance with the 2410 Preliminary Plans, Tenant shall so indicate in Tenants Expansion Notice and the parties shall thereafter negotiate in good faith, based on Landlords 2410 Offer and taking into account the then-current status of construction building permit approvals, the basis on which Landlord is able to reach agreement with the existing tenant, and inclusion of 2410 Trade Centre Avenue within the Expansion Premises, the terms under which Landlord would rent 2410 Trade Centre Avenue to Tenant assuming completion of such expansion and improvements and delivery of such space by March 1, 2008 and the terms that would be applicable to a purchase of 2410 Trade Centre Avenue under Section 12 of Addendum #4 taking into account such work. All other provisions relating to the Option Space at 2410 Trade Centre Avenue shall be as set forth in the Lease.
6. Non-Disclosure. The terms of the Lease, including this Addendum are subject to Section 16 of Addendum 4.
7. Conflicts. If there is any conflict between the terms of this Addendum and the terms of the Lease, the terms of this Addendum shall govern. The Lease as hereby amended is in full force and effect, is hereby ratified and affirmed by the parties, and is binding upon the parties in accordance with its terms.
8. Time of Essence. Time is of the essence herein.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the day and year first above written and is effective upon delivery of a fully executed copy to Tenant; the last date signed is the date of mutual execution as referred to above.
LANDLORD: |
CIRCLE CAPITAL LONGMONT LLC |
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Circle Capital Property Management LLC, Authorized Agent |
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Terry Fitzpatrick, Manager |
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TENANT: |
ARRAY BIOPHARMA, INC., a Delaware corporation |
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ADDENDUM #6 TO LEASE AGREEMENT
THIS ADDENDUM #6 TO LEASE AGREEMENT, dated as of December 22, 2005 is entered into by and between CIRCLE CAPITAL LONGMONT LLC, a Delaware limited liability company (Landlord) and ARRAY BIOPHARMA, INC., a Delaware corporation (Tenant).
Recitals :
A. Landlords predecessor in interest and Tenant entered into a written lease agreement, dated February 28, 2000, as amended by Addendum to Lease Agreement #1 dated May 24, 2001, Addendum to Lease Agreement #2, dated February 11, 2002, Addendum to Lease Agreement dated November 30, 2004, Addendum #4 to Lease Agreement dated August 1, 2005 (Addendum #4), and Addendum #5 to Lease Agreement dated as of November 30, 2005 (Addendum #5) (collectively, the Lease), pertaining to Suites A & B of the Building located at 2620 Trade Centre Avenue which Premises consist of approximately 43,200 rentable square feet of space (the Premises). (Initially capitalized terms not otherwise defined herein have the same meaning as in the Lease.)
B. Under Addendum #4 to Lease Agreement, Tenant was granted an option, under certain terms, to lease additional space (as defined in Addendum #4, the Expansion Option) in the buildings located at 2500, 2420 and/or 2410 Trade Centre Avenue. To exercise the Expansion Option, Tenant was required to give written notice to Landlord of its election to exercise the Expansion Option on or before the 120 th day after mutual execution of Addendum #4.
C. Under Addendum #5 to Lease Agreement, Tenant exercised the Expansion Option with respect to 2500 and 2420 Trade Centre Avenue and amended the terms of the Expansion Option with respect to the 2410 Trade Centre Avenue.
D. Landlord and Tenant wish to further amend the terms of the Expansion Option with respect to 2410 Trade Centre Avenue.
E. Landlord and Tenant desire to amend the Lease in the manner and form hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, Landlord and Tenant hereby agree as follows:
1. Modification of Section 3. The date, December 31, 2005, in Section 3 of Addendum #5 shall be amended to February 6, 2006.
2. Modification of Section 4. The date, December 31, 2005 wherever it appears in Section 4 of Addendum #5 shall be amended to January 31, 2006.
3. Modification of Section 5. The date, January 6, 2006, in Section 5 of Addendum #5 shall be amended to February 6, 2006.
4. Conflicts. If there is any conflict between the terms of this Addendum and the terms of the Lease, the terms of this Addendum shall govern. The Lease as hereby amended is in full force and effect, is hereby ratified and affirmed by the parties, and is binding upon the parties in accordance with its terms.
5. Time of Essence. Time is of the essence herein.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the day and year first above written and is effective upon delivery of a fully executed copy to Tenant; the last date signed is the date of mutual execution as referred to above.
LANDLORD: |
CIRCLE CAPITAL LONGMONT LLC |
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Terry Fitzpatrick, Manager |
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TENANT: |
ARRAY BIOPHARMA, INC., a Delaware corporation |
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R. Michael Carruthers, CFO |
Exhibit 10.5
AMENDMENT TO THE
ARRAY BIOPHARMA INC.
EMPLOYEE STOCK PURCHASE PLAN
(as amended and
restated September 12, 2002,
and as amended on April 29, 2004)
Pursuant to the authority of the Board of Directors of Array BioPharma Inc (the Company) and Section 24 of the Array BioPharma Inc. Employee Stock Purchase Plan (as amended and restated September 12, 2002, and as amended on April 29, 2004) (the Plan), the Plan is hereby amended as set forth below:
1. The first sentence of Section 1, Shares Subject to the Plan, is hereby amended and restated as follows:
Subject to adjustment as provided in Section 26 below, the aggregate number of shares of Common Stock that may be made available for purchase by participating employees under the Plan is 1,650,000.
2. Section 4, Eligible Employees, is hereby amended to delete subparagraph (a) thereof.
3. Section 14(a), Changes in Election to Participate, is hereby amended and restated as follows:
(a) A participating employee may, at any time prior to the last trading day of the Offering Period, by written notice to the Company, direct the Company to cease payroll deductions (or, if the payment for shares is being made through periodic cash payments, notify the Company that such payments will be terminated), and the amount in the employees account will be distributed and the employees option to purchase will terminate, unless the employee elects, by written notice to the Company, not to have such amount distributed, in which event such amount shall remain in the employees account and available to exercise his or her option to purchase shares under the Plan during such Offering Period.
4. This Amendment to the Array BioPharma Inc. Employee Stock Purchase Plan (the Amendment) was approved by the Board of Directors of the Company on December 9, 2005 and shall be effective thereon; provided, however, that the amendments set forth in Sections 1 and 2 of this Amendment are contingent upon the approval of such amendments by a majority vote by the stockholders of the Company on or prior to December 9, 2006 (Stockholder Approval). If Stockholder Approval is not attained, then the provisions of Sections 1 and 4 of the Plan as in effect immediately prior to the time the Board of Directors approved this Amendment shall remain in effect.
5. This Amendment shall affect only those provisions of the Plan set forth herein, and all of the remaining terms and provisions of the Plan shall not be modified or amended hereby and shall continue in full force and effect.
* * * * *
This Amendment to the Plan was duly adopted and approved by the Board of Directors of the Corporation by unanimous written consent on December 9, 2005.
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R. Michael Carruthers |
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Chief Financial Officer |
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Exhibit 10.6
First Amendment to the
Amended and Restated
Deferred Compensation Plan of Array BioPharma Inc.
WHEREAS , Array BioPharma Inc. (the Company) adopted the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. (the Plan) on August 1, 2004,
WHEREAS , Section 8.2 of the Plan provides for the amendment of the Plan, and
WHEREAS , pursuant to the guidance provided by the Proposed Treasury Regulations promulgated under Internal Revenue Code Section 409A and IRS Notice 2005-1, the Company desires to amend the Plan to provide that distributions may commence three (3) years from the year of deferral.
NOW, THEREFORE, BE IT RESOLVED , that, effective as of the date hereof, Section 4.1(b) is deleted in its entirety and restated to read as follows:
(b) Either on January 1 of the third year following the calendar year in which contributions and deferrals were made or any January 1 thereafter.
FURTHER RESOLVED , that, effective as of the date hereof, a new Section 4.5(g) is added to the end of Section 4.5 of the Plan to read as follows:
(g) Notwithstanding any other provisions of the Plan, the Plan Administrator may permit a Participant to change the form or timing of his or her distribution elections as set forth on an Elective Deferral Form if (1) the change is consistent with Sections 4.1 and 4.2 and (2) the change is made prior to December 31, 2005; provided, however, that the distribution must be made following the first to occur of either separation from Service or a specified month and year in the future and that the form and timing of a distribution with respect to a Participant whose Service has terminated will be determined in a manner consistent with Sections 4.1, 4.2 , 4.3 and 4.4.
FURTHER RESOLVED , that, in all other respects not amended, the Plan is ratified.
IN WITNESS WHEREOF , the Company has caused this First Amendment to the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. to be executed this 15 th day of November 2005, by its duly authorized officer.
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ARRAY BIOPHARMA INC. |
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By: R. Michael Carruthers |
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Title: Chief Financial Officer |
FIRST AMENDMENT TO THE
AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
OF ARRAY BIOPHARMA INC.
WHEREAS, Array BioPharma Inc. (the Corporation) has adopted the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. (the Plan), which has been amended from time to time and which was most recently restated by the adoption of The CORPORATEplan for Retirement SM EXECUTIVE Plan, Fidelity Basic Plan Document (the Basic Plan Document), by executing an Adoption Agreement on January 30, 2006 (the Adoption Agreement);
WHEREAS, Section 9.01 of the Basic Plan Document, provides for the amendment of the Plan by the Corporation, and
WHEREAS, the Corporation desires to amend the Plan to provide (1) for the participation by members of the Corporations Board of Directors, (2) provide discretion of employer and matching contributions, (3) to alter the timing of certain distributions, and (4) to provide for the assumption of the Plan upon a Change of Control.
NOW, THEREFORE, BE IT RESOLVED, that, effective as of the date hereof, Section 2.01(a)(8) of the Basic Plan Document is hereby amended to add a new sentence at the end of such section to read as follows:
Notwithstanding the preceding, for purposes of an Employee who is a Self-Employed Individual, Compensation means Earned Income.
FURTHER RESOLVED , that, effective as of the date hereof, Section 1.05(b)(4)(E) of the Adoption Agreement is hereby deleted in its entirety and restated to read as follows:
(E) No requirements; provided, however, that the Administrator may determine that certain Participants are not entitled to Matching Contributions.
FURTHER RESOLVED, that, effective as of the date hereof, Section 1.05(c)(3)(E) of the Adoption Agreement is hereby deleted in its entirety and restated to read as follows:
(E) No requirements; provided, however, that the Administrator may determine that certain Participants are not entitled to Employer Contributions.
FURTHER RESOLVED, that, effective as of the date hereof, Section 1.06(b)(1)(B) of the Adoption Agreement is hereby deleted in its entirety and restated to read as follows:
(B) The date elected by the Participant, pursuant to Plan Section 8.02, and subject to the restrictions imposed in Plan Section 8.02 with respect to future Deferral Contributions, in which event such date of distribution must be at least three years after the date such Deferral Contribution would have been paid to the Participant in cash in the absence of the election to make the Deferral Contributions. Distributions shall commence on the first of the month following the date of the distributable event.
FURTHER RESOLVED, that, effective as of the date hereof, Section 1.06(c) of the Adoption Agreement is hereby deleted in its entirety and restated to read as follows:
(c) Upon a Change of Control in accordance with Plan Section 7.08; provided, however, that a distribution shall not begin upon a Change of Control if a provision for the assumption or continuation of the Plan is made in writing in connection with such Change of Control.
FURTHER RESOLVED , that, effective as of the date hereof, Section 1.06(b)(1) of the Adoption Agreement is hereby deleted in its entirety and restated to read as follows:
(1) Upon the earliest to occur of:
FURTHER RESOLVED , that, effective as of the date hereof, a new Section 1.13 is added to the Adoption Agreement to read as follows:
1.13 Administrator may permit Participants to change their elections in a manner consistent with Internal Revenue Code Section 409A and the guidance promulgated thereunder.
IN WITNESS WHEREOF, the Corporation has caused this First Amendment to the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. to be executed this 30 th day of January 2006, by its duly authorized officer.
ARRAY BIOPHARMA INC. |
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Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert E. Conway, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Array BioPharma Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within this entity, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: February 6, 2006 |
/s/ Robert E. Conway |
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Robert E. Conway |
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Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, R. Michael Carruthers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Array BioPharma Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within this entity, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: February 6, 2006 |
/s/ R. Michael Carruthers |
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R. Michael Carruthers |
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Chief Financial Officer |
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Exhibit 32.0
CERTIFICATES PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert E. Conway, Chief Executive Officer of Array BioPharma Inc. (the Company) and R. Michael Carruthers, Chief Financial Officer of the Company, do each hereby certify that, to the best of his knowledge and except as corrected or supplemented in a subsequent periodic report filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the date hereof:
(a) the Quarterly Report on Form 10-Q of the Company for the three-month period ended December 31, 2005, filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned have executed this Certificate as of the 6 th day of February 2006.
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/s/ Robert E. Conway |
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Robert E. Conway |
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Chief Executive Officer |
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/s/ R. Michael Carruthers |
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R. Michael Carruthers |
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Chief Financial Officer |
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