1. Grant of Option . Seller hereby grants to Optionee an exclusive option to purchase the Property (the “Option”) on the terms and subject to the conditions set forth in the Purchase and Sale Agreement that is attached hereto as Exhibit B and made a part hereof (the “PSA”).

a. Option Payment . As consideration for the Option, Optionee shall pay to Seller $1,000.00 in immediately available funds (the “Option Payment”). The Option Payment shall be fully earned on the execution hereof and shall be non-refundable and shall be applied to the purchase price of the Property as set forth in the PSA.

b. Term of Option . The term of the Option (the “Option Period”) shall commence on the date hereof and shall expire on July 7, 2006.

c. Exercise of Option . Optionee may elect to exercise the Option at any time during the Option Period by delivering to Seller the executed PSA.

d. Assignment . Optionee shall not assign, transfer or convey its interest in the Option or this Option Agreement without Seller’s prior written consent, which may be withheld in Seller’s sole and absolute discretion; provided, however, that Optionee may, upon prior written notice to Seller, assign this Option Agreement to BioMed Realty, L.P., on condition that, at least two (2) business days prior to such assignment, Optionee shall deliver to Seller drafts of the assignment and assumption document for Seller’s reasonable approval.

2. Notices . All notices shall be in writing sent by either (i) nationally recognized overnight courier, (ii) certified mail, postage prepaid, return receipt requested, or (iii) facsimile; addressed as set forth below, or to such other place as either party may designate by notice:

1. - PURCHASE AND SALE

ARTICLE 2 - PURCHASE PRICE AND PAYMENT

ARTICLE 3 - BUYER’S DUE DILIGENCE

ARTICLE 4 - CLOSING

ARTICLE 5 – INTENTIONALLY OMITTED

ARTICLE 6 - REPRESENTATIONS AND WARRANTIES

ARTICLE 7 - BROKERAGE COMMISSIONS

ARTICLE 8 - RISK OF LOSS

ARTICLE 9 - BREACH

ARTICLE 10 - GENERAL PROVISIONS.

1. Assignment . Subject to the terms and conditions hereof, Assignor agrees to assign, transfer and convey to Assignee all of Assignor’s right, title and interest in and to the Boulder Option Agreement and the Longmont Option .

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Until we can generate sufficient levels of cash from our operations, which we do not expect to achieve in the foreseeable future, we expect to continue to utilize our existing cash and marketable securities resources that were primarily generated from the proceeds of our equity offerings. In addition, we may finance future cash needs through the sale of equity securities, strategic collaboration agreements and debt financing. We cannot assure that we will be successful in obtaining new or in retaining existing out-license or collaboration agreements, in securing agreements for the co-development of our proprietary drug candidates, or in receiving milestone and/or royalty payments under those agreements, that our existing cash and marketable securities resources will be adequate or that additional financing will be available when needed or that, if available, this financing will be obtained on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose, or may adversely affect our ability to operate as a going concern. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders may result.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

1.1 Purchase and Sale .

1.2 Description of Property .

2.1 Purchase Price .

2.2 Payment of Purchase Price .

3.1 Seller’s Deliveries .

3.2 Buyer’s Duty to Investigate .

3.3 Tenant Estoppels .

3.4 Ongoing Operations.

4.1 Manner of Closing; Closing Date .

4.2 Inspection Deadline .

4.3 Documents to Be Deposited into Escrow by Seller .

4.4 Funds and Documents to Be Deposited into Escrow by Buyer .

4.5 Buyer’s Closing Conditions .

4.6 Seller’s Closing Conditions .

4.7 Closing Costs .

4.8 Prorations .

6.1 Seller’s Warranties .

6.2 Buyer’s Warranties .

8.1 Major Damage .

8.2 Lesser Damage .

9.1 Liquidated Damages .

9.2 Buyer’s Pre-Closing-Remedies .

9.3 Post-Closing Remedies .

10.1 Assignment .

10.2 Notices .

10.3 Claims .

10.4 Attorneys’ Fees .

10.5 Time of the Essence .

10.6 No Rights or Obligations to Third Parties .

10.7 Review by Counsel .

10.8 Effectiveness of Agreement; Facsimile and Counterpart Signatures .

10.9 No Recording .

10.10 Business Day .

10.11 Miscellaneous .

10.12 Press Release .

10.13 Public Company Requirements .

Exhibit 23.2

Item 4. Submission of Matters to a Vote of Security Holders

Stock Options

a. That certain parcel of land described in Exhibit A attached hereto (“Land”), together with all of the improvements and fixtures on the Land, exclusive of improvements and fixtures owned by tenants under the Leases, if any, including, without limitation, four (4) buildings containing approximately 143,900 rentable square feet (collectively, the “Building”), and all privileges and easements appurtenant to and for the benefit of the Land, if any;

b. Seller’s interest in and to all assignable contracts, including any parking agreements, utility contracts, equipment leases and maintenance contracts, relating to operation and maintenance of the Building, including without limitation, the contracts listed in Exhibit B attached hereto (“Contracts”);

c. Seller’s interest in all assignable governmental permits, licenses, certificates and authorizations relating to the use or operation of the Land (“Permits”);

d. Seller’s interest under those leases and/or license agreements affecting the Property, including without limitation, those listed in Exhibit C attached hereto, together with all rent, income and all proceeds arising therefrom and security and other deposits made by the tenants thereunder (“Leases”);

e. Seller’s interest, if any, in and to all tangible personal property now or hereafter located on the Land, including without limitation: equipment; machinery; furniture; art work; furnishings; office equipment and supplies, excluding cash and deposits, bonds or other security (“Tangible Personal Property”); and

f. Seller’s interest, if any, in and to all intangible personal property now or hereafter used exclusively in connection with the operation, ownership, maintenance, management, or occupancy of the Land (to the extent assignable); the plans and specifications for the Building (to the extent assignable); warranties, indemnities, applications, governmental permits, approvals, certificates and licenses (to the extent applicable in any way to the Land or the Tangible Personal Property and assignable); and insurance proceeds and condemnation awards or claims thereto to the extent required to be assigned to Buyer hereunder, excluding computer software and all confidential and proprietary information and intellectual property of Seller (“Intangible Personal Property”).

a. Within two (2) business days after Buyer’s execution of this Agreement, Buyer shall deliver to the Title Company (as defined in Section 3.1) Two Hundred Fifty Thousand Dollars ($250,000) (together with interest, “Deposit”) to be held in an interest-bearing escrow account (“Escrow’’). The Deposit shall be non-refundable, except as otherwise expressly provided herein, and shall be credited to the Purchase Price at Closing.

b. At Closing, Buyer shall pay to Seller the balance of the Purchase Price, subject to adjustment for the Deposit.

a. Seller shall order, cause to be delivered to Buyer, and/or make available to Buyer at Seller’s property management offices, within ten (10) days following the Execution Date (collectively, “Seller’s Deliveries”) (i) a current preliminary title report (“Preliminary Report”) issued by Land America Title Insurance (“Title Company”) committing to insure merchantable title in Buyer pursuant to an ALTA 1992 form owner’s title insurance policy, together with copies of all title exception documents in the Preliminary Report and a tax certificate; (ii) a copy of each of the Contracts and Leases,; and (iii) to the extent the following are in Seller’s or its property manager’s possession and control: (A) a copy of each environmental assessment report, study or survey or any material document, notice or correspondence directly concerning the environmental condition of the Property, (B) rent rolls, operating statements, tax statements, property management records and maintenance records for the three (3) years immediately preceding this Agreement, (C) plans and specifications relating to the original development of the Property, (D) copies of any material documents or materials relating to any litigation, investigation, condemnation or proceeding of any kind pending or threatened against

the Property; and (E) a copy of the existing survey of the Land (“Existing Survey”). At Buyer’s request, Seller shall order an update to the Existing Survey or a new survey (“Updated Survey”). Seller shall request that the standard, preprinted exceptions be deleted from the Title Policy and shall provide such affidavits and other documentation as may be reasonably requested by the Title Company to delete such exceptions, subject to Seller’s reasonable approval of same.

b. On or before the date that is five (5) days following Buyer’s receipt of the Preliminary Title Report, copies of all title exception documents in the Preliminary Report, and (if applicable the Updated Survey, and in any event on or before the Inspection Deadline (“Title Objection Date “), Buyer shall give Seller written notice of any exceptions reflected in the Preliminary Report (“Title Exceptions”) and/or any matters shown on the Existing Survey (or, if applicable, the Updated Survey) (“Survey Matters”) that are objectionable to Buyer, in its sole and absolute direction (collectively, “Title Objections”). Within three (3) business days after receiving Buyer’s notice of Title Objections, Seller may notify Buyer in writing whether Seller, in its sole discretion, will cause, on or before the Closing Date, the removal or other resolution of any Title Exception or Survey Matter constituting a Title Objection; if Seller fails to provide timely notice to Buyer, Seller shall be deemed to have elected not to cure such Title Objection. If Seller elects not to remove or otherwise resolve a Title Objection or fails to provide timely notice thereof to Buyer, Buyer may terminate this Agreement by delivering written notice to Seller within two (2) days after receiving Seller’s notice electing not to remove or resolve a Title Objection (or failing to receive Seller’s timely notice), whereupon the parties’ respective obligations under this Agreement shall terminate (excluding those which expressly survive Closing) and Buyer shall receive a refund of the Deposit. If Buyer fails to timely provide such notice, Buyer’s Title Objections shall be deemed waived by Buyer. Notwithstanding the foregoing, Seller agrees to remove all Title Objections consisting of liens or encumbrances that secure obligations for Seller’s borrowed money and any exceptions or encumbrances to title that are created by or through Seller after the Execution Date. Seller may “remove” a Title Objection by causing the Title Company to provide, at Seller’s expense, affirmative insurance under the Title Policy against loss arising from the same in form reasonably acceptable to Buyer.

c. If, subsequent to the expiration of the Title Objection Date and prior to Closing, Buyer notifies Seller of the existence of any encumbrance, encroachment, defect in or other matter materially and adversely affecting title which does not appear on the Preliminary Report, but is disclosed in an update of such report (a “Subsequent Defect”), Seller will use such efforts and will expend such amount as it may, in its sole judgment, deem appropriate to remove or cure such Subsequent Defect of title prior to Closing. Seller will have no obligation, however, to cure any Subsequent Defect; provided, however, that, in accordance with the foregoing subsection (b), Seller shall continue to be obligated to remove all liens or encumbrances that secure obligations for Seller’s borrowed money and any exceptions or encumbrances to title that are created by or through Seller after the Execution Date. If Seller does not or is unable to so remove or cure all Subsequent Defects prior to Closing, Buyer may (i) waive all such uncured Subsequent Defects and accept such title as Seller is able to convey as of Closing without an abatement of the Purchase Price; or (ii) terminate this Agreement, whereupon the parties’ respective obligations under this Agreement shall terminate (excluding those which expressly survive Closing) and Buyer shall receive a refund of the Deposit. Notice by Buyer to Seller of any Subsequent Defect must be given to Seller within two (2) business days of the receipt by Buyer of the updated Title Report that discloses the same. Buyer’s failure to give Seller notice of

any such Subsequent Defect within such period shall constitute Buyer’s waiver of such Subsequent Defect, and such Subsequent Defect shall become a Permitted Exception.

d. Those Title Exceptions and/or Survey Matters to which Buyer does not object or with respect to which Buyer has waived, or is deemed to have waived, any such objection, shall be “Permitted Exceptions.” Permitted Exceptions shall also include all subsequent liens or encumbrances which Buyer shall accept or approve as provided in this Agreement, all existing Leases, real property taxes and assessments not yet due and payable, and all liens or encumbrances which are attributable to the acts or omissions of Amgen Inc. or Array BioPharma Inc., or persons claiming by, through or under either of them, including without limitation any mechanics’ or materialmen’s liens.

e. Buyer shall have the right to request from the Title Company the Buyer’s Endorsements. As used herein the term “Buyer’s Endorsements” shall mean, to the extent such endorsements are available under the laws of the state in which the Property is located: (1) owner’s comprehensive; (2) access; (3) survey (accuracy of survey); (4) location (survey legal matches title legal); (5) separate tax lot; (6) subdivision map act; (7) zoning 3.1, with parking and loading docks; (8) mechanic’s lien; (9) deletion of creditors’ rights exception; (10) endorsement over environmental protection liens; (11) utilities endorsement; and (12) such other endorsements as Buyer may require before the Title Objection Date based on its review of the Preliminary Report and Updated Survey. Satisfaction of any requirements imposed by the Title Company in connection with the issuance of the Buyer’s endorsements shall be Buyer’s sole responsibility and shall not be a condition to or in any way delay the Closing. Buyer shall be responsible for the cost of the Buyer’s Endorsements.

a. In accordance with the terms and conditions of the Access and Due Diligence Agreement between Seller and Buyer, dated May 23, 2006, Buyer and its representatives shall have access to the Property for Buyer’s due diligence and inspections of the Property. Such Access and Due Diligence Agreement is hereby incorporated by reference and made a part hereof.

b. Buyer acknowledges that it has had or will have the opportunity to conduct whatever inspection and review of the Property that Buyer deems relevant to Buyer’s decision to purchase the Property, and agrees to purchase the Property AS-IS. Accordingly:

c. Except for Claims for Seller’s breach of representations and warranties of Seller provided in Section 6.1 below, or in the documents executed at the Closing, Buyer for itself and on behalf of each of its successors and assigns (collectively, the “Releasors”) by this general release of known and unknown Claims (this “Release”) hereby irrevocably and unconditionally releases and forever discharges Seller, 3200 Walnut, LLC, and their respective members, managers, employees, agents and affiliates (collectively, the “Releasees”) and each of them, from and against any and all Claims of any kind or nature whatsoever, WHETHER KNOWN OR UNKNOWN , suspected or unsuspected, fixed or contingent, liquidated or unliquidated which any of the Releasors now have, own, hold or claim to have had, owned or held, against any of the Releasees arising from, based upon or related to, whether directly or indirectly, any facts, matters, circumstances, conditions or defects (whether patent or latent) of all or any kinds, related to, arising from, or based upon, whether directly or indirectly, the Property, including without limitation (i) the physical condition, quality and state of repair of the Property conveyed; (ii) any latent or patent defect affecting the Property conveyed, (iii) the presence of hazardous materials in, on, about or under the Property or which have migrated from adjacent lands to the Property or from the Property to adjacent lands, and (iv) any Claims arising out of alleged construction defects. The foregoing Release shall be effective as of the Closing, and shall survive Closing.

d. On or before the Inspection Deadline, Buyer shall notify Seller as to which Contracts Buyer will assume and which Contracts shall be terminated by Seller in Buyer’s sole discretion. Buyer will assume the obligations arising from and after the Closing Date under those Contracts which Buyer has elected to assume. Seller shall terminate at Closing all Contracts that are not so assumed. Seller shall terminate at Closing, and Buyer shall not assume, any property management or leasing agreement affecting the Property.

a. Seller shall endeavor to secure and deliver to Buyer estoppel certificates from tenants (and subtenants) under all Leases substantially in the form of Exhibit D attached hereto (collectively, the “Tenant Estoppels”). Seller shall use commercially reasonable efforts to obtain the same, duly executed by the tenants (and any subtenants), and to deliver the same to Buyer prior to the Closing Date; provided, however, that the Tenant Estoppels shall not be a Buyer’s Closing Condition.

a. Seller shall cause the Property to be operated only in the ordinary and usual course of business and consistent with past practice, shall, subject to reasonable wear and tear, preserve intact the Property, preserve the good will and advantageous relationships of Seller with customers, suppliers, independent contractors, employees and other persons or entities material to the operation of its business, shall perform its obligations under Leases and Contracts and shall not take any action or omission which would cause any of the representations or warranties of Seller contained herein to become inaccurate or any of the covenants of Seller to be breached.

b. Seller shall continue to carry its existing insurance through the Closing Date, and shall not allow any breach, default, termination or cancellation of such insurance policies or agreements to occur or exist.

c. Seller will not enter into or amend, terminate, waive any default under, or grant concessions regarding any contract or agreement that will be an obligation affecting the Property or binding on Buyer after the Closing without Buyer’s prior written consent in each instance; provided, however, that prior to the Inspection Deadline, Buyer’s consent shall not be unreasonably withheld, conditioned or delayed.

d. Seller will not enter into any Lease, or amend, terminate, waive any default under, grant concessions regarding, or incur any obligation for leasing commissions or otherwise in connection with any Lease without Buyer’s prior written consent in each instance; provided, however, that prior to the Inspection Deadline, Buyer’s consent shall not be unreasonably withheld, conditioned or delayed.

e. Seller will not remove any Tangible Personal Property (other than as is prudent in the ordinary course of operating the Property) unless it is replaced with a comparable item of equal quality and quantity as existed as of the time of such removal.

f. Seller shall maintain in existence all licenses, permits and approvals, if any, that are in its name and necessary or reasonably appropriate to the ownership, operation or improvement of the Property.

a. Seller’s representations and warranties contained herein shall be true and correct as of the date of this Agreement and as of the Closing Date;

b. As of the Closing Date, Seller shall have performed its obligations hereunder and all deliveries required to be made by Seller at Closing have been tendered;

c. As of the Closing Date, Seller shall not be in default under any Lease or Contract;

d. The Title Company shall be irrevocably and unconditionally committed to issue to Buyer, as of the Closing Date, subject only to payment of the premium therefor, an owner’s title insurance policy in the form and amount required under Section 3.1(a), subject only to the Permitted Exceptions (“Title Policy”); and

e. No proceeding has been commenced against Seller under the federal Bankruptcy Code or any state law for relief of debtors.

a. Buyer’s representations and warranties contained herein shall be true and correct as of the date of this Agreement and as of the Closing Date; and

b. As of the Closing Date, Buyer shall have performed its obligations hereunder and all deliveries to be made by Buyer at Closing have been tendered, including the delivery through Escrow of the funds and documents specified in Section 4.4.

a. Seller shall pay the costs and fees of any counsel representing Seller in connection with this transaction. Seller shall also pay the following costs and expenses:

b. Buyer shall pay the costs and fees of any counsel representing Buyer in connection with this transaction. Buyer shall also pay the following costs and expenses:

a. (i) Seller is duly organized, validly existing and in good standing under Delaware law; (ii) the persons executing this Agreement and any of the other documents executed and delivered on behalf of Seller are duly appointed and authorized by Seller to execute such documents; (iii) as of the date of this Agreement, Seller has not entered into, and has no actual knowledge of, any option, contract or other agreement with respect to a purchase or sale of all or any portion of the Property which remains in effect, except for Seller’s lease with 3200 Walnut, LLC which will be terminated at the Closing; and (iv) to Seller’s actual knowledge, no third party approval or consent is required for Seller to enter into this Agreement or to consummate the transactions contemplated hereby.

b. To Seller’s actual knowledge, there is not now pending or threatened any action, suit or proceeding before any court or governmental agency or body against Seller that would prevent Seller from performing its obligations hereunder or against or with respect to the Property. To Seller’s actual knowledge, no condemnation, eminent domain or similar proceedings are pending or threatened with regard to the Property. Seller has not received any written notice and has no actual knowledge of any pending or threatened liens, special assessments, impositions or increases in assessed valuations to be made against the Property.

c. To Seller’s actual knowledge, the list of Contracts to be delivered to Buyer pursuant to this Agreement is or will be true, correct, and complete as of the date of its delivery, and the documents constituting the Contracts that are delivered to Buyer are true, correct and complete copies of all of the Contracts affecting the Property. Neither Seller nor, to Seller’s actual knowledge, any other party is in default under any Contract.

d. To Seller’s actual knowledge, Seller has received no written notice that the Property or the use thereof violates any governmental law or regulation or any covenants or restrictions encumbering the Property. To Seller’s actual knowledge, Seller has not received any written notices of violations or alleged violations of any laws, rules, regulations or codes, including building codes, with respect to the Property which have not been corrected to the satisfaction of the issuer of the notice.

e. Seller has no actual knowledge of, and has received no written notice of, any violation of Environmental Laws on the Property or the presence or release of Hazardous Materials on or from the Property in violation of Environmental Laws except as described in the environmental documents disclosed pursuant to Section 3.1(a). The term “Environmental Laws” includes without limitation the Resource Conservation and Recovery Act and the Comprehensive Environmental Response Compensation and Liability Act and other federal laws governing the environment as in effect on the date of this Agreement, together with their implementing regulations, guidelines, rules or orders as of the date of this Agreement, and all state, regional, county, municipal and other local laws, regulations, ordinances, rules or orders that are equivalent or similar to the federal laws recited above or that purport to regulate Hazardous Materials. The term “Hazardous Materials” includes petroleum, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas or such synthetic gas), and any substance, material, waste, pollutant or contaminant listed or defined as hazardous or toxic under any Environmental Law.

f. Other than this Agreement, the documents delivered at Closing pursuant hereto, the Permitted Exceptions, and the Leases and Contracts, to Seller’s actual knowledge there are no contracts or agreements of any kind relating to the Property to which Seller is a party and that would be binding on Buyer after Closing.

g. Seller is not and is not acting on behalf of an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, a “plan” within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended or an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3 101 of any such employee benefit plan or plans.

h. The phrase, to Seller’s “actual knowledge”, in the foregoing representations and warranties shall be deemed to refer exclusively to matters within the current actual (as opposed to constructive) knowledge of John Fraser who is the Vice President of Seller and in charge of the Property for Seller, as of the date of this Agreement. No duty of inquiry or investigation on the part of Seller shall be implied by the making of any representation or warranty which is so limited to matters within Seller’s actual knowledge.

a. (i) Buyer is duly organized, validly existing, and in good standing under the laws of its state of incorporation or organization; (ii) the persons executing this Agreement and any of the other documents executed and delivered on behalf of Buyer are duly appointed and authorized by Buyer to execute such documents; and (iii) no third party approval or consent is required for Buyer to enter into this Agreement or to consummate the transactions contemplated hereby.

b. To Buyer’s actual knowledge, there is not now pending or threatened any action, suit or proceeding before any court or governmental agency or body against Buyer that

would prevent Buyer from performing its obligations hereunder or against or with respect to the Property.

c. No duty of inquiry or investigation on the part of Buyer shall be implied by the making of any representation or warranty which is so limited to matters within Buyer’s actual knowledge.

(i) BUYER HEREBY ACKNOWLEDGES AND AGREES THAT AS A MATERIAL INDUCEMENT TO SELLER TO EXECUTE AND ACCEPT THIS AGREEMENT AND IN CONSIDERATION OF THE PERFORMANCE BY SELLER OF ITS DUTIES AND OBLIGATIONS UNDER THIS AGREEMENT, THE SALE OF THE PROPERTY HEREUNDER IS AND WILL BE MADE ON AN “AS IS, WHERE IS” BASIS. EXCEPT AS PROVIDED IN SECTION 6.1 HEREOF, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT, FUTURE OR OTHERWISE, OF, AS TO, CONCERNING OR WITH

RESPECT TO THE PROPERTY, INCLUDING WITHOUT LIMITATION: (1) THE EXISTENCE OF HAZARDOUS MATERIALS UPON THE LAND OR ANY PORTION THEREOF; (2) GEOLOGICAL CONDITIONS, INCLUDING, WITHOUT LIMITATION, SUBSIDENCE, SUBSURFACE CONDITIONS, WATER TABLE, UNDERGROUND WATER RESERVOIRS, LIMITATIONS REGARDING THE WITHDRAWAL OF WATER AND FAULTING; (3) WHETHER OR NOT AND THE EXTENT TO WHICH THE LAND OR ANY PORTION THEREOF IS AFFECTED BY ANY STREAM (SURFACE OR UNDERGROUND), BODY OF WATER, FLOOD PRONE AREA, FLOOD PLAIN, FLOODWAY OR SPECIAL FLOOD HAZARD; (4) DRAINAGE; (5) SOIL CONDITIONS, INCLUDING THE EXISTENCE OF INSTABILITY, PAST SOIL REPAIRS, SOIL ADDITIONS OR CONDITIONS OF SOIL FILL, OR SUSCEPTIBILITY TO LANDSLIDES, OR THE SUFFICIENCY OF ANY UNDERSHORING; (6) USAGES OF ADJOINING PROPERTIES; (7) THE VALUE, COMPLIANCE WITH THE PLANS AND SPECIFICATIONS, SIZE, LOCATION, AGE, USE, DESIGN, QUALITY, DESCRIPTION, DURABILITY, STRUCTURAL INTEGRITY, OPERATION, OR PHYSICAL OR FINANCIAL CONDITION OF THE PROPERTY OR ANY PORTION THEREOF, OR ANY RIGHTS OR CLAIMS ON OR AFFECTING OR PERTAINING TO THE LAND OR ANY PART THEREOF INCLUDING, WITHOUT LIMITATION, WHETHER OR NOT THE IMPROVEMENTS COMPLY WITH THE REQUIREMENTS OF THE AMERICANS WITH DISABILITIES ACT AND RELATED REGULATIONS; (8) THE PRESENCE OF HAZARDOUS MATERIALS IN OR ON, UNDER OR IN THE VICINITY OF THE PROPERTY; (9) THE SQUARE FOOTAGE OF THE LAND OR THE IMPROVEMENTS; (10) IMPROVEMENTS AND INFRASTRUCTURE, IF ANY; (11) DEVELOPMENT RIGHTS AND EXTRACTIONS; (12) WATER OR WATER RIGHTS; (13) THE DEVELOPMENT POTENTIAL FOR THE PROPERTY; (14) THE ABILITY OF BUYER TO REZONE THE PROPERTY OR CHANGE THE USE OF THE PROPERTY; (15) THE ABILITY OF BUYER TO ACQUIRE ADJACENT PROPERTIES; (16) THE EXISTENCE AND POSSIBLE LOCATION OF ANY UNDERGROUND UTILITIES; (17) THE EXISTENCE AND POSSIBLE LOCATION OF ANY ENCROACHMENTS; (18) WHETHER THE IMPROVEMENTS WERE BUILT, IN WHOLE OR IN PART, IN COMPLIANCE WITH APPLICABLE BUILDING CODES; (19) THE STATUS OF ANY LIFE-SAFETY SYSTEMS IN THE IMPROVEMENTS; (20) THE CHARACTER OF THE NEIGHBORHOOD IN WHICH THE LAND IS SITUATED; (21) THE CONDITION OR USE OF THE PROPERTY OR COMPLIANCE OF THE PROPERTY WITH ANY OR ALL PAST, PRESENT OR FUTURE FEDERAL, STATE OR LOCAL ORDINANCES, RULES, REGULATIONS OR LAWS, BUILDING, FIRE OR ZONING ORDINANCES, CODES OR OTHER SIMILAR LAWS; OR (22) THE MERCHANTABILITY OF THE PROPERTY OR FITNESS OF THE PROPERTY FOR ANY PARTICULAR PURPOSE (BUYER AFFIRMING THAT BUYER HAS NOT RELIED ON SELLER’S SKILL OR JUDGMENT TO SELECT OR FURNISH THE PROPERTY FOR ANY PARTICULAR PURPOSE, AND THAT SELLER MAKES NO WARRANTY THAT THE PROPERTY IS FIT FOR ANY PARTICULAR PURPOSE).

(ii) BUYER ACKNOWLEDGES THAT AS OF THE EXPIRATION OF ITS INSPECTION RIGHTS, BUYER SHALL HAVE COMPLETED ALL PHYSICAL AND FINANCIAL EXAMINATIONS RELATING TO THE ACQUISITION OF THE PROPERTY HEREUNDER AND WILL ACQUIRE THE SAME SOLELY ON THE BASIS OF SUCH EXAMINATIONS AND THE TITLE INSURANCE PROTECTION FOR THE

PROPERTY AFFORDED BY BUYER’S TITLE POLICY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION, EXCEPT AS PROVIDED IN SECTION 6.1 AND EXCEPT AS PROVIDED IN THE DOCUMENTS DESCRIBED IN SECTION 4.3. SELLER SHALL NOT BE LIABLE FOR ANY FAILURE TO INVESTIGATE THE PROPERTY NOR SHALL SELLER BE BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, APPRAISALS, ENVIRONMENTAL ASSESSMENT REPORTS, OR OTHER INFORMATION PERTAINING TO THE PROPERTY OR THE OPERATION THEREOF, FURNISHED BY SELLER, OR BY ANY REAL ESTATE BROKER, AGENT, REPRESENTATIVE, EMPLOYEE, SERVANT OR OTHER PERSON ACTING ON SELLER’S BEHALF.

(iii) THE CLOSING OF THE PURCHASE OF THE PROPERTY BY BUYER HEREUNDER SHALL BE CONCLUSIVE EVIDENCE THAT: (1) BUYER HAS FULLY AND COMPLETELY INSPECTED (OR HAS CAUSED TO BE FULLY AND COMPLETELY INSPECTED) THE PROPERTY; AND (2) BUYER ACCEPTS THE PROPERTY AS BEING IN GOOD AND SATISFACTORY CONDITION AND SUITABLE FOR BUYER’S PURPOSES.

(i) subject to subsection (v) hereof, the escrow fee, if any, which may be charged by the Title Company;

(ii) subject to subsection (v) hereof, the excise, recording, deed, imposed transfer tax, documentary stamp tax or similar tax which becomes payable by reason of the transfer of the Property (excluding, however, any sales tax in respect of the Tangible Personal Property) under applicable state or local law, including, without limitation, any real estate excise tax;

(iii) subject to subsection (v) hereof, the amount of $20,834 to pay a portion of the owner’s title insurance premium for the Title Policy (without endorsements), and the cost of the Updated Survey; and

(iv) subject to subsection (v) hereof, recording fees to transfer title to Buyer.

(v) Seller shall pay the costs, fees and expenses enumerated in subsections (i) through (iv) hereof only to the extent that they do not exceed $100,000 in the aggregate.

(i) subject to subsection (vii) hereof, the escrow fee, if any, which may be charged by the Title Company;

(ii) subject to subsection (vii) hereof, the excise, recording, deed, imposed transfer tax, documentary stamp tax or similar tax which becomes payable by reason of the transfer of the Property (excluding, however, any sales tax in respect of the Tangible Personal Property) under applicable state or local law, including, without limitation, any real estate excise tax;

(iii) subject to subsection (vii) hereof, the cost of the Updated Survey;

(iv) subject to subsection (vii) hereof, recording fees to transfer title to Buyer;

(v) all of the recording fees for Buyer’s financing documents; and

(vi) title insurance premiums for Buyer’s lender’s title insurance policy, including any endorsements thereto, and the cost of any Buyer’s Endorsements to the Title Policy, as well as any premiums for the Title Policy in excess of $20,834.

(vii) Buyer shall pay the costs, fees and expenses enumerated in subsections (i) through (iv) hereof only to the extent that they exceed $100,000 in the aggregate.

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 10. Directors and Executive Officers of the Registrant

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2006

Commission File Number: 000-31979

Array BioPharma Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware	84-1460811
(State of Incorporation)	(I.R.S. Employer Identification No.)

3200 Walnut Street, Boulder, Colorado 80301
(Address of principal executive offices)

(303) 381-6600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.

Large Accelerated Filer o

Accelerated Filer x

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 x

The aggregate market value of voting stock held by non-affiliates of the registrant as of December 31, 2005 was $249,291,478 (For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.)

Number of shares outstanding of the registrant’s class of common stock as of August 25, 2006: 39,145,157

Documents incorporated by reference:

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission on Form 14A for the 2006 Annual Meeting of Stockholders — Part III

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	25

PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	28
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	67
Item 9A.	Controls and Procedures	67
Item 9B.	Other Information	68

PART III
Item 10.	Directors and Executive Officers of the Registrant	69
Item 11.	Executive Compensation	69
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
Item 13.	Certain Relationships and Related Transactions	70
Item 14.	Principal Accountant Fees and Services	70

PART IV
Item 15.	Exhibits and Financial Statement Schedules	71

Signatures		72

FORWARD-LOOKING STATEMENTS

This annual report filed on Form 10-K and other documents we file with the Securities and Exchange Commission contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve significant risks and uncertainties. In addition, we may make forward-looking statements in our press releases or in other oral or written communications with the public. These statements do not relate to historical matters and reflect our current expectations concerning future events. Therefore our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. These factors include, but are not limited to, our ability to continue to fund and successfully progress internal research efforts and to create effective, commercially viable drugs, 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, 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 tied to milestones and royalties, our ability to attract and retain experienced scientists and management, and the risk factors set forth below under the caption “Risk Factors.” 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.

PART I

Item 1. Business

Our Business

Array BioPharma Inc. is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat debilitating and life-threatening 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 target proteins. In addition, leading pharmaceutical and biotechnology companies partner with Array to discover and develop drug candidates across a broad range of therapeutic areas.

There is tremendous opportunity in creating drugs for debilitating and life-threatening diseases, especially in cancer and inflammation. The medical community is seeking selective targeted therapies that more effectively treat disease with an improved safety profile. We believe the future of medicine will be to genetically characterize patients and treat them with these targeted therapies. Also, clinical trials aimed at a well defined patient population should show an improved response rate, increasing the chances for FDA approval. This approach may result in a greater number of marketed drugs aimed at a smaller subset of patients. Our research benefits from the evolving scientific understanding of how modulating specific protein targets can potentially treat both cancer and inflammatory disease. As a result, a drug designed to treat cancer may also be useful in treating inflammatory disease, and vice-versa.

According to analyst estimates, the worldwide market for targeted cancer drugs is expected to grow from $11 billion in 2005, to $36 billion in 2010, representing a significant shift in treating cancer patients. The inflammatory disease market is highly diverse and includes rheumatoid arthritis (or RA), osteoarthritis (or OA), chronic obstructive pulmonary disease (or COPD), cardiovascular disease, psoriasis, and kidney diseases. Targeted therapies for the RA market alone are expected to grow from $9 billion in 2005 to $17 billion in 2010, according to analyst estimates. Additionally, with the safety concerns over COX-2 inhibitors, new markets for replacement drugs to treat pain associated with RA and OA are likely to develop.

Another positive trend for Array is the escalating value of in-licensed clinical assets paid by the pharmaceutical industry. The lack of available clinical candidates to fill its clinical pipelines has increased the industry’s reliance on drug discovery companies like Array. While this demand is driving higher value deal terms, it has not translated into increased market valuations for most drug discovery companies.

We have identified multiple drug candidates for the treatment of cancer and inflammatory diseases in our own proprietary programs and in collaborations with other drug companies. To date, we have advanced five programs

that are wholly owned by Array including: ErbB-2 / EGFR (cancer), in which the lead compound, ARRY-543, began a Phase 1 clinical trial in January 2006; MEK (inflammation), in which the lead compound, ARRY-162, began a Phase 1 clinical trial in April 2006; p38 (inflammation), in which the lead compound, ARRY-797, completed regulated safety assessment testing; KSP (cancer), in which our lead compound, ARRY-520, advanced into regulated safety assessment testing; and ErbB-2 (cancer), in which we are evaluating lead compounds in preclinical development. In addition, we have out-licensed proprietary cancer programs to AstraZeneca PLC, which included ARRY-886 (AZD6244), currently in a Phase 2 clinical trial, and to Genentech, Inc., which involves two programs.

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 June 30, 2006, we have recognized $193 million in research funding, and we have generated $28 million in up-front and milestone payments from our collaborators and out-licensing partners. Under our existing collaboration agreements, we have the potential to earn over $200 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 15 different programs.

Over the past year, we executed our strategy through the following accomplishments.

Advancing Proprietary Research Programs

· ARRY-886, our lead MEK inhibitor for cancer, entered a randomized Phase 2 clinical trial in malignant melanoma with 180 patients at 40 centers worldwide; our partner, AstraZeneca, plans on initiating additional Phase 2 trials in other tumors.

· Completed enrollment of cancer patients in a Phase 1b clinical trial for ARRY-886; we plan to report data from this trial at the European Organization for Research and the Treatment of Cancer (EORTC) annual meeting in November 2006.

· Reported Phase 1a clinical results at the annual EORTC meeting for 23 patients receiving ARRY-886. The data showed stable disease in melanoma for three out of seven patients and stable disease in one out of three non small cell lung cancer patients. Stable disease was prolonged to 10 months in some patients. ARRY-886 was well tolerated, with rash being the major dose limiting toxicity.

· Initiated a Phase 1 clinical trial on ARRY-543, our lead ErbB-2 / EGFR inhibitor, in advanced cancer patients; we plan to report interim data in 2006.

· Initiated a Phase 1 clinical trial on ARRY-162, our lead MEK inhibitor for inflammation, in healthy volunteers; we plan to report interim data in 2006.

· Completed regulated safety assessment testing on ARRY-797, our lead p38 inhibitor, to support a planned IND application filing with the FDA before the end of 2006.

· Advanced ARRY-520, our lead KSP inhibitor, into regulated safety assessment testing to support a planned IND application filing before the end of 2006.

· Evaluated and progressed lead compounds for our ErbB-2 program in preclinical development.

Growing Partnered Research

· Received $2 million in milestone payments from AstraZeneca following its selection of two additional compounds for the MEK for cancer program.

· Received a milestone payment from Genentech for nominating a clinical candidate and advancing it into regulated safety assessment testing.

· Extended and expanded our collaboration with Genentech, which will include $50 million in research funding through December 2008 and potential milestone and royalty payments.

· Initiated a collaboration with Ono Pharmaceutical Co, Ltd. that included research funding, and potential milestone payments and royalties.

· Achieved two research milestones in our collaboration with Takeda Chemical Industries, Ltd.

· Developed and delivered cGMP clinical supplies for InterMune, Inc.’s HCV protease inhibitor, which InterMune expects to enter the clinic in 2006.

Strengthening Financial Position

· Achieved $45 million in revenue, while investing $33 million in our proprietary research.

· Ended the year with approximately $70 million in cash and marketable securities.

· In addition, during the first quarter of fiscal 2007 we secured expansion space through 2016 and received $32 million in net cash as a result of our sale of purchase options and lease-back of our Boulder and Longmont facilities.

Proprietary Research and Development

Array has identified cancer and inflammatory disease as our core research focus. We believe there is significant synergy between these two research areas and developing drugs in one of the areas may lead to therapies in the other area. Our research focuses on biologic functions, or pathways, which have been identified as important in the treatment of human disease based on human clinical, genetic or preclinical data. Within these pathways, we seek to create first-in-class drugs against important therapeutic targets to treat patients with serious or life-threatening conditions, primarily in cancer, inflammatory disease and other large markets. In addition, we identify opportunities to improve upon existing therapies or drugs in clinical development by creating clinical candidates with superior, or best-in-class, drug characteristics, including efficacy, tolerability or dosing, to provide safer, more effective drugs.

We advanced five programs during fiscal 2006 that are wholly owned and controlled by Array:

· ErbB-2/EGFR (cancer): ARRY-543 entered into a Phase 1 clinical trial in the US and Canada in January 2006;

· MEK (inflammation): ARRY-162 entered into a Phase 1 clinical trial in normal, healthy volunteers in April 2006;

· p38 (inflammation / cancer): ARRY-797 completed regulated safety assessment testing;

· KSP (cancer): ARRY-520 completed regulated safety assessment testing; and

· ErbB-2 (cancer): lead compounds evaluated in advanced preclinical development.

In addition, we have out-licensed our MEK for cancer program, including our compound ARRY-886 (AZD6244), to AstraZeneca and two cancer programs to Genentech. Our agreements with AstraZeneca and Genentech each provide for up-front payments, research funding, success-based milestone payments and royalties on product sales. We have invested approximately $91 million in our proprietary research from our inception through June 30, 2006, and we have received approximately $28 million in up-front payments and milestones resulting from this proprietary research for a net investment of approximately $63 million.

We are continuing a Phase 1 clinical trial on our ErbB-2/EGFR dual inhibitor, ARRY-543 , a drug that we believe holds promise for treating breast and other types of cancer. We plan to initiate multiple Phase 2 trials during calendar 2007 for this drug. We are also continuing a Phase 1 clinical trial on our MEK inhibitor, ARRY-162, a drug that we believe holds promise for treating rheumatoid arthritis and other types of inflammatory disease. Our MEK for cancer inhibitor, ARRY-886, is in a randomized Phase 2 clinical trial in malignant melanoma patients being conducted by AstraZeneca. AstraZeneca plans to begin additional Phase 2 trials in other tumors with ARRY-886 later this year. In fiscal 2007, we anticipate filing two additional IND applications with the FDA and initiating clinical trials under them. We have several discovery programs where we are evaluating and developing compounds primarily for treating cancer and inflammatory disease.

Our Drug Development Pipeline

The following pipeline chart shows our six most advanced programs in the areas of cancer and inflammatory disease and their stage in the drug discovery process.

Market Opportunity

Cancer

Despite a wide range of available cancer therapies, patient responses remain limited and variable. As a result, oncologists experiment with combination therapies and drug dosing regimens tailored for individual tumor types and specific patients. Targeted therapies offer a more specific approach than first generation, cytotoxic chemotherapy drugs by regulating discrete aspects of cellular function affecting cancer cells to a greater extent than normal cells, providing an improved side effect profile and potentially increased efficacy. We believe certain cancers will eventually become chronic diseases, treated with a combination of targeted therapies. Array’s research focus in the cancer market is to build a pipeline of complimentary targeted therapies.

Approximately 3.2 million people are afflicted with cancer in the U.S. and 1.4 million new cases are diagnosed each year. The following are selected new cases diagnosed annually in the U.S.:

Type		New Cases
Prostate		230,000
Breast		213,000
Lung		174,000
Colon		149,000
Melanoma		62,000
Pancreas		34,000

Worldwide, the cancer therapy market is expected to grow from $30 billion in 2005 to $62 billion in 2010, according to analyst estimates. Targeted therapies, which include small molecules and therapeutic injectable proteins, like monoclonal antibodies, represent the market’s fastest growing segment.

Inflammatory Disease

Inflammation is a natural biologic response to injury or infectious attack to the human body. Unregulated inflammation results in a broad range of conditions, most of which are classified by the tissue or organ where the inflammation occurs. These conditions include RA in the joint, psoriasis in the skin, COPD in the lung, fibrotic disease in the liver and kidney, Crohn’s disease in the intestine, CHF and arteriosclerosis in the arteries, among others. Currently, some of the most effective treatments for these diseases are injectable protein therapeutics, which have significant cost and patient compliance issues. IV-dosed protein therapeutics currently on the market — such as Enbrel Ò , Remicade Ò , Humira Ò and Kineret Ò — bind to and/or modulate the activity of the inflammatory cytokines TNF- a or IL-1 and are utilized for the treatment of RA, psoriasis and Crohn’s disease. The TNF inhibition market alone, which is dominated by these therapeutics, is expected to grow from $9 billion in 2005 to $17 billion in 2010, according to analyst estimates. There remains a significant unmet medical need for therapies to treat COPD, asthma, fibrosis and cardiovascular diseases. We believe there is a great opportunity to create orally active drugs to treat many of these often-chronic diseases. Array is developing drugs that modulate important biological targets in key intracellular pathways that control inflammation, potentially providing the ability to treat multiple diseases with a single oral agent.

Our Drug Development Programs

ARRY-886 (AZD6244) / MEK for Cancer

We initiated an anti-cancer research program targeting MEK in July 2001, and within 17 months identified ARRY-886, an orally active clinical candidate. ARRY-886 has shown tumor suppressive or regressive activity in multiple preclinical models of human cancer including melanoma, pancreatic, colon, lung, and breast cancers. The MEK inhibitors’ advantages over current therapies include potential improved efficacy linked to novel mechanism and cost effectiveness.

In December 2003, we entered into an out-licensing and collaboration agreement with AstraZeneca to develop our MEK program solely in the field of oncology. We retain the rights to all MEK compounds not selected by AstraZeneca for development.

We initiated Phase 1 clinical testing in June 2004. The trial evaluated tolerability and pharmacokinetics of ARRY-886 following oral administration to patients with advanced cancer. In addition, the trial examined

patients for indications of biological activity as well as pharmacodynamic and tumor biomarkers. Phase 1a clinical results on 23 patients showed stable disease in three out of seven melanoma cases and one out of three non-small cell lung cancer (or NSCLC) cases. ARRY-886 was well tolerated, with rash being the dose-limiting toxicity. We initiated Phase 1b clinical testing in August 2005 and have completed enrollment. We expect to report Phase 1b results at the November 2006 EORTC annual meeting.

In June 2006, AstraZeneca initiated a Phase 2 study for ARRY-886 in malignant melanoma and we subsequently earned a $3 million milestone payment. The trial is a randomized Phase 2 study that will compare ARRY-886 to temozolomide in the treatment of stage III / IV melanoma. AstraZeneca expects to enroll up to 180 patients at approximately 40 centers worldwide. AstraZeneca has planned additional Phase 2 studies, in a range of other tumors, to start later this year.

ARRY-543 / ErbB-2 / EGFR for Cancer

ErbB-2 and EGFR are receptor kinase targets that are over-expressed in breast cancer, and EGFR is over-expressed in other cancers including lung, pancreas, and head / neck. We believe the concurrent inhibition of both ErbB-2 and EGFR provide enhanced efficacy in cancer treatment. Currently, there is no single drug on the market that inhibits both ErbB-2 and EGFR. Herceptin Ò is an IV-dosed protein therapeutic currently on the market that modulates ErbB-2. Recently, Herceptin has been reported to show promising therapeutic benefits in an expanded patient population, including post-surgery breast cancer patients being treated chronically or patients with chemotherapy-induced ErbB-2 over-expression. We believe these results suggest a high potential value in an orally active drug that can be conveniently dosed for extended periods of time. Erbitux Ô , an IV-dosed protein therapeutic, and Tarceva Ò , a small molecule inhibitor, are drugs currently on the market that modulate EGFR only.

We have identified ARRY-543, a novel orally active dual inhibitor of EGFR and ErbB-2. The compound behaves as a reversible ATP-competitive inhibitor with nanomolar potency both in vitro and in cell-based proliferation assays. Selectivity against a panel of kinases has been demonstrated in vitro . In preclinical models, ARRY-543 demonstrated significant dose related tumor growth inhibition when administered orally. ARRY-543 demonstrated significant dose related tumor growth inhibition when administered orally. ARRY-543 has demonstrated efficacy in certain preclinical models where Tarceva Ò or Herceptin Ò are not active and we believe has shown equivalent or improved efficacy compared to the most clinically advanced competitors.

We initiated a Phase 1 clinical trial in both the United States and Canada in January 2006. We expect to report interim data in 2006.

ARRY-XXX / ErbB-2 for Cancer

Our lead small molecule ErbB-2 inhibitors have shown potency, excellent drug characteristics and a low side effect profile in preclinical models of human cancer. Our lead inhibitors’ advantages include improved efficacy versus Herceptin Ò in preclinical models of human breast cancer, projected improved tissue penetration, inhibition of ErbB-family heterodimer activation, inhibition of the truncated p95 ErbB-2 target, ease of use for an orally active drug and cost effectiveness for long-term adjuvant treatment. We are currently evaluating our lead inhibitors in preclinical development.

ARRY-520 / KSP for Cancer

Several members of the kinesin family of microtubule motor proteins play essential roles in mitotic spindle function and are potential targets for the discovery of novel antimitotic cancer therapies. Kinesin Spindle Protein (KSP), also known as Eg5, plays an essential role in the formation of a bipolar mitotic spindle and is required for cell cycle progression through mitosis. Currently, the most clinically advanced competitor compound in multiple Phase 2 trials has been reported to show preliminary efficacy in breast cancer, but limited activity elsewhere.

Our compound, ARRY-520, is a KSP inhibitor with sub-nanomolar potency in both enzymatic and cellular assays. These inhibitors are anti-mitotic, leading to cancer cell death. In vivo , ARRY-520 caused marked tumor regression in preclinical models of human cancer at tolerated doses, often leading to complete durable responses. In comparator studies against the most clinically advanced competitor compound, ARRY-520 has shown superior efficacy in multiple xenograft models. These highly soluble inhibitors can be delivered intravenously without requiring enabling formulations. We have completed regulated safety assessment testing and plan to file an IND application with the FDA by the end of 2006.

ARRY-162 / MEK for Inflammation

MEK is a kinase target that has been demonstrated to have a role in the biosynthesis of TNF, IL-6 and IL-1. Our scientists have discovered MEK inhibitors that interfere with these biosynthetic processes. We have also advanced one MEK inhibitor, ARRY-886, into clinical development for the treatment of cancer. Given our experience with the safety profile of MEK inhibitors, we believe inhibition of MEK will have applications in diseases driven by IL-1 and TNF. ARRY-162, an orally active MEK inhibitor, has shown potency and good drug characteristics in preclinical models of human arthritis and other inflammatory diseases. We believe this compound may provide broad therapeutic benefits in the treatment of inflammatory and chronic degenerative diseases.

We initiated Phase 1 clinical testing in normal, healthy volunteers in April 2006. We plan to report interim data at the Inflammation Research Association meeting in October 2006.

ARRY-797 / p38 for Inflammation and Cancer

p38 is a kinase target that regulates the production of numerous pro-inflammatory cytokines, in particular, TNF, IL-6 and IL-1. IV-dosed protein therapeutics currently on the market, including Enbrel Ò , Remicade Ò , Humira Ò and Kineret Ò , bind to and modulate the activity of the cytokines TNF or IL-1. Additionally, several cancers have show up-regulation of TNF and IL-6, including prostate, ovarian and multiple myeloma; p38 may be involved as part of a resistance mechanism. ARRY-797, an orally active p38 inhibitor, has shown potency, unique drug characteristics and a low side effect profile in preclinical models of human arthritis and certain cytokine-driven cancers. We plan to file an IND application with the FDA by the end of 2006.

Partnered Research and Development

We have research partnerships with leading pharmaceutical and biotechnology companies that include design, creation and optimization of drug candidates, preclinical testing and process research and development, across a broad range of therapeutic areas. These partnerships involve either continued research and development on programs we have out-licensed or drug discovery and development on targets selected by our partners. These collaborations provide research funding and, in a number of our current agreements, up-front fees, milestone payments and/or royalties based upon the success of the program. Our partners, from whom we are receiving research funding or have the potential for future milestones or royalties, include Amgen, AstraZeneca, Genentech, ICOS Corporation, InterMune, Inc., Japan Tobacco Inc., Ono Pharmaceutical Co., Ltd., and Takeda Pharmaceutical Company, Ltd. We have delivered candidate compounds in 13 programs for preclinical development.

Our research team’s productivity has yielded more early-stage discovery assets than we can develop internally. During the next three years, we intend to out-license certain of these assets through research partnerships of higher value than our traditional collaborations. We believe this strategy will create opportunities for greater financial upside while continuing to provide a revenue stream and will allow us to maintain a critical mass of scientists required for a world-class research platform.

Below are summaries of four of our most significant partnered programs.

AstraZeneca — MEK for Cancer Program / ARRY-886

In December 2003, we entered into an out-licensing and collaboration agreement with AstraZeneca to develop our MEK program solely in the field of oncology. Under the agreement, AstraZeneca acquired exclusive worldwide rights to our clinical development candidate, ARRY-886, together with two second-generation compounds we developed during the collaboration, for oncology indications. We retain the rights to all non-oncology therapeutic indications for MEK compounds not selected by AstraZeneca for development. As of July 2006, we have earned a total of $19.5 million in upfront and milestone payments and have recognized $16.5 million of these payments as revenue from the inception of the agreement through fiscal 2006. The agreement also provided for research funding, which is now complete, and potential additional development milestone payments of over $75 million and royalties on product sales. AstraZeneca is responsible for additional clinical development and commercialization for ARRY-886, and for clinical development and commercialization for the other two compounds it licensed.

Genentech — Oncology Programs

We entered into a licensing and collaboration agreement with Genentech in December 2003 to develop small molecule drugs against multiple therapeutic targets in the field of oncology. We initiated this collaboration with Genentech to advance two of our proprietary oncology programs into clinical development. These programs included small molecule leads we had developed along with additional, related intellectual property. Under the agreement, Genentech made an up-front payment to us, provides research funding and paid a milestone payment to us for nominating a clinical candidate and advancing it into regulated safety assessment testing. In addition, Genentech has agreed to pay us additional potential development milestone payments and royalties on any resulting product sales. Genentech is responsible for clinical development and commercialization of the resulting products.

In April 2005, we expanded our collaboration agreement with Genentech to develop clinical candidates directed against an additional cancer target. Under the expanded agreement, Array receives additional research funding, as well as potential research and development milestone payments and product royalties based on the success of the new program. Genentech has the sole responsibility for clinical development and commercialization of any resulting products. In October 2005, we further expanded our collaboration with Genentech; under the current agreement, we expect to receive $50 million in research funding through December 2008, plus milestone and royalty payments based on success of the programs. Genentech may terminate its agreement with us upon 120 days notice.

InterMune — Hepatitis C Virus Programs

Array and InterMune scientists have collaborated since 2002 to discover novel small molecule inhibitors of the Hepatitis C Virus (HCV) NS3/4 protease. During fiscal 2005, this collaboration was extended and expanded. Under the terms of the agreement, InterMune funds drug discovery, preclinical testing, process development and cGMP manufacturing conducted by Array and will make milestone payments to Array based on the selection and progress of clinical drug candidates, as well as royalties on sales of any products derived from the collaboration. As a result of Array’s research progress, we received our first milestone payment from InterMune in June 2004.

We designed compounds under this program using computational modeling techniques and optimized them to achieve superior efficacy and targeted tissue penetration. Preclinical plasma pharmacokinetic analysis following intravenous and oral administration was then used in conjunction with other in vitro assays and stability studies to choose optimal development candidates. Preclinical data was presented in May 2006 at the Digestive Disease Week conference. During fiscal 2006, we developed and delivered cGMP clinical supplies for the HCV protease inhibitor. InterMune expects to initiate a Phase 1 clinical trial later in 2006, which will trigger a milestone payment to Array.

We also commenced a second drug discovery collaboration with InterMune in April 2005 to create small molecule drugs focused on hepatitis. InterMune funds drug discovery research conducted by Array based on the number of Array scientists working on the research phase of the agreement and will be responsible for all further development and commercialization. Array is entitled to receive milestone payments based on the selection and progress of clinical drug candidates, as well as royalties on net sales of any products derived from the collaborative efforts. Research funding under these agreements with InterMune ends June 30, 2007, but may be extended at InterMune’s option.

Ono Pharmaceutical — Research Program

We entered into a drug discovery collaboration with Ono Pharmaceutical in October 2005 to create small molecule drug candidates against a series of kinases selected by Ono. Ono provides research funding and milestone and royalty payments based on the success of the program. Ono is responsible for clinical development and commercialization of any resulting products. The research funding for this program ends May 1, 2008.

Array’s Research and Development Technologies and Expertise

Our scientists use the Array Discovery Platform, an integrated suite of drug discovery technologies, to create drug candidates and conduct preclinical and clinical development. A critical capability within the Array Discovery Platform is our proprietary software, which enables our scientists to share information across our company, analyze databases of existing drugs, generate novel predictive databases and design novel drugs with potential competitive advantages over current therapies. We use in vitro and in vivo predictive pharmacodynamic and pharmacokinetic

models to select compounds for potential development. Early in the drug discovery process, our scientists engineer into a drug candidate desirable drug characteristics, such as improved potency, specificity and dosing regimen and reduced side effect profile. The resulting compounds are tested for safety, efficacy and metabolism to select the most promising clinical candidates. We believe our drug discovery approach can significantly improve on the industry’s existing clinical attrition rates through our use of:

· Proprietary chemoinformatic databases that relate chemical structure to compound development potential;

· Multiple lead generation strategies including high throughput screening of our lead generation library of up to 400,000 compounds, virtual screening and proprietary de novo design software;

· State-of-the-art protein x-ray crystallography, structural databases and computational modeling;

· An extensive battery of in vivo and in vitro metabolic and safety drug profiling assays;

· A company-wide electronic laboratory notebook that enables our scientists to collect, analyze and share information across the organization; and

· Innovative clinical trial designs, incorporating markers of biological activity.

Our Strategy

We are building a fully integrated, commercial-stage biopharmaceutical company that invents, develops and markets safe and effective small molecule drugs to treat patients with debilitating and life threatening diseases, primarily in cancer and inflammation. We intend to accomplish this through the following strategies:

· Inventing targeted small molecule drugs that demonstrate a competitive advantage over existing therapies to fill our clinical pipeline;

· Commercializing drugs requiring a therapeutically directed sales force;

· Partnering late-stage co-development and commercialization of drugs that will be marketed to primary care physicians and that require broad distribution;

· Partnering continued research and development of select early-stage programs under which we would receive research funding, plus significant milestones and royalties; and

· Evaluating opportunities to in-license later stage clinical or commercial programs to accelerate our transition to a commercial stage biotech company.

Competitors

The pharmaceutical and biotechnology industries are characterized by rapid and continuous technological innovation. We compete with companies worldwide that are engaged in the research and discovery, licensing, development and commercialization of drug candidates, including Arena Pharmaceuticals Inc.; Arqule; Cytokinetics Inc.; deCODE genetics, Inc.; Exelixis Inc.; Incyte Corporation.; Theravance, Inc.; and Vertex Pharmaceuticals Incorporated. Some of our competitors have a broader range of capabilities and have greater access to financial, technical, scientific, regulatory, business development, recruiting and other resources than we do. Their access to greater resources may allow them to develop processes or products that are more effective, safer or less costly, or gain greater market acceptance, than products we develop or for which they obtain FDA approval more rapidly than we do. We anticipate that we will face increased competition in the future as new companies enter the market and advanced technologies become available.

Research and Development Expenses

Research and development expenses consist of costs associated with our proprietary drug programs for salaries and benefits of scientific personnel, consulting and outsourced services, laboratory supplies, allocated facilities costs and depreciation. Research and development expenses were $33.4 million for the year ended June 30, 2006, compared to $22.9 million for fiscal 2005 and $15.9 million for fiscal 2004.

Government Regulation

Biopharmaceutical companies are subject to substantial regulation by governmental agencies in the United States and other countries. Virtually all pharmaceutical products are subject to rigorous preclinical and clinical testing and other approval procedures by the FDA and by foreign regulatory agencies. Before a drug product is approved by the FDA for commercial marketing, three phases of human clinical trials are usually conducted to test the safety and effectiveness of the product. Phase 1 clinical trials most typically involve testing the drug on a small number of healthy volunteers to assess the safety profile of the drug at different dosage levels. Phase 2 clinical trials, which also enroll a relatively small number of volunteers, are designed to further evaluate the drug’s safety profile and to provide preliminary data as to the drug’s effectiveness in humans. Phase 3 clinical trials consist of larger, well-controlled studies that may involve several hundred volunteers representing the drug’s targeted population. During any of these phases, the clinical trial can be placed on “clinical hold,” or temporarily or permanently stopped for a variety of reasons, principally for safety concerns.

The approval process is time-consuming and expensive, and there are no assurances that approval will be granted on a timely basis, or at all. Even if regulatory approvals are granted, a marketed product is subject to continual review under federal and state laws and regulations. Post-marketing requirements include reporting adverse events, recordkeeping, compliance with current good manufacturing practices (cGMP) and marketing requirements.

If drug candidates we develop are approved for commercial marketing by the FDA, they would be subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 known as the “Hatch-Waxman Act.” The Hatch-Waxman Act provides companies with marketing exclusivity for new chemical entities and allows companies to apply to extend patent protection for up to five additional years. It also provides a means for approving generic versions of a drug product once the marketing exclusivity period has ended and all relevant patents have expired (or have been successfully challenged and defeated). The period of exclusive marketing may be shortened, however, by a successful patent challenge.

All facilities and manufacturing processes used in the production of Active Pharmaceutical Ingredients for clinical use in the United States must be operated in conformity with cGMP as established by the FDA. We have a cGMP manufacturing facility, which allows us to produce cGMP compliant compounds. In our facility, we have the capacity to produce Active Pharmaceutical Ingredients for Phase 1 clinical testing. We have validated this capability for compliance with FDA regulations and began our first cGMP manufacturing campaign in 2002. Our cGMP facility is subject to periodic regulatory inspections to ensure compliance with cGMP requirements. We could also be required to comply with specific requirements or specifications of our collaborators, which may be more stringent than regulatory requirements. If we fail to comply with applicable regulations, the FDA could require us to cease ongoing research or disqualify the data submitted to regulatory authorities. A finding that we had materially violated cGMP requirements could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our cGMP facility, which would materially and adversely affect our business, financial condition and results of operations.

In the course of our business, we handle, store and dispose of chemicals and biological samples. We are subject to various federal, state and local laws and regulations relating to the use, manufacture, storage, handling and disposal of hazardous materials and waste products. These environmental laws generally impose liability regardless of the negligence or fault of a party and may expose us to liability for the conduct of, or conditions caused by, others.

Most health care providers, including research institutions from whom we or our collaborators obtain patient information, are subject to privacy rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Although our clinical development efforts are not directly regulated by these privacy regulations, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a health care provider that has not satisfied HIPPA’s disclosure standards. In addition, certain state privacy laws and genetic testing laws may apply directly to our operations and/or those of our collaborators and may impose restrictions on the use and dissemination of individuals’ health information.

We are subject to other regulations, including regulations under the Occupational Safety and Health Act, regulations promulgated by the United States Department of Agriculture, and regulations under other federal, state and local laws.

Intellectual Property

Our success will depend in part on our ability to protect our proprietary software, potential drug candidates and other intellectual property rights. To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality provisions in our contracts with collaborators.

We attempt to protect our trade secrets by entering into confidentiality agreements with our employees, third parties and consultants. Our employees also sign agreements requiring that they assign to us their interests in inventions, original expressions and any corresponding patents and copyrights arising from their work for us. However, it is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, we may not have an adequate remedy available. Despite the measures we have taken to protect our intellectual property, parties to our agreements may breach the confidentiality provisions or infringe or misappropriate our patents, copyrights, trademarks, trade secrets and other proprietary rights. In addition, third parties may independently discover or invent competing technologies or reverse-engineer our trade secrets or other technology.

Our patent strategy is designed to protect technology, inventions and improvements to inventions that are commercially important to our business. We currently have eight issued United States patents and numerous patent applications on file with the United States Patent and Trademark Office and around the world. The source code for our proprietary software programs is protected both as a trade secret and as a copyrighted work.

United States patents issued from applications filed on or after June 8, 1995, have a term of 20 years from the application filing date or earlier claimed priority. All of our patent applications were filed after June 8, 1995. Patents in most other countries have a term of 20 years from the date of filing of the patent application. Because the time from filing patent applications to issuance of patents is often several years, this process may result in a period of patent protection significantly shorter than 20 years, which may adversely affect our ability to exclude competitors from our markets. Our success will depend in part upon our ability to develop proprietary products and technologies and to obtain patent coverage for these products and technologies. We intend to continue to file patent applications covering newly developed products and technologies. We may not, however, commercialize the technology underlying any or all of our existing or future patent applications.

Patents provide some degree of protection for our proprietary technology. However, the pursuit and assertion of patent rights, particularly in areas like pharmaceuticals and biotechnology, involve complex legal and factual determinations and, therefore, are characterized by some uncertainty. In addition, the laws governing patentability and the scope of patent coverage continue to evolve, particularly in biotechnology. As a result, patents may not be issued from any of our patent applications or from applications licensed to us. The scope of any of our patents, if issued, may not be sufficiently broad to offer meaningful protection. In addition, our patents or patents licensed to us, if they are issued, may be successfully challenged, invalidated, circumvented or rendered unenforceable so that our patent rights might not create an effective competitive barrier. Moreover, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. Any patents issued to us or our strategic partners may not provide a legal basis for establishing an exclusive market for our products or provide us with any competitive advantages. Moreover, the patents held by others may adversely affect our ability to do business or to continue to use our technologies freely. In view of these factors, our intellectual property positions bear some degree of uncertainty.

Employees

As of June 30, 2006, we had 276 full-time employees, including 211 scientists, of whom 110 have Ph.D.’s. None of our employees are covered by collective bargaining agreements, and we consider our employee relations to be good.

Our Corporate Information

Founded in 1998, we are headquartered in Boulder, Colorado with 276 employees, including 211 scientists housed in 228,000 square feet of state-of-the-art laboratory facilities. We became a public company in November 2000, and our stock is listed on the Nasdaq National Market under the symbol “ARRY.” The mailing address and telephone number of our principal executive offices are 3200 Walnut Street, Boulder, Colorado 80301, (303) 381-6600.

Available Information

The annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, that we file with or furnish to the SEC are available on our web site free of charge as soon as reasonably practicable following the filing or furnishing of these reports to the SEC. Our web site can be found at www.arraybiopharma.com. Information on our web site does not constitute any part of this Annual Report on Form 10-K.

Item 1A. Risk Factors

In addition to the other factors discussed elsewhere in this report and in other reports we file with the SEC, the following factors could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. In addition, other risks and uncertainties not presently known to us or that we currently deem immaterial may impair our business operations. If any of the following risks or such other risks occur, it could adversely affect our business, operating results and financial condition, as well as cause the value of our common stock to decline.

RISKS RELATED TO OUR BUSINESS

We have a history of losses and may not achieve or sustain profitability.

We are at an early stage of executing our business plan, and we have a limited history of developing and out-licensing our proprietary drug candidates and offering our drug discovery capabilities. We have incurred significant operating and net losses and negative cash flows from operations since our inception. As of June 30, 2006, we had an accumulated deficit of $133.7 million. We had net losses of $39.6 million, $23.2 million and $26.0 million for the fiscal years ended June 30, 2006, 2005 and 2004, respectively. We expect to incur additional losses and negative cash flows in the future, and these losses may continue or increase due in part to anticipated increases in expenses for research and development, particularly clinical development, expansion of our clinical and scientific capabilities, acquisitions of complementary technologies or in-licensed drug candidates and possible reductions in revenue from drug discovery collaborations. We may not be able to achieve or maintain profitability. Moreover, if we do achieve profitability, the level of any profitability cannot be predicted and may vary significantly.

Much of our current revenue is non-recurring in nature and unpredictable as to timing and amount. While several of our out-license and collaboration agreements provide for royalties on product sales, given that none of our drug candidates have been approved for commercial sale, that our drug candidates are at early stages of development and that drug development entails a high risk of failure, we do not expect to receive any royalty revenue for several years, if at all. For the same reasons, we may never realize much of the milestone revenue provided for in our out-license and collaboration agreements. We also expect to incur significant additional costs to build our clinical development capabilities and to develop drugs we select to commercialize ourselves or partner for later-stage co-development and commercialization, and we may not realize revenue from such efforts for several years, or at all. In addition, we have been devoting more resources to drug discovery and our proprietary drug programs. As a result, we expect that revenue from the sale of our research tools and services will continue to decline as a percentage of total revenue and that our research and development and other expenses will continue to increase.

Our drug candidates are at early stages of development, and we may not successfully develop a drug candidate that becomes a commercially viable drug.

The drug discovery and development process is highly uncertain, and we have not developed, and may never develop, a drug candidate that ultimately leads to a commercially viable drug. All of our drug candidates are in the early stages of development, and we do not have any drugs approved for commercial sale. Before a drug product is approved by the FDA for commercial marketing, it is tested for safety and effectiveness in clinical trials that can take up to six years or longer. At any time, a clinical trial can be placed on “clinical hold”, or temporarily or permanently stopped for a variety of reasons, principally for safety concerns. Only one of our candidates, ARRY-886, is in a Phase 2 clinical trial, a trial that our partner AstraZeneca announced in June 2006. ARRY-186 and two other candidates, ARRY-543 and ARRY-162, are currently in Phase 1 trials, and another, ARRY-797, is expected to enter a Phase 1 trial in the fall of 2006. Candidates that appear promising in pre-clinical or clinical trials may fail to become marketed drugs for a number of reasons, including:

· the failure to achieve clinical trial results that indicate a candidate is effective in treating a specified condition or illness in humans;

· the presence of harmful side effects;

· the failure to obtain FDA or other regulatory approval;

· the lack of commercial viability of the drug;

· the failure to acquire, on reasonable terms, intellectual property rights necessary for commercialization; and

· the existence of therapeutics that are more effective or economical to produce.

At any time, we or our collaborators may decide to discontinue the development of a drug candidate or not to commercialize a candidate. If we terminate a preclinical program in which we have invested significant resources, we will have expended resources on a program that will not provide a full return on our investment and missed the opportunity to have allocated those resources to potentially more productive uses. Even if one of our drug candidates receives regulatory approval for marketing, physicians or consumers may not find that its effectiveness, ease of use, side effect profile, cost or other factors make it effective in treating disease or more beneficial than or preferable to other drugs on the market. Additionally, governments and health insurance plans or maintenance organizations may choose not to include the drug on their formulary list for reimbursement. As a result, the drug may not be used or may be used only for restricted applications.

Our business depends heavily on the extent to which the pharmaceutical and biotechnology industries in-license drug candidates to fill their product pipelines and collaborate with other companies for one or more aspects of their drug discovery process.

We are highly dependent on pharmaceutical and biotechnology companies continuing to in-license drug candidates to fill their clinical development pipelines and to collaborate with outside companies to obtain drug discovery expertise, and on their willingness to spend significant funds on research and development. Our capabilities include aspects of the drug discovery process that pharmaceutical and biotechnology companies have traditionally performed internally. The willingness of these companies to in-license drug candidates and to expand or continue drug discovery collaborations to enhance their research and development process is based on several factors that are beyond our control. These include their ability to hire and retain qualified scientists, the resources available for entering into drug discovery collaborations and the spending priorities among various types of research activities. Any of these factors could cause our revenue to decline. In addition, our ability to convince these companies to in-license our drug candidates or programs or to use our drug discovery capabilities, rather than develop them internally, will depend on many factors, including our ability to:

· discover competitive drug candidates targeting large market opportunities;

· develop and implement drug discovery technologies that will result in the identification of higher-quality drug candidates;

· attract and retain experienced, high caliber scientists;

· achieve timely, high quality results at an acceptable cost; and

· design, create and manufacture our chemical compounds in quantities, at purity levels and at costs that are acceptable to our collaborators.

The importance of these factors varies depending on the company and type of discovery program, and although we believe we currently address many of these factors, we may be unable to meet any or all of them in the future. Even if we are able to address these factors, these companies may still decide to perform these activities internally, acquire companies to fill their product pipelines or retain other companies that provide drug research and development expertise similar to ours.

We may not be successful in entering into additional out-license agreements on favorable terms.

We are committing significant resources to create our own proprietary drug candidates and to build a commercial-stage biopharmaceutical company. In fiscal 2006, we increased our investment in proprietary research to $33.4 million, compared to $22.9 million, $15.9 million for fiscal years 2005 and 2004, respectively. Our proprietary drug discovery programs are in their early stage of development and are unproven. To date, we have entered into three out-licensing agreements for the co-development and commercialization of our drug candidates. Although we have expended, and continue to expend, resources on internal research and development for our proprietary programs, we may not be successful in creating valuable proprietary drug candidates that would enable us to enter additional out-licensing agreements with favorable terms that include up-front, milestone, royalty and/or license payments. In addition, we may undertake and fund, solely at our expense, further development, clinical trials, manufacturing and marketing activities for a greater number of proprietary candidates than we planned. As a result, our requirements for capital, which may not be available on favorable terms, could increase significantly, or we may be required to substantially reduce our development efforts, which would delay, limit or prevent our ability to commercialize our drug candidates.

We may not out-license our proprietary programs at the most appropriate time to maximize the total value or return of these programs to us.

A critical aspect of our business strategy is to out-license drug candidates for late-stage co-development and commercialization to obtain the highest possible value while also evaluating earlier out-licensing opportunities to maximize our risk-adjusted return on our investment in proprietary research. Because the costs and risk of failure of bringing a drug to market are high, the value of out-licensing a drug candidate generally increases as it successfully progresses through clinical trials. Array may choose or be forced to out-license a drug candidate or program on terms that require us to relinquish commercial or market rights or at a point in the research and development process that does not provide as great a value or return than what might have been obtained if we had further developed the candidate or program internally. Likewise, we may decline, or be unable to obtain favorable, early out-licensing opportunities in programs that do not result in a commercially viable drug, which could leave the resulting program with little or no value even though significant resources were invested in its development.

We expect that revenue from our funded research collaborations will decline in the future as we focus more resources on our proprietary research programs.

We expect that revenue from our funded research collaborations to discover drug candidates against targets our collaborators select will decline. Historically, revenue from these collaborations has partially funded development of a fully capable drug discovery platform for identifying and developing early stage drug candidates. We believe the value of the drug candidates Array has created for many of our collaborators under these collaboration agreements has exceeded the economic reward provided to us under the agreements. One of our primary business strategies is to transition to a partnering strategy where, in addition to potentially obtaining higher milestone and royalty rates, we would out-license later stage candidates and retain commercialization or co-promotional rights in parts of the world. In order to transition to this approach, we expect to make significant investments in our own

drug discovery efforts to discover additional candidates for out-licensing and that our revenue will decline as our historical collaborations end.

Our collaborators have substantial control and discretion over the timing and the continued development and marketing of drug candidates we create for them.

Our collaborators have significant discretion in determining the efforts and amount of resources that they dedicate to our collaborations. Our collaborators may determine not to proceed with clinical development or commercialization of a particular drug candidate for a number of reasons that are beyond our control, even under circumstances where we might have continued such a program. In addition, our ability to generate milestone payments and royalties from our collaborators depends on our collaborators’ abilities to establish the safety and efficacy of our drug candidates, obtain regulatory approvals and achieve market acceptance of products developed from our drug candidates. We also depend on our collaborators to manufacture clinical scale quantities of some of our drug candidates and would depend on them in the future for commercial scale manufacture, distribution and direct sales. Our collaborators may not be successful in manufacturing our drug candidates on a commercial scale or in successfully commercializing them.

We face additional risks in connection with our collaborations, including the following:

· our collaborators may develop and commercialize, either alone or with others, products and services that are similar to or competitive with the products that are the subject of the collaboration with us;

· our collaborators may underfund or not commit sufficient resources to the testing, marketing, distribution or other development of our drug candidates;

· our collaborators may not properly maintain or defend our intellectual property rights or they may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our intellectual property or proprietary information or expose us to potential liability;

· our collaborators may encounter conflicts of interest, changes in business strategy or other business issues which could adversely affect their willingness or ability to fulfill their obligations to us (for example, pharmaceutical and biotechnology companies historically have re-evaluated their priorities following mergers and consolidations, which have been common in recent years in these industries); and

· disputes may arise between us and our collaborators delaying or terminating the research, development or commercialization of our drug candidates, resulting in significant litigation or arbitration that could be time-consuming and expensive, or causing collaborators to act in their own self-interest and not in the interest of our stockholders.

The sale and manufacture of drug candidates that we develop with our collaborators or on our own may not receive regulatory approval.

The development and commercialization of drug candidates for our collaborators and our own internal drug discovery efforts are subject to regulation. Pharmaceutical products require lengthy and costly testing in animals and humans and regulatory approval by governmental agencies prior to commercialization. It takes several years to complete testing, and failure can occur at any stage of testing. Results attained in preclinical testing and early clinical trials for any of our drug candidates may not be indicative of results that are obtained in later studies, and significant setbacks in advanced clinical trials may arise, even after promising results in earlier studies. Clinical trials may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or result in marketable products. Based on results at any stage of testing, we or our collaborators may decide to repeat or redesign a trial or discontinue development of a drug candidate.

Approval of a drug candidate as safe and effective for use in humans is never certain, and regulatory agencies may delay or deny approval of drug candidates for commercialization. These agencies may also delay or deny approval based on additional government regulation or administrative action, on changes in regulatory policy during the period of clinical trials in humans and regulatory review or on the availability of alternative treatments. Similar delays and denials may be encountered in foreign countries. None of our collaborators have obtained regulatory

approval to manufacture and sell drug candidates owned by us or identified or developed under an agreement with us. If we or our collaborators cannot obtain this approval, we will not realize milestone or royalty payments based on commercialization goals for these drug candidates.

Even if our drug candidates obtain regulatory approval, we and our collaborators will be subject to ongoing government regulation.

Even if regulatory authorities approve any of our drug candidates, the manufacture, marketing and sale of these drugs will be subject to strict and ongoing regulation. Compliance with this regulation consumes substantial financial and management resources and may expose us and our collaborators to the potential for other adverse circumstances. For example, approval for a drug may be conditioned on costly post-marketing follow-up studies. Based on these studies, if a regulatory authority does not believe that the drug demonstrates a clinical benefit to patients, it could limit the indications for which a drug may be sold or revoke the drug’s marketing approval. In addition, identification of certain side effects after a drug is on the market may result in the subsequent withdrawal of approval, reformulation of a drug, additional preclinical and clinical trials and changes in labeling. Any of these events could delay or prevent us from generating revenue from the commercialization of these drugs and cause us to incur significant additional costs.

In addition, the marketing of these drugs by us or our collaborators will be regulated by federal and state laws pertaining to health care “fraud and abuse,” such as the federal anti-kickback law prohibiting bribes, kickbacks or other remuneration for the order or recommendation of items or services reimbursed by federal health care programs. Many states have similar laws applicable to items or services reimbursed by commercial insurers. Violations of fraud and abuse laws can result in fines and/or imprisonment.

If our drug candidates do not gain market acceptance, we may be unable to generate significant revenue.

Even if our drug candidates are approved for sale, they may not be successful in the marketplace. Market acceptance of any of our drug candidates will depend on a number of factors including:

· demonstration of clinical effectiveness and safety;

· the potential advantages of our drug candidates over alternative treatments;

· the ability to offer our drug candidates for sale at competitive prices;

· the availability of adequate third-party reimbursement; and

· the effectiveness of marketing and distribution methods for the products.

If our drug candidates do not gain market acceptance among physicians, patients and others in the medical community, our ability to generate meaningful revenues from our drug candidates would be limited.

If we need but are unable to obtain additional funding to support our operations, we could be unable to successfully execute our operating plan or be forced to reduce our operations.

We have historically funded our operations through revenue from our collaborations and the issuance of equity securities. We used $24.3 million in our operating activities in fiscal 2006 while we used $17.2 million in our operating activities in fiscal 2005. Although we anticipate that we will use more cash in our operating activities in future periods, we believe that our existing cash, cash equivalents and marketable securities and anticipated cash flow from existing out-license and collaboration agreements will be sufficient to support our current operating plan for at least the next 12 months. However, our current operating plan and assumptions could change as a result of many factors, and we could require additional funding sooner than anticipated.

To the extent that the cash from our future operating activities is insufficient to meet our future capital requirements, we will have to raise additional funds to continue our proprietary research and development. We may not be able to raise funds on favorable terms, if at all. To the extent that we raise additional capital through the sale

of equity or convertible debt securities, the issuance of those securities would result in dilution to our stockholders. We have a credit facility providing for a $10 million term loan, and a $5 million equipment line of which a total of $14.1 million was advanced to us as of June 30, 2006. In addition we have a $6.8 million revolving line of credit to support standby letters of credit. A portion of our cash flow will be dedicated to the payment of principal and interest on such indebtedness, which could render us more vulnerable to competitive pressures and economic downturns and imposes some restrictions on our operations. If we are unable to obtain additional funds when needed, we may be required to curtail operations significantly or to obtain funds through other arrangements on unattractive terms, which could prevent us from successfully executing our operating plan.

We have limited clinical development and commercialization experience.

One of our business strategies is to develop select drug candidates through later stage clinical trials before out-licensing them to a pharmaceutical or biotechnology partner for further clinical development and commercialization and to commercialize select drug candidates ourselves. To date, we have filed three IND applications and initiated three Phase 1 clinical trials, and we have not yet conducted a Phase 2 or later stage clinical trial ourselves, nor have we commercialized a drug. We have limited experience conducting clinical trials and obtaining regulatory approvals, and we may not be successful in some or all of these activities. We have no experience as a company in the sales, marketing and distribution of pharmaceutical products and do not currently have a sales and marketing organization. We expect to expend significant amounts to recruit and retain high quality personnel with clinical development experience. Developing commercialization capabilities would be expensive and time-consuming, could delay any product launch, and we may never be able to develop this capacity. To the extent we are unable or determine not to acquire these resources internally, we may be forced to rely on third-party clinical investigators, clinical research or marketing organizations, which could subject us to costs and to delays that are outside our control. If we are unable to establish adequate capabilities independently or with others, we may be unable to generate product revenues for certain candidates.

Our research and development capabilities may not produce viable drug candidates.

We have entered into several research and development collaborations under which we provide drug discovery services to identify drug candidates for our collaborators using the Array Discovery Platform. We also seek to identify and develop drug candidates for our proprietary programs. It is uncertain whether we will be able to provide drug discovery more efficiently or create high quality drug candidates that are suitable for our or our collaborators’ purposes, which may result in delayed or lost revenue, loss of collaborators or failure to expand our existing relationships. Our ability to create viable drug candidates for ourselves and our collaborators depends on many factors, including the implementation of appropriate technologies, the development of effective new research tools, the complexity of the chemistry and biology, the lack of predictability in the scientific process and the performance and decision-making capabilities of our scientists. Our information-driven technology platform, which we believe allows our scientists to make better decisions, may not enable our scientists to make correct decisions or develop viable drug candidates.

If our drug discovery and development programs do not progress as anticipated, our revenue and stock price could be negatively impacted.

We estimate the timing of a variety of preclinical, clinical, regulatory and other milestones for planning purposes, including when a drug candidate is expected to enter clinical trials, when a clinical trial will be completed or when an application for regulatory approval will be filed. Some of our estimates are included in this report. We base our estimates on facts that are currently known to us and on a variety of assumptions, many of which are beyond our control. Delays may be caused by regulatory or patent issues, interim or final results of on-going clinical trials, scheduling conflicts with participating clinics and the availability of patients who meet the criteria for, and the rate of patient enrollment in, clinical trials. If we or our collaborators do not achieve milestones when anticipated, we may not achieve our planned revenue, and our stock price could decline.

We may not realize anticipated benefits from future acquisitions.

As part of our business strategy, we may acquire, invest in or form strategic partnerships with businesses with complementary products, services and/or technologies. Acquisitions and strategic partnerships involve numerous risks, including, but not limited to:

· difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired companies;

· diversion of management’s attention from other operational matters;

· the potential loss of key employees;

· the potential loss of key collaborators;

· lack of synergy, or the inability to realize expected synergies, resulting from the acquisition or partnership; and

· impairment of acquired intangible assets as a result of technological advancements or worse-than-expected performance of the acquired company or the partnered assets.

Mergers and acquisitions are inherently risky and involve significant investments in time and resources to effectively manage these risks and integrate an acquired business. Even with investments in time and resources, an acquisition or strategic partnership may not produce the revenues, earnings or business synergies we anticipate. An acquisition that fails to meet our expectations could materially and adversely affect our business, financial condition and results of operations.

Because we rely on a small number of collaborators for a significant portion of our revenue, if one or more of our major collaborators terminates or reduces the scope of their agreement with us, our revenue may significantly decrease.

A relatively small number of collaborators account for a significant portion of our revenue. Genentech, InterMune and AstraZeneca accounted for 35%, 24% and 16%, respectively of our total revenue in fiscal 2006. In fiscal 2005 the same collaborators accounted for 28%, 10% and 27% respectively of our total revenue. We expect that revenue from a limited number of collaborators, including Genentech, InterMune and Ono will account for a large portion of our revenue in future quarters. In general, our collaborators may terminate their contracts with us upon 90 to 120 days’ notice for a number of reasons. In addition, some of our major collaborators can determine the amount of products delivered and research or development performed under these agreements. As a result, if any one of our major collaborators cancels, declines to renew or reduces the scope of its contract with us, our revenue may significantly decrease.

We may not be able to recruit and retain the experienced scientists and management we need to compete in the drug research and development industry.

We have 276 employees as of June 30, 2006, and our future success depends upon our ability to attract, retain and motivate highly skilled scientists and management. Our ability to achieve our business strategies, including progressing drug candidates through later stage development or commercialization, attracting new collaborators and retaining, renewing and expanding existing collaborations, depends on our ability to hire and retain high caliber scientists and other qualified experts. We compete with pharmaceutical and biotechnology companies, contract research companies and academic and research institutions to recruit personnel. We may incur greater costs than anticipated, or may not be successful, in attracting new scientists or management or in retaining or motivating our existing personnel.

Our future success also depends on the personal efforts and abilities of the principal members of our senior management and scientific staff to provide strategic direction, manage our operations and maintain a cohesive and stable environment. In particular, we rely on the services of Robert E. Conway, our Chief Executive Officer; Dr. Kevin Koch, our President and Chief Scientific Officer; Dr. David L. Snitman, our Chief Operating Officer and Vice President, Business Development; R. Michael Carruthers, our Chief Financial Officer; and John R. Moore, our Vice President and General Counsel. We have employment agreements with all of the above personnel that are terminable upon 30 days’ prior notice. In addition, we believe that successfully building our clinical development capabilities depends to a great extent on our ability to recruit and retain a high caliber Chief Medical Officer. If we cannot attract and retain a Chief Medical Officer or other qualified scientists and management, we may not be able to successfully execute our operating plan.

Our cGMP and pharmacology facilities and practices may fail to comply with government regulations.

(cGMP), as established by the FDA. We operate a clinical-scale manufacturing facility that we believe conforms with cGMP requirements. This facility and our cGMP practices are subject to periodic regulatory inspections to ensure compliance with cGMP requirements. In addition, we could be required to comply with specific requirements of our collaborators, which may exceed FDA requirements. Failure on our part to comply with applicable regulations and specific requirements of our collaborators could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. Material violations of cGMP requirements could result in regulatory sanctions and, in severe cases, could result in a mandated closing of our cGMP facility.

In addition, our pharmacology facility may be subject to the United States Department of Agriculture (USDA) regulations for certain animal species. Failure on our part to comply with applicable regulations and specific requirements of our collaborators could result in the termination of ongoing pharmacology research. Material violations of USDA requirements could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our pharmacology facility for certain species.

Our development, testing and manufacture of drug candidates may expose us to product liability lawsuits.

We develop, test and manufacture drug candidates that are generally intended for use in humans. Our drug discovery activities, including clinical trials we or our collaborators conduct, that result in the future manufacture and sale of drugs by us or our collaborators expose us to the risk of liability for personal injury or death to persons using these drugs. We may be required to pay substantial damages or incur legal costs in connection with defending any of these product liability claims, or we may not receive revenue from expected royalty or milestone payments if the commercialization of a drug is limited or ceases as a result of such claims. We have product liability insurance that contains customary exclusions and provides coverage up to $3.0 million per occurrence and in the aggregate, which we believe is customary in our industry for our current operations. However, our product liability insurance does not cover every type of product liability claim that we may face or loss we may incur, and may not adequately compensate us for the entire amount of covered claims or losses or for the harm to our business reputation. We may be unable to acquire or maintain additional or maintain our current insurance policies at acceptable costs or at all.

If our use of chemical and hazardous materials violates applicable laws or regulations or causes personal injury we may be liable for damages.

Our drug discovery activities, including the analysis and synthesis of chemical compounds, involve the controlled use of chemicals, including flammable, combustible, toxic and radioactive materials that are potentially hazardous. Our use, storage, handling and disposal of these materials is subject to federal, state and local laws and regulations, including the Resource Conservation and Recovery Act, the Occupational Safety and Health Act and local fire codes, and regulations promulgated by the Department of Transportation, the Drug Enforcement Agency, the Department of Energy, the Colorado Department of Public Health and Environment, and the Colorado Department of Human Services, Alcohol and Drug Abuse Division. We may incur significant costs to comply with these laws and regulations in the future. In addition, we cannot completely eliminate the risk of accidental contamination or injury from these materials, which could result in material unanticipated expenses, such as substantial fines or penalties, remediation costs or damages, or the loss of a permit or other authorization to operate or engage in our business. Those expenses could exceed our net worth and limit our ability to raise additional capital.

Our operations could be interrupted by damage to our specialized laboratory facilities.

Our operations are dependent upon the continued use of our highly specialized laboratories and equipment in Boulder and Longmont, Colorado. Catastrophic events, including fires or explosions, could damage our laboratories, equipment, scientific data, work in progress or inventories of chemical compounds and may materially interrupt our business. We employ safety precautions in our laboratory activities in order to reduce the likelihood of the occurrence of these catastrophic events; however, we cannot eliminate the chance that such an event will occur. The availability of laboratory space in these locations is limited, and rebuilding our facilities could be time consuming and result in substantial delays in fulfilling our agreements with our collaborators. We maintain business interruption insurance in the amount of $18.0 million to cover continuing expenses and lost revenue caused by such occurrences. However, this insurance does not compensate us for the loss of opportunity and potential harm to customer relations that our inability to meet our collaborators’ needs in a timely manner could create.

RISKS RELATED TO OUR INDUSTRY

The concentration of the pharmaceutical and biotechnology industry and any further consolidation could reduce the number of our potential collaborators.

There are a limited number of pharmaceutical and biotechnology companies, and these companies represent a significant portion of the market for our capabilities. The number of our potential collaborators could decline even further through consolidation among these companies. If the number of our potential collaborators declines even further, they may be able to negotiate greater rights to the intellectual property they license from us, price discounts or other terms that are unfavorable to us.

Capital market conditions may reduce our biotechnology collaborators’ ability to fund research.

Traditionally, many unprofitable biotechnology companies have funded their research and development expenditures through raising capital in the equity markets. Declines and uncertainties in these markets have severely restricted raising new capital at times in the past and have affected these companies’ ability to continue to expand or fund existing research and development efforts. If our current or future biotechnology collaborators are unable to raise sufficient capital to fund research and development expenditures, we may not be able to expand or maintain current revenue.

Health care reform and cost control initiatives by third-party payors could reduce the prices that can be charged for drugs, which could limit the commercial success of our drug candidates.

The commercial success of our drug candidates will depend significantly on the availability of reimbursement to the patient from third party payors, such as governments and private insurance plans. In the United States, the Medicare Prescription Drug Improvement and Modernization Act of 2003 added a prescription drug benefit to Medicare beginning in 2006 and added a voluntary drug discount card program for Medicare beneficiaries otherwise without prescription drug coverage. However, future legislation may limit the prices that can be charged for drugs we develop and may limit our commercial opportunity and reduce any associated revenue and profits. For example, federal laws require drug manufacturers to pay specified rebates for medicines reimbursed by Medicaid and to provide discounts for out-patient medicines purchased by certain public health service entities and “disproportionate share” hospitals and for purchases by some federal governmental departments such as the Department of Veterans Affairs and the Department of Defense. In some countries other than the United States, reimbursement, pricing and profitability of prescription pharmaceuticals and biopharmaceuticals are subject to government control. Also, we expect managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost control initiatives could decrease the price that we, or any potential collaborators receive for any of our future products, which could adversely affect our profitability. These initiatives may also have the effect of reducing the resources that pharmaceutical and biotechnology companies can devote to in-licensing drug candidates and the research and development of new drugs, which could reduce our resulting revenue.

We or our collaborators may not obtain favorable reimbursement rates for our drug candidates.

Third party payors, such as government and private insurance plans, frequently require companies to provide rebates and predetermined discounts from list prices and are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or be sufficient to allow the sale of our products on a competitive basis. We, or our collaborators may not be able to negotiate favorable reimbursement rates for our products. If we, or our collaborators fail to obtain an adequate level of reimbursement for our products by third-party payors, sales of the drugs would be adversely affected or there may be no commercially viable market for the products.

The drug research and development industry has a history of patent and other intellectual property litigation, and we may be involved in costly intellectual property lawsuits.

The drug research and development industry has a history of patent and other intellectual property litigation, and we believe these lawsuits are likely to continue. Legal proceedings relating to intellectual property would be expensive, take significant time and divert management’s attention from other business concerns. Because we produce drug candidates for a broad range of therapeutic areas and provide many different capabilities in this

industry, we face potential patent infringement suits by companies that control patents for similar drug candidates or capabilities or other suits alleging infringement of their intellectual property rights. There could be issued patents of which we are not aware that our products infringe or patents that we believe we do not infringe that we are ultimately found to infringe. Moreover, patent applications are in many cases maintained in secrecy for eighteen months after filing or even until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patent applications can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that we infringe with our products. In addition, technology created under our research and development collaborations may infringe the intellectual property rights of third parties, in which case we may not receive milestone or royalty revenue from those collaborations.

If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, including triple damages, and we could be required to stop the infringing activity or obtain a license to use the patented technology or redesign our products so as not to infringe the patent. We may not be able to enter into licensing arrangements at a reasonable cost or effectively redesign our products. Any inability to secure licenses or alternative technology could delay the introduction of our products or prevent us from manufacturing or selling products.

The intellectual property rights we rely on to protect our proprietary drug candidates and the technology underlying our tools and techniques may be inadequate to prevent third parties from using our technology or developing competing capabilities or to protect our interests in our proprietary drug candidates.

Our success will depend in part on our ability to protect patents and maintain the secrecy of proprietary processes and other technologies we develop for the testing and synthesis of chemical compounds in the drug discovery process. In addition, one of our business strategies is to develop our own proprietary drug candidates and enter into collaborations with pharmaceutical and biotechnology companies for the development of these drug candidates. In order to protect our rights to our proprietary drug candidates, we must obtain and maintain the intellectual property rights to such drug candidates. We currently have eight issued United States patents and numerous patent applications on file with the United States Patent and Trademark Office and around the world.

Any patents that we may own or license now or in the future may not afford meaningful protection for our drug candidates or our technology and tools. In order to protect or enforce our intellectual property rights, we may have to initiate legal proceedings against third parties. Our efforts to enforce and maintain our intellectual property rights may not be successful and may result in substantial costs and diversion of management time. In addition, other companies may challenge our patents and, as a result, these patents could be narrowed, invalidated or rendered unenforceable, or we may be forced to stop using the technology covered by these patents or to license the technology from third parties. In addition, current and future patent applications on which we depend may not result in the issuance of patents in the United States or foreign countries. Even if our rights are valid, enforceable and broad in scope, competitors may develop drug candidates or other products based on similar research or technology that is not covered by our patents.

Patent applications relating to or affecting our business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents or patent applications, which could reduce the scope of patent protection we could otherwise obtain. We could also become involved in interference proceedings in connection with one or more of our patents or patent applications to determine priority of inventions. We cannot be certain that we are the first creator of inventions covered by pending patent applications, or that we were the first to file patent applications for any such inventions.

Drug candidates we develop that are approved for commercial marketing by the FDA would be subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, known as the “Hatch-Waxman Act.” The Hatch-Waxman Act provides companies with marketing exclusivity for varying time periods during which generic versions of a drug may not be marketed and allows companies to apply to extend patent protection for up to five additional years. It also provides a means for approving generic versions of a drug once the marketing exclusivity period has ended and all relevant patents have expired. The period of exclusive marketing, however, may be shortened if a patent is successfully challenged and defeated, which could reduce the amount of royalties we

receive on the product.

Agreements we have with our employees, consultants and collaborators may not afford adequate protection for our trade secrets, confidential information and other proprietary information.

In addition to patent protection, we also rely on copyright and trademark protection, trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our trade secrets and proprietary information, we require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. However, these agreements may not provide us with adequate protection against improper use or disclosure of confidential information and there may not be adequate remedies in the event of unauthorized use or disclosure. Furthermore, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all proprietary information of their previous employers, these individuals, or we, may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Our failure or inability to protect our proprietary information and techniques may inhibit or limit our ability to compete effectively, or exclude certain competitors from the market.

The drug research and development industry is highly competitive, and we compete with some companies that offer a broader range of capabilities and have better access to resources than we do.

We face potential liability related to the privacy of health information we obtain from research institutions.

Most health care providers, including research institutions from whom we or our collaborators obtain patient information, are subject to privacy regulations promulgated under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. Although we are not directly regulated by HIPAA, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a health care provider or research institution that has not satisfied HIPPA’s disclosure standards. In addition, certain state privacy laws and genetic testing laws may apply directly to our operations and/or those of our collaborators and may impose restrictions on our use and dissemination of individuals’ health information. Moreover, patients about whom we or our collaborators obtain information, as well as the providers who share this information with us, may have contractual rights that limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

RISKS RELATED TO OUR STOCK

Our officers and directors have significant control over us and their interests may differ from those of our stockholders.

At June 30, 2006, our directors and officers beneficially owned or controlled approximately 13% of our common stock. Individually and in the aggregate, these stockholders significantly influence our management, affairs and all matters requiring stockholder approval. These stockholders may vote their shares in a way with which other stockholders do not agree. In particular, this concentration of ownership may have the effect of delaying, deferring or preventing an acquisition of us or entrenching management and may adversely affect the market price of our common stock.

Our quarterly operating results could fluctuate significantly, which could cause our stock price to decline.

Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. Entering into licensing or drug discovery collaborations typically involves significant technical evaluation and/or commitment of capital by our collaborators. Accordingly, negotiation can be lengthy and is subject to a number of significant risks, including collaborators’ budgetary constraints and internal acceptance reviews. In addition, a significant portion of our revenue is attributable to up-front payments and milestones that are non-recurring. Further, some of our collaborators can influence when we deliver products and perform services, and therefore receive revenue, under their contracts with us. Due to these factors, our operating results could fluctuate significantly from quarter to quarter. In addition, we may experience significant fluctuations in quarterly operating results due to factors such as general and industry-specific economic conditions that may affect the research and development expenditures of pharmaceutical and biotechnology companies.

Due to the possibility of fluctuations in our revenue and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters may not meet the expectations of stock market analysts and investors. If we do not meet analysts’ and/or investors’ expectations, our stock price could decline.

Because our stock price may be volatile, our stock price could experience substantial declines.

The market price of our common stock has historically experienced and may continue to experience volatility. The high and low closing bids for our common stock were $9.67 and $5.99 respectively in fiscal 2006, and $9.73 and $5.66 respectively in fiscal 2005. Our quarterly operating results, the success or failure of our internal drug discovery efforts, changes in general conditions in the economy or the financial markets and other developments affecting our collaborators, our competitors or us could cause the market price of our common stock to fluctuate substantially. This volatility coupled with market declines in our industry over the past several years have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and may adversely affect the price of our common stock. In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in potential liabilities, substantial costs and the diversion of management’s attention and resources, regardless of whether we win or lose.

Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never declared or paid any cash dividends on our common stock and are restricted in our ability to do so under our current credit agreement. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

The ability of our stockholders to control our policies and effect a change of control of our company is limited, which may not be in the best interests of our stockholders.

There are provisions in our certificate of incorporation and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These include the following provisions in our certificate of incorporation:

· Our certificate of incorporation provides for three classes of directors with the term of office of one class expiring each year, commonly referred to as a “staggered board.” By preventing stockholders from voting on the election of more than one class of directors at any annual meeting of stockholders, this provision may have the effect of keeping the current members of our board of directors in control for a longer period of time than stockholders may desire.

· Our certificate of incorporation authorizes our board of directors to issue shares of preferred stock without stockholder approval and to establish the preferences and rights of any preferred stock issued, which would allow the board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control.

In addition, our board of directors approved a Rights Agreement on August 2, 2001, which could prevent or deter a potential unsolicited takeover of us by causing substantial dilution of an acquirer of 15% or more of our outstanding common stock. We are also subject to the business combination provisions of Section 203 of the Delaware General Corporation Law, which, in general, imposes restrictions upon acquirers of 15% or more of our stock. As a result, it is difficult for a third party to acquire control of us without the approval of the board of directors and, therefore, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

We are headquartered in Boulder, Colorado, where we lease approximately 150,000 square feet of office and laboratory space under a lease that expires July 7, 2016. We also lease a facility of approximately 78,000 total square feet of laboratory space in Longmont, Colorado under a lease that expires August 9, 2016. We have options to extend each of the leases for up to two terms of five years each.

Item 3. Legal Proceedings

We may be involved, from time to time, in various claims and legal proceedings arising in the ordinary course of our business. We are not currently a party to any such claims or proceedings that, if decided adversely to us, would either individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.

No matters were submitted to a vote of our security holders, through solicitation of proxies or otherwise, during the fourth quarter ended June 30, 2006.

PART II

The following table sets forth, for the periods indicated, the range of the high and low closing bid for Array’s common stock.

	High		Low
Fiscal Year Ended June 30, 2006
First Quarter	$	7.77	$	5.99
Second Quarter	7.47		6.27
Third Quarter	9.67		6.99
Fourth Quarter	8.95		6.62

Fiscal Year Ended June 30, 2005
First Quarter	$	8.29	$	5.66
Second Quarter	9.73		6.66
Third Quarter	9.50		6.80
Fourth Quarter	7.06		5.67

As of August 25, 2006, there were approximately 88 holders of record of our common stock. This does not include the number of persons whose stock is in nominee or “street name” accounts through brokers.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we do not intend to pay any cash dividends in the foreseeable future. In addition, the terms of our loan agreement restrict our ability to pay cash dividends to our stockholders. We currently intend to retain all available funds and any future earnings for use in the operations of our business and to fund future growth.

Item 6. Selected Financial Data

The following selected financial data is derived from our audited financial statements. These historical results do not necessarily indicate future results. When you read this data, it is important that you also read our financial statements and related notes, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.

	Years Ended June 30,
	2006			2005			2004			2003			2002
	(in thousands, except per share data)
Statements of Operations Data
Revenue
Collaboration revenue	$	37,738		$	34,343		$	28,186		$	33,633		$	33,854
License and milestone revenue	7,265			11,162			6,645			1,492			1,235
Total revenue	45,003			45,505			34,831			35,125			35,089

Operating expenses (1)
Cost of revenue (2)	39,611			38,048			37,257			35,136			28,759
Research and development for proprietary drug discovery	33,382			22,871			15,905			11,395			5,542
Selling, general and administrative expenses	13,789			9,372			8,016			8,901			6,918
Total operating expenses	86,782			70,291			61,178			55,432			41,219

Loss from operations	(41,779		)	(24,786		)	(26,347		)	(20,307		)	(6,130		)

Interest expense	(670		)	—			—			—			—
Interest income	2,835			1,542			381			787			1,483
Other expense - loss on investment	—			—			—			(500		)	—
Net loss	(39,614		)	(23,244		)	(25,966		)	(20,020		)	(4,647		)
Basic and diluted net loss per share	$	(1.02	)	$	(0.68	)	$	(0.91	)	$	(0.72	)	$	(0.19	)

Number of shares used to compute per share data	38,759			34,043			28,511			27,830			24,920

Balance Sheet Data
Cash, cash equivalents, restricted cash and marketable securities	$	70,100		$	92,706		$	37,446		$	34,130		$	59,598
Property, plant and equipment, gross	66,139			61,517			57,557			53,939			44,365
Working capital	56,008			80,435			24,652			38,321			57,350
Total assets	102,173			127,952			77,764			83,830			107,915
Long term debt	14,150			10,000			—			—			—
Total stockholders’ equity	68,641			99,415			54,493			77,039			93,673

(1) Operating expenses include share-based compensation expense of $6.2 million, $151,000, $2.0 million, $1.9 million and $2.4 million for fiscal 2006, 2005, 2004, 2003 and 2002, respectively. See Note 2 to the Notes to Financial Statements.

(2) Cost of revenue includes a provision for excess inventory of $5.6 million and $4.1 million in fiscal years 2004 and 2003, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s 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 the success of our internal proprietary drug discovery activities, realizing new revenue streams and obtaining future collaboration agreements that include milestone and/or royalty payments, our ability to realize such milestone and royalty payments under our existing or any future agreements, future research and development spending, our working capital requirements and our future headcount requirements. These statements involve significant risks and uncertainties, including those discussed below and those described more fully under the caption “Risk Factors” above and in other reports filed by Array BioPharma with the Securities and Exchange Commission.

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.

Overview

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 June 30, 2006, we have recognized $193.3 million in collaboration revenue, and we have received $18.2 million in up-front payments and $9.5 million in milestone payments from our collaborators and out-licensing partners. Under our existing collaboration agreements, we have the potential to earn over $200.0 million in additional milestone payments if we achieve all of the drug discovery objectives, as well as royalties on any resulting product sales, from 15 different programs under these agreements.

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 June 30, 2006, we had an accumulated deficit of $133.7 million.

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 our full-time equivalent scientists performing research on 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 PLC, 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 our full-time equivalent scientists performing research on the 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 no longer develop new Lead Generation Libraries other than for our own proprietary research

and expect future revenue from sales of compounds in our Lead Generation Libraries to continue to be insignificant.

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 10 collaborators contributed approximately 97% of our total revenue during fiscal 2006, and our current top three collaborators, Genentech, InterMune, and AstraZeneca, accounted for 35%, 24% and 16%, respectively, of our total revenue. During fiscal year 2005 these same collaborators accounted for 28%, 10% and 27%, respectively, of our total revenue. In general, certain of our collaborators may terminate their collaboration agreements with us on 90 to 120 days’ prior notice, including our agreement with Genentech which can be terminated on 120 days notice.

International Revenue. International revenue represented 31% of our total revenue during fiscal year 2006, down from 40% for the same period in the prior year. Our international revenue is primarily attributable to European and Japanese collaborations. International revenue decreased during fiscal year 2006 compared to fiscal year 2005 due to the expiration of the research-funding period of the AstraZeneca collaboration in November 2005. This decrease was partially offset by increased revenue generated from a new Japanese research collaboration with Ono Pharmaceutical Co., Ltd. in November 2005. All of our collaboration agreements are denominated in United States dollars.

Cost of Revenue. Cost of revenue represents research and development conducted for our collaborators and the cost of chemical compounds sold from our inventory. These costs consist mainly of compensation, associated fringe benefits and other collaboration-related costs, including 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.

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 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 our compounds and enter into collaborations in Japan through an agent.

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. 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 and research and development for proprietary drug discovery costs to rise in connection with building our clinical and regulatory capabilities. As we devote more scientists to our proprietary research, we expect fewer scientists will be assigned to revenue generating collaborations. Because of our strategy to retain other proprietary programs until later in clinical development before out-licensing them or commercializing them ourselves, we may not recognize significant revenue from new out-licensing opportunities in the near term. 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 more fully under the caption “Risk Factors” included herein and in other reports filed by Array BioPharma with the Securities and Exchange Commission.

Results of Operations

Fiscal Years Ended June 30, 2006, 2005 and 2004:

Revenue

	Years Ended June 30,						% increase (decrease)
	2006		2005		2004		2005 to 2006		2004 to 2005
	(in thousands)
Collaboration revenue	$	37,738	$	34,343	$	28,186	10	%	22	%
License and milestone revenue	7,265		11,162		6,645		(35	%)	68	%
Total revenue	$	45,003	$	45,505	$	34,831	(1	%)	31	%

Fiscal 2006 as compared to fiscal 2005 : Total revenue for fiscal 2006 decreased 1% from 2005 due to a decrease in license and milestone revenue of $3.9 million, which was offset by improvements in collaboration revenue totaling $3.4 million. The improvement in collaboration revenue was the result of increased revenue, totaling $16.1 million, from expanded programs with InterMune and Genentech and a new research collaboration with Ono Pharmaceutical. This increase was partially offset by decreased collaboration revenue of $11.1 million related to research programs that expired in fiscal 2005 with Eli Lilly and Company, and QLT Inc., as well as the research program with AstraZeneca that expired in November 2005. Additionally, collaboration revenue from the sale of Lead Generation Libraries decreased during the year by $1.6 million, due to the sale of the remainder of our Lead Generation Library compounds to a single collaborator during fiscal 2005.

All previously received license fee and milestone payments from AstraZeneca and Genentech were fully recognized in November 2005 resulting in a decrease in recognized revenue from the prior year of $5.8 million. Partially offsetting this decrease was the recognition of $2.5 million of milestone payments received from AstraZeneca during the current fiscal year related to advancing ARRY-886 into Phase 1b clinical trials and the selection of two additional drug candidates, as well as $500,000 of milestones earned from our collaboration with Takeda Pharmaceutical Company, Ltd.

Fiscal 2005 as compared to fiscal 2004 : Total revenue for fiscal 2005 grew 31% from 2004 with improvements in both collaboration revenue, which increased $6.2 million, and license and milestone revenue, which increased $4.5 million. The improvement in collaboration revenue was the result of increased revenue, totaling $14.6 million, from new or expanded collaborations with Genentech, AstraZeneca, InterMune, Takeda, Elan Pharmaceuticals, Inc., and Roche Palo Alto LLC. This increase was partially offset by expired research programs with ICOS Corporation, Japan Tobacco Inc., and GenPath Pharmaceuticals, which had resulted in a total of $4.4 million in revenue during fiscal 2004. Further offsetting the increase in collaboration revenue were the declines in revenue from custom libraries of $3.1 million and Lead Generation Libraries of $1.4 million, each declining primarily due to continued increasing competition from foreign chemistry service providers.

The up-front license fee and Phase 1 milestone payment for ARRY-886 that was received from AstraZeneca in the latter half of fiscal 2004, together with the up-front license fee that was received from Genentech in the same half of fiscal 2004, aggregating $20.0 million, caused the majority of the increase to license and milestone revenue. Revenues associated with these arrangements were recognized over the full year of fiscal 2005, compared to recognition during only part of the year in fiscal 2004. A $1.0 million milestone payment received from Amgen in fiscal 2005 also contributed to the increased license and milestone revenue.

Share-Based Compensation

Effective July 1, 2005, we adopted the fair value method of accounting for share-based compensation arrangements in accordance with FASB Statement No. 123R, Share-Based Payment — an amendment of FASB Statement No. 123 and 95 (“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 offering periods 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 Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under the provisions of APB 25, no compensation expense was recognized 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 for fiscal 2006 are not comparable to prior fiscal years.

As required by the provisions of SFAS 123R, we recorded $6.2 million, or $0.16 per share, of share-based compensation expense during fiscal 2006. This amount is 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 respective 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 June 30, 2006, there was $9.3 million of unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Option Plan. For more information about the adoption of SFAS 123R, see Note 2: “Summary of Significant Accounting Policies — Accounting for Share-Based Compensation” under Notes to Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K as well as the section below entitled “Critical Accounting Policies — Share-Based Compensation”.

Cost of Revenue

	Years Ended June 30,						% increase (decrease)
	2006		2005		2004		2005 to 2006		2004 to 2005
	(in thousands)
Cost of revenue	$	39,611	$	38,048	$	31,641	4	%	20	%
Provision for excess inventory	—		—		5,616		—		(100	%)
Total cost of revenue	$	39,611	$	38,048	$	37,257	4	%	2	%

Fiscal 2006 as compared to fiscal 2005: Cost of revenue for fiscal 2006 increased 4% over 2005 primarily due to the recording of $2.1 million of share-based compensation expense in accordance with SFAS 123R. In addition, in June 2005, we determined that we were reasonably assured that we would be vacating our Boulder, Colorado facility at the end of the lease term in March 2008 and therefore began amortizing the cost of leasehold improvements for our facility over the remaining months of the initial lease term. 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 an increase of approximately $505,000 in amortized leasehold improvement costs being charged to cost of revenue for the 2006 fiscal year. Improvements in cost of revenue as a percentage of collaboration revenue of 105% in fiscal 2006 compared to 111% in fiscal 2005 is the result of improved average pricing from collaboration agreements.

On June 22, 2006, we executed a series of agreements involving the assignment of facility purchase options we owned and the subsequent signing of lease agreements for these same facilities over a ten-year lease term. Therefore we began amortizing our leasehold improvement costs for both our Boulder and Longmont, Colorado facilities over the ten-year lease terms. As a result of this change we expect the amortization expense of leasehold improvements charged to cost of revenue to decrease by approximately $700,000 in the next fiscal year. For more information see Note 2: “Summary of Significant Accounting Policies — Property, Plant and Equipment” under Notes to Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Fiscal 2005 as compared to fiscal 2004: The increased cost of revenue for fiscal 2005 of 20% over 2004 is largely the result of supporting the 22% increase in collaboration revenue. Improvements in cost of revenue as a percentage of collaboration revenue of 111% in fiscal 2005 compared to 112% in fiscal 2004 was the result of slightly improved average pricing from collaborations, and a continued reduction in the custom library business. Cost of revenue for fiscal 2005 included $1.2 million for accrued bonuses, which was offset by a decrease in stock compensation expense of $1.4 million.

Research and Development Expenses for Proprietary Drug Discovery

Our research and development expenses for proprietary drug discovery include costs associated with our proprietary drug programs for scientific personnel, supplies, equipment, consultants, sponsored research, allocated facility costs, costs related to preclinical and clinical trials, and share-based compensation. We manage our proprietary programs based on scientific data and achievement of research plan goals. Our scientists record their time to specific projects when possible. However, many activities simultaneously benefit multiple projects and cannot be readily attributed to a specific project. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on a program basis. The following table shows our research and development expenses by categories of costs for the periods presented:

	Years Ended June 30,						% increase
	2006		2005		2004		2005 to 2006		2004 to 2005
	(in thousands)
Salaries, benefits and share-based compensation expense	$	12,394	$	8,035	$	7,523	54	%	7	%
Outsourced services and consulting	7,921		4,998		1,584		58	%	216	%
Laboratory supplies	5,538		3,739		2,601		48	%	44	%
Facilities and depreciation	7,063		5,795		3,974		22	%	46	%
Other	466		304		223		53	%	36	%
Research and development for proprietary drug discovery	$	33,382	$	22,871	$	15,905	46	%	44	%

Fiscal 2006 as compared to fiscal 2005 : Research and development expenses for proprietary drug discovery increased 46% over the prior fiscal year primarily due to additional scientists working on proprietary programs, related increases in laboratory supplies, share-based compensation expense, 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 and clinical trial related expenses supporting the advancement of our ErB2/EGFR, Mek for inflammation, P38, KSP 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 programs and advance our programs potentially through clinical development. For fiscal year 2006, we expensed $1.3 million to research and development expenses for proprietary drug discovery related to share-based compensation in accordance with SFAS 123R. In addition, as described in cost of revenue above, we recorded approximately $981,000 of additional leasehold improvement amortization to research and development expenses for proprietary drug discovery during the 2006 fiscal year. Based on the change in estimated useful life for our leasehold improvements as described in cost of revenue above, we expect the amortization expense of leasehold improvements charged to research and development for proprietary drug discovery to decrease by approximately $900,000 in the next fiscal year.

Fiscal 2005 as compared to fiscal 2004 : Research and development expenses for proprietary drug discovery increased 44% in fiscal 2005 over the 2004 fiscal year relating to bonuses, increased laboratory supplies, facilities’ costs and depreciation related to our expanded facilities, and increased pharmacology studies supporting our expanded efforts to advance proprietary compounds into regulated safety testing. 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. As a result, total consulting and outsourced services costs, including pharmacology studies, increased to $5.0 million in 2005, from $1.6 million in 2004. For fiscal year 2005, we expensed approximately $820,000 related to accrued cash bonuses that were paid subsequent to June 2005.

The scope and magnitude of future research and development expenses are difficult to predict given the number of studies that will need to be conducted for any of our potential products, as well as our limited capital resources. In general, biopharmaceutical development involves a series of steps — beginning with identification of a potential target and including, among others, proof of concept in animal studies and Phase 1, 2 and 3 clinical studies in humans — each of which is typically more expensive than the previous step. Therefore, we expect our research and development costs to increase as we progress our programs through later-stage development.

The successful development and commercialization of drugs resulting from our proprietary programs is highly uncertain and subject to a number of risks that are beyond our control. The duration and cost of discovery, preclinical, nonclinical and clinical trials may vary significantly based on the type, complexity and novelty of a product and are difficult to predict. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from preclinical, nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity or be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available. Given the uncertainties related to development, we are currently unable to reliably estimate when, if ever, our drug candidates will generate revenue and net cash inflows.

Status of Significant Proprietary Programs

The following table summarizes the status of our most advanced drug candidates.

Drug Target	Indication	Development Status
MEK	Cancer	ARRY-886 (AZD6244) Phase 2 clinical trial

ErbB-2/EGFR	Cancer	ARRY-543 Phase 1 clinical trial

MEK	Inflammation	ARRY-162 Phase 1 clinical trial

P38	Inflammation and Cancer	ARRY-797 Regulated safety assessment testing completed. Preparing an IND application to be submitted in the fall of 2006.

KSP	Cancer	ARRY-520 Regulated safety assessment testing completed. Preparing an IND application to be submitted in the fall of 2006.

ErbB-2	Cancer	Beginning regulated safety assessment in the fall of 2006.

Clinical timelines, likelihood of success and total completion costs vary significantly for each drug candidate and are difficult to estimate. We estimate that it takes 10 to 15 years, or possibly longer, to discover, develop and bring to market a new pharmaceutical product in the United States as outlined in the following table:

Phase:	Objective:	Estimated Duration:
Discovery	Lead identification and target validation	2 to 4 years
Preclinical	Initial toxicology for preliminary identification of risks for humans; gather early pharmacokinetic data	1 to 2 years
Phase 1	Evaluate safety in humans; study how the drug works, metabolizes and interacts with other drugs	1 to 2 years
Phase 2	Establish effectiveness of the drug and its optimal dosage; continue safety evaluation	2 to 4 years
Phase 3	Confirm efficacy, dosage regime and safety profile of the drug; submit New Drug Application	2 to 4 years
FDA approval	Approval by the FDA to sell and market the drug under approved labeling	6 months to 2 years

Animal and other nonclinical studies are often conducted during each phase of human clinical studies.

We anticipate that we will make determinations as to which research programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each drug candidate. The lengthy process of seeking regulatory approvals, and subsequent compliance with applicable regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could cause our research and development expenditures to increase and, in turn, have a material adverse effect on our results of operations.

Selling, General and Administrative Expenses

	Years Ended June 30,						% increase
	2006		2005		2004		2005 to 2006		2004 to 2005
	(in thousands)
Selling, general and administrative expenses	$	13,789	$	9,372	$	8,016	47	%	17	%

Fiscal 2006 as compared to fiscal 2005 : The increase in selling, general and administrative expenses was primarily related to the recording of $2.7 million of share-based compensation expense in accordance with SFAS 123R. Patents and patent application costs increased by approximately $353,000 related to our expanding proprietary drug development programs. In addition, as described in cost of revenue above, we recorded approximately $132,000 of additional leasehold improvement amortization to selling, general and administrative expenses during the 2006 fiscal year. Based on the change in estimated useful life for our leasehold improvements as described in cost of revenue above, we expect the amortization expense of leasehold improvements charged to selling, general and administrative expenses to decrease by approximately $150,000 in the next fiscal year. The remaining increase within selling, general and administrative expenses from the prior year was attributable to increases in compensation and benefit related expenses.

Fiscal 2005 as compared to fiscal 2004 : The increase in selling, general and administrative expenses from fiscal 2004 to fiscal 2005 was primarily related to increased patent and patent application costs related to our expanding proprietary drug development programs of approximately $420,000 and, to a lesser degree, increased compliance costs of approximately $303,000 related to Section 404 of the Sarbanes-Oxley Act. The remaining increase was attributable to increases in compensation and benefit related expenses. Selling, general and administrative expenses include approximately $680,000 for bonuses, which was partially offset by a decrease in stock compensation expense of approximately $447,000.

Interest Expense and Income

	Years Ended June 30,						% increase
	2006		2005		2004		2005 to 2006		2004 to 2005
	(in thousands)
Interest expense	$	670	$	—	$	—	100	%	—
Interest income	2,835		1,542		381		84	%	305	%

Fiscal 2006 as compared to fiscal 2005 : The increase in interest income in fiscal 2006 compared to fiscal 2005 is due to higher investment interest rates earned on higher average cash and investment balances. During the fiscal 2006, we incurred interest expense of approximately $670,000 associated with borrowings related to the Loan and Security Agreement that we entered into on June 28, 2005 with Comerica Bank.

Fiscal 2005 as compared to fiscal 2004 : The increase in interest income in fiscal 2005 compared to fiscal 2004 was due to higher investment interest rates earned on higher average cash and investment balances. Our cash

position increased significantly during the year due to the follow-on public offering of shares of our common stock that was completed in December 2004.

Income Taxes

There was no income tax expense for the fiscal years ended June 30, 2006, 2005 or 2004. At June 30, 2006, we had federal and Colorado income tax net operating loss carryforwards for income tax purposes of $79.7 million, which will expire beginning in 2018 and continuing through 2026. We have provided a 100% valuation allowance against the related deferred tax assets, as based on available evidence, it is more likely than not that the deferred tax asset will not be realized.

Deferred Rent

Our prior and current facilities leases provide for annual rent increases and we recognize the average annual rent expense over the term of each lease on a straight-line basis. We record deferred rent equal to the difference between the actual cash payments and the amount recognized as rent expense for our facilities leases.

Under leases that were in effect during fiscal 2006, rent expense was recognized ratably over the life of the lease for our Boulder facility, which originally was set to expire in March 2008, and over the life of the lease and one of the optional extension periods, which was set to expire in May 2018, for our Longmont facility. Subsequent to our fiscal year-end, we terminated these two leases and executed new leases with a different landlord for both facilities. Accordingly, the entire deferred rent balance of $1.5 million is a current liability as of June 30, 2006. During the first quarter of fiscal 2007, this future commitment ended which will result in a reduction of our recognized rent expense for that period. For more information, see Note 10: “Subsequent Events” under Notes to Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Liquidity and Capital Resources

	As of June 30,
	2006			2005			2004
	(in thousands)
Cash, cash equivalents, restricted cash and marketable securities	$	70,100		$	92,706		$	37,446
Net increase (decrease) in operating assets and liabilities, excluding cash	(155		)	2,726			(15,413		)
Purchases of property, plant and equipment	5,180			5,682			3,627

Cash flows provided by (used in):
Operating activities	(24,297		)	(17,178		)	5,499
Investing activities	20,612			(55,043		)	(4,190		)
Financing activities	6,823			78,151			1,609

Fiscal 2006 as compared to fiscal 2005 : We have historically funded our operations through revenue from our collaborations and the issuance of equity securities. As of June 30, 2006, cash, cash equivalents, restricted cash and marketable securities totaled $70.1 million compared with $92.7 million at June 30, 2005. Net cash used in operating activities for fiscal year 2006 was $24.3 million, compared to $17.2 million for fiscal 2005. During fiscal year 2006, our net loss of $39.6 million was reduced by noncash charges of $15.2 million, primarily associated with depreciation and share-based compensation expense. For the fiscal year 2006, our net operating assets and liabilities, excluding cash, decreased by approximately $155,000. This was primarily due to increases in accounts payable and accrued compensation and benefits, which were slightly offset by decreases in advance payment balances from collaborators. Accounts payable increased by $2.5 million due to increased obligations for outsourced pharmacology and clinical trial related expenses, as well as laboratory equipment received in June 2006. Accrued compensation and benefits increased by $1.4 million, half of which was due to increased amounts reserved for fiscal year 2006 employee bonuses as well as $420,000 related to employee payroll withholdings for the Employee Stock Purchase Plan due to the change in purchase dates within the plan. Advance payments from collaborators decreased by $3.8

million during fiscal year 2006 due to the recognition of revenue from previously received up-front license and milestone payments, slightly offset by the receipt of new milestone payments during the fiscal year.

During fiscal year 2006, we invested $5.2 million in laboratory equipment, primarily for biology, drug metabolism and analytical research and development operations, as well as in various computer hardware and software. Purchases of marketable securities used $67.2 million of cash while proceeds from the sale and maturity of marketable securities provided $90.9 million of cash. Additionally, $2.0 million of previously restricted cash became available for use in operations. Financing activities provided $6.8 million of cash consisting of $4.1 million for proceeds received from the issuance of long term debt used to finance purchases of capital equipment and $2.7 million of cash resulting from the exercise of stock options under our stock option plan and purchases of stock under our employee stock purchase plan.

Fiscal 2005 as compared to fiscal 2004 : As of June 30, 2005, cash, cash equivalents, restricted cash and marketable securities totaled $92.7 million compared with $37.4 million at June 30, 2004. This increase was primarily attributable to $66.6 million in net proceeds received from our common stock offering in December 2004.

Net cash used in operating activities for fiscal year 2005 was $17.2 million, compared to net cash provided by operating activities of $5.5 million for fiscal 2004. During fiscal year 2005, our net loss of $23.2 million was reduced by noncash charges of $8.8 million, primarily associated with depreciation and deferred rent expense. For the fiscal year 2005, our net operating assets and liabilities, excluding cash, increased by $2.7 million. This was due to decreases in advance payment balances of $10.6 million from collaborators, which was partially offset by decreased inventory balances of $1.9 million and increased accrued compensation, accounts payable and other liabilities totaling $5.3 million. The combined balance of advance payments from collaborators decreased by $10.6 million during fiscal year 2005 due to the recognition of revenue from previously received up-front license and milestone payments. The decrease in inventory balances resulted from a significant sale of Lead Generation Library chemical compounds that occurred in the second quarter of fiscal 2005. Accrued compensation and benefits increased primarily from reserving for a planned cash employee bonus program for the year.

During fiscal year 2005, we invested $5.7 million in laboratory equipment, primarily for our process research, biology and cGMP manufacturing operations, as well as in various computer hardware and software. Purchases of marketable securities used $121.7 million of cash while proceeds from the sale and maturity of marketable securities provided $73.0 million of cash. Approximately $726,000 of cash became restricted during the year in support of outstanding standby letters of credit related to our facilities leases that increased in a like amount. Financing activities provided $78.2 million of cash consisting of $66.6 million in net proceeds from our public common stock offering, $10.0 million for proceeds received from the issuance of long term debt and $1.6 million of cash resulting from the exercise of stock options under our stock option plan and purchases of stock under our employee stock purchase plan.

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 potential 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;

· our ability to enter into agreements to out-license and co-develop our proprietary drug candidates, and the timing of those agreements in each candidate’s development stage;

· the number and scope of our research programs;

· the progress of our preclinical and clinical development activities;

· the number and scope of phase 2 studies we may decide to run;

· the progress of the development efforts of our collaborators;

· the availability of resources for revenue generating collaborations as we devote more resources to our proprietary programs;

· 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 costs and timing of regulatory approvals; and

· the costs of establishing clinical development and distribution or commercialization capabilities.

Obligations and Commitments

The following table shows our contractual obligations and commitments as of June 30, 2006.

	Payments due by period
	(in thousands)
	Less than 1 year		1-3 years		4-5 years		After 5 years		Total
Operating lease obligations	$	5,085	$	8,502	$	7,712	$	24,985	$	46,284
Purchase obligations	5,091		1,157		13		—		6,261
Debt obligations (including interest, using current rate of 6.5%)	920		1,839		15,070		—		17,829
Total obligations	$	11,096	$	11,498	$	22,795	$	24,985	$	70,374

We are obligated under noncancelable operating leases for our facilities and certain equipment leases. Original lease terms for our facilities in effect as of June 30, 2006 were from eight to ten years and generally require us to pay a proportionate share of real estate taxes, insurance and other operating costs. Equipment leases generally range from three to five years.

Purchase obligations totaling $6.3 million were primarily for outsourced pharmacology services, laboratory equipment, chemicals and supplies.

On June 22, 2006, we entered into a series of agreements involving the assignment to BioMed Reality L.P. (“BioMed”) of options we acquired to purchase the facilities that we occupy in Boulder and Longmont, Colorado and the subsequent lease of those facilities from BioMed. Pursuant to an Assignment Agreement dated June 22, 2006 between Array and BioMed (the “Assignment Agreement”), BioMed agreed to purchase these facilities in both Boulder and Longmont.

On July 7, 2006, BioMed completed the purchase of the Boulder facility as contemplated by the Assignment Agreement and our obligations under prior lease and sublease agreements terminated. Total operating lease obligations included in the above table related to leases that terminated subsequent to the 2006 fiscal year-end for the prior lease and sublease agreements, are $33.0 million and $7.4 million, respectively. On July 7, 2006, we entered into a 10-year lease agreement with BioMed for the Boulder facility (the “Boulder Lease). The Boulder Lease has an initial rental rate of $4.8 million annually, subject to 2% annual increases. Total operating lease obligations under the Boulder Lease amount to $52.0 million over the lease term. This obligation is not included in the above table as it occurred subsequent to June 30, 2006.

On August 9, 2006, BioMed completed the purchase of the Longmont facility as contemplated by the Assignment Agreement and our obligation under our existing lease agreement for the Longmont facility terminated. The operating lease obligation related to this lease was $5.6 million and is included in the above table. On August 9, 2006 we entered into a 10-year lease agreement with BioMed for the Longmont facility (the “Longmont Lease”). The Longmont Lease has an initial rental rate of $2.2 million annually, subject to 2% annual increases. Total operating lease obligations under the Longmont Lease is $24.2 million over the lease term. This obligation is not included in the above table as it occurred subsequent to June 30, 2006.

For more information about these transactions, see Note 10: “Subsequent Events” under Notes to Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Critical Accounting Policies

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.

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 and evaluating 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 development and fixed fee revenue 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 employees 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 based on 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.

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.

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 fiscal year ended June 30, 2006 are not comparable to the results of prior years.

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 actual 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. During the fourth quarter of 2006, we conducted a detailed evaluation of historical unexercised employee stock options that resulted in an estimated stock option life that was directly comparable to that calculated under the simplified method described above. In prior fiscal years, the estimated life was 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 prior fiscal years, we determined expected volatility using the same method as fiscal year 2006, using the period from November 2001 through 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. For more information about the adoption of SFAS 123R, see Note 2: “Summary of Significant Accounting Policies — Accounting for Share-Based Compensation” under Notes to Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Recent Accounting Pronouncements

We believe that the adoption of all recently issued accounting pronouncements will have no impact on our financial condition or results of operations.

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 June 30, 2006, a change of 100 basis points in interest rates would result in a $697,000 change in our annual interest income.

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 June 30, 2006, we had $14.1 million of long term debt outstanding and the interest rate on our term loan and equipment advances was 6.5%. This rate is adjusted based on changes in the bank’s 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 $141,000.

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.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

		Page
Report of KPMG LLP, Independent Registered Public Accounting Firm		42

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		43

Balance Sheets as of June 30, 2006 and 2005		44

Statements of Operations for each of the years in the three-year period ended June 30, 2006		45

Statements of Stockholders’ Equity and Comprehensive Income (Loss) for each of the years in the three-year period ended June 30, 2006		46

Statements of Cash Flows for each of the years in the three-year period ended June 30, 2006		47

Notes to Financial Statements		48

Report of KPMG LLP, Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Array BioPharma Inc.:

We have audited the accompanying balance sheets of Array BioPharma Inc. as of June 30, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the years then ended. In connection with our audits of the financial statements, we also have audited the financial statement schedule II for the years ended June 30, 2006 and 2005. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, effective July 1, 2005, the Company changed its method of accounting for stock-based compensation.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Array BioPharma Inc. as of June 30, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the years ended June 30, 2006 and 2005, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Array BioPharma Inc.’s internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 1, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Boulder, Colorado
September 1, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Array BioPharma Inc.

We have audited the accompanying statements of operations, stockholders’ equity, and cash flows for the year ended June 30, 2004. Our audit also included financial statement schedule II as it relates to the information for the fiscal year ended June 30, 2004. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Array BioPharma Inc. for the year ended June 30, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the fiscal year ended June 30, 2004.

/s/ ERNST & YOUNG LLP

Denver, Colorado
July 29, 2004

ARRAY BIOPHARMA INC.
BALANCE SHEETS

	As of June 30,
	2006			2005
ASSETS
Current assets
Cash and cash equivalents	$	15,568,243		$	12,429,526
Marketable securities	54,531,585			78,296,782
Restricted cash	—			1,979,678
Accounts receivable, net	1,359,031			679,609
Inventories, net	1,645,438			2,153,486
Prepaid expenses and other	1,758,943			1,025,871
Total current assets	74,863,240			96,564,952

Property, plant and equipment, net	27,309,387			31,306,452

Other assets	—			80,246
Total assets	$	102,172,627		$	127,951,650


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	6,211,685		$	3,708,656
Advance payments from collaborators - current	3,800,302			6,698,292
Accrued compensation and benefits	5,769,982			4,320,755
Deferred rent - current	1,563,095			341,555
Other current liabilities	1,510,474			1,061,080
Total current liabilities	18,855,538			16,130,338

Advance payments from collaborators - long term	77,874			937,500
Deferred rent and other liabilities	—			1,354,533
Long term debt	14,149,856			10,000,000
Other long term liabilities	448,797			113,933
Total liabilities	33,532,065			28,536,304

Stockholders’ equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.001 par value; 60,000,000 shares authorized; 39,124,494 and 38,466,804 shares issued and outstanding at June 30, 2006 and 2005, respectively	39,124			38,467
Additional paid-in capital	202,525,810			193,696,156
Accumulated deficit	(133,653,686		)	(94,040,179		)
Accumulated other comprehensive income (loss)	(270,686		)	(279,098		)
Total stockholders’ equity	68,640,562			99,415,346
Total liabilities and stockholders’ equity	$	102,172,627		$	127,951,650

See accompanying notes.

ARRAY BIOPHARMA INC.

STATEMENTS OF OPERATIONS

	Years Ended June 30,
	2006			2005			2004
Revenue
Collaboration revenue	$	37,738,356		$	34,343,022		$	28,185,609
License and milestone revenue	7,264,619			11,162,494			6,645,381
Total revenue	45,002,975			45,505,516			34,830,990

Operating expenses (1)
Cost of revenue	39,610,840			38,048,077			37,256,852
Research and development for proprietary drug discovery	33,381,708			22,870,777			15,905,107
Selling, general and administrative expenses	13,788,779			9,372,457			8,015,746
Total operating expenses	86,781,327			70,291,311			61,177,705

Loss from operations	(41,778,352		)	(24,785,795		)	(26,346,715		)

Interest expense	(669,676		)	—			—
Interest income	2,834,521			1,541,771			380,855
Net loss	$	(39,613,507	)	$	(23,244,024	)	$	(25,965,860	)

Basic and diluted net loss per share	$	(1.02	)	$	(0.68	)	$	(0.91	)

Number of shares used to compute per share data	38,759,390			34,042,826			28,511,457

(1) Operating expenses include share-based compensation expense of $6.2 million, $151,000 and $2.0 million for fiscal 2006, 2005 and 2004, respectively. See Note 2 to the Notes to Financial Statements.

See accompanying notes.

ARRAY BIOPHARMA INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)


										Accumulated
				Additional						Other			Deferred
	Common Stock			Paid-In			Accumulated			Comprehensive			Stock-Based
	Shares	Amount		Capital			Deficit			Income (Loss)			Compensation			Total
Balance at June 30, 2003	28,221,080	$	28,221	$	124,050,659		$	(44,830,295	)	$	21,856		$	(2,231,274	)	$	77,039,167
Issuance of common stock under stock option and employee stock purchase plans	650,899	651		1,608,075			—			—			—			1,608,726
Share-based compensation expense	—	—		—			—			—			1,976,658			1,976,658
Reversal of prior year deferred stock-based compensation for terminated employees	—	—		(103,612		)	—			—			103,612			—
Net loss	—	—		—			(25,965,860		)	—			—			(25,965,860		)
Change in unrealized loss on marketable securities	—	—		—			—			(165,271		)	—			(165,271		)
Comprehensive loss																(26,131,131		)
Balance at June 30, 2004	28,871,979	28,872		125,555,122			(70,796,155		)	(143,415		)	(151,004		)	54,493,420
Issuance of common stock for cash-public offering, net of offering costs of $4,724,853	9,200,000	9,200		66,565,947			—			—			—			66,575,147
Issuance of common stock under stock option and employee stock purchase plans	394,825	395		1,575,087			—			—			—			1,575,482
Share-based compensation expense	—	—		—			—			—			151,004			151,004
Net loss	—	—		—			(23,244,024		)	—			—			(23,244,024		)
Change in unrealized loss on marketable securities	—	—		—			—			(135,683		)	—			(135,683		)
Comprehensive loss																(23,379,707		)
Balance at June 30, 2005	38,466,804	38,467		193,696,156			(94,040,179		)	(279,098		)	—			99,415,346
Issuance of common stock under stock option and employee stock purchase plans	657,690	657		2,672,539			—			—			—			2,673,196
Share-based compensation expense	—	—		6,157,115			—			—			—			6,157,115
Net loss	—	—		—			(39,613,507		)	—			—			(39,613,507		)
Change in unrealized loss on marketable securities	—	—		—			—			8,412			—			8,412
Comprehensive loss																(39,605,095		)
Balance at June 30, 2006	39,124,494	$	39,124	$	202,525,810		$	(133,653,686	)	$	(270,686	)	$	—		$	68,640,562

See accompanying notes.

ARRAY BIOPHARMA INC.

STATEMENTS OF CASH FLOWS

	Years Ended June 30,
	2006			2005			2004
Operating activities
Net loss	$	(39,613,507	)	$	(23,244,024	)	$	(25,965,860	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9,032,515			8,028,447			7,996,750
Deferred rent	(132,993		)	559,900			461,838
Share-based compensation expense	6,157,115			151,004			1,976,658
Provision for excess inventory	—			—			5,616,424
Loss on equipment and software disposals	105,486			53,144			—
Changes in operating assets and liabilities:
Accounts receivable	(679,422		)	400,721			563,416
Inventories	508,048			1,877,195			(582,557		)
Prepaid expenses and other assets	(652,826		)	289,915			(585,107		)
Accounts payable	2,503,029			1,299,938			(114,153		)
Advance payments from collaborators	(3,757,616		)	(10,638,991		)	16,172,437
Accrued compensation and benefits	1,449,227			3,271,846			(5,870		)
Other current liabilities	449,394			658,990			(34,750		)
Other long term liabilities	334,864			113,933			—
Net cash provided by (used in) operating activities	(24,296,686		)	(17,177,982		)	5,499,226

Investing activities
Purchases of property, plant and equipment	(5,180,112		)	(5,681,941		)	(3,627,018		)
Sales of property, plant and equipment	39,176			104,850			—
Purchases of marketable securities	(67,151,391		)	(121,689,164		)	(250,192,325		)
Proceeds from sale and maturity of marketable securities	90,925,000			72,950,000			249,750,000
Decrease (increase) in restricted cash	1,979,678			(726,455		)	(120,911		)
Net cash provided by (used in) investing activities	20,612,351			(55,042,710		)	(4,190,254		)

Financing activities
Proceeds from sale of common stock, net of issuance costs	—			66,575,147			—
Proceeds from exercise of stock options and shares issued under the employee stock purchase plan	2,673,196			1,575,482			1,608,726
Proceeds from the issuance of long term debt	4,149,856			10,000,000			—
Net cash provided by financing activities	6,823,052			78,150,629			1,608,726

Net increase in cash and cash equivalents	3,138,717			5,929,937			2,917,698
Cash and cash equivalents, beginning of year	12,429,526			6,499,589			3,581,891
Cash and cash equivalents, end of year	$	15,568,243		$	12,429,526		$	6,499,589

Supplemental disclosure of cash flow information
Cash paid for interest was $599,104 for fiscal 2006. No interest was paid during the other reported fiscal years.

See accompanying notes.

ARRAY BIOPHARMA INC.

NOTES TO FINANCIAL STATEMENTS

1. Business Operations

Array BioPharma Inc. (the “Company”) is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat life threatening and debilitating diseases. The Company’s 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 partner with Array to discover and develop drug candidates across a broad range of therapeutic areas.

2. 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 June 30, 2006 and 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.

Fair Value of Financial Instruments

At June 30, 2006 and 2005, the Company’s financial instruments consisted of cash, cash equivalents, marketable securities, accounts receivable, accounts payable and debt. Marketable securities recorded as available-for-sale are recorded at their estimated fair value. The carrying amounts of all other instruments approximate fair value. See Note 3 — “Cash, Cash Equivalents and Marketable Securities” for a discussion of the fair value of the Company’s marketable securities. See Note 5 — “Long Term Debt” for a discussion of the fair value of the Company’s long term debt.

Accounts Receivable and Allowance for Doubtful Accounts

The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances when the Company is aware of a specific customer’s potential inability to meet its financial obligation, the Company records a specific reserve for bad debt against amounts due. For all other instances, the Company reviews the historical collections experience for its customers in determining if an allowance for doubtful accounts is deemed necessary. As of June 30, 2006 and 2005, the allowance for doubtful accounts was $10,000 and $57,000, respectively. The allowance for doubtful accounts decreased during fiscal 2006 as a result of recovering a single account that was fully reserved in prior fiscal years. At June 30, 2006, two separate customers accounted for approximately 21% and 19% of the Company’s total accounts receivable balance while three separate customers accounted for 55%, 15% and 14% of the accounts receivable balance at June 30, 2005.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, accounts receivable and investments in marketable securities. The Company maintains its cash balances in the form of bank demand deposits and money market funds. Cash equivalents and restricted cash consist of money market funds. Marketable securities consist of auction rate securities and federal agency mortgage-backed securities. All cash, cash equivalents, restricted cash and marketable securities are maintained with financial institutions that management believes are creditworthy. Accounts receivable are typically unsecured and are concentrated in the pharmaceutical and biotechnology industries. Accordingly, the Company may be exposed to credit risk generally associated with pharmaceutical and biotechnology companies.

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 Company’s 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 the level and value of its chemical inventories periodically and, when required, writes down the carrying cost for non-marketability to estimated net realizable value through an appropriate reserve.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Repairs and maintenance are charged to operations as incurred, and significant expenditures for additions and improvements are capitalized. Depreciation and amortization of equipment is computed using the straight-line method based on the following estimated useful lives:

Type of Property and Equipment		Estimated Useful Life
Computer hardware and software		3 years
Laboratory and analytical equipment		5 years
Furniture and fixtures		7 years
Leasehold improvements		See below

During 2002, the Company entered into a building lease for its Longmont, Colorado facility and modified an existing lease for its Boulder, Colorado facility, and in this process obtained options for extending all significant building leases up to, and beyond, 15 years. Due to the high cost to replace and the limited availability of laboratory facilities, the Company concluded that the exercise of a portion of its options to extend its lease terms to at least 15 years was reasonably assured and therefore amortized its leasehold improvements over this period of time. During the last quarter of fiscal 2005, the Company reassessed its facility requirements, and began to consider the possibility of consolidating operations in one of its existing locations, or a new location. At that time the Company was no longer reasonably assured that it would remain in its Boulder, Colorado location beyond the initial lease term, which would end in March 2008, but was reasonably assured that it would exercise its lease extensions and lease its Longmont, Colorado facility for at least 13 more years. Therefore, as of June 2005, the Company began amortizing its Boulder leasehold improvements over an accelerated period of 34 months representing the remaining initial lease term, which resulted in an additional expense of $1.6 million and approximately $141,000 for fiscal year 2006 and 2005, respectively. On June 22, 2006, the Company executed a series of agreements involving the assignment of facility purchase options that it owned and the subsequent signing of lease agreements for these same facilities over a ten-year lease term. Therefore, during the latter part of June 2006, the Company began amortizing its leasehold improvements over the new ten-year lease terms for both the Boulder and Longmont, Colorado facilities.

Software Development Costs

The Company uses software it develops for capturing, searching and presenting data. The Company capitalizes direct, payroll-related software development costs for time incurred during the software development stage where the computer software project is intended to create a new system or add identifiable functionality to an existing system. All other costs, including time incurred for preliminary project planning, training, implementation or ongoing maintenance, are expensed in the period incurred. Total capitalized costs were approximately $223,000, $506,000 and $351,000 for fiscal years 2006, 2005 and 2004, respectively, and are being amortized on a straight-line basis over a period of three years.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of the assets may not be recoverable. Recoverability is measured by comparison of the assets’ book value to future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceeds the projected discounted future net cash flows arising from the assets.

Deferred Rent

The Company’s prior and current facilities leases provide for annual rent increases, and the Company recognizes the average annual rent expense over the term of the lease on a straight-line basis. As a result, the amount of rent expense recorded will exceed the Company’s actual cash rent payments during the early part of the lease term and be below the actual cash rent payments during the latter part of the lease term. The Company records deferred rent equal to the difference between the actual cash payments and the amount recognized as rent expense for the Company’s facilities leases. Under the Company’s leases in effect during fiscal 2006, rent expense was recognized ratably over the life of the lease for the Company’s Boulder facility, which originally was set to expire in March 2008, and over the life of the lease and one of the optional extension periods, which was set to expire in May 2018, for its Longmont facility. As described in Note 10 — “Subsequent Events”, the Company executed new leases with a different landlord for its Boulder and Longmont facilities subsequent to June 2006. As a result, the Company has reflected the entire June 30, 2006 deferred rent balance of $1.5 million as a current liability as it intends to reverse the full amount as a reduction to rent expense during the first quarter of fiscal 2007.

Bonus Program

The Company has implemented a cash performance-based bonus program that covers substantially all employees. The size of the bonus pool is determined based on the achievement of Company-wide goals and other performance measures approved by the Board of Directors at the start of each fiscal year, and individual bonuses are awarded based on pre-determined target bonus percentages for each employee level. Bonus accruals are estimated throughout the fiscal year based on various factors, including target bonus percentages per level of employee and probability of achieving Company goals upon which bonuses are based. The Company reviews the actual progress made towards these goals under the bonus programs and adjusts the accrual accordingly at each fiscal year-end. As of June 30, 2006 and 2005, accrued compensation and benefits included $3.4 million and $2.7 million, respectively, for accrued bonus payments expected to be paid in cash subsequent to each fiscal year-end. For the year ended June 30, 2004, the Company did not pay a cash bonus.

Revenue Recognition

Most of the Company’s 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 Company’s 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 Company’s revenue comes from fixed fee revenue 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 Company’s customers. 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.

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.

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.

Segment and Geographic 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 Company’s 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 of where compounds are shipped.

	Years Ended June 30,
	2006		2005		2004

North America	$	30,969,478	$	29,162,359	$	23,799,660
Europe	7,652,993		12,680,730		6,483,833
Japan and Asia-Pacific	6,380,504		3,662,427		4,547,497
Total revenue	$	45,002,975	$	45,505,516	$	34,830,990

Approximately 93%, 97% and 94% of the revenue generated from sales to Europe during the years ended June 30, 2006, 2005 and 2004, respectively, is related to the Company’s collaboration and licensing agreement with AstraZeneca PLC, located in Sweden. For the years ended June 30, 2006 and June 30, 2004, revenue from Japanese collaborations exceeded 10% of the Company’s revenue. No other individual international country exceeded 10% of the Company’s revenue for the periods presented.

During fiscal year 2006, revenue from Genentech, InterMune and AstraZeneca, accounted for 35%, 24% and 16%, respectively, of the Company’s total revenue. During fiscal year 2005 these same collaborators accounted for 28%, 10% and 27%, respectively, of the Company’s total revenue. During fiscal year 2004, revenue from AstraZeneca, Genentech and Eli Lilly and Company, accounted for 18%, 13% and 12%, respectively, of the Company’s total revenue.

Shipping and Handling Costs

Amounts billed to customers for shipping and handling are reported within collaboration revenue and costs incurred for shipping and handling of products are included in cost of revenue.

Cost of Revenue

The Company’s out-licensing and collaboration agreements provide for research funding based on the number of full time equivalent scientists performing research on a program. The Company does not bear any risk of failure for performing these activities and the payments are not contingent based on the success or failure of the research program. Accordingly, the Company expenses these costs when incurred as cost of revenue.

Research and Development Costs

Research and development costs are expensed as incurred.

Advertising and Promotion Expenses

Advertising and promotion costs are expensed as incurred. The amount charged against operations for the years ended June 30, 2006, 2005 and 2004 was approximately $19,000, $71,000 and $47,000, respectively.

Patents and Patent Application Costs

Patents and patent application costs are expensed as incurred as selling, general and administrative expenses.

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 Company’s Amended and Restated Stock Option and Incentive Plan (the “Option Plan”) is recognized as compensation expense over the option-vesting period. In addition, the Company’s 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 Company’s common stock as reported on the first or last day of each 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 Company’s 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.

The Company recorded $6.2 million, or $0.16 per share, of total share-based compensation expense for the fiscal year ended June 30, 2006 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 amortized 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 expected to be purchased during each offering period and the percentage of the purchase discount. These charges had no impact on the Company’s reported cash flows. During the fiscal years ended June 30, 2005 and 2004, the Company recorded approximately $151,000 and $2.0 million 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:

	Years Ended June 30,
	2006		2005		2004
Cost of revenue	$	2,089,468	$	113,251	$	1,492,095
Research and development for proprietary drug discovery	1,340,916		—		—
Selling, general and administrative expenses	2,726,731		37,753		484,563
Total	$	6,157,115	$	151,004	$	1,976,658

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 fiscal 2006 are not comparable to the prior fiscal years.

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.

	Years Ended June 30,
	2005			2004

Net loss, as reported	$	(23,244,024	)	$	(25,965,860	)
Add: Share-based employee compensation expense included in reported net loss	151,004			1,976,658

Less: Total share-based employee compensation expense determined under fair value based methods for all options granted	(7,222,225		)	(7,723,166		)
Pro forma net loss	$	(30,315,245	)	$	(31,712,368	)

Net loss per share:
Basic and diluted - as reported	$	(0.68	)	$	(0.91	)
Basic and diluted - pro forma	$	(0.89	)	$	(1.11	)

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. Beginning in fiscal year 2006, the Company calculated the estimated life of stock options granted using a “simplified” method, which is based on the average of the vesting term and the actual 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. During the fourth quarter of 2006, the Company conducted a detailed evaluation of historical unexercised employee stock options that resulted in an estimated stock option life that was directly comparable to that calculated under the simplified method described above. 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 Company’s initial public offering, through the last day of the applicable period. For options granted in fiscal years 2005 and 2004, the Company based its volatility estimate under the same method as fiscal year 2006, using the period from November 1, 2001 through the last day of the applicable period.

	Average Risk- Free Interest Rate		Dividend Yield		Average Volatility Factor		Weighted- Average Option Life (Years)	Calculated Fair Value of Options Granted
Fiscal Year 2006	4.56	%	0	%	77.7	%	6.37	$	4.71
Fiscal Year 2005	3.70	%	0	%	75.5	%	5	$	4.92
Fiscal Year 2004	3.77	%	0	%	81.6	%	5	$	5.07

The Black-Scholes option pricing model requires the input of highly subjective assumptions. Because the Company’s 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 management’s 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 may result in changes to these assumptions and methodologies, and which could materially impact the Company’s fair value determination.

Summary Details for Plan Share Options

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in millions)
Outstanding Balance, June 30, 2003	5,715,577		$	6.16
Granted	1,281,749		5.13
Exercised	(410,034	)	1.75
Forfeited or expired	(308,455	)	7.04
Outstanding Balance, June 30, 2004	6,278,837		6.19
Granted	773,884		7.72
Exercised	(214,920	)	2.49
Forfeited or expired	(203,260	)	7.20
Outstanding Balance, June 30, 2005	6,634,541		6.46
Granted	1,936,100		6.58
Exercised	(572,995	)	3.89
Forfeited or expired	(402,154	)	7.40
Outstanding Balance, June 30, 2006	7,595,492		6.63		6.6	$	17.5

Exercisable shares as of June 30, 2006	4,541,392		6.63		5.3	$	11.5

The weighted-average, grant-date fair value of options granted during the fiscal year ended June 30, 2006 was $4.71 based on using the Black-Scholes option pricing model on the date of grant. The total intrinsic value of options exercised during the fiscal year ended June 30, 2006 was $2.6 million and represents the difference between the exercise price of the option and the closing market price of the Company’s common stock on the dates exercised.

A summary of the status of the Company unvested shares as of June 30, 2006, and changes during the fiscal year then ended is presented below.

Unvested Shares Issued Under the Plan

	Nonvested Shares		Weighted-Average Grant-Date Fair Value
Unvested Balance, June 30, 2005	2,649,739		$	4.88
Granted	1,936,100		4.71
Vested	(1,234,205	)	5.33
Forfeited	(297,534	)	4.76
Unvested Balance, June 30, 2006	3,054,100		4.60

Unrecognized Share-Based Compensation Expense

As of June 30, 2006, there was $9.3 million of 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 2007	$	3,654
Fiscal Year 2008	2,887
Fiscal Year 2009	1,854
Fiscal Year 2010	907
	$	9,302

Comprehensive Income (Loss)

The Company discloses, in addition to net loss, comprehensive income (loss) and its components including unrealized gains and losses on investments in debt and equity securities. The Company has disclosed comprehensive income (loss) within its statements of stockholders’ equity and comprehensive income (loss).

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 calculated using the treasury stock method relating to these stock options excluded from the diluted loss per share calculations for the years ended June 30, 2006, 2005 and 2004 were 1,486,695 shares, 1,701,239 shares and 623,365 shares, respectively.

Use of Management’s 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.

Recent Accounting Pronouncements

The Company believes that the adoption of all recently issued accounting pronouncements will have no impact on its financial condition or results of operations.

3. Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities classified as available-for-sale and restricted cash as of June 30, 2006 and 2005 consist of the following:

	As of June 30,
	2006		2005
Cash and cash equivalents:
Cash	$	449,197	$	440,958
Money market fund	15,119,046		11,988,568
Total	$	15,568,243	$	12,429,526

Marketable securities:
Auction rate securities	$	17,528,050	$	28,553,313
Federal agency mortgage-backed securities	37,003,535		49,743,469
Total	$	54,531,585	$	78,296,782

Restricted cash:
Money market fund	$	—	$	1,979,678

Unrealized losses on available-for-sale securities at June 30, 2006 and 2005 were approximately $271,000 and $279,000, respectively. The unrealized losses at both dates were related to the Company’s investment in federal agency mortgage-backed securities. The fair values of these investments at June 30, 2006 and 2005 were $36.6 million and $49.2 million (excluding approximately $392,000 and $523,000 of accrued interest), respectively, compared to the Company’s original cost of $36.9 million and $49.5 million, respectively. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2006 and 2005.

At June 30, 2005, the Company had a restricted cash balance of $2.0 million, as a compensating balance to support outstanding standby letters of credit that were issued in relation to the Company’s facilities leases.

Debt securities at June 30, 2006 and 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. The near-term reset dates are used as the effective maturity dates for classifying auction rate securities.

	As of June 30,
	2006		2005
Marketable securities:
Due in one year or less	$	44,131,791	$	56,147,883
Due after one year through two years	10,399,794		22,148,899
Total	$	54,531,585	$	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.

4. Balance Sheet Components

	As of June 30,
	2006			2005
Inventories:
Fine chemicals	$	1,857,242		$	2,884,541
Optimer building blocks	2,009,424			2,186,260
Total inventories at cost	3,866,666			5,070,801
Less reserves	(2,221,228		)	(2,917,315		)
Total inventories, net	$	1,645,438		$	2,153,486

At June 30, 2006, fully reserved fine chemical inventory of $1.2 million was written off and applied to the reserve balance.

	As of June 30,
	2006			2005
Property, plant and equipment:
Laboratory equipment	$	32,363,281		$	28,483,646
Computer hardware and software	7,849,501			7,491,534
Furniture and fixtures	1,625,838			1,527,281
Leasehold improvements	23,979,352			23,826,346
Equipment and computer software in progress	321,170			188,168
Total property, plant and equipment, gross	66,139,142			61,516,975
Less accumulated depreciation and amortization	(38,829,755		)	(30,210,523		)
Total property, plant and equipment, net	$	27,309,387		$	31,306,452

Depreciation and amortization expense was $9.0 million, $8.0 million and $8.0 million for the years ended June 30, 2006, 2005 and 2004, respectively.

5. Long Term Debt

The Company entered into a Loan and Security Agreement (“Loan and Security Agreement”) with Comerica Bank (“Comerica” or “Bank”) dated June 28, 2005, as amended. 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 Company’s 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 6.5% 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 June 30, 2006, the Company has received $4.1 million of equipment advances, which currently have an interest rate of 6.5% per annum and a maturity date of June 28, 2010. A revolving line of credit in the amount of $2 million supports outstanding standby letters of credit that have been issued in relation to the Company’s facilities leases. These standby letters of credit expire on June 28, 2008.

The outstanding balances under the term loan, the equipment advances and the revolving line of credit bear interest on a monthly basis at one of the following interest rates elected by the Company from time to time:

· A rate equal to one and three-quarters percent (1.75%) below the Prime “Base Rate” as quoted by the Bank from time to time; or

· A rate equal to one percent (1.00%) above the Bank’s LIBOR rate, which rate shall remain in effect during the relevant LIBOR period; or

· A rate equal to one and one quarter percent (1.25%) above the Bank’s Cost of Funds rate, which rate shall remain in effect during the relevant Cost of Funds period.

Should the Company maintain less than $10,000,000 at the Bank at any time during any interest rate period, the interest rate the Company pays will be 0.50% higher than shown above.

If the Company’s total cash, cash equivalents and marketable securities, including those invested at the Bank, falls below $40 million, between $30 million and $25 million, or below $25 million, the minimum required balance maintained at the Bank shall be $2 million, $8.5 million and $17 million, respectively. If the Company’s total cash, cash equivalents and marketable securities, including those invested at the Bank, falls below $20 million, the loans become due. See Note 10 — “Subsequent Events” for a description of an amendment to the Loan and Security Agreement and related modification to the specified minimum cash balances.

The Loan and Security Agreement contains representations and warranties and affirmative and negative covenants that are customary for credit facilities of this type. The Loan and Security Agreement could restrict the Company’s 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 Loan and Security Agreement also contains events of default that are customary for credit facilities of this type, including payment defaults, covenant defaults, insolvency type defaults and events of default relating to liens, judgments, material misrepresentations and the occurrence of certain material adverse events.

Interest on the loans is payable in monthly installments, with a balloon payment of $14.1 million due in June 2010.

6. Commitments - Operating Leases and Purchase Obligations

The Company leases facilities and equipment under various noncancelable operating lease agreements. Rent expense under these agreements was $4.7 million, $5.6 million and $4.3 million for the years ended June 30, 2006, 2005 and 2004, respectively. Deferred rent credits recognized for the year ended June 30, 2006 was approximately $353,000 while deferred rent charges were approximately $515,000 and $462,000, respectively, for the years ended June 30, 2005 and 2004. As of June 30, 2006, future minimum rental commitments, by fiscal year and in the aggregate, for the Company’s operating leases are as follows:

	Amount
2007	$	5,085,223
2008	4,803,782
2009	3,698,034
2010	3,799,060
2011	3,912,934
Thereafter	24,984,759
Total minimum lease payments	$	46,283,792

On June 22, 2006, the Company entered into a series of agreements involving the assignment to BioMed Reality L.P. (“BioMed”) of options it acquired to purchase the facilities that it occupied in Boulder and Longmont, Colorado and the subsequent lease of those facilities from BioMed. Pursuant to an Assignment Agreement dated June 22, 2006 between Array and BioMed (the “Assignment Agreement”), BioMed agreed to purchase these facilities in both Boulder and Longmont.

As part of the transaction, the Company entered into an Option Agreement on June 22, 2006 with 3200 Walnut LL, LLC, pursuant to which it acquired an option to purchase the Boulder facility. Pursuant to the Assignment Agreement, the Company assigned this option to purchase the Boulder facility as well as the right to purchase the Longmont facility which was exercised on June 22, 2006. The Company also entered into an Absolute Triple Net Lease dated June 22, 2006 with Walnut LL, LLC that has a term of 10 years commencing April 1, 2008 but only if the purchase of the Boulder facility by BioMed failed to consummate.

On July 7, 2006, BioMed purchased the Boulder facility and the Company’s obligation under the Absolute Triple Net Lease with Walnut LL, LLC terminated along with its obligation under an existing Sublease with Amgen Inc. for the Boulder facility. Operating lease obligations included in the above table related to the Absolute Triple Net

lease and the Sublease with Amgen, were $33.0 million and $7.4 million, respectively. On July 7, 2006, the Company entered into a 10-year lease agreement with BioMed for the Boulder facility with total obligations under the lease amounting to $52.0 million over the lease term.

On August 9, 2006, BioMed purchased the Longmont facility and the Company’s obligation under its existing lease agreement with Circle Capital Longmont LLC dated February 28, 2000, as amended, for the Longmont facility terminated. The operating lease obligation included in the above table related to the lease with Circle Capital was $5.6 million. On August 9, 2006 the Company entered into a 10-year lease agreement with BioMed for the Longmont facility with total obligations under the lease amounting to $24.2 million over the lease term.

See Note 10 — “Subsequent Events” for a further description of the above transactions.

At June 30, 2006, the Company had outstanding purchase obligations totaling $6.3 million, primarily for outsourced pharmacology services, laboratory equipment, chemicals and supplies.

7. Employee Savings Plan

The Company has a 401(k) plan that allows participants to contribute 1% to 60% of their salary, subject to eligibility requirements and annual IRS limits. The Company matches employee contributions on a discretionary basis as determined by the Company’s Board of Directors. During fiscal year 2006, 2005 and 2004, the Company paid matching contributions of approximately $932,000, $780,000 and $326,000, respectively. Company contributions are fully vested after four years of employment.

8. Stock Compensation Plans and Stockholder Rights Plan

In September 2000, the Company’s 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 Company’s 1998 Stock Option Plan (the “1998 Plan”), initially adopted by the Board of Directors in July 1998. Upon the closing of the Company’s initial public offering, the Option Plan became effective and no additional grants were made under the 1998 Plan. A total of 14.6 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, 3.9 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 Company’s 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 June 30, 2006, there were 3.6 million shares available for future issuance under the 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 Company’s common stock. A total of 12.0 million shares of common stock may be issued as incentive stock options as of June 30, 2006.

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.

A summary of options outstanding as of June 30, 2006, is as follows:

	Outstanding Options				Exercisable Options
Exercise Price	Shares Under Option	Weighted-Average Remaining Contractual Life	Weighted- Average Exercise Price		Shares Currently Exercisable	Weighted- Average Exercise Price
$0.24	192,845	2.8	$	0.24	192,845	$	0.24
$0.25-$0.60	824,352	3.6	0.60		824,352	0.60
$0.61-$3.00	163,431	4.7	2.90		149,931	2.94
$3.01-$6.00	770,212	6.8	3.70		383,297	3.94
$6.01-$7.00	1,920,272	8.9	6.53		154,191	6.59
$7.01-$8.50	1,313,964	6.8	8.11		735,660	8.19
$8.51-$9.00	788,016	6.3	8.67		557,666	8.67
$9.01-$10.50	1,052,000	5.8	9.31		984,350	9.32
$10.51-$14.28	570,400	5.6	11.72		559,100	11.74
	7,595,492	6.6	6.63		4,541,392	6.63

Deferred Stock-Based Compensation

The Company had deferred stock-based compensation balances related to certain stock options granted to employees prior to the Company’s November 2000 initial public offering. Stock compensation expense was recognized on a straight-line basis over the vesting periods of the related options, which was generally four years, except for options with performance-based vesting provisions. The Company recognized stock compensation expense of approximately $151,000 and $2.0 million for fiscal years 2005 and 2004, respectively. As of June 30, 2005, the Company had no remaining deferred stock-based compensation to be amortized in future periods.

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 offering periods begin January 1 and end December 31. However, on July 1 st of each year, if the stock price on July 1 is lower than the stock price on January 1, then the 12-month offering period would terminate and the purchase rights under that offering period would roll forward into a new six-month offering period that would begin July 1 and end December 31. The Compensation Committee may modify the duration of the offering periods and the purchase periods again in the future. At the end of the 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 market 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 fiscal years 2006, 2005 and 2004 total shares issued under the ESPP were 108,588, 179,905 and 240,865, respectively. As of June 30, 2006, there were 49,975 shares available for future issuance under the ESPP. On December 9, 2005, the Company’s Board of Directors approved an additional 450,000 shares of common stock for issuance under the ESPP, subject to stockholder approval at the annual meeting of stockholders expected to be held on November 2, 2006.

Stockholder Rights Plan

In August 2001, the Company adopted a Stockholder Rights Plan designed to ensure that the Company’s stockholders receive fair and equal treatment in the event of an unsolicited attempt to take control of the Company and to deter coercive or unfair tactics by potential acquirers. The Stockholder Rights Plan imposes a significant penalty upon any person or group that acquires 15% or more of the Company’s outstanding common stock without the approval of the Company’s Board of Directors. Under the Stockholder Rights Plan, a dividend of one Preferred Stock Purchase Right was declared for each common share held of record as of the close of business on August 27, 2001. Each right entitles the holder to purchase 1/100 th of a share of Series A Junior Participating Preferred Stock for an exercise price of $70.00 per share. The rights generally will not become exercisable unless an acquiring entity accumulates or initiates a tender offer to purchase 15% or more of the Company’s common stock. In that event, each right will entitle the holder, other than the unapproved acquirer and its affiliates, to purchase upon the payment of the exercise price a number of shares of the Company’s common stock having a value of two times the exercise price. If the Company is not the surviving entity in a merger or stock exchange, or 50% or more of the Company’s assets or earning power are sold in one or more related transactions, each right would entitle the holder thereof to purchase for the exercise price a number of shares of common stock of the acquiring company having a value of two times the exercise price. The rights expire on August 2, 2011.

9. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A reconciliation of the Company’s effective tax rate from the federal statutory income tax rate is as follows:

	Years Ended June 30,
	2006		2005		2004
Expected federal income tax expense at statutory rate of 34%	34.0	%	34.0	%	34.0	%
Generation of research and development tax credit	4.0	%	5.1	%	3.7	%
Non-deductible SFAS 123R share-based compensation expense	(5.3	%)	—	%	—	%
Effect of other permanent differences	0.6	%	0.1	%	(1.4	%)
State income tax expense, net of federal benefit	2.6	%	3.1	%	2.9	%
Change in valuation allowance	(35.9	%)	(42.3	%)	(39.2	%)
	—	%	—	%	—	%

The components of the Company’s deferred tax assets and liabilities are as follows:

	As of June 30,
	2006			2005
Deferred tax assets:
Net operating loss carryforwards	$	29,542,847		$	29,248,422
Research and development credit carryforwards	5,517,659			3,921,333
Advance payments from collaborators	394,478			2,354,584
Deferred rent	12,562,343			628,499
Inventory reserve	823,094			1,081,034
Accrued benefits	1,729,077			294,550
Depreciation of property, plant and equipment	984,947			—
Other	40,459			51,513
Total deferred tax assets	51,594,904			37,579,935
Valuation allowance	(51,594,904		)	(37,132,765		)
Net deferred tax assets	—			447,170
Deferred tax liabilities:
Depreciation of property, plant and equipment	—			(447,170		)
Net deferred taxes	$	—		$	—

Based upon the level of historical taxable loss and projections of future taxable loss over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences, and accordingly has established a full valuation allowance as of June 30, 2006 and 2005. The amount of the deferred tax asset considered realizable could be increased in the future if taxable income is achieved and appears to be sustainable.

For tax purposes, in fiscal year 2006, the Company recognized approximately $32 million as a taxable gain and created a deferred tax asset from the facilities purchase options that it assigned to a third-party. See Note 10 — “Subsequent Events” for a further description of these transactions.

As of June 30, 2006 approximately $1.6 million of net operating loss deferred tax assets relates to disqualifying dispositions of employee stock options. In future periods, if the Company determines that a valuation allowance is no longer necessary, the portion related to disqualifying dispositions of employee stock options will reverse against additional paid-in capital rather than be recognized as an income tax benefit on the statement of operations.

At June 30, 2006, the Company has the following net operating loss and tax credit carryforwards for income tax purposes:

Expiration date:	Net Operating Losses		Research and Development Credits
2018	$	49,000	$	—
2019	4,468,000		135,000
2020	4,494,000		147,000
2021	5,560,000		287,000
2022	6,180,000		485,000
2023	17,328,000		715,000
2024	8,973,000		960,000
2025	31,825,000		1,192,000
2026	848,000		1,597,000
	$	79,725,000	$	5,518,000

The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a “change of ownership” as described in Section 382 of the Internal Revenue Code. Such a change of ownership may limit the Company’s utilization of its net operating loss and tax credit carryforwards, and could be triggered by subsequent sales of securities by the Company or its stockholders.

10. Subsequent Events

Assignment and Facility Lease Agreements. On June 22, 2006, the Company entered into a series of agreements involving the assignment to BioMed Reality L.P. (“BioMed”) of options it acquired to purchase the facilities that it occupied in Boulder and Longmont, Colorado and the subsequent lease of those facilities from BioMed. Pursuant to an Assignment Agreement dated June 22, 2006 between Array and BioMed (the “Assignment Agreement”), BioMed agreed to purchase these facilities in both Boulder and Longmont. Pursuant to the Assignment Agreement, the Company assigned the option to purchase the Boulder facility as well as an existing option to purchase the Longmont facility to BioMed for a total of $30.5 million, payable upon the purchase of the Boulder and Longmont facilities by BioMed.

On July 7, 2006, BioMed completed the purchase of the Boulder facility as contemplated by the Assignment Agreement (the “Boulder Closing”) and paid the Company a total of $16.5 million pursuant to the Assignment Agreement. As part of the transactions contemplated by the Assignment Agreement, the Company also entered into a lease agreement with BioMed, dated July 7, 2006, for the Boulder facility (the “Boulder Lease”). The Boulder Lease has a term of 10 years with an initial rental rate of $4.8 million annually, subject to 2% annual increases, with the right to extend for up to two additional five-year terms. In addition, the Company received a tenant improvement allowance of $1.7 million under the Boulder Lease . Upon the Boulder Closing, the existing sublease with Amgen and the related lease agreements with the landlord terminated.

On August 9, 2006, BioMed completed the purchase of the Longmont facility as contemplated by the Assignment Agreement (the “Longmont Closing”) and paid the Company a total of $14.0 million pursuant to the Assignment Agreement. As part of the transactions contemplated by the Assignment Agreement, the Company also entered into a lease agreement with BioMed, dated August 9, 2006, for the Longmont facility (the “Longmont Lease”). The Longmont Lease has a term of 10 years with an initial rental rate of $2.2 million annually, subject to 2% annual increases, with the right to extend for up to two additional five-year terms. In addition, the Company received a tenant improvement allowance of $300,000 under the Longmont Lease . Upon the Longmont Closing, the lease agreement for the Longmont facility terminated.

The Company intends to record the combined net proceeds from BioMed of approximately $32.5 million for the above transactions as deferred rent which will be recognized on a straight-line basis as a reduction to rent expense over the related ten-year lease terms.

Amendment to Loan and Security Agreement. On July 7, 2006, the Company entered into a Second Amendment to a Loan and Security Agreement (“Second Amendment”) with Comerica Bank (“Bank”) dated June 28, 2005, as amended. The Second Amendment increases the combined letters of credit under the revolving loan commitment to a maximum of $6,750,000. In addition, under the Second Amendment the specified minimum cash balances to be maintained at the Bank were modified as follows. If the Company’s total cash, cash equivalents and marketable securities, including those invested at the Bank, falls below $40 million, between $30 million and $27.5 million, or below $27.5 million, the minimum required balance maintained at the Bank shall be $2 million, $13 million and $24 million, respectively.

11. Selected Quarterly Financial Data (Unaudited)

The tables below summarize the Company’s unaudited quarterly operating results for fiscal years 2006 and 2005.

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
FISCAL YEAR 2006
Total revenue	$	11,241,747		$	11,940,072		$	11,696,526		$	10,124,630
Cost of revenue	9,389,645			10,012,941			10,561,060			9,647,194
Net loss	(9,672,043		)	(8,711,194		)	(9,187,494		)	(12,042,776		)

Basic and diluted net loss per share (1)	(0.25		)	(0.23		)	(0.24		)	(0.31		)

FISCAL YEAR 2005
Total revenue	$	9,857,007		$	12,048,445		$	11,555,739		$	12,044,325
Cost of revenue	8,793,127			9,464,030			9,572,711			10,218,209
Net loss	(5,615,328		)	(4,877,017		)	(6,234,606		)	(6,517,073		)

Basic and diluted net loss per share	(0.19		)	(0.16		)	(0.16		)	(0.17		)

(1) Net loss per share is calculated independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share will not necessarily equal the total for the full fiscal year.

ARRAY BIOPHARMA INC.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 2006, 2005 AND 2004

	Balance at Beginning of Period		Amounts Charged (Credited) to Expense			Deductions Charged to Reserves			Balance at End of Period

Allowance for doubtful accounts:
Fiscal year ended June 30, 2006	$	57,000	$	(47,000	)	$	—		$	10,000
Fiscal year ended June 30, 2005	54,550		2,450			—			57,000
Fiscal year ended June 30, 2004	26,500		28,050			—			54,550

Inventory reserve:
Fiscal year ended June 30, 2006	$	2,917,315	$	551,401		$	1,247,488	(3)	$	2,221,228
Fiscal year ended June 30, 2005	6,628,384		717,208			4,428,277		(2)	2,917,315
Fiscal year ended June 30, 2004	5,651,644		6,539,093		(1)	5,562,353		(1)	6,628,384

(1) During fiscal year 2004, the Company recorded $5.6 million of charges to cost of revenue associated with increases in its inventory reserves for excess Lead Generation Library and Optimer building block inventory. At June 30, 3004 fully reserved inventory of $5.6 million was written off and applied to these established reserves, which had no impact on the reported results of operations.

(2) During the second quarter of fiscal year 2005, the Company received $1.4 million for the sale of compounds with a carrying value of approximately $700,000 that represented the remaining net book value of the Lead Generation Library inventory. During this same period, Lead Generation Library inventory with a cost of $4.4 million was applied against previously established reserves of the same amount, which had no impact on the reported results of operations.

(3) During the fourth quarter of fiscal year 2006, fully reserved fine chemical inventory of $1.2 million was written off and applied to established reserve balances, which had no impact on the reported results of operations.

The Company has not and does not anticipate recognizing any revenue from sales or licensing of any inventory that has been written off in any prior periods.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Array BioPharma Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Array BioPharma Inc. maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Array BioPharma Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, and testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Array BioPharma Inc. maintained effective internal control over financial reporting as of June 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Array BioPharma Inc. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Array BioPharma Inc. as of June 30, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the years then ended and financial statement schedule II as of June 30, 2006 and 2005, and our report dated September 1, 2006 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ KPMG LLP

Boulder, Colorado
September 1, 2006

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None - Not Applicable

Item 9A. Controls and Procedures

Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are effective in ensuring that information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods required by SEC rules and regulations.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management’s evaluation under the COSO framework of our internal control over financial reporting, management concluded that our internal control over financial reporting was effective as of June 30, 2006.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

KPMG LLP, our independent registered public accounting firm, has issued an attestation report on our management’s assessment of the effectiveness of our internal control over financial reporting as of June 30, 2006, as stated in their report, which appears at the end of Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

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. 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. For the quarter ended September 30, 2005, 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 Array’s 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 at that time. Management identified steps considered necessary to remediate this weakness, including additional training of finance personnel, additional review and reconciliation of transactional data, and improvements to the software programs used in calculating share-based compensation expense. These improvements were implemented during the second quarter of fiscal 2006 and tested at each subsequent quarter-end period. Management concluded, based on the results of these tests, that the material weakness has been remediated as of June 30, 2006.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to material affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable

PART III

The information required by this item is incorporated by reference from the information under the captions “Proposal 1-Election of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement of Array BioPharma Inc. relating to the annual meeting of stockholders to be held on November 2, 2006.

Code of Ethics

We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct is posted under the Investor Relations portion of our website at www.arraybiopharma.com.

We intend to satisfy the disclosure requirement of Form 8-K regarding amendments to or waivers from a provision of our Code of Business Conduct by posting such information on our website at www.arraybiopharma.com and, to the extent required by the Nasdaq Stock Market, by filing a current report on Form 8-K with the SEC, disclosing such information.

Item 11. Executive Compensation

The information required by this item is incorporated by reference from the information under the caption “Executive Compensation” contained in the Proxy Statement of Array BioPharma Inc. relating to the annual meeting of stockholders to be held on November 2, 2006.

The information required by this item is incorporated by reference from the information under the caption “Principal Stockholders” contained in the Proxy Statement of Array BioPharma Inc. relating to the annual meeting of stockholders to be held on November 2, 2006.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of June 30, 2006 about the shares of common stock that may be issued upon the exercise of options, warrants and rights under our existing equity compensation plans, which include the Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan and the Array BioPharma Inc. Employee Stock Purchase Plan.

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-Average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
Equity compensation plans approved by stockholders:
Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan (1)	7,595,492	$	6.63	4,079,079
Array BioPharma Inc. Employee Stock Purchase Plan	—	—		49,975
Equity compensation plans not approved by stockholders	—	—		—
Total	7,595,492	$	6.63	4,129,054

(1) The shares available for issuance under the Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan (the “Plan”) is increased automatically by an amount equal to the difference between (a) 25% of our issued and outstanding shares of capital stock (on a fully diluted, as converted basis), and (b) the sum of the shares relating to outstanding option grants plus the shares available for future grants under the Plan.

The information required by this item is incorporated by reference from the information under the caption “Certain Relationships and Transactions” contained in the Proxy Statement of Array BioPharma Inc. relating to the annual meeting of stockholders to be held on November 2, 2006.

The information required by this item is incorporated by reference from the information under the caption “Fees Billed by the Principal Accountant” contained in the Proxy Statement of Array BioPharma Inc. relating to the annual meeting of stockholders to be held on November 2, 2006.

PART IV

(a) 1. FINANCIAL STATEMENTS

The financial statements are listed under Part II, Item 8 of this report.

Index to Financial Statements

a) Balance Sheets at June 30, 2006 and 2005

b) Statements of Operations for each of the years in the three-year period ended June 30, 2006

c) Statements of Stockholders’ Equity and Comprehensive Income (Loss) for each of the years in the three-year period ended June 30, 2006

d) Statements of Cash Flows for each of the years in the three-year period ended June 30, 2006

e) Notes to Financial Statements

2. FINANCIAL STATEMENT SCHEDULES

The following financial schedule of Array BioPharma Inc. is included under Part II, Item 8 of this report:

Schedule II — Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted because they are not required, are not applicable or the information is included in the financial statements or notes thereto.

3. EXHIBITS

Exhibits are set forth in the “Exhibit Index” below.

(b) EXHIBITS — Registrant hereby files as part of this Annual Report Form 10-K the exhibits listed on the “Exhibit Index” below.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 1, 2006
	By:	/s/ Robert E. Conway
		Robert E. Conway
		Chief Executive Officer

SIGNATURE	TITLE

/s/ ROBERT E. CONWAY	Chief Executive Officer and Director	September 1, 2006
Robert E. Conway	(Principal Executive Officer)

/s/ KYLE A. LEFKOFF	Chairman of the Board of	September 1, 2006
Kyle A. Lefkoff	Directors

/s/ R. MICHAEL CARRUTHERS	Chief Financial Officer	September 1, 2006
R. Michael Carruthers	(Principal Financial and Accounting Officer)

/s/ FRANCIS J. BULLOCK	Director	September 1, 2006
Francis J. Bullock, Ph.D.

/s/ MARVIN H. CARUTHERS	Director	September 1, 2006
Marvin H. Caruthers, Ph.D.

/s/ KEVIN KOCH	Director	September 1, 2006
Kevin Koch, Ph.D.

/s/ DAVID L. SNITMAN	Director	September 1, 2006
David L. Snitman, Ph.D.

/s/ GIL J. VAN LUNSEN	Director	September 1, 2006
Gil J. Van Lunsen

/s/ DOUGLAS E. WILLIAMS	Director	September 1, 2006
Douglas E. Williams, Ph.D.

/s/ JOHN L. ZABRISKIE	Director	September 1, 2006
John L. Zabriskie, Ph.D.

EXHIBIT INDEX

Exhibit
No.		Description
3.1	(1)	Amended and Restated Certificate of Incorporation of Array BioPharma Inc.
3.2	(1)	Amended and Restated Bylaws of Array BioPharma Inc.
3.3	(3)	Certificate of Designation of the Series A Junior Participating Preferred Stock
4.1	(1)	Specimen certificate representing the common stock
10.1	(1)	1998 Stock Option Plan effective July 1, 1998, as amended*
10.2	(7)	Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan, as amended*
10.3	(7)	Array BioPharma Inc. Employee Stock Purchase Plan, as amended*
10.4		Form of Incentive Stock Option Agreement, as amended*
10.5		Form of Nonqualified Stock Option Agreement, as amended*
10.6	(9)	Amendment to Array BioPharma Inc. Employee Stock Purchase Plan*
10.7	(12)	Amendment to the Array BioPharma Inc. Employee Stock Purchase Plan, as amended and restated September 12, 2002 and as amended on April 29, 2004.*
10.8	(1)	Preferred and Common Stock Purchase Agreement between Registrant and the parties whose signatures appear on the signature pages thereto dated May 18, 1998
10.9	(1)	Amendment to Preferred and Common Stock Purchase Agreement dated August 7, 1998
10.10	(1)	Series B Preferred Stock Purchase Agreement between Registrant and the parties whose signatures appear on the signature pages thereto dated November 16, 1999
10.11	(1)	Series C Preferred Stock Purchase Agreement between Registrant and the parties whose signatures appear on the signature pages thereto dated August 31, 2000
10.12	(15)	Employment Agreement by and between Registrant and Robert E. Conway dated March 1, 2006*
10.13	(6)	Form of Employment Agreement dated September 1, 2002 by and between Registrant and each of David L. Snitman, Kevin Koch and R. Michael Carruthers. *
10.14	(5)	Employment Agreement effective as of March 2002 between Registrant and John Moore*
10.15	(14)	Description of performance bonus program*
10.16	(1)	Amended and Restated Investor Rights Agreement between Registrant and the parties whose signatures appear on the signature pages thereto dated November 16, 1999
10.17	(1)	Amendment No. 1 to Amended and Restated Investor Rights Agreement between Registrant and the parties whose signatures appear on the signature pages thereto dated August 31, 2000
10.18	(2)	Rights Agreement, dated August 2, 2001, between the Registrant and Computershare Trust Company, Inc., as Rights Agent
10.19	(1)	Research Services Agreement between Registrant and Eli Lilly and Company dated March 22, 2000, as amended
10.20	(1)	Diversity Library Screening Agreement between Registrant and Tularik Inc. dated June 10, 1999, as amended
10.21	(4)	Research Agreement between Registrant and Amgen Inc. dated as of November 1, 2001
10.22	(3)	Lead Generation Collaboration Agreement by and between Registrant and Takeda Chemical Industries, Ltd., dated July 18, 2001
10.23	(8)	Collaboration and License Agreement by and between Registrant and AstraZeneca AB, dated December 18, 2003
10.24	(8)	Collaboration and License Agreement by and between Registrant and Genentech, Inc., dated December 22, 2003
10.25	(12)	Amendment No. 2, dated October 1, 2005, to the Collaboration and License Agreement by and between Registrant and Genentech, Inc. **
10.26	(10)	Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. dated December 20, 2004*
10.27	(12)	First Amendment to the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc. *
10.28	(11)	Drug Discovery Collaboration Agreement by and between Registrant and InterMune, Inc., dated September 13, 2002 along with Amendment No. 1 dated May 8, 2003, Amendment No. 2 dated January 7, 2004, Amendment No. 3 dated September 10, 2004, Amendment No. 4 dated December 7, 2004, Amendment No. 4A dated March 10, 2005 and Amendment No. 5 dated June 30, 2005**
10.29		Amendment No. 6 dated February 3, 2006 to the Drug Discovery Collaboration Agreement by and between Registrant and InterMune, Inc., dated September 13, 2002 **
10.30		Amendment No. 7 dated June 28, 2006 to the Drug Discovery Collaboration Agreement by and between Registrant and InterMune, Inc., dated September 13, 2002 **

Exhibit
No.		Description
10.31	(12)	Drug Discovery Agreement by and between Registrant and Ono Pharmaceutical Co., Ltd., dated November 1, 2005. **
10.32	(11)	Loan and Security agreement by and between Registrant and Comerica Bank dated June 28, 2005
10.33	(12)	First Amendment to Loan and Security agreement by and between Registrant and Comerica Bank dated December 19, 2005.
10.34	(11)	Addendum No. 4 to Lease Agreement by and between Registrant, as Tenant, and Circle Capital Longmont LLC, as Landlord, dated August 5, 2005**
10.35	(12)	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.
10.36	(13)	Addendum No. 7, dated February 3, 2006 and Addendum No. 8, dated March 1, 2006, to Lease Agreement by and between Registrant, as Tenant, and Circle Capital Longmont LLC, as Landlord.
10.37		Option Agreement dated June 22, 2006 by and between Registrant, as Optionee, and 3200 Walnut LL, LLC
10.38		Assignment of Boulder Option Agreement dated June 22, 2006 by and between Registrant, as Assignor, and BioMed Realty, L.P.
10.39		Assignment Agreement dated June 22, 2006 by and between Registrant, as Assignor, and BioMed Realty, L.P.
23.1		Consent of KPMG LLP, Independent Registered Public Accounting Firm

23.2		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
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

(1) Incorporated herein by reference to the Registrant’s registration statement on Form S-1 (File No. 333-45922)

(2) Incorporated herein by reference to the Current Report on Form 8-K as of August 3, 2001(File No. 000-31979)

(3) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001 (File No. 000-31979)

(4) Incorporated herein by reference to the Current Report on Form 8-K/A as of February 6, 2002 (File No. 000-31979)

(5) Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (File No. 000-31979)

(6) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002 (File No. 000-31979)

(7) Incorporated herein by reference to the Registrant’s definitive proxy statement on Schedule 14A dated October 1, 2002, with respect to the annual meeting of stockholders held on October 31, 2002

(8) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2003 (File No. 000-31979)

(9) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004 (File No. 000-31979)

(10) Incorporated herein by reference to the Current Report on Form 8-K as of December 20, 2004 (File No. 000-31979)

(11) Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 (File No. 000-31979)

(12) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005 (File No. 000-31979)

(13) Incorporated herein by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006 (File No. 000-31979)

(14) Incorporated herein by reference to the Current Report on Form 8-K as of August 4, 2005 (File No. 000-31979)

(15) Incorporated herein by reference to the Current Report on Form 8-K as of March 1, 2006 (File No. 000-31979)

* Management contract or compensatory plan.

**Confidential treatment of redacted portions has been applied for.

Exhibit 10.4

Option No.: 20 -

AMENDED AND RESTATED ARRAY BIOPHARMA INC.

STOCK OPTION AND INCENTIVE PLAN

INCENTIVE STOCK OPTION AGREEMENT

Array BioPharma Inc., a Delaware corporation (the “ Company ”), hereby grants an option to purchase shares of its common stock, $.001 par value, (the “ Stock ”) to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment and in the Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan (the “ Plan ”).

Grant Date: , 20

Name of Optionee

Optionee’s Social Security Number: - -

Number of Shares Covered by Option:

Option Price per Share: $ . (At least 100% of Fair Market Value)

Vesting Start Date: ,

By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that the Plan will control in the event any provision of this Agreement should appear to be inconsistent.

Optionee:
(Signature)


Company:
(Signature)

	Robert E. Conway, Chief Executive Officer

Attachment

This is not a stock certificate or a negotiable instrument .

AMENDED AND RESTATED

ARRAY BIOPHARMA INC.

STOCK OPTION AND INCENTIVE PLAN

INCENTIVE STOCK OPTION AGREEMENT

Capitalized terms used in this Agreement that are not otherwise defined in this Agreement have the meaning given such terms in the Plan.

Incentive Stock Option

This option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly. If you cease to be an employee of the Company, its parent or a subsidiary (“ Employee ”) but continue to provide Service, this option will be deemed a nonstatutory stock option on the 90 th day after you cease to be an Employee. In addition, to the extent that all or part of this option exceeds the $100,000 threshold of section 422(d) of the Internal Revenue Code, this option or the lesser excess part will be deemed to be a nonstatutory stock option.

Vesting

You may purchase shares which have vested under this option at any time prior to expiration of this option by following the procedures set forth in the Plan and below in this Agreement. You may only exercise this option for a whole number of vested shares, not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option.

Provided you continue in Service on each vesting date and subject to the deceleration provisions in the following paragraph, your right to purchase shares of covered by this option (the “ Option Shares ”) vests as follows:

[To be determined]

The resulting aggregate number of vested shares will be rounded to the nearest whole number. You cannot vest in more than the number of shares covered by this option.

No additional Option Shares will vest after your Service has terminated for any reason.

Term

Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.

Regular Termination

If your Service terminates for any reason, other than death, Disability or Cause, then your option will expire at the close of business at Company headquarters on the 90th day after your termination date.

Termination for
Cause

If your Service is terminated for Cause, then you shall immediately forfeit all rights to your option and the option shall immediately expire.

Death

If your Service terminates because of your death, then your option will expire at the close of business at Company headquarters on the date 12 months after the date of death. During that 12-month period, your estate or heirs may exercise the vested portion of your option.

In addition, if you die during the 90-day period described in connection with a regular termination (i.e., a termination of your Service not on account of your death, Disability or Cause), and a vested portion of your option has not yet been exercised, then your option will instead expire on the date 12 months after your termination date. In such a case, during the period following your death up to the date 12 months after your termination date, your estate or heirs may exercise the vested portion of your option.

Disability

If your Service terminates because of your Disability, then your option will expire at the close of business at Company headquarters on the date 12 months after your termination date.

Leaves of Absence

For purposes of this option, your Service does not terminate when you go on a bona fide employee leave of absence (i) that was approved by an authorized representative of the Company in writing, if the terms of the leave provide for continued Service crediting, or (ii) when continued Service crediting is required by applicable law. However, your Service will be treated as terminating for purposes of the “Vesting” and the “Regular Termination” sections of this Agreementin accordance with the then effective policies of the Company relating to leaves of absence, unless your right to return to active work is guaranteed by law or by a contract. Your Service terminates in any event when the approved leave ends unless you immediately return to active employee work.

The Company determines, in its sole discretion, which leaves count for this purpose, and when your Service terminates for all purposes under the Plan.

Notice of Exercise

When you wish to exercise this option, you must do so through the Company’s account with Deutsche Bank Alex. Brown using the user name and password supplied to you by Deutsche Bank. You can access this account on the Deutsche Bank website at www.optionselect.db.com or by calling 800-776-7564.

You must also notify the Company prior to exercising this option by submitting a notice of exercise, in the form attached as Exhibit A , to the Company’s Chief Financial Officer, or another Company employee designated by him.

If someone else wants to exercise this option after your death, that

Form of Payment

person must prove to the Company’s satisfaction that he or she is entitled to do so.

When you submit a notice of exercise, you must indicate how you have paid the option price for the shares you are purchasing using one (or a combination) of the following forms:

· Cash, your personal check, a cashier’s check, a money order, wire or another cash equivalent acceptable to the Company.

· Shares of Stock which you have owned for more than six months and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.

· So long as a public market for the Stock exists as determined by the Company, by delivery (on a form acceptable to the Company) of an irrevocable direction to Deutsche Bank Alex. Brown or another licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.

Withholding Taxes

You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate.

Transfer of Option

During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.

Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.

Retention Rights

Neither your option nor this Agreement gives you the right to be retained by the Company (or any Parent, Subsidiaries or Affiliates) in any capacity. The Company (and any Parent, Subsidiaries or Affiliates) reserves the right to terminate your Service at any time and

Shareholder Rights

for any reason.

You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued or an appropriate book entry has been made. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued or book entry is made, except as described in the Plan.

Adjustments

In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share may be adjusted (and rounded down to the nearest whole number) pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity.

Applicable Law

This Agreement will be interpreted and enforced under the laws of the State of Colorado, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

The Plan

The text of the Plan is incorporated in this Agreement by reference.

This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.

Notice of Certain
Dispositions

So that the Company can comply with its tax reporting obligations, if you sell or otherwise dispose of Stock acquired upon exercise of this option sooner than the one year anniversary of the date you acquired the Stock, then you agree to notify the Company in writing of the date of sale or disposition, the number of share of Stock sold or disposed of and the sale price per share within 30 days of such sale or disposition.

Consent to Electronic Delivery

The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report and proxy statement to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact the Human Resources department or the Company’s Stock Administrator to request paper copies of these documents.

By signing the cover sheet of this Agreement,

you agree to all of the terms and conditions described above and in the Plan.

EXHIBIT A

NOTICE OF EXERCISE

INCENTIVE STOCK OPTION

The undersigned hereby gives notice to Array BioPharma Inc. (the “ Company ”) of the desire to purchase shares of common stock of the Company pursuant to Incentive Stock Option Agreement No. .

1. Exercise of Option.

Limit Orders.

If you have elected to exercise your option pursuant to a Limit Order, check the applicable box below:

o Limit Order that is good until cancelled

o Limit Order expires on

2. Delivery of Payment. Indicate below how the full option exercise price for the Shares is to be paid:

o Pursuant to an “exercise and sell”, “sell to cover” or other broker transaction with Deutsche Bank Alex. Brown

o Cash in the form of check, wire or funds from my Deutsche Bank Alex. Brown account

o By surrender to the Company of Shares owned and held for more than six months with a value of $ represented by certificate number(s)

3. Taxes to be Withheld. Please indicate whether you want taxes withheld from any disqualifying disposition, such as a same-day-sale. (Check only one)

o Yes, withhold taxes on a disqualifying disposition.

o No, do not withhold taxes on a disqualifying disposition.


Signature

Social Security No.: - -

Address:

Exhibit 10.5

Option No.: 20 -

AMENDED AND RESTATED ARRAY BIOPHARMA INC.
STOCK OPTION AND INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

Grant Date: , 20

Name of Optionee:

Optionee’s Social Security Number: - -

Number of Shares Covered by Option:

Option Price per Share: $ .

Vesting Start Date: ,

Optionee:
	(Signature)

Company:
	(Signature)

	Robert E. Conway, Chief Executive Officer

Attachment

This is not a stock certificate or a negotiable instrument .

AMENDED AND RESTATED

ARRAY BIOPHARMA INC.

STOCK OPTION AND INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

*Capitalized terms used in this Agreement that are not otherwise defined in this Agreement have the meaning given such terms in the Plan.*
Nonqualified Stock Option	This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.

Vesting	You may purchase shares which have vested under this option at any time prior to expiration of this option by following the procedures set forth in the Plan and below in this Agreement. You may only exercise this option for a whole number of vested shares, not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option. *Provided you continue in Service on each vesting date, your right to purchase shares of covered by this option (the “ Option Shares ”) vests as follows:* *[To be determined]* *The resulting aggregate number of vested shares will be rounded to the nearest whole number. You cannot vest in more than the number of shares covered by this option.* No additional Option Shares will vest after your Service has terminated for any reason.

Term	Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.

Regular Termination	If your Service terminates for any reason, other than death, Disability or Cause, then your option will expire at the close of business at Company headquarters on the 90 th day after your termination date.

Termination for Cause	If your Service is terminated for Cause, then you shall immediately forfeit all rights to your option and the option shall immediately expire.

Death	If your Service terminates because of your death, then your option will expire at the close of business at Company headquarters on the date 12 months after the date of death. During that twelve-month period, your

	estate or heirs may exercise the vested portion of your option. In addition, if you die during the 90-day period described in connection with a regular termination (i.e., a termination of your Service not on account of your death, Disability or Cause), and a vested portion of your option has not yet been exercised, then your option will instead expire on the date 12 months after your termination date. In such a case, during the period following your death up to the date 12 months after your termination date, your estate or heirs may exercise the vested portion of your option.

Disability	If your Service terminates because of your Disability, then your option will expire at the close of business at Company headquarters on the date 12 months after your termination date.

Leaves of Absence	For purposes of this option, your Service does not terminate when you go on a bona fide leave of absence (i) that was approved by the Company in writing, if the terms of the leave provide for continued Service crediting, or (ii) when continued Service crediting is required by applicable law. However, your Service will be treated as terminating for purposes of the “Vesting” and the “Regular Termination” sections of this Agreement in accordance with the then effective policies of the Company relating to leaves of absence, unless your right to return to active work is guaranteed by law or by a contract. Your Service terminates in any event when the approved leave ends unless you immediately return to active employee work. The Company determines, in its sole discretion, which leaves count for this purpose, and when your Service terminates for all purposes under the Plan.

Notice of Exercise	When you wish to exercise this option, you must do so through the Company’s account with Deutsche Bank Alex. Brown using the user name and password supplied to you by Deutsche Bank. You can access this account on the Deutsche Bank website at www.optionselect.db.com or by calling 800-776-7564. You must also notify the Company prior to exercising this option by submitting a notice of exercise, in the form attached as Exhibit A , to the Company’s Chief Financial Officer, or another Company employee designated by him. If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.

Form of Payment	When you submit a notice of exercise, you must indicate how you have paid the option price for the shares you are purchasing using one (or a combination) of the following forms: · Cash, your personal check, a cashier’s check, a money order, wire

	or another cash equivalent acceptable to the Company. · Shares of Stock which you have owned for more than six months and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price. · So long as a public market for the Stock exists as determined by the Company, by delivery (on a form acceptable to the Company) of an irrevocable direction to Deutsche Bank Alex. Brown or another licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.

Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate.

Transfer of Option	During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.

Retention Rights	Neither your option nor this Agreement gives you the right to be retained by the Company (or any Parent, Subsidiaries or Affiliates) in any capacity. The Company (and any Parent, Subsidiaries or Affiliates) reserve the right to terminate your Service at any time and for any reason.

Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued or an appropriate book entry has been made. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued or book entry is made, except as

	described in the Plan.

Adjustments	In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share may be adjusted (and rounded down to the nearest whole number) pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity.

Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Colorado, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

The Plan	The text of the Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.

Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report and proxy statement to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact the Human Resources department or the Company’s Stock Administrator to request paper copies of these documents.

By signing the cover sheet of this Agreement,

you agree to all of the terms and conditions described above and in the Plan.

EXHIBIT A

NOTICE OF EXERCISE

The undersigned hereby gives notice to Array BioPharma Inc. (the “ Company ”) of the desire to purchase shares of common stock of the Company pursuant to Nonqualified Stock Option Agreement No. .

1. Exercise of Option.

Name

Date

Shares to be Exercised

Option Exercise Price

Limit Orders.

If you have elected to exercise your option pursuant to a Limit Order, check the applicable box below:

o Limit Order that is good until cancelled

o Limit Order expires on

2. Delivery of Payment. Indicate below how the full option exercise price for the Shares is to be paid:

o Pursuant to an “exercise and sell”, “sell to cover” or other broker transaction with Deutsche Bank Alex. Brown

o Cash in the form of check, wire or funds from my Deutsche Bank Alex. Brown account

o By surrender to the Company of Shares owned and held for more than six months with a value of $ represented by certificate number(s)

3. Taxes to be Withheld. Please indicate whether you want taxes withheld from any disqualifying disposition, such as a same-day-sale. (Check only one)

o Yes, withhold taxes on a disqualifying disposition.

o No, do not withhold taxes on a disqualifying disposition.


Signature

Social Security No.:	- -

Address:

EXHIBIT 10.29

[ * ] = 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.

February 3, 2006

VIA FAX AND FEDERAL EXPRESS

David L. Snitman, Ph.D.

Chief Operating Officer

Array BioPharma, Inc.

3200 Walnut Street

Boulder, CO 80301

RE: Amendment No. 6 to the Drug Discovery Collaboration Agreement

Dear Dr. Snitman:

As you know, InterMune, Inc. (“ InterMune ”) and Array BioPharma Inc. (“ Array ”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003, January 7, 2004, September 10, 2004, December 7, 2004 and June 30, 2005 (collectively, the “ Agreement ”). As we have previously discussed with you and/or John Moore, we would like to further amend the Agreement Accordingly, the parties agree that the Agreement is hereby amended as follows, effective as of January 1, 2006 (“ Amendment Effective Date ”):

1. The second sentence in Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:

“The Allocated Array FTEs shall be as follows: (a) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Manufacture FTEs”); and (c) [ * ] Array FTEs, [ * ] of which will be [ * ] will be devoted to [ * ] while [ * ] will be devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number of FTEs and/or allocation of such number of FTEs between the manufacturing transfer and process research activities as scheduled in the Research Plan) (the “Research FTEs”).”

2. The last two sentences in Section 5.1.1 of the Agreement are hereby amended in their entirety to read as follows:

“ [ * ] Manufacture FTEs shall be funded by InterMune beginning July 1, 2005 through January 31, 2006. Beginning February 1, 2006, InterMune shall fund [ * ] Manufacture FTEs until [ * ] (or such other [ * ] as may be determined by mutual agreement). At the end of such period, any remaining raw materials purchased for the [ * ] and for which

Array receives reimbursement from InterMune that are not used for the [ * ] shall be owned by, and also delivered to, InterMune (or a third party designated by InterMune). The Research FTEs shall be funded by InterMune beginning January 1, 2006 through August 31, 2006, with an option exercisable by InterMune to extend such funding for an additional six (6)-month period subject to the extension of the Research Term.”

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement. Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 6 where indicated below, and returning one original to the attention of Pauline Williams, Senior Paralegal/Executive Assistant, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,


Lawrence Blatt, Ph.D.
Chief Scientific Officer


Cc:	General Counsel, Array
	Mr. Larry Kahn, InterMune

Acknowledged and Agreed:

Array BioPharma Inc.

EXHIBIT 10.30

June 28, 2006

VIA FAX AND FEDERAL EXPRESS

David L. Snitman, Ph.D.

Chief Operating Officer

Array BioPharma, Inc.

3200 Walnut Street Boulder, CO 80301

RE: Notice of Exercise of Right to Extend Research Term and Amendment No.7

Dear Dr. Snitman:

As you know, InterMune, Inc. (“ InterMune ”) and Array BioPharma Inc. (“ Array ”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended by Amendment No.1 dated May 8, 2003, Amendment No.2 dated January 7, 2004, Amendment No.3 dated September 10, 2004, Amendment No.4 dated December 7, 2004, Amendment No.5 dated June 30, 2005 and Amendment No. 6 dated February 3, 2006 and effective January 1, 2006, (collectively, the “ Agreement ”). Any capitalized term contained herein and not otherwise defined herein shall have the meaning ascribed to such term in the Agreement. As you also know, InterMune has recently exercised it right to extend the Research Term for an additional twelve (12)-month period following June 30, 2006 such that the Research Term no expires June 30, 2007 under the Agreement.

Pursuant to our discussions,, we would like to amend the Agreement, effective as of the date hereof, as follows:

1. Section 2.3 of the Agreement is hereby amended in its entirety to read as follows:

“2.3 Term and Termination of Research Collaboration. The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) June 30, 2007, (ii) the termination of this Agreement, or (iii) [ * ] after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”). The Research Term shall automatically be extended for an additional twelve (12)-month period after June 30, 2007 (“Extension Term”) on the same terms and conditions as previously conducted (except as otherwise

David L. Snitman

June 28, 2006

set forth in this Agreement) unless either party gives the other party written notice on or before March 31, 2007 of its intention not to extend the Research Term. “

2. Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:

“5.1.1 Research Phase Payment Schedule. InterMune agrees to pay Array funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of the Allocated Array FTEs (or, if less, the number of Array FTEs described in this Section 5.1.1 or otherwise scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2). The Allocated Array FTEs shall be as follows: (a) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Manufacture FTEs”); and (c) [ * ] Array FTEs, [ * ] of which will be [ * ] will be devoted to [ * ] while [ * ] will be devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number of FTEs and/or allocation of such number of FTEs between the manufacturing transfer and process research activities as scheduled in the Research Plan) (the “Research FTEs”). Payments shall be made on or before the first day of each calendar quarter. Such payments are non-creditable and non-refundable, subject to the remainder of this Section 5.1.1. Within thirty (30) days after the end of each calendar quarter during which InterMune is funding Array FTEs devoted to the Research Collaboration, Array shall notify InterMune in writing of the number of FTEs Array actually devoted to the Research Collaboration during such calendar quarter. If such actual FTEs are less than the number of FTEs for which InterMune paid, then InterMune may credit the overpayment against the next payment due Array under this Agreement. If no payment will be due Array within the next three (3) months after Array was required to notify InterMune of such actual FTEs, Array shall promptly refund the overpayment to InterMune. In addition, InterMune may audit Array’s FTE records relating to the Research Collaboration, in the same manner and subject to the same restrictions as those set forth in Array’s-audits pursuant to Section 6.4, and any discrepancies shall be trued-up as provided in the foregoing two (2) sentences. In no event shall lnterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of the Allocated Array FTEs for such calendar quarter, or, if lesser, those provided in the Research Plan for Array to provide in such calendar quarter.

The Discovery FTEs shall be funded by InterMune beginning July 1, 2005 through June 30, 2007. When requesting to extend the Research Term in accordance with Section 2.3, InterMune shall specify in a written notice to be delivered by InterMune to Array no later

3280 Bayshore Boulevard, Brisbane, CA 94005 Tel: 415.466.2200 Fax: 415.466.2300

than February 28, 2007, the number of Discovery FTEs to be funded for the Extension Term .

Beginning February 1, 2006, InterMune shall fund [ * ] Manufacture FTEs until [ * ] (or such other [ * ] as may be determined by mutual agreement). The Research FTEs shall be funded by InterMune beginning January 1, 2006 through August 31, 2006, with an option exercisable by InterMune to extend such funding for an additional six (6)-month period. Upon the [ * ] by Array as described above, (i) any remaining raw materials purchased for the [ * ] and for which Array receives reimbursement from InterMune that are not used for the [ * ] shall be owned by, and also delivered to, InterMune (or a third party designated by InterMune) and (ii) InterMune shall have the right to request, by delivering written notice to Array within thirty (30) days, to [ * ] the number of Research FTEs under this Section 5.1.1 by up to an additional [ * ] Array FTEs, which additional Research FTEs will be devoted to [ * ] (which activities shall be with respect to the [ * ] as set forth in the Research Plan). In the event Array agrees to InterMune’s request to [ * ] the number of Research FTEs to [ * ] Array FTEs, such additional Array FTEs will be funded by InterMune until June 30, 2007.”

Except as set forth in (1) and (2) above, all terms and conditions of the Agreement will remain in full force and effect.

Please acknowledge your agreement to the proposed amendments to the Agreement by having an authorized Array representative countersign both enclosed copies of this letter where indicated below, and returning one original to the attention of Lucinda Y. Quan, Director, Legal Affairs at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

If you have any questions on the foregoing, please do not hesitate to contact me.

Sincerely,


Lawrence Blatt, PhD
Chief Scientific Officer


cc:	General Counsel, Array
	Mr. Larry Kahn, InterMune

Acknowledged and Agreed:

ARRAY BIOPHARMA INC.

Exhibit 10.37

OPTION AGREEMENT

This Option Agreement, dated , 2006, is between 3200 Walnut LL, LLC, a Delaware limited liability company (“Seller”) and Array BioPharma Inc., a Delaware corporation (“Optionee”).

RECITALS

A. Seller owns certain real property that is described in Exhibit A attached hereto and made a part hereof (the “Property”).

B. Optionee desires to acquire an option to purchase the Property from Seller, and Seller desires to grant Optionee such option, in accordance with the terms and conditions set forth herein.

AGREEMENT

In consideration of the foregoing, and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, Seller and Optionee hereby agree as follows:

to Optionee at: Array BioPharma Inc.

3200 Walnut Street

Boulder, Colorado 80301

Attn: Michael Carruthers, CFO

Facsimile No.: (303) 381-6652

with a copy to: Array BioPharma Inc.

3200 Walnut Street

Boulder, Colorado 80301

Attn: General Counsel

Facsimile No.: (303) 386-1290

to Seller at: 3200 WALNUT LL, LLC

c/o Investcorp Properties Limited

280 Park Avenue, 36th Floor

New York, NY 10017

Attn: John Fraser

Facsimile No.: (212) 983-7073

with a copy to: Jacobs Chase Frick Kleinkopf & Kelley, LLC

1050 17th Street

Suite 1500

Denver, CO 80265

Attn: Jill K. Rood, Esq.

Facsimile No.: (303) 685-4869

Notice shall be deemed received as follows: if given by facsimile, then upon receipt so long as the sending facsimile machine electronically confirms receipt and a paper copy thereof is sent the same day by regular mail; if given by overnight courier, then the business day after delivery to the overnight courier; and if given by certified mail, then the third business day (excluding the day of mailing) after mailing, provided that no notice of either party’s change of address shall be effective until 15 days after the addressee’s actual receipt thereof.

3. No Recording . This Option Agreement shall not be recorded and any recording hereof shall cause this Option Agreement to be null and void.

IN WITNESS WHEREOF, Seller and Optionee have executed this Option Agreement as of , 2006.

	SELLER:

	3200 WALNUT LL, LLC, a Delaware limited liability company

	By:
	Name:
	Title:

	OPTIONEE:

	ARRAY BIOPHARMA INC., a Delaware corporation


	By:
	Name:
	Title:

EXHIBIT A

The Property

Lot 1, Synergen Subdivision Filing No. 3, County of Boulder, State of Colorado.

A- 1

EXHIBIT B

PURCHASE AND SALE AGREEMENT

between

3200 WALNUT LL, LLC, as Seller

and

, as Buyer

Dated , 2006

TABLE OF CONTENTS

ARTICLE 1 - PURCHASE AND SALE		1
1.1	Purchase and Sale	1
1.2	Description of Property	1
ARTICLE 2 - PURCHASE PRICE AND PAYMENT		2
2.1	Purchase Price	2
2.2	Payment of Purchase Price	2
ARTICLE 3 - BUYER’S DUE DILIGENCE		2
3.1	Seller’s Deliveries	2
3.2	Buyer’s Duty to Investigate	4
3.3	Tenant Estoppels	7
3.4	Ongoing Operations	7
ARTICLE 4 - CLOSING		8
4.1	Manner of Closing; Closing Date	8
4.2	Inspection Deadline	8
4.3	Documents to Be Deposited into Escrow by Seller	8
4.4	Funds and Documents to Be Deposited into Escrow by Buyer	8
4.5	Buyer’s Closing Conditions	9
4.6	Seller’s Closing Conditions	9
4.7	Closing Costs	10
4.8	Prorations	11
ARTICLE 5 – INTENTIONALLY OMITTED		11
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES		11
6.1	Seller’s Warranties	11
6.2	Buyer’s Warranties	12
ARTICLE 7 - BROKERAGE COMMISSIONS		13
ARTICLE 8 - RISK OF LOSS		13
8.1	Major Damage	13
8.2	Lesser Damage	14
ARTICLE 9 - BREACH		14
9.1	Liquidated Damages	14
9.2	Buyer’s Pre-Closing-Remedies	15
9.3	Post-Closing Remedies	15
ARTICLE 10 - GENERAL PROVISIONS		15
10.1	Assignment	15
10.2	Notices	15
10.3	Claims	16
10.4	Attorneys’ Fees	16
10.5	Time of the Essence	16
10.6	No Rights or Obligations to Third Parties	16
10.7	Review by Counsel	17
10.8	Effectiveness of Agreement; Facsimile and Counterpart Signatures	17
10.9	No Recording	17
10.10	Business Day	17
10.11	Miscellaneous	17
10.12	Press Release	17
10.13	Public Company Requirements	18

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (“Agreement”) is entered into as of , 2006 (“Execution Date”), between 3200 WALNUT LL, LLC, a Delaware limited liability company (“Seller”) and , a (“Buyer’’).

In consideration of the mutual covenants and conditions herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Seller and Buyer agree as follows:

At Closing (as defined in Section 4.1), Seller shall sell the Property (as defined in Section 1.2) to Buyer and Buyer shall purchase the Property from Seller, on the terms and conditions of this Agreement.

The “Property” shall consist of all of the following:

Buyer shall pay as the purchase price for the Property the sum of Twenty-Eight Million Five Hundred Thousand Dollars ($28,500,000) (“Purchase Price”).

The Purchase Price shall be paid as follows:


Seller’s initials			Buyer’s initials

During the pendency of this Agreement:

The consummation of the purchase and sale of the Property and the closing of the Escrow (“Closing”) will be administered by the Title Company and will occur by mail at the Title Company’s office. The parties shall provide the Title Company with escrow instructions consistent with this Agreement. The time and date of the Closing (“Closing Date”) shall be 2:00 p.m. EDST on July 7, 2006, or such earlier date as may be agreed to by the parties. Seller shall have the right to adjourn the Closing Date for no more than thirty (30) business days if Seller elects to cure any Title Objection.

Buyer may terminate this Agreement by delivering written notice of Buyer’s objection to the Condition of the Property to Seller on or before 5:00 p.m. EDST on , 2006 (the “Inspection Deadline”), whereupon the parties’ respective obligations under this Agreement shall terminate (excluding those which expressly survive Closing) and Buyer shall receive a refund of the Deposit. If Buyer fails to deliver such notice in accordance with this Section, Buyer shall be deemed to have waived its right to terminate this Agreement pursuant to this Section 4.2.

On or before the Closing Date, Seller shall deposit into Escrow: (a) an executed and acknowledged special warranty deed conveying the Property to Buyer subject to the Permitted Exceptions; (b) two (2) executed copies of the Assignment and Assumption of Leases, Contracts and Intangible Personal Property in the form of Exhibit E attached hereto, assigning to Buyer all of Seller’s right, title and interest in and to the Leases, Permits, Contracts and Intangible Property; (c) two (2) executed copies of the Quitclaim Bill of Sale in the form of Exhibit F attached hereto, quitclaiming to Buyer all of Seller’s right, title and interest, if any, in and to the Tangible Personal Property; (d) an executed certificate of non-foreign person (“FIRPTA Certificate”); (e) such affidavits and agreements as the Title Company may request to issue the Title Policy and which are reasonably acceptable to Seller; (f) all original Leases and Contracts in Seller’s possession; (g) a lease termination agreement, terminating Seller’s lease with 3200 Walnut, LLC and a recordable form of termination for any recorded memorandum of such lease; and (h) such other documents as may be consistent with this Agreement and necessary or appropriate to effect the Closing. The documents shall be in a form reasonably acceptable to Seller and Buyer.

Not later than 12:00 p.m. EDST on the Closing Date, Buyer shall deposit into Escrow (a) such funds (by wire transfer or other immediately available United States funds) as are necessary

to complete payment of the Purchase Price, less the Deposit, in accordance with Section 2.2 of this Agreement and to pay Buyer’s portion of the Closing costs; (b) two (2) executed copies of the Assignment and Assumption of Leases, Contracts and Intangible Personal Property; (c) two (2) executed copies of the Quitclaim Bill of Sale; (d) such affidavits and agreements as the Title Company may request to issue the Title Policy and which are reasonably acceptable to Buyer; and (e) such other documents as may be consistent with this Agreement and necessary or appropriate to effect the Closing. The documents shall be in a form reasonably acceptable to Seller and Buyer.

Buyer’s obligation to purchase the Property is expressly conditioned on the fulfillment of each of the conditions precedent described below at or before the Closing (“Buyer’s Closing Conditions”):

Seller’s obligation to sell the Property is expressly conditioned upon the fulfillment of each of the conditions precedent described below at or before Closing (“Seller’s Closing Conditions”):

Buyer is currently responsible for payment of all taxes and costs of occupying and operating the Property pursuant to its sublease of the Property. Accordingly, no prorations shall be made between Buyer and Seller with respect to the Closing, except that any rent collected by Seller for the month in which the Closing occurs shall be prorated as of the Closing Date based on the number of days in such month that the Property is owned by each party.

Seller represents and warrants that:

Buyer represents and warrants that:

Seller represents and warrants to Buyer that it has not negotiated or dealt with any real estate broker, salesperson or agent in connection with the making of this Agreement or the transaction contemplated hereby, or incurred any liability for the payment of any brokerage fee, commission or compensation to any such broker, salesperson or agent, other than Cushman & Wakefield of Colorado, Inc. (“Cushman”). Buyer represents and warrants to Seller that it has not negotiated or dealt with any real estate broker, salesperson or agent in connection with the making of this Agreement or the transaction contemplated hereby, or incurred any liability for the payment of any brokerage fee, commission or compensation to any such broker, salesperson or agent. Seller shall be responsible for payment of all brokerage fees payable to such brokers pursuant to its agreement with Cushman. Subject to a separate agreement between Cushman and CRESA Partners, Cushman shall pay CRESA Partners any brokerage fee that may be due in connection with the closing of this transaction. In no event shall CRESA Partners be entitled to a brokerage fee with respect to both this Agreement and the Absolute Triple Net Lease between 3200 Walnut, LLC and Array BioPharma Inc. Buyer shall defend, indemnify, and hold Seller harmless from any and all other Claims asserted by any broker as a result of Buyer’s actions regarding the Property (other than any Claim by Cushman.) Seller shall defend, indemnify, and hold Buyer harmless from and against any and all Claims asserted by any broker as a result of Seller’s actions regarding the sale of the Property. These indemnities shall survive the Closing or the termination of this Agreement.

If, before the Closing Date, the Property, or any part thereof, is destroyed or suffers damage which is estimated (by an independent contractor selected by Seller and reasonably acceptable to Buyer) to cost more than $1,000,000 to repair, and if such damage is not due to gross negligence of Buyer, or if condemnation proceedings are commenced against any portion of the Property which materially and adversely affect access, reduce parking or take any part of the Building or other permanent improvements located on the Property, Buyer shall have the right to terminate this Agreement by giving written notice to Seller within five (5) business days after receiving written notice of such damage, destruction or condemnation proceedings (but in any event before the Closing Date), whereupon the parties’ respective obligations under this Agreement shall terminate (excluding those which expressly survive Closing) and Buyer shall receive a refund of the Deposit. If Buyer does not so terminate this Agreement, Buyer shall accept the Property in its then condition and proceed with the purchase without reducing the Purchase Price, and at Closing Seller shall assign to Buyer all insurance proceeds or condemnation awards payable to Seller by reason of such damage, destruction or condemnation,

less any amounts applied to the loss, and credit to Buyer the amount of the deductible under the applicable insurance.

In the event of damage to the Property which is estimated (by an independent contractor selected by Seller and reasonably acceptable to Buyer) to cost less than $1,000,000 to repair, or if condemnation proceedings are commenced only against a portion of the Property which does not materially and adversely affect access, reduce parking or take any part of the Building or other permanent improvements located on the Property, Buyer shall accept the Property in its then condition and proceed with the purchase without reducing the Purchase Price and at Closing Seller shall assign to Buyer all insurance proceeds or condemnation awards payable to Seller by reason of such damage or destruction or condemnation, less any amounts applied to the loss, and credit to Buyer the amount of the deductible under the applicable insurance.

If Buyer materially breaches this Agreement, Buyer shall be responsible for all cancellation charges required to be paid to Title Company, and this Agreement and the rights and obligations of the parties shall terminate (except as provided herein with respect to obligations which are intended to survive termination of this Agreement).

IF THIS AGREEMENT TERMINATES PURSUANT TO THIS SECTION, THE DEPOSIT SHALL BE RETAINED BY SELLER AS LIQUIDATED DAMAGES AS SELLER’S EXCLUSIVE REMEDY FOR BUYER’S BREACH OF THE OBLIGATION TO PURCHASE THE PROPERTY, WHICH SUM SHALL BE PRESUMED TO BE THE AMOUNT OF ACTUAL DAMAGES SUSTAINED BY SELLER BY REASON OF BUYER’S BREACH. BUYER AND SELLER AGREE THAT, DUE TO THE NATURE OF THE TRANSACTION, IT WOULD BE IMPRACTICABLE AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES SELLER WOULD SUSTAIN SHOULD BUYER BREACH ITS OBLIGATION TO PURCHASE THE PROPERTY. BUYER AND SELLER AGREE THAT LIQUIDATED DAMAGES ARE APPROPRIATE FOR THIS TRANSACTION AND AGREE THAT THE DEPOSIT REPRESENTS A REASONABLE ESTIMATE OF THE DAMAGES SELLER WOULD SUSTAIN BY VIRTUE OF BUYER’S FAILURE TO PERFORM ITS OBLIGATION TO PURCHASE THE PROPERTY. NOTWITHSTANDING THE FOREGOING, THIS PROVISION SHALL NOT LIMIT SELLER’S RIGHTS TO RECEIVE REIMBURSEMENT FOR ATTORNEYS’ FEES AND DOES NOT WAIVE OR AFFECT SELLER’S REMEDIES WITH RESPECT TO BUYER’S INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT.

If Seller materially breaches this Agreement, then Buyer shall be entitled to (a) terminate this Agreement, whereupon the parties’ respective obligations under this Agreement shall terminate (excluding those which expressly survive Closing) and Buyer shall receive a refund of the Deposit, or (b) seek specific performance or, if specific performance is unavailable, then actual (as opposed to consequential, incidental or special) damages.

If, after the Closing, Seller or Buyer fails to perform its respective obligations that expressly survive the Closing, then Seller or Buyer, as the case may be, may exercise any remedies available to it at law or in equity, including specific performance or actual (as opposed to consequential, incidental or special) damages. In such event, the liquidated damages provision contained in Section 9.1 shall not apply.

Buyer shall not assign, transfer or convey its interest in this Agreement without Seller’s prior written consent, which may be withheld in its sole and absolute discretion; provided that, if Buyer is Array BioPharma Inc., Buyer may, upon written notice to Seller, assign this Agreement to BioMed Realty, L.P. on condition that BioMed Realty, L.P. shall assume all of Buyer’s liabilities and obligations under this Agreement. In addition, Buyer may, after a minimum of three (3) business days’ prior written notice to Seller, assign this Agreement to an affiliate of Buyer (including, without limitation, if Buyer is BioMed Realty, L.P., BMR – 3200 Walnut Street LLC) on conditions that such assignee shall assume all of Buyer’s liabilities and obligations under this Agreement and that such assignment shall not be effective until the Closing Date.

All written notices and demands which either party may give the other may be given by hand delivery, registered or certified mail, facsimile, or by a delivery service guaranteeing overnight delivery to a party at the address below or as may be changed upon written notice to the other party.

To Seller: 3200 Walnut LL, LLC

c/o Investcorp International, Inc.

280 Park Avenue, 36th Floor

New York, NY 10017

Fax: 212-983-7073

Attn: John Fraser

with a copy to: Jill K. Rood, Esq.

Jacobs Chase Frick Kleinkopf & Kelley, LLC

1050 17th Street, Suite 1500

Denver, CO 80233

Fax: 303-685-4869

To Buyer:

with a copy to:

Notices shall be deemed received as follows: if hand delivered, then upon delivery; if given by fax, then upon receipt so long as the sending fax electronically confirms receipt (and a hard copy thereof is sent promptly by regular mail); if given by overnight courier, then the business day after delivery to the overnight courier; and if given by certified mail, then the third business day (excluding the day of mailing) after mailing.

The term “Claims” shall mean all claims, demands, damages, losses, judgments, liabilities, causes of actions, suits, fines, penalties, costs, fees and expenses, including, without limitation, fees, costs and expenses of attorneys, consultants and other experts.

The prevailing party in any action or proceeding brought by either party against the other under this Agreement shall be entitled to recover such court costs, costs and fees of the attorneys, experts and consultants in such action or proceeding (whether at the administrative, trial or appellate levels) in such amount as the court may adjudge reasonable.

Time is of the essence in this Agreement as to each provision in which time is an element of performance.

Except as otherwise expressly provided in this Agreement, the execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the parties, to any person or entity other than Seller and Buyer.

Each party and its counsel have reviewed and approved this Agreement and any ambiguities shall not be resolved against the drafting party.

This Agreement shall not be effective and shall not be binding on Buyer and Seller unless and until fully executed by Buyer and Seller. Facsimile signature to this Agreement shall be deemed originals for all purposes. This Agreement may be executed in counterparts, each of which shall be deemed an original and, taken together, shall be deemed to be a full and complete contract between the parties constituting a single document.

Seller and Buyer agree that neither party shall record a memorandum of this Agreement. If Buyer breaches this provision, Seller shall have the right to terminate this Agreement and record a notice of termination.

In the event that any of the dates specified in this Agreement shall fall on a Saturday, a Sunday, or a holiday, then the date of such action shall be deemed to be extended to the next business day.

This is the entire agreement between the parties regarding the sale of the Property. This Agreement shall be governed by the laws of the State of Colorado. If any provision of this Agreement is invalid or unenforceable, the remaining provisions shall not be affected thereby, and every provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. The terms of this Agreement may not be modified or amended except by an instrument in writing executed by Seller and Buyer. The waiver or failure by either to enforce any provision of this Agreement shall not operate as a waiver of any future breach of any such provision or any other provision of this Agreement. All exhibits attached to this Agreement are an integral part of this Agreement and are incorporated into this Agreement by reference. This Agreement shall be binding upon and inure to the benefit of the parties hereto and Seller’s successors and assigns. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument.

Until the Closing, neither Seller nor Buyer will release or cause or permit to be released any press notices, or publicity (oral or written) or advertising promotion relating to, or otherwise announce or disclose or cause or permit to be announced or disclosed, in any manner whatsoever, the terms, conditions or substance of this Agreement without first obtaining the written consent of the other party except those disclosures that are required by law, including the

Securities Act of 1933, or contractual obligation (in which case notice shall be timely provided to the other party of such requirement and disclosure). The foregoing shall not preclude either party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, investors, or any prospective lender, partner or investor, as the case may be, or prevent either party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements, or from making disclosures in the ordinary course of its due diligence inspections and contacts with third parties related thereto. Notwithstanding the foregoing, any party to this transaction (and each employee, agent or representative of the foregoing) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such tax treatment and tax structure except to the extent maintaining such confidentiality is necessary to comply with any applicable federal or state securities laws. The authorization in the preceding sentence is not intended to permit disclosure of any other information unrelated to the tax treatment and tax structure of the transaction including (without limitation) (i) any portion of the transaction documents or related materials to the extent not related to the tax treatment or tax structure of the transaction, (ii) the existence or status of any negotiations unrelated to the tax issues, or (iii) any other term or detail not relevant to the tax treatment or the tax structure of the transaction.

Upon Buyer’s request, for a period of two (2) years after Closing, Seller shall make any books and records of the Property remaining in possession of Seller available to Buyer for inspection, copying and audit by Buyer’s designated accountants, and at Buyer’s expense. Seller shall provide Buyer, but without third-party expense to Seller, with copies of, or access to, such factual information in connection with this Agreement and/or the Property as may be reasonably requested by Buyer, and in the possession or control of Seller, to enable Buyer to comply with applicable filing requirements of the Securities and Exchange Commission. Buyer or its designated independent or other accountants may audit the operating statements of the Property, and Seller shall supply such documentation in its possession or control as Buyer or its accountants may reasonably request in order to complete such audit and shall provide to Buyer’s auditors a representation letter from Seller or its representative reasonably satisfactory to Seller and to Buyer’s auditors in connection with such audit.

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the Execution Date.

SELLER:

3200 WALNUT LL, LLC, a Delaware limited liability company

	By:	QOL INDEPENDENT CORP.,
		Managing Member


	By:
	Name:
	Title:


BUYER:

			,
a


By:
Name:
Title:

EXHIBIT A

LEGAL DESCRIPTION

Lot 1, Synergen Subdivision Filing No. 3, County of Boulder, State of Colorado.

A- 1

EXHIBIT B

CONTRACTS

None.

B- 1

EXHIBIT C

LEASES

Lease, between Boulder Headquarters LLC and Amgen Inc., dated May 13, 1999 (as amended to date)

Absolute Triple Net Lease, between Seller and Array BioPharma Inc., dated , 2006

C- 1

EXHIBIT D

TENANT ESTOPPEL

D- 1

ESTOPPEL CERTIFICATE

To Purchaser:			Landlord


Its affiliates successors and/or assigns			Its affiliates successors and/or assigns

As an inducement for (“Purchaser”) to acquire the Premises (as hereinafter defined), the undersigned hereby acknowledges that:

1. The undersigned is the tenant (“Tenant”) of the building known as in Boulder, Colorado (the “Premises”), under a certain lease from (“Landlord”), dated as of , as amended by , dated as of (as amended, the “Lease”), which provides for an Initial Monthly Rent as set forth in the Lease (“Initial Monthly Rent”).

(a) The Initial Monthly Rent under the Lease provides for annual increases as set forth in the Lease. No rent has been prepaid more than thirty (30) days in advance and the rent has been paid through .

(b) The commencement date of the Lease is , and the primary Lease term expires , unless sooner terminated in accordance with the terms of the Lease.

(c) Except as set forth in the Lease, if any, Tenant has no options to renew the term of the Lease. Tenant has not exercised any of the options except as follows: None. Except as set forth in this Lease and the , if any, Tenant has no other option or right to renew or extend the Lease or to lease the Premises, no right to cancel the Lease (other than by reason of default by Landlord), and no right to expand the Premises.

(d) Except as set forth in the Lease, if any, the Lease does not contain and Tenant has no outstanding options or rights of first refusal to purchase any part of the Premises.

2. Tenant has entered and accepted the possession of the Premises, is currently doing business in a portion thereof and commenced payment in full of rent under the Lease. To Tenant’s actual knowledge, the Premises is in compliance with the Lease.

3. Tenant has paid a security deposit of $ to Landlord. No other security deposit has been deposited with Landlord other than as set forth herein.

4. The Lease sets forth the entire agreement between Landlord and the undersigned, is presently in full force and effect in accordance with its terms, and has not, in any way, been assigned or sublet except as set forth below, nor amended or modified except as referred to in Section 1 above, and there are no other agreements with Landlord or any master landlord with regard to the Premises other than the Lease and . Tenant has sublet

D- 2

portions of the Premises to pursuant to a Lease dated , as amended by dated .

5. Except as set forth in the Lease, if any, Tenant is not entitled to any rent concessions, free rent, allowances or other similar compensation relating to the Premises. To Tenant’s actual knowledge, as of this date, all improvements to the Premises required to be made by Landlord under the Lease, if any, have been completed to the satisfaction of Tenant, all cash allowances, if any, due Tenant for the leasing and initial construction of the Premises have been paid in accordance with the Lease, and Landlord has no obligation to assume Tenant’s liabilities under leases of other premises (whether within the building, on the Premises or elsewhere), except as follows: None.

6. To Tenant’s actual knowledge, of this date, there exists no default or other grounds by either party to the Lease, nor has Tenant asserted any claims, counterclaims, defenses or rights of setoffs, or for ceasing or reducing the payment of rentals, or for cancellation or termination of the Lease, nor any state of facts which, with the giving of notice, the passage of time, or both, would constitute a default under the Lease.

7. To Tenant’s actual knowledge, all leasing brokerage commissions or similar compensation due and payable with respect to the Lease have been paid and no person has made any claim for any such leasing brokerage commissions or similar compensation.

8. There are no actions, whether voluntary or otherwise, pending against Tenant under the bankruptcy or insolvency laws of the United States or any state thereof.

9. The individual executing this Estoppel Certificate on behalf of Tenant represents and warrants that (s)he has the power and authority to execute this Estoppel Certificate on behalf of Tenant.

		TENANT:

			,
		a


		By:
		Its:

Dated:	, 2006

D- 3

EXHIBIT E

ASSIGNMENT AND ASSUMPTION OF LEASES,

CONTRACTS AND INTANGIBLE PERSONAL PROPERTY

E- 1

ASSIGNMENT AND ASSUMPTION OF LEASES,

CONTRACTS AND INTANGIBLE PERSONAL PROPERTY

FOR AND IN CONSIDERATION of the sum of Ten and No/100ths Dollars ($10.00) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, 3200 WALNUT LL, LLC, a Delaware limited liability company (“Assignor”), hereby sells, assigns, transfers and sets over unto , a (“Assignee”) the leases, contracts and intangible personal property described on Exhibit A attached hereto (the “Assigned Property”), affecting the real estate legally described on Exhibit B attached hereto.

Assignee does hereby accept the foregoing assignment, and agrees to assume and perform the obligations of Assignor under and relating to the Assigned Property, but only to the extent such obligations first arise and accrue on or after the date hereof.

Assignor agrees to indemnify, defend and hold harmless Assignee from and against any and all claims, damages, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) asserted against or suffered or incurred by Assignee as a result of or in connection with any liabilities or obligations of the landlord under any of the Leases and relating to periods prior to the date hereof.

Assignee agrees to indemnify, defend and hold harmless Assignor from and against any and all claims, damages, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) asserted against or suffered or incurred by Assignor as a result of or in connection with any liabilities or obligations of the landlord under any of the Leases and relating to periods on or after the date hereof.

This Assignment and Assumption of Leases, Contracts and Intangible Personal Property shall be binding on and shall inure to the benefit of Assignor and Assignee and their respective successors and assigns.

This Assignment and Assumption of Leases, Contracts and Intangible Personal Property may be executed in counterparts, and as so executed shall constitute one and the same agreement.

E- 2

IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Assumption of Leases, Contracts and Intangible Personal Property as of the day of , 2006.

ASSIGNOR:

3200 WALNUT LL, LLC, a Delaware limited liability company

	By:	QOL INDEPENDENT CORP.,
		Managing Member


	By:
	Name:
	Title:


ASSIGNEE:


a,


By:
Name:
Title:

E- 3

EXHIBIT A

Leases, Contracts and Intangible Personal Property

Leases:

Lease, between Boulder Headquarters LLC and Amgen Inc., dated May 13, 1999 (as amended to date)

Absolute Triple Net Lease, between Seller and Array BioPharma Inc., dated , 2006

Contracts:

None.

Intangible Personal Property:

Assignor’s interest, if any, in and to all intangible personal property now used exclusively in connection with the operation, ownership, maintenance, management, or occupancy of the real estate described on Exhibit B (to the extent assignable) (the “Real Estate”); the plans and specifications for the buildings located on the Real Estate (to the extent assignable); warranties, indemnities, applications, governmental permits, approvals, certificates and licenses (to the extent applicable in any way to the Real Estate and assignable); excluding computer software and all confidential and proprietary information and intellectual property of Assignor.

E- 4

EXHIBIT B

Legal Description

Lot 1, Synergen Subdivision Filing No. 3, County of Boulder, State of Colorado.

E- 5

EXHIBIT F

QUITCLAIM BILL OF SALE

F- 1

QUITCLAIM BILL OF SALE

FOR VALUE RECEIVED, 3200 WALNUT LL, LLC, a Delaware limited liability company whose address is c/o Investcorp International, Inc., 280 Park Avenue, 36 th Floor, New York, NY 10017 (“Grantor”) does hereby remise, release, sell, transfer and quitclaim to a, whose address is (“Grantee”) the right, title and interest Grantor now has in and to the tangible personal property (collectively, the “Personal Property”) located at or in the real property described on Exhibit A attached hereto and made a part hereof.

This Quitclaim Bill of Sale is made without any warranties, representations or covenants, either express or implied.

THE PERSONAL PROPERTY IS SOLD “AS-IS”, “WHERE-IS”, AND EXCEPT AS SPECIFIED IN THE PRECEDING PARAGRAPH, GRANTOR DISCLAIMS MAKING, AND GRANTEE BY ACCEPTING THIS BILL OF SALE, ACKNOWLEDGES THAT IT HAS NOT RELIED ON AND WAIVES, AND THAT THIS BILL OF SALE EXCLUDES, ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OF THE PERSONAL PROPERTY.

DATED this day of , 2006.

GRANTOR:

3200 WALNUT LL, LLC, a Delaware limited liability company

	By:	QOL INDEPENDENT CORP.,
		Managing Member


	By:
	Name:
	Title:

F- 2

Exhibit A

Real Property

Lot 1, Synergen Subdivision Filing No. 3, County of Boulder, State of Colorado.

F- 3

Exhibit 10.38

ASSIGNMENT OF BOULDER OPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION OF OPTION AGREEMENT (this “ Assignment ”) is made as of June 22, 2006 (the “ Effective Date ”), by and between Array BioPharma Inc., a Delaware corporation (“ Assignor ”), and BioMed Realty, L.P., a Maryland limited partnership (“ Assignee ”).

RECITALS

A. WHEREAS, Assignor and 3200 Walnut LL, LLC, a Delaware limited liability company (“ Seller ”) , entered into that certain Option Agreement dated as of June 19, 2006 (the “ Boulder Option Agreement ”), a copy of which is attached hereto as Exhibit A , pursuant to which Seller granted Assignor the option to purchase that certain real property located at 1885 33rd Street, 1825 33rd Street, 1865 33rd Street, and 3200 Walnut Street, Boulder, Colorado (the “ Boulder Option ”), as more particularly described in Exhibit A to the Boulder Option Agreement (the “ Boulder Property ”); and

B. WHEREAS, Assignor desires to assign its interest in the Boulder Option Agreement to Assignee.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto mutually agree as follows:

1. Defined Terms . All capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Boulder Option Agreement.

2. Assignment . Assignor hereby sets over, transfers and assigns unto Assignee all of Assignor’s right, title and interest in and to the Boulder Option Agreement.

3. Assumption . In consideration of the foregoing assignment, Assignee hereby accepts the foregoing assignment and, from and after the execution hereof, assumes and agrees to make, observe, keep and perform all of the terms, covenants and conditions to be made, observed, kept and performed by the Assignee under the Boulder Option Agreement, as fully as though Assignee were originally named in the Boulder Option Agreement as the “Optionee”.

4. Warranty . Assignor hereby represents and warrants to Assignee that: (a) it has not assigned the Boulder Option Agreement to any other person or entity, and (b) it is not in breach or default of any of its obligations under the Boulder Option Agreement.

damages, causes of action, expenses, and attorneys’ fees incurred by Assignor by reason of the failure of Assignor to fulfill, perform, discharge, and observe its obligations with respect to the Boulder Option Agreement arising on or after the Effective Date.

6. Governing Law . This Assignment shall be governed by the law of the State of Colorado.

7. Counterparts . This Assignment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument executed on the date first set forth.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written.

			ASSIGNOR:


				ARRAY BIOPHARMA INC.,
				a Delaware corporation


				By:
				Name:
				Title:

			ASSIGNEE:

				BIOMED REALTY, L.P.,
				a Maryland limited partnership

				By:	BioMed Realty Trust, Inc.,
					a Maryland corporation
					Its: General Partner


				By:
				Name:
				Title:


CONSENTED TO:

SELLER:

3200 WALNUT LL, LLC,
a Delaware limited liability company

By:	QOL Independent Corp.
	Its Managing Member


	By:
		Name:
		Title:

EXHIBIT A

BOULDER OPTION AGREEMENT

(See Attached)

Exhibit 10.39

ASSIGNMENT AGREEMENT

THIS ASSIGNMENT AGREEMENT (this “ Assignment ”) is entered into as of the 22 nd day of June, 2006 (the “ Effective Date ”) by and between ARRAY BIOPHARMA INC., a Delaware corporation (“ Assignor ”) and BIOMED REALTY, L.P., a Maryland limited partnership (“ Assignee ”).

RECITALS

A. WHEREAS, 3200 Walnut LL, LLC, a Delaware limited liability company (the “ Boulder Seller ”), and Assignor will enter into that certain Option Agreement (the “ Boulder Option Agreement ”), a copy of which is attached hereto as Exhibit A , pursuant to which the Boulder Seller granted Assignor the option to purchase that certain real property located at 1885 33rd Street, 1825 33rd Street, 1865 33rd Street, and 3200 Walnut Street, Boulder, Colorado (the “ Boulder Option ”), as more particularly described in Exhibit A to the Boulder Option Agreement (the “ Boulder Property ”).

B. WHEREAS, the Boulder Seller and Amgen Inc., a Delaware corporation (“ Amgen ”), entered into that certain Lease dated May 13, 1999 (as amended, the “ Existing Boulder Lease ”), pursuant to which Amgen leased the Boulder Property on the terms and conditions set forth in the Existing Boulder Lease. In connection therewith, Amgen and Assignor entered into that certain Lease dated July 17, 1998 (as amended, the “ Existing Boulder Sublease ”), pursuant to which Assignor subleased the Boulder Property on the terms and conditions contained in the Existing Boulder Sublease.

C. WHEREAS, Assignor and Circle Capital Longmont LLC, a Delaware limited liability company (“ Longmont Seller ”), have previously entered into that certain Lease Agreement, dated as of February 28, 2000, as amended by: (a) Addendum to Lease Agreement No. 1 dated May 24, 2001, (b) Addendum to Lease Agreement No. 2 dated February 11, 2002, (c) Addendum to Lease Agreement No. 3 dated November 30, 2004, (d) Addendum No. 4 to Lease Agreement dated as of August 4, 2005, (e) Addendum No. 5 to Lease Agreement dated as of November 30, 2006, (f) Addendum No. 6 to Lease Agreement dated as of December 22, 2005, (g) Addendum No. 7 to Lease Agreement dated as of February 28, 2006, and (h) Addendum No. 8 to Lease Agreement dated as of March 1, 2006 (as amended, the “ Existing Longmont Lease ” and, collectively with the Existing Boulder Lease and Existing Boulder Sublease, the “ Existing Leases ”), a copy of which is attached hereto as Exhibit B , pursuant to which: (i) Assignor leased that certain real property located at 2600 and 2620 Trade Centre Avenue, Longmont, Colorado, as more particularly described in Exhibit A to the Existing Longmont Lease (the “ Longmont Property ” and, together with the Boulder Property, the “ Properties ”), and (ii) the Longmont Seller granted Assignor the option to purchase the Longmont Property on the terms and conditions set forth in the Existing Longmont Lease (the “ Longmont Option ”).

D. WHEREAS, in accordance with the terms and conditions of the Boulder Option Agreement and the Existing Longmont Lease, Assignee has the right to assign its interests in the Boulder Option Agreement and the Longmont Option to Assignee.

E. WHEREAS, Assignor desires to assign and Assignee desires to assume all of Assignor’s rights and obligations with respect to the Boulder Option Agreement and the Longmont Option on the terms and conditions set forth herein.

ASSIGNMENT

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the undersigned hereby agree as follows:

2. Assumption . Subject to the terms and conditions hereof, Assignee agrees to accept said assignment, and assume and agree to satisfy all of Assignor’s obligations with respect to the Boulder Option Agreement and Longmont Option.

3. Purchase Price . The total purchase price to be paid to Assignor by Assignee: (i) for the Boulder Option shall be Sixteen Million Four Hundred Ninety-Five Thousand Two Hundred Dollars ($16,495,200) (the “ Boulder Purchase Price ”), and (ii) for the Longmont Option shall be Thirteen Million Nine Hundred Eighty-Six Thousand Two Hundred Thirty-Eight Dollars ($13,986,238) (the “ Longmont Purchase Price ” and, together with the Boulder Purchase Price, the “ Purchase Price ”). The Purchase Price, as adjusted for prorations, deposits and other adjustments as provided herein, shall be paid to LandAmerica Commercial Services, 750 B. Street, Suite 3000, San Diego, California 92101, Attn: Katherine I. Leicht (the “ Escrow Agent ”) by wire transfer of immediately available funds or in cash.

4. Purchase Price Prepayments/ Deposit of Earnest Money .

(a) Within three (3) business days (as defined below) following the Effective Date, Assignee shall pay to Assignor (i) $25,000 which shall be credited against the Boulder Purchase Price at the Boulder Closing (the “Boulder Prepayment”) and (ii) $25,000 which shall be credited against the Longmont Purchase Price at the Longmont Closing (the “Longmont Prepayment”).

(b) Within three (3) business days (in this Assignment, a business day shall mean any day of the year other than any Saturday or Sunday or any other day on which banks located in Boulder, Colorado generally are closed for business) after the Effective Date, Assignee shall deposit: (i) $225,000 in cash applicable towards the Boulder Purchase Price (such amount, including any interest earned thereon, the “ Boulder Deposit ”), and (ii) $225,000 in cash applicable towards the Longmont Purchase Price (such amount, including any interest earned thereon, the “ Longmont Deposit ” and, together with the Boulder Deposit, the “ Earnest Money ”) with the Escrow Agent. The Escrow Agent shall hold and disburse the Earnest Money in accordance with the escrow provisions in Exhibit C . Assignor shall not deliver any instruction to the Escrow Agent calling for disbursement of the Earnest Money to Assignor except following the occurrence of Assignee’s default hereunder and the expiration of any

applicable cure period or as otherwise expressly provided in this Assignment, and Assignor further agrees to provide Assignee with a copy of such instruction concurrently with the delivery thereof to the Escrow Agent. Provided such supplemental escrow instructions are not in conflict with this Assignment as it may be amended in writing from time to time, Assignor and Assignee agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Assignment.

5. Closing Date . The “ Closing Date ” shall mean: (a) with respect to the Boulder Property, July 7, 2006, or such earlier date as mutually agreed to by the parties (the (“ Boulder Closing Date ”), and (b) with respect to the Longmont Property, the date that is sixty days after Longmont Seller’s receipt of notice of exercise of the Longmont Option, or such earlier date as mutually agreed to by the parties (the “ Longmont Closing Date ”); provided , however , Assignee shall have the right to extend the respective Closing Date for up to seven (7) business days, by delivering to Assignor and Escrow Agent, at least five (5) business days prior to the expiration of the scheduled Closing Date, a written election to such effect setting forth the new Closing Date

6. Ongoing Operations . During the pendency of this Assignment:

(a) Preservation of Business . Assignor shall cause the Properties to be operated only in the ordinary and usual course of business and consistent with past practice, shall, subject to reasonable wear and tear, preserve intact the Properties, preserve the good will and advantageous relationships of Assignor with customers, suppliers, independent contractors, employees and other persons or entities material to the operation of its business, shall perform its obligations under the Existing Boulder Sublease, the Existing Longmont Lease and all other agreements affecting either Property and shall not take any action or omission which would cause any of the representations or warranties of Assignor contained herein to become inaccurate or any of the covenants of Assignor to be breached.

(b) Maintenance of Insurance . Assignor shall continue to carry its existing insurance through the respective Closing Date, and shall not allow any breach, default, termination or cancellation of such insurance policies or agreements to occur or exist.

(c) New Contracts . Without Assignee’s prior written consent in each instance, which will not be unreasonably withheld or delayed, Assignor will not enter into or amend, terminate, waive any default under, or grant concessions regarding any contract or agreement that will be an obligation affecting the Properties or binding on Assignee after the respective Closing.

(d) Leasing Arrangements . At Assignor’s sole cost and expense, Assignor and Assignee shall use their commercially reasonable efforts to negotiate with Amgen the termination, at the Boulder Closing, of the Existing Boulder Lease and the Existing Boulder Sublease. In the event Amgen fails or refuses to terminate the Existing Boulder Lease and the Existing Boulder Sublease, Array shall cooperate with Assignee in, at the election of Assignee: (i) modifying the terms of such lease to a form acceptable to Assignee, in its sole and absolute discretion or, (ii) entering into a new sublease on the terms and conditions set forth in the Boulder Lease. Assignor will not enter into any other lease, sublease of space or other

occupancy agreement affecting the Properties, or amend, terminate, waive any default under, grant concessions regarding, or incur any obligation for leasing commissions or otherwise in connection with any of the Existing Leases, or any other agreement without Assignee’s prior written consent in each instance.

(e) Maintenance of Permits . Assignor shall maintain in existence all licenses, permits and approvals, if any, in its name necessary or reasonably appropriate to the operation or improvement of the Properties.

(f) Property Information . Assignor has made available to Assignee at each Property or at Assignor’s office, the information and documents set forth on Exhibit D attached hereto (the “ Property Information ”) for each Property to the extent such Property Information was in Assignor’s possession. Assignor agrees to cooperate with Assignee and make copies, at Assignor’s expense, of such documentation as Assignee may request during the course of Assignee’s review of the Property Information. Assignor shall have the continuing obligation during the pendency of this Assignment to provide Assignee with any document described above and coming into Assignor’s possession or produced by or for Assignor after the initial delivery of the Property Information.

7. Conditions Precedent .

7.1 Conditions to Assignor’s Obligation to Close . In addition to all other conditions set forth herein, the obligation of Assignor to close the transactions with respect to the respective Property shall be contingent upon the following:

(a) Representations . Assignee’s representations and warranties contained herein shall be true and correct in all material respects as of the date of this Assignment and the respective Closing Date; and

(b) Performance . As of the respective Closing Date, Assignee shall have performed its obligations hereunder in all material respects and all deliveries to be made by Assignee at such Closing have been tendered.

7.2 Conditions to Assignee’s Obligation to Close . In addition to all other conditions set forth herein, the obligation of Assignee to close the transactions with respect to the respective Property shall be contingent upon the following:

(a) Representations . Assignor’s representations and warranties contained herein shall be true and correct in all material respects as of the date of this Assignment and the respective Closing Date;

(b) Performance . As of the respective Closing Date, Assignor shall have performed its obligations hereunder in all material respects and all deliveries to be made by Assignor at such Closing have been tendered;

(c) Default . As of the respective Closing Date, Assignor shall not be in default under this Assignment, any Existing Lease or any other agreement to be assigned to, or obligation to be assumed by, Assignee under this Assignment;

(d) Physical Condition . The physical condition of the respective Property shall be substantially the same on the respective Closing Date as on the Effective Date, reasonable wear and tear excepted;

(e) Lease Condition .

(i) As of the Longmont Closing Date, (1) Assignee and Assignor shall have executed a lease agreement with respect to the Longmont Property (the “ Longmont Lease ”), (2) Assignor shall be the sole tenant with respect to the Longmont Property, and (3) Assignee shall have received assurances acceptable to Assignee that on the consummation of the Longmont Closing, the Existing Longmont Lease and all other leases, subleases or other occupancy agreements affecting any portion of the Longmont Property, other than the Longmont Lease, shall have been terminated; and

(ii) As of the Boulder Closing Date, (1) Assignee and Assignor shall have executed a lease agreement with respect to the Boulder Property (the “ Boulder Lease ” and, together with the Longmont Lease, the “ Subject Leases ”), (2) Assignor shall be the sole tenant with respect to the Boulder Property (other than AlphaSniffer pursuant to a month to month sublease between Assignor and AlphaSniffer and, in the event Amgen fails to terminate the Existing Boulder Lease pursuant to Section 6(d) hereof, Amgen, pursuant to the Existing Boulder Lease), and (3) Assignee shall have received assurances acceptable to Assignee that on the consummation of the Boulder Closing, the Existing Boulder Lease and Existing Boulder Sublease and all other leases, subleases or other occupancy agreements affecting any portion of the Boulder Property, other than the Boulder Lease, a month-to-month sublease with AlphaSniffer and, in the event Amgen fails to terminate the Existing Boulder Lease pursuant to Section 6(d) hereof, the Existing Boulder Lease, shall have been terminated;

(f) Financial Condition . The financial condition of Assignor on the respective Closing Date shall be substantially the same as the financial condition on the Effective Date;

(g) Bankruptcy . No proceeding has been commenced against Assignor under the federal Bankruptcy Code or any state law for relief of debtors;

(h) Moratorium . No moratorium, statute or regulation of any governmental agency or order or ruling of any court has been enacted, adopted, or issued which would adversely affect Assignee’s use or development of the Properties; and

(i) Purchase Agreement .

(i) Longmont Purchase Agreement . As of the Longmont Closing Date, each of the conditions precedent set forth in Section 5.2 of that certain Purchase and Sale Agreement to be entered into between Assignor and the Longmont Seller (the “ Longmont Purchase Agreement ”) shall have been satisfied, the Assignor shall have assigned its interest in the Longmont Purchase Agreement to Assignee, and the Longmont Seller is prepared to convey its fee interest in the Longmont Property to Assignee pursuant to the Longmont Purchase Agreement; and

(ii) Boulder Purchase Agreement . As of the Boulder Closing Date, each of the conditions precedent set forth in Section 4.5 of that certain Purchase and Sale Agreement, attached as an Exhibit to the Boulder Option Agreement and to be entered into between Assignee and the Boulder Seller (the “ Boulder Purchase Agreement ”), shall have been satisfied, and the Boulder Seller is prepared to convey its fee interest in the Boulder Property to Assignee pursuant to the Boulder Purchase Agreement.

7.3 Failure of Condition Precedent . So long as a party is not in default beyond applicable notice and cure periods hereunder, if any condition to such party’s obligation to proceed with the respective Closing hereunder has not been satisfied as of the respective Closing Date or other applicable date and such condition is not cured within five (5) days after receipt of notice of default from the non-defaulting party; such non-defaulting party may, in its sole discretion, either (i) terminate this Assignment with respect to such Property by delivering written notice to the other party on or before such Closing Date and the Longmont Deposit or the Boulder Deposit, as applicable, shall be returned to Assignee, or (ii) elect to close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived any such condition.

8. Defaults and Remedies .

8.1 Assignee’s Defaults; Assignor’s Remedies .

(a) In the event of a breach by Assignee of its obligations under this Assignment to effect the respective Closing, which breach is not cured within five (5) days after Assignee’s receipt of notice of default from Assignor (provided that no such cure period shall extend the respective Closing Date or apply for a breach of the obligation to close by the respective Closing Date) and Assignor is willing, ready and able to perform its obligations hereunder, Assignor’s sole remedy shall be to terminate this Assignment and receive and retain all Earnest Money and any earnings thereon as liquidated damages, not as a penalty. ASSIGNOR AND ASSIGNEE AGREE THAT IT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO QUANTIFY THE ACTUAL DAMAGES TO ASSIGNOR IN THE EVENT OF A BREACH BY ASSIGNEE, THAT THE AMOUNT OF ALL EARNEST MONEY IS A REASONABLE ESTIMATE OF SUCH ACTUAL DAMAGES, AND THAT ASSIGNOR’S EXCLUSIVE REMEDY IN THE EVENT OF A BREACH BY ASSIGNEE SHALL BE TO RETAIN ALL EARNEST MONEY AND ANY EARNINGS THEREON AS LIQUIDATED DAMAGES.


Initials of Assignor		Initials of Assignee

(b) After the respective Closing, in the event of a breach by Assignee of its obligations under this Assignment that survive such Closing, Assignor may exercise any rights and remedies available at law or in equity.

8.2 Assignor’s Defaults; Assignee’s Remedies .

(a) In the event of a breach by Assignor of its obligations under this Assignment, which breach is not cured within five (5) days after Assignor’s receipt of notice of default from Assignee (provided that no such cure period shall extend the respective

Closing Date or apply for a breach of the obligation to close by such Closing Date), Assignee may elect one of the following two remedies: (a) terminate this Assignment and receive: (i) a refund of the Earnest Money and any earnings thereon, plus (ii) reimbursement from Assignor for Assignee’s reasonable out of pocket costs incurred in connection with the negotiation of this Assignment, Assignee’s diligence with respect to the Properties, and Assignee’s actions in furtherance of the transactions contemplated by this Assignment (provided that said sum recoverable as reimbursement shall not exceed one-hundred thousand dollars ($100,000)); or (b) enforce specific performance of this Assignment against Assignor, including the right to recover reasonable attorneys’ fees. ASSIGNEE AND ASSIGNOR AGREE THAT IT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO QUANTIFY THE ACTUAL DAMAGES TO ASSIGNEE IN THE EVENT OF A BREACH BY ASSIGNOR, THAT THE AMOUNT OF ALL EARNEST MONEY IS A REASONABLE ESTIMATE OF SUCH ACTUAL DAMAGES, AND THAT IN THE EVENT ASSIGNEE SELECTS TO ENFORCE ITS REMEDIES UNDER (A) ABOVE, ASSIGNEE SHALL RECEIVE A REFUND OF ALL EARNEST MONEY AND ANY EARNINGS THEREON AND ASSIGNEE’S OUT OF POCKET COSTS.


Initials of Assignor		Initials of Assignee

(b) After the respective Closing, in the event of a breach by Assignor of its obligations under this Assignment that survive such Closing, Assignee may exercise any rights and remedies available at law or in equity.

9. Closing . The consummation of the transactions contemplated herein (the “ Closing ”) shall occur as follows:

9.1 Boulder Closing . The consummation of the transaction contemplated herein with respect to the Boulder Option (the “ Boulder Closing ”) shall occur on the Boulder Closing Date at the offices of the Escrow Agent. Funds shall be deposited into and held by Escrow Agent in a closing escrow account with a bank satisfactory to Assignee and Assignor. Upon satisfaction or completion of all closing conditions and deliveries, Escrow Agent shall immediately deliver the closing documents to the appropriate parties and make disbursements according to the closing statements executed by Assignor and Assignee. Provided such supplemental escrow instructions are not in conflict with this Assignment as it may be amended in writing from time to time, Assignor and Assignee agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Assignment. The parties understand that the Boulder Closing shall occur with the Escrow Agent in Boulder, Colorado requiring that all necessary deliveries to escrow must be completed by 11:00 a.m. on the Boulder Closing Date.

(a) Assignor’s Deliveries in Escrow . On or before 11:00 a.m. on the Boulder Closing Date, Assignor shall deliver in escrow to the Escrow Agent the following:

(i) Assignment of Boulder Option Agreement . The Assignment of the Boulder Option Agreement, in the form attached hereto as Exhibit E , executed by Assignor and the Boulder Seller;

(ii) Boulder Lease . The Boulder Lease, substantially in the form of Exhibit F , executed by Assignor and Assignee;

(iii) Terminations . Terminations of the Existing Boulder Lease and the Existing Boulder Sublease;

(iv) Authority . Evidence of the existence, organization and authority of Assignor and of the authority of the persons executing documents on behalf of Assignor required by and reasonably satisfactory to the Escrow Agent and the Title Company; and

(v) Other Deliveries . Any other closing deliveries required to be made by or on behalf of Assignor hereunder or reasonably required to effect the Boulder Closing of this transaction consistent with this Assignment.

(b) Assignee’s Deliveries in Escrow . On or before 11:00 a.m. on the Boulder Closing Date, Assignee shall deliver in escrow to the Escrow Agent the following:

(i) Purchase Price . The Boulder Purchase Price, less the Boulder Deposit and the Boulder Prepayment that is applied to the Purchase Price plus or minus applicable prorations, deposited by Assignee with the Escrow Agent in immediate, same-day federal funds wired for credit into the Escrow Agent’s escrow account;

(ii) Assignment of Boulder Option Agreement . The Assignment of the Boulder Option Agreement, in the form attached hereto as Exhibit E , executed and acknowledged by Assignee;

(iii) Boulder Lease . The Boulder Lease, substantially in the form of Exhibit F , executed by Assignee; and

(iv) Other Deliveries . Any closing deliveries required to be made by or on behalf of Assignee hereunder or reasonably required to effect the Boulder Closing of this transaction consistent with this Assignment.

9.2 Longmont Closing . The consummation of the transaction contemplated herein with respect to the Longmont Option (the “ Longmont Closing ”) shall occur on the Longmont Closing Date at the offices of the Escrow Agent. Funds shall be deposited into and held by Escrow Agent in a closing escrow account with a bank satisfactory to Assignee and Assignor. Upon satisfaction or completion of all closing conditions and deliveries, Escrow Agent shall immediately deliver the closing documents to the appropriate parties and make disbursements according to the closing statements executed by Assignor and Assignee. Provided such supplemental escrow instructions are not in conflict with this Assignment as it may be amended in writing from time to time, Assignor and Assignee agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Assignment. The parties understand that the Longmont Closing shall occur with the Escrow Agent in Boulder, Colorado requiring that all necessary deliveries to escrow must be completed by 11:00 a.m. on the Longmont Closing Date.

(a) Assignor’s Deliveries in Escrow . On or before 11:00 a.m. on the Longmont Closing Date, Assignor shall deliver in escrow to the Escrow Agent the following:

(i) Assignment of Longmont Purchase Agreement . The Assignment of the Longmont Purchase Agreement, in the form attached hereto as Exhibit G , executed and acknowledged by Assignor and the Longmont Seller;

(ii) Assignment of Longmont Option . The Assignment of the Longmont Option, in the form attached hereto as Exhibit H , executed and acknowledged by Assignor and the Longmont Seller;

(iii) Longmont Lease . The Longmont Lease, substantially in the form of Exhibit I , executed by Assignor and Assignee;

(iv) Terminations . Terminations of the Existing Longmont Lease;

(v) Authority . Evidence of the existence, organization and authority of Assignor and of the authority of the persons executing documents on behalf of Assignor required by and reasonably satisfactory to the Escrow Agent and the Title Company; and

(vi) Other Deliveries . Any other closing deliveries required to be made by or on behalf of Assignor hereunder or reasonably required to effect the Longmont Closing of this transaction consistent with this Assignment.

(b) Assignee’s Deliveries in Escrow . On or before 9:00 a.m. on the Longmont Closing Date, Assignee shall deliver in escrow to the Escrow Agent the following:

(i) Purchase Price . The Longmont Purchase Price, less the Longmont Deposit and the Longmont Prepayment that is applied to the Purchase Price plus or minus applicable prorations, deposited by Assignee with the Escrow Agent in immediate, same-day federal funds wired for credit into the Escrow Agent’s escrow account;

(ii) Assignment of Longmont Purchase Agreement . The Assignment of the Longmont Purchase Agreement, in the form attached hereto as Exhibit G , executed and acknowledged by Assignee;

(iii) Assignment of Longmont Option . The Assignment of the Longmont Option, in the form attached hereto as Exhibit H , executed and acknowledged by Assignee;

(iv) Longmont Lease . The Longmont Lease, substantially in the form of Exhibit I , executed by Assignee; and

(v) Other Deliveries . Any other closing deliveries required to be made by or on behalf of Assignee hereunder or reasonably required to effect the Longmont Closing of this transaction consistent with this Assignment.

9.3 Closing Statements/Closing Costs .

(a) Assignor and Assignee shall deposit with the Escrow Agent executed closing statements consistent with this Assignment in the form required by the Escrow Agent.

(b) Assignee and the Boulder Seller or the Longmont Seller, as applicable, shall each pay one-half (1/2) of the Closing Costs pursuant to the applicable Purchase Agreement; provided , however , (i) Assignor shall be required to pay the costs of any unamortized tenant improvements and leasing commissions, as required by Section 12(c)(4) of Addendum No. 4 to the Existing Longmont Lease (“Addendum #4), and Assignee shall be entitled to any credit, to be applied towards the Longmont Purchase Price, under Section 12(c)(4) of Addendum #4 relating to savings realized by the Longmont Seller on brokers’ commissions relating to the purchase of the Longmont Property; provided further , in the event Assignee is responsible for: (i) more than 50% of the Closing Costs for the Boulder Property and the Longmont Property under the applicable Purchase Agreement, Assignor shall reimburse Assignee for one-half of such excess amount paid by Assignee; or (ii) less than 50% of the Closing Costs for the Boulder Property and the Longmont Property under the applicable Purchase Agreement, Assignee shall pay Assignor one-half of the difference between the Closing Costs paid by Assignee and 50% of the overall Closing Costs. For purposes of this Section, “Closing Costs” shall mean the aggregate costs and expenses of the Longmont Closing and the Boulder Closing attributable to an updated survey, an owner’s title policy, title endorsements, transfer fees and taxes (excluding sales tax on personal property), recording fees, title company escrow fees and closing fees.

10. Prorations and Adjustments .

10.1 Prorations . The following shall apply with respect to each Closing: at least five (5) days prior to the respective Closing Date, Assignor shall provide to Assignee such information and verification reasonably necessary to support the prorations and adjustments under this Section 10 . To the extent Assignor pays such operating expenses, assessments, charges under contracts and utility charges with respect to such Property pursuant to an Existing Lease, Assignor shall continue to be responsible for such charges pursuant to the terms and provisions of the Existing Leases. All other assessments, charges under contracts and utility charges with respect to such Property shall be prorated between Assignor and Assignee, based on the actual number of days in the applicable period, as of the close of the day immediately preceding such Closing Date, with Assignor bearing all such items to the extent attributable to the period prior to such Closing Date and Assignee bearing all such items to the extent attributable the period commencing on such Closing Date. Notwithstanding the foregoing, Assignor shall be solely responsible for all costs and expenses of any kind under any of the Existing Leases. In the event Assignor has any questions or concerns regarding prorations or other expenses under the Existing Leases, Assignor shall contact and negotiate directly with the Boulder Seller or the Longmont Seller, as applicable. Notwithstanding the foregoing, in the event Assignee receives a credit from the Longmont Seller or the Boulder Seller, as applicable, for any base rent or additional rent under the Existing Longmont Lease or the Existing Boulder Sublease, as applicable, that was paid by Assignor before the respective Closing Date and applies

to any period after such Closing Date (the “ Prepaid Rent ”), Assignor shall receive a credit for such Prepaid Rent on the respective Closing Date.

10.2 Sales Commissions . In the event of any claim for broker’s or finder’s fees or commissions in connection with the negotiation, execution or consummation of this Assignment or the transactions contemplated hereby, each party shall indemnify and hold harmless the other party from and against any such claim based upon any statement, representation or agreement of such party.

10.3 Pre-Closing Expenses . Except as otherwise specifically provided in this Assignment or in any other written agreement that may be entered into between Assignor and Assignee, Assignor has paid or will pay in full, prior to the respective Closing (or promptly following receipt of a bill therefor if not received by such Closing), all bills and invoices for labor, goods, material and services of any kind relating to the Properties and utility charges (except if and to the extent such utility charges are billed directly to tenants), relating to the period prior to such Closing.

10.4 Leasing Cost . At the Longmont Closing, Assignee will pay the Longmont Seller, in addition to the Longmont Purchase Price, an additional amount equal to the unamortized component of any tenant improvements or lease commission costs incurred by Seller for leasing the Longmont Property to Assignor (the “ Leasing Cost ”). The Leasing Cost is anticipated to be approximately $231,587.63. Assignor hereby agrees to reimburse Assignee the Leasing Cost. Therefore, at the Longmont Closing, Assignee shall receive a credit from Assignor for the total amount of the Leasing Cost.

11. Representations and Warranties .

11.1 Assignor’s Representations and Warranties . As a material inducement to Assignee to execute this Assignment and consummate this transaction, Assignor represents and warrants to Assignee that:

(a) Organization and Authority . Assignor has been duly organized, is validly existing, and is in good standing as a Delaware corporation. Assignor is in good standing and is qualified to do business in the state in which the Properties are located. Assignor has the full right and authority and has obtained any and all consents required to enter into this Assignment and to consummate or cause to be consummated the transactions contemplated hereby. This Assignment has been, and all of the documents to be delivered by Assignor at the respective Closing will be, authorized and properly executed and constitute, or will constitute, as appropriate, the valid and binding obligations of Assignor, enforceable in accordance with their terms.

(b) Conflicts and Pending Actions or Proceedings . There is no agreement to which Assignor is a party or, to Assignor’s knowledge, binding on Assignor or any Property which is in conflict with this Assignment, or which challenges or impairs Assignor’s ability to execute or perform its obligations under this Assignment. There is not now pending or, to the best of Assignor’s knowledge, threatened, any action, suit or proceeding before any court or governmental agency or body against Assignor that would prevent Assignor from performing its obligations hereunder or against or with respect to the Properties. No

condemnation, eminent domain or similar proceedings are pending or, to Assignor’s knowledge, threatened with regard to the Properties. Assignor has not received any notice and has no knowledge of any pending or threatened liens, special assessments, impositions or increases in assessed valuations to be made against the Properties.

(c) Existing Leases . The Existing Leases are, or at the time they are delivered to Assignee will be, true, correct and complete copies of all of the leases affecting the Properties, including any and all amendments or supplements thereto, and guaranties or other security in connection therewith. There are no lease or occupancy agreements affecting any portion of the Properties other than the Existing Leases and the AlphaSniffer Lease. Assignor does not have any defenses or offsets to rent accruing after the respective Closing Date under any of the Existing Leases and no default or breach exists on the part of Assignor. Assignor has not received any notice of any default or breach on the part of the landlord under any of the Existing Leases, nor, to Assignor’s knowledge, does there exist any such default or breach on the part of the landlord. All of the landlord’s obligations to construct tenant improvements or reimburse Assignor for tenant improvements under the Existing Leases have been paid and performed in full and all concessions (other than any unexpired rent abatement set forth in the Leases) from the landlord under the Existing Leases have been paid and performed in full.

(d) Legal Compliance . To Assignor’s knowledge, Assignor has all material licenses, permits and certificates necessary for the use and operation of the Properties, including, without limitation, all certificates of occupancy necessary for the lawful occupancy of the Properties. Assignor has received no written notice that either Property or the use thereof violates any governmental law or regulation or any covenants or restrictions encumbering either Property. Assignor has not received any written notices of violations or alleged violations of any laws, rules, regulations or codes, including building codes, with respect to the Properties which have not been corrected to the satisfaction of the issuer of the notice.

(e) Environmental . Assignor has no knowledge of, and has received no notice of, any violation of Environmental Laws related to the Properties or the presence or release of Hazardous Materials on or from the Properties in violation of Environmental Laws except, (i) with respect to the Longmont Property, as described in the Phase One Environmental Assessment dated June 2, 2006 and, (ii) with respect to the Boulder Property, as described in the Phase One Environmental Site Assessment Updated dated May 30, 2006 (collectively, the “ Environmental Assessments ”). Assignor has received written confirmation from Versar that each of the environmental matters disclosed in the Environmental Assessments have been remedied. Neither Assignor nor, to Assignor’s knowledge, any other occupant, has used the Properties or any part thereof for the release, generation, treatment, storage, handling or disposal of any Hazardous Materials, in violation of any Environmental Laws. There are no underground storage tanks located on the Properties. The term “ Environmental Laws ” includes without limitation the Resource Conservation and Recovery Act and the Comprehensive Environmental Response Compensation and Liability Act and other federal laws governing the environment as in effect on the date of this Assignment, together with their implementing regulations, guidelines, rules or orders as of the date of this Assignment, and all state, regional, county, municipal and other local laws,

regulations, ordinances, rules or orders that are equivalent or similar to the federal laws recited above or that purport to regulate Hazardous Materials. The term “ Hazardous Materials ” includes petroleum, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas or such synthetic gas), and any substance, material, waste, pollutant or contaminant listed or defined as hazardous or toxic under any Environmental Law.

(f) Disclosure . Copies of Property Information delivered to Assignee pursuant to Section 6(f) hereof are or will be true, correct and complete. Assignor has delivered to Assignee all books, notices, documents and agreements pertaining to the Properties that are in Assignor’s possession. To Assignor’s actual knowledge, the Property Information does not and shall not contain a material misstatement of fact or omit to state a fact necessary in order to make the statements therein not misleading in any material respect. Assignor is not aware of any current fact or circumstance pertaining to the condition of either Property that (1) has not been disclosed to Assignee, and (2) in Assignor’s reasonable opinion has a material adverse impact on the value of either Property.

(g) ERISA . Assignor is not and is not acting on behalf of an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, a “plan” within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended or an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of any such employee benefit plan or plans.

11.2 Assignee’s Representations and Warranties . As a material inducement to Assignor to execute this Assignment and consummate this transaction, Assignee represents and warrants to Assignor that:

(a) Organization and Authority . Assignee has been duly organized and is validly existing as a Maryland limited partnership, in good standing and will be qualified to do business in the state in which the Properties are located on the respective Closing Date. This Assignment has been, and all of the documents to be delivered by Assignee at the respective Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligation of Assignee, enforceable in accordance with their terms.

(b) Conflicts and Pending Action . There is no agreement to which Assignee is a party or to Assignee’s knowledge binding on Assignee which is in conflict with this Assignment. There is no action or proceeding pending or, to Assignee’s knowledge, threatened against Assignee which challenges or impairs Assignee’s ability to execute or perform its obligations under this Assignment.

11.3 Survival of Representations and Warranties . The representations and warranties set forth in this Section 11 are made as of the Effective Date and are remade as of the respective Closing Date, and such representations and warranties (and any representations and warranties in any other documents delivered to Assignee pursuant to the provisions of this Assignment) shall not be deemed to be merged into or waived by the instruments of such Closing, but shall survive such Closing.

12. Miscellaneous .

12.1. Parties Bound . Neither party may assign this Assignment without the prior written consent of the other, and any such prohibited assignment shall be void; provided, however, that Assignee may assign this Assignment without Assignor’s consent to one or more Affiliate (including without limitation BioMed Realty Trust, Inc., BMR-3200 Walnut Street LLC and BMR-Trade Center Avenue LLC). Subject to the foregoing, this Assignment shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs, and devisees of the parties. For the purposes of this paragraph, the term “ Affiliate ” means (i) an entity that directly or indirectly controls, is controlled by or is under common control with Assignee, or (ii) a partnership or other entity in which Assignee or an entity described in (i) is a partner or other owner; and the term “control” means the power to direct the management of such entity through voting rights, ownership or contractual obligations.

12.2. Headings . The article and paragraph headings of this Assignment are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof.

12.3. Expenses . Except as otherwise expressly provided herein, each party hereto shall pay its own expenses incident to this Assignment and the transactions contemplated hereunder, including all legal and accounting fees and disbursements.

12.4. Invalidity and Waiver . If any portion of this Assignment is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Assignment shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Assignment shall not be deemed to be a waiver of such party’s right to enforce against the other party the same or any other such term or provision in the future.

12.5. Governing Law . This Assignment shall, in all respects, be governed, construed, applied, and enforced in accordance with the law of the state in which the Properties are located.

12.6. Survival . The provisions of this Assignment and the obligations of the parties not fully performed at the respective Closing shall survive such Closing and shall not be deemed to be merged into or waived by the instruments of such Closing. Any claim for performance of an obligation after such Closing shall be barred and shall lapse unless a claim is made in writing, with a description of the claim made, on or before the first anniversary of such Closing.

12.7. No Third Party Beneficiary . This Assignment is not intended to give or confer any benefits, rights, privileges, claims, actions, or remedies to any person or entity as a third party beneficiary, decree, or otherwise.

12.8. Entirety and Amendments . This Assignment embodies the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Properties. This Assignment may be amended or supplemented only in writing by a non-electronic instrument executed by the party against whom enforcement is sought. For the

avoidance of doubt, copies of signed instruments that are electronically transmitted constitute a writing for this purpose.

12.9. Time of the Essence . Time is of the essence in the performance of this Assignment.

12.10. Time . All times, whenever specified herein, shall be local time in the state in which the Properties are located.

12.11. Confidentiality . Subject to Section 12.12 , Assignor agrees to keep all negotiations and the terms of this Assignment confidential, and shall not disclose such terms to any person, without the prior written approval of Assignee. The foregoing obligations shall survive the termination of this Assignment and the respective Closing. The foregoing shall not preclude either party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, investors, or any prospective lender, partner or investor, as the case may be, or prevent either party hereto, from complying with laws, rules, regulations and court orders, including without limitation, state or federal securities or environmental laws or regulations, governmental regulatory, disclosure, tax and reporting requirements, or from making disclosures in the ordinary course of its due diligence inspections and contacts with third parties related thereto.

12.12. Press Release . Neither Assignor nor Assignee will release or cause or permit to be released any press notices, or publicity (oral or written) or advertising promotion relating to, or otherwise announce or disclose or cause or permit to be announced or disclosed, in any manner whatsoever, the terms, conditions or substance of this Assignment without first obtaining the written consent of the other party except those disclosures that are required by law, including the Securities Act of 1933, or contractual obligation (in which case notice shall be timely provided to the other party of such requirement and disclosure). The foregoing shall not preclude either party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, investors, or any prospective lender, partner or investor, as the case may be, or prevent either party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements, or from making disclosures in the ordinary course of its due diligence inspections and contacts with third parties related thereto. Notwithstanding the foregoing, any party to this transaction (and each employee, agent or representative of the foregoing) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such tax treatment and tax structure except to the extent maintaining such confidentiality is necessary to comply with any applicable federal or state securities laws. The authorization in the preceding sentence is not intended to permit disclosure of any other information unrelated to the tax treatment and tax structure of the transaction including (without limitation) (i) any portion of the transaction documents or related materials to the extent not related to the tax treatment or tax structure of the transaction, (ii) the existence or status of any negotiations unrelated to the tax issues, or (iii) any other term or detail not relevant to the tax treatment or the tax structure of the transaction.

12.13. Attorneys’ Fees . Should either party employ attorneys to enforce any of the provisions hereof, the non-prevailing party agrees to pay the prevailing party all reasonable costs, charges, and expenses, including reasonable attorneys’ fees, expended or incurred by the prevailing party in connection therewith, whether incurred prior to, during or subsequent to any bankruptcy, receivership, reorganization, appellate, or other legal proceeding.

12.14. Notices . All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth below. Any such notices shall be either (i) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier, (ii) sent by facsimile on a business day, in which case notice shall be deemed delivered upon transmission of such notice with confirmed receipt by the sender’s machine, or (iii) sent by personal delivery, in which case notice shall be deemed delivered upon receipt or refusal of delivery. A party’s address may be changed by written notice to the other party; provided, however, that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. The attorney for a party has the authority to send notices on behalf of such party.

	Assignor:		Array BioPharma Inc.
			3200 Walnut Street,
			Boulder, Colorado, 80301
			Attention: John Moore
			Facsimile: (303) 386-1290

	Assignee		BioMed Realty, L.P.
			17140 Bernardo Center Drive, Suite 222
			San Diego, CA 92128
			Attention: General Counsel
			Facsimile: (858) 485-9843

12.15. Construction . The parties acknowledge that the parties and their counsel have reviewed and revised this Assignment and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Assignment or any exhibits or amendments hereto.

12.16. Remedies Cumulative . Except as expressly provided to the contrary in this Assignment, the remedies provided in this Assignment shall be cumulative and shall not preclude the assertion or exercise of any other rights or remedies available by law, in equity or otherwise.

12.17. Calculation of Time Periods . Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Properties are located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, or legal holiday. The last day of any period of

time described herein and the time during any day by which an event must occur shall be deemed to end at 5 p.m.

12.18. Public Company Requirements . Upon Assignee’s request, for a period of two (2) years after the respective Closing, Assignor shall make any books and records of the Properties remaining in possession of Assignor available to Assignee for inspection, copying and audit by Assignee’s designated accountants, and at Assignee’s expense. Assignor shall provide Assignee, but without third-party expense to Assignor, with copies of, or access to, such factual information in connection with this Assignment and/or the Properties as may be reasonably requested by Assignee, and in the possession or control of Assignor, to enable Assignee to comply with applicable filing requirements of the Securities and Exchange Commission. Assignee or its designated independent or other accountants may audit the operating statements of the Properties, and Assignor shall supply such documentation in its possession or control as Assignee or its accountants may reasonably request in order to complete such audit and shall provide to Assignee’s auditors a representation letter from Assignor or its representative reasonably satisfactory to Assignee’s auditors in connection with such audit.

12.19. Execution in Counterparts . This Assignment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one agreement. To facilitate execution of this Assignment, the parties may execute and exchange by telephone facsimile counterparts of the signature pages.

12.20. Further Assurances . In addition to the acts and deeds recited herein and contemplated to be performed, executed or delivered by either party at the respective Closing, each party agrees to perform, execute and deliver, on or after such Closing any further actions, documents, and will obtain such consents, as may be reasonably necessary or as may be reasonably requested to fully effectuate the purposes, terms and conditions of this Assignment or to further perfect the conveyance, transfer and assignment of the Properties to Assignee.

12.21. Approval . To the extent any approval or consent shall be required in this Assignment such approval or consent shall not be unreasonably withheld, unless the terms of and conditions of such approval or consent are to the sole discretion of such party.

12.22. Waiver of Jury Trial . TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.

12.23. Effective Date . Notwithstanding anything contained herein to the contrary, this Agreement (and the Exhibits hereto) shall be void and of no force or effect if the Boulder Option Agreement has not been fully executed by Assignor and Boulder Seller on or before June 30, 2006.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the undersigned have executed this Assignment as of the day and year first above written.

		ASSIGNOR:

		ARRAY BIOPHARMA INC.,
		a Delaware corporation


		By:
		Name:
		Title:


		ASSIGNEE:

		BIOMED REALTY, L.P.
		a Maryland limited partnership


		By:
		Name:
		Title:

[ASSIGNMENT AGREEMENT SIGNATURE PAGE]

EXHIBIT A

BOULDER OPTION AGREEMENT

(See following attached pages)

EXHIBIT B

EXISTING LONGMONT LEASE

(See following attached pages)

EXHIBIT C

EARNEST MONEY ESCROW PROVISIONS

1. Investment and Use of Funds . The Escrow Agent shall invest the Earnest Money in government insured interest-bearing accounts satisfactory to Assignee, shall not commingle the Earnest Money with any funds of the Escrow Agent or others, and shall promptly provide Assignee and Assignor with confirmation of the investments made. If the respective Closing under this Assignment occurs, the Escrow Agent shall deliver the Earnest Money to, or upon the instructions of, Assignor on such Closing Date.

2. Termination . Except as otherwise expressly provided herein, upon not less than three (3) business days’ prior written notice to the Escrow Agent and the other party, Escrow Agent shall deliver the Earnest Money to the party requesting the same; provided, however, that if the other party shall, within said three (3) business day period, deliver to the requesting party and the Escrow Agent a written notice that it disputes the claim to the Earnest Money, Escrow Agent shall retain the Earnest Money until it receives written instructions executed by both Assignor and Assignee as to the disposition and disbursement of the Earnest Money, or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Earnest Money to a particular party, in which event the Earnest Money shall be delivered in accordance with such notice, instruction, order, decree or judgment.

3. Interpleader . Assignor and Assignee mutually agree that in the event of any controversy regarding the Earnest Money, unless mutual written instructions are received by the Escrow Agent directing the Earnest Money’s disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Earnest Money or, at the Escrow Agent’s option, the Escrow Agent may interplead all parties and deposit the Earnest Money with a court of competent jurisdiction in which event the Escrow Agent may recover all of its court costs and reasonable attorneys’ fees. Assignor or Assignee, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys’ fees of the prevailing party in accordance with the other provisions of this Assignment.

4. Liability of Escrow Agent . The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Assignment, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Assignor or Assignee resulting from the Escrow Agent’s mistake of law respecting the Escrow Agent’s scope or nature of its duties. Assignor and Assignee shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys’ fees, incurred in connection with the performance of the Escrow Agent’s duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Assignment or involving negligence on the part of the Escrow Agent.

EXHIBIT D

PROPERTY INFORMATION

(a) Leases . Copies of all Existing Leases and license agreements, and any and all subleases currently in effect;

(b) Tenant Information . Copies of financial statements of Assignor covering the two years prior to this Assignment to the extent that it is not publicly available, and any information relative to tenant payment history;

(d) Maintenance Records . All available maintenance work orders for the 12 months preceding this Assignment;

(e) List of Capital Improvements . A list of all capital improvements known to Assignor and performed on the Properties prior to the date hereof;

(f) Reports . Any environmental, soil, structural engineering, drainage and other physical inspection reports, assessments, audits and surveys related to the Properties;

(g) Plans and Specifications . All construction plans and specifications relating to the original development of the Properties, and any major capital repairs or tenant improvements;

(h) Insurance . Copies of Assignor’s certificates of insurance for the Properties and any notices received from insurance carriers;

(i) Proceedings . Copies of any documents or materials (except for privileged documents) relating to any litigation, investigation, condemnation, or proceeding of any kind pending or threatened affecting any of the Properties or the ability of Assignor to consummate the transaction contemplated by this Assignment;

(j) Existing Title and Survey Documents . Copy of existing title insurance policy, any existing surveys of the Properties, zoning letters, studies, subdivision plats, restrictions, any right of way agreements or easement agreements and a copy of the existing mortgage effecting the Properties;

(k) Architectural and Engineering Records . Copies of: any and all elevator inspection certificates and reports; physical condition reports; mechanical and electrical inspection reports; geotechnical reports; warranties (roof, mechanical equipment, etc.); building permits and certificates of occupancy; any structural and engineering studies prepared since original construction; ADA surveys and reports; notices of any violations of building or fire codes; maintenance logs for major equipment; and plans for any rooftop antenna installations;

(l) Property Management Records . Copies of all notices of default received by or sent to Assignor or contractors within the last 12 months; stored materials inventory; a list of management and engineering personnel charged to the Properties along with allocation percentages; utility bills, real estate tax bills, and personal property bills for prior 36 months; current real estate tax assessment notice; real estate tax assessment appeal history for prior 36 months (proposed vs. actual); current real estate tax invoice receipt; tenant list including names, corporate addresses, billing and mail address, phone numbers and contact person; stacking plans; invoice files (copies of current year’s paid invoices); and current building contacts, including property manager, accountant and lease administrator;

(m) Land/Development Records . Copies of: any easements, CCRs or other recorded documents affecting the Properties, and any unrecorded agreements to which Assignee would be subject post-closing; all agreements with or applications to any governmental authority relating to zoning, use, development, subdivision or planning of the Properties; and information relating to the availability and location of utilities;

(n) Environmental Records . All Phase One / Phase Two Environmental Assessments for the Properties, asbestos audits of the Properties, environmental reports related to the Properties; and any notices from or to any governmental authority regarding hazardous materials on or relating to the Properties;

(o) Building Plans . As-built building plans and specifications in the possession or under the control of Assignor;

(p) Condition Reports . Structural, mechanical, ADA, and physical condition reports in the possession or under the control of Assignor; and

(q) Other . Copies of any written notices from any governmental agencies or tenants regarding the Properties; any and all appraisals performed with respect to the Properties, and such other documents or materials concerning the Properties as may be reasonably requested by Assignee.

EXHIBIT E

ASSIGNMENT OF BOULDER OPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION OF OPTION AGREEMENT (this “ Assignment ”) is made as of June 22, 2006 (the “ Effective Date ”), by and among Array BioPharma Inc., a Delaware corporation (“ Assignor ”), and BMR-3200 Walnut Street LLC, a Delaware limited liability company (“ Assignee ”).

RECITALS

A. WHEREAS, Assignor and 3200 Walnut LL, LLC, a Delaware limited liability company (“ Seller ”), entered into that certain Option Agreement dated as of June 19, 2006 (the “ Boulder Option Agreement ”), a copy of which is attached hereto as Exhibit A , pursuant to which Seller granted Assignor the option to purchase that certain real property located at 1885 33rd Street, 1825 33rd Street, 1865 33rd Street, and 3200 Walnut Street, Boulder, Colorado (the “ Boulder Option ”), as more particularly described in Exhibit A to the Boulder Option Agreement (the “ Boulder Property ”); and

B. WHEREAS, Assignor desires to assign its interest in the Boulder Option Agreement to Assignee.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto mutually agree as follows:

1. Defined Terms . All capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Boulder Option Agreement.

2. Assignment . Assignor hereby sets over, transfers and assigns unto Assignee all of Assignor’s right, title and interest in and to the Boulder Option Agreement.

6. Governing Law . This Assignment shall be governed by the law of the State of Colorado.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written.

			ASSIGNOR:


				ARRAY BIOPHARMA INC.,
				a Delaware corporation


				By:
				Name:
				Title:

			ASSIGNEE:

				BMR-3200 WALNUT STREET LLC,
				a Delaware limited liability company

				By:	BIOMED REALTY, L.P., a Maryland limited partnership its sole member


				By:
					Name:
					Title:


CONSENTED TO:

SELLER:

3200 WALNUT LL, LLC,
a Delaware limited liability company

By:		QOL Independent Corp.
		Its Managing Member


By:
	Name:
	Title:

EXHIBIT F

BOULDER LEASE

(See following attached pages)

EXHIBIT G

ASSIGNMENT OF LONGMONT PURCHASE AGREEMENT

This ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT (this “ Assignment ”) is made as of June [ ], 2006 (the “ Effective Date ”), by and among Array BioPharma Inc., a Delaware corporation (“ Assignor ”), BMR-Trade Center Avenue LLC, a Delaware limited liability company (“ Assignee ”), and Circle Capital Longmont LLC, a Delaware limited liability company (“ Seller ”).

RECITALS

A. WHEREAS, pursuant to that certain Purchase and Sale Agreement dated [ ], 2006 (as amended, the “ Purchase Agreement ”), by and between Assignor and Seller, Seller agreed to sell to Assignor, and Assignor agreed to purchase from Seller, the real property described in Exhibit “A” attached hereto (the “ Land ”) and certain improvements located on the Land; and

B. WHEREAS, Assignor desires to assign its interest in the Purchase Agreement to Assignee.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto mutually agree as follows:

1. Defined Terms . All capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Purchase Agreement.

2. Assignment . Assignor hereby sets over, transfers and assigns unto Assignee all of Assignor’s right, title and interest in and to the Purchase Agreement.

3. Assumption . In consideration of the foregoing assignment, Assignee hereby accepts the foregoing assignment and, from and after the execution hereof, assumes and agrees to make, observe, keep and perform all of the terms, covenants and conditions to be made, observed, kept and performed by the Assignee under the Purchase Agreement, as fully as though Assignee were originally named in the Purchase Agreement as the Purchaser.

4. Warranty . Assignor hereby represents and warrants to Assignee that: (a) it has not assigned the Purchase Agreement to any other person or entity, and (b) it is not in breach or default of any of its obligations under the Purchase Agreement.

Assignor to fulfill, perform, discharge, and observe its obligations with respect to the Purchase Agreement arising on or after the Effective Date.

6. Governing Law . This Assignment shall be governed by the law of the State of Colorado.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written.

		ASSIGNOR:


			ARRAY BIOPHARMA INC.,
			a Delaware corporation


			By:
			Name:
			Title:

		ASSIGNEE:

			BMR-TRADE CENTRE AVENUE LLC,
			a Delaware limited liability company

			By:	BIOMED REALTY, L.P., a Maryland limited partnership its sole member


			By:
				Name:
				Title:


ACKNOWLEDGED AND AGREED:

SELLER:

CIRCLE CAPITAL LONGMONT LLC,
a Delaware limited liability company


By:
	Name:
	Title:

EXHIBIT H

ASSIGNMENT OF LONGMONT OPTION

This ASSIGNMENT OF LONGMONT OPTION (this “ Assignment ”) is made as of [ ], 2006 (the “ Effective Date ”), by and among Array BioPharma Inc., a Delaware corporation (“ Assignor ”), BMR-Trade Center Avenue LLC, a Delaware limited liability company (“ Assignee ”), and Circle Capital Longmont LLC, a Delaware limited liability company (“ Seller ”).

RECITALS

A. WHEREAS, Assignor and Seller have previously entered into that certain Lease Agreement, dated as of February 28, 2000, as amended by: (a) Addendum to Lease Agreement No. 1 dated May 24, 2001, (b) Addendum to Lease Agreement No. 2 dated February 11, 2002, (c) Addendum to Lease Agreement No. 3 dated November 30, 2004, (d) Addendum No. 4 to Lease Agreement dated as of August 4, 2005 (the “ Addendum No. 4 ”), (e) Addendum No. 5 to Lease Agreement dated as of November 30, 2006, (f) Addendum No. 6 to Lease Agreement dated as of December 22, 2005, (g) Addendum No. 7 to Lease Agreement dated as of February 28, 2006, and (h) Addendum No. 8 to Lease Agreement dated as of March 1, 2006 (as amended, the “ Longmont Lease ”), a copy of which is attached hereto as Exhibit A , pursuant to which: (i) Assignor leased that certain real property located at 2600 and 2620 Trade Centre Avenue, Longmont, Colorado, as more particularly described in Exhibit A to the Longmont Lease (the “ Longmont Property ”), and (ii) Seller granted Assignor the option to purchase the Longmont Property on the terms and conditions set forth in Section 12 of Addendum No. 4 to the Longmont Lease (the “ Longmont Option ”); and

B. WHEREAS, Assignor desires to assign its interest in the Longmont Option to Assignee.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto mutually agree as follows:

1. Defined Terms . All capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Longmont Lease.

2. Assignment . Assignor hereby sets over, transfers and assigns unto Assignee all of Assignor’s right, title and interest in and to the Longmont Option.

3. Assumption . In consideration of the foregoing assignment, Assignee hereby accepts the foregoing assignment and, from and after the execution hereof, assumes and agrees to make, observe, keep and perform all of the terms, covenants and conditions to be made, observed, kept and performed by the Assignee under Section 12 of Addendum No. 4 to the Longmont Lease, as fully as though Assignee were originally named in the Longmont Lease as the “Tenant”.

4. Warranty . Assignor hereby represents and warrants to Assignee that: (a) it has not assigned the Longmont Option to any other person or entity, and (b) it is not in breach or default of any of its obligations under the Longmont Lease.

5. Indemnification . Assignor shall defend, indemnify and hold harmless Assignee from and against any liability, damages, causes of action, expenses, and attorneys’ fees incurred by Assignee by reason of the failure of Assignor to fulfill, perform, discharge, and observe its obligations with respect to the Longmont Lease, including any obligations with respect to the Longmont Option arising before the Effective Date. Assignee shall defend, indemnify and hold harmless Assignor from and against any liability, damages, causes of action, expenses, and attorneys’ fees incurred by Assignor by reason of the failure of Assignor to fulfill, perform, discharge, and observe its obligations with respect to the Longmont Option pursuant to Section 12 of Addendum No. 4 to the Longmont Lease arising on or after the Effective Date.

6. Governing Law . This Assignment shall be governed by the law of the State of Colorado.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written.

		ASSIGNOR:


			ARRAY BIOPHARMA INC.,
			a Delaware corporation


			By:
			Name:
			Title:

		ASSIGNEE:

			BMR-TRADE CENTRE AVENUE LLC,
			a Delaware limited liability company

			By:	BIOMED REALTY, L.P., a Maryland limited partnership its sole member


			By:
				Name:
				Title:


ACKNOWLEDGED AND AGREED:

SELLER:

CIRCLE CAPITAL LONGMONT LLC,
a Delaware limited liability company


By:
	Name:
	Title:

EXHIBIT I

LONGMONT LEASE

(See following attached pages)

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Array BioPharma Inc.:

We consent to the incorporation by reference in the registration statement (No. 333-100955) on Form S-8 of Array BioPharma Inc. of our reports dated September 1, 2006, with respect to the balance sheets of Array BioPharma Inc. as of June 30, 2006 and 2005, and the related statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for the years then ended, and the related financial statement schedule II for the years ended June 30, 2006 and 2005, management’s assessment of the effectiveness of internal control over financial reporting as of June 30, 2006 and the effectiveness of internal control over financial reporting as of June 30, 2006, which reports appear in the June 30, 2006 annual report on Form 10-K of Array BioPharma Inc.

Our report dated September 1, 2006, contains an explanatory paragraph that states, effective July 1, 2005, the Company changed its method of accounting for stock-based compensation.

/s/ KPMG LLP

Boulder, Colorado

September 1, 2006

Shares to be Exercised

Option Exercise Price

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-100955) of Array BioPharma Inc. of our report dated July 29, 2004, with respect to the financial statements and schedule of Array BioPharma Inc. included in the Annual Report (Form 10-K) for the year ended June 30, 2006.

/s/ ERNST & YOUNG LLP

Denver, Colorado
August 31, 2006

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 annual report on Form 10-K 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 registrant’s other certifying officer and I are 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: September 1, 2006	/s/ Robert E. Conway
	Robert E. Conway
	Chief Executive Officer

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 annual report on Form 10-K of Array BioPharma Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 1, 2006	/s/ R. Michael Carruthers
	R. Michael Carruthers
	Chief Financial Officer

Exhibit 32

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 Annual Report on Form 10-K of the Company for the year ended June 30, 2006, 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 1 st day of September, 2006.

		/s/ Robert E. Conway
	Robert E. Conway
	Chief Executive Officer


		/s/ R. Michael Carruthers
	R. Michael Carruthers
	Chief Financial Officer