ARRAY BIOPHARMA INC.
Statements of Stockholders' Equity (Deficit)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Deficit
|
|
Total
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Amounts
|
|
Shares
|
|
Amounts
|
|
|
|
|
Balance as of June 30, 2014
|
—
|
|
|
$
|
—
|
|
|
131,817
|
|
|
$
|
132
|
|
|
$
|
692,081
|
|
|
$
|
2
|
|
|
$
|
(717,936
|
)
|
|
$
|
(25,721
|
)
|
Shares issued for cash under employee share plans, net
|
—
|
|
|
—
|
|
|
1,325
|
|
|
1
|
|
|
4,397
|
|
|
—
|
|
|
—
|
|
|
4,398
|
|
Employee share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,513
|
|
|
—
|
|
|
—
|
|
|
7,513
|
|
Non-employee share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
547
|
|
|
—
|
|
|
—
|
|
|
547
|
|
Issuance of common stock, net of offering costs / At-the-market offering
|
—
|
|
|
—
|
|
|
8,965
|
|
|
9
|
|
|
46,535
|
|
|
—
|
|
|
—
|
|
|
46,544
|
|
Change in unrealized gain on marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,369
|
|
|
9,369
|
|
Balance as of June 30, 2015
|
—
|
|
|
—
|
|
|
142,107
|
|
|
142
|
|
|
751,073
|
|
|
5
|
|
|
(708,567
|
)
|
|
42,653
|
|
Shares issued for cash under employee share plans, net
|
—
|
|
|
—
|
|
|
782
|
|
|
1
|
|
|
2,031
|
|
|
—
|
|
|
—
|
|
|
2,032
|
|
Employee share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,283
|
|
|
—
|
|
|
—
|
|
|
7,283
|
|
Warrants exercised - cashless
|
—
|
|
|
—
|
|
|
223
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants exercised for cash
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
Issuance of common stock, net of offering costs / At-the-market offering
|
—
|
|
|
—
|
|
|
566
|
|
|
1
|
|
|
2,891
|
|
|
—
|
|
|
—
|
|
|
2,892
|
|
Change in unrealized gain on marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(92,840
|
)
|
|
(92,840
|
)
|
Balance as of June 30, 2016
|
—
|
|
|
—
|
|
|
143,690
|
|
|
144
|
|
|
763,324
|
|
|
7
|
|
|
(801,407
|
)
|
|
(37,932
|
)
|
Shares issued for cash under employee share plans, net
|
—
|
|
|
—
|
|
|
939
|
|
|
1
|
|
|
2,343
|
|
|
—
|
|
|
—
|
|
|
2,344
|
|
Employee share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,965
|
|
|
—
|
|
|
—
|
|
|
9,965
|
|
Cumulative effect adjustment upon adoption of ASU 2016-09
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
436
|
|
|
—
|
|
|
(436
|
)
|
|
—
|
|
Issuance of common stock, net of offering costs / Public offering
|
—
|
|
|
—
|
|
|
21,160
|
|
|
21
|
|
|
124,171
|
|
|
—
|
|
|
—
|
|
|
124,192
|
|
Issuance of common stock, net of offering costs / At-the-market offering
|
—
|
|
|
—
|
|
|
5,519
|
|
|
5
|
|
|
30,054
|
|
|
—
|
|
|
—
|
|
|
30,059
|
|
Change in unrealized loss on marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
—
|
|
|
(83
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(116,818
|
)
|
|
(116,818
|
)
|
Balance as of June 30, 2017
|
—
|
|
|
$
|
—
|
|
|
171,308
|
|
|
$
|
171
|
|
|
$
|
930,293
|
|
|
$
|
(76
|
)
|
|
$
|
(918,661
|
)
|
|
$
|
11,727
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
ARRAY BIOPHARMA INC.
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Cash flows from operating activities
|
|
|
|
|
|
Net income (loss)
|
$
|
(116,818
|
)
|
|
$
|
(92,840
|
)
|
|
$
|
9,369
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization expense
|
2,068
|
|
|
1,529
|
|
|
3,702
|
|
Non-cash interest expense
|
7,223
|
|
|
6,375
|
|
|
5,799
|
|
Share-based compensation expense
|
9,965
|
|
|
7,283
|
|
|
7,809
|
|
Extinguishment of co-development liability, net
|
—
|
|
|
—
|
|
|
(21,610
|
)
|
Realized gain from investments, net
|
(529
|
)
|
|
—
|
|
|
(16,255
|
)
|
Gain on sale of CMC, net
|
—
|
|
|
—
|
|
|
(1,641
|
)
|
Impairment loss related to cost method investment
|
1,500
|
|
|
—
|
|
|
—
|
|
Financing fees on notes payable
|
240
|
|
|
—
|
|
|
—
|
|
Change in fair value of notes payable
|
2,600
|
|
|
—
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
8,023
|
|
|
(32,995
|
)
|
|
(7,592
|
)
|
Prepaid expenses and other assets
|
6,179
|
|
|
(4,352
|
)
|
|
(1,260
|
)
|
Accounts payable and other accrued expenses
|
(1,004
|
)
|
|
3,931
|
|
|
(1,113
|
)
|
Accrued outsourcing costs
|
12,248
|
|
|
1,738
|
|
|
7,362
|
|
Accrued compensation and benefits
|
1,539
|
|
|
1,126
|
|
|
(702
|
)
|
Co-development liability
|
—
|
|
|
—
|
|
|
12,169
|
|
Deferred rent
|
1,564
|
|
|
175
|
|
|
(3,236
|
)
|
Deferred revenue
|
25,664
|
|
|
37,831
|
|
|
1,584
|
|
Other long-term liabilities
|
184
|
|
|
109
|
|
|
(178
|
)
|
Net cash used in operating activities
|
(39,354
|
)
|
|
(70,090
|
)
|
|
(5,793
|
)
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Purchases of property and equipment
|
(3,520
|
)
|
|
(3,159
|
)
|
|
(2,507
|
)
|
Proceeds from investment
|
529
|
|
|
—
|
|
|
—
|
|
Proceeds from sale of CMC
|
—
|
|
|
—
|
|
|
3,750
|
|
Purchases of marketable securities
|
(387,554
|
)
|
|
(139,150
|
)
|
|
(202,908
|
)
|
Proceeds from sales and maturities of marketable securities
|
332,429
|
|
|
208,336
|
|
|
143,616
|
|
Net cash provided by (used in) investing activities
|
(58,116
|
)
|
|
66,027
|
|
|
(58,049
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Proceeds from the issuance of common stock / Public offering
|
132,250
|
|
|
—
|
|
|
—
|
|
Offering costs for the issuance of common stock / Public offering
|
(8,058
|
)
|
|
—
|
|
|
—
|
|
Proceeds from the issuance of common stock / At-the-market offering
|
30,790
|
|
|
2,992
|
|
|
47,500
|
|
Offering costs for the issuance of common stock / At-the-market offering
|
(731
|
)
|
|
(100
|
)
|
|
(956
|
)
|
Proceeds from notes payable at fair value
|
10,000
|
|
|
—
|
|
|
—
|
|
Issuance costs for notes payable at fair value
|
(240
|
)
|
|
—
|
|
|
—
|
|
Proceeds from employee stock purchases and options exercised
|
2,344
|
|
|
2,032
|
|
|
4,398
|
|
Payment of Comerica term loan
|
(14,550
|
)
|
|
—
|
|
|
—
|
|
Proceeds from the issuance of the SVB term loan
|
15,000
|
|
|
—
|
|
|
—
|
|
Warrants exercised for cash
|
—
|
|
|
46
|
|
|
—
|
|
Net cash provided by financing activities
|
166,805
|
|
|
4,970
|
|
|
50,942
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
69,335
|
|
|
907
|
|
|
(12,900
|
)
|
Cash and cash equivalents at beginning of period
|
56,598
|
|
|
55,691
|
|
|
68,591
|
|
Cash and cash equivalents at end of period
|
$
|
125,933
|
|
|
$
|
56,598
|
|
|
$
|
55,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Cash paid for interest
|
$
|
4,386
|
|
|
$
|
4,466
|
|
|
$
|
4,450
|
|
Change in unrealized gain on marketable securities
|
$
|
(83
|
)
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
ARRAY BIOPHARMA INC.
Notes to the Financial Statements
NOTE 1 – OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Array BioPharma Inc. (also referred to as "Array,","we", "us", "our" or "the Company"), incorporated in Delaware on February 6, 1998, is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule cancer therapies.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. The Company's management performed an evaluation of the Company's activities through the date of filing of this Annual Report on Form 10-K and has disclosed all subsequent events that require disclosure in Note 17 - Subsequent Events to the accompanying audited financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on the Company's historical experience and on various other assumptions that it believes are reasonable under the circumstances. These estimates are the basis for the Company's judgments about the carrying values of assets and liabilities, which in turn may impact its reported revenue and expenses. The Company's actual results could differ significantly from these estimates under different assumptions or conditions.
The Company believes the financial statements are most significantly impacted by the following accounting estimates and judgments: (i) identifying deliverables under collaboration, license and other agreements involving multiple elements and determining whether such deliverables are separable from other aspects of the contractual relationship; (ii) estimating the selling price of deliverables for the purpose of allocating arrangement consideration for revenue recognition; (iii) estimating the periods over which the allocated consideration for deliverables is recognized; (iv) estimating accrued outsourcing costs for clinical trials and preclinical testing; (v) estimating the fair value of non-marketable equity received from licensing or other transactions; and (vi) estimating the fair value of notes payable.
Liquidity
With the exception of fiscal year 2015, the Company has incurred operating losses and has an accumulated deficit as a result of ongoing research and development spending since inception. As of
June 30, 2017
, we had an accumulated deficit of
$918.7 million
. The Company had a net loss of
$116.8 million
for the fiscal year ended
June 30, 2017
, net loss of
$92.8 million
for the fiscal year ended June 30, 2016, and net income of
$9.4 million
for the fiscal year ended June 30, 2015. The net income in fiscal 2015 was primarily the result of the net gain realized in that year resulting from payments the Company received related to the return of binimetinib and acquisition of encorafenib, as well as realized gains from the sale of marketable securities.
In connection with the March 2, 2015 closing of the Novartis Agreements as discussed in
Note 3 - Binimetinib and Encorafenib Agreements
, to the accompanying audited financial statements, the Company received an
$85.0 million
cash payment, received
$5.0 million
for the reimbursement of certain transaction costs, extinguished net co-development liabilities of
$21.6 million
and recorded deferred revenue of
$6.6 million
. The Company also entered into a third party agreement during the third quarter to complete the Novartis transactions for a net consideration payment of
$25.0 million
.
For the
year ended
June 30, 2017
, Array's net cash used in operations was
$39.4 million
. The Company has
historically funded its operations from up-front fees and license and milestone payments received under drug collaborations and license agreements, the sale of equity securities, and debt provided by convertible debt and other credit facilities. During the years ended
June 30, 2017
, and
2016
the Company received net proceeds of
$30.1 million
and
$2.9 million
, respectively, from sales in an at-the-market offering of its common stock made from time to time under our Sales Agreement with Cantor Fitzgerald & Co. (or "Cantor") as well as net proceeds of
$9.8 million
upon the issuance of Subordinated Convertible Promissory Notes to Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd. (collectively, “Redmile”) in September 2015 and
$124.2 million
in net proceeds in October 2016 from an underwritten public offering of the Company's common stock. Additionally, as of
June 30, 2017
, the Company has received a total of
$319.4 million
from up-front fees and license and milestone payments since December 2009. For more information on the Company's equity offerings and our outstanding debt, see
Note 7 - Debt
and
Note 10 - Stockholders’ Equity (Deficit)
to the accompanying audited financial statements.
The Company believes that its cash, cash equivalents, marketable securities and accounts receivable as of
June 30, 2017
will enable it to continue to fund operations in the normal course of business for at least the next 12 months from the date of filing this Annual Report on Form 10-K. Until the Company can generate sufficient levels of cash from operations, which it does not expect to achieve in the next two years, and because sufficient funds may not be available to the Company when needed from existing collaborations, the Company expects that it will be required to continue to fund its operations in part through the sale of debt or equity securities, through licensing select programs, or partial economic rights that include upfront, royalty and/or milestone payments.
The Company's assessment of its future need for funding and its ability to continue to fund its operations through the sale of debt or equity securities or from upfront fees, milestone payments or other sources are forward-looking statements that are based on assumptions that may prove to be wrong and that involve substantial risks and uncertainties. The Company may be unable to obtain such funding when needed or on terms that are favorable to the Company. In addition, the Company's actual future capital requirements could vary as a result of a number of factors. These risks, uncertainties and factors are described further below under the heading "Item 1A. Risk Factors" under Part I of this Annual Report on Form 10-K and in other reports we file with the SEC.
If the Company is unable to generate enough revenue from its existing or new collaborations or license agreements when needed or secure additional sources of funding and receive related full and timely collections of amounts due, it may be necessary to significantly reduce the Company's current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly late phase clinical trials on our wholly-owned programs. These events could prevent the Company from successfully executing our operating plan and, in the future, could raise substantial doubt about the Company's ability to continue as a going concern. These events may also result in the Company's inability to maintain the liquidity ratio required under our Loan Agreement with Silicon Valley Bank.
Summary of Significant Accounting Policies
Fair Value Measurements
Array follows accounting guidance on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value our financial instruments:
|
|
•
|
Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
|
|
|
•
|
Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.
|
|
|
•
|
Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
|
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires us to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that we or holders of the instruments could realize in a current market exchange.
The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain of our financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable and payable, and other financial instruments in current assets or current liabilities.
Notes Payable Fair Value Option
As described further in Note 7 -
Debt
, in September 2016, the Company issued Subordinated Convertible Promissory Notes to Redmile Capital Offshore Fund II, Ltd. and Redmile Biopharma Investments I, L.P. in the aggregate original principal amount of
$10.0 million
. The Company has elected the fair value option to account for these notes due to the complexity and number of embedded features. Accordingly, the Company records these notes at fair value with changes in fair value recorded in the statement of operations. As a result of applying the fair value option, direct costs and fees related to the notes were recognized in earnings (as "change in fair value of notes payable") as incurred and were not deferred.
Cash and Cash Equivalents and Concentration of Credit Risk
Cash and cash equivalents consist of cash and short-term, highly-liquid financial instruments that are readily convertible to cash and have maturities of 90 days or less from the date of purchase. They may consist of money market funds, commercial paper, U.S. government agency obligations and corporate notes and bonds with high credit quality. We currently maintain all cash in several institutions in the U.S. Balances at these institutions may exceed Federal Deposit Insurance Corporation insured limits.
Marketable Securities
We have designated our marketable securities as of each balance sheet date as available-for-sale securities and account for them at their respective fair values. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Marketable securities that are readily available for use in current operations are classified as short-term available-for-sale securities and are reported as a component of current assets in the accompanying balance sheets. Marketable securities that are not considered available for use in current operations are classified as long-term available-for-sale securities and are reported as a component of long-term assets in the accompanying balance sheets.
Securities that are classified as available-for-sale are measured at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders' equity (deficit) until their disposition. We review all available-for-sale securities at each period end to determine if they remain available-for-sale based on our then current intent and ability to sell the security if it is required to do so. The cost of securities sold is based on the specific identification method.
All of our marketable securities are subject to a periodic impairment review. We recognize an impairment charge when a decline in the fair value of our investments below the cost basis is judged to be other-than-temporary.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and amortization. Additions and improvements are capitalized. Certain costs to internally develop software are also capitalized. Maintenance and repairs are expensed as incurred.
Depreciation and amortization are computed on the straight-line method and generally correspond to the following estimated useful lives:
|
|
|
Furniture and fixtures
|
7 years
|
Equipment
|
5 years
|
Computer hardware and software
|
3 years
|
We depreciate leasehold improvements associated with operating leases over the shorter of the expected useful life of the improvements or the remaining lease term.
The carrying value for property and equipment is reviewed for impairment at least annually and when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
Equity Investments
From time to time, we may enter into collaboration and other agreements or other arrangements under which we receive an equity interest as consideration for all or a portion of up-front, license or other fees or consideration under the terms of the agreement or arrangement. We report equity securities received from non-publicly traded companies in which we do not exercise a significant or controlling interest at cost in other long-term assets in the accompanying balance sheets. We monitor our investments for impairment at least annually, and consider events or changes in circumstances we know of that may have a significant adverse effect on the fair value. We make appropriate reductions in the carrying value if it is determined that an impairment has occurred, based primarily on the financial condition and near and long-term prospects of the issuer. We do not report the fair value of our equity investments in non-publicly traded companies because it is not practical to do so.
Array received shares of Loxo Oncology Inc.'s ("Loxo") non-voting preferred stock as consideration for licensing rights we granted to Loxo under our July 2013 Drug Discovery Collaboration Agreement. We recorded the
$4.5 million
estimated fair value of the preferred shares as a long-term investment utilizing the cost method of accounting. In August 2014, Loxo completed an initial public offering ("IPO") of its common stock, which then began to trade on the NASDAQ Global Market. At the closing of the IPO, the preferred shares we held were converted into approximately
1.6 million
shares of common stock and, based on the readily determinable fair value of the Loxo common stock following the IPO, we began to account for our investment in Loxo as available-for-sale securities. During the year ended June 30, 2015, we sold all
1.6 million
shares of Loxo common stock and received net proceeds of
$20.8 million
, resulting in a net realized gain of
$16.3 million
.
As of June 30, 2016, the shares of preferred stock of VentiRx Pharmaceuticals, Inc. ("VentiRx") that the Company received under a February 2007 collaboration and licensing agreement with VentiRx had a recorded cost of
$1.5 million
. Array does not have a controlling interest nor does it exert significant influence over VentiRx. During the first quarter of fiscal 2017, a triggering event occurred related to the underlying viability of the investment which caused the Company to record a
$1.5 million
impairment loss related to this investment. During the third quarter of fiscal 2017, Celgene Corporation acquired all of the outstanding capital stock of VentiRx and Array received cash proceeds in the amount of
$0.5 million
for its share of the proceeds of this acquisition. As of
June 30, 2017
, Array has
no
remaining equity in VentiRx. The Company may be entitled to additional proceeds which are currently held in escrow, as well as its proportionate share of future milestone payments if certain development milestones are achieved on the program.
Accrued Outsourcing Costs
Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively "CROs"). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. We monitor patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the CROs, correspondence with the CROs and clinical site visits. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.
Convertible Senior Notes
Our
3.00%
convertible senior notes due 2020 are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) 470-20,
Debt
–
Debt with Conversion and Other Options.
ASC 470-20 requires the issuer of convertible debt that may be settled in shares or cash upon conversion at the issuer's option, such as our notes, to account for the liability (debt) and equity (conversion option) components separately. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion option. The amount of the equity component (and resulting debt discount) is calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The resulting debt discount is amortized as additional non-cash interest expense over the expected life of the notes utilizing the effective interest method. Although ASC 470-20 has no impact on our actual past or future cash flows, it requires us to record non-cash interest expense as the debt discount is amortized. For additional information, see
Note 7 – Long-term Debt
.
Binimetinib and Encorafenib Agreements
The transactions contemplated by the asset transfer agreements Array entered into with Novartis International Pharmaceutical Ltd. ("Novartis") and Novartis Pharma AG ("Novartis Pharma"), for the re-acquisition of rights to binimetinib and encorafenib Agreements, which we refer to as the Binimetinib and Encorafenib Agreements, closed in March 2015. As a result of the closing, we received an
$85.0 million
cash payment, received
$5.0 million
for the reimbursement of certain transaction costs, extinguished net co-development liabilities of
$21.6 million
and recorded deferred revenue of
$6.6 million
in the third quarter of fiscal 2015. Also during the third quarter, we entered into a third party agreement to complete the Novartis transactions for a net consideration payment to the third party of
$25.0 million
.
The Binimetinib and Encorafenib Agreements executed with Novartis Pharma and Novartis involved multiple elements. We therefore identified each item given and received and determined how each item should be recognized and classified. The sum of the above transactions was accounted for in a manner consistent with a settlement of a material liability or gain contingency.
Array deferred
$6.6 million
of the consideration received from Novartis Pharma to reflect the estimated fair value of certain future obligations we are required to perform under the Binimetinib and Encorafenib Agreements, including completion of certain trials that are partially funded by Novartis Pharma. As of June 30, 2017, we have substantially completed the obligation and recognized the deferred balance in full. The amount deferred was determined using the estimated fair value of the services to be provided by our full-time employees that the Company did not anticipate would be covered in the funding reimbursements we will receive from Novartis Pharma under the Binimetinib and Encorafenib Agreements. The estimated fair value was based on amounts billed to other third parties in other transactions for similar services. The Company anticipated recording revenue over the deferral period, which was based upon its estimated time to complete our performance with respect to the applicable clinical trials. The balance of deferred revenue was
$0.0 million
and
$1.8 million
at
June 30, 2017
and
2016
, respectively.
As of March 2, 2015, prior to the closing of the Binimetinib and Encorafenib Agreements, we had an accounts receivable balance from Novartis of
$6.7 million
and a
$28.3 million
co-development liability balance that we owed
to Novartis. On March 2, 2015, the termination of the License Agreement with Novartis relating to binimetinib and the effectiveness of the Binimetinib and Encorafenib Agreements resulted in the right to offset the accounts receivable and co-development liability balances. Because we and Novartis owed each other determinable amounts and we have the right to set off the amount payable with the amount receivable from Novartis, we set off these amounts resulting in a net co-development liability of
$21.6 million
that was extinguished in full upon termination of the License Agreement, which in turn increased our net gain.
See
Note 3 - Binimetinib and Encorafenib Agreements
for further information.
Revenue Recognition
We recognize revenue for the performance of services or the shipment of products when each of the following four criteria is met: (i) persuasive evidence of an arrangement exists; (ii) products are delivered or as services are rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
We follow ASC 605-25,
Revenue Recognition
–
Multiple-Element Arrangements
and ASC 808,
Collaborative Arrangements
, if applicable, to determine the recognition of revenue under our collaborative research, development and commercialization agreements that contain multiple elements. These multiple elements, or deliverables, may include (i) grants of licenses, or options to obtain licenses, to our intellectual property, (ii) research and development services, (iii) drug product manufacturing, and/or (iv) participation on joint research and/or joint development committees. The payments we may receive under these arrangements typically include one or more of the following: non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts; amounts due upon the achievement of specified objectives; and/or royalties on future product sales.
ASC 605-25 provides guidance relating to the separability of deliverables included in an arrangement into different units of accounting and the allocation of arrangement consideration to the units of accounting. The evaluation of multiple-element arrangements requires management to make judgments about (i) the identification of deliverables, (ii) whether such deliverables are separable from the other aspects of the contractual relationship, (iii) the estimated selling price of each deliverable, and (iv) the expected period of performance for each deliverable.
To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances for each arrangement. Management then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit utilizing the relative selling price method. The allocated consideration for each unit of accounting is recognized over the related obligation period in accordance with the applicable revenue recognition criteria.
If there are deliverables in an arrangement that are not separable from other aspects of the contractual relationship, they are treated as a combined unit of accounting, with the allocated revenue for the combined unit recognized in a manner consistent with the revenue recognition applicable to the final deliverable in the combined unit. Payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets and recognized as revenue when the related revenue recognition criteria are met.
We typically receive non-refundable, up-front payments when licensing our intellectual property, which often occurs in conjunction with a research and development agreement. When management believes that the license to our intellectual property has stand-alone value, we generally recognize revenue attributed to the license upon delivery provided that there are no future performance requirements for use of the license. When management believes that the license to our intellectual property does not have stand-alone value, we typically recognize revenue attributed to the license on a straight-line basis over the contractual or estimated performance period. When the performance period is not specifically identifiable from the agreement, we estimate the performance period based upon provisions contained within the agreement, such as the duration of the research or development term.
Most of our agreements provide for non-refundable milestone payments. We recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to us for such milestone (i) is consistent with
our performance necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance, (ii) relates solely to our past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
For payments payable on achievement of milestones that do not meet all of the conditions to be considered substantive, we recognize a portion of the payment as revenue when the specific milestone is achieved, and the contingency is removed, based on the applicable percentage earned of the estimated research or development effort, or other performance obligations that have elapsed, to the total estimated research and/or development effort attributable to the milestone. In other cases, when a non-substantive milestone payment is attributed to our future research or development obligations, we recognize the revenue on a straight-line basis, or other appropriate method, over the estimated remaining research or development effort. Other contingent event-based payments for which payment is either contingent solely upon the passage of time or the result of collaborator's performance are recognized when earned.
We periodically review the estimated performance periods under each of our agreements that provide for non-refundable up-front payments, license fees or milestone payments. We adjust the periods over which revenue should be recognized when appropriate to reflect changes in assumptions relating to the estimated performance periods. We could accelerate revenue recognition in the event of early termination of programs or if our expectations change. Alternatively, we could decelerate revenue recognition if programs are extended or delayed. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in future periods could be materially impacted.
We record as revenue amounts received for reimbursement of costs we incur from our license partners where we act as a principal, control the research and development activities, bear credit risk and may perform part of the services required in the transactions, consistent with ASC 605-45-15. Certain collaborators or other counterparties (currently, Novartis, Pierre Fabre and Asahi Kasei) currently provide financial support to us in the form of reimbursement for associated out-of-pocket costs and for a certain amount of Array’s fully-burdened full-time equivalent ("FTE") costs based on an agreed-upon FTE rates. The gross amount of these pass-through reimbursed costs are reported as revenue in the accompanying statements of operations and comprehensive income (loss) in accordance with ASC 605-45-15. The actual expenses for which we are reimbursed are reflected as research and development for proprietary programs or cost of partnered programs, as applicable.
See
Note 5 – Collaboration and Other Agreements
for further information.
Research and Development Costs
Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on our behalf will be expensed as services are rendered or when the milestone is achieved.
Research and development costs primarily consist of personnel related expenses, including salaries, benefits, costs to recruit and relocate new employees, travel, and other related expenses, stock-based compensation, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, the cost of acquiring and manufacturing commercial drug supply, costs associated with regulatory filings and patents, software, facilities and laboratory costs and other supplies.
We split our research and development costs between cost of partnered programs and research and development for proprietary programs on our statements of operations and comprehensive income (loss). Cost of partnered programs represents costs attributable to discovery and development activities, including preclinical and clinical trials
we may conduct for or with our partners. Research and development expenses for proprietary programs include costs associated with our proprietary drug programs.
Operating Leases
We have negotiated certain landlord/tenant incentives and rent holidays and escalations in the base price of rent payments under our operating leases. For purposes of determining the period over which these amounts are recognized or amortized, the initial term of an operating lease includes the "build-out" period of leases, where no rent payments are typically due under the terms of the lease and includes additional terms pursuant to any options to extend the initial term if it is more likely than not that we will exercise such options. We recognize rent holidays and rent escalations on a straight-line basis over the initial lease term. The landlord/tenant incentives are recorded as an increase to deferred rent in the accompanying balance sheets and are amortized on a straight-line basis over the initial lease term. Deferred rent balances are classified as short-term or long-term in the accompanying balance sheets based upon the period when reversal of the liability is expected to occur.
We completed the sale of our chemical manufacturing and control assets (the "CMC Assets") in June 2015, and in connection with the closing of the sale of the CMC Assets, we simultaneously entered into an amendment to our lease agreement for our facility in Boulder, Colorado and an early termination agreement for our Longmont, Colorado facility. The amended Boulder lease extended the term of our prior lease and provided for a reduction in the amount of leased space by the end of calendar year 2015. As both the amended Boulder lease and the Longmont termination were negotiated with the same landlord, we deferred our existing deferred rent liabilities rather than recognizing a gain on termination.
Share-Based Compensation
Share-based compensation awards include stock options and restricted stock units ("RSUs") granted under our Amended and Restated Stock Option and Incentive Plan ("Option and Incentive Plan") and purchases of common stock by our employees at a discount to the market price under the Amended and Restated Array BioPharma Inc. Employee Stock Purchase Plan ("ESPP"). We use the Black-Scholes option pricing model to determine the grant date fair value of stock options and ESPP awards. The determination of the fair value of share-based awards using an option pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Share-based compensation expense is recognized on a straight-line basis over the requisite service period for each award.
Previously, FASB Accounting Standards Codification ("ASC") Topic 718,
Compensation - Stock Compensation, ASC 718
, required forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differed from those estimates. FASB subsequently issued Accounting Standards Update ("ASU")
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09")
,
which allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur.
In the third quarter of 2017, the Company adopted ASU 2016-09 and elected to modify its accounting policy to account for forfeitures as they occur. The Company applied this change in accounting policy on a modified retrospective basis, with July 1, 2016 as the effective date of adoption. As a result, the Company recorded a cumulative effect adjustment to retained earnings which resulted in an increase to accumulated deficit of
$0.4 million
with an offsetting increase to additional paid-in capital (zero net total equity impact) as of the date of adoption. These adjustments were principally related to additional stock compensation expense that would have been recognized under ASC 718 on unvested outstanding options and restricted stock units that were unadjusted for estimated forfeitures. The Company classifies the excess tax benefits from employee stock plans as a reduction from financing cash flows for all periods presented. In addition, under ASU 2016-09, previously unrecognized deferred tax assets were recognized on a modified retrospective basis as of July 1, 2016. As a result, the Company recorded approximately
$5.3 million
of additional deferred tax assets, which are fully offset by a valuation allowance.
For stock-based compensation awards granted to non-employees, we remeasure the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. Changes in the estimated fair value of these non-employee awards are recognized as compensation expense in the period of change.
The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Income Taxes
We account for income taxes using the asset and liability method. We recognize the amount of income taxes payable (refundable) for the year as current income tax provision (benefit) and record a deferred income tax provision (benefit) based on changes in deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying value and the tax basis of assets and liabilities and, using enacted tax rates in effect, reflect the expected effect these differences would have on future taxable income, if any. Valuation allowances are recorded to reduce the amount of deferred tax assets when management cannot conclude it is more likely than not that some or all of the deferred tax assets will be realized. Such allowances are based upon available objective evidence, the expected reversal of temporary differences and projections of future taxable income.
Segments
We operate in
one
operating segment and, accordingly, no segment disclosures have been presented herein. All of our equipment, leasehold improvements and other fixed assets are physically located within the U.S., and payments under all agreements with our partners are denominated in U.S. dollars, except our agreement with Ono Pharmaceutical Co., Ltd. ("Ono"), which is denominated in Japanese Yen.
Concentration of Business Risks
Significant Partners
The following significant partners contributed greater than
10%
of our total revenue during at least one of the periods set forth below. The revenue from these partners as a percentage of total revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Novartis
|
72.3
|
%
|
|
80.5
|
%
|
|
15.8
|
%
|
Loxo
|
10.8
|
%
|
|
9.2
|
%
|
|
17.8
|
%
|
Cascadian Therapeutics (previously known as Oncothyreon Inc.)
|
0.1
|
%
|
|
0.1
|
%
|
|
42.3
|
%
|
Total
|
83.2
|
%
|
|
89.8
|
%
|
|
75.9
|
%
|
The loss of one or more of our significant partners could have a material adverse effect on our business, operating results or financial condition. We do not require collateral from our partners, though most pay in advance. Although we are impacted by economic conditions in the biotechnology and pharmaceutical sectors, management does not believe significant credit risk exists as of
June 30, 2017
.
Geographic Information
The following table details revenue by geographic area based on the country in which our partners are located (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
North America
|
$
|
24,152
|
|
|
$
|
22,474
|
|
|
$
|
43,386
|
|
Europe
|
122,877
|
|
|
114,806
|
|
|
8,293
|
|
Asia Pacific
|
3,823
|
|
|
599
|
|
|
230
|
|
Total
|
$
|
150,852
|
|
|
$
|
137,879
|
|
|
$
|
51,909
|
|
Accounts Receivable
Novartis accounted for
70%
of our total accounts receivable balances as of
June 30, 2017
, compared with
85%
as of
June 30, 2016
.
Net Earnings (Loss) per Share
Basic net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding, excluding unvested restricted stock, during the period. Diluted net earnings (loss) per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or the vesting of restricted stock units, as well as from the possible conversion of our convertible senior notes and exercise of outstanding warrants. The treasury stock method and if-converted method are used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net earnings (loss) per share when their effect is anti-dilutive. In periods where a net loss is presented, all potentially dilutive securities were anti-dilutive and have been excluded from the computation of diluted net loss per share.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and adjustments for the change in unrealized gains and losses on our investments in available-for-sale marketable securities, net of taxes. We display comprehensive income (loss) and its components in our statements of operations and comprehensive income (loss).
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of ASU No. 2016-08 on its financial statements and related disclosures. The FASB subsequently issued ASU No. 2016-10,
Revenue from Contracts with Customer (Topic 606) Identifying Performance Obligations and Licensing,
to address issues arising from implementation of the new revenue recognition standard. ASU 2014-09 and ASU 2016-10 are effective for interim and annual periods beginning July 1, 2018, and may be adopted earlier, but not before July 1, 2017. The revenue standards are required to be adopted by taking either a full retrospective or a modified retrospective approach. As of June 30, 2017, the Company has not elected early adoption and has not concluded on an adoption method. The Company is in the process of analyzing
its revenue recognition policies and the potential impact the standard may have on previously reported revenues, future revenues and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements-Going Concern
,
which defines management's responsibility to assess an entity's ability to continue as a going concern, and requires related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. ASU No. 2014-15 is effective for Array for the fiscal year ending on June 30, 2017, with early adoption permitted. The Company has adopted ASU No. 2014-15 as of June 30, 2017 without material impact on its financial statements or disclosures.
In January 2016, the FASB issued ASU No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
which supersedes FASB ASC Topic 840,
Leases (Topic 840) and
provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the impact this guidance will have on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU No. 2016-09 are effective for annual reporting periods beginning after December 15, 2016 and interim reporting periods within those reporting periods. The Company early adopted ASU No. 2016-09 during the quarter ended March 31, 2017 using the modified retrospective transition method, as described above under
Summary of Significant Accounting Policies - Stock-Based Compensation
.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
(ASU 2016-13). ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective for us on January 1, 2020. Early adoption will
be available on January 1, 2019. The Company is currently evaluating the effect that ASU 2016-13 will have on our financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230)
. This amendment will provide guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the effect that ASU 2016-15 will have on its financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230) Restricted Cash
. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not anticipate ASU 2016-18 will have a material impact on its financial statements upon adoption.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not anticipate ASU 2017-01 will have a material impact on its financial statements upon adoption.
In May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending June 30, 2019 and interim periods within that annual period. Early adoption is permitted. The Company does not expect ASU 2017-09 will have a significant impact on its financial statements upon adoption.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating
Topic 480, Distinguishing Liabilities from Equity
, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is evaluating the effect that ASU 2017-11 will have on its financial statements and related disclosures.
NOTE 2 – MARKETABLE SECURITIES
Marketable securities consisted of the following as of
June 30, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term available-for-sale securities:
|
|
|
|
|
|
|
|
U.S. treasury securities
|
$
|
108,174
|
|
|
$
|
—
|
|
|
$
|
(76
|
)
|
|
$
|
108,098
|
|
Mutual fund securities
|
292
|
|
|
—
|
|
|
—
|
|
|
292
|
|
|
108,466
|
|
|
—
|
|
|
(76
|
)
|
|
108,390
|
|
Long-term available-for-sale securities:
|
|
|
|
|
|
|
|
Mutual fund securities
|
732
|
|
|
—
|
|
|
—
|
|
|
732
|
|
|
732
|
|
|
—
|
|
|
—
|
|
|
732
|
|
Total
|
$
|
109,198
|
|
|
$
|
—
|
|
|
$
|
(76
|
)
|
|
$
|
109,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term available-for-sale securities:
|
|
|
|
|
|
|
|
U.S. treasury securities
|
$
|
53,113
|
|
|
$
|
8
|
|
|
$
|
(1
|
)
|
|
$
|
53,120
|
|
Mutual fund securities
|
224
|
|
|
—
|
|
|
—
|
|
|
224
|
|
|
53,337
|
|
|
8
|
|
|
(1
|
)
|
|
53,344
|
|
Long-term available-for-sale securities:
|
|
|
|
|
|
|
|
Mutual fund securities
|
596
|
|
|
—
|
|
|
—
|
|
|
596
|
|
|
596
|
|
|
—
|
|
|
—
|
|
|
596
|
|
Total
|
$
|
53,933
|
|
|
$
|
8
|
|
|
$
|
(1
|
)
|
|
$
|
53,940
|
|
The mutual fund securities shown in the above tables are securities held under the Array BioPharma Inc. Deferred Compensation Plan.
The fair value of marketable securities are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date and are classified as Level 1, as described in
Note 8 - Fair Value Measurements
to our financial statements included elsewhere in this Annual Report on Form 10-K.
As of
June 30, 2017
, the amortized cost and estimated fair value of available-for-sale securities by contractual maturity were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Fair
|
|
Cost
|
|
Value
|
|
|
|
|
Due in one year or less
|
$
|
108,174
|
|
|
$
|
108,098
|
|
Total
|
$
|
108,174
|
|
|
$
|
108,098
|
|
NOTE 3 – BINIMETINIB AND ENCORAFENIB AGREEMENTS
Effective March 2, 2015 (the "Effective Date"), Array regained all development and commercialization rights to binimetinib pursuant to the Termination and Asset Transfer Agreement with Novartis Pharma and Novartis, as amended on January 19, 2015 (as amended, the “Binimetinib Agreement”), and acquired all development and commercialization rights to encorafenib pursuant to the Asset Transfer Agreement with Novartis Pharma dated January 19, 2015 (the “Encorafenib Agreement” and together with the Binimetinib Agreement, the "Novartis Agreements"). As a result of the closing of the Binimetinib Agreement, we received an
$85 million
up-front payment from Novartis.
On the Effective Date, Novartis Pharma transferred or exclusively licensed to Array all assets, including intellectual property, regulatory filings, technology, inventory and contract rights, owned by Novartis Pharma or its affiliates that relate to binimetinib and to encorafenib worldwide. Also upon the Effective Date, our existing License Agreement with Novartis dated April 19, 2010, under which we licensed development and commercialization rights to binimetinib and other compounds to Novartis, terminated; as a result of the termination of this License Agreement, we were not required to pay our portion of accrued co-development costs that we had previously accrued under that agreement.
In connection with the closing of the Binimetinib Agreement and the Encorafenib Agreement, Array and Novartis Pharma entered into two Transition Agreements dated March 2, 2015, one associated with the Binimetinib Agreement and the other associated with the Encorafenib Agreement. Under these agreements, Novartis Pharma and its affiliates are providing certain regulatory assistance, development technology transfer, companion diagnostic transfer and other transition services to Array in connection with the continued development of binimetinib and encorafenib after the Effective Date. Novartis Pharma will provide substantial financial support to Array under the Transition Agreements for all clinical trials involving binimetinib and encorafenib in the form of reimbursement to Array for all associated out-of-pocket costs and for one-half of Array’s fully-burdened full-time equivalent ("FTE") costs based on an annual FTE rate. As of June 30, 2016, Novartis Pharma had transitioned responsibility for all previously Novartis-conducted trials and will provide this continuing financial support to Array for completing the trials.
Novartis Pharma also retains binimetinib and encorafenib supply obligations for all clinical and commercial needs for up to
30 months
after the Effective Date and will also assist us in the technology and manufacturing transfer of binimetinib and encorafenib. Novartis Pharma will also provide Array continued clinical supply of several Novartis Pharma pipeline compounds including, LEE011 (CDK 4/6 inhibitor) and BYL719 (α-PI3K inhibitor), for use in currently ongoing combination studies, and possible future studies, including Phase 3 trials, with binimetinib and encorafenib.
Each party has agreed to indemnify and hold the other party and its affiliates harmless from and against certain liabilities identified in the Binimetinib Agreement, the Encorafenib Agreement and the Transition Agreements and to a general release of claims relating to the existing License Agreement. The Binimetinib Agreement and the Encorafenib Agreement as well as the Transition Agreements may be terminated only upon the mutual agreement of Novartis Pharma and Array and will remain in effect until the respective obligations of the parties under them have been completed.
We recorded the following amounts in the third quarter of fiscal 2015, resulting in a net gain on the Novartis Agreements as follows (in thousands):
|
|
|
|
|
|
Cash received from the termination of the binimetinib License Agreement with Novartis
|
|
$
|
85,000
|
|
Net cost of third party agreement to complete the Novartis transactions
|
|
(25,000
|
)
|
Extinguishment of co-development obligation due to Novartis (net of a $6.7 million accounts receivable balance)
|
|
21,610
|
|
Reimbursement of certain transaction costs
|
|
5,000
|
|
Subtotal
|
|
86,610
|
|
Less: Deferred revenue related to ongoing obligations
|
|
(6,600
|
)
|
Gain on the Binimetinib and Encorafenib Agreements, net
|
|
$
|
80,010
|
|
Array also entered into a Development and Commercialization Agreement with Pierre Fabre Medicament SAS, (“Pierre Fabre” or "PFM"), which became effective in December 2015 (the "PF Agreement"), pursuant to which we granted Pierre Fabre rights to commercialize binimetinib and encorafenib in all countries except for the United States, Canada, Japan, Korea and Israel. The PF Agreement satisfied our commitment to secure a development and commercialization partner for the European market for both encorafenib and binimetinib acceptable to European Commission regulatory agencies made in connection with the Novartis Agreements.
All clinical trials involving binimetinib and encorafenib that were active or planned when the Novartis Agreements became effective in March 2015, including the NEMO and COLUMBUS trials and other then active Novartis sponsored and investigator sponsored clinical studies, continue to be reimbursed pursuant to the terms of the Novartis Agreements. Further worldwide development activities of binimetinib and encorafenib will be governed by a Global Development Plan (GDP) with Pierre Fabre. Pierre Fabre and Array will jointly fund worldwide development costs under the GDP, with Array covering
60%
and Pierre Fabre covering
40%
of such costs. The initial GDP includes multiple trials in colorectal cancer ("CRC") and melanoma, including the BEACON CRC trial, and Pierre Fabre and Array have agreed to commit at least
€100 million
in combined funds for these studies.
Effective May 31, 2017, Array entered into a License, Development and Commercialization Agreement with Ono Pharmaceutical Co., Ltd., (“Ono”), pursuant to which Array granted Ono exclusive rights to commercialize binimetinib and encorafenib in Japan and the Republic of Korea (the “Ono Territory”), along with the right to develop these products in the Ono Territory. Array retains all rights outside the Ono Territory, as well as the right to conduct development and manufacturing activities in the Ono Territory.
As part of the agreement with Ono, Ono obtained the right to participate in any future global development of binimetinib and encorafenib by contributing
12%
of those future costs. Ono is responsible for seeking, and for any development of binimetinib and encorafenib specifically necessary to obtain, regulatory and marketing approvals for products in the Ono Territory. Array will furnish clinical supplies of drug substance to Ono for use in Ono’s development efforts, and Ono may elect to have Array provide commercial supplies of drug product to Ono pursuant to a commercial supply agreement to be entered into by Array and Ono, in each case the costs of which will be borne by Ono. Array has also agreed to discuss and agree on a strategy with Ono to ensure the supply to Ono of companion diagnostics for use with binimetinib and encorafenib in certain indications in the Ono Territory.
NOTE 4 – SALE OF CMC ASSETS
On June 1, 2015, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Accuratus Lab Services, Inc. (“Accuratus”), pursuant to which Accuratus acquired certain assets and assumed certain liabilities relating to our chemistry, manufacturing and controls (“CMC”) activities in a transaction that closed on June 1, 2015.
The transaction included the transfer of equipment, inventory and third party contracts relating to our CMC activities, as well as the termination of our facilities lease in Longmont, Colorado and the retention of
33
of our CMC employees by Accuratus following the closing. Accuratus paid us a
$3.8 million
cash purchase price at closing for the CMC assets, and we were entitled to receive additional consideration contingent upon achievement of revenue targets for the CMC activities during the first and second year following the closing. The Company did not earn additional contingent consideration during the fiscal year ended June 30, 2016, but earned
$0.1 million
contingent consideration in fiscal 2017. We are not entitled to any further consideration under the Purchase Agreement.
As part of the transaction, Accuratus hired certain Array employees who were engaged in CMC activities for Array. We issued stock options to these transitioning employees to purchase an aggregate of
133,209
shares of common stock. The stock options vested
one year
after the date of grant at an exercise of price of
$7.74
, which was equal to the closing price of our common stock on the date of grant. The stock options issued to the CMC employees hired by Accuratus did not have a substantive service condition; therefore, the grant date fair value was immediately expensed against the gain on sale of the CMC assets. We determined the grant date fair value of the stock options of
$0.3 million
based on the Black-Scholes valuation model using the following assumptions: strike price
$7.74
, volatility
61.2%
, risk-free interest rate
0.4%
, effective life
1.25 years
and dividend yield
0%
.
As part of this transaction, we are required to purchase a minimum of
$7.0 million
of CMC services from Accuratus over a
24
-month period (“Minimum Revenue Guarantee”), which concluded in March 2017. We were required to recognize this Minimum Revenue Guarantee at fair value in accordance with ASC 460-10. We determined that the
price of the estimated future services approximated fair value and that we expected to use services in excess of this Minimum Revenue Guarantee amount. As of
June 30, 2017
, we had made payments related to the Minimum Revenue Guarantee which exceed the value of services received. Consequently, we have recorded a prepaid asset in the amount of
$1.8 million
as of June 30, 2017. As of
June 30, 2017
, we have no remaining obligation to make payments in accordance with the Minimum Revenue Guarantee.
We recorded the following amounts in the fourth quarter of fiscal 2015, resulting in a net gain of
$1.6 million
on the sale of the CMC assets, calculated as the difference between the allocated non-contingent consideration amount for the assets and liabilities and the net carrying amount of the assets and liabilities assumed or extinguished. The following sets forth the calculation of the gain on sale as of the closing (in thousands):
|
|
|
|
|
|
Non-contingent cash consideration received
|
|
$
|
3,750
|
|
Fixed assets or related lease costs sold or written off
|
|
(1,818
|
)
|
Fair value of stock options issued to retained CMC employees
|
|
(278
|
)
|
Other extinguished employee liabilities
|
|
276
|
|
Estimated transaction costs
|
|
(342
|
)
|
Deferred revenue associated with undelivered elements
|
|
144
|
|
Other
|
|
(91
|
)
|
Gain on sale of CMC, net
|
|
$
|
1,641
|
|
The sale of the CMC assets did not qualify as a discontinued operation as the sale is not a strategic shift that has (or will have) a major effect on our operations and financial results.
NOTE 5 – COLLABORATION AND OTHER AGREEMENTS
The following table summarizes our total revenues for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Novartis (1)
|
|
$
|
108,997
|
|
|
$
|
110,930
|
|
|
$
|
8,220
|
|
Loxo
|
|
16,359
|
|
|
$
|
12,635
|
|
|
9,223
|
|
Pierre Fabre
|
|
11,288
|
|
|
3,724
|
|
|
—
|
|
Mirati
|
|
4,501
|
|
|
3,557
|
|
|
1,200
|
|
Asahi Kasei
|
|
3,519
|
|
|
600
|
|
|
—
|
|
Genentech
|
|
3,000
|
|
|
24
|
|
|
367
|
|
Roche
|
|
2,500
|
|
|
—
|
|
|
—
|
|
Ono
|
|
306
|
|
|
—
|
|
|
—
|
|
Celgene
|
|
18
|
|
|
3,126
|
|
|
4,132
|
|
Biogen Idec
|
|
—
|
|
|
2,816
|
|
|
4,593
|
|
Cascadian Therapeutics (previously known as Oncothyreon Inc.)
|
|
144
|
|
|
183
|
|
|
21,955
|
|
Other partners
|
|
220
|
|
|
284
|
|
|
2,219
|
|
Total revenue
|
|
$
|
150,852
|
|
|
$
|
137,879
|
|
|
$
|
51,909
|
|
|
|
|
|
|
|
|
(1) Includes
$107.2 million
and
$107.3 million
of reimbursement revenue consisting of FTE and out-of-pocket costs that are reimbursable by Novartis under the Novartis Agreements during the years ended
June 30, 2017
and
2016
, respectively. All other prior year amounts represent the amortization of the up-front and milestone payments under the April 2010 License Agreement with Novartis that was terminated on the Effective Date of the Binimetinib and Encorafenib Agreements in March 2015.
Novartis International Pharmaceutical Ltd.
Array entered into a License Agreement with Novartis in April 2010, which granted Novartis the exclusive worldwide right to develop and commercialize binimetinib, as well as other specified MEK inhibitors. Array regained these rights and the 2010 License Agreement terminated on the Effective Date of the Binimetinib Agreement in March 2015, as discussed in
Note 3
- Binimetinib and Encorafenib Agreements. As
a result, our co-development liability under the License Agreement described below, and any receivables from Novartis then outstanding under the License Agreement, were eliminated as of the Effective Date.
In consideration for the rights granted to Novartis under the prior License Agreement, we received an aggregate of
$60.0 million
in an up-front fee and in milestone payments between the fourth quarter of fiscal 2010 and the first quarter of fiscal 2014. We recognized the up-front fee and milestone payments under the License Agreement on a straight-line basis from April 2010 through April 2014.
Co-Development Arrangement
The License Agreement contained co-development rights whereby we could elect to pay a share of the combined total development costs, subject to a maximum amount with annual caps. During the first two years of the co-development, Novartis reimbursed us for
100%
of our development costs. We began to pay our share of the combined development costs that had accrued since inception of the program, with payments to Novartis of
$9.2 million
and
$11.3 million
in the second quarters of fiscal 2013 and fiscal 2014, respectively, in accordance with the terms of the License Agreement.
During fiscal 2014, we committed to continue our co-development contribution through fiscal 2015. We continued to record an estimate of our co-development liability under the License Agreement until our liability terminated upon the Effective Date of the Binimetinib Agreement as discussed in
Note 3
- Binimetinib and Encorafenib Agreements
.
Our co-development liability was
$28.3 million
as of the Effective Date of the Binimetinib Agreement and was
$0
as of June 30, 2015 and subsequent periods.
For periods prior to termination of the License Agreement, we recorded a receivable in accounts receivable on the balance sheet for the amounts due from Novartis for the reimbursement of our development costs in excess of the annual cap. We recorded expense in cost of partnered programs on the statement of operations and comprehensive income (loss) for our share of the combined development costs and accrued these costs on our balance sheet in co-development liability.
Until the Effective Date of the Binimetinib Agreement, our share of the combined development costs was
$13.1 million
and
$18.9 million
during the years ended June 30, 2015 and 2014, respectively. We continued to record an estimate of our receivable from Novartis under the License Agreement until termination of the receivable upon the Effective Date, as discussed above and in
Note 3
- Binimetinib and Encorafenib Agreements
.
Our receivable balance from Novartis was
$6.7 million
as of the Effective Date of the Binimetinib Agreement.
Loxo Oncology, Inc.
In July 2013, Array entered into a Drug Discovery Collaboration Agreement with Loxo and granted Loxo exclusive rights to develop and commercialize certain Array-invented compounds targeted at the tropomyosin kinase ("TRK") family of receptors, including larotrectinib, which is currently in Phase 1 and Phase 2 / registration clinical trials. In November 2013, April 2014, October 2014, March 2015, and February 2016, Array and Loxo amended the agreement to expand the research activities under the agreement. Under the terms of the amended agreement, Loxo is funding further discovery and preclinical programs to be conducted by Array, including LOXO-195, a next generation selective TRK inhibitor, LOXO-292, a RET inhibitor, and FGFR programs, during the remainder of the
five
-year discovery research phase. The research phase ends in September 2018. In addition, Loxo funds further discovery and preclinical research conducted by Array directed at other targets during the research phase of the agreement. Loxo is responsible for all additional preclinical and clinical development and commercialization.
In consideration of the exclusive license and rights granted to Loxo under the agreement, Array received shares of Loxo non-voting preferred stock representing an initial
19.9%
interest in the newly-formed entity. Following additional financings by Loxo, Array's ownership interest in Loxo as of June 30, 2014 was
15.3%
. All of the shares of preferred stock held by Array converted into shares of common stock on the closing date of Loxo's IPO. After certain trading restrictions ended following Loxo's IPO, we sold all of our shares of common stock of Loxo and as of June 30, 2015, Array retained
no
remaining ownership interest in Loxo.
The Drug Discovery Collaboration Agreement with Loxo contains substantive potential milestone payments of up to
$7.0 million
for
two
remaining development milestones and up to
$420.0 million
for the achievement of
fifteen
commercialization milestones if certain net sales amounts are achieved for any licensed drug candidates in the United States, the European Union and Japan.
Pursuant to the accounting guidance for revenue recognition for multiple-element arrangements, Array is obligated to deliver
three
non-contingent deliverables related to the Loxo agreement. These deliverables are (i) the conduct of the research activities under the discovery program, including related technology transfer (the "research services deliverable"), (ii) an exclusive worldwide license granted to Loxo to certain Array technology and Array's interest in collaboration technology, as well as exclusive worldwide marketing rights (the "license deliverable") and (iii) participation on the JRC. The Loxo agreement provides for no general right of return for any non-contingent deliverable. All of the identified non-contingent deliverables meet the separation criteria; therefore, they are each treated as separate units of accounting. Delivery of the research services and JRC participation obligations will be completed throughout the remainder of the
5
-year research discovery program term, which ends in September 2018. The license deliverable was complete as of September 30, 2013.
To determine the stand-alone value of the license, the Company considered our negotiation discussions with Loxo that led to the final terms of the agreement, publicly-available data for similar licensing arrangements between other companies and the economic terms of previous collaborations Array has entered into with other partners. The Company also considered the estimated valuation of the preferred shares performed by an independent third-party and concluded that this value reasonably approximated the estimated selling price of the related license. Array determined a selling price for the research services deliverable using our established annual FTE rate, which represents vendor-specific objective evidence for any FTE costs related to activities to be performed by Array scientists. Array determined an estimated selling price for the JRC deliverable by estimating the time required for our scientists to perform their obligations and utilized our established FTE rate for research services as an estimate of what we would bill for this time if we sold this deliverable on a stand-alone basis.
The remaining consideration under the amended Loxo agreement, which Loxo pays to Array in advance quarterly payments, is allocated between the research services and JRC participation deliverables and is recognized as the services are rendered throughout the research discovery program term. The Company had deferred revenue balances of
$2.7 million
and
$4.0 million
for Loxo at
June 30, 2017
and
2016
, respectively.
The April 2014 amendment added several contingent deliverables related to rights to discontinue research activities for fewer targets in exchange for additional payments to be made to Array. All of the obligations added to the arrangement by the amendment were considered contingent because the likelihood and timing of these deliverables is uncertain and therefore the potential consideration associated with these obligations was not included in the total allocable consideration. The March 2015 amendment increased the number of FTEs performing research services through December 31, 2015. The most recent amendment was treated as a new agreement. The February 2016 agreement extended the term of the additional FTEs.
In July 2014, Array began performing additional CMC-related services for Loxo that were agreed to between the parties on a project level basis. Each project consisted of a single deliverable or multiple deliverables and each was evaluated for proper revenue recognition as a multiple-element arrangement when appropriate. All unfinished Loxo CMC projects were assigned to the purchaser of our CMC assets effective June 1, 2015, as discussed in
Note 4 - Sale of CMC Assets
.
The amended Loxo agreement will continue on a country-by-country basis until the termination of the royalty payment obligations, unless terminated earlier by the parties in accordance with its terms. The agreement may be terminated by either party upon the failure of the other party to cure any material breach of its obligations under the agreement, provided that, so long as Loxo is reasonably able to pay its debts as they are due, Array will only be entitled to seek monetary damages, and will not have the right to terminate the amended agreement in the event of Loxo's breach after expiration of the discovery program term. Loxo also has the right to terminate the amended agreement or to terminate discovery research with respect to any targets under development with
six months
' notice to Array. If Loxo terminates the amended agreement for convenience, all licenses granted to Loxo will terminate and Array will have all rights to further develop and commercialize the licensed programs. The period of exclusivity to be observed by Array under the amended Loxo agreement will continue as long as Loxo either has an active research and/or development program for a target and the program could result in the receipt of milestones or royalties under the program by Array, or as long as Loxo is commercializing a product for a target under the amended agreement.
Pierre Fabre
On November 10, 2015, the Company entered into the PF Agreement with Pierre Fabre pursuant to which the Company granted Pierre Fabre rights to commercialize binimetinib and encorafenib in all countries except for the United States, Canada, Japan, Korea and Israel, where Array retains its ownership rights (subject to rights granted to Ono under the agreement with Ono). The PF Agreement satisfies the Company’s commitment to secure a development and commercialization partner for the European market for both encorafenib and binimetinib acceptable to European Commission regulatory agencies made in connection with the Novartis Agreements.
The PF Agreement closed in December 2015. All clinical trials involving binimetinib and encorafenib that were ongoing or planned at the Effective Date, including the NEMO and COLUMBUS trials and other then-ongoing Novartis sponsored and investigator sponsored clinical studies, continue to be conducted pursuant to the terms of the Novartis Agreements. Further worldwide development activities will be governed by a Global Development Plan (GDP) with Pierre Fabre. Pierre Fabre and the Company will jointly fund worldwide development costs under the GDP, with the Company covering
60%
and Pierre Fabre covering
40%
of such costs. The initial GDP includes multiple trials in colorectal cancer (CRC) and melanoma, including the BEACON CRC trial, and Pierre Fabre and Array have agreed to commit at least
€100 million
in combined funds for these studies.
Pierre Fabre is responsible for seeking regulatory and pricing and reimbursement approvals in the European Economic Area and its other licensed territories. The Company and Pierre Fabre will also enter into a clinical and commercial supply agreement pursuant to which the Company will supply or procure the supply of clinical and commercial supplies of drug substance and drug product for Pierre Fabre, the costs of which will be borne by Pierre Fabre. The Company has also agreed to cooperate with Pierre Fabre to ensure the supply of companion diagnostics for use with binimetinib and encorafenib in certain indications.
Each party has also agreed not to distribute, sell or promote competing products in each party’s respective markets during a period of exclusivity. Each party has also agreed to indemnify the other party from certain liabilities specified
in the Agreement.
In connection with the PF Agreement, Array received
$30.0 million
as an up-front payment during the year ended June 30, 2016. The terms of the PF Agreement include substantial ongoing collaboration and cost-sharing activities between the companies, and require Array to perform future development and commercialization activities. In accordance with the revenue recognition criteria under ASC Topic 605, the Company determined that the PF Agreement is a multi-deliverable arrangement with the following deliverables: (1) the license rights, and (2) clinical development and other services.
The Company determined that the license granted to PF does not have stand-alone value apart from the services that Array will provide. Accordingly, non-refundable upfront amounts received under the PF agreement are recorded as deferred revenue and are being recognized on a straight-line basis over
ten
years, the period during which management expects that substantial development activities will be performed. License revenue recognized under this agreement was
$3.0 million
and
$1.6 million
for the years ended
June 30, 2017
and
2016
, respectively; at
June 30, 2017
and
2016
deferred revenue associated with this agreement was approximately
$25.4 million
and
$28.4 million
, respectively. Collaboration revenue of
$8.3 million
and
$2.1 million
was recognized for Pierre Fabre's share of co-development costs incurred during fiscal years
2017
and
2016
, respectively.
The PF Agreement contains substantive potential milestone payments of up to
$35.0 million
for achievement of
three
regulatory milestones relating to European Commission marketing approvals for
three
specified indications and of up to
$390.0 million
for achievement of
seven
commercialization milestones if certain net sales amounts are achieved for any licensed indications. Array is also entitled to double-digit royalties based on net sales under the agreement.
Mirati Therapeutics, Inc.
The Company is party to an agreement with Mirati Therapeutics, Inc. ("Mirati") whereby Array conducted a feasibility program for Mirati related to a particular target in exchange for an up-front payment of
$1.6 million
that was received in October 2014 (which was recognized as revenue over the subsequent
twelve months
) and other payments and potential payments as described below. In September 2015, Mirati exercised an option to extend the feasibility program for
six months
, for which Array received a
$0.8 million
option extension fee (which was recognized as revenue over the subsequent
six months
). During April 2016, Mirati elected to exercise an option to take an exclusive, worldwide license to an active compound under the agreement and Array received a
$2.5 million
option exercise fee and will receive additional fees as reimbursement for research and development services. In June 2017, Array and Mirati entered into a second agreement related to a different target in exchange for an up-front payment of
$2.0 million
that was received in June 2017 and is expected to be recognized as revenue over the subsequent twelve-month period.
In accordance with the revenue recognition criteria under ASC Topic 605, the Company determined that the Mirati agreements are multi-deliverable arrangements with multiple deliverables: (1) the license rights, (2) services related to obtaining enhanced intellectual property rights through the issuance of particular patents and (3) clinical development services. The Company determined that the licenses granted under the Mirati Agreements do not have stand-alone value apart from the services Array will provide. Accordingly, the Option Exercise Fee, received in the quarter ended June 30, 2016, is recorded as deferred revenue and is being recognized on a straight-line basis over
three
years, the period during which management expects that substantial development activities will be performed. Revenue recognized under these agreements was
$4.5 million
and
$3.6 million
for the years ended
June 30, 2017
and
June 30, 2016
, respectively; at
June 30, 2017
and
2016
deferred revenue associated with this agreement was approximately
$4.2 million
and
$3.2 million
.
In addition to the
$3.6 million
upfront payments, the
$0.8 million
option extension fee and the
$2.5 million
option exercise fee, the Mirati Agreements contain substantive potential milestone payments of up to
$18.5 million
for
eight
remaining developmental milestones and up to
$674.0 million
for the achievement of
fourteen
commercialization milestones if certain net sales amounts are achieved in the United States, the European Union and Japan.
Dr. Charles Baum, a current member of Array’s Board of Directors, is the President and Chief Executive Officer of Mirati.
Ono Pharmaceutical Co., Ltd.
Effective May 31, 2017, the Company entered into a License, Development and Commercialization Agreement (the “Ono Agreement”) with Ono, pursuant to which Array granted Ono exclusive rights to commercialize binimetinib and encorafenib in Japan and the Republic of Korea (the “Ono Territory”), along with the right to develop these products in the Ono Territory. Array retains all rights outside the Ono Territory, as well as the right to conduct development and manufacturing activities in the Ono Territory.
Under the terms of the Ono Agreement, Array received an upfront cash payment of
¥3.5 billion
, or
$31.2 million
, and Array retains all rights to conduct, either itself or through third parties, all clinical studies and file related regulatory filings with respect to binimetinib and encorafenib and to develop, manufacture and commercialize binimetinib and encorafenib outside the Ono Territory (subject to rights Array has granted to Pierre Fabre in certain countries). Array is entitled to receive up to
¥1.8 billion
for achievement of
four
development milestones,
¥5.0 billion
in milestone payments from Ono if
eight
regulatory milestones are achieved relating to certain Marketing Authorization Application filings and approval in Japan for
two
specified indications, and
five
commercialization milestones totaling
¥10.5 billion
if certain annual net sales targets are achieved. A portion of these milestones represent Ono’s co-funding obligation as part of Ono’s participation in the Phase 3 BEACON CRC trial. The Company is further eligible for tiered double-digit royalties on annual net sales of binimetinib and encorafenib in the Ono Territory, starting at
22%
for annual net sales under
¥10.0 billion
and increasing to
25%
for annual net sales in excess of
¥10.0 billion
subject to certain adjustments. As of
June 30, 2017
, ¥1.0 billion was the equivalent of approximately
$8.9 million
.
All ongoing clinical trials involving binimetinib and encorafenib, including the BEACON CRC and COLUMBUS trials, continue as planned as of the effective date of the Ono Agreement, and Ono is entitled to the data derived from such studies. As part of the Ono Agreement, Ono obtained the right to participate in any future global development of binimetinib and encorafenib by contributing
12%
of those future costs. Ono is responsible for seeking, and for any development of binimetinib and encorafenib specifically necessary to obtain, regulatory and marketing approvals for products in the Ono Territory. Array will furnish clinical supplies of drug substance to Ono for use in Ono’s development efforts, and Ono may elect to have Array provide commercial supplies of drug product to Ono pursuant to a commercial supply agreement to be entered into by Array and Ono, in each case the costs of which will be borne by Ono. Array has also agreed to discuss and agree on a strategy with Ono to ensure the supply to Ono of companion diagnostics for use with binimetinib and encorafenib in certain indications in the Ono Territory.
Each party has also agreed not to distribute, sell or promote competing MEK or RAF products in the Ono Territory during the term of the Ono Agreement. Each party has also agreed to indemnify the other party from customary matters specified in the Ono Agreement.
The Ono Agreement will continue in effect on a product-by-product, country-by-country basis for a period that expires ten years after the later of expiration of patent protection or marketing exclusivity for the applicable product. The Ono Agreement may be terminated by either party for breach of the Ono Agreement by the other party, in the event of the insolvency or bankruptcy of the other party, by Ono with
180 days
’ prior notice after the fifth year after first commercial sale of either binimetinib or encorafenib in the Ono Territory, or by Ono on a product-by-product basis for certain safety reasons.
The Company determined that the license granted to Ono does not have stand-alone value apart from the services that Array will provide. Accordingly, the non-refundable
$31.5 million
upfront under the Ono Agreement is recorded as deferred revenue and is being recognized on a straight-line basis over
8.5 years
, the period during which management expects that substantial development activities will be performed. License revenue recognized under this agreement was
$0.3 million
for the year ended
June 30, 2017
; at
June 30, 2017
deferred revenue associated with this agreement was approximately
$31.2 million
. The Company incurred a foreign currency exchange loss related to the upfront payment in the amount of
$0.3 million
which was expensed as realized in fiscal 2017.
Celgene
Array and Celgene Corporation and Celgene Alpine Investment Co., LLC (collectively "Celgene") entered into a Drug Discovery and Development Option and License Agreement in July 2013 to collaborate on development of an Array-invented preclinical development program targeting a novel inflammation pathway. The agreement provides Celgene an option to select multiple clinical development candidates that Celgene may further develop on an exclusive basis under the agreement. Celgene also had the option to obtain exclusive worldwide rights to commercialize one or more of the development compounds it could select upon payment of an option exercise fee to Array. Array was responsible for funding and conducting preclinical discovery research on compounds directed at the target, and Celgene was responsible for all clinical development and commercialization of any compounds it could select. During July 2016, Celgene notified Array that it would not exercise the option to obtain exclusive worldwide rights to commercialize any of the development compounds. As a result, Array retains all rights to the program.
Array received a non-refundable up-front payment of
$11.0 million
from Celgene during the first quarter of fiscal 2014. The majority of the up-front payment received was for the performance of research services, which we recognized as collaboration revenue over the estimated option term which originally was estimated to be
three years
. During the three months ended December 31, 2014, we revised this estimate to just over
two years
and prospectively adjusted recognition of the unrecognized portion of the up-front payment at the time of the change in estimate over the revised remaining option period. Due to additional information obtained during the three months ended March 31, 2015, we revised our estimate back to the original estimate of
three years
. There were
no
associated deferred revenue balances as of
June 30, 2017
and
2016
.
Biogen Idec
Array entered into a Drug Discovery Collaboration Agreement with Biogen Idec MA Inc. ("Biogen") in May 2014 for the discovery and development of Array-discovered inhibitors targeting a novel kinase for the treatment of autoimmune disorders. Under the terms of the agreement, Biogen and Array collaborated on the discovery of the novel kinase inhibitors. Biogen was responsible for all aspects of clinical development and commercialization. Pursuant to advance quarterly funding from Biogen, Array provided staffing to support the discovery program during the anticipated
three
-year discovery program term, which could have been extended for an additional
12
-month period upon consent from both parties. The agreement included research funding for
three
years, various milestone payments payable upon achievement of certain development and commercial milestones, and royalties to Array. The collaboration terminated in November 2015.
Pursuant to the accounting guidance for revenue recognition for multiple-element arrangements, Array identified
two
non-contingent deliverables that met the separation criteria, the first being conduct of discovery and pre-IND manufacturing activities under the discovery program (the “discovery program deliverable”), and participation on the joint research committee ("JRC") as the second. The discovery program deliverable and the JRC deliverable were both expected to be delivered throughout the duration of the discovery program term. Revenue recognized under the Biogen agreement during the periods presented was based upon the level of staffing provided during those periods and our established FTE rate for research services. There were
no
associated deferred revenue balances as of
June 30, 2017
and
2016
.
Asahi Kasei Pharma
On March 31, 2016, the Company announced a strategic collaboration with Asahi Kasei Pharma Corporation ("AKP") to develop and commercialize select Tropomyosin receptor kinase A (TRKA) inhibitors, including Array-invented ARRY-954, for pain, inflammation and other non-cancer indications.
The Company received a
$12.0 million
up-front payment in April 2016 and may receive cost sharing payments, up to
$63.5 million
in additional development and commercialization milestone payments, and up to double-digit royalties on future sales. Array will retain full commercialization rights for all compounds in all indications in territories outside of Asia and within Asia retain full rights to cancer indications for all compounds excluding those being developed by AKP.
In accordance with the revenue recognition criteria under ASC Topic 605, the Company determined that the AKP agreement is a multi-deliverable arrangement with the following deliverables: (1) the license rights, and (2) clinical development and other services. The Company determined that the license granted to AKP does not have stand-alone value apart from the services Array will provide. Accordingly, non-refundable upfront amounts received under
the AKP agreement were recorded as deferred revenue and has been recognized on a straight-line basis over
five years
, the period during which management expected that substantial development activities will be performed. License revenue recognized under this agreement was
$2.4 million
and
$0.6 million
for the years ended
June 30, 2017
and
2016
, respectively; at
June 30, 2017
and
2016
deferred revenue associated with this agreement was approximately
$9.0 million
and
$11.4 million
, respectively. Collaboration revenue recognized under this agreement was
$1.1 million
and
$0.0 million
for the years ended
June 30, 2017
and
2016
, respectively
The milestone payments include up to
$11.0 million
related to the achievement of
four
regulatory milestones for up to
five
drug candidates and up to
$52.5 million
for a milestone payment at the time of the first commercial sale and
the achievement of
three
commercialization milestones if certain net sales amounts are achieved for any licensed drug candidates.
Cascadian Therapeutics (formerly Oncothyreon Inc.)
Effective December 11, 2014, Array entered into a License Agreement with
Cascadian Therapeutics
("
Cascadian
"). Pursuant to the License Agreement, Array granted
Cascadian
an exclusive license to develop, manufacture and commercialize tucatinib/ONT-380 (previously known also as ARRY-380), an orally active, reversible and selective small-molecule HER2 inhibitor currently in Phase 2 / registration clinical trials. The License Agreement replaces and terminates the prior Development and Commercialization Agreement under which
Cascadian
and Array were jointly developing tucatinib, and going forward,
Cascadian
will be solely responsible for all preclinical and clinical development, regulatory and commercialization activities relating to tucatinib.
Under the terms of the License Agreement,
Cascadian
paid Array a non-refundable, up-front fee of
$20.0 million
. In addition, if
Cascadian
sublicenses rights to tucatinib to a third party,
Cascadian
will pay Array a percentage of any sublicense payments it receives, with the percentage varying according to the stage of development of tucatinib at the time of the sublicense. If
Cascadian
is acquired within
three years
of the effective date of the License Agreement, and tucatinib has not been sublicensed to another entity prior to such acquisition, then the acquirer will be required to make certain milestone payments of up to
$280.0 million
to Array, which are primarily based on potential tucatinib sales. Array is also entitled to receive up to a double-digit royalty based on net sales of tucatinib.
Pursuant to the accounting guidance for revenue recognition for multiple-element arrangements, we determined that the exclusive license is the only non-contingent deliverable with stand-alone value under the License Agreement. Array must also expend a nominal amount of effort related to technology transfer, which was completed as of December 31, 2014, but because the technology transfer deliverable does not meet the separation criteria, it was recognized as a combined unit of accounting with the license. Potential payments for a percentage of sublicensing rights, milestone payments and royalties cannot be estimated. Also, at its separate expense Cascadian may request additional technology transfer and/or transition services from Array. Due to uncertainty of the likelihood and timing of all of the potential payments and additional services, their consideration is not considered fixed and determinable, therefore no portion of the up-front fee has been allocated to them.
The entire
$20.0 million
up-front fee was allocated to the combined license/initial technology transfer unit of accounting, which we recognized in full in license revenue during December 2014.
The License Agreement will expire on a country-by-country basis on the later of
10 years
following the first commercial sale of the product in each respective country or expiration of the last to expire patent covering the product in such country, but may be terminated earlier by either party upon material breach of the License Agreement by the other party or the other party’s insolvency, or by
Cascadian
on
180 days
' notice to Array.
Cascadian
and Array have also agreed to indemnify the other party for certain of their respective warranties and obligations under the License Agreement.
AstraZeneca
In December 2003, we entered into a Collaboration and License Agreement with AstraZeneca to develop our MEK program. Under the agreement, AstraZeneca acquired exclusive worldwide rights to our clinical development candidate, selumetinib (previously known as AZD6244, or ARRY- 142886), together with two other compounds, which we invented during the collaboration, for oncology indications. We retained the rights to all therapeutic indications for MEK compounds not selected by AstraZeneca for development, subject to the parties' agreement to work exclusively together. In April 2009, the exclusivity of the parties' relationship ended, and both companies are
now free to independently research, develop and commercialize small molecule MEK inhibitors in the field of oncology. Our research obligations ended in 2004 and AstraZeneca is responsible for all future development and commercialization of the compounds under the collaboration. To date, we have earned
$26.5 million
in up-front and milestone payments. The agreement also provided for research funding, which is now complete, and provides potential additional development milestone payments of approximately
$30.0 million
specific for selumetinib and royalties on product sales.
AstraZeneca is continuing to advance selumetinib in
two
registration trials: differentiated thyroid cancer (ASTRA) and Neurofibromatosis Type 1, or NF1. AstraZeneca estimates the availability of top-line results for both trials in 2018.
The AstraZeneca Agreement contains substantive potential milestone payments for selumetinib of up to
$36.0 million
for
nine
remaining regulatory milestones and up to
$34.0 million
for the achievement of
three
commercialization milestones if certain net sales amounts are achieved in the United States, the European Union and Japan.
Genentech, Inc.
We entered into a Licensing and Collaboration Agreement with Genentech Inc. ("Genentech") in December 2003 for development of small molecule drugs invented by Array directed at multiple therapeutic targets in the field of oncology. In August 2011, we entered into a License Agreement with Genentech for the development of each company’s small-molecule Checkpoint kinase 1 ("CHK-1") program in oncology.
Under the 2003 agreement, Genentech made an up-front payment and provided research funding to Array, and Array is also entitled to receive additional milestone payments based on achievement of certain development and commercialization milestones and royalties on certain resulting product sales under the agreement. The 2003 agreement was amended multiple times in regards to time period and targets under the agreement with the final amendment effective March 2, 2015. Genentech is advancing
1
collaborative drug: ipatasertib, an AKT inhibitor, in a Phase 3 trial for prostate cancer.
The Company has received up-front and milestone payments totaling
$26.5 million
under the 2003 agreement, including
$3 million
during fiscal
2017
. Array is eligible to earn an additional
$20.0 million
in payments if Genentech continues development and achieves the remaining milestones set forth in the 2003 agreement.
The CHK-1 agreement also includes a contingent deliverable whereby Genentech could, at its sole option, require Array to perform chemical and manufacturing control ("CMC") activities for additional drug product or improved processes. The CMC option is a contingent deliverable because the scope, likelihood and timing of the potential services are unclear. Certain critical terms of the services have not yet been negotiated, including the fee that Array would receive for the service and Genentech could elect to acquire the drug materials without Array's assistance either by manufacturing them in-house or utilizing a third-party vendor. Therefore, no portion of the up-front payment was allocated to the contingent CMC services.
The determination of the stand-alone value for each non-contingent deliverable under the CHK-1 agreement required the use of significant estimates, including estimates of the time to complete the transfer of related technology and to assist in filing the IND. Further, to determine the stand-alone value of the license and initial milestone, Array considered the negotiation discussions that led to the final terms of the agreement, publicly-available data for similar licensing arrangements between other companies and the economic terms of previous collaborations Array has entered into with other partners. Array also considered the likelihood of achieving the initial milestone based on the Company's historical experience with early stage development programs and on the ability to achieve the milestone with either of the
two
partnered drugs, GDC-0425 or GDC-0575. Taking into account these factors, Array allocated a portion of the up-front payment to the first milestone. No portion of any revenue recognized is refundable.
Genentech may terminate the 2003 agreement in its entirety upon
four months
' written notice to Array, and may terminate the CHK-1 agreement upon
60 days
' written notice to Array. Under the CHK-1 agreement, either party may terminate upon a material breach by the other party that is not cured within the specified time period. If Genentech terminates the CHK-1 agreement due to a material breach by Array, the license to Genentech becomes irrevocable and the royalty to Array will be reduced to a specified percentage. If the CHK-1 agreement is terminated by Genentech for convenience or by Array due to a material breach by Genentech, the license granted to Genentech will terminate, Genentech will continue to be required to pay milestone and royalty payments on any programs for which Genentech had initiated clinical development and Array's exclusivity obligations will continue so long as Genentech is developing
or commercializing at least one product subject to the CHK-1 agreement. Array and Genentech have also agreed to indemnify the other party for breaches of representations or warranties made under the CHK-1 agreement and for certain of their respective activities under the CHK-1 agreement.
Amgen Inc.
On June 29, 2017, Array entered into a Research Collaboration and License Agreement with Amgen Inc. ("Amgen") for the discovery and development of novel drugs for autoimmune disorders. Under the terms of the agreement, Amgen and Array will collaborate on preclinical development with Array leading the medicinal chemistry work. Amgen is responsible for clinical development and commercialization. In exchange for exclusive rights to Array's preclinical program, Amgen will make upfront and milestone payments, as well as pay royalties on sales of resulting therapies.
During July 2017, the Company received an up-front payment totaling
$2.0 million
under the agreement. Array is eligible to earn an additional
$3.0 million
for preclinical development services over the subsequent
two
-year period unless Amgen terminates the Agreement with
sixty
days' written notice to Array in advance of the contracted payment dates. The Research Collaboration and License Agreement with Amgen contains substantive potential milestone payments of up to
$14.0 million
for
two
development milestones and up to
$140.0 million
for the achievement of
four
commercialization milestones if certain net sales amounts are achieved for any licensed drug candidates.
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
|
|
|
|
Furniture and fixtures
|
$
|
2,701
|
|
|
$
|
2,647
|
|
Equipment
|
26,493
|
|
|
26,120
|
|
Computer hardware and software
|
16,994
|
|
|
15,953
|
|
Leasehold improvements
|
17,434
|
|
|
15,577
|
|
Property and equipment, gross
|
63,622
|
|
|
60,297
|
|
Less: accumulated depreciation and amortization
|
(55,490
|
)
|
|
(53,617
|
)
|
Property and equipment, net
|
$
|
8,132
|
|
|
$
|
6,680
|
|
NOTE 7 – DEBT
Outstanding debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
Notes payable at fair value (long-term)
|
$
|
12,600
|
|
|
$
|
—
|
|
|
|
|
|
Comerica term loan
|
—
|
|
|
14,550
|
|
Silicon Valley Bank term loan (1)
|
16,200
|
|
|
—
|
|
Convertible senior notes
|
132,250
|
|
|
132,250
|
|
Long-term debt, gross
|
148,450
|
|
|
146,800
|
|
Less: Unamortized debt discount and fees
|
(27,145
|
)
|
|
(33,145
|
)
|
Long-term debt, net
|
$
|
121,305
|
|
|
$
|
113,655
|
|
(1) Outstanding debt includes
$1.2 million
term loan final payment fee
Redmile Notes Payable
On September 2, 2016, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Redmile Capital Offshore Fund II, Ltd. and Redmile Biopharma Investments I, L.P. (collectively, “Redmile”) pursuant to which the Company issued to Redmile Subordinated Convertible Promissory Notes (the “Notes”) in the aggregate original principal amount of
$10.0 million
. The Notes bear interest at the rate of
5%
per annum. Unless converted or otherwise repaid or satisfied as described below, the principal amount and all accrued interest thereon plus an aggregate exit fee of
$3.0 million
(the “Repayment Amount”) was due and payable on September 2, 2017 (the “Maturity Date”). If an event of default specified under the Notes occurs, the Note holders may declare the Repayment Amount, and any other amounts payable under the Notes, immediately due and payable.
As discussed
Note 17 - Subsequent Events,
in August 2017 the Company entered into an amendment of the convertible promissory notes issued to Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd. pursuant to which the maturity date of the notes was extended to August 6, 2018 and the exit fee payable upon cash repayment of the notes was increased to an amount equal to
50%
, or
$5.0 million
, of the principal amount under the notes.
Conversion of the Notes
The Notes contemplate that, solely at the Company’s choice, the Company may elect to form a subsidiary (the “797 Subsidiary”) and contribute certain assets and rights relating to its drug ARRY-797 in exchange for all of the outstanding equity of such 797 Subsidiary. In such event, and if a preferred stock financing of the 797 Subsidiary of at least
$10.0 million
in aggregate gross proceeds (excluding conversion of the Note) to bona fide institutional investors other than the Note holders (a “Qualified Financing”) closes prior to the Maturity Date, then all outstanding principal and accrued interest under the Notes shall convert automatically into the shares of capital stock issued in the Qualified Financing at a conversion price equal to the lesser of (A)
80%
of the purchase price of the securities sold in the Qualified Financing if the closing of the Qualified Financing occurs on or prior to March 1, 2017, or
70%
of the purchase price of the securities sold in the Qualified Financing if the closing of the Qualified Financing occurs after March 1, 2017, and (B) the price per share calculated in the same manner as the price per share of equity securities sold in the Qualified Financing, but instead based on a pre-money valuation of the 797 Subsidiary of
$75.0 million
.
If the Company has not formed the 797 Subsidiary by the Maturity Date or, if a 797 Subsidiary was formed and a Qualified Financing has not closed on or prior to the Maturity Date, then the Company shall have the right to convert, on the Maturity Date, the Repayment Amount into shares of a newly established series of the Company's preferred stock, to be designated as Series A Convertible Preferred Stock, at a conversion price equal to the average daily volume-weighted average price per share of the Company’s common stock during the ten (
10
) consecutive trading days ending on the trading day immediately preceding the Maturity Date. The shares issued upon any such conversion shall be subject to an aggregate cap equal to
19.99%
of the outstanding shares of the Company’s common stock, on an as-converted basis, on the Maturity Date.
Other Repayment Provisions
If, solely at the Company’s choice, prior to the closing of a Qualified Financing or other conversion or repayment or other satisfaction in full of the Notes, the Company sells or transfers substantially all of the assets and rights relating to ARRY-797 to a third party other than the holders of the Notes or any of its affiliates (a “797 Sale”), then upon the closing of such 797 Sale and in full satisfaction of the Notes, the Company is required to pay to the Note holders an amount equal to the greater in the aggregate of (i)
$20.0 million
or (ii)
15%
of the fair market value of the consideration actually paid to the Company or the 797 Subsidiary (or any of their respective affiliates or stockholders) in the 797 Sale, subject to an aggregate
$100.0 million
cap.
If, solely at the Company’s choice, the Company enters into an agreement with a third party other than the holders of the Notes or any of their affiliates to license ARRY 797 on an exclusive basis for the development and commercialization of ARRY-797 in all fields of use in the United States and any other territories (a “Qualified 797 License”) prior to the closing of a Qualified Financing or other conversion or repayment or other satisfaction in full of the Notes, then upon entering into such Qualified 797 License and in full satisfaction of the Notes, the Company
is required to pay to the Note holders an amount in the aggregate equal to
50%
of the first
$50.0 million
in aggregate milestone or royalty payments plus
20%
of any subsequent milestone or royalty payments, in each case actually paid to the Company or the 797 Subsidiary (or any of their respective affiliates), as the case may be, pursuant to such Qualified 797 License, subject to an aggregate cap of
$100.0 million
. In addition, if solely at its choice the Company enters into an exclusive license for the development and commercialization of ARRY-797 to a third party in one or more territories that do not include the United States, the Note holders have the right to elect to treat such license agreement as a “Qualified 797 License” by giving Array written notice of such election with five business days of the effective date of the license agreement.
If all or substantially all of the assets of the Company are sold or other change in control of the Company specified in the Notes occurs prior to the closing of a Qualified Financing or other conversion or repayment or other satisfaction in full of the Notes, then upon the closing of such transaction and in full satisfaction of the Notes, at the third party acquirer’s option, the Company is required to either: (i) pay to the Note holders a cash amount in the aggregate equal to
$40.0 million
; or (ii) (A) pay to the Note holders a cash amount in the aggregate equal to
$25.0 million
; and (B) grant, or cause to be granted, a right of first refusal to the Note holders to acquire the 797 Subsidiary or the 797 Assets, as the case may be.
Registration Rights
If the Company elects to convert the Notes into shares of Series A Convertible Preferred Stock as described above, the Company has agreed in the Note Purchase Agreement to register such shares under the Securities Act of 1933, as amended (the “Securities Act”), on a registration statement on Form S-3. In such event, the Company must file the registration statement on the Maturity Date and use commercially reasonable efforts to cause the registration statement to become effective as promptly as possible after such filing, but no later than
75
days after the Maturity Date. The Company may suspend the availability of the registration statement for up to
90
days for no more than
45
days in any
12
-month period for any bona fide reason. If the Company defaults on certain of its obligations relating to the registration of such shares of Series A Preferred Stock, the Company must pay an amount in the aggregate equal to
5%
of the purchase price of the Notes to which the affected registered shares relate. The Company has agreed to pay all costs and expenses associated with the registration of the Series A Convertible Preferred Stock and, with certain exceptions, to indemnify the holders of shares registered on any such registration against liabilities relating to any such registration.
Accounting for the Notes
Due to the complexity and number of embedded features within the Notes and as permitted under accounting guidance, the Company elected to account for the Notes and all the embedded features under the fair value option. The Company recognizes the Notes at fair value rather than at historical cost, with changes in fair value recorded in the statements of operations. Direct costs and fees incurred to issue the Notes were recognized in earnings as incurred and were not deferred. On the initial measurement date of September 2, 2016, the fair value of the Notes was estimated at
$10.0 million
. Upfront costs and fees related to items for which the fair value option is elected was
$0.2 million
and was recorded as a component of other expenses for the
twelve months ended
June 30, 2017
. As of
June 30, 2017
, the fair value of the Notes was
$12.6 million
. The increase in fair value of the
$2.6 million
is reflected in the change in fair value of the note payable. For more information on the fair value determination of the Notes, see
Note 8 - Fair Value Measurements
.
Comerica Term Loan
Effective December 22, 2016, the Company terminated the Loan and Security Agreement with Comerica Bank dated June 28, 2005 and repaid in full the
$15.0 million
term loan, of which
$14.6 million
was outstanding, and terminated the standby letter of credit issued under the revolving line of credit of
$2.8 million
which had not been drawn down. In connection with the termination of the Loan and Security Agreement, Comerica Bank released all liens it held on the Company's assets.
Silicon Valley Bank Term Loan
On December 22, 2016 (the "Effective Date") the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”) providing for a term loan in the original principal amount of
$15.0 million
(the “Term Loan Amount”) and a revolving line of credit of up to
$5.0 million
(“Revolving Line”). The Company may request advances under the revolving line of credit, which may be repaid and reborrowed, or utilize the line of credit for the issuance of letters of credit, foreign exchange contracts or other cash management services. The Company utilized
$14.6 million
of the proceeds from the term loan to repay in full its outstanding obligations under the Loan and Security Agreement dated June 28, 2005, as amended, with Comerica Bank. The entire Term Loan Amount was loaned on the Effective Date, and the Company has obtained a letters of credit in the aggregate amount of
$2.9 million
to secure the Company's obligations under its lease agreement for its Boulder, Colorado and Cambridge, Massachusetts facilities. The cost of the term loan approximates its fair value.
The outstanding principal amount under the term loan bears interest at a floating per annum rate equal to the Prime Rate minus
2.0%
(but not less than
0.0%
) and the principal amount of any advances outstanding under the revolving line bear interest at a floating per annum rate equal to the prime rate. The interest rate was
2.25%
as of
June 30, 2017
. The Company must make monthly payments of interest under the term loan commencing January 1, 2017 until maturity and, commencing on January 1, 2019 and monthly thereafter, the Company must also make payments of principal under the term loan based on a
36
-month amortization schedule. Payments of accrued interest on any advances outstanding under the revolving line of credit are payable monthly. A final payment of accrued interest and principal due on the term loan and on any outstanding advances is due on the maturity date of December 1, 2021.
The Loan Agreement provides for a revolving line commitment fee of
$50 thousand
, payable in
5
equal installments from the Effective Date and an unusued revolving line facility fee equal to
0.2%
per annum of the average unused portion of the Revolving Line. Upon repayment or acceleration of the term loan, a final payment fee equal to
8.0%
of the Term Loan Amount is payable. The final payment fee of
$1.2 million
is being recognized on a straight line basis over the term of the loan and is being reflected as debt discount. If the term loan is prepaid or accelerated prior to the maturity date, the Company must also pay a fee equal to (i)
2.0%
of the Term Loan Amount if such prepayment or acceleration occurs on or prior to the first anniversary of the Effective Date, or (ii)
1.0%
of the Term Loan Amount if such prepayment or acceleration occurs after the first anniversary of the Effective Date. If the revolving line is terminated prior to the maturity date for any reason, the Company must pay a termination fee equal to (i)
2.0%
of the Revolving Line if such termination occurs on or prior to the first anniversary of the Effective Date, or (ii)
1.0%
of the Revolving Line if such termination occurs after the first anniversary of the Effective Date.
The Company granted SVB a first priority security interest in all assets other than its intellectual property, provided that accounts and proceeds of the Company’s intellectual property constitutes collateral and the Company has agreed not to encumber its intellectual property without SVB’s consent. The Loan Agreement contains customary covenants, including restrictions on changes in control of the Company, the incurrance of additional indebtedness, future encumbrances on Array’s assets, the payment of dividends or distributions on the Company’s common stock and the sale, lease, transfer or disposition of Binimetinib and Encorafenib outside of certain markets if the Company’s cash and cash equivalents maintained with SVB fall below certain levels. In addition, the Company must maintain a liquidity ratio, defined as (i) the Company’s unrestricted cash and cash equivalents maintained at SVB or its affiliates plus eligible accounts divided by (ii) all outstanding obligations owed to SVB, of at least
2.0
to 1.0, measured monthly.
Upon an event of default under the Loan Agreement, SVB is entitled to accelerate and demand payment of all amounts outstanding under the Loan Agreement, including payment of all applicable termination and prepayment fees, demand that the Company deposit at least
105%
of the face amount of any letters of credit remaining undrawn to secure all obligations thereunder, and exercise other remedies available to SVB under the Loan Agreement and at law or in equity.
3.00%
Convertible Senior Notes Due 2020
On June 10, 2013, through a registered underwritten public offering, we issued and sold
$132.3 million
aggregate principal amount of
3.00%
convertible senior notes due 2020 (the "Notes"), resulting in net proceeds to Array of approximately
$128.0 million
after deducting the underwriting discount and estimated offering expenses.
The Notes are the general senior unsecured obligations of Array. The Notes bear interest at a rate of
3.00%
per year, payable semi-annually on June 1 and December 1 of each year with all principal due at maturity. The Notes will mature on June 1, 2020, unless earlier converted by the holders or redeemed by us.
Prior to March 1, 2020, holders may convert the Notes only upon the occurrence of certain events described in a supplemental indenture we entered into with Wells Fargo Bank, N.A., as trustee, upon issuance of the Notes. On or after March 1, 2020, until the close of business on the scheduled trading day immediately prior to the maturity date, holders may convert their Notes at any time. Upon conversion, the holders will receive, at our option, shares of our common stock, cash or a combination of shares and cash. The Notes will be convertible at an initial conversion rate of
141.8641
shares per $1,000 in principal amount of Notes, equivalent to a conversion price of approximately
$7.05
per share. The conversion rate is subject to adjustment upon the occurrence of certain events described in the supplemental indenture. Holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a price equal to
100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if there is a qualifying change in control or termination of trading of our common stock.
On or after June 4, 2017, we may redeem for cash all or part of the outstanding Notes if the last reported sale price of our common stock exceeds
130%
of the applicable conversion price for
20
or more trading days in a period of
30
consecutive trading days ending within
seven
trading days immediately prior to the date we provide the notice of redemption to holders. The redemption price will equal
100%
of the principal amount of the Notes to be redeemed, plus all accrued and unpaid interest. If we were to provide a notice of redemption, the holders could convert their Notes up until the business day immediately preceding the redemption date.
In accordance with ASC 470-20, we used an effective interest rate of
10.25%
to determine the liability component of the Notes. This resulted in the recognition of
$84.2 million
as the liability component of the Notes and the recognition of the residual
$48.0 million
as the debt discount with a corresponding increase to additional paid-in capital for the equity component of the Notes. The underwriting discount and estimated offering expenses of
$4.3 million
were allocated between the debt and equity issuance costs in proportion to the allocation of the liability and equity components of the Notes. Debt issuance costs of
$2.7 million
were included in other long-term assets on our balance sheet as of the issuance date. Equity issuance costs of
$1.6 million
were recorded as an offset to additional paid-in capital. The debt discount and debt issuance costs will be amortized as non-cash interest expense through June 1, 2020. The balance of unamortized debt issuance costs was
$1.4 million
and
$1.8 million
as of
June 30, 2017
and
2016
, respectively.
The fair value of the Notes was
$180.1 million
and
$110.2 million
at
June 30, 2017
and
2016
, respectively, and was determined using Level 2 inputs based on their quoted market values.
Summary of Interest Expense
The following table shows the details of our interest expense for all of our debt arrangements outstanding during the periods presented, including contractual interest, and amortization of debt discount, debt issuance costs and loan transaction fees that were charged to interest expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Notes Payable
|
|
|
|
|
|
Simple interest
|
$
|
413
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fees paid
|
240
|
|
|
—
|
|
|
—
|
|
Total interest expense on the notes payable at fair value
|
653
|
|
|
—
|
|
|
—
|
|
Comerica Term Loan
|
|
|
|
|
|
|
Simple interest
|
250
|
|
|
501
|
|
|
480
|
|
Amortization of prepaid fees paid for letters of credit
|
2
|
|
|
31
|
|
|
44
|
|
Total interest expense on the Comerica term loan
|
252
|
|
|
532
|
|
|
524
|
|
Silicon Valley Bank Term Loan
|
|
|
|
|
|
Simple interest
|
152
|
|
|
—
|
|
|
—
|
|
Amortization of debt discount
|
163
|
|
|
—
|
|
|
—
|
|
Amortization of prepaid fees for line of credit
|
85
|
|
|
—
|
|
|
—
|
|
Total interest expense on the Silicon Valley Bank term loan
|
400
|
|
|
—
|
|
|
—
|
|
3.00% Convertible Senior Notes
|
|
|
|
|
|
Contractual interest
|
3,968
|
|
|
3,967
|
|
|
3,968
|
|
Amortization of debt discount
|
6,681
|
|
|
6,033
|
|
|
5,447
|
|
Amortization of debt issuance costs
|
379
|
|
|
342
|
|
|
308
|
|
Total interest expense on the 3.00% convertible senior notes
|
11,028
|
|
|
10,342
|
|
|
9,723
|
|
Total interest expense
|
$
|
12,333
|
|
|
$
|
10,874
|
|
|
$
|
10,247
|
|
Commitment Schedule
We are required to make principal payments for our long-term debt as follows during the fiscal years ending June 30 (in thousands):
|
|
|
|
|
|
Principal Due
|
|
|
2018
|
$
|
—
|
|
2019
|
12,500
|
|
2020
|
137,250
|
|
2021
|
5,000
|
|
2022 (1)
|
2,500
|
|
Thereafter
|
—
|
|
|
$
|
157,250
|
|
(1) Principal payments exclude
$1.2 million
term loan final payment fee
NOTE 8 – FAIR VALUE MEASUREMENTS
The following table shows the fair value of the Company's financial instruments classified into the fair value hierarchy and measured on a recurring basis on the balance sheets as of
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of June 30, 2017
|
|
|
Level 1
|
Level 2
|
Level 3
|
|
Total
|
($ in thousands)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
108,098
|
|
|
—
|
|
|
—
|
|
|
108,098
|
|
Mutual fund securities
|
|
292
|
|
|
—
|
|
|
—
|
|
|
292
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Mutual fund securities
|
|
732
|
|
|
—
|
|
|
—
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, at fair value
|
|
—
|
|
|
—
|
|
|
12,600
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of June 30, 2016
|
|
|
Level 1
|
Level 2
|
Level 3
|
|
Total
|
($ in thousands)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
53,120
|
|
|
—
|
|
|
—
|
|
|
53,120
|
|
Mutual fund securities
|
|
224
|
|
|
—
|
|
|
—
|
|
|
224
|
|
Long-term Assets
|
|
|
|
|
|
|
|
|
Mutual fund securities
|
|
596
|
|
|
—
|
|
|
—
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
The fair value of marketable securities are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date and are classified as Level 1.
The table below provides a rollforward of the changes in fair value of Level 3 financial instruments for the
fiscal year ended June 30, 2017
, comprising the Redmile Notes described below:
|
|
|
|
|
|
($ in thousands)
|
|
Notes Payable at Fair Value
|
Balance at June 30, 2016
|
|
$
|
—
|
|
Additions during the period
|
|
10,000
|
|
Change in fair value
|
|
2,600
|
|
Balance at June 30, 2017
|
|
$
|
12,600
|
|
Redmile Notes
To measure the fair value of the principal amount on the Notes issued to Redmile, the Company was required to determine the fair value of the principal amount on the Notes and the conversion feature of the Notes. The Company utilized a Monte Carlo simulation to determine the method of payment of the principal amount by potential outcome and scenario, and applied the income approach to determine the fair value of the Notes, discounting the principal
amount due under the Notes by market interest rates under potential scenarios. The Monte Carlo simulation utilized the following assumptions: (i) expected term; (ii) common stock price; (iii) risk-free interest rate; and (iv) expected volatility. The assumptions the Company used in the simulation were based on factors the Company believed that participants would use in pricing the liability components, including market interest rates, credit standing, yield curves, volatilities, and risk-free rates, all of which are defined as Level 3 observable inputs.
To measure the fair value of the conversion feature of the Notes issued to Redmile, the Company performed an analysis to estimate the pre-money value of the 797 Subsidiary. The Company then applied the pre-money value of the 797 Subsidiary to the conversion scenarios under the Notes to determine the fair value of the conversion feature.
The Company incorporated the estimated volatilities and the risk-free rates on the principal amount of the Notes into the Monte Carlo simulation under each potential scenario and weighted volatility and rates based on the probability of each scenario occurring. Subsequently, the estimated implied interest rates were applied to the principal amount of these Notes under potential scenarios and were weighted based on the probability of each scenario occurring.
The fair value of the Notes was impacted by certain unobservable inputs, most significantly management's assumptions regarding the discount rates used, the probabilities of certain scenarios occurring, expected volatility, share price performance, and expected scenario timing. Significant changes to these inputs in isolation or in the aggregate could result in a significantly different fair value measurement.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Operating Leases
We lease facilities and equipment under various non-cancellable operating leases that expire through 2025. Our most significant lease in Boulder, Colorado was amended during the 2015 fiscal year, expires on March 31, 2025 and includes an option to extend the lease for up to
two
terms of
five years
each. We are currently leasing approximately
136 thousand
square feet. In addition to minimum lease payments, we are contractually obligated under some of our lease agreements to pay certain operating expenses during the term of the lease, such as maintenance, taxes and insurance.
Future minimum rental commitments for our operating leases, by fiscal year and in the aggregate, as of
June 30, 2017
, are (in thousands):
|
|
|
|
|
|
|
|
Rental Payments
|
|
|
|
2018
|
|
$
|
3,807
|
|
2019
|
|
3,908
|
|
2020
|
|
3,957
|
|
2021
|
|
4,035
|
|
2022
|
|
4,116
|
|
Thereafter
|
|
11,531
|
|
|
|
$
|
31,354
|
|
Our facilities rent expense was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Cash paid for rent
|
$
|
4,027
|
|
|
$
|
4,785
|
|
|
$
|
8,276
|
|
Deferred rent credits
|
(590
|
)
|
|
(1,270
|
)
|
|
(3,236
|
)
|
Rent expense, net
|
$
|
3,437
|
|
|
$
|
3,515
|
|
|
$
|
5,040
|
|
Legal Proceedings
From time to time, we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits are provided to the extent that losses are deemed both probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is management's opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on Array.
NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT)
Stock Option and Incentive Plan
In September 2000, our Board of Directors approved the Amended and Restated Stock Option and Incentive Plan (the "Option and Incentive Plan"). As of
June 30, 2017
,
30,202,692
shares of common stock are reserved for future issuance under the Option and Incentive Plan to our eligible employees, consultants and directors. Of the shares available for future issuance,
1,768,322
are available for issuance as incentive stock options. The remaining shares can be used for other awards. In addition, the Option and Incentive Plan provides for the reservation of additional authorized shares on any given day in an amount equal to the difference between:
|
|
(i)
|
25%
of our 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 and Incentive Plan plus the number of shares available for future grants of awards under the Option and Incentive Plan on that date.
|
However, in no event shall the number of additional authorized shares determined pursuant to this formula exceed, when added to the number of shares of common stock outstanding and reserved for issuance under the Option and Incentive Plan other than pursuant to this formula, under the ESPP and upon conversion or exercise of outstanding warrants or convertible securities, the total number of shares of common stock authorized for issuance under our Amended and Restated Certificate of Incorporation.
The Option and Incentive Plan provides for awards of both non-statutory stock options and incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, restricted stock and other incentive awards and rights to purchase shares of our common stock.
The Option and Incentive 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, the number of shares, vesting terms, exercise price and term of each option grant. Generally, options have a
four
-year annual vesting term, an exercise price equal to the market value of the underlying shares at the grant date and a
ten
-year life from the date of grant.
Warrants
Associated with our previously outstanding long-term debt arrangements with Deerfield Capital, which have been paid in full, we issued warrants to Deerfield to purchase
6,000,000
shares of common stock at an exercise price of
$3.65
and warrants to purchase
6,000,000
shares of common stock at an exercise price of
$4.19
. The warrants contained the same terms, except for the lower per share exercise price. We valued the warrants at issuance based on a Black-Scholes option pricing model and then allocated a portion of the proceeds under the debt to the warrants based upon their relative fair values. The warrants were recorded in stockholders' deficit with the offset to debt discount. The debt discount was amortized using the effective interest method and recorded as interest expense in the accompanying statements of operations and comprehensive income (loss) from the respective draw dates until June 10, 2013, when the Deerfield credit facilities were repaid and the recognition of the remaining debt discount was accelerated. The warrants were sold by Deerfield Capital to an unrelated third party during the fiscal year 2015. During fiscal year 2016,
3,996,298
warrants with an exercise price of
$3.65
were exercised on a cashless basis for approximately
223 thousand
common shares. Additionally, approximately
12 thousand
warrants with an exercise price of
$3.65
were exercised for approximately
12 thousand
common shares. All of the remaining warrants expired on June 30, 2016.
Common Stock Offering
On October 3, 2016, the Company closed an underwritten public offering of
21.2 million
shares of its common stock, which included
2.8 million
shares of common stock issued upon the exercise in full of the option to purchase additional shares granted to the underwriters in the offering. The shares were sold to the public at an offering price of
$6.25
per share. The total net proceeds from the offering were
$124.2 million
, after underwriting discounts and commissions and offering expenses. The Company intends to use the net proceeds from this offering to fund research and development efforts, including clinical trials for its proprietary candidates, and for general corporate purposes.
At-the-Market Equity Offering
On March 27, 2013, we entered into a Sales Agreement with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which we could sell up to
$75.0 million
in shares of our common stock from time to time through Cantor, acting as our sales agent, in an at-the-market offering. We completed the sale of all shares available under the Sales Agreement in June 2014. On August 15, 2014, we amended the Sales Agreement with Cantor to allow us to sell up to
$47.5 million
in additional shares under the Sales Agreement. All sales of shares have been made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC. We paid Cantor a commission of approximately
2%
of the aggregate gross proceeds we received from all sales of our common stock under the Sales Agreement. The amended Sales Agreement continues until the earlier of selling all shares available under the Sales Agreement, or March 27, 2016. We completed the sale of shares under the amended agreement in June 2015.
In August 2015, the Company amended its Sales Agreement with Cantor Fitzgerald & Co. ("Cantor") dated March 27, 2013 to permit the sale by Cantor, acting as its sales agent, of up to
$75.0 million
in additional shares of the Company's common stock from time to time in an at-the-market offering under the Sales Agreement. All sales of shares have been and will continue to be made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC. The Company pays Cantor a commission of approximately
2%
of the aggregate gross proceeds
the Company receives from all sales of the Company's common stock under the Sales Agreement. The amended Sales Agreement continues indefinitely until either party terminates the Sales Agreement, which may be done on
10 days
prior written notice.
The following table summarizes our total sales under the Sales Agreement for the periods indicated (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
|
|
|
Total shares of common stock sold
|
5,519
|
|
|
566
|
|
Average price per share
|
$
|
5.58
|
|
|
$
|
5.28
|
|
Gross proceeds
|
$
|
30,790
|
|
|
$
|
2,992
|
|
Commissions earned by Cantor and other costs
|
$
|
731
|
|
|
$
|
100
|
|
NOTE 11 – SHARE-BASED COMPENSATION
Total share-based compensation expense recorded for employee equity awards issued pursuant to the Option and Incentive Plan and for shares issued under the ESPP was
$10.0 million
,
$7.3 million
and
$7.8 million
for the fiscal years ended
June 30, 2017
,
2016
and
2015
, respectively. Share-based compensation for the year ended
June 30, 2017
,
2016
and
2015
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2017
|
|
2016
|
|
2015
|
Awards issued to employees
|
|
$
|
9,965
|
|
|
$
|
7,283
|
|
|
$
|
7,513
|
|
Options issued to transitioned CMC employees, net of other CMC share-based compensation amounts
|
|
—
|
|
|
—
|
|
|
251
|
|
Other non-employee awards
|
|
—
|
|
|
—
|
|
|
296
|
|
Total share-based compensation expense
|
|
$
|
9,965
|
|
|
$
|
7,283
|
|
|
$
|
8,060
|
|
We use the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
|
|
•
|
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
|
|
|
•
|
Expected term - We estimate the expected term of our options based upon historical exercises and post-vesting termination behavior.
|
|
|
•
|
Expected volatility - We estimate expected volatility using daily historical trading data of our common stock.
|
|
|
•
|
Dividend yield - We have never paid dividends and currently have no plans to do so; therefore, no dividend yield is applied.
|
Option Awards
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Risk-free interest rate
|
1.1% - 2.1%
|
|
1.3% - 1.8%
|
|
1.5% - 2.1%
|
Expected option term in years
|
4.0 - 5.5
|
|
5.5 - 6.25
|
|
6.25
|
Expected volatility
|
57.0% - 66.8%
|
|
55.7% - 60.1%
|
|
60.8% - 67.1%
|
Dividend yield
|
0%
|
|
0%
|
|
0%
|
Weighted average grant date fair value
|
$4.46
|
|
$1.95
|
|
$3.86
|
The fair values of our non-employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair value for the period presented:
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2015
|
|
|
|
|
|
Risk-free interest rate
|
|
0.4% - 0.6%
|
|
Expected option term in years
|
|
1.25 - 2.00
|
|
Expected volatility
|
|
58.9% - 61.2%
|
|
Dividend yield
|
|
0%
|
|
Weighted average grant date fair value
|
|
$2.16
|
|
The following table summarizes our stock option activity under the Option and Incentive Plan for the year ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding balance at June 30, 2016
|
11,647,595
|
|
|
$
|
4.80
|
|
|
|
|
|
Granted
|
4,062,240
|
|
|
$
|
7.91
|
|
|
|
|
|
Exercised
|
(487,895
|
)
|
|
$
|
4.39
|
|
|
|
|
|
Forfeited
|
(115,983
|
)
|
|
$
|
5.85
|
|
|
|
|
|
Expired
|
(261,929
|
)
|
|
$
|
9.66
|
|
|
|
|
|
Outstanding balance at June 30, 2017
|
14,844,028
|
|
|
$
|
5.57
|
|
|
7.4
|
|
$
|
44,036
|
|
Vested and expected to vest at June 30, 2017
|
7,064,938
|
|
|
$
|
4.74
|
|
|
5.9
|
|
$
|
25,887
|
|
Exercisable at June 30, 2017
|
7,064,938
|
|
|
$
|
4.74
|
|
|
5.9
|
|
$
|
25,887
|
|
The aggregate intrinsic value in the above table is calculated as the difference between the closing price of our common stock at
June 30, 2017
, of
$8.37
per share and the exercise price of the stock options that had strike prices below the closing price. The total intrinsic value of all options exercised during the years ended
June 30, 2017
,
2016
and
2015
was
$2.0 million
,
$0.7 million
, and
$2.3 million
, respectively.
As of
June 30, 2017
, there was approximately
$23.6 million
of total unrecognized compensation expense related to the unvested stock options in the table above, which is expected to be recognized over a weighted average period of
2.9 years
.
Restricted Stock Units ("RSUs")
The Option and Incentive Plan provides for the issuance of RSUs that each represent the right to receive one share of Array common stock, cash or a combination of cash and stock, typically following achievement of time- or performance-based vesting conditions. Our RSU grants that vest subject to continued service over a defined period of time, will typically vest between
two
to
four
years, with a percentage vesting on each anniversary date of the grant, or they may be vested in full on the date of grant. RSUs will be settled upon the vesting date, upon a predetermined delivery date, upon a change in control of Array, or upon the employee leaving Array. All outstanding RSUs may only be settled through the issuance of common stock to recipients, and we intend to continue to grant RSUs that may only be settled in stock. RSUs are assigned the value of Array common stock at date of grant issuance, and the grant date fair value is amortized over the applicable vesting period.
The following table summarizes the status of our unvested RSUs under the Option and Incentive Plan for the year ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
Number of RSUs
|
|
Weighted
Average
Grant Date Fair Value
|
Unvested at June 30, 2016
|
832,100
|
|
|
$
|
4.55
|
|
Granted
|
416,394
|
|
|
$
|
8.62
|
|
Vested
|
(261,274
|
)
|
|
$
|
4.56
|
|
Forfeited
|
(4,511
|
)
|
|
$
|
5.50
|
|
Unvested at June 30, 2017
|
982,709
|
|
|
$
|
6.27
|
|
As of
June 30, 2017
, there was
$4.7 million
of total unrecognized compensation cost related to unvested RSUs granted under the Option and Incentive Plan. The cost is expected to be recognized over a weighted-average period of approximately
2.9 years
. The fair value for RSUs that vested during the
year ended
June 30, 2017
and
2016
, was
$1.2 million
and
$0.8 million
, respectively. RSUs granted during the
year ended
June 30, 2017
and
2016
had a fair value of
$3.6 million
and
$1.1 million
at the grant date, respectively.
Employee Stock Purchase Plan
On October 27, 2016, the stockholders of the Company approved an increase, previously approved by the Board of Directors, in the number of shares of common stock reserved for future issuance under the ESPP by
750 thousand
shares to an aggregate of
6.0 million
shares. The ESPP allows qualified employees (as defined in the ESPP) to purchase shares of our common stock at a price equal to
85%
of the lower of (i) the closing price at the beginning of the offering period or (ii) the closing price at the end of the offering period. Effective each January 1, a new
12
-month offering period begins that will end on December 31 of that year. However, if the closing stock price on July 1 is lower than the closing stock price on the preceding January 1, then the original
12
-month offering period terminates, and the purchase rights under the original offering period roll forward into a new
six
-month offering period that begins July 1 and ends on December 31. As of
June 30, 2017
, the Company had
1,054,297
shares available for issuance under the ESPP. The Company issued
282 thousand
,
265 thousand
and
240 thousand
shares under the ESPP during fiscal
2017
,
2016
and
2015
, respectively.
NOTE 12 – EMPLOYEE BENEFIT PLAN
Employee Savings Plan
Array has a 401(k) plan that allows participants to contribute from
1%
to
60%
of their salary, subject to eligibility requirements and annual IRS limits. Array matches up to
4%
of employee contributions on a discretionary basis as determined by our Board of Directors. Company contributions are fully vested after
four years
of employment. We paid matching contributions of approximately
$1.2 million
,
$1.0 million
, and
$1.1 million
, during the years ended
June 30, 2017
,
2016
and
2015
, respectively.
NOTE 13 – INCOME TAXES
The Company has accumulated net losses since inception and has not recorded an income tax provision or benefit during fiscal
2017
,
2016
and
2015
.
A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations and comprehensive income (loss) is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
U.S. federal income tax expense at the statutory rate
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
Change in valuation allowance
|
(58.9
|
)
|
|
(53.4
|
)
|
|
110.2
|
|
Change in tax contingency reserve (releases)
|
(0.3
|
)
|
|
(5.7
|
)
|
|
38.4
|
|
State income taxes, net of federal taxes
|
2.3
|
|
|
2.1
|
|
|
11.1
|
|
Stock-based compensation
|
0.1
|
|
|
(1.1
|
)
|
|
10.5
|
|
Available research and experimentation tax credits
|
3.3
|
|
|
5.0
|
|
|
(29.6
|
)
|
Orphan drug credit
|
16.1
|
|
|
19.3
|
|
|
(176.0
|
)
|
Rate change
|
0.3
|
|
|
—
|
|
|
1.0
|
|
Effect of other permanent differences
|
—
|
|
|
—
|
|
|
0.4
|
|
Other
|
3.1
|
|
|
(0.2
|
)
|
|
—
|
|
Total
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Deferred tax assets and liabilities reflect the net tax effects of net operating losses, credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.
The components of the Company's deferred tax assets and liabilities are (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
|
Accrued benefits
|
$
|
2,993
|
|
|
$
|
2,568
|
|
Inventory reserve
|
1,517
|
|
|
1,514
|
|
Net operating loss carryforwards
|
224,306
|
|
|
201,571
|
|
Capital loss carryforwards
|
361
|
|
|
—
|
|
Research and experimentation credit carryforwards
|
37,169
|
|
|
33,834
|
|
Orphan drug credit carryforwards
|
70,178
|
|
|
45,420
|
|
Third party agreement payment
|
7,844
|
|
|
8,452
|
|
Deferred revenue
|
14,322
|
|
|
670
|
|
Deferred rent
|
2,355
|
|
|
1,772
|
|
Stock compensation
|
6,802
|
|
|
4,499
|
|
Depreciation of property and equipment
|
3,349
|
|
|
4,112
|
|
Loan costs on convertible senior notes
|
—
|
|
|
278
|
|
Other
|
58
|
|
|
32
|
|
Total deferred tax assets
|
371,254
|
|
|
304,722
|
|
Deferred tax liabilities
|
|
|
|
Discount on convertible senior notes
|
(9,173
|
)
|
|
(11,639
|
)
|
Loan costs on convertible senior notes
|
(201
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(9,374
|
)
|
|
(11,639
|
)
|
Less valuation allowance
|
(361,880
|
)
|
|
(293,083
|
)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
—
|
|
As of each reporting date, the Company considers existing evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. Array had a net loss of
$116.8 million
for the year ended
June 30, 2017
. The Company continues to believe that it is more likely than not that the benefit for deferred
tax assets will not be realized. In recognition of this uncertainty, a full valuation allowance continues to be applied to the deferred tax assets. The Company did not record a tax provision for the years ended
June 30, 2017
,
2016
and
2015
, due to its estimate that the effective tax rate for each year is
0%
.
Future realization depends on the future earnings of Array, if any, the timing and amount of which are uncertain as of
June 30, 2017
. In the future, should management conclude that it is more likely than not that the deferred tax assets are partially or fully realizable, the valuation allowance would be reduced to the extent of such expected realization and the amount would be recognized as a deferred income tax benefit in our statements of operations and comprehensive income (loss).
In the third quarter of fiscal 2017, the Company adopted ASU 2016-09 and applied this change in accounting policy on a modified retrospective basis with July 1, 2016 as the effective date of adoption. The new guidance requires, among other things, excess tax benefits and tax deficiencies to be recorded in the income statement in the provision for income taxes when awards vest or are settled and all previously unrecognized excess tax benefits and tax deficiencies to be recorded as of the beginning of the quarter of adoption. Upon adoption, the Company had excess tax benefits for which a benefit could not be previously recognized of approximately
$14.4 million
; however, there was no cumulative effect on retained earnings in the balance sheet since the Company has a full valuation allowance against its deferred tax assets. Prior to adoption, the deferred tax asset balance as of June 30, 2016 excluded excess tax benefits from stock option exercises of approximately
$5.3 million
.
As of
June 30, 2017
, the Company had available total net operating loss carryforwards of approximately
$596.3 million
, which expire in the years 2020 through 2037, federal research and experimentation credit carryforwards of
$42.7 million
, which expire in the years 2022 through 2036, and orphan drug credit carryforwards of
$80.7 million
, which begin to expire in 2033.
The Tax Reform Act of 1986 and certain state tax statutes limit the utilization of net operating loss and tax credit carryforwards to offset future taxable income and tax, and may therefore result in the expiration of a portion of those carryforwards before they are utilized, if there has been a "change of ownership" as described in Section 382 of the Internal Revenue Code ("IRC"), and under similar state provisions. Array has performed a detailed analysis of Section 382 of the IRC though June 30, 2017. Based the Company's analysis, approximately
$40 thousand
of net operating losses as of the year ended June 30, 2017, may not be used to offset taxable income. The Company has provided a valuation allowance against the entire amount of its net operating loss and tax credit carryforwards. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change. Any limitation may result in expiration of a portion of the net operating loss or research and development credit carryforwards before utilization. The Company will continue to evaluate future events that could limit its ability to utilize its net operating losses and tax credit carryforwards in future years.
Array follows a comprehensive model for recognizing, measuring, presenting and disclosing uncertain tax positions taken or expected to be taken on a tax return. Tax positions must initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The cumulative effect of accounting for tax contingencies in this manner has been recorded in deferred tax assets, net of the full valuation allowance, which resulted in no liability being recorded on our accompanying balance sheets. The total amount of unrecognized tax benefits as of and for the years ended
June 30, 2017
,
2016
, and
2015
are shown in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
13,161
|
|
|
$
|
7,311
|
|
|
$
|
3,676
|
|
Additions based on tax positions related to the current year
|
3,589
|
|
|
5,071
|
|
|
3,551
|
|
Additions for tax positions of prior year
|
—
|
|
|
1,323
|
|
|
559
|
|
Reductions for tax positions of prior year
|
(3,186
|
)
|
|
(544
|
)
|
|
(475
|
)
|
Balance at end of year
|
$
|
13,564
|
|
|
$
|
13,161
|
|
|
$
|
7,311
|
|
There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from inception of Array. The Company's policy is to account for income tax related interest and penalties in income tax expense in the accompanying statements of operations and comprehensive income (loss). There have been no material income tax related interest or penalties assessed or recorded.
NOTE 14 - RELATED PARTY TRANSACTION
As describe above in
Note 5 – Collaboration and Other Agreements
- Mirati Therapeutics, Inc. the Company is party to an agreement with Mirati Therapeutics, Inc. pursuant to which the Company is providing certain drug discovery and research activities for Mirati. Dr. Charles Baum, a current member of Array’s Board of Directors, is the President and Chief Executive Officer of Mirati Therapeutics, Inc.
As described above in
Note 7 - Debt
, the Company entered into a Note Purchase Agreement with Redmile and issued Notes to Redmile on September 2, 2016. At that time, affiliates of Redmile held more than
10%
of the Company's common stock.
NOTE 15 - NET EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share includes the determinants of basic net income (loss) per share and, in addition, gives effect to the potential dilution that would occur if securities or other contracts to issue common stock were exercised, vested or converted into common stock, unless they are anti-dilutive. Diluted weighted average common shares include common stock potentially issuable for the exercise of warrants as well as vested and unvested stock options and unvested RSUs.
The following table sets forth the computation of earnings per share (amounts in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Net earnings (loss) - basic and diluted
|
$
|
(116,818
|
)
|
|
$
|
(92,840
|
)
|
|
$
|
9,369
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
163,207
|
|
|
142,964
|
|
|
136,679
|
|
Warrants
|
—
|
|
|
—
|
|
|
3,560
|
|
Stock options
|
—
|
|
|
—
|
|
|
1,300
|
|
RSUs
|
—
|
|
|
—
|
|
|
153
|
|
Weighted average shares outstanding - diluted
|
163,207
|
|
|
142,964
|
|
|
141,692
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
Basic
|
$
|
(0.72
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
0.07
|
|
Diluted
|
$
|
(0.72
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
For the periods where we reported losses, all common stock equivalents are excluded from the computation of diluted earnings (loss) per share, since the result would be anti-dilutive. Common stock equivalents (measured at the end of each fiscal period) that are not included in the calculations of diluted earnings (loss) per share because to do so would have been anti-dilutive, include the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
June 30,
|
|
2017
|
|
2016
|
|
2015
|
Convertible senior notes
|
$
|
18,762
|
|
|
$
|
18,762
|
|
|
$
|
18,762
|
|
Stock options
|
14,844
|
|
|
11,648
|
|
|
7,332
|
|
RSUs
|
983
|
|
|
832
|
|
|
275
|
|
Total anti-dilutive common stock equivalents excluded from diluted loss per share calculation
|
$
|
34,589
|
|
|
$
|
31,242
|
|
|
$
|
26,369
|
|
NOTE 16 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below summarize our unaudited quarterly operating results for the fiscal years ended
June 30, 2017
and
2016
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, 2017
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
|
$
|
39,271
|
|
|
$
|
44,523
|
|
|
$
|
33,280
|
|
|
$
|
33,778
|
|
Research and development for proprietary programs
|
|
$
|
46,563
|
|
|
$
|
46,469
|
|
|
$
|
46,069
|
|
|
$
|
39,098
|
|
Total operating expenses
|
|
$
|
63,270
|
|
|
$
|
64,329
|
|
|
$
|
65,215
|
|
|
$
|
60,116
|
|
Net loss
|
|
$
|
(28,608
|
)
|
|
$
|
(23,301
|
)
|
|
$
|
(35,317
|
)
|
|
$
|
(29,592
|
)
|
Net earnings (loss) per share – basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.17
|
)
|
Net earnings (loss) per share – diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.17
|
)
|
Weighted average shares outstanding – basic
|
|
145,100
|
|
|
168,127
|
|
|
169,020
|
|
|
170,779
|
|
Weighted average shares outstanding – diluted
|
|
145,100
|
|
|
168,127
|
|
|
169,020
|
|
|
170,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, 2016
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
|
$
|
16,197
|
|
|
$
|
35,430
|
|
|
$
|
43,047
|
|
|
$
|
43,205
|
|
Research and development for proprietary programs
|
|
$
|
20,998
|
|
|
$
|
41,351
|
|
|
$
|
48,802
|
|
|
$
|
49,504
|
|
Total operating expenses
|
|
$
|
34,568
|
|
|
$
|
56,952
|
|
|
$
|
63,055
|
|
|
$
|
65,513
|
|
Net income (loss)
|
|
$
|
(20,987
|
)
|
|
$
|
(24,164
|
)
|
|
$
|
(22,675
|
)
|
|
$
|
(25,014
|
)
|
Net earnings (loss) per share – basic
|
|
$
|
(0.15
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.17
|
)
|
Net earnings (loss) per share – diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.17
|
)
|
Weighted average shares outstanding – basic
|
|
142,216
|
|
|
142,833
|
|
|
143,338
|
|
|
143,475
|
|
Weighted average shares outstanding – diluted
|
|
142,216
|
|
|
142,833
|
|
|
143,338
|
|
|
143,475
|
|
The net earnings (loss) per share amounts above may not sum to the annual amounts presented in our accompanying statements of operations and comprehensive income (loss) due to rounding.
NOTE 17 - SUBSEQUENT EVENT
On August 7, 2017, the Company entered into an amendment to the convertible promissory notes issued to Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd. pursuant to which the maturity date of each of the notes was extended to August 6, 2018 and the exit fee payable upon cash repayment of each of the notes was increased to an amount equal to
50%
, or
$5.0 million
, of the principal amount under each of the notes.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit Number
|
|
Description of Exhibit
|
|
Form
|
|
File No.
|
|
Date Filed
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Array BioPharma Inc., as amended
|
|
10-K
|
|
001-16633
|
|
8/9/2016
|
3.2
|
|
Bylaws of Array Biopharma Inc., as amended and restated on October 30, 2008
|
|
8-K
|
|
001-16633
|
|
11/4/2008
|
4.1
|
|
Specimen certificate representing the common stock
|
|
S-1/A
|
|
333-45922
|
|
10/27/2000
|
4.2
|
|
Indenture dated June 10, 2013 between the registrant and Wells Fargo Bank, National Association
|
|
8-K
|
|
001-16633
|
|
6/10/2013
|
4.3
|
|
First Supplemental Indenture dated June 10, 2013 between the registrant and Wells Fargo Bank, National Association (including the form of global note for the 3.00% Convertible Senior Notes due 2020)
|
|
8-K
|
|
001-16633
|
|
6/10/2013
|
10.1
|
|
Amended and Restated Investor Rights Agreement between registrant and the parties whose signatures appear on the signature pages thereto, dated November 16, 1999
|
|
S-1
|
|
333-45922
|
|
9/15/2000
|
10.2
|
|
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
|
|
S-1
|
|
333-45922
|
|
9/15/2000
|
10.3
|
|
Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan, as amended*
|
|
DEF-14A
|
|
001-16633
|
|
9/18/2015
|
10.4
|
|
Amendment to Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan, as amended*
|
|
10-K
|
|
001-16633
|
|
8/16/2012
|
10.5
|
|
Form of Incentive Stock Option Agreement, as amended*
|
|
10-K
|
|
001-16633
|
|
9/1/2006
|
10.6
|
|
Form of Nonqualified Stock Option Agreement, as amended*
|
|
10-K
|
|
001-16633
|
|
9/1/2006
|
10.7
|
|
Form of Restricted Stock Unit Agreement*
|
|
8-K
|
|
001-16633
|
|
8/20/2014
|
10.8
|
|
Amended and Restated Array BioPharma Inc. Employee Stock Purchase Plan*
|
|
DEF-14A
|
|
001-16633
|
|
9/12/2016
|
10.9
|
|
Employment Agreement, dated April 26, 2012, between registrant and Ron Squarer*
|
|
8-K
|
|
001-16633
|
|
5/1/2012
|
10.10
|
|
Noncompete Agreement, dated April 26, 2012, between registrant and Ron Squarer*
|
|
8-K
|
|
001-16633
|
|
5/1/2012
|
10.11
|
|
Confidentiality and Inventions Agreement, dated April 26, 2012, between registrant and Ron Squarer*
|
|
8-K
|
|
001-16633
|
|
5/1/2012
|
10.12
|
|
Employment Agreement, effective as of March 4, 2002, between registrant and John Moore*
|
|
10-K
|
|
001-16633
|
|
9/30/2002
|
10.13
|
|
Employment Agreement, dated May 13, 2014, between registrant and Nicholas A. Saccomano, Ph.D.*
|
|
10-K
|
|
001-16633
|
|
8/15/2014
|
10.14
|
|
Employment Agreement, dated August 29, 2014, between registrant and Victor Sandor, M.D.*
|
|
8-K
|
|
001-16633
|
|
9/12/14
|
10.15
|
|
Noncompete Agreement, dated August 29, 2014, between registrant and Victor Sandor, M.D.*
|
|
8-K
|
|
001-16633
|
|
9/12/14
|
10.16
|
|
Confidentiality and Inventions Agreement, dated August 29, 2014, between registrant and Victor Sandor, M.D.*
|
|
8-K
|
|
001-16633
|
|
9/12/14
|
10.17
|
|
Employment Agreement, dated September 11, 2014, between registrant and Andrew Robbins*
|
|
8-K
|
|
001-16633
|
|
9/12/14
|
10.18
|
|
Amended and Restated Deferred Compensation Plan of Array BioPharma Inc., dated December 20, 2004*
|
|
8-K
|
|
001-16633
|
|
12/21/2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit Number
|
|
Description of Exhibit
|
|
Form
|
|
File No.
|
|
Date Filed
|
10.19
|
|
First Amendment to the Amended and Restated Deferred Compensation Plan of Array BioPharma Inc.*
|
|
10-Q
|
|
001-16633
|
|
2/6/2006
|
10.20
|
|
Research Services Agreement between registrant and Eli Lilly and Company, dated March 22, 2000, as amended**
|
|
S-1
|
|
333-45922
|
|
9/15/2000
|
10.21
|
|
Research Agreement between registrant and Amgen Inc., dated as of November 1, 2001**
|
|
8-K/A
|
|
001-16633
|
|
2/6/2002
|
10.22
|
|
Lead Generation Collaboration Agreement between registrant and Takeda Chemical Industries, Ltd., dated July 18, 2001**
|
|
10-Q
|
|
001-16633
|
|
11/14/2001
|
10.23
|
|
Collaboration and License Agreement between registrant and AstraZeneca AB, dated December 18, 2003**
|
|
10-Q
|
|
001-16633
|
|
2/2/2004
|
10.24
|
|
Drug Discovery Collaboration Agreement between registrant and Genentech, Inc., dated December 22, 2003**
|
|
10-Q
|
|
001-16633
|
|
2/2/2004
|
10.25
|
|
Second Amendment, dated October 1, 2005, to the Drug Discovery Collaboration Agreement between registrant and Genentech, Inc.**
|
|
10-Q
|
|
001-16633
|
|
2/6/2006
|
10.26
|
|
Letter Agreement dated, July 30, 2009, between the registrant and Genentech, Inc.**
|
|
10-Q
|
|
001-16633
|
|
11/2/2009
|
10.27
|
|
Sixth Amendment to Drug Discovery Collaboration Agreement, dated as of September 30, 2010, between the registrant and Genentech, Inc.
|
|
10-Q
|
|
001-16633
|
|
11/9/2010
|
10.28
|
|
Seventh Amendment to Drug Discovery Collaboration Agreement, dated as of February 10, 2015, between the registrant and Genentech, Inc.**
|
|
10-Q
|
|
001-16633
|
|
5/7/2015
|
10.29
|
|
License Agreement, dated August 5, 2011, between the registrant and Genentech, Inc.**
|
|
10-Q
|
|
001-16633
|
|
11/2/2011
|
10.30
|
|
Drug Discovery Collaboration Agreement 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-K
|
|
001-16633
|
|
9/13/2005
|
10.31
|
|
Amendment No. 6, dated February 3, 2006, to the Drug Discovery Collaboration Agreement between registrant and InterMune, Inc., dated September 13, 2002**
|
|
10-K
|
|
001-16633
|
|
9/1/2006
|
10.32
|
|
Amendment No. 7, dated June 28, 2006, to the Drug Discovery Collaboration Agreement between registrant and InterMune, Inc., dated September 13, 2002**
|
|
10-K
|
|
001-16633
|
|
9/1/2006
|
10.33
|
|
Exercise of Option to Extend Funding of Research FTEs, dated August 31, 2006, to the Drug Discovery Collaboration Agreement between registrant and InterMune, Inc., dated September 13, 2002
|
|
10-Q
|
|
001-16633
|
|
11/6/2006
|
10.34
|
|
Drug Discovery Agreement between registrant and Ono Pharmaceutical Co., Ltd., dated November 1, 2005**
|
|
10-Q
|
|
001-16633
|
|
2/6/2006
|
10.35
|
|
Loan and Security agreement, dated June 28, 2005, by and between registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
9/13/2005
|
10.36
|
|
First Amendment to Loan and Security agreement, dated December 19, 2005, by and between registrant and Comerica Bank
|
|
10-Q
|
|
001-16633
|
|
2/6/2006
|
10.37
|
|
Second Amendment to Loan and Security Agreement, dated July 7, 2006, between the registrant and Comerica Bank
|
|
10-Q
|
|
001-16633
|
|
11/6/2006
|
10.38
|
|
Third Amendment to Loan and Security Agreement, dated June 12, 2008, between the registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
8/12/2010
|
10.39
|
|
Fourth Amendment to Loan and Security Agreement, dated March 11, 2009, between the registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
8/12/2010
|
10.40
|
|
Fifth Amendment to Loan and Security Agreement, dated September 30, 2009, between the registrant and Comerica Bank
|
|
8-K
|
|
001-16633
|
|
10/5/2009
|
10.41
|
|
Sixth Amendment to Loan and Security Agreement, dated March 31, 2010, between the registrant and Comerica Bank
|
|
8-K
|
|
001-16633
|
|
4/6/2010
|
10.42
|
|
Seventh Amendment to Loan and Security Agreement, dated June 11, 2011, between the registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
8/12/2011
|
10.43
|
|
Eighth Amendment to Loan and Security Agreement, dated December 28, 2012, between the registrant and Comerica Bank
|
|
10-Q
|
|
001-16633
|
|
2/6/2013
|
10.44
|
|
Ninth Amendment to Loan and Security Agreement dated June 4, 2013, by and between the registrant and Comerica Bank
|
|
8-K
|
|
001-16633
|
|
6/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit Number
|
|
Description of Exhibit
|
|
Form
|
|
File No.
|
|
Date Filed
|
10.45
|
|
Tenth Amendment to Loan and Security Agreement, dated December 31, 2013, between the registrant and Comerica Bank
|
|
10-Q
|
|
001-16633
|
|
2/5/14
|
10.46
|
|
Eleventh Amendment to Loan and Security Agreement, dated August 3, 2015, between the registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
8/21/2015
|
10.47
|
|
Twelve Amendment to Loan and Security Agreement, dated November 4, 2015, between the registrant and Comerica Bank
|
|
10-Q
|
|
001-16633
|
|
11/5/2015
|
10.48
|
|
Facilities Lease and Assignment, dated July 7, 2006, between the registrant and BMR-3200 Walnut Street LLC
|
|
10-Q
|
|
001-16633
|
|
11/6/2006
|
10.49
|
|
Description of Performance Bonus Program*
|
|
8-K
|
|
001-16633
|
|
8/3/2016
|
10.50
|
|
Collaboration and License Agreement, dated July 12, 2011, between the registrant and ASLAN Pharmaceuticals**
|
|
10-Q
|
|
001-16633
|
|
11/2/2011
|
10.51
|
|
Sales Agreement, dated March 27, 2013, by and between registrant and Cantor Fitzgerald & Co.
|
|
8-K
|
|
001-16633
|
|
3/27/2013
|
10.52
|
|
Amendment No. 1 to Sales Agreement, dated August 15, 2014, by and between registrant and Cantor Fitzgerald & Co.
|
|
POS-AM
|
|
333-189048
|
|
8/18/2014
|
10.53
|
|
Amendment No. 2 to Sales Agreement, dated August 3, 2015, by and between registrant and Cantor Fitzgerald & Co.
|
|
S-3ASR
|
|
333-206525
|
|
8/21/2016
|
10.54
|
|
Amendment No. 3 to Sales Agreement, dated November 4, 2015, by and between registrant and Cantor Fitzgerald & Co.
|
|
10-Q
|
|
001-16633
|
|
11/5/2015
|
10.55
|
|
Drug Discovery and Collaboration Agreement, dated July 3, 2013, between registrant and Loxo Oncology, Inc.**
|
|
10-K
|
|
001-16633
|
|
8/12/2013
|
10.56
|
|
Amendment No. 1 to Drug Discovery Collaboration Agreement, dated November 26, 2013, by and between registrant and Loxo Oncology, Inc.**
|
|
10-K
|
|
001-16633
|
|
8/15/2014
|
10.57
|
|
Amendment No. 2 to Drug Discovery Collaboration Agreement, dated April 10, 2014, by and between registrant and Loxo Oncology, Inc.**
|
|
10-K
|
|
001-16633
|
|
8/15/2014
|
10.58
|
|
Amendment No. 3 to Drug Discovery Collaboration Agreement, dated October 13, 2014, between registrant and Loxo Oncology, Inc.**
|
|
10-Q
|
|
001-16633
|
|
2/4/2015
|
10.59
|
|
Amendment No. 4 to Drug Discovery Collaboration Agreement, dated March 31, 2015, by and between registrant and Loxo Oncology, Inc.***
|
|
10-K
|
|
001-16633
|
|
8/21/2015
|
10.60
|
|
Drug Discovery and Development Option and License Agreement, dated July 17, 2013, between the registrant and Celgene Corporation and Celgene Alpine Investment Co., LLC**
|
|
10-Q
|
|
001-16633
|
|
11/1/2013
|
10.61
|
|
License Agreement, dated December 11, 2014, between registrant and Oncothyreon, Inc.**
|
|
10-Q
|
|
001-16633
|
|
2/4/2015
|
10.62
|
|
Termination and Asset Transfer Agreement, dated November 26, 2014, between registrant and Novartis Pharmaceutical International Ltd. and Novartis Pharma AG**
|
|
10-Q
|
|
001-16633
|
|
2/4/2015
|
10.63
|
|
First Amendment to Termination and Asset Transfer Agreement, dated January 19, 2015, between registrant, Novartis Pharma AG and Novartis Pharmaceutical International Ltd.**
|
|
10-Q
|
|
001-16633
|
|
5/7/2015
|
10.64
|
|
LGX818 Asset Transfer Agreement, dated January 19, 2015, between registrant and Novartis Pharma AG**
|
|
10-Q
|
|
001-16633
|
|
5/7/2015
|
10.65
|
|
Transition Agreement, dated March 2, 2015, between the registrant and Novartis Pharma AG (binimetinib)**
|
|
10-Q
|
|
001-16633
|
|
5/7/2015
|
10.66
|
|
Transition Agreement, dated March 2, 2015, between the registrant and Novartis Pharma AG (encorafenib)**
|
|
10-Q
|
|
001-16633
|
|
5/7/2015
|
10.67
|
|
Asset Purchase Agreement, dated June 1, 2015, by and between registrant and Accuratus Lab Services, Inc.**
|
|
10-K
|
|
001-16633
|
|
8/21/2015
|
10.68
|
|
First Amendment to and Partial Termination of Lease, dated June 1, 2015, between the registrant and BMR-3200 Walnut Street LLC
|
|
10-K
|
|
001-16633
|
|
8/21/2015
|
10.69
|
|
Amended and Restated Development and Commercialization Agreement, dated December 2, 2015, between the registrant and Pierre Fabre Medicament SAS**
|
|
10-Q/A
|
|
001-16633
|
|
6/8/2016
|
10.70
|
|
Thirteenth Amendment to Loan and Security Agreement, dated June 29, 2016, between the registrant and Comerica Bank
|
|
10-K
|
|
001-16633
|
|
8/9/2016
|
10.71
|
|
Fourteenth Amendment to Loan and Security Agreement, dated September 2, 2016, between the registrant and Comerica Bank
|
|
8-K
|
|
001-16633
|
|
9/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit Number
|
|
Description of Exhibit
|
|
Form
|
|
File No.
|
|
Date Filed
|
10.72
|
|
Employment Agreement, dated July 28, 2016, between registrant and Jason Haddock*
|
|
10-K
|
|
001-16633
|
|
8/9/2016
|
10.73
|
|
Noncompete Agreement, dated July 28, 2016, between registrant and Jason Haddock*
|
|
10-K
|
|
001-16633
|
|
8/9/2016
|
10.74
|
|
Confidentiality and Inventions Agreement, dated July 28, 2016, between registrant and Jason Haddock*
|
|
10-K
|
|
001-16633
|
|
8/9/2016
|
10.75
|
|
Loan and Security Agreement dated December 22, 2016 between the registrant and Silicon Valley Bank
|
|
8-K
|
|
001-16633
|
|
12/23/2016
|
10.76
|
|
Subordinated Convertible Promissory Note dated September 2, 2016 between the registrant and Redmile Biopharma Investments I, L.P.
|
|
8-K
|
|
001-16633
|
|
9/2/2016
|
10.77
|
|
Subordinated Convertible Promissory Notes dated September 2, 2016 between the registrant and Redmile Capital Offshore Fund II, Ltd.
|
|
8-K
|
|
001-16633
|
|
9/2/2016
|
10.78
|
|
Note Purchase Agreement dated September 2, 2016 between the registrant and Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd.
|
|
8-K
|
|
001-16633
|
|
9/2/2016
|
10.79
|
|
First Amendment to Subordinated Convertible Promissory Notes dated August 7, 2017 between the registrant and Redmile Biopharma Investments I, L.P. and Redmile Capital Offshore Fund II, Ltd.
|
|
8-K
|
|
001-16633
|
|
8/9/2017
|
10.80
|
|
License, Development and Commercialization Agreement, dated May 31, 2017, between the registrant and Ono Pharmaceutical Co., Ltd**
|
|
|
|
Filed herewith
|
|
|
10.81
|
|
Clinical Trial Collaboration and Supply Agreement, dated May 4, 2017, between the registrant and Merck Sharp & Dohme B.V.**
|
|
|
|
Filed herewith
|
|
|
10.82
|
|
Second Amendment to Lease, dated April X, 2017, between the registrant and BMR-3200 Walnut Street LLC
|
|
|
|
Filed herewith
|
|
|
23.1
|
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm
|
|
|
|
Filed herewith
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
|
|
|
|
Filed herewith
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
|
|
|
|
Filed herewith
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
Furnished
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
Filed herewith
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
Filed herewith
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
Filed herewith
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
Filed herewith
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
Filed herewith
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
* Management contract or compensatory plan.
** Confidential treatment of redacted portions of this exhibit has been granted.
Array Technologies (NASDAQ:ARRY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Array Technologies (NASDAQ:ARRY)
Historical Stock Chart
From Apr 2023 to Apr 2024