West Coast Editor

Array BioPharma Inc.'s promised collaboration for this year came through, garnering $40 million up front from Celgene Corp. in a discovery deal that could be worth much more in cancer and inflammatory disease, but the terms failed to thrill investors, who might have hoped for an arrangement that would tap Array's pipeline.

Shares of Array (NASDAQ:ARRY) closed Monday at $11.85, down 70 cents. Celgene's shares (NASDAQ:CELG) ended the day at $72.20, up $1.57.

Calling the Celgene deal "one of the biggest, I think, discovery deals in the history of the drug industry," Robert Conway, CEO of Boulder, Colo.-based Array, cited "some confusion from some of the analysts" regarding the collaboration.

Andrew Fein, though, with Collins Stewart LLC, called the arrangement positive for Array, noting in a research report that it highlights the firm's strengths in discovery.

"We have long believed that Array's ability to design new compounds molecule by molecule to exhibit desired qualities and characteristics has set them apart from competitors," Fein wrote, adding that he's awaiting clarity on the targets.

"Basically, it's a four-target deal," Conway told an audience Monday, during the UBS Global Life Sciences conference in New York. "They get two draft choices out of the four targets, and we get the remaining programs. If you look at it from an Array standpoint, we have $40 million of nondilutive financing [and] we have a proven partner for late-stage development and commercialization."

Celgene could pay as much as $200 million per drug in potential pre-commercialization milestone payments, and up to $300 million in payments related to further success, plus royalties. Thus, if two drugs hit all milestones, the deal means as much as $1 billion to Array.

Conway stressed that Array keeps sole ownership of its entire development portfolio, except for a pair of MEK inhibitors for cancer that are the focus of a deal with London-based AstraZeneca plc, which is testing ARRY-886 in Phase II trials against melanoma and pancreatic, colorectal and non-small-cell lung tumors.

"Anything we've talked about publicly, Array owns 100 percent, except for the two MEK inhibitors," Conway said. But it was from that fully owned portfolio of cancer and inflammatory disease candidates that some investors could have expected big pharma to pluck a candidate. Array has six products at the Phase I stage, including a P38 inhibitor that is undergoing trials in both disease areas.

Conway offered further hope for such a deal. "There's tremendous pressure now on big pharma having to pay up for all phases of clinical assets to continue feeding those pipelines," he said. "The other half of this equation is, biotech has proven they can, in fact, commercialize drugs themselves." He pointed to new partner Celgene's Revlimid (lenalidomide, a derivative of Thalomid, the company's brand name for thalidomide).

The scenario means biotech can ask for much better deal terms, including rights to co-promote and co-develop. "The partner is putting in all the money, and you get a 50-50 say in how that's going to be spent, so it's a completely new day," Conway said. "Against that backdrop, you couldn't come up with a better positioned company than Array," which is creating investigational new drug applications at a cost of about $15 million each.

He cited "significant opportunities to partner, not only in the discovery area, which we did this morning, but also potentially in our development assets. Our deal now is to move those forward through proof of concept."

Meanwhile, Array is granting Summit, N.J.-based Celgene an option to select drugs developed in the effort that are directed to two of four mutually chosen discovery targets. Array will handle all work through Phase I or Phase IIa, after which Celgene can pick drugs resulting from up to two of the four programs, and gets exclusive rights to them, except for Array's limited co-promotional rights in the U.S.

Other than AstraZeneca, Array has ties with such firms as Takeda Chemical Industries Ltd., of Osaka, Japan, and Indianapolis-based Eli Lilly and Co., as well as Amgen Inc., Genentech Inc. and VentiRx Pharmaceuticals Inc.

Array, which raised $85 million in May, finished June 30 with $140 million in cash, and expects to burn between $15 million and $20 million this year.

Earlier this month, Celgene made a $20 million equity investment in PTC Therapeutics Inc., of South Plainfield, N.J., in exchange for exclusive development rights to orally bioavailable small molecules for a pair of oncology targets. PTC is granting Celgene access to Gene Expression Modulation by Small Molecules, a screening technology used to identify small molecules that modulate post-transcriptional control mechanisms. (See BioWorld Today, Sept. 14, 2007.)