Notes to the Unaudited Condensed Financial Statements
NOTE 1 – OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Array BioPharma Inc. (also referred to as "Array," 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 drugs to treat patients afflicted with cancer.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting and, as permitted under those rules, do not include all of the disclosures required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. The unaudited condensed financial statements reflect all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the Company's financial position, results of operations and cash flows for the interim periods presented. Operating results for an interim period are not necessarily indicative of the results that may be expected for a full year. The Company's management performed an evaluation of its activities through the date of filing of this Quarterly Report on Form 10-Q and concluded that there are no subsequent events.
These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and the notes thereto for the
fiscal year ended June 30, 2015
, included in its Annual Report on Form 10-K filed with the SEC, from which the Company derived its balance sheet data as of
June 30, 2015
.
The Company operates in
one
reportable segment and, accordingly, no segment disclosures have been presented herein. All of the Company's equipment, leasehold improvements and other fixed assets are physically located within the U.S., and the vast majority of its agreements with its partners are denominated in U.S. dollars.
Recent Developments
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 up to
$64.0 million
in additional development and commercialization milestone payments, including up to double-digit royalties on future sales. The Company will retain full commercialization rights for all compounds in all indications in territories outside of Asia and within Asia retains full rights to cancer indications for all compounds excluding those being developed by Asahi Kasei Pharma.
On April 1, 2016, the Company announced its decision to discontinue the MILO study, a Phase 3 trial of binimetinib for the treatment of patients with low-grade serous ovarian cancer. The decision to stop the study was made after a planned interim analysis showed that the Hazard Ratio for Progression Free Survival (PFS) crossed the predefined futility boundary.
Reclassifications
Certain prior period amounts in the Company's unaudited condensed financial statements have been reclassified to conform to the current period presentation. The
$39.4 million
balance attributable to outstanding warrants, which was presented historically as a separate item in stockholders' equity (deficit) on the Company's balance sheet, has been combined with additional paid-in capital for all periods presented in these unaudited condensed 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 its financial statements are most significantly impacted by the following accounting estimates and judgments: (i) identifying deliverables under collaboration and license 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; and (v) estimating the collectible portion of recorded accounts receivable.
Liquidity
With the exception of the prior fiscal year, the Company has incurred operating losses and an accumulated deficit as a result of ongoing research and development spending since inception. As of
March 31, 2016
, the Company had an accumulated deficit of approximately
$776.4 million
and it had net losses of approximately
$(22.7) million
and
$(67.8) million
for the three and
nine months ended March 31, 2016
, respectively.
The Company had net income of approximately
$58.3 million
and
$22.1 million
for the three and
nine months ended March 31, 2015
,
respectively.
In the third quarter of fiscal 2015, in connection with the closing of the asset transfer agreements with Novartis Pharma AG and Novartis International Pharmaceutical Ltd. (collectively "Novartis") relating to binimetinib and encorafenib, as discussed below under Note 3 - Collaboration and Other Agreements (the "Novartis Agreements"), the Company received an
$85.0 million
up-front cash payment and
$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
. Also during the third quarter of fiscal 2015, the Company entered into a third party agreement to complete the Novartis transactions for a net consideration payment of
$25.0 million
.
On November 10, 2015, the Company entered into a Development and Commercialization Agreement with Pierre Fabre Medicament SAS, (“Pierre Fabre” or "PFM"), which the Company and Pierre Fabre amended and restated as of December 3, 2015 to make certain minor changes required by the European Commission on Competition (as amended and restated, the "PF Agreement"). Under the PF Agreement, 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. 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.
In December 2015, the Company closed the PF Agreement following approval of the agreement by the European Commission on Competition. In connection with the closing, the Company recorded a
$30.0 million
receivable from PFM and
$30.0 million
in deferred revenue related to a non-refundable, upfront license payment, which the Company received in January 2016. The Company is also entitled to receive up to
$415.0 million
in milestone payments from PFM if certain regulatory and sales goals are achieved, and royalties on combined annual net sales. Array and Pierre Fabre have agreed to split future development costs on a
60
:
40
basis (Array:Pierre Fabre) with initial funding committed for new clinical trials in colorectal cancer and melanoma. All ongoing binimetinib and encorafenib clinical trials remain substantially funded through completion by Novartis. Unless terminated early (for breach, bankruptcy of one of the parties, or safety reasons), the PF Agreement continues as long as PFM continues to develop and commercialize the products, and PFM can terminate the PF Agreement on a region by region basis with 6 months’ notice except for the European Economic Area market. The PF Agreement also provides for customary indemnifications.
The Company has historically funded its operations from up-front fees, proceeds from research and development reimbursement arrangements, and license and milestone payments received under its drug collaborations and license agreements, the sale of equity securities, and debt provided by convertible debt and other credit facilities. The Company believes that its cash, cash equivalents, marketable securities and accounts receivable as of
March 31, 2016
will enable it to continue to fund operations in the normal course of business for at least the next 12 months. 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 it 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, and through licensing select programs or partial economic rights that include up-front, royalty and/or milestone payments.
The Company's ability to successfully raise sufficient funds through the sale of debt or equity securities or from debt financing from lenders when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances would result in dilution to its existing stockholders. The Company also may not successfully consummate new collaboration and license agreements that provide for up-front fees or milestone payments, or the Company may not earn milestone payments under such agreements when anticipated, or at all. The Company's ability to realize milestone or royalty payments under existing agreements and to enter into new arrangements that generate additional revenue through up-front fees and milestone or royalty payments is subject to a number of risks, many of which are beyond the Company's control.
The Company's assessment of its future need for funding and its ability to continue to fund its operations is a forward-looking statement that is based on assumptions that may prove to be wrong and that involve substantial risks and uncertainties.
If the Company is unable to generate enough revenue from its existing or new collaboration and license agreements when needed or to secure additional sources of funding and receive related full and timely collections of amounts due, it may be necessary to significantly reduce the 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 its wholly-owned programs. Insufficient liquidity may also require the Company to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to the Company and its stockholders than the Company would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent the Company from successfully executing its operating plan and, in the future, could raise substantial doubt about its ability to continue as a going concern. Further, as discussed in Note 4 – Long-term Debt, if at any time the Company's balance of total cash, cash equivalents and marketable securities at Comerica Bank
and approved outside accounts falls below
$22.0 million
, the Company must maintain a balance of cash, cash equivalents and marketable securities at Comerica at least equivalent to the entire outstanding debt balance with Comerica, which is currently
$14.6 million
. The Company must also maintain a monthly liquidity ratio for the revolving line of credit with Comerica.
Summary of Significant Accounting Policies
The Company's other significant accounting policies are described in Note 1 to its audited financial statements for the
fiscal year ended June 30, 2015
, included in its Annual Report on Form 10-K filed with the SEC.
Revenue Recognition - Reimbursement Revenue
The Company records as reimbursement revenue amounts received for reimbursement of costs it incurs from its license partners where Array acts as a principal, controls the research and development activities, bears credit risk and may perform part of the services required in the transactions, consistent with Accounting Standards Codification ("ASC") 605-45-15. Novartis currently provides financial support to Array in the form of reimbursement for all associated out-of-pocket costs and for one-half or more of Array’s fully-burdened full-time equivalent ("FTE") costs based on an agreed-upon FTE rate for all clinical trials involving binimetinib and encorafenib, as further discussed in Note 3 - Collaboration and Other Agreements. The gross amount of these pass-through reimbursed costs are reported as reimbursement revenue in the accompanying condensed statements of operations and comprehensive income (loss) in accordance with ASC 605-45-15. The actual expenses for which the Company is reimbursed are reflected as research and development for proprietary programs.
Revenue Recognition - PFM Upfront License Payment
As discussed above, 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 will retain its ownership rights. 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 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. The Company determined that the PF Agreement does not have stand-alone value apart from these ongoing collaboration and cost-sharing activities. 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
10 years
, the period during which management expects that substantial development activities will be performed. Revenue recognized under this agreement was
$750 thousand
for the quarter ended
March 31, 2016
; at
March 31, 2016
deferred revenue associated with this agreement was approximately
$29.1 million
.
Revenue Recognition – AKP Upfront License Payment
As discussed above, on March 31, 2016, the Company entered into a Collaboration and License Agreement with 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 three deliverables: (1) the license rights, (2) services related to obtaining enhanced intellectual property rights through the issuance of a particular patent and (3) clinical development services. As of March 31, 2016, the earnings process related to any of these deliverables was not complete.
The initial non-refundable
$12.0 million
license fee will be allocated to each of the three deliverables based upon their relative selling prices using best estimates and will be recognized as revenue when earned under the applicable revenue recognition guidance. The analysis of the best estimate of the selling price of the deliverables was based on the income approach, and took into account the Company’s negotiations with AKP and management’s estimates and assumptions of how a market participant would use the license, estimated market opportunity and market share, what contract research organizations would charge for clinical development services, the costs of clinical trial materials and other factors. Also considered were entity specific assumptions regarding the results of clinical trials and the likelihood of FDA approval of the licensed pre-clinical candidate. As of March 31, 2016, the Company recorded deferred revenue associated with the AKP agreement of
$12.0 million
.
Concentration of Business Risks
The following counterparties contributed greater than
10%
of the Company's total revenue during at least one of the periods set forth below. The revenue from these counterparties as a percentage of total revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Novartis
|
87.9
|
%
|
|
24.8
|
%
|
|
80.9
|
%
|
|
4.1
|
%
|
Loxo
|
6.2
|
|
|
31.9
|
|
|
9.9
|
|
|
16.2
|
|
Biogen Idec
|
—
|
|
|
17.5
|
|
|
3.0
|
|
|
8.8
|
|
Celgene
|
1.8
|
|
|
10.9
|
|
|
2.3
|
|
|
8.6
|
|
Oncothyreon
|
0.1
|
|
|
4.1
|
|
|
0.1
|
|
|
55.2
|
|
|
96.0
|
%
|
|
89.2
|
%
|
|
96.2
|
%
|
|
92.9
|
%
|
The loss of one or more of the Company's significant partners or collaborators could have a material adverse effect on its business, operating results or financial condition. Although the Company is impacted by economic conditions in the biotechnology and pharmaceutical sectors, management does not believe significant credit risk exists as of
March 31, 2016
.
Geographic Information
The following table details revenue by geographic area based on the country in which the Company's counterparties are located (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
North America
|
$
|
4,432
|
|
|
$
|
4,937
|
|
|
$
|
17,158
|
|
|
$
|
37,810
|
|
Europe
|
38,615
|
|
|
1,664
|
|
|
77,516
|
|
|
1,710
|
|
Asia Pacific
|
—
|
|
|
—
|
|
|
—
|
|
|
69
|
|
Total revenue
|
$
|
43,047
|
|
|
$
|
6,601
|
|
|
$
|
94,674
|
|
|
$
|
39,589
|
|
Accounts Receivable
Novartis and Asahi Kasei accounted for
80%
, and
19%
, respectively, of the Company's total accounts receivable balance as of
March 31, 2016
. Novartis accounted for approximately
95%
of the Company's total accounts receivable balance as of
June 30, 2015
.
Adoption of Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-15,
Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU No. 2015-03,
Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs
. In particular, ASU No. 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted ASU No. 2015-15 during the first quarter of fiscal 2016, and its adoption did not have a material impact on its condensed financial statements.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, an updated standard on revenue recognition. ASU No. 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU No. 2014-09, which will be effective for Array in the first quarter of fiscal year 2019 and may be applied on a full retrospective or modified retrospective approach. The Company is evaluating the impact of implementation and transition approach of this standard on its financial statements.
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 is currently evaluating the impact of adopting ASU No. 2014-15 and its related disclosures.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. ASU No. 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2015-17 will have on its balance sheet and financial statement 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. When adopted, the Company is currently evaluating the impact this guidance will have on its financial statements.
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 assessing the impact of ASU No. 2016-08 on its condensed consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact the adoption of ASU No. 2016-09 will have on its financial statements.
NOTE 2 – MARKETABLE SECURITIES
Marketable securities consisted of the following as of
March 31, 2016
and
June 30, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term available-for-sale securities:
|
|
|
|
|
|
|
|
U.S. treasury securities
|
$
|
55,165
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
55,179
|
|
Mutual fund securities
|
219
|
|
|
—
|
|
|
—
|
|
|
219
|
|
|
55,384
|
|
|
14
|
|
|
—
|
|
|
55,398
|
|
Long-term available-for-sale securities:
|
|
|
|
|
|
|
|
Mutual fund securities
|
540
|
|
|
—
|
|
|
—
|
|
|
540
|
|
|
540
|
|
|
—
|
|
|
—
|
|
|
540
|
|
Total
|
$
|
55,924
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
55,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term available-for-sale securities:
|
|
|
|
|
|
|
|
U.S. treasury securities
|
$
|
122,199
|
|
|
$
|
8
|
|
|
$
|
(3
|
)
|
|
$
|
122,204
|
|
Mutual fund securities
|
431
|
|
|
—
|
|
|
—
|
|
|
431
|
|
|
122,630
|
|
|
8
|
|
|
(3
|
)
|
|
122,635
|
|
Long-term available-for-sale securities:
|
|
|
|
|
|
|
|
Mutual fund securities
|
496
|
|
|
—
|
|
|
—
|
|
|
496
|
|
|
496
|
|
|
—
|
|
|
—
|
|
|
496
|
|
Total
|
$
|
123,126
|
|
|
$
|
8
|
|
|
$
|
(3
|
)
|
|
$
|
123,131
|
|
The majority of the mutual fund securities shown in the above tables are securities held under the Array BioPharma Inc. Deferred Compensation Plan.
The estimated fair value of the Company's marketable securities, all of which are classified as Level 1 (quoted prices are available), was
$55.9 million
and
$123.1 million
as of
March 31, 2016
and
June 30, 2015
, respectively. The estimated fair value of the Company's marketable securities is determined using quoted prices in active markets for identical assets based on the closing price as of the balance sheet date.
As of
March 31, 2016
, 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
|
$
|
55,165
|
|
|
$
|
55,179
|
|
Total
|
$
|
55,165
|
|
|
$
|
55,179
|
|
NOTE 3 – COLLABORATION AND OTHER AGREEMENTS
The following table summarizes total revenue recognized for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Reimbursement revenue
|
|
|
|
|
|
|
|
|
Novartis (1)
|
|
$
|
36,941
|
|
|
$
|
1,340
|
|
|
$
|
73,912
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
|
Collaboration and other revenue
|
|
|
|
|
|
|
|
Loxo
|
|
2,568
|
|
|
2,105
|
|
|
8,287
|
|
|
6,408
|
|
Biogen Idec
|
|
—
|
|
|
1,153
|
|
|
2,816
|
|
|
3,468
|
|
Novartis (2)
|
|
900
|
|
|
300
|
|
|
2,700
|
|
|
300
|
|
Celgene
|
|
782
|
|
|
721
|
|
|
2,224
|
|
|
3,411
|
|
Mirati
|
|
900
|
|
|
—
|
|
|
2,474
|
|
|
—
|
|
Oncothyreon
|
|
63
|
|
|
273
|
|
|
107
|
|
|
1,840
|
|
Other partners
|
|
36
|
|
|
610
|
|
|
192
|
|
|
2,455
|
|
Total collaboration and other revenue
|
5,249
|
|
|
5,162
|
|
|
18,800
|
|
|
17,882
|
|
|
|
|
|
|
|
|
|
|
License and milestone revenue
|
|
|
|
|
|
|
|
|
Oncothyreon
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
Loxo
|
|
107
|
|
|
—
|
|
|
1,107
|
|
|
—
|
|
Pierre Fabre
|
|
750
|
|
|
—
|
|
|
855
|
|
|
—
|
|
Genentech
|
|
—
|
|
|
99
|
|
|
—
|
|
|
367
|
|
Total license and milestone revenue
|
|
857
|
|
|
99
|
|
|
1,962
|
|
|
20,367
|
|
Total revenue
|
|
$
|
43,047
|
|
|
$
|
6,601
|
|
|
$
|
94,674
|
|
|
$
|
39,589
|
|
|
|
|
|
|
|
|
|
|
(1) Consists of reimbursable expenses incurred and accrued as reimbursement revenue that are receivable under the Novartis Agreements (see discussion below).
|
|
(2)
|
Represents the recognition of revenue that was deferred from the consideration received in March 2015 upon the effective date of the Binimetinib Agreement (see discussion below).
|
Deferred revenue balances were as follows for the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
2016
|
|
2015
|
Pierre Fabre
|
$
|
29,145
|
|
|
$
|
—
|
|
Asahi Kasei
|
12,000
|
|
|
—
|
|
Novartis
|
2,700
|
|
|
5,400
|
|
Loxo
|
1,599
|
|
|
921
|
|
Celgene
|
902
|
|
|
3,126
|
|
Biogen Idec
|
—
|
|
|
1,125
|
|
Mirati
|
—
|
|
|
400
|
|
Other partners
|
4
|
|
|
14
|
|
Total deferred revenue
|
46,350
|
|
|
10,986
|
|
Less: Current portion
|
(10,991
|
)
|
|
(8,946
|
)
|
Deferred revenue, long-term portion
|
$
|
35,359
|
|
|
$
|
2,040
|
|
Binimetinib and Encorafenib Agreements
On March 2, 2015 (the "Effective Date"), Array regained all development and commercialization rights to binimetinib, which Array had previously licensed to Novartis, on the closing of the transactions contemplated by the Termination and Asset Transfer Agreement with Novartis (as amended on January 19, 2015, the “Binimetinib Agreement”). On the Effective Date, Array also obtained all development and commercialization rights to encorafenib (LGX-818) under the Asset Transfer Agreement with Novartis dated January 19, 2015 (the "Encorafenib Agreement" and collectively with the Binimetinib Agreement, the "Novartis Agreements").
During the third quarter of fiscal 2015, the Company received an
$85.0 million
up-front cash payment and
$5.0 million
for the reimbursement of certain transaction costs, extinguished net co-development liabilities of
$21.6 million
related to the Company's previous License Agreement with Novartis for binimetinib dated April 19, 2010, and recorded deferred revenue of
$6.6 million
.
Novartis is continuing to conduct all ongoing clinical trials involving binimetinib and encorafenib as they had been conducted prior to the Effective Date and will continue to do so until specified transition dates. Pursuant to the Transition Agreements, Novartis will provide substantial financial support to Array in the form of reimbursement for all associated out-of-pocket costs and for one-half of Array’s FTE costs based on an agreed-upon FTE rate for all clinical trials involving binimetinib and encorafenib, including ongoing Array-conducted trials in existence at the Effective Date. Novartis will transition responsibility for the following Novartis-conducted trials at designated points for each trial and will provide continuing financial support to Array to complete these trials:
|
|
•
|
COLUMBUS trial: Novartis will be responsible for continued conduct of the ongoing Phase 3 BRAF melanoma clinical trial through completion of last patient first visit, but no later than June 30, 2016, before transitioning conduct of the trial to Array.
|
|
|
•
|
NEMO trial: Novartis will conduct the Phase 3 NRAS melanoma clinical trial through no later than June 30, 2016, before transitioning conduct of the trial to Array.
|
|
|
•
|
Other trials: Novartis conducts all other Novartis-sponsored trials, including a series of planned clinical pharmacology and pediatric trials, through December 31, 2015, and will transfer at other designated times all ongoing and planned investigator sponsored clinical trials.
|
The Novartis Agreements involve multiple elements. The Company therefore identified each item given and received and determined how each item should be recognized and classified. In the third quarter of fiscal 2015, the Company deferred
$6.6 million
of the consideration received from Novartis to reflect the estimated fair value of certain future obligations the Company is to perform under the Novartis Agreements, including completion of certain trials that are partially funded by Novartis. The amount deferred was determined using the estimated fair value of the services to be provided by the Company's full-time employees that the Company does not anticipate will be covered in the reimbursements it will receive from Novartis under the Transition Agreements. The estimated fair value was based on amounts the Company has billed to other third parties in other transactions for similar services. The Company is recording revenue over a deferral period of
22 months
, which is the estimated number of months the Company expects will be required to complete its performance with respect to the applicable clinical trials. The Company also records as reimbursement revenue and as an account receivable, expenses that it incurs that are reimbursable by Novartis under the Transition Agreements. The Company invoices Novartis for the full amount of reimbursable expenses
one month
after the expenses are recorded. See Note 3 -
Binimetinib and Encorafenib Agreements
to the Company's audited financial statements for the
fiscal year ended June 30, 2015
, included in the Company's Annual Report on Form 10-K filed with the SEC for more information on the terms and accounting of the transactions under these agreements.
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. 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, and all ongoing clinical trials involving binimetinib and encorafenib, including the NEMO and COLUMBUS trials and other ongoing Novartis sponsored and investigator sponsored clinical studies, will 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, and Pierre Fabre and Array have agreed to commit at least
€100 million
in combined funds for these studies in colorectal cancer and melanoma.
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.
Collaboration and License Agreements
The Company's collaboration and license agreements generally provide for up-front and/or milestone and license revenue and involve multiple elements. A description of the terms and accounting treatment for the Company's agreements with Biogen Idec MA Inc., Celgene Corporation and Celgene Alpine Investment Co., LLC, Genentech, Inc., Loxo Oncology, Inc. and Oncothyreon Inc., as well as its License Agreement with Novartis International Pharmaceutical Ltd. that terminated in March 2015, are set forth in Note 5 - Collaboration and License Agreements
to the Company's audited financial statements for the
fiscal year ended June 30, 2015
, included in its Annual Report on Form 10-K filed with the SEC. During the
nine months ended March 31, 2016
, our agreement with Biogen was terminated. Revenue recorded from the Biogen agreement was
$2.8 million
for the
nine months ended March 31, 2016
.
NOTE 4 – LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
2016
|
|
2015
|
Comerica term loan
|
$
|
14,550
|
|
|
$
|
14,550
|
|
Convertible senior notes
|
132,250
|
|
|
132,250
|
|
Long-term debt, gross
|
146,800
|
|
|
146,800
|
|
Less: Unamortized debt discount and fees
|
(34,801
|
)
|
|
(39,520
|
)
|
Long-term debt, net
|
$
|
111,999
|
|
|
$
|
107,280
|
|
Comerica Bank
The Company entered into a Loan and Security Agreement with Comerica Bank dated June 28, 2005, which has been subsequently amended and provides for a
$15.0 million
term loan and a revolving line of credit of
$2.8 million
. The term loan bears interest at a variable rate and the Company currently has
$14.6 million
outstanding under the term loan. The revolving line of credit was established to support standby letters of credit in relation to the Company's facilities leases.
Under the terms of the amended Loan and Security Agreement, the term loan will mature in October 2017 and, pursuant to a recent amendment, the revolving line of credit is set to mature in June 2016. The interest rate on the term loan equals the Prime Rate, if the balance of the Company's cash, cash equivalents and marketable securities maintained at Comerica is greater than or equal to
$10.0 million
, or equals the Prime Rate plus
2%
if this balance is less than
$10.0 million
. As of
March 31, 2016
, the term loan with Comerica had an interest rate of
3.5%
per annum. All principal is due at maturity and interest is paid monthly.
The Loan and Security Agreement requires the Company to maintain a balance of cash at Comerica that is at least equivalent to the Company's total outstanding obligation under the term loan if the Company's overall balance of cash, cash equivalents and marketable securities at Comerica and approved outside accounts is less than
$22.0 million
. The Company must also maintain a monthly liquidity ratio equal to at least
1.25
to 1.00 as of the last day of each month for the revolving line of credit calculated in accordance with the Loan and Security Agreement.
The Company's obligations under the amended Loan and Security Agreement are secured by a first priority security interest in all of the Company's assets, other than its intellectual property. The amended Loan and Security Agreement contains representations and warranties and affirmative and negative covenants that are customary for credit agreements of this type. The Company's ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends and make investments, are restricted by the Loan and Security Agreement as amended. The amended Loan and Security Agreement also contains events of default that are customary for credit agreements of this type, including payment defaults, covenant defaults, insolvency type defaults and events of default relating to liens, judgments, material misrepresentations and the occurrence of certain material adverse events.
The Company uses a discounted cash flow model to estimate the fair value of the Comerica term loan. The fair value was estimated at
$14.6 million
as of both
March 31, 2016
and
June 30, 2015
, and was classified using Level 2, observable inputs other than quoted prices in active markets.
3.00%
Convertible Senior Notes Due 2020
On June 10, 2013, through a registered underwritten public offering, the Company 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 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 the Company.
Prior to March 1, 2020, holders may convert the Notes only upon the occurrence of certain events described in a supplemental indenture the Company 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 the Company's option, shares of the Company's 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 the Company 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 the Company's common stock.
On or after June 4, 2017, the Company may redeem for cash all or part of the outstanding Notes if the last reported sale price of its 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 the Company provides 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 the Company 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, the Company 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. Equity issuance costs of
$1.6 million
were recorded as an offset to additional paid-in capital. Total debt issuance costs of
$2.7 million
were recorded on the issuance date, and are reflected in the Company's balance sheets for all periods presented on a consistent basis with the debt discount, or as a direct deduction from the carrying value of the associated debt liability. 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
$1.9 million
and
$2.1 million
as of
March 31, 2016
and
June 30, 2015
, respectively.
The fair value of the Notes was approximately
$104.2 million
and
$142.2 million
at
March 31, 2016
and
June 30, 2015
, 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 the Company's interest expense for all of its 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Comerica Term Loan
|
|
|
|
|
|
|
|
Simple interest
|
$
|
130
|
|
|
$
|
117
|
|
|
$
|
372
|
|
|
$
|
360
|
|
Amortization of fees paid for letters of credit
|
8
|
|
|
11
|
|
|
25
|
|
|
34
|
|
Total interest expense on the Comerica term loan
|
138
|
|
|
128
|
|
|
397
|
|
|
394
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes
|
|
|
|
|
|
|
|
Contractual interest
|
992
|
|
|
992
|
|
|
2,976
|
|
|
2,976
|
|
Amortization of debt discount
|
1,527
|
|
|
1,379
|
|
|
4,466
|
|
|
4,033
|
|
Amortization of debt issuance costs
|
86
|
|
|
78
|
|
|
253
|
|
|
228
|
|
Total interest expense on the convertible senior notes
|
2,605
|
|
|
2,449
|
|
|
7,695
|
|
|
7,237
|
|
Total interest expense
|
$
|
2,743
|
|
|
$
|
2,577
|
|
|
$
|
8,092
|
|
|
$
|
7,631
|
|
NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)
Controlled Equity Offering
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. There were net proceeds on sales of approximately
$2.9 million
at a weighted average price of
$5.32
and
$35.3 million
at a weighted average price of
$4.83
under the Sales Agreement during the
nine months ended March 31, 2016
and
2015
, respectively.
NOTE 6 – SHARE-BASED COMPENSATION
Share-based compensation expense for all equity awards issued pursuant to the Array BioPharma Amended and Restated Stock Option and Incentive Plan (the "Option and Incentive Plan") and for estimated shares to be issued under the Employee Stock Purchase Plan ("ESPP") for the current purchase period was approximately
$5.4 million
and
$5.1 million
for the
nine months ended
March 31, 2016
and
2015
, respectively.
The Company uses the Black-Scholes option pricing model to estimate the fair value of its share-based awards. In applying this model, the Company uses the following assumptions:
|
|
•
|
Risk-free interest rate - The Company determines 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 - The Company estimates the expected term of its options based upon historical exercises and post-vesting termination behavior.
|
|
|
•
|
Expected volatility - The Company estimates expected volatility using daily historical trading data of its common stock.
|
|
|
•
|
Dividend yield - The Company has never paid dividends and currently have no plans to do so; therefore, no dividend yield is applied.
|
Option Awards
The fair value of the Company's option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
Risk-free interest rate
|
1.38% - 1.83%
|
|
1.6% - 2.0%
|
Expected option term in years
|
5.5 - 6.25
|
|
6.25
|
Expected volatility
|
55.7% - 60.1%
|
|
63.2% - 67.1%
|
Dividend yield
|
0%
|
|
0%
|
Weighted average grant date fair value
|
$2.78
|
|
$2.56
|
The following table summarizes the Company's stock option activity under the Option and Incentive Plan for the
nine months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at June 30, 2015
|
10,750,863
|
|
|
$
|
5.30
|
|
|
|
|
|
Granted
|
1,043,936
|
|
|
$
|
5.05
|
|
|
|
|
|
Exercised
|
(406,448
|
)
|
|
$
|
3.44
|
|
|
|
|
|
Forfeited
|
(1,123,115
|
)
|
|
$
|
6.21
|
|
|
|
|
|
Expired or canceled
|
(714,750
|
)
|
|
$
|
5.82
|
|
|
|
|
|
Outstanding balance at March 31, 2016
|
9,550,486
|
|
|
$
|
5.21
|
|
|
6.8
|
|
$
|
108
|
|
Vested and expected to vest at March 31, 2016
|
8,391,491
|
|
|
$
|
5.11
|
|
|
6.6
|
|
$
|
102
|
|
Exercisable at March 31, 2016
|
4,474,281
|
|
|
$
|
4.67
|
|
|
5.0
|
|
$
|
94
|
|
The aggregate intrinsic value in the above table is calculated as the difference between the closing price of the Company's common stock at
March 31, 2016
, of
$2.95
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 was
$704 thousand
during the
nine months ended
March 31, 2016
. The total intrinsic value of all options exercised during the
nine months ended
March 31, 2015
was immaterial.
As of
March 31, 2016
, there was approximately
$8.3 million
of total unrecognized compensation expense, including estimated forfeitures, related to the unvested stock options shown in the table above, which is expected to be recognized over a weighted average period of
2.6 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. The Company's 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. Vested RSUs will be settled in shares of common stock 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 the Company intends 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, and the grant date fair value is amortized over the applicable vesting period.
A summary of the status of the Company's unvested RSUs as of
March 31, 2016
and changes during the
nine months ended
March 31, 2016
, is presented below:
|
|
|
|
|
|
|
|
|
Number of RSUs
|
|
Weighted
Average
Grant Date Fair Value
|
Unvested at June 30, 2015
|
678,247
|
|
|
$
|
5.35
|
|
Granted
|
42,007
|
|
|
$
|
5.43
|
|
Vested
|
(95,891
|
)
|
|
$
|
3.65
|
|
Forfeited
|
(15,059
|
)
|
|
$
|
7.30
|
|
Unvested at March 31, 2016
|
609,304
|
|
|
$
|
5.58
|
|
As of
March 31, 2016
, there was
$1.4 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
2.4 years
. The fair market value on the grant date for RSUs that vested during the
nine months ended
March 31, 2016
and 2015 was
$497 thousand
and
$1.8 million
, respectively. RSUs granted during the
nine months ended
March 31, 2016
and
2015
had a value of
$228 thousand
and
$2.8 million
, respectively, as of the grant date.
Employee Stock Purchase Plan
An aggregate of
5,250,000
shares of the Company's common stock are reserved for issuance under the ESPP. The ESPP allows qualified employees (as defined in the ESPP) to purchase shares of the Company's 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
March 31, 2016
, the Company had
586,104
shares available for issuance under the ESPP. The Company issued
265,179
and
240,366
shares under the ESPP during the nine months ended March 31, 2016 and
2015
,
respectively.
NOTE 7 - RELATED PARTY TRANSACTION
The Company is party to an agreement with Mirati Therapeutics, Inc. ("Mirati") whereby Array is conducting 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. In August 2015, Array and Mirati amended the agreement to expand the feasibility program activities for a
three
-month period. In September 2015, Mirati exercised an option to extend the feasibility program for
six months
, for which it has paid Array a
$750 thousand
option extension fee. If Mirati elects to exercise an option to take a license under the agreement, then Array would be eligible to receive payments upon the occurrence of specific development and sales milestone events and would be entitled to a royalty on the annual net sales of any products. Dr. Charles Baum, a current member of Array’s Board of Directors, is the President and Chief Executive Officer of Mirati.
NOTE 8 - NET EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share includes the determinants of basic net income 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 under our convertible notes, vested and unvested stock options and unvested RSUs, except where the effect of including them is anti-dilutive.
The following table summarizes the earnings (loss) per share calculation (in thousands, except per share amount):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net earnings (loss) - basic
|
$
|
(22,675
|
)
|
|
$
|
58,307
|
|
|
$
|
(67,826
|
)
|
|
$
|
22,103
|
|
Interest on convertible senior notes
|
—
|
|
|
2,449
|
|
|
—
|
|
|
—
|
|
Net earnings (loss) - basic and diluted
|
$
|
(22,675
|
)
|
|
$
|
60,756
|
|
|
$
|
(67,826
|
)
|
|
$
|
22,103
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
143,338
|
|
|
139,769
|
|
|
142,792
|
|
|
135,113
|
|
Convertible senior notes (1)
|
—
|
|
|
18,762
|
|
|
—
|
|
|
—
|
|
Warrants
|
—
|
|
|
5,392
|
|
|
—
|
|
|
2,538
|
|
Stock options
|
—
|
|
|
2,030
|
|
|
—
|
|
|
812
|
|
RSUs
|
—
|
|
|
312
|
|
|
—
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
143,338
|
|
|
166,265
|
|
|
142,792
|
|
|
138,573
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.16
|
)
|
|
$
|
0.42
|
|
|
$
|
(0.47
|
)
|
|
$
|
0.16
|
|
Diluted
|
$
|
(0.16
|
)
|
|
$
|
0.37
|
|
|
$
|
(0.47
|
)
|
|
$
|
0.16
|
|
(1) Relevant accounting guidance requires entities to disclose the dilutive effects of convertible instruments. Given the
$58.3 million
net earnings and the level of potentially dilutive securities for the three months ended March 31, 2015, the Company is required to include these convertible notes as dilutive securities during the three months ended March 31, 2015.
For the periods where the Company reported losses, all common stock equivalents are excluded from the computation of diluted earnings per share, since the result would be anti-dilutive. Common stock equivalents not included in the calculations of diluted earnings per share because to do so would have been anti-dilutive, include the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Convertible senior notes
|
18,762
|
|
|
—
|
|
|
18,762
|
|
|
18,762
|
|
Warrants
|
12,000
|
|
|
—
|
|
|
12,000
|
|
|
—
|
|
Stock options
|
9,550
|
|
|
1,050
|
|
|
9,550
|
|
|
5,699
|
|
RSUs
|
609
|
|
|
—
|
|
|
609
|
|
|
—
|
|
Total anti-dilutive common stock equivalents excluded from diluted loss per share calculation
|
40,921
|
|
|
1,050
|
|
|
40,921
|
|
|
24,461
|
|