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clinical hold, or temporarily or permanently stop the trial, for a variety of reasons, principally for safety
concerns. We or our collaborators may experience numerous unforeseen events during, or as a result of,
the clinical development process that could delay or prevent our drug candidates from being approved,
including:
failure to achieve clinical trial results that indicate a candidate is effective in treating a specified
condition or illness in humans;
presence of harmful side effects;
determination by the FDA that the submitted data do not satisfy the criteria for approval;
lack of commercial viability of the drug;
failure to acquire, on reasonable terms, intellectual property rights necessary for
commercialization; and
existence of therapeutics that are more effective.
We or our collaborators may choose not to commercialize a drug candidate at any time during
development, which would reduce or eliminate our potential return on investment for that drug.
At any time, we or our collaborators may decide to discontinue the development of a drug candidate or not
to commercialize a candidate. If we terminate a program in which we have invested significant resources,
we will not receive any return on our investment and we will have missed the opportunity to have allocated
those resources to potentially more productive uses. If one of our collaborators terminates a program, we
will not receive any future milestone payments or royalties relating to that program under our collaboration
agreement with that party. Even if one of our drug candidates receives regulatory approval for marketing,
physicians or consumers may not find that its effectiveness, ease of use, side effect profile, cost or other
factors make it effective in treating disease or more beneficial than or preferable to other drugs on the
market. Additionally, third-party payors, such as government health plans and health insurance plans or
maintenance organizations, may choose not to include our drugs on their formulary lists for
reimbursement. As a result, our drugs may not be used or may be used only for restricted applications.
Our capital requirements could significantly increase if we choose to develop more of our
proprietary programs internally.
We believe that the maximum value for certain proprietary drug candidates is best achieved by retaining
the rights to develop and commercialize the candidate and not seeking a partner or by waiting until later in
the development process to seek a partner to co-develop and commercialize or co-promote a product. It
is difficult to predict which of our proprietary programs are likely to yield higher returns if we elect to
develop them further before seeking a partner or to not seek a partner at all as a result of many factors,
including the competitive position of the product, our capital resources, the perceived value among
potential partners of the product and other factors outside of our control. Therefore, we may undertake
and fund, solely at our expense, further development, clinical trials, manufacturing and marketing
activities for a greater number of proprietary candidates than we planned which may not result in a greater
return to Array than if we had chosen to out-license those programs. In addition, we may choose not to
out-license certain of our proprietary programs if we are unable to do so on terms that are favorable to us.
As a result, our requirements for capital could increase significantly. We may be unable to raise additional
required capital to fund this additional development on favorable terms, or at all, however, or we may be
required to substantially reduce our development efforts, which would delay, limit or prevent our ability to
commercialize and realize revenue from our drug candidates.
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Because we rely on a small number of collaborators for a significant portion of our revenue, if one
or more of our major collaborators terminates or reduces the scope of its agreement with us, our
revenue may significantly decrease.
A relatively small number of collaborators account for a significant portion of our revenue. Amgen,
Genentech, Novartis and Celgene accounted for 34%, 41%, 16% and 7%, respectively, of our total
revenue for fiscal 2012; and 36%, 22%, 21% and 21%, respectively, of our total revenue for fiscal 2011.
We expect that revenue from a limited number of collaborators, including Amgen, Genentech, Novartis
and Celgene, will account for a large portion of our revenue in future quarters. In general, our
collaborators may terminate their contracts with us upon 60 to 180 days' notice for a number of reasons or
no reason. In addition, some of our major collaborators can determine the amount of products delivered
and research or development performed under these agreements. As a result, if any one of our major
collaborators cancels, declines to renew or reduces the scope of its contract with us, our revenue may
significantly decrease.
Our debt obligations could make us more vulnerable to competitive pressures or economic
downturns or have other adverse consequences to us.
A portion of our cash flow is dedicated to the payment of interest under our existing senior secured term
loan with Comerica Bank, and to the payment of principal and all or a portion of the interest on our credit
facilities with Deerfield. In addition, $14.7 million in principal outstanding under the senior secured term
loan with Comerica Bank becomes due and payable in October 2013, and $72.6 million in principal and
$20 million in principal under the Deerfield credit facilities becomes due and payable in 2015 and 2016,
respectively. We must also make prepayments on the Deerfield credit facilities in amounts equal to a
percentage of certain license and milestone payments we receive under collaboration agreements
entered into after January 1, 2011, which will reduce the cash available to us from those payments for use
in our operations.
In the future, if we are unable to generate cash from operations sufficient to meet these debt obligations,
we will need to obtain additional funds from other sources, which may include one or more financings or
the license or sale of certain of our assets, or we may be forced to curtail our operations. However, we
may be unable to obtain sufficient additional funds when we need them on favorable terms or at all. In
addition, if we are unable to obtain financing when needed, or to fund our operations from funds received
through collaboration agreements, our level of cash, cash equivalents and marketable securities may fall
below thresholds specified in our debt agreements, requiring us to pay interest at a higher interest rate.
Such higher interest rates could also result in a significant increase in the estimated fair value of the
embedded derivative liability, which would adversely impact our reported results of operations.
Our indebtedness could have additional negative consequences, including:
increasing our vulnerability to general adverse economic conditions;
limiting our ability to incur additional indebtedness and to undertake certain business transactions;
and
placing us at a possible competitive disadvantage to less leveraged competitors and competitors
that have better access to capital resources.
If an event of default occurs under our loan documents, including in certain circumstances under the
warrants issued in connection with the Deerfield credit facilities, the lenders may declare the outstanding
principal balance and accrued but unpaid interest owed to them immediately due and payable, which
would have a material adverse effect on our financial position. We may not have sufficient cash to satisfy
this obligation. Also, if a default occurs under our secured loan, and we are unable to repay the lenders,
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