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the lenders could seek to enforce their rights under their security interests in our assets. If this were to
happen, we may lose or be forced to sell some or all of our assets to satisfy our debt, which could cause
our business to fail.
Negative conditions in the financial markets could affect our ability to obtain financing for
development of our proprietary drug programs and other purposes on reasonable terms and have
other adverse effects on us and the market price of our common stock.
The U.S. stock and credit markets have been experiencing significant price volatility, dislocations and
liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the
spreads on prospective debt financings to widen considerably. These circumstances have materially
impacted liquidity in the financial markets, making terms for certain financings less attractive and in some
cases have resulted in the unavailability of financing. Continued uncertainty in the stock and credit
markets may negatively impact our ability to access additional financing for our research and
development activities and other purposes on reasonable terms, which may cause us to curtail or delay
our discovery and development efforts and harm our business. In June 2011 and January 2009, we
announced plans designed to conserve our existing capital and to allow us to obtain additional capital
outside the financial markets by accelerating partnering opportunities and focusing resources on
advancing the development of our most advanced clinical programs. As part of these efforts we also
reduced our workforce by approximately 70 and 40 employees, respectively. A prolonged downturn in the
financial markets, however, may cause us to seek alternative sources of potentially less attractive
financing and may require us to make further adjustments to our business plan. These events also may
make it more difficult or costly for us to raise capital through the issuance of equity or debt. The disruptions
in the financial markets may have a material adverse effect on the market value of our common stock and
other adverse effects on us and our business.
If our drug discovery and development programs do not progress as anticipated, our revenue and
stock price could be negatively impacted.
We estimate the timing of a variety of preclinical, clinical, regulatory and other milestones for planning
purposes, including when a drug candidate is expected to enter clinical trials, when a clinical trial will be
completed, when and if additional clinical trials will commence, or when an application for regulatory
approval will be filed. Some of our estimates are included in this report. We base our estimates on facts
that are currently known to us and on a variety of assumptions that may prove not to be correct for a
variety of reasons, many of which are beyond our control. For example, delays in the development of
drugs by Array or our collaborators may be caused by regulatory or patent issues, negative or
inconclusive interim or final results of on-going clinical trials, scheduling conflicts with participating clinics
and the availability of patients who meet the criteria for and the rate of patient enrollment in, clinical trials
and the development priorities of our collaborators. In addition, in preparing these estimates we rely on
the timeliness and accuracy of information and estimates reported or provided to us by our collaborators
concerning the timing, progress and results of clinical trials or other development activities they conduct
under our collaborations with them. If we or our collaborators do not achieve milestones when anticipated,
or if our collaborators choose to terminate a program, we may not achieve our planned revenue and our
stock price could decline. In addition, any delays in obtaining approvals to market and sell drugs may
result in the loss of competitive advantages in being on the market sooner than, or in advance of,
competing products, which may reduce the value of these products and the potential revenue we receive
from the eventual sale of these products, either directly or under agreements with our partners.
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We may not be able to recruit and retain the experienced scientists and management we need to
compete in the drug research and development industry.
We have 250 employees as of June 30, 2012 and our future success depends upon our ability to attract,
retain and motivate highly skilled scientists and management. Our ability to achieve our business
strategies, including progressing drug candidates through later stage development or commercialization,
attracting new collaborators and retaining, renewing and expanding existing collaborations, depends on
our ability to hire and retain high caliber scientists and other qualified experts, particularly in clinical
development and commercialization. We compete with pharmaceutical and biotechnology companies,
contract research companies and academic and research institutions to recruit personnel and face
significant competition for qualified personnel, particularly clinical development personnel. We may incur
greater costs than anticipated, or may not be successful, in attracting new scientists or management or in
retaining or motivating our existing personnel.
Our future success also depends on the personal efforts and abilities of the principal members of our
senior management and scientific staff to provide strategic direction, manage our operations and
maintain a cohesive and stable environment. In particular, we rely on the services of Ron Squarer, our
Chief Executive Officer; Dr. Kevin Koch, our President and Chief Scientific Officer; Dr. David L. Snitman,
our Chief Operating Officer and Vice President, Business Development; R. Michael Carruthers, our Chief
Financial Officer; and John R. Moore, our Vice President and General Counsel. We have employment
agreements with each of these employees that are terminable upon 30 days' prior notice.
Risks Related to Our Clinical Development Activities and Obtaining Regulatory Approval for
Our Programs
We have limited clinical development and commercialization experience.
One of our business strategies is to develop select drug candidates through later stage clinical trials
before out-licensing them to a pharmaceutical or biotechnology partner for further clinical development
and commercialization and to commercialize select drug candidates ourselves. We have not yet
conducted a Phase 3 or later stage clinical trial ourselves, nor have we commercialized a drug. We have
limited experience conducting clinical trials and obtaining regulatory approvals and we may not be
successful in some or all of these activities. We have no experience as a company in the sales, marketing
and distribution of pharmaceutical products and do not currently have a sales and marketing organization.
We expect to expend significant amounts to recruit and retain high quality personnel with clinical
development experience. Developing commercialization capabilities would be expensive and
time-consuming and could delay any product launch, and we may never be able to develop this capacity.
To the extent we are unable to or determine not to develop these resources internally, we may be forced
to rely on third-party clinical investigators, or clinical research or marketing organizations, which could
subject us to costs and to delays that are outside our control. If we are unable to establish adequate
capabilities independently or with others, we may be unable to generate product revenues for certain
candidates.
Our collaborators have substantial control and discretion over the timing and the continued
development and marketing of drug candidates we create for them.
Our collaborators have significant discretion in determining the efforts and amount of resources that they
dedicate to our collaborations. Our collaborators may decide not to proceed with clinical development or
commercialization of a particular drug candidate for any number of reasons that are beyond our control,
even under circumstances where we might have continued such a program. In addition, our ability to
receive milestone payments and royalties from our collaborators depends on our collaborators' abilities to
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