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ARRAY BIOPHARMA, INC.
Notes to the Financial Statements
For the Fiscal Years Ended June 30, 2012, 2011 and 2010
Company recognized $2.2 million, $4.7 million, and $2.0 for the years ended June 30, 2012, 2011 and
2010, respectively.
The Company was reimbursed for certain development activities, which is recorded in Collaboration
Revenue and Cost of Revenue in the accompanying Statements of Operations and Comprehensive
Loss. The Company recognized $1.4 million of Collaboration Revenue and Cost of Revenue for the year
ended June 30, 2011. The Company did not perform any development activities in fiscal 2012 and
therefore did not record any such revenue during fiscal 2012.
Either party may terminate the agreement in the event of a material breach of a material obligation under
the agreement by the other party upon 90 days prior notice and Amgen may terminate the agreement at
any time upon notice of 60 or 90 days depending on the development activities going on at the time of
such notice. The parties have also agreed to indemnify each other for certain liabilities arising under the
agreement.
Novartis International Pharmaceutical Ltd.
The Company and Novartis International Pharmaceutical Ltd. entered into a License Agreement in April
2010 granting Novartis the exclusive worldwide right to co-develop and commercialize
MEK162/ARRY-162, as well as other specified MEK inhibitors. Under the agreement, the Company is
responsible for completing the on-going Phase 1b expansion trial of MEK162 in patients with KRAS or
BRAF mutant colorectal cancer and for the further development of MEK162 for up to two indications.
Novartis is responsible for all other development activities and for the commercialization of products
under the agreement, subject to the Company's option to co-detail approved drugs in the U.S.
In consideration for the rights granted to Novartis under the agreement, the Company received
$45 million, comprising an up-front and milestone payment, in the fourth quarter of fiscal 2010. The
Company is entitled to receive up to approximately $422 million in aggregate milestone payments if all
clinical, regulatory and commercial milestones specified in the agreement are achieved. In March 2011,
the Company earned a $10 million milestone payment, which it received in the fourth quarter of fiscal
2011. Novartis will also pay the Company royalties on worldwide sales of any approved drugs, so long as
the Company continues to co-develop products under the program in the U.S., royalties on U.S. sales are
at a significantly higher level than sales outside the U.S., as described below.
The Company estimates that its obligations under the agreement will continue until April 2014 and,
therefore, is recognizing the up-front fee and milestone payments on a straight-line basis from the date
the agreement was signed in April 2010 through that time. These amounts are recorded in License and
Milestone Revenue in the accompanying Statements of Operations and Comprehensive Loss.
The Company recognized $10.0 million in revenue related to the up-front payment during each of the
years ended June 30, 2012 and 2011. The Company recognized $3.8 million and approximately
$4.2 million in revenue related to the milestone payments during the years ended June 30, 2012 and
2011, respectively.
The Novartis agreement also contains co-development rights whereby the Company can elect to pay a
percentage share of the combined total development costs. During the first two years of the
co-development period, Novartis will reimburse the Company for 100% of the Company's development
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ARRAY BIOPHARMA, INC.
Notes to the Financial Statements
For the Fiscal Years Ended June 30, 2012, 2011 and 2010
costs. Beginning in year three, the Company will begin paying its percentage share of the combined
development costs since inception of the program, up to a maximum amount with annual caps, unless it
opts out of paying its percentage share of these costs. If the Company opts out of paying its share of
combined development costs with respect to one or more products, the U.S. royalty rate would then be
reduced for any such product based on a specified formula, subject to a minimum that equals the royalty
rate on sales outside the U.S., and the Company would no longer have the right to develop or detail such
product.
The Company records a receivable in the accompanying Balance Sheets for the amounts due from
Novartis for the reimbursement of the Company's development costs. The Company accrues its
percentage share of the combined development costs in the accompanying Balance Sheets as a current
or long-term liability in fiscal 2012 and 2011, respectively, on the basis of the Company's intention to
begin paying such amounts to Novartis beginning in year three of the co-development period.
The Company's share of the combined development costs was $5.6 million and $3.6 million during the
years ended June 30, 2012 and 2011, respectively, which was recorded in Cost of Revenue in the
accompanying Statements of Operations and Comprehensive Loss. The Company recorded
corresponding payables of $9.2 million and $3.6 million in in the accompanying Balance Sheets as
Co-development Liability as of June 30, 2012 and Other Long-Term Liabilities as of June 30, 2011,
respectively. In addition, the Company had related receivables of $950 thousand and $1.0 million in
Prepaid and Other Current Assets in the accompanying Balance Sheets as of June 30, 2012 and 2011,
respectively, for the reimbursable development costs it incurred during the fourth quarter of each year. In
total, the Company incurred reimbursable development costs of $2.9 million and $6.3 million during the
years ended June 30, 2012 and 2011, respectively.
The agreement will be in effect on a product-by-product and county-by-country basis until no further
payments are due with respect to the applicable product in the applicable country, unless terminated
earlier. Either party may terminate the agreement in the event of an uncured material breach of a material
obligation under the agreement by the other party upon 90 days prior notice. Novartis may terminate
portions of the agreement following a change in control of the Company and may terminate the
agreement in its entirety or on a product-by-product basis with 180 days prior notice. The Company and
Novartis have each further agreed to indemnify the other party for manufacturing or commercialization
activities conducted by it under the agreement, negligence or willful misconduct or breach of covenants,
warranties or representations made by it under the agreement.
Celgene Corporation
In September 2007, the Company entered into a worldwide strategic collaboration with Celgene focused
on the discovery, development and commercialization of novel therapeutics in cancer and inflammation.
Under the agreement, Celgene made an up-front payment of $40 million to the Company in part to
provide research funding for activities conducted by the Company. The Company is responsible for all
discovery development through Phase 1 or Phase 2a. Celgene has an option to select a limited number of
drugs developed under the collaboration that are directed to up to two of four mutually selected discovery
targets and will receive exclusive worldwide rights to these two drugs, except for limited co-promotional
rights in the U.S. The Company retains all rights to the programs for which Celgene does not exercise its
option.
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