https://rodman.bluematrix.com/docs/pdf/9cb88c06-78a6-408d-89ae-e6efe1f46...

Interesting tidbits from last week (December 07- December 11)
More of the Biogen (BIIB Not Rated)/Facet Biotech (FACT Not Rated) saga: The next chapter in the Biogen/Facet
Biotech saga was written last week when Facet’s BOD voted unanimously to reject Biogen’s improved “best and final”
offer of $17.50/share, and is “providing Biogen with the opportunity to Perform Due Diligence to Determine Whether
Biogen Idec Will Materially Increase Its Offer”. This is an exciting case of corporate biotech M&A, with multiple back and
forths, ultimatums, increased offers and rejections. The market seems to believe that the Biogen management and board
will stand its ground and not increase its “best and final” offer of $17.50 more than it does Facet’s, with FACT shares
trading around $17 all week.
GTx (GTXI Market Perform) is dealing with inevitability: a 28% reduction in workforce…: As we had forecasted in
the “What’s Next for GTXI?” portion of our November 2nd and November 9th reports, in an effort to preserve capital in the
new post-complete-response-letter reality for the company, GTx announced a reduction in its workforce, effective
immediately. The company also announced it will record a $1.1M charge related to this reduction in 4Q09.
…and we see the potential for more downsizing…
1) We believe that management’s decisions on the 28% downsizing and no 2009 bonuses or increases in 2010 base
salaries for remaining employees are the necessary and right ones for GTx.
2) However, the company has decided to retain its senior commercial and medical leadership team “in order to remain
prepared for the potential commercialization of toremifene 80 mg to reduce fractures in men with prostate cancer on ADT,
toremifene 20 mg for the prevention of prostate cancer in high risk men and potentially other product candidates”. We
believe that we could see additional cost-cutting and workforce reductions at GTx near-to-mid-term, since we do not
predict a “path forward” for Toremifene 80mg, which is the only product in GTx’s pipeline with 2010 commercialization
needs, and thus, the need for senior level executives in these functions.
3) In addition, we remind investors that even if one were to assume positive Phase III data in the HGPIN indication, an
NDA would probably not be decided upon until 2011, so carrying the cost of a commercialization and medical
education/leadership team for an additional year doesn’t make sense to us. We posit that the recent job cuts in other
biotechs and large pharmas make recruiting senior talent a lot easier than in the past, and thus the argument “we now
have these people here and we don’t want to lose them” does not hold much water either.
4) “potentially other product candidates” are years away from having results from a pivotal trial, and some of them are
already partnered with Merck (MRK Not Rated), and thus there is no need for an internal team, and again, we see
carrying the additional expense as puzzling.
Based on these points, we believe that there is strong potential for additional cost-cutting at GTx, either self-imposed or
demanded by shareholders, at the latest after the FDA meeting on the future of Toremifene 80mg.
…and a financing by 1Q 2010. The company finished 3Q09 with ~$55M (~$1.50/share) in cash, which gives it
approximately 4 quarters worth of runway, and we thus believe it will have to raise capital, either through a public offering,
through securing a line of credit or a partnership.
What’s coming up this week? (December 14 – December 18)
The week opened with good news for one of the top picks in our coverage universe:
Array (ARRY Market Outperform) delivers on partnership promise, attracts largest biotech; $60M upfront
payment for Phase I program speaks to the quality of compounds produced by Array’s internal R&D efforts. After
the market’s close (and before the ink was dry on our last report discussing an imminent partnership for 403), Array
announced a worldwide partnership with Amgen (AMGN Not Rated) for ARRY-403, its novel glucokinase activator,
currently in Phase I testing for the treatment of Type II diabetes.
Details on the deal (More details tomorrow morning at 6am ET in 8K filing): Array gets $60M in an upfront payment and
additional contingent payments for certain clinical and commercial milestones. Array gets double digit royalties on sales
and retains the option to co-promote 403 in the US. Amgen will take over development after Array completes the current
Phase I trial for ARRY-403. Finally, as part of a two-year R&D effort to identify and advance second-generation
glucokinase activators, Amgen will fund an agreed upon number of Array FTEs.
Biotechnology December 14, 2009
RODMAN & RENSHAW EQUITY RESEARCH 6
Table of contents
Our view of the deal and the partner: We view this deal as “vintage Array” in that: 1) it attracts a top-notch partner in
Amgen, as in the past (can you say Celgene, Genentech, Intermune , AstraZeneca (CELG, RHHBY, ITMN, AZN All Not
Rated), 2) it brings in a higher-than-industry average deal terms, which we believe speaks to the not only to the actual
quality and potential of the specific compound, but also to the perception and “respect” in the biopharma industry for
Array’s home-brewed compounds. Finally, we like the choice of Amgen as a partner, in what we believe was a competitive
process, since the Thousand Oaks biotech giant is investing in building its diabetes and metabolic pipeline, as it is
diversifying away from oncology.
About the compound: This past August, Array announced positive topline data with ARRY-403, its small molecule
glukokinase activator, from a Phase I trial in T2D patients. The drug met primary and secondary endpoints of safety, pk
and glucose control. This was a single-ascending dose, seven-cohort, 41-patient trial, with patients receiving either
placebo or ARRY-403 in single doses between 25-400mg. The drug was well tolerated at all doses, rapidly-absorbed, with
dose-dependent exposure, exhibited a profile consistent with qd dosing, and resulted in dose-dependent reductions in
glucose excursions in response to a meal. Based on these data the company started a multiple ascending dose trial to
test 403 in T2D patients over a 10-day period, with combined Phase I results to be presented in 1H2010.
ARRY trading up 40% after market: What to do with the stock tomorrow morning and going forward? Despite the
jump in the stock tonight after the market, that will continue tomorrow morning, we believe that current price levels
(depressed due to the overall market this year and hurt even more after the ARRY-162 disappointment), do not capture
the value in the company’s pipeline of seven clinical programs, and we continue to see them as offering the opportunity
for significant appreciation, long-term. We believe that the reason to own ARRY, buy it at these levels and hold long-term,
has never been any single one of the compounds in its pipeline, but A) the basket of promising compounds in the pipeline,
B) the company’s ability to generate new candidates at a consistent rate, and C) the ability of these compounds to
generate significant revenue from big pharma/biotech.
ARRY is an undervalued stock, and remains one of the top picks in our coverage universe: With a high-caliber,
experienced management team, directing an R&D machine that we consider as good and productive as any in biotech,
we view as ARRY one of the highest quality stocks to own in the small/mid cap biotech space, with a wide pipeline
addressing very large markets, featuring 7 drugs in the clinic, and the potential to produce additional promising molecules
through their discovery and preclinical efforts. We consider ARRY shares significantly undervalued and we see room for
significant growth in 2009 and 2010 and we would be building positions at current levels