SecProbe.io

CORRESP
1
filename1.htm

HOGAN & HARTSON L.L.P.

COLUMBIA SQUARE

555 THIRTEENTH STREET, N.W.

WASHINGTON, D.C. 20004

(202) 637-5600

August 1, 2005

VIA EDGAR AND BY UNITED PARCEL SERVICE

United States Securities and Exchange Commission

100 First Street, N.E.

Washington, D.C. 20549

Mail Stop 6010

Attention:                 Jim B. Rosenberg

Division
of Corporate Finance

Re:                             Array BioPharma Inc.

Form 10-K for the fiscal
year ended June 30, 2004

File No. 001-16633

Ladies and Gentlemen:

On behalf of Array BioPharma
Inc. (the “Company”), we are responding to the Staff’s comments set forth in a
letter to Mr. R. Michael Carruthers on July 5, 2005 regarding the
above captioned annual report on Form 10-K for the Company’s fiscal year
ended June 30, 2004 (the “Form 10-K”). The Staff’s letter follows the
Company’s letter dated June 16, 2005 responding to the comments of the
Staff set forth in a letter dated May 27, 2005 (the “Prior Comment Letter”)
regarding the Form 10-K and the Company’s subsequently filed quarterly
reports on Form 10-Q.

The Company’s responses to
the Staff’s comments are set forth below.
For ease of reference, we also have reproduced each comment
above  the Company’s response to that
comment. Unless otherwise
indicated, all references to page numbers in the responses below refer to page numbers
in the Form 10-K.

Once the Staff has reviewed
the responses set forth below, the Company would welcome the opportunity
to discuss any additional questions the Staff may have.

*                                         *                                         *                                         *                                         *

Form 10-K
for the fiscal year ended June 30, 2004

General

1.          Please provide the
disclosures that you propose, in your response to comments one, two, four,
five, and ten and to the comment about additional milestone payments, to make
in Form 10-K for the fiscal year ended June 30, 2005.  In addition, please propose disclosures to
clarify:  (a) your revenue
recognition policies, consistent with your response to comment seven; (b) how
continuing to lease your buildings for at least fifteen years is reasonably
assured, as asserted in your response to comment five, and (c) how the
reasonably assured lease renewals would have on your future cash requirements.

Response: The Company intends to include
substantially the following disclosure in its annual report on Form 10-K
for the fiscal year ended June 30, 2005 (the “Fiscal 2005 Form 10-K”).

Proposed disclosure
relating to comment one of the Prior Comment Letter: The Company believes that several
factors contributed to changes in its revenue for fiscal 2005 and 2004, and to
address those factors the Company intends to include substantially the
following disclosure in the Results of Operations section of MD&A:

Fiscal 2005 as compared to fiscal 2004:
Total revenue for fiscal 2005 grew     % from 2004 with
improvements in both collaboration revenue, which increased $
million, and License and milestone revenue, which increased $
million.  The improvement in
collaboration revenue was the result of increased revenue, totaling of $
million, from new or expanded collaborations with Genentech, AstraZeneca,
InterMune, Tekeda, Elan and Roche.  This
increase was partially offset by no longer receiving revenue from expired
research programs with  ICOS, Japan
Tobacco and GenPath Pharmaceuticals; collaborations with these companies
resulted in a total of $     million during fiscal
2004.  Further offsetting the gains in
collaboration revenue were the declines in custom libraries of $
million and Lead Generation Libraries of $     million,
each declining primarily due to continued increasing competition from foreign
chemistry service providers.

The up-front license fee and Phase I milestone payment
for ARRY-142886 that we received from AstraZeneca in the latter half of fiscal
2004,  together with the up-front license
fee that we received from Genentech in the same half of the fiscal 2004,
represented the majority of the increase to license and milestone revenue.  These payments, totaling $
million in the aggregate, were recognized over the full year of fiscal 2005,
compared to recognition during only part of the year in fiscal 2004. A $
million milestone payment received from Amgen in fiscal 2005 also contributed
to the increased license and milestone revenue.

Fiscal 2004 as compared to fiscal 2003:
Total revenue for fiscal 2004 and 2003 remained relatively flat. Increased
revenue from up-front license fees and milestone payments largely offset the
decline in collaboration revenue. Up-front license fees from AstraZeneca and
Genentech and a Phase I milestone payment

2

for ARRY-142886 from AstraZeneca, totaling $20 million
in the aggregate, represented the majority of the increase to license and
milestone revenue. Decreased collaboration revenue from expired programs with
ICOS, Amgen, Merck and Vertex Pharmaceuticals of $12.1 million in total was
partially offset by revenue from new collaborations with Genentech, AstraZeneca
and GenPath Pharmaceuticals of $6.8 million in total. In addition,
collaboration revenue from our Lead Generation Libraries and Optimer building
blocks declined $1.4 million in fiscal 2004 compared to 2003, primarily due to
increased competition from foreign chemistry service providers.

In preparing the MD&A section of its
subsequent filings, the Company will include disclosure quantifying the contribution
of two or more factors if necessary to an understanding of material changes in
line items of its financial statements.

Proposed disclosure relating to comment two of the
Prior Comment Letter: In response to comment two of the Prior
Comment Letter, the Company intends to include disclosure of the following
categories of information in a “Research and Development Expenses” subsection under
Results of Operations in MD&A:

a.               The
current status of its major proprietary programs;

b.              Current
limitations on project cost accounting and disclosure of R&D costs by type;

c.               Limitations
on the Company’s ability to identify the timing and costs associated with
completing its proprietary programs;

d.              Industry-wide
expected completion dates for various stages of development;

e.               Risks
and uncertainties associated with timely achieving project goals within the
Company’s or its collaborators’ expected schedule, and the consequences for not
doing so; and

f.                 The
inability of the Company to predict when material net cash inflows from
significant projects are expected to commence.

Research and Development Expenses

Fiscal 2005 as compared to fiscal 2004:
Research and development expenses for proprietary drug discovery increased     %.  The most significant increase in costs came
from outsourced pharmacology studies to support the advancement of our
ErB2/EGFR, P38, Mek for inflammation, and other programs.  As a result, total consulting and outsourced
services costs, including pharmacology studies, increased to $
million in 2005, from $1.6 million in 2004. We expect that proprietary research
and development spending will continue to increase as we focus more resources
on our proprietary drug discovery programs and as these programs advance into
development.

Fiscal 2004 as compared to fiscal 2003:
Research and development expenses for proprietary drug discovery increased 41%
related to our expanded efforts to

3

advance compounds into regulated safety testing. In
addition, a number of new programs were initiated during the year, and the lead
compound in our MEK for cancer program advanced through regulated safety
assessment. Supporting these efforts were additional scientists and increased
outsourced and internally generated pharmacology studies.

Our research and development expenditures
currently include costs for scientific personnel, supplies, equipment,
consultants, sponsored research, allocated facility costs, costs related to
preclinical and clinical trials, and stock-based compensation. The following
table shows our research and development expenses by categories of costs for
the periods presented:

Research and Development Costs

  Years
  Ended June 30,

  %
  increase (decrease)

  2005

  2004

  2003

  2004
  to

  2005

  2003
  to

  2004

  (in
  thousands)

  Salaries and benefits

  $

  $

  7,523

  $

  5,552

  36

  %

  Consulting and outsourced
  services

  1,584

  592

  168

  %

  Laboratory supplies

  2,601

  1,976

  32

  %

  Facilities and
  depreciation

  3,797

  2,903

  31

  %

  Other

  223

  153

  46

  %

  Research and development
  for proprietary drug discovery

  $

  $

  15,728

  $

  11,176

  (100

  )%

  41

  %

We manage our proprietary programs based on scientific
data and achievement of research plan goals.
Our scientists record their time to specific projects when
possible.  However, many activities
simultaneously benefit multiple projects and cannot be readily attributed to a
specific project.  Accordingly, the
accurate assignment of time and costs to a specific project is impracticable
and may not give a true indication of the actual costs of a particular project.
As a result, we do not report costs on a program basis.

The scope and magnitude of future research and
development expenses are difficult to predict given the number of studies that
will need to be conducted for any of our potential products, as well as our
limited capital resources. In general, biopharmaceutical – development involves
a series of steps – beginning with identification of a potential target and
including, among others, proof of concept in animals and Phase I, II and
III clinical studies in humans – each of which is typically more expensive than
the previous step. Therefore, we expect our research and development costs to
increase as we progress our programs through development.

4

The successful development
and commercialization of drugs resulting from our proprietary programs is
highly uncertain and subject to a number of risks that are beyond our control.
The duration and cost of discovery, preclinical, nonclinical and clinical
trials may vary significantly based on the type, complexity and novelty of a
product and are difficult to predict. The FDA and comparable agencies in foreign
countries impose substantial requirements on the introduction of therapeutic
pharmaceutical products, typically requiring lengthy and detailed laboratory
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures. Data obtained from preclinical, nonclinical and
clinical activities at any step in the testing process may be adverse and lead
to discontinuation or redirection of development activity or be susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. Accurate and meaningful estimates of the ultimate costs to bring our
drug candidates to market are not available. Given the uncertainties related to
development, we are currently unable to reliably estimate when, if ever, our
drug candidates will generate revenue and net cash inflows.

Status of Significant Proprietary Programs

The following table summarizes the status of our most
advanced drug candidates.

  Drug Target

  Indication

  Development Status

  ARRY-142886

  Cancer

  The Company will include a description of the
  status of each program in this table in the Fiscal 2005 10K.

  EGFR/ErbB-2

  Cancer

  P38

  Inflammation

  MEK

  Inflammation

We estimate that it takes 10 to 15 years
or possibly longer, to discover, develop and bring to market a new
pharmaceutical product in the U.S. as outlined in the following table:

  Phase:

  Objective:

  Estimated
  Duration:

  Discovery

  Lead
  identification and target validation

  2 to
  4 years

  Preclinical

  Initial
  toxicology for preliminary identification of risks for humans; gather early
  pharmacokinetic data

  1 to
  2 years

  Phase
  I

  Evaluate
  safety in humans; study how the drug works, metabolizes and interacts with
  other drugs

  1 to
  2 years

  Phase
  II

  Establish
  effectiveness of the drug and its optimal dosage; continue safety evaluation

  2 to
  4 years

  Phase
  III

  Confirm
  efficacy, dosage regime and safety profile of the drug; submit New Drug
  Application

  2 to
  4 years

  FDA
  approval

  Approval
  by the FDA to sell and market the drug under approved labeling

  6
  months to 2 years

5

Animal and other nonclinical studies
typically are conducted during each phase of human clinical studies.

Clinical timelines, likelihood of success and total
completion costs vary significantly for each drug candidate and are difficult
to estimate. We anticipate that we will make determinations as to which
research programs to pursue and how much funding to direct to each program on
an ongoing basis in response to the scientific and clinical success of each
drug candidate. The lengthy process of seeking regulatory approvals, and
subsequent compliance with applicable regulations, require the expenditure of
substantial resources. Any failure by us to obtain, or any delay in obtaining,
regulatory approvals could cause our research and development expenditures to
increase and, in turn, have a material adverse effect on our results of
operations.

The Company intends to include the following
disclosure in the Liquidity and Capital Resources section of MD&A, in
the paragraph immediately preceding the bullet list of risk factors that
appears on page 39 of the Form 10-K, relating to uncertainties
associated with the receipt of future milestone payments:

In addition, we may not receive any milestone or
royalty payments under our existing or future collaboration agreements for a
number of factors, many of which are beyond our control and include the
following: the drug development process is risky and highly uncertain, and we
or our collaborators may not be successful in commercializing drug candidates
we create; our collaborators have substantial control and discretion over the
timing and continued development and marketing of drug candidates we create;
the sale and manufacture of drug candidates we develop may not obtain
regulatory approval; and, if regulatory approval is received, drugs we develop
will remain subject to regulation or may not gain market acceptance, which
could delay or prevent us from generating milestone or royalty revenue from the
commercialization of these drugs.

Proposed disclosure relating to comment four of the
Prior Comment Letter: The Company intends to include
substantially the following disclosure under the “Research and Development Costs”
heading of the Notes to its financial statements:

The Company’s out-licensing and collaboration
agreements provide for research funding based on the number of full time
equivalent employees contractually assigned to a program. The Company does not
bear any risk of returning such funding for the failure of the contracted
research and development activities, and the payments are not contingent based
on the success or failure of these activities. Accordingly, the Company
expenses research and development costs when incurred.

6

Proposed disclosure
relating to comment five of the Prior Comment Letter: The Company intends to include
substantially the following disclosure
in MD&A relating to the Company’s conclusion that the lease term
over which it amortizes leasehold improvements and relating to the impact the
reasonably assured lease renewals would have on future cash requirements:

Due to the high cost of leasehold improvements
associated with relocating our facilities and the limited availability of
similar laboratory facilities, we concluded that at each lease’s inception and
as of June 30, 2004, the exercise of a portion of our lease term options
associa