ArQule: Post-Q4 Results Update

2013 will be a year in which ArQule ((ARQL)) and its partners are focused on progressing and/or completing clinical trials with tivantinib, but one which sees relatively few new clinical data read-outs. The speed of patient accrual in the recently opened METIV Phase III trial in hepatocellular carcinoma will, however, be an important signal. ArQule’s current up to 30 months target for recruitment could be very conservative. This will determine the timing of the interim analysis, which could come as early as late 2014. The start of a Phase I trial of ARQ 087 brings a new compound into clinical trials, while the future of ARQ 621 and ARQ 736 should soon be decided.


HCC Phase III trial underway
ArQule has now dosed the first patients in the METIV Phase III trial in HCC and aims to complete patient enrolment in two and half years, ie mid-2015, a timeline the management characterises as conservative. The trial has built in an efficacy and safety interim analysis, which could be potentially triggered in late 2014 if accrual and events accumulate fast. However, given announcements of several new Phase III trials in second-line HCC by competitors, ArQule may face more competition for patients. Nevertheless, we continue to expect tivantinib to reach the market in 2016.

Pipeline shuffle
ArQule has started a Phase I trial of ARQ 087, an orally bioavailable, multi-kinase inhibitor with pan-FGFR (fibroblast growth factor receptor) activity. At the same time, two other pipeline compounds, ARQ 621, an Eg5 inhibitor, and ARQ 736, a BRAF inhibitor, may be discontinued from development, pending final Phase I data and competitive landscape analysis. In addition, ArQule is conducting a Phase I study of ARQ 092, an AKT inhibitor for Daiichi Sankyo, which holds worldwide rights arising from a kinase inhibitor collaboration that ended in 2012.

Valuation: $300m or $4.30/per diluted share
We have revised our valuation to reflect a rebasing of the NPV to 2013 and to the company’s guided cash utilisation this year. We now value ArQule at $300m or $4.30 per share (fully diluted), vs our previous $4.65/share figure, based on our risk-adjusted DCF model. This includes tivantinib rNPV at $190m vs previously $165m, $25m for other assets and estimated 2013 year-end net cash of $85m. Our valuation for ArQule is significantly higher than its current market capitalisation, highlighting the potential for share price appreciation.

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