ArQule reports financial results for the fiscal quarter and nine months ended September 30, 2009

ArQule, Inc. (NASDAQ: ARQL) today reported its results of operations for the fiscal quarter and nine months ended September 30, 2009.

The Company reported a net loss of $8,088,000 or $0.18 per share, for the quarter ended September 30, 2009, compared to a net loss of $11,281,000, or $0.26 per share, for the quarter ended September 30, 2008. For the nine-month period ended September 30, 2009, the Company reported a net loss of $26,268,000 or $0.60 per share, compared to a net loss of $41,235,000, or $0.94 per share, for the same period in 2008.

At September 30, 2009, the Company had a total of $178,106,000 in cash, equivalents and marketable securities, which includes $47,750,000 drawn down in 2008 under notes payable that are collateralized by the Company’s auction rate securities. Net of these notes, at September 30, 2009, the Company had a total of $130,356,000.

Recent Operational Highlights

ARQ 197:

• Completion of patient enrollment in the Phase 2 non-small cell lung cancer (NSCLC) trial testing the combination therapy of ARQ 197 and erlotinib;
• Initiation of patient enrollment in a Phase 2 trial with ARQ 197 in hepatocellular carcinoma (HCC);
• Designation of ARQ 197 as an orphan medical product for the treatment of soft tissue sarcoma by the European Medicines Evaluation Agency (EMEA);
• Continued patient enrollment as planned in the Phase 2 monotherapy trial with ARQ 197 in Microphthalmia Transcription Factor (MiT)-associated tumors;
• Progress in combination safety trials of ARQ 197 with sorafenib and ARQ 197 with gemcitabine, with potential target indications of HCC and pancreatic cancer, respectively.

Pipeline:

• Continued dose escalation in a Phase 1 trial with ARQ 621;
• Acceptance of an abstract highlighting the discovery of fibroblast growth factor receptor (FGFR) inhibitors for presentation at the 2009 AACR-EORTC-NCI Molecular Targets and Cancer Therapeutics Conference.

“Progress in our clinical development program with ARQ 197 is being made across four indications and three combination regimens,” said Paolo Pucci, chief executive officer of ArQule. “Notably, we have completed patient enrollment in our Phase 2 trial in non-small cell lung cancer ahead of schedule, and we expect to have data from this trial available in the first half of 2010.

“We also expect to complete enrollment in our Phase 2 MiT trial late this year, and we recently initiated enrollment in a Phase 2 trial in hepatocellular carcinoma following the successfully completed evaluation of patients in a safety trial,” said Mr. Pucci. “ARQ 197 combination therapy safety trials with sorafenib and gemcitabine are proceeding as well.

“We recently received notification that the EMEA has designated ARQ 197 as an orphan medical product for the treatment of soft tissue sarcoma,” said Mr. Pucci. “Future interactions with regulatory authorities, combined with the evaluation of clinical data from our MiT trial expected to be available in early 2010, will inform our decisions related to the possible advancement of this program.

“Our Phase 1, dose escalation trial with ARQ 621, an inhibitor of the Eg5 kinesin motor protein, is progressing well,” said Mr. Pucci. “We continue to increase dosing and expect to complete this trial early next year.

“With a presentation at the AACR-EORTC-NCI meeting later this month, we will introduce our newest program,” said Mr. Pucci. “This program is focused on the development of potent, small molecule inhibitors of the fibroblast growth factor receptor (FGFR) based upon the independent application of our proprietary kinase discovery technology. Pending successful pre-clinical development, we expect to file an Investigational New Drug (IND) application with a lead candidate from this program in 2010.

“Our oncology-focused, ArQule Kinase Inhibitor Platform (AKIP™) collaboration with Daiichi Sankyo Co., Ltd. continues to move forward,” said Mr. Pucci. “The range and stages of our clinical and pre-clinical activities position us for a number of potential inflection points beginning in the first half of 2010.”

Revenues and Expenses

The Company reported total revenues of $6,436,000 for the quarter ended September 30, 2009, compared to revenues of $2,664,000 for the quarter ended September 30, 2008. Revenues for the nine months ended September 30, 2009 were $17,912,000, compared to revenues of $8,774,000 for the nine months ended September 30, 2008. Increased revenues for the 2009 periods were primarily due to revenues from the Company’s agreements with Daiichi Sankyo Co., Ltd. for ARQ 197 and the AKIP™ discovery collaboration, both signed in late 2008. Revenues for both years include revenue from the Company’s agreement with Kyowa Hakko Kirin Co., Ltd.

For the quarter ended September 30, 2009, the Company reported total costs and expenses of $14,481,000, compared to total costs and expenses of $14,284,000 for the quarter ended September 30, 2008. Total costs and expenses for the nine months ended September 30, 2009 were $45,356,000, compared to $52,639,000 for the same period in 2008.

Research and development costs for the three and nine-month periods ended September 30, 2009 were $11,347,000 and $35,359,000 respectively, compared with $10,788,000 and $39,220,000 for the 2008 three and nine-month periods. The decrease in research and development expense in the nine-month period ended September 30, 2009 was primarily due to clinical trial costs in 2008 related to ARQ 501 that did not recur in 2009, lower personnel-related costs, and executive transition costs that did not recur in 2009.

General and administrative costs for the three and nine-month periods ended September 30, 2009 were $3,134,000 and $9,997,000, respectively, compared with $3,496,000 and $13,419,000 for the 2008 three and nine-month periods. The decrease in general and administrative costs in the 2009 three-month period was primarily due to lower personnel related costs. The decrease in general and administrative costs in the 2009 nine-month period was principally due to lower personnel related costs and to non-cash, stock-based compensation costs incurred in 2008 related to the Company’s employment agreements with its previous and current chief executive officers.

Financial Guidance

The Company previously stated that for 2009, it expects net use of cash to range between $46 and $49 million, revenues to range between $21 and $24 million, net loss to range between $44 and $47 million, and net loss per share to range between $0.98 and $1.05 for the year. The Company also stated that it expects to end 2009 with between $157 and $160 million in cash and marketable securities, which includes $47.8 million drawn down in 2008 under notes payable that are collateralized by the Company’s auction rate securities. Net of these notes, the Company previously stated that it expects to end 2009 with net cash and marketable securities in a range of $109 to $112 million.

The Company believes that several factors may cause net use of cash for the year to be favorable to guidance. Key among these are the timing of reimbursement of development costs for ARQ 197 from Daiichi Sankyo and cost savings initiatives that have been implemented throughout the year. The net impact will be revenues at or above the high end of guidance, expenses at or below the low end of guidance, and a resulting net loss below the low end of guidance. In addition, the total of the Company’s net cash and marketable securities at year end is expected to be above the high end of the range, which is $112 million.