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Narrower-than-Expected Loss at ArQule

Zacks Equity Research

Shares of ArQule, Inc. (ARQL) remained unchanged after the release of third quarter 2013 earnings but were up 2.7% % in the next trading session. Overall, shares gained 2.7% since the company reported third quarter results.

ArQule reported a loss of 10 cents per share in the third quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 13 cents per share. The company had reported a loss of a penny in the year-ago quarter.

Revenues plummeted 67.6% to $3.5 million in the third quarter of 2013, but surpassed the Zacks Consensus Estimate of $3 million.

Quarter in Detail

The decline in ArQule’s quarterly revenues was primarily due to the reduction of $4.5 million of revenues from the company’s research collaboration with Daiichi Sankyo that ended in Nov 2012 and $2.3 million from the tivantinib program with the latter. In addition, revenues were also negatively impacted by $0.6 million from the Daiichi Sankyo ARQ 092 agreement that ended in Jun 2013.

Research and development expenses were $8.1 million, down 26.9% from the year-ago quarter mainly due to lower outsourced clinical and product development costs related to tivantinib and other pipeline programs along with lower labor related costs.

We remind investors that ArQule announced a workforce reduction of approximately 25 positions in order to accumulate cash and sustain its business into 2016, independently fund its clinical trials and effectively deploy core discovery capabilities concurrent with the second quarter results. The restructuring activities are expected to result in annual cost savings of approximately $3.5- $4.0 million starting in 2014.

General and administrative expenses declined 8.1% to $3.1 million.

2013 Outlook Updated

ArQule now expects revenues between $13 million and $16 million in 2013, up from the earlier estimate of $12 – $15 million. The pre-earnings Zacks Consensus Estimate of $15 million was well within the new guidance. ArQule anticipates net loss per share between 42 cents and 46 cents compared to the previous projection of 45 cents to 50 cents in 2013.  The Zacks Consensus Estimate for 2013 hints at a loss of 46 cents.

Pipeline Update

ArQule will continue to focus on developing its oncology candidate, tivantinib (ARQ 197).  As per the recommendation from the the Data Monitoring Committee, the company submitted an amended protocol related to a lower dose of 120 milligrams (mg) twice daily in the phase III METIV-HCC trial of tivantinib as single agent therapy in patients suffering from hepatocellular carcinoma (HCC).

ArQule presented encouraging data from a randomized, double-blind, placebo-controlled phase III trial, MARQUEE, on tivantinib at the European Cancer Congress in Sep 2013. The data showed the clinical benefits of treatment with the combination of tivantinib and Roche’s (RHHBY) Tarceva (erlotinib) in patients suffering from non-squamous, non-small cell lung cancer (:NSCLC) whose tumors expressed high levels of MET protein.

ArQule currently carries a Zacks Rank #3 (Hold). Right now, Jazz Pharmaceuticals (JAZZ) and Salix Pharmaceuticals (SLXP) look attractive. While Jazz Pharma carries a Zacks Rank #1 (Strong Buy), Salix Pharma carries a Zacks Rank #2 (Buy).

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