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ArQule (ARQL - Snapshot Report) reported a loss of 10 cents per share in the fourth quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 13 cents per share. The company had reported a loss of 9 cents in the year-ago quarter.

Revenues plummeted 55.8% to $2.3 million in the fourth quarter of 2013, but surpassed the Zacks Consensus Estimate of $2 million.

Quarter in Detail

Research and development expenses were $5.3 million, down 26.3% 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.

General and administrative expenses increased 6.8% to $3.1 million. ArQule ended 2013 with cash of $95 million which it expects will sustain operations uptil 2016. 

2013 Results

Revenues in 2013 came in at $15.9 billion, down 56.3% from 2012 but in line with the Zacks Consensus Estimate. The decline in ArQule’s quarterly revenues was primarily due to the reduction of $15.5 million of revenues from the company’s research collaboration with Daiichi Sankyo that ended in Nov 2012 and $5.2 million from the tivantinib program with Daiichi Sankyo.

In addition, revenues were also negatively impacted by $1.5 million due to the agreement with Daiichi Sankyo for ARQ 092 that ended in Jun 2013. Loss per share of 39 cents was narrower than the Zacks Consensus Estimate of a loss of 42 cents per share.

Outlook Updated

ArQule now expects revenues between $8 million and $10 million in 2014, much below the Zacks Consensus Estimate of $14 million. ArQule anticipates net loss per share between 48 cents and 52 cents.  The Zacks Consensus Estimate for 2014 hints at a loss of 38 cents.

Pipeline Update

ArQule is evaluating its lead oncology candidate tivantinib (ARQ 197) for the treatment of hepatocellular carcinoma (HCC or liver cancer). Two phase III trials are underway on tivantinib.

The two trials include METIV-HCC, conducted by Daiichi Sankyo and ArQule, and JET-HCC (Japanese Evaluation of tivantinib in HCC), conducted by Kyowa Hakko Kirin. The METIV-HCC trial is conducted under special protocol assessment with the U.S. Food and Drug Administration (FDA) and the primary endpoint of this trial is overall survival whereas JET-HCC trial’s primary endpoint is progression-free survival.

Our Take

The fourth quarter results did not surprise us. We were disappointed by the guidance for 2014 which is much below our expectations.

ArQule currently does not have any marketed product in its portfolio and tivantinib is its most advanced stage candidate. Hence, we expect investor focus to remain on further updates on the phase III results.

ArQule currently carries a Zacks Rank #3 (Hold). Right now, Salix Pharmaceuticals (SLXP - Analyst Report), Questcor Pharmaceuticals and Shire (SHPG - Analyst Report) look attractive. All three carry a Zacks Rank #1 (Strong Buy).

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