In a reversal of the standard story of a big company licensing a compound from a small company, newly formed Loxo Oncology is teaming up with Array BioPharma in deal that could be worth up to $434 million for Array.

The multi-year license and collaboration agreement focuses on a preclinical compound from Array that targets a specified novel oncogenic activating mutation and related intellectual property.

The companies hope to take advantage of recent advances in understanding the cancer genome to accelerate the preclinical and clinical development of experimental candidates targeting genetically defined cancers. The licensed program targets a novel oncogenic activating mutation. The partners will also work together to discover and develop small molecule drugs for mutually agreed upon novel cancer targets.

Aisling Capital launched Loxo Oncology in May with $30 million in funding to accelerate the clinical development of genetically-defined cancer therapeutics. In partnering with Array, Loxo hopes to take advantage of its drug discovery expertise in a cost-efficient manner, rather than begin from scratch on its own.

“As the biotech industry continues to adapt to a shifting funding environment and compressed development times, it is important for small companies to prioritize capital efficiency from the outset,” says Dennis Purcell, senior managing director at Aisling Capital. “Loxo’s collaboration with Array is an innovative solution to one of the core challenges in our industry how to fund innovation without funding duplicative infrastructure. In biotech, the cost of capital is too high to do otherwise.”

Under the terms of the agreement, Loxo will fund Array’s preclinical research, which will give it access to Array’s world-class discovery platform and scientists, and will be responsible for target selection and conducting clinical trials. In return, Array will receive an undisclosed equity stake in Loxo and is eligible to receive up to $434 million in milestone payments, plus royalties on sales of any resulting drugs.

Loxo expects to initiate human clinical trials on the first program in 2014.

Array has a track record of successful drug discovery in oncology, with 16 drugs currently in clinical development, including 11 in mid-stage and late-stage trials. Several of its programs are partnered with companies including Amgen, Astra Zeneca, Celgene, Genentech, Novartis, and Oncothyreon.

“Array has partnered with a number of venture-backed companies which continue to produce encouraging results,” says Ron Squarer, Array BioPharma’s CEO. “The venture-financed model of drug discovery and development can cost-effectively identify novel candidates and rapidly test the clinical hypothesis.”