Arcus Biosciences, Inc. (RCUS) Earnings Call Transcript & Summary

Good afternoon. Thanks for joining us. I'm Salveen Richter, biotechnology analyst at Goldman Sachs, and we're pleased to have Arcus Biosciences with us. We have Terry Rosen, CEO; Juan Jaen, President; and Bill Grossman, Chief Medical Officer.

And with that, I'll throw out our first question here on the recent collaboration. So you recently announced a 10-year collaboration with Gilead. Can you just recap for us the thinking behind this partnership and the strategic decision to choose Gilead versus more established pharma players within the I-O field itself, and then walk us through this agreement and what it means for Arcus?

Sure. So first of all, thank you, Salveen, for including in this -- us in this. We appreciate that. And to all those who are on the line, thank you for your interest and engagement. We appreciate it. We're thrilled, as you might imagine, with this collaboration. I have to say honestly, Gilead is a perfect partner for us. While people often say that when collaborations happen, I think this truly is awesome for Arcus and transformational. And a big part of that is the structure and the relationship with Gilead per se, but also the people. I often comment that companies are boxes with names on them and then there's the people there and particularly in a given time frame. And I think the people and the culture involved, starting with Dan O'Day and the vision there, is a big part of what makes this work. But let me get a little bit more granular to the specifics of your question, why does this really make sense from a structure and company standpoint? So first of all, we're both growing and expanding in the oncology areas. We're doing that in parallel. So the idea of being able to do a 10-year all-in collaboration is something that's fairly unique where everything we're doing, at least in principle, could be additive and interesting to Gilead. And when you think about Arcus, so Arcus' approach from day 1 has been focused on creating great combinations. And therefore, our portfolio consists of targets where we felt always that if we got a molecule, all things being equal, we wanted to go after things where we would be able to combine into our portfolio. So to have an all-in partnership with a collaborator that's, by and large, interested in everything we're doing, allows us to do something that we've wanted to do all along when we think about business development, and that's -- we call it maintaining the integrity of our portfolio. So we don't want to have to split up our programs because, let's say, I'll use an example that I always use, if we did a collaboration with one company on our adenosine receptor antagonist and we couldn't use it with the rest of our programs or it was difficult to, then it changes dramatically the value to us, the patient and so to our TIGIT blocker because it's really that additive combination that makes the one or the other better. So the idea that we could do this all-in, where we're both growing at the same time, is awesome. The other way insofar as how this is structured, it really allowed us to maintain our independence. It enhances our ability to do that. It helps us fund our development. As you know, one of the key economic terms is that Arcus has 50% of the commercial rights in the U.S. So it will enable us to grow our commercial organization. We have always had a vision of being a long-term company and this enhances that possibility. And probably one of the biggest thing is, if you look at our targets, they are all relatively ubiquitous insofar as the role they play in cancer. So as you start to think about the ultimate development and where we are in our evolution of a company -- as a company, in 2021, it's conceivable we could have 3 molecules in registrational trials. And our competitors are companies like AstraZeneca and Merck, and Roche, Genentech. So being partnered with Gilead brings an expertise in resources that will enable us to really tap the full potential of these agents in terms of breadth of development and allow us to continue to grow our discovery group. So the final point I would just make is, as I mentioned, the human element. Dan has come in; he's visionary. They're building aggressively. He brought in Merdad Parsey as Chief Medical Officer. Merdad, he has a very strong relationship with our Chief Medical Officer, Bill Grossman. They've had a long-term personal and professional relationship. So that, I'd say, even from day 1, enhanced the ability to just start in with a lot of trust. And when you think about a 10-year all-in collaboration, there's a lot that you're going to be doing almost in real time, and it -- we have just great confidence that we'll be able to do this in a seamless way.

Great. And then can you just remind us the extent of data required for Gilead to opt into programs here? And then whether there were any new combinatorial approaches that were set out as key objectives?

Sure. So we've -- the way we've structured this, especially since it's so long term and it contemplates targets that where we may not have even started work yet is that opt-in, the specifics for each program are left to the joint development committee. So that will be established after the deal officially closes and we start collaborating in earnest, but we certainly discussed it quite a bit. And the way I would describe the opt-in situation is what you and I would consider Phase Ib or Phase II data. So early data, more likely than not randomized data that gives one conviction to go into later-stage development. So we recognize, depending on the setting, depending on the combination, depending on the molecule, for example, pancreatic cancer is way different than non-small cell lung cancer. So the idea was we have this high-level concept where it's those early efficacy data where you've really increased your conviction around the drug and you want to go into those later term, more advanced trials that it's going to be those type of decisions that anyone might be making for their company. And that's the point, which for any program, Gilead would be making a decision on their opt-in.

Perfect. So maybe jumping into the anti-TIGIT program. So clearly, this has emerged as a hot target in the I-O field with a few large companies pursuing it as a target. With regard to yours, can you describe the preclinical work as you step back here, as to what gave you confidence to bring the molecule forward into clinical trials?

Sure. So when we got into this, it was really at the outset of the company. And not surprisingly, given how we pick targets, there was actually quite a bit of biology that was already known about TIGIT. And really, we looked at the start of the company and we said to ourselves, if there's going to be another backbone therapy like PD-1, what might that be? If we were to jump ahead 4 years, what would be which we might have started on? And it was the biology of TIGIT that was well-known at that time that induced us to have that confidence. And it's that unique situation, and I'll describe it. So TIGIT is a receptor that's found on immune cells. And when engaged by its ligand CD155, that causes an immunosuppressive effect. And what's unique, so when that blockade of CD155 in TIGIT allows that CD155 now to bind to another receptor on immune cells called CD226, and that binding is actually immunostimulatory. So what you can think of essentially is that you have a foot that's on the break of the immune system and that foot is CD155. And in blocking that, you convert that foot to go on to a gas pedal, CD226. And it turns out that tumors highly express that foot or CD155. So you do that conversion in the tumor and that allows TIGIT to play a role insofar as having a very specific effect that ends up being immunostimulatory insofar as when you bring in the antibody, but doing it in a way that doesn't lead to a lot of autoimmune side effects that you might find in other situation. So it's really that biology that was already known that gave us the confidence. We got an antibody very quickly. We validated that. It behaved as you would expected, and then we were just on our way to get as fast as we could into the clinic. And then once in the clinic, as fast as we could on the way to a trial where we could generate randomized data.

And then when you look at the proposed combinations here of the TIGIT with an anti-PD-1, is there any reason to think that, that be a preferential response here versus the other checkpoints when you look on it on a per tumor basis?

The strongest rationale for combining anti-TIGIT with anti-PD-1 is really just the fundamental observation that they're very often the ligands for them, CD155 and PD-L1 are co-expressed. So it's really a very sensible combination insofar as where these show up.

And then any thoughts here on the Roche data that was recently presented at ASCO?

Sure. First, in the highest level, we think they -- it's a great study. They did great work. They were pioneers in the TIGIT field. And we think the data they generated are, it's a high-quality data set, and it's great for the field. And I'll let Bill, since he's long time in this field, and he can provide context, maybe say a little bit about how we look at the data in a little bit more granularity.

Thanks, Terry. Yes, like Terry mentioned, we're pretty excited by the data that Genentech showed, not only the difference in the high delta that they observed in the response rate, but also the separation of the PFS, in particular, the PD-L1 high population. And just as a reminder, that is a population that we're exploring our acceptance as well.

And then your Phase II ARC-7 trial in first-line non-small cell lung cancer will read out end of year. To start, can you lay out the trial design here? And how much read through you see from the Roche data set?

Sure. So let me tell you why we picked that in the first place, and it will get into the design. So we thought the trial that we've set up as ARC-7 was probably the perfect sentinel study for this molecule for us, and in fact, we thought that for some time. And the reason for that is, if you think about non-small cell lung cancer, and if you go back to the approval of KEYTRUDA plus chemo, and that becoming the standard of care, almost immediately, there were discussions, whether it related to patients or physicians, that it would be great to have something that was approved upon KEYTRUDA, but was chemo sparing. And so for the reasons we were talking about before that CD155 and the PD-L1 being so common in non-small cell lung, that was an obvious place to go. Then when you start to think about that chemo sparing, that high PD-L1 population, also great. So frontline non-small cell lung, high PD-L1. Now to get into the specifics of our trial, it also introduces something that we think is an essential part of the Arcus strategy, and this is an illustration of that. So the trial is designed to be 3 arm, 50 patients per arm. First arm is our PD-1 antibody. Second arm is the PD-1 antibody plus our anti-TIGIT antibody, AB154. But then we introduced a third arm, and this is to us what makes the opportunity special for Arcus and that includes AB928, our combined A2a/A2b receptor antagonist. So while we're excited about the -- being in the race for the anti-TIGIT, anti-PD-1 combination, we're of the mind, and this is a big part of Arcus, that everything isn't going to be solved by anti-PD-1, anti-TIGIT in chemotherapy. And the next sort of step in the -- on the innovation scale is what else can you combine. And this setting, as I mentioned, is perfect because it turns out that non-small cell lung is also a high CD73 tumor. So we feel bringing in AB928, again, a very safe drug and very safe modality, really builds on that idea of having something that is chemo-free and potentially better than anti-PD-1 therapy alone. And then that's -- as I was talking about again, that's the thing where neither Merck or Genentech, for example, have the equivalent, and we feel that's the place where we have an opportunity for home run in this particular setting.

And then Terry, just a follow-up on that, and I apologize if you mentioned this. But in light of the Roche data, are you looking to maybe modify to patients with high PD-L1 expression? Or are you still looking at an all expresser population? And then when you add AB928 on top of the other 2 drugs, what is the delta and response rate that you're hoping to achieve by adding a third inhibitor here?

Sure. So we are going into a high PD-L1 patient population. We think that makes sense in all respects. And you mentioned read-through from the Genentech trial, certainly that -- while we picked that before, that's enhanced by their data. And here's the way we -- at a high level, what we're looking to see here. So if you think about what was originally seen with KEYTRUDA in terms of response rate on the setting, you had something that was in the order of 40% to 45%. And then when you add in chemo, you saw something that was in the 60% to 65% range. And so whether it's with the TIGIT antibody and then beyond that, we would hope for some improved advantage with the adenosine receptor blocker. What we're really looking to do is get into that same range or better of that 60% to 65%, but have it be chemo sparing. So hopefully, you see that with just the TIGIT antibody plus the PD-1 antibody, then we'd like to see some clinically meaningful improvement over that with the addition of the adenosine receptor blocker.

Got it. And then some companies like Merck and Roche support that their TIGIT antibodies may lead to elimination of immunosuppressant cells, such as Tregs and myeloid cells through ADCC. I believe that's kind of an important function for effectiveness. Just -- could we get your thoughts on that? And if you don't believe that ADCC is an important mechanism here, then, I guess, just why make it incapable to induce ADCC? Just curious on your thoughts here.

Sure. So I think that, that was something that back in the day, the idea that an anti-TIGIT antibody with effector function might deplete Tregs and in mouse pharmacology, that's well known. I think no one would debate that in the mouse with any number of checkpoints if you have effector function and you're able to deplete Tregs, you see better pharmacology. I think, though, that's been shown. And I think even Genentech themselves have been clear that they're not seeing any observation of ADC or depletion of Tregs. So I think Genentech themselves have pretty much, at least to date, put that to rest. I think the field doesn't see that Treg depletion is playing out in human studies. I think on the other hand, Genentech has raised some other biology based on preclinical work where they think that Fc function, not necessarily depletion, may play a role in certain preclinical models they've done. They were also pretty clear that they haven't seen any evidence yet to suggest that's playing out in humans. To your question as to why we eliminated the Fc functionality, we actually felt that the -- all things being equal, our guess was that the 2 types of antibodies would likely behave similar, going back to their blocking mechanism that I discussed at the beginning, which is really the unique aspect of TIGIT. And I think Genentech themselves continue to believe that's, if not the important -- an important aspect of that. And we have generated data in human cell biology studies that show -- since TIGIT is present on all sorts of immune cells that you were just as likely to be depleting, if you were going to deplete anything to affect their cells and you might do that intra-tumorally, and so you might be very well depleting the types of cells that you were hoping to invigorate in the first place. So we didn't see the functional Fc is bringing anything to the table and felt, all things being equal, that we would prefer to not have that activity there. With that said, I should note, we have very strong conviction around the target from day 1. Our DNA is small molecule chemist tend to be that we always look to have a second generation or a backup molecule in our adenosine receptor program despite our favorite towards the 2a, 2b pharmacology. We had a selective 2a molecule that we think was as good or better than any of the other 2a molecules that we parked and never took it into the clinic because the 2a, 2b looks so good. And we actually do have an IgG1 wild-type anti-TIGIT antibody that's very similar to the Genentech antibody that will be IND ready by the end of this year. So in our mind, the most important thing is going to be the combinations, as I mentioned before. We have enough conviction around the target that we just want to be sure we're going to have a TIGIT antibody just like we want to be sure we had an anti PD-1 antibody. But we think the combination -- even a question already with -- when Merck was starting to talk about their molecule, I think people started to ask this question, even a simple question as anti-PD-1 combination going to be any different than anti-PD-L1? We think things like adding in AB928 are going to offer the potential of really a super therapy. So in our mind, the key thing is, we just want to be sure that we had a TIGIT antibody because we think that's going to enable everything else that we do. Feel great about AB154 in that blocking mechanism, and we haven't seen any data to suggest that we should feel otherwise at this point.

Great. And then with regard to 928, so I believe you're the only company with a dual A2a/2b receptor inhibitor that's thought to reverse immunosuppressive effects of adenosine, both on TILs and myeloid cells. Can you just comment on the advantage of inhibiting both of these receptors compared to just one?

Sure. So when we first gotten into this, we recognized that 2a were very important. But we also knew that 2b receptors are found on cells of myeloid lineage, and we felt that might add an incremental advantage when you think about tumors that had a large myeloid component. And so as you'll recall, we were the first company that actually designed a molecule for the oncology setting. The other molecules in the clinic had all been re-purposing as agent. So since we were able to do that, we built in that 2b activity. As we've gone along, we've actually come to believe that the 2b activity has way more exciting potential than we had originally thought because there's a tumor-intrinsic role. And just to give you a break from my voice since Juan has been so closely involved with this work and it's an emerging science, but it's a very real science, and I think it's going to play out in the clinic as well, I'll let Juan describe a bit about what's so special about the 2b aspect of the pharmacology.

Certainly. So the A2b receptor is up-regulated in certain oncogene-driven tumors, particularly a strong connection with KRAS mutations. So incidentally, KRAS mutant tumors also expressed very high levels of CD73, the enzyme that produces adenosine. So you have a situation where the cancer cells themselves have increased ability to generate adenosine and then the ability to detect it and detect it in a way that, from a cell-signaling perspective, is tentative to the inherent MAP kinase overdrive that a KRAS mutant cell experiences. So it's a really interesting quest to the adenosine story that goes well beyond the immunosuppressive role of adenosine.

And then you've been presenting data over time here, and we're going to see more data in midyear from combination trials. What should we be looking for here? And what are the clinical bars that you're looking to, in terms of deciding, how to move these into the randomized Phase II trials?

Sure. So basically, as you know, what we've picked, and it's a fair number of settings and combinations. But we picked -- we've picked areas where we know that CD73 or adenosine is important, where we know that the standard of care actually presents a very low bar, so basically very high medical need and in areas where these particular settings are not well served by anti-PD-1 therapy. And so the way we've designed our trials is such that we get to -- as we move into expansion, once we get into a futility analysis and past that, we will randomize in what we've described and will be doing is starting to share the expansion -- the early expansion data in the middle of the year. And then there's going to be a number of studies for which we'll have randomized data by the end of the year. So I'll just highlight a couple of examples. We started a Phase II -- actually 2 Phase II trials in collaboration with Genentech. They're -- they started at the beginning of the year, and we will have randomized data by the end of the year. One's combinations is involved in colorectal cancer and one is involved in pancreatic cancer. Two other areas that we actually have ongoing studies. One, relates a little to some of the science Juan was talking about. We have an ongoing study we call ARC-4 that's looking at a combination of AB928 with anti-PD-1 therapy and chemo in EGF receptor mutant non-small cell lung cancer, where they failed TKI therapy. And you'll recall, or may not recall, but even in our dose-escalation studies, we saw a partial response in that setting. That looks exactly like a patient population that we're going into here, and we'll be reporting randomized data from that by the end of the year. And then at the upcoming, call it, AACR #2 at the end of June, I think we'll have some -- a very interesting data set from our colorectal cancer trial. So that's looking at the combination of FOLFOX plus AB928. If you recall from our dose-escalation studies, well, again, that's really just intended for PK/PD and safety. Nonetheless, we did get a sense that we were seeing a number of very long, prolonged stable disease. And so we have a much larger data set now that includes a number of patients spanning from first line through third line in later. And I think that's going to be a very telling data set in terms of how we're thinking about things as we move. Obviously, it won't be randomized data yet, but we've continued to see very interesting observations there. The other piece that comes in parallel with this, Salveen, and I think it's a big part of what we've been thinking about from day 1 and gets to your point about some of the hurdles to moving into more expansive trials, and that's the biomarker aspect of this. And so we understand a lot about this biology. So we're looking in a number of places. To this point, we have not been doing any sort of patient selection strategy, but accumulating data on all patients so that we will be able to analyze for correlations. And I think that's probably one of the biggest aspects of what we'll be looking at that will enhance the confidence for us to move into registrational studies, the idea that we'll be able to determine the "difference" between responders and nonresponders. And by definition, we feel really good because if you can tell the difference between responders and nonresponders, that means you have genuine responders. And we're getting a sense that we think, again, as the year plays out, we're still going to need randomized data for that. But the trend in the trajectories that we believe, we will have those type of data as we get to the fourth quarter. Finally, I should mention, while we talk about the TIGIT trial, it's that third arm involving AB928 is important to AB928 is for its development as well. And we'll have an early look towards the end of 2020 at the interim analysis for that ARC-7 trial as well.

Great. And then with AB680, which is targeting CD73, can you just discuss the preclinical proof-of-concept data here? And how we should think about this program's development on the forward?

Sure. Clearly, the CD73 adenosine receptor blockade, there's a relationship, but it's not 100% overlap in how we think about this. But since the A2 receptor program precedes it, we'll clearly be learning from that, and that may likely inform as we broaden the CD73 inhibitor program itself, how we approach it. I'll let Juan comment a little bit just though on what we've done to date, why we're excited about CD73 and maybe contrast where and how we think the 2 different programs have their fit, as well as how our CD73 small molecule is different from whatever else is out there.

Certainly. So I'll start with the latter part of your comment. So we have the only small molecule CD73 inhibitor in the clinic that has the ability to be delivered intravenously as well as orally. The current clinical work is being done with the IV formulation. We designed a molecule that, in addition to being extremely potent as a multi-day half-life in man, for that reason we're able to dose a short infusion every 14 days. And that still gives us essentially complete inhibition of CD73 at trough. And so for now, the current clinical work has been done with the IV formulation. Unlike many of the antibodies that are currently in clinical development, our small molecule has the ability to penetrate deep in tumor tissue, better than an antibody does and is equally effective against both membrane-bound as well as soluble CD73. There's a huge component of the CD73 in the tumor that falls in the latter category. And many of the antibodies in the clinic were designed not so much to inhibit CD73, but to enhance internalization of that portion of CD73 that's still membrane-bound on the cells that express it. So for that reason, we believe that our small molecule inhibitor is -- will be much more effective at preventing generation of adenosine compared to the antibodies. As for tumor settings, there are a number of tumor settings that appear to be pure CD73 driven as opposed to others like prostate, for example, where CD73 shares the role of adenosine generation with other phosphatases. And so I think over time, we'll be able to better judge settings in which either AB928 alone or perhaps in combination with 680, or possibly in some instances of 680 alone, it's just going to end up being a very empirical process of determining tumor types in combination settings where one agent or the other is better or possibly, in some cases, the combination of both.

Great. And then just one final question here. I think we saw some early data on a combination of Mirati's G12C KRAS inhibitor with your CD73 and an anti-PD-1 that showed some pretty nice data in colorectal, I believe, cancer or actually in a preclinical PDAC model. Just thoughts here of whether we should expect to see this combination advance into clinical trials on the forward?

Juan, why don't you give the answer.

Yes. So the mechanistic rationale goes back to what I said before, of KRAS-mutated tumors being high expressers of CD73. It's been published by Amgen that in addition of G12C KRAS-mutated tumors is fairly pro immunogenic. It induces a T cell response. And so it's a very logical thing to try what we did, the combination of a G12C inhibitor with an adenosine inhibitor should be synergistic. As to the second part of your question, and it's a very nice and profound benefit. We are already inherently evaluating the hypothesis to the extent that many of the patients that we are currently enrolling, such as in the 2 different pancreatic cancer studies that Terry mentioned, as well as a good percentage of our colorectal cancer patients are presenting, as you might expect, with KRAS mutations. So while, obviously, there's no KRAS inhibitor per se in those studies, we are going to have a very, very good look at whether KRAS-mutant tumors are particularly sensitive to adenosine inhibition. Down the road, I think the combination -- the potential combination with a G12C inhibitor is definitely something that we would be very happy to entertain. But there are no specific plans at this point.

Maybe -- sorry, one last question here. But any other assets you want to highlight that are next to move into the clinic here?

Juan, why don't you tell a little bit about -- yes, preclinical things real quickly, say a little about HIF.

Absolutely. So Terry already mentioned our second-generation TIGIT antibody. In addition to that, our HIF-2 alpha program is progressing really well. We anticipate selecting a developing candidate in the second half of this year, and our goal is to have it in patients within late first half of next year. We also have a very advanced AXL inhibitor program that we'll be moving into the clinic in approximately similar time frame as the HIF-2 alpha program.

Perfect. We'll look at it. I just want to thank everyone for joining us today. Thank you, Terry, and Juan and Bill, really appreciate it.

Thanks, Salveen, and thanks again to everybody who joined as well. We appreciate their engagement and interest. Thanks, Salveen.

Perfect. Bye.

Thanks, Salveen. Bye-bye.

Take care.