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

Okay. I think we're in the main session. So welcome, everyone, to the fireside chat, or I should say, virtual fireside chat with Terry Rosen, the CEO of Arcus. Welcome, Terry. As a reminder, I'm Yigal Nochomovitz. I'm one of the biotech analysts here at Citi. If you have questions for Terry during the course of the conversation, the easiest thing is just to e-mail me at yigal.nochomovitz@citi.com. And I also believe there's a way to post questions through the showcase feature on the video system. So you can do that either way.

So Terry, great to have you. Thank you so much for taking the time. And maybe we could just do this, just to start out, for those less familiar with Arcus, could you just do maybe a 2- to 3-minute high-level overview of the key assets in your pipeline?

Yes, absolutely. And let me start by thanking you for including us. It's a great forum. And to those of you on the phone, we appreciate always the engagement and interest. So we always feel we'd love to have our investors and potential investors to have as much knowledge about what we're doing and connect that as well. So Arcus is a company that was founded in 2015 on the back of a number of the individuals [from Flexus], when it was acquired by [BMS], went on to start Arcus, focused on oncology but with a big immuno-oncology flavor. In that ensuing 5 years now that we've been around, we've created, I think, a great pipeline, but also built a bedrock for a great, long-term company. So we mean this fully. Our collaboration with Gilead only reinforce this. We have every intent to become a long-term, independent and sustainable, RD, commercial organization. So we have 4 molecules that I think those who do follow us are quite aware of. We have our own PD-1 antibody. We have an anti-TIGIT antibody that's become of great focus since Genentech presented their data. We have 2 molecules that are unique in the adenosine ATP pathway, a unique A2a/A2b inhibitor and a CD73 inhibitor that blocks the production of adenosine. We have a lot of ongoing trials that reflect the strategy from day 1 that we believe that combinations are obviously the most critical thing in this space. And our portfolio was designed such that we wanted to be able to combine those molecules with each other as well as other molecules as well. So as those of you who follow us know, we have a lot of data readouts coming in the latter part of this year. We also have a very robust pipeline. So the Gilead collaboration, which is all-in, it's 10-year, it's strategic. It not only enhanced our opportunity to develop aggressively, but it also enabled us to continue to grow and expand our discovery portfolio. For example, we have programs that will deliver a HIF or AXL preclinical candidates by the end of this year. So in addition to the fact that, I would say the secret sauce, when you think about us technically is certainly in the small molecule realm. If you give us a target, we're going to get a great molecule that has not only opportunity to be first-of-class, but best-of-class. But when we think about our trial design, Bill Grossman, who's also on the call, our Chief Medical Officer, I think it was very transformational when he joined us in 2019. And while we felt this was all important, Bill has done a great job of creating an overall arching strategy in our clinical development that looks in this field, which -- especially important to always be moving us towards studies that will generate randomized data as early as possible. So to get -- put that all together, with a great partnership with Gilead, a strong cash position right now of over $800 million, we're excited about the data that we'll generate this year and what it holds for 2021 and beyond.

Perfect. Okay. Well that's a good setup. Maybe we could start then. You mentioned the Gilead collaboration, obviously, which happened a few months ago. What can you tell us in terms of how things have progressed since the announcement in May? And what are the key collaboration priorities through the end of the year and into next?

Thank you. Thank you, Yigal. So it's turning out. We anticipated this to be an awesome collaboration because as opposed to many collaborations that are fairly distant, there's a human element in addition to all of the operational elements. And in fact, a big starting point to this was an existing professional and personal relationship between our Chief Medical Officer, Bill Grossman, and Merdad Parsey at Gilead. Dan O'Day, even himself, very visionary individual, been involved from early from my first conversation. He stayed involved as this kicked off and, I think, very supportive of thinking of this and moving it to be as seamless as possible for 2 companies. And then while we just closed the transaction in July, I would say, operationally, that's how things have taken off. So in addition to any of the formal interactions -- and Dan, himself was involved as we kicked off some of those discussions, it's really been an ongoing, informal relationship as well. And I think that we will be operating, which is important for something like this that's so all-in and 10-year, there are going to be things that you couldn't even -- involves targets that we haven't even started working on yet, obviously. But insofar as your question about the priorities, what we've been doing is very much planning. So there'll be a lot of more decision-making as we get closer to the end of the year. But clearly, the anti-TIGIT program is something that there's been huge amounts of discussion. And similarly, we're talking a lot about our adenosine receptor program as well. So we have a lot of studies. There'll be a lot of decision making that's informed by data. And we're working together well, putting the teams together, et cetera. And so that as we get towards the later part of this year, we're in a great position. Almost -- I would say we're already feeling like somewhat the way you would as a single company. And you have these readouts and then what will we do next.

All right. Perfect. Well you mentioned TIGIT. It's obviously an important investor focus for you guys, AB154, the name of the molecule. So as I understand, you're on track to complete the interim analysis for the ARC-7 trial for AB154 in the fourth quarter of this year. And as I also understand, you'll probably present that at a medical meeting in early 2021. So would love to get some help just rightsizing the expectations for that data, number of patients, duration of follow-up, the types of data that we'll see from that interim. And what -- if there's some sort of formal go/no-go decision in terms of that study? And maybe just also since it's a fairly complicated trial design with multiple arms, if you could just review for everyone what that trial design is.

So let me start off by highlighting the trial design and the strategy behind it. And then I'll let Bill jump in after that and give a good set of expectations of all those questions that you were asking that people will be paying close attention to. So great introduction, and I liked the way you asked the question, so let's talk about what the trial looks like. So keep in mind that this trial was designed before the Genentech data were out there, but the Genentech data made us feel very good about what we were doing. And in the original idea there was that when KEYTRUDA plus chemo became the standard of care in non-small-cell lung cancer, we felt and what we heard, whether it was from patients or physicians, was there a clear appetite for something that could have the efficacy of that KEYTRUDA plus chemo, but lack the baggage of the chemo. And so this was, in fact, the perfect setting to explore in anti-TIGIT antibody. So when you think about the trial that we designed, we've got 3 arms, and there are 50 patients per arm: arm number one our anti-PD-1 antibody; arm number two, anti-PD-1 plus anti-TIGIT. And then a unique thing that no one else has, and for us, this is the home run opportunity, is a triplet arm where we have that doublet plus AB928 arms, A2b/A2a receptor antagonist. One other unique aspect of this trial, which is being done, frontline, non-small-cell lung, high PD-L1. The other unique thing about that trial design is that patients who progress on anti-PD-1 therapy alone can move into the triplet. And as you know, there's nothing good for those progressors as the world exists today. And since CD73 and adenosine is so important in non-small-cell lung, there's a strong thought that this may be a good opportunity there. So with that as background and the design of that trial, I'll let Bill share a few thoughts on what people should expect from -- in what -- when our flow of information should be as well as contextualize with what's already out there and known.

Thanks, Terry. So as mentioned, towards the end of this year, we'll be looking at doing an event-driven, first interim analysis assessment, looking at targeting roughly half of the patients in each arms, so in that 25 patients per arm, give or take. This will be largely an overall response look. We'll be also taking a peak at PFS, but the data maturity will be -- won't be quite as long as the CITYSCAPE data, so primarily again, response rate, looking at the 3 different arms and the comparisons. There's no formal go or no-go decisions made with that. It's just looking at the data for some internal decision-making as well. We'll have to look at -- we have a later interim analysis next year, looking for more mature PFS. With the CITYSCAPE data, there was some separation early on, PFS at 2 to 3 months, but we'll have to see how our zim mono arm performs.

Got it. And in terms of just the biological hypothesis, especially for the triple arm, can you just talk a little bit about how -- what your expectations are for how the anti-TIGIT molecule can synergize with PD-1 as well as with adenosine, the adenosine blocker? And do you expect to see more of a jump on efficacy by adding TIGIT to this PD-1 monotherapy or by adding the adenosine blocker on top of the doublet? Or is that really an unknown in terms of the degree of effect for those 2 -- the triple and the double arms of that study?

So we believe that the doublet therapy that Genentech showed for CITYSCAPE was really kind of the target that we'd be looking for as well for the doublet. With respect to the triplet arm itself, we are hoping to bring not only kind of potentially a deeper response just because of the mechanism of adenosine being kind of another major way of immune suppression within tumor microenvironments. But also looking for a more durable set of responses as well with the triplet arm. So hopefully, having something in line with chemo checkpoint, but with less toxicity that one would expect from the chemo combination.

Yes. I'll just -- since you asked about the biological question, I think, as an excellent answer in terms of how we're thinking about, when you think about biological hypothesis, so the tie-in there -- and this is why we love non-small-cell lung is -- I like to refer to it as the sentinel setting an indication for this program. You tend to see very good correlation between PD-1 expression and TIGIT expression and PD-L1 and CD155. And then the other piece is that on non-small-cell lung is a very high CD73 tumor, so it's a high adenosine tumor. So that biology, while you're too intrinsic in your question, is it an unknown? Yes, but in speculating, it's a -- there's strong biological rationale for all 3 of those components.

Got it. So assuming all goes well with ARC-7 and the interim readout is positive and subsequently, the final readout is also positive, what kind of a next-step trial would you envision? Would you be able to go maybe do the doublet or the triplet head-to-head versus chemo plus KEYTRUDA in first line? Or is -- that would be too much to bite off for the next trial? What are your thoughts on how that would go?

So I'm not going to be evasive here, but we do have a registrational strategy for what that -- how that next trial looks. We've, in fact, already discussed that with the FDA. We've also discussed it with the European regulatory authorities. And it's something that we'll be sharing prior to the end of this year. And it will deal with both the -- an approval pathway for both the doublet as well as monotherapy, our anti-PD-1. So that is something that we'll share. And so to your point, we feel that collectively, everything that's out there enables us to move into that very soon.

Okay. And obviously, non-small cell is the focus for now. But where would -- what would be the next indication or indications that would makes sense for the TIGIT plus PD-1 plus adenosine axis?

Sure. So as I mentioned, that it's that for the -- in the current world, with the information we have to date and I think we'll continue to learn more, it is that places where anti-PD-1 therapy already works is a good place to start to think about the addition of anti-TIGIT. And I'll add one comment just to get into some specifics where we do know that is the case and how we're thinking about future indications. And those are -- to your point about discussions with Gilead and planning, since we do see this as huge opportunity, these are -- there's the mix of scientific, biological, clinical and then the hurdles that we'll sort through some of these. But Juan, why don't you share a few of the places where we're thinking are the smartest next considerations.

Sure. So along the lines of what Terry said, you said that rationale of that, let's call it, the low-hanging fruits would be things like second-line cervical, frontline head and neck, for example, frontline melanoma would all fit the category of an opportunity to do better than single agent PD-1. If you think about it as sort of buckets, another really interesting one, at least conceptually, it would be going into IO refractory patient population. So tumors that no longer respond to a direct T-cell attack and looking for the ability to stimulate natural killer cells. So there, you'd be looking at IO relapse, again, go through the indications where PD-1 is approved, and try and provide a benefit following that relapse, so whether it's lung or melanoma or any of the other settings. Those are sort of 2 -- the first category is, again, sort of the low-hanging fruit. It's the obvious place to go looking. And just like we're doing with ARC-7, the most interesting settings will be the ones where we think that we can also layer an adenosine blocker on top of PD-1-TIGIT doublet.

Okay. Perfect. And just real quick, Terry, if you could just quickly touch on the -- your preclinical asset, the AB308, which is the FcR-enabled TIGIT antibody. I think you're going to be filing that for an IND towards the end of the year. Just help us understand the rationale for having both the Fc-inactivated version, which, of course, is AB154 as well as the newer one, the AB308, which has Fc-enabled. Thoughts on just that dual strategy.

Sorry, I was on mute. So absolutely wanted to give some clarity of thinking there. So part of this goes back to our roots as small molecule. We've been doing this for a long time. We always -- when we have conviction around the target, we always have a second-generation molecule, if you will. So for example, while we have AB928, it's our A2a/A2b molecule, we pushed along another molecule called AB745 that we've parked that was a selective A2A receptor antagonist. Without knowing any liabilities of 928, we had that just in case. As you know, oftentimes you select something that's slightly pharmacologically distinct. If you don't know anything there, you might pick something that's a different chemo type. Similarly, when we made the decision that we felt we were going to have an anti-TIGIT antibody in the early days of the company, it's something that doesn't come up that often, but the reason we picked that in the first place was we felt that there was going to be a next backbone therapy like anti-PD-1. Because of that biology, we felt it would be anti-TIGIT. And so way back then, we picked another molecule, AB308. Ironically -- so we picked it to be on the IgG1 wild-type backbone. At the time, we weren't so much focused on that functional Fc versus not per se. We just -- we essentially were picking a molecule that we felt would behave similarly, but that perhaps we might end up surprised by something that was unforeseeable in the clinic. And so we just picked something that was distinct. And the reason I say ironically, while we don't really believe that there will be meaningfully different clinical profiles between the Fc functional or not molecules, just as there aren't in any of the other checkpoint inhibitors. But to date, that question has come up. So it turns out that one -- 308 has the functional Fc. So if that was the cause of something different, while it just turns out that perhaps fortuitously were covered, but our strategy has been to move AB308 as aggressively as possible. Till we're absolutely convinced that 154 is on its way to being a drug and not try to pretend we're so smart that we know it's there now. But the strategy was essentially one where its conviction around the target, make sure that when we're standing there at the end of the day, that we have an anti-TIGIT antibody. Just to put a final point of clarity on that. We look at anti-TIGIT -- as much as we're excited and thrilled to be in the foot race, we went -- strategically, when we decided to work on TIGIT, we felt, just like anti-PD-1, we were looking forward 3 years. We said, what might we wish we were working on. We feel if you're going to be a long-standing, independent company in the oncology field, you need -- you're going to need to have a TIGIT antibody. We feel that at some point, becomes like table stakes in that the real differentiation isn't between the molecules per se, just like it is right now between -- if you look at the checkpoint inhibitors, we believe it's not only -- it comes down to what's your clinical strategy and what you have to combine it with. Our focus has been really not only on relying on the clinical strategy, but to have things that were unique to combine it with. So while AB928 is a particularly obvious differentiator when you think about that combination, we think there may even be differences between anti-PD-1 as a partner versus anti-PD-L1 as a partner and then even potentially within the subgroups of those molecules per se as you get more into the weeds on the differentiators. So we think the most important things will be the clinical settings and the combinations that you choose.

Okay. Makes a lot of sense. Let's move on. You mentioned AB928 a bunch of times, so let's just focus on that one for a little bit. You have a near-term catalyst coming up with the data at ESMO for the ARC-4 trial, which is the AB928 plus carbo/pem plus PD-1 in the non-small-cell lung cancer. Maybe this question is better addressed to Bill. Similar to before, could you just help us level set expectations for that dose escalation, dose expansion trial, number of patients, the end points that we're expecting to see, duration of follow-up? What's in-store for the ESMO update for that trial, ARC-4.

Sure. Bill, why don't you go ahead and describe that?

Sure. Yes. So we'll be describing our initial dose escalation set of patients which -- so we have 7 patients in 2 different dose escalation cohorts at about 75 milligrams and 150 milligrams. And then we'll be presenting data on our initial 7 patients in the dose expansion, which is in the EGFR-mutant TKI-failed population of patients that we're focusing on for the trial. There'll be a pretty early follow-up for those first 7 patients. But we'll be collectively showing some pretty interesting and we think clinical activity in those first 14 patients across both the dose escalation and the dose expansion patients and some notable responders in those 2 groups.