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

Good afternoon, everyone, or good morning. My name is Jason Zemansky. I'm one of the SMID Cap Analyst here at BofA. Thank you for joining us on this, our last day of our 2024 Health Care Conference in Las Vegas. I'm pleased right now to be introducing Arcus Biosciences. And I have with me here, Terry Rosen, Chief Executive Officer; and Juan Jaen, President. Gentlemen, thank you so much for joining us for what will, I think, be a very interesting and spirited discussion.

Thanks, Jason.

Well, perfect. Maybe to kick off the discussion. Last week, during your earnings call, you pointed to several near-term catalysts that are in place to potentially support your 4 late-stage clinical programs. For those investors who may be a little bit newer to the story, can you please provide a brief overview of each of these, dom, etruma, quemli, cas, along with their indications?

Absolutely. So it's going to be a very catalyst-rich second half of the year, starting at ASCO. So I'll go chronologically and I'll start with ASCO, and I'll start with a study that we call EDGE-Gastric. That involves dom, zim plus chemo in upper GI cancers. We presented early data from that at the end of last year. We were seeing a very favorable looking 6-month PFS in both high PD-L1 population, 93%, and then the overall population, which was 77%. And we think we're going to have very meaningful data at ASCO on an update on that. And most importantly, we'll have median PFS. Importantly, we'll also have -- you'll be able to see the safety profile, which is a very good surrogate when you're looking at dom, zim plus chemo. And particularly, we think that's important, and maybe we'll get into this a little in light of Merck's announcement of one of their Phase III trials in adjuvant melanoma. The second presentation that we'll have at ASCO that I think is a little under people's radar, that we think will be very meaningful, not only for Arcus but for the field in the ATP adenosine field, and that's with our A2 receptor antagonist, etruma. I'll remind people, the abstract for that will actually be out a week from today. So you'll be able to see a lot of the data for that program. It will be an oral presentation on Sunday, and that's in the setting of third-line colorectal cancer. I'll remind you, that's a randomized study. It's 105 patients, 70 on drug, 35 on what was the standard of care at the start of that study, regorafenib. That standard of care is evolving. It's currently moving towards Lonsurf bev. To just give you some landmark numbers to keep in mind, the PFS for regorafenib is 2 months on change, it's not a very good drug, OS is about 6 months. There's a new study for the Lonsurf bev, call it SUNLIGHT. I have this habit of saying SUNSHINE, but it's SUNLIGHT study. And the OS in that stage, just over 10 months and the PFS is 6 months on change. And you'll be able to compare to that. We're very excited about the data. We think we compare very favorably to the standard of care there. So I think it's going to be a big deal for the ATP adenosine field. And what you'll be able to do with that study is also combine it with the data that we presented in ARC-8 in pancreatic with our CD73 inhibitor, as well as the data that Roche presented with etruma, also in pancreatic. And what it really points to is strong evidence that mitigating the effects of adenosine when you're giving immunogenic chemotherapy can have profound effects in OS. Then the final catalyst from a presentation standpoint will be an update on our HIF-2 inhibitor that we are planning later this year that include 30 patients that are in an expansion cohort, 100-milligrams in clear cell RCC. Then the 2 other important catalysts that I'll just point you to that will be occurring involve trial enrollment, and these are Phase III registrational trials. So by the middle of the year, we have every expectation that STAR-221, it's almost 1,000 patients in the upper GI cancer field, that is the same patient population, the same setting, same combination as the EDGE-Gastric data. So that will be a really good surrogate for what we're going to see there. That should be fully enrolled by the middle of this year. And then a little later this year, we expect STAR-121, which is also our anti-TIGIT, anti-PD-1 chemo in PD-L1 all-comer non-small cell lung cancer. That's going right at the underbelly of KEYTRUDA. That should be fully enrolled into this year as well. So I'll stop there. That was a long brief introduction, but wanted to get -- we have a lot happening.

Absolutely. And a very interesting time for the company, a very exciting time for the company. I was hoping that before we focus on ASCO, maybe we could take a step back and chat about TIGIT. I think it's safe to say that despite a lot of initial interest and promise, we haven't seen, thus far, much from the mechanism. I know you mentioned Merck's setback in melanoma. So arguably some investor skepticism. What continues to give you confidence in the mechanism? And then maybe you could speak a little bit to your Fc-silent receptor as domvanalimab has. Is this what needs to kind of get us over the efficacy?

Yes. So on the first piece, I'd say, our own data, primarily ARC-7, we actually think the SKY-1 data, whether or not Genentech, Roche, its statistical significance clearly shows the mechanism works. We've seen some favorable GI early data out of Roche Genentech as well. We think that the data that we'll share at ASCO from EDGE-Gastric will further enhance the confidence. So we think the totality of data really point to anti-TIGIT being important. And we feel -- what's interesting, if you look at the field and you look the combinations of anti-PD-1 or anti-PDx and anti-TIGIT, there's really only 2 molecules that we think are substantially different. That's atezo, not only anti-PD-L1 but also has the issue of ADA. So we feel that's a weak point. And then we feel that all of the Fc-enabled anti-TIGITs are pretty similar. And so this gets to your question about the Fc-silent. What we've seen consistently is that Fc-silent anti-TIGIT, on top of the other therapy, basically doesn't bring any additional toxicity or AEs. And I think that will be very clear from the EDGE-Gastric presentation. Nice timing. Merck just talked about a Phase III study that they were doing in melanoma that very much give an explanation, that's something we've been foreshadowing for some time. Now let's recognize that the setting they were in, this is Phase III in adjuvant melanoma. So the safety bar is really high in that. But what they did report is that they stopped the study for futility but they pointed out that what they were seeing were high levels of immune AEs. And keep in mind, they're developing a co-formulation. So they've got their anti-TIGIT, their anti-PD-1 in one bag. So if they take a patient off for an AE, they run a risk of an efficacy issue as well. And they have an Fc-enabled anti-TIGIT. We've also noted that Merck, when they did their early studies, explored 200-milligram and 700-milligram doses of their anti-TIGIT. They went with the 200-milligram. So we think this illustrates what will be a continuing issue for the Fc-enabled anti-TIGITs, which the one thing that's been shown clinically, demonstrably across them is that they deplete peripheral [ Tregs ]. And that's what leads to those immune AEs. So we feel really well positioned with the Fc-silent anti-TIGIT. And like I said, I think our EDGE-Gastric data will reinforce their concept.

Great. And you mentioned Roche's SKYSCRAPER-01 data. I think it's still top of mind for many investors. If the data are positive, does this complicate the potential commercialization of dom in at least lung, especially with atezo being somewhat already used in this indication?

So actually, for us, because strategically, we moved away from the high PD-L1. We feel we're right in the race with Merck in the PD-L1 all-comers. We're going to be fully enrolled this year. So if anything, we think a positive result for the field will be good. We'll be thrilled with that being statistically significant, and we feel we're going to be likely second in the PD-L1 all-comer and feel like we're going to have the best. So a positive for them, we think it's good for the field and good for us.

Perfect. Well, let's pivot to ASCO. I mean, you mentioned the Cohort A1 presentation last November. I think it's fair to say, the discussion was very impressed by your ORR, but did flag the outcomes in the PD-L1 low expressers. Will we see data stratified by PD-1 expression? And any concerns here?

Actually, Juan, why don't you take a shot?

Yes, sure. So the answer to your question is, yes, we're going to break it down by PD-L1 expression. You're going to see objective response rate as well as medium PFS and landmark 12 months of PFS as well for both groups, right, and we're really looking forward to sharing those numbers with the rest of the community.

Excellent. And then in terms of mPFS, what do you think is sort of the benchmark here to really get the community jazzed about what we're seeing?

Yes. So what's nice is there are 3 registrational data sets out there, numbers are tight. So CheckMate 649 is clearly, the most important because nivo chemo is really the standard of care. And you've also had, in the past few years, approvals for tisle chemo and KEYTRUDA chemo. The numbers come in really tight somewhere between just under 7 months median PFS to just about 8 months PFS. So you could do the math. It will be just a couple of weeks away, but something meaningfully different from those should be exciting to the field.

Got it. And then as you mentioned, STAR-221 enrolling very quickly, setting it up to potentially be your first indication, your first commercial -- first point of commercialization. But how important is it to your overall strategy here to get established in gastric and potentially move out into other indications?

We do see that as very important because it gives us an opportunity start to build a halo for the Fc-silent anti-TIGIT. I think it's going to -- that this will be a place where we can stand out because it is in combination with chemotherapy. So we just like the way that, very organically, things have played out and the timing there and that getting that out there. By the way, no one else has even started a registrational trial in the outsetting. So for us, we hedged our bets going into this setting, and we think that's going to play out for us very favorably, strategically.

Got it. One more maybe on gastric. Again, I think the field is -- it's safe to say things are evolving. We have the anti-claudin class coming in. On one hand, there are maybe more toxicities, but on the other hand, combining a PD-1 with a claudin is you're mixing 2 different modalities, which isn't necessarily the same with a TIGIT PD-1. Can you walk us through the scenarios here? I mean is claudin overall a competitive threat?

Why don't you?

Yes. So just a point of clarification, we're going after gastroesophageal adenocarcinoma. The majority of gastric and a good chunk of esophageal within the scope of what we're studying. We're not particularly worried. Primarily, I think claudin 18.2 seems most prevalent in the PD-L1 low population, as I just pointed out. Those agents tend to be fairly toxic. We think that in Fc-silent, TIGIT antibody will definitely be very competitive in the PD-L1 low population with an infinitely safer profile. The other question is the natural barrier to claudin 18.2 testing in the general community. I think it's going to be an additional barrier. So we're going to be very competitive on efficacy, superior and safety on much easier to select patients for it.

Great. And then I know you briefly touched upon STAR-121, your pivotal in lung. If you look at the lung market overall, there are a number of modalities moving forward not only next-gen IOs like TIGIT and LAG, but ADCs as well. And then you've got some established regimens with 5-year plus survival rates and CTLA-4, PD-1. So I'm curious, how does TIGIT fall into the overall mix here, especially as kind of the market remains fairly influx?

So we think it's probably right down the middle of the fairway because the way we look at it, the real leader there is anti-PD-1 chemo. And this is going to enhance that effect you're running against that standard of care. We're running against KEYTRUDA chemo. So we're feeling really good about where this positions us, not only in the context of the anti-TIGIT field but in that frontline non-small cell lung market.

Got it. And then looking, I think, more towards the commercial side of things, you're obviously partnered with Gilead, has a very strong commercial footprint, but at the same time, is maybe a little newer to lung than some of the other entities here. Can you talk to us about what the partnership means in terms of your strategy here? And then like, what is it like having been working with Gilead? How is that partnership?

So I'm sensitive to time on this. The partnership has been awesome. We actually feel that what's unusual about it -- I would actually say, I've been working almost 40 years and collaborate with almost everybody. It's probably the best collaboration I've ever been involved in. And it's also the broadest. Like, there's literally hundreds of people working on the programs in Gilead. It's not one of these things where you meet every quarter, but it's day to day and that's through the level of Dan to everybody working in the teams, we talk daily. To your point about the commercialization, we're feeling really good about that because we recognize a lot of early-stage companies really, when they are successful, technically, development-wise, they stumble there, and we feel the ability to titrate in with them. And their Head of Commercial, actually, background is BMS immuno-oncology. So we feel we're with the right partner. They know how to commercialize combinations well. So we're pretty thrilled with how the collaboration is going in the future as well.