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

So welcome, everyone. I'm Yigal Nochomovitz, Biotech Analyst at Citi. This is the Citi Biopharma Back To School Summit. So we've all got our notebooks out, Back To School. So the next session is with Arcus Biosciences. So I have with me Terry Rosen, CEO; Jennifer Jarrett, Chief Operating Officer, and Pia Eaves, Head of the Investor Relations. So welcome all of you. And for those in the room, if you want to ask questions, there are microphones and also welcome to those listening online. So Terry, you want to kick it off and kind of just give us the highlights of the last couple of quarters of -- you obviously had a very good ASCO and you have a some more catalysts coming up for cas in the fall. So a lot to talk about cas-related but other topics, too.

So thank you, Yigal, and I will do that. I'll lay out what will probably be high level for the topics and questions that you'll have for us today. But we have presented a lot of data. We presented at three medical conferences in relatively short period on casdatifan. And then we have not only a flow of data but readouts coming from our major Phase III program, 4 molecules. I'll just start off by mentioning the molecules. You've got dom-zim, our anti-TIGIT anti-PD-1. You've got quemli, our CD73 inhibitor, and you've got casdatifan, all of these in late-stage programs. Clearly, casdatifan is of greatest interest right now in the investor community. We've shared data, and I'll just say at a high level without getting into any of the numbers. I think it's -- this is a 2-horse race, belzutifan from Merck and casdatifan, our molecule. And I think we've presented very compelling data from 120 patients that show that casdatifan is clearly a best-in-class molecule. That's been in monotherapy. We've also, at ASCO, presented data combining it with cabo, which is standard of care in second-line clear cell RCC. Again, substantially better data, at least on ORR compared to belzutifan combined with cabo. This is all in what's a very substantial market. The total addressable market here, we're talking probably on the order of $10 billion. We've just initiated our Phase III program with casdatifan, two programs. First, our Phase III study, PEAK-1, nice design, really great from an investigator, great from patient, great from execution. That's cas plus cabo versus cabo. We expect that to enroll really rapidly, not only investigator enthusiasm but we've had -- with all of these cohorts in ARC-20, the Phase II corollary, we've got a lot of investigators who are jumping right into Phase III. The other Phase I, Phase III program that just started our collaboration with AstraZeneca. That's in the frontline setting, and that's looking at casdatifan plus their anti-PD-1, anti-CTLA-4 bispecific volru. So we'll have a lot more data coming from the monotherapy cohorts. We just announced today that we'll be holding an investor event. It will be very substantial, a lot of data in October, October 6. Not only will we share the data there, updated data from those cohorts but also get into depth on how we look at the market. Key data there will just be that we'll have durability. So we'll have updated ORRs and other data that we've already presented but it should be our first look at progression-free survival data. In addition to casdatifan, which, again, I think is central to what we've been talking about, we actually have a lot of other exciting and major data readouts coming. So we'll be sharing data at ESMO from EDGE-Gastric, which is looking at dom-zim, our anti-TIGIT, anti-PD-1 combination in chemotherapy. We'll have the first OS data for what's the Phase II correlate of what we call STAR-221, our Phase III study. That's EDGE-gastric. That's in patients with upper GI cancers. I'll remind you that we shared PFS data, which were essentially equivalent to the OS data from the standard of care. And I think the dots will connect and the data that we shared at ESMO should reinforce confidence in our Phase III study. That Phase III study will be reading out in 2026, and I'm sure you'll have some questions on that. Finally, the one other Phase III study that we've had ongoing is quemli, our CD73 inhibitor in pancreatic cancer. And that study has enrolled incredibly rapidly and as a matter of fact, we've stopped screening. It will be fully enrolled this month. The study will have enrolled in roughly 9 months over a year ahead of schedule. And that's clearly been driven by investigator enthusiasm/ Unfortunately, pancreatic cancer, as you know, has a fairly dismal prognosis. So that study is looking at quemli/gem-abraxane versus gem-abraxane and that gem-abraxane OS is generally going to fall in the range of something like 9 or 10 months. So you can imagine that reading out in a relatively near time, too. So between now and the end of 2027, it's going to be a continuous flow of data as well as Phase III readouts. So we're in a real transformational period for the company. People use that term. I think it gets overused. But for an early-stage company, they have 4 molecules in Phase III studies. They're all major markets. They're all major Phase III studies ranging from 500 to 1,000-plus patients, and they're in very competitive fields with huge markets. So I'll stop there, and we can go to your questions.

Well, so you mentioned a lot of things. the Merck drug, belzutifan, obviously, it's the same MOA but there's -- you made the argument that you -- that what you're doing with cas is different in terms of the way it's hitting the target and the way that you're having ramifications on the target genes for HIF-2 alpha. So maybe you can kind of just walk us through that aspect of the biology just in a simple way and then how that -- we believe that's translated at least in the early innings to better numbers.

Sure. So the primary advantage of casdatifan relative to belzutifan is its pharmacokinetic and pharmacodynamic profile. And the most measurable, tangible data that are out there on that is looking at the gold standard biomarker for HIF-2 inhibition in a human, which is the blockade of the production of erythropoietin. So that's under the control of HIF-2. And not only have we shown a deeper effect on that but what's actually turned out to be the case, Merck published data for belzutifan. We've also put data out for casdatifan and the Merck pharmacodynamic effect wears off roughly somewhere between 9 and 13 weeks, where we've shown we maintain a robust effect out past 36 weeks. We've recently presented data, and we'll be reinforcing this at that investor event that actually shows a correlation in patient outcome, so whether you have progressive disease, whether you have a response, whether you have stable disease that can be linked to that individual patient, the ability to suppress erythropoietin. But how does that translate to clinical benefit? Basically, first, we see a dramatically different rate of primary progression. So belzutifan reports out over 30%, roughly 35%. We're somewhere in the 15% range. And essentially, that drives all of the other endpoints because those -- when we're talking about primary progressive disease, those are patients that progress at or before a first scan. And with this mechanism, because of its safety, even if a patient has stable disease, they're going to contribute very meaningfully to PFS. So we've also seen this has translated into a better ORR than that of belzutifan, roughly 50% better. We're seeing over 30%. They've reported just over 20% at best. And then we've shown improved PFS, and I think we'll show even more improvement on that when we share our updated data. So really, in multiple cohorts, there's not an endpoint that we've looked at that hasn't been better than that of belzutifan and usually by at least 50% or so.

Okay. So you have that data, albeit it's not -- obviously, it's not head-to-head but it's still a good comparison. But then in addition to that, since -- I mean, you are the same mechanism, one of the other things, which I want to talk about is the strategy for the Phase IIIs because having a unique strategy for the Phase IIIs is super important, given it is a competitive space. And obviously, Merck is doing more than just the studies they've already done. They're doing new studies with the new LITESPARK studies. So maybe Jen can also comment on this. What -- talk about the strategy and how you design PEAK-1 and eVOLVE to be different and answer different questions and address the market in a way that Merck isn't doing?

Yes. So we believe we have a very different and a better development strategy. And 2 years ago, before we saw the efficacy data from [indiscernible], we used to say that even if we didn't show better efficacy, we believe we have a better development strategy. Now we know we have a better molecule than belz with cas based on the efficacy data, of which we'll show more of in about a month. But on top of that, as I said, we definitely have, we think, a better development strategy. So starting with our study in the IO experienced patient population of RCC. So these are patients that have had prior anti-PD-1 either in the adjuvant setting or in the first-line metastatic setting. So this is a very large patient population. We are combining with cabo, which is the most widely used by a very significant margin TKI in that setting. And then we're comparing to that TKI to cabo. So it's cas plus cabo versus cabo. In contrast, Merck is combining belz with lenvatinib because that's the TKI that they own, which is less widely utilized in that setting. And therefore, we believe there's less clinician comfort in managing the toxicities and other attributes of lenvatinib. Lenvatinib is also more complicated to dose. So the dosages that are used are anywhere from 4 mg to 24 mg, like every clinician you talk to probably doses lenva slightly differently. The dosing of cabo is very, very simple, usually start at 60 and then you'll dose reduce either 40 or 20 if you see toxicity. So we love the idea of combining with cabo for all those reasons, just much easier dose, more widely used and clinicians are more comfortable managing the toxicities of that TKI. On top of that, Merck and their control arm is using cabo.

I was about to ask.

So they're combining belz plus lenva versus cabo. So obviously, if lenva underperforms cabo, that's going to put them at a disadvantage in that experimental arm. So we think it's a much cleaner study to be able to combine with cabo and then to compare the combination.

They had to do it that way, right?

They had to because absolutely, they could have. Yes, so it's kind of interesting. But keep in mind, also lenva, the way lenva is used in that setting is it's used in combination with everolimus, which a lot of people forget about. So if you look at some of the data that's out there like PFS data for lenva, most of that data is lenva plus everolimus, while they're combining with lenvatinib alone, not lenva plus everolimus. So that's also probably why if they had a control arm, they would have had to use lenva plus everolimus, [ which would ] made things more difficult. So the other difference is on the statistical analysis plan. So they used dual primary endpoints of PFS and OS. We believe that they have some interim analysis as well. So because of that, you're having to chop up your alpha a bit. We have no interim analyses, one primary endpoint of PFS. We will obviously look at OS. And so the key secondary endpoint is OS. So we'll continue to track for that. But it's one endpoint. All of the alpha is on that endpoint. So we think we also have a better and just much cleaner, simpler statistical analysis plan. So that's for PEAK-1 for. And then one other slight difference is we're also using 2:1 randomization. So we think that will make our study even easier and more interesting to people to enroll because patients are 2x more likely to get an experimental arm than the control arm, which is something that patients and physicians always like.

Before we get to eVOLVE, just what's -- so this PEAK-1 has started or is about to start?

PEAK-1 has started. So we've activated our first sites, and we should have first patient in any day now.

Okay. And then roughly, is there a timeline for when get...

So we haven't provided specifics but if you look at the typical either first-line or second-line RCC study, they tend to enroll in 18 months or less. There's actually one study that's fairly recent called CANTATA, that enrolled in 10 months. So we think this study should enroll less than 18 months. It's really set up to succeed for a number of different reasons. As we talked about, it's going right on top of the standard of compare -- when we're comparing the combination to the standard of care. So that obviously makes the study very, very attractive. In Europe, belzutifan is not paid for yet. Same with South America and some other regions. So the only way to get access to a HIF-2 alpha inhibitor, if you're a clinician or a patient is to be in a clinical study. And then as of today, there's no other directly competing Phase III studies. So for all these reasons, we think we're in a very good position to get PEAK-1 enrolled quickly and get us to date as quickly as possible.

Okay. All right. Do you want to say anything about volru? I just wanted to get...

Let me get it [indiscernible]. So -- and then our strategy in the first-line setting is even more different than what Merck is doing. So our strategy in the first-line setting is to combine with anti-PD-1 CTLA-4. That is the most widely used regimen in the frontline setting. So today, it has about 35% share. Clinicians like that combination for 2 reasons. First of all, it's TKI-free. So in the first line, it enables you to avoid all the TKI-related toxicities like hypertension, diarrhea, rash, et cetera. The other advantage that it has is it gives patients the best chance of long-term survival. So if you look at CheckMate 214, about 30% of patients were still on treatment and doing very well, 5 years plus after started therapy, which is very remarkable in metastatic cancer. So we're going on top of that combination that instead of using ipi/nivo, we are working with AstraZeneca and combining with their anti-PD-1 CTLA-4 bispecific. So they are actually operationalizing the study. We are splitting the cost of the study. So this is also very different than like your typical supply agreement where we're just getting drug supply but we're having to pay for the study and actually operationalize the study. It's very nice that they're operationalizing it because that allows us to avoid the resources we would need to have to operationalize the study and obviously, having the cost sharing is very helpful from an economic standpoint, and we get to keep all of the economic and commercial rights for our molecule. So that study is being designed as a Phase Ib/III study. So it's one seamless design. The Phase Ib portion is really a safety run-in. So we're looking at 2 different doses of volru on top of 100 mg of cas. So we'll look at the safety data from those 2 cohorts, make a decision on dose for volru and then open up the Phase III portion as fast as we can, assuming that all looks well. And so that would be sometime next year.

So the reason you decided to do this way versus just ipi/nivo is what?

So we think this could actually be a better molecule. It is a bispecific. And so some people think that there could be efficacy advantages by combining those 2 mechanisms in 1 molecule. There's other PD-1 CTLA-4 bispecifics out there. They are the only one that has generated a robust data set to date in RCC. They are super excited about the combination as well. They're obviously a world-class oncology partner. So we love the idea of working with them, combining with their bispecific, which we think could have some efficacy advantages and then obviously, allowing them to operationalize the study.

So the -- you mentioned the 35% share. Is that for volru? Or is that just for the...

That's what for eVolve, it's about 35% share.

One other thing that I think is important because differentiation is a very common topic. And I think sometimes people miss different for the sake of different doesn't always mean it's better. The reason that we're able to do this particular study and the reason I think AstraZeneca wanted to collaborate with us on this is because of that lower rate of primary progression of casdatifan when you compare to belzutifan. So one of the limitations despite the fact that anti-PD-1, anti-CTLA-4 is the most commonly used frontline regimen, there's still about 25% primary progression. So there's a sense that we can bring that down with casdatifan. So this is actually the first TKI-sparing frontline regimen that's being investigated. It's not something that Merck is doing. Merck is forced to always go with a TKI upfront. And interestingly, this not only fits like a difference that might be of interest in general from the efficacy standpoint but also when you talk to investigators and patients, it sort of speaks to a paradigm shift where the idea is to try to drive the TKI to the later line of therapy and bring HIF-2 on earlier because it's such -- from a patient standpoint, it's so much better tolerated. So essentially, that's one of the reasons there's extraordinary not only company enthusiasm but investigator enthusiasm for this TKI-sparing regimen. I think people should tend to think about when you think about TKIs, you should think similarly like with chemo and the idea being that if you could push that to later as opposed to earlier, you're doing a lot for the quality of life on the patient.

So for both these studies, you already -- I mean, you've already obviously identified in the dose, it's 100, 100 milligram. So -- but you will have some additional, as you pointed out, some additional data updates for the ARC-20 earlier. So what additionally are we going to learn from these updates that would help understand probability of success for these Phase III trials? Or is it more other things that are necessary for drug developers like Project Optimus?

Yes. So Project Optimus has been done. So that was why we did the 50 mg QD and 150 mg QD cohorts in ARC-20. What was nice about that was each of those cohorts had 30 patients. So we now across those 4 monotherapy cohorts have about 120 patients' worth of data. So that's the data that we'll be presenting at this upcoming investor event. So it's a very significant cohort in terms of patient population, 120, that's almost the same size as a lot of Phase III arms. And then the idea behind this data set in this presentation is really to confirm that cas has a best-in-class efficacy profile relative to belzutifan and also to start to establish a benchmark for PFS that we'll be building upon by combining cas with the TKI in that first Phase III study. So that's the next update that's coming as we go into next year. We're still like early in the year at ASCO GU to be able to present something from that 120-patient data set given it is a significant data set. We'll probably start to look at patient subsets and that sort of thing. And then later in the year, next year, so probably around midyear, we'll have more mature data from that cas plus cabo cohort, which we presented initial data on at ASCO this year. And as a reminder, we showed a 46% confirmed response rate at that point in time.

I think that the -- as Jen laid out, the role of this presentation with those 120 patients, all the data that we presented thus far, which look better than Merck, we're comparing very early casdatifan data sets to final Merck data set. So 5 months to 20 months, et cetera, those type of things. And this is a mechanism where the data get better with time, and our data have continued to get better with time. So I think from a confidence standpoint, whether it's an investigator or an investor, the investigators, frankly, have extraordinary enthusiasm for casdatifan and the combination of casdatifan plus cabo and exploring other regimens. But I think this will leave no doubt that there's a black and white difference when you look at the monotherapy, same patient population for casdatifan compared to belzutifan that will bode quite well for now when you combine it with cabo.

So does that mean we're going to be getting an even more updated set of numbers on primary progression and responses even more than what we've seen before or...

Yes. So the PD rate obviously won't change just because you know that at the first scan. But everything else will be updated ORR, obviously, updated safety data. And then as a reminder, at ASCO GU, we only presented PFS data for the 50 mg BID cohort. That was the only cohort that we had a mature and stable median PFS. Not surprisingly, PFS has not changed for that reason but we'll now have PFS from these other cohorts. So either median PFS has been reached or it hasn't been reached, but we will show a Kaplan-Meier curve for that cohort.

Okay. And as far as the interplay of cas and cabo, anything to mention there regarding overlapping tox or lack of overlapping tox.

Yes. I mean that was like one of the headlines, I think, from the data that we presented at ASCO that there was really no overlapping toxicity. The only overlapping toxicity that we expected to see a little bit of was fatigue. But even that, I would say, was actually pretty minimal. And I think it just makes a point of one of the things that we love about cas and its safety profile is we really think it could become a backbone agent in ccRCC, and it could be combined with anything because you think about even anti-PD-1 plus TKI, which are combined today in the frontline setting, have overlapping toxicity, particularly GI toxicity, fatigue, rash, hepatotoxicity versus cas, where we expect to have probably no overlapping tox with anti-PD-1. We are looking at that combination action now at ARC-20, so combining cas with anti-PD-1 in the frontline setting. And then as we talked about, also very little overlapping toxicity with TKIs. And if you think about it like one of the reasons why combining 2 anticancer drugs doesn't always result in improved PFS is because of that added toxicity. And so patients just can't tolerate the optimal doses of both drugs. And so one of the data -- one piece of data that we thought was very exciting at ASCO was the dose intensity data and the fact that we were able to keep patients on optimal doses of both drugs throughout their treatment.

And is it -- so it's you and Merck, is there anyone else that's got a late-stage HIF-2 alpha that you need to worry about? Or this is...

This is 2 horse race.

Again, we remind people of this, and this is -- this -- we started this from scratch, and it's what Arcus does well. A small molecule that inhibits transcription factor. It's very unusual, and that's why you can't just have a garage in China that's going to -- in 3 months, they can make an antibody but you're not -- you can probably spend 3 years or 10 years. And not only do you have to do good work, you probably need a little luck. So that's -- as you know, there were a couple of other molecules, and they have -- they ended up with pretty terrible clinical properties, one that Novartis had and one that Nanjing had. That's still in development. None of them are in late stage at this point.

Better move on to some other topics, too. Okay. So you mentioned -- so EDGE-Gastric, you said your data was already comparable to the prior standard of care, OS -- the PFS data was already comparable to the standard of care OS data. So how does that intersect with thinking about the probabilities of success for the STAR-221, right? Yes.

So I mean the next disclosure will be OS from EDGE-Gastric. And so that should be derisking what could happen with STAR-221, which also has an OS endpoint.

So how -- like any perspective on what the numbers could look like there?

Yes, we haven't said anything. It will -- when the abstract is out, the abstract actually has the most up-to-date information. So it's not one of those. The abstract has an early data set. And then when you see the actual presentation, you'll get a more updated number. So that number will be in the abstract. As a reminder, the benchmark data is about 12 to 14 months for OS for anti-PD-1 plus chemo. So it will be better than that...

Right. The people that were enrolled in EDGE-gastric phase II is how comparable are they to the Phase III population?

Very similar. I mean, basically, the exact same patient population like from an inclusion/exclusion criteria. The only difference is we're obviously in a lot more countries for STAR-221 was a much bigger study since it was a Phase III versus a Phase II. But the Phase II included Europe, Asia, U.S., fewer countries. So also geographically diverse. But obviously, we're just in more countries for STAR-221, what is the difference.