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

The fifth session of the first day of the Back to School Biopharma Summit that Citi is hosting here in New York City. I'm Yigal Nochomovitz. I'm one of the biotech analysts. Our next session is with Arcus Biosciences. So it's really a pleasure to have with me the CFO, Bob Goeltz; and also Pia Eaves, who is the Head of IR and Strategy. So welcome both of you. Appreciate it.

Very much.

And so a lot is happening, obviously, in the space. You have -- you're generating a lot of new data sets. And I understand you have some new slides as well that would be helpful in, sort of, framing the very significant data update in October that you're planning. So Bob, maybe just to start, kind of, tell us what's on deck for October at a high level? And then we can, kind of, walk through, like, the 1L data, the 2L -- the 2L strategy, and how you're thinking about the Phase III strategies for everything.

Perfect. Yes. No, happy to do that, and thanks for having us. Maybe just before I jump into casdatifan, really briefly, just to remind folks about the company. So Arcus is a company that is based on very high-quality drug discovery, particular emphasis on high-quality small molecule drug discovery. We like to focus on areas where there are targets that have good biologic validation, and we think that there's a real opportunity for a very high-quality molecule. That's clearly the case with casdatifan. I know we're going to focus on casdatifan today, and we'll jump right into it. Just a quick reminder -- the rest of the portfolio for us, we also have a drug that's targeting CD73 that's in a pivotal pancreatic cancer study. In the update for this conference, we also indicated that we expect an interim analysis in the fourth quarter of this year on that pancreatic cancer study. So we're looking forward to seeing data from Quemli, which is that compound in PDAC, pretty shortly. And then we also have a really exciting early-stage immunology portfolio of largely small molecules that's moving along in the first program, an MRGPRX2 inhibitor is now in a healthy volunteer study in the clinic. So shifting to casdatifan, which is definitely the focus for investors right now. Quick reminder, the program -- one of the reasons why we're really excited about the program is that the target, HIF-2 alpha, of casdatifan has been validated by a molecule from Merck, belzutifan. It's had 3 successful Phase III studies, LITESPARK-005 in late-line monotherapy, LITESPARK-011 in second line in combination with lenvatinib, and then also in adjuvant therapy in combination with pembrolizumab. So good validation for the target, and that drug in the late-line monotherapy is already doing sales of roughly around a run rate of $1 billion a year. However, that molecule does have a liability that's pretty well characterized, which is that it has absorption-limited pharmacokinetics. And so that aspect means that as you increase doses beyond the dose that's approved and that they've been using for their clinical trials, 120 milligrams, you only get incrementally higher exposures. So back to, kind of, the core of Arcus of looking at developing very high-quality small molecules, our goal was to see if more could be taken from the target, HIF-2, if you actually didn't have that liability. And so casdatifan has dose-proportional and linear pharmacokinetics, and we're essentially, in our clinical trials, utilizing a dose that has roughly fivefold the pharmacodynamic effect of belzutifan. In late-line monotherapy, what we saw was that, that resulted in a very substantial increase in response rate and progression-free survival -- progression-free survival, for example, 12 to 15 months versus 5.6 months from LITESPARK-005, which was their pivotal study. And we also see a substantially lower rate of primary progression, which is progression by the first scan, which is a particular problem in clear cell RCC, where the primary progression rate can be 1/3 or greater for an agent like belzutifan. So that's, sort of, where we are right now. And our first pivotal study for casdatifan will be combining casdatifan plus cabozantinib, which is the standard of care in second-line clear cell RCC versus cabozantinib. That pivotal study is enrolling, and we've indicated we expect to have this study enrolled around the end of this year. The enrollment is going very well. We're excited about that. And then our frontline strategy will be to combine casdatifan with ipi and nivo, which is one of the preferred regimens in the front line. We can talk about the nuances of what regimens are in the front line and the, sort of, pros and cons to each as we get into the details. And so that will be our second pivotal study. The first one is called PEAK-1, that is the second-line study. The second one is PEAK-20, which is the frontline study. And that brings us to a very meaty update that we'll have in October. We're going to have an investor event on October 20. And we'll be updating data and providing new data across multiple lines of therapy. So we will be providing data on the late-line monotherapy. We'll be providing data on the second line in combination with cabozantinib and then also the front line. So I'll walk through each of those lines of treatment and the data that we'll have and, kind of, how we're thinking about each of those relatively quickly, and we can jump into as much detail on each of those fronts. For those that are following online, we do have some slides that are incorporated in our corporate deck on our website, and they're available in the appendix to the slide deck, which show the details of the data that we'll be presenting in October. So let me start with the latest line of therapy first, and then I'll work my way earlier because this will be the, kind of, the maturity of the data. So in the late-line monotherapy, I already indicated that we presented what we believe is really compelling response rate data and progression-free survival data already that's pretty mature, and I think has indicated to many that they believe casdatifan is clearly differentiated from belzutifan. The new piece of data that we'll have at our October update is, for the first time, we'll be sharing overall survival data and the Kaplan-Meier curve there. So why is that important? Belzutifan, in their 3 pivotal studies, hasn't demonstrated an overall survival benefit yet. In the second line in LITESPARK-011, they came quite close. They had a hazard ratio of 0.85 with a p-value of 0.06 on overall survival. And overall survival, while PFS is the registrational endpoint, would obviously be a massive differentiator from a commercialization perspective, both in the U.S. in terms of label, but also ex-U.S. to open up reimbursement. So we think demonstrating that the molecule could bring an overall survival benefit in late-line monotherapy has the potential to read through to multiple lines of therapy. So in the late line, we'll have 28 months of median follow-up. The benchmark here from LITESPARK-005 was 21 months of OS. And so obviously, we'll be able to look at the Kaplan-Meier curve for our data and compare it to that benchmark and see whether or not it appears that there's a difference relative to what we've seen from belzutifan. So pretty simple in the late line.

But you mentioned that in that late line, you had low teens -- low to mid-teens PFS.

Yes.

Right? That should give people some framework for thinking about where OS goes.

Yes. Yes, we're cautiously optimistic, for sure. Absolutely, we think that there's a good potential here. And we think it's really, frankly, the potential for the mechanism. It's just -- we think a lot of the belzutifan data indicates what belzutifan can achieve, not what a great HIF-2 alpha inhibitor can achieve. And so across all of the efficacy metrics in the late line, we're hoping to see what a really good HIF-2 inhibitor can achieve. And so we've already seen it for PFS. And to your point, we think that bodes well for potential OS as well. So very excited about that update.

Just the 21 months, do we have a reference point on PFS for that number as well or not? Or is that harder to...

It was -- so it was 5.6 months, sorry.

Okay. So that's what I'm getting at. 5.6 translated to essentially 21. Now you have -- there are 12 to 15, the math should suggest something north of 21 if things cooperate.

Yes, we -- yes, I think we agree with that, and we're cautiously optimistic. We'll see how the data looks.

Yes. So that's late line.

Yes.

That's a lot of patients. That's a big chunk of...

Yes, exactly. It's 120 -- we always look at -- there's -- for Project Optimus, we looked at 3 doses that range in pharmacodynamic effect from essentially 2.5 to 7.5x the PD effect of belzutifan. And what we generally observed was consistent efficacy. And so we generally look at that pooled data set as, sort of, the best indicator of truth. Within that, to your point, with PFS, the range was 12 to 15 months. But we think the pooled data, which is close to 13 months, is probably the best indicator. So if you think about 13 months, and we'll see what that brings in terms of OS. Right.

Okay. So marching on and...

Marching on to second line. So second line, again, as I mentioned, we're in the midst of enrolling our pivotal study with casdatifan plus cabozantinib versus cabozantinib. We shared very early data roughly a year ago, response rate data from that particular arm of patients, and it wasn't the complete arm of patients. There's 44 patients there. Now we'll have about 20 months of median follow-up. And there's a number of different benchmarks to look at in the second line. Obviously, the most the most -- the easiest thing to look at would be the LITESPARK-011 pivotal study from Merck, which, as a reminder, compared belzutifan plus Merck's TKI, lenvatinib, versus cabozantinib. And there, they had 0.7 hazard ratio. So the study did pretty well. And, obviously, presumably will result in an approval. It's under review, I believe, currently with FDA.

That was PFS, 0.7.

Yes. The median PFS was 14.7 (sic) [14.8], I believe, versus 10.7 for the control arm. Yes, 0.7 hazard ratio. Importantly, the hazard ratio improved from 0.75 to 0.7 from the first interim to the second interim, largely because what you see from HIF-2 alpha inhibition is a tail effect to some degree. Patients that either achieve stable disease, sustained stable disease or a response generally tend to have very durable activity with HIF-2 inhibitor. And so a lot of the hazard ratio, sort of, happens on the tail side of the curve. So while the landmark PFS numbers are important, we try to emphasize that the totality of the curve is important because the tail is where HIF-2 really, sort of, seems to demonstrate a significant impact. So the important point for this particular data set in the second line is that the patient demographics are important to pay attention to. So LITESPARK-011, for a couple of reasons, probably deviates pretty substantially from what folks would expect from a real-world patient population. The first main reason is that they enrolled patients that have received -- or did not enroll patients that had received prior lenvatinib or cabozantinib therapy because those were -- both of those 2 agents were in the 2 respective arms.

Which is one of the drawbacks of having a different TKI in both arms in both population.

Yes. Yes, exactly. So you're excluding both of those. So in the front line, so these would be the patients leading into the second line. So in the frontline, patients typically see 1 of 3 TKIs combined with anti-PD-1: so lenvatinib, cabozantinib or axitinib. Or they receive ipi/nivo. And so 70% of the frontline market is those -- is, sort of, fragmented with the anti-PD-1 TKI, 30% is ipi/nivo.

We'll get to that later.

Yes. And so the -- if you think of the roughly 2/3 of the TKI, 70% are essentially being excluded from your incoming population. That's -- it's a pretty substantial portion of what you would anticipate to be the real-world frontline that you're excluding from your patient population. The other piece that's important is that they still enrolled roughly half their patients with prior TKI exposure, which would seem unusual if you were to think that, that was all axitinib. It turns out that it wasn't. The manuscript for LITESPARK-011 was just published in the last couple of weeks. And half of the patients that had prior TKI exposure had exposure to the first-generation TKIs. So these are sunitinib and pazopanib. And patients that have experienced those agents probably have a pretty -- have a different prognostic outcome versus those that have gotten the more potent TKIs like a cabozantinib or lenvatinib. In particular, the one piece I'd point to is that, obviously, you wouldn't have cabozantinib treatment after cabozantinib. But for patients that receive lenvatinib in the front line, there's a couple of small real-world studies done by high-quality academic institutions that have shown that patients that receive cabozantinib therapy after treatment with lenvatinib in the frontline do particularly poorly. So they have PFS of 4 to 6 months and an OS of under a year, which is obviously much worse than you would typically expect in this patient population. In contrast to the LITESPARK-011 patient population, I think ours is probably a little bit closer to that real-world representation. So we did enroll 7 of our 44 patients that received prior lenvatinib therapy, for example. And we don't have the same representation from the first-generation TKIs as well. So the patient populations are a little bit different. When we share our update in October, we'll be sharing, obviously, response rate data, PFS Kaplan-Meier curves. And we'll also be sharing an OS Kaplan-Meier curve with 20 months of maturity; OS for cabozantinib is just over that 21 months. So back to the point I made about the late line, we'll have an early sense for how we're seeing performance in the second line, and that could obviously be compared to both LITESPARK-011 as well as the cabo benchmarks. And then we'll also look at each of these metrics with the relevant patient demographic. So looking at prior TKI treatment, prior lenvatinib treatment specifically because that one has such a poor prognostic, and then prior ipi/nivo treatment because there's good benchmarks for each of those. And in our slides in our deck, we have all the relevant benchmarks called out for each of those patient populations.

And the prior pazopanib and sunitinib, which is a very small contribution, that.

It's a small contribution in our cohort. It was half of the TKI or about 1/4 of the patient population in LITESPARK-011.

The point there is that the overrepresentation or high representation of pazo and sunitinib in LITESPARK-011 drove what specifically?

It's most likely slightly better performance from cabozantinib than what you would expect if you had axitinib therapy, for example. So in general, like, I think -- so their PFS for their cabozantinib treatment arm at 10.7 months, I think it's fair to say it is on the higher end of cabozantinib benchmarks that have been put up. And I think that we would expect that our patient population is a tougher patient population prognostically, and we would expect that in our pivotal study, PEAK-1, that our control arm would not perform the same because we're including these patients that are tougher to treat.

Right. Okay. So you had -- for the pembro/lenva, you had patients -- you had more patients that would be expected to do worse and you had less patients that would be expected to do better with the pazo.

Yes.

That's working -- both working in the same direction.

Correct. Now there's one thing that actually from -- so if we talk about that's the prognostics of the patient population. The one piece that I probably would highlight is we actually are cautiously optimistic about the potential for the benefit that casdatifan can bring to these TKI-treated patients. And in particular, I'd point to one specific piece of data. So Merck has shared data in their late-line monotherapy that shows that the more prior TKI treatment a patient has received, the worse they do on belzutifan therapy. We've indicated, and we'll share the specific data at our October event, that we do not see the same meaningful differences with casdatifan treatment. For -- so for example, patients that have received 2 lines or 3 lines of prior TKI don't do worse than patients that have received 1 line of prior TKI in a meaningful way. We think that's likely because of the connectedness of HIF-2 to the mechanism for a VEGF TKI. So one thing that we note is that when you treat patient with a VEGF TKI, it results in elevated HIF-2 levels. I mentioned before that belzutifan, one of the challenges with the molecule is the absorption-limited PK. So we're hitting the target essentially 5x harder. So we think that in the event you have higher levels of HIF-2, casdatifan may be better positioned to address those higher HIF-2 levels, and to cover the target in that regard and deliver good efficacy, and that may be why we see the effect that we see.

Okay.

So the punchline being that, essentially from at least a hazard ratio perspective, these underserved patients that received prior TKI may have the potential to do better with casdatifan than they might have done with belzutifan.

Okay. That all makes sense. So you're going to potentially have a, sort of, better -- these patients should do a little -- when you think about the Phase III trial, the PEAK-1 trial, your expectation is that you would have a weaker PFS in those patients.

In the control arm and then...

In the control arm.