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

All right. Thanks for joining us, everybody. I'm Terence Flynn, Morgan Stanley's U.S. biopharma analyst. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So I'm very pleased to be hosting this afternoon, Arcus. We have Terry Rosen, the company's CEO, and Robert Goeltz, the company's Chief Financial Officer. Thank you both so much for joining me. Really appreciate it. And um, I guess, again, maybe just high level to get started. You know, how should we think about the company, Terry? There've been a lot of changes, um, over the years. Is this really a single product story or is there a platform strategy here? I know a lot of focus on casdatifan, which we'll dig into, but how should we think more broadly about what the company is doing beyond CAS?

So first of all, thank you, Terence, for doing this and. Thank you for all of those of you who are joining us. And I think very clearly, casdatifan obviously is a center of focus for us, for the world, we believe very strongly. $5 to $10 billion drug. So not surprisingly, that question will come up. But I think Arcus continues to be, as we... since its inception to be a company that's focused with a long-term vision. We have a very sustainable pipeline. We have a program, quemliclustat, in frontline pancreatic cancer and interim analysis happening this quarter. And so we feel that casdatifan is going to lead the way, but that we can build a great long-term and highly valuable company, and if you put in economics we can come to a $10, $20, $50 billion plus company, and so that continues to be our, Yes, yes, interestingly enough, that question, you know, you get asked that. And I'll share what an investor recently told me, what he thought investors were missing.

Great. What do you think is one thing that people are underestimating right now about the investment case?

And I think he hit it spot on. So when you think about casdatifan and that opportunity, if you go back to the earliest data we generated, the PK/PD profile, which is dramatically different from belzutifan, and then you think about the data that we generated subsequent to that. A lot of the questions about the ultimate commercial opportunity with casdatifan as we think about front line, second line, a third line should really just come from that simple observation because at the outset, we just had those data, but now we've done three medical conference presentations, we've had an investor event, a Nature publication, we've published all the details, and it's very clear that those data drive all this efficacy that reads through to all lines. In the front line we don't even have a competitor. So I think the thing that's missing is those data tell you that casdatifan is going to win in the front line, it's going to win in the second line, it's going to win in the late line. No caveats, and we have an event coming up in October, and I think the data are going to demonstrate that.

Great. Yes, I saw the announcement this morning on the timing of the event. So I think, you know, you guys gave a little bit of a preview on the second quarter, you know, recap. But maybe, again, talk to us about, number 1, why you're hosting this event. And then just, again, high level, maybe what is the kind of key things that are going to be in focus? And then I know we'll unpack a lot of those in subsequent questions.

Perfect, so the reason we're doing this, there's a convergence of data sets that read on all of the lines of therapy, front line, second line, a late line, and we felt like the best venue and best way to communicate all of that was in a single form, and it's over 200 patients' worth of data. So since we'll talk about metrics for each of these and what we need to be successful, let me just describe what those various studies will be. So this is all of the data that we'll be presenting come under the umbrella of a platform study called ARC-20. Now within that study, since we're talking about front line, second line, and late line, you can basically think about those three buckets of being the primary data that we're going to speak to. So on the front line, the standard of care that we're going against is Ipi-Nevo. So there's clear cell renal cell carcinoma, and we're talking about a standard care in the front line, Ipi-Nevo, and what we're going to have for that is a data set where we're looking at anti-PD-1 plus casdatifan without the Ipi, and we're going to have about 11 plus months of data to compare it to, and we'll talk about how that fits into the metrics. Now, that will give you a good feel for the efficacy, even without the Ipi. The second component there is in that triplet we'll have anti-PD-1, Ipi, in case, and what we're running right now is what will generate the safety data set that both the FDA and the NCI and the EMA have told us we need to start the registration study at the end of this year. That cohort is fully enrolled, it's 30 patients, and what they want to see is 12 weeks of safety data. Why 12 weeks? Well, when you think about what is Ipi-Nevo, Ipi-Nevo is four cycles of which is 12 weeks, and then you get Nevo for the rest of the therapy. So they want to see that 25 patients with that sort of follow-up, and by the date of update, we'll have roughly 20 patients that have had that 12 weeks. So a very good read on the safety. That brings me to the second line. So again, if you think about what we're doing, we believe that we're going to transform the paradigm in this field, but we're doing it in a way where we're providing a HIF-2α inhibitor on top of standards of care that physicians like. So we've taken a lot of feedback from physicians insofar as what they want to see, and that reflects our strategy. So in the second line, the standard of care, 40% of that second line therapy is monotherapy Cabo. And what we'll have is a data set combining Cabo plus casdatifan with roughly 20 months of follow-up, and that's a 40-plus patient data set. Finally, in the late line, we've used 120 patients data set to provide really dramatically show the differentiation between casdatifan and belzutifan. And I think that's what really established a major inflection in our program. Now, what we'll have for those 120 patients, we'll now have almost 30 months of median follow-up. And so that's going to lead us to not only show how that data set continues to evolve and how it continues to differentiate itself, but for the first time we'll have an endpoint where we can look at overall survival. And given that Merck, with belzutifan, is running on three registrational trials, hasn't hit statistical significance on OS yet, we think that could be very, very meaningful.

Great. Um, so let's uh, dig into this. So I think on the frontline study, again, here you have a triplet, you've got a doublet. Talk to us about how you kind of choose between these. Again, I know you've already outlined the, you know, design of the phase 3, but again, what else informs this doublet versus triplet strategy?

Yes, so it will be um, a triplet. So it will be Ipi-Nevo-Cas versus Ipi-Nevo. And largely um, that came through again, as I was mentioning, our ad boards, both U.S. and European, felt that no matter how good the casdatifan anti-PD-1 data looked alone. To enroll the study, they're such strong believers that the Ipi contributes to the survival that they felt running a doublet, we thought about a three-arm study, would slow the enrollment down. So we see that may be a question after people see our data as to would anti-PD-1 casdatifan be good enough, it's going to be a two-arm study. The nice thing is there are very, very good benchmarks that we'll be able to compare to. So you can think of bookends on the benchmark front to the standard of care, which is Ipi-Nevo. That's really our only comparison. Competitor is the existing standard of care. And the data for Ipi-Nevo, first of all, it has a rate of primary progression just under 20%, about 18%. It has a response rate in the high 30%. It has a median PFS of 12.4 months. Now, what do physicians want to see? Well, Ipi-Nevo is really the preferred front line, front line regimen, it's most used, roughly 30% of the front line patient population gets that, and then the other 60 or so percent is fragmented amongst TKIs. The reason Ipi-Nevo gets that usage is because it has the best overall survival, and it would get more use if it either, you could improve the regimen where you could bring down the rate of primary progression or improve even just the timing of that progression, which I mentioned was 12 months and change. So what we'll be looking to show is is that we can lower that rate of primary progression down into the 10% range or so, and then also improve with that 12 and a half month median PFS landmark data would say you got about 50% of the patients still on at about 12 months. 11 plus months of median follow-up, and I think this is going to be one of the most surprising things, not only the data, but the data set itself. It's going to be very clear if cabozantinib plus anti-PD-1, even without the Ipi, looks better than Ipi-Nevo. Now another data set that's very important that most people aren't aware of, is that Merck has actually run a study in that exact same patient population with just Keytruda. So what's important about that is when you look at our anti-PD-1 casdatifan, that gives you the other end. You've got Ipi-Nevo, and well, what would anti-PD-1 do alone? And it's very different than Ipi-Nevo. So for Keytruda in that setting, same patient population, you see a 30% rate of primary progression, an ORR that's in the mid 30s, and a PFS that ranges between 7, um, and 8 months. So with those guardrails, we think you're going to come out of that October event with a very clear picture that casdatifan, Ipi-Nevo is going to be a successful frontline regimen. Correct. So the doublet showed a 7% rate of primary progression. We reported that in.

And I think on ARC-20, or at least the doublet, you guys already reported that you had, what, 7% primary?

At J.P. Morgan this year. We also described that the waterfall plot looked really good. So I think the dots are going to connect very well. The other, the other piece there is that since we will have those 20 or so patients that have been on the triplet, we expect a safety profile that should just look simply like Ipi-Nevo with perhaps some anemia that comes from the on-target activity of the HIF-2α inhibiting component of therapy. Yes, so we really will share more details on the design.

Okay, great. And then maybe just remind us in terms of that, you know, PEAQ-1 trial, like what's the timeline for that and size of it and anything on, you know, powering, et cetera?

Yes, so et cetera, as we get closer. But it's on track to start at the end of this year. And, in fact, the safety data, we've already had the discussion with the FDA. And, as I said, that cohort of 30 patients that will provide the 25 with that 12 weeks is already fully enrolled in the study, the primary endpoint will be PFS.

Okay.

So that tells you not only do we expect a fast enrollment, but the readout should come relatively quickly knowing what it would be Nevo looks like. And just for a minute on LITESPARK-012, that was the other Merck study that recently.

Had a setback in that study, what was the driver? What was your conclusion on the reason for that?

I'll answer that in two ways. What do we think happened? And second, I always feel that question behind the question on that is, does it have any read through to us? We field the primary drivers going back to that what is everybody missing piece, which is that initial PK/PD data that we discussed. So what's known is that biomarker data revolves around looking at the ability of the your HIF-2α inhibitor to um, uh, diminish the production of erythropoietin. So that's the gold standard for inhibiting HIF-2α in a human. And what's known is that casdatifan robustly inhibits that well out past the year. Belzutifan loses its effect somewhere between 0 and 13 weeks and those are Merck's own data. So we feel unquestionably that it's the lack of that durable effect that really manifests itself particularly in the front line. So if you look at the um, uh, the various Merck registrational trials, they've gone first in the late line from some versus something they had a PFS of 5.5 months and change to something that had 10 months, something has 24 months. So we feel like absolutely the efficacy that that shorter time of hitting the target hard is getting diluted out. A lot of people speculate that triplet might be more toxic than the double, we'll see. But the important thing is, we think it has zero read through for two reasons. First of all, it's a completely different regimen. In that case, you're going on top of TKI anti-PD-1. In our case, we're going on top of Ipi-Nevo. And the second thing, most importantly, is we already have a lot of data. You'll see in October, we have a lot of data in the front line, not only that, that shows a very profound effect of casdatifan in that patient population.

Okay, great. Maybe we'll just pivot to the second line setting now. So again, just um, remind us kind of what's the benchmark that you're aiming for here at this update in October.

Sure. So we view second line as a huge opportunity to... what I'll say dramatically differentiate from belzutifan. So belzutifan, was successful in the second line. We believe that there's two opportunities to really set ourselves apart from the belzutifan, lenvatinib. And that is they did not hit on overall survival. And also, um, we believe there's an opportunity in the second line to very much differentiate on the outcome for patients that in the front line, were treated with a TKI. So I'll say a little bit about that. We've recently described some of the differences in the patient populations between their registrational trial, LITESPARK-011, and our ARC-20 cohort as well as our registrational trial, which is called PEAQ-1. So there's two key things about the Merck population. So the first thing is, in their study, they excluded patients that had received prior Lenva, that TKI in the first, front line. They excluded patients that had received cabozantinib in the front line. And also those patients that did get TKI, so 25% of the patients in their study, not just 25% of the TKI patients, 25% of the patients got Sutent or another first generation TKI. So the first thing that we would just say about the patient demographic, it looks very, very different than the real world. In the real world, 60% of the frontline patients are pretty much going to either get Cabo, Lenva, or Axi, and so they have zero Cabo, zero Lenva, and all those of patients with the first generation TKIs. The second thing that we'd emphasize about that is that it's very different than the ARC-20 in PEAQ-1 patient populations. So, and what I would say in the ARC-20 patient population, it looks very much like the distribution from the real world, including a very substantial portion that are Lenva patients. Now, the important reason that we mention that isn't to set expectations that since we have a more difficult to treat patient population that somehow we should expect a lesser performance. But what we wanted to point out is that given those more difficult patients to treat, we feel it's a huge opportunity to essentially show that casdatifan is not only a quantitative and incremental advantage, but completely discontinuous. So one other fact that I can use as an example here is that what's known, and there have been recently two publications, real-world data. If you get lenvatinib in the front line and then get treated with Cabo... your ORR drops to like 5% and the PFS drops to 4 to 5 months. In fact, your OS is substantially hurt as well. So we feel we have the opportunity to actually do phenomenally well in those patients. So we're thrilled that we have these not TKI patients but Lenva patients. Now part of the reason for our, you know, you know, feeling very strongly, you'll see this very shortly, we'll get to the real data, but we've already generated data in the late line that reads on this. So, this is part of our Nature publication. So, what Merck showed in both LITESPARK-005, there are, approval study in the late line, as well as LITESPARK-013, which is essentially the same population, different study, is that they showed an inverse relationship. The more TKIs that patients were treated, so I'm going from three to two to 1, the worse performance. So the more TKIs you had the worse you did. Actually, what we showed in our 120 patients in the late line is there's no dependence on that. So whether you had 1 TKI, 2 TKIs, 3 TKIs, and we'll show you the curves, they're right on top of each other. So we think that relates to a couple things. Now 1 last point that we showed is that in that same study, showed that the more HIF-2α activity that a patient had when it showed up, the better that patient did. Now, HIF-2α is 1 of the worst prognostics you can have not only in RCC, but in cancer in general. So the fact that we're doing better in patients with the worst prognostics, is generally taken to mean that it's not only correlative, but it's causative. Now, what else do we know about the biology of HIF-2α and TKIs in general? And what's known is that when you treat a patient with an anti-angiogenic, including a TKI, that causes the patient to have more HIF-2α activity. So what we believe is going on is that those patients that are getting those hard-hitting TKIs in the front line are actually now coming into the second line with 1 arm tied behind their back, particularly in a world that's [HIF-2 too free]. And that's been shown in a number of studies. So if you take 1 of those patients and you put them on Cabo, they really do poorly. But we feel that with casdatifan, that's hard-hitting and durable. We have a chance, just like we showed in the late line, to actually do better in those patients. So I'm not just saying incrementally better. If you look at Merck's um, uh, data, if the if you look at the hazard ratios in the patients that were treated with TKI coming into that versus IO/IO, hazard ratio is better in the IO/IO. We actually feel like we have the opportunity in our registration trial that the Cabo patients obviously will perform more poorly, but we feel we could do as well or better. So we actually feel like we have an opportunity to paradigm, not just do something that's better, because 60% of your patients are going to get TKI in the front line, so coming into second line, they should be on a therapy with a HIF-2α inhibitor. The second point that we'll be able to read on is with 20-plus months of median follow-up, as I mentioned, Merck already we know missed, even though numerically they had a positive OS signal, statistical significance they did not have. And so what we know is that Cabo's OS is roughly 21 months and change. So we will share OS Kaplan-Meier curves and so we have an opportunity on two fronts, that ability to better serve patients that have TKI treatment in the front line and the opportunity to win on OS, which we think for all practical purposes we would own the entire second line opportunity. So we're very excited about those data. You'll see those in October as well. Yes, the 1 baseline thing that I would mention when we think about.

Great. And then just any caveats as we do that cross-trial comparison? Like, again, you mentioned some of these baseline characteristics, but anything else as we make that comparison to the 21 months with Cabo?

Yes. About what belzutifan has done is their patient population, but the, when you look at the, when you talk about Cabo, that's the perfect comparison.

Operator because that's still going to be, we actually we actually did uh a survey of physicians after the LITESPARK-011 data read out, and we talked to 50 physicians, and about half of them said they would go to that lenvatinib, belzutifan regimen, but Cabo... will still be primarily used. It's well defined, it's well understood. Physicians like it, so it's the perfect tool.