Arcus Biosciences Continues to Shine
Arcus Biosciences (NYSE: RCUS) has continued to shine after being designated as a core position here at MS Money Moves. We initially covered Arcus in the $20 to $22 range, and since, it has appreciated in price around 100%. We have also discussed this core position in a podcast which can be found on our podcast page under the Special Topics section. Since then, there have been some significant updates, which the market has recognized as seen by the increase in price. We will focus this article on the data that was presented at the 2021 ASCO Virtual Gastrointestinal (GI) Symposium in January, digest the recent share purchase by Gilead, and outline the expected catalysts for Arcus in 2021.
ASCO GI 2021
In the middle of January, Arcus announced promising data from its ARC-8 study, which is a phase 1 trial evaluating the combination of Arcus’ AB680 and zimberelimab in combination with albumin bound paclitaxel plus gemcitabine for the first line treatment of metastatic pancreatic ductal adenocarcinoma cancer (PDAC), a historically difficult to treat cancer. Before we talk about the specific results, let’s take a look at the metastatic PDAC treatment landscape.
The National Comprehensive Cancer Network (NCCN) guidelines are the gold standard for guiding cancer therapies. The NCCN guidelines for metastatic PDAC recommend two different preferred treatment regimens (excluding patients with specific mutations) as options for the first line treatment of patients who are overall in good health and likely to be able to tolerate chemotherapy. The first is a regimen called FOLFIRINOX (a combination of 5-FU, oxaliplatin, leucovorin, and irinotecan), which the guidelines note can be extremely toxic and often requires the omission of irinotecan to boost tolerability. The second preferred regimen is a chemotherapy combination of gemcitabine and albumin-bound paclitaxel (nab-paclitaxel). Since these are the preferred agents, they will serve as the measuring sticks for the ARC-8 trial.
The available data for the relevant therapies in first line metastatic PDAC are presented in Table 1 below. As you can see, the early and preliminary data from ARC-8 shows that the combination studied has a better overall response rate than the currently recommended (preferred) first line therapies. This is extremely encouraging. While the table includes data on survival, the ARC-8 trial has not followed patients long enough yet for us to compare and contrast just yet, but we can see two things. First, the dismal survival rate of these patients, whereby the 1 year survival rate is less than 12 months from diagnosis. But second, this will be the survival endpoint measuring stick for the Arcus combination. One final point is that Arcus notes the last drug to be approved first-line metastatic PDAC was nab-paclitaxel in 2013. We see that the initial data exceeds the overall response rate of nab-paclitaxel. But additionally, the disease control rate at 16 weeks for nab-paclitaxel was 48%, while the preliminary data in ARC-8 had a 16 week disease control rate of 85%.
All in all, this appears to be extremely encouraging preliminary data from the ARC-8 trial for first line metastatic PDAC. Using the SEER database, we can see the estimated market that Arcus is eyeing up here. It was estimated that in 2020 there were 57,600 new cases of pancreatic cancer, which represents around 3.2% of all new cancer cases in the United States. Seeing as this is all pancreatic cancer cases, and Arcus is looking at metastatic patients, we can narrow this down to around 31,700 new metastatic pancreatic cancer cases in 2020 knowing that up to 55% of patients have metastatic disease at diagnosis. The next step for this trial will be additional data presented in the second half of 2020, which should further solidify the potential for this therapeutic regimen.
Gilead Increases Stake
On February 1st Arcus announced that Gilead Sciences would be increasing their stake by 6.5%. In doing so, Gilead would be purchasing an additional 5.65 million shares of Arcus common stock at a price of $39.00. The proceeds of this sale will provide an additional $220 million for the acceleration of Arcus’ clinical development plans (full pipeline outlined below). In the press release, Arcus specifically discusses the advancement of AB680 after the positive data presented at ASCO GI.
As a reminder, let’s take a look at the Arcus and Gilead partnership signed in July of 2020. When the partnership was signed last year, it resulted in Gilead paying Arcus $175 million as an upfront payment, as well as a $200 million equity investment. Under the terms of this agreement, Gilead gained access to Arcus’ current and future investigational immuno-oncology products. The initial product candidate that Gilead gained the rights to was zimberelimab. Such rights include the co-development (shared global development costs), co-commercialization (United States), and profit sharing within the United States (50/50). Outside the United States, Gilead will have the exclusive rights for commercialization and will pay Arcus tiered royalties ranging from the high-teens to low-twenties. So this structure is already in place for zimberelimab, however Gilead may opt-in to additional programs for a fee, after which the cost and sales agreement will be as above. For Arcus’ most advanced products (which are those already in clinic such as AB680, domvanalimab, and etrumadenant), the opt-in fee ranges from $200 to $275 million per program. Furthermore, Gilead has the rights to opt-in to other additional programs that Arcus develops in the next ten years for an opt-in fee of $150 million per program. Finally, Gilead has the right to purchase additional shares from Arcus up to a maximum of 35% of the outstanding voting shares within a period of 5 years after the signing of the deal. This term of the agreement is where we see the recent purchase from Gilead arise from.
Remaining Catalysts for 2021
One of the most beautiful features of Arcus is the fact it will have a catalyst riddled 2021. Now do I expect all catalysts to be positive? That is unlikely in this field, but I firmly believe that the number of positives will outweigh the negative, and that favors the longs. Furthermore, the expansive pipeline means if one drug candidate does not show meaningful activity, they have several other candidates to pick up the slack and step in. Given the expansive pipeline, below is the high level of the drugs within Arcus’ pipeline:
- Etrumadenant (emtruma): a small molecule inhibitor of Adenosine receptor A2a/A2b
- AB680: small molecule inhibitor of CD73
- Domvanalimab (dom): anti-TIGIT antibody
- Zimberelimab (zim): anti-PD-1 antibody
Now, these drugs are being studied in a wide variety of oncology indications in combination with both internal and external products. For a complete list of the specific trials, indications, and combinations, I recommend visiting the company’s pipeline page which can be accessed by following this link.
So moving forward in chronological order for the expected 2021 milestones/catalysts, here is what is on the menu:
Etrumadenant + Zimberelimab + FOLFOX versus standard of care for the treatment of 2L/3L/3L+ colorectal cancer (the ARC-9 trial). Arcus expects to present initiation randomized data for the 2L/3L cohort, and single arm data for the 3L+ cohort.
Etrumadenant + Zimberelimab + standard of care versus standard of care for the treatment of metastatic castrate resistant prostate cancer (mCRPC), (the ARC-6 trial). Arcus expects to present preliminary data from the initial cohorts.
Zimberelimab + Domvanalimab versus Zimberelimab versus Zimberelimab + Domvanalimab + Etrumadenant for the treatment of first line PD-L1 positive non-small cell lung cancer (NSCLC), (the ARC-7 trial). Arcus expects to conduct an interim analysis here. Now, whether they decide to announce data from this analysis remains to be seen. But I anticipate that they will be looking for signs of efficacy and seeking to narrow the trial down to just two arms. If I had to use my crystal ball and make a prediction, I would anticipate they stop enrollment in the zimberelimab arm to prioritize enrollment in the other two arms.
AB680 + Zimberelimab + gemcitabine + albumin bound paclitaxel for the treatment of 1L pancreatic cancer (the ARC-8 trial). This is the trial that was presented at ASCO GI in January. In the second half of the year, Arcus anticipated that they will present additional data from the dose-escalation trial.
Zimberelimab + Domvanalimab versus Zimberelimab versus Zimberelimab + Domvanalimab + Etrumadenant for the treatment of first line PD-L1 positive non-small cell lung cancer (the ARC-7 trial). Arcus expects to present the results of the interim analysis (conducted in 2Q21 as outline above). Perhaps this will be ESMO Congress 2021 in September? That is hard to say at this point.
Etrumadenant + Zimberelimab + Carboplatin + Pemetrexed versus Zimberelimab + Carboplatin + Pemetrexed for the treatment of TKI relapsed/refractory EGFR+ NSCLC (the ARC-4 trial). Arcus expects to have the initial randomized data from this trial. If there was a specific trial that I was not excited about seeing the results for, it would be this one. But a positive result would be a great surprise in opinion.
Etrumadenant + Zimberelimab + standard of care versus standard of care for the treatment of metastatic castrate resistant prostate cancer (mCRPC), (the ARC-6 trial). Arcus plans to present the initial randomized data from this trial. While the preliminary data from 2Q2021 are important, the randomized data in the second half of 2021 will carry more weight and validation.
As you can see, 2021 is shaping up to be a pivotal year for Arcus and its investors. If I had to rank my top three most exciting readouts, it would go as follows:
ARC-6 initial randomized data in 2H2021
ARC-9 initial randomized data in 1H2021
ARC-8 dose escalation data in 2H2021
These developments for Arcus are extremely positive and help make the case that this company is well on its way to becoming a large mid-cap biotechnology company. Gilead has already shelled out well over $600 million (including milestones) to secure equity and rights to Arcus’ products. At some point, I ask myself when will they just decide to pony up and buy the whole company? Arcus ended the third quarter with $785 million in the bank, plus this additional $200 million in the first quarter from the sale of stock to Gilead. We do not know the exact financials for the fourth quarter yet, but I would anticipate a net loss around $50 million unless there were other milestone payments earned in the quarter. Thus, the risk of dilution is close to zero here, where Arcus quoted at the end of the third quarter that they had enough cash to fund operations into 2023 before the receipt of the additional $200 million. Such a strong cash position with a large and promising pipeline is something that I find highly attractive. We look forward to updating our subscribers with more insights as the Arcus story continues to unfold.
In the interim, feel free to drop questions and comments in the premium chat rooms for us to answer!
I/we long RCUS. This is not a recommendation to buy/sell and securities.