Hello, and welcome to Arcus Biosciences First Quarter 2024 Earnings Call. My name is Lydia, and I will be your operator today. [Operator Instructions] I'll now hand you over to Pia Eaves, Vice President of Investor Relations and Strategy.

Hello, everyone, and thank you for joining us on today's conference call to discuss Arcus' First Quarter 2024 Financial Results and Pipeline Updates. I'd like to remind you that on this call, management will make forward-looking statements, including statements about our cash runway and our expected clinical development milestones and time lines. All statements, other than historical facts, reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our annual report on Form 10-K and quarterly report on Form 10-Q, which have been filed with the SEC. We strongly encourage you to review our filings. Today, you'll hear from our CEO, Terry Rosen; COO, Jennifer Jarrett; and CFO, Bob Goeltz. We'll also be joined by our CMO, Dimitry Nuyten; and President, Juan Jaen, for questions after the prepared remarks. For ease of listening, we will be referring to abbreviations of our molecule names: domvanalimab as dom; zimberelimab as zim; casdatifan as cas; quemliclustat as quemli; and etrumadenant as etruma. During today's call, we'll refer to slides in our corporate deck, which can be found on the Investors section of our website. With that, I'll turn the call over to our CEO, Terry Rosen.

Thanks very much, Pia, and thanks to all of you on the call for listening in today. As you know, 2024 is shaping up to be an incredibly catalyst-rich year for Arcus. By the end of this year, we'll have data to support all 4 of our later-stage clinical programs: dom-zim in lung and upper GI cancers; cas in clear cell RCC; quemli in pancreatic cancer and etruma in colorectal cancer. We'll spend most of the call today setting the stage for these upcoming data events. With over $1 billion of cash on hand, runway into 2027, partnerships with Gilead, AstraZeneca, Taiho, others, along with a very diversified pipeline, we're extremely well positioned to capitalize on these data sets and advance our potential first and also best-of-class treatments towards approval and commercialization quickly and efficiently. Let me start with ASCO. ASCO is less than a month away. So we're almost there. We're thrilled and honored to have two oral presentations, both of which will provide strong support for our efforts and programs in the GI cancer field. Importantly, both data sets are in settings where there's limited competition and huge unmet need. These are genuine opportunities to make a meaningful difference for patients. So first off, on Saturday, June 1, we'll have updated data from cohort A1 of the Phase II EDGE-Gastric study evaluating dom plus zim plus chemo in first-line gastric cancer. As you're aware, dom is the only Fc-silent anti-TIGIT antibody in late-stage clinical development, and we believe that the data presented to date indicate that dom may potentially have improved safety profile, when combined with chemotherapy relative to that of the Fc-enabled anti-TIGIT antibodies, when they're combined with chemotherapy. As a reminder, we presented initial data from this cohort of EDGE-Gastric at the ASCO virtual Plenary Session…

Thanks, Terry. I'll now turn to our data events for the second half of 2024 and specifically for Cas, our HIF-2 alpha inhibitor, which we are developing in clear cell renal cell carcinoma, or ccRCC. As a reminder, HIF-2 alpha is a validated mechanism, with belzutifan recently approved, is monotherapy for baseline clear cell RCC patients. Cas has PK and PD advantages over bel, which should enable it to hit the target harder with the goal of achieving greater clinical efficacy than that of belzutifan. As we talked about on our last earnings call, there are multiple opportunities to improve upon the profile of belzutifan. A lower rate of primary progressive disease, a higher overall response rate and more prolonged responses, any of which could translate into a higher PFS and ultimately longer OS for cas relative to that of belzutifan. Our Phase Ib study for cas, ARC-20, now has enrolled over 80 patients, that's 8-0. It was designed to answer numerous questions, so I want to spend a minute describing the various components of this multi-cohort study, which is summarized on Slide 27 of our corporate deck. First, for the dose escalation, as of our last earnings call in February, we had completed enrollment of the 20 mg, 50 mg and 100 mg dose cohorts with no dose-limiting toxicities observed. We have now completed enrollment of the 150 mg cohort. And again, we did not observe any DLTs, and we just cleared that dose. Additionally, we continue to see linear dose proportional PK for cas even at the 150 mg dose. The dose expansion portion of ARC-20 was designed to serve a few purposes. First and foremost, to generate data for a proposed Phase III dose of 100 mg of cas. These data will be used to support initiation…

Thanks, Jen. Arcus continues to be in a strong financial position. Our cash as of March 31, 2024, was $1.1 billion as compared to $866 million as of December 31, 2023. Turning to our P&L. We recognized GAAP revenue for the first quarter of $145 million, which compares to $31 million in the fourth quarter of 2023. Our revenue is primarily driven by our collaborations with Gilead and Taiho and in the first quarter included a cumulative catch-up of $107 million resulting from the Gilead amendment, we executed in January. We expect to recognize GAAP revenue of approximately $30 million per quarter for the remainder of 2024. Our R&D expenses for the first quarter are stated net of reimbursements from Gilead and were $109 million as compared to $93 million in the fourth quarter of 2023. In the first quarter, noncash stock compensation represented $10 million of our R&D expenses. The increase in the first quarter was related to higher clinical manufacturing, clinical trial and headcount-related costs associated with our late-stage programs. We continue to expect modest increases in R&D expenses as our Phase III studies mature and spend will fluctuate primarily based on the timing of clinical manufacturing activities and the purchase of standard of care therapeutics for our clinical trials. G&A expenses were $32 million for the first quarter compared to $29 million in the fourth quarter of 2023. Noncash stock compensation represents $10 million of our G&A expenses for the first quarter, and we expect G&A to remain stable for 2024. Total operating expenses in the first quarter were impacted by a $20 million noncash impairment charge resulting from the intended sublease of a portion of our office space. Finally, we continue to expect our cash balance at the end of 2024 to be between $870 million and $920 million and to fund operations into 2027. This guidance includes a $100 million partnership continuation payment from Gilead in the third quarter and excludes potential opt-in payments and approval milestones from our partners. For more details regarding our financial results, please refer to our earnings release from earlier today and our 10-Q. I'll now turn it back over to Terry for concluding remarks.

Thanks, Bob. As you've heard from us today, we are genuinely at a significant inflection in the evolution markets. With completion of enrollment of STAR-221 first-line gastric cancer expected by midyear, returning our attention to our first Phase III readout. Behind this, we'll have Phase III data from our second registrational study for dom-zim, STAR-121, in first-line non-small cell lung cancer, with enrollment for this trial also expected to complete this year. In addition, we'll be starting at least 2 additional Phase III trials by early next year for cas in clear cell RCC and quemli in first-line pancreatic cancer. As we talked about today, we have several important near-term data sets, which may provide further validation and meaningful derisking of several of our programs. This will all kick off shortly at ASCO with 2 oral presentations for dom-zim and etruma-zim. And together, they'll showcase our emerging GI cancer franchise. And we're, of course, looking forward to sharing much more on our HIF-2 alpha program later this year from the dose expansion cohorts of ARC-20. I want to highlight how unusual it is for an early-stage company to be executing multiple Phase III studies for several different molecules, all targeting massive opportunities in doing so in parallel. This is obviously all enabled by our current cash position and our partners that include Gilead, AstraZeneca, Exelixis and Taiho. These partnerships have and will continue to provide a combination of development funding through receipt of option fees, milestones and cost sharing to reduce our overall development expenses. I want to conclude by thanking all of you for your continued and ongoing support of Arcus and our mission to bring innovative therapies to patients in need. We'll now open the call for questions.

[Operator Instructions] Our first question comes from Kaveri Pohlman of BTIG.

For HIF-2 alpha, some of the literature suggest that HIF-2 alpha is upstream of VEGF and it leads to production, so they're basically in the same pathway. Do you think that could make cabo-responsive patients more sensitive to 521 and because of the same biology, do you expect to see any overlapping toxicities with zanza, which also [ targets ] VEGF?

Yes. So they are in the same pathway. We do believe that HIF-2, on the other hand, though, since it controls probably 100 genes, there are other effects ongoing in cancer. We don't really expect. And in fact, we know what the side effect in AE profiles are. So we do not expect that you would see overlapping toxicities. And I would just say that with HIF-2 alpha, those toxicities in AEs have already been well defined by belzutifan what you primarily see is very manageable anemia. We've seen similar and even though we believe and know, in fact, that we're hitting the target harder, essentially nature is built in a break because only so much HIF-2-mediated EPO expression is happening in the kidney, and there's other sources of EPO. And we've seen a safety profile that continues to look very similar to what has been reported for belzutifan. As Jen noted, we've actually even completed a 150-milligram cohort. And again, HIFs have not seen any DLTs to date.

Got it. That's helpful. And maybe a quick one regarding STAR-121 trial for first-line non-small cell lung cancer. It has primary endpoints of PFS and OS. Do you have to win on both? And what are the expectations from the Arm C? How much variation from the control arm and/or TIGIT arm is acceptable?

Dimitry, do you want to handle that question?

Sure, Terry. So the first question is relatively simple. So statistically speaking, the way it's set up, it's a dual primary endpoint, meaning that either PFS or OS, if either one of those is statistically significant, it will be a positive trial. I think we've been very clear in previous calls as well and lots of interactions, that are in the public domain that from a regulatory perspective, OS is really the registrational endpoint, PFS is supportive. And your second question, can you repeat it, please? I didn't get the entire question.

Sure. And I just wanted to get some -- so the PFS and OS are really comparing Arm A and B. B is, I believe, KEYTRUDA combination, but there is an Arm C for zim. I was just wondering how much variation from that arm versus control arm, KEYTRUDA arm [indiscernible] arm is acceptable?

Yes, that's a hard question as the FDA would say it's a review issue. That arm, I think, is clear from, let's say, the public domain is a 4:4:1 randomization. So a very limited number of patients is going on to zim and chemotherapy to establish contribution of components. Based on FDA guidance, I can share that contribution of components mostly is established by looking at the response rate. And of course, in a randomized fashion, a time-to-event endpoint could also be assessed. There's no absolute guidance on what the variability can be. That's a review issue. I can summarize and I'm very confident with the data we've generated for zim, that a positive trial, meaning that dom and zim, combined with chemotherapy, clearly beat KEYTRUDA that the contribution of components, let's say, discussion is a -- modest part of the discussion, and I'm confident that we will be able to achieve that successfully with the study design.

The next question comes from Peter Lawson of Barclays.

Just around HIF-2 alpha. For the second half data, kind of, what defines success for you from that data set? And could you remind us what Gilead -- or what the trigger points of Gilead potentially opt-in?

Sure. Thanks, Peter. So on what defines success, as we've articulated, there's a number of variables and opportunities for differentiation from belzutifan. So starting with response rate, rate of primary progression, depth of response, even if we're -- if we have PFS by that point, so we want to do better than belzutifan. I'll remind you, and thinking about our overall program goal, based upon what we've already seen, the data look good. And we're full speed ahead to registrational trial. And keep in mind that we are not going to be developing this, at least, in the near term as a monotherapy. And we also believe, as Jen was discussing, that we'll be combining with a better TKI than lenvatinib so that will give us another opportunity for differentiation. So there's multiple places, and we think that we have an opportunity to beat those on more than one of those. In terms of the Gilead opt-in, that's something that we would expect. We've converged on what would define opt-in, and we would expect a decision either towards the end of this year or early into next year.

The next question comes from Yigal Nochomovitz of Citi.

This is Ashiq Mubarack on for Yigal. I have a few on the EDGE-Gastric update at ASCO. And obviously, based on the data you've already shared, it looks like the capital narratives on PFS are obviously trending and well beyond the 7 to 8 months hurdle, I think you cited, but naturally with a small end. So I'm just curious how much greater do you think the PFS benefit really needs to be to derisk STAR-221? And a more theoretical question, I guess, how well do you think PFS correlates with OS benefit in this setting, given that the primary endpoint in STAR-221?

So thanks for the question. You're right on the sample size. And I think you'll be able to make your own call on that. As you suggested, it's known. And actually, the date has been pretty tight. So in addition, the CheckMate 649, there's been 2 other registrational studies with anti-PD-1 and chemo. And they both come in at roughly just under 7 to 8 months PFS. So that's pretty firm number. We think our data will be quite meaningful. I think one other thing to keep in mind when you compare our data sets, interestingly enough, CheckMate 649 had 60-40 high PD-L1, the low PD-L1, and we're actually 40-60. So pretty substantial difference. And as you saw, even our numbers in the all-comer population look pretty good. So we're 3 weeks away. We're excited about the data. You'll make your own call on how much you think they've derisked, besides, interestingly enough, as we also mentioned, we're on the cusp of that registrational study being completed. So you'll see those data in a couple of weeks. In terms of the correlation, as you know, in general, PFS and OS, particularly in the context of immunotherapy, are certainly qualitatively correlative, but I wouldn't necessarily think that you can plot a line for them. But given our data set, I think you'll clearly be able to form some speculation as to what might happen on the OS, just like you formed some speculation on the 6-month landmark numbers on what might happen. I think those dots are going to connect at least qualitatively in a direction that will be confidence-enhancing.

Yes. And if you look at the CheckMate 649 data set, I think you could say that the PFS and OS benefit was pretty correlative and pretty similar, if you look at the hazard ratios. So that's at least one data point that I think shows that their correlation to be pretty strong between PFS and OS in this disease.

Got it. But I have one more. Correct me, if I'm wrong, but I think you said the data at the ASCO [indiscernible] or ASCO will only be from Cohort A1. So I'm curious, I know where things stand with the other cohorts, especially Cohort A2, which is I think the zim plus FOLFOX arm. And obviously, that one will be important to help me understand the contribution of dom if that cohort varies from the 7 to 8 month number you're talking about. So just curious [indiscernible] stand there.

Sure. So that cohort actually enrolled sequentially for the first one. So the final patient actually just was enrolled a few weeks ago. Keep in mind, not only was it sequential but since it's essentially a single-arm study, the fact that you don't have an experimental arm is another thing that probably slowed its enrollment. So it's probably trending a year behind the initial cohort. I also mentioned that, as you've probably seen on clinicaltrials.gov, we have 2 additional arms that are probably more designed to take on the contribution of components that will be run in a randomized fashion and with a larger end. The other thing that may be important about that cohort that you just referenced that we recognize it's another opportunity, albeit a single-arm, nonrandomized data set that will give people another look at how zim-chemo compares to historical numbers for other anti-PD-1s such as KEYTRUDA or nivo chemo. So we think it will be an interesting data set as well. But it's at least a year behind this cohort.

Our next question comes from Jonathan Miller with Evercore ISI.

A couple on HIF-2 from me. Obviously, we're very excited to see the 100-milligram cohort release and get a better sense for HIF-2 efficacy here versus the competitor. But I'm wondering why -- well, specifically 50-milligram cohort isn't going to be part of that same release that was enrolled before 100 milligrams now. So I understand 150 just got finished, but why not include 50 in your end of year release? Secondly, in this quarter as well as last quarter, you highlighted that you were already...

I'm going to answer that because I'll forget what you said. Your brain is younger and faster than mine. So I'll forget the first question. So let me just answer the first one, then I'll take your second question. So the 50-milligram cohort was actually enrolled after the 100-milligram cohort. And it was basically, we added both the 50 and then we wanted to go with the higher in the context of Optimus. So the 50-milligram cohort just very recently was fully enrolled. And in fact, it won't be part of the medical conference presentation because, clearly, it won't be mature. But whatever we know about it, you'll be able to get that out of me without much inducing. So we'll share whatever we know about it. And in fact, when we first saw the very earliest data, even when only 15 patients or so have been scanned, the data were looking interesting. And to your point, it's actually -- even though it's 50 milligrams, that's 2.5 the PD equivalent of the Merck belzutifan clinical dose. The 150-milligram cohort is just starting, as you noted. So 50 came after 100.

Okay. Makes sense. Last quarter and this quarter, both, you highlighted that ORR at the 100-milligram dose, I assume, is already similar to belzutifan. The implication there being that given belzutifan's time to response, that ORR could, in fact, deepen as you get more scans under your belt. So in the intervening 3 months, have you seen ORR increase? I noticed that in both this quarter and last quarter using similar language saying that you're hitting similar ORR levels to belzutifan. But now they've gotten presumably more scans on these patients, do you see those late responses or I [indiscernible] say later responses more akin to belzutifan's time to respond?

Yes. So if we were using the same language, it was because we were reiterating what we said at the end of the -- when we gave the last update as opposed to like it's a fresh description. So all we would comment is the data continue to look good, longer trajectory of what we were seeing then. And we have no plans to give updates until the medical conference and then you'll see the full picture.

The only thing to add is, you're right, this is a mechanism where the response kinetics are on the slower side, and the average time response was about 4 months in the LITESPARK study. So yes, still early, some of our responses may take more time.

Okay. Makes sense. And then lastly, just as we think about the 2 different TKIs that you're exploring for combinations here, can you give us a little bit of color about what you're looking for to pick between them? And you've highlighted the importance of safety versus LENVIMA as a driver here. So are there clear no-go signals that would push you one way versus the other? Or is it something else that you're really looking at?

Yes. So I would say it's more strategic in timing and we're thinking about different settings. And I think what you're going to see, and this is primarily for competitive reasons, not playing any games. As this year goes along, we'll be very transparent about our development strategy. We -- some of this, it's not even that we're in the decision-making process, we know, but we want to let time play out a little as we get closer to those studies coming online, and you'll see there's different lines of therapies. There's other combinations we're thinking about. In addition, you can imagine even that we might go in both directions in different things. So we'll describe that as the year goes along.

Our next question comes from Jason Zemansky with Bank of America.

Congratulations on the progress. Maybe just to take a step back on the adenosine pathway. Just starting development efforts, it looked like the pathway was up regulated across the number of tumor types. And while there is certainly very encouraging signals in colorectal and pancreatic cancer, there have been some admitted said axis, well, both in [indiscernible] tumors like prostate and mainly at this point, NSCLC as well. I'm curious, have you cracked the code at this point in terms of which tumors are likely to respond, especially as your data sets emerge and mature? Are there additional signals that give you confidence in the mechanism at this point, especially as you start to look longer term, maybe some additional indications?

Thanks, Jason. So I think what we're probably looking at right now when we think about sweet spot from what we've learned. And this was a big part of what we thought going in is less the organ and more the biology and therefore, the treatment. And what I mean by that is what -- if you look at the 3 studies that we're pointing to right now, MORPHEUS-PDAC, our own pancreatic study and the colorectal study, they are both situations that we're going right on top of immunogenic chemotherapy. And that -- going into this, that was sort of down the middle of the fairway for us where you have a setting where you're killing cells, it's in this immunogenic way with chemotherapy and what's extraordinarily well understood about those settings is that if the ATP spills out from those initial cells dying, you produce a ton of adenosine. And so if you're able to mount any sort of immune response, those T cells are hit by adenosine and that's physics. That adenosine -- there's 1 million papers that are going to tell you if a T-cell sees adenosine, it's going to sleep. And so the phenotype of the response that we're seeing in each of these studies is very similar. So the places that we are thinking about, beyond the current settings, would be just those something where the standard of care is an immunogenic chemotherapy, but there's headway above that to actually get the benefit of when you think about that immune response that might be induced by chemo that you can enhance that by mitigating the effects of the adenosine [indiscernible]. So that's the way we're thinking what's the most we've learned to date, and there may be more you learn with time. But that's the primary learning to date.

Sorry, I think a third element would be tumors that tend to be very high in CD73 expression. So that pretty much takes you to GI tract in long [indiscernible] as the places where you have the convergence between high-level CD73 immunogenic chemotherapy.

Our next question comes from Daina Graybosch of Leerink Partners.

This is Jeff on for Daina,. So we have one on cas and one on the [indiscernible] So I guess starting with cas. We noticed Novartis as an oral ASCO for their HIF-2 inhibitor. How is cas differentiated from their molecule? And in that context, what are your expectations for that ASCO presentation. Do you think Novartis' decision to discontinue as for the development has any read-through to cas and your program?

Juan, why don't you comment on what we know about the Novartis molecule. And I'll start off, 0 read-through, but I'll let Juan comment on the Novartis molecule or whatever...

Yes. So our in-vitro evaluation of the compound, it suggests that it's a reasonably potent HIF-2 alpha inhibitor. In our hands, maybe in order of magnitude, weaker than cas is, as you know, there's much more that goes into making a high-quality drug and what it does in terms of pharmacokinetics drug interaction, PK/PD, we'll have to see. But definitely going in, it was sort of not a great contender clearly for a potency standpoint.

Okay. Great. And then how is the recent Roche PDAC data and the upcoming ARC-9 data change your view at all on etruma's potential therapeutic opportunity relative to quemli? Put another way, do you see any clinical settings? Or you expect etruma to outperform quemli? And do you anticipate issuing any additional randomized Phase II or Phase III trials for treatment this year?

So on the first question, while some people speculated otherwise, we look at both molecules as we sit here today, is great molecules and great potential. And to be honest, if things continue along the way, we said this from the beginning, once we start to get good data and the more good data that come, the more this is something one will contemplate, you might even think about combining the two at some point because there are certain situations where you may be able to generate adenosine through a mechanism that's not CD73 mediated, in which case blocking its action could be advantageous. So what we're going to say is, as of to date, we've just seen -- and you'll see the data for yourself so you can decide, we think we've got very compelling data with both molecules. And going to your question about Novartis -- I'm just going to use this as an opportunity, we've lived under an umbrella of some early studies done that, frankly, with very bad molecules. And we always talk about it's a molecule quality, it's the combination and it's the setting that makes the difference. And so we think going forward, there's still a whole lot more to be learned with these despite the fact that each of them could be on a trajectory. In fact, you know we're starting the pancreatic trial as late as early next year and as early as late this year. And we do expect to do more with etruma, the only reason we are sharing specific details of what the plan will be. And obviously, after you see the details of our data, there'll probably be more questions about exactly what we're going to do in the future. But we're still working through those details together with Gilead. We're preparing for discussions that we'll be having with the FDA. We want to think about exactly what would be the ideal control, that control and standard of care has evolved. When we started, it was regorafenib, now it's moved much more to, in the direction of Lonsurf plus bev. And so there's a number of things that we want to work through. But you can definitely expect -- and when you see the data, you will expect that we'd be crazy to not be doing something more with the molecule. So we're working through that.

Yes. I mean, obviously, it means a lot, I think, says a lot that I got it oral -- to get an oral presentation at ASCO, to get any presentation, except at ASCO, has gotten to be a high bar. So hopefully, the fact that we have an oral presentation accepted tells you that the clinical community is at least finding the results and the study meaningful.

And our next question comes from Li Watsek of Cantor Fitzgerald & Co.

This is Rosemary on for Li. So just a quick one on your next-gen programs. How are you thinking about prioritization as you have all these late-stage trials going on? And how does inflammation fit in with your oncology franchise?

Yes. So I think -- I think the question was sort of the early-stage portfolio, given that we have all these late-stage things, how do we think about it? So we were talking about the collaborators and the collaboration and what it enables us. And in fact, it's another unusual aspect of like the dynamic that we created with this collaboration. When we set this up with Gilead, Day 1, well, people don't always take these things of it's value, was really designed to be an R&D engine type of collaboration. So clearly, disproportionately, given the number of late-stage programs, we have -- dollars are being invested correspondingly. With that said, we've continued and this was when we discussed the most recent equity investment that Gilead made, one of the things that we discussed at that time and there's a $100 million fee that they'll be paying shortly that maintains the relationship. There was a big emphasis on continuing to enable the discovery part of it. Because clearly, if you look at what we're generating, we started as blank piece of paper. We're generating what we believe are good high-quality molecules for targets of interest. And the most notable one that's moving along nicely and we think is going to be a big deal is our AXL inhibitor, which recently has gone into patients, and it performed well in healthy volunteers and generating some initial PK data. And that will be the AXL inhibitor that actually tests the hypothesis. It's going to have the PK and selectivity that we'll be able to hit AXL hard and see how that works out. So the early-stage portfolio continues with the same emphasis and investment than it has previously. To your question on the more immunological component, that we haven't shared the most recent targets that we're working on, and we'll probably hold off on that for some time within a year that we'll start to talk about that. But we, along with Gilead, increased our emphasis there. As we built the company, we have a very strong immunology biology group. And I think you'll slowly see the percentage of the portfolio that looks like it includes immunology inflammation increasing, but it's not like we've defined some particular percentage. We're still at a stage of our evolution where the biggest driver would be best players. So best target, we'll get the next emphasis in our drug discovery group, whether immuno-oncology, oncology or I'll use the term du jour, I&I.

We have no further questions in the queue. So this concludes today's call. Thank you very much for joining.

Thanks, everybody. Appreciate it.