Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arcus Biosciences Corporate Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I will now hand the call off to Katie Bach, Vice President of Investor Relations and Corporate Strategy at Arcus. Katie, you may begin your conference.
Hi, everyone. Thank you, Carol. Thank you all for participating in today's call on such short notice. Today, we will be discussing this morning's announcement regarding Arcus GiftPad partnership. Joining me from Arcus are Terry Rosen, Chief Executive Officer Juan Haiyan, President and Bill Grossman, Chief Medical Officer.
I'd like to remind you that on this call, management will make forward looking statements within the meaning of securities laws, Safe Harbor provisions. For example, statements about the payments and other benefits we anticipate receiving under the Arcus Gilead partnership. All statements other than historical facts involve risks and uncertainties that may cause our actual results to differ. Those risks and uncertainties are described in our annual report on Form 10 ks and quarterly report on Form 10 Q, which have been filed with the SEC. We strongly encourage you to review their filings.
This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 27, 2020. And with that, I'll turn the call over to Terry.
Thank you very much, Katie, and thanks to everyone for dialing in today for what we think is a very exciting update. As many of you already know, this morning we announced the establishment of a broad and all in alliance with Gilead to co develop and co commercialize our best in class molecules. The initial focus will be on molecules targeting 3 of the most highly pursued immuno oncology pathways: TIGIT, the adenosine axis and PD-one. The collaboration also includes access to our world class discovery engine programs. I'd like to first highlight the benefits of this partnership, then briefly walk through several of the key components of the agreement and the vision and focus of the partnership and finally, share our thoughts on why I believe this particular structure greatly facilitates our ability to fully leverage the enormous opportunities in our pipeline in our R and D organization more broadly and efficiently, while simultaneously enabling our independence to support our long term vision for Arcus, its shareholders and patients.
So let me please start with the benefits of this partnership. In particular, this partnership structure was designed to overarchingly support and accelerate Arcus' advancement towards becoming a fully integrated commercial biopharmaceutical company. Importantly, maintaining Arcus' portfolio fully intact. Let me highlight 3 key and very tangible elements embodied in the structure. Firstly, an equal profit share in the U.
S. Facilitates the opportunity for Arcus to build its own commercial capabilities to ultimately serve more patients with genuinely innovative and meaningful therapies. Secondly, ongoing long term funding broadens and expedites opportunities to create a sustainable pipeline of therapies. Initial upfront, opt in, milestone and stage payments enable Arcus to aggressively accelerate and expand clinical development programs commensurate with the very large opportunities for important pathways targeted by our clinical molecules, while continuing to fuel our core competitive advantage, our discovery engine and continuing to unlock value. Thirdly, a singular long term partner unequivocally enables capturing commonstatorial nature of Arcus' pipeline.
This has been a strategic imperative since the founding of Arcus just in 2015. A bit of further granularity on what I just said. This structure greatly amplifies and expands opportunities in most highly pursued immuno oncology pathways. It enables both companies to compete aggressively against other firms developing products targeting the same pathways with significant near term investment in areas of extraordinary opportunity around pathways that play a ubiquitous role in cancer and that required closely integrated development and commercial planning. Clearly, the added resources and expertise facilitate the potential of our near term commercial opportunities and prospects with 3 molecules having the potential to be in registrational studies in 2021.
And finally, we would like to highlight Gilead as an ideal partner. We will have extraordinary overlapping and mutually beneficial incentives. Exceptional alignment of Gilead and Arcus' strategic priorities and leadership teams provide opportunity to create substantial value for patients in both for both companies in both the near and long term. So let me go to a brief reminder of the financial terms. I'd like to take our moment really very importantly to express our gratitude to Gilead for such a strong signal of long term confidence in both our clinical stage programs and discovery capabilities through such a meaningful initial equity investment in the company, a 10 year term of the partnership and the additional non dilutive funding that removes financial overhang and allows us to focus purely on execution around the opportunities residing in our R and D programs.
We are excited to embark on the next phase of our long term vision together. Gilead is genuinely the ideal partner. We will receive an upfront payment of $375,000,000 from Gilead consisting of a $175,000,000 cash payment and a $200,000,000 equity investment. Initially, Gilead will have an approximately 10% equity stake with an option to increase its equity stake in Arcus to up to 35% over the coming 5 years. We will also receive payments of up to $400,000,000 over the next 8 years that will be used to support our research and development efforts.
We have also agreed upon potential option and milestone payments in excess of $1,200,000,000 for our current immuno oncology clinical programs and most importantly the co development and co commercialize equally in the U. S. These clinical programs include AV154, Arcus' Phase 2 anti TIGIT antibody, AV928, the first and only dual A2A, A2B receptor antagonist in the clinic and AB680, the 1st small molecule CD73 inhibitor in the clinic. The opt in fees range from $200,000,000 to $275,000,000 per program after delivery of a qualifying data package. Additionally, Arcus is eligible to receive up to $500,000,000 in potential future U.
S. Milestones for our anti TIGIT antibody, AV154. Arcus will receive payments of $150,000,000 for any other current or future Arcus preclinical program for which Gilead exercises its option. And just to remind you of what we believe is one of the most important components of the deal is that we will share fifty-fifty in the commercialization of collaborative programs in the U. S.
We will also receive tiered royalties ranging from high teens to low 20s outside of the U. S. We view there being 3 primary areas of focus in this alliance. First is an immediate focus on immune checkpoint backbone therapies that provide a basis for disruptive combination strategies. Both companies will be able to utilize Arcus' foundational anti PD-one antibody, zemborelimab in combination studies with any of their proprietary molecules.
Additionally, Arcus will continue to advance its Phase 2 anti TIGIT antibody, AV154, a checkpoint inhibitor with broad potential utility for which Gilead has opt in rights. The second, Arcus will also continue to advance its other clinical programs for which Gilead has near term opt in rights. These programs include molecules that target the adenosine axis AB-nine twenty eight and AB-six eighty. 3rd, Arcus will continue and expand its discovery efforts to create and develop best in class cancer therapies that target underexploited biological pathways. Gilead will have the ability to opt into these ARCUS programs after early stage clinical trials, including near term opportunities with Arcus' HIF2 alpha, PI3 kinase gamma, Axle and PAC4 programs.
So let me just get to a summary of the key messages. At a high level, the collaboration framework enables us to continue to grow as a fully independent company in all respects, while at the same time having an outstanding partner with highly aligned interest that brings resources, additional capital and expertise that will allow us to fully leverage the opportunities inherent in our current and future pipeline. Although we already have an aggressive and relatively broad portfolio of clinical molecules and ongoing trials for a company at our stage of evolution, we are generally working on targets that play a rather ubiquitous role in cancer and hence offer a myriad of opportunities to benefit patients across numerous settings and combinations. This collaboration will enable us to exploit these opportunities as aggressively and expeditiously as possible. We have a shared vision with Gilead to turn these opportunities into reality and we will work as a team on late stage development of our portfolio.
Furthermore, the relationship will allow us in parallel to grow our commercial organization, capabilities and presence. We will share fifty-fifty in the commercialization of collaborative programs in the U. S. While we will work collaboratively with Gilead as a single team to maximize the clinical and commercial potential of our pipeline, greatly amplifying the opportunities otherwise unavailable without a partner with the excellence and scale of Gilead, we will also continue and expand our discovery activities independently focusing on targets likely to be of mutual interest. We believe that the opportunity offered by this relationship is absolutely unique.
As you know, Gilead has had unparalleled success in bringing transformational therapies to the treatment of patients. Gilead has recently committed to expanding their presence in immuno oncology and hence we share a parallel desire to both grow and expand our organization's portfolio and commercial presence. It is really quite rare to find such complementary and aligned interest amongst 2 independent organizations. I will end by noting that perhaps the most central aspect of this relationship is the human element. Companies and organizations are only as great as their people.
I've had the opportunity to discuss this collaboration multiple times with Danno Day and we have no doubt that we share a vision on the potential for our 2 organizations to succeed in a very special and long term way. Thank you very much. That concludes our prepared remarks for today. Operator, please open the call up for questions.
Thank Our first question today comes from Geoffrey Porges from Leerink. Please go ahead. Your line is open.
Thank you
very much and congratulations to everyone at Arcus on this really terrific transaction and also of course to Gilead for broadening their portfolio. So kind of wonderful execution in a time of social distancing. A couple of questions, Terry. So could you describe the lockups on the who is locked up and the members of the Arcus' management team and for how long that would be helpful to know from a Gilead investment perspective? And then secondly, could you talk about the decision making and what the structures are?
So how do you decide on what combinations to pursue, for example, if you wanted to go forward with a CTLA combination or with a KRAS or something like that? And related to that, are there any obvious combinations with products in Gilead's portfolio that you would envisage advancing immediately? Thanks.
So I'll just ask Carolyn, who's also on the call, our General Counsel Carolyn Tang to comment on the lockups.
Sure. So the lockup applies to Gilead, and we're not disclosing the duration of the lockup at this
there will be a joint steering committee and a joint development committee And those committees will oversee the strategies and operational aspects of the programs. One thing I would like to highlight is that there's a very strong existing relationship between the Chief Medical Officer, Mehrdad Parsley and at Gilead and Bill Grossman, our Chief Medical Officer. And we think that's really when I was talking about that human element before, I think that's going to greatly facilitate a very seamless conversion of the 2 teams into one team and that was very noticeable even through our discussions and getting to the collaboration. At this point, we don't no comments yet on respect to any potential combinations involving things within Gilead's portfolio, although that's certainly in scope. And the likely initial focus will be on combinations within the Arcus portfolio.
So Terry, can I just follow-up? The question I was asking is, what reassurance does Gilead have that hypothetically you and Juan and maybe Bill walk out the door as soon as the deal closes. I mean, that's wrong. The people component is absolutely essential to Gilead getting a return on this. So could you explain how that's what that looks like?
Sure. I got it. So you're talking about stock lockups, you're talking about actually, we're just all here because we want to be here. And as you know us, Jeff, for a long time, there's no contractual lockups insofar as our continued work at Arcus, but you couldn't find a more enthusiastic group. Things only just got a lot better.
We love the prospect. You've talked to us since we were basically a blank piece of paper. And as you know, for the type of company we've been building, this collaboration is so enabling. It allows us to keep our portfolio intact. So insofar as what we're doing, we couldn't be more excited than to have Gilead as a partner.
Perfect. Congratulations.
Thank you. Thank you very much, Jeff.
Our next question comes from Robin Karnauskas from SunTrust. Please go ahead. Your line is open.
Hi. Thanks for taking the question and congratulations, Terry. What a great news to wake up to this morning. Good morning, Rob. On my birthday, no less.
It's a great day.
Happy birthday, Rob.
Thank you. So a question for you on Gilead recently acquired 47. You said that initial combinations would stick to what you guys have at Arcus. But I respect your thoughts on science. Can you talk a little bit about what kind of assets within that Gilead has access to do you think might be synergistic with Adenosine, TIGIT, etcetera?
Thanks.
Thank you, Robin. So at this point, we really haven't contemplated in great deal the merging of the two portfolios that will come. But as you know, a number of the things in Arcus' portfolio deal with mechanisms that are very ubiquitous. So you can think of things like AB-nine twenty eight as being great combination agents with many, many potential mechanisms. The other thing that I would note is both companies from the outset have access to use zembrolumab in combination with anything in their portfolios and that will be throughout the duration of the collaboration.
Great. And just a follow-up. For the trials that are ongoing, you've got so many ongoing. Can you talk about how you could have a partner to accelerate the speed? How can you accelerate with Gilead presence, the adenosine portion of your company.
So can they do you think you'll be able to enroll faster or you can start pivotal trials quicker? Any change in strategy from you've been doing with your adaptive trial design with this collaboration?
So at this point, there's no change in strategy. I think what when we think about one of the key aspects of the acceleration will be as we complete our expansion, our early trials, I think as we move into later stage trials, we'll be able to do them broader, more aggressively, perhaps in more settings that we might have been able to do otherwise. But I'll see if Bill wants to add any other comments in that on how he looks at that at this point.
Thanks, Terry. I think Terry covered it pretty well. I think this collaboration really helped accelerate a lot of the strategy that we have across both companies and accelerate a lot of the late stage programs we intend to proceed for.
Thank you.
Thanks, Robin.
Our next question comes from Mara Goldstein from Mizuho. Please go ahead. Your line is open.
Great. Thanks a lot and congratulations and thanks for taking my question. So just a couple. Can you talk just firstly a little bit about the opt in packages for the candidates that are already in clinical trials versus the preclinical candidates and the timing of that? I mean, I understand it's a 10 year deal, but when are there certain collars around when Gilead has the opportunity to opt in?
Sure. I'll comment on it. Thank you for the question, Mara. So really, and this comes back to an aspect that I was talking to that human element. The way one should think about the opt ins for the clinical programs.
It is at a stage of that 1b Phase 2 type of data. And as you know, what we recognized at the outset of this collaboration, it's a little unusual in nature since it's a broad portfolio, it's going to be an expanding portfolio. Pancreatic cancer is different than non small cell lung cancer. And so what we've done is we've given a lot of discretion to that joint development committee that for each program they can define early on in the clinical phase of things what that package will look like and what it will make sense for that particular program. So that will be the point at which Gilead will in on any program.
So even the preclinical programs, they'll move into Phase 1, we'll take them through and then the joint development committee will in essentially real time develop a set of criteria for each of those programs and those will define both when and what the criteria will be for that specific program.
Okay. And then just on a couple others, if you don't mind. On the $400,000,000 additional funding, is that on top of any other development costs? And how is that money how is that decided in terms of how that money flows through development?
Carolyn, do you want to describe the nature of those payments, please?
Sure. So basically during the term of the agreement, Gilead will provide ongoing sort of R and D support up to a total of $400,000,000 in addition to the upfront cash payment that we will receive upon closing. And that the agreement doesn't really dictate how Arcus can spend that money. Arcus is free to spend that money to further develop all of its preclinical candidates, further develop its clinical programs in the hopes of advancing things and being able to bring some options to the table for Gilead.
Okay. Thank you. And I just have one more if you can indulge me. Just on the Gilead has the opportunity to advance its equity stake to 35% up to I think it's 5 years. But is there a right of first refusal?
Should somebody else be interested in a business combination
Yes.
Yes. So we entered into a standard investor rights agreement with Gilead in connection with this agreement. There are the customary sort of standstill and lockup provisions. There is no right of refusal.
Okay. All righty. Thanks. I really appreciate it.
Thanks so much, Myra.
Our next question comes from Peter Lawson from Barclays. Please go ahead. Your line is open.
Good morning, Peter. Hi. Thanks for taking my questions. Congratulations, Terry. Just if you could just walk through kind of the decision to do a very broad pipeline deal versus kind of a single asset, that would be great to kind of work through your thoughts.
Sure. So from the outset, if you recall, Arcus is so focused on combination therapies and we recognized early on that to fully leverage that, ideally, you would have one partner so that you wouldn't have to have this modular approach where one partner may have one thing, another, a different thing and it's really very complicating. So from a strategy of everything is in, you're able to combine any of the molecules with any other molecules, total freedom to operate within the portfolio. This was just so perfect. It's exactly the type the vision we would have had for a partnership from day 1.
So greatly facilitates the development of the combination approach that we've been taking.
Great. Thank you. And then, was this a competitive deal? And does it lock you out of additional deals? Or do you kind of view this as kind of a one and done deal?
So the way this deal is structured, Gilead will make a decision to opt in or opt out as we described. Should they not opt in, those sorts of programs we could continue to develop independently or we do have the option of partnering those programs with others. But otherwise, Gilead has an option to everything that we'll be working on in that 10 year period. And frankly, if I could have my wish, they'd opt in on everything. It keeps the integrity of the portfolio, as I mentioned, very strong.
But with that said, in a real world, we certainly don't expect them to opt in to every program. And some of those other programs, we will, in fact, likely develop ourselves or potentially with other partners.
Great. Thank you. And just final question, just on data that we should expect mid this year. Any kind of update of what we should expect to see?
So our milestones continue to look the same. Middle of this year, we'll be sharing and having generated early expansion data from the number of the AB-nine twenty eight trials as we've discussed. And then later in the year, early randomized data from a number of those same AB928 combination studies as well as from our TIGIT study in its combination with PD-one antibody as well as the triplet involving AV-nine twenty eight later part of 2020.
Great. Thanks so much.
I'll get back into the queue.
Thank you, Peter.
Our next question comes from Alethia Young from Cantor. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question. Congrats on the deal. I love it when 2 good things happen. 1, for both of you guys and my homegirl Robin's birthday today.
So shout out to you Robin. How are you? Two questions for you. One, I guess I just want you to talk a little bit about maybe broader TIGIT strategies, what you thought about the Roche dataset? And do you think there's life beyond maybe a digit combination beyond non small cell?
And then why Gilead versus maybe perhaps other people who are more entrenched in the IO space? I mean, does it again come down to the human element? Thanks.
So let me answer the second question first and then I'll let Bill comment on the Genentech gross TIGIT data as well as the prospects for a much broader utility than non small cell lung cancer. So one of the reasons that Gilead is so ideal is that, as you know, they've been committed to expanding their immuno oncology presence. And so when you think about the complementarity of growing in parallel, it's really ideal. There's it's a situation if you kind of look out there in the world, where there's not much overlap at the start. Both companies have a we're obviously different stages in our evolution, but both have a very strong commitment to growing those organizations.
And then the final piece is the human dynamic is awesome. So that started with Bill and Murdad, but teams have been getting to know each other and we expect that to be great. But it's a very unusual circumstance, I think, where you have the 2 independent companies having both such a complementary interest, but as well as being sort of in a complementary position that there's not overlap in needing and wanting to grow at the same time. So it's really an ideal situation. Bill, do you want to comment a little on the TIGIT question, please?
Sure. Yes, so we're very excited by the Genentech data release around the CityScape trial. In particular, the signal that they saw in the PD L1 high population, the TPS-three fifty population, was very supportive of our ongoing strategy. And just to remind you that the trial that we have ongoing randomized trial in Phase II is specifically looking at the PD L1 high population in both the triplets with ZYN as well as triplet with 928 as well. So we're pretty excited to be looking at that data interim analysis towards the end of this year.
As far as like a broader strategy within TIGIT, as you can imagine, there's a lot of different indications and combinations we're interested in. And we hope that by the end of this year or towards the second half of this year, we'll be able to fully expand that strategy as well.
Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead.
Good morning and congratulations on the deal. Just curious with regard to the genesis of this deal, was there one asset that sparked Gilead's interest or was this really a portfolio based approach? And then can you just walk us through where the early stage programs stand at this point?
Sure. Thank you, Salveen. So really this is was about the as you can imagine from looking at the terms, the breadth, the tenure nature of this, it's about team and the long term development of the entire portfolio and programs that we haven't even started yet. In so far as the early stage programs, I'll let Juan say a few words about where those programs stand at this point and give you some answers to that part of the equation.
Good morning, Salveen. So we continue to make progress on all fronts preclinically. The 2 most advanced programs at this time are HIF-two alpha and XL inhibitor programs. We expect to select lead the developing candidates for both of those programs in the second half of this year. The HIF-two alpha program, we have a good opportunity to have that in the clinic during the first half of 2021.
Great. Thank you.
Our next question comes from Tom Shrader from BTIG. Please go ahead. Your line is open.
Good morning. Congratulations on the deal. I had a question on this qualifying data package. It must be all over the place. The package for 928 is already huge.
Any indications of what you need there to force the decision?
So I'll let Bill comment on how this is being thought about. Bill, why don't you say a little bit about how we're looking at the data package through the discussions you've already had, how those are how that's going to look? Thank you, Tom.
Yes. As Terry previously described, the qualifying data packages will be determined and discussed at the JDC and possibly the JSC levels across the different programs. Specifically for AB-nine twenty eight, most of our data, we have a pretty good data set that's mostly in single arm Phase 1b trials and expansion. So what I believe we'll be looking at for that qualifying data package for 928 will include some of the randomization data that we have generating towards the end of this year as well. So some of those programs will be including prostate cancer for our ARC6 platform trial that we just started as well as ARC7, the Phase 2 randomized trial 1.
So some controlled data. Similarly for 154, can we assume the lung package is enough and we should have a decision by the end of the year? Or is that not a reasonable assumption? Yes. I think, again, we'll be presenting them with additional data package by the end of the year, turn of the year based on our planned interim analysis for ARC7 where we can have randomized data in that trial with ZIM mono, our double digit and then our triplet with 928 until we'll have that by the end of this year.
Our next question comes from Yigal Nochomovitz from Citi. Please go ahead. Your line is open.
Hi, Terry and team. Thanks for taking the questions and congrats on a very nice deal. I just had one related to the PD-one that you're developing, maybe 122. Could you just talk about whether you see any differentiating features of that antibody or if it's really just another anti PD-one in development? Thanks.
Yes. Thank you, Yigal. Good morning. So we view and we actually like that the data have gone this way. We see zemborelumab or AV1 to 2 is looking just like the commercial agents, whether you were to look at KEYTRUDA or an Opdivo.
So the data that's been generated by us as well as Gloria Biosciences in China look to be indistinguishable. So from day 1, we viewed it as a backbone, gives us strategic optionality. But the thing that we felt would differentiate us is what we combine it with. It comes back to some of the earlier questions that were asked about the strategy of a single partner of the combinations that our idea always at the beginning was that, that would be enabling and we tended to think of it as it's what we combine with it that would make it a special therapy.
There are no further questions in queue at this time. Doctor. Rosen, I'll turn the call back over to you.
At this point, I would just like to thank everybody once again. We appreciate you joining us this morning. I'll turn it over to you.
Thank you. And ladies and gentlemen, this does conclude today's conference call. Thank you once again for participating. You may now disconnect.
Thank you.