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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. I will now hand the call off to Katie Bock, 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' Gilead partnership. Joining me from Arcus are Terry Rosen, Chief Executive Officer, Juan Jaen, 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 law's 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-K and quarterly report on Form 10-Q, which have been filed with the SEC. We strongly encourage you to review those filings.
This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 27th, 2020. With that, I'll turn the call over to Terry.
Thank you very much, Katie. 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 three of the most highly pursued immuno-oncology pathways, TIGIT, the adenosine axis, and PD-1. 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.
Finally, share our thoughts on why we believe this particular structure greatly facilitates our ability to fully leverage the enormous opportunities in our pipeline and our R&D organization more broadly and efficiently, while simultaneously enabling our independence to support our long-term vision for Arcus, its shareholders, and patients. 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 three 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 all aspects of the value that resides in the combinatorial 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 the 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 require closely integrated development and commercial planning.
Clearly, the added resources and expertise facilitate the potential of our near-term commercial opportunities and prospects, with three molecules having the potential to be in registrational studies in 2021. Finally, we would like to highlight Gilead as an ideal partner, where we 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 and for both companies in both the near and long term. Let me go to a brief reminder of the financial terms.
I'd like to take a 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&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 million from Gilead, consisting of a $175 million cash payment and a $200 million 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 five years.
We will also receive payments of up to $400 million over the next eight 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 $1.2 billion for our current immuno-oncology clinical programs, and most importantly, to co-development and co-commercialize equally in the U.S. These clinical programs include AB154, Arcus' phase II anti-TIGIT antibody, AB928, the first and only dual A2a/A2b receptor antagonist in the clinic, and AB680, the first small molecule CD73 inhibitor in the clinic. The opt-in fees range from $200 million to $275 million per program after delivery of a qualifying data package. Additionally, Arcus is eligible to receive up to $500 million in potential future U.S. milestones for our anti-TIGIT antibody, AB154.
Arcus will receive payments of $150 million for any other current or future Arcus preclinical program for which Gilead exercises its option. Just to remind you of what we believe is one of the most important components of the deal is that we will share 50/50 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 three 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-1 antibody, zimberelimab, in combination studies with any of their proprietary molecules. Additionally, Arcus will continue to advance its phase II anti-TIGIT antibody, AB154, 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, AB928 and AB680. 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' HIF-2α, PI3K-gamma, AXL, and PAK4 programs. 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 interests 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 50/50 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, hence we share a parallel desire to both grow and expand our organizations, portfolio, and commercial presence. It is really quite rare to find such complementary and aligned interests amongst two 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 Dan O'Day. We have no doubt that we share a vision on the potential for our two 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 you. As a reminder, if you would like to ask a question at this time, please press star one on your telephone. To withdraw your question, please press the pound or hash key. We ask that you limit yourself to one question and one follow-up. Our first question today comes from Geoffrey Porges from Leerink. Please go ahead. Your line is open.
Thank you very much. Congratulations to everyone at Arcus on this really terrific transaction and also, of course, to Gilead for broadening their portfolio. Wonderful execution in a time of social distancing. A couple of questions, Terry. Could you describe the lockups on who is locked up in the members of the Arcus' management team and for how long? That would be helpful to know from a Gilead investment perspective. Secondly, could you talk about the decision-making and what the structures are? 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. Related to that, are there any obvious combinations with products in Gilead's portfolio that you would envisage advancing immediately? Thanks.
I'll just ask Carolyn, who's also on the call, our General Counsel, Carolyn Tang, to comment on the lockups.
Sure. The lockup applies to Gilead, and we're not disclosing the duration of the lockup at this point.
Thank you. Geoffrey, coming to your question with respect to decision-making, 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, Merdad Parsey at Gilead and Bill Grossman, our Chief Medical Officer. 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 two teams into one team. That was very noticeable even through our discussions in getting to the collaboration. At this point, 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.
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 extreme, but the people component is absolutely essential to Gilead getting a return on this. Could you explain what that looks like?
Sure. Oh, I get it. You're talking about stock lockups. Actually, we're just all here because we want to be here. As you know us, Geoff, for a long time, there's no contractual lockups insofar as our continued work at Arcus, 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, 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. 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, Geoffrey.
Our next question comes from Robyn 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, Robyn.
On my birthday no less. It's a great birthday.
Oh, happy birthday, Robyn.
Thank you. A question for you on, Gilead recently acquired Forty Seven. 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 axis, TIGIT, et cetera? Thanks.
Thank you, Robyn. At this point, we really haven't contemplated in great deal the merging of the two portfolios. That will come. As you know, a number of the things in Arcus' portfolio deal with mechanisms that are very ubiquitous. You can think of things like AB928 as being great combination agents with many potential mechanisms. The other thing that I would note is both companies, from the outset, have access to use zimberelimab in combination with anything in their portfolios, and that will be throughout the duration of the collaboration.
Great. Just a follow-up. For the trials that are ongoing, you've got so many ongoing, you talk about how you could have a partner to accelerate the speed. How can you accelerate with Gilead present, the adenosine portion of your company? Do you think you'll be able to enroll faster, or you can start pivotal trials quicker? Any change in strategy from what you've been doing with your adaptive trial design with this collaboration?
At this point, there's no change in strategy. I think 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 than we might have been able to do otherwise. I'll see if Bill wants to add any other comments than that on how he looks at that at this point.
Thanks, Terry. I think Terry covered it pretty well. I think this collaboration will really help 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.
Great. Thank you.
Thanks, Robyn.
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.
Thank you, Mara.
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 understand it's a 10-year deal, but 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. 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 is at a stage of that phase I-B/phase II type of data. 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. 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.
That will be the point at which Gilead will opt in on any program. Even the preclinical programs, they'll move into phase I, we'll take them through, and then that 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. Just on a couple others, if you don't mind, on the $400 million additional funding, is that on top of any other development cost? 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. Basically, during the term of the agreement, Gilead will provide ongoing R&D support up to a total of $400 million, in addition to the upfront cash payment that we will receive upon closing. 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. 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 is five years. Is there a right of first refusal should somebody else be interested in a business combination with Arcus? How will that work?
Carolyn, why don't you take that question as well, Carolyn?
Yeah. We entered into a standard investor rights agreement with Gilead in connection with this agreement. There are the customary sort of standstill and lock-up provisions. There is no right of refusal.
Okay. All righty. Thanks, I really appreciate it.
Well, thanks so much, Mara.
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. If you could just walk through the decision to do a very broad pipeline deal versus a single asset, that would be great to kind of work through your thinking.
Sure. 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. From a strategy of everything is in, you're able to combine any of the molecules with any of the other molecules, total freedom to operate within the portfolio. This was just so perfect. It's exactly the vision we would have had for a partnership from day one. Greatly facilitates the development of the combination approach that we've been taking.
Great. Thank you. Was this a competitive deal, and does it lock you out of additional deals, or do you view this as kind of a one and done deal?
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. Otherwise, Gilead has an option to everything that we'll be working on in that 10-year period. 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. 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. Just final question, just on data that we should expect mid this year, any kind of update of what we should expect to see?
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 AB928 trials, as we've discussed. 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-1 antibody as well as the triplet involving AB928 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 two good things happen. One, for both of you guys, and my homegirl Robyn's birthday today. Shout out to you, Robyn. Two questions.
Good morning, Alethia.
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 data set, and do you think there's life beyond maybe a TIGIT combination, beyond non-small cell? 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.
Let me answer the second question first, and then I'll let Bill comment on the Genentech/Roche TIGIT data as well as the prospects for a much broader utility than non-small cell lung cancer. One of the reasons that Gilead is so ideal is that, as you know, they've been committed to expanding their immuno-oncology presence. When you think about the complementarity of growing in parallel, it's really ideal. It's a situation, if you look out there in the world, where there's not much overlap at the start. Both companies, we're obviously at different stages in our evolution, but both have a very strong commitment to growing those organizations. The final piece is the human dynamic is awesome. That started with Bill and Merdad, but the teams have been getting to know each other, and we expect that to be great.
It's a very unusual circumstance, I think, where you have the two independent companies having both such a complementary interest, but as well as being in a complementary position that there's not overlap in needing and wanting to grow at the same time. It's really an ideal situation. Bill, do you want to comment a little on the TIGIT question, please?
Sure. Yeah, we're very excited by the Genentech data release around their CITYSCAPE trial. In particular, the signal that they saw in the PD-L1 high population, the TPS greater than 50 population, was very supportive of our ongoing strategy. Just to remind you that the ARC-7 trial that we have ongoing, randomized trial Phase II, is specifically looking at the PD-L1 high population in both a doublet with zim as well as triplet with AB928 as well. 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. We hope that by the end of this year or towards the second half of this year, we'll be able to further expand on that strategy as well.
Thanks.
Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead.
Good morning. Congratulations on the deal. Just curious with regard to the genesis of this deal, was there one asset that sparked really of interest, or was this really a portfolio-based approach? Can you just walk us through where the early-stage programs stand at this point?
Sure. Thank you, Salveen. Really this was about the, as you can imagine from looking at the terms, the breadth the 10-year nature of this, it's about the team and the long-term development of the entire portfolio and programs that we haven't even started yet. Insofar 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.
Definitely. Good morning, Salveen. We continue to make progress on all fronts preclinically. The two most advanced programs at this time are HIF-2α and AXL inhibitor programs. We expect to select the developing candidates for both of those programs in the second half of this year. The HIF-2α program, we believe 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 AB928 is already huge. Any indications of what you need there to force the decision?
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 that's going to look. Thank you, Tom.
Sure. Yeah, as Terry previously described, the qualifying data packages will be determined and discussed at the JDC and possibly the JSC level across the different programs. Specifically for AB928, most of our data, and we have a pretty good data set that's mostly in single arm phase I-B trial and expansion. What I believe we'll be looking at for that qualifying data package for AB928 will include some of the randomization data that we have generating towards the end of this year as well. Some of those programs will be including prostate cancer for our ARC-7 platform trial that we just started, as well as ARC-7, the phase II randomized trial one.
Some controlled data. Similarly, for AB154, can we assume the lung package is enough and we should have a decision by the end of the year? Is that not a reasonable assumption?
Yeah, 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 ARC-7, where we'll again have randomized data in that trial with zim mono, our doublet with TIGIT, and then our triplet with AB928. We'll have that by the end of this year.
All right, great. Thank you. That's helpful.
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-1 that you're developing, AB122. Could you just talk about whether you see any differentiating features of that antibody, or if it's really just another anti-PD-1 in development? Thanks.
Yeah. Thank you Yigal. Good morning. We view, and we actually like that the data have gone this way. We see zimberelimab or AB122 is looking just like the commercial agents, whether you were to look at a KEYTRUDA or an OPDIVO. The data that's been generated by us, as well as Gloria Biosciences in China look to be indistinguishable. From day one, we viewed it as a backbone, gives us strategic optionality. The thing that we felt would quote unquote 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.
Got it. Thank you.
Thank you.
There are no further questions in queue at this time. Dr. 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. Ladies and gentlemen, this does conclude today's conference call. Thank you once again for participating. You may now disconnect.
Thank you.