2023-08-29 14:40:58 ET
Summary
- Arcus Biosciences, Inc. stock has dropped 40% since its high in 2022, making it an attractive investment opportunity.
- The company has major deals with Gilead, Roche/Genentech, and AstraZeneca, and a large cash reserve.
- Gilead continues to increase its stake in Arcus, showing confidence in the company's potential.
I covered Arcus Biosciences, Inc. ( RCUS ) in Jan 2021 and then again in Jan 2022 , pretty much with the same price at publication. That is to say, it was $38 in 2021, and $38 in 2022. It is $21 now. Despite having been founded by Terry Rosen, a successful biopharma entrepreneur, and bagging a large deal with Gilead, I considered its valuation high. The stock is now down 40% from then, so it is time to take a look.
In 2021, RCUS had a decent pipeline but not much data, major deals with Gilead, Roche/Genentech and AstraZeneca, and a large pile of cash. In 2022, they published early positive data from CD73 asset AB680 (quemliclustat) in metastatic pancreatic cancer; and the CD73 space was just heating up after AZN published positive data from its own CD73 asset oleclumab plus IMFINZI (durvalumab) combination in a Phase 2 trial in patients with non-small cell lung cancer ((NSCLC)). This gave RCUS stock a fillip. But the effect did not last.
In my 2021 article, I discussed the company’s platform, which was targeting the adenosine axis, which plays a critical role in immunosuppression in the tumor microenvironment or TME. I discussed early but impressive data from AB680 (quemliclustat) in pancreatic ductal adenocarcinoma ((PDAC)). The last therapy to be approved for PDAC was Abraxane + gemcitabine, or Np/gem, and the registrational trial saw only 23% ORR, whereas AB680 already gave us 41% in an early trial. Since PD-1 is not effective here, if AB680 could sustain this ORR, that would be very interesting.
Lead asset is the anti-TIGIT antibody domvanalimab. In 2022, domvanalimab reported positive data from combination studies in lung cancer. Gilead Sciences’ (GILD) major deal with Arcus includes both these assets, along with a number of others. I noted how Gilead was under pressure after its Galapagos and Kite deals did not become profitable. It needs Arcus to deliver; which is the best form of synergy.
If you now run through the press releases of the last 18 months, you will see mostly news about inducement grants followed by updates from the anti-TIGIT antibody domvanalimab. While positive news from this asset improved the stock, news of early failures of larger rival Roche’s own anti-TIGIT immunotherapy tiragolumab in NSCLC patients also dampened the stock, as well as the entire anti-TIGIT antibody sector. Roche has recently produced good data, and the sector should now be doing better than earlier.
In May 2022, Roche’s tiragolumab failed to meet the co-primary endpoint of progression-free survival ((PFS)). The data from the other co-primary endpoint, overall survival or OS, was still immature, however this failure in a large phase 3 trial shook up the entire sector. In November, Arcus and Gilead produced interim data from their own NSCLC study which showed “clinically meaningful differentiation for both domvanalimab-containing arms across all efficacy measures compared to the Zimberelimab monotherapy arm.” These efficacy measures were objective response rates, progression-free survival ((PFS)), and six-month landmark PFS. However, being interim data, there was no further clarity. Meanwhile, Roche kept delaying its OS data from the SKYSCRAPER-01 trial, hurting the sector.
In May, Roche produced data from another trial, this time in liver cancer. This early stage phase 1 data from some 50 patients showed a treatment effect (with better ORR and PFS) of tiragolumab in combination with two other drugs. This news again helped RCUS stock.
Finally, just last week, Roche “accidentally” released interim data from the SKYSCRAPER-01 trial, which showed :
According to mistakenly shared data from its second interim analysis, the patients on the experimental therapy indicated a 0.81 hazard ratio, meaning those on tiragolumab and Tecentriq demonstrated a 19% lower probability of death when compared to those on Tecentriq alone.
The interim readout based on a data cut in November 2022 further indicates a median overall survival of 22.9 months for the tiragolumab plus Tecentriq arm compared to 16.7 months in the Tecentriq-only arm.
While the OS data was still immature, the positive HR benefit and numerically better OS benefit were enough to make the space trendy again, helping RCUS stock.
Meanwhile, Gilead has continued to up its stake in RCUS. In May, they extended the collaboration into inflammatory diseases, paying RCUS a $35mn upfront fee and promising to pay $1B in option fees and milestone payments. In July, Gilead raised its stake in RCUS, purchasing ~1mn shares of RCUS at ~$19 per share to increase its stake from 19% to 20%. Thus, as RCUS moves towards generating data and Roche keeps the road clear for anti-TIGIT players, Gilead keeps betting bigger and bigger on RCUS in an all-out push to create for itself a new revenue generating pipeline. That, right now, is the RCUS story.
Financials
Arcus Biosciences, Inc. has a market cap of $1.68bn and a cash reserve of $1bn. Research and Development (R&D) Expenses were $84 million for the second quarter 2023, while General and Administrative (G&A) Expenses were $28 million. At that rate, they have a cash runway of 9-10 quarters, or until 2025. If they attain certain clinical milestones, Gilead will chip in with more biobucks.
RCUS is almost wholly owned by smart money, with 70% in the hands of institutions. Gilead is the largest holder, followed by BlackRock, FMR and Vanguard. Meanwhile, everyone in the management of RCUS keeps selling stock in the open market.
Bottom Line
Arcus Biosciences, Inc. is looking attractive mainly because of Gilead’s interest. Other than that, there’s really not a lot of convincing data yet. There’s early promising data, there’s Roche data, there’s that huge cache of funds, and then there’s Gilead - all these are attractive, however I would still have preferred to see some statistically significant data from the NSCLC study before jumping in.
For further details see:
Arcus Biosciences: Huge Cash, Gilead Deal, Not A Lot Of Data