Arcus Biosciences: Getting Too Low cost To Ignore (Reiterate Purchase) (NYSE:RCUS)

Topline Abstract and Replace

Arcus Biosciences, Inc. (NYSE:RCUS) is a cancer-focused biotech I’ve coated a couple of occasions with relative optimism, and as an funding thesis, it has but to repay. Nevertheless, with an essential trial replace at this 12 months’s ASCO Annual Assembly and a variety of essential upcoming catalysts, I am inclined to stay upbeat concerning the firm’s outlook, regardless of the newer setbacks confronted by the TIGIT story. Let’s take one other look.

Pipeline Updates

Domvanalimab

RCUS’s most essential scientific pipeline candidate continues to be the anti-TIGIT antibody domvanalimab, becoming a member of with a number of huge pharma contenders hoping to capitalize on the yet-unproven immune checkpoint. The truth is, the TIGIT story has been marred through the years with high-profile failures, the newest of which was the shuttering of SKYSCRAPER-06 after Roche’s TIGIT antibody tiragolumab didn’t transfer the needle in sufferers with NSCLC in contrast with pembrolizumab-based remedy.

This has had a rippling impact on all TIGIT packages, sending RCUS specifically close to its 52-week low.

However the work continues, as RCUS is searching for to capitalize on the promising indicators in gastric most cancers that I’ve coated in depth in prior write-ups. As a reminder, EDGE-Gastric has demonstrated a 56% response price when giving domvanalimab together with a brand new anti-PD-1 antibody and chemotherapy. In an replace at ASCO 2024, the mixture was proven to yield a median progression-free survival of 12.9 months within the total inhabitants.

For reference (though I’d not danger making cross-trial comparisons), pembrolizumab plus chemotherapy yielded simply 6.9 months PFS, and CheckMate 649 confirmed a median PFS of 8.3 months for nivolumab plus chemotherapy. In fact, each of those research have been randomized and powered to point out these findings extra conclusively, whereas RCUS’s EDGE examine solely reported on 41 sufferers up to now. There are a lot of causes we should always take these outcomes with a grain of salt.

An important information for the domvanalimab venture was the announcement {that a} randomized, part 3 trial (STAR-221) accomplished enrollment again in mid-June, forward of the unique timeline. Contemplating the time from the examine begin to preliminary outcomes for EDGE-Gastric was round a 12 months and a half (June 2022 to November 2023 for the preliminary information announcement), top-line information could possibly be coming inside the subsequent 12 months, though there was no company steering on the precise timeline for information readout.

Quemlicustat and etrumadenant

RCUS continues to work on different add-on therapies to their immunotherapy spine. The CD73 inhibitor quemliclustat does not have any new information updates since I final coated the inventory, however there was a current announcement that Taiho has exercised their choice to the rights for the agent in Asia, which is able to set off a milestone cost and potential future royalties for RCUS.

Etrumadenant, however, was an agent I used to be anticipating for ASCO 2024. Certainly, there was an thrilling presentation of findings from ARC-9, which assesses the mixture of etrumadenant and zimberelimab plus chemotherapy in sufferers with metastatic colorectal most cancers.

Cohort B was the main target of the presentation, which enrolled sufferers within the third-line setting to obtain this mixture. RCUS’s combo yielded a median total survival of 19.7 months, in contrast with 9.5 months for sufferers randomly assigned to obtain regorafenib, one of many potential customary remedy choices in that setting. The response price was 17.3% for the combo, which was in contrast very favorably to the two.7% with regorafenib. Regrettably, these low response charges are par for the course within the third-line setting.

Importantly, the danger of high-grade (grade 3 or larger) hostile occasions was truly barely decrease for sufferers receiving the drug cocktail (23.0%) in contrast with these receiving regorafenib (25.7%), additionally underscoring the unmet want within the setting with respect to toxicity.

These findings are a really optimistic first take a look at RCUS’s combo on this late-line setting, and I am wanting to study extra about their ongoing plans to develop it on this setting.

Monetary Overview

Per the Q2 2024 submitting, RCUS held $156 million in money and equivalents, with one other $813 million in marketable securities. They acknowledged a complete of $39 million in collaboration and licensing income whereas incurring $145 million in working bills. After curiosity revenue, the online loss for the quarter was $93 million.

Given this money burn price, the implied money runway is between 9 and 10 quarters, though this depends upon revenues holding regular, which isn’t probably when these revenues are coming from collaborations. However that is in line with firm steering that funds are ample to maintain the corporate going into 2027.

Strengths and Dangers

Power – The RCUS pipeline is paying off up to now

The 2023-2024 updates we have seen from RCUS have proven very, very encouraging proof of idea, notably in GI cancers the place there’s a critical unmet want. To be truthful, I’m decoding the EDGE-Gastric outcomes with a number of tempered optimism since what we have seen up to now may be very promising however solely in a small affected person cohort. STAR-221 would be the lynchpin right here, and one shouldn’t be shocked to see the excellent preliminary outcomes regress to the imply.

The colorectal most cancers outcomes for etrumadenant, nevertheless, give RCUS an even bigger enhance. They confirmed in a head-to-head examine that the “EZFB” routine outperforms regorafenib, the latter performing equally to identified scientific trial expertise. This means actual good points to be produced from EZFB, and oncologists and sufferers are determined for a game-changing remedy choice in that third-line setting.

And I didn’t even point out the low-key effort they’re making in a HIF-2a inhibitor, for which they’ll provoke a part 3 trial within the first half of 2025. I’m wanting to see what information they’ll share with this venture later this 12 months.

Threat – TIGIT fears loom massive

When a participant like Roche experiences a number of high-profile failures, it casts a pall on any venture that’s trying on the identical goal. This might not be truthful, since many of the failures have been in a restricted vary of cancers (i.e., lung cancers), and different stable tumor sorts could certainly profit in an uncommon approach from concentrating on TIGIT.

Nevertheless it creates additional volatility for any would-be entrant into the sphere, since one failure begets extra failure, within the eyes of the ever-scrutinizing market. RCUS may, subsequently, see an enormous downward transfer if domvanalimab doesn’t carry out extraordinarily properly in scientific trials.

Backside Line Abstract

What we’re seeing with Arcus Biosciences’ burgeoning pipeline continues to warrant cautious optimism. And given their money place, the outcomes we have seen so far, and the timeline for upcoming catalysts, I really feel that is an fairness being undervalued by the market. Subsequently, I reiterate a “Purchase” score, though with the caveat {that a} damaging discovering (and even one which’s simply lackluster) would have an enormous damaging affect on the valuation.