Gilead Gains Foothold in Solid Tumors With $375M, 10-Year Arcus Bio Pact

Xconomy San Francisco — 

With the year’s biggest oncology conference days away, Gilead Sciences is signaling now what its cancer immunotherapy pipeline could look like in the years to come. The drug maker is entering a partnership with Arcus Biosciences that spans the biotech’s four clinical-stage compounds, plus additional programs that may come out of the 10-year alliance.

The Arcus (NASDAQ: RCUS) assets put Gilead (NASDAQ: GILD) on a path to develop and potentially commercialize treatments for solid tumors. Those drugs complement the blood cancer focus of recent acquisitions by the Foster City, CA-based company. Gilead could use the Arcus drugs to test multiple combination treatments against various cancers.

According to the terms of the agreement announced Wednesday, Gilead will pay Arcus $375 million upon the deal’s close. That payment breaks down into $175 million in cash up front and the purchase of about $200 million worth of Arcus shares priced at $33.54 each, which was the closing stock price on Tuesday. Gilead will pay about $400 million of Arcus’s research expenses over the span of the deal. Depending on how many programs Gilead opts to develop and the progress that they make, Arcus stands to earn up to $1.2 billion more.

Speaking on a conference call, Arcus CEO Terry Rosen said that the deal allows his company to grow independently while adding the resources, capital, and expertise of Gilead as a partner.

Gilead made a splash in oncology with its 2017 acquisition of Kite Pharma, whose Yescarta became the first CAR-T immunotherapy to win FDA approval as treatment for advanced non-Hodgkin lymphoma. Gilead expanded its pipeline again this spring with the $4.9 billion acquisition of Forty Seven, a biotech whose clinical-stage drugs target the cancer protein CD47. Those deals brought Gilead blood cancer drug assets. But it still lacked drugs for solid tumors, which are more prevalent than blood cancers.

Arcus was founded by Rosen and President Juan Jaen, who previously teamed up on cancer drug developer Flexus Biosciences, which was sold to Bristol Myers Squibb (NYSE: BMY) in 2015. Soon after the Flexus acquisition, Rosen and Jaen founded Hayward, CA-based Arcus, which they steered to the public markets in 2018. Arcus now has four compounds that it has been testing alone and in various combinations across 10 clinical trials evaluating them in solid tumors. The Arcus collaboration gives Gilead immediate access to zimberelimab, an antibody drug that blocks PD-1, a checkpoint protein on immune cells that keep them from targeting cancer cells. Arcus is currently testing its checkpoint inhibitor in Phase 1b as a monotherapy for cancers that don’t have an approved anti-PD-1 treatment.

Rosen said the partnership allows both Arcus and Gilead to explore zimberelimab as a part of a combination with any drug in their respective portfolios. If zimberelimab is able to secure FDA approval, it would compete against other PD-1 inhibitors, such as Merck drug pembrolizumab (Keytruda) and atezolizumab (Tecentriq) from Roche.

The cancer immunotherapy field is expanding to target a different checkpoint protein, TIGIT. Arcus is evaluating its TIGIT-blocking antibody, AB154, in a Phase 2 study in metastatic non-small cell lung cancer (NSCLC). That clinical trial is testing the drug in combination with zimberelimab and another experimental Arcus drug, AB928.

Roche is the frontrunner in the TIGIT race, and it’s trying to treat NSCLC with a two-drug combination. Two weeks ago, the company reported positive Phase 2 data from a study testing its experimental TIGIT drug, tiragolumab, paired with atezolizumab. The full results are expected be presented during the annual meeting of the American Society of Clinical Oncology, which will be held online this year from May 29 to May 31.

Bill Grossman, Arcus’s chief medical officer, said on the conference call that he was excited by the Roche data, which support his company’s approach to targeting TIGIT. Merck (NYSE: MRK) is also in the TGIT hunt with experimental drug vibostolimab, which it is testing in combination with its PD-1 drug pembrolizumab (Keytruda).

Arcus’s AB928, which blocks the adenosine receptor, is in several Phase 1b/2 studies spanning prostate, colorectal, NSCLC, pancreatic, triple negative breast, and renal cell cancers. AB680, a small molecule drug designed to block the cancer protein CD73, is in Phase 1 testing for metastatic pancreatic cancer.

The partnership agreement gives Gilead the option to license the four Arcus drugs currently in clinical development for between $200 million and $275 million each. Any new programs that reach the clinic will carry a $150 million option fee. For each program that Gilead opts into, both companies will share in the development costs, and, if approved, the profits from US sales. Gilead gains exclusive rights to sell partnered drugs outside of the US, except in certain Asian markets where other companies hold rights. Arcus would earn royalties from Gilead’s sales of the partnered drugs outside of the US.

The structure of the deal fits with Arcus’s broader strategy of developing combination therapies, Rosen said. To fully leverage a combination therapy approach, it’s ideal to work with one company rather than to have several assets partnered with different companies.

“You’re able to combine any of the molecules with any of the other molecules—total freedom to work with anything in the portfolio,” he said. “It greatly facilitates the development of the combination approach we’ve been developing.”

In addition to its initial equity investment in its new partner, Gilead has the right to purchase up to 35 percent of Arcus’s voting stock over the next five years. That purchase price will be at a 20 percent premium at the time Gilead exercises the option, or at the initial per share purchase price, whichever is greater.

In a research note, SVB Leerink analyst Geoffrey Porges wrote that the Arcus deal gives Gilead “a real foundation for their oncology business,” adding that the biotech’s pipeline complements the Forty Seven assets and the CAR-T immunotherapies from Kite.

“Instantly, Gilead has gained credibility and critical mass in oncology, in our opinion, and presumably also has a call option to double down and fully acquire Arcus if the profit sharing obligation becomes too large,” he wrote.

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