Revolution Medicines, Inc. Q3 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the Revolution Medicines Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Erin Graves, Senior Director of Corporate Communications and Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to the third quarter 2023 earnings call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicine's Chairman and Chief Executive Officer; and Jack Anders, our Chief Financial Officer. Dr. Steve Kelsey, our President of R&D, will join us for the Q&A portion of today's call. As we begin, I would like to note that our presentation will include statements regarding the current beliefs of Revolution Medicines with respect to our business and the proposed acquisition of EQRx, including statements regarding our development plans and timelines for our portfolio and pipeline and the expected timing and benefits of the proposed acquisition, all of which are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. These statements are subject to a number of assumptions, risks, and uncertainties. Actual results may differ materially from these statements, and except as required by law, the company undertakes no obligation to revise or update any forward-looking statements. I encourage you to review the legal disclaimer slide of our corporate presentation, our earnings press release, and all of our filings with the SEC concerning these and other matters. With that, I will turn the call over to Dr. Mark Goldsmith, Revolution Medicine's Chairman and Chief Executive Officer. Mark?

Thank you for joining us. I'd like to focus first on our remarkable headline investigational drug, RMC-6236, and try to paint the picture we see based on a couple of important weeks of data updates and extensive dialogue with investigators and clinical experts. First, objectively and by hands-on investigator experience treating over 131 patients so far, RMC-6236 is well tolerated at clinically active doses, including 300 milligrams QD as reported to us by investigators. These observations with the first-ever RASMULTI inhibitor in the clinic are groundbreaking and demonstrate clearly that this compound has a very sound therapeutic window. Second, this profile is enabling continuity of dosing, which we believe is critical in treating RAS-addicted cancers. Patients receiving RMC-6236 have required few dose interruptions and even fewer discontinuations for intolerability. This differentiating feature of RMC-6236 is a core lever for evaluating meaningful clinical benefit. Third, despite the inter-patient variability that is typical for oral anticancer agents, RMC-6236 showed a dose-dependent increase in exposure at every dose escalation tested up to and including 400 milligrams daily. Fourth, RMC-6236 has shown objective anti-tumor activity, both by radiographic imaging and ctDNA quantitation against three oncogenic RAS gene types for which no other targeted therapy is available: KRAS G12D, G12V, and G12R. G12D and V alone account for more than half of all RAS solid tumors. And G12D, V, and R mutations are the three most common RAS drivers of pancreatic ductal adenocarcinoma, accounting for nearly 90%. The results with each of these genotypes individually represent a first-in-class clinical validation for a direct RAS inhibitor and the breadth of activity is simply unique, a true RASMULTI inhibitor. It is not possible to discern any obvious relationship between dose and objective response rate by RECIST at this stage in the study, probably due to small numbers at each dose level and the bias towards short follow-up at the high dose levels. With increased numbers of patients now enrolled and ongoing maturation of the data, we expect to be able to conduct a robust exposure efficacy analysis using several outcome measures. The blended objective response rate in non-small cell lung cancer is already solid at 38% in the data we shared in October. Some patients are expected to develop a partial response after the first scan; we anticipate this number settling out in the 40% to 50% range at the recommended Phase 2 dose, and objective response rate in lung cancer generally correlates with progression-free survival. So we plan to select a candidate dose to discuss with the regulators and execute the foundational work to enable a pivotal Phase 3 trial in second-line RAS-mutant non-small cell lung cancer to begin in 2024, while we continue collecting durability data. The blended objective response rate in pancreatic ductal adenocarcinoma, which we shared in October, was a respectable 20% and which may change as we gather more data at higher doses, follow patients on treatment longer, and hone in on a go-forward dose. One relevant benchmark for comparison we've highlighted is the objective response rate for cytotoxic chemotherapy that has been reported across many studies in second-line pancreatic cancer, which hovers in the 7% to 11% range. Notably, most patients treated in the RMC-6236 study so far have had two or more lines of treatment previously, making them third-line or later by definition. In the context of third-line or later, the reported objective response rate has been zero to 4%, while the response rate for such patients in our study was higher than the overall 20% number. For all these reasons, our expert advisers and we believe that RMC-6236 is performing well by this standard for patients who are facing grim prospects with standard of care. While these objective response rate observations are encouraging, we continue to emphasize that objective response rate is not the key clinical endpoint for pancreatic ductal adenocarcinoma, since rapid progression with short overall survival is the norm, even in those who respond initially to established treatments. We expect that doctors, patients, regulators, and payers will be driven by durability of clinical benefit as indicated by progression-free survival and overall survival. Median progression-free survival for standard second-line pancreatic ductal adenocarcinoma treatment consistently has been reported to be approximately three months and may be shorter for patients beyond second-line. It's too early for us to project these parameters for RMC-6236, and it will take some time into 2024 for us to be able to establish a true median PFS. However, there are also encouraging signs. The disease control rate we shared in October was 87% and significantly higher than most reports for salvage chemotherapy in pancreatic cancer. Many patients on study have already crossed the median PFS threshold mentioned above and remain on treatment, including as far out as 48 weeks. This statement is true even for patients who have not yet shown an objective response. Twenty percent of patients without a partial response were still on the drug at 18 weeks, with many of these 20% having reached 21 or more weeks while continuing on the drug, well past the short duration benchmark for second-line pancreatic ductal adenocarcinoma. Even the few patients with a partial response who progressed did so at 18 weeks or later. These are highly encouraging findings. Finally, we believe we have a proposed recommended Phase 2 dose for lung cancer in hand now, and expansions are underway to develop a robust data set we think is needed to satisfy project Optimus. We have strong conviction about the potential clinical impact of RMC-6236 and serving the real unmet needs in lung cancer, and with continuing consultation with advisers and engaging as appropriate with regulators, in 2024, we expect to initiate a pivotal Phase 3 monotherapy second-line non-small cell lung cancer trial focused on achieving full regulatory approval, with a potential accelerated approval opportunity built in via an interim analysis. Investigators globally are highly interested in participating in this study. We are likewise excited about the potential for RMC-6236 in pancreatic cancer, where unmet needs are certainly profound. Here, PFS is the gating parameter for advancing into late-stage development since ORR is an unreliable predictor of durability. We expect to establish RMC-6236's durability profile via median PFS and identify a recommended Phase 2 dose in 2024. With that in hand and continuing consultation with advisers and engaging as appropriate with regulators, we are designing a pivotal monotherapy trial in pancreatic cancer, to potentially be initiated in 2024. Our base plan currently is a Phase 3 randomized trial for second-line treatment, but we are also evaluating options that could accelerate our reach into first-line. Investigators globally are highly interested in participating in this study or studies as well. Next, I'd like to comment on our exciting second investigational drug to show clinical activity, RMC-6291 for KRAS G12C cancers and try to paint the picture we see based on the recent update and extensive dialogue with investigators and clinical experts. First, objectively and by investigators who have treated more than 63 patients so far, RMC-6291 is well tolerated across a wide range of clinically active doses. So far, investigators report that it is well tolerated. Asymptomatic prolongation of QTc on electrocardiogram has been seen in some patients, only infrequently exceeding the 500 millisecond threshold. Investigators broadly do not consider this laboratory finding a key limiter to the clinical development of this compound. Second, good tolerability enables continuity of treatment, and patients receiving RMC-6291 have required a few dose interruptions and even fewer discontinuations for intolerability. Third, RMC-6291 has shown objective anti-tumor activity, both by radiographic imaging and ctDNA quantitation in both non-small cell lung cancer and colorectal cancer. Notably, in lung cancer, the ORR and the data we shared in October was 50% in patients who had recently progressed on prior treatment with an approved KRAS G12C(OFF) inhibitor. The only comparable reported data in similar patients using a G12C(OFF) inhibitor showed an objective response rate of 7%. Similarly, the ORR for single-agent RMC-6291 was 43% in colorectal cancer patients who had not yet experienced a RAS inhibitor, similar to reported data from G12C(OFF) inhibitors when used in combination with anti-EGFR antibodies. These results indicate two dimensions of clinically meaningful differentiation from other KRAS G12C inhibitors. This differentiation is highly encouraging for the potential of RMC-6291 itself as a drug, and it supports our preclinical prediction that inhibition of the RAS(ON) state in a human tumor may be biologically differentiated relative to inhibition of the RAS(OFF) state. Further, we believe this paradigm likely applies across our portfolio of RAS(ON) inhibitors, boosting the probabilities of success across our entire deep pipeline. Fourth, based on these findings, we believe that RMC-6291 is an investigational drug with a profile that deserves to be evaluated in a late-stage development program. There remain several options to be considered, and strategic decisions will need to be made among them based on further data we are collecting. These include monotherapy approaches built directly upon the differentiated response profile described above, and we are currently conducting monotherapy dose optimization with the goal of selecting the single-agent recommended Phase II dose with a project optimist data package that supports it. We are also committed to evaluating several compelling combination options very soon and indeed have already begun recruiting for the exciting pairing of RMC-6236 plus RMC-6291 based on compelling preclinical observations. In aggregate, these findings are highly encouraging and point to large opportunities ahead for these first two compounds. Based on this momentum, we look forward to completing the acquisition of EQRx. Let me summarize the status briefly. We expect to acquire EQRx in an all-stock transaction to gain an estimated $1.1 billion in additional net capital after estimated post-closing EQRx wind down and transition costs, a significant quantum of capital that can be deployed for Revolution Medicines programs and more than we had estimated conservatively when we signed the deal. Our strengthened balance sheet is intended to enable the larger investments needed to support the parallel data-driven, late-stage development for our RAS(ON) inhibitor pipeline focused initially on RMC-6236, 6291 and 980. Our shareholder meeting to vote on the transaction is scheduled for November 8, 2023, at 11:00 a.m. Eastern time, and the deal is expected to close shortly following the shareholder vote, subject to satisfaction of customary closing conditions. The stock exchange ratio determined and announced last week was as follows: each common share of EQRx outstanding will be exchanged for 0.1112 common shares of Revolution Medicines. We estimate we will be issuing approximately 55 million new shares to EQRx shareholders as part of this merger, thus acquiring approximately $20 in estimated net capital per share of the common stock issued in connection with the merger based on our updated net cash projection. Revolution Medicines will continue to focus on our mission to revolutionize treatment for patients with RAS-addicted cancers through the discovery, development, and delivery of innovative targeted medicines. Now let's hear from Jack Anders, our CFO, regarding our Q3 financials. Jack?

Thank you, Mark. Turning to our third quarter financials. We ended the quarter with $813.2 million in cash, cash equivalents, and investments. Please note, this balance does not include any net proceeds from the anticipated acquisition of EQRx, which is expected to add approximately $1.1 billion in net cash proceeds should the transaction close. Total operating expenses for the third quarter of 2023 were $123.2 million. The increase in operating expenses over the prior year period was largely due to clinical trial and manufacturing expenses for RMC-6236 and RMC-6291, an increase in research expenses associated with our preclinical portfolio, and an increase in personnel-related expenses resulting from additional headcount. GAAP net loss for the third quarter of 2023 was $108.4 million or $0.99 per share. We are updating our financial guidance and expect full year 2023 GAAP net loss to be between $385 million and $415 million, which includes estimated non-cash stock-based compensation expense of $45 million to $50 million. The increase in GAAP net loss guidance is largely due to the anticipated acceleration of a portion of RMC-6236 manufacturing spend originally planned for 2024. This spend was accelerated as a result of the progress in our RMC-6236 program. We reiterate cash runway guidance into 2025 based on our current plan. Please note that our current financial guidance excludes the impact of the proposed EQRx transaction. And with that, I'll now turn the call back over to Mark.

Thank you, Jack. We believe Revolution Medicines has an unprecedented opportunity to deliver high-impact benefits to patients through our pipeline. And toward that goal, the deal with EQRx will markedly enhance our ability to maximize the value of these exciting compounds. We have heard broad and strong support for the Revolution Medicines portfolio approach and proposed transaction. The board and management of Revolution Medicines encourage all of our shareholders to vote in favor of the EQRx transaction. The employees of Revolution Medicines renew our deep commitment to outsmart cancer on behalf of patients and to build shareholder value for our investors.

Our first question will come from Marc Frahm of TD Cowen. Your line is open.

Hi, thank you for taking my question. I understand it hasn’t been a long time since the data presented at ESMO and EMA, but there were a few patients with unconfirmed ongoing partial responses at that point. I’m wondering if you could provide any updates on whether those patients have had subsequent scans that can confirm their status. Additionally, I have a broader question. During those meetings and in recent months, we’ve seen several trials involving docetaxel in the second-line setting for lung cancer across various scenarios. Typically, drugs that appear promising have had difficulties or even failed to outperform just taxanes. Considering the favorable safety profile, why not be more aggressive in using just taxanes directly instead of looking to combine them, as that might present an easier hurdle for efficacy?

Thanks a lot, Marc. I appreciate your questions. Let me comment first on the question of confirmations. A number of those patients really had just made it in the advanced period we required in order to report them, which means that they just had one scan. And it's only been a couple of weeks since then. So I think for most patients, we just don't have any more information, so I can't really provide an update today. The question of docetaxel as a comparator versus for a monotherapy trial versus waiting for a combination? Well, I think in part the question answers itself a little bit, but maybe Steve Kelsey can give you a little bit more philosophy on that.

I think, Marc, the principle, which we're trying to carry through the whole portfolio, irrespective of lines of therapy is we would like to get chemotherapy out of the equation if we possibly can. A good starting point would be a single-agent study against docetaxel to try and beat it. Leaving chemotherapy like docetaxel in the sort of therapeutic landscape for patients is suboptimal. We would just rather try and beat it hands down and relegate docetaxel into later line of therapy, frankly. I appreciate that it is certainly an option to do a docetaxel in both arms, but that's not really the philosophical basis of our portfolio.

Okay. Thank you.

And one moment for our next question. Our next question will be coming from Eric Joseph of JPMorgan. Your line is open.

Hi, good evening. Thank you for taking my question. I would like to get more insight on the tolerability profile you're seeing in the 400-milligram cohort and if there is potential to increase the dose further, especially since you are considering 500 milligrams. Additionally, could you elaborate on your strategy regarding the backfilling of previous dose cohorts? What cohorts are you prioritizing, and are you expanding the eligibility criteria for patients with the G12C mutation? I'm also curious about how colorectal cancer patients fit into your plans. Is this a type you are looking to explore further in the Phase 1 study? Thank you.

Thanks, Eric. I'll address the first question, and Steve can handle the second. Regarding tolerability, we don't have any new information beyond what we reported two weeks ago. Once we obtain the data, it will be reviewed by the dose selection committee, which will decide on the appropriateness of the dose and if we should proceed with it; those decisions will be made timely with the right information. The second question focused on the range of combinations we are considering for the next 12 months and how we plan to prioritize them.

It’s really about backfilling some of the previous dose cohorts to consider when thinking about or adjusting the recommended dose for Phase 2. Ultimately, it comes down to which dose cohorts and dose levels we are prioritizing more aggressively, and whether the patient mix is becoming more focused on certain histologies or possibly being expanded as well.

So it's about monotherapy and dose selection comment.

For pragmatic reasons, Eric, which are related to, firstly, the number of patients queuing up to get on the study, and secondly, the relative positive guidance coming from the FDA about the specific requirements to fulfill the Project Optimus initiative. We are aggressively backfilling most of the dose levels actually at 300 and below. The priority right now is to backfill with patients who have non-small cell lung cancer and pancreatic cancer, because those are the ones that the FDA are going to be interested in, in the exposure response analysis that we submit to them when we recommend a go-forward dose into Phase 3. There is an amendment to this protocol, which has now been approved, it's on clinicaltrials.gov, which allows us to expand in several different histologies, including colorectal cancer and other tumor types. It also includes G12C mutant tumors. But that's completely separate from the exercise to select the recommended Phase 2 dose for both non-small cell lung cancer and pancreatic cancer; those are parallel activities at the moment.

Okay great. Very helpful. Appreciate you taking the questions.

One moment for our next question. Our next question will be coming from Jonathan Chang of Leerink Partners. Your line is open.

Hi, guys. Thanks for taking my questions. First question, how should investors be thinking about timelines for next data updates across your pipeline?

Yeah. I don't have much specificity on that right now. Obviously, we've been asked that a lot over the last couple of weeks. We just need to see how things play out. I think it's pretty clear what we're trying to do in the near term. It's largely around dose selection and acquiring more durability data and, to some degree, more ORR data at higher doses. So I don't think we're talking years out, but I can't give you specifics; the most sort of narrow question we get asked is, will we make a presentation at ASCO, and I just don't know. In order for us to do that, we'd have to submit an abstract in February, which means we have to know what it is we're going to present in May to do so. So we'll just have to see. But we'll try to provide more clarity once we sort of get past these next couple of months and give some more specificity about expected milestones in the coming year.

Understood. And second question, what do you see as the duration of disease control and PFS benchmarks in previously treated PDAC, and what do you see as a sufficiently good duration of disease control and PFS data relative to those benchmarks?

Yeah, I think Steve can comment mostly on the first part of that question because that's objective information. And then as to what we consider an improvement, that will be the subject of ongoing conversation with experts in the FDA.

The current benchmark is generally set at around three months. There are a few cases where the progression-free survival is two months and a couple where it extends beyond that. However, most studies in the second-line salvage setting indicate a three-month progression-free survival. This is when the scans are typically performed, and there's a significant decrease in freedom from progression at the time of the second scan. Therefore, that timeframe serves as the key benchmark. Regarding what constitutes a good duration, we need to address three main groups: regulators, prescribers, and payers, each operating in different regions. Ongoing discussions with these groups will ultimately determine what is considered sufficient, allowing us to compare our actual data to those standards and assess whether our results represent a meaningful improvement, guiding our next steps.

Understood. Thanks for taking my questions.

And one moment for our next question. Our next question will be coming from Chris Shabutani of Goldman Sachs. Your line is open.

Hi, good morning. This is Charlie on for Chris. Thank you so much for taking our questions. Just to start, wondering if you could provide some clarity on the 6236-6291 combination trial that's enrolling. Who are you actively recruiting in terms of G12C experience versus naive patients in that study? And then my second question is just regarding the potential for tissue agnostic approval. What does the team see as the clinical bar to reach there in terms of ORR? Thank you.

Just a clarification on your second question, Charlie. Were you asking about the combination or for either of those compounds individually or just more generically?

I guess more generically.

The 6236-6291 combination protocol right now is enrolling both lung cancer and colorectal cancer patients. The colorectal cancer cohort will prioritize patients who have not had a G12C inhibitor. The lung cancer cohort right now allows either. We are not at the point where we're biasing in any one direction or the other right now because we're still in the dose escalation, dose finding, and dose exploration mode, and it doesn't really matter what disease or prior treatment the patient has for that purpose. As soon as we've got a dose for that combo, then I think we'll be a little bit more selective about the patients that we want to encourage into the study, and that will, to some extent, depend on what we've seen during the first escalation period. I think everybody knows accelerated approval is getting a little bit harder. The bar is moving around depending on the indication. Accelerated approvals traditionally have been given for single agents with response rates in the sort of 25% to 30% range. I don't expect it to be any different for a RAS inhibitor and RAS mutant disease, particularly given the precedent set by the accelerated approvals of sotorasib and adagrasib.

He was asking specifically about the tissue-agnostic, tumor-agnostic strategy.

Yeah. I think in the core indication, if you pursue a tissue-agnostic strategy, there are going to be a couple of indications that are going to dominate that cohort. The response rate has to be in that sort of 30% range, I think, in order for anyone to take that seriously. Clearly, the point of the tissue-agnostic strategy is that there are some indications which are so uncommon. There are only going to be a handful of patients, and you won't be able to compute a response rate with any degree of certainty. We are really talking about the confidence intervals around the overall response rate to lead indications within that cohort.

Yeah. That's very helpful. Thank you all very much.

And we do have time for two more questions. One moment for our next question. It will be coming from Ami Fadia of Needham.

Good evening. Thanks for taking my questions. With regards to the pivotal trial you're planning in lung, do you believe that you need to generate data in G12C patients before you begin the trial, and perhaps give us a sense of the number of patients you think you need to enroll for this type of invested trial design? Thank you.

Thanks, Ami. I think Steve can comment on that.

I didn't quite understand the first part of your question.

Do we need to validate G12C in humans before including it in a pivotal trial? The validation is obviously a somewhat established term. We want some experience in those patients before including them as a significant part of a pivotal trial. Everything we have learned from the preclinical models would lead us to expect that the activity in G12C mutant lung cancer will be very similar to the activity in G12V and G12V-mutant lung cancer for RMC-6236. I don’t think we’ll validate, but we’ll be working to gather sufficient information that helps reassure us that what we’ve seen in the preclinical models is also true in the clinic. With regards to numbers, again, we are still refining the study design. We have to design that study, and we have to discuss it with the regulators. We are still debating whether the G12C mutation should be in the core analysis. As soon as we have finalized this, I think we’ll be in a better position to explain what it is and why. Right now, there are just a little too many moving parts to be able to be as clear as we would like to be.

Could you provide a brief clarification on the nested trial design? I understood that each subset would be powered, but I would appreciate further explanation.

The core analysis is evaluated statistically first, regardless of how patients are enrolled. It doesn't depend on the order of enrollment. You then test the core group you set beforehand. If that group shows positive results, you can proceed to assess a larger group that includes the core patients along with additional ones. This process can be repeated multiple times, utilizing statistical power each time. However, it's essential to maintain the correct order throughout. If you ever find negative results, you won't be able to test larger groups further, as it wouldn't make sense to do so.

Got it. That's very helpful. Thank you.

And one moment for our last question. Our last question will come from Alec Stranahan of Bank of America. Your line is open.

Hey, guys. Thanks for taking my questions and for squeezing me in. Just a couple. At a high level, could you maybe talk about the anticipated expense ramp to support the multiple mid and late-stage studies you have planned for 6236 and the new candidates from the KRAS innovation engine? I guess asked another way, how do you continue to be judicious in your spending despite having almost $2 billion in cash on the balance sheet, assuming the EQRx deal closes? And just quickly to clarify for non-small cell, is it safe to assume that 500 mg will not be pursued since you said that the pivotal monotherapy dose has been selected? And if so, is the reason just in terms of speed to start the registrational studies? Or was there something you think makes the 500 dose a non-starter? Thanks.

Thanks, Alex, for your questions. On the second question, let me just take care of that one and then come back to the expenses. The comment that we believe we have a recommended Phase 2 candidate dose in hand was specifically with regard to lung cancer, where we already have a response rate that's in the zone of where it needs to be and where that is generally better correlated with durability, so we can make some good assumptions now, continue planning, and allow the data to catch up with it in 2024. The question about 500 milligrams and higher really has to do with pancreatic ductal adenocarcinoma, but we haven't declared that we have a recommended Phase 2 dose in hand. In fact, we've made it pretty clear we want to see what happens not only at 300, but at 400 milligrams. As we commented earlier, if we clear that dose level and the dose selection committee wants to advance to 500 milligrams, then that's what we'll do. So just to separate the two statements, they really don't go together; they're on different concepts. Expense ramp. Jack, do you want to comment on it?

Yeah. We haven't necessarily given out any specifics on forward-looking expense guidance outside of our 2023 net loss guidance. But it is fair to say that our expenses will increase from current levels. We are going to be making investments in these programs. We do need some more data in order to fully understand what those investments are. I think your question is whether we're going to be judicious and with our spend. We obviously need to make investments, but we're going to be wise about this on a forward basis, but we haven't given any specifics.

If I could just build on Jack's last comment, the whole point of the transaction is to give us the capital to make the investments in 2024 and 2025 and beyond that we really need to make in order to maximize value creation by evaluating these first two, three compounds in the right settings and to evaluate them aggressively in a competitive environment, taking into account also all the downstream commercial considerations and regulatory context, exclusivity, and pricing, and so on. We will be increasing our spending; there's no doubt. But I think it will increase our productivity and maximize value creation. Our focus is not immediately on porting the capital, but at the same time, obviously, we'll make data-driven decisions, and we have lots of internal checks and balances to ensure that if we do so, we do it in close alignment with a compelling strategy.

Thank you.

And I would now like to turn the conference back to Dr. Mark Goldsmith for closing remarks.

Thank you, operator. Thanks to everyone for participating today. We appreciate your continued support of Revolution Medicines.

This concludes today's conference. Thank you for participating. You may now disconnect.