What changed in this filing

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Item 1. Financial Statements

2022-08-03 compared with 2022-05-09 · 227 added, 145 removed, 639 unchanged (37% of the section changed)

29 unchanged sentences

Stockholders’

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021;

no shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 400,000,000 shares authorized as of March 31, 2022 and December 31, 2021;

71,622,313 and 70,781,736 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.

Shares outstanding includes zero and 9,946 shares issued but subject to vesting as of March 31, 2022 and December 31, 2021, respectively.

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of June 30, 2022 and December 31, 2021;

no shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 400,000,000 shares authorized as of June 30, 2022 and December 31, 2021;

72,085,473 and 70,781,736 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.

Shares outstanding includes zero and 9,946 shares issued but subject to vesting as of June 30, 2022 and December 31, 2021, respectively.

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

License and development service revenue ($ 16,693 , $ 0 , $ 24,632 and $ 0 from a related party)

Other collaboration revenue ($ 8,316 , $ 7,711 , $ 16,632 and $ 15,422 from a related party)

License and development service revenue ($ 7,939 from a related party)

Total revenues

23 unchanged sentences

Balance at December 31, 2020

Issuance of common stock and rights to purchase additional shares

in accordance with Amended and Restated Gilead Purchase

Agreement, net of $ 55 offering costs

Issuance of common stock and rights to purchase additional

shares in accordance with Amended and Restated Gilead

Purchase Agreement, net of $ 55 offering costs

Issuance of common stock upon exercise of stock options

4 unchanged sentences

Balance at March 31, 2021

Issuance of common stock upon exercise of stock options

and vesting of restricted stock

Vesting of early exercised stock options

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2021

Balance at December 31, 2021

5 unchanged sentences

Balance at March 31, 2022

Issuance of common stock upon exercise of stock options

and vesting of restricted stock

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flow from operating activities

22 unchanged sentences

Purchases of property and equipment

Net cash provided by (used in) investing activities

Purchases of in-process research and development

Net cash (used in) provided by investing activities

Cash flow from financing activities

2 unchanged sentences

Proceeds from issuance of common stock pursuant to equity award plans

Repurchase of unvested shares of stock

Net cash provided by financing activities

2 unchanged sentences

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of cash flow information

Income taxes paid

Non-cash investing and financing activities:

Unpaid acquisition of in-process research and development

Unpaid portion of property and equipment purchases included in accounts payable and accrued liabilities

16 unchanged sentences

domvanalimab, etrumadenant, quemliclustat and AB308.

For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and co-commercialize the program in the U.S., subject to certain exceptions, and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners in certain territories.

For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and, provided that the Company has not exercised its opt-out rights, if any, co-commercialize the program in the U.S., and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners in certain territories.

Liquidity and Capital Resources

As of March 31, 2022, the Company had cash and investments of $ 1,342.4 m illion, which are cash, cash equivalents, and investments in marketable securities, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the date of filing of this report.

As of June 30, 2022, the Company had cash and investments of $ 1,271.1 m illion, which are cash, cash equivalents, and investments in marketable securities, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the date of filing of this report.

Significant Accounting Policies

6 unchanged sentences

In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.

Operating results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.

The balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S.

9 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosures of contingent assets and liabilities.

Estimates were used to determine the standalone selling price of performance obligations and the timing of revenue recognition, the value of stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, and uncertain tax positions.

Estimates used include the determination of the standalone selling price of performance obligations and the timing of revenue recognition, the value of stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, uncertain tax positions, and valuation allowance for deferred tax assets.

Actual results could differ materially from the Company’s estimates.

8 unchanged sentences

Reconciliation of Cash, Cash Equivalents, and Restricted Cash as Reported in Condensed Consolidated Statements of Cash Flows

Restricted cash at March 31, 2022 and 2021 represents cash balances held as security in connection with the Company’s facility lease agreements.

Restricted cash at June 30, 2022 and 2021 represents cash balances held as security in connection with the Company’s facility lease agreements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the total shown in the condensed consolidated statements of cash flows (in thousands):

5 unchanged sentences

The Company invests in money market funds, treasury bills and notes, government bonds, commercial paper, corporate notes, and certificates of deposit.

The Company's investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.

The Company limits its credit risk associated with cash equivalents, short-term and long-term investments by placing them with banks and institutions it believes are credit worthy and in highly rated investments.

2 unchanged sentences

The Company determines whether an arrangement is or contains a lease at contract inception.

Operating leases and related tenant improvement allowances receivable are included in operating lease right-of-use assets, prepaid expenses and other current assets, and operating lease liabilities, noncurrent in our condensed consolidated balance sheets at March 31, 2022 and December 31, 2021.

Operating leases and related tenant improvement allowances receivable are included in operating lease right-of-use assets, prepaid expenses and other current assets, other current liabilities, and operating lease liabilities, noncurrent in our condensed consolidated balance sheets at June 30, 2022 and December 31, 2021.

Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

3 unchanged sentences

Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company elected to not apply the recognition requirements of the new leasing standard to short-term leases with terms of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

The Company elected to not apply the recognition requirements of the leasing standard to short-term leases with terms of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

For short-term leases, lease payments are recognized as operating expenses on a straight-line basis over the lease term.

The following table summarizes supplemental cashflow disclosures related to the Company's operating leases (in thousands):

Year Ended March 31,

Cash paid for amounts included in measurement of lease liabilities

Fair Value Measurements

7 unchanged sentences

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period.

There were no transfers within the hierarchy as of March 31, 2022 or December 31, 2021.

There were no transfers within the hierarchy as of June 30, 2022 or December 31, 2021.

The following tables set forth the Company’s financial instruments (excluding restricted cash) that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

March 31, 2022

June 30, 2022

(Quoted Prices in

9 unchanged sentences

Certificates of deposit

government agency obligations

Total assets measured at fair value

12 unchanged sentences

Classified as (with contractual maturities):

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

All the Company's investments in marketable securities are classified as available-for-sale.

At March 31, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income (loss) related to the Company’s available-for-sale marketable securities.

There were no realized gains or losses recognized on the sale or maturity of available-for-sale marketable securities as of March 31, 2022 and December 31, 2021, and as a result, the Company did no t reclassify any amounts out of accumulated other comprehensive income for the periods then ended.

The Company has not recognized any allowances for credit losses given the nature of its receivables and investment portfolio and the immaterial amount of unrealized losses on available for sale securities.

At June 30, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income (loss) related to the Company’s available-for-sale marketable securiti es.

There were no realized gains or losses recognized on the sale or maturity of available-for-sale marketable securities as of June 30, 2022 and December 31, 2021, and as a result, the Company did no t reclassify any amounts out of accumulated other comprehensive income for the periods then ended.

Th e Company has not recognized any allowances for credit losses given the nature of its receivables and investment portfolio and the immaterial amount of unrealized losses on available for sale securities.

No credit related losses have been recognized for any of the periods presented.

The fair value and amortized cost of investments in marketable securities by major security type as of March 31, 2022 and December 31, 2021 are presented in the tables that follow (in thousands):

As of March 31, 2022:

The fair value and amortized cost of investments in marketable securities by major security type as of June 30, 2022 and December 31, 2021 are presented in the tables that follow (in thousands):

As of June 30, 2022:

Money market funds

2 unchanged sentences

Certificates of deposit

government agency obligations

As of December 31, 2021:

2 unchanged sentences

Corporate securities and commercial paper

As of March 31, 2022, the fair value of the liability for sale of future royalties recorded on the balance sheet in other long-term liabilities is based on the Company's current estimates of future contingent milestones and royalties expected to be paid to BVF Partners L.P.

As of June 30, 2022, the fair value of the liability for sale of future royalties recorded on the balance sheet in other long-term liabilities is based on the Company's current estimates of future contingent milestones and royalties expected to be paid to BVF Partners L.P.

(BVF) over the term of the parties' funding agreement (the BVF Agreement).

3 unchanged sentences

Other accrued liabilities consisted of the following (in thousands):

As of March 31, 2022

As of June 30, 2022

As of December 31, 2021

2 unchanged sentences

Income taxes payable

The Company leases its corporate headquarters, which includes approximately 150,753 square feet of executive offices and research and development and business operations, in an office park in Hayward, California under a non-cancelable operating lease with terms that extend through 2031 .

One of the buildings, having approximately 14,460 square feet of leased space, has a lease term that commenced April 2022 with tenant allowances totaling approximately $ 5.8 million.

The Company also leases space in Brisbane, California under a non-cancelable lease that extends through 2031 .

Both leases are subject to options by the Company to extend the lease terms.

The following table summarizes supplemental cash flow disclosures and non-cash financing activities related to our operating leases (in thousands):

Six Months Ended June 30,

Cash paid for amounts included in measurement of lease liabilities

Cash received from tenant improvement allowances

Right-of-use assets obtained in exchange for new operating lease liabilities

Recognition of tenant improvement allowance receivable included in other current liabilities

Liability for Sale of Future Royalties

2 unchanged sentences

The Company received $ 5 million from BVF in the fourth quarter of 2021 and an additional $ 5 million in the first quarter of 2022.

The Company expects to receive the third $ 5 million payment in 2022.

The Company expects to receive the third $ 5 million payment in the second half of 2022.

In return, the Company is obligated to perform research and development activities in the Program, to make contingent payments upon the achievement of certain clinical and regulatory milestones of up to $ 72.5 million or $ 160.0 million depending on whether the program is solely developed by Arcus or as part of the collaboration with Gilead.

5 unchanged sentences

The excess of future estimated contingent milestone and royalty payments over the $ 15 million of allocated proceeds is recognized as non-cash interest expense using the effective interest method, which is reported in the condensed consolidated statements of operations as non-operating expense.

The balance associated with the liability was $ 10.7 million at March 31, 2022 and is reported on the consolidated balance sheets in other long-term liabilities.

The imputed effective rate of interest on the unamortized portion of the liability was approximately 20.6 % as of March 31, 2022.

The Company periodically reassess the amount and timing of expected payments.

The balance associated with the liability was $ 11.2 million at June 30, 2022 and is reported on the condensed consolidated balance sheets in other long-term liabilities.

The imputed effective rate of interest on the unamortized portion of the liability was approximately 20.6 % as of June 30, 2022.

The Company periodically reassesses the amount and timing of expected payments.

To the extent such payments are greater or less than the Company's initial estimates or the timing of such payments is materially different than those estimates, the Company will adjust the liability and the effective interest rate using a retrospective method, catch-up method, or prospective method, subject to an accounting policy election applied on a consistent basis.

As of March 31, 2022, there have been no changes to the estimated effective interest rate.

As of June 30, 2022, there have been no changes to the estimated effective interest rate.

There are a number of factors that could materially affect the amount and timing of contingent milestone and royalty payments, most of which are not within the Company's control.

4 unchanged sentences

A significant change in unobservable inputs could result in a material increase or decrease to the effective interest rate of the liability.

Changes to the liability for sale of future royalties were as follows for the three months ended March 31, 2022 (in thousands):

Changes to the liability for sale of future royalties were as follows for the six months ended June 30, 2022 (in thousands):

Beginning balance, January 1

1 unchanged sentence

Interest accretion

Ending balance, March 31

The Company incurred $ 0.4 million in non-cash interest expense for the three months ended March 31, 2022.

Ending balance, June 30

The Company incurred $ 0.5 million and $ 0.9 million in non-cash interest expense for the three and six months ended June 30, 2022.

License and Collaboration Agreements

1 unchanged sentence

(Taiho) (in thousands):

Three Months Ended March 31,

Other collaboration revenue

Three Months Ended June 30,

Six Months Ended June 30,

License and development services revenue

Other collaboration revenue

Total collaboration and license revenues

The following table summarizes revenues by collaboration, category of revenue, and the method of recognition (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenues recognized:

Point in time

License and development services for all Gilead programs

Gilead access rights related to the

Company's research and development pipeline

License and development services for all Gilead programs

Taiho access rights

1 unchanged sentence

The Company recognized the following revenue as a result of changes in the deferred revenue balance during the period below (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue recognized in the period from:

6 unchanged sentences

In connection with Gilead’s exercise of its options to the three programs, the parties agreed to (i) slightly reduce the royalties for these programs, such that Gilead will pay the Company tiered royalties as a percentage of revenues ranging from the mid-teens to the low twenties and (ii) remove the $ 100 million option continuation payment that was otherwise due on the second anniversary of the Gilead Collaboration Agreement.

As of March 31, 2022, Gilead had obtained licenses to the following investigational products:

As of June 30, 2022, Gilead had obtained licenses to the following investigational products:

zimberelimab (in 2020), domvanalimab, AB308, etrumadenant, and quemliclustat (the latter four in 2021).

9 unchanged sentences

These research programs were not determined to be performance obligations at contract inception, due to the very early stages of the programs and the amounts of the option payments.

The Company’s assessment of the transaction price upon the signing of the Amended Gilead Collaboration Agreement included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $ 725 million committed upon contract closing following expiration of the antitrust waiting period in December 2021, as well as amounts totaling $ 165.1 million deferred from the original Gilead transaction, which excludes the $ 100 million option continuation payment that would otherwise have been due on the second anniversary of the Gilead Collaboration Agreement.

committed upon contract closing following expiration of the antitrust waiting period in December 2021, as well as amounts totaling $ 165.1 million deferred from the original Gilead transaction, which excludes the $ 100 million option continuation payment that would otherwise have been due on the second anniversary of the Gilead Collaboration Agreement.

The Company considers the entire $ 890.1 million to be the allocable transaction price as of the amendment closing date, due to the Company's history of timely payments from Gilead and receipt of the full $ 725 million in January 2022 per the terms of the amendment.

19 unchanged sentences

Gilead has the right to exclusively commercialize any optioned programs outside of the U.S., subject to the rights of the Company’s existing partners to any territories, and Gilead will pay to the Company tiered royalties as a percentage of revenues ranging from (i) the mid-teens to the low twenties for the three 2021 optioned programs, (ii) high single digits to low double digits for research programs if Gilead exercises its option rights at the IND stage, and (iii) the high teens to the low twenties for all other programs.

The Company had $ 542.9 million and $ 559.2 million of deferred revenue remaining on its consolidated balance sheets related to this performance obligation at March 31, 2022 and December 31, 2021, respectively, allocated between current and noncurrent based on the expected timing of future recognition.

The Company had $ 517.9 million and $ 559.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this agreement at June 30, 2022 and December 31, 2021, respectively, allocated between current and noncurrent based on the expected timing of future recognition.

Stock Purchase Agreement and Investor Rights Agreement

4 unchanged sentences

Gilead made an additional equity investment in the Company of approximately $ 56.7 million, net of offering costs, by purchasing 2,200,000 shares of its common stock at a per share price of $ 27.50 in the May 2020 public offering.

In January 2021, the Company and Gilead entered into an Amended and Restated Common Stock Purchase Agreement, which amended and restated in its entirety the Common Stock Purchase Agreement, pursuant to which Gilead purchased from the Company 5,650,000 shares of its common stock at a purchase price of $ 39.00 per share, for a total of $ 220.3 million, net of offering costs.

price of $ 39.00 per share, for a total of $ 220.3 million, net of offering costs.

All other terms of the original Common Stock Purchase Agreement, including Gilead's option to purchase additional shares from the Company, up to a maximum ownership of 35 % of its then-outstanding common stock, remain unchanged.

14 unchanged sentences

The Company further evaluated the delivery of the license, noting that the program was in later stages of development and it met the criteria for being distinct from the research and development services required under the Gilead Collaboration Agreement (as amended).

Specifically, the domvanalimab program was in a Phase 3 clinical trial at the time that Gilead acquired the license and the Company concluded that:

(i) the R&D services for such later-stage, Phase 3 intellectual property, primarily involved validating the drug’s efficacy;

and (ii) the ongoing R&D services do not significantly modify or customize the drug compound such that the intellectual property is not significantly different at the end of the arrangement as a result of the services.

As the license had been made available in the fourth quarter of 2021, the Company recognized the full $ 328.8 million of transaction price allocated to this performance obligation as license revenue in December 2021.

1 unchanged sentence

Gilead obtained the right in the Gilead Collaboration Agreement to exercise an option for exclusive rights to the Company’s adenosine receptor program, etrumadenant, in exchange for an option payment of $ 250 million.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 127.0 million of deferred revenue on its consolidated balance sheets related to this performance obligation.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 127.0 million of deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

Effective on the December 2021 closing of the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to etrumadenant.

The standalone selling price of this license was determined using a discounted cash flow method.

The Company further evaluated the delivery of the license, noting that it was combined with the research and development services required under the agreements due to the early stage of the technology and the specialized nature of the Company's know-how.

Accordingly, transaction price allocated to this license is recognized as revenue as the related research services are performed.

The Company determined that it retains obligations to perform further development services for Gilead related to etrumadenant.

2 unchanged sentences

Due to the combined nature of the performance obligation, the Company determined that the revenue from the license would be recognized at the same rate and using the same input-driven methodology as the revenue from the research and development services.

The Company determined that its performance of the R&D activities commenced January 1, 2022 and accordingly the Company recognized $ 5.0 million in license and development services revenue associated with these obligations for the three months ended March 31, 2022.

At March 31, 2022, the Company had $ 213.8 million of deferred revenue remaining on its consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

The Company determined that its performance of the R&D activities commenced January 1, 2022 and accordingly the Company recognized $ 13.2 million and $ 18.2 million in license and development services revenue associated with these obligations for the three and six months ended June 30, 2022, respectively.

At June 30, 2022, the Company had $ 200.5 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

Quemliclustat option, license and R&D activities

6 unchanged sentences

The standalone selling price of this license was determined using a discounted cash flow method.

The Company further evaluated the delivery of the license, noting that it was combined with the research and development services required under the agreements due to the expertise and the know-how developed by the Company.

Accordingly, transaction price allocated to this license is recognized as revenue as the related research services are performed.

The Company determined that its performance of the R&D activities commenced January 1, 2022 and accordingly the Company recognized $ 1.8 million in license and development services revenue associated with these obligations for the three months ended March 31, 2022.

At March 31, 2022, the Company had $ 173.8 million of deferred revenue remaining on its consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

The Company determined that its performance of the R&D activities commenced January 1, 2022 and accordingly the Company recognized $ 1.9 million and $ 3.7 million in license and development services revenue associated with these obligations for the three and six months ended June 30, 2022, respectively.

At June 30, 2022, the Company had $ 172.0 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

R&D activities for domvanalimab

2 unchanged sentences

The Company will recognize the amounts allocated to these services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated full-time employee expense for the program.

The Company determined that its performance of the R&D activities commenced as of January 1, 2022 and accordingly the Company recognized $ 0.9 million in license and development services revenue associated with these obligations in the three months ended March 31, 2022.

At March 31, 2022, the Company had $ 33.6 million of deferred revenue remaining on its consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

The Company determined that its performance of the R&D activities commenced as of January 1, 2022 and accordingly the Company recognized $ 1.3 million and $ 2.2 million in license and development services revenue associated with these obligations in the three and six months ended June 30, 2022, respectively.

At June 30, 2022, the Company had $ 32.3 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

R&D and commercialization activities for zimberelimab monotherapy

3 unchanged sentences

The Company determined that its performance of the R&D activities had commenced in 2021 and accordingly the Company recognized $ 0.3 million in license and development services revenue associated with these obligations in the three months ended March 31, 2022.

At March 31, 2022, the Company had $ 9.8 million of deferred revenue remaining on its consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

The Company determined that its performance of the R&D activities had commenced in 2021 and accordingly the Company recognized $ 0.3 million and $ 0.6 million in license and development services revenue associated with these obligations in the three and six months ended June 30, 2022.

At June 30, 2022, the Company had $ 9.5 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

Access rights related to the Company’s research and development pipeline and material rights to option continuation periods

5 unchanged sentences

Failure to pay the non-obligatory option continuation payments will result in Gilead’s loss of certain rights to access and obtain licenses to the programs arising from the Company’s research and development pipeline.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 91.7 million deferred revenue on its consolidated balance sheets related to this performance obligation.

The Company recognized $ 8.3 million and $ 7.7 million in other collaboration revenues associated with these obligations in the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, the Company had $ 111.9 million of deferred revenue on its consolidated balance sheets related to this performance obligation, classified between current and noncurrent based on the amortization of the revenue.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 91.7 million deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

The Company recognized $ 8.3 million and $ 16.6 million in other collaboration revenues associated with these obligations in the three and six months ended June 30, 2022, respectively.

The Company recognized $ 7.7 million and $ 15.4 million in other collaboration revenues associated with these obligations in the three months and six months ended June 30, 2021, respectively.

At June 30, 2022, the Company had $ 103.6 million of deferred revenue on its consolidated balance sheets related to this performance obligation, classified between current and noncurrent based on the amortization of the revenue.

Cost-sharing reimbursements

2 unchanged sentences

Payments made to Gilead for the Company's share of costs incurred will be recognized as an increase to those expenses depending on the type of cost reimbursed.

The Company recognized reductions of operating expenses totaling $ 30.4 million and $ 4.9 million during the three months ended March 31, 2022 and 2021, respectively, as a result of this cost-sharing provision.

The Company recognized reductions of operating expenses totaling $ 35.9 million and $ 66.3 million, respectively, during the three and six months ended June 30, 2022 as a result of this cost-sharing provision.

The Company recog nized reductions of operating expenses totaling $ 1.2 million and $ 6.1 million, respectively, during the three and six months ended June 30, 2021 as a result of this cost-sharing provision.

Capitalized costs to obtain contract

4 unchanged sentences

These fees were combined with the $ 3.8 million of capitalized fees that remained from the original agreement at the date of closing, and the total $ 8.3 million was allocated among the performance obligations identified under the Amended Gilead Collaboration Agreement and deferred or recognized accordingly.

The Company recognized $ 0.1 million in expense related to these capitalized costs during each of the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the Company had $ 4.8 million in capitalized costs to obtain the contract, of which $ 0.8 million was recorded in prepaid expenses and other current assets and $ 4.0 million was recorded in other long-term assets.

The Company recognized $ 0.2 million and $ 0.4 million in expense related to these capitalized costs during the three and six months ended June 30, 2022, respectively.

The Company recognized $ 0.1 million and $ 0.2 million in expense related to these capitalized costs during the three months and six months ended June 30, 2021, respectively.

As of June 30, 2022, the Company had $ 4.5 million in capitalized costs to obtain the contract, of which $ 0.8 million was recorded in prepaid expenses and other current assets and $ 3.7 million was recorded in other long-term assets.

Taiho Pharmaceutical Co., Ltd

11 unchanged sentences

The Company uses a time-elapsed input method to measure progress toward satisfying its performance obligation, which is the method the Company believes most faithfully depicts the Company’s performance in transferring the promised services during the time period in which Taiho has access to the Company’s research and development activities.

Accordingly, the transaction price of $ 35.0 million is being recognized in other collaboration revenues using this input method over the estimated performance period of five years .

From the inception of the Taiho Agreement through March 31, 2022, Taiho has exercised its option to the Company's adenosine receptor antagonist program (including etrumadenant), its anti-PD-1 program (including zimberelimab), and its anti-TIGIT program (including domvanalimab and AB308) for option payments totaling $ 26.0 million.

Accordingly, the transaction

price of $ 35.0 million is being recognized in other collaboration revenues using this input method over the estimated performance period of five years ending September 2022.

From the inception of the Taiho Agreement through June 30, 2022, Taiho has exercised its option to the Company's adenosine receptor antagonist program (including etrumadenant), its anti-PD-1 program (including zimberelimab), and its anti-TIGIT program (including domvanalimab and AB308) for option payments totaling $ 26.0 million.

The Taiho Agreement will remain in effect until the expiry of all royalty terms for the licensed products.

As of March 31, 2022, no clinical or regulatory milestones had been achieved under the Taiho Agreement.

As of March 31, 2022, no sales milestone or royalty revenue has been recognized.

As of June 30, 2022, no clinical or regulatory milestones had been achieved under the Taiho Agreement.

As of June 30, 2022, no sales milestone or royalty revenue has been recognized.

In November 2021, Taiho exercised its option under the Taiho Agreement to the Company's anti-TIGIT program, including domvanalimab and AB308, in exchange for a $ 15.0 million option exercise fee.

In November 2019, Taiho exercised its option to the Company's anti-PD-1 antibody program, including zimberelimab, for a fee of $ 8.0 million.

For each of these exercises, the Company identified one performance obligation comprised of the delivery of the license, which was recognized by the Company as license revenue during the years ended December 31, 2021 and 2019, respectively.

For each of these exercises, the Company identified one performance obligation which was the delivery of the license, which was recognized by the Company as license revenue during the years ended December 31, 2021 and 2019, respectively.

Upon the option exercises, Taiho gained sole responsibility for the development and commercialization of the licensed products within the Taiho Territory.

As of March 31, 2022 and December 31, 2021, the Company recorded deferred revenue, current of $ 3.3 million and $ 5.0 million, respectively, on its consolidated balance sheet.

As of June 30, 2022 and December 31, 2021, the Company recorded deferred revenue, current of $ 1.5 million and $ 5.0 million, respectively, on its condensed consolidated balance sheet.

WuXi Biologics License Agreements

The Company entered into a license agreement (the WuXi PD-1 Agreement) with WuXi Biologics in August 2017, as subsequently amended, in which it obtained an exclusive license to develop, use, manufacture, and commercialize products including an anti-PD-1 antibody worldwide except for Greater China.

From the inception of the WuXi PD-1 Agreement through March 31, 2022, the Company has made upfront and milestone payments of $ 41.0 million and incurred sub-license fees of $ 11.3 million.

From the inception of the WuXi PD-1 Agreement through June 30, 2022, the Company has made upfront and milestone payments of $ 41.0 million and incurred sub-license fees of $ 11.3 million.

These milestone payments and sub-license fees were recorded as research and development expense, as the products had not reached technological feasibility and did not have alternative future use.

During the three months ended March 31, 2022 and 2021, the Company made milestone payments of zero and $ 10 million, respectively, and incurred no sub-license fees under the WuXi PD-1 Agreement.

During the three and six months ended June 30, 2022, the Company incurred no milestone expense under the WuXi PD-1 Agreement.

During the three and six months ended June 30, 2021, the Company incurred zero and $ 10.0 million in development milestone expense under the WuXi PD-1 Agreement.

The WuXi PD-1 Agreement also provides for clinical and regulatory milestone payments, commercialization milestone payments of up to $ 375.0 million and tiered royalty payments to be made to WuXi Biologics that range from the high single-digits to low teens of net sales by the Company of licensed products.

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The WuXi CD39 Agreement provides for clinical and regulatory milestone payments totaling $ 16.5 million, and royalty payments in the low single digits of net sales by the Company of licensed products.

From the inception of the WuXi CD39 Agreement through March 31, 2022, the Company has paid a $ 1.5 million development milestone and $ 0.5 million in upfront payments, both of which were recorded in research and development expense, as the products are still in research stage.

The Company incurred $ 1.5 million in development milestone expense under the WuXi CD39 Agreement during the three months ended March 31, 2022 and none in the same period in 2021.

From the inception of the WuXi CD39 Agreement through June 30, 2022, the Company has paid a $ 1.5 million development milestone and $ 0.5 million in upfront payments, both of which were recorded in research and development expense, as the products are still in research stage.

The Company incurred zero and $ 1.5 million in development milestone expense under the WuXi CD39 Agreement during the three and six months ended June 30, 2022.

The Company incurred no development milestone expense under the WuXi CD39 Agreement during the three and six months ended June 30, 2021.

Abmuno License Agreement

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) in which it obtained a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab.

Under the Abmuno Agreement, the Company has made upfront and milestone payments totaling $ 14.6 million as of March 31, 2022.

The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $ 93.0 million as of March 31, 2022.

The Company incurred zero and $ 5.0 million development milestone expense for the three months ended March 31, 2022 and 2021, respectively.

From the inception of the Abmuno Agreement through June 30, 2022, the Company has made upfront and milestone payments totaling $ 14.6 million as of June 30, 2022, which were recorded in research and development expense, as the products are still in research stage.

The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $ 93.0 million as of June 30, 2022.

The Company incurred no development milestone expense for the three and six months ended June 30, 2022.

The Company incurred zero and $ 5.0 million in development milestone expense for the three and six months ended June 30, 2021.

AstraZeneca Agreement

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Under the terms of the agreement, each company will retain existing rights to their respective molecules and any future commercial economics.

AstraZeneca will conduct the trial, and each company will supply its respective anti-cancer agent to support the trial.

will conduct the trial, and each company will supply its respective anti-cancer agent to support the trial.

Under the terms of the agreement, the Company will reimburse AstraZeneca for its share of the trial costs upon achievement of certain milestones.

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This portion of the clinical trial costs that is considered unavoidable is accrued as research and development expenses in advance of the achievement of milestones.

From the inception of the agreement through March 31, 2022, the Company has incurred gross expense of $ 2.3 million which is recorded on the condensed consolidated balance sheet in other long-term liabilities.

From the inception of the agreement through June 30, 2022, the Company has incurred gross expense of $ 2.6 million which is recorded on the condensed consolidated balance sheet in other long-term liabilities.

This PACIFIC-8 trial forms part of the Arcus and Gilead joint development program for domvanalimab and Arcus’s portion of the trial costs will be shared with Gilead.

At March 31, 2022 the Company had recognized a receivable of $ 1.1 million from Gilead related to the reimbursement of these costs, which is recorded on the condensed consolidated balance sheet in other noncurrent assets.

For the three months ended March 31, 2022 and 2021, the Company incurred expenses pursuant to the AstraZeneca Agreement of $ 1.2 million and zero , respectively, before expected recoveries from its cost-sharing agreement with Gilead.

Genentech Collaboration Agreement

In December 2019, the Company and Genentech, through F.

Hoffmann-La Roche Ltd (collectively, Genentech) entered into a Master Clinical Collaboration Agreement (the Genentech Agreement) pursuant to which the parties may conduct combination clinical studies involving Genentech’s monoclonal antibody, atezolizumab and the Company’s investigational products.

Pursuant to the Genentech Agreement, the parties entered into Trial Supplements for the evaluation of etrumadenant and atezolizumab utilizing the MORPHEUS platform in two separate study indications:

second and third line metastatic colorectal cancer and first line metastatic pancreatic cancer.

From the inception of the agreement through March 31, 2022, the Company has incurred expense of $ 1.8 million which was recorded in research and development expense.

The Company and Genentech will each supply their respective investigational products for use in the collaboration studies and will share a portion of the development costs under specific terms as set forth in the agreement.

The Company incurred expense under the collaboration of $ 0.3 million for each of the three months ended March 31, 2022 and 2021.

At June 30, 2022 the Company had recognized a receivable of $ 1.3 million from Gilead related to the reimbursement of these costs, which is recorded on the condensed consolidated balance sheet in other noncurrent assets.

For the three months and six months ended June 30, 2022, the Company incurred expenses pursuant to the AstraZeneca Agreement of $ 0.4 million and $ 1.6 million, respectively, before expected recoveries from its cost-sharing agreement with Gilead.

For each of the three and six months ended June 30, 2021, the Company incurred expenses pursuant to the AstraZeneca Agreement of $ 0.3 million before expected recoveries from its cost-sharing agreement with Gilead.

Stock-Based Compensation

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Total stock-based compensation expense was recognized in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

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Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment to the provision.

The Company’s provision for income taxes was $ 1.0 million and zero for the three months ended March 31, 2022 and 2021 with an effective tax rate of - 1.4 % and 0 %, respectively.

The Company did no t record a provision for income taxes for the three months ended June 30, 2022 and 2021.

The Company’s provision for income taxes was $ 1.0 million and zero for the six months ended June 30, 2022 and 2021 with an effective tax rate of - 0.8 % and 0 %, respectively.

The effective tax rate differs from the U.S.

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The income tax provision includes the effects of the mandatory capitalization and amortization of research and development expenses starting in 2022, as required by the 2017 Tax Cuts and Jobs Act.

As of March 31, 2022 and December 31, 2021, the Company has provided a valuation allowance against U.S.

As of June 30, 2022 and December 31, 2021, the Company has provided a valuation allowance against U.S.

federal and state deferred tax assets.

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The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted-average common shares outstanding

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The following outstanding potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have been antidilutive:

Three Months Ended March 31,

As of June 30,

Common stock options issued and outstanding

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part of collaboration agreement

The Company also excluded the effect of Gilead’s right to purchase additional shares of the Company’s common stock from its calculation as these rights had no intrinsic value at March 31, 2022.

The Company also excluded the effect of Gilead’s right to purchase additional shares of the Company’s common stock from its calculation as these rights had no intrinsic value at June 30, 2022.

Standby Letters of Credit

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The letters of credit are secured by $ 3.0 million in deposits classified as restricted cash on the Company’s condensed consolidated balance sheets.

At March 31, 2022 the standby letters of credit were not drawn down.

At June 30, 2022 the standby letters of credit were not drawn down.

Related parties

Relationship and transactions with Gilead

As of March 31, 2022, Gilead held approximately 19.3 % o f the Company’s outstanding common stock.

As of June 30, 2022, Gilead held approximately 19.2 % o f the Company’s outstanding common stock.

These holdings resulted from a combination of Gilead’s participation in the May 2020 public offering as well as purchases of stock under the stock purchase agreement.

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See Note 7 for further discussion of the agreements with Gilead.

At March 31, 2022, the Company had a $ 29.3 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

The Company had a $ 1.1 million long-term cost-share receivable recorded in other long-term assets on the balance sheet, to be invoiced upon the achievement of milestones under the

AstraZeneca agreement in future years.

The Company also had $ 86.0 million in deferred revenue, current and $ 456.9 million in deferred revenue, noncurrent recorded on its condensed consolidated balance sheets at March 31, 2022.

For the three months ended March 31, 2022 and 2021, the Company recognized $ 16.3 million and $ 7.7 million, respectively, in revenue under the Gilead Collaboration Agreement.

At June 30, 2022, the Company had a $ 35.7 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

At June 30, 2022, the Company had a $ 1.3 million

long-term cost-share receivable recorded in other long-term assets on the balance sheet, to be invoiced upon the achievement of milestones under the AstraZeneca agreement in future years.

The Company also had $ 88.6 million in deferred revenue, current and $ 429.3 million in deferred revenue, noncurrent recorded on its condensed consolidated balance sheets at June 30, 2022.

For the three and six months ended June 30, 2022 the Company recognized $ 25.0 million and $ 41.3 million, respectively, in revenue under the Gilead Collaboration Agreement.

For each of these periods, the Company also recognized net reductions in operating expenses totaling $ 35.9 million and $ 66.3 million, respectively.

For the three and six months ended June 30, 2021 the C ompany recognized $ 7.7 million and $ 15.4 million, respectively, in revenue under the Gilead Collaboration Agreement.

For each of these periods, the Company also recognized net reductions in operating expenses totaling $ 1.2 million and $ 6.1 million, respectively .

The Company received a $ 175 million upfront payment from Gilead upon closing of the Gilead Collaboration Agreement in July 2020.

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Taiho has exercised its option rights to our adenosine receptor antagonist program (including etrumadenant), our anti-PD-1 program (including zimberelimab), and, in December 2021, they exercised their option right to our anti-TIGIT program (including domvanalimab and AB308).

In connection with our entry into the Gilead Collaboration Agreement in 2020, we also entered into a Common Stock Purchase Agreement pursuant to which Gilead has the right, at its option from time to time over five years from closing of the initial transaction, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock, and an Investor Rights Agreement that provides for a three-year standstill, two-year lockup and the right to designate two individuals to be appointed to our Board of Directors.

In connection with our entry into the Gilead Collaboration Agreement in 2020, we also entered into a Common Stock Purchase Agreement pursuant to which Gilead has the right, at its option from time to time over five years from closing of the initial transaction, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock, and an Investor Rights Agreement that provides for a three-year standstill, two-year lock-up and the right to designate two individuals to be appointed to our Board of Directors.

Gilead currently owns approximately 19.2% of our outstanding common stock.

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Furthermore, in January 2022, AstraZeneca initiated PACIFIC-8, a registrational study, which is evaluating domvanalimab plus durvalumab after chemoradiation therapy in Stage 3 NSCLC.

We and Gilead are planning to initiate additional Phase 3 studies for domvanalimab in 2022 based on our interim analyses for ARC-7, which demonstrated encouraging clinical activity for both domvanalimab combination arms.

We and Gilead are planning to initiate two additional Phase 3 studies for domvanalimab in the second half of 2022 based on our interim analyses for ARC-7, which demonstrated encouraging clinical activity for both domvanalimab combination arms.

AB308, our Fc-enabled anti-TIGIT monoclonal antibody, is being evaluated in a Phase 1/1b study (ARC-12).

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Etrumadenant (previously referred to as AB928), our small molecule dual A2a/A2b adenosine receptor antagonist, is being evaluated in several randomized or Phase 2 trials across major tumor types, including in our ARC-6, ARC-7, and ARC-9 studies.

We expect to initiate additional clinical studies of etrumadenant in 2022.

We expect to initiate an additional clinical study of etrumadenant in NSCLC in the second half of 2022.

Quemliclustat (previously referred to as AB680), our small-molecule CD73 inhibitor, is being evaluated in a Phase 1/1b study for the treatment of first-line metastatic pancreatic cancer (ARC-8) as well as late-line metastatic prostate cancer (ARC-6) and metastatic colorectal cancer (ARC-9).

We expect to initiate additional clinical studies of quemliclustat in 2022.

We expect to initiate additional clinical studies of quemliclustat in the second half of 2022.

Zimberelimab (previously referred to as AB122), our anti-PD-1 monoclonal antibody, is the cornerstone of our combination strategy.

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COVID-19 Pandemic

The degree to which COVID-19 impacts our business operations, research and development programs and financial condition remains highly uncertain and will depend on future developments, including the ultimate duration and/or severity of the pandemic, the impact of any resurgences and new variants that emerge, actions by government authorities to contain the spread of the virus, the availability, adoption and effectiveness of vaccines and boosters, and when and to what extent normal economic and operating conditions can resume.

COVID-19 infections continue to fluctuate in the U.S.

and in many countries worldwide as local surges and new waves of infection continue to be reported as a result of new variants.

The degree to which COVID-19 impacts our business operations, research and development programs and financial condition remains highly uncertain and dependent on future developments, including the ultimate duration and/or severity of the pandemic, the impact of any resurgences and new variants that emerge, actions by government authorities to contain the spread of the virus, the availability, adoption and effectiveness of vaccines and boosters, and when and to what extent normal economic and operating conditions can resume.

Our management continues to actively monitor this health crisis and its effects on our operations, key vendors and workforce.

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We actively manage the inventory for each of our investigational products and our overall supply chain needs in order to prevent or minimize the impact of any disruptions to our clinical programs.

Due to the availability of vaccines and our mandatory vaccine policy, our laboratory operations are operating at or near normal levels and we began returning office-based employees to our offices on a hybrid schedule.

Due to the availability of vaccines and our mandatory vaccine policy, our laboratory operations are operating at or near normal levels and we re-opened our offices to office-based employees.

The safety, health and well-being of our employees remains a primary concern, and we may restrict our business activities or modify our employee work arrangements in response to new developments in the COVID-19 pandemic in order to reduce the risk of exposure among our employees.

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s significant judgments and estimates.

While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

While our significant accounting policies are described in the notes to our condensed consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue Recognition

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As part of the accounting for contracts with customers, we must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

We then allocate the total transaction price to each performance obligation based on their estimated standalone selling prices.

We then allocate the total transaction price to each performance obligation in proportion to their standalone selling prices (i.e., on a relative standalone selling price basis).

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For the recognition of revenue relating to the Gilead Agreements, as disclosed in Note 7, License and Collaboration Agreements to our condensed consolidated financial statements in Part I, Item 1, we allocated the total transaction price to each performance obligation on a relative standalone selling price basis and determined whether revenue should be recognized at a point in time or over time.

The estimation of the standalone selling price may include such estimates as forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success.

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milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Revenue related to certain performance obligations over time could be materially impacted as a result of changes in the estimated total research effort required to satisfy those obligations.

If we were to increase total estimated effort required to satisfy the license and R&D activities performance obligations related to the agreement with Gilead by 10%, it would result in cumulative catch up adjustments that decrease revenue recognition by $0.7 million in the current quarter.

Alternatively, if we were to decrease total estimated effort required to satisfy those performance obligations by 10%, it would result in cumulative catch up adjustments that increase revenue recognition by $0.9 million in the current quarter.

Revenue related to certain performance obligations that are satisfied over time could be materially impacted as a result of changes in the estimated total research effort required to satisfy those obligations.

A 10% change in the total estimated effort required to satisfy the combined license and R&D activities performance obligations related to the agreement with Gilead would have changed the related revenue recognized during the current quarter by approximately $1.4 million.

Such changes in estimate could have a material impact on the revenue recognized in a future period.

For performance obligations that are distinct and determined to be transferred or satisfied at a point in time, the estimated standalone selling price will affect the amount of revenue recognized upon satisfaction of the related performance obligation such as the transfer of control of a license.

For the domvanalimab license, transfer of the license and satisfaction of the related performance obligation occurred in 2021.

The estimated standalone selling price of the domvanalimab license utilized assumptions of discounted cash flows which require judgment.

A 10% change in the total estimated cash flows used in determining the estimated standalone selling price of the domvanalimab license would have resulted in a change in the amount of revenue recognized in 2021 of approximately $20 million with a corresponding change in the transaction price allocated to the remaining performance obligations in the Gilead Collaboration Agreement.

Results of Operations

Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30,

License and development service revenue

Other collaboration revenue

Total collaboration and license revenues

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Non-operating income, net

* Not meaningful

Collaboration and License Revenue

Collaboration and license revenue increased $17.3 million, from $9.5 million for the three months ended June 30, 2021 to $26.8 million for the three months ended June 30, 2022.

In the three months ended June 30, 2022, we recognized $16.7 million in license and development service revenues for all programs optioned by Gilead, recognized based on estimates of each performance obligation's percentage of completion at the period end, $8.3 million in other collaboration revenues related to Gilead’s ongoing rights to access our intellectual property in accordance with the Gilead Collaboration Agreement, as well as $1.8 million of other collaboration revenues under the Taiho Agreement.

In the three months ended June 30, 2021, we recognized $7.7 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $1.8 million under the Taiho Agreement.

See Note 7 to our condensed consolidated financial statements in Part I, Item 1 for further discussion of the amount and timing of revenues recognized from our collaboration agreements.

Research and Development Expenses

Research and development expenses increased $1.1 million from $68.8 million for the three months ended June 30, 2021 to $69.9 million for the three months ended June 30, 2022.

Our expanding clinical and development activities for domvanalimab and zimberelimab drove increases of $14.1 million in manufacturing costs, as well as $9.3 million in clinical costs.

Our growing headcount and our 2022 stock awards drove a $9.0 million increase in employee compensation costs, including approximately $0.7 million of increased non-cash stock-based compensation.

The year over year increase in costs incurred to support our programs described above was offset by cost-sharing reimbursements, which increased to $35.8 million from $1.2 million in the same quarter in the prior year as we incurred qualified expenses on the four programs optioned by Gilead.

Reimbursements in the same quarter in the prior year were based upon our expenditures on a single program.

General and Administrative Expenses

General and administrative expenses increased $9.0 million, or 54%, from $16.8 million for the three months ended June 30, 2021 to $25.8 million for the three months ended June 30, 2022.

The increase in general and administrative expenses was driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations.

Our growing headcount as well as our 2022 stock awards drove a $3.6 million increase in employee compensation costs, including approximately $1.6 million in increased non-cash stock-based compensation.

We incurred an approximately $3.3 million increase in office facilities expense due to our expanding headcount and office space.

We also incurred an increase of $0.8 million in consulting expenses incurred in corporate development activities, and increases in other expenses such as software and recruiting that are related to our expanding employee activities.

Non-Operating Income, Net

Non-operating income, net increased $2.2 million, from $0.2 million for the three months ended June 30, 2021 to $2.4 million for the three months ended June 30, 2022.

The increase in interest income from our portfolio of investments in marketable fixed-income securities compared to the same quarter in the prior year was partially offset by an increase in non-cash interest expense incurred on our liability for sale of future royalties to BVF.

Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

License and development service revenue

Other collaboration revenue

Total collaboration and license revenues

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Collaboration and License Revenue

Collaboration and license revenue increased $8.5 million, from $9.5 million for the three months ended March 31, 2021 to $18.0 million for the three months ended March 31, 2022.

In the three months ended March 31, 2022, we recognized $8.3 million in other collaboration revenues related to Gilead’s ongoing rights to access our intellectual property in accordance with the Gilead Collaboration Agreement, $7.9 million in license and development service revenues for all programs optioned by Gilead, recognized based on estimates of each performance obligation's percentage of completion at the period end, as well as $1.8 million of other collaboration revenues under the Taiho Agreement.

In the three months ended March 31, 2021, we recognized $7.7 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $1.8 million under the Taiho Agreement.

Collaboration and license revenue increased $25.9 million, from $18.9 million for the six months ended June 30, 2021 to $44.8 million for the six months ended June 30, 2022.

In the six months ended June 30, 2022, we recognized $24.6 million in license and development service revenues for all programs optioned by Gilead, recognized based on estimates of each performance obligation's percentage of completion at the period end, $16.6 million in other collaboration revenues related to Gilead’s ongoing rights to access our intellectual property in accordance with the Gilead Collaboration Agreement, as well as $3.5 million of other collaboration revenues under the Taiho Agreement.

In the six months ended June 30, 2021, we recognized $15.4 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $3.5 million under the Taiho Agreement.

See Note 7 to our condensed consolidated financial statements in Part I, Item 1 for further discussion of the amount and timing of revenues recognized from our collaboration agreements.

Research and Development Expenses

Research and development expenses decreased $5.2 million, or 8% from $66.4 million for the three months ended March 31, 2021 to $61.2 million for the three months ended March 31, 2022.

The increase in costs incurred to support our expanded clinical and development activities was offset by increased cost-sharing reimbursements from Gilead for its optioned programs.

Cost-sharing reimbursements increased to $30.3 million from $4.9 million in the same quarter in the prior year.

Research and development expenses decreased $4.1 million after reimbursements, or 3% from $135.2 million for the six months ended June 30, 2021 to $131.1 million for the six months ended June 30, 2022.

The year over year increase in costs incurred to support our programs described below was offset by cost-sharing reimbursements, which increased to $66.1 million from $6.1 million in the same period in the prior year as we incurred qualified expenses on the four programs optioned by Gilead.

Reimbursements in the same period in the prior year were based upon our expenditures on a single program.

There was also a $13.5 million decrease in scientific licenses expense.

In the three months ended March 31, 2022 we paid a $1.5 million milestone fee, compared to $15.0 million in milestones in the same quarter in the prior year.

Clinical costs for our ongoing studies increased $12.1 million as a result of the increased number of programs and clinical trials compared to the same quarter in the prior year.

In the six months ended June 30, 2022 we paid a $1.5 million milestone fee to WuXi for CD39, compared to $15.0 million in milestones in the same period in the prior year.

Our expanding clinical and development activities for domvanalimab and zimberelimab drove increases of $20.2 million in clinical costs and $18.8 million in manufacturing costs.

We incurred an additional $3.7 million for consulting services compared to the same period in the prior year.

Our growing headcount and our 2022 stock awards drove a $19.2 million increase in employee compensation costs, including approximately $3.1 million of increased non-cash stock-based compensation.

We incurred an additional $6.0 million increase in preclinical and manufacturing costs, $2.3 million increase in consulting costs, and $2.2 million increase in office facilities and technology expense.

General and Administrative Expenses

General and administrative expenses increased $8.2 million, or 52%, from $15.8 million for the three months ended March 31, 2021 to $24.0 million for the three months ended March 31, 2022.

General and administrative expenses increased $17.2 million, or 53%, from $32.6 million for the six months ended June 30, 2021 to $49.8 million for the six months ended June 30, 2022.

The increase in general and administrative expenses was driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations.

We incurred an approximately $7.6 million increase in office facilities expense due to our expanding headcount and office space.

Our growing headcount as well as our 2022 stock awards drove a $3.2 million increase in employee compensation costs, including approximately $1.4 million in increased non-cash stock-based compensation.

We also incurred an increase of $1.1 million in consulting expenses incurred in corporate development activities.

Our growing headcount as well as our 2022 stock awards drove a $6.8 million increase in employee compensation costs, including approximately $3.0 million in increased

non-cash stock-based compensation.

We also incurred an increase of $2.1 million in consulting expenses for corporate development activities.

Non-Operating Income, Net

Non-operating income, net was unchanged, at $0.2 million for each of the three months ended March 31, 2021 and 2022.

Increases in interest income from our portfolio of investments in marketable fixed-income securities compared to the same quarter in the prior year were offset by increases in non-cash interest expense incurred on our liability for sale of future royalties to BVF.

Non-operating income, net increased $2.2 million, from $0.3 million for the six months ended June 30, 2021 to $2.5 million for the six months ended June 30, 2022.

The increase in interest income from our portfolio of investments in marketable fixed-income securities compared to the same quarter in the prior year was offset by an increase in non-cash interest expense incurred on our liability for sale of future royalties to BVF.

Income Tax Expense

Income tax expense was $1.0 million for the three months ended March 31, 2022, compared to none in the same period the prior year.

Income tax expense was $1.0 million for the six months ended June 30, 2022, compared to none in the same period the prior year.

The increase in income tax expense was due to the completion of a U.S.

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We also receive cost-sharing reimbursements from Gilead for certain shared expenses incurred on optioned programs.

For the three months ended March 31, 2022 and 2021, we recognized reductions of operating expense due to reimbursements of $30.4 million and $4.9 million, respectively, for shared expenses incurred on optioned programs.

We expect future reimbursements to be higher than historical amounts due to Gilead's opt-in on three additional programs in 2021.

As of March 31, 2022, we had $1,342.4 million of cash, cash equivalents, and investments in marketable securities, compared to $681.3 million as of December 31, 2021.

For the six months ended June 30, 2022 and 2021, we recognized reductions of operating expense due to reimbursements of $66.3 million and $6.1 million, respectively, for shared expenses incurred on optioned programs.

We expect future reimbursements to continue to be higher than historical amounts due to Gilead's opt-in on three additional programs in 2021.

As of June 30, 2022, we had $1,271.1 million of cash, cash equivalents, and investments in marketable securities, compared to $681.3 million as of December 31, 2021.

The increase in cash from the prior year end is primarily due to the receipt of $725 million in option exercise payments from Gilead in January 2022.

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The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the periods presented below (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by:

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Cash Provided by Operating Activities

Net cash provided by operating activities was $654.0 million for the three months ended March 31, 2022, as compared to $66.3 million used in operating activities for the same period in the prior year.

The change in cash flow from operating activities is primarily due to the receipt of $725 million in January 2022 from Gilead for their exercised options to three programs.

This was partially offset by our net loss of $68.0 million.

The increase in expenses incurred for development activities is partially offset by $30.4 million in reimbursements from Gilead as well as year-over-year changes in non-cash items, including an increase of $3.8 million in non-cash stock-based compensation, and changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.

Net cash provided by operating activities was $588.7 million for the six months ended June 30, 2022, as compared to $140.3 million used in operating activities for the same period in the prior year.

The change in cash flow from operating activities is primarily due to Gilead's exercise of its options to three programs in December 2021, resulting in the receipt of $725 million from Gilead in January 2022 and the ongoing increase in cost-sharing reimbursements to $66.3 million in the six months ended June 30, 2022.

These receipts were partially offset by our net loss of $134.6 million, as well as year-over-year changes in non-cash items, including an increase of $6.1 million in non-cash stock-based compensation, and changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.

Cash Used in Investing Activities

Cash used in investing activities was $268.1 million for the three months ended March 31, 2022 compared to $62.8 million provided by investing activities for the same period in the prior year.

Cash used in investing activities was $483.3 million for the six months ended June 30, 2022 compared to $65.8 million provided by investing activities for the same period in the prior year.

The change in cash flow from investing activities was primarily due to higher net purchases of short-term and long-term securities as we invested a portion of the $725 million received from Gilead in January 2022 in fixed income marketable securities.

Cash Provided by Financing Activities

Cash provided by financing activities was $14.9 million for the three months ended March 31, 2022 compared to $222.1 million in the same period in the prior year.

The decrease in cash flow from financing activities was primarily due to the $220.4 million received from Gilead in February 2021 pursuant to the terms of the Amended and Restated Stock Purchase Agreement which did not recur in the three months ended March 31, 2022.

Cash provided by financing activities was $19.3 million for the six months ended June 30, 2022 compared to $224.4 million in the same period in the prior year.

The overall decrease is partially offset by increased funds received for issuance of common stock pursuant to equity award plans and $5.0 million received under the BVF agreement.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations outside the ordinary course of business during the three months ended March 31, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to our contractual obligations outside the ordinary course of business during the six months ended June 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements