What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 314 added, 278 removed, 588 unchanged (50% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

Current assets:

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Stockholders’

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.

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized;

no shares issued and outstanding.

Common stock, $ 0.0001 par value, 400,000,000 shares authorized;

72,352,380 and 70,781,736 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.

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

Additional paid-in capital

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

License and development service revenue ($ 23,742 , $ 0 , $ 48,374 and $ 0 from a related party)

41 unchanged sentences

Balance at June 30, 2021

Issuance of common stock upon exercise of stock options

and vesting of restricted stock

Vesting of early exercised stock options

Stock-based compensation

Other comprehensive loss

Balance at September 30, 2021

Balance at December 31, 2021

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Balance at June 30, 2022

Issuance of common stock upon exercise of stock options and vesting of restricted stock

Stock-based compensation

Other comprehensive loss

Balance at September 30, 2022

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

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(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flow from operating activities

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Purchases of in-process research and development

Net cash (used in) provided by investing activities

Collaboration reimbursements of in-process research and development from a related party

Net cash used in investing activities

Cash flow from financing activities

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Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

4 unchanged sentences

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

Unpaid portion of other assets included in accrued research and development

Vesting of early exercised stock options and restricted stock

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Arcus Biosciences, Inc.

(the Company) is a clinical-stage biopharmaceutical company focused on creating best-in-class cancer therapies.

Using its robust and highly efficient drug discovery capability, the Company has now advanced six investigational products into clinical development, with its most advanced molecule, an anti-TIGIT antibody, now in two Phase 3 registrational studies.

The Company’s deep portfolio of novel small molecules and enabling antibodies allows it to create highly differentiated combination therapies, which the Company is developing to treat multiple large tumor types including lung, colorectal, prostate and pancreatic cancers.

(the Company) is a clinical-stage, global biopharmaceutical company focused on developing differentiated molecules and combination therapies for people with cancer.

The Company’s deep portfolio of novel small molecules and enabling antibodies allows it to create highly differentiated combination therapies, which the Company is developing to treat prevalent cancers including lung, colorectal, prostate and pancreatic cancers.

The Company expects its clinical-stage portfolio to continue to expand and to include molecules targeting both immuno-oncology and cancer cell-intrinsic pathways.

The Company’s vision is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients.

The Company’s goal is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients.

The Company currently has six investigational products in clinical development:

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(Gilead), whereby Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of the Company's then-current and future programs during the 10-year collaboration term.

In December 2021, Gilead obtained rights to an additional four of the Company's investigational products:

In December 2021, Gilead obtained exclusive licenses to an additional four of the Company's investigational products:

domvanalimab, etrumadenant, quemliclustat and AB308.

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Liquidity and Capital Resources

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.

As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $ 1,191.9 m illion, 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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (U.S.

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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 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.

Operating results for the nine months ended September 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.

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Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Arcus Biosciences, Inc.

The accompanying condensed consolidated financial statements include the accounts of Arcus Biosciences, Inc.

and its wholly-owned subsidiaries.

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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 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.

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 (R&D) 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.

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

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

Restricted cash at September 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):

September 30,

Cash and cash equivalents

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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, 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.

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The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market

participants at the reporting date.

The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.

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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 June 30, 2022 or December 31, 2021.

There were no transfers within the hierarchy as of September 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):

June 30, 2022

September 30, 2022

(Quoted Prices in

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Total assets measured at fair value

Liability for sale of future royalties

Total liabilities measured at fair value

December 31, 2021

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Total assets measured at fair value

Classified as (with contractual maturities):

June 30, 2022

Liability for sale of future royalties

Total liabilities measured at fair value

As of September 30, 2022 and December 31, 2021, 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).

These estimates are considered Level 3 fair value inputs.

See Note 6 for further discussion of the liability and related estimates.

The Company's investments are classified as follows (with contractual maturities):

September 30, 2022

December 31, 2021

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

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 June 30, 2022 and December 31, 2021 are presented in the tables that follow (in thousands):

As of June 30, 2022:

At September 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 $ 0.3 million in net losses recognized on the sale of available-for-sale marketable securities for each of the three and nine months ended September 30, 2022, respectively, and no ne recognized for the three and nine months ended September 30, 2021, respectively.

As a result, the Company reclassified immaterial amounts out of accumulated other comprehensive income for the three and nine months ended September 30, 2022, and no amounts for the three and nine months ended September 30, 2021.

The Company has not recognized any allowances for credit losses and no credit-related losses have been recognized for any of the periods presented, given the nature of the Company's receivables and investment portfolio.

The Company does not intend to sell its securities with unrealized loss positions and has concluded it will not be required to sell the securities before recovery of the amortized cost for the investment at maturity.

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

As of September 30, 2022:

Money market funds

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Corporate securities and commercial paper

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).

These estimates are considered Level 3 fair value inputs.

See Note 6 for further discussion of the liability and related estimates.

Other Accrued Liabilities

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

As of June 30, 2022

As of September 30, 2022

As of December 31, 2021

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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 Company leases its corporate headquarters, which includes approximately 151,000 square feet of executive offices, research and development, and business operations, in Hayward, California.

This includes approximately 14,500 square feet of leased space that commenced in April 2022, with related tenant improvement allowances totaling approximately $ 5.8 million.

The Company also leases approximately 109,000 square feet of space in Brisbane, California.

Both leases are non-cancelable, extend through 2031 and are subject to options by the Company to extend the lease terms.

In October 2022, the Company entered into an agreement to sublease approximately 31,000 unfinished square feet of its Brisbane office to another company.

The lease includes a tenant improvement allowance to be paid by the Company of $ 9.4 million.

The Company will receive sublease income of approximately $ 3.0 million per year under the terms of the agreement.

This non-cancelable sublease is expected to commence in 2023 and extends through 2028 , with the sublessee having options to extend the lease term and to lease additional space within the building.

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,

Nine Months Ended September 30,

Cash paid for amounts included in measurement of lease liabilities

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Liability for Sale of Future Royalties

In October 2021, the Company and BVF entered into the BVF Agreement, under which BVF will fund the discovery and development of compounds for the treatment of inflammatory diseases (the Program) by providing the Company with $ 15 million in three non-refundable payments.

Consistent with the terms of the Gilead Collaboration Agreement, Gilead has an option to the Program.

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 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.

The Company also must pay mid- to high-single digit royalties based on net sales of products generated by the Program.

The agreement also provides BVF with the option to provide an additional $ 10 million in funding for the Program in exchange for an increase in the royalty rate.

The Company received $ 5.0 million from BVF in the fourth quarter of 2021, $ 5.0 million in the first quarter of 2022, and the final $ 5.0 million payment in the fourth quarter of 2022 .

Under the BVF Agreement, the Company is obligated to perform research and development activities for 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 the Company or as part of the Company's collaboration with Gilead, which under the Gilead Collaboration Agreement has an option to the Program.

If commercialized, the Company is also obligated to pay mid- to high-single digit royalties based on net sales of products generated by the Program.

Under the BVF Agreement, BVF also has the option to provide an additional $ 10.0 million in funding for the Program in exchange for an increase in the royalty rate.

The Company accounts for the BVF Agreement as a liability primarily because it has significant continuing involvement in generating the cash flows due to BVF.

If the Program achieves certain development and regulatory milestones and commercial sales, the Company will recognize the portion of milestone payments and royalties paid to BVF as a decrease to the accumulated liability with a corresponding reduction in cash.

If the Program achieves certain development and regulatory milestones and commercial sales, the Company will recognize the milestone payments and royalties paid to BVF as a decrease to the accumulated liability with a corresponding reduction in cash.

The carrying amount of the liability for sale of future royalties is based on management's estimate of the future contingent milestones and royalties to be paid to BVF over the life of the arrangement as discounted using an imputed rate of interest.

The excess of future estimated contingent milestone and royalty payments over the $ 15.0 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 $ 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.

As of September 30, 2022, the imputed effective rate of interest on the unamortized portion of the liability was approximately 20.6 % and the liability was $ 11.7 million and is reported in other long-term liabilities on the condensed consolidated balance sheets.

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

As of September 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.

The liability is recognized using significant unobservable inputs.

These inputs are derived using internal management estimates, based in part on external data when available, and reflect management’s judgements and forecasts.

The significant unobservable inputs include the forecasted revenues, the probability and timing of clinical and regulatory milestones, the expected term of the royalty stream, and the royalty rate as well as the overall probability of success.

These estimates are considered Level 3 fair value inputs.

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 six months ended June 30, 2022 (in thousands):

The liability is recognized at fair value using significant unobservable inputs (Level 3 fair value inputs).

These inputs are derived using internal management estimates, based in part on external data when available, and reflect management’s judgements and forecasts updated on a quarterly basis.

The significant unobservable inputs include the forecasted revenues, the probability and timing of clinical and regulatory milestones, the expected term of the royalty stream, the royalty rate and the overall probability of success.

A significant change in these unobservable inputs could result in a material increase or decrease to the fair value of the liability.

To date there have not been any material changes resulting from changes in these unobservable inputs.

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

Beginning balance, January 1

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Interest accretion

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.

Ending balance, September 30

The Company incurred $ 0.5 million and $ 1.4 million in non-cash interest expense for the three and nine months ended September 30, 2022, respectively.

License and Collaboration Agreements

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(Taiho) (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

License and development services revenue

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenues recognized:

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Total collaboration and license revenues

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 June 30,

Six Months Ended June 30,

Revenue recognized in the period from:

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

Three Months Ended September 30,

Nine Months Ended September 30,

Amounts included in deferred revenue at the beginning of the period

Performance obligations satisfied in a previous period

Gilead Sciences, Inc.

In May 2020, the Company entered into the Gilead Collaboration Agreement, Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement, (collectively, the Gilead Agreements), each with Gilead.

Upon closing in July 2020, Gilead made an upfront payment of $ 175 million pursuant to the Gilead Collaboration Agreement and made an equity investment of approximately $ 200 million in the Company by purchasing 5,963,029 shares of Arcus common stock at a per share price of $ 33.54 pursuant to the Stock Purchase Agreement.

In November 2021, the Company and Gilead entered into an amendment to the Gilead Collaboration Agreement (the Amended Gilead Collaboration Agreement), under which Gilead exercised its options to three programs for a total option payment of $ 725 million that was received in January 2022.

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 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).

Pursuant to the terms of the Gilead Collaboration Agreement, as amended, Gilead obtained exclusive licenses to zimberelimab, domvanalimab, AB308, etrumadenant, and quemliclustat, and time-limited exclusive options to all of the Company’s current and future clinical programs during the 10 -year collaboration term and, for those programs that enter clinical development prior to the end of the collaboration term, for up to an additional three years thereafter.

Gilead's option rights to future programs are contingent upon Gilead’s payments of up to $ 300 million in option continuation payments, consisting of a $ 100 million payment due at Gilead's option on each of the fourth, sixth, and eighth anniversaries of the agreement.

In May 2020, the Company and Gilead entered into the Gilead Collaboration Agreement, Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement, (collectively, the Gilead Agreements).

Upon closing in July 2020, Gilead made an upfront payment of $ 175.0 million pursuant to the Gilead Collaboration Agreement and purchased 5,963,029 shares of Arcus common stock for approximately $ 200.0 million by paying $ 33.54 per share pursuant to the Stock Purchase Agreement.

In November 2021, the Company and Gilead entered into an amendment to the Gilead Collaboration Agreement (the Amended Gilead Collaboration Agreement), under which Gilead exercised its options to three programs for a total payment of $ 725.0 million that was received in January 2022.

In connection with Gilead’s exercise of its options to these 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 $ 100.0 million option continuation payment that was otherwise due on the second anniversary of the Gilead Collaboration Agreement.

In October 2022, the Company and Gilead entered into an amendment to the Investor Rights Agreement (the Amended Investor Rights Agreement), that primarily extended the two-year lockup period to three-years .

As of September 30, 2022, Gilead had obtained licenses to domvanalimab and AB308 (collectively, the anti-TIGIT program), etrumadenant and quemliclustat (collectively, the adenosine pathway programs), and zimberelimab.

Under the terms of the Amended Gilead Collaboration Agreement, Gilead obtained exclusive licenses to zimberelimab, domvanalimab, AB308, etrumadenant, and quemliclustat, and time-limited exclusive options to all of the Company’s current and future clinical programs during the 10 -year collaboration term and, for those programs that enter clinical development prior to the end of the collaboration term, for up to an additional three years thereafter.

Gilead's opt-in rights to future programs are contingent upon option continuation payments of up to $ 300.0 million, consisting of a $ 100.0 million payment due on each of the fourth, sixth, and eighth anniversaries of the agreement.

Gilead's option, on a program-by-program basis, will expire after a prescribed period, following the achievement of a clinical development milestone in such program and the Company's delivery to Gilead of the requisite data package.

Gilead may exercise its option to any program at any time prior to expiration of the option, and will pay the Company an option fee of $ 150 million per program.

Gilead may exercise its option to any program at any time prior to expiration of the option, and will pay the Company an option fee of

$ 150.0 million per program.

Gilead has exercised its option to all of the clinical programs in existence at the date of the 2020 agreement, and the Company may not exercise its opt-out rights for any of these programs.

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regulatory approval milestones.

Gilead was also granted option rights to two research programs for which the Company will lead discovery and early development activities.

Under the Amended Gilead Collaboration Agreement, Gilead also has option rights to two research programs for which the Company will lead discovery and early development activities.

With respect to these two research programs, Gilead has the right to exercise its option, on a program-by-program basis, either (i) upon the Company's completion of certain IND-enabling activities for an option payment of $ 60.0 million or (ii) following the achievement of a clinical development milestone for an option payment of $ 150.0 million.

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.

The Company’s assessment of the transaction price 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 $ 725.0 million, as well as amounts totaling $ 165.1 million deferred from the original Gilead transaction, which excluded the $ 100.0 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 $ 725.0 million in January 2022 per the terms of the amendment.

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Domvanalimab R&D activities

Zimberelimab R&D and commercial services

Zimberelimab R&D and commercial activities

Access rights related to the Company's research

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Material rights to option continuation periods

Upon closing of Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs for the joint development program, subject to opt-out rights of the Company applicable to certain programs, and expense caps on the Company’s spending and related subsequent adjustments.

After Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs for such joint development program, subject to opt-out rights of the Company applicable to certain programs, and expense caps on the Company’s spending and related subsequent adjustments.

For each optioned program, provided the Company has not exercised its opt-out rights (if applicable), the Company has an option to co-promote in the United States with equal sharing of related profits and losses.

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 $ 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

Pursuant to the Stock Purchase Agreement, Gilead has the right, at its option, to purchase additional shares from the Company, up to a maximum of 35 % of the Company’s then-outstanding voting common stock, from time to time over five years from closing of the initial transaction, at a purchase price equal to the greater of a 20 % premium to market (based on a trailing five-day average closing price) at the time Gilead exercises such option, and the $ 33.54 initial purchase price.

The Investor Rights Agreement also includes a three-year standstill and a two-year lockup and provides Gilead with registration rights commencing at the end of the lockup period, pro rata participation rights in certain future financings and the right to designate two individuals to be appointed to the Company’s Board of Directors.

In the year ended December 31, 2020, Gilead made an equity investment of approximately $ 200 million in the Company by purchasing 5,963,029 shares of the Company's common stock at a per share price of $ 33.54 pursuant to the Stock Purchase Agreement.

Of the $ 200 million equity investment, approximately $ 90.6 million was determined to be a premium on the purchase of common stock and allocated to the performance obligations created by the Gilead Collaboration Agreement.

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.

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 anti-TIGIT and the adenosine pathway 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.

Under the Stock Purchase Agreement, Gilead has the option to purchase additional shares from the Company, up to a maximum of 35 % of the Company’s then-outstanding voting common stock, over a five-year period from closing of the initial transaction, at a purchase price equal to the greater of a 20 % premium to market (based on a trailing five-day average closing price) at the time Gilead exercises such option, and the $ 33.54 initial purchase price.

The Amended Investor Rights Agreement also includes a three-year standstill and a three-year lockup, pro rata participation rights in certain future financings, and the right to designate two individuals to be appointed to the Company’s Board of Directors.

In the year ended December 31, 2020, Gilead made an equity investment of approximately $ 200.0 million in the Company by purchasing 5,963,029 shares of the Company's common stock at $ 33.54 per share pursuant to the Stock Purchase Agreement.

Of the $ 200.0 million equity investment, approximately $ 90.6 million was determined to be a premium on the purchase of common stock and allocated to the

performance obligations created by the Gilead Collaboration Agreement.

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 the Company's common stock at $ 27.50 per share in the May 2020 public offering.

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.

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See Note 12 for further discussion of the agreements with Gilead.

The Company evaluated the agreements with Gilead under ASC 808 and ASC 606 and determined that the licenses to zimberelimab and domvanalimab, and access rights related to the Company's research and development pipeline, were within the scope of ASC 606 because Gilead meets the definition of a customer with respect to those performance obligations.

The Company evaluated the agreements with Gilead under ASC Topic 808, Collaborative Arrangements (ASC 808) and ASC Topic 606, Revenue from Contracts with Customers (ASC 606) and determined that the licenses to zimberelimab and domvanalimab, and access rights related to the Company's research and development pipeline, were within the scope of ASC 606 because Gilead meets the definition of a customer with respect to those performance obligations.

The Company had $ 485.9 million and $ 559.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this collaboration at September 30, 2022 and December 31, 2021, respectively, allocated between current and noncurrent based on the expected timing of future recognition.

During the three and nine months ended September 30, 2022, the Company recorded revenues of $ 32.1 million and $ 73.3 million, respectively, from this collaboration.

Total revenues recognized during these periods include cumulative catch-up revenue of $ 8.9 million and $ 13.1 million, respectively, due to changes in total estimated effort to be incurred in the future to satisfy the performance obligations, primarily related to revised clinical trial assumptions for zimberelimab R&D and commercial activities.

This cumulative catch-up reduced net loss per share in the three and nine months ended September 30, 2022, by $ 0.12 and $ 0.18 , respectively.

During the three and nine months ended September 30, 2021, the Company recorded revenues of $ 7.7 million and $ 23.1 million, respectively.

The Company accounted for each performance obligation as follows:

Zimberelimab license

Effective on the July 2020 closing of the Gilead Collaboration Agreement, Gilead obtained an exclusive license to zimberelimab.

Under the Gilead Collaboration Agreement, Gilead obtained an exclusive license to zimberelimab.

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

The Company recognized the full amount associated with this distinct performance obligation in license revenue on the date the transaction closed.

The Company recognized the full amount associated with this distinct performance obligation in license revenue on the date the transaction closed in July 2020.

Domvanalimab option and license

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Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 36.7 million of deferred revenue on its 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 domvanalimab.

Under the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to domvanalimab in December 2021.

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 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).

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 R&D activities 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.

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

and (ii) the ongoing R&D activities 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 R&D activities.

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.

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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.

Under the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to etrumadenant in December 2021.

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 highly 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.

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

Accordingly, transaction price allocated to this license is recognized as revenue as the related R&D activities are performed.

The Company determined that it retains obligations to perform further R&D

activities for Gilead related to etrumadenant.

The standalone selling price of this obligation was determined using an expected cost-plus margin approach.

The Company will recognize the amounts allocated to the combined license and 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.

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 $ 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.

The Company will recognize the amounts allocated to the combined license and R&D activities as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

The Company determined that its performance of the R&D activities commenced January 1, 2022.

The Company recognized $ 2.3 million and $ 20.5 million in license and development services revenue associated with these obligations for the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the Company had $ 198.2 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

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Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had no deferred revenue on its consolidated balance sheets related to this performance obligation.

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

The Company determined that it retains obligations to perform further R&D activities for Gilead related to quemliclustat.

The standalone selling price of this obligation was determined using an expected cost-plus margin approach.

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 will recognize the amounts allocated to these R&D activities as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

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

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 highly 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 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.

The Company further evaluated the delivery of the license, noting that it was combined with the R&D activities required under the agreements due to the expertise and the highly specialized nature of the Company's know-how.

Accordingly, transaction price allocated to this license is recognized as revenue as the related R&D activities are performed.

The Company determined that its performance of the R&D activities commenced January 1, 2022.

The Company recognized $ 12.7 million and $ 16.4 million in license and development services revenue associated with these obligations for the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the Company had $ 159.2 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

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

The Company determined that it retains separate obligations to perform further R&D activities for Gilead related to domvanalimab.

The standalone selling price of this obligation was determined using an expected cost-plus margin approach.

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.

The Company determined that its performance of the R&D activities commenced as of January 1, 2022.

The Company recognized $ 0.2 million and $ 2.4 million in license and development services revenue associated with these obligations in the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the Company had $ 32.2 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

The Company determined that it retains an obligation to perform further development and commercialization services for Gilead related to zimberelimab monotherapy.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 9.7 million deferred revenue on its consolidated balance sheets, related to the two performance obligations.

The standalone selling price of this obligation was determined using an expected cost-plus margin approach.

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.

The Company determined that it retained an obligation to perform further R&D and commercialization activities for Gilead related to zimberelimab monotherapy.

Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $ 9.7 million of deferred revenue on its consolidated balance sheets, related to the two performance obligations.

The standalone selling price of this obligation was determined using an expected cost-plus margin approach, and revenue allocated to these R&D activities would be recognized as the performance obligation was satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

The Company determined that its performance of the R&D activities had commenced in 2021.

The Company recognized $ 8.5 million and $ 9.1 million in license and development services revenue associated with these obligations in the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the Company had $ 1.0 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.

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

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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.

The Company recognized $ 8.3 million and $ 24.9 million in other collaboration revenues associated with these obligations in the three and nine months ended September 30, 2022, respectively.

The Company recognized $ 7.7 million and $ 23.1 million in other collaboration revenues associated with these obligations in the three months and nine months ended September 30, 2021, respectively.

At September 30, 2022, the Company had $ 95.3 million in deferred revenue on its consolidated balance sheets related to this performance obligation, classified as current based on the expected timing of future recognition.

Cost-sharing reimbursements

The Company's research and development obligations under the Gilead Collaboration Agreement includes a 50/50 share of the joint development costs associated with optioned programs.

Payments received from Gilead for their share of costs incurred will be recognized as a reduction of R&D expense or G&A expense depending on the type of expense reimbursed.

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 $ 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.

The Company's research and development obligations under the Gilead Collaboration Agreement includes a 50/50 share of the joint development costs associated with optioned programs pursuant to an approved R&D plan and budget.

Payments received from Gilead for their share of costs incurred will be recognized as a reduction of R&D expense or G&A expense depending on the type of reimbursable expense.

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 reimbursable cost.

The Company recognized net reductions of operating expenses totaling $ 27.1 million and $ 93.4 million during the three and nine months ended September 30, 2022, respectively, as a result of this cost-sharing provision.

The Company recognized net reductions of operating expenses totaling $ 0.8 million and $ 6.9 million during the three and nine months ended September 30, 2021, respectively, as a result of this cost-sharing provision.

Capitalized costs to obtain contract

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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 $ 0.2 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.

The Company recognized $ 0.2 million and $ 0.6 million in expense related to these capitalized costs during the three and nine months ended September 30, 2022, respectively.

The Company recognized $ 0.1 million and $ 0.3 million in expense related to these capitalized costs during the three months and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the Company had $ 4.3 million in capitalized costs to obtain the contract, of which $ 0.9 million was recorded in prepaid expenses and other current assets and $ 3.4 million was recorded in other long-term assets.

Taiho Pharmaceutical Co., Ltd

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) under which Taiho obtained exclusive options to Arcus programs arising over a five-year period ending September 2022 (the Option Period).

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) under which Taiho obtained exclusive options to Arcus programs that arose over a five-year period which ended September 2022 (the Option Period).

Consistent with the terms of the Taiho Agreement, Taiho retains an option to certain programs developed during the Option Period.

If Taiho timely exercises its option, Taiho obtains exclusive development and commercialization rights to investigational products from such Arcus Program for Japan and certain other territories in Asia (excluding China) (the Taiho Territory).

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Upon exercise Taiho is solely responsible for continued development and commercialization in the Taiho Territory.

In addition, the Taiho Agreement provides that the Company is eligible to receive additional clinical and regulatory milestones totaling up to $ 130.0 million per Arcus Program, and it will be eligible to receive contingent payments of up to $ 145.0 million per Arcus Program associated with the achievement of specified levels of Taiho net sales in the Taiho Territory.

In addition, the Taiho Agreement provides that the Company is eligible to receive additional clinical and regulatory milestones totaling up to $ 130.0 million per Arcus Program,

and it will be eligible to receive contingent payments of up to $ 145.0 million per Arcus Program associated with the achievement of specified levels of Taiho net sales in the Taiho Territory.

In addition, the Company will receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory.

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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 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 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.

Accordingly, the transaction price of $ 35.0 million was recognized in other collaboration revenues using this input method over the estimated performance period of five years which ended in September 2022.

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.

2 unchanged sentences

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

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.

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

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

As of September 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 September 30, 2022 and December 31, 2021, the Company had zero and $ 5.0 million, respectively, in deferred revenue 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 June 30, 2022, the Company has made upfront and milestone payments of $ 41.0 million and incurred sub-license fees of $ 11.3 million.

The Company entered into a license agreement (the WuXi PD-1 Agreement) with WuXi Biologics in August 2017, as subsequently amended, in which the Company 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 September 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 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.

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

During the three and nine months ended September 30, 2021, the Company incurred zero and $ 10.0 million, respectively, 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 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.

From the inception of the WuXi CD39 Agreement through September 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 nine months ended September 30, 2022, respectively.

The Company incurred no development milestone expense under the WuXi CD39 Agreement during the three and nine months ended September 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.

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.

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

From the inception of the Abmuno Agreement through September 30, 2022, the Company has made upfront and milestone payments totaling $ 14.6 million as of September 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 September 30, 2022.

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

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

AstraZeneca Agreement

In October 2020 the Company announced a collaboration with AstraZeneca to evaluate domvanalimab, the Company’s investigational anti-TIGIT antibody, in combination with AstraZeneca’s Imfinzi (durvalumab) in a registrational Phase 3 clinical trial in patients with unresectable Stage III non-small cell lung cancer (NSCLC), which study the parties refer to as PACIFIC-8.

In October 2020 the Company announced a collaboration with AstraZeneca to evaluate domvanalimab, the Company’s investigational anti-TIGIT antibody, in combination with AstraZeneca’s Imfinzi (durvalumab) in a registrational Phase 3 clinical trial in patients with unresectable Stage III NSCLC, which study the parties refer to as PACIFIC-8.

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

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

AstraZeneca 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 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.

From the inception of the agreement through September 30, 2022, the Company has incurred gross expense of $ 3.7 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 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.

At September 30, 2022 the Company had recognized a receivable of $ 1.9 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 nine months ended September 30, 2022, the Company incurred expenses pursuant to the AstraZeneca Agreement of $ 1.1 million and $ 2.7 million, respectively, before expected recoveries from its cost-sharing agreement with Gilead.

For the three and nine months ended September 30, 2021, the Company incurred expenses pursuant to the AstraZeneca Agreement of $ 0.3 million and $ 0.6 million, respectively, 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 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 Company did no t record a provision for income taxes for the three months ended September 30, 2022 and 2021.

The Company’s provision for income taxes was $ 1.0 million and zero for the nine months ended September 30, 2022 and 2021, respectively, with an effective tax rate of - 0.5 % 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 June 30, 2022 and December 31, 2021, the Company has provided a valuation allowance against U.S.

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

federal and state deferred tax assets.

2 unchanged sentences

The Company recognizes interest and penalties associated with uncertain tax benefits as part of the income tax provision.

To date, the Company has not recognized any interest and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

To date, the Company has not recognized

any interest and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 ("The Inflation Act") into law.

The Inflation Act contains tax measures, including a corporate alternative minimum tax of 15 % on some large corporations and an excise tax on stock buy-backs.

The various provisions of the Inflation Act do not have a material impact on the Company's condensed consolidated financial statements.

The Company is subject to taxation in the U.S.

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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 June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted-average common shares outstanding

weighted-average common shares subject to vesting

Weighted-average common shares used to compute basic and diluted

net loss per share

weighted-average common shares

subject to vesting

Weighted-average common shares used to

compute basic and diluted net loss per share

Net loss per share:

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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:

As of June 30,

As of September 30,

Common stock options issued and outstanding

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Unvested early exercised common stock options

Unvested restricted common stock issued as

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

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

Related parties

Relationship and transactions with Gilead

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

As of September 30, 2022, Gilead held approximately 19.1 % 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 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 .

At September 30, 2022, the Company had a $ 26.5 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

At September 30, 2022, the Company had a $ 1.9 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 $ 103.3 million in deferred revenue, current and $ 382.6 million in deferred revenue, noncurrent recorded on its condensed consolidated balance sheets at September 30, 2022.

For the three and nine months ended September 30, 2022, the Company recognized $ 32.1 million and $ 73.3 million, respectively, in revenue under the Gilead Collaboration Agreement.

For these periods, the Company also recognized net reductions in operating expenses totaling $ 27.1 million and $ 93.4 million, respectively.

For the three and nine months ended September 30, 2021 the C ompany recognized $ 7.7 million and $ 23.1 million, respectively, in revenue under the Gilead Collaboration Agreement.

For these periods, the Company also recognized net reductions in operating expenses totaling $ 0.8 million and $ 6.9 million, respectively .

The Company received a $ 175.0 million upfront payment from Gilead upon closing of the Gilead Collaboration Agreement in July 2020.

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In January 2022, the Company received $ 725.0 million in option exercise payments from Gilead.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Fin ancial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the U.S.

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Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.”

We are a clinical-stage biopharmaceutical company focused on creating best-in-class cancer therapies.

Using our robust and highly efficient drug discovery capability, we have now advanced six investigational products into clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in two Phase 3 registrational studies, with others in planning.

Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated combination therapies, which we are developing to treat multiple large tumor types including lung, colorectal, prostate and pancreatic cancers.

We are a clinical-stage, global biopharmaceutical company focused on developing differentiated molecules and combination therapies for people with cancer.

Using our robust and highly efficient drug discovery capability, we have now advanced six investigational products into clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies, with others in planning.

Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated combination therapies, which we are developing to treat prevalent cancers including lung, colorectal, prostate and pancreatic cancers.

We expect our clinical-stage portfolio to continue to expand and to include molecules targeting both immuno-oncology and cancer cell-intrinsic pathways.

Our vision is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients.

Our goal is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients.

In May 2020, we entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement) with Gilead Sciences, Inc.

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In 2017, we entered into an Option and License Agreement (Taiho Agreement) with Taiho Pharmaceutical Co., Ltd.

(Taiho) pursuant to which Taiho has time-limited options to exclusively license the development and commercialization rights to each of our programs for Japan and certain other territories in Asia (excluding China).

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 lock-up and the right to designate two individuals to be appointed to our Board of Directors.

(Taiho) pursuant to which Taiho was granted time-limited options to exclusively license the development and commercialization rights to each of our programs that arose over a five-year period, which ended in September 2022, for Japan and certain other territories in Asia (excluding China).

Taiho has exercised its option rights to our adenosine receptor antagonist program (including etrumadenant), our anti-PD-1 program (including zimberelimab), and our anti-TIGIT program (including domvanalimab and AB308), and retains option rights to the other programs that arose during the five-year period.

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, as amended, provides for a three-year standstill, three-year lockup and the right to designate two individuals to be appointed to our Board of Directors.

Gilead currently owns approximately 19.1% of our outstanding common stock.

We currently have six investigational products in clinical development:

Domvanalimab (previously referred to as AB154), our Fc-silent anti-TIGIT monoclonal antibody, is being evaluated in combination with zimberelimab with or without etrumadenant vs.

zimberelimab monotherapy in ARC-7, our randomized, 150-patient Phase 2 trial in first-line metastatic PD-L1≥50% non-small cell lung cancer (NSCLC).

In 2021, we initiated ARC-10, our first registrational trial evaluating domvanalimab in combination with zimberelimab and zimberelimab monotherapy vs.

chemotherapy in this same setting.

Domvanalimab (previously referred to as AB154), our Fc-silent anti-TIGIT monoclonal antibody, is being evaluated in multiple studies.

ARC-7 is a randomized, 150-patient Phase 2 trial in first-line metastatic PD-L1≥50% non-small cell lung cancer (NSCLC) in which we are studying domvanalimab in combination with zimberelimab and with or without etrumadenant vs.

zimberelimab monotherapy.

In 2021, we initiated ARC-10, our first registrational trial, which is now evaluating domvanalimab in combination with zimberelimab vs.

a currently approved standard-of-care, pembrolizumab, in the same setting as ARC-7.

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 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.

In the third quarter of 2022, Gilead initiated STAR-121, a registrational Phase 3 study to evaluate domvanalimab and zimberelimab plus chemotherapy versus pembrolizumab plus chemotherapy in 1L NSCLC PD-L1 all-comers.

We have also initiated STAR-221, a registrational Phase 3 study to evaluate domvanalimab plus zimberelimab and chemotherapy versus nivolumab plus chemotherapy in first-line locally advanced unresectable or metastatic gastric, esophageal and gastro-esophageal junction adenocarcinomas.

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

In 2021, we completed the dose escalation portion of the study and are now enrolling five expansion cohorts which are designed to generate data to support the future development of AB308 and further development planning for both domvanalimab and AB308.

In 2021, we completed the dose escalation portion of the study and are now enrolling two expansion cohorts to support further development planning for domvanalimab.

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 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 the second half of 2022.

In the third quarter of 2022, we began initiating EDGE-Lung, a Phase 2 platform study to evaluate domvanalimab-, quemliclustat-, and zimberelimab-based combinations in NSCLC.

We expect to initiate one or more cohorts with quemliclustat-based combinations in gastrointestinal (GI) cancers in the ongoing ARC-21 study, a Phase 2 study evaluating combinations domvanalimab and zimberelimab-based combinations in upper gastric cancers.

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

We are currently evaluating zimberelimab, either alone or in combination with other agents across several tumor types, including non-small cell lung cancer in ARC-7, our Phase 2 trial, and ARC-10, our registrational trial which is designed to support the approval of zimberelimab.

AB521, our HIF-2α

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COVID-19 Pandemic

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.

We continue to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business.

While we are not experiencing financial impacts at this time, given the changes in global macroeconomic conditions, the overall disruption of global healthcare systems, potential limitations to the efficacy of vaccines for COVID-19, the evolution of multiple variants of the virus and other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

We continue to closely monitor the COVID-19 situation as we evolve our business continuity plans and response strategy.

We conduct our clinical trials in the U.S.

and internationally in geographic regions that are impacted by COVID-19 to varying degrees.

While we have seen relatively robust enrollment in most of our ongoing Arcus-sponsored studies, disruptions caused by the COVID-19 pandemic will continue to impact our ability to initiate, supply, enroll, conduct or complete our ongoing or planned clinical trials.

For example, in the first half of 2020, the pandemic led to a decline in screening, diagnosis and treatment for cancer patients.

While cancer screening rates have rebounded, resurgences due to new variants may cause patients to delay screening and treatment for fear of exposure to COVID-19, thereby adversely impacting the enrollment of patients in clinical trials targeting early-stage cancers and retention of patients overall in our trials.

At times, investigative sites have needed to divert resources away from our studies in order to respond to the ongoing health crisis, hindering their ability to conduct study assessments and report data.

Patient safety remains our paramount concern and we continue to collaborate with our existing and with new investigational sites to implement measures to minimize disruptions to patients and ensure continued access to treatment, in accordance with health authority guidance.

We are unable to predict the ultimate impact of this pandemic on our ongoing and planned clinical programs.

While we have seen relatively robust enrollment in most of our ongoing Arcus-sponsored studies, depending on the evolving impacts of the ongoing COVID-19 pandemic, disruptions caused by the COVID-19 pandemic may impact our ability to initiate, supply, enroll, conduct or complete our ongoing or planned clinical trials.

With respect to manufacturing and supply, our third-party contract manufacturers continue to operate at or near normal levels.

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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 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.

The COVID-19 pandemic continues to evolve and future developments, which are unpredictable, may result in a material, negative impact to our operations and financial condition.

For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and operations, see the section titled “Risk Factors”

under Part II, Item 1A in this Quarterly Report on Form 10-Q.

Components of Operating Results

Collaboration and License Revenue

Our collaboration and license revenue consists of revenue recognized from the nonrefundable upfront payments received from Gilead and Taiho, for licenses or research and development services performed by us to develop our investigational products under the terms of our collaboration agreements, and from any option exercise payments.

We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future.

All revenue recognized to date has been through research, collaboration and license arrangements with strategic partners.

License and Development Services Revenue

Our license and development services revenue consists of amounts recognized from the portions of the nonrefundable upfront and milestone payments received from Gilead and Taiho and allocated to performance obligations for licenses or R&D activities performed by us as we develop our investigational products under the terms of our collaboration agreements.

License and development services revenues are recognized based upon the timing of the delivery of a license or service if delivery is complete, or based on estimates of each performance obligation's percentage of completion at the period end if it is still in process.

We calculate percentage of completion as a ratio of effort incurred to date on each performance obligation to the total estimated effort to be incurred to satisfy that performance obligation.

Other Collaboration Revenue

Other collaboration revenue consists of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to the customer's access to our investigational pipeline over the collaboration period.

Other collaboration revenues are recognized throughout the collaboration period.

Operating Expenses

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In particular, with respect to internal costs, several of our departments support multiple research and development programs, and we do not allocate those costs by investigational product.

In December 2021, Gilead obtained rights to four of our investigational products:

domvanalimab, etrumadenant, quemliclustat and AB308, for which we subsequently received a total of $725 million in option exercise payments.

The level of our future research and development investment will depend on a number of factors and uncertainties, including the breadth of the joint development program agreed to with Gilead for the optioned programs, the outcome of our efforts, and the amount of cost reimbursements or milestone payments we receive from our collaborators.

We expect our research and development expenses to increase substantially during the next few years as we pursue joint development programs with Gilead for our five optioned molecules and advance these programs towards regulatory approval.

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As a result, we expect our preclinical, clinical, and contract manufacturing expenses to increase significantly relative to what we have incurred to date.

In addition, under our license agreements with WuXi Biologics and Abmuno, and our co-development, collaboration, and research and development arrangements with AstraZeneca, BVF and Strata, we may be required to pay additional clinical and regulatory milestone payments based on the development progress of our investigational products.

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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 condensed 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 estimates are most important to understanding and evaluating our reported financial results.

Revenue Recognition

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We recognize revenue when our customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services.

For contracts with customers, we perform the following five steps:

For contracts with customers, we perform the following five steps to determine the amount and timing of revenue to recognize:

(i) identify the contract(s) with a customer;

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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.

We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time, and we measure the services delivered to the customer, which we periodically review based on the progress of the related program.

We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time, and we measure the services delivered to Gilead, which we periodically review based on the progress of the related program.

The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate.

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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 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.

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

For changes in estimates during the three and nine months ended September 30, 2022, see Results of Operations below.

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

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Results of Operations

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,

Three Months Ended September 30, 2022 and 2021

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

Three Months Ended September 30,

License and development service revenue

Other collaboration revenue

Total collaboration and license revenues

Total revenues

Operating expenses:

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* 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.

Revenues increased $24.1 million, from $9.5 million for the three months ended September 30, 2021 to $33.6 million for the three months ended September 30, 2022.

In the three months ended September 30, 2022, we recognized $23.7 million in license and development service revenues for all programs optioned by Gilead.

License and development service revenues included $8.9 million in revenues due to changes in the total estimated effort to be incurred in the future to satisfy the performance obligations, primarily driven by zimberelimab.

We further 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, as well as the final $1.5 million of other collaboration revenues under the Taiho Agreement.

In the three months ended September 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.

Research and development expenses increased $5.4 million, or 8%, from $71.3 million for the three months ended September 30, 2021 to $76.7 million for the three months ended September 30, 2022.

Our expanding clinical and development activities for domvanalimab and zimberelimab in combination studies drove increases of $14.7 million in manufacturing costs, as well as $6.7 million in clinical costs.

Our growing headcount and our 2022 stock awards drove an $8.5 million increase in employee compensation costs, including approximately $0.2 million of increased non-cash stock-based compensation.

The year over year increase in costs incurred to support our programs described above was partially offset by cost-sharing reimbursements, which increased to $26.6 million from $0.8 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.

General and administrative expenses increased $10.0 million, or 61%, from $16.3 million for the three months ended September 30, 2021 to $26.3 million for the three months ended September 30, 2022.

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

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We incurred an approximately $3.0 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.

We also incurred an increase of $1.6 million in consulting expenses incurred in corporate development 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.

Non-operating income, net increased $4.3 million, from $0.2 million for the three months ended September 30, 2021 to $4.5 million for the three months ended September 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,

Nine Months Ended September 30, 2022 and 2021

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

Nine Months Ended September 30,

License and development service revenue

Other collaboration revenue

Total collaboration and license revenues

Total revenues

Operating expenses:

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* Not meaningful

Collaboration and License Revenue

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.

Revenues increased $49.9 million, from $28.4 million for the nine months ended September 30, 2021 to $78.3 million for the nine months ended September 30, 2022.

In the nine months ended September 30, 2022, we recognized $48.4 million in license and development service revenues for all programs optioned by Gilead.

License and development service revenues included $13.1 million in revenues due to changes in the total estimated effort to be incurred in the future to satisfy the performance obligations, primarily driven by zimberelimab.

We further recognized $24.9 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 the final $5.0 million of other collaboration revenues under the Taiho Agreement.

In the nine months ended September 30, 2021, we recognized $23.1 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $5.3 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 $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.

Research and development expenses increased $1.4 million after reimbursements, or 1%, from $206.4 million for the nine months ended September 30, 2021 to $207.8 million for the nine months ended September 30, 2022.

Our expanding clinical and development activities for domvanalimab and zimberelimab in combination studies drove increases of $36.0 million in manufacturing costs and $28.4 million in clinical costs.

We incurred additional increases of $3.9 million in office facilities expense due to our expanding headcount and office space, and $3.3 million for consulting services compared to the same period in the prior year.

Our growing headcount and our 2022 stock awards drove a $27.6 million increase in employee compensation costs, including approximately $3.2 million of increased non-cash stock-based compensation.

The year over year increase in costs incurred to support our programs described below was offset by cost-sharing reimbursements, which increased to $92.7 million from $6.9 million in the same period in the prior year as we incurred qualified expenses on the four programs optioned by Gilead.

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

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.

In the nine months ended September 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.

General and Administrative Expenses

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.

General and administrative expenses increased $27.1 million, or 55%, from $49.0 million for the nine months ended September 30, 2021 to $76.1 million for the nine months ended September 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 $6.8 million increase in employee compensation costs, including approximately $3.0 million in increased

non-cash stock-based compensation.

We incurred an approximately

$10.6 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 $10.5 million increase in employee compensation costs, including approximately $4.6 million in increased non-cash stock-based compensation.

We also incurred an increase of $3.8 million in consulting expenses for corporate development activities.

Non-Operating Income, Net

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.

Non-operating income, net increased $6.5 million, from $0.5 million for the nine months ended September 30, 2021 to $7.0 million for the nine months ended September 30, 2022.

Income Tax Expense

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.

Income tax expense was $1.0 million for the nine months ended September 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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Sources of Liquidity

To date, we have financed our operations primarily through net proceeds of approximately $677.1 million from equity offerings and proceeds of approximately $1,381.4 million from our collaboration and stock purchase agreements, including the receipt of $725 million in option exercise payments from Gilead in January 2022.

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

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.

To date, we have financed our operations primarily from the sale of our equity securities and revenue through research, collaboration and license agreements with our strategic partners including Gilead.

We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates and ongoing internal research and development programs.

At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.

As of September 30, 2022, we had $1,191.9 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 $725.0 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash (used in) provided by:

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Net increase in cash, cash equivalents and restricted cash

Cash Provided by Operating Activities

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.

Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $507.7 million for the nine months ended September 30, 2022 compared to $194.1 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, resulting in the receipt of $725.0 million from Gilead in January 2022 and the increase in cost-sharing reimbursements to $93.4 million in the nine months ended September 30, 2022.

These receipts were partially offset by our net loss of $199.5 million, as well as year-over-year changes in non-cash items, including an increase of $7.8 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.

Cash Used in Investing Activities

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.

Cash used in investing activities was $459.8 million for the nine months ended September 30, 2022 compared to $22.8 million 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 $725.0 million received from Gilead in January 2022 in fixed income marketable securities.

Cash Provided by Financing Activities

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 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 six months ended June 30, 2022.

Cash provided by financing activities was $21.8 million for the nine months ended September 30, 2022 compared to $225.7 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 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.

There have been no material changes to our contractual obligations outside the ordinary course of business during the nine months ended September 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

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

We have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Quantitative and Qualitati ve Disclosures About Market Risk.

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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