Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (Exchange Act) reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of, this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020. Our assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated − Framework (2013).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
1.
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and
3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
118
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on our evaluation under the framework in Internal Control − Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm, Ernst & Young LLP, has audited our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and have issued a report on our internal control over financial reporting as of December 31, 2020. Their report on the audit of internal control over financial reporting appears below.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
119
Report of Independent Registered Accounting Firm
To the Stockholders and the Board of Directors of Arcus Biosciences, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Arcus Biosciences, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Arcus Biosciences, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 24, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Redwood City, California
February 24, 2021
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Item 9B. Othe r Information
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item will be set forth in our proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2020 (our “Proxy Statement”) and is incorporated into this Annual Report on Form 10-K by reference, specifically:
•
Information regarding our directors and any persons nominated to become a director, as well as with respect to some other required board matters, is set forth under Proposal 1 entitled “Election of Directors” and under “Corporate Governance.”
•
Information regarding our audit committee and our designated “audit committee financial expert” is set forth under the caption “Corporate Governance.”
•
Information regarding Section 16(a) beneficial ownership reporting compliance, if any, will be set forth under the caption “Delinquent Section 16(a) Reports.”
•
Information regarding procedures by which stockholders may recommend nominees to our board of directors is set forth under the caption “Nominating and Corporate Governance Committee” under “Corporate Governance.”
•
Information regarding our executive officers is set forth under “Executive Officers."
We have adopted a Code of Conduct and Ethics that applies to all directors, officers and employees of the Company, which is available on our website at www.arcusbio.com . If we make any substantive amendments to our Code of Conduct and Ethics or grant any waivers to our directors or executive officers, we will disclose it on our website or in a Current Report on Form 8-K.
Item 11. Executive Compensation
The information required by this Item will be set forth in our Proxy Statement under the captions “Executive Compensation,” “Compensation of Directors” and “Compensation Committee Interlocks and Insider Participation” and is incorporated into this Annual Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth in our Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” and is incorporated into this Annual Report on Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in our Proxy Statement under the captions “Related Person Transactions” and “Corporate Governance” and is incorporated into this Annual Report on Form 10-K by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item will be set forth in our Proxy Statement under the Proposal with the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated into this Annual Report on Form 10-K by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
(2)
Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3)
Exhibits.
See Exhibit Index following Item 16 below.
Item 16. Form 10-K Summary
None.
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Exhibit Index
Exhibit
Number
Exhibit Description
Incorporated by Reference
Form
File No
Exhibit
Filing Date
3.1
Amended and Restated Certificate of Incorporation .
10-Q
001-38419
3.1
May 9, 2018
3.2
Amended and Restated Bylaws.
8-K
001-38419
3.1
May 26, 2020
4.1
Reference is made to Exhibits 3.1 and 3.2
4.2
Investor Rights Agreement.
S-1
333-223086
4.1
February 16, 2018
4.3*
Description of Common Stock.
10.1 A
Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
S-1
333-223086
10.1
February 16, 2018
10.2 A
Arcus Biosciences, Inc. 2015 Stock Plan and forms of agreements thereunder.
S-1/A
333-223086
10.2
March 5, 2018
10.3 A
Arcus Biosciences, Inc. 2018 Equity Incentive Plan (including form agreements for use before January 1, 2021).
S-1/A
333-223086
10.3
March 5, 2018
10.4 A
Arcus Biosciences, Inc. 2018 Employee Stock Purchase Plan.
S-1/A
001-38419
10.4
March 5, 2018
10.5 A
Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Terry Rosen, Ph.D.
S-1
333-223086
10.5
February 16, 2018
10.6 A
Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Juan Carlos Jaen, Ph.D.
S-1
333-223086
10.6
February 16, 2018
10.8
Lease, dated September 30, 2015, between the Registrant and Hayward Point Eden I Limited Partnership, as amended on July 22, 2016 and October 12, 2017.
S-1
333-223086
10.8
February 16, 2018
10.9 B
License Agreement, dated December 8, 2016, between the Registrant and Abmuno Therapeutics LLC.
S-1
333-223086
10.10
February 16, 2018
10.10 B
License Agreement, dated August 16, 2017, between the Registrant and WuXi Biologics (Cayman) Inc.
S-1
333-223086
10.11
February 16, 2018
10.11 B
Option and License Agreement, dated September 19, 2017, between the Registrant and Taiho Pharmaceutical Co., Ltd.
S-1
333-223086
10.12
February 16, 2018
10.12 A
Arcus Biosciences, Inc. Management Cash Incentive Plan.
S-1
333-223086
10.13
February 16, 2018
10.13 A
Form of Severance and Change in Control Agreement (for use before September 24, 2018).
S-1
333-223086
10.14
February 16, 2018
10.14 B
Amendment No. 1 to Option and License Agreement, dated September 19, 2017, between Arcus Biosciences, Inc. and Taiho Pharmaceutical Co, Ltd.
10-Q
001-38419
10.1
November 8, 2018
10.15 A
Form of Severance and Change in Control Agreement (for use from September 24, 2018)
10-Q
001-38419
10.2
November 8, 2018
10.16 A
Separation and Consulting Agreement by and between the Company and Jennifer Jarrett dated January 3, 2019
10-K
001-38419
10.17
March 5, 2019
124
10.17 A
Offer Letter, dated March 16, 2019, between the Company and William Grossman
10-Q
001-38419
10.1
August 6, 2019
10.18 C
Amendment No. 1 dated June 27, 2019 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.
10-Q
001-38419
10.2
August 6, 2019
10.19 A
Offer Letter, dated May 20, 2019, between the Company and Jason Barker
10-Q
001-38419
10.1
November 5, 2019
10.20 A
Compensation Program for Non-Employee Directors (for use from March 21, 2019 until June 3, 2020).
10-K
001-38419
10.9
March 5, 2020
10.21 A
Amendment to Separation and Consulting Agreement dated December 4, 2019 by and between the Company and Jennifer Jarrett.
10-K
001-38419
10.24
March 5, 2020
10.22* A
Arcus Biosciences, Inc. Amended and Restated 2020 Inducement Plan.
10.23 A
Arcus Biosciences, Inc. Stock Option Grant Notice (2020 Inducement Plan) .
10-K
001-38419
10.26
March 5, 2020
10.24 A
Arcus Biosciences, Inc. Restricted Stock Unit Grant Notice (2020 Inducement Plan) .
10-K
001-38419
10.27
March 5, 2020
10.25 C
Amendment No. 2 dated March 2, 2020 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.
10-K
001-38419
10.28
March 5, 2020
10.26 A
Compensation Program for Non-Employee Directors (for use from June 4, 2020).
8-K
001-38419
10.1
June 5, 2020
10.27 C
Common Stock Purchase Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.
8-K
001-38419
99.1
July 13, 2020
10.28 C
Amended and Restated Common Stock Purchase Agreement dated January 31, 2021 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.
SC 13D/A
005-90423
99.1
February 2, 2021
10.29 C
Investor Rights Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.
8-K
001-38419
99.2
July 13, 2020
10.30 C
Option, License and Collaboration Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.
10-Q
001-38419
10.1
August 6, 2020
10.31
Third Amendment dated June 26, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.
10-Q
001-38419
10.4
August 6, 2020
10.32 A
Offer letter by and between Arcus Biosciences, Inc. and Robert C. Goeltz II dated June 30, 2020.
10-Q
001-38419
10.1
November 5, 2020
10.33 A
Offer letter by and between Arcus Biosciences, Inc. and Jennifer Jarrett dated September 10, 2020.
10-Q
001-38419
10.2
November 5, 2020
10.34
Fourth Amendment dated October 16, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.
10-Q
001-38419
10.3
November 5, 2020
10.35*
Assignment Agreement dated November 10, 2020 by and among Arcus Biosciences, Inc., WuXi Biologics (Cayman) Inc. and WuXi Biologics Ireland Limited to the License Agreement dated August 16, 2017.
125
10.36*
Form of Stock Option Notice and Agreement (2018 Equity Incentive Plan) for use from January 1, 2021.
10.37*
Form of RSU Notice and Agreement (2018 Equity Incentive Plan) for use from January 1, 2021.
21.1*
List of subsidiaries of the registrant.
23.1*
Consent of independent registered public accounting firm
24.1*
Power of Attorney (included on signature page to this Annual Report)
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)
*
Filed herewith.
A
Indicates management contract or compensatory plan or arrangement.
B
The Company has been granted confidential treatment for certain portions of this exhibit. The omitted portions have been filed separately with the Securities and Exchange Commission.
126
C
This exhibit omits information subject to confidential treatment.
†
This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
127
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized .
ARCUS BIOSCIENCES, INC.
Date: February 24, 2021
By:
/s/ Terry Rosen
Terry Rosen, Ph.D.
Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Terry Rosen, Ph.D. and Juan Carlos Jaen, Ph.D., and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Terry Rosen
Chief Executive Officer and Director
February 24, 2021
Terry Rosen, Ph.D.
(Principal Executive Officer)
/s/ Juan Carlos Jaen
President and Director
February 24, 2021
Juan Carlos Jaen, Ph.D.
/s/ Robert C. Goeltz II
Chief Financial Officer
February 24, 2021
Robert C. Goeltz II
(Principal Financial and Accounting Officer)
/s/ Kathryn Falberg
Director
February 24, 2021
Kathryn Falberg
/s/ Jennifer Jarrett
Director
February 24, 2021
Jennifer Jarrett
/s/ Yasunori Kaneko
Director
February 24, 2021
Yasunori Kaneko, M.D.
/s/ Patrick Machado
Director
February 24, 2021
Patrick Machado, J.D.
/s/ Antoni Ribas
Director
February 24, 2021
Antoni Ribas, M.D., Ph.D.
/s/ David Lacey
Director
February 24, 2021
David Lacey, M.D.
/s/ Merdad Parsey
Director
February 24, 2021
Merdad Parsey, M.D., Ph.D.
/s/ Andrew Perlman
Director
February 24, 2021
Andrew Perlman, M.D., Ph.D.
/s/ Michael Quigley
Director
February 24, 2021
Michael Quigley, Ph.D.
128